Philips' ongoing recall of respiratory devices has created "seemingly infinite demand" for ResMed, but supply chain constraints are holding the company back. Here's what ResMed is doing about it.

Amanda Pedersen

February 16, 2022

5 Min Read
freight pallets with: 2022 supply chain shortages stamped on the sides to illustrate the global supply chain disruption
Image courtesy of Ali Raw-Shots / Alamy Stock Photo

ResMed is seeing "almost unlimited demand" for its sleep apnea machines, thanks to a massive and ongoing recall by its largest competitor, Philips. The problem is that the San Diego, CA-based company is not immune to global supply constraints, particularly the semiconductor chip shortage and increasing freight costs.

That's why, despite growing double digits year-over-year during its second fiscal quarter (which ended at the end of calendar year 2021), ResMed fell short of meeting all the current market demand, company executives said during an earnings call in late January.

ResMed products are used to help treat sleep apnea, COPD, asthma and other respiratory chronic diseases. The company's software solutions have helped to distinguish ResMed in the market place from its competitors.

The company expects to have at least 12 more months of this "incredible demand" for ResMed products, CEO Mick Farrell said, based on the latest information available about the Philips recall. The good news is that the company does seem to have a clear plan of action to try to both mitigate the supply constraints as best it can and to prioritize how outbound product will be allocated to meet the needs of the patients who most need the machines, regardless of whether they are "Philips customers" or "ResMed customers."

"We have established an allocation process with clear guiding principles that give priority to the production and delivery of devices to meet the needs of the highest acuity patients first," Farrell said. "In addition to component supply issues, the ongoing challenges of sea freight and air freight are impacting our ability to respond as rapidly as we would like to the demand for ResMed products. Freight costs are increasing across the board on inbound components from suppliers and on outbound products to our distribution centers and for ultimate delivery to our customers."

As a result of these increased costs, he said, "ResMed implemented a surcharge on its products, starting in January, to share some of the burden of these increased costs with customers."

Fortunately, Farrell said, the company's customers have seemed to understand and accept this surcharge.

"We are working closely with our global supply chain partners doing everything that we can to gain access to additional supply of the critical components that we need to further increase production of our medical devices," Farrell said. "We are also reengineering designs; validating new parts, pieces, supplies; and accelerating new product launch and development to further catch up with the demand."

ResMed is currently selling both its next-generation device platform called AirSense 11, and the current market-leading platform, the AirSense 10, in order to maximize its available product volume, Farrell said, while trying to assure investors that the AirSense 10 is only inferior to the AirSense 11, and that ongoing adoption of both platforms remains "very, very strong." The company is also leaning on its strength in software support to help customers manage their patient populations using ResMed's suite of software solutions.

"When customers use these digital health technology solutions, they have increased efficiencies, lower costs, and we achieved improved outcomes for patients and their physicians," Farrell said, citing peer-reviewed evidence from a study that enrolled more than 85,000 patients.

ResMed CFO Brett Sandercock said during the earnings call that the company estimates it generated incremental device revenue in the range of $45 million to $55 million in the quarter that ended in December.

"For the first half of FY '22, this reflects incremental revenue in the range of $125 million to $145 million," Sandercock said. "We continue to expect component supply constraints will limit the total incremental device revenue opportunity to somewhere between $300 million and $350 million for the full fiscal year 2022."

Still, it's a very dynamic situation, Farrell cautioned analysts during the call, and things do change on a weekly basis requiring ResMed teams to be extremely agile.

"This seemingly infinite demand is going to be with us for the whole of this calendar year and potentially beyond that," the CEO said. "…And with almost infinite demand, you never quite catch up to that, but we're going to get faster and faster and grow more year on year as we go throughout the calendar year."

Meanwhile, at Philips ...

During Philips' third-quarter earnings call in October (the next call is not until April), CEO Frans van Houten said the company is "extremely focused" on implementing the necessary corrective actions for patients affected by the component quality issue that prompted the recall.

"We have mobilized all necessary resources across the company to address this because patient wellbeing remains at the heart of everything we do at Philips, so this is a top priority for all of us," van Houten said. "We are doing everything we can to deliver a solution to patients and caregivers as fast as possible."

Philips has initiated a repair and replacement program that is well underway in the United States and in several other countries, van Houten said. He also noted that the company had produced more than 750,000 units of repair kits and replacement devices at that point, of which more than 250,000 units had reached customers.

"We have substantially increased our overall production volume in the third quarter to 55,000 units per week, and are on track to reach 80,000 units per week in the fourth quarter. We expect to complete the repair and replacement programs within 12 months," he said. "We have a strong program management in place, to see the corrective actions through as fast as possible."

About the Author(s)

Amanda Pedersen

Amanda Pedersen is a veteran journalist and award-winning columnist with a passion for helping medical device professionals connect the dots between the medtech news of the day and the bigger picture. She has been covering the medtech industry since 2006.

Sign up for the QMED & MD+DI Daily newsletter.

You May Also Like