ResMed acknowledges 'temporary distraction'

SAN DIEGO - Round 2 of competitive bidding has tapped the brakes on ResMed's growth, officials acknowledged during a conference call Oct. 24 to discuss the company's first quarter 2014 earnings.

ResMed reported that sales in the Americas were $201.5 million for the quarter, up only 4% from the same period in 2013. In the fourth quarter of 2013, they were up 11% from the previous year.

“It's a temporary distraction,” said CEO Mick Farrell during the call.

ResMed officials contend that many contract suppliers for Round 2, which kicked off in 91 cities on July 1, have been focusing on arranging subcontract agreements and getting prescriptions to transfer patients.

As the start of Round 2 gets further and further in their rear view mirrors, providers will get back to the business of buying again, ResMed officials say.

“We see them working through it now,” said Jim Hollingshead, president of the Americas, during the call. “It will be months, not weeks, but it won't be an all year thing.”

Also contributing to the slower growth rate: “a tough competitive product cycle.” ResMed responded with the launch of the Swift nasal pillow mask in the U.S. in September and it has several product launches planned for the rest of the fiscal year, officials say.

“We didn't grow as fast as we'd liked to, but with the Swift we're back on the front foot,” Farrell said. “We have three great masks coming out across categories in the next three, six, nine months.”

In addition to big names like Philips Respironics and Fisher & Paykel, ResMed also faces competition from several lower-cost manufacturers. It has spent much of this year embroiled in patent lawsuits against two such manufacturers: 3B Medical/BMC Medical and APEX Medical.

“(Healthcare systems) are looking for outcomes and value, and that comes from adherence,” Farrell said. “We have focused solely on this. Every new product we bring to market takes cost out of the system and improves adherence. In that environment, with all that's going on, we don't think a low-cost solution has great opportunity in the market.”

Overall, ResMed reported net income of $80.9 million for the quarter compared to $71.3 million for the same period last year, a 14% increase. Net revenue for the quarter was $357.7 million, up 5% from the same period last year.

Operating profit for the quarter was $96.9 million, cash flow from operations was $90.4 million, and gross margin increased to 63.7%.