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Item 1. Business

2022-02-15 compared with 2021-02-24 · 275 added, 361 removed, 490 unchanged (56% of the section changed)

We are a medical technology company focused on the development and commercialization of innovative and minimally invasive solutions for patients with obstructive sleep apnea ("OSA").

We are a medical technology company focused on the development and commercialization of innovative, minimally invasive solutions for patients with obstructive sleep apnea ("OSA").

Our proprietary Inspire system is the first and only FDA-approved neurostimulation technology that provides a safe and effective treatment for moderate to severe OSA.

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Inspire therapy received premarket approval ("PMA") from the FDA in April 2014 and has been commercially available in certain European markets since November 2011.

Japan's Ministry of Health, Labour and Welfare ("MLHW") approved Inspire therapy to treat moderate to severe OSA in June 2018 and was formally added to the Japan National Health Insurance Payment Listing in June 2021.

Inspire therapy is indicated for patients with moderate to severe OSA who do not have significant central sleep apnea and do not have a complete concentric collapse of the airway at the soft palate level.

In addition, patients in the United States ("U.S.") must have been confirmed to fail or be unable to tolerate positive airway pressure ("PAP") treatments, such as continuous positive airway pressure ("CPAP"), and be 18 years of age or older, though there are no similar requirements for patients in Europe.

Physicians have treated more than 12,500 patients with Inspire therapy at over 495 medical centers across the U.S.

In addition, patients in the United States ("U.S.") and Japan must have been confirmed to fail or be unable to tolerate positive airway pressure ("PAP") treatments, such as continuous positive airway pressure ("CPAP"), and be 18 years of age or older, though there are no similar requirements for patients in Europe.

Physicians have treated more than 20,000 patients with Inspire therapy at over 765 medical centers across the U.S., Europe, and Japan.

Sleep apnea is a serious and chronic disease that negatively impacts a patient’s sleep, health, and quality of life.

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• Long-lasting solution with a battery designed to last approximately 11 years without charging or maintenance.

The results from multiple clinical trials, which include four sponsored and more than 40 independent clinical studies that evaluated approximately 2,500 patients, have shown that our Inspire therapy provides statistically significant and sustained reduction in the severity of patients’ OSA, improvement in sleep-related quality of life and reduction in snoring, as well as high patient compliance rates and a strong safety profile.

The results from multiple clinical trials, which include seven sponsored and more than 70 independent clinical studies that evaluated several thousand patients, have shown that our Inspire therapy provides statistically significant and sustained reduction in the severity of patients’ OSA, improvement in sleep-related quality of life and reduction in snoring, as well as high patient compliance rates and a strong safety profile.

Our pivotal STAR trial was designed to demonstrate longitudinal therapy efficacy and included a randomized controlled therapy withdrawal study.

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We sell our Inspire system to hospitals and ambulatory surgery centers ("ASCs") in the U.S.

and in select countries in Europe through a direct sales organization.

and in select countries in Europe through a direct sales organization, and we sell our Inspire system in Japan through a distributor.

As of December 31, 2021, we had 157 sales territories in the U.S.

and nine in Europe.

and 12 in Europe.

Our direct sales force engages in sales efforts and promotional activities focused on ear, nose and throat ("ENT") physicians, and sleep centers.

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Our customers are generally reimbursed for the cost of patient treatment by various third-party payors, such as commercial insurance providers and Medicare.

As of February 23, 2021, we have secured positive coverage policies with 63 U.S.

commercial payors, including most large national commercial insurers, encompassing approximately 220 million covered lives in the U.S.

We are in active discussions with commercial insurers to establish additional positive coverage policies and modify existing positive coverage policies to support reimbursement of Inspire therapy.

In parallel, a subset of our 16 person reimbursement team, which we refer to as our market access team, is focused on assisting patients and physicians in obtaining appropriate prior authorization approvals from commercial payors on a case-by-case basis in advance of treatment with our Inspire therapy.

As of February 15, 2022, we have secured positive coverage policies with most U.S.

commercial payors, including virtually all large national commercial insurers, encompassing approximately 260 million covered lives in the U.S.

We are in active discussions with regional commercial insurers to establish additional positive coverage policies, as well as modify existing positive coverage policies to support reimbursement of Inspire therapy.

