ResMed - Towards Better Sleep

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ResMed Inc. (NYSE:RMD) is an American medical device manufacturer. It is one of the largest players in the sleep apnea device market. Its products include Airsense CPAP machines and associated masks. In late summer 2023, the company’s stock price began a decline, driven in part by the explosive popularity of GLP-1 weight-loss drugs (Ozempic, Wegovy) and concerns regarding the future need for CPAP devices—obesity is considered a primary contributing cause of sleep apnea. The number of short positions also saw an increase. Recently, results from Eli Lilly’s clinical trials on the use of tirzepatide for sleep apnea, in addition to weight loss, caused a dip in the share price. On the other hand, competitor Philips has experienced significant difficulties with product safety in the U.S. market, which has naturally helped ResMed increase its market share.

Despite everything, the company’s CEO Mick Farrell sees a bright future in the earnings call: (https://finance.yahoo.com/news/q3-2024-resmed-inc-earnings-103305039.html?)

Regarding GLP-1 (semaglutide) weight-loss drugs:

“For patients prescribed a GLP-1 medication, the latest data show a 10.5% higher propensity to start positive airway pressure therapy over those not taking the drug. As we follow these patients longitudinally, the resupply rate at 12 months is 310 basis points higher and then at 24 months the resupply rate is 500 basis points. These data show clearly that the new GLP-1 pharmaceutical class is actually a tailwind for our ResMed business, bringing more patients and more motivated patients into the health care system.”

Regarding Eli Lilly’s clinical trials:

“What it showed is somewhere in that sort of 59% to 63% reduction of AHI, and if you do the math on it and you look at the sort of average AHI coming in at around 50%, the average AHI coming out is sort of in the low 20%s,” he said. “So, patients were, at the end of the study, on average, suffocating every 3 minutes of sleep after treatment for this drug, right? And so, an AHI of 20% or more – moderate plus sleep apnea – these patients would be treated by any sleep physician on the planet and really require positive airway pressure treatment. So, I think that’s the most important thing to say right up front."

ResMed released its Q3 2024 results on April 25 after the market close.

  • Revenue: Reported at $1,197.0 million, up 7% from the previous year, surpassing estimates of $1,167.13 million.
  • Net Income: Reached $300.5 million, a 29% increase year-over-year, exceeding estimates of $279.02 million.
  • Earnings Per Share (EPS): Achieved $2.04, up 29% from the previous year, surpassing the estimated $1.91.
  • Gross Margin: Improved to 57.9%, up from 55.3% in the prior year.
  • Income from Operations: Grew by 25% to $374.6 million.
  • Dividend: Declared a quarterly cash dividend of $0.48 per share, with a record date of May 9, 2024.

Driven by the strong results, the stock rose 18.89% the following day. The closing price on Friday, April 26, 2024, was $218.06.

Screen Shot 2024-04-27 at 14.09.31

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Resmed released its Q4 results on August 1st late after the market close; I guess they’re quite reasonable.

Fourth Quarter 2024 Highlights
All comparisons are to the prior year period

  • Revenue increased by 9% to $1.2 billion; up 10% on a constant currency basis
  • Gross margin improved 350 bps to 58.5%; non-GAAP gross margin improved 330 bps to 59.1%
  • Income from operations increased 38%; non-GAAP income from operations up 30%
  • Operating cash flow of $440 million and debt repayments of $300 million
  • Diluted earnings per share of $1.98; non-GAAP diluted earnings per share of $2.08
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ResMed’s growth curve could be set to steepen. Now that Apple has launched sleep apnea detection as part of the Apple Watch’s features, the number of sleep apnea diagnoses will likely increase quite significantly over the coming years. This, in turn, will naturally increase the demand for devices.

I might have to place a small bet on this one as well. You probably won’t be multiplying your money many times over like with Nexstim, for example, but one could imagine demand increasing significantly here as well due to external factors.

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Salespeople have quick trigger fingers.
I myself do not see weight loss drugs as a very big competitor for cpap¹ devices, at least not yet in the medium, or even long term.

Screenshot_20250202_103521

¹An established term in use; the most commonly used devices are already much more advanced types, such as apap devices.

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RMD’s results seemed strong according to what I read, but apparently some things caused concern.

The new mask previously boosted sales due to its high price, but now the effect has apparently faded. Somewhere it was pondered that a decrease in obesity could weaken the demand for sleep apnea devices, but is obesity really decreasing even in the near future? Also, some were concerned about competition and insurance companies’ tightening reimbursement policies; additionally, current valuation levels were seen as challenging.

https://x.com/FwdQuarter/status/1885334889253277710
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New masks come out every year, and surprisingly, they have genuinely incorporated innovations that make them easier to use and more comfortable.
Has the mask (or rather, the device as a whole) achieved the best possible achievable ergonomics? The devices themselves work so well that it’s probably difficult to improve them.
Perhaps reducing the size and introducing easy and lightweight battery operation would be the next big leap in technology to maintain investors’ interest.

I don’t think so. New drug treatments always come into use quite slowly, and since they haven’t clearly become widespread even in the most developed countries yet, it’s unlikely they will globally anytime soon.

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