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

Good afternoon, and welcome. My name is Lisa Gill, and I head up healthcare services here at JPMorgan. It is with great pleasure this afternoon that I will host a fireside chat with LabCorp. With LabCorp this afternoon I have to my right, the CEO, Adam Schechter; and to Adam's right is CFO, Julia Wang. So with that, Adam, welcome. Nice to see you.

Happy New Year. It's nice to be back.

Happy New Year. As I look back on '25, and I know we still don't have the fourth quarter, but if I look at the fundamentals, solid core fundamentals, you had nice M&A integration support, improved organic growth. Is there something you want to highlight to investors that you're particularly proud of as you look back at 25?

Sure. So first of all, I hope everybody had a nice new year. It's a pleasure to be with you all today. 2025 was a tremendous year for LabCorp. If you look strategically, we said we were going to focus on 4 core therapeutic areas: oncology, women's health, autoimmune and neurology. We launched over 100 tests last year, and the majority of them were in those 4 areas. Those areas we expect to grow 2 to 3x faster than the rest of the diagnostic market. So it's a tremendous opportunity for growth. We also said that hospital acquisitions, local regional labs were important for our strategy. We announced 13 new or closed deals in 2025, once again giving us tremendous opportunity for future growth. The interesting thing is when you look at the specialty and the hospitals, a lot of the hospital acquisitions look at our specialty capabilities, and that's very important to them because they want to make sure they bring the latest, most important new test to their patients. In addition to that, our central laboratory business, which is an extremely important faster-growing business also benefits from the specialty testing that we do. In addition to that, we made a lot of progress in terms of artificial intelligence and automating our laboratories and cytology, in microbiology, in areas like AI for pathology. We launched Global Trial Connect for our central laboratory business that enables pharmaceutical companies to understand what's happening with their clinical trials better than ever before. But if you push me to come up with one thing that I'm most proud of in 2025 as an organization, I think the integration of what we did with Invitae was truly remarkable. We took a company that was struggling financially. And by third quarter of 2025, we made it accretive to our earnings, and we turned that business around. But as importantly, Lisa, we'll probably talk about this later, you might have seen this morning, we announced several new MRD products or test into the marketplace, minimal or molecular residual disease. And if you look at those tests, there's 3 of them. One is for our breast cancer Stage I through III. The other is for non-small cell lung cancer, Stage I, II and IIIa; and the other is for colon cancer, Stage III. The first 2 of those tests came from Invitae. So not only are we making progress with the integration and the profitability of the company, but we found a way to take the tremendous science that they were doing at Invitae, and now we're bringing new MRD test, liquid biopsy test to the marketplace. So I think that the acquisition of Invitae will go down as a just great acquisition that turned out financially how we expected, but also contributed significantly to our scientific advances.

And I think as we were sitting here last year, there was a lot of question around how that was going to play out and if you are going to be able to recover the margin and make that business profitable. So I'm happy to hear that.

I never had any questions about it. I -- the team was committed to it. We had a clear path forward. I was glad to show that what we said we were going to deliver, we delivered in that time frame. But you're right, there was a lot of people questioning that.

Just coming back to the diagnostics business for a minute. The organic revenue growth target of 4.5% for the full year really exemplifies the strong diagnostic fundamentals you pointed to throughout the year. What's your view on the durability of these trends, whether we think about volume and price going into next year and the longer term?

No, I think it's a great question. And I have to say, after COVID, I thought that the increased utilization was due to the fact that people were not going to the doctor for quite some time, that it was kind of a catch-up. People started to go back to the doctor and increased utilization. Well, I can't make that argument 6 years later. I actually believe that the increased utilization is based upon demographics and things that are occurring in the marketplace. One, we have an aging population; two, we have a more chronically ill population that requires more testing; three, we're seeing a lot more tests in the specialty area. There's more excitement about those tests to understand people's diseases. A great example of that is historically, if you wanted to look at somebody's cholesterol, you look at their total cholesterol, their triglycerides, HDL, LDL. Now you're going to look at their ApoA, maybe their ApoB, you might want to do HDL subtyping. There's just so many more test that can help diagnose a patient better than what we've had before. So if I now look at where we are today, historically, utilization was growth of 1% to 2% organically per year. It's significantly higher than that if you look at through third quarter of 2025. You see some ups and downs quarter-by-quarter. But if you look over a year's time, you can see that it's very strong. I don't necessarily think it's going to stay at that level over time, but I do believe it will be higher than it ever was prior to COVID. So I think the utilization will continue to be much stronger than it has been historically. Separate and distinct from that, as I think about LabCorp and I think about specialty testing growth and I think about the hospital acquisitions, I expect that LabCorp will grow faster than the overall market. So irrespective of what the underlying organic growth is, I expect that we will grow significantly better than that with the market share gains.

