Company to broaden by buying, investing: move toward strategic acquisitions, investments marks subtle shift for San Clemente business.

ICU Medical Inc. is looking to branch out after years of relying on a single, dominant product.

The San Clemente-based medical device maker said it is stepping up its efforts to acquire products and has invested in an undisclosed medical device maker.

"We have substantial financial resources and we are using them," Chief Financial Officer Francis O'Brien said. "This is part of the evolution of our business."

Up to now, ICU has booked most of its sales from the Clave, a needle-free system for delivering intravenous solutions. In the third quarter, Clave made up 76 percent of ICU's $17 million in sales.

The move toward strategic acquisitions and investments marks a subtle shift for ICU.

About two years ago, George Lopez, ICU's chief executive, founder and major shareholder, said "diversification doesn't help a company."

But that was in early 2002, when ICU's stock was soaring.

This year, ICU's shares have had their ups and downs and were off 30 percent as of mid-November. The company counted a recent market value of $330 million.

ICU shares took a big hit during the summer. At the time, Lake Forest, III.-based Hospira Inc., an offshoot of Abbott Laboratories Inc., said it planned to buy fewer Claves in the second half of the year.

Concerns about ICU's reliance on Clave and Hospira struck a nerve with investors, particularly short sellers who bet on a drop in the company's shares.

"The short argument is that there is a concentration of sales to one customer," said Bruce Cranna, a diagnostics and medical supplies analyst for Boston-based Leerink Swann & Co., late last year.

Short sellers fail to take into account other dynamics for ICU, including that the company still has room to grow among Hospira's hospital customers, Cranna said.

Feeling The Sting

But ICU is feeling the sting of fewer sales to Hospira. The company lost $1 million in the third quarter, versus a profit of $4.2 million a year earlier. Sales were off 35 percent to $16.5 million.

ICU said it expects another loss for the current quarter, due to lost business from Hospira.

The company plans a mix of internal research and development and acquisitions to spur growth, O'Brien said. ICU quadrupled research spending in the third quarter to about 11 percent of sales, or $1.8 million.

In 2002, ICU picked up Punctur-Guard, a line of blood collecting needles, via its buy of Connecticut's Bio-Plexus Inc.

"We pretty much resolved that it's going to be a two-pronged approach, a combination of internal R&D plus acquisitions," O'Brien said. "Because R&D by itself isn't going to grow us enough."

Monopoly Money

ICU has money to play with. As of Sept. 30, it counted $82 million in cash and investments on hand, up from $73 million a year earlier.

Hospira still looms large for ICU. More than half of third-quarter sales came from Hospira. For 2003, it was 67 percent of ICU's $107 million of revenue.

In a Securities and Exchange Commission filing, ICU said it expected "this percentage of revenue to decrease in the fourth quarter of 2004 compared with 2003, as Hospira continues to reduce their amount of Clave products inventory."

But ICU said it expects its Hospira revenue to return to last year's level when the company resumes normal buying next year.

"The Hospira relationship has been an excellent one for us and has worked out very well for them, as far as we know," O'Brien said.

Even so, ICU said it is looking for new buyers. The device maker must team up with major players in order to get its products into the hands of hospitals and other users, O'Brien said.

Baxter International Inc., based in suburban Chicago, is one of Hospira's main intravenous competitors, along with Germany's B. Braun Melsungen AG, which ICU no longer does business with.

One player in the intravenous pump market is Alaris Medical Inc., a San Diego company that ICU is battling in court.

Hospira has a big share of the U.S. intravenous market and "provides us access to that market," ICU said in its regulatory filing. "We expect that Hospira will be important to our growth."

Vita Reed writes for the Orange County Business Journal.