Quest Diagnostics 2003 Annual Report Download - page 26

Employers, Governmental Institutions and Other Clinical Laboratories
We provide testing services to federal, state and local governmental agencies and to large employers. We
believe that we are the leading provider of clinical laboratory testing to employers for drugs of abuse. We also
provide wellness testing to employers to enable employees to take an active role in improving their health.
Testing services for employers account for approximately 3% of our net revenues. The volume of testing
services for employers, which generally have relatively low profit margins, has declined significantly during
2001 through 2003 driven by a slowdown in hiring. We also perform esoteric testing services for other
commercial clinical laboratories that do not have a full range of testing capabilities. All of these customers are
charged on a fee-for-service basis.
Consumers
Consumers are becoming increasingly interested in managing their own health and health records. Currently,
almost all the testing we perform is ordered directly by a physician, who then receives the test results.
However, over time, we believe that consumers will increasingly want to order clinical laboratory tests
themselves. To that end, we offer a focused menu of clinical laboratory testing directly to consumers in certain
states. Consumers pay for and receive the test results directly. In each case, a physician reviews the order and
result. We believe this market will continue to grow over time.
Sales and Marketing
We market to and service our customers through our direct sales force, customer service and patient
service representatives and couriers.
We focus our sales efforts on obtaining and retaining profitable accounts. We have an active account
management process to evaluate the profitability of all of our accounts. Where appropriate, we change the
service levels, terminate accounts that are not profitable or adjust pricing.
Our sales force is organized by customer type with the majority of representatives focused on marketing
laboratory services to physicians, including specialty physicians such as oncologists, cardiologists and
gastroenterologists. Additionally, we have a managed care sales organization that maintains relationships with
regional and national insurance and managed care organizations. We also have a hospital sales organization that
focuses on meeting the unique needs of hospitals and leverages the specialized capabilities of our Nichols
Institute esoteric testing laboratories. Supporting our hospital and physician sales teams are genomics and
esoteric testing specialists, who are specially trained and focused on marketing and selling more complex tests
to our customers. A smaller portion of our sales force focuses on selling substance-of-abuse testing to
employers.
Customer service representatives perform a number of services for patients and customers. They monitor
services, answer questions and help resolve problems. Our couriers pick up specimens from most clients daily.
Our corporate marketing function is organized by customer and is responsible for developing and executing
marketing strategies, new product launches, and promotional and advertising support. The marketing function is
also responsible for customer satisfaction surveys, market research, tradeshow administration, database marketing
tools, and marketplace trending and analysis.
Strategic Growth Opportunities
In addition to expanding our core clinical laboratory business through internal growth and pursuing our
strategy to become a leading provider of medical information, we intend to continue to leverage our network in
order to capitalize on targeted growth opportunities both inside and outside our core laboratory testing business.
These opportunities include:
•Gene-Based and Other Esoteric Tests: We intend to remain a leading innovator in the clinical laboratory
industry by continuing to introduce new tests, technology and services. We estimate that the current
United States market in esoteric testing, including gene-based testing, is $3 billion to $4 billion per year.
We believe that we have the largest gene-based testing business in the United States, with greater than
$500 million in net revenues during 2003, and that this business has been growing by more than 20%
per year. We believe that the unveiling of the human genome, the discovery of new genes and the
linkages of these genes with disease will result in more complex and thorough predictive, diagnostic and
therapeutic testing. We believe that we are well positioned to realize this growth. We intend to focus on
commercializing diagnostic applications of discoveries in the areas of functional genomics (the analysis
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