Agreement for LabCorp - Analyst Blog

Recently, Laboratory Corporation of America (LH) entered into a collaboration agreement with Clearstone Central Laboratories, which provides laboratory services for late-stage clinical trials. LabCorp will get access to Clearstone’s laboratories in Belgium, Canada, France and other countries. This agreement will enable LabCorp to access the global clinical trials market.

LabCorp is one of the leading independent clinical laboratory companies in the US. The services provided include routine and esoteric testing, which are used by medical professionals to monitor and treat diseases. The most frequently requested routine tests include blood chemistry analysis, urinalyses, blood cell count, thyroid test, Pap tests and HIV tests. Esoteric or specialty testing includes testing services in the areas of diagnostic genetics, forensics, infectious disease, oncology and occupational testing.

Increased knowledge of a disease at the genetic level and the emergence of biological therapeutics have increased the importance of early detection of ailments and the role of mainstream clinical testing. Consequently, clinical laboratories are increasingly providing more sophisticated and high-value specialties such as gene-based and esoteric testing, in addition to the traditional high-volume serum testing. The US laboratory testing market has been valued at approximately $55 billion, and LabCorp has about a 9% market share. Demand should continue to grow due to the increasing aging population, increased recognition of the value of more specialized and sophisticated tests in genomics and proteomics and the low-cost benefits of testing for health improvement. 

LabCorp continues to focus on strategic initiatives to drive growth and profitability. It includes introduction of innovative tests in the genomic/esoteric arena (specifically in the area of cancer), greater focus on managed care organizations in addition to aggressively pursuing the hospital market. The company is increasing its focus on the high margin esoteric testing business, which accounted for 36% of its revenue in 2009.

LabCorp has a strong balance sheet, giving it the confidence to look for suitable acquisitions in the esoteric business and expansion into different regions. However, the tough competitive landscape is of primary concern, especially in the current economic scenario.

We are Neutral on the stock.