NEW YORK: Laboratory Corporation of America today reported that its net revenues for the first quarter grew 5 percent year over year, while its diagnostics segment improved 8 percent. For the three months ended March 31, LabCorp posted $2.41 billion in net revenues, up from $2.30 billion in the year-ago quarter, and matching the consensus Wall Street estimate. Total revenues for the first quarter grew 3 percent year over year to $2.45 billion from $2.37 billion. In diagnostics, net revenues came in at $1.72 billion in Q1 2017 compared to $1.59 billion in Q1 2016. The increase was driven by acquisitions, price, mix, and organic volume, the company said in a statement.
On a conference call following the release of the financial results, LabCorp Chairman and CEO Dave King noted that diagnostics makes up 70 percent of the firm’s total business. “Our diagnostics business is the backbone for our strong free cash flow, which we deployed judiciously in the quarter toward investing in the business, returning capital to shareholders, and growing through acquisitions,” King said. During Q1, the company announced a definitive deal to acquire all ownership interest in Pathology Associates Medical Laboratories. LabCorp also agreed to acquire the assets of Mount Sinai’s Clinical Outreach Laboratories.
The pending implementation of the Protecting Access to Medicare Act in January is expected to be a catalyst for LabCorp’s M&A pipeline, though King attributed his firm’s recent robust M&A spending to general changes in the healthcare environment. He cited the increased push to value-based payments, as well as an emphasis on procuring high-value services at the most effective cost. On PAMA, King reiterated concerns that Quest Diagnostics Chairman, President, and CEO Steve Rusckowski expressed last week about the definition of an applicable lab, or those laboratories that have to report their private payor pricing data to the Centers for Medicare & Medicaid Services as it calculates new reimbursement rates for labs. “The definition that the prior rule came up with is inconsistent with the legislative intent,” King said, adding that 95 percent of hospital labs will not have to report their pricing data under the current definition, “which means their commercial pricing, which is multiples above ours, is not going to be considered to be part of the ‘market.'”
LabCorp continues to press CMS to revisit the definition of an applicable lab and “we’re hopeful that they will do that, and that will, as a result, get a rule and get an implementation of the legislation that’s consistent with what Congress and the industry agreed that we wanted to do,” he said. King also said that LabCorp saw strong growth in its companion diagnostics business through additional customer partnerships, increased PDL-1 testing, collaborations on the development of tests for new immuno-oncology drugs, and the expansion of the firm’s CDx offerings to neurodegenerative disorders and rare and orphan diseases. LabCorp, he added, will open a dedicated CDx laboratory headquartered in North Carolina later this year “to address rapidly growing demand.” Meanwhile, LabCorp’s Covance business recorded net revenues of $690.3 million, down 2 percent from $703.1 million a year ago.
The company’s SG&A costs increased 1 percent to $419.4 million in the recently completed quarter from $414.3 million a year ago. Restructuring and other special charges dropped to $3.9 million in Q1 2017 from $19.2 million in Q1 2016. Net earnings attributable to LabCorp was $192.2 million, or $1.84 per share, compared to $164.1 million, or $1.58 per share, a year ago. Adjusted EPS was $2.22, just above the consensus Wall Street estimate of $2.20. LabCorp finished the quarter with $365.5 million in cash and cash equivalents. The company lowered its guidance for net revenue growth for full-year 2017 to between 3.5 and 5.5 percent year over year from a prior guidance of between 4.5 and 6.5 percent due to expected slower growth for Covance, partially offset by higher expected growth in the diagnostics business. Net diagnostic revenues are expected to ramp up between 5 and 7 percent year over year. Adjusted EPS is anticipated in the range of $9.20 to $9.60 for 2017, down from a prior guidance of between $9.35 and $9.75. In morning trading on the New York Stock Exchange, shares of LabCorp were down 4 percent at $138.63.
