A Primer on InfuSystem

Stay tuned for our Quick Take with the financials and investment perspective on InfuSystems.

Introduction

• InfuSystem operates primarily through its subsidiary, InfuSystem, Inc. (also referred to as "InfuSystem" or "ISI"). A former wholly-owned subsidiary, First Biomedical, Inc., merged into InfuSystem on January 1, 2024.

• InfuSystem is a leading national healthcare service provider, facilitating outpatient care for Durable Medical Equipment (DME) manufacturers and healthcare providers.

• It provides products and services to hospitals, oncology practices, ambulatory surgery centers, and other alternate site healthcare providers.

• The Company's headquarters is in Rochester Hills, Michigan, and it operates from seven locations across the U.S. and Canada.

Business model

• The company developed expertise and service offerings that DME manufacturers and healthcare providers use to reduce costs, improve service, and provide options for patients to continue treatment at home.

• The company leverages its existing platforms and incrementally add capabilities in areas like sales, clinical support, logistics, revenue cycle management, and biomedical services.

• The company provides services under two platforms: Patient Services and Device Solutions. These segments were previously known as Integrated Therapy Services and Durable Medical Equipment Services, respectively, with the names changing in Q2 2023 for marketing purposes without operational changes.

Patient Services

• The lead platform providing last-mile solutions for clinic-to-home healthcare involving complex DME and related services. Patient Services offers turnkey solutions designed to be implemented without service disruptions, allowing healthcare providers to focus on practicing medicine.

• Services include providing the DME and consumables, handling logistics, 24/7 nursing support, third-party payer DME billing, and biomedical services (inspection, repair, certification, replacement).

• Its clinical support team includes registered nurses trained on ambulatory infusion pump equipment who staff the 24x7 customer service hotline.

• Services are attractive to payers because they are generally less expensive than hospitalization or standalone home healthcare.

Core Oncology Business

• The leading service within Patient Services is supplying electronic ambulatory infusion pumps and disposable supply kits to private oncology clinics, infusion clinics, and hospital outpatient oncology clinics for treating various cancers and other disease states. Colorectal cancer is a significant area, with the standard of care relying on continuous chemotherapy infusions via ambulatory pumps. In 2024, Oncology Business approximated 90% of total Patient Services segment net revenues. Approximately 45% of Patient Services net revenues came from colorectal cancer treatments and 45% from non-colorectal disease states in 2024. Growth opportunities exist in treating other cancers and disease states, potentially utilizing new FDA-approved drugs or agents in the pipeline suitable for continuous infusion protocols.

• Continuous Infusion Chemotherapy: This involves the gradual administration of a drug via a small, lightweight, portable infusion pump over a prolonged period (1 to 30 days per month), followed by rest and repeat cycles. This method has replaced intravenous push or bolus administration in specific circumstances. Advantages include decreased toxicity without loss of anti-tumor efficacy. Higher doses can be administered over longer periods, leading to improved tolerance and decreased toxicity (affecting nausea, vomiting, diarrhea, white blood cell/platelet counts). This lower toxicity allows patients to continue a relatively normal lifestyle. The 2015 NCCN Guidelines recommend continuous infusion for numerous cancer diagnoses. Growth is driven by improved clinical outcomes, lower toxicity/side effects, and a favorable reimbursement environment. Oncology practitioners are sensitive to quality service and reimbursement. CMS and private insurers increasingly focus on evidence-based medicine, and continuous infusion therapy is a standard of care supported by clinical evidence showing superior outcomes, recognized by payers in their reimbursement policies.

• The company directly bills payers, facilities of Medicare patients, and patients for the use of the pump and related disposable supplies. This requires documentation from physician offices (insurance info, physician's order, acknowledgment of benefits, progress notes).

• InfuSystems offers a financial hardship program for uninsured patients. Billing is handled from Rochester Hills, Michigan. Electronic billing paperwork via systems like EXPRESS and InfuConnect.

