Dive Brief:

• A ResMed executive warned at an investor event that the company is still struggling to meet the rise in demand for its sleep-apnea devices following Philips’ recall of millions of continuous positive airway pressure (CPAP) and ventilator machines.
• Rob Douglas, ResMed’s chief operating officer, said Wednesday at a William Blair event that the supply-and-demand challenges could last for as long as 18 months after the completion of Philips’ recall. Douglas added that demand likely will outstrip supply until providers work through the backlog of patients that has built up amid the Philips recall, which began in June 2021 and has grown to affect about 5.5 million devices.
• Despite ResMed’s struggles to meet the increased demand, William Blair analysts said they expect ResMed to achieve “durable market share gains, bordering on permanent” because of the recall. The analysts added in a Thursday analyst note that the worst-case scenarios for Philips’ Respironics are more likely.

Dive Insight:

ResMed began its fiscal year ending June 2022 targeting $300 million to $350 million of incremental revenue as a result of the Philips recall. However, faced with a global semiconductor shortage, the company last month cut its forecast range to $200 million to $250 million.

The reduction is related to “a very significant, double-digit de-commit” from a semiconductor supplier. De-commit describes the failure of suppliers to meet their commitments.

Douglas said at the event that a higher-than-normal rate of de-commits and the competitor recall “sucked all of the inventory out of our systems” and led to “a huge shortage of devices.” In response, ResMed recently redesigned devices to help elevate the pressure from the global chip shortage.

“We're using a smart media card to collect the data and use that for proof of using the device. We’re targeting that at specific customers,” Douglas said. “There are new entrants in the industry that have been supplying similar products like that at price premiums, significant price premiums to us, in the shortage situation. We think it's much better if our quality products are doing that.”

The design change launched a few weeks ago and should “help ease some of the challenges,” Douglas said. Even so, ResMed expects the supply chain challenges to continue with Douglas forecasting quarter-to-quarter volatility with an overall trend of an improvement in the situation.

ResMed redesigned its AirSense 10 CPAP machines to eliminate the need for “communications” semiconductor chips that have been in short supply, which has allowed for the manual upload of sleep data, according to a Needham analyst report on Friday.

The company’s expectation that it will continue to face challenges rests on the assumption that demand will stay elevated for some time. Philips now expects its recall to last into 2023. The timeline has slipped over the course of the recall and Douglas speculated about the potential for it to last into the middle of next year.

Philips’ reentry to the market will increase device availability even though ResMed still expects demand to outstrip supply.

“We think the backlog is probably somewhere between two and 10 months and growing,” Douglas said. “And once that recall situation ends, there's going to be a lot of work to get all of those patients in the backlog through the system. So, expect some sort of mismatch of supply and demand to possibly extend a year or even 18 months beyond that recall. We're in this situation for a long time.”

Still, the William Blair analysts highlighted the potential worsening of the situation at Philips’ Respironics as a positive for ResMed.

“Though there are off-ramps for Respironics to avoid a worst-case scenario, as the FDA’s fact pattern continues to develop, those worst-case scenarios appear more possible. In the meantime, ResMed continues to lay the groundwork to take maximum advantage as the situation plays out,” the analysts wrote.