ResMed Inc. (NYSE:RMD) Q2 2024 Earnings Call Transcript

ResMed Inc. (NYSE:RMD) Q2 2024 Earnings Call Transcript January 24, 2024

ResMed Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to the ResMed Second Quarter Fiscal Year 2024 Earnings Conference Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Chief Investor Relations Officer, Amy Wakeham. Please go ahead, Amy.

Amy Wakeham: Great. Thank you, Kevin. Hi, everyone, and welcome to ResMed’s second quarter earnings call for fiscal year 2024. We are live webcasting this call and the replay will be available on the Investor Relations section of our corporate website later today along with a copy of the earnings press release and presentation, both of these are now available. During today’s call, we will discuss several non-GAAP measures that we believe provide useful information for investors. This information is non-intended to be considered in isolation or as a substitute for the GAAP financial information. We encourage you to review the supporting schedules in today’s earnings press release for a reconciliation of these non-GAAP measures to the GAAP reported numbers.

In addition to our discussion today, it will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. I’ll now turn our call over to ResMed’s CEO, Mick Farrell.

Michael Farrell: Thanks, Amy, and thank you to all of our shareholders for joining us today. Our second quarter fiscal year 2024 results reflect strong execution across our entire business, driving double-digit top and bottom line growth. These results are a testament to the incredible efforts of the global ResMed team. Our results were driven by double-digit global growth in both devices and our Software-as-a-Service business together with high single-digit global growth in our masks and accessories business, holding our leading market share amongst high comps from the same quarter a year ago. In terms of bottom line leverage, our reorganization efforts and efficiency efforts in the quarter have set us on a clear trajectory of profitable growth.

Taking a step back, all 10,000 ResMedians are energized about the opportunities in front of us. There are over 2 billion people worldwide suffering from sleep apnea, chronic obstructive pulmonary disease, respiratory insufficiency due to neuromuscular disease or insomnia. These chronic conditions form a healthcare epidemic in which ResMed is uniquely positioned to help. We believe that healthcare should be delivered in the lowest cost, lowest security and highest comfort location possible. Very often, that is a patient’s own home. Our end markets remain underpenetrated with many opportunities to add value, reduce friction, lower costs and improve patient outcomes. We support hundreds of millions of people as they take control of their healthcare journey and navigate the complex healthcare world outside the hospital system.

ResMed is the global leader in digital health solutions with over 17 billion nights of medical data in the cloud and over 23.5 million 100% cloud connectable medical devices sold into over 140 countries worldwide. We are the clear market leader in sleep apnea, a huge and growing market with over 1 billion people impacted globally. Our category-leading flow generator platforms grew 11% year-over-year. We have achieved and are maintaining supply of our two 100% connectable AirSense platforms, with unconstrained supply of the AirSense 10 platform globally. Every quarter, we continue to gain regulatory approvals to launch and to increase delivery volumes of the best-in-class AirSense 11 platform on our pathway to support more and more patients worldwide.

Our commercial teams are successfully demonstrating the clinical and economic benefits of the ResMed mask portfolio. During the quarter, our masks and accessories business grew 9% year-over-year in a highly competitive market, maintaining good market share with all players in the field in this category globally. We are excited to have achieved regulatory and reimbursement approval for our latest and greatest mask innovation and we look forward to bringing this technology to market soon. I have personally worn this new mask and our test data show, not just n equals one from the CEO, that it is highly favored by physicians, respiratory therapists and especially the most important customer, our patients. In terms of maintaining our momentum of mask and accessory growth, our clinical and commercial teams continue to partner with physicians and providers to drive resupply programs directly with their patients.

Peer-reviewed and published clinical evidence shows that using resupply programs leads to better patient adherence and to better patient outcomes. This is proving out in the real-world customer by customer. We continue to see strong growth in the U.S. mask and accessories business, where resupply programs are powered by our digital health ecosystem, including AirView for physicians, Brightree for home care medical equipment providers and myAir for patients. Outside the U.S., we are focused on developing, launching and scaling our direct outreach and subscription programs, to help consumers take control of their own health and engage directly in refreshing their own mask, their own tubing, their own humidifier and other accessories. The importance of respiratory health and respiratory hygiene in the eyes of consumers has seen a permanent uptick since four years ago when the COVID-19 epidemic started.

