Management from the Masimo team. We've got Micah Young, who's EVP and CFO of the company joining in September, October 2017, I think, right? And prior to that, he was a VP of Finance at NuVasive, and had worked at Zimmer in the distant past. And we also have here Eli Kammerman, VP of Business Development and Investor Relations, right here to my right, who's been with Masimo since July of 2009. Mike, I wanna start off just to give you the opportunity to talk to investors about where Masimo is and its evolution. You just had your investor day last week, which was exciting. We were out there in California unveiling a number of new product initiatives, and you're making progress along a number of new vectors.
So there's a lot to cover, but maybe you could give us a little overview, and then we'll dive a little bit deeper into some of those areas.
All right. Thanks, Matt. Yeah, so we had investor day last week. Some of the things that we're very excited about, some of the key takeaways from last week were, if you look at our core business today, our current product portfolio, we are performing very strong right now. We've said in our long-range plan, our long-term plan, a few years ago, we laid out a growth in that pie of our business of 8%-10%. We've been exceeding that. Our confidence is reflected in our guidance for 2019, and we've guided to 11.4% constant currency growth, and some of the main takeaways from last week are we have a high degree of confidence in delivering those long-term growth rates with just our existing portfolio, but we also have a lot of multiple opportunities for upside to those long-range goals of 8%-10% growth.
Those really come from some of the new initiatives for the company. If you look at our strategic initiatives right now, hospital automation is what we believe to be about a $1.5 billion market. So, you know, we're excited about what we can do there, and I'm sure we're gonna talk a little bit more about some of the elements of hospital automation, but that's exciting for us because we think that we can address a lot of the challenges today that's facing clinicians in the OR or across the different care areas of a hospital where there's cognitive overload. They have challenges with workflow and how to streamline that workflow. We believe that we have a full system or enterprise solution to be able to help hospitals address that.
The other one is opioid safety, and we believe that's gonna be at least a $4 billion market opportunity for us, and we were selected as one of eight companies out of 250 that applied to address the opioid challenge by the FDA. Our solution to that is been labeled as a breakthrough technology, and we have an opportunity to, with a more expedited pathway of regulatory approval with the FDA 'cause they're gonna work beside us over a 90-day period to help us get that product out there and provide, you know, patient safety to those who are prescribed opioids or who are using opioids today. So we're very excited about those opportunities. And then we also have a lot of innovation pipeline opportunities that are out there, and we've said that that's another $5 billion of opportunity within those.
And we released two of those newer products last week, or not released, but we unveiled those products last week, which is non-invasive PaO2, measurement of partial pressure oxygen, and also a non-invasive way of detecting malaria. So those are some of the newer technologies that we now have technological feasibility, and now we'll start to work on the regulatory pathway and how we commercialize those products. So a lot of great things going on, that we're very excited about as we move forward.
Great. So I think maybe we should talk about some of the different layers of opportunity here, just to chunk things down for the investors here in the audience. You know, the first thing to talk about is just on the core SET business.
Yeah.
You know, you're doing very well there, still gaining share in that market. Now you've had opportunities with Philips, with other OEMs who are gravitating towards some of your new technologies.
That's right.
Could you talk about that first and how that, itself can drive some upside to the base business guidance that you set out there? Cause you've been growing above that, just to start.
That's right. So yeah, as Matt pointed out, our SET platform technology represents about 85% of our revenues today, in our current portfolio. And that addresses a market of about $1.7 billion market, and that market's growing 3%-4%. Our long-term plan that where we assume growth of 8%-10%, we assume our SET business grows 6%-8%, so two times the market growth. And we showed last week at investor day, in the first year of our long-term plan, we grew above the higher end of that range. So we grew closer to 10%, year- over- year. So we're performing very well. Our OEM partnerships, especially the large one you mentioned with Philips, those are going very well.
We're increasing the installed base, having more and more growth in our shipments, and we're seeing that because we saw last year about 14-15% growth in our driver shipments. We saw another first quarter driver shipments of 19%. And if you normalize that around 15%, excluding some of the new product drivers that are out there. But we see very good momentum right now in the business with our core SET platform. I think, you know, we have a great position clinically there with our accuracy through motion and also low perfusion. We've got the best technology out there to address it. We have a very sticky business in terms of a renewal rate. Our renewal rate on contracts is over 98%, and we're also taking a significant share of new contracts as they come up for renewal, from our competition.
