FISCAL YEAR 2011 EARNINGS RELEASE
BioReference achieved strong operating results for Fiscal 2011, notably in the fourth quarter where we
posted record revenues, record net income and record cash flow. Fiscal 2011 marks our 18th year of 20% compound
annual revenue growth -- an impressive record of sustained growth by any standard. With growth come greater
capabilities, leading to greater opportunities, which we expect to result in further growth. We have been
transparent in our formula for success; we recognize that the clinical laboratory testing market is in fact
defined by many sub-markets that are in turn identified by practice specialty, geographic region or physician
customer base. BioReference has identified markets -- correctional health, women’s health, cancer and genetics
-- where we can differentiate ourselves. We then invest in better science and better service to grow our market share.
Over the past few months, we have announced several initiatives for the upcoming year. We have already begun
offering a wider suite of pre-natal testing over the past few months and we have seen some uptick in that business,
but we have now set April as the planned release date for our disruptive new Pan-Ethnic Carrier Screening test,
Inherigen, which will be the flagship product upon which we will be basing our national entry into this market.
Simultaneously, we will release our new GenCerv product, a disruptive test that will change the way physicians treat
women with positive HPV results. We believe the key to success in Women’s Heath is to provide one stop shopping for
needs in genetics, infectious diseases and cancer and through Inherigen, GenCerv, GenPap, GenomeDx and other new programs
as well as our strong specialized national sales force.
In January, we introduced OnkoMatch, our tumor genotyping program for solid tumor cancers, which was developed
under a commercialization agreement with Massachusetts General Hospital. Patients from all over the country will have
their tumor profiled not only to find the right therapy but also to identify if their tumor can be helped with any of
the scores of clinical trials available only to those with specific genetic mutations.
We have also recently begun marketing our Women’s Health program in the State of New York, where we had previously
been unable to offer our proprietary laboratory developed tests that underlie the superior value of our program. Prior
to introducing our Women’s Health program nationally, our largest source of women’s health testing was from the State
of New York. We have spent the past few years working to get the approvals from the State of New York. It is too soon
to offer any quantitative value to the new program, but it has been enthusiastically received by our current physician
clients as well potential new ones who have not used our services in the past.
We expect these three programs to fuel growth progressively as the next year unfolds. We have talked about these
programs for quite a while and we have sought to introduce them for several quarters. We have been introducing innovative
testing for many years now and the one thing that we know for sure is that in order to offer pioneer testing, you need to
make sure it is fully vetted and ready for distribution. These are groundbreaking tests that will change the way physicians
diagnose their patients and we have been carefully preparing to offer them. Our marketing department is ready, the lab is
ready, logistics is ready and our national sales force is trained and ready. These are innovative, insightful new diagnostic
programs that will change diagnostic healthcare the same way that our Women’s Health program has changed the way gynecologists
provide better healthcare.
For the past few years, we have heard criticism from our competitors about our Women’s Health program. That criticism has
been mostly silenced as all of our major competitors have now introduced programs to try to provide the same ease and breadth
of testing that we offer. We believe our program continues to be the best in the market and we continue to grow the business.
Our market share has continued to grow even as the competition joins the market.
Our regional business continues to steadily grow. You need only look at our patient count numbers to identify the success
of this program. Despite the effects of weather, which particularly affected the regional business, we saw patient count grow
by nearly twenty per cent.
Our growth was across all areas of our business with routine and esoteric work expanding in equal amounts. It is important
to note that routine work is not only coming from our traditional Northeast region but in many cases has accompanied specialty
physicians around the country, creating a new revenue stream and greater opportunities for expansion. Our national sales force
continues to report solid sales growth and opportunity for continued growth throughout the country.
This change as well as our continued success in an increasing regional footprint has allowed both our esoteric numbers and
revenue per patient to level out. Esoteric percentage was between 58%-59% for the quarter compared to 57% for the previous year.
Revenue per patient was $82.35 compared to $81.83 the previous year.
There are also macro-economic issues that are affecting all of us in healthcare. On a national basis, we are seeing severe
pressure to hold reimbursement down or reduce reimbursement. We are in network with hundreds of payers throughout the country;
in fact we have executed over 65 new agreements in the last 18 months and the ultimate effect of being in network is pricing
pressure. There is no alternative for any national laboratory, which most of us are, but to obtain in network status, which we
have done. The concept of doing a test out of this system or to obtain favorable billing as a physician practice is not
sustainable in the long run if you aspire to be a major provider. We grow with innovation; that innovation yields gain in market
share, but innovation also means providing more services through technology. In regard to both OnkoMatch and InHerigen, we will
be providing more information; another lab might see this as a billing opportunity. We don’t. Our way to grow must be to provide
more for less and thereby gain market share.
We have said for years that there is always a downward trend to reimbursement. That trend continues and the government has
become more of a participant as it deals with our national debt crisis. What we have always done to counteract this trend is to
expand market share and continue to offer innovative new testing. That is exactly what we strive to continue to do going forward.
Having said that, we are encouraged by our fourth quarter performance. We have seen some positive signs for additional leverage
this year. In the fourth quarter our sales rose greater than the increase in our direct employee cost. In the coming year we will be
focusing on savings in our cost of goods, employing new strategies to accomplish these goals. We must be mindful that to provide more
for less is a way to gain market share and we must provide better leverage in the future.
We continued to do a good job with collections. Cash flow from operations for Q4FY11 was over $19M, the best the Company has
ever recorded and almost double the amount in the same period last year. Free cash flow for Q4FY11 was over $15M representing 3x
that of the previous corresponding quarter last year and clearly the best for any period in the company’s history. These results
should not be surprising.
The cash flow challenges we have faced have been well chronicled. First of all, we have always shown improvement as we progress
throughout our fiscal year, part of that is attributable to how the months and holiday schedules work out but it is also related
to getting past copays and deductibles as the year progresses. However over the past year, cash flow has certainly been in line
with the massive investments we have made in people, facilities and technology to create new testing programs and solutions.
Our fourth quarter numbers provide great insight into the coming year. We expect that we will continue to grow. Of course,
we will see the usual Q1 pressures as healthcare takes a backseat to the holidays, but over the course of the year, we anticipate
continued, sustained growth. We will attack margins as we introduce our new products, but we expect that pressure will be relieved
as we gain acceptance of our new disruptive diagnostic solutions which will enable our continues overall growth. We foresee that
the payer pressure will continue but expect that it will be offset by greater discipline and more effective purchasing as we deal
with a changing economy and an evolving stronger company. We have shown DSO improvement and we have generated record-breaking cash
flow in the Quarter; as we move through the year, we will seek to continue these positive trends.
There have been a great number of distractions recently. Our first responsibility is to be sure that those distractions have
no impact on our underlying business operations. To this point, we are exceedingly grateful that this appears to be the case. We
have recently announced a stock buyback of 1m shares that will commence later this year, and we will not rule out further
purchases depending on market conditions. As we progress throughout the year, our Board will look critically at all aspects of
our business as we head into exciting and challenging times.
Last year we continued our guidance, which has been consistent for quite some time. We said that we would grow revenues greater
than 15% and net income by greater than 15%. We grew both by 20%. We are now changing our outlook slightly. We still believe that
we will increase net revenues greater than 15%. I think it is worthwhile to mention that this past year, we grew just over $100m in
revenues, an amount of business that on its own might represent one of the largest laboratories in the country. We now estimate
that we will grow net income by around 20%. We will remain focused on our future growth and performance and providing the best
results for our shareholders, physician clients and the patients they serve.
Elmwood Park, New Jersey
Marc Grodman, M.D.
Chairman of the Board
President and Chief Executive Officer