Q1 2021 Inspire Medical Systems Inc Earnings Call
Greetings and welcome to the inspire medical systems first quarter 2021 financial results Conference call.
At this time all participants are in a listen only mode.
A 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.
I would now like to turn the conference over to your host Mr. Bobbitt, yet at Investor Relations from lifestyle Advisors. Please go ahead Sir.
Thank you Hector and thank you all for participating on today's call. Joining me are Tim Herbert President and Chief Executive Officer, and Mark <unk>, Chief Financial Officer earlier today inspire released financial results for the three months ended March 31 2021.
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 financial results from financial condition investments in our business continued effects of the COVID-19 pandemic.
Full year and quarterly 'twenty, 'twenty, one financial and operational outlook.
And improvements in market access are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties cash could cause actual results or events to materially differ.
Accordingly, you should not place undue reliance on these statements.
See our filings with Securities and Exchange Commission, including our quarterly report on form 10-Q filed with the SEC today for a description of these risks and uncertainties 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.
Conference call contains time sensitive information and speaks only as of the live broadcast today May four 2021 and with those 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 first quarter 2021 business update.
After closing our very strong 2020, we entered 2021 facing our normal expected seasonality, but also a significant resurgence in COVID-19.
That said the team at inspire showed their resolve and bounce back to have a very successful first quarter to the new year.
We remain focused on our commercial execution, driven by increasing our capacity and implanting centers.
And improving the education process with patients.
During this first quarter. We also achieved several very impactful development milestones highlighted by the FDA approval of the two incision implant procedure more on this in a little bit.
Let's start with discussing our revenue.
And the first quarter of 2021, we generated worldwide revenue of $44 million.
Which was an increase of 89% compared to the first quarter of 2020.
Which of course was impacted by COVID-19.
This growth was primarily driven by the increased number of procedures occurring at existing centers.
As well as new centers and territory managers added in the quarter.
As I mentioned, we did experienced seasonality early in the year driven primarily by the resetting of high deductible insurance plans.
Further the resurgence of COVID-19 negatively affected procedure volumes in many of our sales territories early in the quarter.
Despite this procedure volume and all of these territories rebounded nicely as the quarter progressed, we continue to monitor the situation.
And we do not expect to see a significant impact going forward.
Therefore, we have confidence in the outlook of our business for 2021 due to our strong performance in the first quarter, the positive trends and implant activity.
And the planned expansion in the number of implanting centers and new territory managers.
As such.
We are increasing our full year 2021 revenue guidance to a range of $192 million to $196 million from our previous guidance of $183 million to $188 million.
This guidance represents an increase of 66% to 70% over full year 2020 revenue of $115 $4 million.
As always I would like to reiterate that 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 first quarter beginning with capacity.
During the quarter, we added 47, new U S implanting centers ending the period with a total of 472.
This is well above our prior guidance of adding 34 to 38, new centers as such.
We are increasing our guidance to open 36 to 40, new centers per quarter for the remainder of the year.
As has been the case over the past several quarters included in this increase in new centers as a growing number of ambulatory surgical centers that have increased at a slightly higher rate than the addition of hospitals.
We will continue to add both hospitals and ASC and expect to see a growing percentage of inspire procedures being performed in asp's.
Yeah.
Regarding the U S sales team, we created 10, new sales territories in the first quarter, bringing our total to 117.
While this is above our guidance, we continue to expect to add eight to nine new territories per quarter during the remainder of 2021.
We also increased the number of field clinical representatives by adding seven ending the first quarter with 51.
During the rest of the year, we will also scale, our sales management and training teams to optimize our ongoing expansion and focus on strong patient outcomes and center productivity.
The addition of new centers and the continued build out of our field organization will increase our capacity and will remain one of our core focus areas throughout 2021 and beyond.
As we said on our last call. Our challenge in 2020 was that the utilization was significantly impacted by the pandemic and while we have achieved significant progress in the second half of 2020 and through the first quarter of this year. We expect this to further improve going further.
Moving forward to make this point.
Historically about 50% of our growth has been from opening new centers.
And about 50% was from increased procedures at existing centers.
For the year 2020. However, this was skewed heavily towards the growth from opening new centers.
We did see a very strong rebound in the first quarter with the great majority of our growth coming from increased utilization.
We need to be careful comparing back to the first half of 2020.
Net period was impacted by center shutdown following the onset of the pandemic.
That said, we expect growth between new and existing centers to be more balance throughout 2021.
The second key area of our focus is to improve our ability to assist patients interested in inspire therapy by making a connection with a qualified health care provider.
Our outreach programs have been very effective in generating interest inspire therapy, primarily through the inspire sleep dot com website.
To further streamline this process, we continued to broaden our call center concept, the inspire adviser care program or ACP.
As a reminder, the primary purpose of this program is to assist patients with making that connection with a qualified health care provider based on their specific needs.
We ended 2020 with approximately 180.
Our incentives utilizing the ACP answering about 25% of all calls to physicians.
Today, we have over 280 centers on the ACP and we plan to significantly increase the number of centers to nearly 500 by the end of 2021.
This will enable the majority of patient calls to be answered through the ACP.
We anticipate that the inspire ACP will have a significant impact on our business line and look forward to providing you with further updates on this program throughout the year.
We also continued to utilize our website and online tools to help enhance awareness of inspire therapy and help patients connect with physicians.
For the first quarter of 2021, the number of visitors to our website was over one 7 million an increase of 7% year over year. In addition, approximately 27000 physician contacts were established via the website, representing a significant year over year increase.
On the 102%.
