ICYMI: Inspire Announces $200 Million Stock Buyback

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1:58Visit VitalProteins.com to learn more and where to buy. These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Well, shares of the$2.3 billion market cap med tech company, Inspire Medical Systems, have been whipsawing today. The company announced early today$200 million share buyback. Shares, though, last week fell more than 30 % on Tuesday. It was the day after the company announced that it would cut its revenue guidance for the full year.

2:39It missed the average analyst estimate. We've got back with us Tim Herbert. He's founder, chairman, president, and CEO of Inspire Medical Systems. It's a maker of mask-free treatments for obstructive sleep apnea. He joins us from Florida. Tim, good to see you again. Welcome back to Bloomberg Businessweek. Jake, when you joined us back in May, this was a$4.5 billion market cap company. Shares down close to 60 % so far this year. Back in May, though, you just reiterated your full year revenue guidance and raised your EPS guidance. What happened over the last few months that led you to cut over this most recent quarter?

3:14Absolutely. Well, thank you for having me back. I think that what we're excited about is in that time frame, we're launching our fifth generation system. We're very excited about the Inspire 5 system coming out and the improvements it has for patients, for our health care providers, as well as for our operations. We did do a full launch in the May time frame, and as we rolled through that, the launch was taking a little bit longer than we expected. We had a good quarter in the second quarter, but because the launch is taking longer, we did need to adjust our revenue guidance down 4 % from the midpoint as we come in here into the third quarter.

3:56Okay, why is the launch taking longer? And then very briefly after you answer that, just remind everybody what the medical technology is at Inspire that allows you to implant these devices for people who have obstructive sleep apnea. Well, let's start there. I think most people are familiar with CPAP or continuous positive airway pressure where you wear a mask, but a lot of people just aren't able to benefit from that. So what Inspire is we developed a technology that works inside your body, and it's a neural stimulator that sits just underneath your skin, and it stimulates a muscle in the tongue to hold your airway open while you sleep at night, thereby preventing your obstructive sleep apnea.

4:40which affects over 30 million people in the United States. So there's a great need for Inspire. We received FDA approval in the year 2014 and have been developing improvements to the system. And most recently in May, just announced the launch of the Inspire 5 system. So very excited about the clinical evidence that we've seen with our new device, with the acceptance from the healthcare providers. and once we're able to get the full launch out there and the product available at all of our centers that we're going to target for here in the third quarter, I think that we'll be able to really help a lot of people.

5:18Tim, are these devices, do they have batteries in them? Yes, we do have a battery similar to another neural stimulator, similar to a cardiac pacemaker that, and our battery lasts 11 years. So once you receive the therapy, you'll continue on 11 years later when the battery becomes depleted, it's this very simple procedure to replace the Inspire 5 device with the most current generation device at the time that you receive your replacement. How much of the revenue shortfall is due to internal execution versus external factors like provider hesitation or patient access or even just pushback from payers?

5:59I think in the second quarter, we achieved expectations. But as we reset our revenue guidelines into the third quarter. We had to back down a little bit, and for the most part, it's patient flow, but it's having centers ready to offer the Inspire 5 device. They're still working on their fourth generation device. So I think with increased awareness and really helping centers get up and running with the Inspire 5 device and complete the transition, that we'll see the return, and we'll be able, again, to help patients receive Inspire therapy. What are you changing operationally or strategically to really just improve the commercial rollout in the next 6 to 12 months?

6:40We have Truist, for instance, saying they braced for a guide cut, but it was bigger than expected. JP Morgan said it's frustrating to see a negative revision of this magnitude. Absolutely. And it's frustrating for ourselves, too, that the launch didn't go as well. I think now that we have proper inventory to support a large and broad launch of the Inspire 5 system, now we need to focus on working with individual centers to get them up and running. We have another team that is focused on opening new centers, and we purposely held back on that in the beginning of the year to make sure that we had the Inspire 5 launch ready to go.

