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Clinical Laboratories Step Up the Pace of Genomics Dealmaking

Executive Summary

Large reference laboratories, looking to shore up their growth and margins, are increasingly interested in esoteric testing, and, in particular, in molecular-based testing, as indicated in a series of recent deals by the nation's largest reference labs. LabCorp has exclusive alliances with Myriad Genetics and Exact Science Corp., while Quest has thrown its efforts behind diaDexus and Roche.

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Quest and Laboratory Corp. of America, two Wall Street favorites for several years, seem to be bumping up against a wall when it comes to growth. Their growth is heavily dependent on acquisitions--but there aren't many big labs left to buy. Lab Corp.'s just announced offer for Dianon not withstanding. Quest's bid to buy California-based Unilab, is under FTC scrutiny--although Wall Street is betting the deal will fly. Lab Corp. faces intense regional competition, which it claims it is addressing. Still, the bigger these companies get, the tougher it is to maintain growth.

Genetic Testing's Regulatory Quagmire

Various government agencies are proposing greater government oversight of genetic testing, with the most controversial recommendation asking the FDA to regulate "home brews," the tests that clinical labs develop in-house for clinical purposes. As implementation plans are hashed out slowly, IVD kit makers and clinical labs see both opportunities and hurdles. Hospital labs are concerned about being overburdened by the new rules, while iVD makers worry that reform would give labs an unfair advantage.

Clinical Laboratories' Amazing Comeback

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