This increase was largely driven by a refreshed outreach program, including four new television commercials, which began airing in January along with a substantial increase in participation and community health talks about inspire therapy.
The most significant event of the first quarter that will improve utilization.
Is the recent FDA approval of our two incision implant procedure.
And just two day.
We received European approval of the two incision procedure as well.
We believe this is an important milestone that will help drive increased adoption of inspire therapy and the qualitative feedback we have received from E&P surgeons to date has been very positive.
Importantly, this new approved procedure, which eliminates the need for a third incision will significantly reduce the average procedure time for inspire therapy, while providing additional therapy benefits.
This FDA approval was supported by our clinical study comparing this new two incision approach to the original three inch incision and procedure.
The results showed consistency in the safety and efficacy of the therapy and reduce surgical time to just under 100 minutes on average.
Which was a 26 minute reduction.
Training for the two incision procedure has ramped up significantly and we are extremely excited about its potential impact on our business from a practical standpoint. This savings have procedure time may allow a surgeon to add another inspire procedure in a single day as previously.
Most surgeons would typically limit scheduling to two cases per day.
Yeah.
Switching gears to reimbursement and coding specifically as we discussed on our last call. The new CPT code was approved and the ruck survey process to determine the surgeon reimbursement rates is ongoing and is expected to become effective January one 2022 and.
July 2021, we expect that CMS will publish the <unk>.
2022 proposed rule, which will list the new codes and proposed payments.
From a facility perspective, the new CPT code should not change the payment to the hospital or ASC.
Further our new category one code was approved for the drug induced sleep endoscopy or dice diagnostic.
A diagnostic procedure, which.
She has also been an ongoing challenge for the E&ps and facilities again, we will learn more when CMS proposes the new rules, which are expected to be released in July.
Moving on Europe also had a very strong quarter, driven by increased procedure volumes, particularly in Germany, and the Netherlands.
We expect the growth of inspire to continue in Europe. As we are not currently seeing a significant impact from COVID-19 in these two countries, which make up the majority of inspire implants.
As you know effective January 1st inspire therapy is now integrated into the German hospital reimbursement system with a formal DRG, which represents another positive indicator for our European business.
In Japan.
We were thrilled to recently announce our exclusive distribution agreement for inspire therapy, with Japan, lifeline or J L. L.
Lead or in the distribution of innovative medical technologies in that country.
Importantly, this distribution agreement was entered into following successful completion of the reimbursement review of inspire therapy by the minister of health Labor and welfare.
Formal listing of inspire therapy in the Japan National Health insurance insurance payment listing is expected to occur in June.
Our kickoff meeting with J L. L is scheduled for next week and we anticipate the initial implants of inspire therapy in Japan will occur during the second half of this year.
The COVID-19 pandemic is a serious concern on Japan today, and we will closely monitor as we build our training plans and work towards the first implants.
Japan is a tremendous opportunity for inspire.
It is one of the largest markets for medical technologies in the World. We look forward to providing you with updates on our progress in Japan over the coming quarters.
Switching gears to R&D.
Similar to the past two quarters, we increased our R&D expenses year over year in the first quarter of 2021, as we continued to invest in enhancing our technology platform.
During the first quarter. We also received FDA approval of the new inspire a physician programmer platform, which provides multiple key benefits for physicians when managing their patients treatment with inspire therapy.
We view this enhanced technology as a further demonstration of our long term commitment to patients with sleep apnea.
<unk>.
The inspire cloud our cloud based patient management system continues to advance with the addition of a substantial number of centers in the U S and in Europe, who are using the tool.
As you know on 2020, we launched the inspire sleep app for use on a patient smartphone as an educational tool. This app interfaces with the inspire cloud and allows physicians to collect clinical data from patients directly.
The new physician programmer platform, the inspire cloud and the inspire sleep app are the first step in 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 data from the implant system and the remote to be uploaded to the inspire cloud via patient smartphone.
We anticipate that the new patient remote will be submitted to the FDA within a couple of weeks and are targeting a commercial launch following FDA approval late in 2021.
Longer term debt.
The design work for our fifth generation inspire Neurostimulator continues to progress once approved we expect inspire five to be commercially available late in 2023. The inspire five device will utilize the existing form factor with plans to maintain.
<unk> average 11 year battery life without the need for recharging.
After extensive trialing with the new sensing technique, we are excited to announce that the inspire five neurostimulator will eliminate the pressure sensing lead.
I'll set it will be inside the neuro stimulator using using an accelerometer to measure the respiratory wave forms.
Over the next year's volume and over the years, we have demonstrated the necessity for closed loop stimulation and this enhanced sensing mode internal to the neuro stimulator will make the inspire five the state of the art neuro stimulator.
In summary, we continued to experience significant momentum in all key aspects of our business implant trends remain highly positive and we continue to be well positioned to assist patients as they progress on their inspire therapy Jeremy journey.
Including longer term through our investment in the development of multiple innovative technologies.
To reiterate our core focus for 2021 is to continue to increase utilization utilization at existing centers as well as to increase capacity by training New centers. We also intend to achieve further advancements in reimbursement that build upon our reach.
Positive coverage decisions.
Our efforts to strengthen the growing body of clinical evidence and invest in the continued development of a robust R&D platform.
We remain extremely excited about our future prospects and are confident that we 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 as Tim noted the inspire team delivered a strong first quarter.
Total revenue for the first quarter of 2021 was $40 4 million and 89% increase from the $21 3 million generated.
Yeah.
Ladies and gentlemen standby.
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Ladies and gentlemen, now reintroducing.
Tim Herbert.
