Q3 2020 Inspire Medical Systems Inc Earnings Call
[music].
Greetings and welcome to the inspire medical systems third quarter 2020 earnings call.
This time, all participants are in listen only mode.
Brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Bob Yedid. Please go ahead.
Thank you Stacy and thank you all for participating in today's call.
Joining me are Tim Herbert President and Chief Executive Officer, and Rick You Holt Chief Financial Officer.
Earlier today inspire released financial results for the three and nine months ended September Thirtyth 2020.
The press release the press release is available on the company's website.
I'd like to remind you that on this call management will make forward looking statements the meaning of the federal Securities laws. All forward looking statements, including without limitation operations financial results and financial condition investments in our business continued effects of the cobot nine.
Teen pandemic.
Full year, 2020 financial and operational outlook and improvements in market access are based upon current estimates and various assumptions. These.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from accordingly, you should not place undue reliance on these statements.
Our filings with the 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 and speak only as of a lot broader question broadcast today December 2nd 2020 and what.
Those prepared remarks, it's my pleasure to turn the call over to term Herbert CEO Tim.
Thank you Bob Thanks, everyone for joining the call today for our third quarter of 2020 business update.
I'd like to begin by reiterating how very proud I am of the inspire team and how hard they have worked through all the challenges experienced thus far in 2020. These.
These efforts resulted in an extremely strong third quarter with momentum in our business that we expect to continue through the end of the year and into 2021.
In the third quarter of 2020, we generated worldwide revenue of 35.8 million.
Which is an increase of 72% compared to the third quarter of 2019.
Our strong rebound in the third quarter included patients previously scheduled for implants, but delayed due to call that and this combined with the continued enhancement of the core fundamentals of our business drove the high level of procedures that was sustained throughout the quarter and we do not.
Foresee any pod and our momentum.
Importantly, our inspire team the hospitals and all health care providers have continued to adapt and identify sales methods to continue to operate and treat patients in need.
Simply stated the patient flow diagnostic and planned activity has rebounded and is back to pre tobin levels and beyond.
That's sad business conditions during calls that are always evolving and we continue to monitor that impacted the pandemic, especially with the most recent spikes.
However to date, we have not seen suspension of cases.
With this in mind and assuming continued normalized operations, our strong performance in the third quarter and the positive trends in employment activity provide us with confidence in the outlook for our business for the remainder of the year.
Therefore, we are increasing our full year 2020 revenue guidance.
Between 110, and $112 million, which is an increase from our prior guidance of $88 million to $92 million following our second quarter results.
These impressive results and our confidence for the remainder of 2020 are indicative of a multitude of factors primarily focused on our forward planning and preparation during the pandemic period.
We previously discussed the four groups of patients, including those who are unable to undergo older as fire procedure during the pandemic.
Each of these patient groups is critical to our success.
How does it is the continued development of our core business that truly drives our business forward.
Let's get into the details surrounding the third quarter first and foremost our focus remains on the patients to ensure that each and every one has the best possible outcome from inspired therapy.
We know that all patients are different in individual attention is required to ensure consistency and our safe and efficacious outcomes remain at the highest level.
Later, we'll provide an update on the development of our digital technology, which will be a productive tool to help clinicians tracked patients and their outcomes and further drive consistent patient care globally.
Beginning with capacity.
During the third quarter, we added 42, new U.S. implanting centers and ended the period with a total of 370. This is well above our prior guidance of adding 20 to 24, new centers for a quarter.
Since we were not able to schedule implant procedures earlier in the year, we had several sites that planned to open in the second quarter and he is carried over into the third quarter.
Driven by the more favorable reimbursement environment.
We have increased our focus on adding ambulatory surgical centers or A.S. sees to further drive capacity.
To date, we have signed two national contracts with United Surgical partners International and surgical care affiliates, which collectively represent over 625 season the U.S.
We understand that we will certainly not opened all of these but working with the corporate groups. We can identify which is he is focused on M.T. procedures.
At the end of the third quarter assay is made up nearly 15% of our total U.S. implanting centers up from 10% at the end of the second quarter.
We will continue our efforts toward adding standalone as sees all their national assay groups as well does not losing our focus on opening hospital systems.
With that said, we are accelerating the opening of new centers and are increasing our guidance to open 28 to 30, new centers in the fourth quarter compared to our prior guidance of adding 20 to 24 new centers.
Regarding the U.S. sales team.
We created seven new sales territories in the third quarter, bringing our total to 98.
As a reminder, we did not slow our cadence of hiring territory managers during the shutdown period to ensure that we are in a strong position once cases were able to resume.
You will recall that we opened nine territories in the second quarter we.
We have also continued increasing the number of regional managers and in the third quarter was 18.
Well its field clinical representatives, ending the third quarter with 36.
From a territory manager perspective, we will continue to target opening six to seven new sales territories territories in the fourth quarter.
This cadence and new centers and territories will continue to have positive impact on our long term growth.
As we review some of the key initiatives from the third quarter. What remains most critical for US is to stay active in educating new patients, creating this awareness is a core objective of our direct to consumer activities.
You will recall that during the latter half of the second quarter, we resumed radio and TV initiatives in our larger markets is the impact of covered last end after focusing on smaller markets earlier in the year.
We also continue to utilize our web site and virtual tools to help patients connect with physicians and in many cases using tele medicine.
During the first nine months of 2020, the number of visitors to our websites was over 3.6 million, which is a 15% increase year over year.
In addition over 43000 physician contacts were established via the website, representing a robust 39% increase year over year.
Moreover, in order to increase the percentage of patients reaching out to health care providers, resulting in Inspiremd plan, we continue to expand our call center concept called inspire adviser care program.
The primary purpose of the advisor care program is to assist patients in connecting with the appropriate health care provider based on their specific needs, which in turn should improve our overall conversion rate.
We continue to experience positive results and we'll continue adding expanding the program during the fourth quarter and into 2021 in fact by the end of next year, we expect a program to be available to the majority of our centers.
