REVENUES

DX Earnings Report: PAMA Cuts Make Little Dent on Q1 Lab Earnings

One quarter into its existence, the new PAMA Medicare Part B fee schedule seems to be having only a marginal impact on at least publicly traded labs. In fact, the recently published Q1 earnings reports suggest that the 2018 fiscal year is off to a very strong start. The two salient trends revealed by the reports:

  1. Atypically high revenue growth among firms that have recently completed significant acquisitions (including Abbott, Becton Dickinson, PerkinElmer, Quidel and Thermo Fisher Scientific); AND
  1. Continued strength in core lab products and services.

The intense flu season was another key factor of success in the first quarter, lifting firms that offer respiratory and influenza products, e.g., BioMérieux, Danaher, GenMark Diagnostics and Meridian Bioscience, but harming just about everybody else by keeping would-be patients home. The terrible weather of January, February, and March also exercised a negative impact on most.

Gainers
Continuing recent trends, gainers outnumbered decliners by nearly 7:1 with 34 of 40 companies reporting higher Q1 revenues versus the same period in 2017. Only five reported declines (and one firm, Oxford Immunotec, was flat). Gains were not only widespread but significant. Thus, among the gainers, only three failed to make their Wall Street targets:

  • Quest Diagnostics which posted 3% growth but came up just $2 million shy of its $1.90 billion target;
  • NantHealth which missed its $23.3 million target by $1 million despite 17% growth; and
  • Struggling Waters whose $498 million in Q1 revenues were up 7% year over year but nowhere close to the $535.3 million target.

Fueled by better than expected earnings, no fewer than eight firms raised their 2018 revenues and/or Earnings Per Share guidance during the quarter. And missing its earnings target by over $37 million didn’t prevent Waters from defiantly doing the same.

Decliners
Despite the dire predictions of PAMA’s impact on revenues, only five labs posted revenue declines in Q1. But most of the declines were modest, explainable and/or accompanied by better long-term news, including:

  • Fluidigm: -1% due to slow mass cytometry spec sales;
  • Myriad Genetics: -2% caused by a 3% decrease in molecular diagnostics that was partially offset by 91% growth in Prolaris prostate cancer test sales, leading the firm to upwardly adjust its revenues and EPS guidance for the year;
  • Opko Health: -4%, where PAMA cuts took their toll but still didn’t keep the company from crushing its revenue targets ($254.9 million earned versus $236.9 million estimated); and
  • Siemens Healthineers: -5% due in large part to foreign currency effects and growing pains from its recent spinout and IPO.

The one exception to the silver-linings list is Pacific Biosciences which continues to spiral downward with a 22% falloff in Q1 revenues. Wall Street was expecting a loss; but the San Francisco-based firm’s $19.4 million in revenues fell woefully short of the $24.5 million average analyst estimate.

The Billion-Dollar Labs
Of the billion-dollar labs, only Quest Diagnostics missed its Wall Street target. But the miss was narrow and belied by the positive growth of 3% despite PAMA cuts that were estimated to impact 12% of its business. The predominant theme among the other giants was massive growth swollen by revenues from recent acquisitions but backed up by rock solid performance in core sectors, including:

  • Abbott, where Alere and St. Jude revenues fueled 17% reported growth but which also achieved 7% organic growth;
  • Thermo Fisher Scientific where the absorption of Pantheon lifted reported revenues 23% but organic revenues also grew 6%, leading the firm to raise its 2018 guidance; which followed a spectacular Q3 with an even more impressive fourth quarter featuring 22% growth at $6.05 billion, (versus the Wall Street target of $5.7 billion) and ending the year with 14% growth at $20.92 billion;
  • PerkinElmer—25% reported growth, including Euroimmun, 6% organic growth;
  • Becton Dickinson—42% reported growth, including CR Bard, 5% organic growth; and
  • LabCorp—18% growth, 8% organic growth excluding acquisitions revenues;

Diagnostics Earning Reports 1Q 2018
(At least $10 million in sales)

COMPANY QUARTERLY REVENUES DIAGNOSTICS SEGMENT PERFORMANCE
Total 1Q 2018 YOY Wall Street Estimate
Abbott Laboratories

