Zoetis' splurge on veterinary labs meets rocky transition

Life after buying spree tests patience of employees, clients

October 7, 2021 (published)
VIN News Service photo
Zoetis acquired three regional veterinary reference laboratories in a two-year span. Uniting the trio under a single banner — Zoetis Reference Laboratories — reportedly has been a clumsy process.

The world's largest animal health care company Zoetis has spent more than $2 billion since 2018 to gain a toehold in veterinary diagnostics by combining three newly acquired reference laboratories with its previous purchase of Abaxis, only to discover what money can't buy: a smooth transition. 

Zoetis Reference Laboratories offers veterinarians a national, contract-free alternative to the virtual duopoly of Idexx Laboratories and Antech Diagnostics, which together count an estimated 90% of all U.S. and Canadian veterinary practices as customers, many of whom commit their business to one or the other lab in exclusive, multiyear contracts.

The market's remaining 10% has traditionally belonged to academic and regional labs.

That changed two years ago, shortly after Zoetis entered the marketplace with the purchase of Abaxis, a maker of diagnostic equipment that veterinarians can use in-house. Between October 2019 and February 2020, Zoetis snapped up several of the nation's largest regional laboratories: Phoenix Central Laboratory near Seattle; ZNLabs out of Louisville with satellites in Dallas, Salt Lake City, Boise, Cincinnati and Chicago; and Ethos Diagnostic Science, which has labs in Boston, Denver and San Diego. 

Some expected that Zoetis' inorganic jump into the arena might give Idexx and Antech some real competition, but so far, the endeavor has met internal strife and hardships that come with molding three regional laboratories into a single, national entity.

The buyouts, which sent shockwaves through the profession, have led to high employee turnover and low morale, unhappy clients, and only modest growth, if any. Disgruntled employees say internal politics and poor decision-making by higher-ups have hampered the company's success, dragging it down with slow turnaround and poor customer service.

In brief

Dampening the success of Zoetis' reference lab business is the dominance of Idexx and Antech — because many veterinary practices have contracts with one of the two companies — and the logistics required to build a network of couriers to pick up specimens across the country. Still, Zoetis Reference Labs is slowly expanding. The company has 15 locations and services some 3,000 veterinary clinics, according to its website.

Bill Price, vice president of Zoetis corporate communications, acknowledges that the reference lab division has experienced "growing pains" and says the company is "solving these integration issues as quickly as possible." 

"We went into the reference lab space without significant experience, knowing we had a lot to learn, and we are pleased with the progress the team is demonstrating," he said by email. "... In 2021, we've been moving away from three separate structures and processes and consolidating onto a single platform, approach and Zoetis infrastructure. We want to create one single organization to more consistently serve customers, and there is still lots of work to do as we get all of our labs integrated and on the same page." 

Doubts permeate

That's easier said than done, says an insider who's had a front-row seat to the snags.

"It's much like a company who sells car parts to a dealer and all the sudden thinks it can run a dealership," the person said. "Zoetis is a pharmaceutical company that wanted to broaden its portfolio and thought veterinary diagnostics was an interesting and potentially rewarding space.

"I don't think there's any intentional negligence or dishonesty," the person continued. "They just don't know what they're doing yet in diagnostics. While very frustrating for clients and employees, there is no law against bad management."

That sentiment has been echoed in interviews with pathologists, technicians and customer service staff who depict an operation in disarray. During the past six months, the VIN News Service has heard from more than a half dozen current and former employees of Zoetis Reference Labs, all of them holdovers from the acquisitions of Phoenix, ZNLabs and Ethos, and a handful of disgruntled clients.

Together, their stories paint an account of unkept promises, logistical frustrations, integration snags and inconsistent compensation models that have prompted at least one pathologist to allege pay discrimination and hire an attorney to advance a complaint within Zoetis. 

Most of the disgruntled individuals are willing to share their stories but not their names, owing to fears of professional reprisal and running afoul of Zoetis' stringent nondisclosure agreement, a condition of their employment. A customer service representative who last February participated in a department-wide walkout of Zoetis's Seattle hub, formerly Phoenix, in response to the high volume of angry client calls and low pay, hesitated to share her experiences because she still works in the industry. A pathologist who quit last spring, along with two colleagues in her department, also declined to speak on the record because most anatomical and clinical veterinary pathology work in the U.S. comes from one of three employers: Antech, Idexx and Zoetis. 

