Credit: Shutterstock photoT he recent sell-off left a lot of newly public companies gasping for air, but shares of portable oxygen concentrator makerInogen ( INGN ) are floating even higher.
Shares of the Goleta, Calif.-based company have more than tripled since it went public at 16 per share on Valentine's Day in 2014 -- perhaps a fitting day to start trading, since it was out of love and compassion that Inogen was conceived.
About 15 years ago, CFO Alison Bauerlein's grandmother was diagnosed with the progressive respiratory condition known as chronic obstructive pulmonary disease, COPD. The resulting oxygen therapy hampered her mobility greatly.
Mae, who Bauerlein described as an "active lady" who loved to travel and meet up with friends, was suddenly anchored by a heavy tank that dictated her movements.
"When she got put on oxygen (therapy), it really limited how much she could get out of the house and do what she wanted to do," Bauerlein told IBD. Even making plans to go shopping or see a movie revolved around how many oxygen tanks were available and how long they would last. Concerns like "What if there's traffic on the way home?" or "Do I need to save this tank for a doctor's appointment tomorrow?" had to be taken into consideration.
Bauerlein, then only a sophomore at the University of California at Santa Barbara, mulled over the problem with a few classmates. They formulated a business plan to build smaller, lighter medical oxygen sources and entered it into their college's annual entrepreneurial competition for undergraduate and graduate students.
The plan won first place, and judges Kathy O'Dell and Steve Cooper liked the idea so much they became the first heads of Inogen.
Nine-Hour Supply
The company went on to develop portable oxygen concentrators (POCs), which use a chemical process to separate oxygen from nitrogen in the surrounding air -- meaning that users do not have to rely on a finite supply in a tank. While a traditional oxygen cylinder doesn't last long (a normal-size tank provides air for two to three hours, said Bauerlein), Inogen's current models can last up to nine hours with a double battery, which can be recharged by when plugged into a typical outlet.
The technology has been around for a long time, she said, but "we optimized it and miniaturized it."
In October 2004, her grandmother received the first product off the line, weighing nearly 10 pounds.
"It was exactly what she was hoping for," said Bauerlein. Mae used her newfound freedom to take a weeklong cruise to Mexico with her family.
Inogen brought in $112.5 million in revenue last year -- about 63% from sales and 29% from POC rentals. In 2014, the company sold about 33,200 units, up almost 73% from the year before, and ended the year with about 28,400 patients renting equipment, 33.3% more than in 2013, it said.
Its stock, which now has a best-possible 99 IBD Composite Rating, is a member of the IBD Medical-Products industry group, which includes such leaders asEdwards Lifesciences ( EW ),Abiomed ( ABMD ) andCambrex ( CBM ). The group is ranked 13th out of 197 industry groups tracked by IBD.
Inogen shares broke out of a flat base with a 45.85 buy point on Aug. 12, a day after the company beat analyst Q2 forecasts with a 55% earnings leap to 17 cents a share and a 45% revenue jump to $44 million.
The firm also boosted full-year sales guidance to $145 million-$149 million, up from $133-$137 million, on "better-than-expected business-to-business revenue worldwide." But Wall Street's current expectations run higher at $150.8 million for the year.
Following the release of Inogen's Q2 results, Leerink, JPMorgan and Stifel all raised their price targets on the stock.
Analysts appear bullish about the company's growth opportunities.
Home oxygen therapy is said to be a $3 billion to $4 billion market with a 7% to 10% per-annum growth rate. A mere 5% of oxygen is delivered through POCs right now, Stifel analyst Thomas Carroll told IBD. Leerink's estimate for POC penetration now is 8%.
"( W )e see significant runway for growth still from here in line with or better than our projected 15% (compound annual growth rate) over the 2014-2018 timeframe even after INGN put up a 51% growth year in 2014," noted Leerink analyst Danielle Antalffy in May.
European Sales Grow Too
In its Q2 report, Inogen said its domestic business-to-business sales climbed 80.5% from 2014, driven by "growing reseller and private label demand" for POCs, while international B2B sales rose 71.7% on European strength. The company increased its sales staff late last year and in the first half of this year, prompting direct-to-consumer sales to grow 35% from 2014.
Although Inogen's focus remains POCs, its singularity doesn't seem to be a terribly big concern.
"There'd be a risk if they were getting into a saturated market, but they're not," said Carroll.
And Inogen's newest products are viewed favorably.
Its stationary concentrator is going to compete "very effectively" against its competitors, Stifel analyst Thomas Carroll told IBD.
"On looks alone, the stationary concentrator that they sell looks like something you'd buy at Brookstone (vs.) the competition the size of a chair that looks like something you'd see in the hallway of a hospital."
And the new G4 POC, which is expected to launch commercially in the first half of 2016, is seen as a "significant growth driver" next year, noted Needham analyst Mike Matson in June.
Down the road, Bauerlein said the company plans to increase its sales rep staff and boost distribution worldwide.
Inogen's products have a presence in 45 countries but have "very little penetration outside of the U.S. and Europe," she said, as expansion is limited by reimbursement markets.
Analysts have also set their sights overseas.
"Reimbursement for POCs is substantially higher in Europe (two to three times higher than the U.S.) and many health care systems there allow patients to choose between tanks and POCs," wrote Matson. "Given this, we expect POCs to continue to sustain rapid growth in Europe."
Headwinds include expected reimbursement cuts from Medicare. Domestically, demographics are "playing in their favor," said Carroll, especially as a younger, ambulatory group become Medicare eligible.
Bauerlein knows that the next generation of patients will have higher expectations, and said Inogen is ready to meet them.
Redefining Mobility
"Our definition of mobility is different from the standard oxygen (therapy) patient," said Bauerlein. "We define mobility as going to the grocery store on their own and being able to attend a wedding or being there for the birth of a grandchild -- not being homebound."
"We see especially more baby boomers come into this age bracket, and they want a tech (savvy) solution," she said. "They won't just accept, 'OK, I guess for the rest of the life now I'll be more homebound.'"
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
