Molecular, Traditional Labs On Different Earnings Paths

As year-end earnings continue to flow in from the national and large regional laboratories, it is becoming increasingly clear the numbers look best from the molecular level. The national and large regional labs that focus on molecular testing are posting strong earnings and revenue growth. Meanwhile, those labs engaging in the older line reference work and routine testing are struggling to move the needle. After LabCorp and Quest Diagnostics recently reported numbers that were essentially flat, Sonic Healthcare USA discussed its own troubles. Sonic, the U.S. subsidiary of the Australian testing giant, reported revenue of $367 million in Australian dollars for the first six months of its fiscal year, ending Dec. 31 (essentially the same as U.S. currency). That compares to $378 million during the first six months of 2011, a numerical drop of 3 percent, and a total drop of 2.1 percent when currency fluctuations are factored in. “Organic revenue growth in the USA was impacted by Superstorm Sandy and the weak economic environment, and was consistent with the organic growth rate of Sonic’s major competitors in the USA market,” said the company’s earnings report. A Sonic USA spokesperson declined to provide specifics or comment. For Sonic’s companywide operations, revenues were up 5.6 percent, while earnings were up 8.8 percent. The company did not break out what portion of net income was attributable to U.S. operations. Altogether, Sonic USA accounts for about 21 percent of the company’s total revenues. Company officials said its 2013 earnings would be on the lower end of guidance, attributable in part to the recent 52 percent Medicare payment cut in the technical component of CPT 88305. BioReference Reports Continued Growth The numbers reported by Elmwood Park, N.J.-based BioReference Laboratories were strikingly different. It reported net income for its first fiscal quarter of 2013 of $8.7 million, compared to $7.4 million during the year-ago quarter, up 19 percent. Revenues were up 16 percent, to $161.3 million. The numbers moved solidly upward even though BioReference officials said Superstorm Sandy took a $2.5 million bite from revenues and $1.6 million from net income. “We have seen continued growth and expansion of our business, especially in the areas of women’s health and genetics,” said Marc D. Grodman, M.D., BioReference’s chief executive officer. “Since growth in these areas has historically brought attached routine business, we continued to see positive results in all of our lines of business.” He added that recent reimbursement cuts from both Medicare and from some commercial payers would have minimal impacts moving forward. Overall, BioReference’s share of revenues from esoteric testing climbed to 62 percent for the quarter, compared to 59 percent in the first quarter of fiscal 2012. Molecular Diagnostics Driving Growth Redwood City, Calif.-based Genomic Health reported a dip in earnings, but otherwise robust revenue growth. Net income for the fourth quarter, ending December 2012, was $2 million, down 25 percent from the $2.6 million in the fourth quarter of 2011. Revenue for the quarter was $60 million, up 11.2 percent from $53.2 million in the fourth quarter of 2011. For calendar 2012, net income was $8.2 million, compared to $7.8 million for 2011. Revenue was $235.2 million, compared with $206.1 million for 2011, a bump of 14 percent. For 2013, Genomic Health projected its revenues would range between $258 million and $266 million, an increase of at least 10 percent. Chief Executive Officer Kim Popovits said the launch of its new molecular prostate cancer test is expected to help drive the sales growth. Fort Myers, Fla.-based Neogenomics, which focuses on oncology-centered genetic testing, reported similar forward momentum. Although its net loss for the quarter was $113,000, its revenue grew 16 percent, reaching $14.9 million. For the year, it reported net income of $65,000, down from $152,000 in calendar 2011, but revenue was $59.9 million, up 38 percent. Test volume grew by 50 percent during the year. For 2013, revenue is projected to increase between 13 percent and 20 percent, despite the recent cuts to Medicare reimbursement. Myriad Optimistic on Guidance On March 1, Salt Lake City-based Myriad Genetics said it expected both 2013 revenue and earnings to be on the high end of its guidance, between $575 million and $585 million. That’s despite the fact that Noridian Administrative Services LLC announced pricing for Myriad’s BRACAnalysis 16 percent below current Medicare rates and 8 percent below private payer rates. Its Colaris test was priced at 3 percent below current Medicare rates and 14 percent below current commercial rates. According to analysts with equity research firm William Blair (Chicago), Noridian’s pricing rates were a bit below expectations though not as draconian as some had feared. Investors were expecting a roughly 10 percent reduction (closer to $2,900 for BRACAnalysis versus $2,795). “The bigger concern is that Medicare pricing pervades to the commercial segment,” write analysts Amanda Murphy and Sylvia Chao. “Private payers currently pay on average 8 percent below Medicare rates for BRCA testing. Based on our initial discussions with industry reps, feedback is mixed as to what commercial payers may do. While Medicare rates are typically used as a benchmark for reimbursement in the lab space and it seems lab payment contracts are increasingly tied to Medicare rates (versus a percentage of list or usual and customary charges), Myriad is in a unique position in that it is the sole provider of the test . . . and has already negotiated payments at specified rates.”