2016 Annual Report

M U R M U R A T I O N

WHAT IS A MURMURATION?

In one of the most astounding

natural phenomena, the murmuration

of starling birds makes it appear as if

each individual bird is physically con-

nected. These birds effortlessly and

dramatically change direction and

perform complicated movements in

flight. As the largest and most

complex organization we’ve ever

been, Blood Systems looks to take

a lesson from these birds and their

ability to move as one. We work

toward a synchronized, nimble and

united company driven by a strong

cause. The stunning movements of

starlings are intentionally executed

together. So shall ours be.

To see a starling murmuration in motion, visit https://tinyurl.com/jsjhfst

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A MESSAGE FROM BLOOD SYSTEMS′ CHAIRMAN & CEO

We continue to build a sustainable, diverse organization—

one conducive to anticipating change

together...”

“

THE YEAR 2016 was indeed a time of

transformation, transition and growth

for Blood Systems®. Not unlike the

murmuration of starlings, we navigat-

ed ever-changing times in as synchro-

nized a way as possible. It was not

without challenge. External forces like

the possible effects of blood donation

on young donors and the continuing

threat of Zika virus prompted swift ac-

tion from our labs to initiate testing.

Creative Testing Solutions® in Tampa

was the first in the country to imple-

ment Zika testing with Blood Systems

Research Institute® and FDA support.

We began ferritin testing on blood

donations from all 16- to 18-year-old

donors. This was in light of studies

indicating that teen repeat blood do-

nors may be more likely to become

iron-deficient than older donors. Clin-

ical evidence suggests that teens with

low ferritin should wait six months to a

year before donating again to rebuild

iron stores. Donor and patient safety

will always be our top priority; at the

same time, these initiatives absolute-

ly affect blood availability. Driving the

cultivation of new donors, especially

those aged 25-45, to rebuild collec-

tions is the primary focus of our new

Donor Marketing team.

Internally, we dramatically reorga-

nized our Blood Centers Division to, as

Blood Services President Dave Green

said, “…make the most of the strengths

of our system: to leverage tremen-

dous talent and experience, to create

a shared infrastructure, to eliminate

unnecessary duplication, to drive out

costs.” This structure better supports

standardization efforts and properly

brings together new business units

and employees, like the 1,400 from

Bonfils Blood Center®, Blood Centers

of the Pacific®, BloodSource®, Inland

Northwest Blood Center®, Lifeblood®

and LifeShare® we welcomed in 2016.

At November’s Launch event, leaders

from across the organization gathered

to celebrate, get acquainted and, well,

launch the next era of Blood Services.

Blood Systems President and CEO Dan Connor enjoys a virtual test drive on the Harley-Davidson that was raffled for use in a blood donation giveaway. The blood centers of the Mountain Division won the raffle.

John S. Lewis, Chairman

Blood Systems adopted Operation-

al Excellence as our methodology for

creating a sustainable culture of day-

to-day learning and leading practic-

es. Based on the acclaimed Shingo

Model™, Operational Excellence em-

powers all employees to be problem

solvers to improve work efficiency in

small and big ways. Training launched

with management-level staff in De-

cember, the beginning of a three-year

assimilation program.

Both Blood Systems Research In-

stitute and BioCARE® expanded their

reach in 2016. BSRI opened a second lo-

cation in Denver and, in order to expand

into new business arenas, BioCARE

became a wholly-owned, for-profit

subsidiary beginning January 1, 2017.

As BioCARE President Linda Matthews

said, “This new status allows BioCARE

and CanyonCARE Rx® to offer a broad-

er product portfolio, becoming more

competitive in the acute and non-acute

markets, which will assist in the contin-

ued growth of our organizations.”

For 2016, the true constant for

Blood Systems was change. In light

of the fact that it looks to carry on

this way, we continue to build a

sustainable, diverse organization—

one conducive to anticipating this

change together (like the murmur-

ation of starlings).

J. Daniel Connor, President & CEO

Tony was diagnosed with He-

mophagocytic Lymphohistiocytosis

(HLH), a life-threatening, rare blood

disease, when he was seven months

old. Blood transfusions sustained

him until a compatible marrow

donor was found. Tony received

his marrow transplant at age two,

enduring harsh chemotherapy and

countless transfusions of platelets,

plasma and red blood cells.

