ONE SIGNIFICANT business strategy in play at Quest Diagnostics Incorporated is venture capital investing.
With $3 billion in sales, Quest Diagnostics is the largest clinical laboratory company in the United States. It understands that the traditional lab sales strategy of marketing to physicians’ offices can no longer support the company’s needs for sustained, rapid growth.
That is one reason why Quest Diagnostics is willing to develop equity investment relationships. To help further this business strategy, it organized a wholly-owned subsidiary, called Quest Diagnostics Ventures, LLC. The company wants to develop equity investment opportunities that tie into diagnostic medicine.
Recently Quest Diagnostics announced a $7.1 million investment in GMP Companies, Inc., based in Fort Lauderdale, Florida. GMP is a private company that “acquires, develops, and commercializes promising pharmaceutical, diagnostic, device, and biotechnology products.” It does this through licensing agreements with academic medical research institutions.
Also, last month Quest Diagnostics Ventures, LLC completed an investment transaction with MedPlus, Inc. by paying $8.0 million for 1.92 million common shares of MedPlus. Combined with an earlier investment of $2 million, Quest Diagnostics’ holdings represent 18.4% of the voting stock of MedPlus. Quest Diagnostics also holds warrants for an additional 12% interest in MedPlus.
MedPlus sells an electronic patient records system. Last June, Quest Diagnostics inked an agreement with MedPlus. Both companies will jointly market MedPlus’ ChartMaxx and the Internet-based E.Maxx Enterprisewide Patient Record system.
In January, Quest Diagnostics signed an agreement with Cytyc Corporation, maker of the ThinPrep® liquid preparation Pap smear product. Quest Diagnostics will market ThinPrep on an exclusive basis. This marketing agreement granted Quest Diagnostics a warrant to purchase 150,000 shares of common stock in Cytyc.
New Business Partnerships
Quest Diagnostics’ willingness to participate in equity investment opportunities demonstrates how different the “new economy” will be from what we know today. Collaborative business relationships will be more common. These types of arrangements are already easy to find among diagnostic manufacturers who sell their equipment and reagents to laboratories.
But shared marketing and equity arrangements are almost impossible to find among healthcare providers. Progressive lab owners and pathologists may want to reassess their traditional “go-it-alone” attitude and explore these types of business opportunities.