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Rebirth tied to new Vancouver lab

Move meant to revive ideals of Idexx-acquired Central Laboratories for Veterinarians


August 24, 2009
By: Jennifer Fiala
For The VIN News Service


A new player in veterinary diagnostics is opening near Vancouver, with values reminiscent of a once-revered laboratory that fell to an aggressive Idexx takeover that pitted veterinarian against veterinarian and nearly crushed the spirit, critics say, of those who tried to maintain its principled philosophies.

Opened for business on Aug. 10, True North Veterinary Diagnostics is run for veterinarians, by veterinarians, making it a virtual anomaly in a profession dominated by large corporations.

The startup’s short-term investors are former employees of Central Laboratories for Veterinarians, or CVL, which operated in Greater Vancouver for 25-plus years under the leadership of founder Dr. Sally Lester, an anatomical and clinical pathologist who, by all accounts, operated her laboratory in line with the field’s highest standards. It’s an altruistic legacy now shouldered by True North, which aspires to put patient care and practitioners ahead of maximizing profits, all for the benefit of the profession.

“Obviously the purpose of this lab is to service the veterinary community,” co-founder and pathologist Dr. Jim Bilenduke says. “It’s a for-profit company, but profit is not our main motivation. If we become extremely profitable, the money will go into a trust and the trust will give it to a charity."

The goal, Bilenduke says, is to revive CVL’s quality and service while providing veterinarians with a top-notch alternative to the mega-laboratories that dominate the profession.

“We’re going to be David slinging rocks at Goliath’s ankles,” he says. “Veterinarians are going to have a choice. In the end, it’s a little scary. But if I didn’t think there were enough veterinarians who would support this, I wouldn’t do it.”

Idexx officials assure the VIN News Service that company profits are not all that keep its engines revving, adding that its $15.2-million buyout of CVL was far from hostile. “What we really try to do is focus on our customers and provide the best service we can,” says Scott Hamilton, Idexx division vice president.

True North’s unusual framework entails what some in business might consider implausible, if the concept hadn’t previously proved successful. Before its takeover, CVL operated via a model that allowed practitioners to buy into the company and reap the profits of its success, all while receiving first-rate service and diagnostics.

CVL opened in 1982, with $50,000 — the fruits of Lester shopping door-to-door for ground-floor veterinarian investors. The double-boarded pathologist had been working in a human lab with a small, under-funded veterinary division and knew plenty of disgruntled practitioners who were tired of sub-par service. Her idea was that CVL would operate as a cooperative venture designed to help the veterinary community without earning a lot of profit. The setup prevented anyone from buying more than five $1,000 shares.

Lester says she dedicated her life to CVL, which before the buyout, employed 120 people including 12 specialists and brought in $12 million annually.

“We had more board-certified pathologists than the schools in Canada,” she says, her pride palpable. “My vision was to keep expanding and to form a whole bunch of small labs in various communities so that veterinarians could have someone close at hand to talk with and deal with cases.”

CVL’s board of directors, with Lester as chief executive officer, represented the interests of 80 DVM investors. The first inquiry about buying the lab came in 2005 from California-based VCA Antech. “That’s when I got the first inkling that this was an extremely valuable commodity,” Lester says.

Soon after, Associated Vet Clinics of Calgary (AVC) came knocking, and Lester was compelled to advise CVL’s shareholders. Idexx, which also eventually acquired Ontario-based Vita-Tech Canada, followed with an offer almost immediately.

“I was naïve to think that the shareholders wouldn’t want this,” Lester says. “We had distributed over $4 million back to the shareholders over the course of the lab’s life. They had made their investment back, many times over.”

But with Antech and AVC each initially bidding about $9.5 million and the Idexx offer coming in at $12 million, the shareholders stood to gain huge returns on their investments. It became clear that forgoing the sale of CVL in favor of maintaining the homegrown laboratory was not an option. And with each company trying to outdo the other, it wasn’t long before the shareholders turned on one another in a bitter battle that fostered greed, backbiting that even involved unflattering rumors about Lester’s financial interests in the bids.

The negotiation details are complicated. In short, Lester says she spent a year bargaining with AVC for a deal that would give shareholders a large return while ensuring that the lab would continue to function in the same way it had previously, maintaining its prestigious ISO 17025 quality accreditation standards. Lester agreed to stay on for three years during the transition, recalling that, “everyone was enthusiastic” about it.

But in October 2006, two weeks before the arrangement was cemented, Idexx lawyered up and earned a stay from the British Columbia Securities Commission, which blocked the AVC deal and gave the company time to counter it. Ushering them in was Dr. Neil McIntyre, a shareholder who sat on CVL’s initial board of directors and unabashedly was looking for the highest possible payout. At the same time, Dr. Gord McDonald accused Lester of disregarding the shareholders' interests in favor of her own professional and financial interests.

Lester contacted her lawyer who responded with a letter to McDonald to substantiate his allegations to the board members and shareholders or to cease and desist from the "inflammatory statements.” For the next month, bidding went back-and-forth, Idexx always in the lead financially. At the same time, Lester and other CVL leaders were barred from being candid about details that the offers contained.

“In order to proceed, we had to sign these confidentiality agreements to negotiate ... so it made it impossible to discuss the conditions with shareholders,” Lester says, adding that agreeing to such a stipulation was "a very bad decision."

It was clear that Idexx presented a larger payout, roughly $40,000 a share beyond AVC's offer. But what critics feared Idexx couldn’t bring to the table was CVL’s responsibility to veterinarians. “The problem is now with the management system in place, no one is really accountable,” True North’s Bilenduke says of Idexx.

