Laboratory of America Holdings' CEO Discusses Q1 2011 Results - Earnings Call Transcript

Apr.21.11 | About: Laboratory Corporation (LH)

Laboratory of America Holdings (NYSE:LH)

Q1 2011 Earnings Call

April 21, 2011 9:00 am ET

Executives

Stephen Anderson - Director of Investor Relations

David King - Chairman, Chief Executive Officer and President

William Hayes - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

Shelley Gnall-Sazenski - Goldman Sachs Group Inc.

William Quirk - Piper Jaffray Companies

Ralph Giacobbe - Crédit Suisse AG

Dane Leone - Macquarie Research

Ricky Goldwasser - Morgan Stanley

Steven Valiquette - UBS Investment Bank

Gary Lieberman - Wells Fargo Securities, LLC

Kemp Dolliver - Avondale Partners, LLC

Thomas Gallucci - Lazard Capital Markets LLC

Robert Willoughby

Brian Zimmerman

Brendan Strong - Barclays Capital

Gary Taylor - Citigroup Inc

Amanda Murphy - William Blair & Company L.L.C.

Anthony Vendetti - Maxim Group LLC

Bill Bonello - RBC Capital Markets, LLC

Question-and-Answer Session

David King

Okay, well, so first of all, we said 3 to 5 years on the 45% from esoteric. Second of all, on the particular test within the esoteric category, yes, clearly, some of them like vitamin D are slowing on a year-over-year basis because you're off of the much higher base. Some of them like IL28B are growing dramatically on a year-over-year basis again because you're off the small base. So there's a lot -- this is why it's important for us to continue to bring new tests to market, particularly new tests that are reasonably priced in the esoteric category so that -- and again, vitamin D is still growing but it's not growing as fast year-to-year because you're off of a bigger base. But as growth slows in those areas, we can replace it with growth in other testing. As to gross margins, obviously gross margins were dragged by the acquisitions this quarter but if you actually look at gross margin perspective, I think over the -- probably last couple of years, gross margin has actually been improving as the efficiency initiatives have taken hold. So there isn't any reason why gross margin should go down over time. It should improve.

Anthony Vendetti - Maxim Group LLC

Okay, great. Thanks.

Operator

Our next question is a follow-up. It comes from the line of Bill Bonello with RBC.

Bill Bonello - RBC Capital Markets, LLC

Hey, thanks a lot for taking my follow-up. It's kind of a 2 biscuit morning here. I am wondering, Gen-Probe yesterday announced that it received FDA approval for its trich test. Is that something that you could anticipate seeing some pretty substantial demand for, I mean, where we could kind of think about physicians who are checking the box for chlamydia and gonorrhea, going ahead and check in the box for trich.

David King

As you know, Bill, and I appreciate the fact that you're talking about checking different boxes because as you know, we feel quite strongly about the need not to jam these things together in a way that it encourages odd ordering pattern. So I think the answer to your question is it's an option that we will offer. I do think that there will be a good deal of physician interest in the test. And my belief is that we have been offering the test in some form already as number of other labs. But certainly, the fact that Gen-Probe got the approval should bring some further focus to physicians on appropriate utilization.

Bill Bonello - RBC Capital Markets, LLC

Okay. And then the investment that you wrote off in the quarter, care to tell us what that was?

David King

So that's 2 follow-up questions. So now, it must be a 3 biscuit morning, and no, the only thing we're going to say about it is we periodically make investments and ideas that we think are interesting, opportunistic and strategic and have the potential to work out well for us. This was an opportunity that was interesting and opportunistic and strategic and did not work out well for us. In my recollection, in my 10 years at LabCorp, it's the first time that we've sort of had anything like this. It just was not successful, but I view it purely as a onetime event and not something that there's a risk of repetition.

Bill Bonello - RBC Capital Markets, LLC

Okay. And then a final, at risk of being until I get 18 biscuit morning, the CPT coding initiative. I know in the past, you guys have sort of indicated, you're not really worried about it, but I continue to get a lot of questions from investors about it. I'm hoping you can give us some more rationale for why you're not really worried about it. Is it just you look at and you say, gosh, we're hard-pressed to see that rates would actually come down or is it more of when we add up the amount of revenue we get from stack coding, it's just not that much?

David King

Okay, this is a complex question so let me try to address the various component parts of it. First of all, there's developed this kind of idea that somehow stack coding is a bad thing and that could not be more inaccurate because the way -- CPT stands for Current Procedural Terminology and the P is Procedure and so we build by procedure. So if we perform in a particular molecular test, if we perform a particular procedure like a DNA amplification 20x, then it is absolutely appropriate to bill 20 units of DNA amplification and bill 20 to that CPT code. There's nothing wrong with what "code stacking".

However, what has been pointed out to the lab industry is a couple of things. One, there are some labs that use CPT coding to generate and the way that they code their tests to generate higher revenue for testing than other labs. And this is a concern because you can look at -- as we were showing in a meeting one time, you can look at 4 different labs billing Medicare for the same test with 4 completely different sets of CPT codes. And so there is a concern that coding in general and it's not code stacking, it's just coding in general, can be used in a way that maximizes reimbursement. And we don't do that and, obviously, we do not support it.

The other thing that is a concern is, there's very little transparency in what the payer sees from a CPT coding perspective. So they look at, to go back to my example, 20 units of DNA amplification and they don't know what they're buying. They don't know if that's a cystic fibrosis test. They don't know if it's fragile X. They don't know what the test is. And so there has been a push for greater transparency in coding, which has led to the idea that we should have a single code for highly-utilized molecular test like cystic fibrosis and fragile X and some others.

And we support transparency in coding and billing and obviously, that's a laudatory goal. So the reasons that, in our view, this is not a particularly big issue is, at least at present, is first of all, this is a Medicare initiative and the amount of molecular testing, particularly in these categories like CF and fragile X that you do for Medicare, is really immaterial.

Second of all, we don't have any indication that there is any consideration of major changes to reimbursement as a result of this initiative. So nobody said, well, cystic fibrosis reimbursement is going to be dramatically cut as a result of this and usually -- and we don't know how these tests are going to be reimbursed. But our expectation is that reimbursement levels can be relatively consistent with what we've seen in the past. And that would be the fair way to handle them, the appropriate way for CMS to handle it. So I realized it's a long answer, Bill, and I'm sorry for having gone on. But I think it's important that people so really understand what's going on here, which is we do support transparency in coding. We do support payers knowing what they're paying for. We don't have a huge amount of revenue at risk and believe me, we are through ACLA and individually and our partner labs in ACLA are doing the same thing. We are going to fight to make sure that there is not a negative impact on reimbursement as a result of this initiative.

Bill Bonello - RBC Capital Markets, LLC

Thank you very much.

