Sleep treatment and healthcare business ResMed Inc. (CHESS) (ASX: RMD) has found itself out of favour with investors recently following the release of some rather disappointing SERVE-HF trial results just over a fortnight ago.
The trial, which began in September 2013, was intended to show that ResMed's Adaptive Servo-Ventilation (ASV) therapy could protect heart-attack victims, helping them to avoid frequent hospital visits and the possibility of an early death.
Instead, the company must now revise the labels and instructions for when its ASV treatment is appropriate after the results actually showed an increased risk of cardiovascular mortality in patients using the therapy. Those using the therapy had a 10% cardiovascular mortality rate per year, compared to a 7.5% mortality rate for those in the control group.
Investors should note that this is unlikely to have a major impact on sales, given that its ASV flow generators represented less than 7% of the group's revenue in the 12-month period ended March 2015. Meanwhile, the company also made it clear that there had been no fault in ResMed's products, meaning that any product recall should be relatively immaterial (especially for long-term investors).
So while future sales shouldn't be impacted too greatly by the aborted trial, it's more likely that investors are reacting to the lost opportunity, and perhaps discounting the premium that has been baked into the share price.
Indeed, many investors had bid the stock price higher based on the belief that ResMed was poised to break into the heart failure market which cost the US government alone roughly US$35 billion per year, so these results have likely dampened those hopes somewhat.
Is ResMed a buy?
ResMed is one of the more promising prospects from the healthcare sector and investors could certainly look to take advantage of its discounted price. Although it has surged roughly 15% since hitting a low of $6.69, it remains nearly 22% shy of its 52-week high and appears to be a more attractive buy than rival Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) at today's price.
As an added bonus, the company should also benefit from a weaker Australian dollar given that most of its earnings are generated internationally.
