Q2 2021 Inspire Medical Systems Inc Earnings Call
[music].
Greetings and welcome to the inspire medical systems second quarter 2021 financial results call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. The.
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Minder. This conference is being recorded it is now my pleasure to introduce your host Bob yet it with lifestyle advisors. Thank you Bob you may begin.
Thank you Paul and thank you for all for participating in today's call. Joining me are Tim Herbert President and Chief Executive Officer, and review of holes Chief Financial Officer earlier today inspire released financial results for 3 and 6 months ended June 30 of 2021 the <unk>.
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 of.
All forward looking statements, including without limitation of.
Operations financial results and financial condition investments in our business continued effects of the COVID-19, pandemic full year, and quarterly 2021 financial and operational outlook and improvements in market access for based upon current estimates and various assumptions the.
These statements involve material risks and uncertainties that could cause actual results or events.
<unk> really differ.
Accordingly, you should not place undue reliance on the statements.
See our filings with the Securities and Exchange Commission, including our quarterly report on form 10-Q filed with the FCC today.
For a description of these risks and uncertainties <unk>.
Inspire to school inspire disclaims any intention or obligation except as required by law.
Date of revise any financial projections or forward looking statements, whether because of the new information future events or otherwise. This conference call contains time sensitive information and speaks only as of the live broadcast today August 3.2021 and with those remarks, it's my pleasure to turn the call over to Jim Herbert.
CEO Tim.
Thank you Bob and thanks, everyone for joining the call today for our second quarter 2021 business update.
In January 2021, the team worked through our normal seasonality as well of the resurgence in COVID-19.
And then February and March the team at inspire delivered exceptional results, providing the confidence for us to significantly increase our 2021revenue guidance.
As of this momentum has continued we remain focused on our commercial execution.
Recently, we received clarity on the reimbursement front with the publishing of CMS has proposed 'twenty 'twenty 2 payment rules, which will be an overall positive for our business, especially when considering the impact of the F. D. A approved 2 incision implant procedure.
More on these important developments shortly.
Let's begin with the discussion on revenue.
In the second quarter of 2021, we generated worldwide revenue of $53 million.
Which was an increase of 335% compared to the second quarter of 2020.
Which of course was impacted by Covid.
This growth was driven by several factors, including the increased capacity at new and existing centers, increasing patient demand for inspire therapy, our ability to improve patient access to care with the adviser care program and finally, the positive reimbursed reimbursement.
The environment for inspire therapy.
Yeah.
With the availability of multiple vaccines the impact from Covid was insignificant to our second quarter performance.
Of course, most recently the emergence of the Delta variant has led to an increase in Covid cases, and this has had has affected a small number of our centers primarily in the southeast U S.
With that said, we continue to have confidence in the outlook for our business in 2021 due to our strong performance in the first half of the year the positive trends in 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 $210 million to $213 million from our previous guidance of $1.92 million to $196 million.
This guidance represents an increase of 82% to 85% over full year 2020 revenue of $115.4 million.
As always I would.
I'd like to reiterate that our primary focus remains on the patients to ensure that each and every 1 has the best possible outcome from inspire therapy.
With that that's not the end of the detail surrounding the second quarter, beginning with capacity during the quarter. We added 63, New U S. Implanting centers ending the period with a total of 535. This was well above our prior guidance of adding 36 to 40 new centers.
We continued to experience a growing demand for new centers and physicians seeking to add inspire therapy to their practices.
As an example in the second quarter, we executed the national pricing agreement with community Health systems are publicly held the hospital system with 80 for hospitals and 30 ambulatory surgical centers across 16 states.
With this continued strong demand we are increasing our guidance and now expect to open 48 of 52, new centers per quarter for the remainder of the year.
This increase of new centers and includes a growing number of <unk>, which have increased at a slightly higher rate than the addition of hospitals ASC, which offer a more efficient care setting now make up 19% of our total U S centers. This compares to 16% at the end of <unk>.
And in 'twenty.
We will continue to add both hospitals and <unk> and expect to see a growing percentage of inspire procedures being performed in the asc's.
Regarding the U S sales team, we created 13, new sales territories in the second quarter, bringing our total to 130 day.
This is above our guidance of adding 8 to 9 new territories, and we expect to maintain the strong pace throughout the remainder of 2021.
Therefore, we are increasing our guidance and now expect to add 10 to 11, new territories per quarter during the second half of the year.
We also increased the number of field clinical representatives.
Adding 10, ending the second quarter with 61.
Further we remain dedicated to scaling our sales management and training teams to optimize our ongoing expansion and focus on strong patient outcomes and center productivity.
Yes.
Regarding productivity.
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 of 2020, however, this was skewed heavily.
For the growth from opening new centers, driven by the pandemic limiting procedures at existing centers.
As expected we have experienced a significant rebound in the first half of 2021 with the great majority of our growth coming from increased procedures at existing centers.
However, we need to be careful comparing these results to the first half of 2020 as again that period was impacted by center shutdowns following the onset of the pandemic.
That said, we expect growth between new and existing centers to be more balanced throughout 2021.
Our second key area of focus is to improve our ability to assist patients interested in inspire therapy by them, making a connection with the qualified health care provider.
Our outreach programs continue to be very effective in generating interest and as far as therapy, primarily through the inspire of sleep dot com website.
For the first half of 2021, the number of visitors to our website was over $3.2 million an increase of 21% year over year. In addition, approximately 49000 physician contacts established via the website through the first 6 months of the year.
Adding a significant 77% year over year increase.
This increase was largely driven by a refreshed outreach programs, including new TV commercials, which began airing in January.
Along with the substantial increase in participation and community health talks about inspire therapy.
Yeah.
A very important aspect for improving of patients experience with inspire.
Is to continue to broaden our call center concept, the inspire adviser care program or ACP.
We ended 2020 with approximately 180 of our centers utilizing the ACP answering about 25% of calls to physicians.
