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LabCorp to Focus on Rx-Dx Alliances, M&A In 2008; 2007 Revenues Increase 13 Percent

Laboratory Corporation of America this year plans to increase revenues through drug-diagnostic partnerships and from acquisitions aimed at expanding its geographic reach and clinical capabilities.
In 2008, LabCorp aims to become the “leading clinical laboratory in the rapidly evolving field of personalized medicine,” CEO David King told investors during the company’s fourth-quarter earnings conference call. “Our intent here is to partner with pharmaceutical companies in developing diagnostics that will help to ensure that drugs are safe, effective, and correctly dosed for the people taking them.”
King made his comments during a call with investors announcing LabCorp’s financial results for the three months ended Dec. 31. The company reported that revenues for the fourth quarter of 2007 rose 11.9 percent to around $1 billion from the year-ago period, while full-year 2007 receipts swelled 13.3 percent to $4 billion year-over-year. King said LabCorp’s strategy in 2008 is to sustain that momentum. 
The company has already taken several strategic steps toward this goal. On Jan. 24, LabCorp announced it would acquire Tandem Labs, a bioanalytical and immunoanalytical contract research organization that helps pharmaceutical and biotechnology firms with clinical drug development programs. The agreement, under which LabCorp will acquire all of Tandem’s outstanding shares, is slated to close before the end of March. Tandem will fall under LabCorp’s clinical trials group Esoterix. [see PGx Reporter 01-30-2008].
A few days earlier the company penned an exclusive licensing agreement with Duke University Medical Center to commercialize a new blood-based assay for early detection of lung cancer.
“Although imaging technologies have improved abilities to detect lung cancer, this test can complement current diagnostic methods by stratifying patients who may require more aggressive follow-up treatment and monitoring,” King said.

“We remain interested in opportunities to make acquisitions that will expand or compliment our infrastructure, through new markets, patient service centers, and the like. At the same time, we remain very interested in strategic acquisitions like Tandem Labs that will enhance our presence, in key areas and [provide] opportunities … for long-term growth.”

LabCorp also said it plans to use Affymetrix’s GeneChip technology in a molecular cytogenetic service it will offer to US researchers. Late last month, LabCorp announced that customers can use its service to “correlate deletions, gains, and other chromosomal rearrangements with congenital diseases such as autism, mental retardation and development delay in children.”
This year will also see the launch of LabCorp 2010, a three-year initiative to drive the company’s growth by improving the company’s technologies, increasing efficiency through automation, and better supply chain management. “We are finalizing the schedule and financial measures of the 2010 project,” King said.
By focusing on Rx/Dx deals and improving its clinical capabilities, LabCorp is seeking to sustain the revenue and profit growth it garnered last year. For the three months ended Dec. 31, 2007, profits increased 10.4 percent to $114.4 million and rose 10.5 percent to $476.8 million for all of 2007, the company said. 
The company reported pre-tax restructuring and other special charges of $12.3 million during the fourth quarter that were “related primarily to the closure of underutilized facilities as well as costs related to our further reduction in our workforce, including the lab downsizing,” LabCorp CFO William Hayes said during the earnings call.
“We continue to take actions to ensure that our capacity and capabilities remain aligned with our volume and service requirements,” he added.
For full-year 2007, restructuring charges amounted to $50.6 million compared with $1 million in 2006. Hayes noted that in 2008, as the company looks to cut costs, “there likely will be similar restructuring charges.”
Testing volume recorded during the fourth quarter, measured by accessions, increased 11 percent and price increased 0.9 percent from the year-ago period. Year-over-year, testing volume increased 12.3 percent while prices increased 1 percent.
"Our entrance into new markets and our increased infrastructure provides us a solid platform for future growth," King said in a statement.
Aiming for ‘08 Milestones
At the beginning of the year, LabCorp announced a joint venture with Canada-based medical laboratory Gamma-Dynacare that will allow LabCorp to expand its laboratory services to physicians and patients in Ontario.
Factoring in this joint venture, LabCorp said that it expects 2008 revenues to grow between 13 percent and 14.3 percent over 2007. The company expects to have between $775 million and $800 million in operating cash flow. LabCorp does not provide quarterly guidance.
During the call, company officials highlighted several milestones that the company has already achieved this year: It has completed validation studies for a molecular estrogen receptor and progesterone receptor assay in breast cancer, and testing on this product is now available.
Additionally, LabCorp has made progress on the analytical and clinical validation of a prognostic signature assay, and officials told investors to expect the test on the market in mid- to late-2008.
By early 2009, LabCorp said that it would launch an ultra-high-density microarray based on the Affymetrix’ GeneChip technology. “LabCorp first offered comparative genome hybridization testing in 2005, and this enhanced test [based on the GeneChip] will offer unparalleled resolution for the detection of mental retardation, developmental delay, autism, and other clinically significant genetic changes,” King said.
According to Hayes, if the company has excess cash flow, it might use it for additional acquisitions. “We always factor in that we’re going to make some small acquisitions,” Hayes said. “We remain interested in opportunities to make acquisitions that will expand or compliment our infrastructure, through new markets, patient service centers, and the like.
“At the same time, we remain very interested in strategic acquisitions like Tandem Labs that will enhance our presence, in key areas and [provide] opportunities … for long-term growth,” he said.

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