Masimo Corporation (NASDAQ: MASI) develops non-invasive patient monitoring products that help clinicians improve patient care. For example, the company invented Masimo Signal Extraction Technology (Masimo SET), which provides the capabilities of Measure-Through Motion and Low Perfusion pulse oximetry. This functionality allows the clinician to assess blood that delivers oxygen to the body's tissues and pulse rate in a non-invasive setting. In addition, the company offers remote monitoring and clinician notification solutions, such as the Masimo Patient SafetyNet. The ability for hospitals and clinics to pay for Masimo's products are highly dependent upon the reimbursement rates for Masimo's customers such as Medicare and Medicaid.
Masimo has built its revenue stream from a string of acquisitions, starting with the acquisitions of CP Medical Corp. in May 2005. Since then, the company's surgical products business (which accounts for almost all, or 99%, of total revenues) has achieved 10% revenue growth in both 2010 and 2009. The growth primarily comes from increasing sales of existing customers, and to a lesser extent, adding new customers. As a result, the acquisitions are typically used for receiving better technology to grow its top-line to existing customers.
Going forward, the company continues to use its strategies of becoming more integral within the supply chain of its customers both for existing products and for customers’ development programs. The company also does not plan to stop its acquisition spree by acquiring products, licenses and other intellectual property both in the US and abroad.
Major third-party payers for hospital services, in particular Medicaid and Medicare, contain healthcare costs through cost containment and closer scrutiny of private health insurers and employers. As a result, this adds a downside pressure for MASI's sales, and will impact the company's ability to make a sustainable margin. For example, in an effort to decrease costs, certain hospitals and other customers sometimes resterilize products otherwise intended for a single use or purchase reprocessed products from third-party reprocessors.
Furthermore, Medicare covers a substantial percentage of the patients treated for prostate cancer in the United States, a sector which MASI is heavily invested in. Many of MASI's products, including the surgical products business through its TheraSeed product, require Medicare reimbursement. As a result, unfavorable reimbursement levels and confusion regarding potential changes in Medicare have adversely affected sales of the company's brachytherapy products in the past and could do so in the future.
MASI operates in an industry where rapid and significant technology change in products offered is the key to staying ahead of an evolving industry. MASI constantly invests in new brachytherapy and other surgical products. However, many of these products are technologically innovative and require significant planning, design, development and testing. These activities require significant capital commitments and investment. The securing of capital is therefore crucial to continuously stay competitively advantageous in the marketplace.
MASI competes in a wide scope of medical applications that compete for relatively few entities as customers such as Medicare.