ResMed – An Alternative Perspective

I wouldn’t normally comment on ResMed because I don’t consider it to be an “Australian” company any more, nor with its current multi-$Bn valuation is it in the “long tail” of the ASX either…

But I was thinking a lot about ResMed over the weekend for basically two reasons. Firstly, I previously, with some degree of sarcasm (I admit) commented on the announcement between RhinoMed and ResMed. Despite the usual flack I got, I do want to clarify that I am genuinely impressed and pleased for RhinoMed shareholders. What is interesting, though, is to think more abstractly about what it means in terms of ResMed’s strategy. Clearly, over the past couple of years we have seen ResMed expand itself into a comprehensive respiratory/sleep care company with a very broad product range. Therefore it completely makes sense for ResMed to be the “go to” channel partner for any credible technology that expands the space.

Indeed, that’s a real sign of a mature, market-leading company, when It becomes the premier path to market for new partnerships and products. I certainly would never want to see a company like RhinoMed set up a sales force, it would be a complete waste of capital.

I believe ResMed can claim this channel leadership position with some degree of credibility. Whether or not RhinoMed’s “Mute” is going to move the needle for ResMed or not, is really neither here nor there. Also, given that the majority of ResMed’s revenue comes from systems and accessories that are at the pricier end of the spectrum, it certainly seems reasonable to expand revenues into high volume, low COGS (= high margin) opportunities, given the growing competition in ResMed’s traditional areas (i.e. from Fisher & Paykel).

The second aspect of ResMed I have been pondering over is the announcement of the failure of ResMed’s SERVE-HF trial. Some of the mainstream media commentary was pretty rough on the company and the stock price took a beating, for sure. However, I am personally unconcerned about this and I mostly see it as a correction in what had been pretty solid stock gains over the past 12 months. The medtech/biotech market has been going such gangbusters and “all boats rise in the tide”, but ResMed has done very well on merit. Notwithstanding, I know several analysts were getting edgy about the share price and this was just the trigger for a correction. It has to be mostly about a correction, because the impact of SERVE-HF is not especially material to the company’s forward revenue projections.

From a corporate behavior vantage, the SERVE-HF trial failure was, in my view, handled well – and handled in a front-facing way with the patient foremost in mind. Good clear communication, no spin, good clear response from the company (UFSN, etc.). What most people haven’t seemed to have picked up on in the discussion forums I have been watching, was the response from ResMed’s competition – and this response is something that is really interesting to me.

In particular, Philips’ response.

What this dynamic tells you, is that even if there is serious competition from Philips, F&P and others, ResMed is actually the company that is charging ahead and leading the field. ResMed is the company that is defining the expanded potential for the product segment and is doing so as the clinical leader. The price to pay for this is obviously risk, cost and, on occasion, failure. However, success also means a market-leading position, first-mover advantage and “best in class” clinical traction. Frankly, I would rather invest in a company that is clearly – and aggressively – pushing the frontiers, than the company that is forced to react to label changes of a competitor.

So, although ResMed has had a bump in the road, they also have affirmed through this failure that they are the leader in sleep.


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