ResMed Inc. (RMD) Earnings Call Transcript & Summary

Mick, thank you so much for coming to our conference.

Happy to be here, Lyanne. Thank you for hosting us.

So it's been a very interesting few years for ResMed. And so why don't we start with, obviously, the COVID disruption and the likes there. What's -- obviously, some challenges because of COVID, but what's come out of COVID that's been a positive, both for ResMed and the industry?

I mean huge implications for the whole world through the COVID-19 pandemic and the recovery. I think for us, I mean, obviously, the challenges we face, the same challenges as everyone did, which is shut down, go fully remote for parts of the business that weren't manufacturing, tech service, customer service, where you needed that touch-a-product, touch-a-person interact with a patient. But the learning from that, the learning around stuff we've been talking about for 20 years and really putting into place for the last 5 years around digital health, the importance of remote patient screening, remote patient diagnostics, remote patient setup and then scaling that sort of management of the patient through a digital health end-to-end ecosystem is something we've been driving since 2002, when we're on the S7 with 2-way paging and at the bleeding edge, I'd say, of innovation all the way through really the launch of AirSense 10 in 2014, where we did the 100% connectivity. And that was the catalyst to really change the whole industry and reinvent the whole industry around 100% cloud connected digital health [ CPAP and APAP ] now. And COVID accelerated, I think, the adoption of not only physicians and providers, but also patients with the comfort in doing a telemonitoring visit with a primary care doctor, a remote home sleep apnea test that could be sent in or cloud connected like ApneaLink Air or NOx, and then go to the cloud and then come back. And then a remote prescription and even a remote setup. People are getting used to having so much of the world change and things delivered to their home that never were before, so why not a medical device. But I think that acceleration of the adoption of digital health, that acceleration of the importance of respiratory -- health and respiratory hygiene. I mean now that we know that there are communicable viruses that can literally shut down the planet, wouldn't you think it's a good idea, like we had always said, to replace your tubing, your mask, your humidifier on a regular basis. And actually, there was a secular change in the improvement of all of that, the adoption of digital health, replenishment rates of the patients going through the system. And there are also, I think, just the openness to say, why don't we scale to this new digital world. So I think it probably accelerated a decade's worth of digital health innovation in sleep apnea, COPD and respiratory health and hygiene as a whole.

And so where are we now in terms of those new patient starts? So obviously, through COVID, some bottlenecks there and more recently because of your competitor recall, obviously, some more bottlenecks around setups. Where is ResMed sitting now? And what have you experienced in the last 6 months?

Well, I mean, if you look at the sort of the maybe as sort of mid-2020, where the patient flows went down to 50%, 70% of pre-COVID 2019 levels of patient flow in mid-2020. I would say, we operate in 140 countries. I'd say, we're at 100% or above of 2019 flow in 90%, 95% of the countries. It's just in particular countries like China did a big lockdown again and going for the zero COVID, which is unrealistic, and it'll be interesting to see when they switch that policy because you're never going to get to zero. You can get to small but -- or highly vaccinated and highly immune populations, but -- yes, 95% of our countries that are 100% or more. And the ones that adopted digital health and the importance of respiratory health and hygiene, as we're talking about in the previous question you asked, they're actually scaling faster than they were before 2019. So I see there's a catalyst for not only coming back, but almost accelerating out of '22 in to '23 here at a trajectory that's even above what it was in 2018 to 2019.

And so how much backlog do we have there? And obviously, with all of these, I guess, challenges we've had, how long do you think it will take to work through that backlog of new patient starts?

