Two New Public Labs Launch Operations in FL

VitalLabs, Inc. to offer general lab testing; NeoGenomics, Inc. to serve OB/Gyn specialty

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CEO SUMMARY: In 49 states, independent commercial laboratory companies are disappearing. But that’s not the case in Florida. In recent months, two new public laboratory companies completed organizational steps and now offer diagnostic testing services. Both companies are starting small, but each is optimistic that the healthcare market will support steady growth in specimen volumes and revenues.

BOOM TIMES FOR PUBLIC LAB companies in recent years seem to have encouraged two new start-ups. Both laboratory companies are in Florida, just miles from each other.

One is called VitalLabs, Inc., located in Clearwater, Florida. It is a general commercial laboratory that provides routine testing to physicians’ offices in its service area. VitalLabs’ stock trades on the NASD OTC Bulletin Board under the symbol VILB.OB.

The other new laboratory company is NeoGenomics, Inc., based in Naples, Florida. This lab is organized to offer routine cytogenetics testing and highend molecular genetics services. It is also building a bank of DNA and RNA samples. On the NASD OTC Bulletin Board, its shares trade as NOGN.

VitalLabs is a company which entered the lab business by purchasing Med Tech Labs, Inc., based in Clearwater, then merging it into a public shell company. The purchase of Med Tech Labs by VitalLabs was closed on April 5, 2002.

During 2001, Med Tech Labs reported unaudited revenues of $10.9 million. Med Tech Labs was originally founded in 1957 and since its founding has competed for physicians’ office business in 13 counties located along the west coast of Florida.

Officials of VitalLabs tell THE DARK REPORT that the company intends to grow by acquisition. It already has a contract to acquire one small lab company in Florida and is awaiting financing to complete the purchase. It will also build revenues and specimen volume through traditional methods of clinical laboratory sales and marketing.

VitalLab’s central laboratory facility is 20,000 square feet and is located in Clearwater. It operates 20 patient service centers and has 133 full-time equivalent employees.

VitalLabs’ Executive Team

Chairman and CEO of VitalLabs is Edwin B. Salmon. Much of his professional experience is in the fields of banking, finance, and computers. President of VitalLabs is Patrick Barmore, who has 25 years experience in clinical laboratories. He arrived at Med Tech Labs in 1999, at a time when the independent laboratory company was dealing with billing problems and issues related to long term care clients, a business the lab company exited in 2001.

VitalLabs has ambitious growth plans and believes there are many opportunities to acquire clinical labs in Florida. Last month, Salmon told the Tampa Bay Business Journal that “our objective is, by the end of next year, to be as close to $100 million as we can…At some point we would hope to get large enough so that one of the big conglomerates—like LabCorp or Quest—would want to acquire us.”?

Different Market Segments

The testing segment that underpins the business strategy at VitalLabs is routine clinical testing of specimens referred by physicians’ offices. NeoGenomics has a different strategy. It is offering higher value lab tests, centered around genetic and molecular testing.

NeoGenomics was started by Michael T. Dent, M.D., a board-certified OB/Gyn who had earlier, in 1996, founded the Naples Women’s Center. NeoGenomics was incorporated in June 2001. In November 2001, it was acquired by a public shell corporation and the enterprise reorganized itself under the NeoGenomics name.

This spring NeoGenomics opened a 2,200 square foot laboratory in Naples. CLIA certification was obtained on April 30, 2002. The laboratory is equipped to perform clinical cytogenetics, molecular, and flow cytometry. It is marketing its test services both within Florida and nationally. NeoGenomics’ first clients were physician groups in the Naples area.

Dr. Dent is the Chairman, President, and CEO of NeoGenomics. The Clinical Cytogeneticist is Navnit Mitter, Ph.D., who has consulted or been employed by DIANON Systems, IMPATH, and AmeriPath in recent years. The Laboratory Manager is Debra L. Angel.

Unique Business Strategy

One unique aspect of NeoGenomics’ business strategy is its planned activities in tissue banking and research. Dr. Dent’s OB/Gyn practice is a source of blood and tissue specimens for NeoGenomics. The company wants to conduct research and develop gene-based technology that would aid in the early detection and treatment of certain women’s diseases and cancers.

It is an intriguing partnership between an OB/GYN practice and a clinical laboratory company. As a result of collecting tissue and specimens from Dr. Dent’s practice, which numbers 8,000 patients, NeoGenomics believes it can “create what will be one of the largest and most comprehensive databases of female and neonatal phenotypic and genetic information in existence, spanning generations and allowing NeoGenomics to analyze and compare genetic alterations in individuals and within families.”?

One particularly interesting aspect about NeoGenomics is that its entrepreneurial vision did not involve a pathologist. Rather, it was an OB/Gyn who recognized that colleagues in his specialty had a real need for specialized laboratory testing that went beyond the offerings of labs serving his area. Further, this OB/Gyn was willing to shoulder the financial risk to translate his vision into reality.

As such, NeoGenomics represents an example of how the pathology profession, traditionally reactive and not proactive, is allowing “outsiders” to take a lead role in shaping its future. Certainly in a number of public laboratory companies, it has been non-pathologists who recognized opportunities and took the risks required to build thriving laboratory businesses.

These newest additions to the laboratory industry automatically become bellwethers worth studying. As Laboratory Corporation of America and Quest Diagnostics Incorporated have come to dominate the national marketplace, many business-minded laboratorians question whether new lab companies can enter the marketplace and successfully compete.

VitalLabs and NeoGenomics, although pursuing different segments of the laboratory testing marketplace, must also deal with meager reimbursement and the barriers to patient access so common with current managed care contracting policies. Both lab companies have considerable challenges to overcome on their road to success.

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