Q3 2019 Earnings Call
Greetings welcome inspired medical systems incorporated third quarter 2019 earnings call.
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A question answer session will follow the formal presentation.
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Please note this conference is being recorded.
I'll turn the conference over to your host Mr., Bob Yedid with like Fivefive Sir.
You may begin.
Thank you Jesse and thank you all for participating in today's call.
Joining me are 10 for Burke, President and Chief Executive Officer, and Rick you halls, Chief Financial Officer.
Earlier today inspire released financial results for the third quarter ended September Thirtyth 2019, a.
A copy of the press release is available on the company's website.
I'd like to remind you want to call that management will make forward looking statements during the meeting the federal Securities laws.
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Statements, including our discussion of operating trends and our expectations of future financial performance, including full year 2019 guidance and our expectations with regards to near and long term growth potential our business.
Based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ.
Accordingly, you should not place undue reliance on these statements.
See our filings with Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the FCC today for a description of these risks and uncertainties.
Inspired disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise. This conference call contains time sensitive information that speaks only adds up.
This live broadcast today.
November <unk> 2019.
I would those remarks, it's my pleasure to turn the call over to Tim Herbert CEO Tim.
Thank you Bob and thanks, everyone for joining us today I would like to walk you may do our 2019 third quarter earnings call.
Hi, I'm extremely pleased to report that once again the team's efforts have resulted in very strong result.
I will provide you with the details around what constitutes there continues to drive our consistent progress.
And our CFO Rick do you all its will follow with a detailed review of our third quarter financial results father, and that's well open up the call for your question.
Yeah. They do every quarter, it's important to restate, our most important goal that the team and inspire and the health care providers, who prescribed and support uninspired therapy continue to be fully committed to delivering positive it consistent patient outcomes, but those are the untreated obstructive sleep apnea there.
Has ben and well continue to be our mission that inspire and we believe this will lead to continued growth and therapy adoption globally.
Regarding our strong performance in the third quarter 2019, we continue to execute on our balance commercial growth strategy, which is primarily focused on the U.S. market and with the objective of first increasing patient flawed existing centers and second training and opening new implant et cetera.
Yeah.
Let's get into the 2019 third quarter results.
Our worldwide revenue was 20.9 million increase of 60% compared to the third quarter 2018.
During the quarter, we added 21, new U.S. implanting centers.
And in the period with a total of 266.
Further we added seven new territories in the U.S.
Bringing our total to 66.
Let me expand on this during our second quarter call, we announced the expansion of our U.S. sales team with four area, Vice President and plans to increase the number of regional managers from nine to 13.
Several of these additional regional managers were internal promotions from existing territory managers.
We have backfill those territory managers positions as well as adding the seven new territories, which brings us to our current state 66 territories.
As a comparison at the highlight our expansion at the end of the third quarter a year ago, We had 184 centers.
At 40 territory managers.
These new centers that territory managers will have a positive impact on our long term girl and we're therefore, increasing our guidance and expect to open between 15 and 17 new centers in the fourth quarter.
As well is maintaining our guidance of adding four to five new territories during the quarter.
As always we will do this in a controlled manner, ensuring that we hire the right people and opened centers and a methodical and well disciplined approach.
[noise] like to now turn to market access or reimbursement.
Where we continue to execute on our two key strategies, which are to expand the number of positive written coverage policies and concurrent with this process continue to obtain individual prior authorization.
The most significant progress here is the substantial growth and positive coverage policies.
Specifically, we currently have 45 positive policies for inspired therapy, representing over 145 million covered lives.
This includes four previously announced plans the most notable being Carefirst Bluecross Blueshield, which covers approximately 2.7 million members and Maryland, The district of Columbia, and Northern Virginia.
Became effective August 28.
As a reference point there were only 25 million covered lives just one year ago.
We continue to work with all the remaining pairs in the U.S., who have not yet written coverage to encourage them to conduct in depth reviews of all the published literature documenting the clinical evidence of inspire therapy.
We expect that our momentum with these positive coverage policies will continue through the end of the year and into 2020.
Medicare is another area, where we demonstrated significant progress in the third quarter with the publication of six local coverage determination by the Medicare administrative contractors.
The publication of the six draft LCD covers approximately 30 million Medicare patients and 44 states.
Just want to remaining Mac, Wisconsin physician services, which covers approximately 4 million Medicare patients in six states.
Has yet to publish a draft LP LCD for coverage of inspired therapy.
Regarding this process.
Wants a draft LCD as published it has followed by a public meeting and a 45 day public comment period.
Once public comments I collect didn't reviewed a final LCD is issued several months thereafter.
We are pleased that the mats are coordinating their efforts to ensure consistent Medicare policy across the Max.
And all six of the Max who issued a draft policy have already conducted their public meetings.
This coordination may add a little time to review comments and coordinate the final LCD is but we expect that these final LCD is will be published early next year.
Further.
We will continue to encourage Wisconsin physician services to publish the draft LCD and 2020 and with the other six Max haven't formal policies in place.
