Masimo Corp. is expanding from hospitals to the home.
The maker of patient monitoring devices is developing a product to provide discharged patients with a way to monitor in their homes potentially misused prescription drugs like Vicodin, Percocet and OxyContin.
The Food and Drug Administration recently selected Masimo as one of eight applicants out of 250 to develop products to prevent and treat opioid use disorder.
“We’re excited about it,” Chief Executive Joe Kiani told analysts on a recent conference call. “We’re working hard on it. Obviously, third-parties are excited about it. But we’ll know more after we launch, and hopefully, we’ll launch it this year.”
The company has installed about 1,000 Patient Safety Net systems in hundreds of hospitals to track prescribed opioids for postoperative pain control. Such systems often cost thousands of dollars.
Masimo is aiming for an affordable home monitoring system that can be bought over the counter.
The market potential is big, Kiani said, noting 92 million legal prescriptions of opioids were filled last year. Last year, about 72,000 deaths occurred due to opioid overdoses, including 20,000 from prescription opioids, he said.
Masimo’s device will provide early indication of potential respiratory depression—a breath disorder characterized by slow and ineffective breathing after being prescribed opioids, he said.
“These drugs carry similar risks of causing respiratory depression at home as the IV forms of opioids administered in a hospital setting, tragically resulting in the death of tens of thousands of people while they are sleeping,” Kiani said.
“So the opportunity is at least 92 million prescription opioids.”
Fourth Quarter
On Feb. 26, Masimo reported fourth-quarter revenue climbed 7.3% to $223.1 million, above Wall Street’s estimate of $220.4 million. Its fourth-quarter adjusted earnings also topped analysts’ consensus.
The shares rose 5.1% in the subsequent three trading sessions and are up about 56% in the past year. Masimo has a $6.9 billion market cap.
Full-year revenue increased 8.6% to $858.3 million. Product revenue rose 12.4%, excluding some royalties that Masimo said expired last year.
Growth was driven by Masimo’s pulse oximetry sensors, which measures oxygen in the blood.
The company added customers such as Community Health Systems (NYSE: CYH), a 158-hospital system, and Mount Sinai Health System, the oldest and largest teaching hospital in New York. Masimo also added Turkish Ministry of Health, Leeds Children’s Hospital in England and the University Medical Center Groningen in the Netherlands.
The company predicted $912 million in product revenue this year, which would imply nearly 10% growth.
Kiani highlighted another top initiative called “ROOT,” a platform that displays information from a variety of devices such as ventilators, anesthesia machines and infusion pumps, on a single monitor.
“We look forward to working with our customers to optimize the flow of critical information to aid clinicians to improve patient outcomes,” he said.
The company plans to maintain its research and development investments at 8% to 9% of revenue.
Masimo may also consider acquisitions. Chief Financial Officer Micah Young said it’s looking for “more digestible, smaller type companies.”
UBS Securities LLC analyst Matt Taylor valued Masimo at a $147 price target, about 13% above where the company’s stock is now trading.
“We see [Masimo] as a better asset and are willing to pay a premium for the durability of its cash flows,” Taylor said in a note.
The company reported adjusted free cash flow of $222.4 million in 2018, up from $86.6 million a year earlier.
Opioid Crisis
Opioid pain relievers were prescribed in greater quantity starting in the late 1990s after pharmaceutical companies assured the medical community that patients would not become addicted to them.
However, it soon became clear that these medications were highly addictive.
The Department of Health and Human Services declared opioid addiction a public health emergency in 2017, and subsequently, the FDA launched a challenge last May, asking medical device companies to help combat the crisis.
“The medical devices from the selected participant include those intended to predict the risk of opioid use disorder, detect opioid overdose, dispense medication and provide pain treatment alternatives to opioids,” according to a statement released by the FDA.
Masimo’s device will have features “such as alarm notifications that can alert a family member, remote caregiver or even a first responder to awaken patients and potentially administer antidote for an opioid overdose.”
Kiani said the company remains an active dialogue with FDA to gain expedited product approval and plans to have more details at its annual analyst meeting on May 16.
“We are committed to reducing unexpected deaths and resuscitation events in patients who are prescribed opioids for postoperative pain control,” Kiani said.
Peter J. Brennan contributed to this story.
