insp-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

______________________________

FORM 10-Q

________________________________


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022 or

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-38468

______________________________

Inspire Medical Systems, Inc.

(Exact name of registrant as specified in its charter)

______________________________


Delaware			26-1377674
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
5500 Wayzata Blvd., Suite 1600 Golden Valley, MN			55416
(Address of principal executive offices)			(Zip Code)

(844) 672-4357

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

INSP

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 26, 2022, the registrant had 27,591,115 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
	Forward-Looking Statements	3

PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements	5
	Balance Sheets	5
	Statements of Operations and Comprehensive Loss	6
	Statements of Stockholders' Equity	7
	Statements of Cash Flows	8
	Notes to Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II.	OTHER INFORMATION	34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35

	Signatures	36

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements, including statements regarding our future results of operations and financial position, business strategy, the impact of the ongoing and global COVID-19 pandemic on our business, financial results and financial position, prospective products, international product approvals and commercializations, our expectations regarding the final reimbursement levels for Inspire therapy procedures, research and development costs, timing and likelihood of success, other insurance providers' plans to begin approving our Inspire therapy, and the plans and objectives of management for future operations.

In some cases, you can identify forward-looking statements by terms such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘anticipate,’’ ‘‘could,’’ ‘‘intend,’’ ‘‘target,’’ ‘‘project,’’ ‘‘contemplate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘predict,’’ ‘‘potential’’ or ‘‘continue’’ or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions, including, but not limited to:

•our history of operating losses and dependency on our Inspire system for revenues;

•commercial success and market acceptance of our Inspire therapy;

•our ability to achieve and maintain adequate levels of coverage or reimbursement for our Inspire system or any future products we may seek to commercialize;

•competitive companies and technologies in our industry;

•the impact on our business, financial condition, and results of operation from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease;

•our ability to expand our indications and develop and commercialize additional products and enhancements to our Inspire system;

•future results of operations, financial position, research and development costs, capital requirements, and our needs for additional financing;

•our ability to forecast customer demand for our Inspire system and manage our inventory;

•our dependence on third-party suppliers and contract manufacturers;

•risks related to consolidation in the healthcare industry;

•our ability to expand, manage, and maintain our direct sales and marketing organization, and to market and sell our Inspire system in markets outside of the United States;

•our ability to manage our growth;

•our ability to hire and retain our senior management and other highly qualified personnel;

•risks related to product liability claims and warranty claims;

•our ability to address quality issues that may arise with our Inspire system;

Table of Contents

•our ability to successfully integrate any acquired business, products or technologies;

•changes in global macroeconomic conditions;

•any failure of key information technology systems, processes or sites or damage to or inability to access our physical facilities;

•our ability to commercialize or obtain regulatory approvals or certifications for our Inspire therapy and system, or the effect of delays in commercializing or obtaining regulatory approvals or certifications;

•any violations of anti-bribery, anti-corruption, and anti-money laundering laws;

•risks related to our indebtedness;

•our ability to use our net operating losses and research and development carryforwards;

•the risk that we may be deemed to be an investment company under the Investment Company Act of 1940;

•United States Food and Drug Administration or other United States or foreign regulatory actions affecting us or the healthcare industry generally, including healthcare reform measures in the United States and international markets;

•our ability to establish and maintain intellectual property protection for our Inspire therapy and system or avoid claims of infringement;

•risks related to our common stock; and

•other important factors that could cause actual results, performance or achievements to differ materially from those contemplated that are found in "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," and "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as updated by “Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

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

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

INSPIRE MEDICAL SYSTEMS, INC.

BALANCE SHEETS

(in thousands, except share and per share amounts)


	March 31, 2022		December 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	203,291	$	214,467

Accounts receivable, net of allowance for credit losses of $99 and $99, respectively	34,544		34,179
Inventories	22,198		17,231
Prepaid expenses and other current assets	2,444		2,660
Total current assets	262,477		268,537
Investments, long-term	9,796		9,938
Property and equipment, net	9,334		8,486
Operating lease right-of-use asset	7,659		7,919
Other non-current assets	454		204
Total assets	$	289,720	$	295,084
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	17,022	$	11,665
Accrued expenses	13,896		20,454
Notes payable, current portion	12,250		9,188
Total current liabilities	43,168		41,307
Notes payable, non-current portion	12,798		15,799
Operating lease liability, non-current portion	8,553		8,796
Other non-current liabilities	146		134
Total liabilities	64,665		66,036
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding	—		—
Common Stock, $0.001 par value per share; 200,000,000 shares authorized; 27,568,004 and 27,416,106 issued and outstanding at March 31, 2022 and December 31, 2021, respectively	28		27
Additional paid-in capital	521,308		508,465
Accumulated other comprehensive loss	(198)		(55)
Accumulated deficit	(296,083)		(279,389)
Total stockholders' equity	225,055		229,048
Total liabilities and stockholders' equity	$	289,720	$	295,084

