ChiefExecutive.net

Blood Simple

April 1 1999 by Bernice Kanner

When Eric Krasnoff was four, he and his father, Abraham Krasnoff, Pall Corp.’s second chairman and CEO, used to spend Saturday mornings sorting mail at the filtration technology company. In 1993–37 years later-Eric Krasnoff became the fourth chairman/CEO of the $1 billion company Dr. David Pall founded in 1946 to market a porous, stainless steel filter he’d invented to remove particles from hydraulic and lubrication systems. (Five years earlier, Pall had devised a filter to separate uranium 235 from the less stable uranium 238 for the Manhattan Project.) Since then, the firm has designed filters to remove impurities from everything from jet fuel to blood.

On the last front, East Hills, NY-based Pall may tap into a rich vein. In July, the U.K. authorized the removal of white blood cells, or leukocytes, from all blood and blood products after 27 people died from Mad Cow disease, a fatal variant of CreutzfeldtJakob disease. Austria, France, Ireland, Malta, Norway, Poland, and Canada now also require leukocyte reduction. Krasnoff expects America to follow suit within a year or two.

As a result, analysts expect that Pall, with more than half the U.S. market for blood filters, could see annual revenues climb by as much as $500 million. In 1998, blood filtration sales were $177 million, or 16 percent of total sales. And leukocyte reduction isn’t Pall’s only blood artery. After moving into blood banking in 1998, Pall is now trying to develop ways to extract blood faster and painlessly. “That’s the Holy Grail, the way to get more donors, get them to repeat the experience, and slice the cost of donor recruitment,” says Krasnoff.

This spring, Pall begins testing Vitex, a system to kill all viruses in red cells and platelets, a market Krasnoff expects to top leukocyte reduction in three years. By then, another new Pall technology now in tests-a way to preserve platelets, which currently last only five days after collection, indefinitely-should be coming on stream.

Pall is also working on a way to harvest blood stem cells from umbilical cords for bone marrow transplantation. “It’s still a dreadfully painful procedure for recipients, but at least the marrow will be available,” says Krasnoff, who joined Pall in 1975.

At the time, Pall had 250 employees, all focused on providing filtration for aerospace and chemical companies. In 1980, more than half its revenues came from the military. Today, less than 4 percent does. Commercial airline filtration contributes a fourth, but with an increase in cabin air filtration systems-spurred by the World Health Organization’s December warning that air travelers can catch tuberculosis on planes-that could swell. Total health care products account for 51 percent, and fluid processing products sold to chemical, gas, electric, plastics and films producers 25 percent.

Even as the self-described “pup” immersed in ERISA and wage and price controls, Krasnoff tried to expand pall’s boundaries. With his predecessor, Maurice Hardy, he pushed to step up drug sterilization work— molecularly separating the wheat from the chaff, so to speak, or the virus from the protein, often on a parts per trillion, or one-four-thousandth of the diameter of the human hair, or one second-every-32-years-level of sophistication.

Pall eschews commodity-like filters where price is the differentiation and makes no consumer products. ” If you have heard about it – like the Pentium chip- we didn’t make it,” quips Krasnoff. Yet Pentium chips are designed drugs like Viagra, Rogaine, and Prozac are among those filtered through its systems.

The company is currently expanding into filtrating municipal drinking water. “Industrial runoff, animals, agricultural toxins and encroaching civilization are contaminating supplies sat an unprecedented rate.” Says Krasnoff.

With Pall a relative newcomer among established competitors like US Filter, Millipore, Baxter International, Japan’s Asabi Medial, Holland NPBI and France’s Machopharm, Krasnoff says he always acts as if “racing against someone whether I am or not.” Recently, the race hasn’t ended in financial victory. Pall’s margin dropped from 26 percent in 1980 to 20.8 percent last year. With 53 percent of sales coming from overseas, foreign currency swaps shaved 4 percent off the bottom line.

But in the first quarter of fiscal 1999 sales were up 5.5 percent  to $ 249.8 million. Krasnoff who predicts that by 2000 they’ll top $billion, credits chaning the company culture. “We’ve acquired, joint ventured, and licensed technologies and hopefully smashed the strangling not-invented-here mentality.”