Digene, Kaiser Northern California, ARUP Labs, Bio-Reference Labs, Specialty Labs

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DIGENE ENJOYS GROWTH OF 39% IN RECENT MONTHS

FUELED BY RECOGNITION that HPV plays a key role in causing cervical cancer, demand for Digene Corporation’s hc2 High-Risk HPV DNA test is increasing at impressive rates.

For fiscal third quarter 2004, Digene reported revenue growth of 39% over the same quarter last year. Its revenues climbed from $17.0 million to $23.6 million. For the full nine months of fiscal year 2004, Digene’s revenues topped $64.2 million. This was a growth rate of 46% over the previous year.

In response to the new cervical cancer screening guidelines, insurance companies have acted swiftly to accept and cover Digene’s DNAwithPap™ test. In early January, Digene disclosed that it had agreements with payers rep- resenting 100 million lives. By mid- April, additional payer contracts raised that number to 150 million lives.

This is a remarkable accomplishment. FDA approval of the DNA with Pap test was granted in March, 2003. It took Digene only 13 months to achieve the payer contract milestone of 150 million covered lives!

Lab managers and pathologists should interpret these events as a sign of how swiftly the clinical marketplace can move to incorporate new clinical guidelines. It is also an opportunity for laboratories that want to be seen as the lab test innovator in their service region. They can be first in two ways. One, to provide educational programs to both physicians and women about the new cervical cancers screening guidelines. Two, they can be first to provide appropriate laboratory tests and clinical pathology services needed to support this testing.

One example of an early adopter in cervical cancer screening is Kaiser Permanente Northern California. Last year, Kaiser decided to implement the new cervical cancer screening guidelines. In California, Kaiser serves 6.2 million beneficiaries. One consequence of that decision is that Kaiser’s regional laboratory in Northern California is gearing up to perform 400,000 HPV tests this year, compared to only 5,000 HPV tests last year.

The new cervical cancer screening guidelines, their impact HPV test utilization, and the rapid coverage decisions by payers in this country sends another message to the laboratory industry. Swift acceptance of the clinical relevance of such molecular-based testing demonstrates how rapidly other new molecular tests can sweep across healthcare. However, that will only be true if such tests demonstrate clear and unambiguous clinical benefit, at a reasonable cost.

CONGRATULATIONS! ARUP LABORATORIES HAS ITS 20TH BIRTHDAY

JUNE 15 MARKED THE 20TH BIRTHDAY of ARUP Laboratories, Inc., based in Salt Lake City, Utah. The day was marked by festivities which included a bluegrass band, rodeo riders, and “mechanical roping.”

THE DARK REPORT extends its congratulations to ARUP Laboratories. The success of ARUP Labs is one of the lab industry’s more remarkable stories.

It was back in 1994 when the Department of Pathology at the University of Utah’s School of Medicine turned entrepreneurial. At that time, the Department of Pathology assumed ownership and operational responsibility for the clinical laboratories of the University Hospital.

That was a bold business move for academic pathologists—a move unmatched by any other academic pathology group during the past two decades. However, executive leadership at ARUP was up to the challenge. The laboratory has enjoyed double digit growth in specimen volume for each of the past 20 years. Its annual revenues are well past $100 million and climbing steadily toward $200 million.

It would be a positive boost for the entire profession of laboratory medicine if more academic pathology groups borrowed a page or two from ARUP’s entrepreneurial playbook and started their own specialized laboratory company.

CLINICAL LAB INDUSTRY FORTUNES IMPROVE, BRLI GROWS BY 29%

TODAY’S CLINICAL LABORATORY INDUSTRY might be, metaphorically speaking, diagnosed as having a bipolar disorder.

The swings to feelings of depression are triggered by steadily declining reimbursement, proposals to reinstitute the Medicare 20% co-pay, and a host of threats to the status quo—some real and some perceived. When the emotional meter moves to exhilaration, it is usually the result of exceptional gains in market share, specimen volume, and profits by individual lab companies and hospital laboratory outreach programs.

One example of the positive mood swing is Bio-Reference Laboratories, Inc. (BRLI), based in Elmwood Park, New Jersey. For second quarter of its fiscal year 2004 (ending October 31, 2004), it reported revenue growth of 29%, compared to Q2 FY2003. BRLI’s revenues jumped from $25.9 million to $33.6 million during this same period. Also during this time, BRLI’s net income and earnings per share (EPS) increased by 29% and 25% respectively.

BRLI competes in one of the nation’s toughest markets for lab services. It is New York City metro, which reaches into New Jersey and Connecticut. As a public laboratory company, BRLI must report its numbers. That makes it a useful gauge of the ongoing competitive wars between the two blood brothers and their regional competitors.

Around New York City, regional independent lab companies include Enzo Clinical Laboratory, Quentin Medical Laboratories, and Sunrise Medical Laboratories, among others. There is a group of nascent hospital lab- oratory outreach programs. Individually, these laboratories tell THE DARK REPORT that they are showing regular growth and enjoy a predictable level of profit.

Of course, this optimism is tempered by the lab industry’s bipolar opposite: never-ending fears that even a single significant change in the healthcare market- place may cause a smaller laboratory organization to collapse. Regional laboratories recognize that, for them, it is a tenuous thread which separates financial viability from financial disaster. That is one reason why the strong growth and financial performance of many smaller labs throughout the United States goes unrecognized.

THREE NEW DIRECTORS AT SPECIALTY LABS

MORE CHANGES AT THE LEADERSHIP LEVEL of Specialty Laboratories, Inc., located in Santa Monica, California. Its three new directors are: Hubbard C. Howe, a retired investment banker, Michael T. DeFreece, Chairman and Chief Administrative Officer of MarketSphere Consulting, and David R. Schreiber, known in the lab industry for his role as Chief Financial Officer of DIANON Systems, Inc. prior to its acquisition by Laboratory Corporation of America.

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