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Quest Diagnostics Q2 Revenues Down 1 Percent on Divestitures

NEW YORK (GenomeWeb) – Quest Diagnostics reported Thursday that its 2016 second quarter revenues were down 1 percent over Q2 2015, on a reported basis, due to divestitures as the company refocused its business on diagnostic information services.

The firm reported Q2 revenues of $1.91 billion compared to $1.92 billion in Q2 2015, matching analysts' average estimate of $1.91 billion.

On an equivalent basis, which excludes divested assets, its revenues grew around 2 percent compared to Q2 2015. Those excluded assets include clinical trials testing and Celera products revenues, and Focus Diagnostics products revenues for May and June 2015. During the quarter, Quest sold Focus Diagnostics' immunoassay and molecular diagnostics products business to DiaSorin for $300 million.

Quest's diagnostic information services revenues grew 2 percent compared to a year ago. Volume, measured by the number of requisitions, also grew 2 percent versus the prior-year Q2 and revenue per requisition grew a fraction of 1 percent.

"We built on our good start in 2016 with another solid performance this quarter," said Steve Rusckowski, Quest president and CEO, in a conference call today to review Q2 financial results. "We are encouraged by the prospects around advanced diagnostics, and the genetic offerings that we introduced this quarter are very strong.

"We feel that we are very competitive now with some of the incumbents in the marketplace, particularly our BRCA offering," he added. "We expanded our panel, we continue to build on our relationship with Memorial Sloan Kettering in that space, and we have some nice offerings around colorectal cancer as well as a hereditary cancer panel. So that is good and growing and has a lot of promise in front of it."

In addition, Rusckowski said that "work around hepatitis C continues to be a great opportunity for us, and the companion diagnostic that is associated with that is promising. Third, is prescription drug monitoring, which continues to be a big opportunity for us. It is growing and we're pleased with our progress."

He also provided his perspective on the impact of the recent PAMA announcement from the Centers for Medicare & Medicaid Services, which delays implementation of the private payor rate-based fee schedule until Jan. 1, 2018.

"First on the issue of timing we are pleased with CMS' decision to delay the implementation of the new payment system until Jan 1 2018, a position advocated by members of congress, hospitals, and laboratory trade associations. Second, CMS changed its approach to secure a better view of market pricing. By gathering the pricing data from labs in a different way, CMS will increase the number of labs that provide pricing data…We won't have a clear view (of its impact) until we see the final pricing data. In the meantime, CMS is estimating a mid-single-digit rate reduction in 2018…The clinical lab fee schedule represents approximately 12 percent of our revenue." Cost savings will more than compensate for fee reductions, he added, and if there is a fee reduction in 2018, Quest would be able to manage it.

Quest's net income for the quarter was $195 million, or $1.37 per share, compared to $118 million, or $.81 per share, in Q2 2015. In Q2 2016, net income was favorably impacted by the gain on the sale of the company's Focus Diagnostics products business of $34 million after tax, or $.24 per share. This gain was offset by approximately $17 million after tax, or $.12 per share, consisting primarily of restructuring and integration charges, Quest said in a statement. In the second quarter of 2015, reported net income was reduced by $52 million after tax, or $.36 per diluted share, principally associated with debt refinancing charges and restructuring and integration charges.

Quest's adjusted EPS excluding amortization was $1.34 for Q2 2016, beating the average analysts' estimate of $1.32.

Quest's SG&A expenses were nearly flat at $430 million compared to $429 million in Q2 2015.

The firm ended the quarter with $283 million in cash and cash equivalents.

Quest forecasted that 2016 revenues would be between $7.47 billion and $7.54 billion, flat to an increase of approximately 1 percent over 2015 revenues on a reported basis, and an increase of 2 percent to 3 percent over 2015 revenues on an equivalent basis. The company forecasted that that for 2016 diluted EPS would be between $4.18 and $4.33.

In Wednesday morning trade on the New York Stock Exchange, shares of Quest were up just over 1 percent at $84.54.