Here's How New Roche Cancer Drug Zelboraf Benefits LabCorp

A new Roche (OTC:RHHBY) cancer drug expected to become a blockbuster could also end up being a boon for laboratory and diagnostics firm LabCorp (NYSE: LH  ) .

The Roche drug Zelboraf was approved in August by the Food and Drug Administration to treat melanoma patients whose advanced skin cancer cannot be removed by surgery. But Zelboraf works only for patients whose tumors express a particular gene mutation and the FDA also approved a Roche companion diagnostic, which is used to identify patients that will respond to the drug. Burlington, North Carolina-based LabCorp is now providing that diagnostic.

The FDA reviewed Zelboraf under its priority review program, which allows for an expedited six-month review of drugs that either offer major advances in treatment or provide a treatment where no adequate therapy exists. Melanoma is the leading cause of death from skin disease, according to the National Cancer Institute. An estimated 68,130 new cases of melanoma were diagnosed in the United States last year; about 8,700 people died from the disease.

Zelboraf and its companion diagnostic were approved well ahead of the respective target dates of Oct. 28 and Nov. 12. LabCorp's clinical trials division Esoterix worked with Roche to test tumor samples in phase 2 and 3 trials.

But beyond the clinical trials work, the Zelboraf and companion diagnostic approval demonstrate the expansion that LabCorp is seeking to make beyond providing laboratory testing services. Most of LabCorp's revenue has historically come from routine laboratory tests. But the company has been working to increase its presence in higher revenue specialty tests. LabCorp last year set a goal for genomic and molecular testing to reach 40 percent of the company's revenue mix.

Following the $925 million acquisition of Genzyme Genetics late last year, LabCorp set a new goal to increase such tests to 45 percent of the company's revenue within the next five years. As sales of Zelboraf grow, tests for that drug provided by LabCorp should help the company get to that goal.

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