ResMed Inc. (NYSE:RMD) Q1 2024 Earnings Call Transcript

ResMed Inc. (NYSE:RMD) Q1 2024 Earnings Call Transcript October 26, 2023

ResMed Inc. beats earnings expectations. Reported EPS is $1.64, expectations were $1.62.

Operator: Hello, and welcome to the ResMed First Quarter Fiscal Year 2024 Earnings Conference Call and Webcast [Operator Instructions]. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Amy Wakeham, Chief Communications and Investor Relations Officer. Please go ahead, Amy.

Amy Wakeham: Great. Thank you, Kevin. Hi, everyone. Good morning and good afternoon. Welcome to ResMed’s First Quarter Earnings Call for Fiscal Year 2024. We are live webcasting this call and the replay will be available on the Investor Relations section of our corporate Web site later today along with a copy of the earnings press release and presentation, both of which are available now. On the call today are Chief Executive Officer, Mick Farrell; and Chief Financial Officer, Brett Sandercock. Following our prepared remarks, Mick and Brett will be joined by Rob Douglas, President and Chief Operating Officer, to answer any questions you may have. During today’s call, we will discuss several non-GAAP measures. We encourage you to review the supporting schedules in today’s earnings press release for a reconciliation of the non-GAAP measures to the GAAP reported numbers.

In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions. However, our actual results could differ. Please refer to our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. I’d like to now turn the call over to Mick.

Mick Farrell: Thanks, Amy, and thank you to all of our shareholders for joining us today. Our first quarter fiscal year 2024 results reflect strong growth across our entire business with double digit top line growth. This growth was driven by double digit global growth in the masks category and double digit growth in our software as a service business. We also achieved high single digit global growth in devices even as that category annualizes very high growth in the prior year period. The flexible and agile work of our supply chain, manufacturing and distribution teams has enabled us to provide ongoing global availability of our market leading 100% cloud connectable flow generator platforms. We have unconstrained supply of our AirSense platforms enabled by excellent volumes of the AirSense 10 platform globally and fast ramping approvals, launches and delivery of the best-in-class AirSense 11 platform country by country.

During the quarter, we accelerated delivery of the AirSense 11 in Japan, and we launched the AirSense 11 in Australia and New Zealand. We have plenty of runway ahead on our pathway to launch in all of the 140 countries where we sell our solutions. We are very proud to be able to support all global demand for flow generators through a combination of AirSense 10 and AirSense 11 platforms. We remain laser focused on accelerating the production and delivery of the AirSense 11 platform. We are moving swiftly on that front. Our Masks and Accessories business grew 21% year-over-year, amongst a highly competitive market with all global players on the field in this category. Our commercial teams are doing an amazing job of showing the clinical and economic benefits of the ResMed mask portfolio.

Our clinical and commercial teams are also partnering with physicians and provider customers to drive resupply programs directly with patients. The peer reviewed and published clinical evidence showing that adoption of a resupply program leads to better patient outcomes is proving itself out in the real world customer by customer. We continue to see strong growth in the US mask business where provider resupply programs can scale, powered by our digital health ecosystem, including AirView for physicians and providers and myAir for patients. For patients around the world, especially in nonreimbursed markets, we are developing, launching and scaling outreach and subscription programs to help the consumer who is the ultimate customer to take control of their own health and engage directly in refreshing their mask, tubing, humidifier and other accessories.

This has been a permanent uptick since COVID-19. People care about respiratory health and respiratory hygiene and they are taking action, and we are supporting them with digital solutions and services to meet their needs. Before I turn to review updates on our key strategic priorities, I’d like to spend a little time discussing actions we’ve taken to accelerate profitable growth across ResMed and to power our long term success. We’ve taken immediate steps to ensure we’re prioritizing the right things to drive profitable growth and our leadership teams have carefully reviewed opportunities to improve our performance. We have stopped some projects that were not working out as well as we thought. We’ve increased investment in areas that we believe will be pivotal to long term success, such as our digital health tech investments as well as focused hardware and software development.

