Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2019 Laboratory Corporation of America Holdings Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to introduce your host for this conference call, Ms.
Claire Fauilette, Vice President of Investor Relations. You may begin, ma'am.
Thank you, operator. Good morning, and welcome to LabCorp's 4th quarter 2019 conference call. As detailed in today's press release, there will be a replay of this conference call available via telephone and Internet. With me today are Adam Schechter, President and Chief Executive Officer and Glenn Eisenberg, Executive Vice President and Chief Financial Officer. This morning in the Investor Relations section of our website at labcorp.com, We posted both our press release and an Investor Relations presentation with additional information on our business and operations, which include a reconciliation of the non GAAP financial measures to the GAAP financial measures during discussed during today's call.
Additionally, we are making forward looking statements. These forward looking statements include, but are not limited to, statements with respect to estimated 2020 guidance and the related assumptions, the impact of various factors on operating and financial results, expected savings and synergies and the opportunities for future growth. Each of the forward looking statements is based upon current expectations and is subject to change based on various factors, many of which are beyond our control that could affect our financial results. Some of these factors are set forth in detail in our most recent annual report on Form 10 ks and subsequent quarterly reports on Form 10 Q included in each case under that Risk Factors and in the company's other filings with the SEC. We have no obligation to provide any updates to these forward looking statements even if our expectations change.
And now, I'll turn the call over to Adam Schechter.
Thank you, Clarissa, and good morning, everyone. It's a pleasure to speak with you today and thank you for joining the call. For more than 50 years, LabCorp has grown and prospered by putting talented people behind the vital healthcare mission, improving health and improving lives. We deliver world class diagnostic solutions, bring innovative medicines to patients faster and use technology to improve the delivery of care. That is on Weyburn.
As I've begun to travel and meet colleagues from around the world, I see that we have dedicated employees at every level from phlebotomists to couriers to lab technicians, critical research associates and scientists, all of whom care deeply about the mission and the success of LabCorp. I am excited about the opportunities for LabCorp to achieve its mission and to drive profitable growth into the future. To that end, we had a solid Q4 in 2019 and we are well positioned for growth this year. During the Q4, we saw progress across both our diagnostics and our drug development businesses. Our diagnostics business grew revenue by 3.7%, concluding a year of strong growth given the headwind of Panama.
Although margins were down 70 basis points in the quarter, Panama had a negative impact of 130 basis points. Our drug development business grew revenue by 9.3%, while margins expanded 130 basis points and we improved our trailing 12 months book to bill to 1.29. We closed with revenue of over $11,500,000,000 adjusted EPS of $11.32 and free cash flow of over $1,000,000,000 We also made strategic acquisitions of $876,000,000 and returned $450,000,000 to our shareholders through share repurchases. PAML was a significant headwind for us in 2019 and I'm pleased with our performance given its impact. While we appreciate that Congress passed the Lab Act and that delays the next PAMA data reporting period by 1 year until 2021, Regrettably, the legislation did not halt the reimbursement cuts that went into effect this year.
We continue to pursue both the legislative solution and our industry litigation with the goal of correcting the improper implementation of PAMA. Before I shift to discussing our priorities for 2020 and beyond, I want to take a moment to discuss LabCorp's response to the 2019 novel coronavirus. As a leading global life science company, we have nearly 65,000 employees around the world and are doing business in more than 100 countries, including China and surrounding geographies. Our teams have been mobilized since the first reports of this virus to protect our employees, to communicate transparently with our customers, to manage our supply chain and to support the global health care response. We immediately engaged with the CDC on the status of its test becoming available to commercial labs and utilizing our own expertise in PCR and testing for other strains of coronavirus, we have also begun to work on our own test for the novel coronavirus.
I am pleased with our rapid response, which has been focused on the well-being and safety of employees and patients, supporting business continuity for us and our customers and preparing to support the global response if necessary. Moving now to 2020. Our guidance includes continued profitable growth and significant cash flow generation that we plan to deploy to strategic acquisitions and share repurchases. We continue to focus on our 5 key priorities, which include the following. 1st, we continue to leverage the power of our uniquely combined capabilities across diagnostics and drug development.
2nd, we will lead in oncology by using our breadth of capabilities to win in the fastest growing therapeutic area. 3rd, we're integrating data, artificial intelligence, digitization and analytics across our business. 4th, we're putting our customers at the center of all we do. And 5th, we continue to focus on high growth opportunities. As examples, we recently announced 2 new offerings that underscore our ability to deliver on the power of our combined businesses.
First is the launch of our expanded suite of decentralized trial solutions, which seamlessly integrates Covian Central Labs, LabCorp Specialty Diagnostic Labs, direct to patient market access call centers and a suite of technology solutions to bring the trial closer to the patient and to streamline trial execution. The second is our cell and gene therapy development solutions, which offer a coordinated approach to scientific and program consultation, biomarker and companion diagnostic development, study management and regulatory commercialization support activities and capabilities. With these two new offerings, we are well positioned to partner with sponsors to address complexity, to reduce cost and risk and to effectively accelerate timelines for their novel therapies. We will continue to focus on executing against these 5 key actionable priorities, which will help us achieve our goals to strengthen our market leading positions in diagnostics and drug development, to grow strategic opportunities that drive new business and to break away based upon our unique offerings, capabilities and financial performance. Now I'll turn the call over to Glenn to discuss more specifically our financial performance and our 2020 guidance.
