After a 36% dive in the ResMed share price, the CEO quantifies Ozempic and GLP-1 impact

The ResMed CEO has revealed today just how many future customers GLP-1s may cost them.

| More on:
Man sleeping with a sleep apnoea mask on.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ResMed Inc (ASX: RMD) shares are down 2.4% to $21.92 in early afternoon trading following the company's 1Q FY24 results release this morning.

As my Fool colleague James reported earlier, revenue increased by 16% to US$1.1 billion in 1Q FY24 compared to 1Q FY23. Operations income increased by 5%, and gross margin contracted 250 basis points to 54.4%. The company will pay a quarterly cash dividend of 4.8 US cents per share on 14 December.

Top broker Goldman Sachs has already delivered its verdict, noting that revenue was in line with expectations and earnings were ahead of estimates.

ResMed's CEO, Mick Farrell, commented that he was "more confident than ever in our growth strategy".

Arguably, ResMed shareholders are not feeling so confident, judging by the recent share price dive.

Let's recap.

ResMed share price takes a serious tumble

The ResMed share price has taken a steep 36% dive over the past six months.

That is significant given ResMed is a popular large-cap within the prestigious ASX 50 and the market's fourth biggest healthcare share with a market capitalisation of $33 billion.

Analysts say the tumble is likely because investors are concerned that Ozempic and GLP-1 medications are going to cost the company revenue.

These obesity medicines are proving to be highly effective, which is a problem for ResMed because obesity is a common precursor to obstructive sleep apnoea (OSA), and ResMed's devices treat OSA.

But the brokers argue that investors do not appreciate the scale of the sleep apnea market, and even if GLP-1s do reduce the prevalence of obesity worldwide, a huge OSA market will remain.

Today, the ResMed CEO addressed these concerns directly and explained how the company is tracking the potential future impact of Ozempic and GLP-1 medicines on its business.

What did management say about Ozempic and GLP-1s?

First of all, Farrell reiterated that the company continues to see strong growth in patient numbers.

This is a highly relevant point because GLP-1s only threaten to chip into ResMed's total addressable market by potentially removing some of the portion of customers who have sleep apnea and obesity.

Sleep apnea has many other causes, and this has been the argument of several top brokers who have recommended that investors take advantage of current market confusion and buy a rare dip on a blue-chip share.

They say the OSA market is vast and underserved, thereby leaving plenty of market share for ResMed to gain regardless of the success of Ozempic and other GLP-1s in reducing obesity.

And they're pretty bullish on price, too. Goldman has a buy rating on ResMed with a 12-month price target of $33. Wilsons has an overweight rating and a share price target of $36.25.

Today, Farrell referred to the vast market available to the company, saying:

ResMed is well positioned for ongoing future success and accelerated profitable growth. The opportunity in front of us is huge and largely untapped and it's an incredible runway.

Helpfully, the ResMed CEO did not ask investors to just rely on verbal reassurances today. He actually put a number on the potential impact of GLP-1s on ResMed's future customer base, based on internal modelling.

GLP-1s could reduce addressable market by 200 million people

ResMed says its conservative growth estimate for the global addressable market for sleep apnea is 1.4 billion people by 2050, up from 936 million in 2015. That's without any impact from GLP-1s.

The company then used all data available to assess the potential impact of GLP-1s, as Farrell explained:

We then overlaid an aggressive assumption for the adoption of this new pharmaceutical class globally. We assumed some of the highest penetration rates that we have seen reported by analysts in the industry. With this aggressive and sustained adoption of the new drug class, we forecast that the global prevalence of sleep apnea will still be around 1.2 billion people in 2050.

Farrell said the company would continue to monitor the impact of GLP-1s and update its epidemiology model every quarter.

He mentioned that there were 22.5 million patients on ResMed's Air Solutions ecosystem and that number is growing, with "record numbers of new patients starting up".

But the more salient point is that 22.5 million is a drop in the bucket if the total addressable market for sleep apnea today is somewhere north of 936 million.

