Each year, hundreds of thousands of people undergo painful bone marrow biopsies so their physicians can
diagnose or monitor the treatment of leukemia and lymphoma. Doctors sometimes refrain from frequent testing
to monitor their patients for fear of causing undue pain. In 2005, scientists at our Quest Diagnostics Nichols
Institute developed Leumeta™ cancer tests to provide patients and their doctors with vital information about
their disease using a simple-to-obtain blood sample rather than a much more invasive bone marrow biopsy.
At Quest Diagnostics, our first responsibility is to patients. The convenient new Leumeta cancer tests
are just one way that we demonstrate our commitment.
» Focused on Patients, Growth and People
Our strategy is based on three simple but profound words—Patients, Growth and People. As such, our
focus is on enhancing the overall experience we offer our patients; driving profitable growth; and facilitating
the success of the 41,500 people who truly represent Quest Diagnostics.
I am pleased to report that during 2005 we made significant progress in each dimension of our strategy,
as detailed in the pages that follow. We embarked on a journey to distinguish ourselves through exceptional
patient and customer service. We drove profitable growth and generated significant cash flow, which increased
shareholder value. We expanded our innovation pipeline and acquired LabOne, which strengthened our existing
business and extended our reach into a new market. And, by providing our employees incentives and tools to
improve their health, we are demonstrating that early detection of disease really can improve outcomes and
reduce costs. As a result of these accomplishments, we made significant strides in positioning Quest Diagnostics for long-term success.
»
Generating Strong Financial Results
We drove strong financial results for 2005 by performing more testing on behalf of more doctors and
more patients. For the year, we increased revenues over 7 percent; posted a 13 percent increase in earnings
per share; and generated $852 million in cash flow from operations, which we invested for growth and
returned to shareholders through dividends and share repurchases. These results were achieved despite the
disappointing performance of our test-kit manufacturing subsidiary, NID. Early in 2006, we increased the quarterly dividend 11 percent and expanded our share repurchase program by $600 million.
»
Delivering Exceptional Customer Service
As a service business, we must continuously give patients and their doctors new and compelling
reasons to select Quest Diagnostics as their diagnostic testing provider. Our efforts range from elevating
the level of service in our patient service centers to developing tests and technologies that advance healthcare
to investing to improve our employees’ skills and their ability to service our customers.
In 2005 we provided our teams of phlebotomists and managers with intensive customer service training. As a result of our efforts, patient satisfaction at our patient service centers showed strong improvement.
In the future, we plan to expand this training to other customer contact personnel, such as couriers and customer service representatives.
We created Quest Diagnostics Health Trends as a way to mine our enormous database of test results
to provide insights on vital health issues as a public service. We published the first such report on Heart
Health based on 80 million patient encounters between 2001 and 2004 and identified a significant 10 percent
decline in average LDL or “bad” cholesterol.
»
Driving Profitable Growth
Quest Diagnostics has always generated growth through a combination of winning new business
and making acquisitions. In 2005, we drove organic growth by educating physicians about important tests
to improve patient care, particularly for cardiovascular and infectious diseases, allergy and cancer diagnosis.
We introduced several new tests in addition to the Leumeta cancer tests and enhanced our ability to provide
valued consultations to important medical specialties, including hematologists, oncologists, urologists,
endocrinologists and gastroenterologists. We also identified proteomics as a major growth technology for
the future, investing in several emerging pioneers.
We made advances in information technology by expanding the features of our Care360™ patient-centric
physician portal, which reduces medical errors and improves efficiency by enabling doctors to electronically
order tests, receive results, prescribe drugs and share medical records online. Our goal is to make Care360 an
integral part of the national healthcare information infrastructure.
We supported these new service and science initiatives by providing our sales force with enhanced training
so they can become trusted advisers to our physician clients. In addition, we created specialized sales teams to
effectively market our more complex tests and information technology products to specific medical specialties.
