Good morning, everyone. I'm Agnes Lee. I'm the Senior Director of Investor Relations, and I just wanted to welcome all of you who are here in the room as well as those who are listening live on our webcast. This is our 2015 Investor Day and we have a great agenda here, so I'm excited to see everyone who is here. And I'd like to welcome you.
So just a few housekeeping items. For those in the room, the bathrooms are to the left and down the hall, the men's is around the corner, and the ladies is just down the hall. We will have a short break in the middle of the agenda, so there'll be time to get up and move around a little bit for 15 minutes. And then we will have a breakout Q and A after the presentations as well as lunch. So moving to our first slide, just wanted to cover our Safe Harbor statements.
Before we get started, remind everyone that there could be forward looking statements that relate to projections around revenue, future earnings or expenses as well as our new product development, any new product launches and any new markets for our products that are subject to the risks and uncertainties, which could cause actual results to be materially different. Any additional risks or uncertainties, of course, are posted in our filings with the SEC, and we do not undertake to update these forward looking statements. So with that out of the way, just wanted to give you a look at our agenda now. So I will be I'm introducing you to the event now, but I will be calling up Mick Farrell, who will go through how we are creating value with ResMed's strategy and will be followed by Rob Douglas, our President and Chief Operating Officer, who will be focusing on a discussion on innovation and our continuous improvement. And then Brett Sandercock will come up and give us a financial review, and then we will have the short break.
And after that break, Raj Sodhi, our President of Healthcare Informatics, will be coming up and talking about our progress and vision in that area as well as Glenn Richards, our Chief Medical Officer, will be talking about our clinical strategy. So with that, I'd like to welcome Mick up to the stage to start our presentation.
Great. Thanks, Agnes, and thanks to everyone who came in here to San Francisco. This is our first Investor Day and I think the last time we got everyone together was our 10 year reunion from our launching on the New York Stock Exchange in 1999. So that was 2,009. So it's been 6 years between drinks.
So we don't plan to make it that long between drinks, and we hope to make this an ongoing process rather than just an event. So I'm going to talk to you about why invest in ResMed. Most of you in the room, I know pretty much all the faces, don't know who's on the webcast, but I'm guessing you know a little bit about ResMed. We've been around for 25 years, quarter of a century. We're the leader in sleep and respiratory medicine, not just through our clinical work, but through what we do in the channel and in the field.
We're global. You saw in the video, we're in 100 countries. We don't plan to stop there. Some of them are very underpenetrated, like less than 1%. We're disciplined.
We're focused on financial management. You're going to hear from Brett. But today is more about getting a depth of ResMed, the management team and our strategy and where we're going. So what is our 3 Horizon strategy? We've talked about this a number of times, but I think it's important to sort of look at it at its high level and maybe walk through each of those three horizons.
In the sleep disorder breathing industry, our core market, we are the global leader. It's where we play. In the last 12 months, as you heard in the video, we impacted 8,000,000 lives. So we sold more than 1,000,000 flow generator devices and more than 7,000,000 mask systems. So we impacted 8,000,000 lives.
Over the next 5 years, we will increase that by 2 50%. So we will impact 20,000,000 lives by 2020. Let me walk through each of these three horizons really briefly. So sleep apnea, it's our core market. It's a hugely underpenetrated market.
We've sort of put this into 3 scales here. Less than 1% penetration are our emerging markets, less than 5% penetration of the markets that we've invested in, in emerging market side and less than 10% to 15% penetration are the markets like the U. S, where in this market, which is probably the most penetrated in the world, we've got 6,000,000 patients on sleep apnea treatment, but there are 40,000,000 to 60,000,000 patients who suffer from sleep apnea. So that means in this most penetrated market, we're less than 15% penetrated. You go to Western Europe, it's less than 10% penetration.
So what are we doing to drive that penetration? How is ResMed the global leader in this space? Well, in the last 12 months, we launched Air Solutions, which is really more than just a product. It's a system. It's an end to end system that impacts patients along the diagnostic channel.
For those of you on the webcast, from the left to the right of the slide, we're going from the diagnostic process to the treatment process to the management of patients. As you can see, what we've done at ResMed is decided to change the basis of competition. We're no longer those devices to be connected to the cloud. And what does that mean? That means that the data from millions of nodes and data points around the world are going to the cloud and can be impacted on patients' lives, on physicians managing groups of patients and on payers and providers managing portfolios of patients.
We think this is changing the game of medicine, not just in our field of respiratory medicine, but across the board of medtech and health care. But we're not going to stop there and just change the game within our industry. We're going to reach out. And as you saw in the penetration slide, if 85% to 90% to 95% of the opportunities in front of us, we have to reach out to those 85 plus percent of patients who are either sleep deprived, sleep concerned or don't even know they have a sleep problem. And we have to do that through new technologies.
On the left hand side of this chart, you can see our new S plus product. If you walk down the corner here to the Apple Store in San Francisco, you're going to see it in the health Tech section. You're also going to see it in San Diego, New York, any Apple store around the country. And the reason we're in the Apple Store is that Apple is obviously known as a leader in cloud informatics and engaging consumers. Our product hopes to engage consumers who are concerned about their sleep.
The way some of you in the room are wearing Fitbits and are concerned about hitting 10,000 steps every day, we want you to be concerned about hitting 8 hours sleep every day or at least 7 hours sleep, Andrew. 4 is not enough. So by engaging with these patients and pre patients, sleep concerned consumers, we hope to expand the pie of where we're going. And for those of you in the room, I feel like Oprah now, there is an S plus under all of your seats. Those of you who came last night to the cocktail reception got an S plus For those of you who arrived this morning, see Alison in the break and she'll give you an S plus We want you to get a chance to see how measuring your sleep can improve your outcomes.
Some people ask me, what's the level of success? How many units have you sold on this? And we're not going to go through specifics today. What I can tell you is it's a lot cheaper than an education and awareness and marketing program to engage concerned consumers. Through the S plus we were on the front page of the Wall Street Journal Health Tech section.
You can buy an ad there, but you can't buy way into editorial. And we were chosen on 5 sleep screeners and 5 sleep monitors to be the number 1 by the journalist, Johanna Stern, who was looking at those. That is really good marketing and really good advertising. It shows ResMed as the leader, but it's also doing something far more important, which is engaging consumers in knowing about their sleep. On the right hand side of the chart, you can see a program, a marketing program we did, a more traditional marketing program engaging women.
40% of the people who show up for a diagnostic test in this country are female. Yet the stereotype of sleep apnea is a fat, morbidly obese, generally centrally obese, male and generally older, more than 40, 60 years old. It's not. Sleep apnea patients are getting younger and they're getting more female and we need to reach out to those groups. Additionally, females make more than 50% of the health care decisions for families.
So we think this program has been very successful. Okay, moving quickly now through to our Horizon 2. This area leverages our great expertise in mechanical engineering, electrical engineering, software engineering, our engagement of respiratory and critical care doctors and physicians and allows us to go into areas such as COPD, chronic obstructive pulmonary disease. There are more than 80,000,000, some say more than 100,000,000 COPD patients worldwide and it is the number 3 cause of death in the Western world. ResMed can do something about that.
And you're going to hear from Luke Maguire in the Q and A and I'm going to talk a little bit about it now. The second part of RIZON2 is our emerging markets plan. I'll talk through that as well. So on this chart, you have on the right hand side a mortality chart. So the y axis is cumulative mortality or death rate and on the x axis is time in days.
So it's a year snapshot. And over that 1 year period where we followed chronic COPD patients, you see a death rate, a mortality rate in the control group of 33% at 1 year. By introducing just one change of therapy, which is ResMed's class of non invasive ventilation devices, we reduced that mortality from 33% to 12%. So that's a 60% relative reduction in mortality with 1 treatment, non invasive ventilation. And ResMed is the world's leader in non invasive ventilation.
So we think that that 80,000,000 to 100,000,000 patient opportunity is huge. We think that our opportunity is not only in Western Europe, where NIV is probably already seen as one of the leading treatments for COPD, but very importantly, in the U. S. Where non invasive ventilation is not fully accepted as a treatment for COPD. So it's a huge growth opportunity for us.
And you add in the opportunities within the emerging markets, it takes on an even bigger perspective. So this is the full spectrum of our ventilation products. It goes all the way from our sort of sleep by level products, which are used for non compliant OSA patients or overlap syndrome through to non invasive ventilators that are used for COPD and then all the way up to life support ventilation used for patients who have ALS or Lou Gehrig syndrome. The picture of this is if you've seen the movie about Stephen Hawking. ALS, Lou Gehrig's disease, is a very severe disease.
You lose the ability to swallow, then you lose the ability to speak and then you lose the ability to breathe. There are computers to help you talk and there are tubes to help you eat. We breathe for you. And that's what the Astral product is able to do. Okay.
Switching from the Respiratory Care part of Horizon 2 to the emerging markets. We are investing in our growth markets and these markets are growing faster than our developed markets. And our goal is to make these growth fast enough to be material. They're not yet, but we are investing in China. We have a very strong team in Beijing and in many cities through distributors.
We're investing in that group and looking for ways to invest more. In Brazil, we have a very strong team based out of Sao Paulo driving good growth, but we are investing more in that. You'll hear more from us on infrastructure and ways to grow those businesses in Brazil. In India, we have a very strong team. In fact, if I look around this room, you'd actually only be half of the sales team.
The salaries are a lot lower, but the opportunity to develop there and Prime Minister Modi is investing a lot in infrastructure. And that infrastructure is not just roads and not just electricity, but it is in hospitals. And hospital care. And that's happening in China and India. And we've also to hospital care.
That's happening in China and India. And we've also made some investments in Eastern Europe. You saw us do some vertical integration over the last 24 months, buying our Polish distributor, buying our Czech Republic distributor. And you'll see more of that from us in Eastern Europe because those markets are growing faster than developed markets and there's huge opportunity ahead for us. Okay.
Switching to our 3rd horizon before I hand over to Rob and then Brett to walk through other aspects of the business. This is an area I think is worth spending some time on. We had those results from Serve HF in the last 90 days. So I'm going to talk a little bit through those and a little bit how we are placing these bets, these options, which is what Horizon 3 is and what the new bets are that we're placing in this space. You've seen these data from us before.
Sleep apnea impacts almost the whole of the cardiovascular system. I'm not going to talk as much about the cerebrovascular system, which is the top left of the chart there or the metabolic system, which is the bottom left. Those are huge opportunities for us, but I'm going to focus on the right hand side of this chart, the cardiovascular diseases. I'm going to talk a little bit about heart failure and ServHF was focused on half the heart failure patients, the heart failure with reduced ejection fraction, but I'm also going to talk about coronary artery disease and atrial fibrillation. So let me first address heart failure with reduced ejection fraction.
So SIRV HF was a multicenter, multiyear trial, 1325 patients in 91 And the study And the study was neutral on that primary endpoint. It had a neutral outcome on the primary endpoint, which wasn't what we expected. But what we really didn't expect was a safety signal. So within the patients with reduced ejection fraction, and I'll show you even more so with those with really reduced ejection fraction, there was an increase in mortality, 10% or 7.5% were the 2 mortality signals. And that was enough for us to say we're going to take the high road here and put patient safety first, second and third.
And we went globally, we went to the U. S, German and French authorities and very quickly got out there and said, there's a potential safety signal, let's take some action. And we've been received very well, I think, in the cardiovascular community and the pulmonary for taking that action and putting patient safety first. But I'm going to talk you through how that great science, even though it was a result we didn't expect, is going to produce some things, not just increase reputation with the cardiovascular physicians, but some other opportunities for us. Here's just one example.
