Lifeblood in a Tiny Market : Serex Banking on Plasma With Its Stock Offering

Doctors can help patients with a certain disease, such as hepatitis, by injecting the patients with a solution containing antibodies that have come from a donor who has had the same disease and built up an immunity to it. By passing the antibodies along, the idea is that the immunity gets passed along too.

But where do the doctors find such donors?

Enter Serex International, a tiny Van Nuys company that is essentially a legman for the medical profession. Serex hunts down the few donors who have the antibodies, buys their blood plasma (the liquid portion of blood that contains the antibodies) and then sells the plasma to traditional drug companies and laboratories. They further treat the plasma to create the antibody-laden solutions injected into other people. Serex also sells plasma to biotechnology companies that are trying to come up with new drugs.

Serex and its competitors thus fill a needed, but quite small, market in the medical business world. In its fiscal year that ended May 31, Serex earned $158,835 on sales of only $1.3 million. One of Serex’s main rivals in the Los Angeles area, MD Laboratories, which last week was bought by HemaCare Corp. in Sherman Oaks, is even smaller, with annual sales of about $800,000.

Common Shares

Nonetheless, 10-year-old Serex last week announced plans to go public by selling 500,000 common shares. In a filing with the Securities and Exchange Commission, Serex proposed selling the stock for $5 a share and, after subtracting underwriting commissions and other expenses, hopes to raise $2.13 million.

Serex officials, including the founder and chairman, Dr. Gino Iovine, declined a request for an interview. They cited an SEC regulation--the “quiet period” between the time a stock offering is announced and its actual sale--that forbids the company selling the stock from making any statements that could be interpreted as touting it.

The prospectus alerts any would-be investor to one of the big risks for Serex stockholders. While the company has a high profit margin per dollar of sales, two of its customers account for 71% of the company’s sales. Small companies with only a few important customers must always worry about suffering a sharp reversal in fortunes if a customer takes its business elsewhere.

Cutter Biological Corp. in Berkeley, a division of Miles Inc., which in turn is owned by Bayer AG of West Germany, is one of Serex’s two main customers. The other is a Swedish company, Plasma Procurement KABI.

Serex’s prospectus states that the company intends to use the cash from the offering to expand or relocate its plasma operations, and to fund research and development projects that presumably could attract new customers. Among other things, Serex is developing new kits to rapidly detect syphilis from skin lesions and blood samples.

Specialty Operation

But Serex does not yet have any of those products on the commercial market, and for now it must rely on its specialty plasma operations.

Major pharmaceutical companies, such as Abbott Laboratories and Baxter International, which process the special plasma into medicine, rely on Serex, MD Labs and dozens of other small firms nationwide to locate donors. It isn’t easy to find the limited number of people whose plasma has the valuable antibodies, and the big drug companies don’t find the effort worth their while.

People carrying the antibodies are “a tiny percentage of the population, and you can’t just line up people and run them through the lab” looking for the few needed donors, said Thomas M. Asher, HemaCare’s chairman and a former business partner with Iovine. So Serex, MD Labs and the others search medical records and talk to hospitals and doctors to find donors.

Once Serex finds a donor, the person typically gives Serex two pints of blood twice a week at Serex’s facilities, perhaps for a year or more. Serex said it has about 75 donors, and the people really don’t donate at all. They are paid an average $75 a visit, or $7,800 a year.

(Actual blood donations often are made at blood banks, such as those operated by the American Red Cross and other tax-exempt organizations.)

Plasma Separated

After Serex acquires the blood, it uses a centrifuge to separate the plasma from the red blood cells. The red blood cells are then mixed with a saline solution and transfused back to the donor. Serex gets about one pint of salable plasma from every two pints of whole blood. The plasma is frozen until it is sold to Cutter or another customer. Prices average about $325 per pint of plasma, Serex’s prospectus said.

Asher said the drug companies and research laboratories “are always looking” for special plasma to process into medicines. So why aren’t Serex or MD Labs much bigger? Because a little bit of rare plasma goes a long way in medicine, and customers “buy it in one-liter and two-liter amounts,” he said.

Cutter, for instance, buys “many hundreds of thousands of liters” per year of more “standard” blood plasma that Cutter uses to produce less exotic medicines, Cutter spokesman Bud Modersbach said. But Cutter buys only “hundreds of liters per year” from Serex, he said.

According to the prospectus, Iovine, 60, earned a doctorate in biology from New York University and his medical degree from New York State College of Medicine. He is an associate medical director at Olive View Medical Center in Sylmar, a Los Angeles County facility, where he has worked since 1956.

Former Partners

HemaCare’s founder Asher and Iovine are now competitors, but at one time they were partners. In 1968, Asher and Iovine co-founded a plasma-products company called Immuno Science Corp. A decade later, by which time the company had gone public, Immuno Science was sold to Johnson & Johnson for $11 million. Asher declined to say exactly how much he and Iovine made in the sale, but acknowledged that “we certainly felt no pain from the whole thing.”

Iovine and Wayne Kohli then started Serex in 1979 while Asher went off to start HemaCare, which provides a variety of blood-related services. But about five years ago, Iovine and Kohli “had a falling out,” Kohli moved to MD Labs and now the two are competitors, Asher said.

Iovine owns 27% of Serex’s common stock, a stake that would be diluted to 19% if the public offering goes as planned. The stake also would give Iovine’s holdings a paper value of $1.6 million if the stock sells for $5 a share.

Because special plasma with antibodies can help hepatitis patients and patients with other diseases, the question arises: Could the process one day help patients with acquired immune deficiency syndrome?

Asher said there are experiments under way whereby antibodies are being taken from selected people with the early stages of AIDS and injected into other people “with full-blown AIDS” to see if the antibodies curb the disease.

But Asher hasn’t been in the blood business for 20 years without learning how to size up the odds. An AIDS breakthrough that would benefit his business “is a big if,” he said.