Medical Device Giant Masimo Ousts Founder CEO; Former Johnson & Johnson Executive Steps In Amid Strategic Overhaul
Masimo
Developer, Manufacturer, and Seller of Medical Monitoring Instruments
Johnson & Johnson
Medical Device R&D and Manufacturer
Source: Medical Device Business Review
Author: Commenter
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At the beginning of 2024, the U.S. International Trade Commission (ITC) ruled that Apple had infringed, and subsequently, related Apple Watch products were suspended from sale in the U.S., causing a market sensation.
And behind this ruling, a protracted patent war has already gone through several rounds.The Medical Device Giant Masimo Takes on Apple。
At that time, Joe Kiani, CEO of the victorious medical device company Masimo Corporation, stated: "We will fight Apple to the end," immediately capturing headlines across domestic and international media, drawing significant public attention.
However, just half a year later, this iron-handed helmsman Kiani was suddenly ousted from the board of directors and removed from the position of CEO. After an uneasy "breakup,"KianiA Claim for Huge Compensation Up to 2.8 Billion Yuan: What Happened Between the Major Turning Points?
On September 25, according to a Reuters report, following an intense proxy battle with activist hedge fund Politan Capital Management,Masimo Shareholders Vote to Remove Founder and CEO Kiani, Following Which Kiani Announces Resignation。
A Single Event Stirs Up a Thousand Layers of Waves: 300 Engineers and Managers Sign an Open Letter, Possibly Following Kiani in Leaving Masimo.
Masimo stated that it has hired a headhunting firm to assist in finding a new successor.
The interim successor is Michelle Brennan, a current board member and former top executive.Johnson & Johnson Medical's 30-Year Senior VeteranWill be responsible for global medical device business and consumer pharmaceuticals business.
The "逼宫" incident erupted at Masimo Corporation, which was founded in 1989 and is globally recognized asLeader in Non-Invasive Monitoring Technology, committed to the development and production of various leading monitoring technologies and equipment in the medical industry, including meters, sensors, pulse oximeters, patient monitors, and automated devices, etc.
With its solid technology and promising wealth creation prospects,Apple、Samsung、GoogleTech giants alike have been eyeing it covetously, evenPhilipsIt was also fined $466 million (approximately RMB 3.3 billion) in a 2014 patent dispute with Masimo.
Behind a series of brilliant achievements, Kiani, who single-handedly brought the company from obscurity to become an industry's hidden champion and has led Masimo for 35 years, has obviously made an indispensable contribution.
Joe Kiani, Founder, Chairman and CEO of Masimo
However, the market seemed to "welcome" Kiani's departure this time. On the day when the S&P 500 suffered collectively, the share price of Masimo, which had been sluggish for months, rose against the trend by 6%.
BTIG analysts Marie Thibault and Sam Eiber maintained a buy rating on Masimo stock.
From "Key Figure" to "Abandoned Piece": What Is the Connection Between Kiani's Downfall and Masimo's Future Development? Where Will Masimo Go from Here? What Signal Does This Send to the Market?
Kiani and the hedge fund Politan Capital Management (hereinafter referred to as Politan)The internal strife has lasted for several years.
The story begins with the popular topic of Kiani taking on Apple.
In January 2020, Masimo Corporation filed its first lawsuit against Apple, accusing it of stealing the company's trade secrets by establishing a working relationship with Masimo and poaching key employees, including Masimo's former Chief Medical Officer and Cercacor's former Chief Technology Officer.
In September 2020, amidst this legal backdrop, the Apple Watch Series 6 was officially released, with the blood oxygen monitoring feature introduced as a key selling point. This feature allows users to measure their blood oxygen saturation levels directly from their wrist using the "Blood Oxygen" app on the Apple Watch Series 6.
After a three-year patent battle, in January 2023, the U.S. International Trade Commission (ITC) announced that Apple had lost the case, and Masimo won the first round of the U.S. trade case regarding the ban on importing Apple Watches.
