Glenn Eisenberg: Yeah, Erin, a couple of comments too as well that demand utilization is positive and frankly, we’re kind of at the higher end right now when you look at it year-over-year. When with the guide of, call it again, midpoint of around 4% for Diagnostics, kind of organically next year, our normal historical call it two-thirds volume, one-third price mix is probably a good indication which still speaks to the fact that volume levels are up nicely. When you compare them to pre-pandemic levels, we’re within the normal range where historically we would say kind of 1% to 2% from volume, one on the price side. We’re within that 1% to 2% growth rate now, cater organically compared to 2019, kind of on the lower end, but well north of kind of 1% growth.
So, we’re at kind of a normal level right now, a little bit higher expected than historical and the weather impact that we saw in January, to give you kind of the rounded numbers, probably impacted our revenue by around $25 million and we incrementally, the drop down on that would be at around 60% margin. So call it around 15%-ish of operating income or that $0.10 to $0.15 range that we gave in our prepared remarks from an earnings manager standpoint.
Erin Wright: Perfect. Thanks and just your quick thoughts on sort of the regulatory environment as it stands now, whether it’s LBT, PAMA and SALSA. Do you think PAMA just continues to be pushed out at this point? What are your thoughts there? Thanks.
Adam Schechter: Yeah. So, Erin, we continue to support SALSA, and we continue to be optimistic that SALSA will get passed. We have support from both sides of the aisle, and ACLA, our trade organization, is working really hard to get that legislation passed. If it doesn’t get passed, then we’ll try to see if there’s a way to get another year’s delay. In our guidance, longer term guidance, we assume that there will be an impact from PAMA. So therefore, we continue to say, if it’s not this year, it’ll be next year. If it’s not next year, it’ll be the following year. Until the SALSA legislation is passed, then, I’m not going to take a lot of comfort that it could be another year delay or so forth. We’re going to really work hard to have that passed.
With regard to LBTs, we do not support the FDA’s kind of what they’re currently thinking about in terms of taking legislation that was created for the device industry and applying it to the diagnostic industry. We were very supportive of that, and that was legislation that would give FDA oversight of laboratory-developed tests. We think that’s the right path to go. We’ll continue to work with the trade organization to see if we can make progress there, but we think legislation that is fit for purpose for the diagnostic industry is the right path forward.
Operator: Our next question comes from Stephanie Davis with Barclays. Your line is open.
Stephanie Davis: Good morning. Congrats on the quarter. Thanks for taking my question. I was hoping you could walk us through what’s driving some of your diagnostics market growth being so above market, especially on the EPS side, because I’ve historically attributed some of your above-market growth to the extension deal, but I also thought about the lower margin profile. So I guess I’m a little surprised at this level of profitability bifurcation versus your largest peer.
Adam Schechter: Yeah, so what I would say, Stephanie is, number one, we have momentum in the diagnostics business and the momentum is coming from our base core business. We see it in both routine and esoteric testing. We have four therapeutic categories that we focus on that have higher growth in other specialty areas and we’re going to continue to focus on those areas, oncology, women’s health, autoimmune disease, and neurology and I believe that those are going to help us continue to grow because those parts of the market should grow disproportionately as we continue to go into the future. At the same time, there’s no doubt that the acceleration of the hospital and local laboratory partnerships has enabled us to grow faster than what we’ve grown in the past and the good news is we have a strong pipeline of those as we go into the future.
That’s why we’ve raised the longer-term guidance for inorganic growth to 1.5% to 2.5%. Historically, we would have said 1% to 2%. So I think all those things combined give us momentum when it comes to the diagnostic volume.
Stephanie Davis: I understand. Looking forward to it and changing gears a little bit for the follow-up, could you dig a bit more into the Ovia announcement? How much of that was driven by inbounds from your existing employer clients versus the decision to expand into the market? And what does this mean in terms of investment lists in employer-facing sales or platform tech investments and the like?
Adam Schechter: Yes. So if you look at what we’ve done with Ovia, we think it’s a terrific way for us to have a digital capability in a very important core therapeutic area that we’re focused on, women’s health. And it really is what they’ve offered a first of its kind fertility family building benefit that we will be bringing to customers. The service offers care navigation and concierge services that helps individuals throughout their family building journey. And, we can offer it directly to patients if they like. We can offer it to employers. We have a very strong employer group, Laboratory Employer Services and this is just one of many offerings that we’re going to be bringing to the marketplace, but because women’s health is so important and because we are so focused on it, this is just another avenue for us to help in the women’s health arena.
Operator: Our next question comes from Patrick Donnelly with Citi. Your line is open.
