ResMed Inc. (RMD) Earnings Call Transcript & Summary

Hello, everyone. My name is David Low. I cover health care companies for -- the Australian Health Care companies for JPMorgan. Today, we've got Mick Farrell, CEO of ResMed with us. Just before I hand over to Mick, just a reminder that you can ask questions at any time you can submit questions at any time via the website. We'll have a Q&A session after Mick finished his presentation. So thanks very much, Mick. Over to you.

Thanks, David, and thank you to everybody joining us here on the virtual JPMorgan session here this morning, California time. I'm going to start on Slide 4 of my presentation deck, which is entitled ResMed the global leader in Connected and Digital Health. And I'll move pretty quickly through the document about 20 minutes of presentation, and then we'll open up for 20 minutes of Q&A, where I'll be joined by Rob Douglas, our President and COO; and Dave Pendarvis, our Global Chief Administrative Officer and Board Secretary. So Slide 4, overview of the company. We actually turned 33 years old here at ResMed this year. We were born in 1989 and technology out of the University of Sydney in Australia, actually a management buyer of technology from Baxter Healthcare that was taken for $1.2 million in [ angel-funded ] Australian dollars and is now trailing 12 months revenue around $3.2 billion, market cap sitting this morning around $34 billion on New York Stock Exchange. Our main markets are sleep apnea, sleep suffocation, I call it, 936 million people who suffocate every night. Respiratory care, so COPD and asthma. So 380 million people worldwide with COPD and 340 million people worldwide with asthma. So around 1.6 billion people is our total addressable market. And we have another business in Software as a Service, which is focused on outside hospital care. So skilled nursing facilities, home health, hospice, home infusion, home medical equipment and beyond. Moving on to Slide 5, which is entitled ResMed 2025, a patient-centric, digitally enabled strategy. This focus is on our long-term goal. Our long-term goal is by the year 2025, we want to improve 0.25 billion lives in outside hospital care. We want to help 250 million people sleep better, breathe better and live better lives in outside hospital care. That last part is really important. It differentiates ResMed from many other health care and med tech companies in that we focus outside the hospital. 95% of our revenues and profits come from outside hospital care. In the last 12 months, we changed over 130 million lives more than 15 million of them were a physical product, a CPAP, an APAP, a bilevel, a ventilator, a full mask system and over 115 million lives with a digital health product. So either a Brightree product, a MatrixCare product, a Propeller product, a myAir product and AirView product. We want to grow that 130 million at double digits on a volume basis every year over these next 5 years. So that in the year 2025, we can impact 250 million lives in outside of hospital care. The next slide, Slide 6, entitled our digital health solutions improve outcomes and lower costs. Look, if you just have a look at this slide, the ecosystem we've created with our core market in sleep apnea and really doing what I call reverse Amazon in the sleep apnea industry. Amazon, a software company that used hardware with 100% cloud connectivity in the Kindle to drive more software sales of initially their book revenue through the software. ResMed was a hardware company for our first 25 years, and we created a 100% cloud connectivity. Before it was cool to do this, the Internet of Medical Things is named now. But back in 2012, when we made that pivot and made the decision to go 100% cloud connected in every sleep apnea device that we have that was an early call. And what it did was allow us to, as a hardware company with 100% connectivity to do a reverse Amazon and sell more hardware through the great software that we provide, myAir for patients, AirView for doctors. And that ecosystem has grown and grown and grown. What we're able to do with it is obviously with privacy, with cybersecurity and using de-identified data analysis, we're able to unlock incredible value for our customers for patients, for physicians, for providers. The lower costs for brokered health care systems, and we improve outcomes for patients, good for patients, good for doctors and good for the whole ecosystem. We're leveraging a lot of investments in this digital health technology space. We're investing in artificial intelligence, machine learning and the first products from AI and ML is starting to hit the market and the velocity at which we're going to release, digital health products continues to accelerate. I'm really excited about that, and I'll talk about that a little later in the presentation. On to the Slide 7, entitled we transform medical data into actionable outcomes at scale. We now have over 10 billion nights of deidentified medical data in the cloud. And these come from over 15.5 million 100% cloud connectable medical devices on people's bedside tables, around the