UBS Global Healthcare Conference

Nov 11, 2026

Summary

Q3 growth and central lab demand supported higher FY2026 guidance, while specialty testing and tests per accession underpin Diagnostics growth. The 2027–2029 outlook includes 75–150 bps of margin expansion, with PAMA mitigation and announced acquisitions shaping execution.

All right. Good morning, everybody. Welcome to day two of the UBS Global Healthcare Conference. I am Kevin Caliendo, Healthcare IT Distribution Analyst here at UBS, and we are very proud and happy to have with us management from Labcorp, Julia Wang, who is the Chief Financial Officer. Julia, thank you so much for coming down. Hi, Kevin. So happy to be here, and thank you for having us. By the way, people, on the table, there is a QR code. If you want to send in a question, feel free to do so. I have an iPad up here, and if the question is not elicited, I am happy to ask it. Let us talk a little bit about 2Q. It was a really good print, one of the best prints you have had really in years. Organic growth 5.5%, which was up sequentially, even though all of the utilization trackers were not necessarily better, which maybe suggests you took share. There was also the sixth straight quarter of margin progression. If you look back at the third quarter, what was maybe the one thing that surprised you to the upside or was better than maybe what you had thought? Yeah, that is right. So we delivered strong performance in the third quarter, for sure, whereby we grew revenue by 7%, expanded margin by 60 basis points, and grew adjusted EPS by 14.5%. Based on that strength and momentum, we actually raised the midpoint of our guidance ranges for revenue by $65 million and for adjusted EPS by $0.18. If I were to point out one area that has delighted me to the upside, I would have to say hands down to the continued strength in our central lab service business. As you know already, in the third quarter, we grew revenue in central lab service at an organic constant currency basis of 11.3%, and that growth was primarily driven by underlying demand, and also benefiting a bit from accelerated study starts. So, we are definitely pleased with the trajectory of central lab. Now, if I step back, look at the quarter and even beyond the quarter, what we find encouraging is that we delivered strong growth, we expanded margins, we raised guidance, and we have momentum. It is really the combination of all those positive indicators that reinforce for us in terms of our confidence about the durability of our growth algorithm as we head into 2027. That is great. The central lab number was really, really impressive. I think it was, constant currency growth was 11.3% versus what you had, 7.5% prior. When you say study starts, is this new trial starts that you were just Was it you taking share there or just happened your customers were in particular? Did the market accelerate this way? I guess what I am asking is this Labcorp specific or is it market specific? And how durable is it really? Because I know your guidance now, I believe, is high single digits, which is better than 2Q, but not quite as good as 3Q, so. That is right. Yes. So, if I look at the central lab business, as you were saying, in the third quarter, once again, the revenue growth at an organic constant currency basis was 11.3%, and the key driver behind that growth was underlying demand. The study starts was a little bit kind of based on the pacing of the customer that was pulled forward a bit, although that was a tailwind, but not the primary driver, for sure. And to your point, if you look at over a little bit longer period of time, Q3 year to date, CLS grew revenue constant currency organic basis about 8%. And at the end of Q3, we actually raised the full year guidance for the central lab businesses to expect a high single digit revenue growth on organic constant currency basis for 2026. I think equally encouraging is if you look at another indicator of the health of the business, is really the book-to-bill ratio. We delivered a 1.13 in the quarter, which translating to a 1.10 for trailing 12 months. We do not break out the specific book-to-bill for central lab and ED within our BLS segment. However, what I can reinforce is that the central lab business continues to be strong from a book-to-bill perspective, and the ED booking has continuously been improving. So, once again, the area that gives us continued optimism about that business is when I look at our customer group, the growth both in revenue as well as in booking is very broadly based, and it is also very aligned with our specialty testing focus as a company, which we can talk a little bit more during this conversation here. But at the end of the day, I would just say that all the indicators are giving us confidence about the continued strength and momentum in central lab as we head to execute against the outlook for the next three years. Can we talk about the Diagnostics business a little bit? Let's do that. So in the quarter, organic volumes accelerated, which everybody loved to see, right? It went to 3.1% quarter-over-quarter versus 