In parallel, a subset of our 20-person reimbursement team, which we refer to as our market access team, is focused on assisting patients and physicians in obtaining prior authorization approvals from commercial payors on a case-by-case basis in advance of treatment with our Inspire therapy.

In addition, all seven Medicare Administrative Contractors ("MACs") published final policies in 2020 that provide coverage of Inspire therapy when certain coverage criteria are met.

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government contract for patients who are treated by the Veterans Health Administration.

The procedure performed to implant our device is currently described for billing purposes using a Category I Current Procedural Terminology (“CPT”) code (64568), which is used in conjunction with a temporary Category III CPT code (0466T).

At the October 2020 American Medical Association (“AMA”) CPT Editorial Panel meeting, the AMA approved the creation of new Category I CPT codes to separately identify hypoglossal nerve stimulator services.

A Category I code was also approved for Drug-Induced Sleep Endoscopy, which is the final procedure to determine which patients are appropriate for Inspire therapy.

These new codes are scheduled to go into effect beginning January 1, 2022.

With these approvals, a formal survey will be conducted to determine the Medicare reimbursement levels assigned to each code.

The results of this survey are expected to be announced in July 2021 and reviewed by the Centers for Medicare and Medicaid Services (“CMS”) in conjunction with the annual Medicare Physician Fee Schedule rulemaking cycle.

The procedure performed to implant our device was previously described for billing purposes using a Category I Current Procedural Terminology (“CPT”) code (64568), which was used in conjunction with a temporary Category III CPT code (+0466T).

At the October 2020 American Medical Association (“AMA”) CPT Editorial Panel meeting, the AMA approved the creation of new Category I CPT codes (64582, 64583, and 64584) to separately identify hypoglossal nerve stimulator services.

A new Category I code (42975) was also approved for Drug-Induced Sleep Endoscopy, which is the final procedure to determine which patients are appropriate for Inspire therapy.

These new codes went into effect on January 1, 2022.

With these approvals, a formal survey was conducted to determine the Medicare reimbursement levels assigned to each code and in November 2021 the final 2022

reimbursement rates were announced by the Centers for Medicare and Medicaid Services (“CMS”).

The 2022 national average physician payments are approximately $888 for implantation of a hypoglossal nerve stimulator and approximately $115 for the DISE procedure.

The 2022 rates of Medicare reimbursement to our hospital customers is approximately $30,063, an increase of 2% over the 2021 rate.

The ASC reimbursement rate for 2022 is approximately $24,828, an increase of 2% over the 2021 rate.

We generated revenue of $233.4 million, with a gross margin of 85.7% and a net loss of $42.0 million, for the fiscal year ended December 31, 2021, compared to revenue of $115.4 million, with a gross margin of 84.7% and a net loss of $57.2 million, for the fiscal year ended December 31, 2020, and revenue of $82.1 million, with a gross margin of 83.4% and a net loss of $33.2 million, for the fiscal year ended December 31, 2019.

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We have developed a significant body of clinical data that demonstrates the safety and effectiveness, therapy adherence, and long-term sustained benefits of our Inspire therapy.

The benefits of treatment with Inspire therapy have been consistent across four sponsored and more than 40 independent clinical studies that evaluated approximately 2,500 patients, and have been highlighted in more than 150 peer-reviewed publications.

The benefits of treatment with Inspire therapy have been consistent across seven sponsored and more than 70 independent clinical studies that evaluated several thousand patients, and have been highlighted in more than 190 peer-reviewed publications.

Data reported in these clinical studies also demonstrated a high level of overall patient satisfaction.

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We have a highly efficient approach to advance patients, once identified, to placement of the Inspire system.

Our dedicated market access team helps patients and providers work with payors to secure the appropriate prior authorization approvals in advance of initial treatment.

In addition, this team proactively works with payors to establish positive coverage policies by highlighting the compelling clinical data and the value of our Inspire therapy.

This highly leverageable team has been successful in helping to secure reimbursement from hundreds of commercial payors to date, and positive coverage policies from 63 U.S.

commercial payors, including most large national payors.

Our dedicated market access team helps patients and providers work with payors to secure prior authorization approvals in advance of initial treatment.

In addition, this team proactively works with payors to establish positive coverage policies when needed by highlighting the compelling clinical data and the value of our Inspire therapy.