We are supporting our customers with digital solutions and services to meet their needs and to ensure they have clean and fresh equipment to best treat their sleep suffocation and improve their health. Before I review updates on our key strategic priorities, I’d like to discuss recent actions we have taken to accelerate profitable growth across ResMed and to power our long-term success. Last quarter, I discussed the steps we’ve taken to ensure that we can refocus and drive even more profitable growth. We stopped some projects that were not working out and we increased investment in areas that will be pivotal to our long-term success, including our digital health technology investments as well as focused device platform and mask technology development.

We have introduced a new operating model centered on making ResMed even more product-led, even more customer-centric and even more brand enhanced. We will measure the success of this new 2030 operating model by an increase in the velocity of new product innovation as well as enhanced value in the ResMed brand while accelerating profitable growth. As the founder of ResMed states, innovation is not just invention of a great new technology is when a customer loves it, adopts it and chooses to pay for it. We have an incredible legacy and an exciting product pipeline to bring to market. Let’s now turn to a discussion of our three key strategic priorities. Number one is to grow and differentiate our core sleep health and breathing health business.

Number two is to design and develop and deliver market-leading med tech and digital health solutions that can be scaled in 140 countries plus worldwide. Number three is to create and leverage the world’s best software solutions for care delivered outside the hospital and preferably in the home. In terms of addressing strategic priority, number one, as the world’s clear leader in the field of sleep apnea and breathing health, we are laser-focused in 2024 on ramping up our demand generation initiatives. We are raising awareness and creating pathways for patients to find access to care for sleep suffocation across specific global markets. We are leveraging traditional healthcare channels and investing in cost-effective social media-driven demand generation campaigns to help consumers who are concerned about their own sleep and breathing to find their way into screening, diagnostic, treatment and management pathways.

Our goal is to provide a digital healthcare concierge service to help guide people on that journey. We are tracking new patient starts in our physician and provider-based ecosystem, which now contains more than 26 million patient records as well as the new user starts in myAir, which is a patient app where patients choose to participate in their own personalized healthcare journey to better sleep and better breathing. Our goal is to cost effectively drive more and more of the over 1 billion people worldwide who need our help into the channel. There are two megatrends that can have an influence on increasing that patient flow, one from big consumer tech and one from Big Pharma. Let me talk briefly about each of these megatrends. Many of the big consumer tech companies are increasing their focus on the area of sleep wellness.

Apple has sleep wellness tracking built into its latest-generation Apple Watch and has plans to enhance that capability with further sleep quality assessment. Google’s Fitbit division has sleep wellness tracking built into its platform. WHOOP is doing the same. Samsung have not only built sleep wellness tracking into its latest operating platform, but is helping to define sleep personas to help consumers better understand a 30% of their lives they spend in the state of sleep. We love this attention on the field of sleep wellness and many of these technologies will help each person find out if they have issues with sleep architecture, issues with breathing during sleep, or issues maintaining high quality sleep. This could be one of the biggest waves of people taking control of their own pathway for discovering they have sleep apnea or they have insomnia, well, maybe they have both, a state that is called COMISA for co-morbid insomnia and sleep apnea.

Ultimately, this will lead to increasing patient growth for ResMed overall. And our goal is to best educate the person as they move from sleep wellness tracking to sleep health tracking and from consumer awareness into a true healthcare pathway for screening, diagnosis, treatment and ongoing management of their chronic condition. ResMed plans to be there with the person through that entire journey. In terms of the impact of megatrends from Big Pharma, the current focus is squarely on GLP-1 medications. Let me take some time to address what we are seeing in the market with patients on latest-generation GLP-1 therapies and positive airway pressure therapy. We are tracking a cohort of over 0.5 million patients with prescriptions for both GLP-1 medications and positive airway pressure therapy.

These data are included in our investor deck, so you can review them there on our website, but I’ll briefly summarize what we have observed. Around six months ago, there was a thought among some in the market that patients on GLP-1 medications would be less likely to start positive airway pressure therapy. We stated at the time and still do, that this was not likely the case as important risk factors such as craniofacial geometry, gender, age and the basic physics and anatomy of the upper airway would remain unchanged despite this new pharmaceutical therapy option. Still, the theory remained. So now we have real-world data and real-world evidence at scale. Our analysis of over 529,000 patients with GLP-1 prescriptions shows that not only is there not a reduction in the propensity to start positive airway pressure therapy, it is the exact opposite.

