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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file Number: 0-26126

SEROLOGICALS CORPORATION

(Registrant telephone number including area code) (678) 728-2000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

          The aggregate market value of the shares of common stock held by non-affiliates (based upon the closing sale price on The Nasdaq Stock Market) on June 29, 2003 was approximately $337,681,434. As of March 4, 2004, there were 24,839,399 shares of Common Stock, $0.01 par value per share, outstanding.

Documents Incorporated by Reference.

          Portions of the definitive proxy statement for the Registrant’s 2004 Annual Meeting of Stockholders (which will be filed pursuant to Regulation 14A within 120 days of the close of the Registrant’s fiscal year ended December 28, 2003) are incorporated by reference into Part III.

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PART I.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K contains certain “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 about Serologicals Corporation and its subsidiaries (collectively, “Serologicals” or the “Company” or “we” or “our” or “us”) that are subject to risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements may be identified by the use of words such as “may,” “will,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “believe,” or “continue” and other words of similar meaning or future or conditional verbs such as “will,” “should,” “would,” and “could.” Forward-looking statements include discussions of our expected business outlook, future operations, financial performance, pending acquisitions, financial strategies, future working capital needs and projected industry trends, as well as our strategies for growth, product development, regulatory approvals and compliance, market position and expenditures.

      Forward-looking statements are only predictions and are not guarantees of performance. Forward-looking statements are based on current expectations of future events and are based on our current views and assumptions regarding future events and operating performance. These assumptions could prove inaccurate, or unknown risks or uncertainties could materialize, which could cause our actual results to differ materially from our expectations or predictions. Many of these factors are beyond our ability to control or predict.

      All forward-looking statements contained in this Annual Report on Form 10-K are qualified in their entirety by reference to the factors discussed throughout this Annual Report. The following cautionary statements identify important factors that could cause our actual results to differ materially from those discussed in the forward-looking statements made in this Annual Report. Among the factors that could cause our actual results to differ materially are:

	•	the risks and other factors described under the caption “Cautionary Statements” in this Annual Report;
	•	our ability to implement our growth strategy;
	•	our ability to manage our growth and expansion;
	•	our ability to raise capital;
	•	our ability to find acceptable acquisitions in the future and to integrate and manage them;
	•	our ability to compete effectively within our industry;
	•	our dependence on the success of the customers of our EX-CYTE® product in developing and marketing existing and new drugs using the product;
	•	our ability to complete construction and validation of the new EX-CYTE® manufacturing facility during 2004;
	•	our ability to attract and retain qualified scientific and production personnel;
	•	our ability to comply with regulatory, customer and industry regulations and guidelines;
	•	our ability to identify new commercial product opportunities;
	•	our ability to protect our intellectual property;
	•	our customers’ dependence on research budgets and government funding, which may be reduced;
	•	the effect on our results of operations of the loss of any significant customers or reduced orders from significant customers, including reductions or delays in research and development budgets and in government funding; and
	•	adoption of or changes in, domestic and foreign laws and regulations that could affect our ability to maintain existing licenses and approvals.

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      You should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any of them in light of new information or future events. The factors listed above (in addition to other possible factors not listed) could affect our actual results and cause these results to differ materially from those expressed in forward-looking statements made by us or on our behalf.

General Developments of Our Business

      The Company was founded in 1971 in Florida and was incorporated under the laws of the State of Delaware in 1994. The Company’s principal executive offices are located at 5655 Spalding Drive, Norcross, Georgia, and its telephone number at this address is (678) 728-2000.

      We have made a number of acquisitions and dispositions that have transformed the Company from a therapeutic plasma collection company to a global provider of biological products and enabling technologies to the life science industry:

	•	In 1989, Serologicals expanded its blood typing supply capabilities through the acquisition of Bioscot, Ltd. of Edinburgh, Scotland. Now named Serologicals Ltd., this subsidiary operates an FDA-licensed monoclonal antibody production facility.
	•	In December 1998, the Company acquired the Pentex Blood Proteins business (renamed Serologicals Proteins) from Bayer Corporation. This subsidiary manufactures cell culture supplements, including our patented EX-CYTE® product.
	•	In August 2000, the Company completed the sale of 47 plasma collection centers. These centers collected non-specialty plasma.
	•	In December 2001, the Company acquired Intergen Company, L.P. (“Intergen”). This acquisition expanded the Company’s presence in the market for purified blood protein products and established a presence in the research reagent market.
	•	In April 2003, the Company acquired Chemicon International, Inc. (“Chemicon”), greatly expanding the Company’s presence in the research products business. Chemicon is operated today as a stand-alone subsidiary of Serologicals Corporation. Chemicon has a proven track-record of rapidly identifying, developing, manufacturing, and commercializing new products. Chemicon has historically introduced on average more than 500 new products per year through a combination of its active research and development program and product and technology acquisition activities.
	•	Effective December 28, 2003, Serologicals exited the therapeutic plasma business, with the sale of the Company’s remaining ten plasma collection centers and a central testing laboratory.

Overview of Operations

      The Company, with facilities in North America, Europe, and Australia, is a global provider of biological products and enabling technologies to life science companies. Our products are essential for the research, development and manufacturing of biologically based life science products. Our products and technologies are used in a wide variety of applications within the areas of oncology, hematology, immunology, cardiology and infectious diseases, as well as in the study of molecular biology. Our customers include many of the leading life science companies throughout the world.

      Our business is organized into three operating segments: Research Products, Cell Culture Products and Diagnostic Products. These segments are based primarily on the differing production, manufacturing and other value-added processes that we perform with respect to the products and to a lesser extent, the differing nature of the ultimate end use of our products. Prior to our decision to exit the therapeutics plasma business, the Company reported a fourth operating segment, Therapeutic Products, for the first two quarters of fiscal 2003. The therapeutic products business is now classified as “discontinued operations” under applicable accounting

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      We conduct the operations of our Research Products segment through Chemicon, which was acquired in April 2003. Chemicon provides a broad range of specialty reagents, kits, antibodies and molecular biology tools to biotechnology, pharmaceutical and academic research customers working in the areas of neuroscience, infectious disease, drug discovery, cancer research, stem cell research and proteomics. Chemicon is also a leading supplier of monoclonal antibodies, conjugates, antibody blends and molecular biology-based detection kits for use in diagnostic laboratories. Chemicon, headquartered in Temecula, California, has manufacturing and distribution operations in California, Australia and the United Kingdom (“U.K.”).

