Inspire Medical Systems Inc

NYSE:INSP

Earnings Call Transcript 2019-Q1

[Operator]

Greetings and welcome to the Inspire Medical Systems, Inc. First Quarter 2019 Earnings Call.

[Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to hand the conference over to your host today, Mr. Bob Yedid. Thank you, Bob. You may now begin.

[Robert Yedid]

Thank you all for participating in today's call. Joining me are Tim Herbert, President and Chief Executive Officer, and Rick Buchholz, Chief Financial Officer. Earlier today, Inspire released financial results for the first quarter ended March 31, 2019. A copy of the press release is available on the company's website. I'd like to remind you on the call that management will make forward-looking statements within the meaning of the Federal Securities laws.

All forward-looking statements including our discussion of operating trends and our expectations of future financial performance including full year 2019 guidance and our expectations with regards to near and long-term growth potential of our business are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. See our filings with the Securities and Exchange Commission, including our quarter report on Form 10-Q filed with the SEC today for a description of these risks and uncertainties. Inspire disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time sensitive information and speaks only as of the live broadcast today May 7, 2019.

And with those prepared remarks, it's my pleasure to turn the call over to Tim Herbert, CEO. Tim?

[Timothy Herbert, executive]

Thank you, Bob. And thanks everyone for joining us today. I'm pleased to welcome you to our First Quarter 2019 Earnings Call. In the first quarter, we came out of the gate with a strong performance across all aspects of our business. I'll provide you with the details around what is driving our continued progress. And our CFO, Rick Buchholz, will follow with a detailed review of our first quarter financial results. Following this, we will open up the calls for all your questions.

To begin, the team at Inspire and the health care providers that support Inspire therapy continue to be fully committed to delivering positive and consistent patient outcomes for those with untreated obstructive sleep apnea. This have been and will continue to be our mission at Inspire. And this will lead to continued growth and therapy adoption globally.

Before we get to the operational results for the first quarter, I'd like to acknowledge several important milestones that we recently achieved. First, last week was the 1 year anniversary of Inspire becoming a public company. Second, last week was also the 5-year anniversary of the U.S. FDA approval to allow us to begin marketing Inspire therapy in the United States. And finally, a few weeks ago, we announced that the 5,000th patient had been treated with Inspire therapy since the inception of the program. Treating the 5,000th patient represents a significant accomplishment for Inspire and is the result of many years of dedicated efforts and persistence from our very talented team.

We continue to obtain additional coverage policies, develop and launch new products, penetrate new markets and enhance our director-based initiatives all of which will put us in a position to maintain the significant momentum in our business as we move towards achieving our 10,000th procedure and beyond.

Regarding our performance in the first quarter of 2019, we continue to execute on our balanced commercial growth strategy which is primarily focused on the U.S. market with the objective of, first, increasing patient flow at existing centers and, second, training and opening new implanting centers. In addition to our focus on the United States market, we intend to continue growing the adoption of Inspire therapy in Europe, directing our commercial activities of those countries that have established reimbursement, primarily Germany and the Netherlands. And our European team also continues to pursue reimbursement and grow adoption in other European countries.

As we've previously discussed, we have regulatory approval in Japan and we are awaiting regulatory approval of our updated filings that includes the Inspire 4 Neurostimulator, the New Sensing Lead and advanced physician programmer. We continue to work with the reimbursement authorities in Japan and are encouraged by the progress achieved to date. A medical advisory committee was formed by the Japan authorities consisting of 3 physician societies; sleep, ENT and cardiology. Their purpose is to oversee the introduction of Inspire therapy in Japan with the first steps to develop therapy guidelines and establish reimbursement. This group has made progress in both areas. In fact, the guidelines have been prepared and are in final review. We continue to plan for the first implants of Inspire therapy in Japan to occur in 2019 and are working towards a formal launch in 2020. Beyond Japan, we continue to review the potential to market Inspire in other countries in the Asia Pacific region.

