LH
#Nick, it's <UNK>.
On BeaconLBS, the strategy across the enterprise is consistent.
It's new customers, new channels, new markets.
So for BeaconLBS, the expansion opportunities in 2016 are new markets with the existing customer, which is United.
New customers, which are other organizations that may be interested in subscribing to the tool.
And new channels, which is the addition of more capabilities such as molecular diagnostics to the menu.
And all those things are underway.
And we feel very good about where we are with BeaconLBS, and it has been a ---+ this is a service that the BeaconLBS team within LabCorp has really invented, created, designed and implemented.
And I'm really proud of them; they should be really proud of themselves about what they've accomplished because it's terrific.
And it's generating a fairly significant amount of revenue now, and we see the opportunity for great growth there.
On capital allocation, we have said many times that our target leverage is 2.5 times; that is only a target.
We are always going to be flexible in terms of looking at how we allocate capital.
We do expect that by the second half of the year we will certainly be in a position to consider returning capital to shareholders through share repurchase.
And, again, it depends on the M&A pipeline.
It depends on how the cash flow stacks up.
But we will always be evaluating that opportunity.
As you know, I think we've had a pretty consistent history of share repurchase as a way of returning capital and creating value for shareholders.
<UNK>, what we said was that we expected to generate $100 million in incremental revenue for the enterprise by 2018.
So we haven't talked about the run rate of the companion diagnostics business specifically other than to say we had double-digit growth in 2015, which we were very pleased with.
But we don't want to confuse the $100 million in incremental revenue, which was the initial target that we set out a year ago for the companion diagnostics growth with the size of the business.
Because the size of the business is already actually quite close to that number.
No.
I just go back to what Debentures said; I think she covered it quite comprehensively.
There's billions of dollars in cash on the balance sheets of biotech.
And when there's a good compound that a company is looking at, it doesn't get canceled because of lack of funding.
There's always a way to find funding for it.
Compounds or studies get canceled because of adverse events or because of a change in focus.
But we don't see the, quote unquote, funding environment as having any near-term effect on where we are with Covance at all.
And, again, as Deb highlighted, 85% of our revenue is coming from what we would characterize as large pharma.
So the exposure to biotech is only about 15% of total Covance revenue.
<UNK>, all the revenue streams that we have obviously flow into the two segments, so everything has been accomplished there.
No.
The 31% is the Covance business.
The nontraditional ---+ so the way it source out, Bob, is that anything that reports into diagnostics is reported as part of diagnostics.
So, the forensics, the (inaudible) ---+ all that stuff reports in through diagnostics, and that's part of what we report as diagnostics.
The only thing that has changed in the way that we have historically reported is what used to be reported as part of LabCorp in the clinical trials business, which was our central lab, has moved over to Covance.
And what used to be reported as the Covance food safety and nutritional chemistry business is now reporting up through LabCorp.
And you think of that in approximate terms as we put a little more into Covance than has come over to diagnostics but not materially so.
To take a first cut, I think maybe what you're getting at is with the acquisition of Covance we picked up a lot of pharma and biotech customers that we didn't have that now represents, call it, around 30% of our total.
So by definition, call it, the government reimbursement side is a lower percentage given we've added a new customer base.
Yes, we can ---+ I think we actually published this chart that shows those percentages, Bob, and we'll get that up.
But my recollection is pure government went from 17% to 12%; and managed care went from a little over 50% to about 30%.
So, say we went from approximately 67 to approximately 42 in terms of managed care and government payment across the enterprise.
Does that help.
I guess there was a lot in that question.
So let me start by saying that monetizing the data in and of itself has never been something that's been an aspiration for LabCorp.
We don't view data sales as ---+ it's not going to generate enough revenue to materially help us, and it's not what we want to do strategically.
What we want to do is we want to use the data to further the strategy.
And the strategy, obviously, is to execute on our three core goals, which is delivering world-class diagnostics, bringing innovative medicines to patients faster and using technology-enabled solutions to change the way the care is delivered.
What I see in getting patient consent through the patient portal is we have patients who come to us for lab testing; they come to the patient portal to get their results.