Creating the smallest, the quietest, the most comfortable, the most connected and the most intelligent healthcare solutions in the market. These changes have impacted some of our teams. And this week, we have taken actions that resulted in a reduction of our global workforce by 5%. Decisions like this that impact people are never easy. However, we know that we are doing the right thing, and we’re doing the right thing to accelerate our growth and to refocus on our long term mission. I feel more strongly than ever that we are well positioned with an incredibly long runway of profitable growth and value creation for all of our stakeholders as we move forward. Let’s now turn to a discussion of our three key strategic priorities: number one, to grow and differentiate our core Sleep Apnea and Respiratory Care business; number two, to design, develop and deliver market leading medical technology as well as digital health solutions that can be scaled globally; and number three, to create, innovate and grow the world’s best software solutions for care delivered outside the hospital, a field that we call residential medicine.

There are over 2 billion people worldwide suffering from sleep apnea, chronic obstructive pulmonary disease, respiratory insufficiency due to neuromuscular disease and insomnia. There are millions more that we can support as they navigate the complex outside hospital healthcare system. We believe that healthcare should be delivered in the lowest cost, lowest acuity and highest comfort location possible. Very often, that is a patient’s own home. We have a massive opportunity ahead of us to help hundreds of millions of people worldwide. Our end markets remain incredibly underpenetrated with many opportunities to add value, reduce friction, lower costs and improve patient outcomes. Now that we’ve been able to comfortably support overall global market demand for sleep devices for the last few quarters, we’re ramping up our demand generation initiatives.

We’re investing in marketing efforts to raise awareness and patient engagement across specific global markets. We are leveraging traditional healthcare channels as well as investing in cost effective direct-to-consumer demand gen campaigns to help what we call sleep concern consumers, find their way into the screening, diagnostic, treatment and management pathway. We will act as a digital concierge to guide patients on that journey. In terms of analyzing the results of these efforts to date and ongoing, we are tracking new patient starts in our physician and provider based ecosystem, AirView, which now has more than 22.5 million patients, as well as the new user starts in myAir where patients themselves choose to participate in their personalized healthcare journey to better breathing and better sleep.

Patient flow into the funnel is at an all time high. We are well above the rates that we saw pre-COVID in 2019 across all geographies, triple digits across the board. The bottom line is that we are driving strong growth of patients into the funnel. We believe the work that’s being done in the pharmaceutical industry right now with obesity drugs will be a net positive for patient flow and patient growth in sleep apnea, COPD and for ResMed overall. In terms of existing patients in our installed base, we are actively tracking a cohort of many thousands of patients on these GLP-1 medications and LPAT therapy. We are not seeing any significant change in the PAP adherence rates nor any reduced participation in resupply programs versus control groups.

These data indicate that there is a cohort of patients on combined therapies in a stable state. In terms of new patients activated into the funnel, we are seeing the number of new patients activated into the healthcare funnel picking up. We see patient flow is not only strong but increasing. We believe in treating the whole person here at ResMed, including a combination of cardiovascular exercise, diet and nutrition as well as good sleep and breathing. That combination was called the Triumvirate of Health by Professor Bill Dement from Stanford, may he rest in peace. And we think a combination of these three elements will result in the best outcomes for patients. It is quite possible that this new class of drugs may become as large or even larger than the cholesterol class or the blood pressure treatment class of pharmaceuticals.

If this is the case, we will see a whole new population of patients activated with their primary care providers that we may never have seen in the healthcare system. If this comes to pass, we may see benefits for the entire health system and for the people being treated themselves and for ResMed, as more and more people are evaluated and screened for sleep apnea, respiratory insufficiency and other key chronic conditions as part of their primary care evaluations. Our data are showing an all time high of patient flow and that supports this thesis. Stepping back and looking at the science in the field of respiratory medicine, we have created a forward-looking epidemiology model for our core market sleep apnea, spanning over two to three decades into the future.

