ResMed
Annual Report 2002

Plain-text annual report

(cid:147) Sleep . . . great nature(cid:146)s second course, chief nourisher in life(cid:146)s feast.(cid:148) Shakespeare annual report annual report 2002 ResMed’s Mission Statement Continue global leadership in sleep medicine based on innovative technology advancing the diagnosis, treatment, and management of sleep-disordered breathing. Corporate Aims and Objectives ResMed is a leading developer, manufacturer, and marketer of products for the diagnosis and management of sleep- disordered breathing. ResMed operates through direct offices in the United States, the United Kingdom, Switzerland, Sweden, Spain, Singapore, New Zealand, the Netherlands, Malaysia, Japan, Germany, France, Australia, and Austria and through a network of distributors in over 50 other countries. ResMed is committed to advancing innovative technology in sleep and respiratory medicine and commercializing innovative products that incorporate these technologies on a global basis. In reaching its goals, ResMed will at all times act ethically in dealing with both customers and employees. Statements contained in this Annual Report, which are not historical facts, including any projections regarding future opportunities in current and new markets, are (cid:147)forward-looking(cid:148) statements as contemplated by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied in the forward-looking statements. Such risks and uncertainties are more fully discussed in the Company(cid:146)s Annual Report on Form 10-K for its most recent fiscal year. Cover: William Shakespeare (1564-1616), English dramatist and poet, Macbeth Act 2 Scene 2 Contents 2 3 4 5 financial summary business overview 2002 highlights chairman(cid:146)s report 12 strategy 14 medical advisory board 18 sleep-disordered breathing 23 operations 28 shareholders(cid:146) information 30 board of directors 31 1993(cid:150)2002 highlights focused ResMed is committed to alerting both public and physicians about the inherent dangers of untreated sleep-disordered breathing. Net revenue Income $M . 1 4 0 2 $M . 2 5 5 1 . 6 5 1 1 . 6 8 8 . 5 6 6 . * 5 5 4 . * 3 4 4 . 6 4 5 . 2 1 5 . 5 7 3 . 2 4 3 . 1 3 3 . * 9 9 2 * * . 2 2 2 . 2 5 2 . 6 4 2 . 4 7 1 . 1 6 1 . 1 6 1 . 6 0 1 * Assets & shareholders(cid:146) equity . 2 6 7 3 $M . 1 8 8 2 . 9 2 9 1 . 6 5 1 1 . 0 4 9 . 4 0 0 1 . 9 9 8 . 6 1 7 . 6 4 6 . 8 0 5 98 99 00 01 02 98 99 00 01 02 98 99 00 # 01 02 Income from operations Income before income taxes Net income Shareholders(cid:146) equity Assets focused financial summary ❘ business overview Net income per common share and equivalent 0 1 1 . $ * 9 8 0 . 9 6 0 . 2 5 0 . 5 3 0 . * 98 99 00 01 02 *after MAP acquisition costs of $18.2M #due to MAP acquisition: Gross assets include $61M of assets; shareholders(cid:146) equity is net of $18.2M of costs (cid:147) Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.(cid:148) Albert Einstein (1879(cid:150)1955) physicist and Nobel Laureate ResMed revenues grew by 32% last year. We are dramatically improving product performance while expanding global operations, which now cover over 60 countries. One of the world’s leading sleep-disordered breathing companies, ResMed develops, manufactures, and markets devices for diagnosing, treating, and managing breathing disorders that occur during sleep. In fiscal 2002, our sales were $204.1 million and operating cash flow was $35.6 million. Since listing in June 1995, we have maintained a growth rate in excess of 25% per annum in both revenues and net income (excluding 2001 MAP acquisition costs). 3 2002 Highlights Purchased 30 acre (12 ha) site for new Sydney headquarters. October 2001 S-3 Registration Statement for convertible bond issue declared effective by Securities and Exchange Commission. October 2001 Listed by Forbes magazine as one of the 200 Best Small Companies in America for fifth consecutive year. Ranked #24. October 2001 ResMed Chairman, Dr. Peter Farrell, wins Australian Entrepreneur of the Year title. October 2001 Acquired Swiss distributor Labhardt AG. November 2001 ResMed MiragefiFull Face Mask Series 2 launched worldwide. October 2001 (cid:150) December 2001 Sold and leased back Australian facility (sale approximately US$18 million/A$34 million). April 2002 Acquired flow generator motor manufacturer Servo Magnetics Incorporated (SMI), USA. May 2002 Board authorized repurchase of up to 4 million shares of outstanding common stock. June 2002 ResMed Chairman, Dr. Peter Farrell, inducted to World Entrepreneur of the Year Academy. June 2002 Formed SDB Foundation in USA and committed to form SDB Foundation in Australia. June 2002 ResMed AutoSet Spirit(cid:153) launched worldwide. October 2001 (cid:150) July 2002 Converted to full Australian Stock Exchange (ASX) listing. July 2002 ResMed MiragefiNV Full Face Mask Series 2 and NV Ultra Mirage(cid:153)Mask launched (outside US). August 2002 focused 2002 highlights ❘ chairman(cid:146)s report (cid:147) One should hold one(cid:146)s theories by one(cid:146)s fingertips so that the least breeze of fact can blow them away.(cid:148) Michael Faraday (1791(cid:150)1867) inventor, scientist It is once more a pleasure to write the chairman’s report, offering; the coupon rate was 4%, and the notes mature in this time for 2002, our 13th year of operations. I said last June 2006. These funds were raised to pay off acquisition year that ResMed had had a great decade of achievement; the debts, as well as provide flexibility for more possible results for fiscal 2002 continue the legacy. The company acquisitions or other capital needs. performed extraordinarily well despite some marketing challenges in Germany, which now appear to be resolving themselves, as well as some frustratingly slow regulatory approvals. However, the fact that we did so well in fiscal 2002 is a distinct credit to our employees, who displayed both the dedication and the humor needed to help us grow our market share at such an encouraging pace. At the time of the offering, interest rates were in excess of 5% whereas, as the economy slowed, interest rates fell during the fiscal year to close to 3%. This changed the once favorable economics of the offering, and since the convertible bonds began to trade significantly below par, the company decided to buy back a portion of the bonds to extinguish some debt. In short, during fiscal 2002, $56.75 million of face Revenues grew by 32% to $204.1 million. Net income for the value of the convertible notes were repurchased for $49.1 year was $37.5 million, or $1.10 per share on a fully diluted million, including $0.6 million in accrued interest. On basis; net income represented 18.4% of revenues, well in line extinguishment, the company made a pre-tax profit of $7.65 with previous years and indicative of a well-oiled machine. Compared with fiscal 2001, net income increased by 222% while EPS, on a fully diluted basis, increased by 214%. However, net income in FY2001 was negatively impacted by a $18.2 million charge, relating to the MAP acquisition, and a more relevant comparison, exclusive of this charge, is that net income grew by 26% year over year while EPS, on a fully diluted basis, grew by 24%. Gross margin remained a robust 65%. Let me briefly address balance sheet issues. During the latter part of fiscal 2001, the company raised $180 million in non-current debt through a convertible subordinated bond 5 million (excluding deferred borrowing costs), leaving a total of non-current debt, due to the remaining bonds, of $123.25 million. During the June quarter, the company also elected, based on a favorable share price, to undertake a share buy-back of up to 4 million shares. To date 290,047 shares of common stock have been repurchased at a cost of $7.9 million. As we publicly announced, provided the economics continue to remain favorable, we expect to repurchase more convertible notes and shares as we go forward. ResMed’s balance sheet, with total assets of $376.2 million (an increase of 31% year over year) and with total liabilities of $183.3 million (down 2% year over year), remains very robust. The sleep-disordered breathing (SDB) market continues to remain a very exciting place to be. A report issued in May 2002 by investment bankers SG Cowen & Company of New York puts the estimated global market for SDB products at almost $800 million for calendar 2002, with approximately 90% for therapeutics and the remaining 10% for diagnostics. The domestic market accounts for just under two-thirds of the total while the estimated growth rates over the next three years are 18% for domestic therapeutics and 22% for the international (ROW) therapeutics. In both instances, the diagnostics market is anticipated to grow at 10%, or about half the global therapeutic market. If one were to compound the current revenue base over five years, assuming 20% growth, the market size would approximate $2 billion. Assembling an AutoSet Spirit(cid:153) flow generator And