ResMed Inc. (RMD) Earnings Call Transcript & Summary

This session, we welcome from ResMed, Rob Douglas, COO; and David Pendarvis, Global legal Counsel from the company. Thank you for your time today, gentlemen. What we'll start with is a an introduction from Rob, and then we'll go to Q&A. Please enter your questions in your browser, if you're connected directly, and I'll endeavor to read your questions out. So with that, thank you for your time today, gentlemen. And Rob, I'll throw to you for some opening remarks.

Great. Thanks, Sean. Thanks for having us here. For everyone listening, we did distribute a brief slide deck with just a few summary statistics on it, if you want to have a look at that and a safe harbor statement. For those of you who don't know ResMed, we're the world leader in the -- including sleep apnea and other chronic diseases like COPD and asthma. Our focus really is on treatment outside of the hospital and as I'll explain in a second, our strategy is totally focused around long-term care out of the hospital. We've also got some very good SaaS businesses that are really running the operating system for providers of out-of-hospital health care. Now ResMed is a 31-year old start-up, really, we're a dual-listed company on New York Stock Exchange and the Australian exchange. We're headquartered in San Diego. In terms of scale and size, about 7,500 members on our team. As I said, we're best known for treating sleep apnea. We've made a real difference in the treatment of sleep apnea by connecting all the devices and having a very strong data orientation around that data. And the data that we collect from devices is packaged up on a daily basis and used to provide really motivational information back to patients and also to improve the workflows and allow our provider customers to prioritize with patients they manage. And our data from that shows a huge uplift in what we call compliance or how long people are likely to stay on their long-term therapy. This has really proven [ it ] in sleep apnea. We believe it will prove itself on COPD and asthma and other chronic diseases. We really have had an interesting time this year as everyone has with COVID. And we have seen a very strong uplift in our ventilation business, where we had a -- we've been in the ventilation business for many, many years, and we're a leader in out-of-hospital ventilation, long-term ventilation. It turns out those ventilators were very useful in treating patients in the acute setting early in the COVID environment. And as we had previously reported, we had a huge tailwind in our business from increased ventilators. And that more than offset a headwind that was in our other sleep businesses and a little bit in some of our SaaS business, really related to the health care system, not accessing and treating those patients, while they prioritize and freed out their spaces to watch the COVID patients. So a lot of the short-term story is how that could be a [ tailwind ] -- rebalances itself as things progress. And I'm sure we'll have some questions on that -- our long-term strategy, and I'm now talking on Slide 4 of the deck, if everyone's got it with them. Our long-term strategy is very much intact through all the recent changes. And we believe that the world is heading to a place where patients are going to get treated outside of the hospital more. They're going to be more empowered with data. The chronic diseases of sleep apnea, COPD and the management of patients out of hospitals is going to be really important. And if anything, COVID has accelerated all of those trends, and we're going to be the provider of really technology and solutions to the health care providers that are operating in that space and on that technological front. We've got a really strong team. We're very much an action-oriented innovation company. And we believe that we've, over the long term, really posted results that reflect that and we still have a massive opportunity in a sense, there's more than 900 million untreated sleep apnea patients around the world, probably almost 400 million COPD patients and probably a similar number of asthma patients. So we have a huge, huge opportunity still ahead of us. Thanks, Sean.

Thank you, Rob. Great introduction. Appreciate that. I have followed your company for a very long period of time. It's shown tremendous sustained growth over that long period of time. There's been a bit of a bleak, obviously, as it has been in nearly every business we look at result of COVID. So can you talk to Rob, or David, just the impact that COVID has had on the business in terms of new patient diagnosis as it pertains to sleep apnea?

Sure, Sean. So let me start. So way back in January when this whole issue started emerging in China, and we have some good local operations in China. And we actually design and build sleep apnea devices and ventilators in China for our Chinese market. And as that all took off, we had a pretty clear understanding of what was happening in those markets. And we saw a huge increased demand in our ventilation of products, and we have a team in Wuhan looking -- helping look after patients there. It was pretty scary times for them. But at the same time, we also saw the sleep labs patients not start coming to sleep labs because they just didn't want to be in hospitals. Now that's played itself out across the world. And there are various dynamics around that. In some countries, there's already a very strong home sleep testing model. It's often driven by reimbursement. In France, for example, reimbursement rates, the home testing or lab testing are the same. In the U.S., there's a significant fraction of tests were done in the home. What we saw in some markets was really a rapid decline in new patient diagnosis more than offset by a big uptick in sort of the resupply. So patients -- new patients didn't want to go into the labs, but existing patients wanted to make sure their treatment is optimized, and they had a good mask and all of that to so we saw the resupply business go well. We saw new patients decline and gradually come back as the hospitals rather reprioritize back to their existing business and patients were able to start coming in. Since then, we've talked about different countries all have different restart rates. In China, the rate of patients coming into the hospital sleep labs is still a lot lower than what it was, and it's slow to recover. The home testing has increased there to offset it. In Europe, we've seen numbers pretty quickly get back up to probably 85% of normal and keep trending up through that with some support of sort of more acceptability in home testing, although it's different in every country. And in the U.S., it's different in every state, and we're seeing different levels. And probably the average above 70, well above 70% in terms of new patients there at the moment, and that's gradually increasing. And then the resupply programs, where patients are getting new masks and tubing and equipment like that to keep their treatment optimized, that continues to grow. So the big challenge everyone wants to ask us is, well, give us an exact forecast for that recovery rate. It's very difficult to do that because as we see the COVID is sort of an oscillating wave as opposed to 1 or 2 phases. And it's actually different in every individual state and even down to the city level and center -- specific center levels as to how that's going. That said, we're very confident that the underlying patient needs are still there and the underlying levels of treatment for patients will recover and get back to where we were.