Well, it's incredible excess demand that we have, right? So we have the patients who couldn't get through a diagnostic channel and we're finding their path through. And then as you mentioned, a competitor -- our #2 competitor has a recall, impacting 5.5 million CPAP/APAP bilevel ventilator devices worldwide. And that's a significant double-digit chunk of the total patient population. And so that -- it's almost like this ever-increasing demand funnel in front of us. And so we've got the digital pathways. We're accelerating faster. The right limiting impact, obviously, of COVID on supply chains had meant that we weren't able to meet all of that demand, but we did see an incremental -- hundreds of millions of dollars of incremental revenue and many, many patients who were able to take care of by driving supply chains to stretch our production, approaching 2 million devices a year, double -- huge double-digit increases in our supply chain, our ability to get products out the door. And we're not rate limited by our manufacturing capacity. We just put together and opened a brand-new facility in Singapore -- in Tuas, Singapore, and we have enough capacity to take care of the whole industry's demand. What we need at the parts and pieces and particularly, electronic components, semiconductor, comms chips and semiconductor processes. But we're getting more and more of them, and actually, with a little bit of the hints of certainly a slowdown, likely a recession, if we get a third quarter of negative GDP growth in the U.S., that will have some impact on the demand of electric automobiles in the automotive industry and electric components for comms chips for cellphones and other comms devices. And we think that may allow the plants to have a little bit more capacity to create the sort of 45, 60-nanometer. We're not looking at the highest end of the semiconductor chips, but we think that some of the flow might open up there. And so our guidance has been that throughout the coming quarters, we're going to see steadily increasing flow of the volumes of parts and pieces into our facilities. And as soon as that extra rate-limiting part gets into the front of the manufacturing facility, it's through on a product and out the door, and it's sold before it leaves. It's sold as soon as it leaves the warehouse because we know who to allocate it to, and we've done some pretty good modeling of the sort of humanitarian flow of where that excess demand is in the 140 countries we operate in. And the efficiency and the improvement has been getting better and better. I'm going to give a huge shout out to our supply chain team, and our manufacturing team and our distribution team for being right on the ball here and being able to get that product to the patient who needs it.

Absolutely. It's been such a huge logistical challenge. So obviously, it sounds like the constraints around component parts or semiconductor chips is improving or expect to improve over the next 4 quarters. What's the impact in terms of the cost to ResMed? Has that -- obviously, there was very strong demand previously. Has some of that cost pressure come off a little bit?

Well, it's leveled out. It's sort of steadied out. We still have a surcharge on products, but it's $12 surcharge in the U.S. and EUR 12 here in Europe for products. And because the consumer air traffic isn't quite back to where it was, and so the back 1/3 of that cargo on the commercial plan was always used for airfreight. It's not quite where it was in 2019. And obviously, sea freight, it's better. We don't have those huge delays at Long Beach and terminals in West Coast, East Coast, U.S. and in Western Europe. And they're starting to get better. But -- so I'd say, it's leveled out here in the sort of September, December quarter that we're in here. I think it's going to get a little bit better. We'll see some relief in March 2023 and June 2023. I think that's where we'll start to see some improvement of, hopefully, sea freight and airfreight get back to more reasonable levels. But it's still high now, but it's steadied out, and we can see the light at the end of the supply chain tunnel.

Good, good. And so one of the really interesting things that came back at the last quarterly results was your new cloud -- card-to-cloud device. So can you tell us a little bit more about that? How do you ensure that patients stay compliant? How long are you going to continue manufacturing that particular model?

Yes. Well, absolutely. And look, for the first 25 years of ResMed's existence, we did that. We had card-to-cloud, and we have the communications capability and the storage on the device. And so I'd call it a really important and tactical pivot that actually fits with our long-term strategy because the long-term strategy was around reinvention of end-to-end on digital. It doesn't require 100% connectivity in the box. That facilitates it makes it a whole lot easier. The patient, the consumer has to do nothing for the data to get to the cloud in that context. In the context of the AirSense 10 Card-to-Cloud, because we are rate limited on those comms chips, making that freed up many hundreds of thousands of extra lives that we could give the gift of breath to and provide that CPAP or APAP to. And the step that has to take is that the patient has to take a card about as big as my fingernail into the doctor or the home medical equipment provider, and then they enter into a [ reader ] in the day to go to the cloud. The differentiator for ResMed was actually the Air Solutions platform. And all those data are stored on the device and on the card and then get to the cloud. So the sort of triple redundancy, if you like, with a card-to-cloud device. And so very thorough, and the data will get there. They won't get there at 7:00 a.m. every morning when you put down the mask, and it waits since 20, 30 minutes and sends all the day to the cloud automatically. It'll happen every whatever, 30, 60, 90 days when the patient checks in with a home medical equipment provider or every 3 months they check in with the doctor and then the data get to the cloud. But they're not lost, the data will be there. And we'll be able to do retrospective analysis now. We have 19 million 100% cloud connectable medical devices in 140 countries, and we have 12 billion nights of medical data in the cloud. And we -- just at European Respiratory Society Conference, which was just last week here in Barcelona, I believe, we had 20 studies published from those 12 billion nights of data, looking at correlations with heart failure, correlations with type 2 diabetes, correlations with hospitalization reductions and so on. So we'll be able to actually go back and look at AirSense 11 versus AirSense 10 Card-to-cloud and say, "Gosh, was the adherence rate 90% on the Air 11? And was it 87% or 85% on the card-to-cloud? And what does that look like?" But I don't think it will be a huge delta or a huge dip in the adherence rate because of all the backup of the software we've got with the doctor getting involved, the patient getting involved and the digital end-to-end.