that is without the increasingly likely impact of the treatment of SDB in patients suffering from cardiovascular and other diseases, a point to which I will return. When I was first exposed, in 1986, to the widespread nature and potential dangers of untreated SDB (and obstructive sleep apnea (OSA) in particular) by Dr. Colin Sullivan, the inventor of nasal continuous positive airway pressure (CPAP) (cid:151)still the gold standard to treat SDB/OSA(cid:151)he told me that The Ultra Mirage(cid:153) Mask in production the prevalence was believed to be about 2% of the population. At the time I was working in renal disease, where the prevalence was more like 0.2%. The Sullivan number seemed gargantuan; we now know that the figure is more like 10% of the population; this translates into an epic public health problem, which is not being adequately addressed. I have little doubt that the pendulum is now finally swinging to considerably more diagnosis and treatment. For example, the cardiac, neurologic and pediatric literature is increasingly addressing issues where, in these specialties, untreated SDB/OSA is being recognized as a major clinical issue. And, on published evidence, so it should be. For example, in patients with hypertension or diabetes, prevalence figures for SDB are of the order of 50% and, in cases of more severe comorbidities, such as stroke, transient ischemic attack (a mini-stroke) or heart failure, the prevalence is closer to 70% of the affected population. Unfortunately, too few cardiologists, neurologists, endocrinologists, or hypertensionologists are aware of these data; one of our major goals is to address this chasm of ignorance. Perhaps even more disturbing is a recent article from the University of Toronto (Logan, et al. Journal of Hypertension 2001; 19;2271-7, 2001), which shows that the prevalence of SDB/OSA in refractory hypertension was over 96% in men and 65% in women. These are disturbing statistics which need addressing as a priority. The good news is that there are now several centers around the world treating SDB/OSA in both stroke and congestive heart failure (CHF), as well as in hypertension and diabetes patients, although we are far from the critical mass of activity needed. Nevertheless, the data are encouraging; we are aware of at least 26 centers in Germany, as well as several in France, using our patented AutoSet CS(cid:153)technology to treat SDB in CHF patients. At the recent American Thoracic 7 CNC Machine Center capable of lathe and mill work operations using both auto-bar and gantry loading methods at SMI As I said before, the sleep business is truly exciting and rewarding and ResMed understands the space well; we are funding the necessary priority product development and clinical studies to move the area forward. We remain, and will continue to remain, the premier technology company in the SDB space. We are also taking further initiatives. During the year we committed to setting up two ResMed sleep-disordered breathing foundations, one in the US and one in Australia. Over two million dollars have been set aside for these foundations, where the overall mission is to educate both public and physicians about the inherent dangers of untreated SDB/OSA, particularly as it relates to traffic and workplace accidents as well as cerebrovascular and cardiovascular disease. The Australian foundation is currently being set up, but the US one is already active. The US Board of ten is chaired by Mr. Ron Taylor, the former CEO of Pyxis, and the board members are comprised of cardiologists, pulmonologists, sleep physicians, and other academics and professionals. Two grants, totaling $200,000 have already been approved, including $100,000 for a study of SDB/OSA prevalence in a select group of professional football players. No results are yet available. Society meeting, held in Atlanta this past May, five centers (four from Germany and one from Australia) reported compelling data on treating SDB/OSA in severe CHF wherein, over a period of three to six months, CHF patients treated with our AutoSet technology had significant improvements in their heart disease, physical activity, and quality of life. In addition, the treatment of SDB in diabetic patients has been shown to significantly improve insulin resistance. Hypertensive patients, when treated for their SDB, also show significant reduction in blood pressure, with the biggest positive impact being seen in those patients on multiple antihypertensive medications. One more snippet of encouraging information: in May, at the European Stroke Conference held in Geneva, which I attended, there was a plenary session held on SDB/OSA in stroke. The co-chairs, Dr. Claudio Bassetti from Zurich and Dr. Antonio Culebras from New York, told me that the estimated attendance was well over 1,000. At a similar meeting, held three years before in Venice, Claudio mentioned that the speakers almost During the year ResMed made two very positive acquisitions. outnumbered the participants. In short, the message is In November 2001, we bought our Swiss distributor, Labhardt starting to be understood. and in May 2002, we bought Servo Magnetics, Inc. (SMI), which supplies the bulk of our DC motors for CPAP devices. The CEOs of these companies, Mr. Heinz Hasenfratz (Labhardt) and Mr. Les Hoffman (SMI) have agreed to remain with the companies, as will the bulk of their senior employees. The integration of both businesses is on schedule and we are delighted to be working with these groups of people. With the extra employees from these acquisitions, ResMed now employs almost 1,300 people globally, up from about 1,000 this time last year. Also during the year, we enhanced the quality of the Board of Directors as well as our Medical Advisory Board (MAB). In February Dr. Anthony DeMaria, the Chair of Cardiology at UCSD and former President of the American College of Cardiology, and Dr. Barbara Phillips, a pulmonologist and Professor of Medicine at the University of Kentucky, as well as Board Member of the American Academy of Sleep Medicine, joined the MAB; the total membership is now twelve. This past May, Louis A. Simpson, President and Chief Executive Officer, Capital Operations, Geico Corporation, a wholly-owned Berkshire Hathaway subsidiary, joined the Board. We welcome Tony, Barbara, and Lou, and look forward to their contributions. Also recently, we reorganized product development (PD) and marketing activities in Sydney, as well as US marketing activities. All of us, including PD staff, have been somewhat frustrated with time to market for some of our key The San Diego warehouse facility products; as a result I have named Don Darkin to solely run our patient interface activities; Rob Douglas will take over bilevels and the AutoSet CS product range, while Eric Phuah, a relatively new recruit, will take on all CPAP products, including AutoSet Spirit(cid:153)and follow-on offerings. We are confident that they will get the job done. In addition, Dr. Glenn Richards, a pulmonologist and sleep physician who 9 has done research with Dr. Sullivan, has joined us as Medical However, let me make it clear that ResMed is a team; all the Director; Glenn will work out of the Sydney office. company’s achievements are the result of our combined In San Diego, Dana Voien recently joined us from a senior talents. Teamwork really works. position at Edwards Life Sciences, as Vice President and Finally let me thank the Board of Directors, the Medical General Manager of our diagnostics business. Dana has also Advisory Board, and all employees for their continuing taken over Marketing for the Americas, Business efforts and dedication. Let me also thank our patients and Development and Clinical Support and Training. shareholders. We believe absolutely in our mission, and we Curt Kenyon, Senior Vice President, is leading a new have not lost a modicum of confidence in our strategy; the telemedicine business unit initiative, while Dr. Deirdre company is cash-flow positive, extremely profitable and has a Stewart becomes Vice President, Strategic Clinical Initiatives. very strong balance sheet. We also take a long-term view. The world still needs to wake up to sleep, and we aim to make it happen. Dana, Curt, and Deirdre will report to me; we are excited by some of the ideas we are now hatching. As I indicated last year, ResMed was again ranked by Forbes as one of the fastest growing companies in America. In fact, Forbes has ranked ResMed as one of the top 200 Best Small Companies in America for five consecutive years. In October 2001, I was lucky enough to be selected as Ernst and Young’s inaugural Australian Entrepreneur of the Year, as well as Master Entrepreneur for the country. As a result, I attended the World Entrepreneur of the Year event in early June in Monte Carlo where I was inducted into the World Entrepreneur of the Year Academy. I would certainly not have received these accolades without the support of ResMed employees. In addition, I was selected by the San Diego Corporate Director’s Forum as the recipient of the CDF award for creating economic value for 2002. alert Staying awake, alert, and attentive throughout the day are just some of the major benefits of treating sleep apnea. Think global, act local ResMed operates through direct offices in the United States, the United Kingdom, Switzerland, Sweden, Spain, Singapore, New Zealand, the Netherlands, Malaysia, Japan, Germany, France, Australia, and Austria and through a network of distributors in over 50 other countries. 