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Covance Acquisition Accelerates LabCorp's Stake in CDx Space, CEO Says

NEW YORK (GenomeWeb) – With the recent completion of its $6.2 billion acquisition of Covance, Laboratory Corporation of America now seeks to broaden its companion diagnostics business, expanding its reach in new and existing therapeutic areas and leveraging the contract research organization's operational capabilities, according to LabCorp CEO David King.

By 2018, LabCorp estimates it will achieve approximately $100 million in incremental revenues in the CDx space, he added.

In particular, he noted that the deal moves LabCorp into disease areas in which the firm has not had a major presence, such as cardiology and neurological disorders, for companion diagnostics development, while further strengthening its position in other markets.

"That's where you'll see the growth opportunity," King told GenomeWeb this week. "It's in expanding the therapeutic areas of disease expertise and doing more collaborations around the development of actual IVD kits." 

While LabCorp has been in the CDx space for several years, it has historically focused on cancer. Among the tests it has developed are ones for use with Zelboraf (vemurafenib) for melanoma associated with BRAF mutations, and Tafinlar (dabrafenib) also for cancers associated with BRAF mutations. 

But with contract research organization Covance now in the fold, King said that LabCorp will be able to go after new therapeutic areas, and highlighted cardiovascular disease as one in which LabCorp will be able to leverage the CRO's experience. Heart disease, he said, could be a significant CDx growth opportunity with efforts to develop new drugs to manage the condition, including work around so-called "super statins" for people who don't respond to regular statins. 

"I'm sure there will be high demand for a demonstration of efficacy," for such medications, which can be significantly more expensive than regular statins, King said. 

He also pointed to infectious diseases as an opportunity. LabCorp is not new to developing CDx for such diseases — it developed a screening test for the HLA B5701 allele to identify patients who may be sensitive to Ziagen (abacavir) — and new high-cost drugs for hepatitis C that are starting to hit the market will likely result in a need for CDx to identify patients who respond to them. 

"The therapeutic advances in hepatitis C have been [such] that they'll be much more focused now on managing the expense of hepatitis C treatment," King said. 

Moving ahead, though, oncology will remain LabCorp's main focus in the CDx space, driven by the number of new drugs being developed that have associated biomarkers. King also said that developing companion diagnostics for cancer drugs requires a wide set of skills and expertise such as "anatomic pathology, immunohistochemistry, FISH, and molecular biology, all of which LabCorp and Covance, combined, have very strong expertise in."   

The CDx train 

LabCorp's plans to increase its presence in the CDx space comes as drug manufacturers increasingly are turning to omics technologies as part of the drug development process and healthcare providers try to implement personalized medicine approaches to diagnosing and treating patients. According to various sources, the global CDx market is estimated to reach as much as $8.7 billion by 2019. 

In LabCorp's Form 10-K for 2014 filed recently with the US Securities and Exchange Commission, the company highlights this growing space. While its CDx business has centered on clinical trials run by pharmaceutical collaborators, LabCorp said that CDx have moved into the commercial setting, including the use of such tests to determine the efficacy of drugs for an individual, to help physicians determine the correct dosage, and to reduce the risk of adverse events associated with a drug. 

It added in its SEC document that in 2006, there were 13 companion diagnostic tests available. By the end of 2014, that number grew to 113, with "many more" in the pipeline. 

LabCorp has targeted CDx as one of the top-three growth areas in which the firm anticipates it can outpace the market during the next several years, King told GenomeWeb. For rare diseases and cancer, where the cost of drugs are expensive, there will be greater pressure to develop a companion diagnostic along with the drug, he said. 

With "drugs that are going to cost $70,000 or $80,000 per administration, the payors are really going to start, in my mind, demanding greater evidence of efficacy," he said. "And the evidence of greater efficacy is going to come from … the genetic, genomic, or phenotypic characteristics of the patient that say the drug is going to work. And to me that's where companion diagnostics come in." 

LabCorp has about 30 potential CDx partner opportunities currently, though King declined to name the partners. Meanwhile, Covance's early clinical development business "has had a well-developed biomarker discovery function and … the partnerships that are in flight there, as well as the preferred provider agreements, are … what they're contributing to the mix," King said. He declined to name Covance's partners, but said that the preferred provider agreements are with "basically all of the top-20 pharma and biotech companies." 

He added that the combination of LabCorp and Covance creates an entity that can develop companion diagnostics starting "from preclinical to early stage, to late stage, to approval, to partnering with an IVD manufacturer if they want to do a kit, and then to commercialization. So … the complete range of expertise from the very early stages of pharmacology all the way to commercialization is a unique characterization that nobody else brings." 

Additionally, LabCorp brings the ability to identify and develop biomarkers, develop them into assays, and then validate them with FDA-compliant data, he added. 

King could not say how much of LabCorp or Covance's total revenues comprised CDx revenues. Of the $100 million in incremental revenues that the company anticipates by 2018, $60 million would come from between 50 and 200 new biomarker and development testing contracts each year, he said, and $40 million would come from the 30 potential CDx partner opportunities LabCorp already has in the pipeline. 

The company also estimates that an additional $30 million of incremental revenues could be generated if it is successful in winning one or two incremental Phase II trials each year. 

From an operational standpoint, King noted that as a CRO, Covance has experience managing clinical trials, opening potentially broader commercialization channels to LabCorp. 

Further, he said that Covance brings regulatory expertise, particularly with laboratory-developed tests. LabCorp has had "a terrific track record of success on the IVD partnership side," he said, and combining that with Covance's LDT background "will enhance both functions." 

Lastly, he said that Covance provides many services in support of drug launches that could prove important to LabCorp's companion diagnostic plans. As part of consulting services that it provides to drugmakers, Covance conducts market analysis, comparative-effectiveness, and health economic studies. 

"And when you think about the cost of drugs, [and] the value of companion diagnostics, that market access becomes a very valuable tool for adoption and reimbursement," King said. 

According to Canaccord Genuity analyst Mark Massaro, the potential financial reward to LabCorp could be sizeable. "With LabCorp's access to patient data, customer relationships, and lab infrastructure, we believe it has all the key components a pharmaceutical partner would desire in a CDx partner," he said in a research note earlier this month. 

In particular, he pointed to LabCorp's large database of patients who have been tested, and in a presentation made at an investment conference earlier this month, LabCorp made note of Covance's use of its database of non-small cell lung cancer patients in order to enroll patients in a clinical trial for a drug targeting EGFR mutations. 

"This is a key capability that Covance did not have prior to the union," Massaro told GenomeWeb this week. 

LabCorp's acquisition of Covance was a "significant strategic move" that could provide it with an opportunity to drive top-line growth in the coming years, Massaro said. Just as importantly the deal could position LabCorp as a major player in the CDx space, which he characterized as a lucrative, but difficult-to-penetrate market. 

"I see LabCorp now as a much more differentiated large reference lab than Quest Diagnostics," he said. 

Even with players such as Illumina, Roche, Thermo Fisher Scientific, Qiagen, and Myriad Genetics active in the CDx space, the combination of a large reference lab with a CRO puts LabCorp at an advantage over its competitors, Massaro said. 

"The union with Covance will likely just accelerate the pace of [LabCorp] winning [the companion diagnostic] business," he said.