Switching gears to reimbursement that's third quarter was very positive for Medicare age patients. We noted that local coverage decisions or lcds are now in place in all 50 States and we saw very good uptick in Medicare cases.
In the third quarter Medicare continued to represent approximately 30% Obama inspire cases, meaning we are experienced balanced growth between Medicare cases, and commercial cases.
In the third quarter commercial cases continued at around 65% and to be a military implants were at 5%.
On the commercial policy front, we added several pilot positive policies in the third quarter, including Humana, Florida Blue Blue Cross Blue Shield, Minnesota, among others today, we have policies representing over 207 million covered lives compared to 145 million a year ago.
The last remaining large commercial payer is amped up during the third quarter. They published their annual review and this update did not change their policy as anthem continues to label Hypercloud, some nerve stimulation as investigational and not medically necessary.
For anthem patients, who have Medicare advantage, our commercial Medicare they follow positive coverage decisions of the Medicare Lcds and therefore covered.
Well Anthony did conduct an internal review there were several clinical publications that were not included in their technical assessment and they took a different interpretation of several publications that were contrary to the Blue Cross Blue Shield evidence Street technical assessment conducted early 2019.
That said inspire continues to conduct clinical trials on the safety and efficacy of inspire therapy and there is additional data that will be published shortly including from a new European randomized clinical trial for which a manuscript is being prepared.
We will continue to provide anthem with the latest clinical evidence and encouraged them to conduct an interim look rather than wait until the next annual review.
And tell then.
Asked them continues to approve patients friends fair therapy under the prior authorization process.
And the approval rates and time to approval for half the patients continues to improve in fact to date and 2020. The overall approval rate for half the patients is 82% and the average time to approval is 90 days. This is significantly improved compared to 73%.
And 158 days, and 2019, and 68% and a 191 days in 2018.
Looking at the broader prior authorization metrics.
In the third quarter, our internal reimbursement team supported 1233 prior authorization submissions.
This compares to 812 submissions in the third quarter of 2019, and 566 submission in the second quarter of this year.
This significant growth is attributable to both patients who had their sleep and does the procedures suspended due to call that.
As well as new patients entering the process.
The news regarding prior authorization approvals is also positive in fact 1039 patients received an approval in the third quarter compared to 672 approval in the third quarter 2019.
And 541 approval in the second quarter of this year.
We have experienced.
Increased approval rates in the mid Ninetys percent.
Further the median time for an insurance approval is now down to approximately 12 days from 25 days in 2019. These rates continued to improve due the large and growing number of commercial insurance policies.
As we have said on our last call given the approved reimbursement environment for inspire therapy. These metrics will likely become less meaningful in evaluating the overall progress of our business.
Going forward and as we previously stated we do not intend to continue to report on them. After the end of 2020.
Same with reimbursement.
But switching to coding.
We have a significant announcement.
Regarding the long term coding of inspire procedure.
The American Academy of older oncology or the AOL, which is that you have t. physician society has long been working with its fire to first create the new Tech called 046 60 for the pressure sensor.
And then to convert this from a category three code to a category one code.
In the process.
He will be viewed as a physician payment in connect in connection with the existing base code six four or 568 for implanting Enspire system. Remember this base code is shared with bagel nerve stimulation.
He also felt that the work to implant and inspire system was not adequately reimbursed.
Therefore, the a sales submitted a new all encompassing CPT code for the Enspire procedure to include the neuro stimulator, the stimulation lead and the sad thing.
At the October 20, C.P.T. meeting of the American Medical Association. This new CPT code was approved as a category one call it that.
The next step is to value the work associated with the inspire procedure and this process has already been initiated the results will determine the RV use or relative value units that surgeons are reimbursed for and inspire procedure.
A new code will officially be published for use in January 2022, and the results of this survey will be available around mid year 2021.
In the interim.
The surgeon payment well significantly increased by $450 already in 2020, <unk> with the Medicare policies and payment of the assessing the category three three new technology.
Which was meaningful for insurgents compared to the average Medicare reimbursement for the base code of six to $800.
From a facility perspective, the additional good news is that this new CPT code will not change the payment to the hospital or as Ses.
The proposed 2021 facility Medicare payments were released in the third quarter and proposed an $850 increase over the 2020 rates of $29000 for hospital and $24000 for an S.C. again these are national.
Average Medicare payments and commercial payments tend to be 1.4 times Medicare for hospitals and up to 1.9 times Medicare for S. sees.
Finally that ill also received approval for a new category, one code to improve reimbursement for the dice diagnostic procedure or drug induced sleep endoscopy.
This has also been an ongoing challenge for MTS to get reimbursed at this new code will resolve this frustration.
Okay moving on Europe also had a very strong quarter, driven by solid patient flow, particularly in Germany, and the Netherlands.
Like in the U.S. several areas in Europe have again experienced spikes in covert cases, and we are closely tracking the impact against scheduled inspire procedures to date, we have not had cases suspended and therefore continue to expect a strong fourth quarter in Europe, assuming these normalized operate.
Patients.
In Japan, we are making progress in establishing a distribution agreement as we also progressed with discussions with the M.L. HW, which is the ministry of Labor Health and welfare that's.
This group remains under a backlog of work due to call that but we continue to have dialogue and expect to learn more about the proposed reimbursement level by year end and continue to plan for first implants in 2021.
We were pleased to receive regulatory approval in Australia during the third quarter, which was earlier than we had anticipated.
We have applied for reimbursement in Australia, and the application is under review by the Medical Service Advisory Committee. The reimbursement process is anticipated to be completed during 2021, and we expect to launch inspire therapy and in Australia thereafter.
Further.
Ongoing clinical study for adolescents with down syndrome continues to progress in fact, we recently received a grant from the National Institute of Health to support the expansion of the study to include additional patient centers and clinical endpoints.
Okay switching gears again.
Similar to the first and second quarters, we increased our R&D expenses year over year in the third quarter as we continue to invest in enhancing our technology platform.
Inspire cloud project, our cloud based patient management system continues to progress with the addition of a significant number of centers in the U.S. and in Europe, We're using this tool.
