All right. Welcome back. I'm Larry Biegelsen, the medical device analyst at Wells Fargo, and it's my pleasure to host this fireside chat with the management team from Inspire Medical. With us, we have Chairman and CEO, Tim Herbert, and CFO, Matt Osberg. Welcome, Tim and Matt. Thanks for being here.
Larry, thank you for having us once again. It's always a pleasure to be back up here in Boston with you.
Well, it's a pleasure to have you. I think Tim's going to run through a few slides, and then we'll jump into questions.
Yeah. I thought we'd take the opportunity just to show a couple slides, just to get everybody grounded here a little bit and really just highlight. I mean, at Inspire, we're the first and only innovative closed loop neural stim technology for OSA. You can see on the summary of the progress that we have made with a large opportunity, a strong technology. We've treated over 140,000 patients since our approval back in 2014. This is a busy slide, but it's important to talk through our technology because as we get surrounded in the challenges that we may have in the market, it's about taking care of the patients and the outcomes. Last year, we launched the Inspire V system, and the outcomes have been very strong. We talk about the necessity to do closed loop stimulation.
The airway is most susceptible to collapse when the patient inhales, and that is when we provide synchronous stimulation along that. To do that, we sense when the patient is breathing, and with Inspire V, we have incorporated that using an accelerometer that is inside the can. During our clinical study we conducted in Singapore, you can see on the upper right-hand slide there that 87% of our stimulation is synchronized with respiration. That allows us to take the outcomes to the next level. Outcomes are not just AHI, but what you are going to hear more about as we move forward is hypoxic burden, and that is the challenge that the body faces with oxygen desaturated during the night. That has direct linkage with cardiovascular health, which we just started to show the data that is being published by academic centers across the U.S.
The Inspire V device has a reduced work for surgery because it no longer has a pressure sensing lead, and that is incorporated, and it is predominantly all the implants so far this year. I am going to ask Matt to comment on reviewing Q2 again.
Our second quarter, although we declined year-over-year in revenue, we were pleased that we beat our expectations both on the top and bottom line. As we called out, the decline was primarily driven by some of the coding and reimbursement issues that we have been experiencing in the first half of the year. We were also pleased we were able to continue to expand gross margin, as we saw in the first quarter as well. Really, that is through the mix of our new Inspire V technology that came out onto the market in the middle of last year. As we were able to deliver higher than expectations in our second quarter, we are also able to raise our guide top and bottom line for the rest of the year as well. Really pleased with the second quarter. We also announced Project Horizon.
We are able to find some efficiencies in our organizational structure and our supply chain and rededicate approximately $30 million of investment capacity into revenue-generating activities that we think as we start to ramp up the back half of this year and into next year will help give us some tailwinds as we look to the top line growth for next year.
Thanks. A couple of catalysts coming up. I know Larry is going to really get into a little bit more detail when we get into the questions, but we want to highlight that reimbursement, we have both short, near, and long-term solutions. The short-term is really understanding the challenges that were with the coding this year and the coding change going away from 64568 back to 64582 to the C codes. I think as you've been tracking our story for the first half of the year, you've watched the evolution of the code. We're at the point where we're starting to reduce the friction and centers have knowledge on how to bill a procedure, how to confidently get paid. The payment is consistent with payment they had in previous years. Midterm, we're looking to carry forward into 2027.
There is some positives proposed for increases in site reimbursement that I think is really positive. Really the long-term solution is the new CPT code. That is being reviewed next week at the AMA meeting, and we're prepared to be able to be at that meeting and we'll track that. The results of that will be disclosed probably 3 weeks from when the minutes of that meeting come out. In the middle, again, I just highlighted the benefits of Inspire V and the clinical data coming out. What's most important is really looking at the hypoxic burden and the benefits of the cardiovascular data. Then as Matt Osberg mentioned on Project Horizon, is looking at our organization, not stopping innovation, focusing our innovation on the projects that'll have a good return. Inspire VI, as an example.
SleepSync, other technologies that will have a strong return, but allowing us to really focus initial $30 million on growth initiatives as we move into 2027. We expect to be back in a growth phase. A lot of exciting things. Talked a little bit about the reimbursement. Just to highlight that, you can see the C codes are now in place. They were put in place back in April. It takes time for them to ripple through the system. In fact, they were just put in place with the WISeR system, which of course is the program that's run in 6 states over the last couple of months. Really a continual effort. Now we're at the point where we really have a reduction in the friction with coding, and we can get centers back to ramping up as we go forward.