1.8. Price mix slowed a little bit, and I know we asked you this on the call, I believe. Was there anything in particular about the mix that maybe prompted volumes to accelerate and price growth to decelerate a little bit versus what they had been? Adam said, "Don't read into any one quarter," but was there anything there, and how should we think about those two variables going forward, the volume versus pricing? Yeah, absolutely. From a Diagnostics perspective, we also delivered strong performance in the third quarter. As you were saying, if you just look at the organic revenue growth, we delivered 4.4%, and that included a volume contribution of 3.1% and a price mix contribution of 1.3%. Of course, in line with what Adam has shared in the past, when you look at the contribution of volume growth vis-a-vis price mix variability to organic revenue growth, you would want to give it a little bit of time perspective versus just one single quarter, because for a complex business like ours, inevitably, it could be having some variability from quarter to quarter, right? If you step back and start from the organic volume growth, I would say for the first three quarters, we grew about 2%. That strength, of course, is really at the high end of the market, right? Just from an organic perspective, if you put in acquisitions, obviously outpacing the market growth as we've laid out in our strategy. From a price mix perspective, we continue to see benefit of the increase in tests per accession, as we have been consistently in our communication. The tests per accession has been a consistent contributor to the revenue growth from an organic perspective, for sure. If you expand a little bit there, you just look at the contribution of esoteric revenue to the total Diagnostics revenue over time, it has actually been growing much faster than the routine testing. Back in the first quarter of 2024, esoteric testing accounted for 38% of total Diagnostics revenue, and that ratio has improved to about 42% in 2Q of this year. When you think about the key drivers behind that growth, it's absolutely in line with our strategy around leading in specialty testing. Because what we have found is that when you win in specialty testing, you tend to win in the broader testing of a patient's need, particularly when you consider our overall value proposition, right? Because we are a very comprehensive testing provider that has a menu as extensive as 6,500 tests, and we perform 750 million tests every single year to be able to serve the patients. So, to have that focus in specialty and then not only growing specialty, but also grow through this pull-through, if you will, is a very conducive place to be. For the full year, actually, we have reached the midpoint of our revenue guidance for Diagnostics. We're expecting 5.9% of revenue growth at the midpoint, and the expectation continues to be for organic performance to be the key driver for the total revenue growth. Within the organic, we expect the volume growth to be slightly outpacing the variability in price mix. As we head into 2027 and beyond, we continue to expect to really drive above-market growth through leveraging strong underlying demand in the marketplace, our own strategic focus, particularly through the partnerships as well as the specialty testing, and then being able to benefit from price mix variability to drive margin expansion. Super helpful, and very consistent messaging, which we all appreciate. Where can esoteric testing go, 38% to 42% in a year and a half, in essence? Is it eventually the goal of the company? Can it be 50% of your volumes can be esoteric, or is that asking too much? What's the ceiling or what's the pathway? How do you think about it? Yeah. And actually, maybe the second question, because this confuses people sometimes, is what's the margin difference, gross margin, operating margin difference, esoteric versus routine? Yeah. So there are two parts. Two parts. Yeah, two parts in one question. Let's go through one at a time. If I could start from the question as they relate to the esoteric testing trend and all of that. While we have not necessarily put a specific mix target out there, what we did do is really share the momentum at our recent Investor Day in September in New York City. You might recall that we actually sized this book of the business to be about $2 billion in sales on an absolute basis at this moment in time. When you look at the past three years between 2022 to 2025, from a CAGR perspective, the growth within the specialty area, and by the way, we have four areas, which you may know already, right? We have oncology, neurology, women's health, and autoimmune, right? So those four areas make up the specialty focus. If you look at the CAGR between 2022 to 2025, it's really a growth rate of 10% for women's health to 15% for oncology, as well as autoimmune, and then 25% for neurology, right? So clearly, it's very strong growth. While acquisitions have contributed, even if you were to exclude the acquisitions, the underlying core operational growth still were very strong. Going forward, I would say