Today, we have about 400 centers on the ACP, receiving almost 60% of of the calls.
Just yesterday, we launched the second version of our ACP, which included changing to a new vendor.
This vendor provides improved scalability patient communication and data tracking of.
Our plan is to continue to expand the ACP to most of our centers by year end. This will enable the great majority of patient caused the answered through the ACP.
Our initial experience is that the ACP provides a more efficient pathway for patients to learn about inspire therapy and make an appointment with the qualified health care provider.
With that.
I'd now like to reiterate the importance of our 2 incision implant procedure, which received regulatory approval in the U S. In March 2021.
Importantly, this procedure eliminates the need for a third incision, which significantly reduces the average procedure time for inspire therapy, while providing additional therapy benefits.
The FDA and European approvals were supported by our clinical study comparing the 2 incision approach to the original 3 incision procedure. The results show consistency in the safety and efficacy of the therapy and reduce surgical time to just under 100 minutes on average which was the 26 minute redux.
Yes.
In the real world clinical setting we have seen even greater reductions in procedure times.
From a practical standpoint this savings in procedure time may allow surgeons to add another inspire procedure in a single day as previously most surgeons would typically limits scheduling to 2 cases per day.
In the United States surgeon training for the 2 incision procedure has been completed.
And 99% of all cases now utilize this approach.
This is a good transition to reimbursement and coating.
As many as many of you know inspire therapy now has a dedicated CPT code 605 X 1 that cannot be utilized by competitors and will ensure reliable reimbursement.
The new code will formally take effect on January 1.2022.
And in the last few weeks CMS announced the proposed 2022 payment rules for physicians as well as for hospitals and Asc's.
First in regards to the proposed physician payment back.
Back in early 2020, Medicare reimbursed physicians $635 per of inspire procedure via the existing CPT category, 1 code 6 for 568.
Which was originally developed for vagal nerve stimulation.
Then in June and July of 2020, the Medicare local carriers or Macs issued local coverage determinations, providing coverage for Medicare payments and now. These LCD is provided for an additional payment of approximately $400 for placement of the pressure sensor. However, meta.
Care would often provides only partial payment or not at all depending upon the site of service. Therefore, the new dedicated CPT code will resolve these issues that physician commonly experienced regarding payment.
The proposed physician payment if approved would value of the inspire procedure at $870 as the national average Medicare payment.
With regional adjustments the range of Medicare payments will be between 800 and the $1050.
We will work with CMS during the comment period to potentially improve the rate at which RV use are reimbursed.
But we are pleased with the proposed physician payment as CMS accepted the recommendation from the Rep Committee, which conducted a survey of surgeons experienced with the inspire procedure to specifically measure the amount of work required.
Further our new category..1 code was also approved for the drug induced sleep endoscopy procedure. This payment will increase from $68 in 2021, 2 of $114 in 2022 of 67% increase.
Regarding facility payments.
The positive news is that the new CPT code continues to map to the same level of 5 neuro ambulatory procedure code or APC.
The CMS proposed payment for this APC increased by 3% for National average Medicare payment of just over $30000.
For <unk>, we believe the recently announced draft facility reimbursement was calculated by CMS without the reference to the extensive claims data that exist for instead of inspire therapy procedures.
Specifically there is no history with the use of the new code 6.4 of 5 X 1 as all the prior reimbursement procedures, where COVID-19 using the prior base code 6.4 of 568.
We intend to meet with CMS at the August panel review provide all of the claims data on the procedures that took place in hospitals as well as an ASC.
Our goal is to ensure that the final reimbursement level for inspire procedures in ASC is appropriately established.
For reference the 2022 National average payment proposed for the original base code 6.4 of $5.6 8.
Reflects an increased to just under $25000.
On the commercial insurance policy fraud.
As of May 20th anthem is now providing coverage of inspire therapy importantly, anthem was providing approval through the prior authorization process and conducted a mid cycle review of the inspire technology, resulting in the positive coverage policy serving $42 million.
Anthem is the last large carrier to issue coverage of inspire therapy and inclusive of Medicare brings our total to approximately 260 million covered lives in the United States.
Moving on Europe also had a very strong quarter driven by increased procedure volumes, particularly in Germany, and the Netherlands, We expect growth of inspire to continue in Europe, especially is there has been very limited impact from Covid recently.
As a reminder, effective January 1.2021 inspire therapy is now integrated into the German hospital reimbursement system with a formal DRG, which represents another positive indicator for our European business further we will be adding additional centers in the Netherlands after positive.
Changes in the reimbursement policy in that country.
In Japan.
The formal listing of inspire therapy in the Japan National Health insurance payment listing occurred as expected in June.
Moreover, our exclusive distribution agreement with Japan Lifeline, a leader in the distribution of innovation innovative medical technology in the country is off to a strong start.
Even with the difficult Covid situation in Japan, we continue the launch planning and our holding joint marketing and regulatory committee meetings with J L.
We are preparing for the first physician training course and continue to plan for the first device implants by year end and intend to commence the formal commercial efforts in Japan, beginning in 2022.
Switching gears to R&D similar to the past 3 quarters, we increased our R&D expenses year over year as we continued to invest in enhancing our technology platform.
The inspire cloud our cloud based patient management system continues to expand with the addition of a substantial number of centers in the U S and in Europe, who are using the tool.
Further the second version of the inspire of sleep App was released for use on patient smartphones. This app interfaces with inspire cloud and the allows physicians to collect clinical data from patients directly.
The next step is connectivity with the inspire of device and to this end during the second quarter, we submitted to the FDA the new Bluetooth enabled patient remote.
This new remote will collect data from the implant system, which will then be uploaded to inspire cloud via patient smartphone.
We are targeting of commercial launch of the new patient remote following FDA approval late in 2021.
Yes.
