8-K
Quest Diagnostics Inc (DGX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): April 27, 2023
Quest Diagnostics Incorporated
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of incorporation)
| 001-12215 | 16-1387862 | |||
|---|---|---|---|---|
| (Commission File Number) | (I.R.S. Employer Identification No.) | |||
| 500 Plaza Drive | ||||
| Secaucus, | NJ | 07094 | ||
| (Address of principal executive offices) | (Zip Code) | |||
| (973) | 520-2700 | |||
| (Registrant's telephone number, including area code) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $0.01 Par Value | DGX | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition
On April 27, 2023, Quest Diagnostics Incorporated (the "Company") issued a press release announcing, among other things, its results for the quarter ended March 31, 2023. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.
Item 7.01. Regulation FD Disclosure
On April 27, 2023, the Company issued a press release announcing it entered into a definitive agreement to acquire Haystack Oncology, Inc., an early-stage oncology company focused on minimal residual disease (MRD) testing. A copy of the press release is attached hereto as Exhibit 99.2 and is incorporated by reference herein.
Item 9.01. Financial Statements and Exhibits
| d. | Exhibit | |
|---|---|---|
| 99.1 | Press release of Quest Diagnostics Incorporated dated April 27, 2023, announcing, among other things, its results for the quarter ended March 31, 2023. | |
| 99.2 | Press release of Quest Diagnostics Incorporated dated April 27, 2023, announcing it entered into a definitive agreement to acquire Haystack Oncology, Inc. | |
| 104 | The cover page from this current report on Form 8-K, formatted in Inline XBRL. |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
April 27, 2023
| QUEST DIAGNOSTICS INCORPORATED | |
|---|---|
| By: | /s/ William J. O'Shaughnessy, Jr. |
| William J. O'Shaughnessy, Jr. | |
| Deputy General Counsel and | |
| Corporate Secretary |
Document
Exhibit 99.1
Quest Diagnostics Reports First Quarter 2023 Financial Results;
Updates Guidance for Full Year 2023
•First quarter revenues of $2.33 billion, down 10.7% from 2022
•First quarter reported diluted earnings per share ("EPS") of $1.78, down 39.0% from 2022; and adjusted diluted EPS of $2.04, down 36.6% from 2022
•First quarter base business revenues of $2.21 billion, up 10.0% from 2022
•Full year 2023 revenues now expected to be between $8.93 billion and $9.08 billion; reported diluted EPS now expected to be between $7.52 and $8.02; and adjusted diluted EPS expected to be between $8.45 and $8.95
SECAUCUS, N.J., April 27, 2023 - Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic information services, announced today financial results for the first quarter ended March 31, 2023.
"In the first quarter we delivered double digit year-over-year revenue growth in our base business, driven by strong performance across our physician and hospital customers," said Jim Davis, Chairman, CEO and President. "We are excited about our announced acquisition of Haystack Oncology, which supports our molecular genomics and oncology strategy in the fast growing category of minimal residual disease testing."
Mr. Davis continued: "Our updated guidance reflects continued strong performance in our base business, offset by faster than expected declines in COVID-19 revenues and modest dilution from our planned acquisition of Haystack."
| Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change | ||||||
| (dollars in millions, except per share data) | ||||||||
| Reported: | ||||||||
| Net revenues | $ | 2,331 | $ | 2,611 | (10.7) | % | ||
| Base business revenues (a) | $ | 2,212 | $ | 2,012 | 10.0 | % | ||
| COVID-19 testing revenues | $ | 119 | $ | 599 | (80.2) | % | ||
| Diagnostic Information Services revenues | $ | 2,259 | $ | 2,541 | (11.1) | % | ||
| Revenue per requisition | (7.7) | % | ||||||
| Requisition volume | (3.8) | % | ||||||
| Organic requisition volume | (3.9) | % | ||||||
| Operating income (b) | $ | 305 | $ | 513 | (40.6) | % | ||
| Operating income as a percentage of net revenues (b) | 13.1 | % | 19.7 | % | (6.6) | % | ||
| Net income attributable to Quest Diagnostics (b) | $ | 202 | $ | 355 | (43.0) | % | ||
| Diluted EPS (b) | $ | 1.78 | $ | 2.92 | (39.0) | % | ||
| Cash provided by operations | $ | 94 | $ | 480 | (80.5) | % | ||
| Capital expenditures | $ | 127 | $ | 63 | 101.3 | % | ||
| Adjusted (b): | ||||||||
| Operating income | $ | 350 | $ | 554 | (36.8) | % | ||
| Operating income as a percentage of net revenues | 15.0 | % | 21.2 | % | (6.2) | % | ||
| Net income attributable to Quest Diagnostics | $ | 232 | $ | 392 | (40.7) | % | ||
| Diluted EPS | $ | 2.04 | $ | 3.22 | (36.6) | % |
(a)Excludes COVID-19 testing.