For patients who have been prescribed a GLP-1, there is an increase of 10% of the absolute percentage of patients that commence positive airway pressure therapy. So as an example, if you take a baseline of 75% of patients that commence PAP therapy after their prescription on average in a certain group, that would become 85% of those same patients who were on a GLP-1 that would commence positive airway pressure therapy. And by the way, the vast, vast majority of these GLP-1s are the latest generation medications. Another hypothesis about six months ago was that patients on GLP-1 therapy and PAP therapy would quit their PAP therapy, their CPAP or their APAP at a higher rate than the general population over time. The real world data, again, with a cohort of over 0.5 million patients shows the exact opposite.

At T equals 12 months after therapy commencement on PAP, the delta from general PAP population to a PAP plus GLP-1 prescribed population shows an increase in the resupply rate of 300 basis points. So again, as an example, if the general population resupply rate at 12 months was, say, 70%, it would then become 73% for the population that was prescribed to both PAP and GLP-1 therapy. This delta actually increases over time going further with the delta from the general PAP population receiving resupply at 12 months being 500 basis points higher for a population prescribed both PAP and GLP-1s. Here at ResMed, we believe in treating the whole person, including a combination of what Professor Bill Dement, one of the founders of the field of sleep medicine, may he rest in peace, called the Triumvirate of Health.

That triumvirate is one, regular cardiovascular exercise; two, balanced diet and nutrition; and three, good sleep and breathing. We believe that addressing all three aspects results in the best patient outcomes. In terms of best-in-class treatment for sleep apnea, achieving that goal of good sleep and good breathing, we have peer-reviewed and published research demonstrating that we can achieve over 87% of patients adherent to our PAP technology by combining our market-leading device platforms with digital health solutions, including AirView for physicians and myAir for patients. Even with this best-in-class global technology, we still have more than 10% of patients that need alternatives. We just can’t get them adherent those 10%. We are investing in these alternative therapies and we are working to help patients who do not adhere to positive airway pressure to find their path to second-tier therapies, such as dental devices where ResMed has invested and scaled the market-leading 3D printed dental device for sleep apnea in Europe called Narval.

In addition, we have investments in other third-tier therapies, including pharmaceutical agents with our Apnimed investment as well as hypoglossal nerve stimulation technology with our Nyxoah investment. ResMed stands for respiratory medicine, not CPAP company, and we want to take care of the patient. We obviously start with the lowest cost, highest efficacy therapies, including CPAP, APAP and bilevel therapies. And we then work through the alternatives to help the person sleep better and breathe better. The bottom line is this, a huge number of people need our sleep apnea treatment solutions today and for the next decade, two decades, three decades and beyond. We want every patient to find a path to good breathing and good sleep. Let’s pivot for a moment to talk about our digital health technology investments, leveraging the 17 billion nights of de-identified medical data and the 23.5 million 100% cloud connectable devices in our ecosystem.

We are investing in several artificial intelligence-driven data products and capabilities in that ecosystem that we call Air Solutions. We are continuing to roll out, one publicly we are talking about, which is called Compliance Coach to customers in the U.S. market in a controlled market launch. Compliance Coach is a solution that helps home medical equipment providers to prioritize both digital and personal outreach to improve patient compliance and drive better patient outcomes at a lower cost. Compliance Coach models and predict the likelihood that a particular patient will or will not adhere to therapy based on algorithms built on billions of data points. The AI product then identifies for the HME provider, the key patients who may struggle to meet compliance requirements and takes a step further to drive digital and/or human actions to maximize the probability of adherence across the group.

Customers using the product in its initial launch are excited and are starting to see very positive results across their business and for their patients. One final update on AI technology for this quarter. We recently launched an in-market trial of a ResMed developed generative AI product that serves as a digital concierge to help a group of people that we call sleep-concerned consumers, to best navigate as they search for their sleep-related information and they ask questions about their sleep wellness and potential treatment options. This generative AI tool helps the person identify, engage and enroll on their personal journey to better sleep and better breathing. We are currently beta test marking this product in Asia Pacific, and we will look to scale globally over time.

Our goal is to develop and scale this digital sleep concierge so that all those seeking better sleep and better breathing can find their personal pathway for the best outcome, the best treatment and the best long-term care. Our Respiratory Health business continues to be supported by sustained activity across our non-invasive ventilator platforms as well as our life support ventilator platforms. We continue to invest in clinical and economic trials for high flow therapy that we call HFT to even more cost effectively treat COPD in the home. As we develop these next-generation therapies, we will generate strong clinical evidence and economic outcomes that will support broader adoption of these innovations for treating respiratory conditions at home.