Sure. So thank you. I appreciate that. Again, all short term, extremely confident that business gets back to where it was. But just in terms of those, I guess, lost diagnoses, would you've seen -- assume that they are lost or so when you get past this COVID situation, with the vaccines, but whenever that is, if you assume that there's a catch-up of those patients? Or you just sort of model or think about modeling a return to what you would have observed pre COVID, if that question makes sense?

I think we'd probably see that there won't be some sort of big bolus of patients coming in, like you might see for some other urgent conditions or more urgent conditions, in surgeries and orthopedics, in that area. But we -- and we will get back to underlying system capacity. We know that the sleep apnea diagnosis system runs fairly close to capacity, and it will run back up to that capacity and run at that capacity. So I think we should see steady continuous progress as opposed to a recovery bump, but then drop off again.

Sure. Thanks, Rob. And lastly, on this little section. How should we think about the impact on resupply over potentially calendar 2021 as a result of those lost diagnoses?

Yes. Well, I mean, I think various people could model this, depending on what the structure of their model is. We actually can't publish the exact details around that, but a decline in new patient diagnoses will affect it, but there will be other ones that would go the other way. So increased engagement with existing patients and keeping them on the resupply programs which we are seeing the industry did. That will also keep patients on treatment. So the actual thing to [ measure ] would be the total number of patients on treatment and again, it's very difficult to model. That -- the other factor is that resupply continues to be an opportunity to the providers in the industry to provide better treatment for patients and to keep them on treatment longer. And so we'd look to see more and more of our provider customers engaging with the resupply programs. One of the things that we have -- wasn't part of Brightree, but we also had a ResMed solution, that's our resupply program. And the acquisition of SnapWorx really means we have sort of not only best-in-class, but the best of the best-in-class in resupply technology, and we've seen good success at that. And that has been a good tuck-in acquisition that the Brightree team performed just prior to all of this taking off.

Thank you, Rob. What I think I've got from that is essentially COVID is really reinforced the engagement in the patients. So on the existing installed base in patients, it's actually been quite beneficial for resupply.

Sure, absolutely. As it doesn't suffer from the -- you need to turn up to a facility or you got to go and talk to someone that perhaps you've been worried about visiting or any of that, a particularly the automated and outreach resupply program.

I have a question here that's popped up online. So I'll read that out to you, Rob. It says, has there been a slowdown in orders for acute systems as governments realized there was sufficient capacity?

Yes. Well, the first main point from ResMed's perspective is it's not our business model to be supplying ventilators into the acute setting. We actually have a view that, that's not really a target industry for us, and it's well served. Clearly, as the governments around the world look to increase their stockpiles, they have gotten to the point where the stockpiles in many countries, not in all countries, and certainly, there are several countries where this is still not -- we still don't think they've got adequate ventilation capability. But in most western countries, the view of what the stockpiles need to be and what the government's needs are is sort of understood. But it's important to note that a home care ventilator is a very sophisticated device can operate unattended typically has power capabilities to deal with uncertainty of intermittent power supplies as you have. And they have to work in the home for many, many years. They're quite a different system to what you typically see in an acute setting. And they've got different important specification requirements, some different usability requirements and all of that and as I said, our products have not targeted that environment, and we're quite happy to leave that market to other companies. Now what happened early in COVID is because we were a leader in home care ventilators, there's a lot more home care ventilators around the world than there are hospitals ventilators. And you can do you can see people alive with critical ventilation needs very well on a home care ventilator. And so they were a very good product for us to be able to ramp up supply. We -- as we said on our call, we ended up in the first 6 months of the year, supplying about 150,000 ventilators, sorry, manufacturing 150,000 ventilators. And ability to ramp that up was really good. But for the future, we're not targeting that business model at all.

Sure, sure. Another question just popped up online Rob, so again, I'll read it out to you. It says, can you speak to your plans to move into the high flow oxygen market, when do you expect it to launch into the U.S. and how do you see this market evolving versus where it is today?

Yes. So people who're aware that we are -- we do have a device that's involved getting started in a trial in that area. We think it's a valid. We do take the view that mostly being talked about today is an acute treatment. And to my previous comments about our strategy of looking at long-term disease management and milestone treatment. That's more the area where we're looking at. I might pass on to David, if you want to talk specifically about U.S. plans or any of that?

Yes. So thanks, Rob. And the -- it's an area we're exploring. I think this is what it's fair to say. We think, as Rob said, it's a valid technology. It's been in existence for years and then has been used most recently more acutely, we're more interested in the home care side. And we're really working with some of the key opinion leaders in Europe trying to getting a good assessment of where is the potential for our home care market. There's a lot of needs you have to put in place before you could get reimbursement into a home care market, which doesn't exist by and large today. So this is a long-term strategy that we're working out, trying to test the market, and we would really view this as sort of one of many respiratory care options in the home as we try to build out a long-term sort of early-stage to late-stage therapeutic alternatives for patients who're dealing with COPD and other respiratory conditions.

Thanks, Dave. The next question I have. I wonder if you could just give us a flavor of the general pricing environment and the health of the DME industry. We understand that there's a long tail of DMEs, so what might you be seeing or what could we expect on the M&A front? And how will the structural industry look, do you see, post COVID?