Oceanside's SeraCare gets Wall Street's attention

By: BRADLEY J. FIKES - Staff Writer | Saturday, August 27, 2005 8:53 PM PDT ∞

OCEANSIDE ---- SeraCare Life Sciences became a public company at one of the worst possible times, just days after the Sept. 11, 2001, terrorist attacks. But since that untimely debut, Oceanside-based SeraCare has turned in a sizzling performance.

The headline on a flattering profile at SmartMoney.com (tinyurl.com/9ket2) says it all: "Boring Biotech, Sexy Stock."

Boring refers to SeraCare's business model. SeraCare doesn't make its money by developing attention-getting products such as a new cancer drug. Instead, it makes tools that help companies develop such drugs. SeraCare's products are such biotech staples as human and bovine blood serum proteins, live cells, antibodies and a host of other life-derived products the industry calls "biologicals."

Sexy refers to the company's finances. Its stock has risen more than fourfold during its brief history. SeraCare traded last week for about $15.50 per share, up from about $2.90 per share in late September 2001.

This summer, SeraCare stock, which trades on Nasdaq under the symbol of SRLS, reached an all-time high of $16.68. In May, the company held a $50 million stock offering, with $42 million going to the company. The rest went to selling shareholders.

SeraCare's rise is even more impressive when measured by its total stock value, or market capitalization. SeraCare was valued at $28.2 million when it was spun off by its parent company, SeraCare Inc., on Sept. 26, 2001. Today, the company is valued at $211 million. That's 7.5 times the value it had at spinoff, less than four years ago.

"We had approximately 20 employees and $9 million in (annual) revenue" at spinoff, said Michael F. Crowley Jr., SeraCara's president and chief executive, who has headed the company since its spinoff. By comparison, SeraCare took in $14.2 million in revenue just for the quarter ended June 30, and employs 250 people.

Most employees work at SeraCare's four East Coast facilities, two in Maryland and two in Massachusetts. These do most of the manufacturing. About 50 employees work in the 20,000-square-foot Oceanside headquarters, which is mainly devoted to administrative functions.

And SeraCare is profitable, a rarity in biotech. The company earned $1.9 million, or 16 cents per share. In the same quarter a year ago, it earned $900,000, or 10 cents per share.

From serum to mad cow disease

SeraCare's strategy is to be a "facilitator for research engines," said Stephen Brozak, president of the Rancho Bernardo-based research firm Westfield Bakerink Brozak LLC. That means SeraCare looks for the latest results in research and uses the latest technology to turn research into products, as with the BSE test.

"The key here is they have the expertise and relationships to provide all the biological components, and they have state-of-the-art systems so they can guarantee delivery," said Brozak, who works in the company's New Jersey office.

SeraCare is steadily increasing its product offerings. It recently began selling recombinant human insulin for use in biological research.

SeraCare's catalog also includes genetic material from HIV, the virus that causes AIDS; human serum albumin; and white blood cells called T cells. In addition, SeraCare stores 12 million frozen or chilled biological specimens for government and business customers.

SeraCare got a lot of attention in February when it announced that it had filed a patent on a test to screen cattle for mad cow disease (technically known as bovine spongiform encephalitis, or BSE), and to diagnose humans for a related ailment, Creutzfeldt-Jakob disease. These diseases are believed to be caused by infectious protein particles called prions that attack the brain.

Typically, mad cow disease is detected in postmortem examinations. SeraCare's blood test can detect the disease-causing prions in living animals and humans. A prototype is expected to be available within six months.

Respect, recognition

Even a market value about $200 million places SeraCare among the small fry of the biotech world. The biggest biotech companies, such as Genentech, Amgen and Biogen Idec, measure their market values in the tens of billions of dollars. Carlsbad's Invitrogen Corp., the most highly valued North County-based biotech, is valued at more than $4.3 billion dollars.

Not surprisingly, fewer than a handful of analysts follow SeraCare stock. But the BSE test announcement in February sparked notice. Since then, four firms have started coverage: William Blair, on June 7; CIBC World Markets, on June 22; Thomas Weisel, on July 11, and WBB. The first three took part in the May stock offering. WBB did not take part in the offering, but had a minor role in the spinoff, Brozak said.

