Q4 2020 Inspire Medical Systems Inc Earnings Call
Greetings and welcome to inspire medical systems fourth quarter and fiscal year, 'twenty and 'twenty earnings Conference call. At this time all participants are in a listen only mode and question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your cash.
Allophone and he passed as a reminder of this conference is being recorded I would now like to turn this conference over to your host Mr. Bob Yeah debt of lifestyle Advisors. You May proceed with your.
Thank you Laura and thank you all for participating in today's call joining me are Tim Herbert.
President and Chief Executive Officer, and Rick do you Hope and Chief Financial Officer earlier today inspire released financial results for the three and 12 months ended December 31, 2020, a copy of 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 within the meaning of the federal Securities laws.
All forward looking statements, including without limitation operations, the natural results and financial condition.
And our business continued effects of the COVID-19 pandemic.
Full year, 'twenty, 'twenty, one financial and operational outlook.
And improvements and market access for based on our current estimates and various assumptions.
These statements involve material risks and uncertainties the could cause actual results or events to materially differ on.
Accordingly, you should not place undue reliance on the statements.
See our filings with the Securities and Exchange Commission, including our annual report on form 10-K to be filed with the FCC today for a description of these risks and uncertainties.
And inspire 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 speaks only as of the live broadcast today February 23rd 'twenty 'twenty, one and with those prepared remarks, it's my pleasure to turn the call over to Tim Herbert CEO Tim.
Thank you Bob and thanks, everyone for joining the call today for our fourth quarter and full year, 'twenty and 'twenty business update.
Let me begin by expressing my gratitude to the entire inspire team for their immense efforts through the significant challenges we all face in 2020.
No one could ebb and vision the effects of the COVID-19, pandemic and the necessary stoppage of procedures and the first half of the year and during the resurgence late in 2020, and the continuation into 'twenty and 'twenty one.
As the team we made a commitment to stay focused on our patients and the steadfastly prepare for the time when centers were again able to off for inspire therapy.
As the company, we maintained or feel the expansion and continued to reach out and educate potential patients and physicians.
We leverage digital tools to continue community health talks about the therapy and supported virtual appointments.
These efforts resulted in a very quick restart tour of business as reported on in our third quarter call.
And I am very pleased to announce this momentum continued and we had an extremely strong fourth quarter as well.
And the fourth quarter of 'twenty and 'twenty, we generated worldwide revenue of $46 million, which wasn't which was an increase of 71 per cent.
Compared to the fourth quarter of 2019.
Importantly, while there was some pent up procedure demand from earlier in the year from patients previously scheduled for implant, but delayed due to COVID-19.
This gross growth was largely driven by the additional centers and territory managers, we continued to add throughout the pandemic and the increased number of procedures occurring at existing centers.
As I stated on our last call.
Our inspire team the centers and all health care providers have continued to adapt and identify safe ways to operate and treat patients in need.
We're pleased as they never of potential patients seeking information bonds for therapy, and those that underwent diagnostic and implant procedures. During the quarter has returned to pre COVID-19 levels.
Of course, as we have seen.
Business conditions during the Covid are always evolving and we continue to monitor the impact of the pandemic.
And late 'twenty, and 'twenty and into early 'twenty 'twenty, one we experienced some cancellations and delays and localized cases and select states.
Currently most centers are back scheduling cases, and we do not expect to see a sustained impact going forward.
We expect our normal Q1 seasonality due to high deductible insurance plans resetting at year end and increased caseload is patient sought to have their procedures completed in the fourth quarter.
Even though the seasonality maybe more pronounced than in past years, we are already experiencing a rebound and procedures schedule. It.
With this in mind and assuming continued normalized operations, our strong performance and the second half of 'twenty and 'twenty and the positive trends and implant activity provide us with the confidence and the outlook for our business for 'twenty and 'twenty one.
Therefore, we are providing full year 'twenty 'twenty, one revenue guidance of 100 to 83 to $100 million to $88 million, which would represent an increase of 59% to 63% over full year two.
<unk> 'twenty revenue of.
$115 4 million.
Yeah.
To reiterate what I said earlier, our impressive result, and the second half of 'twenty, and 'twenty and our confidence and our prospects for 2021 are indicative of the forward planning and preparation during the peak of the pandemic.
Of course as always our primary focus remains on the patients to ensure that each and every one has the best possible outcomes from inspire therapy.
With that let's now get into the details surrounding the fourth quarter.
Beginning with the capacity during the fourth quarter, we added 55, new U S implanting centers ending the year with a total of 425.
This is well above our guidance of adding 28 to 30, new centers in the fourth quarter of 2020.
Several of these new centers continued to be carry overs from earlier in the year.
But we continue to pursue and expansion and the number of centers and plan to open 34 to 38, new centers per quarter and 2021.
Included in this increase of new centers is a growing number of ambulatory surgical centers or <unk> drill.
Driven by the favorable reimbursement environment, we will continue to add both hospitals and ASE is going forward and do expect to see a growing percentage of inspire procedures being performed in afcs.
Regarding the U S sales team.
We created nine new sales territories, and the fourth quarter, bringing our total to 107.
