Specialty Laboratories Announces Second Quarter Results; Test Volume Growth Exceeds 20 Percent with Net Income Growth of 35 Percent.

Business Editors & Health/Medical Writers

SANTA MONICA, Calif.--(BW HealthWire)--July 25, 2001

Specialty Laboratories, Inc. (NYSE:SP) (Specialty), a leading research-driven clinical reference laboratory, today announced results for the second quarter and for the six months ended June 30, 2001.

Net revenue for the second quarter period was $45.2 million, an increase of 17 percent, compared to second quarter 2000, while net income rose to $3.2 million, an increase of 35 percent, resulting in earnings per diluted share of $0.15, compared to $0.14 for the same period in 2000.

Continued growth in test volume accounted for the revenue improvement, as accessions increased more than 20 percent. The growth in accessions came primarily from Specialty's existing core business, which increased nearly 18 percent from the second quarter of 2000. The Company's acquisition of the assets of BBI Clinical Laboratories (BBICL), completed in the first quarter of 2001, contributed nearly 3 percent of the volume increase. This volume growth was offset by a slight decline in average selling price.

Operating income reached $4.7 million and resultant earnings before interest, taxes, depreciation, and amortization (EBITDA) were $6.4 million for the second quarter of 2001, increasing more than 4 percent and 8 percent, respectively, over the prior year quarter. These results reflect continued productivity improvements in laboratory operations, offset by the costs incurred by the nearly complete transfer of testing from BBICL to Specialty's California facility. As of July 20, Specialty ceased substantially all clinical operations at BBICL, and expects to maintain a small support staff to close the facility by the end of October, 2001.

The balance sheet also bears out the positive operating results of the quarter, as cash and investments reached $75.7 million, up nearly $6.9 million from the first quarter 2001.

"Specialty's quarter was marked by solid operational accomplishments and continued growth in demand for Specialty's esoteric testing services," commented James B. Peter, M.D., Ph.D., chairman and chief executive officer of Specialty Laboratories. "We completed, ahead of schedule, the integration of testing services of BBI Clinical Laboratories, while concurrently reaching record-high test volume in our existing business exclusive of BBICL. This level of execution and the precedent set for any future acquisition activity by Specialty are pleasing."

"Specialty continues to lead in the development of cutting-edge tests that significantly improve the diagnosis, management and treatment of disease," Dr. Peter continued. "Specialty recently announced the introduction of BCR/ABL UltraQuant(R) by MGB PCR, co-developed with Epoch Biosciences, for monitoring residual disease and response to therapy in human leukemias. These highly sensitive tests for chronic myeloid leukemia (CML) and acute lymphoblastic leukemia (ALL) are based on Epoch's minor groove binder probes, a genetic analysis technology. Specialty is also proceeding with validation and clinical utility studies of COL1A1 GenotypR(TM), a gene-based test for predisposition to bone fracture related to osteoporosis. These are just two examples of the 100 new or enhanced tests Specialty expects to make commercially available this year. In the first six months of 2001, more than 60 new or enhanced tests were introduced, and we fully expect to reach our goal of 100 new or enhanced assays for the full year. We are optimistic about the long-term financial and clinical opportunities in molecular-based testing and look forward to forging additional co-discovery partnerships."

For the six-month period ended June 30, 2001, net revenue was $89.0 million, an increase of 20 percent compared to the first half 2000 net revenue of $74.2 million, while net income for the period rose to $6.6 million, up more than 57 percent. Earnings per diluted share rose to $0.30, a 25 percent increase compared to $0.24 in the first half of 2000. Growth in test volumes accounted for the increased revenue, up nearly 22 percent for the first half of 2001, offset by a slight decline in average selling prices. Operating income for the first half was $9.3 million, and resultant EBITDA for the six-month period exceeded $12.7 million. Both operating income and EBITDA increased approximately 18 percent compared to the first half 2000 results.

Specialty Laboratories' quarterly conference call will be broadcast live on www.streetfusion.com and on Specialty's Web site, www.specialtylabs.com, on July 25, 2001 at 9:30 AM Eastern. A replay of the call will be accessible on these sites through the close of business on August 24, 2001.

