Resmed Inc (RMD)
BUY

Competitor recall

 7 Sep 2022
Sector: Health Care

INDUSTRY LANDSCAPE

Need To Know:

  • Key competitor Philips recalling 17m masks
  • Magnetic interference from masks has caused fatalities. Second major product recall from Philips in 18 months
  • ResMed should pick up additional market share, some of this is likely to be permanent

Investment implications

Further product safety issues for Philips (PHG.AS), RMD’s key global competitor, is likely to provide RMD with short-term boost to sales. The voluntary recall of masks comes after device recall for Philips in 2021.

We continue to believe the market is underestimating the long-term damage to consumer buying intentions for Philips’ sleep systems, leading to upside risk to RMD’s market share. We believe earnings risk for RMD remain to the upside over FY23E.

Details

Philips has initiated a global voluntary recall for 17m CPAP and BiPAP masks that contain ‘overpowered’ magnets that may interfere with other medical devices.

USA FDA cites 14 reports of serious injuries associated with magnetic interference from Philips masks used alongside 20 classes of common medical devices including pacemakers. The FDA says the risk could be fatal.

Philips has previously disclosed global mask sales of ~US$500m, versus RMD at ~US$1.2b and Fisher & Paykel (FPH) ~US$230m. This was 40% of Philips sleep segment sales but likely 70-80% of gross profit.

Recently Philips has spoken to mask sales of ~$500m in FY25 (implying no growth). This now looks highly unlikely, given our expectation of lasting damage from this recall.

RMD masks use lower powered magnets (250-270mT vs FDA standard at 400mT), whilst FPH don’t use magnets. 

For investors, the key question just how much RMD (and FPH) market share can be picked-up over the medium-term.  We anticipate Philips will likely be out of the mask market for at least 1 quarter. 

With sleep clinics and customers still dealing with the earlier recall on Philips products, our sense is that permanent market share gains are in order.

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

Stock overview

Share Price

Company overview

ResMed Inc. through its subsidiaries, is engaged in the development, manufacturing, distribution and marketing of medical devices and cloud-based software applications that diagnose, treat and manage respiratory disorders, including sleep-disordered breathing (SDB), chronic obstructive pulmonary disease (COPD), neuromuscular disease and other chronic diseases.

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