Quest Diagnostics 2008 Annual Report Download - page 38

Failure to develop, or acquire licenses for, new tests, technology and services could negatively impact our
testing volume and net revenues.
The diagnostics testing industry is faced with changing technology and new product introductions. Other
companies or individuals, including our competitors, may obtain patents or other property rights that would
prevent, limit or interfere with our ability to develop, perform or sell our tests or operate our business or increase
our costs. In addition, they could introduce new tests that may result in a decrease in the demand for our tests or
cause us to reduce the prices of our tests. Our success in continuing to introduce new tests, technology and
services will depend, in part, on our ability to license new and improved technologies on favorable terms. We
may be unable to develop or introduce new tests. We also may be unable to continue to negotiate acceptable
licensing arrangements, and arrangements that we do conclude may not yield commercially successful diagnostic
tests. If we are unable to license these testing methods at competitive rates, our research and development costs
may increase as a result. In addition, if we are unable to develop and introduce, or license, new tests, technology
and services to expand our esoteric testing business, our testing methods may become outdated when compared
with our competition and our testing volume and revenue may be materially and adversely affected.
We may be subject to intellectual property litigation that could adversely impact our business.
We may be subject to intellectual property litigation and we may be found to infringe on the proprietary
rights of others, which could force us to do one or more of the following:
•cease developing, performing or selling products or services that incorporate the challenged intellectual
property;
•obtain and pay for licenses from the holder of the infringed intellectual property right;
•redesign or reengineer our tests;
•change our business processes; or
•pay substantial damages, court costs and attorneys’ fees, including potentially increased damages for any
infringement held to be willful.
The development of new, more cost-effective tests that can be performed by our customers or by patients,
or the internalization of testing by hospitals or physicians, could negatively impact our testing volume and
net revenues.
Advances in technology may lead to the development of more cost-effective tests that can be performed
outside of an independent clinical laboratory such as (1) point-of-care tests that can be performed by physicians
in their offices, (2) esoteric tests that can be performed by hospitals in their own laboratories or (3) home testing
that can be performed by patients in their homes or by physicians in their offices. Although the CLIA
compliance costs make it cost prohibitive for many physicians to operate clinical laboratories in their offices,
manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care
test equipment to physicians. Diagnostic tests approved or cleared by the FDA for home use are automatically
deemed to be “waived” tests under CLIA and may be performed in physician office laboratories with minimal
regulatory oversight under CLIA as well as by patients in their homes. Test kit manufacturers could seek to
increase sales to both physicians and patients of test kits approved by the FDA for point-of-care testing or home
use. Development of such technology and its use by our customers would reduce the demand for our laboratory-
based testing services and negatively impact our net revenues.
Our customers, such as hospitals and physicians, may internalize tests that we currently perform. If our
customers were to internalize tests that we currently perform and we did not develop new or alternative tests
attractive to our customers, the demand for our testing services may be reduced and our net revenues may be
materially adversely impacted.
Our outstanding debt may impair our financial and operating flexibility.
As of December 31, 2008, we had approximately $3.1 billion of long-term debt outstanding. Except for
outstanding letters of credit and operating leases, we do not have any off-balance sheet financing arrangements in
place or available. Our debt agreements contain various restrictive covenants. These restrictions could limit our
ability to use operating cash flow in other areas of our business because we must use a portion of these funds to
make principal and interest payments on our debt. We have obtained ratings on our debt from Standard and
Poor’s and Moody’s Investor Services. There can be no assurance that any rating so assigned will remain for any
given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if in that
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