By a company sponsored trial having a neutral result, but with a safety signal and the company taking urgent action in its major markets to get to physicians to contact patients and to ensure action was taken, it brings credibility to the fact that when we just 7 slides back show a company sponsored trial that shows mortality reduction of 60% that that becomes more credible. You're talking to the same physicians and it's not every time we bring a study out, it's always positive in that, that when there is a negative signal, we take action on that as well. And I think that brings credibility to it. You're going to hear from Glen Richards, our Chief Medical Officer, who's going to go through in a little more detail the results from Cerve and the very sophisticated scientific process to get it to publication and to get the information to physicians. One thing I did want to say is that there will be hundreds of analyses that Glenn will give you an overview of.
But one analysis and one way to look at the data from SIRVHF, the reduced ejection fraction patients that are within that trial is to split it into quintiles. So picture, if you will, splitting it into quintiles less than 25%, 25% to 30%, 30% to 35%, 35% to 40% and greater than 40% ejection fraction. And if you can think of the hazard ratio as being the Y axis, where the hazard ratio is safety, As the ejection fraction gets higher and closer to preserved ejection fraction, there is an opportunity to see that the hazard ratio not only goes from a safety signal to neutral, but even has the potential to have improvements potentially in reducing hospitalizations and improving hearts at the higher ejection fractions. Now within this study, it's clear there's a safety signal. But imagine from that chart to the right hand side of that chart, which is the other half of heart failure patients with preserved ejection fraction, ejection fraction not only greater than 45, but like hopefully everyone in the room, we should have an LVF around 65 percent with a healthy heart.
But if you have heart failure with preserved ejection fraction, so north of 50, which is half the heart failure patients and the growing part of heart failure, we think there could not only be neutral safety signals, but potential for treatment not only obstructive sleep apnea, but also central sleep apnea with both AUTOSET for OSA and ASV potentially for CSA. So we're going to continue in heart failure. And in fact, CAD HF, which was a study already up and running in the U. S. Is continuing.
Obviously, we changed the HFrEF, the reduced ejection fraction patients, safety signal took them off therapy and taken them out of the trial. But those this trial covered both preserved ejection fraction and reduced ejection fraction. Those with preserved ejection fraction are staying on therapy. We're going to monitor them for their 6 month follow-up, but we're also continuing to enroll patients. And I consider now CAT HF to be a really solid pilot to understand what we can do in preserved ejection fraction
heart failure. You're going to
hear more from us over the coming quarters and years on CAT HF and heart failure. Another really important part of Horizon 3 is the other cardiovascular diseases. We've been looking at atrial fibrillation for the last 10 years. Obviously, we were focused on CERV and getting the data through on reduced ejection fraction, but we are now moving some resources and capabilities over to look at atrial fibrillation. There's some recent data here that you can see from the Journal of American College of Cardiology, a meta analysis across 1087 patients that showed that CPAP use can reduce the recurrence of atrial fibrillation.
So for atrial fibrillation, there's antiarrhythmic drugs or ablation that's used. There's not that many tools in the toolbox for the cardiologists for these AF patients. If you can reduce the hospitalization rate, it used to be that ablation was a profitable center for the hospital. But under most Western European governments with their socialized and government run medicine systems and now in the U. S.
Affordable Care Act and ACOs, where hospital physicians and home care physicians really want to keep that patient out of hospital, there's no incentive to have a frequent flyer. An AFib patient is coming into the ER, ICU, CCU now and need to ablate them again. If you can reduce that recurrence by diagnosing obstructive sleep apnea, diagnosing central sleep apnea, treating the OSA with CPAP or AutoSet, treating the CSA with ASV and you can track that there's not only improvement in quality of life, not only a reduction in total health care costs, but a reduction in the recurrence of this disease state and maybe changing the course of that chronic disease, then there's huge potential for us in this atrial fibrillation area. So you're going to hear more from us over the coming quarters and years on that. The final area of cardiovascular disease I'll talk about is coronary artery disease.
This study, which is called RECASA, another study that we had been sponsoring out of Europe, showed that CPAP on non sleepy OSA patients the risk for adverse cardiovascular outcomes, meaning heart attack, stroke and or hospitalization. And interestingly, the bottom left bullet point is really critical. CPAP usage of greater than 4 hours was crucial to achieve the risk reduction, meaning potentially there's a dose response relationship and Glenn will go in through the medical side on this. But from my perspective, looking at flashing back to our informatics play and the ability to take data to the cloud, suddenly meeting 4 hours compliance doesn't just mean that a DME or HME can get paid. It means that a patient with coronary artery disease could be kept out of hospital or even potentially could prevent on a hazard ratio prevent an event such as a heart attack or stroke within that patient group.
So again, AF and coronary artery disease, big targets for us to look at on horizon 3. So you guys have heard from me a lot and so I'm going to keep this brief. I want to give you a chance to see the depth of our management team. I will close with this. We have a really strong team.
Rob Douglas, who's our President and Chief Operating Officer and I operate in what we call the office of the CEO. And we have a strong team of 11 folks in solid line reports and we dotted line reports such as our Chief Medical Officer, our Chief Research Officer and our Head of Quality. And you're going to hear from Glenn today on that. But our team is deep, our team is strong. And hopefully, from today, you don't only think about ResMed as a great company with a great history and a huge opportunity to grow in sleep apnea, COPD and cardiovascular disease.
But you see that the team that we've got to do that has the ability to not only achieve the results, but exceed them. So thanks a lot for your time here. We're not going to do Q and A in between each session. If you could hold your questions, write down notes, we're going to do a detailed Q and A session after the webcast, but do capture and keep your questions for that. And with that, I'll introduce Rob Douglas, our President and COO.
Thank you, Mick.
So thanks, Mikael. That's a great overview and talking about our long term strategy and where we're going. In a sense, I'm going to change gears a bit and talk a little bit about how we're going. And with the time we've got, look a little bit inside the company about how we think about driving some of these horizons and where we're going. And there's a big focus around that.
Obviously, innovation is very important and
continuous improvement is important for us, and I'll drill
into that in a little bit. But important for us, and I'll drill into that in a little bit. But firstly and most importantly, the culture is a key issue inside ResMed. We're very much a culture driven company. And in the mid-90s, Peter Farrell, our Founder and Chairman today, wrote a note that he shared with the staff where he was looking at who does well in the company because as you ramp up these companies, some people stay and some don't and all that.
And he was trying to understand and explain to people what it took to be successful in the company. And this list was written in a letter. You could imagine some of the language is slightly different from here. But we've actually that list has stood the test of time and it really defines sort of the core values and what we expect from the people that we have. Now ethics and integrity are number 1 and always crucial.
You've just got to have that. But all of these points are important, but as we talk through issues around innovation, obviously, people with initiatives and instinctive and resourcefulness are really important. As we talk about continuous improvement, obviously, that focus on quality and continuous improvement are important as well. But I could talk for hours on any of these. Now the basic thrust of how we think about our operations and how we execute, we really are a leverage story.
And we're a leverage story trying to leverage a global innovation model because that's the way to be efficient. But you'll hear as I talk, we're very local market focused. So we're quite a decentralized company. And there is a tension between those as we operate and execute. And hopefully, I'll explain that through.
And obviously, our global infrastructure is very important to be able to make that switch from a core global IP engine to local market engine. So innovation is really important. It's a number one issue for us. You saw from mix some of the products we've released, but in the last 12 months, we've completely relaunched all of our flow generator platforms. The Air Solutions platform is not just the flow generators, but it's the whole sort of HI ecosystem around that.
And Raj Sodhi, our President of our HI Global Business Unit is going to give us a real drill and then explain to you the importance of that as we go forward. Mask is critical. We are the global leader in mask, and we continue to invest in innovation there. And after much after a lot of work, we've been really proud in the last year to get that Astral new ventilation platform out there, and that's making a big difference already. And as Mick said, we really have changed the focus a for people to compete with us.
So we have our business unit leaders that really drive this global product solution innovation. You're going to hear from Raj Sodhi, but also we have here Luke Maguire and Greg Peek, who are presidents of our, respectively, our Cardio Respiratory Global Business Unit and our Fleet Global Business Unit. And they really have to take a global perspective and drive in and prioritize our investments around marketing programs, around IP creation and product development to take into our worldwide markets in the 100 countries that we're in, led by commercial leaders. And Jim Hollingshead is in the audience and will be joining us on the stage in a little while. But also Anne Reiser, who runs our Europe and Asia Pacific organization, really drives that local marketing innovation in those countries as well.
So innovation is really important. In fact, what is so important, we reward it and we celebrate it throughout the organization. And for example, we have an annual award program called the Peter Farrell Innovation Awards, where we recognize the best innovation. Now it's important to understand that innovation isn't just what your scientists and engineers would do in inventing or creating a new thing, although that's very important and we have an award for that. But we'd also recognize impact on business, so innovation around business processes.
The one that won our award this year was an adherence study looking at how we understood that the AirFit P10 could effectively rescue patients who had given up CPAP. But by taking them back with this new mask, we could create a process for our customers to bring more patients back into their system. Another area in quality, you can be innovative in quality, and we think that's important as well. And so this year, a group that had put in an innovative way to do the testing, because testing is really important in the product development world. It always takes a long time at a time when you're rushing to get the product out.
And putting in innovative testing process is really important. And we have in fact seen the AirSense 10 early performance reflect a really good testing process around that. Then obviously, we award our major product releases. We probably have 60 or 80 entries in this every year. And the judging team is the executive team of the company.
And we have a great discussion when we sit around and argue over what's the most important innovation. So I want to talk a little bit about innovation across our supply chain now, and that's very important. And again, we've got that leverage story from the supply but the key area in the supply chain, it starts with product design and the ability to design products that are simpler to put together with more highly functions in each part, but less of those parts is really critical to our philosophy of lean manufacturing process that we scale. And then we put that global manufacturing philosophy across all of our sites, and we then use a global supply network to really get that leverage. And that network really is a worldwide network.
We've got significant facilities, obviously, in Sydney and Singapore that you've heard us talk a lot about. We also have other facilities that are located near areas of expertise or where we've got specific good customer relationships. And so this supply chain network has been strategically designed. We think carefully about where we are in relation to key suppliers, but also where we are in relation to our R and D capabilities. And those R and D capabilities have got to translate customer needs and customer feedback into products through the factory.
So again, we've got to keep those lines of communication very open. And then obviously, logistics are important. I'll talk some more about that. But how we manage suppliers is very important. This has been a big area of investment for us over the past few years.
And in fact, we really have a philosophy that we want to be a good customer to our suppliers. And if you be a good customer, you're going to get better performance out of your suppliers. So we actually market to our suppliers in a sense to encourage them to want to come and be our supplier. We're not super easy to deal with. We're always pretty rigorous on quality requirements and delivery timing and costs, but we have a very strong process of improving our suppliers.
So not only do we run efficient sort of procurement processes, but we also look at helping our suppliers improve their systems and their continuous improvement programs that we run. We often run and train our suppliers in how to use those tools to improve them. We keep them very linked with our design team, and that's where the suppliers will see growth with us. And then obviously, there's a big risk management strategy as well, where we're talking about, where appropriate, sourcing or disaster risk management through that. And this data I'm showing you is actually on our supplier web portal page that anyone can go and look at and that's supplier.resned.
Com. And we recommend people to start there when they want to come and be a potential supplier to us. Now I've talked a bit about that global supply chain. You saw our factories are not necessarily located inside our major markets. And so in order to manage that, we've got quite an integrated planning system.
