Dive Brief:

• Quest Diagnostics announced Thursday the company will sell its minority share in the clinical trials laboratory company Q2 Solutions to IQVIA Holdings, which provides healthcare technology and analytics to lifesciences companies. The deal is an all-cash transaction worth $760 million.
• Quest and IQVIA established Q2 Solutions as a joint venture in 2015, with Quest owning 40% of the company and IQVIA owning 60%. Now, IQVIA will become the sole owner.
• Evercore ISI analysts wrote that consolidating ownership of Q2 Solutions under IQVIA made sense, adding that the move "will boost [IQVIA's] lab capabilities and serves as a doubling-down on more extensive lab services."

Dive Insight:

Quest is one of a handful of diagnostics and medtech companies that benefited financially from the coronavirus pandemic as testing demand skyrocketed. The company brought in roughly $9.4 billion in revenue in 2021, an increase of 22% compared to 2019.

However, the diagnostics industry is grappling with an uncertain future. While testing demand continues as COVID-19 cases remain high — and may, once again, spike as states re-open — vaccine rollouts could diminish the need for high volumes of testing going forward.

This environment led Quest to only provide guidance for the first half of 2021 during a February earnings call. Meanwhile, diagnostics manufacturer Quidel lowered its 2021 revenue guidance by about $400 million as testing demand plummeted between 30-40% in February and March compared to the fourth quarter of 2020, sending the company's stock price down by 17% shortly after the announcement.

While COVID-19 testing demand is likely to remain in some form for the foreseeable future, Quest expects demand to drop in 2021 as vaccine rollouts broaden, according to a recent company presentation.

Divesting its shares of Q2 Solutions provides Quest with cash amid the uncertainty surrounding the diagnostics space. Furthermore, Quest will remain the preferred laboratory provider for Q2 Solutions' clients under a multi-year agreement, according to the deal announcement.

Evercore analysts wrote that Quest's divestiture is the next step of the 2015 joint venture.

"The impetus of the original JV had been to scale what was a subscale lab business, and today’s move is likely the next iteration of that strategy," according to Evercore.

The deal led IQVIA to increase its 2021 EPS guidance from a range of $7.77-$8.08 to a range of $7.89-$8.20.