We expect that they will follow suit soon not soon thereafter.
Turning to prior authorization metrics I will review, how all of the new positive coverage policies have improved these metrics.
In the third quarter of 2019.
Our internal reimbursement team supported 812 prior authorization submissions.
This compares favorably to the 661 submissions in the third quarter of 2018.
As well as an increase from the 735 submissions in the second quarter of this year.
In terms of prior authorization approvals.
672 patients received an approval in the third quarter of 2019.
This compares to the 373 approvals in the third quarter 2018.
As well as an increase from the 581 approvals in the second quarter of this year.
Regarding prior authorization success metrics.
We ended the first nine months of 2019 would then overall approval rate of 76% and for those patients that completed the entire appeals process. The approval rate was about 90%.
As a comparison it to highlight the positive effect of the new coverage policies. The overall approval rate in 2018 was 59% and 77% for those patients completing the entire appeals process.
The average number of days for a prior authorization approval for the first nine months of the year was reduced to approximately 50 days as compared to 2018, where the average time to receiving approval was approximately 125 days.
These are slightly higher than the second quarter report, which is natural as there has been more time for the appeal process for the 2019 submissions.
Another way to look at this data is the median time to approval.
Immediate number provides a more accurate view of the overall sample as the average your mean calculation is biased from the few cases within extended review process.
For the first nine months of 2019. The median time to approval was 25 days versus 2018 median days to approval of 100 days.
Therefore significantly more patients are receiving approvals at the initial prior authorization stage and not having to go through the appeals process.
In the short term.
We will continue to report on these metrics, but are long talked term goal is to reduce the burden of individual prior authorization by working with commercial payers to develop positive coverage policies.
Yes, these metrics will likely become less meaningful in evaluating the overall progress of our business going forward.
We continue to further develop the published clinical evidence of inspired therapy in support of our adoption and reimbursement efforts.
To this end, we recently published data from the first 1000 patients enrolled in the adhere registry.
This large dataset continues to demonstrate that inspire is a safe and effective therapy with high patient satisfaction.
We expect to other key publications prior to the into 2019 and these can include comparison trials against no therapy or alternative therapies.
Well, we have long talked about the importance and effectiveness of our direct to patient initiatives.
This strategy continues to be successful, then reaching and educating prospective patients buttons for therapy, and we remain focused on broadening these efforts to correspond with a growing number of U.S. implanting centers.
We were excited in the third quarter to rebrand inspire and larger new web site at inspire sleep got dot com.
We have received very positive feedback from patients patients honest ease of use and the utility de educational resources provided.
As of the ended the third quarter the number of visitors to our website has exceeded 3 million year to date, which is an increase of 84% year over year.
In addition, 400000 physician searches have been conducted an increase of 27% year over year.
Moreover, there were 30000 physician contacts established via the web site, representing an increase of 40% year over year.
In addition to our new web site during the third quarter, we began testing TV advertising by airing commercials in three markets, Pittsburgh, Kansas City and Cleveland.
In the fourth quarter, we expanded this to six additional markets, Philadelphia, Chicago, Phoenix, Birmingham, San Francisco and Denver.
We will continually measure the effectiveness of TV advertising and plan to expand further and 2020.
I would like to make just a few comments on our international activity as Rick will report Europe again had a very strong quarter. This was primarily driven by an increase in patient flow at several of our key centers and Germany in the Netherlands.
We have been very successful and increasing adoption in these countries, resulting in additional attention from the commercial payers.
This has to be expected in Europe and May impact adoption out a few centers in the short term, but we do not believe this will have a significant impact on the overall growth of global therapy adoption.
We continue to drive towards a reimbursement decision in Japan and have been actively engaging with the authorities to work to a decision on the reimbursement of inspired therapy in that country.
We remain confident and achieving a mutually agreeable solution that could allow us to execute a limited product launch in 2020.
Switching gears to our R&D activities.
Spires product development team continues to work to improve the patient experience, while maintaining and enhancing therapy outcomes. This is a very important initiative for the company and we have made a significant investment to further advance our technology.
The inspire cloud project, our cloud based patient management system continues to progress with the addition of centers using this tool.
2020, we will launch the inspire app on patient smartphones, which will further involved the patients and managing the always say as well as create interconnectivity through inspire cloud.
We also have active projects to improve the physician programmer and the patient remote control.
Longer term the design activity for our next generation Enspire five neural stimulator is ongoing.
We anticipate that this will be a multiyear effort to develop the inspired by device and gained regulatory approval.
We are actively conducting feasibility trials with several technology innovations, which will make the inspire five neuro stimulate a state of the art and will significantly improve the performance of the system, including reducing the complexity of implanting the system.
In summary.
We are thrilled about the direction of our business to reiterate what I have said before our primary goal is to generate the highest therapy outcomes possible for patients. We continue to execute a focused growth strategy aimed at first increasing penetration that existing centers.
And second expanding the number of implanting centers as well as adding territory managers.