Earlier this year, we launched the inspire app on patient smartphones as the educational tool.
The second version of the App was released in the third quarter and interfaces with the inspire cloud and allows physicians to collect clinical data from patients directly.
Weve continued to enhance the functionality of this app as part of our overall digital platform development.
The inspire cloud project NRF are just a first step in establishing interconnectivity between the patients and their healthcare provider with a long term plan to improve outcomes by tracking patient activity and adherents.
And monitoring for any issues with rice, yes.
We also have active projects to improve the physician programmer and the patient in remote control, which will be Bluetooth enabled.
Longer term the design activity for our fifth generation inspired neuro Stimulator continues as a reminder, we anticipate that this it will be a multi year effort to develop the inspired four or five device and obtain regulatory approval. We continue to conduct feasibility trials with.
Several technology innovations, which will make the inspire five neurostimulator state of the art and expect that it will further improve the performance of the system, including simplifying the implant procedure.
In summary.
We believe there are significant momentum in all key areas of our business.
Plant activity trends are highly positive and we remain well positioned to assist patients as they progress they're inspire therapy journey.
We remain focused on improving utilization and our conversion rate.
Even further advancements in reimbursement that build upon our recent positive 'cause it coverage decisions.
Growing the body of clinical evidence in support of inspired therapy, and investing and the continued development of our innovative R&D platform.
We are extremely excited about our future prospects and are confident that we have the right plan in place to ensure long term success.
With that I'd like to turn the call over to Rick for his detailed review of our financials.
Thanks, Tim as Tim noted, we are extremely pleased with the strong restart to our business once the shutdown from the COVID-19 pandemic reversed as our core business grew through increased implants diagnostic procedures physician contacts and prior authorization submissions.
Total revenue for the third quarter of 2020 was 35.8 million a 72% increase from the 20.9 million generated in the third quarter of 2019.
You ESS revenue in the third quarter was 33.1 million an increase of 78% from the 18.6 million in the prior year period.
In the third quarter European revenue increased 23% to 2.7 million.
Our U.S. average selling price in the third quarter was 23800, which was consistent with the prior year period.
The European ASP was 23300 during the quarter as compared to 21700 in the third quarter of 2019.
The higher European ASP was primarily driven by favorable changes in foreign currency exchange rates.
Our gross margin in the third quarter was 85.5% compared to 83.4% in the prior year period.
The solid improvement was primarily due to manufacturing efficiencies and improved yields which led to cost reductions with our third party contractors.
Based on these ongoing efficiencies and cost reductions we are increasing our full year gross margin guidance to be in the range of 84% to 85%.
Compared to our prior guidance of 82% to 84%.
Yeah.
Total operating expenses for the third quarter were 40.5 million, an increase of 56% as compared to 26.1 million in the third quarter of 2019.
This increase was primarily due to the expansion of the U.S. and European sales organizations.
As well as increased direct to consumer marketing programs continued product development efforts and general corporate costs.
As we said during our second quarter earnings call. The increase in operating expenses is reflective of our plan to achieve continued growth and consumer and our consistent focus on investing in commercial and development initiatives.
Our net loss for the third quarter was 10.4 million compared to $8.2 million in the third quarter of 2019.
The diluted net loss per share for the third quarter of 2020 was 39 cents per share compared to 34 cents per share in the same period last year.
Moving to the balance sheet, we continue to maintain a solid cash position.
As of September 30, our cash and investments totaled $234.6 million. This.
This strong cash position allows us to continue executing on our growth strategy of increasing patient flow at existing centers and training and opening new implanting centers.
The weighted average number of shares outstanding for the third quarter was 26.8 million.
We anticipate that the weighted average number of shares for the fourth quarter will be approximately 27 million.
As we stated earlier, while business conditions have normalized within our implanting centers, we continue to monitor the impact of the pandemic, especially with the recent cobot spikes, but.
But we have not seen any immediate suspension of cases.
With this in mind and assuming ongoing normalized operations.
Our strong performance in the third quarter and the positive implant trends provide us with confidence in our outlook for the remainder of the year.
Therefore, we are increasing our full year 2020 revenue guidance to between 110, and 112 million from 88 to 92 million, which represents 34% to 37% growth over full year 2019 revenue.
In summary, the key metrics throughout our business remains strong and we are well positioned to achieve significant long term growth. We're.
We are extremely pleased with our third quarter performance and are excited to continue executing on our growth strategies.
With that our prepared remarks are concluded Stacy could you. Please open up the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Robbie Marcus with JP Morgan. Please go ahead.
Oh, great and I will say congrats on a phenomenal quarter well done.
Thank you Ravi.
I'll just ask both of my questions upfront into out one bigger question.
It just it really came in well above I think you know even some of the better case expectations by my math reps, who were doing and 1.4 million annualized revenue you know to get to your guidance range. It's over one and a half million in annualized revenue in the fourth quarter centers are doing close to.
$400000 of revenue.
Per center. So it's clear that each center is doing more procedures, rather than just adding more reps and more centers here. So I was hoping you could give us.
Deeper accounting.
You know where you are today in terms of how deep your center penetration is how much more is there to go and if you can wrap in some of the DTC advertising and what you're doing on the patient side to drive such impressive growth year over year, you know I mean.
And people will still say your fourth quarter it looks conservative in light of your third quarter.
Which I think everyone will appreciate but maybe you could just help us understand what's really going on here, where you see yourself in the curve and how much more is there to go thanks.
Very good.
Well first off I think it's how we conducted business during the shutdown period and as frustrating as that was.
Our staff and our team and physicians on the centers remain very motivated and continue to communicate with patients. We previously talked about our four groups of patients, including Wanda group that unfortunately have their procedures postponed because of colvin to the group that was unable to schedule their cases.
Three the group that were unable to have their dates or sleep endoscopy procedures. Because those are also both bone and the fourth group was those that were.
