Date: Aug 27, 2009 Author: Julie M. Donnelly Source: bizjournals (
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There once was a life sciences company that declared bankruptcy amid a financial accounting scandal, got back into the good graces of the SEC, only to be bandied about by the most tumultuous Wall Street environment in decades, then managed to become profitable in the second quarter of 2009.
Its name is SeraCare Life Sciences Inc.
In December 2005, newly hired independent auditors for Milford-based SeraCare "couldn't properly value the inventory, and there was a question about revenue recognition," current CEO Susan Vogt said. The U.S. Securities and Exchange Commission opened an investigation and the board decided quarterly reports filed in 2005 could no longer be relied upon.
This touched off a dramatic chain of events. SeraCare, which makes processed samples for use by diagnostics companies, among other products, was unable to file its quarterly financial report with the SEC, which prompted the Nasdaq stock exchange to delist the life sciences company in March 2006. Shareholders filed a lawsuit because they potentially made decisions about whether to buy the stock based on faulty information. A major creditor, Union Bank of California, threatened to call a $20 million debt due, and there was $4 million worth of sub-debt. SeraCare only had $22 million in the bank.
The company entered into voluntary Chapter 11 bankruptcy, and the four top executives left the company. Then the company embarked on the hard road back.
"The eye-opening thing when I got here was that the extent of the operating issues was worse than I had anticipated. SeraCare was basically a bunch of little companies that were walled off from one another," CEO Vogt said. One of the first things the board did after the bankruptcy filing was to hire Vogt, a veteran of Billerica-based Millipore Corp., and current CFO Greg Gould, who was brought in from a life sciences company in Colorado.
Then Gould started digging through boxes of old financial records. He had to reconstruct that 2005 annual report and get it accepted by the auditors and the SEC. He succeeded and the company was listed on the Nasdaq once again in June 2008. SeraCare settled the shareholder lawsuit for $4.5 million.
Life looked sweet for SeraCare — for a couple of months. Then Wall Street swooned, taking SeraCare's stock with it. A hedge fund that owned 20 percent of the company had to consolidate resources and sold off the shares precipitously, making matters worse.
Meanwhile, SeraCare executives continued a reshaping of the company that included selling off noncore parts of the business and closing an office in Oceanview, Calif., that had once been the corporate headquarters. The company had done a rights offering shortly after the bankruptcy to raise additional capital and had later set up a $10 million line of credit. In September 2008, the company closed its facility in West Bridgewater and moved some of the employees to Milford. Basically, the company whittled its way to profitability.
"They got rid of their low-margin businesses. They got rid of the bad revenue," said Robert Wasserman, an analyst for Dawson James. Wasserman recently picked up coverage of the company after watching it go through its metamorphosis over the past three years. Wasserman gave the company a buy rating earlier this summer and was delighted when SeraCare (Nasdaq: SRLS) announced profitability on Aug. 12. SeraCare's stock surged to $2.27 from $1.67 that day and has stayed up, closing at the same price on Tuesday.
"There weren't a lot of good surprises in the second-quarter earnings season. This was a surprise," Wasserman said.
Health Care/Life Sciences