When they come to the portal, we are now addressing the patient population in a place that we've never addressed them before and that no one else is addressing them to say, given your diagnosis, given what we know about you, would you be interested in being contacted in the event there was a study that could potentially improve your own health or could improve the health of the population as a whole.
And the response has been very positive.
And as I say, we launched it in 4Q.
Tens of thousands of patients have encountered the prompt.
A lot have said yes; some have said no.
We are working on figuring out how we can improve the response ---+ the yes rate.
And, again, this is not as simple as when you go to download an update to your Apple phone and you either say yes and you get it, or no and you don't.
There has been a rigorous compliance review.
There are protections around how we present this to the patient and what we ask them.
And we've gone through a very thorough review to make sure we're doing this in a way that is going to be protective of the patient's privacy and our responsibility to honor that.
Now, again, what does that lead to.
It leads to a large database of patients which can be accessed for a variety of things ---+ clinical studies, Phase IV, observational studies, reaching out to patients to ask them questions about medication use or medication adherence.
So just a whole variety of areas in which we think this becomes a differentiating factor because we have the patients' consent to recontact them.
So I would contrast that with an anecdote that was told to me recently which is, a patient got a letter in the mail from a pharmacy saying since you're taking this drug would you like to be in this trial.
The patient was taking the drug for a completely different reason and was annoyed by the letter because the patient had never given the pharmacy permission to write them letters and ask them about what they want to do because of their use of drugs.
We get the patient's consent beforehand, before we ever recontact them and we ask for it.
And as a result, I think we're going to have a very ---+ a cohort that's going to be very interested in how they might participate.
And, sure, in the long run the goal is that would lead us to more bookings, would lead us to more opportunities to show sponsors that we have a good patient cohort available when they start recruiting and would lead to more revenue and growth.
When you say the integration ---+ we have costs from integrating the business as well as primarily relating as well to the Sanofi site support agreement that's now expired, and we're going through a restructuring there.
So we still anticipate having integration restructuring costs in 2016 but a much lower level than what we've had this year, and then those ultimately will go away.
The biggest areas of growth in esoteric is probably women's health, NIPT; continuing to see good momentum with BRCA and infectious disease.
So those are probably what I would highlight as the four top areas.
How much of it is acquisition-driven.
The acquisition pricing benefit actually mostly came from anatomic pathology as opposed to specific tests ---+ specific test acquisition.
So, most of what I would characterize as the core ---+ sorry, the growth in esoteric just came from excellent execution on sales priorities by the organization.
Sure.
Good morning, <UNK>.
One of the things I highlighted in my opening remarks is that we're competing in a much bigger space than just the core lab business.
So now we're competing in the core lab business but on a global basis.
We're competing in drug development.
We're competing in market access.
We're competing in food safety.
So you should think about our appetite for acquisition as spanning all of those businesses potentially.
Now, a couple of caveats ---+ the likelihood of us doing a sizable ex-US clinical laboratory acquisition is relatively small just because we're much more likely to think about doing that ---+ doing ex-US clinical laboratory now that we have a global footprint by building as opposed to acquiring.
So we certainly are looking at global expansion opportunities in the clinical lab business, but I wouldn't put that at the top of the list from an M&A perspective.
What I would put at the top of list is tuck-in acquisitions in the clinical lab business, acquisitions in the food business, acquisitions in drug development, acquisitions in market access ---+ all of which we'll look at through the lens of what's our return on invested capital.
How does it strategically contribute to our key priorities.
And what are the valuations relative to other opportunities for deployment of capital.
Thank you for the question, <UNK>.
As far as any of our backlog burn, we've seen it stabilize.
It started out the year, as you said, a little bit slower than expected.
However, both in clinical and central labs, we saw it stabilize throughout the year kind of similar to the trend that we've seen in the last 10 years.
It's just leveled off similar to the trends that we've seen in the last 10 years is how I would say that.
We are at about the top of the hour.
We have six more questions in the queue, so I would encourage people to ---+ let's try to ask one, and also let's try not to ask things that have already been answered, please.
We would like to be able to answer everybody's questions today.