Operator

All right, ladies and gentlemen, this concludes the Q&A portion of the call. I would now like to turn the presentation over to management for closing remarks.

David King

Thank you, Jeff. We appreciate your taking time to listen to our first quarter earnings call and hope you have a great day, good day.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Laboratory Corporation of America Earnings Conference Call. My name is Jeff, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. David King, Chairman and Chief Executive Officer of LabCorp. Please proceed, Mr. King.

David King

Thank you, Jeff. Good morning, and welcome to LabCorp's First Quarter 2011 Conference Call. Joining me today from LabCorp are Brad Hayes, Executive Vice President and Chief Financial Officer; Ed Dodson, Senior Vice President and Chief Accounting Officer; and Steve Anderson, Vice President, Investor Relations. This morning, we will discuss our first quarter 2011 financial results, highlight our progress on our 5-pillar strategy and provide answers to several frequently asked questions. I'd now like to turn the call over to Steve Anderson who has a few comments before we begin.

Stephen Anderson

Before we get started, I would like to point out that there will be a replay of this conference call available via telephone and Internet. Please refer to today's press release for replay information. This morning, the company filed a Form 8-K that included additional information on our business and operations. This information is also available on our website. Analysts and investors are directed to this 8-K and our website to review the supplemental information. Additionally, we refer you to today's press release, which is available on our website for a reconciliation of non-GAAP financial measures discussed during today's call to GAAP. These non-GAAP measures include adjusted EPS, excluding amortization, free cash flow and adjusted operating income.

I would also like to point out that we are making forward-looking statements during this conference call. These forward-looking statements include, among others, statements about our expected financial results. These statements are based upon the current expectations and are subject to change, including based upon various important factors that could affect the company's financial results. Some of these factors are set forth in detail in our 2010 10-K and subsequent filings. The company has no obligation to provide any update to these forward-looking statements even if our expectations change. Now, Brad Hayes will review our financial results.

William Hayes

Thank you, Steve. By now, you should have had a chance to review our first quarter financial results. On today's call, I'll discuss 4 key measures of our financial performance: cash flow, revenue growth, margin and liquidity. First, cash flow. Our cash flow remained strong. Free cash flow for the trailing 12 months ending March 31, 2011, was $735.9 million, which was reduced by approximately $20 million due to delays in the Genzyme Genetics enrollment process. We expect that these delays will be resolved in due course and are reiterating our 2011 operating cash flow guidance of $900 million.

We remain pleased with our cash collections. DSO increased 1 day year-over-year to 47 days at the end of March and increased sequentially by 2 days. Excluding the impact from Genzyme Genetics, DSO improved 2 days year-over-year to 44 days at the end of March and increased sequentially by 1 day. Our bad debt remained stable at 4.7%.

Second, revenue growth. Revenue increased 14.6% year-over-year in the first quarter. Genzyme Genetics accounted for approximately 8% of this growth. During the quarter, we achieved strong growth in revenue for requisition, which increased 8.2% year-over-year. The growth in revenue per requisition is attributable to acquisitions, rate increases, test mix shift and increases in test for requisition. Genzyme Genetics accounted for approximately 6.5% of the growth in revenue per requisition.

Total company volume increased 5.9% year-over-year during the first quarter. Genzyme Genetics accounted for approximately 1% of this volume growth. Esoteric volume increased approximately 11% in the quarter.

Third, margin. For the first quarter, our adjusted operating income margin was 19.3% compared to 20.4% in the first quarter of 2010. Recent acquisitions that we have not yet fully integrated caused a 180-basis point drag on margin. Over time, as we integrate the businesses, we expect margins to improve.

Fourth, liquidity. We remain well capitalized. At the end of March, we had cash of $195.4 million and approximately $420 million available under our revolving line of credit. At the end of March, total debt was $2.2 billion, including $40 million drawn down on our revolving credit facility. During the first quarter, we repurchased approximately $265 million of stock representing approximately 2.9 million shares. At the end of March, approximately $469 million of repurchase authorization remained under our previously approved share repurchase program.

This morning, we updated our 2011 financial guidance. We expect revenue growth of 9.5% to 11.5%; adjusted EPS, excluding amortization in the range of $6.17 to $6.32, excluding the impact of any share repurchase activity after March 31, 2011; operating cash flow of approximately $900 million and capital expenditures of $140 million to $150 million. I will now turn the call over to Dave.

David King

Thank you, Brad. We are extremely pleased with our first quarter results. We generated strong revenue growth of 14.6%. Volume increased a solid 5.9% and esoteric volume increased approximately 11%. Importantly, our organic volume increased more than 3%, which reflects a continuation of the positive trends we saw beginning in the fourth quarter of 2010. Revenue per requisition remained strong, increasing 8.2%. Genzyme Genetics accounted for approximately 6.5% of the revenue per requisition growth.

Similar to last year, inclement weather negatively impacted revenue by $22 million and EPS by $0.08. Our continuing focus on optimizing our business would have resulted in operating margin expansion, excluding the impact of recent acquisitions. The impact of weather further weighed against our margins in the quarter. Excluding the impact of Genzyme Genetics, our DSO declined on a year-over-year basis to 44 days, reflecting the continued exceptional performance of our operational and billing personnel. And Genzyme Genetics had an impressive quarter, recording one of its strongest historical performances.

I would now like to update you on our progress on our strategic initiatives, which are focused on providing the highest quality laboratory services at the most reasonable costs, thereby providing the highest value for each dollar of laboratory spend in the healthcare system. The first pillar of our strategy is that we deploy our cash to enhance our footprint and test menu through acquisitions and to repurchase shares. As I just mentioned, our recent major acquisition, Genzyme Genetics, is performing well. We are extremely pleased and appreciative of the skill and dedication we observe among the Genzyme Genetics personnel who are now part of our LabCorp family.

Earlier this month, we announced our intended acquisition of Orchid Cellmark, an international provider of DNA testing services primarily for forensic and family relationship applications. The transaction is subject to regulatory approval and if received, we would expect it to close later in the second quarter. While not material, we expect the transaction to be neutral to GAAP earnings and slightly accretive to cash earnings in 2011.

Finally, in 2010, we repurchased $337.4 million of our shares and we have repurchased approximately $265 million of our shares thus far in 2011. The second pillar of our strategy is to enhance our IT capabilities to improve physician and patient experience. We have already incorporated Genzyme Genetics' result delivery into our Beacon platform. We are also implementing Beacon order entry functionality nationally and deploying specialty modules so that healthcare professionals can order all LabCorp services and receive results through a single online portal. We are also developing and introducing the Beacon patient portal, an Android version of Beacon Mobile and the Beacon hospital edition to meet the needs of our clients and patients.

