Filed by Laboratory Corporation of America Holdings
pursuant to Rule 425 under the Securities Act of 1933, as amended
and deemed filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934, as amended
Subject Company: Covance Inc.
(Commission File No. 001-12213)
The following is a slide presentation from a conference call hosted by Covance to discuss the transaction.
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Filed by Laboratory Corporation of America Holdings
pursuant to Rule 425 under the Securities Act of 1933, as amended
and deemed filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934, as amended
Subject Company: Covance Inc.
(Commission File No. 001-12213)
The following is a slide presentation from a conference call hosted by Covance to discuss the transaction.
LabCorp to Acquire Covance
CREATING THE WORLD’S LEADING
HEALTHCARE DIAGNOSTICS COMPANY
NOVEMBER 3, 2014
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FORWARD LOOKING STATEMENT
Cautionary Statement Regarding Forward Looking Statements
This communication contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, known as the PSLRA. These statements, as they relate to Laboratory
Corporation of America Holdings (“LabCorp”) or Covance (“Covance”), the management of either such company or the proposed transaction between LabCorp and Covance, involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. These statements are based on current plans, estimates and projections, and therefore, you are cautioned not to place undue reliance on them. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. LabCorp and Covance undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by law. Forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and future financial results of the pharmaceutical industry, and other legal, regulatory and economic developments. We use words such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “will,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and similar expressions to identify these forward-looking statements that are intended to be covered by the safe harbor provisions of the PSLRA. Actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including, but not limited to, those described in the documents LabCorp and Covance have filed with the U.S. Securities and Exchange Commission (the “SEC”) as well as the possibility that (1) LabCorp and Covance may be unable to obtain stockholder or regulatory approvals required for the proposed transaction or may be required to accept conditions that could reduce the anticipated benefits of the merger as a condition to obtaining regulatory approvals; (2) the length of time necessary to consummate the proposed transaction may be longer than anticipated; (3) problems may arise in successfully integrating the businesses of LabCorp and Covance or such integration may be more difficult, time-consuming or costly than expected; (4) the proposed transaction may involve unexpected costs; (5) the businesses may suffer as a result of uncertainty surrounding the proposed transaction, including difficulties in maintaining relationships with customers or retaining key employees; (6) the parties may be unable to meet expectations regarding the timing, completion and accounting and tax treatments of the transaction; or (7) the industry may be subject to future risks that are described in the “Risk Factors” section of the Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and other documents filed from time to time with the SEC by LabCorp and Covance. Neither LabCorp nor Covance gives any assurance that either LabCorp or Covance will achieve its expectations.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the businesses of LabCorp and Covance described in the “Risk Factors” section of their respective Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed by either of them from time to time with the SEC. All forward-looking statements included in this document are based upon information available to LabCorp and Covance on the date hereof, and neither LabCorp nor Covance assumes any obligation to update or revise any such forward-looking statements.
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FORWARD LOOKING STATEMENT
Additional Information and Where to Find It
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This document relates to a proposed transaction between Covance and LabCorp, which will become the subject of a registration statement and joint proxy statement/prospectus forming a part thereof to be filed with the SEC by LabCorp, and may be deemed to be solicitation material in respect of the proposed transaction. This document is not a substitute for the registration statement and joint proxy statement/prospectus that LabCorp will file with the SEC or any other documents that Covance or LabCorp may file with the SEC or send to stockholders in connection with the proposed transaction. Before making any voting decision, investors and security holders are urged to read the registration statement, joint proxy statement/prospectus and all other relevant documents filed or that will be filed with the SEC in connection with the proposed transaction as they become available because they will contain important information about the proposed transaction and related matters.
Investors and security holders will be able to obtain free copies of the registration statement, joint proxy statement/prospectus and all other relevant documents filed or that will be filed with the SEC by Covance or LabCorp through the website maintained by the SEC at www.sec.gov.
In addition, investors and security holders will be able to obtain free copies of the joint proxy statement/prospectus, once it is filed, from
Covance by accessing Covance’s website at www.covance.com or upon written request to Covance Inc., Office of the Secretary, 210 Carnegie Center, Princeton, New Jersey 08540.
