USA – Laboratory Corp of America (Labcorp) has announced that it plans to separate its clinical development business into an independent, publicly-traded contract research organization (CRO).

LabCorp will house the company’s existing global laboratory business while the new company will manage clinical trials for drug companies.

LabCorp’s management said in a release that this structure will allow each division more flexibility to grow within their individual mandate.

LabCorp’s chief executive Adam Schechter said the move will return LabCorp to its core lab testing business and central laboratory network and will allow each company to “benefit from its own capital structure, enhanced investor alignment through a more targeted investment opportunity and a differentiated value proposition.”

The new, as-yet unnamed CRO will provide phase 1 to 4 clinical trials, market access and technology services to biopharma companies, both large and small, said LabCorp in its announcement of the plan.

Contract research organizations, which were hurt after clinical trials were disrupted due to the pandemic, have seen a resurgence in demand as drugmakers and governments invest in newer treatments, as per Reuters

The clinical-development segment emerged in 2014 after the US$6.1 billion acquisition of Covance Inc. generated approximately US$3 billion in revenues in the fiscal year ended June 2022.

The sector saw several multi-billion dollar deals last year, with medical device maker Thermo Fisher Scientific Inc. acquiring contract researcher PPD Inc for US$17.4 billion and Icon Plc buying rival PRA Health Sciences in a roughly US$12 billion deal.

The clinical-development segment emerged in 2014 after the US$6.1 billion acquisition of Covance Inc. generated approximately US$3 billion in revenues in the fiscal year ended June 2022.

Similarly, the lab business contributed US$12.7 billion, or US$10.5 billion excluding COVID-19 testing revenue. The CRO is expected to continue to deliver mid-single-digit annual revenue growth.

The transaction – enacted via a dividend of the shares of the clinical development business to LabCorp’s shareholders – is expected to be tax-free and close before the end of the year.

The move to spin off the company was initiated last year when LabCorp initiated a strategic review after investor pressure form Jana Partners, which pushed for changes including a separation of the clinical research unit.

However, push for a spin off did not end with a merger or acquisition because LabCorp offered its shareholders dividend and approved a US$2.5 billion buyback plan.

In another recent development, manufacturing titan 3M Co. has announced plans to spin off its multibillion-dollar health-care operations, a move that could leave the manufacturer flush with cash as it copes with shifting economic currents that have sapped its profits.

The dramatic step, which sent 3M’s shares up the most since the early days of the pandemic, will reshape a company known for diverse product lines, from electronic components to dental adhesives to Post-it notes.

It will retain a stake of 19.9% in the medical-supplies business initially and sell off the holding over time, 3M said in a statement.

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