Along with further advancements in reimbursement, including Medicare that build upon a recent positive coverage decisions are growing body of clinical evidence and a strong balance sheet. We're confident that we remain well positioned for long term success.
With that.
I'd like to turn the call over to Rick for his detailed review of our financials.
Thank you Tim we're extremely pleased with our financial performance to date in 2019 with the growing market demand. We are experiencing from inspire therapy, we continue to demonstrate significant top line expansion.
For the third quarter of 2019 total revenues were 20.9 billion, a 60% increase over the 13.1 million generated in the third quarter of 2018.
You asked revenue in a third quarter was 18.6 million an increase of 65% over the 11.3 million in the third quarter of last year.
Our U.S. average selling price was 23900 in the third quarter compared to 23200 and the prior year period.
The higher ASP was driven primarily by our new sensing lead which was introduced to the U.S. market in February 2019.
In the third quarter European revenue increased 27% to 2.2 million from 1.7 million in the third quarter of 2018.
This increase was volume driven primarily an existing territories, but also through the expansion of our European sales reps into new territories.
During the quarter the European ASP was 21700 compared to 22700 and the third quarter of 2018.
The lower ASP was driven by changes in foreign currency exchange rates.
[noise], our geographic mix of revenue in the third quarter was 89% in the U.S. and 11% in Europe .
Our gross margin in the third quarter was 83.4% compared to 81.1% in the third quarter of 2018.
Improvement was primarily due to the introduction of the new sensing lead in the U.S. in February 2019.
As we were able to achieve manufacturing efficiencies with both the new sensor and the stimulation leads which share common materials and processes.
Total operating expenses for the third quarter were 26.1 million, an increase of 71% from 15.2 million in the third quarter of 2018.
This increase was primarily due to higher employee related expenses with the expansion of our sales organization as well as increased direct to patient marketing programs and continued product development efforts.
Our net loss for the third quarter was 8.2 million compared to a net loss of 4.7 million in the third quarter of 2018.
The diluted net loss per share for the third quarter of 2019 was 34 cents per share compared to 22 cents per share in the same period last year.
As of September 32019, our cash cash equivalents and investments totaled 161.2 million.
Compared to 188.2 million at December 31, 2018.
With our strong cash position, we do not have any current plans to raise additional capital.
Turning to guidance, we're increasing our full year 2019 revenue guidance and now expect full year revenue to be in the range of 78 to 79 million representing growth of 54% to 56% over 2018 revenue of 50.6.
Million.
This compares to the prior revenue guidance of 73 to 75 million.
In addition, we now expect gross margin for full year 2019 to be in the range of 82% to 83% compared to our prior gross margin guidance range of 81% to 83%.
The weighted average number of shares outstanding for the third quarter was 23.9 million.
We anticipate the weighted average number of shares for the fourth quarter of 2019 will be approximately 24.2 million.
In summary, we were very pleased with our financial performance in the third quarter and the first nine months of 2019.
We're confident that our balanced growth strategy positions us well to maintain our positive momentum through 2019 and into 2020.
With that we are concluded.
Yes. He could you please open up the call for questions.
Thank you at this time, we will be conducting a question and answer session.
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Your first question comes from Jon Block with Stifel. Please go ahead.
Thanks, guys good afternoon.
Nice quarter, I think I'll start in the U.S. solid numbers, you talked about the DTC campaigns I guess, Tim how are you measuring the return from that spend in the early days you know this is clearly not like an impulse purchase. So what metrics are you guys looking towards a website heads as a contacting centers that you're using.
I mean, if you even want to get more aggressive with this initiative in the coming quarters.
Yes, thanks very much John how are you at we like to use the term conversion.
And as we tracked our metrics years back you've been you've been following inspire for some time in and you know how we track everything from the web.
Hits, we get to the to the people doing physician search as to the physician contacts that we get but we also look to the receiving end on centers.
The inbound calls the centers the increase in those calls and their ability to bring those patients through reimbursement and eventually to implant. We tracked that very very close to want to can continue to improve that process one step at a time.
I think the big breakthrough is this year, we're simply reimbursement really helps patients get from the diagnose phase to the implant phase without that long frustration of going through the prior authorization Appeals and now is the area that really allowed us to expand the front end and rebrand.
Being.
The inspire and the new web site.
But then it was time now that we have the reimbursement that we could start pushing or the direct to consumer and trying to deleverage and the results have been very solid to date as we've seen from the end bound to the website as well as the physician contacts and we specifically track that in those three markets and ran that.
With testing again, three control markets without television and we can see the benefits and so we are expanding that test to six additional markets in the fourth quarter. So we're really able to to track to the metrics in great detail and really the theme going forward is about improving our conversions and making that therapy.
Our available for patients.
Got it very helpful. Let me see if I can lay out the second one effectively the beat in the quarter was healthy, but the raise was even bigger and so maybe if you can just talk to the cadence throughout the corner in into four key you are you seeing some of those commercial policies I think a little while to get going how those accelerated recently is that a better feel that you have.
