13. Inspire Medical Systems, Inc. (NYSE:INSP)
Number of Hedge Fund Holders In Q2 2024: 35
Inspire Medical Systems, Inc. (NYSE:INSP) is a mid sized medical device company known primarily for its Inspire system that helps patients suffering from sleep apnea. The Inspire system accounts nearly for all of the firm’s revenue, making it dependent on the product for solid share price performance. Consequently, Inspire Medical Systems, Inc. (NYSE:INSP)’s key competitive advantage of allowing sleep apnea patients to manage their disorder through a surgical implant is crucial for the firm’s continued success. The reliance on sleep apnea as the sole source of revenue was evident in Inspire Medical Systems, Inc. (NYSE:INSP)’s share price movements in June when the stock dropped by 17%. This was because research showed that weight loss drugs could also treat sleep apnea, and consequently, investors were worried that Inspire Medical Systems, Inc. (NYSE:INSP)’s market could shrink in the future. Yet, the TAM for the firm is sizeable, as estimates show that more than one billion people suffer from sleep apnea worldwide. Inspire Medical Systems, Inc. (NYSE:INSP) is also busy upgrading products, and it plans to launch the Inspire V soon which could add tailwinds to the stock down the road.
Headwaters Capital Management mentioned Inspire Medical Systems, Inc. (NYSE:INSP) in its Q2 2024 investor letter. Here is what the fund said:
“Stepping back from these narratives, the only real concern I have with INSP is the plateauing utilization at existing centers. Utilization by existing physicians has hit a temporary ceiling given the time required to implant the device and allocated OR time by doctors. However, the company can drive improved utilization with the introduction of the Company’s 5th generation device, Inspire V, which should gain FDA approval by the end of 2024. The new device reduces the implant time from 1.5 hours to 1 hour, which will enable existing surgeons to complete more implants per OR day. Inspire V also makes the surgical procedure much easier for surgeons, which should drive greater surgeon adoption in addition to improved utilization. Given that the device won’t be commercially available until early 2025, near-term results for INSP are unlikely to improve. As I detailed in the Q3 ’23 letter, I’m less concerned about weight loss drugs given that the net impact of losing/adding patients at the bottom/top of the patient funnel is likely to be neutral to positive for the company, although there could be a temporary disruption to patient flow as consumers trial the new drugs. I expect the competing product to have minimal impact on INSP and the insurance coverage will prove to be a temporary headwind. INSP’s current valuation embeds many of these concerns and ignores the fact that the company is still growing at +20% annually with improving profitability. Med tech assets with these financial attributes and a TAM as large as sleep apnea have historically traded at much higher multiples. As a result, we continue to own the stock and will patiently endure these growing pains as we await more positive results next year.”
