Labcorp Holdings Inc (LH) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Laboratory Corporation of America 2004 second quarter results conference call. During the presentation all participants will be in a listening mode. Afterwards we will conduct a question and answer session. At that time if you have a question, please press the one followed by the four on your telephone. As a reminder this conference is being recorded on Thursday, July 22nd, 2004.

I would like to turn the conference over to Mr. Tom Mac Mahon, Chairman and Chief Executive Officer. Please go ahead sir.

Thank you Melissa. Good morning and welcome to LabCorp second quarter conference call.

Joining me today from LabCorp are Brad Smith, Executive Vice President Corporate Affairs. Wes Elinburg, Chief Financial Officer. Ed Dodson, Senior Vice President Controller, and Pam Sherry and Brad Hayes and Investor Relations. In that regard, yesterday we announced that Pam Sherry has accepted a new position within LabCorp, Senior Vice President New Business Development. During the seven and a half years that I have been here it has been a true pleasure to work alongside Pam. She is passionate about the work she does and is extremely conscientious. Pam, thanks for a great job in Investor Relations and good luck in your new responsibilities.

I am pleased to announce Brad Hayes, formerly Senior Vice President of billing will become Senior Vice President of Investor Relations. A veteran of LabCorp, Brad has orchestrated the significant reduction in DSO and bad debt over the past few years. His understanding of our business will be with particular knowledge of our billing and finance operations as well as important investor issues such as and [inaudible], price, revenues, and customer mix that Brad brings to this new job. Good luck Brad in your new responsibilities.

I'll start by reviewing our financial results in recent accomplishments. Then answer the most frequently asked questions about LabCorp.

I'd now like to introduce Brad Smith that has comments before we begin.

Before we begin I would like to point out there will be a replay of this conference call available via the telephone and Internet . Please refer our press release dated July 22nd for replay information. This morning the company filed an 8K. This included additional information on its business and operations. This information is also available on our web site. Analysts and investors are directed to this 8Kand our web site to review this supplemental information. Additionally, we refer you to our press release dated July 22nd for a reconciliation of EBITDA which is non-GAAP financial information discussed during this call.

I would like to point out any forward-looking statements made during this conference call are based upon current expectation and are subject to the change based upon various important factors that could affect the company's financial results. These factors are set forth in detail in our 2003 10K and subsequent filings.

Thanks, Brad. Our second quarter results are as follows: Earnings per diluted share increased approximately 17% to 70 cents. EBITDA was $210.8 million, or 26.9% of revenue which respects a 12.5% increase over second quarter '03. Cash flow from operations continued to be strong. Increasing 19% to $146.7 million. Revenues increased 5.5% to 784.3 million. Volume increased approximately 5% and price increased .5%. DSO for the quarter was 52 days. During the quarter we lowered our rate to .5% to 6.25% and in connect with our $250 million share repurchase program we repurchased approximately $115 million of LabCorp stock during the quarter, representing approximately 2.9 million shares.

Now, for six month results. Earnings per diluted share increased approximately 18.2% to $1.30. EBITDA was 401.9 million or 26.2% of revenues which represents a 13.8% increase over the first half of '03. Cash flow from operations continued to be very strong. Increasing 14% to $294.3 million. Revenues increased 5.6% to $1,536.8 million driven primarily by an increase in volume. During the first six months we repurchased approximately $182 million worth of LabCorp stock representing approximately 4.6 million shares and at the end of the first half of this year our cash balance was $182 million.

I hope you all agree these results superb and clearly demonstrate that the sound planning and execution of a focused strategy have consistently yielded outstanding financial results. By every measure, these results for the quarter were our best ever. Based on our strong performance during the first half of the year we are increasing our annual guidance for '04. I will provide more details regarding our [inaudible] guidance in a few moments.

Next, an update on your recent achievements in key initiatives. All of LabCorp's initiatives are designed to support our key strategic objective of furthering our scientific leadership and enhancing our financial performance. Cash generation, and long term growth for the company. First, [dianization]. Our program is expanding, the the [dianon] anatomical pathology model throughout LabCorp is on schedule. As I stated before most labs report clinical results in a highly standardized manner.