7:20We are approaching that right now, and now we're going to be opening more centers that can offer Inspire therapy. We're going to be training additional surgeons and training some surgeons who were reluctant to do the Inspire procedure because the placement of a sensing lead in the intercostal muscles, and we think that with Inspire 5, we really simplify the procedure, and we're working hard to excite them to get those surgeons back up and running. And then just execution within our own centers to be able to have them ready to take care of patients with the fifth generation. And those centers that have converted over to Inspire 5 have already shown a 20 % growth in patient implants year over year in the first half of the year.

8:09So we're very confident in our technology, confident in that the health care system is going to be able to handle the new technology and increased utilization of Inspire going forward. We're speaking right now with Tim Herbert, founder, chairman, president and CEO of Inspire Medical Systems, the publicly traded$2.3 billion market cap med tech company that creates the device for people who have sleep apnea. So, Tim, in light of the guidance cut, how should investors think about your full year expectations now? Are they conservative enough or should we be expecting more adjustments coming down the line?

8:47Well, when we adjusted our revenue guidance, we took our revenue guidance down 4 % from our midpoint. We're still expecting revenues in the range of$900 to$910 million. So that's an increase of 12%, 13 % from the prior year 2024. So we're still focused on our growth, really focused on patient outcomes and taking care of reductions in the severity of their sleep apnea and making Inspire 5 broadly available. So it's up to us to really execute and gain the confidence back from our investors. But I think with the strong patient outcomes that we've shown with Inspire 5 and the fact that we're so lightly penetrated in our target market, still limited to about 5 % of our target market has been achieved to date.

9:38So we have a great opportunity in front of us, and it's really up to us to execute and complete the launch and make the therapy available to patients. Let's talk a little bit about this market and the total addressable market. When you were speaking earlier in this interview, you mentioned something that really piqued my interest, and it's the idea that maybe this device is not for everybody with obstructive sleep apnea. Is it only for those who have tried CPAP machines and they don't work, or is this a replacement for people who use CPAP machines right now for obstructive sleep apnea? Dr. Well, I think CPAP therapy has been a gold standard for years.

10:18But the challenge is you do have the external apparatus that you wear, and it's difficult for people to get full benefit with the device. And so it's known that a great percentage of the patients, as much as 50%, are just unable to benefit from that therapy. And it's very important that patients with moderate to severe sleep apnea take care of their obstructive sleep apnea because there's many causal effects from untreated sleep apnea, such as hypertension, cardiovascular disease, atrial fibrillation, diabetes, and unfortunately, early mortality. So there's a great need to improve not only the quality of life that patients receive with a good night's sleep, but to address the comorbidities that could be affected by untreated.

11:06So Inspire is designed to be a therapy for those patients who are unable to benefit from CPAP. And so it's not for everybody, but we know a significant portion of the population that has been diagnosed just is not being properly treated today. And that's the target market that Inspire is going after. We have around one minute left, but in general, I'm curious if this stumble has changed how you think about your product piping timing, capital allocation, or even just your general strategy when it comes to really future launches and developing your product pipeline? Well, I think we certainly learn as we develop new technologies.

11:46We've developed technologies in the past. In fact, we're on our fifth generation technology. The key is the clinical evidence that we're seeing, the acceptance by the healthcare providers really gives us confidence that this fifth generation system is really going to help a lot of patients. We know that we have a lot of work to do to regain investors' trust, and we're up to the challenge. We have a long history receiving approval from the FDA back in the year 2014 and have treating over 100 ,000 patients, but we're just getting started. We know that we're very early on in our market penetration.

12:21We're very confident in our patient outcomes, and we're committed to our patients and committed to our stakeholders. And we're leaning in to have a successful launch of five and many years of growth in front of us. Are you committed to staying independent or would you be open to being acquired by a larger company? Well, our focus is to remain independent. Our focus is to dedicate our resources and our capital to continue to develop great technology to really help patients drive patient outcomes. And so we're going to keep leaning in to keep driving that Tim, always appreciate you taking the time and joining us on Bloomberg Business Week Daily.

12:59Tim Herbert, founder, chairman, president, and CEO of Inspire Medical Systems.

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14:51is not intended to diagnose, treat, cure, or prevent any disease. Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com.