Medical device maker ICU Medical Inc. could look to sell a struggling business line after a rough start in 2008.
The San Clemente-based company saw a 70% drop in profits for the first quarter, helping to drive its shares down 30% this year. ICU had a recent market value of $360 million.
First-quarter sales of ICU’s critical care devices,patient monitors inserted via catheters and products used in internal X-rays of blood vessels and organs,fell 40% from a year earlier to $7.4 million.
Critical care sales made up 17% of ICU’s $44.7 million in first-quarter sales.
“We are certainly not satisfied with this line’s performance,” George Lopez, ICU’s founder, largest shareholder and chief executive said during a recent conference call.
The company’s other devices include catheter clamps and connectors used in the intravenous delivery of drugs.
ICU’s overall first-quarter sales were down 9% from a year earlier. Analysts had expected higher sales of $48.7 million in the quarter and a profit of $4.4 million,not the $2.9 million ICU reported.
Company executives told investors they are considering exiting the critical care business “sooner rather than later,” said Junaid Husain, an analyst with Soleil Securities.
Chief Executive Lopez made it clear “the status quo is not an option with investors,” Husain said.
The company earlier got into monitoring devices that are inserted into a patient and products for angiograms,or X-rays done inside the body,after shareholder pressure to diversify.
The company’s main moneymaker is a needle-free connector for delivering intravenous drugs.
ICU’s critical care unit struggles have affected investors’ perceptions of the company, according to Husain.
Leaving the business would be “a move we see investors applauding,” Husain said in a client note.
During the first-quarter conference call, ICU pegged its sales and profit shortfall on a slowdown at Lake Forest, Ill.-based Hospira, its main customer.
Hospira sells ICU’s critical care products under its brand name and sold fewer of them in the quarter, according to ICU.
ICU made a push into critical care in 2005 when it bought a Salt Lake City manufacturing plant from Hospira and moved most of its San Clemente manufacturing to Utah.
Various Options
Scott Lamb, ICU’s chief financial officer, emphasized last week that the company is looking at various options for the business.
“We have not made a decision yet,” Lamb said. “Getting out of critical care is just an option.”
In the past quarter, Lopez said Hospira added 18 salespeople.
ICU believes that effort, along with a new, latex-free balloon catheter and “many future products on the oncology pipeline” eventually will bring better results from critical care, Lopez said.
But he thinks it’s going to take a couple of quarters to reverse the downturn.
Hospira is ICU’s dominant customer. Sales to Hospira accounted for 66% of revenue during the first quarter.
“We have a good relationship with (Hospira),” Lamb said. “Unfortunately, so far things haven’t worked out on critical care like we had expected and hoped. But the rest of the Hospira business is doing very well.”
ICU’s historical reliance on Hospira and Abbott Laboratories Inc., which spun off Hospira four years ago, has drawn some concern from analysts and investors.
ICU does have arrangements with other distributors and some direct sales, Lamb said.
New Products
The company is banking on new products to safely deliver cancer drugs.
ICU’s “custom systems” sales fell 2% to $14.9 million in the first quarter. But the company said sales of cancer products within custom systems were $1.3 million compared to minimal sales in 2007’s first quarter.
New cancer products include Genie, a device that gets cancer medicines out of their bottles safely, and Spiros, an intravenous connector that helps deliver chemotherapy drugs.
Analysts expect ICU could see more sales of its custom intravenous sets to oncologists.
The company is using safety as a selling point to protect doctors and nurses who handle toxic cancer drugs.
The company’s oncology products “do a tremendous job of protecting the healthcare worker, (who) we believe has been completely ignored all these years,” Lamb said.
There are other companies making similar products, including Carmel Pharma Inc. of Columbus, Ohio, which makes a drug vial opener called PhaSeal.
ICU believes cancer products will reach $10 million in sales this year, said Lamb, who replaced longtime financial chief Frank O’Brien in March.
