Health Diagnostic Lab enters Chapter 11

August 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

In a move which it says “is the right path to ensuring viability for decades to come”, the clinical laboratory company Health Diagnostic Lab Inc. (HDL) has announced its intention to seek protection under the provisions of Chapter 11 of the United States Bankruptcy Code.

At the same time as the Richmond-based company filed voluntary petitions in the Eastern District of Virginia, it was also keen to stress that while the restructuring process is taking place it will be very much business as usual.

Founded in 2008, HDL is considered a leader in health improvement and has one overriding mission: to beat cardiovascular disease and diabetes, one patient at a time. To this end, the company provides comprehensive biomarker testing and clinical health consulting for earlier disease detection and targeted disease management, resulting in improved patient outcomes and reduced costs.

Since its inception, HDL, a CLIA-certified CAP-accredited laboratory, has propagated a novel, systematic approach, identifying the various underlying factors which contribute to disease progression and providing a basis for targeted treatment. This has allowed it to help healthcare professionals provide the most effective, appropriate care for their patients, empowering individuals to take steps to improve their health.

A small start-up business in 2008, by 2013 HDL was announcing revenues in excess of $375m.

However, times are currently tough for HDL, with the Chapter 11 bankruptcy filing coming hot on the heels of a near $50m settlement with the US Justice Department over allegations that the company improperly paid doctors for blood samples. HDL had denied wrongdoing as part of the settlement in April.

This settlement, alongside the resignation of the company’s founder and CEO Tonya Mallory in September 2014, caused a significant amount of disruption and had a severe negative impact on HDL’s financial performance in 2015.

“While we regret the necessity of seeking protection under Chapter 11, it is the right path for us to take, and we see it as an opportunity to better position our company for continued growth and success while strengthening our finances – ensuring our viability as a company for decades to come,” said president and CEO of HDL, Joseph McConnell.

Making reference to the recoveries seen in other industries such as airlines, automotive and retail, Mr McConnell is confident that entering Chapter 11 will eventually lead to a bright, self-sustaining and competitive future for HDL.

Mr McConnell continued: “Through this process, we will better align our balance sheet obligations with our operations and ensure that business will continue as usual. In conjunction with the filing, we are in the process of establishing a debtor-in-possession credit facility that, along with cash generated by the Company’s ongoing operations, will enable us to satisfy obligations associated with the daily operations of our business.

“The fundamentals of our business model remain solid, and we are confident these actions will enable us to quickly restructure and emerge better positioned for continued growth and success. HDL’s operations are strong and demand for our high-quality diagnostic test products and services will continue to grow. HDL’s commitment to our physician partners, the patients whom they serve and our employees is unwavering.

“The ongoing support from our physician and other health care partners, employees, business partners and suppliers is an important and positive step forward for our company.”

In light of the agreement reached with the US Department of Justice and the protections provided by Chapter 11, Mr McConnell is keen to leave an extremely difficult period behind and continue HDL’s work which “improves the health of millions of Americans”.

Fraser Tennant