All right. Thank you, everybody. I'm Casey Woodring from the Life Science Tools and Diagnostics team here at JP Morgan. I'm pleased to introduce the management team of Labcorp. We have CEO, Adam Schechter and CFO, Glenn Eisenberg. They're gonna make some opening remarks, and then we're gonna shift over to a fireside chat for the next 40 minutes. If you'd like to ask a question, please feel free to raise your hand. We have mic runners around the room. If you're on the webcast, feel free to submit via the conference portal. With that, I'll hand it over to Adam.
Thank you, Casey. Good afternoon, everybody. For those of you joining us by Webex, it's a pleasure to be here today. It's nice to be back in person after 3 years. 2022 was a pivotal year for Labcorp. We made significant strategic decisions. For example, we decided to spin our clinical development business. We made progress on our strategy. For example, we have augmented our oncology pipeline. We've made significant progress on our hospital laboratory acquisitions. And at the same time, we continue to do well and execute well on our base business, where in 2022, we saw the base business begin to grow on a CAGR basis versus 2019 prior to COVID. As we enter 2023, we have significant momentum, and we have to really make sure now that we execute well on our strategy.
Hopefully you saw that late last week, we announced a new CEO for our clinical development spin business. His name is Tom Pike. He has significant CRO experience. He's been a CEO of a CRO. He knows our shareholders, he knows our customers, and a lot of our employees as well. We welcome Tom, and we're looking forward to working with Tom as we continue with the spin of the clinical development business. At the same time, you've seen we've made a lot of progress when you look at our hospital acquisitions. Late last year, we actually rebadged about 5,000 employees from Ascension, where we are now running the laboratories for almost 100 hospitals across the Ascension Hospital system. I would say that's going extraordinarily well.
As I look to 2023, I'm excited about two strong independent businesses. Our clinical business, as we spin it has historically grown at about 8%, and we expect it to grow in the high single digits. If you look at RemainCo, which will now be the largest laboratory business in the world, we expect that business historically has grown about 4%-5%, and we expect that business to grow in the mid-single digits. We're excited about the future, we're excited about 2023. With that, we're glad to answer any questions that you may have.
Great. Well, I guess to start on the spin, you know, what allowed you to move up the spin timelines?
Yeah. When we originally announced the spin, we gave a timeline that we felt very comfortable that we could be within. Since that time, we put together a spin management office where we have dedicated people solely working on how we can effectuate the spin as quickly as possible. We've also brought in some external partners to help us with the spin. Based upon that, we feel very confident that we can effectuate the spin in the middle of this year, and that'll enable us to move up the timeline from the original timeline.
Any additional commentary following the announcement of Tom Pike, as the leader of the clinical development team?
You know, we did an internal, external search. We were looking for somebody that we thought would be an extraordinary leader, somebody that understood the marketplace, preferably somebody that had been the CEO of a publicly traded company, somebody that understood the business, understood our customers, but equally as important, somebody that had historically been able to add significant shareholder value. If you look at Tom and if you look at his history, he does all of those things. We're very excited to have him as part of the team. At the same time, we have Paul Kirchgraber, who has agreed to stay with Labcorp up until the time of the spin, and he'll continue to help us with the transition. He's gonna continue to lead our central laboratory business and our early development business as well.
Maybe last one, just on the spin. Do you have any updated thoughts as to how the stranded costs are gonna shake out between the 3 businesses within drug development and, you know, that you could help the street get a clearer picture of the margins between each of those businesses?
Yeah. We're working on that. I'll ask Glenn to provide some additional context. We're expecting to provide additional information in the February, March timeframe as we get the 3 years of audited data behind us. We're working on stranded costs. We realize there will be stranded costs, particularly for RemainCo. If you lose about $3 billion of your revenue, you have to believe that your infrastructure costs are gonna have to change as well. We're working on that very diligently. We're putting together a RemainCo office where we'll have dedicated people helping us understand exactly how we reduce the stranded costs. I don't know, Glenn, if there's anything you would add about margins.