We have assumed an aggressive case for high market penetration of this new class of pharmaceuticals. We will publish the epidemiology model in our investor deck straight after this call. The model starts using a baseline of the global prevalence of sleep apnea, which was 936 million people in 2015. And this is based on peer reviewed and published data from the Journal Lancet in 2019. Our epidemiology model grows with conservative population and aging assumptions to a prevalence of around 1.4 billion people suffering from sleep apnea in 2050. We then overlaid an aggressive assumption for the adoption of this new pharmaceutical class globally. We assumed some of the highest penetration rates that we have seen reported by analysts in the industry.

With this aggressive and sustained adoption of the new drug class, we forecast that the global prevalence of sleep apnea will still be around 1.2 billion people in 2050. Now in terms of the market penetration of our PAP therapy into this population, we have assumed market growth from our 22.5 million patients with PAP therapy here at the end of calendar year 2023 using steady state market growth rates that we saw in the years leading up to 2019, that is mid single digit growth for devices and high single digit growth for masks. With these growth rates, we reached around 109 million patients on our PAP therapy by 2050. That leaves 1.1 billion people remaining in the addressable market in 2050, over and above those already on our PAP treatment.

We will continue to update our epidemiology model with all the new data as they arise. However, the bottom line is that there remains a huge number of people needing our sleep apnea treatment solutions today and for the next two to three decades and beyond. While we’re proud that we have peer reviewed and published data showing that we can achieve over 87% adherence of patients to our PAP technology, combining our best-in-class med tech hardware with our digital health solutions AirView and myAir, that still means 10% of our patients on an annual basis will need alternatives. We are investing in those alternative therapies, and we are actively working with direct — to direct patients who do not adhere to pack that 10%-plus to second line therapies, such as dental devices, where we have invested and scaled the market leading 3D printed dental device for sleep apnea in Europe called [Narval].

In addition, we have investments in other second line therapies, including pharmaceuticals and hypoglossal nerve stem technology. We want every patient who suffocates at night to find a path to good breathing and good sleep, and it looks like there’s 1 billion of them we need to help. We start with the highest efficacy and lowest cost therapy, which is PAP technology, where we have very high adherence rates and the best outcomes for patients and we go from there. Given this incredible multiple decades long plus runway of growth and as part of our ongoing efforts to improve and streamline that end-to-end patient pathway and to make it easier for sleep physicians and sleep labs to diagnose and manage these patients, we’re excited about our Somnoware acquisition that we closed during the last quarter.

Somnoware is software for pulmonary and really all sleep physicians. And it complements our current portfolio of software offerings for physicians, homecare providers and patients, including AirView, Brightree and myAir, respectively. The goal is to ultimately drive greater efficiency and better patient care by helping physicians to take best-in-class care of their patients with increased efficiency and a better overall experience for the doctor and for the patient. We’re making progress across several digital health technology initiatives to drive the value proposition of our cloud connected devices even higher. We are investing in several artificial intelligence driven data products and capabilities in our Air Solutions ecosystem. This quarter, we started rolling out a digital product in our US market called Compliance Coach.

Compliance Coach is built for home care providers to help them efficiently focus efforts and prioritize outreach to increase patient compliance and ultimately to drive better patient outcomes by helping them meet and beat 90-day adherence goals. The application utilizes ResMed’s many billions of nights of de-identified sleep and respiratory care data in the cloud to predict the likelihood that a patient will be adherent to therapy or not. The AI product then advises and coaches the home care provider to best identify the patients who may struggle and to meet compliance requirements where they can so they can prioritize their interventions and outreach to the best probabilities to support patient success. It’s early in our rollout program of Compliance Coach.

However, customers using the product are excited and engaged and are starting to see results. Watch this space for many more ways that we can work with all of our customers to unlock value from incredible depth of de-identified data using tech like AI and ML for the ultimate benefit of physicians, providers and patients. Let me discuss the forward pathway stemming from our joint venture with Verily right now that was called Primasun. Based on a mutual agreement between ResMed and Verily, we’ve made the decision to unwind the joint venture’s day-to-day operations. We expect this to be complete by the end of the current quarter. Over the past years of this partnership, we’ve learned how to leverage technology to better identify, engage, diagnose and manage sleep concern consumers in our US market.

