ResMed CEO Mick Farrell’s Keynote 2017

This presentation is a must for anyone who wants to understand how dramatically the smart use of big data can impact the entire healthcare system.

With ResMed’s investments in digitization, they are lowering costs for sleep apnea and COPD therapy and increasing patient adherence.


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Mick Farrell: All right, thanks Joe, thanks a lot, that was excellent, thank you. So I guess while they’re getting the slides up, I’ll say thanks to Joe. Joe’s followership on LinkedIn makes mine look futile. He’s got like 3x or 4x what I have, then I told him he got through the toughest gate at ResMed which is my assistant, Dawn Painter, she lets no one through. And she let Joe through two years ago, she says, “He’s such a nice guy.” I set up the conference and I was going to come and speak and then Zimmer moved there. It was Zimmer at the time hadn’t bought Biomet yet, moved their board meeting I said, “Joe, I’m really sorry.” This time he said, “It’s in your hometown, you can drive from home to it.”

And I’m really excited to be here, and I love this community of medical device folks that you’ve set up here. And I hope I’d have a “one” on my badge if I had one, I hope to have a two, three, four, or five as this conference continues to grow.

My goal today in my talk is to provide ResMed as a case study in connected care and digital health. At ResMed we have a triple aim, and our triple aim is to lower healthcare costs for a global sickcare system and make it a healthcare system.

Two, to slow the progression of chronic disease, not just sleep apnea and COPD neuromuscular disease the ones we’re in now, but many others as well.

And our third part of the triple aim is to improve patient outcomes, one patient at a time.

So why is ResMed a useful or viable case study? Well judge for yourselves at the end of this little talk, and by the way this is a conversation I’m going to do, I think we have an hour, a little less than an hour but I’m going to try to make it 50% get stuff out there and 50% let’s have a Q&A let’s have a dialog. There’s a little microphone on me that’s going for the webcast so I’ll repeat your questions for the folks on the web.

We have three million, 100% cloud-connected medical devices, that don’t sometimes connect. They have a cellphone chip in them with 99% coverage. We get data to the cloud every day. We now have over one billion nights of sleep data. We’re lowering costs for sleep apnea and COPD therapy setup by other 50%, and we’re increasing adherence from baselines in our industry of 50%, 60% to 80%, 90%. Stuff that my pharmaceutical colleagues dream of having.

Okay, so a little background on ResMed, and we’ll see if the sound works, and if it doesn’t, I’m going to fake snoring and apnea sounds on these mics for you.

First, a show of hands, who in this audience has heard of sleep apnea? So those on the webcast that’s about 95%. So I’ve been with the company 17 years, if I’d asked that question in 2000 when I just joined from Genzyme, it would have been about 5% to 10% of the audience, I’m not kidding. Awareness has really gone up. That’s good.

Okay, who here knows someone on sleep apnea therapy? Okay, I’d say it’s a bit of 60% for those on the web.

Who here is on sleep ap therapy themselves? If you don’t mind breaking HIPAA laws for yourself. It’s about five of us, six, seven. Seven of us, okay. Keep your hand up if you use sleep ap every night, including last night. Okay, so there’s four hands left up.

I’m going to show you what happens when you have sleep apnea that’s not treated. Tell me when the video is running because I can’t see jack from here. All right I’m going to do the Mick Farrell impression of a sleep apnea patient. Just put the slide up of that gentleman. Okay so this is a husband whose wife cared for him so much, oh it’s moving okay. Whose husband cared for him so much that she “outed” him.

He denied he suffocated he denied because he was asleep, he didn’t know he was suffocating multiple times per night. He denied that he’d stopped breathing because he didn’t know it. He was in sub-conscious state, he was in REM sleep or deep sleep, not for long because the reason this gentleman, I can’t see where you’re up to in it but I bet you there’s a whole lot of shaking and you’ve probably got a couple of (snoring sound) snore there.

And then they’ll be this sound which is the deadliest one that the wife the reason she outed him is (choking sound). I can’t even do the full 10 seconds. 10 seconds is the minimum to be in apnea.

And the reason he doesn’t die from that suffocation is because you know the movie Pulp Fiction where Uma Thurman gets that needle stabbed into her. It’s that surge of adrenaline and Norepinephrine and neurohormones, boatloads of neurohormones that your body sends through your system, a fight or flight response that says, “The boogy man’s coming, I’ve got to get out of here,” but you’re supposed to be sleeping.

And to be clinically significant, that has to happen more than five times per hour to 15, that’s what they call mild apnea. That means between every four to 12 minutes you suffocate, that’s mild. Moderate is suffocating every two to five minutes what they call severe sleep apnea means you suffocate every minute or two or less, sometimes every 60 seconds, 60, an AHR of 60. They call it an AHR, I call it the Suffocation Index.

Okay let’s move on to the next slide now.

So what does that cause, this Pulp Fiction neurohormone injection? It leads to all sorts of complications. It impacts the heart, it impacts the metabolic syndrome. I think we should be on the next slide. Yeah let’s just leave it there.

It impacts the cardiovascular system. 50% of heart failure patients have sleep apnea. 70% to 80% of drug-resistant hypertension patients, right, if you have hypertension you’re on two meds or more still not under 120 over 80, you’ve got an 80% chance of having sleep apnea. And if it remains untreated, your outlook is a lot worse.

There’s a study called The Sleep Heart Health Study from the University of Wisconsin. Terry Young and her colleagues. she’s the head epidemiologist, has run this for over a decade. And their data showed that over 26% of 30 to 70-year olds have sleep apnea. So 40 to 60 million Americans, and we have less than five to six million of them under treatment.

Sometimes people don’t go to treatment because they’re scared of the therapy. This is the therapy when Colin Sullivan who is the inventor of sleep ap from the University of Sydney was working on it. This is a Japanese Hitachi blower. It’s loud enough to sound like you’re swimming pool pump, not your current one but the one you had 10 years ago.

