Q4 2019 Earnings Call
Greetings and welcome to inspire medical systems fourth quarter fiscal year 2019 earnings conference call. At this time all participants are in listen only mode of question answer session will follow the formal presentation. If any what's required operator systems turn the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I would now like turn the conference or what's your host Mr., Bob yet it would lifestyle advisors that gives you may begin.
Thank you Kevin backdrop for participating in today's call.
Joining me are Tim <unk>, President and Chief Executive Officer, right Beautiful Chief Financial Officer earlier today, and spare released financial results for the fourth quarter.
Your ended December 31st you're about 19.
Copy the press releases are available on the company's website.
I'd like to remind you that on this call magical will make forward looking statement.
Then the meeting other federal Securities laws.
All forward looking statements, including our discussion of operating trends and our expectations of future ban formats, including for your 2020 guidance and our expectations regarding near and long term Brooks and talk about <unk>.
Based on our current estimate universe.
These statements involve mature risk.
And uncertainties that could cause.
As a result or about to materially differ.
Accordingly, you should not place undue reliance on these statements.
See our filings with Securities and Exchange Commission, including our annual report on form 10-K filed with the FCC today for a description of these risks and uncertainties.
Inspired disclaims any intention or obligation.
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 contain time sensitive information and speaks only as of the why broadcast today.
25th.
2020.
And with that it's my pleasure now turn the call lover, Ken Herbert CEO Tim.
Thank you Bob and thanks, everyone for joining us today I'd like to welcome you to our fourth quarter and full year 2019 earnings call.
Hi, I'm extremely pleased to report there we have concluded the year with very strong result, completing our highly successful 2019 friends buyer.
I'll provide you with the details around what continues to drive are consistent progress and Rick will follow with a detailed review of our fourth quarter and full year 2019 financial results following that well open up the call for your question.
Yeah, they do each quarter I'd like to begin by restating, our most important goal, which is that the team met inspire and the health care providers, who prescribe that's important square therapy continued to be fully committed to delivering positive and consistent patient outcomes, but those are the untreated obstructive sleep apnea. This huh.
As Ben and will remain our core mission that inspire and we believed that this will lead the continued growth in therapy adoption globally.
Regarding our strong performance in the fourth quarter and for year 2019, we continue to execute on our balance commercial growth strategy, which is primarily focused on the U.S. market with the objective of first increasing patient flow at existing centers and second training and opening new Implanting Center.
Yes.
Let's get into the 2019 fourth quarter results. Our worldwide revenue was 26.9 million an increase of 62% compared to the 16.6 million in the fourth quarter of 2018.
Our total revenue for the year was 82.1 million, which is a 60% 62% increase over the 50.6 million generated in the full year 2018.
Rick will get into more of the specifics in a few minutes.
I would like to highlight that we're providing our 2020 revenue guidance of between 115 to 119 million.
This significant increase in revenue is made possible through the progress we have made with reimbursement as well as our focus on increased capacity utilization and improved conversion of patients seeking therapy.
Starting with capacity.
During the fourth quarter, we added 33, new U.S. implanting centers ending the period with a total of 299.
Further we created seven new territories in the U.S., bringing our total to 73.
We had previously talked about the design of our U.S. sales came in during the third quarter call. We highlighted the hiring of four area Vice presidents.
We took another step forward in the fourth quarter by increasing the number of regional managers ending 2019 with 14.
These new centers and territory and regional managers will have a positive impact on our long term girl.
And with the continued growth in therapy adoption, we are looking to accelerate the initiation of new centers as well as increasing the cadence at which were recruiting new territory managers.
As such.
In 2020, we are increasing our guidance and expect to open between 20 and 24, new centers per quarter further to keep pace. We're also increasing our guidance for field support and we'll be adding six to seven new territories per quarter threw out 2020.
As you recall in 2019, we guided tour cadence of four to five territories per quarter.
As always we will do this in a controlled manner, ensuring that we hire the right people and opened centers in a methodical well disciplined approach.
For 2020.