Thank you, Adam. I'm going to start my comments with a review of Q4 results followed by a discussion of our performance in each segment and conclude with our 2020 guidance. Revenue for the quarter was $3,000,000,000 an increase of 6% over last year, driven by the benefit of acquisitions net of divestitures of 3.9% and organic growth of 2.3%, which includes a 90 basis point negative impact from PAMA. In addition, foreign currency translation negatively impacted revenue growth by 20 basis points. Operating income for the quarter was $336,000,000 or 11.4 percent of revenue compared to $308,000,000 or 11% last year.
During the quarter, we had $21,000,000 of restructuring charges and special items, primarily related to LaunchPad initiatives, acquisition integration and executive transition costs, partially offset by an initial insurance reimbursement payment for costs related to the 2018 ransomware attack. Adjusted operating income in the quarter was $422,000,000 or 14.3 percent of revenue compared to $395,000,000 or 14 0.2 percent last year. The increase in adjusted operating income and margin was primarily due to LaunchPad Savings, organic growth and acquisitions, net of divestitures, partially offset by the impact from PAMA, higher personnel costs and cybersecurity investments. The tax rate for the quarter was 22.4% or 22.9% excluding charges and amortization. This adjusted tax rate was favorable to our 4th quarter implied tax rate of 110 basis points or $0.04 per share, primarily due to changes in state tax law treatment that occurred during the quarter.
Expect the company's adjusted tax rate for the full year 2020 to be approximately 25% compared to 24.6% for 2019. Net earnings for the quarter were $227,000,000 or $2.32 per diluted share. Adjusted EPS were $2.86 in the quarter, up 13.5% compared to last year. Adjusted earnings in the quarter benefited from top line growth, margin expansion and our share repurchase program. Operating cash flow was $570,000,000 in the quarter compared to $486,000,000 a year ago.
The increase in operating cash flow was due to higher cash earnings, partially offset by increased working capital to support growth. Capital expenditures totaled $128,000,000 or 4.3 percent of revenue compared to $122,000,000 or 4.4 percent last year. As a result, free cash flow was $442,000,000 in the quarter compared to $364,000,000 last year. This brings our full year free cash flow to $1,040,000,000 up from $926,000,000 in 2018. We remained active throughout the quarter in terms of capital allocation, investing in acquisitions, share repurchases and debt pay down.
At year end, we had $6,200,000,000 in total debt, translating to leverage of 3.1 times gross debt to last 12 months EBITDA. Now review our segment performance, beginning with LabCorp Diagnostics. Revenue for the quarter was $1,800,000,000 an increase of 3.7% compared to last year due to the benefit of acquisitions net of divestitures of 3% and organic growth of 0.8%. Excluding the negative impact from PAMA and the managed care contract changes, organic revenue grew 3.2%. In addition, the benefit of 1 additional revenue day in the quarter was largely offset by the impact from the non renewal of the Beacon LDS UnitedHealthcare contract in the Florida market.
Total volume excluding divestitures increased by 2.6% over last year, of which acquisition volume was 1.8% and organic volume was 0.8%. The benefit from 1 additional revenue day of 1.6% was essentially offset by the negative impact from the managed care contract changes of 1% and lower consumer genetics demand of 0.4%. As a reminder, we do not include hospital lab management agreements in our volume, which would have added approximately 0.8% to our volume growth. Revenue per acquisition excluding the impact from divestitures increased by 1.6% due to acquisitions. Favorable mix including lower consumer genetics demand, was offset by the negative impact from PAMA of 150 basis points and the non renewal of Beacon LBS contract of approximately 150 basis points.
LabCorp Diagnostics adjusted operating income for the quarter was $277,000,000 or 15.8 percent of revenue compared to $279,000,000 or 16.5 percent last year. The decline in adjusted operating income and margin was primarily due to the negative impact of PAMA, higher personnel costs and cybersecurity investments, partially offset by top line growth and LaunchPad savings. The benefit from the additional revenue date in the quarter was offset by the negative impact from the non renewal of the Beacon LBS contract and managed care contract changes. We remain on track to deliver $200,000,000 of net savings by the end of 2021 from Diagnostics LaunchPad initiative. Now I'll review the performance of Covance drug development.
Revenue for the quarter was $1,200,000,000 an increase of 9.3% compared to last year due to the benefit of acquisitions net of divestitures of 5.2% and organic growth of 4.6%, partially offset by foreign currency translation of 40 basis points. Excluding pass throughs, organic revenue continued to grow in the mid to high single digits. Adjusted operating income for the segment was $183,000,000 or 15.2 percent of revenue compared to $154,000,000 or 14% last year. The increase in adjusted operating income and margin was primarily due to LaunchPad savings, acquisition net of divestitures and organic growth, partially offset by higher personnel costs. We remain on track to deliver $150,000,000 of debt savings by the end of 2020 from Drug Development's LaunchPad initiative.
