Resmed: waking up to sleep.CASE DESCRIPTION
This is a case for a class on Strategic Management. The case focuses on ResMed, the second largest manufacturer and marketer of sleep equipment. The case describes a successful company in a very high growth, and dynamic industry with constant threats from substitute products outside the industry. The case allows for a comprehensive strategic management analysis at the industry and firm level. The case is appropriate for senior level undergraduate and graduate students. The case is designed to be taught in two class hours and is expected to require approximately 4-5 hours of outside preparation time by students.
The case begins with the change in leadership (from the founder and CEO, Dr. Farrell to Keirnan Gallagher). The new CEO has to take stock of the company and decide whether to continue in the same direction or craft a new path. Of special consideration is whether to continue in their narrow but successful niche or to diversify. The industry is growing rapidly, but there are constant threats of substitutes. The firm recently had a product recall and its major competitor has just been taken over by a large European firm. Since the takeover of its rival, and change in leadership, the stock price has been dropped.
A key component of the company's competitive success and strategy is its innovation. The case provides information on various aspects of the firms operations -from design, manufacturing to marketing and sales. The firm faces a challenge, not so much of competition within the industry, but of a need to influence overall industry demand. This is accomplished by providing information about the health problems of sleep apnea to various groups.
It was March 1st 2008, and just two months since Kieran Gallahue had taken over as President and CEO from the company's charismatic founder, Dr. Peter Farrell. Gallahue, who was 44, and a graduate of Harvard Business School, had joined ResMed in 2003. It had been a long day, and as Gallahue was getting into bed, he reflected on the company that he was now leading. The sleep equipment market was growing at 15-20% per annum, with only a 10% market penetration. ResMed and its major competitor, Respironics, controlled 75% of the market. ResMed had its 40th consecutive quarter of increased revenue growth, and most financial indicators looked good.
However, there were clouds on the horizon. Net income had declined last quarter, primarily due to a voluntary product recall in April. Prices were dropping due to competitive bidding practices by Medicare. In December 2007, Philips Electronics NV, a Dutch company and the world's biggest manufacturer of patient-monitoring systems, announced its purchase of ResMed's major competitor, Respironics, in its largest ever acquisition. Kiernan wondered how this new development would affect his company.
At a more fundamental level, he thought about the fact that while the product offered by their industry (the airflow generator) was the best solution to a significant sleep disorder--sleep apnea, they were not curing the disorder. Further the product was cumbersome to use. Everyday new cures or solutions were touted, but as yet none were as good as the airflow generator. Was ResMed vulnerable with its focus on just one product? Although Farrell would continue to be involved with ResMed as Chairman of the Board, he would move out of center stage and there was now an opportunity for change. Should he continue the direction set by Farrell or chart a new course? As Gallahue mulled over these issues, he glanced at the clock. Will Gallahue sleep well? Should he?
SLEEP AND HEALTH
Good sleep is essential for good health. Sleep apnea, a common sleep disorder, occurs when breathing stops for 10 seconds or longer. Sleep apnea is caused either because a person's windpipe squeezes shut (obstructive apnea) or because the brain's timer for breathing has a problem (central apnea). Obstructive sleep apnea (OSA) can be caused by factors such as lack of muscle tone during sleep, excess tissue in the upper airway and anatomical abnormalities in the upper airway and jaw. Central sleep apnea occurs when the brain fails to regulate the breathing during sleep and causes a brief cessation of breathing. Both these forms of apnea result in cutting off the supply of oxygen to the brain and wake a person numerous times a night without their knowledge. Untreated sleep apnea can cause various health problems that include heart disease, stroke, impotence, irregular heartbeat, high blood pressure, reflux, depression and daytime sleepiness that can have wide ranging consequences at work and in personal life (National Institute of Neurological Disorders and Stroke n.d).
Symptoms include excessive sleepiness, snoring, irregular breathing during sleep, impaired concentration, impaired memory, morning headaches, or sexual dysfunction. The first reports of what is now called obstructive sleep apnea in the medical literature dated only from 1965. Treatment involved invasive surgery such as tracheotomy. The first non-invasive treatment of sleep apnea began with the development of nasal Continuous Positive Airway Pressure (CPAP) by Dr. Colin Sullivan of Australia in 1981 (Sleep Apnea--Wikipedia). This machine gently pushed air down a person's airways, keeping them open. Dr. Sullivan's nasal CPAP device was reported in The Lancet, a respected medical journal in 1981. He also patented his product. For the next few years, he continued to make these machines for his patients. The machines were noisy, bulky and uncomfortable, but people with severe apnea problems put up with all the discomfort because of the benefits associated with the machine. By 1985, Dr. Sullivan was treating more than 100 patients with his prototype CPAP machine (Bartlett, McLean & Glinska, 2004).
HISTORY OF RESMED
In 1986, Dr. Peter Farrell, an Australian, working as the Vice President of R&D at Baxter Healthcare in the Asia Pacific region paid a visit to Dr. Sullivan, the inventor of nasal CPAP in Sydney, Australia. At first Dr. Farrell was amazed that anyone would use such a device. He said, "I thought it was goofy, I must say. The patient had to wear this Darth Vader mask which looked like a house brick on the guy's face and was connected to a pump that you could have run your swimming pool on, and it sounded like a freight train, and then Colin told me that the guy had to use this every night, and I was just in disbelief"" (Saccotelli, 2005). But Farrell eventually saw the potential of the device and further meetings resulted in Baxter purchasing Dr. Sullivan's patents and technology from the University of Sydney. Over the next year and a half, Baxter invested more than $1.5 million in improving the mask interface and the CPAP device (Bartlett et al., 2004).
However, in 1988, Baxter announced the sale of its respiratory products division. Dr. Farrell and six employees from Baxter arranged for a management buyout of this division for $750,000 and a five-year royalty commitment. They started their operations in Sydney, Australia. Soon after, to expand into the US market, ResMed teamed up with pacemaker company Medtronic to market its products. ResMed opened its first office in the US in Minneapolis to assist Medtronic with marketing. However, this partnership did not work out, and in 1992 ResMed decided to take charge of its own US operations. An office was set up in San Diego and within a year the company turned its first profit (Bartlett et al., 2004). In 1995 ResMed went public.