Just just entering the process and just come to the website. We continue to drive all those process. We continue to hire territory managers. We continued to do the prep work for opening new centers, albeit as we mentioned we couldn't open them in the second quarter, but we can certainly open them in the third quarter and that has another that's still Karen.
Forward as we move forward, we have not completely oh.
Worked through all patients and all buckets, including the the first group of patients. We still have patients who are had their cases postponed that they're just not ready to come back yet. So we're still working through all four groups of patients we keep track of them closely.
But then on the other side as were able to open up procedures I'm. This is oh.
Procedure that patients.
Are looking to have inspired therapy to take or the sleep apnea, so they're motivated to get in and get schedule.
Hospitals are motivated to get these procedures going and inspire yes. It is and there's the economic benefit for hospitals and assay is to perform these procedures. We certainly had a priority as we opened up some of our centers, but it really came down or a territory managers really staying focused through the whole process and continue to build our.
Our patient group, we continued our direct to consumer I'll defer to Rick in a minute here. So I'll, let him talk through a little bit about what we did for spending and direct to consumer in the third second and third quarters, but we continued our advertising we started our call center and we continue to communicate with patients. So.
Are we.
At penetration level with hospitals, not not yet no. We did provide a new incentive for our sales reps this year to grow improved utilization at existing centers.
No Robert as we talked in the past, we balance our growth 50% of our growth.
Comes from opening new centers, but more importantly, 50% of our growth comes from increasing utilization at existing centers and we want to maintain that balance. So we provided a new incentive for our sales reps to be able to continue to add capacity at centers, maybe add a second surge and to be able to get these case.
The schedule, which of course drives.
The revenue that individual territory manager can generate and also improve the number of implants per center. So we have another gear to go as far as utilization and helping.
Helping centers.
Perform consist more higher level patient patient.
Implants never go to Rick over there you want to comment on DTC, Yeah sure. So as you recall during during the ended the first quarter and in the second quarter, we did a shift our direct to consumer efforts from those large markets that were more impacted to the smaller markets that were less.
Impacted.
And we held back a little bit, but we continue to invest and lean forward a little bit.
As we started.
The beginning of the third quarter and so specifically, we we increased our sequentially our DTC efforts by just over 30% sequentially on a quarterly basis and we spent.
6.8 million in DTC efforts in the third quarter, but we as Tim mentioned, the fact that all four buckets, where we're we're continued to address those patients. We wanted to continue to spend dollars as we open up new centers and add territory managers to support.
Patient flow.
Great I appreciate the answers thanks Robby.
Next question comes from Amit has on with Goldman. Please go ahead.
Oh, Thanks, very much and let me just add congrats on a really nice progress across so many different aspects of the business.
I thought I could ask the question about 2021, and just see how much color you are willing to give at this early stage at the.
Sure you're sitting at about 145 million, obviously with some of the things you've talked about today that that seems like that's been okay territory, but I wonder.
One would wonder if you could talk at least qualitatively about about that and any other puts and takes we should be considering for the top line next year and you kind of go while you're at and if you are able to just talk through the Biennale next year same thing kind of anything you would call out sales force hires DTC spend that could help us in modeling.
Right very good as far as when we set up 2021, we obviously are putting out guidance yet on revenue or even opening new centers or the cadence of hiring new sales territories, but I think it's safe to say that we're going to continue to be aggressive with that I don't see us backing down on the numbers that we have we'll probably get a little.
Get more aggressive with hiring new centers as well as.
New territories as we move into <unk>.
2021.
The reimbursement it really helps having the Medicare having all of the positive commercial policies anthem, while disappointing it's still okay, because we're still able to able to get patients approved through the prior authorization process and we'll continue to stay on top of anthem that get them to write positive policy, but we're seeing some other.
Positive trends as well as additional clinical evidence the digital tools that we are putting in play with inspire cloud the inspire app. The addition, with the advisor care program and adding additional centers to be able to improve our conversion rates of fuzzy.
Question contacts to implant and making sure that we get the patients to the right a position I think is really going to help us continue the momentum as we move into.
2021 rig.
Rick you got something that you want to add there yeah.
Regarding walking through the the piano.
We had a we had a nice improvement in our gross margin 85.5%.
We had a cost efficiencies and some price reductions again, we use third party.
Suppliers for for our products and so we did that gave us confidence to increase our guidance for our annual gross margin.
We expect that to continue into the future. We have increased our operating expenses as Tim mentioned, we have numerous development projects going on.
With the inspire cloud the multi year project of inspire five as well as the App and so.
The current spending in R&D 7.3 million, that's really going to be our baseline and will maintain or increase that.
Going forward into 2021, and then also as Tim mentioned as we add additional territory managers add additional senders and continue to to spend on the our DTC efforts and we will continue to run our cadence as we've done in the past and.
We think that will help us have sustained long term growth.
That's great just just a quick follow up for me and I'll get back in queue. Just just on anthem, Tim as you had mentioned just curious what is the pathway forward year. Just just given the decision I think you said something like 80% approval rate did did you get feedback on you know why it was not adopted that's more specific that you could share and then.
The data that you're citing that's coming do you think that's going to be what they're looking for to get you over the hump on that one.
Yeah, I think they are well, they're very conservative I think their pride themselves and this is after pride themselves on being last and and they are in this circumstance. We can only interpret what we read in their policy. It from their review we don't are not allowed to have one on one conversations but we can understand.
And how they interpreted the star trial, which we thought was a bad.
Not appropriate and we will continue to communicate with them on that through written communications, but we also have a European study that has been completed it has not been presented in public yet, but the manuscript is being prepared and will be in for a review soon.
We have several other publications that will be coming out soon or already have come up. So we continue to build upon our clinical evidence in fact did hear registry is well over 2000 patients enrolled that is going to start evolving because it's gonna get folded into inspire cloud. So we.
We can only further grow the amount of safety and efficacy evidence that we have and we'll just keep keep on anthem. Eventually what will do when we start getting into higher numbers of.
They had here registry, we will write a paper on the clinical outcomes of anthem sales.