Anatomical results, however, are often reported in a wide variety of formats depending upon the individual pathologist. By incorporating into LabCorp the highly standardized [dianon] system for processing, diagnosing, and reporting anatomical pathology specimens. LabCorp introduce a more efficient, consistent, and physician friendly system for delivering anatomical results. During the past several months, two LabCorp sites were [diaonized]. The center for molecular biology and pathology and Research Triangle Park and our center for esoteric testing here in Burlington. Both conversion went very well.

Over the next three years we plan to aggressively continue [dianizing] LabCorp sites. This year we have two more conversions to [dianon] system plan. Dianization continues to redefine our LabCorp approach to anatomical pathology and helps position us as the clear and preferred provider in the field of cancer testing. Genomic and esoteric continue to be a very significant part of LabCorps business. During the second quarter, the rate of volume growth for genomic and esoteric tests as a group was more than double the rate of volume growth for the remainder of the company. Collectively all genomic and esoteric tests continue to increase as a percent of our overall revenue. They now represent about 31% of LabCorp total revenues but are even a greater contributor to our profit margin. Notably, existing tests such as human papaloma virus or HPV, and cystic fibrosis continue to increase in volume and as a result of the expanding adoption of standard of care guidelines for their use.

These tests now respect a much higher percentage of our total genomic test volumes than they did in prior periods. In addition to continue growth and existing tests new genomic and esoteric testing opportunities remain numerous and will continue to play a more important role in LabCorp's future success.

Our objective with this portion of our growth strategy is to continue developing licensing opportunities with leading research and development companies that possess diagnostic technologies offering the most potential benefit to physicians and their patients, and in turn further our scientific leadership. We continue to work on many exciting opportunities that will be the foundation of our future success. We believe our past and future success in this area is built upon, one our depth of experience in helping to bring new test to market, two, the value that our national infrastructure presents to potential licenseers, and three, our industry leading scientific team which makes us the partner of choice.

Through our agreement with Correlogic Systems we continue to actively prepare for the introduction of OvaCheck. There currently is no accurate blood test available to detect early stage ovarian cancer. A few months ago the size and scope of our test validation process was expanded to include testing on additional samples. We have substantially completed this process and remain highly enthusiastic about the medical value of this test which will be offered for women in the United States at high risk for ovarian cancer.

We also continue to be actively involved with the food and drug administration regarding the broader issue of new tests and specific issue of how and when we plan to offer OvaCheck. Our relationship with the FDA on this issue continues to be very open and very positive. We have met with the FDA and are continuing to provide them with the information they need to better understand the important new test to address a significant unmet medical need.

This past March through our inclusive relationship with BioPredictive we began offering their noninvasive blood test for liver fibrosis under LabCorp brand name of HCV Fibrosure. HCV Fibrosure further expands our extensive menu of tests for HCV. Since the introduction demand for Fibrosure has increased monthly. Pregem plus launched last August, again at steady increase in volumes during the quarter. Our efforts continue to be focused upon expanding reimbursement by payers and getting the test included in standard of care guidelines. Both of which are key to broad adoption for the test.

Lastly, LabCorp has multiple initiatives in place to expand profitable opportunities with manage care. As we have discussed during recent calls, we have been working with major manage care organizations to develop new relationships that help us to grow our business in this important market segment. I am happy to be able to announce that we have signed an agreement with Well Point Health Network to be its national strategic partner for laboratory, diagnostic and scientific services for all well point products in all markets.

This agreement offers us the opportunity to provide our testing services to Well Point member companies nationwide on a broader scale and in a manner that provides LabCorp an opportunity to significantly increase its business with Well Point. We are very excited about the potential this new agreement provides and although it is too early to provide any specific guidance concerning its ultimate financial impact it has the potential to be one of our most significant manage care relationships ever.

