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

Good morning, everyone. Before we get started, if you are a member of the press or media, please disconnect at this time. This is a restricted line. Any unauthorized party in this meeting or any unauthorized use of the information communicated in this meeting is subject to prosecution to the fullest extent of the law. Any unauthorized person, including the media that is on the line at this time, please disconnect. Please note, today's call is being recorded.

So Tim and Rick, thanks so much for joining us today.

Well, Larry, thank you very much. It's -- we're really happy to be with you today.

Thank you. So in terms of flow, I'm going to start off with some commercial questions and then focus on the pipeline and then reimbursement, and if time permits, competition. That's what I was hoping to accomplish today.

So Tim, let's start off with the question about the environment. The thought was, as we go through Q1, procedure volume would improve, as COVID cases decline and more people get vaccinated. I think you said on your Q4 call that you saw some softness in January, but February was better. What can you share with us regarding trends or leading indicators?

Well, I think let's go back, and I think everybody watches the news. Everybody sees the trends in the United States. And everybody is kind of watching. Europe is a little bit of a hotspot compared to the U.S. right now. And the COVID has changed things. I think people are getting their vaccinations. We're seeing the number of severe cases, hospitalizations. And thank goodness, deaths are way down, and that's very, very important. And the same goes with procedure. People want to get back to their daily lives. They want to take care of their health. And the key step is getting back and doing procedures that they have put on. So yes, we did see that in the beginning of the year as more of a carryover from December and January, where we really saw that having spiked. And we talked about that at the last earnings call about how we're seeing centers being protected during the COVID environment. But I think as COVID evolves, that's becoming less of a concern. We don't have centers who are really deferring cases because of COVID anymore. So that's all really good news for not just Inspire, it's good news for the entire world to get over this thing.

That's true. Then good to hear. And Tim, you've been giving helpful data points on percent of centers doing cases. Is there any color you can provide on what you're seeing on enough percent of centers that have been doing cases?

Yes. I think for the most part, there's no centers that are now scheduling due to COVID. There's maybe some sort of slower to get back and recover, getting their staffs back. But for the most part, I think we're not seeing a lot of delays in scheduling cases.

That's good to hear. And on the Q4 call, you talked about more seasonality in Q1 2021 compared to prior years. I was curious, are you talking about more seasonality versus Q1 2020, which was negatively impacted by COVID? Or were you talking about 2018, 2019? How did you want us to think about kind of the seasonality this year versus prior years?

Well, I don't know if we want to get into the specific ratios of what we were going to expect in seasonality. They're more than kind of what we just talked about with the environmental conditions and the impact that COVID has had in the world. Yes, certainly, at the end of Q1 is when it -- Q1 of 2020 is when it really affected the world. But as we talk about December, January, it still have that little bit of an impact there. So we're not really comparing it off '18, '19 or '20, but just environmentally saying we're going to expect the seasonality into January and COVID recovering. So we'll have to take a look at the numbers and see how the rest of the quarter plays along.

That makes sense. And you ended 2020 with about 425 certified implant centers in the U.S. That was up about 125 year-over-year. Can you keep that pace this year and beyond? I think you've said you expect about 34 to 38 per quarter this year or roughly 150 this year. So I guess, in 2021, obviously, you expect to even step it up. But longer term, how much runway is left? I think you've said 800 is the initial target, but you think that there are potentially as many as 2,400 centers in the United States. So how should we think about the center adds going forward?

Well, let me make a quick comment, and let's drag Rick into this and do a [ Paul, Rifkind ] in this. But I think that when we opened up all those centers in the fourth quarter, I think we opened 55, there's a little bit of carryover from COVID because we don't comment that center is trained and open until they're actually scheduling cases. And obviously, in 2020, in the second quarter primarily, it's difficult to open up centers because they simply can't schedule cases. So a little bit of carryover. But as far as runway goes, we have a long way to go. And we'll let Rick kind of get into that. But environmentally, the world's changing, too. I know later in the call, we'll talk a little bit about reimbursement. But the reimbursement environment has changed such that it really allows ambulatory surgical centers to now start performing a greater percentage of Inspire cases. And so we're going to continue to be pretty aggressive at opening centers. As we said in the Q4 earnings call, we significantly increased our guidance on opening new centers and hiring new territory managers. So we're going to stay aggressive at opening new centers. I think it's probably one of our major constraints right now is simply the number of centers that we have performing the procedure. But let me turn it over to Rick and talk about the overall runway and the ambulatory surgical center environment.

Yes. Great. Thanks, Tim, and thanks for having us, Larry. We've talked about previously that we're excited about 2021 in the fact that our real focus is to grow capacity and conversion or the connection of patients with our health care providers, and the fact that reimbursement is no longer a headwind, given that we have 100% Medicare, which we received during the pandemic as well as 220 million covered lives. We can really focus on capacity, and capacity is increasing the number of centers. At the end of 2020, we had 425. We talked about that. We've increased our guidance to 34 to 38. So we're still very early. We -- to facilitate that and give us confidence in the ability to increase our guidance, we are now really looking and focusing on the ASC opportunity. At the end of the fourth quarter in 2020, about 16% of our total centers were ASCs. We entered into the 2 national ASC network agreements. The combined of those 2 have about 600 ASCs. We won't get into all of them, nor will we get into them immediately, but that gives us a long-term pipeline of ASCs. Similar to other neuro stimulation companies like pain and urology, once reimbursement is in place, we've seen -- or they've talked about nearly 50% to 65% of their procedures are done in the ASC setting. And so that gives us confidence the fact that only 16 -- 15%, 16% of our centers are ASCs now. And so we've talked about the opportunity that we think long term, we can get into 2,000 to 2,400 centers. And the fact that we're at 425 gives us a lot of opportunity to grow on the center side.

