Forum Topics RMD RMD Tirzepatide (Eli Lilly) Phase

Pinned straw:

Added 3 months ago

Small hit on Resmed yesterday following a fairly significant downgrade by Wolfe Research, asserting that the risk of market disruption by Eli Lily's obesity treatment and GLP-1 agonist Tirzapetide warrants a reduction in growth forecasts to mid-single digits, anda target PE of about 20. The trigger for this is an assumption / thesis that Eli Lily will be awarded approval to market their drug to treat sleep apnoea (OSA), that the TAA will fall and RMD will see product growth slow to mid-single digits, from high-single/low double digit growth.

This is total bunk, and I will take advantage of pullbacks to buy more stock.


Firstly, the TAA for obesity and OSA is massive, and much larger than current market penetration by resmed and Phillips. So there is plenty of growth potential still on the table.


Secondly, it is not my view that tirzapetide will significantly reduce the TAM. This agent has really good evidence for inducing and maintaining pretty good weight loss, but we aren't talking about a magic wand of skinniness. From memory, Tirzapetide users on max doses achieve and sustain nearly 15-20kg weight loss while taking the drugs. Thats pretty good and absolutely worthwhile. And while that may treat/reverse OSA in some overweight patients, for the many obese patients who are (much) more than 20kg overweight, the drug will improve their weight profile and may improve but not eliminate their OSA. In fact, engaging with weight management may improve their interest in other procedures down the track. That is, new and better weight loss drugs may actually increase the TAM, with better health literacy and understanding of the issue.


If Eli Lily obtain OSA as an indication for tirzapetide, it will only be of use in patients who have OSA and either diabetes or obesity, and its approved for those already. It wont help already-slim patients who have OSA, and can already treat obese patients with OSA; therefore, obtaining a marketing indication for OSA is irrelevant to resmed's TAM.


Finally, my thesis remains consistent with Resmed management. The TAM for OSA is large, obesity and OSA is a generational problem in developed nations and will be for 20-30 years. Anti-obesity drugs may reduce obesity levels, but anti-obesity surgery (gastric sleeve, bypass etc) is even more effective than drugs, and yet the obesity problem continues to grow. Wolfe Research's claims of market disruption are overblown and wont meaningfully reduce the TAM for OSA treatment/ equipment.

Accordingly, I maintain a mid-30s PE ratio for resmed.



Chagsy
Added 3 months ago

another data point in the whole GLP saga, from the FT.

Regeneron head says weight-loss drugs could cause ‘more harm than good’

US biotech is researching treatments to reduce muscle loss from blockbuster diet medicines


The success of Novo’s bestsellers Ozempic and Wegovy has created a gold rush in the pharma industry © Bloomberg

The co-founder of Regeneron has warned that blockbuster weight-loss drugs could cause “more harm than good” unless the rapid muscle loss associated with the treatments is solved, as the US biotech pushes ahead with trials of muscle-preserving medicines. 

Clinical studies suggest that patients treated with the new class of weight- loss drugs, known as GLP-1s, lose muscle at far faster rates than people losing weight from diet or exercise, exposing them to health problems, said George Yancopoulos, who also serves as Regeneron’s chief scientific officer. 

For the two in every five patients who discontinue the treatments within a year, according to a 2024 JAMA study, this means that they are likely to rebound to their original weight with less muscle and a higher body fat percentage, “adding insult to injury”, said Yancopoulos. 

“I do think that the GLPs should be viewed with a lot of concern in terms of the way they’re actually being used in the real world,” said Yancopoulos. “They could be leading to successive changes in body composition that could be creating more harm than good in the long term.”

Regeneron is among a growing list of drugmakers researching experimental drugs to preserve lean muscle mass in combination with GLP-1 drugs as a route into a potentially $130bn-a-year market that is dominated by Ozempic and Wegovy maker Novo Nordisk and Eli Lilly, the company behind Mounjaro and Zepbound. 

Regeneron, a $111bn biotech that specialises in antibody treatments, is testing a drug called trevogrumab, which blocks the hormone myostatin, which limits muscle growth, in combination with Wegovy in mid-stage trials. There are 11 myostatin drugs in biotech pipelines, of which seven are being investigated for obesity, according to industry tracker Citeline. 

Last year, Eli Lilly bought Boston-based biotech Versanis in a deal worth $1.9bn to get its hands on its muscle-preserving treatment to complement its weight-loss drugs. BioAge, a biotech with a muscle-regeneration drug that is partnered with Eli Lilly, listed last month and its share price is up 21 per cent. 