Now I had alike to review a few frequently asked questions and our specific answers to those questions. What makes our pricing for the quarter? Modest rate increases offset by shifts in our payer and test mix, including continued growth in highly profitable HPV and cystic fibrosis testing make up the pricing in the quarter. On a corporate basis, HPV and cystic fibrosis are still driving better pricing and more profitable business. Although LabCorp continues its long standing focus on rational pricing practices and remains highly disciplined in this area, our pricing expectations for this year continue to incorporate very modest price increases. Longer term, however, we do expect a return to higher levels of price growth as our pricing and newer higher value testing initiatives continue to be implemented.

Is it getting more difficult to compete? We do not see any meaningful change until the competitive landscape compared to the last year including activity by smaller regional labs. Regional laboratories have always been a major part of the competitive landscape, and they will continue to be so. This has always been a highly competitive industry. As we stated before we have the quality, test menu, tools, resources and management focus to effectively address these competitors and do not see them as long term threats to the successful execution of our strategic plan.

How are the new pods effecting your business? Pods are jointed ventures that are structured to enable referring physicians to bill for pathology referrals that they would otherwise be prohibited from billing. We feel strongly that this is an unfair business practice that these pods are employing. We are leading the effort to close the regulatory and legal loopholes that they are attempting to exploit. We are encourage by the public report by the office of inspector general is looking into these practices and fully inspect other legislators regulatory an law enforcement agencies to join in the efforts to stop these unfair arrangements.

What are your expectations regarding the possible of the [inaudible] of the lions convertible bonds in September? We are focused on making sure that we are prepared for any potential put of the lions, including having sufficient financial resources available should it be necessary. Since bondholder are likely to be influenced by market conditions at the time of the put, we cannot predict the likelihood of the put yet, we will, however, be fully prepared to meet our obligations should it be necessary.

Do you think there are appropriate acquisition opportunities available to you to augment you for growth? Yes, there are. There are plenty of opportunities out there and we continue to evaluate potential acquisitions of routine esoteric and anatomic labs. LabCorp has consistently demonstrated its ability to extract significant synergy saving from its acquisition and we will continue to seek appropriate candidates.

How do you plan to use your cash? We plan to spend approximately 90 to $100 million in capital expenditures to support our plan. We expect to spend approximately 50 to $60 million in total during the year to make small acquisitions. We intend to continue executing our $250 million stock repurchase program. Lastly, we remain flexible in utilizing our remaining cash, particularly as we approach a potential convert put in September.

What is your guidance for '04? For 2004, our updated guidance is as follows. Compared to 2003, LabCorp expects 2004 revenue growth of approximately 5 to 7%, including end year revenues of 25 to $35 million from small acquisitions and/or new contracts. We expect EBITDA margin of approximately 25.5% of revenues. Diluted earnings per share in the range of $2.55 to $2.60 as compared to the current Thomson first call average of $2.51. We expect capital expenditures of approximately 90 to $100 million and free cash flow net of capital expenditures of approximately 475 to $500 million. We also expect net interest expense of approximately $36 million. Tax rate of approximately 41% and a bad debt rate of 6.25% of sales for the remainder of the year. Note this guidance does not include any additional share repurchase plan after June 30 and possible significant contributions from new tests.

In summary LabCorp continues to deliver on its goal of leading the industry in terms of scientific expertise, profitability and cash generation. We have repeatedly demonstrated our ability to consistently manage both the revenues and expenses for optimal performance, and with improving volumes more stable pricing, better capacity utilization, improving test mix and acquisition related synergies, we continue to expect strong earnings per share growth and exceptional cash flow. Thank you for listening.

We are prepared to answer any questions you may have. Melissa cow turn on the questions.

Melissa.

Hello.

Sorry about that. Thank you. Ladies and gentlemen if you would like to register for a question please press the one followed by the four on your telephone. You will here a three tone prompt to acknowledge your request. If your question has been answered, and you wish to withdraw your registration, please press the one followed by the three. If you are using a speakerphone please lift the handset before entering your request. One moment please for the first question.