$7.39 billion

+17% $7.29 billion Organic growth not counting Alere and St. Jude purchases of 7%; DX sales of $1.84 billion v. $1.16 billion 1Q 2017 lifted by strong flu season
Agilent Technologies $1.21 billion +9% $1.21 billion DX and genomics up 9% to $219 million, crosslab group up 13% to $426 million, life sciences up 7% to $561 million
Becton Dickinson $4.22 billion +42% $4.12 billion Up 5% on a comparable, currency-neutral basis excluding CR Bard acquisition; DX systems revenues up 17% to $410 million; raises guidance to 31 to 31.5% revenue growth (versus 30 to 31% growth)
BioMérieux $726.6 million +3% NA Microbiology, molecular biology and immunoassays up 4% driven by intense flu season and strong Asia Pacific sales
Bio-Rad $551.5 million +10% $527.2 million Clinical diagnostics up 9% to $350.8 million driven immunology, diabetes and quality control products
Bio-Techne $164 million +14% $164 million Diagnostics revenue up 10% to $28.5 million
Bruker $431.7 million +12% $417.4 million Organic growth of 4% net of 1% in acquisition boosts and 8% in positive currency effects
CareDx $14.1 million +21% $13.3 million Stellar performance driven by launch of Allosure kidney transplant test which drove 34% spike in diagnostics revenues
Danaher $4.70 billion +12% $4.54 billion Currency lent 5% boost and acquisitions another 1%; intense flu season drove huge growth in Cepheid core revenues
Exact Sciences $90.3 million +87% $86.9 million Company continues to ride success of Cologuard with test volume of 186,000; would have been even higher but for flu season which kept people home
Fluidigm $25.2 million -1% NA 30% decline in instruments (especially in mass cytometry) revenue to $7.5 million offsets 23% increase in consumables to $13 million;
Foundation Medicine $52.8 million +101% $44.9 million Clinical testing up 62% to $18.8 million; 2Q revenues likely to get lift from recent CMS approval of FoundationOne CDx test as ADLT
GenMark Diagnostics $20.6 million +65% $17.1 million Intense flu season drives growth in respiratory testing and new sales of ePlex analyzers
Genomic Health $92.6 million +13% $89 million New prostate cancer test revenues up 75% to $5.8 million and Oncotype DX breast cancer revenue up 4%
Hologic $789.3 million +10% $781.8 million Solid overall growth despite 6% decline in diagnostics to $297 million as a result of bad weather and severe flu season
Illumina $782 million +31% $743.5 million NovaSeq continue to drive growth in sequencing instrument revenues ($112 million, up 18%); consumables up 26% to $87 million; increases 2018 guidance to 15-16% growth and $4.45-$4.55 EPS
Invitae $27.7 million +169% $26.9 million Test volume across all areas up 150% to 64,000 samples, 59,000 of which were billable, with most of growth coming in March—Jan. and Feb. actually slow; increases 2018 revenue guidance from $120 to $130 million
Laboratory Corp. of America $2.85 billion +18% $2.85 billion DX revenues up 8% to $1.77 billion with acquisitions revenues offsetting PAMA price cuts, which company estimated cost $70 million for quarter
Luminex $82.7 million +6% $80.5 million Assay revenues up 23% to $45.8 million; molecular DX up nearly 50% led by sample-to-answer products
MDxHealth $9.7 million +50% NA 55% increase in test volume; ConfirmMDx and SelectMDx prostate cancer tests up 60% to $7.9 million; totals include license fee payment of $550,000
Meridian Bioscience $56.5 million +4% $55.0 million DX revenues up 5% to $39.8 million driven by intense flu season and double-digit growth in Magellan LeadCare testing products; increases 2018 guidance to $209-$214 million (from $207-$212 million) and $.69-$.72 EPS (from $.65-$.68)
Myriad Genetics $193.5 million -2% $188.2 million Molecular test revenues down 3% to $179.7 million led by 12% losses in hereditary cancer testing sales to $123.3 million but Prolaris prostate cancer test revenues grew 91% to $6.5 million; increases 2018 guidance to $771-$713 million (from $760-$770 million) and $1.19-$1.21 EPS (from $1.11-$1.16)
NanoString Technologies $23.1 million +28% $21.6 million Consumables up 15% to $11.5 million driven by over 50% growth in Prosigna IVD kit sales to $2.2 million
NantHealth $22.3 million +17% $23.3 million Firm in process of restructuring narrows net loss from $41.1 million to $22.2 million
Natera $62.3 million +26% $55.1 million Growth driven by prenatal Panorama test ($33.3 million) and Horizon carrier screening test ($18.3 million) + $5 million NGS agreement with Qiagen
NeoGenomics $63.4 million +10% $61.2 million Growth driven by 15% increase in genetic testing volume to 178,794; molecular testing up more than 30%, double-digit growth for both flow cytometry and FISH testing; average revenue per test down 3% to $319 per test due to PAMA cuts

