WolfPack-美股-医疗行业-激励医疗系统：噩梦般的投资-20200422-57页.pdf

Report Date:April 22,2020 Company:Inspire Medical Systems,Inc.Ticker:INSP US Industry:Medical Devices Stock Price(USD):$69.68 Market Cap(USD,Millions):$1,840.1 Page 1 of 57 Inspire Medical Systems:A Nightmare Investment Introduction Wolfpack is short Inspire Medical Systems(INSP).The annual market opportunity promoted by its management is so preposterous that it must be disingenuous,leaving investors holding the bag of this terminally unprofitable business.It turns out that Inspire can barely even give their device away:It has been available to 9 million enrolled U.S.Veterans for free since 2014,but data from the VA hospital system show only 387 total patients have opted for Inspires surgery.Our research shows Inspire cant even sell 20,000 units in a year,much less the 500,000 units claimed by management.Inspires surgically implanted device comes with a long list of onerous lifestyle restrictions and insufferable side-effects that permanently haunt past patients and drive off potential patients.Insiders have pocketed more than$340 million from stock sales,nearly 3x the companys total revenue since the 2018 IPO.Inspire is only good at selling two things:this ridiculous growth story and their stock.Summary Inspires device is far too invasive and restrictive to ever gain traction in a market with numerous non-invasive alternatives.Inspire promotes itself as a minimally-invasive and more convenient solution for Obstructive Sleep Apnea(“OSA”).We found that Inspires surgery is anything but minimally-invasive.It carries serious risks such as laceration of the jugular,paralysis and leaves large visible scars on the patients neck and chest.Further,Inspires device requires additional surgeries to replace the battery every 7-10 years for the rest of your life,which is a shit sandwich in-and-of itself.In the years between these surgeries,Inspires device can cause serious injury if the patient has a pacemaker,undergoes an MRI,or requires defibrillation during a cardiac event.1 All Inspire patients have to live with a nightmarish list of restrictions that make Inspires“therapy”as inconvenient as we could possibly imagine.They must worry about every day activities like answering their cell phone,using a computer or power tools,going to the store and going through airport security because Inspires device can be damaged by any one of these activities,requiring yet another surgery.Would you be willing to take on all of these risks and restrictions to“ease the symptoms”of a condition that has numerous non-surgical treatment options?1 https:/www.accessdata.fda.gov/cdrh_docs/pdf13/P130008C.pdf Inspires promotions Reality Page 2 of 57 We reached out to several Inspire patients who had written about their experience online and spoke to four who were willing to share their story with us in detail.After hearing these stories,it appears that the adverse-effects and lifestyle restrictions of Inspires device can be worse than the symptoms of OSA itself.Inspires own studies show that the unhappy patients we spoke to were not outliers.During Inspires self-funded Stimulation Therapy for Apnea Reduction(“STAR”)study,the key to its FDA approval,85%(107 out of 126)of patients suffered at least one adverse event.During the 12-month study,these 107 patients experienced 494 total adverse events.2 We consider this to be very concerning,considering that Inspire hand-picked the patients for this study,rejecting 86%of the original applicants.Inspires real-world FDA submitted adverse event reports include horror stories of surgeons lacerating the patients jugular during surgery and patients nearly dying on the operating table,ending up in ICU without ever receiving the implant.We have provided a full list of these 192 adverse event reports in Appendix D to this report.In the last month and a half,ten new adverse events were reported to the FDA,five of which resulted in removal of the device for medical necessity.Two of the Inspire patients we spoke to allowed us to share their stories.We will refer to them as“Patient A”and“Patient B.”Patient A felt she was misled about the procedure and the device itself,and that if she had been warned of the potential side-effects,she never would have had the device implanted at all.She told us she experienced three serious adverse events,one of which involved temporary paralysis caused by part of the device slipping down into her abdomen.She claims that when she attempted to contact Inspire about this adverse event,they rejected her claim and“vehemently denied it could have happened.”Inspire now ignores her calls,leaving her only with visible scars and regret.Patient B was nearly 80 years old when she had Inspires device implanted.She complains that the constant electrical shocks feel like someone is“tugging and twisting”her tongue.This is not an isolated incident one-third of the patients in Inspires STAR study complained of similar discomfort from the electrical stimulation.3 