The prevalence of respiratory insufficiency due to COPD as well as neuromuscular disease continues to increase, and we offer low-cost, high-quality treatments to help address this healthcare epidemic. Turning to our Residential Care Software-as-a-Service business. We had another great quarter with year-over-year growth of 24%. Organic growth of our SaaS business was solid across our Brightree and our MatrixCare brands with another full quarter contribution from our MEDIFOX DAN brand in Germany. Ongoing customer-facing synergies between our Brightree offering in the U.S. and our home medical equipment resupply revenue remains very strong, driving good growth across both our SaaS business and our core sleep health business. We expect to have sustainable organic growth across our portfolio of SaaS solutions in home medical equipment, home health, home nursing and beyond to be in the high-single digits as we continue through this fiscal year and to achieve stable double-digit organic growth through fiscal year 2025 and beyond.

We continue to drive operating expense leverage through management of our capabilities for cloud compute, our capabilities for cybersecurity, interoperability and technology development and we plan to accelerate net operating profit growth across our SaaS portfolio and across the entire ResMed business. Our residential care SaaS business remains an integral part of ResMed’s growth strategy. This business complements the market-leading software and the market-leading device solutions that we have in our sleep health and breathing health business, and we are well positioned as the leading global strategic provider of SaaS solutions for residential care. We are transforming respiratory medicine and residential care at scale. We are leading the industry in developing, applying and adopting digital health technology across our markets.

We continue to scale and drive efficiencies in our operations. We are focused on driving topline revenue growth, focused cost discipline and increased efficiencies to accelerate profitability. We have created differentiated products and solutions for customers worldwide, driving long-term sustainable value for our shareholders. We lead the industry in digital health technology with the smallest, quietest, most comfortable, most connected and most intelligent solutions, and we don’t plan to stop innovating anytime soon. We invest around 7% of our revenues straight back into market-leading research and development. ResMed’s mission remains crystal clear to improve 250 million lives through better residential healthcare in 2025. This patient-centric mission motivates me and ResMedians every day.

During the last 12 months, we have improved over 170 million lives by delivering a medical device directly to a patient or a complete mask system to a patient or a digital health software solution that provides personal care for a patient. We’ve helped each person to sleep better, to breathe better or to live higher-quality lives with best-in-class healthcare delivered right where they live. I’m very excited about the opportunities in front of us and the pipeline we have ahead. In closing, I want to express my sincere gratitude to the more than 10,000 ResMedians for their perseverance, their hard work and dedication today and every day. Thank you. With that, I’ll hand the call over to Brett in Sydney for his remarks, and then we’ll open up to Q&A for Brett and me and the team.

Over to you, Brett.

Brett Sandercock: Great. Thanks, Mick. In my remarks today, I will provide an overview of our results for the second quarter of fiscal year 2024. Unless noted, all comparisons are to the prior year quarter and in constant currency terms, where applicable. We had strong financial performance in Q2. Group revenue for the December quarter was $1.16 billion, a 12% headline increase and 11% in constant currency terms. Revenue growth reflects the ongoing combined availability of AirSense 10 and AirSense 11 sleep devices to support solid underlying global demand and continued growth across our mask portfolio. Year-over-year movements in foreign currencies positively impacted revenue by approximately $11 million in the December quarter.

Looking at our geographic revenue distribution and excluding revenue from our Software-as-a-Service business, sales in U.S., Canada and Latin America countries increased by 9%. Sales in Europe, Asia and other markets increased by 12%. Globally, device sales increased by 11%, while masks and other sales increased by 9%. Breaking it down by regional areas, device sales in the U.S., Canada and Latin America increased by 7%, masks and other sales increased by 10%, reflecting growth in resupply and new patient setups. In Europe, Asia and other markets, device sales increased by 16%, again, reflecting strong demand and significantly improved availability of cloud connected devices. Mask and other sales increased by 4%, reflecting the impact of a strong prior year comparable growth rate.

Software-as-a-Service revenue increased by 24% in the December quarter, reflecting the contribution from our MEDIFOX DAN acquisition, and continued strong performance from our HME vertical. Excluding our MEDIFOX DAN acquisition, SaaS revenue grew by 10% in the December quarter. MEDIFOX DAN contributed revenue of $28 million in the December quarter, consistent with our expectations at the time of the acquisition. Note as we have now passed the first year anniversary of our MEDIFOX DAN acquisition, our future SaaS revenue year-over-year will reflect organic growth. During the rest of my commentary today, I will be referring to non-GAAP numbers. We have provided a full reconciliation of the non-GAAP to GAAP numbers in our second quarter earnings press release.

