DGX
#Yes, sure.
It's a promising market.
If you go back and look at our platforms for growth, companion diagnostics is sometimes connected with precision medicine.
It is an important part of our growth strategy.
Several things.
One is that we continue to work with the market-leading research organizations.
About two years ago we announced a relationship with Memorial Sloan-Kettering; we're actually taking their research and we are now marketing a product we call OncoVantage, with 34 actionable genes.
Actually we're going to expand that panel this year as well with their help.
So this is right in the middle of precision medicine, and clearly we're providing the companion diagnostics associated with that.
Second is, we're engaging with pharma.
We announced the work this past quarter that we were doing.
I talked about in my introductory remarks our recent announcement around melanoma.
We continue to be highly engaged with all the pharma companies that have many companion diagnostics associated with their development funnels.
So we're very well positioned in that regard.
We do work now closely with Quintiles of getting an even better view in the marketplace and better access point for a lot of the smaller pharma companies with the relationship that they have, since they are the world's largest CRO.
So we think we're very well positioned as an innovation player; and now we're positioned even better with our relationship with Quintiles in terms of access to the market.
Yes, we continue to work the market.
Our strategy is to focus on Diagnostic Information Services.
We're entirely focused on that.
All our M&A has been associated around that.
We've done some hospital outreach deals, the most notable one is Hartford's outreach activity in the fourth quarter.
We continue to have a nice funnel, and that's consistent with our strategy of 1% to 2% growth through acquisitions.
Through our outlook we believe there's plenty of prospects to support that.
In that regard, we also have been clear that we're going to only acquire when we can have a good business case to make money for our shareholders.
Many of the deals we've done so far have justified themselves based upon cost synergies which, in our experience, is the best acquisitions you can do.
So we're still encouraged.
We still have a strong belief that we can deliver this portion of our strategy, and we've delivered on that through the past several years.
We said in our comments that we're quite encouraged.
We're offering a lot of value.
Typically the payment is through payers, who are the risk-taking organizations; so it could be an ACO, those people that are managing the population and have the financial incentive to provide this information to the physicians that are treating and managing patients' lives.
In that regard we've been off and running since the fourth quarter.
Momentum is building.
We've worked through the integration.
The nice part about this is we're providing this capability in the normal workflow of a physician.
We have tremendous, tremendous capabilities at the desktop of a physician with our order entry results reporting system, which we call Care360.
So when they're in the order entry system, if in fact they want the visibility to this information that we're getting from Inovalon they can easily access that information.
And the payment model is back to, again, typically the risk-taking entity, whoever that might be, the payer or in the case of an entity that's taking risk like an ACO.
So we're working both physicians' awareness of this capability along with payer awareness of this, and we're very encouraged about the prospects.
Yes.
Well first of all, we started in the fourth quarter.
We announced this deal in October.
We've already signed some business; I mentioned that in our remarks that we signed some business.
We're starting to ---+ we'll start to see some flow in the first quarter and it will continue to build, just like building any business.
So it's implied in our guidance; we do expect some growth from this business in 2016, and that business will grow into the future.
Well, as you can imagine, you're selling to payers, so we have a hospital ---+ excuse me, we have a health system team that calls on and manages our health insurance relationships.
So there's a portion of the sale that happens there.
Second is we have a health systems sales organization that calls on integrated delivery systems.
As I mentioned, some of those integrated delivery systems are taking risk and have ACOs; so we call there.
Third is we're equipping our physician salesforce that goes in and talks to primary care physicians and all physicians, including our specialist physician salesforces.
So we're training our salesforce there, and we have over 1,200 people in our sales organization.
And this is complementary to what Inovalon already does in calling on the health insurance organizations as well.
Yes, thanks, <UNK>.
I appreciate the question.
Obviously, we're going to provide guidance that we think is prudent and deliverable.
We have provided a range.
That range certainly includes some numbers that would put us into that 8% to 10%.