In 1999, ResMed formed a strategic alliance with Flaga, a sleep diagnostic company in Iceland by acquiring 10% equity. Flaga made polysomnographic devices (used in the diagnosis of sleep disorders). ResMed took over the distribution of Flaga's diagnostic equipment in the United States and in a few countries in Europe and Asia under the brand name Embla (Datamonitor ResMed; Park, 2002). In 2003, ResMed formed a strategic alliance with MedCath of North Carolina. MedCath was a national provider of cardiovascular services. This alliance resulted in MedCath offering screening, diagnosis and treatment of sleep disorders in conjunction with cardiovascular treatment at its centers (Sleep Review, 2003-05).
In 2001, ResMed acquired a competitor MAP Medizin-Technologie GmbH of Germany for $69 million. This acquisition gave ResMed greater access to the German market (where MAP had a strong position) and to other surrounding markets in Europe. In 2005, ResMed completed the acquisition of Saime, a French ventilation company. This acquisition extended ReMed's ventilation product line and provided further access to European markets. European markets were also enhanced by the acquisition of Einar Egnell (in 2000), a Swedish distributor, Labhardt (in 2001) a Swiss distributor with operations in many European countries, and Resprecare (in 2004), its exclusive distributor in the Netherlands (Datamonitor--ResMed).
In the US, ResMed acquired its motor supplier, Servo Magnetics (SMI) in 2002. SMI designed, manufactured and sold brushless DC motors to original equipment manufacturers (OEM). SMI was located in Chatsworth, California. Since 1996, ResMed has acquired over 15 companies, a large number of them in Europe.
ResMed's products were primarily in the area of breathing and sleep disorders. The primary focus was on treating sleep disorders such as apnea. Related products were those used in both hospitals and the home such as ventilators.
ResMed's had a range of products that aimed at keeping the airways open. Essential components of such devices were flow generators, masks, and tubes. Related add-on components included humidifiers to prevent dryness, and devices that gathered information and provided communication services (e.g., getting the information direct to doctors).
There were broadly two categories of flow generators. Devices that provided a constant flow of air (CPAP--Continuous Positive Airway Pressure) and devices that could change the level of flow to match inhalation and exhalation (VPAP--Variable Positive Air Pressure). While CPAP was the more popular machine, for some people, the continuous air pressure sometimes made exhalation more difficult and some patients felt claustrophobic. The VPAP addressed this by dropping pressure in synch with a person's exhalation. VPAP machines were more expensive and not all patients needed them.
Masks and tubes connect the device to the person. Mask interfaces are very important, as they determined patient comfort. Patients who were not comfortable using the system sometimes discontinued use of the product. There was considerable variety in these products (C-pap.com).
Beyond these essential components ResMed offered products that enhanced the experience of using the flow generator. For example, humidifiers that were used with flow generators provided moisture that prevented dryness often experienced by patients. Ancillary products included filters, options to operate using batteries, the capacity to work with different power levels (useful for international travel), and software. Software provided patients with feedback on their sleep patterns, and some allowed data transfer to physicians for remote monitoring. Much of the software was proprietary and worked only with the products of the company providing the software.
The first product brought out by ResMed was the SULLIVAN nasal CPAP system (named after inventor Colin Sullivan) in Australia. In 1991 ResMed introduced the Bubble Mask and the APD2 portable CPAP device. Three years later ResMed began marketing its first VPAP, which applied different air pressures for inhalation and exhalation, in the US. In 1998 the firm received FDA approval to market its VPAP device as a critical-care treatment for certain lung diseases. As of 2007 August, ResMed had products that covered a range of needs and price categories.
Beyond products for sleep apnea, ResMed had masks that were used in hospitals to connect to ventilators and other products that dealt with respiratory insufficiency. Details of these products may be obtained from the company website: www.resmed.com. Sample images of products are attached in Appendix A. A comparison of prices and features of ResMed's flow generator machine with that of its competitors is provided in Appendix B. ResMed had the highest average prices worldwide. In a personal interview (December 7, 2006) Dr. Farrell said, "We go for features. We are not the cheapest, never will be". He believed that ResMed sold more than the product--it sold a service that required ResMed being involved in optimizing treatment.
Flow generator products accounted for approximately 50% of ResMed's revenues (ResMed Annual Report, 2006). In 2006, ResMed sold an average of 300,000 masks, and 75,000 devices per month (personal interview, December 7, 2006). Masks needed replacement every six months and profit margins were higher for masks than for flow generators. In 2001, masks accounted for 40% of ResMed's sales (as a comparison, they accounted for 33 % of Respironics sales) (Selz, 2001).
In 2006, ResMed introduced a portable sleep diagnostic product called ApneaLink. The product enabled screening for sleep apnea at home with the use of a computer instead of spending a night in a sleep laboratory. The product was marketed to businesses not users. This product was sold for $695 or more, which was cheaper than a night at a sleep lab (personal interview, December, 7, 2006).
When asked what he considered were the reasons customers preferred ResMed's products to competitors, Dr. Farrell said, "First we have a reputation for reliability. We are also seen as the innovator. We have the most innovative creative products and are seen as having the products with the best features. Just a couple of years ago we were thought of as the mask company...". He reported that their product defect rate was 0.2%, which he considered much below industry standards (personal interview, December, 7, 2006).
By 2007, ResMed sold its products in almost 70 countries, with 18 direct offices and a network of distributors (www.resmed.com). Marketing in each national market was tailored to the needs of the region. Markets differed considerably in terms of awareness of sleep apnea as a health problem, physician referral patterns, consumer preferences and local reimbursement policies.
The typical pattern of diagnosis and treatment of sleep disordered breathing started when a patient with daytime sleepiness or other symptoms visited a primary care doctor or a specialist, such as a cardiologist. The doctor referred the patient to a sleep specialist for evaluation in a sleep lab where the patient stayed overnight for a sleep study. During the night, the patient's body functions were monitored and the sleep specialist determined if the person had a sleep disorder that could be treated with machines like nasal CPAP. The lab determined the best air-pressure settings for each patient. Although the patient was the user of the product, as in other areas of healthcare, there were many parties involved in the purchase decision and payment. Don White, CEO of Associated Healthcare Systems, summarized this "It is a referral business--not a retail business--and it's based on clinician-to-clinician referrals." (McClinton, 2006).
In the US and Latin America, flow generators and accessories were typically purchased by a home healthcare dealer who then sold them to the patient. The decision as to which company's products to purchase was made or influenced by: the prescribing physician, sleep technicians, the home healthcare dealer, the health insurance company and the patient. Sleep clinics were important as they were the diagnostic centers and influenced patients on which device to purchase. The patient's health insurance provider covered most of the cost of the machine, and accessories including new masks every three to four months. In 95% of the cases in the US, payment was made by HMO's, private medical insurance or Medicare (personal interview, December, 7, 2006). In other countries, in addition to private insurance, the government or the patient paid for the product.
