ResMed Inc (ASX: RMD) shares have really taken a beating in recent months.
Concerns over the emergence of obesity drugs have weighed heavily on sentiment.
But has this all been a huge overreaction? The team at Goldman Sachs appears to believe that this is the case and is urging investors to snap up the company's shares while they're dirt cheap.
What is Goldman Sachs saying?
Goldman notes that semaglutide (branded as Ozempic, Rybelsus or Wegovy) and tirzepatide (branded as Mounjaro) belong to a class called GLP-1/GIP-receptor agonists.
While these drugs were initially targeting type 2 diabetes, they have consistently demonstrated clear efficacy in weight management and cardiovascular indications.
Given that obstructive sleep apnoea (OSA) is "an indication that is correlated with weight and cardiovascular comorbidities," the broker acknowledges that there are concerns about the impact these drugs could have on demand for ResMed's industry-leading technology.
However, its research shows that the two treatments can grow strongly together over the long term. Particularly given that "OSA remains under-penetrated, with global estimates suggesting <20% and many countries well-below this level."
The base case for ResMed
Goldman has outlined its base case for ResMed in a world with obesity drugs. It explains:
Our base scenario adopts our base case obesity forecasts from above (i.e. -7% reduction in obese or overweight with comorbidity population by 2030E). It then assumes the following patient retention on CPAP (mild 55%; moderate 70%; severe 80%). In this scenario we could see only a modest benefit of AHI [Apnea-Hyponea Index] in GPI-2 over GPI-1, which could result in a lower level of patients.
Overall, we expect continued adoption/success of the GLP-1/GIP class to reduce the OSA population addressable by CPAP, but the impact to RMD/FPH is mitigated by: i) long-term market share gains from competitors; and ii) continued improvements in OSA diagnosis rates (potentially catalysed by the GLP-1/GIP class itself).
ResMed shares have 'strong asymmetric upside'
Goldman highlights that its analysts "see strong asymmetric upside risk from current levels."
According to the note, the broker has reiterated its buy rating on ResMed's shares with a reduced price target of $33. This implies a potential upside of almost 53% for investors over the next 12 months.
