LAB-Interlink Hangs On Despite Financial Woes

Contrary to rumors, lab automation firm has not filed for bankruptcy protection

CEO SUMMARY: It’s an uphill struggle at LAB-Interlink, based in Omaha, Nebraska. Short of funds, staffed with only a few employees, and urgently seeking capital, the company has so far managed to avoid filing for protection under bankruptcy laws. It is an unwelcome turn of events, since, in past years, LAB-Interlink was considered one of the leading manufacturers of laboratory automation products.

“WILL THE REAL LAB-Interlink please stand up!” That’s a question being asked by some customers and suppliers of this laboratory automation company.

It was last November 25, the day before Thanksgiving, when LAB-Interlink laid off the majority of its employees. A number of the company’s laboratory automation customers were unable to get service or parts. Local newspaper coverage of the company indicated that LAB-Interlink’s financial woes were significant. (See TDR, December 1, 2003.) In the weeks that followed, a lack of information caused many to assume that LAB-Interlink had ended up in bankruptcy court. However, rumors about a bankruptcy are not true.

“We have not filed bankruptcy,” stated Rodney S. Markin, M.D., Ph.D., CEO and Chairman of LAB-Interlink. “As part of our down-sizing efforts, we did restructure our subsidiary, LAB-Interlink Canada, through a Chapter 11-like bankruptcy action in the Canadian courts. But in the United States, LAB-Interlink has not filed for protection under bankruptcy laws.”

Markin said he was not surprised to learn that bankruptcy rumors were circulating, but was surprised with stories about the difficulties some LAB-Interlink clients were having in getting service and parts. He does not deny that his company encountered significant problems over the past 12 months, but says that business operations continue. “Currently we have three people working in the United States. There are four people working in Canada, as well as some staff in Israel,” he explained. “LAB-Interlink is not getting complaints about lack of service or parts. We continue to service almost 30 laboratories which operate our automation products, but with three employees in Omaha, we are less-than-rapidly responsive.”

Early Leader in Automation

In recent years, LAB-Interlink was considered to be one of the more successful vendors offering laboratory automation products and services. Compared to its competitors, which were mostly billion-dollar IVD manufacturers, LAB-Interlink was a small company of dedicated employees. It holds numerous patents and counts prominent national and international laboratories among its customer base.

It was in the early 1990s when Markin launched LAB-Interlink, based on his research work at the University of Nebraska Medical Center. Initially funded by capital from Markin and his wife, the company attracted investors which included Warren Buffet, the University of Nebraska, and Beckman Coulter Corporation, to name a few.

“Open” Systems Approach

Within a few years, LAB-Interlink’s automation products caught the interest of such lab instrument manufacturers as Kodak and Coulter. Coulter bought a 10% interest in the company. Because LAB-Interlink’s approach was to develop “open” automation products, any diagnostic instrument engineered to meet NCCLS’ clinical laboratory automation standards could be connected to their automated system.

By the beginning of this decade, LAB-Interlink was selling its automation solutions to a growing number of laboratories. It was at this time, however, that the seeds of this current financial crisis were sown.

Reliable sources tell THE DARK REPORT that problems began to surface inside LAB-Interlink as the company attempted to grow and expand. Transition Partners, LTD, a management team from Boulder, Colorado, was retained in 2001 to develop a master plan for LAB-Interlink. It was to be LAB-Interlink’s blueprint for how it would grow, how it would obtain venture capital, and how it would build its sales and marketing team.

As this business plan was implemented, LAB-Interlink grew rapidly. It quickly went from 50 to about 150 employees, including a new CFO and a new production operation. The sales staff numbered 20 people. But by April 2003, the company’s increased over- head was eating capital. There were instances of paychecks bouncing and some employees resigned. That spring, the company was forced to lay off about 50 employees and take other measures to preserve its cash while it looked for new investors.

Other Problems Surface

In an interview with THE DARK REPORT, Markin shared his view of what went wrong in the company. He confirmed that the service and advice provided by Transition Partners, LTD fell short of expectations. “Several other things also happened in tandem with the master plan for expansion and growth,” he explained. “In hindsight, we had two major business relationships which allowed competitors to know our every move and strategy. One was with Beckman Coulter, as an investor. The other was with our major distributor, Ortho-Clinical Diagnostics, the division of Johnson & Johnson (J&J).

“Another business issue involved the cost of a sales force,” he continued. “Marketing at Ortho-Clinical Diagnostics (OCD) decided not to allow us to train their sales force in our lab automation products. We hired sales reps who, along with laboratory experience, had experience in automation technology such as pharmacy automation from Pyxis and McKesson automation systems.

“With the LAB-Interlink sales team in the field, OCD stopped selling LAB- Interlink products,” said Markin. “It was not until things got tight last summer that OCD agreed to provide the technical and production engineering assistance that we requested in January of 2002.”

“In spite of these obstacles, however, LAB-Interlink is still here and is still weathering the storm.”

LAB-Interlink’s acquisition of a company called Labotix also proved both problematic and expensive. “This company’s financial problems were not revealed in the due diligence process. Additionally, LAB-InterLink’s new transportation product, Trax 2000, had intermittent and persistent problems with one function,” he noted. “Approximately $3.5 million was spent to resolve what turned out to be a design problem on a $25 microchip.

“Collectively, these factors prevented us from generating more sales and developing a profitable business,” he added. “In spite of these obstacles, however, LAB-Interlink is still here and is still weathering the storm.”

LAB-Interlink’s Future

Markin has no predictions about LAB- Interlink’s future. Several companies considered investing in LAB-Interlink, based on its market potential. Two other companies expressed an interest in acquiring LAB-Interlink’s technology and patents. “I think either of these two companies would be a good fit with our technology and products,” stated Markin. “Due diligence is ongoing and, because of non-disclosure requirements, I cannot identify these companies.”

Markin acknowledges it will take lots of effort to avoid bankruptcy. But he is also confident that the quality of LAB-Interlink’s automation products and its installed customer base represent assets to a potential investor or acquirer.

“LAB-Interlink was one of the pioneers in laboratory automation systems,” he noted. “It is an open system, so any instrument compliant with NCCLS clinical laboratory automation standards can operate on the line, unlike the closed automation systems offered by some competitors. LAB-Interlink has good technology behind it and my hope is that the eventual solution to our current business situation allows our products to stay in the forefront of laboratory automation.”

Start-Up Challenges

LAB-Interlink’s experience shows the upside and downside to smaller, start-up companies in diagnostic manufacturing. It has doggedly developed a credible line of laboratory automation equipment and products. It has attracted investment dollars from respected investors and corporations.

But lacking the deeper pockets of its billion-dollar IVD competitors, it had neither the sales and marketing reach into laboratories worldwide. Nor did LAB-Interlink have the ample capital needed to sustain a company through the many lean years required until demand for laboratory automation systems can generate substantial sales.

However, don’t count out Dr. Markin yet. For almost 15 years, he’s demonstrated patience, persistence and determination to turn his vision of laboratory automation into a reality. Certainly LAB- Interlink’s current financial struggles are not the end of his story.

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