For the trailing 12 months, net orders and net book to bill remained strong at $5,900,000,000 $1,290,000 respectively. Backlog at the end of the quarter was $11,300,000,000 an increase of around $600,000,000 from last quarter. We expect approximately $4,200,000,000 of this backlog to convert into revenue over the next 12 months. Now I'll discuss our 2020 guidance, which assumes foreign exchange rates as of December 31, 2019 for the entire year. In addition, enterprise guidance includes the impact from currently anticipated capital allocation with free cash flow targeted to acquisitions and share repurchases.
Also as 2020 is a leap year, the company will have one additional revenue and payroll day, primarily impacting the diagnostic business. Additional details on the impact of days can be found in the supplemental financial presentation posted on our website. We expect revenue growth of 4% to 6% over 2019 revenue of $11,600,000,000 This guidance includes the negative impact from divestitures of 0.2% and the benefit from foreign currency translation of 40 basis points. We expect LabCorp Diagnostics revenue growth of 0.5% to 2.5% over 2019 revenue of $7,000,000,000 This guidance includes the negative impact from PAMA of 1.3% and the non renewal of the Beacon LDS contract of 0.9%. In addition, revenues are expected to benefit from 1 additional revenue day of 0.4% and favorable foreign currency translation of 10 basis points.
We expect Covance drug development revenue growth of 7% to 9.5 percent over 2019 revenue of $4,600,000,000 This guidance includes the negative impact from divestitures of 0.5 percent and the benefit from foreign currency translation of 70 basis points. We continue to expect organic revenue growth in the mid to high single digits. Our adjusted EPS guidance is $11.75 to 12.15 dollars which is an increase of 4% to 7% over 2019 adjusted EPS of $11.32 Free cash flow is expected to be $950,000,000 to $1,050,000,000 compared to $1,040,000,000 last year. In 2020, we expect capital expenditures to be between 3.5% and 4% of revenue, driven by investments to support growth and productivity. This concludes our formal remarks and we'll now take questions.
Operator?
Our first question comes from Jack Meehan with Barclays.
Thank you. Good morning. Adam, as your first quarter as CEO, I was just curious if you could talk about maybe the go to market strategy at Covance given some of the leadership changes, just how you feel your ability to go and win business there? And one of your big customers talked about some pipeline reprioritizations at the end of the year. Just any cancellation activity or anything in the Q4?
Any expectations in the 2020 guidance related to that?
Sure, Jeff. Good morning. As I look at our strategy, I think we're uniquely positioned to be successful in the marketplace. And it starts with the fact that we have so much data from our diagnostics. We do over 500,000,000 tests per year.
And when we use that data to try to help stratify disease or develop companion diagnostics or develop assays, I think we're unique to Qualify to work with pharma, whether it be biotech or big pharma to help them figure out which patients are most likely to respond to their medicines or vaccines. And then we can work with them through all phases of their clinical development and ultimately help with registration and then in market capabilities that we have. So we have the full spectrum strategically of what I believe biotech and large pharma is looking for. And I truly believe we're unique in that manner. Right now, we're doing very well in early development.
We continue to grow in the small to medium biotech area. I'd like to see us do even better with large pharma. Based upon recent announcements and stuff, we don't see any significant impact to our business as we go into 2020. And based upon the numbers and the guidance that we provided today, hopefully, you see that we continue to believe that we have real strength and momentum as we go into 2020. One of my strategic pillars is really maximizing the power of the combined.
And I believe that disproportionately will help the drug development business, because I believe that the diagnostic capabilities we have will be more helpful to the drug development business than the other way around.
Thank you. Our next question comes from Lisa Gill with JPMorgan.
Good morning and thank you. Adam, I appreciate your comments on the coronavirus, but I just want to follow-up to understand if you have anything in your guidance for 2020. So you talked about the impact to the supply chain, also talked about exposure having employees in the Asian market. Has there been disruption in any of the studies you're doing in the Asian market? How do we think about any potential impact that might have on your 2020 guidance?
Sure. And thank you for the question, Lisa, and good morning. As we look at the coronavirus and where we stand today, we believe that everything would be covered within the ranges that we provided to you. And we've seen some minimal impact, particularly in China with people coming back to work a bit later. When the coronavirus first came out, there was a little bit less people coming to work.
But we believe that it's all manageable within the year. We'll have to watch quarter by quarter if there's any minor impacts. But over the year period of time, we think that we'll be fine based upon what we know today. Obviously, if things change with the coronavirus and it becomes more of a global issue or if it impacts China for an extended period of time, things may change. But based upon everything that we know today, based upon the guidance that we provided, we believe that it covers what we foresee could happen based upon today's knowledge of the coronavirus.
