After more than two years of pandemic-driven growth, Labcorp is spinning off its clinical development arm as a standalone public company.
The spinoff — for now called a “clinical development business” — would focus exclusively on contract research work and help companies conduct clinical trials through confirmatory Phase 4 trials. The news was first reported by The Wall Street Journal early Thursday, before the company announced it.
The decision is a reversal from late last year, when Labcorp decided after a strategic review that restructuring was not necessary. Instead, Labcorp prioritized dividend payments and a share buyback program, among other initiatives. But as Labcorp sought to maximize shareholder value while development was good, it evidently reconsidered.
it would be talking to more outside people,” CEO Adam Schechter said.
He added that at the time the post-review recommendations were made, the company was also dealing with a spike in omicron cases and did not want to rock the corporate ship as it dealt with increased testing volumes.
Labcorp says it will share “health and clinical data” between the diagnostics business and the new CRO. Schechter estimated that 15% to 20% of Labcorp’s central lab business comes from the CRO wing. But when he split off, he envisioned the lab’s central wing would have more flexibility to work with more clients.
Overall, high-end Labcorp is optimistic that the stand-alone CRO company will be self-sustaining. In the year ending June 30, 2022, the clinical research industry reached $3 billion in revenue and is expected to bear high single-digit revenue growth going forward.
The company’s management says that the year-over-year improvement in profit margin has been “for several years” and that it should continue to expand. In addition, Schechter predicted that the clinical development industry “has the greatest potential for further margin expansion.” The deal is expected to close in the second half of 2023.