CEO SUMMARY: Ascend Clinical and PathCentral see an opportunity to provide sophisticated services to community pathology groups. Ascend Clinical will expand the molecular diagnostic and gene sequencing business it is purchasing from PathCentral. PathCentral will concentrate on marketing its cloud-based anatomic pathology LIS solution and launching a pathology professional network early in 2013. Each company said its goal is to help pathologists nationwide compete more effectively.
SEEKING TO EXPAND ITS MENU of reference and esoteric tests, Ascend Clinical, LLC, has purchased the diagnostics laboratory operated by PathCentral Inc. of Irvine, California. This is not a large acquisition when measured by annual revenue. However, it is notable as an example of an emerging trend: that of creating companies focused on offering national reference/esoteric testing services specifically in support of anatomic pathology groups and labs. The acquirer is Ascend Clinical, of Redwood City, California. Until now, Ascend has been an end-stage renal disease (ESRD) lab testing company serving independent dialysis clinics.
PathCentral’s Lab Business
Ascend Clinical has acquired the lab testing business of PathCentral. PathCentral keeps its anatomic pathology laboratory information system (APLIS), currently used by 20 of the nation’s largest regional and national anatomic pathology labs, along with almost 200 community pathology groups throughout the United States. Now that the acquisition is complete, PathCentral will continue to operate its pathology informatics services and will focus on further development of its information technology solutions for anatomic pathology labs and group practices. Ascend Clinical will continue to use PathCentral’s information technology solutions to provide continuity to existing clients and to take advantage of PathCentral’s online tools for TC/PC testing options.
Expand into New Areas
“Our interest in acquiring PathCentral’s laboratory business was motivated by our need to expand into other areas of the clinical lab testing market,” commented Paul Beyer, who is the CEO at Ascend Clinical. “Currently we have strong market share in serving independent dialysis clinics. At the same time, we’ve watched the steady growth in molecular diagnostics. That is why acquiring PathCentral’s laboratory testing business gives us a good platform for further growth in this market sector.”
Beyer observed that the majority of the nation’s 3,300 pathology groups are small and often lack adequate capital to establish sophisticated in-house testing services. “It takes high-tech analyzers and specialized lab medicine skills to perform advanced molecular testing and gene sequencing,” he said. “We see a strong business opportunity in providing those sophisticated testing services to pathology practices nationwide in ways that help local pathologists compete more effectively against larger labs. “Molecular diagnostics is transforming many aspects of cancer testing and the practice of medicine,” noted Beyer. “We think there is an untapped demand to provide advanced molecular diagnostics to the nation’s small anatomic pathology practices.
“At the same time, this acquisition also allows Ascend Clinical to diversify and expand its existing test menu to serve this rapidly-growing market,” explained Beyer. “Our existing lab specializes in running routine tests and has a national client base. We have a staff of about 200, including 30 software developers. Adding the PathCentral laboratory provides us with more sophisticated equipment and the expert staff to do molecular diagnostics and gene sequencing.”
Offering Leading-Edge Tech
For Ascend Clinical, one of the attractions of PathCentral software is its ability to accommodate pathology groups that want to split the technical component (TC) and professional component (PC) of each case. “The referring pathologist can choose to split the work, thereby allowing him or her to bill the professional component or have us do the test globally,” said Beyer. “We know pathologists around the country need to have more esoteric testing done, and we believe they will be interested in using our laboratory,” he added. “That’s our growth model.”
Achieving economies of scale was another factor in Ascend Clinical’s decision to purchase PathCentral’s laboratory business. “We already have substantial infrastructure in place, so we don’t expect there is much we will do differently now that the sale is closed,” commented Beyer. “For example, we have the staff, such as billing and administration, which will allow us to operate the new lab assets more efficiently and at a lower cost. “Further, we have capital to invest if needed,” he continued. “It can cost $200,000 to $500,000 just to validate an instrument that may handle only a few samples per week.
“This up-front cost is why it is difficult for local pathology groups to build up in-house capabilities to offer their clients the latest molecular diagnostic assays,” added Beyer. “That’s another reason we believe there is a need for a national anatomic pathology reference and esoteric testing service.”
Assessing Its Strengths
On the other side of this acquisition is PathCentral. It had been a company with two distinct business lines. One business line involves providing an anatomic pathology laboratory information system (APLIS) to pathology groups through its cloud-based solution. The second business line is the clinical laboratory business that is being sold to Ascend Clinical. PathCentral’s executive team was faced with a fundamental question.
“We asked ourselves whether our core strength is as a lab testing company or as a technology company,” explained Jaye Connolly, PathCentral’s new CEO. “The pathology informatics side of our company is over 10 years old and formerly operated under the company name of eTeleNext,” Connolly noted. “This was a client-server based APLIS and had a number of big reference labs as clients, including Clarient, Genoptix, Genzyme, and NeoGenomics.
“Three years ago, we developed a strategy to make this same APLIS technology available to community-based pathologists via the cloud,” noted Connolly. “Our APLIS is designed to link with the lab testing component, making it possible for pathologists to order sophisticated genomic testing with the click of a mouse. However, it also meant we were running two different businesses.
Robust Testing Added
“One was the lab testing business and the other was an information technology company,” Connolly explained. “Each business requires substantial capital and specialized staff and each captures market share in different ways. “That’s when we made the strategic business decision to be strictly a technology company,” she continued. “A majority of our employees worked in this area. We also recognized that the emerging market in digital pathology would be a strong and ongoing growth opportunity.
“That’s why it made sense to divest our esoteric testing laboratory,” observed Connolly. “But we wanted the buyer to be a willing partner to help us extend our APLIS to pathologists everywhere.
“We believe Ascend Clinical will be a good long-term partner for us,” she concluded. “And we believe community pathologists will be interested in using the services of an advanced molecular diagnostics and gene sequencing laboratory that is partnering with an APLIS company offering a proven cloud-based informatics solu- tion that delivers value to our common customers.”
PathCentral Uses Cloud Technology as a Way to Level Playing Field for Community AP Groups
PATHCENTRAL WAS FOUNDED IN 2009 by Matt Watson and Dan Angress. Within a year, PathCentral had acquired eTeleNext, a pathology informatics company that had been created in 2002. Its primary product was an anatomic pathology laboratory information system (APLIS). At the time when PathCentral acquired the assets of eTeleNext, the company marketed its APLIS only as a client-server model. Watson and Angress then developed a cloud-based version of the APLIS. In this form, as software-as-a-service (SaaS), it was a reliable, fast, and low-cost solution for local pathology groups that wanted the capability to handle sophisticated molecular diagnostics and gene sequencing data.
“In 2011, PathCentral added an esoteric pathology testing laboratory,” stated Jaye Connolly, PathCentral’s CEO. “This allowed PathCentral to offer both esoteric testing and an enhanced APLIS service to local anatomic pathology group practices.
“The beauty of putting the APLIS in the cloud is that it leveled the playing field for community pathologists,” added Connolly. “The APLIS did this by providing a scalable and flexible workflow solution at a reasonable cost.
“Many local pathologists provide H&E testing but do not do any molecular diagnostics or gene sequencing,” explained Connolly. “One option is to send those tests to some of the larger national labs, but these labs have their own pathologists and they often try to cut out the community pathologists by going directly to oncologists.
“Further, by having our APLIS in the cloud, pathologists who referred specimens to our esoteric lab could request that the technical component and professional component be split, providing another source of revenue and control of the case,” she noted. “This pathology informatics solution makes it easy for them to access the data they need in order to sign out the case.”