ResMed short sellers see an opportunity with the rise of Ozempic (afr.com)

ResMed is coming under increasing pressure from short-sellers who are banking on Ozempic, the diabetes treatment which has become a popular weight loss drug, reducing demand for sleep apnoea products.

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The number of ResMed shares sold short – which indicates that investors are betting they will fall – has risen 128 per cent over the last three months.

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Ozempic is manufactured by Novo Nordisk. The weekly semaglutide injection, which is designed to be a treatment for diabetes, works by mimicking hormones that tell the body it is full. Demand for the drug as a weight-loss aid has exploded, with shortages forcing the Therapeutic Goods Administration to include it on the medicine shortages database this year.

Earlier this month, Novo Nordisk released a large study that had shown the obesity treatment also had a clear cardiovascular benefit. Shares in ResMed fell nearly 20 per cent on the news, while the market capitalisation of other major medical device makers – Inspire Medical Systems, DexCom and Intuitive Surgical – slid by up to 10 per cent.

“The implication could be that investors infer that lowering obesity and diabetes burden could impact the growth curves for these names, at least longer term,” wrote Matthew Taylor, Michael Sarcone and Young Li, equities analysts at Jefferies in the US, in a note to their clients.

But, Mr Taylor, Mr Sarcone and Mr Li added, they disagreed with this view.

“In general reducing [body mass index] to a low 30s range is helpful, but a BMI [of more than] 30 is still considered obese,” the Jefferies analysts wrote. “At the same time, for a condition like sleep apnoea, the problem is not just weight but anatomical or central (brain related).”

UBS analyst Laura Sutcliffe agreed, adding that around 18.5 per cent of ResMed’s revenue could be exposed to a lower demand for its products and investors may have over-reacted.

“ResMed shares are priced as though the company has no ability to do anything about this, but [obstructive sleep apnoea] remains a deeply underpenetrated market and if US diagnosis rates of moderate-severe obstructive sleep apnoea rose just 300bps from 35 per cent to 38 per cent we think the top-line effects could be cancelled out,” Ms Sutcliffe wrote in a note to clients.

On an investor call in June, ResMed chief operating officer Robert Douglas acknowledged Ozempic’s rapid rise and weight loss success.

“We were having similar discussions years ago when bariatric surgery first came out, and people say, that’s clearly going to be a threat to your business,” Mr Douglas said. “Obesity is a contributing factor, but it’s absolutely not the only contributing factor. And then if you look at the levels of obesity versus the physiology of individual patients, there are many, many sleep apnoea patients more than we can manage at the moment.”

“Having some people have their obesity improved by the medication may make them better CPAP patients, better patients to be on CPAP. And clearly for some patients, it will mean they don’t need it as well. But we wouldn’t be able to measure it,” he added.

CPAP, or continuous positive airway pressure therapy, is the key product manufactured by ResMed. The company has seen a surge in sales – revenues rose 23 per cent to $US1.1 billion in the three months to June 30, partly helped by a recall of a rival treatment produced by Philips.

The impact of Ozempic and other anti-obesity medications like Wegovy and Rybelsus, both manufactured by Novo Nordisk, and Mounjaro, from Eli Lilly, is not limited to medical device manufacturers. In an 81-page research report released this month, Morgan Stanley said patients experienced “significant behavioural changes while they are on the drugs, as they reduce their consumption across most food categories, but cut back the most on foods that are high in sugar and fat such as confections, baked goods,

and salty snacks, as well as sugary drinks and alcohol”.

“Weight management foods such as protein bars and powders benefit from the change in behaviour. Gyms could also benefit, as … patients report exercising more often,” the investment bank’s analysts wrote. They forecast 24 million people in the US will be on anti-obesity medication by 2035.

“In an effort to bolster the commercial profile of Mounjaro, [Eli Lilly] is conducting trials across a range of other obesity-related metabolic diseases including obstructive sleep apnoea,” the analysts added.