Hi, everybody I guess, we got a little change in technology going on so I believe that I completed my section and now I'd like to turn the call over to Rick and have them restart the financials.
Thanks again, Tim.
Yeah.
As Tim noted the inspire team delivered a strong first quarter.
Total revenue for the first quarter of 2021 was $40 4 million and 89% increase from the $21 3 million generated in the first quarter of 2020.
U S revenue in the first quarter was $37 8 million, an increase of 96% from the $19 3 million in the prior year period.
In the first quarter European revenue increased 25% to $2 6 million.
Growth in the U S reflects a number of factors, including a larger number of implanting centers broad commercial policy coverage.
100% Medicare coverage that went effective in June 2020, and an increase in the number of territory managers.
The U S average selling price in the first quarter was approximately 23900, which was consistent with the prior year period.
The European ASP was about 24400 during the quarter compared to 22300 <unk>.
In the first quarter of 2020.
The higher European ASP was driven by favorable changes in foreign currency exchange rates.
Gross margin in the first quarter improved to 85, 2% compared to 84, 6% in the prior year period due to manufacturing efficiencies and higher sales volume.
Based on these ongoing efficiencies, we are increasing our full year gross margin guidance to be in the range of 84 to <unk> 85 per cent compared to our prior guidance of <unk>, 83% to 85%.
Total operating expenses for the first quarter were $50 1 million, an increase of 45% as compared to $34 5 million in the first quarter of 2020.
This increase was due to expansion of our sales organization.
Increased <unk>.
<unk> consumer marketing programs.
<unk> product development efforts and general corporate costs.
The increase in operating expenses is reflective of our ongoing plan to achieve continued growth and investments in key commercial and development initiatives.
Our net loss for the first quarter was $16 2 million consistent with the net loss in the prior year period.
The net loss per share for the first quarter was <unk> 60 per share compared to <unk> 67 per share in the first quarter of 2020.
The weighted average number of shares outstanding for the first quarter was $27 1 million.
We anticipate that the weighted average number of shares from the second quarter will be approximately $27 2 million.
Moving to the balance sheet as of March 31, our cash and investments totaled.
$226 million.
This strong cash position allows us to remain focused on executing our growth strategy of increasing procedure volume at existing centers and training and opening new implanting centers.
As we stated earlier, while business conditions have improved we continue to monitor the impact of the pandemic as we did experienced some cancellations and delays in several territories early in the first quarter.
With that said, our strong performance and implant trends provide us with confidence in our outlook for the remainder of the year.
Therefore, we are increasing our full year 2021 revenue guidance to a range of $192 million to $196 million from our previous guidance of $183 million to $188 million.
This revised guidance represents 66% to 70% growth over full year 2020 revenue.
In summary, the key metrics throughout our business remains strong and we are well positioned to achieve significant long term growth.
We are extremely pleased with our first quarter performance and are excited to continue executing on our growth strategy.
With that our prepared remarks are concluded.
Hector can you please open up the call for questions.
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While we pull for questions.
Your first question comes from the line of Robbie Marcus with Jpmorgan. Please proceed with your question.
Oh, great first off congrats on a really nice quarter beat and raise.
Thank you Ravi hope the bone quality is okay.
I hear you loud and clear.
There you've got will yell okay.
Okay.
So maybe just to start off.
I wanted to get a sense of trends through the quarter. You said that there was some COVID-19 disruption early on I wanted to see how the sort of the exit was versus the beginning and if you can quantify what you think the COVID-19 disruption was in the quarter.
Sure.
Well first we always have our seasonality right because we have the resetting of the.
High deductible insurance plans and so there's always a great rush to do a lot of implants at the end of the year before patients' high deductible.
Plans reset in January so that always has a little bit of a effect of a lot of implants in December and then people starting out slow in January that's not a phenomena that we created that goes across the industry, but also remember that resurgence resurgence in January was shutting down.
Hospitals regionally and so areas down on the southeast or more affected including anywhere from going from Carolinas to Georgia, Alabama little bit of Texas, a little bit of Michigan, and California. So those areas started out really slow in January but as we move.
Drew.
In the February and March we released on all of those areas.
Come back and that was that was that.
So the strength of the quarter by being able to re bought strong.
In the second half and exit strong.
On February and March debt also gave us the confidence as we go forward for the rest of the year.
Yeah.
Got it and as you think about the guidance raise how much of it was was due to better trends that you were seeing it in the U S and how much is outside the U S, particularly Japan.
<unk>.
We did not include any Japan, I think Japan as we stated before in 2021 here is really preparatory for the following year. So we're going to work with J L. L to make sure that all of our plans are in place. Our training programs are in place and we will be able to ramp, but we did not increase our revenue due to.
Anything in Japan, yet everything is based primarily on trends in the United States and remember with Medicare we didn't get to really celebrate day.
Last year, and as we start to ramp up and get through COVID-19 and the vaccinations are higher.
We like the trends that we're seeing hence that's why the increase is pretty much all U S.
Great. Thanks, a lot.
Thanks Ravi.
Your next question comes from the line of Jon Block with Stifel. Please proceed with your question.
Thanks, guys. Good afternoon, maybe I'll just continue on the Japan theme for a moment I know Tim you said nothing is included in the guidance. This year, but just help us out it's obviously a massive long term opportunity.
When we think about the trajectory of that opportunity over the next couple of years is there anything you can point to or sort of any analogs you can give us as we think about how that market ramps in 'twenty, two and 'twenty three.
Think we just wanted to look at it maybe in net terms of the size of Germany, right and the key difference between how we opened on Japan versus how we opened up Germany is we didn't have reimbursement, while we started in Germany. It took five years to be able to work through that <unk> process.
