Dive Brief:

• ResMed posted fiscal second quarter results Thursday that beat expectations for both revenue and profits. CEO Mick Farrell said the company picked up significant market share in masks and accessories, sales of which climbed 16% over the prior year, while the company also continues to take market share with its software to help patients stick with their treatment plans.
• The company said Friday its medical equipment software subsidiary Brightree ​agreed to buy privately​ held software maker SnapWorx, which will support Brightree's resupply business with a platform that automates workflow and document retrieval. "Once integrated with Brightree, we believe SnapWorx can continue to steadily improve patient adherence rates (we believe the average is still well below Medicare and commercial allowables) and make the company even more attractive to DME customers," analysts at William Blair wrote in a note to investors.
• In January, the DOJ announced that ResMed had agreed to pay $37.5 million to settle allegations it provided durable medical equipment companies with free services for product resupply, gave sleep labs free or discounted equipment, offered interest-free loans on purchases of its devices and handed out free sleep testing devices to non-specialist physicians. ResMed settled the case without admitting liability and entered into a corporate integrity agreement that requires monitoring and product pricing controls.

Dive Insight:

As the company puts behind it a Justice Department investigation into allegations that it gave free equipment to doctors to generate more business, ResMed is growing sales of its devices and masks at a rate that is above the market.

The company sees the sleep apnea market as underpenetrated, citing statistics that 26 out of 100 Americans have the condition marked by abnormal respiration and cessation of breathing​. Of that 26, 22 are unaware they have it, according to a presentation.

ResMed appears to have gained share in both the mask and flow generator categories as both markets expanded globally, Needham analysts wrote in a note Friday. New product launches, better patient adherence to therapy and broader adoption of resupply programs supported mask sales.

However, analysts at Jefferies noted that the company’s device sales moderated sequentially, as weakness outside the U.S., driven by reimbursement changes in France, offset strong U.S. sales.

Overall, ResMed said revenue rose 13% to $736.2 million in the second quarter. Net income jumped 29% to $160.6 million. On the call with analysts, management said litigation-related expenses were significantly reduced in the quarter, compared to last year.

On the conference call, ResMed executives said the company’s software development joint venture with Verily is increasing patient awareness of the link between sleep and health. The companies are teaming to create software that can help identify, diagnose and manage sleep apnea while also studying the problem’s health and financial impacts.

Management offered few new details on Propeller, a digital platform for monitoring asthma and COPD it finished acquiring early last year, but said it will update investors on Propeller's milestones with pharma and healthcare partners throughout 2020.

ResMed management said it's closely tracking the coronavirus outbreak in China, which has had no immediate impact on the company’s business lines but could boost demand for ventilators while stalling sales of sleep apnea devices, executives said on a call with analysts. William Blair analysts said China is just a small part of ResMed’s business and projected a modest impact from the coronavirus situation going forward.