Outside of the US, the systems of reimbursement spanned a whole gamut of options. In some European countries, the government or private health insurance companies paid the bulk of the costs, in other countries such as Spain, France and Germany, there were price controls on reimbursements. In other countries, such as Australia and India, there is mostly no reimbursement, and the patient bears the cost of the flow generator and replacement parts.
A patient could rent or buy a flow generator from specialized dealers (including internet dealers) or home health equipment suppliers, durable medical equipment suppliers (DME's), pharmacies (especially in countries like Australia) or via dealers operating through the Internet. In the US market, payment was rarely made by the patient. Dealers directly billed the patient's HMO or private medical insurance provider or Medicare or Medicaid. The reimbursement atmosphere was complex--different insurance carriers had different rules and fees. Most of them did not keep up with advances in new technology (McClinton, 2006). Further, these agencies could deny payment if they considered that the machine was not cost-effective, or if it was unnecessary or experimental.
The number of sleep clinics had grown rapidly. It was estimated that in 1985 there were just 100 sleep clinics in the US, but by 2006, there were 3,000 clinics. There were also an increasing number of sleep clinics that were interested in selling sleep equipment. A 2006 survey by Wachovia Securities reported that around 15 percent of sleep centers sold masks and flow generators with the remainder referring patients to a home medical equipment dealer. Around 15 percent of the clinics surveyed indicated an interest in selling equipment directly within the next 12 months ("Market Forecast Good", 2006).
In the US, a flow generator could only be obtained with a prescription and often only after a patient underwent an overnight sleep study in a sleep clinic. According to Dr. Farrell, this was an unnecessary complication for a product that he believes is "safer than an aspirin'". He pointed out that the cost of the sleep study was $ 1,000-1,400, which was about the same as the cost of the flow generator machine. ResMed was planning to work to change the system. To further this goal, they introduced a reusable diagnostic product, ApneaLink that was simple enough to be used at home costing $695 with disposables costing less than $10.
ResMed's marketing and sales activities in the US were conducted through a field sales organization made up of regional territory representatives, regional sales directors and independent manufacturer's representatives. This sales force sold primarily to home healthcare dealers. The direct sales force received a base salary plus a commission, while the independent manufacturer's representatives received only a commission and no base salary. In Canada and Latin America, sales were conducted through independent distributors. In addition to selling to home healthcare dealers, ResMed promoted their products direct to sleep clinics and physicians. All sales employees and manufacturers representatives in the US are managed by the Chief Operating Officer for the Americas and Vice President of Marketing.
Sales and marketing in Europe were conducted either through ResMed's wholly owned subsidiaries or through independent distributors. Austria, Finland, France, Germany, Spain, Sweden, Norway, Netherlands, Switzerland and the UK had wholly owned subsidiaries. In many of these countries, like in the US, ResMed's sales staff sold products to home healthcare dealers, who sold them to patients. In Germany, ResMed operated a home healthcare company through which they provided products direct to patients and received reimbursement direct from third-party payers. Sales and marketing operations were the responsibility of ResMed's European Chief Operating Officer.
In Asia Pacific and the rest of the world, ResMed used a combination of direct sales force and independent distributors. Australia, Hong Kong, Japan, Malaysia, New Zealand and Singapore were wholly owned subsidiaries and used a direct sales force. In other countries, ResMed used independent distributors. Percentage of sales revenues from different parts of the world are provided in Table 1.
ResMed sold directly to some large groups like Kaiser. In addition to direct sales efforts, ResMed considered lack of public awareness of sleep problems as an important driver of demand and was actively involved in increasing awareness as part of its marketing effort. Dr. Farrell summed this up as "Our biggest competitor is ignorance "(Reeves, 2006).
ResMed used various ways to increase awareness. Ron Richard, ResMed's Vice President of Marketing for the Americas, stated that their Sleep foundation, a nonprofit organization with a separate board of directors, funded applications for research projects. ResMed sponsored chat rooms on the Internet, where they had an hour to hour and a half "ask the expert type forum" where 200300 patients signed up. The company also funded and actively participated in industry-wide organizations such as the American Sleep Apnea Association's AWAKE support groups. There were several hundred of these groups across the United States (Raflo, 2003).
Another strategy to increase awareness was to work with organizations associated with diseases affected by sleep disorders. Examples of such organizations included the American College of Cardiology, American Heart Association, Heart Failure Society of America, and their regional affiliates. For these organizations, ResMed sponsored educational symposia, had product exhibitions and worked to get sleep apnea on the agenda in scientific conferences. In 2006, ResMed reported that it educated nearly 50,000 clinicians on problems associated with sleep apnea (ResMed Annual Report, 2006).
Many of these awareness-increasing activities were conducted in partnership with other organizations, including competitors. ResMed partnered with Respironics and jointly funded and established an educational awareness site, www.sleepapneainfo.com.
Not all collaborations to increase awareness have worked out well. ResMed had teamed up with MedCath, which operated hospitals and cardiac care centers and with Guidant, a maker of implantable cardiac defibrillators. Both these partnerships had potential because ResMed's research indicated that fifty percent of cardiac patients also had sleep disordered breathing. From this partnership, ResMed hoped to use MedCath's and Guidant's huge marketing network and contacts with cardiologists to educate people that apnea was not just a correlate but a cause of heart failure. However MedCath had problems with the physician's union and lost its partnership with doctors. Guidant got mired in product defects and was acquired by Boston Scientific. The partnership with Guidant was said to be ongoing, but the benefits expected had not yet panned out (Reeves, 2006). ResMed estimated that joint efforts with Respironics resulted in over 1,000 stories being printed in local and national media on this topic (ResMed, 2006 annual report.).
ResMed's primary manufacturing facilities were located in Australia. The reasons for manufacturing in Australia were largely historical. Direct costs were only 10% of total cost, so there has been no pressure to move to lower wage countries (personal interview, December 7, 2006). In 2005, ResMed moved its manufacturing into a state-of-the-art 200,000 square foot facility near Sydney in a 30 acre site. This facility was triple the size of the earlier plant with the 30 acres of land providing opportunity for expansion (ResMed annual report 2006).
Manufacturing consisted primarily of assembly and testing of flow generators and masks. Although a few components were manufactured in-house, a majority of inputs were off the shelf items that had multiple vendors world-wide. The plant was primarily an assembly shop, and a single directional production flow model. At the end of the line, most products ended up in a shipping container. Over 90% of the products produced were sold outside Australia. Rob Douglas, Chief Operating Officer of Australian operations reported that the design of the plant was based on lean manufacturing principles that the company had been using since 1999-2000.