That's super helpful. And should we think about similar cadence, Rick, going forward to 2021, the 150 per year? Is that the right way to think about it?

Yes. When we provided guidance for 2021. We provided 34 to 38 centers per quarter. And so that's what we're doing now for the foreseeable future.

That's helpful. And given the expansion in number of centers, one would think that you need more territory managers or sales reps. I don't know if that's true, but I think you ended 2020 with about 107 territories in the U.S. And I think you expect to end 2021 with about 140. We follow this on LinkedIn for a lot of our covered companies. Looks like you hired a lot of new sales-related people in the first quarter. Can you talk about, I guess, 2020, the pace of hiring this year, 2021, but -- and maybe beyond that, where does that ultimately go?

I think we always want to watch the ratio of how many centers an individual territory manager manages. And we want to keep that somewhere between 4 and 6 because we want to make sure our centers go deep and grow the utilization. And therefore, we're going to continue to open up new centers. We're never going to go hire a bolus or a large number of territory managers at the same time. We keep our very consistent cadence as we have. All the way back to 2014, we've got a steady cadence of adding. Now as we add more territory managers. And when you open up 55 centers as we did in the fourth quarter, there's other requirements that we also have to scale. We have to scale up our training team, right? We're doing more implants. We don't want our territory managers spending all their time in the operating room. And so a lot of the case coverage is done by field clinical representatives. And we talked a little bit about we're going to start increasing the ratio. So ideally, we will have 1 field clinical rep for every 2 territory managers. So when you see a magnitude of hiring, and that's pretty resourceful going through LinkedIn to be able to track all that, I commend you for that, but it really is across the board. It is territory managers. It's regional managers. It's field clinical reps. It's our training team. We've added staff inside with marketing because of the direct-to-consumer activities. Remember, we have the adviser care program or the call center that we're ramping up. So we're scaling the entire organization. And when you see that magnitude of hires, it's pretty impressive. We even have to add HR, right, because of the recruiting and then on-boarding of people. And Rick always wants to bring on more finance people, too, to help manage the whole thing. So it's a team effort, and we're going to scale across the board there.

That's very helpful. You mentioned DTC. I think you've scaled back a little bit in 2020 because of COVID, but you still spent, I think, $26 million. Where do you see that going in 2021?

I was going to mention just from the DTC side, we talked about capacity and conversion or improving our conversion rates. And part of that is really -- we're also calling that improving the connection for patients. And so with that, we have the adviser care program, as Tim mentioned, and we continue to find a lot of success with our DTC efforts. The fact that less people were traveling during the pandemic, we shifted our dollars from radio to more TV, and we're finding really good initial feedback from the TV commercials that are airing. And so we did increase our spend in 2020 to about $26 million, which is about a 40% increase. We're still early in the penetration, and so we're going to continue to heavily invest in DTC. And that investment will probably increase about the same for 2021.

So about a 40% increase?

Correct.

Okay. That's helpful. Tim, how is Europe? I mean, we all know that COVID is pretty severe there. Your OUS sales are relatively a small percent of your sales. I know you have a new DRG in Germany, which opened things up for you. So how do you see things playing out in 2021 outside the U.S.?

I think Germany is going to be strong. We think we're working -- the reimbursement in the Netherlands is well known. This is going to be very strong. Good growth in Austria, Switzerland. And then when we get in Belgium, of course, it's growing well. Then when we get into France, we just need to keep pounding to get the reimbursement. We want to certainly kick off in the U.K. this year. We are going to do that last year, but COVID had a different opinion. And then we're also looking to expand in the Nordic region. So we do want to focus on in Europe a little bit more, including primarily in those countries where we have reimbursement. The DRG is kind of getting a little bit impacted because of COVID, because the negotiations, it's a year-long process to get the number. And so some of the negotiations are going to push later into the year. But that's okay because we still have the NUB1, and we're still able to get full reimbursements. So I think the DRG will play very strongly in the near future. Germany is going to continue to grow. We're going to continue to add territory managers there, continue to add new centers there. So it's -- we're taking care of a lot of people there. And Germany doesn't have the same impact of COVID as we're seeing in some of the other European countries. So I think we're in pretty good position right now in Europe.

That's good to hear. And before we move on to R&D, one big picture question. People are starting to ask about the long-term opportunity. Tim, are you guys considering providing long-term goals at some point?

Well, I think that you have a multifaceted question there. I think, number one, we certainly are planning -- putting out our goals on. We already have talked about our goals for Inspire for obstructive sleep apnea, right, talking to get to 2,400 centers. How many reps will we have? What would be the opportunity and the penetration in the revenue tied to Inspire? But yes, we also look at -- we have a very unique technology in that it's closed-loop neurostim and it's an R&D call. So it's appropriate that we kind of transition into the R&D part of it. And are there avenues that we can leverage that close to neurostim technology? And I think the answer is yes. We have to be careful at how we enter other phases. But we do have our own venture program, and we are certainly researching what opportunities are out there, and we want to begin some of those. So more will come in the future as we learn more. But certainly, we would say that we are certainly looking on the horizon to see where else we can help people.

