LAB-InterLink Acquires Labotix Automation, Inc.

Omaha company makes bid to expand market for clinical lab automation hardware & software

CEO SUMMARY: Here’s an interesting combination of expertise. LAB-InterLink has one of most sophisticated process control software products for running automated laboratory systems. Its acquisition of Labotix, resulting in the largest installed base of lab automation hardware in the United States, now allows it to combine proven hardware and software into a single automation solution for interested clinical laboratories.

IN A MOVE THAT’S SURE TO RILE THE market for laboratory automation products, LAB-InterLink, Inc. acquired Labotix™ Automation, Inc. of Peterborough, Canada.

The sale was made public on April 18, six weeks after the deal was closed (on March 6, 2000). Both companies are private. There was no disclosure about the sales price, and neither company publicizes its annual revenues.

With this acquisition, LAB-InterLink becomes a company to watch in the field of clinical laboratory automation. LAB-InterLink, based in Omaha, Nebraska, intends to marry its process control software products to the modular automated instruments of Labotix.

The combination of LAB-InterLink and Labotix can be expected to shake up the existing market for lab automation products. LAB-InterLink has a different business strategy than its major competitors, who are diagnostic companies that sell testing instruments along with their automation hardware.

“We believe the combination of LAB-InterLink and Labotix positions us to become the major clinical lab automation player in North America and Europe,” stated Jack Holthaus, President and CEO of LAB-InterLink. “Our interactions with lab administrators and clinical pathologists on both continents indicate that demand for clinical lab automation solutions will increase significantly beyond what has been seen during the past six years.”

Holthaus thinks European labs will be faster to embrace the newer generations of lab automation technology now entering the market. “European labs missed all the hype about TLA that caught the attention of American and Canadian laboratorians. They don’t have the ingrained skepticism about TLA that is found in many North American laboratories,” he observed.

“…American laboratories are now extremely careful shoppers,” Holthaus explained. “They want modular automation equipment with a demonstrated track record of success…”

“That is one reason we expect European clinical labs will buy more automated systems than North American labs during the next 24 months,” added Holthaus. “European relationships already developed by Labotix, based in Canada, combined with the LAB-InterLink products, will make us a tough competitor overseas.

“The United States presents a different type of opportunity,” he continued. “During the 1994-1999 period, there was a real disconnect between the promise of TLA to deliver significant economic benefits, and its actual performance in the pioneering labs which installed TLA equipment.

“As a result, American laboratories are now extremely careful shoppers,” Holthaus explained. “They want modular automation equipment with a demonstrated track record of success and they want the vendor to stand behind the performance of its products.

“That plays to the strengths of the post-acquisition LAB-InterLink,” noted Holthaus. “With an installed base of 22 laboratories in North America, we have far more satisfied customers than any other lab automation competitor.

“We intend to leverage this installed base of satisfied users,” he continued. “Marrying the Labotix automation hardware with the LAB-InterLink process control software creates an integrated clinical lab automation system that will be highly competitive in the marketplace.

“Also, we do not believe total laboratory automation is the right solution for the majority of clinical laboratories,” noted Holthaus. “Our products are engineered to automate discrete steps in the testing process.

“This is a modular approach. Clinical labs can identify specific places within their operation where mechanization and automation can improve productivity, lower costs, and boost quality,” he said. “Labs can achieve this on a much smaller capital investment than TLA. Furthermore, it gives the lab flexibility in downstream years to automate additional steps, yet always with a capital investment that generates a reasonable ROI (return on investment).”

Strong Competitor

Another reason why THE DARK REPORT believes that LAB-InterLink will be a strong competitor in the lab automation marketplace is its capabilities in process control software. (See sidebar on page 4). Rodney Markin, M.D., Ph.D. is the founder and Chairman of LAB-InterLink. He recognized the importance of process control software as he studied the performance of the first generation of TLA installations during the mid-1990s.

To boost LAB-InterLink’s capabilities in process control software, he recruited Jack Holthaus to be President and CEO in 1998. Perceptive clients of THE DARK REPORT will recall that Jack Holthaus was the founder and President of Advanced Laboratory Group (ALG), based in Eugene, Oregon.

This company developed and sold laboratory information system (LIS) software. It was acquired by HBOC & Co. (now McKesson/HBOC) in 1995. By the mid-1990s, Holthaus recognized the importance of process control software to the success of LIS products and automation hardware systems. (See “New Features Slated for Laboratory Information Systems,” TDR, March 31, 1997).

