Competition from weight-loss drugs causes stock fall for Minnesota sleep apnea company

A sleep apnea device company that’s been a darling of Minnesota’s medtech scene lost more than 40% of its value in the past five days as investors realized the competitive threat posed by new weight loss drugs that may cut the need for its implantable device.

Inspire Medical Systems’ stock began to tumble following CEO Timothy Herbert’s disclosure to investors that patients may be delaying use of its pacemaker-like device as they first try GLP-1 weight-loss drugs like Zepbound.

Sleep apnea is a condition where a person’s breathing stops and starts while they sleep, creating a risk of serious health problems. Obesity increases the risk of developing apnea.

The stock plunge is an abrupt turn for the Golden Valley-based medical device firm that has seen its share price grow more than 200% since it went public in 2018.

Piper Sandler analyst Adam Maeder said in a research note that Herbert’s disclosure on Monday marked the first time he has heard this warning from the company.

Some medtech firms such as Medtronic have said the new class of drugs could create competition broadly for the medtech industry.

In December, the U.S. Food and Drug Administration approved Eli Lily’s weight-loss drug Zepbound to treat moderate-to-severe obstructive sleep apnea in adults with obesity. The regulator said in a news release the drug activates hormone receptors to reduce appetite.

The implantable Inspire system, which delivers electric pulses to airway muscles to keep the airway open during sleep, has only been clinically tested in patients with a body mass index up to 40, the company has reported, and insurers have BMI policies in place dictating coverage.

The company, Herbert said, continues to view GLP-1s as a potential boost “as we do hear of patients losing weight to qualify and receive Inspire therapy.” But he added that he’s not able to quantify the number of patients who are delaying uptake of the device due to the emergence of the drugs.

Leerink Partners analyst Mike Kratky pointed out in a research note that the drugs could come with risks and opportunities for the company.

Eli Lily could build awareness for obstructive sleep apnea, pulling more patients to Inspire, Kratky said. But low compliance rates with the drugs could prevent patients from falling into range for the Inspire implant, the analyst added. He warned investors he could be overestimating the number of patients seeking additional treatment after using Inspire.

The company lowered its revenue expectations for the year by about $40 million, to a range of $940 million to $955 million. Piper Sandler’s Maeder said in a research note “we were disappointed by the magnitude of the cut,” which the company also attributed to a challenging rollout for its next-gen Inspire V system.

Herbert said the company is leveraging its technical teams to increase the implementation of the software, which allows for wireless and automatic implant monitoring.