Laboratory Corporation of America this year is planning to conduct a comprehensive review of its cost structure, launch new NGS-based tests, and pilot a decision support platform for physicians and payors to provide guidelines-supported testing and claims adjudication.
In a webcasted presentation from the annual JP Morgan Healthcare Conference in San Francisco this week, CEO David King said that while LabCorp plans on maintaining its core testing business, the company is also investing in IT capabilities to improve interactions with physicians, patients, and payors, and launch personalized medicine-focused tests based on advanced technologies such as next-generation sequencing.
“We never want to get away from the core business, because the core business is very fundamental to the delivery of healthcare and to patient care,” King said at the conference. “But we want to migrate the business to where we can continue to be seen as a value adder in the value chain.”
In 2013, King said the company launched 152 new tests. The majority of the firm's testing revenues, around 60 percent, is from core or routine testing performed by physicians, according to King, while esoteric, genomic, and histology testing comprise 40 percent of revenues.
The genomic testing space represents a future focus area for LabCorp, and the company last year launched the IntelliGen NGS assay that gauges mutations in 56 oncogenes through its Integrated Oncology specialized lab. The firm also introduced an NGS-based assay, 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.
King identified the BRCAssure test among the diagnostics that he expects will drive future growth for the company. However, shortly after LabCorp launched the test last year, Myriad Genetics, the leading provider of BRCA testing, sued LabCorp alleging infringement of 11 US patents covering its BRCA1 and BRCA2 testing franchise.
LabCorp is among six labs being sued by Myriad for infringement of patents underlying its BRCAnalysis test. BRCAssure involves full gene sequencing of BRCA1/2 genes and duplication/deletion testing.
Last summer, the US Supreme Court ruled that a number of BRCA1 and BRCA2 patent claims held by Myriad were patent-ineligible, but held that certain claims on cDNA were eligible for patents. As such, several labs launched BRCA tests believing they had room to compete in a market previously monopolized by Myriad. However, Myriad disagreed and sued many of these competitors, some of which countersued. The outcome of these legal challenges stands to impact not only the future of the BRCA testing market, but also the NGS-driven hereditary cancer testing space.
In 2014, LabCorp will continue to advance NGS-based diagnostics. According to King, the company plans to convert its HLA testing to an NGS-based platform, offer universal carrier screening, and launch additional gene panels in areas such as cystic fibrosis.
The company will also begin offering NanoString's Prosigna Breast Cancer Prognostic Gene Signature Assay in the first quarter of this year.
At the JP Morgan conference, King noted that LabCorp has worked in recent years to get more involved in developing companion tests for personalizing treatments. “We actually ran the original clinical trials for Herceptin and HER2,” King said. “That was many years ago, and I've told people in our organization [that] we need some more current examples.”
In 2013, LabCorp began offering Qiagen's US Food and Drug Administration-approved Therascreen KRAS test that helps doctors pick out which colorectal cancer patients with KRAS mutations will not respond to Erbitux (cetuximab). Through its subsidiary Monogram Biosciences, LabCorp also markets the HerMark test, which quantifies HER2 total protein levels in tumor tissue, and the Trofile tropism assay, which assesses whether HIV patients have R5 HIV1 and would respond to the drug Selzentry (maraviroc).
In December last year, LabCorp submitted an investigational device exemption application with the FDA for a proposed companion diagnostic for Arca Biopharma's beta blocker Gencaro (bucindolol hydrochloride). The companion test developed by LabCorp and Arca gauges patient genotypes based on genetic variations of the beta-1 cardiac receptor.
King also highlighted that LabCorp employs 122 board-certified genetic counselors and nine medical geneticists. LabCorp hasn't talked much about its counseling business in the past. However, King said that LabCorp houses the largest staff of genetic counselors in the industry, and these employees will be increasingly in demand “as we talk more about the importance of the genetics of disease … as we do more and more next-generation sequencing, [and as] we have greater and greater depth of understanding of the specific characteristics of individual patients.”
Support under economic pressure
In the third quarter of 2013, the most recent quarter for which the company's financials are available, LabCorp reported $1.46 billion in revenues compared to $1.42 billion for the third quarter of 2012. The firm also had $148.3 million in net income compared to $148.0 million in the year-ago period. LabCorp is scheduled to report its fourth quarter and full-year 2013 financial results on Feb. 7.
In December, the company reaffirmed its revenues for 2013 at a growth rate of 3 percent, but adjusted its EPS to a range of $6.90 to $7.05 from a previous range of $6.95 to $7.05. For full-year 2014, LabCorp gave preliminary guidance of 2 percent revenue growth and $6.50 in non-GAAP EPS, excluding amortization.
At the time, company officials said that LabCorp's business in 2014 would continue to be challenged by lower healthcare utilization, an increase in Americans with high deductible and high co-insurance plans, government payment and reimbursement pressures; and uncertainty around the implementation of the Affordable Care Act. In this environment, LabCorp is planning to conduct a review of its cost structure.
“In 2014 we want to take a comprehensive review of our cost structures starting with our lab footprint, also reviewing our … corporate structure to see if there are additional opportunities for cost reductions,” King said at the JP Morgan conference. LabCorp began a process of “facility rationalization” in 2013, under which it is opening a large single-purpose lab in Phoenix, Ariz., and is consolidating four labs into that facility.
Within a challenging reimbursement environment, LabCorp is also investing in developing solutions for doctors and payors that will allow them to conduct testing that is guidelines-based and cost-effective. As healthcare providers are under increasing pressure to show improvements in patient outcomes and cost savings under the ACA, by providing this type of decision support LabCorp is aiming to provide information beyond test results that can help their customers do just that.
“Our job is to transform lab data into actionable intelligence,” King said, noting that one of the company's long-term goals is to become a knowledge service partner for its customers. “A lab value by itself is valuable, but when it's combined with drug information … and other elements of clinical data, that becomes much more valuable.”
For example, LabCorp has developed BeaconLBS, a decision support platform that physicians and health plans can use to not just order tests, but select the appropriate lab for performing testing, issue guideline supported treatment recommendations, and provide claims adjudication based on clinical and administrative rules.
“We have a contract for the implementation of BeaconLBS with UnitedHealthcare,” King said. “The first pilot will be up and running before the end of 2014.”