ResMed Inc. (RMD) Earnings Call Transcript & Summary

And I'm one of the health care analysts at RBC. Welcome to RBC's Global Healthcare Conference 2024. I'd like to welcome with me to the stage are Carlos Nunez, the Chief Medical Officer at ResMed; and Amy Wakeham the Chief Investor Relations Officer at ResMed. Welcome.

Thank you.

Thank you.

So I just want to get started. Carlos, could I get your thoughts on the top line results of the SURMOUNT-OSA study? And more importantly, your expectations for how that might evolve or affect the way that sleep apnea is treated?

Sure. Great. It's an excellent question. And obviously, for those of you who have been following this market and following ResMed for the last year or so, it's been a huge topic of discussion there. It was a narrative that started to evolve, but oh my gosh, these drugs are so good at having people lose weight that everyone's going to look like a super model, no one will have diabetes or sleep apnea anymore. And so we have been working through what that narrative looks like to try and tease out the reality. And the biggest piece of reality really came just a couple of weeks ago with the readout, let's say, with the top line readout of SURMOUNT-OSA results. We know that full results have not been published, but they are set to be presented in June at the American Diabetes Association Conference with a subsequent publication to follow. But looking at the top line results and these are results from a trial run by a principal investigator that we know very well, Dr. Atul Malhotra who is based in San Diego, where ResMed is based and is actually a researcher that I work with a lot. And I spoke to him on the day that the results came out just to verify my hunch and what my hunch was what we saw was exactly what we expected. These drugs are really good at helping people lose weight, especially when you look at the very strict regimen that these patients were subjected to for a year. It's a little different than what we would probably see in real life because remember, these patients for a year, were on a strick supervision of a study nurse, they were getting extensive lifestyle and diet and exercise therapy as well as being on these GLP-1 drugs. And what we saw was they lost a significant amount of weight, which led to a pretty significant decrease in their AHI. For those of you who don't follow the sleep apnea market that closely, it stands for apnea-hypopnea index, and it basically means the number of times you suffocate every hour while you sleep. So normal is considered less than 5. So all of us stop breathing maybe once or twice an hour every night, just here or there. But if you do it more than 5 times an hour, that's considered sleep apnea. What was interesting is if you look at the top line results, what happened is most patients who were moderate to severe, meaning their sleep apnea was probably at AHI numbers of the 30s and 40s and 50s range, went down from being moderate to severe to being moderate to severe. So it helped, and it decreased their AHI, but these patients still have clinical sleep apnea and still required to be treated for that. So the expectations are that this is going to reinforce the clinical guidelines and the treatment paradigm for sleep apnea that have been in place for decades. It has always been when someone presents to a physician with sleep apnea, look at things like diet, exercise and lifestyle and then make sure they get the appropriate therapy for the underlying obstructive sleep apnea. So if I can speculate a little what the future might look like, these patients may see that, oh my gosh, I've been struggling with my weight for many years. The entire medical system, society has [indiscernible] me into not even seeking care. I don't -- the doctor is just going to tell me, it's my fault, lose weight, stop eating, willpower, exercise. But no, now I see, there's a drug, there's a metabolic condition, it's recognized. Let me go get help. So these patients will show up. And when they talk to their doctor, the doctor will say, this is amazing. I'm glad you're here. Let's look at your obesity and all of the comorbidities that are likely to follow, heart disease, hypertension, type 2 diabetes, joint problems and obstructive sleep apnea. So looking at the results of the SURMOUNT trial and kind of extrapolating from that, if these patients under perfect conditions for a year of close supervision, lost enough weight to go from moderate to severe to still moderate to severe, what is going to happen is any decent [indiscernible] doctor is going to say, you know what, let's treat you for what you've got. You've got high blood pressure, Let's put you on meds for that. You've got apnea. Let's figure out what's the best therapy, whether it's a CPAP or whatever. And we'll put you on a weight loss regimen. It's GLP-1s, maybe something else. And in a year or 2, we will see if it helps and if it benefits. And maybe if they do like in the trial and their AHI goes down 40%, 50%, maybe their CPAP pressures go down. It's easier for them to manage. Maybe they can even use a different, less invasive or less obtrusive mask. But no physician is going to say, oh, you showed up with an AHI of 50. That means you suffocate 50 times an hour. Think about that. Every minute or so, someone is even visibly choking you to the point that you turned blue. And that's okay? No, it's not okay. And sleep apnea kills you one of 2 ways. It will kill you in 30 years, when your heart or your brain or all damaged from the repeated insults, or it kills you today, you fall asleep driving your car and that [indiscernible] T-bones you in the intersection. I hate to be dramatic, but that's what the doctor is thinking. I can't put you on a GLP-1 drug today, and I hope that in a year or 2, your sleep apnea is less severe. I still need to treat the whole patient sitting in front of me. So if you have diabetes, if you have heart disease, if you have sleep apnea, you're still going to go into the regular treatment paradigm that's been in place for 30 years. You just now have a better shot at losing the weight that will help.

Yes, I think that's a great point you make about sort of just if you're in that moderate to severe, you're still in that moderate to severe. But with the kind of population who undertook the study that were sort of generally obese, kind of over a 30 sort of BMI. Continuing that speculation. Like what do you think might happen for those who are not obese, might be in that kind of pre-obese or overweight category?