Good day, and you'd be won and then Jeff. This year, we got a DRG Japan's a lot different Japan, we'd start with reimbursement in hand, and now what we have to do is we have to build the market and educating the physicians educating potential patients and theres, a little bit different market development. So I <unk>.
We can get closer to it.
Germany rate without taking that fall.
Five years, so we're going to take the rest of this year to work with J L. L to make sure we figure out what programs, we're going to put in place.
When we come back to talk about 2022 that will have a good feel for how we're going to ramp, but we're obviously very optimistic.
With the reimbursement.
Support from four physician societies.
To be able to launch this product in society as bank sleep.
E&P Pulmonology and cardiovascular so it's great.
To have those physicians working with us to launch in Japan.
Got it very helpful and second question, maybe a quick two parter, but no Tim for you you've been running the dtc's for a little bit of time now I know you obviously had some COVID-19 disruptions along the way, but now that it's a bit baked are you able to measure the returns and if so your thoughts there and then Rick for you just revenue continues to be but youre on.
So investing a good amount on the business increase territory managers et cetera. So is there a sort of a refresh to renewed thought on an EBITDA breakeven point for the company. Thanks guys.
Alright, let me touch on the DTC, and then hand over to Rex.
We are getting much better with that as we talked before we opened we launched inspire app and we have the debt care program going so we're able to start working more directly on tracking patients closer to start getting a better measure of the number of patients coming through the system and being able.
To show that our direct to consumer is actually a very cost effective program to be able to educate patients and get them connected with the physician. So our data is not there yet, but we're getting a good feel for where we're heading with it and we're very encouraged and are obviously going to just continue that program. So.
Let me hand up direct.
Hey, John.
Good question.
Continue to invest heavily in our sales organization as well as our DTC programs and so in the past we've talked around.
On the breakeven is a net $250 million annual run rate of revenue.
We're not changing that at the current moment, but.
Kind of a moving target dependent depending on how heavily we want to.
Add to our DTC efforts or if we were it change any of our cadence on hiring or if we get opportunistic in other geographies that we're that we're looking at but.
We're still running our plant at our cadence.
But we have a lot on.
Our confidence in.
And our ability to project with our higher guidance on.
On the level of implants that we're having.
Understood. Thanks, guys.
Thanks, Jeff.
Your next question comes from the line of Chris Pasquale with Guggenheim. Please proceed with your question.
Thanks, and congrats on the quarter guys.
Kim.
Stand a little better how youre handling the training for the two incision approach it seems like it might be relatively challenging to get all of your implant or <unk>.
To either come to you or go to them and get them comfortable with a new technique, especially considering how quickly youre growing the installed base. So what is that process been like and how do you ensure that.
Outcomes stay at a high level, while everyone's learned something new.
I guess to give a shout out to our.
Sure.
Inspire training team.
I think.
Very very few people can match the talent.
Our training team and their ability to communicate with all of the physicians.
But what what this team debt as they work with some of the physicians that developed debt technique, while the FDA is reviewing knowing that once approved there's going to be a high demand to convert to the new procedure very quickly they created live videos.
Of training for.
For the two incision procedure such that once we had U S approval, we could immediately extend that out across the United States.
Train every physician and certify those physicians now remember were.
We have one less per one less incision, but we're still placing the adjusted between the intercostal muscles in the pocket underneath the neuro stimulator and so they can do it now with direct visualization, so it's actually easier.
<unk> and its a little bit safer and yet we still get really good safety and efficacy numbers. So I believe that we're going to have the majority of cases converted over to two incision probably between the second line.
And while certainly by the third quarter.
That's helpful.
And then I was little surprised to hear you say that you really don't think COVID-19 is a big issue for you guys right now on Europe, just given how much of a laggard that region has been for most companies this quarter.
I get that your mix there is maybe a little bit different than most.
But you know the European volumes from you guys. Despite COVID-19 not being a big issue, it's still growing at a relatively modest rate, especially when you factor in the increase in the euro So why on Germany in the Netherlands grown a little bit faster is it that youre already in all the big centers, there and so all the growth has to.
Come from productivity increases or is there something else, that's holding you back from being able to expand that region more quickly.
Sure.
Germany number one we got into the DRG. This year. So we have to do we do have to negotiate that if there is a COVID-19 impact it's the ability to negotiate the DRG is with.
Many of the large centers now we continue to hire territory managers, we continue to open new centers, we have a direct it.
Consumer program in Germany.
We will continue to grow that so we do believe debt that Germany will continue to grow on that is the primary source Netherlands is strong the problem with the Netherlands is they still have the committee that reviews every individual case, which is a built in governor on the number of procedures that we can do on a quarterly basis. So the.
First one on the Netherlands.
Works to kind of hold back the number of procedures, but we still see good growth.
And Europe, and primarily Germany, once we get through the.
Review panel in the Netherlands that is a great opportunity and with other countries as well the real reason that COVID-19 doesn't impact us that much is that.
The great majority of our revenue and net plus are all done in Germany, and the Netherlands, and so we don't have a significant impact in and some on the more impacted states and Spain, France, Italy, we continue to do implants in Switzerland and Austria.
Thanks.
You bet Chris.
Your next question comes from the line of Amit <unk> with Goldman Sachs. Please proceed with your question.
Okay.
Hey, good afternoon, guys, it's Jamie price on for the Goldman team.
First question just on the U S. I wanted to ask about center level utilization just given the strong New center adds that you had this quarter first part of it is just the question was asked if you had a disruption in procedures related to COVID-19 I'm wondering if there's any disruption in new center adds related to COVID-19 just.