Longer term the design work for our fifth generation inspire neuro stimulator continues to progress once approved we expect inspire 5 to be commercially available late in 2023. The inspire 5 device will utilize the existing form factor with plans to maintain.
The average 11 year battery life without the need for recharging.
The inspire 5 neurostimulator will provide several enhancements and most notably we will eliminate the pressure sensing lead all setting will be inside the neuro stimulator using an accelerometer to measure the respiratory wave forms.
Over the years, we have demonstrated the benefits of closed loop the stimulation and shifting this enhanced sensing capability internal to the pulse generator will make inspire 5 the state of the art Neurostimulator.
In summary, we continued to experience significant momentum in all key aspects of our business in.
Implant trends remain highly positive recent reimbursement updates will have a beneficial impact on our business and the positive coverage decision from anthem wasn't important recent achievements.
Also our enhanced outreach efforts are facilitating additional connections between patients and qualified physicians.
Moreover, we continue to be well positioned to assist patients as they progress on the inspire therapy 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 at our existing centers as well as to increase capacity at by training new centers.
An important aspect of this anticipation anticipated increases in utilization of capacity is the continued expansion of our ACP.
We also intend to achieve further advancements in reimbursement that build upon our recent positive coverage decisions and leverage the new 2 incision procedure continue our efforts to strengthen the growing body of clinical evidence in support of inspire therapy and invest in the continued development.
Net 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 an excellent first half of the year.
Total revenue for the second quarter of 2021 was $53 million.
A 335% increase from the $12.2 million generated in the second quarter of 2020.
U S revenue in the second quarter was $49.4 million, an increase of 349% from the $11 million generated in the prior year period.
In the second quarter European revenue increased 201% to $3.6 million.
The growth in the U S reflects a number of factors, including the significant impact of Covid in the second quarter of 2020.
A larger number of implanting centers.
Rod 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 second quarter was 23900, which was consistent with the prior year period.
The European ASP was 23400 during the quarter compared to 22200 in the second quarter of 2020.
The higher European ASP was driven by favorable changes in foreign currency exchange rates.
Gross margin in the second quarter improved to 85, 8% compared to 84% in the prior year period due to manufacturing efficiencies and higher sales volume.
We now expect our full year gross margin to be in the range of 85% to 86%.
Up from our previous guidance of 84% to 85%.
Yeah.
Total operating expenses for the second quarter were $58 million, an increase of 75% as compared to $33 million in the second quarter of 2020.
This increase was due to the expansion of our sales organization increased.
Increased direct to consumer marketing programs continued.
Continued 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 second quarter was $13.1 million.
Which is a 43% improvement compared to the $23.1 million net loss in the prior year period.
The net loss per share for the second quarter was 48.
Compared to a net loss of 88 cents per share in the second quarter of 2020.
The weighted average number of shares outstanding for the second quarter was $27.2 million.
We anticipate that the weighted average number of shares for the third quarter will be approximately $27.3 million.
Moving to the balance sheet.
As of June 30th.
2021, our cash and investments totaled $217.8 million.
The 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.
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 $210 million to $213 million from our previous guidance of $192 million to $196 million.
This revised guidance represents 82% to 85% growth over full year 'twenty 'twenty revenue.
In summary, we have significant and we believe sustainable momentum throughout our business and we remained well positioned to achieve long term growth.
We are extremely pleased with our first half performance and are excited to continue executing on our growth strategy.
Yeah.
With that our prepared remarks are concluded.
Paul can you. Please open up the call for questions.
Well now be conducting.
Okay.
Paul can you are you there Paul.
Okay.
Okay.
Paul.
Yeah.
Well.
I'll pause coming back online.
Yes.
Yes.
Okay.
Hi, I Apollo.
For the technical issue, 1 moment, and we will pull up the questions.
Uh huh.
Good recovery.
We will now be.
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Okay.
Okay.
Thank you. Our first question comes from Robbie Marcus with Jpmorgan. Please proceed with your question.
Oh great.
For taking the question and congrats on a really nice quarter.
Thanks Robby.
2 questions from me for.
First the <unk>.
Beat was really substantial was.
Not not just the I believe for a record quarter, but up pretty substantially quarter over quarter.
Touched on this in the script, but I think it would be helpful to kind of dive into the drivers.
Is it more coming from doctors educating patients as of direct to consumer is the new and existing docs doing doing more procedures.
Probably a little column, a and column b, but the.
The beat was so substantial in the guidance raise.
Above the beach, so I'd love to just get a sense of where you see some of the most growth and where you still see some of the biggest opportunity.
Absolutely and that's of Great question.
The answer is simple it's all of the above.
In that we have a significant demand from physicians and centers to open new centers as we mentioned opening 63, new centers in the quarter is significant and each of those centers when they open they have a line of patients that are waiting for therapy, but we also highlighted in the script debt the majority of the.
Growth came from existing centers growing over the last year's procedures, albeit last year last year's procedures were affected by the pandemic and the shutdowns.
But having those centers come back in growing the utilization really had a big impact, but you have to add to that the improved reimbursement environment right. The additional.
Medicare policy is really taking effect post COVID-19.
Anthem Dara would need to have an impact although it usually takes a little bit more time for anthem to work through that process.
As well as the 2 incision and going to 99% other procedures with 2 insurgence of growing so across the board just the strong impact. We've also have significantly grown our field force our field clinical reps.
Support implant procedures, and so really the focus is driving utilization and then if I could just add the adviser care program is really having a strong impact and with that we increased our DTC spend and are getting a greater demand as we highlighted with the.
Web hits in patients reaching out to the call Center.
Great.
Maybe a quick follow up here.
The reimbursement was obviously a topic during the quarter and you touched on it.
But it seems like there is theres 2 issues..1 is the physician fee came in a little lower than expected in some of the <unk>.
Outpatient rates.
Probably more in correct than anything else so.
1 on on the physician rates do you think the rate of came in will hinder utilization all at all.
