ICU Medical Inc. represents what some see as a trend for Orange County: executives here, production elsewhere.
The medical device maker plans to shift production and assembly from its San Clemente base to Salt Lake City and Mexico in coming weeks.
More than 100 jobs in San Clemente could be impacted.
But the company’s executives still will be breathing beach air.
“You’re not going to get Doc out of Southern California,or me, for that matter,” said Francis O’Brien, ICU’s chief financial officer.
“Doc” is Dr. George Lopez, ICU’s founder, top shareholder and chief executive.
Earlier this year, ICU paid $35 million to buy a 450,000-square-foot plant from Hospira Inc., a Lake Forest, Ill.-based intravenous device supplier that is ICU’s key customer.
Originally, ICU planned to move the Salt Lake City operation to San Clemente, where the company has spent millions on factory automation and other technology.
But the company had a change of heart after visiting Salt Lake city, O’Brien said.
“A few things became apparent,” he said. “One, moving people from Salt Lake City to the high-rent district in Southern California would be very difficult economically. Second, some of the costs of operating in Salt Lake City are a lot lower than here,electricity comes to mind. We use a lot of power here, and we also get concerned about supply interruption.”
That kind of talk sends shivers down the spines of local business boosters and smiles across the faces of out-of-state recruiters.
To be sure, ICU offers some words of warning about housing affordability here and how California’s power crisis never really was resolved.
But ICU, which makes medical connectors and intravenous systems, has its idiosyncrasies. The company relies on Hospira for 61% of sales, which in the first quarter were $27 million, up 22% from a year earlier.
And Lopez and his wife own about a quarter of the company.
What seems clear from ICU’s move is that when all things are equal, Salt Lake City’s lower costs trump OC,but not to the point where executives are going to trade shorts for snow gear.
ICU initially planned to move the Salt Lake City operations to OC and Mexico. The Utah plant was set to close.
Then ICU officials “realized that they had some very talented people there and the processes would be difficult to move,” O’Brien said.
“We knew that the (Salt Lake City) plant was running inefficiently, and we have a very efficient operation here,” he said.
ICU has 180 workers in San Clemente, including about 100 in manufacturing. The company hasn’t made a final decision on how many jobs will leave for Salt Lake City, according to O’Brien.
The company’s production isn’t overly dependent on people. ICU’s San Clemente plant runs 24 hours a day, seven days a week, sometimes with few workers around.
The company’s plans include moving all its manual assembly work to an ICU plant in Mexico.
Some investors and analysts have criticized ICU for focusing too heavily on one product,the Clave needle-free system for delivering intravenous fluids. They’ve also taken issue with the company’s reliance on Hospira.
Last summer ICU shares took a sharp hit after Hospira said it planned to buy fewer Claves in the second half of the year.
The company said it expected Hospira’s buying to rebound this year.
ICU’s buy of the Salt Lake City plant included a 20-year manufacturing, development and commercialization deal with Hospira.
In the past few years, ICU has made some subtle shifts in strategy via acquisitions and other investments. In 2002, the device maker picked up a line of blood collecting needles when it bought Connecticut-based Bio-Plexus Inc.
But investors aren’t scared off by ICU’s focus on Hospira. ICU’s stock price is up 39% to $32 since hitting a recent low in January. The device maker’s market value was $450 million last week.
“The relationship with Hospira is excellent,” O’Brien said. “If it was not excellent, we would not have had the opportunity to buy the plant. They have had a high opinion of us as a very low-cost manufacturer.”
ICU has made efforts to lure new customers. It has expanded in Europe, buying a small IV maker in Italy a few years ago. The company also sells its devices in Asia, Latin America and South Africa.
But O’Brien said that attracting new customers is “something we found difficult. We have found that whatever we create, Hospira wants to buy from us.”
Veteran ICU investors understand ICU’s relationship with Hospira, a spinoff of Abbott Laboratories Inc., O’Brien said.
“We do get the (Hospira) question from new investors. We don’t get the question very often from people who have been with us awhile,” he said.