Tony is now 11 and his family is

incredibly active. Tony often leads

the charge. He likes sports, has a

mouthful of braces and loves to be

silly. “Tony is healthy and living a very normal life —what could be

better?” says his mother, Kasey.

“There’s not a day that goes by

when we don’t give thanks for

those who donate blood.”

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BLOOD SERVICESTHE BLOOD CENTERS Division (renamed Blood Services

at midyear) significantly grew blood product production

and distribution in 2016, thanks to the annualized impact of

relationships finalized in 2015. There was an increase of 7.1

percent for red cell collections and 35.2 percent for plate-

let production over 2015, while red cell units and platelets

distributed increased by 8.3 and 29.9 percent respectively.

As blood centers across the country experienced revenue

erosion, Blood Services saw a 12.9 percent increase in total

revenue over 2015.

Without disruption to the daily mission, Blood Services

underwent a comprehensive strategic planning process,

creating “VISION 2020” for the future of the business unit.

This practice totally reorganized operations to employ a

matrix management model. Blood Services corporate func-

tions retained the Source, Make and Deliver supply chain

model, added a Donor Marketing team and formed an Op-

erations Management group. Largely because three of its

four affiliates voted to merge into Blood Systems, Blood

Services retained its integration function and added an in-

dustry relations position. These func-

tions and more delivered the signifi-

cant work required to integrate Bonfils

Blood Center, Blood Centers of the

Pacific, BloodSource, Inland Northwest

Blood Center, Lifeblood and LifeShare

employees by year-end.

In the field, Blood Services divid-

ed into six geographic operating di-

visions, each headed by a Division

President. The resulting structure en-

ables Blood Systems to add new field

operations from future mergers with-

out having to revamp the corporate

support structure every time. In this

way, Blood Services is positioned for

continued growth with minimized

support disruption to established op-

erations as new opportunities arise.

Additionally, a Corporate Authorities council now serves to

codify required points of standardization while maximizing

controlled field flexibility. Blood Services instituted formal

service level agreements from all corporate functions to

drive performance and align effort. All of these changes

were developed under the mantra of “One Company, One

Mission” as the foundation for long-term success along with

the intention of being “standardized where it matters and

nimble where it counts.”

2 0 1 6 H I G H L I G H T S

• Maintained an exceptional compliance record with all

external agencies at all locations

• Instituted Zika testing and implemented the FDA Final

Rule for donor eligibility

• Collected 1,231,000 red cell units and produced

306,847 platelet products for patients

• Converted Inland Northwest Blood Center and

Lifeblood operations to eProgesa, the organization’s

standard blood establishment computer system

• Directed a 100 percent recall initiated by a primary

vendor, assuring patient safety by replacing all collec-

tion sets with a temporary substitute while the vendor

rectified product quality issues

• Implemented pathogen reduction technology at

two sites and began implementation steps for three

other markets

• Employed ferritin testing for all donors age 18 years

and younger

• Extended our Operational Excellence initiative to

include all Blood Services locations

• Instituted a rigorous subcontracting process designed

to achieve unprecedented flexibility in responding to

expanding health system supplier needs

• Achieved a total operational reorganization and

celebrated with an official launch event

Staff celebrate the Blood Services Launch at the historic Hotel

Valley Ho in Scottsdale, Arizona.

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BLOOD DONOR CENTER LOCATIONS

Denver, CO

Sacramento, CA Scottsdale, AZ Lubbock, TX Memphis, TN

Spokane, WA

Blood Centers of the Pacific

BloodSource

Bonfils Blood Center

Community Blood Services

Inland Northwest Blood Center

Lifeblood

LifeShareStates Served

LifeStream (affiliate)

United Blood Services

Divisional Headquarters

Depots (distribution only)

M A P K E Y

Grace battles Sickle Cell Anemia and currently relies on eight units of blood transfused every

four weeks. These transfusions allow her to regularly attend school—something she was previ-

ously unable to do because of immense pain from the disease.

As of the end of March 2017, Grace had received 21 transfusions of 168 units of blood. She will

continue to require these transfusions until she is able to find a bone marrow donor and receive

a successful transplant. Despite everything she faces, Grace is a positive person and passionate

about improving the lives of those fighting blood diseases. She actively works to help recruit

blood donors and tells her friends, family and classmates about the importance of donating

blood and registering to donate bone marrow.