The third pillar of our strategy is to continue to improve efficiency to offer the most compelling value in laboratory services. We are continuing to improve automation in our laboratories, which allows us to lower our cost structure, increase throughput and redirect personnel to customer-facing positions. We are expanding our touch and AccuDraw order entry systems throughout our network to improve physician and patient experience. Touch is an on-screen draw tool that allows us to fully accession specimens in patient service centers reducing paperwork and labor.

The fourth pillar of our strategy is to continue scientific innovation at reasonable and appropriate pricing. Adding the Genzyme Genetics scientists to our strong scientific team at LabCorp will allow us to continue to lead the industry in scientific discovery and initiatives in personalized medicine for years to come. We will continue to introduce new tests and collaborate with leading companies and academic institutions to provide our physicians and patients with the most scientifically advanced testing in our industry. In 2011 alone, we intend to bring at least 15 new tests to market in the area of women's health, genetics and oncology.

The fifth pillar of our strategy is to consider alternative delivery models. We believe there will be incentives to our industry and healthcare in general to move away from traditional fee-for-service models. We will continue to work on these alternative delivery models to provide the highest value for each dollar of laboratory spend in the healthcare system.

These 5 pillars will allow us to continue to execute on our foundation model, enhance customer service and patient care, provide cost-saving opportunities to the healthcare system and create value for our shareholders. In summary, we are pleased with our first quarter performance and we remain excited about the opportunities on our horizon and the strategies we employ to realize them. Now, Steve Anderson will review anticipated questions and our specific answers to those questions.

Stephen Anderson

Thank you, Dave. Why are you not adjusting your guidance higher given your performance and weather? Our guidance encompasses a wide range of potential outcomes and we are only 1 quarter into 2011. That said, in reviewing the most recent analyst estimates for 2011, we continue to note that the diluted share count estimates differ considerably from our own and from each other. It appears to us that many of the components of the First Call estimates include future share repurchase and our guidance does not. We would like to remind you that our original guidance included $234 million of share repurchase that occurred in January. Finally, in reviewing the analysts' models, we do not believe that seasonality of our business is captured within many of the published estimates. We have previously noted that the fourth quarter tends to be the lowest quarter from a revenue and earnings perspective due to seasonality, weather and holidays. However, this is not currently reflected in most of the analysts' models we have reviewed.

Can you update us on the mix of your business coming from esoteric testing? In the first quarter, approximately 40% of our revenues were in the genomic, esoteric and anatomic pathology categories. As we mentioned on our fourth quarter call, our new goal is to increase our esoteric test mix to approximately 45% of our revenue within the next 3 to 5 years.

Does acquiring Genzyme Genetics limit your ability to repurchase shares or act upon other acquisition opportunities? We repurchased approximately $265 million of our shares in the first quarter and have $469 million of authorization remaining under our previously approved share repurchase program. While we do not comment specifically on share repurchase, we have historically been a consistent buyer of our shares. We do not believe we are precluded from making acquisitions as usual or from pursuing our strategic goals.

Can you remind us of how drugs of abuse volume trended during the year? In the quarter, our drugs of abuse volume increased approximately 14% year-over-year. That compares to a year-over-year increase of 12% in Q4 of 2010; 13.9% in Q3 of 2010; 15.4% in Q2 of 2010; and 6.8% in Q1 of 2010. Now I'd like to turn the call back over to Dave.

David King

Thank you, Steve. Thank you very much for listening. We are now ready to take your questions.

Operator

[Operator Instructions] Our first question comes from the line of Bill Bonello with RBC.

Bill Bonello - RBC Capital Markets, LLC

Hey, thanks for taking my question. I got a follow-up on the guidance even though Steve gave some explanation of where you're at relative to where analysts are. I'm still a little puzzled. I mean, you grew EPS by more than 8% year-over-year in Q1 and at the high-end of guidance, you're looking for less than 5% growth. At the low end, you're looking for EPS of less than 2% growth. And so I appreciate the conservatism in 1 quarter doesn't make a year but I just want to make sure that I understand, if there's anything in particular you're looking at over the next 3 quarters that would make the comps more difficult than they were in the first quarter, because intuitively, if anything, it would seem like the comps would get easier as Genzyme becomes less of a drag.

David King

It's Dave. I'll start and then I'm going to let Brad give you some specific details. But let me first say that we do not see any major clouds on the horizon or bumps in the road that caused us to be concerned about the guidance. As you say, 1 quarter does not make a year and the guidance that we gave, as we always say, is intended to encompass a broad range of potential outcomes. So there's nothing out there that is a concern to us that we see coming down the road. But the quarter was in line with our internal expectations. And as Steve mentioned, the share count and the seasonality do have an impact on where we see the estimates versus what we look at internally. So with that, I'll turn it over to Brad to add some color.

William Hayes

Dave -- and I can't think of much to put on top of that, Bill, other than just to reiterate. You don't anything unusual in the model going forward. And I think our first quarter was in line with our own expectations, and as Steve said, the fourth quarter tends to be our lowest quarter in terms of revenue and earnings and we don't think that's incorporated. Also, the share repurchase in our model does not occur. So I think, again, looking at expectations externally versus our own, that is a major driver.

Bill Bonello - RBC Capital Markets, LLC

Okay, that makes sense. It seems like share repurchase maybe contributed 300 basis points or something like that to the EPS growth. So just one follow up and I'll hop back in the queue. Just Quest and discuss on this call the need to make incremental investments in this business, and in particularly, in phlebotomist and patient service centers. And I'm just curious, if you're seeing anything out there in terms of sort of increased competition in terms of access to draws and in particular, if you're seeing any significant uptake, excuse me, any significant uptake in the demand for -- in office phlebotomist?

David King

Bill, it's Dave. I think if you look at our year-over-year patient service center numbers, you will see that they're probably up by a total of about 100 and most of that is due to the Westcliff acquisition. So our patient service center numbers are relatively stable and I think in terms of access for patients and access to draws, we're not seeing anything that would cause us to feel that there's an increase in competition. Obviously, it's always a very competitive business.

In terms of an office phlebotomy, that's been an area in which we have certainly seen growth over time. I would say it's relatively stable at this point. So as we've said many times, our strategy here is to use the efficiency gains that we're making in the laboratories, in the patient service centers to redeploy our personnel into customer-facing positions. So we are continuing to invest in the business. A lot of that investment goes into IT and automation and better efficiency, and that allows us to basically put more people in front of the customers without having to increase our headcount.

William Hayes

And Bill, one more thing I just wanted to add to your EPS question. I'm looking at some detail here. I mean, operationally, we definitely don't see anything unusual. I think it just goes to looking at the diluted share counts over the quarters of last year compared to our assumptions in this year. So we started off Q1 '10 with a higher share count obviously than we ended. So that the lower share count Q1 '11 drives a greater growth rate. So I think as the shares came down in '10, that's what's driving, in your question, the lower growth rate going forward in our sort of no-share repurchase guidance.

