After CRO spinoff, Labcorp sets 2nd-half focus on ‘robust’ M&A and partnership pipelines

After CRO spinoff, Labcorp sets 2nd-half focus on ‘robust’ M&A and partnership pipelines

Labcorp closed out the first half of the year with the spinoff of its clinical development business, which left the nest June 30 as a standalone, publicly traded CRO dubbed Fortrea.

To fill in the blank space now left behind by the CRO business, the clinical testing giant has set its sights on ramping up investments both in its own diagnostic innovations and in external acquisition targets.

During a call with investors to discuss the company’s second-quarter results, CEO Adam Schechter said, “We see strong momentum in the base business and are excited about the growth opportunities before us.”

“We are poised to leverage our deep science technology and innovative laboratory network to drive growth and to deliver superior solutions to our customers,” he continued. “We are also in a very strong position operationally to advance our laboratory business.”

Internally, those growth opportunities include the development of new diagnostics within Labcorp’s own portfolio. As an example of the types of new testing innovations that Labcorp could continue to churn out—which will span a range of disease areas, including cancer, Alzheimer’s and other conditions, per Schechter—the CEO pointed to the company’s recent launch of a liquid biopsy test for solid tumors and a plasma test for the Alzheimer’s-associated pTau-181 protein.

New tests like those will help Labcorp tap into the “significant opportunity” associated with adding to the company’s roster of healthcare partnerships, Schechter said, noting, “Our solutions can enable operational and financial efficiencies. They are making us a chief partner for hospitals and health systems as they execute on their precision medicine programs.”

Those partnerships center on a few key factors, such as Labcorp’s ability to provide its hospital partners with patient continuity, efficient information and technology offerings and reliable long-term support.

“The pipeline remains very strong. As I look at the pipeline of potential hospital deals, I’m excited about the opportunities before us,” Schechter said. “This is a significant area of focus for Labcorp, as I think it represents a tremendous growth opportunity.”

Meanwhile, externally, the company has also assembled a “robust pipeline” of potential acquisitions, the chief executive said. M&A is yet another “important opportunity for growth,” and Labcorp will continue to scope out regional laboratories and other potential acquisition targets that could add to its diagnostics capabilities, he said.

Much of Labcorp’s planned forward momentum will be fueled by the proceeds from the Fortrea spinout. Upon separating from its progenitor, Fortrea paid out $1.6 billion to Labcorp, the bulk of which will go toward an accelerated share repurchase program and to paying down $300 million in debt, according to Thursday’s second-quarter earnings report.

For the first half of the year, Labcorp reported revenues of nearly $6.1 billion, just $4 million above its haul at the same point last year. Its net earnings show a much more dramatic shift, however, with profits totaling $402 million after the first six months of 2023—less than half of the $851 million in net income that Labcorp had tallied a year prior.

The company attributed the slashed profits largely to the effects of reduced demand for COVID-19 tests; its coronavirus diagnostics saw a year-over-year revenue drop of more than 11% in the first half.

Even as Labcorp expects COVID revenues to continue that downward spiral—with a predicted slide of up to 89% by the end of the year—the company is still forecasting an overall win for 2023. Its updated full-year forecast maintained previous predictions that overall revenues will grow by at least 1.5% compared to last year, but bumped up its outlook for the base business: Labcorp is now planning to see an increase there of at least 11.3% and up to 12.6%, a solid jump from a quarter ago when the company assumed base business growth would max out at 11%.

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