We'll now some of the Max coming online maybe if you can just talk about the momentum and the underlying business, notably in the US thanks guys.
Thank you very much John I think the key is commercial approvals and really driving all that and what allowed us to increase our our full year guidance. So significantly was we're really seeing the trend with the commercial payers, specifically with United Health care.
As an example, we've had not quite as many approvals in the third quarter as we had during the first half of the year.
Well at the Great majority of those approvals are now at the Predetermination stage of the very first in a request into United healthcare, whereas in the prior for in the first half the year. Most of those cases would have to go through the full appeals process that is really the big change that we're seeing.
Hang in the third quarter, we expect to see further into the fourth quarter. As these commercial policies are put in place and we're really able to help patients get approvals much quicker we talked about the median time being down to 25 days and the greater.
Percentage of those cases being approved on the first prior authorization Medicare is gonna be a little bit longer. So we think Medicare as proudly we'll have more of a impact in 2020 as we're working through the public comment period and the implementation of those formal lcds so that will take.
A little bit longer to implement and so really the fourth quarter is based of what we're saying with a lot of the commercial payers.
Fair enough thanks for it.
Thank you. The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Hey, guys. Thanks for taking the question and congrats on another nice quarter, let me pick off a pick up where where John left off and.
When we look at the full year guidance for 2019, 55% growth at the midpoint.
And the Tailwinds you have such as Medicare Tim that you just mentioned commercial reimbursement.
New territories in Japan, why should growth slow in 2020, you could make an argument that could even picked up so maybe any color on how we're thinking about momentum next year and some of the puts and takes would be helpful.
Well, we as we've always said before Larry.
We always put off guidance that we have confidence and numbers that we will achieve and while we're seeing great promise with the commercial payers and evidence that the prior authorizations are improving dramatically we haven't seen the immediate results of Medicare and testing the drag.
After lcds to see if they will be good stewards and tell the Max is the Max will be good stewards and tell such time as those.
Formal policies are released so there is potential upside there with the Max as we proceed ended the fourth quarter to see what the response is with the 44 states that have these draft policies right now and if we can get to impact in the fourth quarter or if that will delay into 2020. So we.
I remain confident and therapy, we significantly increased our guidance as you mentioned and but we still are watching a couple of potential headwinds with the Medicare and we still have a couple key payers that we need to chase down and influence to be able to write policy, including anthem.
Okay and I don't if you are sounds like you're answering about Q. The Q4, I'm talking about 2020, and how you're feeling about next year and any kind of puts and takes that we should think about next year. So just wanted to make sure.
I was clear my question that I did have a couple of follow ups.
Okay and not a problem.
I think it 2020, we are going to continue to run our plan and we're going to continue to open new centers and continue to add territory managers and grow the business, we're not putting out 2020 guidance at this time there's more.
Things that we need to investigate including the Medicare that we talked about so we're not going to push in that too far, but we think 2020 looks extremely exciting for the organization. We're going to continue our hiring we have a strong balance sheet, we have great evidence showing.
Efficacy and safety of the therapy, and so again, we're going to continue to run our program going into 2020.
That's very helpful. Kim on Japan.
Could you could you elaborate on onto your comments there you talked about a mutually agreeable solution you talked about a limited launch in 2020.
You know I implicit in that I I don't know it sounds like there. There's some area of disagreement when you talk about a mutually agreeable solution and just I you know I'm not sure in the past if you were thinking about a limited launch I thought maybe more of a full launch in 2020. So if.
Correct me, if I'm wrong, but just if you could elaborate a little more on what's going in Japan that would be helpful.
Perfect. We don't have a disagreement in Japan as far as the reimbursement level of inspire but the issue as we don't have an agreement and so we have formally filed what's called the C. Two application to the M.L. HW, which is the reimbursement arm and a of the Japan government. They are.
Every viewing that file Dave ask a series of questions and we have completed the review and completed or updates and it isn't there a court. The next step will be to for us to attend industry meeting with the emulates W. Two in more detail discuss.
Reimbursement in Japan, really where we stand is we have provided information of the ASP or the average sales price in the United States and in Europe , and that we believed that the consistency with Japan.
Should match that of Europe , and the United States and we have made that case. So while we haven't had any feedback to date yet we.
Our anxiously anticipating the decision from Japan that could come several months from now we believe we will continue.
Our constructive working with Japan, we do have support from the physician societies to open up the.
Therapy, when we say limited launch I think it's consistent with the way that we handled Europe and that we will select maybe the first 10 centers in Japan to start and then just like we do in the United States have a cadence to keep adding centers and adding the team in Japan as as we move forward, but again.
We're not going to make any firm commitments until we have agreement, where we stand from a reimbursement standpoint.
Perfect just last from me too I mean, any update on my favorite topic, the pediatric down trial in any indication and I'll drop thanks for taking the questions.
Thank you Larry It's also my favorite and it's kind of the definition of why we do what we do and taking care of these kids so as far as the trial goes where on the third trial there and.