We've got a global ERP platform that gets fed into it from each of our 100 sales countries, an 18 month rolling forecast. That gets processed through that MRP system that feeds out on a monthly basis a 12 month rolling forecast through to the suppliers. So it's a long pretty long lead time. And we are able to forecast our business fairly carefully and fairly solidly, mainly because we've got, as Nick was saying, still an underpenetrated market. There are lots of patients that we can go after.
So there's still this is still a volume business. Transport is important, but with this pretty advanced planning system, rather utilize very cost effective sea freight for a lot of our transport and then airfreight as necessary through to some distribution center, distribution center, which is nearly 500,000 square foot distribution center with a very, very nicely semi automated material handling system that will guarantee excellent performance on delivery of orders to customers. And then obviously, you need feedback processes. One of the nice things about this system is whenever you have troubles and remember forecasts are just estimates of the future, it doesn't always happen that way, particularly around new products, which are harder to predict the exact quantities and how they're going to fit in. When you have situations like we have with the AirSense 10, where the value proposition has been taken by our customers that are up at a greater rate than we originally expected.
We're able to take 6 to 7 weeks out of our supply chain overnight by going to airfreight. Now that costs money, but being able to meet that demand is really, really good for us. And then progressively, we'll wind back off that airfreight and then see cost improvements come out as you build underlying capacity and get more confidence in those longer term forecasts. So I've just described to you there very slick, well designed supply chain and innovation organization, but how do you keep it good? Because the that is to have small teams who are experts helping the people on the front line who are doing the job.
And we try and make it people who are actually doing the work. We make it there. We give them the authority. In fact, we really ask them. We make it their responsibility to where they see something could be better, they improve it.
And we give them the tools to run small projects. And the idea here is that with lots of small projects, almost in a bottom up level, you will keep these systems very lean and keep improving them. You still need top down redesigns of things every now and then, but that bottom up, lots of projects have been very successful for us. We again, just like in the innovation awards, we award continuous improvement on a regular basis. And so here, I've just got three examples from recent awards that we've put up.
So we might have hundreds of projects, but every quarter, we'd select some of the best ones and give them an award and celebrate it and explain it. And so the one on the left is talking about a process of getting the replacing a paper based ordering system with an online electronic ordering system, which just takes cost out of systems. And the third one is talking about regulatory processes in Brazil, Telco Global's program. And we look to teams all over the world doing this improvement. Very important for us.
So now switching to away from that sort of central global system, now we're into the decentralized part of the business. The fact is that every country has its own health care system and those health care systems are as complex as any of the others. And we believe it's important to have local presence and local capability for people to make decisions about how they go to market in those countries. Consequently, we have different models and different go to market models in different countries. We talk a lot about the U.
S. And we have a very effective HME sales force and we've got a lot of insight into how we can help those customers and we'll hear from Raj about that. Other countries have similar models. Some of the larger European countries also have that type of model. In Germany, we have a home care business.
So we it's a business where we get prescriptions and provide the therapy to the patients and then build the insurance companies. It's quite different from the rest of our business, but we actually learn a lot from that business and are able to provide excellent service and integrate from our manufacturers' perspective into that provider perspective. Other countries, sometimes you have government run health systems, so you need skills in doing government sales. Other markets, they're totally unreimbursed, and so patients need to pay. So in effect, there's sort of patient pay markets have a different model again.
And then in a lot of the emerging and developing countries, we're running distributor networks as a way to get leverage. And as Mick talked about before, we have built up our global network originally through distributors and acquisitions, and that's been very successful for us. So just coming back to sort of wrapping it all up, we come back to we've got this concept of leveraging a core global innovation engine, a very effective supply infrastructure to enable very close to market local initiatives and local innovation as well. And with that, I'm going to hand over to Brett.
Great. Thanks, Rob.
Okay.
And good morning, everyone. What I was going to do over the next 10 to 15 minutes is just provide a bit of a financial overview from a finance perspective. So let me run through that. So I wanted to start just with ResMed, the finance philosophy, if you like. So what areas do we kind of focus on as a finance team in ResMed?
You can see there on the we really have a strong history of financial discipline and controls and sort of basic tenant for us. And we do maintain pretty good fiscal discipline, if you like, over a number of years. And that continues. We do focus on investing for growth. So for us, we focus on long term outcomes and how we manage that, how we manage resource allocation to deliver on longer term outcomes.
So we do have that focus of long term investment and obviously return on that investment over a period of more than just what's going to happen over the next 90 days, but really looking out over years in terms of what we need to do and how we need to invest. Managing operations and think of this and then sort of Rob talked about it is really about operational excellence and how we drive that. And finance plays a key role in driving that operational excellence. The other one very important is cash generation. So think about generation of free cash flow and that's really important and really does underpin the last point there, which is active capital management program.
So we really want to deliver on strong cash flow and that really does underpin us being able to undertake the buyback, being able to pay dividends as well. So they're kind of our key focus areas from a finance perspective. Now, let's just talk a little bit about the global finance organization at ResMed. We do have a really strong finance leadership team located in our main offices of Sydney, San Diego and Munich. So we are globally based.
It is a deep bench. We have a lot of international experience, a lot of commercial and technical experience. And if you look here on the right hand side of the slide, you can see some of the leading organizations that the team has previously worked for. So some pretty good names there and they've brought that experience to ResMed. The other thing we do, I think, is pretty important is we do for my team is we really look to provide opportunities for them to work in other locations at ResMed, so they can gain experience in other offices.
And that's been very successful. Clearly, it adds to the team in terms of cultural and global perspective. And it is an important part really of the development pathway that we have for the finance team. So it adds to them personally. And also I think it's important when we
look at it from
a global company perspective is that it really does enable best practice sharing within the team. And that's been pretty important over the years that we've been able to really accelerate and enable that kind of best practice sharing. So that's been an important part of how we sort of run the finance organization is to really develop that international experience within ResMed. Again, on the technical side, we do have strong functional relationships and we do have a strong team in treasury, in tax compliance. So those subject matter experts are also I think a first class team and they really support the business.
Finishing off or rounding out on that is around business partnering. It's clearly a focus area for us and the commercial teams certainly business partner or the finance team certainly business partners with commercial teams, particularly at that regional and country level. So in the Americas or in Europe, both at country and regional level, they work hand in hand with the commercial team. And so that sort of commercial focus with strong subject matter experts, good international experience has really led to what I think is a pretty deep and experienced finance team. Now a little bit on the financials.
You can see here on our revenue growth. And I should say on the slides going forward, they're over that period 2,009 to 2014. So we kept that consistent in terms of the time period as you look at the slides. And if you look over that period of time, we've delivered 11% CAGR on revenue growth, very consistent growth. And if you think about on how we deliver that and if you go back over time, you guys know pretty well we've had a very consistent growth trajectory.
Really that's been built on I think on our core fleet market being underpenetrated and remains underpenetrated. And it really sort of underpins the growth within the market. Now on top of that, I think the key foundations to our strategy, which is really around geographic diversification and innovation have really driven that growth. And I think they will continue to deliver growth into the future as well. I think clearly innovation and think of the AirSense platform, clearly innovation continues to be rewarded in the marketplace today.
And I think that will be will remain important elements geographic diversification, bid investment in emerging markets and also clearly innovation, which has been played a critical part in the growth of the industry. EPS growth. Again, EPS growth over that period of time 21%. It's a very strong number. And clearly, we've managed to grow EPS ahead of revenue over that period of time.
And really that's clearly about operational excellence. Clearly about execution on strategy to be able to deliver that. It really is a manifestation of kind of the culture and philosophies and activities that Rob articulated in his presentation. It's really about getting all that right, gaining operating leverage and really driving that bottom line ahead of top line growth. And we've managed to do that over a long period of Having a look now at sort of diversifying our revenue by source, by region, by product, I can see there on the left hand side, geographically we have a very strong international business.
So if you look at it, around 41% of revenues generated by the international business outside the Americas. So if I look at that, where do I see some of the opportunities? I think around Asia Pacific, which is around sort of 10% of our revenues at the moment, I do think there's longer term opportunities to increase that share of the pie in Asia Pacific. I think some of those big markets such as China and India and you heard Mick talk about that and how we're going to invest further in those. And they are experiencing strong growth, albeit off a low base at the moment.
But certainly, I think there is opportunities. And you look at other medical device companies, they do have a high proportion of sales in the Asia Pacific region. And clearly, they've identified that as being a pretty big opportunity as we have as well. On the product front, masks and accessories flow gen, you see flow gen now accounts around 59% of our revenues. If I went back 12 months or so that would be around 54%.
So you can see really see the impact of the growth we've seen in flow generators on that product mix. I would say on that on the mask and accessories, as that installed base grows, then that will underpin the growth within our mask and accessory business as well. So whilst we've seen some increase in FlowGens, you can see on a kind of segment basis, it's still quite balanced. Now let me talk for a little while on drivers of gross margin. I've got there on the screen, it's kind of 5 main drivers and I kind of just walk through that for a few minutes.
On the average selling price front, we kind of expect some modest declines I think over time and we've certainly seen that in the past. At the moment, we're probably in a reasonably benign place, I guess, on pricing just at the moment. Although we are clearly, we're cycling the adjustments we made to pricing in Q3 and Q4 last year that will continue to come through into Q4, for example. So we are cycling those price adjustments. But if I look at it kind of here and now, it's relatively benign.
It's probably more so on the mask front rather than the Flowgen. So mask remains reasonably competitive on the pricing front. If I look at flowgens, we have we've got really strong product differentiation at the moment. And that's really moderating price pressures on flow generators. So that's we're in a pretty good position on the pricing front I think on the Flowgen side.
Geographic mix, you've seen in Q3, you had quite strong performance in the Americas and we're seeing outperformance of the Americas relative to international markets. Typically, U. S. Margins are a little lower than international margins. So that geographic mix is a little bit of a headwind for us
at the
moment. Product mix, again, the outperformance of FlowGens will be negative for our product mix in the short term and that's having some impact. Clearly though, we're gaining on top line and a little bit of that would be offset by margin reduction. Foreign exchange rates, that's a big question mark because no one really can predict what exchange rates are going to do. For us ideally, low AED and high euro would be the ideal scenario and that would be nice.
That would be very helpful. If you look at FY 2015, we've had the weak euro has given us some headwinds over that period of time. It has been mitigated to some extent by the weaker Aussie dollar. So depending on how currency rates go, we'll determine whether that's a headwind or a tailwind for us. I think as it stands at the moment, the Aussie dollar is probably looking a little bit vulnerable to the extent that that Australian dollar falls more quickly than the euro then that will be beneficial to us on the gross margin.
Manufacturing logistics COGS thing to wrap that around in our focus on cost out programs. I do think we have opportunities here to really improve the gross margin. Clearly, we're doing a lot on procurement and the cost out on supplies and design and so on. And we do think we can achieve some savings or reductions there. There's areas in really optimization of manufacturing.
So we have not had the opportunity to do that. What we've been focusing on is really meeting demand for the AirSense platform and that's been the priority since we launched really. So we're playing catch up a little bit. That optimization and driving costs out of that platform, which is big platform, big volume, we'll certainly be working through. I think we'll get some a little bit of traction through Q4, but it will really be an FY 2016 story in terms of driving those cost out programs.
Of of the airversea mix, if you like. There's been a lot of airfreight really to support demand. I think through the course of FY 2016, we'll also be able to track that or normalize that airfreight sea freight mix
and that will
certainly be supportive of the gross margin. And the other thing is as we achieve volumes as we leverage in terms of scale and things such as overhead and so on per unit will also improve over time. So I think there is a number of levers we can pull in terms of cost out programs around that manufacturing logistics COGS that I think can manifest through the margin through the course of FY 2016. We're certainly working hard in those areas. This is on operating expense leverage.