Even worse,Patient B now carries a bucket around her house because of the significant excess mucus production she has experienced since the device was implanted.Inspire does not list this as a potential side-effect of its“therapy.”Patient B says that the Inspire device has“ruined her life.”Neither of these patients still use the device,but they are afraid to have it removed due to the serious risks associated with the removal surgery.4 We also found a growing list of customer complaints,with terrifying descriptions of the potential downsides to Inspires invasive procedure,such as“drooling,facial paralysis or drooping,slurred speech”and“nerve damage resulting in numbness and discoloration of one side of the tongue,or battery leaking into body.”These are just a few of the dozens of customer complaints that we found.You can see the full list in Appendix E of this report.Our research shows that Inspires management exaggerates its TAM by at least 50 x in order to sell investors a growth story they must know is fictional.Despite incessantly touting a$10 billion(500,000 unit)annual market opportunity,insiders have sold more than$340 million worth of stock since the IPO nearly 3x the companys total revenues during that period.Most recently,Chau H.Khuong,an Inspire Director and Partner at OrbiMed Advisors,sold 1.5 million shares for$130 million between March 3-6.Just weeks later Inspire pulled its 2020 guidance and announced a secondary offering of 2 million shares at$58.00,a 35%discount to Khuongs well-timed sales.2 https:/clinicaltrials.gov/ct2/show/results/NCT01161420 3 https:/clinicaltrials.gov/ct2/show/results/NCT01161420?view=results 4 https:/www.accessdata.fda.gov/cdrh_docs/pdf13/P130008C.pdf rMrNnPvNwO8O8QaQpNpPmOnNiNqQqMlOtRsR7NqRsNMYoOpQxNtOyQPage 3 of 57 Sleep Apnea experts we spoke to told us that OSA symptoms are often so subtle that patients dont even realize they have a condition.Inspires solution for OSA is proving to be about as popular as lobotomies were for treating migraines in the 1950s.5 Inspires device has been on the market for 5 years in the U.S.and 9 years in Europe and has only sold 7,200 units worldwide.Inspires massively overstated TAM also underpins investors dreams of achieving profitability through economies of scale.However,Inspire is actually exhibiting diseconomies of scale.Despite growing its unit sales from 2,300 in 2018 to 3,700 in 2019,Inspires SG&A expense per unit actually increased from$23,800 to$24,800.Inspire has already reached the most desperate OSA patients,making each unit more expensive to sell.At an operating margin of-42.5%and free cash flow burn of-$10,000 per unit in 2019,it may seem impossible for INSPs financial performance to get much worse,but it can,and we believe it inevitably will.This company will likely never make a profit.Its device is only a feasible therapy for Strict Amish Communities who dont use cell phones,power tools,computer disk drives or basically any other technology that we cant live without.Furthermore,we found empirical evidence to prove how unrealistic Inspires$10 billion per year TAM claim is.Data from Inspires most mature markets show that,in reality,the vast majority(99%+)of OSA patients refuse Inspires surgical solution.Inspire cant even sell patients their device for free.For example,Inspires device has been available to 9 million U.S.veterans at no cost to the patient through the U.S.Veterans Administration(“VA”)for more than five years.6 However,instead of taking off toward Inspires massive purported TAM,Inspires sales to the VA peaked at only 150 units(1%of VA CPAP)in 2018 and fell to a mere 110 units(0.7%of VA CPAP)in 2019.7 Because patients must first try and reject CPAP treatment to be eligible for Inspires implant,the number of new CPAP users per year is the starting point for its top-down TAM calculation and the basis for its hyperinflated TAM claims.Inspire uses an internal“company estimate”of 2 million new CPAP users per year for this critical assumption.After speaking to numerous industry experts and hearing over and over that Inspires estimate was far too high,we decided to engage an independent market research firm to get the kind of precise data that Inspire refuses to provide.8 Their data showed that new CPAP users per year are less than half of the 2 million internal“company estimate”Inspire uses in its TAM calculation.After adjusting for patient preference and reviewing Inspires actual sales performance in the five years since its FDA approval,we conclude that Inspires realistic TAM is less than 2%of what management claims.Our research proves to us that the internal estimate Inspire uses as the basis for its growth story is a farce.We are providing more truly independent data and estimates for investors than Inspire has.We challenge Inspires management to provide investors with evidence that supports its opaque internal estimate of 2 million new CPAP prescriptions per year,which it uses as the starting point in its TAM calculation.We