      We manufacture our Cell Culture and Diagnostic Products in facilities located in North America and the U.K.. We operate protein fractionation facilities located in Kankakee, Illinois and Toronto, Ontario and have a third facility under construction in Lawrence, Kansas. These facilities provide a variety of highly purified proteins used in diagnostic reagents and cell culture media components for use in the development and manufacturing of biotechnology products. Additionally, these facilities produce a line of highly purified animal proteins known as cell culture media components that are used primarily by biopharmaceutical and biotechnology companies as nutrient additives in cell culture media. The Company’s most significant product within the Cell Culture segment is EX-CYTE®. EX-CYTE® is a concentrated solution of cholesterol, lipoproteins and fatty acids that is used, in combination with other cell culture supplements, to reduce or replace animal serum in cell culture processes. The Company holds one patent on the manufacturing process for EX-CYTE®. Another patent has been granted but not yet issued. Other key products within the Cell Culture segment include proprietary bovine serum albumin (“BSA”), recombinant insulin and other products used principally in mammalian cell culture.

      We manufacture monoclonal antibodies in our Scotland facility. The monoclonal antibodies are used in diagnostic products such as blood typing reagents and in controls for diagnostic tests for certain infectious diseases. We operate a facility in Milford, Massachusetts that includes a central distribution facility as well as operations related to production of substrates used in diagnostic assays. The key products within the Diagnostic segment are monoclonal antibodies used in blood typing reagents and diagnostic antibodies.

      See “Note 15 — SEGMENT AND GEOGRAPHICAL INFORMATION” in Item 8 Financial Statements and Supplementary Data for disclosure of revenue and gross profit by segment and long-lived assets by geographical area for the three most recently completed fiscal years. The Company does not currently segregate assets by segments as a significant portion of the Company’s total assets are shared or non-segmental assets which the Company does not assign to its three operating segments.

Discontinued Operations

      On July 10, 2003, the Company announced its intention to exit the therapeutic plasma business, which consisted of a network of 10 donor centers that specialize in the collection of hyper-immune human blood antibodies and a central testing laboratory. As a result, during the third quarter of fiscal 2003, the therapeutic plasma business was classified as a discontinued operation. On December 19, 2003, the Company signed a definitive agreement to sell the business. On January 15, 2004, effective December 28, 2003, the Company completed the sale of this business. Financial statements for all years presented have been reclassified to report results of discontinued operations separately from results of continuing operations. Disclosures included herein pertain to the Company’s continuing operations unless otherwise noted.

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      As part of the therapeutic plasma disposition, the Company sold certain products and related inventory comprised of human-sourced disease state polyclonal antibodies. Sales and gross margin for these products are included in the Diagnostic segment in the accompanying Consolidated Statement of Income. The following table sets forth net sales and gross profit of such products that are included in the accompanying Consolidated Statements of Income prior to the sale (in thousands):

      See “Note 4 — DISCONTINUED OPERATIONS” in Item 8 Financial Statements and Supplementary Data for further discussion of discontinued operations.

Industry Overview

      The Company operates in the life science industry. It serves three principal types of life-science customers — (i) life science researchers, (ii) companies that use cell culture to produce biopharmaceuticals and other recombinant proteins, and (iii) companies that produce diagnostic products. The following is a description of the industry segments in which Serologicals operates:

     Life Science Research

      Life science researchers require special biochemical research tools capable of performing precise functions in a given experimental procedure. Two of the principal disciplines within the life science research market are cellular biology research and molecular biology research. Cellular biology research involves the study of the genetic functioning and biochemical composition of cells, as well as their proliferation, differentiation, growth and death. The understanding gained from this study has broad application in the field of developmental biology and is important in the study of carcinogenesis, virology, immunology, vaccine design and production and agriculture. To grow the cells required for research, researchers use cell or tissue culture media that simulate under laboratory conditions (“in vitro”) the environment in which cells live naturally (“in vivo”) and that provide nutrients required for their growth.

      Molecular biology research involves the study of the genetic information systems of living organisms. The genetic material of living organisms consists of long, double-stranded molecules of deoxyribonucleic acid (“DNA”). DNA contains the information required for the production of proteins by means of ribonucleic acid (“RNA”), a single-stranded molecule similar in composition to DNA. Proteins have many different functional properties and include antibodies, certain hormones and enzymes. Many researchers study the various steps of gene expression from DNA to RNA to protein products and the impact of these proteins on cellular function. Other researchers are interested in manipulating the DNA-RNA system in order to modify its functioning. Through techniques that are commonly termed “genetic engineering” or “gene-splicing,” a researcher can modify an organism’s naturally occurring DNA to produce a desired protein not usually produced by the organism, or to produce a naturally produced protein at an increased rate.

     Cell Culture

      There are essentially two broad categories of molecules that can be used as therapeutic agents. These are small molecule drugs and large molecule drugs. Small molecule therapeutics are chemical compounds that are made through an organic or inorganic process. Chemical or pharmaceutical companies manufacture these therapeutics and their active ingredients in bulk. Large molecule therapeutics are mostly protein-based with amino acids as their building blocks. Large molecules must be grown in living cells, such as bacteria, yeast or mammalian cells (or other living organisms) since they cannot be synthesized chemically. Protein-based therapeutics are usually injected because they cannot be absorbed orally due to their size, composition and sensitivity to the gastrointestinal environment. Another major category of protein therapeutics is monoclonal antibodies. Monoclonal antibodies are antibodies that are highly specific towards a biological target, known to

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      The process for manufacturing large molecule therapeutics requires a number of components, including:

	•	Cell Culture: Mammalian or other cell types which have been genetically transformed to produce large amounts of a therapeutic protein. As the cells grow and metabolize, they secrete the therapeutic protein into the medium that is then harvested, purified and further processed.
	•	Bioreactors or Fermentation Tanks: Large tanks of varying capacity within which the cell culture and the nutrients are placed and are grown through the maintenance of optimal temperature, pressure and other environmental conditions.
	•	Media and Nutrients: Supplements that the cells depend upon for rapid growth enabling the production of the therapeutic protein.