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

INSPIRE MEDICAL SYSTEMS, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended March 31,
	2022		2021
Revenue	$	69,382	$	40,352
Cost of goods sold	10,004		5,981
Gross profit	59,378		34,371
Operating expenses:
Research and development	11,870		8,154
Selling, general and administrative	63,564		41,906
Total operating expenses	75,434		50,060
Operating loss	(16,056)		(15,689)
Other expense (income):
Interest income	(34)		(57)
Interest expense	527		523
Other expense, net	45		38
Total other expense	538		504
Loss before income taxes	(16,594)		(16,193)
Income taxes	100		23
Net loss	(16,694)		(16,216)
Other comprehensive loss:
Unrealized loss on investments	(143)		(20)
Total comprehensive loss	$	(16,837)	$	(16,236)
Net loss per share, basic and diluted	$	(0.61)	$	(0.60)
Weighted average common shares used to compute net loss per share, basic and diluted	27,517,268		27,144,361

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

INSPIRE MEDICAL SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(in thousands, except share amounts)


	Three Months Ended March 31, 2022
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
Balance at December 31, 2021	27,416,106	$	27	$	508,465	$	(55)	$	(279,389)	$	229,048
Stock options exercised	151,186	1		3,086		—		—		3,087
Vesting of restricted stock units	569	—		—		—		—		—
Withholding taxes on net share settlement of restricted stock units	(205)	—		(43)		—		—		(43)
Issuance of common stock	348	—		79		—		—		79
Stock-based compensation expense	—	—		9,721		—		—		9,721
Other comprehensive loss	—	—		—		(143)		—		(143)
Net loss	—	—		—		—		(16,694)		(16,694)
Balance at March 31, 2022	27,568,004	$	28	$	521,308	$	(198)	$	(296,083)	$	225,055


	Three Months Ended March 31, 2021
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
Balance at December 31, 2020	27,069,276	$	27	$	467,038	$	29	$	(237,347)	$	229,747
Stock options exercised	133,421	—		3,550		—		—		3,550
Issuance of common stock	376	—		73		—		—		73
Stock-based compensation expense	—	—		5,997		—		—		5,997
Other comprehensive loss	—	—		—		(20)		—		(20)
Net loss	—	—		—		—		(16,216)		(16,216)
Balance at March 31, 2021	27,203,073	$	27	$	476,658	$	9	$	(253,563)	$	223,131

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

INSPIRE MEDICAL SYSTEMS, INC.

STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Three Months Ended March 31,
	2022		2021
Operating activities
Net loss	$	(16,694)	$	(16,216)
Adjustments to reconcile net loss:
Depreciation and amortization	359		234
(Accretion) amortization of investment (discount) premium	(1)		30
Accretion of debt discount	62		58
Non-cash lease expense	260		171
Stock-based compensation expense	9,721		5,997
Non-cash stock issuance for services rendered	79		73
Other, net	—		(8)
Changes in operating assets and liabilities:
Accounts receivable	(382)		3,381
Inventories	(4,967)		(2,905)
Prepaid expenses and other current assets	216		356
Accounts payable	5,520		1,477
Accrued expenses and other liabilities	(6,921)		(3,049)
Net cash used in operating activities	(12,748)		(10,401)
Investing activities
Purchases of property and equipment	(1,215)		(1,321)


Purchases of other investments	(250)		—
Net cash used in investing activities	(1,465)		(1,321)
Financing activities
Proceeds from the exercise of stock options	3,087		3,550
Taxes paid on net share settlement of restricted stock units	(43)		—

Net cash provided by financing activities	3,044		3,550
Effect of exchange rate on cash	(7)		2
Decrease in cash and cash equivalents	(11,176)		(8,170)
Cash and cash equivalents at beginning of period	214,467		190,518
Cash and cash equivalents at end of period	$	203,291	$	182,348
Supplemental cash flow information
Cash paid for interest	$	466	$	466
Change in property and equipment acquired but not yet paid	284		1,209

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

INSPIRE MEDICAL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Table amounts in thousands, except share and per share amounts)