(b)For further details impacting the year-over-year comparisons related to operating income, operating income as a percentage of net revenues, net income attributable to Quest Diagnostics, and diluted EPS, see note 2 of the financial tables attached below.
Updated Guidance for Full Year 2023
The company updates its Full Year 2023 guidance as follows:
| Updated Guidance | Prior Guidance | |
|---|---|---|
| Low | Low | |
| Net revenues | 8.93 billion | 8.83 billion |
| Net revenues decrease | (9.6)% | (10.7)% |
| Base business revenues (a) | 8.78 billion | 8.65 billion |
| Base business revenues increase | 4.2% | 2.6% |
| COVID-19 testing revenues | 150 million | 175 million |
| COVID-19 testing revenues decrease | (89.7)% | (88.0)% |
| Reported diluted EPS | 7.52 | 7.61 |
| Adjusted diluted EPS | 8.45 | 8.40 |
| Cash provided by operations | At least 1.3 billion | At least 1.3 billion |
| Capital expenditures | Approximately 400 million | Approximately 400 million |
All values are in US Dollars.
(a) Excludes COVID-19 testing
Note on Non-GAAP Financial Measures
As used in this press release the term “reported” refers to measures under accounting principles generally accepted in the United States (“GAAP”). The term “adjusted” refers to non-GAAP operating performance measures that exclude special items such as restructuring and integration charges, amortization expense, excess tax benefits ("ETB") associated with stock-based compensation, costs associated with donations, contributions, and other financial support through Quest for Health Equity (our initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities), gains and losses associated with changes in the carrying value of our strategic investments, and other items.
Non-GAAP adjusted measures are presented because management believes those measures are useful adjuncts to GAAP results. Non-GAAP adjusted measures should not be considered as an alternative to the corresponding measures determined under GAAP. Management may use these non-GAAP measures to evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe that these non-GAAP measures are useful to investors and analysts to evaluate our performance period over period and relative to competitors, as well as to analyze the underlying trends in our business and to assess our performance. The additional tables attached below include reconciliations of non-GAAP adjusted measures to GAAP measures.
Conference Call Information
Quest Diagnostics will hold its quarterly conference call to discuss financial results beginning at 8:30 a.m. Eastern Time today. The conference call can be accessed by dialing 888-455-0391 within the U.S. and Canada, or 773-756-0467 internationally, passcode: 7895081; or via live webcast on our website at www.QuestDiagnostics.com/investor. We suggest participants dial in approximately 10 minutes before the call.
A replay of the call may be accessed online at www.QuestDiagnostics.com/investor or, from approximately 10:30 a.m. Eastern Time on April 27, 2023 until midnight Eastern Time on May 11, 2023, by phone at 866-363-1835 for domestic callers or 203-369-0200 for international callers. Anyone listening to the call is encouraged to read our periodic reports, on file with the Securities and Exchange Commission, including the discussion of risk factors and historical results of operations and financial condition in those reports.
About Quest Diagnostics
Quest Diagnostics empowers people to take action to improve health outcomes. Derived from the world’s largest database of clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and
improve health care management. Quest annually serves one in three adult Americans and half the physicians and hospitals in the United States, and our nearly 50,000 employees understand that, in the right hands and with the right context, our diagnostic insights can inspire actions that transform lives. www.QuestDiagnostics.com.
Forward Looking Statements
The statements in this press release which are not historical facts may be forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that they are made and which reflect management’s current estimates, projections, expectations or beliefs and which involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the company include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, the complexity of billing, reimbursement and revenue recognition for clinical laboratory testing, changes in government regulations, changing relationships with customers, payers, suppliers or strategic partners and other factors discussed in the company's most recently filed Annual Report on Form 10-K and in any of the company's subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those discussed in the “Business,” “Risk Factors,” “Cautionary Factors that May Affect Future Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of those reports.