No. I guess just with the when you think about the spin and the value creation, obviously by having kind of a pure play late stage clinical business trading more in line with the CROs that trade at a premium relative to the lab space, there's normally a 40%-ish kind of premium to that. With that, we're now going to incur new public company costs with that, but obviously a little bit lower on the profitability now that that business gets burdened with those additional costs, but now at a much higher valuation, which leads to the stranded costs, if you will. From an infrastructure of Labcorp, we're supporting, you know, the full company today. Once we spin off $3 billion of our revenues, we have that cost that will either get allocated to lower revenue or we will need to take out the costs.
We'll continue to look, especially organizationally, at how will the spin affect the base business and how would we reorganize the people that have shared responsibilities that are working for multiple business units now that that one part of the business isn't there, will leave that stranded cost. We'll take those costs out, hopefully to mitigate a lot of the added costs of the new stand-up public company, but we'll continue to evaluate it. We have roughly 1.5%-2% of non-allocated costs at Labcorp that are not borne by the business. Obviously, with lower revenues from the spin, we'd still like to have that type of percentage, which means we have to take out that cost structure.
Again, as Adam said, working with advisors, we'll take out the costs. From a margin perspective, while we haven't given margins for the spin company in particular, we will, as we go forward, look at what the margins will be. We're gonna give audited financial statements for the prior 3 years, for the new business, fully burdened by the allocations as it would be part of us today, and then we'll have the additional public company costs on that. As Adam said, we should be in a position in the February to March timeframe to give you the historical margins of the new business that are burdened within the costs that we have today, and then prior to going out with the new company, we'll do the roadshow, and we'll also give prospective look as well.
Got it. That's very helpful. I'll pause here in case anybody has any questions from the audience. Nope. All right. I guess shifting over to diagnostics, the most recent quarter, 3rd quarter based business diagnostics revenue grew close to 4%, versus 2.6 the prior quarter, implying a potential pickup in the business fueled in part by volume growth. You know, how would you view the diagnostic industry's volume for large labs here? Do you view Labcorp's performance tracking, you know, relatively similar to the larger industry's growth rate, or are you growing above market here?
Yeah. We're excited about the growth prospects for RemainCo and for our diagnostic business. If you look in the third quarter, we actually saw growth versus 2019 on a CAGR business, meaning that we're back to pre-COVID diagnostic volumes, and we're actually seeing increases. Each month of the quarter progressively got better. It just leads us to understand that the volume is coming back in a very significant way. At the same time, with all the hospital deals that we've been able to win, such as Ascension and Prisma, RWJBarnabas Health and other hospital systems, that's gonna help us with our volume as well. We're gonna give guidance in February for what we expect the year to be.
What I would say is that I'm optimistic about the wins that we've had, particularly in the hospital systems, and RemainCo should continue to show very good, strong growth as we move forward. If you look at the end of this year, we did have some weather issues as everybody had faced, but outside of weather, we've seen continued good, strong growth.
The volume growth last quarter was 3%, mix less than 1%. Those mix benefits came in below your largest competitor in that regard. Just curious on the mix dynamics there for Labcorp and your expectations for that metric in 2023.
Yeah, I'll provide context. I'll ask Glenn to jump in as well. If you look at our mix business, you can see that esoteric testing continues to get a larger percent to share growth versus our historical regular diagnostic, routine diagnostic testing. That's been, you know, growing at the same rate over time. We haven't seen that accelerate. Two things that we have seen, one is the number of tests per accession is still significantly higher than you would have expected based upon where we were in 2019. We don't know the exact reason for that. We hypothesize that because people aren't necessarily going for well checkups as much as they had in the past, that physicians might be doing more tests when they actually do see the patient come into the physician's office.
In addition to that, with the volume that we're gonna see from the Ascension deal, which actually will be measured through price, you will see differences between us and some of our competition. Overall, the mix is very good. The mix and growth in mix is consistent with what we would expect, and you're gonna see larger increases in volume or in price, particularly with the Ascension deal. Anything to add, Glen?