For the full year, we opened 34, new territories of 47% increase over the 70 273 territories at the end of 2019 and.
As I noted earlier, we did not slower cadence of hiring territory managers during the peak of the pandemic to ensure that we were and our strong position once cases were able to resume.
During 2021, we plan to increase our cadence of opening new sales territories by adding eight to nine new territories per quarter compared to our guidance of six to seven and the fourth quarter of 2020.
We also continued increasing the number of regional managers and field clinical representatives and in 'twenty and 'twenty with 20 and 44, respectively.
The addition of new centers and the continued buildout of our field organization will increase our capacity and will remain one of our core focus areas for 2021.
Our other strategic focus to increase capacity is accomplished by increasing the utilization at existing centers.
Our challenge in 'twenty and 'twenty was that utilization was significantly impacted by the pandemic and while we have made significant progress and the second half of 'twenty and 'twenty. We expect this to further improve and 2021.
To make this point historically about 50% of our growth was from opening new centers and about 50% was from increased procedures at existing centers.
For the year of 2020 of however, this was skewed to about 65 per cent of the growth coming from opening new centers.
We plan to focus on increasing utilization at existing centers and as a result expect growth between new and existing centers to be more balance during 2021.
The second key area of focus is to improve our ability to assist patients interested and inspire therapy by making a connection with the qualified health care provider.
And we're outreach programs are very effective in generating interest and inspire therapy, primarily through the inspire sleep dot com website.
During 2021, we plan to streamline this process even further for their patients.
To accomplish this goal we are continuing and continuing to broaden our call center concept the advisory inspire adviser care program or a C. P.
The primary purpose of this program is to assist patients with making a connection with the qualified health care provider based on their specific needs.
We ended 2020 with the approximately 180 of our centers utilizing the ACP.
And the ACP answered about 25% of all calls for physicians.
We plan to significantly increase the number of centers under the ACP to nearly 500 by the end of 2021. This will enable the majority of the calls to be answered through the ACP.
To leverage this expansion it is essential for us to stay active and identifying and educating new patients.
Creating this awareness remains the core objective of our direct to consumer activities to this and we refreshed our outreach programs, including filming for new television commercials, which we started airing in January.
We also continue to utilize the website and online tools to help patients connect with physicians.
For 2020, the number of visitors to our website was over $4 8 million.
In addition, nearly 62000 and physician context were established to be on the website, representing a significant year over year increase of 73 per cent.
Combining this growth with the effectiveness of the ACP has us and a strong position to increase the adoption of the therapy.
Switching gears to reimbursement.
To highlight the 'twenty 'twenty, one will be our first full commercial year without a significant re of reimbursement related headwinds in the United States.
This means that we can focus on scaling our business.
As you know and 2020, all Medicare local coverage decisions of L. Cds were formally published and we have Medicare coverage and all 50 states.
And the commercial policy front, we added 11 positive positive policies and 2020, covering a total of 55 million lives.
And today, we have policies representing over 220 million covered lives.
At this point anthem is the last of the large commercial payers and the U S and it has not yet agreed to provide coverage for the inspire therapy.
Despite this we have had success supporting customers with obtaining prior authorization approvals, including with anthem.
Looking at the prior authorization metrics in the fourth quarter, our internal reimbursement team supported 1000 and 452 prior authorization submissions the.
This compares to 988 submissions and the fourth quarter of 2019.
And 1233 submissions and the third quarter of 2020.
The news regarding prior authorization approvals is also positive.
In fact 1276 patients received an approval in the fourth quarter compared to 751 approvals and the fourth quarter of 2019, and and 1039 approvals in the third quarter of 2020.
We continue to experienced increased approval rates into the high 90% and further the medium time for and insurance approval remains at approximately 12 days down from 25 days and 2019 the.
These rates have improved significantly due to the large and growing number of positive coverage decisions.
As we have said previously given the improved reimbursement environment for inspire therapy. These metrics are less meaningful and evaluating the overall progress of our business going forward and we will no longer report on these metrics after today's conference call.
Staying with the reimbursement, but switching the coding as we discussed on the last call. The new CPT code was approved and the process to determine the surge and reimbursement rates is ongoing and is expected to become effective January one 2022.
In the interim the.
The surgeon payment was significantly increased by $450 and two to 2020 with the Medicare policy of providing a payment.
For the sensing lead category three new Tech code.
This is a meaningful additional payment for surgeons as the average Medicare reimbursement for the base code is 600 to $800.
This payment for the pressure sensing lead was also adopted by most commercial payers.
From a facility perspective, the new CPT code should not change the payment to the hospitals or the afcs.
Further our new category one code was approved for the drug induced sleep endoscopy or dice diagnostic procedure.
This has also been and ongoing challenge for E&ps and facilities.
And the more appropriate reimbursement provided by this new code should resolve this frustration.
Moving on.
Europe also had a very strong quarter, driven by improved patient flow, particularly in Germany, and the Netherlands.
Effective January 1st inspire therapy is now integrated into the German hospital of reimbursement system with a formal DRG.
