Laboratory Corporation of America Holdings (LH - Analyst Report) recently expanded its long-term alliance with Bristol-Myers Squibb Company (BMY - Analyst Report) by signing a new five-year agreement. Under this agreement, Bristol-Myers selected LabCorp Clinical Trials as a preferred provider for the company’s full-service global central laboratory services and biomarker testing. However, financial terms of the deal were not disclosed.
LabCorp remains hopeful about this new venture, which will likely bring further flexibility and integration in laboratory testing services. Thus, it is likely to support both the companies’ clinical development pipeline. Earlier, LabCorp’s global central lab, biomarker and specialty testing capabilities supported Bristol-Myers Squibb’s several early and late-stage clinical development programs.
Currently, LabCorp is striving to strengthen its foothold in the diagnostics space through both organic and inorganic means and is planning to collaborate with leading companies and academic institutions to provide a wider portfolio of tests. In an attempt to diversify its portfolio, earlier in 2012, LabCorp partnered Ariosa Diagnostics to offer the latter’s Harmony prenatal test, a non-invasive test for the detection of common fetal trisomies, utilizing cell-free DNA (cfDNA) in maternal blood. Furthermore, the company has completed the acquisition of Medtox Scientific, which will likely strengthen LabCorp’s foothold in specialized toxicology testing.
Some of the other acquisitions include Orchid Cellmark, DCL in Ind., Westcliff Medical Laboratories in Calif., where LabCorp has a limited presence, and Genzyme Genetics in the area of esoteric testing and personalized medicine business. The acquisition of Genzyme Genetics has expanded the company’s capabilities in reproductive, genetic, hematology, oncology and clinical trial, central laboratory testing.
Despite the near-term challenges from reimbursement issues, LabCorp is working on portfolio expansion to drive top line. The company is focusing more on the high-margin esoteric testing business. The company recorded approximately 40% of total revenues during the last reported quarter from the genomic, esoteric and anatomic pathology categories, which is expected to go up to 45% over the next 3−5 years. The esoteric volume during the fourth quarter increased 3.5% on the back of decent growth in specialized endocrinology and coagulation businesses, and cardiovascular and chronic kidney disease programs.
Given the continuous focus on portfolio expansion, we are confident about LabCorp garnering higher revenues from specialized testing, going forward. The stock carries a Zacks Rank #3 (Hold).
However, other stocks in the medical device sector, carrying a Zacks Rank #1 (Strong Buy), such as Medical Action Industries Inc. and Cyberonics Inc. appear impressive.