309 8 3 8 236 5 18 10 36 1 5 5 6 597 2 (cid:149) Offices with employee numbers (cid:149) Representatives Targeting growing market opportunities physical fitness, and treating SDB, as part of disease Since formation in 1989, ResMed has maintained its focus on the under-penetrated but strongly growing sleep-disordered breathing (SDB) market. Currently less than 10% of people with obstructive sleep apnea (OSA), a major subset of SDB, have been diagnosed and treated. This has created a large and relatively undeveloped market for SDB therapies. We believe opportunities in this market will continue to grow due to a number of factors. These factors include the acknowledgement of the vital role that healthy sleep plays in good health. It is just as important as good nutrition and management in a range of diseases, is of primary importance. Understanding of the role of SDB treatment in cardiovascular disease is also improving. In recent years we have been targeting areas of cardiovascular disease such as hypertension, stroke, and congestive heart failure, as well as other conditions associated with SDB such as chronic obstructive pulmonary disease (COPD). ResMed’s strategy for expanding business operations and capitalizing on the growth of the SDB market consists of the following key elements: alert strategy ❘ MAB Continue product development and innovation ResMed has led a revolution in the design of comfortable, effective masks and devices to treat SDB, and we are committed to ongoing innovation in developing products for diagnosing and treating SDB. At June 30, we had over 500 patents granted or pending and around 160 registered designs worldwide. In fiscal 2002, 7.3% of revenues were invested in research and development. Expand geographic presence ResMed products are sold in over 60 countries to sleep clinics, home healthcare dealers, third-party payers, and patients. We intend to increase sales and marketing efforts in principal markets as well as expand in new geographic regions. Increase public and clinical awareness Educating and informing the public and medical community on the dangers of untreated SDB is of primary importance. This year ResMed brought together key players in the sleep community to form sleep foundations in the US and Australia. These foundations will focus on advancing education, increasing awareness, and funding research in SDB. The first Australian project to receive funding is an innovative physician-training program, using the Internet to educate medical practitioners about SDB and other sleep related disorders. In addition, we are developing strong relationships with patient advocacy groups, including the US National Sleep (cid:147) One never notices what has been done; one can only see what remains to be done.(cid:148) Marie Curie (1867(cid:150)1934) physicist, Nobel Laureate establish models for the treatment of SDB in stroke rehabilitation as well as rehabilitation in general and help put ResMed products on the cutting edge of this market. Leverage the experience of our management team and Medical Advisory Board One of our key strengths is the experience of our senior management team, which is experienced in the field of SDB and the medical device industry in general. This year, a Medical Director, Dr. Glenn Richards was appointed to focus our medical research and increase our capacity to manage our large clinical trial programs. In the US, Dr. Deirdre Stewart is responsible for clinical strategic initiatives and global clinical education policies. We also have a Medical Advisory Board comprised of experts in the field of SDB, including Professor Colin Sullivan, the inventor of nasal CPAP for treating OSA. We intend to continue leveraging the knowledge and expertise of these professionals to maintain our innovative approach to developing products Foundation, the US National Stroke Association, the and increasing SDB awareness. American Heart Association, and the Australian National Stroke Foundation. We are also maintaining close working relationships with a number of prominent physicians, exploring new medical applications for our products and technology, and working closely with major rehabilitation providers in the US and Australia. These partnerships will SDB affects more than 80% of drug resistant hypertension patients1 60-70% of stroke/TIA patients2,3 50-60% of congestive heart failure patients4 30% of coronary artery disease patients5 13 left to right Helmut Teschler, Claudio Bassetti, J. Woodrow Weiss, B. Tucker Woodson, Terence M. Davidson, Michael Coppola, Neil Douglas, Barry J. Make, Anthony DeMaria, Colin Sullivan, Barbara Phillips, Nicholas Hill alert strategy ❘ MAB (cid:147) Therefore if a man looks sharply and attentively, he shall see Fortune: for though she be blind, yet she is not invisible.(cid:148) Francis Bacon (1561(cid:150)1626) English statesman, philosopher Claudio Bassetti, MD, is a neurologist with expertise in sleep, sleep medicine, stroke, and cerebrovascular disease. He is a leader in studying the implications of SDB on stroke and is Head of the Neurology Outpatient Clinics and Vice-Chairman of the Neurology Department at the University Hospital, Zurich. Dr. Bassetti is a member of the American Academy of Neurology, the American Sleep Disorders Association, and the scientific committee of the European Sleep Research Society (ESRS). He is also a member of boards of the Swiss Societies of Neurology, Neuroscience and Sleep and sits on the editorial boards of Sleep Medicine, European Neurology, and Swiss Archives of Neurology and Psychiatry. Dr. Bassetti has produced over 100 publications. Michael Coppola, MD, is a leading pulmonary, critical care, and sleep disorders physician and is President of Springfield Medical Associates, a multi-specialty medical group in Springfield, Massachusetts. He is an attending physician at Baystate Medical Center and Mercy Hospital, and a Fellow of the American College of Chest Physicians. Dr. Coppola is also the Medical Director of Winmar Diagnostics, a sleep-disordered breathing specialty company, and Associate Clinical Professor of Medicine at Tufts University School of Medicine. Terence M. Davidson, MD, FACS, is Professor of Surgery in the Division of Otolaryngology(cid:151)Head and Neck Surgery at the University of California, San Diego School of Medicine. He is Section Chief of Head and Neck Surgery at the Veterans Administration, San Diego Healthcare System, and Associate Dean for Continuing Medical Education at the University of California, San Diego. He is also Director of the UCSD Head and Neck Surgery Sleep Clinic in La Jolla, CA. Anthony N. DeMaria, MD, is Professor of Medicine and Chief, Division of Cardiology at the University of California, San Diego, specializing in cardiac imaging techniques, particularly echocardiography. He is a Diplomat on the American Board of Internal Medicine and is board certified by the Subspecialty Board in Cardiovascular Disease. He is Past President of both the American College of Cardiology and the American Society of Echocardiography. Dr. DeMaria is currently Editor-in-Chief of the Journal of the American College of Cardiology and has authored or co- authored over 400 articles for medical journals. Neil J. Douglas, MD, FRCP, is Professor of Respiratory and Sleep Medicine, University of Edinburgh, an Honorary Consultant Physician, Royal Infirmary of Edinburgh, and Director of the Scottish National Sleep Laboratory. He is Vice President of the Royal College of Physicians of Edinburgh, Chairman of the British Sleep Foundation, past Chairman of the British Sleep Society, and past Secretary of the British Thoracic Society. Dr. Douglas has published over 200 papers on breathing during sleep. Nicholas Hill, MD, is Professor of Medicine at Tufts University School of Medicine and Chief, Pulmonary, Critical Care and Sleep Division, Tufts-New England Medical Center in Boston. He is a Fellow and Vice Chair of the Home Care Network in the American College of Chest Physicians and a member of the Leadership Committee for the Pulmonary Circulation Assembly and of the Program Committee for the Critical Care Assembly of the American Thoracic Society. Dr. Hill(cid:146)s main research interests are in the acute and chronic applications of noninvasive positive pressure ventilation for treating lung disease. Barry J. Make, MD, is Director, Emphysema Center and Pulmonary Rehabilitation National Jewish Medical and Research Center, and Professor of Pulmonary Sciences and Critical Care Medicine of the University of Colorado School of Medicine. He has served on numerous national and international committees for respiratory diseases. Dr. Make(cid:146)s research and clinical investigations have resulted in a large number of publications on mechanisms, treatment, and rehabilitation of chronic respiratory disorders. 