ResMed -- How the Business Works

The ResMed Business Model

Near-duopoly competitive structure: ResMed commands ~48% of the global CPAP device market. Philips Respironics has been out of U.S. device sales since its June 2021 foam degradation recall and suffered a second recall (DreamStation programming error) in June 2025. In ex-U.S. markets where Philips has been back 12-24+ months, ResMed is "holding share and competing well" with 5% CC device growth against a 9% prior year comp. Fisher and Paykel Healthcare (~12% global share) is a solid but distant #3. The connected-device ecosystem (myAir + AirView + Brightree + VirtuOx + Somnaware) creates a full patient funnel from awareness through diagnosis, setup, adherence monitoring, and mask resupply -- a competitive moat that no rival can replicate across the board.

Revenue Composition -- CQ4 2025 (FY2026 Q2)

Segment Revenue -- Quarterly Trend (CQ1 2024 to CQ4 2025)

Digital Ecosystem -- Connected Platform Scale

GLP-1 and CPAP -- 1.95M Patient Claims Analysis

The biggest bear thesis has been definitively wrong for 2+ years. GLP-1 patients are more motivated health consumers who enter the healthcare system, get screened, discover sleep apnea, and start CPAP. Even when AHI improves (e.g., from 40 to 20), symptomatic relief from CPAP keeps patients adherent. GLP-1 adherence drops to 30-40% at one year while CPAP adherence remains higher and grows with the GLP-1 cohort. Zepbound received FDA approval for moderate-to-severe OSA in adults with obesity (Dec 2024), but combination therapy (GLP-1 + CPAP) showed the best outcomes in the SURMOUNT-OSA study. CEO Farrell on Q2 FY2026: "The thesis that this could be a headwind is completely gone. It is a tailwind."

Growth Vectors and Timeline to Materiality

1. Near-duopoly with the primary competitor sidelined. ResMed commands ~48% global CPAP share while Philips has been out of the U.S. device market since 2021 and suffered a second recall in 2025. Even in ex-U.S. markets where Philips has been back 12-24+ months, Philips has dropped to #3 or #4. Fisher and Paykel holds ~12% as a distant third. This is the most favorable competitive structure in medtech -- a near-duopoly where the #2 player is structurally impaired with no clear timeline for recovery.

2. Recurring revenue from masks creates a razor-razorblade model. CPAP devices are the platform (razors) that drive patient adoption, while masks and accessories (~37% of revenue, re-accelerating at +16% growth) are the recurring consumable (blades) replaced every 3-6 months. Every new patient start creates a multi-year stream of high-margin resupply revenue. The installed base of 6M+ connected devices generates predictable demand for mask replacement through the Brightree automated resupply workflow.

3. Connected-device ecosystem creates switching costs. The integrated platform of myAir (11M patient users), AirView (clinician monitoring with Epic/Cerner API integration), Brightree (HME/DME workflow), MatrixCare (13,000 facilities), and VirtuOx/Somnaware (diagnosis) creates a patient lifecycle ecosystem that no competitor can replicate. Clinicians and DME providers build workflows around these tools, creating institutional switching costs that persist even if competitive devices improve.

4. Massive undiagnosed TAM provides decades of growth runway. With ~80% of the estimated 936M-1B global OSA population undiagnosed, ResMed is addressing a fraction of the total addressable market. The diagnosis funnel is expanding through PCP education (60,000+ CME completions), home sleep testing (VirtuOx, NightOwl), consumer wearable screening (Apple Watch, Samsung), and GLP-1 co-prescribing driving incidental OSA discovery. This is not a mature market -- it is a market in the earliest stages of penetration.

5. Capital-light model with exceptional FCF generation. ResMed generates $1.79B in LTM free cash flow with >100% net income conversion at a 5.5% FCF yield. FCF has transformed from $216M in FY22 to nearly $1.8B, an 8.3x increase driven by operating leverage and working capital discipline. Net cash position of $753M with buybacks scaling from $50M to $175M per quarter and a +13% dividend increase.

Philips U.S. re-entry timing is unknown: Philips has remediated 99% of sleep therapy device registrations globally but has not returned to U.S. device sales. CEO and CFO have stated they "do not know" when re-entry will occur. If Philips returns with an aggressive pricing strategy, it could pressure ResMed device growth and margins. However, even in ex-U.S. markets where Philips has been back 12-24+ months, ResMed is holding share, suggesting the digital moat provides insulation.

SaaS growth has plateaued at mid-single digits: The SaaS segment (Brightree, MatrixCare, MEDIFOX DAN) has decelerated from high-teens growth to ~5% CC as management works through portfolio optimization in the senior living and long-term care vertical. Management guides high-single-digit reacceleration by FY2027, but this is an undelivered promise. SaaS represents the highest-multiple component of the business model -- continued stagnation would compress the overall valuation.

Revenue growth decelerating post-Philips peak: Revenue growth has decelerated from +18% (FY23, peak Philips recall benefit) to ~10-11% currently. While masks are re-accelerating at +16%, device growth is normalizing as the one-time Philips share capture anniversary. The market needs to see sustainable 10%+ growth from organic drivers (TAM expansion, GLP-1 tailwind, mask resupply) rather than competitive windfall to justify the current multiple.

Key-man risk with CEO Mick Farrell: Farrell dominates every earnings call with deep domain expertise and has been the architect of the GLP-1 narrative management, digital platform strategy, and margin expansion playbook. His departure would create meaningful execution uncertainty. The management bench (COO Rob Douglas) is solid but untested as a public company leader. Hit rate of 9/12 promises delivered or exceeded with zero misses is heavily attributed to Farrell.

Long-term oral GLP-1 uncertainty on mild OSA: While current injectable GLP-1 data confirms a CPAP tailwind, oral GLP-1 formulations could dramatically expand the treated obesity population over time. If weight loss becomes ubiquitous through daily pills, there is theoretical risk that mild OSA cases resolve without CPAP. This remains a watch item -- current data is directionally positive, but the long-term equilibrium is unknown.