You can see as we move down the second bullet on the bottom, only 2 of the MACs require a modifier 52 today. The other 5 MACs have been stable. That really helps with centers when they work through their coding process to be able to know how to bill that. Quickly looking at just the schedule, how this all kind of flows out, is that here we are today in September. The AMA meeting is scheduled for next week to review that new CPT code. We're going to watch the OPPS rules. They come out on November 1st or thereby around that when CMS announces the final reimbursement for the centers and both hospitals and ambulatory surgical centers. We expect that very early in November. If the CPT code is approved or decided on next week, we'll know that in three weeks.
That code will take effect January 1st of 2028. A lot happening in expanding our clinical experience and strengthening the Inspire value proposition. Inspire V really took the first step by incorporating the sensor into the can and being able to improve outcomes which move forward into the physiologic changes. What we are measuring with hypoxic burden and now demonstrating long-term cardiovascular health. That is going to have a significant impact on our business moving forward. You can kind of read through the rest of those, and we will leave it there. Here we are just highlighting Project Horizon again, and how we have identified $30 million of efficiencies in our organization and how we can focus those back into growth catalysts, including expanding patient access to care, improving patient flow, and really supporting the patients with strong outcomes moving forward.
I kind of ran through those quickly, Larry, because I know you want to get into a lot of detailed questions, but really wanted to put the highlight on there that we have worked so hard over the first half of the year to really focus on the coding and getting clarity around that and really reducing the friction around the coding and reimbursement so we can get back into our business of focusing on patient care and really taking advantage of what we have done introducing Inspire V and the benefits that we have seen with V and really be able to increase and focus our growth initiatives as we move forward.
Very helpful. Now I have a neck.
A neck because.
strained neck because it was a little hard to see the slides from here. No, thanks for going through that, Tim, and it sounds like you're making a lot of good progress. I like the way, obviously let's start with coding and reimbursement. Couple follow-up questions.
I like the way you laid it out on the Q2 call, short term, midterm, long term.
Right.
Starting with the short term, you talked about providing education and support to customers. Where are you in the process of educating centers?
Well, we want to work with all of our centers to give them the information they need so they can code the procedures and depending upon what their payers are, if they're Medicare, a commercial or a Medicare Advantage. We did detailed training programs starting with the highest utilization sites and kind of working through that list. We're making very good progress. The majority of the sites in the U.S. I think they know how to bill a code today. We still want to continue doing more of our detailed education with them, make sure that there's any clarification that they need. It is a little bit of a challenge for sites in that they may code commercials differently than Medicare.
Medicare, we all know they use a C code for the procedure, and then the professional fee is coded under 64582, and that is pretty clear now across the board, and that really has reduced that friction. As far as commercial payers, they are prior authorized, and during the prior authorization process, the CPT code is on that prior auth form, so when it is approved, it really provides clarity to the center so they know how to bill that procedure. So making very good progress with that, gaining confidence from the centers where we can start rebuilding the ramp at the centers and reigniting or opening up new openings for patients to see physicians and get scheduled for their procedures.
That is good to hear. You also talked about continuing to see improved trends in key data points, such as prior authorization submissions. Has that continued, and why is that important?
Well, those are our key leading indicators, so we are able to kind of work from the beginning of the funnel, and patients who come to our website and those that work through our systems, like our Advisor Care program, which is our call center to help patients understand Inspire and to be able to make that first appointment with a healthcare provider. We also support the centers in preparing prior authorizations, as you mentioned. We can track the centers and the progress of those prior authorizations. So when we set our guide on our Q2 call, we knew that the indices were supportive of that, and we continue to work towards that. We continue to see promising signs with the prior authorizations with the pipeline, but now what we need to do is keep building the utilization, the confidence around the coding.
That is helpful. Turning to the midterm, you talked about CMS proposing higher facility rates for the hospital and ASC settings up 12%-15%. Any idea, have you looked at precedents, how likely it is the proposed rates are finalized, and what the implications would be?
Well, I think a couple things. The initial proposal from July was hospital increase of 12% for Medicare cases, and I think that's wonderful. I think more important in there is the ASCs were proposed to go up 15%, and that is really what the challenge is because when they do geographic adjustments for Inspire procedures, it limits some ASCs from being able to do Inspire V procedures. This increase really kind of helps that, to help us build a greater focus towards ambulatory surgical centers into the future. We don't want to handicap where the final rule will be in November. We anticipate an increase. Will it be at that same level? We don't know. We don't want to touch that. I know CMS is doing their own work to get to their final resolution. We'll watch for that.
We expect that right around November 1st and be able to adjust as we move into the new year. The final rule, if it does post early November, will become effective January 1st of 2027. So all the work that we've done with the coding clarity up to this point in 2026 will really carry over and then have the added benefit if we're able to get an increase in center reimbursement.
