Investors panic over BioReference Laboratories' reimbursement woes

BioReference Laboratories' ($BRLI) preliminary 2013 fourth-quarter earnings fell below expectations, driving the company's stock down more than 21% before the Thanksgiving holiday. The New Jersey diagnostics outfit blamed, in part, reimbursement pressures and legal costs relating to a patent fight against Myriad Genetics ($MYGN) over its predictive cancer diagnostic test.

The company's stock closed at $29.55 on Nov. 27, down $8.18 or close to 21.7% in reaction to the news.

BioReference said patient volume for the quarter grew 15%, save for lost growth due to Superstorm Sandy, but that revenue per patient for nongenetic tests trended downward by about 4% in Q4 versus the previous quarter. Earnings should reach 40 cents per share with revenue hitting $192 million, the company said. As Bloomberg noted, however, analysts had predicted 55 cents per share and $189 million in sales.

Executives said the reimbursement climate has grown increasingly tough through 2013 and is a major driver behind lowered expectations.

"Over the past year, the company has had to negotiate contract modifications to reimbursement rates, conditions of payment and/or eligibility with dozens of health plans representing a substantial number of lives nationwide," BioReference Laboratories cautioned in its preliminary earnings announcement. "Most of these changes became effective toward the end of FY13 and especially in Q4 FY13." Executives blamed everything from the Affordable Care Act, the autumn government shutdown and proposed CMS reimbursement changes as factors behind the reimbursement pressure.

But BioReference also said it faced "substantial startup costs" relating to the launch of its GeneDx inherited cancer program, which includes tests for the BRCA genes. The company rolled out its test in the wake of a U.S. Supreme Court decision that invalidated some patents involving the BRCA genes behind Myriad Genetics' BRACAnalysis test for hereditary breast and ovarian cancer. Myriad is now suing BioReference and other rivals, alleging patent violations, and BioReference said that "substantial legal expenses" regarding the test launch and subsequent legal action will also adversely affect Q4 earnings.

While BioReference noted that the GeneDx program "has received highly favorable provider response," it likely won't provide a major bump to earnings until the 2014 fiscal year, the company said.

BioReference's fiscal 2014 guidance at this point predicts a 10% increase in revenue, patient volume and net income, though it notes that any major CMS reimbursement changes could undo that prediction. An official Q4 and full-year fiscal 2013 earnings report will be released on Dec. 19, 2013.

- read the release
- here's Bloomberg's take

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