Clinical data shows that 25 per cent of weight loss from Eli Lilly’s shot resulted from a reduction in lean body mass, including muscle, while 40 per cent of Novo Nordisk’s jab was due to a drop in lean body mass. 

The US Food and Drug Administration advises that the drugs be used in combination with diet and exercise. Novo Nordisk said clinical data “[does] not indicate an association of greater lean body mass loss over fat mass loss with semaglutide treatment”. Eli Lilly did not immediately respond to a request for comment. 

The first clinical data from Regeneron’s phase-two trial of trevogrumab is expected halfway through next year. Regeneron is also considering whether to advance a monthly GLP-1 injection to clinical trials, which it has tested in mice. Despite his concerns about the drug, Yancopoulos said Regeneron was “thinking about becoming players in the GLPs”. 

“I’m not sure that the GLPs are really the true final answer here, because they could have significant long-term problems,” he added. 

“We all want to have 10 more pounds of muscle, 10 less fat, but we could eat whatever we want — that’s the ideal world,” said Yancopoulos. 

“We don’t all want to be nauseous and sick and losing muscle. I do think that . . . an ideal future is one where we achieve a better, healthier way of fighting back against metabolic disease.”

19
Aaronfzr
Added 3 months ago

In my day job as an anaesthesiologist in a community with high levels of obesity, I meet a lot of patients who have OSA. Probably only about a quarter routinely use their CPAP, and these are the people who feel tired during the day due to poor quality sleep, can afford the devices, and tolerate the masks.

Probably another quarter give up on their CPAP because they dont like the mask. Another quarter know or suspect they have OSA, and are in denial about their health, dont want the stigma of the mask, or dont care because they don't feel particularly tired and don't have anyone nagging them about their snoring. The final quarter are oblivious to the diagnosis, but its clear to me when I see them sleep.

Out of this population, the 25% of people who cant tolerate or dont want a CPAP device are the ones most likely to seek an alternative treatment such as tirzapetide / other GLP1s / weight loss surgery. This group were unlikely to become CPAP customers at all. Meanwhile, the other 50% of patients who are unaware or unmotivated to treat OSA, may become users of GLP1s, but may or may not have ever become a CPAP user.

It really is clear to me that CPAP and GLP1s are complementary therapies, with some overlap and more co-creation of value than erosion/competition.


29

Arizona
Added 3 months ago

@Aaronfzr Its great to get your take from in "inside".

I am not a medical professional at all.

Throughout the last 12 months or so I have done a little reading, trying to gain some understanding of how these drugs would affect RMD. I saw the larger drops in share price over that period as being a potential over reaction and therefore a possible contrarian trade.

Essentially, I came to the same conclusion that you have. As a result I have bought shares during two of these periods where the SP is hit hard by negative sentiment.

I wonder when this will all stop, but maybe it won't and maybe I should just roll with it and continue to welcome the dips.

Thanks for sharing your experience and opinions from the real world.

20

Aaronfzr
Added 3 months ago

It's quite interesting to see the hype and negativity about GLP1s and resmed/OSA therapy. To labour an analogy, its a bit like being worried that green hydrogen will be a threat to EVs. I guess maybe a few vehicles will be retrofitted for hydrogen rather than buying a new EV, but more likely the whole pie will grow with increased focus on the underlying theme of green transportation.

On the other hand, the biggest risk to Resmed is probably commoditisation of the technology. Unlike really high-tech solutions which are intrinsically protected by their complexity and trade secrets (e.g. Cochlear implants), Resmed devices aren't all that high tech. I'm not saying I could build one, but with a couple of engineers I could get a heck of a lot closer to building a CPAP machine than I could a cochlear implant. The fundamentals of the devices aren't all that special. If anything, its a minor miracle that there is only one major competitor, and that Philips managed to slip up so badly and get recalled With what Fisher & Paykal have achieved with high flow humidified oxygen devices, they could probably come up with a CPAP machine if they really wanted to, and so could major ventilator manufacturers like GE, Drager, Mindray, Medtronic and Hamilton. So why haven't they? I think they were caught napping, and before they knew it, Resmed had built such a brand and presence it wasn't worth the distraction from their core businesses.

