The econonmics of ASV

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Many interesting and informative posts, thanks to all who have participated so far.


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Hi SWS!

I do appreciate that you tried to address the "why does this cost so much?" aspect of my post.

On this we agree:

-SWS wrote:Well, IMO the vast price difference between the APAP and ASV machines cannot to attributed to differences

in material cost.

Agree.

-SWS wrote:I don't think the innards of the S9 AutoSet and the S9 Adapt SV are drastically different---certainly not enough to explain the vast price difference.

Agree.

-SWS wrote:I think the cost differences can be attributed to:

a) economies-of-scale in production based on market demand,

b) the differences in cost of one products R&D cycle versus the other product's, and

c) where those two products happen to be with respect to their life cycles of R&D, marketing demand, and manufacturing scale.

SWS, imho, the cost of a new product should never be based on a lack of economies of scale (EOS).

You always price the product on:

a) What the market will bear.
b) What the market will bear.
c) What the market will bear.

When (and if) the product takes off, EOS can greatly increase your profit.

Or, if a competitor tries to introduce a competing product at the same price point, and your buyers are price-sensitive, your EOS, may allow you to reduce the price, and still maintain your profit margin.

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-SWS wrote:Demand for ASV needs to increase before end-user prices can approach those of highly-common obstructive treatment platforms

SWS, what makes you think that the "highly-common" platforms aren't "highly-margined" already?

I think you assume facts not in evidence.

If I could license that algo for a reasonable price, I believe could have <$1500 (retail) units made in Shanghai, ready to ship in, oh, say, six months, top. We'll skip the FDA and other related medical insurance barriers for now.

That's IF I could license that golden algo.

But who wants to bet me that ReSmed signed an exclusive licensing deal with Michael Breton Jones, locking up the world-wide rights (with an option to renew) for the foreseeable future?

(I take paypal, mastercard, visa and AE.)

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Hi Amerikan!

ameriken wrote:Rocklin, I am curious as to what you mean by "high-tier niche product" in regards to the ASV.

Because that is how I suspect they are currently trying to create demand.

But, imho, it's still a pig.

A pig with astonishing make-up, and a dedicated—almost passionate—user-base?

No doubt.

A pig with an insatiable appetite for your pocketbook, (and, ultimately, a fantastic ROI)?

absoLOOTly.



(oink, oink)

(who let the dogs out?)

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Hi DP!

Do you know what my New Years resolution is?

To get you to post three comprehensible (to-the-average-CPAPtalk-poster) xPAP related posts in a row.

(a man has to dream, doesn't he?)

OK, let's dive right in:

deltadave wrote:ASV was developed because of the inability of PAV to treat central instability.

By inserting "imho" we instantly drop the ex cathedra tone, and thusly see:

deltadave wrote:IN MY HUMBLE OPINION, ASV was developed because of the inability of PAV to treat central instability.

And, imho, you'd still be wrong.

IMHO, Resmed developed ASV guided by the same lofty ideals that govern all it's humanitarian ventures:

To make a sh*tload of money.

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Ah, allow me a moment of nostalgia:

NotMuffy wrote:Please stop P&Ming like some FOL (with all due respect to our group of absolutely lovely FOLs).

Now, I assume you are referring our lovely group of Foolish Old Ladies (FOLs), the ones who quietly do the unglamorous grunt work of helping out the scared, clueless newbies, while you pontificate, in near code, in a wilderness of mirrors, to a handful of Socratic supplicants?

Well, I figure some of them (the FOLs) might actually want to follow this increasing opaque thread, so for their benefit:

deltadave wrote:MBJ in 6,484,719 wrote:

(Plain English Translation)

Michael Breton Jones (inventor of the "ASV" algorythm) wrote, in his patent aplication, numbered "6,484,719" and referenced with this link here:

http://www.patents.com/us-6484719.html

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Hey VVV!

Man, did I discover a place for us to have that drink.

It's called the "Boom-Boom Room" . . . and trust me, it does.

VVV wrote:Some good points have been made about the subject (economics). What is missing is the very basic economic

discussion of risk/reward.

Agreed.

VVV wrote:If an investment is risky then in order to attract investors it must have hopes of high rewards. If the

product does not have hopes of high rewards investors will place their money elsewhere and the product development will

not be achieved.

Exactly.

And, imho, ResMed's ambitions are . . . limitless.

Just read their early literature.

Practically a Mein Kampf of sdb.

Imho, naturally.


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Boy, I tell ya, if anybody feels worse than Jordan Williamson this morning, they certainly have my sympathy...