Bill Bonello - RBC Capital Markets, LLC

Makes sense. Thank you.

Operator

Our next question comes from the line of Bob Willoughby with Bank of America Merrill Lynch.

Robert Willoughby

Hey Dave, you mentioned that Genzyme had a very impressive quarter. But I mean, year-over-year, can you give us any kind of data how it did? We know it contributed to your volume and revenues but internally, what was the performance there year-over-year for the Genzyme asset in isolation?

David King

Without making reference to specific year-over-year performance, Bob, what I would say is, from a revenue perspective, my understanding is this was the best quarter that Genzyme has recorded in its history in terms of revenue performance, and we also were pleased with the profitability of the business.

Robert Willoughby

But didn't we move to a LabCorp managed-care contracts or has that not happened? And yet I would've thought revenues would have taken a bit of a dip before rebounding.

David King

All of that is in process but it's not fully implemented. So that's part of the reason. As we get into the second half of the year, we expect to see more of that impact in both our pricing and the overall price.

Robert Willoughby

I got you. And just from a consolidation standpoint, I mean, it's early but anecdotally, can you cite any activities that have happened that have resulted in some savings?

David King

Yes. The major activities, as we said from the beginning, what we started out with was the kind of SG&A stuff. So FedEx, logistics, the overlapping personnel, for example, financial staff, which we didn't need. There has been -- we've made some move to consolidate the sales forces particularly in the Oncology business. And we continue to look at all the areas of overlap to make sure that we're moving toward optimizing the business. But as I've said from the very beginning with regard to this acquisition, the number one priority is maintaining and growing the revenue, and that's why we're really very pleased with the revenue performance this quarter. Obviously, as the revenue grows, that enhances the profitability of the business and makes it less necessary to look at operational cuts. So we're continuing to look hard at the opportunities that we have in SG&A and facilities and other overlapping areas. But at the same time, making sure that top line revenue is stable and growing is number one for us.

Robert Willoughby

And on the valuation for the Orchid deal, visionary by the way, what have you assumed for the federal and state NOLs in terms of the availability with the change of control?

William Hayes

Bob, this is Brad. Those are family limited because they're based on purchase price and go out over some amount of time. So I don't think we're getting specific on what our assumptions are related to that. But it's cash flow entirely in its benefit.

Robert Willoughby

Right, and the accessibility of those NOLs, you don't lose them in the change of control?

William Hayes

We don't lose them but they get limited. Again, I said quite a bit by purchase price and other factors in the calculation.

Robert Willoughby

And quickly on the strategy there, you said the intention to keep the Orchid facility is open or will you consolidate those revenues with your existing business?

David King

Bob, it's Dave. We've not made a final decision on that, either -- well, in the U.S. In the U.K., the intention is to keep the Orchid business essentially as is and I think it's actually the Cellmark brand over there. We're still subject to regulatory approval on the U.S. transaction and so we have not even begun to do any planning on what the businesses would look like after our close.

Robert Willoughby

Okay. And lastly, Brad, you have mentioned there would be some new disclosures this quarter. I see what's missing. What have you added? I guess, we're waiting for the queue, is that it?

William Hayes

Bob, I'm not sure exactly what you're referring to. The 8-K is filed so that has information and when the Q is filed, it will have the traditional information which has some detail around revenue, volume and revenue per requisition for our core esoteric and other businesses.

Robert Willoughby

Okay, so that is in the queue. That's all we're looking for. All right, thank you.

Operator

Our next question comes from the line of Brendan Strong with Barclays Capital.

Brendan Strong - Barclays Capital

Maybe just first, going back to the question around guidance. I mean, you've got Genzyme delivering 8% this quarter. You look at the other acquisitions that are annualizing, that's another 1.5%, 2% of revenue. You got 3% organic revenue growth this quarter. I mean, what's going to result in, I guess, revenue being below the top end of your guidance for the year?

David King

Brendan, it's Dave. I mean, I don't know what we could really say beyond what we've said already, which is that this is 1 quarter. Obviously, we're very pleased with the quarter. But 1 quarter does not make a whole year. We know that in the second half of the year, the Westcliff and DCL acquisitions will annualize starting in the third quarter. And we get 11 months of Genzyme, not 12 months of Genzyme because that deal closed in December of last year. So obviously, we're optimistic that we're going to perform well. But at the same time, we have 1 quarter under our belt and we want to be realistic in terms of the way we think about the business. And as Brad said and Steve said, the share count matters and the seasonality matters, and we don't give quarterly guidance but the numbers that are out there for the fourth quarter, just by historical basis, are not squaring with the seasonality that we see in the business.

Brendan Strong - Barclays Capital

Sure, okay. And then maybe on the Empire contract, I mean, have you guys started to -- you mentioned in the past that there was a slow ramp up there and I'm curious if you guys are starting to gain additional traction there. And then as part of that, I don't know if you have a number in your mind in terms of like what the total revenue opportunity is, not necessarily what part of it you could capture, but what the total revenue from Empire that goes to -- in a reference labs is?

David King

I don't have a number in mind in terms of the total revenue. I think my recollection is about 1.5 million members who have a lab benefit and so that's the base. We have seen a marked improvement in our Empire volumes this quarter and very pleased about that, and we expect that to continue to improve.

Brendan Strong - Barclays Capital

And just a last question on that, I mean, so it's growing off for the small base, but is it big enough that it's actually moving some of your metrics and then actually driving some of that 3% organic growth?

David King

Well, every encounter with a patient matters in terms of driving growth. So it is off the small base but at the same time, anytime you see share gains within a new contract, that's a good indication that we are getting organic growth. So it's small but it still contributes.

Brendan Strong - Barclays Capital

Fantastic. Thanks.

Operator

Our next question comes from the line of Gary Lieberman with Wells Fargo Securities.

Gary Lieberman - Wells Fargo Securities, LLC

Maybe if there's any insight into any restructuring charges throughout the remainder of the year. You guys were kind enough to give us what the charges were in the quarter, but how are you thinking about it through the remainder of the year?

William Hayes

Gary, this is Brad. I think as we continue to integrate Genzyme Genetics and some of our other acquisitions from the middle of last year, there's the possibility that you'll continue to see some other activity in that line.

Gary Lieberman - Wells Fargo Securities, LLC

Okay. In line with kind of what it was in the first quarter or should it diminish over the period of the rest of the year?

William Hayes

I wouldn't want to go as far as estimating amount.

Gary Lieberman - Wells Fargo Securities, LLC

Okay. And then just given what sounds like the strength in Genzyme, any change in your thoughts of when it might be accretive? Do you think it might be accretive a little bit sooner, so maybe towards the end of this year as opposed to into next year?