That is to bring the fast a 50 implants, we are expanding the number of participating children's hospitals in the United States were adding some of the leading hospitals across the U.S., which is wonderful. The data continues to look very very strong we are.
Increasing the number implants, because as you know Blue Cross Blue Shield a lot of the plans when they wrote positive coverage policies for the adult population. They included this pediatric population with down syndrome. So we're getting insurance approvals for these cases and we're increasing the.
Never cases in the clinical trial.
That being said we are in discussion with the FDA, we will be talking to them in the fourth quarter bought a pathway forward and we would like to get this on label in 2020. So we can launch the product and we need to have discussions with the FDA. After reviewing the data on what's the best approach to be able to do that.
So we'll be working on that as detailed in the fourth quarter with the FDA will be able to report back on that in the first quarter during our fourth quarter call.
Thank you for taking the questions guys.
Thank you Larry.
Thank you for the next question comes from Richard Newitter with STP Leerink partners. Please go ahead.
Hi, Thanks for taking my questions and congrats on the quarter guys.
First question I'm, just wondering Tim if you could give a little bit of color on the the accounts.
Count base and what their utilization averages are at the high end you know the the accountability longer that are the higher utilization accounts, you know I don't know what Jesus on a weekly basis on a monthly basis.
What's their utilization rate and what's the range kind of throughout your different a account maturity.
Well. Thanks, Thanks for its great Great question, and really a focus for our team as we move into 2020, well, it's been a focus of our team in 2019, but with the reimbursement. It really allows us to kind of leverage that overall, we're still running at about one implant a month, that's certainly not where we need to be.
But the ranges so abroad. So we have several sites that are running that have done 40 emphasize already this year and we've had several sites that are just during the first few this year and then of course, we have the new centers that could open up on a quarterly basis. So the goal for 2020.
It's really be driving centers to the left meaning driving higher throughput at those centers and overall gift that metric above one a month and.
And I think that is.
Theres many approaches to do that the first step is of course.
Our outreach programs are driving more phone calls to the centers and we're focusing where those calls go to the centers that have.
Systems available to properly treat patients.
Secondly, the reimbursement environment, and then moving forward to the Medicare when it comes online in the in the early in next year, it's going to really help the frustration level of the aunties because it takes a much physician time to be able to.
Right through the appeals process of those prior authorizations, and secondly, with Medicare there's always the risk that they're not counting the cases won't be paid and both those are resolved with one of the positive coverages and then secondly, with the Lcds put in place.
Then he said looking at the overall.
Capacity at a center and a lot of centers. The best approach is simply add a second anti surgeon to really be able to.
Have more insurgent serve the patients and we do run into some capacity because the surgeons do multiple procedures.
So it's a it's a multi prong attack on how to be able to drive this adoption, but again. The key is adding territory managers are adding territories that really help limit the number of centers that territory managers have to be able to drive patient flow an increase utilization at existing centers.
Thanks, I just have to follow ups relatively quick ones. The first is just piggybacking off an earlier question on 2020, I guess high level 10 is there you have a number of catalyst or incremental tailwinds at it appears heading into 2020 between reimbursement on commercial.
I will and Medicare potentially pediatric down syndrome potentially Japan.
Coming online I guess is there anything that we should be thinking about offsetting that that you know all else equal you shouldn't see acceleration as we move into next year at a high level.
Yeah, I think that catalysts that we have are really really exciting and I think the key is making sure that team stays focused because the broader we get with all those topics that you talk about puts a little bit a risk on on the theme.
I think the limitation is going to come down a center capacity going back to your first question and if we're able to grow the adoption at the centers and grow the number of centers, we've already talked about the expansion of our teams and adding the area Vice president to adding the regional managers, adding the territory to allow focus at the added centers in the added adopt.
Option at the centers, we think everything that's really positive.
And that he is really going to be down to staying focused and that really is gonna be that the next year that the attack is gonna be.
Conversion of the inbound requests for therapy, and then really just focusing to make sure that we execute on that.
Okay, and one last one Tim just on on Japan, and the conversations and discussions going on there for reimbursement.
How would you characterize you know how you feel about timing and the prospects for the reimbursement going your way I think the last time, we ask that question you said.
You know no change if anything you felt that incrementally a little bit more encouraged.
About it how would you how would you characterize that now.
I think the discussions have been very good I think we have support from.
The key physician societies sleep in T. and cardiovascular.
Surgeons in Japan travel to the World Sleep Conference, which is held up in Vancouver. Its other educating themselves on the therapy, we identified what centers you want to all bad open in Japan people are excited about it.
But it's just where we're right in the throws of the reimbursement right now and they want to make sure that that.
They get a really good deal for the for the people of Japan, we want to make sure that we get a fair price in line with with what we get in the United States sitting in Europe and to make sure that our investment dollars ever return for our key investors and and so we're being protective of Japan and again, it's also.
So about focus and not distracting our teams in the United States. So we're very encouraged with Japan, we really look forward to opening in Japan, but we need to make sure. The environment is proper for us to do it correctly and then do it in a controlled manner such as our patient outcomes in Japan are just as good as they are in unit.
