The MedTech minnow that could be the next ResMed

Inspire Medical's (NASDAQ: INSP) hypoglossal nerve stimulator has emerged as the leader in a novel approach to the treatment of obstructive sleep apnea (OSA), offering a potential alternative for patients struggling with CPAP intolerance.

Understanding obstructive sleep apnea (OSA) and the challenges of continuous positive airway pressure (CPAP)

OSA occurs when the upper airway repeatedly collapses during sleep, causing breathing issues throughout the night. Common symptoms of OSA include:

• Excessive daytime sleepiness
• Loud snoring
• Witnessed apneas (episodes where breathing stops)
• Morning headaches
• Difficulty concentrating
• Irritability

Diagnosis of OSA typically involves a sleep study to assess the severity of the condition. CPAP therapy is the gold standard treatment, and ResMed (ASX: RMD) is the gold standard provider. The mechanism of CPAP is to deliver pressure to keep the airway open, ensuring adequate breathing throughout sleep. While highly effective, CPAP adherence can be a major challenge due to:

• Mask discomfort and leaks: Tight-fitting masks can be uncomfortable and cause irritation, leading to mask removal during sleep.
• Claustrophobia: Some individuals experience anxiety or claustrophobia related to wearing a mask during sleep.
• Noise: CPAP machines can generate noise, disrupting sleep for both the user and their partner. 
• Social stigma: The perception of CPAP as a cumbersome and visible device can lead to reluctance to use it consistently.

Hypoglossal Nerve Stimulation (HGNS) – a new frontier in OSA treatment

HGNS offers a novel approach to treating OSA by targeting the physiological cause of airway collapse. The hypoglossal nerve controls the muscles that help maintain tongue position and airway patency during sleep. 

HGNS utilizes an implanted device that delivers electrical pulses to the hypoglossal nerve, stimulating these muscles and promoting airway stability throughout the night. This breakthrough has been an important step for around 35% of patients who are non-compliant with CPAP therapy.

Inspire Medical's implantable HGNS system comprises three key components:

• Sense lead: Implanted near the carotid artery in the neck, to detect sleep-related changes in breathing patterns.
• Stimulation lead: The lead is placed around the hypoglossal nerve and delivers electrical stimulation during apneas.
• Internal pulse generator: Implanted under the collarbone to house the battery and microprocessor, which processes signals from the Sense lead and delivers stimulation to the hypoglossal nerve.

HGNS - advantages and considerations

Advantages of HGNS:

• Non-invasive during sleep: Unlike CPAP, HGNS therapy works silently in the background, eliminating mask discomfort and claustrophobia concerns.
• Improved quality of life: By eliminating the need for a mask, HGNS can significantly improve sleep quality and daytime alertness.
• Durability: The implanted device is designed to last several years, with minimal required maintenance and very low explant rates. 

Considerations for HGNS:

• Surgical implantation: HGNS requires a minimally invasive surgical procedure to implant the device components. 
• Patient selection: HGNS might not be suitable for all OSA patients. Careful evaluation to determine candidacy is crucial - it remains indicated only for failed CPAP patients. 

Inspire's market position

Inspire Medical has established a strong market presence, with over 65,000 patient implants in the US. From its base of strong clinical data, and now a growing library of real-world evidence, Inspire is fast becoming more of a focal point for treating physicians. 

From an investment standpoint, its 65% five-year CAGR speaks to its rapid adoption and its 85% gross margins speak to the company's pricing power. The company also turned in its first profitable quarter to the end of 2023, and management is now forecasting profitable growth from here on out. And with a debt-free balance sheet, Inspire Medical is well-protected and armed with optionality. 

Regarding competition, two other HGNS treatments are in the product development pipeline (NASDAQ: LIVN and NASDAQ: NYXH), but neither has received FDA approval. While competition is inevitable in this highly attractive market segment, Inspire's treasure trove of clinical data, technological headstart and commercial first-mover advantage will hold it in good stead for many years to come.  

ResMed's CPAP treatment remains the gold standard of care in this massive and growing OSA market, but don't sleep on the rising importance of HGNS as an alternative treatment.