Obviously, the better the higher the rate the better but what can you do there to maybe improve debt in the final and then same question for the the outpatient code what steps, you're taking to try and get a better rate.
Correct them on their logic zone into the final code share I think the physician reimbursement rate is fine.
Obviously, everybody wants it to be higher than it is but the rough did a survey in the survey to all of the physicians. We believed there was a little bit of a blend with 2 incision in there. So it is part of the process and has it came in with the.
The accurate number and CMS accepted debt number 2 of them to RV use.
Another challenge is the payment rate for which physicians are getting paid RV use was also proposed to be reduced and we're going to make sure. We work to try and increase that and elevate that physician proceed physician payment a little bit higher for the fact of the matter is the payment that they have right now is higher than what they were getting.
At the beginning of the year end 2020, and it was only for the temporary payment of the pressure sensor code that got them do a higher level. So.
So the payment level of high, especially the fact that 99% of the procedures are now being done with 2 incision and getting the procedure done down close to 90 minutes really kind of drives that reimbursement rate to between $8.50, and $10 of minute, which is right in line with all other.
Procedures that E&P is due so we're happy with the physician payment as far as the ASC payment I think youre right. We just need to work with CMS or they can capture the historic data on the claims of inspire therapy, but when they go to do the historic look up the used 605 X 1 but that code.
Didn't exist, even as the category III. So they didn't weren't able to capture that data and we believe when we sit down of work with them and we have our consultants in Washington, putting the data together and we will present.
At the August meeting or will at least asked to present and expect that we'll be able to provide that data and allows CMS to do the proper calculation to get that procedure code, where it would be properly reimbursed and Jay just as an example, the old base code actually had a proposed.
Increase at <unk> to just under $25000.
Okay.
Great Congrats on a good quarter. Thanks.
Thanks Ravi.
The warehouse Paul.
Yeah.
Yes, yes.
The folks can hear me.
I think we're going to try to take the next question, Chris Pasquale from Guggenheim Chris Go ahead.
Yeah.
Okay.
Yeah.
Thank you. Our next question comes from Chris Pasquale with Guggenheim. Please proceed with your question.
Great. Thanks, you guys hear me okay.
Yes, we can Chris how are you good.
Good.
Congrats on a really remarkable quarter.
The pace of center expansion is particularly impressive in the updated guidance suggests that the momentum there is been of persist for a little while I would love your updated view on the sustainability of this pace.
How much runway you think you have as you look at the universe of centers, who should really be performing this procedure in the U S.
Absolutely I think the.
The demand from physicians and from centers to participate with inspire is really growing and so we really stepped up our training team and our site activation teams to be able to capture this demand and provide a more outlets for patients to receive inspire we think we're still at the very.
Early stages I think.
A while ago, we just talked about 4000 hospitals and probably of equal number of 4000 ambulatory surgical centers available and Thats targeting about a third of those are getting close to 2400 and now we are just crossing over 500 active centers right now so we are still.
It's very very early in the pipeline and we highlighted in the script, though that the.
Rick and the team signed another national contract with with CHS to open up another Avenue.
So we're really making good progress there we would see that momentum continuing forward. That's why we significantly increased that guidance for opening new centers going forward.
But we also remember like to keep a ratio of the number of centers managed by our territory managers. So hence we are increasing the rate at which we are recruiting and retaining new territory managers.
And the same ripple effect, there means we need to continue to.
Bolster our sales management team and continue monitoring the training teams. So it's the scaling of the entire business and Thats the.
Pretty exciting to be able to do that while still supporting our real strong patient outcomes.
That's helpful. Thanks for your kind of led me into my next question, which was about debt new national pricing agreements and the impact for that to have just put it into context for US did you have any presence at those centers prior to putting this agreement into place and now the habit.
How quickly do you think you can expand into the whole network.
Hey, Chris This is Rick.
Jess publicly held hospital system the of 80 for hospitals and another 30 <unk>. We were not previously in any of those locations and so what that does is really in essence goes through the value of analysis committee at a high level.
For all of 114 locations.
So when we go to those different locations, we find the interested physician surgeon sleep Doctor and then.
Get the patient flow started so that will allow us to get into those centers, we may not get into all of them.
Similar to our other.
ASC national agreements that we entered into USPI, there's nearly 400 centers there.
We're in a couple of dozen so far.
And the USPI. There's also FCA that we entered into last year has over 230 locations. We're still early in the penetration of that in addition to <unk>. We're also focusing on other hospitals.
<unk> such as the Ascension, where we entered into agreement a year ago and they are of a 150 locations plus 30, so that gives us confidence in the ability to raise our guidance on.
The number of New center additions to <unk> 48 to 52.
On a quarterly basis for the rest of 2021.
Great. Thanks, Rick.
Thanks, Chris.
Thank you. Our next question comes from Larry <unk> with Wells Fargo. Please proceed with your question.
Good afternoon, guys. Thanks for taking the question I'll just.
Stick to 1 question, but I just wanted to focus Tim on the Philips recall of its CPAP devices. I mean, just given the large numbers here for million worldwide..2 5 in the millions of U S. It seems like the potential opportunity so.
My question is are you seeing any benefit from this yet in terms of traffic to your website any other leading indicators.
And I know, it's impossible to quantify any potential benefit at this point, but would you be surprised if there was no benefit from this.
This year for next year I'd love to hear your thoughts on.
That.
Thanks for taking the question.
Thanks, Larry.
<unk>.
We certainly didn't want of market against that I know Philips is working that the best day candidates and unfortunate situation for those patients with.
Net being able to use the CPAP devices and the inability to get new devices to them.
We have been in communication with of all of our centers. So the obviously.
Well aware of the situation and we are certainly they are available for patients if they want to move on from CPAP, rather than wait for a new 1 so yes, I am sure we will have a positive impact because of this recall.