Regarding its globally sourced components, Douglas said, "Half of our suppliers are local, one quarter in the US, and one quarter in Asia. The type of material supplied and the frequency of deliveries is quite important. For our local suppliers we're on daily deliveries. For remote suppliers it is to schedule. We run an Oracle ERP system and use the core planning tools of that. In our factories we hold very little finished goods inventory. We hold decent amounts in the warehouses, which are located globally. We run those warehouses on the MRP systems, so we plan right through to them. We have a service delivery proposition and hold as much as our policies demand'" (Monore, 2006).
Decisions relating to components to be produced in-house versus outsourced were based on considerations of the core competencies of the firm. For example, the company perceived that it had an important competency in liquid silicone rubber molding and decided to triple the machines in this area over a three-year period--from 10 to 30. In contrast, the company decided to outsource a process it was earlier doing in-house--the process of integrating surface mount technology (SMT) and printed circuit board lines as part of its final assembly. "We changed our mind on that," Douglas said. "The environmental controls needed in SMT were different from what we wanted for the line. That equipment is pretty noisy and hot, and we had to put it into a separate area. It got to the point where we could get a better deal with a global contract manufacturer because of its parts purchasing power." He further stated, "It was no crisis to do it. We were able to shut down the line without any layoffs. We were able to redeploy that workforce into our current operations. It's much easier to make those decisions while you're growing than it is when you're not growing."
Douglas felt that the new facility enhanced many processes that were already in place. He said, "The building has given us some room to optimize things while maintaining quality. There's been a lot of redesign of the lines, improvement in materials handling, and batch size reduction. We've improved our visual inspection system. Our six sigma/lean team is working with the line team doing process mapping to take a fair bit of time out of each line. It's an ongoing effort. With continuous improvement, whenever you see something you can improve, you will." In 2006, the company had four black belts and 90 green belts on their six sigma initiative. Black belts and green belts are awarded to employees when they reach certain standards of knowledge and skills.
The factory used teams that were composed of senior management, engineering, quality assurance, and planning functions that were needed to run the line. The factory was designed to be open, and this permitted the people on each team to have offices right next to the manufacturing lines. The factory had a gym, an internet cafe and a basketball court. "We wanted to create a place where people would want to come to work", said Douglas (Monroe, 2006).
Gross margin did not seem very strongly influenced by manufacturing scale. The largest CPAP maker, Respironics, had a gross margin in the low 50%, while the much smaller Fisher and Paykel had a gross margin of 71% in 2004 (Huber & Warren, 2004).
DESIGN, R&D AND INNOVATION
R&D was an important driver of growth and a basis for competitive advantage for firms in the industry. There were many problems with the early designs of CPAP machines. The devices were very noisy, and the masks too cumbersome to wear comfortably. Some users complained of dryness in nasal and throat passages and some found the mask claustrophobic. Fundamental product improvements were aimed at increasing patient comfort while using the machine. In addition to improving patient comfort, CPAP devices also aimed at becoming more portable, and to allow patients to have information on their treatment and control over various features allowing interaction with doctors and other providers remotely.
There were two broad areas of R&D that ResMed actively pursued. First was to enhance existing products to increase patient comfort. The second was to find new applications for the existing technology. ResMed's focus in R&D had been in applied research, not fundamental research. However, it has provided funding to universities and hospitals to conduct research in its areas of interest. For example in 2006, ResMed Foundation provided $225,000 to Mayo Clinic to study sleep disordered breathing in cardiac patients.
The process of identifying technological trends was multi-pronged. This ranged from sending a task force of selected employees to visit sleep clinics and physicians all over the world to identify trends to having physicians serve on the company's Medical Advisory Board. New product ideas also came from the marketing staff, direct sales force, networks of distributors, manufacturer's representatives, customers and patients. Typically, the company's internal development staff chose the ideas which had considerable commercial viability and developed them into products.
The firm had R&D activities in the US, Australia, Germany, France and the UK. ResMed reported that as of June 30, 2007, it had more than 1,600 patents and 876 design registrations granted and pending (Investor presentation--ResMed, 2008). R&D expenses ranged between 6 and 7% of revenues and approximately 12% of employees were devoted to R&D activities. In the years 2004, 2005, 2006 and 2007, $ 26.2million, $30.0 million, $37.2 million and $50.1 million were invested in R&D (ResMed Annual reports, 2004-2007). Between 2001 and 2006, 75% of the firm's revenues came from new products (personal interview with Farrell, December, 7, 2006).
ResMed's R&D paid off most in the area of comfortable masks, where the firm was considered a leader. Some analysts observed that ResMed trailed Respironics in getting flow generators to the market. However, when the S8 product was finally released it was considered to be of excellent quality. ResMed, received the Australian Design award for the S8 series flow generator and Humidaire 3i. The judges praised the system as a high quality product with "so much technology squeezed into such a small space."
ResMed has been aggressive in defending its patents. In 1992, ResMed sued Respironics' distributor in Australia for infringement of the original CPAP concept designed by Dr. Sullivan. In 1994, Respironics prevailed on appeal. In 1995, ResMed filed another suit against Respironics in US courts alleging that Respironics had infringed four patents. This case was granted summary judgment rejecting ResMed's claim of patent infringement ("Respironics will defend", 2002). In 2002, ResMed filed a lawsuit against Fischer and Paykel (F&P) for invading its intellectual property laws for its masks (Read, 2002; "F&P Healthcare will defend", 2002). This lawsuit was settled in 2003. F&P agreed to introduce a new design for its mask and sell the disputed masks under a license till a new one was introduced ("Legal Issues: ResMed", 2003).
Dr. Peter Farrell, the founder and CEO of Resmed, received a graduate degree from MIT and a doctorate in biomedical engineering from University of Washington. Initially, he was a professor of biomedical engineering at the University of New South Wales in Australia ("ResMed's Peter Farrell", 2005). Dr. Farrell has published over 150 peer-reviewed articles. He left academe and joined Baxter International, a US based medical devices company at their Japanese subsidiary. He has been described by associates as having an intense drive, attention to detail, a phenomenal memory, intelligence and a capacity for hard work (Bartlett et al, 2004). In 2005, Dr. Farrell was selected as the Ernst & Young National Entrepreneur of the Year for Health Sciences for the US. He was also selected for the Alumni achievement award for 2006 at the University of New South Wales. The case writer's impression was of a dynamic, unconventional man, passionate about his company and its products. There was almost a missionary zeal about him to increase awareness of health consequences of sleep apnea. Some of Dr. Farrell's comments and philosophy in an interview with this case writer are provided in Appendix C.
