ABC finds profitable stride after lean beginning, growing pains

Analytical Bio-Chemistry Laboratories, the anchor tenant of the University of Missouri’s Discovery Ridge research park, received the keys to its new $14.4 million building in mid-March.

But the CEO and president of ABC Labs, Byron Hill, won’t be sharpening his pencils there for several months. Instead, Hill said, the employees and operations to be moved to the 90,000-square-foot building first are those the company considers most important—the scientific team.

“They make the money; I just spend it,” joked Hill joked during a recent interview. But his plan to move the company’s chemists and scientists into the custom-made building first is more than a ploy to keep morale high; it’s an example of ABC’s return to its original focus—chemical analysis. The new building, he emphasized, “is a laboratory, not a headquarters.”

Right now, ABC is riding high, with nearly 300 scientists and support staff workers and a balance sheet showing $2.2 million in net income for 2006. But things weren’t always so rosy for the company.

Byron Hill, president of ABC Labs, and Troy Devault, operations manager.

A tough start
There’s a Hollywood joke that goes something like this: an overnight success takes roughly 30 years. That’s just about the way it’s been for ABC Labs, which turns 40 later this year.

In 1968, Charles W. Gehrke and his team at the University of Missouri were using a new, automated method for analyzing the chemical components of fertilizer for farmers. The innovative process saved the university and Gehrke’s lab tremendous time and resources. Procedures that once took hours to perform could be done in minutes. The manufacturer of the automated lab equipment suggested that Gehrke start a business using the techniques he and his students had pioneered.

But Gehrke hesitated. At the time, the university atmosphere discouraged such entrepreneurship.

There were no terms such as “technologytransfer” then. Gehrke also was more interested in making the new discoveries and doing the work necessary to analyze materials for amino acids, the building blocks of life, in the lunar samples brought back from Apollo 11 in 1968. As Gehrke noted, not many people get to analyze 5 billion-year-old rocks.

But he didn’t dismiss the suggestion. Instead, he turned to two of his former graduate students, Jim Ussary and David Stalling, and they jumped at the idea. As Ussary put it, “He said ‘if you two do it, I’ll back you’.”

Gehrke sought financial backing from friends, family and colleagues, and within six months he had raised roughly $200,000. At the same time, Stalling was finding inexpensive workspace.

He and his father were making money by tearing down buildings in the path of Interstate 70, which was then under construction. They used three of the leftover shells for ABC Lab’s first buildings. Stalling had worked in demolition before, and he was also good with his hands. He’d already built a gas chromatograph, a complex machine used to analyze chemicals before such equipment could be purchased commercially. The three men got a good deal on their land.

Gehrke’s neighbor had 70 acres near I-70 that she was willing to sell for $1,000 an acre, far less than the going price at that time. Even better, for personal reasons, she didn’t want the purchase price in one lump sum but an initial payment of $40,000 and the rest over time.

That delay turned out to be lucky because it took until 1975 for the fledging company to post a positive net income, $86,510, according to figures supplied by ABC Labs. No one knew at the time how successful the company would become, said Ussary, who was president of the company until he left in 1975. At the time, ABC Labs had 20 employees. Ussary’s job included a lot of travel as well as extra duties, which sometimes including fixing the roof.

“It was seven days a week, day and night,” Ussary said.
Stalling waited until 1989 to leave his fulltime position at the National Fisheries Research Center in Columbia. Nine years later, he left ABC Labs to start another venture.
A mutiny and a slump
The company’s growth continued until 1992, with the net income hitting $1.1 million. That year, Gehrke received a rude surprise. He had never been on the payroll of ABC Labs, but he’d always held the spot of chairman of the board and stepped in from time to time with capital or suggestions. But in 1991, the then-CEO and president teamed up with some members of the board of directors in an attempt to remove Gehrke as chairman.Lawyers were brought into the fight, pitting Gehrke and several fellow board members and shareholders, including family members,against the rebellious board members. When the dust finally settled, Gehrke and his supporters had won with backing from 67 percent of the stockholders. He remained on the board, but not at the head of the table, and the company had a new CEO, Jake Halliday. Gehrke stayed on the board until 2003, when he turned his seat over to his daughter, Susan Gehrke Isaacson, a certified public accountant and attorney who specializes in investments. Isaacson said to Halliday’s credit in his 10- year tenure, he enlarged the company’s pharmaceutical business. Yet, in terms of dollars, ABC slid downward, losing money almost every year until hitting bottom in 2003 with a loss of $3.6 million. Gehrke said in 2003 the company was nearly bankrupt, suppliers wouldn’t ship merchandise on credit, and the future looked bleak.

A dramatic turnaround

In December 2002, Halliday persuaded Celerity Partners to provide a cash influx of $3 million in exchange for 27 percent of the company stock. (Since then, the California-based investment firm’s share has risen to 43 percent.) ABC also sold its laboratory in Northern Ireland that accounted for about $3 million in losses.
Recruited by Celerity Partners, Hill arrived as chief financial officer in June 2003 and reviewed

the company’s figures. At first, he thought ABC Labs didn’t stand a chance. Then he applied his four-point checklist, much like checking for someone’s pulse, and decided the company’s market was rich and its business model sound. Management problems and a lackof access to cash had the company on the ropes, but Hill decided the company still had a chance.