I want to refresh people's memory that the 8% to 10% was a compound annual growth rate over three years, so it was not a commitment to do that every single year.
Also in my prepared remarks I reminded people that at that point we were obviously looking at a 2014 number that was $0.05 lower than we actually delivered in 2014.
And I certainly did not anticipate a reduction in our amortization, which was really driven by the fact that we did not have as much significant M&A activity in 2015.
So we feel in terms of what we committed to that we're on track.
We're not behind.
Certainly depending on where we end 2016 within that guidance we'll either be a little bit slightly below the CAGR or right in the CAGR.
Really, what we want to do is provide guidance that we feel is prudent and deliverable; and as we progress through the year obviously we'll see where we might end up within that range.
But we certainly don't think the guidance implies, given the framing I shared on 2015, that we're materially off of that 8% to 10%.
Yes, so <UNK>, I talked about three levers that would enable us to grow earnings significantly faster than revenue.
One of them was the synergies that would be continued to be delivered to their steady-state from acquisitions we had done early in 2014.
So you would imagine that probably a lot of that has been delivered.
The second piece has been our Invigorate, and it being large enough to offset price and wage inflation, and deliver some margin expansion.
Then the third element is the leverage we get from organic growth.
We committed to improving our relative performance.
As <UNK> talked about, minus 4% in 2013 and minus 2% in 2014, and then some revenue growth the last five quarters.
And certainly since there's not as much M&A in our guidance this year as there was in the 2% we got last year, which benefited from some carryover on Solstas, we're implying continued strengthening of our organic performance.
As you know, organic volume growth has a high drop-through, and as we get closer and closer to market rates, which we had committed we would do through the three-year time frame, that's going to also enable us to lever our P&L.
So you should expect accelerating organic growth which will be a driver and then continued to progress to get to the $1.3 billion of Invigorate, which will also accelerate our earnings leverage.
We never broke it down by quarter, <UNK>.
The best I'm willing to do, which I've said in the past, is that it was about 2% of our revenue and its margin was comparable.
So, you can kind of frame what that would've contributed in Q4.
Yes, well, I'll start and I'm sure <UNK> will add something to it.
First of all, we continue to build our own market model.
In 2014 when we had our Investor Day, we ran our model with a number of assumptions.
We say that the independent laboratory market is going to grow about 2% to 3% in value, and that 2% to 3% in value has, as you know, a lot of moving parts.
We also made some assumptions about the ACA impact.
We've always assumed that as we have more insured lives in the United States that that would be net positive for this industry, net positive for us.
But we all know that has been muted.
There's some question about what will happen in 2016 around some of those lives.
And then also we assume in that our advancement of technology.
We're continuing to roll out new innovation to the marketplace, which helps with the growth rate assumptions; and that was implied in the 2%, 3%.
The aging population, for instance.
Hepatitis C is a good opportunity for us, which we're taking advantage of, with the Baby Boomers who need to get tested.
So all that is the 2% to 3%.
Also what we're seeing, <UNK>, is what we refer to as density.
We're seeing a continued improvement in the amount of tests we're getting through requisitions.
Some of this also might be enhanced with the delays that we've seen since the Great Recession over the last, let's say eight to nine years.
That people eventually when they show up to the physician have more need for more testing per that episode.
So you put that all together and that's why we feel that 2% to 3% ---+ and that's not in any specific year, but in the longer-term view ---+ is a good gauge of the market.
We believe that utilization or volumes on a req basis would be slightly less than that, but on a test basis would be slightly greater than the reqs because you're getting an increase in the number of tests per requisition.
So that's what we have right now.
As I said in 2016 we saw utilization being somewhat stable.
Like you, we look at all the different indications in the marketplace to get engaged with what's happening on ---+ going on within the marketplace.
But so far it's feeling as we come out of this year somewhat stable expectations for utilization in 2016.
Sure.
What we mentioned in our prepared remarks is we have a big business ---+ it's $1.8 billion; I referred to it in my closing remarks as being advanced diagnostics, which include gene and esoteric testing, and it grew by 5%.