David King

Gary, it's Dave. Again, terrific quarter for Genzyme. We're very appreciative of the effort of the Genzyme leadership team starting right from the top and the sales leadership as well, all the way down to the individual employees, the sales people, the lab employees, the genetic counselors who've just done a terrific job and really put their shoulder to the wheel in terms of making this business successful. Again, I think it's too early to make a statement that it's going to be better than we thought that it would be. As we noted in response to Bob Willoughby's question, I mean, there will be some managed -- we expect that there will be some managed-care pricing implications later in the year. So I'm delighted with where we are and I have every hope that it will be better, but I don't think we're prepared to incorporate that in any of those financial metrics.

Operator

Our next question comes from the line of Amanda Murphy with William Blair.

Amanda Murphy - William Blair & Company L.L.C.

Thanks. I just have some more volume questions, if I may. I guess just a follow-up to Brendan's earlier question. If you look at the 3% organic volume growth number, is there any way to get conceptually just how much of that is really due to sort of true underlying improvement in utilization as correlated to Physician Office business versus the Empire or drugs of abuse?

David King

Amanda, it's Dave. I think you can try to slice this down to a very fine set of numbers, but I think the better way to look at it is we saw -- what I would say is we saw strength in all aspects of the business. We saw strength in esoteric, we saw strength in the core, we saw strength in Empire, we saw better volumes in OB/GYN practices that we've been seeing for the last couple of quarters. So I don't think it's -- and we saw better drugs of abuse volume. So I don't think it's necessarily easy or productive to slice every little piece apart as opposed to saying we had good volume growth, we continue the trend that we saw in the fourth quarter and we're cautiously optimistic, but that's the trend we're going to continue to see throughout the year.

Amanda Murphy - William Blair & Company L.L.C.

Okay, fair enough. And I guess just trying to get you to this place a little bit more maybe. On the esoteric side of the business, that was obviously pretty strong and seemed to be strong sort of ex-Genzyme as well. Can you maybe talk, I know you're not disclosing the specific segments anymore, but maybe the histology side of the business, is that in-sourcing, still moderating as you talked to last quarter?

David King

Yes. The histology side of the business was -- we continue to see the moderation of in-sourcing. I will say we're starting to see in-sourcing now in the Dermatopathology business, which is concerning for all that reasons that we've articulated, utilization concerns, quality concerns. But the in-sourcing trend has definitely moderated from where it was a year ago, and we continue to work for legislative and regulatory resolutions to what we consider to be a matter of concern, continuing concern.

Amanda Murphy - William Blair & Company L.L.C.

Again, I have this last one on Genzyme, again just a follow-up to your comments about their quarter. Any way to get a sense of what sort of drove that? Is it market share gains? Is it OB/GYN business coming back? Any better sense there?

David King

What drove it is a terrific effort and performance by the Genzyme leadership team and by the LabCorp leadership team in terms of the collaborative way in which we're integrating the business. What drove it is a terrific performance by the Genzyme sales reps, the Genzyme genetic counselors, the lab people. I mean, it's just -- it was a great performance. They came in to the organization energized. They've had strong leadership from the top about why it's important to retain the business and continue to be successful. We've got great leadership on the LabCorp side and collaboration in terms of the steps we've taken in the integration. So those are the real reasons. I think as I said before, it's a people effort putting their shoulder to the wheel and just doing a tremendous job.

Operator

Our next question comes from the line of Steven Valiquette with UBS.

Steven Valiquette - UBS Investment Bank

Thanks. A couple of things here. I guess first, the official guidance last quarter on the Genzyme deal was $0.16 to $0.26 dilution to the cash EPS. I'm wondering if somebody asked about would it be accretive, could you at least just give us a flavor for -- do you see it being less diluted or do you still see within this range? Just trying to get a little more color around that. And also, how much of the upside of the quarter really is from Genzyme versus other factors. Just trying to get -- from your sense, what were the true drivers of the upside of the quarter if you had to rank order them? Thanks.

William Hayes

And Dave said earlier, it's too early to -- while we're pleased with how things have gone today, it's too early to call. So I would say we still believe that range of $0.16 to $0.26 dilutive is the right range. On the contribution to the quarter, again, slightly better performance that we had modeled but I would not say that, that was a major contributor to the quarter that we reported.

Steven Valiquette - UBS Investment Bank

Okay. All right, thanks.

Operator

Our next question comes from the line of Ralph Giacobbe with Crédit Suisse.

Ralph Giacobbe - Crédit Suisse AG

Thanks. Just going back to the Esoteric business, I think you said it was up 11%, that's exclusive of Genzyme?

William Hayes

That's including, Ralph. It was 7%, excluding.

Ralph Giacobbe - Crédit Suisse AG

Okay. All right, that's helpful. And then just in terms of Westcliff, can you give us a sense of what had been in your guidance previously and maybe kind of what's changed given the developments there?

David King

Ralph, it's Dave. My recollection is that we had expected that we would be able to integrate Westcliff, I think beginning in June. And so up until that time, I think we had assumed that we would continue to lose about $0.01 a month there and that we would basically turn breakeven kind of in the second to third -- I'm sorry, in the third to fourth quarter timeframe. So we got a little bit of a head start, but nothing is going to materially change the numbers.

Ralph Giacobbe - Crédit Suisse AG

Okay. And then maybe get into the margin opportunity going forward a little bit more. Obviously, margins are depressed now just given some of the recent acquisitions. Can you give us a sense about where you think margins can go, and I don't know if you want to consider a normalized environment or once we get through some of the recent acquisitions you guys have done?

David King

I think what we've said and continue to believe is that with the foundation model, if we are growing the top line sort of in the 4% to 6% range that, that should lead to 20 basis points of margin expense and all other things being equal. So there's a lot of noise in this quarter because of Genzyme, Westcliff, DCL, weather, obviously. But to me, what's instructive here is that if you take out all the revenue and all the expense associated with the acquisitions, gross margin would have been up, operating income margin would have been up. So what that says is that kind of on 3% volume growth and 5% revenue growth, we would have achieved margin expansion, which is exactly what we state the foundation model should lead to.

Ralph Giacobbe - Crédit Suisse AG

And then just the last one, can you just get into a little more -- you talked about sort of one of the 5 pillars being sort of an alternative delivery model. Maybe just give us a little bit more details around exactly what that kind of encompasses and how to think about that?

David King

I think it encompasses a whole variety of initiatives that are out there in the marketplace. I mean, obviously, people have been -- they've been writing about pre-authorization of molecular testing and genetic testing. There's been a good deal of discussion about accountable peer organizations and what that's going to mean. There's been a fair amount of discussion about the mandatory MLRs and how managed-care companies are going to deal with the need to achieve the mandatory MLRs. So our goal is to understand all of these opportunities, work in a collaborative way with managed care and even with the government as appropriate and try to develop options that for those that want to move away from traditional fee-for-service. And I've said, these are important strategic considerations but I will say having to spent some time even studying the ACO regulations, none of this is clear or well-formulated at this point.

