Labcorp Holdings Inc. (LH) Earnings Call Transcript & Summary

So welcome, everyone, to our fireside chat with LabCorp. I'm Mike Newshel. I cover the labs and health care facilities and managed care as well at Evercore ISI. And I'm very pleased to be joined by LabCorp's CEO, Adam Schechter; as well as CFO, Glenn Eisenberg; and we also, I don't know if you can see her, but Clarissa Willett, the VP of Investor Relations, is with us as well. Thanks, guys, for being -- joining us today. Looking forward to getting an update on your business and dig in into some things here.

So I think we'll start with you. We'll just go right into it -- to Q&A. And I think on a logical place to start is, if you could just give us an update on COVID testing in the Diagnostics business and where things stand now? I know a few weeks ago, ACLA, the industry group, warned about some capacity constraints, again, the longer turnaround times. Obviously, demand is surging. So maybe just kind of give an update on where you are in terms of the volumes that you're doing and where you are on capacity.

Absolutely, Mike. First of all, it's good to see you, and thanks to everybody for joining us today. I wish we could do this in person. I believe, this time next year, we will be in-person. And they're certainly light at the end of the tunnel with vaccines and therapeutics, but unfortunately, we're still in the middle of that tunnel, so we have to continue to be careful. So it's a pleasure to be here and to join you, albeit virtually. If you look at LabCorp, we continue to make significant progress. And we can now do 270, 2-7-0, PCR tests a day, and we turned those around in 1 to 2 days. And we were able to get through last week with our turnaround time of 1 to 2 days every single day. I think our worst day was like 1.56 days, but most of them were under 1.5 days. And we've done that significantly through innovation. We developed a process, our scientists worked on a way to do the extraction part of the process in 30 minutes versus, historically, it took us 2 to 4 hours. We do it through heat now versus having to use reagents. The second thing we did was we automated a lot of our processes. So even like things such as pipetting, we're doing through an automated process versus people sitting there doing the pipetting by hand. So those types of innovations enabled us to increase our capacity and our result time very significantly, and that allowed us to get through last week with those types of turnarounds despite a very significant increase in demand. In fact, if you look at last week, the demand was higher than what we're seeing this week. And I think the reason why it was a lot of people were preparing to travel and want to test before they went home for the holidays. But at the same time, I remember when we had capacity to do 210,000 tests, and we were only doing 100,000. People were saying, "Why are you still building capacity?" And our answer was "Because we don't know what the fall will bring, and we want to be prepared for whatever happens." I'm glad we did that. We're still building capacity because I don't know what the next holiday season is going to bring, and we want to be prepared for whatever comes at us at that point in time. But the good news is, at the moment and through at least the last 6 months or so since July, our turnaround time has been well below 2 days.

And you mentioned some of the -- I think when your capacity was at 210,000 in October, you had said you were doing over 120,000 tests a day. How has volume ramped? Is it ratable with the capacity increase or more significant?%.

No, it's been significant. And our capacity is still above what the demand is, but we're using half that capacity before 120,000 out of 210,000. Now we're using much more than half. And if you look at our peak days right now, we're actually hitting up against 270,000 at a worse day last week. But there's definitely closer to our capacity now than we were back in October for certain.

Got it. Yes. And you mentioned sort of the effect of Thanksgiving pulled forward some maybe demand last week. And obviously, it's kind of skewed the COVID testing numbers that we're all following closely. Do you have any kind of a sense on when things like normalize? Or are you already seeing that like even this week in terms of like the kind of like the normal pattern coming back?

Yes. I mean our testing and our reporting continued through the holidays. We have no delays. We report to the CDC every day. We report to most states at least once a day, some have requested twice a day, and we continue to report through the holidays. So I think it was more that there are either other laboratories or hospitals had some delayed reportings over the holiday. But we ran our labs every day, including Thanksgiving, 24 hours a day, 3 shifts, and we continue to do so. So I don't know when the other labs' reporting will get back to where they were. I saw the -- CDC yesterday I think said that it should take a couple of days, but we had no delays.