Patrick Donnelly: Thanks for taking the question. Maybe on the biopharma booking side, the book-to-bill picked up a little bit from last quarter. I know last quarter you guys were flagging, maybe some elevated cancellations and on the emerging biotech side. Can you just kind of let us know what the environment looks like now? How you’re feeling about that backdrop? Again, just given a little bit of volatility there and we’ve seen some biotech IPOs trickle out. How are you feeling about the backdrop and how should we think about bookings this year?
Adam Schechter: Yeah, absolutely and I’ll start broadly about our biopharma business and then I’ll talk about the individual segments as well. So broadly, we had a good quarter of $1.26 billion, which we said in third quarter we expected the fourth quarter to be improved and obviously it was improved. If you look at our trailing 12 months, it’s about $1.04 billion and we believe that that’s — you want to be around $1.05 billion to $1.1 billion and $1.1 billion is typically what we’re targeting. I feel confident we’ll be able to get there as we go through this year. We dropped off a really strong quarter in the fourth quarter of 2022. If I break apart the businesses and we start with a much larger business, which is the Central Laboratory business.
Our RFPs are very strong. Our book-to-bill is very strong. Our win rate is very strong. We’re not seeing as many cancellations as we’re seeing in the other part of business because it’s focused more on larger pharma. Although there are some cancellations there, there always are, it’s not nearly as large as what we’re seeing in early development. In early development, I feel comfortable as we go through 2024 because our RFPs coming into us are still very strong. Our win rate remains good. I feel good about where our win rate is. What’s happened there is, there’s been a lot of cancellations. I think there’s two reasons for that. One is I think with NHP pricing the way it was, some very small biotech companies that got in line just decided to say we’re just not going to do it now and then I also think that there are other pressures with smaller biotech companies that they’re going through financially.
As I look at this year, I feel good about both businesses and in early development, we’re actually even seeing a larger amount of our business come from large and middle-sized pharma versus early pharma or early biotech and I think as we kind of make that transition to get more and more larger pharma in early development, we’ll be able to even have a stronger book-to-bill moving forward, but net-net, I feel confident in both of the businesses, the ranges that we’ve provided and where we are today with the book-to-bills.
Glenn Eisenberg: Yeah, Patrick, just one other thing to think through as well. Again, we had a strong fourth quarter, which obviously is very encouraging, but it was still driven more on the Central Lab side. So while the orders and the RFPs and our win rates for even early development are doing well, it’s those cancellations that have impacted it. So as you think about the cadence too for next year, when you look at the biopharma, you expect to be kind of a second half-weighted year on the revenue growth. So both businesses, again, within that 5.5% to 7.5% growth, but because of those cancellations, we do expect to see early development growth rate be much stronger in the second half than the first. We’re on the Central Lab. Given the continued strength of its backlog, we expect that normal cadence of improvement each quarter as we go.
Patrick Donnelly: Okay. That’s helpful. And then just a couple quick ones on the P&L for ’24, Glenn, you talked a little bit about the diagnostics margins. Can you talk about what the COVID headwind is? I’m just trying to figure out maybe the core expansion versus the COVID headwind, if you have that and then just quickly, the interest expense expectations for the year and how you think about the debt load, addressing that at all during ’24. Thank you.
Glenn Eisenberg: Sure. Again, expect to see margins in both businesses that are up, but specifically in diagnostics. We do expect margins to be up in total diagnostics, albeit slightly up because of the impact, to your point, of COVID still being a headwind and the underlying base business margins doing well, but overall, we would say that we’re going to be down around $130 million due to COVID. From a margin standpoint, call it 20 basis points to 30 basis points of kind of headwind that we’re going to get. That, again, will be more than offset by the growth of the business and our Launchpad initiative. When you look at the interest expense, you can effectively take the run rate or where we ended the fourth quarter and kind of annualize that and then we do have around $1 billion of debt that’s due late in 2024.
So we’re on $600 million in September, another $400 million in December. So we’ll look to refinance it. The absolute debt levels that we have at that $5 billion, $5.1 billion, we expect to maintain. So we’ll just refinance it, obviously, slightly higher rates than what will be maturing. So if you wanted to add 10% to the annualized number on top of that to reflect the refinancings at the end of the year, that would be a decent ballpark to be in. And again, the debt load from where we stand, we’ll look for refinancing. We commented a little bit earlier that the leverage that we have as a company is still within our targeted range of kind of the 2.5 times to three times, but we’re at the lower end. So obviously, we could potentially use additional leverage, additional debt, as we see potential other opportunities to deploy capital above the billion plus free cash flow that we’ll generate this year, plus, we’re sitting on a little bit of excess cash.
Operator: Our next question comes from Brian Tanquilut with Jefferies. Your line is open.