First question comes from the line of Bill Bonello, Wachovia Securities. Please proceed with your question.

Hey guys, good morning. Couple of questions here. Pretty exciting news on the Well Point front. Can you tell us a little bit more about what it means to be a national strategic partner, is this an inclusive relationship, if not, are there other national strategic partners, when does it go into effect, that sort of thing?

I can tell you a little bit about it, Bill. I am not going to get much beyond what I've already talked about. Number one, it is national, which means that all of the Well Point groups around the country effective immediately have access to the LabCorp system. We have not historically been a major customer of Well Point. To the best of my knowledge, it is not an inclusive in the regard that we are the only lab partner but it is an ad-on for LabCorp that we now have access to all of the Well Point markets. It is a combination capitation and heavily oriented fee for service contract.

And in terms of a partnership, I do believe well be the only lab working with Well Point in the area of development and assisting them in introducing new technologies that they believe will have an impact in their system. We have spent extensive amount of time discussing these kinds of things with Well Point and they are very eager to adopt new technologies into their system that they believe can have a profound impact on both patient care and the overall cost of healthcare in the United States. So that's why we are calling it a partnership. We have given them certain rights related to technologies in order to help them introduce it also on a noninclusive basis.

By technologies do you mean diagnostic technologies or systems kinds of things, what?

Technologies that we are working on that they are interested in.

You won't give anymore color than that.

That's all I can give now. Diagnostic technologies if that's what you are talking about.

I am trying to understand if they are testing technologies or billing and processing related.

Both. Both. They are interested in some of our management of data and they are interested in some of the new technologies that will result in diagnostic test. They are interested in introducing those with us.

Perfect that's helpful. Can you just remind us -- this is a real simple question. Bad debt expenses is that reflected in SG&A?

Yes.

What drove the gross margin expansion in the quarter?

A lot of that, Bill, is driven by our call space. The call space is down period over period. I think we demonstrated in the last few quarters that we continue to grow that gross margin line but it is primarily by the call space.

Basically economy of sales?

Yes if you look at our calls per session it is down what we consider to be significant decrease in our calls per session in that category.

That makes sense. And then just a final question.

You continue to see some erosion of the PPA on the genomic business, wonder if you have any thoughts on what is driving that and when we might start to see that reverse or stabilize?

I think what is driving it is some of our big tests. I think I may have mentioned this in the first quarter conference call some of the older test like HIV. We are seeing significant competition from people all over the United States as that test now has become more widely available through different types of format. That's one thing.

Secondly, the cystic fibrosis test, I think we talked about in the first quarter, we did see some pricing degradation in that test. And that test also is now becoming available through different formats into the institutional market. In in terms of going forward, Bill, I would hope, but this is a forward-looking statements I would hope we would see that continue to modify as the year goes on.

Okay. Great thank you very much.

Thank you.

Our next question comes from the line of Tom Gallucci of Merrill Lynch. Please proceed with your question.

Thank you very much. Congratulation to Pam as well. Tom could you just repeat the EPS guidance you mentioned at the end there. It doesn't include new share repurchase programs is that what you said.

New share repurchase programs I think I said Tom and the other was any new products that are not on the market now.

Okay. And then in terms of the lions I guess you mentioned your preparing for financial flexibility in case there is anything put back to you. If I remember correctly and maybe Wes you could just remind us, is there some type of a trigger where you could actually increase the accretion of the principal there to prevent the bonds getting put back to you, and, if so, what kind of EPS impact could that have, and is that in the numbers?

That is not in the numbers there is nothing in the guidance related to the transaction related to the put, Tom. We've not built anything in the guidance related to that. There is a feature in the convert, called the contingent accretion figure, which is a matrix based on whatever the stock price is at the time and subordinated debt rate if the potential exists for the accretion rate for a two-year period from 911 '04 to 911 '06 could potentially go up for a two-year period but currently where the stock is trading, that contingent accretion table does not come into play.