For further information: Denny Moynihan, Quest Diagnostics (Media): 973-520-2800, Shawn Bevec, Quest Diagnostics (Investors): 973-520-2900
This earnings release, including the attached financial tables, is available online in the Newsroom section at www.QuestDiagnostics.com.
ADDITIONAL TABLES FOLLOW
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 2023 and 2022
(in millions, except per share data)
(unaudited)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Net revenues | $ | 2,331 | $ | 2,611 |
| Operating costs and expenses and other operating income: | ||||
| Cost of services | 1,560 | 1,646 | ||
| Selling, general and administrative | 439 | 425 | ||
| Amortization of intangible assets | 26 | 27 | ||
| Other operating expense, net | 1 | — | ||
| Total operating costs and expenses, net | 2,026 | 2,098 | ||
| Operating income | 305 | 513 | ||
| Other income (expense): | ||||
| Interest expense, net | (35) | (37) | ||
| Other income (expense), net | 7 | (24) | ||
| Total non-operating expense, net | (28) | (61) | ||
| Income before income taxes and equity in earnings of equity method investees | 277 | 452 | ||
| Income tax expense | (65) | (110) | ||
| Equity in earnings of equity method investees, net of taxes | 5 | 31 | ||
| Net income | 217 | 373 | ||
| Less: Net income attributable to noncontrolling interests | 15 | 18 | ||
| Net income attributable to Quest Diagnostics | $ | 202 | $ | 355 |
| Earnings per share attributable to Quest Diagnostics’ common stockholders: | ||||
| Basic | $ | 1.80 | $ | 2.97 |
| Diluted | $ | 1.78 | $ | 2.92 |
| Weighted average common shares outstanding: | ||||
| Basic | 112 | 119 | ||
| Diluted | 113 | 121 |
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
March 31, 2023 and December 31, 2022
(in millions, except per share data)
(unaudited)
| March 31,<br>2023 | December 31,<br>2022 | |||
|---|---|---|---|---|
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 175 | $ | 315 |
| Accounts receivable, net | 1,254 | 1,195 | ||
| Inventories | 190 | 192 | ||
| Prepaid expenses and other current assets | 195 | 196 | ||
| Total current assets | 1,814 | 1,898 | ||
| Property, plant and equipment, net | 1,795 | 1,766 | ||
| Operating lease right-of-use assets | 589 | 585 | ||
| Goodwill | 7,241 | 7,220 | ||
| Intangible assets, net | 1,077 | 1,092 | ||
| Investments in equity method investees | 128 | 132 | ||
| Other assets | 150 | 144 | ||
| Total assets | $ | 12,794 | $ | 12,837 |
| Liabilities and Stockholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable and accrued expenses | $ | 1,198 | $ | 1,396 |
| Current portion of long-term debt | 2 | 2 | ||
| Current portion of long-term operating lease liabilities | 155 | 153 | ||
| Total current liabilities | 1,355 | 1,551 | ||
| Long-term debt | 3,975 | 3,978 | ||
| Long-term operating lease liabilities | 490 | 489 | ||
| Other liabilities | 809 | 812 | ||
| Redeemable noncontrolling interest | 77 | 77 | ||
| Stockholders’ equity: | ||||
| Quest Diagnostics stockholders’ equity: | ||||
| Common stock, par value $0.01 per share; 600 shares authorized as of both March 31, 2023 and December 31, 2022; 162 shares issued as of both March 31, 2023 and December 31, 2022 | 2 | 2 | ||
| Additional paid-in capital | 2,266 | 2,295 | ||
| Retained earnings | 8,412 | 8,290 | ||
| Accumulated other comprehensive loss | (18) | (21) | ||
| Treasury stock, at cost; 50 and 51 shares as of March 31, 2023 and December 31, 2022, respectively | (4,612) | (4,673) | ||
| Total Quest Diagnostics stockholders’ equity | 6,050 | 5,893 | ||
| Noncontrolling interests | 38 | 37 | ||
| Total stockholders’ equity | 6,088 | 5,930 | ||
| Total liabilities and stockholders’ equity | $ | 12,794 | $ | 12,837 |
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2023 and 2022
(in millions)
(unaudited)
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Cash flows from operating activities: | ||||
| Net income | $ | 217 | $ | 373 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 107 | 106 | ||
| Credit for credit losses | (1) | — | ||
| Deferred income tax benefit | (4) | (43) | ||
| Stock-based compensation expense | 24 | 18 | ||
| Other, net | 3 | 4 | ||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | (58) | 72 | ||
| Accounts payable and accrued expenses | (211) | (165) | ||
| Income taxes payable | 11 | 95 | ||
| Other assets and liabilities, net | 6 | 20 | ||
| Net cash provided by operating activities | 94 | 480 | ||
| Cash flows from investing activities: | ||||
| Business acquisitions, net of cash acquired | (31) | (105) | ||
| Capital expenditures | (127) | (63) | ||
| Increase in investments and other assets | — | (1) | ||
| Net cash used in investing activities | (158) | (169) | ||
| Cash flows from financing activities: | ||||
