REVENUES

DX Earnings Report: Markets Soften, Payors Harden but Growth Continues

Lab business is getting tougher. While PAMA cuts are hurting Medicare revenues, pressure from private payors may be even more intense both at the pricing front end and claims denial back end. Economic growth in Europe and Asia has slowed. And the consumer genomics market continues to lag.

But, so far at least, labs are hanging tough. Many lab companies did a good job of preparing for PAMA by acquiring new companies and revenue sources. And even as the PAMA firewalls prove their value, organic growth remains steady, albeit somewhat slower than last year at this time. That’s the big picture takeaway from recent earnings reports from the second quarter of 2019. Here’s a more detailed analysis.

Gainers

The first key point is that sales are up across the board. All but five of the 40 companies in our sample reported at least some revenue growth during the period, as compared to Q2 2018. The bad news is that the rate of growth is down, especially for the blue bloods who last year at this time were first digesting significant new acquisitions:

Company Q2 2019 Nonorganic Revenue Growth Q2 2018 Nonorganic Revenue Growth
Abbott 2% 17%
LabCorp 0.3% 13%
PerkinElmer 3% 29%
Quest 2% 3%
Thermo Fisher 4% 22%

Earnings v. Expectations

Thirteen of the 37 companies that had clear consensus Wall Street estimates missed their target during the quarter, as compared to only 5 in 2018. The top-line misses included many of the industry’s most significant companies such as Abbott, Bio-Techne, Illumina, LabCorp, Meridian Bioscience, Myriad Genetics, PerkinElmer and Qiagen. The silver lining is that, with the exception of Myriad and Bio-Techne, all of these companies met or exceeded earnings per share (EPS) targets.

The flip side is that seven of the 22 companies that met revenues targets fell short on the bottom line. Of course, most of these companies are in the genomics space, including cancer screening company Personalis that just went public. Overall, companies that met or exceeded Wall Street EPS targets outnumbered companies that fell short 28 to 8.  

Also boding well is that 14 companies raised their full-year revenue guidance on the basis of their Q2 results, including firms that had disappointing quarters like:

  • Abbott, which fell just $2 million short of meeting its $8.0 billion revenue target;
  • LabCorp, which also missed top line earnings estimates by $2 million; and
  • Bio-Rad Laboratories, which had -1% growth for the period.

Decliners

Four firms revised their revenue and/or estimates downward, including Illumina, OraSure Technologies, PerkinElmer and Waters.

But no company had a tougher quarter than Myriad Genetics which despite 11% growth, came in well short of its top ($215.4 million vs. $221.0 million) and bottom line ($0.41 EPS vs. $0.47) targets. Myriad CEO Mark Capone cited the “unprecedented” impact of laboratory benefit management programs which he said reduced test revenues by about $50 million and adjusted EPS by approximately $.51. Although Capone said he expects the pricing situation to stabilize in Q1 FY2020, revenue and EPS projections left investors disappointed and triggered a sell-off of Myriad stock.

Diagnostics Earning Reports for Q2
(period ended June 30, 2019)
(At least $10 million in sales)

