Inspire Medical Systems, Inc. ($INSP)

All right. Welcome back, everyone. My name is Brett Fishbin, Senior MedTech analyst, and I'm pleased to be joined today by Inspire Medical, who is represented by CEO, Tim Herbert; CFO, Matt Osberg; and VP of Investor Relations, Ezgi Yagci. So I'll start us off, and this will be a 100% Q&A session. [Operator Instructions]

But before we talk about some of the recent news, just wanted to start off by welcoming Matt to the conference. And I was hoping you could just kick off a little bit by discussing the start of your tenure here at Inspire, how the first couple of months have gone so far? And then maybe like a couple of your top priorities during this first year and what you hope to bring to the table.

Yes. Thanks, Brett. And I'm excited to be with Inspire and excited to be at the conference today, and thanks very much for hosting us. What drew me to Inspire was being part of a company that has already experienced so much success but still has the opportunity for so much more. You look at the incredible growth of the company, the continued market opportunity that we have to penetrate the market and the further growth of that market that I think will come as people learn more about OSA and the potential related health impacts. To address that, we've got incredible product, and that product has continued to improve over time with each new generation we've released and it's really enhanced our ability to treat patients, and we expect to be able to continue to invest in that kind of R&D and improve as we go forward. Financially, we have an opportunity to continue to drive profitable growth while still making strategic investments in our products and capabilities that are going to support our future. And finally, we've got a great team that's committed to improving patient outcomes and driving shareholder value. The past few months have flown by but I've spent a lot of time learning, learning the business and industry, working with our executives to understand what are the key strategic initiatives and then spending time with my finance team to better understand what our capabilities and processes are today. And I'm looking forward to continuing to learn and be able to add more value to the organization in the future.

All right. Super. And then let's shift a little bit to the most recent earnings call, and we'll ask a couple of questions about some of the reimbursement dynamics. But just thinking about 4Q '25 you guys closed with a pretty strong end of the year close to mid-teens revenue growth for the year and substantial earnings growth as well. But maybe specifically to 1Q '26, I think there are some reimbursement items that were weighing on the outlook, and you're pointing something closer to flat growth in 1Q just given some of the noise. So maybe just a little bit of an update on how you guys thought you ended the year in terms of overall underlying momentum? And then if trends in 1Q are moving kind of in line with what you expected during the earnings call?