When you're going through the slides, you talked about being back in growth mode in 2027. Do you expect to be in growth mode no matter what happens with the hospital and ASC facility rates?
Yeah. When we first stated that, we realized where we are as a company and where we are with reducing the friction, again, repeating that term on the coding, and we made a statement we expect to get back to growth. And I think that even with the existing reimbursement, we'll be able to achieve that.
If it goes up 12%-15%, for example, it would be incremental positive.
Well, we're going to start doing our work and planning for next year, and we'll come back to when we set guide for next year. We certainly do expect to be back to a growth situation next year.
That's helpful. The long term is the category 1 CPT code for Inspire V. You've talked about it today. You've talked about it in detail on the Q2 call. I think you gave a lot of helpful color on the changes you made.
I guess as we sit here today, just a simple question, your level of confidence you have a positive outcome?
Well, I am confident we have done everything to be prepared for the meeting. I think that we reviewed the meeting in May. I think we understood questions that were there. We have worked cross-industry with societies to understand what questions are there, what challenges are there. Our team is ready. The presenters are making sure they understand what questions or concerns the panel may have. It is up to the AMA panel. It happens the meetings are next week. Again, not going to handicap that, but certainly want to stress that we are as prepared as could be to support that meeting and to answer any questions that the AMA panel may present.
That is helpful. Then switching, coding and reimbursement. Did we exhaust that topic?
No, I think that is fine. I think I used the word reduce friction how many times. That is what it is all about. It is making sure that facilities and physicians understanding what the codes are they can use and understand that the reimbursement levels are consistent where they were the prior year and are comfortable and confident moving forward and bringing patients back in.
Reduced friction.
Reduced friction.
Okay, one more time. Tim, clinical data, you are really leaning into the cardiovascular data with Inspire. The studies that you cite are non-randomized. My question is, how much traction do you think registry data could get?
I think the key to the cardiovascular data, it is large sample sizes, and it is long-term review of data. It is from multiple sources. That is typically how we capture comorbidity and cardiovascular health and risks of reductions in the risks of cardiovascular health. I think the universities that are publishing are using the TriNetX database. We are going to be publishing data where we went to a third-party payer to use their healthcare providers. What is important, they are large-scale registries, but they are multiple sources of data, and they are reporting back consistent data outcomes. What we can do from Inspire V, the linkage between the two is the term I talked about with hypoxic burden. It is not just measuring sleep severity using AHI, apnea-hypopnea index.
It is really understanding what are the underlying challenges of untreated obstructive sleep apnea, and that is the oxygen desaturation that your body experiences during the night and the number of events. It is not just the number of events that you have, but it is the prolonged time of those events and the depth of the desaturation that the O2 in your blood experiences with those. If you combine the area under the curve, that calculation is the hypoxic burden. That has direct linkages to the risks, be it category 1, 2, 3, 4, 5. Even then we went back to our STAR trial, and we recalculated all those patients. Even the non-responders. They showed a significant reduction in cardiovascular risk. I know one of the highlights of the year is you host us for your spotlight call.
We are able to go through this in great detail to really show the impact that we can have on objective measures that control cardiovascular health. Now we have multiple databases with large sample sizes comparing us against CPAP and of course, against no treatment, and really showing long-term cardiovascular health. So we are making sure that we are communicating this to the cardiovascular physicians, make sure they understand the necessity to treat the underlying sleep apnea along with the cardiovascular challenges that they are facing with their patients. I think that you are going to hear us talk quite a bit about this, and we are going to be really leaning into this as we move forward.
That is helpful. Switching gears to Project Horizon, you touched upon it a little bit. Maybe flesh that out a little bit more. What are you going to be doing differently from what you have done historically?
Well, I think let us start across the organization we looked at where do we have efficiencies. Now we have grown very quickly since our FDA approval in 2014, and now is an opportunity to be able to look at the organization and where do we have some redundancies that we can help combine resources to be more efficient, but then take our investments such as in R&D and really focus on the projects that can really have a strong return. Inspire VI, perfect example that we are in the development right now. That is going to take the Inspire V that we talked about and add in a feature that is sleep detection. So when you fall asleep, the device turns itself on at night and the patient no longer uses the remote. The importance of that is we are now increasing therapy adherence.
That is the next step in driving overall patient outcomes. We will continue to invest in our digital programs on SleepSync. One example is centers can now. We always support centers on their prior authorizations, as we mentioned. They can submit that data through SleepSync now. We are starting to make that a streamlined approach. We will have a new app coming out for the patients that really help them be a part of their procedure. Now we are streamlining our operations to be able to really focus to improve our yields and improve our efficiencies and operations. And that allowed us to identify $30 million that we can put back and identify into areas that can help us drive growth.
