Pharmaceutical services giant Quintiles and laboratory services provider Quest Diagnostics are combining the lab work they do for clinical trials into a new joint venture.
Durham-based Quintiles will have a 60-percent ownership stake in the joint venture, announced Tuesday, which would have generated about $575 million in revenue last year. Quest, which is headquartered in New Jersey, will own the remaining 40 percent.
Quintiles already is No. 2 in clinical trial lab services behind Burlington-based Laboratory Corp. of America, which last month completed its $6 billion acquisition of contract research organization Covance, according to analyst Eric Coldwell of Baird Equity Research. CROs such as Covance and Quintiles help pharmaceutical companies conduct clinical trials of experimental drugs and analyze the results.
“We believe Quintiles’ central lab has been performing well, but this deal bolsters (its) position as clear No. 2 in the space,” Coldwell wrote in a research note.
Quintiles, the world’s largest CRO, has about 2,500 employees in the Triangle and more than 32,000 worldwide.
Quintiles “brings scale and clinical trial expertise while Quest brings an extensive supply chain network and additional data analytics capabilities,” Coldwell wrote.
The joint venture, following on the heels of the LabCorp acquisition of Convance, “suggests a changing landscape for drug developers,” Jefferies analyst David Windley wrote in a research note.
“Like a basketball player, Quintiles appears to be playing both defense and offense with this move,” Windley said.
He noted that Quintiles had made a concerted effort to boost its laboratory business prior to going public in 2013 and had gained ground on the market leader. But the gap widened in the wake of the LabCorp-Covance deal.
“At the same time, both of these combinations widen the distance between them and the next tier” of companies providing clinical trial lab services, Windley said.
Costa Panagos, a senior vice president at Quintiles, has been named CEO of the joint venture. John Haydon, vice president of joint ventures at Quest, will be the chairman.
No decision has been made on where the venture will be headquartered, said Quintiles spokesman Phil Bridges. Nor has it been determined how many employees from each company will join the joint venture.
The deal to create the joint venture is expected to be completed in the third quarter.
The joint venture is “a way to create a clinical trial lab service with access to deep resources from two industry leaders” while at the same time allowing the two companies to focus on their core businesses, Bridges said.
Quintiles CEO Tom Pike said during a conference call that combining forces will enable the two companies to better serve customers in a field where the lab tests conducted for clinical trials are becoming increasingly more complex.
Last year, for example, “out of the 41 novel drugs that were approved, nine of them have biomarkers associated with them and could be called precision medicine,” Pike said. Precision medicine also is called personalized medicine; a biomarker is a substance that indicates a disease, infection, etc.
The economies of scale of a larger operation also are key when it comes to things such as purchasing sophisticated lab equipment and supplies, Pike said.
In addition to contributing its central laboratory services, Quintiles’ genomics business and bioanalytical services operation also will be folded into the joint venture.
The two companies also plan to collaborate in other areas such as improving recruitment and retention of patients for clinical trials.
Quintiles shares closed Tuesday at $66.97, down $1.03. Its shares have risen 14 percent this year. Quest shares closed at $76.85, down 84 cents.