Unilab, DIANON Systems, UroCor Report 1998 Financial Results

OPTIMISM REIGNS at California-based Unilab Corporation. Revenues are up, operating profits are increasing, and company officials are now talking about growth plans.

For 1998, Unilab generated revenues of $217.4 million, compared to $214.0 million in 1997. Its acquisition of bankrupt Meris Laboratories late in 1998 accounted for some of the revenue growth.

Real News At Unilab

What is real news at Unilab is its net income for the year, reported at $11.9 million. This stands in contrast to the past three years, when Unilab eked out a teensy $0.5 million profit in 1997, posted a huge $92.9 million loss in 1996, and a considerable loss of $42.7 million in 1995.

Unilab’s accomplishment is significant. Unilab is the the dominant commercial laboratory in California. As such, its financial performance can be considered a bellwether for that state’s laboratory marketplace. If Unilab is on the road to financial recovery, it may be a valid sign that the laboratory marketplace has finally hit bottom in the state.

Unilab’s President and CEO, David Weavil, seems to agree. In public statements he characterized 1998 “as a defining one for Unilab…especially defining was our decision to establish new growth objectives following a 1 1/2-year period dedicated to improving our operating platform.”

Translating that quote into plain English, Weavil is declaring that Unilab is ready to pursue a growth strategy. That stands in contrast to the last couple of years, when Unilab was forced to focus almost exclusively on internal operations and cost-cutting programs.

Growth requires additional testing volume, so Unilab’s sales and marketing activities should be expected to intensify. As this occurs, lab competitors will be watching to see if Unilab is willing to return to its past habits of bidding for new managed care contracts using marginal cost pricing.

In the heyday of Andrew Baker, Unilab’s former President, the company was willing to bid incredibly low prices to acquire new streams of specimens. Aggressive sales and equally aggressive pricing did make Unilab the largest clinical laboratory operation in California. But one consequence of Unilab’s influence on laboratory pricing levels was to make California an unprofitable market for laboratory testing.

Shipping New Systems

A similar wave of positive developments is fueling revenue growth at DIANON Systems, Inc. in Stratford, Connecticut. Its fourth quarter revenues were $16.1 million, the highest quarterly revenues ever recorded at the company. This was a 9.6% increase over fourth quarter, 1997.

Total revenues for 1998 were $62.2 million, a 2.1% increase over the previous year. However, despite increases to revenue, DIANON saw net income for both fourth quarter and the full year decline from 1997 levels.

Pathologists will be interested to learn that anatomic pathology (AP) is becoming the revenue growth engine at DIANON. During the fourth quarter, AP services accounted for 75% of DIANON’s revenue base.

Emphasize Anatomic Path

Several years ago DIANON began emphasizing anatomic pathology as a way to diversify its dependency on clinical testing. During 1998, the company achieved several important milestones in its efforts to expand anatomic pathology services.

First, it joined a limited provider panel under contract with Quest Diagnostics Incorporated to provide anatomic pathology services to members of Oxford Health Plans.

Second, it has sought to acquire pathology practices that support its corporate growth strategy. In December DIANON announced an agreement to purchase Kyto Meridien Diagnostics, LLC, a $13 million OB/GYN lab in New York.

DIANON President and CEO Kevin Johnson is optimistic that these developments will contribute to improved revenues and profits this year. He states that corporate initiatives “could facilitate 1999 top-line growth in excess of 20% and EPS [earnings per share] improvement of over 30%.”

Clinical Milestones Ahead

At UroCor, Inc., 1998 has been a trying year. Although it saw healthy gains in revenue, profits were elusive. UroCor is a disease management company which offers diagnostic testing and other services to urologists throughout the United States.

Full year revenues for 1998 increased by 44.5%, from $33.0 million in 1997 to $47.6 million in 1998! Strong revenue growth went unmatched by profits. UroCor reported a net loss of $2.5 million for 1998, which included $8.2 million in special charges during the course of the year.

Clients of THE DARK REPORT are familiar with UroCor. During the 1990s it has been a fast-growth company with a sustained track record of success.

Setbacks in 1998 were the result of product initiatives which did not do as well in the marketplace as expected. UroCor was also investing money to expand its sales force and teach it how to market therapeutic products to physicians.

This is one aspect of UroCor which clinical laboratory executives should track. The company is pushing steadily to integrate therapeutic drugs into its product line. It believes that urologists will find it a benefit to obtain both diagnostic tests and therapeutic products from a single source.

Integrated Clinical Care

This is in line with the trend toward integrated clinical care. If UroCor can figure out a method to successfully marry diagnostic testing with therapeutic products, it may well create a new business model for the next generation of clinical laboratories.

Taken collectively, the 1998 financial performance of Unilab, DIANON Systems, and UroCor indicate that the marketplace is turning around. Financial uncertainty seems to be fading, replaced by optimism and hopeful plans for growth.

As reported in the last issue of THE DARK REPORT, the three blood brothers reported similar positive financial news. Collectively, this may be a sign that all laboratories are well advised to respond to these positive market trends with growth strategies of their own!


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