Got it. And have you started to see any impact on PCR volumes as starting to see some broader use of antigen and even some molecular point-of-care test? Does it have an impact? Or is there just high demand for everything right now, it doesn't matter?

There's high demand for everything right now. In fact, when I've had discussions with some of the authorities, some of the members of Congress and other places, I think we have a very good number of tests available in the United States. I just don't think we necessarily have them all in the right place at the right time. When it comes to PCR test, I think we should test everybody that either has symptoms of COVID or has been exposed to people with symptoms of COVID. If we did that, the fact that we have about 1.2 million available in the U.S., that's a lot when you think about the number of people that have COVID each day and those that have been exposed. Problem is that a lot of the PCR tests will be used for many other reasons that just the ones I just mentioned. For the point-of-care test, I'd have every one of those in the hospitals. So you need to know right away what's happening with that patient. And I've talked to too many hospitals in the past week that don't have any point-of-care tests right now, yet we have them in some pharmacies and other parts of the system. And then if you look at the antigen test, we need as many of those as we possibly can have. I'd have those in every business, every school, nursing homes, in every place you want to do surveillance. So I think that's where we could use a lot more volume is in the surveillance areas and trying to find the asymptomatic patients that have the disease. That's where we need more at the moment. But I have not seen a significant impact. We're doing as many tests as we possibly can. And I've seen an increase in demand despite broader availability of things like antigen test.

Got it. And yes, you mentioned keeping turnaround time around 1 to 2 days. And turnaround time is going to be important in December, right, because that's one of the conditions for maintaining the higher reimbursement. In Medicare, starting January 1, you'd have the majority of your tests below that 2-day threshold and in previous calendar months. So that's the first month you're going to be measured on that. Do you see any challenges in keeping up with demand? Or you feel even if there is more demand, you're building that capacity ahead of it and you'll meet that threshold?

No, I think we're going to be okay. I always worry about reagents. I always worry about consumables like [indiscernible]. Right now, we're in good shape, but I watch that every day. And that, to me, would be the biggest risk of not having what we need to run the test. But as I sit here today, I don't see any issues with those. We've actually done pretty well through last week. We're running in over 20 laboratories, so we have introduced 1 laboratory. We can move things in other laboratory. Every day, we're a massive logistics program where we're trying to figure out which laboratories have the best unused capacity, and we have our samples go to that laboratory or to those laboratories. So we're constantly juggling things around. In addition to that, we are on 8 platforms. So if we have an issue with reagents or consumables on 1 platform, we can still run on the seven other platforms. So we've tried to build in enough duplicity in the way we've built our network so that we can meet the 1 to 2-day turnaround time.

And how long is your visibility into the supply chain for making sure you have adequate reagents and supplies? Like can you see it like -- at what point would you like know that you'll be facing a problem just like within days or like weeks? Or how far out those is the visibility?

So our logistics team has a meeting every day. And we try to see out weeks, but sometimes we see out a week, and it's because things change so fast. So you can see out weeks, but nobody would have predicted the demand to be as high as it was last week. So if you were looking 2 weeks ago, you'll have said, "Yes, we look pretty good." Well, all of a sudden, I mean, the demand was not linear. I think it can go up at 10% or 12%. It was up a lot. So then you start to say, "Okay, every day, do we have the right consumables in the right place? Are we able to get the reagents that we need? Do we have those reagents in the right place? And we're constantly juggling things around to ensure that we can do that. So I wish I could say we had a very long view. We tried to, but things change too often from what we've seen in this pandemic.

Got it. And how about for serology testing? Has there any been -- any increase in demand there? Or has that been more constant?

