LabCorp will expand its global nonclinical drug development capabilities through a pair of deals in which its Covance Drug Development segment will acquire Envigo’s nonclinical research services business, while Envigo’s Research Models Services business will buy the Covance Research Products business.
LabCorp will pay net consideration of $485 million cash between the transactions, which are also intended to reposition Envigo into a pure-play research models and services business, the companies said.
By divesting itself of Covance Research Products, LabCorp said it aims to simplify and focus its Covance Drug Development nonclinical research business model while enhancing its nonclinical capabilities, including respiratory, with scientific and technical expertise and industry insight added from Envigo.
The resulting combined Covance nonclinical research business will expand its workforce by nearly one-third, to approximately 4,200 employees globally, as well as add Envigo facilities in Europe and the U.S., enabling the expanded business to meet growing client needs, LabCorp added.
“This unique transaction is part of our strategy to transform drug development, strengthening Covance’s ability to offer comprehensive global nonclinical research services to the biopharma industry,” LabCorp chairman and CEO David P. King said yesterday in a statement. “Together, we are taking a creative and collaborative approach to early-stage research, which demonstrates LabCorp’s commitment to providing clients with innovative solutions that will ultimately improve health and improve lives.”
The transactions will also combine the research models and services businesses into a new business under the Envigo name that will have more than 1,200 employees globally.
Envigo said its clients will be more easily able to source the best models for their research needs to meet demand across biopharma, the contract research organization industry, government, and academia. Those clients, Envigo added, will benefit from an enhanced focus and ability to invest in new services and products.
The new Envigo research models and services business, and the expanded Covance nonclinical research business, will partner through a strategic supply agreement designed to expand their access to a full range of models, diets, and bedding. The agreement will help ensure that clients will continue to receive access to the high-quality research models and services to which they are accustomed, LabCorp and Envigo said.
“As a result of the multi-year strategic supply collaboration, we look forward to partnering with our colleagues at Covance to advance critical, life-enhancing research,” added Envigo president and CEO Adrian Hardy, PhD. “This landmark agreement will provide an enhanced experience to our valued customers across both segments of our company and closely aligns with our vision to work together to build a healthier and safer world.”
The deals are expected to close within two months, subject to labor consultations, regulatory approvals, and customary closing conditions.
LabCorp expects that the transactions with privately-held Envigo will also add to its earnings and cash in the first full year, and will exceed the cost of capital by year three. The company said it will furnish details when it announces first-quarter 2019 results on April 30.
The pair of transactions are projected to add an incremental $156 million to LabCorp revenues on a pro forma 2018 basis. LabCorp finished last year with $883.7 million in net earnings, down 28% from $1.227 billion in 2017 reflecting a series of charges, despite operating income inching up 1.5% to $1.326 billion, and revenue rising 9.9% to $11.33 billion.
However, LabCorp’s Covance Drug Development segment showed stronger results, as adjusted operating income—which excludes amortization, restructuring charges, and special items—jumped 42.9% year-over-year, to $516.2 million, while 2018 revenues grew 25% from 2017, to $4.313 billion.
