奎斯特診斷 (DGX) 2006 Q2 法說會逐字稿

Welcome to the Quest Diagnostics second-quarter 2006 conference call.

At the request of the Company this call is being recorded.

The entire contents of the call, including the presentation and question-and-answer session that will follow, are the copyright property of Quest Diagnostics with all the rights reserved.

And any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Quest Diagnostics is strictly prohibited.

Now I'd like to turn the call over to Ms. Laure Park, Vice President of Investor Relations for Quest Diagnostics.

Please go ahead.

Thank you and good morning.

I'm here with Surya Mohapatra, our Chairman and Chief Executive Officer, and Bob Hagemann, our Chief Financial Officer.

Some of our commentary and answers to questions may contain forward-looking statements that are based on current expectations and involve risks and uncertainties that could cause actual results and outcomes to be materially different.

Certain of these risks and uncertainties may include, but are not limited to -- competitive environment; changes in government regulation; changing relationships with customers, payers, suppliers and strategic partners and other factors described in the Quest Diagnostics Inc. 2005 Form 10-K and subsequent filings.

Some of the financial measures we will be discussing today are non-GAAP measures.

A copy of our earnings press release, which contains information that is required under Regulation G, is available and the text of our prepared remarks will be available later today in the quarterly update section of our website at www.QuestDiagnostics.com.

A downloadable spreadsheet with our results and supplemental revenue analysis are also available on the website.

Now here is Surya Mohapatra.

Thank you, Laure.

We reported strong financial results for the second quarter.

Revenues increased 15%; earnings grew to $0.78 per share excluding NID; and cash flow as $170 million.

Our business continues to perform well.

We're expanding margins and driving profitability through a combination of revenue growth and [opportunity].

And in early July we acquired Focus Diagnostics, a world leader and innovator in infectious and immunologic diseases which further strengthens our esoteric testing business.

Now Bob will share with you our financial performance.

It was another strong quarter driven by the performance of our clinical testing business.

As we go through the results I'll separately quantify each of the major factors impacting the quarter.

Consolidated revenues grew 15% for the quarter with the acquisition of LabOne contributing about 10%.

A little over half of the LabOne revenues were generated from the risk assessment business with the remainder classified as clinical testing.

Our clinical testing business, which accounts for over 90% of our total revenues, grew 10.3% during the quarter on a volume increase of about 6% and an increase in revenue for requisition of about 4%.

LabOne contributed almost 5% growth to the clinical testing business principally reflected in volume.

The increase in revenue for requisition is primarily driven by a shift to a more esoteric test mix and an increase in the number of tests ordered per requisition.

Please note, the revenue and volume comparisons for the quarter were reduced by about 1% due to the timing of the Easter holiday which fell in the second quarter this year compared to the first quarter last year.

As we previously noted, the first-quarter comparisons benefits by about 1% for the same reason.

The impact on a year-to-date basis is neutral.

NID had revenues which were $13 million less than last year and reduced consolidated revenue growth by 1%.

Operating income as a percentage of revenues was 16.6% for the quarter and reflects about a 1.5% improvement from the prior year on an apples-to-apples basis driven by the performance of our clinical testing business.

Our clinical testing margins continue to benefit from solid topline growth, efficiencies from use of our electronic connectivity solutions, and continued benefits from ours Six Sigma efforts.

During the quarter we finalized our plans for the discontinuance of NID's operations and recorded costs of $28 million associated with those activities which are well underway.

About $21 million of the wind down costs are reflected in other operating expense with the balance included in cost of services.

We had preliminarily estimated the cost to be at $45 million.

NID's total pretax losses for the quarter were $35 million and reduced consolidated margins by 2.2% and EPS by $0.12.

We are providing results and guidance with and without the impact of NID because we expect to treat NID as a discontinued operation later this year once all operating activities have ceased.

The ongoing government investigation of NID continues and we are fully cooperating.

At this time we are not in a position to estimate what, if any, liabilities may result.

The expense associated with FAS 123R reduced margins by 1.3% and the results of the LabOne business, which will carry lower margins than the rest of our operations until we've realized most of the expected $40 million in synergies, reduced margins by 0.8%.

Lastly, the timing of Easter reduced margin comparisons by about 30 basis points.

During the quarter we recorded a non-cash charge of $12 million to write down our investment in Vasogen, a Canadian biotech company.