And I have here a graph on SG and A. And you can see sort of the red line there tracks SG and A expenses SG and A expenses as a percentage of revenue. So you can see from FY 2009, we're at 31.5%. We're sort of tracking down there to 28.5% year to date FY2015. 15.
So over that period of time, we've been quite successful in terms of delivering operating leverage in terms of SG and A. And clearly, the objective will be to grow SG and A at a lower rate than revenues going forward. And there's a couple of ways we'd do that. A couple of examples is perhaps kind of in a structural way. Some things like we've set up a lot of the back office IT support functions within Kuala Lumpur within Malaysia.
And that sort of supports a lot of the back office infrastructure of our IT systems. And that sort of helped a lot in the structural sense. It's also enabled us to invest more in the infrastructure around our healthcare informatics. So we've been able to sort of allocate those resources into sort of revenue driving initiatives. So there's a lot of those things that we've done over time on SG and A.
The others might be looking at line item expenses, for example, travel and working with our providers there to reduce those costs. And also implementing, for example, video conferencing, which we now have in all our major offices throughout the world, I do think that improves communications, but clearly it also saves costs in terms of travel. So there's a lot of things that we do in terms of what I would put under the continuous improvement umbrella to reduce SG and A. And then there's some structural things that we've done along the way as well. Clearly, the objective is to continue to drive down that SG and A as a percentage of revenue into the future.
Talk
And over the last 5 year period, we've returned 98% of our free cash flow back to shareholders via a dividend or a buyback. So we've really been pretty disciplined in giving back any of that excess cash back to shareholders. EBITDAX 2015, the dividend payout ratio is 44%. So we initiated the dividend a few years ago. We've increased that dividend over the last few years.
It's around 44% of net income. And shares outstanding
since 2,009, we've reduced the
shares outstanding by outstanding since 2009, we've reduced the shares outstanding by 6% over that period. So whilst we do issue equity to our employees, you can see that the buybacks more than offset that. And over that period of time, we've reduced your shares outstanding by 6%. So that's on the sort of capital management front. We've also been investing for growth over that period of time as well.
So we've made quite a few sort of bolt on strategic acquisitions over that period of time. And I'll just point to a couple there. Semler, which was a respiratory company based in France, we bought some time ago now. But that really formed the foundation of our Respiratory Care business. And you can see that in the latest generation of product, which is the Astral, which is really is I think a differentiated product within the market and has done really well in Europe and continues to gain traction in the U.
S. Market as well. So that was a great strategic acquisition for us. The other one I'll point out is Ambien on the health care informatics side. This company was based in Nova Scotia in Canada.
It really enabled us to accelerate our Healthcare Informatics offerings. And importantly on that, it enables us to really bring on board a lot of talented people in the area. So a lot of human capital. And you'll hear from Raj shortly who founded this company and who's also now President of our Informatics group. And so that team has just brought a lot of knowledge and a lot of execution into our healthcare informatics.
So again, that's been a great investment from a strategy perspective and really kind of rounding out and accelerating our offerings in the various directions that we've gone. So they've been very effective. We've done a little just lately, and Mick mentioned it around Czech Republic, Poland, we've done a little bit of vertical integration. For those in the audience from Australia, I think you guys know we've made 3 acquisitions in Australia as well on the vertical integration front. And really that's looking at how we can grow those markets faster than the current model that we had.
And they've been working quite so far they've been working very well and meeting our expectations. And it's really around growing those markets faster than we think the current situation was providing us with. And just talk a little about return on equity and how we've managed to drive that up over the period of 5 years or so. So we've gone from 13% in 2,009 March year to date up to 21%. So return on equity has been very strong over that period.
And that's really been driven by pretty robust earnings growth and also a disciplined approach really on the capital management side. So the combination of those has driven our return on equity over that period of time. And we've also done that without sort of financially leveraging the business. So you can see there in the blue bars is our kind of net cash position, which has been pretty consistent over that period of time. So I've been disciplined there, generating strong returns.
But I should say, into the future, we still have on the balance sheet plenty of capacity to leverage if the opportunity arises or we think we should do so. So we maintain that capacity and still providing very strong returns in the business. So the key takeaways or wrap up for me is we do have a strong track record of growth, okay. We've got demonstrated financial discipline. We really do have a relentless focus on operational excellence and how we can drive cost out of the business and operate as efficiently and effectively as we can.
And we really have a big theme around scale and leverage. We'll continue to do that. And we are committed to an active capital management program and that's really to enhance shareholder returns. So for us, they're the key areas that we're focusing on from a finance and from a company perspective.
Thank you.
Thank you for that, Brett. So we are going to take a short break. I'd like to start Raj's presentation at 10:15. But I just wanted to remind everyone who is on the webcast that this presentation is posted on our website under the Presentation section under the Okay. I think we're going to start.
So if you can all take a seat. So we are going to start up now with Raj, and I'd like to ask Raj to come up on the stage to talk about
Thanks, Agnes. So I came into ResMed about 2012 through the acquisition of Umbion. Recently moved to San Diego, it's not a tough place to fall in love with, beautiful city. Still miss the East Coast of Canada, but enjoying San Diego, especially enjoying building and growing the global healthcare informatics team and being part of the executive leadership group. ResMed has been investing in data for a long time.
So from the enablement of data in the S9 platform, so there was a bolt on modem that you could snap onto the back of the device and that was an investment we made a long time ago. And that was to understand what value data delivers to our customers and our patients. We've also been studying our customers and the patients and what challenges they face. And I think the intersection point between data and those challenges that our customers and patients face creates opportunity for innovation for ResMed and opportunities for us to lead. Over the next 30 minutes, I want to talk to you about the core capabilities that we've been building in our teams and our systems.
I want to talk to you about how we continue to solve for you guys understand the complexity that our customers and patients live in and how we're solving for each piece of that. And it will give you a sense of when we talk about a product like Managed by Exception with U Sleep or a data exchange for exchanging information from our systems into hospitals that what context that fits in. The last thing I'm going to talk to you about is when we talk about our three horizons of growth, I'm going to talk to you about where healthcare informatics underpins our chronic disease management strategy. So how we're taking our core capabilities in sleep and transposing those on top of chronic disease management for COPD and other things. Okay.
So let's talk about kind of what's happening in the market. So we've got a lot of patients facing bottlenecks in the hospital system. So the hospital systems are looking at ways of shifting patients out of the hospital and into the home. And that creates a challenge for how do you have that personal engagement with the patient on a regular basis. And they're looking at introduction of telemonitoring tools and things like that.
But if you even look at the simplicity or the effort that goes into phoning a patient at home and checking on how they're feeling, there's labor involved in that and it's complex because you're collecting so much information in that conversation. And then you look at all these companies that build these aging at home technology. So they have companies now that will monitor your motion sensor going off or the coffee machine going turning on, so they get an indication that there's activity in the home that's normal. And then that's maybe an indication that things are okay. But what that's doing, whether it's the phone call or these sensors, is that's producing a ton of information.
And data alone isn't the answer. It's what insights the data gives you to act on. And I think that's where we're heading is predicting outcomes, communicating the insights so that our customers and patients can act on that information. And it's so important. So as we take a look at our customers, they're looking at how do they do more with less.
So they've got so let's say we've enabled populations with data, we've given them all these, this access to the information, but now they've got this volume of information. So they want to manage large populations of patients ongoing effectively with less people, less cost. You also have this whole movement of the quantified self where patients are very interested in their outcomes of the therapy, advocating for themselves and that dynamic between now the provider and the engage a patient, how do we engage a patient, how do we deliver data in a meaningful way, how do we coach them through the challenges they have and take the burden off of our providers. So we have been leading the way. In many cases, we were in a unique environment, we're uniquely positioned and we have a unique ecosystem of solutions we've delivered.
And our customers see the value. If you look at our FlowGen sales, reflective of the value that our customers see in the data platform. So we talk about air solutions in that portfolio. It is not just the device anymore. It's the device and the value of the data and the systems that we create beyond that, the efficiencies and patient outcomes.
So in our industry, we were the first to put onboard wireless into our devices. So the devices are always on. We were the first. We were also the first to deliver a managed by exception technology. So how do we make our providers efficient at stratifying all of the patients across different risk categories and focusing only good with a low touch or sorry, low cost, high touch model so that the patients feel like they're being coached when it matters.
So when they have an issue, they're engaged. And so we've underpinned all of our technology with an automated patient engagement tool where they can get a voice call, they can get a text message, they can get an email that guides them towards how do they resolve the issue that they're facing. We are also first to do a comprehensive data exchange. We can't be everything to everyone. Our customers live in billing management systems, hospital systems and they say introducing a new system that my patients or sorry, my clinical users and my patients might have to log into isn't what we want to do.
We want to live inside the hospital system. And so creating a patient in your systems, getting clinical outcomes back into our systems, that's what they're asking for. So we created a very rich data exchange program with the tools that allow them to quickly and easily integrate. So the program isn't just a technology. It's a team of people that help them design and create the glue between their systems and ours.
So it's a whole operational model beyond just the your news app without seeing a story on security these days. And I think it's not a flag you wave, It's a respect that you have for security. So we have a separate information security team, a discipline within each of our teams around education, how they build software. We also have the monitoring to know what type of activity is normal and what's not. So we have a strong respect and a discipline around information security.
The other thing is we're talking about creating an expectation around data, similar to I guess I was going to use an analogy around dial tone. I don't know if anyone ever gets dial tone anymore, you just kind of go. But we used to expect that you picked up the phone and there's dial tone. We're creating that same expectations for data. They expect that they can access the information anytime, anywhere and it's stable.
And so you have to build those capabilities. You don't just build it and not think about those things, but it's a planning exercise and execution exercise. We talked about integration around fast and flexible integration capabilities. So the team, this is the stuff you can't see. This is the stuff when you click on a page, it's not there.
This is the stuff that's happening behind the scenes. So how do you make sure that when we've all clicked on a page and it's blown up in front of us, that's not visible when you talk about connecting systems. So the operational model to support when things break so that we can see that the traffic is not normal, we're not seeing the same volume or we're getting errors so that we can proactively engage with our customers and create a good experience for our integrated customers. The other one is efficiency focused solutions. I think Rob mentioned it and then for those that saw last night, we have a feature called remote assist and this is one example of an efficiency focused solution.
We have the most common complaint that we get from our customers is my mask is leaking and the second one is likely this mask is leaking, and the second one is, likely, this device is broken. It's not delivering the therapy.
So the only option
that our customers have
is to say, bring it back in, in the traditional model, bring it back in, we'll look at the device, back in, in the traditional model, bring it back in, we'll look at the device, we'll give you a new one, so they have to deal with that aspect of it and then they'll we'll send it back to ResMed. Because of the quality of guarantee we have around our devices, we take the device back and most times we say there's no fault found in that device. There's a ton of cost in that system between the home care provider, the patient and with ResMed. With Remote Assist, one feature, because our devices have the cellular onboard, we can have our clinical users connect and look at that device. They can say, actually, your device is functioning.
Got a high mask leak or that the humidity temperature setting is this or that and we can make the adjustments and they can make those adjustments remotely. So and the result of that is that the patient gets the problem solved on the phone and none of those other activities happen, but the best result is that the patient is more likely to succeed with therapy. And that's good for the patient and good for our customers. So good medicine, good business. Meaningful action oriented data insights, this volume of data, so how do we create categories of how we apply our patients where we say this patient, their therapy needs have evolved.