• Focus areas also include Pain Management, providing pumps for post-surgical continuous peripheral nerve block (CPNB). CPNB for post-operative pain (usually 2-3 days) can reduce pain, increase surgical center satisfaction scores, and reduce the need for opioid pain medication. This includes patient call center support and review of pain score outcome data using the proprietary BlockPain Dashboard.

• Wound Care was launched in November 2022 through a partnership (SI Healthcare Technologies) with Sanara MedTech Inc., offering negative pressure wound therapy (NPWT) devices and supplies and Sanara's advanced wound care products to improve outcomes and lower costs.

• The payer environment is constantly changing, and new contractsare added, with the company including nearly 835 third-party payer networks as of December 31, 2024, a 2% increase over the prior year. While changes may slightly reduce billed revenues payment rate, they can increase collected revenues by reducing concessions. We are increasingly focused on revenues net of concessions. No single payer or customer represented more than 10% of net revenue in 2024 or 2023.

Device Solutions

• This platform compliments Patient Services to enhance growth. It is strategically oriented with existing healthcare provider relationships to capitalize on opportunities related to other services they offer.

• Device Solutions is offered as a "concierge" offering, leveraging its strong service orientation to provide incremental services on a direct payer model.

• Core services include the sale or rental of new and pre-owned pole-mounted and ambulatory infusion pumps and other DME, sale of treatment-related consumables, and biomedical recertification, maintenance, and repair services.

• Infu serves oncology practices, hospitals, home care/infusion providers, skilled nursing/acute care facilities, pain centers, and others.

• Pumps are purchased from various sources, repaired, refurbished, and certified for sale, rental, or use in the ambulatory infusion pump management service.

• Acquisitions like FilAMed and OB Healthcare Corporation in 2021 have supplemented and expanded biomedical services and field service capabilities.

• Infu operates pump service and repair "Centers of Excellence" at all locations, with the main one in Lenexa, Kansas. We also offer field-based services.

Chemical mouthpiece

• InfuSystem and Sanara MedTech formed a 50/50 joint venture called SI Healthcare Technologies, which holds the exclusive rights to distribute the Chemo Mouthpiece device throughout the United States.

• This partnership leverages InfuSystem’s established oncology sales team and network, currently calling on about 3K cancer centers nationwide, to market and distribute the device to patients undergoing chemotherapy.

• Chemo Mouthpiece is an FDA 510(k) cleared, prescription-only oral cryotherapy device designed to minimize the incidence and severity of oral mucositis—a painful side effect of chemotherapy that causes mouth sores and ulcers. The device works by cooling the entire oral cavity during and after chemotherapy to reduce inflammation and provide pain relief.

• It consists of four main components: HDPE plastic (high-density polyethylene), medical-grade silicone, filtered water, and a proprietary saline solution. To use it, patients place the mouthpiece in their mouth after freezing it. The design allows the frozen inner chamber and circulating cold saline to uniformly cool all oral tissues.

• Integrated breathing tubes help patients breathe comfortably while using the device, which is reusable for a single patient and easily cleaned with hot water and soap. The device is distributed exclusively in the U.S. by InfuSystem in partnership with ChemoMouthpiece, LLC.

• It is indicated only for adult chemotherapy patients and must be prescribed by a healthcare provider. For access, patients should have their physician contact InfuSystem.

• The Chemo Mouthpiece is designed as a multi-use, single-patient device and can be reused throughout a patient’s entire chemotherapy course, with proper care and cleaning.

• There are some hold-ups (see below), so management hasn't factored in any revenue from the device, but will change next year.

Competitive Strengths

• InfuSystem competes and retains business based on its long participation and reputation in the DME space, established relationships with manufacturers and healthcare providers, and high service levels. Current barriers to entry are created by:

  • Growing number of third-party payer networks under contract (nearly 835 as of Dec 31, 2024).

  • Economies of scale allow for predictable reimbursement and less costly pump purchase/management.

  • Established, long-standing relationships as a provider to outpatient oncology practices in the U.S. and Canada.