COMPANY FY 2019 Q2 DX Segment Performance
Total Revenue (vs. Wall Street) YOY Revenues Adjusted EPS (vs. Wall Street)
Abbott Laboratories* $7.98 billion ($8.0 billion) +2% (8% on organic basis) +$0.82 (+$0.80) DX revenues up 4% to $1.17 billion, molecular down 12% to $107 million, POC up 4% to $145 million, rapid diagnostics (mostly Alere) flat to $484 million
Adaptive Biotech $22.1 million ($19.3 million) +91% -$1.23 Sequencing, including clonoSeq testing, up 43% to $11.9 million
Agilent Technologies (FY Q3)* $1.27 billion ($1.24 billion) +6% +$0.76 (+$0.72) DX and genomics group revenues grow from $237 to $263 million thanks to strength in nucleic acid solutions division
Becton Dickinson (FY Q3) $4.35 billion ($4.35 billion) +2% +$3.08 (+$3.05) DX systems up 2% to $362 million. Double-digit growth in BD Max platform and ID-AST microbiology solutions
Bio-Rad Laboratories $572.6 million ($566.2 million) -1% +$1.57 (+$1.33) Clinical DX up 1% to $357.1 million driven by quality controls, immunology and diabetes product lines
Bio-Techne (FY Q4) $191.7 million ($197.8 million) +7% +$1.25 (+$1.33) DX & Genomics up 4% to $48.5 million
Bruker $490.2 million ($477.8 million) +11% +$0.33 (+$0.30) CALID, including mass spectrometry and microbio, up 10% to $140.5 million
CareDx* $31.5 million ($28.0 million) +76% -$0.19 (-$0.19) Testing services up 84% to $25.7 million driven by 11% increase in AlloSure and AlloMap sales
Danaher* $5.16 billion ($5.08 billion) +4% +$1.19 (+$1.16) Growth driven by 6% increase in life sciences to $1.71 billion; DX core revenues up $7 million to $1.62 billion led by immunoassays and automation; Cepheid up 20% thanks to strength in infectious disease testing thanks in part to lingering of flu season into April  
Exact Sciences* $199.9 million ($182.1 million) +90% -$0.30 (-$0.56) Average revenue for Cologuard stays at $479 per test and average cost per test falls $2 to $123. Company announces acquisition by Genomic Health by end of 2019
Fluidigm $28.2 million ($30.6 million) +7% -$0.10 (-$0.21) Mass cytometry up 28% to $17.5 million but continuing struggles in microfluidics (down 16% to $10.7 million) acts as drag causing company to issue soft revenues guidance
GenMark Diagnostics $18.4 million ($17.9 million) +23% -$0.23 (-$0.21)  ePlex systems up 70% to $12 million (45 new systems placed during quarter)
Genomic Health* $114.1 million +19% +$0.42 US sales of Oncotype DX Prostate up 42% to $9.6 million; total Oncotype tests up from 33,590 to 38,470 and breast cancer volume up 13%
Guardant Health* $54.0 million ($36.4 million) +178% -$0.13 (-$0.36) Precision oncology up 136% to $42.1 million; development services up 664% to $11.9 million driven by companion Dx program with AstraZeneca
Hologic (FY Q3)* $852.4 million ($835.7 million) +3% +$0.63 (+$0.61) Global DX up 4% to $305.4 million driven by 11% growth in molecular diagnostics to $170.9 million but cytology + perinatal down 1% to $120.3 million
Illumina** $838 million ($866.2 million) +1% +$1.35 (+$1.34) 6% growth in sequencing offset by 21% decline in microarray revenues driven by continuing weakness in direct-to-consumer genetic testing market resulting in substantial lowering of guidance
Invitae $53.5 million ($50.7 million) +43% -$0.54 (-$0.46) Samples accessioned up 52% to over 111,000 + cost per sample down 10% to $252; PAMA remains drag on revenues
LabCorp* $2.88 billion ($2.90 billion) +0.3% +$2.93 (+$2.90) DX down 2.9% as a result of PAMA + 1.1% dip in direct-to-consumer genetic tests; although overall sales up 0.3% on organic basis; but revenue per requisition up 1% despite 1.5% PAMA drag on revenues  
Luminex $83.1 million ($81.7 million) +4% -$0.11 (-$0.01) Assay revenues down 22% to $31.4 million but services double to $6 million; flow cytometry contribution of $13.2 million partially offsets loss of LabCorp revenue + costs of integrating newly acquired MilliporeSigma flow cytometry business
Meridian Bioscience (FY Q3) $48.4 million ($49.8 million) -6% +$0.16 (+$0.09) DX down 9% to $33.1 million, including 21% dip in molecular tests to $5.9 million and 6% dip in immunoassay and blood chemistry to $28.9 million
Myriad Genetics (FY Q4) $215.4 million ($221.0 million) +11% +$0.41 (+$0.47) Molecular DX up 9% to $196.9 million, including flat sales in hereditary cancer ($119.0 million), 19% decline in Vectra ($12.2 million), 10% decline in Prolaris prostate ($6.3 million), EndoPredict breast cancer up 11% ($3.0 million), GeneSight down 12% ($29.8 million)