Kieran Gallahue, an MBA from Harvard University, held various positions with Proctor and Gamble, and GE. In 1995, he joined Nanogen, a DNA research and medical diagnostics company where he worked at various capacities before becoming president of the company. He began his career at ResMed in 2003 as President and Chief Operating Officer of the Americas.
By 2007, ResMed had approximately 2,700 employees across 68 countries (2007 Annual Report). Of these, approximately 35% were employed in manufacturing and warehousing, 12% in R&D, and the rest in sales, marketing and administration. In terms of a geographical distribution, 44% were located in Australia, 20% in the US, 32% in Europe and the rest in Asia (ResMed Annual Report, 2006).
Employee training was provided through ResMed's internal development organization, the Learning Center. In 2006, the Learning Center received a commendation from the American Society of Training and Development for its sales training program (ResMed Annual Report, 2006).
In 2007, ResMed had net revenues of $716.3 million, an increase from the previous year's revenue of $607 million. Of this, net revenue in the Americas increased to $376.7 million from $321 million. Revenues for markets outside the Americas increased to $339.6 million from $286 million. In terms of product groups, sales of flow generators contributed $370 million (up from $316 million in 2006) and the balance was contributed by sales of mask systems, motors and other accessories. Gross profits increased from $376.9 (in 2006) million to $384.5 million (in 2007). However, as a percent of net revenue this was a decrease from 62% of revenue to 54% of revenue. This was attributed to the voluntary recall of products in April 2007. Excluding the recall, the percentage was the same as in 2006. Between 2006, and 2005, there was a small decrease in gross profit as a percentage of net revenue, to 62% from 65%. This reduction was explained by a change in the product and geographical mix. In 2006, there was a higher proportion of sales from flow generators, which had lower margins when compared to masks and accessories. Further, sales were higher in the Americas, which typically generated lower margins. Appendix D has ResMed's Income Statements, Cashflow statements and Balance Sheets. Appendix E has ResMed's stock performance as well as a comparison with the stock performance of Respironics.
ResMed has been recognized 10 times as one of the Best Small Companies in the US by Forbes (based on return on equity, growth in net revenues and net profit after taxes). Business 2.0 named ResMed one of the fastest growing technology companies. In addition Dr. Farrell, was named Ernst & Young Entrepreneur Of The Year[R] in 2005 in the Health Sciences Category.
INDUSTRY SIZE, GROWTH AND TRENDS
It has been estimated that over 40 million Americans suffered from sleep-disordered breathing problems. As of 2005, it was estimated that less than 10% of these people have been diagnosed or treated (Haynes, 2005). The US, which was the largest market for sleep equipment, was greater than $1 billion in 2006 and was growing at 15-20% per annum (Kamp, 2006). The European market was $50 million in 2004, and growing at 12% p.a ("Strategic Analysis of the European", 2005). Table 2 shows the global sleep apnea market.
"Growth potential in the sleep apnea market is huge. We are less than 10 percent penetrated into a market of more than 20 million Americans with obstructive sleep apnea. When you include the millions of patients who suffer from complex sleep apnea and other types of central sleep apnea as well as other sleep-disordered breathing [diseases] such as nocturnal hypoventilation, flow limitation and snoring, the opportunities are vast, and the number of Americans suffering quickly approaches 40 million."
Michael Farrell, Vice President of Marketing for ResMed (McClinton, 2006).
Despite the high growth rate, there were many challenges in the industry. Awareness was low since the study of sleep disorders was relatively new and it was not part of the education of many physicians. To combat this, large competitors like ResMed and Respironics teamed up to increase awareness among the medical community and mainstream public. Awareness of the health implications of untreated sleep apnea has been growing. In 2006, there were almost 4,000 peer reviewed clinical studies that were published, many of which document the advantages of flow generator therapy (ResMed Annual Report, 2006). Increase in awareness was an important driver of growth for the products in the industry. The aging of the population, with its concomitant illnesses like heart disease, diabetes etc; increased obesity of the population, suggested that demand for products to treat apnea would continue to grow.
An important challenge facing the industry was patient compliance with the equipment. Dryness, and discomfort with masks resulted in patients giving up on using the equipment. When a patient gave up using the machine, everyone lost. The patient lost as this could have serious health repercussions. For the DME's and HME's, and firms like ResMed they lost the potential to provide replacement of masks, tubes and other accessories. Masks and tubes were replaced every 3-4 months. Insurers lost because despite the money paid for the flow generator, the patient did not use it, and could develop other illnesses that would increase healthcare expenses. Equipment producers tried to address this challenge by innovating to provide better masks and increased comfort in use of the product by providing various features like humidification, more control etc. Dealers and sleep clinics also played an important role in patient education and training in how to use the equipment. According to Dr. Farrell, the key to succeeding in this business was by offering a high quality product and exceptional service. When asked to discuss what exceptional service meant, he said, "Making sure that the patient has a very good experience when they go on the treatment. This is not a cure. Everybody loses when the patient does not comply with the treatment. Everybody." (personal interview with Farrell, Dec 7th, 2006).
Price was an important issue in the industry, because although people were willing to pay more for products they liked and would pay for health and comfort, payment is often via insurance companies that were price sensitive (personal interview with Farrell, Dec 7th, 2006). In recent years, prices of CPAP machines and masks have been dropping 5-15% in part because of competitive bidding practice used by Medicare (Matson & Ricci, 2007).
Legal and regulatory guidelines governed many aspects of a firm's business in this industry. Firms needed to get FDA approval for their equipment. They had to prove that their equipment was safe and useful. Further, firms needed to be able to defend themselves from any liability suits that might be filed against them by users. An area of contention for some firms like ResMed has been the protection of their patents.
There was an increasing trend of sales via the internet. But Dr. Farrell saw this as very negative trend. He said, "I'll tell you why we are anti the internet. It is not because of pricing, you have to get compliance (patient). You cannot just throw a machine at a patient and say here it is, good luck, go read the instructions. You have to work with them. If you do not have a good introduction to the device, you will not use the device. It is bad medicine. That is why we are against internet sales with no service component"' (personal interview with Farrell, December 7th, 2006).
