Quest Diagnostics 2005 Annual Report Download - page 21

We expect to continue pursuing growth through acquisitions. Historically, as the clinical laboratory industry
consolidated, acquisitions contributed a significant portion of our growth. We believe that organic growth will
become more significant, while acquisitions will continue to be an important contributor to growth.
The clinical laboratory industry remains highly fragmented. We expect to continue to selectively evaluate
potential acquisitions of regional clinical laboratories that can be integrated into our existing laboratories,
thereby increasing access for patients and enabling us to reduce costs and improve efficiencies. See “Recent
Acquisition’’ for a discussion of our recent acquisitions. We will also selectively assess potential acquisition
opportunities that will increase clinical capabilities, geographic presence, or move us into related adjacent
spaces, both domestically and internationally. During 2005, through the acquisition of LabOne, we entered into
a new testing-related field, providing laboratory testing and risk assessment services to the life insurance
industry.
Rapid development of new tests and technologies continues. In addition, hospitals and physician office
laboratories increasingly are internalizing testing, moving testing closer to the patient. As a result, we will
consider acquiring or exclusively licensing selective products to complement the services we provide.
Technology is making possible the convergence of various healthcare disciplines. Information technology
will eventually enable doctors to diagnose and treat disease by aggregating a patient’s genetic predisposition,
diagnostic test results and diagnostic images into a patient-centric electronic medical record available in a timely
fashion at the point of care. Having such clinical data in one easily accessed place will enable better
decision-making and drive improved outcomes for patients. Accordingly, potential acquisitions in adjacent
industries such as healthcare information technology and diagnostic imaging may also be considered. Our
acquisition of MedPlus in 2001 was our first acquisition of a healthcare information technology company.
People enable us to realize our mission. In this regard, an important challenge is to prepare our workforce
for the future. Our people strategy is built on concepts of stringent employee selection, effective engagement
and ongoing development resulting in a staff of highly qualified and motivated employees who are committed to
our goals. In addition, we are committed to improving the health of our employees and reducing healthcare
costs for them and our Company. Through our HealthyQuest initiative, we provide employees with the
opportunity to lose weight, quit smoking and generally pursue healthier lifestyles. Quest Diagnostics is
recognized as a “best place to work’’ in numerous locales as a consequence of our workplace initiatives that
reflect our belief that people are our most important asset. We take diversity seriously, believing that our
organization should reasonably reflect the communities that we serve. We strive to make all of our employees
effective ambassadors of our Company.
Recent Acquisition
On November 1, 2005, we acquired LabOne, Inc., or LabOne, in a transaction valued at approximately
$947 million, including approximately $138 million of assumed debt of LabOne. LabOne provides health
screening and risk assessment services to life insurance companies, as well as clinical diagnostic testing services
to healthcare providers and drugs-of-abuse testing to employers. LabOne operates major laboratories in Lenexa,
Kansas, and Cincinnati, Ohio, as well as a state-of-the-art call center in Lee’s Summit, Missouri, and provides
paramedical examination services throughout the United States and Canada to serve the life insurance industry.
The acquisition of LabOne supports our growth strategy in a number of ways, including: solidifying our
leadership position in diagnostic testing by expanding access for physicians and patients and giving us added
presence in several geographic areas; strengthening our drugs-of-abuse testing business and establishing us as the
leader in a new testing net related business, providing health screening and risk assessment services to the life
insurance industry.
Our Services
For 2005, our clinical laboratory testing business accounted for approximately 95% of our net revenues,
with the balance derived from clinical trials testing, risk assessment services and other services and products.
Laboratory testing includes routine testing and gene-based and esoteric testing, which generated approximately
78% and 17%, respectively, of our net revenues. Clinical trials testing generated less than 3% of our net
revenues and risk assessment services generated less than 1% of our net revenues. We derive approximately 2%
of our net revenues from foreign operations. We expect that the risk assessment business will represent
approximately 4% of our net revenues in 2006, bringing the total net revenues attributable to our non-clinical
testing businesses to approximately 8% of our consolidated net revenues.
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