15 J. Woodrow Weiss, MD, is Associate Professor of Medicine and Co-Chairman of the Division of Sleep Medicine at Harvard Medical School as well as Chief, Pulmonary, Critical Care, and Sleep Medicine, Beth Israel Deaconess Medical Center, Boston, MA. He is an internationally recognized researcher in sleep-disorders medicine. B. Tucker Woodson, MD, FACS, is Associate Professor of Otolaryngology and Communication Sciences at the Medical College of Wisconsin, a Diplomat of the American Academy of Sleep Medicine, and a Fellow of the American Academy of Otolaryngology(cid:151)Head and Neck Surgery and the American College of Surgeons. He is the Director of the Medical College of Wisconsin/Froedert Memorial Lutheran Hospital Center for Sleep. Dr. Woodson also sits on multiple committees for the American Academy of Sleep Medicine and American Academy of Otolaryngology. MAB continued Barbara Phillips, MD, MSPH, FCCP, is Professor of Pulmonary, Critical Care, and Sleep Medicine at the University of Kentucky College of Medicine. She directs the Sleep Center, Sleep Clinics, and Sleep Fellowship at the Samaritan Sleep Center in Lexington, KY. Dr. Phillips is a Board member of the American Academy of Sleep Medicine, a recipient of a Sleep Academic Award from the National Institutes of Health, past president of the American Board of Sleep Medicine, and a past member of the Advisory Board to the National Center of Sleep Disorders Research. Her research interests are the epidemiology of sleep-disordered breathing and sleep disorders in the aged. Colin Sullivan, MD, PhD, FRACP, FAA, is Chairman of the MAB and inventor of nasal CPAP for the treatment of OSA. He is Professor of Medicine and Director of the David Read Research Laboratory and Australian Centre for Advanced Medical Technology at the University of Sydney. He established the Centre for Respiratory Failure and Sleep Disorders at the Royal Prince Alfred Hospital, the Pediatric Sleep laboratories at the New Children’s Hospital, and Sydney Children’s Hospital. Professor Sullivan is a Fellow of the Royal Australian College of Physicians, a Fellow of the Australian Academy of Science, and a Fellow of the Australian Academy of Technological Sciences and Engineering. Helmut Teschler, MD, is Professor and Head of the Department of Respiratory Medicine, Sleep Medicine, and High Dependency Unit, Ruhrlandklinik, Medical Faculty, University of Essen, Germany. He is a Fellow of each of the following associations: German Pneumology Society, American Thoracic Society, European Respiratory Society, and American Sleep Disorders Association. Dr. Teschler is an internationally recognized researcher in respiratory medicine and sleep-disorders medicine. healthy Everything at ResMed, from research and product development to marketing and customer service, is based on a simple truth: (cid:147)Healthy sleep is vital for a healthy life.(cid:148) It is time for the nation to wake up to the staggering impact of sleep disturbances on the health and welfare of our society, an impact that rivals that of smoking. Eliot Phillipson, MD, New England Journal of Medicine, April 29 1993 1 Normally, during sleep the muscles that control the tongue and soft palate hold the airway open. 2 When these muscles relax, the airway narrows, which may cause snoring and breathing difficulties such as hypopneas. 3 If these muscles relax too much, the airway can become blocked, preventing breathing. This is an obstructive apnea. What is SDB? Sleep-disordered breathing (SDB) is a general term for Obstructive sleep apnea (OSA). During sleep, the body breathing disorders that occur during sleep. Although the relaxes, and muscle tissues like the tongue and soft palate lose consequences of untreated SDB can severely affect health their slight rigidity. In people with OSA, these tissues relax and mortality, awareness among medical practitioners is too much, partially or completely blocking the airway and relatively low. As a result, patients can find themselves shutting off breathing. As the brain recognizes the increasing receiving treatment for other conditions when the cause of need for oxygen, it wakes the sleeper enough so that they their symptoms originates in their sleep. Studies have shown breathe again(cid:151)and then fall back to sleep. This happens from that SDB is strongly associated with hypertension, nocturia, dozens to hundreds of times per night for people with OSA, stroke, and congestive heart failure as well as being but they usually don’t remember their brief awakenings, called independently associated with insulin resistance.6 sleep arousals. If you listened to someone with OSA while Obstructive sleep apnea (OSA) is the most common form of they slept, you would probably hear loud snoring interrupted SDB, affecting almost 10% of the general adult population(cid:151)a by moments of silence, followed by gasps and snorts as they similar prevalence to asthma or diabetes. Other manifestations struggled to start breathing again. include central sleep apnea (CSA) and hypoventilation OSA sufferers often wake up feeling exhausted. They also tend syndromes that occur during sleep. CSA is controlled from to suffer a range of other symptoms including excessive daytime the brain and not related to the airway being obstructed. sleepiness, reduced cognitive function, memory loss, lack of Hypoventilation syndromes are generally associated with concentration, depression, and irritability. Studies have linked obesity and chronic obstructive pulmonary disease (COPD). OSA to increased traffic and workplace accidents. OSA sufferers healthy sleep-disordered breathing ❘ operations may also experience an increase in heart rate, an elevation of blood pressure during apneas, and daytime hypertension. Even very mild levels of SDB increase the risk of developing stroke, heart failure, and coronary heart disease.7 Generally, primary care physicians who recognize OSA (cid:147) Vision without action is a daydream. Action without vision is a nightmare.(cid:148) Japanese proverb Evidence shows that positive airway pressure improves cardiac function in patients with congestive cardiac failure.13 symptoms will refer the patient to a specialist for further OSA and stroke. SDB is common in the stroke population, evaluation. OSA diagnosis typically involves an overnight sleep affecting up to 70% of stroke survivors.2,3 Increasing evidence test at a sleep clinic. The number of sleep clinics in the US alone suggests a cause-effect relationship between OSA and stroke. has expanded from 100 in 1985 to over 2000 today. Additionally, the excessive daytime sleepiness and fatigue OSA and hypertension. Recent studies found that SDB is profoundly associated with hypertension, independent of all other risk factors8, with untreated SDB being a risk factor for hypertension.9 SDB arousals cause an increase in sympathetic nerve activity, which leads to increased blood pressure and heart rate. These factors may relate to the higher rate of hypertension in SDB patients. In fact, over 80% of patients with refractory hypertension have OSA (96% in men and 65% in women).1 OSA and congestive heart failure. About 60% of patients with congestive heart failure (CHF) have SDB.4 The majority of these patients suffer from obstructive or mixed sleep apnea (a combination of OSA and CSA). Those with the most severe heart failure often have a serious condition known as Cheyne- Stokes respiration (CSR). With CSR, the patient’s breathing continuously cycles between underbreathing (may stop altogether) and overbreathing. Mortality is higher in patients with CSR compared to CHF patients without CSR10, and nocturnal CSR is an independent predictor of poor prognosis.11 Long-term treatment of CSR using nasal CPAP (page 21) has been shown to improve sleep quality, daytime sleepiness, cognition, and also heart function in CHF patients.12 Further studies have revealed a reduction in mortality and hospital admissions. associated with OSA may adversely affect the outcome of post-stroke rehabilitation. It may also reduce the ability and motivation of the stroke survivor to participate in rehabilitation programs. Studies have shown that stroke sufferers with SDB have worse functional outcomes and higher mortality after one year compared to control subjects.15 Treating OSA in the stroke population is important as it may also reduce the risk of secondary stroke. 