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Quest Diagnostic's Move to Consolidate Immunoassay Testing Is Big Opportunity for IVD Vendors

NEW YORK – During its Q3 earnings call last week, Quest Diagnostics provided an update on its plans to move its immunoassays to a single vendor as Chairman, President, and CEO Steve Rusckowski said that the company planned to announce that vendor in the near future.

The move to a single vendor will enable "greater throughput, a more efficient footprint, and is expected to save tens of millions of dollars per year," Rusckowski said, noting that this will help offset declines in test reimbursement due to the Protecting Access to Medicare Act (PAMA).

It also represents a major opportunity for the chosen vendor, as an estimate from Barclays analyst Jack Meehan put the value of Quest's immunoassay contract at between $250 million and $400 million per year.

In an investor note, Meehan said Quest first discussed consolidating its immunoassay suppliers during its 2018 analyst day, at which time it said that it was planning to move from its current six suppliers to two. Since then the company has decided to go with just one vendor.

On the Q3 call, Quest CFO Mark Guinan noted that the move to a single vendor was not just a matter of "consolidating our purchases."

"This is actually a new innovation in the platform where we can do multiple tests that previously were performed on separate pieces of equipment on a single piece of equipment," he said. "So this will drive not just procurement efficiencies, but actually will drive operational efficiencies in our labs."

Rusckowski said that the move to a single vendor was part of the company's regular review of its suppliers and lab practices and added that a number of vendors Quest works with have introduced platforms that would allow the firm to consolidate its immunoassay testing to a single vendor.

"What we have done is evaluate those vendors that have a product either in the marketplace or will have a product in the marketplace, and we do that through a review process with their sales force on understanding what they’ll have, and what they’ll have for functionality at what time, and then also what the economics around their offering are," he said. "We narrowed that down to a few. We actually put in place a few of those platforms in some of our facilities to do some trial runs, and then we’re in the final strokes of selecting one of those suppliers going forward."

Meehan said according to Quest's 2018 investor day presentation, the company uses seven immunoassay instruments from six vendors and operates more than 500 instruments on which it runs around 128 million tests per year. The immunoanalyzer instruments it currently uses are the Abbott ARCHITECT, the Beckman Coulter Unicel DxI-600, the DiaSorin LIASON-XL, the Ortho-Clinical Dx VITROS 3600, the Roche Cobas e411, and the Siemens Advia Centaur and Immulite.

Meehan added that given Quest's broad immunoassay menu (73 test), it was unlikely that a single platform could cover all the assays it needs to run, but he said that feedback from vendors indicated that they would likely be willing to take assays not covered by their platforms through the regulatory process in order to meet Quest's requirements.

Meehan did not make a prediction as to which vendor Quest would choose, but highlighted DiaSorin's vitamin D testing and the Siemens Immulite's allergy testing as capabilities that potentially differentiated them from other contenders.

In an investor note following release of the Q3 earnings, PiperJaffray analysts William Quirk and Rachel Vatnsdal speculated that Quest was "deciding between Roche and Siemens for an immunoassay platform supplier given the broad menus and workflow connectivity."

Rusckowski said during the Q3 call that in addition to economics, the company was judging the platforms on factors including having "good confidence around their ability to service us, good confidence around their quality, good confidence around what’s in their installed base."

"It's a very comprehensive operational review of who will be our strategic partner for this new platform going forward," he said.

Peter Origenes, vice president at healthcare consulting firm Health Advances, said that while Quest's public statements indicate it will move to a single immunoassay for all such assays, the company is likely to continue using instruments from other vendors, at least on a limited basis.

"If you look across the assay portfolio of all the major manufacturers, everyone has assays in their portfolio that are really the gold standard and may or may not perform in quite the same way as another manufacturers," he said, noting that ordering physicians may strongly prefer one vendor's assay over another.

"And you can't underestimate the desire of a customer to continue running the assay that they like running," Origenes said, suggesting that such customers might choose to send the test elsewhere if it their preferred version is no longer available at Quest.

He added that committing wholly to one vendor for immunoassay work could decrease the company's leverage in negotiating on instrumentation and services in another part of the lab.

"For instance, if you standardize your business on one immunoassay [platform], and you use another manufacturer for your molecular platform, you might not be able to drive as good of a deal with that manufacturer for the molecular platform," he said.

In his analyst note, Meehan noted that Quest is considering a similar consolidation of its molecular testing in the long term.

"The maximum negotiating position for Quest is to commit as much of their volume to a single platform as possible in order to drive the best price possible," Origenes said. "But I would not be surprised to see other manufacturers still have a presence."

He said that he didn't have any insight into whether Laboratory Corporation of America specifically had plans to follow suit, but noted that consolidating platforms has been a long-term trend across various parts of the lab business.

"When you construct a lab you want to standardize as much as you can, you want to automate as much as you can, and you want to deliver as broad a menu as you can on the least possible number of instrument platforms," he said. "So this has been happening in the industry for a long time, and it makes sense."