| Proceeds from borrowings | 140 | — | ||
| Repayments of debt | (140) | (1) | ||
| Purchases of treasury stock | — | (373) | ||
| Exercise of stock options | 25 | 10 | ||
| Employee payroll tax withholdings on stock issued under stock-based compensation plans | (28) | (27) | ||
| Dividends paid | (74) | (74) | ||
| Distributions to noncontrolling interest partners | (14) | (20) | ||
| Other financing activities, net | 15 | 14 | ||
| Net cash used in financing activities | (76) | (471) | ||
| Net change in cash and cash equivalents and restricted cash | (140) | (160) | ||
| Cash and cash equivalents and restricted cash, beginning of period | 315 | 872 | ||
| Cash and cash equivalents and restricted cash, end of period | $ | 175 | $ | 712 |
| Cash paid during the period for: | ||||
| Interest | $ | 32 | $ | 32 |
| Income taxes | $ | 33 | $ | 23 |
Notes to Financial Tables
1)The computation of basic and diluted earnings per common share is as follows:
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| (in millions, except per share data) | ||||
| Amounts attributable to Quest Diagnostics' common stockholders: | ||||
| Net income attributable to Quest Diagnostics | $ | 202 | $ | 355 |
| Less: earnings allocated to participating securities | 1 | 1 | ||
| Earnings available to Quest Diagnostics' common stockholders - basic and diluted | $ | 201 | $ | 354 |
| Weighted average common shares outstanding - basic | 112 | 119 | ||
| Effect of dilutive securities: | ||||
| Stock options and performance share units | 1 | 2 | ||
| Weighted average common shares outstanding - diluted | 113 | 121 | ||
| Earnings per share attributable to Quest Diagnostics' common stockholders: | ||||
| Basic | $ | 1.80 | $ | 2.97 |
| Diluted | $ | 1.78 | $ | 2.92 |
2)The following tables reconcile reported GAAP results to non-GAAP adjusted results:
| Three Months Ended March 31, 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in millions, except per share data) | ||||||||||||
| Operating income | Operating income as a percentage of net revenues | Income tax expense (d) | Equity in earnings of equity method investees, net of taxes | Net income attributable to Quest Diagnostics | Diluted EPS | |||||||
| As reported | $ | 305 | 13.1 | % | $ | (65) | $ | 5 | $ | 202 | $ | 1.78 |
| Restructuring and integration charges (a) | 19 | 0.8 | (5) | — | 14 | 0.12 | ||||||
| Gains and losses on investments (b) | — | — | (1) | 3 | 2 | 0.02 | ||||||
| Amortization expense | 26 | 1.1 | (7) | — | 19 | 0.17 | ||||||
| ETB | — | — | (5) | — | (5) | (0.05) | ||||||
| As adjusted | $ | 350 | 15.0 | % | $ | (83) | $ | 8 | $ | 232 | $ | 2.04 |
| Three Months Ended March 31, 2022 | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (dollars in millions, except per share data) | ||||||||||||
| Operating income | Operating income as a percentage of net revenues | Income tax expense (d) | Equity in earnings of equity method investees, net of taxes | Net income attributable to Quest Diagnostics | Diluted EPS | |||||||
| As reported | $ | 513 | 19.7 | % | $ | (110) | $ | 31 | $ | 355 | $ | 2.92 |
| Restructuring and integration charges (a) | 12 | 0.4 | (3) | — | 9 | 0.07 | ||||||
| Gains and losses on investments (b) | — | — | (4) | — | 12 | 0.10 | ||||||
| Other (c) | 2 | 0.1 | (1) | — | 1 | 0.01 | ||||||
| Amortization expense | 27 | 1.0 | (7) | — | 20 | 0.16 | ||||||
| ETB | — | — | (5) | — | (5) | (0.04) | ||||||
| As adjusted | $ | 554 | 21.2 | % | $ | (130) | $ | 31 | $ | 392 | $ | 3.22 |
(a)For both the three months ended March 31, 2023 and 2022, the pre-tax impact represents costs primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business. The following table summarizes the pre-tax impact of restructuring and integration charges on our consolidated statements of operations:
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| (dollars in millions) | ||||
| Cost of services | $ | 10 | $ | 3 |
| Selling, general and administrative | 9 | 9 | ||
| Operating income | $ | 19 | $ | 12 |
(b)For both the three months ended March 31, 2023 and 2022, the pre-tax impact represents gains and losses associated with changes in the carrying value of our strategic investments. The following table summarizes the pre-tax impact of gains and losses on investments on our consolidated statements of operations:
| Three Months Ended March 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| (dollars in millions) | ||||
| Other income (expense), net | $ | — | $ | 16 |
| Equity in earnings of equity method investees, net of taxes | $ | 3 | $ | — |
(c)For the three months ended March 31, 2022, the pre-tax impact primarily represents the costs associated with donations, contributions and other financial support through Quest for Health Equity, recorded in selling, general and administrative expenses.