Gross margin increased by 10 basis points to 56.9% in the December quarter. The increase primarily reflects a decrease in freight costs and increase in average selling prices and favorable foreign currency movements. The benefits are partially offset by unfavorable product mix. Sequential gross margin increased by 90 basis points, primarily driven by a reduction in freight costs and an increase in average selling prices for our devices, partially offset by unfavorable product mix. We remain confident of a positive gross margin trajectory. Like many companies, we are monitoring potential headwinds that could arise in the Middle East conflict. Disruptions in the Red Sea will likely increase sea freight costs and shipping lead times. We’re closely tracking the situation and taking action to mitigate potential impacts where we can.

Moving on to operating expenses. SG&A expenses for the second quarter increased by 4%. The increase was predominantly attributable to increases in employee-related costs. SG&A expenses as a percentage of revenue improved to 19.1% compared to 20.5% in the prior year period and reflects savings and cost discipline following specific actions taken early in the December quarter. Looking forward and subject to currency movements, we expect SG&A expenses as a percentage of revenue to be in the range of 18% to 20% for the second half of fiscal year 2024. This guidance reflects the impact of our restructuring activities that resulted in a reduction in our workforce of approximately 5% during the quarter. R&D expenses for the quarter increased by 6%.

R&D expenses as a percentage of revenue was 6.4% compared to the 6.8% in the prior year period. Looking forward and subject to currency movements, we expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for the second half of fiscal year 2024. Operating profit for the quarter increased by 20%, underpinned by strong revenue growth and modest growth in our operating expenses. Following the acquisition of MEDIFOX DAN, our net interest expense for the quarter was $14 million. And as we continue to pay down debt, we expect interest expense to be in the range of $10 million to $12 million per quarter in the second half of fiscal year 2024. Our effective tax rate for the December quarter was 20.7% compared to 18.3% in the prior year quarter.

The increase in our effective tax rate was primarily due to a significant reduction in the tax benefit associated with employee equity compensation this quarter compared to the prior year quarter. We continue to estimate our effective tax rate for fiscal year 2024 will be in the range of 19% to 21%. Our net income for the December quarter increased by 13% and non-GAAP diluted earnings per share also increased by 13%. During the quarter, we recorded $64.2 million of restructuring-related charges following an evaluation of our existing operations and actions undertaken to improve operational efficiency and increase profitability. Restructuring charges included $28.6 million of employee severance and other onetime termination benefits, $33.2 million of intangible asset impairments associated with the wind down of certain business activities and $2.4 million of other asset impairments.

The restructure charge has been treated as a non-GAAP item in our Q2 financial results. During the quarter, we also recorded a provision of $6.4 million for expected costs associated with the recently announced Masks with magnets field safety notification. This expense has been treated as a non-GAAP item in our Q2 financial results. Cash flow from operations for the quarter was $273 million, reflecting solid underlying earnings and relatively stable working capital balances. Capital expenditure for the quarter was $23 million. Depreciation and amortization for the quarter totaled $45 million. We ended the second quarter with a cash balance of $210 million. On December 31, we have $1.2 billion in gross debt and $1 billion in net debt. During the quarter, we reduced our debt by $130 million.

On December 31, we had approximately $955 million available for drawdown under our revolver facility, and we continue to maintain a solid liquidity position. Today, our Board of Directors declared a quarterly dividend of $0.48 per share. As we advised last quarter, as part of our capital management activities, we resumed our previously authorized share buyback program in the December quarter. We purchased 335,000 shares for consideration of $50 million. We intend to continue to purchase approximately $50 million per quarter in the second half of fiscal year 2024. This will more than offset any dilution from the vesting of equity to employees during the year. Going forward, we plan to continue to reinvest in growth through R&D, pay down outstanding debt and deploy further capital for tuck-in acquisitions.

And with that, I will hand the call back to Amy.

Amy Wakeham: Great. Thank you, Brett, and thank you, Mick. Let’s go ahead and turn to the Q&A portion of our call. Kevin, I’d like to turn it over to you to provide the instructions and then run this part of the call.

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Q&A Session

Operator: Certainly, we’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Margaret Andrew from William Blair. Your line is now live. We do ask you ask limit yourselves to one question please.