And the mask that they used on the first patients was the size of a toilet seat, like a Rube Goldberg device and it was glued on your face every night. I’m not kidding, glued on your face. And my father who founded ResMed, it was actually an MBO from Baxter Healthcare. He bought the technology for $2 million. I checked the stock price today, we’re 9.7 billion so it’s not bad a return over a couple of decades.

But that technology was pretty fundamentally sound, a pneumatic stent. Just simply let’s have a pneumatic stent and keep this airway open and let the patient breathe. But Eddy Merck was that first patient that my father met, my dad said to him, “Why do you do this? It’s loud.”

He said, “Oh it’s no big deal, I put the machine in the garage and then I have a tube that comes through to my bedroom.”

He said, “What? What do you do with the glue?” He said, “Oh I’ll just shower a little longer rip it off.” He said, “Why in God’s name, on God’s green earth would you use that thing every night?”

And he said, “It’s saved my job, it’s saved my marriage, it’s saved my life.” And my dad said, “Oh, those sound like pretty important things and I think I can make the device a little smaller.”

And we have. This is our latest technology, it’s called the AirCurve10. It’s the bedside table device if you like. This thing’s quieter than, well quieter than that air conditioning system we have in this room now, it’s less than 24 decibels.

It’s best for the spouse because she hears nothing. Not the (snoring sound). The reason people ap their husbands is because that happens. And by the way 40% of the patients showing up for diagnostics now are female. We have a whole line of For Her algorithms because women breathe differently For Her masks, because some people have hair and they like to have it looked after. And there’s different needs of our different gender groups.

So we’re making these things smaller, quieter, and more comfortable, but more importantly for this talk we’re making them more connected.

By the way I use a mask myself every night that’s the size of my little finger here. It’s called the P10 for nasal pillows. It fits right there right under my nose. Just forms a seal around my nose and unless you’re a mouth breather, there’s about 30% of you. For the 70% of us that’s enough. These things are just like nasal cannulas now.

This one actually does non-invasive ventilation, so this will treat COPD, neuromuscular disease and others. But I’m not here to talk about that.

One other thing I’m not here to talk about is our latest technology, but I can’t help myself. We’ve been waiting for 27 years for this, ResMed’s turning 28 next month and we’ve created, when I say ‘we’ I mean hundreds of engineers in Sydney and Singapore and Munich, have created the world’s smallest CPap.

This thing is about the size of two of my clickers together. This thing fits in your pocket it’s about five inches by three inches by two inches it’s less than 0.7 lbs. so less than about 300 grams for those of us who use the metric system. And I’ve been using a prototype of this device while traveling around the world.

We do business in 100 countries, so I like to get to a lot of them as often as possible, ask my wife, and I travel with this device. And it’s my job, saved my marriage, saved my life while I’ve been on the road. So this thing is taking preorders from our customers this month and we’re going to start shipping by May 31st, I’m really excited about it.

But this is what I’m here to talk about, I’m here to talk about a broken healthcare system, how health care … And I’ve worked in steel and chemicals biochemicals and then biotech before I ended up in medtech. And we are one of the most inefficient industries on the planet. We create paperwork like we want it, we create bureaucracy like it’s amazing, we run a sickcare system where frequent flyers at the hospital up until the ACOs were frequently rewarded. And we have incredible inefficiencies of people trying to get through the diagnostic system.

This is what life looked like for our customers. They have this rule in sleep apnea therapy in the United States which is when you get prescribed a device, you have to use it more than four hours a night for more than 70% of the nights, for more than 30 days in a row within your first 90 days of therapy, or they take the therapy away. It’s archaic, It’s like a Darwinian play. Imagine the diabetic, “I’m sorry you didn’t use it for three months, no more diabetes treatment for you. No more soup for you.”

That’s exactly what I do with sleep apnea therapy, 90 days you get cut off and you have to wait five more years and then do another diagnostic try and get through it. So our customers were busy trying to record all this and we had sneaking in these little SD cards, asking people to hook up Wi-Fi or their own Bluetooth, and they weren’t doing it.

So we said we’re not going to accept that, and we put a chip inside every box. Before going into what we were doing to it, this is the healthcare system. You’ll notice the patient is not at the center of it. Eric Topol, just up the road here, cardiologist a big advocate for the patient will see you now, would be very upset, but this is the current system. And I’m going to click forward, I’m not going to click through all these lines, they’ll do it themselves.

But this these are the steps, every single one of these lines has to happen for you to get diagnosed and treated with sleep apnea in this country. 10, 20, 30 steps. So the fact that when we went from 95 percent of the hands or 26% of the population down to the 10% maybe 15% that we’ve got on treatment, is this broken system.

So I was just up in Silicon Valley last week, I met Ben Horowitz and Marc Andreessen from Andreessen Horowitz and spent a lot of time at a number of the other big tech companies. And when you walk in to Andreessen Horowitz, the first thing you see is a piece of artwork that says, “Software will eat the world.”

And they’re right. Uber has eaten every taxi company, Netflix ate Blockbuster. Airbnb has eaten almost every hotel chains modest and low end. We decided that we weren’t going to become the taxi company or Blockbuster and we decided to be more like Amazon who put a chip inside every little book reader and you didn’t even know it was going to the cloud, you just wanted to book and you bought it for 9.99.

So we changed the basic competition in our industry from smaller quieter and more comfortable to smaller quieter comfortable and more connected. We now put a wireless communications chip that requires the patient to do nothing inside every single sleep apnea and every single COPD device that we sell.

And we turned all that nightmare of that spider web into an end-to-end solution for our customers. Whether you need a document management, inventory management, prescription management, careflow management, revenue cycle management. Or you want to reach out to your patients, call them, e-mail them, text them, gamefy them, we do it all on the cloud and we do it all for our customers.

