On October 25, 2017 United Therapeutics Corporation (NASDAQ: UTHR) reported its financial results for the third quarter ended September 30, 2017 (Press release, United Therapeutics, OCT 25, 2017, View Source [SID1234521167]).

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“Our third quarter net revenues totaled $446 million,” said Martine Rothblatt, Ph.D., United Therapeutics Chairman and Chief Executive Officer. “In addition, Orenitram’s third quarter net revenues grew 29%, as compared to the same period in the prior year, resulting in two consecutive quarters of greater than 20% net revenue growth for this product. This further confirms our belief in the organic growth opportunity of Orenitram, which is the only true oral prostacyclin analog therapy for the large and increasing number of pulmonary arterial hypertension (PAH) patients. We also continued to invest in our growing pipeline of late stage programs in cardiopulmonary diseases and oncology, including the initial enrollment of patients into our phase III DISTINCT study of dinutuximab in small cell lung cancer, and our SOUTHPAW study of Orenitram in patients with WHO Group 2 pulmonary hypertension associated with left heart failure. Finally, we have continued to invest in our regenerative medicine and organ manufacturing programs to ultimately find a cure for PAH and other end-stage organ diseases.”

Key financial highlights include (dollars in millions, except per share data):

Three Months Ended
September 30,

Percentage



2017

2016

Changes









Revenues

$
445.5

$
408.2

9
%
Net income

$
276.3

$
161.8

71
%
Non-GAAP earnings(1)

$
206.9

$
195.6

6
%
Net income, per diluted share

$
6.27

$
3.50

79
%
Non-GAAP earnings, per diluted share(1)

$
4.69

$
4.23

11
%










(1)
See definition of non-GAAP earnings, a non-GAAP financial measure, and a reconciliation of net income to non-GAAP earnings below.
Financial Results for the Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016

Revenues

The following table presents the components of total revenues (dollars in millions):



Three Months Ended
September 30,

Percentage



2017

2016

Change

Net product sales:







Remodulin


$
187.3

$
152.4

23
%
Tyvaso


88.9

101.8

(13)
%
Adcirca


99.8

96.0

4
%
Orenitram


52.5

40.7

29
%
Unituxin


17.0

17.3

(2)
%
Total revenues


$
445.5

$
408.2

9
%
Revenues for the three months ended September 30, 2017 increased by $37.3 million as compared to the same period in 2016. The growth in revenues resulted from the following: (1) a $34.9 million increase in Remodulin net product sales; (2) an $11.8 million increase in Orenitram net product sales; and (3) a $3.8 million increase in Adcirca net product sales. During the three months ended September 30, 2017, an international distributor made a one-time purchase of Remodulin inventory of $47.4 million due to an expansion of the distributor’s commercial responsibilities. Because the payment terms span two quarters, this purchase increased our net revenues by $23.7 million during the three months ended September 30, 2017, with an additional increase of $23.7 million expected in the fourth quarter. These increases were partially offset by a $12.9 million decrease in Tyvaso net product sales and a $0.3 million decrease in Unituxin net product sales. $12.2 million of the decrease in Tyvaso net product sales was due to an additional one-time $12.2 million liability for estimated Medicaid rebates relating to Tyvaso sales prior to July 1, 2017 that we recorded during the three months ended September 30, 2017.

Expenses

Cost of product sales. The following table summarizes cost of product sales by major category (dollars in millions):



Three Months Ended
September 30,

Percentage



2017

2016

Change

Category:







Cost of product sales, excluding share-based compensation


$
21.3

$
20.0

7
%
Share-based compensation (benefit) expense(1)


(1.8)

3.6

(150)
%
Total cost of product sales


$
19.5

$
23.6

(17)
%










(1)
Refer to Share-based compensation (benefit) expense below for discussion.
Research and development expense. The following table summarizes research and development expense by major category (dollars in millions):



Three Months Ended
September 30,

Percentage



2017

2016

Change

Category:







Research and development, excluding share-based compensation


$
62.0

$
37.2

67
%
Share-based compensation (benefit) expense(1)


