Laboratory Corporation of America Holdings (LH)

Benzinga  Oct 20  Comment 
Laboratory Corporation of America® Holdings (LabCorp®) (NYSE: LH) and Monogram Biosciences, Inc., part of the LabCorp Specialty Testing Group, today announced the launch of HIV GenoSure ArchiveSM, the first laboratory test to help optimize...
Market Intelligence Center  Oct 13  Comment 
Option-trade picking algorithms patented by found a trading opportunity with Laboratory Corporation of America Holdings (LH) that should provide a 3.32% return in just 130 days. Sell one Feb. '15 call at the $95.00...
Market Intelligence Center  Sep 30  Comment 
A covered call identified by's patented algorithm on Laboratory Corporation of America Holdings (LH) could yield about 2.94% (7.51% annualized, for comparison purposes only) in 143 days. Pair a long position in the...
DailyFinance  Sep 27  Comment 
The securities litigation law firm of Brower Piven, A Professional Corporation, has commenced an investigation into possible breaches of fiduciary duty and other violations of state law by the Board of Directors of...
SeekingAlpha  Sep 26  Comment 
By Stephen Simpson, CFA: When I last wrote about LipoScience (NASDAQ:LPDX) in May, I pointed out that there was a reasonable chance that LabCorp (NYSE:LH) could acquire the company. LipoScience has struggled mightily as a public company, but the...
Benzinga  Sep 25  Comment 
The following are the M&A deals, rumors and chatter circulating on Wall Street for Thursday September 25, 2014: Labcorp to Acquire Liposcience for $5.25/Share in Cash The Deal: Laboratory Corporation of America Holdings (NYSE: LH) and...
DailyFinance  Sep 25  Comment 
Kirby McInerney LLP is investigating potential claims against LipoScience, Inc. (“LipoScience” or the “Company”) (NASDAQ:LPDX) concerning the proposed acquisition of the Company by Laboratory Corporation of America...
MarketWatch  Sep 25  Comment 
Shares of LipoScience soared 62% in premarket trade Thursday after the developer of diagnostic tests agreed to be acquired by Laboratory Corp. of America in a cash deal valued at $85.3 million. The per-share offer of $5.25 for LipoScience, is a...
Benzinga  Sep 25  Comment 
LipoScience (NASDAQ: LPDX) shares jumped 60.38% to $5.10 in pre-market trading after the company agreed to be acquired by LabCorp (NYSE: LH) for a purchase price of $5.25 per share in cash. Aixtron SE (NASDAQ: AIXG) shares surged 12.30% to...
SeekingAlpha  Sep 14  Comment 
By WestEnd511: Darden (NYSE:DRI) reported FY1Q15 on Friday that was generally in-line with the company's prior announcement on September 2nd. Diluted EPS of $0.32 was right in the middle of the $0.31 - $0.33 guidance and final comp of -1.3% for...


Laboratory Corporation of America (LH) is the second-largest medical testing company in the United States by revenue. As of the end of 2007, the company had a nationwide network of labs and patient centers which perform routine and specialty diagnostic testing; the most commonly requested tests include bloodwork, urine analysis, and HIV tests.[1]

LH's revenue grows with the market for advanced diagnostic testing, which uses genetic and molecular techniques to detect disease. Such specialty testing is more profitable than routine testing, which is often performed in-house by hospitals and managed care organizations. The company's revenue from specialty testing was $1.40 billion in 2007, up 12.3 percent from $1.24 billion in 2006. LH's specialty tests include prenatal genetic screening tests for Down syndrome and other developmental disorders, as well as genetic identity tests used in forensic science and paternity testing used in child support court proceedings.[2]

LH benefits from trends toward preventative, personalized medicine as doctors use diagnostic testing to identify risk factors for disease. Annual revenue growth for specialty testing averaged 11.2 percent from 2005-2007.[3] In the first half of 2008, LH had difficulty collecting testing charges billed directly to patients, many of whom do not have health insurance. Citing economic conditions and higher levels of copayments and deductibles unpaid by patients, the company increased its allowance for bad debt by $45 million to $150.6 million, up from $105.6 million at the end of the 1st quarter of 2008 and $92.5 million at the end of 2007.[4]

Company Overview

Laboratory Corporation's revenues come from fees paid by physicians, hospitals, managed care organizations and government programs such as Medicare and Medicaid for the company's testing services. [5] Tests most commonly performed by the company include analysis of blood samples and urine, blood cell counts, thyroid tests, Pap tests, HIV tests, bacterial cultures, and substance abuse tests. The company also has specialty testing businesses providing oncology testing, gene-based tests for HIV and other diseases, and monitoring patients enrolled in clinical trials.[6]

Revenue grew at a compound annualized rate of 9.7 percent over the three fiscal years ended December 31, 2007, while operating income increased 9.1 percent annually over the same period.[7]

