ResMed ready to capitalise on ‘foot fault’ by rival Philips

ResMed boss Mick Farrell says the company can secure long-term market share gains after a competitor’s major recall, despite global manufacturing challenges curbing the sleep treatment maker’s ability to meet demand for products.

The dual New York Stock Exchange and ASX-listed medical devices giant saw booming sales over the past 18 months due to demand for ventilators and is now seeing a new wave of demand after competing technology company Philips issued a major global recall of sleep apnoea products last year due to a safety concern.

ResMed’s revenue growth was below expectations.

On Friday morning, ResMed revealed a 13 per cent jump in revenue for the three months to December, coming in at $894.9 million ($1.3 billion). However, the growth was below analyst expectations and the company’s gross margin contracted by 2.3 per cent as the business faced increased freight and production costs.

“Clearly the global supply chain environment remains very challenging… despite growing double digits year-on-year, we were not able to meet all the demand in market,” Mr Farrell said.

The business introduced surcharges on its products in January to help counter higher transport costs, while shortages of key electronic components mean it has been prioritising production to ensure goods for the highest acuity patients are met first.

The difficult production environments mean that ResMed won’t be able to capture the full opportunity on offer from the recall of Philips products. The company is forecasting it will gain incremental revenues of up to $US350 million throughout this year, though some analysts have put the total market opportunity of Philips’ temporary exit from the market at up to $US750 million.

Mr Farrell said that while the company currently couldn’t meet demand, the supply chain situation looked set to improve over the next two quarters and there is still “a lot of share we are going to take” during that period.

He hit back at the idea that the company was getting a free shot at gaining share, arguing that ResMed had been positioning itself well in the market before its competitors’ recall occurred.

“We were taking market share for the last seven years from Philips before the recall, now they’ve foot faulted, given us a game…we’re going to win the match when they come back on court and stop foot faulting, because we have better stuff that lowers the cost and better outcomes,” he said.

He said the company was now focused on sustainable market share growth for the years to come.

ResMed CEO Mick Farrell says the global supply chain environment “remains very challenging”.

“What we’re doing is looking at the long term and saying, we’re winning the ball, let’s make sure the accounts and the new patients we get, we get for life.”

The company is confident that patient demand for sleep apnoea products will continue to return to pre-COVID despite the rise of the Omicron variant. Sleep treatment practices have adapted well to hygiene and safety requirements, Mr Farrell said.

The equities team at RBC Capital Markets were underwhelmed with the quarterly numbers.

“While the company delivered 13 per cent constant currency revenue growth, the numbers were below expectations and the main miss in the result. This was partially offset by lower selling, general and administrative costs,” Craig Won-Pan wrote in a note.

ResMed investors will see a quarterly dividend of 42 US cents to be paid on March 17. Shares were 0.1 per cent lower to $31.36 just after midday.

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