Sure. Well, thanks for having us. It's great to be on with you again and for hosting us on the call today. Let me make a couple of comments and then have Matt kind of jump in as well. We did -- back in our earnings call, we talked that reimbursement will have an impact on 2 fronts really in the first quarter and primarily with the coding issue but also with the WISeR program. We'll get into the details, obviously, with each. But despite these impacts, we believe the underlying patient demand remains healthy, and we are taking actions to overcome these challenges. So what's key to reimbursement has certainly been the primary topic for Inspire creating confusion amongst the centers and physicians and many have slowed or delayed procedures as a result. So I kind of want to -- I know you got follow-up questions, too, thought maybe we could just kind of walk through a couple of them kind of set the stage here. And we've had active discussions with all the parties from the AMA, CPT, CMS, the MACs as well as the physician society with the AAO. And all parties are active participants in driving to resolution for the patients. And that's really the good news. Touching base a little bit on the coding front. First off, the long-term solution, a new CPT code application was submitted. It has been through the editing process with the AMA CPT. It is on the agenda for the May 1 meeting, and it is in line with another submission from the AMA CPT on line or Item 12, via Item 13. And really, what it's about is cleaning up 64568 but really establishing a new code for the Inspire V procedure. So hopefully, it will be discussed at the May 1 meeting. And if approved, it will go through the RUC process, and that will be available for use ideally January 1, 2028. So in the interim, we need to develop a bridge and CMS started it out. And CMS recently issued C-codes that are very specific for the Inspire V procedure and really differentiates from 64582, which is the code for Inspire IV. Just last Friday, as part of the process, they identified the payment associated with that, and it does map to the same Level 5 APC as 64582, and that's really good news. And so the C-codes take effect April 1. That means they're online ready to use. They are retroactive to January 1, 2026. And remember, last year, we dealt with this with the Inspire V launch on July 1, same approach. So these will be available April 1 for centers to be able to use and the payment is going to be consistent with what they already paid. In other words, for hospital, the national average Medicare payment will continue to be $32,000 and for ASCs continue to be about $27,000. So it provides good clarity with the C-code for Inspire V and takes care of the first bucket. The next step is working on the professional and surgeon reimbursement. Now the direction we've been providing centers at this point is to bill the policy and the policy states, bill 64582 without modification. And that's what we've been instructing centers to do. Centers have been doing so, and they have been receiving payment, albeit it does cause confusion because if you look at the certified coders and they look at the descriptions of 64582, it doesn't necessarily read across to the Inspire V procedure. And they asked the questions about modification. So it's important that we work with the MACs to say we'd like to see some clarification. As they go around and update the LCDs to incorporate the C-codes, we're asking them to make a statement as well to clarify the surgeons that they should be billing 64582 without a modifier or to provide clarity so people understand the process going forward. And this is going to be our bridge to January 1, 2028. The last thing I know we'll get into a little bit more is the WISeR project. It's new this year. It's in effect in 6 states, and it's the -- where the centers must submit to the WISeR program to gain prior authorization for Medicare cases in those 6 states. And initially at the beginning of the year, we had a little bit of challenges with the coding aspect, not uncommon with the other Medicare cases in other states. But we also have the technical issues with the prior authorization, and we're learning from that. And we're getting greater experience. So if a case gets denied, we can understand why to make sure that information is included and other prior authorizations to help streamline this process. So it has caused delays and frustration for the centers in those 6 states but we're working through it. We're gaining experience to help them kind of understand what the minimum requirements they need in the prior authorizations. And as we move forward, we'll use that experience to kind of streamline this a little bit more forward. I'll stop there. Matt, do you want to jump in?

I'd only add, Tim, as you mentioned clearly, these things are impacting our business in the first quarter, and we called some of that out when we talked about it. And what we're getting -- still getting new information up to, including last week. And as the kind of the time and manner of how this plays out to get further resolution, we're going to bake that into our forecasting process as we think about the rest of the year.

I think -- yes, I mean, I think all of that makes sense. Just given there was a lot there and a lot of like new news, I do want to unpack that a little bit more. But I think like high level, it makes sense, and it's also very fair to say that during the quarter, there were more changes than originally assumed. So I can definitely understand like just a little bit of like a period where everyone needs to figure it out. But maybe just like specifically for the physician fee, the facilities you mentioned are back to billing 82 during the first quarter. And just curious like if you have any data points or like feedback on the potential use of 52 modifier in any cases? And like if you were able to get any data points around like what the change would look like if it was closer to 10% or 50% kind of like the range that you talked about on the last earnings call?

Yes. So, so far this year, we don't have a lot of experience with use of a modifier at all. Really, what the focus has been is bill a policy and bill a 64582 and all MACs have received and we've been paid with that procedure at this point. Again, that causes some confusion with the coders at the centers because of the descriptor of 64582. And so again, we're asking the MACs to -- as they update the LCDs with the new C-codes to also provide a little bit of guidance for the surgeons so they understand if it is going to be 64582 without a modification to so state or if they are going to be asking for modification if we can get consistency across the United States. So right now, it's continue to bill to policy, which is bill 64582 without a modifier.

And then I also just wanted to ask, I mean, you touched on the C-codes but I think this is the first time that you've had a chance to really talk about that. So maybe just like at a high level, what your impressions are of this, I call it, temporary measure before you go through the RUC and try and work towards the dedicated code. Just like your overall thoughts on this more specific C-code that matches the procedure versus using 82 in the interim period.

