All right, looks like the clock is officially started, so we're gonna get going here. The next session is with Inspire Medical. With us, we have Tim Herbert, Founder, President, and CEO, and Rick Buchholz, CFO, and it looks like we have Carlton and Ezgi in the audience here. My name is Adam Maeder. I'm one of the med tech research analysts here at Piper. So maybe a good place to start is on the Q3 print and, you know, the prior authorization issue that led to a little bit of a slow starting Q3. Remind us exactly what happened, how you addressed that intra-quarter and on a core basis, and, you know, level of confidence that this is fully in the rearview mirror at this point in time.
Great. Now, well, thank you very much for hosting us again, and love being here this week, especially when they turn the light on tomorrow. And it's a great time to be in New York City and to see everybody. So thanks, everybody, as they keep coming in. We had a great third quarter. We're happy with it. We know that people have higher expectations for revenue for us. We have higher expectations for ourselves. And we knew going into the quarter that the Medicare mix was a little bit high in Q2, so we started investigating that. We found as we went through the quarter that in the third quarter there were prior authorizations that weren't getting submitted.
There's a little bit of a difference between being submitted and having a challenge with the payer. We didn't have that. We had a challenge with logistics because the purpose of this was, as we grow, to start to teach independence with our centers, and so that they can take care of their patients, and they routinely do prior authorization. So when you look at spinal cord for pain or sacral nerve for urology, all those used to have their own prior authorization practices as well that have become independent. They've become a standard part of the practice. So we did a pilot study and realized that we were having files getting hung up, and so we provided a incentive to our sales reps to go in and inspect not only the pilot centers but all the centers.
We wanna make sure that we put a refocus back on patient flow through all the centers, and that we're able to really see an increase in the number of the prior authorizations in the second half of Q3. That really gave us confidence that we're able to bring some of those centers back in-house to be able to take over that prior authorization process. But several of the centers are successful, and it, and it does transition. That's just a natural progression as we continue to mature. So those that have been successful, we work with them to make sure the flow is strong. For those that need a little bit more help, we've brought them in-house. We continue to scale our internal team. We hired just a new person yesterday to continue to build on that business.
But to further scale, we brought in a third-party company that's all they do is prior authorization, and they're gonna really be able to help us with the routine cases. So I think we have a great confidence that we captured it early. We caught it before it had a real significant impact, because, again, we had a good quarter. But really like that we're on top of it, working with the centers, and can drive patient flow going forward.
So it sounds like, to sum things up, the remediation efforts, you're pleased with the way that that's been going?
Because we brought all the cases back in, and we do see a response with an uptick in the number of prior authorizations that we're able to get submitted in the second half of Q3, and now the key is gonna be getting those cases scheduled in the fourth quarter.
Okay, great. Let's move on to GLP-1s, you know, your, your favorite topic, Tim.
I'm becoming an expert.
I think you guys have a little over 1,000 U.S. active centers offering Inspire therapy.
Mm-hmm.
Curious, what are you hearing from your physician customers about GLP-1s? Are you hearing any rumblings from physicians that patients are falling out of the funnel? Are they postponing procedures, or just what, what feedback are you hearing in the field?
I think a lot of our friends here have made a lot of their physician calls, and when they make their physician calls, the first thing they have to do is explain to the doctors what a GLP-1 is, and it doesn't have a big play in the market today. What we're doing with our physicians, we use our medical advisory committee of primarily the sleep physicians, is to talk about this specific topic. Who's prescribing GLP-1s? Where are we seeing that in the sleep practice? Today, it's not so prevalent. We do have one physician in Florida who not only is a sleep physician but also has a weight management clinic. He has experience with GLP-1s, but he also has extensive experience with bariatric surgery and how that relates into the Inspire.
So they have patients who have been on bariatric surgery, who have lost weight and are able to qualify then for Inspire. He's had patients who have come in for Inspire, have had their sleep endoscopy, have had complete concentric collapse. They put them on a GLP-1 to lose weight and have come back and now qualified for Inspire. So I think the way we're looking at it, it's difficult to see patients with a low BMI. And remember, the mechanism of action, we stimulate the hypoglossal nerve that moves the tongue forward. BMI is more related to neck circumference and lateral wall collapse. So the higher the BMI, the more profound the lateral wall collapse and the higher the AHI, right? So it's, there's gonna probably be a few patients who is gonna have a low BMI, that are gonna fall off the bottom of the funnel.
