Inspire Medical Systems, Inc. (INSP) Earnings Call Transcript & Summary

Thanks. Good morning, and thank you for joining us on our next session here at the UBS Virtual Global Healthcare Conference. I'm Matt Taylor, the U.S. Medical Supplies and Devices analyst here at UBS, and I'm very pleased to be joined by management from Inspire Medical Systems. So today, we've got Tim Herbert, President, CEO; and Rick Buchholz, CFO, joining us for a fireside chat. And just a couple of words on the outline for today. There'll be about a 40-minute discussion that we'll have with the team. If you have any questions that you'd like me to get in or focus on, please just e-mail me or send them through the webcast.

And so to get started, guys, just want to thank you for joining us, and maybe I'll kick things off with bigger picture questions and just to ask you about some of the things that are driving your business. Notably, in the first quarter, despite having some disruption, you still grew 31% and continue to put up very strong growth quarter-over-quarter and seeing a lot of traction, adding centers, adding territories. So maybe you could talk about some of the things from a fundamental underlying perspective that are driving your business state and which of those you think will help pull you out of the recovery?

Fantastic. Well, Matt, thank you very much, and thanks for UBS for having us as part of the conference. We really do appreciate it and have really enjoyed the conversations that we've had so far. Looking at our first quarter, yes, we had pretty good momentum going. And even losing the last 2.5 weeks of the quarter, we were able to post 31% growth. So you just kind of project that out. We had a pretty good quarter going there. We're good momentum going and of course, the necessary suspension of implants due to the COVID-19 virus. And our key to that is we didn't want to just simply close up shop and go into our hole. We leaned forward. We kept doing the things to try and keep momentum strong and keep growing the practices. Now what got us there in the first place, going back to a question about the big picture, is we're 5 years in to commercial development of Inspire. And that's the amount of time it takes to develop the reimbursement program and that we are just seeing the progress taking effect. So last year, we talked about all the commercial policies that have been developed from United to the Blue Cross Blue Shield to Aetna in 2018, all the regional plans, ending the year about 165 million covered lives, which is pretty effective. The next key step that happened during the pandemic period, we haven't really been able to celebrate that yet, is the Medicare policies. And all of those took effect. There's 7 total regional policies. I think 3 of them took effect March 15, 2 of them on April 1 and then the last 2 are taking effect on June 14 and June 21. At that point, we will have 100% Medicare coverage in all 50 states. So it's the momentum of the reimbursement that really is the key driver to the further adoption. And we increased guidance at the end of the year to talk about we're going to open more centers. We're going to hire more territory managers because we knew that, that momentum was going to be solid. And we did open those 28 centers in the first quarter, we did add 9 territory managers in the first quarter. Momentum was there. Again, we probably would have added a couple more centers because they -- we don't call a center active until they have cases scheduled and they order their first products. We would've been in pretty good shape, but those centers are still there. And even now that we're post-COVID and starting to do implants again, we've already opened up some of the new sites, and we've already done implants in well over 20 states right now. We have implants scheduled in 36 states, which is significant because we only have centers in 44 of the states to date. So really good momentum going, real positive. And we really made sure we kept the team positive during the pandemic period, and we're still working hard to stay safe, but we are starting to open up the offices and do implant cases.

Great. Yes, that's good to hear. Good to hear. Maybe we'd just spend another minute or 2 on some of these key drivers that you talked about. I'd love for you to articulate your strategy in center opening as we progressed here. Maybe you could talk about: a, the TAM for centers that you see in the U.S. and o-U.S. And with this disruption period, can you talk about the challenges or your ability to open centers during this transition time? And what your plan is for the next couple of years in terms of center opening?