Yes. So there's not been an increase in demand for serology. I think that we still need to do a lot of science to understand how to use serology. In fact, if you look at the U.K. guidelines that came out this week for who gets vaccine, or you look at the CDC guidelines that were discussed, the recommendations, there was no mention of saying who has antibodies and what levels they'll prioritize who gets vaccines. I think that tells you that there's not an update or information to know how to use antibodies to make decisions at the moment. Now a year from now, it could be a very different situation. We could decide that we're going to look at quantitative antibodies or qualitative or neutralizing antibodies because we know that, that is what tells whether or not you're able to fight off the virus. It might be T-cells, but we just don't have enough data information right now to make a large-scale increase in the utilization of those tests. What I can tell you is LabCorp is building our capabilities in every one of those areas. Neutralizing, you saw we announced with Roche that we'll be using their semi-quantitative antibody test. We're working on T-cell tests so that wherever the science goes, we'll be ready. We're going to build the capability, but we're not going to build the capacity until we know where to go.

Got it. So at this point, you're actually expecting a significant impact on serology testing related to vaccine distribution, but maybe the signs would have to improve and protocols would have to be at this point and go?

Yes. Yes, we need more data. I mean it wouldn't surprise me as we get to kind of the bigger part of the pipe. Right now, the recommendation is go to -- first, to health care workers and then go to the nursing homes and then go to people above a certain age. I don't think you know enough about antibodies to try to discriminate within those groups so just go to everybody. Once you get like the other 80 million people or 100 million people that will be done after that, then you might decide to say, "Okay, well, people have had COVID in the past, and they know that sort of positive PCR test maybe they get the vaccine after others. I think there might be ways to think about that were antibodies much later in the process. But right now, the science just isn't fair to make those decisions.

And just one in terms on reimbursement for the serology test for Medicare. Is there any changes there as of January 1? Or that stays at the...

Yes. I think as long as -- yes, it's in the 40s. I think as long as we continue to be in the emergency situation, that, that's a fairly safe place that it will be. And the same thing with PCR testing. I believe it's going to be $100, and we'll be able to meet the 1-2 day turnaround. I think once the emergency declaration is gone. I think that's when you'll see a lot more discussion of who's covered and what the price may be, but that's definitely okay through January 20th. I'd be surprised with the new administration in the middle of the winter, where we don't yet have broad vaccination that, that not be declared again. So I'm assuming we at least have 1 more declaration, and then we'll see after that.

Yes. I agree. You would assume at least it gets extended on Inauguration Day. I don't know has there been any discussions about or any thought on how long it could be extended? Like could it just be extended like through like the end of the year? Or do you think it would be more like a smaller time period and just extend it again as needed?

That would be smaller time period and extend again as needed. I think by summertime, there should be enough vaccine for everybody who wants a vaccine to have one, based on what I heard yesterday. The issue is going to be about 30% of people don't get the vaccine because they won't, and 10% of people don't get the protection from the vaccine. That means you still have 40% of a 400 million population that is vulnerable, and we're going to have to figure out how to manage that. So I still think there'll be a big piece to manage, and the virus is not going to go away magically in the summer of next year. But I think we'll be in a very, very different place than we are today.

Got it. Maybe turning to what you're seeing on core volumes, so non-COVID volumes, how is that trending now? You talked about previously about some monthly progression coming back, like over the course of the third quarter and into October, did that continue into November?

Yes. So we started off in March at minus 55%; in June, we were minus 17%. And as you said, for the third quarter, we were basically minus 9.5%in an average, but every month looked better than the last October, looked better than September. November looks about the same, maybe a little bit worse than October. A little bit worse, I can't tell if it's the holiday or it's the increase in prevalence. But the good news is with the increase in prevalence that we've seen, it hasn't gotten significantly worse. So that gives me a sense that it's not likely at all that we would see numbers like we saw back in June or even earlier in the year. So November did not get better. We've got -- about to say we've got a little worse, but it did get significantly different.

Yes, just kind of given how much cases really surged, not seeing a significant decline. I think there's a conclusion that the health system is better now and sort of managing the COVID and non-COVID patients at the same time.