our focus is really, really relentless because the way we think about specialty testing is, once again, we are very agnostic in terms of how we access new innovation and new testing solutions. Whether it's we get access through internal R&D efforts, or we could always partner in various ways, shape, and form, right? Could be an acquisition, could be a licensing. We have multiple examples like that. We did acquisition of Invitae a few years ago, which we have very successfully integrated. We just recently announced a deal about Myriad Genetics, where we're super excited about the test that they newly launched, which is the FirstGene prenatal women's health testing, which we can talk a little bit more. We are very open to how we access testing. All in all, at the end of the day, we wanted to ensure that we leverage our extremely extensive operating infrastructure, commercial infrastructure, broad-based portfolio, and kind of a one place of a comprehensive testing provider that removes friction, right, from the healthcare system. Because when a doctor is trying to prescribe, they don't have to think twice to say, "Oh, this specialty I have to send to one service provider, or this routine I have to send to a different one." They can just work with one company all the way, from placing the order, performing the test, reporting all the results, and then digesting and dissecting, understanding kind of the whole diagnosis and being able to lead to the treatment pathway. So, we're definitely excited about the specialty testing growth potential. The second part to the question is about margin. It is interesting from a margin standpoint, but earlier I talked about it's been a very important enterprise focus for us as a company, and we've delivered six quarters consecutive already from a margin expansion perspective, and supported by both our operating segments. And then if we were just to zoom in, the margin profile for Diagnostics, right? The way we think about it internally is really, the most profitable test is actually the incremental test we could drive through a single accession, right? Essentially, if an accession on the margin has more number of tests than historically speaking, then what we are able to do is really leverage a relatively fixed cost-oriented infrastructure. Because in that case, we've already paid for the cost associated with collection of the sample, with transportation of that sample from the collection site to our testing facilities, right? And then we're able to quickly plug that into our testing infrastructure, and then, of course, our reporting infrastructure, and then the collection efforts through revenue cycle management. This whole dynamic as it relates to the number of tests per accession improvement, quarter in, quarter out, is no doubt a meaningful contributor to margin expansion, historically speaking, but definitely we expect that contribution going forward. This tests per accession has been trending up, whether it's because of GLP-1s or just more wellness testing, or the like. The question is, how durable is that? Meaning, did we have a step function up in 2026, and now we're at a new level? Or do you anticipate, or is there a pathway that tests per accession can continue to grow? And how much of that is macro, and how much of that is Labcorp? Yeah. Is that a- Yeah. Yeah, definitely. The tests per accession, you were saying, we have been seeing that benefit for quite some time now. Quite honestly, it initially started from the moment that we got out of COVID, and we actually saw a meaningful uptick in tests per accession following COVID. Of course, at that time, it was really attributed to kind of a pent-up demand catching up, right? People were getting out of COVID, and they were really catching up on testing needs and all that. Since that time, though, I would say every single quarter, you would be able to see a slight yet consistent increasing number of tests per accession. Even though the improvement is, relatively speaking, small, because we have this vast portfolio of 750 million tests every year, that is why when you translate that to a revenue contribution, it is actually meaningful. Now, to go back to your question about the durability of that, we actually believe the underlying drivers for this dynamic is structural in nature, right? It is also a combination of both utilization environment from a market perspective, as well as our specific and intentional strategy and execution. Let me break it down first. From a market standpoint, we have all been seeing these factors in healthcare overall, whether it is the aging population, which inevitably would need more testing and healthcare need over a lifespan. Of course, there are dynamics that relate to the prevalence of disease, even the heightened focus on just wellness from a consumerism perspective. But then if you think about innovation, diagnostic innovation, right? Today, I would say the types of testing that is available to the broader testing population is just much more meaningful than it was 10 years ago or five years ago, right? When you have more testing