world in their home in a 140 countries worldwide. What are we doing with those data? Well, we're unlocking value. We're helping home medical equipment providers lower their labor costs of setting a patient up on CPAP by 59 [ % ]. There's a peer-reviewed published data. So we're lowering costs for our customers. We're improving outcomes for our ultimate customer, the patient. We can drive up to -- and I'll show you the medical data later, we can drive up to 87% adherence when the physician is using AirView, the patient is using myAir. So full leverage of our digital health ecosystem, 87%. It's almost 9 out of 10 people using this medical device every night. Pharmaceutical companies dream of having 90% adherence to a drug on prescription, we're getting that with a physical product surrounded by digital health ecosystem. Another interesting stat on this slide is the bottom left-hand corner, there's 100 calls, API calls every second into and out of our ecosystem. So obviously, that means we have to focus on cybersecurity and all that, but it unlocks incredible value that the doctor can see the data in their [ Epic ] system, their Cerner system. They can see the data in their own government health system in Northern Western Europe and beyond. Final stat from this slide, we have over 4 million ultimate customers, patients who signed on to our app called myAir, related to ResMed every day, obviously, seeing our brand every day, but more importantly, checking their sleep number overnight. How do they sleep? What's their myAir score? How's their myAir sleep? How is their apnea partner index and how are they feeling quality wise and combining it with a whole lot of wellness data and improving outcomes for that ultimate customer, the patient, which improves the ecosystem all the way through in terms of lowering costs. Slide 8 talks about our priorities. Look, we're going to -- the 3 priorities are really clear. We're going to grow our core business of sleep apnea and respiratory care. We're going to deliver world-class, world-leading medical devices but also world-leading digital health technology products. And thirdly, we're going to be providing the best out-of-hospital software solutions for the global ecosystem. What is this resulting in terms of outcomes? Well, it drives slower chronic disease progression. We slowed the progression not only of sleep apnea and COPD and asthma the core diseases, but also comorbidities of those core diseases. We can show that some of our treatments can lower blood pressure, can reduce incidence of stroke and heart attack, can improve HbA1c. In fact, we just had data in the last 90 days showing that we can lower the mortality rate for patients who are adhering to sleep that versus those who aren't a study called Alaska that I'll talk about. What does that do? It reduces overall health care system costs and it also improves the quality of life of the patient. We provide symptomatic relief. It's one of the most important parts of our sleep apnea treatment and respiratory care treatment. When you take this medicine it's oxygen it's good breathing, you feel that, and it's a huge part of us getting long-term adherence for patients. Slide 9 is entitled position to win growth, innovation and transformation of care. This really is a set up slide for later. So I'll move on through to Slide 10, Slide 11, which is entitled Proactive Care to capture significant under-penetrated market. I alluded to this earlier, our core market is a monster market, 936 million people worldwide, almost 1 billion people worldwide suffocate every night and the vast, vast majority of them north of 80%, 90% in most countries don't know about it because by definition with sleep apnea, you are sleep in an unconscious state while you're suffocating so you don't know about. We have to find ways to identify, engage and enroll those potential patients into our ecosystem. And I'll talk about how we're doing that at scale with our previous one joint venture with Verily on the digital health side and also through physical products through our partnership with CBS, where we're going to shop fronts, health hubs to identify and engage and involve people on both a physical and a digital front. COPD market, 380 million people worldwide who have chronic obstructive pulmonary disease. It's a big tent in terms of what COPD is from Stage 1, 2, 3 and 4. And we really only play in stage 3, stage 4 with ventilation from our bilevels and bilevels with backup rate and our ventilators. But now with our Propeller acquisition, we're able to participate in the markets in stage 1 and stage 2 when patients are using medications where we have a cloud-connected inhaler, engaging them in care. And we have some really good clinical data coming out showing increases of adherence to those COPD meds and also us being able to get that patient so that they're using medicines and staying out of hospital and part of our ecosystem. And Asthma [ Sandile ] 330 million people worldwide who suffer from asthma and our Propeller app is able to engage with them along with the medical device for inhaled asthma