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ResMed Closes Propeller Health Buyout, Boosts COPD Suite

Zacks Equity Research

ResMed Inc. RMD recently closed the Propeller Health buyout for $225 million. The deal was initiated in the last month.

Based in Wisconsin, privately-funded Propeller is a digital therapeutics company that offers connected health solutions for conditions like chronic obstructive pulmonary disease (COPD) and asthma.

Propeller will continue to operate as an independent entity within ResMed’s Respiratory Care suite. Further, the transaction is expected to have a dilutive impact to the tune of a penny to 2 cents on ResMed’s adjusted earnings per share during fiscal 2019.

Market Potential

According to a report by MarketsandMarkets, the global asthma and COPD market is estimated to reach $56,507.7 million, at a CAGR of 4.2% between 2017 and 2025.

Moreover, Connected Care in ventilation can reduce costs and improve patient outcome in COPD and beyond. With COPD being the fourth most common cause of death worldwide (per a MarketsandMarkets report), we expect the buyout to boost ResMed’s growth.

Furthermore, per management, ResMed’s cloud-connected ventilators suite for people with stage III and IV COPD (including Astral, Stellar and AirCurve 10 ST-A with iVAPS new portable oxygen concentrator Mobi) is compatible with Propeller’s portfolio catering to patients with stage II and III severity levels of COPD. Thus, the buyout is expected to widen ResMed’s COPD offerings.

ResMed’s Progress in COPD

ResMed believes that the spectrum of cloud connected respiratory care products across its portfolio will play an important role in reducing costs and improving outcome. Connected Care in ventilation can reduce costs and improve patient outcomes in COPD and beyond. In May, the company announced positive data from two clinical analyses conducted for the U.K. and the United States. The results supported the cost efficiency of combining home oxygen therapy and home non-invasive ventilation therapy for patients with persistent hypercapnia following a life-threatening exacerbation of COPD.

In this regard, the company initiated the controlled launch of Mobi, the first ResMed branded portable oxygen concentrator. ResMed plans to launch the product completely in fourth-quarter fiscal 2019.

In the fiscal first quarter, the company re-launched the portable oxygen concentrator called Activox.

Price Performance

In the past three months, shares of ResMed have outperformed the industry. Per the latest price movement, the stock has increased 4.6% against the industry’s decline of 12.1%.

Zacks Rank & Key Picks

ResMed carries a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks in the broader medical space are Veeva Systems VEEV, Surmodics, Inc. SRDX and athenahealth, Inc. ATHN.

Veeva Systems’ long-term earnings growth rate is estimated at 19.5%. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Surmodics’ long-term earnings growth rate is projected at 10%. The stock carries a Zacks Rank of 2 (Buy).

athenahealth’s long-term earnings growth rate is projected at 17.7%. The stock carries a Zacks Rank of 2.

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