The SET business is growing very well. And again, that's 85% of our revenues, growing 6%-8% in our long-term plan. As we look at Rainbow, that's about 10% of our revenue, and that's in our long-term plan. We've said that that's growing 10%. And we've seen that even in our first year grow almost two times that growth rate. So, basically, Rainbow, we believe that that market opportunity is about $1 billion, and we are the market. We're actually creating the market for Rainbow because if you think about it, with one fingertip sensor, you get 12 parameters, different patient parameter measurements. You get the five core SET parameters, plus you can turn on additional parameters like total hemoglobin measurements, where you can basically help clinicians make better transfusion decisions as they're looking at, you know, managing blood or doing blood management.
And also, if you look at ORi, oxygen reserve index, we don't have the approval yet in the US. We're hoping for that soon, but that's another great opportunity for us to address, you know, future growth in the business, for Rainbow. And then there's several other parameters that we're starting to see more and more, or better, clinical outcomes, from some of the studies that we're seeing out there, like the Limoges study in France, where they looked at total hemoglobin and PVi, which is fluid responsiveness. And when they brought those technologies together, they were able to reduce mortality rates, on a study by 30%, 30 days post-op, and at 90 days post-op, reduce mortality rates by 25%. So we're seeing very good outcomes, and I think that's what's important for Rainbow.
The two most important things are getting the clinical awareness, and we've already shown that we're improving the accuracy. So those are the two things that are driving that there. In terms of our advanced parameters, SedLine, NomoLine, SedLine is brain function monitoring, NomoLine capnography, which is airway gas monitoring, and O3, regional oximetry. Those three product categories are some of our newer advanced parameters that make up a market of about $800 million, and they're growing double digits. And we are seeing growth at two times that market growth rate. So those are all the things that are really contributing very well to our core business and our current product portfolio before we even start to get into hospital automation and opioid safety.
So, I just wanna ask a follow-up or two on some of the Rainbow and the advanced parameters, if I could.
Mm-hmm.
You know, one thing you pointed out was some of these things are ones that you've developed, and you're really spearheading, and you've invested a lot of time and energy behind developing clinical and economic data to support their use.
That's right.
I mean, non-invasive hemoglobin's been around for almost 10 years in the public domain, right?
That's right.
Can you talk about how you've gotten critical mass around some of those? What are the ones out of the 13 in Rainbow that you think will actually be contributing more of the dollars here going forward for the next five years?
Yeah. I think, you know, one, we've improved our accuracy in terms of how we measure total hemoglobin, SpHb. And we showed, demonstrated some of that last week at the investor day of how we've improved that accuracy over time. And then we also showed, you know, the opportunity for Oxygen Reserve Index to be able to, and particularly for patients who are getting ready to undergo a surgery or they're getting intubated, and you have to raise their partial pressure oxygen levels up. Oxygen Reserve Index gives you that early warning sign of a heavy desaturation event, so you know whether or not you need to abort that procedure. So we think that that and total hemoglobin, Oxygen Reserve Index, and also, our PVi, which is fluid response, measuring fluid responsiveness. And then you can start to look at goal-directed therapy of goal-directed fluid therapy.
So those three kind of, those key measurements and parameters, those are the ones that we believe are gonna be the biggest opportunity out there for Rainbow. And now that we've improved the accuracy of total hemoglobin and we're starting to get that clinical data to build up, what we need to see is more multi-center, you know, multi-site studies come through because we've seen single-site studies so far. Like, for example, that Limoges study I mentioned earlier was about, I think, 18,000 patients, but a cohort of about 3,500. So, you know, we need to see more multi-site studies, but it's starting to build. And we never had that, we didn't have that clinical data, you know, when you look back five years ago, and we also didn't have the accuracy as we do today.
Mm-hmm. And then separating that from the advanced parameters that you talked about, I mean, these are established markets.
Yes.
But you have unique solutions there.
That's right.
Can you talk about your position in the market and why you're able to grow at 2X the rate?
Yeah. So, I'll start with capnography. Capnography's about a $550 million market. It's growing roughly 10%-15%. It's an established market. We see ourselves right now. We're about number three in terms of share of that market as far as the number three player in that market. From a clinical standpoint, though, we believe we are number one in that market. And we've got very good technology in terms of accuracy, but also, in terms of how it manages through workflow and how clinicians use that technology. We have what's called NomoLine, which is no moisture in the line, and it really helps wick away the moisture and condensation that you get from doing, you know, monitoring the airway, doing the airway gas and end-tidal CO2 monitoring.
So it prevents the line from fouling up in the device, so you get an improvement there as well as, you know, just the accuracy of it. And we think that, you know, we have the best technology out there for capnography. And then you got SedLine brain function monitoring, and O3 cerebral. Right now, it's cerebral oximetry, but it's more broadly can be used for tissue or organ oximetry. But for right now, we've designed it in a way that you can actually do for brain function monitoring, you can put on the sensor, and it'll measure depth of anesthesia. And then you can also, we've made it in a way to where they can overlap each other. It's almost like a puzzle piece on the forehead where you can also do measure the blood oxygenation levels in the brain.