medications as well. So moving on to Slide 12. We are providing what we call end-to-end integrated digital health care. And this has started with our sleep apnea our core market where we are identifying patients, whether it's through some of the digital screening technologies and capabilities that through our partnerships with digital health providers and tech companies, all the way through to our ApneaLink Air, which is a cloud-connected diagnostics, then through to our cloud-connected medical devices that treat sleep apnea, whether it's a CPAP, APAP, a bilevel or a ventilator. They're all 100% cloud connected and then we move on to engaging with adherence, engaging with the patient with myAir, the doctor with AirView and engaging with the home medical equipment company through Brightree. And that ecosystem, that end-to-end ecosystem allows us to follow that patient all the way through journey to better sleep to better breathing to better care and to being part of our ResMed ecosystem for the long term. The final chevron there on this slide talks about disease management and long-term adherence. These are areas that we're looking to unlock and are starting to unlock long-term value for health care systems really showing that when you treat sleep apnea for the long term, you could impact the value of not just this core disease, but many other chronic diseases that are related to it. Slide 13 talks to our data-driven sleep apnea therapy and how we're improving patient adherence. We have launched the AirSense 11 now across the United States. Obviously, we're in the midst of a global supply chain crisis where we have limited parts in terms of electronic components, specifically semiconductor chips and comms chips. But we're still able to -- even during this crisis to be able to launch brand new technology. This AirSense 11 is on bedside tables across the United States right now, and it's taking off. One of the best parts I personally use our device and I've been using the AirSense 11 as part of the control product launch and now the full product launch at United States. I can tell you the early data on the launch of this are ratable. We are seeing the uptake rate of patients engaging with their therapy with a touchscreen, with test drive and therapeutic engagement tools on the device at levels that we've never seen before. And we're seeing engagement with the app called myAir at double the rates 2x, almost 3x in some geographies uptake rate of the App. And why that's incredible is the more a patient gets engaged with the therapy, the more they use the therapy, which means the better outcomes, lower costs, improved outcomes and also, obviously, for ResMed, that's higher adherence leads to higher trailing revenues in terms of mask sales and engagement of that. We're seeing north of 60% uptake of myAir in this group. And if you look back the last 7 years since we launched AirSense 10, it was more in the range of sort of 25%, 30% uptake of that end user. That 2x, we think will have huge implications for the engagement on digital and the driving of long-term revenue, but also the improvement of long-term health care systems through that engagement of patients. Slide 14 talks about our engagement of OSA, not just from the physical device, but also our engagement on the digital health app. The fact that we have over 17.5 million patients in AirView and the way doctors are able to do population health management to engage at scale with many, many hundreds, thousands or tens of thousands or as you've seen some of our studies, millions of patients in analysis to show how sleep apnea, COPD and asthma interact with many other chronic diseases and can improve outcomes. Slide 15 actually is the clinical data, the peer-reviewed published evidence to show the 87% adherence number I talked to earlier. This shows -- and the end of this study is very large in the AirView only group, we're talking 85,000 patients. And in the myAir group we're talking 42,000 patients. And what this shows is when you get that digital health engagement, you drive adherence to rates never before seen in the med-tech industry, never before seen in the pharmaceutical industry, never before seen in health care when you get 90% adherence of patients in this. And this is what happens when you combine medical devices, med-tech with digital health tech. And I think the 2 together, resonates and pioneered this in sleep apnea. This slide shows the outcomes you can get. We're not done. I'd say we're at mile 1 of a marathon. We've got 25.2 miles to go. We're doing really good mile times. We're at 8 minutes and 50 seconds on every mile and we're ahead of the competition. But to beat that marathon in 4 hours, we're going to keep this going to the next 25.2 miles, and we are investing to do it. This slide talks about the promise and the success we've had so far in digital health. Slide 16 looks at another really interesting clinical study that we had in the last 90 days. And I see we've got 5 minutes to go before Q&A, so I'm going to speed up a little after this. But what this study shows and this was a huge study done