Getinge: New Operational and Regulatory Stumbles Lead to Fair Value Drop to SEK 221 From SEK 260

Getinge’s GETI B recent litany of regulatory, quality, and supply chain troubles across multiple products provides us with a flashback to 2013-2015 when similar issues culminated in a consent decree by the U.S. Food and Drug Administration. We’ve lowered our fair value estimate to SEK 221 per share, down from SEK 260, as we don’t anticipate Getinge can fully resolve these issues until later in 2024. Moreover, considering the firm’s spotty record on execution, we wouldn’t be surprised to see another warning crop up between now and 2024. Considering Getinge’s performance over the last decade, we cast a skeptical eye on this firm’s ability to transform itself into an operator where hiccups are the exception rather than the rule. Despite the new missteps, we’re holding steady on Getinge’s narrow economic moat, which stems from its sterilization business and other equipment with high switching costs that haven’t changed in our view. Nonetheless, we’re eyeing the rest of Getinge carefully, and if the other businesses move into value-destruction mode, we would entertain a downgrade to Getinge’s moat.

Getinge’s latest woes include oxygenator packaging, quality issues with consumables used in extracorporeal membrane oxygenation and intra-aortic balloon pumps, or IABPs. We’re not particularly concerned about the disruption to the ECMO business and have held tempered expectations for 2023, as this technology had already seen dramatic declines in the second half of 2022 when the number of severely ill COVID-19 patients also fell.

We are more alarmed by the wholesale suspension of European regulatory approval of the ECMO consumables and IABPs. In one case, the issue came down to the sterility of packaging for some consumables. Getinge indicated it has already made progress on redesigning packaging, but it will take time to demonstrate the functionality, as well as for regulatory review. For these reasons, we expect the firm might not address all issues until the second half of 2024.