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

All right. Next fireside here. We have Inspire. We have Chairman and CEO, Tim Herbert; and Ezgi Yagci from Investor Relations. I think, Tim, you want to start off with a little with a presentation, and then we'll jump into Q&A.

I think that's great. I want to jump off and Rich, thanks so much for having us again. We really appreciate coming up here and spending time with everybody. And it's an exciting time for us because we get to talk about Inspire V and how the launch is going and the benefits that that's going to really provide patients and really take the therapy even a step further. Before we get into that, it was a good opportunity to say, let's put a couple of slides together just to kind of describe what we're talking about. And we know that we've already demonstrated 20% reduced implant time with Inspire V because we did an initial study in Singapore, and we've also than a limited market release here in the United States. And now we are in full launch and have been, and it's pretty exciting to move forward and keep talking about this. The Inspire V, the key to the device is moving the pressure sensing lead from external wire or lead to becoming internal to the device using an accelerometer. And the necessity to that is to measure the respiratory waveform to make sure that when we provide stimulation to the hypoglossal nerve to move the base of the time forward that it synchronizes when a patient inhales. And rather than me trying to describe it, I thought what we might do is we're going to show a video. Now this video wasn't created for this conference. This video was actually a standard training video we use. It's been for physicians. It's been around for a while. But it really shows the necessity to do sensing and synchronize stimulation. And then after that, I'm going to come back and I'm going to show 3 slides on data that was released just last week at the American Academy of Sleep Medicine meeting in Seattle. So let's run the video and take a look. [Presentation]

I don't think a lot of people have really seen the inside of a neuro stimulator, but that was a good picture right at the end to show how the electronics are really a minor part of the overall device and size of the device is really predicated on the size of the battery and the battery dictates the battery life, of course. So the larger battery, the longer the life. But with the current design with 5, we've maintained the 11-year battery life. We found that to be an effective time frame, and that does not require any recharging. Let me take -- so that's a great video. Again, we show that to physicians as part of the introductory to Inspire and especially the necessity to do closed-loop stimulation because as you exhale, you blow the airway open. Think about when you sneeze, right? Your whole airway just blows up, right? It's when you're inhaling is the only time the airway really obstructs. And so in our quest to optimize patient outcomes, we certainly can send Amplitude to be able to move the tongue forward. Now we can set the respiratory signal to maximize what's called inspiratory overlap, and that's the measured metric that we use. And then the next step is to take therapy adherence to the highest level. I told Rich, I wouldn't run out the clock on them, but I do want to just show a couple of abstracts that were presented. But first, I'm going to go back to Sleep 2024, and this is the data, the clinical study that we ran with Inspire V to get the FDA approval. And I know it kind of looks like a big scattergram over there on the left and -- and Kevin, I'll make you a work look over at the other slide over here. But you can see the scattergram on how the stim is, and it's really about timing how we can synchronize with respiration. And you can maybe read the data on there when we're looking at the inspiratory overlap on the right-hand side right up here, and I don't know if I can kind of read that. But the commercial systems are kind of running at -- is at about a 78% inspiratory overlap. But when we get to the accelerometer, we can run that up to 86% overlap. And the initial picture, we're showing a tighter respiratory signal and our ability to synchronize with respiration even a step further from Inspire IV was. The conclusion was the accelerometer is an improvement in sensing, and that's what we're going to continue to prove as we kind of move forward, and that really is going to optimize outcomes going forward. So really an important feature is the closed-loop stem. Then we did an initial study in Singapore, as you all know, last year, we had 46 patients, I believe, or 44 patients. All the implants were successfully completed. All 44 of those patients are on therapy right now in some phase. You can see the time line going through here. We're probably just -- we just have a few patients that have gone through their 6-month AHI. So when we get to the International Sleep Surgical Society and the American Academy of Otolaryngology meetings this fall, we'll have some of that early AHI data to be able to look at. But if you kind of look at the results kind of walking through here, the key is they showed a 20% reduction in surgery from their baseline, which is really exciting. If you get down to the key, this is the next area of focus when we start talking about Inspire VI. But there are features added in Inspire V that a lot of people aren't aware of. We now have a ramp feature. So instead of stimulation turning on, stimulation will now turn on. It's a lot more comfortable for the patient. And you can see therapy adherence is over 6 hours in Singapore with these first patients. And that's what it's all about. set the right energy to move the tongue forward, make sure we synchronize with respiration and then make sure we maximize the time at which the patient choose therapy. That alone will drive therapy outcomes, right? Now the other feature is just allowing the patients to titrate their own therapy. They use their remote control. There's a plus/minus device that helps them turn their amplitude up. Inspire IV had increases of 1/10 of a volt increases. When we go to 5, we determined that wasn't quite specific enough. So now they can walk it up and 0.05 volt increment. So another really key feature going forward. And then there's been arguments out there talking about efficacy of Supine AHI. Supine AHI has been an important part of Inspire since I've been working on the project. And yes, I will admit I started in 1996 working on Inspire, not exclusively. I've done other things, but it has been a key part of it. Everybody knows when you land your back, it's gravity that the tongue falls back. And so we need to make sure that when we titrate our patients that they are in a supine position, such that if they roll to their side, we're over titrating, right? And I think that, that's been an important feature. When I went to the sleep meeting, I found an individual who did his own research. He's from St. Luke's Medical Center in St. Louis. And here's a completely independent study that they did because they heard the talk about it and they said, no, this Inspire works great in supine position. And here he's got data to show it. Very difficult -- I'm so sorry. Difficult to kind of show and read those numbers down here. But not only did he show the conclusion that results suggest that hypoglossal nerve stimulation is effective regardless of sleep position, but this is also new data, right? And we're not talking about comparing to where Inspire was during the STAR trial, which is back in 2012. We've changed our technology. We changed patient selection. We've changed the implant procedure. We've changed programming to optimize outcomes, and we're even getting better. But look at those responder rates of 80% at this independent study. That's impactful. And that's what we're all about is really focusing on the patients. And as we kind of move forward with the therapy, we're going to continue to rely on patient outcomes to drive the therapy because it gives physicians, gives patients more confidence that we certainly have the right therapy and we're going in the right direction. And V is just the start. It's a new platform and allows us to move forward into Inspire VI and beyond. And that's only going to take outcomes even a step further. So very excited where we are with the full launch of Inspire V and making good progress. And you probably have a couple of follow-up questions with.