We don't see that today. But we do see patients already at the top of the funnel that unfortunately we can't treat today, right? Because they have the complete concentric collapse. They have too significant of a lateral wall collapse. We've got to help these patients find a way to lose some weight. GLP-1s will help this population. It's a good thing, and I think it's really gonna be complementary to Inspire down the road if we can get these patients on there to lose weight, relieve the lateral wall collapse, so they do present as a tongue-based collapse that can be helped with Inspire.
That's great color. I did want to ask about the 2023 full year guidance. You raised the full year guide-
Mm-hmm.
- coming out of Q3, despite the prior auth speed bump, and you also have a supply chain snafu in Europe related to MDR-
Mm-hmm
... with your leads. And I think that's a $4 million headwind or up to-
Right
$4 million. So maybe just talk about the decision to raise the full year guidance by $5 million at the midpoint despite these issues, and, you know, you typically guide pretty conservatively. Anything that's changed with your guidance philosophy?
Well, no, but I think go back to question number one and talk about the... Your overwhelming question is: What confidence do you have that we've identified an acute issue that we had with transitioning the prior authorizations, and we're able to implement the corrective actions to put that into play? And to really emphasize the confidence that we had there, we wanted to increase guide. Should talk a little bit about EU MDR and what we think those key challenges are. You wanna jump right into that?
Well, I was gonna try and push for a little more intra-quarter commentary on Q4.
I understand that. Of course, that's why I was-
But then maybe go-
Oh, look at the time. So, what we really wanted to express to everybody was the confidence going forward. We knew that we had a significant flow of patients in the Prior Authorization pipeline, that we did have confidence going forward. We did quantify what we thought the challenges may be in Europe, and we'll get back to that in a second. But we think we have good progress there, too.
Yep. All right, let's tackle MDR. And it sounds like there are some workarounds-
Mm-hmm
... that you're pursuing, or temporary workarounds. Just latest status there, Tim, and-
Overall, let's talk about it.
Yeah, and-
I think people here all know medical devices, and everybody knows the new challenges with the European medical device regulations and how the pendulum has swung. It's challenging to make sure you get that EU MDR approved for our process. We actually started this in December 2021, and we budgeted about nine months to be able to get this EU MDR complete. In fact, we built a two-year supply of product for a nine-month budget, and can you believe we actually are past the two-year point now? The good news is, the big prize is, we believe we're right down to the end. We just have a handful of questions remaining to be able to get into the final funnel for the final EU MDR approval.
We expect that to happen early in 2024, so making very good progress there. There is a process called derogation. Nobody has heard that word more than a couple of months ago, and what that does is that allows us to be able to go into country by country and get a derogation approval. So we got approval in the Netherlands, and what that does is that allows us to ship our new product, these silicone-based leads that we released in the United States over a year ago, and we expired all the polyurethane products that we've used up everything on the shelf. So we need to get an avenue to bring some of the silicone leads to keep treating patients.
Netherlands gave that, gave us that approval a couple of weeks ago, and so we're already delivering silicone leads into the Netherlands. Very happy to report we received Belgium derogation approval in, on Monday, on Monday. What's important with this is Q3 was the first full quarter in Belgium that they had countrywide reimbursement, and then all of a sudden, boom! All of a sudden, they get a regulatory challenge at the end of the quarter. So it's great that we got, the derogation there. Certainly, we keep, communicating with Germany. That's the key prize. We wanna make sure that if we can get through the derogation in Germany, we've been very interactive, going back and forth with them. If we can get that resolved, a lot of this can be behind us.
The key with the $4 million is we don't wanna get too far into December, or it's too late to be able to really get a lot of cases scheduled there. But it really solves for Q1, which is really kind of a key going forward.
Yep, that's great color. And I'll ask the prerequisite 2024 question now.
Okay.
Try a hand at that. So I have consensus at $774 million. I think that's 27% growth year-over-year. You guys, any reaction to that figure? And, and if not, would love just high-level puts and takes as you think about 2024.
Sure, I'll take that one, Tim. So in our last earnings call, we did increase our guidance for 2023 to $608 million-$612 million for full year 2023. That represents 49-50% growth in 2023, and we're really looking forward to 2024, continuing our momentum. And the real key for us in 2024 is going to be continue to increase utilization and expand our capacity. And so increasing utilization, that's several factors there that will be helpful for us in the future. We have just over 1,100 centers, and we've only trained about 1,200 ENT surgeons. So there's low-hanging fruit to add a second implanter at many of our centers that will really drive and help utilization.