Is there a market? So once, I guess, we go through these challenges around shortages of devices in the market, is there an opportunity for the card-to-cloud device in other markets outside of the U.S., and I guess, developed Europe?

Yes, certainly, there is. I mean it's interesting. I think one of the great lessons of this card-to-cloud pivot is, our team will do whatever it takes to make sure we take care of patients. So we'll redesign a product, reengineer it, revalidate it, reverify it, get it through the 510(k) validation process and get it to market in an incredibly short period of time and -- but with incredible quality. So I'm really proud of the team being able to do that. But some of the reticence, the vast majority has been in the U.S., where we had a card-to-cloud system all the way from 1989 or whatever. We first had data sort of mid-90s all way through to 2014. We're able to rerun that model with the HMEs, card readers and systems that we'd already developed muscles, if you like, in the early 2010s. But here in Western Europe, where we really hadn't done a lot of that card-to-cloud activity in the early 2010s, and we've educated everybody on this amazing digital end-to-end pathway, where it's 100% connectivity, it's actually been hard here in the U.K. to sell to the NHS and say, "Oh, look, let's go back from 100% connectivity to card-to-cloud." They're like, "Wait, wait, wait, what about all the efficiencies we've got? We don't want to do that." Well, it's that or nothing right now. So there is uptake here. But actually, the reticence of the customers to move from a fully digital end-to-end pathway to one that has one little sneakernet step in that digital pathway of requiring the card to go through human hands to a card reader has been very interesting. And it talks to actually the long-term value we provide through digital and the long-term ability for ResMed to keep the share that we've got when our competitors come back from their time off the playing field. We were taking share from them before they took this time off the playing field. When they come back, all that digital end-to-end will still be there, and our ability to keep that share, I think, is even stronger. So the short answer is, there has been an uptake of card-to-cloud significantly in the U.S. and some parts of Western Europe and Asia. But the slowness to do it actually gives me confidence for the long term, even if we need to reallocate and make sure that we get enough product to people in Europe and Asia during this crisis on the supply chain side.

Okay. So you mentioned the interesting point there about your peer coming back to the market. So there's -- they have announced that they're probably looking to be able to supply the new patient starts as early as the next calendar year. And how do you think the market dynamics will play out? And what the implications for ResMed in that sort of situation?