Just that when you look at the numbers in the quarter and as we project out, you know, we're finally at the stage where we feel diagnostics, the demand, the volume levels are kind of back to more normal levels. When you do the comps compared to a prior period, right now we're showing greater strength because we're comparing it to a non-fully recovered number. Our current run rate, which Adam said is tracking now greater than where we were pre-pandemic, says that the demand level now is back to where we would want, which means that year-over-year since 2022 wouldn't have been a fully recovered year, will have even greater than normal growth within the business. Good top line growth from a demand, a volume standpoint.
Our price mix, as Adam said, between the mix impact, the test per sessions, is favorable. Because of the large amount of the hospital systems deals we're doing that we treat as price, we'll actually even get an additional benefit on pricing, which is really mix, of the hospital systems coming in. For 2023, good top line growth and obviously the favorable news of the deferral, within the PAMA impact on the business really gives us really good position to leverage that top line growth well with hopefully improved margins as we go forward.
Yeah. Just following up on that on PAMA, you know, the delayed cuts in 2023, how are you thinking about the progress in the SALSA legislation, in relation to that?
I think we made significant progress last year with having bipartisan support of SALSA. you know, we had Democrats, Republicans that were very supportive of the SALSA legislation. Unfortunately, like many other legislations, it did not get passed at the end of the year. That was a bit disappointing. At the same time, we did get the delay of PAMA again until next year. I can tell you we're gonna be right back at it working with our trade organization and all of us together to reinforce the importance of SALSA as a long-term solution to what's happened with PAMA. Again, I'm cautiously optimistic, but I have been for the last couple years, and we'll continue to fight the good fight.
Maybe circling back on Ascension. Full year Ascension revenue is between $550 million-$600 million annually. These volumes are diluted to margins. Can you maybe quantify the dilution that these volumes give you? Just talk, you know, toward how you expect to improve operating leverage in that business over time to that low teens by year 4 number that you've given.
Yeah. You know, the Ascension deal really was a pivotal deal for Labcorp, and frankly, I think for the industry. To, you know, rebadge that number of people and to manage that number of hospitals all beginning in October was a very significant amount of work, as you can imagine. Several things that are really important are, number one, you can't disrupt the business. Patients are counting on us to have those tests at the same type of turnaround and to be able to do it even faster at the highest quality. We have to make sure that there's a smooth transition as we go from our laboratory system, you know, from the existing hospital laboratory systems into our laboratory systems. A big part of what we do is move slow and purposefully. That means that the margin in the beginning suffers a little bit.
It'll still be accretive in the first year. It returns its cost to capital in about 2-3 years, and we're integrating it very well. We expect the margin for that business in the first year to be in the single digits. Over time, we'll find ways to combine the procurement capabilities to ensure that we have consistent systems across the hospitals that make them more efficient. We'll find ways to use our laboratory infrastructure and decide which laboratories make sense to use. Therefore, it'll take us probably around three, at most four years to get the margins to not where our current average margins are. I don't think that hospital inpatient laboratories ever get to that margin, but they will be significantly higher than what they are in the first year.
It's very purposeful that we're doing this slow to ensure consistency of the business and the best patient care we possibly can.
maybe one on COVID. Just curious on how COVID volumes have tracked here with the strong respiratory season. Just as a follow-up, how do you expect pricing and reimbursement to kind of what's that cadence for 2023 look like for you?
Yeah. The COVID testing has we saw a third quarter higher than what fourth quarter will be, even with the increase in the number of cases of COVID, hospitalizations due to COVID, RSV, and flu. We haven't seen a significant increase in the types of PCR tests that we do. I think a lot of patients, frankly, now just go if they believe they might have COVID and do the over-the-counter antigen test. We are seeing a continued decline in fourth quarter versus what we saw in third quarter and before that. The price is remaining at $100, and I think it will remain there for as long as the emergency declaration is declared, but the volume is getting to a level where it's not nearly as significant now as it has been in the past.