Business & Financial Metrics

In its 2007 annual report, management attributed revenue growth over the three years ended December 31, 2007 to growth in testing services for managed care organizations, continued acquisitions, and an overall shift in focus from routine testing to more profitable specialty testing services.[8]

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LH Revenue and Operating Income (Millions of USD) 2005-2007

In 2006, LH signed a 10-year, $3 billion contract and became the exclusive provider of testing services for UnitedHealth Group (UNH), the nation's second-largest publicly traded managed care company by revenue.[9] LH's percentage of sales to managed care companies increased from 40.2 percent as of December 31, 2005 to 46.1 percent at the end of 2007.[10] The company's 2005 acquisitions of specialty testing companies US Labs and Esoterix helped grow its business in genomic and esoteric testing.[11]

Business Segments

Although the company operates in one business segment, its products are divided into two groups: routine testing and specialty testing.

  • Routine Testing (65% of 2007 revenue)[12] includes tests most commonly ordered by physicians for diagnosing and monitoring disease. The company's most frequently requested tests include bloodwork, urine analysis, HIV tests, microbiology cultures and substance abuse tests. Although the company can usually perform and report results for such tests within 24 hours, physicians and hospitals may elect to set up in-house laboratories for some of these commonly used tests.[13]
  • Specialty Testing (35% of 2007 revenue)[14] uses genetic and molecular techniques to provide faster and more reliable information about HIV, cancer, and other bacterial and viral diseases. Products include prenatal genetic screening tests for Down syndrome, mental retardation, autism, and other developmental disorders. The company also provides specialty testing for patients enrolled in clinical trials, genetic identity tests used in forensic science and paternity testing used in child support court proceedings.[15]

In the laboratory testing industry, an accession is defined as a single patient specimen (blood sample, tissue culture, etc.) for which tests are ordered, regardless of the total number of tests ordered for the specimen.[16]

LH 2005-2007 Revenue, Testing Volume and Revenue per Accession by Testing Type[17]

2007 2006 2005
Revenue (Millions of USD)
Routine Testing 2,671.9 2,347.6 2,197.8
Specialty Testing (Genomic and Esoteric) 1,396.3 1,243.2 1,129.8
Total 4,068.2 3,590.8 3,327.6
Number of Accessions (Millions)
Routine Testing 85.4 76.7 74.8
Specialty Testing (Genomic and Esoteric) 21.9 18.8 17.3
Total 107.3 95.5 92.1
Revenue per Accession (USD)
Routine Testing 31.29 30.60 29.38
Specialty Testing (Genomic and Esoteric) 63.76 66.14 65.26
Total 37.92 37.59 36.12

Accessions billed to private patients, who pay out-of-pocket for testing services, provide significantly higher margins than those billed to third party payers such as insurance companies and Medicare/Medicaid.[18]

LH 2007 Accession Volume and Revenue per Accession by Type of Payer[19]

Accession Volume as % of Total Revenue per Accession
Private Patients 2.1 $158.84
Medicare and Medicaid 17.1 $40.66
Commercial Clients 31.9 $31.60
Managed Care 48.9 $35.74

Trends & Forces

Shift Towards Personalized Medicine and More Profitable Specialty Testing Increases LH's Testing Volume and Operating Income

As medicine shifts perspective from treating the symptoms of disease to preventing its causes, more tests are performed to diagnose conditions in their early stages. Tests for genomic markers and detection of bacterial and viral diseases are more expensive and more likely than routine tests to be outsourced by hospitals and managed care organizations to a company like LH. Annual revenue growth for specialty testing averaged 11.2 percent from 2005-2007, while routine testing revenue grew an average of 10.3 percent annually over the same period.[20]

Genetic testing is also used to customize treatments based on an individual's genotype. In October 2007, LabCorp announced an agreement with MedCo whereby LabCorp would provide genetic testing for patients taking tamoxifen, an anti-cancer drug, to examine how patients' genotypes influence the drug's effectiveness. Genetic testing also holds implications for customized dosage and prescribing of other widely used drugs, such as anticoagulants and pain relievers, whose effectiveness is also linked to patients' genetic variations. In a press release, LabCorp Executive Vice President Dr. Myla Lai-Goldman, described the agreement with Medco as "between industry leaders at the forefront of the movement toward personalized medicine."[21]

Difficulty Collecting Charges Billed Directly to Patients Reduces LH's Revenue

In a July 24, 2008 conference call discussing 2nd quarter 2008 results, CEO Brad Hayes reported that the company increased its allowance for bad debt by $45 million, or 25 basis points, to 5.28 percent of total accounts receivable. Between 75 and 80 percent of the company's bad debt comes from charges billed directly to patients, and such charges account for 17 percent of the company's revenue. Of that 17 percent, approximately half is comprised of co-payments and deductibles owed by patients with health insurance coverage while the remaining half is owed by uninsured patients. As part of a plan to be fully implemented by 2010, the company announced two initiatives to improve its bad debt rate: cash incentives for employees tied to debt collection and plans to collect credit card information from uninsured patients at the time tests are ordered.[22]