We didn’t invent it all ourselves, we made a couple of acquisitions on the way. We bought a company called Ambien up in Halifax Nova Scotia. You say, “Why Halifax?” Well there was a little company called BlackBerry there, they were losing some share, and they had a boatload of great cloud software engineers at half the price of Silicon Valley, about three quarters the price of San Diego.

And they’re really good, and they’re excellent at security. BlackBerry was always the leader in security, and so those folks have joined ResMed, and we now have a couple hundred software engineers up there running part of our cloud.

The other acquisition we made was a company in Atlanta called Brightree, and it’s about a year ago today that we closed. And we invested $800 million, and our market cap at the time was $8 billion, so it was 10% of our market cap, a 10% bet of a farm on Software-as-a-Service for our customers.

And all Brightree did was home medical equipment, who were our customers distributors of medical equipment called HME or DME. HME DME company careflow automation. And we’ve automated all the steps and it’s all on the cloud per user per month.

And I’ve got to tell you having spent 10 years running a commercial division where 10 years is really 40 quarters, I had to beg I had to beg for revenue every quarter with a medical device play. You’re begging for the quarter, “Can we please, can you please buy again?”

Software-as-a-Service it’s beautiful. Annual recurring revenue, monthly recurring revenue. The customers love it so much that they don’t want to change, and you add features and you can say, “Well, do you want to take a price increase? Okay we won’t add the new features for you. It’s a really exciting plan, and our customers have loved it.

We’ve liberated the data and we’ve unlocked value for those customers, the providers. We’ve lowered their costs, so I’ll show you some studies, by 50%.

For patients we’ve liberated data and unlocked it to them, they get it on their smartphones now. For physicians they can do management by exception. For payers they can run K management programs, distributed health programs with the data in their own Epic or Cerner system. So we have an API that can flow into anybody’s system. We’ve done it with Kaiser, we’ve done it with many of the big players.

So I’ll do a little drill down on some of those areas of value. This is AirView® so this is our physician management software program. So if you’ve got thousands of sleep apnea patients, which most doctors do, you can’t manage them all. So we put them into risk groups, those at high risk of losing therapy, those at moderate risk, and those who actually don’t need any follow-up. And help the nurse and help the physician’s assistant, and help the respiratory care technician triage those.

We also run cloud-based algorithms that work out how best to email text or IVR directly to those patients. And you know how we find out? It’s crazy in healthcare, we ask the patient, who’s actually a consumer. We say, “How would you like to be contacted, and how often would you like to be contacted? And look click here “I agree” if you’d like resume to be able to contact you.”

The agreement rates are through the roof. Patients are screaming for their own data. The doctor doesn’t always know best because the doctor can’t be across all those patients. The doctor knows best when the patient comes to them with symptoms and problems, and they don’t want to deal with the frivolous questions and the computer system doesn’t mind dealing with those frivolous seemingly frivolous patients. Because none of them of the questions are frivolous because if they don’t get the answer, they might not use the therapy, they might not stay at a hospital, they might have an earlier heart attack or stroke, which are the consequences of untreated suffocation.

So here’s some peer-reviewed published evidence on this. This is from the American Thoracic Society. This is a study we did with Kaiser Permanente of Southern California. And the by the way the payer providers whether it’s Geisinger Into Mountain Health or Kaiser, they are the future. I mean this idea that when a patient leaves the hospital, they’re not important, or the idea that when they leave my primary care practice they’re not important. It’s a continuum and it needs to be seen as that. One of the best elements of the Affordable Care Act was the accountable care organizations. I think there were a lot of flaws with it but that was a really good path.

The ACO’s or something like that needs to be there because nobody wants to be in hospital. The patient doesn’t want to be in a hospital, the doctor doesn’t want you there in a hospital, the payer doesn’t want you in hospital, it’s expensive. And under an ACO or in Kaiser, the hospital CEO doesn’t want you in the hospital.

All those things should be aligned because hospitals are where sick people go, and healthy people should be at home, well taken care of with a good quality of life. And our goal is, you know let’s look for the five nines that Microsoft and Google look for, let’s get those five nines if we can on healthcare, that would save the trillions of dollars.

But in this study we were able to show that we could not only lower the cost of therapy set up for Kaiser Permanente but we increased adherence by 21%, just by an algorithm talking to patients. 21% relative improvement in adherence.

And if you talk to Dr. Huang who ran the study he would tell you that’s one of the toughest things to get, heated humidification, education programs, smaller quieter more comfortable threatening people with a stick of heart attacks or strokes or for males, “All your testosterone is released during REM sleep. If you don’t get REM sleep you’ll be on Cialis so use this device. All those threats don’t work for patients, what works is encouraging them, gamefying them, giving them their own data.

This is another study that we did with a company called Sleep Data, and they showed pretty clearly an almost 60% reduction in their clinicians’ labor costs. So in the United States that means more profit for a distributor, in the U.K. where we also sell to the National Health Service, or the Government of Norway where we have 80% share, it means more efficiency.

Under socialized medicine, there were these huge lines for people to get through the system. If you increase efficiency by 59% more patients get treated. And the governments like that because they have actually run the numbers and they realize that treating patients at home with a respiratory device for sleep apnea, is cheaper than having them be a frequent flyer in the E.R. And COPD goes to another level with that.

So I talked about the gamefication, you know, how do we do it? We give a score out of 100. It’s like your Fitbit or your Apple Watch giving you your 10,000 steps. Who knew 10,000 was … everyone’s talking about it right, “How am I going to get my steps? How am I going to get more fit?” All the people running the exercise bikes, the Garmin and tracking themselves.

I like to compare myself to other 45-year old males in Southern California, I’m a competitive guy. I only slept seven hours and five minutes last night, the average forty-five year old slept seven hours thirty. That’s not good my score is 85, I need a 90, what am I going to do about that? The system gives me hints “Drink some more water this afternoon Mick.” “Have a 15-20-minute exercise today” not an hour, and not five minutes, 15 to 20, and it tells me.