78% of long distance truck drivers have SDB14 Chronic obstructive pulmonary disease (COPD). COPD is a group of diseases, the most common being chronic bronchitis and emphysema. The common characteristic of COPD is obstruction to the airflow out of or from the lungs. People with COPD may eventually require supplementary oxygen and rely on mechanical ventilatory assistance. Noninvasive positive pressure ventilation results in improvements in daytime arterial blood gas tensions, which are sustained after two years of treatment. It also reduces both hospital admissions and general practitioner visits by patients with severe COPD in hypercapneic respiratory failure.16 19 symptoms and Terri became involved in a study being conducted by the David Read Laboratory, Sydney University. The study is investigating the reduction of blood pressure using CPAP treatment. Terri started treatment on a ResMed AutoSet T using an Ultra Mirage Mask. (cid:147)When I did the sleep study I actually stopped breathing 30 times an hour,(cid:148) she said. Terri was actually pleased to be told she had sleep apnea(cid:151)before that no one had been able to find out why her blood pressure was so high(cid:151)but now she had a reason. The treatment worked well and helped reduce her blood pressure from 143/84 to 124/72. Baby Sam was born on Terri’s 40th birthday at 35 weeks and 6 days, weighing a healthy 7.2lb (3.25kg). (cid:147)After just one night [on CPAP] I had so much energy. And it’s just putting a mask over your face. You’re not taking any drugs(cid:151)that’s great. Terri Duchar Business Systems Salesperson and new mother, age 40 When Terri Duchar was pregnant, her blood pressure was so high the doctors told her she would have to deliver her baby at 28 weeks. (cid:147)I was pretty much at the maximum dosage of (blood pressure) medication, and they said they couldn’t give me any more unless it was intravenously,(cid:148) (cid:147)I was only made aware of sleep apnea by my friend. Now I she explained. She also snored so loudly she actually woke herself up at night, and her husband Mark noticed that she stopped breathing at intervals. Worse still she would wake up with headaches and feel exhausted during the day. Fortunately, a friend with sleep apnea recognized her look for it in other people. It’s [the mask] not a good look, but I think my husband would rather have a live wife(cid:151)and now he can watch the cricket and rugby in bed without the sound being drowned out by my snoring.(cid:148)story healthy sleep-disordered breathing ❘ operations What are the treatments? Positive airway pressure. Professor Colin Sullivan, the Chairman of our Medical Advisory Board, invented nasal continuous positive airway pressure (CPAP) as a treatment for OSA in 1980. CPAP systems were commercialized in the US in the mid-1980s and, today, use of CPAP is acknowledged as the gold standard for managing OSA. Nasal CPAP provides a highly successful, noninvasive means of treating OSA. During treatment, a patient sleeps with a nasal or full-face mask connected to a small portable airflow generator have been extensively clinically evaluated. A recent study that delivers room air at a continuous positive pressure. The air comparing leading automatically adjusting machines showed from the flow generator supplies just enough pressure to that ResMed’s AutoSet T(cid:153) device responds most predictably prevent the upper airway from collapsing. Positive airway to abnormal breathing patterns and is affected in a more pressure applied in this manner acts like an "air splint" to keep consistent manner by inadvertent leak.20,21 the upper airway open and unobstructed, allowing normal breathing during sleep. AutoSet devices are suitable for a range of patients with OSA and ideal for treating sleep apnea in stroke patients. This is Positive airway pressure treatment has been shown to have wide- because they adjust to the dynamic changes in the severity of ranging benefits. For example, it has been shown that for patients OSA that occur during recovery from stroke. They also have with severe OSA, nasal CPAP reduces blood pressure, providing data recording capabilities that make patient management easier significant vascular risk benefits and substantially improving for clinicians and healthcare providers. excessive daytime sleepiness and quality of life.17 This year ResMed launched the AutoSet Spirit(cid:153), which is During normal pregnancy, a number of physiological changes currently surpassing all sales forecasts. AutoSet Spirit provides occur that may compromise the respiratory system. Nasal CPAP information that allows patients to troubleshoot minor can reduce nocturnal blood pressure increments in women with problems and clinicians to access details of the patient’s preeclampsia and SDB.18 It has also been shown to reduce the treatment. This information is available via an LCD without the need for acute hospital admission due to cardiovascular disease need to download data using a separate device. and pulmonary disease for patients with OSA.19 Small and light with a unique new casing design, the AutoSet Automatically adjusting devices represent the newest positive Spirit also has a compact humidifier module that can be airway pressure technology. ResMed’s AutoSetfi technology added if required. AutoSet Spirit is the first and only AutoSet continually monitors the status of the upper airway on a device to feature truly integrated humidification. breath-by-breath basis, and allows the device to automatically adjust the pressure to suit the patient’s pressure needs as they vary overnight and over time. By responding to the patient’s changing pressure needs, AutoSet devices are able to deliver lower mean pressures. A ResMed S7(cid:153) CPAP device was also launched in the US in July 2002. Using the same case as the new AutoSet Spirit, the ResMed S7 CPAP is completely modular and upgradable to integrated humidification. It will also be upgradable to AutoSet technology in the near future. ResMed’s S6(cid:153) range of CPAP ResMed’s AutoSet devices are intelligent CPAP systems, which systems, which was launched in February 2000, has three 21 models to suit different patient needs. S6 CPAP systems are performance and general patient well-being. In another trial, renowned for their small, elegant casing, extremely low noise, those patients on AutoSet CS showed significant improvement light weight, and exceptional reliability. in exercise capacity, sleep, and left ventricular fractional Bilevel therapy. ResMed’s VPAP (variable positive airway shortening, in comparison to those on oxygen therapy. pressure) devices provide bilevel therapy, which is similar to Patient interface. The key to effective CPAP and bilevel CPAP therapy but involves two pressure settings instead of therapy is the patient interface or mask system. ResMed mask one. A higher pressure during inspiration helps the patient systems consist of a nasal or full-face mask and headgear. inhale while a lower pressure during expiration reduces Launched in 1997, ResMed’s Miragefi Mask revolutionized mask resistance, making it easier to exhale while still preventing technology and formed a platform for a sophisticated range of upper airway collapse. Bilevel therapy is recommended for masks that are among the most popular in the world today. In some patients with OSA who have difficulty tolerating CPAP the past year we released the Miragefi Full Face Mask Series 2 or who have both sleep apnea and other respiratory plus the Miragefi NV Full Face Mask Series 2 and Ultra Mirage(cid:153) problems. Bilevel therapy is also used for patients with ALS, NV Nasal Mask for the noninvasive ventilation market. kyphoscoliosis, muscular dystrophy, COPD and other disorders that impact breathing during sleep. In this instance the treatment is used to provide ventilatory assistance rather than upper airway stabilization. Patient breathing synchronization with the machine is vital for successful therapy. ResMed VPAP devices have two unique features called Vsync(cid:153) and TiControl(cid:153) that help compensate for mask leaks and ensure the VPAP device stays in tune with the patient’s breathing. The AutoSet CS(cid:153) (not available for sale in the US; currently undergoing FDA-approved trials) is an automatically adjusting servo ventilator device designed to treat CSR and CSA. AutoSet CS automatically adjusts pressure on a breath-by- breath basis, delivering varying degrees of ventilatory assistance to stabilize breathing and reduce CSR. The device responds to the dynamic nature of these patients’ disease states and recovery needs. In addition, the device is fully portable and has a number of features designed to improve CHF patient comfort and compliance. Trials are showing that the AutoSet CS provides better control of CSR than other forms of respiratory therapy. Recent results from trials in Germany are extremely promising. In one trial AutoSet CS normalized detrimental breathing patterns and, over periods up to three months, improved cardiac The key to effective therapy Positive airway pressure therapy, while not a cure, does provide a means to manage SDB and positively impacts cardiovascular health. It must be used on a nightly basis for as long as treatment is required. Early generations of CPAP units and masks provided limited patient comfort and convenience. In more recent years, ResMed innovations have improved therapy for millions of users with SDB. These innovations include: AutoSet technology; more comfortable mask systems; delay timers, which gradually increase air pressure, allowing the patient to fall asleep more easily; and heated humidification systems to make airflow more comfortable. AutoSet technology is changing the face of treatment with devices that monitor both usage and treatment efficacy. This increases the amount of information available to clinicians during patient follow up and improves their ability to intervene successfully in problems that patients may experience with treatment. AutoSet treatment is more comfortable for patients and can lead to improved compliance and better outcomes.22 healthy sleep-disordered breathing ❘ operations (cid:147) If everything seems to be under control, you(cid:146)re just not going fast enough.