Well, look, they've delayed 3 different times as to when they're coming back, and they didn't. Actually, it was going to be 100% completed by June this year, that didn't happen. September this year, that didn't happen. And now they're saying, not 100% completed by December, but 90% completed by December. I don't know what that means. Is that 90% of 5.5 million, 90% of replenishment models available or new models. My expectation is, they'll actually move out to more like March or June for it to get to 100% completion for them, more likely June. But the way I look at it is, we're positioned no matter what happens. We've got the product. We've got the flow. We can take care of probably all the demand signal by mid '23 to late '23, if they get into a consent decree or they take even longer to come back. We don't know. But let's say they come back January 1 as what they last publicly said, great, game on. We were winning the digital game before. I do think that the lower share players will be the easier share for them to go after first, couple of players from Florida and from Southeast Asia and a couple from Eastern Europe have taken some sort of single-digit shares in different markets. It's the easiest share to go after. It doesn't have all the digital end-to-end. It doesn't have the privacy, the cybersecurity, the interoperability to link into our Cerner or your Epic or your Allscripts system in the U.S. or your NHS digital or your Finland government-run digital health systems that we've connected all the capability into. And so my expectation is, that's where they'll start to go after share. And the beauty is, with the incredible demand that's coming from the COVID impact and the fact that even if they start January 1, they can't start at exactly the run rate of the annual needs. They'll have to come up slowly and steadily. Our job actually at that point will be to watch that and say, well, now we can do all these great experiments we've been doing these last 12, 24 months, where we basically had the chance to experiment pretty broadly with demand generation, approaches, some of our partnerships. We have a partnership with a company called Verily, Google sister company. They're part of the Alphabet Group, and we have a joint venture called Primasun, where we do digital screening enrollment -- identification, engagement and enrollment of a patient through a digital process all the way through to screening diagnosis and on therapy. And we've taken a couple of metropolitan statistical areas, a couple of cities and followed that model all the way through. And that team is actually really ready. They want to turn on all the demand signals across those different cities. I'm telling them, slow down. Wait until January 1, right? Or wait until April 1, if it's going to take a little while for that to happen. And we can then, I think, adjust up the demand signal to bring patients into the funnel because our biggest competitor isn't the Dutch company that you're referring to in your questions. Our biggest competitor is ignorance, lack of education, awareness about the subconscious state where you suffocate, which is sleep apnea. 936 million people worldwide have it and our ability to turn on that demand gen signal, I think, has to be appropriately turned on so that we don't blow up screening diagnosis systems. But with digital into in, and the adoption of all this through COVID and the readiness for us to leave with a good trajectory, I think we can time it and actually do a good job to be able to -- as supply gets there to be able to meet that demand and increase the demand.

And so that's quite interesting because when we talk about the demand or the rate of growth in the industry and ResMed talks about single digit -- mid-single-digit growth for devices and then high single-digit growth for masks. With all these initiatives that you're talking about, what capacity is there to accelerate that growth?

So it's a really good question. And obviously, we have a lot of detailed models. But what I'm comfortable saying is, I think it really wouldn't take much for us with some of these demand gen, whether it's the approach that we're doing with Verily or a lot of our other -- where we're vertically integrated in Germany or Australia, New Zealand, Singapore, here in the U.K. for us to turn up-demand signals, 25, 50, 75, 100, maybe even 200 basis points on core growth within particular markets. The demand is there in terms of the people, and they're suffocating. And with consumers, with people participating in their own health care in ways that they never have before by digitally engaging, by doing their own research and finding their pass-through. We think the world is ripe for turning on these digital end-to-end pathways and the consumers are ready to say, hey, if I have a suffocation problem and my Apple Watch or my app on my phone, health app is telling me, I suffocate or have risky breathing. Even if it's not a 510(k) or CE Mark diagnostic from that phone, but it's telling me around the screening tools. The path to take that, what I would call, sleep concern consumer to a diagnostic step is a lot smaller than it was before. So is it 50, is it 75, is it 100 basis points or 200 basis points, it will depend on the market and depend on the culture and our ability to roll those digital health models out. And frankly, the infrastructure of the system to cope with increased growth, but we're looking at this and our teams in each country are creating digital health models. And I think ResMed being on the forefront of this for the last 7 years in sleep apnea and now COPD. We have every right to lead that sort of digital end-to-end pathway, and we will be doing it. So yes, there'll be some increase in, I think, in the secular growth. And hopefully, disproportionately to us because we're engaging with the patient throughout that process.

Okay. And then if we talk about near-term growth, obviously. So you've launched the AirSense 11 under very unique circumstances. And ordinarily, when we see a launch of a new device, you see a very strong growth in the 12, 24 months after that. How do you think that growth will play out, obviously, given, I guess, all the factors that are currently in that device market?

