Online Extra: Meridian Gets Back on Track

With the flu-kit debacle behind it, the Ohio medical diagnostics company is poised to continue its healthy growth

April is a month that Jack Kraeutler would just as soon forget. That was when his tiny, unassuming company, Meridian Bioscience (VIVO ), was suddenly thrust into the spotlight in a way that all small-company execs dread.

On Apr. 8, the World Health Organization asked laboratories all over the world to destroy samples of a flu virus that Meridian had distributed as part of a product used to test quality control. Turns out the virus, H2N2, was a particularly virulent flu strain that had killed more than 1 million people in 1957. Because current versions of the flu vaccine don't protect against the ancient virus, it's unlikely anyone is immune to it.

What followed was a whirlwind of media attention and an investigation by the Centers for Disease Control, all focused on Meridian, which holds the No. 86 spot on BusinessWeek's Hot Growth list. Fears of a possible pandemic were fueled by reports of the deadly avian flu overseas and lingering questions about whether last season's flu-vaccine shortage would be remedied this season.


  Shares of Newtown (Ohio)-based Meridian swung wildly. On Apr. 13, the stock fell from $15.59 to $13.75, only to recover by the end of the day, on nearly 10 times its normal trading volume. "There was a lot of drama," laments Kraeutler, Meridian's chief financial officer.

By May 5, Meridian was out of the woods. The CDC said the company did nothing "overtly wrong" in sending out the virus, which at the time was officially classified by federal regulators as no more dangerous than other pathogens commonly supplied to laboratories.

All samples of the deadly flu strain were quickly destroyed. Most important, no one got sick. Kraeutler says he's not aware of any further investigations. And investors have been more than forgiving, pushing the stock back up to a recent $19. Meridian's 52-week high and low are $20.56 and $9.88, respectively.


  The flu scare was a rare blip for Meridian, a 28-year-old outfit that's slowly emerging as a leader in the nascent field of rapid diagnostics. Meridian's quality-control products -- such as the one that contained the flu virus -- only accounted for 4% of the $79.6 million in 2004 revenues, estimates Aaron Geist, an analyst for Robert W. Baird. And they barely contributed to profits, which were $9.2 million last year.

Where Meridian is generating much of its growth is with a product colorfully named ImmunoCard STAT! The device allows physicians to test for diseases such as the flu and strep throat, as well as food poisoning, in their own offices so they can diagnose patients immediately.

One version tests for the presence of H. pylori, a bacteria that can cause stomach ulcers. Once H. pylori is determined to be implicated, a patient can be easily treated with antibiotics, relieving the pain and preventing further stomach damage.


  Geist estimates that the market for rapid diagnostics is only $50 million a year now but stands to grow quickly as physicians recognize the benefits of being able to test for diseases on the spot. "This is an embryonic market and a green-field opportunity," Geist says. He estimates that Meridian's revenues will rise 13% this year, and earnings will jump 16.7%.

Another area of growth for Meridian: Making proteins for research institutions, pharmaceuticals, and diagnostics companies. Customers include Abbott Laboratories (ABT ) and the National Institutes of Health.

So what happened with that virulent flu strain? Kraeutler explains that the pathogen had been rated by federal regulators as a Level 2 organism, meaning it was deemed to pose little threat to human health. Regulators were considering reclassifying the bug as a much more dangerous health threat, but Meridian didn't know that at the time. The CDC has since recommended reclassification and is working on a final report about the incident.


  "We hope to be able to take what we learned and develop steps to prevent it from happening in the future," says CDC spokesman Tom Skinner.

Crises averted, Kraeutler is relieved that Meridian can return to its mission of helping physicians do their jobs better. "When infectious diseases cause acute symptoms, we want to be there to deliver rapid [diagnoses]," he says. And that should keep Meridian on a healthy growth path for some time to come.

By Arlene Weintraub in New York

Edited by Patricia O'Connell

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