As awareness of sleep-related disorders increases, demand for this firm’s CPAP devices and respiratory care solutions is likely to grow. In fact, its CPAP devices remain essential.
That’s because a combination of weight-loss drugs, ELI LILLY’s pharmaceutical offering, and CPAP is optimal for treating obstructive sleep apnea (OSA) and related risks. The numbers agree: this firm’s revenue grew 7.2% in the most recent quarter while earnings soared 26.8%.
Meanwhile, the stock trades at 23.9 times the company’s forward earnings forecast.
RESMED INC. (Symbol RMD on New York) helps investors tap the growing market for medical devices used to treat sleep apnea. ResMed’s CPAP (nasal continuous positive airway pressure) devices are also used to treat patients with chronic obstructive pulmonary disease as well as other respiratory conditions.
In the three months ended March 31, 2024, ResMed’s revenue rose 7.2%, to $1.20 billion from $1.12 billion a year earlier. The increase came from higher demand for its sleep and respiratory care devices, as well as its software offerings.
[ofie_ad]
Excluding one-time items, earnings per share in the quarter rose 26.8%, to $2.13 from $1.68.
ResMed holds $237.9 million in cash. It has long-term debt of $997.0 billion, which is a low 3.1% of its market cap.
The stock dropped recently after drugmaker ELI LILLY AND COMPANY (symbol LLY on New York) said it has applied for regulatory approval of its weight-loss drug Zepbound to include treatment of sleep apnea.
Lilly said last Friday that Zepbound sharply reduced the restriction or blocking of air flow in patients with obesity and obstructive sleep apnea or interrupted breathing during sleep. That was based on new late-stage trial results released by Lilly and presented at the American Diabetes Association’s annual scientific conference in Orlando, Florida.
Growth Stocks: Here are more reasons why demand should remain robust
All in all, though, ResMed’s outlook is still positive. The company had previously noted that many of the patients in the study still had clinically relevant AHIs (apnea-hypopnea index) and continued to need CPAP treatment.
While GLP-1 medicines such as tirzepatide (Zepbound) could become frontline treatments for certain obese patients with obstructive sleep apnea, there will still very likely be room for ResMed’s CPAP products. That’s because, while a small portion of patients will be able to stop using CPAP machines after receiving treatment with weight-loss drugs, it’s likely that combination therapy with tirzepatide plus CPAP is optimal for treatment of OSA and obesity-related cardiometabolic risk.
In short, while there is a risk that a portion of mild patients may drop CPAP therapy over time, most patients taking weight-loss drugs will likely still need a CPAP to control their sleep apnea.
Coming into the study, patients had an average AHI—apnea-hypopnea index— of 50. That means in an hour, patients were suffocating 50 times for at least 10 seconds. At the end of the study, patients still had a residual AHI of about 20. That’s suffocating every three minutes of sleep—so they will still need a CPAP.
Meanwhile, ResMed has tracked more than 660,000 patients taking GLP-1 drugs like Wegovy and Zepbound. Patients prescribed a weight-loss drug are 10.5% more likely to start using a CPAP to treat their sleep apnea than patients with sleep apnea not taking a weight-loss drug. That’s because people will come in for the weight-loss drug, but physicians will do a full workup—looking at parameters like cholesterol, blood pressure, blood sugar and sleep. These are patients who, without the promise of weight-loss drugs, likely weren’t regularly going to the doctor.
The company raised its quarterly dividend by 9.1% with the September 2023 payment, to $0.48 a share from $0.44. The shares now yield 0.9%. ResMed’s expanding software offerings are a key growth area.
Recommendation in Power Growth Investor: Resmed Inc. is a buy.