Kiani admitted that Masimo spent approximately US$100 million (equivalent to RMB 700 million) solely on lawyer fees for this dispute. In this patent showdown,While defending intellectual property rights, Kiani also saw the enormous profit potential in the consumer electronics business of its competitors. As the scales of victory tipped in favor of Masimo, Kiani's ambitions continued to grow.
In the evolution of the technological wave, many tech giants have extended their reach into the field of vital signs monitoring, which has inspired Kiani to explore cross-disciplinary ideas.
However, Kiani, who was eager to expand his territory, overlooked the potential risks of cross-border mergers and acquisitions.
In February 2022, Kiani set his sights on consumer health and decided to invest $1.025 billion (approximately7.413 billionRMB) to acquire audio manufacturer Sound United, the amount is large enough to rank among the top ten M&A deals in the global medical device sector in 2022.
However, the reasoning behind this huge acquisition was somewhat rash and full of personal subjectivity.
Kiani said that he himself is a loyal fan of Sound United, and he is committed to "adding Sound United's high-quality technology, mature consumer channels, and well-known brands to Masimo's extensive portfolio of hospital and home medical technology solutions."
"Masimo's expertise in advanced signal processing, biosensing, and photonics technology, combined with Sound United's audio and home automation technology, will bring natural yet non-intuitive solutions to people in homes and hospitals worldwide."
Sound United is a leading consumer technology company with several well-known premium audio and home entertainment brands, including Bowers & Wilkins, Denon, Polk Audio, Marantz, Definitive Technology, Classé, and Boston Acoustics.
Indeed, Sound United has notable achievements in the audio field, but comparing Sound United with Masimo's core business of "oxygen saturation monitoring," it is not difficult to see that the connection between the two is not strong.
This landmine will undoubtedly explode in subsequent performance results.
In July this year, Masimo released its financial statements, and the performance of the consumer division was not optimistic.
This business is expected to generate $152 million in revenue this quarter, a decrease of $22 million compared to $174 million in revenue in the second quarter of fiscal year 2023.A decrease of up to 13%。
Revenue from Masimo's former Sound United business plummeted.
Calculated on a quarterly basis, the company's revenue was $208 million in 2022, dropped to $174 million in 2023, and the latest earnings for this quarter are $152 million.
The signals of declining revenue and weak acquisitions are also visually reflected in the stock price.The company's stock price has fallen 60% since 2021, and Masimo's glorious era is gradually fading away.
The magma of discontent beneath Penetu's corporate crust has finally found a vent, with investors directing their anger at Kiani, the decision-maker behind the acquisition of Sound United to expand the consumer business.
As the divestiture of the consumer health business is finalized, Kiani's persistence in expansion remains unfinished, and he has lost the "territory" he once built.
It is worth mentioning that there have been precedents for major medical companies divesting their consumer health divisions.
For a long time,Consumer Health MarketMainly dominated by traditional pharmaceutical companies, Johnson & Johnson, Bayer, GSK, Pfizer, Abbott, and Merck Germany are all leaders in this field.
However, in recent years, these leading companies have all chosen to draw boundaries without prior agreement.
Johnson & Johnson:In September 2022, Johnson & Johnson announced the latest developments in its largest restructuring plan in history and officially named the new company focusing on consumer health business as Kenvue. In May this year, nearly a year after spinning off and listing its consumer health business Kenvue, Johnson & Johnson planned to sell its 9.5% stake to completely exit the consumer health sector.
Sanofi:October 27, 2023Sanofi officially announced plans to spin off its consumer healthcare business and revealed a preliminary proposal to separate the business by creating a listed entity headquartered in France as early as the fourth quarter of 2024.
GSK (GlaxoSmithKline):In June 2021, GSK announced the spin-off of its consumer health business, marking its largest restructuring in 20 years.
Pfizer:In 2012, Pfizer Nutrition was sold to Nestlé. In 2013, Pfizer considered selling its consumer health business.