Thank you. Your next question comes from Michael Newshel with Evercore.
Thanks. Can you just give an update on the lab M and A environment? Obviously, you've continued to do some more tuck ins and maybe just talk to the pace you're expecting there. And maybe just like even broader, just what your capital allocation plans are for 2020, the mix of share repo and M and A that's embedded in your guidance?
Yes, sure. Good morning. First of all, I would say, we feel good about our ability to grow based upon what we have today in our diagnostics and our drug development business. I don't see any major things that we're missing in order for us to be successful and to compete successfully in environments that we compete within. But when I think about capital allocation, specifically around acquisitions, here's the way I think about it.
First is the retail and local labs or hospital labs acquisitions that you can do. I think those are great piece of capital. They can be accretive in the 1st year. They typically return their cost of capital within 2 or so years and we know how to integrate those and we know how to make those happen very quickly. The environment right now continues to be building.
I would say they take longer than what I would have expected for them to take. We have a long list of potential tuck in acquisitions and we continue to work through those. There's no rate limiting step from our capabilities to do that. It's more how quickly we can get the customers and where the regional or local labs to consider moving forward. I believe as people have seen the impact of PAMA and they've seen some of the pricing that's occurred that they're more open today to have those discussions than they have been in the past.
Next, I look at whether there's strategic needs that we have. For example, do we need to look at building our presence in Japan or China? And if we have to do those things in order to be successful, they're typically very small in nature. I look to see if we can build them ourselves. If not, then there's a small acquisition, we will consider those.
And then, of course, if you look at everything that's out there, But as I said, I don't see the need as I sit here today for any type of large scale acquisition or change, because I believe we have we need to be successful as we go into 2020. We'll of course look at everything, but that's how I think about the allocations. And then we use share repurchases if there are not as many acquisitions as we may like within the cash flow that we generate each year.
Yes. The only thing I'd add to that is, as you know, we've discussed that from our guidance standpoint, we are assuming that the full usage of our free cash flow will be deployed as Adam said to both M and A and share repurchases. Obviously, we don't break that out as far as an outlook, but just from a modeling purposes assume that that is reflected into our ranges that we provided.
Thank you. Our next question comes from Kevin Caliendo with UBS.
Hi, thanks for taking my call. I just want to talk a little bit about your diagnostic revenue outlook. You can break it down between organic growth and sort of what you expect organic growth, M and A contribution, revenue per rec, any sort of guidance around those metrics? And also maybe what you're expecting incrementally with regards headwinds or from market access changes?
Sure. I'll start and then Greg could add. Good morning, Kevin. So as I look at the diagnostic business, I first think about what's the underlying growth that you see in volume. And if you go back for many years, you typically see the underlying growth between 1% to 2%.
And I don't see any reason that that's going to change as we look forward to the future. I believe that that growth will continue to be in the future what it's been in the past. So then I think about what can we do to try to increase our growth rate versus the underlying growth rate. The first thing is I mentioned the tuck in acquisitions. I think that those are very beneficial and a good use of capital.
I don't put a specific number into the plan for those because it really depends on what's available, how many are willing to move in any given year and whether or not they all make good financial sense because we have a really strong financial fiscal acumen that we apply to any acquisition. So I don't build into the plan that we have to do a certain amount of volume based upon those acquisitions. The second thing you can do is try to shift share. And when I think about shifting share, I think about things like the PLN that United is launching. I don't assume that there'll be a significant shift in 2020 because they're rolling it out as we speak.
But if successful in the future, I believe that that could benefit a lab like us where we have very high quality at lower cost. And as I think about the future, if it works for United, I think that other organizations may see this as an opportunity to help them reduce their laboratory costs by moving over our business to lab like ours. So I believe that we will over time be able to shift some share, which will help us to grow our volume faster than the underlying market growth. I don't anticipate that this year, but I anticipate if it's successful it would happen in future years. So that's kind of how I think about the underlying dynamics within the marketplace.
Yes. Kevin, I'll just add a little bit of color to that. So to your point that when you look at our guidance range for diagnostics next year, we have around 0.5 points to 2.5%. We did comment on kind of the unusual, if you will, headwinds and tailwinds that we expected for 2020, another year of the impact of PAMA plus just the annualization of the BEACON contract, but also diagnostics benefiting from an extra revenue day and slight favorability with currency. So when you take out those 4 kind of items that are around a constraint of around 1.7%, You can kind of get to see that we're looking at north of a 3% growth rate with everything else, which is effectively the annualization of acquisitions already completed plus organic growth.
And at this point, from a forecast standpoint, we talk about normalized organic revenue growth of 2% to 3%. And in fact, this past year, we were at the upper end of that range from again a normalized basis taking out those impacts. And within the guidance range, that's a fair assumption. So organically, again, the 2% to 3% continues to be an expectation within the range plus the addition of those annualized acquisitions and then the net impact of those headwinds.
Thank you. Your next question comes from Dan Leonard with Wells Fargo.