Since 2016, Germany as reimbursement for the inspire procedure has been provided through the and you'll be process for new diagnostic and treatment procedures. The decision to include inspire into the DRG catalog demonstrates that our procedure has become part of routine clinical practice and Germany.
In Japan.
We continue discussions with the MLA HW regarding the reimbursement of inspire therapy, our team met in person with the Moh debuted last week and while we do not have of resin Lucent resolution to date, we remain active and discussions and expect to meet in person and again.
And early Q2.
Our expectation remains that Japan reimbursement should be consistent with the U S and Europe and to this and we will remain patient and continue the ongoing discussions with the Japanese authorities.
Switching gears to R&D.
Similar to the third quarter, we increased our R&D expenses year over year and the fourth quarter as we continued to invest and enhancing our technology platform. The.
And the inspire cloud project, our cloud based patient management system continues to advance with the addition of a substantial number of centers and U S and in Europe, who are using the tool.
In 2020, we launched the inspire of sleep app for use on a patient smartphone and the educational tool.
Version two of the App was released later in the year and interfaces with the inspire cloud and the allows physicians to collect clinical data from patients directly.
The inspire cloud project and the inspire sleep App are the first steps and establishing interconnectivity between the patient and their health care provider. The next step is FDA submission of the new patient remote which will be Bluetooth enabled to allow for data from the of planet.
System and data collected by the remote to be uploaded to the inspire cloud we of patient smartphone using the inspire of sleep App, we anticipate that the new patient remote will be submitted to the FDA in the second quarter of 2021.
Longer term the design work for our fifth generation inspire Neurostimulator continues to progress as.
As previously discussed we anticipate that this would be of multiyear effort to develop the inspire five device and obtained regulatory approval.
We continued 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.
Finally, I'd like to welcome Brian Philips to inspire he recently joined our team as General Counsel, Chief compliance Officer and Secretary.
Brian is an accomplished legal executive with broad corporate experience and the health care industry and understands the dynamics involved with the growing medical device company through his years at <unk>.
We welcome Brian to the team and look forward to as meaningful contributions.
In summary.
We continued to experience significant momentum in all key areas of our business implant activity trends remain highly positive and we continue to be well positioned to assist patients as they progress on their of inspire therapy journey journey.
As I stated earlier, our core focus for 'twenty and 'twenty. One is to continue to expand our business by increasing capacity and improving the process to connect patients with the proper health care provider.
We also intend to achieve further advancements and reimbursement that build upon our recent positive coverage decisions continue our efforts to strengthen the growing body of clinical evidence and support of inspire therapy and invest and the continued development of our innovative R&D platform.
We remain extremely excited about the future prospects and are confident that we will have the appropriate strategy in place to drive long term shareholder value.
With that I'd like to turn the call over to Rick for his review of our financials.
Thanks, Tim.
I would also like to begin by recognizing the entire inspire team for their tremendous effort and 2020 as we faced unprecedented challenges.
Based on our fourth quarter results, we believe that we are well positioned to expand the adoption of inspire therapy positively impacting the lives of patients with untreated obstructive sleep apnea.
We are entering 2021, and a strong financial and operational position.
Total revenue for the fourth quarter of 2020 was 46 million a 71% increase from the $26 9 million generated in the fourth quarter of 2019.
U S revenue and the fourth quarter was $42 7 million and increase of 72% from the $24 9 million and the prior year period.
In the fourth quarter European revenue increased 64% to $3 3 million.
The U S average selling price and the fourth quarter was approximately 23800, which was consistent with the prior year period.
The European ASP was about $23600 during the quarter compared to 22400 and the fourth quarter of 2019.
The higher European ESP was primarily driven by favorable changes in foreign currency exchange rates.
Our gross margin and the fourth quarter was 84, 4% consistent with the 84, 2% gross margin achieved and the prior year period.
Total operating expenses for the fourth quarter were $45 9 million and increase of 44% compared to 32 million and the fourth quarter of 2019.
This increase was primarily due to investments and the expansion of our sales organization as Tim highlighted.
As well as increased direct to consumer marketing programs.
Continued product development efforts and general corporate costs.
As we noted on our previous earnings call and recent webcast presentations. The increase in operating expenses is reflective of our plan to achieve continued growth and our consistent focus on furthering.
Investing in our commercial and development initiatives.
Our net loss for the fourth quarter was $7 5 million of decrease compared to $9 1 million and the fourth quarter of 2019.
The net loss for the fourth quarter was 28 per share compared to 38 per share and the fourth quarter of 2019.
For the full year 2020, our total revenue was $115 4 million.
A 41% increase for the $82 1 million generated in 2019.
The U S revenue for 2020 was $106 1 million.
And increase of 44% over 2019.
European revenue and 2020 was $9 3 million and increase of 11% over 2019.
Given the significant progress we have made and scaling our business. We are providing full year 2021 revenue guidance and the range of $183 million to $188 million, which would represent growth of 59% to 63% over full year 2012.
On the revenue of $115 4 million.
Historically and similar to other elective procedures, we have experienced some seasonality and our business.