Great. And then finally I guess I was wondering if you could update us on the acquisition landscape and what you are seeing there. I know you made a smaller one last quarter. How much are we into that 50 to $60 million that you expect to spend and how many acquisition opportunities do you see out there today?

We see them out there, Tom, and again, it is tough to predict what the future holds. But, they are out there. We evaluate them. And we stick to kind of our guidelines, so I really can't predict what we'll do in terms of acquisitions, if any, for the remainder of the year other than to say we're active and now with Pam moving into that area we'll probably be more active because you know her well.

Thank you very much.

Ladies and gentlemen, again as a reminder to register for a question please press the one four on your telephone. Next question comes from the line of Robert Willoughby of Bank of America Security. Please proceed with your question.

Thank you. Tom I was going to ask if I was in the running for the IR job but I think you answered that one.

Do you want me to comment on that, or we just leave it alone.

I think you better let that one slide. We know Well Point to be a champion of pushing drug cost back to consumers but you are saying they want to take a more proactive role in, I guess, helping you commercialize some of the clinical diagnostic technologies, it seems a bit of a disconnect to me are you going to be discounting some of the gene based testing things that you do.

It is here to say in my judgment in the conversations that I've had with Well Point for a considerable period of time. They are very interested in the role that diagnostics will have in helping to reduce the overall cost of healthcare. They are interested in looking at tests in a preventive method so it can reduce the overall cost of healthcare at the back end. And that's about all I really can say.

You said it is effective immediately, are there tests that on the gene based side that they have been a leader on where some players might not be supportive.

The actual agreement I can't talk about anymore than I have, Bob. But the agreement is in place immediately.

Okay thank you. Next question comes from the line of David Lewis of Thomas Weisel and Partners. Please proceed with your question.

Good morning. Tom, hate to keep on harping on Well Point, but obviously a very significant agreement. You mentioned that, that contract getting some benefit from it but obviously not to the magnitude or this extent. Is there certain regions of the country, Tom, that you are more excited about than others, potentially your assets you picked up in California, was that a driver of this contract, and are there certain key regions that your are very excited about, or is it the whole country that you see additional opportunities?

I am certainly excited about all of the areas, Dave, that Well Point operates in. They certainly are strong in California, they're certainly strong in certain parts of the southeastern part of the United States. They're areas that we like to solidify, the area of the southeaster part of the United States which is an area we are strong in, and we also are looking for ways to expand in California. So the two areas that you mentioned are obviously areas of great interest to LabCorp.

Tom is there any talk on this contract about improving compliance for Well Point, and specific numbers they may have thrown around in terms of targets that you two are working on together?

I have probably already gone too far in describing anything with Well Point I am going to have to back off of that. I appreciate your asking.

We'll move on. Tom, in terms of your novel testing, it sounds like on the short-term period that you are seeing some [inaudible] in certain tests. Those tests have a lower price point than some of the historical tests. Can you just talk about what you would define as the top three tests, whether they are HPV or lipid testing, certain trends you're seeing and how you think those trends will bode in the future?

Well, that's a tough one, Dave, only because who knows what the future really holds. But in terms of top tests at LabCorp these days, they're HPV I think of that as a test that offers enormous potential. There's cystic fibrosis which I think continues to offer enormous potential and then there are some tests that we've all debated about that weren't yet on the market that we think offer large potential.

My only comment on this is that the industry is doing a much better job than they ever have before in demonstrating the cost benefit of these new kinds of tests. If we continue to demonstrate cost benefit of these tests, I think we'll be able to continue to obtain good pricing increases. Now, having said that, I think it is fair to say that if the four to six year period of these tests as the invetro diagnostic manufacturers make them available on more wide spread basis there will be pricing erosion of these tests. It is natural if there are many different people out there selling a test that price comes into play more than it has. The whole trick in this situations to get more tests out there that we have a more limited distribution system for and get appropriate pricing for those tests and recognize that down the road there's going to be more pricing competition. In pricing degradation, we're not seeing huge pricing degradation, but we are seeing some pricing degredations of these test in the 10 to 15% area.