Yes.

Okay. I'm done.

You promised not to take a hold.

I did not. It's going to run off the clock.

So maybe I want to get inside Inspire V, but just on that last slide, do you have data from your pivotal trial that informs the supine, non-spine?

We always monitor that. We always measure that. It wasn't published with V because it's inclusive of the overall population. Interesting enough, we -- in the STAR trial, we screened out patients who only had non positional sleep apnea, meaning -- they didn't have sleep apnea on their lateral sites, right? So if they only had sleep apnea on the back, we actually filtered them out of the STAR trial. So it's actually a more worst-case clinical study. But yes, we've been monitoring supine AHI since the beginning.

Okay. But there's no data set that you have that...

It's actually inclusive in there. But yes, we get it. Here's data for you right there that should put the argument to bed.

Got it. All right. Going to Inspire V, I would love to just hear what the initial physician feedback has been? You showed obviously a 20% reduction in time. What does that do for a doctor? Are they actually doing extra procedures, Inspire procedures in particular with that extra time?

Yes. Let's back up a little bit and talk about the primary feature of Inspire V is putting the sensor inside the can. And we all know that we have an ear nose throat. It doesn't talk about a thoracic surgeon or putting a sensing lead in the chest wall. So the benefit of not placing that sensing lead is overwhelmingly the #1 comment we hear from all the surgeons and that they're comfortable putting the electrodes around the hypoglossal nerve tunneling, placing the neuro stimulator, but it really streamlines the therapy. So that's primary. The secondary benefit, it's a shorter procedure. right? And so while it's early to be able to start showing data on increased number of procedures in a given day, we know that's exactly the hypothesis with a reduced procedure, it does provide for them to add additional procedures. And we know the highest procedures. I think there's a surgeon in Hamburg, Germany has done 12 cases in a single day. In Arizona and in Texas, there are surgeons who do 9 cases in a single day. That's with Inspire IV. And so as we're able to reduce the time, we do believe surgeons are going to be able to do double-digit cases in a given day, and that really is optimizing efficiencies where they can really stack case days. And that's one of the things that we try to work with physicians. So they understand the efficiencies with that, not just for themselves, but for the [indiscernible] staff, so they know what sterile trays to have in the room. The coding and billing people know what codes they're going to be billing on that day. From a self-free standpoint, from Inspire, we can have our field clinical reps supporting cases in a single site, not having to drive across town to go cover cases on another day. So it's really something that we focus on going forward.

Obviously, it's still a hypothesis, but when -- let's just say the hypothesis gets validated and there will eventually be an incrementality to the capacity spire faster procedures for a minute. It sounds like even if that plays out, that is not going to show up probably until 2026 at the earliest. It takes time to adopt and then to find the time and then to figure out the efficiencies and to do it right. So as a capacity expansion driver, is it fair to say the real benefit of this is going to be probably further into next year? Or could we start to see in '25?