And the U S. We have higher procedure volumes and the fourth quarter as patients with high deductible health plans seek to schedule a procedure prior to their deductibles resetting at the beginning of the year.
We also experienced some localized delays and scheduling cases due to the pandemic resurgence.
In late 2020 and early 'twenty one.
However, we do not expect that these delays will be sustained.
Given these factors, we anticipate that seasonality may be more pronounced than in past years.
Moving to the balance sheet as of December 31, 2020, our cash and investments totaled $234 4 million.
The strong cash position allows us to continue to execute 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 fourth quarter was $27 million.
We anticipate that the weighted average number of shares for the first quarter of 2021 will be approximately $27 1 million.
In summary, our business is performing extremely well we are very pleased with our results in 'twenty and 'twenty and are excited about our long term gross prospects.
With that our prepared remarks are concluded.
Lora can you please open up the call for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like chairman of your question from the queue for participants using speaker equipment and maybe necessary.
And for you to pick up your handset before pressing the star keys.
Please limit yourself to one question and one follow up one moment, while we poll for questions.
The first question comes from the line of Richard knee water with SBB Leerink. You May proceed with your question.
Hi, Thanks, guys and congrats on the fantastic quarter and and.
The impressive guide there.
And just start off maybe on the guidance.
Can you give us a sense as to what.
And what you're assuming in terms of the percentage of.
Our accounts on a seasonal comprise in 2021, I think you said and <unk>. It was 50% I'm not sure. What you said it wasn't the <unk> and can you remind us what the utilization differences are between kind of what what can get done and an ASC versus other settings.
Absolutely Hi, rich.
<unk>.
We did increase the number of <unk> and in the fourth quarter and it's still just above 15%.
And it's a little early to be able to be measure and utilization between hospitals and ASC is we're going to continue the focus on bolt to continue opening those centers and keep that mix. Although I think it's safe to say as we mentioned earlier that the number of procedures and ASC as well.
We will continue to grow probably faster than they will on hospitals because of the number of agencies that will bring on board.
Got it thanks, Tim.
In the past week, we've we've asked you why aren't you going harder and faster at the opportunity and hiring reps faster and <unk>.
<unk> always said.
You want to make sure and preserve the quality of our procedures for doing the procedures et cetera, well here you are kind of talking about.
34 to 38.
New accounts per quarter, and and you definitely are planning on some some territory expansion and that's above consensus. So I guess most of the question is or what changed and giving you the confidence to be able to.
Most of the pedal to the floor a little bit here and.
It feels like there's definitely a strong inflection here. So maybe if you could elaborate on that a little bit the den congrats yeah.
Thanks for asking that and bringing the quality into it because that remains our number one focus and that is all of the ball patient outcomes and we always talked about the balance between growing fast and maintaining strong patient outcomes. So as we have scaled the organization and remember we talked about 19 go on to the four area Vice presidents and the regional manager and allowing us to scale.
But we always had the headwinds of reimbursement day limited our ability to really ramp up too fast, but now this year with the reimbursement headwinds kind of behind us and and moving through that we have also scaled our training team.
And so as we start to open up additional centers and bring on additional new sales territories, we can do that I of maintaining the same quality.
<unk> of our training procedures have improved.
And just expansion of the training team in general the be able to control of those outcomes and then I'd also want to add remember we've also brought in a new focus to field clinical reps right and we're looking to increase the ratio of field clinical reps to territory managers to be able to help the in service of the technology, but.
Also helped the.
The operation procedures. So we are not moving away from quality. We're make sure that is number one on the list, but were comfortable that where we are today.
And with the reimbursement environment, we can scale the business a little quicker and that's why we're being a little aggressive there.
Thank you.
Thank you rich.
Our next question comes from the line of Christopher squad with Guggenheim You May proceed with your question.
Thanks, and congrats on a great year.
I'm curious, whether the guidance assumes anything from either Japan, or Australia, and the two new territories that you're still waiting on some reimbursement progress for them.
Now for my from my comments.
Japan, we did have a face to face meeting with them. We don't have agreement on reimbursement and yet we have accident that we'll be working in concert with the animal HW over the next six weeks and we hope to be meeting again in person with them in the second quarter. Our intention is certainly the come to agreement.
But our expectations remain the reimbursement in Japan should be consistent with the United States and in Europe, and we're going to continue to pursue that and provide the evidence that the nest.
Necessary to to show that that's appropriate so we did not build that into.
And the other guidance in 2021, we would like to do the first implants in Japan, and 'twenty, one, but really set up for a broader launch in 'twenty two as far as Australia goes we do.
Do have approval from a regulatory standpoint, but we don't have the reimbursement to be able of launch there that's going to be and ongoing activity, we are and communication with the regulatory or I'm, sorry, the reimbursement authorities and Australia as well, but we have not built that into 2021 either.
Okay.
Okay, and then can you you talked a lot of about two.
Trying to get new sites coming on to commit to.
To giving you a couple of days of months.
To try and and ramp that a number of procedures per cent of I'm curious how are you.
And secondly, you've been able to sort of get that messaging through and get centers to buy into that and whether the the ramping up of the call center to cover a bigger proportion of your installed base.