I think it is. I am concerned. I mean you're seeing hospitals start to fill, you're seeing capacity go down. Less deaths in terms of as a percent, so I think the hospitals are doing a great job. The health care workers have learned a lot. We have new treatment like dexamethasone and some of the mabs. But we just had a major group of people travel across the United States last week, and I do think that you're going to see an increase in cases as we go forward next week and the following week. And hospitals are already struggling a bit. So I do worry what the rest of this month could look like, less about our core business because most of our core business comes from physicians' offices and so forth. But I do worry about what hospitals could be going through in the next 4 to 8 weeks.

Right. And sort of like -- sort of next week, week after, that's when you'll first see Thanksgiving-related transmissions in the data.

Yes. And you always say increases in cases first, hospitalizations follow a couple of weeks after that. So you probably won't see the hospitalizations for a little bit further. We'll start to see an increase in cases over the next several weeks.

So how are you viewing the flu season right now? I know it's a mild flu season, and part of is expected because of the social distancing and mask wearing obviously work on more other viruses as well. But just given that providers are trying to diagnose people that may have COVID or flu, are you seeing some meaningful uptake on your combined test for flu, COVID and RSC? Or sort of how you're thinking about the flu season now?

It's very low right now. And frankly, I wouldn't recommend doing the combined test, unless you knew that the flu was present in your zip code or in your local geography. And as you said, think of this as a relatively mild flu season thus far, I mean, sometimes flu seasons are just delayed. So we have to be careful being too optimistic. But so far, so good. And I believe it's for the reasons that you said, Mike. I think people, in general, are wearing masks more often. And the flu is not necessarily as contiguous as COVID is, and there's not as many asymptomatic people with the flu. So I think that that's helping us have a very small flu season. I hope that continues. But the recommendation is not to do the triple test or the double test unless you know you're in flu in your geography. And we've not seen that significant increase in the need for that at the moment.

Got it. But just in terms of like reimbursement for that combo test, is this shaking out? You already mentioned around $140 on the third quarter call. Is that where it is, but below...

Yes. I think it's $143, unchanged. And where we have done the test, we've gotten reimbursed for them. But again, it's not a significant number and nor would I recommend it, unless necessary.

Got it. So turning to Covance. How -- on that side of the business, how's the rebound from COVID disruption is progressing there?

Yes. So I look at the 3 parts of our business. The early clinical work and the early pharmacokinetic work is going well, and that rebounded the fastest. And where we had the labs, as this country has opened up, they began to fill up like in China and some of the other markets. So that continues not to be where it was this time last year, but it's the closest. If you look at our central laboratory business, in the second quarter, that was actually slower coming back than our clinical business. But right now, the central laboratory business has come back really well and come back faster than the clinical business. And a lot of it is because of all the work we're doing with COVID trials for both vaccines and for the therapeutics. And our clinical business is the slowest to come back, still about 30% of sites around the world are not open. And it's hard to tell what's going to happen because with Europe facing some issues, it's facing with increase of COVID, with some of the emerging markets seeing very significant increases in the prevalence. And the United States, it's not just whether or not the sites are open, it's whether the people actually go to the investigators, many of which are in hospitals, particularly in Europe. And I think you'll see a harder time enrolling in some of those countries. So I think that's the business that we're watching the closest in terms of how fast it will completely come back, and just slowness to come back.

Got it. And are you seeing that in Europe, specifically now that there's been some more lockdowns and restrictions?

So we see some more lockdowns and restrictions. I haven't necessarily seen decrease in sites or patients yet, but it's still too early to see that. That would take some time, another several weeks or months if that's going to happen.

Got it. And you mentioned 30% sites still closed. I think that was the same as your update like a month ago. Is it like the same 30% or like some opened and some were closed?

It's actually mostly the same. Some of the countries that are doing their best with the disease, particularly in Asia, continue to do the best with the disease. And when their sites open, they stayed open. Then in the U.S. and parts of Europe where we struggled the most, a lot of sites yet have not opened, and they continue to not open. So it's not a big mix change, it's more in the countries that have had the most significant impact, but less sites have opened.

