ResMed traders caught napping by US rival

Thursday, January 24, 2002

Sydney Morning Herald

Concerns that Florida rival Innomed Technologies is about to steal a march on the US sleep disorder market sent ResMed shares tumbling 7.6 per cent yesterday. ResMed, which accounts for about 35 per of the $US500 million market, fell 75c to $9.10, its biggest one-day fall for 16 months and to its lowest level since May last year. In a statement released just before the US market closed on Tuesday, Innomed claimed it had already lined up $US20 million-worth ($39 million) of orders for its Nasal-Aire device, which is expected to be released to the market within the next couple of weeks. It also said the device had been preferred by 98 per cent of users involved in a ``blind" trial. Analysts said the subsequent share price fall by ResMed was a mass overreaction by investors, adding that the statement was ``overly upbeat" and masked the difficulties for new players entering the sleep disorder market. ``It's a complete overreaction by a market which just gets spooked by any stock on a high price/earnings multiple," said Kristina Devon, healthcare analyst at BT Funds Management. ``A lot of companies try to come into this market but there are very high barriers to entry because of patents and distribution in the US, particularly if you have only one part of the product in this case the mask." According to Innomed, Nasal-Aire which recently received approval from the US Food and Drug Administration requires no headgear and eliminates almost all pressure points on the face and bridge of the nose, giving users the freedom to speak, eat, drink, and wear spectacles without removing the device. ``According to analyst reports, the sleep apnea market is growing at a pace of 25 per cent annually, with 40 per cent of the market devoted to respiratory products," said Patrick Karem, chief executive of Innomed. ``Based on the results of clinical tests and the feedback we have received from physicians, our sales should exceed forecasts." Andrew Goodsall, healthcare analyst at Burdett Buckeridge & Young, was not convinced. ``These devices are not new to the mask market, representing 3 per cent of mask sales," Mr Goodsall said. ``Nasal-Aire competes with an established range of nasal masks with established buying patterns by sufferers. There are more than 20 varieties," he said. ``Industry experience is that consumers will experiment with different masks but once they get set with a mask that works, they are reluctant to change. ``Retailers suggests that customers don't walk into their store and ask to switch masks unless there is a problem, and the retailer is reluctant to suggest a change if the mask and therapy is already working," Mr Goodsall said.