(cid:148) Mario Andretti (1940(cid:150) ) automobile racer Product development been developed by a small, internal team. The manufacturing ResMed has a strong track record of innovation in the SDB process consists of major subassemblies produced externally market and is committed to an ongoing program of product by subcontractors. Final assembly and testing of finished advancement and development. Current product products is performed in-house. development efforts are focused on both improving current products and expanding into new product applications. In the three fiscal years ended June 30, 2002, 2001, and 2000, ResMed invested $14,910,000, $11,146,000, and $8,499,000 In May this year we acquired Servo Magnetics Incorporated (SMI). Based in California, US, SMI designs, manufactures, and distributes the high quality electric motors used in ResMed(cid:146)s flow generators. The SMI motors are also used in the respectively, on research and development. aerospace and data storage industries. We consult with physicians at major sleep centers throughout the world to identify technological trends in the treatment of SDB. Some of these physicians currently serve on our Medical Advisory Board. New product ideas are also identified by our marketing staff, direct sales force, network of distributors, manufacturers’ representatives, customers, and patients. ResMed’s mask systems are excellent examples of the company’s commitment to product development. ResMed’s engineers have integrated their research and development efforts with feedback from patients and professionals to maintain a constant evolution of quality and comfort in mask systems. Manufacturing Sales and marketing ResMed currently markets its products in over 60 countries using a network of distributors, independent manufacturers’ representatives, and a direct sales force. ResMed attempts to tailor its marketing approach to each regional market, based on local awareness of SDB as a health problem, physician referral patterns, consumer preferences, and local reimbursement policies. North America and Latin America. In the US, sales and marketing activities are conducted through a field sales organization made up of regional territory representatives, program development specialists, diagnostic system specialists, ResMed’s principal manufacturing facility is located in Sydney, regional sales directors, and independent manufacturers’ Australia. Sydney operations consist primarily of research, representatives. development, testing, manufacturing, and assembly of flow generators, masks, and accessories. ResMed also promotes and markets its products directly to sleep clinics. Patients who are diagnosed with OSA and The MAP German manufacturing operation is based in prescribed CPAP treatment are typically referred by the Munich. The products are primarily flow generators that have diagnosing sleep clinic to a home healthcare dealer to fill the 23 Thorough testing of the AutoSet Spirit ensures high quality standards are maintained prescription. The home healthcare dealer, in consultation with the referring physician, will assist the patient in selecting the equipment, fit the patient with the appropriate mask, and set the flow generator pressure to the prescribed level. Canadian and Latin American sales are conducted through independent distributors. Sales in North America and Latin America accounted for 49%, 52%, and 54% of net revenues for the fiscal years ended June 30, 2002, 2001, and 2000 respectively. Europe. ResMed markets its products in all major Western European countries. The company has wholly owned subsidiaries in the United Kingdom, Switzerland, Sweden, Spain, Netherlands, Germany, France, and Austria and uses independent distributors to sell products in other areas of Europe. Distributors are selected in each country based on their knowledge of respiratory medicine and a commitment to College of Cardiology, the Heart Failure Society of America, the American College of Neurology, the American Society of Hypertension, the American Stroke Association, the US National Stroke Association, and the Australian National Stroke Foundation. People As of June 30, 2002, we had 1250 employees or full-time consultants, of whom 503 were employed in warehousing and manufacturing, 178 in research and development, 337 in sales and marketing and 232 in administration. Of our employees and consultants, 597 were located in Australia, 317 in the US, 318 in Europe, and 18 in Asia. SDB therapy. In subsidiaries, a local senior manager is Properties responsible for direct national sales. MAP conducts its sales efforts through a direct sales force and subsidiaries in Germany, Austria, the Netherlands, and Switzerland. Our principal executive offices and US distribution facilities, consisting of approximately 144,000ft2 (13,378m2), are located in Poway (North San Diego County), California, in a building ResMed’s Executive Vice President, Dr. Christopher Roberts, we own. Manufacturing operations are leased in Sydney, is responsible for coordination of all European activities and, Australia, in a 120,000ft2 (11,148m2) facility, and California in a in conjunction with local management, the direct sales 35,500ft2 (3,298m2) facility. Construction of a new facility for activity in Europe. Sales in Europe accounted for 42%, 39%, the Sydney operations commenced in July 2002. Occupying a and 35% of net revenues for the fiscal years ended June 30, 30 acre (12 hectare) site, the 376,800ft2 (35,000m2) facility 2002, 2001, and 2000 respectively. should be completed in 2004 and will accommodate up to Asia Pacific/rest of world. Marketing in Asia Pacific and the 2,000 staff. rest of the world is the responsibility of the Executive Vice Sales and warehousing facilities are leased in Oxford, England; President, Dr. Christopher Roberts. Sales in Australia and M(cid:246)nchengladbach, Germany; Lyon, France; Trollh(cid:228)ttan, the rest of the world accounted for 9%, 9%, and 11% of net Sweden; and Singapore. Prior to moving our executive offices revenues for the fiscal years ended June 30, 2002, 2001, and and distribution facilities to Poway, California, we leased 2000 respectively. space for this purpose in San Diego, California. Our lease on Other marketing efforts. In addition to our sales efforts, we those premises expires in 2005. In August 2000, we began work with the following cardiovascular disease associations subleasing those premises to another company. (CVD includes coronary artery disease, congestive heart MAP’s principal offices are located in Munich, Germany, in a failure, hypertension, stroke, and transient ischemic attack) to 45,000ft2 (4,181m2) facility leased by us. MAP’s subsidiaries raise awareness of the co-morbidity of SDB in cardiovascular also lease sales and warehouse facilities in Lyss, Switzerland; disease patients: the American Heart Association, the American Villach, Austria; and s’Hertogenbosch, the Netherlands. 