Why this ASX medtech stock is dominating the competition

While investors remain heavily focused on the GLP-1 story and its impact on total addressable markets across sectors ranging from MedTech to fast food, ResMed's improving competitive positioning seems to have been forgotten about. The best companies that we analyse can silence the noise and concentrate on the controllables, like winning market share and improving efficiencies. In this regard, we believe that ResMed (ASX: RMD) has become a far more dominant player in the global obstructive sleep apnoea (OSA) duopoly while its key competitor, Philips Respironics (NYSE: PHG), cannot stop tripping over its own feet.

With a rich history of innovation, Philips and RMD have been at the forefront of sleep therapy for many decades. RMD, founded in 1989 in Australia, and Philips, which purchased the Respironics brand originally founded in 1976, have revolutionised sleep apnoea treatment with their cutting-edge devices. Their current models - RMD's AirSense 11 and Philips' Dreamstation 2 - are state-of-the-art devices that have improved patients' lives with features like sleep tracking data and cloud connectivity. While both companies continue to innovate, Philips' recent string of setbacks has given the green light to RMD to take share and entrench their dominant position in the OSA category.

For Philips, the series of own goals started with a Class 1 device recall (the most serious type of FDA-issued recall) in early 2021 and has been an ongoing issue ever since, claiming the scalp of it’s former CEO, Frans van Houten, and embroiling the company in litigation that will cost more than US$479m in settlement fees.

Philips has since been issued 11 FDA Class 1 device recalls and still seems to be far away from a full market return. In October the US Food & Drug Administration (FDA) called for further testing to be done by Philips to evaluate the risks of soundproofing foam used in its recalled sleep apnoea machines and ventilators.

“We (the FDA) do not believe that the testing and analysis Philips has shared to date are adequate to fully evaluate the risks posed to users from the recalled devices”

And since the first recall, Philips has also been under increased scrutiny across all their product lines. Just last week the FDA issued a warning to patients and healthcare providers to carefully monitor Philips DreamStation 2 continuous positive airway pressure (CPAP) machines for signs of overheating. A little bit further back in August, the FDA identified a voluntary correction of Philips’ V60 Ventilators as another Class 1 recall. This ongoing slew of regulatory concerns will stop Philips from challenging ResMed in any serious way while they get their house in order.

With sleep apnoea device treatment penetration rates in the US only ~20%, and well below this level globally, there clearly remains significant room for this market to grow, wherever you sit on the GLP-1 forecast curve.

Resmed continues to strategically strengthen its market position with continued growth and innovation amidst the share market’s preoccupation with GLP-1. Once the noise and hype surrounding the GLP-1 class of drugs subside and fundamentals begin to take front and centre again, investors can expect to see a more dominant version of ResMed than they have seen for years.