  • Large pump fleet of ambulatory and large volume infusion pumps for rent/sale, allowing responsiveness to customer needs. As of December 31, 2024, our rental fleet had a historical cost of $107.0 million, including approximately 85 makes and models.

  • Seven geographic locations allowing for same-day or next-day delivery.

  • Growing team of field-based and traveling biomedical technicians.

  • Wide array of pump repair and service capabilities.

• The company does not perform R&D on pumps but invests in information technology.

Information Technology

• Infu’s IT department supports internal infrastructure, revenue cycle management infrastructure, and electronic medical record (EMR) technology.

• Its EMR allows medical facilities to use our pumps and services via solutions like EXPRESS and InfuConnect, enabling electronic transfer of billing information.

• EXPRESS, powered by the InfuBus data integration platform, provides paperless delivery of billing information, offering enhanced visibility, reduced error risk, automated logs/tracking, secure scanning for pump assignment, removing interruptions from physician practices' schedules, and standardizing data flow for multi-location clinics/hospitals.

• Other mentioned IT services include Pump Portal, DeviceHub, and BlockPain Dashboard.

Relationships with Physician Offices

• As of December 31, 2024, Infu had business relationships with clinical oncologists in approximately 2.1K outpatient oncology clinics. Management believes it can continue to expand this network.

• Management believes our relationships are strong based on retention rates and customer satisfaction research. We generally do not compete directly with hospitals and physician offices; instead, we assist them in meeting patient demand and managing resource constraints. The trend of physician practice consolidation is noted, though the number of facility relationships remained relatively consistent through 2024.

Competition

• Competition primarily consists of national, regional, and hospital-owned DME providers and service companies, physician providers, and home care infusion providers. The exact number of competitors is unknown due to the variety in type and size.

• National DME Providers and Service Companies: Providing similar offerings, including third-party reimbursement, direct rental/sale of pumps and products/services for various care sites.

• Regional DME Providers: Act as distributors with smaller sales forces covering multiple states, limited pump selection, limited resources, usually no 24x7 nursing services, and potentially fewer third-party payer contracts, leading to higher patient out-of-pocket costs.

• Hospital-Owned DME Providers: Often in-house for basic equipment, generally have limited capital, stock a small inventory of pumps, have limited growth due to small patient populations, and typically don't provide referrals to competitors.

• Physician Providers: A limited number maintain their own pump inventory; however, pump utilization tends to be low, costs for supplies/maintenance/repairs can be high, a high percentage of claims are rejected initially, requiring significant staff effort, and service/technical questions from patients present significant costs.

• Home Care Infusion Providers: Provide chemotherapy drugs/services for in-home treatment. Home care treatment can be costly, and many patients lack insurance coverage for it, resulting in large out-of-pocket costs. Providers may be reluctant to offer 24/7 coverage or additional visits due to capped fees.

Additional information

• As of December 31, 2024, Infusystem had 514 employees (502 full-time, 12 part-time/contract). None are unionized.

• Infu supplies a wide variety of pumps, equipment, disposables, and supplies. The majority of pumps are electronic infusion pumps. ICU Medical, Inc. supplied approximately 60% of the ambulatory pumps purchased in 2024 under a supply agreement. Spot purchases are also made. Infu also supplies NPWT medical equipment and related supplies.

• Revenues may be seasonal due to insurance co-pays and deductibles resetting in January, impacted by changes in the insurance industry. Rental customers' buy vs. rent decisions late in the year (predominantly Q4) impact sales revenue. Opportunistic pump purchases and sales can also vary timing. Certain annual operating expenses (audit fees, sales meeting costs, payroll taxes for incentives) are higher in Q1.

• Infu’s business is subject to various regulations. As a registered Medicare supplier of DME and related supplies, we must comply with the DMEPOS Supplier Standards established by CMS. These include 30 requirements, such as advising beneficiaries on purchase options, honoring warranties, permitting inspections, maintaining liability insurance, restrictions on phone contact, handling complaints, maintaining accreditation, and meeting surety bond requirements.

Stay tuned for our Quick Take with the financials and investment perspective on InfuSystems.