Veterinary operator stumbles on dot-com investment. (Up Front).

VCA Antech Inc. has had success as a veterinary hospital chain and laboratory company, but it's had trouble with a dot-com era investment -- a pet project of its chief executive -- that so far has cost shareholders roughly $7 million.

L.A.-based VCA, which owns nearly 240 animal hospitals nationwide, invested $5 million in Zoasis, an information technology company and the brainchild of Robert Antin, VCA's longstanding chairman and chief executive.

According to filings with the Securities and Exchange Commission, VCA recently took a $5 million write-down on its investment in Zoasis and settled a lawsuit for $2 million with the owners of a separate company that merged with Zoasis and alleged VCA had engaged in securities fraud.

The loss shows that mistakes made during the dot-com bubble continue to have an impact on companies not otherwise known for risky investments. It also serves as an example of how a top executive can rely on the deep pockets of his own company to fund a business that so far has failed.

"I think it would be fair to say that VCA or Bob (Antin) liked to look for opportunities," said Dr. David Aucoin, vice president of development at Zoasis and a former veterinarian at the company's flagship facility, West L.A. VGA Animal Hospital.

Still, Antin enjoys the backing of business associates.

"VCA is an extremely well-managed company and Zoasis was just a spin-off that they got burned by," said Dr. Richard Gebhart. Antin purchased the Westwood practice of Gebhart and Pat Sevedge in 1986, and from there turned VCA Antech into the largest veterinary practice in the world.

For the first quarter, VCA Antech reported net income of $5.2 million, compared with $5.6 million for the like period a year ago. The latest results included a charge of 11 cents per share for debt repayment. Excluding the charge, net income would have risen to $9.6 million, or 24 cents a share.

Revenues rose 11 percent, to $116 million, and VCA Antech raised its earnings guidance for the rest of the year. The stock has risen 13 percent in the past year, closing on May 1 at $16.78 a share.

Antin dismissed concerns about Zoasis, calling the Internet start-up "irrelevant" and "a pimple," based on its size relative to that of VCA.

The company said that in response to its strong performance in the first quarter, it projects net income in the range of $37.9 million to $38.9 million for 2003, up from a previously announced range of $36.5 million to $37.5 million. Its earnings per share guidance was raised to 95 cents from 91 cents.

Cost-cutting attempt

The start-up was created to resolve a major business problem facing Antech Laboratories, one of three VCA divisions and the unit that provides lab services to 13,000 veterinary clinics nationwide.

Antech Labs was trying to cut the costs it incurs faxing between 25,000 and 30,000 individual lab reports every day to clinics and hospitals throughout the U.S. Zoasis aims to deliver lab reports electronically, not just to lower costs but also to reduce the turnaround time of much-needed lab results.

Veterinarians rely heavily on lab reports to determine a medical course of action for their animal patients. The lab results are typically faxed en masse to veterinarians in the wee hours of the morning, and there are often problems due to logjams and other factors.

Already, VCA relies on a cadre of transportation options, from FedEx drivers to couriers, who pick up lab samples from animal hospitals nationwide and deliver them to one of 21 laboratories for testing.

"I can hire all these guys and use a FedEx plane, get the samples to the lab and run the machines fast, but how do I get the results back to the clinician?" asked Aucoin.

Zoasis started a rollout with VGA-run hospitals and has been training them to use its Web site to access lab results. So far, 1,600 hospitals and clinics nationwide are accessing the results through its web site and a full rollout is expected by this summer.

In the meantime, Zoasis has been throwing off some positive cash flow through a marketing arm called Healthy Pet, which sends out reminder notices to pet owners. It also is building an online purchasing site where veterinarians can buy gauze, gloves, needles and drugs online and get all the invoices pooled electronically.

If the start-up turns around, it will be a boon to Antin, who is Zoasis' majority shareholder.