We made a strategic decision to add an incentive for a territory managers to increase utilization in existing centers.
This is spending a significant amount of their time identifying and developing new implanting centers.
We are ready made progress in the fourth quarter, and we'll continue to focus on improving patient flow at existing centers in 2020.
As evidence to the fact, we can also report that each class of Implanting Center, a class being a centers open in a specific year from 2014 to 2018 have shown a year over year growth every year since every year, including 2019.
With the territory managers, adding focus to increase utilization, we must also keep recruiting additional centers in order to grow capacity.
This new role of identifying and developing potential centers will now be aside to for newly appointed area business managers.
All four of which have been recruited and were in their positions for the start of 2020.
To further our focus on growing utilization that at existing centers, we need to support these centers with training an implant support.
For this activity we have increased the number of field clinical represented as available for case coverage ending 2019 with 22.
And we will continue to target regions that could benefit from additional F.C. hours and plan to increase that number the number of Fcr and 2020.
Yeah, and improving utilization.
Our other key focus area is improving our conversion rate.
We intend to accomplish this a job objective to several tactics, including leveraging our rebranded website at inspire sleep dotcom, which launched in July of 2019.
In 2019, the total number of visitors to our website was approximately 4.5 million, which is an increase of 95% over 2018.
In addition, 519000 physician searches were conducted an increase of 22%.
Moreover.
There were 42500 physician contacts established via the web site, representing an increase of 47%.
Yeah with all this traffic, we believe a relatively small percent of patients reaching out to health care providers and up within inspire system. We continually work with centers to improve their ability to properly manage the M M boundary cross from patients.
But just specifically addressing logistic challenges of the handling the patient request inspire will start testing a call center concept and just a couple of region.
We have title this the inspired advisor care program.
The primary purpose of this program is take connect patience with the appropriate health care provider based on their specific needs, which in turn should improve our overall conversion rate.
We have found that many patients calls complaining seven centers simply do not get answered and message messages may not be returned or the patient is not available when the office returns there call.
In other cases cases.
Patients may not be prepared for and inspire evaluations are they may as they may not have a current sleep study or may not have had one at all.
Therefore, some patients may best be directed to asleep position first for a new sleep study well others would be best served going directly to implanting surgeon.
We will begin testing this advisor care program early in the second quarter of 2020, and assuming success expect to expand their program throughout the year.
We also plan to continue expanding our direct to patient strategy and growing the number of potential patients visiting our inspires the dot com web site and helping them become more aware an educated on the benefits of inspired therapy.
We remain focused on broadening these efforts to correspond with a growing number of U.S. implanting centers.
In addition to the inspires sleep dot Com web site and evaluating the use of a call center, we continue to expand or TV advertising initiatives. We're currently Eric commercials in nine markets. We are continuously measuring the effectiveness of TV advertising and it can intend to selectively expand.
At our TV advertising initiatives further in 2020.
The marketing team will also continue their existing outreach programs as well as targeting large local markets with radio Facebook Google AD placements.
So, let's switch gears 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 continued to obtain individual prior authorizations.
First though let me begin with the significant progress recently achieved with Medicare, where all seven Medicare administrative contractors or Max have now published draft local coverage determination or lcds.
Moreover, five or the Max recently announced following the standard public comment period, then formal review meeting the effective release dates for their final policies of either March 15th or April 1st.
One other Mac Palmetto, serving several states in the southeast is expected to announce their final release date in the near future.
The remaining Mac, Wisconsin physician services or WPS, they cover six states.
Publish their draft policy and conducted their public review meeting a couple of weeks ago.
It will take several months to come to complete their review period, we would we expect this move to file and Ltd and 2020.
The important point is all seven of the coverage policies or Lcds are consistent in terms of patients inclusion criteria for therapy and physician qualifications.
Once all seven final LCD either issued inspire we'll have 100% Medicare coverage across the United States, which includes approximately 40 million Medicare patients and an additional 20 million with commercial Medicare or Medicare advantage.
In addition, we continue to experience substantial growth in positive coverage policies. Specifically, we currently have 52 positive coverage policies for inspired therapy, representing approximately 165 million covered lives.