It is a key element of that because that really puts you guys in the mix in terms of filling those days.
Absolutely that's of Great question, and I'm going to have yet make sure you hold on to that question for subsequent quarters. Unfortunately, right now we don't have the data to be able to back that up but that's exactly what our hypothesis is is that if we can get centers to really commit more or time then.
And centers can and know that the procedures of coming up and it's not just the surgeons, it's the or staff. It's the people and the operating room. They know what to expect on this day and the people and the coding and reimbursement they know what to expect when building it and Theres a consistency across the board that makes centers.
Better skilled at taking care of numerous patients.
And inspire cloud has also built to build the efficiencies into centers and.
And then adding bring and the AC <unk> back into the discussion.
We believe <unk> will have a little bit more flexibility and committing days two and.
The spire procedures and sort of their staff can plan for that but I think this is going to be something that we're going to continue to monitor and we'll monitor that utilization closely going forward and the ACP. The adviser care program will really help us.
Brian qualified patients to the E&P and as we move forward and get the majority of our centers on the ACP I think we'll be able to give you evidence that that is in fact being successful.
Thanks.
Our next question comes from the line of Robbie Marcus with JP Morgan You May proceed with your question.
Oh, great and congrats on a great quarter.
Hi, Ravi really.
And really just one question for me and you talked about how and fourth quarter, you got back to pre Covid levels and you don't really expect much disruption in 2021 here.
It's definitely counter to what we hear from most other med tech companies. So I guess the question I really I'm trying to dig into is you know you got back to pre Covid, but is there still some number of patients for volumes that are being left on the side and getting back to where you were pre COVID-19.
Could there still be a bolus.
For 2021 and into 2022 is there is still probably a lot of patients who would have gotten therapy that debt.
Absolutely they've kind of go back to.
What we're talking about a little bit earlier in the fourth quarter, we did have a little bit of the backlog that we're working from from the Covid.
Period, and so that was the significant increase but also of the 55 centers. We opened a number of them have been and the work for quite a while but they just weren't able to open up and tell.
The centers, we're able to.
Restart the second part of that is we did see and impact of the research of of the pandemic probably mostly in December and then end of January So yes, we're experiencing the same challenges as every other company is is seeing as well, but we're starting to see most of our centers.
Reopened and reschedule of the cases, and so we don't see that as the sustained challenge going forward and as Rick commented that we may have a little bit more seasonality because of its impact that a little bit more from the.
The resurgence of COVID-19, and the beginning of Q1, but we think as a whole for the year. We think we're in pretty good shape and that's why we're putting out a little bit of and aggressive guidance going forward.
Well, that's great to hear I appreciate it thanks a lot.
Thanks Ravi.
Our next question comes from the line of Lauren Spiegel and with Wells Fargo. You May proceed with your question.
Thank you so much this is sugarman for Larry.
Just a few questions for me so on the guidance I was just wondering if you could elaborate on the cadence of revenue growth and Opex spend through the course of the other I know you did give some color on Q1.
And then.
Is there operating operating leverage opportunity in 2021, and how should we think of DTC investments next debt this year.
Yeah, Hi, this is Rick thanks for your question.
And as we just talked about we're watching Q1 closely.
With seasonality, but we do not provide quarterly guidance, but we do think we will have a little bit more pronounced seasonality in the first quarter because of some of those <unk>.
Resurgence of Covid impacting and certain areas in December as well into January.
But.
On overall basis, we're confident on our on our full year guidance, which is really represents 59% to 63% growth.
So.
From a guidance standpoint, that's our annual guidance from an operating leverage.
We did have a improved leverage year over year as we had a strong fourth quarter on the top line, we are still investing.
And our business, where we're in the early innings, if you will where and 425.
Centers, we're going to continue to add 34 to 38 on a quarterly basis going forward.
And we're going to also continue to and increase the number of territories that we add.
We did increase our DTC efforts, we produced for new commercials.
And the fourth quarter, and we will start to.
Air them in 2021, and so you'll see in our 10-K of this filed that our DTC was about $26 4 million for the full year 2020.
And in 2019, it was $18 million, so we're going to continue to.
The support.
Our expansion with increased DTC efforts.
I got it that's helpful. And then if I could just asked the question on competition are you seeing anything from and.
And I Oaks and in Europe.
They are conducting a study in Australia and <unk>.
<unk> with and without CCC.
The study is positive and that patient population and how would that impact inspire and then separately I'm sure you saw of signify medical and received approval for excite OSA device and <unk>.
And there would be helpful. Thank you for taking the question. Thanks for your question for.
And if so of standpoint, we haven't really seen an impact yet we know they're conducting trials, we think that's wonderful and we.
We will anxiously await to see that data and see how that data comes out. So we don't make any other comments on that.
I know there of pursuing some clinical work and Europe as well as in the United States and.
We think that's good for them to continue the.
Collect the clinical evidence and B and a position to present that in the in the near future. So far the signifier of and the other competition and I don't think we have really any comp any comments at this time or will await until they.
The start Ted.
Issues on some data and we'll just focus on and taking care of our patients and making sure that we maintain our own safe and effective outcomes. So thank you very much.
