ICU Medical Chairman Could Tap a Lasting Vein of Cash : Biotechnology: Whopping awards of stock options may prove lucrative for firm founder George Lopez, depending on sales of his ‘Clave’ intravenous device.

Surprising though it seems, one of Orange County’s highest-paid business executives last year, on paper at least, was George Lopez.

By executive standards, of course, the founder and chairman of ICU Medical Inc., a small San Clemente biomedical firm, took in a fairly modest $283,486 in salary and bonuses. But his whopping awards of stock options to purchase 660,000 ICU shares catapulted him into the ranks of the most highly paid.

If, according to the company’s proxy, the stock price appreciates at a compounded annual rate of 5% for the next 10 years, or he meets performance goals beforehand, Lopez could exercise the options and collect more than $7 million.

Of course, he could reap millions more, or nothing at all, depending on the stock’s appreciation.

Clearly, the size of his award is unusual, especially for a small company. But compensation consultants say that the way the award is structured ultimately should benefit ICU shareholders because the terms align Lopez’s interest with that of shareholders.

Because he is already a multimillionaire, consultants say that it may take an unusually lucrative long-term incentive like a stock option to motivate him to keep the stock price increasing.

And the performance targets he must meet will help keep his eye on the ball.

“He has to do something to earn the options rather than just being alive,” says Lawrence Wangler, a principal at the Irvine office of Towers Perrin, the New York-based management consulting firm.

Rhoda Edelman, managing director at Pearl Meyer & Partners, a New York executive compensation consulting firm, adds that unlike at many companies where executives become automatically and gradually vested in their stock options before the option term ends, Lopez can’t exercise his options earlier unless he meets performance goals.

“That’s a good link to the shareholders,” Edelman says.

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For many such struggling entrepreneurial firms with limited cash, stock options provide a good way to provide tantalizing long-term incentives for executives. Consultants note that technology companies particularly are known to set aside a good chunk of their stock for offering equity-based incentives to management.

But Lopez, a physician and inventor, is an unusual case because he has already made his personal fortune. In an interview last week, he appeared blase about the prospect of huge potential gains on his options. His family already owns or controls 1,993,595 shares, amounting to a 28% stake in ICU that’s worth roughly $32 million.

“I have all the money I need in the world,” he says.

Money alone generally doesn’t motivate somebody of Lopez’s wealth, observes Wangler, the Towers Perrin consultant. However, he says that the stock options provide a different sort of incentive: the possibility that Lopez could donate the eventual gains to establish, say, a trust fund for some medical foundation that will give him even more lasting recognition in his field.

According to ICU’s proxy, the compensation committee of ICU’s board of directors last year gave Lopez two awards of stock options to purchase a total of 660,000 shares. On Jan. 6, 1994, he got options to buy 560,000 shares for the stock’s fair market price that day of $16.25 a share. On Oct. 13, 1994, he received options to buy another 100,000 shares at that day’s price of $11.26 a share. The options expire in 2005.

Lopez can exercise the options 10 years from the date of each grant, or sooner if he meets certain performance objectives set by the company.

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It was Lopez’s invention of the “Clave” that won him the stock options. The Clave is a needle-less connector for intravenous apparatus aimed at eliminating the risk to health care workers of contracting dangerous viruses, such as HIV or hepatitis, through accidental needle sticks.

Introduced to the market two years ago, its sales grew 227% to $7.4 million last year over the prior year, and it’s already the company’s biggest seller.

Still, considering his stock options, Lopez can’t count his chickens yet. “If the Clave does not succeed, those options are worth nothing,” he says.

The company, founded by Lopez in 1984, has a troubled past--and it’s counting on the Clave to establish its future. In 1987, Lopez turned the company over to professional management, but took back control in 1989 after creditors forced it into a Chapter 11 bankruptcy. The company exited bankruptcy in 1991 and went public six months later with an initial 1.7-million stock offering that raised $10.7 million.

Last year, ICU’s earnings declined 13% to $2.9 million, or four cents a share, while sales jumped 45% to $16.5 million. The company blamed the earnings falloff on a decline in gross margin to 47% from 61% in the prior year, increasing selling and administrative expenses, and a higher tax rate. It also lost potential sales because it couldn’t meet all the market demand for the Clave.

This year, having beefed up production capacity for the Clave, ICU hopes its sales will take off and improve its financial results substantially. So far, results haven’t been exciting. For the first quarter, earnings fell 33% to $731,000, 10 cents a share, as sales increased 30% to $5.4 million. The company cited a further drop in gross margin to 44% from 60% compared with the same quarter last year.

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Still, in a happy turn of events, the company announced April 5 a multiyear agreement with Abbott Laboratories Inc., the corporate health care products giant, that could give ICU a strong market hold. Under the agreement, ICU will provide both products and technology for needle-less products like the Clave, while Abbott will provide sales, marketing and distribution.

A report by Commonwealth Associates, a New York stock research and brokerage firm, suggests that the Abbott deal, plus prior distribution arrangements, means that ICU will have about 60% of the U.S. market distribution channels for certain products sewn up.

Noting both the Abbott deal and increasing sales for the Clave, the analysts view 1995 as a “critical turnaround year” for ICU.