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LabCorp Sees Rise of Precision Medicine and Big Data Fueling Diagnostic-CRO Synergies

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During a second quarter conference call in July, Laboratory Corporation of America Chairman and CEO David King credited the company’s Covance contract research organization business with helping LabCorp win a record $100 million in companion diagnostic-related contracts in the first half of the year for the company. Less than two weeks later, the company announced a major expansion to its CRO business with the acquisition of specialty CRO Chiltern.

By LabCorp’s own admission, some aspects of its push into the CRO space have been “bumpy.” But the company points to strong growth in its companion drug business, and therapeutic drug awards won with the help of patient-focused insight gleaned from LabCorp’s databases, as evidence that the synergies between diagnostics and CRO services have potential to deliver long-term growth.

“If you look at how the healthcare environment has changed and continues to change, and as we think of delivering better healthcare to patients, that linkage between diagnostics and therapeutics becomes stronger,” Steve Anderson, LabCorp senior vice president and Covance chief scientific officer, said in an interview.

Precision medicine and companion diagnostics have been key areas where Covance, and now Chiltern, give LabCorp a more complete service, he said.

“A diagnostic test is used to identify patients who would potentially respond to a new therapeutic, so there is that strong linkage between the diagnostic and the therapeutic,” Anderson said. “It really resonates with our clients both on the drug development side — as drug developers are looking for therapeutics that need a companion diagnostic — and also on the clinician side where clinicians are the orderers for companion diagnostics and prescribe the therapies.”

For clinicians, the link between diagnostics and clinical trials is particularly strong in precision medicine, such as in oncology where gene sequencing is enabling patients to access more targeted cancer treatments. It’s also an area that is growing rapidly, said Mark Massaro, principal and senior analyst with Canaccord Genuity.

“Oncology is certainly, and especially areas of immunooncology are some of the fastest growth areas we have in healthcare,” said Massaro.

Oncology is an area where LabCorp and Covance have reported winning some key mandates as a result of their union, Massaro said. It’s also an area of particular strength for Chiltern, he noted.

Chiltern’s oncology expertise, as well as its strength in the Asia-Pacific region, were key factors, cited by King as strategic advantages of the acquisition during a recent talk at the Morgan Stanley Global Healthcare Conference earlier this month. Through the Chiltern acquisition, the company is “rounding out” and adding “much more strength to oncology therapeutics,” King said.

In June, LabCorp announced the establishment of a dedicated companion diagnostics lab in Morrisville, North Carolina, in a move that Anderson said affirms the two companies’ commitment to that area of precision medicine. The dedicated center will combine end-to-end drug capabilities from Covance with commercialization capabilities through LabCorp. 

“Companion diagnostics are squarely in the middle of our two businesses,” Anderson said. “At our Morrisville location we are able to develop potential companion diagnostics that are then used in the clinical trial setting, where their clinical value is potentially demonstrated. We can then move those assays into the diagnostic labs in order to deliver those results and those services to individual patients.”

One of the key synergies LabCorp credits with driving growth in companion diagnostics, as well as new contracts in therapeutics, is an emphasis on big data.  Since it first announced its acquisition of Covance back in 2015, LabCorp identified a strategy of leveraging each company’s deep datasets as an avenue for long-term growth. During the company’s second quarter conference call, King said that LabCorp patient data has helped Covance secure approximately 25 new contracts since the acquisition in areas such as oncology, infectious disease, cardiovascular and gastroenterology.

“The combined data is part of almost every proposal we submit,” King said.

Anderson said the advantages of two companies’ complimentary datasets extends beyond winning new clients.

“When we look at the drug development side of our business, we have a lot of information on the trials that we perform, investigators that are part of providing patients for those trials, and lab data that supports those trials. When we look on the LabCorp diagnostic side, we are a large service provider with a tremendous amount of data that can be used to help with how trials are designed, and potentially on the drug development side, with how they are executed,” Anderson said.

If a pharmaceutical company looks to target a patient with a particular condition for a drug or companion diagnostic, anonymized LabCorp patient data can give the client a snapshot of how large the client group would be, and how the target group could be increased or decreased by adjusting certain criteria, Anderson said.

On the individual level, as more patients opt in to being contacted for possible participation in clinical trials, LabCorp can help Covance fill clinical trials more quickly, and Covance can help LabCorp patients access targeted treatments, Anderson said.

The companies see additional synergies in what is known as Phase IV, or postmarket trials, Anderson said. Phase IV trials rely heavily on lab testing to gather additional data and evidence of a drug’s effectiveness in a “real world setting,” he said.

Although LabCorp cites companion diagnostics and new client business as indications that it is already reaping benefits from the acquisition, its entrance into the CRO space has not been entirely smooth.

Last quarter, for instance, Covance saw a 3 percent decline in revenue, year over year, on revenue of $700 million, Massaro noted. Some of that decline was due to currency issues related to overseas businesses, and on a currency neutral basis, revenue declined 1.7 percent.

The company attributed the decline in part to two sponsors who cancelled clinical trials in late 2016. Covance’s orders and backlog accelerated in the second quarter, Massaro said, implying that the Covance business will likely stabilize going forward.

Last quarter aside, the growth of Covance as part of LabCorp may have been slower than anticipated, Massaro said.

“Oncology trials tend to be more complex, and the duration of recognizing revenue on an order in a complicated cancer trial can result in slower revenue recognition,” Massaro said. “I would just say at a high level, Covance growth rate has come in a little bit below what most people were expecting, but I do think that over time LabCorp is likely to see faster growth from Covance in the future.”

King has expressed confidence that LabCorp’s doubling-down on its CRO investments through the recent Chiltern acquisition will help smooth some of the bumps in the road.

“If you look at how the businesses are performing, obviously central lab has performed most consistently and the strongest, early development has been the second strongest, and the clinical is where the bumpiness has been since we closed the Covance acquisition in 2015,” King said at the Morgan Stanley conference. “I think with Chiltern, and with the other changes we have made with the addition of therapeutic expertise I feel that we are going to see some very positive trends out of the clinical business in 2018.”