-SWS wrote: I think it's worth distinguishing that some of those non-corporate grant (risk) scenarios endeavour to pursue social benefits, whereas ROI groups risk capital specifically toward financial benefit. That's not to say capitalistic investment is devoid of social benefit. But I think the risk/benefit dynamics are different in these two product-development scenarios.

We are getting further from agreement instead of closer.

First, capitalistic investment must always have as its primary goal social benefit. After all you are trying to get someone to voluntarily give you money for the product/service you are offering. What individual will voluntarily give you money for a product that is of no social benefit to himself?

Profits are not the primary pursuit. But they are the hurdle that must be crossed in order to be succesful at providing a social benefit. Profits are a test of whether the social benefit is being provided. If you can't make a profit it tells you that you are not providing a social benefit. Society (actually individuals) have chosen to spend their money on other things which bring them higher social benefit.

Sure you can give examples of products that provide no social benefit. But either they are sold by deception or fraud or they are purchased by fools. If the products are sold by deception or fraud this will soon be "found out" by the purchasers and the company will fail or have to move on quickly to other pursuits. If the products are bought by fools .... well, we will always have plenty of fools around and no amount of government or philanthropic grants will eliminate them.

Back to you,

rocklin wrote:.

You always price the product on:

a) What the market will bear.
b) What the market will bear.
c) What the market will bear.

No, I would say price based on value delivered to the market.

You may argue this is only semantics. But I argue that proper semantics is important to keeping the focus on delivering excellent social benefit. The semantics I choose help to keep the organization focused on delivering value.

The producers will do well to focus on the value of ASV to the users. This focus will help benefit the users (customers) and the producers.

rocklin wrote:
Hey VVV!

Man, did I discover a place for us to have that drink.

It's called the "Boom-Boom Room" . . . and trust me, it does.



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Are we talking San Francisco now?

Just checked, Jesus and the Rabbis are playing every first Tuesday.

rocklin wrote: SWS, imho, the cost of a new product should never be based on a lack of economies of scale (EOS).

You always price the product on:

a) What the market will bear.

Well, I think the reality is that an entire variety of product life-cycle factors, including economies of scale, affect prices. The consumer market is not a unison decision-making entity. Rather the consumer market is comprised of decision-making individuals----each bound by unique subjective preferences and each bound by unique objective factors, including personal finance.

When ANY given start-up production costs are high, including EOS, then the manufacturer essentially has three choices: 1) don't manufacture and don't sell in anticipation of inadequate ROI, 2) initially sell at little or no profit, hoping to garner consumer appeal and/or optimize production costs, or 3) initially sell at a high price, catering to an affluent or need-based esoteric market.

Bear in mind that third scenario initially prices at what an esoteric or affluent market will bear. At this early point in a product's life cycle, a pair of key questions arises: 1) does that product have potential for mass or increased consumer appeal, and 2) can production and retail costs be lowered to cater to an increased or mass-appeal market---rather than catering to an affluent or esoteric market? Selling three million widgets at a profit margin of $25 each is preferable to selling a hundred-thousand widgets with a profit margin of $250 each.

If the answer to those two questions is yes, then both production scale and pricing CAN be changed to cater to that second, more profitable market scenario. Build it and they will come---the factories; Price it lower and they will come---the masses. The end result is that economies of scale and other product life-cycle factors routinely influence "what the market will bear".

rocklin wrote:

-SWS wrote: Demand for ASV needs to increase before end-user prices can approach those of highly-common obstructive treatment platforms

SWS, what makes you think that the "highly-common" platforms aren't "highly-margined" already?

I think you assume facts not in evidence.

I think you assumed I was thinking or expressing something I didn't. There's nothing in my statement above revealing how high or low I think profit margins for highly-common treatment platforms happen to be.

VVV wrote:

-SWS wrote: I think it's worth distinguishing that some of those non-corporate grant (risk) scenarios endeavour to pursue social benefits, whereas ROI groups risk capital specifically toward financial benefit. That's not to say capitalistic investment is devoid of social benefit. But I think the risk/benefit dynamics are different in these two product-development scenarios.

We are getting further from agreement instead of closer.

First, capitalistic investment must always have as its primary goal social benefit.

Well the next time any salesperson stretches the truth to gain your money, or the next time any boardroom full of executives create golden parachutes amidst abysmal company profits, tell yourself their primary goal was social benefit.

On the contrary capital gain was their PRIMARY decision-making influence and their primary goal. Social benefit is both a byproduct and a secondary decision-making feedback control.

deltadave wrote:Boy, I tell ya, if anybody feels worse than Jordan Williamson this morning, they certainly have my sympathy...

Agreed.

Imho, it will either:

1. Break him completely (unlikely, but always a possibility)

2. Be forgotten by the time next season rolls around (the most likely scenario, and he is just a freshman)

3. Make him a clutch performer (unlikely, but always a possibility)

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I was the designated penalty kicker for my soccer team.

