NEW YORK (GenomeWeb) – Laboratory Corporation of America today reported third quarter revenues of $2.27 billion, an increase of 46 percent year over year from $1.55 billion, reflecting a continued boost from its acquisition of Covance last year.
The firm's revenues were above the average Wall Street estimate of $2.25 billion.
In the third quarter, the Covance acquisition contributed $647 million to LabCorp's revenues, driving 42 percent growth year over year. The remaining $71.1 million, marking 5 percent growth, came from volume increases, price, mix, and tuck-in acquisitions from LabCorp's clinical laboratory business, which were partially offset by negative currency effects and personnel costs.
Revenues from LabCorp's diagnostics business in the third quarter were $1.60 billion, a 5 percent increase from $1.53 billion in Q3 2014. The Covance drug development segment brought in $669 million in revenues in the third quarter, a 3 percent increase from $652 million in the year-ago period.
Company executives have previously noted that Covance and LabCorp are integrating research and sales teams and are focused on garnering an additional $300 million in incremental annual revenue by 2018 — $150 million from the use of data to improve trial recruitment; $100 million from companion diagnostics; and $50 million from the use of real-world evidence.
LabCorp CEO David King told analysts and investors during a call today that Covance's contract research business has been bolstered by the substantial patient data that LabCorp has. As a result, the company has inked four major deals that have contributed around $100 million in new contract research orders to its backlog.
The company also announced recently it would provide the companion diagnostic approved alongside Merck's immunotherapy drug Keytruda (pembrolizumab) and the complementary diagnostic approved with Bristol-Myers Squibb's Opdivo (nivolumab). Although the tests were developed by Dako, LabCorp supported the registration trials for these drugs.
"We've been involved in the development and launch of approximately 70 percent of all companion diagnostics since [the first such test approved for] Herceptin in 1998," King estimated. "We're actively working on a sizeable number of ongoing companion diagnostics programs in this increasingly important category of biopharma research and development." King added that LabCorp has CDx collaborations in areas beyond oncology.
He also noted that LabCorp, with information from 15 billion test results, patient demographic data, connections to clinical trials and investigators, and the largest team of genetic counselors in the industry, has the capabilities to build large databases, gather real-world evidence of disease prevalence, connect patients to clinical trials, and interpret diagnostic results.
Like others in the lab industry, King expressed significant concerns over the Centers for Medicare & Medicaid Services’ proposal to implement the "Protecting Access to Medicare Act of 2014," which seeks to establish a market-based payment system for diagnostics under the Clinical Laboratory Fee Schedule. Under this recently passed law, "applicable laboratories" will report private payor rates to CMS for each clinical lab test and their volumes over a specified period of time. Using this information, CMS will calculate a weighted median payment amount for each test.
CMS has defined "applicable laboratory" as labs that receive more than 50 percent of revenues from Medicare and labs that have Medicare revenues of more than $50,000. This would rule out hospital labs from having to report fees.
"From our perspective CMS' proposal did not faithfully attempt to do what Congress had asked it to do," King said. The Office of Inspector General recently released its data brief for 2014, which showed that hospitals received $1.7 billion, or 24 percent, of Medicare Part B payments and received 25 percent of the payments for the top 25 tests that accounted for $4.2 billion of Medicare spend. These numbers don't square with CMS's exclusion of hospital labs from a market-based pricing scheme, King said.
LabCorp reported Q3 net income of $152.8 million, or $1.49 per diluted share, compared to $137.2 million, or $1.59 per share, in the third quarter of 2014. On an adjusted basis, EPS was $2.07 in the third quarter, beating analysts' consensus estimate of $2.06.
The firm's SG&A costs were $382.5 million in the third quarter of 2015 compared to $305.7 million for the same period in 2014. The company also reported $47.1 million in charges for amortization of intangibles and other assets, and $26.4 million in restructuring and other charges.
During the third quarter, LabCorp invested $8.3 million in tuck-in acquisitions and paid down $125.0 million in debt. The firm finished the quarter with $713 million in cash and cash equivalents.
LabCorp updated its 2015 guidance. At the end of the Q2 2015, the company had projected year-end revenue growth of between 40 percent and 42 percent, and growth in diagnostics revenues of between 3.5 percent and 5.5 percent. The company said it expected the Covance drug development business to log between a 1.5 percent drop and a 0.5 percent increase in revenues, reflecting a negative foreign currency impact.
Now, the company is estimating 2015 revenues to increase by 41 percent, its diagnostics business revenues to grow between 4.5 percent to 5.5 percent, and the drug development segment revenues to fall between a 0.5 percent decrease and a 0.5 percent increase. Labcorp expects adjusted EPS for 2015 to be between $7.80 and $7.95 compared to previous guidance of between $7.75 to $8.00.
In Monday morning trade on the New York Stock Exchange, shares of LabCorp were up 5 percent at $117.43.