Special thanks to IBD Online for the following article:
SEROLOGICALS CORP. Atlanta, Georgia
Acquiring, Upgrading Plasma Collection
Centers
Date: 2/6/97
Author: John Zmirak
Some poets say it's easier to excel at sonnets than at free verse. Some
boxers prefer a stricter referee. And some companies grow best in a highly
regulated market, while others wither.
Serologicals Corp. thrives in the closely supervised world of
pharmaceuticals, collecting antibodies from human blood plasma for major
drug firms such as Bayer Corp. and Baxter International Inc. They use
antibodies in the diagnosis and treatment of diseases like AIDS, rabies and
hepatitis.
The company recruits, tests, and pays plasma donors at 42 centers
nationwide. But long gone are the days when plasma centers accepted
busloads of prisoners, said Serologicals CEO Harold Tenoso.
''Most of our donors for specialty antibodies are women with roots in the
community. We screen blood carefully and screen donors for signs of
high-risk behavior. We ask a lot of personal questions,'' Tenoso said.
The Food and Drug Administration regulations on plasma and blood
collectors have grown much stiffer in the last decade - driven by such
tragedies as the use of AIDS-infected clotting factor on hemophiliacs in
France.
''The FDA has been clamping down on donor centers,'' said analyst David
Steinberg of Volpe, Welty & Co. ''They have increased inspections and
enforcement. FDA shut down one facility that was sending out cracked test
tubes and tainted blood.''
FDA now sends out warning letters for lesser violations, such as those
found at one Serologicals center during 1996 - which led the company to
close that location for five days and hire two new doctors.
The clampdown should help Serologicals, Steinberg said. ''The
mom-and-pop plasma facilities are finding it prohibitive to keep up with
new regulations. Many of them are going up for sale - and Serological is
buying,'' he said.
In 1994, while the company was still privately held, it added 16 of the
smaller centers and then three more in 1995.
After its initial public offering in June 1995, Serologicals continued buying
small plasma- collection sites. It added 11 in '96. ''We still maintain an
aggressive acquisitions posture,'' Tenoso said.
Consolidation is the current key to Serologicals' growth, said analyst
Robert Wasserman at Southeast Research Partners Inc. in Boca Raton,
Fla.
''Without new acquisitions, I think their growth is bound to slow. They've
bought up plenty of plasma collection centers - there are only so many left.
Eventually, their growth will have to come from upgrading existing centers,''
he said.
Serologicals already has begun upgrading its new centers. Most of them
have previously focused on collecting intravenous immune globulin, or
IVIG, antibodies - a low-margin product.
Tenoso is expanding the centers' expertise to harvest more expensive
antibodies. These are: Anti-D antibodies, used to combat Rh
incompatibility between expectant mothers and their unborn babies;
anti-rabies immune globulin; and immune globulins that protect against
hepatitis A and B.
Gross margins on such antibodies typically exceed 50%, compared with
22% on IVIG. Tenoso called upgrading centers ''central to our strategy.
But it is time-consuming.''
A full-scale upgrade takes at least 24 months. When there aren't sufficient
donors with naturally occurring antibodies, some donors are vaccinated, or
hyperimmunized, against a virus, so as to produce needed antibodies for
collection.
Some antibodies are also produced ''monoclonally'' - by cloning cells in the
laboratory without donors. Serologicals has devoted its Scottish operation
to pursuing monoclonal antibodies.
It is costly to hyperimmunize a donor with the needed antibodies and guard
against contaminating diseases. It may require 12 donations before a
donor's plasma repays the company's upfront costs.
So retaining donors is at the heart of the blood business. And here
Serologicals excels, according to Steinberg. ''Over 25 years, Serologicals
has learned 'trade secrets' useful in attracting and managing donors,'' he
reported. ''Many people have been active donors for more than 10 years.''
In the third quarter ended Sept. 29, revenue increased to $15.8 million
from $13.6 million a year prior. Net income jumped 38% to $2.2 million
from $1.6 million. Earnings per share rose 16% to 22 cents from 19 cents
on more shares outstanding.
In June, the company made a secondary stock offering of 900,000 shares,
bringing the total outstanding to almost 10 million. Steinberg predicts annual
earnings growth to continue at around 30% through 1998. Serologicals
trades as SERO around 30.
(C) Copyright 1997 Investors Business Daily, Inc.
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