This includes 29 of 36 Blue Cross Blue Shield plans as well as seven previously announced plans.
During 2019, we added 40 plans, representing 136 million covered lives as a point of reference we ended 2018 with 25 million covered lives and we had approximately 45 million covered lives on this date back in 2019.
We continue to work with all the remain many payers 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 inspired therapy.
We expect that our momentum with these positive coverage policies will continue throughout 2020.
Turning to the prior authorization metrics.
Its review how the new positive coverage policies have improved these metrics.
In the fourth quarter of 2019.
Our internal reimbursement team supported 988 prior authorization submissions.
This compares favorably to the 639 submissions in the fourth quarter of 2018 has also substantial increase from the 812 submissions in the third quarter 2019.
Much of this increased as the result of the reduced reimbursement hurdles specifically the time to gain commercial insurance approval, but also as a result of our enhanced patient outreach program, including TV ads.
In terms of prior authorization approvals 751 patients received an approval in the fourth quarter of 2019. This represents a substantial increase compared to the 395 approvals in the fourth quarter 2018.
And is also a solid increase from the 672 approvals in the third quarter of 2019.
Regarding prior authorizations success metrics, we ended 2019 with an overall approval rate of 78%.
And for those patients that completed the entire appeals process the approval rate was about 91%.
As a comparison and 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.
Importantly.
And 2020, we will continue to report on these prior authorization metrics, but as we have ever as we have said previously our long term goal is to reduce the burden of individual prior authorizations by working with commercial payers to develop positive coverage policies does given the growing number of positive coverage.
Policies that commercial health plan. In addition to the progress achieved with Medicare.
These metrics will likely become less meaningful and evaluating the overall progress of our business going forward, we do not intend to continue to report on them. After this year.
Regarding our international activity I.
I discussed on last call that the increase in patient flow at several of our key centers in Germany, and the Netherlands resulted in additional attention from the commercial payers and there's with as we said could happen impact that implants in a few centers in the fourth quarter.
In Germany. This was a dress with the new law that took effect at the beginning of the year that basically prevents insurance companies from not reimbursing therapies with the end you'd be designation.
Most of the effective centers, which are in the southern part of Germany have already begun implanting in 2020.
In the Netherlands, There is a physician oversight committee that was required to recruit new members late in 2009, thereby stopping case for use in the fourth quarter.
The recruitment for the committee is complete and the committee is again, reviewing and approving inspire cases and there have already been several implants and 2020.
We continue to drive towards a reimbursement decision in Japan.
And remain actively engaged with the authorities to work to a decision on the reimbursement of inspired therapy in that country. We remain confident in achieving a mutually agreeable solution that could allow us to reform the first inspire implants in 2020.
We're also making progress with regulatory authorities in Australia, we expect received regulatory approval the in that country within the next 12 months and we're working on reimbursement concurrently.
Here in the United States, we are focused on adding the pediatric population to our label for inspired therapy.
We recently met with the FDA to discuss the most appropriate path forward. Following the FDA meeting, we're confident that the pediatric approval could be received this year.
It was a busy year for the further development of inspire clinical science.
Of primary note in 2019, we surpassed 100 peer reviewed publications since the inception of the company.
The key publications in 2019 focused on a real world on long term evidence, including the add here 500, and add here 1000 patient papers that three year follow up of the German post market study and a meta analysis showing consistent benefit across multiple studies of.
Inspired therapy.
We also addressed several specific populations, including a paper on the Medicare population, which was key to the positive movement in covered for this group.
An update on the study of adolescents with down syndrome, and a cost effectiveness model in Europe.
There were also comparison studies published of inspire therapy compared against see Pat as well as versus robotic time reduction surgery.
The team remains committed to understanding the size and applying this knowledge, who that continued improvement of inspire therapy.
Inspire has set the bar high for what quality of evidence is acceptable for approval and subsequent adoption and we will work diligently to approve the already strong results.
As a new announcement and testimonial to the strength and quality of the inspire clinical evidence.