Sure. Well, again, CMS has been very active in the process. They've understand what happened. I mean, last year when we were using 64568 for 10,000 Inspire V procedures and people were accustomed to using that code. And the disruption, of course, with the New Tech APC. And so CMS looked at that. They really understand the issues, and they wanted to find a bridge to be able to get to the new CPT code. The C-code is a great tool for them to be able to introduce that. So the C-code description is really closely aligned with Inspire V. And that's why CMS did that. They also introduced several other C-codes as well. But what's important for us is we now have that bridge to be able to carry us forward until the time that a new CPT code is put in place. But again, this is really for facilities, and it's up to the surgeons who will continue to bill the CPT codes in this case, 64582. The good news is we expected that when they come out with the C-code that they would map to the same Level 5 APC with the existing 64582. So not a lot of surprise there. But nice that we have that confirmation in hand right now, we can kind of lean in and work to get the clarification next on the surgeon payment and then finally go to work on the new CPT code on May 1.

No, it makes sense. And definitely, more clarity is good. But maybe just on that point, like I think I agree with the assessment that like the C-code description makes a lot of sense, and it's good that the facility payment is consistent with 82. But I guess like the one question I had is it seemed like with the transition to 2, we were kind of like moving into a more stable backdrop where like customers knew how to bill and like knew what was going on. So I'm just wondering if you think that like this additional change is likely to cause like material disruption as everyone kind of like has to figure it out again, like how to bill properly.

Well, I think it's something that we need to make sure centers are aware of and make sure that we communicate that with everybody. The good news is it's pretty consistent just going from 582 to the C-codes. They know what the reimbursement is going to be. So there's not a lot of surprises there. Maybe switching a little bit to commercial. I'm sure you'll have a question about that. But the commercial, believe it or not, is still using 64568 because we bill the policy, and that's what's in their policy. And -- but those again are prior authorized. And so for the most part with the centers, it's just for the Medicare cases to get them to transition to start billing the C-codes after April 1.

And then my other follow-up on the C-codes, you kind of started to talk about it a little bit, just like the impact on the physician fee coding, if you have any thoughts on like how that plays out? Like presumably, once everyone is on the same page, the facilities are billing to the new C-code, no change in facility reimbursement mapping to the same EPC. But like how does it work? Or how do you expect it to work with the physician fee coding?

Well, the MAC will go through and update their LCDs to add the C-codes in there. And again, our ask with the MAC is to please clarify for the physicians, the professional fee reimbursement should be built with 64582 to get commonality across the U.S. if they want to introduce a modifier right now, what would the reduction of that modification be. But again, right now, building the policy is 64582 without a modifier and that's been accepted and paid so far. We just would like the MAC to really kind of clarify that and be comfortable going forward because it does cause that little bit of confusion with the centers and the coders because the descriptors of the CPT codes don't really read across as well as they should. So that's our second key factor that we'll continue to work on right now.

All right. Perfect. And my last reimbursement question, you also kind of started to discuss and one of them was about the RUC process. And it sounds like that's still the preferred long-term route is establishing a Category 1 code that could become effective in 2028. So I guess I'll just like to ask the last 2 in 2 parts, if you have any additional thoughts on like that process and potential outcomes or timing. And then the other question is on commercial because I was starting to think if the commercial payers are billing [ 68 ] then like does that lead to some level of like pull forward in 4Q? Or is there like an earlier time where the private payers could like realistically reassess their coding before 2027? So maybe if you have any thoughts on either of those 2, and then we can kind of move on.

Sure. Well, let's start with the CPT code application. That was submitted a while back, and we've been through the editing process to make sure that the application is complete. Right now, it's all for open comment period. And then when the comments are collected, they will be discussed at the May 1 AMA CPT Panel Meeting. And as I mentioned before, we're Tab 13 right after the AMA has an application to clean up the 64568 code in Tab 12. So you have the material in place to be able to go and review that. If approved, it will get turned over to run the RUC process, which is valuing that. And that's when they will survey physicians to make sure they get the proper amount of work identified for the Inspire V procedure and generate the proposed RVUs, relative value units, such as when that code, if approved and becomes available on January 1, 2028, it comes with full reimbursement set. That really is the long-term solution and a code that's going to be specific for V. But as we mentioned before, the C-codes and the physician coding is really the bridge to get us to that point. From a commercial standpoint, we worked really hard last year to get 64568 incorporated into all the commercial policies. It is there, and we continue to utilize 64568. Remember, commercial and Medicare Advantage cases are all prior authorized with the commercial payers, and we do submit that CPT code as part of the prior authorization process. So therefore, the centers have an authorization letter to move forward. Once the C-codes are in place, do we expect that the commercial payers will eventually transition over? Probably, and that's fine. We'll be able to pivot around that as well and just update and adjust the prior authorization submissions to the commercial payers. And again, those are all contracted rates. So it won't affect really the reimbursement for the centers or the physicians. And that we could stay with 64568. But I think eventually, they may go to the C-codes but they also know that in '28, they'll switch over to the new CPT code.