So they can be on a regular APAP device and then start demonstrating the need for an ASV device. Our customers cannot visually inspect all of those data points and say, here's an opportunity to put the patient on a better therapy. So these managed by exception technologies aren't just for struggling patients. It's also an opportunity to move the patient to an alternative therapy. And that's really, really important.
And the last one is we're a global company. As you put infrastructure out there, we need to consider things like language, regulatory, privacy, time zone support so we consolidate infrastructure to serve multiple markets. And those considerations in terms of building a global best in class HI solution are really, really important for us to be efficient at our delivery model. So in terms of the value props, I mean, the solution is, yes, we're beyond the box now and our customers are getting that. They're coming to us with other issues.
So for example, all of our solutions are have analytics components. So we use the overused term of big data, but we use data analytics to help us evolve our products and show our customers how our solutions are meaningful to them. So where did they start and where have we brought them to? And that's part of Air Solutions as well. I think that it's a suite of solutions that goes well beyond the box and our customers are looking for other things that we can do for them.
So a good example is customers say to us, okay, you're driving consistent outcomes, you're driving efficiency in my business, but there's still troubled areas. Can you point me to those areas? So we can, for example, point them to clinical users who may not be spending as much time with a patient on setup as they go out the door. And we can say their ratio of adherent patients to clinical user and the performance of those patients is low compared to the rest of your organization. And we can point them in a very surgical way to problem areas in their business.
And that's different than a patient engagement tool. This is an operational tool that helps them really fine tune their business. So I'm going to apologize before I go into this slide because it's super complex. I think it's really, really important that you understand this. I said earlier, we're solving for the patient pathway.
I'm going to put up a ton of arrows and colors that hopefully lead you through this. I think and then I'm going to try and overlay where we've solved with the technology, ecosystem of Air Solutions. So bear with me, try to stick with me and then I think at the end, you'll have a very clear picture on what this means to our customers, the patients and to ResMed. So we've got all these stakeholders. We've got obviously our home care provider, HME in the center.
We've got the referring physician. In the bottom right, we've got our obstructive sleep apnea patient. We've got the payer up in the top left. We've got ResMed in the top right, the hospital system and then finally the sleep lab. And all of these stakeholders interact with one another at some point.
And this starts with a patient saying or their spouse saying, you've got risky snore, you stop breathing, I'm worried about you, and they inspire them. Or it could be someone on an S plus who's saying, wow, my sleep score is terrible and it sparked the thought that maybe I should go and talk to someone about this. So they end up with
a doctor's visit. So we're
going to start through a diagnostic phase and for those online, this is all the lines in gray. So the diagnosis phase happens when the patient visits the referring physician. They have a conversation and
the physician says, yeah, I think I need to
send you to a sleep
lab or to a home sleep testing company so you can get screened. So they get sent over to the sleep lab in the bottom right hand corner and some type of diagnostic event takes place. And then ultimately, the results of that diagnostic report come back to the referring physician. And assuming they're positive for sleep apnea, the physician then has the job of referring that patient to a home care provider so that they can end up on therapy. So that's the next phase.
So they send a prescription from the referring physician to the home care provider. But oftentimes, the home care provider says, well, this isn't enough information for me to set up that patient on therapy. So they go through this loop of getting all of that detail that might be relevant for how the patient needs to get set up, so they didn't provide the full prescription. It might be information they need to supply later on for the payers so they can get reimbursed. So there's a whole bunch of detail that often doesn't come through.
Point the order. They want to put the patient on therapy, but at some point, hopefully they have inventory. They need to engage with ResMed to get new inventory from us. And so they order product from ResMed either phoning us up or another means to their sales rep and then we send them product, they enter that in their inventory management system, which is a whole other system. Then they finally get to then in a traditional model and sorry, for those online, that was all in blue.
So now we're moving to red, which is monitoring and management phase. So the HME has to follow-up with the patient and in a traditional model that was through phone calls. So they're constantly following up, say how is it going? Because there was no visibility into data, they would have to do a patient attestation call to see if they were compliant. But oftentimes the payer is looking for results.
And so there's a memory card that was stuck into the back of the device and they were asking the patient to ship back that memory or SD card back to the home care provider and say, here's your data, come and look at it. And they would use that, the home care provider would use that then to say, hey, the patient's achieved a milestone, I need to send that back to the referring physician so they can book an appointment with that patient to close the loop on the patient achieving adherence with their therapy according to whatever payer rules there are. So if that's not complex enough, let's move on to what they do to keep that patient compliant for resupply. So now the patient is compliant and they want to keep the patient ongoing compliant for resupply and they need to follow-up on a regular basis. And so they move to patient engagement and they have continually, at whatever interval they deem is practical, engage with the patient over and over and over again for the lifetime of that patient.
Finally, they may have a hospital system that they're servicing. So maybe that referral came from a hospital system and the hospital system says, for you to receive referrals from me, I'd like for you to share data back with me. So they're faxing or they're producing Excel documents and sending those over and it's a very laborious process. But in order to maintain that referral, they need to do that. So they're obligated to do some type of hospital.
And now finally they're saying, okay, I've done all
this stuff, I want
to get paid. And so they move on to billing, and in green we've got let's submit a payment, claim a payment, and then we've got, let's submit a payment, claim a payment, and then we've got, and in green, we've got let's submit a payment, claim for submit a claim for payment to whichever payer that is. Hopefully, we have all the right information and oftentimes they get a decline. And the decline is for many reasons, but it could be because the payer wants to see the original diagnostic report that came from the sleep lab. Then they ask the atremedic chase down the sleep lab to get the original diagnostic and prescription that the physician never forwarded to them and they finally go and get paid.
So you can see from a complexity standpoint, this is a real problem. The other thing, the other person who's suffering probably the most through this is the patient because often times because of audit requirements, our home care provider can't move to the next step until all of that paperwork is gathered. So the patient says, yes, I got diagnosed, but I'm waiting and the HME is saying, well, your doctor didn't do this and the patient is caught in the middle of this whole circle. And we talk about patient engagement, the patient is struggling with therapy, but the HME just doesn't have the time to get to them and they put it in their closet. That's not good for the patient, the HME or ResMed.
So let's talk about how we're solving for each of these pieces. So let's start with this, the first piece when I talked about between the physician and the sleep lab. The patient always has to go and see their doctor. Now we're talking about the diagnostic needs to happen and that information needs to flow back to the referring physician. So we've got 2 things that help with that.
One is we've got a product called ApneaLink Air. It's a home sleep testing device allows the patient to go home in the comfort of their home and run a diagnostic in their home. What that allows us to do is that when the patient returns it to the lab or the home sleep testing company, they can upload that study to the cloud. And now if the fleet physician that's scoring that study is in another physical location, they can log in and conveniently score the study and save the study results and their prescriptions back into the software. And now the referring physician can log in and that.
So there's no paperwork for the referring physician to receive. They can log in to our system, which is called AirView Diagnostic and see the results of that sleep study. So that helps us solve one piece. Now we've got the next piece, which was from the referring physician up to the HME, the part about the prescription. And I talked about how complex it is and based on the payer, what you need, the notes that you may need from the doctor to complete the detail, and it's called the detailed written order.
How does that happen? We completed an acquisition of a company called JSAK. And JSAK has 2 pieces. 1 was a piece called referral document management and this is an electronic portal that physicians use to push a patient's prescription for multiple things, wound care, NIV, oxygen and sleep between their office and the home care providers they're sending their patients to. And so this, based on the type of therapy the payer, provides the physician with all of the workflow they need to complete a detailed written order so that when the prescription lands with the home care provider, they have everything they need to put the patient on therapy very quickly.
Next, let's move up to the blue lines, which was how does called ResMed Online Store. And this allows our customers to go online without having to call their rep, without having to call our call center and place an order. We've also integrated our ResMed online store to some major leading billing management systems. So if they're in their inventory management system and say, I've hit a threshold where I need to reorder, they can do that without logging into ResMed online store, but right from their billing they're done the training they've done the training and now they need to set them up inside of our systems. So this is our core platform that many of you saw last night, which is called AirView.
So they create the patient, we've got cellular on board and data starts flowing into that system. They put the patient on 1 of our AirSense AirCurve devices and now they've got this flow of information coming in back to them and they need to say, okay, I need to stratify those patients around those that I can get paid for, those that are struggling with leak or those that should be on maybe a different course of therapy and I've got this growing population of patients I need to put into these categories. They use our product called You Sleep for that. So you've got patients now managed by exception. How do you get patients more engaged, that whole quantified self piece?
Sorry, I'll back up. Oftentimes now you've got the patient to a point of compliance and the physician needs to see the outcome of therapy. AirView not only lets the patient set up or the home care provider get set up in our system, AirView also allows the physician to log in and see ongoing therapy. In a similar way that AirView diagnostics piece lets them see the sleep study results, AirView lets our physicians see the progress of their patients. And next we move to, okay, you've got the patient initially compliant, you want the patient to be fully engaged and maybe motivated.
So how do they get coaching around fitting a mask and how do they get alerts or even rewards, a pat on the back for milestones they've achieved with their therapy? So we've got a product called MyAir and this is a product that patients can they get an insert in their bag and we've launched this both in the U. S. And we've got it in the U. K.
And Germany. And this allows a patient to go themselves and sign themselves up and they get an application they can put on their mobile phone, they get web access and they get coached on outcomes. And we've turned the complexity of what's an AHI and what's a leak into a sleep score that gives them a real sense of what their issues are and a simple way to get pointed to where they need to solve a problem for leak or for even just motivation. It's tough started with therapy, what should I do about it? That's my error.
So now we've got a patient fully engaged, managed by exception in the clinic so that they're focused on the patients that matter. Now there's resupply. The other half of JSEC was called JSEC resupply. And so payers often define what timing you have to put new masks and supplies out for a patient and it's different by payer. And so how does a home care provider optimize the resupply ratio they have for a patient?
And so they have to set a schedule, they have to get a patient to consent to the resupply event, so they need to engage with them and get them to confirm it, then they need to create an order and they need to move that into their billing management system and then ship the product. GoJSEC takes care of the scheduling, it takes care of the patient engagement, so it does automated outreach and it creates that order. So it solves a big problem and it helps our customers optimize their resupply program. Okay, I'm almost done. So we've got this piece, the yellow arrow that's left.
Our HMEs say I've got to share this data with a hospital system. Because I know I can drive good outcomes with patient engagement, I manage by exception, my compliance rates are high, I'm going to go and start targeting hospital systems because I know I do a good job with my patients and I know what cost base I have inside my business. So but the hospital says you have to push data into my EMR, whether it's Epic or Cerner or whatever. We've got a program called the ResMed Data Exchange. And what it is, is a people process technology program that allows us to quickly glue our system into others.
So really powerful. We were the first to do an Epic EMR integration with our sleep data. Next, we talk about submitting a claim. So this often happens from management system has interfaces with multiple payers. What they need is information out of our systems, proof of compliance, notification when the patient achieves a compliance milestone.
That's also happening through our data exchange. So similar to the way that we push information into the hospital for clinical use, we can push information to billing management systems so that they can collapse the time to money inside their billing cycle. Has the original study, the HME can log in and they can if the detail was pushed to them, they can log in and get the original diagnostic report. So I know it's complex. I wanted to go in this depth to show you that we are solving for the patient pathway, the complexities of our customers and putting meaningful solutions at each of these categories.
And this is a many of these pieces exist in multiple markets, although I gave you a very U. S.-centric example. These problems exist. The patient engagement issue exists, the follow-up exists, optimizing resupply exists. These problems exist in many, many markets.
