INSIGHTS

WEEKLY COMPANY INSIGHT: RESMED

Roy Davidson, 1 August 2019

RMD010819 

Description

RMD develops, manufactures and markets medical devices and masks for the treatment of Obstructive Sleep Apnoea, an under-diagnosed health issue. In addition, RMD treats adjacent health issues such as Chronic Obstructive Pulmonary Disease, and has a growing health software business.

RMD is the market leader in treating obstructive sleep apnoea

Obstructive Sleep Apnoea (OSA) affects approximately 4% of the population and a large proportion of cases remain undiagnosed. OSA, where the airway is temporarily blocked during sleep, is prevalent in people who are obese, in particular obese males over 40, and has been linked with co-morbidities like cardiovascular disease, stroke and diabetes. Continuous positive airway pressure (CPAP) is the most widely used treatment for OSA. CPAP treatment involves wearing a mask over the nose or face, connected to a small, low-pressure pump, called a flow generator, which blows air into the airway, acting as an air splint to keep the airway open. RMD is the leader in this market. Its largest competitor is Philips Respironics, with Fisher & Paykel Healthcare the third largest player.

Growth drivers - new product cycle and increased diagnosis

The launch of new products has been a strong driver of earnings growth historically. RMD’s latest OSA treatment device, the Airsense 10 flow generator, has resulted in strong sales results over the last several quarters due to its improved compliance data transfer (wireless rather than requiring a USB stick to be sent to the company for analysis). Recent mask launches have also been very successful, seeing RMD grow market share in this high margin category. Increased diagnosis of OSA sufferers provides a long-term growth runway with the broader market estimated to be growing by 7-8% annually.

Brightree acquisition demonstrates focus on health informatics

RMD has recently moved into several other promising areas, the most notable of which is connected health software solutions, through the acquisition of Brightree, a US based company. It remains early days, but RMD has the leading software in the OSA market and can look to grow on this competitive advantage to deliver enhanced services for patients. RMD also has a joint venture with Verily (an Alphabet/Google company) aimed at improving OSA diagnosis rates, and has acquired several other connected care businesses.

Market leader with large growth opportunities

RMD is the market leader and consistent strong results over a number of years provide confidence in the capability of RMD’s research and development team to deliver new devices and masks. The success of RMD Airsense 10 flow generators, which have much more data capability than previous generations, provides an opportunity to leverage a large installed base (easier resupply, more sticky customers), while RMD continues to investigate opportunities in adjacent markets (e.g. COPD).

Risks

  1. regulatory change
  2. clinical trial failure
  3. increased competition
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