All right. Perfect. I think that was pretty comprehensive in terms of the reimbursement updates. And maybe just to kind of wrap this all up, just thinking about like the guidance and the flat expectation in 1Q, 4% to 10% for the full year. Just kind of wanted to ask the same question that came up on the earnings call, just about kind of like getting comfortable with the range given the level of change that's taking place? And maybe just like how you think about visibility through the year?

Yes. I mean, look, right now, as we stepped into the guide for the year, there was a lot of moving parts that were taking place. As we've gone through Q1, we're learning a little bit more. We've got hopefully some more data points that will come out here in the following weeks. And I think the biggest thing we look at is the timing and the manner of kind of what we get more clarity on the open items and coding can really change the outcome of this year. So we're watching that. We're watching our current trends. And then as we get into our forecast process, we'll take a look at the rest of the year. But there's things happening to us from the external perspective. We're doing things internally as well. We have a lot of active programs on how do we continue to convert customers further through our pipeline more efficiently? How do we make sure our marketing dollars are spent really targetedly. So we're trying to do some things internally to take action where we can to be as efficient as possible. And then we're watching, of course, what's happening externally and then bake that all into our next forecast process.

Perfect. Yes. No, I think all makes sense to me. And let's shift gears a little bit and talk about Inspire V and some of the innovation and data that you guys are bringing to the market. I think we kind of had to touch on some of the reimbursement stuff but you mentioned that underlying patient activity is healthy, and there's a lot going on with the actual product launch. So let's kind of get into that. And hoping we could maybe just start with like an update on where you are in regards to the full -- like full market launch of Inspire V. If you have any updates on like what percentage of customers are live on SleepSync and just how like the overall, call it, like latter phase of this launch process is going?

We're fully launched in the United States. The acceptance of Inspire V has been very strong. And that's what's so encouraging for the team and the health care providers and watching the performance of V, the comfort that the ENT surgeons have in implanting Inspire V, especially not having that pressure sensing lead is a significant positive change for this platform. I think from the metrics we used to talk about from surgeons trained to contracts signed to SleepSync programmers, I think over 90% of the centers are all engaged with Inspire V. We have good inventory right now to be able to support the Inspire V implants and the launch is complete and we're moving forward.

And then I think also really interesting is over the past couple of quarters, you've started to publish an increasing amount of clinical data that directly speaks to Inspire V outcomes even compared to prior generations of the product. So you've had 2 different studies. And in the original Singapore study, one of the data points that you've talked about a little bit is the improved inspiratory overlap. And I was wondering if you had like any new thoughts on -- or just updated color from the customers or surgeons on just like how the improved sensing and respiratory overlap is translating to better patient outcomes.

