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Prospectus Summary

Unless the context requires otherwise, references to "Inspire," the "Company," "we," "us," and "our," refer to Inspire Medical Systems, Inc.

Overview

We are a medical technology company focused on the development and commercialization of innovative and minimally invasive solutions for patients with obstructive sleep apnea. Our proprietary Inspire system is the first and only FDA-approved neurostimulation technology that provides a safe and effective treatment for moderate to severe obstructive sleep apnea. We have developed a novel, closed-loop solution that continuously monitors a patient's breathing and delivers mild hypoglossal nerve stimulation to maintain an open airway. The safety and efficacy of our Inspire therapy is supported by a significant body of clinical data, which includes a publication in the New England Journal of Medicine and more than 70 peer-reviewed publications. Inspire therapy received premarket approval, or PMA, from the U.S. Food and Drug Administration, or FDA, in April 2014 and has been commercially available in certain European markets since November 2011.

Inspire therapy is indicated for patients with moderate to severe obstructive sleep apnea who do not have significant central sleep apnea and do not have a complete concentric collapse of the airway at the soft palate level. In addition, patients in the United States must have been confirmed to fail or be unable to tolerate positive airway pressure treatments, such as CPAP, and be 22 years of age or older, though there are no similar requirements for patients in Europe. Physicians have treated more than 4,000 patients with Inspire therapy at over 220 medical centers across the United States and Europe.

Sleep apnea is a serious and chronic disease that negatively impacts a patient's sleep, health and quality of life. According to the World Health Organization, sleep apnea affects more than 100 million people worldwide. Obstructive sleep apnea, or OSA, is the most common form of sleep apnea. OSA occurs when a person's breathing is interrupted during sleep by a partially or completely blocked airway and affects patients of all ages, sexes and body types. The severity of OSA is measured by the number of partial or complete airway blockages that a patient experiences in an hour, referred to as the apnea-hypopnea index, or AHI. Moderate OSA patients have an AHI of 15 to 30 events per hour, while severe OSA patients have an AHI of 30 or more events per hour. Left untreated, OSA increases the risk of high blood pressure, hypertension, heart failure, stroke, coronary artery disease and other life-threatening diseases.

Continuous positive airway pressure, or CPAP, is the leading therapy for patients with moderate to severe OSA. CPAP is delivered through a face or nasal mask that connects through a hose to a bedside air pump. The effectiveness of CPAP has been limited by low patient compliance, as many patients find the mask or treatment cumbersome, uncomfortable and loud. According to published literature, only approximately 35% to 65% of patients prescribed a CPAP device are compliant with the therapy. When CPAP fails or cannot be tolerated, patients' remaining treatment options are limited and consist primarily of invasive surgical procedures. We believe that there is both an urgent clinical need and a strong market opportunity for an alternative to CPAP that is safe, effective and minimally invasive.

Inspire therapy is an innovative, closed-loop, minimally invasive solution that provides comfort and convenience, resulting in high compliance for patients with moderate to severe OSA. Our Inspire system consists of a remote control and three implantable components, which include a pressure sensing lead, a neurostimulator and a stimulation lead. Once implanted, the Inspire system uses a proprietary algorithm to continuously monitor a patient's breathing and delivers electrical stimulation that causes a slight forward movement of the back of the tongue. This forward movement helps to maintain an open airway, enabling the patient to inhale freely and without interruption.

The results from multiple clinical trials, which include four sponsored and 12 independent clinical studies, together with patient-reported outcomes, have shown that our Inspire therapy provides statistically significant and sustained reduction in the severity of patients' OSA, improvement in sleep-related quality of life and reduction in snoring, as well as high patient compliance rates and a strong safety profile. Our pivotal clinical trial, the Stimulation Therapy for Apnea Reduction, or STAR, trial, was designed to demonstrate longitudinal therapy efficacy and included a randomized controlled therapy withdrawal study. Patients in the longitudinal study experienced an approximately 70% reduction in the median AHI from a baseline of 29.3 events per hour to 9.0 events per hour at 12 months following initial treatment. Ongoing STAR trial follow-up has shown results similar to the initial data at 18 months, three years and five years. At five years, median AHI remained low at 6.2 events per hour. The effectiveness of Inspire therapy was further demonstrated by the results of the randomized controlled therapy withdrawal study, in which patients in the therapy withdrawal group regressed to near-baseline AHI levels while patients in the control group that continued Inspire therapy experienced sustained therapeutic benefits.

We sell our Inspire system to hospitals and ambulatory surgery centers, or ASCs, in the United States and in select countries in Europe through a direct sales organization. We have 40 sales representatives in the United States and six in Europe. Our direct sales force engages in sales efforts and promotional activities focused on ear, nose and throat, or ENT, physicians and sleep centers. In addition, we highlight our compelling clinical data and value proposition to increase awareness and adoption amongst referring physicians. We build upon this top-down approach with strong direct-to-patient marketing initiatives to create awareness of the benefits of our Inspire system and drive demand through patient empowerment. This outreach has helped to educate thousands of patients on our Inspire therapy and frequently results in patient leads.