And it’s all based on clinical data and research and adapting to me, the cloud algorithm adapts and learns from the patient and from the literature. And it works.

So what do we get from all that? We get a boatload of data. Everybody is talking about big data. Big data is useless. Big data is useless, what’s useful is actionable information. And what’s really useful is actionable information that actually changes an outcome. So mining those data for the right analytics, tuning it up for that patient at that time is the future, and we’re not done.

The reason I was up in Silicon Valley is, we’re not … We’re the world’s experts in treating sleep apnea, we’re the world’s experts in treating COPD. There’s another coming in town, DexCom, they’re the world’s experts in treating Type-1 and future Type-2 diabetes, but those data need to be put together.

And then we need a system that can be the Facebook for health, the healthbook. We’d actually trust that those data could be looked at and analyzed and given back to you. It’s going to need very high-level trust and I don’t know which Zuckerburg is pulling out of Harvard right now to create it. It might come out of MIT I think frankly, I’m biased that.

But somebody is going to do that and we can’t wait, we’ve got the API’s already. We don’t have a data lake but we have data wells. We have a well of sleep apnea data, we have a well of COPD data. Someone else has got a well of cardiovascular data like Medtronic, some of you guys. Someone else has got a data well in diabetes including Dexcom and others. And we need to put those data together.

So we have over three million patients on the 100% cloud-connected medical devices. We have five million patients where we’re getting data through various sources. The old sneaking it in cards as well. We have 45 million patient records in the Brightree purchase, where we can see some transactions for virtually everything that these patients do that’s out-of-hospital care.

By linking up those billion nights of sleep data that those data wells around sleep apnea and COPD, we think we can not only change the field of respiratory medicine but, so ResMed stands for Respiratory Medicine, but we think we can be a big part of all out-of-hospital care. So Res Med might actually in the future be residential medicine because we think that Software-as-a-Service not only for where we’re playing now in HME but also in home health hospice, skilled nursing facilities and, long term acute care is the future. And we want to be part of that and partnering up with the hospital system to make sure that works.

Just before I leave the big data and turn into actual information, we just published a study last week maybe the week before, at the European Respiratory Society Conference, ERS this is the acronym. And it was a study, which is the largest that’s ever been done in the field of respiratory medicine. The sleep health study I was talking about earlier, 4,000 patients, it’s like the Framingham Heart Study for respiratory medicine, it’s huge.

We did a study with 200,000 patients, 200,000 patients, and we looked at a prospective and we did a retrospective and then we did a prospective study. And we looked at basic care which is CPAP, Continuous Positive Airway Pressure, basic sleep apnea care. And then we looked for these central sleep apneas where the brainstem, you actually breathe because of CO2 and a chemical sensor in the back of your brain stem here looking for CO2, so it’s doing an inverse. It’s a weird design, God, but he’s looking at CO2 and saying, “Okay, how do I breathe?”

But if that CO2 receptor goes off, if that bloodstream sensor goes off, you just stop breathing. And your airway is fully open, and our device is keeping it fully open saying, “Come on,” and you don’t breathe. It’s called Treatment Emergent Central Sleep Apnea. If we see that, we need to upgrade you to an adaptive server ventilator. ResMed’s proprietary treatment is then actually able to breathe for you. We notice it, we see the airway’s open, a little, we’d send a little sonar down literally, and see the lungs are all open we go, “Well hold on, your lungs are open, it’s been 60 seconds, it’s your normal respiratory rate,” and then we start breathing for you.

What we found in this 200,000-patient study is that when we moved and found that Treatment Emergent Central Sleep Apnea and treated it, we not only lowered the suffocation index, we also improved adherence for the patients. So there was a quality-of-life improvement as well as a reduction in pain and suffering for the patient. And yeah, economic impact on the healthcare system for untreated apneas.

So when I get up in front of our team and say, “Oh it’s great, you know, ResMed just achieved $2 billion in revenues and we’re almost $10 billion in market cap is kind of (yawns), because they didn’t come to work for Goldman Sachs, they came to work for ResMed. When I get up and say, “In the last 12 months we changed over 11 million lives,” and because I’m an engineer maybe a recovering engineer, I believe that you actually have to provide a product to someone, you can’t just I changed your life because you logged onto my website, or I changed your life because you logged onto myAir.

So we delivered over 11 million products that helped people breathe, so we gave the gift of breath to 11 million people in the last 12 months. And our goal at ResMed is to turn that into 20 million by 2020, because it’s a nice alliteration, and also with good double-digit volume growth we’ll be able to get there.

So thanks a lot for your time and I’ll now open up to any questions.

(Applause)

Joe Hage: Thank you. My question is this, you’re obviously an innovator, you’re a fast-mover, you have seized both miniaturization and digitization. What has that done to your numbers? What can you tie to these initiatives to what percent of your growth or numbers? Because I think for the audience who’ll watch us later, it’ll be their inspiration. Often times I’ll run into manufacturers who say, “I get it, these are trends but right now I have to hit these quarters ….

Mick Farrell: Yeah look it’s tough because that’s all based upon a lot of market research, we ask customers, you know, “Why did you choose ResMed over our competitors?” That moment of truth, that moment where they sign the purchase order for ResMed or one of our competitors, how did they make that choice. And we do a lot of research into that, and we actually have a lot more Big Data on that that we turn into actionable information for our marketing folks.

I’ll give you this anecdote this this analogy. ResMed was born global, I was born in Seattle actually I was born in Mercer Island Group Health and I grew up in South Seattle actually Australia.

Joe Hage: That explains the accent.

Mick Farrell: That’s the accent. But as I as I look at it as I look at our company and what we’ve achieved by being born global, right the company was started in Sydney, Australia by my father before it IPO’d. He had to move over here 1995 when it IPO’d on Nasdaq and had to, I have to live here because I’m in an N.Y.C. listed company. But I wouldn’t live anywhere else where in the hub of made take here.