When we think about the underlying growth, some of the potential headwinds going into next year are the subsidies expiring on the exchanges, very surprising to see where the numbers kind of shook out initially, although the first payment isn't due yet, right? So we'll see how many people actually pay their premium. And then secondly, the changes to Medicaid. Can you maybe talk about what you anticipate that will be the impact from a volume perspective on the business?

Yes. So we provided guidance. I'll ask Julia to give you some specifics on what it is, but it's definitely something we believe is manageable.

Yes. Lisa, it's great to be here, and thank you for having us. As it relates to ACA subsidy, the headwind, as you were saying that yesterday, we just learned the new development related to the enrollment so far, which appear to be encouraging and slightly better than expectation. Now with that being said, previously, when we analyzed the impact of the tax credit expiration for ACA, we have provided an estimate of approximately 30 basis points of volume impact to our diagnostic business in 2026. In deriving at this impact, we started evaluating the testing utilization of this insured population in the past. And then on top of that, we have made assumptions based on the expectation that some of the insured participants might have decided to not participating in the exchange but might continue to have insurance through other channels, whether it's employment based or through a family member, for example, right? So all in all, at this point, we will continue to monitor the landscape, but we believe a 30 basis points of volume impact to 2026 might be a good proxy to work with as an estimate.

Yes, that's what we put in our model, just to be clear.

Yes.

On the price and mix side, higher test per requisite has been a primary driver of organic growth where unit pricing has been roughly flat. And I think you talked, Adam, a little bit about metabolic panels as you were talking about cholesterol levels, et cetera, and increasing the number of tests. Can you maybe just talk about how we've seen that over time and what your expectations are going forward?

It's interesting. So first of all, if you look at overall health care spend, diagnostics is only 3% of the spend. Even with more test per accession, it's not going to make a significant difference to overall health care spend, but I do think it can have a significant impact to overall health of the population. There's a couple of things to think about. One is, as we're seeing more of the business move into these higher specialty areas, oncology, neurology, autoimmune disease, women's health, a lot of these patients, particularly in the first 3, are sicker and therefore, they tend to get more tests, not just on initial diagnosis, but even over time. So you think about an oncology patient, we now test them to see what the best therapy selection would be for them. That's great. It saves money for the system. It helps the patient not have any unnecessary side effects. But let's say, they go on immunotherapy. If you're on immunotherapy, you're going to monitor the kidneys, you're going to monitor the liver, you're going to monitor their heart. You're going to look at their white blood cell counts, all their blood cell counts. So you tend to have more tests for those types of patients. Therefore, I believe a specialty testing becomes more sophisticated. We have more options for people to help actually treat patients better that will continue to see the number of tests per accession increase over time. So it's been an asymptotic increase over time. I don't see that stopping.

Earlier, you spoke to hospital deals as one of the highlights in '25. And also, when we think about more favorable negotiations with managed care and keeping the unit price relatively flat, do you see additional traction on the unit price as we continue to make -- as you continue to make incremental strategic partnerships?

Yes. I mean I think when LabCorp does a deal with the hospital, there's 3 parts to the deal. There's one that's running the laboratory. It's a lower margin business, but it has a very high return on the cost of capital. If you then look at the second piece which is acquiring the outreach business, that has a very good return for us. In that business, when we acquired the outreach business, it actually reduces the cost for the patient, for the provider and ultimately for the plan. The more hospital acquisitions that we do, the lower the cost is for the plan. So we're able to go into the payer and say, look how much money you're already saving by the work that we're doing. And I think that, that goes a long way with them to say, hey, let's be partners, let's find a way to reduce health care costs overall. And it's allowed us to argue to at least have prices stay flat, where historically, prices have gone down over time. The pipeline for those hospital deals remains extraordinarily strong. I feel very good about the potential growth opportunities that we have there. I feel like the specialty testing that we're developing helps us in the hospital setting. I also feel that it's helping us with pharma and our pharma clients as well. If you look at the number and the percent of clinical trials that are being done in those 4 therapeutic areas, I mean, just oncology alone is over 40%. So the fact that we are bringing the test to market that our pharmaceutical clients are most looking forward to or that will help them diagnose and actually treat their patients that they're looking to enroll in clinical trials, I think it helps us there as well.

