Australia | 1:54 PM
The great obesity drug scare of 2023 is now behind ResMed as evidence in the December quarter suggests GLP-1s are actually a positive for the sleep apnoea industry.
-ResMed beats December quarter forecasts
-GLP-1s now seen as beneficial to sleep disorder diagnosis
-Gross margin expected to improve
-Balance sheet solid, buybacks continue
By Greg Peel
Global leader in sleep apnoea devices ResMed ((RMD)) posted a solid December quarter, beating consensus by around 4%, or 2% not counting a lower than expected tax rate. Revenue grew by 10% year on year driven by global flow generator sales up 10%, global mask/accessories sales up 11%, and SaaS up 8%.
Devices continued incremental share gains in the Americas (up 12% year on year) and strength in Rest-of-World (9%) as the global AS11 rollout advances, while demand for AS10 remains. Masks grew by 10% in the Americas and 7% in RoW, suggesting a normalisation in RoW mask growth.
Strong Americas sales appear to be underpinned by market leading cloud-connected devices, Morgans suggests, with the latest AS11 platform continuing its country by country rollout, and masks benefiting from personalised solutions, such as the just-launched N30i AirTouch -- an industry first fabric mask designed for improved comfort, with early feedback "outstanding", helping to drive new patient set-ups and resupply.
While Residential care software sales slowed a bit, Morgans notes, with softness in skilled nursing and senior living, which "really has not picked up since covid", management flagged strong growth in Medifox Dan and Brightree and has guided to overall high single-digit top line growth, with double-digit profit gains.
The Big Scare?
It was around 18 months ago ResMed's share price collapsed due to the advent of new GLP-1 weight-loss drugs which, it was feared, would replace the need for sleep apnoea treatments. But while the market responded on a "sell now, ask questions later" basis, analysts were wary but not convinced GLP-1s would genuinely upset demand for ResMed's products.
Indeed, it was argued GLP-1s might even provide a boost for ResMed, as the sudden frenzy would lead the world's obese (and not so obese) to learn about the availability of and appreciate the benefits of sleep apnoea treatments.
Well, they were right, it would seem.
The top line momentum and recent channel checks have prompted Jarden to rethink the stance it took on outer year forecasts as a result of the advent of GLP-1 drugs.
The combination of obstructive sleep apnoea (OSA) awareness stemming from GLP-1s amongst patients and physicians, the proliferation of home sleep testing options and increased use of wearable devices with inbuilt OSA prompts lead Jarden now to expect to more than offset any impact on ResMed from mild to moderate OSA patients dropping out of continuous positive airway pressure (CPAP) therapy from GLP-1 related weight loss.
Over the medium to longer term, revenue growth is expected to be complemented by demand generation initiatives, with GLP-1 medication and consumer OSA detection technology supportive of new patient diagnosis/flow, notes Macquarie. ResMed expects this to drive high single-digit revenue growth guidance over the next five years.
The strength in US devices sales, in Goldman Sachs' view, is early evidence the growing awareness of OSA from the uptick in consumer wearables and GLP- 1 therapies is translating to additional demand for ResMed's products.
Undeniably, there is a range of potential new drivers coming into contention, suggests Wilsons, having deftly reversed the GLP-1/obesity "CPAP anti-narrative", which this broker now sees as potential tailwind, and noting a plethora of new diagnostic modalities and services seeking to create a step-change for the sleep industry.
ResMed continues to argue GLP-1s and wearables will bring patients into the funnel, notes Citi, albeit it will be gradual -- healthcare systems capacity will likely keep a lid on new patients' growth.
Yet, while the December quarter may have offered some proof that GLP-1s were at worst no threat to ResMed and at best and additional tailwind, the reality is ResMed's share price had regained all it had lost in the initial scare by August last year, and has since surged ahead to reach its earlier peak of mid-2021.
There wasn't much to be disappointed about, Jarden suggests, other than the stock rallying strongly on high expectations leading into the result (up 9.3% over January). Expectations of increasing top-line momentum were delivered, with device revenues beating consensus and masks coming in line.
The share price clearly anticipated more of an upgrade which wasn't forthcoming, Jarden points out, considering the gross margin remained flat on the September quarter. ResMed's share price weakened on Friday post release and then plunged another -3% on Monday, albeit the Australian market in general was slammed due to Trump tariff fears, so not too much can be read into the market's immediate response.
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