PBI premier bionics limited

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  1. 5,609 Posts.
    This is interesting guys,

    In Last weeks AFR.

    PBI could be onto something here!



    In its latest quarterly results, released on Wednesday, ResMed investors were taken by surprise with the annuity style business it is beginning to generate from the replacement of the masks for its continuous positive airway pressure sleep disorder machines.

    Mask sales provide a higher margin than the actual CPAP machines. The shift in mix between the two has helped ResMed beat earnings forecasts for the three months to June 30 for the 32nd consecutive quarter. This was despite the appreciation in the $A and an acknowledged pressure on margins from increased discounting from competitors Respironics and Fisher & Paykel Healthcare.

    Respironics, which although close to 20 companies competing in the sleep disorder space still maintains an essential duopoly with ResMed in the key US market, has been very aggressive on bidding for contracts with the big home health-care dealers such as Apria, Lincare and American Home Patient.

    ResMed has preferred to try to compete on having a better product and protecting its intellectual property position through litigation where necessary.

    Obstructive sleep apnoea, treated by the CPAP machines, is related to upper airway obstructions that can cause snoring or breathing to stop.

    "During sleep, especially in [repetitive eye movement] sleep, our bodies relax and muscle tissues like the tongue and soft palate lose their slight rigidity. Because we tend to sleep lying down, gravity pulls these tissues toward the back of the throat and closes the upper airway," ResMed says.

    Estimates of the occurrence of OSA in the population have risen from 2 per cent in the early 1980s to more than 10 per cent.

    Tapping that market - more than 20 million people in the US alone - is a matter of education about the benefits of CPAPs and overcoming a reluctance to wear a device that in essence is a reverse vacuum cleaner and makes the user look like Darth Vader. Proponents of CPAPs argue OSA causes hypertension, main risk factor for stroke and heart failure.

    Credible studies and articles in medical journals connecting the condition to such serious health problems might help the campaign for government reimbursement of CPAP machines which retail in the US for about $US1500.

    There's no lack of demand but the challenge is to satisfy it through reimbursement to lower the cost to the consumer and increase diagnosis of OSA sufferers.

    Citigroup Smith Barney analyst Andrew Goodsall says he "continues to see diagnosis as the rate-limiting factor; US sleep labs all have three to six-month waiting lists for diagnosis and lab growth is perhaps 7 to 10 per cent per annum. Though there is some growth in home diagnosis and ResMed has several initiatives that offer potential to expand diagnosis beyond sleep labs, this is not likely to impact [fiscal 2004]".

    So growth of the overall market size is showing little sign of slowing and, if you agree with O'Connell, the concerns over margin pressure are overplayed, but can ResMed keep its edge over the competition?

    "[2004] is shaping up as a robust year for ResMed with the launch of what could be substantial products in terms of differentiating the company from competitors," says O'Connell.

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