So yes, a lot to unpack there. And I just -- let me just kind of -- one is just kind of long-term financial goals, and I know you have provided some metrics. The other is kind of long-term strategic vision for the company. Do you go deeper in sleep apnea? Or do you go take your -- leverage your technology in other disease areas? And I definitely want to come back to that. But just in terms of the financial goals, is that something that you would consider more like we see revenues in 5 years at this level? Margins at this level? I don't think you guys have done that.

We haven't really laid that out. I always shout out -- give a shout-out to a really great analyst. And she always asks every time we talk to her, "What does the organization look like when you have $0.5 billion in revenue?" And she quit asking that question. Now she's asking, "What do you look at when you have $1 billion in revenue?" And so Rick kind of laid it out last time on the earnings call when we looked at it. For us to be $0.5 billion in revenue, we're going to be in 800 centers basically doing 2 units a month. Well, at the end of the fourth quarter, we were at 425 centers doing, I think what was the number, 1.3 a month. So keep focusing on the growth. And when you start talking about strategic initiatives and financial initiatives, let's be clear. Our #1 focus is helping patients with moderate to severe obstructive sleep apnea. We're not deviating from that. And the rest of the call, when talking R&D, it's all about improving the performance of the system, making it easier to use, making it easier for a sleep physician to efficiently manage more and more patients. So we are going deep on the obstructive sleep apnea. That is our focus. And -- but we do look and talk a little bit about what do we look like at a $0.5 billion? What do we look at $1 billion? And then how do we even grow beyond that?

Okay. That's super helpful. You haven't given any time lines on that $0.5 billion and $1 billion, have you, Rick?

No, not at this time.

You have to call our favorite analyst.

Okay. Yes, feel free to tell us today, but I don't think that's going to happen, but we'll keep trying. So why don't we move on to the R&D portion and we -- and towards the end of that, I wanted to start it -- well, we'll come back to some of the strategic things you talked about, Tim. But just starting with the basic question on R&D spending, $26 million last year, 23% of sales. How do you see this trending over the next 3 to 5 years? And what are your R&D priorities today?

Right. Well, I think those are actually 2 independent numbers, right? That 23% as a percent of today's sales, right? And you know that we're going to continue to grow. So let's talk about the volume, and $26 million is a pretty significant investment in technology development and [indiscernible] backing out that. We want to continue to focus on, not only our implanted product, but also the tools to help physicians manage patients such as the -- well, we talked about the new physician programmer platform we announced just last night. A couple of weeks ago, we talked about the 2-incision. And we -- over the earnings call, we were talking about the new remote that has Bluetooth to get interconnectivity improvements between the patient and the physician as well as even the Inspire V. So volume-wise, we're going to keep spending on R&D. We're going to keep committed to the patient and keep committed to growing the business. The percentage will obviously change as we grow revenue. But I think the key is keeping the volume of investment and our commitment to development.

So let's transition to the recent FDA approvals. Let's start with the 2-incision approval a few weeks ago, maybe less than a few weeks ago, and then we can start talking about the one last night. But how big a deal is the 2 -- help people understand the implications of the procedure going from 3 incisions to 2 incisions, please.

No problem. Larry, I have a slide. Can I show a slide?

Tech, can we make sure that the viewers can see the slide, please?

And so -- just 2 slides. But the first one kind of baselines everybody. On the left-hand side, we see the patient remote, and then you see the neurostimulator. That's the Inspire IV neurostimulator. And remember, we have 3 products. We have a pressure sensor lead, a neurostimulator and a stimulation lead. And on the right-hand side, the picture that you show there, the #1 shows the pressure sensor lead between the fourth intercostal muscles, and that was where we had the third incision. Well, what the FDA just approved a couple of weeks ago has allowed us to go to 2 incisions. I'm going to show you an image of that on the next slide, but it really kind of helps improve the ability for the surgeons to implant the device. Here you can kind of see the -- I'm going to see if I can get my little laser point, and hopefully, that will show up. Here, you can see what we're doing is we create one incision for the neuro -- for the stimulator lead, and then that tunnels down to that, to the neurostimulator pocket. When we make that incision, we get direct access to the intercostal muscles at that point. So we're placing the pressure sensor directly underneath the neurostimulator, thereby eliminating the third incision. And it also eliminates having the tunnel, that new lead down to the fourth intercostal space down here. Now this was originally worked in partnership with the ENT surgeons who are looking -- always looking for ways to improve the procedure, to make it more comfortable for patients. It's one less incision, a quicker postop recovery. But here's the key. Look at the data from the ADHERE Registry that the average implant time went from 123 minutes down to 97 minutes. This is based on the sample size of 50 in each group, and the 2 groups are the same hospitals that were in the trial. So they would do 3 incision implants and also have 2 incisions. So it was a direct matched comparison. But we had to go a next step further. And what we found is there's absolutely no difference in system performance as far as AHI or ESS. It's Epworth Sleepiness Scale. That's a quality-of-life measure. So we have prepared all the training materials. We are training all the physicians on this. We can still offer both procedures that are acceptable by the FDA and Inspire. But we're going to make sure all the surgeons are trained on this new 2-incision implant procedure. And I think that it's really great for patients. It's great for physicians. And that, like I said, reduces by 30 minutes of OR procedure. So big, big achievement for the ENTs and the patient.

Tim, is there any reason why a physician wouldn't adopt the 2-incision implant procedure? Why some might stick with 3?

