ResMed reaffirms Philips recall is up to $350M boost

ResMed CEO Mick Farrell late Thursday said the company still expects Philips’ recall will result in as much as $350 million in sales of its sleep apnea and ventilator devices over the next 12 months. However, the exec warned that unprecedented supply chain challenges are hampering its efforts to meet “extremely high” demand for the products.

Farrell told investors during a first-quarter fiscal year 2022 earnings call that ResMed is dealing with a “perfect storm” of challenges including “a competitor recall that’s tenfold higher than any in the industry to date” and pandemic-related supply chain constraints. The CEO acknowledged that the company is not able to meet the surging demand from the Philips recall.

“We are facing the challenge of providing the volume for our own No.1 market share position and also trying to meet as much of their No. 2 market share position as possible around the world,” Farrell said. “Supply bottlenecks continue to restrict our access to critical electronic components, especially semiconductor chips, that ultimately limit our net production output.”

In addition to component shortages, ResMed is also struggling with air and sea transportation bottlenecks that “makes providing steady and smooth flow of products to the market very difficult,” according to Farrell.

Despite the challenges, ResMed reported $80 million to $90 million in incremental device revenue in the September quarter attributed to the Philips recall.

William Blair analysts in a Thursday note contend the incremental $300 million to $350 million fiscal 2022 benefit from the Philips recall that ResMed had previously guided is “achievable and beatable” though more likely in the second half or fourth quarter of the year.

“Still, annualizing this quarter’s benefit would lead us to the high end of management’s guidance range without assuming any improvement in supply,” the analysts wrote.

Dive Brief:

• ResMed has forecast the recall at its competitor Philips will add up to $350 million to its sales of sleep apnea and ventilator devices over the next 12 months.
• Demand for the devices “surged dramatically” after Philips began its recall, ResMed said, sparking a scramble for the components needed to scale up capacity. ResMed expects supply constraints to gradually ease over the coming quarters.
• The impact of Philips’ quality issues, first disclosed one month into the quarter, is already evident in ResMed’s results. ResMed estimated Philips’ troubles added $60 million to $70 million to sales in the quarter, helping it to blast past analyst expectations.

MedTech Dive