Zoetis grows diagnostics franchise with Ethos; Idexx shutters Marshfield satellites
A number of regional, independent reference laboratories catering to U.S. veterinarians have sold in recent months to national corporations, each jockeying for market share in a $2.6 billion industry that analysts predict will generate double-digit growth from now until 2026.
Already, few laboratories exist that aren't owned by Antech Diagnostics, Idexx Laboratories or Zoetis, a relative newcomer to the diagnostics arena that's helped spur concerns within the profession that independent, regional laboratories are quickly becoming a thing of the past — much like independently owned veterinary practices.
"I fear we are seeing the end of the profession as we know it," said Dr. Margie Scherk, a feline practitioner with family ties to True North Veterinary Diagnostics, an independent reference lab in British Columbia, Canada, that's being pressured competitively by Antech and Idexx. "I'm seeing the end of relationships in this profession: relationships with your pathologist, relationships with the client through unfortunately expected and hasty referral, resulting in, at times, the end of personalized/individualized tailored client- and patient-based care. This is an era of corporate medicine."
Some veterinarians are ambivalent given that national, corporate-owned laboratory chains have dominated the landscape for decades; and many practitioners are happy with their services. However, fewer independent options exist for veterinarians than ever before. Collectively, Antech and Idexx command 90% of the U.S. market, and now Zoetis has jumped in to join them.
Best known for making veterinary pharmaceuticals, Zoetis is looking to build a full-service network of clinical reference labs to complement its 2018 purchase of Abaxis, a maker of point-of-care diagnostic equipment. This month, the company announced its purchase of Ethos Diagnostic Science, part of Ethos Veterinary Health, with laboratory locations in Boston, Denver and San Diego. Terms of the deal were not disclosed.
Zoetis' buyout of Ethos, a company founded in 2015 as an alternative to Antech and Idexx, comes on the heels of other notable acquisitions. Late last year, the multimillion-dollar sale of two large veterinarian-owned and -operated laboratories sent shock waves through the profession. After months of haggling, Phoenix Central Laboratory, a staple in the Pacific Northwest; and the veterinary side of Marshfield Labs, part of the Wisconsin-based Marshfield Clinic, sold to Zoetis and Idexx, respectively.
Around the same time, Antech, which is part of Mars Petcare, the largest owner of veterinary practices in the world, purchased Biovet, a Quebec-based company that provides diagnostics for animal health and agro-industry specialists in Canada and internationally. News followed in November that Zoetis acquired ZNLabs, an independent operation headquartered in Louisville, with satellites in Boise, Chicago, Cincinnati, Dallas, New Orleans and Salt Lake City.
The acquisitions are in various stages of integration. Last week, Idexx announced plans to lay off 51 Marshfield employees, beginning May 1, as part of ongoing consolidation efforts.
ZNLabs co-founder Dr. David Gardiner told the VIN News Service last year, shortly after the deal was announced, that his lab's sale to Zoetis was necessary for the continued growth of his company, allowing him to offer compatible services and disrupt the duopoly of Antech and Idexx. "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. "This is huge in an industry that's been dominated by two players for far too long."
Many veterinarians aren't celebrating. On VIN, they accused Gardiner and ZNLabs of selling out and lamented that major corporations have too tight a grasp on veterinary practices, using suffocating contracts to sell lab services at high prices.
Dr. Megan Ellis of Sanford, North Carolina, is mourning the loss of ZNLabs. "I liked that they didn't have their fingers into every aspect of veterinary diagnostics," she wrote in a VIN discussion. "It was a lab. They wanted my business because I needed a good lab, and that's what they did. The price was the price, no matter how many submissions I made. They had nothing else to sell me. There was nothing else to negotiate. I paid the same as everyone else. It made for a level playing field."
Even for a $70 billion giant like Zoetis, competing against Idexx and Antech is an uphill battle, insiders say. According to a financial analyst who spoke on condition of anonymity due to job constraints, the company will have a tough time creating a true competitive rivalry in the marketplace.
A national lab requires regional locations outfitted with pricey equipment, great pathologists and a national courier that can be at practices once, if not twice, per day. The logistics of that, combined with the fact that veterinary practices often enter into ironclad five-year contracts with Antech and Idexx, make entering the laboratory arena difficult.
"The thing is, an independent doesn't have the muscle to deal with a sector that's 45% Antech, 45% Idexx," he said. "Even once you get past the logistics, so many veterinarians have already signed these very long contracts to use Antech or Idexx. These contracts … they're long enough to basically make AT&T and Verizon jealous."
Survive all that, and what Zoetis could be left with is a cash cow. "The market is going to almost certainly grow in excess of the animal health market … and profit margins can be sky-high," he said.
With "relatively nothing left" to acquire in the United States, the analyst noted that all three companies — Idexx, Antech and Zoetis — have their sights set on Europe, where a number of large, independent reference laboratories are ripe for the taking.
"That's the next frontier," he asserted. "They're all three anxious about Europe, but especially Zoetis, because they know they can't buy anything here."
As a drug maker, Zoetis already has a presence in the United Kingdom. Reached by email, company officials declined to address whether they are looking to acquire reference labs in Europe.
"Diagnostics continues to be an area of focus for Zoetis as we look to strengthen our diverse portfolio across the continuum of care and enhance our value proposition to veterinary customers," reads a statement provided to VIN News. "We plan to continue to grow in this space through a mixture of small, inorganic business development activities combined with organic growth in key markets."
With the acquisitions of Phoenix, ZNLabs and Ethos, "we are looking to gain valuable experience in the reference lab space," the statement concluded.