Our customers are reimbursed the cost required to treat each patient through various third-party payors, such as commercial payors and government agencies. We are in active discussions with commercial payors to establish positive national coverage policies to support reimbursement of Inspire therapy. In July 2018, Aetna Inc., one of the leading health plans in the United States, began providing coverage for our Inspire therapy, bringing the number of our secured positive coverage policies to nine U.S. commercial payors. In parallel, our 15-person reimbursement team, which we refer to as our market access team, is focused on assisting patients and physicians in obtaining appropriate prior authorization approvals from commercial payors on a case-by-case basis in advance of treatment with our Inspire therapy. We have been successful in obtaining prior authorization approvals from approximately 300 commercial payors. In addition, Medicare may cover our procedure on a medical necessity basis. We also have a U.S. government contract for patients who are treated by the Veterans Health Administration.

We generated revenue of $28.6 million, with a gross margin of 78.9% and a net loss of $17.5 million, for the year ended December 31, 2017, compared to revenue of $16.4 million, with a gross margin of 76.2% and a net loss of $18.5 million, for the year ended December 31, 2016, and revenue of $8.0 million, with a gross margin of 64.9% and a net loss of $21.3 million for the year ended December 31, 2015. For the nine months ended September 30, 2018, we generated revenue of $34.0 million with a gross margin of 79.8% and a net loss of $17.1 million compared to revenue of $18.6 million with a gross margin of 77.8% and a net loss of $13.3 million for the nine months ended September 30, 2017. Our accumulated deficit as of September 30, 2018 was $142.1 million.

Our Market Opportunity

The market for OSA treatment is large and growing. We believe there is a significant population in the United States with moderate to severe OSA who are unable to use or get consistent benefit from CPAP and who are eligible for our Inspire therapy. Currently, there are approximately 17 million individuals in the United States with moderate to severe OSA. Based on industry sources, we estimate that approximately 2 million patients are prescribed a CPAP device annually in the United States. Further, based on published literature, we estimate that at least 35% of patients prescribed a CPAP device are not compliant with the therapy and approximately 70% of those non-compliant patients have an airway anatomy that would allow for effective treatment with Inspire therapy. As a result, we believe the annual total addressable market for our Inspire therapy in the United States to be approximately 500,000 patients, which, based on our average selling price per implantation, represents an estimated annual market opportunity of approximately $10 billion. We also believe there is a substantial market opportunity outside the United States.

Current Treatments for OSA and their Limitations

There are several treatment options for OSA patients depending on the level of severity of the disease, ranging from lifestyle changes to surgery. Some patients are prescribed an oral device designed to prevent the airway from collapsing by shifting the position of the jaw forward; however, these devices are not always effective and are used primarily in mild to slightly moderate cases. CPAP is the leading therapy for patients with moderate to severe OSA but faces significant limitations as a therapeutic option, primarily due to low patient compliance. Commonly cited reasons patients fail to use the CPAP device on a regular basis include mask discomfort, mask leakage, pressure intolerance, skin irritation, nasal congestion, nasal drying, nosebleeds, claustrophobia and lack of intimacy. Low patient compliance persists despite the development of various CPAP devices designed to improve patient comfort and treatment through a variety of methods. In cases of moderate to severe OSA where CPAP has failed or patients have discontinued treatment, surgery may be an alternate therapy. Two of the primary surgical procedures for treating OSA are uvulopalatopharyngoplasty, or UPPP, and maxillomandibular advancement, or MMA. Both of these are invasive in-patient procedures that irreversibly alter the patient's anatomy, require extended recovery periods which are often painful, and have limited or unpredictable clinical benefit.

Our Solution for OSA

Our proprietary Inspire system is the first and only FDA-approved closed-loop neurostimulation technology that provides a safe and effective treatment for moderate to severe OSA. Our Inspire system consists of a remote control and three implantable components: a pressure sensing lead, which detects when the patient is attempting to breathe; a neurostimulator, which houses the electronics and battery power for the device; and a stimulation lead, which delivers electrical stimulation to the hypoglossal nerve, which is the nerve that controls forward movement of the tongue. To receive the Inspire system, patients undergo a short, minimally invasive outpatient surgical procedure, typically lasting two hours, during which the neurostimulator, sensing lead and stimulation lead are implanted in a series of three small incisions. Patients typically recover quickly and are able to resume normal activities in just a few days. Once the Inspire system has been activated, patients are able to turn it on when they plan to go to sleep and turn it off when they awaken. The device has a programmed delay, typically 30 minutes, to allow patients to fall asleep naturally before the device activates.

We believe our Inspire therapy overcomes many of the limitations of CPAP and other current treatments of moderate to severe OSA by providing the following key benefits:

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Safe, effective and durable treatment supported by compelling clinical data, including long-term efficacy results out to five years from initial treatment.


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Closed-loop system that uses a proprietary algorithm to continuously monitor patients' breathing and provides electrical stimulation during the inspiratory phase.


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Comfortable and convenient therapy resulting in high patient satisfaction that was reported to be 94% at an average of 12 months from initial treatment in the first 508 patients in our ongoing global patient registry.


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Strong patient compliance, with 80% of patients reporting continued nightly use through five years from initial treatment in our pivotal trial.