Well, comfort, right? They have a lot of experience doing that 3-incision procedure, and they're comfortable doing that procedure. And it's their routine, and they know how to work through it. So it certainly is the physician's choice, but we certainly are going to train everybody and make sure that they understand what both procedures are, and it is the physician's choice. But we believe the majority of physicians will quickly transition over to the 2-incision because of the -- just the benefits of the 2-incision versus 3-incision.

That's very helpful. And I mean, at -- how do you think about the impact on volume? I mean, people can do more cases per day. How do you think about the number of cases somebody might do it today? Does this allow them to do one more? How do we put this into context of capacity?

Well, certainly, if you work the math and when you look at surgeons, typically will schedule 2 cases in a day, right? And so they -- if there was a 2-hour procedure with an hour in between the clean and prep, so it's 5 hours. And so then, you start a third case because now you're going into a shift change in the operating room. Well, if you take out the half hour in each case, that does provide a little bit better buffer to be able to schedule up their case. So certainly, the potential is there to do an additional case in a day, and that certainly improves the economics for the surgeon doing more procedures, and it's great for the patients because it just increases capacity and allows more patients to be able to receive Inspire therapy. And as we talk, probably the greatest constraint we have today is simply the number of trained centers and the number of physicians doing procedures. And if we can find ways to shorten the procedure times so they can do more cases, it certainly can be a benefit across the board.

That makes sense. And then before transitioning to Inspire V, the next-generation device, I wanted to talk about the enhancements you're making on the current generation device, I guess, Inspire IV. And you've talked about this kind of can get a little complicated, but you talked about a multi-step process on the Q4 call. You did announce last night FDA approval for, I think, a new physician programmer. Yes. What are the goals here? What are you trying to do big picture? And what are some of the big enhancements that you're making over the next year or 2 to the current generation device?

Yes. So I might just pour in a couple of slides and -- to look at, but here's the whole thing. It's the Inspire digital health definition, rightr? And as we grow and as we increase utilization, and surgeons and sleep physicians are treating more patients, and they need -- the sleep physicians are responsible for managing these patients long term. What we need to do is create tools for the sleep physicians to manage a larger magnitude of patients equally as effective as if they're treating one. So the Inspire Cloud is just that mechanism. And you can see here an image of one of our physicians with Inspire Cloud, and they can remotely see the data. Now what we have to do though is we have to populate Inspire Cloud with valid data, right, that physicians can use. So I'm going to just kind of keep clicking through. And another way that I would like to describe, because it gets complex a little bit, is let's talk about CPAP a little bit. It's a proven history. Look what CPAP has done. Okay, look at the 1980s with the reverse vacuum thing. This is the rudimentary approach to CPAP at that time. But how it has evolved over time to increase comfort, ease of use, auto titrating, auto-adjusting CPAP, and now they have smart devices that communicate with their cloud-based patient management system. We're doing the same thing. Look at our evolution. We started 2014 with that old patient remote, right? We had the Inspire II neurostimulator. And then we went to the new remote, they added a lot of features, including time stamping and helping the patients manage. We went to the Inspire IV, which is a 40% reduction in size, but also brought in the MRI -- patient's ability to have an MRI. Then we announced the Inspire Cloud. Well, now what we need to kind of keep moving towards is kind of a smart system. And what we have is we released Inspire app on patients' smartphone. If you haven't seen that, you go to your Apple Store, type in Inspire Sleep and download the app, give it 5-star rating. But that allows the patients to immediately be connected with Inspire Cloud. But that's not enough because we don't have enough information in this. So I'm going to jump ahead another slide here, and here's the app communicates with the cloud today. And the physician logs into the cloud to be able to look at that data. But we kind of get the data from the implanted products and from the remote into the app and directly into the cloud. And the way to do that is the new remote is going to have Bluetooth. And so the remote with telemetry already communicates with the neurostimulator to download that information and also as time stamps. So we know when the patient goes to bed, when they turn the device on, when they turn it off to deposit during the night. And all that information gets sent to the patient's smartphone and the Inspire app via Bluetooth and immediately uploaded to Inspire Cloud. So when the physician logs in the morning, he's going to do a telemedicine visit. He can upload all the information and see the patients using it every night. Or if I'm looking at patient Rick, I could talk to Rick. "Well, you're not using it every night. How come? Is it uncomfortable? Is there reasons why you're not turning the device on every night?" And the physician now has real data. But we can take that a step further. Now what we can do is we can start doing some sleep diagnostics. There is these sensors that you can put underneath your mattress. There's pulse oximetry. You can use the Itamar system. And all of those will upload to the cloud, too. And so now the physician has not only the data from the implant, but has all the data from a home sleep study. So they have objective data how is the patient is doing. And so then, when I get on a telemedicine visit with, say, patient Rick again, now I can get the subjective feel. "Rick, how are you doing? Are you comfortable? Are you using it every night? Do you have any doubts, any issues with your device?" Where we want to go at this scenario is eventually the physician can say, "You know what? I think I can help you. Let me make a quick programming change." And you with the telemedicine visit, the programmer, the physician is going to be able to do remote programming. So that's in development today. And it just got that approved for the neurostimulation. So this is not a stretch, and FDA has formed their own digital team. And we're going to go sit down with the FDA in a few weeks to really kind of talk through what we're talking about here, our overall strategy and how we're going to work through our development process. The first step to this was a big breakthrough last night. With that the FDA approved it, we shipped the first physician programmer platform. What you see here is a picture of really this physician cable. And we have a little module that communicates Bluetooth to a physician tablet, and it has just a really soft antenna that goes over the neurostimulator and be able to communicate with telemetry to the neurostimulator. So it had a lot of benefits in there, including enhanced telemetry ranges. When we did this, knowing that we want to move towards a remote programming, we built in significant safety into this device. This is the interface with the patient. So remember the old days of hacking implantable products, the old Dick Cheney with the defibrillator and people, "I'm going to have him watch this." We built safety into our software, into our systems to be able to prevent that level of activity. So this is just the first step, this new platform of a much broader scale for where we're going with our overall digital health. Our end goal is we're going to have every center in the world and every patient on Inspire Cloud. Once we have all that information in there, that is going to be placed ADHERE registry as our global patient management system. And it's going to help physicians trap how are their patients doing. They can get diagnostics to see if they're sleeping well. They can see if they're using the device every night and check the patient adherence to turn the device on. And then big data, we get to monitor all of that data. There might be some centers who are doing a lot better than other centers. Well, we need to go to those centers and find out, "What are you doing that's really your patient outcomes is so strong?" On the other end, there's going to be centers that won't be as effective, and we need to go -- there's a teachable moment there. We need to change some things to improve your patient outcomes. So this is just -- yesterday is just a great first step in the overall digital health system that we're putting together. The next step is right here. The Bluetooth remote is in final testing. We will be submitting that to the FDA very shortly and working with the FDA to get a quick approval on that. And ideally, we'd have something later in the year, if not early '22. Just a matter how quickly we can work with the FDA to get that approved. And then the next step, we already talked about -- well, we haven't talked about it yet, and we are also focusing on Inspire in the implanted side of the equation.

