Dynacare, LabCorp, IMPATH, Visible Genetics, Abbott Labs

ACTIVITY AT DYNACARE HINTS AT POSSIBLE SALE, LABCORP MAY BE BUYER

With Quest Diagnostics Incorporated snapping up independent lab companies right and left in recent months, the question asked by many is “Where’s Laboratory Corporation of America?”

On the sell side, American Medical Laboratories and Unilab have been acquired by Quest Diagnostics. The largest remaining independent commercial laboratory serving the physicians’ office segment is Dynacare, Inc., based in Dallas.

It’s not surprising, then, that rumors about a possible sale of Dynacare to LabCorp have been circulating. THE DARK REPORT believes there is some substance to these rumors, for a number of reasons. One, Dynacare’s revenue base may be at a high-water point. Some of its lab ventures have unraveled, the most recent involving the termination of its lab testing relationship with the Kelsey-Siebold Clinic in Houston. This was a major client for Dynacare’s Houston laboratory division.

Two, in the Northwest, Dynacare’s very successful lab operation has a restless partner in Swedish Hospital. As affiliations between hospitals change in Seattle, the original business reasons for the Swedish-Dynacare business relationship, launched in 1994, may cause Swedish to pursue other laboratory testing options at some future point.

Three, THE DARK REPORT has heard from multiple sources that corporate records have been shipped out of several Dynacare sites around the country. These are the types of documents that a buyer would need to review in per- forming due diligence prior to a final agreement to purchase. No one has said the buyer is LabCorp. However, there are reports of LabCorp employees in the field telling physicians that LabCorp is a likely buyer of Dynacare.

This combination of facts and rumors doesn’t confirm that Dynacare is actually for sale or that LabCorp is the likely buyer. However, such rumors often have some factual basis that gets distorted as the rumors circulate. So it will not be a total surprise if, in the coming months, such an announcement was made by the two companies.

IMPATH SUSTAINS GROWTH, BUT ATTRACTS GREATER INVESTOR SCRUTINY

SUSTAINED GROWTH IN CASE VOLUME was reported by IMPATH Inc. in its first quarter financial earnings report.

The anatomic pathology company has carved out a growing piece of the market in cancer diagnostics. IMPATH reported that its case volume increased by 13% over same quarter last year. Lymphoma/leukemia and diagnostic tumor cases were the fastest growing segments, increasing 24% and 21%, respectively over the same quarter last year.

Its revenues were up 25% for the quarter, to $52.8 million. However, net income declined due to one-time charges related to the Tamtron acquisition (see TDR, January 28, 2002) and the discontinuance of certain acquired technologies. Besides IMPATH’s continued double-digit growth in caseload, it also posted a 3% increase in revenue per case, which was $840 for the quarter.

In recent months, IMPATH’s billing practices and financial reporting of accounts receivables have generated much debate among professional investors. Not surprisingly, IMPATH devoted considerable attention in its earnings release to these matters. Its DSO was reported at 113 days. The company also predicted that DSO would fall to around 100 days by the end of 2002.

Of interest to pathologists is IMPATH’s efforts to develop revenues from its cancer data base and tissue banking initiatives. IMPATH Predictive Oncology generated $6.8 million in revenues for the quarter, which was a 98% increase over same quarter last year. IMPATH announced that its data base now has “915,000 patient profiles and outcomes data on 2 million individuals.”

Local pathology groups should note the extent of IMPATH’s national client base. It now claims that 2,000 hospitals refer it cases, along with 570 oncology practices.

VISIBLE GENETICS SEES GROWTH IN SALES OF HIV GENOTYPING KITS

IT’S THE FIRST ROUND in the battle between FDA-approved test kits for HIV genotyping versus “home brew” tests offered by national labs.

Following FDA approval of its TRUEGENE HIV-1 Genetyping Test last fall, Visible Genetics Inc. reports steadily increasing demand. This is the first FDA-approved kit for HIV-1 genotyping to hit the diagnostic marketplace. Visible Genetics has signed agreements with selected laboratories it feels have the right resources to market the test to clinicians.

Visible Genetics reports that revenues climbed about 35% from fourth quarter to first quarter and expects sales to total about $3.7 million. It also said that March sales of the TRUEGENE test kits will total about 7,000 units.

In past issues, THE DARK REPORT has discussed the growing trend to “brand” diagnostic tests. One element of a branding strategy is to restrict the number of labs which can offer the test. This might cut smaller, local labs out of the distribution channel.

But another facet of the branding phenomenon is when national labs “brand” their home brew version and continue to offer it to clinicians, even after an FDA-approved test kit be- comes available.

In the case of Visible Genetics’ FDA-approved TRUGENE HIV-1 test, it is competing against home brew HIV genotyping tests offered by certain national labs. It will be an early opportunity to see what types of diagnostic test branding strategies work best in the clinical marketplace.

ABBOTT LABS CLOSER TO FDA COMPLIANCE IN DIAGNOSTICS DIVISION

IT WAS BIG NEWS when the FDA declared certain diagnostic manufacturing facilities at Abbott Laboratories to be out of compliance with Quality System Regulations in the fall of 1999.

The FDA required Abbott to cease selling more than 120 diagnostic tests, an action which took effect in early 2000. (See TDR, November 22, 1999.) Many lab customers were highly displeased over the situation, because of the disruption and expense caused by having to either convert to other test methodologies or bear the higher costs of sending those tests out.

In the past two years, Abbott has worked with the FDA to demonstrate compliance. In December, the most recent inspections were conducted by an FDA inspection team and the Center for Biologics Evaluation and Research (CBER). Abbott expects an answer sometime in April or May that it is in manufacturing and regulatory compliance.

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