Let's get into the 2019 first quarter results. The overall growth strategy continues to generate strong performance. Our worldwide revenue for the first quarter of 2019 was $16.3 million an increase of 62% compared to the first quarter of 2018. In the first quarter, we added 20 new U.S. centers ending the period with a total of 226. Further, we added 7 territory managers during the first quarter, ending the period with a total of 53 territory managers in the United States. As a comparison, we ended the same period, the first quarter of 2018 with 154 and 31 territory managers in the U.S. We expect that these new centers and territory managers will have a positive impact on our long-term growth and we are reiterating our 2019 goal of opening 12 to 14 new centers per quarter and adding 4 to 5 territory managers, third quarter in the United States. Regarding market access or reimbursement, we continue with our 2 key strategies which are expanding the number of written positive coverage policies and concurrent with this process, continuing to obtain individual prior authorizations. You'll recall that January, we announced that Evidence Street issued a favorable assessment of Inspire therapy. As a reminder, Evidence Street is the corporate technical assessment group of BlueCross BlueShield Association. This is a national federation of 36 BlueCross and BlueShield companies that when combined is one of the leading health associations in the United States covering 97 million lives. To date, since receiving the favorable assessment, positive coverage policies of Inspire therapy have been issued by 21 of the Blues health plans covering approximately 53 million lives. We continue to expect that additional positive coverage policies will be issued throughout 2019 by additional Blues plan.

The National Coverage Policy from Aetna in 2018 also continues to have a beneficial impact at our approval rates and reducing review cycle times, a key trend we expect to continue especially with the recent receipt of positive coverage policies from several Blues plans as well as other independent payers. In total, there are currently 32 positive coverage policies representing approximately 83 million lives that cover Inspire therapy. These new policies are expected to significantly improve a patient's access to Inspire therapy and once a policy is in place, our market access team works with centers to ensure that the regional plans complete the implementation process.

Our team has been in position to work with centers to begin the submission of new patients. And oftentimes, we will resubmit authorizations for existing patients who are further along in the appeal process. Bottom line, there is a process and a time lag between the issuance of a policy and the approval of patient submission.

In the first quarter of 2019, our internal reimbursement team supported 688 prior authorization submissions or an average of 53 submissions per week. This compares favorably to the 558 prior authorization submissions in the first quarter of 2018, as well as an increase from the 639 submissions in the fourth quarter of 2018. In terms of prior authorization approvals, 443 patients received prior authorization approval in the first quarter of 2019 or 34 approvals per week during the quarter.

This compares to the 213 prior authorization approvals in the first quarter of 2018 as well as an increase from the 395 approvals in the fourth quarter of 2018. As I previously mentioned, we will continue to monitor these metrics and report on them as long as they remain a relevant data point for assessing the performance of our Inspire business.

Regarding prior authorization success metrics, we ended 2018 at an overall approval rate of 55% and for those patients that completed the overall appeal review process, the approval rate was [ above ] 75%. It is key to note that about 10% of the 2018 prior authorization submissions remain in review, mostly in the appeal process. The days to approval for 2018 submissions was above 90 days. It is still too early to measure these metrics in 2019 as there have only been 3 months for health plans to review and take action on prior authorization.

In fact, of the 688 prior authorization submissions in the first quarter 2019, approximately 65% remain in review. With that said, we have experienced a noticeable increase in the number of prior authorization approvals on first review, which would be expected with the increased number of positive coverage policies. Obviously, with an increase in the number of first review approvals, we also expect that the average days to approval will be reduced. Following the second quarter, we expect to have sufficient submissions and approvals as well as time to review the appeals to be able to calculate these metrics and begin to compare with the prior year period. In the interim, we will continue to work with centers to efficiently process the prior authorization submissions. With a more streamlined process enabled by positive coverage policies and the increasing number of centers are submitting prior authorizations on their own. In these cases, we do not have full exposure to these submissions.

Therefore in the short term, we will continue to report on these metrics. But our long-term goal is to reduce the burden of individual prior authorizations that these metrics will become less meaningful evaluating the overall progress going forward. A key aspect of our U.S. commercial strategy is our direct to patient initiative which includes our social media strategy. This strategy continues to be successful in reaching and educating prospective patients about Inspire therapy. And we remain focused on broadening these efforts to correspond with the growing number of U.S. implanting centers. These initiatives led to an increase in Web activity in the first quarter of 2019 as compared to the prior year period. We saw significant improvements in Web visitors, engaged visitors and physician searches and had almost 10,000 contacts with health care providers during the first quarter of 2019.

Importantly, we are in the process of transforming our website and expect to launch this new site shortly. We are very excited about this project and expect that it will further improve the way in which we interact with patients and physicians in the future. Importantly, this new website will also make navigation by patients easier and significantly streamline the process of connecting patients with a qualified provider in their area. Additional details of this transformation will be provided during the second quarter.

