Last week, Laboratory Corporation of America Holdings (LH) announced that it has extended its agreement with UnitedHealthcare Insurance Company, an affiliate of UnitedHealth Group (UNH). The agreement, effective since January 1, 2007, will continue until 2018.
Under the terms of the agreement, LabCorp will continue to be the national laboratory for UnitedHealthcare and Oxford Health Plans and the exclusive laboratory provider for some HMO benefit plans.
In 2006, LabCorp had entered into a 10-year agreement with UnitedHealthcare to become its exclusive national laboratory. The company continues to work closely with MCOs by providing value-added services. The growth of the managed care sector and consolidation have presented various challenges and opportunities to several independent clinical laboratories.
Last year, LabCorp extended its contracts with Wellpoint Inc. (WLP) and Cigna Corporation (CI) through 2013. We believe these contract extensions emphasize the company’s ability to attract and retain managed care clients. Effective August 2010, LabCorp has become a member of Empire BlueCross BlueShield of New York’s lab network that provides a solid growth opportunity.
Meanwhile, LabCorp has strengthened its footing in the diagnostics space through both the organic and inorganic route. Some of the significant acquisitions include DCL in Indiana, Westcliff Medical Laboratories in California where LabCorp has limited presence and Genzyme Genetics in the area of esoteric testing and personalized medicine business.
The acquisition of Genzyme Genetics would expand the company’s capabilities in reproductive, genetic, hematology, oncology and clinical trial, central laboratory testing.
In June 2011, LabCorp acquired Clearstone Central Laboratories, a global central laboratory specializing in drug development and pharmaceutical services. Subsequent to this collaboration, LabCorp will have access to Clearstone’s global network of laboratories in China, France, Singapore and Canada, in addition to its own existing laboratories in the US and Belgium.
We are currently Neutral on LabCorp, which also corresponds to a Zacks #3 Rank (Hold) in the short-term.