      Cell culture is an important technology that is also used in many other essential biomedical applications such as the production of proteins that serve as key components of clinical diagnostic assays, vaccine production, the development of cell and tissue therapies, screening for toxicity during drug discovery, and numerous research applications involving the study of genes and cell biology.

     Diagnostic Products

      Antibodies are used in the manufacture of products that are used to screen patients for exposure to disease-causing agents, to detect proteins of clinical importance, determine blood type, and many other applications where there is a need to detect a biological target with high specificity. These products are called diagnostic products. Diagnostic products may involve the use of either monoclonal or polyclonal antibodies. Monoclonal antibodies are produced using the cell culture process described above. Polyclonal antibodies are produced by a living organism that is exposed to a specific antigen. Typically, polyclonal antibodies are obtained from human donors who have been exposed to a specific disease and have developed resistance to it. The specificity of antibodies makes them powerful diagnostic tools. Antibodies can be used to locate substances that occur in minute amounts and to measure the substances with great accuracy. Monoclonal antibodies may be used to locate environmental pollutants, detect harmful microorganisms in food, distinguish cancer cells from normal cells and to diagnose infections in human, animals and plants. Monoclonal antibodies are also used to determine blood type. Antibodies are also used to classify the antigens on red cells and to detect regular antibodies and irregular antibodies in blood specimens.

Products and Operations

      In 2003, the Company derived approximately 29% of its sales from Research Products, approximately 51% of its sales from Cell Culture Products, and approximately 20% of its sales from Diagnostic Products. The following table presents individual products making up greater than 10% of consolidated net sales of the Company during fiscal 2003, 2002 and 2001:

*	Less than 10% consolidated net sales.

      EX-CYTE® and BSA are products of our Cell Culture segment. Anti-Sera/ Lewis blood typing product is a product of our Diagnostic segment.

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      The following sets forth a description of the Company’s products in each of its segments, the processes by which such products are manufactured or obtained and the markets for such products:

      The activities of the Research segment primarily consist of the manufacture and sale of a broad range of specialty reagents, kits, antibodies and molecular biology tools to biotechnology, pharmaceutical and academic research customers working in the areas of neuroscience, infectious disease, drug discovery, cancer research, stem cell research and proteomics. Our products within the Research segment are primarily used as research tools by scientists performing experiments in an effort to uncover the sequence and function of genes and to understand their corresponding proteins and roles in biological pathways. These scientists are involved in academic research at universities and research institutes as well as drug discovery research at pharmaceutical and biotechnology companies. Therefore, market growth is driven by the amount of academic and industrial research conducted throughout the world. Funding for this research in the academic setting is derived primarily from grants awarded by the National Institutes of Health (“NIH”) and, to a lesser extent, other government agencies and private endowments. This segment also produces in vitro diagnostic products, either 510(k) diagnostic kits or as analyte specific reagents for use by certified diagnostic laboratories. These products are primarily antibodies, antibody-based detection kits and molecular biology products. We conduct the operations of our research segment through Chemicon. Chemicon’s products are a blend of in-house developed and manufactured products, licensed products manufactured in-house and products manufactured by third parties. Our antibody products are generally developed and manufactured through in vitro cell culture and animal immunization processes. Molecular biology products are generally developed and manufactured using DNA cloning and recombinant protein expression techniques. Development and manufacturing of products in the Research segment is performed at our facilities in Temecula, California, Southampton, UK and Melbourne Australia. The Company also operates USDA certified, large and small animal facilities in Ramona, California along with a similar operation in Australia for the production of polyclonal antibodies. Of the total number of products, approximately 65% of Chemicon’s revenue is generated by in-house manufactured products. Less than 5% of Chemicon’s revenues are attributable to upfront fees and ongoing royalty revenue.

      The activities of the Cell Culture segment primarily consist of the manufacture and sale of cell culture media components, including EX-CYTE®, BSA and human recombinant insulin, and other products used principally in mammalian cell culture. Cell culture media and cell culture components are essential to the manufacture of large-molecule therapeutic products. Recent advances in the commercialization of large-molecule therapeutic products have increased demand for cell culture media and cell culture components. The Company’s largest product in 2003 was EX-CYTE®. Sales of EX-CYTE® increased 54% over the past three years as a result of growth of several marketed biopharmaceutical products which use EX-CYTE® in the manufacturing process. Based on current and expected future demand for this product, the Company commenced construction of a second EX-CYTE® manufacturing plant in February 2003. The plant is located in Lawrence, Kansas and is expected to be operational during the second half of 2004. The total estimated cost for the plant is $25.0 million to $27.0 million. Upon completion, the Company expects to triple its EX-CYTE® production capacity, which should enable it to meet anticipated customer demand for at least the next five years. Demand for cell culture media and cell culture components may be diminished in the future by a shortage of manufacturing capacity to make the large-molecule therapeutic products. Another factor that could impede the demand for certain of these cell culture components is concern about some of their components being from animals, specifically bovine in origin. The concern arises from the risk that the agent causing Bovine Spongiform Encephalopathy (“BSE”) might be present in the raw materials used in the production process. See “Competition” and “Government and Industry Regulation” within Item 1 — Business for further discussion of BSE.

      The Company produces its cell culture media components at manufacturing facilities in Kankakee, Illinois and Toronto, Ontario. As noted above, the plant under construction in Lawrence, Kansas, will also

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      The primary raw material used in the manufacture of the Company’s cell culture media components is bovine serum and plasma. The Kankakee and Toronto facilities currently purchase serum exclusively from a single abattoir located in Illinois. The Company has a long-term agreement with the supplier pursuant to which the Company is guaranteed certain minimum levels of serum. Additionally, the contract provides the Company with certain rights in the event of a change in control of this supplier. The Company is a worldwide distributor of Novo-Nordisk human recombinant insulin. The Company has a long term agreement with Novo-Nordisk pursuant to which the Company is guaranteed certain minimum levels of insulin.