Participants in Solicitation
LabCorp, Covance and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from
Covance’s stockholders in connection with the proposed transaction. Information regarding Covance’s directors and executive officers is contained in the proxy statement for Covance’s 2014 Annual Meeting of Shareholders, which was filed with the SEC on March 24, 2014. You can obtain a free copy of this document at the SEC’s website at www.sec.gov or by accessing Covance’s website at www.covance.com. Information regarding LabCorp’s executive officers and directors is contained in the proxy statement for LabCorp’s 2014 Annual Meeting of Shareholders filed with the SEC on April 4, 2014. You can obtain a free copy of this document at the SEC’s website at www.sec.gov or by accessing LabCorp’s website at www.LabCorp.com. Additional information regarding the interests of those persons and other persons who may be deemed participants in the proposed transaction may be obtained by reading the joint proxy statement/prospectus regarding the proposed transaction when it becomes available. You may obtain free copies of this document as described in the preceding paragraph.
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Transaction Highlights
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TRANSACTION OVERVIEW
Terms
Current value of $105.12 per Covance share in cash and LabCorp shares
Covance shareholders receive $75.76 in cash and 0.2686 LabCorp shares per Covance share
Covance shareholders to own approximately 15.5% of LabCorp
Transaction Value
Equity value of $6.1 billion
Enterprise value of $5.6 billion
Implied LTM EV/EBITDA multiple of 13.3x
Premium
Implied 32% premium to closing price on 10/31/14
Accretion
Estimated annual cost synergies to exceed $100 million
Synergies expected to be fully realized within three years of closing
Expected to be accretive to adjusted EPS in 2015 before synergies
Financing
Issue 15.55 million LabCorp shares
$4.25 billion of committed debt financing
Strong and stable free cash flow will enable rapid de-levering
Company
Corporate headquarters in Burlington, N.C.
Headquarters
Covance division headquarters in Princeton, N.J.
Leadership
David King, Chairman & CEO
Joe Herring, Head of Covance division
Glenn Eisenberg, Chief Financial Officer
Closing
Closing expected Q1 2015
Subject to Covance shareholder approval, regulatory approvals, customary closing conditions
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STRATEGIC RATIONALE - WHY ARE WE DOING THIS?
Creates World’s
Leading Healthcare
Diagnostics Company
Enhances Financial Strengthens
Profile with Greater Partnerships with
Revenue Growth, Cash Pharma, Physicians,
Flows and Synergies Payors and Patients
LabCorp
Provides Superior
Scale and Increases Broadens Global
Breadth of Integrated + Reach
Offerings
Covance
Supports the
Development of Expands Customer
Personalized Medicine Base and Improves
with Data and Revenue Mix
Information Tools Enables More
Investment in
Innovation
Unique Opportunity to Create Value for Customers, Patients and Shareholders
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PROVIDING SERVICES FROM DEVELOPMENT THROUGH COMMERCIALIZATION
Clinical Trials Diagnostic Clinical
Drug Development Biomarker Validation
Therapeutics Diagnostics Lab Services
Covance Capabilities
Phase I-IV Clinical Trials
Central Laboratory
Preclinical Laboratories
Informatics /
Risk-based Monitoring
Biomarker Development /
Companion Diagnostics
Market Access
Nutritional Analysis
LabCorp Capabilities
Physician and Patient Access and Connectivity Payor Relationships Health System Relationships
Commercialization of Companion Diagnostics and Personalized Medicine
Anatomic Pathology/Molecular Oncology and Genomics Services
In Vitro Diagnostics Relationships
Expanded Central Lab and Patient Data Analytics;
Complementary Laboratory Testing and Drug Development Capabilities
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Delivering Unique Solutions to Trusted Partners
Partners Needs Solutions
Full spectrum of drug development services
Global, end-to-end drug development partner Advanced genomic and specialty biomarkers,
Identification of patient populations diagnostic assays and LabCorp patient database
Pharma Expedited, lower-cost, higher quality trials Adaptive trial design, site selection and subject
Approval support, therapy targeting and outcomes recruitment solutions
tracking Clinical diagnostics and specialty testing
Risk-based monitoring and informatics
Early identification through LabCorp patient
Enhanced subject recruitment databases
Physicians Customized patient care Enhanced diagnosis and therapy selection
Preferred provider networks Combined drug development services and specialty
testing
Superior preventive care Personalized medicine and companion diagnostics
Payors Improved patient outcomes Safety and pharmacovigilance tools
Lower cost clinical solutions Predictive analytics
Better/faster outcomes Increased efficacy and reduced drug side effects
Patients Improved care at lower cost Personalized therapy