And all that they're dealing with and if that number could have been even stronger but for COVID-19 and then secondly, if you can give any color on the utilization rates for some of the higher more mature centers and to me on newer centers.
And how long they ramped to maturity.
Yeah, Let me touch on the new centers that I'll have Rick touch on the utilization.
May.
Maybe maybe we could have had a few more centers.
If we didn't have the shutdown and.
Primarily in the southeast.
Texas, California, and Michigan, but for the most part we are rebounding strong.
And the.
February and March to give us an opportunity to open those centers, but there'll always be some carryover.
As there was from the end of last year into the first quarter of this year. So we kind of like the growth that we had and the number of centers enhance that's why we increased our guidance going forward again.
Let me hand that over to Rick talked about utilization, yes, before I touch on that we did add 47, new centers, we continue to add.
ASC.
On our additional centers and at the end of the first quarter ASC is made up of about 17% of our total centers on a year ago net number was 9%.
That has improved still a low number but that does give us confidence that we have a robust pipeline to add not only hospitals, but asps going forward.
And so.
From a utilization standpoint.
Where we're seeing the.
What we want we want our centers, our new centers to give us really one.
Implant day, a month to start generally they will do one or two procedures, maybe more now with.
Reduced.
We reduced procedure times with the two incision approach and then after they get familiarity with that with their procedure and the economics of the hospital and working with prior authorization and so on and we want to increase that and so we really want our centers initially to get to two per month and so.
Our entire base you have you have the metrics there on what that utilization is.
And then.
We think that will increase over time as we have.
On less impact from prior authorizations, and so forth, but the overall number of centers, who are moved from <unk>.
One to two procedures per month.
That number has had doubled from from a year ago.
Okay. Thanks for that one question on international.
The street's modeling revenue about $14 $5 million. This year I don't know if youll comment on it.
About that correctly, that's up about $4 million versus prior year and then similarly next year Street's modeling up another $4 million and you've got the DRG coming into place in Germany, Japan reimbursement now in place and maybe some moving on on Australia.
So how would you have us think about first of all that at 2021 number and then is there.
Any potential acceleration.
With those catalysts in 2022, thank you.
Oh, that's a good question I think we will.
Have to defer on that we're not going to put out guidance on Japan, yet we want to make sure we work with.
J L L to be able to get our plans in place where we can set our targets what we want to accomplish next year with and then also with the DRG, but we also are looking for expansion in other countries on we start getting into 2022 and beyond so I like the way Youre thinking about it we are.
In line with with the concept I just.
We're not able to give any numbers right now.
Okay I appreciate it.
You bet share.
Your next question comes from the line of Richard New Winter with SBB Leerink. Please proceed with your question.
Thanks for taking the questions and congrats on a great quarter guys.
Sure.
Want to start with just Japan, and kind of the incremental market opportunity.
<unk> is up for you appreciating that you're not going be able to go in and convert this market overnight I appreciate that but we we estimated and I think it was based on some commentary that you had provided in the past about a third of the U S market size is what Japan.
Represents about $2 billion or so I guess does that is that a ballpark kind of.
Addressable market opportunity that we should be thinking about this now opens up to you in that region and can you comment a little bit on on pricing.
For our product there since youre using a distributor, but I also know reimbursement negotiations took on took a long time. So I'd imagine you stood you grabbed on price. So maybe just talk through some of that and the Tampa.
Absolutely I do think yes, I think generally speaking the.
The summary of.
How large a market as is consistent with the U S. Yes, maybe 9 million Japanese that have apnea <unk> index greater than 15.
But again I don't think our challenge is is reaching that whole market. Our challenge is going to be to open up centers to start to penetrate that market and grow the adoption.
And we're going to be working with <unk> to see how broad a team theyre going to put on place and how many centers. We want to initially open I think we've identified like the first 10 centers that will be trained and we're going to be.
Working very closely with J O L. Because patient outcomes are equally as important.
As far as the reimbursement goes absolutely we stood our ground and but I think we worked fairly with the minister and they understood our global.
Reimbursement and it was important for us to have.
Have them understand that have them understand the importance as we continue to expand that debt reimbursement was very important such as we can provide the necessary training to protect outcomes. We can keep investing in important things such as inspire five and the digital platform, which we do want to have flow.
<unk> implemented in Japan, as we do with every territory.
Territory that we enter.
And so the minister worked very closely with US we provided a lot of information over the last month to be able to get to a consistent sales price now we partner with jail also certainly they.
Deserve a part of that to cover their sales and marketing costs. We will continue to do a lot of the training the development the technology and so it's a win win situation I think across the board.
Okay. Thanks for that and you guys have been making some good progress on advancing the technology.
The two incision.
A procedure this year and now you are.
Talking about advanced Nexgen.
<unk> capabilities by 2023.
Can you talk about where the procedure time is currently and where do you think you ultimately can get the shortening of the procedure down too.
Once you have your next generation technology out in the field.
Well in the clinical study with the two incision it was down to just under 100 minutes.
On the more but Thats also early in the development of the two incision procedures. So I think the more proficient surgeons once they get more expertise and higher utilization they will only get better and it will only drive that surgical time down.
I don't want to push them to go too fast because it is important to us per patient outcomes that those electrodes gift placed properly on the hypoglossal nerve and.
And that is really the focus but think about it Brad 100 minutes down and the advanced technology gets rid of the sensor that's another significant reduction AD and surgical time, yet still probably have improved performance with it. So it's really a win win and we'll continue to.
Keep investing in technology going forward.