This highly leverageable team has been successful in helping to secure reimbursement from hundreds of commercial payors to date, and positive coverage policies from most U.S.

commercial payors, including virtually all large national payors.

• Strong research and development capabilities and comprehensive intellectual property portfolio.

Our commitment to driving innovation has allowed us to achieve continuous, significant improvements of our Inspire therapy.

For example, in the U.S., in July 2017, and in Europe, in May 2018, we launched the fourth generation of our Inspire system, with a neurostimulator that is 40% smaller and 18% thinner than the neurostimulator in the previous generation, while maintaining an approximate 11-year battery life without needing to be recharged.

Patients treated with this fourth generation device may now undergo an

MRI scan of the head or extremities.

In October 2018, the first implant of our new sensing lead was successfully completed in Germany, and in January 2019, the FDA approved the new sensing lead.

This new lead has a significantly smaller profile, including a reduction in diameter of 49%, as compared to the prior design, and is intended to improve the patient’s comfort.

It also incorporates several features to enable easier implanting and potentially reduce surgical time for an ENT surgeon.

For example, in February 2021, the FDA approved a new Inspire physician programmer system and in March 2021, the FDA approved an update to the system manual for the Inspire system to include an improved surgical implant procedure that eliminates one incision with a revised placement of the pressure sensing lead.

In May 2021, we received certificates of conformity in Europe for the two-incision implant procedure which allowed us to affix the CE mark on our system.

In December 2021, the FDA approved our new Bluetooth-enabled patient remote.

We have a comprehensive patent portfolio to protect our intellectual property and technology, with rights as of December 31, 2021 to 44 issued U.S.

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We also plan to continue building patient awareness through our direct-to-consumer marketing initiatives, which include paid online search, radio, social media, television, and online videos.

• Expand our U.S.

sales and marketing organization to facilitate adoption of our Inspire therapy.

• Expand our sales and marketing organization to facilitate adoption of our Inspire therapy.

We plan to expand our sales and marketing organization and seek to recruit and train exceptionally talented sales representatives in existing and new markets in the U.S.

to help facilitate further adoption and broaden awareness of our Inspire therapy.

and in Europe to help facilitate further adoption and broaden awareness of our Inspire therapy.

Our success to date in developing new markets has been primarily due to our ability to identify new regions with high volume medical centers, educate ENT and sleep physicians, help generate steady patient demand, and provide sufficient support staff to our sales representatives.

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Our dedicated in-house market access team will continue to assist patients and physicians in obtaining prior authorization approvals from commercial payors for treatment with our Inspire therapy.

In parallel, we are in active discussions with commercial payors to establish positive coverage policies and modify existing policies when needed.

We believe increased positive payor coverage policies could substantially expand patient access by reducing hurdles to treatment.

In parallel, we are in active discussions with the commercial payors that have yet to establish positive coverage policies and modify existing policies when needed.

We believe increased positive payor coverage policies and modifying existing positive coverage policies could expand patient access by reducing hurdles to treatment.

• Invest in research and development to drive innovation and expand indications.

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We intend to invest in existing and next generation technologies to further improve our products and clinical outcomes, optimize patient acceptance and comfort and broaden the patient population that can benefit from our Inspire therapy.

Recent examples of our product innovation include the next generation of the Inspire neurostimulator, which is in development, and active projects to improve the physician programmer and the patient remote control, which will be Bluetooth enabled.

Recent examples of our product innovation include the next generation of the Inspire neurostimulator, which is in development, and an active project to improve the physician programmer.

We have launched a cloud-based patient management system called Inspire Cloud, which allows physicians to monitor patient compliance and more efficiently coordinate patient care, and in 2020, we launched the Inspire Sleep app for patients' smart phones.

2021, the FDA approved our new patient remote control which is Bluetooth® enabled.

An example of our efforts to expand our label indications includes our clinical study that is evaluating the use of Inspire therapy in pediatric patients with Down syndrome.

In April 2020, we received FDA approval for an expanded age-range for Inspire therapy to

include 18 to 21 year old patients, and in August 2020, the Australian Therapeutic Goods Administration approved Inspire therapy to treat moderate to severe OSA.

In April 2020, we received FDA approval for an expanded age-range for Inspire therapy to include 18 to 21 year old patients.

