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LabCorp Reports 24 Percent Q1 Revenue Jump on Covance Acquisition

NEW YORK (GenomeWeb) – Laboratory Corporation of America today reported first quarter revenues of $1.79 billion, an increase of 24 percent year over year from $1.43 billion, driven by its acquisition of Covance.

The firm's revenues were in line with the average Wall Street estimate.

LabCorp acquired contract research firm Covance in Q4 2014 for about $6.1 billion in cash and stock. That acquisition, since closing on Feb. 19, contributed $267.2 million to LabCorp's revenues, driving 19 percent growth in revenues year over year. The remaining $74.4 million in revenues was attributable to increased volumes in LabCorp's clinical laboratory business, marking a 4 percent year-over-year increase.

Revenues from LabCorp's diagnostics business in the first quarter were $1.48 billion, a 4 percent increase from $1.41 billion in the first quarter of 2014. The Covance drug development segment brought in $624.6 million in revenues in the first quarter, a 2 percent dip from $636.9 million in the year-ago period.

LabCorp reported Q1 net income of $700,000, or $.01 per share, compared to $113.1 million, or $1.31 per share, in the first quarter of 2014. The firm said its income was reduced by restructuring costs and other special items totaling $191.3 million. On an adjusted basis, EPS was $1.73 in the first quarter, beating analysts' consensus estimate of $1.63.

The firm's SG&A costs were $415.1 million in the first quarter of 2015, compared to $284.9 million during the same period in 2014. The company also reported $31.4 million in charges for amortization of intangibles and other assets, and $19.3 million in restructuring and other charges.

The firm finished the quarter with $446.4 million in cash and cash equivalents.

During a call with investors to discuss the financial results, LabCorp CEO David King commended the passage of a new law to repeal the sustainable growth rate formula for determining physician payment rates, and replace it with a more performance-based payment system that places greater focus on alternative payment models. "This is a positive development for the clinical laboratory industry," King said.

However, he noted that the lab community was still waiting to hear details from the Centers for Medicare & Medicaid Services about what industry players will have to report as part of the surveys that will determine market-based payment rates under the Protecting Access to Medicare Act of 2014. Additionally, King reiterated the company's disagreement with the US Food and Drug Administration's draft guidance on regulation of lab tests, stating that proposed requirements stand to be "terribly harmful" for patients.

King noted that although there are new CPT codes now for NGS tests, such tests aren't a "significant component" of LabCorp's business, and so the codes haven't made much of an impact on revenues. In 2013 LabCorp began expanding its presence in the genomic testing space by launching the IntelliGen NGS assay that gauges mutations in 56 oncogenes; GeneSeq, for cardiomyopathy; and Comprehensive BRCAssure BRCA 1/2 Analysis for identifying patients with BRCA mutations at risk of developing breast, ovarian, and other cancers.

The company sees its BRCA test offering as a growth opportunity, but James Boyle, CEO of LabCorp Diagnostics, said during the call that given the size of the BRCA testing business, "it's not substantial or material in terms of our entire book of business."

LabCorp updated its 2015 guidance. Previously, it had projected that including Covance' s operations its FY2015 revenues would grow between 40 percent and 44 percent, with a revenue increase of between 3 percent and 5 percent for its clinical lab business. The firm had estimated FY2015 adjusted EPS to be in the range of $7.35 to $7.70.

Now, the company expects that its FY2015 revenues will increase between 39 percent and 42 percent. LabCorp still expects its diagnostics business to grow between 3 percent and 5 percent, but it also expects up to a 2 percent revenue increase for the Covance drug development business. LabCorp's FY2015 adjusted EPS estimate is now in the rage of $7.55 to $7.90.