There were numerous competitors in the sleep and respiratory equipment industry. A partial list of competitors is provided in Annexure 4. Many different types of firms operated in this industry. ResMed was the most focused firm in the industry, obtaining almost all its revenue from sleep equipment. Respironics had 45% of its revenue from CPAP and masks, and the rest from other respiratory products. Other firms such as DeVilbiss and Nellcor Puritan Bennett, were divisions of large firms like Sunrise Medical Inc., and Tyco (Tyco spun out Nellcor Puritan Bennett as Covidien). Despite the large number of competitors, the industry was concentrated. ResMed's closest competitor was Respironics, and together they controlled 75-80% of the global market. Respironics was the company with the largest market share in the industry, with around 40% market share. ResMed had more than 35 percent of the U.S. market for sleep-disordered breathing devices and dominated sales in the rest of the world (Fikes, 2006). Fisher and Paykel had 6-7% (Read, 2002). The balance of the market was divided among numerous firms, such as DeVilbiss and Covidien (formerly Tyco/Nellcor Puritan). In Europe, ResMed faced additional regional competitors. Further, new competitors such as Viasys which were in the sleep diagnostics market were entering the sleep equipment market. Table 3 below has financial information relating to major competitors.
As a comment on competition, Peter Farrell said, "The market we are in is a non-zero sum game. We are in a market that is growing at least 20%. Us taking business from them is not an issue at all. I think competition is good, it keeps you trim, it keeps you fit, it keeps you interested. It would be boring if we were the only ones producing the stuff. We have an incentive to innovate, and innovate big time." He felt that the major challenge faced by his firm was not competition but lack of awareness (personal interview with Farrell, December 7th, 2006). .
Building a basic CPAP machine was a relatively simple task at a technological level. However, building a high-end machine required much more technological know-how. Besides there were many patents protecting the technology with clear evidence that patent holders aggressively defended their patents (e.g., ResMed's suit against Fisher and Paykel). Further, beyond making the product, it was difficult to build relationships with the various layers of distributors and decision makers: doctors, sleep clinics, home medical equipment retailers, HMO's and Medicare.
SUBSTITUTES AND NEW TECHNOLOGY
More than 300 devices were registered in the U.S. Patent and Trademark Office as cures for snoring ("Snoring" 2007). Flow generators offered relief to many people, but these devices were not a cure for apnea or snoring. Surgery was the option that corrected underlying anatomical problems. Surgeries included uvulopalotopharyngoplasty (tightened the flabby tissues in the throat), Somnoplasty (used radio frequency energy to shrink excess tissue), hyoid advancement (surgery to pull the tongue forward), tonsillectomy (removal of tonsils and adenoids), and turbinate surgery (surgery to reduce the resistance to the flow of air through the nose). While surgery was a supposed cure, it was invasive and had inherent risks.
New technologies have always been a possibility in the industry. In the interview with Dr. Farrell, he reported that there was no drug that could cure sleep disorders on the horizon. However, there were a plethora of other solutions for snoring and sleep disorders. As of 2006, none of them were proven to be as effective as nasal CPAP.
One alternative to flow generators were dental devices. These devices were custom designed and varied in cost from $20 to $2,000. The devices were used to either advance the lower jaw forward or prevent the tongue from falling back. For some people, the problem was of allergies and excess mucus. Allergies resulted in swelling of nasal passages. For such people, anti-histamines and nasal sprays have provided relief. In addition to allopathic nasal sprays, there are homeopathic nasal sprays and nasal strips that claim to help--but do not have an established record of success.
The Pillar Palatal Implant, marketed by Restore Medical claimed that 80% of people treated reported reduction in sleep apnea. The procedure involves injection of small metal inserts into the soft palate to prevent it from blocking airways and vibrating. This treatment was accomplished in a single visit to a doctor's office and was performed under local anesthesia. Early studies indicated that 80% of patients had reductions in sleep apnea, and patients could not feel the implants nor did it affect them in any way. The FDA approved the Pillar Implants in January 2003 for snoring, and in September 2004, for apnea. As of 2007, many insurance companies did not cover this product. Its price, that has been in the upwards of $2,000 limited its use (Sine, 2006).
Sample of ResMed Products
Appendix B: Sample of features and prices of popular models sold at cpap.com
Appendix B: Sample of features and prices of popular models sold at cpap.com BreatheX 420G Traveler M Series Pro Price $499.00 $254.00 $514.00 Hoffman Puritan Respironics Manufacturer Laboratories Bennett Can Be Worn Yes No No 4-20 Cm 5-12 cm Yes Yes Pressure Relief No No Yes (C-Flex) on Exhale Domestic Yes (recharge Yes Yes Voltage-110 only) International Yes (recharge Yes Yes Voltage-220 only) Optional DC No Yes Yes Cable Direct Battery Yes Yes Yes Operation (Integrated) Integrated Battery Yes No No Auto Altitude Manual Yes Yes Adjustment Adjustment Hour/Session Yes Yes Yes Optional Software No No Encore Pro Leak No Yes Yes Compensation Heated Humidifier H2/HC150 GKH2O/ M Series H2/HC150 Heated Passover Remstar GoodKnight M Series Humidifier Passover Passover Passover Weight 4.7 lbs 1.75 lbs 2.2 lbs w/battery Data Card No No Yes Auto ON/OFF No No Yes Warranty 2 Years 2 Years 2 Years Mask Off Alert No No Yes Size N/a View Sizes N/a Aura S8 Elite Price $339.00 $695.00 AEIOmed Resmed Manufacturer Can Be Worn No No 4-20 Cm Yes Yes Pressure Relief No Yes (EPR) on Exhale Domestic Yes Yes Voltage-110 International Yes Yes Voltage-220 Optional DC Yes Resmed DC Cable Cable Only Direct Battery Yes No Operation (Integrated) Integrated Battery Optional No Auto Altitude Yes Yes Adjustment Hour/Session Yes Yes Optional Software No AutoScan 5.7 Only Leak Yes Yes Compensation Heated Humidifier Everest Heated H3i Passover Remstar Sullivan Humidifier Passover Passover Weight 2.2 lbs 2.9 Data Card No Yes Auto ON/OFF Yes Yes Warranty 2 Years 2 Years Mask Off Alert No Yes Size View Sizes N/a Source: Cpap.com (http://www.cpap.com/cpap-compare-chart/CPAP accessed on 2/20/07)
APPENDIX C: COMMENTS FROM DR. FARRELL ON MANAGEMENT
"I give out a copy of Bertrand Russell's 10 Commandments to all new employees. As part of our corporate ethics I tell them, you don't lie, you don't cheat, you don't fudge, you tell people the way it is."