But anyway the anecdote is because we were, the company was born in a little island of 20 million, well a big island but with a small population of 20 million in Asia Pacific, we had to reach out to the billions around the world. And so we were always number one share in Asia Pacific near our homeland of Australia so Japan, China. And we were number one in emerging markets like India. We were number one in Europe in Germany and France and UK because we were there first and really reached out there.

We had a competitor on the East Coast the US that was always number one here in market share. We were number one in innovation the whole way I believe; I’m biased. We took number one share in the US only after we, not only embraced the digital revolution but we actually lived in and drove it and led it within our industry. So we were always taking share by making things smaller, quieter, more comfortable.

But we finally became the number one market share player globally particularly in the biggest volume market United States by embracing the digital side of it. And putting a chip in every single box not asking our customers or patients to do anything. You ask a patient to do something 50% of the time they won’t do it. We’ve got other things to do, we’re living our lives. I don’t want to spend time on the medical device, it should just work. Just have it work.

But that’s the anecdote I use. Miniaturization got us number one in Asia Pacific and Europe, digital got us number one in the US and North America.

Joe Hage: Thank you.

Audience (Female): We’re all looking forward and also thinking toward the, looking forward to the digitization. The question is how did you company embrace the paper and how did the patients react to data being digitized and were there paper concerns from their end?

Mick Farrell: Yeah absolutely. I mean there are some really important things. And by the way we’d been taking data from doctors for 10 years before we did primarily through cellular 3G, 4G, 5G wireless, we had SD cards in downloadable devices for over a decade. And, you know, I look at the “I Agree” rates from consumers who have been diagnosed with a disease, right, they’re not just patients they’re also consumers. And you just look at how Joe and I met on a social network, on a business network, LinkedIn, right?

And I’m not a millennial, I’m a clear Gen-X plus-ish. And so I don’t do Facebook by the way. And you don’t need to see a public company CEO on Facebook. But I love being on LinkedIn and I love reaching out to patients, so I love it when they make bad or good comments and interacting with them. Patients including Gen-X and Baby Boomers and actually retirees click “I agree” to having my data in the cloud so that my doctor can get it, so that I can get it and I can liberate it at a very high rate.

I think there’s some competitors in the audience and they certainly will be listening release the exact amounts but I’ve got to tell you I think there’s a lot of trust people have. I click “I Agree” on Apple a lot because I really, you know, I trust Tim Cook and I trust Apple to actually preserve my privacy on my sort of consumer side. I hope we’ve generated that trust with our patients.

And look, it’s a work in process making sure you’ve got good cyber security and all that, and everything can be hacked and everything can be pulled apart and you’ve seen it in United Healthcare and eBay and Targets and the federal government Department of Defense, names and Social Security numbers and all the children and families for the top 200 spies in the country; everything can be taken.

But patients want their data, they’re putting photos of themselves up all over social media. If you can give them information every day that helps them get more personal with their therapy, get more engaged with their therapy, they love it.

But it’s a huge investment for us and it’s something that’s an ongoing game and something that we really treat with a lot of care and a lot of sort of productive paranoia.

Audience (Male): First of all as a patient I feel like I owe you a check because I learned a lot from you today than I did ever from my doctor when I was diagnosed.

00:33:38 with so much work that you’ve done and 00:33:42, what’s going down with your company with artificial intelligence 00:33:46 learning the things that are happening. What’s the next thing?

Mick Farrell: Yeah there’s a lot of talk about AI and ML, Artificial Intelligence and Machine Learning, and deep neural networks. And sort of these agnostic robots that analyze all the data and then just come up with insights that a human wouldn’t because we wouldn’t spend the time or effort or look at it from that angle.

It’s a huge field and that’s an area that we’re definitely partnering with folks who are experts in that area to help us understand how we can work together. We’ve liberated the data but unlocking value we’re just starting that journey.

And by the way I hope you guys all realize how humble and how Jim Collins productive paranoia we have. We’re in mile one of the marathon for healthcare informatics, for connected care, and for digital health. We’re very fit but we’re in mile one and some of our competitors are just sort of starting the race, some are tying their shoe laces and some are starting.

But this is a long race and we’re going to need a lot of partners who know AI and ML, I mean I work with them and we’re also going to make sure we stay on the forefront of the latest technology to get the data to the cloud to interact with the data in Cloud. To keep it secure and to unlock value across the sort of medical silos and disease state silos for patients. Because patients want it all and they want to be able to interact with it. They don’t want to say, “Oh there’s my respiratory problem, there’s my cardiac problem, there’s my diabetes problem.” They want a whole problem solved and it gets pretty complex.

But there’s not one player out there despite what you see in the advertising marketing side. There’s a lot of great folks doing good things and working out how best to partner with them is the challenge in AI and ML.

Dr. Chris Sasiela: One of the challenges that we face at the National Institute of Health is there is a wealth of data out there that resides in private companies. And trying to utilize that data and get those companies to develop data formats that are integrateable across various platforms is quite a bit of a challenge. You sort of started to address that with your last answer, but are there groups that you are aware of that I could reach out to?

I was visiting with Quest Diagnostics about two years ago and they have 400 million data points. And when I look at the NHLBI database, we don’t even have 4 million data points, right.

So how can we get access for basic researchers to be able to utilize this great storehouse of data in a cohesive fashion, and whether it’s through the NIH we do have initiatives to make that happen, or through a external private identity that’s fine. Getting that crosstalk between these silos is so important so if you could address that a little bit.

Mick Farrell: Yeah I think it’s a great question. Firstly, thank you to the NIH or the fundamental basic research is fundamentally needed in every industry. And without the Sleep Heart Health Study, which was primarily NIH-funded, I wouldn’t have any of the prevalence in epidemiology data that we have to create this industry. So that’s fundamentally important.

