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ResMed Propels Forward

Australia | Dec 06 2018

ResMed will acquire Propeller Health, which provides connected care for patients with COPD and asthma. Brokers believe the acquisition puts ResMed at the forefront of this market.

-Provides a data platform previously missing from ResMed's portfolio
-Higher growth expected from an increase in market penetration
-Product suite promotes improved adherence to medication and reduced hospitalisation


By Eva Brocklehurst

Expanding services to the patient at an earlier stage in the hook-up will enable ResMed ((RMD)) to grow its share of the respiratory health market and strengthen relationships with pharmaceutical companies.

This is Deutsche Bank's view of the company's acquisition of Propeller Health for US$225m, funded by debt, which will operate separately under existing management. Propeller Health is a US-based digital therapeutics business providing connected care for patients with chronic obstructive pulmonary disease (COPD) and asthma.

Brokers assess ResMed will now have a superior position in COPD management. The digital solution compliments ResMed's portable oxygen and non-invasive ventilation hardware. While approved by the US FDA, Propeller Health is yet to commercialise its product and significantly penetrate the market. The acquisition is expected to be dilutive to FY19 earnings by around -US1-2c, with opportunities to be accretive post commercialisation.

The move makes strategic sense to Credit Suisse, who notes the acquisition provides a data platform which was previously missing from ResMed's portfolio. It also broadens the customer base, targeting patients with mild COPD and connecting with them before the disease progresses to a more severe form.

Few financial details regarding the transaction were provided but UBS models immaterial costs and an effective break-even position in operating earnings.

Market Share

This is the fourth large acquisition of a software business by ResMed, Citi notes. The company spent US$1.9bn to acquire the four, which include Brightree in 2016, HealthcareFirst in May 2018 and MatrixCare in November 2018. Credit Suisse believes ResMed could fund a further US$1bn in acquisitions with debt and still maintain its net debt/operating earnings (EBITDA) ratio below 2.0x in FY20.

Nevertheless, the broker is more of the view that the company will focus on embedding and integrating recent acquisitions. Credit Suisse factors in higher growth in the outer years on an increase in market penetration from data solutions, along with recent FX movements.

Given current market dynamics, Citi now believes it possible ResMed will grow faster than the market, for longer. Factoring in the launch of F30 Airfit, and the delay to new Fisher & Paykel Healthcare ((FPH)) masks, the company is envisaged taking market share over the remainder of FY19.


Propeller Health's digital solution compliments ResMed's portable oxygen and non-invasive ventilation hardware. Asthma and COPD are highly prevalent, leading in some instances to acute hospitalisation and additional health care costs. Inhalers are important therapeutic devices, and patient training has been shown to directly relate to the efficacy of the device.

The product suite promotes improved adherence to medication and reduced hospitalisation. Propeller Health's technology consists of small sensors attached to inhalers which pair with a mobile app to track medication usage and provide personal data.

FNArena's database shows four Buy ratings, three Hold and one Sell (Macquarie, yet to comment on the transaction). The consensus target is $15.61, signalling 2.7% upside to the last share price. Targets range from $13.50 (Macquarie) to $16.80 (Morgan Stanley).

See also, ResMed Expands Presence In Home Health on November 7, 2018.

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