In August 2020, the Australian Therapeutic Goods Administration approved Inspire therapy to treat moderate to severe OSA, and Japan's MLHW approved Inspire therapy to treat moderate to severe OSA in June 2018.

• Further penetrate and expand into existing and new international markets.

We plan to establish and strengthen our presence internationally.

Our goal is to further increase sales of our Inspire therapy in existing international markets in Europe, including Germany and the Netherlands, and expand our reach to markets in new regions, such as Japan and Australia.

Our goal is to further increase sales of our Inspire therapy in existing international markets in Europe, including Germany and the Netherlands, and in Japan.

We plan to expand our reach to markets in new regions, such as Australia, Singapore, Hong Kong, South Korea and China.

We plan to strategically invest in new markets based on our assessment of market size and opportunity and prospects for compelling reimbursement coding and coverage.

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This electrical stimulation of the hypoglossal nerve causes a slight forward movement of the back of the tongue that helps maintain an open airway, thereby preventing obstructive events and enabling the patient to inhale freely.

To receive the Inspire system, patients undergo a short outpatient surgical procedure, typically lasting two hours, during which the neurostimulator, sensing lead, and stimulation lead are implanted.

The procedure is minimally invasive and performed with a series of three small incisions.

To receive the Inspire system, patients undergo a short outpatient surgical procedure, typically lasting about 90 minutes, during which the neurostimulator, sensing lead, and stimulation lead are implanted.

The procedure is minimally invasive and performed with two small incisions.

Patients typically recover quickly and are able to resume normal activities in just a few days.

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• Minimally invasive outpatient procedure.

The Inspire system’s implantable components are placed during an approximately two-hour outpatient procedure.

The procedure is minimally invasive and performed with three small incisions.

The Inspire system’s implantable components are placed during an approximately 90-minute outpatient procedure.

The procedure is minimally invasive and performed with two small incisions.

Patients typically recover quickly and are able to resume normal activities within a few days.

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In the U.S., before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must first receive FDA clearance or approval.

We obtained PMA approval for our Inspire system in 2014.

Additionally, we received a CE mark for commercialization of our Inspire system in Europe in 2011, and in June 2018, Japan’s Ministry of Health, Labour and Welfare approved our Inspire therapy to treat moderate to severe OSA.

We continue to work on the reimbursement process in Japan and hope to commercialize Inspire therapy there.

We obtained PMA for our Inspire system in 2014.

Additionally, we received a certificate of conformity for commercialization of our Inspire system in Europe in 2011 which allowed us to affix the CE mark on our device.

Japan's MLHW approved Inspire therapy to treat moderate to severe OSA in June 2018 and was formally added to the Japan National Health Insurance Payment Listing in June 2021.

In August 2020, the Australian Therapeutic Goods Administration approved Inspire therapy to treat moderate to severe OSA, and we are currently seeking reimbursement coverage in Australia.

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sales representatives and continuing our direct-to-consumer marketing efforts in existing and new markets throughout the U.S.

In Japan, our commercialization approach is through our exclusive distribution partner, Japan Lifeline ("JLL").

JLL is responsible for local sales and promotional activities focused on ENT physicians, sleep centers, and community

We work closely with JLL to ensure a globally consistent approach and effective employee and customer training are in place.

In addition, a significant part of our commercialization effort consists of supporting our customers through the reimbursement process.

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For those payors that do not have a positive policy, Inspire provides robust prior authorization support to our customers.

Medicare also has

positive coverage for all states, and we have a U.S.

Medicare also has positive coverage for all states, and we have a U.S.

government contract for patients who are treated by the Veterans Health Administration.

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In addition, patients in the U.S.

must have been confirmed to fail or be unable to tolerate PAP treatments, such as CPAP, and be 18 years of age or older, though there are no similar requirements for patients in Europe.

and Japan must have been confirmed to fail or be unable to tolerate PAP treatments, such as CPAP, and be 18 years of age or older, though there are no similar requirements for patients in Europe.

Patients who fail PAP are those that are not able to eliminate moderate to severe OSA despite PAP usage.

Patients who cannot tolerate PAP treatments are those who either are unable to use PAP more than five nights per week for at least four hours per night, or who are unwilling to use PAP treatment.

The Inspire system is implanted under general anesthesia through three small incisions.

The Inspire system is implanted under general anesthesia through two small incisions.

One incision is under the lower jaw, where the stimulation lead is attached around a distal branch of the hypoglossal nerve that is responsible for forward movement of the tongue.

A second incision in the upper right chest below the clavicle is used to implant the neurostimulator, which houses all the electronics and battery power for the device.

The last incision is made near the ribs, where a pressure sensing lead is placed to monitor the breathing cycle.

A second incision in the upper right chest below the clavicle is used to implant the neurostimulator, which houses all the electronics and battery power for the device, and a pressure sensing lead to monitor the breathing cycle.

The functionality of the Inspire system is tested in the operating room to verify proper placement of the stimulation and pressure sensing leads.

The wires for the electrodes are tunneled under the skin and the incisions are closed.

The Inspire system is powered by a battery in the neurostimulator that is designed to last approximately 11 years without needing to be recharged.

The Inspire system is powered by an internal battery that is designed to last approximately 11 years without needing to be recharged.

After this time, the neurostimulator is replaced during a simple outpatient procedure.

The implantation procedure is performed in an outpatient setting and surgery is completed in approximately two hours.

The implantation procedure is performed in an outpatient setting and surgery is completed in approximately 90 minutes.

Patients may experience mild discomfort and swelling at the incision sites for a few days that is usually managed with over-the-counter pain medications.

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The remote enables patients to adjust the strength of the stimulation to optimize their therapy and comfort.

The range of control given to patients is limited to avoid setting the strength of the stimulation to an ineffective or excessively high level.

The range of control given to patients is limited to avoid setting the strength of

the stimulation to an ineffective or excessively high level.

Patients also have the ability to temporarily pause therapy if they awaken during the night.

Clinical Results and Studies

A significant body of published clinical evidence, which includes four sponsored and more than 40 independent clinical studies that evaluated approximately 2,500 patients, supports the safety and effectiveness of our Inspire therapy.

A significant body of published clinical evidence, which includes seven sponsored and more than 70 independent clinical studies that evaluated several thousand patients, supports the safety and effectiveness of our Inspire therapy.

The results of the STAR trial, our phase III pivotal clinical trial that served as the basis for the FDA approval of our PMA application, were published in the New England Journal of Medicine , and the results of additional clinical studies have been published in more than 190 peer-reviewed publications.

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(1) Median results

(2) Mean results

We sponsored the STAR trial, a multi-center, prospective, single-group, cohort design study that began in 2010 at 22 medical centers across the U.S.

We evaluated 126 patients who were confirmed to fail or were unable to tolerate positive airway treatments, such as CPAP.

Of the 126 patients, 83% were men, the mean age was 54.5 years, and the mean body-mass index was 28.4.

The primary outcome measures were a reduction in AHI from baseline to 12 months of more than 50% along with final AHI being less than 20 events per hour, and a reduction from baseline to 12 months of more than 50% in oxygen desaturation index ("ODI") which measures the number of times per hour of sleep that the blood’s oxygen level drops by at least 4% below baseline.

These are objective quantitative metrics that are measured during an in-office sleep study or polysomnogram, which also provides important objective measures of sleep quality.

Secondary outcome measures evaluated a patient’s quality of life using two standard and validated patient questionnaires, the Functional Outcomes of Sleep Questionnaire ("FOSQ") and the Epworth Sleepiness Scale ("ESS").

A clinically relevant improvement in FOSQ is 2.0 points from baseline, and a normalized patient has a FOSQ score greater than 17.9.

ESS scores of 10 or greater reflect excessive daytime sleepiness.

An additional secondary outcome measured the percentage of sleep time during which a patient’s blood oxygen saturation level was below 90%.

After 12 months, 46 consecutive patients who met the criteria of having a response to therapy were then included in a randomized, controlled therapy-withdrawal trial.

These patients were randomly assigned, in a 1:1 ratio, to a

therapy-withdrawal group, which had the device turned off for at least five days until a sleep study or polysomnogram was performed, or to a therapy-maintenance group, which continued nightly use of the device.

We have continued to follow patients from the STAR trial to collect data regarding long-term efficacy and utilization.

See “Long-Term Benefits of Inspire Therapy.”

The results of the STAR trial were initially published in January 2014 in the New England Journal of Medicine .

The trial met both of its primary endpoints at 12 months, as well as all secondary endpoints.

