Q3 2023 Inspire Medical Systems Inc Earnings Call
Yeah.
Good afternoon. My name is the land and I'll be your conference operator today.
At this time I'd like to welcome everyone to the inspire medical systems third quarter 2023 conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
Ill hand, the call over to your first speaker S E. The.
The Vice President of Investor Relations at inspire you may begin the conference.
Thank you Joanna and thank you all for participating in today's call joining me are Tim Herbert.
Chief Executive Officer.
Chief Financial Officer.
Earlier today, we released.
Financial results for the three and nine month.
And at September 32023, a copy of the press release is available on our website.
This call management will make forward looking statements within the meaning of.
Of the federal Securities laws.
Looking statements, including.
Without limitation those relating to our <unk>.
Operations.
Actual results and financial condition.
Full year, 2023 financial and operational outlook.
The market access are based upon our current estimates.
Sure.
These statements involve material risks and uncertainties that could cause actual results or events.
Accordingly, you should not place undue reliance on these statements.
Please see our filings with the Securities and Exchange Commission, including our Form 10-Q, which was filed with the us.
Yeah.
For a description of these risks and uncertainties.
<unk> disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
This conference call contains time sensitive information and speaks.
As of the live broadcast today November 7th 2023 with that it is my pleasure to turn the call over to Tim Herbert Tim.
Thank you Oscar and thanks, everyone for joining our business update call for the third quarter of 2023.
As always we start with our commitment to patient outcomes and ensure that each patient has the best possible experience with inspire therapy.
We are excited to announce that during the third quarter, we surpassed a significant milestone about 50000 patients treated with inspire therapy and the team is very proud to be able to make a difference in the lives of so many patients.
With that let's review our results in the third quarter, we generated revenue of $153 $3 million, representing a 40% increase compared to the third quarter of 2022.
Our growth continues to be driven by increased utilization at existing centers and is complemented by the activation of new centers.
Internationally, we grew 99% with the European team delivering very good results, we had several wins, including growth in Germany, and the first full quarter of leveraging countrywide reimbursement in Belgium.
Looking forward to the fourth quarter in Europe, we are running up against inventory supply issues of poly urethane basically we do not yet have our European Union medical device regulation approval, commonly noticed EU MBR, which is allows us to start shipping the new silicon basically which were approved in the U S back.
In the third quarter of 2022.
As background, we applied for <unk> approval in December of 2021.
But there is a significant industry wide backlog in the European system, which has delayed approval beyond our expectations.
Such we have limited supply of the polyurethane.
Although it is difficult to predict.
We have made significant progress with our notified body.
And our targeting EU MTF approval of the silicon basically it.
Early 2024.
In order to maintain product deliveries, we are pursuing a temporary pathway called product derogation, which is a country specific approval that allows for the early shipping of the silicon based leads while the EU MTR review has been completed.
We have already received derogation approval in the Netherlands and have begun the delivery of silicon based plays in that country.
We have also initiated the derogation process and several other countries, including Germany, Belgium and Switzerland.
Therefore during the fourth quarter of 2023, and possibly extending into 'twenty four we expect that the delay of the EU MTR approval and the shortage of polyurethane basically it will cause delays the implant procedures, resulting in a reduction in our European revenue of up to $4 million in the quarter.
In the U S. During the third quarter, we continued to increase our capacity to support the strong demand for inspire therapy by adding 62, new implanting centers ending the quarter with a total of 1107 centers.
During the fourth quarter, we continue to expect to activate 52 to 56 centers.
Regarding the U S sales team, we created 13, new sales territories in the third quarter, bringing our total to 274.
We continue to expect to add 12 to 14 sales territories in the fourth quarter.
To highlight the strong patient demand.
In the third quarter, the number of visitors to our website surpassed three 8 million.
And from these visitors we had over 15000 physician contacts.
These are significant increases from the second quarter and are due in part to a change in the media mix, which we implemented in the third quarter.
Further we continued to improve our conversion of patients receiving inspire therapy. Looking ahead to 2024, we will be more targeted in our approach to DTC. One example is increased attention to digital advertising directed towards qualified patients.
As a result of this change in our strategy. These metrics will no longer be relevant and will not be reported after 2024.
Summarizing the commercial activity in the United States with.
