Inogen Leases Texas Facility, Lower Costs to Drive Growth

Home care oxygen therapy provider Inogen Inc (INGN) is expanding its manufacturing capacity. The company recently agreed to lease approximately 23,890 square feet area in Richardson, TX, which will lower the average cost per square foot for manufacturing apart from expanding capacity (currently 70,000 square feet).

Inogen’s in-house manufacturing ability has already resulted in almost 40% lower cost per system over the last four years. Moreover, we believe that the expanded 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 (:COPD).

Inogen’s unique direct-to-customer (:DTC) business model has provided it a leading position in the oxygen therapy market. The company’s portable oxygen concentrators (POC.V) segment is the fastest growing one in the market as compared with stationary and ambulatory therapies.

Inogen’s expanding product portfolio and growing patent base are key growth catalysts. Over the trailing twelve months, U.S. DTC business sales jumped approximately 75% to $22.9 million, while U.S. business-to-business (B2B) sales surged 85.5%. Inogen’s sales grew at a CAGR of 47.8% over the 2009—2013 period.

Management forecasts 2014 sales in the range of $106--$110 million, driven by expansion of DTC network, increasing B2B distribution, growing physician referrals and innovative product portfolio. Moreover, increasing International sales and expansions will drive top-line growth in the long run.

However, the mandatory competitive bidding process under Medicare (to be implemented by 2016) can be a major headwind for Inogen. Moreover, increasing competition from Invacare (IVC), Koninklijke Philips (PHG), Rotech Healthcare and other local providers raises caution.

Currently, Inogen carries a Zacks Rank #2 (Buy). A better choice is Tetraphase Pharmaceuticals (TTPH), with a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on PHG
Read the Full Research Report on TTPH
Read the Full Research Report on INGN
Read the Full Research Report on IVC


Zacks Investment Research