      The activities of the Diagnostic segment primarily consist of the manufacture and sale of certain monoclonal and polyclonal antibodies. The antibodies provided by the Diagnostic Products segment are used in diagnostic products, such as blood typing reagents and diagnostic test kits. Blood typing reagents are used by blood banks and hospital transfusion services worldwide to assure compatibility between a recipient and a donor’s blood type. There are many blood types and highly accurate and specific antibodies are required to determine blood type.

      More than 15 billion human blood tests are performed annually worldwide. These blood tests are performed mostly in commercial laboratories, hospitals, urgent care centers or physicians’ offices. Although over 1,000 different tests are performed on blood, fewer than 50 different tests account for approximately 75% of all blood testing. These tests are important because physicians routinely use them to diagnose and monitor the treatment of disease and a significant portion of the top 50 tests prescribed by physicians fall within the clinical chemistry category. The entire global end user market has been estimated at approximately $250.0 million, with the antibody detection segment, which uses red cell derived products, accounting for approximately 40% of the market.

      Historically, blood typing reagents were made primarily from human-sourced, or polyclonal, antibodies. Over the past 15 years, monoclonal antibodies have been developed to provide certain high quality antibodies on a consistent basis. Many monoclonal antibodies are FDA approved for diagnostic purposes. Monoclonal antibodies have largely, but not completely, replaced polyclonal antibodies for use in blood typing. The Company currently stores in excess of 80 cell lines with which the Company provides over 60 different antibodies used in the production of blood typing reagents, which the Company believes provide it with a competitive advantage in this market due to the desire of customers to buy an entire panel of different antibodies for blood typing reagents from one manufacturer.

      The Company produces monoclonal antibodies from more than 60 of these cell lines. The Company’s FDA-licensed monoclonal manufacturing facilities in Scotland produce monoclonal antibodies from cells obtained from independent laboratories. Currently, all monoclonal antibodies manufactured by the Company are used in diagnostic products, such as blood typing reagents and in controls for tests used for diagnosing certain infectious diseases. The Company also produces companion products to its monoclonal blood typing range that are used in blood typing laboratories, including reagent red cells, enzymes and diluents. The Company believes that increased concerns relating to blood safety and increased demand for more diverse diagnostic tests are influencing the diagnostic blood and clinical testing industry.

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Research and Development

      The Company believes that a commitment to research and development is an important component of its future growth opportunities and expects to continue to increase its investment in research and development over the next several years. The Company spent $6.2 million, $5.6 million and $1.7 million on research and development activities in 2003, 2002 and 2001, respectively. The Company’s research and development activities are focused on developing new products and applications for the markets it serves, particularly in the Research Products and Cell Culture segments. Within the Research Products segment, the Company’s research and development activities primarily relate to the development of polyclonal and monoclonal antibodies and molecular biology products, including kits using these products and technologies and ancillary products to enhance the utility of our products. During 2003, the Company developed 295 new products within the Research segment as a result of these activities. With respect to Cell Culture segment, the Company is performing studies related to EX-CYTE® which should lead to the development of new products and enable the Company to better target growth opportunities. In addition, research efforts include the study and development of new recombinant supplements. Overall, the development strategy is based on establishing core know-how within the Company as well as using external contract organizations and co-development agreements for carrying out the required activities. On December 28, 2003 we had 29 employees principally engaged in research and development.

Sales and Marketing

      The Company sells the majority of its products through its own direct sales force, although distributors are also used in the marketing and sales of its products. The Company directly markets its products in over 48 countries throughout the world and sells products through independent distributors or agents in approximately 11 additional countries. These independent distributors may also market products of other companies, including some products that are competitive with our products. As of December 28, 2003, the Company employed over 85 people world-wide in its sales, customer service, technical support and marketing organizations.

      Our sales strategy is to employ scientists to work as our technical sales representatives. Most of our technical sales representatives have an extensive background in biology, chemistry or molecular biology. A thorough knowledge of biological techniques and an understanding of the research process allows our sales representatives to become advisors, acting in a consultative role with our customers. Our use of skilled technical sales representatives also enables us to identify market needs and new technologies that we can license and develop into new products.

      During 2003, the Company’s customer base increased to over 3,400 customers. Sales to the Company’s top ten customers accounted for approximately 45%, 54% and 58% of total sales in 2003, 2002 and 2001, respectively. In 2003, 2002 and 2001, the Company’s domestic sales represented approximately 64%, 46% and 52%, respectively, of net sales. The following table presents sales to individual customers that represent more than 10% of consolidated net sales:

*	Less than 10%.

      We principally manufacture products for inventory and ship product shortly after the receipt of orders, and anticipate that we will continue to do so in the future. We do not currently have a significant backlog and do not anticipate we will develop a material backlog in the future.

Quality Assurance

      The Company maintains a global quality assurance system and program designed to assure the efficacy and safety of its products and compliance with the requirements of regulatory authorities, voluntary quality

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      The Company’s operating facilities worldwide are registered to ISO 9000:2000 Quality Standards. The ISO 9000:2000 series of standards is a voluntary quality standard recognized throughout the world. Compliance with this standard is required by many of our customers and in certain global markets. Additionally, for our monoclonal manufacturing facility, compliance with the In Vitro Diagnostic Directive (“IVDD”) will be required for continued participation in the European Union and other global markets. The Company has already begun an extensive project to ensure that this facility is compliant with the IVDD well in advance of the deadline for adherence. While the Company fully expects to achieve compliance, failure to achieve such compliance could have a material adverse effect on the Company. The Company’s Scotland facility and Chemicon division are also registered to ISO 13485, a voluntary quality standard for in-vitro diagnostic products. Additionally, Chemicon is approved to use European Certification, or CE, marking on some of its in-vitro diagnostic products per European Community Directive 98/79/ EC Annex IV, Article 3. This certification and approval is for the design, manufacturing and distribution of in-vitro-diagnostic devices, research and laboratory use products.

