CEO SUMMARY: It is one of those clinical laboratory deals that was announced before the end of 2015. Laboratory Corporation of America said it will acquire most of the operating assets of Pathology Inc., of Torrance, California, and that the acquired lab “will cease operations” upon the closing of the transaction. It has been six years since venture capitalists invested in Pathology Inc., so the timing of this sale may also be due to the need among the venture capitalists to liquidate this investment.
IN DECEMBER, Laboratory Corporation of America said it planned to acquire “substantially all of the operating assets” of Pathology, Inc., in Torrance, California, including the company’s patient service centers.
In its announcement of the deal, LabCorp said, “Upon the closing of the transaction, Pathology, Inc., will cease operations.”
When asked by THE DARK REPORT to comment on the sale, Pathology Inc.’s CEO and President, Vicki DiFrancesco, said the company was “unable to speak until after regulatory review.” The transaction is on hold until the waiting period expires under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. That puts the anticipated time to close the deal in the first quarter of 2016. Terms of the agreement were not disclosed.
The use of an asset sale is typical when the buyer wants the client list, the lab facilities, and lab equipment. Pathology Inc. has 16 pathologists and the press release did not address if they would continue to practice as employees of LabCorp or whether the pathologists will form a professional corporation and use that to contract their services to LabCorp once the sale closes.
Fourteen of the pathology lab company’s pathologists are also part of Affiliated Pathologists Medical Group (APMG), a professional corporation based in Rancho Domingo, California. APMG says it is comprised of “38 board certified, and—in many instances subspecialty-certified—pathologists covering 11 service locations in four counties in California, one county in Phoenix, and two counties in Portland, Oregon.”
Women’s health Laboratory
Pathology, Inc., describes itself as a “full- service independent women’s health labo- ratory, providing expertise in reproductive FDA donor testing as well as anatomic, molecular and digital pathology services.” It offers pathology services in six subspecialties.
The facts that Pathology Inc. was for sale and that the buyer was LabCorp were no surprise, for two reasons. First, in recent years, it was rumored more than once that the pathology lab company was for sale. It was believed that the venture capital company that owned equity in Pathology Inc. was ready to harvest its investment.
Second, Pathology Inc.’s Chairman and its CEO each had a long-standing relationship with LabCorp. In the case of Alfred Lui, MD, Chairman, he had sold his clinical lab company to LabCorp in 2000. Since then, he has served as the medical director for some of LabCorp’s clinical labs in Southern California.
Pathology Inc.’s CEO and President, Vicki DiFrancesco, is an experienced and successful lab executive and sales professional who worked at National Health Laboratories before it merged with LabCorp, and she worked at LabCorp after the merger. She thus has had extensive working relationships with several of LabCorp’s key executives.
These multi-year business relationships between the principals of Pathology Inc. and LabCorp probably played a role in the sales negotiations. Both parties had direct experience with each other.
Venture Capital Investment
Looking back over the history of Pathology Inc., it is worth noting that the company accepted a capital investment in 2009 from ABS Capital Partners, along with venture capital debt from ORIX Venture Finance LLC. At the time, Pathology Inc. described ABS Capital Partners as a leading later-stage growth company investor.
During this capitalization, the pathology laboratory company named DiFrancesco as CEO and Steve Pierce as CFO. Pierce had served as CFO of US Pathology Labs, Inc. (US LABS), a company also funded by ABS Capital that was sold to LabCorp in 2004.
Contact Vicki DiFrancesco at firstname.lastname@example.org.
Entrepreneurial Pathologist Founded, Bought, & Sold Labs
EARLY IN HIS CAREER, pathologist Al Lui, MD, showed his entrepreneurial interest and skills. In 1981, he founded a clinical laboratory company known as Bio-Diagnostic Laboratories in Southern California.
In 1985, Lui sold a substantial minority interest in BDL to Nichols Institute, then operated by CEO Albert Nichols, MD. However, the two Als did not see eye-to- eye. Within a few years, Nichols had sold his interest back to Lui.
Fast forward to the year 2000. In response to the deeply-discounted, full-risk capitated contracts that were common in California during those years, Lui made the decision to sell Bio-Diagnostic Laboratories. At that time, BDL had annual revenue of $12 million. The buyer was Laboratory Corporation of America, a company for which Lui’s pathology group had been providing contract services during the prior year. (See TDR, May 15, 2000.)
At the time of the sale, Lui explained that the transaction allowed the pathologists associated with BDL to concentrate exclusively on pathology. “We decided to sell Bio-Diagnostic Laboratories at this time because we wanted to concentrate on our core competency, which is pathology,” he said.
This group was Affiliated Pathologists Medical Group (APMG), a professional corporation. In subsequent years, Lui and his colleagues expanded APMG in California while developing business in both Arizona and Oregon.
To develop capabilities in clinical laboratory and pathology testing still further, Lui worked with the venture capitalists and, in 2009, Pathology, Inc., was formed and capitalized. In 2011, Pathology Holdings, Inc., the parent company of Pathology, Inc., acquired Central Coast Clinical Laboratories of Templeton, California.