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BIOCARE® & CANYONCARE RX®

THE MODERN BIOCARE business model is built on three

pillars: consignment, field sales representation and a na-

tionwide distribution network (incorporating many of the

Blood Services locations).

Much of the activity at BioCARE in 2016 involved prepar-

ing operations to become a separate, for-profit subsidiary

of Blood Systems effective January 1, 2017. Blood Systems

is the sole shareholder of the now-named BioCARE, Inc.

This large transition did not slow the steady revenue and

contract growth BioCARE has experienced since its estab-

lishment in 1980. BioCARE now maintains a separate gov-

ernance structure, but will remain part of Blood Systems’

consolidated financial statement.

The only change BioCARE President Linda Matthews

foresees in day-to-day activity under the new structure is

further opportunity for growth and expansion. With Blood

Systems’ foresight and support, BioCARE revenues have

grown from $17 million in 2001 to nearly $400 million in

2016, which is just over a 25 percent increase from 2015

revenues. Through careful cost management and stringent

contracting, BioCARE’s net margin increased over 140 per-

cent from 2015.

Several large specialty pharmacy contracts contributed

to the significant growth in the non-acute segment, which

saw an increase of 64 percent in revenue over 2015. This

trend is expected to continue in 2017. Growth in non-acute

sales, coupled with CanyonCARE Rx pharmacy contracts,

will lead to new business development.

Six new factor products were added to the BioCARE

portfolio in 2016 and contributed three percent of annual

revenue. Coagadex® (factor X) sales contributed more than

half of that new revenue. BioCARE is one of only two dis-

tributors selected to carry the Coagadex product. Similarly,

BioCARE was named as the exclusive distributor for CEPRO-

TIN, which is indicated for patients with severe congenital

Protein C deficiency. BioCARE will begin to distribute this

product in 2017.

Other notable accomplishments include the addition of

distribution centers to BioCARE’s network, including loca-

tions in Montvale, New Jersey and Memphis, Tennessee.

2 0 1 6 H I G H L I G H T S

• 2016 revenue increased 25.3 percent over 2015

• Net margin for the year, while slim, more than doubled

from 2015

• Non-acute segment revenues rose from $121,852,000

in 2015 to $188,585,000 in 2016

• Six new factor products contributed $11,783,000 in

annual revenue; nearly half of that amount

($5,615,000) came from Coagadex®

Grace requires eight units of blood exchanged every four

weeks. Despite the struggles she has endured, she is incredibly kind, positive and optimistic.”“

Ten-year-old Adrian was

struck by debris when a car

crashed through the school

fence as he played at recess.

He doesn’t remember the

accident, but witnesses said

that Adrian ran toward class-

mates and tried to get them

away from the vehicle when he

was hit by debris. In all, he

required four surgeries and

seven blood transfusions.

With the injuries to Adrian’s

right leg, amputation was

necessary. A very athletic young

man, Adrian accepted the deci-

sion with quiet determination.

Within six months, he had his

first “blade,” which enabled him

to play “all out”—to be Adrian

again. “I’ll never forget seeing

the stack of bloody towels in

his hospital room,” said Adrian’s

mom, Brandy. “And I know with-

out blood being available that

day, the doctors couldn’t have

helped him.”

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BLOOD SYSTEMS RESEARCH INSTITUTE®

THE ZIKA VIRUS (ZIKV) emergence

and subsequent Food and Drug Ad-

ministration requirement for either

viral marker testing or the use of

pathogen-reduced blood made for an

extraordinarily challenging 2016 for

US blood centers. Blood Systems Re-

search Institute (BSRI) responded to

the ZIKV emergence in previously

naïve populations by initiating a num-

ber of research studies, supported by

over $4.6 million in new funding from

NIH, CDC and BARDA, as well as con-

crete operational activities.

BSRI scientists directed or partic-

ipated in studies to monitor the in-

cidence of ZIKV in leading areas of

the epidemic: Puerto Rico and Brazil.

Samples from infected Brazilian blood

proved instrumental in serving as qual-

ity control samples to develop new nu-

cleic acid tests (NAT) to detect ZIKV in

donated blood samples. BSRI is lead-

ing a large study to enroll and follow

infected donors detected by ZIKV NAT

screening in Puerto Rico and the con-

tinental US to measure the compart-

mentalization and persistence of ZIKV

in blood and body fluids, and is shar-

ing these samples with collaborators

at other institutions to develop more

accurate ZIKV diagnostic assays and

understand mechanisms of ZIKV dis-

ease outcomes.