If you look at the combination tests that we have, which is COVID plus either flu, RSV or all three, COVID, flu and RSV, we've seen that test increase, that increase isn't offsetting the overall COVID testing decrease that we've seen. It represents about 15%-20% of our total COVID tests are the combination tests. If you look overall across all of the COVID tests, including those combinations, they're still much lower in the fourth quarter than we saw in the third quarter.
Got it. That makes sense.
Yeah.
Curious on how we should reflect the recent update to the specimen collection fee within our models.
So, two things. One is we saw the delay in PAMA, and we saw an increase in specimen collection fees. Net-net, we've said that the PAMA impact is about $80 million to us. That's what we had in our plan. That was a headwind that we were facing. That headwind is no longer there. I would say that most of that email gram or $80 million, not all of it, but most of it will show up to the bottom line. In terms of the increase in the reimbursement rate, we're not gonna build upside in that. We'll monitor that. We'll see how that plays out over time. There's other pieces of legislation that kind of give additional pressure. Net-net, we think it's probably neutral. If we see some upside in the future, we'll be sure to share that.
At this point in time, I would say the majority of the $80 million from PAMA is no longer gonna be a headwind. We'll build that back into our base case, but I wouldn't build anything above that. I don't know, anything you would add?
No, I would agree that also when you look at, from the margin standpoint, each year, diagnostics, even despite good growth, have seen margins kind of degrade a little bit because of the negative impact that PAMA's had. We've been able to mostly offset a lot of that, but there was always kind of that headwind. As really as we go into 2023 and to look at a more normalized level and not having the headwind, 'cause again, we're talking about not having a reduction in our price, you know, it really positions us well net-net to now see margin expansion, within our diagnostics business overall. As Adam said, it just gives us another opportunity to continue to reinvest back in our business while still profitably growing that business.
That's helpful. I'll pause here in case anyone has any questions. Okay. Maybe shifting to drug development. NHPs have been a big topic of discussion. It was just with Charles River earlier. Just on the drug development side, to start off with, can you describe your relationship with Envigo as part of the Envigo asset swap? Just curious if they directly supply Labcorp with NHPs, and if they do, what % of your NHP supply comes from them?
Yeah. I'll answer that question directly in just a second if we're moving from diagnostics to drug development. The only thing I wanna say additionally about diagnostics is I'm excited about RemainCo. The opportunities before us. I'm excited about the hospital systems that are gonna add to our growth. I'm excited about our innovative diagnostic testing that we're doing for oncology, for Alzheimer's, for autoimmune disease. I'm excited about the potential to bring some of those outside the U.S. into other countries around the world. There's a lot to look forward to and be excited about for the diagnostic business. If you look at drug development and specifically at NHPs, we have no direct relationship with Inotiv where we don't buy directly from them, but some of our suppliers did acquire NHPs from Inotiv.
What I would say there is that if you look across all of our business, NHP studies represents less than 2% of our total business. There may be some short-term impact, maybe a couple months, but we've been able to secure supply. We feel very confident that it would be a very short-term impact, if any impact that we'll see, and that we have the capability to ensure that we can continue to do the NHP trials as we move forward. I would expect it to be several months, not more than that, in terms of any impact to the NHP trials that we perform.
That's helpful. Do you expect significant price increases in sourcing NHPs or the rest of your research models for that matter, as a result of the NHP shortage here?
Yeah. It's certain that NHPs, the prices have gone up pretty significantly with the shortage, but a lot of that we can pass through to our customers. That will be more of a pass-through as we move forward. Our customers are aware of it. They understand that there's a shortage right now, that prices have gone up, and I feel confident that we'll be able to pass along those cost increases. If you look at the rest of the supply chain, we knew that there was gonna be inflation. We knew that there was gonna be pressure.
that's why we have our LaunchPad initiative, where we reduced our cost structure by about $350 million, and we've made significant progress there, and we'll be able to offset a lot of the other pressure, where we'd expect the margins to increase in our drug development business as we move forward.
