Q3 2023 Inspire Medical Systems Inc Earnings Call

Good afternoon. My name is the land and I'll be your conference operator today at.

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.

The Speakers' remarks, there'll be a question and answer session.

Now I'll 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 that.

Yeah.

For a description of these risks and uncertainties.

Prior to screening.

Pension 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.

Sure.

Broadcast 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 based lease 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.

As 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 M D. Our 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 test 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 I 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.

Speaker 1: How should we think about the continuum of care?

Speaker 2: Now the sleep docs are not going to get the 1100 bucks, right? So to me, I'm just thinking the general otolaryngologist, they'd be happy to implant, but the continuity of care is broken because they don't want to be involved, at least to a major part in terms of titrating, you know, and the follow up. So I'd love to get some commentary there. And secondly, I know we've all labored this prior to death, but forgive me for this. So Tim, what is it?

Speaker 3: help us understand the leverageability in the model. If you can't give up on prior authorization handholding, right, DDC is needed. Obviously clinical reps, you know, case they need to be present cases, help us understand the evolution of leverageability, where independent cases can be done at a certain period of time. Thank you for taking my questions.

Speaker 4: Absolutely, okay. Getting a note to make sure I capture that second question. Okay, so predictor, isn't that ironic? That when we're doing the predictor clinical study to find the group of patients that don't need to have a dice at the same time, when the new code comes through and the new survey of that code comes through and they increase...

Speaker 5: the facility payment. Now what's important in here is that's the facility payment, it's not the physician payment. And the physician payment did not increase and that's a smaller amount, not that significant. Although, if you ask your question another way, some of the ENTs can do these procedures in their own ASCs so they can get a little bit of a benefit from it. I think if you ask a lot of the ENTs and we work with our physicians to make sure that this is true, they much rather do the implant procedure to move forward rather than picking up a couple hundred dollars on doing a DICE procedure.

Speaker 6: I think that there's enough patience in the...

Speaker 7: pipeline, the demand is so high.

Speaker 8: we need to continue to drive efficiencies across the board. And so the continuum of care works. We know that we want the sleep physicians to help with the diagnosis, but certainly do the longitudinal management, and there are CPT codes for them to do that whenever they have a visit, remote monitoring. Device programming has CPT codes. So there's codes there for the sleep physician.

Speaker 9: the ENT codes are in place we just got the new codes

Speaker 10: a year ago for the implant procedure, which is fairly reimbursed because it's been through two Ruck surveys over the last two years. And if we can continue to make improvements with say Inspire 5 and make that procedure more efficient, it will improve the economics of the implant procedure for the surgeons as well. So it's still in the best interest that we perform diets only on those patients that need dice. And remember the focus needs to be on the patient.

Speaker 11: And that is not a good experience in the patient pipeline to have to have a dice. We want patients to be able to be diagnosed in an opposite setting with the predictor, which is a caliber measurement.

Speaker 12: being able to go straight to insurance approval and straight to implant, not having to have a disruption in the process for a sleep endoscopy, which adds a significant amount of time because it's an added procedure. Okay, on prior authorization.

Yes.

Speaker 13: It is certainly leverageable. And the key of prioritization is as you continue to evolve in time, the number of procedures and the time it takes to prepare a procedure is significantly reduced.

Speaker 14: because of practice and because we know what are the essential elements that need to be in a prior authorization submission, so we can drive the metrics down on the time it takes to prepare a prior authorization.

Speaker 15: And number two, the insurance companies know that those prior authorizations are coming and when they have the proper indication that they can quickly approve those on-label procedures.

Speaker 16: And now what you're seeing is

Speaker 17: Health care is going towards not allowing prior observations and so it is in the responsibility of the center to make sure they have indicated patients. So we can certainly leverage this going forward. We just got to make sure that we have the centers educated to be able to take this on going forward.