LabCorp (NYSE: LH) has reached an agreement to acquire LipoScience (NASDAQ: LPDX) in an $85 million cash deal that the Burlington, NC, laboratory testing and diagnostics giant says will boost its efforts to offer doctors more specialized tests.
For Raleigh, NC-based LipoScience, which has struggled to find market traction since going public last year, the deal offers the opportunity to place its cardiovascular diagnostic in the hands of a company better positioned to build sales of the product.
LipoScience developed a new kind of a blood test to diagnose cardiovascular disease that the company hoped would supplant traditional cholesterol tests. The cholesterol tests that you might get as part of your annual checkup tests the levels of low-density lipoprotein cholesterol in the blood. Sometimes referred to as “bad cholesterol,” LDL-cholesterol is the cholesterol that sticks to the walls of blood vessels leading to blockages.
Cholesterol is carried in the blood by lipoproteins. LipoScience’s technology, originally developed at NC State University, uses nuclear magnetic resonance to count the number of lipoproteins in a blood sample. The company contends that counting these proteins is a better and more accurate gauge of cardiovascular disease risk compared to measuring cholesterol levels. The Food and Drug Administration gave the test marketing authorization in 2008. So far, the LipoScience test is the only FDA-cleared measure of LDL particles.
But LipoScience’s test has struggled to win over doctors and insurance companies. The company has attributed lower than expected sales in part to pricing pressures from the Affordable Care Act. Payers, executives have said, are more conscious of reimbursing for new tests and are refusing to cover tests done in out-of-network laboratories. Disappointing sales last year contributed to the departure of longtime LipoScience CEO Richard Brajer a little more than a year ago.
Sales under new CEO Howard Doran have not improved, and in fact, have actually gotten worse. In the first half of 2014, LipoScience reported $21.0 million in revenue, down 21.8 percent compared to the first half of 2013. Following the release of second quarter financial results this year, Doran outlined a multi-point plan to turn those sales figures around. That task now falls to LabCorp, which as the second-largest laboratory tester behind Quest Diagnostics (NYSE: DGX) has a national footprint and established relationships with doctors, hospitals, and health systems that should offer a better chance of placing the cardiovascular test in the market.
LabCorp and LipoScience are not strangers to each other. One of the ways that LipoScience tried to build sales of its product was through relationships with laboratory companies. LabCorp signed an agreement in 2005 to offer the LipoScience test.
LipoScience was founded in 1994 by James Otvos, an NC State biochemistry professor who became LipoScience’s chief scientific officer. Early investors in the company included venture capital firms Pappas Ventures and Three Arch Partners. LipoScience went public last year, raising $45 million after pricing its stock offering below its initial target range. The company initially sought to raise as much as $86 million.
LipoScience says its board of directors has unanimously approved the sale to LabCorp, a deal that values the company at $63 million. LipoScience shareholders still need to approve the deal, which at $5.25 per share, represents a 64.5 percent premium over Wednesday’s closing stock price. LabCorp expects to close the LipoScience acquisition in the fourth quarter of 2014.