Sleep disorder business RMD has slipped from all-time highs after reporting its quarterly results last week. The weakening trend in organic sales overshadowed the strong financial performance. This remains an impressive business, but after recovering strongly from Ozempic worries in 2024, we must consider what is next. We believe there remains significant uncertainty about weight loss drugs on longer-term demand, particularly given Eli Lilly recently won FDA approval for its weight loss drug, Zepbound, as a treatment for sleep apnoea. This will likely lead to Medicare reimbursement for Zepbound in patients with obstructive sleep apnoea.
- Weight loss drugs (GLP-1s) are here to stay, and as they get cheaper and more accessible, demand for RMD products will soften; the million-dollar question is how much.
RMD is already trading at the lower end of its historical valuation as uncertainty understandably weighs on its share price. While fascinating science makes it easy to stay away from RMD, we reiterate that RMD is a quality operator. The question for us is where the risk/reward balance tips in favour of the buyers, especially as news-driven volatility feels likely in the coming years.
- We may reconsider RMD if/when it retests its late 2024 lows, 6-8% lower.
MM likes RMD ~$35
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