Zacks_Analysts' Blog : Masimo's New Ear-Based Sensor - Analyst Blog

Masimo Corporation (MASI) recently announced the FDA 510 (k) and European CE Mark approvals as well as partial commercialization of its innovative, single-patient-use ear sensor. The Masimo E1 permits earlier detection of changes in oxygen saturation during low perfusion due to a number of clinical factors, including vasoconstriction arising from medication.

The E1 not only circumvents cross-contamination risks for users but also cuts down on the complications of sensor management for medical practitioners. In the current partial commercialization phase, select clinicians across the globe will be able to use and gauge the effectiveness of the E1 sensor.    

Clinicians frequently search for alternative monitoring sites in the head on account of difficulties with signal processing during difficult conditions. Single-patient-use sensors, for the head, currently in the market are unreliable. Monitoring from the head offers advantages such as quicker response to changes in oxygenation during low perfusion and the use of another location when the digit is not located.

The E1, placed in the deep hollow near the opening of the ear canal, permits clinicians to combine Masimo SET performance with a trustworthy alternative monitoring site. Usage of the cavum (cavity) conchea allows the patient to freely use his/her arms and is easily locatable by clinicians.

The E1 is made of long-lasting supple silicone and has no mobile parts that can irritate the dermis. By using the cavum conchea as its monitoring site, the E1 is able to avoid the problems faced by forehead sensors. The cavum conchea provides better perfusion and enhanced signals when compared with the traditional ear lobe site.     

Masimo recently extended its agreement (signed in January 2006) with Covidien (COV). Under the amended terms, Covidien will reportedly pay Masimo a royalty of 7.75% on its sale of the latter’s pulse oximetry products in the U.S. for three more years, starting March 15, 2011.

We are optimistic about the prospects of Masimo due to the steady growth in shipments, sizeable market opportunity and expanded pulse oximetry utilization into non-critical care areas in hospitals. Moreover, recurring revenues from sale of consumables are increasing at a brisk pace and shaping up as a long-term growth driver.

Also, the renewal of the royalty agreement with Covidien provides additional impetus. That said, we remain cognizant about intense competition and the company’s dependence upon its OEM partners. Our Neutral long-term rating for the stock is supported by a short-term Zacks #3 Rank (Hold).