over 176,000 patients in this study. We overlap the 10 billion nights of medical data we have globally with data from the French social security system and partnered with the French key opinion leaders through a group we call Medico, our Chief Medical Officer, Carlos Nunez, has run this study along with [ Jean-Louis Papa ] and [ Atomerra ] and a whole bunch of expert physicians from around the world. What they're able to show is that patients adhering to CPAP therapy have a reduced mortality rate and a reduced hospitalization. So we are saving lives, and we are saving money when we're engaging patients with their sleep apnea care. In this study called ALASKA, I don't know what it was called Alaska. It's an acronym of the study because it was done in France, but it's an incredible study showing the outcomes you can get when you combine sleep apnea treatment, digital health with long-term outcomes. And this is the start of many studies to prove it works. We're saving lives and improving outcomes and to encourage healthcare systems to identify, engage and enroll patients on the path to better sleep, better breathing and better treatment for respiratory care. Slide 17 just shows the portfolio of products that we have, incredible mass lineup. I won't go through all those individually with 4 minutes left on the presser. Slide 18 talks about our Respiratory Care portfolio. AirView for ventilation launched in the peak of COV-19 into Europe has taken off incredibly well. Propeller, I would say that the experiments we're doing during COVID have allowed us to be ready to accelerate that business very quickly as we exit and embracement of digital health care has been nothing like we've seen before COVID, and I think will accelerate our long-term strategy. High-flow therapy, again, during COVID, experimented in hospitals. I think the pathway for using that in the home, getting reimbursement for it, improving the clinical outcomes will be one of the biggest tailwinds over the next 3 to 5 years ResMed's business. So quickly on our SaaS business before we open up the Q&A in about 3 minutes, if you want to start thinking about questions to get to David, so we can ask them to the group. I'm on Slide 20 now, which is describing the portfolio of SaaS businesses we have. The 2 main brands we have are Brightree, which is focused on home medical equipment as well as pharmacy and infusion, a growing part of that business. And then MatrixCare, which focuses on 6 or 7 verticals, home health, hospice, skilled nursing facilities, senior living, nursing homes, life plan communities and private-duty home care. What we're seeing across this ecosystem, despite some impact on nursing home and skill nursing facility centers at the start of COVID, those sort of went down and starting to come back. We're seeing a steady embracement of out-of-hospital health care I think COVID proved to people, you don't want to get your health care in an urgent care or an emergency room. It was always expensive and always silly economically. But now it's actually been shown to patients clinically, that there are communicable diseases, respiratory ones like COVID and many others, you can get at those urgent care and [indiscernible] settings, you should seek care in out-of-hospital area. It's the lowest cost, it's the lowest security. It's the best for the health care system. It's also best for the patient. People have better outcomes when they're treated at home. This ecosystem, we've seen good, strong even during COVID good strong single-digit growth in this business. We see us pushing to high single digits as we go in the next couple of quarters and then pushing to double-digit revenue growth as we go throughout 2022. '21 just looks at the unique positioning of Brightree and MatrixCare. And then as we go through the financials on Slide 23, I'm sure everyone on this call has looked at these data, but we've got really strong 12% growth of our trailing 12 months revenue there on compound annual growth rate on a 5-year CAGR up to $3.3 billion in the last 12 months revenue through the first quarter and 15% with good leverage growth of our non-GAAP EPS and total shareholder return, looking strong double digits in 1 year, strong triple digits in the 3-year and 5-year time period. And with one minute to go, I think I'll end on slide entitled in the last 12 months, we changed 130 million lives because that's what we've done. We've helped people sleep better, breathe better and live better lives outside the hospital. Really importantly, the bottom line of that slide is our aspiration is to help 250 million lives in the year 2025, which means double-digit growth of the number of patients with CPAPs, APAPs, bilevels, mask systems and digital health solution. to help us drive value in the global health care ecosystem. And with that, David, maybe I'll ask you to come and join us, and I'll introduce also to join us Rob Douglas, who's our President and Chief Operating Officer. You can come on video and Dave Pendarvis, our Chief Administrative Officer and Global Corporate Secretary. David, over to you for 20 minutes of Q&A.

