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Investment Bank Upgrades Quest, LabCorp on Expected Uptick in Doctor Visits, Lab Testing

NEW YORK (GenomeWeb) – Investment bank Canaccord Genuity today upgraded shares of Quest Diagnostics and Laboratory Corporation of America to Buy ratings on expectations that visits to primary care physicians and laboratory testing will increase in 2015 over 2014 levels. 

Analyst Mark Massaro upgraded the ratings for both companies from prior Hold ratings. He also increased his price target on Quest to $82 from an earlier $63 target, and the price target on LabCorp to $145 from $100. 

In a research report on Quest, Massaro noted a proprietary survey of 110 PCPs who said that they anticipate patient visits and laboratory testing to increase about 2 percent this year from 2014. Massaro said that he expects Quest will increase its lab testing volumes this year, while reducing its costs and driving operational improvements. Additionally, he anticipates Quest will make two to three accretive acquisitions each year and will repurchase some of its shares. 

On a macroenvironment level, he added that the US economy is "largely favorable and likely poised to benefit healthcare service providers like Quest." 

Massaro also noted that he expects Quest to take market share from Myriad Genetics in the BRCA testing field with its BRCAvantage test. Myriad still has first-mover advantages that will help the company retain "sufficient market share," but because a physician ordering BRCA testing will usually order more than one test, "given a large reference lab's wide product portfolio, we believe a 'one stop shop' lab could be appealing to doctors," Massaro said. 

Assuming a 10 percent share of the BRCA testing market, Quest could add as much as $300 million in revenues from its BRCAvantage test, he said. Furthermore, Quest recently launched BRCAvantage Plus, which uses a seven-gene expanded breast cancer panel, which the firm believes could increase testing to an additional 3 percent to 4.5 percent of patients who may undergo breast cancer testing not involving BRCA1/2 genes. 

Quest's shares were up a fraction of 1 percent to 70.99 on the New York Stock Exchange in afternoon trading on Tuesday. 

In a report on LabCorp, Massaro highlighted its recent $6.1 billion buy of Covance. Aside from the potential for double-digit growth in Covance by the end of 2016, compared to 3 percent to 4 percent growth currently, he said that the acquisition opens up new opportunities for LabCorp in the companion diagnostics space. 

"With LabCorp's access to patient data, customer relationships, and lab infrastructure, we believe it has all the key components a pharmaceutical partner would desire in a CDx partner," he said. "A combined LabCorp/Covance provides important attributes pharma looks for, including the ability to commercialize and a regulatory wherewithal to get a test through the FDA, in our view." 

LabCorp estimates its opportunity in the CDx space at $100 million by 2016 and said it has approximately 30 new CDx partner opportunities now, Massaro added, which could lead to $240 million in new revenues annually. 

In afternoon trading on the New York Stock Exchange on Tuesday, LabCorp's shares were down a fraction of 1 percent at $123.10.