Healthcare technology company ResMed's (NYSE: RMD) stock wasn't quite the picture of health on Wednesday. The shares lost more than 5% of their value on news of an analyst's downgrade and his new, bearish outlook. That performance didn't look good against that of the S&P 500 index, which fell a comparatively light 0.3%.
A change in recommendation for the worse
Well before market open that day, Wolfe Research's Mike Polark changed his recommendation on ResMed. He flagged it as an underperform (sell, in other words), one peg down from his previous estimation of peerperform (hold). Polark's current price target is $180 per share; this is more than 24% below the healthcare stock's most recent closing price.
ResMed specializes in medical devices that target sleep and respiratory disorders. As such, the analyst is chiefly concerned that pharmaceutical industry giant Eli Lilly will take considerable share from the company in the proximate future.
Polark wrote in his new ResMed note that the "disruption risks to RMD's business rise in 2025-2026 due to Lilly's likely launch of an obstructive sleep apnea indication for its GLP-1 medication tirzepatide." That drug, sold under the brand names Mounjaro (approved for diabetes treatment) and Zepbound (obesity), is a hot item amid the current craze for weight loss drugs.
Keep your eye on the big guy
With the threat of Eli Lilly looming, the analyst feels that ResMed could suffer a 15% to 25% decline in sales of its continuous positive airway pressure (CPAP) products that help treat sleep apnea. That feels realistic, but we should bear in mind that the pharmaceutical giant still has some distance to go with tirzepatide to win approval for a sleep apnea indication. Even the most powerful drug developers are not assured of success; regardless, ResMed shareholders would do well to watch Eli Lilly's progress.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ResMed. The Motley Fool has a disclosure policy.