Thanks, Mick. That was perfect. And look, if people on the call do want to ask questions, please submit them through the website. But Nick, maybe if I'd start with one of the things that you did touch on, supply chain has been a key challenge across the globe, and that's certainly one that I've -- you've spoken a lot about on some of the results calls. Can I get you to talk on what the latest is there? And what your expectations are through 2022? I mean, are things starting to share signs of getting better?

Yes, David, thanks. It's a good question. I bet that was the opening question of about 80% of the -- not only JPMorgan health care conferences, but all the earnings calls as we go through this earnings season. Look, yes, supply chain issues are ubiquitous right now, COVID have that slowdown on labor and shipping ports and has impacted still to this day, long beach in South Carolina, Rotterdam and other ports are under constraints and all of us are, therefore, switching to airfreight. And I've spoken about this on our first quarter call back in October, one of the biggest components constraining us is the electrical components and specifically semiconductor chips and specifically comms chips out of that. And we've been working incredibly hard these last 6 months, not just -- I call it a perfect storm. We had the supply chain crisis and then Phelps went into their recall in June. So we spent really 6 months working through our supply chain, 1, 3, 5, 7 layers up into our supply chain to negotiate better supply and more parts. I'm feeling actually really good as we look to the June, September and December quarters here in 2022 for the supply chains to really open up and allow us to get there in terms of our device side of our business. But look, I said this on our October call, we have supply chain constraints that are pretty severe here in the December quarter and the March quarter. But we still think that despite all these constraints of supply chain, and despite the recall of the #2 player in our market basically being out of the market they said for 12 months or more, we've been able to say, look, we think we can have $300 million to $350 million of incremental revenue above our plan for FY 2022 as part of that in the device side. And so in the September quarter, we had 80 million to 90 million of additional device sales. And we said it will be sort of a little bit of a dip in December and March and then coming up to a larger June because we think that we can get still to that $300 million, $350 million incremental revenue through it. So despite supply chain impacts, our amazing team in Singapore, Sydney and Atlanta and around the world are securing parts and pieces, redesigning parts and pieces and finding ways to ensure that we can get as many CPAPs, APAPs and bilevels and ventilators to the market during this global crisis. And I can tell you, the team has done an amazing job that 80 million to 90 million in September quarter was just pulling rabbits out of hats, and they've been doing it all the time, and we're getting more systematized, and I feel more and more confident that as we get to the June quarter and then even beyond that September and December, we're gonna see those supply chain constraints really free up on the device side enough to be able to go after all the incremental demand that's out there.

