Dive Brief:

• Labcorp said Tuesday that it has agreed to acquire Myriad Genetics’ prenatal health testing business for $210 million.
• The deal covers tests for assessing fetal risk of certain conditions and other aspects of prenatal care. Labcorp expects the tests to add about $160 million in revenue in year one. 
• Evercore ISI analysts see room for Labcorp to improve the economics of the acquired business using its infrastructure and to broaden access to the tests through its provider relationships.

Dive Insight:

Myriad’s prenatal care business centers on four tests. FirstGene and Prequel are prenatal screens that assess the risk of common and chromosomal conditions, respectively, starting at eight weeks’ gestation. Foresight screens potential parents to detect the couple’s risk of passing down serious inheritable health conditions. SneakPeek reveals the predicted fetal sex of a child as early as six weeks into pregnancy.

Sales of the prenatal tests fell 16% year over year to $81.7 million over the first half of the year. Product volumes and revenue per test declined in the second quarter. On an earnings call in July, Myriad executives blamed the trends on “elevated payer friction,” the timing of sales force expansion and competitive dynamics. 

The tests will slot into Labcorp’s portfolio of products for women’s health, one of the company’s specialty testing focus areas. The fit between the tests and Labcorp’s existing portfolio is reasonable, Evercore analysts said in a note to investors. The analysts are focused on whether Labcorp can leverage its infrastructure and provider relationships to improve the commercial performance of the tests. 

Women’s health has been a tough market with BillionToOne and Natera taking share, the analysts said, adding that the key to Labcorp’s success “will be its ability to use its broad sales force to help reverse those trends.”

The analysts predict Labcorp can almost double adjusted operating margins for the tests. Better cost management and sales force integration could enable Labcorp to grow margins from 9% in fiscal 2027 to 14% in fiscal 2028 and ultimately to 17.5% once the products are fully integrated into its portfolio, the analysts said. 

Labcorp is paying about 1.3 times expected first-year revenue before inventory for the assets, compared with 2.9 times for the BioReference Health deal it disclosed last week, according to Evercore. Even so, TD Cowen analysts said the $210 million upfront is “likely well ahead” of the expectations of Myriad investors.

The Myriad and BioReference deals are the latest in a series of buyouts struck by Labcorp. The company has used M&A to grow the geographic footprint of its business and expand its specialty testing portfolio. Labcorp’s specialty testing areas are growing about three times faster than the overall market and represent a $2 billion franchise, Bryan Vaughn, the company’s diagnostic president, said last month.