1. Organization

Description of Business

Inspire Medical Systems, Inc. is a medical technology company focused on the development and commercialization of innovative, minimally invasive solutions for patients with obstructive sleep apnea ("OSA"). Our proprietary Inspire system is the first and only United States ("U.S.") Food and Drug Administration ("FDA") approved neurostimulation technology that provides a safe and effective treatment for moderate to severe OSA. Inspire therapy received premarket approval ("PMA") from the FDA in 2014 and has been commercially available in certain European markets since 2011. Japan's Ministry of Health, Labour and Welfare ("MLHW") approved Inspire therapy to treat moderate to severe OSA in 2018 and was formally added to the Japan National Health Insurance Payment Listing in 2021. In 2020, the Australian Therapeutic Goods Administration approved Inspire therapy to treat moderate to severe OSA, and we are currently seeking reimbursement coverage in Australia.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial reporting and as required by the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, the results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods. For a complete discussion of our significant accounting policies and other information, the unaudited financial statements and notes thereto should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Cash and Cash Equivalents

We consider all highly liquid securities, readily convertible to cash, that have original maturities of 90 days or less from the date of purchase to be cash equivalents. The carrying amount reported in the balance sheets for cash is cost, which approximates fair value.

Foreign Currency

Sales and expenses denominated in foreign currencies are translated at average exchange rates in effect throughout the year. Foreign currency transaction gains and losses are included in other expense, net, in the statements of operations and comprehensive loss. Assets and liabilities of foreign operations are remeasured at period-end exchange rates with the impacts of foreign currency remeasurement recognized in other expense, net in the statements of operations and comprehensive loss.

Investments

At both March 31, 2022 and December 31, 2021, our long-term investments consisted of U.S. government securities. Investments are reported at their estimated fair market values which are based on quoted, active or inactive market prices when available. Any unrealized gains and losses due to interest rate fluctuations and other external factors are reported as a separate component of accumulated other comprehensive loss. We had $0.2 million and $0.1 million of unrecognized loss in accumulated other comprehensive loss at March 31, 2022 and

Table of Contents

INSPIRE MEDICAL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Table amounts in thousands, except share and per share amounts)

December 31, 2021, respectively. Any realized gains and losses are calculated on the specific identification method and reported net in other expense, net in the statements of operations and comprehensive loss. For both of the three months ended March 31, 2022 and 2021, we recognized $0 of realized gains, net.

We reassess our estimated credit losses on investments each reporting period. U.S. government securities and cash equivalents are under a "zero-loss exception" for credit losses, meaning no credit loss risk calculation is necessary on those instruments due to the exceptionally low rate of default, which continues to decrease as the securities approach maturity, which for us is no longer than two years. We record changes in the allowance for credit losses for available-for-sale debt securities with a corresponding adjustment in credit loss expense on the statement of operations and comprehensive loss. No reversal of a previously recorded allowance for credit losses may be made to an amount below zero. The total allowance for credit losses was $0 at both March 31, 2022 and December 31, 2021.

Fair Value of Financial Instruments

We measure certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents and investments. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1: Observable inputs, such as quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3: Unobservable inputs that are supported by little or no market activities, which would require us to develop our own assumptions.

We use the methods and assumptions described below in determining the fair value of our financial instruments.

Money market funds: Fair values of money market funds are based on quoted market prices in active markets. These are included as Level 1 measurements in the tables below.

U.S. government securities: Consists of U.S. government Treasury bills with original maturities of less than two years. These are included as a Level 1 measurement in the tables below.

The following tables set forth by level within the fair value hierarchy our assets that are measured on a recurring basis and reported at fair value as of March 31, 2022 and December 31, 2021. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Table of Contents

INSPIRE MEDICAL SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Table amounts in thousands, except share and per share amounts)


	Fair Value Measurements as of
	March 31, 2022
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	189,379	$	189,379	$	—	$	—

Total cash equivalents	189,379		189,379		—		—
Investments:



U.S. government securities	9,796		9,796		—		—
Total investments	9,796		9,796		—		—
Total cash equivalents and investments	$	199,175	$	199,175	$	—	$	—


	Fair Value Measurements as of
	December 31, 2021
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	189,369	$	189,369	$	—	$	—

Total cash equivalents	189,369		189,369		—		—
Investments:



U.S. government securities	9,938		9,938		—		—
Total investments	9,938		9,938		—		—
Total cash equivalents and investments	$	199,307	$	199,307	$	—	$	—

There were no transfers between levels during the periods ended March 31, 2022 and December 31, 2021.

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash equivalents, investments, and accounts receivable.

Our investment policy limits investments to certain types of debt securities issued by the U.S. government and its agencies, corporations with investment-grade credit ratings, or commercial paper and money market funds issued by the highest quality financial and non-financial companies. We place restrictions on maturities and concentration by type and issuer. We are exposed to credit risk in the event of a default by the issuers of these securities to the extent recorded on the balance sheets. However, as of March 31, 2022 and December 31, 2021, we limited our credit risk associated with cash equivalents by placing investments with banks

SEC Form 10-Q filed by Inspire Medical Systems Inc.