Bayer:In 2018, Bayer announced the sale of its consumer health division's sun care brand Coppertone and foot care brand Dr. Scholl, along with layoffs in that department.
On March 22, 2024, the protagonist of our story, Masimo, announced that its board of directors had authorized management to evaluate its consumer business.Proposed Separation,Thereby forming two independent companies (Consumer and Professional Healthcare), the stock price soared accordingly.
At that time and place, just like this very moment, behind the vast tide of divestitures, nothing is coincidental.
First, in terms of attributes, consumer-grade and medical-grade products may seem to overlap, but in reality, they are two distinct systems.
In terms of performance and standards,Consumer-grade products have their performance and standards primarily determined by market demand and consumer preferences, focusing on ease of use, aesthetics, and cost-effectiveness.
The performance and standards of medical-grade products are even more stringent and professional. Medical devices need to meet specific technical specifications and clinical requirements, such as precision, stability, and reliability; pharmaceuticals must comply with pharmacopeia standards, have proven efficacy, and minimal side effects.
These standards and requirements are formulated based on medical research and clinical practice to ensure the effectiveness and safety of medical-grade products, with a higher level of core technology.
In terms of usage scenarios,Consumer-grade products are mainly used in daily life. Although there are certain usage risks, they generally do not pose a direct threat to users' life safety.
Conversely, medical-grade products directly impact patient safety and health. Therefore, their usage scenarios are more complex and sensitive, with higher requirements for product performance, safety, and efficacy. Improper use or product defects can lead to serious medical accidents and patient harm. The regulatory requirements they face are also more stringent.
Despite the fact that tech giants are piling up innovations in the smart wearable device market in an attempt to blur the line between consumer-grade and medical-grade products, from the perspective of current market regulation, the medical attributes of such products remain questionable.
The choice to spin off and divest the consumer health business is also aimed at unleashing their respective strengths.
Secondly, the core essence of corporate spin-offs and mergers is driven by the pursuit of maximum profit.
Compared with consumer-grade products, medical-grade products require greater investment in R&D at the early stage, have higher technical barriers, and once successfully launched, generate more substantial profits.
Taking medical devices as an example, it basically takes nearly 8 years for a Class II medical device product to be developed and launched on the market; it takes nearly 10 to 12 years for a Class III medical device product; and breakthrough products require even more enormous investments of manpower, material resources, and financial resources.
However, once the "insurmountable barrier" of high-end self-research is overcome and the commercialization pathway is established, it can be said to skyrocket.
For example,The stock price of Intuitive Surgical, the leader in surgical robotics, rose from its initial $6.02
Meanwhile, the consumer health business ranked at the bottom in the business portfolios of Johnson & Johnson, Masimo, and others that year.
Weighing consumer-grade against medical-grade, choosing the business with higher barriers and more long-term potential for deep cultivation is a "long-term strategy for bigger returns" and an inevitable choice in accordance with market principles.
Third, apart from track attributes and value drivers, risk aversion is also one of the considerations for giants choosing to focus on their businesses.
Last August, according to a report by Bloomberg, 3M Company preliminarily agreed to pay more than $55 billion (approximately RMB...40 billion), to address over300,000 lawsuits related to military earplugs.
Just considering the two types of lawsuits involving PFAS and military earplugs, the compensation amount has reached $15.8 billion (approximately RMB 115.2 billion), far exceeding the market value of 3M at that time.
Coincidentally, Johnson & Johnson also faced issues related to talcum powder under its consumer health business, with potential liabilities reaching up to $8 billion (approximately RMB...56 billion) Settlement fee.
Such a disaster would be fatal to any ordinary company.
Conclusion
As time marches on, from "external battles" with Apple to "internal battles" over the CEO position, behind the storm of power transition and strategic transformation at medical device giant Masimo lies the correction of a misguided decision.
Joe Kiani's departure marks not only a turning point in his personal fate but also a profound reflection and adjustment for Masimo on its path to transformation.
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