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[News] ResMed's New CEO A Scion Of The Times
ResMed's New CEO A Scion Of The Times

When Michael Farrell took the helm of ResMed in March, he came aboard in interesting times.

His father, Peter Farrell, had founded and built the company into a leader in devices to treat sleep apnea — disruptions to breathing while sleeping — with rock-steady quarterly growth and a frequent residency in the IBD 50.

But 2013 has been a difficult year for the industry. ObamaCare brought with it a new tax on devices, and the second round of competitive bidding under the 2003 Medicare Modernization Act has been squeezing prices. The magnitude of the latter was one reason ResMed's fiscal first quarter, reported in late October, missed expectations and hurt the stock.

Yet, Farrell is confident in the growth prospects for ResMed (RMD), as it continues to penetrate sleep apnea and branches out into respiratory care. He spoke with IBD recently about his new gig.

IBD: The impact of the competitive bidding seemed to take Wall Street by surprise in the last quarter. Did it surprise you?

Farrell: To put things in perspective, the U.S. market is about 50% of our global business, and Medicare is about 25% of that. So you're talking about 12% or less of the covered lives ResMed looks after.

It's been a two- or three-year process since competitive bidding, round one, started. Round one was nine cities, and competitive bidding round two was 91 cities. So we already knew there would be different impacts, but clearly there's been some temporary distraction of our channel through round two. We had indicated it to the market and had discussions about it. I think when the reality of it hit in Q1, there were some investors who may have been slightly surprised. But we always knew it would be a challenge, and we said on the (earnings conference) call that it will take a number of months for the distraction to clear up.

But the real focus is the long-term growth, which is incredibly exciting. What we focused on, talking about the rest of FY2014 and beyond, (was) that patient volumes — even in the U.S. market, even affected with ObamaCare, even with global financial crisis recovery and unemployment rates where they are — the patients turning up in primary-care offices, getting referrals to specialists in sleep diagnosis and therapy, (are) solid. So it's like you've got a garden hose with a bit of a crimp in it. Over the coming months, the garden hose is going to straighten out and start fertilizing the lawn.

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