So okay. The one piece you didn't mention was the goal to allow a physician to remotely program the device. What needs to be done to accomplish that? And when -- what's the time line on that?

So we started with the new physician cable right here in the new platform. The next step is going to be moving towards a connected laptop programmer with Inspire Cloud. And so we can get that information into Inspire Cloud and be able to take action via the cloud to the smartphone to the Bluetooth to the implanted product. So it's a multi-step product. So the next step is going to the new physician programmer on a laptop that connects with the cloud. And then from there, we'll work with the FDA to show we can safely programming changes via the -- remotely in a safe manner. And that's the key thing that we're talking with the FDA, show all the safety that we have put in place, the engineers on how they segment the design of Inspire Cloud to be able to protect. Now those are elements that program in the device. And the good news is it's been done, Abbott getting credit was the first neurostimulator to get remote programming. So they worked through the process, gave them a lot of credit for that, and we're certainly going to learn how they handle that, make sure we work directly with the FDA upfront. So we build that. So in the next couple of years, we'll certainly be targeting to have remote programming. And on top of that, it's a fully reimbursed event, right? Telemedicine is reimbursed. If you do remote programming, that's a reimbursed event. So it's really an improvement, improved way for physicians to be able to manage their patients.

That's super helpful. And we get a lot of questions on the sleep diagnostic device. Do you -- how does it work? Do you work with the companies that make those devices? Do you collaborate with them? Does it make sense to have anything like that in-house, Tim? Or is it better to collaborate with the companies who are out there?

Well, we like all the companies. We like Itamar. We use that product. A lot of our centers use that. We are able to upload that data. We -- there's another company in Belgium that is a Springer one. There's all further advancements in sleep diagnostics. There's another avenue. This is a center that goes underneath your bed, not a matties that you buy right now. Our sleep number is a company in Minneapolis, and they have sensors inside their bed. You see their TV commercials at the end, if not. They can tell you the quality of your sleep. We don't need active polysomnography data every single night. But if you can have ongoing monitoring of patient's sleep quality and a lot of these can be done with these sensors in your mattress, those will automatically upload to the cloud. And so you kind of get an ongoing monitoring, and you can look for disturbances or changes. And when the system manage your AI, a big data story, when Inspire Cloud detects abnormal changes, a notification will get sent out to physicians saying, "Hey, something is not right with patient Rick. We got to give him a phone call." Sorry to keep picking on patient Rick, but we've got to be able to make a phone call and see if everything is okay with their system. Why are they using it? So I don't know if we need to bring it in-house. I think what we need do is partner with everybody. But the development in sleep diagnostics continues to grow tremendously quick, right? Your -- the -- your Apple watches will now detect pulse asymmetry. There's other avenues on your smartphone to detect the snoring and sleep. So there's many technologies that continue to evolve. And our job is just trying to stay on top of it and partly with all the players.

That's helpful. Tim, moving on to Inspire V. Remind us of the milestones. Is 2022 filing still the goal? And what are the goals with the system itself? What are you trying to improve?

