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HemaCare Hopes for Best After Suit Against Red Cross

HemaCare Hopes for Best After Suit Against Red Cross Corporate Focus By JACQUELINE FOX Staff Reporter Sherman Oaks-based HemaCare Corp.’s stock price has been in de-listing territory since 1998 and profits have fallen off significantly over the last several quarters. Net income for the three months ending Sept. 30, 2001 was $5,000 on revenues of $6.4 million, compared to net income of $301,000 on revenues of $5.3 million for the same quarter in 2000. So, on paper the 24-year-old company, which provides blood and blood services to hospitals in 14 states, looks like a lot of other businesses experiencing hard times. However, changes in the blood business are beginning to open doors for the company and are threatening to break a monopoly long held by the American Red Cross. And while revenues remain strong, HemaCare’s profits have been eaten up by expenditures the company has made to accommodate the changes, including securing two new contracts in the last 12 months. In February of 2001, the company signed an agreement with Children’s Hospital of Chicago to set up a blood services program there. This month Albany, N.Y.-based St. Peter’s Hospital took on HemaCare as an additional blood services vendor and, for the first time, stripped the Red Cross of its exclusive relationship with that facility. Dr. Lisle A Eaton Jr., medical director of transfusion services for St. Peter’s, said the hospital has always wanted its own blood center but has been thwarted by stringent New York state laws and a reluctance to take business away from the Red Cross. “I think there’s been a big unwillingness to stray from (using the Red Cross) because they are so much more to the people in this country than just blood providers,” said Eaton. “It’s kind of like kicking apple pie and all that is good right in the teeth.” HemaCare executives, however, have not been as reticent about challenging a sacred cow like the Red Cross. In fact, the company filed its second lawsuit against the nonprofit in 2001, charging it with setting artificially low prices to secure exclusive contracts with hospitals like St. Peter’s. Alan Darlington, HemaCare executive chairman, said the suit forced the Red Cross to change its pricing structure and gave hospitals new options to work with. Julie Juliusson, communications manager for the Red Cross’ Southern California region, said she couldn’t comment on the changes at St. Peter’s or elsewhere due to the pending litigation. Eaton said HemaCare’s prices are competitive and, since threats of blood shortages are an ongoing concern, having an alternative is comforting. “We think the Red Cross has done a great job, but there’s a constant shortage or a constant fear of shortage for us here,” said Eaton. “We haven’t exactly had to cancel things but, by the same token, we don’t have the luxury of knowing if we are going to have enough product from one day to the next.” Similar deals for HemaCare are on the radar and, as a consequence, additional start-up expenditures will follow, probably cutting into profits for some time. But this, Darlington said, is exactly the kind of growth the company has spent years positioning itself for. “What’s finally happening is the structure of our company is changing fundamentally as a result of the new business,” said Darlington. Darlington said the company is poised to boost its stock, trading at 95 cents a share on March 15, back up to the $3- to $4-range this year. Net income for 2000, the last full year reported, was $4.4 million on revenues of $21.5 million, compared to net income in 1999 of $1 million on revenues of $19 million. Fariba Ghodisian, an analyst with Roth Cap Partners in Los Angeles, agreed the blood market is on the cusp of sweeping changes that are certain to give Red Cross more competitors. “Blood is a business, it’s like a pharmaceutical product,” said Ghodisian. “So you could argue that we should have more competition there already. You would also think there would be more regulation in the market and I wouldn’t be surprised to see some of that come along.”

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