Life Sciences Insight

Labcorp lowers forecast after Q2 slowdown, will spin off drug development unit

Q2 trends: Labcorp’s overall revenue dropped last quarter as revenue from COVID-19 testing decreased 42% compared to last year, while the base business grew by 1.2%, the company said. CEO Adam Schechter told analysts on a Thursday earnings call that the company is still pursuing COVID-19 testing, but said that “long term, we’re really focused on getting our base business to perform well.”

The company’s results are similar to those of rival Quest Diagnostics, which also saw a decline in total revenue due to a COVID-19 slowdown, but saw its base business grow. Quest raised its 2022 revenue forecast, while Labcorp lowered its forecast for the full year.

2022 revenue forecast: Labcorp lowered its 2022 revenue forecast for its overall business to a decrease between 6% and 2% year over year, down from a decrease of 5.5% to 1.5%. The change comes primarily in its base business, which is now expected to grow revenue at a range of 5% to 7.5% compared to previous expectations of 8% to 10%. Its COVID-19 testing business is now expected to decrease at a range of 60% to 50%, up from a range of a 70% to 60% decline.

Spinoff: The company announced Thursday morning that it will spin off its Clinical Development business, which manages clinical trials for pharmaceutical and biotechnology companies. The move adds to the trend of medtech companies spinning off units into independent businesses — GE, Johnson & Johnson, Zimmer Biomet, Becton Dickinson and 3M have all announced spinoffs.

Asked if Labcorp would instead consider selling the business, Schechter said that the company reviewed several options before deciding that a spinoff was the “best path forward.” Over the last four quarters ending on June 30, the Clinical Development business brought in $3 billion in revenue, and Labcorp forecasts high-single-digit revenue growth. The transaction is expected to close in the second half of 2023.

Shares of Labcorp traded at $247.73, down about 0.7% at midday Thursday on the New York Stock Exchange.

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