Absolutely. Well, opening centers has always been a key focus, and we've really been focusing on hospitals up to this point. And then there's always a natural transition for outpatient procedures like ours, where once reimbursement is set and once the physician fee is improved and well, again, we just celebrated that, we'll talk about that in a little bit, we're now able to start transitioning cases to ambulatory surgical centers. And if you kind of think about some of the other neurostimulation companies, they may have half, if not 2/3 of their cases done at ASCs today. And we're the same. We're a 2-pace, 2-hour outpatient procedure. We're just starting that transition. And at the end of the first quarter, we ended with 327 centers, of which only 27 of those were ambulatory surgical centers. So they were just starting the process of the transition to open up ASCs. Now I think COVID is going to accelerate that process. I think the natural transition over the next couple of years, I think, will be accelerated. You're going to see more ASCs start to come online right now and both help us with our backlog of patients that had their procedures scheduled, but we're not able to receive therapy, but we also kept building the practice. On the second point, Rick continues to work with the big national health care providers. As an example, we recently signed a national contract with Ascension Health. Ascension Health has 150 hospitals, but they also operate 30 to 40 ambulatory surgical centers. And so what started this is we had 2 ASCs -- or I'm sorry, 2 Ascension hospitals doing Inspire procedures under local contracts. But once you go to the third and the fourth, that triggers the national purchasing group to want to do a national contract and it took a period of the time, but Rick did negotiate that with Ascension Health, and we signed that. And what that does is that allows Ascension Health centers to open up and not have to go through the value-add committee, not have to do the logistics to get a pricing agreement put in place. And we can focus on building the teams doing the training of the surgeons, the sleep physicians, the surgical staff and the follow-up sleep team and those that do the sleep studies and in light of that device titration. So it really kind of opened the door for a several of the Ascension Health hospitals, and we are already scheduling cases at several of them. So you'll start to see some Ascension Health. As far as overall TAM, I think we always roughly estimate there's maybe 4,000 hospitals and another 4,000 equal number ASCs just to talk in rough numbers, and if we can really start to build on that and start approaching and build a plan to get to 1,000 centers. And right now, we just have 327. And we're going to do it in our continued cadence to make sure that we maintain high quality, quality being defined as strong patient outcomes. And we'll continue down that pipeline. We'll continue to open more centers. We're going to keep pushing to open a little bit more every quarter. And with that, we'll also increase the number of territory managers because there's just a very high demand for patients who are looking for Inspire therapy.

Okay. Great. And let's just talk a little bit about the support of that expansion strategy from the commercial side. So you mentioned that you have 82 territories now. You added bit 9 in Q1. Talk about how you'll further develop the territories and your commercial sales force as you go from 327 to 1,000.

Yes. The key, we always want to keep a little bit of a ratio. So every territory manager can manage 6 to maybe 8 centers, not more than that. Because we want centers to be -- to develop to do volume and build utilization. What the building utilization does is it gets everybody in the system comfortable with the procedure and they continue to learn and become more efficient in patient selection in the implantation of Inspire, the device programming, post care follow-up. Everybody is used to Inspire, we have an Inspire procedure today, no problem, I know what to do. So by building utilization, it improves patient outcomes because the centers are just so much more adapt at it. So we don't want our territory managers going too broadly. We want them to go deep in just 6 or 8 centers. So as we add additional centers, we certainly want to add additional territory managers to keep the ratio right. And what we'll do is sometimes, we'll divide territories that have several active centers to -- having 2 territories with 1 or 2 active centers. Sometimes we're opening up brand-new territories that don't have any active centers. So it does vary. But as we increase the number of centers that we add, we will also increase the number of territories that we will hire to be able to maintain that attention to the centers, but also maintain that ratio. But one last point on this, is we also want to build our support teams. As we add more centers, we will add more people who are able to train those centers to make sure we have good outcomes. But we also don't want our sales reps to spend too much time in the operating room. We want them to be developing programs, driving patient flow, making sure the referral network is sound. So we need experts to go in and do the implant cases to make sure everything works correctly. So we hire field clinical representatives or FCRs who are implant specialists, to be able to help in that process. And the last point I was going to say is, during this period, when we were not able to do implants, we spent that time to open up new centers and work through the logistics of the pricing agreements and some of the training. We took the time to make sure that all the training upgrades that we routinely do with other physicians, take the time to get those done. And we can do that virtually and the doctors can sign off that they have completed their training. So we've made sure we stay very purposeful during that period.