We track the decrease in the number of submissions by your customers seeking prior authorization for the inspire procedure.
Resulting in a short term impact on the number of implant procedures. During the early part of the third quarter.
His background in early 2023, we initiated a pilot program with certain customers to minimize our involvement with their prior authorization process.
Despite a careful and well planned approach to the pilot program.
Inefficient number of our customer experienced challenges with their prior authorization submission process.
After recognizing this trend early in the third quarter, we reinvigorated our efforts to facilitate patient access to inspire therapy by more closely engaging with our customers with the prior authorization submission process.
In both our field and corporate prior authorization teams to assure timely consistent and accurate submissions.
As a result of these efforts throughout the quarter the number of prior authorization for patients seeking inspire therapy began to normalize which reinforces our confidence in the fourth quarter and be at even with these improvements we were limited in our ability to add implant procedures as a result of the ongoing chat.
<unk> anti surge and capacity.
Having identified and addressed his prior authorization issue and with the ever present patient demand.
We are seeing significant momentum in the U S entering the fourth quarter and therefore, we are increasing our full year revenue to be in the range of $608 million to $612 million up from $600 million to $610 million, representing a 49% 50% increase.
Compared to 2022.
This increase to our revenue takes into account the regulatory challenges in Europe.
Switching over to reimbursement we are actively working to include the FDA indication expansion into payer policies. Just recently two large U S payers Aetna and Humana updated their policy to cover patients with an H eight up to 100 events per hour.
And a BMI up to 40 as well as for the pediatric population with down syndrome.
We will continue to work with other payers to include these expanded indications.
Furthermore, the final all PPS rules for 2024 were published last week consistent with the proposed rules in July with minimal changes to the site of care reimbursement levels.
We also highlight the significant increase in the reimbursement of the drug induced sleep endoscopy or data procedure, which increased from $180 to $1618 for the Medicare facility payment in the hospital setting.
The physician reimbursement had a slight decrease due to the general RV you reimbursement rate, but this is typically adjusted prior to the January 2024 effective date.
Okay.
Let's switch over to product quality.
Our real World evidence continues to show strong patient outcomes and patient satisfaction with inspire therapy.
We recently published our 2023 patient experience report, which shows continued improvement in our already low revision and expedite rates and demonstrates our unwavering commitment to outcomes. This report can be accessed on our website at inspire sleep dotcom.
Tom.
We continue to make investments in our clinical research as evidenced by the predictors study results, which were presented at the international sleep Surgical Society meeting in Nashville in September.
The results indicate that a narrow airway correlates with complete concentric collapse.
Furthermore, each millimeter increase inherent joel with correlated to a 10% decrease in the likelihood of complete concentric collapse.
Additionally, the results from the initial subset of 300 patients demonstrated that BMI plays a key role as BMI was correlated with increased lateral wall collapse, which is a contributor and complete concentric collapse cases.
And the early results each unit increase in BMI correlated with a 14% increase in the odds of complete concentric clubs yet.
Importantly, these results do not vary.
The result of the initial feasibility study.
With these encouraging results additional patients are being enrolled for validation with the intent of identifying specific patient populations for which <unk> may not be required.
We expect to complete enrollment of the second subset of 300 patients by yearend and published results. Once the full dataset has been enrolled and analyzed.
On the product development side, our pipeline remains robust.
We submitted the inspire five PMA supplement to the FDA at the end of the second quarter and we have received the initial set of questions from the FDA.
The team is working diligently on a thorough response to these questions.
Recall, the inspire five system at corporate sensing capability into the neuro stimulator, using an accelerometer and will remove the need for the pressure testing Lee.
We have several additional system level qualification testing to be completed and expect to submit a response to the FDA in early 2024.
With a normal review time, we expect approval in 2024 and following a limited market release, we are targeting for full commercial launch in 2025.
Looking ahead to 2024, we will launch our new connected physician program in the U S called.
Called the slip sent programmer.
This will allow physicians to access our programming screens from their own computers.
And eliminate the necessity for inspire provided tablets as part of the physician programming system.
And also paving the way for future remote patient programming.
We continue to increase the adoption of our sleep sync digital platform and work on enhancements to streamline the post procedural longitudinal patient management.
Before I turn this over to Rick.
Would like to address the impact of GOP want on our business.