Ralph Giacobbe - Crédit Suisse AG

Okay, and this is just a follow-up on that, I mean, in those scenarios, I'm assuming that the ultimate goal from you guys, I mean, do you see a way that you can sort of preserve and expand margins within those sort of alternative models?

David King

Yes. I mean, I think the idea is that there's the opportunity to gain volume and share over time. And with improved volume and share, again, pushed through the fixed cost base, we should see the opportunity to expand our margins.

Operator

Our next question comes from the line of Tom Gallucci with Lazard Capital Markets.

Thomas Gallucci - Lazard Capital Markets LLC

Thank you very much. You guys have obviously done a good job on the acquisition front, pretty consistent, a couple of big ones but lots of small ones along the way. Just wondering what your outlook is there and obviously with Orchid there’s some international exposure, is international any more attractive to you these days, generally speaking, or higher on the radar screen at all?

David King

Tom, it's Dave. So in terms of the domestic acquisition market, again, there are a lot of opportunities. We continue to focus on, number 1, being very disciplined and selective in what we want to buy and paying an appropriate price and multiple for it. Number 2, with Genzyme and Westcliff, we have 2 fairly sizable acquisitions that we're integrating. So the smaller acquisitions are the easier ones to integrate and you should probably expect that those are the ones that we'll focus on, that's not to say that we don't have the appetite to do something significant if it comes along, but we got a job on our plate to fully integrate those businesses and continue to make them successful and that's taking, obviously, quite a bit of management focus. So I would say, the acquisition market is attractive. There are going to be assets coming along. We're going to look hard the assets that do come along and within our pricing discipline, we're going to choose the ones that we want and likely, they will be smaller than the last couple of sizable ones that we've done.

On the international market, we have the lab in Dubai. We have the Clearstone joint venture, which gives us exposure to some international markets including China, Singapore and some other places. At this point, that's just for our Clinical Trials business but it kind of gives us a window into those markets, which I think is helpful. And I think with respect to the U.K., the opportunity that Orchid Cellmark presents in forensics is quite attractive. So what I would say about the international market is, again, don't have the expectation that we're going to do anything big in the international markets, don't have the expectation with do anything game changing. But certainly, we're going to continue to look at international opportunities and in those markets that are attractive, whether it's from a demographic perspective, whether it's from a growth perspective or whether it's from a clinical trials perspective. We will continue to participate.

Thomas Gallucci - Lazard Capital Markets LLC

Okay, that's great. And then obviously, your commentary around sort of the seasonality and the quarterly progression is pretty clear, at the risk of being a dead horse a little, but I just did want to understand one thing about Genzyme. You're not changing your sort of dilution estimates for the year, which is fair enough at this point. But I would expect that, that's -- it gets better throughout the year. And just wondering, you've got share count sort of maybe working against you if you're not assuming share repurchases. You've got seasonality working against you,

but will we expect that little less seasonality than normal given that Genzyme theoretically should be ramping up a bit over the course of the year, there’s managed-care pressures but there should be some integration, too, I would think. Can you help us understand a little bit quarterly progression on Genzyme?

William Hayes

Yes, Tom, this is Brad. And you nailed all the right points in the managed-care compression we talked about a couple of times. It hasn't really started to happen yet. It happens based on different contracts at different times throughout the year. So that will bring the revenue down, and then there are integration activities that are necessary to offset that. So I wouldn't necessarily describe it as a year 1 clear ramp as the year goes on. I think in the out years, that begins to be true as the revenue impacts annualize and the integration activities continue. So no, I wouldn't think about it as a material progression throughout the year on Genzyme.

Thomas Gallucci - Lazard Capital Markets LLC

Okay, what value do we get I guess into the first part of next year, just sort of thinking out a little bit further, if you got the managed-care pressures still later this year, I guess, do you really start to see the bigger ramp later in '12 or should we be thinking about it earlier than that?

David King

Tom, it's Dave. Just one other thing I want to add to what Brad said which is, obviously, if we continue to retain the customer base and grow the revenue, then you could see better in the second half of this year than our expectation. But it's too early to tell what's going to happen there. But that remains our focus, is the top line customer growth and revenue growth. With respect to next year, assuming that either some managed-care compression that kind of starts in the second and third quarter, obviously, it will take us some time to annualize that. And so again, I wouldn't -- there's always opportunity to do better if we perform well from a revenue perspective. I wouldn't -- we have a very well-thought-out and well-planned approach on the cost perspective, and I wouldn't expect that to go any faster.

Thomas Gallucci - Lazard Capital Markets LLC

All right. Thank you very much. We appreciate you sort of keeping the ball rolling and maybe you can beat that over time. Thanks.

Operator

Our next question comes from the line of Darren Lehrich with Deutsche Bank.

Brian Zimmerman

This is Brian Zimmerman in for Darren. I was wondering if you could give us an update on what the next step with the FTC process is regarding Westcliff.

David King

Yes, Brian, it's Dave. So just to recap, there was a federal court hearing at which the federal district judge determined on the FTC request for an injunction that in his view, this was not an anti- competitive situation. And so he denied the FTC's injunction, and the Court of Appeals did not do anything to disturb that ruling. So as a result, we have basically filed a -- first of all, we filed a request to take the scheduled May administrative proceeding off the docket, which was granted by the administrative law judge and we have filed a request to dismiss the administrative case, which I think is presently under consideration. That actually has to be done by the commission. So it's their decision.

Brian Zimmerman

Okay. Any sort of time for when you expect to hear a decision from them?

David King

We don't have a timeframe on that.

Brian Zimmerman

And then could you make any comments on specific facility closings you've had with -- in regards to Genzyme Genetics?

David King

No.

Brian Zimmerman

No? Okay. And then you talked a little bit about Orchid Cellmark and some of the opportunities you saw, especially in the U.K. Can you give us some sort of an idea of how you've sized up those revenue opportunities or potential market opportunities?

David King

The biggest market opportunity is the Forensics business in the U.K., and I'm going from memory here so my recollection is that up until March of this year, the bulk of that business was handled by a government agency called the FSS. And that the FSS has basically determined that it is not going to do forensics anymore. It's going to outsource that to private companies. My recollection is that the FSS was approximately $150 million a year in revenue, and I believe that's dollars, not pounds, about $150 million a year in revenue that the Orchid Cellmark business will have the opportunity to compete for. That doesn't guarantee any business, but it gives our Orchid Cellmark the opportunity to compete for. So the revenue opportunity in the U.K. is attractive assuming that, again, we have a -- assuming we get regulatory approval for closures, a very solid management team over there. And so the U.K. opportunity is attractive and that's where we're really focused.

