THE RED CROSS TODAY: SAFER -- AND MORE COMPETITIVE, TOO?

Edited by Douglas Harbrecht

"Some of our citizens are still afraid, and they should not be. Many millions are still apprehensive, and they should not be."
--American Red Cross President Elizabeth Dole

With those assurances to drug and biotech executives in San Francisco on Apr. 1, Elizabeth Dole announced the completion a seven-year "transformation" in the Red Cross's much-maligned Blood Services group. Thanks to a $287 million modernization program that revamped the group's procedures for collecting and testing blood, the chance of HIV transmission from a Red Cross-supplied transfusion has dropped from 1 in 220,000 in 1991, to 1 in 676,000 today.

But that was just part of the message that Dole, wife of former Presidential candidate Bob Dole and a former Transportation Secretary and Labor Secretary during the Bush Administration, wanted the drug executives to hear. Dole is also trying to develop more partnerships with industry to help the Red Cross deal with competition in the blood business and maintain leading-edge research capabilities.

Only recently has American Red Cross Blood Services begun to recover from the most widespread -- and even according to Dole, "deserved" -- criticism it has suffered in its 50-year history. It was disorganized and slow to respond to the emergence of HIV in the 1980s. Until 1985, when HIV antibody screening of donors began, thousands of people were infected from blood and plasma products distributed by organizations nationwide.

By 1991, when Dole arrived, the Red Cross's entire program was "about to go over a cliff," she acknowledges. Some of the nonprofit's directors believed it should simply exit the blood business. In part, the problems stemmed from an ancient infrastructure that had given birth to 28 different computer systems in 53 Red Cross blood centers, and myriad inconsistent procedures to go with them.

It has taken seven years for the Red Cross to centralize operations and create standard procedures. Meanwhile, competition gets steadily more intense in the blood collection, banking, and research business, which accounts for 60% of total Red Cross revenues. Competition from regional nonprofits, such as the New York Blood Center, and from 450 for-profit plasma centers has cut the Red Cross's once-dominant share of the national blood business to 50% -- and will likely reduce it even further.

At the same time, a growing number of drug and biotech companies are eating into markets the Red Cross traditionally has controlled, such as supplying blood "factors" needed by hemophiliacs. According to Market Research Group in Orange, Conn., in just six years the biotech industry has captured roughly half of the market for Factor VIII, a product formerly derived from plasma that is now made through gene-splicing. Other gene-spliced products are likely to capture similar market shares of other products formerly made from blood. As its revenues from these traditional businesses decline, "it's incumbent on us to move into product development," says Brian P. McDonough, chief operating officer of the Red Cross's biomedical services division.

Today, the Red Cross spends about $30 million of its $1.8 billion annual budget on research, primarily at its Jerome H. Holland Laboratory in Rockville, Md. That work is aimed at making sure the Red Cross has cutting-edge technology for handling, processing, and monitoring the safety of the blood supply -- and at developing some intriguing new products. They include processes to inactivate viruses in blood and a new way of making blood factors and other products from "transgenic" animals, so called because the genes for these specific products are spliced into their cells. The Red Cross is also working on a remarkable innovation that the U.S. Army has helped develop: a special sealant to stanch the flow of blood in severe injuries. It's potentially a lifesaving high-tech bandage for the battlefield or ambulance.

The Red Cross has already signed several deals with biotech companies, including with Pharming of the Netherlands for transgenics work. And it has worked with Osteotech in Eatontown, N.J., to make a product that promotes bone formation in bone-tissue transplant procedures. Conversations with several other significant biotech players are in the works as well, say Red Cross staffers. Moving forward, says Dole, "we see ourselves as the nucleus, or hub, of many great endeavors," including more partnerships with industry. In an interview following the speech, however, Dole shared no specific details or plans about how such partnerships will or should be structured.

Biotech executives who've dealt with the Red Cross say some unusual issues make collaborations difficult. Among them is that the nonprofit operates under intense politicial scrutiny, which may be heightened by the presence of the high-profile Dole. San Francisco volunteer Pat Kennedy, one of 50 "governors" who advise the national Red Cross, acknowledges that the organization is determined to move carefully and avoid the kind of controversy that the American Medical Assn. faced earlier this year, when it officially endorsed certain food lines that were supposedly good for heart health.

Several biotech executives who've had discussions with the Red Cross -- and who won't criticize the group publicly -- say the organization's concern over appearing to give undeserved endorsements to for-profit companieshampers discussions over deals and creates frustrating delays. The Red Cross shows dedication and commitment to the public good but is naive in dealing with business, contends one biotech executive. He nonetheless concedes that a deal with the Red Cross would be a powerful advantage for any small company looking for credibility: "I really worry about a competitor getting the Red Cross imprimatur," he says.

Dole acknowledges that the Red Cross will move forward carefully. That's wise. As the AMA discovered, a respected nonprofit name can be quickly tarnished in the pursuit of commerce.

By Joan Hamilton in San Francisco and Mary Beth Regan in Washington, D.C.