options for the patient, that, everything else being equal, provides an opportunity for growth. But when I think about our own strategy and execution, we talked at length about the partnership along with the health systems and the hospitals, and our maniacal focus on specialty, and also through elevating specialty in order to really ultimately elevating broader testing growth. All of that, I would say, actually come together, support this expectation of number of- has support a session to continue to be a tailwind for years to come. Maybe if I can narrow that down. When we think about your LRP that you put out at the analyst day, how should we think about tests per accession, traditional organic volume growth, and pricing going into the sort of Diagnostics top line? I know you have M&A in there too, but I am just talking about the organic side. Yeah. Let's start with the outlook, right? As you were saying, in our Investor Day in September, we established the long-term outlook for the next three years, spanning 2027 to 2029. From a Diagnostics perspective, we are looking for organic revenue growth of 3.5%-5.5%. Is that total company? Total company. Diagnostics 2.5%-4.5%. 3.5. Okay. Let me reiterate. Total company organic growth, 3.5%-5.5%, and then Diagnostics segment in particular, 2.5%-4.5%, organically speaking. From an inorganic perspective, we are looking for 1.5% to 2.5% of a revenue type of contribution throughout that period. Okay, if I then further zoom in, the Diagnostics organic revenue expectation, the 2.5%-4.5%, I would say that, you look at historical trend. For example, last year, Diagnostics organic revenue grew 4.1%, and volume was 2.2%, price mix was 1.9%, right? You look at this year, and we just now talked about the data. I think for the first three quarters, we showed organic revenue growth about 3.6% for Diagnostics, and the volume growth slightly outpacing the price mix contribution. I would say when you continue to look beyond this year and think about the next few years, we'll continue to expect once again the organic revenue growth to be in that range, and we'll continue to expect the volume growth to be a contributor in addition to price mix variability. Okay. Got it. Let's change topics to PAMA. We love PAMA. We love to talk about PAMA. Hopefully never again, but it's still an issue. You talked about $125 million as the potential impact. That's tied to traditional Medicare and Medicaid, and assumes the proposed fee schedule takes effect on 1/1/2027. That's correct, I believe. Is there anything between now that we have the final rates have been published, between now and then, is there anything that could swing that number one way or the other, based on what you know now? We can talk about RESULTS Act and everything, but let's just assume PAMA happens on 1/1/2027. Is that $125 million? What are some of the variables that can maybe affect that one way or the other, and how to think about cost offsets to it as well? Yeah. We're clearly disappointed in the preliminary fee schedule released by CMS in September. The data essentially are really relying upon about 2% of the labs that were paid under the Medicare Part B in 2024, with very limited data from physician office or hospital outreach labs. As a result, it is not representative of the commercial market, and therefore is not going to achieve the intended objective of PAMA, right? With that being said, as you also teed up, that we did size the expected impact in 2027 to be about $125 million in revenue and AOI before mitigation, and that's assuming it is implemented in the current design based on the current preliminary data. That is really the impact tied to the traditional Medicare and Medicaid business in our portfolio. Now, in terms of how we expect that to evolve, there was a comment period in September, October. We did provide comment along with our trade association of ACLA, and now we are waiting for the final rate to be released. Of course, how that final reimbursement rate looks like relative to the preliminary rate will be a factor that helps us better understand the potential impact in 2027. But then the other key consideration is that, as we shared on the Q3 earnings call, obviously if you try to work through PAMA in a given year with that magnitude of the impact, it is impactful. But to also put things in perspective, it is slightly less than 1% of our enterprise revenue, because we do have the portfolio diversification, right, of this BLS business that will not be impacted by PAMA. So as it relates to the multiple levers that we could potentially tap into to help us manage through the impact, of course, it starts with the strength in the utilization environment in Diagnostics, as well as our ability to continue to drive above-market growth in Diagnostics, maintaining the momentum in BLS business, as we already talked a bit so far in this conversation. The M&A pipeline continues to be robust. We announced a few deals subsequent to Q3 closing, and we continue to progress in that regard. Last but not least, at the recent investor day, we shared that we are stepping up