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COMBINING AT THE RIGHT TIME – SIGNIFICANT OPPORTUNITIES TOGETHER
US Health Care Spend of
~$5.8 trillion*
Other
15%
Hospital Care
27%
Prescription
Nursing Home
Drugs
and Home Health
27%
2%
Physician Services
7%
Lab Testing
Administration 3%
Costs 19%
Positive Industry Dynamics
Pharma outsourcing trend – drug sponsors shifting from fixed to variable cost models
Growing demand for global trials support, including investigator and patient recruitment
Increased pharma R&D spending and biotech funding
Multiple large and growing therapeutic categories (e.g., oncology, infectious disease)
Specialty and orphan drugs Companion diagnostics critical to drive efficacy and manage utilization of high priced drugs
Increasing focus on personalized approaches to medicine
Growing focus on quality, data, analytics and outcomes
Opportunity to build international scale on a cost-efficient basis
*Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group; and U.S. Department of Commerce, Bureau of Economic Analysis and U.S. Bureau of the Census, and company estimates. Estimates spending as of year 2012.
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ALIGNS WITH LABCORP’S FIVE PILLAR STRATEGY
1
Accretive to adjusted EPS in year one
Deploy Capital
To Investments Strong, stable cash flow and superior financial
That Enhance resources
Company’s Platform for future acquisitions and growth
Business and
Return Capital To Additional payors and revenue sources
Shareholders Natural platform for international expansion
2
Capitalizes on Covance’s recent IT investments
Enhance IT Technologies that drive faster data delivery to
Capabilities To customers, physicians and patients
Improve Physician Risk-based monitoring and predictive analytics
And Patient Convey data to customers on real-time basis
Experience
Formidable combination of analytics and bio-
informatics resources
3
Increases scale of central lab operations
Improve Combines data resources, allowing for efficient
Efficiency To Offer patient recruitment and lower cost/faster clinical
Compelling Value trials
In Company Services Opportunity to drive efficiency across supply
chain and infrastructure of combined entity
4
Focus on new technologies and innovation across
diagnostics and therapeutics
Scientific
Innovation Comprehensive pharmaceutical support services,
including commercialization of companion
diagnostics and other biomarkers
5
Strengthens touch point and engagement
potential with both physicians and patients
Uses combination of clinical data and longitudinal
data to improve patient care and clinical decision
support
Develop Knowledge
Services Transformative combination that enhances
personalized medicine and improves the
development of therapeutics
Provides novel knowledge offerings for
pharmaceutical clients to revolutionize drug
commercialization
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Covance Highlights and Third Quarter Results
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COVANCE: THE WORLD’S MOST COMPREHENSIVE DRUG DEVELOPMENT COMPANY
Covance is the only CRO offering full-spectrum drug development services
Market-leading central laboratory and preclinical franchises
Top five provider of Phase I-IV clinical trial management services
Market-leading informatics and risk-based monitoring expertise
Expertise in biomarker discovery and development
Market leader in nutritional chemistry
Industry-leading global operations led by strong management and scientific teams:
>12,500 employees in >60 countries
Trial activity in >100 countries
Annual Revenue >$2.5 billion
Market Cap ~$5 billion
Established relationships with all of top 20 pharma; several hundred biopharmaceutical clients
Contributed to the development of over 90% of the 50 best selling medicines on the market today
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ONLY DRUG DEVELOPMENT COMPANY WITH A FULL RANGE OF R&D SERVICES
Pharmaceutical/Biotechnology Research & Development
Discovery
Drug Safety (IND)
Efficacy (NDA)
Approval
Covance Generates More Safety and Efficacy Data Than Any Other Entity Involved in Drug Development
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CRO MARKET DYNAMICS
($ in billions)
Projected Pharma R&D Spend
$ 162
$ 158
$ 155
$ 151
$ 148
$ 145
$ 141
$ 137
3.1%
2.5% 2.4% 2.3% 2.3%
2.1% 2.2% 2.1%
2013 2014 2015 2016 2017 2018 2019 2020
Pharma R&D Spend Growth
CRO Market Size
$ 81
$ 76
$ 71
$ 67
$ 62
$ 58
$ 55 50%
$ 50 48%
46%
44%
42%
40%
39%
37%
2013 2014 2015 2016 2017 2018 2019 2020
Outsourced Clinical Development CRO Market Penetration
Source: Evaluate Pharma and William Blair Equity Research (April 25, 2014)
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COVANCE REVENUE
By Service Offering (LTM-Sept. 30 Distribution of Net Revenues)
Early Development
(toxicology, food/drug chemistry, clinical
*Central Laboratory pharmacology, research products,
32.8% discovery services)
36.3%
*Phase II-IV Clinical
Development and other
30.9%
* 63.7% Late-Stage Development
By Geography (LTM-Sept. 30 Distribution of Net Revenues)
U.S.
