Inspire Medical Systems (INSP 2.18%) has a new device for treating sleep apnea. This is a condition where a person stops breathing during their sleep, and their body shocks them awake. Sleep apnea is a serious risk factor for cardiovascular disease -- the leading cause of death for human beings.
How big is this market opportunity? It's probably a lot bigger than you think.
If you snore, you might have sleep apnea
Studies estimate that 75% of people who snore have sleep apnea. Those risks increase for individuals that snore nightly. How many of us snore? Johns Hopkins reports that 45% of adults snore occasionally, and one out of four adults snore all the time.
Those numbers are huge. They suggest that over a billion people in the world might have sleep apnea. And it's a major risk factor for heart disease. So identifying and treating sleep apnea would seem to be one of the more important things doctors could do to help people live longer.
Why, then, is there so little focus on solving sleep apnea?
For many people, CPAP is a failed treatment option
My belief is that sleep apnea is underdiagnosed and undertreated because there has been no effective treatment for the disease. The standard of care right now is the CPAP (continuous positive airwave pressure) machine. This is a bulky mask that sleep apnea patients are supposed to wear on their faces at night. It's intended to provide continuous airflow to your lungs and keep you breathing throughout your sleep.
I was diagnosed with sleep apnea, so I tried the CPAP machine. It was an uncomfortable experience. The device actually created a new ailment for me, called insomnia. More than once, it shocked me awake by blowing cold air up my nose. Even if I managed to fall asleep, I would yank my mask off while I was sleeping. Ultimately, I quit using the device.
I'm not alone. The patient non-compliance with the CPAP device is anywhere from 35% to 65%. This is why Inspire Medical has been crushing the stock market over the last several years. The company has a new miniature device on the market that is revolutionizing sleep apnea treatment.
Yes, that's a 10-bagger in four years. And Inspire is just getting started. The company is still relatively small, with a nearly $7 billion market cap. That's almost one-fifth the size of ResMed (RMD 1.90%) (ResMed is one of the two companies in the CPAP duopoly; Philips (PHG -1.30%) is the other).
Call me biased and sleep-deprived, but my firm belief is that CPAP is heading for the ash heap of history. And Inspire might be the big winner that will solve the problem of sleep apnea once and for all.
How does Inspire's device work?
Inspire involves a minimally invasive surgery where a doctor makes two small incisions into a patient with sleep apnea and implants three tiny components. First, there's a pressure-sensing lead that detects when the patient is having breathing issues. Then there's a neurostimulator that houses the electronics and battery for the device. Finally, there is a stimulation lead that delivers electrical stimulation to a nerve that will open up the patient's airway automatically when there's an issue. This resolves your sleep apnea, and the best news is you sleep right through it.
So far, the patient outcomes are amazing. Sleep apnea events are reduced by almost 80%. All of the compliance issues from the CPAP are gone. For nine out of ten patients, there is no snoring or soft snoring. 91% of Inspire users are satisfied with the surgery, and 94% of them say it's better than CPAP.
This minimally invasive procedure is expensive right now, so a huge number of people who would benefit from the device have not tried it out yet. Medicare is on board and is paying out $30,000 to hospitals to pay for the implant procedure.
Why Inspire Will Win Over CPAP
Right now, what's keeping CPAP alive is how cheap it is. Inspire's procedure is way better for your quality of life. But the procedure costs a lot of money. If you have Medicare, you will pay about $1,400 out of pocket for the surgery. And Medicare will be paying $30,000.
This cost is why health insurance is still trying to shuffle people into the unpleasant and relatively cheap treatment of strapping patients into a breathing machine. So you first have to fail CPAP before you can be prescribed Inspire. This prerequisite could disappear as more and more patients fight their insurance company by intentionally failing on the CPAP so they can get on the superior treatment that's more expensive.
Historically, whenever a new technology breakthrough hits the world, it costs a lot of money at first, and only the wealthy can enjoy it. That was true with automobiles, telephones, televisions -- you name it. It's true in healthcare as well. Over time, demand picks up as people talk about how wonderful this new device is, and the new technology becomes cheaper and cheaper.
Several years ago (2015), there was a study on the cost-effectiveness of Inspire's device. At the time, the procedure cost hospitals $43,000. Because of studies like this, health insurance is willing to pay for the surgery. What's interesting is how quickly the price has dropped -- from $43,000 in 2015 to $30,000 today.
To date, 20,000 people have undergone the Inspire treatment. Inspire estimates that the U.S. alone is a $10 billion market opportunity. As the surgery continues to get cheaper, I expect more and more people with sleep apnea to clamor for this non-invasive surgery. And it's entirely possible this $10 billion U.S. market will expand as the benefits of reducing sleep apnea become more and more apparent.
While that's a sizable opportunity, overseas is an even larger one. In 2022, doctors implanted the Inspire device for the first time in the U.K. and Japan. The world's opportunity is truly massive for a sleep apnea treatment that actually delivers.