Yes, it's really hard, Lyanne, to dissect it all, right? Because you've got COVID recovery, you've got the competitor recall, you've got supply chain crisis and then you've got our 11th generation AirSense 11, our 11th generation device platform launch. I can tell you as a personal user of it, it's smaller, quieter, more comfortable and more digitally engaging in anything we've ever launched to the market. And we've gone from 0 to 1 million faster than we ever have before. But there's so many dynamics going on in that. What I know is that when we get to whatever the future steady state is, let's call it, somewhere in 2023, you'll start to see -- and you already are, the Net Promoter Score of that product, if you do the research on whether it's patients, whether it's physicians, whether it's providers. People are loving this platform. And it's not just a physical hardware platform, it's a digital experience. And the way in which even just the core device interacts with a patient and the way it curates a patient through their care, has conversations with them and engages with them, just on the little screen. Apart from if they -- a couple 4 million of them have the app, myAir, where the engagement goes with the supercomputer, we're able to do all sorts of levels of engagement. But even those just using their device on the AirSense 11, we get 2 [ air comms ], and we have incredible conversations with consumers, with patients as they go through that health care experience. So yes, hard to dissect how much of the amazing growth we had in devices is Air 11 versus all the other dynamics. But I can tell you, it's taken off faster than anything in the history of the company. And it's not just those external macroeconomics and macro environment, there's something about the smallest, quietest, most comfortable and most digitally engaged platform that's accelerating its growth.

Okay. So why don't we move on to masks now? Obviously, we've talked a lot about devices. Resupply was very strong during COVID. And what's the trend now given that the -- all the countries have reopened up. Are you -- how does resupply compared to the peak levels that you saw during COVID?

Well, I mean, I would say, if you look at it on a sort of per patient basis that there was the secular move up of people just realizing respiratory health, respiratory hygiene. I shouldn't replace a mask every 2 years, I should do it every year or every 6 months. I should replace the tubing every 3 months. I should replace the humidifier every year. I think those sort of the guidelines that we've had out there and where we've driven in a pretty systematic way within at least the U.S. geography to drive those up, that adoption stepped up and has permanently stayed there on a per patient basis. And you look at the aggregate of the industry where you had a slowdown in the number of patients coming through the front of the funnel and new patient setups were down because of the COVID shutdowns and then came back. So there was that sort of perturbation, if you like, of a down of new patients then coming back. But I look at the per patient level, it's at the highest level it's ever been. And actually, we're just having dinner with our U.K. team here last night, beautiful little Founder's Arms there on the Thames, nice little pub. And talking to the local team, and I was talking to the new Head of Digital Replenishment and what he's doing here in the U.K. to encourage people to replace their masks at levels that they haven't before. And taking all the learnings from our U.S. model, where we have myAir and AirView and Snap technologies, where we've digitized that experience. So it's simple for a patient. Just to click yes and accept, and they know the charge and it engages with them. It's different here in the U.K. Sometimes it's patient pays. Sometimes it's through NHS. And sometimes the NHS is saying, "Look, I've got too much to deal with. I want to outsource that." And our team is able to then help the payer, the provider, whether it's a public or private one to help them engage with their customer, who is a patient and rather than have them line up and coming into a facility to have some remote setup and remote delivery of masks and accessories. And so I actually think there's a huge amount of opportunity to copy and paste or copy, change and paste different models in the other 139 countries we do business in. But there's a lot of learning that we've got from the U.S. system, I think, around where replenishment went during COVID, how we're able to engage with consumers and how we're able to make sure with appropriate yes/no checks because you don't want to send more or less than is needed. You want to get that perfect goldilocks point there. But I think there's a lot of opportunity here in Western Europe and in Asia for us to ramp up both.

And are you able to share what's the replenishment rate that you're currently seeing in the United States? Because previously, there was a discussion about it being like 2x, 2.2x. How has that changed over COVID? And has it been maintained at that sort of level?

