F&P Healthcare awake to opportunities

F&P Healthcare is spending 6.5 per cent of revenue on research and development. Photo / Supplied

Innovation and competitive pricing will be at the heart of Fisher & Paykel Healthcare's efforts to increase its share of the flourishing market that has grown around the treatment of Obstructive Sleep Apnoea, the firm says.

The indication comes on the back of a Morningstar report, by analyst Nachi Moghe, which says heightened competition among Obstructive Sleep Apnoea (OSA) product manufacturers will be the biggest threat to F&P Healthcare's earnings.

While Moghe said F&P Healthcare was the world's leading provider of respiratory humidifier products, it was a "distant third player" in an OSA market dominated by Phillips-owned Respironics and Australia's Resmed.

"We believe a lot will hinge on how successful [F&P Healthcare] is in fending off competition and achieving sustained growth in obstructive sleep apnoea [products] ... to stay ahead of competition FPH will have to continually innovate or else see its market share decline," Moghe said.

F&P Healthcare corporate relations manager Simon Hall said innovation was crucial to the firm's entire portfolio of products.

"You can't sit still and try and gain market share," Hall said.

The company would continue to focus on innovation by spending 6.5 per cent of revenue on R&D.

That would be almost $33 million last year, given the firm's reported revenue of $503.3 million in the year to March 31.

F&P Healthcare would also double its R&D staff numbers from 300 to 600 by 2015, Hall said.

About 40 new graduates would join the company's R&D team next year.

Moghe also mentioned in his report a price war being waged between Resmed and Respironics that was putting CPAP (devices that blow low pressure air into an OSA sufferer's airway to keep it clear) prices under pressure.

Hall said that both companies had recently launched new CPAP devices.

"Resmed's seems to be quite a bit better than the new Respironics one," he said.

"I could imagine Respironics having to drop their price to keep their market share."

The impact of a price battle between the two biggest players would flow on to F&P Healthcare, Hall said.

"It's a competitive market out there and you've got to be competitively priced. We can normally price our products slightly cheaper than [they can]."

Unlike its peers, F&P Healthcare was not well diversified geographically, and derived much of its revenue from the United States, Moghe said.

Hall said: "Even for Resmed and Respironics, the majority of their sales are in the States, because [the US makes up] 70 per cent of OSA sales."

Despite the challenges, the Morningstar report says around 10 per cent of the world's population suffers from OSA, giving the East Tamaki-based firm huge scope for growth in that market.

The investment research company upgraded its recommendation on F&P Healthcare's stock from "accumulate" to "buy".

Fisher & Paykel Healthcare shares closed down 1c yesterday at $3.03.