Diagnostics testing company Laboratory Corp. of America Holdings Inc. (Labcorp) saw its second-quarter revenue decline by 4% to $2.8 billion, but that still beat the Street consensus of $2.5 billion. Diagnostics revenue fell 3.9% year over year to $1.7 billion, but that was offset by solid demand for the company’s COVID-19 tests.
Specifically, the drop in revenue was due to in part to a 20.7% decline in organic volume as a result of the pandemic, which depressed demand for its base business by 35.3%. This, however, was countered by a 14.6% increase in COVID-19 testing volumes.
On a July 28 earnings call, Labcorp CEO Adam Schechter said both its base business and COVID-19 testing continue to improve, with daily organic volume up 6% in June vs. the prior year, as a 17% decline in the base business was “more than offset” by COVID-19 testing of about 23%.
Adjusted operating income for the diagnostics business was $309 million, or 18.2% of revenue, compared with $345 million, or 19.6%, in the same period of 2019. The company attributed the decrease to COVID-19’s impact on its base business as well as higher personnel costs due to merit increases, noting these were partially offset by coronavirus testing and savings from its Launchpad initiative.
Meanwhile, sales in the company’s Covance drug development business fell by 2.9% year-over-year to $1.1 billion, also due to the pandemic and its toll on Labcorp’s base business.
Overall, net earnings for the quarter totaled $231.6 million, compared with $190.4 million last year. The increase was primarily due to a $55.9 million government stimulus from the Coronavirus Aid, Relief, and Economic Security Act.
Labcorp continued to withhold its 2020 guidance, citing ongoing uncertainties around the pandemic.
Daily capacity up to 180,000 COVID-19 tests
Headquartered in Burlington, N.J., Labcorp and rival Quest Diagnostics Inc., of Secaucus, N.J., have been working hard to ramp up COVID-19 testing as U.S. demand continues to mount, with new hotspots popping up in Florida, Texas and several other states.
Schechter said Labcorp’s current capacity is about 180,000 tests per day across 16 labs – a dramatic increase from 2,000 to 3,000 tests per week in early March. However, he added, “in recent weeks, the rapid acceleration in sample volumes had outpaced our capacity and increased time to delivery results to just over four days on average. We are now back to a two- to three-day turnaround time on average, with hospital inpatients even faster.”
All told, the company has performed more than 8.5 million COVID-19 molecular tests since the crisis began.
Schechter said the company will continue to scale up as the fall flu season approaches and as schools and more businesses open up. “I do believe that PCR [polymerase chain reaction] testing will remain the gold standard for telling if somebody currently has the disease. And, therefore, we will continue to build capacity as fast as we can and overcome some of the issues that we face in terms of supplies and money.”
Expanding test offerings
He emphasized, however, that all forms of testing will be important in containing the pandemic and singled out pooled testing as especially helpful in low-prevalence areas.
Labcorp got a boost July 24 when the U.S. FDA authorized its COVID-19 PCR test for use in screening people who are asymptomatic and those who have no reason to suspect they are infected with the SARS-CoV-2 virus. The reissued EUA also allows for pooled sampling, a sign of the agency’s increased flexibility to increase surveillance efforts. The pooled sampling authorization follows an EUA earlier that week for pooled sampling with a test by Quest Diagnostics Inc., of Secaucus, N.J.
While standard PCR testing will lead Labcorp’s efforts, “I think that the pool testing will add to our capacity and give us additional capabilities,” Schechter said.
Still, Labcorp does not plan to roll out pooling to all its labs, given the technical capabilities required to perform analysis and the need to use it in the right population, he added. “We’re not going to just broadly start trying to pool patients. We’re going to look for the right places and the right parts of the country or the right organizations where we believe the prevalence will be such that pooling makes sense.”
That said, Labcorp is looking “at everything” to increase capacity, including next-generation sequencing, Schechter said. “The question is at what cost and at what price point and how accurate will it be vs. the PCR testing … because I think commercial payers are going to look, if they can get a very quick turnaround for an accurate test at a reasonable cost, they would do that vs. other tests, unless there’s a real scientific reason to do otherwise.”