Niche Markets Boost Earnings For Both DIANON And LabOne

THIRD QUARTER EARNINGS at DIANON Systems and LabOne, Inc. demonstrate that niche market strategies can be growth engines for clinical laboratories, even in the face of declining reimbursement.

As the crunch in clinical testing hit the laboratory industry in recent years, both companies reassessed their market position. New strategies to expand revenues were developed and implemented.

In the case of DIANON Systems, revenues for third quarter were $14.5 million, up 5% from the same quarter last year. Net income was $820,000, an increase of 25%. For the full nine months of 1997, performance is even better. Revenues are up 16% and earnings grew by 11%.

According to Kevin Johnson, CEO of DIANON Systems, the company’s sales growth during the quarter was hindered by declining reimbursement for clinical and esoteric testing. To offset such declines, DIANON launched a market segment strategy in 1995.

Pleased At Results

“We are particularly pleased at the results from our efforts in full-service anatomic pathology,” he said. “AP services accounted for less than $1 million in revenues during 1995. In 1997, AP services will generate more than $15 million. Further, we believe that anatomic pathology revenues should continue to grow at rates approaching 20% per year.”

DIANON’s niche market strategy continues with the announcement that the company licensed rights to Meretek’s Meretech UBT Breath Test for H. Pylori. It is believed that H. Pylori infects the stomach of up to 35% of American adults and contributes to peptic ulcers. It may also contribute to gastric cancer. Because it is a non-invasive test, if DIANON successfully markets this assay to gastroenterologists, the test could become another profitable niche.

Increased Revenue

At LabOne, third quarter revenues and earnings were $19.7 million and $1.5 million, respectively. Revenue growth was 34% and earnings growth was 88%.

LabOne is a great example of niche strategies. Its primary service is diagnostic testing for life insurance companies. It is a dominant player in that market segment.

When demand for life insurance policies collapsed in 1990-91, LabOne saw its revenues decline precipitously. LabOne responded by developing three diagnostic testing niches.

First, they began offering clinical testing to physician offices in the Kansas City area, where the central laboratory is located. Second, LabOne began a toxicology testing program. Third, LabOne developed a laboratory benefits program called Lab Card™. This laboratory benefits program is a particularly clever strategy and was pro- filed in an earlier story in THE DARK REPORT. (See TDR, March 18, 1996.)

According to LabOne’s financials, all three market niches grew during third quarter. Clinical testing at LabOne increased 81%, to $1.8 million for the quarter. Substance abuse testing climbed by 106%, to $2.7 million.

The Lab Card program is showing strong growth. “We continued to add lives in this program,” said W. Thomas Grant, Chairman, President and CEO of the company. “Currently 1.4 million lives are enrolled, plus another 400,000 lives are awaiting implementation. In this segment of our business, we saw revenues increase 15% from Lab Card accounts active more than one year.”

The substance abuse and Lab Card testing niches allow LabOne to utilize its primary strength: an efficient, high-volume laboratory located in the Kansas City area. Toxicology and Lab Card specimens are picked up from any location in the United States and transported to LabOne by Airborne Express, just like the life insurance testing specimens.

Two Product Lines

Thus, LabOne has developed two clinical testing product lines which can originate specimens anywhere in the United States and feed them into the core laboratory. Growth in specimen volumes has been substantial enough that LabOne decided to expand its facilities.

Last month the company announced the plans to construct a 280,000 square foot facility on a 54-acre parcel that was recently purchased. The objective is to consolidate all laboratory testing and corporate operations into this one facility. Currently LabOne’s operations are split between three buildings, occupying 150,000 square feet.

According to analyst Jerry Duggan, President of Duggan Investment Advisors, LabOne’s proposed new laboratory is an optimistic bet on the future. “From my perspective, LabOne is well-positioned to see strong growth in specimen volumes in all three market segments: life insurance testing, clinical testing and toxicology testing. Construction of a new facility allows them to do two critical things. First, they bring all corporate activities into one site, improving productivity. Second, the proposed new laboratory anticipates the growth curve and will permit them to accommodate increased specimen volume without bumping into dis-economies now surfacing at the existing laboratory facility.”

Repricing Testing Services

Duggan also shared with THE DARK REPORT that LabOne studied the economics of its toxicology program during the last year. LabOne learned that its pricing policies did not allow it to fully recover the cost of testing from certain accounts. “LabOne aggressive- ly repriced toxicology services to better reflect the true cost of the service,” stated Duggan. “It is my understanding that virtually all of the affected clients chose to stay with LabOne.”

If Duggan’s knowledge of this process is correct, then LabOne is another example of THE DARK REPORT’s opinion that laboratories can reprice testing services to reflect costs. Clients will accept such repricing if it is reasonable, introduced in a professional manner, and the laboratory offers acceptable service. Quest Diagnostics Incorporated repriced small volume accounts earlier this year, with considerable acceptance and success.

The DARK REPORT strongly believes that niche testing is a valid growth strategy for regional independent laboratories and hospital-based laboratories involved in outreach testing. The revenue gains seen at DIANON Systems and LabOne during the last two years demonstrate that effective marketing of clinical services to segments of the marketplace can be profitable.


Leave a Reply


You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.