In the meantime, we're doing what we can to grow awareness of the brand mixture of people are aware of inspire we've had have increased.
Our outreach program as educational to get people more to the website.
We talked about a significant increase in the web hits in the first half of the year, but that's also been.
The increase here in the second quarter again, probably a balance between driven by people with the search, but as well as our increased direct to consumer activities. So we're staying on top of it we're well aware of the situation, we make sure all of our centers.
On top of it to communicate with patients to be able to take care of them. If they if they if they desire so but thanks for bringing that up that's of great question.
I'll leave it there Tim congrats on the quarter. Thank you. Thank you.
Okay.
Our next question comes from Bob Hopkins with.
Okay.
Hey, Brad Bowers on for Bob can you hear me.
Yes.
Alright, great. Thanks for thanks for taking the questions here. So I'll just to start off here I wanted to know if you'd be able to share any data points or anecdotes or anything in the way of the doctors that are actually doing the third procedure within the day just kind of wanted to see if that's actually getting uptake sort of as is expected and whether or not the position update would impact debt.
As well.
I think it's starting but I think the momentum in that phase is still yet to evolve and what we're talking about is most centers right now of routinely just block.
2 procedures, because they're used to the old time of.
2 hours, maybe 3 hours of it gets complicated some of it takes 6 hours you can't really scheduled the third case and we need them to see the data on the 2 procedure and get comfortable after 1 center that they can add a third case in some cases, they can add a fourth case and so we're really at the early stages of that even.
With the successful quarter that is still yet to become 99% of the procedures being done with the 2 incision and now of being able to show the administrators. The data says the effectiveness and we mentioned the real world experience is even coming in a little bit better than the clinical study. So we think this is something that we'll talk about.
More of the future as we really start to evolve to go into more of the 3.
Plus the decisions per day, and that really is going to be of key mechanism for us being able to add capacity in the future.
Okay. Appreciate that and then if I can just 1 follow up and I don't mean to belabor. This because I think you've covered it pretty well, but just wanted to key in back on the.
The ASC update Andy.
Phil.
Answering the question that you were asking to present there.
Is this data so.
The aren't going to be presented the claims data assuming you do get that but just wanted to make sure that you are.
Our confident in getting the update and that the data that you have is going to be sufficient to get the update and that you are going to be able to get in front of the panel and I. Appreciate you answering these questions.
Absolutely. Thank you very much and then the <unk>.
Number of implants were up over 16000 implants now.
Worldwide are the historically the majority of those by far are in the United States and so there is a very extensive amount.
Of reimbursement data of claims data out there and then if you remember we always ask the rate that Medicare is about 25% of our implant procedures. So there is an extensive amount of data and <unk> have also been very active for a period of time. So we have enough data to be above the <unk>.
<unk> threshold.
For CMS to use in that go to that default, 31% discount rate. So we have asked we're going to have to make sure. We're part of the meeting we certainly have sufficient data to support a proper calculation with the proper discount from the hospital payment.
And there is already evidence to show that debt the old base code was <unk>.
Proposed to receive.
Increased just under 25000, so we're going to do everything we can to make sure that we get that information pulled together and have CMS weigh in on that.
No I Paul you there.
Yes, I'm here. Our next question will come from Amit Hassan with Goldman Sachs. Please proceed with your question.
Hi, It's Phil can you guys hear me okay.
Yes, the absolute.
How are you.
I'm doing good thanks.
If we look at guidance I appreciate some conservatism and then you mentioned.
Some early impacts being seen from Delta if we look at the guidance the implied.
And of a slowdown from from the first half of them in the second quarter, specifically I was hoping you can discuss sort of the <unk> versus for 2 dynamics and how the delta is playing into that and maybe any comment on vacations physician vacation schedules, it's increasingly come up in some of our other earnings calls.
Well, we people worked very hard and especially during COVID-19 and we want everybody to take of vacation and BRAF fall and move forward. We don't believe that the vacations are going to have a significant impact on our business Thats I think part of the.
Process.
And vacations are always part of the price as we build that in.
As far as Covid, we stayed aggressive with setting our progress we do expect.
The sequential quarterly growth from <unk> Q2 to Q3 to Q4.
Typically what we see in any year, but we're going to watch Covid I think this time around hospitals of being a little bit more protective and theyre not looking for the full shutdown again remember we're outpatient procedures. So theyre not looking to really shut down revenue generating procedures at hospitals. They they went through that.
Last year and I think people are looking for workarounds to keep procedures moving forward. We also have more flexibility and additional centers to be able to move a lot of those procedures to ambulatory surgical centers or just better equipped to work around the research and so we're not being a little bit careful.
We're not expecting a significant impact.
From the Delta very end, but we're going to continue to watch it closely.
Sure.
Okay, great. Thanks, a lot of time.
Kind of following on that same line of questioning.
If we just put aside the the constraint on facilities that may come about.
Can you talk about patient risk aversion in the environment of Delta in.
Maybe what you've learned from the last year and how patients kind of operate in this environment and how that.
Plays into your 2 ethics expectations. Thanks.
Thanks.
That has a lot to do with.
The results of Q2.
As we all suspect I think.
People are done with Covid and people want to get back and get their health care, taking care of where we have good momentum going and we're going to see that momentum carry forward and.
People are comfortable being able to have these procedures done and if we can provide alternative sources either through our ASC or to the hospital.
Of the.
The hospital.
Enter of the hospital Lora branch hospital to protect them, we will certainly work and find alternatives there, but I don't think were going to see a very significant slowdown in the.
Of the fear factor from patients and Covid anymore.
Okay. Thanks for the comments.
You bet. Thank you.
Thank you. Our next question comes from Richard <unk> with SBB Leerink. Please proceed with your question.
Alright, Thank you and congrats on the great quarter.
I just wanted to follow up on the reimbursement specifically on the ASC side.
It sounds like type of a good a.
