Inspire Medical Systems, Inc. Wells Fargo 21st Annual Healthcare Conference

Larry, thank you for having us once again. It's always a pleasure to be back up here in Boston with you.

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 Biegelsen 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 6, 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 3 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.