Got you. Got you. Okay. Maybe we could transition and talk a little bit about this period of disruption that we're in as it relates to your business planning and forecasting. I know that's top of mind for investors right now. I mean you obviously chose not to give guidance, which I think a lot of companies understandably did that. Maybe you could talk about the decision to do that? And when you think you might be able to give some kind of better framework to think about the business growth for 2020 or the future again? And what are kind of the key things that you're tracking to be able to do that to forecast and plan for you?

Right. Well, we have talked about we have 4 buckets of patients that we're working with. And the first grouping of bucket, I shouldn't probably call them buckets. I should call them groupings. The first group is really those patients that had a procedure scheduled, and those procedures had to be postponed because of the pandemic. The second group are those that had their sleep endoscopy, a diagnostic procedure called DISE, drug-induced sleep endoscopy is the last diagnostic prior to going to the insurance company and scheduling the implant. There's many patients that have that final diagnosis. They have qualified for Inspire. They're ready for Inspire. And they weren't able to schedule their case. So we continued forward with those patients to make sure their insurance was approved, was ready to go. And now they are ready to be scheduled their implant procedure. The third group is those that have been through all their early diagnosis, but they haven't been able to do their sleep endoscopy because, again, we had to postpone those procedures as well. And now we're starting to schedule those cases and really get those back up and running. And then the final fourth bucket are those patients that are the direct-to-consumer that we continued during the pandemic period, went to the website, got educated, but that we couldn't go see a physician in person. We couldn't do the in-person community health talk. So we did -- we changed it. We did virtual health talks. So we did telemedicine. We kept building that group of patients as well. So I think we're excited about how things are progressing. We have scheduled cases in over 20 -- or I'm sorry, we've already performed cases in over 20 states, and we have them scheduled in over 35 states. So we're making very, very good progress in getting the system back up and running. We want to get back to the new normal as soon as possible. The reason the whole guidance question comes up is the risk that everybody has and the great unknown that we want to have to be careful about, and we have to monitor. And people expect that we're going to have a rebound of the COVID pandemic when we start to open up the economy and people start getting out and about again. And so we've got to be careful about that. And I think from an overall health care system, I think we are better prepared to be able to handle the rebound. I think that we have the PPE and -- the protective equipment ready to support. So I don't believe that we'll have a full shutdown. But when that second wave hits, as people believe it will, we just have to be careful about that. So while we're excited about the business getting moving. We're really leaning forward. We continue our direct-to-consumer. We continue our hiring. We continue our opening new centers. We continue all of our own R&D work. Rick is in the office today. We have our policies in place. We're starting to open our own office to support the business activities. We just have to be a little bit careful about the rebound effect, and that's where we've been a little bit careful. But all told, we're pretty excited about the business going forward and being able to restart.

And then related to this issue, maybe you could talk about the deferability of these procedures. There's been a lot of talk about what's selective, what's not. And obviously, with sleep apnea, there's a lot of comorbidities and more serious issues that can be impacted by that. So could you offer some thoughts on that as it relates to the pattern of deferrals that we could see here?

