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LabCorp Q2 Revenues Rise 5 Percent, Fueled by Diagnostics Growth

The story has been updated to include comments from LabCorp's conference call. 

NEW YORK (GenomeWeb) – Laboratory Corporation of America today reported its revenues for the second quarter increased almost 5 percent year over year.

For the three months ended June 30, total revenues reached $2.54 billion from $2.43 billion in the year-ago period. It beat the consensus Wall Street estimate of $2.47 billion.

Top-line performance was helped by the company's diagnostics business, which rose to $1.80 billion from $1.66 billion, an 8 percent increase year over year, driven by acquisitions, organic volume, price and mix, and partially offset by the impact of currency translation, the company said.

On a conference call following the release of LabCorp's financial results, the firm's Chairman and CEO David King singled out LabCorp's strength during the quarter in women's health and reproductive genetics. The Sequenom business, he added, has "reenergized our larger genetic testing portfolio and is performing ahead of expectations."

He further highlighted the firm's longstanding collaboration with 23andMe "which has demonstrated an impressive growth trajectory, represents an important innovative component of our consumer[-based] offering, and presents further strategic collaboration opportunities."

Such collaborations would be focused on what he called "core testing," including wellness testing, and other "routine" testing.

Meanwhile, the Covance business saw a 3 percent decline to $699.7 million from $722.4 million.

Highlights in Q2 included the completed acquisition of the assets of Mount Sinai's Clinical Outreach Laboratories; the completed acquisition of all ownership interest in Pathology Associates Medical Laboratories; plans to open a dedicated companion diagnostics facility in North Carolina; and a collaboration with Walgreens to create co-branded patient services placed within select Walgreens stores.

On the call King said that the Walgreens deal, among other things, broadens LabCorp's channel-to-market and builds its brand identification and loyalty.

"We view the LabCorp at Walgreens initiative as additive to our existing [patient service centers] footprint, providing attractive opportunities to strategically expand our channels and customer access points with a globally trusted partner," King said.

On Quest Diagnostic's second quarter earnings call on Tuesday, CEO Steve Rusckowski said that his firm and other industry players have met with the Centers for Medicare & Medicaid Services, as well as members of Congress, to voice concerns about the impending implementation of the Protecting Access to Medicare Act of 2014, or PAMA. Today, King said that LabCorp, too, is pressing to delay the planned Jan. 1, 2018 by six months.

At issue is the definition of an applicable laboratory. By and large, hospital labs have been excluded from the definition and having to submit its reimbursement data to CMS as the agency creates new reimbursement rates for labs. But by omitting hospital lab reimbursements, which the industry says is significantly higher than those of non-hospital labs, the new PAMA rates would not be calculated using market-based rates as they are supposed to be.  

According to King, the current dataset that the CMS is reviewing as part of the PAMA process represents only 5 percent of hospital lab-based testing volume, and LabCorp and the rest of the industry is asking CMS to include hospital lab reimbursement rates as part of the calculation for the new rates.

"I'm hopeful that we'll get a better resolution than what we have seen to date," King said. While it is not known if CMS will delay the implementation of PAMA, LabCorp is working under the assumption that CMS will let the Jan. 1, 2018 date stand. Said King, "I think that will be, from my perspective, a serious mistake if CMS does it."

For the quarter, LabCorp's SG&A spending rose 6 percent to $435.3 million from $409.4 million. The firm also recorded restructuring and other special charges of $39.1 million compared to $6.6 million in Q2 2016.

The firm's net earnings for the quarter was $188.9 million, or $1.82 per share, compared to net earnings of $204.4 million, or 1.96 per share, a year ago. Net earnings attributable to LabCorp for Q2 2017 was $188.6 million compared to $204.1 million in the year-ago period.

The firm's adjusted EPS was $2.47, which beat the consensus Wall Street estimate of $2.40.

LabCorp ended the quarter with $299.9 million in cash and cash equivalents.

For full-year 2017, the firm estimates revenue growth of between 5 percent and 6.5 percent. Revenues for LabCorp Diagnostics is anticipated to grow in the range of 7 percent to 8 percent, while Covance revenues are expected to grow in the 1 percent to 3 percent range.

The company said that adjusted EPS for 2017 is expected to be in the range of $9.30 and $9.65.

In late morning trading on the New York Stock Exchange, LabCorp's shares were up 6 percent at $162.74.