Sale of Bio-Reference - Developing Story

The sale of Bio-Reference is most likely pending. Everyone on Wall Street knows this as well as those of us in the industry. The only people that are unaware of the sale of company are the 1500 employees of company that are hoping that they can keep running forever. Take a look at the last several years of acquisitions in the specialized pathology lab industry [*dates are approximate]:

Jan 2003 – Dianon acquired by Labcorp
Dec 2004 – US Labs acquired by Labcorp
Mar 2005 – Esoterix acquired by Labcorp
Oct 2005 – LabOne acquired by Quest
Jun 2007 – Specialty Labs and Ameripath acquired by Quest
Aug 2007 – Sunrise Medical Labs acquired by Sonic Healthcare
Oct 2010 – Clarient acquired by GE
Dec 2010 – Genzyme (formerly Impath) acquired by Labcorp
Jan 2011 – GenOptix acquired by Novartis
Oct 2011 – Caris acquired by Miraca

What one name is missing off this list of once great businesses that have now fallen by the wayside .... Yours. If you aren't biologically related to one of the corporate officers, you best get your resume ready. In the words of your own top executives ... "competitive advantages dont last forever, make use of it now. If not 'today', when?"

Fat chance! You people won't quit. No one sells a company when the stock is rising like a meteor. Put your head back in the sand.

Originally Posted by Anonymous

Fat chance! You people won't quit. No one sells a company when the stock is rising like a meteor. Put your head back in the sand.

Are you nuts!!! Of course you would rather sale when your stock is high (shareholders would make crazy money and they would be able to take that money and invest it in another bio lab company- this is called wash and repeat in the business world). Why in the world would you rather wait for your stock to crash and then sell off for a cheaper price is plain stupid? If you are a sales rep you really need to go back to high school and pay better attention in economics.

I think it will be Quest. LabCorp grew last year through aquisition while Q sat quite on the sidelines, although they were mentioned to be in play with Genoptix. It's going to happen, just a matter of when.

Originally Posted by Anonymous

I think it will be Quest. LabCorp grew last year through aquisition while Q sat quite on the sidelines, although they were mentioned to be in play with Genoptix. It's going to happen, just a matter of when.

There are so many questions as to whether Bio's books are cooked that none of the bigger public companies will touch them.

Study the Growth

An analysis of where the revenue growth has come from (and where it hasn't) also points to a looming sale. From its founding until 2003 Bio-Reference made a name for itself by undercutting clinical contracts previously held by Quest or LabCorp. The executives dabbled in other testing areas but without much success until a new Medical Director was named in 2003. This began the rapid growth era of the hempath division. Bio-Reference then launched their super pap test in late 2008 with full force. At that same time the hempath division sales were dying off compared to the explosive growth from 2003-2006. Industry insiders would point to the rapid acceleration of growth by GenOptix as a major contributor to the post 2007 malaise in their one time juggernaut division. Between 2008 and 2011 the lions share of revenue growth came directly from the brilliant addition of this super pap test and the low tech addition of rudimentary clinical testing to existing esoteric clients. However, the growth in the STI pap testing came at a price, as highlighted in various news articles, payers have rebelled against this shotgun testing model and have created massive reimbursement issues for Bio-Reference throughout 2011 and 2012. This leaves the company with the largest sales force its ever wielded in markets of testing with shrinking reimbursement and massive managed care issues. Historical growth is below:

1980s – 2003 – Steady growth in core clinical testing
2003 – 2006 – Clinical testing is stable; Hempath sales ramp up and lead to record growth overall
2007-2008 – Competition from GXDX and others erodes growth in Hempath vs. previous yrs
2008-2011 – Hempath predominantly increases same store sales, new client addition shrinks
2008-2011 – Super Pap STI testing is off the charts leading to record after record revenue

It is this maturation and changing within its chosen testing niches that now leaves the company in a “best to sell” state of mind.

Investments to secure and bolster same store sales

The history of investment into infrastructure also tells the tale of motivation by the senior executives at BRL. The VP's built a long track record of purchasing expensive company cars and a corporate plane rather than bolstering technical staff and instrumentation over the last decade. This mindset changed radically in 2010 with huge policy shifts for in house functions and then again in 2011 as the super STI test volume and its ancillary tests threatened to break the company operationally. Another major shift and company investment is in the area of satellite draw stations. Prior to 2008, it was fairly unusual to find BRL draw stations outside of NY, NJ, PA and MD. However, this process picked up steam in late 2010 in an effort to secure low tech higher volume business in a much broader geographic region. BRL now has branded draw stations at great distances from NJ (Miami and Phoenix), which secures new revenue from an aging client list.

Insurance Leakage

With the BRL market cap heading towards $700M; the pressure on Quest and Labcorp to recapture over $250M/yr in managed care leakage is at fever pitch. Both of the two juggernauts have made gutsy plays in the last 14 months in an effort to shut BRL out of giant pools of patients. In both FL and AZ tens of millions in revenue was placed in jeopardy when Quest and LabCorp got their contracted payers to freeze BRL's claims. Executives responded on the managed care front more forcefully than any other time in their history.