As Philips stares down an international recall of more than 2 million of its CPAP and sleep apnea machines, the respiratory devicemaker ResMed is looking to pick up the slack—but the surge in demand from people looking to regain a healthy night’s sleep has greatly strained an already-crimped supply chain, compelling the company to ration its hardware.
ResMed CEO Mick Farrell said during the company’s quarterly earnings call that he expects to see the recalls drive $300 million to $350 million in additional sales over its 2022 fiscal year, which began July 1.
That’s despite production limitations brought on by a months-long global shortage of computer chips during the COVID-19 pandemic—affecting nearly every industry that relies on electronic components, from auto manufacturing to consumer products to solar power and even light bulbs.
“During this June quarter, the demand spike was so high that we have been forced to allocate products due to the unprecedented demand and these real-world supply chain capacity constraints,” Farrell said during the call Thursday.
“In doing so, our guiding principles are very simple. We are focused on the highest acuity patient needs first,” he said. “It's very similar to our approach to ventilator allocation during the peaks of the COVID crisis these last 18 months.”
RELATED: Out of chips, out of work: Automakers tell their stories
Some major chip producers have said they may continue to be in short supply for at least a year, Farrell said, adding that “ResMed will not be able to fill the entire supply gap that has been created by this situation” since Philips fully launched its recall in mid-June.
“We are doing everything that we can to partner further and further up our supply chain in order to increase our access to the supply of the parts, the pieces and the components that we need to manufacture at scale,” he said. “We expect to be in a somewhat supply chain-constrained environment throughout fiscal year 2022.”
Philips’ recall of its CPAP and BiPAP machines—caused by insulating foam that can deteriorate and potentially be inhaled by the user—put a serious dent in revenues from the medtech company’s wider connected care portfolio, dragging down gains seen from sales of hospital patient monitoring products over a year into the COVID-19 pandemic.
So far, Philips has set aside €500 million for the recall—which has registered at least 2.2 million affected devices, including nearly two dozen models manufactured and sold between 2007 and this year. More than 1,200 complaints and 100 injuries have been logged by the FDA, which labeled the recall Class I, the agency’s most serious designation.
RELATED: FDA dishes out Class I label to Philips' recall of faulty CPAP machines and other ventilators
The FDA has urged patients to stop using the devices and contact Philips for a replacement, while regulators in the E.U., U.K. and Japan have advised patients to consult with their doctors before changing therapies.
By the end of this year, Philips said it aims to triple its ability to manufacture repair kits and replace units, ramping up to 80,000 per week. However, the company was recently issued its second Class I recall, for a safety issue that could lower oxygen flow rates in certain hospital ventilators.
Meanwhile, ResMed posted year-over-year quarterly revenue growth of 14%, up to $876.1 million, with the demand for replacement sleep apnea machines providing a helpful tailwind as the company looked to summit the $125 million in ventilator sales it saw last year, during the earliest peaks of the COVID-19 pandemic.
Sales for ResMed’s full 2021 fiscal year, which ended June 30, increased 8% to $3.2 billion as more people return to clinics for a sleep apnea diagnosis and turn to digital, cloud-connected hardware.
“We are seeing continued improvement in patient flow country by country,” Farrell said on the investor call. “But there is a wide variance in that total patient flow from 75% of pre-COVID levels in some countries around the world to 95% or even 100% of pre-COVID levels in other countries.”