Let me kind of back that up a little bit, too. And I think we'll see physicians increasing their utilization this year. and we want to try to drive efficiencies by getting them on the same day. But there's really 4 groups of ENTs that we're really focused on with the launch. And the low-hanging fruit is exactly what we're talking about. It's taking our existing surgeons who know the procedure, they can get quickly comfortable with Inspire V because they don't put in the pressure sensing lead and to allow them to help reduce their backlog and move cases forward. And so you would see benefit this year. The second group is the partners of the existing surgeons because we can show those surgeons not only their own backlog, but the demand outside the door of the patients waiting to get an appointment to be seen for Inspire, and it's enough of a demand that these individual surgeons can't do it on their own. So it's time to start training their partners. And especially with V where they don't have to be worried about the pressure sensing lead, they can get comfortable around doing that. The third group, for lack of a better term, let's -- we'll call them the dabblers. Those surgeons who only do a couple of cases. And maybe there's other reasons for it, but we believe that one of the reasons is that just the comfort with the procedure and the comfort with the complexity of placing the pressure sensing leads. We're going to go back to those surgeons saying, it's time for you to do more now. And now that we have V, it's back into your wheelhouse as an ENT surgeon, and it's one of these surgeries that you can pick up, and we're going to be pushing those groups because they're already trained, the centers are active, and we can start moving patients to those centers if we can get those centers to -- or those surgeons to really start ramping up with V. And of course, the fourth group is the same. We continue to open new sites. But as we get into Q2, we want to make sure that when we're opening new sites, we're opening them with Inspire V, not kind of opening them with 4 and then quickly transitioning to V. So there is really a really focused area, and we want to see this start to make progress now, right? We're not going to just wait until 2026.

So it's always new product launch, you've got Inspire IV, you have inventory on the -- that you got to work with your accounts to work down. You've got Inspire V launching, there's training. You provided a guidance for 2Q. You said there's $10 million to $15 million of revenue that should shift out of 2Q and you had the Street basically put it into the 4Q. So what I'd love to just focus on is how to think of Inspire V within the context of the next 2 quarters of ramp. What kind of visibility do you have into your procedures such that you were able to quantify that $10 million to $15 million. There was a little bit of maybe patients deferring because they're waiting for Inspire V, but there's also a component of inventory. Just -- is it 50-50, 80-20, walk through that. And then what kind of visibility do you have really in 2Q and 3Q such that you didn't tell the Street to do anything with their third quarter number. You just deferred from 2Q to 4Q.

Sure. I think the way we operate, number one, every single device has a serial number on it, and we know where the inventory is at all times, including after a patient receives Inspire. We track those serial numbers with individual patients for quality reasons, obviously. And so we know what the inventory level is by center throughout the world. And I think that as we manage this, we also know the pipeline and how we know the backlog at individual centers. And we expect the centers will burn down their Inspire IV inventory and either were in tandem, they may have 4s and 5s at the same time. They may take all their 4s down and then replenish with 5. So it's more of a timing.

We've picked up some anecdotal feedback that people aren't working down to 0, that they're actually -- they're okay having a 4 -- a couple of 4s on the shelf. Is that reasonable?

And that's fine. And we continue to sell a 4 today as well. And 4 is going to be available in the future. We're very confident that when centers get up and running and transition to 5, that's going to rule the day. There's no question about that. But 4 will be available because we need to keep the inventory to support the European and the Asian markets. But I think when we start looking at the second quarter, we knew we're going to be a transition period. And it's not just the transition. It's always a disruption with even the territory managers during the second quarter because they have the 3 steps to bring a center on board, train the surgeons, get the contracts in place, get the new programmer in place. But we see the pipeline, and we know we have to work through the inventory. And as we did the limited market release, that's when we started to see more of the patients who want to wait for Inspire V, which is great, and we think that's wonderful. But when we did the guidance, we kind of had that knowledge and we knew when we were going to launch a product. We had a good feel for what the transition period would be, and that's kind of how we kind of laid out that guidance.

We were pretty prescriptive to the 2Q and more so to 2Q shift into 4Q. So I guess one of the questions I've been getting from investors increasingly is how much visibility does the company have, let's just say, the 2Q plays out as expected? Are there some of these trends that could spill over into 3Q and we end up with an even more back-end loaded 4Q, which could be a problem because you have capacity constraint. So can you just help us think through.

When we put the guide out, we take that into consideration. right? We do have visibility to the patients come to our website to making calls to being patients in play, we call it, or patients in process. Our implants, we know the rates at all of our centers with scaling of our sales team. So yes, we had knowledge when we put our guide out there. And like I say, we're prescriptive on the second quarter. And we just continue to run our plan and execute. And we're very happy with the performance of 5. There's no question about it, happy with the rollout. It's a pretty straightforward process to transition centers to be able to take on Inspire V and centers are excited to do so, as I'm sure you've done with your checks.