BSRI also performed key experi-

ments and presented findings to the

FDA demonstrating the relative sen-

sitivity of novel assays developed by

the CDC and commercial companies.

These studies facilitated rapid implementation of ZIKV

blood donor screening in Puerto Rico, allowing resump-

tion of blood donation on the island. Blood donations there

were on hold prior to the availability of a sensitive ZIKV NAT

assay. BSRI serves as the confirmatory lab for assessment

of novel ZIKV NAT assays and pathogen reduction technol-

ogies under the FDA’s Investigational New Drug program.

2 0 1 6 H I G H L I G H T S

• Led 50 different research projects funded by the

National Institutes of Health, the U.S. Department of

Defense, the Bill and Melinda Gates Foundation and

private industry partners such as Grifols Diagnostic

Solutions, Inc. and Terumo BCT

• Continued to lead a major FDA-funded program to mon-

itor the U.S. blood supply for transfusion-transmitted

infections in collaboration with the American Red Cross

• Investigators Nareg Roubinian and Rachael Jackman

were each awarded R01 grants in 2016—an important

step in growing independent research programs

• Completed accrual of approximately 14,000 donors

into the REDS-III RBC-Omics study, including analysis

of red blood cell (RBC) samples for fresh and 42-day

stored RBC stability and DNA samples for genetic

determinants of RBC storage properties

• Discovered that galectin-9, a human carbohydrate-

binding protein, potently reactivates latent HIV

and may therefore serve as a curative agent for

HIV infection

Oliver was born 18 weeks early

and spent the first four months of

his life in the NICU. Doctors told

his family he had a low chance

of survival. He ended up needing

heart surgery and, over the course

of his stay, required 11 units of

blood. His family says Oliver’s color

would change dramatically when

he received blood transfusions. He

would go from looking pale and

sick to happy and healthy. Oliver

is now eight years old and remains

healthy, as well as positive and en-

ergetic. Oliver’s parents are blood

donation advocates—encouraging

others to save the lives of children,

just as generous donors saved

Oliver’s life.

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CREATIVE TESTING SOLUTIONS®

AS THE LARGEST independent US blood donor testing lab-

oratory, Creative Testing Solutions tested approximately 4.5

million donor samples and 4.9 million source plasma sam-

ples in 2016 at its four facilities in Dallas, Phoenix, Seattle

and Tampa. CTS tests approximately 40 percent of the US

blood supply.

In 2016, the Zika virus prompted a required investiga-

tional new drug (IND) test for all US blood donations. Febru-

ary marked the release of the first FDA guidance document

requiring Zika testing in endemic areas in the US; only Amer-

ican territories were considered endemic at that time. CTS’

large Puerto Rican healthcare partner had to shut down its

blood collections until CTS Tampa implemented an individ-

ual donation NAT Zika test under a Roche IND. In less than

six weeks, the CTS Tampa staff implemented this test. The

team had to learn new testing equipment and develop cus-

tomer interfaces to bring the new Zika test online.

In August, the FDA expanded its mandate and blood

collectors in 11 states were required to implement universal

Zika testing within four weeks, followed by the rest of the

country eight weeks later. Since the CTS Tampa lab was op-

erational on the Roche NAT Zika testing platform, the CTS

Dallas and Phoenix labs needed to respond. They met the

aggressive FDA timeline and implemented the Grifols NAT

Zika test platform and developed the client interfaces. CTS

was the only large blood donor testing organization to pro-

vide individual NAT Zika testing for all of its healthcare part-

ners within the timeline.

In October, CTS employed HLA testing as a release test

to conform to the AABB standard 5.4.1.3.1 requiring blood

centers to reduce the risk of transfusion-related acute lung

injury (TRALI). While fewer than 1 in 12,000 transfusion

recipients are affected by TRALI, the 2015 FDA fatality

report cited TRALI as the leading cause of transfusion-relat-

ed deaths at 38 percent over the past five years.