Thank you.
Our next question comes from the line of Jon Block with Stifel. You May proceed with your question.
Thanks, guys good afternoon.
Yes.
Hey, Tim maybe for the the guidance.
The start there was this call some of the same approach with.
The conservatism that we saw on prior years, notably in 18, and 19 and then.
On the 2021 gross margin Rick the midpoint of 84% and there was a bit below where you've been and when I think about the variables you've got stable U S pricing you arguably of higher international pricing due to FX and you are certainly increasing volume. So why would we see even though with the slight why would we see that step back on gross margin and then I just got.
The follow up.
Alright, let me take the first and I'm going to hand, it over to Rick and he can talk about the gross margin from a guidance standpoint, where we stand today is watch and the environment that we all live and and so as we kind of discussed with the Robby's question, just watching how COVID-19 rebounds quickly and the our ability to continue to open up the <unk>.
<unk> continued to drive the utilization gives the adviser care program remember it ended the year at 180 centers, we need the quickly keep adding on more centers, taking more of a higher percentage of the calls because we believe that that will have.
Improve our ability of that connect patients with the health care providers. So we did want to put out guidance that that we're comfortable and we have done that and the path, we're not changing that strategy going forward, but again theres a lot of lot of work that needs to be done as we as we get through this pan.
<unk> and into get life, a little bit back to normal and even last week, we feel for the people down and solve with the weather and I mean, we ourselves last of our warehouses right next to health link and Alright, and right next to Fedex and Memphis, and we lost several shipping day.
Our team is resilient and we're able to move product to be able to cover cases throughout the U S. We don't think that's going to have an impact, but that's just a lot of the ongoing challenges that we have to face and we are happy to see it's warming up down there and <unk>.
Everybody gets back to normal there too so again confidence on our guidance, but we always give you a range of that debt that.
So we believe that we can achieve but that doesn't mean, there's still not of lot of work that we need to deal with and let me hand off direct for gross margin yeah gross.
Gross margins.
Pretty straightforward.
We do still have a little bit of variability out of quarter to quarter basis, we're still working off of relatively low base and so we are at $84 four per cent is down a little bit from the third quarter, but again as Tim mentioned, we're putting forth our guidance, 83% to 85%.
For 2021 so.
I think there's enough debt.
No that's helpful very.
Very helpful perspective on the 'twenty 'twenty, one guide I think the zoom out for a moment, Jim can you revisit cohort data and sort of any color on the earlier classes of hospitals are they still growing and if so what is their growth trajectory look like the more recent cohorts and then sort of of tack on to that more broadly speaking.
<unk> payment coupled with dice could increase are really good amount and coming quarters can you talk about this has the potential opportunity for inspire to reengage with the previously trained docs for centers that might be running at sub optimal utilization because of some of the challenges day and catalog of it earlier on and the process. Thanks guys.
Absolutely and it's a great opportunity I think the newer centers.
And I understand the new reimbursement environment. So they are coming in with a certain level of expectation and we want to get them up to a.
The higher implant level, but we don't want to lose sight on and the.
Early adopters, who remember a lot of them are the large academic centers.
Now when you think of 'twenty and 'twenty, two and you think about all of the news and you look at all of those huge and.
The <unk> academic hospitals, taking care of all of the Covid cases, NAV put of challenge on the utilization of our classes because of the early classes are a lot of those top top centers, which were the <unk>.
Top centers committed to addressing the pandemic. So there is still rebounding and they're still coming back and I think long term. The story will be very very strong, but as we mentioned and the comments.
A higher percentage of our growth last year was from opening new centers not from increased utilization and we want to see that get back to normal I think we can do that again, especially based on what you highlight with the improved reimbursement for the physicians.
And.
Even the reimbursement for the centers not having to deal with the risks of that and paid for Medicare.
Got it thanks guys.
Thank you John.
Our next question comes from the line of Bob Hopkins with Bank of America. You May proceed with your question.
Hi, there Brad Bowers on for Bob Tonight, Thanks for taking the question.
On a question on the Afcs I know one of your partners USPI, just acquired 45 and ASC.
In December at least and announced the plans to so I was just wondering if that was contemplated in your guidance for how quickly you think that you would be able to penetrate those new centers.
Great question I think is probably at the real detailed specific I think that command the amount of acquiring 45, the ASC, but we're still at the very beginning where can we the USPI and identify and which of their <unk> will be adopting inspire and I think over the last couple of quarters just the.
Handful of really started.
The inspire program so far but they will we will continue in in.
Earnest with USPI, but also what was the other second one.
The surgical care affiliates, yeah. So we will continue with there and Theres also other that we are working to.
Develop.
National pricing agreements with so big focus area, just really early on the game right now and and again, we really can't.
Don't have specifics around the addition of 45, which I think is great for them.
Got it. Thank you and then just one sort of follow up I guess, just touching on I think just kind of got touched on of a little bit, but just ask it more specifically how should we think about revenue per center growth as you penetrate deeper into <unk> do you think that that should that growth will slow.
Some of the centers come on and do you think that there is enough.