Sure. We've had several hospitals that actually performed cases middle of March. And the reason they did that is this is treating obstructive sleep apnea, this is moderate to severe obstructive sleep apnea. This is not even elective procedures, disease state management, and they declared that and performed those cases. I think that also gives us a little bit of a priority as we get started here in that, yes, this is disease state management. It's not a straight elective procedure. So these have to be scheduled. The other way to look at it is from a patient view and people worried about that patients that are not going to be willing to go back to a hospital because the fear of exposure. These are obstructive sleep apnea patients that have been diagnosed. And it could be 1 to 2 years ago, they've been prescribed a CPAP. They may have even felt the benefits from being properly treated, but they're just not able to have sustained benefit from CPAP and they need alternative therapies. The quality of life is really poor because they simply are not sleeping. And they also understand the risks of comorbidities. They've gone through the diagnostics. They've learned about Inspire. They've had the sleep endoscopy. They worked with their insurance companies to be approved, and they had a case schedule. These are have motivated people to get their therapy. And so when we're coming back rescheduling these cases, we haven't seen a lot of pushback from patients saying, "Oh, no, I'm not ready." We've had some circumstances where people are a little bit careful, and they say, "I want to wait a little bit larger." That's fine. We can move them back in the queue to the time for which they're ready to go. But our goal is to stay on top of all of these cases that we have in all 4 of the groupings that we described. And we want the great majority of those people who receive through therapy. And so we're not putting a percentage on it. We just work with every single patient. We want every one of them back. I think there will be things that will prevent 100%, obviously, but we are going to be looking for a very high percent of those postponed cases and the new cases to be scheduled and be able to let those people have the therapy.

Got you. Got you. Okay. That makes sense. And I guess, I'll ask 2 questions related to what we've been talking about here. One is, when you think about the 4 groups of patients that you're working with, can you talk about the visibility that you have into each of those groups? Can you identify them? And how have you been reaching out to them virtually or using other tools during this time period where it's harder to maybe do things by the old method?

Right. Well, that's a great question. That's a very important factor because if you don't have knowledge of who the people are, how well will you know that you've been able to capture all those procedures and can have those people get the therapy. So number one, from the first 2 groupings, those that had their cases suspended and those that had insurance approved but weren't able to schedule those cases, we know who those people are. Remember, we have business associate agreements with all of the centers because we help them prepare the prior authorization packages for the insurance companies. And we see those insurance approvals come through. And so we know who those patients are. So once their cases are postponed, we have to stay in contact with the patient, with the center and with the insurance company because those prior authorization approvals actually expire. There's a limited window for which the case can be done. So we go back and we work with the patient center and the insurance companies to get those approvals extended. And we have been doing that proactively, knowing that when we get through this, we can schedule those cases right away because we've already got the approval extension, give credit to UnitedHealthcare, they just did across-the-board extension approval, which is an appropriate thing to do during this pandemic. When we get to the sleep endoscopy, those that are waiting to have that scheduled, those are managed more in the individual center, where we know that those patients are there, that they have to get scheduled so that territory managers are working with the centers to make sure that they keep those patients at the ready to -- so as soon as they can schedule a sleep endoscopy, they can move forward on that. The fourth grouping are those patients that are coming through our website, and they're being educated and they're looking to get involved in a virtual help talk with a physician, they can schedule that right online. They might want to have their next step, which is the first procedure -- not the first procedure, the first appointment, that doesn't have to be in person. That can be done with telemedicine. Now with our electronics, we can help get those coordinated with the physicians so we can start to see numbers of patients who are coming to our website, those that are reaching out to find a physician in my area and those that are making and signing up for virtual health touch or calling to make an appointment with the doctor. And recall back in March that we started a call center called the care program, where we're really assisting patients in their education. Really, when they make a phone call, they're coming to a call center. We started this in 2 territories in New York and in Houston, and we have since expanded that now during the pandemic period. But they would call in. We would make sure that we got the patient to the right physician. What I mean by that is we -- if a patient has never had a sleep study before, they're not ready for Inspire. They need to go have a diagnosis to see how -- what's the severity of their sleep apnea, and they need to try CPAP. Well, that's done with a sleep physician. And so we want to make sure we get those patients to that grouping. There will be patients that have been diagnosed, have tried CPAP, cannot use it, and they are ready for Inspire. Those are the patients that we want to get set up with the ENT for their final diagnosis. So there's a little bit of triage with that call center. It's working out pretty well. Now that during the pandemic period, we took the opportunity to continue to expand that. And so now we're working with 13 territories. So we try to closely manage the metrics in each of the 4 grouping, so we don't lose any patients. We make sure that if they're pushing and they want the therapy, that we can give them the best opportunity to be able to receive that.