Just on kit stocking now. In the central lab, you've talked about the kits out versus kits in dynamics a little bit. You know, maybe first on kits out, you've talked about how there really hasn't been over-ordering given the supply chain normalization, and that kits out is stable. Looking into 2023, what sort of headwind will this present?
Yeah. kits out are back to where we'd expect based on 2019. What we saw for a period of time, not in 2022 but in 2021, when it was hard to find certain supplies, test tubes or, you know, other supplies that would go into the kits, we were making a lot of those manually. When an investigator would order a kit, where typically it would take 2-3 days, it was taking maybe a week to 10 days. Investigators started to order a lot more kits than they needed when they became available, and that caused kind of a hoarding that we saw in the marketplace. As the supplies became more readily available last year, we've seen the out kits, the kits that we send to investigators, get back to pre-pandemic levels, exactly where we would expect those.
Kits coming back to us are still not at 2019 levels, and we think it's because some of the sites are still struggling with having the personnel to ensure that they can enroll patients as fast as they have historically. We expect that that will come back as we go through this year, but the kits coming back to us are still not at the pre-pandemic levels.
Maybe one on the kits inside. You have noted that these have not been sent back in the same kind of historical rate as normal. You've seen sites still closed for COVID. Just how do you see the kits in dynamic progressing in 2023?
Yeah. I mean, you know, we've seen most sites open, and we've seen that increase over time. We're now well over, like, 75%-80% of sites that are open, and that's continuing. You know, as certain parts of the world have significant impact from COVID, you have some issues around the sites, but then they come back pretty quickly once the outbreak of COVID goes down. I would expect as we go through this year, assuming that there's no significant additional outbreaks of COVID, that the kits coming back will come back to normal. But it's also not just about COVID, it's about the ability to hire people in the investigator sites to actually help enroll patients. There's been labor issues that we've seen in almost all parts of healthcare.
I think that's getting better, but that's still gonna take some more time before we get fully back to where we were historically.
Maybe shifting to book-to-bill. You reported a strong trailing 12-month book-to-bill number in 1.25 in clinical, despite some of these pressures to the business. Mainly related to vaccine roll-off. You know, how should we expect this backlog to burn on a quarterly basis next year?
Yeah. Our book-to-bill remains very strong. I've always said that as long as you're at a 1.2 or greater, then your book-to-bill is solid, and we remain over 1.2, and we continue to see strength as we go through last year. We usually burn about 30% over a year's period of time of that book-to-bill. That's maybe just under 30%, and I would expect that to continue. You know, there's some longer trials. COVID was a very fast burn because those trials, you were able to enroll them so quickly. There were so many patients with COVID. Now that we're getting back to more of oncology trials and some of the longer trials, the burn rate should go back to what it was historically.
I guess maybe to put the book-to-bill and some of the kit stocking headwinds together, you know, do you see the clinical business, growing high single digits next year?
We're not giving the guidance at this point in time, but what I would say is I'm very optimistic about our clinical development business. I think it's a strong business. We have strong book-to-bill. We have very good orders, and I believe that that business over time will continue to be very strong in high single digits. We'll give guidance soon. But there's, you know, everything that I look at is optimistic. I don't know if you'd add anything there?
Yeah, no. I'd say when, you know, the tough comp was against 2021, as we talked about, for the business, but where we're coming out on the run rate is at a pretty normalized level now. As we think about 2023 being more normalized, the growth rate should start to track better. When we track relative to 2019, which takes out the noise of the COVID-related issues for the most part, as Adam said, we're solidly in the mid to high single-digit growth, and we would expect that to continue into 2023.
Got it. curious to hear how SMID biotech customer RFPs have trended, maybe in clinical and in early development? Have you seen any outsized funding impacts? Also just kinda curious in general, what % of your SMID biotech work is in late stage versus early stage, and how defensive that work is?