"The first thing I am looking for in an employee is ethics. The second thing is smarts. You can't give people smarts. The level of intelligence has to be of a level that it is not going to compromise the job. I am not looking for Einstein's, but I am looking for people who are smart enough to understand what they need to do, and do it when it ought to be done whether they like it or not. The next thing is execution. I want people who can execute, and have a sense of urgency. This is hugely important."
"I hate politics. I hate politics in an organization. It is a cancer in an organization."
"I can't cure all evil, but I try to keep my ears peeled, walking about, talking to people. What I do is reinforce the good."
"We have a problem identification philosophy. If something is going wrong, let's find it. We don't shoot the messenger."
"The whole thing is a balancing act. Delivering to the market what they expect and not sacrificing your future on that order. You will not have a business if you cannot do it."
APPENDIX D: FINANCIAL STATEMENTS ResMed Inc. Annual Income Statements Period Ended 6/30/2007 6/30/2006 Net Sales 716.33 607 Cost of Goods Sold 331.84 230.1 Gross Profit 384.49 376.9 R & D Expenditure 50.11 37.98 Selling, General & Admin Expenses 244.22 207.62 Depreciation & Amort. n/a n/a Non-Operating Income 7.81 2.09 Interest Expense n/a n/a Income Before Taxes 97.97 133.39 Prov. For Inc. Taxes 31.67 45.18 Minority Interest n/a n/a Realized Investment (Gain/Loss) n/a n/a Other Income n/a n/a Net Income Before Extra Items 66.3 88.21 Extra Items & Discontinued Operations. n/a n/a Net Income 66.3 88.21 in millions of USD ResMed Inc.: Annual Balance Sheet As of 6/30/2007 6/30/2006 Assets Cash 257.79 219.54 Marketable Securities 19.95 n/a Receivables 167.82 138.15 Total Inventories 157.2 116.19 Raw Materials 68.91 41.98 Work In Progress 1.97 3.52 Finished Goods 86.33 70.7 Notes Receivable n/a n/a Other Current Assets 66.03 36.4 Total Current Assets 668.8 510.28 Property, Plant & Equipment, Net 310.58 245.38 Property, Plant & Equipment, Gross 465.14 360.85 Accumulated Depreciation 154.56 115.47 Interest and Advance to Subsidiaries n/a n/a Other Non-Current Assets n/a n/a Deferred Charges 32.37 26.34 Intangibles 230.19 218.17 Deposits & Other Assets 10.1 7.05 Total Assets 1,252.04 1,007.22 Liabilities Notes Payable n/a n/a Accounts Payable 53.04 45.05 Curr. Long-Term Debt 28.27 4.8 Curr. Port. Cap Lease 0.08 0.07 Accrued Expense 98.32 40.9 Income Taxes 3.83 22.84 Other Current Liabilities 18.87 15.34 As of 6/30/2007 6/30/2006 Total Current Liabilities 202.4 129 Mortgages n/a n/a Deferred Charges/Inc. 30.77 23.86 Convertible Debt n/a n/a Long-Term Debt 87.16 115.64 Non-Curr. Capital Leases 0.49 0.57 Other Long-Term Liab. n/a n/a Total Liabilities 320.82 269.07 Shareholder Equity Minority Interest n/a n/a Preferred Stock n/a n/a Common Stock 0.31 0.3 Capital Surplus 421.7 353.46 Retained Earnings 436.95 370.65 Treasury Stock 43.5 41.41 Other Liabilities 115.75 55.13 Total Shareholders Equity 931.22 738.15 Total Liabilities & Shareholders Equity 1,252.04 1,007.22 in millions of USD ResMed Inc.: Annual Cash Flow Statements Period Ended 6/30/2007 6/30/2006 Net Income (Loss) 66.3 88.21 Depreciation/Amortization 47.95 40.97 Net Incr (Decr) in Assets/Liab. -69.7 -41.03 Cash Flow from Disc. Operations n/a n/a Other Adjustments-Net 46.55 10.88 Net Cash Flow from Operating 91.11 99.03 Incr (Decr) in Prop. Plant & Equip -77.56 -102.75 (Acq.)Disp. of Subs. Business -1.91 -10.53 Incr (Decr) in Securities Invest. -21.57 -2.38 Other Cash Flow from Investing -4.38 -4.22 Net Cash Flow from Investing -105.42 -119.87 Issue (Purchase) of Equity 36.17 34.39 Issue (Repayment) of Debt -10.47 53.63 Incr (Decr) in Borrowing n/a n/a Dividends, Other Distribution n/a n/a Other Cash Inflow (Outflow) 12.4 9.75 Net Cash Flow from Financing 38.1 97.77 Effect of Exchange Rate on Cash 14.46 0.44 Cash or Equivalents at Year Start 219.54 142.19 Cash or Equivalents at Year End 257.79 219.54 Net Change in Cash or Equiv 38.25 77.36 in millions of USD ResMed Inc. Annual Income Statements Period Ended 6/30/2005 6/30/2004 Net Sales 425.51 339.34 Cost of Goods Sold 150.65 122.6 Gross Profit 274.86 216.74 R & D Expenditure 30.51 26.17 Selling, General & Admin Expenses 146.99 105.21 Depreciation & Amort. n/a n/a Non-Operating Income -0.73 -0.69 Interest Expense n/a n/a Income Before Taxes 96.63 84.67 Prov. For Inc. Taxes 31.84 27.38 Minority Interest n/a n/a Realized Investment (Gain/Loss) n/a n/a Other Income n/a n/a Net Income Before Extra Items 64.79 57.28 Extra Items & Discontinued Operations. n/a n/a Net Income 64.79 57.28 in millions of USD ResMed Inc.: Annual Balance Sheet As of 6/30/2005 6/30/2004 Assets Cash 142.19 128.91 Marketable Securities n/a 12.02 Receivables 103.95 67.24 Total Inventories 89.11 55.8 Raw Materials 29.86 15.28 Work In Progress 1.82 2.25 Finished Goods 57.43 38.27 Notes Receivable n/a n/a Other Current Assets 24.97 13.86 Total Current Assets 360.21 277.83 Property, Plant & Equipment, Net 174.17 147.27 Property, Plant & Equipment, Gross 263.14 207.6 Accumulated Depreciation 88.97 60.33 Interest and Advance to Subsidiaries n/a n/a Other Non-Current Assets n/a n/a Deferred Charges 29.13 1.2 Intangibles 