August 25, 2020 | 11:54 AM by Jaguar | avo@jaguaranalytics.com

Inspire Medical Systems (INSP) – Continued Coverage and Expansion

Originally covered in detail as one of our top picks for 4Q2018 Quarterly Outlook, Inspire Medical Systems (INSP) provides minimally invasive solutions for patients with obstructive sleep (OSA) with its upper airway stimulator (UAS) procedure.

Following better-than-expected 2Q earnings in early August, Stifel raised their price target from $110 to $125 based on more recent management commentary that suggests another successful quarter ahead; the analyst believes that there is potential for upside to his $22.7M 3Q revenue estimate. Further upside could also occur from reimbursement coverage by Anthem (ANTM), the only big commercial payor left without a policy: there may be a decision by October as their annual review is between the end of August and sometime in September. A positive decision could add up to 42.5 million lives to Inspire’s current ~190 million and is the closest catalyst prior to 3Q earnings report in NovemberMeanwhile, Florida Blue, part of the Blue Cross Blue Shield Association (BCBS), issued their coverage policy with an effective date of August 15, 2020, and the Minnesota BCBS branch will begin coverage on October 5th.

Other markets that present upcoming opportunities are Japan and Australia. In Japan, management has continued to meet with the Ministry of Labor, Health and Welfare to finalize the documentation process that paves the way for an eventual reimbursement decision which is expected this year, with a limited launch in 2021. Australia should follow sometime in 2021 as regulatory approval was received on August 12th and reimbursement process is being worked on currently.

2Q2020 Results

Inspire Medical reported 2Q revenue of $12.2M, well ahead of consensus estimate at $7.9M. FY2020 guidance also beat Street expectations coming in at $88-$92M versus $79M. Though this was lower than their initial guidance, it potentially sets up for easier comps as patient backlog and interest has remained in place.

The company has reported sequential increases in the number of centers performing UAS procedures after being nearly all shut down due to nationwide lockdowns implemented in early spring.  At the end of April, only 2% of centers were performing implant procedures. By the end of May this had increased to 24%, then to 51% by the end of June and, at the time of the earnings conference call, early data showed 60%+ centers were active in July. Considering 3Q year-over-year guidance was flat-ish, revenues could conceivably be above current estimates as conditions improve. Furthermore, if Veterans Affairs (VA) hospitals scale up operations, it could add another 10% increase to procedures performed.

Another positive for Inspire is that competitive risk has been pushed out approximately three years after Livanova’s (LIVN) ImThera progress suffered multiple setbacks which will delay its anticipated 2020/2021 US market entry to at least 2023/2024. A second competitor product, Nyxoah‘s Genio system recently received Investigational Device Exemption by the FDA and will begin its DREAM trial “in the coming months” though completion and market launch is not expected prior to 2023.

Lastly, despite lockdowns that began in early spring, 16 new centers were added in 2Q2020 with plans for 20-24 more in 2H2020. These numbers compare with 28 in 1Q2020, and 19 in 2Q2019.

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