Throughout 2016, CTS continued to provide source plas-

ma testing services to a large plasma fractionation com-

pany, an arrangement made possible because CTS can

provide exceptionally customized testing services. CTS

continues to explore opportunities with additional partners

in this new business line.

Finally, CTS employees continued their Operational Ex-

cellence journey that began in 2014 to solve problems by

engaging everyone, everywhere, every day.

2 0 1 6 H I G H L I G H T S

• Maintained impeccable AABB, EU and FDA compliance

records

• Received exceptional rating on annual client survey

• Established an Operational Excellence workgroup com-

posed of six key employees, removing them from their

daily responsibilities to focus on reengineering CTS

• Continued to meet or exceed healthcare partners’

expectations by providing on-time test results approx-

imately 92 percent of the time

• Established Zika testing in less than six weeks

• Secured one new donor testing, two Babesia testing

and three Zika testing contracts, and extended nine

existing agreements representing over $8 million in

annual revenue

• Remained the single largest provider of Babesia test-

ing for community blood centers, performing over

400,000 individual tests in 2016

BIOCARE, RESEARCH & LABORATORY LOCATIONS

Phoenix, AZ Dallas, TX Tampa, FLSeattle, WA

BioCARE distributorships

Creative Testing Solutions laboratories

M A P K E Y

Blood Systems Research Institute

Transfusion medicine research, laboratory testing and pharmaceutical distribution from coast to coast

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ABOUT BLOOD SYSTEMS

B L O O D S Y S T E M S O R G A N I Z A T I O N

HEADQUARTERED IN SCOTTSDALE, Arizona, and founded

in 1943 as the Salt River Valley Blood Bank, Blood Systems

is one of the nation’s largest blood service providers and

transfusion medicine leaders, and is growing. Blood Sys-

tems’ strength, size, scope, reputation and experience po-

sition us for success as the future of healthcare continues

to unfold.

Hospitals and healthcare systems count on us for ex-

emplary responsiveness and transfusion management ex-

pertise across a large and varied geographic footprint.

Across all of our operating units, we work to help custom-

ers improve patient safety and outcomes, reduce costs and

demonstrate quality conformance.

Blood centers that join Blood Systems benefit from reg-

ulatory compliance excellence, world-class quality support,

reliable donor testing, effective risk management, valuable

shared services and economies of scale across the country.

In 2016 alone, five of the nation’s leading blood centers said

yes to this opportunity and formally joined Blood Systems.

As this report goes to press, we serve more than 1,000

healthcare facilities in 28 states with over 5,000 employees.

We are committed to building an inclusive, diverse

culture of problem solvers and have adopted Operational

Excellence practices at a corporate level. In 2016, Blood

Systems was recognized for the second year in a row as a

“Most Admired Company” by AZ Business Magazine.

Lifeblood

LifeShare

LifeStream(affiliate)

United Blood ServicesInland Northwest

Blood Center

Community Blood Services(wholly owned subsidiary)

Bonfils Blood Center

BloodSource &Blood Centers of

the Pacific

Blood ServicesMedical, Administrativeand Support Services;

Blood Systems Laboratories

Blood SystemsResearch Institute

Creative Testing Solutions(joint venture with OneBlood, ITxM

and Bloodworks Northwest)

Canyon State Insurance(wholly owned subsidiary)

BioCARE, Inc.DBA BioCARE

DBA CanyonCARE Rx(wholly owned subsidiary)

as of Jan. 1, 2017

Blood SystemsA 501(c)(3) nonprofit organization

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LEADERSHIP

J. DANIEL CONNORPresident & Chief Executive Officer

DAVID R. GREENPresident Blood Services

SALLY CAGLIOTIPresident Creative Testing Solutions

LINDA MATTHEWSPresident BioCARE, Inc.