That kinda combines and gives us that competitive advantage in those markets. Those are about $125 million markets each. The brain function monitoring market's about, I think, 5%-7% growth, and cerebral oximetry's about 3%-5% growth. That's, yeah.
I was gonna say, in addition to the clinical differentiation, maybe we could talk a little bit about how your partnerships, especially with Philips.
Mm-hmm.
Could help to drive some of these advanced parameters.
That's right.
In use in their boxes because you have an agreement there to co-market and co-sell, and thus far, you've seen a lot of the shipments pick up.
Mm-hmm.
Now we should see these advanced parameters come in.
That's right.
Can you remind us of the timing and on that and what they're held to in their agreement?
Yeah. If you look at the Philips agreement, we integrated all of Rainbow back in Q4 2016, and then we started really rolling out those boards and putting those boards into their monitors. So that integration work happened late 2017 or, sorry, late 2016, and then we, that's when we started the integration work. We completed at the end of 2017, and in 2018, we started really putting those boards in out there in the installed base. And that's helping contribute to the Rainbow revenue right now. In terms of the other advanced parameters, we're working to integrate NomoLine capnography, and O3 regional oximetry this year, and we're hoping to have that work completed later this year. And then SedLine, we're hoping to incorporate that into their technologies, sometime by mid next year.
And what that means is, as we build up that installed base, that's gonna continue to drive a recurring revenue stream off of those three different product categories in the future. You know, Philips has a great, you know, market share position, especially when you look at the multi-parameter market. As we think about Rainbow and SET, the ability to drive that there, they're 50% of the multi-parameter market, monitoring market. So that's gonna be a big opportunity for us there, and they also have very good presence in those other categories.
And maybe one of the things to point out here is that all this growth in the core business is coming as more profitable growth now that you've got the RD sensor, which you designed for profitability. And as you're selling more through Philips, as you're selling more through any customer, and they're turning on more and more of these advanced parameters.
That's right.
You're getting more dollars per board.
Per board.
Yeah. Can you talk about those two dynamics and how they can contribute to your margin goals, which are pretty robust here?
Yeah. So, let me start with the installed base 'cause we're trying to get to 70% gross margins today. We're guiding to 66.8%, so we have another 320 basis points of improvement to make. And as we think about that, leveraging the installed base is very important for us. So as we, we've put out a lot of drivers over the years. If you look over the last 10 years, we've shipped over 1.7 million drivers that are out in our installed base.
And as we continue to drive to Matt's point, we showed last week that all the different sensors that we have, and we have four LED sensors that have, you know, a set of parameters there, but as you go up and add, go into an eight LED or, sorry, two LED, four LED, eight and 10, you're adding more and more parameters, which allows you to bill for a lot more revenue. So as we continue to, you know, provide more of those parameters and new technologies, we're able to generate a lot more revenue per board that we put out there. And we've put a significant amount of investment over the years in that installed base, so that's gonna be a great opportunity for us to leverage and drive the gross margin improvement.
We've also taken a very long-term view on our approach to cost reduction efforts through designing our products for manufacturability. So designing them so that they're easier to manufacture over the long term. Whenever we look at that, we've got a team that's dedicated out of our engineering team and our manufacturing team. We have a team dedicated to really looking at that long-term horizon and not just driving 5% improvement per year, but looking at how quickly can they take the cost out. And looking at it with that long-term view allows you to take a lot more costs out because you're designing around the end state. So I think, you know, we've been able to do that. We showed that with RD, one of our sensor lines called RD.
You know, we've significantly reduced costs for that sensor line over time, and now we're just trying to. We'll get benefits from that over time as we start to shift the mix toward that new sensor line. We're also doing that with our technology boards, also the equipment that we use, our own monitors as well. All those things go into that process of trying to design things to make them cheaper to manufacture. That's a big opportunity for us.
Great. And then the time we have left, I wanted to cover some of the newer opportunities. One of the things that I was really pleased to see was the hospital automation program really coming together last week or yesterday.
Yes.
It was impressive to see how everything's integrated throughout the OR and how thoughtful you've been to make that easy to use and modular. I guess what I'd like to hear from you is maybe you could just give folks an overview of what you think that automation program could do over time.
Yes.
From a revenue and margin perspective. And then, you know, what are some of the key, elements or offerings within that that you think will really resonate with your hospital customers?
