"In ResMed's November 1, 2007 Q3 2007 Earnings Call, ResMed executives talked about, among other things, their new S8 II CPAP machines as well as their contempt for internet retailers. In this article we'll look at the benefits of the new S8 II CPAP machines, we'll make a guess as to why they're not yet available in the United States, and we'll explore ResMed's completely misguided view of internet-based retail sales of CPAP equipment.

In his opening remarks to investors, ResMed CEO (now Executive Chairman of the Board) Peter C. Farrell, said:

We're also excited about the launch of our new S8, an extremely quiet S8 II flow generator. It has been launched in Asia Pac and selected European markets, in particular Germany. We have incorporated in this our Easy-Breathe technology, really improved motor characteristics and if one combines the Swift II with the S8 II, the Whisper, it is the quietest CPAP on the market, and in fact the S8 II has a noise level of around 23 decibels, which is basically below our ability to hear.

A question during the call was raised about the naming of the new CPAP machines. In particular an investor asked why the S8 II CPAP machines weren't called S9. ResMed explained that since the footprint and the form of the new S8 II flow generators is identical to the S8 flow generators, the consensus at ResMed was that the new machine is a modified S8. Hence the name S8 II.

In other markets the names of the newer machines are S8 AutoSet Spirit II, S8 AutoScore II, and S8 Elite II. I would imagine that all of the S8 models available currently in the United States - the S8 Compact, S8 Escape, S8 Elite and S8 AutoSet Vantage - will be replaced by new S8 II versions. Of course, this remains to be seen.

So, why aren't the newer, quieter - in a nutshell, better - S8 II CPAP machines available in the United States yet? I don't know for sure, and the ResMed executives didn't explain this issue during their conference call, but I have a couple of guesses.

First, I'd imagine ResMed is sitting on quite a bit of S8 inventory. That's obviously reason enough to wait on a release of a newer machine. If they didn't wait, they'd have to scrap and write off a lot of obsolete inventory.

Second, I'd also imagine that the FDA approval process is taking some time. I don't know anything about the status of their FDA applications with regard to the new S8 II CPAP machines, but it might be an issue.

CPAP-Supply.com will be the first to let you know when the new S8 II machines are available. A CPAP machine rated at 23 decibels is certainly a compelling product. While we don't appreciate ResMed's feelings toward us (see below), we'll continue to offer the most compelling products to our customers.

Now I'd like to address another part of the conference call. It doesn't have anything to do with new product releases or anything like that. It has to do with ResMed's contempt for internet retailers. Let me quote ResMed's CEO as he addressed a question about ResMed's internet policy:

""...we really needed to put our foot down concerning internet sales...that is because guys that are selling on the Internet feel no responsibility...""

Yes, it's true. ResMed disparaged and defamed approximately 5% of their customer base (CPAP-Supply.com included) in one irresponsible and extremely naive response to a question about their internet policy. Farrell continues by adding that internet retailers are irresponsible because we don't call our customers to check on compliance. I've got news for Mr. Farrell. Most other DME suppliers don't call their customers unless they're required to do so under Medicare guidelines. If a patient uses Medicare to pay for equipment, then the Medicare supplier is required by law to call and check on compliance. These suppliers don't make calls like this out of their own volition!

His assessment of internet retailers is off the mark, and it shows just how out of touch he is with end users of CPAP equipment. I'm sure you'll agree that any retailer that has a great product selection, low prices, a knowledgeable staff that can answer your questions, and a convenient online method of ordering is a great thing for most CPAP users. Your local Apria or Lincare likely can't even come close to providing the type of service and information we offer (and that many of our online competitors offer). We hear about the failings of local suppliers every week from customers; customers who have found the internet to be a much more effective avenue for understanding CPAP therapy and buying CPAP equipment.

Mr. Farrell and his cohorts are understandably concerned about the issue of patient compliance. Clearly, if patients don't comply with their prescribed therapy for sleep apnea, then they won't be using CPAP equipment. That means ResMed revenues will go down. So, of course, ResMed wants to see patient compliance statistics always on the rise, but not necessarily for the sake of the patient. Don't forget, Farrell's primary commitment is to investors, not to end users of CPAP equipment. What Farrell doesn't understand is the potential market he and his company is missing because they've jacked up their prices and are starting to treat their customers like second class citizens.

Respironics, on the other hand, has told us that they want to embrace internet sales. In my opinion, you'd be out of your mind to NOT want to embrace the internet market. It might only be 5% of sales today, but it will be 10%, 15%, 20% in the future.

Prices that are too high will prevent sufferers of sleep apnea from buying equipment in the first place, so increasing prices (or putting their foot down, as Mr. Farrell calls it) as part of an internet policy to ensure better patient compliance is nonsense.

I believe the internet policy is a result of ResMed's large national customers - companies like Apria and Lincare - putting pressure on ResMed to raise prices on the internet so that those large national suppliers don't look like complete rip-offs when customers walk through the door at their brick-and-mortar stores and look at price tags. It's also a way for ResMed to increase revenue.

Mr. Farrell, there's an elephant in the room!

Andrew Senske

CPAP-Supply.com is a leading online retailer of CPAP equipment. Located in Spokane, WA CPAP-Supply.com has been serving thousands of customers around the world since 2001. Founded on a belief that patients are their own best primary care providers, CPAP-Supply.com understands the importance of educating patients and customers on both the effects of and treatment for obstructive sleep apnea. For more information visit CPAP-Supply.com or call toll free 1-888-955-2727.

Click here for the complete conference call transcript"

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