It's Dave says they are in Europe .
Thank you know the next question comes from Chris Pasquale with Guggenheim. Please go ahead.
Thanks, Congrats on another nice quarter guys.
Tim can take a little in a little bit more on the dynamics with United to that policy became effective August 1st I know there were a fair number of patients in the funnel at that time, who may have them been resubmitted. After the effective date do you think you saw a benefit in this quarter from a bolus of patients.
That went back in after the policy became effective or is that potentially still to come in the fourth quarter could just talk a little about that.
I think it's the yes, any yes, and so if we go back and look at the third quarter.
We did have several recent second submissions, we call it which would be a.
A patient who maybe in the appeal process and then was resubmitted.
To be able to take advantage of the policy and get a review at a earlier stage in the cycle.
And then previously in the first half of the year about half the patients had to go through the appeal process for the approvals.
I've taken second level appeal or even MRC well, we saw the great majority of the approvals in the third quarter all happen at the predetermination level or the very first level.
So we're going to continue to see additional benefit in the fourth quarter from two phases number one there will be some secondary submissions that didnt get completed in the third quarter that will will lead to approval and implant in the fourth quarter.
But it also reduces the.
Risk of submitting United cases, and Theres always a little bit of reelection reluctance with physicians knowing that if you submit a united healthcare it could take 120 days to get the approval well now you can get that approval quickly because of the positive policy that that United Road. So I think it was a good benefit.
During the third quarter, and really kind of one of the leading factors that allowed us to significantly increase our guidance in the fourth quarter.
Thanks, and then one for Rick gross margin has been improving steadily for several quarters now how much higher can that go where do you see that started in two flat now.
Well, we have we have increased.
Our guidance on gross margin from the beginning of the year to now where we're at for 80% to 83%.
And for now we expected to be in that range.
Longer term it could possibly tick up another 100 basis points, but right now our guidance has is that 80% to 83%.
But as a reason that it should pull back from them you were almost 83 and a half here in the third quarter is the reason it should come down from that level.
No that's a full year gross margin guidance versus.
Versus accordingly.
Okay. Thanks.
Thank you next question comes from Bob Hopkins. Thanks.
Please go ahead.
Oh, great. Thank you and good afternoon.
Oh, Hi, Bob Hey, Jim just a couple of quick questions first just circling back to anthem can you just give us a rough sense for your confidence in Ah.
A positive momentum there sometime in the relatively near future just just how you're thinking about the progress you're making with anthem.
Yeah, that's the elephant in the run by that's a great question My confidence is very high but what the question I can't answer for you is the exact exact date at which anthem of right that positive policy.
And we do know that that they're reviewing it they have put all questions to in tease out in the field, we are able to get approvals at some levels, but the most most of them at the IBM our level of the external medical review.
We remain very confident that.
Anthem will write positive policy I would love to say that we expect that to happen in the fourth quarter I, just can't say that right now and and obviously, we don't have direct line of communication with add them. There's a there's the wall that naturally is there but.
From what we hear from the field, then and the trends that we're saying, we certainly hope it will happen in near future, but certainly believe that should be in place in 2020.
Great and then a couple other quick ones just curious topic, we haven't talked about in a little bit I'm. Just wondering you know in these any centers or the averages one per month, obviously a lot of opportunity. There I'm just curious of all the things that could help drive.
Utilization up from one per month, how important is the current reimbursement structure to the physician like if you know if it's out we're able to climb higher or would that be something that has a big impact or is it really more about all the other stuff we've been talking about in this call.
I think it will have an impact although I think it goes back that might be fourth fifth place and I think the other benefits that we've been able to overcome with reimbursement I think drives it a little bit more that's specifically talk about Medicare.
The challenge that a lot of physicians have with Medicare is the probabilities of them getting paid for doing a Medicare case is simply not that high and if they only get paid on half of their Medicare case as that's certainly is going to limit the number of Medicare cases that they agree they have to.
Make a living as well so I think by getting the positive lcds. That's the first step to assure that these physicians will.
Receive payment for their further for the work that they've done to prescribe an implant that the product for the patient the second step as member that category. Three code. We have that there are four sixsixty, which is for that pressure sensor now that the LCD knees.
Our being written we can now start to see a payment level associated with that category three code, even before that gets converted to a category one.
Now with that we have than in discussion with the a whole American academy or their oncology, which is the NTS society responsible for submitting the code. So we are looking to.
Get that co converted into a category one but some of the private payers. We had been seeing evidence of surgeons getting paid for that work as well as with Medicare with the Lcds. So we are going to be able to improve the physician payment, but really the first step is assured that they get paid for the worked at the doing in the first place.
Okay that the other major factor is these entities are very busy doing numerous things.
And when you can change the reimbursement environment instead of expecting this bad 120 days fighting with insurance companies for prior authorization to getting immediate approvals whereby once diagnosing is fit the prior authorization you can actually schedule the implant knowing that the pro.
