Second Batch of my Research on RMD | Management and Durability of the Business

After running the numbers on GLP‑1s, I started digging into the parts of the thesis that don't get discussed nearly as much.

The first thing that stood out was sleep apnea itself. The market narrative often treats sleep apnea as an obesity problem, but the underlying condition is far more complex. Ageing, genetics, airway anatomy etc and other factors all play significant roles. While GLP‑1 may reduce obesity related demand, they do not address many of the other causes of sleep apnea.

I also looked at management. CEO Mick Farrell has been with ResMed since 2000 and has led the company since 2013. Despite a lengthy search, I couldn't find any major governance, accounting, integrity, or personal controversies. Most criticism centres on whether management is too optimistic about GLP‑1 (I'm starting to agree with then on this one) and Philips rather than any questions about competence or character. Given his tenure and the value created under his leadership, management has become a positive rather than a negative in my assessment.

The balance sheet was another surprise. The company operates with a net cash position, low leverage, and very limited refinancing risk. Inflation exposure also appears lower than I initially expected because sleep apnea treatment is a medically necessary product with meaningful pricing power. Wage and manufacturing inflation are real headwinds but they are not unique to ResMed and appear manageable.

On the legal side, the disclosed risks are largely patent disputes rather than product liability or recall type claims. None of the currently disclosed matters appear large enough to materially change the investment case.

Perhaps the most interesting finding is that ResMed is not simply a CPAP manufacturer anymore. The company has spent decades building an ecosystem of connected devices, software platforms, remote monitoring tools, and patient data. That creates switching costs and increases the value of each patient relationship over time.

My research is increasingly shifting away from the question, "Will GLP-1s destroy ResMed?" and toward, "How much of ResMed's historical growth was driven by the Philips product recall in 2021, and how much of that growth is sustainable going forward?" In other words, was the growth abnormal and event driven, or was it primarily the result of the company's underlying performance? At this point, that feels like the more important question, along with what ResMed's potential growth rate is likely to be going forward after taking all this into account.