NanoString Technologies $30.3 million ($29.0 million) +21% -$0.57 (-$0.52) Consumables up 15% to $11.8 million + Prosigna IVD kit up 4% to $2.6 million with growth in Europe offset by lower sales in North America
Natera $74.4 million ($66.8 million) +18% -$0.48 (-$0.58) Product revenues up 8% to $65.1 million driven by 2% growth in Panorama to $36.5 million and 14% growth in Horizon to $24.3 million; total tests processed up 20% to 195,168
NeoGenomics* $101.7 million ($97.3 million) +50% +$0.07 (+$0.06) Growth driven by 2018 Genoptix acquisition + market share gains; test requisitions up 32% to 144,983 + average revenues per test up 12% to $355
OpkoHealth $226.4 million ($225.6 million) -13% -$0.10 (-$0.11) PAMA cuts (first quarter of no Medicare reimbursement for 4Kscore prostate cancer tests) + higher rate of denials for lab and genomic tests although GeneDX was strong with 16% growth in test volume + 12% growth in hospital- + health-system-based test orders
OraSure Technologies** $38.8 million ($41.5 million) -11% +$0.07 Infectious disease testing down 16% to $13.3 million due to 18% decline in OraQuick tests for HIV + HCV ($13.0 million); Risk assessment testing down 7% to $3.1 million; Molecular collection systems up 1% to $17.3 million; genomics down 53% to $8.0 million
Oxford Immunotec* $19.6 million ($19.4 million) +18% +$0.02 (-$0.04) Product revenues up 24% to $18.7 million due not just to strong demand but shift of higher seasonal testing volumes previously recognized in Q3; services down 44% to $922,000 due to exit from blood donor screening business
Pacific Biosciences $24.6 million ($20.8 million) +14% -$0.16 (-$0.16) $21.3 million in product + $3.4 million in service and other revenues
PerkinElmer** $722.5 million ($729.8 million) +3% +$1.00 (+$1.00) DX up 6% to $288.6 million driven by Euroimmune’s 17% growth, the highest since being acquired two years ago; reproductive health up in high single digits driven by strength in genomics
Personalis $15.8 million ($14.9 million) +80% -$2.39 (-$0.30) Cancer sequencing firm’s first quarterly report after closing $140 million IPO in June
Qiagen $381.6 million ($382.2 million) +1% +$0.34 (+$0.32) Molecular DX up 5% to $188 million driven by 6% increase in QuantiFeron-TB tests but molecular companion diagnostics co-development project revenues down 21% to $11 million
Quanterix $13.5 million ($11.5 million) +57% Not reported Products up 69% to $8.8 million + services and other revenues up 50% to $4.8 million, including 40% growth in lab services
Quest Diagnostics $1.95 billion ($1.94 billion) +2% +$1.73 (+$1.68) Test volume up 4.4% (2.9% excluding acquisitions) but firm expects +$200 million in future losses due to PAMA and price pressures from other payors
Quidel $108.3 million ($108.3 million) +5% +$0.36 (+$0.34) Rapid immunoassays up 30% to $21.8 million including $6 million increase in flu revenue; Cardiac immunoassays down 3% to $68 million;  Molecular DX up 7% to $4.2 million, including 26% increase in Solana sales; Specialized DX up 13% to $14.3 million
Roche Diagnostics (FY H1)* $30.86 billion +8% +$11.40 Total DX sales for 2Q up 1% to $3.47 billion, including 5% growth in molecular DX ($1.06 billion). 1H growth driven by 16% increase in blood screening and strong demand for Cobas 6800/8800 systems; Centralized + POC solutions up 3% at $3.86 billion including 7% growth in immunodiagnostics
Siemens Healthineers (FY Q3) $3.98 billion +8% +$0.39 DX up 3% to $1.16 billion (€1.04 billion) driven by sales of Atellica Solution platform (1,230 shipped so far in 2019)
Thermo Fisher* $6.32 billion ($6.30 billion) +4% +$3.04 (+$3.00) Specialty DX up 1% to $943 million; Lab products + services up 3% to $2.63 billion
Trinity Biotech $22.5 million -10% -$0.26 Clinical lab revenues down 3% to $20.4 million + POC down 90% to $2.1 million
Twist Bioscience (FY Q3)* $13.6 million ($12.8 million) +109% -$0.92 (-$0.82) $8 million from synthetic biology (including $2.2 million from Gingko Bioworks) + $5.6 million from next generation sequencing products
Veracyte* $30.1 million ($28.9 million) +32% -$0.05 (-$0.27) Genomic test volume up 26% to 9,663 tests, including over $1 million in Percepta bronchial genomic classifier—744 tests
Waters** $599.2 million ($601.4 million) + under 1% +$2.14 (+$2.11) Hurt by currency translation and weak sales in Europe; modest growth in mass spec 

* Bold face: Companies that met or exceeded average Q2 Wall Street revenue estimates
* Companies that raised their revenue guidance as a result of Q2 performance
** Companies the lowered their revenue guidance as a result of Q2 performance

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