You touched on this also a little earlier when you talked about some of the new tests. And when we think about esoteric testing and the trends in esoteric testing, you highlighted a couple of the specific tests, but one of the other potential areas is Alzheimer's, right? And we've talked about this for a number of years?

Yes.

Can you maybe talk about when you expect to see that incremental opportunity, how big the opportunity can be?

Yes. So if you look at neurology, neurology is bigger than just Alzheimer's disease. We have a lot of new tests that we're doing for Parkinson's disease, for concussions, for many other neurologic areas. We believe that in the future, based upon the number of clinical trials that are being done in those areas, those tests will represent bigger and bigger opportunities over time. If you look specifically at Alzheimer's disease, there are multiple new products in development that we think these tests will be applicable to. Now we have the broadest range and number of tests for Alzheimer's disease. We want to continue to stay ahead of the science. Right now, I can't tell you which one might be the most important for the future, but whichever one it ends up being based upon the biological data that we get over time, we want to have that test available for every patient that could benefit. But the other thing is that's important about what we do at LabCorp based upon our size and our capabilities is we don't only do the Alzheimer's test. We can do all the other tests that, that patient might require so that a provider can come to us and say, yes, I'd like to know the patient's amyloid levels. But at the same time, they might want to know 5 other things, and we have the ability to run all of those tests. So I think it's not just the individual test, but it's the fact that we have over 7,000 tests on our menu that's helpful. In addition to that, the vast majority of drugs that come to the U.S. market, we have worked on in one shape, way or form through our BLS business. So we have experience with a lot of these new drugs and new molecules that have come to market and the tests that are being done in those clinical trials. So again, I think it brings together the central laboratory and the diagnostic laboratory business. in a very substantial way.

Adam, there's always been a lot of talk about companion diagnostics and the future of personalized medicine. And obviously, you would play a big role in that. I mean, it sounds like when you're thinking about neurology right now you're saying, oh, there could be a number of drugs that come to market, people will need to be tested. How do we think about the future as we sit here today in companion diagnostics?

I've always said that companion diagnostics are one of the best way that we can reduce health care costs. Like knowing who needs what medicine at what time is the best way to eliminate unnecessary side effects, eliminate unnecessary patients on products that we know aren't going to work. So the more we can figure out the science behind who's going to respond to what product, I think the better health care overall. I think as we have more AI in the development of new products, and you've heard a lot of my pharmaceutical colleagues talking about how they're using AI and development, I think we're going to find new biological methodologies to identify who's going to best benefit from each treatment that are going to make companion diagnostics increasingly important over time. And I hope it gets there because that would reduce cost for health care, it would reduce side effects for patients that aren't going to respond to a medication anyway, and it will allow us to focus on the patients that will get the most benefit. So I think it's good for everybody.

It was further down on my list, but let's talk about artificial intelligence because I think that it's obviously one of the key themes that people are talking about this year. You just talked about it from a development side. Can you talk about it specific to your business and some of the benefits that you potentially could see?