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Minimally invasive outpatient procedure with short recovery time.


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Long-lasting solution with a battery designed to last approximately 11 years without charging or maintenance.

Our Competitive Strengths

We believe the continued growth of our company will be driven by the following competitive strengths:

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First to market with an innovative, closed-loop, minimally invasive solution. We have developed the first and only FDA-approved neurostimulation technology that provides a safe and effective treatment for patients with moderate to severe OSA. Unlike CPAP, our Inspire therapy has shown high patient compliance. We believe our high patient compliance rate is due to our innovative, closed-loop, minimally invasive solution that is designed to provide comfort and convenience. We believe we have a significant first mover advantage and momentum over future competitors, as physicians have treated more than 4,000 patients with Inspire therapy.


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Significant body of strong clinical data. We have developed a significant body of clinical data that demonstrates the safety and effectiveness, therapy adherence and long-term sustained benefits of our Inspire therapy. The benefits of treatment with Inspire therapy have been consistent across four sponsored and 12 independent clinical studies that evaluated approximately 980 patients, including more than 280 patients evaluated in independent clinical studies, and have been highlighted in more than 70 peer-reviewed publications. Data reported in these clinical studies also demonstrated a high level of overall patient satisfaction. We believe this favorable data provides us with a significant competitive advantage and will continue to support increased adoption of our Inspire therapy.


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Holistic and targeted approach to market development and patient engagement. We have established a methodical approach to market development that centers on active engagement with patients, physicians and sleep centers. Our sales force is focused on building long-lasting relationships with ENT physicians and sleep centers as we support physicians through all aspects of a case. In addition, we are highlighting our compelling clinical data and value proposition to increase awareness and adoption amongst referring physicians. We build upon this top-down approach with strong direct-to-patient marketing initiatives which helps to educate thousands of patients on our Inspire therapy and frequently results in patient leads. We are confident that our approach to engagement across multiple constituents will continue to drive increased awareness of and demand for our Inspire therapy.

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Dedicated team focused on providing market access for patients and providers. We have a highly efficient approach to advance patients, once identified, to placement of the Inspire system. Our dedicated market access team helps patients and providers work with payors to secure the appropriate prior authorization approvals in advance of initial treatment. This highly leverageable team has been successful in securing reimbursement from approximately 300 commercial payors. In addition, this team continues to work with payors to establish positive coverage policies by highlighting the compelling clinical data and the economic benefits of our Inspire therapy, and has successfully secured positive coverage policies from nine U.S. commercial payors to date, including Aetna, Inc.


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Strong research and development capabilities and comprehensive intellectual property portfolio. Our commitment to driving innovation has allowed us to achieve continuous, significant improvements of our Inspire therapy. For example, in the United States, we launched in July 2017 the fourth generation of our Inspire system, which has several benefits including a significantly smaller size with an approximate 11-year battery life and allowing patients to undergo an MRI scan of the head or extremities. We launched our fourth generation Inspire system in Europe in the second quarter of 2018. We have a comprehensive patent portfolio to protect our intellectual property and technology, with rights as of September 30, 2018 to 20 issued U.S. patents, 22 issued foreign patents, 25 pending U.S. patent applications and 39 pending foreign patent applications that cover aspects of our Inspire system and future product concepts.

Our Strategy

Our goal is to be a global leader in providing clinically proven innovative solutions that improve sleep, quality of life and health of patients with moderate to severe OSA. We believe the following strategies will play a critical role in achieving this goal and our future growth:

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Promote awareness among patients, ENT physicians, sleep centers and referring physicians. We believe that many patients and physicians are unaware of our Inspire therapy. We intend to continue to promote awareness of our therapy through training and educating ENT physicians, sleep centers, referring physicians, key opinion leaders and various medical societies. We also plan to continue building patient awareness through our direct-to-patient marketing initiatives, which include paid search, radio, social media and online videos.


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Expand our U.S. sales and marketing organization to drive adoption of our Inspire therapy. We plan to expand our sales and marketing organization and seek to recruit and train exceptionally talented sales representatives in existing and new markets in the United States to help us broaden adoption of our Inspire therapy and drive revenue growth.


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Leverage our prior authorization model while we work with payors to broaden coverage. Our dedicated in-house market access team will continue to assist patients and physicians in obtaining prior authorization approvals from commercial payors for treatment with our Inspire therapy. In parallel, we plan to continue our active discussions with commercial payors to establish positive national coverage policies.


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Invest in research and development to drive innovation and expand indications. We are committed to ongoing research and development and intend to invest in our business to further improve our products and clinical outcomes, increase patient acceptance and comfort and broaden the patient population that can benefit from our Inspire therapy. For example, we are currently evaluating the use of Inspire therapy in pediatric patients with Down syndrome.

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Further penetrate and expand into existing and new international markets. We plan to establish and strengthen our presence in existing international markets in Europe, including Germany and the Netherlands, and expand our reach to new international markets, such as Japan.

Risks Associated with Our Business

Our business is subject to a number of risks that you should be aware of before making an investment decision. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under "Risk Factors" in deciding whether to invest in our common stock. Among these important risks are the following: