Why we are attracted to Resmed

Why we are attracted to Resmed

In this week’s video insight Andreas discusses a holding in The Montgomery Fund, ResMed (ASX:RMD) the maker of Continuous Positive Airways Pressure machines that help people with obstructive sleep apnea. ResMed is exposed to a growing and underdiagnosed market and will likely continue to take market share from its main competitor, learn more on the reasons we like the company in the video.

Transcript

Andreas Lundberg: 

Hello, my name is Andreas Lundberg. Today, I am going to talk about a company that has been a significant driver of returns for The Montgomery Fund over the years and why we continue to like it.

The company I am talking about is ResMed, the maker of Continuous Positive Airways Pressure (CPAP) machines that help people with obstructive sleep apnea (OSA) achieve better sleep at night and prevent the adverse health effects associated with the disturbed sleep resulting from this condition.

There are several reasons why we are attracted to ResMed.

Firstly, the by far highest risk factors for OSA are obesity and advancing age. As a global society, we are quite rapidly getting heavier and there are no signs that this trend will change either in the developed world or in developing countries. The world’s population is also ageing quite rapidly due to the post second world war improvements in healthcare that resulted in much lower infant mortality than previously, and those generations are now approaching their 60s or 70s which are the prime time to be diagnosed for OSA. For these two reasons, we believe that the underlying number of OSA sufferers will increase over time.

Secondly, we believe that OSA is a significantly underdiagnosed condition. There are studies that estimate that about one in seven of the world’s population is affected by OSA and only a very small portion of these people have actually been diagnosed. As awareness of the condition increases, which we believe COVID can help with as it probably increases the general awareness of respiratory diseases, more and more people will seek help and at the same time and technological developments have enabled much easier home sleep testing meaning that the hurdle to get diagnosed is coming down.

Thirdly, ResMed has during the last year been given a once in a lifetime opportunity to increase its market share due its major competitor Philips suffering from a product recall that has meant that they have to focus on replacing their installed base instead of selling to new customers meaning that ResMed has basically the whole new market to themselves. The Philips recall will most likely last at least until the end of 2022 meaning that ResMed will likely have had 1.5 years to increase its installed base. In addition, we are also hearing feedback from sleep doctors and other parts of the supply chain that are very disappointed with how Philips has handled the recall and this has most likely created significant permanent bad will amongst doctors, patients and distributors of CPAP equipment meaning that we believe that ResMed will permanently increase its market share of new devices even after Philips comes back to the market.

So, in summary, ResMed is exposed to a growing and underdiagnosed market and will likely continue to take market share from its main competitor and that is why it earns its place in the portfolio.

The Montgomery Funds owns shares in ResMed. This video was prepared 14 March 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade ResMed you should seek financial advice.