(7.0)

8.7

(180)
%
Total research and development expense


$
55.0

$
45.9

20
%










(1)
Refer to Share-based compensation (benefit) expense below for discussion.
Research and development, excluding share-based compensation. The increase in research and development expense of $24.8 million for the three months ended September 30, 2017, as compared to the same period in 2016, was driven by the expansion of our pipeline programs to treat cardiopulmonary diseases and cancer and to develop technologies in organ manufacturing. Research and development expense for the treatment of cardiopulmonary diseases increased by $14.3 million for the three months ended September 30, 2017, as compared to the same period in 2016, due to increased spending on several clinical and non-clinical studies, including FREEDOM-EV, INCREASE and SOUTHPAW, and on the development of new drug products, including RemoPro, and drug delivery devices, including the RemoSynch and RemUnity systems. Research and development expenses for cancer-related projects increased by $5.9 million for the three months ended September 30, 2017, as compared to the same period in 2016, driven by an increase in spending on the DISTINCT study. Research and development expenses for our organ manufacturing projects increased by $4.1 million for the three months ended September 30, 2017, as compared to the same period in 2016, due to increased preclinical work on technologies designed to increase the supply and distribution of transplantable organs and tissues.

Selling, general and administrative expense. The following table summarizes selling, general and administrative expense by major category (dollars in millions):



Three Months Ended
September 30,

Percentage



2017

2016

Change

Category:







General and administrative, excluding share-based compensation


$
46.6

$
42.4

10
%
Sales and marketing, excluding share-based compensation


15.8

20.1

(21)
%
Share-based compensation (benefit) expense(1)


(15.2)

37.6

(140)
%
Total selling, general and administrative expense


$
47.2

$
100.1

(53)
%










(1)
Refer to Share-based compensation (benefit) expense below for discussion.
General and administrative, excluding share-based compensation. The increase in general and administrative expense of $4.2 million for the three months ended September 30, 2017, as compared to the same period in 2016, was driven by a $2.7 million increase in legal fees incurred in connection with intellectual property litigation and the U.S. Department of Justice (DOJ) investigation of our support of 501(c)(3) organizations that provide financial assistance to patients.

Sales and marketing, excluding share-based compensation. The decrease in sales and marketing expense of $4.3 million for the three months ended September 30, 2017, as compared to the same period in 2016, was driven by a $3.7 million decrease in compensation and related costs associated with the 2016 consolidation of our sales and marketing staff.

Share-based compensation (benefit) expense. The following table summarizes share-based compensation (benefit) expense by major category (dollars in millions):



Three Months Ended
September 30,

Percentage



2017

2016

Change

Category:







Share tracking awards plan


$
(38.0)

$
45.8

(183)
%
Stock options


13.1

3.3

297
%
Other(1)


0.9

0.8

13
%
Total share-based compensation (benefit) expense


$
(24.0)

$
49.9

(148)
%










(1)
Includes expense related to restricted stock units and employee stock purchase plan.
Share tracking awards plan. We re-measure the fair value of share tracking awards at the end of each financial reporting period. Changes in the share tracking award liability resulting from such re-measurements are recorded as adjustments to share-based compensation (benefit) expense. Decreases in our stock price will generally result in a reduction in the share tracking award liability.

Income Tax Expense

The provision for income taxes was $44.4 million for the three months ended September 30, 2017, as compared to $77.3 million for the same period in 2016. The provision for income taxes is based on an estimated annual effective tax rate for the entire year. The estimated annual effective tax rate is subject to adjustment in subsequent quarterly periods if components used to estimate the annual effective tax rate are updated or revised. Our effective tax rate as of September 30, 2017 and September 30, 2016, was approximately 37 percent and approximately 32 percent, respectively. Our 2017 effective tax rate increased compared to 2016 primarily due to expenses that do not meet the criteria for tax deductibility.

