Lab Companies Rolling Along

Quest Diagnostics and LabCorp have reported second quarter earnings and based on their conference calls and recent investor presentations, both appear to be executing well.   (Quest Transcript)  (LabCorp Transcript)  Each raised their full year guidance.  Both said they do not see extreme negative effects from the recession.    Each has focussed on gene-based and “esoteric” testing.  These are non-routine, more complex, often proprietary tests that have much higher revenues and margins associated with them.  The clinical lab companies view their greatest opportunity as the development of personalized medicine, which will rely heavily on genetic testing in particular.

Neither company seems concerned about health reform.  They believe expanded access to coverage likely means more business and doubt there will be significant cuts in reimbursement, as lab fees for Medicare have already been reduced and have not been growing much at all in recent years.  In addition, diagnostic testing in total is only about 3% of total health spending.  They do perceive themselves as playing a central role in health care because testing factors into 70% or more of health spending.

Quest continues to build on its electronic relationship with a very large number of physicians to develop new revenue streams.  It has an e-prescribing business and intends to expand its health information offerings.