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.