I guess just to follow up on that day, but we think in line.
While being safe another 20 to 30 minutes.
Is the ballpark to be thinking.
In store for us in the not too distant future.
Well I'll, probably when you tack on inspire five I think we can we can certainly achieve that and even when we go to inspire five remember it's easier to go through the inner operative testing that we do so there is it's on top of mind to continue to watch it.
<unk> for the for the surgeons.
Thank you very much thank.
Thank you rich.
Your next question comes from the line of Bradley Bowers with Bank of America Merrill Lynch. Please proceed with your question.
Hi, there guys I'm on for Bob today, Thanks for taking our questions. Just the first one I'm going to go on to the two infusion implant.
Are you seeing that as generating helping.
Penetrate deeper into some of your hospitals or are you starting new conversations based off of this like were there any centers or <unk>.
Doctors that were maybe more hesitant with the older one and now that the procedures a little faster they can get to three a day, maybe in a little bit easier to do that it's generating more conversations.
That was the easiest question the answer is yes.
Let me share.
Thank you.
Think it's all told I mean, remember, we have ear nose and throat, so I'm going to work in reverse.
To comment back in <unk>.
We're ear nose and throat and so while it's they're comfortable doing on neuro stimulator pocket sub classical or just underneath the collarbone.
Going down to the forwards are six intercostal space, while it's a it is a procedure to harvest intercostal muscles or say facial paralysis. So it is a procedure done.
By E&ps. It was just a little bit of a stretch on little bit of their comfort zone, so being able to do it up in the IPG pocket, where they have a larger incision. They could do it under direct visualization, though it does put a little bit of a comfort feel for E&P during the procedure. So that's certainly.
Does help both with existing surgeons and certainly with new surgeons going forward, but then the rest of it when we started talking about it.
It's all about efficiencies and not having to make that decision not having a debt channel the lead from the neural stem pocket down to the other and decision where in the fourth of six intercostal space and so those efficiencies allow people to say they can comfortably add another case on a day.
Without being too concerned about it running too long and and and and being becoming fatigue. During the case too. So I think it really kind of helps on on many many fronts, but you bring up a real inter.
Interesting point, that's important with just the comfort level of of the E&P.
Operating down by the fourth of six and we kind of really eliminate that.
Got it that's super helpful. Thanks for expanding on just beyond yes, I appreciate that and then.
Can I also ask another question on the seasonality.
It's been a while obviously you don't want to use 2020 as a comparison and you guys have grown a lot. Since 2019. So would you say that that progression is still sort of a good analog like that we saw in 2019 or is there any reason to think that we might see a little bit of a quicker acceleration in Q2.
COVID-19 kind of comes out of the U S.
Understanding that you know Q4 is obviously still going to be your strongest quarter, just anything you can share on that.
Yes, well Q4 is always going to be a strong quarter Q1 is always the toughest and really it's January and and COVID-19 to your point really kind of emphasize that so yeah. We think certainly Q2 will be.
Improved why hence that's why we've increased our guidance for.
For the entire fiscal year. So we're looking forward to Q2 Q3 Q4 and then the question is is the seasonality that we get into Q1 of the following year, if we don't have that negative impact.
From COVID-19 and you're right, it's very difficult to compare back to prior year.
Because of the shutdown period debt that everybody had to experience.
In Q on Q2 last year.
Bradley I'd also add to that two years ago, we were a much different position.
2021 of their first full year, where we have 220 million covered lives as well as a 100% Medicare coverage in the U S compared to two years ago, where we did not have Medicare and maybe half the number of covered lives as well so that will play into that phenomenon as well.
Your next question comes from the line of Adam <unk> with Piper Sandler. Please proceed with your question.
Hey, guys. Thanks for taking the questions and congrats on another nice quarter.
Thanks, So maybe just picking up from for them, where Rick just left off the question is on patient mix.
It was just talking about the progress made from a reimbursement and covered lives standpoint curious what the patient mix look like in Q1 between Medicare commercial and VA, and maybe remind remind us where that's been in the past and how you think about debt going forward and then I had a follow up thanks sure.
It.
It varies a lot it goes up and down, but I think where we're seeing it right now for the most part is 70 25 buys.
Right 70, commercial accounts that commercial 25% Medicare 5% VA in the past.
Medicare was little bit higher percentage mix adds was the VA because he was easier to open up the VA because we already had government contract well with the strong growth rates in commercial based on all the positive coverage policies.
The commercial is really growing from probably 60% up to 70% of the increased number of procedures right.
And Medicare has continued to grow to it because now we have national coverage across the United States and VA is still hanging in there <unk> five day really had a big negative impact due to COVID-19 last year, but the V. A's are coming back online and there's still representing probably 5% of the cases, and we think thats import.
And we'll certainly continue to support that that group as well.
Got it that's helpful color Jim Thanks for that and then I guess just on a follow up one on the pipeline I think it's been a little while since we've gotten an update on the pediatric indication. So wanted to ask if theres an update on that initiative I think youre still collecting some data there. So just maybe remind us where that stands and how should how we should.
Should be thinking about latest timelines. Thanks, so much.
Thank you very much on we actually have two studies that were starting one of them is actually a post approval study based on the FDA approval from last year, and we agreed with the FDA that we would continue to collect data and as we always tap we collect data on a lot of our patients using our adhere registry yet and as you go forward to cloud.
We will continue to do that but we are starting a post approval study of pediatrics AIDS.
18 to 21, again, Thats really not where we want to go with US we want to go to a younger age secondly, we have.