The good case to make.
For the CMO here so.
And your confidence that you will make.
But the.
But just curious if for some reason that want to go your way it might be helpful. Just to get the sense for what.
What pivots, you would have of what the ultimate impact would be given.
It sounds like these are an important part of the growth strategy going forward.
If you could specifically comment on Q.
1.1 of the private payers pay as a multiple of Medicare usually in the ASC setting.
If you had the switch Medicare base pay.
Patients, which is the minority of the outpatient.
The Doctor theoretically under the proposed rates still be able to make a decent profit.
On the day incentivize to keep doing the procedures in the ASC setting for at least the private pay that's question 1.
Okay, No problem I think.
Like I say, we have extensive data with the procedure being done in the ASC and we're going to put our best foot forward and we have confidence that we're going to be able to establish proper reimbursement.
It doesn't happen and you know the there's always the chance of that it just curious into the following year and we continue to battle because of the Asp's are an important step and we will continue to work with CMS in the future to be able to get the proper reimbursement of afcs, and so where even if we don't.
Establish proper reimbursement desk go around we will certainly keep pushing that for following years and move forward.
In the end what this is saying in that the hospital reimbursement for Medicare increased.
Yet they put a default calculation for <unk>. It just doesn't make a lot of sense and what that means is Medicare patients would be locked out from <unk> and that certainly is not cms's intentions. So when we're able to provide the debt the data we're confident that they will.
Make the proper calculation.
The commercial Payors are privately contracted with <unk> for their payment rates.
The USPI as an example, Rick mentioned before along with the association of <unk>. They are engaged with us in this process. They go through this every year with CMS payments and they're going to be pushing very hard to make sure that the proper reimbursement is established that beer.
<unk> said, they all contract independently with the commercial payers. They have already established rates for a lot of inspire procedures, because we've been reimbursed for for many years now.
We believe those rates will remain consistent and don't think theirs.
The real motivation from commercial payers to be able to really reduce those based on.
The calculation from CMS that doesn't reflect history. So we think commercial cases will continue to be done in the ASC and that means the Medicare cases is going to have moved back to the hospitals and we are certainly we will have capacity of the handle that but again I think by the ox.
Couple of November timeframe, we will be able to fix this.
Okay. That's really helpful. So I mean, it's not ideal, but it sounds like even if it were.
A delay or 1 of 1 year delay to get the criteria in place.
It would really only be a minority of your of your cases that would have to the migrated to the debt of.
The hospital outpatient and you'd still be able to do probably most of your commercial cases in the ASC because of the privately contracting with commercial insurers.
The message correct.
Yes, it's absolutely an okay number 1 there's no changes for the rest of the year because we are on the existing code right. All of this takes effect January 1. So we have time to work with CMS in the commodity to be able to establish the proper reimbursement for January 1st number 2 most of the surgeons that we have have privileges both of the ASC as well as the hospital.
So it's not difficult for them to move the Medicare patients per hospital, and the Medicare payment and hospitals increased to over 30000 sort of it's a profitable procedure for hospitals to handle the Medicare cases, so no I don't think its going to have an impact I think that.
We have to deal with it we're going to work with it we're going to work with CMS, but we're going to get it resolved. So we can continue to offer the therapy for patients.
Great. Thanks, and if I could just squeeze 1 more in Tim.
It was a really healthy guidance raise.
Evidently more than just the <unk> beat.
The outlook went up I'm just curious you have some COVID-19 maybe.
<unk> contemplated in that that's the bad Guy I'm, just curious what what what's contemplated in there of anything from anthem pick up in the Yadkin contribution does that decision.
Really begins to impact the business.
No good point, well also anthem the road policy in the middle of the quarter and it doesn't give us a lot of time to be able to implement that down to the regional level and making the impact with it. So you will see more of the anthem patients.
Backup.
The anthem patient who was in the prior authorization process either at.
Prior authorization first appeal second appeal of external medical review, we worked with anthem and we're able to pull all of those patients onto the system and restart them back in prior authorization, whereas they can get a quick approval and then get scheduled so I think youll see more of that as we kind of move into.
<unk>.
The third quarter and maybe some of the fourth quarter. So that that will start to come through so thats certainly is a positive.
But I think the whole of Medicare.
The policies are really taken taken effect in and we're finding good ways to help patients out even with the Covid Delta research.
Okay. Thank you.
Thanks Rich.
Thank you. Our next question comes from Michael <unk> with Baird. Please proceed with your question.
Hey, good evening.
Question, maybe for Rick.
If you said it Rick I missed it but opex expectations for the back half.
That's question, 1 and then zooming out.
For the breakeven point used to be considered $250 million of revenue give or take last quarter I heard.
For prioritizing growth will get back to you I'm curious for your latest thinking on.
The revenue level of support.
EBIT breakeven give or take.
Yes. Thanks for the question Mike. So your first question regarding Opex, we do not provide guidance on opex, but you can see where historically we continue to.
The increase our investments across all facets of our business.
We've increased the number of territories, we're adding we're increasing the number of centers and so with that we continue to invest in adding sales management field clinical reps.
So we want to focus on continued strong patient outcomes and improving center productivity by adding and increasing the sales organization. We're also.
Investing in our R&D initiatives as Tim mentioned with inspire 5 of the App in the cloud.
And with that stronger in your connectivity.
We believe that will also improve outcomes.
Outcomes.
From a from a breakeven standpoint.
We understand and are fully aware of that profitability is important but we are really mainly focused on growing the market for our therapy. Since we have no competition for the next several years.
Tim mentioned earlier that we're still very early in the in the penetration of potential procedures and number of implanting centers.
So we're really concentrated on our commercialization and investments for our further growth.
Okay.
And an example of that is the market development of the patient outreach in our DTC efforts.
Because we see.
With increased brand awareness leads to increased website visits and doctor appointments.
So that's also why we are expanding our call center.
