ResMed’s Sales Surge Despite Weight-Loss Market Worries

ResMed Inc. (ASX:RMD), a California-based company with origins in Sydney, remains optimistic about the future growth of its sleep apnoea devices. CEO Mick Farrell addressed concerns that recent advances in weight-loss drugs might undermine demand for the company's products, asserting that these new treatments actually serve as a catalyst for increased interest in sleep apnoea solutions.

Farrell, whose father founded ResMed in Sydney 35 years ago, dismissed fears that weight-loss medications could negatively impact the demand for ResMed's sleep apnoea devices. Speaking to AFR Weekend, he expressed confidence that investor concerns earlier in the year about these drugs affecting the ASX healthcare stock were unfounded.

The company's recent quarterly results demonstrated resilience. ResMed reported a 9% increase in fourth-quarter revenue, reaching US$1.22 billion ($1.9 billion). Gross profit margins exceeded expectations, and despite a challenging market environment, ResMed’s shares rose by 0.8% to $32.66.

Farrell noted that the initial market reaction to weight-loss drugs was driven by speculation rather than facts. He highlighted that ResMed’s share price had dropped significantly due to unfounded rumors about the impact of these drugs, which led to a reduction in market value from US$30 billion to US$20 billion. Despite this, Farrell pointed out that rather than hindering growth, the rise of weight-loss treatments has actually expanded the potential patient base for ResMed’s products.

In response to the concerns triggered by the successful trials of weight-loss drugs like Novo Nordisk’s Ozempic, which reportedly reduced the severity of obstructive sleep apnoea, ResMed's share price experienced a steep decline of up to 35% last year. However, Farrell views this period as a temporary setback and a buying opportunity.

According to Farrell, weight-loss drugs have not diminished the demand for sleep apnoea treatments. On the contrary, a study conducted by ResMed found that patients using these drugs are more likely to seek treatment for sleep apnoea, with a 10.7% increase in patients opting for ResMed therapies. This trend is attributed to greater awareness and diagnosis rates facilitated by new treatments.

Looking ahead, ResMed is confident in its growth prospects. The company expects global sales of sleep apnoea devices to grow between 6% and 7.25%, driven by increased awareness and the expansion into underserved markets in Asia and Latin America. Additionally, the rise of wearable technology for digital health is expected to enhance the diagnosis and treatment of sleep apnoea.

ResMed continues to invest significantly in research and development, allocating 7% of its revenue to R&D initiatives. The company is also seeking support from the Australian government for research and development tax credits, aiming to further boost innovation in the sector.

The company’s manufacturing operations span Sydney, Singapore, France, and the United States. Farrell plans to bring ResMed’s board to Sydney next month to review local operations and further emphasize the company’s commitment to technological advancement and global growth.