This implies a couple of things:

  • While resmed has a competitive advantage and probably a narrow moat based on their brand penetration, I don't think they can maintain or achieve a wide moat or the pricing power that comes with that
  • IF resmed was able to achieve (or attempts to exert) major pricing power and monopoly rents, they are susceptible to being undercut within 3-5 years by a competitor who can throw together a pretty good device and carve out a decent niche while still making good money. This limits just how far resmed's competitive advantage can go based on current technology
  • IF resmed is seeking economic rents in the CPAP business, it needs to develop truly proprietary CPAP capabilities
  • Operating software that can somehow make the devices more tolerable and comfortable
  • Integrate with lifestyle devices (apple watch, fitbits, etc) or implanted medical devices (e.g. pacemakers) to dynamically integrate user physiology data to improve the user experience or outcomes



26

mikebrisy
Added 3 months ago

@Aaronfzr despite having exited $RMD, I actually agree with your assessment.

The combination of existing CPAP market presence, the GLP1-OSA focus and the capability of consurmer wearables to direct undiagnosed patients to sleep clinics, will with high likelihood drive more patient to $RMD.

(As a minor point, $FPH are already active in CPAP for OSA. And with the Respironics setback, I think they might even be the glboal #2? I often drive past the $FPH sleep clinic near the Gabba in Brisy! )

I have been a reasonably long-term investor in $RMD, and in recent months exited. It turns out that this was a premature move, but I have been deploying more capital in the healthcare part of my portfolio towards businesses where I see higher upside potential. Over the last 6 months, I have been gradually shifting my ASX-portfolio to higher growth opportunities... RL starting to look more and more like SM. I also try to limit my exposure to any one sector - and healthcare was getting up to 40% - so I have actually exited $CSL and $RMD.

The one point in your analysis that I'd like to amplify, is that the billions of nights of sleep data that $RMD "owns" will help to shore up it's moat. This will have many uses:

  • Fine tuning product design and product use
  • Enabling wrap-around services for patients and HCPs
  • Support clinical research (witness the real world findings they've already published on GLP-1 - OSA - CPAP outcomes)


Hah, and with regards to my earlier post on AI - you can add $RMD to the list of beneficiaries of AI!

24

Shapeshifter
Added 3 months ago

@Aaronfzr "On the other hand, the biggest risk to Resmed is probably commoditisation of the technology."

This is a good point and I agree with this. There's not a great deal of tech in these devices. In my opinion a sign that commoditisation is occuring is these devices can now be obtained at a pharmacy without seeing a respiratory/sleep specialist.

17

thunderhead
Added 3 months ago

Given ResMed's long history of attractive profitability metrics, I would say they have done a mighty fine job of extracting economic rents from their business model already. Whether that continues to be the case in the face of potentially disruptive developments remains to be seen, but there is little evidence of any impact in the numbers they are posting thus far, and the market has re-rated the stock accordingly after the initial "headline" dumps - the "headline" risk remains, as seen overnight.

16

Aaronfzr
Added 3 months ago

dont get me wrong, I think its a great company and I hold in rl. but the moat, such as it exists, isnt in the nature of the devices themselves but in the current brand recognition and market penetration. The devices are the best, but they aren't unicorns, and the competitive advantage can be eroded without continual innovation to remain best in class, which I see as a more important issue than GLP1 agonists. Analysts focused on GLP1s are missing a big part of the picture.

14

Shapeshifter
Added 3 months ago

@Aaronfzr I do disagree with you that RMD devices are best in class.

That title goes to Lowenstein a German made and owned device with a Swiss blower in it.

These devices have the highest build quality, are very quiet and have a superior auto-PAP algorithm.

Their flagship device the Lowenstein Prisma 20A retails for about $2,100 in Australia while the ResMed AirSense 11 AutoSet CPAP costs about $1,800. So a difference is price but not huge.

The Lowenstein could be considered the Rolls Royce while the ResMed are the Toyota's.


16

Arizona
Added 3 months ago

@Shapeshifter The plot thickens. This is educational for me. I had never heard of them.

Brand recognition is everything.

The Toyota v Rolls Royce analogy makes it easy, even for me, to understand and maybe that's exactly why RMD is seen as the market leader. Readily available information, service, parts etc.

If I was offered a Rolls or a Toyota that I had keep maintained and on the road over time, I'm going to go with the Toyota every time. Even if money wasn't an issue, I'd probably stick with the Toyota (I hope to find out if that's true).

Thanks for adding that depth to the discussion. I think RMD being the Toyota of CPAP machines is an interesting way to look at it.

11

Aaronfzr
Added 3 months ago

Thats really interesting, I wasn't aware of that product either, and the example sounds like more of a threat to RMD than GLP1As.

11

GazD
Added 3 months ago

Also an anaesthetist, broadly similar view and also hold RMD

13