PerkinElmer Says California Terminated COVID-19 Contract

Company’s tenure operating the controversial Valencia Branch Laboratory will end May 15

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ACCORDING TO A NEW SECURITIES FILING FROM PERKINELMER, the State of California served notice of termination of the company’s contract to run the beleaguered Valencia Branch Laboratory (VBL).

PerkinElmer, a diagnostics firm based in Waltham, Mass., made the surprising announcement about the early termination on March 31 in a filing to the U.S. Securities and Exchange Commission.

“PerkinElmer, Inc. (the Company) has been notified by the California Department of Public Health (CDPH) that due to the decrease in COVID cases and the related need for testing, the CDPH intends to end its contract with the Company for the supply and operation of the Valencia Branch Laboratory,” PerkinElmer wrote in its filing. “The discontinuation of the Company’s operation of the Valencia Branch Laboratory for CDPH will take effect on May 15, 2022.”

Contract Is Worth $1.7 Billion

PerkinElmer entered into a $1.7 billion agreement to operate the VBL in October 2020, which was when the new COVID-19 testing laboratory opened. The contract automatically renewed for the same amount in October 2021.

That renewal was mired in controversy, however, after a series of clinical laboratory inspections earlier in the year uncovered dozens of deficiencies, some of which placed patients in immediate jeopardy, according to regulators. (See the related story here.) The situation was further muddied because CDPH was slow to publicly release reports about the inspections. Even now, details about how the VBL addressed the deficiencies remain scant.

It is not immediately clear if the State of California will continue to operate the Valencia Branch Lab after May 15. It is also unknown whether the controversy about CLIA deficiencies at the the state-owned clinical laboratory had any influence on the decision to end the contract. As of presstime, the CDPH had not responded to questions from The Dark Report.

Financial Consequences

Any financial repercussions due to the contract ending won’t be disclosed until PerkinElmer’s second fiscal quarter closes at the end of June. “The Company reiterates that it continues to expect COVID-related revenue of at least $400 million in the aggregate in 2022, and will provide a further update on its first quarter 2022 earnings call,” stated PerkinElmer in its SEC filing. It is not clear how much, if any, of the outstanding contract amount will be paid to the company.

Investor site Seeking Alpha said the news is a financial blow to the company. “The setback comes at a time [when] PerkinElmer’s quarterly earnings beats have gradually dropped from a peak in 3Q 2020. In 2021, the company reported $1.6 billion of COVID-related revenue.”

The ongoing decline in the daily number of COVID-19 lab tests performed in the U.S. means other labs are generating less revenue for COVID-19 test claims. 

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