Zoetis buys veterinary diagnostics company ZNLabs

Independent laboratory sees deal as a way to compete with Antech, Idexx

Published: November 22, 2019
By Jennifer Fiala

VIN News Service photo
ZNLabs, headquartered in Louisville with administrative offices in Tampa, Florida, has satellite operations in Boise, Chicago, Cincinnati (pictured), Dallas, New Orleans and Salt Lake City. The company’s 60-plus employees are expected to stay on after the transition to Zoetis.

If David fights to compete with Goliath, he might enlist the help of another giant.

That giant's name is Zoetis.

That’s how Dr. David Gardiner explains his decision to sell ZNLabs, one of the few independent veterinary reference laboratories left in the United States, to Zoetis, a publicly traded major maker of veterinary pharmaceuticals that recently entered the veterinary diagnostics arena.

Gardiner, who co-founded the company with three colleagues in 2017, said in an interview with the VIN News Service they will continue, now as Zoetis employees, to operate the laboratory business without interruption or compromising their philosophy.  

The purchase price was not disclosed.

"Zoetis is going to keep our culture of being anti-contract with favorable pricing. I am super excited because our impact and influence can be so much greater now," Gardiner said today. "This is huge in an industry that's been dominated by two players for far too long."

Those players are Idexx and Antech, the latter of which is part of Mars Inc., the largest owner of veterinary practices in the world. Together, Idexx and Antech command most companion animal reference lab revenue in the U.S. Both companies try to lock up business from veterinary practices by selling long-term contracts that require clinics to commit to a specified amount of spending on diagnostic services in return for discounts and other enticements, such as cash rebates and equipment. Such contracts have been the subject of lawsuits involving both Antech and Idexx

A former subsidiary of Pfizer that was spun off in 2013, Zoetis entered the veterinary diagnostic realm last month with the purchase of Phoenix Central Laboratory, which had been a veterinarian-owned independent business, located near Seattle. The deal, rumored to be worth between $34 million and $36 million, beat an offer of $29 million from Idexx. 

In what seems to be a race for acquisitions, Idexx then turned around and purchased the veterinary side of Marshfield Labs, a reference laboratory and division of Marshfield Clinic, a large network of human hospitals located primarily in Wisconsin. Idexx outbid Zoetis, Antech, Heska and ZNLabs, agreeing to purchase the company for roughly $50 million.

ZNLabs, with headquarters in Louisville and six satellites throughout the country, also considered acquiring Phoenix but couldn't compete with the high bids that the company attracted. 

Gardiner said it's natural that the two labs, rooted in independence, might unite under a single banner — and now they can. "At some point, we realized [that] to achieve what we wanted to achieve — which is to disrupt the reference lab industry for the better — we needed a powerful ally," he said. "Zoetis was the perfect fit."

In a prepared statement today about the acquisition, Zoetis highlighted ZNLabs' "mission to be 'Simple. Friendly. Fair.' "

Kristin Peck, Zoetis executive vice president and group president, U.S. Operations, Business Development and Strategy, indicated in the statement that Zoetis isn't done shopping. " ... We plan to grow further in this space through a mixture of small, business development activities combined with organic expansions in key markets in the coming years," she said in the statement. (Peck will take over as chief executive officer of Zoetis, effective Jan. 1.) 

Dr. Meghan Ellis of Sanford, North Carolina, recoiled upon hearing the news that ZNLabs sold to a major corporation. "I hate the fact that ZNLabs is no longer independent," she said by email.

Still, she'll likely stay with the laboratory — albeit reluctantly — and hope for the best.

"Their service and prices can't be beat especially for a tiny practice like mine with absolutely no leverage for discounts. I don't even have need for in-house lab equipment or radiology equipment, as a house call vet. Antech and Idexx couldn't care less about me."

According to industry analysts, Zoetis's foray into the reference laboratory arena is a logical move for a company that spent $2 billion last year to acquire Abaxis, a maker of point-of-care diagnostic instruments.

"We think IDEXX has benefited from being the only player with a combined point-of-care and reference lab offering, so while sub-scale Phoenix may take time to pay dividends for Zoetis, we think it could impact the competitive landscape over time," according to a report last month by financial services firm Raymond James.

Analysts say Zoetis is well positioned to attract reference laboratory business from national chains that don't want to deal with Antech due to its affiliation with the practice chain VCA, a competitor for new practice acquisitions and patient care, and Idexx, which is the only other national alternative. 

"We estimate that combined, Antech and Idexx have about 90% market share, making Zoetis a potential third national option for vets, if it can scale this business," wrote David Westenberg, CFA and analyst with Guggenheim Investments.

However, Westenberg stressed that the lab business isn't easy: "While we think Zoetis' entrance will eventually lead to more competitive rivalry, we remind investors of the significant scale required to build a competitive lab business. Veterinarians expect once, or sometimes twice, per day pickups. A national lab requires regional labs, full support staffs, and advanced courier routes."

Edie Lau contributed to this report. 

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