LabCorp's primary competitor, Quest Diagnostics (DGX), did a better job keeping bad debt levels in check during the first half of 2008. Quest's bad debt as a percentage of Net Sales was 4.4 percent as of June 30, 2008, up from 4.3 percent a year earlier.[23] By contrast, Labcorp's bad debt as a percentage of Net Sales stood at 8.9 percent as of June 30, 2008, compared to 4.8 percent a year earlier.[24]

Pricing Pressure from Managed Care Organizations and Hospitals Looking to Cut Health Care Costs Reduces LH's Profit Margins

Managed Care Organizations looking to rein in spending on health care costs for their members can use their size to negotiate lower prices for LH's services. In 2006, LH signed a ten-year agreement to be the exclusive provider of testing services to UnitedHealth Group (UNH) after Quest Diagnostics, UNH's previous provider, refused to renew its contract, saying that accepting the managed care company's revised terms would be "irresponsible." In addition to making concessions on pricing, LH also agreed to compensate UNH up to $200 million for costs the company incurred in transitioning providers from Quest to LH.[25]


  • Quest Diagnostics (DGX) is the nation's largest independent laboratory testing company by revenue and LH's primary competitor. It reported 2007 operating income of $754 million on revenues of $1.84 billion.[26] Like LabCorp, Quest performs a wide variety of routine and esoteric tests for hospitals, private patients, health insurance companies and government programs. The two companies often compete for the business of managed care organizations, as happened with the UnitedHealth Group (UNH) contract in 2006.
  • Bio-Reference Laboratories (BRLI) is a smaller competitor focused on specialty, esoteric testing and primarily serving the New York metropolitan area. The company reported revenues of $75 million and operating income of $36 million for 2007.[27]

2007 Financial Metrics of LH and Competitors[28][29][30]

Revenue (Millions of USD) Operating Income Revenue per Accession
Quest Diagnostics (DGX) 6,705 1,091 Not Reported
Laboratory Corporation of America Holdings (LH) 4,068 2,377 37.85
Bio-Reference Laboratories (BRLI) 250 25 67.14

Patents and exclusive licensing for diagnostic tests, especially those for high-priced esoteric tests, provide lab testing companies with a competitive advantage. LH has licensed ovarian cancer testing technology from researchers at Yale University and lung cancer testing technology from researchers at Duke University.[31] The ovarian cancer test, called OvaSure, was released in July 2008 while the lung cancer test is scheduled to be available in 2009. [32]


  1. LH 2007 Annual Report pg. 4  
  2. LH 2007 Annual Report pg. 9  
  3. LH 2007 Annual Report pg. 37  
  4. SeekingAlpha (Jul. 24, 2008).
  5. LH 2007 Annual Report pg. 11  
  6. LH 2007 Annual Report pg. 1  
  7. LH 2007 Annual Report pg. F-4  
  8. LH 2007 Annual Report pg. 37  
  9. Melissa Davis (Oct. 4, 2006).
  10. LH 2007 Annual Report pg. 37  
  11. LH 2007 Annual Report pg. 37  
  12. LH 2007 Annual Report pg. 37  
  13. LH 2007 Annual Report pg. 8  
  14. LH 2007 Annual Report pg. 37  
  15. LH 2007 Annual Report pg. 9  
  16. World Health Organization.
  17. LH 2007 Annual Report pg. 37  
  18. LH 2007 Annual Report pg. 11  
  19. LH 2007 Annual Report pg. 11  
  20. LH 2007 Annual Report pg. 37  
  21. Business Wire (Oct. 22, 2007). Medco, LabCorp Strike Strategic Agreement for Research on Personalized Medicine and Pharmacogenomics.
  22. SeekingAlpha (Jul. 24, 2008).
  23. DGX 2Q 2008 Quarterly Report pg. 28  
  24. LH 2Q 2008 Quarterly Report pg. 19  
  25. Carolyn Pritchard (Oct. 3, 2006). Quest Shares Dive; LabCorp Surges on United Health Deal.
  26. DGX 2007 Annual Report pg. F-3  
  27. BRLI 2007 Annual Report pg. 34  
  28. DGX 2007 Annual Report pg. F-3  
  29. LH 2007 Annual Report pg. F-4  
  30. BRLI 2007 Annual Report pg. 34  
  31. Sabine Vollmer (Jan. 18, 2008). LabCorp, Duke to work on cancer test.
  32. Carolina Newswire (Jul. 1, 2008). LabCorp Announces Availability of OvaSureTM - Ovarian Cancer Test For High-Risk Women.
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