Joe Kiani had made the dream come true. Masimo Corp. , which he founded and runs as chief executive officer and chairman, had carved out a lucrative niche as a leading maker of pulse oximeters, the fingertip sensors that hospitals use to measure oxygen saturation in patients’ blood. Masimo had created Kiani, who immigrated to the United States in poverty from Iran as a child, a wealthy billionaire, according to Forbes. As an electrical engineer, he was proud of the fact that the devices he personally designed were excellent and controlled a larger percentage of the U. S. The U. S. market for pulse oximeters for hospitals than its main competitor, Nellcor, which is a unit of Medtronic, a company with an age of about 15 years.
It’s also a successful business: Last year, Irvine, California-based Masimo earned $223 million in revenue of $1. 2 billion. early warning that the disease is getting worse), the company’s inventories soared 85% from early 2020 to maturity in 2021, giving Masimo a market capitalization of more than $16 billion.
Then Kiani to complicate sleep. After the market closed on Feb. 15, Masimo announced it would spend just over a billion dollars to buy Sound United, a consumer-focused audio, speaker and headphone company that owns brands like Marantz, Denon, Bowers.
Kiani was shocked. ” We thought [investors] would say ‘great!’And given our track record, we’re not going to ruin everything,” he says, sitting on an unbleached couch in his compulsively tidy office. they told me? Very angry shareholder, big shareholder?’ Devuélvelo. No buy it.
But Mike Polark, an analyst at Wolfe Research in Boston, wasn’t surprised by the backlash: “In medical technology, concentration pays. With 8 times the Ebitda, the challenge was not that Kiani had overpaid for Sound United. It is also a successful company that is expected to grow Masimo’s profits to $2 billion this year, a 67% accumulation. “The challenge for Wall Street is strategic direction,” Polark continues. “Why does Masimo sell over-the-ear hearing aids?”
The acquisition would immediately make Kiani’s company less profitable. The gross margin of Masimo’s medical device business is 65. 8%. In basic consumer electronics, such as headphones, 20% is more typical.
The move prompted activist investor Politan Capital Management, a year-long corporation run by Quentin Koffey, a veteran of activist investor Paul Singer’s Elliott Management and hedge fund DEShaw, to obtain a roughly 9% stake in Masimo, according to an archive in early August. Politan declined to comment on its plans, but in March the company helped pressure health insurance company Centene to update its CEO.
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Kiani, which has sold more than $500 million in Masimo inventory since the initial public offering in 2007 and still has an 8. 5 percent stake worth $650 million, is betting that medical devices will increasingly merge with customers’ electronics. Hearing aids for hearing aids and hearing aids. Think that other people will enjoy using them not only to pay attention to music (or their hearing), but also to measure their important signs, such as pulse and oxygen saturation. Of course, he is far from the only one who has this vision. Garmin sells watches that track core frequency, blood oxygen saturation and hydration. The newest Apple Watch can tell the wearer abnormally high or low heart rates or abnormal rhythms. In September, Sony announced its access to the over-the-counter hearing aid market. The only real difference is that those corporations are all large multinationals with decades of experience in the customer space.
Kiani, 57, has defied the odds many times so far. In 1974, when he was nine years old, he and his circle of relatives moved from Iran to Alabama so his father could study engineering. They had no money; for a time, the circle of 4 relatives lived in an assigned housing in Huntsville. In 1977, the Kiani’s moved to San Diego, where Joe’s father had enrolled in a master’s program in business administration. Two years later, when Joe was 14 and his sister 15. , his parents returned to Iran to work (his mother was a nurse), leaving the teenagers to live alone. “My sister has a kind of mother,” Kiani laughs. school at age 15, mainly, he says, because the mathematics he had studied in Iran were advanced, which allowed him to miss some classes.