Margaret Andrew: Great. Thank you very much. Good afternoon. Good morning to everyone on the call. I wanted to maybe follow-up on your comments on GLP-1, even more so than the quarter. And I look at that 10% greater likelihood of folks starting CPAP when you’re on a GLP, it seems like it could have a pretty meaningful impact for growth. And again, looking at it to say, if you’re going from 75 patient new starts in a given period to 85, that’s a 13% bigger market every year. So I guess conceptually, is that something that you agree with? Would it have a greater or less benefit impact if that trend continues? And I guess any comments on a real impact is over the next three years as GLP adoption grows? Thanks.

Michael Farrell: Yes, Margaret. Look, it’s a great question. And as a biomedical engineer, I look at this, and I don’t know causality, I just know the correlation. And so we’ve now got data, the 529,000 data points that show that there’s a 10% higher propensity to start PAP therapy if you prescribe the GLP-1 before and then you get the PAP therapy, 10 absolute percentage points higher of the cohort will start PAP therapy. My thought is that this is a more motivated patient, a more engaged patient in the health care system, and they’ve been brought in by this new therapeutic tool. And so I do think that it will lead to greater growth. This megatrend of GLP-1s will lead to greater growth of patients coming into our treatment pool over time.

And certainly, the data is showing that with that cohort of patients. Yes, your quick math there of an increase, I think, is that if there’s full penetration across the whole patient cohort and full adoption GLP-1s across every patient coming through. Of course, that’s the maximum state. But I think realistically, as we see this pretty fast rollout of this new pharmaceutical class, we will start to see more patients come into the health care system. Everyone is seeing that across medtech and across health care. They are more engaged and they do seem to be getting prescriptions for many different chronic diseases. Sleep apnea is non-exception. And we’ve got probably one of the highest number of patients in that cohort of over 0.5 million patients that we’re tracking.

And of course, we’ve got 26 million patients in our database. So this is a minority of patients that we’re seeing on these, but it is interesting within that cohort to see a higher participation rate. Look, our goal will be to leverage that megatrend and to make sure that ResMed is there with the best tools for screening, diagnosis, treatment and management. And we’ve done that over decades, and we plan to do it ahead. I think maybe the consumer big tech trend of sleep wellness tracking might be slightly higher in its impact over time, maybe not as quick adoption, but these sleep wellness tools come across all consumer tech applications is incredibly exciting. ResMed’s goal is there to leverage this demand gen that’s coming to us from Big Pharma and big consumer tech, but then more importantly, to get that personalized health journey so that ResMed can be truly the concierge for that person if they find their path to better sleep and better health.

So we do expect these trends to be positive. They won’t be immediate. And our job is to drive it over time.

Operator: Thank you. Next question is coming from Anthony Petrone from Mizuho Group. Your line is now live.

Anthony Petrone: Thank you for taking my questions. Congrats on a good quarter here. Maybe Mick will stay on GLP-1s, we’re getting a lot of attention turning toward the Eli Lilly SURMOUNT-OSA study. And maybe the KPIs that you’re looking for in that study how relevant do you think the primary endpoint is? Are there other secondary endpoints that are more important? And do you think over time you can collaborate with Lilly to drive the effort of using CPAP with the GLP-1? Thanks.

Michael Farrell: Yes. Thanks for the question, Anthony. And it’s a really pertinent one. Certainly, we’re watching this SURMOUNT-OSA trial. It’s a pretty small trial. It’s less than 500 patients, 500, 600 patients, I believe. So it’s not sort of the order of the real world event, real-world data that we have, like 500,000 patients we’re talking about there. But I think it will be very interesting to see the presumption is given it’s the same biochemical compound as in other trials used for diabetes treatment and weight loss that it will have somewhere in the order of 10%, 20%, maybe even 30% weight loss reduction in this cohort. So that’s a metric that’s sort of well-known from prior studies. The best evidence from the primary investigator on this Professor Atul Malhotra from University of California, San Diego.

His assessment is that, that should lead to pretty significant AHI reductions in the treatment cohort versus placebo, maybe in the order of to maybe 65% AHI reductions in the cohort of these quite high BMI and quite high AHI patients. If you listen to a great podcast between Professor Malhotra and Dr. Carlos Nunez, our Chief Medical Officer, which are available on our website. When you’ve got to spare 45 minutes, but there are some cliff notes that I think are worth sharing here in this investor call is that Professor Malhotra was asked what’s the best therapy to treat sleep apnea. Is it, a, weight loss? Or is it b, CPAP. And he said, “Well, that’s a false dichotomy, this question, it’s a false competition. It’s a plus b. It has been for decades and will be for decades in the future.