Next question…

Are GLP-1s reducing current customer numbers?

At the moment, Farrell said they are not seeing any declining use of ResMed products among patients using both GLP-1 drugs to treat their obesity and ResMed's devices to treat their sleep apnea.

He said the company has "many thousands of patients on our GLP-1 plus PAP database", and they have been tracking the impact of GLP-1 concomitant therapy among them for two years.

ResMed is also tracking 17,000 patients who have had bariatric surgery and are using PAP therapy post-surgery. He pointed out that these patients can lose up to 50% of their weight. This is far greater than the weight loss percentages for GLP-1s, which are about 15% to 30%, depending on the type of GLP-1.

He said:

In terms of existing patients in our installed base, we are actively tracking a cohort of many thousands of patients on these GLP-1 medications and APAP therapy. We are not seeing any significant change in the PAP adherence rates nor any reduced participation in resupply programs versus control groups.

These data indicate that there is a cohort of patients on combined therapies in a stable state. In terms of new patients activated into the funnel, we are seeing the number of new patients activated into the health care funnel picking up. We see patient flow is not only strong but increasing.

Farrell said the company intended to publish the data in the peer-reviewed clinical press at some stage.

He added:

… it's obviously early days, but we're tracking many thousands of patients on GLP-1s and PAP we're seeing maintenance of adherence. We're seeing maintenance of resupply programs and really no change.

GLP-1s could be a 'net positive' for ResMed shares

Farrell said obesity drugs could actually become a "net positive" for ResMed, as patients with obesity tend not to engage with medical services. He said the success of GLP-1s may encourage them to talk to their doctor and discuss the impact of their obesity more broadly, which may include sleep difficulties.

Farrell said:

We believe the work that's being done in the pharmaceutical industry right now with obesity drugs will be a net positive for patient flow and patient growth in sleep apnea, COPD and for ResMed overall.

… there's a high avoidance of people with BMI of 30, 32, 35 of the primary care system. And so we believe it will bring more patients in. We're seeing that with our very high patient flow.

We're seeing actually our adherence rates steady and resupply rates steady in that installed base. And in the new patient flow side, we're actually seeing increased all-time highs of patients coming into the funnel.

Should you invest $1,000 in Regis Resources Limited right now?

Before you buy Regis Resources Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Regis Resources Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 7 February 2025

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

A man wearing a white coat holds his hands up and mouth open with joy.
Healthcare Shares

Guess which ASX healthcare stock is rocketing 25% on big UK news

Investors are sending this ASX healthcare stock rocketing on Friday. But why?

Read more »

two men shake hands on a deal.
Healthcare Shares

Can you guess which ASX 300 healthcare stock is rocketing 34% on takeover news

This share is rocketing on Friday after accepting a takeover offer.

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Earnings Results

Telix share price jumps 13% on FY24 profit surge

This pharma stock has delivered another stunning result. Here's what it reported.

Read more »

Health professional working on his laptop.
Earnings Results

2 ASX 300 healthcare shares making big moves on earnings updates

Let's see what these two shares reported on Thursday.

Read more »

Teamwork, planning and meeting with doctors and laptop for medical, review and healthcare. Medicine, technology and internet with group of people for collaboration, diversity and support in hospital
Healthcare Shares

2 ASX 200 pharmaceutical shares surging on big US news

Big news is getting investors excited on Wednesday. Let's find out what is happening.

Read more »

Bored man sitting at his desk with his laptop.
Healthcare Shares

The Cochlear share price hit a 52-week low last week, is it time to buy?

Is this an opportunity worth hearing about?

Read more »

A businesswoman exhales a deep sigh after receiving bad news, and gets on with it.
Earnings Results

Cochlear share price sinks 10% on half-year result disappointment

Let's see why investors are hitting the sell button this morning.

Read more »

Woman flexes muscles after donating blood.
Healthcare Shares

The CSL share price hit a 52-week low this week. Is it time to buy?

Is this beaten-up biotech a healthy opportunity?

Read more »