Competition

      The market for our Research Products is very competitive. There are numerous life science research product suppliers that compete with us, some of which have significant financial, operational, sales and marketing resources, and experience in research and development. These and other companies may have developed or could in the future develop new technologies that compete with our products or even render our products obsolete. We believe that a company’s competitive position in our market is determined by product function, product quality, speed of delivery, technical support, price, breadth of product line and timely product development. We believe our customers are diverse and place varying degrees of importance on the competitive attributes listed above. While it is difficult to rank these attributes for all our customers in aggregate, we believe that through Chemicon, we are well positioned to compete in each category.

      The Company does not believe that it currently faces significant competition for its EX-CYTE® product. The Company believes that it is the only supplier of Cohn-fractionated BSA, which is produced at its Toronto facility. Furthermore, the Company is the world-wide distributor of Novo-Nordisk’s human recombinant insulin for use in cell culture.

      The primary competition for monoclonal antibodies used in blood typing reagents comes from customers that are vertically integrated, and thus provide antibodies for their own use, and smaller, independent manufacturers that offer a more limited range of product than the Company. Some fully integrated manufacturers also offer OEM and bulk services. As the Company does not have a significant presence in the end market and is thus seen as not being in direct competition with its customers, the Company believes that it is generally favored over fully integrated manufacturers that offer OEM and bulk antibodies. Additionally, the Company believes that its broad range of proprietary antibodies and state of the art facilities provide it a competitive advantage with respect to these competitors.

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Government and Industry Regulation

      Many of the Company’s activities are subject to regulation by governmental authorities in the United States and internationally. These regulatory authorities govern the collection, testing, manufacturing, safety, efficacy, labeling, storage, record keeping, transportation, approval, advertising and promotion of the Company’s products, as well as the training of its employees. The Company manufactures and distributes a significant number of products that are not subject to FDA regulation; however, some of these products are subject to import and export regulations specific to the country of import. The Company believes it is in substantial compliance with all relevant laws and regulations.

      The facilities used by the Company in the Cell Culture and Diagnostic Products segments are subject to extensive FDA regulation, primarily through the requirements of the Public Health Service Act and the Food, Drug and Cosmetic Act. New facilities, products and operating procedures at such locations must undergo FDA approval processes. These facilities are also subject to periodic inspection by the FDA to ensure their compliance with applicable laws and regulations. Significant changes to existing facilities, products or operating procedures must also undergo FDA review prior to implementation. The Company’s monoclonal antibody manufacturing facility in the U.K. and Chemicon’s facility in Temecula, California are required to adhere to the FDA’s Quality System Regulations (“QSR”), which were formerly known as Good Manufacturing Practices or cGMP. Such facilities are periodically inspected by the FDA. Chemicon’s animal husbandry operations are also licensed by the United States Department of Agriculture (“USDA”) and are periodically inspected by the USDA.

      In the United Kingdom, the Company is subject to the U.K. Health and Safety at Work Act, which regulates the safety precautions required of manufacturers in the United Kingdom, and to various other regulations covering the use of genetically engineered organisms in laboratory and manufacturing processes. In certain countries, the Company’s customers are subject to regulatory requirements that require additional inspection and approval of the Company’s facilities prior to the shipment of products to such countries. Changes in existing federal, state or foreign laws or regulations, or the Company’s inability to comply with such laws and regulations, could have an adverse effect on the Company’s business and financial condition.

      The Company produces certain bovine-derived products at its protein fractionation facilities in Kankakee, Illinois and Toronto, Ontario. The cattle industry, which supplies the Company with raw materials for its bovine-derived products, is regulated by the USDA to prevent the spread of BSE. The regulations restrict the use of feed containing ruminant meat and bone protein, require spot-testing of cattle and require testing of cattle manifesting symptoms of BSE affliction. Cows afflicted with BSE were recently discovered in Canada and the northwestern United States. The discovery of BSE afflicted cattle in North America resulted in disruptions in our production and sale of some of our Cell Culture Products. For example, we were forced to delay shipments of inventory to a number of international customers due to foreign government regulations. We were also unable to import raw material sourced in the United States into Canada and vice versa for a period of time following the discovery of BSE in each country. The Company takes steps to assure the continued availability and highest possible safety of its bovine-derived products. The regulatory agencies may impose additional regulations on the cattle industry or the Company in response to the discovery of BSE afflicted cattle in North America. The Company works closely with the USDA, the Canadian Food Inspection Agency and the FDA to assure compliance with any new regulations that are imposed.

      Certain of the products produced at the Company’s protein fractionation facilities in Kankakee and Toronto are considered “medical devices” under the Food, Drug and Cosmetic Act and, accordingly, are subject to its general control provisions that include requirements for registration, listing of devices, QSR, labeling and prohibitions against misbranding and adulteration. These products, which represent an insignificant amount of the Company’s sales, nonetheless subject the Company to FDA inspection and scrutiny. Furthermore, the FDA has indicated in certain guidance documents and in public meetings that it intends to more closely regulate cell culture media products, such as the Company’s EX-CYTE® product, that are used in the manufacture of injectable products. While there has been no indication as to how these products will be classified and therefore with which standards they will need to comply, the FDA has indicated that, at a minimum, manufacturers of cell culture media should adhere to QSR standards. The Company currently produces EX-CYTE® in a dedicated facility that was constructed to QSR standards. The imposition of

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      The Company is also subject to government regulation under the Environmental Protection Act, the Clean Air Act, the Clean Water Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Medical Waste Tracking Act, and other federal, state or local restrictions. The Company is also subject to workplace safety regulations under the Occupational Safety and Health Act (OSHA).

Technology Licensing, Patents, Proprietary Rights and Trademarks

      Part of the Company’s success in its markets is dependent on its development of proprietary products made using proprietary technology. Therefore, the Company considers the protection of its proprietary technologies, trademarks and trade secrets, which are used to make, identify and maintain the quality of its products, to be important to the success of the Company. The Company relies on a combination of patents, trade secrets, licenses and trademarks to protect and differentiate its products from its competitors. The Company owns or has rights through licenses to many technologies used to manufacture and sell its products that have limited life spans due to patent or license term expiration. When patents expire or licenses are not renewed, the Company may lose its proprietary advantage over its competitors. The Company derives over 50% of its revenue from products that are licensed, patented or proprietary in nature.