Share Repurchase

In April 2017, our Board of Directors approved a share repurchase program, authorizing up to $250.0 million in aggregate repurchases of our common stock. Pursuant to this authorization, in May 2017 we paid $250.0 million to enter into an accelerated share repurchase agreement (ASR) with Citibank, N.A. (Citibank). Pursuant to the terms of the ASR, in June 2017 Citibank delivered to us approximately 1.7 million shares of our common stock, representing the minimum number of shares we were entitled to receive under the ASR. The ASR was originally scheduled to terminate during the fourth quarter of 2017; however, in September 2017 Citibank notified us of its election to accelerate the termination date of the contract to September 8, 2017. Upon termination of the ASR, Citibank delivered to us approximately 0.3 million additional shares of our common stock.

Non-GAAP Earnings

Non-GAAP earnings is defined as net income, adjusted for: (1) share-based compensation (benefit) expense, net (including expenses relating to stock options, share tracking awards, restricted stock units and our employee stock purchase plan); (2) extraordinary, non-recurring and unusual items; and (3) tax impact on non-GAAP earnings adjustments.

A reconciliation of net income to non-GAAP earnings is presented in the following table (in millions, except per share data):



Three Months Ended
September 30,



2017

2016

Net income, as reported

$
276.3

$
161.8

Adjusted for:





Share-based compensation (benefit) expense, net(1)


(24.0)

49.9

Estimated loss contingency(1)


0.9

—

Impairment of cost method investments(2)


3.1

—

Tax benefit (expense)(1)(3)


(49.4)

(16.1)

Non-GAAP earnings

$
206.9

$
195.6

Non-GAAP earnings per share:





Basic


$
4.77

$
4.53

Diluted


$
4.69

$
4.23

Weighted average number of common shares outstanding:





Basic


43.4

43.2

Diluted


44.1

46.2









(1)
We calculated the total tax impact of non-discrete quarterly non-GAAP earnings adjustments based on our estimated annual effective tax rates, before considering discrete items, of approximately 33 percent and approximately 32 percent for each of the quarters ended September 30, 2017 and 2016, respectively.
(2)
This non-GAAP earnings adjustment is currently not considered tax deductible.
(3)
The tax benefit (expense) for the three months ended September 30, 2017 includes $57.0 million of benefit for the estimated loss contingency recognized during the second quarter of 2017 relating to the DOJ investigation of our support of 501(c)(3) organizations that provide financial assistance to patients.

On October 25, 2017 2X Oncology, Inc. ("2X" or the "Company"), a precision medicine company developing targeted therapeutics to address significant unmet needs in hard-to-treat cancers, reported that the Company will participate in the Life Sciences Summit 2017 on November 1-2 in New York City and the Jefferies 2017 London Healthcare Conference on November 15-16 (Press release, 2X Oncology, OCT 25, 2017, View Source [SID1234526101]).

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Chief Executive Officer George O. Elston will participate in and hold 1x1s with investors at both conferences, joined by Chief Financial Officer Jarne Elleholm.

Additionally, Mr. Elston will present in the Emerging Company Showcase at the Life Sciences Summit on Thursday, November 2, 2017 at 3:30pm EDT, with a discussion period to follow.

Investors wishing to meet with 2X Oncology at or around either conference should notify the respective conference one-on-one desk, or contact Amy Raskopf to schedule a meeting.

On October 25, 2017 Incyte Corporation (NASDAQ:INCY) and MacroGenics, Inc. (NASDAQ:MGNX) reported that the companies have entered into an exclusive global collaboration and license agreement for MacroGenics’ MGA012, an investigational monoclonal antibody that inhibits programmed cell death protein 1 (PD-1) (Press release, Incyte, OCT 25, 2017, View Source;p=RssLanding&cat=news&id=2310980 [SID1234521152]). Incyte has obtained exclusive worldwide rights for the development and commercialization of MGA012 in all indications, while MacroGenics retains the right to develop its pipeline assets in combination with MGA012.