Deeper penetration within some of the older and more recent cohorts to the kind of keep that chugging along thank you well.
Well. Thank you very much I think we wanted to make sure. We continue to improve on that and we always talk about units per center per quarter and.
And even though we're bringing on a lot more centers as we did 55 and the fourth quarter and that increases the denominator, which.
It kind of pushes the utilization down a little bit and we're going to keep driving that utilization to keep that number of growing and I think ASC and provide an opportunity to actually increase that again from their flexibility and scheduling and their ability to take care of the patient and the nature of the implant being just a short two.
Our outpatient procedure.
Thanks much.
Our next question comes from the line of Amit <unk> with Goldman Sachs. You May proceed with your question.
Thanks, Hey, good afternoon of I'll keep it quick just a couple of quick ones. Just first of all just on the first quarter, just making sure I kind of read your comments correctly. It sounds like February has actually gotten better from January I Wonder if you can comment on that and and then related leave okay. The.
The streets sitting here at $36 million for for the first quarter did does that sound like it contemplates your seasonality comments enough.
Well on.
And then about and just generally comment and I think I do think that coming out of December and January we did have a lot of regions affected by the pandemic and and we all watch the news and we all know of those regions where from the we transferred from the Midwest on to the southeast and were having lot.
The centers.
Hold off on procedures from.
The Carolinas to Georgia, Alabama, and Mississippi, and a little bit into Florida. So there is always a little bit of concern. There. We do see those centers of scheduling of patients patients now and we do see just the normal seasonality of the starts to pick up in February as it does every year. So yes, it's safe to say that activity and for.
Everybody picks up then it doesn't January and and we anticipate March will continue forward so as far as the spin.
The specific comment about where the street is and Q1 can't really comment on that as you know but I.
I do think that we will see a little bit more.
Seasonality than we do and previous years, but again, we're being pretty aggressive and our overall.
Growth of 59 to <unk>.
The 60 plus percent growth throughout the year. So we think we're going to be strong and the second half of the year.
Okay, Okay, and just as a follow up on on your comments on Germany, maybe just a quick color there would be helpful to just understand the significance of the DRG and and what that could mean for the sales ramp the there this year. Thanks so much.
Thank you and I think it really helps a little bit and Germany, because going from the and you'll be one that's the annual negotiation that hospitals have to have with the payers.
And when we go to of Deer G of really sets up a more permanent formal reimbursement and this year is a little bit variable because of the centers do have to negotiate the individual rates this year, but when they negotiate the DRG. It allows them to include other parts of the procedure that were not previously reimbursed such as.
As a sleep endoscopy right and other parts of the procedure. So it gives them and on Avenue. This year to increase the reimbursement I think youre seeing that a little bit with the <unk>.
Asps and that's really driven by the exchange rate, but.
Then after this year, that's when the formal reimbursement gets locked in so I think long term it really helps the centers that they don't have to negotiate this.
And ongoing but on top of that it just gives credibility of the maturity of the therapy and that allows us to open additional centers, we continue with the direct to consumer outreach and.
And Germany as well, we do have an active call center and Germany, that's helping bring patients and.
And connect them with their health care providers. So I think it's just the net next natural step and.
And and a permanent reimbursement.
Our net loss and comes from the line of Alameda and with Piper Sandler You May proceed with your question.
Hey, guys. Congrats on the progress of nice finish to the year and thanks for taking the questions here and I'll keep it to one just on on anthem Jim.
You guys have made a ton of reimbursement progress over the past 12 to 24 months anthem was the really the only small hiccup last year I know youre planning to Reengage, there or you're currently re engaging and so just latest thoughts around process and timelines and level of confidence that.
Youre going to be able to overturn net negative decision and I think you've talked about having some new data.
Post market, Germany, RCT data being published here on the near future. So just any update on that as well. Thanks, so much guys.
Absolutely was looking to see.
And.
And the number of publications that we that we put out last year just to show that we spent so much time and are ongoing.
And.
Clinical evidence and I think it's close to 50 peer reviewed publications on inspire therapy were published in 2020, a couple of those one of them was the idea from Aetna years back about it's a controlled study that patients.
With inspire therapy were compared to a group without inspire therapy and the reason they didn't get inspire therapy as the insurance company didn't optimize that procedure. There is also a randomized study coming out of Germany that I know the on.
<unk> has prepared a manuscript and theres submitting that so that's a new level. One randomized study of that should publish this year. We have the adhere registry that is well over 2000 patients enrolled so we'll continue to provide annual updates and the.
Build on that so that being said.
And we're going to keep working on peer reviewed published evidence and number two is we have a strong focus for all the anthem patients have rights to inspire therapy, and we work with the health care providers to be for them to submit prior authorizations to anthem and anthem as being very good stewards anthem is reviewing the case.
And they are of proven cases now unfortunately, the time to approval is longer than that of a company with a positive coverage decision.
The anthem is approving cases, and and we're seeing increased number of anthem patients and eventually anthem will review their own data as well the additional data from from other peer reviewed publications. So we have great confidence that we will convince anthem that it's appropriate that the write a pause.
