Labcorp: Covance not adding capacity despite preclinical recovery

17-Sep-2015 - Last updated on 18-Sep-2015 at 14:16 GMT

Covance will not add more capacity in the near future despite increased demand and improving preclinical sector pricing, Labcorp’s management says.

According to reports, capacity utilisation across preclinical contract research organisations (CROs) is increasing, driving up prices in a sector which was hit hard by the economic downturn.

This has led Charles River Laboratories (CRL) to announce it is investing in additional capacity, re-opening an early-stage research site in Shrewsbury, Massachusetts.

During a session at the Morgan Stanley Global Healthcare Brokers Conference yesterday, David King, CEO of Labcorp, was asked whether Covance - which Labcorp acquired for $6.1bn earlier this year – was likely to do the same.

“I would assume that other people know how to run their business as well, so if they feel that they need additional capacity I trust that's because they have demand,” he told investors. “What reinforces that view, from my perspective, is that pricing continues to be positive in early development which is great for us.”

But despite this, Covance is not in a position where its likely to add capacity, he added. “We have enough capacity that meet client demand and that's not to say that there is no demand, it just to say we're able to meet the demands because I think we've planned and forecasted well.”

Opportunistic M&A

Labcorp was also asked about future acquisitions, and CFO Glenn Eisenberg said there is always something out there that could complement current capabilities.

“We're going to be opportunistic [about] what's the best return on capital for us, what bits our business need, whether its geographic needs or whether its business line needs.” he said.

“We are going to continue to do the tuck-ins,” he said, but added after the Covance deal it is unlikely that we will see any large deals in the next year.

“We’re in the middle of an integration; we have to do the integration right to get the value out of this deal and the last thing we need to do is an integration on top of an integration.”