Got it. And you mentioned central lab recovering with some COVID-related trials. Can you just like frame how significant will be those revenue streams related to COVID trials? And just what kind of like time line we should think about in terms of like ramping up and how that will like run out over time?

Yes. So a lot of those trials are shorter trials. If we look how fast 60,000 patient vaccine trials are being enrolled, it's just amazing. I mean it's just such a feat and it's just remarkable what's been able to be accomplished around the world. So with the COVID trials, there's a lot of them, but they tend to be shorter. We mentioned that if you look at our new net orders, for both third quarter and second quarter, it was about 13% of our book-to-bill. And our book-to-bill remains strong. So it's not a significant part of the book-to-bill, although it's been important, particularly as we've had issues in the base business because those trials are just continuing to go and go very quickly. So it's been a nice way to kind of offset some of the other issues that we're facing the in base business. I think you'll see it become a more important part of our revenue over the coming quarters. But once COVID is done, I would not expect there to be a significant issue with our base business. So the way I'm trying to look at our business is how much is PCR testing in both drug development and in diagnostics because we're doing PCR testing in both. Now you try to forecast that separately, and that's the hardest thing to try to figure out what that's going to look like next year going into 2022. Then I look at our base business. And in our base business, I include the COVID-19 trials that we're doing. Because if we weren't doing those trials, we'll be up and running in other trials, and other sites to be opened. So then I look at our base business, and that's a little bit more predictable to figure out what that will look like as we go to next year and into the following year. I think that's a good way for you to start to think about our business, the base business across both areas, and then PCR testing. And there's going to be a lot more variability at the PCR testing level as we go forward, both the quality and price, by the way.

Right. And so including the COVID clinical trials in that base business?

Yes. I think that's the right when you think about it.

Got it. I mean speaking of like kind of like visibility and looking ahead to 2021, I mean, there's still obviously a lot of uncertainty, which we can talk about, but has this visibility improved in your business enough that you expect to be in a position to provide 2021 guidance on the fourth quarter call, especially now that there is a vaccine on the verge of approval?

No. I feel like we have good visibility into our base business. It's still highly dependent, obviously, on how we get through this year and into the beginning of next year. But we don't give guidance until the fourth quarter call, which is in February of next year sometime. So we'll know a lot more as we get closer to that than we do today. The PCR testing is the area that has the most kind of unknowns right now. And that's an area that we're trying to figure out. We're trying to figure out how to bracket. We didn't give guidance this year because we just -- it was just way too many variables to give you anything that would be meaningful. As soon as we believe we can give you meaningful numbers within a real decent range that is helpful to you, we're going to provide that information as best we can.

And I think when you do provide outlook, will you -- is one way to like frame it, where you'll have like a better visibility like on the base business, and then you'll just have a wider range around what the PCR testing to look like? And is that how you plan to frame it?

Yes, we don't know yet. I mean you hear me talking about that way because that's where I've started to look at the business because I want to make sure that our base business remains strong. And what has made LabCorp a great company before COVID is going to make us even a greater company now that we've gone through COVID. Because I believe that people have seen the power of the combined, the power of having diagnostics together in terms of development. I believe our reputation has been increased because of what we've done through COVID. So I think the future is brighter. So that's how I want to focus on our base business because I know that PCR testing is going to change over time. So to me, that's the fundamentals that I'm looking for, whether we report guidance that way or not, we're going to have a lot of discussion on. And I'm sure Glen is going to have a lot of opinions and ideas on how to do that.

Yes. And obviously, one of the most -- biggest uncertainties is kind of how quickly PCR demand might fade once there is sort of broad vaccination. So if we're in a place where enough people have gotten the vaccine by mid-year, how are you thinking about how demand drops off? Is there still going to be a lot of screening being done, particularly if you have schools and workplaces that are -- or people sort of returning or maybe workplaces that have been closed are opening. Do you think there's going to be another like corona mass wave of like kind of like screening testing that has to be done?

