Several Labs Planning A Public Stock Offering

These laboratory firms have the motive, the size, and the capability to go public

CEO SUMMARY: During the past six years, no general clinical laboratory company has undergone an initial public stock offering (IPO). That will certainly change during the next 24 months. There are several private lab companies which want to go public. But this business strategy can only succeed if the stock market stays flush and the financial performance of individual labs remain at acceptable levels.

SEVERAL INDEPENDENT LABORATORY companies are preparing themselves for an initial public stock offering (IPO) in the next couple of years.

Lab company IPOs have been a tough sell in recent years. The financial performance of the clinical lab industry was so dismal that Wall Street investment bankers gave little encouragement to lab companies seeking to tap the public stock market.

But this gloomy financial environment has turned around during 2000. Shares of the two blood brothers have climbed to record levels. A surging stock market and booming economy in the United States have improved the prospects for a clinical laboratory company to go public.

One laboratory company that plans to launch an IPO is Esoterix, Inc., based in Austin, Texas. Esoterix is the parent company for a consortium of eight well-established specialty laboratories, such as Cytometry Associates and Endocrine Testing.

Collectively, Esoterix represents about $65 million per year in lab revenues. During the past year it has actively worked with investment bankers. It is integrating operations between the various laboratories and developing the management structure and financial reporting systems required to be a public company.

Pursuing an IPO

Another laboratory known to be pursuing an IPO is Dynacare, Inc., headquartered in Toronto, Canada. Since going private in the mid-1990s, it has actively developed laboratory operations in several cities around the United States.

Dynacare executives have told employees that a desired time line for an IPO would be in the second half of 2001. Dynacare’s U.S. revenues are estimated at about $360 million per year.

Another likely candidate for a public stock offering is Unilab, Inc., based in Tarzana, California. Its majority owner, Kelso, Inc., is a private equity investment company that generally exits a business by either taking it public or selling it to a corporation. (See pages 2-5.)

However, it may be several years before Unilab is ready for an IPO. Kelso paid a rather high price and Unilab must generate a substantial increase in revenue and earnings before it will be profitable for Kelso to sell it or take it public.

Another IPO Prospect

Of course, another prospective lab company which could likely succeed with an IPO is AML-APL, Inc., the lab company made up of American Medical Laboratories, Inc. (AML) in Chantilly, Virginia and Associated Pathologists Laboratories, Inc. (APL) of Las Vegas, Nevada. Combined, THE DARK REPORT estimates the two labs have combined revenues in the range of $250–$300 million dollars.

There has never been a public declaration that AML-APL, Inc. intends to go public. Conversations with various lab executives there indicate they like their freedom of action and don’t feel compelled to pursue a public stock offering in the immediate future.

This “short list” of four lab companies represents the most likely prospects for a public stock offering. Each lab company has the financial size to be attractive as a public company.

Beyond these four labs, the list of potential lab candidates for an IPO is limited. But there is one category of lab company which has the business reach and financial size to be attractive as a public stock. That category contains the national reference laboratories.

But the owners of these reference labs are not likely to want an IPO. Mayo Medical Laboratories is owned by the Mayo Clinic. ARUP Laboratories, Inc. is owned by pathologists at the University of Utah. Among the national reference laboratories, Specialty Laboratories, Inc., would be easiest to package for an IPO. It has a single individual as majority owner, and a track history of rapid growth.

If lab industry finances continue to rebound during the next 18 months, any of these declared candidates can be the next lab company to become a publicly-traded corporation.

Sizeable Laboratory Testing Companies Exist As Operating Divisions of Several Corporations

Often overlooked by the clinical laboratory industry are a number of specialty testing companies which are divisions of large corporations offering healthcare services.

One example of this is Genzyme Genetics, a division of Genzyme Corporation. With labs in Framingham, Massachusetts and Santa Fe, New Mexico, Genzyme Genetics provides a wide range of services, including “prenatal biochemistry, prenatal, postnatal, and cancer cytogenetics, and fluorescence in Situ hybridization (FISH); flow cytometry and molecular (DNA) analysis.” Its annual revenues are not disclosed in Genzyme’s financial reports, but it is estimated that Genzyme Genetics does around $100 million per year in lab tests.

Athena Diagnostics, Inc. of Worcester, Massachusetts is a division of Elan Corporation, a pharmaceutical company headquarted in Ireland. Athena Diagnostics offers reference and esoteric testing to neurologists. Similarly, several of the national renal care companies offer lab testing. Total Renal Care, Inc. has a division called Total Renal Laboratories, Inc. which specializes in “End State Renal Disease” testing.

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