We got the expansion of our, of our labeling for BMI up to 40 and AHI up to 100. We think that will be beneficial in, in 2024. And it's just also a continued maturation of our, of our base. About half of our centers have been online over the last two years, so we think there's just a continued maturation. There's a little bit of different expectation now when, when we bring on centers because we're, we're - we have the two-incision approach, where years ago we were fighting the battle of, of commercial payers as well as we had the three-incision approach. So, you know, we're excited about 2024.
That's a great color, Rick. Maybe just to kind of follow on to one of those items that you outlined, the label expansion for AHI and BMI. I think you got FDA approval for that this summer, and I know now it's all about engaging with the payers to change policy.
Mm-hmm.
You know, maybe just how quickly do you think you can change policy in 2024? How quickly can that come online?
Well, I think the patients are being taken care of today.
Yeah.
So even if it's a high AHI patient, we will submit that prior authorization in, we will chase it through the appeals, and for the most part, the payers are... because it's on label with the FDA, we can get approval there. It certainly streamlines the approach if we can get the policies updated. As maybe we talk about Aetna and Humana have already updated their policies to include the high AHI, the high BMI, and, and of, of course, our pediatric population with Down syndrome. But usually we work with the payers when they come around for their annual reviews to make sure that they got the proper data necessary to give an update to their policy. So don't expect that to be a significant challenge. We will be engaging with those patients to make sure we get them taken care of.
Great. And, along a similar line, I wanted to ask about PREDICTOR-
Mm-hmm
... and trying to remove DISE from the funnel. So it sounds like you're enrolling the second set of 300 patients. I think we got data on the first 300-
Mm-hmm
... a month or two ago. Are you still tracking the year-end completion for enrollment?
Mm-hmm.
When should we see the next set of data, and how quickly does that, I guess, you know, kind of-
Translate into-
Translate into policy?
Absolutely. I think the key to it is, PREDICTOR is meant to be a replacement procedure whereby we can measure a dimension in the airway, SPW, supine pharyngeal width. That, with the SPW measurement, we can determine whether a patient is likely to have lateral wall collapse, meaning complete concentric collapse when we do a sleep endoscopy procedure. For those patients that we can predict will not have lateral wall collapse, there's no reason for them to have a sleep endoscopy procedure. So we embarked on a study called PREDICTOR. It follows a study done by Dr. Jordan Weiner, who did 100 patients with strong results. We did 300 patients to try and duplicate his results, and we did.
We presented those results that showed the lower BMI patients are less susceptible to having lateral wall collapse, and the higher the BMI, the more likely to have lateral wall collapse. Goes right into the GLP-1 discussions, right? It's completely relatable. Now what we're doing, we did another set of 300 patients to be able to confirm those studies and to determine the final criteria that we wanna go forward with to payers on which populations do not need to have sleep endoscopy. We are still planning to complete the enrollment of that by the end of the year. We're making very good progress with enrollment today. The team's doing a super job on that. Once we have the data, we'll work with the investigators to work through the criteria and then push through a publication.
Probably be presented at, you know, probably the sleep meeting in June is a good time that you'll see that data come out in public for the first time. But with this criteria, really be able to nail down what patient groups we can go to the payers with. Again, no FDA involvement in this because the FDA does not specify a patient needs to have a sleep endoscopy. They just specify they need to have the proper anatomy to be able to support an Inspire implant.
So with this, with this particular utilization lever, do you think of this as more of a back half 2024 event, or is it more 2025?
Well, I think we'll start to see some benefit in 2024, but I do believe it'll have a greater impact in 2025. Yes.
Okay, perfect. I wanted to be sure to ask about the, the PNL-
Mm-hmm
... because the leverage has been a really nice, you know, part of the story this year. You know, from what I can tell, the street's modeling adjusted EBITDA of $18 million or so for FY 2023. Rick, how should we think about kind of where that figure can go over the next one-two years, and what are the key levers for, leverage in the business?
Yeah, we've really demonstrated really good leverage over the last year, last four quarters. That's really driven by our increased utilization at our existing centers. Our gross margins have been in that 84% range, and we expect those to continue going forward. So with that, we have demonstrated leverage. We will-
... continue to improve on that leverage going forward. But we've been in that low single-digit % EBITDA perspective, and so we expect to continue to invest in the top line to drive continued revenue growth. But despite those investments in DTC, and R&D is a little running a little bit higher now because of Inspire V. We expect that to moderate a little bit down the road. And so between, you know, those spends, you know, we expect that we'll continue to improve leverage over time.
That's, that's helpful. And, maybe just, one additional question there.
Sure.
Direct-to-consumer spend, just remind us, where does that sit for full year 2023? How are you thinking about that in 2024?