Got you. Got you. Okay. All right. And then also related to the deferability. I alluded to this before that there's a lot of comorbidities related to sleep apnea. And you've talked in some broad strokes about your efforts to develop data around hard endpoints like cardiovascular disease, hypertension, other outcomes. I was hoping you could just give us an update there and maybe also talk about the current state of that evidence base. And what you think customers and patients really look at when they worry about the things that could come with sleep apnea?

Well, I think -- let me answer that kind of in reverse order. So let's think about just a general sleep apnea patient. I think the #1 concern that they have is quality of life. And they just are not getting restful sleep. It affects their productivity. It affects their mood. It affects their relationships, and they want to see improvements with quality of life. That is measured by certainly quality of life scores, but also by removing the obstructive events that's preventing them from getting restful sleep at night. And so that's the first thing that we have to address. And that's all the critical studies. Up until this point, they're really focused on that area, and that's what we see as a concern with patients, call the physician in the first place to make an appointment. Further on from that, we do want to show that treating sleep apnea will have a longer benefit not only on the quality of life, but the reduction of the risks of comorbidities. Now these trials take larger numbers and they take a significant amount of time and they take partnerships with the leading institutions to do that research. So we have many cases going on where we may be sponsoring some physician research. One example there, not specifically related to outcomes, but is in regards to the pediatric patients with Down syndrome that we are sponsoring a physician research protocol that Chris Hartnick at Mass Eye and Ear has gotten approved through the FDA. And we are certainly supportive of that. With that, they are doing their own research that they can show that if the kids are being properly treated, what other benefits are there? They're doing testing of cognitive skills and speech pathology and seeing if that is actually improving if these kids are able to get restful sleep. So there's -- they're doing that independent of Inspire. We probably will partner with some research to support that as well. Cleveland Clinic does a lot of their own research and they don't look for sponsorship, and they did independent work on showing improvements in depression scores with patients properly treated with the sleep apnea using Inspire. That's published. They continue to do some work. They did a study comparing head-to-head CPAP versus Inspire to see are these getting the same net benefit. The only outcomes in that was talking about hypertension. There's a little bit more data with CPAP in that study. But really it's starting out to think longer term about measuring outcomes. And again, those will take a longer period of time with greater numbers. But good news is we've been actively working with a lot of the top centers to build that, start that research.

Got you. Got you. You brought up another topic that I wanted to touch on, the age of patient. You recently had label expansion to include patients 18 plus, and you were just talking about the potential importance for a lot of the pediatric patients. I guess I was hoping if you could maybe just cover the current state of where you see the most implants going by age? You mentioned Medicare before, too. So help us understand how sleep apnea is the issue that touches different age groups in different ways and the importance of getting label expansions to the 18 plus or more penetration in the pediatric?