We expect to take ownership of key assets of the Primasun developed model so that we can build on the investment and the learnings and ultimately accelerate our ongoing demand generation efforts with sleep apnea patients across ResMed. It is exciting to take the learning from demand gen work in one project and in one country and to now look to apply that on a global scale across the 140 countries where we provide solutions. Our growing Respiratory Care business continues to be supported by the increased adoption of both noninvasive and life support ventilator solutions. In terms of next-gen respiratory care therapies, we continue to invest in clinical and economic trials for high flow therapy, that we call HFT, with the goal of cost effectively treating COPD in the home.

We continue to generate strong clinical evidence and economic outcomes that we believe will support broader adoption of these technology innovations for treating lung disease in the home. We believe this has the potential for future growth for ResMed over the medium to long term. We remain focused on addressing COPD as one of the top three chronic diseases for hospitalization and the number one cause of rehospitalization. The prevalence of respiratory insufficiency due to COPD as well as neuromuscular disease continues to increase and we are focusing and developing and plan to offer low cost, high quality solutions to address this healthcare epidemic. Our SaaS business had another great quarter with year-over-year growth of 32%. SaaS business growth was powered by another full quarter contribution from our fast growing MEDIFOX DAN business in Germany, as well as high single-digit organic growth across our Brightree and MatrixCare brands in the US market.

The sustained high single digit organic growth in our SaaS business is driven by strength in the HME segment and stability as well as increased tech adoption by customers in the facilities segment. We see a pathway to stable double digit organic growth across the SaaS business, as well as increased net operating profit performance from this part of our business. The ongoing synergies between our digital health solutions in SaaS and our core business remains strong, and we continue to leverage that through combined management of cloud compute, cyber security, interoperability, tech dev as well as customer facing synergies, including patient resupply technology in our core business. During the quarter, we appointed Greg Timmons as the new General Manager of our Brightree business.

I’m excited to support Greg and Bobby to continue to drive growth in our home medical equipment providers and to help our customers across the US market. This quarter, I traveled to Hildesheim, Germany to meet in person with the entire team from our MEDIFOX DAN business. The growth in tech solutions for ambulant home nursing as well as stationary nursing home businesses is very strong in Germany with an aging population in that country and a government that is driving care to be more home based through their policies and more digital through their policies. We see a long runway for growth with our MEDIFOX DAN team and across our global software as a service business. Our SaaS business remains an integral part of ResMed’s growth strategy. This business complements the market leading software and device solutions we have in our respiratory medicine business.

And we are well positioned as the leading global strategic provider of SaaS solutions for residential medicine globally. And we have created differentiated value for customers and will drive long term sustainable growth for our shareholders. Before we get into a detailed update on our financials, let me say this here at ResMed. We are transforming respiratory medicine and residential medicine at scale. We are leading the market in digital health technology across our markets. As we continue to scale and drive efficiencies in our operations, we will leverage appropriate pricing and cost reductions to drive profitable growth. We’re focused on driving top line revenue and tight cost discipline as well as increased efficiencies so that we can accelerate profitability, delivering value for all of our stakeholders and especially the 2 billion patients plus worldwide who need our help.

As we move through fiscal year 2024, I’m confident on laser focus that we will continue to see improvements in our gross margin with GM leverage programs focused on five key areas. Number one, to drive the launch of AirSense 11 into new global markets and to increase the availability of AirSense 11 ultimately in all the country markets that we serve. Number two, to drive ongoing strong mask growth with a combination of resupply programs, subscription programs and new product launches, and you can see that’s working this quarter. Number three, to increase software solutions growth, moving from high single digit organic growth to double digit organic growth with increased net operating profit leverage in that segment. Number four, to move the higher cost components and freight costs that we’ve seen through our legacy through our P&L, turning what was a supply chain crisis headwind into a steady tailwind as we move through fiscal year 2024.

And number five, to implement cost reduction actions in noncore areas of our business to free up cash and to accelerate investments in market leading medtech and digital health solutions. So in terms of Digital Health Investments and Solutions, we now have over 16 billion nights of de-identified medical data in the cloud and over 22.5 million 100% cloud connectable medical devices sold in more than 140 countries worldwide. We continue to lead the industry in digital health technology and we don’t plan to stop anytime soon. There is so much opportunity ahead of us. ResMed’s mission and key goal remain crystal clear to improve 250 million lives through better residential healthcare in 2025. This patient centric mission drives and motivates ResMed-ians every day.