Yes. So we are looking at AI through every lens of our business. If I start with our operations, we're looking at how do we incorporate it into our laboratories, into microbiology, cytology, into pathology so that we can help identify issues much faster, allow the pathologist to know exactly where to look, when to look. Will we be able to take a tissue sample and not have to stain it alive, but stain it virtually so we can check different stains with the same tissue. We're doing all of that work as we speak. Separate and distinct from that, when you look at the customer experience, we're using AI in significant ways. We've used it for our test finder. So we have 7,000 tests. Providers can now go and have a chat, just a normal discussion to figure out what test might be most appropriate for their individual patients. We're using AI for scheduling of appointment. So historically, if you want an appointment before 8 a.m., you'd have to go site by site, look at each of our agendas. Now you can just go on, I want an appointment before 8 a.m. within a 10-mile radius. I want to have it on a Tuesday or a Thursday, and we're able to do all of that. But when we do that, we're then able to use AI to figure out how many phlebotomists do we need at each site at which time. What's the biggest traffic points that we could make sure that we're actually maximizing our capacity. We're using AI over in Julia's world, looking at RCM and our collections and all of the bad debt and things that we face there and how can we be more effective and more efficient there. So I'm just a firm believer that there's no aspect of your business, whether it be how you run your company, how you analyze information for your company, how you interact with your customers, every single one of those things is going to change with AI. And I can give you examples of things that used to take us 18 months that we can now do in 6 weeks. And we've got real examples of those things. So you'll hear us talk more and more about it. I heard somebody once say recently that if you're a CEO and you're asked if your company is a technology company, if you say no, it's because you haven't yet realized your company is a technology company. It's here. It's going to affect all of us in everything.

Adam, you also touched on this a little bit earlier when you talked about the hospital deals that you've done and the M&A pipeline. But can you give us a little more detail around what you're seeing currently in the marketplace around the M&A pipeline and where you see the biggest opportunities?

Yes. So I'll talk about the M&A pipeline, and then maybe, Julia, you can add how we're thinking about capital allocation and how we're putting capital towards the things that we see. First and foremost, when it comes to business development, I'd like to do as many hospital deals that we can do. They are accretive in the first year, they return their cost of capital in 2 to 3 years, and we're very successful in knowing how to integrate them. It's actually a way that we can expand our presence and make testing more broadly available. The pipeline for those is very strong. And what I would say is the urgency after COVID was high. But as hospitals started to perform better, the urgency was a little bit less even though the pipeline remains strong. I'm starting to see more urgency again. I think hospitals are worried about what could happen with reimbursement and Medicaid.

Medicaid, ACA.

ACA. So I think we're seeing another sense of urgency. So that will be a continued growth opportunity for us for as far as I look out into the future with the pipeline that we have. Separate and distinct from that, if there's a strategic acquisition that helps us in one of the core therapeutic areas or helps us in our central laboratory in a geography that we want to be present, I will be open to that as long as the financials were supported. I am not looking for a third leg of the stool. I'm not looking -- we have enough growth opportunities in our central laboratory business, in our diagnostic business, and I feel really good about our opportunities for the future. I'm not looking to add another part of the business that we're not in at this moment in time.

We're happy to hear you say that.

Yes. So one additional add on the M&A pipeline going into 2026 and beyond is that we continue to stay extremely disciplined as it relates to financial criteria. So the vast majority of the deals that we do actually meet our stringent financial criteria in the sense that they are expected to be accretive to earnings in year 1 and then help drive a return of cost of capital in 2 to 3 years. As Adam just shared, we executed well in 2025, and we expect to continue to progress in 2026. And then if you were to step back and just look at our capital deployment strategy and execution, our philosophy and approach, I would say, have been essentially strategic, consistent and balanced over the last few years. As you know, we have been very effective as a company in generating strong cash flow. And our capital deployment philosophy is essentially to utilize the strong cash flow generation to, on the one hand, reinvest into our businesses to position ourselves for continued success over the long term and on the other hand, to return capital to the shareholders. Now let me break that down a little bit further. So from an investment perspective, first and foremost, every year, we do a meaningful investment into capital expenditure. It's generally about 3.5% to 4% of our revenue as a range. And the investment is going into, on the one hand, refreshing our lab infrastructure, including the instrumentations and facilities and everything in between. The other aspect of investment that is meaningful as part of the CapEx is really investing into technology because now it's part of our value proposition in improving the customer experience, the patient experience and the employee experience. The other aspect of the reinvestment is, as Adam just shared, we've been extremely active on the BD and M&A front. Essentially, we continue to drive deals that support our strategy and augment our organic growth. Now when you move to look at the returning of capital to the shareholders, we generally do it in 2 ways. One of them is a dividend practice. We have been indexing a dividend payout in the range of approximately 15% to 20% of our adjusted earnings. And in addition to that, the share buyback has been a critical pillar within our capital deployment framework. For example, year-to-date until September of last year, we have purchased about $225 million of common stock. And at that point in time, we still had approximately $1.1 billion of a share buyback authorization outstanding that we could tap into at any time, right? Now when we think about capital deployment, it's also important to note that we have a very strong balance sheet that certainly provides dry powder capacity. For example, at the end of Q3 of last year, our financial leverage was 2.4x, which, by the way, was defined by the gross debt divided by the trailing 12-month adjusted EBITDA. And the 2.5x financial leverage was actually lower than the low end of our targeted financial leverage range, which is 2.5x to 3x. So in this environment, to be able to have that financial capacity is a good place to be. So all in all, I believe that we are well positioned to continue to deploy capital in a way that will position us for continued success in 2026 and beyond.