Brian Zimmerman

Okay. Thanks a lot.

Operator

Our next question comes from the line of Gary Taylor with Citigroup.

Gary Taylor - Citigroup Inc

Sorry, caught me just choking in my drink. Just a couple of questions at this point. Brad, I just wanted to make sure on the disclosure, are you -- did you suggest that all of the segment metrics that were used to having will be in the queue? I thought you had said before some of that was going to be trimmed down.

William Hayes

It will be consolidated and consistent with what was in the Q, -- the Q's and K's -- the MD&A section on how we described the revenue performance. So it does not have it exactly as it used to be 8-K's, but we think it has adequate information and we talk about it as such in our MD&A section to understand how the business is doing core versus genomic and esoteric.

Gary Taylor - Citigroup Inc

Okay, I just want to make sure I understood. And the Q is not out yet, correct?

William Hayes

That's right.

Gary Taylor - Citigroup Inc

And then I think kind of the only other question, I just want to think about so I apologize. I'm not familiar with how you guys put it in the Q's and K's because we're just -- we were used to pulling it out of those 8-K's. But for example, will we be able to see the core business separately or not?

William Hayes

Yes.

Gary Taylor - Citigroup Inc

Okay. So I guess, maybe the answer is just wait till the Q comes up. And I was just trying to think about the total volume to 5, 9, you said up 4.9%, excluding Genzyme and more than 3%, excluding other acquisitions and I guess I'm still trying to kind of parse it down, it looks like drugs of abuse may have added 80 bps and esoteric may have added 70 bps which will put core maybe in the 1.5% range. Am I in the ballpark or I mean...

William Hayes

One other thing to consider is that in the reported number, our loss contracts are now annualized. So that was about a point drag in the past that's no longer with us. So that's why when we take out all of those things, when Dave referenced the 3% earlier, we try to take out all of those different moving parts and then reported number out , we did get better. But the organic number taking out all the moving parts that we mentioned of just over 3% is a little bit up from Q4 of last year. And if we go back a little bit, first half of last year was very challenged, even neutralizing for all those parts, started to gain some strength in Q3 and 4 and it continued into Q1.

Gary Taylor - Citigroup Inc

So you've lost that drag and that's part of why the number looks better. And that kind of more than 3% number, what do you think that number looked like adding back to your estimate of weather impact?

William Hayes

Weather is taken into account.

Gary Taylor - Citigroup Inc

Right. I know it's in there, but well that -- because you've added that back already so the real number wasn't up that much or that's the number, including the impact of the weather?

William Hayes

Well, let's go to this. Year-over-year for us, weather wasn't an issue. So in any year-over-year comps for us, we're not thinking about weather.

Gary Taylor - Citigroup Inc

So you called out $0.08 of weather. Am I thinking the wrong quarter? During this quarter, you called out $0.08 of impact from weather, but you're just saying you had a similar impact a year ago so...

William Hayes

We called out our -- our EPS was impacted $0.08 in this quarter compared to, for example, our expectations. But on a year-over-year basis, it was exactly the same.

Gary Taylor - Citigroup Inc

The weather impact was roughly the same year-over-year.

William Hayes

Yes, that's exactly right. And to revenue, it's neutral because we lost the same amount of revenue in the first quarter of last year.

Gary Taylor - Citigroup Inc

Right, got it. And then finally, just still around the volumes. Regionally, is there any color that would be helpful for us to think about given that I'm sure everyone's trying to ascertain sort of where we are in the cyclical or the modest cyclical recovery we might be getting here on some of these volume metrics. Is there any regional color you have that might help us think about that?

William Hayes

No, we really saw pretty consistent performance all around the country.

Gary Taylor - Citigroup Inc

Okay. That's all I have. Thanks.

Operator

Our next question comes from the line of Bill Quirk with Piper Jaffray.

William Quirk - Piper Jaffray Companies

A couple of questions, Dave. First off, as a follow-up to Amanda's question, it sounds like we have fairly well-rounded volume improvement across some of the business lines in the East, specifically called out OB/GYN. Anything else to point out here? And then secondly, can you help us take a little bit about the trend as we moved over the balance of the year here, and I guess what I’m trying to get at is, did the trends that we see in the quarter were they fairly well rounded throughout the quarter or do we see some sporadic and January is crummy because of weather, and things improved in February, March, et cetera? Thanks.

David King

How many times did we say we don't give month-by-month guidance. You guys keep trying, so I got to give you credit for persistence.

William Quirk - Piper Jaffray Companies

I'll take it.

David King

So the answer is that, obviously, there was severe weather in a couple of months, January and February, that has an impact on the overall quarter. However, the trend was pretty consistent and we're not going to break it down month-by-month, because the minute we start doing that, then you're going to want it week-by-week or day-by-day. So it was a consistent performance in terms of volume during the quarter. As I've mentioned, it was consistent across the business lines. We didn't see any area of great strength or great weakness.

Obviously, esoteric did well. Some of that was helped by Genzyme, some of that was just helped by good growth in several lines of esoteric testing. And what I would say, Bill, is the trend in 1Q was very consistent with what we saw in 4Q of 2010, and our guidance assumes that the trend is not going to get measurably better throughout the year and it assumes it's not going to be measurably worse. So it assumes that the trend is going to be relatively the same from a volume perspective throughout the year. And that -- again, we would love to do better, and if we see recovery in things like commercial managed-care lives and job creation, it's conceivable we could do better, but we're not building any of that into our expectations.

William Quirk - Piper Jaffray Companies

Great. Thanks for the color. And then, Brad, I guess it's a risk of getting too granular on the fourth quarter organic number. You mentioned, obviously, it was lower than the 3%. In the first quarter, about 2%, is that the right way to think about it?

William Hayes

In the fourth quarter of '11 or '10?

William Quirk - Piper Jaffray Companies

Fourth quarter of '10.

William Hayes

I think we said 2.7%.

William Quirk - Piper Jaffray Companies

I've got it. Must have missed that. Thank you very much, guys.

Operator

Our next question comes from the line of Kemp Dolliver with Avondale Partners.

Kemp Dolliver - Avondale Partners, LLC

Your competitor yesterday in discussing Q1 volumes felt that there was an extra business day in the quarter around the timing of the New Year's holiday. Is that a factor in your thought process regarding how much we should extrapolate Q1's performance?

William Hayes

Kemp, this is Brad. Not a factor for us. Our days were the same in the first quarter of this year versus the last. You may ask, how can that be? All days are not created equal and we weight our days based on strength and when we add that up to the first quarter of this year versus last, we see the same number.

Kemp Dolliver - Avondale Partners, LLC

Okay, fair enough. And everything else is covered. Thank you.

Operator

Our next question comes from the line of Ricky Goldwasser with Morgan Stanley.

