Medical device maker ResMed Inc. (CHESS) (ASX: RMD) has hit a major speedbump today with its shares plummeting 18.2% to a low of $6.75, compared to the broader market's 0.6% decline. That comes after its US-listed shares plunged 15.1% overnight.
ResMed is a global leader in developing and manufacturing treatments for sleep-disordered breathing, with a particular focus on sleep apnea. While it has generated enormous returns for investors in recent years, today's setback came after the company announced that its SERVE-HF trial had not met its primary endpoint.
What happened?
The SERVE-HF trial, which began in September 2013, was intended to show that ResMed's sleep therapy products could protect heart-attack victims and help them to avoid death and frequent hospital visits, but it instead showed an increase in the chance of mortality.
According to the data, patients being treated with ASV therapy had a 10% cardiovascular mortality rate per year, compared to a 7.5% cardiovascular mortality rate per year in the control group – a statistical difference of 2.5%.
The company said that revenue from its ASV flow generators over the 12-month period ended March 2015 represented less than 7% of the group's total revenue, while they had accounted for just 2% of flow generator devices shipped to customers.
As a result, it's possible that the market's harsh reaction has been because investors were banking on the company's ability to break into the heart failure market which costs the US government alone roughly US$35 billion per year, according to various estimates. Today's announcement will certainly have deflated those investors' high hopes somewhat.
Investors need to note that the results were only observed in patients who suffer from both central sleep apnea and symptomatic chronic heart failure with reduced ejection fraction, implying that the product may still be suitable for sufferers of central sleep apnea who are not also suffering from heart failure.
What this means for investors
ResMed's poor results will no doubt hit home for investors – many of whom may also have experienced a similar pain earlier in the year when Sirtex Medical Limited (ASX: SRX) failed to meet the primary endpoint in one of its more promising trials. Unfortunately, bad or unexpected trial results are a key risk when investing in the medical device or biotechnology sectors, and one that investors must always bear in mind.
Unfortunately, it is impossible to predict where the share price will go in the near-term, so investors with a low appetite for risk (or a short-term investment approach) may want to remain on the sidelines for the moment. Alternatively, 'Foolish' investors could also look to take advantage of the dip to begin building a long-term position in the stock.