Vasogen's share price dropped upon announcing the results of the clinical trial for its congestive heart failure treatment and we view as unlikely that the stock will recover in the near-term.

The charge was recorded in other expense below the operating income line.

Included in footnote 6 and 7 to our earnings release are tables which summarize the impact to revenues, operating income and EPS from the various items I just discussed.

Diluted earnings per share grew to $0.78 excluding the impact of NID and were reduced by $0.04 due to the Vasogen write down.

The growth in earnings was driven principally by the strong performance in our clinical testing business.

Cash from operations in the quarter was $170 million compared to $234 million in the prior year.

The timing of various items which benefited the first quarter reversed in this quarter.

In the first half cash from operations is up over $40 million from the prior year.

Days sales outstanding were 45 days compared to 46 days at year-end.

During the quarter we repurchased 2.6 million common shares for $150 million.

Capital expenditures for the quarter totaled $46 million.

Shortly after the end of the quarter we completed the acquisition of Focus Diagnostics and repaid our $275 million note which came due.

We borrowed $375 million under our existing credit facility and used cash on hand to complete these transactions.

Turning to full-year guidance -- we expect to treat NID as a discontinued operation before the year is out.

Therefore, guidance will be presented for continuing operations before the impact of NID.

We expect revenues to grow approximately 15%.

This includes the partial year impact of the Focus acquisition, but excludes the impact of potential additional acquisitions.

We expect operating income as a percentage of revenues to approximate 17.5%.

This includes the impact of FAS 123R, which is estimated to reduce margins by approximately 1%, and includes the impact of integration charges recorded in the first quarter.

We expect cash from operations to approximate $850 million and capital expenditures to be between 210 and $230 million.

We expect NID which will be treated as a discontinued operation to generate pretax losses, including the $28 million second-quarter charge, of approximately 60 to $68 million or $0.20 to $0.23 per diluted share.

Lastly, we expect diluted earnings per common share from continuing operations to be between $2.95 and $3.05.

A reconciliation of our previous guidance to our current guidance is included in footnote 8 to the earnings release.

Now I will turn it back to Surya.

Thanks, Bob.

Our diagnostic testing business is strong and growing.

I would like to spend a few minutes talking about the drivers of our performance.

We drive profitable growth organically and through acquisitions.

During the quarter organic growth was driven by strong increases in a number of biohazard tests, both routine and esoteric.

In [lab tests] from women's health grew more than 15% in the quarter.

It includes test for HPV as well as well as other sexually transmitted diseases such as chlamydia, gonorrhea and herpes virus.

HPV testing in particular has been growing rapidly.

As doctors and their patients become better educated about new guidelines for cervical cancer screening, they are ordering the HPV test more often along with a pap test.

Cardiovascular testing continues to show strong growth, particularly expanded lipid tests which increased 40% during the quarter.

Also, allergy testing using ImmunoCAP grew more than 15%.

These tests are examples of current growth drivers and we continue to build a pipeline of new tests for future growth.

We introduced Leumeta, (indiscernible) testing for leukemia, lymphoma earlier this year.

We see tremendous interest in this technology from doctors and hospitals looking for alternatives to painful bone marrow biopsies.

Other recently introduced tests include CellSearch, which identifies soft living tumor cells in patients with metastatic breast cancer.

The [COP] test for the detection of cancer (indiscernible), a rapid test for the detection of staff infections in all hospitals.

Flawless execution is the key to successful acquisitions and realizing synergies.

Our integration of LabOne is progressing well and remains on track.

We are in the process of consolidating our laboratories in St. Louis and Lexington into four more LabOne facilities in Kansas City and Cincinnati.

We're also completing our consolidation in Southern California.

The new West Hills facility is open and by this fall will process testing that previously had been performed in three separate locations.

Now let's look at what we're doing to drive continuous improvements in our operations.

Our focus on enhancing service to patients and customers is driving results.

We have seen steady improvement in physician satisfaction which is up more than 10% over the past two years.

In addition, we continue to enhance the patient experience with new features by (indiscernible) scheduling and cash collection at patient service centers and first-time problem resolutions at our billing call centers.

We are using Six Sigma and lean techniques in our operations to improve quality and efficiency.

We are working on improving specimen tracking.

We are piloting the use of mobile scanners to track specimens in their (indiscernible) and electronic chain of (indiscernible).

We have further strengthened our relationship with managed care organizations.

