Quest says content with diagnostics, does not need CRO

November 6
1:09 AM 2014

The chief executive of Quest Diagnostics Inc (DGX.N) said his company will stick to its core business of diagnostic testing and is not interested in acquiring a contract research organization (CRO), despite such a planned move by rival diagnostics firm LabCorp (LH.N).

LabCorp, or Laboratory Corp of America Holdings, said on Monday it would pay $6.1 billion for Covance Inc (CVD.N), a leading CRO that conducts trials for drugmakers, as its own diagnostic services business faces pressure from reimbursement cuts.

Covance's drug development outsourcing services lessen the need for drugmakers to maintain their own in-house laboratories. By buying Covance, LabCorp would enter the CRO business, while holding on to its existing central labs diagnostics business.

Quest, through its own laboratories, offers a wide array of services that range from simple cholesterol tests to genetic tests for risk of breast cancer.

Steve Rusckowski, Quest's chief executive, said in an interview on Wednesday that his company is not interested in straying very far from its focus on diagnostic information services.

"What we don't have, and we believe is not in the scope of diagnostic information services, is a clinical research organization," Rusckowski said. "We believe the scope we have in diagnostic information services is broad enough and good enough for us to support our growth goals."

Earlier on Wednesday, at an investor day in New York, Quest said it expects average annual sales to grow by 2 percent to 5 percent over the next three years, with acquisitions accounting for one to two percentage points of that growth.

It also forecast combined cost savings of $600 million over the same period, thanks largely to standardization of processes, information technology and equipment.

For the three-year period, it also predicted growth in earnings per share, excluding special items, of 8 percent to 10 percent on average.

Rusckowski said the company, like its rivals, has been hurt in recent years by pricing pressures, including a large reduction in reimbursement by the U.S. Medicare insurance program for pathology tests.

But he said pricing pressures appear to be moderating and that increasing numbers of diagnostic tests ordered by doctors could offer "upside" for the company in coming years.

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