Yeah. In the third quarter, our DTC was $25 million, and it's comparable to the second quarter as well. So, we're expecting that to be right around $100 million for 2023, and that's 35% growth over 2022. We will continue to invest and increase our investments in DTC, but that growth rate will continue to slow.
I got it. Good color there. Let's touch on the Gen 5 device-
Mm-hmm.
'Cause there's a lot of enthusiasm for that. It does sound like there was a little bit of a wiggle on the Q3 earnings call from full launch back FY 2024 to now 2025. Just talk a little bit about kind of, I guess, the challenges or the bottlenecks that you're seeing. You know, obviously, it's a very sophisticated device.
Mm-hmm.
You know, just walk us through kind of where that-
Yeah, I think we're in a really good position there. I don't think we saw a lot of bottlenecks there. We submitted this at the end of June to the FDA, 13,000-page submission. It's a Class III active implantable neurostimulator, very complex submission. FDA did a great job. They to be able to review all that material and get a response back to us from the old government threatened shutdown, and they got that response back to us. The questions, there's not a lot of surprises in there, and was what we expected, and so we are working hard to get a really clean package going back to them.
It will include software updates to the new patient remote for Inspire V, the new physician programmer for Inspire V, full production qualification of the Inspire device, and things are coming along very, very well. We're responding to all the questions, and we will send a response in early 2024. If the FDA holds onto the same schedule, we could be approved yet in the second quarter if they reset the clock, which they have the full right to do. And it's a pretty intense submission. They can reset it to 180 days, which pushes it to Q3, which is still fine. And then we're gonna do a limited launch, and I think that we'll be able to evaluate that later in the year, and that's why we just discussed talking about full launch 2025.
There's not a lot of risk in there. We like what we have with the product. We think it's gonna have significant impact once we get it out on the market, and just look at the benefits of that from a reduced OR time. More importantly, moving the sensor from an external sensor to an accelerometer inside the can. If there's any little part of the procedure that the ENT surgeons are a little bit uncomfortable with, it's placing that sensor in the intercostal muscles. So by removing that, and I think it's gonna really open up a little bit more confidence with the ENTs. Remember, that's kind of another significant impact on building confidence, as well as building additional capacity to treat more patients.
Yeah, great color. I did want to spend a minute on Complete Concentric Collapse, or CCC. You know, obviously there's a lot of greenfield ahead.
Mm-hmm
... you know, for Inspire with your current indication, but, you know, I do get the question:
Mm-hmm.
Will Inspire eventually treat CCC patients? And the GLP-1, I guess, narrative introduces a, you know, a whole other-
Dynamic
... dynamic. But, your CCC program, where does that sit today? Are you in animals? Are you in humans? Just maybe kind of walk us through that.
Well, I think, number one is, we like the GLP-1 s on this, right? And we wanna, 'cause it's available to us, and so we're certainly working with our physicians right now on saying, "What's the best approach to handle these patients that have significant, lateral wall collapse due to higher BMIs?" So we're gonna continue to focus on that. As far as the indication expansion and looking at using technology, we certainly have the capability to do that. We certainly have a research project that's underway to evaluate that. Very early stage right now. Certainly it's showing promise, but we are gonna kinda keep that under wraps until we really get a chance to expand on that a little further.
But in the meantime, really like what we can show GLP-1 is gonna really be beneficial to tackle that problem.
Helpful. 30 seconds left. I guess I'll ask about, you know, your digital scheduling tool, which, you know, you did discuss on some earnings calls, and I'm not sure we got an update last quarter.
Mm-hmm.
Just remind us, how many of your U.S. centers are using that today? Just any difference in utilization trends between the centers that have access to that versus those that don't?
Oh, sure. Refers to... Time goes quick, doesn't it? So refers to when patients call our call center, one of the stumbling blocks is: How do we get them an appointment? And so with several, several of our centers, and we probably what, we had, like, 20 back then and probably threefold on that, continue to grow quickly, how do we get those centers to be able to electronically schedule those cases? So we're gonna continue to scale that quickly. But secondly, secondarily to that, we're gonna be tying that data into the SleepSync, and so we wanna start tracking patients really from the time they come to our call center through the time they get their first appointment, sleep endoscopy, implant, post-op follow-up, all the way through. And we're using that SleepSync that we just launched, our second generation ADHERE registry.
We completed the first registry of 5,000 patients and now kind of moving that into SleepSync, so for the digital part. So the whole e-scheduling is just a key additional step to the whole SleepSync program.
Perfect. Well, we're out of time, unfortunately, but want to say thanks again, Tim and Rick, for joining us.
Absolutely.
Thank you, everyone.
Thank you. I appreciate it.