46.5%
Outside U.S.
53.5%
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COVANCE THIRD QUARTER EARNINGS HIGHLIGHTS
($ in millions except EPS) 3Q14 3Q13 Change
Net Revenues $627.1 $606.7 3.4%
Operating Income $76.5 $62.6 22.2%
GAAP Operating Margin 12.2% 10.3% +190 bps
Net Income $66.0 $44.2 49.3%
Diluted Earnings per Share $1.16 $0.78 48.8%
Restructuring Costs($3.2)($4.9)
Operating Income, excluding items* $79.7 $67.5 18.1%
forma Operating Margin, excluding items* 12.7% 11.1% +160 bps
Pro Gain on Sale of Business/Investment $13.4 -
Net Income, excluding items* $56.1 $47.3 18.6%
Diluted EPS, excluding items* $0.98 $0.83 18.2%
* See Covance press release for pro forma income statements for reconciliation of 2014/2013 GAAP to pro forma amounts.
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INDEPENDENT SURVEYS RANK COVANCE MOST PREFERRED CRO
“Covance is the clear favorite clinical CRO to work with”
62% vs. next CROs at 44%, 37%, 29%, 21% and 9%, N = 104
Baird Equity Research (3/20/14)
Covance received the most mentions as the best-positioned CRO to win preclinical work (n=100)
William Blair Equity Research (4/25/14)
“Covance received highest score in both preclinical and clinical quality” N=43
Morgan Stanley Research North America (3/3/13)
Covance Central Laboratory Services named most preferred lab by investigators by a wide margin
47% vs. 23% and 9% for next two preferred; N= 258
Life Science Strategy Group (7/26/13)
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Financial Highlights
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PROFILE OF COMBINED COMPANY
LTM Ended Sept. 30, 2014
($ in Millions) LabCorp Covance Pro Forma Combined
Revenue $5,936 $2,510 $8,446
Adjusted EBITDA1, 2 $1,191 $424 $1,615
EBITDA Margin 20.1% 16.9% 19.1%
Operating Cash Flow $774 $325 1,099
Capital Expenditures $217 $164 $381
Free Cash Flow $557 $161 $718
Strategic acquisition that meets Company’s financial criteria:
Accretive to Adjusted EPS before synergies in Year 1
Earns cost of capital by Year 4
(1) LabCorp EBITDA adjusted to exclude restructuring and other special charges of $29.6 million (2) Covance EBITDA adjusted to exclude restructuring and asset impairment charges of $71.2 million
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OVERVIEW OF FINANCING SOURCES & USES
Enterprise Value of $5.6 Billion, 13.3x LTM EBITDA
Uses Sources
Purchase of Covance Equity $ 6,085 LabCorp Equity Issued $ 1,700
Covance Debt 250 LabCorp Cash 400
Covance Cash(705) LabCorp Debt Financing 3,900
Enterprise Value $ 5,630 $ 6,000
Transaction Expenses 370
$ 6,000
Investment Grade Ratings Anticipated
Expected Leverage at Transaction Close
~4.1x Debt/EBITDA
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KEY TERMS OF CONTEMPLATED FINANCING
Revolving Credit
Bridge Facilities Term Loan Senior Notes
Facility
Principal Amount: $4.3 billion $1 billion $1 billion $2.9 billion
Maturity: 364 days 5 years 5 years 5-30 years
Indicative Interest 5 Yr: T+120 bps
L+125 bps L+125 bps L+125 bps 10 Yr: T+160 bps
Rates: 30 Yr: T+195 bps
Security: Unsecured Unsecured Unsecured Unsecured
Financial Max Leverage of Max Leverage of Max Leverage of Standard light covenant
| 4.75x |
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Debt/EBITDA 4.75x Debt/EBITDA package consistent with |
Covenants: 4.75x Debt/EBITDA(with step downs)(with step downs) outstanding notes
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FINANCING
Anticipated Debt Maturity Timeline
$2,000
1800
1600
$1,000
1400
1200
1000
800 $ 500
600
$1,000 $1,000 $900
400 $ 500
$ 600
$500 $500
200 $400
$ 250 $325 $ 300
$ 132