Absolutely. let's kind of talk about a little bit of that data, too. We know that the airway collapses during the inspiratory period. So the design of the Inspire system is to be able to detect when patients are inhaled versus exhaled and timing or stimulation of the hypoglossal nerve during the inspiratory cycle of respiration. That is what we define as the inspiratory overlap. I think before we kind of get into that, I just want to look at a couple of key things of the Singapore study that's so important. We use the same parameters as we have over the years. And the #1 measurement is the Sher criteria, Sher, S-H-E-R, doctor that identified the acceptable performance or a responder rate analysis. And what we saw in Singapore is a 79.5% responder rate. Now that means you have to have at least a 50% reduction in AHI, apnea-hypopnea Index and the result in AHI had to be less than 20%, 79.5% success in the responder rate. That compares directly to like our own STAR trial back in 2012, which reported a 60 -- actually 64% responder rate. That's the data for which you're saying competitors compare against. So over the years, we've really kind of changed the patient selection criteria, the implant techniques now, of course, going to the fifth-generation device. What's key to driving the successful outcomes is the inspiratory overlap. And what we've shown with Inspire V using an accelerometer that's now inside the neurostimulator is we're able to get up to 87.1% coverage of a respiratory breath, inspiratory overlap. Are we providing stim when the patient inhales? That compares to the Inspire IV at 79.4%. So a statistically significant improvement even over the Inspire IV device, which was very, very effective. So really excited about that. The second element to it is the surgeons don't implant the pressure sensing. As we all know, putting that lead in the intercostal muscles has always been a little bit of the uncomfortable part of the technique and not having that has really helped surgeons reduce the operating room time, make it more in their wheelhouse to be able to do the procedure and it has improved reliability because the #1 culprit and the reason patients have to have a revision is exactly that pressure sensing lead. So removing that, it's good for the patients with a little bit of improvements there. So really excited about V. We have -- we no longer manufacture Inspire IV units. In fact, we're converting that line over to a second Inspire V manufacturing line. And so we have strong inventory to support our activity for the rest of the year.

All right. Great. And yes, I think it's important that we'll talk about the competitive landscape but it's important that everyone compares to the most recent data and most recent product on the market and not the original STAR trial. And then just maybe just continuing on the clinical data point, you've started to also release some of the findings like from the initial U.S. Inspire V procedures across the 11 centers that are originally participating. So maybe just unpack like some of the key findings that you reported from this cohort of patients. And I think like most interesting is around like the median AHI outcomes compared to baseline.

Well, I think the first one is in the U.S., we're able to use our SleepSync system and the patients are engaged with the patient app. And so we can closely track adherence to therapy, which is really important. If patients don't use therapy, they're not going to get benefit from it. And so what we're able to show is patients are using therapy 6.3 hours a night at 6 months. And that's really a tremendous usage, meaning the people are using the therapy every night, and that really has a significant impact. AHI is improving across centers from on average AHI 30 to below 10 events per hour, which is really, really strong. And really the feedback from the surgeons is consistent with Singapore with reduced OR time, comfort and not having a pressure sensing lead and a significant reduction in -- or improvement in the revision rates and as well as expire rates because we track that on an annual basis as well. So we're going to keep trying to push to get a lot of this data to publication but we've been able to present that at a lot of the physician conferences over the last year.

Yes. I mean you also have talked more about some of the technical innovation and improvements with Inspire V and a couple of features that you reported to metrics on like the smaller step size adjustments and the ramp and start impulse. So you gave some metrics around like what percentage of cases are using those new features. So I guess like my question is, do any of the 3 that you're reporting on stand out as most incremental or you're getting the most positive feedback on? And then also, to what extent do you think these can be like better leveraged as the centers start to kind of get like a handle on some of the new improvements versus prior generations?

These are 3 examples. We have over 125,000 patients that received Inspire and we're able to kind of get feedback on what works and what areas we need to improve on. And when we talk about things like step size, when patients have their own remote and can turn their own therapy up, well, now we provide a little bit more specificity to it, and they can go up in smaller voltage steps. We have the ramp features that are really important. So instead of the device turning on, now it can turn on in a more gradual, more comfortable way for patient adherence. So really, it's about improving the patient experience just across the board. And I think as centers become more advanced and using these, you'll see those are pretty commonly used across the board.

Also wanted to ask software. It's something you've talked about in the past but just thinking about Inspire V as an upgradable system, that's something really new. And I think on the most recent call, you started to talk about some of the R&D activity taking place around software improvements. So maybe just dive in a little more to what some of the incremental features that you expect can be eventually upgraded on the same hardware. And maybe just like generally, how you think about potential cadence of the software updates for Inspire VI and eventually Inspire VII?

