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New Offerings from Masimo

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Recently, Masimo Corporation (MASI - Free Report) , a leader in non-invasive patient monitoring technology, announced the European CE Mark approval and introduction of the new fractional arterial oxygen saturation parameter – SpfO2 through the rainbow Universal ReSposable SuperSensor.

The SpfO2 as well as the rainbow SuperSensor are awaiting 510(k) clearance from the U.S. Food and Drug Administration (FDA). The rainbow SuperSensor is the first non-invasive sensor to provide concurrent monitoring of SpHb, SpCO, SpMet, SpfO2, SpOC, Perfusion Index, PVI, and Measure-Through Motion and Low Perfusion SpO2 and pulse rate of the patient.

To date, pulse oximeters were known to evaluate and display functional oxygen saturation parameter (SpO2). The technological advancement at Masimo will enable its rainbow Pulse CO-Oximeters to measure and display SpfO2. The debut of the SpfO2 parameter will improve standards of care by helping clinicians in decision making about common therapies like oxygen administration and red blood cell transfusion.

The rainbow SuperSensor, as Masimo’s newest introduction, is expected to bolster rainbow product sales and increase its worldwide installed base. Revenues from rainbow products improved 7% year over year to $9.7 million in the second quarter of 2012. The company shipped 37,300 new Pulse Oximeters and Pulse CO-Oximeters in the most recent quarter. This increased its global installed base to over a million units.

The CE Mark approval will further boost Masimo’s foothold in the international market. International product revenues increased 7% year over year (in terms of constant currency) to $32.1 million. Ex-U.S. product revenues represented 27.8% of total revenues with revenues from Europe, Middle East and Africa representing 13.8% of total revenues.

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. The rainbow SpHb measurement platform continues to record steep growth with 48% year-over-year surge in the most recent quarter.

However, the company’s reliance on third-party providers like OEMs for a part of its business and customer concentration raises concern. We also note Covidien’s effort to expand its oximetry and monitoring products portfolio. Earlier this month, the company won the U.S. Food and Drug Administration (FDA) 510(k) approval as well as the European Economic Area (EEA) CE Mark clearance for its Nellcor Bedside Respiratory Patient Monitoring system.

We currently have a Neutral recommendation on Masimo. The stock carries a Zacks #3 Rank, which translates into a short-term Hold rating.

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