LabCorp’s revenue for the second quarter of 2018 was $2.87bn, an increase of 13.4% compared to $2.53bn in the second quarter of 2017.
On the company’s recent earnings call, LabCorp CEO David King cited the combination of strong organic revenue growth, acquisition contributions, the LaunchPad initiative, and tax reform benefits as the drivers for the top line growth of 13% and an adjusted EPS growth of 23%.
The LaunchPad initiative – expanded to include the company’s drug development business Covance in April 2017 – is a two-phase plan intended to create operational efficiencies over three years.
As part of the initiative, the company reduced its workforce at the contract research organization (CRO) last year.
Glenn Andrew Eisenberg, CFO, said LabCorp is on track to deliver $150m of net savings from Covance LaunchPad by the end of 2020 and $30m of cost synergies from the Chiltern integration by the end of 2019. Chiltern joined Covance after being acquired in September 2017 for $1.2bn.
Covance’s revenue for the quarter was $1.1bn, an increase of approximately 31% compared to last year. Eisenberg explained that this is due to acquisitions, organic growth, and the benefit from 180 basis points of foreign currency translation. Adjusted operating income for the quarter was $123.4m.
The second quarter also saw LabCorp’s drug development business, Covance, bolstered through the acquisition of Sciformix. The deal augmented the CRO’s pharmacovigilance capabilities.
As per its 2018 guidance, Eisenberg said Covance revenue growth is expected to be at 23% to 26% over its 2017 revenue of $3.5bn.
“This is an increase over our prior guidance of 21% to 25% due to higher-than-expected investigator fees,” he said, “We remain on track to deliver mid to high-single digit organic growth in 2018.”
According to analysts at Jefferies LLC, Covance performance continues to exceed expectations and is well positioned due to biotech funding. Analysts also expect new strategic partnerships to generate incremental bookings over the next several years.
Strategic objectives
LabCorp’s first strategic objective is to support its customer's transition to value-based care, said King. The second is to enhance the drug development process. As part of this, King noted that it was selected for a dual source strategic partnership by a top 40 biopharma sponsor with which it has not collaborated with previously.
In addition, the company’s early development business was selected to be the primary provider strategic partner to a top 10 pharmaceutical sponsor. King said toxicology awards from the company are expected to double, with new awards beginning at the end of the year. Both partnerships will “ramp over time.”
“We also did continue to invest in the CRO of the future,” added King. The investment began with LaunchPad, which he said is progressing at a rapid pace: “The global service delivery model we discussed last quarter is up and running, improving quality and optimizing our utilization of resources and infrastructure.”
LabCorp also has added preferred site partnerships, incorporated mobile health technologies into studies, and enhanced its virtual clinical trial capabilities, said King.
“Each of these opportunities, along with our patient and investigator performance data, represents progress toward better trial design, site selection, patient recruitment and patient experience,” he added.
The third and last strategic objective is to create “a leading consumer engagement platform.”
King said the company continues to enhance patient convenience and engagement and improve its patient service center and mobile app tools, citing its collaboration with Walgreens, which has expanded to 16 stores.
“We plan to expand this partnership into additional markets this year and are actively discussing ways that we can expand and integrate our combined services,” he said.
LabCorp teamed with Walgreens to open “LabCorp at Walgreens” service centers in June 2017. King told us at the time that it will explore additional collaboration opportunities such as in clinical trial enrollment.