5%, so we feel good about that.
I would say it's a number of programs that we have launched in the past few years.
It is taking advantage of our investment that we made in our clinical franchise organization.
We have invested in a stronger team.
We're launching products in a better way.
And, <UNK>, why don't you give us the top handful of opportunities that we saw in that number.
So we feel good about that $1.8 billion business growing 5%.
We think the prospects continue to be good going forward.
Yes, so obviously we're not going to project our volume beyond this year, <UNK>.
I'm sure you can appreciate that.
What we did commit to was getting back to market levels of revenue growth and also then gaining share at some point.
But in the three-year time frame through 2017, we felt it was incumbent upon us to get back to market-level growth, and that's really what we're certainly striving to do.
I think, as everyone recognizes, we talk about utilization in a market that's really a bunch of submarkets.
So one of the drivers certainly, besides the fact that we have outstanding offerings, of the 5% growth in esoteric is that some of those markets are growing.
Certainly BRCA is a growing market; noninvasive prenatal testing is a growing market; hepatitis C is a growing market.
And then you've got things that we mentioned and it's not quite behind us, such as paps, which is a declining market.
Certainly the impact of some of the safety scares on testosterone has impacted that market in terms of utilization over the last couple years.
So there's really a bunch of markets moving somewhat different directions.
And depending on each lab and certainly Quest's share in those markets, it's going to impact us all differently.
So it would be really difficult, even if we were willing, to give you a volume number.
That's why what we really feel better about is giving revenue numbers.
Certainly if you just look at volume, you miss some of the positive mix aspects that you've seen come through in our results over the last year-plus in terms of mix, higher mix of these esoteric offerings; higher mix of better customer pricing, being more disciplined in those ways.
So that's what our focus is on as opposed to figuring out volume.
We think the demographics we've talked about are positive.
Certainly aging population, growing population.
We certainly, despite some of the recent negative news ---+ such as 40% fewer enrollees in the exchanges; some of the slower growth that we've talked about over the last 18 months in terms of enrollment; you've seen a major payer who has talked about some of the struggles with the exchanges ---+ and despite all that we still think the Affordable Care Act is adding patients with insurance, and that's a good thing for us.
So we do feel positive about volumes and trends and certainly expect to get our fair share of that.
But it would be very difficult to give you some sort of a steady-state volume organic growth projection going forward.
Yes.
Thanks, Mike, for your question.
First of all, point-of-care diagnostics has been around for decades.
I've been around for decades, invested in it, and know the market well.
Where it has been successful is where there has been a good value proposition that has delivered something to the marketplace.
So chronic disease management, diabetes, it's done well.
If you look at critical care in hospitals, if you were to go into a critical care unit with blood gas testing, that's been an example of good point-of-care testing value proposition.
And then finally emergency medicine, if you look at cardiac enzymes and the value of having those cardiac enzymes sooner, when the patient is being transferred to the emergency room, has a good value proposition.
But in other areas where it's not quite clear, where it's not compelling, those promises have not really been delivered.
With all that said, we're the world's largest Diagnostic Information Services Company.
We're always looking at ways we can improve our cost structure.
We buy from all the in-vitro diagnostic companies.
If in fact there is a better platform to do some portion of our routine testing on a much more efficient, effective platform than the current ones that we use from all the suppliers, we're all ears.
So we never not look at innovation that could be helpful in us delivering on our promise of great quality at some of the best prices in the industry.
And our value proposition continues to be very, very strong.
So point of care is a part of that, but you need to make sure that you really understand what it's going to do and where the value proposition is strong enough to get some traction.
And again we could be a utilizer of some of that if in fact the facts are compelling.
Great.
Well thanks, everyone, for all the questions and thanks for joining us on the call today.
Just to conclude we had another solid quarter and finished the year strong.
We appreciate your support, and have a great day.
Take care.