Yes. Well, we don't break it out publicly, but you're right. I mean the latest public data was actually by the OIG. They were doing an investigation to say because they allow a maximum of -- CMS allows a maximum of 4 masks per patient per year. And they were worried there might be abused by some of the HMEs, and they're doing an investigation around that. And they came up with, I think, 1.9 or 2.1. And I think that's the last time we've talked publicly about it, around 2.1 on average per patient per year in terms of masks. As a personal user of this device, knowing now where COVID is, after 3 months, even if you follow all the washing instructions, you do see the need to upgrade that. So 4 years not a crazy number to have there as a maximum, and no one's -- we're not going to have the whole world doing that. But I do think it's north of where it was where we last said publicly. But yes, we don't disclose it, and we actually know with a lot of detailed data. We know it by not just country, but state, geography, by age group, demographic. We know who's replenishing and who's encouraged to replenish by different things. They carrot or the stick. The carrot, you're going to feel better, it's fresh. Or the stick, there's things that can happen, there's bacteria that can grow. You should -- and working out what drives a person to do the right thing. It's almost like the gamification that consumer tech did to drive us to click on ads for things we're using to improve people's health care. But we're always doing it with an overlap of the ultraism with the profit mode, making sure that it actually does have a clinical outcome, that's better for the patient because the payer is going to be looking for that, and we're going to be looking for that for the sustainable part of our business. We published a study actually showing that patients -- this is a study, I want to say, it's 250,000 patients in the study. It's not small. But we published a study that showed that when a patient is on a mask replenishment program, their adherence rate to the therapy goes up statistically and clinically significantly. So multiple hundreds of percentage -- sorry, of multiple double-digit percentage points improvement in adherence relative to a patient not on an adherence program to one and so on. So it's that overlap and finding that sweet spot. And it's not the same for every person. It's not the same in every geography, but it's definitely higher now than pre-COVID and we've maintained it there. And our job is actually then to almost globalize and normalize to some sort of higher level.

In terms of the attachment rate, so with the new starts, has the number of masks that you're selling in that situation increase? Because obviously, you're selling more devices to new patients or is it something you're not really seeing?

Yes. I mean, look, as the new starts are picking up again, obviously, we're -- we have a very high attach rate on our own devices. We actually have a very high attach rate on anyone's devices, even if it's a competitor product. And so as those new starts have started to pick up again, yes, our mask -- concomitant mask revenue has picked up. The vast majority of our sort of in-quarter sales are replenishment already, and so it's not as big a signal. There's a bigger signal in the devices as those patients get set up because there was 5-year replenishment cycle versus the 3, 6-, 9- or 12-month replenishment cycle of the masks.

And so moving on to your Software-as-a-Service business, lots of interesting things going on there. I think, first of all, let's talk about what you're seeing in terms of trend in recovery rates, particularly around the home health service.