I think it's going to depend on how many -- if 70% of people get vaccinated, it still leaves 40% that either are not vaccinated or don't have immunity. So let me ask you this, "If you are vaccinated, and in June, you have flu-like symptoms and didn't feel well, would you want to be PCR tested to know if it was COVID?

Right, of course.

Probably. So there's still going to be some need for it, I have no doubt about that. But once the emergency goes away, if there are people out there that have gotten 4 tests in the last 3 months because they're traveling home, I don't think you're going to do that, and I don't think it will be reimbursed if you do that, like you probably are today. So I do think that the number of tests will significantly decline even though there's still be a need for test. I also think that pricing pressure will be much greater once the emergency declaration has done than it is today and rightfully so. So the 2 things will be the number of tests and the price per test. And I think both will be under pressure once the emergency declaration is done.

And in terms of commercial reimbursement for PCR testing in 2021, is that going to stay -- is it looking like it's going to stay at the higher Medicare rate? Or what potential changes could be there?

So I believe until there's -- so the short answer is, I believe it will be maintained at the current level until the declaration of emergency is done, and then I think there'll be a lot more pressure. I'm assuming my base case that definitely through January 20, because that's the current one, I assume that it will be extended. Each of them has been 3 months so I'm just looking or assume there'll be another 3 months. So then the question is after that time period, like in May time period there'll be another declaration. If there's wide-based vaccination, if we're out in the fresh air and not a lot of people are indoors. And if they're better therapeutics, there's a pretty good shot. I'm hopeful. I'm hoping that we're not in an emergency situation any longer. So at that time, I think there'll be pressure on the pricing and the number of tests. I think in the May time frame or it over the year sometime, June, July, something like that.

Got it. And so on a time frame like that, on core volumes, do you think there'll be a significant amount of like deferred health care utilization next year that could push sort of core volumes above like a normal baseline? Or is it really not really the system capacity is not there, they go only have so many doctors' appointments, there's kind of capacity restraints?

I don't think it's capacity, but I think if you missed a test for your Hba1c because your doctor say don't come in the office right now, I don't think I get 2 HBA1C test and your next visit. You just missed it and you move on. If you missed your annual physical this year, I'm thinking you have 2 physicals next year. You missed it? You'll just get your physical next year. So I don't think there's this massive kind of testing that's going to build up and come back. Now there are some areas that we're going to have to watch closely. So if you haven't been diagnosed with diabetes before,and now you get diagnosed because you weren't at the doctor, well then you're going to need a lot more test now your newly diagnosed with diabetes. So I think it will be some pushes and pulls, but overall, in my base space, I'm not assuming a large influx base business testing for diagnostics.

Got it. And what do you expect to see as a result of high unemployment? I know that's a factor that's kind of hard to tease out in the current environment. But if you do have a broad vaccination, virus is receding but it takes a little bit longer for unemployment to go down, would you expect to see any significant impact from that in terms of core volumes and bad debt? Or at least what have you seen in past cycles?

Yes. I mean, I would say, first of all, I think the administration is going to be focused on trying to get the economy to recover as quickly as possible. And I think they'll be focused on jobs and trying to get people -- employees within a payment that's happening. I worry that the independent consequences of this virus are in people's general health, whether it be alcoholism or depression or the lack of getting the evaluations that you should have had. I mean, for a while, cancer screenings were down 30%. It's not that people didn't have it, it's just they weren't going for their tests. So we have a lot more people whose cancers will be more advanced because they weren't found as early as they would have historically been. So I think we're going to have some health care issues in the world that we're going to have to deal with. And I think government has got to figure out ways to make sure people are able to get the test that they need, to get the care that they need because, otherwise, it becomes even a bigger drag on the economy and on the comeback for every market in the world. So I believe that there'll be ways for people to get testing they need, and there'll be ways to be reimbursed for that testing because I think the health care issues that we're going to face moving forward are more significant than we might realize today.