Thank you. Maybe on Covance for the 2020 outlook, can you be specific about what you expect the pass through headwind to look like in 2020 and maybe offer what it was in 2019? And then on the margin side, how much of margin expansion do you expect you could achieve in Covance in 2020? Thank you.
Hi, Dan. Good morning. So as I look at Covance, I first want to say that we're pleased with the performance and I think that our revenue growth and our book to bill continues to be strong. As I'll start with the margins, if you look at the margins, we had expansion in the Q4 of 130 basis points. As we look at margins next year, we expect to have an improvement in margins once again, albeit not as much as what we saw in 2019.
We announced our LaunchPad initiative across the enterprise is $350,000,000 for the drug development, it's $150,000,000 and we're on track to achieve that. As we look forward to the future, I think we're going to have to continue to push cost across all the businesses even above and beyond what we have in LaunchPad. It just has to be a mindset going into the future in terms of continued increased productivity. So if you look at the full year, we grew at about 6.8% ex pass throughs and I would say that's probably a pretty good read for what next year should look like 2020 should look like.
Yes. Dan, just the other thing I'd add to that, when you think about 2019, pass throughs were down and call it around 10%. So given the volatility of that in a particular quarter and it was primarily in the first, but it did impact each quarter a bit. But in the first, it was the most we kind of called it out a bit and talked about that our organic revenue excluding pass throughs would be within the guidance range of the 5.5% to 7.5% last year. And in fact, again, our organic growth was probably a little bit north or wasn't a little bit north of the center of the range.
So we felt good with the overall organic performance of the business taking out that volatility of pass throughs and really good performance across the spectrum of our businesses. Really doesn't change our outlook for 2020 much other than for again forecasting purposes, we've assumed a normal increase in pass throughs commensurate with the business growth that we have of which pass throughs are more aligned to it. So that again thinking about mid to high single digit growth rate, think about it as organic revenue within that range both with and without pass throughs. Each quarter to the extent that we see volatility in that, we'll again call it out just to focus on obviously the big driver, which is the revenue without pass throughs, but hopefully it will align better in 2020.
Thank you. Our next question comes from Ralph Giacomo with Citi.
Thanks. Good morning. If I look at revenue distribution, Covance is about 40% of revenue. And if I calc on earnings, it's about 35%. I guess the question is given the faster top line and margin expansion within Covance and the somewhat more muted revenue growth from the lab side and some margin contraction there on top of sort of maybe the M and A opportunities and fragmentation certainly within the CRO space.
I guess how quickly do you see the business moving closer to more of a maybe fifty-fifty type split? And or do you have a target as you think about sort of the split of the 2 businesses going forward? Thanks.
Yes. Sure. Thanks, Ralph. Good morning. So first of all, I don't have a target for the percent of the businesses moving forward.
And if you notice, I use the words diagnostics and drug discovery because I don't think of it as just LabCorp and Covance. I think of it as a spectrum of offerings that we have for our customers that are linked together in order to make us successful. Obviously, the clinical trial business continues to grow at a faster rate in terms of drug development grows at a faster rate. And therefore, if you look at the way in which you look at it over time, I would expect that that becomes a larger part of our total percent of revenue. But I think a big reason that that will grow faster is because of our capabilities that we have within the diagnostic area.
So to me, they're intricately linked. When we look at the acquisitions, as I spoke about before, the tuck ins in the diagnostic area in local labs and regional labs as well as hospital labs, I think are good use of our capital. So you'll continue to see some acceleration through those acquisitions. If the PLN works in which the way we think it might, I believe that we'll see additional growth there. So to me, it's really about making sure that we have good fiscal discipline, that we put our money behind complete continuum of offerings that we have versus just looking at it one segment versus the other.
Thank you. Our next question comes from Ricky Goldwasser with Morgan Stanley.
Yes. Hi, good morning. So, some follow-up questions here. First of all, Glenn, on Kevin's question regarding the pricing, it seems that in the Q4 pricing was really strong even when you normalize for PAMA and the Beacon headwinds, 1.6% in acceleration. So maybe you can help us parse the benefit from the Tuck in acquisition that you did in the quarter and how they contributed to it?
And should we think about that 1.6% is the right run rate for 2020? And then on the CRO side, Adam, for you, if you can give us maybe some more color on what's Kovan's current win rate? And what's a realistic goal that you think about longer term as you continue to better align the capabilities of the diagnostic and drug discovery business?
Sure. I'll start with the second question and then we can have Glenn work on the first one. With regard to our Covance business, as I said before, in early development, I look at share in addition to win rate. As I look at early development, I think we do really well and we disproportionately win in early development. As we start to look at how we do in the small to medium sized biotech, I think we do very well there also and a lot of growth has come from that segment over time.
Where I'd like to see us do better is in the big pharma segment. And I believe we will be able to do that for several reasons. One is, one of our key pillars is to win in oncology. And I think we have a very unique set of capabilities in oncology from our ability to develop companion diagnostics and assays all the way through doing the clinical trials, identifying the patients most likely to respond. We're also helping to find the patients based upon our large amount of data that we have in the diagnostic area.