And these are the solutions portfolio that we have. Let's talk about results. About a year or so ago at the ATS conference, we published a case study. And this was a you have a standard of care that's defined for the traditional intervention. And so in this particular home care provider did a really good job.
You can see in the standard of care group, it's at 73% and they did that by calling the patients on intervals at 1, 7, 14 30 days. So they would log into AirView, they would visually inspect the patient and they would make a phone call and they'd ask the patient how they're feeling. But that's a lot of labor going into that. They then had a U Sleep group. So U Sleep was doing patient engagement, it was doing voice calls and emails and text message to the patient to motivate them.
It was also showing them here's the patients you need to focus on, only call these patients. And so you'll see that there's 2 really important results here. One is we went from 73%, which is impressive by the way, and not every one of our customers can achieve 73% with a manual process, but they took it to 83% enabled by technology. So a huge opportunity. If you look at what that means, it's 10% on top of 73%.
Typically, we see much less than that. 10% on top of that, which is feeding a resupply trailing revenue opportunity for this HME. So 10% more patients going to that opportunity funnel. The other piece that's very interesting is a 50 9% reduction in labor. So they could take a huge amount of cost out of engaging with the patients and driving good outcomes.
So let's go across the pond. I think I'm pointing in the right direction. We have I think this is well, we'll go with this. We have 2 case studies. We'll see I think we've got 2 customers over
in the U. K.
1 is WIGEN and essentially they're in a capitated environment. What they have is long wait times, the inability to bring patients in and meet with them and talk about their therapy. They also have physicians with awareness campaigns talking to patients about the effects of hypertension with sleep therapy and diabetes and those type of things. So patients are more aware, doctors are making more referrals, but there's a choke point in the sleep labs and in the HME. This particular customer implemented AirView as part of ResMed Air Solutions with enabled connectivity with the device.
And let's talk about some of the results. So the outcomes were they're more quickly they're more quickly identifying non compliant patients, they're maximizing new patient setups and reducing unnecessary outpatient appointments. So they're not calling in everyone. Appointments they were having was because the patient was saying the device isn't working. And the care team is now freed up to focus more effort on the complex patients.
So it's a really, really it's a paradigm shift for these guys in terms of the way that they engage with patients, the cost they can take out. So now they've been able to grow their population of patients, reduce the wait times for the patients and also drive really good outcomes.
View a
second one. Similar circumstance, unprofitable clinical operation, of changes with staffing. So when you're trying to train and do regimented training and bring the right people in, that's a challenge and they have unacceptable wait times, very similar circumstance. These guys are about 200 kilometers west of London. So they wanted to trial telemonitoring and the implementations of AirView and then just measure the ROI and again impressive results.
So 1, reduce waiting times, 2, doubling the clinical capacity for assessments, 60% increasing capacity for 58% reduction in nurse time costs to the original case study I showed you, 58%. So a reduction of £34 to £13.45 cost per patient. It's a huge reduction. They also have precise therapy monitoring and if we talk about what the effect is and we can't forget about the patient, is the patient feels like they're cared for better. And so the patient has a better experience.
Let's talk about chronic disease management. So we've talked about our core capabilities, and I'm going to talk to you about how we're going to translate those into chronic disease management and supporting our horizons 2 and 3 of growth. So we understand that this isn't just about COPD and we're going to get to that. We understand that sleep has a whole bunch of other diseases that are related and important. We've shown you data systems that show how sleep data can be made more efficient.
We can drive better patient outcomes. We also understand that it's important that we start putting some effort into how that we understand that there are different physicians that care for the patient, that there's different challenges and that we have to include those in our strategy
for
We need to
be able to check
We need to be able to check on a patient very regularly and it's not just the sleep data. It could be weight gain. It could be their blood pressure. It could be how they're feeling or how a loved one perceives that they're feeling. We do have a lot of expertise.
We've talked to you about some of the solutions that we've built, this whole providing meaningful insights into what to do with that. But let's look at the other dimensions. So we do have a patient that's chronically ill. They have multiple caring physicians. They have outpatient therapy.
They, of course, have some HME equipment that may be involved, home health nursing coming to visit the patient in the home, they have prescription management, we do have the loved ones influence. So how do we if we've got patient engagement, how do we also involve the loved ones in driving better outcomes for the patient through that? And then we have varying treatment protocols. So it's not a as complex as I showed you, it's different when it's a chronically ill patient. So what we've got is our core capabilities.
And I talk about security and efficiency and the data exchange and globalization of the platform, and that is our best in class solution. We take all of those and we take the dimensions that I just mentioned for chronic disease management and now we have to start looking at how are we building air solutions for chronic disease management. I'll give you a couple of examples. So one is this advanced workflow. Having the ability to author different workflows based on that patient pathway and you saw how complex it was.
It can how do we do that quickly and effectively without writing code every time to do it? So being able to deliver advanced workflow for multiple stakeholders is really important. The other one is we know how to collect our own data. How do we combine that with data that's relevant to the patient? And it could be how are you feeling?
How do we bring that data in, overlay it and start to do more advanced risk stratification? So integration of population and personal metrics into the ecosystem that we've built. The next one is user experience by persona. We've been very HME centric. In chronic disease, it's not just the HME that has evolved.
It could be a physician in a hospital who says, I want to look at the data in much more detail. I want a higher resolution of information. I want to talk about prediction on where this is taking the patient. So we need to present that information in a very different way based on the persona. And finally, there are standards of of the opportunity that data presents, how do you evolve the standard of care?
So for example, we now have visibility into a patient at the home. How does that change the way they're cared for and how do we put that into technology? So our ability to rapidly implement new standards of care and technology is going to be a winning strategy for Aehr Solutions for chronic disease management. So let me close by saying we've talked about our three horizons of growth. Healthcare informatics underpins all three horizons.
We've got our core business in SDB and we've shown you how we built core capabilities in data connectivity and efficiency and exchange and globalization and that's certainly something that applies to all three. We are leading OSA and the treatment of those patients. When we look at COPD, we know that our capabilities translate well to managing a COPD patient. And when we look at the horizon 3 and the dimensions that I talked about and really understanding, putting the same rigor that we have into the sleep business in managing chronic disease patients, cardiac patients, that's where we're going to head for our horizon 3 is to create that same complexity. And I promise you, in 2 years when we come back or sooner, we won't do the same spider charts.
We'll do some type of a simpler explanation because it will be many more arrows, much more complex, but we will deliver effective solutions for Horizon 2 and Horizon
3.
Thank you, Raj. So now I'd like to ask Glenn Richards to come up and talk a little bit about our clinical strategy.
Okay. Thank you very much. This morning, I've got a few jobs to do with you. What we're going to do oh, by
the way, the koala there
is for all the Australians in the audience, just in case anyone feeling homesick, one of the sleepiest animals in the world. What I'm going to do is make sure that we're going to I'm going to give you a clinical perspective on STP on what we do, what our devices do, what our core markets are, what our adjacent markets look like. Then we're going to move to serve HF, the results of that, which of course are very topical at the moment. And then what we're going to do going forward. So we'll concentrate first on our core market.
So there are 3 different sorts of abnormal breathing patterns you see during sleep. There's obstructive sleep apnea, central sleep apnea and respiratory failure. And easily the most common of those is obstructive sleep apnea. So depending on the sorts of measures that you use, around about a quarter of the population has obstructive sleep apnea. So, that accounts for the vast majority of our business activity, over 80% of it.
So, we'll make sure we concentrate on that. But I'll move you through from there to respiratory failure and then last central sleep apnea, which accounts for about 10% of our patients. So these are 2 scans. The one on the left is a normal person. The one on the right has obstructive sleep apnea.
And in these scans, ear is black. And so the airway is shown in the scan on the left, it's a lovely big wide black area. That's the person's upper airway that you can see outlined in the black. On the right hand side is some of those obstructive sleep apnea. And the rest of the scan is fairly similar, but you'll see that black area is much, much reduced in that person.
When they go to sleep, that will reduce even further. And as you can see, behind the tongue, which is the narrowest bit there, this person is liable to collapse their ear away altogether and be unable to breathe. And that is the fundamental problem that causes obstructive sleep apnea. Now, I'm not going to start this yet, but I want to show you a video. This is a young Japanese boy.
And this video was taken by his mother, who was a bit disturbed about the way that he looked when he was asleep. One of the reasons for showing you a young boy like this is to demonstrate that it's not all fat old men who get obstructive sleep apnea. All sorts of people in the population are susceptible to it. And this chap, as you can see, he's got a very small jaw and that makes this upper airway narrow. Now during this, what you will see is this boy is completely obstructed and he's going to make increasing efforts to breathe and you'll be able to see it easily because he's thin.
And then he will be aroused by all the alarm bells going off in his body. He'll move around a bit and then he will start the whole cycle again. So here we go. Oops, it's not going to work, is it?
No.
And so that boy took about 3 or 4 breaths and then he started doing exactly the same thing again. Now I know there's not many medical degrees here, but I don't think you need a medical degree to figure out that's not a great thing to be doing. So this is what it looks like when you put us when you if he was having a sleep study. So at the top, we've got flow. So that's the flow measured from his nose from the patient's nose.
And as you can see here, there are 3, 4, 5 breaths being taken. That's where the flow deflects and then periods where there's none. And those are the apneas and hypopneas. And that's the sort of stuff that you're looking for in a sleep study. On that second line down and the third line is the thorax and the abdomen.
They label the thorax and the abdomen. That's the movement that's going on. That's what you can see in that boy, the movement of his thorax and as well, it would have been this afternoon mostly his thorax. And you'll see that even during the periods of no flow, there's movement. These are attempts to breathe that are unsuccessful.
And that's the characteristic of obstructive sleep apnea. No flow, but ongoing respiratory movement. And you'll see the effect of it on saturation. Now, the saturation of oxygen should be above 95%. You'll see in this patient, it's varying between about 80% and nearly 100%.
And that's another classic thing that happens in obstructive sleep apnea, repetitive periods of hypoxia. Now, she'll know oxygen is a really, really important gas to all sorts of metabolic things that go on in your body. This is not good for you at all. Now, we measure the severity of sleep disordered breathing by a thing called the apnea hypopnea index. Now apneas are periods where there's no flow.
Hypopneas are periods where there's only little flow. In fact, in that video I just showed you, there were hypopneas and apneas. The boy was breathing a little bit, but that's a hypopnea. And we count them all up and divide them by how many hours of sleep there is and it makes an index. And if it's less than 5, it's normal.
5 to 15 is sort of mild, it's a gray zone. Anything greater than 15 is definitely disease. So what we do is we classify 15 to 30 as moderate disease and over 30 as severe. So that's what these sleep studies all come up with. They come up with this metric here, the apnea hypopnea index.
Now, there's a fundamental difference between obstructive and central apnea and we'll come back to this a little bit later. The difference is central sleep apnea is not caused by upper airways obstruction. You get the same differences in flow, where there's flow during some periods and no flow during others. But in central sleep apnea, the desire to breathe is gone during the periods of no flow. So if you have a look at the thorax and abdomen and the both of those bottom traces, where there's no flow, there's no movement.
So central sleep apnea is a disorder of respiratory control, not of upper airway obstruction. Going back to obstructive sleep apnea, what are the symptoms of? So men present with typical symptoms. There's many examples actually of medicine where it's been men who have been studied rather than women. And that's classically been the case in obstructive sleep apnea.