Got it. And are you expecting health plans to continue -- or most health plans to continue covering out-of-pocket costs for testing in 2021? And if they don't, could that be an impact on volumes if people have to pay for out-of-pocket or maybe you see some more bad debt?

Yes. I think for the base case, they'll continue to pay out to the base business, pay what they paid in the past. I think for COVID, there will be pressure. And I think that we're, right now, every test should be free for every American, and that's been declared by HHS and other parts of the government. I think once the emergency is done, that won't be the case, and therefore, it will be harder to get full reimbursement, if that's not the way you planned is kind of supposed to work in normal times.

Got it. I mean so other than this uncertainty around the path of the pandemic, are there any other factors for 2021 that investors should be keeping in mind? PAMA is paid for years, any incremental launch pad saves on sort of other sort of non-COVID factors that should we keep in mind?

Yes. I'll give you a couple and then I'll ask Glenn to jump in with his thoughts as well. I think our base business continues to do well. We're winning trials, and our book-to-bill looks good. So I would expect us to continue to do really well there. We've said we've got to win in oncology, and we won a major pharmaceuticals oncology business, which is a good sign. So you can continue to expect us to have a big focus on ensuring our clinical development business grows and does well. At the same time, as I look at next year, I think there's no PAMA. There's going to continue to be the managed care pressure that you face, but we've got to find a way to move PAMA out of 2022, and I would be focused as well, ACLA and others, to say part of the reason we had this mess this time is because the industry has been squeezed so hard for so many years that there was no spare capacity. There was no duplicative supply chains. There was no modern technology in many of the state laboratories. So I think we can find an argument to try to remove some of the pressure that we've had in the past. I'm not going to build up my base case, but we're going to fight for it. Glenn, anything you would add?

No, I think you kind of hit it as you -- a lot of uncertainty as you go into next year, but I think the consensus overall, to Adam's point, is that once you really have the commercially available or broadly available vaccine, you get a sense of normalcy. So we're kind of counterbalanced in the first half, if you will, that we'd expect to see the COVID testing still to be there with the public health emergency, the same pricing that we've experienced with the base business still being somewhat muted because of the pandemic. The second half, Mike, to your point earlier, while there still will be COVID testing, it will be well down from where we would have expected it to be in the first half. But the flip side is now we start to see a resurgence in our base business across both of our businesses with that pent-up demand. So we're really talking more about timing than the cadence really for the full year were pretty bullish on the backlog that we have in the businesses. To your point earlier, just on the bad debt, just to wrap up on that one as well, we've seen a little bit more pressure from -- on our patients, if you will, on -- we've reserved adequately when we established it. And frankly, I'd say, overall, we feel good about how the year has progressed. And any time that you see more patient responsibility going forward, there's always an issue potentially with the bad debt, but nothing that we are concerned about or would be outside of what we feel we adequately reserved for.

I don't think actually want to circle back to it. I think I missed asking, just in terms of how much PCR testing is going through the central lab in Covance now versus the diagnostic side, has that been like consistent? Or because it's gotten busier with other work, you're doing less of that?

Yes. So I'd say it's fairly consistent. We did decrease it a little bit because we were doing some additional things that we needed people for and laboratory there, but not in a very significant way. It continues to be a big contributor. I think it was our -- could be wrong -- our fourth or fifth largest producer of test in that laboratory.

Got it. With the new administration coming in, is there anything in particular, any changes that you expect or any issues that's better or worse for the industry? I know it's -- PAMA is a very granular thing that it's probably not the top of a priority for a new administration, but do you know any views of particularly among any of the names for HHS Secretary that are being floated? So what are your expectations with the new administration, if any?

