We recently hosted our quarterly client webinar. You can watch the reply HERE and read a full transcript HERE.

Below is an excerpt from the webinar discussing our investment in Masimo Corp (MASI).

Excerpt (Todd Wenning speaking):

When we first invested in medical technology company Masimo in 2018, our focus was on the core Signal Extraction Technology sensor business. We saw – and still see – a tremendous runway there.

From the start, we’ve had a high opinion of management and the corporate culture. We think Masimo is a technology company tackling healthcare problems, not a healthcare company that uses technology to maintain status quo.

In that sense, Masimo is what we call an idiosyncratic business. It doesn’t fit neatly into one sector or another.

As generalist investors, we love idiosyncratic businesses as they are often misunderstood by sector specialists. Our opinion of Masimo has grown even stronger in recent months as COVID shook the healthcare system. The company responded aggressively and thoughtfully to the outbreak by caring for its stakeholders and introducing new products that can help medical professionals and patients achieve better outcomes. Masimo’s actions in recent weeks illustrated to us the business’s optionality.

Any time you have a company with valuable intangible assets and a vibrant culture that’s focused on serving customers, there’s increased likelihood of what we call unpredictable value creation. As we’ve seen with SafetyNet in recent months, Masimo can quickly create useful and scalable non-invasive sensor products. We think they a potential blockbuster in Masimo SafetyNet.

SafetyNet allows medical professionals to remotely monitor patient vital signs from a central nurse’s station. Stable patients can rest, while those with declining vitals get immediate attention. And because Masimo’s sensor false alarm rate is miles ahead of competing products, medical professionals can put faith in its output and not have to worry about running back and forth between false alarms, wasting time, energy, and money.

While SafetyNet is superior to the manual spot-checks typical of general floors, it had slow adoption due to the slow hospital product cycle and the incremental cost of implementing continuous monitoring. Initially, we thought SafetyNet would be limited to hospital use.  However, we now believe the addressable market is much larger. To date, sensors have been tied to monitor boxes, but now they can also be tied to smart phones.

After working with 2 pilot hospitals 24/7 for a few weeks in March, Masimo received FDA approval to launch the Masimo SafetyNet product to combat COVID. Similar to its Opioid product, Masimo SafetyNet uses a tetherless device that links to a smartphone and allows nurses to remotely monitor between fifty to seventy patients at a time. Research has shown that a low pulse ox reading with COVID is a sign of bad things to come. A reading below 93 is cause for concern and if a patient falls below that level, a nurse can tell them to come straight in for evaluation.

Masimo SafetyNet is useful to hospitals because they can send less critical patients either to a field location or back home while beds are reserved for the most in need.

With fewer patients in the building, there’s also less risk of virus spreading and infections. Patients who do not need immediate care can go home and quarantine themselves knowing that they are still being closely monitored by medical professionals.

As of May 5th – just a few weeks after launch – Masimo had 81 hospitals using SafetyNet and another 785 in the pipeline. Again, Masimo’s reputation for having highly accurate sensors is what makes their at-home monitoring product possible. If hospitals use a system with a high false alarm rate, the whole thing collapses. To put this in some perspective, the leading competing sensor has a false alarm rate of about 1 in 4. Masimo’s latest sensors are about 1 in 67. That’s a big difference and a major reason why we think Masimo will be a leader in connected care.

Importantly, as hospitals get used to the SafetyNet formfactor, we believe they will use the Masimo SafetyNet product for other uses beyond COVID. For instance, there are millions of cases in the US each year where people diagnosed with COPD or congestive heart failure go to the emergency room because of concerning symptoms, but upon examination are not sick enough to be admitted. Doctors can give these patients a Masimo SafetyNet to be monitored at home for a few days and give the patient some peace of mind.

Remarkably, Masimo SafetyNet only costs $150 for 8 days of continuous monitoring. Additional sensors can be purchased for $20. Compared with the cost of a night in the hospital, this is a massive cost-savings. All of it ties back to Masimo’s mission statement to improve patient outcomes and reduce the cost of care.

You can watch the reply HERE and read a full transcript HERE.

All image sources: Masimo

For more information about positions owned by Ensemble Capital on behalf of clients as well as additional disclosure information related to this post, please CLICK HERE

For more information about positions owned by Ensemble Capital on behalf of clients as well as additional disclosure information related to this post, please CLICK HERE.

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