(d)For restructuring and integration charges, gains and losses on investments, other items and amortization expense, income tax impacts, where recorded, were primarily calculated using combined statutory income tax rates of 25.5% for both 2023 and 2022.
3)The outlook for adjusted diluted EPS represents management’s estimates for the full year 2023 before the impact of special items. Further impacts to earnings related to special items may occur throughout 2023. Additionally, the amount of ETB is dependent upon employee stock option exercises and our stock price, which are difficult to predict. The following table reconciles our 2023 outlook for diluted EPS under GAAP to our outlook for adjusted diluted EPS:
| Low | High | |||
|---|---|---|---|---|
| Diluted EPS | $ | 7.52 | $ | 8.02 |
| Restructuring and integration charges (a) | 0.30 | 0.30 | ||
| Amortization expense (b) | 0.76 | 0.76 | ||
| Gains and losses on investments (c) | 0.02 | 0.02 | ||
| ETB | (0.15) | (0.15) | ||
| Adjusted diluted EPS | $ | 8.45 | $ | 8.95 |
(a)Represents estimated pre-tax charges of $47 million primarily associated with workforce reductions, systems conversions and integration costs incurred in connection with further restructuring and integrating our business. Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.
(b)Represents estimated pre-tax amortization expenses of $117 million. Income tax benefits were calculated using a combined statutory income tax rate of 25.5%.
(c)Represents $3 million of pre-tax losses associated with changes in the carrying value of our strategic investments. Income tax impacts were calculated using a combined statutory income tax rate of 25.5%.
9
Document
Exhibit 99.2
Quest Diagnostics to Acquire Haystack Oncology, Adding Sensitive Liquid Biopsy Technology for Improving Personalized Cancer Care to Oncology Portfolio
Goal to improve patient outcomes through early, accurate detection of residual or recurring cancer
Haystack’s highly sensitive minimal-residual disease cancer-detection technology to be combined with Quest’s oncology, genomics and pathology expertise and scale, including solid tumor sequencing, convenient specimen collection and EHR connectivity
Secaucus, NJ and Baltimore, MD – April 27, 2023 – Quest Diagnostics (NYSE: DGX), the nation’s leading provider of diagnostic information services, and Haystack Oncology, an early-stage oncology company focused on minimal residual disease (MRD) testing to aid in the early, accurate detection of residual or recurring cancer and better inform therapy decisions, today announced a definitive agreement for Quest to acquire Haystack in an all-cash equity transaction.
MRD testing is a fast-growing category of liquid biopsy tests that identify circulating tumor DNA (ctDNA) in the bloodstream of patients following surgery and treatment for cancer. Founded in 20212021, Haystack has developed a ctDNA-based technology specifically for MRD detection, based on 20 years of research and development by world-renowned luminaries from Johns Hopkins University, including Drs. Bert Vogelstein, Ken Kinzler and Nick Papadopoulos. In a prospective, multi-institution study published in the New England Journal of Medicine in June 2022, an earlier version of the Haystack technology demonstrated the ability to better identify patients with residual disease for adjuvant chemotherapy after surgery for stage II colon cancer, thereby reducing chemotherapy use in the overall patient population without compromising recurrence-free survival.