And I also believe that that's the fastest growing largest area for pharma. If you look at the number of compounds as a percent in oncology, it's very significant. So when we win there, I think we'll be able to show that we can also do well in other areas such as specialty, neurology and other areas. So to me, winning on oncology is important because it allows us to be successful in other areas over time. So that's an area that I want to see continued growth in large pharma, in oncology and I'd like to see us disproportionately win share in that segment.
Hey, Ricky on the with regard to project requisition, so the 1.6 for the quarter was a strong number for us, but we commented that it was acquisition driven. And as you think about our organic pricing, we did talk about obviously the headwinds coming from PAMA and Beacon combined around a 3% headwind. So as we think about the quarter, firstly, going back to, call it, normalized backing up those unusual items. And from an organic standpoint, again, the 2% to 3% organic revenue growth the quarter would have come in at the upper end of that range as we did for the full year. So as we think about a normal environment and that I think started the conversation with saying kind of organic volume of 1% to 2% and then let's say we pick up around a point on price to get to the 2% to 3% range.
As we think about our outlook, that's normally the way we gauge. Each quarter, we may see a little bit fluctuation from quarter to quarter. But again, as we think about 2020, we still have within our guidance range, call it, that organic normalized growth of that 2% to 3% with a pretty normal 1% to 2% volume and the rest being price.
Thank you. Our next question comes from Brian Tanquilut with Jefferies.
Hey, good morning guys. Just a follow-up on Kevin's question earlier, Glenn, how are you thinking about market share shift within the contract? I mean, should we expect more network access changes impacting organic growth? And I guess a follow-up on that last comment you guys made on lab on the acquisitions from hospitals. I think, Adam, you talked about the pace being slower than you expected.
So is there anything you guys see in the horizon that will accelerate that or anything that LabCorp can proactively do to get the deals, the larger deals going?
Yes. Hi, Brian. This is Alan. Good morning. First of all, when you look at the environment and market share, particularly if you look at managed care, we've kind of overlapped the markets or the managed care losses that we had in last year as we go through the Q1 of this year.
So the Q1 of this year should be the last quarter where you see that overlapping occur. So therefore, for the majority of the year, I don't see any additional significant downside based upon the managed care contract changes that occurred last year. As I look at 2020, I don't see any significant managed care shifts such as United or Horizon that we saw last year. So I don't see that type of volatility. As I look at the hospital tuck in acquisitions, what I can tell you is our list is long.
There are many discussions that we're having around the country with both local and regional labs and hospitals. It's not a lack of resources that we're putting behind it. We'll put resources that we need to be successful there. It's the discussions that we're having with our customers. I believe over time it will begin to accelerate particularly as they feel the continued impact for PAMA.
And if you look at what we're expecting for PAMA, we expect this year's impact to be about the same as last year. So 2019 was about $100,000,000 This year will be about another $100,000,000 And I think 2021 bearing any change to legislation or legal will be about the same. These regional local labs are feeling that as well. And I think that that pressure will continue to want to make them evaluate us working with them or applying their labs as we move forward.
Thank you. Our next question comes from Donald Hooker with KeyBanc.
Great. Good morning. One of the maybe a smaller area of focus for you guys maybe, but in terms of your investments in the Accelerate Informatics functionalities that you guys have developed over the years at Covance. I was curious kind of at a high level kind of where you're seeing success there in terms of using IT to drive trials. You have a number of tools there.
Just would love to hear an update on that part of Covance.
Sure. You saw one of the pillars of the strategy is to utilize data, analytics, artificial intelligence and basically everything that we do, including our ability at Covance. I also mentioned some of the new offerings that we have and one of which was the virtual trials and the hybrid trials. A lot of that is based upon our ability to use information, to use technology in a better different way than we've done in the past than we do today. We will continue to ensure that we're at the leading edge of understanding the hybrid and virtual trials that we invest in the technology necessary to be successful in those areas.
And I believe that as we move forward and we use the power of our combined organization, the ability to use data and analytics in our 500,000,000 data points that we get every year from diagnostics and understand how to use that in drug development to help identify patients better, enroll trials faster is going to be more and more important. So that's why it's one of our top five pillars of our strategy.
Thank you. Our next question comes from Derek Drys with Bank of America.
Hi, good morning. Hey, a couple of questions. I guess the first one, can you talk a little about the operating margin in lab? It a little bit lower than we thought in the Q4. Can you talk about some of the personnel costs and things there and sort of how should we think about the operating margin for lab?
And then the Covance question, which is the backlog conversion was down to 37% this quarter, may have been averaging in the 40s last year and 39% most this year. Can you talk about sort of why the backlog conversion is dipping and sort of like what how should we sort of think about that into 2020? Thanks.
Sure. I'll start with how I think about margins. And I'll talk more broadly and then I'll answer the question specifically. As an enterprise, we expect our margins this year to be relatively flat. We're going to see an increase in our margins in drug development, albeit maybe a little bit less than what we saw in 2019.