During the last 12 months, we have improved over 165 million lives with the delivery of a medical device directly to a patient, a complete mask system to a patient or a digital health software solution, helping each person to sleep better, to breathe better and to live high quality lives with best in class healthcare delivered right where they live. I’m very excited about the opportunities in front of us. In closing, I want to express my sincere gratitude to the 10,000 ResMed-ians for their perseverance, their hard work, their dedication, both today and every day. Thank you. With that, I’ll hand the call over to Brett in Sydney. And after Brett’s remarks, we will open up for Q&A from the entire group. Brett, over to you.

Brett Sandercock: Great. Thanks, Mick. In my remarks today, I’ll provide an overview of our results for the first quarter of fiscal year 2024. Unless noted, all comparisons are to the prior year quarter. We had strong financial performance in Q1. Group revenue for the September quarter was $1.1 billion, an increase of 16%. In constant currency terms, revenue increased by 15%. Revenue growth reflected the ongoing combined availability of AirSense 10 and AirSense 11 sleep devices to support solid underlying global demand as well as strong growth across our mask product portfolio. Year-on-year movements in foreign currencies positively impacted revenue by approximately $10 million in the September quarter. Looking at our geographic revenue distribution and excluding revenue from our software as a service business, sales in US, Canada and Latin America countries increased by 10%.

In constant currency terms, sales in Europe, Asia and other markets increased by 18%. Globally, in constant currency terms, device sales increased by 8%, while masks and other sales increased by 21%. Breaking it down by regional areas, device sales in the US, Canada and Latin America increased by 2%, which reflects the fact that we are cycling a particularly higher prior year comparable that was driven by sales of our card to cloud devices. Masks and other sales increased by 23%, reflecting growth in resupply and new patient setups. In Europe, Asia and other markets, device sales increased by 20% in constant currency terms, again, reflecting strong demand and significantly improved availability of cloud connected devices [Technical Difficulty] these patient setups.

Software as a service revenue increased by 32% in the September quarter, reflecting the contribution from our MEDIFOX DAN acquisition and continued strong performance from our HME vertical. Excluding our MEDIFOX DAN acquisition, SaaS revenue grew by 7% in the September quarter. MEDIFOX DAN contributed revenue of $25.7 million for the September quarter, consistent with our expectations at the time of the acquisition. Note, we will anniversary this acquisition in Q2 FY24, so our headline SaaS growth rate will moderate in Q2. Turning to my commentary today, I will be referring to non-GAAP numbers where we’ve provided a full reconciliation of the non-GAAP to GAAP numbers in our first quarter earnings press release. Gross margin declined by 160 basis points to 56% in the September quarter.

The decrease primarily reflects an increase in component and manufacturing costs, partially offset by favorable product mix due to the increase in mask growth relative to device growth and favorable foreign currency movements. Sequential gross margin improved by 20 basis points, driven primarily by favorable product mix. Moving on to operating expenses. SG&A expenses for the first quarter increased by 15% or in constant currency terms increased by 14%. The increase was predominantly attributable to increases in employee related costs as well as the incremental SG&A expense associated with the MEDIFOX DAN that we acquired in November 2022. SG&A expenses as a percentage of revenue was 20.2% compared to the 20.3% in the prior year period. Looking forward and subject to currency movements, we expect SG&A expense as a percentage of revenue to be in the range of 18% to 20% for fiscal year ’24.

This guidance also reflects the impact of restructuring we initiated earlier this week and we estimate this will result in a reduction in our workforce of approximately 5%. We expect to complete the restructure during our second quarter of fiscal year ’24. R&D expenses for the quarter increased by 20% or in constant currency terms increased by 21%. The R&D expenses as a percentage of revenue was 6.9% compared to the 6.6% in the prior year period. Looking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for fiscal year ’24. Operating profit for the quarter increased by 10%, underpinned by strong revenue growth, partially offset by a lower gross margin. Our net interest expense for the quarter was $15 million and we expect interest expense to be in the range of $12 million to $14 million per quarter over the balance of fiscal year ’24.