Following the close of the acquisition, Quest expects to adapt the MRD test developed at Haystack as the basis for new clinical lab services available beginning in 2024. Development efforts will focus initially on MRD tests for colorectal, breast and lung cancers.
“We are excited by the opportunity to work together with Haystack Oncology, a company that we believe has developed a best-in-class ctDNA MRD technology,” said Jim Davis, Chairman, CEO and President, Quest Diagnostics. “Haystack’s liquid biopsy technology, combined with Quest’s strengths in screening, pathology and sequencing, will now position us to lead in the fast-growing MRD category. Working with Haystack, we have an opportunity to broaden access to MRD insights and potentially improve favorable long-term outcomes from cancer.”
“Combining Haystack with Quest is a major step forward in translating two decades of world-class liquid biopsy research and development into clinical laboratory services that are highly reliable and broadly accessible. Like looking for a needle in a haystack, accurately detecting MRD has been very challenging to date,” said Dan Edelstein, CEO and President, Haystack. “With Quest, we expect to increase and accelerate access to important tests that will improve the quality of cancer MRD detection and recurrence monitoring for patients. Working together, we have the potential to greatly transform the patient journey and save lives.”
The acquisition will leverage Quest’s expertise and scale in oncology, genomics and pathology. Quest employs approximately 400 pathologists through its AmeriPath specialty pathology-diagnostics business and provides approximately 7,000 patient access points in the United States for blood and other specimen collection. In addition, Quest’s expertise in next-generation tumor sequencing includes being able to identify patient-specific mutations for Haystack’s tumor-informed MRD approach. Quest also serves a broad swath of providers and connects with nearly 850 electronic health records systems, supporting convenient electronic longitudinal MRD reporting.
Under the terms of the agreement, Quest will pay $300 million in cash at closing, net of cash acquired, and up to an additional $150 million on achieving future performance milestones. The company expects the acquisition to be modestly dilutive to earnings over the next three years and accretive by 2026. The transaction is expected to be completed in the second quarter, subject to customary regulatory review.
J.P. Morgan Securities LLC acted as exclusive financial advisor to Quest, and Weil, Gotshal & Manges LLP acted as Quest’s legal advisor. Goldman Sachs & Co. LLC acted as exclusive financial advisor to Haystack, and Goodwin Proctor LLP acted as Haystack’s legal advisor.
About Cancer Care Using MRD Testing
Cancer is the second most common cause of death in the U.S., and most cancers are due to solid tumors. In 2023, 1,958,310 new cancer cases and 609,820 cancer deaths are projected to occur in the U.S.
Patients diagnosed with cancer are typically treated through a combination of surgery to remove the tumor and adjuvant chemo- or immune-therapy to eliminate microscopic molecules of cancer that may remain in the body. However, neither surgery nor adjuvant therapy necessarily eliminates residual cancer molecules.
Physicians typically monitor patients over several years for signs of cancer recurrence, using tests that include tissue biopsy, imaging (i.e., MRI) and certain laboratory tests. However, biopsies and imaging are invasive, inconvenient or expensive, while current lab tests are potentially non-specific. MRD testing provides a new way--based on a simple blood test--to monitor for residual (remaining) or recurring cancer longitudinally over time.
About Haystack Oncology
Haystack Oncology uses the next generation of ctDNA detection technology to see through the noise and uncover the lowest levels of ctDNA in blood to report residual, recurrent, or resistant disease earlier than other MRD tests. Designed by cancer genomics pioneers and liquid biopsy experts, Haystack’s tumor-informed MRD test is best positioned to deliver the right treatment to the right person at the right time. Haystack is based in Baltimore, MD, and has research facilities in Hamburg, Germany. Learn more at haystackoncology.com.
About Quest Diagnostics
Quest Diagnostics empowers people to take action to improve health outcomes. Derived from the world's largest database of clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and improve health care management. Quest annually serves one in three adult Americans and half the physicians and hospitals in the United States, and our approximately 50,000 employees understand that, in the right hands and with the right context, our diagnostic insights can inspire actions that transform lives. www.QuestDiagnostics.com
Contacts:
Quest Diagnostics: Shawn Bevec (Investors): 973-520-2900 or Jen Petrella (Media): 973-520-2800
Haystack Oncology: Lauren Arnold (Media): 617-694-5387 Hayststack@macdougall.bio