We know that there are many people with sleep apnea in the US, and that as more attention is given to the condition, more of the undiagnosed individuals learn they have it. In fact, insurance companies have seen a 900% increase in sleep apnea claims from 2014 to 2017.
Medical device maker Inspire is banking that they can turn those increased claims into profit, and they’re asking you to bank on it, too, with an IPO they hope will raise almost $90 million. But is this IPO a good investment? That depends on the ability of the treatment to attract patients, and on the company’s ability to profitably sell the device. There are serious questions on both these fronts.
What Is Inspire?
Inspire is a device that is sold as an alternative to CPAP for treating obstructive sleep apnea. It is an implantable surgical device that, in principle, is similar to a pacemaker. The company was spun off by Medtronic, who makes leads and other equipment for pacemakers, which gave it its core competencies in the technology for the device.
Inspire provides electric stimulation to a patient’s tongue while they sleep, stimulating it so it won’t fall down into the airway. This keeps the airway open at night so that a person doesn’t experience apneas.
Can This Device Capture the Market?
In documents related to the IPO, Inspire puts out some impressive figures for potential sales. They note that about two million people are prescribed CPAP every year in the US. They say at least 35% of people prescribed CPAP won’t stay compliant with the treatment, which means they will need an alternative. (This figure is likely a conservative estimate. Compliance rates for CPAP generally hover around 60%, and for some populations, the figure may be as low as 30%.) Of the people not compliant with CPAP, inspire says about 70% are eligible for Inspire, which makes a potential patient pool of 500,000 each year, which they say amounts to a market opportunity of up to $10 billion.
But how many of those 500,000 patients will choose Inspire? That’s hard to say, with its major drawbacks and the competing treatments in the market. To attract patients, Inspire has to seem more desirable than oral appliances. But oral appliances have two big competitive advantages: they don’t require surgery and they are much less expensive.
Surgery is a big commitment for people, especially those with sleep apnea, who have higher risks from surgery. It can be hard to get people to commit to a surgical operation, even if it has a high rate of success.
And the expense for Inspire is much higher than that for oral appliances. Inspire’s figures imply that they get $20,000 for the device itself, not counting surgical fees. And that cost is not likely to be covered by insurance. It is not officially covered, but may be approved on a case-by-case basis. With the high expense of the treatment, insurance companies are going to set up strict funnels to ensure that few patients get this treatment unless they pay out-of-pocket.
Can Inspire Turn a Profit?
But the big question about the IPO is whether Inspire can actually turn a profit on this device. The company has never turned a profit in the 11 years since it spun off from Medtronic. In fact, it currently carries over $125 million in accumulated deficit over that time.
Dramatic increases in sales have done little to reduce the company’s large deficits. From 2016 to 2017, the company’s sales rose from $16.4 million to $28.6 million. However their deficit barely shrank, decreasing from $18.5 million to $17.5 million. That’s a long way from actually turning a profit.
And if you think that the cash infusion from the IPO will be the necessary cure for Inspire’s sluggish growth, keep in mind that the company already had a $37.5 million funding bolus in 2016. This helped drive the increase in sales, but hasn’t really turned to profit.
That certainly should give pause to any investors considering the company’s potential.
When Investing in Your Health, Oral Appliances Are Great
We are not ultimately an investment company, but we do know what sleep apnea treatments work and how patients respond to them. We can definitely say that oral appliances are comfortable, convenient, effective, and inexpensive. They are a hard device to beat when it comes to CPAP alternatives.
If you are looking for CPAP alternatives in New Jersey, please call (201) 343-4044 today for an appointment with a sleep dentist at the River Edge Dental Center for TMJ, Sleep Apnea, & Reconstructive Dentistry.