The veterans affair and Department of Defense last week.
Released the updated clinical guidelines for obstructive sleep apnea.
For the first time inspired therapy is a recommended therapy for those patients who are unable to gain benefit from sea. Pat. This is significant as the most common sleep surgery, you Triple B or you have a plateau fringe of class D is not a recommended therapy, primarily due to the limited clinical evidence.
Switching gears again.
Inspires product development team continues to work to improve the patient experience, while maintaining and enhancing therapy outcomes is a very important initiative for the company and we continue to make significant investments to further advance our technology.
The inspired cloud project, our cloud based patient management system continues to progress with the addition of many centers in the U.S. and in Europe, who are using this tool.
In the very near future.
We will announce the launch of the inspire app patient smartphones.
Which will take the next step in involving the patients in managing their 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 fifth generation inspired narrow stimulator is ongoing.
As I had said previously we anticipate anticipate that this will be a multiyear effort to developed inspire five device and gain regulatory approval. We are actively conducting feasibility trials with several technology innovation, which will make the inspire five narrow stimulators state of the yard and will significantly improve the performance.
Including simplification of the I'm inspired procedure.
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 our focused on improved utilization in our conversion rate further advancements in reimbursement, including Medicare that build upon a recent positive coverage decisions a growing body of clinical evidence and a role robust R&D platform. We are confident that we remain well positioned for long term.
Success.
With that I'd like to turn the call over to Rick for his review of our financials.
Correct.
Thank you Tim we're extremely pleased with our financial performance in the fourth quarter of 2019.
With expanding market demand, we are experiencing for inspired therapy, we continue to demonstrate significant topline growth.
For the fourth quarter of 2019 total revenues were 26.9 million.
62% increase over the 16.6 million generated in the fourth quarter of 2018.
For the full year 2019, our total revenue was 82.1 million a 62% increase over the 50.6 million of revenue generated in the full year 2018.
You asked revenue in the fourth quarter was 24.9 million an increase of 68% over the 14.8 million in the fourth quarter last year.
This increase was both volume driven from existing territories as well as the addition of new implanting centers.
The U.S. revenue for the full year 2019 was 73.7 million an increase of 66% over 2018.
In the fourth quarter European revenue increased 14% to 2 million from 1.8 million in the fourth quarter of 2018.
European revenue in the full year 2019 was 8.4 million an increase of 35% over 2018.
Our U.S. average selling price in the fourth quarter was 23800 compared to 23300 and the prior year period.
We expect the U.S.S.P. will remain at approximately 23800 for the foreseeable future.
During the quarter the European ASP was 22400 compared to 21500 in the fourth quarter of 2018.
Our gross margin in the fourth quarter was 84.2%.
Compared to 80.7% in the fourth quarter 2018.
The improvement was primarily due to the introduction of the new sensing lead in the U.S. in February 2019.
As we are 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 fourth quarter were 32 million, an increase of 75% as compared to 18.3 million in the fourth quarter of 2018.
This increase was primarily due to investments in the expansion of our sales organization as Tim highlighted as well as increased direct to patient marketing programs continued product development effort and general corporate costs.
Our net loss for the fourth quarter was nine.
Point 1 million compared to a net loss of 4.8 million in the fourth quarter of 2018.
The diluted net loss per share for the fourth quarter of 2019 was 38 cents per share compared to 22 cents per share in the same period last year.
At December 31, 2019, our cash and investments totaled 156 million compared to 188 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 expect full year 2020 revenue to be in the range of 115 to 119 million representing growth of 40% to 45% over full year.
2019 revenue 82.1 million.
Historically and similar to other elective procedures, we have experienced some seasonality in our business and expect this trend to continue.
In the U.S., we have noticed higher procedure volumes in the fourth quarter as patients with high deductible health plan.
Seek to schedule a procedure prior to their deductibles resetting at the started the year.
We do expect that there maybe some seasonality in our business during the first first quarter of the year.
Although in the past.
This seasonality has been masked by our growth of the addition of new territory managers and implanting centers.
