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Quest Diagnostics (DGX) |
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WIKI ANALYSIS
Quest Diagnostics (DGX) is the largest independent research and testing laboratory in the world, holding approximately 14% of the $40 billion laboratory services market. The company provides diagnostic testing, information, and services, for the health care industry, primarily in the United States. Despite having a large domestic presence, Quest also operates in Central and South America and Europe. The company offers routine tests, including blood cholesterol level, blood chemistries, and Pap tests, and esoteric testing services, which includes genetic and immunologic testing, among others. It also provides testing services for clinical trials and risk assessment services for the life insurance industry.
In addition to offering testing services, Quest also manufactures and markets diagnostic and testing equipment for sale to hospitals, other laboratories, physicians, and health insurance companies, to name a few. Quest operates a network of approximately 2,000 patient service centers and principal laboratories, as well as approximately 150 smaller laboratories.
Despite the loss of its United HealthCare contract to rival Laboratory Corporation of America Holdings (LH), Quest's performance hasn't suffered much at all. Profit margins are still high, and the company continues to release many improved tests. With a strong series of innovative developments, Quest is in a good position to maintain its strong performance in the future. Possible threats to this include political pressure to lower health care costs, budget cuts to Medicare or Medicaid, and increasing competition in the industry.
History and Corporate Overview
Originally founded as MetPath in 1967, Quest Diagnostics has become the leading provider of medical diagnostic testing, information, and services, in the U.S. A number of strategic acquisitions has allowed Quest to expand into nearly every area of the medical imaging and diagnostic industry, cementing its position at the forefront of the U.S. laboratory services market. As a result of the 1999 acquisition of SmithKline Beecham Clinical Laboratories (SBCL), GlaxoSmithKline (GSK) holds a sizable amount of Quest's stock. The company earned $7.4 billion in net revenue and $729 million in net income in 2009.[1]
The majority of Quest's business focuses on laboratory testing; other services generate less than 10% of sales. Additionally, the majority of Quest's sales come from within the U.S., with only a fraction coming from international sources.
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Business Growth
FY 2009 (ended December 31, 2009)[1]
- Net revenue increased by 2.8% to $7.4 billion, up from $7.2 billion in the previous year.
- Net income increased by 25% to $729 million.
Business Drivers
Acquisitions growth
Quest has augmented its organic growth with several recent acquisitions, adding testing facilities, obtaining rights to proprietary tests, and strengthening its position in certain geographies. Two of Quest's most recent acquisitions, Enterix and HemoCue, have helped to greatly expand its international presence. These acquisitions have also helped to balance Quest's loss of the United HealthCare contract to LabCorp. UnitedHealth Group is a managed health care group, a branch of United Healthcare, one of the largest domestic health insurers.
Some of Quest's most notable acquisitions include:
- Focus Diagnostics: Focus Diagnostics is a leading provider of infectious and immunologic disease testing and has introduced new tests to the market, including diagnostic tests for Lyme disease, West Nile virus, and SARS.
- Enterix: is an Australian-based company that offers immunology tests.
- HemoCue: HemoCue is a leading producer of near-patient or point-of-care hemoglobin tests.
- AmeriPath: AmeriPath is a national diagnostic test company specializing in anatomic pathology.
Product Development/Organic Growth
The big news around Quest normally involves new tests or other breakthroughs that the company develops. Most recently, Quest announced that it had developed a new test to help doctors diagnose metabolic disorders, and released Focus Diagnostics' HerpesSelect tests in March of the same year.
The segments with the most new developments are:
- Ten new tests were developed for blood chemistries relating to oncology.
- Fourteen tests were added to Quest's offerings of infectious disease testing for pre- and post-operation patients.
- Eleven tests complete Quest's typing capability for bone marrow transplantation, tumor vaccination, and immunotherapy.
- Quest added nine tests to the FDA-registered laboratory for Human Cell, Tissues' and Cellular and Tissue-Based Products Donor Testing, where tissue donors can get tested for communicable diseases.
Quest has also received positive attention for successfully cutting costs to balance the loss of the UnitedHealth Group contract.
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Political policy risks
Though Quest does have some international presence, the fact remains that it operates primarily in the United States, with domestic sales accounting for 97% of total revenue. As such, changes in the policies governing the U.S. medical industry can have a significant impact, whereas the company is much less leveraged to conditions abroad. Quest could benefit from increased concern for health and wellness, especially if government programs help increase the availability of health care for U.S. citizens. On the other hand, there have been moves by some politicians to lower the prices throughout the medical industry, which would undoubtedly have a negative impact on Quest's profit margins. Depending on how these, and various other, trends progress, Quest's performance could be altered substantially.
Public/private research and funding
Government funding for scientific research is another factor that could impact Quest either positively or negatively. On one hand, there has been an increasing demand for the development of genetic tests, which has led to a correlated increase in federal funding for research in the area. On the other, potential budget cuts and political disagreement regarding ethical issues, such as stem cell research, could put a serious damper on Quest's federally funded innovations.
This idea connects also to the FDA's role in Quest's development process. Unlike in some international markets, Quest's products and services have to meet strict standards to obtain regulatory approval. For example, the HerpesSelect testing procedure has been available in interntional markets for a while but was only recently approved for use in the United States. The FDA has regulatory responsibility over instruments, test kits, reagents, and other devices used to perform diagnostic testing, giving it the power to approve or disapprove essentially all of Quest's sources of revenue. Failure on Quest's part to meet or quickly respond to changes in FDA regulations could harm efficiency and even result in more severe ramifications such as litigation.
Competition Metrics
Quest's major competitor is Laboratory Corporation of America Holdings (LH). The two often actively compete for both market share and contracts, as recently happened in the case of United HealthCare. Another player in the laboratory market is Bio-Reference Laboratories (BRLI), though it is much smaller than the either of the other two main competitors.
References
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