LabCorp 2015 Annual Report Download - page 33

Index
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
The Company has many contracts that are structured as fixed-price for fixed-contracted services or fee-for-service with a cap. The Company bears the
financial risk if these contracts are underpriced or if contract costs exceed estimates. Such underpricing or significant cost overruns could have a material
adverse effect on the Company's business, results of operations, financial condition and cash flows.
Many of CDD’s contracts, in particular, provide for services on a fixed price or fee-for-service with a cap basis and they may be terminated or reduced in
scope either immediately or upon notice. Cancellations may occur for a variety of reasons, including:
• the failure of products to satisfy safety requirements;
• unexpected or undesired results of the products;
• insufficient patient enrollment;
• insufficient investigator recruitment;
• the client’s decision to terminate the development of a product or to end a particular study; and
• CDD’s failure to perform its duties properly under the contract.
Although its contracts often entitle it to receive the costs of winding down the terminated projects, as well as all fees earned up to the time of termination,
the loss, reduction in scope or delay of a large contract or the loss, delay or conclusion of multiple contracts could materially adversely affect CDD.

In contracting to work on drug development trials and studies, CDD faces a range of potential liabilities, including:
• errors or omissions that create harm to study volunteers during a trial or to consumers of a drug after the trial is completed and regulatory approval
of the drug has been granted;
• general risks associated with clinical pharmacology facilities, including negative consequences from the administration of drugs to clinical trial
participants or the professional malpractice of clinical pharmacology medical care providers;
• risks that animals in CDD’s breeding facilities may be infected with diseases that may be harmful and even lethal to themselves and humans despite
preventive measures contained in CDD's business policies, including those for the quarantine and handling of imported animals; and
• errors and omissions during a trial that may undermine the usefulness of a trial or data from the trial or study or may delay the entry of a drug to the
market.
CDD also contracts with physicians, also referred to as investigators, to conduct the clinical trials to test new drugs on patients and volunteers. These tests
can create a risk of liability for personal injury or death to volunteers, resulting from negative reactions to the drugs administered or from professional
malpractice by third party investigators.
While CDD endeavors to include in its contracts provisions entitling it to be indemnified or entitling it to a limitation of liability, these provisions do not
uniformly protect CDD against liability arising from certain of its own actions, such as negligence or misconduct. CDD could be materially and adversely
affected if it were required to pay damages or bear the costs of defending any claim that is not covered by a contractual indemnification provision or in the
event that a party who must indemnify it does not fulfill its indemnification obligations, or in the event that the damages and costs exceed CDD's insurance
coverage. There can be no assurance that CDD will be able to maintain sufficient insurance coverage on terms acceptable to it.

The Company may become subject in the ordinary course of business to material legal action related to, among other things, intellectual property
disputes, professional liability and employee-related matters. The Company may also receive inquiries and requests for information from governmental
agencies and bodies, including Medicare or Medicaid carriers, requesting comment and/or information on allegations of billing irregularities or billing and
pricing arrangements that are brought to their attention through billing audits or third parties. Legal actions could result in substantial monetary damages as
well as damage to the Company’s reputation with customers, which could have a material adverse effect upon its business.

The Company's operating results, particularly for CDD, may vary significantly from quarter to quarter and are influenced by factors over which the
Company has little control such as:
• changes in the general global economy;
• exchange rate fluctuations;
• the commencement, completion, delay or cancellation of large projects or groups of projects;
• the progress of ongoing projects;
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