Masimo Corp.’s sales pulse has quickened over the past few years.
“Pulse oximetry, I think, is going to become a household name over the next decade,” said Joe Kiani, Masimo’s founder and chief executive.
Kiani is talking about Irvine-based Masimo’s primary device—a pulse oximeter that attaches to a finger or toe and measures oxygen in critically ill adults or newborns.
The device is “the measurement that can tell if your heart, or lungs, or circulation is having any problems,” Kiani said. It also cuts down on false alarms and other misreadings caused by patient motion or low blood flow, according to the company, which gets the majority of its revenue from sales of reusable and disposable versions of sensors used with its devices.
Masimo ranked No. 30 on the Business Journal’s annual list of fastest-growing public companies based here. It had $429.2 million in sales for the 12 months through June, a 30% hike from two years earlier.
Masimo already claims about one-third of an estimated $800 million in annual sales of pulse oximetry products in the U.S. It has about the same share of a global market estimated at about $1.2 billion.
Much of that comes from critical care units at hospitals.
Now Masimo is looking to expand into the general hospital market, Kiani said.
“If you think about this from a business perspective, there are, in the U.S., about 120,000 critical-care beds, and yet there’s anywhere from 450,000 to 900,000 general-floor beds,” Kiani said.
If every general-floor hospital bed decided to “do continuous monitoring so people won’t be found dead in bed, you could just imagine—it would dwarf the current pulse oximetry market,” he said.
Masimo should grow revenue in the mid-teens range over the next three years, “driven by share gains and market expansion in pulse oximetry, greater adoption of its new product and margin expansions,” Tao Levy, an analyst with New York-based Collins Stewart LLC, wrote in a coverage initiation report.
Levy also said the combination of Masimo’s devices—including its original SET product, and others such as the Patient SafetyNet and Rainbow Acoustic Monitoring—are expected to help drive more use of monitoring in general hospital floors.
Another boost could be coming now that the federal Department of Health & Human Services has recommended pulse oximeters for use as a screening device for newborn babies.
The accuracy and reliability of Masimo’s products also are a key to driving sales, according to Jason Moser, an analyst with the Motley Fool investor website.
The company’s devices are being adopted by hospitals and other users “as they overcome the many limitations of conventional pulse oximetry … In fact, more than 100 independent studies show that it outperforms other pulse oximeters,” Moser said in his recent article about Masimo.
Other Devices
Masimo has other devices in its arsenal.
Its Rainbow SET offers non-invasive measurement of hemoglobin, a protein found in the blood, along with spot-check hemoglobin monitoring, measurements of respiration rates, and carbon monoxide and other types of monitoring.
In August, Masimo said it expects Rainbow sales at the lower end of a $40 million-to-$50 million range for the year, due in part to a slowdown in FDA processes for approving new products. An offshoot product—the Pronto-7 hand-held monitor—is awaiting Food and Drug Administration clearance for a finger sensor that’s used with it.
Masimo originally introduced Pronto-7 in mid-2010, but recalled the sensors because of data problems. The company has reintroduced it overseas.
“I actually don’t know when the revenues are going to catch up with my pride and excitement over Rainbow, but I know it will,” Kiani said. “Technology adoption isn’t a straight line—it’s an S-curve.”
Masimo is due to report its third-quarter results Oct. 25.
Analysts expect the company to post a profit of $16.5 million for the quarter, basically flat from the year-ago period. Third-quarter revenue is expected to come in at $107.7 million, up 6.6%.
Masimo’s guidance on per-share earnings indicates it could see a full-year profit of $71.6 million to $76.5 million. That’s compared to Wall Street’s projection of $71 million.
The Street
The company has faced a tough time on Wall Street. So far this year, its shares are down about 25% with a recent market value of about $1.37 billion.
The dip appears to have little to do with earnings, according to Lawrence Keusch, an analyst who follows Masimo for Memphis, Tenn., investment bank Morgan Keegan & Co.
Masimo’s reach extends beyond its own brand.
It licenses its technology to Royal Philips Electronics NV, CareFusion Corp., General Electric Co., Medtronic Inc. and Welch Allyn Inc. for use in those companies’ monitoring equipment.
The licensing is a “big part of our business—it’s our roots, where we started and it’s an important way to get our products to the people who need (them) most,” Kiani said.
There have been some welcome changes for Masimo lately.
For instance, its longtime scrap with rival Covidien Ltd., parent of medical device maker and Masimo rival Nellcor, has turned quiet.
The two companies have traded patent suits over the years, among other things.
At the end of January, Masimo assured itself of some recurring revenue and staved off another round of patent litigation when it struck a settlement with Covidien, which has tax-friendly headquarters in Ireland and operates from Massachusetts.
Royalty Deal
Masimo is receiving a 7.75% royalty on U.S. sales of pulse oximeters from Covidien through at least March 15, 2014. The deal extends a lawsuit settlement reached five years ago that saw Covidien pay Masimo about $500 million in the past few years.
“I’m happy where things are at,” Kiani said. “I don’t want to get into another protracted lawsuit if I can avoid it.”
