ResMed began its fiscal year ending June 2022 targeting $300 million to $350 million of incremental revenue as a result of the Philips recall. However, faced with a global semiconductor shortage, the company last month cut its forecast range to $200 million to $250 million.
The reduction is related to “a very significant, double-digit de-commit” from a semiconductor supplier. De-commit describes the failure of suppliers to meet their commitments.
Douglas said at the event that a higher-than-normal rate of de-commits and the competitor recall “sucked all of the inventory out of our systems” and led to “a huge shortage of devices.” In response, ResMed recently redesigned devices to help elevate the pressure from the global chip shortage.
“We're using a smart media card to collect the data and use that for proof of using the device. We’re targeting that at specific customers,” Douglas said. “There are new entrants in the industry that have been supplying similar products like that at price premiums, significant price premiums to us, in the shortage situation. We think it's much better if our quality products are doing that.”
The design change launched a few weeks ago and should “help ease some of the challenges,” Douglas said. Even so, ResMed expects the supply chain challenges to continue with Douglas forecasting quarter-to-quarter volatility with an overall trend of an improvement in the situation.
ResMed redesigned its AirSense 10 CPAP machines to eliminate the need for “communications” semiconductor chips that have been in short supply, which has allowed for the manual upload of sleep data, according to a Needham analyst report on Friday.
The company’s expectation that it will continue to face challenges rests on the assumption that demand will stay elevated for some time. Philips now expects its recall to last into 2023. The timeline has slipped over the course of the recall and Douglas speculated about the potential for it to last into the middle of next year.
Philips’ reentry to the market will increase device availability even though ResMed still expects demand to outstrip supply.
“We think the backlog is probably somewhere between two and 10 months and growing,” Douglas said. “And once that recall situation ends, there's going to be a lot of work to get all of those patients in the backlog through the system. So, expect some sort of mismatch of supply and demand to possibly extend a year or even 18 months beyond that recall. We're in this situation for a long time.”
Still, the William Blair analysts highlighted the potential worsening of the situation at Philips’ Respironics as a positive for ResMed.
“Though there are off-ramps for Respironics to avoid a worst-case scenario, as the FDA’s fact pattern continues to develop, those worst-case scenarios appear more possible. In the meantime, ResMed continues to lay the groundwork to take maximum advantage as the situation plays out,” the analysts wrote.
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Photo by Fauxels (Studio) from Pexels
AdvaMed contends the percentage of Black people in leadership roles at device companies has more than doubled from 1.3% to 3.2% since 2015. However, currently none of the largest medtechs has a CEO of color.
The pump has a higher rate of malfunction reports than rivals, according to an ECRI analysis of the FDA's MAUDE database. But it's hard to draw conclusions from a disparate system of safety reporting.
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