our efforts on driving more annual savings through our LaunchPad initiatives, which is just really an enterprise operating efficiency initiative, right? Historically, the annual target from a savings perspective was about $100 million to $125 million, and our expectation starting from 2027 moving forward is really an increase to $125 million to $150 million. Advanced technological improvements, including AI and robotics and everything in between, will be a key lever behind that expected improvement. So, we look forward to bring all of this together as we communicate the guidance for 2027 in just a short few months. There was a comment about some spillover into the rest of the business if PAMA were to take effect. Is that in your commercial book? There was some confusion in the marketplace around how PAMA. I think we all understand there's Medicaid rates that are directly tied to the Medicare CLFS rates. There was some consternation that commercial rates would be affected by this, but the belief was that a vast majority of your contracts would have had some protection against that, had been rewritten over the last five years since PAMA's been written. Is that fair? And when you talk about some spillover, were you referring to Medicaid or are you talking about commercial as well? Yeah. As you were saying, right, so essentially, since PAMA was first implemented quite some time ago, we've been working very hard on really decoupling our commercial contracts with respect to their tie to the CMS fee schedule. And at this point, the majority of our commercial contracts really is not tied to the fee schedule. There are still certain third-party contracts that have a knock-on effect if this were to be implemented, and we believe that the impact is manageable. We'll just manage that as part of the push and takes the managing a very complex book of business. The other consideration I want to be very, very clear is that, PAMA is very disappointing. The risk with it is really threatening the industry's sustainability, particularly the smaller players that doesn't have the scale, the financial strength, and diversity to manage through or overcome it. It's also not conducive for the patient access. But from a Labcorp perspective, if it were to happen, we'll work through that, but it does not change fundamentally the long-term earnings power of our company, right? Because that margin trajectory has been established, it's going to be there, and we'll continue to work hard at maintaining and improving that. You were quite clear around a lot of the LRP. If PAMA were to come back, there would be a lower end of the range. Can you still grow margins in the first year of PAMA from an enterprise basis? You're nodding your head, but I'm nodding my head to your question, to just be clear. I'm acknowledging that I get your question, to be just super clear. To go back to your question, on a more serious note, as you were saying, on the Investor Day, we did lay out that from a margin expansion perspective for the next three years, we are expecting an improvement of anywhere between 75 basis points to 150 basis points by the end of 2029. So we reaffirmed that guidance on the Q3 call. So I would say, even with the latest development with PAMA, our view has not changed, broadly speaking. Now, if you take a particular year, say 2027, if PAMA does get implemented in the current design, everything else being equal, clearly, it would make it more challenging to drive pure margin at the bottom line. But with that being said, just now I laid out a few factors that are just really multiple levers that we can tap into. And I would also say that the key takeaway here is, it's not like we just have one lever that we have to solely rely upon as we look at the multiple levers to pull to manage a very complex business. Right now, I can reassure you that my entire finance team, along with the enterprise, are deeply engaged in really the annual operating plan process in really figuring out for next year, what's the base case, what's the key assumptions that are going to move for us within the range that is either direction of the base case and how do we leverage all the levers at our disposal to be able to have a plan for 2027 that is going to make sense, but also is going to be conducive for us to be on track to deliver against the three-year outlook that we just laid out in September. RESULTS Act. What do you think the chances are that this gets done? Is it 50/50 still? I know your analyst models are about 50/50 of whether PAMA comes back next year. So, what do you think honestly is going to happen here? I know there's the ACLA view of it, but inside when you're thinking about it, how do you think this is going to play out? I need to be very careful when nodding from this point forward. I just don't want that to be mistakenly interpreted as saying yes, but I'm saying yes to the question, so in all seriousness Is the RESULTS Act going to be passed? The RESULTS Act. So once again, we believe that that is the right long-term solution for the industry. Then in terms of the process, at this point, we're