Absolutely. I think that's -- the natural step is to continue to expand the indication and make the therapy available to a broader group of people, be it the Medicare, the adult population with -- looking at the AHI from the Medicare and insurance companies. You saw a change in BMI increase from 32 to 35, which is big. The pediatrics is a little bit different because that started with pediatrics with Down syndrome, the youngest kid that was implanted was 10 years old. I don't think we are looking to get our indication all the way down to 10, but I think we were talking to the FDA of what does it take to get it down to 13, to 15, but not just in the population with Down syndrome, but in a broader pediatric population. So the FDA agreed with that, but we want to go in baby steps. And so the first step and the steps that the FDA really showed commitment to is lowering it down to 18 years, down from 22. But we also talked about what's the limiting factor? And what do we need to be able to move it down to 15 and then down to 13? Number one, continue with the clinical study with Down syndrome. And we didn't have all the data necessary. I think we're up at like 30 patients when we submitted last time. And we have continued to implant those cases, and we're building more and more data there. That kind of supports direct implantation data with kids of that age. The second was, was the notion of the sleep apnea self-resolving in the pediatric population. And the research done on that in literature is only at the really younger age of 6 to 8 years old. And we needed to kind of understand that at the 13 and 15 or teenage years, and so we're sponsoring a retrospective review at several of the leading children's hospitals in the United States. It's going to be led by Stacy Ishman at the children's -- or Cincinnati Children's Hospital, and to go back and look, what happens? These patients, when they're 13 to 15, what happens when they turn -- when they mature, and they get into the early 20s? Does their sleep apnea resolve? We don't believe so, but we need to kind of get some literature to show that. And we'll be back with the FDA to continue to expand that. I'll leave it at that.

Okay. So maybe switching gears. We'll talk about a few other topics here. I guess one, what I'd like you to cover is competition or substitutes -- any competition that you see coming down the road. Maybe you can just talk about the barriers to getting to the point where you are today, given it's been a long road to get there.

Absolutely. Competition, it's a very large market as we all well know. And I think that our success in this large market will certainly draw competition. I think competition is a good thing, having people investing in stimulation that treats sleep apnea gives credibility to the therapy. And I think you'll continue to see increased investment there. There are 2 firms out there that are conducting clinical trials. Unfortunately, with the pandemic, they, of course, have had to stop implants like everybody else. So it's a challenge. You're going to have to get those studies back up and running. I don't foresee any of the competitors out there today being able to get FDA approval in the near future. The near future thing, I don't know, long short of 4 years. It just takes that long because the barriers to entry are high. This is a PMA product. It's a Class III active implantable product. It is not a 510(k). It's a panel track regulatory review at the FDA. What that means is simply it's the highest scrutiny product to go through the FDA to get an approval. To be able to do that, you must conduct clinical studies that show the safety and efficacy of the therapy. It takes many years and it's expensive to do that. I think our Phase III pivotal study cost $18 million to $20 million and it was the STAR trial, randomized trial. It was -- showed the safety and efficacy, and it was published in the New England Journal of Medicine and the primary reason for getting approval with the FDA. So I think it's very difficult to run diligent trials, be able to get the data necessary to get through a PMA. So the barriers remain very high. That said, we need to protect the position that we're in. So we talked a little bit about on our earnings call that we have increased our R&D spending. The whole reason is we are committed to heavy development of our fifth generation neurostimulator. We want to take a leapfrog our own technology, making it even difficult for competitors to enter the market. We are about to talk about launching the Inspire app on patient smartphone. That will be the first step in building a communication between the patient and the physician via Inspire cloud. We're just in the final phases of that. We'll be announcing that very soon. The next step for that will be to have that smartphone interactive with the cloud, being able to transmit data from the implantable Inspire therapy and the patient's utilization of the therapy to the cloud. We can partner that up with a home sleep study that can be transmitted to the cloud. So all of a sudden, the physician has a full cloud-based patient management system that can work to help manage those patients, understand patients in need. If the patients having trouble using their therapy, we'll be able to see that on the cloud and that physician will be alerted. So we are just starting to build, move into the next-generation of Inspire, which is going to help the adoption certainly, certainly going to minimize the implant procedure. And we're pushing really hard to continue to improve patient outcomes.

Great. Great. And maybe you could also talk more about that next version. I know you're pretty excited about some of the features that you can bring to bear there and with future versions. Can you talk about the vectors of improvement that you're focused on?