For example, we are partnering with health plans to reduce costs and improve patient outcomes through (indiscernible) which are more diagnostic tests and enable (indiscernible).

We have created a significant competitive advantage with our Care360 physicians' portal.

We are proud of the adoption rate of this powerful portal and how it is helping doctors improve their workflow and take care of patients.

More than 90,000 physicians are using Care360 and we are installing 200 to 300 new systems each week.

During June doctors brought more than 65,000 electronic prescriptions on line, up from approximately 50,000 in March.

Also in June we received more than 5 million lab orders and sent more than 10 million test reports over the Internet. (indiscernible) doctor support says the Care360 portal makes lab results easier to access anywhere, anytime, reduces errors and saves time.

In closing, our business is strong and growing.

We continue to differentiate ourselves by focusing on announcing the patient experience, broadening access and distribution, improving (indiscernible) facility using lean Six Sigma, and developing (indiscernible) tests in our (indiscernible) services.

We are on track to meet our goals for 2006 and I'm excited about our future.

We'll now take your questions.

Operator?

(OPERATOR INSTRUCTIONS).

Tom Gallucci, Merrill Lynch.

A few different quick housekeeping items.

You mentioned esoteric testing or the growth of higher price tests as well as an increased number of tests for requisition driving up the PPA.

Where does esoteric testing I guess stand now as a percent of the total maybe versus a year ago?

And can you just maybe get a little more granular on the trends that you're seeing in test per requisition?

Tom, the esoteric or the gene-based testing as a percentage of our overall revenues is right around 12%, a little above it.

And that's holding strong even with the addition of the risk assessment business into our overall portfolio.

So we're seeing strong growth there and that's holding strong.

On a test per requisition, we are seeing a continued movement upward in the test per requisition; it's still in that two to three zone, but we see it inching higher, particularly as you start seeing more things such as an HPV along with other tests -- along with the pap tests.

You reduced CapEx, I guess, expectations by a little bit.

Is there any particular color there?

Tom, there's nothing specific to that.

It's just being further into the year and looking at how much we've spent to date and there's just a little shift in the timing of some our plans there, but nothing specific that would be (inaudible).

Nothing related to LabOne in particular or anything like that?

No, actually the integration is moving along very well and on track.

Right.

And then, just on the managed care front, you mentioned relationships there briefly.

Is there any update on United or on renewal for WellChoice?

Thanks.

We're still in discussions with United and WellChoice --

WellChoice -- we've extended that to a new long-term relationship and there's really no change in the network arrangement there.

Great, thank you.

Ricky Goldwasser, UBS.

A couple of questions, firstly for Bob.

If you can provide us more color on guidance.

First, the $0.02 associated with this change of outlook; is this related to the core business or to better outlook for LabOne?

And also, I know you mentioned that Focus has impacted the top line, if you can just give us more clarity on the impact of Focus on the bottom, at least directionally, is it dilutive to '06 guidance or accretive?

And then lastly, just for clarification, the $0.04 write-down was not in all guidance but is in new guidance?

Okay, let me start in order.

The improvement in the outlook is principally related to the core business, not LabOne.

LabOne integration is continuing at -- as I said, on track and that business is performing pretty much the way we expected it to.

With respect to Focus Diagnostics, the partial year impact of that on revenues, as we said, is going to be about less than half a point to '06 revenues.

And we don't really expect there to be any impact at all to EPS.

If anything a penny one way or another.

And the $0.04 write-down that you asked about was not in the previous guidance, but, as you can see from the table that we put together, it is included in our current guidance right now.

The only thing that's excluded from our current guidance actually is NID.

And on that $0.04 write-down, so should we look at it as kind of a normalized basis; it would have been a $0.06 improvement from core business diluted by that write-down?

You could look at it that way.

Okay.

And then lastly there, on the Centura joint venture, have you seen an accelerated loss in the business in the second quarter, or should we assume that the one quarter run rate equals 2Q run rate and that's what we should forecast for the remainder of the year?

The impact of the Centura arrangement is fully reflected in the second-quarter results at this point.

And was it fully reflected also in the first quarter?

Pretty much, yes.

Now much of a difference between Q2 and Q1 as it relates to the impact of Centura.

Okay, thank you.

Robert Willoughby, Banc of America Securities.

Good morning.

The supplemental revenue information was helpful by business line.

I don't suppose that exists on a quarterly basis as yes.

And just could you perhaps give us a bullet on pathology and drugs of abuse testing, why they have been rising for you as much as they have been?