Our effective tax rate for the September quarter was 20.1%, broadly consistent with the prior year quarter. Looking forward, we estimate our effective tax rate for fiscal year ’24 will be in the range of 19% to 21%. Our net income for the September quarter increased by 9% and non-GAAP diluted earnings per share of $1.64 also increased by 9%. During the quarter, we recorded a provision of $8 million associated with the expected cost of the recently announced Astral field safety notification. We also recorded acquisition related expenses of $0.5 million during the quarter. These both have been treated as non-GAAP items in our Q1 financial results. We recorded losses of $4.5 million in our September quarter associated with the Primasun joint venture with Verily.

As Mick discussed, the joint venture will be winding down operations and we will incur no further losses going forward in relation to Primasun. Cash flow from operations for the quarter was $286 million, reflecting solid underlying earnings and stable working capital balances. Capital expenditure for the quarter was $30 million and depreciation and amortization for the quarter totaled $45 million. We ended the first quarter with a cash balance of $209 million, and at September 30, we had $1.4 billion in gross debt and $1.2 billion in net debt. During the quarter, we reduced our debt by $80 million. At September 30, we had approximately $825 million available for drawdown under our revolver facility, and we continue to maintain a solid liquidity position.

During the quarter, we also closed our previously announced Somnoware acquisition, a company that provides an upstream diagnostic management platform that is complementary to our current AirView and Brightree solutions. Our Board of Directors today declared a quarterly dividend of $0.48 per share. As part of our capital management activities, we plan to resume our previously authorized share buyback program starting in our second quarter. We expect to purchase shares to the value of approximately $50 million per quarter. This will more than offset any dilution from the issue of employee equity during the year. Finally, concurrent with our capital management activities, we plan to continue to reinvest in growth through R&D and expect to deploy further capital for tuck-in acquisitions.

And with that, I will hand the call back to Amy.

Amy Wakeham: Great. Thank you, Brett, and thank you, Mick. Kevin, let’s go ahead and turn the call back over to you to remind participants about instructions for the Q&A portion of the call.

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Q&A Session

Operator: [Operator Instructions] Our first question is coming from David Bailey from Macquarie.

David Bailey: Mick, I’d just like to press a bit more on some of the comments around the market to 2050. Just interested in your thoughts around GLP-1s as potentially being complementary to CPAP as opposed to being a substitution for. And maybe just giving some thoughts around the upcoming clinical trials and how that could influence that will take going forward?

Mick Farrell: And I’m just happy that we’ve had 90 days and we put some sites behind the analysis of this as the world leader in the field of respiratory medicine and sleep apnea, we really know these prevalence numbers really well. And so that baseline of 936 million patients from 2015, growing to 1.4 billion through 2050 is really, I think, pretty conservative in its assumption of the growth rate of populations and aging populations in lower growth areas. But what that shows is 1.4 billion available in that time, not including any impact from any of these GLP-1 class of drug. And we took really the maximum aggressive efforts, including all current indications and some future ones to assess what the impact could be on the potential of patients in terms of sleep apnea prevalence worldwide, really aggressive and assume not only aggressive penetration but sustained that the adherence rate would stay sort of 80% to 100% on these drugs, which they’re not achieving out there in the market, but we just said, let’s take that high penetration case and that showed 1.2 billion patients in 2050.

And so we will look at every update that comes from the pharma industry. They’re very active in this class of GLP-1 but we think we’re taking a very high penetration analysis to get there. And so we’ll continue to look at any new data that come on and every quarter, we’ll update that epidemiology model and move it around. But what it shows is a huge opportunity, 1.1 billion patients above our penetration at quite high growth rates through the next number of decades. To your question around concomitant therapy and use what we’ve been seeing in the last two years since a number of these have been out there in the diabetes side and on the obese indications, it’s obviously early days, but we’re tracking many thousands of patients on GLP-1s and PAP and we’re seeing maintenance of adherence, we’re seeing maintenance of resupply programs and really no change.