      The Company attempts to protect its trade secrets by entering into written confidentiality agreements with its employees, potential collaborators and third parties. Such written agreements may be breached by such contracting parties and, if this occurs, a sufficient remedy of such breach may not be available. If the Company’s trade secrets become known to third parties, the Company may lose its competitive advantage in its marketplace.

      The Company currently owns approximately 21 U.S. patents, including one patent on the Company’s EX-CYTE® product. The Company’s EX-CYTE® patent expires in 2005 in the United States, Europe and Japan. In early January 2004, the U.S. Patent Office informed the Company of its decision to grant another patent on our proprietary purification process used in the manufacture of EX-CYTE®. This process inactivates infectious prions in EX-CYTE®, which are defective proteins that are believed to be the cause of BSE. We believe that the patent will provide a competitive advantage to EX-CYTE® that will mitigate to some extent the risk associated with the expiration of the patent on the manufacturing process.

      The Company will seek patent protection for its inventions when appropriate. The Company has no assurance that patents will be granted pursuant to any of its pending patent applications. Furthermore, the Company has no assurance that the scope of its issued patents will be sufficiently broad to offer meaningful protection from its competitors. Accordingly, in such instance, its competitors or other third parties can make and sell products thought to be covered by the Company’s patents or patents pending. Further, issued patents that are owned by the Company or exclusively licensed may be challenged, invalidated or rendered inapplicable so that such patent rights would not bar our competitors from selling competing products.

      A large percentage of the Company’s Research segment’s products are sold pursuant to licenses that have varying terms and conditions. The Company may not be able to renew certain licenses on favorable terms or if at all due to expiration of the license term, failure in selling certain minimum quantities of products, or changes in the licensor’s licensing strategy. If the Company loses its licensed rights, this may result in loss of necessary rights and the necessity to cease sales of certain products. Any resultant loss of licensed rights could allow the Company’s competitors to license such rights that would likely erode or eliminate the Company’s market share for such products and could adversely affect the Company’s results of operations and financial condition.

      In order to produce new products, the Company frequently relies upon licenses from the worldwide scientific community rather than depending on its own employees for new products. Therefore, the Company’s ability to obtain a license to allow introduction of new products is very important to allow it to offer new,

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      The Company’s ability to gain access to new products and new technologies required to perform services and manufacture new products is partly dependent on its ability to convince inventors, and the institutions that support them, that the Company will be successful in the commercialization of their inventions. The Company has no assurance that it will be able to continue to negotiate access for such new products or technologies on acceptable terms or if at all.

Third Party Reimbursement

      In both domestic and foreign markets, sales by the Company’s customers may depend in part on the availability of reimbursement from third-party payors such as NIH, government health administration authorities, private health insurers and other similar organizations. Third-party payors are continually challenging the price and cost-effectiveness of medical products and services. There can be no assurance that pricing pressures which may be experienced by the Company’s customers will not adversely affect the Company because of a determination that these products are not cost effective or because of inadequate third-party reimbursement levels to such customers.

Employees

      As of February 20, 2004, the Company employed 677 persons, 445 in the United States, 58 in Canada, 24 in Australia and 150 in Europe. Of the Company’s employees, 33 who are employed at the Company’s manufacturing site in Illinois and 30 who are employed at the Company’s manufacturing site in Toronto are members of a collective bargaining unit. The Company believes that its relationship with its employees is generally satisfactory.

Product Liability and Insurance

      The sourcing, processing, manufacturing and sale of the Company’s products involve a risk of product and professional liability claims. The Company believes it has obtained sufficient levels of product and professional liability insurance to insure the risk of catastrophic claims. Currently the Company carries a $1.0 million deductible for its liability coverage. There can be no assurance that the coverage limits of the Company’s insurance policies and/or any rights of indemnification and contribution that the Company may have will offset potential claims. A successful claim against the Company in excess of insurance coverage and not subject to indemnification could have a material adverse effect on the Company. The Company is not aware of any such pending claims.

Available Information

      The Company makes available free of charge through its website, www.serologicals.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably possible after the Company files such material with, or furnishes it to, the Securities and Exchange Commission.

Cautionary Statements

      You should consider the following factors, together with other matters described in this Form 10-K or incorporated herein by reference, in evaluating the Company and its prospects. Any of the following risks, as well as other risks and uncertainties, could seriously harm our business and financial results. In such case, the trading price of our securities could decline. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

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We may be unable to implement our growth strategy.

      Our strategy is to increase our sales and profitability by increasing our rate of growth. We have historically achieved, and intend to continue to achieve, our growth primarily through the acquisition or internal development of new product lines, the expansion of our customer base and the addition of new businesses. Our ability to implement our growth strategy will depend upon a variety of factors, including:

	•	our ability to develop new products internally;
	•	our ability to make profitable acquisitions;
	•	integration of acquired companies and facilities into existing operations;
	•	hiring, training and retention of qualified personnel;
	•	establishment of new relationships or expansion of existing relationships with customers and suppliers; and
	•	availability of capital.

Failure to manage our growth and expansion could impair our business.

      The implementation of our growth strategy may place additional demands on our administrative, operational and financial resources and increase the demands on our financial systems and controls. Our ability to manage our growth successfully may require us to continue to improve and expand these resources, systems and controls. If our management is unable to manage growth effectively, our operating results could be adversely affected. Moreover, there can be no assurance that we will continue to expand successfully or that growth or expansion will result in continued profitability.

Our ability to raise the capital necessary to expand our business is uncertain.

      In the future, in order to expand our business through internal development or acquisitions, we may need to raise substantial additional funds. However, this additional funding may not be available or, if available, it may not be available on economically favorable terms. In addition, any additional funding may require the issuance of equity securities which could result in dilution to existing stockholders. If adequate capital is not available, we may not be able to grow as quickly as we have planned. Furthermore, we expect that future acquisitions will increase our working capital requirements. We intend to fund these increased working capital requirements from our cash flow from operations and borrowings under our revolving credit facility.

