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MTOX
Here’s an old write-up that’s
still apropos to the business:

http://www.medtox.com/PDF/MEDTOX/Company/Investors/QuietChanges.pdf

>>
Quiet Changes To Ripple Drugs-of-Abuse Market

THE DARK REPORT
December 9, 2002

Significant changes appear to be underway in the national market for drugs-of-abuse (DOA) testing. These changes may favor smaller laboratories which support this type of testing.

Information from a variety of sources over recent months indicates that both Laboratory Corporation of America and Quest Diagnostics Incorporated have assessed the revenue potential of drugs-of-abuse testing. Both companies recognize that, at best, this type of testing generates meager profits and has limited growth potential.

Intense Competition

If true, it is a situation that the national lab companies brought on themselves. During the past decade, public lab companies were willing to offer the nations’ largest corporations at-cost and below-cost pricing for drugs-of-abuse testing as a way to build market share and develop economies of scale that would lower overall testing costs.

But the end result of this competitive battle has meant that LabCorp and Quest Diagnostics earn meager margins from their drugs-of-abuse testing divisions. As genomic and proteomic testing opens new opportunities for higher margin testing, it should be no surprise that the two blood brothers may have decided to shift resources away from their drugs-of-abuse testing programs.

Because of these facts, it appears each company has taken steps consistent with an internal decision to gradually exit this line of business. For example, during 2002 Quest Diagnostics is reported to have reduced its drugs-of-abuse sales force and reassigned customer service reps to handle major corporate accounts.

THE DARK REPORT speculates that the two blood brothers are in the earliest stages of “bleeding down” this line of business. Neither company wants specimen volume to decline so rapidly as to negatively impact quarterly earnings statements. But each company would like to gradually reduce its activities in the national drugs-of-abuse testing marketplace over a period of years.

If true, this would be similar to how the then “three blood brothers,” exited the nursing home business starting in the mid-1990s. After looking at the profitability of long term care (LTC) facilities, LabCorp, Quest Diagnostics, and SmithKline Beecham Clinical Laboratories each began dropping accounts. In some cases, LTC accounts in a region were bundled and literally given to a local hospital lab outreach program willing to service the business.

Other Labs May Benefit

Who benefits from this competitive shift in drugs-of-abuse testing? THE DARK REPORT believes MedTox Scientific, Inc. is best positioned to reap maximum advantage. Also, hospital- based laboratories already running aggressive drugs-of-abuse testing programs could gain easier access to regional corporate accounts, particularly if non-NIDA testing is involved.

In recent months THE DARK REPORT visited MedTox. Located in St. Paul, Minnesota. MedTox is a public company with annual revenues of about $40 million. Its primary business is drugs-of-abuse testing, with an interesting twist.

MedTox provides traditional DOA screening services, which involves the patient providing a specimen which is then sent to MedTox’s central laboratory in Minneapolis. The screen is performed and any positive findings are confirmed using more sensitive technology.

So far, this is like any other drugs-of-abuse testing laboratory. What sets MedTox apart is that it developed, patented, and now manufactures its own FDA-approved point-of-care (POC) tests for drugs-of-abuse. A client can use these POC test kits onsite.

If a POC test reads positive, then a specimen is sent to MedTox for confirmation. Thus, MedTox offers its own brand of product for either type of DOA screening and confirmation.

Quiet Changes In Market

Just as there was no public announcement by any of the national laboratories that they were abandoning the long term care testing market in the mid-1990s, it is not expected that LabCorp and Quest Diagnostics will make a public statement about their plans for the drugs-of-abuse market.

For that reason, laboratories active in the drugs-of-abuse market should watch developments involving LabCorp and Quest Diagnostics during the next 24 months. Building National Market Presence In RECENT YEARS, MedTox Scientific, Inc. has posted strong growth rates and expanded its presence in many cities around the country.

The company, based in St. Paul, Minnesota, offers a full range of testing services in drugs-of-abuse (DOA), therapeutic drugs, and environmental testing. It is also involved in clinical trials. The point-of-care DOA testing devices it developed and manufactures address two markets. One product line is called “Profile®-II” and is designed for use in workplaces and hospitals. The other product line is “Verdict®-II” and targets the government, rehabilitation, and criminal justice markets.
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