BLUD, good article:
New America section, April 25, 2002, page a6
by Gloria Lau
Say you get in a car accident and end up in the hospital, needing a blood transfusion to survive.
As you might expect, it's safer to get the blood transfusion than to chance not receiving the needed blood at all. The risk of contracting HIV through a blood transfusion is only one in 1.5 million.
The reason it's so low is that blood banks are required to screen donated blood for potential diseases before it can be given to patients. In testing the blood, there's a good chance their technicians use desktop machines and chemical reagents made by Immucor Inc.
The firm makes and sells more than half the machines and reagents used in the U.S. by blood banks, hospitals and others to screen not only for blood type and group, but also to detect diseases.
Immucor estimates its market share at 54%. Johnson & Johnson's Ortho Clinical Diagnostics unit controls the rest of the market.
Immucor's machines and reagents can determine a patient's blood group - A, B, AB or O - and if he or she is Rh positive or negative. They can also screen blood for antibodies. And its reagents can perform various tests, including the three required before every blood transfusion: ABO Group, Rh Type and Antibody screening.
Price Hikes
Blood banks pay less than $2 to conduct the tests on one patient. That might seem low, but it's not. Immucor has raised some prices as much as 300%.
Even so, Immucor Chief Executive Ed Gallup says, prices are still about the same as if he'd raised rates as little as 4% a year over the last two decades.
Fifteen years ago, 14 companies competed in the U.S. blood bank testing business. To compete for clients, many slashed their prices so low that smaller firms couldn't make money and ended up shutting down. Other weakened firms succumbed to acquisition.
"If you saw a graph of the cost of production going up alongside another graph showing the sales prices dropping, it was easy to see that we needed to increase our prices to stay in business," Gallup said.
By 1998, Immucor, Ortho and two smaller firms were left standing. Immucor ended up buying the two smaller players.
"That ended the vicious cycle of customers asking (blood testing companies) for multiple bids - each one at a lower price point," Gallup said.
Margin Improvement
One benefit of higher prices is that gross profit margins are on the rise. Its margins were 57% during the fiscal second quarter ended in August, up from 42% two quarters earlier.
Analyst John Howard of New York-based boutique investment bank TM Capital expects margins to continue improving slightly through the year.
"Generally speaking, gross margins of 55% to 60% are enviable," said Howard, the only sell-side analyst covering Immucor.
Most of the firm's clients buy through the nation's four largest group-purchasing organizations, or GPOs.
When each of the GPOs' contracts with Immucor recently expired, the firm succeeded in passing along steep price hikes.
Immucor doesn't plan any major price increases again soon.
"The GPOs and people close to the business weren't really surprised by the price increases," said Gallup, explaining why clients accepted the big price hikes. "They knew what we'd gone through. By then, they'd already seen 12 companies exit the business. They knew we had to be profitable to stay in the business."
Immucor has been profitable for most of the past decade. It did hit a bump in the road during fiscal 2001, however, when a restructuring at the firm led to a 26-cent loss for the year.
But the company has turned a profit the last three quarters. It earned 32 cents a share during the fiscal third quarter ended Feb. 28. That was up from a 13-cent loss the prior year. Revenue gained 25% to $21.1 million.
Growth Driver
Immucor's blood-screening machines sold in the U.S. range in price from $90,000 to $160,000. Another system, which costs $120,000, is approved for sale in Europe but not here.
About half of Immucor's 250 clients - mostly blood banks and hospital blood departments - buy the machines upfront and also buy reagents to run the tests. Most of the others lease the machines and buy reagents to run the tests.
The key to sales growth in the business is placing more machines in blood banks and hospitals. Immucor's reagents can't be used with rival machines. So placing a single system leads to reagent sales of $50,000 a year for about five years.
Some rivals let clients have the machines for free and charge for only the reagents, which are disposable and bring in higher profit margins.
But only four of Immucor's 250 clients have that kind of deal, Gallup says.
"It's not our strategy," he said. "It's not a bad idea for a very large company with plenty of cash. But a smaller company - to give away product and sit and wait for a return over a five-year period - it's far too capital-intensive." |