And we're going to continue to see the diagnostic margins and we expect those to be continued under pressure and they'll be slightly down in 2020 versus 2019. But net net, we believe it will be relatively flat this year versus last year with the 2 puts that we have. If you look at what we've been able to do and I'll use the Q3 as the example, I mean PAMA had an impact of 130 basis points and our margin was down 70 basis points. So we were able to make up a good portion of the PAMA impact. As we move into this year, I think we can do a bit better or similarly because of the LaunchPad initiatives that we've put in place.
And we will continue to push hard on reducing costs where we can in the diagnostic business. We have a $200,000,000 LaunchPad commitment and we're going to meet that commitment. And then we'll continue to see if there's additional opportunities and ways to even bring down costs further. I'll just only other thing I'd say with regard to Covance and backlog. The Covance book to business is doing well, continues to build.
And I think that we have real opportunity moving forward. Quarter by quarter, I'd be a little bit careful looking too closely because there is a lot of variability in numbers across the segments. I look more towards our yearly guidance. That's why we give the guidance on a year long time period.
Yes. Derek, I'd just add to that maybe first with the backlog question. So a lot of things come into play. Obviously, the business mix that we have, the therapeutic mix, the stage of where the trials are, again, we have kind of the end to end business, if you will. Historically, plus or minus, we've been around 40% of backlog conversion.
As Adam said, it's good to look at it on a kind of an annual basis because there's fluctuations. So we did see it drop down a little bit to the 37% from the quarter, but again, still in line. But as a general rule, maybe for modeling, if you will, we tend to say around 40% of conversion to revenues in the next 12 months, and that would represent roughly around 85% of the revenues for the next month. So another 15% comes in with, obviously, new business that's transacted during the year. On the Diagnostics margin standpoint, I thought Adam really hit it well from the standpoint.
While margins were down, again, excluding PAMA, we would have had nice margin appreciation. And in fact, the 4th quarter margins were down the least amount that they were all year. So as LaunchPad is kicking in, it's the growth of our underlying business is kicking in. And so while we still expect to see margins down next year, slightly down because of another year of PAMA, we'd also similarly say we're not for PAMA. We'd actually be seeing nice margin appreciation.
Our goal is to continue to manage our cost structure to do that. When we talked about higher personnel costs, that's kind of our way of every year saying personnel costs are our biggest cost. And so that does increase with normal inflation and obviously depending upon the markets that we serve in. So nothing, if you will, unusual about it other than that's just the biggest cost that we have to overcome.
Our next question comes from Erin Wright with Credit Suisse.
Great, thanks. On the fundamentals in the CRO business, can you just speak to RFP flow pricing dynamics? This is a relatively rational pricing environment out there. And could you parse out for us a little bit on the central lab business in particular, how big that business is for you today and what that's growing at? Has it been exceeding your expectations on that front?
And then could you also just comment on the direct to consumer kind of genetic testing market kind of where what your guidance now implies for that segment? Thanks.
Okay. So I'll start with the genetic testing market. You saw a significant decline in 2019 versus 2018. It's now a very small amount of our total volume of our total revenue and operating income. So although it may go down again in 2020, it should not have any real significant impact to our fundamentals or financials.
With regard to our central labs, it's a strength and we continue to do very well in our central labs. And I think with the acquisitions that we've done and our capabilities and early development in general including central laboratories, it continues to be a real strength for us and I don't see that changing over time. And then lastly, with regard to the environment, I believe that biotechnology and pharmaceutical is really doing well when it comes to new molecules and new chemical entities and a number of products in development. And the environment itself, I think, feeds well into our ability to continue to grow our drug development business. Our pricing will always be competitive in every market in healthcare.
I don't see any fundamental shift or trend other than it continues to be a competitive environment and we can compete very well within that environment.
Thank you. Our next question comes from Matt Larew with William Blair.
Hi, Adam. I wanted to go back to your comments on the preferred lab network. It seems that both patients and providers will have pretty meaningful incentives over time to move volume into the PLM. Is there anything you can do to proactively work with United or even other payers in terms of accelerating the transition of some of that volume given that it seems that longer term the incentives for all parties involved are aligned?
Yes. So Matt, I agree with you that it's rationally it makes a lot of sense. And the good news is when you have a lab like we have where you have really high quality and you have a lower cost price structure, it's something that can actually help reduce overall health care costs. And every part of the health care system in the United States and around the world frankly is struggling with health care costs. And I believe that we can be part of the solution with the quality that we bring at the cost that we bring We work very closely with United.
Obviously, we will continue to work with them. We will do whatever we can within the regulatory and legal environment to work with them to make sure that this is successful for both them and for the patients that they and we serve together. So we're glad to work with them and we'll continue to do so.
Thank you. Our next question comes from Stephen Baxter with Wolfe Research.
