Laboratory testing firm Bio-Reference Labs (NASDAQ:BRLI) appears to be benefiting as its two largest rivals battle for market share. Plus, the company is leading in an area considered the holy grail in the industry. Here's why the shares could be worth a look.

Bio-Reference reported first-quarter earnings last Thursday, announcing 25% revenue growth and an even bigger jump in earnings. The top-line strength could be due in part to health-plan provider UnitedHealth Group's (NYSE:UNH) decision to drop lab-testing rival Quest Diagnostics (NYSE:DGX) in favor of LabCorp (NYSE:LH), which became United's exclusive testing partner for 2007 and beyond.

A big part of the contract pertains to the New York metropolitan area, where Bio-Reference has its headquarters and carries out most of its business. As United business shifts from Quest, Bio-Reference looks to have picked up business as it transitions to LabCorp. The long-term benefits are difficult to discern, but they could end up benefiting Bio-Reference as a dependable provider in its home markets.

The more interesting part of the earnings press release was that esoteric testing grew to 43% of Bio-Reference's total sales, up from 36% in the previous quarter. Esoteric is seen as more compelling than the routine-test business that includes the necessary but more mundane tasks of measuring patient's blood or cholesterol, or the functioning of the kidneys, heart, liver, and other organs. Esoteric testing is considered more sophisticated and enters the realm of personalized medicine by looking into a patient's unique genetic profile, individual cells, and immune systems.

As you might expect, esoteric testing carries higher margins and operates at the heart of where many expect health care to head: individual treatments versus one-size-fits-all medicine. For the quarter, Bio-Reference jumped ahead of Quest and LabCorp in terms of its esoteric exposure: Quest's 2006 genomic and esoteric business accounted for only 16% of total sales, while LabCorp's non-routine tests accounted for just less than 35% of last year's total sales. We'll see where the full-year figures shake out, but Bio-Reference's esoteric growth is a welcome sign.

Bio-Reference is worth tracking in the industry, but LabCorp and Quest are each more than 25 times larger in terms of market capitalization. As a result, they have much more geographic diversification and are able to better negotiate with managed-care giants such as UnitedHealth, Cigna (NYSE:CI), Humana (NYSE:HUM), and Aetna (NYSE:AET). But don't count Bio-Reference out in the Northeast -- the lab-testing giants could even look to acquire their smaller, regional rival for a nice premium to shareholders.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.

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