Excellent. I mean perhaps just on the same topic, just one follow-up. Mick, we've heard from some of your customers that the surcharge is going to be introduced from the start of the calendar year. Can I get you to talk a little bit about what ResMed's thinking is with the surcharge and what does it mean for the gross margins? Or effectively, how much of your cost or additional cost will be covered by that surcharge in rough numbers, please?

Yes. So it's a good question. You're obviously doing due diligence through the channel. We communicated just starting January 1, 2022 that we will have a surcharge on residents products. And this is associated with the additional costs we've had. Just to your last -- or first part of that question, David, if we no longer sea freighting we're going to airfreight and look at all of this, none of us have traveled for this meeting. No one's going on consumer airfreight and that's where the back of those planes was where we got the cheaper air freight, right, on the consumer plane. The back half of the cargo hold was always air freight. We are now chartering 777, 787 from Singapore to LAX to Atlanta to get our products to market in this global supply chain crisis. And so that has increased our costs with air freight and the component costs to secure components we're offering good pricing, longer-term contracts and so on. And so those are all costs. As you saw during our Q1 numbers in September, COGS are high, COGS are up. And so we are looking to share some of those costs with our customers. And so we have a surcharge that's been applied. It's been applied around the world. And what we're really trying to do is share the cost. I'm not giving out a specific percentage, but we're not -- we're looking to share a portion of those costs with our customers and, of course, take a portion of that for ourselves because what we really need to do is keep the ResMed brand there to keep the ResMed patients happy, ResMed customers happy and get that patient on therapy because when we have a happy doctor, a happy HME or happy HCP, a happy patient, they become ResMed customers for a very long time. If you get 90% adherence and you're keeping that patient on therapy for 1, 3, 5, 10 years, there's a lot of value there. And so what we're doing is saying, let's share the cost now and let's build the investments which is keeping the patient sleeping better, breathing better and out of hospital care, so we lower costs and improve outcomes for the long term. So we're really sharing some portions of that cost. I don't know, Rob or Dave, if you want to add any more to that, Rob, I see you coming off mute.

Yes. I'll just confirm that, Mick. There's many factors that have driven costs and also negotiating components and shortages. Our usual process of getting leverage out of volume increases probably isn't in play with the suppliers as well at this time. So the teams have taken this decision. We've always said our principal approach is we're not trying to exploit anyone or anything here, and we're going to be fair, but we think this was a fair contribution to a fair range of costs, short-term cost increases to us, short to medium term.

Right. All right. No, that's very clear. I've got a question online. Just the question is that they were curious about the current status of the U.S. HHS study into CPAP long-term clinical outcomes that was announced last spring. Is there any update?

Yes. Thanks, David. Well, Dave Pendarvis is on the [ CQRC ] Board and very close to AA Home Care and all the groups that have been working in the physician groups. I know ATS and AASM have been very strong in saying all the floors from the PhDs wrote that study. And I think actually, the MD who wrote that study has now left HHS. But Dave, any update on the AHRQ study from 2021?

There's really been no news from HHS at all on that study. As you know and as you mentioned, Mick, we, along with other industry participants, but importantly, physician societies put in some pretty strong comments to the effect that, that study, which was based on the kind of gold standard of randomized controlled trials, really didn't take into consideration all of the real-world evidence that shows the dramatic impact that CPAP use has on not only the health of patients, but also the cost of health care. So we believe it was a pretty forceful presentation and the fact that there's been nothing in the interim suggests to us that this may be something that's just going to sit there on the shelf but maybe not even be issued. Obviously, if it was issued, there'll be a process that CMS could initiate or not. CMS could just file it. If they do initiate a process, there'd be an additional time for additional public comments. So we don't really have a specific update, but we are encouraged by the outpouring of comments and the fact that there's been nothing else since all those comments were submitted.

I mean the only thing I'd follow on, Dave, is the Alaska study that we just published is the only new clinical data in the time period since that AHRQ, I'd call PhD study that was put out there, and this was run by MD PhDs actually with [ Jean-Louis Papa ] and the global group of Medical Cloud and with real data real-world evidence, real data with hundreds of thousands of patients proving. And the French government didn't do this study to show anything other than the truth. And what it showed was French citizens had lower death rates, lower hospitalization rate and reported better outcomes at the patient level, I can think of no better information than a country running its own systems. And it's a socialized health care system. It's the government money, government-run social security system on health care, they just want to get to the truth. And when they found that they've actually established differential reimbursement for cloud-connected CPAP or non-cloud-connected CPAP in France. They wanted to prove out that, that actually did have a return on investment for citizens and a return on investment for the health care system. I can see us working with health care systems in the other 140 countries that we work in. And here in the United States, in the 50 states with 5 insurers per state, that's sort of 250 complex matrix. But I can see us working very closely on the sort of, what I would call, population health management and long-term health outcomes data with real-world evidence. That's where the real [ science ] is. That's where the real data are. And that's where our health care systems and private payers make decisions. They make decisions on real data and that's what we're providing them through the 10 billion nights of data we have. Last of [ study ], first of many.

