IN RECENT WEEKS, two of the nation’s larger public laboratory companies issued their earnings reports. In both cases, revenue growth was strong, a distinct difference from the recent financial performance of their two largest lab public company competitors.
It was on August 21, 2012, when Sonic Healthcare, Ltd., of Sydney, Australia, issued its financial performance for its full fiscal year that ended on June 30, 2012. Days later, on August 30, Bio-Reference Laboratories, Inc. (BRLI), of Elmwood Park, New Jersey, reported its earnings for its third quarter ending July 30, 2012.
Because they have different fiscal years, the earnings reports of Sonic Healthcare and Bio-Reference Labs don’t match up with the reporting cycle common for most public companies. For that reason, the release of their earnings often is not covered with the same attention given to those lab companies that report during the more traditional quarterly earnings season.
Growth In U.S. Operations
Sonic Healthcare is generally considered to be the third largest public laboratory company serving office-based physicians in the United States. It reported revenue from its U.S. lab operations of A$765 million, or about U.S.$803 million. This was an increase of 10.5%, compared to 2011.
Overall, Sonic’s total revenue was A$3.3 billion, or approximately U.S.$3.5 billion. This was also an increase of 10.5% over the prior year.
Revenues from its laboratory operations in the United States are important to Sonic Healthcare, and represent 23% of the company’s total revenue. By contrast, Sonic generated revenue of U.S.$1.1 bil- lion from its laboratory operations in Australia and revenue of U.S.$870 million in Europe. These divisions represented 30% and 25%, respectively, of Sonic Healthcare’s total revenue for FY2012.
Sonic’s Annual Growth Rate
Notably, Sonic’s annual rate of revenue growth in the U.S. lab division was higher, at 10.5% than its 8.8% revenue growth in its Australian lab division and the 9.6% revenue growth in its European lab division. By contrast, for 2011, the annual revenue growth at Quest Diagnostics Incorporated was 3% and for Laboratory Corporation of America, it was 10.5.%.
During 2011, Sonic Health did not disclose any lab acquisitions in the United States that it considered material. However, Sonic executives continue to state they are interested in purchasing laboratories in the United States that meet their acquisition criteria.
For its third quarter ending on July 30, 2012, Bio-Reference Laboratories posted revenue of $172.3 million, which was a 16% increase over Q3-11 revenue of $148 million. For the first three quarters of 2012, BRLI increased revenue by 19%, to $485.6 million compared to same period revenue of $407.3 million.
This puts Bio-Reference on pace to hit full-year revenue of about $667 million. That is not far behind the $805 million in full-year revenue from lab operations in the United States that was reported by Sonic Healthcare.
Expanding Market Share
The point here is that both Bio-Reference Labs and Sonic Healthcare are quietly expanding their share of the lab testing market in the United States—and doing it at double-digit rates of growth.
One aspect of Bio-Reference that is frequently overlooked is its use of a unique, two-pronged business strategy. On one level, BRLI is a routine lab competing for the referrals of office-based physicians within the New York City metro and surrounding areas.
At the same time, Bio-Reference Labs regularly develops new lines of specialty and esoteric testing capabilities. It then uses a national sales force to offer these assays throughout the United States.
Emphasis On Esoteric Tests
As a laboratory company that started out offering routine testing to office-based physicians, Bio-Reference may be unique in how it has successfully expanded its presence in the reference and esoteric testing marketplace. The numbers tell that story. For Q3-12, BRLI says that its revenue per patient (per requisition) was $85.65. Moreover, BRLI executives point out that esoteric testing is now 61% of the lab company’s overall revenue.
For clinical lab managers and pathologists in local lab organizations, the busi- ness strategies and the sustained growth rates of Sonic Healthcare, Bio-Reference Labs, and Neogenomics, Inc. (see sidebar below), provide powerful evidence that selling service and value remains an effective way to build market share.
Each of these three lab firms is finding and exploiting market niches that allow them to distinguish themselves in unique ways. Further, each lab company shows how it is still possible to use a professional sales program to achieve sustained growth.
NeoGenomics Posts Double-Digit Growth
HEADQUARTERED IN FT. MEYERS, FLORIDA,
Neogenomics, Inc., might be described as “the little lab that could.” In recent years, this national cancer testing lab company has sustained an impressive rate of growth in both specimen volume and total revenue.
In its second quarter earnings report, released on July 19, 2012, Neogenomics said it had increased revenue 49%, to $15.6 million, compared to Q2-11. It also reported a 57% increase in specimen volume for the quarter.
Currently, Neogenomics has grown to an annual revenue run rate of about $60 million. What is noteworthy is that the company has done this through a well-executed sales and marketing program. It has not relied on acquiring other labs for growth, nor has it had infusions of venture capital or private equity money in a number of years.
For these reasons, aspects of its business model and success at sustained growth would be instructive for regional laboratories seeking to build market share.
Among other things, Neogenomics is working to bring proprietary molecular tests to market. “We launched 20 new molecular assays thus far in 2012, and expect to launch another 15-20 assays… by year end,” noted Douglas Van Ort, CEO and Chairman of Neogenomics. He was quoted in the company’s second quarter earnings press release.
Van Ort also noted that Neogenomics was implementing a new digital pathology system and it is one of the few labs in the nation currently offering 10-color flow cytometry services to its clients.