Absolutely. Well, just the interconnectivity we already talked about. But if you start narrowing in and focusing on that Inspire V neurostimulator, we're going to make this a state-of-the-art neurostimulator. Remember, we are a closed-loop therapy. So we sense and stim. We sense respiration, and then we provide stimulation to the upper airway at the appropriate time, which is when the patient inhales. So it's a little bit more complex than other neurostimulators, that just open looper, just output devices. They set a duty cycle and just let them run. You see those a lot in the pain stimulators with the InterStim urology stimulator. I used to work on that when I was back at Medtronic. So it's an advanced therapy. Now the key is going to be that we can add sensing inside the can. You can use an accelerometer to be able to detect sleep position. We know if a patient is sleeping on the back, left side, right side. But we're also working to see if we can't detect respiration. And if we can properly detect respiration, we won't need the pressure sensor that would remove 1 additional incision. So we're making good progress with the feasibility studies. We increased the R&D because we're starting to develop the application-specific integrated circuit or ASIC. And so that's when the R&D dollars start to increase. And we're fully committed to moving forward. It's going to be a nice device. It's going to take several years, and the FDA also gets a year to be able to review it. But I kind of talked about the time period for when we think competition would be out. Our goal is we will have this fifth generation out well before any of our competition gets their initial FDA approval. So pretty excited about that.

Okay. Great. Great. And maybe we'll just wrap up here with a couple focusing on margins and the balance sheet. So I guess the first one I'll ask is you did a raise in April to bolster the balance sheet. Could you talk about your position there and liquidity? We'll start with that.

Let me hand that off to Rick.

Sure. Thanks, Matt. Yes, we ended the first quarter with $142 million of cash on hand. And then in April, we closed on our follow-on offering. We added an additional $125 million to our balance sheet. As Tim mentioned, we had a lot of momentum going into Q1. And then our business is impacted by substantially all of our procedures being postponed beginning the second week of March. But as we talked about, we did add 9 territory managers and added 28 centers. And so we continue to run our plan, and we have a stronger balance sheet, but we're also being very thoughtful on where we're spending our dollars. We talked about the increase in R&D initiatives or the spend, but we are working on the Inspire V. And we also were really continuing to engage our patients through our DTC efforts that we continue to do during the pandemic. We shifted from radio and TV in larger markets that were affected by COVID-19 towards more digital and TV in smaller markets. Regarding our gross margins, we're proud of them, and they came in the first quarter at 84.6%. And even if there is less volume, we are not as impacted from that perspective. We rely on third-party contractors for our manufacturing. And so we continue to manufacture our products with our third parties. We want and have good relationships with our suppliers. And so our gross margins are less impacted by the variability of labor overhead or changes in capacity compared to a company that maintains its own clean room or a manufacturing facility. So our gross margins are more impacted from negotiated contractual terms for our components.

Got you. Okay. And then just to finish off there. Maybe you could just spend a minute on the OpEx and what you're doing to offset any of the revenue drops? And how you think you'll come out of this? How you'll shift spending as you work through the transition period?

Yes. Our total OpEx in the first quarter was 34 -- $34.5 million. And as Tim mentioned, we did increase R&D. We are at that critical stage with Inspire V, where we're working on the integrated circuit board. And so that run rate of OpEx we had in the first quarter is kind of our new baseline because we do have a strong balance sheet. We will be thoughtful. And we're shifting where we spend some of those dollars. But we continue to invest in our sales organization, our DTC efforts. Because we really want to be well positioned going forward as the fundamentals of our business remain strong, and we continue to invest and hopefully get back to accelerated growth once the impact of COVID-19 lessens.

Right. Okay. Thanks a lot, guys. I think we're at the end of the session here, but I really appreciate all the time you're spending with us. We covered a lot. And I know investors appreciate getting all this feedback during an uncertain time. And so I just want to say thanks again and wish you all the best as you continue to run your business through a challenging period here.

Very good. Well, thank you very much for hosting us. I really appreciate it and really appreciate everybody's long-term support. That's really fantastic. Again, it's great for the patients, and that's what it's all about. So thank you very much.

Thanks, Matt.

Take care. Bye.