As well as the underlying adoption of inspire therapy.
Turning to gross margin guidance, we expect the gross margin for the full year 2020 will be in the range of 82% to 84%.
The weighted average number of shares outstanding for the fourth quarter was 24.1 million.
We anticipate the weighted average number of shares for the first quarter of 2020 will be approximately 24.3 million.
In summary, we ended the year with significant momentum and are pleased with our strong financial performance in 2019.
We're confident that are balanced growth strategy positions us well to continue delivering strong results.
With that Devon could you. Please open up the call for questions absolutely at this time will be conducted a question answer session. If you would like does question. Please press star one on the telephone keypad a confirmation. So indicate your line is in the question Q. You May proceed starts to feel we'll let you move your question from the Q4 parties.
Vince using speaker equipment, it may be necessary to pick up your hansa before pressing the star keys, one moment, please as we pull for questions.
Our first question comes the line of Richard Newitter SBB Leerink. Please proceed with your question.
Hi, Thanks for taking my questions guys and congrats on a great quarter.
Thanks Rich.
I've a couple of here.
Maybe just to start with the guidance.
I'm curious if you guys have specifically contemplated any.
Any any kind of positive developments specific Medicare.
Net Medicare like coming on board moving moving past the first quarter of course, if yes to what extended that contemplated in the guide and or any other.
Potential unsure as following your way or is this pretty much achievable with.
Just what you have in place and obviously you in acreage came onboard in the second half last year.
Well, we with the guidance, we certainly put forward a significant growth for going into 2020, and thats going to require significant work from all the territory managers in the entire.
Sales and marketing organization as well as the whole inspire team.
We have the Medicare policy in five of the seven becoming formal March 15th in April 1st we have the six one and Palmetto is still a little bit of an unknown and the good news is Wisconsin physician services. The last six days did in fact publish their first draft. So.
We don't really have a lot of we slightly count on an uptick of Medicare, but we don't build them a lot of risks.
Based on the unknown. So when we put our guidance forward, we really want numbers that we're going to be confidence in achieving and if we can have some success with Medicare.
That you'll be able to help us really achieve that.
Okay. That's helpful and then just two more Medicare.
The BMI and age I kind of criteria, just remind us how that how how that all stacks up to where some of the other insurers have been coming in as a consistent or is it a little bit higher at least on my side, and then Rick or Tim The Medicare population just broadly that has sleep apnea or is on C. Pat just just from.
Midas, what that is relative to private insurance and you know how much of this open up the floodgates for you guys. Thanks, absolutely. Thanks.
Thanks for bringing that up as far as Medicare They did a real detailed review of the clinical evidence as well as the.
History of of in planning patients even in the Medicare population there be a my is different remember the FDIC does not have a BMI requirement in the FDA indication.
But many of the insurance companies started their policies out with a BMI equal or less than 32.
When Medicare came out with their new policies again all of the policies are consistent they raised to be am I to 35. So thats really that's really good news for for those patients and we expect that the commercial policies will in turn.
Follow that that lead from A.H.I. standpoint, they do have the.
Minimum age I have 15.
But I don't believe they have upper limits.
Well look at all they do have the upper limit of 65 saw the range is 50 to 65, which is exactly the.
FDA indication, which is great that's super as far as the population, we know that there's 40 million Medicare patients out there.
It's hard to estimate how many of those are specifically on c. pap or candidates, but if you go with the standard literature, saying basically 4% of the female population, 8% of the male population.
That would be up about 4.8 to 5 million Medicare patients with moderate to severe obstructive sleep apnea as just a rough guess.
Okay, great. Thanks for asking the questions. Thank you.
Our next question comes on line of Chris Pasquale with Guggenheim Partners. Please proceed with your question.
Thanks, and congrats on Great finished the your guys Tim I wanted to start with the Salesforce changes. So your incentivizing the territory managers to focus on same store growth, but accelerating the pace of New center ads and I. Appreciate the enough. Some dedicated resources focused specifically on identifying new sites. When you talk about how easy it process. It is what your visibility is.