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2045
Outstanding Debt New Bond Issuances New Term Loan New Credit Facility
Free Cash Flow used to pay down debt
Expect to be at targeted leverage ratio in 2016
$1 billion credit facility (5 years) unutilized at time of close
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MULTIPLE OPPORTUNITIES FOR COST SAVINGS AND ENHANCED EFFICIENCY
LabCorp and Covance Have a Shared Focus on Operational Efficiency
Business Optimization
Estimated Cost Synergies to
Corporate Overhead Exceed $100 Million and Be
Fully Realized Within 3 Years
Purchasing & Logistics
Transaction Accretive to Adjusted EPS in 2015 Before Synergies
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EXPANDS CUSTOMER BASE
Standalone LabCorp Revenue Mix - 2013
Commercial
Clients
30% Managed
Care
46%
Medicare and
Medicaid Private
17% Patients
7%
Standalone Covance Revenue Mix - 2013
3%
97%
Pharma/Biotech Food & Dietary
Pro Forma Revenue Mix
Pharma/Biotech
29% Managed Care
32%
Private Patients
5%
Commercial Medicare and
Clients Medicaid
22% 12%
Source: Company filings and management estimates.
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EXPANDS GEOGRAPHIC REACH
Standalone LabCorp Geographic
Distribution of Revenue - 2013
Canada Other
UK 6% 1%
1%
USA
92%
Standalone Covance Geographic
Distribution of Revenue - 2013
Other
17%
Euro Zone
9% USA
46%
Switzerland
17%
UK
11%
Source: Company filings and management estimates.
Pro Forma Geographic
Distribution of Revenue
Euro Other
Zone
Switzerland 5%
3%
5%
Canada
4%
UK
4%
USA
79%
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Conclusion
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NEXT STEPS
Expect Q1’15 Closing
Covance shareholder vote
Regulatory approvals
Expect Smooth Integration
Covance CEO Joe Herring to join leadership team as head of Covance division
Will preserve strong Covance brand; Princeton to remain Covance division headquarters
LabCorp has strong track record of successful integrations
Limited overlap will contribute to seamless integration
Integration Focused on Combining Best of Both Companies to Drive Innovation, Efficiencies and Growth
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COMPELLING BENEFITS FOR BOTH COMPANIES
Benefits to LabCorp
Enhances LabCorp platform with leading full-service CRO business, providing one-stop shop for growing pharma outsourcing needs; supports continuum from drug and diagnostic development to clinical utilization
Expands ability to support personalized medicine and companion diagnostics development
Improves capability to support global trials, including investigator and patient recruitment
Increase in size of central lab
Provides new revenue streams that capitalize on core competencies
Increases touch points to physicians and patients
Increased fill-in acquisition targets
Benefits to Covance
Broadens data analytics capabilities
Enhances partnerships with pharma on both therapeutic and diagnostics development
Strengthens biomarker development by leveraging
LabCorp’s expertise in genomic and specialty biomarkers
Improves subject recruitment
Aligns with LabCorp’s network of 220,000 physicians
Leverages LabCorp’s superior IT connectivity with physicians, providers & patients, including LabCorp’s patient portal with more than 625,000 enrollees
Reduces customer concentration
Provides strong, stable cash flow and superior financial resources
Combined Company Will Generate Strong and Stable Cash Flows
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LabCorp to Acquire Covance
CREATING THE WORLD’S LEADING
HEALTHCARE DIAGNOSTICS COMPANY
NOVEMBER 3, 2014