A brief note out from UBS

3yr SURMOUNT-1 data does not change what we know about GLP-1s and OSA

ResMed shares were down in US trading yesterday, along with other perceived GLP-1 loser stocks (TNDM, PODD, DXCM, INSP) after the release of three year data from Lilly's SURMOUNT-1 trial showing 94% reduction in progression to diabetes among adults with pre-diabetes and obesity / overweight. This is not a new study - the original (72 week) results (for weight loss) were published in the NEJM in 2022 - this is later reporting of a secondary end point. This is also not an OSA study (not even as a secondary end point) but adds to the growing pile of evidence for positive outcomes via management of the metabolic axis using modern GLP-1s. In this case we think weakness in ResMed shares is probably unjustified given that although there is a link between sleep quality and insulin resistance, the link between excess weight and OSA is stronger and is what will dominate the influence of GLP-1s on ResMed's business. In other words, the stock should not be penalised twice. Similarly, SURMOUNT-1's 94% greater than the 73% in Novo's SELECT trial, but it is already known that tirzepatide leads to greater weight loss than semaglutide so this difference should not be surprising

Where do we stand on ResMed shares?

We have recently started to lean slightly more positive on ResMed shares, although remain Neutral rated, as there is some evidence for the "funnel filling" thesis (i.e. that GLP-1s could be good for the stock in the medium term as more patients come in to care, even if we are convinced they are bad in the long run). We continue to prefer CSL (Buy, PT USD340) and TLX (Buy, PT AUD29) for their fairly unencumbered exposures to growing end-markets, pricing power and ability to leverage the economics of their base businesses far into the future. We are more nervous about situations with lower pricing power or structural challenges around profitability largely - services and providers

DISC: Held in RL & SM