Inspire Medical Systems Inc $INSP Deep Dive

Executive Summary:

Inspire Medical Systems is a medical technology company founded in 2007 and headquartered in Minnesota. They focus on developing solutions for obstructive sleep apnea (OSA), a condition where breathing repeatedly stops and starts during sleep. Their main product is the Inspire system, the first FDA-approved implantable neurostimulation device for treating moderate to severe OSA. This minimally invasive system uses gentle electrical pulses to keep the airway open during sleep, eliminating the need for a CPAP mask. Inspire Medical Systems offers a mask-free alternative for OSA sufferers who have struggled with CPAP therapy.

Inspire Medical Systems a reported EPS of -$0.34 compared to the consensus of -$0.63. However, revenue came in strong at $164 million, reflecting a 28% increase year-over-year and exceeding expectations. This growth was driven by a strong performance in the US market, where revenue grew 25% to $155.8 million.

Stock Overview:

Company background:

Inspire Medical Systems is a medical technology company founded by Tim Goodnight, M.D., John Conrad, and Michael Farrior. Their main product is the Inspire system, which is the first FDA-approved implantable neurostimulation device for treating moderate to severe OSA. This minimally invasive system uses gentle electrical pulses to keep the airway open during sleep, eliminating the need for a bulky CPAP mask.

Inspire Medical Systems faces competition from various established medical device companies that offer CPAP machines and other treatments for OSA. Some of their key competitors include ResMed, Philips Respironics, and Fisher & Paykel Healthcare.

Recent Earnings:

Revenue: The company reported strong revenue growth, generating $164 million in Q1 2024. This represents a significant 28% increase year-over-year compared to the same period in 2023.

EPS: Inspire Medical Systems did miss analyst expectations on EPS (earnings per share). The reported EPS was -$0.34, falling short of the analyst consensus of -$0.63. This translates to a significant miss of 46%.

Forward Guidance: Inspire Medical Systems project revenue to be between $783 million and $793 million, representing a growth of 25% to 27% over 2023. This is slightly higher than their previous guidance of $775 million to $785 million.

The Market, Industry, and Competitors:

Inspire Medical Systems operates in the Obstructive Sleep Apnea (OSA) treatment market. This market is expected to experience high growth by 2030 due to several factors. An aging population, rising obesity rates, and increasing awareness of OSA all contribute to the market’s potential.

Reports suggest the sleep apnea devices market could reach a value of USD 13.4 billion by 2030, reflecting a significant CAGR. Inspire Medical Systems’ unique solution targets a specific segment of this market – those who struggle with traditional CPAP therapy. As Inspire refines its technology and expands its reach, it is well-positioned to benefit from the overall growth in the OSA treatment market.

Unique differentiation:

• Traditional CPAP Providers: The biggest competitors are established medical device companies like ResMed, Philips Respironics, and Fisher & Paykel Healthcare. These companies offer CPAP machines, the current gold standard for OSA treatment.
• Emerging Minimally Invasive Treatments: Companies are developing minimally invasive procedures like pillar implants or nerve ablation to address the upper airway blockage. While these procedures are still evolving, they pose a future competitive threat to Inspire’s implantable neurostimulation approach.

For Inspire Medical Systems, staying ahead of the curve will involve continuous improvement of their technology, highlighting the advantages of their implant over CPAP, and potentially expanding into new markets or treatment approaches within the OSA landscape.

Mask-Free Alternative: CPAP machines from companies like ResMed and Philips Respironics, Inspire’s Inspire system offers a mask-free solution. CPAP machines can be uncomfortable and disruptive to sleep, leading to low compliance rates. Inspire’s implant provides a significant advantage for patients who struggle with CPAP therapy.

Neurostimulation Approach: Inspire’s technology takes a unique approach compared to emerging minimally invasive procedures like pillar implants or nerve ablation. These procedures target the physical structure of the airway, while Inspire’s implant uses gentle electrical pulses to stimulate nerves and keep the airway open.

Management & Employees:

Timothy P. Herbert (Chair, President & CEO): Founder of Inspire, Herbert brings over 11 years of experience from Medtronic in product development, clinical research, sales, marketing, and healthcare reimbursement. He leads the company’s overall strategy and direction.

Charisse Sparks, M.D. (Chief Medical Officer): Joined Inspire in 2023 after serving as Chief Medical Officer at AppliedVR. Dr. Sparks brings a wealth of experience in the medical field, particularly focusing on innovative treatment approaches.

Financials:

Revenue Growth: Public reports indicate revenue growth of 53% in 2023 compared to 2022. This trend of substantial year-over-year increases likely translates to a strong Compound Annual Growth Rate (CAGR).

Earnings Growth: While revenue has been on a clear upward trajectory, Inspire is still in its growth phase and hasn’t consistently turned profits. Their focus is on market penetration and technology development. Early reports for 2024 suggest a net loss.

Technical Analysis:

On the monthly and weekly chart, the stock is on a stage 2 markup, but a big red candle indicates a move lower to a stage 4 decline on both. The daily chart is more indicative, showing a steep drop off after earnings with some base being formed at the $152 range for a possible reversal. We would not initiate a position until a reversal is confirmed and the stock heads higher to cross $158

Bull Case:

Large and Growing Market: Obstructive Sleep Apnea (OSA) is a widespread condition with a growing market due to factors like aging population and rising obesity rates. This creates a significant opportunity for Inspire’s unique treatment solution.

Unique Technology: Inspire’s neurostimulation approach offers a differentiated treatment option compared to emerging minimally invasive procedures. This could position them well as a leader in innovative OSA treatment.

Strong Revenue Growth: Inspire has demonstrated impressive year-over-year revenue growth, suggesting successful market penetration and potential for future dominance in the niche of mask-free OSA treatment.

Bear Case:

Emerging Technologies: Minimally invasive procedures like pillar implants or nerve ablation are evolving as potential competitors to Inspire’s neurostimulation approach. These procedures might offer a more permanent or less invasive solution, posing a threat to Inspire’s technology.

Reimbursement Challenges: Inspire’s implant is a relatively new technology, and securing consistent insurance coverage can be difficult. Without wider insurance reimbursement, Inspire’s market reach could be limited, impacting their ability to scale effectively.