At this point we're not quite ready to go there on a quarterly basis;

I am glad you found it helpful.

The pathology business is an area that we have been investing in; we think it's an important area to be going forward.

So it has been an area of investment.

And then, the drugs of abuse -- also keep in mind, in the early 2000 time frame, obviously 2000 to 2003, that was really hit by reduction and pre-employment drug testing and we've now seen some rebound on that.

So that's an area where we're starting to see nice growth -- about the same with the overall corporate growth.

Exactly.

So it's not impacting the consolidated growth numbers significantly in either direction.

I'd just want to add one thing, Robert.

As you know, when we acquired LabOne we did say that apart from strengthening our position in Kansas and Ohio, but also it's going to strengthen our drug abuse testing.

And now we have a full productline of tests for drugs of abuse which includes hair tests and saliva tests and also urine tests.

So that's going well and the LabOne integration is going well and I'm very pleased to say that we haven't lost any account in the (indiscernible) business because of the acquisition.

And this might have been Ricky's question.

The guidance for the year does include LabOne charges in there, the integration charges as well as some of the benefits and charges that you've basically characterized as one time, but that is in the guidance?

Yes, everything but NID is in that guidance.

Okay, great.

Thank you.

David Lewis, Thomas Weisel Partners.

A couple quick questions here either for Surya or for Bob.

I guess first of all, just looking at the margin expansion which sort of continues to improve on a go-forward basis.

You've given sort of the headwinds of LabOne on the gross margin side, you're obviously driving a lot of leverage on the EBIT side.

So maybe you could walk us through in slightly more detail what you think the one, two or three top contributors to margin expansion are off the second quarter?

It's pretty much the same as in the first quarter, David.

Certainly the strong topline growth helps margins.

We've seen continued benefits from the roll out of the connectivity solutions because now you're dealing with less manual reqs, these things are coming in electronically.

We have efficiencies in the accessioning area as well as the billing area as a result of that.

And in addition, you saw that bad debt was down versus the prior year.

A lot of that is attributable to the increase in connectivity.

But at the same time, as we use Six Sigma more and more in our daily operations and think about Six Sigma as really driving continuous improvement, we're finding ways to do what we do more efficiently.

So it's really a combination of topline growth, the increase in use of the electronic connectivity solutions, and the further deployments of Six Sigma across our operations which is really driving the expansion.

And we are rationalizing some capacity.

Right.

We haven't seen the big benefit of that yet, but we will expect to see that.

And certainly as we get the LabOne synergies fully baked we start to realize the full benefits of the consolidation in California, those are things that are going to drive the margin further.

And Bob, right now you think the bad debt will hold on this sub 4% level on a go-forward basis, or could we still see some fluctuation?

It's important to understand that bad debt and DSOs have some moral variability from quarter to quarter.

I'd love to say that we could stay below 4%, but around 4% I think is a reasonable way to think about our bad debt.

Okay.

And then Bob, in terms of tests per requisition, this revenue per req obviously has been a material driver the last two quarters or so.

Have you given an updated sort of revenue per req or test per req?

Are we still sort of sub 3 or are we very, very close?

We're still between 2 and 3 at this point.

And remember, our movement from 2 to 3 would be like a 50% increase.

So we're not seeing any sort of increase of that nature at this point, but it is an important driver to the increase in revenue per requisition.

Okay.

And then lastly, Surya, just strategically you talked about some of the important tests.

We have the Merck HPV vaccine launch; we have Glaxo coming up here shortly.

Is there anything Quest is doing different in the next six months than they were doing in the last six months to capitalize on some of the direct-to-consumer advertising or was it sort of more of the same?

No, we keep educating our doctors and patients and we walk in the clinical trials knowing exactly what tests coming.

So as far as HPV is concerned, it's actually doing more of the same education of the patients and the doctors.

And keep in mind, David, that we have been leading with HPV as the primary part of our cervical health message for several quarters at this point in time.

I think the other thing -- what I'm seeing more and more is there is companion diagnostics with therapy.

And I think that's where we're going to play an important role.

Because as you know, we have a very significant role in clinical trials testing, so we work with the Pharma companies figuring out actually what is in the pipeline.

And we're building a pipeline for new diagnostics which will be targeted to a particular therapy.

Okay, thank you very much.

Bill Bonello, Wachovia.

Just a couple of follow-up questions.