That same year, he joined his sister at San Diego State University, where he studied electrical engineering while working part-time in the dining room and managing the apartment complex in which he lived. He took each and every course he could with Professor Fred alone. Harris, an expert in sign processing box, and in 1987 earned a master’s degree in electrical engineering.
In the late 1980s, while working as an engineer at semiconductor distributor Anthem Electronics, he took on the task of designing a low-cost $100 pulse oximeter for a new company. Kiani found that those devices emit false alarms, which are regularly activated when patients accidentally move. your fingers
Armed with wisdom about signal processing and adaptive filters (software to remove noise, necessarily), Kiani told the startup that it could only reduce the number of false alarms. The company was not interested. So, in 1989, Kiani, then 24, started his own business, Masimo, financing it with an instant $40,000 loan on his condo. For two years, he worked nights and weekends in his Southern California garage while performing his daily chore at Himno.
Using an equation he describes as something of fifth-grade algebra, Kiani worked on a prototype that kept pulse oximeters running even when patients dressed in them moved or had low blood flow. unity, since newborns cannot be told not to squirm. He almost patented his concept and contacted 4 US corporations, hoping to integrate the Masimo generation into their systems. No luck. He had more luck overseas, striking deals with NEC in Japan and several corporations in Europe.
By Jim Oberweis
Jim Oberweis is president of Oberweis Asset Management.
Disrupt the U. S. hospital market It proved virtually impossible. The purchase of equipment for hospital equipment had already signed exclusive (and lucrative) deals with Masimo’s competitors. In March 2002, the New York Times published a front-page article highlighting the purchasing practices of such equipment, presenting Masimo as a company with an impressive pulse oximeter that necessarily excluded it from the market. A month later, Kiani testified before the Senate Judiciary Committee’s antitrust subcommittee along with the heads of Novation and Premier, two hospital purchasing teams. [Nellcor], which has more than 90% of the pulse oximetry market, can pay purchasing organizations to exclude Masimo is absolutely false,” he told senators. Within a month, Premier submitted a contract to Masimo. Novation followed suit a year later.
Kiani is more than willing to fight with much bigger competitors. In 1999, he sued Nellcor (then owned by Tyco) for patent infringement; 10 years later, he filed a similar lawsuit against Royal Philips. In 2006, Nellcor began paying damages and royalties to Masimo that eventually totaled around $800 million, and Royal Philips paid more than $300 million in 2016. Masimo also earned $45 million as a result of an antitrust lawsuit filed against Nellcor in 2002.
Next: Apple, which Masimo accused of patent infringement and theft of trade secrets. Shortly after Masimo introduced the first smartphone-powered pulse oximeter in 2013, the company received a call from Apple, saying it was looking to reach out to work together. . Kiani held a meeting at Apple’s headquarters, but nothing was obtained from it. That same year, Masimo’s chief medical officer joined Apple, followed by the lead generation director of a Masimo spin-off in 2014. Apple has filed several patents that Kiani says were founded in his generation. Masimo continued in 2020; The case is expected to go to trial next year.
Masimo is postulating to expand beyond pulse oximetry. It has a product that can monitor hemoglobin non-invasively and has acquired a German company, TNI, which manufactures a breathing device to deliver oxygen to patients suffering from emphysema or chronic bronchitis. that 80% of Masimo’s profits in the medical side of the company still come from its central pulse oximetry unit.
Early in the pandemic, Masimo deployed a pulse oximeter with a smart bracelet connected to a smartphone app that many hospitals provided to Covid patients, allowing them to continuously track at home. Last August, Masimo introduced its first smartwatch: a $499 advanced health tracking watch that measures oxygen saturation, pulse, center rate, hydration, and more. Recently, a chain of hospitals in Saudi Arabia is conducting a pilot test. “If it goes well, it will go from a few hundred patients to 80,000 patients,” Kiani says.
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“In the customer world,” he adds, “I win the most productive generation. I that the more the entity is involved, the more it earns. And I am committed to it. On the other hand, Apple and Garmin are too.