I've also had to shoot "end of game" foul shots, and trust me, foul shots are way, way easier.

No chance you'll run up, take a swing, and miss the ball entirely, then end up doing a clown-tumble on the field as 50,000 yahoos gasp and roar, half of them in delirious delight.

I think the same goes with American football. In that game, adrenaline is usually your friend.

Not so if you have to kick a distinctly non-aerodynamic ball a long distance through a tiny gap, wind doing it's best to f*ck you up, and you're praying your boy doesn't screw up the catch just that little bit, enough to throw your approach off just a hair.

There's a reason that they call it: "The Loneliness of the Penalty Kicker"

Or is that: "The Loneliness of the Long Distance Runner"?

Back to you, Dave.

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-SWS wrote:Rather the consumer market is comprised of decision-making individuals----each bound by unique subjective preferences and each bound by unique objective factors, including personal finance.

And what their insurance will pay.

Now what the insurers need before they pony up, ah, that opens a whole new door, doesn't it?

-SWS wrote:Selling three million widgets at a profit margin of $25 each is preferable to selling a hundred-thousand widgets with a profit margin of $250 each

SWS, I'd rather sell ten widgets at $2,500,000 each.

If I'm selling robotic surgical lasers to hospitals, and I can convince some major chains in a single presentation to commit, that sure beats creating and maintaining the marketing and sales force need to unload three mill of anything.

Resmed is doing the high-low roll-out it is forced to do by regulations.

Their (internal and publicly stated) goal is to directly market xPAP to the consumer, either by internet driven mail-order, or by a huge retail chain, like Walmart.

Yes, Walmart.

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VVV wrote:Sure you can give examples of products that provide no social benefit.

But either they are sold by deception or fraud or they are purchased by fools.

Or both.

I present as evidence the financial products sold during the recent secondary mortgage crisis.

VVV wrote:If the products are sold by deception or fraud this will soon be "found out" by the purchasers and the company will fail or have to move on quickly to other pursuits.

Or be bailed out by you and me.

Ain't current capitalism grand?

Socialize your losses, privatize your gains.

Not that's what I call a hot business model.

VVV wrote:If the products are bought by fools .... well, we will always have plenty of fools around and no amount of government or philanthropic grants will eliminate them.

We are the 99% my friend.

(unless you aren't, in which case, you're paying for the boom-boom room, even if I did the inviting)

Ask not for whom the bell tolls . . .

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VVV wrote:Are we talking San Francisco now?

Just checked, Jesus and the Rabbis are playing every first Tuesday.

No, I was talking the notorious 18th floor of NYC's The Standard Hotel. Just did New Years there (the wife was in Florida), had way too much to drink, and I still can't figure out how I woke up handcuffed to a toilet pipe.

Killer cubicle toilets though. Evey cubicle has a fully mirrored door and ceiling, no stall door for privacy, nothing at all, and you sit two feet away, facing a wall to wall, floor to ceiling window that faces an incredible view of NY's finest skyscrapers.

They, in turn, have an incredible view of you and everything you do.

And for some folks, especially adventurous / amorous out-of-town couples, that is an irresistible opportunity to put on a floor show that is seen by . . . thousands.

(Check the pics on google: "The Boom Boom Room, New York")

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But Jesus and the Rabbis in SF sounds like a blast, we may have to do a coin toss . . .

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-SWS wrote:

VVV wrote:

-SWS wrote: I think it's worth distinguishing that some of those non-corporate grant (risk) scenarios endeavour to pursue social benefits, whereas ROI groups risk capital specifically toward financial benefit. That's not to say capitalistic investment is devoid of social benefit. But I think the risk/benefit dynamics are different in these two product-development scenarios.

We are getting further from agreement instead of closer.

First, capitalistic investment must always have as its primary goal social benefit.

Well the next time any salesperson stretches the truth to gain your money, or the next time any boardroom full of executives create golden parachutes amidst abysmal company profits, tell yourself their primary goal was social benefit.

On the contrary capital gain was their PRIMARY decision-making influence and their primary goal. Social benefit is both a byproduct and a secondary decision-making feedback control.

I'm sorry, but that part in red text is just a bad argument IMO. Capitalistic investment's primary goal is NOT social benefit----rather it's capital gain. We need to equate fullfilling a consumer demand with the goal of benefitting society for that argument in red text to stand.

Before moving on to legal vice, let's take the example of illegal vice: the heroin industry. A heroin dealer's primary goal is to make money---NOT to benefit society. That heroin dealer invests capital primarily to fill a self-defeating consumer demand toward capital gain. He is more than happy to make money on the demise of others. He is not primarily occupied with benefitting society.