Thanks, Mick. No, that's very clear. Can I just get you to touch a little bit on how COVID affected the business? I think there was obviously a lot of talk about that early on. We had shutdowns around the globe. Perhaps if you could characterize how you see the landscape today? Is the Omicron wave having much of an impact on uptake of sleep apnea, on mask resupply, any updates worth touching on that with?

Yes, absolutely, David. I'll do it at a high level and maybe Rob and Dave, if you want to obviously come off mute , do you want to pile on as well. Look, what we saw in this 24 months in now, right, really since we started to slow things down at the start of 2020 with the world going into lockdowns and then opening ups. I think we talked about -- about 12 months ago, we talked about sort of a steady U-shape recovery, if you like, and if you look at the portfolio of 140 companies that we sell into, some in their summer Northern Hemisphere winter now, and there's Omicron and we're running out of Greek letters of the variants that are going to come and go. But they seem to be getting more communicable but less severe in terms of hospitalizations, certainly in ventilation. We're not seeing further surges and needs of that even high-cloud therapy in the acute sense. So what we're seeing, I think, is us embracing as we did early, digital health, remote patient monitoring, remote patient diagnostics and systems. Doctors were forced to use telemedicine and digital health and home sleep apnea testing was a big part of that. And so I would say on that pathway, where we sort of went down to 50% of patient flow, 60%, 70%, 80%, we're somewhere between 90% and 100% of pre-COVID, like take 2019 as the sort of pre-COVID trailing 12 months if you have that calendar year. And if you look at that as the patient base rate for any particular country, we're somewhere between 90% and 100% of flow. We're in triple digits, we're over 2019 in some geographies we're under in some. But on average, the portfolio is sort of moving that way. So these waves, they sort of become lesser and lesser in terms of an impact of the flow because of the embracement of digital health telemedicine, remote patient monitoring, but also people are working out how to run a sleep lab, whether it's hospital or clinic based with COVID, maybe less capacity with more cleaning and more COVID protocols that they're getting them through there. But they're also saying anyone who can't -- if you want a home sleep apnea test, here's your ApneaLink, here's your NOx, here's the digital health system you can do to set this up at home. And it's working. I actually think on the other side of this, David, as we really start to open up and get the triple digits in all 140 countries, we're going to see the embracement of the digital health, the embracement of that home sleep apnea test that could help accelerate us even further.

Okay. Perfect. Look, I've got another question online. Has ResMed done any clinical studies showing that CPAP therapy improves sleep quality? If so, would it be possible to market the CPAP to a broader consumer audience even with a prescription, i.e., those who don't have sleep apnea?

