Home care oxygen therapy provider Inogen Inc INGN recently announced that its new manufacturing facility located in Richardson, TX is now operational. The 23,890 square foot facility will support product manufacturing, packaging and logistics.
Inogen had decided to lease the Texas facility in December last year for a term of approximately 7 years with the intention of expanding production capacity and lowering the company's average per square foot manufacturing cost. We note that the company aims to balance infrastructure growth with cost control through scalable manufacturing, reliability improvements, optimizing asset utilization and reducing service costs.
Further, Inogen revealed that it will be converting its prior manufacturing space into office space to allow for the additions of sales, customer service, and billing personnel, as well as other administrative functions.
We believe that the expanded manufacturing capacity will help Inogen address the growing demand for oxygen therapy in household settings. Currently, almost 2.5 million patients need oxygen therapy in the U.S., which makes the market worth $3 to $4 billion in revenues.
Moreover, this patient base is expected to increase 7% to 10% annually in the 2013—2019 period. This significant growth is likely to be driven by the increasing emphasis on diagnosis of chronic obstructive pulmonary disease.
Inogen has a unique direct-to-customer (DTC) business model, which has provided it a leading position in the oxygen therapy market. Management forecasts that sales in 2015 will be driven by expansion of the DTC network, increasing B2B distribution and growing physician referrals.
Per the company’s third-quarter earnings release on Nov 11, 2014, the total revenue guidance for 2015 ranges from $130–$135 million. This represents roughly 20%–25% growth over the 2014 outlook’s mid-point of $108 million.
Recently, Inogen had announced the postponement of its fourth quarter and fiscal 2014 earnings release which had been initially scheduled for Mar 12, 2015. This was due to the discovery of certain potential accounting matters during the first quarter of 2015, which prompted an internal investigation.
The investigation is being led by the Audit Committee, with the assistance of independent advisors. The committee has not yet reached any conclusion and the company cannot predict the outcome of the investigation or when it will be completed. As a result, Inogen will announce results as soon as feasible following the completion of the Audit Committee's investigation.
Inogen, however, remains confident about its strategy, top-line growth and profitability and does not believe that these matters will impact the company's previously stated outlook for fiscal 2015 or its long-term business plan.
In our opinion, Inogen’s innovative product portfolio and growing patient base will drive significant top-line growth in the long run. Moreover, increasing international sales and expansions will also boost revenues.
Stocks to Consider
Currently, Inogen sports a Zacks Rank #1 (Strong Buy). Other favorably-ranked stocks in the medical instruments industry include Abiomed ABMD, Edwards Lifesciences Corp EW and Fluidigm Corp FLDM. While Abiomed sports the same Zacks Rank as Inogen, both Edwards Lifesciences and Fluidigm carry a Zacks Rank #2 (Buy).
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