spent months speaking to experts,market research firms and other industry participants,none of whom believed Inspires estimate of 2 million new CPAP prescriptions per year was anywhere near realistic.Our investment thesis on Inspire:Focus on managements actions,not their words.Note:This is not a COVID-19 thesis.While Inspires 2020 sales will undoubtedly be decimated by the cancellation of elective surgeries,which management unsurprisingly waited as long as possible to mention to investors,our thesis on Inspire has nothing to do with COVID-19 and everything to do with management cashing out while promoting bad faith estimates for future growth,which our research shows to be entirely unrealistic.5 https:/ 6 https:/fas.org/sgp/crs/misc/R43579.pdf 7 https:/www.usaspending.gov/#/recipient/68e6bfb0-1569-b78f-12a0-df8a829e29ff-C/latest 8 We engaged Frost&Sullivan through a third-party,so they were unaware of the short bias in our research.Page 4 of 57 1.Inspires Solution is Worse Than the Problem:In its promotions,Inspire downplays the terrifying side-effects and high adverse event rates of its surgery by referring to its device as a minimally-invasive solution.CEO Tim Herbert made the following statement at the SVB Leerlink Global Healthcare Conference on February 26,2020:“And so,heres the new brand,keep it really simple,no mask,no hose,just sleep.We dont talk about implant,we dont talk about surgery,we talk about a therapy that will-youll use every night in your-procedure,and so,heres two commercials that we ran.”9 However,the Inspire surgical manual tells the surgeon to make three cuts of 2.5 inches each.One on the jaw,one on the collarbone,and another on the ribs.The device then goes into a“pocket”which is“scooped out”of the chest by the surgeon.The lead wires are“tunneled”to the throat and rib-cage.Then excess wire is bundled or wrapped around the device.This seems invasive to us,unless youre comparing it to having a lung removed.Inspire,by its own admission,purposely avoids talking about implants and surgery because they know these are deterrents to potential patients.See Appendix B for the full gauntlet of pre and post-op procedures Inspires patients must undergo.We spoke to one Inspire patient who felt she was misled about the procedure and the device itself.We will refer to her as“Patient A.”Patient A believes that Inspires device never would have worked for her and that if she had been warned of the potential side-effects,she never would have had the device installed at all.The picture below,provided by Patient A,shows just how invasive this procedure really is.10 Days Post-op:Patient A told us about three serious adverse events she experienced.She claims that one of these events involved part of the device slipping down into her abdomen,resulting in temporary paralysis.She regrets ever getting involved with Inspire and no longer uses the device.Another Inspire patient we spoke to,who well refer to as“Patient B,”was nearly 80 when she had the device implanted.She claims the procedure has resulted in the glands in her throat producing significant amounts of excess mucus.She now carries a bucket around her house to avoid making a mess,as she coughs up mucus throughout the day.Although in her 80s now,Patient B had a healthy social life until the Inspire treatment took its toll.Excess mucus production is not listed as a potential side effect,but Patient B believes it clearly should be.9 Conference Presentation Transcript SVB Leerlink,2/26/2020 via Bloomberg LP Page 5 of 57 She also complains that the constant electrical shocks feel like someone is“tugging and twisting”her tongue.This is a very common complaint from Inspire patients one-third of the patients in Inspires STAR study complained of discomfort from the devices electrical shocks,which are supposed to be providing the“therapy.”10 Patient B claims the Inspire treatment has“ruined her life,”and we can understand why.Just like Patient A,Patient B finds the device impossible to live with.She no longer turns it on at night.Both patients want to have the device removed but fear the significant risks associated with the removal surgery.So,they have simply left the device in place a not-so-subtle reminder of what changed their lives forever.We include a very long list of adverse event reports from the FDA database in Appendix D.There are a disturbing number of cases of surgeons“lacerating”the jugular vein during the procedure,as well as other nightmarish,near-death stories like this one:“During a surgical procedure to implant the Inspire System,shortly after putting the stimulation cuff on,the patient coded and his heart rate went down to 28.An emergency team responded in the operating room and provided treatment.Immediately after treatment,the patients blood pressure dropped and the emergency team again provided treatment.The physician decided to end the case.The patient is currently in the ICU and should make a full recovery.”Inspire reports having done 7,200 implants,and