A Larger ICU Medical Faces Efficiency Problems on Road to Margin Improvement

With roots as a supplier of infusion consumables, ICU enhanced its product mix through the transformative acquisition of Hospira Infusion Systems from Pfizer in 2017 by bringing infusion pumps, a broader consumables offering, and IV solution manufacturing into the fold. The firm has become a more complete infusion and IV provider with the acquisition of the Smiths Medical division (various IV-related products and other medical supplies) in 2022. In our view, ICU’s focus on building a more comprehensive portfolio adds to the long-term stability to its revenue mix thanks to lengthy contracts and a hallmark razor-and-blade model in its systems business. We think unrivaled scale in consumables allows ICU to offer rock-bottom prices that competitors would be hard-pressed to beat and gives us confidence in the firm's ability to generate excess returns over the coming decade. In IV systems, although we believe ICU faces an uphill battle in competing with leader Becton Dickson, we believe this space offers an attractive opportunity to exploit high switching costs in this industry.