And a lot of examples in that is both the beginning of the pipeline, we can excite that, but we can also improve efficiencies of helping patients make that first appointment. We do still see quite a drop-off in patients trying to make an appointment and not being able to connect with a healthcare provider. We'll continue work such as with cardiovascular education to drive patient flow. Private practice physicians are working significantly with patients on GLP-1s and need to make sure that as they come back for their reviews, that their tracking is the sleep apnea resolved and do they need to be seen for additional therapies? Because if now we showed with cardiovascular health that they must be treating the moderate to severe sleep apnea. So many elements that we'll be talking about in the future to apply that $30 million for additional growth.
That's helpful. Maybe we can get Matt involved.
That'd be great.
Give Tim a little bit of a break.
A breather.
Yeah. For Q3, you guided to I think Q2, Matt, you said earlier you were down about 7.5% year-over-year. Q3, you guided to 8%- 10% year-over-year decline in revenue. I think it implies a similar decline for Q4. On the Q2 call, you talked about improving prior authorization trends, growing experience with coding changes, which suggests that procedure volume's improving. Tim talked about reduced friction once or twice today. My question is, why shouldn't we expect sequential improvement in revenue growth in the second half of the year?
Yeah. Obviously, as you're looking at their comparisons year-over-year and you've got the math right, what we're really focused on is how are we sequentially improving our revenue dollars, right? We tried to call out Q2 as what we think the low point for dollars are in the year, and then stepping up in Q3, and then the implied guide would be a larger step up in Q4, which we've typically seen comes some of our seasonality. For all the reasons you said, we think those are the things that continue to help us step up sequentially as we move through the rest of the year.
Okay. It's more of the sequential seasonality change that we typically see.
Yes. Yeah.
Typically, I know Q4 is always up above Q3. What is it usually, Q2 to Q3?
It's generally pretty flat between Q2 and Q3. Generally Q1, we have a high percentage of our Medicare cases, and then Q4, we have a high percentage of our commercial cases, which our biggest seasonality step-up is usually in Q4.
Tim, we talked about 2027 already. I don't know if you have anything you want to add to that. You see where consensus sits today. Maybe what are some of the puts and takes? Anything you would point out that the street's missing or Matt?
No, I think a lot we talked about is reducing friction of the coding, getting confidence with the coding. Ideally, we're hopeful that we'll get an increase in site reimbursement that'll help. That'll really help us leverage back to the clinical evidence that we're seeing with Inspire V and the cardiovascular health and implementing a lot of our improvements we talked about with Project Horizon. Again, focused on getting back to growth in 2027. We'll be working through our planning as we work through the year to come out with our guide on what we're going to do next year.
Matt, margins, mid-80% gross margin. You turned profitable a few years ago. How should we think about profitability leverage at Inspire?
Yeah. I mean, obviously, starting with our gross profit margins. This year, we've been able to expand as we increase the mix of five versus four, and that's great. But obviously, with those type of margins, when we can generate revenue again, and we can really fuel the bottom line from an operating margin perspective. Throughout this year, as we've seen the pressure early on our revenue, we've taken a lot of steps to be thoughtful about our spending, prioritize our spending, make sure we're spending against the highest ROI, making sure we're driving revenue-generating activities. We want to keep that discipline, that mentality, as we start to step in and move into a growth phase, like Tim said. I think there's high opportunities for us to continue to drive operating margin improvement as we drive revenue growth.
International was actually pretty good in Q2. Anything noteworthy there? Any inflections that we should be aware of?
Nothing unusual. I think they've got a little bit more seasonality, just because the business is a little bit smaller and it's split up between some different countries, so they can have different dynamics in there. I think they improved from Q1, so that was nice to see, but nothing specific I would call out in Q2.
Tim, Inspire VI sounds like an exciting product. What's the clinical and regulatory pathway?
Very similar to V. Inspire V, you know that we're able to use an accelerometer to collect information, and we can use patients as their own control. That was the clinical evidence that was put together and presented to the FDA that supported the approval. Inspire VI is a lot of the same. Inspire VI is a firmware or software upgrade to Inspire 5 only. It's really algorithm development of making sure that we have detection of sleep to be able to activate the device. It's going and validating those algorithms is really the clinical approach, and we'll use the same approach we did with V. We're in discussions with FDA on that already. We are not ready to submit. We're still in the development of those algorithms and the validation portion of it.
As we progress through that, we'll be submitting to the FDA, and then they'll have a chance to do their review.
When you say submit, you mean like file for approval.