The first thing I'd say is they've really brought a scientific [ bent ]. And if you look at the people that are on the COVID Task Force, to make [ recognitions ] and transition team, I think very well-known, very well-thought of public health people and physicians of real value and to add a lot to the situation. So I feel good about the scientific approach. I think they've said the CDC will continue to play a very important role. And I think that's important that, that happened. And I think there'll be a lot of discussion about not just testing, you'll now focus on how to get more broad-based, particularly, asymptomatic patients tested to slow down the spread of disease. But I think they'll spend a lot of time thinking about vaccination and how to make sure that you get the vaccines to everybody, everywhere that you need and the fact that people should feel comfortable to get the vaccination. So I think we have a lot of focus in those areas and then obviously, afterwards, making sure the economy is sound and keep that mobilized and running forward fast and furiously. We've worked with administrations of Republicans and Democrats in Congress and Senates for 50 years, and the good news is we're scientifically-based organization. And as long as science is a priority, we'll do well. And I feel that this administration has science as a priority and, therefore, I expect that we'll continue to have a voice. They'll continue to listen to our thoughts. And I think as long as they do that, we'll be able to find ways to really work well together.

Got it. So kind of looking beyond the transitory effects of the pandemic, do you see any like kind of permanent structural changes in the health care system that will affect your business? There's been a lot of focus about -- on the acceleration of telehealth and just more convenient consumer-oriented care options. How do you think that affects your business? Is there an opportunity for more telehealth where they send a patient to a collection site, for example? What kind of structural changes might benefit you?

Yes. We spent on our Board meeting last morning the entire time talking about structural changes and capabilities that we need for the future. And the interesting thing is when we put our strategy together last year, focused on winning oncology, maximizing the power of the combined, being very customer-focused, ensuring that we would have digital data and analytics in everything we do and funding high-value things. And when you think about those parts of our strategy, they fall well in where the market is going. So telemedicine, telehealth, virtual trials, hybrid trials, those are all things that we're looking at under our digitalization and data analytics strategy. So until medicine became very important to the pandemic, we were already on the electronic medical record systems for almost all of them. And they were able to use us to give direction for laboratory results and to provide them back and forth very easily. When you look at the hybrid and virtual trials, we had already started looking for what acquisitions will make sense. We bought GlobalCare and snapIoT to increase our capabilities in those areas. So in some of the areas for data, digital, analytics, I feel that we're doing well. In terms of other structural changes, I think consumerism and people doing at-home collection, it's -- Pixel is an important piece of what we've been able to respond to, and I think they'll pay a bigger role with consumers in the future. I think consumers will continue to be very important. And the last thing I would say is our point-of-care testing, obviously, is playing a very different role. And we'll have to see how that changes over time because that could have an effect on where we focus on our business as well.

Got it. And I just want to squeeze in 1 more as we sort of come close to the end here. Can you just give an update on the M&A pipeline? Are things still on the slower side there? And kind of like remains slow and you do have some elevated operating cash flow next year COVID testing? How are you thinking about that in terms of like share repo?

Yes. So first thing I'd say is we are seeing an increase in the number of people talking to us about hospital lab acquisitions or local laboratory acquisition. So we want to do as many of those as we possibly can. They sometimes take longer than I would expect, but we're having more of those discussions. So that's first and foremost. They're accretive in the first year, they return cost of capital to, we can integrate them. The second thing is those 5 pillars I talked about, anything that would be acquired to enhance our pillars, we would be open to. So for example, Snap IoT and GlobalCare helped us in one of those pillars. So we're looking for acquisitions to actually accelerate our strategy moving forward. And then after that, we're looking at the share repurchases, which we announced last quarter, where we have the ability to do those as we move forward.

Great. I think that actually brings us to the end of our time. Thank you, Adam. Thank you, Glenn. I really appreciate it you guys being with us today.

Mike, thanks for having us. And I wish everybody on the phone a very happy holiday season. Please stay safe. Please be careful. We still have a ways to go before we're out of this. But if we don't see you before the holidays, have a happy, healthy new year. And as you can tell, we're optimistic about our future. We're optimistic about LabCorp and what we can do to try to help through this 19 -- COVID-19 virus, but more importantly, for the future after that. Have a great day, and I look forward to seeing you soon. Thank you, Mike.