And there’s actually an NIH study we’re looking to do in COPD because we’ve done a lot in sleep apnea but COPD is just sitting there. And there’s so much sick of those patients with lung disease and there’s frequent fliers in the ER. So put in a good word for the COPD study we’re doing at NIH because that’s about industry development.

Yeah look we do a lot of philanthropy and just giving back to our community whether it’s in our local communities in K to 12 education, equality of opportunity and making sure STEM is taught well in all the cities that we do business in.

And another area of philanthropy could be unlocking these data into research databases to create new insights. And so I’m on the board of AdvaMed and I just got elected to a non-paid voluntary job to be the Head of Digital, the head of the digital committee. I think it’s called AdvaMed Digital and I’m the chair. So I’d love to talk to you afterwards about because my job there is actually to reach across the aisle because, you know, I’m not a Republican or a Democrat, I’m an Australian so. I don’t have 00:38:46 “What are you?” I’m like, “I got my driver’s license in Massachusetts,” they say, “You’re a Republican or a Democrat? I said, “Excuse me! I’m Australian!” She say, “Oh you’re independent?” I said, “Damn right I’m independent.”

So but there at AdvaMed Digital I’ve got to be reaching across the aisle for us, our competitors and people in different disease states, and even people that do compete every day against each other and say, “Well how can we get our digital data de-identified of course,” because people click “I Agree” knowing I’m going to trust. I’m like, “I’m going to keep the names and all the detail way way way over here,” but de-identified saying I was some random 45-year old male from Southern California I’ll put that into the database.

But it’s got to be managed well, it’s got to be managed in a way that we feel it won’t be monetized by someone else because we paid to get it there, that someone else is making profit of it. If it’s for nonprofit and it’s truly for development of humankind and making the world a better place, then we’re all in.

So I’ll talk to you afterwards but I’m hugely passionate about that stuff because it’ll create a whole new generation of medtech companies and insights that will help us keep people out of hospital, save money from our 20% of our GDP on healthcare that we can reinvest in growing our economies and wealth creation and quality of life for people.

Matthew Van Court: First off, thanks for accepting my LinkedIn connection.

Mick Farrell: No problem at all.

Matthew Van Court: I am one of those that suffer from sleep apnea quite significantly. I’d like you to touch a little more on well I recently just got the latest machine, the I don’t want to call it a threat but the indication was don’t use the machine for that four hours. That the insurance companies will not pick up the cost of the machine. And I’m curious as to ResMed is involved in that and your feelings on it.

Mick Farrell: Well it’s not a threat, it’s just the reality. The insurance companies they will pay for it for the first three months; they pay a rental. After three months if you don’t hit that 4 70 30 90, four hours, 70% of nights, 30-day trailing period in the first 90 days, they will take the device away. It’s not a threat, this is the government CMS and all the other private payers follow.

Our job, I say our fundamental job, is to maximize the percentage of patients who get adherent by day 90. You saw in that study we’re getting up to 80% 90% adherence, traditional it was like 50%. And by the way, you know, people come to our industry and say, “Gosh! 50% adherence, well it’s because you got that plastic, you’ve got to turn that thing on.” And it is, I mean this isn’t just like taking a pill, this is more complex.

But you guys are in this space so I’ve asked this question a lot you guys will probably know the answer, but you’ve all seen the New England Journal of Medicine study I’m sure, looking at adherence in the pharmaceutical space six months after a heart attack. A heart attack you get a prescription for three things usually, ice inhibitor, bator blocker, 00:41:44 calcium general drug, maybe a diuretic.

What percent of people do you think are just taking the first med from that cocktail they’re offered after a heart attack? (Siren sound) “Prescription, please take this,” six months later. What’s the adherence rate? I’ll take any guesses from 30%, 50%, 70%, 10%, 30%, 50%, 70%, 90%. 30%, 60%. 50%, who said 50%? That’s correct, 50% of people take their pill, the other 50 say, “I love that ambulance, that day was great, the food was exceptional, I got a whole bunch of bacteria.”

50% adherence, that’s what the standard adherence rate is in Sleep ap, and it’s pretty poor, but it’s just like a pill. Getting it to 87% is good, I prefer 99%or 99.9 something because some humans just won’t do things for their own good no matter what you do. But most people will if you educate appropriately. So it’s not a threat, it’s true, if you’re in your first 90 days, I’ll get you in touch with some digital nurses I know and you will change your approach to it because it really is life and death getting it treated right if you look at the Sleep Heart Health study on longevity.

Dave Sheppard: Hi there. Dave Sheppard, MedWorld Advisors. You obviously run a very global company. There are some aspiring entrepreneurs here that are trying to get into the market. Do you have any recommendations if you were starting today would you start in the US, would you start in Europe, would you start in Australia? What are your thoughts there?

Mick Farrell: So this is a question much better for my father who actually founded the company and was the entrepreneur, you know, I’m the hired gun that came in afterwards. We share 50% of the DNA but not that 50%, he’s the entrepreneur, so you guys have got some special juice if you’re the entrepreneurs and I respect you.

My father would say it’s not risk taking though, it’s risk avoidance, opportunity maximizing. A lot of people think entrepreneurs are risk takers, they’re not, they know it’s going to work, they’re trying to avoid all the risks. Just having participated in different regulatory markets all around the world for medical devices, I’d say it’d very much depend if it’s an implantable or noninvasive device or a diagnostic or a therapeutic.

But in general there’s much easier paths to market to get initial testing in other countries. Western Europe particularly for what would be a 510(k) or a PMA hear a lot of CE Mark capability. By the way Brussels is working on making the CE Mark worse than the 510(k) process as we speak, so get in quick.

But I would traditionally say definitely Western Europe first then here because then you’ve got to develop market and then get some proof-of-concept and not critical mass because you have socialized medicine and very low reimbursement rates. But if you get adoption there you can then move to the volume markets of North America.