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"Anti-PD-1 therapy is becoming a mainstay of cancer treatment across multiple tumor types, and we believe the addition of MGA012 to our clinical pipeline is important to fulfilling our long-term development strategy in immuno-oncology. This collaboration with MacroGenics will allow us to rapidly explore the potential clinical benefit of developing MGA012 as a monotherapy and also combining anti-PD-1 therapy with several of our existing portfolio assets," said Steven Stein, M.D., Chief Medical Officer of Incyte.

"We believe Incyte is the ideal partner for MGA012, given its immuno-oncology portfolio and dedication to researching and developing innovative and transformative cancer therapies and we hope that the combined resources of both companies will be able to significantly expand and accelerate the current development efforts for this promising molecule," said Scott Koenig, M.D., Ph.D., President and Chief Executive Officer of MacroGenics. "Furthermore, we look forward to exploring the combination of MGA012 with multiple molecules in our own portfolio, including DART molecules for redirected T-cell killing, antibodies with enhanced effector function and ADCs, potentially to provide improved patient benefit."

Enrollment in the dose escalation portion of the Phase 1 study of MGA012 has been completed and the molecule is currently being evaluated as monotherapy across four solid tumor types in the dose expansion portion of the study. Data from the dose escalation portion of the Phase 1 study have been accepted for poster presentation at the upcoming Society for Immunotherapy of Cancer (SITC) (Free SITC Whitepaper) 32nd Annual Meeting in November 2017.

Terms of the Collaboration
Upon closing, Incyte will pay MacroGenics an upfront payment of $150 million. Incyte will receive worldwide rights to develop and commercialize MGA012 in all indications.

Per the terms of the collaboration, MacroGenics will also be eligible to receive up to $420 million in potential development and regulatory milestones, and up to $330 million in potential commercial milestones. If MGA012 is approved and commercialized, MacroGenics would be eligible to receive royalties, tiered from 15 percent to 24 percent, on future sales of MGA012 by Incyte.

Under the terms of the collaboration, Incyte will lead global development of MGA012. MacroGenics retains the right to develop its pipeline assets in combination with MGA012, with Incyte commercializing MGA012 and MacroGenics commercializing its asset(s), if any such potential combinations are approved.

In addition, MacroGenics retains the right to manufacture a portion of both companies’ global clinical and commercial supply needs of MGA012. MacroGenics intends to utilize its commercial-scale GMP facility, which is expected to be fully operational in 2018.

The transaction is expected to close in the fourth quarter of 2017, subject to the early termination or expiration of any applicable waiting periods under the Hart-Scott-Rodino Act and customary closing conditions.

On October 25, 2017 Chugai Pharmaceutical Co., Ltd. (TOKYO: 4519) reported that it filed an application with the Japanese Ministry of Health, Labour and Welfare (MHLW) for the approval of anti-HER2 humanized monoclonal antibody, "Perjeta I.V. Infusion 420mg/14mL [generic name: pertuzumab (genetical recombination)] (hereafter, Perjeta)" for the additional indication of adjuvant therapy for HER2-positive early breast cancer (Press release, Chugai, OCT 25, 2017, View Source [SID1234521138]).

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"Currently, adjuvant chemotherapy with Herceptin for HER2-positive early breast cancer has been recommended in the clinical practice guidelines for breast cancer and has contributed to patients," said Dr. Yasushi Ito, Chugai’s Senior Vice President, Head of Project & Lifecycle Management Unit. "We are going to continue discussions with the health authorities so that adjuvant chemotherapy using Perjeta in combination with Herceptin, which has outperformed the current standard of care, will be used as a new treatment option for patients."

Chugai filed the application with the MHLW based on the results from the APHINITY study (Adjuvant Pertuzumab and Herceptin IN Initial TherapY in Breast Cancer) and several clinical studies. The APHINITY study is an international, phase III, randomised, double-blind, placebo-controlled, two-arm study evaluating the efficacy and safety of Perjeta plus Herceptin and chemotherapy (anthracycline medicine followed by docetaxel monotherapy / docetaxel plus carboplatin) compared to Herceptin and chemotherapy as adjuvant therapy in 4,805 patients with HER2-positive early breast cancer who undergone curative surgery. The primary endpoint of the APHINITY study is invasive disease-free survival (iDFS), which is defined as the time a patient lives without return of invasive breast cancer at any site or death from any cause after adjuvant treatment. The secondary endpoints were cardiac and overall safety, and other endpoints.

