LipoScience Could Find No Other Interested Buyer than LabCorp

Specialty lab company was struggling to convince physicians and health insurers of its test’s value

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ONE EXAMPLE OF HOW TOUGH TIMES ARE for companies offering proprietary or patent-protected tests is the acquisition of LipoScience by Laboratory Corporation of America in a deal that was disclosed last September.

It was announced that LabCorp would pay $85 million, or $5.25 per share, for LipoScience, which analysts said valued the company at just $63 million. As recently as the winter of 2013, LipoScience had a value of as much as $170 million, based on its share price of $11 at that time.

The decline in LipoScience’s stock price mirrored a decline in its annual revenue and specimen volume. In an analysis of the Raleigh, North Carolina-based lab company’s problems, The Triangle Business Journal wrote that “In a broader context, the company’s decline can be traced to two events, both boiling down to LipoScience’s inability to convince enough physicians and insurers to favor the LipoScience test over others.”

Founded In 1994 As LipoMed

Founded in 1994 as LipoMed by James D. Otvos, Ph.D., an adjunct professor of biochemistry at North Carolina State University, the company changed its name to LipoScience in 2002. Otvos currently serves as LipoScience’s Executive Vice President and Chief Scientific Officer.

The flagship test was the LipoScience NMR LipoProfile, an FDA-cleared blood test that directly quantifies low density lipoprotein particles (LDL-P) circulating in the body. A study published in early 2014 in a peer-reviewed journal involving 15,000 patients over three years concluded that high LDL-P levels, which the LipoScience NMR LipoProfile measures, were associated with higher risk for heart attack or stroke.

Convincing Physicians

Despite the findings of this study, published in the journal Atherosclerosis, that LDL-P by NMR was a more clinically reliable measure of LDL and could be used to manage patients with increased CVD risk, the lab company could never leverage these findings in a useful way.

For example, such groups as the American College of Cardiology and the American Heart Association did not incorporate the LDL-P by NMR test into their recommended treatment protocols. That made it difficult to convince physicians to order the test. Similarly, the laboratory company struggled to negotiate favorable coverage determinations with many health insurers.

Health Diagnostic Laboratory (HDL) of Richmond, Virginia, also has a role in the LipoScience story. According to The Triangle Business Journal, HDL was the single biggest customer for LipoScience, representing about one- third of LipoScience’s annual sales and about $12 million per year in revenue.

However, in March 2014, after HDL introduced its own proprietary test for LDL-P, LipoScience canceled its contract with Health Diagnostic Laboratory. As a result, LipoScience laid off 22 employees in its Raleigh laboratory facility.

LipoMed’s Largest Customer

That left LabCorp, with its headquarters in Burlington, just down the road from Raleigh, as LipoScience’s largest customer for its proprietary test.

Facing poor prospects for increasing specimen volume from its marketing efforts to physicians and given the resist- ance of health insurers to pay for the LDL-P test, LipoScience’s board made the decision to sell the company.

The Raleigh News-Observer reported that, when LabCorp made its offer to LipoScience, the agreement included a provision that would let the Raleigh lab company solicit other acquisition offers until October 19. As part of the agree- ment, LipoScience agreed to pay $2.56 million to LabCorp if the deal didn’t close or $1.7 million if LipoScience got a better offer before October 19.

While shopping for a buyer, LipoScience solicited bids from 14 companies and not one made an offer, according to The Triangle Business Journal. Of these 14 potential buyers, 11 of the 14 companies declined to make an offer and three didn’t respond at all.

Directors Got No Offers

This was not the first time the company had solicited offers from potential buyers, the business journal reported. During the summer, members of the company’s board of directors identified 40 companies that could be asked to make acquisition offers. Later, that number was reduced to eight companies that were most likely to make an offer, the business journal said. But again, the company got no offers. Five of the eight declined to make an offer and three did not respond, the business journal reported.

What these developments show is many prospective buyers were given the opportunity to look at LipoScience. After studying its finances and its prospects for expanding its specimen volume and mar- ket share, these parties declined to make an offer to buy the lab company.

That left LabCorp as the one interested buyer. It can be assumed that LabCorp was able to acquire LipoScience at a bargain basement price. With no other bidders for the troubled lab company, the LipoScience board had few other options but to sell to LabCorp.

The sale is pending and has cleared one regulatory hurdle. It was announced on October 15 that the Federal Trade Commission granted early termination of the waiting period required before LabCorp can complete its purchase of LipoScience. Both parties expect the sale to close by year’s end.

LipoScience’s Track Record

LipoScience is the fact that this company had operated for 20 years, had an FDA-cleared lab test, and had a credible clinical study that concluded the test had value in assessing an individual’s risk for heart attack and stroke. Yet, despite these facts, the headwinds in today’s healthcare marketplace were too great to overcome.

Could it be that the toughest marketing challenge facing LipoScience was increased resistance by health insurers to pay for pro- prietary diagnostic tests? Given the news about the abuses in the cardiovascular testing market published this fall by The Wall Street Journal naming Health Diagnostic Laboratories and several others, it is rea- sonable to conclude that more health insurers are wary of covering any proprietary cardiology tests.

 

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