Idexx officials reiterate that customers are a major focus, yet Hamilton acknowledges that the company "is not perfect."

"I think every reference lab makes mistakes. But we're proud of the service we're offering there," he says.

Reflecting on the negotiations period brings back dark memories for Lester. “Even now when I talk about it, I feel sick," she says. "It was horrendous. Everything that I believe ethically was being attacked, and at the same time, I can’t say that Idexx is horrible or bad. They’re just an American business.”

What drove Idexx to eventually offer $160,000 a share for CVL appears obvious in the company’s financial statements. Simply put, the CVL deal, coupled with the March 2007 acquisition of Toronto-based Vita-Tech Canada, put Idexx at the head of every major laboratory in the country apart from those in university settings.

Those holdings now make up Idexx Canada.

Although 2008 earnings now top $1 billion, Idexx’s latest Securities and Exchange Commission filing reveals that the company stands to be negatively impacted unless it continues to find new territory in which to expand. That’s because the U.S. veterinary laboratory market is saturated and more practices are consolidating. At the same time, VCA Antech, the company’s primary competitor for reference laboratory services in U.S. and Canadian markets, operates with a growth strategy that includes the acquisition of veterinary hospitals.

According to its May 8 financial statement, VCA now owns 478 practices and all use Antech diagnostic services. The company boasts a laboratory network of 46 facilities serving all 50 states. By December 2009, the company plans to acquire $60 million to $70 million in additional annualized animal hospital revenue.

“In addition, we also evaluate the acquisition of animal hospital chains, laboratories or related businesses if favorable opportunities are presented,” a VCA Antech financial report says.

Apart from competition, Idexx also faces internal hardships. One year after CVL changed hands, its former employees that transferred to Idexx unionized. Why? While some staff contacted by the VIN News Service spoke positively about Idexx’s treatment of its employees, others complained that the company stripped their pay and vacation.

With CVL, one long-term employee who requested anonymity, enjoyed more than a month of vacation time annually. But last October, the ex-worker was out of a job after Idexx closed the employee's department — but not before being forced to train replacements.

“When they took over, it was like a death,” the former employee recalls. “We all worked together as a family; we all believed in the same things, and then it was gone, and none of it for the better.

“To me, the focus shifted from what we believed in,” the ex-employee adds. “It was all about the animals when it was Central Labs. Sally Lester made sure that not a test went out of the place without it being looked at by a pathologist. The quality controls were very high. If something didn’t look right, it was rechecked.

“With Idexx, money became the No. 1 priority, and that never came first at Central.”

Idexx’s Hamilton attributes such criticism to a disgruntled employee’s rantings. "We don't really dwell on it," he says.

But former CVL shareholder Dr. Chris Collis, who supported the Idexx takeover and earned roughly $70,000 from it, now considers the move a mistake.

“We were spoiled,” he says. “Sally ran such a phenomenal laboratory. We became accustomed to quality control and the way things were done.”

Now samples will go missing or they’re not being run, he adds. Pathology comments often are limited to canned one-liners, which Collis believes are designed to make veterinarians run more tests.

“With CVL, there was someone accountable; I wasn’t dealing with someone in Alabama. This is indeed a real fact of life that if a large company comes in, you don’t get better quality service,” he says.

Collis’ complaints are countered by Hamilton, who explains that of the $70 million recently devoted to research and development across all of Idexx, “major investments” have been made in the company’s Canadian laboratory network, including new hematology and chemistry instruments, upgraded computers and increased manpower within the pathology team.

Veterinarians like former shareholder Dr. Suann Hosie explain that CVL just set the bar too high.

“The Idexx people have found, and we’re one of their biggest accounts, that it’s not easy to step into the shoes of CVL,” says Hosie, owner of the Vancouver Animal Emergency Clinic. “They have put huge efforts to answering all of our concerns, but there’s just no way they’ll be able duplicate the service.

“When we wanted to do a study, we’d talk to Sally,” she adds. “She’d help us build a protocol to write an article, and give us a discount on the sampling. She’d help us with a personal and professional touch. Everything we did with CVL was to further the excellence of the profession.”

Bilenduke blames the alleged degrading of what formally was CVL not on Idexx, but on the greed of veterinarians. That’s why he’s devised True North’s trust setup rather than model CVL’s shareholder concept.

“As sad as it is, what it really came down to really, I think, is the whole psychology of greed,” he says. “We lose perspective on the things that are important. Because everybody knew everybody at Central Labs, you mattered. Now they’re faceless corporate customers.”

As for the part he played in CVL’s sale, Dr. Neil McIntyre is unapologetic.

“I got quite a lot of money out of it — $809,000,” McIntyre says. “I think the lab was great and Sally Lester was fabulous. She’s a wonderful clinical pathologist and a really good businessperson. I do think she was somewhat victimized by the big company coming in. She just kind of got trampled.”

Still, McIntyre says he’s not nostalgic, and in fact, was “very much in favor” of the outcome.

“This isn’t a socialist utopia,” he says. “We can’t all stand around a campfire singing Kumbaya. It’s just capitalism. It came down to money for me. I would be dishonest if I said I felt bad about this.”

That kind of talk does little to lessen the sadness Lester feels about the outcome for the lab and the overall consolidation and corporatization that the profession is undergoing. 

Lester now oversees the pathology services and acts as a clinical pathology consultant in her son's veterinary practice and serves as a True North consultant and financial investor.

“It’s interesting. I’ve never been back; I’ve never even driven by,” she says. “I’m still doing what I love to do, which is educate.”




VIN News Service commentaries are opinion pieces presenting insights, personal experiences and/or perspectives on topical issues by members of the veterinary community. To submit a commentary for consideration, email news@vin.com.



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