So the things that we generally talk about in terms of symptoms are mostly male and that is really loud snoring. Now that's not universal. As you saw with that boy, there's not very much snoring at all. He got so severe his snoring actually declined because he's not breathing. Witnessed apnea, which was exactly what we just saw in that video and then daytime sleepiness.
So all those arousals that are going on disrupt that boy's sleep. So when he wakes up during the day, he feels like he hasn't slept at all. And when you saw what he was doing when he was asleep that wouldn't surprise you. So that's a typical male triad of symptoms. Women are more complex than males as you probably noticed.
And so they come up with a whole series of other symptoms and it means that women are much harder to spot with obstructive sleep apnea than males and have traditionally been underrepresented. But what we're seeing is a quite rapid increase in recognition of symptoms in women and therefore a whole lot more women appearing in sleep laps. Now what they will talk about instead of being snoring and witnessed apneas and daytime sleepiness is insomnia. I can't sleep or I feel fatigued or I'm depressed or I'm tired or I have headaches. Now those are quite nonspecific symptoms.
And that's actually decreased the number of women who are coming to sleep labs for a long time. But there's a rapid increase in awareness of this issue going on. One of the effects of obstructive sleep apnea is probably the sorts of stuff that we don't usually measure in a sleep lab. So in this slide, up at the top, we've got the usual things that you measure in a sleep lab. There's the oxygen going up and down on the top chart and there's flow.
These are hypopneres. Now you can see a little bit of flow there. It's not gone completely flat, but it has very much the same effect. There are 3 channels underneath that you don't usually measure and these are perhaps the most important ones in some way. The first one is the negative swings in intrathoracic pressure.
And you would have seen that boy's chest as he was trying. That's creating a vacuum in his chest each time. Normally when you breathe, you have a small amount of vacuum, about 5 centimeters of water or -5 centimeters of water. In this trace here, we've got this person going down to minus 80 centimeters of water. And that's the sort of pressures that boy would have been generating.
That sort of high pressure has a direct effect on cardiac function, because your heart can't function properly in that sort of vacuum. 2nd thing that happens is this with these the arousals that are required to restart breathing, there's a fright. There's that fight, fright thing goes on and there's constant or recurrent activation of the sympathetic nervous system. That's the bottom trace there. And one of the major effects of that is on blood pressure.
So if you look at that blood pressure trace, there's 2 parts to that. The first one is the top of that chart, is about 120, which is normal, but you'll top of that chart, is about 120, which is normal. But you'll see after each event, there's a surge in blood pressure. And in this person, it reaches close to 200 millimeters of mercury. Again, I don't think you need a medical degree to figure out that that's not very good for you.
You also see, by the way, if you look at the in the blood pressure trace that there's intermittent tachycardia. The heart's slowing up and speeding up and slowing down, speeding up and slowing down. So normally sleep is supposed to be a rest, a restorative period for your body. If you have obstructive sleep apnea, you don't get that. You're getting a major workout during sleep and it's destructive in the long term.
And perhaps once you see that, you think, gosh, maybe this would have an effect on things like drug resistant hypertension, heart failure, coronary artery disease, atrial fibrillation, because none of those things that we saw are any good for your heart at all. Then also, obstructive sleep apnea is associated with stroke, that we deal with in Western society. Let's talk about therapy. What about CPAP? What does it do?
Cast your mind back to that first scan that we showed, which was all about the dimensions of the upper airways. People in the upper airway and tries to blow it open. It's a soft structure in your upper airway and so a little bit of pressure can change its dimensions. What we've got here is a series of CT scans on a person and they've been rendered so that we've got a three-dimensional view of the upper airway. That's the trachea down the bottom and it's the larynx in the middle.
And as you can see, this person has had scans with no centimeters of water, 5, 10 and 15 centimeters of water. And 5 to 15 centimeters of water is the sort of therapeutic range that's required for most people with obstructive sleep apnea. What you see is what it's doing to the upper airway is it's slowly dilating it. You can see it's getting bigger and bigger and bigger the more pressure that's applied. So it's not a particularly tricky sort of therapy.
A pneumatic split that just simply increases the dimensions of the upper airway. Now things have improved a bit. It's come quite a long way. I'm getting old and gray now. Our eyes are round in the early days of sleep happening.
That's what our masks and things used to look like when we're experimenting with it. And I'll remind you, it's just over 25 years ago, 30 years now since the first experiments were done. It's come a long, long way this field in 30 years. And that's what the poor first I've actually done a sleep study with a mask like that. That's Blu Tack basically.
It was a silicon that is like Blu Tack. You used to stick it on and used to try and take your skin off when you tried to take it off in the morning. And it had a bias flow system through it. We're doing a little better now with our masks. They're a lot less obtrusive and they certainly don't take your skin off when you try and take them off in the morning.
And the same thing has happened to the flow generator technology. So here's the that was the first flow generator that ever went home on a patient. That was a spa pool water pump made by Hitachi. And it was modified by Colin Sullivan in Sydney. So it would be an ear pump.
There it is. It was so noisy and way, way over engineered for what's required. Nowadays, our devices are much smaller, quieter and lighter. We've come a long, long way since the start. Now, I want you to be clear about what our different devices are up to.
So we'll just spend a little bit of time on them. The first one is CPAP. CPAP is easy. What you do is you provide a little bit of pressure between 5 20 centimeters generally, but most of the time it's around 10 all night. It's the same pressure goes all night.
That's the CPAP range. I'll show you APAP on the next slide. The next one is our VPAP range. And this is for respiratory failure. So what are we doing there?
What we're trying to do is augment ventilation. We're trying to make each breath to make each breath bigger. So what those devices do is they're watching for the patient to breathe in. And when the patient breathes in, they rapidly increase their pressure by about 10 or 20 centimeters of water. So each breath gets a boost, but the idea being that each breath is bigger than what the drive from the patient was going to make it.
So every single breath gets the same amount of boost. And then more sophisticated again are our adaptive servo ventilation devices. These are the ones that are used for central sleep apnea. Now these operate somewhat like the bilevel devices in that they're augmenting the size of breath. But in this case, it's looking to see the contribution that a patient makes, so how much effort they're making.
If they don't make much effort, they increase the pressure a lot more than if the patient is making an effort. The patient makes an effort, the machine goes away in terms of its pressure support. And you'll see it going up and down. That's why it's called an adaptive servo ventilator. It's adapting to what the patient's doing.
And here's APAP just to it wasn't on the last slide. APAP is a sort of CPAP device. So on the bottom, you'll see a graph there. That goes the whole night. And what the device is doing is it's looking at the shapes of the flow that's coming through and is able to predict when an apnea is lower or a hypopnea is likely to recur.
What it does is it preemptively puts the pressure up. And here you'll see that that's a typical APAP type trace. So we've got a trace here where the patient is moving between 5 10 centimeters of water during the night. When they don't need the pressure, it goes down. When they do need it, it goes back up.
Now this person's CPAP pressure would have been put out at 9 or 10 centimeters. But you can see most people spend most of the night below the therapeutic pressure that you would need with CPAP. And so aPAP gives a comfort advantage. Trying to maintain levels of oxygen and carbon dioxide. You want oxygen coming in, carbon dioxide going out.
And so it's a simple demand and supply sort of situation. So you've got a baseline metabolic demand. So you have to breathe all of the time, but you'll need to up it at times. And 3 classic examples of when it's going to when you've got an increase in demand are obviously exercise, illness and paradoxically sleep. You'd think that when you went to sleep that your demand for breathing would go down.
It's actually not the case because sleep is a stress test on your respiratory system. Because you're lying down and your upper airway reduces in size and your muscles it's actually harder to breathe during sleep than it is during wake. And so you often see the signs of respiratory failure occurring first in sleep. And that's why sleep physicians get involved in respiratory failure. Bone.
And on the other side, you've got supply. So you've got to drive this pump with muscles. The pump's got to be the right shape and the right stiffness and that depends on your chest wall which is perfectly well designed to be an elastic pump container. And then you've got your lungs on the inside. So most of the causes of ventilation that have been of respiratory failure in the past that have been treated in the past are due to weak muscles of any of these issues and that's to do with diseased lungs.
That's where our future in this space lies. Here's a classic study of somebody with respiratory failure. And you'll see there's two lines on this. The dotted line is carbon dioxide. This person's carbon dioxide starts high.
Your carbon dioxide should be less than 45. So this is starting off over 60. And it's risen during the night. You can see it go up. It plateaus out eventually, but it's much higher at the end of the night than it is at the beginning.
And the oxygen, of course, is doing the opposite. It starts slow. Your online oxygen our oxygen at night would be between 95 and 100. So this starts off at only 80 something and disappears down towards 50 by the end of the night, the typical trace for respiratory failure. So what are we doing?
Going back to that graph that I showed you before, we give them a bilevel ventilator so that every breath is augmented. Every time they take a breath in, they get a pressure boost and that increases the size of each breath. And if you do it well, you end up like this. So this is actually a trace of the person I showed you 2 slides ago after being treated with NIV for 4 months. This is now normal.
You always show your best traits, but that's what you and I would look like when we were asleep. That's what we're trying to do. Now, ventilation for acute COPD. Over the last 30 years, it's been appreciated that non invasive ventilation is good. This is in a hospital environment for acute exacerbations of COPD.
On the graph on the left hand side, we have blue dots. And that's this is from a study in the United States about ventilations for acute exacerbations of COPD. The blue dots are IMV, that's invasive mechanical ventilation. Now invasive mechanical ventilation is done with an endotracheal tube, the sort of stuff you see in all the movies. And usually in COPD, it ends up with a tracheostomy, because putting an ET tube in somebody with an acute exacerbation of COPD is a nightmare.
It's not getting it in, it's getting it back. It's really hard to wean these patients. And so from an ex intensivist, they were last people you wanted to intubate. But it used to be back in the 1980s that was the only therapy available. What's happened though is an increasing recognition that non invasive ventilation is the way to go in these people.
It shortens their admissions, decreases their mortality and decreases the costs extraordinarily. And this is just a graph of what's happened in the United States over the early part of the century. You'll see starting in 1998, there were many more people ventilated invasively than non invasively. But by the time 10 years have passed, we've had a crossing of the 2. And that's continued.
It continues to get more common. And so every guideline put out by anyone in the world now says acute exacerbations of COPD that need ventilation should start with non invasive ventilation unless they're near death. So this is a big and growing market for our products. As you know, ResMed is not really a hospital based company. We're a home care company.
In fact, it's our strength. We'll always be strong in home care. The COPD market at home has been slow to grow. The reason it's been slow to grow is there's been a lack of medical evidence of benefit. And that's where this study that Mick alluded to before the Kernline study is a real boost for us in this area.
This is the 1st big study that's shown a mortality advantage. And there's a one of our jobs is to increase awareness about this. In Europe, there's a lot of awareness. We have to bring it across to the side of the pond as we say. But we expect a lot of growth in the COPD home care market in the near term.
And we feel very well equipped
to capture
that, because we just released a ventilator that's custom made for that market. Let's move on to central sleep apnea and we'll sit on this for a bit. Now as I showed you before, central sleep apnea is different to obstructive sleep apnea. It's about abnormal breathing control. And it's all about a system that can't quite get itself to work properly.
So what you see is you see waxing and waning of ventilation just like I showed you in those previous graphs there. It's a respiratory still by far and away the most common is a thing called complex sleep apnea. Central sleep apnea is often associated with obstructive sleep apnea. The patients with obstructive sleep apnea will also demonstrate central sleep apnea. Their respiratory control system is upset by the upper airway's obstruction.