Sponsored patience and we'll get to that point of having that many patients with anthem insurance, who have clinical evidence will publish that and give that directly to add them. So we're going to keep we know how to do prior authorization. We've been doing it since we got approval in 2014, we have a very strong team that knows.
How to communicate we don't let up we don't give up Ben and I will eventually get policy from Adam.
Our next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Good afternoon. Thanks for taking the question I'll Echo the prior congratulations on a really nice quarter guys.
Thank you last one a.
Of course.
One short term question one long term question, let me, let me start with the long term question on the new CPT codes.
You know the press release talked about for both the implant and dies you.
Talked about or the press release talked about an increase in surgeon payment do you have any sense at this point, how much that can be and how can you be you know confident.
In that at this point given that the.
Or are you the survey still needs to be done and then I had one follow up.
I think that when we talked with the Aone, we even talk to some of the physicians and when we go all the way back to when that base codes. The CPT 64568. It was originally.
Developed in the year 2012, it has never been revalued or re surveyed since that time and when it was first surveyed that was for neuro surgeons doing bagel nerve stimulation. They I think have less than 20 surgeons conduct a.
Survey. So we believe from the outside there was always 30% undervalued and then that was before we even talked about the pressure sensor. So the number one complaint from into surgeons has always been the reimbursement level of that code and I think when that a all conducts the survey.
Basically send a information to every.
Inspire trained physician and they surveyed them on specific skin to skin incision times and from that they are able to calculate the RV use and the eight are the aone when they looked at the payment level that the E. N. T is we're getting there we're pretty comfortable that the newco.
New code will be higher than that so yeah, we have a little bit of comfort with that we're very impressed by the partnership with that we have with Aon that they can think through this process and.
They didn't want to share that code because it was an ongoing problem sharing six four or 568 with the neurosurgeons because the utilization of that code is shifting more towards inspire based on the number of cases and they realize that inspire and have a glass nerve stimulation is going.
To be a very important part of the in NTT surgeons.
Procedures long term so they wanted to get control of their own code and I give them credit for for really stepping up pushing it through and during this covert period able to get a category one code and on top of that they understood that long term challenges with dice and that slip in das because where there really isn't a clear.
Pathway for coating that today, so a or really took that out. So I think that is really going to have the LOM long term benefit for the surgeons both in hospitals as well as an FCC.
Thanks, Tim and the short term question is how much visibility do you have on Q4, I'm asking because of the spike in Cobiz cases, and you know the risk of reduction in all in elective procedures, which is kind of on investors' minds. Obviously this week last week so.
So is there some conservatism baked into Q4, the Q4 guide for that thanks for taking the questions. Thank you Larry I.
Have the opportunity to sit in on regional manager meetings and here. They are there plans and what they're doing to work with their surgeons. We specifically are asking all of our hospitals all over doctors do.
Do you have your case is scheduled are they what risks do you have with Covidien, here's the key hospitals physicians our staff.
Have learned to operate in a covert environment save.
Precautions must be used to using the proper P.E. proper testing, making sure that the REIT procedures are followed and weve been specifically asking especially with these.
Spikes that you see and we have not seen suspension of cases to date.
We're pretty confident that our centers will continue to proceed further and they have capacity for coal.
Covidien they have capacity to continue with the inspire procedures. So as we stand today.
We remain very confident and so we did not build.
A suspension into our plan.
Alright. Thank you so much thanks Larry.
His question is Chris Pasquale with Guggenheim. Please go ahead.
Thanks, and congrats on the extended results Tim you mentioned the different patient buckets can you quantify how much in Threeq you volumes came from deferred procedures. I know you said you still think there's some pent up demand, let's be addressed but.
Those patients may very well take a while to come back if they haven't already I think it would be helpful. As people think about Fourq you to compare guidance to a threeq you baseline without that catch up phenomenon that you benefited from.
Right. So there are there is certainly is a little bit of a bolus effect from Q3 that I don't think you can normalize between revenue in Q2 and Q3 I think we.
We worked so hard to build the other groups of patients that is while it may have a little bit of an impact I don't have a specific number for you I don't think it was overwhelming and I think we are just stressing the confidence going forward with what we did to bring the other patients into a.
The process.
And so while yes, there is a a bolus effect from a.
Post cold, but I think the growth that we have in new patients and remember, though we also had a little bit of a bolus effect in patients that were not able to get their final diagnostic or their their sleep endoscopy and so you're going to see more of that in the fourth quarter because it just from a process you can only ramp up.
So fast and only do so many procedures and so we have a pretty healthy.
Pipeline of patience and plus as you as we mentioned the number of patients coming into the pipeline remained very very strong.
Okay. So if I put words in your mouth, but I'm paraphrasing, what you're saying it sounds like you view the third quarter.
It's really the culmination of the progress you guys have made on a number of different fronts over the last 12 to 18 months not an unusual quarter that was really impacted mostly by this pent up demand phenomenon.
Yes, I think there there was a little bit of an element of the bolus effect, but I think it's it's really the work that the teams have been doing.
As you said while sales.
Thats helpful. Thanks, and then I'm curious on the Cds or that you talked about these national contracts me 600, plus.
Hi, This is obviously a big number.
Do you have a sense yet how many of those are realistic targets for inspire and just sort of a ballpark of what percentage of those could be accounts for you guys in the future.
We've had a you know it.
In the past we've generally just respond to this question kind of saying a third of of hospitals and ask season, United States are potential candidates to do inspire procedures I think when you started looking at these national contracts, we get to work with the marketing group and they get to getting a computer and say, okay. Who's got eight Eone Ti who does.
Sleep surgery, who might do vehicle nerve stimulation, there's a lot of different experiences and it really helps us to focus on who we're going to communicate with first to get those sites up and running and really because of the national contract.
We're through the first step I, we really need to do is get and make sure that team is formed and get through a training process. So like long term as a rough argument I think we could be at a third of those but again I've I've been pretty general there I think it's really about us being focused right now and opening centers.