Brozak said he is impressed by SeraCare's ability to grow so rapidly with a diversified mix of products and customers.

"I think they've been exceptionally adroit in making acquisitions," Brozak said. These include two divisions of Boston Biomedica Inc. in April 2004; and Genomics Collaborative Inc. of Cambridge, Mass., in June 2004.

While the potential for profit is less by this "picks and shovels" strategy, the risk is much less than for companies that go for the gold, Crowley said. That's because SeraCare makes its money upfront. Companies that develop drugs typically spend money upfront, in hopes of turning a profit when and if the drug is approved for sale.

Crowley said he emphasizes purchasing companies that are, in accounting jargon, "accretive" to earnings. That is, the purchases are money-making companies that immediately add to profits.

Brozak said that adroitness extends to SeraCare's cultivation of its customer base.

"They're partnering with large pharma, with everybody," Brozak said.

None of SeraCare's customers represent more than 4 percent of total sales, he said. That means SeraCare will only be mildly harmed if a customer reduces its orders, reducing its risks.

To look at it another way, Brozak said, SeraCare has hitched its growth engine to the growth of the biotech industry as a whole. It's difficult to see SeraCare taking a significant hit to sales with its current customer mix, he said, unless there's an industrywide downturn in demand.

Fast study

Crowley, 37, came to San Diego County as a teenager, when his family moved to Fallbrook. Previously, his family had lived in several locations, including London and Helsinki, Finland. After high school, Crowley steered toward business in his education, first at the University of San Diego, and later through executive management classes at UC San Diego and UC Berkeley.

Although new to the job of running an independent company, Crowley had developed a business philosophy that has served him well. One element is to bring in good people, because you can't do everything. The other is to train employees to work to high standards of quality. He said his goal is to create a company that customers want to do business with, a company that stands out from competitors who are trying to do pretty much the same thing.

Crowley is a fast thinker on his feet; in a North County Times interview, he gave quick, to-the-point answers to a wide range of questions about the company.

But education and agility only goes so far. Crowley said it's actual experience on the job that's most valuable.

"The important part is to surround yourself with senior management that supports you, and not try to be a one-man shop," Crowley said.

As SeraCare began acquiring other companies, Crowley brought in professional management to help direct the company's growth and keep tabs on the East Coast operations. The most recent hire, in May, is Craig Hooson, as chief financial officer. Hooson joined the company from MedImmune Inc., a $6.6 billion biotechnology company based in Gaithersburg, Md. Hooson remains in Maryland, the better to supervise SeraCare's facilities there.

Crowley stamps his emphasis on quality control through the company. He has stated the principle in a creed that all SeraCare employees are required to learn. The statement, signed by Crowley, appears throughout SeraCare's headquarters on Avenida Del Oro, just north of Oceanside Boulevard.

Growth mode

SeraCare's history goes back to a family-owned biotechnology distribution company, The Western States Group, Crowley said. The company, founded in 1984, had already been based in Oceanside when it was bought by SeraCare Inc. After the spinoff, the company found no reason to move.

Oceanside was not only close to his home, but is "an easy environment to work in," Crowley said.

"The city is helpful when needed, and the rents were very reasonable," Crowley said, lower than in Carlsbad.

But although the location remained the same, SeraCare changed its business model rapidly once it was independent. At first, it was only a distributor of biological products.

"We started a strategy of manufacturing our own products here in Oceanside, and we started an M&A (mergers and acquisitions) program," Crowley said.

As part of the company's growth, SeraCare will begin looking for larger headquarters in about a year, Crowley said. Where that will be is a business decision, he said, although he would like to remain in Oceanside.

"We're open. Honestly, our main goal as a public company is to create shareholder value," Crowley said. "We will create that shareholder value, and hopefully, it's in Oceanside."

Contact staff writer Bradley J. Fikes at (760) 739-6641 or bfikes@nctimes.com.