I apologize for the first one if it was asked -- I don't think it was.

What's driving the $50 million increase in the operating cash flow guidance?

Principally the fact that we pulled out NID from all of our numbers is the biggest driver there.

Think about NID as probably impacting cash from ops in a negative way by about $40 million or so this year.

Okay, perfect.

And then just again on the managed care front; are there any big managed care contracts that at this point you have not renewed for 2007?

Obviously we're still in discussions with United at this point and that would be obviously the biggest one that we would need to renew currently.

What about whatever they're calling WellPoint in New York?

We mentioned earlier that we just extended that agreement long-term and it remains a network arrangement as (multiple speakers).

I'm sorry, that's what that was.

Yes, WellChoice.

Okay.

And then on the California lab facility, the consolidation there, is that -- how is that going and does that have any kind of impact on the financial results?

Well, certainly it will as we look to reduce the number of facilities in California.

And at the moment that's going well.

The West Hills facility is up and running and we continue to move business in there.

At this point we've moved a fair amount of business from the San Diego area into there and we're moving business from our other two laboratories in (technical difficulty).

Okay.

Is that more the -- as an earnings benefit is that more of a 2007 benefit or --?

I think you'll see the full benefit of it in 2007.

It will take most of the rest of this year to get the rest of the work in there.

Okay.

And then the last question was just on the new testing.

You mentioned, Surya -- or one of you guys mentioned rapid growth of expanded lipid testing.

And I'm just wondering if you could give us a little bit more color on what specific tests you're seeing growing and sort of what the opportunity there might be over time?

I think as the cardiovascular risk is becoming a very important aspect of health, people (indiscernible), but I think one which is growing is a sub particle test, and that's the one which is growing faster because the clinicians want to (indiscernible) this data and then assess the cardiovascular risk.

Okay.

And what about CRP, is that --?

CRP is still continuing.

CRP is a strong test.

And this is interesting, because I gave an example of two or three tests which are really growing our testing, but there are a number of tests.

CRP is one of them, ImmunoCAP is another one -- there all growing.

And I think the reason why people are using these things is that the consumer and the patients and the doctors are getting more informed.

And we have done a good job by education people on the number of tests that are available.

Okay.

And then just -- you mentioned some of the companion diagnostics.

Can you just give us any thoughts on what you're most excited about there?

Well, you know -- there are a number of tests and you can start with (indiscernible) and there are a lot of discussions going on about [cumidin] and (indiscernible).

And I think all these things which have what I call life-threatening activities, the drugs, then it is going -- the role of diagnostics now realize how it is going to either have appropriate dosage or actually when you're going to take and when you're not going to take.

But that the broad value of diagnostics and the number of tests which are coming in which is going to demand diagnostics says.

A common thing like lipid renal statin, it never used to be a three-month blood test, but now people are saying that you have to do a three-month blood test.

Okay, thank you.

[Eugene Chen], [Unterberg].

Thanks for taking the call.

If I could just step back a little bit here.

I was wondering if you guys can comment, sort of given the longer-term challenges of growing volumes organically in the core testing market, can you comment at all on your bifocal acquisition strategy that you've mentioned in the past and remind us again what sort of types of deals are inbound in terms of size or type of business, product versus services, etc.?

First of all, we have said that our growth strategy has organic growth and acquired growth.

And when it comes to organic growth we have invested month in sales, service and science.

And what you are seeing that we are building up a good pipeline of new tests by getting involved in the Company much earlier.

So as far as organic growth, if the industry is growing at 5% we want to grow at or above the industry rate.

But when it comes to acquisitions, we are a disciplined acquirer; but, as I tell my staff and outside people, that we need to be bifocal.

We have a lot of assets in the Company.

For example, we touch 140 million patients.

We have (indiscernible) service centers and we have a very strong logistics network.

So while we are laser focused on current business we are preparing the Company for the long-term future by making sure that we leverage our assets, whether it is to go to adjacent space, whether it is diagnostic imaging, or whether it is healthcare IT or going to international and bringing our expertise or evaluating products whether point of care testing or point of care services.

So we explore acquisitions and as long as it makes strategic fit and increases clear shareholder value, makes economic sense, we explore everything.

Next question.

Adam Feinstein, Lehman Brothers.

Good morning, everyone.

Just a few questions here as we think about just a couple of things.

You mentioned before everything is on track with LabOne.

Is still $40 million of synergies the ultimate goal?