At the current cadence that we always have albeit we're being a little bit more aggressive and increasing our guidance at opening centers, because we're increasing the size of our training team and increasing our capacity to handle additional centers. So we're not going to we're going to stay within our cadence but.
We will be more aggressive in opening centers.
Great. Thank you.
You bet just passed it Richard Newitter with Leerink. Please go ahead.
Hi, Thanks for taking the questions and congrats on the impressive quarter.
Wanted to just follow up on the comments a little bit.
Specifically within the context of utilization you're.
Thank you per account by my math.
Pretty sizable step up.
Quarter and growing.
30% your implied Fourq you utilization per account is looking like it's it's over 20% and that's despite.
30% to 40% increases in your account base.
And that's a big step function up.
You know.
Is that a function and art.
Oh, yes utilization uplift could you give us a sense of what the utilization is versus just the traditional hospital utilization we heard it it can be as much as triples, I'm, just wondering especially in light of it.
That that you could be applicable 30% to see it.
It would be helpful to know what kind of utilization bifurcation of you're seeing between those two care settings.
Sure Rich I don't think Weve really experienced the full impact the assay is yet if I go back to a prior workdays ride working at my Medtronic days in and say from their stimulation for urology and spinal cord stem for pain and even the new.
Some of our other friends like X Onyx and Nevro and.
Look at the percent of their cases that are done an assay is today well until you have reimbursement in place you can start down that process and so 2019 2020 or the years that we really able to get that reimbursement locked in and now we're able to kind of step up a little bit so now you're seeing the national contracts.
And gives us the right to start opening up more those as season, you're right I think that you can drive higher utilization at those assay is especially when you have strong reimbursement that we see with a level.
Level, five APC payment as well now with the future increase surgeon payment I think you'll see that further down the road I don't have an exact number for you on the utilization today, but as I mentioned as he is still are only about 15% of our total number of centers. So it's still relatively small but I.
I think you will see a more significant increase in the number its ease as we move into 2021 and died and the goal would be to your point.
Improve utilization right alongside with that.
Okay. Thanks for that.
Just thinking about your guidance for the fourth quarter very robust.
You are clearly not baking in any.
Any meaningful slowdown due to cold it in your momentum, but I appreciate why.
You gave your your rationale for that.
Got to decide that you don't see any hospitals able to.
Men, who called in and there's no better at dealing with.
The World is it as it is today, but how do you handicap for what what patient willingness will be as we move into these colder months and cobot surges.
Continue to materialize.
What was your thinking there that would be helpful. Thanks.
What we've been seeing is patients are very motivated and the amount of patients 3.6 million people come to our website, especially during our stay home pandemic period people realize the quality of life with untreated a moderate to severe sleep apnea is that good and their productivity is down the relationships are stressed.
These are motivated people they want to be able to find a solution and they go and they do all this research and they learn about inspire and remember these people have tried and are unable to use see path and they probably benefited from c. Pat for a while but the cat have sustained benefit so they need to find an alternative.
We haven't had a problem with patients really motivated to come back and there are certainly a group of patients that are.
Little more timid they don't they want to hold off a little bit lager, and that's just fine and we keep in communication with them, but again, great number of patients really have been motivated to come the website get educated go through sleeping Das B gift their insurance approved and get schedule for for cases, and you saw that so.
Significant number of implants in Q3, and we expect that going forward. We don't think there is going to be too much.
Hold back from a patient perspective.
Thank you.
Thank you rich.
Next question comes from Jon Block with Stifel. Please go ahead.
Great. Thanks, guys. Good afternoon, I'm first of all just on 2020 guidance implies something around 50% to 55% revenue growth for.
In the fourth quarter, you did over 70% the third quarter, maybe some.
Not a lot for your comments, though but some of threeq was aided by deferred.
Q procedures I'm just curious when we think about the for Q year over year revenue guidance should we think of that more as pure call. It in sort of the right jump off point into 2021.
Fourth quarter implied guidance will have a decent amount of pent up demand to it and then I just got a follow up.
Yeah that is a very good question I don't think we're going to have too much.
Demand left over after Q4, I think thats pretty much going to be all organic or new patients in the process and so I think from that standpoint, maybe there's a little bit more of the bolus effect in the fourth quarter pretty.
Predominantly from the sleep and das be diagnostic side than it was from the implant. So yeah I think the way Chris asked that question too and it's characterized a little bit of the bolus effect in Q3, and so I think our plan for Q4, but I think in general what you're suggesting is probably pretty appropriate that we think that the pay.
Line as strong as we mentioned, we're going to continue with our direct to consumer outreach programs that visor care program continues to grow the number of patients downloading. The inspire app continues to grow and opening a S season, driving utilization and we're just kind of spending.
Lot of players or keep focused on taking care of patients and having strong outcome. So.
Got it helpful. Thanks for that and I think just to pivot.
Jim can you just talk about a couple of your key initiatives on the investment side I mean, they seem to be centered around the direct to consumer the call center that you called out I know, it's early but are there any metrics or growth figures that you can share any qualitative comments on what you're seeing from the DTC markets or what you're seeing from the center is a subset of centers.
That are currently along with your call initiatives. Thanks, guys.
I can tell you what some of our key performance indices are KP eyes are in regards to our advisory care program know how this works is a patient will call then and there will be a somebody at the call Center will talk to the patient an answer or ask a few questions. If I know if they're qualified patients determined what physician they would be best served to.
And then they will together contact.
A center to schedule an appointment and.
We won like 80% of those calls answered live we're not there yet, but we expect centers to make sure that when we have a phone number its a hotline come and then we're comment to make an appointment when we have a qualified pace and we expect that we'll be able to make that appointment KPN number two is we expect to make that appointment.
Within two weeks and then the final thing is making sure that we can drive qualified patients to the right physician what I mean by that is if somebody we have a lot of patients who call in who have never had a sleep study before and bless them that they're calling yet, but they need to see a sleeve physician first.
Get diagnosed for their sleep apnea, and then try see Pat knowing 50%, we'll circle back around in a certain period of time they.
