ResMed nears settlement of years-long investigation

SAN DIEGO - ResMed divulged a projected $41.2 million hit to its net income in the fourth quarter of fiscal year 2019 to resolve an investigation by the Department of Justice of the company's resupply program.

The investigation involved four different areas, said David Pendarvis, chief administrative officer and global general counsel, during a conference call to discuss financial results: “How we made our resupply programs available on a trial basis was one element. There were issues about marketing programs, issues about financing and issues about making some apnea links available.”

“We're not going to be required to admit any wrongdoing; in fact, we believe we handled ourselves appropriately,” he said. “But in a lot of situations, you resolve matters to get it behind you. Going forward, we don't expect any significant changes to the way we do business. We're going to continue to focus on making resupply systems available for customers so they can get adequate supplies and consumables.”

The settlement, which will entail $39.5 million in payments to the government and the remainder to cover legal and administrative costs, is “tentative,” Pendarvis said, but will likely be finalized by the end of the calendar year.

The investigation began in 2016, when ResMed received administrative subpoenas from the Office of Inspector General requesting documents and other materials related primarily to its “offerings of patient resupply software to HME providers, discounted sales and leasing to sleep labs, sales and other promotional programs,” according to company filings. Subsequent subpoenas requested information about “leasing arrangements with customers, and documents and other materials relating to diagnostic devices and masks provided to medical providers and auto-scoring functions,” according to filings.

One of ResMed's competitors, Philips Respironics, paid out $34.8 million in 2016 to settle a whistleblower lawsuit and DOJ investigation that alleged the company provided its resupply program for free to HME providers that bought its products.

ResMed's settlement was a small setback in what was, otherwise, a strong fourth quarter and fiscal year 2019 for the company. It reported revenue of $705 million for the fourth quarter this year, a 13% increase compared to the same period last year. It reported a net income of $68.8 million vs. $109.8 million, a 37% decrease, predominantly attributable to the impact of the settlement, recent acquisitions, restructuring expenses and higher interest charges.

Sales of devices increased 11% year over year on a constant currency basis in the United States, Canada and Latin America, and sales of masks and accessories increased 16% in the region.

“(The growth in masks) was driven primarily by market share gains,” said CEO Mick Farrell. “We say the market is growing in mid- to high-single digits, so at 15% growth (globally), we're clearly taking share. So that's one point. Secondly, what we're driving is increased adherence. We're driving up to 87% adherence using myAir and all the Air Solutions capabilities. That just drives a stronger tail of patients who need masks.”

ResMed reported revenue of $2.6 billion for all of fiscal year 2019 compared to $2.34 billion for 2018, an 11% increase. It reported net income of $404.6 million vs. $315.6 million, a 28% increase.