ResMed Shares Plunge Amid New Drug Trial Results

Highlights:

• Significant Share Drop: ResMed shares fell over 13% following Eli Lilly's trial results for the weight-loss drug tirzepatide, which significantly reduced obstructive sleep apnoea severity.
• Investor Concerns: The trial results sparked fears that effective obesity treatments could reduce the need for ResMed’s CPAP devices, echoing last year's reaction to Novo Nordisk’s Ozempic.
• Analyst Optimism: Analysts suggest the CPAP market may remain resilient due to increased sleep apnoea awareness and the slow adoption of weight-loss drugs due to costs and side effects.

Introduction

ResMed's (ASX: RMD) shares dropped over 13% after new weight-loss drug trial results from Eli Lilly reignited investor concerns about the sleep apnoea treatment market.

Trial Results Impact

Eli Lilly's trial for tirzepatide, a weight-loss drug marketed as Mounjaro and Zepbound, showed significant reductions in obstructive sleep apnoea (OSA) severity. Up to 51.5% of participants met the criteria for "disease resolution," and moderate-to-severe OSA severity decreased by up to 62.8%. These results have led to fears that effective obesity treatments could reduce the number of patients needing ResMed’s CPAP devices for sleep apnoea.

Historical Context and Market Reaction

This isn’t the first time ResMed has faced such concerns. Last year, successful trials of Novo Nordisk’s weight-loss drug Ozempic led to a 35% drop in ResMed's shares due to similar fears of reduced demand for CPAP treatments. The current news has caused ResMed shares to fall $4.17 to $27.79, making it one of the biggest losers among Australian fund managers.

Analyst Perspectives

Despite the market reaction, analysts remain cautiously optimistic. Morgan Stanley’s Sean Laaman noted that while the trial results were in line with expectations, the extent of "disease resolution" was a significant addition. He reiterated that the CPAP market may not be as threatened as investors fear, suggesting that increased awareness of sleep apnoea could drive more people to seek treatments like ResMed’s.

Morningstar analyst Shane Ponraj echoed this sentiment, stating that the widespread adoption of GLP-1 drugs would take time due to high costs, limited supply, and potential side effects. Ponraj also emphasized that obesity is only one risk factor for sleep apnoea, and many patients would still benefit from CPAP devices despite weight loss.

Conclusion

While new weight-loss drug trials have sparked another sell-off of ResMed shares, analysts believe the market reaction may be overblown. The evolving landscape of sleep apnoea treatments suggests that ResMed could still maintain its market presence amid rising awareness and diagnosis rates.

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