NEW YORK (360Dx) – Laboratory Corporation of America today reported an increase in third quarter revenues of nearly 10 percent year over year, fueled largely by acquisitions.
For the three months ending September 30, net revenues were $2.66 billion, up from $2.41 billion in the same quarter last year. The analysts' average estimate was $2.55 billion.
Acquisitions contributed strongly to revenue growth in a quarter during which the company completed the acquisition of contract-research organization Chiltern. Other recent acquisitions that factored into Q3 2017 results included the purchases of Pathology Associates Medical Laboratories and the assets of the Mount Sinai Health System Clinical Outreach Laboratories, both of which closed in the second quarter of this year.
In a quarter marked by the release of the new market-based Medicare rates for lab tests mandated Protecting Access to Medicare Act, LabCorp Chairman and CEO David King expressed deep disappointment in the new rates, which were sharply lower than expected, and criticized the process by which the Centers for Medicare & Medicaid Services calculated the new prices.
"CMS overlooked statutory intent and designed a survey that vastly overweighted the pricing of independent laboratories, ignoring higher priced physician office and hospital labs, which, as we have repeatedly demonstrated, typically charge commercial customers anywhere from 1.5 to 5 times as much as independent labs," King said.
He said the new rates do not reflect market-based prices. "How could they when fewer than 1 percent of the labs Medicare paid in 2015 even reported payment?" he asked.
King reiterated that the company continues to work with Congress and all stakeholders to correct what it sees as errors in the pricing, and plans to explore all possible remedies, including legal action, as appropriate.
In the diagnostics business, revenues for the quarter was over $1.84 billion, up 10 percent from $1.67 billion in the third quarter last year, due to both acquisitions and organic growth. Total volume in diagnostics, measured by requisitions, increased by 7 percent, with 5 percent of growth coming from acquisitions and 2 percent coming from organic growth. The company estimated diagnostics volume was negatively impacted by approximately 1 percent due to multiple hurricanes in the quarter.
Organic growth in diagnostics was broad based, led by women's health, drug monitoring, and the company's strategic collaboration with 23andMe, King said.
Diagnostic initiatives included a collaboration with Walgreens that King said is "off to a great start" and will continue to expand next year; a new LabCorp Express solution that allows customers to check into labs using tablets that automatically scan patients' insurance cards and driver's licenses; and PreCheck, a web application that allows patients to check in online ahead of arrival at lab locations.
Revenues for the Covance drug development business were $761.1 million, up about 9 percent from $701.1 million in Q3 2016, due primarily to the Chiltern acquisition.
King said LabCorp continues to lead the industry in capabilities around companion and complementary diagnostics.
"These unique capabilities have established LabCorp as a go-to partner in precision medicine," he said.
For Q3 2017, LabCorp recorded $465.3 million in SG&A expenses, up 16 percent from $400.5 million a year ago.
The company reported net earnings attributable to LabCorp Holdings of $180.6 million, or $1.74 per share, for the recently completed quarter, compared to net earnings attributable to LabCorp Holdings of $179.5 million, or $1.71 per share, a year ago.
Adjusted earnings per share were $2.46, beating the Wall Street consensus of $2.39.
LabCorp finished the quarter with $409.3 million in cash and cash equivalents.
The company increased its 2017 EPS guidance to $9.40 to $9.60, up 6 percent to 9 percent over 2016, and increased its free cash flow guidance to $970 million to $1 billion, up 8 percent to 13 percent over 2016.
In late morning trading on the New York Stock Exchange, LabCorp's shares were up nearly 4 percent at $154.76.