FPH poised to grow with innovation the key
FISHER & Paykel Healthcare (FPH) is poised to grow but will have to continually innovate in a bid to maintain market share, research firm Morningstar suggests.
FPH manufactures devices used in the treatment of respiratory and sleep apnoea disorders. It is expanding its medical device range with the aim of improving care and outcomes for patients in an increasing range of applications.
Morningstar said FPH had a strong competitive position in respiratory and acute care (RAC), along with its ability to churn out innovative new products.
Morningstar assigned a narrow competitive advantage to FPH.
‘‘We expect revenue to grow by double digits in constant currency terms and earnings to exceed revenue growth as favourable product mix and cost savings deliver operating leverage.’’
The research note was bullish on RAC’s longterm prospects and Morningstar said the RAC business could expand at a doubledigit rate.
The business enjoyed good pricing power as a result of the company’s more than 70% global market share. The core invasive ventilation product, used in ventilating patients who were under intensive care, was growing at up to 7% a year.
However, the biggest opportunity lay in new applications such as noninvasive ventilation, oxygen therapy, humidity therapy and surgical humidification, the research note said.
The total addressable market for noninvasive ventilation and oxygen therapy was estimated at 40 million patients. FPH remained the clear market leader in those new applications which were growing at rates of more than 20% a year and delivering better margins
because of a recurring stream of highmargin consumables revenue.
The obstructive sleep apnoea (OSA) business also had exciting growth prospects, exemplified by the small number of patients (fewer than 10 million) currently being treated, compared with the up to 60 million patients affected.
Increasing diagnosis rates, better diagnostic and treatment devices, and improving awareness of the condition were contributing to market growth, estimated to be 6% to 8% a year, Morningstar said.
The advent of athome sleep testing was expected to drive growth rates into the 10% to 15% range in the medium term because of lower lead times and substantial cost savings to patients and insurance companies.
‘‘This will encourage patients who would otherwise have shied away from sleep labs to test themselves at home using an automatic continuous positive airway device.’’
Manufacturers such as FPH would also benefit from selling highermargin premium products which were mainly used for athome sleep testing, the research note said.
In the OSA business, FPH faced tough competition from Philips Electronics and Res Med. Philips pioneered the industry and had established marketing and distribution capabilities. Also, its products were synonymous with sleep apnoea treatment in the United States. FPH faced challenges when educating physicians about its products.
Competitors had demonstrated a willingness to compete on price by blanketing the market with free samples.
‘‘FPH must stay ahead of the pack on innovation to prevent price erosion from substantially damaging returns. In comparison with OSA, competition in RAC remains benign.’’
FPH was focused on introducing at least two new OSA masks every year and one new flow generator every three to four years to ensure the company outpaced market growth.
In the longerterm, FPH’s OSA market share was expected to remain in the 8% to 9% range, with a higher share of masks than flow generators.
In RAC, the company would remain a clear market leader, Morningstar said.