SUSAN L. BARNESExecutive Vice President & Chief Financial Officer

MARY BETH BASSETTExecutive Vice President & Chief Quality Officer

BHAVI A. SHAHExecutive Vice President, General Counsel & Assistant Secretary

RALPH VASSALLO, M.D.Executive Vice President & Chief Medical & Scientific Officer

Executive Officers Board of Trustees

JOHN S. LEWIS, CHAIRConsultant Scottsdale, AZ

HEATHER J. ALLEN, M.D. Oncologist Las Vegas, NV

JAMES R. ALLEN, M.D.Healthcare Executive (ret.) Raleigh, NC

LINDA J. BLESSING, PH.D.Executive (ret.) Sandpoint, ID

ROBERT COLEMedical Technology Executive Lakewood, CO

WILLIAM A. DITTMAN, M.D.Internist Spokane, WA

WILLIAM GATES Attorney Phoenix, AZ

WILLIAM G. GREENAttorney (ret.) Orinda, CA

JOHN P. HARNEY, MBA, FACHEHealthcare Executive (ret.) Denver, CO

MICHAEL C. JENSENAnalyst Redlands, CA

F. LEONARD JOHNSON, M.D.Pediatric Hematologist/ Oncologist (ret.) La Jolla, CA

PIERRE NOEL, M.D.Hematologist Scottsdale, AZ

JAMES W. PETERSONHealthcare Executive Irvine, CA

KATHLEEN PUSHORExecutive Coach Scottsdale, AZ

JAMES SCHRAITHTechnology Executive (ret.) El Dorado Hills, CA

RICHARD B. SPURLOCK, M.D.Pathologist Colorado Springs, CO

PAUL E. STANDER, M.D.Internist Paradise Valley, AZ

RON W. WAECKERLIN, M.D.Pathologist (ret.) Cheyenne, WY

GARY K. WILDEHealthcare Executive Ventura, CA

NANCY WOLLENHealthcare Executive (ret.) Denver, CO

THREE-YEAR F INANCIAL SUMMARY FOR BLOOD SYSTEMS & AFFIL IATES

($ in thousands)

Results of Operations 2016 2015 2014

Blood component service fees $467,717 $422,370 $363,780

Laboratory testing services 223,540 190,008 196,134

Sale of pharmaceutical products 381,917 305,136 205,510

Other services and income 56,264 49,355 43,677

• Total Revenues $1,129,438 $966,869 $809,101

Salaries, wages and benefits 355,926 305,739 284,439

Blood collection, testing supplies 244,572 208,965 196,849

Purchase of pharmaceutical products 359,691 286,892 191,877

Other costs and expenses 172,486 162,258 139,912

• Total Expenses $1,132,675 $963,854 $813,077

Net Income from Operations (3,237) 3,015 (3,976)

Financial Position

Cash and short-term investments $207,099 $225,355 $276,433

Accounts receivable 189,183 165,581 113,953

Inventories 84,905 83,207 71,573

Other current assets 8,923 8,808 12,949

Long-term investments and restricted assets 53,004 26,007 27,280

Property and equipment (net of depreciation) 160,681 134,470 138,869

Deposits and deferred financing costs 6,474 11,256 12,595

• Total Assets $710,269 $654,684 $653,652

Accounts payable and accrued expenses 94,278 72,515 48,259

Accrued salaries, wages and vacations 29,063 21,730 26,403

Current portion of long-term debt 59,093 59,171 56,574

Accrued pension and health benefits 61,522 49,774 61,148

Self-insurance reserve 7,449 6,243 6,001

Long-term debt 55,782 43,660 52,670

• Total Liabilities $307,187 $253,093 $251,055

Net Assets $403,082 $401,591 $402,597

• Total Liabilities and Net Assets $710,269 $654,684 $653,652

Financial results include Blood Systems and affiliates. Blood Systems is a 501 (c)(3) nonprofit, tax-exempt, charitable organization. The financial statements of Blood Systems and its affiliates have been audited by Grant Thornton LLP.

Brian was in a motorcycle accident. Suffering multiple

internal injuries, Brian needed 22 units of blood to save

his life the first night in the hospital. In the 30 days that

followed, he needed additional red blood cells and plate-

lets. It took nearly two years, and the selfless generosity

of blood donors, for him to make a full recovery and go

back to work.

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In August 2016, Emily’s life was saved thanks to blood donors. She experienced

an unexpected and deadly complication during childbirth. Nearly bleeding to death

from disseminated intravascular coagulation or DIC (her blood was unable to clot),

Emily received 32 units of blood and platelets in a single day. She even met her

baby for the first time while receiving a transfusion in the ICU. Today, Emily and her

daughter Lucy are both healthy and inspiring advocates for blood donation.

6210 E. Oak Street Scottsdale, AZ 85257(480) 946-4201 1 (800) 288-2199www.BloodSystems.org

©2017 Blood Systems. All Rights Reserved.