Okay, and lastly Tom, you talked about a couple of contracts you are very excited about or agreements on the first quarter. We since seen a very significant Swedish Hospital agreement as well as the Well Point agreement. Were these the two most significant agreements you are referring to, or should we still expect a couple rabbits up in your hat?

I think contrary David to popular believe there's been a lot of reference out there to a contract that LabCorp was bidding on in the Midwest. The one that I was refer to was Well Point, and the one that we spent a considerable amount of effort as a team for the company was Well Point. I don't have any other significant contract in mind right now.

Thank you very much.

Thank you.

Next question comes from the line of Kevin Berg of Credit Suisse First Boston. Please proceed with your question.

Follow up on that pricing degradation of 10 to 15%. Over what time frame and, specifically what test were you talking about there?

Well, Kevin, I was giving a theoretical model, in basically saying that I think some of the genomic tests over four to six year period we have begun to see pricing degradation in that scope from some of the tests that have been out there a long time and those kinds of tests that have been out a long time have been HIV and HCV and those kinds of test. They're the old genomic tests in my mind. They are the ones, when we all started talking about our genomic businesses in '96, '97, and '98, they are the first once we are introducing. That's the kind of pricing degradation we've seen at LabCorp from those kinds of test.

In terms of volume increases, I mean clearly ahead of the market, what do you attribute that to, and, I guess, also what, in your view, what is the market growing at, I know it is difficult data to come by, but sort of what are you thinking and what do you think about longer term market growth and your growth on the volume side?

Well I'll answer the second question first. We've always thought this market is growing in the 2 to 3.5% range that's kind of the numbers, I think, that I've been putting out there. I'd like to think, I like to think the reason that we're out pacing the market in terms of growth is our strategy. We spend a long time and trained a sales force to be able to discuss the features of LabCorp's offering, which is both a national distribution system for routine tests as well as a genomic strategy and I think finally as we talked about a long time ago, LabCorp was never very strong in the late '90s in the whole manage care area so as we get more manage care business, we're growing from a smaller base than say some other companies. I think that's really why we have the opportunity to grow at the volume levels we're growing at.

Thank you very much.

Our next question comes from the line of Ricky Goldwasser of UBS. Please proceed with your question.

Yeah, Hi. Good morning.

Good morning Ricky.

On the Well Point agreement, Tom, you mentioned it is too early to provide guidance impact in the first quarter you mentioned that about 25 do 35 million of revenue guidance is going to be from small acquisitions or new contracts so did that effect Well Point already included in the guidance or do you expect any upside from that to your guidance.

Two questions one is Well Point is not included in our guidance. So we did not -- although we were hopeful that we would sign this contract, we did not include that in our guidance.

Two, is I don't expect any upside guidance as it relates to Well Point but I am hopeful that well have some incremental volume increases in Well Point in the second half of the year. I think it is has been publicly announced and actually written about that LabCorp did lose a capitated, -- 100% capitated contract in the state of Florida. So I do expect that our volumes will be impacted negatively by that loss of that capitated contract. And I am hopeful that we get some benefit from some of the newer things I've talked about today to offset that contract. So while we were clearly disappointed that we lost the contract in Florida, we were -- we believe the Well Point opportunity presents an opposite way for us to resolve that issue.

So the 25 to 35 million in guidance was -- is related to other things such as small acquisitions?

Exactly.

Okay. Now on the other opportunities, specifically on OvaCheck, because that's exciting test, right now what is holding up the introduction, do you need to do more internal validations or are you just waiting for the FDA to give you the green light?

I'd like to say -- I'd like to say I could talk about this at length but I really can't. We are very satisfied with our validation. So obviously the issue relates to conversations that our partner is having with the food and drug administration and as I've said continually, I think these are positive conversation and they're conversations related to in my mind how best to determine -- how we can all may this product available.

What do you expect to be the lead time once we get news on the FDA front in terms of how fast it can be introducing the test?

Probably -- we could make that test available within a month.

Okay. Great. Thanks.

Thank you.