Ricky Goldwasser - Morgan Stanley

I have a couple of questions. The first one on the pricing side, just to confirm. I think you've mentioned in the prepared comments that Genzyme accounted for 6.5% of the growth. So should we think about the base business or the core growth of about 1.7%? And are there any moving parts in that number that we should normalize for?

William Hayes

Ricky, this is Brad. You're right on the math of what the base business is. No moving parts to normalize for other than I would say that back to the volume questions, we did annualize the loss of the lower-priced contracts. So while in the past, that's been a detractor from volume and an aid to price on a year-over-year basis. Now, it's not as much a detractor from the volume number and it's actually showing up as a negative in price. So other than that -- and again, we've annualized that. Other than that, can't think of anything that acquisitions were the largest impact by far.

David King

Ricky, this is Dave. The only thing you should factor into your thinking there is because of growth in drugs of abuse testing, which obviously has a lower price point, that's going to be a bit of a damper on our overall pricing curve.

Ricky Goldwasser - Morgan Stanley

Okay. And can you quantify the impact of drugs of abuse or should we add up to that 1.7 number?

David King

We don't quantify in terms of the price impact. I think Steve, in the prepared remarks did go over the volume impact.

Ricky Goldwasser - Morgan Stanley

Right, okay. And then just to clarify on Genzyme, based on what you kind of expect today, what percent of Genzyme revenues or volumes, whatever you're comfortable with, do you expect will be under the LabCorp managed-care contract pricing umbrella by the end of the year?

David King

It's really too early to tell. These are ongoing discussions with the managed-care plans and we just don't have a way of making a prediction there.

Ricky Goldwasser - Morgan Stanley

Is this really the key swing factor to quantify the guidance, to quantify feeding guidance versus you coming in line?

William Hayes

As a swing factor, I wouldn't call it the swing factor because, obviously, we've built in some assumptions into our expectations.

Ricky Goldwasser - Morgan Stanley

Okay. And then just one follow-up question on the OB/GYN. I might have missed it early on. Can you just talk about a trend that you're seeing there and kind of like a specific growth forecast for the women's health test like HPV?

David King

I think what we said is that we did see improvement in our volumes coming from OB/GYN offices in this quarter both year-over-year and sequentially. And so that obviously led to some overall improvement in our Women's Health portfolio. As you know, we don't break down growth in specific tests, so HPV continues to grow on a year-over-year and a sequential basis. And there is, nevertheless, still more opportunity there.

Operator

Our next question comes from the line of Dane Leone with Macquarie.

Dane Leone - Macquarie Research

Thanks for taking the questions. Congratulations on the quarter. Can you just remind me if there's any larger contracts coming to you in 2011 that could need to be renegotiated outside of Genzyme Genetics discussions?

David King

It's Dave. I think what we've said is that the Horizon Blue Cross Blue Shield Plan in New Jersey does come up in this year. Those discussions are obviously underway. Other than that, we don't have any sizable contracts in 2011.

Dane Leone - Macquarie Research

Okay, great. Thank you. And just quickly on additional efficiency programs are scheduled for the rest of 2011. Are there any outside of just the acquisition-related integrations?

David King

Acquisition-related integrations and as we mentioned at the beginning, the continued implementation of the AccuDraw and the touch systems moving from patient service centers into in-office phlebotomy and also to the doctors' office through the Beacon platform. So those are probably the key initiatives in terms of our efficiency programs.

Dane Leone - Macquarie Research

Okay, great. Thank you. I think everything else has been covered.

Operator

Our next question comes from the line of Shelley Gnall with Goldman Sachs.

Shelley Gnall-Sazenski - Goldman Sachs Group Inc.

Hey, thank you. Just going back one more time to the esoteric, the organic esoteric testing growth of around 7%. Is it fair to say that, that's largely market share capture or are you seeing an improvement in underlying demand?

David King

Shelley, it's Dave. I just think it's too hard to -- I don't think we have any way of answering that question. So I couldn't -- I really couldn't give you a good assessment but, obviously, we're pleased with the growth there in whatever form it's coming.

Shelley Gnall-Sazenski - Goldman Sachs Group Inc.

Okay. Is it fair to say that it's still a challenging environment and we're not back to the sort of pre-2008 underlying demand environment for either routine or esoteric? We’re still in a pressured environment? Is that fair to say?

David King

I think the environment has clearly improved in the last 2 quarters. We're not back to where we were. I mean, obviously, if you look at the newspaper and you see the unemployment numbers and you see the Standard & Poor's view of the government stat and all the other factors out there, I mean, we're not in a robust period of economic growth. So sure, there are still challenges out there but we have a couple of quarters of what we think are pretty good, at least pretty good trends in terms of utilization and growth.

Shelley Gnall-Sazenski - Goldman Sachs Group Inc.

Okay, great. And then on the pre-employment drugs screening, which is clearly in double-digit territory, what is the margin on that business relative to your -- with the rest of your book of business?

David King

Again, very hard to talk about the margin by business line in our business. The Drugs of Abuse business uses most of the existing infrastructure for the core business. So they use -- it uses the patient service centers, it uses the logistics and transportation. But on the other side of that, it doesn't fully bare the cost of the SG&A function or it bares its own S function. But it doesn't fully bare the cost of the G&A function. It doesn't bare the cost of the corporate resources. It doesn't bare the expenses of the divisional, their utilization of patient service centers or careers. So I just prefer to think of it overall as the incremental margin on just about everything that comes in the door is very good whether it's drugs of abuse testing, esoteric testing or core testing.

Shelley Gnall-Sazenski - Goldman Sachs Group Inc.

It makes sense, okay. I think just a last one on FDA regulation, the lab developed test, I think we're still expecting to hear something. Do you have any guidance on where we might hear something from the FDA?

David King

I was at a meeting yesterday with Dr. Gutierrez presented -- his statement was that it is his hope that there will be something from the FDA by the end of the year. However, there is no certainty of that. And when he put up his slide about the next steps, he commented that it was the same slide that he has been putting up for at least two years. So I would say we know that FDA's thinking is they would like to get something out this year. Whether that will happen is really anybody's guess.

Shelley Gnall-Sazenski - Goldman Sachs Group Inc.

Okay, great. Thanks very much.

Operator

Our next question comes from the line of Tony Vendetti with Maxim Group.

Anthony Vendetti - Maxim Group LLC

Yes, thanks. I know that you're not giving out the exact word phrases of the genomic and esoteric test. But some have been growing pretty rapidly and I guess the question is when do you expect the growth for things like HPV and vitamin D to slow in terms of year-over-year growth? And then on the goal of getting to 45% of your revenues from genomic and esoteric testing, did you give -- I didn't catch if you gave the timeframe of when you expect to get to 45%. And then lastly on gross margins, is the gross margin that you're at today, you think that's a stable number and if it's going to vary in any material way, why so?

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