Hi, Ross position will be coming through the frustration and the commitment it takes for physicians to.
To go through that prior authorization process I think is really going to be the number one benefit to really letting them take care of more patients because now they can take care patients not be insurance agents.
Thank you for that and then last question is just on Japan long term.
I realize there's there's a lot of work to be done, but once folks you once the payments there and that you're you're happy with the training.
I mean, most magic markets Japan's in emerging market in the World is long term is that the way you look at Japan for your technology or are there.
Cultural or other issues that might limit the opportunity there.
No I think I completely agree with that I think there's the three large markets in the world are the U.S., Japan and Germany. The advantage would get in Japan is everything is front loaded right. We hit the regulatory we fight with the reimbursement upfront takes a little bit of time and then everything after that is gonna be just like a.
The U.S. play, where we start with limited number of centers make sure that we have proper training and good very good patient outcomes and then we can grow adoption and with the proper reimbursement I think we'll be exactly what you just said that that is the number two opportunity in the world the sleep apnea prevalence in.
Japan is very very high.
And we think that there's a need for enspire.
Because they have the same compliance issues with see Pap as as it is across the globe. So we're being fair very careful upfront to make sure we set up properly.
But that's okay, because the primary grow right now.
The all in the U.S. market.
And we don't need to Russia, Japan, we need to set that up properly, but yeah. We're very encouraged long term on the prospects of what Japan will mean in the future.
Great Tim Rick Thank you very much.
Thank you Bob.
Thank you next question comes from <unk>, which is already in call.
Please go ahead.
Hi, Tim and Rick Thanks for taking the questions another great quarter here.
Following up on Larry's question on the pediatric down syndrome trial, you're continuing to enroll I think with the goal to get to to 50 patients and you mentioned you will be discussing with hip day about potential plans for an accelerated timeline can you talk about these potential options I mean, I think the trial has.
One your follow up so would you explore an option with say less than 50 patients who've all completed the one year or a situation where the fall was less than a year, but for all 50 patients any sort of color here would be great.
Yeah, when we talk to the FDA, you've really if you can't just set aside down centre for a minute and really what the discussion as is really is it safe twins and plan inspire in adolescent.
And when it when.
And that unless it goes from the age at 12 to 22 is there a lot of growth in the anatomy of round, where are the implant does that really introduces any level of safety risk and that's the big argument, we're making with the FDA and so theres others therapies that are approved for kids.
As well, there's no reason inspire should not be and there's not a significant change.
In the anatomy going from 12 to 22, and you're looking at just the Hypercloud sooner and stimulation around the hypercloud similar so thats really the core.
Discussion point.
There have been many adults with down syndrome, who have been implanted with inspire down syndrome is not a special indication for inspire it's not a contra indication in fact, it's a it's at a good alternative as lot of these patients a big cat cannot use heap app and end up with a tricky.
To me so really it's about a working with the FDA to understand those parameters and are there additional risks that we can build into a post approval study that we can sit down with the Ftn say, if you have longer term risk will certainly sign up for a post approval study because with the had here registry and what we're doing with an spa.
Buyer cloud, we collect data on most patients anyways, that's that's a fundamental or it's a foundational aspect of inspire is to continue to collect data. They show continued positive outcomes. So we think the discussions with the FDA will be very positive. After he is very motivated and other encouraged.
From Congress to be able to.
Approved therapies for.
Adolescence, and so people are motivated to get this Don.
Got it now that's helpful and within the two 266 centers that are active how many physicians across those centers are implant inspire in other words.
What's the number of Implanters per center, how is that metric changed if at all and what's the range for the number physicians per account.
Yeah. It's it's got Great question, it's an estimate that's probably a big area of opportunity for US we're estimating twoeighty private about 280 trained surgeons in 266 sites.
So you can see there's even a couple of sites that have three serves and so it really is something that we're going to focus on and the fourth quarter and certainly into 2020 to look at increase capacity add centers.
Got it and then I just quickly last one following up on the.
Positive draft policy from first coast and I know this will be finalized the early next year, but have you seen any recent success and getting centers to implant in Florida in the Medicare population now that that first coast retracted their negative policy.
Yeah that was et cetera, So what first coast growth or draft LCD. The positive pilot policy on the same day, they retracted that negative LCD that they already had in place.
I need to do a confirmation I believe a couple centers have been paid from prior Medicare cases, and I know there's at least while there are several centers that have Medicare case as scheduled and we need to do those early in the quarter to be able to make sure first coast.
Will act as good stewards as they go through this review process, we believe they will but until we do the implants and that get confirmation of payment I don't have that as of yet, but that's something that will track closely in the fourth quarter.
Okay, obviously in Florida that the great amount of opportunity right with Medicare right right.
Okay, Hey, thanks for taking the questions.
Thank you very much.
Thank you next question comes from Ravi Ms trial with Berenberg capital markets. Please go ahead.
