Quest Diagnostics Buys SmithKline Clinical Labs
Quest Diagnostics' agreement in February to buy SmithKline Beecham Clinical Labs for $1.3 billion in cash and stock brings together two of the three largest clinical labs in the country and makes Quest the largest reference laboratory in the country. Quest hopes to expand its national presence, better manage costs, capitalize on both companies' information expertise and bring a measure of pricing stability to a besieged industry. SmithKline wants to concentrate on its drug R&D.
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Quest and Laboratory Corp. of America, two Wall Street favorites for several years, seem to be bumping up against a wall when it comes to growth. Their growth is heavily dependent on acquisitions--but there aren't many big labs left to buy. Lab Corp.'s just announced offer for Dianon not withstanding. Quest's bid to buy California-based Unilab, is under FTC scrutiny--although Wall Street is betting the deal will fly. Lab Corp. faces intense regional competition, which it claims it is addressing. Still, the bigger these companies get, the tougher it is to maintain growth.
A variety of factors, ranging from consolidation to the emergence of genomics, has helped resurrect clinical labs from near death. The nation's two largest labs, LabCop. and Quest, have seen their stock prices shoot up a staggering 600% in the past three years, while a cadre of more specialized labs has ridden their coattails. These labs are looking to genomics to sustain their renaissance, as existing drivers shift and maintaining their growth rate gets tougher.
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