Well, as I committed to you and the others on the Q4 earnings call, we said that at the next earnings call, we're going to try and lay out a lot of specific scope. Because right now, we're still in the final testing to show what the scope of that Inspire V device will be. And we hinted that what we're testing is internalizing the sensing and putting an algorithm inside the neurostimulator would be detect the respiration. Remember, it's very important for treatment of obstructive sleep apnea and the closed-loop system. We need to know when the patient inhales or inspires. And that is we want to synchronize stimulation of the hypoglossal nerve when a patient inhales. So you need to know that respiratory cycle. So we -- there's many different ways to be able to measure that. And one way that we're testing right now is using the accelerometer. An accelerometer has been used in cardiac pacemaking for years on rate response and pacing, right? So when you go jogging, the pacemaker knows you're jogging so it increases the heart rate. We're doing the same thing, except using that to detect respiration with our algorithm to know when to stimulate the hypoglossal nerve. So give us the total earnings call to refinance where we are with the testing, but that is the intent and the #1 goal. We will keep the same shape. Right now our neurostimulator is a 15-cubic centimeter device with -- without requiring any recharging. I don't think recharging is a good thing. And we get 11-year battery life, because again, you only turn the device on at night. You only use it when -- it only stims when you inhale and redirect nerve stimulation, which is low energy. So the duty cycle is relatively low, and that's how we get 11 years out of a primary cell battery. The other part of it is it's a big change. And the old device was an application-specific integrated circuit or an ASIC, right? Now the new device will certainly have an ASIC, which is what we call the stim engine or the circuitry that provides the stimulation energy or the pulses. But it's going to be a microprocessor-controlled system. And that allows us to have software changes to increase capabilities of the device moving forward. So when we get to Inspire VI, Inspire VII and moving onward, we can always continue to improve the product as we learn more and as we continue with the development. Long term, where we want to go with this is we're going to have a device that knows when you're sleeping. It will know when you're awake. That's our Christmas joke. But it'll know how to turn itself on. It will know if you're going to get up, it'll turn itself off, and then we get into control. And we'll have a device that can communicate more with the cloud and ideally start moving towards a smart device.

What about MRI, full-body MRI compatibility? Is that a realistic goal?

Well, sir, I mean, we're testing it right now. Really, what it is, it's just getting through the formal testing of it. And we do have our system in testing. And it's not a significant hardware change to be able to go to that full body in. Like I said, the testing is in place, then we'll go to the FDA to review our data, but it hasn't really been a big limiting factor so far, but we understand the importance to get to a full-body MRI.

Can you do that with Inspire IV? Or would that be something that you'd be doing with Inspire V?

We are testing it on Inspire IV.

Okay. And do you think that...

The answer is yes to both.

I'm sorry?

The answer is yes to both. It's not about redesigning the product. It's just about going through and doing the testing and doing the validations at home that you don't cause damage. The real concern on MRI, okay, certainly, it's heating of the device because it is metal when you put at the end a magnetic field. That's one concern. That's not the primary concern. The primary concern is go back to your physics class and your right-hand rule. And when you introduce a magnetic field, you induce a current on the wire. And that current is stimulation to the nerve, you don't want to burn out the nerve. So that's why we just have to make sure that when you go to a 1.5 Tesla or 3 Tesla, head coil, full body coil, wherever, that we're not in a position where we're inducing a sufficient current through the electrodes to the nerve to damage that nerve. So all you do is test to make sure that what are the limitations, and then you -- our goal is to have a set of MRI settings that radiologists can safely use to be able to perform MRIs across body. Every MRI approval that you hear out there has a term conditional, and then you got to read into the details. So when somebody says they have full body MRI, you got to read the small print. You got a seat read the settings that are required to be able to meet that conditional approval. And the key is, are those ratings sufficient that it allows for sufficient MRI?

Okay. I mean, big picture, I mean, it's the elimination of the check sensing lead. seems like the biggest change. Is that fair? Or are there other -- it's a little bit in the weeds, but when we talk to docs, they want to know if it's going to have positional information, more gradual ramp time when you turn on the device because, sometimes, it kind of shocks the patient and they may not use it. Usage patterns to improve efficacy. Is it going to have anything else like that?

We -- the accelerometer is basically a gravity sensor. So yes, immediately, we'll be able to tell if patients at supined, left side, right side. And so that information will be there. Now the key is, it doesn't have the smarts in yet to act them. We know that if you're laying on your back and your tongue falls back, it's gravity, right? That takes the greatest amount of energy to move the tongue forward. And we know [indiscernible], it's 9. So you roll over on your side. When your side, it takes less energy to get the timing wait to improve obstructive events. So we all know that if you're on your side, it takes less energy to be able to prevent the apnea's use of less energy, less reduction on the battery, greater battery life. So certainly, that works. The number one reason patients don't use Inspire all night every night is because of comfort. And so we're working very hard on them. But you highlighted one potential element to it. We do have a ramp in our current system, but it's not standardly turned on. And what that means is instead of pulsing, it can pause, right? It can slowly ramp up during the duty cycle or during a ramp cycle. And we have that in the current price. That's not going to change. We can still have that going forward. But what we'll be able to do is improve a physician's ability to recognize if that's an issue, and then that would be an example of something that you could change the remote programming in. So say, let me change your ramp a little bit to make a little bit more comfortable, right? And so that would be one example of the value of remote programming. So the other key to Inspire V that we need to highlight, it is future upgrades, the whole microprocessor-based system to really get at all of the zones, let's say, that you're talking about.

That's helpful. Tim, I'll ask a big picture question here that you touched upon. Strategically, companies like yours that have really one product right now focused on one disease state have to decide if you're going to go broader or you're going to go deeper in the current disease state that you're in and offer a broad suite of product for sleep apnea or you're going to apply the technology to other disease states. I've heard you talk now for the last few months on different public calls. The sense I'm getting is you think there's bigger opportunity taking the closed-loop technology and applying it to other disease areas. Is that a fair characterization?