Our next question comes from the line of Kemp Dolliver of SG Cowen and Company. Please proceed with your question.

Great, thank you. First on Well Point, did you already have an agreement with Anthem or does this agreement cover the combined company?

Anthem is a large customer of LabCorp's, Kemp. Larger customers.

Great.

Currently.

And with your 25, $35 million from acquisitions and new contracts how significant a portion of that comes from the purchase of the MDS assets?

We pretty much can -- we pretty much can achieve those 20 to 30 million if we were able to retain all the customers from that deal, Kemp.

That's great, thank you.

Have a good day.

Our next question comes from the line of Abe Franks from Francina Capital, please proceed with your question.

Good morning everybody.

Hi, Abe.

Congratulations.

Thank you.

With respect to the balance sheet, Tom, if the convert is put could you give us an idea of how you would plan to manage the balance sheet going forward. Would you expect to issue another convertible or straight debt and at current size of the company, what level of dead would you folks be comfortable having on the balance sheet?

Well, I think it is hard for us, Abe, at this point in time to let out our financial strategy as it relates to the put. What I can say is we are more than comfortable with the structure of the current balance sheet and that we are well prepared, as I am sure you know, to deal with the put if that were to occur. All the advise that we've received from all the experts would suggest that we're really not going to understand what's going to happen with this situation until well into the end of the summer and into early September. I think once we get there and once we deal with it or don't deal with it we'll be able to articulate better our strategy moving forward from managing a balance sheet but I think it is safe to say, you know, that we're quite comfortable with some of you think we're too conservative in terms of the way we're managing the balance sheet, so, we'll just keep you posted as we move that. I really don't want to get into a financial strategic discussion right now.

Did you mean to imply that you have completely suspend stock by back until you see what happens with that put?

I'm not going to comment on that. I don't know what I said to draw that conclusion. We have a goal of completing our $250 million share repurchase plan that's what we set out for this year to do.

Thank you very much.

Our next question comes from the line of Benner Ulrich of UBS. Please proceed with your question.

Good morning. Just a quick question. I am not sure if you talked about it. I missed part of the call. Did you give any clarity on what the pregem plus volumes look like in the quarter relative to the first quarter and how reimbursement was working out?

Benner, we saw -- steady is the word I used. Steady increase. It was up quite a bit in the second quarter. We continue to feel that as you just mentioned, key to this is getting published papers out there and guidelines so we can get reimbursement. I think our partner in concert with advise we're giving to them is moving along and we've always said from the time we launched the product, which was last August, it would take a couple years to get where we want it to be and I am hopeful that next year at this time or in the summer of next year we'll be able to see that we've made the kind of progress that we want to make related to some guidelines and published papers and guidelines and hopefully that will significantly help the reimbursement activity of this product.

Thanks a lot, Tom, great quarter.

Thank you.

Next question Bill Bonello of Wachovia Securities. Please proceed with your question.

One more follow up on the lions. I'm under the impression that in order for there to be any concern at all about the contingent interest payment the stock would have to be at a considerability lower level than it is today is that an accurate interpretation?

Everybody has their own interpretation of this, Bill, but -- Are you talking about contingent accretion feature, Bill.

Exactly.

It would have to be at levels below where it is today for that to kick it.

And probably significantly below, wouldn't it.

I don't have that in front of me. I think it is the high 20's or 30 or something like that.

Perfect, thank you.

Our next question comes from the line of Leon Cooperman of Omega Advisory. Please proceed with your question.

Good morning, congratulations on very nice numbers. Maybe this is too technical, but I am not really focused on this lions, but as I understand it, on September 11 of '04 they could put it back to you at 71, 297, $744 million space amount, or essentially you would have to come up with 530 million?

That is correct.

What is the imputed interest cost in our income statement for this money.

It is currently being booked at 2% per year, $10 million a year.

2% per year. Okay.

Basically what is the conversion price? What is the convertible into equity at, at what price?

I think it was -- I don't have that in front of me.

We'll get back tow on the details of that. We didn't bring all --

Because if two years after that in 2006 you could call it. Right.