They need to go to us the position that we can help them. There other patients are ready to go with inspire they've been diagnosed they tried see path they.
Have the proper characteristics that we can identify over the phone and so we set them up with the N.T. So the whole process is set up to improve conversion and if we can improve the quality of patients coming to an end Tees office by default, we get to improve the utilization of that surgeon to be able to do perform.
The other question that we always posed to surgeons is how many dedicated all our days are you giving for inspire patients.
And when we started our training centers. We said, we expect you to do at least one dedicated or day, a month that can give you a two and two to three implant procedures as well as they've been to ask me procedures. As we grow then you can go to two if not three dedicated all our days a month the Ohio state.
University has rebounded extremely strong member they did 100 implants last year. So we know how to drive capacity and now we put the incentive and therefore, our territory managers to help our centers add that capacity.
Thanks, guys helpful helpful color.
Thanks, Jeff next.
Next question comes from Bob Hopkins with Bank of America. Please go ahead.
Hi, Thanks, Good evening I appreciate you taking the question.
Hey, So just a couple of quick things I know, it's getting late can you give us an update anything changing on the margin here in terms of the percentage of these cases, requiring an overnight stay in kind of the the average age of a patient just curious if in these troubled times anything changing there now.
No. That's a really good question interestingly enough the star trial, which was our our phase three pivotal the average age was 54 and then the AD here registry, which is our post market study. The average age jumped up to 60, well that was really because of reimbursement because it's easier to get Medicare now that we've got all these commercial cases in commercial.
Cases, it's still running.
At 65% of implants, and Medicare at 30, I think we're seeing a little bit.
Age reduction as far as implant procedures.
Not going to get that number looked up here, but I'm sure. It's it's coming back down we believe it should be a near the the 54 years, maybe there's a little bit of effect from Cove. It because of the elderly population is be a little bit saving so they're being a little bit careful about scheduling their cases, but we certainly are tracking.
That as far as overnight stays the great majority of our cases are all.
Same base surgeries. They go home the same day very few have overnight states overnight stays maybe in Europe. The reimbursement is set up such that it.
It's more beneficial to have overnight stays in the majority of patients in Germany.
Do stay in the hospital, but in the U.S. its outpatient again, that's why it lends itself to such a migration to asses.
And then Tim one other quick question I'm just in terms of the two national contracts on the agency side can you just give us a little bit of it a more detailed sense as to what exactly that means those set pricing and facilitate tiet contracting as you go into into the individual agencies or just just exactly what are the what.
Well it was part of those national contract.
Yes, absolutely well the key to it it's kind of the same thing is with the National health.
Health care policies, we have or policies contracts with like Kaiser or inner mountain or Ascension health that we just signed.
And what we do is the key number one fundamental that we haven't inspire is everybody pays the same price period I don't care, if your assay Kaiser the Cleveland clinic gross small hospital and Alabama, everybody pays the same price because that's how we can hold consistency and that's how we can sleep at night. So.
As these are the same thing they went did their review their diligence they did the value analysis or the.
Yeah, the value committee to make sure that it's it's worthwhile for their assay is to be able to do these procedures.
And then they enter into a contract and of.
Of course, everybody when they do a national contract is certainly going to ask to have a little bit of a discount off the pricing, but we don't do that Bob and and since 2004, when we got the.
FTC approval to this day, we stand from everybody pays the same price and when we negotiated these national contracts. What it is is it is the value committee yet is the pricing that every senator pays and so now when we go to assay. We don't have to go through that and logistics part of it whenever we go to <unk>.
These are hospital whenever you go to a sense on hospital Intermountain hospital or all the other national contracts that we have we just need to form the team training the team and make sure we understand how to drive patient flow and how to be able to treat patients and have strong outcomes.
Great and last quick one of all the positive news you guys announced today, which one do you think will have the biggest impact on your business over the course of them actually 18 months.
Wow, that's a good question.
Being able to manage and a covert environment.
I think is very significant we are very careful.
Careful all of our.
Personnel carry their own PPD and.
And people are recognizing the dangers of covance being to able to operate and co, but yet still treat patients and have strong outcomes is tremendous.
The coding the new code for a surgeon reimbursement I think well have a longer term impact as far as.
As far as transition even further the SCS.
I think the positive coverage policies and the Medicare LCD is so tremendous yeah. As you know we talked at them as frustrating, but it's just a matter of time before they write policies. So.
Then what I am an engineer by what I get excited about is our technology development, our digital tools are inspire cloud.
The new patient remote inspire app.
It's really going to play into it and when we release inspire five that's going to have an impact.
Great. Thanks, so much have a good evening. Thanks bye.
Next question comes from.
Animator with Piper Sandler. Please go ahead.
Hey, guys congrats on the strong quarter and thanks for squeezing me in here I'll keep it to one.
Just on the O.U.S. business I know, it's a relatively small part of.
The overall sales number today, but Q3, Oh U.S. came in nicely above our expectations was just hoping to get some additional color on what drove the nice performance in Europe. I think you mentioned some price benefit and I'm just looking forward how should we think about Europe in subsequent quarters would you expect to kind of I guess build off this new high watermark.
Oh, thanks much guys.
Oh, Thanks, Adam I think so they had a very good Q3 back to Chris' question early on.
Europe, we shut down too so Europe also had a little bit of the bolus effect from being able to reschedule those cases, but that said.
Andreas RVP in Europe has been so active in building his team and opening new centers, specifically in Germany, and finding better ways to improve patient flow in the Netherlands as in Belgium. In other countries has really set up the Europe for future growth. So yes, there's a little.
A bit of a bolus effect, but they also had a very strong quarter and I think you're going to see that even continuing into the fourth quarter and beyond we talked about this before that that if.
If we can have international revenue hang around 8% that means international revenue really has to grow as fast as it's growing in the United States and we may get some benefit by adding in Japan, and then and then beyond that Australia and further expansion after that but the key to it right.
Right now is really that the European growth and I think what you're going to see some strong change.