25 story Charles M retired Master Chief Petty Officer and counselor, age 69 These data downloads proved invaluable for pinpointing and helping to eliminate mask leaks. Charles started using a Mirage Full Face Mask Series 2, which he found to be the most comfortable of all the masks he tried. Subsequent Despite a 20-year history of snoring, Charles M. had never downloaded data showed good compliance and elimination been screened for OSA until he was diagnosed with of previous mask leak. congestive heart failure (CHF) eight years ago. With the mask problems resolved and after using the Prior to treatment for OSA, Charles was frequently short of AutoSet T for eight months, Charles showed significant breath. "On my visits to the heart failure clinic, I would have improvement on all measured cardiac outcomes. Currently to take a break walking the short distance from the parking his physician has decreased his dosage of CHF medications. lot to the hospital. Once inside the hospital, I would have to His physician attributed this reduction to the improvements take another break before taking the elevator to the CHF associated with positive airway pressure treatment. clinic," he says. At the time he was taking 16 pharmacological medications to manage his heart failure. From someone who previously had barely enough energy to walk across the hospital car park, Charles is now able to walk Fortunately for Charles, an investigator at the hospital more than 16 blocks before he is tired. He leads a very invited him to participate in a study looking at the links active social life and travels at least once a year, taking his between sleep apnea and heart failure. On his overnight AutoSet T with him. He is very involved with his church as sleep-study, he had 26 apnea events per hour and his blood an elected Elder and is a volunteer alcohol and chemical oxygen levels dropped to 81%. Charles was introduced to ResMed’s AutoSet T treatment by the CPAP clinic at the hospital. A case manager followed his progress with regular phone calls and AutoSet T downloads, which included compliance and efficacy data. addiction counselor. Charles personally attributes all his quality-of-life improvements during the last eight months to his use of ResMed’s AutoSet T system. steadfast On the right treatment, people with sleep disorders sleep better, work better, relate better . . . in fact their whole life is truly enhanced. Annual meeting of shareholders The annual meeting of shareholders will be held on Monday, November 11, 2002, at 2.00pm at The Exchange Square Auditorium, Ground Floor, 18 Bridge Street, Sydney, NSW Australia. Year ended June 30 In thousands, except per share data Net revenues Income from operations Income before income taxes Net income Basic EPS Diluted EPS 2002 2001 2000 204,076 155,156 115,615 51,159 54,592 37,506 1.17 1.10 44,269* 45,541* 29,857* 0.96* 0.89* 33,138 34,166 22,226 0.74 0.69 1999 88,627 25,255 24,577 16,102 0.55 0.52 1998 66,519 17,363 16,112 10,611 0.37 0.35 1997 49,180 8,327 11,087 7,465 0.26 0.26 1996 34,562 3,595 6,561 4,503 0.16 0.16 1995 23,501 2,787 3,781 2,833 0.19 0.16 1994 13,857 1,289 1,831 1,232 0.10 0.09 1993 7,650 637 1,205 846 0.09 0.06 Market for the company’s common stock and related shareholders’ matters The company’s shares are traded on the New York Stock Exchange (primary listing) and the Australian Stock Exchange under the symbol RMD. Prior to September 1999, ResMed was listed on the NASDAQ-AMEX national stock market under the symbol RESM. The company began trading on the Nasdaq market on June 2, 1995. The company does not intend to pay cash dividends with respect to its common stock in the foreseeable future. High and low closing sale price information for the company’s common stock for the applicable quarters is shown below. 2002 2001 High 60.95 61.75 53.15 40.34 Low 45.90 50.47 36.36 24.70 High 38.38 41.50 47.00 57.68 Low 24.63 25.50 36.65 37.91 Quarter One Quarter Two Quarter Three Quarter Four Form 10-K Copies of the ResMed Inc. annual report on Form 10-K, as filed with the Securities and Exchange Commission, are available upon request without charge. Please address written requests to Walter Flicker, Corporate Secretary, ResMed Inc., 14040 Danielson St, Poway, CA 92064-6857 USA. Shareholder and investor inquiries ResMed has a Web site containing details about the company, its products, SDB, and information for sleep professionals, as well as the latest company news releases. You can visit the Web site at www.resmed.com. To directly receive copies of company news and other investor information, please contact Walter Flicker, Corporate Secretary, ResMed Inc., 14040 Danielson St, Poway, CA 92064-6857 USA. Tel: +1 858 746 2400; Fax: +1 858 746 2830; E-mail: InvestorRelations@ResMed.com. Security analysts and institutional investors are invited to contact Adrian M. Smith, Vice President, Finance, ResMed Inc., steadfast shareholders(cid:146) information ❘ board of directors ❘ 1993(cid:150)2002 highlights (cid:147) There are no shortcuts to any place worth going.(cid:148) Anon. As at June 30 Working capital Long-term debt 2002 2001 144,666 144,272 123,250 150,000 2000 47,550 - Shareholders(cid:146) equity 192,930 100,366 93,972 Total assets 376,191 288,090 115,594 In thousands, except per share data 1999 32,529 - 71,647 89,889 1998 32,759 - 50,773 64,618 1997 34,395 274 44,625 54,895 1996 30,844 578 38,986 47,299 1995 27,354 787 28,867 35,313 1994 5,010 386 5,630 9,608 1993 2,589 163 2,895 5,173 *Numbers after MAP acquisition are: Income from operations 26,042; Income before income taxes 27,314; Net income 11,630; Basic EPS 0.37; Diluted EPS 0.35 Tel: +61 2 9886 5000 or Walter Flicker, Corporate Secretary, ResMed Inc. Tel +1 858 746 2400 or 1 800 424 0737 (US only). Transfer agent and registrar Inquiries regarding transfer requirements, lost certificates, and changes of address should be directed to either of the following: American Stock Transfer and Trust Company, 59 Maiden Lane, New York, NY 10038. Tel: +1 718 921 8275. Computershare, Level 3, 60 Carrington Street, Sydney NSW 2000. Tel: +61 2 8234 5000. Convertible notes inquiries The indenture trustee for the notes is American Stock Transfer and Trust Company. Inquiries regarding the notes should be directed to American Stock Transfer and Trust Company, 59 Maiden Lane, New York, NY 10038. the time of issue. The securities were subsequently registered for resale under Securities Act (Registration No. 333-70500) effective October 9, 2001; and consequently the Securities may be resold in accordance with the prospectus that is part of the registration statement by the selling security holders’ names in the prospectus or a supplement to the prospectus. Other sales of the Securities may only be made in compliance with the registration requirements of the Securities Act and all other applicable securities laws, or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any other applicable securities laws. Legal counsel Latham and Watkins, 650 Town Center Drive, Suite 2000, Costa Mesa, CA 92626 USA. Tel: +1 718 921 8275. Independent auditors The notes and the common stock issuable upon conversion of the notes (the "Securities") were not registered under the Securities Act or any other state or foreign securities laws at KPMG LLP, 750B Street, Suite 3000, San Diego, CA 92101 USA. 29 (cid:147) There is no such thing as a great talent without great will-power.(cid:148) HonorØ de Balzac (1799(cid:150)1850) French novelist Senior Executives Mark Abourizk Lasse Beijer Michael Berthon-Jones Don Darkin David D’Cruz Norman DeWitt Robert Douglas Paul Eisen Walter Flicker Robert Frater Connie Garrett Elliott Glick Leslie Hoffman Curt Kenyon Brett Lenthall Tom Miller William Nicklin David Pendarvis Alain PersØguers Terry Pethica Eric Phuah Ron Richard Glenn Richards Greg Rogers Klaus Schindhelm Joerg Schneider Adrian Smith Caspar Stauffenberg Deirdre Stewart Ann Tisthammer Dana Voien Vice President, Intellectual Property and Legal Affairs (Asia Pacific) Chief Executive, Sweden and Scandinavia Chief Scientific Officer Vice President, Patient Interface Division Vice President, Regulatory Affairs Vice President and General Counsel* Vice President, Bilevel Division Vice President, Asia Pacific Corporate Secretary Vice President, Innovation Vice President, Human Resources Vice President, US Operations President, SMI, a wholly owned subsidiary of ResMed Sr. Vice President, Telemedicine & Informatics Vice President, Information Systems Vice President, Sales, Americas Vice President, Manufacturing Vice President and General Counsel Chief Executive, Southern Europe Chief Executive, United Kingdom Vice President, OSA Division Vice President, Marketing, Americas Medical Director Vice President, Quality Assurance Sr. Vice President, Global Operations Chief Executive, ResMed Germany Vice President, Finance and Chief Financial Officer Chief Executive, MAP, Germany Vice President, Strategic Clinical Initiatives Vice President, Clinical Education and Training Sr. Vice President, New Business, US Marketing and Clinical Education Affairs * Mr. DeWitt resigned from General Counsel position contemporaneously with Mr. Pendarvis(cid:146) assumption of that position effective September 1, 2002. Chairman of the Board Peter C. Farrell President, Chief Executive Officer, ResMed Inc. Directors Christopher A. Bartlett Thomas D. Casserly, Jr. Professor in Business Administration, Harvard Business School Donagh McCarthy President and CEO of Protiveris Inc and former senior executive, Baxter Healthcare Gary W. Pace Chairman, QRxPharma and former CEO of a number of pharmaceutical development companies Michael A. Quinn CEO of Innovation Capital and formerly CEO of a medical device company and co-founder of NYSE listed environmental company Christopher G. Roberts Executive Vice President, ResMed, Inc. Louis A. Simpson President and Chief Executive Officer, Capital Operations, Geico Corporation (Photos (cid:150) left to right (cid:150) Louis A. Simpson, Christopher G. Roberts, Michael A. Quinn, Christopher A. Bartlett, Peter C. Farrell, Gary W. Pace and Donagh McCarthy) steadfast shareholders(cid:146) information ❘ board of directors ❘ 1993(cid:150)2002 highlights (cid:147) Any activity becomes creative when the doer cares about doing it right, or doing it better.