Abbott, CARESIDE, Bio-Reference Labs, DIANON Systems

SWARM OF LAWSUITS NOW PLAGUES ABBOTT LABS

PAYING A $100 MILLION FINE TO THE Food and Drug Administration (FDA) did not end Abbott Laboratories, Inc.’s problems related to its diagnostic test kits and reagents.

Since payment of the FDA fine last month, Abbott has been served by a number of lawsuits. Most of these suits involve unhappy shareholders. Abbott’s stock prices declined 11% during 1999. Plaintiffs claim that Abbott Chairman and CEO Miles White, who assumed that position in April 1999, intentionally hid details of the FDA’s investigation from stockholders and the public.

One interesting twist to this current round of lawsuits is the fact that Abbott had a similar problem a few years back. In a separate FDA investigation, the FDA’s report criticized Abbott’s manufacturing procedures. The company never revealed this to shareholders. In July 1994, A federal jury awarded $15 million to shareholders who sued Abbott over this matter.

Under the consent decree, Abbott is removing over 100 diagnostic tests from the market. These tests generate about $250 million of Abbott’s annual $2.79 billion in diagnostic sales. Laboratories around the country have been scrambling to replace those tests.

IT’S OFFICIAL: CARESIDE’S POINT-OF-CARE SYSTEM NOW READY FOR SALE

LOTS HAPPENED DURING THE MONTH OF December for CARESIDE, Inc. of Culver City, California. The young company officially launched sales of its point-of-care system for routine chemistry and hematology.

On December 13, the company also announced FDA clearance for use of its CARESIDE Analyzer® in point-of- care settings. This permits the instrument to be used in clinics, doctors’ offices, nursing homes, and other types of healthcare facilities.

In December, CARESIDE further disclosed that it had purchased Texas International Laboratories, Inc. (TIL), a private company which manufactures a hematology analyzer, ancillary reagents, controls, calibrators, and accessories. TIL’s analyzer is cleared by the FDA for human use and will be mated with CARESIDE’s chemistry instrument.

This combined POC instrument suite has FDA clearance for 52 chemistry and hematology tests. It will include a data network system. Retail price for the POC instrument suite is $24,000. The instruments require 12 to 15 minutes to perform tests.

BIO-REFERENCE LABS MAKES MAJOR MOVE INTO E-HEALTH MARKET

WHO SAYS ONLY THE BILLION-DOLLAR lab giants can play in the E-health game? Bio-Reference Laboratories, Inc., based in Elmwood Park, New Jersey, is busily diversifying away from clinical lab testing.

The $46 million public company announced two acquisitions in December. The first purchase was DoctorNY.com, a local New York-area portal which connects consumers and physicians. The second acquisition was Right Body Foods, Inc., based on Long Island, New York. Right Body Foods manufactures and distributes no-starch, low-fat foods which are sold though physicians, nutritionists, and other healthcare professionals.

Bio-Reference intends to have its sales force market these products to its existing physician office clients. In this respect, it is following a page from UroCor, Inc.’s book. UroCor provides diagnostic services to urologists. Over the last two years, it has also begun to use its sales force to sell therapeutics and pharmaceuticals to its urologist-clients. Both companies recognize the potential to use their sales forces to sell additional products to their existing client base of physicians.

Bio-Reference President Marc Grodman, M.D. intends to expand the cross-sell opportunities available to his laboratory company. He wants to use the established relationship with his physician office clients as the foundation to sell other products and services.

Bio-Reference has been moving swiftly to develop Internet-based services for its physician office clients. The acquisition of DoctorNY.com complements this effort. This Web portal provides access to a directory of physicians and physician websites. It allows Bio-Reference to interact directly with consumers as they seek to connect with physicians.

DIANON SYSTEMS EXPECTS HIGHER REVENUES FROM REVISED MEDICARE FEES

REVISED MEDICARE FEE SCHEDULES ARE generally not good news for the laboratory industry. But that was not the case for DIANON Systems, Inc. at the close of 1999.

The Connecticut-based company expects a significant financial benefit in 2000 from the new fee schedules for Medicare that become effective on January 1, 2000. As most pathologists know, Medicare reimbursement for outpatient pathology services is scheduled to increase in fiscal year 2000.

“DIANON currently generates approximately 95% of its pathology revenue from procedures performed in out- patient settings,” observed David R. Schreiber, CFO at DIANON. “Given the upward revisions in outpatient codes, we feel comfortable increasing our year-over-year earnings per share [EPS] growth targets to 40%, from 30%.”

That’s a hefty increase in profits for DIANON shareholders. Clients of THE DARK REPORT are familiar with DIANON’s big sales push into anatomic pathology services in recent years. For 1999, DIANON’s revenues will reach about $75 million. At least 75% of that, or about $56 million, will come from anatomic pathology services, not lab testing.

DIANON’s success at selling pathology services on a nationwide basis is an early warning sign to the pathology profession. Its experience is mirrored by UroCor, Inc. and IMPATH, Inc. All three companies offer anatomic pathology services nationally.

During the last five years, each of these three companies experienced strong, consistent growth rates. By investing in sales and marketing, all three companies have succeeded in getting increasing numbers of doctors to refer anatomic pathology specimens to their labs.

The marketplace is validating that physicians are just like any other category of consumers. When a professional sales force educates them about the benefits of a product or service, they will buy. For this reason, local pathology practices interested in additional revenue should launch their own sales program. That’s one way to insure that AP specimens stay in the community.

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