To assist with increased appointments.
So.
To your point.
We're going to continue to make these deliberate investments for our growth and with our current cash on hand, or 85% gross margin in our market opportunity.
We're going to we're going to focus on driving years of continued growth.
And we're currently not optimizing our operations to produce the net income.
At this time, but instead, we plan to continue to invest aggressively aggressively in our growth drivers that we talked about earlier on the call.
Appreciate all the color 1 quick follow up on.
This new call Center call Center of vendor, Tim you mentioned, you're transitioning vendors there what exactly is happening and operationally how complex are not complex as this change.
Well it was the the original center, we had was up in Winnipeg, Canada, They're a great start good company.
Really kind of get us off the ground, we learned a lot by going through the day, but as we started to add a lot of centers, we knew we needed to.
The increase the.
The scalability of the capacity and so we went with the new vendor has done in Austin.
Very strong company good history.
We launched it yesterday and we look forward to moving forward, we're going to use of lot of our internal it systems to help that integrate more closely with inspire cloud and put together.
All encompassing patient management systems so it.
Sounds a little bit more complex than it is but the transition to the new vendor happened over the last 3.4 months.
The train the trainer is probably 3 weeks ago and launched it yesterday and I already got word that they're taking calls and things are going well and we're looking at really expanding that going forward.
Thanks, so much.
Thanks, Mike.
Thank you. Our next question comes from Adam Maeder with Piper Sandler. Please proceed with your question.
Hi, Tim Hi, Rick Thanks for taking the questions and congrats on the great quarter.
1 on reimbursement and 1 on <unk> just on the reimbursement side.
Actually on the physician fee this time.
I think I heard the comments that CMS did take into consideration of the 2 insertion procedure at least to some extent in the $870 proposed amount for next year.
Now that we're closer to 99% of the inspire implants being done through the 2 antigen approach do you think there is any potential for that rate to be compressed some or do you think thats a pretty firm floor that you have and any revision is likely to the upside and then I had 1 follow up.
I think for right now I think thats going to be moved.
Move forward to towards approval I think the.
Recommended RV used was accepted by CMS just reduce too.
RV use on the work element the accepted the assets administration and the and the malpractice part of it of 100%. So I think thats, probably not going to really be contested I think thats a really good spot I think.
The CMS also has a lot of other things of that they have to deal with between now and October. So that's going to move forward. We don't see the data from the rock. We obviously are not part of that it's arm's length.
Research by the Rock Committee. So we don't see of the data, but we do know that the 2 incision was developed by E&P procedures and some of our larger volume centers. So when they completed the survey it's natural that they had been doing 2 incision so that the data.
Was captured by them and part of the rock recommendation. So we think it's a stable <unk>.
<unk> for the foreseeable future.
That's helpful color gentlemen, good day here.
Thanks for that and then just for the follow up on International I know, it's a relatively small part of the business today, but a nice quarter outside the U S. I think you talked about Germany, and Netherlands as kind of the key geographies, there maybe talk a little bit about what youre seeing.
In the field and.
Additionally, kind of where youll take the therapy in the future in terms of other European marketplaces, I think you've talked about Australia and the the past obviously, we've spent a good amount of time talking about Japan, but just wanted to get a better sense for kind of the <unk> roadmap.
Over the next couple of quarters. Thanks, so much absolutely. Thanks, Adam 1 of the key focus continues to remain that we make investments in the countries. After we have established reimbursement that is exactly the case in Germany, where we have 90% of our European employees are in Germany, and it's growing very very strong.
We are of very strong foothold in Germany, it's really well performing team.
Team over there the second group is in the Netherlands, where we have an ability to expand because of the reimbursement changes there and so we have an opportunity to open up additional centers.
And right now we're limited to just 2 centers in.
In the Netherlands in just a few.
The case is allowed in each center per quarter. So that's going to expand we have done formal regulatory.
Reimbursement submissions in Belgium, and in France, and they will be in review in the near future. We do have good reimbursement in Switzerland, that's growing in Austria, we are starting a new initiative in the Nordic region to start increasing.
Reimbursement of attention there and we continue to work with the U K to start implants in that area. So Europe is very important where it's starting to really grow.
In Europe, and we'll keep pushing that forward, Australia, we have resubmitted the reimbursement it's kind of come up for our next review I think in August, but again until we get reimbursement locked in in Australia and it is a very long process to do that we do have regulatory approval in Australia.
In hand, and just like Japan. It takes time to work through to get the reimbursement. So we expect that in the near future but.
It's going to take probably another year to be able to get all of that reimbursement locked it in the Australia, but we're continuing to pursue that.
Japan, we already talked about and we are also looking about a broader.
The Asia Pac strategy, and we're kind of working that strategically and developing that plan.
Very helpful. Thank you.
Thanks, Adam.
Thank you. Our next question comes from Ravi Misra with Bahrenburg. Please proceed with your question.
Hi, Tim Hi, Rick Thanks for taking the question.
Just 2 questions 1 kind of maybe on the near term guide in the how to kind of consider how you came up with that in respect to the comments on the 2 incision procedure should we think about kind of the growth being led here.
Returning the 50.50, but in the near term as the New center opening growth kind of kind of outweigh the throughput from the physician moved to the 2 incision procedure I guess, how long is that kind of take and what have you factored into guidance. When it comes to the extra procedures that that may entail.
Tied to that is out of the procedure gets more simple and as your funnel seems to be broadening I guess given some of your <unk>.
Web visits that you are talking about any kind of change to the to the hit rate or the kind of doctors' visits.
Either call center is going to be gathering for you or what we've seen now versus maybe a year ago. Thanks guys.
No problem.
Ravi, it's multifactorial, but let's kind of walk through this a little bit because.
In composite is where the benefits lie so opening the new centers, we think new centers and growing capacity at existing centers will balance out the problem that you can't really calculate that based on 2020, because the existing centers really only have an 8 month year right through it after prorated for kind of think through that.
