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Laboratory Corporation of America Holdings LH 1.03%
According to people familiar with the matter, the move is part of a fast-growing contract research sector that would create a new independent company with a spin-off unit focused on clinical drug trials.
Burlington, NC-based Labcorp is expected to announce plans to spin off its clinical-development business Thursday when it reports second-quarter results, the people said. LabCorp will continue to focus on its core diagnostic business and also maintain two related drug-development units, the people said.
The deal, which generated nearly $3 billion in 12-month revenue, closed in June, people familiar with the matter said. It represents more than 20% of LabCorp’s $13.5 billion in annual sales, excluding Covid-19 testing.
As pharmaceutical companies pour money into developing new cancer and other treatments, investor interest in contract research firms that conduct outside drug testing has increased over the past several years. The development of rapid coronavirus vaccines has shown progress for some time. In the last year in the sector, there were many deals when the major players removed their rivals in Icon ICLR 3.64%
PRA Health Sciences Inc. by purchasing PLC. and Thermo Fisher Scientific Inc.
Timo 1.51%
Acquiring PPD Inc
In March of last year, LabCorp began a strategic review after pressure from activist investor Jana Partners LLC, but it ended without a deal in December. During that time, it triggered a quarterly cash dividend and authorized a $2.5 billion share buyback. He said he had explored various options, including acquisitions, mergers and spin-offs, saying it would be best to consolidate the current structure.
Driving the clinical-development business now facilitates deal-making by giving currency to the transaction. Its focus will be on providing Phase I to IV clinical-trial management and other services to pharmaceutical and biotechnology companies.
LabCorp’s drug development business units, which focus on early-stage development and central laboratory work, require the same resources as testing, the people said.
LabCorp expanded into the clinical-development business in 2014 when it agreed to pay about $6.1 billion for Covance.
Write Cara Lombardo at cara.lombardo@wsj.com
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