Healthy Financial Outlook for Publicly Traded Labs in 2016

Most of the publicly-traded clinical laboratories ended 2015 on a fairly strong note. Their guidance suggests more of the same for 2016.

The two large national laboratories, LabCorp and Quest Diagnostics both report solid numbers for the fourth quarter ending Dec. 31.

LabCorp
The North Carolina-based LabCorp reported fourth quarter 2015 net income of $114.5 million on revenue of $2.3 billion. The net is down slightly from fourth quarter of 2014’s $119.9 million, but on an adjusted basis—excluding amortization, restructuring charges and other special charges—it was up 20 percent, to $1.98 per share from $1.65 per share. That’s reflective of the company’s ongoing assimilation of drug testing giant Covance. Revenue for the quarter was up 46 percent, to $2.24 billion from $1.51 billion.

The Covance deal, which closed in mid-February 2015, added $2.2 billion in revenue, or 36.7 percent of LabCorp’s year-over-year growth. Organic revenue growth was relatively strong, at 4.6 percent.

For calendar 2015, LabCorp reported net income of $436.9 million on revenue of $8.68 billion. For calendar 2014, it reported net income of $511.2 million on revenue of $6 billion.

With an acquisition helping to boost revenue nearly 40 percent in its first year, Chief Executive Officer Dave King is upbeat about the future. “The year was transformative for LabCorp,” he said in a statement. “We significantly expanded the company’s capabilities, global presence and avenues for future growth.”

LabCorp’s 2016 guidance includes a bullish revenue growth forecast of 7.5 to 9.5 percent, as well as growth in earnings per share of 7 to 12 percent.

The Covance division is forecast to grow revenues by 6.6 to 9.6 percent, excluding impacts from currency fluctuations and the expiration of an agreement with Sanofi. The laboratory diagnostics division is forecast to grow revenue by 3.5 percent to 5.5 percent. It reported 1.6 percent growth in test volume for 2015.

“We are enthusiastic about our prospects for 2016,” King said.

Amanda Murphy, an analyst with William Blair, noted in a report after LabCorp’s earnings announcement on Feb. 18 that “while the company’s top-line guidance for 2016 well exceeded consensus, implied adjusted (earnings per share) growth fell below expectations.” Murphy had forecast revenue growth of 7.5 percent for this calendar year. The general consensus among Wall Street analysts is growth of 7.6 percent.

Quest Diagnostics
The New Jersey-based Quest reported net income of $188 million on revenue of $1.84 billion for the quarter. It earned $190 million on revenue of $1.88 billion for the fourth quarter of 2014.

But for calendar 2015, Quest earned $709 million on revenue of $7.49 billion. That compares to calendar 2014 net income of $556 million, an increase of about 28 percent. 2014 Revenue was $7.43 billion.

Quest’s net earnings for 2015 were $4.92 per share. Its 2016 guidance now calls for earnings of between $5.02 and $5.17, excluding expenses for amortization. Revenue is expected to be between $7.52 billion and $7.59 billion, an increase of 1.5 percent to 2.5 percent. That number is excluding revenue from Quest’s joint clinical trials initiative, both for 2015 and moving forward. In 2015, clinical trials revenue accounted for $85 million in the company’s revenue, or little more than 1 percent of the total.

In a conference call with analysts, Quest Chief Executive Officer Steve Rusckowski noted that the company had cut costs by $200 million last year. “Just three years ago this business was shrinking by more than 4%. We slowed the organic decline to 2% in 2014 and have now grown organically on an equivalent basis for the fifth consecutive quarter,” he said.

Particularly healthy are Quest’s gene-based and esoteric testing lines. They now represent nearly a quarter of the company’s revenue, $1.8 billion, and grew 5 percent year-over-year.

Quest also said it is in the midst of rolling out a new data analytics platform known as Quantum. Rusckowski said more details about the platform would be disclosed at the HIMSS conference at the end of the month. However, he noted that Quantum has already seen “strong interest” and that clients have already been signed up.

The company did not deny there were potential shadows on the horizon. Rusckowski began the call noting the sector’s concern about the final content of the PAMA regulations excluding hospital labs from future reimbursement formulas, as well as the Food and Drug Administration’s move to regulate laboratory developed tests.

“We understand the FDA’s concerns,” about the potential dangers of LDTs, “but we continue to believe what the FDA has proposed would result in labs being subject to both CLIA and FDA regulations that may be overlapping, duplicative, and sometimes contradictory in their requirements,” Rusckowski said. “This has the potential to raise healthcare costs for patients and potentially, hinder medical innovation.”

Meanwhile, earnings from the smaller publicly-traded labs also trickled out.

Myriad
Salt Lake City-based Myriad Genetics has overcome the 2013 loss of its patent on BRCA testing and is back in growth mode. Powered by new revenue from its Prolaris prostate cancer test, Myriad reported net income of $30.3 million on revenue of $193.3 million for its fiscal second quarter ending Dec. 31. That compares to net income of $24 million on revenue of $184.4 million for the fiscal second quarter of 2015.

For the first six months of fiscal 2016, Myriad reported net income of $57 million on revenue of $376.8 million. That first figure is up 42.5 percent from the $40 million in net income on $353.2 million in revenue for the first half of fiscal 2015.

“Our new products are making significant strides towards broader market adoption and reimbursement on a worldwide basis,” said Myriad CEO Mark C. Capone in a statement.

Although Myriad stayed with its current fiscal 2016 revenue guidance of $750- $770 million, it raised its earnings guidance from $1.60 to $1.65 per share to $1.63 to $1.68 per share.

Genomic Health
Redwood City, Calif.-based Genomic Health reported a net loss for the fourth quarter of $3.2 million on revenue of $63.9 million. That’s a significant improvement over the $6.2 million loss on revenue of $58.8 million for the fourth quarter of 2014.

For calendar 2015, Genomic Health reported a net loss of $33.8 million on revenue of $286.8 million, including $41.4 million from overseas sales. That’s compared to a loss of $24.6 million on revenue of $275.7 million in 2014.

Genomic Health CEO Kim Popovits told analysts that its prostate cancer test volume grew by 75 percent during the year, and all test volume grew 19 percent overseas.

“We expect the strong momentum generated across our business in 2015, combined with new compelling global prospective outcomes evidence for the Oncotype DX breast cancer test and recent Medicare coverage for the Oncotype DX prostate cancer test, to lead to double-digit test and revenue growth in 2016,” Popovits said.

Genomic Health provided 2016 guidance of $320 to $335 million in revenue, an increase of 12 to 17 percent over 2015. It forecasts a net loss of between $12 million and $18 million.

Takeaway: Publicly-traded national and esoteric labs ended 2015 on a healthy note, and appear headed on the same path for 2016.