ICU Medical, Incorporated (ICUI): Has This Healthcare Device Innovator Put out the ‘For Sale’ Sign?

ICU Medical, Incorporated (NASDAQ:ICUI)’s share price jumped sharply in early May after media outlets reported potential buyer interest in the medical device specialist. The company was one of the pioneers of needle-free connector devices that attach multiple syringes to a patient’s catheter, thereby allowing healthcare workers to avoid infection-causing needlepricks. Its Clave brand of devices has a leading market share in the IV connector segment, thanks to a cozy relationship with infusion therapy giant Hospira, Inc. (NYSE:HSP), and it has built an operating footprint across 50 countries. So, should investors take a position?

What’s the value?

As infections from needlepricks have grown alongside increased healthcare activity, the federal government has made healthcare worker safety a focal point. Congress passed the Needlestick Safety and Prevention Act in 2000, which required needle-safe systems at healthcare facilities and was a step up from the previous “universal precaution” standard. The Centers for Medicare and Medicaid Services brought out its own “stick” when it discontinued payments for hospital acquired infections caused by needlepricks in 2008. Both of these developments played into the hands of ICU Medical, Incorporated (NASDAQ:ICUI), whose products provide suitable protection against these accidental infections.

In the first six months of FY2013, ICU Medical, Incorporated (NASDAQ:ICUI) has posted somewhat weak results, with flat revenue growth and a 7.8% decline in operating income. Unit volume growth in the company’s core infusion device segment has flatlined and its newer forays into the critical care and oncology segments have posted mixed results. In addition, ICU Medical, Incorporated (NASDAQ:ICUI)’s profitability has been hit by the costs of maintaining a global sales force. However, the company has a $240 million cash position, and its leading market position likely holds value for a range of buyers.

Battle of the spinoffs

While ICU Medical, Incorporated (NASDAQ:ICUI)’s cash position would be enticing to financial buyers, the most likely acquirers are strategic buyers looking for synergies. At the top of the list is Hospira, Inc. (NYSE:HSP), the former Abbott Labs’ unit and a leader in infusion therapy and related pharmaceuticals. The company is ICU Medical, Incorporated (NASDAQ:ICUI)’s largest customer, accounting for over 40% of its total sales. The companies also have a relationship in the critical care segment, with a distribution agreement that runs through 2018.

In its latest fiscal year, Hospira, Inc. (NYSE:HSP) posted relatively weak financial results, due primarily to manufacturing problems with its Symbiq infusion pumps that led to a temporary halt of product sales in the fourth quarter of 2012. For the period, the company reported flat overall sales growth and a 43.2% drop in adjusted operating income. Hospira’s profitability was hurt by the lost sales, as well as higher quality assurance costs that were required as part of the FDA’s investigations of the company’s manufacturing practices.