Despite the negative stock market reaction, we have not seen any adverse impact on our business and we see tremendous opportunity to work alongside this class of drugs to treat the many patients living with OSA.
As you are all aware OSA is a multifactorial disease with many independent factors, including age gender weight and next conference.
Inspire is designed to address anterior posterior airway clap also known as tongue based collapse.
Patients with a higher BMI are subject to a larger next circumference and present predominantly with lateral wall collapse.
A combination of tongue based clubs and lateral wall collapse is identified as a complete concentric collapse of the upper airway, which is detected during a procedure.
And inspire as contra indicated for complete concentric clubs.
Also.
While weight loss can help reduce the patient ehi and other OSA symptoms.
We have seen from numerous studies that weight loss alone will not resolve OSA for the vast majority of patients.
However, we expect GOP was will help patients address third lateral wall collapse, potentially bringing them into our indication.
Furthermore, we believe the introduction of a pharmaceutical treatment option will significantly increase patient awareness and have a positive impact on the overall diagnostic rate of OSA.
Still remains very underdiagnosed in the 20% to 30% range today.
The combination of these factors should have a positive impact on our business.
Lastly, as shown on our ongoing adherent patient registry the average BMI of patients treated with inspire therapy is 29, and the American Academy of sleep Medicine guidelines recommend weight loss prior to surgery for patients with a BMI greater than 35 and non surgical solutions.
For patients with a BMI greater than 40.
Therefore, there is not a significant overlap in the inspire patient population with the GOP ones today.
In summary, we remain focused on patient outcomes and physician education to continue the adoption of inspire therapy, we will continue to increase utilization at our existing centers, while adding capacity by opening new centers.
We remain excited about our future prospects and are confident that we have the appropriate strategy in place to drive long term stakeholder value.
With that I'd like to turn the call over to Rick.
For his review of our financials.
Thank you Tim and good afternoon, everyone total revenue for the third quarter was $153 3, million% to 40% increase from the $109 2 million generated in the third quarter of 2022.
U S revenue in the third quarter was $147 5 million, an increase of 39% from the $106 3 million in the prior year period.
The primary growth driver in the U S was higher utilization at existing centers.
Growth drivers include. The addition of new implanting centers are continuing direct to consumer marketing and a higher number of territory managers.
Revenue outside the U S increased to $5 8 million, which is a 99% increase year over year.
The U S average selling price in the third quarter. It was 25000 compared to 24400 in the prior year period.
We expect the U S asps to remain steady at the current level.
The ASP outside the U S was 21700 during the quarter compared to 2500 in the third quarter of 2022.
Gross margin in the third quarter was 84, 1% compared to 81, 9% in the prior year period.
<unk> the third quarter of 2022 was negatively impacted by obsolescence charges related to the transition from polyurethane to silicon based leads and the introduction of our Bluetooth remote in the U S.
Total operating expenses for the third quarter were $142 4 million, an increase of 34% as compared to $106 6 million in.
In the third quarter of 2022 this.
This planned increase was due to the expansion of our sales organization increased.
Increased direct to consumer marketing programs continued product development efforts and general corporate costs.
However, on a sequential basis operating expenses were relatively flat, reflecting our commitment to improving our operating leverage.
Yes.
Interest and dividend income totaled $5 5 million in the third quarter compared to $1 4 million in the prior year period.
As higher income was driven by higher interest rates on our increased cash and investment balances compared to a year ago.
Net loss for the third quarter was $8 5 million compared to $16 8 million in the prior year period, representing 29 compared to <unk> 60 in.
In the third quarter of 2022.
This includes $1 $7 million of R&D expenses associated with prelaunch inventory related to inspire five that is expensed for accounting purposes.
Bringing the total of expense prelaunch inventory to $4 $7 million year to date.
The weighted average number of shares outstanding for the third quarter was $29 4 million.
We expect the fourth quarter weighted average shares outstanding to be approximately $29 6 million.
Our cash and investments were $467 million at September 30.
The strong cash position allows us to remain focused on executing our growth strategy of increasing procedure volumes at existing centers, while training and opening new implanting centers.
Moving onto updated 2023 guidance.
Given the continuing momentum in our business and taking into account the EU MTR approval challenge in Europe. We now expect full year revenue to be in the range of $608 million to $612 million.