Yes. So for those who aren't familiar with our Software-as-a-Service business, this is now around 12% of our revenues and a little bit north of that of our EBITDA and profit. And so this is a couple of brands, #1 is Brightree. So this is Software-as-a-Service for home medical equipment companies, mostly in the U.S. And then there's MatrixCare, which is Software as a Service for post-acute or what we call out-of-hospital health care. So whether it's skilled nursing facilities, home health, private duty home care, senior living, life plan communities, about 5 -- 6 different sort of verticals. And actually, I was at another live conference. I was at the Inspire 2022 conference. It was a little bit warmer. It was Austin, Texas, and a good barbecue, nice warm weather and about 250 customers in this space. And to answer your question, the energy in the room and the flow of patients back into the skilled nursing facilities out of hospitals to private duty home care and to senior living and hospice has picked up significantly. And we're starting to see hospital systems get back into that flow of wanting to go from higher cost, higher acuity, ICU, CCU ward to out-of-hospital care and to find paths for patients to get there. And so -- and you saw it in our last numbers where our SaaS division was growing mid- to high single digits, really hitting there. And we said, we were going to do that, right? We said, we're going to leave the fiscal year growing at high single digits and Bobby Ghoshal, who's our new President of the SaaS division, has done that, and he's hit 3 quarters in a row now. And so that's solid trend of really strong growth there. I think some of that is the coming back of patients to the facility space, whether it's senior living, hospice and skilled nursing facility, but it's also the incredible growth of our home health and our private duty home care parts of the business because people want to age in place. People want health care at home. It's better for the health care system to have lower cost, lower acuity, but it's also better for the person. You're not going to get a communicable disease if you get the health care at home. And we think that's the future of medicine. That's why ResMed stands for respiratory medicine. Sleep apnea, COPD, respiratory insufficiency from neuromuscular disease, but ResMed also stands for residential medicine because 90% to 95% of our revenues and profits come from out-of-hospital care, and it differentiates us from any other med tech player where 80%, 90% of their revenue come from what I call the red ocean strategy, the fighting for GPOs and in-hospital surgeries or interactions. Sick care happens in the hospital. Health care happens at home and with preventative care, and that's what we invested in our SaaS division. So I think that mid- to high or high single-digit growth that we've got there in the SaaS division is very sustainable, and Bobby has got a well-oiled machine of getting the R&D team up and running. Pulling back together the development teams and the product teams across Brightree brand and MatrixCare brand to really pull them together, and then, of course, the little investment we made in the last quarter in MEDIFOX DAN here in Europe. So for those who might not be aware, we invested $1 billion in a company called MEDIFOX DAN, MEDIFOX D-A-N. And that's based in Germany and it's Software as a Service for home nursing and hospice care, and so some facility-based and home-based care. And they were the #1 provider for Software as a Service within those 2 verticals. And we're really excited to pull together what is now a global SaaS business, right? The rest of it was all within the U.S. I see this as a beachhead for further opportunities for Software as a Service and bringing that same level of taking care from the hospital to the home at scale with ResMed running back-end software for it across different parts of Western Europe. But yes, early days. We haven't yet closed the acquisition. I'm looking at Dave. We've got 2 of the regulatory authorities through. We're waiting for the third, BaFin. But we've got all the paperwork in, and we expect that to happen hopefully in the coming weeks and months, certainly before the end of December, that will close. And then MEDIFOX DAN will be a fully integrated part of ResMed's business. And we already have actually a German and English speaking Australian, which is a unique combination, as the Head of Integration, who actually used to work at Hg, which is the private equity company that owned MEDIFOX DON before. So some pretty strong integration team led by that integration leader. And then with Bobby Ghoshal, President of our SaaS business, and then also Catherine Pucknat, who's the President of our German business sort of operating as a sort of management board to help with the integration to make sure we get all the efficiencies of scale of running a U.S. and a German SaaS business.

Well, I'm mindful of the time. I want to, I guess, open up the floor to the audience in case they have any questions if you want to ask. And I'm sure we've got some mics going around. If you have a question you want to ask, Mick, please put your hand now.

You don't even have to unmute your Zoom screen, you can just wave.

I just wanted to ask perhaps on the reimbursement side. If you could explain to us in your main domestic market, but also how you go about in your international strategy?

Yes, sure. I mean, I could talk for longer than the 3 minutes that we've got left here on reimbursement. Obviously, we invest a lot of our time and effort in working -- so in the U.S. market, working with CMS and working with Aetna, Cigna, United and all the private payers to really show the ROI because I look at it as their investment in paying for diagnosis and treatment and then ongoing care. So devices, masks and accessories and the software for taking care of sleep apnea patients. So a big part of our reimbursement strategy within the U.S. has been to show how treating a sleep apnea patient can not only achieve a 39% reduction in death rate, which is from our study with the French government, we were able to show a 39% reduction in mortality on CPAP adherent versus non-CPAP adherent. But concomitant with that reduction in mortality is a reduction in morbidity, so hospitalization events, whether it's a heart attack, stroke or multiple hospital visits due to other chronic disease. And so the reimbursement strategy is quite holistic in that way that we look at what the costs are for screening diagnosis, treatment, lifetime sort of cost, if you like, for a payer, but then the lifetime return and making sure that those go together. But we've had pretty steady reimbursement environment in the U.S. since competitive bidding sort of leveled out and actually the home medical equipment companies in the last round of competitive bidding actually up bid. They increased the costs that we're going to charge to CMS and then CMS canceled the competitive bidding process when things went up and just left it steady, and it went up with the consumer price index with inflation. So the HME saw, I think it was 7%, but then adjusted by some efficiency measure. So it's around 5% increase in reimbursement at the start of last calendar year for U.S. reimbursement. Similarly, in all the other 140 countries we operate in, we partner with the governments. We understand the reimbursement systems, what they're paying, and we want to prove to them that treating sleep apnea not only saves lives, it saves money. And it actually prevents not only itself as a chronic disease, but it lowers the risks and costs associated with the comorbid chronic diseases that hang around sleep suffocation like hypertension, like heart failure, like stroke, like type 2 diabetes. But I think I might talk through the rest of the time if I talk about our reimbursement strategy. But it's a really strong involvement of sort of the market access, the health economics and outcomes research team as well as just understanding what reimbursement dynamics and situations are happening there locally.

