ResMed shrugs off a nervous market

Despite being regarded as one of Australia's top three listed biotech stocks, sleep disorder specialist ResMed (ASX: RMD) would probably rather forget 2002.

In the past four months, the stock has tumbled more than 40 per cent and is currently trading around the $4.50 mark.

And while recently approving a buy-back of up to four million shares to shore up the price, ResMed maintains that it is not concerned by the wild fluctuations.

The company's chief financial officer Adrian Smith said the stock, the only in the health and biotech index with 100 per cent exposure to New York, was simply mirroring the movements in the United States post September 11.

As a result, Smith said, the company had felt the impact of price earnings depreciation in New York that hadn't yet hit the Australian market to a large extent.

"The only issue in this environment is that there is a whole stack of very nervous investors," Smith said. "The (stock price) movements are not of great concern to the company at the end of the day because fundamentally the company remains on track to continue to meet its objectives."

Analysts tend to agree that there is nothing fundamental to trigger the stock's sharp decline of late. Instead, they say, investors have become impatient in the face of earnings revisions and wary of high price-earnings ratios.

But according to Smith, it was the analysts, not the company, who forecast an earnings figure not achievable in the present market, thereby forcing ResMed to tell the market it would not happen.

Research group First Call had issued a consensus earnings per share estimate for ResMed of 30 cents for the June quarter.

On May 3, ResMed CEO and chairman Dr Peter Farrell said that healthcare policy changes in the important German market had led to flat sales there, adding that if the current uncertainties continued, it would be a challenge to meet First Call's projections.

His comments prompted a 22 per cent slide on the day, despite Farrell also pointing out that the company's third quarter income had grown to $US10.4 million, up from a loss of $US10.2 million for the same period last year.

Smith said the March quarter announcement by Farrell was made to redress aggressive external forecasts. "We simply said that because of the German changes that meant we didn't believe some of the more aggressive forecasts analysts put forward were achievable," he explained.

While Smith said the company was concerned only with continuing to go about its business while the market settled, ResMed's board last month authorised the company "to repurchase up to 4 million shares of its outstanding common stock for cash in the open market, or in negotiated or block transactions".

"Such repurchases are authorised as part of a program to enhance stockholder value and to address requirements for additional shares under the company's stock option plans," the June 6 announcement said.

In addition, ResMed last week became a fully-listed Australian company in accordance with changes to market rules that would have caused the company, which had been foreign exempt for the past three years, to be de-listed.

Smith said the new status did not affect the company. He said the step was merely a matter of compliance.

"Seeing as the majority of our shareholders are in Australia and we are an Australian manufacturer, we were also pleased and proud to be a fully listed company here," he added.

In the year to date the company, which sells its medical equipment for the diagnosis and treatment of sleep-disordered breathing in about 60 countries, has released a further four products to the market.

Smith said ResMed had been cash flow positive since 1992 and continued to grow successfully. He said the market potential for the company remained "massive".

"The company's view on life is that we're in a growth market, we're number two in the world and we are growing in every market in the world," he said. "None of that has changed."