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ResMed’s Strengths Help It Deal With Weak Dollar


Executive Chairman and CEO: Peter C. Farrell.

Revenue: $1 billion in 2010, $920 million in 2009.

Net income or loss: $240 million in 2010 compared with $146 million in 2009.

No. of local employees: 300 local, 3,500 worldwide.

Headquarters: 9001 Spectrum Center Blvd., San Diego.

Year founded: 1989.

Stock exchange and symbol: Nyse: RMD.

Company description: Maker of respiratory devices used in the treatment of sleep-disordered breathing afflictions.

It’s enough to keep a CEO awake at night gasping for air.

On April 28, ResMed Inc., the maker of respiratory masks and related assisted breathing devices, reported that third quarter profits were up 9 percent compared with last year’s reporting period, a notable achievement. Sales were strongest in Asia and Europe.

But on April 29, the share price for the San Diego-based company dropped in daily trading, closing down 5.5 percent because of investor concerns about prospects going forward.

The 52-week range for the stock is $29.24 to $35.90 a share; it closed at $31.94 on May 3.

Apparently a stronger Australian dollar, where the company was founded and has a major research operation, was viewed as a dark blot in the financials, as was declining margins on sales of one line of devices used to treat sleep apnea and other breathing disorders.

“We expect the growth of all our products to continue to benefit from the vastly underpenetrated and growing sleep-disordered breathing market,” Peter C. Farrell, the executive chairman and chief executive officer, said in a prepared statement. “Due to the strong correlation between sleep-disordered breathing and co-morbidities, such as heart disease and diabetes, chronic obstructive pulmonary disease, perioperative death and occupational health and safety, we believe that there are significant opportunities to further penetrate the market.”

For the third quarter ending March 31, 2011, ResMed reported a net income of $53.4 million on sales of $313.3 million compared with a net income of $48.8 million on sales of $278.7 million for the year ago period.

ResMed did $920 million in sales in 2009, ranking it No. 10 on the San Diego Business Journal’s List of Largest Public Companies based on revenue. 

During the quarter, Kieran Gallahue, who was named to head up the business as chief executive officer in 2009, left to become CEO and chairman at CareFusion Corp. Farrell, one of the founders of the company, came out of retirement to run the company.

ResMed says about 20 percent of the U.S. population suffers from sleep-disordered breathing, and it claims that percentage is about the same as diabetes and asthma.

The company manufactures most of the products it sells in Singapore and in Australia.

Some manufacturing is done in Los Angeles, according to a spokeswoman for the company.

Joanne Wuensch, a senior analyst at BMO Capital Markets Corp., has a market perform on ResMed’s shares, and says she has a positive outlook for ResMed’s business prospects.

I think the company is playing in an underpenetrated market where it has the best technology for sleep apnea,” she said, adding that she thinks the company has room to grow sales. “I think co-morbidities such as diabetes and hypertension offer large potential market opportunities.”

“In the near term, though, they are facing some competitive headwinds in regard to shipping foreign exchange, competitive bidding and I suspect some increased pricing pressure in a slower U.S. market,” she said.

David Clair, an analyst at Piper Jaffray & Co. in Minneapolis, said ResMed has been hit by competitive pressures, as well as the downside of a weaker dollar.

“In the short term, they do face pressures,” said Clair. “They have been losing some share in the high-end products they sell, especially on the product side, the high-end flow generators.”

Clair said primary competitor, Philips Respironics, a unit of Dutch-based Royal Philips Electronics, launched an updated bilevel series of products in 2010, “so basically ResMed’s device was outdated at that point, although, I expect this trend to reverse with the recent S9 bilevel introduction.”

Clair said the company has also been hurt by the weaker dollar, especially in Australia, where the company will spend more than $100 million in 2011 for new product research.

The company’s research expenses are denominated in Australian dollars, not U.S. dollars, which becomes more costly as the U.S. dollar slides in value, Clair said.

“ResMed, like most companies with international exposure, is benefiting from a weak U.S. dollar on the top line, but unfortunately for them their R&D costs and the majority of their cost of goods are denominated in Aussie dollars.”

Tom York is a contributing editor for the San Diego Business Journal.


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