As I think about the M&A opportunities and I think about all the comments you made on the hospital side, one of the things that comes to mind is your managed care relationships and your ability to leverage those relationships by bringing more volume to them at a lower reimbursement. And so if I think about your number of requisites have increased, your pricing has remained relatively flat. And what I would say, health care services is pretty competitive. How much of that is driven by this conversation? Have you come in and you talked to what a large managed care company of, well, we've been able to save you x millions of dollars by shifting people out of the higher-cost hospital channel.

I mean it's very compelling. In fact, I think I should bring you in there to help make the argument with me. I mean, what a great position to be in where you're really needed for the work that you do. I mean it's 3% of health care spend diagnostics, but it's involved in almost every health care decision. So it's a necessary need for the health care system, and you can actually reduce cost by doing it. You can reduce cost by people using you to do the same thing they might do in other places. And you can reduce costs by finding disease earlier, preventing disease, finding the right patients for the right therapies. So we're really on the side of trying to decrease overall health care costs. The more we can convey that to our payers and the managed care organizations, the better off we are in our discussions on pricing. As I sit here today, we have very strong relationships with the payers. I feel very confident in the continued success that we'll have working side-by-side with them. The more business that comes to us, the better the cost is for them, but it also increases access importantly for the patients that we serve. So I think we're in a very good position. And as I sit here, we're not giving guidance today for '26, we'll do that in February. But as I look into '26 with our managed care and payers, I feel very good about the position we're in. I don't see anything that I'm concerned about with negotiations this year.

You brought up a really good point when you think about really trying to create that opportunity to catch disease earlier, to have our population be healthier. I think maybe some of you saw Dr. Oz today who can really reinforces that whole idea, right, Make America Healthy Again. Do you see incremental opportunities where -- and we're going to get into talking about the consumer, but where the consumer is much more focused on their health and wanting the incremental test whether you think about functional health or whether you wear a wearable or something else along those lines. So what are your future thoughts there?

Yes. I think the more that people pay attention to health care, the more that they're involved in the health care, the better we'll be. The healthier we can keep people, that's the best way to reduce overall health care costs. Any country in the world, the healthier the population, the lower the overall health care as a percent of GDP. It's just a fact. So anything we can do to diagnose people early, to keep them healthy, to prevent them from having chronic or severe disease is the right thing to do for the health care system. We're a big part of that. The test that we offer can help do all the things that I just mentioned. As I think about our LabCorp OnDemand, we launched 35 new tests last year alone. We have now over 100 tests available. And if you look at biomarkers, it's well over the 100 mark. We have the platform available that people can actually choose the test that they want, build the panels that they want in order to get the information that they need. At the same time, we're working very closely in the functional health space particularly with providers and physicians that are practicing functional health. Those physicians are trying to help people understand their bodies in a more holistic way. They tend to do more testing upfront to try to prevent chronic disease. And that's a very big, strong business for us working with those providers.

It wouldn't be a discussion if we didn't talk about PAMA. So for those of you that are not as close to the story, PAMA has been delayed until at least the end of January, where that's just a few weeks away. There has been other legislation that's been proposed, which is called RESULTS. So Adam, I think for those that don't -- are not as far in the weeds, can you maybe just talk about RESULTS versus PAMA, talk about where we are in the legislative process and what we think could potentially happen from here?