In the U.S., what do you estimate is your penetration of the addressable patient population?

So the U.S. is our most penetrated market globally and particularly the Southeast of the U.S., where there's probably one of the highest levels of diagnostics with sleep labs and home sleep apnea testing. That's where we're doing experiments right now actually in different parts of the U.S. on these sort of digital screening approaches. What I can tell you is, of the -- let's say, somewhere between 50 million and 70 million Americans who suffocate every night, we probably got at most 15% -- 10% to 15%, maybe in some states, some geographies, 20% of patients through the pipeline. So even in our most penetrated area, 80%, 85% of the opportunity is in front of us. Here in Western Europe, I'd say, it's closer to 90% of our opportunities still in front of us. 95% in some countries in the European Union, and in Asia Pacific, sadly, 95% to 99% of the opportunities in front of us. So I look at a country like China and India, where we just -- our penetration rates -- I mean, I look at our revenues in a country with 1.2 billion, I'd say, it's just -- it's ridiculously low. And we are absolutely working on some really strong ways to increase the penetration rates within those fast growth markets of Asia and Latin America. And Justin Leong, who runs that group is really, I think, pioneering digital stuff at levels that we've never seen before for those geographies.

We just got one more question before we wrap up.

[ Adrien Brus ] from [ Greenvale Capital ]. Just wanted to ask about the competitor issue and the impact for you. We heard that DMEs and patients are quite attached to their original machines. Is it really you saying this? And what can you do to, I guess, change that? I was wondering as well if you had an increased FDA activity across the supply chain, the industry in general, I guess.

Sorry, the first question was around...

Loyalty of DMEs and patients, I guess, to their existing machines. One of the things we had heard is that, I don't know, patients used to like the DreamStation because it was less noisy. I mean now we know why. Curious if this is something that can easily be shifted?

Well, I mean it's interesting, yes, because -- well, first of all, DreamStation is not quiet at decibel or too louder than the AirSense 11. AirSense 11 is significantly quiet. But the patients who are coming through the funnel, the share of patients who choose a ResMed device over our competitors is well above 50% before this crisis has happened. But obviously, yes, with the issues that our competitors had there, I think their brand name will take a long time to rebuild itself back up. And yes, so we'll watch over time. We watch Net Promoter Scores on a daily, weekly, monthly basis within all geographies and where we're running at a very high level right now. And we had that before this crisis. It went up because of all the investments we've made in partnerships with the FDA, going through 510(k) processes on all our products, S8, S9, S10, S11, every single mask system. And our competitor didn't do all those. They did regulatory assessments and notes to file on some of those. And when you don't do all those steps, you don't have all the quality checks. And it's -- when you design for quality, you design for cybersecurity, you design for interoperability, then it happens and you get that dividend, if you like, later. Look, I look forward to our competitor coming back to the market. I far prefer to beat someone when they're on the field than when they're not on the field. We will beat them when they are on the field before their interlay, and we'll beat them when they come back on, and we'll go and fight for the share every day. But look, brand takes a long time to build up. You can hurt it, if you do the wrong things around trust with the customers and consumers. But look, I look forward to us focusing on all the undiagnosed, untreated patients. I think that's where the future is. But yes, look, I think a good partnership with quality authorities, with safety authorities and with regulatory authorities is really important for an industry. And especially in the medical device field, you've got to be really careful about all that. And we've made the investments and that's what's got us the share, and I think that's what built our brand up and what will keep our brand to be the strongest in the market. It's a good question.

So mindful that we've come to the end of our time. Thank you so much, Mick, for joining us today, and thank you, everybody, for attending.

Thanks, Lyanne.