The results of the APHINITY study are as follows:

– At three years, iDFS, the primary endpoint, was 94.1% in the Perjeta arm and 93.2% in the control arm, and a statistically significant improvement was observed in the Perjeta arm. Perjeta arm significantly reduced the risk of recurrence or death by 19% compared to control arm (HR=0.81, 95%CI 0.66-1.00, stratified log-rank test, p=0.045).

– The iDFS at four years estimated by the Kaplan-Meier method showed that 92.3% (95%CI: 91.1-93.4) of people treated with the Perjeta arm did not have their breast cancer return compared to 90.6% (95%CI: 89.3-91.8) treated with control arm.

– The safety profile of Perjeta was consistent with that seen in previous studies. The incidence of cardiac events was 0.7% in the Perjeta arm and 0.3% in the control arm.

In the US and Europe, Perjeta is under review for postoperative adjuvant chemotherapy for HER2-positive breast cancer, and the US Food and Drug Administration has granted Priority Review to Perjeta for this indication. Perjeta was approved for adjuvant therapy (before surgery) for HER2-positive early breast cancer in September 2013 in the US and in July 2015 in Europe.

As the top pharmaceutical company in the field of oncology in Japan, Chugai will work for early approval to provide Perjeta as a new treatment option for patients with HER2-positive early breast cancer.

On October 25, 2017 LabCorp (or the "Company") (NYSE: LH) reported results for the third quarter ended September 30, 2017, and increased its 2017 guidance (Press release, LabCorp, OCT 25, 2017, View Source;p=RssLanding&cat=news&id=2310992 [SID1234521154]).

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"We delivered record results highlighted by outstanding growth in the quarter, as revenue increased by 10%, adjusted EPS increased by 9%, and continued strong cash flow resulted in an increase of our full year free cash flow guidance to roughly $1 billion," said David P. King, chairman and CEO. "The Diagnostics business had strong organic and total volume growth despite the adverse impact from multiple hurricanes, and the Drug Development business turned in a solid performance, highlighted by improved margins, robust net orders, increased book-to-bill, and the closing of the Chiltern acquisition. We continue to expand our capabilities, broaden our geographic and customer base, deliver innovative solutions that only LabCorp can offer, and position ourselves for growth in the years ahead."

Consolidated Results

Third Quarter Results

Net revenue for the quarter was $2.60 billion, an increase of 9.5% compared to $2.37 billion in the third quarter of 2016. The increase in net revenue was due to growth from acquisitions of 6.9%, organic growth (net revenue growth less revenue from acquisitions for the first twelve months after the close of each acquisition) of 2.3%, and the benefit from foreign currency translation of approximately 30 basis points. In addition, revenue growth was negatively impacted by approximately 0.7% due to multiple hurricanes during the quarter.

Operating income for the quarter was $341.3 million, or 13.1% of net revenue, compared to $324.0 million, or 13.7%, in the third quarter of 2016. The increase in operating income was primarily due to acquisitions, organic revenue growth, and the LaunchPad business process improvement initiative, partially offset by higher personnel costs. The decline in operating margin was primarily due to restructuring charges, special items, and amortization totaling $105.2 million in the quarter, compared to $80.0 million during the same period in 2016. Adjusted operating income (excluding amortization of $54.6 million, as well as restructuring charges and special items of $50.6 million) for the quarter was $446.5 million, or 17.2% of net revenue, compared to $404.0 million, or 17.0%, in the third quarter of 2016.