Now, let's switch gears to discuss our R&D activities. Inspires' product development team continues to work to improve the patient experience while maintaining and enhancing therapy outcomes. We recently launched our New Sensing Lead in the United States. In just 2 months about 55% of customers have converted to the new lead in the U.S. Our goal is to complete this conversion process by the end of the second quarter. To date, we have received very positive feedback from the physicians who have already started implanting the New Sensing Lead. This Sensing Lead was launched in Europe in late 2018 and all European centers are now implanting the New Sensing Lead. We have also made progress with the Inspire cloud project by adding additional centers who are using this tool for patient management. We also have ongoing projects to improve the physician programmer, the patient remote control and longer term, we have initiated design activity for our Inspire 5 Neurostimulator. Later in 2019, we expect to report on the key design features that will be incorporated into this new product. We anticipate that this will be a multi-year effort to develop the Inspire 5 device and gain regulatory approval. In summary, we are excited by our success -- successful start to 2019 and continue to experience significant momentum in our business. To reiterate what I've said before, our primary goal is to generate the highest therapy outcomes possible for patients.

We continue to execute a focused growth strategy aimed at first increasing penetration at existing centers and second, expanding the number of implanting centers as well as adding territory managers on a quarterly basis. Along with further advancements and reimbursement that build upon our recent positive coverage decisions, we are confident that we remain well positioned for long-term success.

With that, I would like to turn the call over to Rick for his detailed review of our financials.

[Richard Buchholz, executive]

Thanks, Tim. We are extremely pleased with our financial performance in the first quarter of 2019. We continue to demonstrate significant top line growth, a strong indication of expanding market demand for Inspire therapy in the U.S. and Europe. For the first quarter of 2019, total revenues were $16.3 million, a 62% increase over the $10 million generated in the first quarter of 2018. U.S. revenue in the first quarter was $14.4 million an increase of 64% from the $8.7 million generated during the same period in 2018. This growth was due to continued market penetration in existing territories, the expansion of our U.S. sales reps into new territories, increased physician and patient awareness of our Inspire system and a greater number of prior authorization approvals. Our U.S. average selling price was 23,400 in the first quarter of 2019 which is roughly the same as the first quarter of 2018. In the first quarter, European revenue increased 46% to $1.9 million from $1.3 million in the first quarter of 2018. This increase was volume-driven primarily due to increased penetration in existing territories. The expansion of our European sales representative into new territories as well as the establishment of reimbursement in the Netherlands.

During the first quarter, the European average selling price was 22,300 which was consistent with the first quarter of 2018. Our geographic mix of revenue in the quarter was 88% in the U.S. and 12% in Europe with a slightly lower revenue concentration in the U.S. market as compared with the fourth quarter of 2018. Our gross margin in the first quarter was 82.4% compared to 77.2% in the first quarter of 2018. The gross margin for the first quarter of 2018 was lower by 2.7% primarily due to an excess inventory charge of the previous generation of the Inspire system with the introduction of the Inspire 4 Neurostimulator in Europe. The improvement in the first quarter of 2019 was primarily due to the introduction of the New Sensing Lead in the U.S. in February 2019.

As we are able to achieve manufacturing efficiencies with both the new sensor and the stimulation leads which share common materials and processes. Total operating expenses for the first quarter of 2019 were $22.2 million an increase of 71% from $12.9 million in the first quarter of 2018. This increase was primarily due to higher employee-related expenses resulting from the expansion of our U.S. and European sales organization as well as increased direct to patient marketing programs, continued product development efforts and increased general corporate costs associated with becoming a public company in the second quarter of 2018.

Our net loss for the first quarter was $8.3 million compared to a net loss of $6.5 million in the first quarter of 2018. The diluted net loss per share in the first quarter of 2019 was $0.35 per share. As of March 31, 2019, cash, cash equivalents and short-term investments were $177 million compared to $188.2 million at December 31, 2018. Turning to guidance for 2019. Based on our first quarter results and our positive outlook, we are increasing our full year 2019 revenue guidance. We now expect full year 2019 revenue to be in the range of $69 million to $72 million which represents growth of between 36% and 42% over the full year 2018 revenue. This compares to our prior revenue guidance range of $67 million to $70 million.

Additionally, we now expect full year 2019 gross margins will be in the range of 80% to 82% compared to our prior gross margin guidance range of 79% to 81%. The weighted average number of shares outstanding for the first quarter was 23.4 million. We anticipate that the weighted average number of shares for the second quarter of 2019 will be approximately 23.7 million. In summary as Tim mentioned, we're very pleased with our financial performance in the first quarter of 2019 and we are well positioned to maintain the momentum in our business throughout 2019 and beyond.

Jesse, please open up the call for questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Richard Newitter with Leerink Partners.

