Portable oxygen concentrator maker Inogen, a recent IPO, isn't
content being the leader in its market as a result of the
lightweight, quiet and efficient technology it's incorporating
into its products.
It's also at the forefront of a whole industry shift, thanks
to its direct-to-consumer business model -- something that no
other company is currently implementing in the oxygen-therapy
space, according to one of its filings with the Securities and
"We've taken the approach of really focusing on the needs of
the oxygen patient by doing it in a way that we can leverage our
manufacturing process and reach those patients directly,"
) Chief Financial Officer Alison Bauerlein. "We've achieved
significant revenue growth once we made that shift."
Instead of following the classic model of making and then
selling the machines to home medical-equipment providers, Inogen
chose to market directly to consumers.
At about two-thirds rentals and one-third cash sales, this
portion of the business has grown to about 60% of Inogen's
revenue. The company's business-to-business segment accounts for
13% of revenue, while 27% is from outside the U.S., primarily
Europe, Canada, Australia and Latin America.
Inogen logged $48.6 million in revenue during 2012. For the
first nine months of 2013, revenue grew 60% from the same period
a year earlier, to $55.7 million.
Q4 Report Thursday
The company is scheduled to report fourth-quarter 2013 results
Thursday after the stock-market close. The consensus estimate of
analysts polled by Thomson Reuters is for full-year revenue of
$74.2 million and earnings per share of 23 cents.
The company's Inogen One machines work in real time by
removing nitrogen from the air and delivering oxygen to the
patient only when he or she inhales. They are portable,
lightweight, quiet and provide up to nine hours run time. They
don't require oxygen tanks or regular deliveries and can be used
in cars, on airplanes and at night. They address the long-term
oxygen needs of patients who live an active lifestyle.
In the U.S., approximately 24 million people live with chronic
obstructive pulmonary disease, notes JPMorgan analyst Michael
Weinstein in a research report. Called COPD for short, it
includes two main conditions -- emphysema and chronic
"In terms of COPD patients, approximately 70% of the company's
patient population have been diagnosed with the disease, which
points to the underdiagnosis within this space," Weinstein said
in his report.
The company was started in 2001 by three students at the
University of California Santa Barbara with the goal of improving
the life of Mae, a grandmother suffering from COPD, and those
like her who struggled with the currently available oxygen
In 2004, the company launched Inogen One, which allowed for an
improved quality of life due to its portability and ease of use.
In 2010, the company released Inogen One G2, followed by Inogen
One G3 in 2012. It stopped selling the older Inogen One in 2011.
Today, about three quarters of its revenue comes from its
flagship G3 model.
"Oxygen therapy is a large, historically sleepy market on the
cusp of significant change," Weinstein noted. "Portable oxygen is
quite simply a more attractive offering, allowing a degree of
mobility and independence previously unattainable for those
requiring oxygen therapy."
bring the company public
in an initial public offering on Feb. 13 of this year. The
small-cap debuted at $16 per share and currently has a market
capitalization of $300 million.
The U.S. market of patients needing oxygen therapy is
estimated at 2.5 million, representing a $4 billion opportunity
with expected 7% to 10% annual growth, Weinstein forecasts.
Outside of the U.S., there are approximately 2 million potential
About 85% of patients in the U.S. who get oxygen therapy
receive standard oxygen technology, composed of stationary
concentrators and oxygen tanks.
"Portable oxygen concentrators (POCs) have about 4% to 5%
market penetration, but it's the fastest-growing segment. And we
are the market leader of that segment," said Bauerlein.
Traditionally, durable medical equipment (DME) companies have
used the delivery model to bring the stationary concentrators and
cylinders to customers. As a result, they have built out
extensive infrastructure and established strong client
relationships along the way. Companies in this space include
Lincare, Rotech Healthcare, Apria and American HomePatient.
However, DME companies also offered POCs. "But these companies
had little incentive to switch patients away from the standard of
care and away from its existing infrastructure," Weinstein
POCs address the issues of cost and mobility for patients.
They cost between $2,000 and $4,000, and deliver higher levels of
oxygen per minute. They have batteries and can be easily
recharged. The G2 is Inogen's higher-capacity concentrator,
weighing 7 to 10 pounds. The G3 is the company's most lightweight
one at 3 to 6 pounds.
"Inogen's products score toward the top end of many major
categories," wrote Weinstein.
They are light enough to be carried by patients yet robust
enough to be used as a single solution, such as 24/7 therapy, he
noted. Weinstein forecasts Inogen's sales to grow at a 16% annual
rate from 2013 to 2016, above the peer group's average rate of
Along with the direct-to-consumer marketing model, better
technology and reduced costs have been the growth drivers in the
oxygen space. These factors also open the door to increased
Inogen's main DME competitor on the POC side is Lincare, which
"should continue to see strong growth in the POC market given its
breadth, existing customer base, and the ongoing shift that's
playing out in the marketplace," wrote Weinstein.
There are also multiple POC manufacturing companies, such
), Inova Labs and Respironics, a subsidiary ofPhilips (
). Other risks to Inogen's business include the company's
dependence on regulatory approvals for its devices and Medicare
rental reimbursement rates. As 25% of Inogen's revenue comes from
Medicare, declines in reimbursement rates could negatively affect
The company is already actively working on new models. It
plans to release the Inogen At-Home stationary concentrator later
"About 30% of the patients only require stationary oxygen;
they do not need an ambulatory solution," said Bauerlein. "Either
they only need oxygen at night when they are sleeping or they are
on the sicker end and don't need oxygen and just aren't
ambulatory as a result."
In 2015, the company expects to release the G4, incorporating
more innovations into a smaller device.
Patients usually find out about Inogen's products from
advertising, such as TV, print, the Internet and social media, as
well as from physicians. All of the company's products are made
in the U.S.