Yes. I think what's really excited about is Inspire V is a platform. It's not just onetime device. And so Inspire VI is a firmware upgrade to V5. And what we expect out of 6 is sleep detection. And so when a patient falls asleep, the device will turn itself on at night. And when they get up, it will shut itself off in the morning. And that's only firmware changes, and that's just the beginning of this. Eventually, we want to get into be able to determine if patients are having events and be able and eventually have a device that will auto titrate just like AutoPath. So we're years away. But right now, 2026 is really a development year for Inspire VI and building the algorithms. And then, of course, we -- the FDA has a period of time to be able to review that. So we're in the development cycle for VI right now but we already have line of sight for several enhancements to follow right behind that.

I think it's exciting and probably something that can move to the forefront in future years as you get closer and some of the other topics hopefully stabilize a little bit. So definitely more to come there. One other thing that has stood out to me in the presentations, and I don't know if it's been discussed much is the concept of therapy evolution built in, which is like different than just software. And I was hoping you could maybe touch on that. I think there was a point about multiple electrodes and new stimulation targets. So any like early thoughts on those items would be great.

Well, V again, is a platform. And in Inspire V, we have multiple output circuits today. We only use one port. But again, bringing GLP back in. GLP-1s are going to be effective but we are doing research on a high BMI device, if you will, which is a dual channel device that Inspire V is a platform that allows us to do multiple channel stimulation as just one example. And so we are conducting research on it right now to see if there's a different mechanism that can help pull down the strained muscles, help deal with the lateral walls associated with high BMI. So we're active with that development. And we continue to look for other alternative approaches to leverage our strong technology, and we'll report back on that in the future.

Yes, definitely more to come. I think net-net, it's exciting, and you talked about like 80% type of responder rates but there's still so much more to come in terms of they get better titration, like more specific detection of sleep, so better adherence and then the things you're looking at longer term. So we'll follow up on that in future years. The last topic I wanted to ask about is really competition. So this is the first year that you're facing like an actual full year of new competition in the HGNS category with Nyxoah. So I just wanted to ask like kind of what you're seeing in the field and kind of like what you're thinking in terms of the impact on centers trialing the new device and just like how you think about that in the context of your guidance for the year?

Well, I think we incorporated a small amount in our guide just to certainly recognize that centers will trial new devices. It's their job to make sure they understand what's out there and the expectations are very high. And as we got them talking about the experience of Inspire V really puts expectations on any kind of new technology. So we know people are going to trial the device, and we're okay with that, and we kind of built that in but we make sure that they really understand that they can count on Inspire V. They know the outcomes they're going to get. They know the consistency with taking care of their patients and the support they're going to get from Inspire. So we stay in close contact. We monitor it closely. But again, not too heavy to date.

All right. Perfect. And then maybe in our last 2 minutes here, a question for Matt. Just thinking about profitability, which has improved significantly over the past couple of years and you're starting to progress to respectable operating margin. But just thoughts about like how you balance at a high level revenue growth and all these investments in product improvement with earnings growth? And maybe just kind of putting into context how big of a priority earnings growth is along with revenue growth. And if you guys had any other final thoughts to leave the group with, kind of sign off with that.

Yes. Yes. Thanks, Brett. Yes, I mean, definitely, we're looking to drive profitable growth. And the way we've gotten here is continue to make the right investments. And we talked about product development and make sure we've got the best product on the market. And then we've done some unique things in the patient journey and getting DTC, and we're going to continue to make those investments. We want to continue to drive growth but we do want to continue to improve our profitability, and that's going to be the balance of what we do here over the next year and beyond.

Brett, I'll grab a minute just to say we have the best product in a very large underpenetrated market. Our technology helps patients live better, healthier lives. And we're going to continue to show evidence that how Inspire when used is helping people reduce major cardiovascular risks. That was a big data point in 2025, we really want to kind of lean in on that. And we're going to work hard. We've got to be able to resolve the challenges with reimbursement and WISeR. We know that's our focal point right now. But the good news is we have a pretty strong technology and people to be able to weigh in once we get through the reimbursement challenges. So again, thanks for hosting us again.

Yes. No, same to you. Thank you so much, all 3 of you for participating today. Thank you to everyone who's tuning in to listen and hope everyone's conference goes well for the rest of the day and tomorrow.

Great. Thank you.

Thanks, Brett.