Opko Health

$254.9 million -4% $236.9 million Decline due to PAMA cuts and 3% drop in BioReference Laboratories volume which was partially offset by double-digit increases in genetic test volume
OraSure Technologies $42.0 million +29% $40.6 million OraQuick HIV testing products up 34% to $10.7 million; OraQuick HCV testing products down 62% to $2.3 million (due to non-renewal of foreign govt. contract); molecular collection systems up 72% to $18.4 million
Oxford Immunotec $21.4 million $21.0 million Flat growth anticipated and due largely to decline in immigrant screening test volume
Pacific Biosciences $19.4 million -22% $24.5 million Sales down 23%; instruments sharply down but consumables grew 5% to $9.1 million
PerkinElmer $644.0 million +25% $619.6 million Organic growth, not counting Euroimmun revenues, of 6%; DX revenues up 62% to $247.5 million; reduces 2018 EPS guidance from $2.28 to $2.25 but increases adjusted EPS guidance from $3.50 to $3.60
Qiagen $343.6 million +12% $339.1 million Molecular DX up 9% to $161 million, just below 50% of total sales, led by QuantiFeron latent TB test which is expected to generate $300 million in 2018 sales
Quest Diagnostics $1.88 billion +3% $1.90 billion Overall growth despite PAMA cuts, which affect 12% of business and which Quest is planning to offset via $180 million in tax savings
Quidel $169.1 million +150% $150.9 million Numbers boosted by $68.4 million in revenues from newly acquired Triage and BNP; rapid immunoassay products up 40% to $80.7 million fueled by 131% growth in Sofia products which offset 34% decline in QuickVue sales; molecular DX up 65% to $5.1 million driven by 178% in Solana sales
Roche $13.85 billion +5% NA DX up 5% driven by centralized point of care solutions and success of new Cobas t 511 and t 711, molecular diagnostics (up 6%) and blood and HPV screening (up 20%); growth in Asia expected to offset PAMA losses in US
Siemens Healthineers $3.77 billion -5% NA Currency effects reduced revenues 9%; DX revenues down 8% to $1.13 billion
Thermo Fisher Scientific $5.85 billion +23% $5.63 billion Lab revenues up 42% to $2.41 billion including Patheon revenues, with organic growth of 6% excluding Patheon; increases 2018 guidance to revenues of $23.62-$23.86 billion and EPS of $10.80-$10.96 EPS
Trinity Biotech $23.8 million +1% NA 6% decline in point-of-care ($3.8 million) offset by 3% growth in lab revenues ($20.0 million) driven by higher diabetes and autoimmunity sales
Veracyte $20.0 million +22% $18.0 million Genomic test volume up 18% (6,864 tests, including 6,649 Affirma + 215 Percepta) driven by Veracyte’s gaining of in-network with Anthem; increases 2018 revenues guidance to $83-$86 million (versus $81-$83 million)
Waters $498.0 million +7% $535.3 million Weak sales in mass spec and branded instruments; Waters calls soft quarter result of “lumpiness” and raises 2018 EPS guidance from $8-$8.25 to $8.10-$8.30

* Bold face: Companies that met or exceeded Q1 Wall Street revenues targets

* Italics: Companies that missed Wall Street revenues targets

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