We cannot guarantee that our future acquisitions will be successful.

      Our growth strategy includes growth by acquisitions. We compete for acquisition opportunities with companies that have significantly greater financial resources than we have. There can be no assurance that suitable acquisition opportunities will be identified, that any of these transactions can be consummated, or that, if acquired, these new businesses can be integrated successfully and profitably into our operations.

Competition in the life science research industry and/or a reduction in demand for our products could reduce sales.

      The markets for many of our products, particularly our research products, are very competitive and price sensitive. Other life science research product suppliers have significant financial, operational, sales and marketing resources, and significant experience in research and development. These and other companies may have developed or could in the future develop new technologies that compete with our products or even render our products obsolete. If a competitor develops superior technology or cost-effective alternatives to our products, our business, operating results and financial condition could be negatively impacted. In addition, demand for our products may weaken due to reduction in research and development budgets, loss of distributors and other factors identified in this annual report, which could have an adverse effect on our financial condition.

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      We believe that customers in our markets display a significant amount of loyalty to their initial supplier of a particular product. Therefore, it may be difficult to generate sales to potential customers who have purchased products from competitors. To the extent we are unable to be the first to develop and supply new products, our competitive position may suffer.

Failure to obtain products and components from third-party manufacturers could affect our ability to manufacture and deliver our products.

      Our business relies on the continued availability of raw materials, including biological materials, from third-party manufacturers. The availability and price of these materials may be affected by scares or outbreaks of disease or similar health concerns or perceptions about the materials’ safety, governmental regulation and trade restrictions. If we are unable to obtain these materials, or are unable to obtain the materials at an affordable price, our business, results of operations and financial condition could be adversely affected. Cows afflicted with BSE were recently discovered in Canada and the northwestern United States. These animals were the first known cases of BSE in North America. The discovery of BSE in North America caused disruptions in our production and sales of some of our Cell Culture Products. As a result of both discoveries, we were forced to delay shipments of inventory to a number of international customers due to foreign government regulations. We were also unable to import raw material sourced in the United States into Canada and vice versa for a period of time following the discovery of BSE in each country. Similar scares or actual outbreaks of disease could have a material adverse effect on our business, results of operations and financial condition.

      In addition, we currently have a single source of supply of certain raw materials and components for certain products. Manufacturing problems, including risks related to the operation of manufacturing facilities such as natural disasters, may occur with these and other outside sources. If such problems occur, we cannot assure you that we will be able to manufacture our products profitably or on time.

Our EX-CYTE® product sales are driven by market demand for therapeutic drugs.

      The majority of our sales of this product are to companies with approved, marketed drugs, or with drugs in advanced phases of clinical trials. Reduced demand or acceptance, or delays or denial of approval of the underlying pharmaceutical product could adversely impact the demand for EX-CYTE® and adversely affect our results of operations.

Failure to attract and retain qualified scientific or production personnel, or loss of key management or key personnel, could hurt our business.

      Recruiting and retaining qualified scientific and production personnel to perform research and development work and product manufacturing are critical to our success. Because the industry in which we compete is highly technical and very competitive, we face challenges attracting and retaining this qualified personnel base. Although we believe we have been and will be able to attract and retain these personnel, there can be no assurance that we will be able to continue to attract qualified personnel.

      Our success also will continue to depend to a significant extent on the members of our management team. We may not be able to retain the services of our executive and key personnel or to attract additional qualified members to management in the future. The loss of any of our key management or employees could have a material adverse effect upon our business.

Violation of government regulations or voluntary quality programs could result in loss of sales and customers and additional expense to attain compliance.

      The facilities we use in our Cell Culture and Diagnostic Products segments are subject to extensive regulation by the FDA, primarily through the requirements of the Public Health Service Act and the Food, Drug and Cosmetic Act. New facilities, products and operating procedures at such locations must undergo FDA approval processes. These facilities are also subject to periodic inspection by the FDA to ensure their compliance with applicable laws and regulations. Failure to comply with these laws and regulations can lead to

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      We are also indirectly held accountable for complying with some of the regulations to which our customers are subject, even though we are not the regulated entity. For example, some of our customers use our products in the manufacturing process for their drug and medical device products. Such products are regulated by the FDA under the FDA’s Quality System Regulations, or QSR. Although the customer is ultimately responsible for QSR compliance for their products, the customers expect that the materials we sell to them will meet QSR requirements. We could lose sales and customers, and incur products liability claims, if our products do not meet QSR requirements, to the extent applicable. We are also subject to USDA regulations and various foreign regulations for the sourcing, manufacturing and distribution of animal based proteins. Our failure to comply with these requirements could negatively impact our business and potentially cause the loss of customers and sales revenue.

      ISO 9000:2000 quality standards are an internationally recognized set of voluntary quality standards that require compliance with a variety of quality requirements somewhat similar to the QSR requirements. The operations of our Cell Culture segment manufacturing facilities, as well as our manufacturing facility in Scotland and our research products facilities in California, Australia and the United Kingdom, are registered under the ISO standards. Failure to comply with this voluntary standard can lead to observations of non-compliance or even suspension of ISO certification by the certifying unit. Loss of ISO certification could cause some customers to purchase products from other suppliers.

      If we violate government regulations, including government mandated or voluntary quality programs, we may incur additional expense to comply with the regulations and standards. That expense may be material. Our financial results could suffer materially as a result of these increased expenses.

Our research and development efforts for new products may be unsuccessful.

      We incur research and development expenses to develop new products and technologies. There can be no assurance that any of these products or technologies will be successfully developed or that, if developed, will be commercially successful. If we are unable to develop commercialized products from our research and development efforts or we are unable or unwilling to allocate amounts beyond our currently anticipated research and development investment, we could lose our entire investment in these new products and technologies.

If we cannot enter into new licensing arrangements, our ability to develop a diverse product portfolio could be limited.

