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It’s been a big week for Burlington’s Labcorp, with a major acquisition announcement, the closing of another and a quarterly report showing it increased Q1 revenue to $3.2 billion.
The laboratory and diagnostic services company won a bid, offering $239 million in cash, for select assets of Invitae in a bankruptcy court auction. San Francisco’s Invitae (OTC: NVTAQ) had hoped to open a new world of genetic testing with tests that can 2 million disease-associated genes and have been used by more than 4.4 million people.
Despite a valuation that topped out at $7 billion, Invitae filed for Chapter 11 bankruptcy in February, listing $1.6 billion in debts with $535 million in assets.
Labcorp (NYSE: LH), which is known for its blood testing, can potentially pursue a new market with of specialty genetic testing, such as oncology and rare diseases. Labcorp said, if the transaction closes, it could generate between $275 million and $300 million in annual revenue.
A Labcorp spokesperson said that, through this transaction, Labcorp would acquire the assets of Invitae being auctioned, including the going-concern business, unexpired leases, contracts, equipment, inventory, supplies and intellectual property.
A spokesperson for Invitae said additional information would be shared if the sale is approved at a hearing on May 6 in U.S. Bankruptcy Court in New Jersey. If approved, the sale could be completed in the third quarter.
The pending sale comes a few years after Invitae unveiled its big plans for North Carolina.
The company in 2021 signed a lease for all 245,159 square feet of office, research and lab space at a new development called The Stitch – the former site of the Morrisville Outlet Mall off Airport Boulevard right off Interstate 40. The lease term runs through 2035.
Invitae had described the Morrisville move as a way to further expand its capacity to meet the growing demand for its genetic testing services. The project represented a nearly $115 million investment that would create 374 jobs over multiple years. The state's Economic Investment Committee approved a Job Development Investment Grant for the project totaling $6.7 million.
But Invitae never fully moved forward with those plans. The company disclosed in an earnings filing last fall that its management had decided "to exit the operating leases for ... new laboratory and production facilities in Morrisville, North Carolina."
In a February court filing, Invitae said the Morrisville facility was only being used for storage purposes.
The facility Invitae leases, called The Stitch, is owned by an affiliate of Related Fund Management, which is part of The Related Companies, a real estate investment firm based in New York. The firm acquired the property in 2021 from Equator Capital Management for about $181.8 million.
Labcorp acquires more laboratory assets, spent $259M on acquisitions in Q1
The news of this winning bid came two days after Labcorp announced that it had finalized the acquisition of laboratory business assets from Providence, a California-based health system, including ambulatory lab draw stations, an ambulatory laboratory facility and other equipment.
Providence mainly operates in Northern California and Orange County in Southern California. Labcorp said it had recently opened new ambulatory draw stations in these areas.
Since spinning off its clinical development business last year, Labcorp’s modus operandi has been to acquire laboratory and outreach assets of health systems and other health companies across the country. It has announced on five acquisitions year-to-date.
The company reported Thursday morning that, during the first quarter of 2024, it spent $259.2 million on acquisitions, closing on three during the period.
Labcorp reported that its revenue for the first quarter of 2024 had increased about 4.6% year-over-year to $3.18 billion. It also reported operating income at 10.1% of revenue ($321.3 million), down slightly from 10.9% in Q1 2023. Net earnings totaled $228.3 million, up from $208.4 million, and diluted earnings per share in Q1 2024 was $2.69, up from $2.34 a year ago.
However, the company saw a significant decrease in its operating cash flow, using $29.8 million, compared to a generation of $185.7 million a year ago. Labcorp said the decrease was due to lower cash earnings and the “timing of working capital requirements.”
With capital expenditures up from $78.2 million to $133.8 million, Labcorp’s free cash flow during Q1 was a use of $163.6 million compared to a generation of $107.5 million a year ago.
At the end of Q1 2024, Labcorp reported $99.3 million in cash balance and $5.09 billion in debts.
San Francisco Business Times’ Ron Leuty contributed to this article.