Since his arrival at LAB-InterLink in 1998, Holthaus has spearheaded the development of sophisticated process control soft- ware. The goal was to incorporate the rules of clinical laboratory medicine into the process control software. This would allow the software to direct specimens through the mechanized and automated lab systems using the same knowledge and thinking as laboratorians.

If it was shrewd of Dr. Markin and the LAB-InterLink executive team to recognize the importance of process control software and invest in developing that automation tool, then it was an equally shrewd decision to acquire Labotix.

“This is an interesting marriage,” stated Holthaus. “Each company approached the problems of clinical laboratory automation from a different direction. Labotix was focused on hardware solutions while LAB-InterLink emphasized software solutions.

“For that reason, we believe combining our software package and equipment with Labotix’s hardware creates a complete solution for those clinical laboratories now ready to automate specific areas of their testing activities,” noted Holthaus.

“Most clinical labs would gain significant benefit from the mechanization and automation of specific work steps,” he explained. “This is component-based automation. Many Lab-InterLink customers report economic paybacks of between six and 24 months from their automation projects. We believe the fuller integration of their hardware with our process control software will further improve the performance of this equipment.”

Process Control Software Provides the Brain To Drive Lab Automation and Mechanization

ONE ASPECT THAT DIFFERENTIATES LAB-InterLink from other clinical laboratory automation equipment vendors is the priority it gives to process control software.

“Process control software is essential to the success of any clinical laboratory automation,” observed Jack Holthaus, President and CEO of LAB-InterLink. “It’s the brain that does the thinking for the automated processes.

“When equipment is installed to move specimens through the laboratory and transport them to different instruments and processing workstations, it needs guidance,” he continued. “In the non-automated lab, laboratorians make the decisions about what to do with individual specimens at each step in the process. But when the lab is automated, software must perform this function. For automated systems to function properly in the clinical lab, it must be directed by rules-based process control software. These rules are built upon clinical laboratory science.”

“When process control software is capable of making the decisions that formerly would be made by the laboratorian, then some outstanding benefits begin to accrue,” added Holthaus. “For example, there is a widely-used chemistry instrument that can generate up to 5,300 different error messages. Each requires a response by the operator.

“When process control software can respond to these error messages, it requires much less labor to operate its instruments. Typically, as few as two med techs can efficiently operate as many as 10 or 12 large instruments per day. The challenge is developing process control software that incorporates the vast knowledge and experience that is used by laboratorians.”

Installed in 22 Laboratories

Holthaus’ confidence may be well-founded. The post-merger Lab-Interlink has 22 labs now using its automation solutions. That significant share of the clinical lab automation market is not a coincidence. Labs using the company’s products report favorably about its performance.

Thus, the acquisition of Labotix by LAB-InterLink is a signal that the market for clinical lab automation is about to shift into a new phase. The number of new TLA installations will probably not increase over that of recent years.

Instead, THE DARK REPORT predicts that clinical laboratories will increasingly opt for workstation automation (where related instruments are connected) and modular automation (where discrete steps in specimen handling and transport are automated).

Several Reasons

There are several reasons why this will be true. First, TLA requires a huge capital investment, much more than workstation and modular automation.

Second, existing TLA technology locks the laboratory into a rigid operational configuration. Once it is installed, it is expensive to alter it to incorporate new diagnostic instruments and other technology innovations. In comparison, workstation and modular automation solve immediate operational problems for the lab, but retain flexibility to incorporate new technology as it appears in the future.

Third, the return on investment (ROI) for workstation and modular automation can be surprisingly short. Site visits to labs which installed such solutions reveal paybacks of six months to one year are attainable—along with substantial improvement in how specimens are tracked and handled.

Fourth, the ease of implementation makes it more attractive to hospital CEOs. Most workstation and modular automation can be installed and made operational with a minimum of disruption to the existing laboratory operations.

Given these benefits, THE DARK REPORT predicts that TLA will languish relative to workstation and modular automation during the next few years. What makes LAB-InterLink the most interesting automation vendor to watch during this period is its commitment to process control software.

Information Age

If the Internet is the herald of the information age, then hardware vendors which incorporate information and knowledge management capabilities into their products will have the edge over those who don’t. That is why LAB-InterLink’s head start in laboratory process control software makes it the company to watch in the field of clinical laboratory automation.

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