Story Stocks^®

Inspire Medical Systems (INSP), a provider of the only FDA-approved neurostimulation technology for the treatment of obstructive sleep apnea (OSA), is jumping higher after issuing upside Q2 revenue guidance and lifting its FY24 revenue forecast. The improved outlook comes on the heels of an impressive beat-and-raise Q1 earnings report in early May, indicating that momentum has continued as patient demand remains very strong.

• For Q2, INSP is guiding for revenue of $195.9 mln, equating to estimated yr/yr growth of about 30%, while its updated FY24 revenue outlook of $788-$798 mln (from $775-$785 mln), calls for an increase of approximately 27% at the midpoint. The company didn't provide many details regarding the specific drivers for the guidance increase in this morning's press release, but commentary from the Q1 earnings call helps shed some light on what's fueling its robust growth.
• First, from a broader standpoint, INSP's Inspire implant, which delivers electrical stimulation that causes a slight forward movement of the back of the tongue, helping to maintain an open airway, has some distinct advantages over the standard of care option for OSA.
  • CPAP, or continuous positive airway pressure, is currently the leading therapy for OSA, but it involves wearing a facial mask that connects to a hose and pump next to the bed.
  • Many patients find this to be uncomfortable, leading to low compliance, leaving the patient at risk of developing OSA-related health issues, such as high blood pressure, heart failure, stroke, or coronary heart disease.
• Consequently, this low compliance is leading to growing awareness and adoption for the minimally-invasive Inspire System. Due to the increased market penetration, INSP launched 66 new implant centers in the U.S. last quarter. 
• Meanwhile, in Europe, the company experienced a rebound in Q1 after receiving derogation late in Q4, allowing it to continue to grow adoption of Inspire therapy. The derogation authorization allowed INSP to ship silicon-based leads in countries including Germany, Switzerland, Netherlands, and Belgium. Outside the U.S., revenue surged by 141% in Q1 to $8.2 mln.
• As a result of the growing adoption and higher volumes, INSP is achieving greater manufacturing efficiencies. In turn, gross margin expanded by 50 bps yr/yr in Q1 to 84.9%. Combined with the strong top-line growth, the healthy margins are pushing ISNP towards profitability. In fact, the company expects to be profitable for the full year, forecasting EPS of $0.10-$0.20 for FY24.

The main takeaway is that momentum continues to build for the Inspire System as it takes share away from cumbersome CPAP systems. Looking ahead, the future looks bright, especially as it prepares for a soft launch of its upgraded Inspire V system later this year.