[Richard Newitter, analyst]

Congrats on a nice quarter, guys.

[Timothy Herbert, executive]

Thanks, Rich.

[Richard Newitter, analyst]

I have a couple here. I wanted to start off maybe Tim or Rick for both of you. The guidance. You had a very good first quarter, it looks like you raised the guidance a little bit to reflect the outperformance there but you have a lot of tailwinds out in front of you from BlueCross BlueShield that really haven't even begun to hit. I think a lot of these are going into effect, some of them May 1 of this year, so talk to us a little bit about how you're contemplating the BlueCross BlueShield effect so to speak. How are these approvals materializing relative to your original plan, are they coming in about in line with the timing of when you would have expected to see them and how have you factored that into the outlook even beyond the 1Q outperformance which you really didn't have much BlueCross BlueShield effect.

[Timothy Herbert, executive]

Fantastic, Rich. Thank you very much. And we realize most companies do not adjust revenue guidance after just the first quarter but we reported strong revenue in the first quarter of $16.3 million, a 62% increase over the same quarter and we also added 20 new centers and added 7 new territory managers which exceeded our target. But as you mentioned, with the 24 new positive coverage policies in the first quarter. As well as we noted in the improved prior authorization approval rates and the associated reduction in times. It will result in increase in implants and unit sales over the balance of 2019. There remains questions of implementation of these positive coverage policies once they're published.

And we'll closely track the timing and be in a better position to report back on the implementation after the second quarter. We do think, we want to put out guidance. That we are comfortable with. And that we can achieve. And we're not going to make an unvalidated assumptions in regard to the implementation of these new policies. But I also want to show optimism that I believe, we will continue to see additional policies both from the Blues as well as from other independent payers that will come online throughout 2019, giving us potential to get these implemented. Continue to improve the prior authorization approval rates and reduce the timing. And come back and revisit guidance as we proceed through the year.

[Richard Newitter, analyst]

Okay. That's helpful color. I mean, just summarizing, is it fair to say that for now you haven't kind of gone out of your way with your upwardly revised outlook to incorporate the full benefit of all the -- of all the plans that you've seen for the impact in 2019 and you'll update that when you have some more information in 2Q, so for right now, you are still kind of providing of guidance with respect to what you're seeing is the benefit from Aetna. And if there's extra juice so to speak from BlueCross BlueShield that's probably not reflected yet.

[Timothy Herbert, executive]

We'll see that in the coming future. We need to kind of watch the metrics and watch the data as these policies are put in place and what effects they have on the approval rates and the time to approval and the timing of implants. And to be able to make sure we measure that correctly whether we move through the year.

[Richard Newitter, analyst]

Okay. And I think you quantified Aetna as a percentage of approvals in the last 2 quarters increasing but in the kind of low teens or the mid teens percentage of approvals. Can you give us roughly that metric for the first quarter and maybe talk to any -- any changes in what you saw from the Aetna trend between 4Q and 1Q.

[Timothy Herbert, executive]

No, I think the good news is that those trends remain consistent and we're seeing those Aetna approvals in the -- in the low teens and mid teens and that's consistent with the number of covered lives that Aetna represents in the U.S. and it has had a strong impact certainly in reducing the time to approval. And we certainly expect that that will continue moving forward. And we'll continue to see growth in the number of Aetna cases going forward.

[Richard Newitter, analyst]

Okay. One last one. Tim, you mentioned twice I think in your opening remarks that in addition to the Blues, you expect several other payers to come on board in '19. What -- are those smaller regional independent payers or potentially one of the bigger ones that you've had your sight set on. And then on that topic, can you talk about whatever discussions you've had with those bigger payers.

[Timothy Herbert, executive]

Certainly. I think one example is Medical Mutual of Ohio is not a Blues plan. It's a regional plan in Ohio while more so than beyond just Ohio. But it is a significant player and another independent payer that reviewed and wrote a positive coverage policy. The team continues to work with our contractors and our consultants and with all the large payers and I think, it's -- you'll continue to see a cadence of the regional plans come through. But as we don't have specifics obviously on what some of the larger payers are going to write their policies but we are in communication with everybody, making sure that all the latest information is available for them, for their reviews and we encourage them to do interim or mid-year reviews of all of the clinical evidence because as we have previously discussed that if we wait for just the annual reviews, it's very difficult because they have such a magnitude of information to go through.

[Operator]

Your next question comes from Larry Biegelsen with Wells Fargo.

[Adam Maeder, analyst]

It's Adam Maeder on for Larry. Thanks for taking the questions. My first question just any update on the 2 different medical society guidelines and the potential inclusion of hypoglossal nerve stimulation. What else do the societies need for inclusion. And then I had a follow up.

[Timothy Herbert, executive]

Fantastic. The American Academy of Sleep Medicine actually just put out a recent document talking about guidelines. And they've actually have a team working on that. We do believe that the surgical guidelines are in later stages of preparation and should be starting the review process. This week, we have the International Sleep Surgical Society meeting in New York. And I think, we'll be able to get an update on that. They have not published any dates for publication of those guidelines. But we do know that they are in process and that they are making good progress as well.

[Adam Maeder, analyst]

That's helpful. And then for my follow up, just wanted to ask about maybe a competitive market update, Nyxoah received CE Mark approval in Europe recently. So how does their system compare to Inspire and how are you thinking about competitive share dynamics.

[Timothy Herbert, executive]

Absolutely. Thank you very much. Nyxoah is a new up and coming company. They have not put -- published any data as of yet. We do believe they've completed a small feasibility study of just a few patients but the data hasn't been released yet. So they have a little bit more work to do as far as clinical evidence. So their system is quite different than Inspire. I don't think, we'll get into that details on the call here, although we are encouraged that they did get CE Mark. They have completed a trial. Where we will await the data. And as I mentioned before, it's a very significant market size and having other people investing and studying technology in this field is only a positive. So we'll leave it to Nyxoah to continue with their data. ImThera was acquired by Livanova and again maybe this weekend, we'll hear an update from them. But I think they are in the stage of planning to start another trial.

[Operator]

Your next question comes from Chris Pasquale with Guggenheim.

[Christopher Pasquale, analyst]

Congrats on another great quarter, guys. Tim, I want to ask couple of questions about the Japanese launch, and the opportunity there. First, just the cadence of what you guys are trying to do as you roll out. What are you hoping to accomplish this year in terms of physician training or other metrics. And what's the gating factor to start getting more aggressive with the commercial launch.

[Timothy Herbert, executive]

Yes, it's great question. Thanks. We want to do it in a very controlled cadence, to use your term. The first step is of course the regulatory hurdles in getting cleared and getting all the products approved. Really, the second gating item is getting the reimbursement and what the Japan authorities or the PMDA, again that's the FDA of Japan. What they have done from the outset is formed a medical advisory committee to help the introduction of Inspire into Japan to make sure it goes to the proper centers, the proper cadence and is provided to the correct patients.

And they built this committee with 3 societies; sleep, ENT and cardiology because that's where lot of the comorbidities of untreated sleep apnea fall. And that the group has done well. Their very first step going back through the previous question is to write and publish therapy guidelines on how Inspire will be used. And those guidelines have been drafted and they are in final review. The final stamp of approval comes from MLHW which is the reimbursement arm. And then what we expect to see, the next step after those guidelines is to work with the authorities to identify the reimbursement levels for Inspire therapy in the country. Once we have those established, the committee or the advisory board has already identified the top hospitals to start implanting. We've already discussed the training methodology which is going to be very consistent with what we do in the United States and in Europe and we'll continue to progress towards a formal launch in 2020. But we do expect that the first implants will in fact happen later in the year in 2019.

[Christopher Pasquale, analyst]

And do you have a sense at this point what those guidelines say. Do you expect them to be similar to what we see with like an FDA label or are they more prescriptive, more restrictive about who's going to get access to it.

[Timothy Herbert, executive]

It is prescriptive on who's going to get access to it. And we believe they're right in line with what the FDA approval is. And with the PMDA approval, again the Japanese regulatory approval is right in line with the FDA parameters. So we don't expect any changes there. We've been in contact with the advisory committee. We provided significant amount of input for their review as far and including our training programs and we believe a lot of that has been well received by the authorities.

[Christopher Pasquale, analyst]

And then for my follow-up, just the pace of new center additions has picked up over the past couple of quarters and it seems like the timing of that coincided with the Aetna approval. Wondering if that's just coincidence or whether you're finding centers more receptive to starting an Inspire program now that that reimbursement bottleneck is starting to loosen up.

[Timothy Herbert, executive]

I'd like to think that that would help. I think more realistically, we've also been increasing the number of territory managers at the same rate as we've been opening up new centers and by doing that we've added or increased our capacity in the United States to handle additional centers. As we talked last quarter, we increased the number of regional managers to 9 thereby providing capacity in entire organization to keep adding territory managers and be able to build and scale the business. And so I think what you're seeing is more of us scaling the business more so than it does anybody getting too excited about 1 payer writing policy although that has a significant impact on the risk to physician fatigue from going through multiple appeal cycles. So it's kind of little bit of a combination.

[Operator]

Our next question comes from Jon Block with Stifel.

[Jonathan Block, analyst]

Maybe 2 for me. First, Tim, can you talk about the onboarding process of the Blues, certainly you have many Blue reimbursement wins over call it the past 3 to 4 months, I guess where I'm going with this is, is each one unique or are you able to incorporate learnings. So in other words are you able to ramp that tenth Blue a lot quicker than you would the first couple.

[Timothy Herbert, executive]

Yes, we do learn in our implementation process what the stumbling blocks are. The difficult is each of these regions happens in a different region and there's the local learning that they don't have the same shared learning that we get working across all regions, across the country. Most of the indication parameters are consistent. There are variations such as some of them have AHI going down to 15. Some of them have AHI at 20. Some of them incorporate the pediatric indication. Some of them incorporate a upper limit. Some of them incorporate BMI. So there is a little bit of variation from each policy. Once we get these all in place and get these implemented, our job is then to be circling back to kind of standardize the Blues policies across the board to make sure that they cover the same patients from 1 region to the others. But as far as the Inspire team working with regional plans, we can work in regions and be able to talk about what trips up other region, so we can share the learnings from that standpoint. And so we should become quite efficient in implementing those new policies.

[Jonathan Block, analyst]

Okay. Got it. Very helpful. And then maybe just to shift gears but stay somewhat high level. Can you also Tim, talk about just how your direct to consumer marketing initiatives have evolved relative to call it 6 or 12 months ago. I mean, now you're closing in hopefully soon 100 million covered lives. What are you doing differently or what are you thinking of doing differently with the ramp in covered lives and just still very deep pockets from a balance sheet perspective.

[Timothy Herbert, executive]

Fantastic -- absolutely. Jon, if you go back to our discussion several quarters ago, we talked about how we are reinventing our -- some of our direct to patient marketing efforts inside the company and we brought on a new team that was really focused on data management and really understanding the consumer more so than just the classic medtech marketing. And this group has done an extensive market research late Q4 and into the first quarter and have identified the key market segments that are the most attractive to Inspire through our outreach programs.

We are in the process now of reidentifying ourselves and rebuilding the website to improve the training, the information sharing with potential patients and improving the methods at which they can connect with health care providers. And we're excited about this but we're also being a little -- we are holding back a little bit because we look forward to rolling this out aggressively in the second quarter and you're going to see a lot more of this in Q2 and Q3 but we do stay on top of all the metrics that we're seeing on the web. The increased web activity is a reflection of smaller interim changes we have made. It also the -- the expansion of the number of centers and the expansion of the number of territories in turn also expands our outreach, so we're obviously getting more hits just from increasing our capacity.

[Operator]

Our next question comes from Bob Hopkins with Bank of America.

[Robert Hopkins, analyst]

Congrats on the progress. And I just wanted to ask one quick question. It's kind of similar to some of the others that have been asked but just either quantitatively or qualitatively, can you give us a sense as to kind of your -- your backlog in terms of sort of physicians interested in opening practices and just trying to get a sense for the kind of enthusiasm level for the clinical community, a little bit of an update there. I mean, obviously things are going well but just anything you can do to help us understand how that momentum is building, would be great?

[Timothy Herbert, executive]

Yeah that's, you kind of nailed it right there, Bob. With -- I mean, it goes back to the question about what has Aetna done to improve it. Well, it's not just the Aetna, now it's the Blues. Now it's our added capacity, the number of territory managers and that certainly has excited the number of physicians who want to participate. We made a reference to the International Sleep Surgical Society meeting this coming weekend in New York and the number of physicians there all do sleep surgery and all want to be a part of -- of the program. And so what's important. #1 step, when we look for new center is to have a physician champion that's excited about the therapy is willing to go through the steps to make sure that they recruit the necessary people in the center. A good sleep physician. Support from the hospital CFO. Support from the hospital staff to go through the trainings to be able to not only be successful with 1 or 2 patients but to really to build programs and have consistent patient focus -- consistent patient flows is what's so important about improving the learning of the entire staff which drives patient outcomes. So your answer to your question is simply, yes.