After Hill was named president and CEO in December 2003, the managers stanched the flow of red ink by shedding 55 employees. “We couldn’t pay them,” Hill explained. Next, the company slashed operations that diluted the company’s focus. ABC sold its California agricultural testing operations, a radiopharmaceutical laboratory at MU and an onsite animal testing laboratory.
“We’ve exited those businesses,” Hill said. “They were cash drains.”

Then he refocused the company and its management on what ABC Labs did right – pharmaceutical and chemical services. Today, the company tests pesticides, herbicides and pharmaceuticals to determine whether they conform to the guidelines and regulations of the Environmental Protection Agency, U.S. Department of Agriculture and Federal Drug Administration. A bit more than a quarter of its business is devoted to agriculture and chemical testing; the rest is pharmaceutical testing.

The company made a quick turnaround. By the second quarter 2004 it broke even, and by the end of the year became profitable again.

By 2006, net income was $2.5 million. ABC Labs has grown by 18 percent during the last four years and Hill said he expects the company to double sales to $50 million during the next five years, a 20 percent compounded annual growth rate. The growth, however, put the squeeze on the company’s facilities and in 2006, Hill moved the company’s administrative offices to Woodrail and began to look for more spacious digs.

At the same time, the company’s success drew several suitors. “We were contacted attractive incentives. “Gainesville, Florida, made us an incredible offer.”

But Hill recognized the value of staying interaction with MU’s faculty and access to its facilities and libraries.

Roughly 30 percent of the company’s employees are MU graduates.

Incentives to stay home

Landing ABC Labs as the first tenant of Discovery Ridge required the efforts of a number of players, including representatives of MU and the city, county, state and federal governments.

For the first time, Boone County will use bond incentives to provide tax abatement, which will give ABC Labs about $1.5 million in tax relief over 10 years.

City, state and federal funds will be used to reroute streets near Discovery Ridge and create an interchange off Highway 63 for the research park.
In 2005, MU agreed to designate its South Farm, a 1,452-acre agriculture experiment station, as a research park and the UM System put its development muscle behind the project.

City Manager Bill Watkins said all this activity is recognition of the benefits of keeping ABC Labs in Columbia and helping the company expand. The construction of the building provided local jobs and ABC’s future expansion will provide more high-skilled, well-paid local jobs, which could keep graduates of Columbia’s colleges and universities from moving away to St. Louis or Kansas City.

There are also the intangible benefits, Watkins said, like the positive attention a company like ABC Labs brings to Columbia and MU.

During the next few months, the scientists at ABC Labs will begin moving the Pharmaceutical Services Business Group to the new facilities, while leaving some operations at current locations. It won’t be easy because every piece of equipment must be recalibrated, tested and validated to make sure it’s 100 percent reliable and able to meet federal guidelines. Ongoing experiments and tests will be run in tandem at the old facilities and the new facilities to ensure accuracy. Some operations will continue to operate at the old facilities. It could be as late as June before things are settled enough at Discovery Ridge to allow for an open house.
“We’re not going to be rushed,” said Hill, as usual, looking out for his scientists.

ABC Laboratories, Inc.
$(000’s)
Revenues Net Income
1968
1969 $5,940 -$7,223
1970 24,700 -65,670
1971 59,162 -59,446
1972 120,143 -40,210
1973 248,487 -41,158
1974 259,385 -1,544
1975 510,399 86,510.
1976 512,014 31,861.
1977 569,732 20,908.
1978 827,323 78,496.
1979 1,113,376 79,299.
1980 1,320,180 120,401.
1981 1,765,341 130,325.
1982 2,204,999 194,372.
1983 2,374,525 214,309.
1984 2,524,464 116,306.
1985 3,427,150 304,527.
1986 4,845,277 337,578.
1987 6,181,135 267,600.
1988 7,107,206 247,115.
1989 9,718,989 929,130.
1990 12,670,042 1,101,990.
1991 16,651,999 1,066,379.
1992 16,882,568 1,135,753.
1993 15,414,064 -1,560,374
1994 12,472,854 -202,753
1995 13,592,146 -150,868
1996 14,427,736 -531,794
1997 14,363,876 150,912.
1998 13,929,356 41,984
1999 14,388,503 -759,245
2000 14,570,984 -93,500
2001 17,832,893 -110,000
2002 16,236,752 -1,896,197
2003 14,322,665 -3,577,662
2004 16,507,324 978,175.
2005 20,557,498 2,006,467.
2006 24,435,000 2,150,000
2007 27,140,862 na

ABC Labs Historical Highlights
2008 – ABC Labs moves bulk of operations into new headquarters at Discovery Ridge
2007 – Employment nears the 300 mark
2006 – Administrative offices moved to the Woodrail Center to make more room for expansion of labs at its complex adjacent to I-70 on the city’s eastern edge
2004 – Company turns a profit, one year after losses peaked at $3.6 million
2003 – Byron Hill, brought in as a consultant, is hired as ABC Labs’ chief financial officer. He is later promoted to chief executive officer and president.
2002 – Celerity Partners invests in ABC Labs in exchange for 27 percent of the stock
1992 – Stockholder battle leads to leadership changes
1975 – Net income finally positive at $86,510
1968 – Company founded by MU scientist Charles W. Gehrke and former students