So I'm going to get some audience participation here first. So is there anybody in this room that thinks it's a good idea to go back and collect 2019 data, data from before COVID, to try to determine the price of diagnostics in 2026? It makes no sense. It doesn't make sense. It's just not the right way to think about how to make things current and to get the benefits that they were trying to achieve with PAMA. I haven't found a congressperson or a senator that doesn't agree. The issue is that PAMA is still around. We were trying to get legislation passed or passed through in the immediate past. It was called SALSA. That didn't happen. It was hard to get legislation approved. But PAMA has been delayed for many years now. And up until now, we assumed that PAMA would happen in 2026. What happened was when there was a funding for the government that's delayed, PAMA got delayed at least through the month of January. We also, through our trade group, ACLA, brought new legislation to bear that I think will achieve the results that people were trying to achieve, which is to make sure that you have the appropriate pricing for government programs for diagnostic testing. And that's called RESULTS. And ACL President -- ACLA President was in front of Congress last week where she had a review of the RESULTS legislation. And if you listen, it was very well received by both sides of the aisle, and I feel very confident that people understand that this could be the right answer to what they were trying to achieve in the first place. Now can you get the RESULTS legislation approved before the end of January? I think that will be really hard. I don't think that's going to happen, frankly. So the question is, by the end of January, will there be another delay in PAMA? That is what I am cautiously optimistic will happen. The fact that it was already delayed for the month of January tells me people understand that trying to implement PAMA is not the right thing. Assuming it's delayed again, then when we provide our guidance in February, we'll provide guidance that assumes that PAMA is not going to occur this year. If PAMA is not delayed, then it will go into effect in February, of which we've said there's about $100 million yearly impact. It will be less than that because January is not impacted. And we're working to offset $25 million to $30 million of that. Now the good news is, as I think about what we're looking at in 2026, we'll come with a compelling story assuming that PAMA does come. If PAMA doesn't come, it's just going to allow us to do better in order to make sure that we continue to invest in the future diagnostics, in the future science that's going to bring new tests available into the future.

If RESULTS does come about and it does pass, is there a financial impact from RESULTS?

There will be a financial impact from RESULTS. It would start in -- not in 2026, it will be after that. But it would be much more thoughtfully done. The issue in the past with PAMA is it only looked at a very small sample size, less than like 2% of the total diagnostics tests that happened out there. So it was a skewed result that caused the pricing to be very kind of out of context. RESULTS will allow the pricing to be more in context because it will use a third party to get the data so we have more data. And therefore, the impact will be more reasonable based upon what's actually occurring in the marketplace. So we're all for doing what is trying to be achieved, but we want to do it in a way that is more effective and actually is the intent that people had when they put in place PAMA.

That makes sense. Let's move on and talk about Biopharma Lab Services. Smaller component of the business, but it's still important. Can you discuss your positioning in both central lab, which is very strong and early development in the context of longer term. I know that you recently made a divestiture so maybe we can talk about that as well.

Yes. Yes. So if you look at the Biopharma Laboratory Service business, the vast majority of that business is our central laboratory. If you look at the central laboratory business, the majority of the business there is for Phase II and Phase III trials, and it's with large pharma and large biotech. It is a very strong business. It has very good growth opportunities. You saw the third quarter book-to-bill. We said we expect fourth quarter to be better. It will be better. It's a very strong, sustainable long-term business. We're a leader there. We're a leader in all parts of the world. We brought in new technologies, new advances in specialty testing. So we really are meeting our customers' needs very strong there. If you look at early development, early development is less than 5%. Well, it's about 5% of our total revenue, and it's even less than that if you look at operating income. That business is impacted much more by small biotech. The majority of the trials that we do there are small biotech trials. That gets impacted by funding. It gets impacted by interest rates. It gets impacted by timing. And we've seen that business not perform where we would have liked it to perform. We were holding capacity at higher levels in case the business returned to growth like it had previously done. We did not see that over the past couple of years, so we've started to really go into a profitability mindset. In order to do that, we're kind of focusing on our core areas. So we divested a noncore area, which was device work that we were doing. And we're consolidating certain sites, which we've announced 1 or 2 of those already, where we're trying to make sure that the capacity at the sites that remain get to level set our -- that are really at the maximum level. So I think those 2 things will enable us to continue to have a good, strong, profitable business. It is a leader in what we do there every day. You are starting to see biotech funding come back. So we're prepared for that, and it will be a more profitable, more kind of focused business as we move forward.

We had the discussion around M&A opportunities, you really were focused on the diagnostic side. Are there opportunities on BLS? Or do you feel like this is a business that we, like our central lab, we have a few other businesses within that for early development, but that's primarily all we want to do these days.

