Executive Summary / Key Takeaways

• Inspire Medical Systems, Inc. (NYSE:INSP) is pioneering the treatment of obstructive sleep apnea (OSA) with its proprietary, minimally invasive neurostimulation technology, the Inspire system, which recently surpassed 100,000 patients treated since inception.
• The full U.S. launch of the next-generation Inspire V system in May 2025, featuring internal respiratory sensing and eliminating the pressure sensing lead, is a significant technological differentiator, promising reduced surgical times and enhanced patient outcomes.
• Despite initial transition headwinds in Q2 2025, Inspire demonstrated strong Q3 2025 financial performance with revenue of $224.5 million, a 10.5% year-over-year increase, and improved gross margins of 85.8%, leading to an upward revision of its full-year 2025 diluted EPS guidance to $0.90-$1.00.
• Strategic initiatives, including increased direct-to-consumer (DTC) marketing, expansion of provider capacity through Advanced Practice Provider (APP) training, and favorable reimbursement changes for 2026, are set to drive continued growth and long-term profitability.
• The emergence of GLP-1 drugs for OSA is viewed as a potential long-term tailwind, increasing patient awareness and expanding the pool of eligible candidates for Inspire therapy, further solidifying the company's market opportunity.

Unlocking Sleep Health: Inspire's Innovative Approach to OSA

Inspire Medical Systems, Inc. stands at the forefront of medical technology, dedicated to transforming the lives of patients suffering from obstructive sleep apnea (OSA). Since its incorporation in 2007, the company has developed and commercialized the proprietary Inspire system, a groundbreaking neurostimulation technology that offers a minimally invasive alternative for individuals with moderate to severe OSA. This closed-loop solution continuously monitors a patient's breathing and delivers mild hypoglossal nerve stimulation to maintain an open airway, addressing a critical unmet need for patients who cannot tolerate or benefit from traditional continuous positive airway pressure (CPAP) therapy. The Inspire system received FDA premarket approval in 2014, building on its commercial availability in Europe since 2011 and expanding into Asia Pacific markets by 2021.

The company's overarching strategy centers on patient-first innovation, expanding market access, and enhancing provider capacity. This approach is particularly critical in an industry where patient adherence to traditional therapies like CPAP remains a significant challenge. Inspire's commitment to clinical evidence is a foundational strength, with studies demonstrating its effectiveness for both supine and non-supine dependent OSA. Notably, recent data presented at ENT meetings, including a University of Texas Health study of over 4,500 patients, showed Inspire therapy's advantages in reducing long-term cardiovascular morbidity and mortality, including lower risks for myocardial infarction, cardiac arrest, ischemic stroke, and depression, compared to CPAP or no treatment. These findings underscore the profound "so what" for investors: Inspire offers a clinically superior solution that addresses critical comorbidities, potentially expanding its market beyond just sleep quality to broader cardiovascular health.

Technological Leadership: The Inspire V System and SleepSync

Inspire's core competitive advantage lies in its differentiated neurostimulation technology. The recently launched Inspire V system, approved by the FDA in August 2024 and fully rolled out in the U.S. in May 2025, represents a significant leap forward. This next-generation device incorporates respiratory sensing directly into the neurostimulator, eliminating the need for a separate pressure sensing lead. This innovation offers tangible benefits: for patients, it means one fewer implanted component; for physicians, it translates to reduced surgical time and increased comfort, particularly for ENT surgeons who previously found the placement of the pressure sensing lead in the chest wall uncomfortable; and for the company, it promises reduced production complexity and cost.

The quantifiable benefits of Inspire V are compelling. Clinical outcomes data from a Singapore study of 44 patients demonstrated a 20% reduction in surgical times. Early U.S. Limited-Market-Release experience with over 100 patients showed clinically relevant reductions in disease severity, with patients averaging over 6 hours of nightly device use. Furthermore, the Inspire V system achieved an 87% inspiratory overlap with the patient's breathing, a critical metric for optimizing therapy in a closed-loop system. These technological advancements are expected to increase provider capacity and drive higher utilization at implanting centers, as evidenced by a more than 20% increase in patient implants in the first half of 2025 at U.S. centers that have transitioned to Inspire V, compared to the same period in 2024.

Beyond the device itself, Inspire is investing heavily in its digital ecosystem. The new Inspire SleepSync programming system, fully launched in the U.S., aims to provide more efficient patient programming and improved access to patient data for healthcare providers. This cloud-based patient management system allows providers to use their own laptops or tablets, streamlining operations and offering capabilities for future software enhancements like sleep detection for auto-activation and sleep performance tracking. These R&D initiatives are strategically designed to reinforce Inspire's competitive moat, enhance patient outcomes, and drive long-term growth by continuously improving the therapy and its management.

Competitive Dynamics and Market Positioning

Inspire operates in a dynamic medical device market with both direct and indirect competitors. Direct rivals include established players like ResMed and Philips , primarily offering CPAP devices and broader digital health solutions, as well as Medtronic (MDT) in neuromodulation and Fisher & Paykel Healthcare (FPH) in respiratory devices. Inspire's unique market positioning stems from its proprietary, implantable neurostimulation technology, which offers a differentiated, minimally invasive alternative to CPAP.

While competitors like ResMed and Philips (PHG) boast larger scale, broader distribution networks, and diversified revenue streams, Inspire's focus on a specialized, high-efficacy solution for moderate to severe OSA patients, particularly those intolerant to CPAP, provides a strong competitive edge. Inspire's gross profit margin of 84.47% (TTM) is robust, reflecting the premium nature of its innovative therapy. However, its P/E ratio of 48.20 (TTM) suggests higher growth expectations compared to ResMed's (RMD) 25.67, indicating that investors are pricing in significant future expansion for Inspire. The company's smaller scale and reliance on surgical procedures present vulnerabilities, potentially leading to higher operational costs compared to larger, more diversified medical device companies.