Any unanticipated either frictions or bottlenecks that have emerged since you went full launch.

Well, I think the one obvious question that people ask us is SleepSync is so difficult to do. And what is -- today, we had meetings with a lot of great investors, and thank you for that. It's just think about if you're going to add software to your computer and you've got at your firm and you got to call them the IT to make sure it's clear to be able to put that software onto your computer. And that's really what it's all about. And we don't tie into the electronic medical records of a facility today. That's long term. We'll talk about that because that's going to be a transition later on because that's going to be a key benefit of SleepSync down the road. Today, it's just about putting new software on the computer and making sure we interface with IT to make sure we're comfortable with that, but we don't interface into their servers or into their networks. And the key to it is we are out of the tablet business. And now physicians and nurse practitioners will use their own laptops, their own tablets to be able to log into SleepSync and all the programming screens are right there. So it's a standard process. It's not really the key challenge. It's just one of the 3 steps.

I guess it's something we, as investors, have just heard a little bit more about in the last 2 weeks from you. So is this something that incrementally is potentially something you have to contend with as a challenge that you weren't expecting when you No. I mean it's something you've always been expecting. you're just highlighting it as something that...

It's a step in the process is what we're highlighting. I think the new programmer was actually approved a year ago, right? And many of the top centers are already on SleepSync. Right? And so the key is going to be just getting everybody else on sleep sync. And we're highlighting is 1 of the 3 steps that you go through to transition to 5.

But nothing that would have altered the outlook you provided previously. This is something new and incremental.

We know all of this when we set out the guide at the last earnings call.

Okay. I think that's helpful. And then, Tim, you have a lot of dynamic kind of market considerations over the next 6 to 12 months. You have potentially rising competition for the first time, right, the new alternatives that are out there. We have GLP-1s in the backdrop, -- we've discussed that ad nauseum. You've got capacity constraints that you're working on building, but the efforts there, including faster procedure times may not all align perfectly on the calendar year. So what I think investors are trying to gauge what's the minimum level of growth that you should be able to power through all of these challenges with such that even if there are transient bumps, is this a double-digit grower? Pretty much no matter what. I appreciate you guided 2Q to below 10%, but that's very, very specific to this handoff from Inspire IV and Inspire V. Is there any reason why you're not a 10% to 15% grower over the next 2 to 3 years, even as you go through all of these kind of -- I don't want to say challenges, but.

Those challenges are what we deal with every day. And a lot of them may play or may not. GLP-1s is still early on. So maybe it's more of a discussion here than it is actually for our field team when they're dealing with patients. Inspire V showing improved outcomes, improved benefits, no pressure sensing lead really is a big play. The demand from the patients is exciting. We're increasing DTC now that we have launched 5 to fill the funnels again, increasing, we're going to solve the capacity problems with surgeons. That's definitely doable. And so as a company, we put our guide out at the last earnings call, and you should see the growth rate associated with that. And we're focused on growth. We're very proud and happy to be able to say we can do that as a profitable company right now. And there's no question about it even going Inspire V, we get an improvement in gross margin. There's no question about that because we don't have to make that pressure sensing lead. The focus for us is to remain on growth. And we're going to keep increasing our DTC. We're going to keep scaling up our business, training more surgeons. But remember, as we train more surgeons and do more procedures, we're going to push the onus to the sleep physicians who have to manage all these patients -- that's what SleepSync is all about. So we're getting all of our centers have to be on SleepSync Inspire V because that's building -- built-in efficiencies into the model to help them manage more patients to optimize those outcomes and really facilitate ongoing growth. So growth is really what we continue to be focused on. But again, we're very proud and supportive of our shareholders to be able to do that in a profitable setting and to be able to generate cash along with that.

Okay. Great. Well, thank you very much, Tim. We really appreciate your time.

You still got 20 seconds.

I got 20 seconds. It's okay. Maybe on profitability.

Yes.

How should we think about that as you balance -- you say growth is the priority. How do we think of this ramp?

So that's a very good question with 8 seconds to answer it. we really want to keep focusing on the growth, but we're going to maintain and continue to grow profitability. And so that's a little bit of a balancing act. But the -- if we can focus on the growth with the strong gross margin that we have, we can show leverage in our DTC, leverage in our field, leverage with the technology, obviously, that we're developing. But technology is everything we're going to keep a strong R&D line as well because we're already working on Inspire VI, gearing up for 7, 8. We're about to start our dual channel device and a big investment into our digital program with SleepSync. So we're keeping our eye on both, but the primary focus is revenue growth.

Great. Thank you very much.