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Last man standing
July 2012
by Lloyd Dunlap  |  Email the author


BURLINGTON, N.C.—Laboratory Corporation of America Holdings and MEDTOX Scientific Inc., a provider of specialized laboratory testing services and on-site/point-of-collection testing (POCT) devices, have entered into a definitive merger agreement under which LabCorp will acquire MEDTOX for a purchase price of $27 per share in cash, representing a total enterprise value of approximately $241 million. The board of directors of MEDTOX has unanimously approved the agreement and recommended approval of the transaction by MEDTOX's shareholders.
"We are extremely pleased that MEDTOX is joining our family," says David P. King, chairman and CEO of LabCorp. "MEDTOX is an industry leader in specialized toxicology testing. This acquisition provides a strong foundation for growth in this business, as we build and expand LabCorp's Toxicology Center of Excellence and add to the unrivaled assets of the LabCorp Specialty Testing Group."  
"This transaction highlights the fundamental value of the MEDTOX brand, the talent and expertise of our team and the quality of our products and testing services," says Dick Braun, chairman and CEO of MEDTOX. "As part of LabCorp with its substantial resources and infrastructure, we expect to accelerate MEDTOX's profitable growth and provide a stable and sustainable environment for our employees and clients."  
According to industry observer Paul Nouri, a contributor to, "For a number of reasons, investors were likely better off staying away from the big two labs, namely, Quest Diagnostics and LabCorp." Instead, he recommended that investors take a look at two of the remaining publicly traded clinical labs at the time, Medtox and Enzo. His reasoning was that while Quest and LabCorp were struggling to see organic volume growth, Enzo and Medtox had seen double-digit growth over the past few years. When LabCorp announced the purchase of Medtox, Nouri pointed out that on a trailing 12-month basis, the purchase price equates to 2.2 times sales, 47 times earnings per share and 27 times free cash flow.  
"At first blush, this looks like a pretty expensive acquisition," Nouri noted, "however, when looked at more critically, investors can see why LabCorp was willing to pay up for this asset. Historically, the big labs have liked making tuck-in acquisitions. The reasoning usually is that Quest and LabCorp already have substantial lab space, IT departments, billing, etc. When merged, the goal is to bring the margins of the acquired lab up to the level of the purchaser. As of the latest quarter, Medtox was running at an 8.5-percent operating margin, while LabCorp was running at about 20 percent. It doesn't happen overnight, but if LabCorp is eventually able to bring up the margin to their level, the acquisition looks much more reasonable at approximately 13-times free cash flow. "  
In recent communications with market analysts, Quest has made it apparent that it is not currently interested in any major acquisitions. The company is heavily in debt after spending more than $2 billion to buy back 36.5 million shares over the past three years and making over $1 billion in acquisitions. LabCorp has been less outspoken, saying that there are attractive opportunities, but that it will be diligent about price and fit.
"After the rush of acquisitions over the past 10 years, there are only a few labs left that would make a dent in either LabCorp or Quest's results, and the valuations are likely to be high. There are, however, a host of smaller labs that could be bought for relatively reasonable valuations," Nouri states.  
LabCorp's release announcing the acquisition states that, "The transaction is subject to customary closing conditions including the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval by MEDTOX's stockholders. The transaction is expected to close in the third quarter of 2012."  

LabCorp, XDx to develop lupus flare predictor test  
BRISBANE, Calif.—LabCorp also announced last month that it has entered into a collaboration and license agreement with XDx Inc. to develop and commercialize a diagnostic test to predict flares of systemic lupus erythematosus (SLE).
The agreement combines LabCorp's diagnostic development and commercialization resources with XDx's autoimmune diagnostics research and discovery experience and SLE blood sample database. Financial terms of the agreement were not disclosed.
SLE, also known as lupus, is a chronic autoimmune disease affecting more than 1.5 million people in the United States, according to the Lupus Foundation of America. Lupus disease flares are periods of increased disease activity. The major challenge for physicians managing patients with lupus is to treat this active phase without allowing the treatment itself to cause long-term damage. Treatment for active lupus differs, depending on the organ systems involved and disease severity. Current treatment often includes a combination of drugs.  
"Building upon our success in the immune-mediated diagnostic market with our first approved product, AlloMap Molecular Expression Testing, XDx is dedicated to expanding its pipeline of high-value diagnostic tests to other diseases that involve the activity of the immune system," said Pierre Cassigneul, XDx's president and CEO. "In lupus, we have developed an extensive, proprietary database of lupus blood samples that we will use in collaboration with LabCorp to initiate its development of a biomarker for the flare test. We look forward to a fruitful relationship with this world-class partner."  
"Lupus remains a critical area of unmet medical need, and new tests are needed to help clinicians anticipate when patients may need additional therapeutic interventions for the treatment of flares," stated LabCorp Chief Medical Officer Dr. Mark Brecher. "This agreement with XDx advances our strategy of developing and introducing tests to provide personalized information that can be used to help physicians and their patients."
Code: E071213



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