I mean that has 33 in the quarter was certainly kind of eye opening.
And you're talking about 80 to 100 basically for next year. So do you know where you need to go how much of a lift as it to get these new sites up and running.
Absolutely. Thanks, the it takes time to get centre is still up and running and let me give you two examples.
A new hospital system that has no experience with inspire we have to go through the whole value add committee and we have to train the whole system, which is great and the important thing to do but it takes a little bit of time those could take anywhere is still from four to six months to be able to initiate those centers and have them and planning.
The product and take care of patient.
We're getting to the point now we are also in the large health care systems, such as kaiser's such as advocates such as.
Several others that.
We're just opening an additional center iron ore and additional hospital. Therefore, we don't have to go through the front end value add Kim committees, and we can really focused.
Just the training of the staff and getting them ready for.
Patient flow those wouldn't get done quite quickly and two to three months.
And so it's it varies a little bit, but we do have line of sight for.
Centers in the pipeline and so we have confidence early in the year and then the new for.
Area business manager is somebody somebody termed.
As Hunter is they are hunting for new centers.
We'll really be able to step in to start driving the new centers for the second half of the year.
That's helpful. Thanks, India updated thoughts on what the universe of sites looks like for this therapy, who the appropriate centers are and how far along in the process of.
Penetrating that group you are at this point.
As we said we just ended the year with 299 centers there's.
4000, whatever hospitals in the United States I don't think we will ever get to a point were when we're at all of those but if we assumed we could get to 1000 hospitals. That's that shows we're just scratching the surface at that level of facility, but we have a handful of ambulatory surgical centers.
As well today and as things evolve with the.
Reimbursement and physician reimbursement I think you'll continue to see an uptick and ambulatory surgical centers, which even further increases the number of centers. So I believe we're very very low on the penetration scale as for the number of centers that will be offering inspire therapy.
Great. Thanks.
Our next question comes on line of lay Hall with Wells Fargo. Please proceed with your question.
Hi, Thanks, it's like calling in for Larry and Thanks for taking my last question Hi, how are you.
I just want to find out I'd start with going back to the revenue guidance you meant to be clear you assumed Medicare.
Uptick in your 2020 guidance it sounds like you're not assuming additional private payers picking up coverage in that guidance.
We don't want to yes, we don't have line of yes. The answer is correct, we do expect Medicare to increase.
And we had a better participant in revenue as an example of Florida, Florida remember, we have the negative Medicare policy and really until the end of 2019, we haven't done Medicare cases in Florida since 2015 since they have that negative policy with the formal policy coming out I think you will see an uptick.
And Medicare, which is exciting we don't want to take any risk on anthem anthem. We believe is doing reviews. There is a last big header out there with 40 plus million covered lives and we know that they're reviewing it and we certainly expect that we will obtain coverage, but we just cannot predict.
Act when that will happen. So no we have not included.
That in our assessment patients without add some still can get the therapy. They can still get approved but they have to go through the prior authorization process. There are several other smaller plans well, they're not that small, Florida Blue Bluecross Blueshield, Minnesota Cigna.
Humana, So we still have ways to go and we don't take risks on when those companies will be running their policies.
Got it.
Which is even though it's not in your guidance is that realistic for you to expect at least a few a couple of these.
We didn't ship positive.
Coverage. This year, yes, let me comment let me talk about that for a second.
If if a payer has Medicare advantage policy.
The Medicare advantage to our commercial Medicare is governed Medicare and commercial Medicare the Medicare advantage policies have to respect the government Medicare or the policies that the Max put out.
The good thing is all seven Max a very consistent policies that sets a very consistent criteria for Medicaid Medicare management of inspire patients across the U.S.
And so therefore that will help push some of those pairs lagged because they certainly have to respect the Medicare advantage part of their business and we believe that we'll continue to help them right policy on the commercial side.
Great that's helpful.
Thanks, and then just moving on to.
Spending and I know you don't give spending guidance. It sounds like you know obviously continuing to add more feet on the ground you have that call center that you're exploring and then obviously, there's a TV ads, which sounds like you're.
