DIANON & IMPATH REPORT 2000 EARNINGS
TWO OF THE NATIONAL anatomic pathology companies reported fourth quarter earnings. Both DIANON Systems, Inc. and IMPATH, Inc. posted big gains in revenues and operating profits for 2000.
At DIANON Systems, revenues reached $95.7 million, a gain of 26% over 1999 revenues of $76.1 million. Operating income in 2000 climbed by 58%, from $6.8 million to $10. million.
It was even more spectacular at IMPATH. Revenues for 2000 were $138.2 million. This was 62% greater than 1999 revenues of $85.4 million. Net income climbed 57%, totaling $12.9 million in 2000. IMPATHS’s net income was $8.2 million in 1999.
The strong financial growth at both companies is further confirmation to the anatomic pathology profession that sales and marketing is a good investment for those pathology groups seeking to improve revenue and partner compensation.
DYNACARE, SPECIALTY, AND QUEST ANNOUNCE LAB ACQUISITIONS
THINGS HAVE BEEN HOPPING since the new year. Three laboratory acquisitions were announced.
Dynacare, Inc. tendered an offer to acquire the laboratory operations and assets of Medical Arts Laboratory, Inc., located in Oklahoma City, Oklahoma. Medical Arts filed for Chapter 11 bankruptcy in November 2000.
Several potential buyers “kicked the tires,” but Dynacare had the strongest interest. The Oklahoma City location nicely complements the laboratory testing organization that Dynacare has been assembling in east Texas, Arkansas, Louisiana, Mississippi and Alabama. Oklahoma is a contiguous market to Texas and Arkansas. The purchase agreement is pending approval by the bankruptcy court.
Next in the acquisition queue was Quest Diagnostics Incorporated. On February 1, it announced that it would purchase the assets of Clinical Laboratories of Colorado, LLC (CLC), based in Denver. Related to this transaction, Quest Diagnostics picked up a contract to manage laboratories at five hospitals owned by Centura Health.
CLC was a lab oft-mentioned as an acquisition candidate. One of its primary owners is Moon S. Park, M.D., who is also an owner of Clinical Laboratories of Hawaii, based in Honolulu.
Quest Diagnostics considered CLC to be a good strategic acquisition. The regional laboratory it operates in Denver is one of the company’s largest and it expects worthwhile synergies from integrating the two operations. Less is known about the laboratory management contract with Centura Health, since terms of this agreement were not disclosed.
Finally, last week Specialty Laboratories, Inc. announced a lab acquisition. It will pay $9.5 million to purchase certain assets of BBI Clinical Laboratories, Inc., (BBICL) a wholly-owned subsidiary of Boston BioMedica, Inc.
Specialty was interested in BBICL’s esoteric testing expertise in the areas of tick-borne pathogens, particularly Lyme Disease, and the immunological and molecular analysis of HIV and viral hepatitis. BBICL also serves many of the same clients as Specialty, which should contribute to an easier integration of the two labs.
All three acquisitions share a common theme. Each of the acquiring companies is purchasing a laboratory which complements its existing business. For the last several years, the majority of buyers for independent laboratories have been other lab companies. Probably the last “outsider” to enter the lab space was Golder, Thoma, Cressey & Rauner, Inc. (GTCR), which participated in the purchase of American Medical Laboratories, Inc. by Timothy Brodnik, Jack Bergstrom, and Jerry Glick. (See TDR, May 12, 1997.)
ENROLLMENT DECLINES MAY BE MARKING END OF HMO’S HEYDAY
IT’S ALREADY been noted in THE DARK REPORT that 1999 was the first time in 30 years that HMO enrollment declined. Now additional statistics have been published which show a profound shift in national managed care trends.
During 1999, HMOs lost 430,000 members. In 1999, the year ended with 80.9million Americans enrolled in an HMO, compared to 81.3 million in 1998. Where are these people going?
It seems the shift is to PPOs. Enrollment in PPOs exceeded that of HMOs in 1998 and totaled 98 million in 1999. As THE DARK REPORT predicted during 1997 and 1998, Americans have rejected the closed-panel HMO model, where a gate-keeper effectively restricted their access to healthcare. Consumers are selecting programs which allow them increased choice and control over their personal healthcare.
These trends are reinforced by news that the number of HMOs is shrinking. In 1998, there were 643 HMOs in the United States. That number declined by 12%, to 568 in 1999. Approximately 29 of these HMOs closed due to ongoing financial problems or bankruptcy.
For the clinical laboratory industry, these trends are favorable. It means fewer capitated contracts for lab services. However, the financial squeeze which continues to trouble many health insurance plans is a sign that lab reimbursement may not increase by much.
PRESS RELEASE PUFFERY PROVIDES A CHUCKLE FOR THOSE “IN THE KNOW”
In closing this edition of “Lab Briefs,” its time to interject some humor. Most lab executives and pathologists know that much of what appears in a company’s press release is carefully written to convey only the best side of the issue.
Think of this phenomenon as similar to the spinmeisters of the Clinton White House. Seldom was any event to be interpreted exactly as it appeared. To the contrary, time and time again the White House spinmeisters seemed to successfully weave the Emperor’s new clothes from their version of the facts.
Thus, in the public relations wars, perception must really count! What triggered these musings was a line in the fourth quarter earnings announcement by Laboratory Corporation of America.
In its February 14 press release, it described itself in new terms. Labcorp says it is “the first clinical laboratory to fully embrace genomic testing.” Given the existing test mix ratio of routine testing to esoteric testing at LabCorp, that is certainly a worthy goal. As well, there are probably more than a few laboratorians with the credentials to challenge LabCorp’s statement. However, for the investment community, that description must have the right “ring.”
By the way, in earlier press releases, LabCorp offered the more traditional description; to wit: “a national clinical lab with annual revenues of $1.7 billion in 1999.” (Issued on January 26.)