Yes. But everybody on the call wants me to pretty sure say our focus is on obstructive sleep apnea and going deep with neurostimulation. And everything we've talked about now is a significant investment in both the tools for R&D as well as the implanted product so we make it better outcomes, easier for the patient, easier for the physicians to manage patients and implant the device. So our priority is sleep apnea, period. We also talk about not necessarily going broad in sleep apnea to bring in diagnostics. We don't need to. There are good partners out there, such as Itamar. We like Itamar. And to be able to partner with them from a diagnostics, that's what they do well. They do diagnostics well. We do the implanted therapy well. And so we could partner without having to bring that in-house because that would be a distraction with a different call point. It's a different selling feature versus the implanted product. And I'm not sure that's such a great fit for us. Okay. That being said, and to your point, yes, we have an advanced neurostimulation system, especially when Inspire V comes out with the sensing capability that other neurostim platforms simply don't have. And there are other disease states that we can tap that simply can't be met with existing diseases. I don't know if I want to go pick a fight with any of the other existing neurostim companies. There's enough people taking care of all the other disease states, and we don't need to enter that. That wouldn't be smart. But if there are unmet needs and unmet diseases and doesn't have to necessarily be in the ENT space, it can be in a different physician group, we're certainly looking at those avenues. There's not a lot more we're going to say about that right now other than we recognize the value that we have with our advanced neurostimulation technology. And we're always looking to see if there's an approach that we can go after to really help other people.

Okay. Perfect. So Tim, only about 12 minutes left. I wanted to touch on reimbursement. Just remind us the new CPT code for hypoglossal nerve stimulation. I think it was approved in late 2020. What's the sequence of events here? What are the milestones that we should be looking for? I think we're disclosing to effect at the beginning of 2022, I believe, January 2022, but when are we going to learn the number, the number, the new reimbursement?

Well, I think the answer is, I think, July, August, we'll get the first indication on that. I think what's so important about this is under -- the ENT community or the ENT Physician Society, the AA or American Academy of Otolaryngology really understanding the future of hypoglossal nerve stimulation as far as their membership or as far as the ENT positions in the United States and really wanting to have control over the reimbursement that those physicians are getting. And they did their own review of the existing CPT code, which worked very well for the first -- since approval in 2014, but they realized those are undervalued. And so to give them credit, we certainly were supportive of the AAO in their submission to get a whole new code just for hypoglossal nerve stimulation, getting that approved as a category 1 device. They've already done the data collection from the rep survey, and that's the -- so they can determine the average time it takes to do an Inspire case and be able to set the proper reimbursement level. And then they need to work with the AMA CPT Committee. I know there's a lot of algorithms in there, I apologize, but to really set the price. And I think the OPPS code is officially coming in October, but I think we'll learn a little bit more in July or August what will be, but we're confident that there will be an increase from the base that the physicians are working with today. And it's not -- it's a nationwide process with the AMA and CMS. So I know I get the same question in reference to, can a math affect this payment? No, it's a different world. It's not that -- the same issue you hear with other company on a single math affecting their price. This is going to be nationwide-based pricing. And facility pricing, the code is still going to map to the same APC, ambulatory procedure code. So facility payment won't change. It's only going to be the physician payment, and we believe there will be an increase.

So Tim, in July, August, what's the mechanism for disclosing the new reimbursement? Is there -- the OPPS, you said comes out in October. What comes out in July and August? Where is it initially made public?

Yes, we'll hope that we'll get some feedback from both the AAL and the AMA on the results of the RAP process. And we're going to have to just kind of monitor that as we progress. So as we learn more about the process and when we can learn, we'll continue to communicate that. But in the meantime, the physicians really got a significant raise with the assurance that, yes, we have a Medicare policy in all 50 states, and they're paying for the category III called the 0466T, the additional $400 payment. So right now, physician payment is really good. We think it's going to get better, and that kind of leads. That's the driver between the transition to ambulatory surgical centers that Rick talked about earlier.

Tim, with the Inspire V and the sensor lead potentially going away, does that change anything here? Because the sensor lead has been paying $450 now.

Yes. No, it won't change anything because the new category I code is all-encompassing. And it is a closed-loop sensing device. So whether it's an external sensor, internal sensor, it's the same thing. So no code change necessary.

Remind us what you said on the clinical pathway for Inspire V? I'm sorry, do you need to do a clinical trial? Or do you think it's going to be a PMA supplement?

We're going to sit down with the FDA in the next month to kind of talk through that. We -- if you think about a neuro, it's the same form fitter function. Those are the 3 key buzzwords. We're still sensing. It's still a closed-loop stimulation, and we're still stimulating the hypoglossal nerve. So we have collected a lot of data using with patients who have an Inspire system today, and we can use an external accelerometer and compare the 2 systems to show equivalency. And we'll be going and talking to the FDA on that.

And Japan, my favorite topic. Reminder, you're supposed to be meeting with the MHLW sometime around now. What's the latest on -- obviously, there's some -- you're trying to get them more to a global price, the U.S., Europe, ASP, and that seems like that's been kind of the sticking point. Where are you?