It might be moving to Asia. Along with the Brightree acquisition last year we bought a company in China called Curative Medical. They were a competitor but they make a product in China for China so Made in China, designed, made, and manufactured and sold in China.

And by the way we run a separate analytics platform there in China because Beijing needs the source code if you’re going to run a cloud platform in China so we’re not giving our source code of the rest of the world we wrote another source code and actually came with that acquisition.

But I would consider China a great market for some areas if you’ve got the right disease state and the party in that province or territory is interested in treating that disease state, you can really get on some exciting things. And we have really good relationship with the governments in China as we grow that business. And that’s just outside Shanghai and Suzhou which is sort of the Silicon Valley for medtech I think in in China.

I would have said Western Europe but I’d say get in quick for that and if not consider maybe in China area. And we have a huge innovation center based in Singapore. Again based near all that hub of Asia Pacific, amazing medtech. I mean we have doubled-degreed electrical mechanical engineers running production engineering for us in our manufacturing plant with all the robots in Singapore. Just incredible incredible.

We have a partnership, it sounds crazy, but we have a partnership with the government of Singapore. We’ll sit down there and we’ll talk. Well say we have an agreement through 2030 with them on how many engineers we’re going to hire, what we’re going to do to work with them. And I wish other governments would have that long-term view.

Esther Alexander: Hi. I’m Esther Alexander, a software quality engineer. And you were speaking about cloud-based digitization what was going through my mind was curating of course.

Well I was wondering, apart from the fact that you probably have proprietary software on your devices. Is your cloud-based solution proprietary or are you going for a third party? I don’t know how much of this you can reveal because there may be competitors, but I assume with a lot of data, managing that could become a burden for a company versus one in cloud management. How are you managing that?

Mick Farrell: So I’ll answer the question in, you know, if-I-was context rather than talk about a particular company like ResMed. If I was starting up a small medium-sized company and looking to put my data in the cloud, I would probably consider partnering with Amazon Web Services or with Google Cloud. They do it well, they do it cheaply, and they do it as securely as anyone else.

So I think there are some really good providers of those types of things out there. And I just heard from both of them this week on how good and cheap and secure they are. And, you know, they’re probably the world leaders for that right now and I think you’d be crazy to want to run your own backend particularly in the early stages.

Cairn Idun: Hi. I’m Cairn Idun. My questions relate to those who are not diagnosed, and they both pertain to percentages. The first percentage I’m wondering is what percentage of the population do you think has sleep apnea?

And of that percentage, what percentage do you think go undiagnosed?

And given that large, I suspect it’s a very large number, how do you think or how would you propose to increase the probability that those people will become diagnosed?

How will people know to identify themselves that perhaps they should go to their doctor and get a diagnosis?

Mick Farrell: Yeah, so three great questions so the first one it’s 26%of the adult population. The prevalence is 26% of 30 to 70-year olds who have an NHI above five with symptoms or 15, so they either suffocate every 15 minutes or five minutes of sleep and they or fifteen with symptoms. So 26%one in four adults, somewhere around 40 to 60 million Americans.

Right now diagnosed on treatment somewhere around five six million so 85% undiagnosed, and that’s in the United States. And this is sadly the best country in the world for that diagnosis right. It’s lower than that in Western Europe, and it’s much lower than that in Asia Pacific. And China we’re talking decimal percentage points of the population who was suffocating every night that are treated.

What are we going to do about it? You’ve got to know what you’re good, you’ve got to know what you’re not good at, right. So running backend cloud systems is probably better for a huge tech company that’s running trillions of data points a second. We’re a really good medical device company, the best medical device company in the world for sleep apnea and COPD. And one of the world’s leaders in digital medtech, well the world lead according to Bergen, so.

What we’re not good at is consumers, consumer marketing. You know that’s what Proctor and Gamble does for a living, that’s what other people do. So we learned this the hard way. I’ve got a scar on my forehead that’s for my youth, but the metaphorical one I have is from when we bought a company in Ireland and tried to launch a consumer product that was about sleep wellness. And we did well, we had a good Christmas holiday season and sold a lot of product, and it got written up in the Wall Street Journal “Health tech number one sleep tracker in the planet. The S Plus by ResMed”. A lot of press.

But it sold well less than what I would consider a winner in my core business in terms of success in. But I didn’t want to lose that hope that there’s 80% of people suffocating every night and they don’t have any way of knowing, and it’s a great just sleep wellness device that helps people sleep better with insomnia or with PLMS or RLS and gets them into the diagnostic channels for many other sleeping disorders.

So we kept it on the back burner and just last year, actually earlier this year we launched the new company which is called Sleep School Labs and we spun it off. And we have a double-digit equity stake, Pegasus Capital has a double-digit equity stake, and Dr. Mehmet Oz, Oprah’s doctor, when she was around Dr. Oz took an equity stake himself. He’s not a paid spokesman he’s actually a shareholder and he’s on the board of directors.

And by the way he’s kind of a vascular surgeon and he puts on a great show of just talking folksy and let me talk to you about your disease. When he’s negotiating in the boardroom, he does a good job. And so we have a very fair partnership.

And Sleep School Labs will I think liberate data for millions of by potentially tens and hundreds of millions of sleepers, and help them realize if they have risky breathing or shortness of breath that they need treatment for sleep apnea or COPD. But more important than that for that company, they’re going to help them sleep better and live better throughout their whole life of sleep health.

For me it’s that sort of separation of church and state, I don’t know, I hope we’re the church and they’re the state, but it doesn’t matter, the medical side and the consumer side. Let’s empower patients early with their own data.

Neven Karlovac: I’m interested in your pricing models both from the both of your financial performance and also your customers, do they, I mean particularly for the digital services, do they pay you for volume or for outcomes or a combination of both?