It's an interesting question, and I think there's a split between sort of what I'd call a consumer sleep and medical sleep market. And we spun off a joint venture we call sleep school labs, which is in the consumer sleep market. We still have equity in it and they were there at the Consumer Electronics Show, CES. And actually, our Chief Medical Officer at ResMed works with sleep score labs, but also is the Chairman of the Healthcare Board at the Consumer Electronic Show, CES. So we're heavily involved and engaged, what I would say, engaged with what are, I would call sleep concern consumers. But what we want to do is find ways to engaging them that can find out if they have a medical issue in addition to a consumer sleep wellness issue. The margins and the opportunity to sell more fillers and more beds, it's just a different market for us. Sleep score labs is in that. They're working there. We have some equity in that. But really, what we're doing is learn and the primary experiment side say that rational experience we're doing in this space is with our joint venture with Google sister company Verily there. We named it now Primasun. We have a CEO, Jonathon Lobbins, who came ex Edwards Life Sciences and Medtronic and in the health tech industry as well. And he's leading an amazing group that are identifying, engaging and enrolling patients digitally from sleep concern consumers into the space. We proved with our first 100 patients now all the way through just I'm googling my husband snores or my wife snores or I think I have a sleeping problem all the way through to a screening test like an Epworth or beyond, a diagnostic test like an ApneaLink or a NOx and prescription on therapy, engaged on therapy on a replenishment system. And so we've got 100 all the way down here, and we proved that it can work. Now back to your first question, we have a little supply chain crisis right now. So I'm not saying, hey, Jonathan, turn up the knob in every metropolitan statistical area in the United States. What I can say is the MSA is where we turn this on, it works. People are engaged as consumers in better sleep, better wellness, better overall health care, they're engaging, they're searching for information. And when they do engage, they're willing to click on to a pathway to become part of baseline sleep with a trusted brand like Verily, a trusted brand like ResMed and a new trusted brand that's building called [indiscernible]. So I'm actually really excited about our engagement -- digital engagement to identify, engage and enroll patients earlier and earlier on their path to better sleep and better breathing. So I do think there's an opportunity there. I don't think it's been selling more beds and pillows. That's for other people. It's a good business for them, lower margin, good volume. We're partnered with those groups. But when it's actually a medical issue, that's when I want them coming down our digital pathway. We proved that we can do it. And as we start to get out of the other side of the supply chain crisis in the June, September, December quarter here in 2022, we'll start to turn the demand up on identifying, engaging and rolling, not just across the U.S. but around the world.

Perfect. Thanks. Mick, I think the gross margins are obviously affected by supply chain issues and surcharge, et cetera. But one of the trends that we've observed over a number of years is that there has been operating cost leverage in ResMed's business. Now COVID is obviously throwing everything into a slight bit of disarray for a year or 2. But can I get you to talk about how operating costs were affected by COVID and perhaps what the long-term opportunity is on that front, please?

Yes. I mean I'll take a start and hand to Rob. In terms of operating costs, we certainly saw SG&A, as every company has go down dramatically. Everybody not flying the travel and expenses and all the expensive conferences and flight for meetings all around the world. And I think we've proved that, that can work. And I think there'll be a permanent improvement in our SG&A efficiency across our business. We found out we can do many, many of our things digitally, remotely and cost efficiently. So that's almost like physician, heal thyself. We've done digital transformation of the whole sleep apnea industry. Now we're doing digital transformation of ourselves and finding out how we can do that. And we've got really exciting opportunities for further digital transformation of our business. On the R&D front, we haven't pulled back at all really on our investments there. We still invest around 7% of our revenues into research and development. We're actually accelerating our investments in digital health technology, while maintaining our investments in mask technology and CPAP and APAP and sort of detailed flow generated technology and ventilated technology because we have to remain as the world leader in making smaller, quieter, more comfortable, more cloud-connected devices like AirSense 11, which is doing incredibly well, but also keeping our lead on the patient interface from some of the best. We have the world-leading market share in mask and we're going to maintain that around the world. But Rob, any other ideas around operating costs and the efficiencies we've gained on when are we going to turn for the long term?

So just one other to call out. We've done a pretty significant digital transformation in the business of looking after patients and getting patients on the treatment and keeping them there. We've got a long way to go, but we've actually really got good platforms and infrastructure and teams working really well. And that digital transformation is also underway on our internal systems as well. It's a little more complex because there's more of them, it takes longer. But certainly, in terms of our ability to have all the right data in the right place and make the right decisions will really add a lot of value. I mean, we're already doing that using these decision-making tools and data tools to make just simple decisions around what's going on a boat and what's going on air freight and that type of thinking and improving our ability to optimize through there. So longer term, that's going to have a really big impact. The shorter term, it's just amazing how well everything works given that we're not face to face, and we don't need all that travel that we used to do. So there's some -- as Mick said, some will come back -- but we've -- I think we're building a lot of new pathways for how our operations go.

Excellent. Well, that we are out of time. So thank you very much, Mick, Dave, Rob, and thanks, everyone else, for listening in.

Thanks, David.