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Saturday, May 28, 2022

As Pandemic Wanes, a New Chapter Begins for Masimo

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A focus on innovation, and a healthy research and development budget, helped build Masimo Corp. into one of Orange County’s largest public companies, one whose medical devices played a critical role during the pandemic by allowing doctors and nurses to remotely monitor patients.

The Irvine-based firm (Nasdaq: MASI), valued around $8.1 billion as of last week, thinks its best days are still ahead thanks to an active product pipeline, one that includes offerings designed to tackle another public health crisis, the opioid epidemic, and, notably, the imminent launch of its own smartwatch, marking the company’s first big move into more consumer-focused products.

On April 5, Masimo Chief Executive Joe Kiani held a press conference at the company’s Spectrum-area headquarters that included Assemblywoman Cottie Petrie-Norris (D-Laguna Beach), Gov. Gavin Newsom Senior Adviser Dee Dee Myers and others to discuss how innovation-based businesses can save lives.

Masimo’s scientists “did incredible work throughout the COVID-19 pandemic to help first responders, doctors and nurses,” Petrie-Norris said in her remarks.

“We not only advanced the lives of many people with these technologies, but we advanced the science that others will build upon, to build even greater things,” Kiani said.

Stock Swings

The new product launches come at a crucial time for Kiani and Masimo.

Masimo, known for selling devices to hospitals, is trying to recover from a 37% share drop on Feb. 16 after it announced its largest ever acquisition—for $1 billion—would be a consumer audio device maker, San Diego-based Sound United. The deal is expected to close in mid-2022.

Then the company on March 30 announced preliminary first-quarter revenue of $285 million to $315 million, lower than analysts expected, because of supply chain issues.

It did reiterate its 2022 forecast for $1.35 billion.  

Kiani expects the supply chain issues related to the pandemic will soon be resolved.

China is currently in a lockdown, “but we think we’ve caught up with it,” Kiani told the Business Journal last week. “I hope we will do even better than we projected the whole year.”

At press time, Masimo’s market cap made it Orange County’s fifth most valuable publicly traded company. Its shares traded around $147, about 52% off its 52-week high of $305.21 last November. Its stock price is slightly below where it stood at the onset of the pandemic, just prior to a big run-up in price.

Local Manufacturing

Kiani is taking supply chain issues related to one big new product launch into his own hands.

Masimo is ramping up local production of a smartwatch that measures oxygen, pulse rate and respiration. It will be manufactured in a 127,000-square-foot building on 58 Discovery in Irvine.

It took over the lease for the property, located directly next to its headquarters, last year, in one of OC’s larger lease deals for 2021.

“We’re manufacturing it right now, next door,” Kiani told the Business Journal.

“Hopefully within a month, it will be out for sale.”

Masimo’s watch will compete with the Apple Watch; Masimo is suing Apple Inc. (Nasdaq: AAPL) for allegedly infringing its patents related to blood oxygen measurement technology.

Curbing Opiate Withdrawal

About 100,000 Americans died of opioid overdose in the 12-month period ended last April, with about 10,000 of them occurring in California, according to Petrie-Norris.

Masimo is tackling the crisis by producing technologies like its new Masimo Bridge—the first drug-free, nonsurgical device of its kind that can curb opiate withdrawal symptoms in about 20 minutes.

The device attaches to the back of the ear and provides continual electrical impulses to provide release from withdrawal symptoms like nausea, stress and lack of appetite. The technology dates to ancient Persian medicine, explained Kiani, who left Iran when he was 9 years old.

“They used to burn the back of their ear to get rid of pain and other issues,” he told the Business Journal.

“You have to take methadone for four to five days to achieve what this thing does in a matter of minutes.”

The FDA has cleared the commercial-stage device to treat opioid withdrawal symptoms, but it hasn’t yet cleared it for pain management.

Masimo Chief Medical Officer Bill Wilson added: “If we can use a device like Bridge that decreases the requirement for opioids early post-op, then the likelihood of patients becoming addicted will be much lower.”

Advancing Science

Masimo, which Kiani started in his garage with just $40,000 in 1989, develops and manufactures a suite of noninvasive devices to monitor blood and oxygen levels for patients in hospitals.

Today, Masimo employs 6,000 people and monitors over 200 million people per year. It spent some $137 million on R&D; expenses last year, 11.1% of its annual revenue. R&D; spending in 2021 was up about 16% from 2020 levels.

In February, Masimo reported fourth-quarter revenue grew 11% to $327.6 million and full-year sales increased 8.3% year-over-year to about $1.23 billion.

“There’s no question that 2021 provided us with an opportunity to shine by contributing to solutions for the multiple challenges related to the pandemic,” Kiani told analysts during a recent earnings call.

For example, Masimo’s cloud-based monitoring platform, the Masimo SafetyNet, enabled care providers to keep an eye on up to 200 COVID patients at the same time, from a safe distance.

“If we weren’t here, these technologies … wouldn’t be here,” Kiani said at last week’s event. 

California Reinstates R&D; Tax Incentives

During the pandemic, California suspended its research and development tax incentives, which give life science companies a break on expenses for new products.

On Feb. 9, Gov. Gavin Newsom signed it back into law one year earlier than expected.

Masimo Chief Executive Joe Kiani said the R&D; tax credits enable local companies to stay “instead of many of our companies being moved out of California.”

California is the country’s biggest spender on R&D;, accounting for more than one-fifth of the country’s total R&D; investments—and 30% of its patents, according to Dee Dee Myers, a one-time spokeswoman for former President Bill Clinton and now an adviser to Newsom.

“This early action package is an investment in our economic recovery and California’s innovation economy,” Myers told the Business Journal. “It’s fueled by our incredible universities like UC Irvine and creates a cluster of innovative companies that feed off of each other.”

“Orange County is a burgeoning hub in our innovation economy,” added Assemblywoman Cottie Petrie-Norris. “California is a global technology capital—but we can’t take that position for granted. We have to be intentional about attracting new companies to create high-paying jobs.”

Audrey Kemp
Audrey Kemp
Audrey Kemp is a staff reporter and occasional photojournalist for the Orange County Business Journal. Her beats include — but are not limited to — healthcare, startups, and education. While pursuing her bachelors in literary journalism at UC Irvine, she interned for New York-based magazine Narratively Inc., wrote for Costa Mesa-based lifestyle magazine Locale, and covered the underground music scene for two SoCal-based music publications. She is an unwavering defendant of the emdash and the Oxford comma.

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