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Lab Leader Makes Exit

Tonya Mallory’s resignation as chief executive of HDL dashes the Richmond business world’s hopes for a rising star.



The posh Queally Hall at the University of Richmond's Robins School of Business was supposed to have been packed this morning with students and local business leaders for a "C-Suite Conversation" with Tonya Mallory, perhaps the area's most highly regarded corporate executive.

But about 5 p.m. yesterday, the Robins School sent out an email saying that Mallory's presentation was postponed. A few hours before, she'd resigned as chief executive officer of privately held Health Diagnostic Laboratory, telling employees she was leaving to help her brother run his business.

Mallory will remain as a board director and adviser, with Joe McConnell, an HDL co-founder and chief laboratory officer, taking over as chief executive.

Since co-founding the company in 2008 and watching it grow exponentially, Mallory has been hailed as a model of the kind of technology-oriented success that Richmond badly wants to produce. She grew up in Hanover County, was involved in groundbreaking work diagnosing disease through laboratory tests, ran a $100 million building in the Virginia Biotechnology Research Park downtown -- and was female, to boot.

Although the company denies the connection, it has been caught up in accusations that it was paying what might be construed as kickbacks of $20 per blood sample that doctors supplied to it for testing. HDL was one of several flagged by the federal Department of Health and Human Services, which is looking into unfair billing practices in health care testing.

HDL was notified it was part of the probe in July, but the Wall Street Journal broke it loose Sept. 8 in a front-page article quoting former workers who questioned how the company operated. In seven years, the firm grew from a start-up to a big lab with $383 million in revenue. Medicare accounted for 41 percent of that, the Journal reported.

The company vigorously has denied wrongdoing. It changed its procedures to drop $17 of the blood sample fee that was called "processing and handling." Medicare routinely pays only $3 per blood draw. The company also decried the Journal's quoting of former employees, saying they were disgruntled.

The Journal story "paints a highly distorted picture of our company and our work," the company said. "In particular, HDL, Inc. vehemently disagrees with any insinuation that payments to doctors were an inducement, or that the payments were illegal or known to violate any law."

The Journal piece also brought up other information about HDL and Mallory that hadn't been widely circulated in Richmond. Virginia Business magazine, for example, published a glowing cover story in December naming her the 2013 Virginia Business Person of the Year.

The piece noted her childhood in Doswell and her hard-working nature that had her lying on a job application when she was 13 so she could work at Kings Dominion. She labored with nighttime jobs to pay her way through Virginia Commonwealth University and earned bachelor's degrees in biology and chemistry and a master's degree in forensic science.

One of her early jobs was for a Japanese company that told her that because she was a woman younger than 50 she wouldn't advance in the firm. She ended up working for Berkeley HeartLab, a San Francisco-based diagnostic laboratory. From 2005 to 2008, she shuttled between East and West coasts to help build a Richmond-based lab. That project came to an abrupt end when Berkeley was bought by Celera Corp.

Mallory stayed in Richmond and with some Berkeley co-workers created Health Diagnostic Laboratory. "She's been a terrific champion of research and commercialization of innovation and entrepreneurship," Jeffrey Gallagher, executive director of the Virginia Biotechnology Association, told Virginia Business.

But two years after the company was created a major problem arose. Celera, which had bought Berkeley HeartLab, sued Mallory and six others for $6 million in 2010.

The lawsuit alleged that Mallory was employed by Berkeley until October 2008 as a senior manager of lab operations. In that role, Mallory had access to its confidential and proprietary information, including information relating to the manufacture and processing of proprietary lab tests.

"On information and belief, HDL has not expended any significant resources in developing these materials on its own to support its business; rather, it has simply stolen those of BHL."

Among other complaints in the lawsuit was that HDL had pirated key salespeople from Berkeley. The company settled the suit for about $7 million, acknowledging no wrongdoing.

To be sure, Berkeley HeartLab also is among the several laboratory diagnostic companies being investigated by federal authorities for possible kickback practices and other billing irregularities.

But Mallory's absence at the University of Richmond this morning was a stunning reversal for the Richmond business community's hopes that it finally created the biotechnology champion it was looking for.

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