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Masimo Corporation (MASI - Analyst Report), a leader in non-invasive patient monitoring know how, recently revealed that it had inked a deal with Premier, a group purchasing organization, for its SedLine brain function monitoring device. Following a competitive bidding process, Premier will make available SedLine to its participants.

In effect till July 31, 2015, Premier participants may buy Masimo Sedline brain function monitoring system through the company’s clinical education force and direct sales team.

SedLine know how facilitates better care of anesthetized patients. It monitors brain functioning and provides timely information about the patient’s reaction to anesthesia in both the intensive care unit and operating room.

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 in 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.

Shipments have been growing at a steady rate fueled by new contracts. However, the renewal of the royalty agreement with Covidien (COV - Analyst Report) provides little or no benefit due to lower rates.

We also note Covidien’s 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. The stock carries a Zacks #3 Rank, which translates into a short-term Hold rating.

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