File for, yeah, PMA supplement.
I think you've talked about some potential timelines. It sounds like that filing could occur in 2027 with a launch in 2028.
Possibly. We are definitely looking for the submission in 2027. We will take a review on when we launch that.
Okay. Definitely a submission in 2027.
We're trying to get a submission in 2027, yes.
The work you're doing, like with the accelerometer and all that would be done when?
Well, the accelerometer, well, that's already in the device.
That is for Inspire V.
We are being able to evaluate-
On the external.
That is ongoing as we speak.
Got it. Okay. Could this timeline be sooner rather than later?
I think our timeline's pretty good. We just laid that out there.
Yeah. Okay.
Yeah.
It is. So competition. What are you seeing? You have your first hypoglossal nerve stimulation competitor in the market. What are you seeing from them? What percent of centers are dual sourced?
I think we said it again today. We are the first and only that has the closed loop capability. We think that is essential for having the proper outcomes. We know centers are going to trial other devices. That is fine. I think that we make sure we remind them of confidence that they have with Inspire, the outcomes they have with Inspire, the safety that we have with Inspire. Our revision rates were already very low, and they just got better with Inspire V because the pressure-sensing lead was a causal effect for many of the revisions that happened in the past. So we are comfortable just keep running our game. As I said, a lot of our centers will trial the other device, but I think the physicians, they understand what to expect from Inspire.
They understand what to expect for outcomes for their patients and have confidence with that.
Anything different from your expectations on competitive trialing?
I think it has been pretty consistent with what we predicted.
Their top-line results from their ACCCESS trial about a week ago, any reaction to that data?
I think it is just a little bit too early. I think I look at our predictor data, which is patients, BMI under 32. There are not many patients that have a true complete concentric collapse. All the patients, I think, in that top line were all less than 32. We have to wait till the real data comes out. I think it might be presented at International Surgical Sleep Society. Devil's in the details. We will wait and see when we see a full data set, not a top line.
Anything new on GLP-1s?
GLP-1, progress with GLP-1s. We know that patients come to their physician to get a GLP-1 to lose weight, to look better, feel better, and the physicians say, "Well, we should diagnose you for sleep apnea." Because if you are diagnosed, your insurance company will cover if you have moderate to severe. I think what that is going to do is continually increase the diagnostic rate of patients with moderate to severe sleep apnea. It is very important, as we have talked how much today about cardiovascular health, that that is addressed and resolved. I think that a lot of our sleep physicians are prescribing GLP-1s, but they are being pretty prescriptive about it. When they put them on a GLP-1, they may put them on a CPAP at the same time.
As they track them a year later to see how they are doing with their sleep apnea, we know many will not be compliant to CPAP, unfortunately. They are going to need alternative therapy. As we are working through the coding aspects and getting the ramp back, I think the GLP-1s are continuing to grow the awareness of sleep, and you are seeing patients losing the weight, and we will come back. We still believe that this will be a tailwind for the company.
That's helpful. Tim, 4 minutes left. I'm out of questions, which is rare. I know.
Wow.
Shocker.
Yeah.
Really appreciate you being here. I want to give you the last word. Maybe you can talk about reducing friction again.
No, thank you very much for that. I think that really is the highlight of what we worked on. The first half of the year was really disruptive as everybody is so aware of the change from 64568, and the code that we used over 10,000 times in 2025 was just unavailable at the start of 2026. We had to reinvent and re-identify how centers and physicians would be able to code the procedures, and we were able to work with CMS, and CMS understood the challenges and quickly worked to put the C codes out and really give credit to CMS for understanding the situation and really taking an active role to get those C codes out and in place. That really helped reduce the friction. We now have a clear pathway for the Medicare patients.
The MACs also work closely with that to be able to incorporate those C codes, understanding do they want to use a modifier or not. Two of the MACs have put modifiers in place. Physicians in those areas are educated on how to handle those modifiers, what additional information is needed to minimize any reduction in the work that they performed or minimize a reduction in that reimbursement. The other five MACs have decided that they're not going to incorporate the modifier today, but we're going to continue to work the Medicare. Physicians can submit directly into those MACs, and that really helped that whole process.
Now that we are able to address a lot of the coding, now we can start leaning in on the benefits of what Inspire V actually is and the benefits are the cardiovascular benefits, and that is going to really help the overall prospects going forward. We are still very lightly penetrated in our overall target market, and we are in a really strong position with the evidence that we have and with the experience that the patients have to really leverage that going forward.
Perfect.
Any comments from you?
No. Thanks for hosting us, Larry.
Thank you very much.
Yep. Tim and Matt, thank you.
Very good.