Dynacare’s Business Plan Includes New Direction

Company wants to expand and emphasize services in esoteric and reference testing

CEO SUMMARY: Look for Dynacare, Inc. to undergo a significant transformation. Although it will not abandon its efforts to partner with hospital laboratories, Dynacare has made a renewed commitment to expand and market itself as a provider of esoteric and reference testing. These changes are a result of the extensive strategic planning required to prepare for its successful initial public offering (IPO).

IT WAS A MAJOR BUSINESS MILESTONE when Dynacare, Inc. successfully raised $50 million in its initial public stock offering.

But the Dynacare of 1999 and 2000 will not be the Dynacare of the future. THE DARK REPORT believes the extensive strategic business planning required to organize and successfully place a public stock offering has caused Dynacare to rethink its basic business plan.

The “old Dynacare” was a Canadian lab company seeking to build revenues in the United States by partnering with hospitals and acquiring regional laboratories. The “new Dynacare” will be an American-based company strongly committed to growth from reference and esoteric testing.

Change Becomes Apparent

This change becomes apparent when Dynacare executives talk about the company’s future. “We’re glad to have this IPO behind us,” stated Osama Sherif, Executive Vice President and COO of Dynacare. “It required lots of work and attention by our management team. Now we can concentrate on investing the funds we raised and building our business.”

Sherif’s statements indicate that a reinvigorated Dynacare will raise its profile in the United States laboratory marketplace. The most visible change will come from its entry into reference and esoteric testing. “During the last six months, we formed a business division called Dynagene. It is our genetics and esoteric testing company,” explained Sherif.

“We are developing Dynagene into a company-wide center of excellence,” he added. “It will also become the foundation for a number of partnerships with academic and tertiary hospitals. These partnerships will be organized to take sophisticated esoteric testing technology developed in the research labs of our partners and package it for clinical use across the United States and Canada.”

Along with its planned expansion into esoteric and reference testing, Dynacare is also reshaping its management team. During the past year, it has reorganized its executive line-up and some new additions are expected.

“We’re adding management talent in sales and materials management in the coming weeks,” stated Sherif. “Dynacare intends to be a tightly-managed company. We want to streamline our work flows, control costs, and become ever-tougher in our sales and marketing capabilities. Going forward, these will be attributes which will set us apart from our competition.”

One major change stimulated by the successful stock offering is the move of company headquarters from Toronto, Canada to Dallas, Texas. “Dynacare’s corporate headquarters is now located in Dallas and the senior executive team now works from these offices,” explained Sherif.

Management Initiatives

Dynacare’s hospital partnerships in the United States attracted lots of attention during recent years, but the company has quietly moved forward on a variety of sophisticated management initiatives. One such initiative involves enhanced lab test ordering and results reporting services utilizing Internet technology.

“In Seattle, we are connecting to physicians’ offices with Web-based, ASP (application service provider) products,” said Sherif. “We are moving deliberately and learning a great deal about the advantages and obstacles of a Web-based system for ordering tests and reporting results.”

According to Sherif, Dynacare is using information products from Atlas Development Corp. and LabWorks. “In theory, such systems should carve out a lot of costs,” noted Sherif. “After all, Web-based, ASP products eliminate the dedicated telephone lines to individual doctors’ offices, as well as line printers and PCs. However, our project is still too new for us to quantify the specific cost reductions we’ve seen from these new information services.”

New Strategic Emphasis

Taken collectively, the business initiatives discussed by Sherif demonstrate that Dynacare is in the midst of fundamental change. These changes will become visible over time.

Until the IPO, the company’s business strategy was clearly organized around two themes: 1) build revenue by developing laboratory partner- ships with selected hospitals around the United States; and 2) build revenue by selectively acquiring regional laboratories, then using sales to expand specimen volume.

Dynacare’s change in direction is based on its decision to emphasize esoteric and reference testing as an engine of revenue and profit growth. It becomes the third leg of a three-prong business strategy.

THE DARK REPORT believes that two things will result from this shift in business direction, supported by the $50 million in new investment capital. First, Dynacare’s esoteric and reference testing business will get first priority. Second, Dynacare will pour more money and more sophisticated management talent into developing new hospital partnerships and lab acquisitions.

Marketplace Influence

If Dynacare’s management team can execute these business strategies in an effective manner, it may well increase its influence upon the national marketplace for laboratory testing services. In the meantime, just the fact that Dynacare has an ample war chest to fund its business activities means that it will become much more visible to lab executives and pathologists throughout North America.

Dynagene Outlines Plans to be Newest Source for Esoteric Testing

IT’S ANOTHER MARKET VALIDATION of the important role that esoteric testing and molecular genetics will play within the clinical laboratory industry.

Dynacare’s strategic business decision to make a big play in esoteric and reference testing led it to create a new business unit last year. It is called Dynagene, Inc., and operates laboratories in Houston, Texas and Seattle, Washington.

“Dynacare purchased Laboratories for Genetic Services in late 1999,” stated DynaGene President Kevin Pishkar. “Its founder and Medical Director, C. Thomas Caskey, M.D. is now Dynagene’s Medical Director. Dr. Caskey and his lab enjoyed a solid reputation for cytogenetic testing, particularly the areas of prenatal diagnosis and cancer cytogenetics.

Dynagene starts with some respectable assets. It has five M.D.s and Ph.D.s. The Houston lab has a staff of 65 and the Seattle lab has a staff of 25. The Seattle esoteric lab was acquired about three years ago. Also, Dynagene has recent- ly formed an alliance with Identigene, Inc., also based in Houston. “Identigene offers services in paternity testing,” explained Pishkar. “We see mutual strengths between the two companies, particularly in testing experience and capabilities.

“For 2001, Dynagene plans to intro- duce new technologies in molecular genetics testing,” continued Pishkar. “We want to be involved in cancer diagnostics, particularly the areas of leukemia and lymphoma, prostate cancer, and breast cancer.

“The existing Dynacare system of regional laboratories generates a considerable volume of reference and esoteric testing from our existing laboratory operations,” stated Osama Sherif, EVP and COO of Dynacare. “This gives Dynagene a solid foundation upon which to expand.

“From that perspective, you can say that Dynagene’s first big client is Dynacare,” explained Pishkar. “Each time Dynagene sets up a new esoteric assay, Dynacare regional labs will refer those specimens to us instead of their existing send out labs.

“Dynagene is also relying on the Dynacare sales force to represent our esoteric and reference testing services,” he continued. “Dynacare’s national sales force was trained in Dynagene’s product lines last year and is already selling to potential customers.

Research and development will be a key business strategy at Dynagene. “It was Dr. Nichols at Nichols Institute and Dr. Peter at Specialty Laboratories that paved the way for this type of business model,” commented Pishkar. “They’ve established the template for how to collaborate in developing new esoteric assays, then successfully introducing them into clinical use.

“Dynagene wants to emulate this business model. We are funding internal research and also creating working relation- ships with a number of academic centers of excellence. As viable esoteric assays result from these efforts, we are prepared to bring them to market,” said Pishkar.

Dynagene’s business plan is based upon using the existing resources within Dynacare. It will be supplemented by selected acquisitions of specialty testing labs and internal development of specific esoteric testing capabilities. The interesting question is whether the laboratory testing marketplace is ready for another competitor. There is already intense competition for the limited volumes of esoteric specimens.

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