Why the ResMed (ASX:RMD) share price is up 7% to a record high

ResMed looks set to win from a key rival’s product recall…

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The ResMed Inc. (ASX: RMD) share price has started the week in fine form.

In afternoon trade, the sleep treatment focused medical device company’s shares are up 7.5% to a record high of $30.55.

Why is the ResMed share price shooting higher?

Investors have been scrambling to buy the company’s shares this morning following a favourable industry development.

On Monday global technology giant Philips announced that it would be voluntarily recalling 3.5 million ventilation devices for treating sleep apnoea. The majority of the affected devices within the advised five-year service life are in the first-generation DreamStation product family.

The release explains that despite a low complaint rate (0.03% in 2020), Philips determined based on testing that there are possible risks to users related to the polyester-based polyurethane (PE-PUR) sound abatement foam component in these devices.

The risks include the PE-PUR foam potentially degrading into particles which may enter the device’s air pathway and be ingested or inhaled by the user, and the foam may off-gas certain chemicals.

Philips CEO, Frans van Houten, said: “We deeply regret any concern and inconvenience that patients using the affected devices will experience because of the proactive measures we are announcing today to ensure patient safety.”

“In consultation with the relevant regulatory agencies and in close collaboration with our customers and partners, we are working hard towards a resolution, which includes the deployment of the updated instructions for use and a comprehensive repair and replacement program for the affected devices. Patient safety is at the heart of everything we do at Philips.”

What now?

Given that repairs are expected to take several months to complete, the market appears to believe this will lead to an increase in demand for ResMed’s products, potentially allowing it to win market share from its rival.

The ResMed share price is now up 32% since this time last year.

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James Mickleboro does not own any shares mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended ResMed. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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