201.34 110.89 Deposits & Other Assets 9.29 6.97 Total Assets 774.15 544.16 Liabilities Notes Payable 2.12 n/a Accounts Payable 34.42 18.57 Curr. Long-Term Debt 113.25 n/a Curr. Port. Cap Lease 0.07 n/a Accrued Expense 34.41 24.79 Income Taxes 21.96 8.47 Other Current Liabilities 12.33 8.76 As of 6/30/2005 6/30/2004 Total Current Liabilities 218.55 60.59 Mortgages n/a n/a Deferred Charges/Inc. 22.6 8.82 Convertible Debt n/a 113.25 Long-Term Debt 58.33 n/a Non-Curr. Capital Leases 0.61 n/a Other Long-Term Liab. n/a n/a Total Liabilities 300.08 182.66 Shareholder Equity Minority Interest n/a n/a Preferred Stock n/a n/a Common Stock 0.14 0.14 Capital Surplus 180.01 132.88 Retained Earnings 282.44 217.66 Treasury Stock 41.41 30.44 Other Liabilities 52.88 41.27 Total Shareholders Equity 474.07 361.5 Total Liabilities & Shareholders Equity 774.15 544.16 in millions of USD ResMed Inc.: Annual Cash Flow Statements Period Ended 6/30/2005 6/30/2004 Net Income (Loss) 64.79 57.28 Depreciation/Amortization 28.29 17.87 Net Incr (Decr) in Assets/Liab. -26.24 -4.53 Cash Flow from Disc. Operations n/a n/a Other Adjustments-Net 4.24 5.92 Net Cash Flow from Operating 71.08 76.54 Incr (Decr) in Prop. Plant & Equip -39.69 -57.25 (Acq.)Disp. of Subs. Business -54.43 -0.18 Incr (Decr) in Securities Invest. 10.16 -7.05 Other Cash Flow from Investing -2.82 -2.36 Net Cash Flow from Investing -86.78 -66.84 Issue (Purchase) of Equity 28.46 1.31 Issue (Repayment) of Debt -3.26 n/a Incr (Decr) in Borrowing n/a n/a Dividends, Other Distribution n/a n/a Other Cash Inflow (Outflow) n/a n/a Net Cash Flow from Financing 25.2 1.31 Effect of Exchange Rate on Cash 3.78 3.4 Cash or Equivalents at Year Start 128.91 114.49 Cash or Equivalents at Year End 142.19 128.91 Net Change in Cash or Equiv 13.28 14.42 in millions of USD ResMed Inc. Annual Income Statements Period Ended 6/30/2003 Net Sales 273.57 Cost of Goods Sold 100.48 Gross Profit 173.09 R & D Expenditure 20.53 Selling, General & Admin Expenses 85.31 Depreciation & Amort. n/a Non-Operating Income -0.11 Interest Expense n/a Income Before Taxes 67.13 Prov. For Inc. Taxes 21.4 Minority Interest n/a Realized Investment (Gain/Loss) n/a Other Income n/a Net Income Before Extra Items 45.73 Extra Items & Discontinued Operations. n/a Net Income 45.73 in millions of USD ResMed Inc.: Annual Balance Sheet As of 6/30/2003 Assets Cash 114.49 Marketable Securities 6.53 Receivables 56.69 Total Inventories 49.39 Raw Materials 13.71 Work In Progress 2.29 Finished Goods 33.39 Notes Receivable n/a Other Current Assets 14.8 Total Current Assets 241.91 Property, Plant & Equipment, Net 104.69 Property, Plant & Equipment, Gross 150.07 Accumulated Depreciation 45.38 Interest and Advance to Subsidiaries n/a Other Non-Current Assets n/a Deferred Charges 1.56 Intangibles 105.91 Deposits & Other Assets 5.54 Total Assets 459.6 Liabilities Notes Payable n/a Accounts Payable 19.37 Curr. Long-Term Debt n/a Curr. Port. Cap Lease n/a Accrued Expense 19.14 Income Taxes 3.41 Other Current Liabilities 8.67 As of 6/30/2003 Total Current Liabilities 50.58 Mortgages n/a Deferred Charges/Inc. 9.33 Convertible Debt 113.25 Long-Term Debt n/a Non-Curr. Capital Leases n/a Other Long-Term Liab. n/a Total Liabilities 173.16 Shareholder Equity Minority Interest n/a Preferred Stock n/a Common Stock 0.13 Capital Surplus 107.43 Retained Earnings 160.37 Treasury Stock 11.42 Other Liabilities 29.91 Total Shareholders Equity 286.43 Total Liabilities & Shareholders Equity 459.6 in millions of USD ResMed Inc.: Annual Cash Flow Statements Period Ended 6/30/2003 Net Income (Loss) 45.73 Depreciation/Amortization 12.58 Net Incr (Decr) in Assets/Liab. -1.79 Cash Flow from Disc. Operations n/a Other Adjustments-Net 2.76 Net Cash Flow from Operating 59.28 Incr (Decr) in Prop. Plant & Equip -25.64 (Acq.)Disp. of Subs. Business -0.3 Incr (Decr) in Securities Invest. 15.61 Other Cash Flow from Investing -1.56 Net Cash Flow from Investing -11.88 Issue (Purchase) of Equity 5.49 Issue (Repayment) of Debt -9.22 Incr (Decr) in Borrowing n/a Dividends, Other Distribution n/a Other Cash Inflow (Outflow) -12.61 Net Cash Flow from Financing -16.34 Effect of Exchange Rate on Cash 10.57 Cash or Equivalents at Year Start 72.86 Cash or Equivalents at Year End 114.49 Net Change in Cash or Equiv 41.63 in millions of USD Source: ResMed company website.
APPENDIX E: STOCK PRICE
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Kamala Gollakota, University of Redlands
Table 1: Percentage of sales revenues from different parts of the world. 2007 2006 2005 2004 Americas 53% 52% 51% 49% Europe 39% 39% 41% 43% Asia Pacific 8% 9% 8% 8% Source: ResMed Annual reports, 2006, 2007. Table 2: Industry Sales in US $ Millions 2004 2005 2006 2007 Respironics--Sales 443 530 615 737 ResMed--Sales 376 473 613 689 Fisher and Paykel--Sales 61 83 102 123 Industry total--Sales 1,015 1,241 1,518 1,767 Source: Wachovia Capital Market estimates Table 3: Financial Performance of Major Competitors Fisher $ millions Respironics Covidien and Paykel Revenues 2006 1,046.10 9,647.00 264.7 Revenues 2007 1,195.00 10,170.00 290.9 COGS 2007 555.8 5,333.00 121.6 SGA 2007 398.5 2,537.00 79.6 R&D 2007 65.9 312 16.4 Source: Morningstar.com; Fisher and Paykel annual report 2007.