Submitted rfps and starting with the new pediatric study with kids with down syndrome, and we've taken over that that study from the Massachusetts eye and ear Infirmary, who has done just a great job with the first three studies and we're actually starting the fourth study there. So we're staying in close contact.
With the FDA.
We were going to continue to collect additional data to eventually get approval for the pediatrics.
Thank you.
Your next question comes from the line of Lee Huang with Wells Fargo. Please proceed with your question.
Yeah.
Hi, Thanks, it's lei, calling in for Larry and Thanks for taking my question I wanted to start with.
I'll just start with the pipeline one.
Tim You mentioned, a late 'twenty three launch for the Nexgen.
Spire system is that pushed out a little bit we seem to remember was something maybe in 'twenty. Two time frame and also can you talk about the debt.
The regulatory pathway if I'm. If you know at this point you have to submit clinical data to that day and I have a follow up.
We do have clinical data that we have been collecting.
We have spoken with the FDA and we're gonna go head out and we're going to have a meeting with the FDA just on the inspire five neurostimulator.
Technology and submission we've never promise 'twenty 'twenty two that is more of the submission timeline and so it's we're pretty consistent where.
We have debt talking late 2023.
Got it so it sounds like on.
In terms of clinical data requirement.
Quite know yet until.
After that day meeting.
Okay.
Yes, we are collecting clinical data right now because we can use.
With existing patients, we can collect data with accelerometers.
And we can do direct comparisons with existing patients. So we are collecting data and we will be submitting with data.
Got it okay. Thanks, and then my follow up is just on revenue.
The revenue guidance raise for the year, what do you assume in the guidance in terms of them on.
Per procedure.
Procedure as well as.
Essentially for differentials to increase the number of cases, they do buy them by doing the insertion procedures.
On the timeshare.
Got it yet we don't have it down to that level of specificity on what to attack on individual payors.
With that so we don't really have a significant impact with that its more about opening centers and utilization increases, but a key part of growing utilization to your point.
Is the reduce surgical time on the allowance to have surgeons do.
Greater number of procedures on that that does help drive the confidence in the increased guidance.
Yeah.
Okay. Thank you thanks clay.
Your next question comes from the line of Ravi Misra with Bamberg capital markets. Please proceed with your question.
Alright, great. Thanks, Rick and Tim for taking the question. So I guess I wanted to circle.
I guess I wanted to circle back to guidance for the year.
It sounds like Theres, a lot of good stuff going on in terms of the adviser care program driving more people the kind of.
Rebating of growth to your kind of 50 50 historical levels, yet I feel like there is a certain level of conservatism.
On a baked into these numbers I'd like a little bit more color on.
You spoke about kind of rising sales throughout the year I guess in terms of prior seasonal patterns.
The math is right, you're giving very little if any kind of credit to rising utilization in the back half of the year. So just curious kind of how we should be thinking about what could kind of get you beyond the high end of your guidance, whether it's gonna be utilization or center openings or kind of you know.
Why it appears to be such a conservative take here or is there something in Europe debt that we're not contemplating correctly and then I have a follow up quick follow up just on the inspire remote.
Sure, let me work backwards on that.
Europe or Europe, we put on.
Those growth rates, but it was as was previously.
Previously asked by Chris He is looking at those growth rates were limited by what we can do in Germany is the growth in the Netherlands is limited. So that's why we don't have a huge upside in Europe outside of what we already have in the plan as far as we come back to the United States, It's about execution and it's about.
Getting the new centers opened getting them productive and getting the call center working on getting the efficiencies. There. So we have a lot of things that are really exciting, but they are growing.
We're just training on the two incisions, we're just growing the adviser care program were.
Introducing our note our new direct to consumer.
Consumer outreach programs and so while everything is exciting it's still on the very front edge and so yeah, absolutely we are going to keep our head we're going to work hard.
But we think we will put an appropriate guidance out there yet yet even with this new excitement we're still confident that we are significantly increasing net debt guidance going forward.
Yeah, Great and then maybe just on the inspire remote you said kind of late 2021 is there any kind of different method of reimbursement or kind of a kind of coding that payers are going to have to go through that or incremental reimbursement that they can secure through that just curious there. Thanks.
Well, that's creating a debt as a whole different question on a whole different revenue stream right and initially the Bluetooth is is provided to give the physician.
Key real time objective data from the patients device, both the implant and the remote itself. This time stamp, but we can upload those and how we can partner that with a home sleep study that they could upload and so during inspire cloud when a physician does.
Visit, which I think is going to continue well past COVID-19.
That is a reimbursable event, what we really want to move to and I think debt we will see.
We'll be remote programming and that's something that the FDA has already approved for a different company and that is a reimbursable event on when you started talking about kind of what.
What you're hinting at is a different revenue stream for the complexities of inspire cloud and the benefits it provides.
A.
Bigger discussion that we need to kind of investing.
Thanks Ravi.
Your next question comes from the line of Michael <unk> with Baird. Please proceed with your question.
Good evening.
Rick Thanks for taking the question so.
The ongoing ruck survey process for the upcoming physician fee schedule proposal.
How does that influence if at all by the introduction of the two envision procedure and my understanding is that the survey process that evaluates stock surgeon work.
Principally time.
And so I'm, hoping you could put those pieces together educate me on what I'm not.
Not understanding perhaps.
I think the first goal will be paid the first surveys were already completed and the data was collected and its already on it.
CMS I'm sure on their working on it because theyre going to be coming out with their proposed rules in July and then the.
They'll have to be a different valuation for two insertion at a later date and then even when you get to inspire five right. So it can be iterative process, but the new code will be available January 1st and CMS actually came out with the inpatient rules early right. So.