The median AHI for patients in the STAR trial decreased from 29.3 events per hour to 9.0 events per hour at 12 months (p<0.001).

The median ODI decreased from 25.4 events per hour to 7.4 events per hour (p<0.001).

Patients reported significantly improved quality of life based on the FOSQ, on which median scores increased from 14.6 to 18.2 out of a maximum score of 20 (p<0.001).

Patients also had less daytime sleepiness as quantified by a decrease in the median ESS from 11.0 to 6.0 (p<0.001).

In the trial, the percentage of sleep time during which a patient’s blood oxygen saturation levels was below 90% was reduced from 5.4% to 0.9% at 12 months (p=0.01).

Inspire therapy efficacy data from STAR trial at 12 months

After 12 months’ follow-up with 126 implanted patients, 124 patients (98%) remained active users of our Inspire therapy.

One patient died unexpectedly due to an unrelated cause and one participant requested a device removal for personal reasons because the patient was a non-responder.

Data at 12 months showed that 86% of patients (106 of 123) used the device daily and 93% (115 of 123) used the device at least five days a week, with data unavailable from one patient.

The effectiveness of Inspire therapy was further demonstrated by the results of the therapy-withdrawal portion of the trial, which showed a significant difference between the therapy-withdrawal group and the therapy-maintenance group with respect to the change in the AHI score from the assessment at 12 months of the cohort study to the assessment at the end of the therapy-withdrawal study.

As illustrated in the charts below, a difference in change in mean scores of 16.4 events per hour was observed (p<0.001), and a similar effect was observed for the mean ODI scores.

Withdrawal of Inspire therapy results in reversal of therapeutic benefit as measured by AHI and ODI

Patients from the STAR trial reported various adverse events, typically mild and resolved within five days, which can be divided into two categories.

The first category includes those occurring immediately subsequent to the implantation procedure.

In this category, 26% of patients reported incision pain and 25% reported post-operative discomfort.

There was only one report of a mild infection associated with the procedure.

The second category includes device-related adverse events that were reported in the first 18 months after implantation.

In this category, 47% of patients reported discomfort due to stimulation at some point during this period, which was generally resolved with programming adjustments to the device.

Other common reports included tongue abrasion, headaches, and mouth dryness.

Explants and Revisions

Two patients out of 126 in the STAR trial did not complete the trial.

One patient died unexpectedly due to an unrelated cause and one patient requested a device removal because the patient was a non-responder.

Two other patients underwent revision surgeries to reposition the device to address patient discomfort.

Long-term Benefits of Inspire Therapy

Patients receiving Inspire therapy in the STAR trial have been followed for long-term efficacy and utilization.

The median AHI in these patients decreased from 29.3 events per hour to 9.0 events per hour after 12 months and the median ODI decreased from 25.4 events per hour to 7.4 events per hour after 12 months.

After five years, the median AHI in these patients was 6.2 events per hour and the median ODI was 4.6 events per hour, as shown below.

Patient-reported outcomes after five years also found a roughly 45% improvement and a roughly 28% improvement in daytime sleepiness as measured by ESS and FOSQ, respectively, and 80% of patients reported nightly usage.

These results are shown below.

After five years, approximately 90% of patients reported no or only soft snoring, compared to only 17% at baseline.

Before obtaining therapy, 30% of patients reported that their bed partners occasionally had to leave the room because of their snoring.

After five years of therapy, this number decreased to 1%.

German Post-Market Study

We sponsored the German Post-Market Study, a multi-center post-approval study that evaluated 60 middle-aged, overweight patients, with measurements at two-, six-, and 12-month intervals.

The results of this study, which were published in The Laryngoscope in 2017, were consistent with the outcomes demonstrated in our STAR trial and showed median AHI being reduced from a baseline of 28.6 events per hour to 9.5 events per hour in 56 patients measured after 12 months.

Over the same period, median ESS score improved from a baseline of 13.0 to 6.5 and median FOSQ score improved from a baseline of 13.7 to 18.6.

There were three patients lost to follow-up and one patient requested removal of the device for cosmetic and other personal reasons.

There were no serious device-related adverse events.

(2) Thomas Jefferson University Hospital ("TJUH") and University of Pittsburgh Medical Center ("UPMC").

Select Recent Clinical Results and Studies

ADHERE Patient Registry

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In addition, 92% of patients reported a better experience than CPAP.