Some veterinary clients, too, lament the changeover. On the Veterinary Information Network, an online community for the profession and parent of VIN News, practitioners have shared accounts of Zoetis overcharging or providing shoddy service.

"The quality of Phoenix Lab has taken a nosedive since Zoetis bought it," a feline practitioner posted in February in a VIN message board discussion. Initially, she said, couriers for Zoetis failed to pick up blood samples from her practice. Then she stopped receiving timely results, recounting an instance in which it took 30 hours to get blood work on a sick cat. 

"I called them multiple times and nobody picked up the phone," the veterinarian wrote. "Finally at 7 p.m. I was able to reach a representative who had the blood [results] sent to me. The cat's kidney values high, potassium low, called [owner] on the phone at approximately 9 p.m., cat wasn't getting better so I sent her to the emergency clinic. Would have been nice to do that the day before!"

Months later, the practitioner, who asked not to be named in an effort to retain a positive relationship with Zoetis staff, told VIN News that she's still disenchanted, finding the lab results to be "questionable" at times and encountering poor equipment and customer service. As an example, she said, "The blood tubes Zoetis sent us are low quality. The red tops routinely pop off, which is more than just irritating if you have a sick patient that needs blood work results. In addition, my employee has spent two days on the phone with them, trying to switch bank accounts that they have on file, with no resolution."

Not all report negative experiences. Dr. Greg Upton of Houston spent about six months as a ZNLabs customer before Zoetis bought the company. Initially, he was wary of the change but ultimately didn't see much of an impact.

To date, his overall experience has been good, apart from a recent blip. "The past two to three months, I have seen a significant increase in time to get histopathology results back on biopsies, but this is something they subcontract out to a pathology lab," Upton said by email.

"But for blood work results, I still get those back the next day," he said. Upton also appreciates fee transparency — prices don't fluctuate based on scale; small practices are charged the same as large ones — and the fact that there are no contracts.

"If I'm ever unhappy, I just move on," he said.

Many others don't share Upton's positive experiences. In the Seattle region, flyers have circulated to area practitioners, seeking opinions on whether they'd like to start another independent lab, much like the original Phoenix. "The new Phoenix," the flyer reads. "Always a person to talk to. No contract. Free pickups. Fast & accurate results."

One disappointed Zoetis lab employee called the transition period "a textbook business-school case on how not to do acquisitions and integration. Change is always hard," the person said, "but this has been so poorly handled. I've come to the realization that they don't know what they're doing. For most companies that end up in this situation, it would be dire straits, but since the pharma side of their business is so, so successful, it kind of masks everything that is going wrong in diagnostics and ref labs in particular."

Financial health

The accounts of internal strife and low morale suggest a business on the brink. However, Zoetis is anything but. The 2013 spinoff of Pfizer is a behemoth in animal health pharmaceuticals, projected this year to do up to $7.7 billion in revenue from sales in more than 100 countries. Zoetis Reference Labs is a minuscule portion of its parent company, garnering little attention from investors who might otherwise demand dramatic improvements. Generating an estimated $20 million in annual revenue, Zoetis Reference Labs isn't large enough to warrant a line item on the company's quarterly financials, when just one drug in its portfolio — the bestselling dog itch medication Apoquel — brought sales last year of $644 million. 

One market analyst, who shared his perspective on condition of anonymity to avoid industry backlash, put it this way: "Zoetis is great for veterinarians because of its lack of contracts, which are so anti-competitive. But diagnostics isn't something they need to get immediately right, particularly reference labs. It's a nothing business for them, and they have no market share."

Eventually, the company will take it seriously, he predicts.

"Diagnostics is too strategically important," he said. "To be fair, it's a hard business to run, and Idexx makes it look easy. But it's not. Being able to bundle point-of-care and reference lab is a business model that Idexx has done incredibly well with, and Zoetis is headed in that direction."

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