ResMed to gain from sleep apnea insurance move

By Sonali Paul

MELBOURNE (Reuters) - Respiratory equipment maker ResMed Inc (RMD.AX) (RMD.N) is set for strong sales growth after a United States decision to extend subsidies for sleep breathing devices, analysts said.

The Centers for Medicare and Medicaid Services said late on Thursday it would subsidize continuous positive airway pressure (CPAP) devices to elderly and disabled people who have shown they need them by testing themselves at home.

San Diego-based ResMed and its bigger rival Respironics RESP.O control about 80 percent of the $2 billion U.S. market for sleep breathing devices, a market growing rapidly as people become more aware of the links between sleep disorders and heart disease and diabetes.

The U.S. decision should reassure investors worried that annual revenue growth at ResMed, whose whole business is in devices for sleep breathing disorders, might slip below the levels of around 25 percent seen over the last five years, analysts said.

"This decision probably will help them sustain current levels of growth, rather than accelerating it," said Macquarie analyst Marcus Wilson.

"You really should start to see a surge late next financial year or the year after."

ResMed's Australian-listed shares rose as much as 3.8 percent on Friday after the U.S. decision, and were last trading up 2.7 percent at A$4.53, outpacing a 1.6 percent rise in the health care index .AXHJ.

The U.S. decision would affect up to 4 million people covered by Medicare who may suffer from some form of sleep apnea, the Centers for Medicare and Medicaid Services said.

More importantly, it is likely to spur private health insurers, who cover about 80 percent of the population that has sleep apnea, to follow suit. U.S. insurer Aetna (AET.N) this week already moved to cover patients.

Analysts at UBS had estimated it would take about a year for half of private insurers to follow Medicare's lead and cover people who have been tested at home.

"The recent Aetna decision ... would indicate that this may prove conservative," UBS's Australian analysts said in a note on Friday, adding that Resmed's annual sales growth rate could rise to more than 35 percent in the medium to longer term.

ResMed had sales of $716 million in its 2007 financial year, compared with $1.2 billion for Respironics, which is about to be taken over by Dutch firm Philips Electronics

(PHG.AS).

ResMed said it was now looking for more detailed guidelines from local Medicare carriers, expected in the next three to four months, based on the national decision.

"It may be 12 or 18 months before we see a meaningful uptick in all of this," ResMed's director of investor relations, Matthew Borer, told Reuters by phone from San Diego.