September 2009
LabCorp’s sales strategy of targeting specialty physicians continues to be successful, as a 10.8 percent boost in esoteric volumes helped drive the company’s second-quarter revenue growth up 3.6 percent to $1.2 billion, compared to the second quarter of 2008. Total volumes increased 2.4 percent, although excluding the impact of the consolidation of the Ontario, Canada, joint venture, this increase was 1.6 percent year-over-year.
The Burlington, N.C.-based testing provider also completed the acquisition of Monogram Biosciences for a total enterprise value of approximately $155 million. LabCorp CEO David King said during the second-quarter earnings call that he expects the acquisition’s synergies to be realized by the fourth quarter of this year. Monogram is best known for its personalized medicine test portfolio, specifically its oncology and HIV resistance assays.
Drugs-of-Abuse Volumes Drag
Similar to Quest, LabCorp’s drugs-of-abuse testing continues to fall—down 19 percent compared to the same period last year. Quest Diagnostics’ drugs-of-abuse testing was down 24 percent for the second quarter of 2009. Quest’s organic volume growth also appears to be catching up to LabCorp, according to William Blair & Co. (WB&C) analysts in Chicago (see figure). As shown in the figure, LabCorp’s organic growth has outpaced Quest’s organic growth over the past 18 months, particularly given the volume drag for Quest when it exited out of several lab management contracts in recent months. Nevertheless, WB&C is predicting that both lab leaders will be closer in growth rates by the end of 2009. This is due largely to the fact that while core testing volumes have been flat for the second quarter, this suggests a stabilization—but not improvement—in the decline in physician office visits related to the current recession, according to the analysts.
Another challenge that LabCorp is facing is its pricing-per-accession growth, which was down 3 percent in the esoteric business this quarter. LabCorp has reported volume declines in its histology business over the past six quarters, according to a research note written by WB&C analyst Amanda Murphy. This is largely driven by more specialty physicians bringing testing in-house, as well as more competition in the specialty pathology lab landscape, including the growth of Genoptix (San Diego), and other independent labs growing their specialty pathology testing businesses. “The average price per accession is higher in histology ($122) versus genomic and other areas of esoteric testing (at $55); therefore as these volumes decline, overall esoteric PPA is also affected,” wrote Murphy. “Although histology only represents 6% of LabCorp’s overall business, these trends are somewhat worrying.”
Nevertheless, LabCorp executives are feeling bullish about their revenue growth potential by the end of this year. Officials have updated the full-year 2009 guidance, and they expect revenue growth of 4 percent, rather than between 2 percent and 4 percent.
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September 2009 - Table of Contents
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