Mick Farrell: Yeah, so it’s a good question, pricing is always a tough thing. And so the data that we give to consumers to patients is free. It’s your data. In 30 or 50 states I think legally you own it, we consider in 50 of 50 states you own your data; it’s your breathing. Actually we consider in 100 of 100 countries we sell in you own your data. So we pay to liberate the data to the cloud, we pay for the chip, we pay for the airtime charges, we get it to the cloud.

But once it’s there if you enter your serial number and you say, “I want it,” you get it. So patients get it free, liberate the data empower patients for free. I just think that’s firstly the right thing to do and secondly what we find is if they use it, if they use the data, they use the device more and then they actually buy more product from us because we sell ongoing products, you know, masks and accessories to those patients. And so patients get free.

Other parts of the healthcare, and similarly with the data the doctor gets the clinical data for free. Doctor gets the clinical data for free.

When we pay $800 million for a Software-as-a-Service company that was already charging you money to operate your services for our customers, we kept those charges going and we will continue to invest in that company and improve the work flows, but we will be saving this much costs, for those on the web, oh they can see me.

So this much cost we’ll be charging this much for the Software-as-a-Service revenue so that there’s profit. And that profit is reinvested back by the customer. It’s their cash flow they reinvest it back, we hope for better patient care.

And we’re certainly seeing that. Those who are adopting cloud solutions of our customers are not only growing their bottom line, they’re also providing better care, getting better adherence rates and better performance for hospitalization reductions and so on. And often that that provider is also the hospital and they’re looking to, and sometimes 00:54:33 well in Kaiser’s case also the insurance company so they’re really looking at reinvesting that for changing the healthcare system.

Joely Gardner: Hi there. I’m Joely Gardner, I’m a Usability Specialist for medical devices. And this is actually a joint question for Christ and you, because I work with a lot of startup companies. And of course digital data is the future, everyone is talking about having their data in the cloud. But what I’d love to get from both of you at some point is your perspective on what is the motivating factor for companies to share their data with a larger national governmental organs, for everyone’s benefit? You talked about giving back to the community, is that the motivator?

Mick Farrell: Yeah, it’s the only motivator, I mean it costs money to get it there. Sharing it back with the person who owns it, is no problem. The patient owns their data, it’s theirs it’s free, but they actually get to choose whether we share it with anybody else. If they click “No”, you can’t have it because it’s theirs. If they click “Yes”, then we have to work on cross-industry or cross-multiple industry methodology of making sure it’s secure.

Because I won’t give it to you unless I know it’s secure, and that it’s used for good, and that it’s used for mutual good truly in a nonprofit sense. That there’s not some external third party profit-maximizing on stuff that we’re throwing in there for free. Because I have no problem helping on a charitable cause, but not your charitable case for your mortgage or your yacht Mr. Startup in Florida or wherever.

It’s got to be truly above board with great governance and well-managed. I think it’s best done as a sort of cross-industry nonprofit. That’s how some of the best of advocacy and research groups have been set up. As I said earlier I think that’s a huge discussion for our industry.

By the way we’re in mile one of the marathon, we don’t even know how to use the data yet, so we’ve got to work out the best way to liberate it, the best way to unlock value. But clearly there are multiple methods to do that and one of them is going to be working cross-industry for the common problem we have, which is one in every five of the dollars that our gross domestic product produces, goes into health care, and 80% of it is wasted on chronic diseases.

Laura Jana: Yes, I am Laura Jana, and I’m a pediatrician in training 00:57:09 for the hard sciences, I’ve worked with MIT 00:57:15 technology division, and I 00:57:17 understand entirely your 00:57:20 the consumer’s side.

Well it’s really striking to me in terms of a company that has as much data as you certainly on sleep side and what you can that is even entitled to talking about connectedness, trust, and patient behavior. And with what we’re seeing now with health systems transformation but also transformations in education and business, everyone else focusing on 00:57:45 sort of connectedness and trust issues.

I would imagine that you’re curating a goldmine of potentially very valuable information about patient behaviors not just their sleep outcomes.

Have you thought about what you could do with that or are you following that? Because when you said even when speaking that that was something 00:58:06 information up, how they like their information, what they do with it and how to change their behaviors?

Mick Farrell: Yeah look we’re certainly we’re learning. As I said mile one of a marathon we’re learning a lot about how best to interact with our customers and primarily the patients through this whole process.

I heard from the CEO of 23 and Me last week and she was talking about how much people learn and love from their genetic data. And that’s just you know one little component of the additions that we could put in on that sort of more consumer side. And I watched their whole steps with the FDA where they went from sort of pariah all the way down to actually being embraced by the FDA as a way to walk through that process.

So I think government regulatory folks are working through this process. I think companies like us who are early I think in the Big Data actual information steps are working through this, we truly don’t know what we’re going to unlock from all this great potential here.

But I don’t want to get ahead of ourselves, I think every step you have to create value. You know, I run a for-profit company, if you just talk about, “Wow! What’s this future going to be with all this stuff?” and I hear companies doing this I’m thinking, “That’s great!” But what about next quarter? Can we do something? Can I give you something tomorrow morning that will help you sleep better? Okay let’s do that and then iterate from there.

So we’re going to need some of that sort of 2020 2030 2050 thinking, and we’re going to need some, “Hey let’s make sure the system doesn’t break because we’re trying to do too much before we actually work out the small stuff we can do to get a return from it.”

But don’t worry in our company there’s people, I won’t give you the project names, but there’s people thinking (spreads arms), I’ve got these people thinking way too small and so we … I think our job is to find a balance and find the right partners who are working through the long-term.

And some of them are governments, and some of them are some great research nonprofit research groups that are out there thinking along that angle.

I love your conference, it’s got very much of a balance between the government… the private and all the different elements.

Joe Hage: Let’s hear it for Mick Farrell.

Mick Farrell: Thanks a lot, thanks Joe.