Indirect competition also comes from emerging trends, notably the increasing popularity of GLP-1 drugs for weight loss, with Zepbound (tirzepatide) recently approved for OSA in obese patients. While this initially presented a potential headwind, Inspire views GLP-1s as a long-term tailwind. A survey of over 200 sleep physicians in October 2025 indicated that GLP-1s are driving increased interest in sleep health and bringing more patients into clinics, often for OSA diagnosis to support insurance coverage for GLP-1s. This trend could expand the overall patient pool for OSA treatment. Inspire believes GLP-1s can help higher BMI patients reduce lateral wall collapse, potentially making them eligible for Inspire therapy if they also have tongue base collapse, thereby working in concert with Inspire's mechanism of action.

Financial Performance and Strategic Momentum

Inspire Medical Systems achieved its first full year of profitability in 2024, reporting $53.5 million in net income and $1.75 diluted EPS. This milestone underscores the company's successful transition from a growth-focused startup to a financially sustainable enterprise.

The momentum continued into 2025, with the company reporting strong financial results for the third quarter ended September 30, 2025. Revenue reached $224.5 million, marking a 10.5% increase over the prior-year period. For the nine months ended September 30, 2025, total revenue grew 14.2% to $642.9 million. Gross margin improved to 85.8% in Q3 2025, up from 84.1% in Q3 2024, primarily driven by increased sales volume and a favorable sales mix of the more cost-effective Inspire V system. Net income for Q3 2025 was $9.9 million, contributing to a nine-month net income of $9.3 million.

Operational expenses reflect a strategic balance between investment and discipline. While research and development (R&D) expenses decreased by 7.2% in Q3 2025 due to project phasing, selling, general, and administrative (SGA) expenses increased by 21.8%, primarily due to higher marketing costs (advertising) and increased headcount to support growth. The company's liquidity remains robust, with $410.9 million in cash, cash equivalents, and available-for-sale debt securities as of September 30, 2025. Net cash provided by operating activities for the nine months ended September 30, 2025, was $64.5 million, demonstrating healthy cash generation. The company also executed $125 million in share repurchases year-to-date through Q3 2025, signaling confidence in its valuation.

Strategic initiatives are actively addressing market opportunities and challenges. The Inspire V launch, while experiencing initial headwinds in Q2 2025 related to center training, contracting, and SleepSync onboarding, has made significant progress. By Q3 2025, physician training for Inspire V was over 98% complete, contracting over 90% complete, and SleepSync onboarding over 75% complete for implanting centers. The company is ramping up its direct-to-consumer (DTC) marketing efforts in the second half of 2025, leveraging new ad campaigns to increase patient awareness and engagement. Capacity expansion is a key focus, achieved through training Advanced Practice Providers (APPs), certifying additional surgeons, and expanding digital scheduling tools, which streamline patient access to care.

Reimbursement trends are also favorable. CMS recently finalized the 2026 physician fee schedule, increasing CPT code 64568 (for Inspire V) by 11% to approximately $660, effective January 1, 2026. Additionally, CMS proposed increases for national average Medicare hospital reimbursement (up 4% to $32,000) and ASC reimbursement (up 5% to $28,000) for CPT code 64568, also effective January 1, 2026, if approved. These changes are expected to further incentivize adoption and improve the economics for providers.

Outlook and Key Considerations

Inspire Medical Systems has reaffirmed its full-year 2025 revenue guidance of $900 million to $910 million, representing 12% to 13% growth over 2024. Reflecting its strong Q3 performance and operational discipline, the company raised its full-year 2025 diluted net income per share guidance to $0.90 to $1.00. Gross margin is expected to remain robust at 84% to 86% for the full year. For 2026, Inspire provided an early indication of 10% to 11% revenue growth, anticipating an acceleration from Q3 2025 performance as the Inspire V system scales and operational focus intensifies. The company expects to return to its historic seasonality patterns in 2026, with higher sales in the fourth quarter. Long-term, Inspire remains committed to achieving 30% operating margins.

Despite this positive outlook, investors should consider several factors. The transition from Inspire IV to Inspire V involves managing existing inventory, with the majority of Inspire IV inventory in the field expected to be worked through by year-end 2025. The company is also cooperating with a civil investigative demand from the Department of Justice, received on January 17, 2025, concerning its marketing, promotion, and reimbursement practices. Additionally, patent infringement lawsuits with Nyxoah SA (NYXH) introduce legal uncertainties. While GLP-1s are seen as a long-term tailwind, their immediate impact on patient flow and potential for patients to trial these drugs before considering Inspire therapy remains a dynamic to monitor.

Conclusion

Inspire Medical Systems, Inc. is at a pivotal juncture, leveraging its innovative Inspire V system and a robust strategic roadmap to solidify its leadership in the OSA treatment market. The company's commitment to technological differentiation, evidenced by the Inspire V's internal sensing and reduced surgical complexity, is directly translating into improved operational efficiency and enhanced patient outcomes. Coupled with strategic investments in market development, patient awareness, and favorable reimbursement trends, Inspire is well-positioned to capitalize on the significant unmet need in OSA. While near-term challenges related to product transitions and competitive dynamics exist, Inspire's strong financial performance, disciplined execution, and clear vision for expanding patient access and provider capacity underscore a compelling investment thesis for long-term growth and sustained profitability. The company's ability to integrate new market dynamics, such as the rise of GLP-1s, into its growth strategy further highlights its adaptability and potential to expand its reach within the evolving sleep health landscape.