Specialist
Executive at Apria Healthcare LLC
Agenda
- Benefit of Philips’ (AMS: PHIA) CPAP (continuous positive airway pressure) device recall for ResMed (NYSE: RMD) demand volume for sleep and respiratory care devices, including sustainability and size of increased demand
- ResMed’s near-term supply chain issues, including issues keeping up with increased demand leading to customers moving to other providers such as 3B
- Philips’ future position in the CPAP market following device recall
- ResMed’s recent launch of AirSense 11, including uptake and product differentiation
Questions
1.
Could you outline some of the dynamics surrounding ResMed? How sustained that you think the increased demand or sales boom is off the back of the Philips product recall?
2.
How might the sleep apnoea device market share landscape play out over the next 4-5 years? You mentioned Philips and ResMed have been the two historical CPAP [continuous positive airway pressure] providers. In previous Interviews [see Philips – Increased Sleep Apnoea Machine Recall & Q4 2021 Earnings Analysis – 01 Feb 2022], experts have outlined 4-5-year market share expectations for sleep apnoea devices that benefit ResMed with around 75-80% vs 20-25% for Philips. What are your thoughts on this market share split and the viability of those expectations?
3.
Do you think it would be sustainable if ResMed were to gain 5-7% market share? Alternatively, do you think Philips could chip away at gain in the mid-to-long term when it does return to the market?
4.
You suggested market dynamics have created an opportunity for a third or fourth CPAP player to enter. How should we be thinking about smaller players such as 3B and Apria and their potential opportunity? Which players could take more market share and become stronger within the CPAP market?
5.
How much market share do you think 3B could take in the CPAP market over the next 2-3 years?
6.
Philips claims it will be able to replace or repair its devices by Q4 2022. ResMed is experiencing sustained supply chain issues, which the company claims will be fixed in H2 2022. Do you think the delays caused by these issues give 3B enough time to gain market share? How much more market share could 3B gain if those time frames were extended to 2023?
7.
Who do you think 3B will take market share from? Might it be equal between ResMed and Philips or more from one vs the other?
8.
You mentioned there’s a 2-3-month bolus of patients waiting for CPAP devices. Could you quantify the number of patients this represents?
9.
Are smaller players such as 3B who could take market share imposing long-term supply contracts to customers who want to access their products during this market supply shortfall? If so, for how long? Are they working on a connected solution to be able to provide patients’ compliance?
10.
How do 3B’s devices compare to ResMed and Philips’ CPAP and BiPAP [bi-level positive airway pressure] devices? We’ve heard from specialists in two separate Interviews [see Philips – Increased Sleep Apnoea Machine Recall & Q4 2021 Earnings Analysis – 01 Feb 2022 and Philips Recall Customer Assessment – Further FDA Questions & Future Recall Potential – 01 Dec 2021] that ResMed and Philips’ CPAP and BiPAP devices are quite interchangeable, in that patients wouldn’t really notice if they switched from one to another. The biggest difference would be between the non-invasive ventilators.
11.
You said 3B isn’t imposing long-term supply contracts on customers. How sustainable might these customers be, perhaps considering the beginning of 2023 when Philips might be back up and running and ResMed might be meeting its supply chain demands? Do you think there could be much switching? How important do you think it is that 3B imposes longer-term supply contracts?
12.
How should we be thinking about DME [durable medical equipment] suppliers? Should we expect them to refill their inventories in H2 2022 and beyond?
13.
What’s the extent of pressure from China-based manufactures being able to provide units without delays, especially given the supply chain constraints during the pandemic? Will it change the market landscape post-coronavirus?
14.
Could you outline ResMed’s different distribution channels and customers such as sleep clinics and home healthcare dealers?
15.
How do the different manufacturer relationships work within the three main buckets – DMEs, sleep labs and hospitals? DMEs will be the key growth driver for ResMed. Does a sleep lab typically have just one manufacturer?
16.
Could you estimate how much of the sleep lab market Philips owned?
17.
ResMed has benefited from Philips’ recall, but it seems this is very much capped by the supply challenges which could constrain sales growth in Q2 and Q3 2022 before a potential strong uplift in Q4. How capped is ResMed by supply challenges? How much of that market has it managed to capture so far?
18.
When do you think we can expect ResMed to be in a position to satisfy the 2-3-month demand bolus you highlighted?
19.
Could you quantify the bolus of patients that should materialise in H2 2022 when we theoretically have ResMed with that adequate capacity to supply that entire new patient market? How much do you think the company can capture once it does have that adequate supply?
20.
What do you think is a realistic time frame for Philips’ repair and replacement programme?
21.
How impactful are cost pressures such as rising freight costs on potential margin compression for a player such as ResMed?
22.
What ASP increase do you think is realistic?
23.
How is 3B’s pricing aligning with that of ResMed’s devices? Is 3B aligned or undercutting in price? You mentioned its ability to be aggressive on price.
24.
How much is this becoming a price game vs DMEs just wanting supply of devices?
25.
How well-placed do you think ResMed will be when it does become more of a price game again to lower prices vs competitors such as Philips and 3B, who are probably undercutting the company around 5% of the price?
26.
How aggressive do you think Philips could be on price? How much could it potentially undercut ResMed by?
27.
How might a return to a potentially more negative pricing environment in H2 2023 put a dampener on device innovation? Are these devices just becoming increasingly commoditised? What differentiated features might help players gain market share and allow them to price at a premium, or are all devices captive to oppressive reimbursement?
28.
ResMed launched AirSense 11 in August 2021, which is the company’s next-generation device. This also gives access to its patient engagement app MyAir and AirView, its remote monitoring platform for clinicians. How differentiated is that AirSense 11, particularly in combination with the app?
29.
AirSense 11 is a premium-priced product. How can we expect that ASP to trend over the rest of 2022 and into the short-to-medium term?
30.
To what extent might the recall have impacted Philips’ reputation in the sleep apnoea device and ventilator market? Experts in previous Interviews have suggested that Philips is still selling to some new customers while old customers are waiting with a defective product. How reputationally damaging do you think that is?
31.
How do you think potential attrition in Philips’ sales force or management shifts such as those in the company’s Respironics area might impact the company’s commercial competitiveness in the market? Could this inadvertently benefit ResMed? How competitive is ResMed’s commercial team on the market?
32.
ResMed’s management has said it’s continuing to pursue software and service acquisitions. What assets, software or services might make sense for the company to acquire or might benefit it longer term?
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