Quest Diagnostics announces new CEO, gets approval for C difficile test

Quest Diagnostics (NYSE:DGX), one of the largest diagnostic testing providers, has announced a replacement for […]

Quest Diagnostics (NYSE:DGX), one of the largest diagnostic testing providers, has announced a replacement for its outgoing CEO.

Dr. Surya N. Mohapatra will be succeeded by Philips Healthcare CEO Steve Rusckowski effective May 1, according to a company statement.

Rusckowski held management positions with the Healthcare Division of Hewlett-Packard/Agilent Technologies and was the general manager of Agilent’s Healthcare Solutions Group when Philips acquired it in 2001. Rusckowski served as the CEO of Philips Healthcare’s imaging systems business prior to becoming head of Philips Healthcare in 2006.

Philips Healthcare is the largest component of Royal Philips Electronics. Under Rusckowski’s tenure, sales in the Healthcare Division rose from $8.6 billion (€6.6 billion) in 2007 to $11.7 billion (€8.9 billion) in 2011. Last year, the company made three acquisitions to bolster its healthcare market position and moved into telemedicine.

The incoming CEO will need to figure out how to boost clinical testing revenue, which accounts for 90 percent of the business. Revenue for the division was flat last year with a 1.1 percent increase over 2010, which illustrates the problem of declining visits to the doctor over concerns about healthcare coverage, co-pays, or both.

In a recent analysis of the company’s stewardship, Morningstar analyst Debbie Wang hoped it would more closely align bonuses to returns on invested capital.

We would like to see the firm’s bonus targets tied to returns on invested capital in lieu of current metrics, revenue, and earnings per share. We believe the company’s use of stock and options as compensation is excessive, with Mohapatra receiving more than $5 million in option awards each of the past four years. Finally, we think management (aside from Mohapatra) and directors do not have a large enough equity stake in the firm; executive officers and directors own less than 2 percent of stock.

Mohapatra joined Madison, New Jersey-based Quest in February 1999 as chief operating officer and became its CEO 10 months later. He was appointed chairman in 2004.

He will leave behind a company with only one equivalent rival — Laboratory Corp. of America. Recent acquisitions such as Athena Diagnostics, a provider of advanced diagnostic tests for neurological conditions, and Celera Corp., a company that develops, manufactures and oversees the commercialization of molecular diagnostic products and licenses diagnostic technology for personalized disease management for cancer and liver disease, have solidified its position.

Separately, the company secured 510(k) clearance from the U.S. Food and Drug Administration for a molecular test to diagnose C difficile, a common but sometimes fatal infection associated with hospital settings. Its Simplexa Universal Direct Test uses a proprietary technique to remove a step from the molecular testing process, with the aim of producing more rapid results, according to a company statement.

As many as 14,000 patients die each year from C difficile infections, according to the Centers for Disease Control and Prevention.

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