When you look at — so that’s at the aggregate level, we are seeing no change there. We are seeing more patients coming into the funnel. Look, we know we’re doing our awareness programs, our demand gen programs and there are other alternative therapies doing demand gen that bring patients into the funnel that we get a benefit from. But we truly believe that this idea that you could come in to the healthcare system, someone who’s maybe obese, moderately obese and likely avoiding the healthcare system, there’s a high avoidance of people with BMI of 30, 32, 35 of the primary care system. And so we believe it will bring more patients in. We’re seeing that with our very high patient flow. So look, we’re just looking at the data we’re observing, which is patients on concomitant therapies there multiple years, and we’re going to track those and track the adherence and we’ll publish that every quarter.

We’re seeing actually our adherence rates steady and resupply rates steady in that installed base. And in the new patient flow side, we’re actually seeing increased all-time highs of patients coming into the funnel. So we’re watching all of these above and we’re looking for two to three decades and still see with highest case penetration, you can roll in any study like you’re still going to see north of hundreds of millions to 1 billion patients between the likely penetration in our disease state and beyond. But David, thanks for the question, and I look forward to ongoing discussions.

Operator: [Operator Instructions] Our next question is coming from David Low from JPMorgan.

David Low: If I could stick on the same topic. Mick, could I get you to talk a little bit to the 22.5 million patients that you’ve got on myAir? It would be really good to understand how they sort of fit into the categories of mild, moderate and severe sleep apnea. Because as much as you’ve given us some very big numbers, we’re fully aware that about half of those patients are in the mild category. And it’s unclear to me that many of those patients are currently seeking treatment or will seek treatment in future. So if you could just help us with what you can see in the data and so we can make an assessment as well, please.

Mick Farrell: Yes, David, look, thanks for the question. And as you look at the epidemiology data, there’s a number of splits on AHI. What we’re lacking in the market is a split around symptomatology and how patients feel. And as we’re looking at the data, patients with AHIs, 5 to 15, 15 to 30 and 30 plus and overlapping that with concomitant therapy, we’ll be peer reviewing and publishing data at upcoming conferences in 2024 on this to show some of these nuances of deltas. But on the aggregate group, we’re not seeing changes in adherence. And even in the subsets of mild to moderate, we’re not seeing significant changes in adherence rates or new patients coming into the funnel. AHI is a great measure of the number of suffocation episodes per hour.

Just to remind people, an AHI 14, just under 15, which is considered mild is suffocating every four minutes of sleep. So a doctor may call that mild, but to a patient who’s suffocating every four minutes of sleep, in 15 — 14 times an hour, and you’re sleeping all through the not having 80, 90 suffocation episodes, they stick on the therapy and new patients coming in as well. So look, we’re watching this really carefully, and we’re really analyzing by AHI, by symptomatology, by craniofacial distance between the tongue and the uvula and actually size of time because there’s a whole lot of factors that go into go into the prevalence of sleep apnea and obviously, the issues around hypopneas, which are far more prevalent in women and lead to worse excessive daytime sleepiness, headache and comorbidities that are not associated with weight at all.

But look, we’re looking through all of these data. And as we look forward over the next number of decades, there will be an impact. There’s no question by these weight loss medications. But it will be on the margin and it won’t be — I mean, certainly, the market believes it’s going to be dramatic given the last 90 days of our stock. And I can tell you, every bit of clinical data that we have going forward and every bit we have going retrospectively, we’ve got the biggest database in the world and it’s 21.5 million patients. As we look at that split between mild, moderate and severe, we’re not seeing changes. But look, every quarter, we’ll continue to update that, and we’ll do more and more splits on severity. We published this epidemiology model this quarter and we’ll continue to update it and continue to provide data.

I’m also making sure that we keep some of those data so we can get them into the peer reviewed and published press like the Lancet article that started the epidemiology model, and so we’ll be publishing the information that we can. And then every quarter here on the — on our investor site, but they will also be running the real sites in epidemiology models and health econ and outcomes research work and making sure that gets into the peer reviewed and published press as well.