I think we both understand that. I think the desire is there on both sides. The 4 physician societies in the last several weeks have submitted letters to the minister, endorsing Inspire and telling them we want to get this done, so we can offer this to the Japanese population. Inspire is very committed to doing this. We have negotiated a distribution agreement with the party. We haven't named the party until we get to the reimbursement, but we're committed. We're ready to go. The products have full regulatory approval. All the physician programmer that we talked about, they're all translated into Japanese. We're ready to go work with the population that it treats the sleep apnea patients. The key is going to be -- it's fairness in that the average sales price compared the Europe to the United States is the expectation of what it needs to be in Japan. We've clearly stated that point. We've given evidence to that point. I've been asked -- answering questions nonstop over the last couple of weeks with the Minister of Labor, Health and Welfare as well as the HIB, the Health Insurance Board, to get all the information put together, so it can go back to the panel that I think is a mid-April and a meeting is scheduled for final determination. And if they determine that, yes, this is on for the Japanese population and this is the reimbursement that needs to be -- to cover this, I think it will get approved at that meeting. I think they know the baseline of where it needs to be. And we know what their initial offer was. The initial offer certainly wasn't appropriate. It wasn't that sufficient level. So I think we're going to get it done. I think we are very excited about Japan because if we had started Japan, then we can help populations neighboring Japan from Taiwan to Singapore to Hong Kong. We have friends in Mainland China who are physicians who understand Inspire to South Korea. And it really kind of opens the door. So very important couple of weeks coming up. And -- but we're not going to give up. We're going to keep working. And -- but it's important that the average sales price is consistent because that's going to read across into Taiwan, Singapore, Hong Kong and everywhere else in the Asia Pac.

So Tim, mid-April panel, it sounds like that's important. We'll hear more from you about that on the Q1 earnings call, I imagine.

If it's successful, they want to list it in the July time frame. That will allow us to start doing the implants as early as like September. Physicians really identified what centers want to go first, and it's pretty exciting.

And that would be upside to the guidance? You didn't put anything into the '21 guidance for Japan?

No, not until all the reimbursements is going to be because we're going to be very patient. And if it -- if the reimbursement isn't where it needs to be, Larry, we're going to keep communicating with Japan to make sure that we have consistent reimbursement. So we're not going to rush to do anything. So for that reason, we certainly didn't put anything in the guidance.

And Anthem is -- what's the likelihood we get it in 2021?

I haven't even talked about Anthem since last earnings call. I really like Anthem. They are approving patients. They're giving it at a very high percentage. They're just making us go through the appeal process. And that is something that we're going to continue to submit at the patients. Every patient takes our time to help centers do the prior authorization package. It takes work from the physician and their staff to put the package together. And it takes a lot of work from every employee at Anthem to be able to review the cases and work through the appeal process. And as we keep loading more and more cases to Anthem, we have their attention. And so I think it's a high likelihood that we will get policy in 2021.

Is there kind of a review cycle or a period when they typically announce this?

I would love it if it did an interim review, but their review process is summertime with a new policy in about September. And everybody else is strained with COVID. I'm sure they are, too. And I have a hard time believing they're going to do a mid-cycle review, but we're certainly going to be ready for the summer review, which isn't too far off. We're -- we have all the ice melted in Minnesota now. So summer can't be too far away. And then we'll work with Anthem on all the technical review to support their policy decision at the end of summer.

Yes. Just one last question. We didn't get to competition, but are you seeing anything new on the competitive front?

Well, Larry, we've talked about this before. We like competition. Competition is okay because it really gives validation to electrical stimulation for obstructive sleep apnea. Now I said that a little tongue-in-cheek because I like the position that we're in right now. We know that both LivaNova, who's looking to start their trial, I think they're furthest along. I think Nyxoah is very early on, but they're very active and doing some studies, and they have put out some releases on single case studies, which people shouldn't get too excited because it's an [ M1 ]. But they've committed that they're going to have data on the May time frame. And we look forward to really seeing that data and learning from that data. And then that allows them to move forward and really get started with clinical trial in the United States. That's going to take them a year to enroll that study to get a follow up patients for a year. They've got to polish the data to get a package for an FDA review, and then the FDA gets a year to review it. There's still 4 years away from approval in the United States. So all -- everything we talk about today on the R&D spotlight, again, really appreciate the ability to talk with you on our R&D investments and commitment to the patient. Most of this is all going to be in place before any competitor gets FDA approval anyways.

That's great. So we've got a minute left. And Tim, I always like to give the CEO an opportunity to kind of wrap up, summarize. Any closing remarks from you would be great before we end.

Thanks very much. I want to, one, thank you in all the support that [indiscernible] provide for educating investors on Inspire and really understanding the story. And I know you spent a great amount of time in your own research to understand what's important and be able to communicate that. So we really appreciate that. From an Inspire standpoint, speaking from all the employees, we wish the best to everybody in the world to overcome this COVID, and we're doing our part to make sure that we stay safe and continue to take care of locations. We always reiterate that our number one objective is patient outcomes. And we know that we have a tremendously large market ahead of us. We know that we've laid out a very consistent cadence and growing our market, increasing the growth of the adoption of Inspire. But it's with the patient in mind that keeps us in control and keeps us measured, such that we only grow as fast as we can control patient outcomes because that's everything. And we want patient outcomes to only continue to improve as we move forward. So Inspire, as I said on our earlier call, it's -- we are exactly where we want to be at Inspire, and that is at the very beginning. And we have a long way to go and people at Inspire really like -- love what we do, and we're committed to the patient. So thank you, Larry. Thanks very much for having us. And to the investors, thank you very much for your ongoing support.

All right. Everybody, thanks for listening. Tim and Rick, thanks so much for the opportunity. Have a great long weekend.

All right. Thank you.

Thanks, Larry.

Thank you.