Last quarter you raised it from 30 to 40.

Just want to make sure that was still the same number?

Yes, we're very comfortable with that.

That's what we're targeting.

Okay, great.

And then secondly, just on the reimbursement and regulatory front, just wanted to get any updates there.

There's been a lot of noise broadly speaking in the healthcare sector in Washington this year.

The labs really have not had the same amount of noise I would argue.

There was some I guess noise a week or two ago with the GAO study coming out questioning quality within clinical labs.

Maybe if you could just provide some broad perspective about quality and the GAO study -- any thoughts there.

And then just secondly, just in terms of reimbursement.

I mean, clearly you guys have had a payment freeze for a while, but certainly they are revamping a lot of reimbursement systems throughout -- at the Medicare program.

Just any thoughts there are in terms of what may ultimately happen?

Thank you.

Adam, on the study around quality, obviously quality is something we take very seriously here.

We're very comfortable with the quality systems that we have in place.

I think a lot of the changes that were being discussed in that study, many of those changes have already been enacted already.

So I think from our perspective that's something that's very important and we think we have strong quality systems here.

On the regulatory front I think there are two pieces outstanding right now.

One as it relates to the physician fee schedule, obviously there are some positive pieces proposed in there that will have a positive impact on the lab space and that's a good thing where they're relooking at the calculations of some of the RVUs.

On the competitive bidding front, CMS came out with their pilot.

In April we've commented on it through our trade association.

We have some concerns with the pilot, the way it's set up and initially drafted.

And we've let them know what our specific concerns are through ACLA.

So I think those are the primary pieces right now.

I just want to add one thing.

We started Six Sigma five years ago and because the laboratory industry is so fragmented I'm actually glad that people are thinking of our quality and people are thinking about how do you have an important role in monitoring quality in various laboratories that are (indiscernible) labs.

So I think the fact that Americans (indiscernible) and seeing as they're all interested, that's actually good for the patients and for the clinicians.

Now, as far as the regulatory thing is concerned, I wish we could get an increase some time, but obviously we are integrating through our trade association the diagnostic value of our industry and how it fares (indiscernible) cost.

Okay.

And just maybe one quick follow-up question if I may.

You spoke a little bit before about managed care contracting with some of the bigger contracts, but just curious -- any changes in terms of how the managed care companies are looking to contract?

Forget the pricing, but just in terms of the overall contract.

Are they looking to change the structure or are the contract terms pretty similar?

There's not a significant change in structure, but as Surya mentioned earlier, we are doing more things with managed care companies to help their members and patients, whether it be collaborative efforts around connectivity, any prescribing, things like that.

So I would say that the relationships are becoming broader.

And rather than us being viewed purely as a supplier of test results, we're being viewed as an entity that can bring more to the table than that.

But there are no phenomenal changes in competitive environment compared to previous years.

But one thing you ought to remember, the lion's share of testing is at the hospital.

So with the health plan trying to reduce costs they have really worked with one or two partners to reduce leakage and also to make sure that the network is (indiscernible) properly.

So we are working with managed care organizations to reduce their overall cost rather than just talking about the individual prices.

Okay, thank you very much.

Robert Gilliam, UBS.

Good morning.

Just a quick question on guidance for stock options.

I think previously you called for $0.20 on the year; now it looks like you're on pace for about $0.24.

I just wanted to know if there was any change to that previous estimate?

Initially we had indicated that we thought it could be around $0.20 or so, that's when we gave guidance for this year.

That was also based upon the stock price at the point in time that we gave guidance.

Since then the stock price has moved up.

So when we actually granted those options the cost turned out to be a little higher.

Right now for the full year we're probably looking to run between $0.22 and $0.24 and it's up from the start of the year principally because of the change in the share price.

Okay, thanks a lot.

There are no further questions.

Thank you for participating in the Quest Diagnostics second-quarter 2006 conference call.

A transcript of prepared remarks on this call will be posted later today on our website, www.QuestDiagnostics.com.

Investors in the U.S. may listen to a replay of this call by dialing 866-483-9093.

The replay will open today at 11:30 AM Eastern Time and will continue through 11 PM on August 21, 2006.

Investors outside the U.S. may dial 203-369-1591.

No password is required for either number.

In addition registered analysts and investors may access an online replay of the call at streetand.com.

The call will also be available to the media and individual investors at our website.

The online replay will be available 24 hours a day beginning at noon.

Good day.