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ResMed to Buy Propeller Health, Widens Respiratory Care Suite

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In sync with the strategy to grow in adjacent product and geographic markets, ResMed Inc. (RMD - Free Report) recently signed a definitive agreement to buy Propeller Health for $225 million. 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. After meeting certain customary closing conditions and receiving regulatory approvals, the deal is expected to be finalized before the end of third-quarter fiscal 2019.

Post the acquisition, 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.

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.

Market Potential

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

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

ResMed’s Progress in COPD

ResMed believes that the spectrum of cloud connected respiratory care products across ResMed’s portfolio will play an important role in reducing costs and improving outcomes. Connected Care in ventilation can reduce costs and improve patient outcomes in COPD and beyond. With COPD being the number three cause of death in the Western world and the number two cause of re-hospitalization in the West, we expect this strategy to boost ResMed.

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.

Earlier, 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 inched up 0.1%, against the industry’s decline of 7%.

 

 

Zacks Rank & Key Picks

ResMed currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Integer Holdings Corporation (ITGR - Free Report) , Surmodics, Inc (SRDX - Free Report) and Veeva Systems (VEEV - Free Report) .

Veeva Systems’ long-term earnings growth rate is estimated at 19.2%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Integer Holdings has an earnings growth rate of 31.2% for the next quarter and a Zacks Rank #2 (Buy).

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

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