We're saying July, but we'd love to see them come on early with the proposed rule and the proposed reimbursement, but I don't the two envisions back in effect that process I think it'll be it'll be after it after the fact that to reevaluate. Okay. And then just a level set ahead of us because they may have happened before your next earnings call.
Your expectation is that the.
This payment is at or potentially slightly above where it was historically and where it was historically at least for Medicare was call. It $600 for the base payment I know Theres a range from what you'll see is 600 and then the Max of established $4 50 give or take for the 046 hundred 60, <unk> sensing lead add on so 600 plus.
<unk> just call it a little more than a thousand does that is that where you expect this.
This July proposal to to start.
No I expect it to be higher and debt the teeth.
T Society, you had all this data when.
When they chose to submit data choice they could either just convert the zero four of $6 60 to a category one code and lock in that payment, but they looked at it and looked at it and determined to work for our hypoglossal nerve graft plan is more extensive than a vagal nerve implant in that 600 to $800 is undervalued.
And so they went out to create a whole new code set one that they could work directly with CMS to establish payment. So I would expect that number to be higher.
While our cash.
But yes, I expect it be bad debt.
Thank you.
Thank you.
Your next question comes from the line of Suraj Kalia with Oppenheimer. Please proceed with your question.
Hey, Rick Tim can you hear me all right.
Very good so Raj how are ya perfect congrats on the quarter.
So Tim a bunch of questions have been asked on a global level.
If I could just kind of drill down one layer and please correct me if my math here is off so approximately 15 80 implants were done in the quarter in the U S across 472 centers.
Matt suggests roughly three three implants per center per quarter, that's just mean.
And to Ricks comments about getting the centers to two implants per month.
Can you help us reconcile what percentage of your sites at that two per month run rate.
That's one thing the second thing is how long is it taking for the centers to get there.
If you could.
GAAP same store versus new store sales and finally, if I could and I'll end here, what's the conversion or the hit rate on the conversion rates for patients screened to actually implanted gentlemen, Thank you for taking my questions. Okay. Let me, let me clarify that suraj.
Screened at what point in the process.
Well just.
If suraj comes in today, he's a CPAP failure intolerant gets into the funnel gets a gets a consult right from day to vet. The 0.1 force Suraj gets an implant or is it now zero point to Pfizer I'll, just get implant, yes kind of trying to understand that.
Gotcha Gotcha.
Okay, Let's go back to the first but theres always the distribution of utilization right and so when we start talking about on average at $3, three or where we take it down about one one per month with the goal of getting to two yeah. It's tough to say, it's raj today, but maybe a quarter of the centers.
We're up over that Mark already today.
And.
From same store sales a lot of the earlier centers have taken longer to get there, but when the new centers are trained over the last year or two including this year. They are brought on with an expectation, but we now have reimbursement. So remember the early days, we talked about this on how long it took.
Get.
Ah patients through a prior authorization process and it really limited or as a governor on the amount of procedures that they could do because of that the amount of time they could spend on any individual patient when centers open up now we can set the priority is saying look you don't have to deal with reimbursement you have Medicare.
Commercial payers and what we need is to have a dedicated or days such that patients can fill that funnel patients income to the website patients can get screened to your point.
And get the expectation higher to get to two implants per month and higher now the reason that sort of doggone important.
If a surgeon isn't at that level, they don't become as proficient at the procedure. It's not just the surgeon, it's the sleep physicians and the staff will do the programming if they don't consistency consistently see a lot of patients they don't become as proficient and recognizing.
What the programming and how to make the proper adjustments to get the proper outcomes and the sleep labs and the home sleep study and the long term follow up by doing a consistent number of patients. It really improves the overall learning of our center remember, we're not training surgeons, we're training centers and it really helps to get that higher.
So it does take a little bit a tad now the comparisons are so difficult because COVID-19 gotten away right in COVID-19, we all had to deal with this and the world is still dealing with this heavily today, but it's hard to really kind of show that the data on that yet, but I think this year 2021 is going to put some really good.
Clarity around.
We're going to be going on with US Your second questions are really intriguing one.
And the answer is it.
It depends on.
And what I mean by that it depends on where the patient's originate from.
And when they come to the website, what we do at the website as we get them educated on what the therapy is and they understand they take a little qualifying test to say they've gone through and and they've tried C. Pap a couple of times and.
We know what their BMI is.
And they select where they are regionally so they select what position they'd like to see and then they call the call center or they attempt to community health talks and so what our attempt is to be able to really educate patients greater such that by the time, they get to an E&P who wants to prescribed inspire.
More educated and then youre getting a hit rate of 40% to 50%.
If youre getting a patient who is just a straight med tech referral from a sleep physician yeah, Dan strategy, you maybe tack on.
Maybe 2% because they don't understand what inspire is they haven't been through the the education. So what our goal is is addressing just what you're asking is really try to get the patients educated.
Such that when they get to the E&P. The NT has a much more.
Proficient system to educate them and we give them a little note pad with a video that they can show the patients.
Who have not been introduced to inspire so great question, though.
Thank you.
Thanks, guys.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Tim Herbert CEO for closing remarks.
Thanks, very much Hector and hey, thanks to everybody for joining the call today I remain grateful to the growing team of dedicated inspire employees for their enthusiasm hard work and continued motivation to achieve successful and consistent patient outcomes.
Inspire team's commitment to patients remains unmatched and is 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 remain focused on expanding our business in the U S, Japan and in the U S Europe and now Japan.
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 the year. Please.
Please stay safe and healthy and thank you very much.
Ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time and thank you all for your participation.
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