(cid:148) John Updike (1932(cid:150) ) author Business 01 Acquires MAP Medizin-Technologie GmbH; acquires business activities of French distributor Premium Medical Swiss distributor Labhardt AG; Securities and Exchange S.A.R.L. purchased and ResMed SA established in France Commission declares S-3 Registration Statement 95 Company name changed to ResMed; lists on NASDAQ, effective; issues $180 million through private placement raising US$24 million of convertible subordinated notes due 2006 00 2-for-1 stock split; purchases business activities of Swedish distributor Einar Egnell AB 99 Begins trading on the New York Stock Exchange (NYSE); secondary listing of common stock on the Australian Stock Exchange (ASX); acquires holding in Flaga hf becoming distributor of Embla sleep diagnostic equipment in US and selected other countries 94 ResCare group incorporates as Delaware Corporation 93 Nomura Jafco invests Products 01 Mirage Full Face Mask Series 2; Embletta; AutoSet Spirit (outside US); AutoSet CS (outside US) 00 ResMed S6 CPAP system; Ultra Mirage Mask; enhanced AutoSet T; enhanced VPAP; AutoScan; Embla sleep 98 Construction of Australian premises begins; 3-year recorder agreement signed with Invacare Corp. for distribution of 99 AutoSet T & AutoSet PDS devices; Mirage Full Face selected products in the US; 2-for-1 stock split Mask; Mirage Disposable Full Face Mask; ResControl 97 Liquid silicone manufacturing assets of TQR Pty Ltd acquired; awarded $2 million competitive Government 98 AutoSet Clinical II device; AutoSet Portable II Plus device; VPAP II ST-A & VPAP MAX bilevel devices R & D Grant; NSW State Government offers financial 97 AutoSet Portable II device; HumidAire active humidifier; assistance for the expansion of Sydney manufacturing Mirage Mask; SCAN 2.0; UCU 2 plant; Singaporean and Malaysian distributor Innovmedics acquired and ResMed Singapore Pte Ltd established for direct distribution in SE Asia 96 German distributor Priess Med Technik purchased and ResMed Priess GmbH & Co established in Germany; 96 Comfort device; ResCap II headgear; VPAP II bilevel device 95 Alert CPAP device; AutoSet Portable device; Modular Mask frame; Pediatric CPAP device; SCAN software; SULLIVAN V CPAP device; UCU (Universal Control Unit) 94 AutoSet Clinical device; Infant Mask; SmartStart; 31 SULLIVAN IV CPAP device; VPAP bilevel device 99 Ranked 67 by Business Week as one of the 100 Hottest-Growth 93 Bubble Mask - Series 3; Constant CPAP (Germany); ResCap headgear; SULLIVAN III CPAP device Awards 01 Ranked 24 by Forbes magazine in the 2000 Best Small Companies in America; Dr. Peter Farrell named Australian Entrepreneur of the Year; ranked 31 in Business Week as one of the 100 Hottest-Growth Companies ($25m to $500m annual sales) in the US; ranked 30 by Fortune Small Business magazine as one of America(cid:146)s 100 Fastest- Growing Small Business Companies; ranked number 1 Medical Products Company by Investor(cid:146)s Business Daily 00 Ranked 58 in Business Week as one of the 100 Hottest- Growth Companies ($25m to $500m annual sales) in the US; wins two Australian Technology Awards for excellence, the first in the Development of Biotechnology, Pharmaceutical Technology and Medical Instrumentation and the second in the globalization of technology pioneered in Australia; ranked 34 in Forbes magazine in the 200 Best Small Companies in America for fourth year in a row; listed by Fortune magazine as one of the 100 Fastest Growing Companies in the US; Dr. Peter Farrell received AT & T International Business Leadership Award 2000 from San Diego World Trade Center Companies ($25m to $500m annual sales) in the US; ranked 94 by Fortune as one of America’s Fastest-Growing Companies; ranked 27 by Forbes magazine in the 200 Best Small Companies in America 98 Dr. Peter Farrell named San Diego’s Entrepreneur of the Year in Health Sciences; ranked 63 by Forbes Magazine in the 200 Best Small Companies in America; wins NSW Exporter of the Year Award across all industry categories 97 Dr. Peter Farrell receives David Dewhurst Award for significant contributions to biomedical engineering; named by Deloitte & Touche as one of the Technology Fast 500 (received again in 1998); ranked 172 by Forbes magazine in the 200 Best Small Companies in America; Australian Venture Capital Award (Best Expansion Phase Investee Company category) 95 Australian State Exporter of the Year Award 94 Dr. Peter Farrell named Australian Engineer of the Year by the Australian Institution of Engineers Netherlands Resprecare Medical BV Nieuwe Parklaan 86 2587 BV Den Haag, Netherlands Tel: +31 (70) 358 6263 Fax: +31 (70) 358 4333 info@resprecare-medical.nl Malaysia ResMed Malaysia Sdn Bhd Suite E-10-20, Plaza Mon(cid:146)t Kiara No.2, Jalan 1/70C, Mon(cid:146)t Kiara 50480 Kuala Lumpur Malaysia Tel: +60 (3) 6201 7177 Fax: +60 (3) 6201 2177 reception@resmed.com.my Germany ResMed GmbH & Co. KG Rudolfstra(cid:223)e 10 D-41068 M(cid:246)nchengladbach, Germany Tel: +49 2161 / 3521-0 Fax: +49 2161 / 3521-299 reception@resmed.de MAP GmbH & Co KG Fraunhoferstrasse 16 D-82152 Martinsried, Germany Tel: +49 89 89518-6 Fax: +49 89 89518-714 info.de@map-med.com www.map-med.com France ResMed SA Parc de la BandonniŁre 2 rue Maurice Audibert 69800 Saint Priest, France Tel: +33 (4) 37 251 251 Fax: +33 (4) 37 251 260 reception@resmed.fr Austria Laborex-Sanesco Med. Techn. Ger(cid:228)te AG Linzer Stra(cid:223)e 44-46 1140 Wein Austria Tel: +43 (1) 7808 8171 Fax: +43 (1) 789 8831 Australia ResMed Ltd 97 Waterloo Road North Ryde NSW 2113, Australia Tel: +61 (2) 9886 5000 or 1 800 658 189 (toll free) Fax: +61 (2) 9878 0120 reception@resmed.com.au Global Offices United States World Headquarters ResMed Corp 14040 Danielson St Poway CA 92064-6857 USA Tel: +1 (858) 746 2400 or 1 800 424 0737 (toll free) Fax: +1 (858) 746 2900 reception@resmed.com ResMed Corp (East Coast) 3001 Brockport Rd Spencerport NY 14559 USA Tel: +1 (716) 352 7772 Fax: +1 (716) 352 1622 reception@resmed.com United Kingdom ResMed (UK) Limited 67B Milton Park Abingdon Oxfordshire OX14 4RX UK Tel: +44 (1235) 862 997 Fax: +44 (1235) 831 336 reception@resmed.co.uk Switzerland Labhardt AG Thannerstra(cid:223)e 57 CH-4054 Basel Switzerland Tel: +41 (061) 307 9711 Fax: +41 (061) 307 9722 labhardt@datacomm.ch info@labhardt.ch Sweden ResMed Sweden AB Industrigatan 2 461 37 Trollh(cid:228)ttan Sweden Tel: +46 520 420 110 Fax: +46 520 397 15 reception@resmed.se Spain ResMed Spain SL c/ Arturo Soria, 245 28033 Madrid Spain Tel: +34 (93) 590 8154 Fax: +34 (93) 590 8153 Singapore ResMed Singapore Pte Ltd 57 Ubi Ave 1 #07-09 Ubi Centre Singapore 408936 Tel: +65 284 7177 Fax: +65 284 7787 reception@resmed.com.sg New Zealand ResMed NZ Ltd PO Box 51-048 Pakuranga Auckland New Zealand Tel: +0800 737 633 (NZ toll free) Fax: +0800 737 634 (NZ toll free) reception@resmed.co.nz Logan et al. J. Hypertension 2001 19(12): 2271-2272 Bassetti et al. Sleep 1999 22(2): 217-223 Parra et al. Am J of Resp and Crit Care Med 2000 161(2 Pt1): 375-80 Lipkin. Lancet 1999 354(9178): 531-32 Schafer et al. Cardiology 1999 92(2): 79-84 Ip et al. Am J of Resp and Crit Care Med 2002 165(5) 670-676 Shahar et al. Am J Respir Crit Care Med 2001 163(1): 19-25 Lavie et al. BMJ 2000 320: 479-82 Peppard et al. N Engl J Med 2000 342: 1378-84 References 1 2 3 4 5 6 7 8 9 10 Hanly et al. Am J Respir Crit Care Med 1996 153: 272-276 11 Langfranchi et al. Circulation 1999 99(11): 1435-1440 12 Naughton et al. Am J Respir Crit Care Med 1995 151(1): 92-7 13 Yan et al Chest 2001 1675-85 14 Stoohs et al. Chest May 1995 107: 1275-82 15 Good et al. Stroke 1996 27(2): 252-9 16 Jones et al. Thorax 1999 Jan 54(1): 91 17 Pepperell et al. Lancet 2002 Jan 19 359(9302): 204-10 18 Edwards et al. Am J Respir Crit Care Med 2000 162: 252-7 19 Peker et al. Sleep 1997 20: 645-653 20 Bliss et al. Presented at AARC International Congress Dec 2001 21 FarrØ et al. Am J Respir Crit Care Med 2002 1662: 469-73 22 Massie et al. 6th World Congress on Sleep Apnea, Sydney 2000 Trademarks AutoScan, AutoSet, AutoSet CS, AutoSet Spirit, AutoSet T, AutoView, AutoVPAP, Bubble Cushion, Bubble Mask, HumidAire, HumidAire 2i, IPAP MAX, IPAP MIN, MEDDTRAXX, Mirage, ProtØgØ, ResCap, ResAlarm, ResControl, ResMed, SleepKIT Solutions, SmartStart, Spirit, S6, S7, SULLIVAN, TiCONTROL, TRAXX, Ultra Mirage, VPAP, VPAP MAX and Vsync are trademarks of ResMed Ltd. Innovators in Sleep and Respiratory Medicine 

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