They've coverage decision and we encourage them to continue to review and if it means we have to wait till their annual review on the summer so be it.
But we'll continue to provide the information that it becomes available.
Very helpful. Thank you.
Thanks, Adam.
Our next question comes from the line of Ravi Misra with Banbury and capital markets. You May proceed with your question.
Hi, Good evening. Thank you for taking the questions and I hope everyone is okay.
And if I could just start hi, Hi, Tim Hi, Rick if I could just start Medicare obviously is going to be a larger portion of your revenue. This year. Just curious in terms of how we should think about it in terms of the growth guidance, you've given and how the layer it in with the commentary amongst new centers and growth from existing centers.
And absolutely well, let's just go to the numbers and.
And I think it's all over the place and the changes quickly because we're in the Covid environment, we need to kind of let it settle down but I think at the end of the year, we're kind of running somewhere of about 70% commercial.
25% Medicare.
And 5% VA and military.
Now interestingly enough.
VA and military are down quite a bit because those facilities were really.
Not allowed to do elective procedures and they just started really late.
So I think probably earned and the year youre going to see a little bit more of a resurgent in the V. A.
Centers, but this is the first full year with the Medicare population and the Medicare decision, but you have to layer into that is the Medicare population is also tends to be the moral of susceptible to COVID-19, but that's also the population that is now being vaccinated and.
So theres a lot of variables in there that you've got a kind of combined together, but it does provide confidence that Medicare is really going to have a strong year going forward.
But we're not going to rest on that because if you kind of look of our direct to consumer marketing programs that we set up and even the for new television commercials, that's really targeted for our commercial age group of of.
Of patients.
So what I'm trying to say is that we're going to keep pushing all three elements to grow commercial Medicare and VA consistent with each other it's probably going to be the commercial and Medicare will grow quicker than the VA just by nature of the limited number of VA is that that they are on the United States, but it's of great question.
Do think Medicare is going to have a really good year with the.
It's great for the Medicare aged population and that we have the policy decisions in place and now that we get control of Covid here and globally that we can we can increase the number of Medicare age patients that can have inspire therapy.
Great. Thanks, if I can ask maybe two more questions and ill put them upfront maybe one on the product developed maybe one on the product development side and one of the bigger picture question. So you've stated in the past you're working on you know remote potential remote programming can you maybe highlight what kind of steps you need to secure approval with the FDA there in terms of <unk>.
Or kind of clinical design and second just if we can think about value based care and health care.
I'm not sure how much of that is really kind of coming into the fleet segment, just yet, but maybe if you could help us understand you know three four of five years from now what what research is inspire is going to be putting for it or what can be kind of thinking about to say hey, you know this procedure of this.
This product is taking cost out of the system and all.
Or do you not foresee that kind of in that time window.
Now for Ravi and Thats, a good question, while I'm thinking of a good answer I'm going to answer your first question that's pretty straightforward.
The FDA has already approved remote programming.
And they have established and new digital technology group at the FDA and in fact.
Our team is going to be communicating and setup of meeting we still can't travel yet right, but we're going to of a virtual meeting with the digital team and we're going to lay out what our plans are and the first step is this bluetooth enabled remote that's going to allow communication between inspire cloud and the implanted product.
And that has gone to the FDA and the second quarter and hopefully the FDA will do a quick review of that the next step is to be able to enhance inspire cloud to be able to allow a physician to log into that and worked through the cloud to send instructions.
Through the remote or through the patient smartphone through the remote in and reprogram the implanted product and technology, we can handle it we need to make sure that we do it and the proper sequence and keep the FDA fully improved of our plans and our processes, but we believe we will be able to do that and the very near future.
Value based care.
Long discussion and that's been the and the works and and medical devices for many many years, it's very difficult to quantify because measuring the impact of improving the the criticality of sleep apnea, and how that relates to reduced hypertension, and how that improves early mortality.
<unk>, it's something that I know the CPA of companies have been struggling with for years, and it's very difficult to quantify that but that doesn't mean that we're not going to keep trying.
And as we get into the adhere registry that eventually is going to get folded into the inspire cloud and we're going to build our evidence based and call. It our big data to be able to collect that level of information and we are even starting smaller scale outcome studies with some of the <unk>.
Leading institutions to be able to show advanced benefits and to be able to show to the large payers that there is the economic benefit of a value from covering inspire and if there's a way that we can work with them to identify what is that value again as you know that's going to take years for us to.
Accomplish but but.
We know it's there and we know it's something that we want to accomplish.
Very good.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Tim Herbert for closing remarks.
And I just have a couple of comments and I want to thank you all for joining the call today and I remain grateful to the growing team of dedicated inspire employees for their enthusiasm their hard work and continued motivation to achieve successful and consistent patient outcomes. The inspire team's commitment to patients remains unmatched and is the most.
Important element to our success I wish to thank all of our employees as well as the health care teams for their continued efforts as we continue to grow a business and the U S and in Europe.
For all of you on the call. We appreciate your continued interest and support of inspire and look forward to providing you with further updates throughout 2021.
Everybody, please stay safe and healthy and thank you again.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your evening.
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