Bad debt improved throughout the year, and the team did a terrific job in terms of both reducing the bad debt rate and recapturing additional revenues that previously was going to bad debt.
The issue on self-pay is we're seeing ---+ as you see more patients come through exchanges ---+ exchanges do tend to have higher deductibles, higher self-pays and now we're experiencing something, although in a limited way, that you've heard other providers talk about, which is people who are on and off the exchanges.
So they are on the exchange and they are off the exchange, and they sign back up again.
There are 29 different reasons right now why people can get on an exchange even outside the enrollment period.
So we're seeing some of that, and it does mean that more bills go to patients.
So for now, we feel like we have the situation well in hand, but it is something that we're keeping a close eye on.
A.
J.
, it's <UNK>.
On PAMA, we have not heard anything further.
We continue to believe that the inclusion of key hospital adds is absolutely vital to accomplish the congressional purpose, which was a market-based price for meta-care.
And realistically, we're at the end of February; the rule has not been finalized.
It's hard for me to imagine how this could be implemented in January of 2017 in a way that would be fair to our industry.
On FDA, we continue to work closely with Congress, and attempting to work with the FDA as well, on a solution that would be a legislative solution that would bring clarity to whatever regulation there is going to be of lab-developed tests.
And it would not be dependent on sub-regulatory guidance a proposed long-term solution.
And we feel ---+ again, we've been very clear about this, we feel very strongly that guidance is the wrong way to go about this and that we will continue to oppose that path.
I don't think we have anything to say beyond what we've already said, which is we're going to look at all opportunities and evaluate the strategic fit and the returns and the valuations in comparison to what other opportunities there are.
To the first question, <UNK>, before we introduce a test to the market ---+ and some of these tests are kits, which obviously have been approved or cleared by the FDA.
But before we introduce a test to market, there is a very robust validation process within our laboratories to make sure that the tests are ---+ that they are valid, that they report what they are supposed to report and that they have appropriate clinical utility.
So, we've followed that path for years.
We've been very disciplined about it and we will continue to follow that.
And, again, our exposure to the LDP ---+ the potential of at least the initial stage of what FDA has proposed from an LDT perspective is relatively low as a percentage of revenue.
But this is important as an industry matter and it's important from an overall perspective in terms of innovation and development in the diagnostic industry.
For the weather impact from the January storms, I'm going to turn this over to <UNK> to respond for the diagnostic business.
Thanks, <UNK>.
<UNK>, the weather ---+ obviously, we are always concerned about weather at this time of year.
Fortunately for us it was comparable to what we experienced last year.
I think most of the weather in the areas that would have been impacted was fortunately on the weekend.
So at this point we view it as inconsequential, and we're keeping our fingers crossed for the remainder of the first quarter.
This is Deb.
You are right; the demand is increasing.
It has great incremental drop-through.
What I would say is that we are ---+ where we see the utilization getting tighter in US and China, it is driving some modest price increases in those regions.
I think, as we've said, the biggest factor that's contributing is the annualization of contract wins.
And I don't think there's enough going on in the high-deductible plans or hospital competition to really change that.
I think the reality is that the high-deductible plans and high co-pays have more of an impact on bad debt and collections.
It doesn't stop the patient from coming to get the testing done; it just stops us from getting paid for it.
So I don't think that has a significant impact on volume.
We've always faced competition from hospitals.
I actually think that it's been really about three years since we saw the huge shift in hospitals buying up physician practices and in-sourcing them.
I think we're doing a terrific job on organic volume.
I think the diagnostics team has done a great job.
We're clearly outperforming, from my perspective, the competitive market with organic volume growth.
I think we're outperforming the other healthcare services providers in terms of organic volume growth.
So in spite of ---+ and, again, if you look at that what you've characterized as a slight deceleration on a per-day basis, 3Q over 4Q, it's actually essentially flat from an organic volume perspective.
So we're very pleased with it.
Well, once again, we are very pleased with the year that we've turned in in 2015, and I want to express my appreciation to my 50,000 colleagues and to our leadership for really an exceptional performance.
We're excited about 2016.
We look forward to talking to you again quarter to quarter with updates, and hope you have a great day.
Thank you.
