ResMed Inc (ASX: RMD) shares opened weaker on Tuesday following a dramatic price fall yesterday.
The ResMed share price fell 13.08% yesterday to close at $27.74.
Yesterday's fall was the result of a United States medical study showing GLP-1 medicines directly reduced the rate of obstructive sleep apnoea (OSA) among obese patients.
ResMed's products treat sleep apnoea.
This morning, the ASX 200 healthcare stock opened at $27.56 per share and fell to an intraday low of $27.35, down 1.4%. However, the stock is now rebounding.
At the time of writing, ResMed shares are up 1.37% to $28.12, suggesting some investors may be seeing yesterday's fall as a dollar-cost averaging or new-investment opportunity.
Meantime, the S&P/ASX 200 Index (ASX: XJO) is up 0.82%.
Let's recap what drove ResMed shares down yesterday.
ResMed shares dive on GLP-1 news
As we reported yesterday, global pharmaceutical giant Eli Lilly And Co (NYSE: LLY) released detailed results from its SURMOUNT-OSA phase 3 clinical trials.
The trials' purpose is to measure the potential impact of Eli Lilly's GLP-1 drug, Tirzepatide on obese patients with OSA.
Tirzepatide's brand names are Mounjaro for diabetes and Zepbound for obesity. It's the main competitor to the first-ever GLP-1 drug, semaglutide, which is the main ingredient in Ozempic and Wegovy.
Eli Lilly reported that up to half of the patients in the study experienced remission of their OSA.
As reported in The Australian, top broker Citi has now cut its rating on ResMed shares to neutral because of the study. The broker has also slashed its 12-month share price target by 17% to $30 per share.
ResMed stock is up around 10% in the year to date but it has been in a two-month lull over May and June.
During this period, ResMed shares have been rangebound between about $31 and $33 per share.
So, yesterday's share price drop was pretty significant.
Perhaps the most pertinent detail of this new study is that it looked specifically at the drugs' impact on sleep apnoea.
Previous studies that have made ResMed investors nervous focused on GLP-1s' impact on reducing obesity, which is a common precursor to OSA.
What did Citi say?
Citi analyst Mathieu Chevrier said the study "indicates that GLP-1 are a viable treatment option for the 70 per cent of OSA patients that are obese".
Chevrier estimates that if half of those patients went into OSA remission, that could mean a 35% fall in the total addressable market (TAM) for continuous positive airway pressure (CPAP) machines.
ResMed sells CPAP machines.
However, Chevrier notes the adherence to GLP-1s for weight loss is only about 50% after 12 months, so it is still difficult to work on exactly what impact the drugs will have on ResMed's revenue in the future.
Unlike CPAP, it's difficult to predict with certainty which patients on GLP-1 will see OSA remission.
We also see potential legal risks for doctors around knowingly not treating a patient's OSA with CPAP whilst they are going through the 20 weeks GLP-1 dose escalation.
The impact of GLP-1s on CPAP devices and masks sales remains difficult to assess and will depend on GLP-1s uptake, adherence, and overall OSA market growth.
Based on the study, Citi assumes a 15% fall in TAM for OSA from FY26 to FY28.
As such, it has cut its forecast revenue growth for ResMed from 6% to 4% for FY26, from 4% to 3% for FY25 and held it steady at 2% for FY26.
Haven't we seen this sort of sell-off before?
We sure have.
Last year, ResMed shares collapsed to a four-year low of $21.14 in October due to fears that GLP-1s would impact the size of the company's customer base.
At the time, many brokers defended the company, placing buy ratings on ResMed shares and advising it was a rare opportunity to buy the dip on a blue-chip ASX 200 healthcare stock.
They reasoned that the OSA market worldwide was huge, and GLP-1s were in their infancy in terms of development. Thus, even if GLP-1s reduced obesity and OSA significantly, there would still be a large total addressable market (TAM) available to ResMed given obesity is not the only cause of OSA.
Investors slowly responded and the ResMed share price has been recovering ever since.
Meantime, ResMed has also been monitoring the potential impact of GLP-1s on its business.
It has released modelling to reassure investors, with CEO Mick Farrell quantifying the impact by stating the company's worldwide OSA TAM would be 1.2 billion by 2050 after taking GLP-1s into account.
That's a significant number given ResMed's market penetration is only 22.5 million people so far.
Then in January, Farrell revealed further in-house research that found GLP-1s were actually increasing customer numbers for ResMed.
The research showed a 10% increase in patients on GLP-1s buying sleep apnoea machines.