Hi, Tim Hi, Rick. Thank you for taking the call Gerardo questions. One on the kind of the weekly web visitors a metric that you gave just curious to see how the ROI on that has been tracking in terms of kind of.
Those are actually engaged and then how many of those are you guys converting or is that just a backlog. That's building how do we think about this kind of it more consumer focus marketing attack and then secondly, just on the international revenue if I can follow up on maybe Bob's question or all the other ones.
Determine going on on Japan.
As we think about the market and how to segment. The market is there anything anatomically that's different between an American patient or Japanese patients that would maybe limit the the size given.
Later rates of cloud.
Thing there thanks.
Very good.
Question number one so we know the branding that we can bring people our website, we talk about the 3 million engaged visit those on People's aren't just website hits those are good but actually come on in and look at several sites and start to educate.
That converts down to 400000 physician search as we put some changes into our web site to help direct patients to the right area in other words when you go to find the physician to my area. There's two buttons you can pick the first one says I've never been diagnosed.
So sleep apnea before and the second one as I have been diagnosed I tried see pep I am not able to use it.
If you click one of those two buttons you get a different list of physicians that can help the patient salt, we never want to say no to a patient we always want to pull point them in a positive direction, we want to send to the right physician. So if you've never had a sleep study before and yet you suspect that I snoring and I should probably be tested.
Well you should probably go see asleep physician to really be diagnosed for sleep apnea, and then try see Pap annoying a group of those patients will circle around in the future, but if you've already tried to keep up you know you can't try it you're ready to get further down the line and and made to go to in T. For a final diagnosis. So that's our first step we.
It's starting to educate educate ourselves further on the step from the.
Finding a physician and actually making a phone call and how do we make it easier for those for those patients to get an appointment and and a lot of the phone calls it's kind of difficult because we have the centers answer the calls today and we want to find ways to be more efficient about that and to be able to really.
Ill.
Patient get enough an appointment with an appropriate position. So we do track the number hits, we do track the number of contacts we track the number of implants. We don't have the numbers in fact in front of us, but we do manage it just by the cost per contactor or cost per lead we do it. This is a very much.
Trick driven business, we looked at the details from the first three TV markets and the results of those were such that we expanded our test to six additional markets. We aren't are not ready for primetime and going any national scale, but the TV that we're doing is very localized.
And really done in cities that have good qualified centers have good establish reimbursement and have a proven history of being able to manage patient flow. So that's kind of how those are selected in its and its very methodical. It's not just let's just pick a city and go for it.
Yeah.
Assuming I answer that question when we go into international Japan Guy you have to be careful how I see this but characteristically Japan and even Europe don't have the same BMI issues that we have in Wisconsin, Minneapolis, I. I loved Rick and I are Tuesdays together that we have the PMI.
Issues, together, which drives a lot of the sleep apnea. It is more of an anatomical issue that really creates a large opportunity for the patients in Japan interesting enough. The utilization of see Pep is still limited by compliance and it's not that moderates a little bit the patients.
So why do you see path, but it is a continuous flow of pressure into your airway, that's very uncomfortable and get leaks in the math and that's what's driving the noncompliance. So I think there is a great opportunity in Japan, if we're going to continue to focus on it but we're going to do at properly and carefully.
And then same in Europe , we're going to keep investing in countries that have established reimbursement, we will continue to work with France in UK, and and and Italy in other countries to establish reimbursement I want to throw the Nordic region into that as well, but really don't make our deep investments until the reimbursement is in place such as well.
Germany now the novel, Netherlands, and we believe Belgium will get reimbursement soon.
Great. Thanks, and if I can just ask one last question I know, it's been a long earnings day for lot of people. The ER the patients treated for center to the nice step up in the third quarter versus the second quarter in first half for the year should we be thinking of that kind of trend as continuing as we think about our models for the rest of the year and.
Beyond thank you.
You bet Robby I think that would be appropriate I will I think we need to kind of get away from the prior authorization approval model, because we're really I'm showing that success with prior authorization approvals and it's really going to be getting into conversion and getting into the implants per center and I think that is probably a good way to be able to focus the.
Models moving forward.
Thanks.
We have reached the end of the question and answer session.
I'll turn the call over to Mr. Herbert Herbert for closing remarks.
Thank you I just want to close by saying, we remain focused on maintaining a healthy growth rate for our business, while always striving for high quality and strong patient outcomes importantly market demand continues to expand for innovative and effective solution for patients with obstructive sleep apnea.
Who are unable to successfully you see path.
Which in turn is driving our finds our strong financial and operating results.
Moreover, in increasing number of commercial plans continue to issue positive coverage decisions and the draft Medicare Lcds recently published should meaningfully benefit our business next year.
As always I am grateful to the growing team oven dedicated inspire employees for their enthusiasm hard work and continued motivation to achieve strong and consistent patient outcomes. The inspires teams commitment to patient remains unmatched and is the most important element to ours.
Access.
Thank you all for joining the call today, we certainly appreciate your continued interest in and support of inspire and look forward to providing you with further updates in the coming months.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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