      A component of our business strategy is to license products developed by other biotechnology companies or academic research laboratories. These products may be protected by patents held by others. We attempt to market such products to our customers. Often, we attempt to develop new products or to improve the licensed products using our technologies. If we are not able to identify licensing opportunities or to enter into licensing arrangements on acceptable terms, we may be unable to develop a diverse portfolio of products.

      Because a patent is only a right to exclude and does not give the holder, or its licensee, the right to practice the patented technology, even in cases in which we license patented technology from a licensor, we may be prevented from practicing that technology if it infringes a patent of a third party. Moreover, if found by a court to infringe the patent of the third party, we may be liable for compensatory damages, treble damages and attorney’s fees and subject to a royalty obligation or enjoined from practicing the technology altogether, notwithstanding the license from the licensor. Although we attempt to obtain indemnification from our licensors, we do not always receive indemnification against third party claims of patent infringement.

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If we fail to introduce new products, or our new products are not accepted by potential customers, we may lose market share.

      Our Research Products business is highly dependent on frequent new product introductions. Our future success will depend in part on continuous, timely development and introduction of new products that address evolving market requirements. To the extent we fail to introduce new and innovative products, we may lose market share to our competitors, which could be difficult to regain. Any inability to develop and introduce new products successfully could reduce our growth rate or damage our business.

Inability to protect our technologies could affect our ability to compete.

      The majority of our current products are not protected by patents that we own. We rely on know-how or trade secrets to protect these products. Our products that are not patented may be susceptible to reverse engineering or parallel development efforts and sales by our competitors. We attempt to protect our trade secrets by entering into confidentiality agreements with third parties, our employees and consultants. However, these agreements can be breached and, if they are, there may not be an adequate remedy available to us. If our trade secrets become known we may lose our competitive position. To prevent competitors from using technologies and trademarks in which we hold intellectual property rights, it may be necessary for us to litigate against those competitors. Any litigation could result in substantial expense, may distract our management, and may not adequately protect the proprietary technologies and trademarks. Furthermore, litigation may result in a finding of invalidity and unenforceability of our intellectual property rights. In any case in which we are unable to protect our proprietary technologies and trademarks, we may be subject to increased competition, resulting in lost sales and reduced profits, and even discontinuance of or non-entry into a product line. Our patents have a limited term. The patent on the manufacturing process for EX-CYTE® will expire in 2005 in the United States, Europe and Japan.

Reduction or delays in research and development budgets and in government funding may negatively impact sales in our Research Products segments.

      Our customers include researchers at pharmaceutical and biotechnology companies, academic institutions and government and private laboratories. A significant portion of the sales of our Research Products business is to researchers, universities, government laboratories and private foundations whose funding is dependent upon grants from government agencies such as the NIH and similar domestic and international agencies. Fluctuations in the research and development budgets of these researchers and their organizations could affect the demand for our Research Products. Research and development budgets fluctuate due to numerous factors that are outside our control and are difficult to predict, including changes in available resources, spending priorities and institutional budgetary policies.

We rely on international sales, which are subject to additional risks.

      International sales accounted for approximately 36% of our revenues in fiscal 2003, 54% of our revenues in fiscal 2002, and 48% of our revenues in fiscal 2001. International sales can be subject to many inherent risks that are difficult or impossible for us to predict or control, including:

	•	unexpected changes in regulatory requirements and tariffs;
	•	difficulties and costs associated with staffing and managing foreign operations, including foreign distributor relationships;
	•	longer accounts receivable collection cycles in certain foreign countries;
	•	adverse economic or political changes;
	•	unexpected changes in regulatory requirements;
	•	more limited protection for intellectual property in some countries;
	•	changes in our international distribution network and direct sales force;

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	•	changes in currency exchange rates;
	•	potential trade restrictions, exchange controls and import and export licensing requirements; and
	•	potentially adverse tax consequences of overlapping tax structure.

      Each of these risks might impact our cash flow or impair our ability to borrow funds, which ultimately could affect our business, financial condition or operating results.

      We intend to continue to generate revenues from sales outside North America in the future. Future distribution of our products outside North America also may be subject to greater governmental regulation. These regulations, which include requirements for approvals or clearance to market, additional time required for regulatory review and sanctions imposed for violations, as well as the other risks described above, vary by country. We may not be able to obtain regulatory approvals in the countries in which we currently sell our products or in countries in which we may sell our products in the future. In addition, we may be required to incur costs in obtaining necessary regulatory approvals. Failure to obtain necessary regulatory approvals or any other failure to comply with regulatory requirements could impact our results of operation.

Litigation may harm our business or otherwise distract our management.

      Substantial, complex or extended litigation could cause us to incur large expenditures and distract our management. For example, lawsuits by employees, stockholders, collaborators, distributors, competitors, customers, or end-users of our products or services, including liability claims and patent infringement based on our products and services, could be very costly and substantially disrupt our business. Disputes from time to time with such companies or individuals are not uncommon, and we cannot assure you that we will always be able to resolve such disputes out of court or on terms favorable to us.

      If we are sued for patent infringement, and a court agrees that we are infringing a third party patent, we may be forced to remove a product from the market or enter into a license agreement, which may not be available on reasonable terms, if at all. Further, in such a circumstance, we could be exposed to significant attorneys’ fees and costs.

Our operating results may fluctuate in future periods.

      The results of operations for any quarter are not necessarily indicative of results to be expected in future periods. Our operating results have in the past been, and will continue to be, subject to quarterly fluctuations as a result of a number of factors. These factors include:

	•	the integration of people, operations and products from acquired businesses and technologies;
	•	our ability to introduce new products successfully;
	•	market acceptance of existing or new products and prices;
	•	competitive product introductions;
	•	changes in customer research budgets which are influenced by the timing of their research and commercialization efforts and their receipt of government grants;
	•	our ability to manufacture our products efficiently;
	•	our ability to control or adjust research and development, marketing, sales and general and administrative expenses in response to changes in revenues; and
	•	the timing of orders from distributors and mix of sales among distributors and our direct sales force.

We are subject to environmental laws and regulations and could incur costs for environmental remediation at one of our facilities.

      We are subject to environmental laws and regulations governing the use of materials and chemicals used in our business. Although we believe that our safety procedures for handling and disposing of such materials

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