You are looking to expand in 2020 any color you can provide on how we think how we should think about the incremental costs in 2020.
No we're going to continue to increase our marketing spend as as you highlighted there.
Kind of put our guidance on on what we want to do for increasing our U.S sales team men and we will continue to invest in our product development as well as our clinical research.
And yes, I would not putting our guidance on overall spend though.
Okay fair enough.
Thank you ladies.
Thanks, if I could fast one more Ashley.
You mentioned that the guidance guideline from da and Department of Defense, which is positive what do you think that does for medical Society guidelines should we expect any sort of intact and movement there in 2020.
We know the American Association of sleep medicine, or a as Sam is in fact working on their guidelines and.
They.
I'd like to optimistically.
Expect that they will come out every year, although that is a slow process in the last time. They have updated the guidelines is 2008.
So we continue to push them very hard I would certainly love to see them come out with updated guidelines and 2020 and I will certainly past that note a lot to them, but we'll we'll see if they actually get it done or not.
So.
Thanks, very much less thank you very much.
Our next question comes a lot of Travis Steed with Bank of America. Please state your question.
Congratulations on the great quarter.
Got it.
Touched on the.
On increasing utilization, it's been around one procedure a month for for a while now and just kind of curious on what the main limiting factors there on.
Increasing utilization are and where that could go over time.
Your high volume centers are doing today.
I think reimbursement and while there is there's several factors to this but the number one factor is the burden of reimbursement and Travis you've been with us for a long time and been tracking you remember that time it takes to get up prior authorization.
Approval has been so reduced from over 100 days I think the median is like 25 days at the end of 2019, and so to expect physicians to really invest a lot and putting a lot of patients in the prior authorization pipeline, where they can do the procedure and generate revenue for for three four months.
That's asking a lot.
And now with the positive policies. They can it get approvals and just a few days and so when they diagnosed patients and they find that the patients a good candidates.
Thank you go ahead, and say that schedule your surgery and while we're waiting for the surgical they will go ahead and get your insurance approval. So first as burden.
Of reimbursement.
The second step comes down to Medicare payment now Medicare for the most part pays them the centers, but Medicare before policy was pretty strict on physician payments and I know a couple of physicians that quoted that they only get paid for 50% of their Medicare case as.
Well, if they only get paid once average payment can be a 600 to $1000 for Medicare. If there is only getting 50% of their case is paid for that means they're getting three to $500 on average.
We can only expect those physicians to do so many Medicare cases with the policies in place. They now have assurance that they will in fact get paid and so that reduces the the revenue risk for both hospitals and the surgeons.
And if I can take one step further we have an initiative working with CMS now that Medicare has.
The positive policies, we can we work with the Max as well as with CMS to get payment for member that category. Three told that 046 60, we can now requests payment for there for that thereby increasing the surge and payment and so it makes it a little bit better for further time.
Spent so several factors are going to keep driving increased utilization and then on top of that is.
We need to look at the capacity at individual centers, and if theres challenges with not enough or time or if the surge and just simply doesn't have enough time, because they do other things during the day as well.
We can train ended this another second or even a third surgeon at sites and if you look at most of the top implanting centers. They do have multiple surgeons capable of doing the procedure.
That's helpful color.
So looking comments on on some of the DTC advertising are doing how you're measuring the return on investment and.
Thinking about accelerating that investment and and also on the PV down syndrome opportunity just can you remind us what the good opportunity us.
Got it start with.
Direct to consumer so.
We really watch the TV closely as we as we talked about before we had three TV markets in the third quarter, we upped that to six markets in the fourth quarter and now we just reported we bought that to nine markets.
Different markets, we we rotate the markets, which were running the ads and we see an immediate increase in web activity now what we want to do as take the next step on that and in time, we're going to be looking to to make sure that we can track the return on investment, but the acquisition cost.
This is not that significant.
With the TV AD based on the number of inbound that we get we continued the radio thats been our most effective today as well as of Facebook and Google ads. So we'll continue to push that but we track it really closely and we think it's been quite beneficial to date.
