Roy Davidson, 9 July 2020

Amongst all the pain caused by the COVID pandemic, there have been a few bright lights. One of the brightest has been Fisher & Paykel Healthcare which has seen a surge in demand for its life-saving products from all around the world.

What does Fisher & Paykel Healthcare do?

First a quick recap on what F&P Healthcare does as few people have regular contact with the company’s products and more than 99% of revenues are derived offshore.

In short, F&P Healthcare manufacturers products used in respiratory care. For instance, the company is the market leader in providing humidifiers and accessories (such as tubes) to be used with invasive ventilation in a hospital setting. These products are crucial in ensuring invasive ventilation is effective. This is a core business in which F&P Healthcare has been very successful, however, the market is largely mature.

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In addition, F&P Healthcare is growing its presence in surgical applications (delivering warm humidified carbon dioxide to the site of surgery to reduce complications) and in non-invasive ventilation.

F&P Healthcare has also been the pioneer in nasal high flow therapy, a form of oxygen therapy increasingly used outside of the intensive care units where the company has historically focused. Nasal high flow therapy (or ‘Optiflow’) has a growing body of evidence associating it with faster recovery times and reduced rates of hospital readmission, all of which leads to better patient outcomes and lower costs for hospitals. This is the company’s key growth opportunity.

Finally, F&P Healthcare manufactures devices and masks used to treat sleep apnoea – where the airway closes during sleep which can cause a range of different health issues including raising the risk of heart disease, diabetes and stroke. The company is also building out its home respiratory support business, treating those with chronic obstructive pulmonary disease (COPD) outside the hospital.


What has COVID done to sales?

COVID resulted in a huge surge in demand for F&P Healthcare’s products.

At its full year result last week, F&P Healthcare reported a 37 per cent increase in underlying profits. This is an impressive number although as this result was for the year ended 31 March, it captured only a small amount of the lift in sales from COVID. It was also helped by a weaker NZ dollar and a few one-offs.

Over the subsequent three months, F&P HealthCare’s Hospital segment has seen a 300 per cent increase in hardware, while sales of consumables (masks and tubes) have risen 33 per cent. These are incredible growth rates.

Importantly, Optiflow sales have been strong with nasal high flow therapy increasingly viewed as the first treatment option for a patient with COVID. This has shown the benefits of the therapy to a greater number of physicians which bodes well for future adoption rates, while a larger installed base of devices will lead to future accessory sales, which typically carry a higher margin. F&P Healthcare believes the addressable market for Optiflow is still less than 10 per cent penetrated so COVID has brought forward a key growth opportunity.

All of this hasn’t been without extra cost, however, with the company needing to make use of more expensive air freight to get products to market quicker so that they can be used to help treat patients. Meanwhile, the company has hired hundreds of extra staff and brought forward key capital expenditure. Despite the extra demand, F&P Healthcare has also not raised its prices.

COVID also has not been positive across the board. With clinics and sleep centres closed, diagnosis rates for sleep apnoea have dropped off. These will take some time to return to normal levels, though recent months have shown an improvement.

Fisher & Paykel Healthcare cracks the $20 billion mark

Amongst all of this, shares in F&P Healthcare have gone from strength to strength. F&P Healthcare is now our largest listed company, with its market value recently cracking the $20 billion mark – the first company to do so. Over the past 12 months, shares in F&P Healthcare have more than doubled.

This success hasn’t come overnight. Since first entering the respiratory market more than 50 years ago, F&P Healthcare has steadily built up leading positions in its markets by investing in research and development and continuously launching better and better life-saving products to hospitals and people around the world. With any luck, F&P Healthcare has built itself a platform on which to continue to grow for another 50 years or more.