So in central laboratory, I'd be open to additional capabilities that we need if there's additional specialty laboratory tests that we want to do or laboratory facilities that might make sense to acquire, I'd be open to that. We are a leader. We are in all parts of the world. So I feel like we've got a really good basis there. I don't see anything as I sit here today to say, boy, we have to have that. But because it's such a strong business, because the long-term growth potential is so strong, that's an area that we would invest capital in if it made sense. When it comes to early development, I'm not as excited to spend additional capital in. Right now, I'm trying to figure out how do we maximize and make the business that we have more profitable. It is a leader in what we do. If there was something that was really important, I would consider it. But that's not where the majority of our mind is right now. It's really in our diagnostic growth capabilities and in our central laboratory growth.

You touched a little on central lab. But I mean even through the ups and downs, this business has been pretty consistent. When we think about your positioning in the marketplace and potential momentum from here, what do you think are the key drivers? Is it that biotech seems to be back?

You know what, I was in pharma for over 30 years before I came to LabCorp. And I can tell you that when you need to make cuts, the last place you look to cut is in your Phase III programs or your Phase IIb programs. I mean that is the lifeline of your company is that pipeline. You might cut early studies, you might cut some additional sales and marketing areas, but you'll go almost everywhere you can before you would impact what you think could be potentially a new product to bring to market in Phase III. I think that business is so strong, sustainable because we are a market leader. We are very global with that business. And we're doing mostly larger pharma and biotech companies and mostly Phase IIb through Phase III trials. I think that's like the sweet spot of that business. And it's a very good long-term business. The other thing I would say about that business is if you went into one of our central laboratories, it looks very similar to a diagnostic laboratory. Very similar equipment, very similar people that you need, very similar reagents. There's certainly a benefit of scale in that business combined with our diagnostic business. There's certainly a benefit to the specialty testing that we learn in the pharma business that we could bring to diagnostics or vice versa. So there's a ton of synergies between those 2 businesses.

In our last couple of minutes, I want to just focus on 2 areas. One, talk a little bit about LaunchPad and the initiatives there and some of the big opportunities. And then secondly, Julia, if you want to -- I know we're not going to give guidance, but if there's any headwinds or tailwinds that we need to think about going into '26.

So I'll start with LaunchPad and you can go into that '26. So if I look at LaunchPad, I look at it as a continuous improvement opportunity. Basically saying that every year, we have to find $100 million to $125 million of improvement in order to offset, in particular, wage inflation. And to me, it's just the right way to run your business. Historically, we've been able to do that through easy things like increasing our procurement capabilities by looking to offshore certain jobs. There were things that everybody was doing that was a little bit of, like, I call lower hanging fruit. But as we've been doing it now for many years, now we're actually looking at impacting processes. How do we do things more efficiently? How do we take more automation in our laboratory so that we can be more efficient, more effective? Now with AI and with machine learning and with computation, it's opening up all kinds of ideas that we have for savings. Things that took 18 months before we're doing in literally months. So I think that as we look at the future savings, it's going to come from more process improvements, more automization (sic) [ automation ], more robotics, but also more capabilities with AI to reduce costs in these higher cost areas. So I think there's a lot of opportunity moving forward.

Yes. And then as it relates to the tailwinds and the headwinds for 2026, I believe we are well positioned heading to the year driving continued growth. So a few highlights for considerations. First of all, on the diagnostics side, as you heard Adam sharing earlier, we expect to continue to have strong underlying utilization trend supported by the industry dynamic. On top of that, our focus on specialty, the tailwind as it relates to the test session increase as well as our continued position in as a partner of choice for the health systems, the hospitals as it relates to the M&A activity. So all of those things should drive tailwind for sure. Now obviously, PAMA continues to be a variable at this moment in time, although we just now discussed, no matter how that aspect lands and the dust settles, we are well prepared to manage through those scenarios. And then on the BLS side, we talked about the continued strength in the central lab side. And then on ED, we're just doing everything we could to streamline the business while improving the profitability profile. So all in all, I would say that we are excited about the new year, and we look forward to updating you on our guidance in a few weeks when we get to the Q4 earnings release.

Great. We're looking forward to that as well. With that, we're out of time. Thank you so much, Julia and Adam. We really appreciate the time this afternoon. Thanks, everybody.

Thanks, everybody.

Thank you.