Hi, thanks for the question. I wanted to ask about the Q4 in the lab business. I appreciate the color you gave on the organic volume and the moving parts there. It looks like when you adjust for those parts and also the capitated contract wins that you have from your largest competitor, looks like the underlying organic growth is maybe a little bit weaker than the past couple of quarters. I was wondering if there's any specific drivers we should think about for the quarter and then also how to think about volume seasonality during 2020 given the annualization of managed care network changes in the calendar shift?
Thank you.
Yes. Stephen, this is Glenn. Lisa, I'll start. I'd say from organic revenue growth within Diagnostics in the Q4, again, normalizing for the headwinds that we'll go through, we were at the upper end of our expectations, if you will, from the, call it, 2% to 3% normalized organic revenue growth. So consistent as we've had in the full year, I think on an earlier question, there was a little bit of a difference in the mix between normalized organic volume versus our revenue per requisition.
But when you look back again from what's driving the organic business, we did benefit from an extra day that was timing related to kind of a headwind from days in the first half of the year. We still had obviously the impact from managed care contract changes as well as some lower consumer genetics demand. And similarly, we have the big ones, which was PAMA and the impact of Beacon's contract. So when you net all those out, again, we would say kind of a normalized organic revenue growth in the quarter would have been a little bit north of that 2% to 3% range.
Our next question comes from Bill Quirk with Piper Sandler.
So a couple of questions. So first off, how much of any of the supply chain for the is manufactured in China and obviously is there any risk to that given the current situation? And then another one on the PLN, when do you think we might see other payers follow United's lead here? Could we see something happen in 2020? Or do you think they want to actually assess some of the results before they go ahead and roll their own plan out?
Thank you.
Sure. Good morning, Bill. I'll start with the second question. I think that the PON is going to take a little bit of time to actually show the benefit of the PON and show that it can actually be executed and implemented well. So I would expect, although I don't know for certain, but I would expect other managed care organizations to wait to see the impact.
And as they start to see early impact, there's a timing where if you don't hit July, it's hard to implement in the next year. So if they don't do it this July, it would probably happen in 2021. And it's too early to tell what the other managed organizations may or may not do. But what I built into the plan is no upside to PLN based upon this year and we've not built anything for other managed care organizations as we look into this year or into the future. With regard to the coronavirus, I mean, obviously, we do have some of our supply chain that goes through China.
Our team is working to ensure that we have consistent supply. I think we're in good shape as we sit here today. We'll have to watch it closely depending on how long or if it gets worse in China or is a global impact. But if it gets to that point, it would be significant across many different areas within the healthcare system. And I don't think there'd be anything specific to our business or to what we do that is overly concerning.
As I sit here today, I don't see an impact. It would only be something got really worse that's unanticipated at the moment.
Our next question comes from Jack Meehan with Barclays.
Thank you. I'm back. Glenn, I just had one follow-up. I wanted to make sure we were setting expectations right for the Q1 on the lab side for earnings, Because I think you have a couple of headwinds. One is, obviously, you have PAMA, you also have Beacon.
And then finally, I think you have an extra wage day. So maybe just talk about kind of the pacing of earnings throughout the year on the lab side and just any overall commentary on 1Q would be helpful.
Yes. Hi, Jack, and welcome back. When you think about just the timing, I guess, first, I'd say just overall that the two businesses, as you know, have a little bit different seasonality patterns, if you will. So the drug development side really strength more so in the second half than first, but similarly on the diagnostic side, a stronger first half to second. So kind of levels off at an enterprise level.
And so when you look at our performance overall, especially in driving even down to the earnings per share, you can kind of take a look at each quarter relative to the total to get a reasonable proxy of where it will be. To your point, within Diagnostics, we do have the issue of an extra day. And again, if you look on our website, you'll notice that we pick up around a half a day benefit on revenue in the Q1 and in the 3rd. That's just how it falls out, while there's the extra payroll day that will be in the Q1. So as a proxy, a revenue day for us is around $25,000,000 of revenue.
And on the cost side for a payroll day, it's around $10,000,000 if you will. So I think that will give you at least a sense of how if you wanted to tweak a little bit for that. But to your point on the Beacon renewal, so obviously, that still has the impact in the first half of the year until it annualizes. Obviously, PAMA is going to stay on for the full year. And then finally, just with the managed care contract changes, again, there'll still be a little bit of a headwind as that annualizes, but it will be through the Q1 and then the rest of the year will be flat.
But hopefully, that gives you a little bit of some color into the quarter.
Okay. So okay. No, I
was just saying to let you know that I didn't see any more questions in the queue.
Yes. Thank you very much, Kevin. What I'd like to do is close the call now. First of all, thank you all for joining the call today. As we look ahead, we're well positioned for another year of strong profitable growth.
The work that we do, it matters to customers. It matters to patients around the world every single day. And our ethics, our integrity, our pursuit of scientific excellence, our strong and a steadfast foundation for every single thing that we do. We're helping to save and improve lives and we are poised to play an even greater role in the future by helping solve some of the most pressing global healthcare issues. So we appreciate your time today and hope you have a good rest of the day.
Thank you.
Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.