What I would say is we continue to see very strong RFPs across our book of business. If you look at the three different parts of our drug development business, we see a different breakout of the amount that comes from small to middle-size companies versus large pharmaceutical companies. The clinical late stage business has the higher % that is large pharmaceutical business. It's about 60%. We see very strong orders, and we really haven't seen a decline in the number of RFPs. It's been very consistent. If you look at our early-stage business, that's where the majority of our business is actually small to medium-sized companies. Even there, we still see a strong book-to-bill. We see significant amount of RFPs. I'm not seeing, at this point in time, any decline in RFPs. Our win rate remains consistent.
We're not seeing any increase in cancellations, so we remain, you know, optimistic about what we're seeing at this moment.
Got it. I'll pause here in case there are any questions. All right. you know, how would you assess the competitive environment on the clinical side? The larger scale players, in the space have been pretty insulated from biotech funding, given the strong large pharma relationships you sort of alluded to here. Just wondering where your clinical business fits in with some of the large scale players.
Yeah. You know, if you look at our clinical business, it's a very healthy business, a very strong business. It's not number 1 or 2. If you look at our early development, if you look at our central laboratory, we're number 1 or 2 in those businesses. We're, you know, in the middle of the pack when it comes to size, maybe number 5 or 6 when it looks at our clinical business. The good thing about clinical business is it's scalable. It's really about hiring more people in countries as you need those to run the trials. As I said, with our clinical business, it's the majority of the studies is with large pharma, which tells you we can win those trials pretty well.
you know, if you look at % breakout by therapeutic area, the largest therapeutic area remains oncology for our clinical business, and there are a significant number of oncology studies that are in the marketplace, will come to the marketplace, and I think we'll continue to win our fair share of those.
Maybe just COVID work in clinical, that's been a headwind here in 2022. Would you expect that to be a headwind in 2023 as well? How much revenue should we expect from COVID, I guess, over the long term in clinical?
Yeah. If you look at our clinical business and our central laboratory business as well, we really did not see any additional new work since the end of the first quarter of last year. You still have the one quarter overlap where we're still doing some Omicron work in the beginning of last year. After the first quarter, we haven't seen a significant amount of COVID-related work, so it kinda washes out after that quarter. I don't know if there's anything else you'd add.
No, I think...
Yeah. Another three months.
Got it. Maybe shifting to early development, just wondering if you have an update on the labor shortage dynamic you called out in 3Q. You had pointed out that delays related to training newly hired employees hampered your ability to execute. Just curious on what progress you've made on that training.
Yeah. I mean, I can tell you with a lot of parts of healthcare, it's frustrating when you have orders, when you have trials, when you have business, but you have a hard time finding employees to actually help effectuate the trials. At the same time, in early development, training takes a lot longer than in many parts of our business. What we saw was we were losing more people than we are able to hire as we were towards the end of last year. The good news is we're now retaining more people, and we actually have more people coming in than we're losing. We're actually seeing net increases of people coming into early development. We've had to do some things to attract talent, but more importantly, to retain the talent in early development.
We're not back to where we need to be exactly, but we've certainly made significant progress in where we were in the third and fourth quarter of last year. I think so many parts of healthcare are struggling with the same thing when it comes to hiring enough people and labor. The big part of it is once you hire somebody and you train them, you've got to retain them because it just takes so long to get people up to speed. You've got to do everything to retain those people, you can hire less as you go through time.
How should we think about your pricing power and then inflation costs across the 3 drug development businesses? You know, how are you balancing out each of those?
Yeah. I'll give some comments. I'll ask Glen to jump in as well. It's no surprise to us the inflationary costs that we're seeing. I think all of us saw it for some time. We accelerated some of our LaunchPad initiatives to offset some of those inflationary costs that we saw, and I'm glad that we started to do that in the beginning of last year, frankly. you know, we are seeing inflation across materials and across people in many different areas. The good news is, I believe that, you know, with the PAMA delay across diagnostics, as well as our continued cost reductions in drug development, that we'll be able to see our margins improve as we go forward. Anything you would add?