An increase from our previous guidance of $600 million to $610 million.
This updated revenue guidance represents 49% to 50% growth compared to full year 2022 revenue.
We continue to expect full year gross margin to be in the range of 83% to 85%.
As Tim noted, we continue to expect to activate 52 to 56, New U S centers and established 12 to 14, New U S sales territories in the fourth quarter of 2023.
In conclusion, our strong performance and business momentum provide us with confidence in our outlook for the remainder of 2023.
With that our prepared remarks are concluded do lab you may now open the line for questions.
Thank you Sir.
As a reminder to ask a question you will need to press star one one on your telephone.
Your question. Please press star one again.
We ask that you. Please keep your questions to no more than one question and one follow up and if time permits we'll be more than happy to take more questions.
Please standby, while we compile the Q&A roster.
And I show. Our first question comes from the line of Danielle <unk> from UBS. Please go ahead.
Hey, good afternoon, everyone. Thank you so much for taking the question.
And Rick just wanted to follow up on the comments around the prior off and just if you can give any context around how many centers were piloting. This program just trying to get a sense of or if you can give us the number of what you think.
How many procedures.
Not yet Dan because the head anything you can get there I think you have just one follow up.
Okay very good.
We know as we continue to scale the organization and we need to start building. Our independents is that we're working with some of the key centers to be able to to help them along with their independents of the prior authorization and we want to stay involved with some of the difficult cases and involves both the field and the prior art.
<unk> team. So it was a pilot study with a significant number of centers.
And the centers that we've chosen a course or the those centers that have higher utilization to be able to leverage the learnings at those centers. So while we don't have the exact numbers for you.
We're comfortable that we're able to work with those centers and Reenergize the field team and Reenergize the.
Prior authorization team to support these centers to get the prior authorization submissions back online and we're seeing continued growth there and confidence moving forward.
Thank you.
And I show. Our next question comes from the line of Robbie Marcus from JP Morgan. Please go ahead.
Yeah. Thanks for taking the question maybe to follow up on Daniels I'll ask both of them upfront.
With preparation of those questions and once we put everything together with the programmers.
Patient remote and the neuro stimulator and do our system level testing.
Testing, we will be submitting right back to the FDA. So I have strong confidence that we will continue to work with the FDA to move towards approval.
Thank you.
Thank you.
And I show. Our next question comes from the line of Travis Steed from Bank of America. Please go ahead.
Hey, Thanks for taking the question.
I did want to ask about the Medicare versus commercial mix I know, we saw that changed last quarter was was that due to the prior arts in any way and if you could talk about kind of the mix this quarter.
And the growth in kind of the Medicare versus commercial business. If you saw the Medicare business still hold on.
And then any comfort you can give on just to make sure that I know youre talking about the prior ops submissions, but just give comfort that this was more of a self inflicted wound versus something changing on the demand side. Thanks, a lot yes got that.
From a from the mix, yes, we didn't highlight on the second quarter that we saw.
Extraordinary little bit higher mix of Medicare versus the commercial and so while we always say at the beginning of the year in Q1, it tends to be heavy Medicare and by the time, we get to the Q4 tends to be heavy commercial naturally because of the high deductible.
Insurance plans resetting at the beginning of the year and the focus in Q4 is always with commercial cases that continues to hold true, but in the second quarter, we highlighted that theres, maybe a little bit higher mix of.
Of Medicare I think it's a combination of a couple of things, but with a delay and prior authorization submissions, yes that is correlated with commercial cases and does work in line with that hypothesis. So we do believe it is related to the comments we made back in the.
<unk> quarter, we have confidence and the prior authorization process for the simple reason, we've already seen improvements and we see the trends moving forward that gives us the confidence to be able to increase our guide as we move into the fourth quarter and the team both the appeal than the internal prior authorization teams are working well with with.
Our customers to make sure that we continue to help them get the accurate and timely submissions of the prior authorizations and and as I mentioned, Travis we're already seeing improvements in the metrics.
Great. Thanks, a lot. Thank you.
Yes.
Thank you.
And I show. Our next question comes from the line of Jon Block from Stifel. Please go ahead.
Thanks, guys good evening.
Both my front as well.
Maybe the first one Tim you mentioned the DTC switch.
Maybe going forward from sort of this broad.