We've had a significant increase in the number of centers that want to participate. And as we talked previously, this probably goes back almost 1 year or 2 year, our -- when we started the IPO process, it can take 6 months for a new center to get up and running. And so we're building that backlog but we're also building our internal capacity to be able to support the development of the new centers. And you've seen the results of this. I think, we reported in the fourth quarter opening 22 centers and here in the first quarter, we are reporting 20 new centers. So we're exceeding our targets. And we've been careful to make sure we also increase the number of territory managers that we've added to be able to think up. So we don't get ahead of ourselves in any which direction. So we think the process -- prospects going forward are quite high. We think the positive coverage policies will continue to grow and that reduces the burden of patients getting access to the therapy. And as I previously mentioned, kind of reduces the risk of physician fatigue from dealing with all the multiple appeal process to getting insurance approval.

[Robert Hopkins, analyst]

That's very helpful. And one other sort of follow up along those same lines is what are you hearing out in the field in terms of the average length of time to do one of these surgeries, is that improving over time? Again just trying to think of ways to sort of ease the -- ease the burden and reduce friction in the system. What are you hearing in terms of as doctors get trained and as doctors get experienced, the time to do on these procedures, how rapidly is that coming down?

[Timothy Herbert, executive]

We think, we think on average, it's about 2 hours and we've been showing clinical results and publish those that after a surgeon gets experienced doing several cases that they're around the 2 hour time in a whole patient setting. I think that's an appropriate amount of time. I think, there's some surgeons that can do the procedures quicker than that. I think, it's more important to get the procedure done correctly and consistently and from that standpoint, we don't encourage doctors to go fast. We encourage doctors to be accurate.

And if I can use the term precision medicine, now is the time to use that to make sure that they're careful on where they place the electrodes on the nerve. Careful, how they place the pressure sensor, follow the proper procedure, so the patient has the highest probability of a strong outcome. And the battery life is 11 years without any recharge. So patients can have this therapy for a long time, so take your time upfront, 2 hours in the grand scheme of 11 years is minimal. So we don't encourage physicians to run too fast. And we also don't believe 2 hours is a overburden for the surgeons to do one of these cases.

[Operator]

Our next question comes from Kyle Bauser with Dougherty & Co.

[Kyle Bauser, analyst]

So I know you've been working on various initiatives to track outcomes and patient satisfaction, whether that's through the registry or the cloud patient management system. And you've mentioned one of the goals is to see what's working at one center versus another. Just curious, I mean from what you can tell so far, if you look at some of the high performing hospitals with the best outcomes. Is there anything that's been interesting to you that they're doing differently perhaps in the surgery itself or the titration process or follow up protocol or anything?

[Timothy Herbert, executive]

That's a really in-depth question. We have a session starting this week. Again I keep referring to the International Sleep Surgical Society. This is all the leading physicians that implant Inspire, converge in New York for this meeting this weekend. And it's really a big opportunity for us to get them together and say, look, we know what's working right. That's all great. But what areas do we need to spend more time on. Where do we focus our attention on the surgical implant or the programming of the device or the patient selection.

We also have our own internal metrics that we get to bring from the registry as you mentioned from our quality system and we get to bring that to the same meeting and have doctors look at that, and look for pathways to even make the therapy better than it is today because we never want to be satisfied where we're at. We always want to strive to take it to the next level because as I mentioned, how many times, our mission is about strong patient outcomes because that's what's going to drive the therapy adoption long term. You also refer a little bit to our vision of what the cloud can be and our cloud-based patient management system.

And the key is if we can collect data on the great majority of patients to be able to track what centers are doing best, what centers are having some challenges that are the teaching opportunity. We can only further improve the therapy. And so instead of kind of digging in, we're getting the physicians involved upfront. They're the ones that implant the therapy. They're the ones that know best and they're really open to partnering and they're really be able to improve this. And we're working from a product development standpoint, our training team, our field clinical research team to be able to collect the data and really build a program that continues to show either greater progress.

[Kyle Bauser, analyst]

Great. Right now, I know your focus is on academic and high volume centers, so achieving that Category I code for the Sensing Lead, isn't all that pressing really but can you talk about how you build that application up over the coming quarters specifically. You know, sounds like since it wasn't paying anything, no one was really coding that the CPT Category III code very much. So going forward, what do you think you'll need to do sort of differently to get clinicians to actually code that to build a track record?

[Timothy Herbert, executive]

I think, a lot of the -- most centers actually do code that -- that key code if you will or the Category III code and so there is some track -- traceability to it but as you mentioned for a hospital there is no additional payment and certainly for a surgeon today as a [ T ] code there's no additional payment. So there's not a lot of incentives for them to really get that code in place but once that converts to a Category I code, the Society will conduct a ruck survey to be able to collect data from the surgeons to determine how much work was involved.