We complemented these efforts by acquiring LabOne, thereby strengthening our core business and
establishing us as the leader in a new adjacent market—health risk assessments for the life insurance industry. LabOne, which generates annual revenues of approximately $500 million, will account for an estimated
8 percent of our revenue growth in the coming year, and further improves our profitability with the $30 million
in synergies we expect to realize once we complete this integration in 2007.
»
Empowering Our People
At Quest Diagnostics, we believe in the value of early detection. In 2005, we introduced HealthyQuest,
a self-driven health improvement plan to help our employees take control of their health. We encouraged them
to enroll in Blueprint for Wellness™, our proprietary health risk assessment tool, based on lab tests and other
biometrics. During the year, 70 percent of our employees and their spouses elected to participate in Blueprint
for Wellness. The response was overwhelmingly positive, and a number of employees told us that their
Blueprint for Wellness reports uncovered potentially life-threatening medical conditions which would otherwise
have gone untreated.
The HealthyQuest initiative is just one way that we facilitate the success of our employees. We have
a strong team of dedicated individuals and we continue to attract talented people from a broad range of
companies and industries who are eager to join us.
We firmly believe that our responsibility to patients and employees extends to the communities where
we live and work. We fulfill this obligation by offering free testing to the indigent at a variety of clinics around
the country, and collaborating with relief organizations to assist others in need. I’m proud that this spirit
of community involvement is embraced by our employees, many of whom donated time and money to help
colleagues and their families who were displaced by the Gulf Coast hurricanes.
»
Excited About the Future
Diagnostic testing accounts for less than 3 percent of U.S. healthcare spending, but influences
approximately 70 percent of all medical decisions. At a time when healthcare costs are receiving scrutiny
like never before, we have the experience and reach to help reduce costs and improve outcomes by working
with physicians, hospitals, managed care organizations and the government.
Quest Diagnostics is the clear leader in the more than $40 billion diagnostic testing industry in the U.S.,
yet we account for only 13 percent of this market, with a very limited international presence. We have
significant opportunities to grow—by expanding our market position here in the U.S. and abroad, and continuing
to be an innovation leader.
There has never been a better time to be in the diagnostic testing business. The long-term need for
testing is being driven by an aging population, as well as the advent of new technologies, which enable the
development of new tests and healthcare information technology solutions. Consumers are taking a more
active role in managing their health, and diagnostic testing is a fundamental tool for this purpose. Finally,
several related fields are converging, blurring the lines that used to separate genetic predisposition testing,
diagnostic testing, diagnostic imaging, and information technology. Meanwhile, short-term trends are also
creating opportunities. For example:
- Cancer testing represents a growth opportunity. Currently, clinical pathology, or testing of blood and other
bodily fluids, accounts for most of our business. While we are the leader in cancer testing, we remain
under-represented. We are educating doctors and hospitals about our capabilities in cancer diagnosis,
monitoring and prognosis. Moreover, we have recently expanded our presence in anatomic pathology by
adding subspecialist pathologists, creating proprietary tests, and developing state-of-the-art lab reports.
-
- Healthcare information technology is an increasingly vital issue for policymakers, doctors, hospitals, payers
and especially patients. Our Care360 physician portal is already in use by approximately 80,000
physicians—and we are adding capabilities to enable users to do more to reduce medical errors and drive
efficiencies for healthcare providers.
-
- The managed care field is swiftly consolidating, prompting managed care providers to seek ways to reduce
healthcare costs and improve patient outcomes. We offer the greatest access to convenient laboratory
services and are drawing on our proven capabilities in laboratory network management to collaborate with
these organizations.
-
- Medical quality is critical for the success of any healthcare provider. We adhere to our own stringent quality
assurance processes—including Six Sigma principles. We are focused on continuously improving quality
throughout our business.
Quest Diagnostics is well positioned for the future, and I am excited about the opportunities available
to us. We have a strong company and the right strategy, which we are focused on executing, based on Patients, Growth and People.
It is my distinct honor to lead our company. Thank you for your continued confidence and support.
Take care,
Surya N. Mohapatra, Ph.D.
Chairman, President and Chief Executive Officer
|