Philips Respironics, Resmed’s main competitor in respiratory products, has announced a 10% price increase for its entire range of sleep and respiratory products. The increase will also apply to the category of devices that have been recalled. This confirms that PHG plans to act rationally in the market and will not destroy industry prices to regain market share.
This is yet another piece of positive news for RMD given the opportunity to make a substantial market share increase in flow generators while PHG is sidelined due to the recall of its products.
The duration of the opportunity is critical as it will determine how much manufacturing capacity RMD can add and how much market share it can achieve in that time frame. The latter is beginning to look more like 18-24 months implying that the size of the market share gain will be larger than previously thought. We anticipate RMD will naturally leak a small amount of the market share gain as PHG returns, but the price increase announcement strongly suggests PHG will act rationally and not damage industry pricing simply to regain market share.
The extra element of RMD’s opportunity relies on retaining as much of the market share gain as possible. We believe that RMD has the support systems to do so and this will entrench RMD products with a broader customer base.
The short term outlook is clouded by weaker shipments due to global freight chaos. But we see this as deferred activity and will be captured in 2H22f as the supply chain improves.
Investment view
The period of time that PHG is out of the flow generator market is likely to be longer than we had thought, providing RMD with an even greater opportunity to achieve market share gains.
Execution becomes the earnings risk factor here if RMD fails to increase its manufacturing capacity or to capitalise on the chance to lift its market share.
RMD continues to have other sources of growth with the recent launch of the Airsense 11 platform with a new range of devices to increase patient engagement with greater connectivity and two-way communication.
The partnership with CVC Pharmacy to diagnose and treat patients with obstructive sleep apnea is another avenue of potential although it is early days.
We think the market may be underestimating the opportunity for RMD in flow generator market share and continue to recommend the stock as a Buy.