Changes with a permanent reimbursement in Germany, as well as improved flow in the Netherlands in the near future. So.
Thanks, so much for the color there.
You bet.
Next question comes from Ravi Misra.
<unk> capital markets. Please go ahead.
Hi, good evening, thanks for taking the questions.
Right just a one one on the the coating announcement, Tim just it sounds like you're expecting a higher rate base on the our view selections that may come through next next summer, but let's just say our user held flat what would the kind of the change in overall change in reimbursement.
Maybe just to give us a benchmark then I'll just ask my second question upfront.
Just curious to understand how you're.
Accounting for ROI on some of your patients spend in terms of.
How quickly you expect people to come in I mean, your approval times are being reduced your kind of insurance your patience.
So many pilots are going up just how much of that is kind of related to that the.
Spend on advertising, if you could help us tease that out thanks.
Absolutely well that's based on physician reimbursement today, so right now the code six for fights exceeds the national average Medicare payment is six to $800. That's for Medicare commercial payers about 1.4 times that are call. It $1200 right. So it's between 6800 from Medicare and maybe 1200.
800, 1200, four commercial payers and now they get the $450 for the pressure sensor that's new.
With the Medicare policies. So there are anywhere between a thousand and $1200 for Medicare and then 1.4 times that are 1400, two what does that maybe 1600 for a two hour outpatient procedure. So that is the baseline right.
Right. So when they do the rock process, what ill note that as they looked at their work to dissect down to the Vegas, they're replaced the electrodes from Cyberoptics or I'm, sorry, Livanova implant for bagel nerve stem and then they compared that to dissecting down doing the nerve integrity monitor tracking which nerve.
Which part of the Hypercloud some nerves a place electrodes because we do some detailed mapping and then placing the nerves on the distal branch of the Hypercloud. Some nerve ill feel very confident that the work is significantly higher and will come in at a higher rate.
As far as ROI, Yeah, we're very.
Tightly watching that and that's a long term view the key to it is we don't have very good data from our digital tools today.
But as we move forward now we're getting people come to our website and they are immediately downloading the app instead of setting up a communication with us and then when they're on the App. The app communicates with inspire cloud and so we can get the amendments buyer cloud we can start tracking patients from the beginning to streamline their process. They advise.
As a care program the call centers, just one tool to be able to streamline them to get them to the right Doctor.
When that time the period of time and all of those improve the conversion rates, which of course as you know is got to reduce our cost per acquired patient and we can look at it not a number of different ways and we're tracking that very closely right to the calls per per.
The cost per call the cost per appointment the cost per implant and we're tracking that very closely and believe that that's really going to have a strong benefit down the road when we can continue to improve.
Time from contact to implant as well as improve our conversion rates.
Great. Thanks for the detailed upon.
Thanks Robby.
Next question comes from Serasa Kalia with Oppenheimer. Please go ahead.
Good afternoon, Tim Rick Congrats on the quarter.
How are you Sir good to hear you, so Tim or Rick.
Give me if I got this wrong the mats, the suggesting that the U.S. The roughly 30 91 patients implanted in the quarter am I right on that math.
I don't know.
Yeah I repeat your question there again thrashed.
So the math.
If I take your Sps is suggesting roughly around 1391 patients implanted in the quarter I am I have yeah.
Approximately right.
Yes, that's correct, yes, yes.
Yes, so Tim I know this sounds dome and its late so please forgive me.
12, 33 submissions thousand 39 prior auth approvals in the quarter. So and 13 91, approximately implanted can you help us tie all of these together and I guess say dawn.
Well, they don't exactly Matt tie up because a lot of those well let me answer that one and then you follow up those don't include Medicare remember Medicare don't prior authorize and Medicare 30% of our implants. So that's one number two they don't include V.A. or military.
And they don't include Europe.
And the other key to its rise can be a little careful because.
Some of those will carry over into the fourth quarter, depending upon when the approvals came men.
Right.
I'll just have to think through this Tim because I just did the rough math.
And maybe Medicare is the missing piece, but I'm not sure if connected the dots yet.
Even since Q2 2018.
The numbers are suggesting totaled submissions of roughly 7870.
Total approvals or Fivea zero five.
Okay. So that is the delta here, maybe I should take it offline because I haven't connected the dots it still doesn't net out.
Now, let's go through it you got to remember you've got a 30% factor in there from Medicare and that has changed you remember V days, you're going to historic here I remember B.A.'s used to run at 10%.
And then also remember Europe used to run at 13, 15%.
So you got a lot of moving targets I know you're trying to calculate right.
Right.
Okay Fair enough, Rick what was the DTC spend in the quarter and Tim finally up and thanks for squeezing me in what percent of patients in the quarter or ready in the funnel versus pull through de Novo new patients. However, you want to characterize them gentlemen, Thank you for taking my questions and congrats on a great quarter.
Thanks Raj, let me answer the last one then have Rick answer.
Answered answer the question on the DTC I think we don't have the specific numbers, but as we talked about early on from Robbie's question as well. The we don't know there was a little bit of a bolus effect from the first group of patients that were carried over from coal bed, but we also had a lot of new patients in the court based on you know as.
You just talked about with the number of submissions.
As well as the number of approvals in the quarter. So.
It was very strong from all fronts as far as those patients coming through Recchi DTC DTC in Q3, our spend was 6.8 million.
Fair to $4.8 million in the third quarter of 19.
Very good so as thanks, very much hey, everybody I just want to thank you all for joining the call today I know, it's late and appreciate you hanging in there I remain grateful to the growing team of dedicated spire employees for their enthusiasm hard work and continued motivation to achieve successful them consistent patient outcomes.
He inspires teams commitment to patients remains unmatched and has the most important element to our success.
First of all of our employees as well as the healthcare team for their continued efforts as we return to a strong growth in our business in the U.S. and then Europe's fastly and a pulse covert environment, probably you're on the call. We appreciate your continued interest and support of inspire and look forward to providing you with further updates in the coming week.
In month, please stay safe and healthy and look forward to talking to you very isn't there near future.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Okay.