Yeah. Great. If we look at that market opportunity as about a $1.5 billion market opportunity, the way we've broken that down, and I'll size it up first, and then we'll get into some of the elements. We look at there's 125,000 critical care beds in the US roughly and about 450,000 general floor beds. So we took that and said, we believe the market size for us right now is at least 125,000 critical care beds and about 50% of that general floor, number of beds. And that takes us to about 350,000 beds total, what we believe the total addressable market is. And we look at that in terms of how we monetize that is really a combination of bringing it all together. You have a capital revenue component and a service revenue component.
We look at it more as how do we create an enterprise-like, kinda enterprise solution where we can monetize revenue per bed. We think about it as a range of about $1,000-$5,000 selling price per bed, to be able to provide kind of our full hospital automation solution. What we're trying to address is the challenges in healthcare, which is cognitive overload, access to data, and also improving workflows. Those are key components. If you look at it, our Root platform is kinda the connectivity hub. It's the. It's in the room, in the hospital room. It's in the OR room. It's where all the point-of-care devices are.
If you think about it today, there's not good solutions out there to bring all these independent disparate devices together to where there's interoperability, and they also can feed a data flow that gets into the electronic medical records. Root provides that expandable, you know, connectivity platform to where all these devices can connect through Root. Not only is Root a, you know, central monitoring display for all the data, but it also can take that data and feed it into our Iris server or our Iris gateway. We can translate that, all that data that's coming into Root from all these different devices, including our own, and translate it into HL7 and get it into the EMR records.
And then also the other benefits are things like UniView, which is a software that we have that we can put it on a large display screen in the OR. And we're trying to address cognitive overload. So we're basically providing clinicians and surgeons with kind of that cockpit view, just like a pilot would have, of all the instruments that are there in front of them, but trying to break down the data and give them different ways of customizing data and patient status, and parameters. You can put waveform data on there. You can put the parameters, and you can also display things that can provide decision support while you're in the OR, like a Halo Index score, early warning score. So you can basically create a cockpit that can be customizable, and that's important, to create that kind of data accessibility.
We also have central monitoring, from a central viewing station. We have Patient SafetyNet, which you can monitor up to 200 patients and send two-way communication alerts to all the different care teams. And you can divide those patients up and provide those to different care teams, so we have the Patient SafetyNet and also Replica. Replica is a software application for a smartphone or smart tablet where we can have two-way communication, intelligent communication to be able to collaborate, enable clinicians to collaborate amongst themselves, to provide the best care possible, so those are some of the elements. There’s some other stuff, but I, I wanna be conscious of time.
Yeah. So maybe in the time we have left, a number of pipeline opportunities. But one of the near-term ones that's really come about pretty quickly here is opioid safety.
Yes.
With your winning of the FDA mandate.
Mm-hmm.
That's already a prototype and.
That's right.
Quickly on its way to becoming a commercial reality.
Yes. Yeah.
So I'd like for you to talk a little bit about what could happen here 'cause there's a lot of potential moving parts. But what are some ways that this could come to market?
Yeah.
What are ways that you're thinking about promoting it, charging for it, and?
That's right.
How could it help patients?
Absolutely. And we just recently announced a Radius PPG, which is a wearable device that gives you tetherless monitoring using our SET technology. So think of it as our SET technology with the accuracy of reducing false alarms and improving alarm detection. That's what's critical here is it's a platform technology because you don't want a consumer taking this device home, taking the opioid and then going to bed and then being woken, you know, wakened up all night long by false alarms. So that'd be a horrible experience for the consumer. So the accuracy of our SET platform is that technology that's critical to this. We also are creating this kinda cloud-based automation, you know, remote automation platform through Doctella, which we just launched. And that basically allows clinicians to monitor the patients remotely. So we're creating this kind of ecosystem that goes home with a patient.
And we're excited about that opportunity. We're expecting; we're hoping to get that approved through the FDA because it is a breakthrough; it's been labeled as a breakthrough technology. We're hoping to get that approved later this year. We're working. Initially we're focused on this. This will probably be more of a cash pay. And we're also going parallel to try to get reimbursement for it. But we've sized this up as about a $4 billion market opportunity. As you think about it, there's 191 million prescriptions per year of opioids. And we think that there's gonna be macro pressures to really cut that down over time. And we've, if you haircut that by 30%, you get about 134 million prescriptions per year. And we think that a third of that is gonna be addressable in the shorter term.
So, and we focus on that there so-called 45 million prescriptions a year between long-term chronic pain patients and short-term postoperative patients. So that's kinda how we get into that 45 million prescriptions and looking at charging somewhere over $100 or more per prescription, so.
Great.
Yeah.
We should end there. We're about out of time, but thanks so much for your time.
Thanks.
Thanks for your interest in Masimo.
Thanks.
We'll have a breakout downstairs.
Sounds good. Thank you.