No, just reiterate that, you know, the inflationary costs that we've dealt with, you know, are continuing to be there. There's a headwind, but less of a headwind than what we've realized before. The positive is that we're seeing the stronger top-line growth. Between the top line that we're getting, between the LaunchPad business process improvement initiative we have, we can absorb, as Adam said, the higher inflationary costs that are out there while still driving margin improvement next year.
Got it. you know, within the drug development business, with RemainCo, you're keeping early development and central lab. Are there any gaps in either of those portfolios where you would look towards, M&A, maybe post-spin? How are you thinking about that?
Yes, I'll start with the central laboratory business. I mean, even prior to the acquisition of Covance years ago, we had a central laboratory business. If you walk into one of our central laboratories, it looks exactly like one of our diagnostic laboratories. It's the same equipment, the same reagents, the same type of employees. We've got scale. We have the ability to maximize that central lab business. Frankly, with some of the growth that we've done in Asia and other parts of the world, I feel really good about where that business is, and we are a leader in central laboratory. There's no doubt about it. If you look at early development, we've done well there. There are areas that we have to continue to be successful and in particular in cell and gene therapy.
I would like to do more work as we move forward, particularly in early development with cell and gene therapy. We've done some investments in our site, particularly in Wisconsin, our site in Madison, where we'll be able to do and to handle more of those trials, but I continue to look for ways to enhance our ability in that therapeutic areas. The last thing I would say is that as we look at developing innovative diagnostic tests such as liquid biopsies and things in Alzheimer's disease, things in autoimmune disorders and women's health, I wanna find ways to bring those tests to other parts of the world. Right now, our diagnostic tests are primarily in the United States and Canada.
I think we have a unique ability to bring some of those new innovative diagnostic tests to other parts of the world where we have a footprint. We now have a footprint with our central laboratories and our early development research laboratories in many markets around the world. We'd like to work more with pharma as they develop companion diagnostics, as they develop personalized medicine to say, "How can we be the lab of choice to actually bring that diagnostic test to many markets that will need it?
That's really helpful. I guess I'll pause here again just to see if there's any questions out there. Looks like we have one.
What do you see the future of your industry with point-of-care testing?
Yeah. No, it's a great question. The question is, what do we see as a future in industry with point-of-care testing? The first thing I say is we have a venture cap arm that invests in those types of point-of-care testing because I wanna make sure that any type of diagnostic testing, we're at the forefront of understanding and being a part of. What we saw with COVID was a dynamic that we have to study and understand if it's gonna continue to play out the way it did during COVID. During COVID, people wanted a result as fast as they can get it, and they weren't even concerned with what it cost or how accurate it was.
Historically, patients wanted the most accurate test at a lower cost. They were willing to wait a day or two in order to get the results. If you look at things like flu, that has gone to point-of-care testing to a large degree because people wanna know if they have flu right away because they could be contagious. I think there are certain diseases that point-of-care testing will be important for. The question is for the 530 million tests that Labcorp does a year, how much of that over time can become point-of-care? I'm not yet convinced unless you can get the cost down significantly at point-of-care that you'll lose the majority of those tests. I think the majority of those tests will still be done through a central laboratory.
What we have to do is be prepared for the ones where you need answers fast and where cost isn't as much an issue. I wanna be in that space, but I don't think all of the testing will move there. It'll take a long time for it to get to the cost to be at the appropriate level.
Do you see the role of the lab? Sorry.
there and then here. Yep. You wanna finish your follow-up or do you have?
Do you wanna go first?
Well, do you have a follow-up or another question?
Yep. Somewhat.
Yeah.
Adam, what's your outlook on Labcorp OnDemand and the future of at-home testing?
Yeah.
The degree to which the company's investing in that.