Yes. So it's another great question. The reason why, obviously, the enrolled patients who were obese with a BMI of 30 or above, they were trying to show that this drug was safe and effective for use in patients with sleep apnea and obesity. So they are trying to nail a pretty specific indication for use. Now to be clear, the trial did not compare a GLP-1 drug to PAP therapy. They didn't want to. They would lose every time because if you're on PAP therapy, your AHI goes down to less than 5 every day, all the time. You're on GLP-1, you go from 50 to 25 or whatever, you still have sleep apnea. So the trial was looking at what is the safety and efficacy of these drugs in patients with sleep apnea, whether or not they were on PAP therapy. So it's really important to remember that point. The -- so along the lines of -- gosh, [indiscernible].

So for those patients who are not obese?

So the indications for the study were 30 and above, obviously. If you are not obese, the problem there is going to be, if there is no indication for use for non-obese patients, it is going to be a judgment call by the physician. And then that means it's going to be a judgment call by the insurance company as to whether or not they're going to reimburse this. One of the things if you look at some of the analyst notes and published recently is the prior authorizations for these drugs have been a bit of a blocker for some patients who want to get them. These drugs are primarily indicated for people with type 2 diabetes and obesity for the weight loss component of it. So it's going to be hard to tell. I don't know that they're going to get an indication for overweight. It's going to be much easier for them to get an indication for obesity. It will be indicated as an adjunct therapy, not a first-line therapy, so it's not going to displace at therapy. And what we're going to see is the patients who are just looking to treat that number on their scale. The ones who are overweight who don't have -- they don't meet the indications for use are probably going to do like those who do today, they are going to go self-pay. They'll go around to a weight loss clinic that might be working with a compounding pharmacy. We're seeing a lot of that for the patients who can't get a prescription or don't qualify on a basis of diabetes or [indiscernible].

Yes. Now thinking about something that's talked about is with increased awareness. So with these pharmaceutical companies, promoting GLP-1s that like sort of potential effect they might have? I mean what do you think that could have on the awareness for sleep apnea and the benefits or the impact that would have on ResMed and other sleep apnea companies?

Yes. So we believe, and I think we're starting to see that the benefit is real. Patients are getting activated by the news and the narrative that's emerged around these drugs, and they're seeking care, and they're talking to their doctors for the very first time. And what we are seeing, so we -- as you heard, I'm the Chief Medical Officer, I lead our medical affairs function. We do a ton of research. And lately, a lot of our research is focused on looking at the real-world evidence around these drugs. A controlled trial is great, but as I said, it's a very artificial situation for a year or 2 as opposed to what's happening in the real world. So we look at recent real-world data, these drugs, not the older versions of these drugs that were in the market 20 years ago or 19 years ago, but the ones in the last couple of years, the ones that are getting all of this hype about weight loss. And when we look at this data, keep in mind, the SURMOUNT study was 450 patients roughly. We've looked at about 600,000 patients who are on GLP-1s and on PAP therapy for OSA. And what we have found is patients who are on GLP-1s are a little more than 10% more likely to start PAP therapy [indiscernible]. So if patients show up on GLP-1s, they're more likely to start PAP therapy. So they are engaged, they are activated. They are thinking about their health in ways they never have. And so maybe we're seeing some healthy user effect, maybe we're seeing better awareness, both in the physician community and the patient community but that's a really good sign. Then we looked at the data even more -- looked even more into the data and found that at one year, patients on GLP-1s are [indiscernible] you guys talk at basis points. Sorry, I am a doctor, we don't talk in basis points, but 310 basis point increase in resupply, meaning this patient is not just -- got a device. But a year later, they're still ordering masks and supplies at a rate that is higher than the average patient. Then we looked further. We looked at 2 years out, and these patients are now 5% more likely to get a mask or some supply, 500 basis points, sorry. So what we are seeing is exactly -- I mean, it's playing out and it couldn't play out more beautifully if I had written the script myself. Patients are showing up. They're getting cared for, the whole patient, and they are more likely to end up on the right therapy for their sleep apnea on a PAP device. And then they are more likely to become good patients. And I hate to say it this way, but good customers because the total patient value is over the life of that patient. We don't [indiscernible] want to make sure that they are on that device, they're treating their sleep apnea and every months or so when it's time for a new mask, a new tube, a new cushion, they are coming back to ResMed to get their supplies. So it's actually been quite nice to see that the narrative we tried to -- what we hoped would evolve has evolved before our eyes beautifully.

And then just coming back to the SURMOUNT study, I mean, when the final results are released. I mean is there anything that you'll be looking for? Could [indiscernible] to share what you might be looking for in those final results?

Yes. The main thing I'm looking for is some of the details about these top line results. So I did speak to Dr. Malhotra on the day that the press release came out just to make sure I was thinking about this correctly. So some of the things that he and I spoke about, and he shared this with me openly, so I can talk about this is like if you go back to -- they published a methodology paper describing how they were conducting the study before they even had results. So if you go back to the methodology paper and look at like the baseline, so the average starting AHI was around 50. And he said, and then look at what the results in the press, he was kind of like leading me a little bit. He's like, you're going to know pretty much what you need to know. Patients started here, they ended up here and almost no one was cured. But then there are some secondary results that are quite interesting to me. So once we get the details on what really was the baseline, how did the different groups because we got just very top line numbers, I'm interested in some of the other markers, specifically there was C-reactive protein as a marker in the blood that's synonymous with inflammation, higher the level, higher the inflammation. So it'd be interesting to see if these drugs independent of the weight loss cause things like a decreased systemic inflammation. Those are the nerdy scientist in me looking for those sorts of things. But to be honest, putting my ResMed hat on, I'm not surprised by what we're seeing. I don't think I'll be overly surprised by the details and the top line results are pretty much what we expected. It's a great new tool to help patients lose weight and to help us better manage them if they happen to have sleep apnea. But it is not a first-line treatment. You don't -- you can't treat this disease halfway. You have to treat it all the way because that's how patients get better.