Net earnings in the quarter were $180.6 million, compared to $179.5 million in the third quarter of 2016. Diluted EPS were $1.74 in the quarter, an increase of 1.8% compared to $1.71 in the same period in 2016. Adjusted EPS (excluding amortization, restructuring charges and special items) were $2.46 in the quarter, an increase of 9.3% compared to $2.25 in the third quarter of 2016. The Company’s adjusted earnings in the quarter were reduced by approximately $0.09 per diluted share due to the impact from multiple hurricanes.

Operating cash flow for the quarter was $350.9 million, compared to $249.9 million in the third quarter of 2016. The increase in operating cash flow was primarily due to higher cash earnings and improved working capital management. Capital expenditures totaled $75.3 million, compared to $66.2 million a year ago. As a result, free cash flow (operating cash flow less capital expenditures) was $275.6 million, compared to $183.7 million in the third quarter of 2016.

At the end of the quarter, the Company’s cash balance and total debt were $409.3 million and $7.2 billion, respectively. During the quarter, the Company invested approximately $1.2 billion in acquisitions, and repurchased $42.1 million of stock representing approximately 0.3 million shares. The Company had $447.4 million of authorization remaining under its share repurchase program at the end of the quarter.

Year-To-Date Results

Net revenue was $7.50 billion, an increase of 6.4% over last year’s $7.05 billion. The increase in net revenue was due to growth from acquisitions of 4.4%, and organic growth of 2.3%, partially offset by the impact of foreign currency translation of approximately 20 basis points.

Operating income was $1,010.0 million, or 13.5% of net revenue, compared to $989.0 million, or 14.0%, in the first nine months of 2016. The Company recorded restructuring charges and special items of $111.5 million in the first nine months of the year, compared to $82.7 million during the same period in 2016. The increase in operating income was primarily due to strong revenue growth and productivity, partially offset by higher personnel costs. The decline in operating margin was primarily due to higher amortization, restructuring charges and special items. Adjusted operating income (excluding amortization of $153.6 million, restructuring charges and special items) was $1.3 billion, or 17.0% of net revenue, compared to $1.2 billion, or 17.1%, in the first nine months of 2016.

Net earnings in the first nine months of 2017 were $561.4 million, or $5.40 per diluted share, compared to $547.7 million, or $5.25 per diluted share, last year. Adjusted EPS (excluding amortization, restructuring charges and special items) were $7.14, an increase of 7.0% compared to $6.67 in the first nine months of 2016.

Operating cash flow was $895.4 million, compared to $727.0 million in the first nine months of 2016. The increase in operating cash flow was primarily due to higher cash earnings and lower working capital usage. Capital expenditures totaled $216.8 million, compared to $204.6 million in the first nine months of 2016. As a result, free cash flow (operating cash flow less capital expenditures) was $678.6 million, compared to $522.4 million in the first half of 2016.

***

The following segment results exclude amortization, restructuring charges, special items and unallocated corporate expenses.

Third Quarter Segment Results

LabCorp Diagnostics

Net revenue for the quarter was $1.84 billion, an increase of 9.9% over $1.67 billion in the third quarter of 2016. The increase in net revenue was driven by acquisitions, organic volume (measured by requisitions excluding those from acquisitions for the first twelve months after the close of each acquisition), price, mix, and the benefit from foreign currency translation of approximately 20 basis points. Total volume (measured by requisitions) increased by 7.3%, of which organic volume was 2.3% and acquisition volume was 5.1%. Volume was negatively impacted by approximately 1.0% due to multiple hurricanes during the quarter. Revenue per requisition increased by 2.4%.

Adjusted operating income (excluding amortization, restructuring charges and special items) for the quarter was $373.8 million, or 20.3% of net revenue, compared to $341.8 million, or 20.4%, in the third quarter of 2016. The increase in operating income was primarily due to strong revenue growth and LaunchPad savings. The 10 basis point decline in operating margin was due to the adverse impact from multiple hurricanes during the quarter. Excluding the impact from hurricanes, the operating margin would have increased 60 basis points over last year. During the quarter, the Company achieved its three-year goal to deliver $150 million in net LaunchPad savings.