Yeah. No, it's two separate issues. One is point-of-care testing, the second is at home, collection and then sending it into a laboratory. Labcorp OnDemand, we've invested significantly. We've revamped our website. We've put significant new tests into Labcorp OnDemand, and we're gonna continue.
The only assurance billable COVID, flu, RSV mailing tests. No one else has that.
Yes. Yes, that's true. For the COVID testing, we have the triple combo that nobody else has, and it's done very well for us on at home OnDemand. We're launching a whole bunch of new tests in the OnDemand arena, and we're gonna see if that same dynamic can play out. I think there's certain disease areas where it certainly will. Like for STD testing and other tests where saliva-based tests, I think we're gonna see significant uptake over time on OnDemand. The question is for blood-based tests, how long will it take for those to be OnDemand? I don't think the technology is yet there. I can tell you, we're investing in technology that might get us there over time.
For the point-of-care testing, to me the question is how fast can the price come down to get an accurate test that would be reimbursed by managed care? One of the issues that we've seen is when point-of-care testing is in a healthcare professional's office, they tend to do a lot more of those tests. The question is, will managed care pay for all those additional tests over time? I think it still has to play out to see what happens with the point-of-care testing.
Do you see the role of the central laboratory expanding to replace conventional pathology services in the next decade with liquid biopsy or some other things like Elizabeth Holmes was trying to accomplish?
Yeah. I think pathology remains a whole separate discussion. I think digital pathology is where I think you're gonna invest and see future changes. You're still gonna need pathologists, but you're gonna have much better AI and artificial intelligence to help with the diagnosis. Our focus there is in digital pathology. In terms of, you know, how many tests can you do with smaller quantities of blood? We're always looking at that. We're always studying that. At this point in time, you know, it's not there. 10 years from now, will there be additional devices that can get the type of blood that you need to run a larger battery of tests? I think probably so. It's just gonna take some more time.
Any other questions out there? Maybe sticking with the diagnostics theme. You've seen a rise in tests per session in 2022. Can you quantify this increase and put it into a historical context for us? Then just, you know, how sustainable is the pricing environment in 2023?
I'll ask Glenn to jump into this as well. Historically, tests per accession would grow just a little bit every single year. We saw a very significant increase in tests per accession during COVID. Again, I think a big part of that was people were not going for their general checkups, and therefore, when a physician would see the patient, they would do a larger battery of tests because they haven't seen that patient for a while. We've seen that level come down in terms of tests per accession, we're still not as low as what we would expect based upon 2019 levels and a small increase each and every year. I still think that there's gonna be continued decrease in that until you get to where you would expect that level to be over time.
To be honest with you, I thought we'd be back to where I would have expected already, so it's taking longer than anticipated. There might be some change in the dynamic in the marketplace that we haven't picked up on yet, but we're certainly seeing it come down from where it was at the peak.
Yeah. No, just as Adam kind of referenced as well that, you know, we have seen historically an improvement in tests per session. As we think about the normal revenue growth pattern for diagnostics, you know, the organic volume demand has been there and call it a couple of % growth. Then 1% we pick up on pricing, where unit pricing is actually flat to down, so it's all on the mix side. One of the ingredients of why we always seem to have favorable mix going forward, especially looking historically but going forward, is that increase in tests per session, the improvement that we're seeing the growth in our esoteric testing versus our routine, the acquisitions that we've done, especially now with the in-hospital lab management agreements, are all things that will positively promote revenue growth and price mix.
Again, they're all driven off of mix.
Got it. It looks like we have about 10 seconds here. Any closing remarks?
I'd say that, you know, we're excited about the future of both businesses. The clinical development business, I think, will really provide significant shareholder value and growth as we roll that business out. If you look at RemainCo, I would expect that we're gonna get an improved multiple closer to the competition, and we have great growth opportunities there as well. We appreciate seeing all of you today, and we appreciate your time. Thank you, Casey.
Thank you.
Great. Well, thanks, Adam. Thanks, Glenn. Thank you to everybody for joining us. Enjoy the rest of the conference.