really waiting for the CBO scoring to be coming back. Clearly, the outcome of that scoring will be influentially impactful as it relates to what could potentially be coming after that. If the scoring is suggesting that it's going to have a cost element that is more manageable than otherwise, then the pathway going from there could be more conducive than otherwise. The opposite is also true. So, I think at this moment, it's really stay tight and put and anticipating that result to come back. But in the meantime, I also would say, if PAMA gets implemented in the current design, we will continue to work with our trade association to push for legislation reform, because that's the right thing to do for healthcare system overall and for the patients. So that's the most important thing. Lastly, of course, we are just prepared. As a business, we are prepared one way or another, and we feel that no matter how we land with PAMA, we are well-positioned to manage through PAMA and then grow out of it and being stronger going forward. We only have a couple minutes left, and I still have about 10 questions, so this is going to be tough. But let's talk about some of the M&A deals. Yes. You just announced three deals. Yes. Really impressive. We've been waiting a while for deals, and these are good ones. BioReference, Myriad's prenatal business, and Millennium. On the call, it wasn't clear to me whether you blessed. There was a question on the call about the potential accretion from BioReference and the margins of it, that the operating margin of the business is in the low 20s, 22%, 23%, to reach that 15% accretion. Is that math correct? Does that make sense? Yeah. So we are excited about the progress we have made as it relates to M&A, and you might recall in our past conversations, Adam and I would have said that, "Yeah, the pipeline looks very healthy and robust," and you would be like, "Okay, so when are you going to announce?" So, we decided we take a moment. But in all seriousness, you can imagine, right? Externally speaking, it appeared we announced those three deals within a week following the 3Q closing, but of course, the work has been ongoing for quite some time, and just coincidentally, crossed the finish line from an announcement perspective at the same time. Now, if I start with the BioReference deal, as you were saying, so the expectation is really a cash purchase of about $722 million with some earn-out structure associated with the 4Kscore test based on the revenue generation. Then the expectations to Once we are able to close, the current anticipated close timing is about mid-next year, but of course, all the deals are subject to regulatory approval and the customary closing conditions, right? From a financial standpoint, once we close, the expectation is to generate about $215 million in revenue in year one, and the margin, operating margin, is actually slightly higher than the segment margin for our Diagnostics business. Once you take into account all the costs, including interest, it would really give you adjusted EPS contribution of $0.15 in year one. So, when you look at this, it is very holistic, a pro forma expectation, right? The other thing I would say is that that business, as you know very well, we have partnered with BioReference for two deals previously already, right? There was a transaction in 2024, a transaction in 2025, so we definitely believe that we have a good understanding about their system, their way of working, their cost structure, so we look forward to being able to close the deal at the right time and then being able to really drive a lot more growth in the GIO work that they are really strong at. We are also very excited about the potential to look at their footprint, particularly from a patient service center standpoint, and our footprint, and leverage those footprints from a very strong optimization perspective to take cost out of the system, being able to drive value that could drop to the bottom line. The M&A guidance for revenue, 1.5%-2.5%, I am guessing for 2026, you are not going to necessarily have that much contribution, just given the timing of the deals. The three deals you announced already, does that get you to what would normally be the 1.5%-2.5% growth? Yes. Or say 2027, given that these are going to close- Yes You can almost get a full year contribution from three deals. As you were saying, the contribution from M&A, from a revenue CAGR standpoint, is 1.5%-2.5%. Last three years, we are on track about 2.4%, so at the high end of that range. Then, for 2027, of course, we will give more guidance as we lay that out in February of 2027, but the long and short of it is part of that is also going to be dependent upon the timing of the closure, right, of the deals that we just announced. With that being said, we are encouraged by the progress we have made as well as the pipeline that continues to be very healthy. Which Adam has said remains strong. Remains strong. Still taking. hospital deals maybe. That is right. Awesome. Thank you so much, Julie. We are out of time. Thank you. Thank you. Thank you so much. Thanks.