Confidence In ResMed Continues Unabated

Australia | Feb 03 2020

Sleep therapy business ResMed expanded its product portfolio and took market share in the first half. Most brokers are confident growth will remain robust over the balance of FY20.

-Growth likely to be robust over FY20 but tough comparables will emerge in FY21
-ResMed being insulated from brand switching as automated re-supply gains popularity
-The outcome of US competitive bidding is the main risk in 2020


By Eva Brocklehurst

ResMed Inc ((RMD)) remains on a strong footing as 2020 gets underway, continuing to expand market share and generating growth in its first half result above trend. Citi considers the business outlook "excellent" and anticipates, with market penetration at less than 20%, strong growth rates can continue for a decade.

The company has gained market share at the expense of both Philips and Fisher & Paykel Healthcare ((FPH)) and the pricing environment remains benign. The broker expects competitors will launch new masks but the impact could be more muted, given the increasingly large share now being sold under re-supply arrangements.

Despite competitors signalling an intention to "fight back" in 2020, Ord Minnett envisages little risk that the company's market dominance will be challenged. Nevertheless, growth will inevitably slow as acquisitions are cycled and comparables become harder to beat.

Macquarie, too, assumes growth will remain robust over the balance of FY20 but considers the risk/reward profile is skewed to the downside as tough comparables in the remainder of FY20 and into FY21 will emerge.

ResMed is a beneficiary of a broad product portfolio, having launched five new masks in the past 18 months and, regardless of of whether tough comparables are being recycled, Credit Suisse believes, with the latest mask being launched in January and rising re-supply, double-digit growth is likely into FY21.

Mask growth was 19% in the US and 11% in the rest of the world in the December quarter and US device growth was 9.1%. Credit Suisse forecast 16% growth in US masks in FY20 and 10% in FY21.

Automated Supply

Fewer customers going to the durable medical equipment (DME) supplier shops to get a new mask signals there will be less switching of brands. Citi also notes ResMed has reinforced its position by acquiring SnapWorx, which provides patient contact management and workflow optimisation for the sleep apnoea re-supply market.

Wilsons agrees the company is being insulated from brand switching, as there has been no apparent impact from competitor launches of masks in the US, and broader customer participation in automated re-supply remains key.

The broker also notes automated re-supply solutions are gaining popularity which is creating structural changes in the channel and favouring ResMed. This could make medical device businesses more resilient when they face the next round of US competitive bidding reimbursement changes.

With the increased investment in data platforms, Credit Suisse is upbeat on the company's ability to improve the quality of care to patients in the home setting as well as improve the penetration rate within the sleep and COPD (chronic obstructive pulmonary disorder) markets.

ResMed has made progress with Propeller, including several pilots with pharmacies in the delivery of respiratory medicine and has noted for the first time Propeller contributed 1% to global mask sales.

An end-to-end approach can deliver a large competitive advantage if COPD therapy decisions can be integrated with out-of-hospital software, Wilsons suggests. This could then make it more difficult for alternative therapies to break into the COPD home-care channel.

The most important new opportunities are in the respiratory care division, UBS suggests, and how these modes of therapy are integrated in COPD could be important in terms of capturing more patients and maintaining retention rates as well as lowering the costs of delivering care.

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