About Specialty Laboratories

Specialty Laboratories, Inc. is the largest single source of esoteric testing in the United States, providing more than 3,500 esoteric tests to hospitals, laboratories and specialist physicians. As a leading research-driven clinical reference laboratory, Specialty works extensively with medical discovery companies to co-discover new tests, transforming research into accessible clinical tools for improved diagnosis and monitoring of disease. These co-discovery partnerships build on Specialty's track record of introducing assays characterized by exceptional analytical validation, clinical validation and the establishment of clinical utility. For more information on Specialty, visit www.specialtylabs.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This release contains forward-looking statements that involve risks and uncertainties, including but not limited to, statements concerning the Company's ability to deliver on its long-term strategies, growth in demand for the Company's services, potential returns on investments in R & D, continued development of new and improved assays, additional offering of commercially available assays, financial and clinical opportunities in molecular testing, growth in co-discovery partnerships between the Company and other research-oriented companies and the opportunity of esoteric testing in general. Actual results may differ materially from the results predicted. Important factors which could cause our actual results to differ materially from those expressed or implied in the forward-looking statements are detailed under "Risk Factors" in filings with the Securities and Exchange Commission made from time to time by Specialty Laboratories, including our Registration Statement on Form S-1 declared effective on December 8, 2000 and our periodic filings on Forms 10-K, 10-Q and 8-K. Other factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements include the risks that increased or unexpected competition and fluctuations in demand from our customers may reduce our results in the future and cause our revenue and operating margins to suffer, customer and supplier relationships may change, new product concepts may not yield marketable products and any acquisitions of other companies or technologies will not be integrated successfully with Specialty. Growth or increases in financial results compared to past results do not mean or imply that the Company will experience similar increases in the future. Specialty undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

                     Specialty Laboratories, Inc.
                 Consolidated Statements of Operations
                              (Unaudited)

                          Three Months               Six Months
                             Ended                     Ended
                            June 30,                  June 30,
                        2000          2001        2000        2001
Net revenue         $38,556,948  $45,157,566  $74,164,044  $88,979,188
Costs and expenses:
  Costs of services  21,699,723   25,518,326   42,215,395   50,052,366
  Selling, general
   and
   administrative    12,280,474   14,615,335   23,885,148   28,929,246
  Stock-based
   compensation
   charges              111,096      364,054      144,362      679,129
Total costs and
   expenses          34,091,293   40,497,715   66,244,905   79,660,741
Operating income      4,465,655    4,659,851    7,919,139    9,318,447

Interest income              --    (882,724)     (13,017)  (2,028,568)
Interest expense        389,062       40,459      760,160       78,189
Income before
 income taxes         4,076,593    5,502,116    7,171,996   11,268,826

Provision for
 income taxes         1,671,000    2,256,000    2,940,000    4,620,350
Net income          $ 2,405,593  $ 3,246,116  $ 4,231,996  $ 6,648,476
Basic earnings per
 common share          $    .15    $     .15     $    .26     $    .32
Diluted earnings per
 common share          $    .14    $     .15     $    .24     $    .30
Basic shares         16,066,681   21,037,705   16,066,681   20,987,605
Diluted shares       17,690,621   22,209,262   17,619,920   22,159,393


                     Specialty Laboratories, Inc.
                      Consolidated Balance Sheet

                               December 31,           June 30,
                                   2000                 2001
                                                     (Unaudited)
Assets
Current assets:
  Cash and cash equivalents   $ 75,603,555        $ 12,717,678
  Short-term investments                --          39,668,253
  Accounts receivable, net      32,775,147          37,038,472
  Deferred income taxes          4,238,857           2,774,077
  Inventory                      1,623,115           2,695,874
  Prepaid expenses and other
   assets                        1,496,125           1,789,205
Total current assets           115,736,799          96,683,559

Property and equipment, net     19,891,132          19,292,491
Long-term investments                   --          23,300,643
Deferred income taxes            2,863,427           2,863,427
Goodwill, net                           --           5,366,050
Other assets                     3,513,707           4,694,841
                              $142,005,065        $152,201,011


Liabilities and shareholders'
 equity
Current liabilities:
  Accounts payable            $ 11,921,443        $ 13,688,620
  Accrued liabilities           10,387,764          11,459,811
  Income taxes payable           4,638,422           1,453,803
Total current liabilities       26,947,629          26,602,234
Long-term liabilities            3,259,950           2,739,338
Commitments and
 contingencies
Shareholders' equity:
  Capital stock                 89,824,176          93,262,659
  Retained earnings             24,102,877          30,751,353
  Deferred stock-based
   compensation                 (2,129,567)         (1,170,130)
  Unrealized gain on
   investments                          --              15,557
Total shareholders' equity     111,797,486         122,859,439
                              $142,005,065        $152,201,011