As far as the pediatric goes we're working with the FDA right now we're studying pediatric population with down syndrome.
That's a relatively small population and it's pretty spread out so we want to work with the FDA to see if we can't give the indication for the entire pediatric population and if that doesn't work will tighten up.
The inclusion criteria and the we submitted everything back to the FDA its back in the FDA is court right now they're working on it they are active with us they're asking us questions and we should know back in the next one or two months, where we stand with that but we think it looks pretty positive.
Great. Thanks for taking the questions. Thank you.
Our final question comes on line I'm, Tom Block with Stifel. Please proceed with your question.
Hi, guys. This is Tom on for John Thanks for taking my questions I guess to start Japan.
Expectation of of limited launch.
This year what are the next steps once that begins and then are there any sort of objectives are targets you have in mind, there as we enter 2021.
Yeah, that's a let me start at the beginning here.
So.
We have for regulatory approval of all the latest products. So that's really good news we have four.
Physician societies are full support and have written letters of recommendation to the ml age Devry Ministry of.
Health Labor on welfare, which is the reimbursement arm of the Japanese government.
They have pressure to be able to move forward and get the reimbursement.
Level set.
But we expect that the reimbursement level should be equal to the average global price in the United States and in Europe, and we've let them know that and so we're we're working with them to to get to that point.
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I think what we're looking for until we know what that reimbursement number is.
We're not making significant implants and or a significant I'm sorry significant investments in Japan, we have not entered into an agreement with any distributor. We may use some highbred between that direct approach along with support from another distributor we do work with the physician site Society.
So we know the first.
Probably 10 hospitals that we will want to go to end the surgeons, who will be doing the procedures. In those cases, we are working with the sleep society. So we have not set our goals on that Intel we know what the reimbursement level will be.
We didnt talk anything about China today, we're careful about.
Apply we think we're pretty comfortable from that standpoint.
Although a lot of the people on the M. alleged W. Japan is concerned about the virus and we've lost many of our reviewers.
To the concern of the virus remember, Japan has the Olympics coming up and so they are spending an extensive amount of time on that so we do have another meeting the first week of March with the M.L. HW, we hope to be moving that forward at that time, and we remain very optimistic because we thought.
I think it's the either the second largest or the third largest market between.
Between the United States in Germany, and we really are excited that kind of get started with them, but we do are going to take it.
In a in the same cadence, whereas we're going to make sure. We protect the same positive outcomes that we have both in the United States in Europe as we move forward.
Got it Thats really helpful. And then Rick one for you with us growing faster than international on having a little bit better of a gross margin profile can you just talk about that in context of 2020 gross margin margin guidance being roughly flat I think versus 2019. Thanks.
Yes, we.
Historically.
We do not do annual price increases and so we really only adjust our price when we have a technological breakthrough that's why we're providing guidance on our MSP have been really consistent with what weve incurring we're encouraged there our margins were 84% in the fourth quarter.
Again, we don't want to make any on validated assumptions as we move forward but.
We think the gross margins are strong between 80% to 84% and that's what we're comfortable in guiding that right now.
The U.S. is growing faster.
And.
And we are investing most of our dollars obviously in the U.S market.
But with the standard pricing, we get we still feel really comfortable with the 80% to 84% margin.
Great. Thanks.
We have reached the end of our question and answer session and I will like to turn the call back over to Mr., Jim Herbert for any closing remarks. Thank you very much.
We remain focused on maintaining a healthy growth rate for a business and while always striving for high quality dance drive patient outcomes, partly 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 strong financial and operating results. Moreover, an increasing number of commercial plans continue to issue positive coverage decision and the Medicare LCD is once finalized should meaningfully benefit our business. This year as always I am grateful to the growing team of dedicated inside.
By our employees for their enthusiasm and continued motivation to achieve strong and consistent patient outcomes. The inspired team's commitment to patients remains unmatched and is the most important element to our success.
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 very much.
This concludes todays teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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