And it's around about 5% to 10% of sleep studies that are done for OSA are complicated by CSA. So that is the biggest market for our devices at the moment. The second big area and particularly on in the United States is opioid induced central sleep apnea. Now this is prescribed narcotics I'm talking about. But over here in the United States, we're having this great uncontrolled experiment about how much narcotic you can give to the population.
And it's frightening to someone like me about what's going on here. The doses that are being prescribed to Americans are difficult to comprehend. And it gives a form of central sleep apnea, because it disorders respiratory control and that's another big market for our devices. And then there's the 3rd group associated with chronic diseases like heart failure, diabetes, stroke, renal failure. And that's the area that we've concentrated on in SIRV.
So we'll come back to that. Now, ASV devices work in all of these clinical applications. At the moment, complex sleep apnea is the biggest cause for going on ASV and perhaps about 25% of scripts are for heart failure. We wanted to grow that market and we had a lot of preliminary information that said that ASV was helping patients with heart failure a not just with their central sleep apnea, but with their heart failure symptoms. And so we undertook a large study to investigate that.
I'll switch past that. I'll just demonstrate that to you. So this is this waxing servo control system that's gone wrong. So what happens to patients with central apnea, they can't get to a point of nice stable breathing. It's either too much, too little, too much, too little.
What does an adaptive servo ventilator do? What it's looking for is to keep the ventilation the same. So the patient's natural inclination is to do too much, too little, too much, too little. And you'll see that on that top trace there. There's the flow, up, down, up, down.
It will not come and stay stable. And the patient effort, of course, is increasing and decreasing. What the ASV device does is it's looking. It's looking to see what's going on and it's trying to do the opposite to what the patient's doing. So here's the device here working hard.
Patient's going up and down and up and down. The device is doing exactly the opposite. You see when the patient tries, the device goes away. There's less pressure support. When the patient doesn't work hard, the device comes in and works for them.
And the idea is that after a few minutes, you get the sort of trace that we've got in the second half of that slide where the flow has been ironed out and is consistent from breath to breath. When that happens, the device doesn't have to work very hard at all. So that's the principle of operation of adaptive servo ventilation. So this is SIRVHF. So is a large study that we plan to convince cardiologists that it was a good idea to use ASV.
So the primary endpoint like an
outcome study was mortality or hospitalization.
These are Lots of secondary endpoints, quality of life, exercise tolerance, symptoms and a substudy where we looked at left ventricular ejection fraction, BNP and sleep quality. And it took a large study to do this. So we needed 13 25 patients and it was Avendra. We were looking for 651 either deaths or hospitalizations. To do that was a big undertaking.
It took 91 active centers, most of them in Europe, but also in Australia. Now, I just want to focus on the patient selection a bit because this is important going forward. What we weren't looking for anyone with heart failure, we were looking for the most severe patients. So we were looking for patients who were on maximal therapy and still had symptoms. And that's the most severe 15% to 20% of the entire heart failure population.
We were looking for patients who had moderate and severe central sleep apnea. Now that's about 25% of that 20%. We're looking for an AHI greater than 15%. And we're only studying 1 of the 2 sorts of heart failure. And I'm going to just differentiate those 2 for you.
In those cartoons basically in the bottom, the middle one is a normal heart, a normal left ventricle. Now normally with a heartbeat, the muscle of the heart contracts and it will contract it will decrease the volume of the ventricle at least 50%. And you can measure that with echocardiography. And they take measurements off it and they can say your ejection fraction is X or Y. Now assuming that none of us have got heart failure, our ejection fractions will all be above 50%, between 50% 70%.
So the normal heartbeat that ejects over half of the blood that's in the cavity. If you get a disease at the pump, it can dilate. So on the left hand side, we've got this thing called systolic heart failure. Now in terms of what you call these things, systolic heart failure is also known by this terrible acronym that's called heart failure with reduced ejection fraction. And cardiologists will say, HEFF.
And you're supposed to understand what that is, okay? That's as opposed to which is preserved ejection fraction. Okay, a terrible acrim and they've got to do something about it. But that's systolic heart failure. Now the difference we're talking about is in systolic or reduced ejection fraction, the muscle is this big flabby bag.
It's not working properly. It's the typical thing you'd see maybe after a heart attack, a large heart attack where part of the muscle is dead. So now it can't pump properly. So it's dilated. The heart's big, but it's weak.
And every heartbeat that comes, less than 50% of the blood is ejected from the ventricle. So it's called reduced ejection fraction. Now that's the sort of people we were looking for in serve HF. The other half of heart failure patients don't have that. They have the condition on the right is too small.
So even though on the right hand side, the ejection fraction will be normal or supranormal, the amount of blood that's ejected per heartbeat is too small. So you end up through 2 different mechanisms with a similar sort of symptomatology and a similar sort of illness, heart failure, but they're quite different and distinct from each other. So the idea was that we would get the results of this. We were able to figure out that that was going to occur in April of this year and that's in fact what happened. And then about 6 months later, we published all the data and we've had a great chance to have had a look at it and know it in great depth and all that.
So what we did is when even before the end of the study, we tried our statistical systems and pumped most of the data through that to see what happened. And that's when our plans fell apart. Because when we did that, we found absolutely no difference between the outcomes that we were looking for. And what you do when you see that sort of thing is you go and check that you're not causing any harm, that there's no safety signal. When we looked at the safety signal, we had 1.
And that caused us to issue a field safety notice very, very quickly and in a somewhat a somewhat underprepared state. So what we found and this shows you the severity of the patients that we're looking at is that in the control group, the patients who are on normal therapy 7.5% of them died every year in the study. Now that's a high mortality rate in anybody's language, but it was 10% in the ASV group, a 2.5 percent or 33% increase. So that was the basis of the field safety notice. We went straight out to the field and said, we've got a problem.
We want you to get the patients who are on these devices off them. And in many ways, we weren't quite ready for it, but in the interest of patient safety, we went straight out there early on. So what do we know about this? What it was and we've got a lot of work to do yet on this is that this was sudden cardiac deaths occurring out of hospital unexpected. It wasn't related to using the device.
The people were not physically on the device when it was happening. They were at the supervisor things like that. And so it was a surprise and completely unexpected finding. The risk was greater in those who had the most severe disease as measured by ejection fraction. And it didn't seem to diminish with time on therapy and it didn't seem to be related on to whether the patient thought that improved on therapy or not.
It was a complete surprise. And so that's the basis of the notice. So we've gone out to the professional societies because this is going to be physician led trying to find the patients. One of the difficulties for us is that we're one degree removed from our patients. We do not know who is using our devices exactly.
It's the HMEs and the physicians who know that. And so we've been working furiously to try and get the message out and we're trying to get an expedited publication with a major medical journal. And hopefully that will come out in the next few weeks. So we haven't had our 6 months to plan for it like we wanted to. It's all been an emergency.
So one of the questions and particularly comes from the analyst group like yourself to say, hey, does this affect all the other PAP therapies? Well, the bottom line is it hasn't, okay? The bottom line is that the SURVE HF results only apply to the specific patient group in CIRV. And as I showed you, it's a very different patient group to most of our customers. So, these people were sick, really sick the ServHF group.
That's not the same as most of our customers. And there's no evidence whatsoever of any danger to any other group of patients. So normally, obstructive sleep apnea is associated with increased cardiovascular mortality. And there's a number of studies out there, which suggest that using CPAP or APAP saves some of that increased mortality. The graph there on the right side is a good example of one of those.
So this is published 10 years ago in The Lancet. There are several 1,000 patients in this study. And on the x axis is months of follow-up. So you'll see it's over 10 years of follow-up in this study. And on the y axis is the cumulative incidence of fatal cardiovascular events.
There's 5 groups in this study and you'll basically see that 4 of them behave in exactly the same way and one doesn't. So we've got controls. Those are people without any SDB at all. We've got snorts. We've got mild OSA.
Then we've got a group with severe OSA treated with CPAP and they all do the same thing. The group that stands out is the severe OSA group who didn't get any therapy at all. So it looks from these results that CPAP reduces the risk back to baseline. There's strong evidence that CPAP therapy is safe. As I showed you from the last from the respiratory failure, there's strong evidence now in non invasive ventilation that it reduces mortality in COPD.
We have less information for ASV, but there's absolutely no safety issues being associated with any of the studies that have been done in ASV. So we have seen nothing from the field to suggest that these results will affect any of the other parts of our business. It's just systolic heart failure with reduced ejection fraction. So where do we go? ResMed is a leader in the I wish the other companies would button up sometimes and help us a bit like that.
But we have a very active clinical research program. There's over 100 clinical studies that we're doing besides ServHF. ServHF was the biggest one that we had, but we are very active in the chronic diseases that are associated with obstructive sleep apnea. And particularly in coronary artery disease, atrial fibrillation and we're going to button down on our efforts with preserved ejection fraction heart failure. So we've got 100 of opportunities out there to expand our business.
And what we're trying to do is we are demonstrating the effects of therapy on these chronic diseases that are associated with obstructive sleep apnea or respiratory failure, okay? We remain committed to advancing this field through scientific research and we will continue in our efforts to demonstrate these associations. Now our Founder and Chairman Peter Farrell is fond of saying when we're talking about where we are at the company, he says, if it's a marathon, we're still lacing our shoes. Well, I'm going to disagree with him because he's not here and say, we're not just lacing our shoes. I think we've come a little way now, but we're there in the marathon.
We've just started and we've got a long, long, long way to go yet. You very much.
Thank you very much, Glenn. So I know that ran long, but hopefully it was helpful. And I'd like to ask Macpherson to come up to the stage just to give a couple concluding comments as we're setting up for Q and A and then we can go into Q and A.
Great. So this one? Firstly, I'd like to say thank you to all your folks who flew in from New York, Chicago, drove in from San Francisco, Melbourne, London, maybe people flown in from all over. So thank you very much for all coming. I'd also like to say and I'd ask for a round of applause for Agnes Lee and Allison Johnson who organized this event.
That would be great. So I saw many notes being taken and I'm sure those on the webcast are doing the same thing. I've got three conclusions here that I hope you drew from today. Firstly, is that ResMed has a strong robust strategy. We have a plan to get from 8,000,000 lives changed in the 12 months to 20,000,000 lives changed by 2020, that 2.5x, 2 50 percent volume multiplier and we know we can get there.
Secondly, I hope you took away that ResMed is the leader in the field, the global field of sleep and respiratory medicine. You heard from Glenn the details of our clinical research. You saw studies where we've reduced mortality by 60% in COPD patients with NIV. You saw studies where there's a neutral effect, but a safety signal and we proactively reach out and tell patients and physicians the world over to take action on that. You saw from Raj Sodi that we're leading in the field of health care informatics.
We're taking probably more data to the cloud in medical devices than any other player, certainly within the sleep and respiratory medical field. And the unlocking of value from that data sets us not just as the leader, but also provides value to patients, physicians, providers, governments and payer providers across the spectrum. And the last takeaway I hope you got, because you hear from Rob, Dave, Brett and me a lot at these investment conferences. In fact, in this room in JPMorgan just 4 months ago, I was giving a talk. But hopefully, what you saw is a little bit more depth.
And you've heard from Raj, the Head of our HI business. You heard from Glenn, our Chief Medical Officer. We're going to do Q and A now. We're going to hear from Jim. You're going to hear from Luke.
You're going to hear from Greg, some of the leaders of our biggest business units and our biggest geographies and hopefully get an idea of the depth of the team. And for those who were there last night, you would have heard from Jeremy, Will and Rowan and team of some of the details of our Healthcare Informatics. So hopefully, you got some of the idea of that depth. We'll take a short break while we set up and then we'll get stuck into Q and A. So thank you very much for coming.