Immucor Inc./Norcross, Georgia - IBD Monday, June 7, 1999
New System Automates Hospital Blood Tests
By Philip Michaels
Investor's Business Daily
Edward Gallup wants to take hospital blood banks to a new frontier.
Unlike other hospital labs, blood banks still do most of their testing by hand. Technicians mix blood samples with reagents to discern the blood's composition. These tests ensure that patients get the right kind of blood, as well as weed out diseased samples.
The testing is labor-intensive, making blood banks inefficient and costly.
"They are the last horizon of the lab that has not been automated," said Gallup, president and CEO of Immucor Inc.
The reagent maker wants to lead the charge in automation. To that end, it has developed the ABS2000, the first fully-automated instrument for serology testing in hospital blood banks.
The ABS2000 won regulatory approval last July. It joins two other Immucor testing systems, the Rosys Plato and the Dias Plus. These two semi-automated systems target higher-volume labs. ABS2000 is designed for hospitals with 50 to 400 beds.
"They really now have a full line of automated instruments from extremely high volume to medium volume and low volume," said David Rogers, director of equity research at Marion Bass Securities Corp. in Charlotte, N.C. "The diversity of their product offerings is pretty impressive."
That's key because Immucor makes the only reagents that work with its systems. "We get 'razor-blade' sales with all three," Gallup said.
An ABS2000 unit, for example, can generate $18,000 to $25,000 in annual reagent sales. For each Dias Plus recurring revenue can top $100,000.
"If you sell an instrument, you're going to sell more reagents," Rogers said.
And that's a profitable business. While Immucor enjoys 50% gross margins on instrument sales, its margins on reagents range from 65% to 70%.
The market potential is greatest for the ABS2000. Immucor believes there are 2,500 potential placements in the U.S. The Rosys Plato and Dias Plus face smaller market opportunities, but can bring in more recurring revenue.
Immucor has just placed its 50th system, Gallup says, putting it "right on track with what we said we'd do."
In its Feb. 28 third quarter, the company earned 13 cents a share, more than double the 6 cents it earned a year before. Sales rose 65% to $16.8 million.
The biggest obstacle to Immucor's vision is that no one knows how fully the market will accept automation. The company will have to sell its hospital clients on the potential for cost savings and better productivity.
Gallup believes Immucor can do it. He points to clinical studies of the ABS2000 that show greater accuracy and productivity from an automated system.
That can lower operating costs for blood banks. Without automation, the blood serology testing market faces manageable expenses of $1.5 billion a year. Labor makes up about 66% of the costs. Reagent sales make up 18%
If the industry were to automate, its total manageable expenses would fall to $1.2 billion, cutting labor 46%.
"Lab managers and administrators are in favor of automation because they've seen what automation has done in other labs," Gallup said.
Immucor has good reason to back automation as well. It would expand the company's potential market to $425 million from $265 million.
After a recent spate of acquisitions, the company is one of the few players left to vie for the market. The company bought Gamma Biologicals Inc. for $25 million in the fall. At the time, Gamma was the No. 3 player in the U.S behind Immucor and Johnson & Johnson's Ortho Diagnostics unit.
Integrating Gamma should lead to first-year savings of $3 million, Gallup says. That could increase by another $1 million next year.
Immocur also bought the Biopool International Inc.'s blood bank unit in April. It paid $4.5 million.
By buying Gamma and the Biopool unit, Immucor took two key rivals out of the market. That increases the company's leverage on pricing.
"There are only two players now with a complete line of FDA-approved reagents - J&J Ortho and us," Gallup said. In Europe, Immucor also competes with DiaMed, a privately held Swiss firm.
But the company is the only player with a fully automated system. Thanks to regulatory barriers, it has at least a two-year lead. "They have a big head start on true automation, and I think that's going to thrust them to the front of the market," Rogers said.
The company expects to report earnings of 41 cents a share for fiscal 1999 ended May 31. That's a 64% jump from fiscal 1998. It expects sales to rise 45% to 58 million. Gallup is confident Immucor will hit those targets when it reports year-end results in July.
For fiscal 2000, the company projects earnings will rise 59% to 65 cents a share on sales of $80 million. Immucor trades as BLUD near 12. |
