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Masimo Corporation ((MASI - Analyst Report)), a leader in non-invasive patient monitoring technology, recently announced the limited market release of its Universal ReSposable Pulse Oximetry Sensor System. The ReSposable sensor offers measure-through motion and low perfusion performance and accuracy of Masimo’s patented Signal Extraction Technology (SET).

The commercialization of the ReSposable sensor will enable the company to achieve environmental goals. Masimo’s ReSposable sensor is a cost-effective solution for hospitals to deliver quality care. Hospitals, under pressure to curtail costs, are expected to opt for the company’s newest sensor.

According to Masimo, the size of the pulse oximetry market was over $1 billion in 2011 with the sensors contributing the lion’s share to the market. Thus, the ReSposable sensor represents sizeable commercial opportunity.

The market adoption of the ReSposable sensor will increase Masimo’s installed base leading to higher recurring revenue in the years ahead. The company’s installed base for its pulse oximeters and original equipment manufacturer (OEM) monitors with SET is currently over a million units.

Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company’s prospects are encouraging, given the sizeable global market opportunity, adoption of pulse oximetry in non-critical areas of the hospital and growing barriers to entry due to additional non-invasive parameters.

While Masimo’s patented SET offering remains its mainstay, the rainbow measurements represent another growth driver beyond hospital care. However, the company’s reliance on third-party providers like OEMs for a part of its business and customer concentration raises concern. Additionally, we remain concerned about Masimo’s reliance on group purchasing organizations for the sale of its pulse oximetry products to hospitals in the domestic market.

We also note Covidien’s (COV - Analyst Report) effort to expand its oximetry and monitoring products portfolio. Earlier this month, the company won U.S. Food and Drug Administration (FDA) 510(k) approval as well as European Economic Area (EEA) CE Mark clearance for its Nellcor Bedside Respiratory Patient Monitoring system.

We currently have a long-term ‘Neutral’ recommendation on Masimo.

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