ResMed says new-generation weight loss drugs will help not hinder its growth

ResMed has delivered a strong set of quarterly numbers and says Ozempic-style drugs will be a boon for the business, debunking the initial narrative which clobbered its shares.

ResMed says the market for its sleep therapy products is still growing strongly.

ResMed has delivered a strong set of quarterly numbers and says Ozempic-style drugs will be a boon for the business, debunking the initial narrative which wiped about $10bn in value off the company.

Chief executive Mick Farrell told The Australian on Friday that it was disheartening this time last year to see the company’s share price smashed by the theory that next-generation weight loss drugs would punch a hole in the ResMed business.

In reality, he says, the company’s data shows that the new drugs are a catalyst for people to engage more with the healthcare system, resulting in a business opportunity, not a downside.

Mr Farrell said some unsophisticated downrampers on sites such as Reddit did some back of the envelope maths around the fact that “40 per cent of sleep apnoea patients are overweight, and so therefore 40 per cent of your market is going away’’.

This was entirely incorrect he says, however with the added pressure of hedge funds trading on the theory, the share price came under pressure.

Mr Farrell said the company responded by dusting itself off and getting down to business.

“We pivoted some things we really should have done earlier, which is to a new 2030 strategy, new 2030 operating model, so I didn’t waste the crisis, if you like,’’ he said.

“We got the gross margin back up, we kept the revenue going, and then how are we going to attack the rumour, the ignorance, that’s through data.’’

Mr Farrell said they had looked at data around 811,000 de-identified patients on GLP-1 (Ozempic-style) drugs, who also received a positive airway pressure subscription.

“And we saw that they start CPAP more than people who don’t have this prescription and they not only are more adherent at 12 months and 24 months, but they actually buy more masks and accessories,’’ Mr Farrell said.

“And so it’s like the complete opposite of a year ago, where it was, ‘Oh, it’s a headwind’. It’s actually ‘no, it’s a tailwind’.

“And my challenge with my team is to then get enough resources to, frankly, capture these patients and help them find pathway to a healthcare screening, diagnosis, treatment.’’

ResMed’s fourth quarter revenues, reported on Friday, came in at $US1.2bn, up 9 per cent, and up 10 per cent on a constant currency basis, while the closely-watched gross margin measure improved 350 basis points to 58.5 per cent.

Underlying net profit was up 30 per cent to $US306.3m and the quarterly dividend was increased 10 per cent to US53c.

“Ongoing patient and customer demand for our best-in-class products and software solutions is incredibly strong, driving solid growth across our devices, masks, and software businesses,’’ Mr Farrell said.

“Nearly 2.5 billion suffer from major sleep health and breathing disorders. As the market leader in these significantly underpenetrated markets, we’re well-positioned as the clear leader to drive increased market penetration, demand generation, and accelerate growth for our businesses.’’

Analysts welcomed the result, with Wilsons Advisory having an overweight recommendation and saying that the forecast of 59-60 per cent gross margin for FY25 was ahead of consensus.

“That in itself holds upgrade potential noting that the op ex guidance metrics were also in line,’’ Wilsons said.

Macquarie has an outperform rating on ResMed, saying the results were “slightly better than expected.

ResMed shares were 1.5 per ecnt higher at $32.88 in early trade.