And from that they can develop the [indiscernible] is the relative value units to assess what the payment on that code should be. So even though they're not coding it right now, it doesn't really have effect long term because they can do a formal survey program once it's converted to a Category I. The challenge for us is how do we get that to get to a -- to convert that to a Category I. So we're going to continue to talk about that again this weekend because a lot of the surgeons here are also the leading surgeons that are part of the AAO, American Academy of Otolaryngology that own those codes and they will be the ones that will be submitting it this year for another review at the -- May meeting with the intent of getting that approved to go to a Category I code. So again, I don't think it's going to have an impact over the short period of time but you are correct, it's on our horizon that we need to get that converted to a Category I, get the ruck survey conducted and get that property valued.

[Operator]

Your next question comes from Ravi Misra with Berenberg Capital.

[Ravi Misra, analyst]

So I just had one, I guess on your comments on driving more patients to the centers. I was hoping, you could help me understand -- help us understand kind of what's the seasoning, if we, if we think about maybe the first hundred centers that you set up, how many cases are they doing? And do you set that as a guide for these new centers that are coming up or where can the cap be on this for what are your expectations on that? And then maybe secondly, congrats on all the reimbursement progress you've been making. I'm just curious. Kind of the Medicare population is still a relatively large one. Any thoughts and ideas on how to maybe approach an NCD going forward or in the future.

[Timothy Herbert, executive]

Thank you, Ravi. The first question is one of my favorite subjects and what we actually do is we group all the centers in the year at which they were activated and we measure each group individually like the class of 2014, class of '15, '16, '17, '18. And we look at the progress year-over-year and what we're showing that every class continues to grow year-over-year going forward. Even the class of 2014. And what's important to note is the great majority of centers that started in 2014 still implant the product today.

Now that's pretty good. Now we do have some centers drop off for reasons such as the surgeon moves to a new center. They weren't able to really get the program up and running and so they decided to not pursue it further or we decided that what it's not in everybody's best interests that that center continues. And so we do have just stop centers ourselves. So there's multiple ways and that happen that happens very rarely. Now in the theme of continuous learning, the centers and how we train them in 2014 have continuously evolved over the years and we've learned what are the traps to be able to limit patients coming on board and being successful. And the key is making sure that you have a good physician champion. We talked about that earlier, making sure that we have a good solid identified team who can handle patient throughput. So when we do some patient outreach and we drive patients to a center that they're able to accept the inbound and be able to handle that patient flow. And we've done much better with training that and implementing that in the later years such that when centers open up in the last couple of years, they are more likely to be able to do implants as sooner than the earlier years but at a higher rate as well.

Now, it doesn't hurt that reimbursement prior authorizations is getting easier, right, because that kind of helps motivate them to drive patient flow and get approvals sooner. But we do not just focus on the new centers, we track the centers all the way back to 2014, and '15 and we see growth across the board and we want to continue that because that really, it shows the importance of the therapy and shows the long term success of this therapy, going forward. Your second common question is very very strong as well with how are we doing with Medicare? Medicare continues to make up about a third of our business in the United States. It's been pretty consistent across the board.

And so we're very happy with that. We have several areas that Medicare is very positive. We have one area in Florida, where it has a negative LCD. LCD stands for local coverage determination. We are very active with that MAC and the MAC being the regional entity that -- that manages Florida to convince them to review the evidence and to reverse that negative LCD. We do work with CMS or the Center for Medicare Services. We are in discussions with them on timing for us to pursue a national coverage determination at this point. We don't believe, we need to do that if the Medicare has been quite successful. We do work with areas where we have some challenges but keep asking that question. We continue to work with CMS. There will be a time that we think that if we have a couple positive LCDs that we will be in a position to go to CMS and ask for a national policy. But today, it probably is not necessary.

[Operator]

There are no further questions at this time. I would like to turn the floor back over to Mr. Tim Herbert for closing remarks.

[Timothy Herbert, executive]

Thank you very much. Again, we remain quite pleased with the robust pace of growth we are demonstrating in our business while maintaining high quality and strong patient outcomes. As our financial operational results indicate market demand continues to grow for innovative and effective solution for patients with obstructive sleep apnea, who are unable to successfully sleep. As always, I am grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work and continued motivation to achieve strong and consistent patient outcomes. The Inspire team's commitment to patients remain unmatched. Thank you all for joining the call today. We certainly appreciate your continued interest and support and inspire and look forward to providing you with further updates as we move forward in 2019.