Okay, let's move on to legalized vice. Does anyone think the tobacco industry is PRIMARILY occupied with benefitting society? It's entirely possible to fulfill a consumer demand that is largely counterproductive.

rocklin wrote:Their (internal and publicly stated) goal is to directly market xPAP to the consumer, either by internet driven mail-order, or by a huge retail chain, like Walmart.

Yes, Walmart.

I'd like to see that. And I'm sure others would as well. Can you cite or link to the text where Resmed publically states they want to sell at Walmart? Did they mention Kmart? My Sears card works at Kmart but not Walmart.

I can never find what I'm looking for at Kmart or at Walmart. I KNOW it's there, but I can never find it. See if you can find out if they will sell at Target. I can find things at Target.

-SWS wrote:Can you cite or link to the text where Resmed publically states they want to sell at Walmart?

They never specifically said "Walmart", just "the biggest retail chains". Which, of course, Walmart and Kmart are the market leaders.

It was part of a back an forth in the Q&A of an investor meeting I attended.

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Here's a quote from Dr. Peter Farrell, CEO & Founder, ResMed:

When you want to buy a Sony camera or TV, you generally go to the Good Guys
or some other retailer. In other words there’s a dealer out there that sells them.
You don’t get it direct from Sony, although you could, in principle. To buy
airline tickets, you can get them from United or American or you go to your travel
agent. And the only reason you use the travel agent is that you don’t have to deal
with the hassle of doing it yourself. You call up and they do it all for you and the
ticket arrives at the same price. In principle you do that with the airline, but you
don’t get the same sort of TLC, and so forth. But there’s a dual marketing
strategy and there’s no reason why we can’t do the same at some point.

No link, but it's part of a Stanford (or is it Harvard?) Graduate Business School case study of ResMed I have.

Drop me a pm if you want more information, happy to share the details.

I'll accept that Resmed thinks it would be advantageous to dispense their prescription devices at chain pharmacies. Is that unethical?

Rhetorically: Do we take issue with chain pharmacies dispensing items like diabetic supplies, eye glasses, wheel chairs, and prescription medication? How are CPAP prescriptions different? CPAP is currently dispensed via FedEx and UPS. Why not Walgreens and CVS?

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-SWS wrote:I'll accept that Resmed thinks it would be advantageous to dispense their prescription devices at chain pharmacies. Is that unethical?

In of itself, clearly, no.

But in the context of ResMed's vision for the future, I'd say there is cause for concern.

Imho, (and those of some others in sm) ResMed is pretty clear in it's long-term goals.

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1. They explicitly state their belief that their invention is the historical equivalent of discovering penicillin.

2. They believe that every man, woman and (possibly some children) would ultimately benefit by using their products. Sort of like a family "one-a-day" vitamin.

3. They would prefer that there be no sleep lab standing as gatekeeper between Resmed and her rightful customers.

4. Indeed, as technology develops, and their PAP devices learn to accurately diagnose sdb, imho, they believe there is no need for a scrip at all.

Just market straight to the consumer, the way, say, Sominex does it.

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Well bear in mind there is no legal requirement for a CPAP script in Australia and a few other countries. Also Resmed already has at least "two channels" in place for dispensing CPAP to patients in Australia: you can go directly to a Resmed owned store or you can go to a third-party company to have your CPAP dispensed.

That's very different than the way we do it here in the U.S. As far as I can tell the Australian populace seems no less happy with that biomed-dispensing business model than their U.S. counterparts. There's plenty of room to argue which dispensing method is preferable. But I think neither CPAP dispensing method amounts to social atrocity.

Sleep apnea is supposedly under-recognized and under-diagnosed. If CPAP machines became highly visible at chain pharmacies, then the populace arguably benefits from increased sleep apnea awareness. I'm thinking Resmed's goal of making CPAP devices as common as the medical condition itself, by dispensing down at the local Walgreens, might not be such a bad thing after all...

-SWS wrote:Sleep apnea is supposedly under-recognized and under-diagnosed. If CPAP machines became highly visible at chain pharmacies, then the populace arguably benefits from increased sleep apnea awareness. I'm thinking Resmed's goal of making CPAP devices as common as the medical condition itself, by dispensing down at the local Walgreens, might not be such a bad thing after all...

Sounds good to me! How many years until my 8-year-old son starts dating? By then I want CPAP to be perceived as cool. Let's each of us ask ourselves what we can do to make CPAP seem less dorky/more cool, and even sexy (but not toooooo sexy, as I want him to focus on his grades in college, not seducing women with his sexy CPAP). All ideas are welcome. Maybe I should start a thread about this.