But we do go back and look at utilization.
And utilization at the older original site actually is higher than the new sites.
But the new sales grow utilization quicker than the.
Older existing sites I say that carefully but what that means is we have improved our ability of select sites to get all of the physicians and the entire team engaged to go through their training process and get their utilization up higher but it takes they can get to the higher rate in of soon.
A period of time then.
And then the older centers, but the other centers continue to grow as well. So that really is is the strong positive I think from the adviser care program, where we're improving our patients chance.
And having a patient call of center directly we knew that up to half of the phone calls were never being answered and even by opening up the call Center to day, we know 1 of the challenges is getting the centers to answer the phone call. When we call them make an appointment and Thats 1 of the things that we need to continue to debug as we open up.
Our new center is that communication link so the call center driving patients of the call Center and having the call center work with them to get an appointment and of time. The appointment is really going to have a significant impact going forward and that I think is going to have a dramatic impact and then finally.
People are aware of and the brand or direct to consumer is not about just driving patients. It's about building brand awareness and we are starting to see.
Our return on that brand awareness, not just with patients coming to the website, which has significantly grown but also with hospitals and physicians wanting inspire as part of their practice.
I'll leave it at that thank you.
Thanks Ravi.
Thank you. Our next question comes from Suraj Kalia with Oppenheimer. Please proceed with your question.
Good afternoon, Ken Greg can you hear me all right.
Yes suraj of ARIA.
Perfect Hey, congrats for the quarter, so Tim Thanks for your commentary.
The 2 points if I could.
So give me put throwing a lot of numbers that you open I just wanted to make sure I understand the math.
So it looks like 2061 U S implants looked down in the quarter.
535 centers.
And my specific question I wanted to tie it to your to your comment about 50% of growth came from new centers.
The remaining from existing centers for Tim.
And if I do the Delta, it's about 1600 plus right.
The year is the.
The way to think about what does 800 implants came from new centers versus an 800 from existing.
What im really trying to get at the end of the day is just look at utilization rates.
Overall, the math still suggests to us it's a little north of 3 implants per center per quarter, maybe you could tie right. We're about we're about 1.3.
Sorry, yes.
Kim I lost you for a second.
Oh, Okay go ahead of Q1.
I was just curious if you could help us understand the utilization metrics for center.
Calls.
For us the math is still suggesting it's roughly a little over 3 implants.
Center per quarter.
Thank you.
Implied guide for U S suggests that just help us understand your commentary about utilization rate picking up new centers.
If you can just kind of tight for us together that would be greatly appreciate it.
Okay, I'm going to try and Peel those 2 things apart. So the growth rate is kind of tricky because we're dealing with the second quarter of 2020 of which was the middle of the pandemic shutdown. So it's kind of hard to do the $50.50, we think only because centers in the second quarter were shut down they didn't do many implants hands.
Up here's the growth is more from growth of capacity at existing centers, rather the new centers, but we know that's not necessarily true because we opened up 63, new centers right. So we kind of be a little careful on how you do that calculation and the model for that we believe going forward, we want a ballot.
The growth in existing centers to be 50% of the growth.
And new centers being 50% contributing as well so that means that if we are opening up 63 centers with the implants that they do we're going to have to really grow capacity at existing centers and that's exactly the intention and exactly what.
The call Center and 2 incision provide us the opportunity to do now the key on the new centers is you got to remember that those 63 centers open up.
Linearly spread between the first day of the quarter in the last day of the quarter and so theyre going to range on a limited number of implants during the quarter too.
Maybe if they started early in the quarter that they can't get above the 3 but for the most part new centers opening in a quarter.
Really they don't have the time to really get above that that calculation that you had of about 3 <unk>.
Implants per center on average over during the quarter. So I think they start to hit their stride after their active for several quarters and really the utilization rates are driven by the existing centers and.
And so it's always a little bit of a fight to keep growing the utilization at existing centers, but it always gets diluted by the opening the new <unk>.
Centers as well.
The very positive events.
So Tim Fair enough I guess your point and the cash.
Felicia methodologies to say that we are using.
And it Hasnt budged and I guess, maybe I can just tie in my second question just trying to on the slide.
Yes, it's <unk>.
Is it a lot because of the number of centers. We have opened has dramatically increased.
No I'm just talking about the utilization rates.
But that is affected by the number of centers that we opened.
Okay.
If it's if the your current utilization, let's say as the little over 3 per center per quarter and the DTC.
Penny per patient at least the math, it's roughly around 5000, plus or minus per patient.
How do you measure our ROI. So now with the 2 of the decision should we start seeing an uptick in the number of implants per center per quarter or the drop in the DTC, how do youll see it of how should we start thinking about the next few quarters any color would be greatly appreciated. Thank you very good guys. Thanks very much.
Much of <unk>.
DTC has really has a multi factorial function as well then it is building brand awareness, but it is about bringing patients to the website and educating them and connecting them with the physician in their area and we do think we're going to start to see a good return and leverage on the direct to consumer activity.
And we're getting better at it and so we think that is really kind of key moving forward, but we're going to continue to.
Add new centers and really be able to.
Grow utilization at existing centers. So it's the combination of 2 by growing utilization will be able to get a better yield by getting more patients through the system by being more efficient with the adviser care program, we will be able to see of return on the direct to consumer and our comfort level with the direct to consumer as the base.
<unk> for which we have been increasing the level of spend so but thank you very much for the question and that's a very important part of our process moving forward.
Hi, Paul I think that is all of the questions.
But I want to thank everyone for joining the call today.
As always grateful to the growing team of dedicated inspire employees for their enthusiasm hard work and continued motivation to achieve successful and consistent patient outcomes. The.
The <unk> 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 remain focused on further expanding our business 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 second half of the year, Please stay safe and healthy and thank you once again.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.