ResMed (ASX: RMD) and the risk posed by GLP-1sInvestors would be aware that ResMed became a significant position for the Auscap funds in the second half of 2023. It is a founder-led business that sells CPAP (continual positive airway pressure) devices to sufferers of obstructive sleep apnoea (OSA). Following a recall by its major competitor, Phillips, ResMed is the dominant player within its sector, having grown earnings per share by 15% per annum for the last decade with a consistent return on equity above 20%.
ResMed sold off in the last year due to the perceived potential impact of a class of drugs referred to as Glucagon-Like Peptide 1 agonists, or GLP-1s, which assist patients in losing significant amounts of weight. There is a strong correlation between OSA and weight.GLP-1 drugs could potentially reduce the number of patients that suffer from OSA thereby reducing the size of its market. However, the evidence is far from conclusive. Feedback suggests that ResMed remains the strongly preferred CPAP standard of care, with physicians tending to view GLP-1s as an adjunctive OSA therapy to CPAP. Significantly, demand trends for the CPAP sector remain extremely strong. It also appears that the sudden focus on weight and health that has arisen from the GLP-1 fervour has substantially increased awareness of OSA, an under-diagnosed condition, which is increasing the number of patients looking for a solution. ResMed management estimates the current global OSA market to be roughly 1 billion people, and in FY23 ResMed had just 23.5 million connected devices in the market.
Awareness is likely to increase further with Samsung’s new Galaxy Watch which detects signs of sleep apnoea.ResMed is currently trading on a forward price to earnings multiple that is a discount to where it has traded historically, and even more so relative to the broader market, which we think is a great opportunity to buy in at an attractive price for long-term investors. We see a significant runway for earnings growth for ResMed over the coming years.
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