"The Dark Index"

“Disease Management” Firms, Niche Labs Release Financials

Two DISEASE MANAGEMENT FIRMS enjoyed strong revenue growth during the first quarter of 1998. UroCor, Inc. and Impath Inc. posted revenue increases of 31% and 49%, respectively, over first quarter 1997.

UroCor is the disease management company which serves urologists throughout the United States. The company’s first quarter financial performance showed strong revenue growth but reduced operating margins. Although revenues climbed 49%, from $8.1 million to $10.6 million, operating income declined, from $798,000 to $488,000.

During 1997, UroCor expanded the number of sales reps in the field to 80. Additional overhead related to this expansion effort was one reason for the decline in operating profits. As these new sales reps build their production, UroCor should generate proportionate increases in operating income during the balance of 1998.

Specimen Volume Growth

In fact, at a time when clinical laboratories are seeing declines in specimen volume, UroCor saw specimen case volume increase by 21% for the quarter, to 79,000 cases. Further, the company’s sales effort continues to show gains. UroCor announced that its market share of the 7,500 urologists in the United States is now 2,225, or 30%. At the end of first quarter 1997, the client base numbered just 1,910, or a 25% market share.

UroCor President and CEO William Hagstrom made a presentation at the Executive War College in New Orleans last month. He explained UroCor’s strategy for partnering with urologists. To that end, UroCor is pioneering an area-wide network (WAN) which allows urologists to access diagnostic reports, utilization data and other information directly from the company. As of first quarter 1998, approximately 25% of the company’s total diagnostic report volume can be accessed from its WAN.

Disease-State Data Bases

Hagstrom also told War College attendees about disease-state data bases which UroCor is creating from its ever-growing volume of urology specimens. Together with the American Lithotripsy Society (ALS), Urocor is creating a repository which standardizes data collection, includes outcomes reporting, and provides a national data base of lithotripsy and kidney stone disease. Another UroCor data base was the source of cases for a comprehensive prostate cancer study. About 1,400 of UroCor’s urologists were the source for 62,537 first-time prostate biopsies, covering a two-year period. The results of this clinical study were published in a leading urology journal in March 1998.

At Impath, revenues and operating profits were up by 49% and 102%, respectively. Revenues for first quarter climbed from $7.8 million to $11.7 million. Operating profit increased from $831,000 to $1.7 million during the same quarter.

Impath offers disease management services to oncologists and those involved in treating cancer. Unlike UroCor, which is growing through sales and marketing, Impath uses acquisitions as the primary source for increasing revenues and operating profits.

During the past 12 months, Impath acquired certain assets of Oncogenetics, Inc., Immunodiagnostic Laboratories, Inc., the Gencare division of BioReference Laboratories, Inc. and Aeron Biotechnology.

The Effectiveness

It is difficult to evaluate the effectiveness of Impath’s sales and marketing team. Unlike UroCor, Impath does not reveal the number of client accounts it serves each quarter. Because Impath is not known for its sales prowess, its reticence to disclose quarterly changes to its client base is probably due to its current strategy that emphasizes acquisitions over sales as the source of growth.

DIANON Systems, Inc., which now describes itself as a full-service anatomic pathology company, saw a reduction in revenues during first quarter 1998. DIANON attributed this reduction to changes in Medicare reimbursement policies.

The company estimated that Medicare accounted for the major portion of a $1.8 million price decline experienced during the quarter. Another factor in the price decline was a 10% reduction in chemical chemistry services during the quarter.

Revenue Performance

Even though DIANON’s revenues were down 3.3%, from $15.6 million to $15.1 million, operating income went up. Pre-tax income increased 20%, from $1.1 million to $1.3 million.

DIANON Systems is recognized for its ability to successfully introduce new diagnostic assays into the clinical marketplace. During 1998, DIANON is introducing a specialty test for H. Pylori and a genetic test for colorectal cancer.

It is interesting that neither test requires a blood or urine specimen. The H. Pylori test is based on a breath sample from the patient. The colorectal cancer test detects the presence of an abnormal gene associated with familial colorectal cancer among Ashkenazi Jews. The specimen is taken from a simple cheek swab.

To complement its specialty testing business, DIANON has been building a national program in anatomic pathology. In addition to long-standing AP services to urologists, DIANON also serves dermatologists, gastroenterologists and gynecologists. AP revenues from these sources climbed 26% during the first quarter of 1998.

Another major strategy at DIANON Systems is to introduce progressive programs for disease management. The laboratory’s goal is to develop value-added services which are useful to managed care companies, clinicians and patients. It hopes to leverage these services into provider status with managed care companies at both the national and regional level.

Value-Added Services

THE DARK REPORT believes that clinical laboratories must begin investing resources to develop value-added services to managed care plans, physicians, and patients. These three companies are early business models which attempt to combine diagnostic testing with a menu of disease management services.

The strong revenue growth of UroCor and Impath demonstrates that physicians will respond to diagnostic services which are perceived to add value to their clinical practice. Although “lowest price” continues to drive many managed care contract awards, individual successes at UroCor, Impath, and DIANON Systems provide evidence that clinicians and managed care plans are willing to pay for disease management services which use laboratory test information in useful ways.

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