That is correct.

Okay. If somebody can come back to me offline, to the extent you are basically buying back stock you are making a statement your stock is under valued, so I guess the real question is maybe you would the other guy putting it to you and taking it out for cash which effectively is retiring potentially contingent issuable shares. So it would be helpful to me, and not to take time on the call, is to understand, you know, what is the conversion price if you wound talking that for cash, effectively what did you pay for stock you bought back and two years later when you can call it what would be the effective price of buying back stock.

Secondly, I assume given the fact that the bank does $2 million, you must have unused bank lines? Do we not?

Yes, we do.

What is our bank line?

We have available $300 million.

Between cash and bank line this is chopped liver, this is not a liver.

I am not a big chopped liver plan. We're going to have Brad Hayes our new head of Investor Relations get back to you.

Congratulations, you are doing a terrific job for the shareholders.

We are going to take two more questions if there are any questions.

Yes, there are sir. Comes from the of John Szabo, CIBC World Markets. Please proceed with your question.

Thanks, good morning.

Good morning, John.

Not to beat a dead horse. One last question on the Well Point. You know, I know that Well Point has been -- was talked about publicly some frustration about the lack of best practice protocalls in the diagnostic area generally speaking, could you just discuss what capabilities you have that could help them develop those procalls.

To be honest with you, John, I am not familiar with what you are speaking about. The only thing I can say is the traditionally a company like LabCorp does provide data to the manage care plans, the large manage care plans that we work with clearly helps them understand the kind of testing they're doing and the impact that the testing is having on patient care. And that is an area of interest to Well Point.

Was that a significant part of -- was that a significant driver in decision to move forward with this agreement?

I can't say that. I think its fair to say that we think at LabCorp we have a quality offering and they were interested in it.

And then one other question on that. Do you have an idea, approximately, what your market share is at Anthem and is there any reason to think that your market share at Well Point, you know, couldn't get to that same level?

I am not -- I know both of those questions -- I know the answers to both of those questions but unfortunately we're really in a highly competitive situation here that I choose not to disclose that. I hope that our Well Point opportunity will increase to our Anthem levels, yes.

Okay. Fair enough. Thanks.

Thanks John. Last question. If there are any.

Last question comes from the line of Michael McGuire of Leary Salon. Please proceed with your question.

Thanks. Brief follow up to the question about the volume growth within the market and LabCorp specifically. Given you've indicated there is no significant change to the competitive landscape, just wanted to follow up and see really where the growth is coming from. I know you mentioned the opportunity within managed care penetration at LabCorp maybe is more robust than others is there anything else that could explain that divergence?

I think, Michael, if you look back at the the last, I may be incorrect on this -- if you look back over the last six to seven years and if you wipe out the acquisitions that LabCorp has done I think you will see a consistent pattern over that period of time of volume growth in the four to 5, 5.5% range.

In the old days what I used to say and I think there is probably still some accuracy to it is that comes from luck of the draw. We are located with a lot of our business in the deep south and people migrating to the south so we do have some opportunities maybe that others don't because a significant part of our business is in places where people are moving, North Carolina, South Carolina, Florida, Texas, Arizona, southern California, they're the main stays of LabCorp, the pacific northwest they are the main stays of LabCorp and we see older people going there. We think we can still do a better job with manage care than we have done. We continue to grow there nicely. Clearly, I don't know how this compares to competitors, I only know how it exists at LabCorp, we've grown very nicely, the whole genomic and esoteric business and I know that strategy I am almost -- people are probably tired of hearing me talk about that strategy -- but the reality is that strategy not only gross the genomic business but it gives us opportunities to talk to clinicians about who LabCorp is. So we think it is a way also, to grow our core business. So, that's kind of what our strategy has been and its -- it is not very creative lately because we've been talking about the strategy for six or seven years but we think the real growth from that strategy lies ahead of us.

Thank you very much.

Thank you. And I appreciate your all listening to LabCorp's call and have a great day.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines and have a great week.