Covance Drug Development

Net revenue for the quarter was $761.1 million, an increase of 8.6% over $701.1 million in the third quarter of 2016. The increase was primarily due to the acquisition of Chiltern, as well as organic growth and the benefit from foreign currency translation of approximately 60 basis points.

Adjusted operating income (excluding amortization, restructuring charges and special items) for the quarter was $108.9 million, or 14.3% of net revenue, compared to $95.5 million, or 13.6%, in the third quarter of 2016. The increase in operating income and margin were primarily due to the acquisition of Chiltern, organic revenue growth, cost synergies, and LaunchPad savings, partially offset by increased personnel costs. During the quarter, the Company achieved its three-year goal to deliver cost synergies of $100 million related to the acquisition of Covance. In addition, the Company remains on track to generate savings of approximately $20 million in 2017 (approximately $45 million on an annualized basis) from the expansion of the LaunchPad initiative to include Covance Drug Development.

Net orders and net book-to-bill during the trailing twelve months were $3.82 billion and 1.33, respectively. Backlog at the end of the quarter was $6.84 billion, which includes backlog from the Chiltern acquisition of $1.0 billion. The Company expects approximately $2.7 billion of this backlog to convert into revenue in the next twelve months.

Outlook for 2017

The following guidance assumes foreign exchange rates effective as of September 30, 2017 for the remainder of the year, and includes capital allocation.

Net revenue growth of 8.0% to 8.5% over 2016 net revenue of $9.44 billion, which includes the negative impact from approximately 10 basis points of foreign currency translation. This is an increase over the prior guidance of 5.0% to 6.5%.
Net revenue growth in LabCorp Diagnostics of 8.5% to 9.0% over 2016 net revenue of $6.59 billion. This is an increase over the prior guidance of 7.0% to 8.0% primarily due to the consolidation of a joint venture related to the acquisition of PAML.
Net revenue growth in Covance Drug Development of 6.0% to 7.5% over 2016 net revenue of $2.84 billion, which includes the negative impact from approximately 10 basis points of foreign currency translation. This is an increase over the prior guidance of 1.0% to 3.0% due to the acquisition of Chiltern.
Adjusted EPS of $9.40 to $9.60, an increase of approximately 6% to 9% as compared to $8.83 in 2016. This is an improvement over the prior guidance of $9.30 to $9.65.
Free cash flow (operating cash flow less capital expenditures) of $970 million to $1,010 million, an increase of approximately 8% to 13% over the prior year. This is an increase over the prior guidance of $925 million to $975 million due to continued strong earnings and working capital management.
Use of Adjusted Measures

The Company has provided in this press release and accompanying tables "adjusted" financial information that has not been prepared in accordance with GAAP, including Adjusted EPS, Adjusted Operating Income, Free Cash Flow, and certain segment information. The Company believes these adjusted measures are useful to investors as a supplement to, but not as a substitute for, GAAP measures, in evaluating the Company’s operational performance. The Company further believes that the use of these non-GAAP financial measures provides an additional tool for investors in evaluating operating results and trends, and growth and shareholder returns, as well as in comparing the Company’s financial results with the financial results of other companies. However, the Company notes that these adjusted measures may be different from and not directly comparable to the measures presented by other companies. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the tables accompanying this press release.

The Company today is furnishing a Current Report on Form 8-K that will include additional information on its business and operations. This information will also be available in the investor relations section of the Company’s website at www.labcorp.com. Analysts and investors are directed to the Current Report on Form 8-K and the website to review this supplemental information.

A conference call discussing LabCorp’s quarterly results will be held today at 9:00 a.m. Eastern Time and is available by dialing 844-634-1444 (615-247-0253 for international callers). The access code is 90788597. A telephone replay of the call will be available through November 8, 2017 and can be heard by dialing 855-859-2056 (404-537-3406 for international callers). The access code for the replay is 90788597. A live online broadcast of LabCorp’s quarterly conference call on October 25, 2017 will be available at View Source or at View Source beginning at 9:00 a.m. Eastern Time. This webcast will be archived and accessible through October 19, 2018.