Independent Evaluations of Inspire Therapy

As the adoption of Inspire therapy continues to expand, many implanting centers have conducted and/or will conduct their own independent studies.

The effectiveness of our Inspire therapy has been documented by researchers at Thomas Jefferson University Hospital ("TJUH") and University of Pittsburgh Medical Center ("UPMC") who published their results in the Journal of Clinical Sleep Medicine in 2017.

These researchers found that AHI decreased from a mean of over 35 events per hour to approximately six events per hour at both institutions after three months, in a group of 97 patients with a mean age of approximately 62 years and a mean body-mass index ("BMI") of approximately 28.5.

Mean ESS scores also improved significantly at both institutions, as shown below.

Patients at both institutions used the device for an average of more than 45 hours per week and more than 75% of patients used the device longer than 40 hours per week.

One patient in the study requested removal of the device due to perceived lack of symptomatic improvement.

Positive results have been reported from a number of other independent studies to date, including:

• The University Hospitals Cleveland Medical Center reported in Clinical Otolaryngology on 20 patients who received Inspire therapy.

The mean decrease of AHI was 30.2 events/hour and the mean increase of the minimum SpO2 was 4.3%.

The mean therapy usage was 46 hours per week.

Huntley et al reported a case-control, retrospective review of 153 patients who received Inspire therapy at two academic institutes in The Laryngoscope .

The AHI reduced from 34.7 to 5.6 among patients with BMI less than 32, and from 41.0 to 6.5 among patients with BMI of more than 32, showing no difference in AHI response among patients with elevated BMI comparing with patients with lower BMI.

Zhu et al reported in Respiratory Medicine the effect of age among 62 patients who received Inspire therapy.

Among 31 patients younger than 65 years, AHI reduced from 28.7 to 4.9 and ESS reduced from 14.6 to 4.0.

Among 31 patients older than 65 years, AHI reduced from 28.5 to 9.2 and ESS reduced from 12.0 to 5.5 at 12 months.

There were no differences in therapy response between the two ago groups.

Advanced age was not a limiting factor for patients to receive the benefit of Inspire therapy.

• At a non-academic hospital in San Diego, Dr.

Weeks reported in Laryngoscope Investigative Otolaryngology on 22 consecutive patients treated with Inspire therapy.

Implant times for these patients averaged 171±40 minutes.

All implantations were completed without complications and AHI reductions were consistent among patients, with all patients measured achieving a titrated AHI < 5.

Average device use was 7.0±1.0 hours/night.

Comparison of Inspire Therapy and UPPP

Cleveland Clinic Study

A retrospective study comparing the effectiveness of hypoglossal nerve stimulation ("HNS") therapy utilizing our Inspire system to the effectiveness of uvulopalatopharyngoplasty ("UPPP"), was conducted by researchers at the Cleveland Clinic on two cohorts of patients treated for OSA.

A cohort of 20 patients, with a mean age at the time of surgery of 42.1 and mean BMI of 27.5, underwent traditional UPPP airway reconstructive surgery, while a cohort of 20 patients, with a mean age at the time of surgery of 62.4 and mean BMI of 28.0, were treated with

Inspire therapy.

A higher percentage of patients who received Inspire therapy (65%) achieved reduction in AHI from the moderate to severe range into the normal range (defined as AHI <5) compared to patients who underwent UPPP (20%).

Additionally, mean AHI for patients treated with Inspire therapy decreased by 88% while mean AHI for patients treated with UPPP decreased by 29%.

Thomas Jefferson University Hospital Study

An additional study comparing the effectiveness of our Inspire therapy to the effectiveness of UPPP was conducted by researchers at Thomas Jefferson University Hospital on two cohorts of patients treated for OSA.

A cohort of 33 patients, with a mean age of 43.5 and mean BMI of 29.6, underwent expansion sphincteroplasty, a variant of UPPP, while a cohort of 90 patients, with a mean age of 61.2 and mean BMI of 29.8, were treated with Inspire therapy.

A higher percentage of patients who received Inspire therapy (88%) were successfully treated compared to patients who received UPPP (64%), with successful treatment defined as a reduction in AHI of at least 50% from baseline and achieving an AHI of less than 20 events per hour.

International, Multi-Center Comparison of Sleep Surgery versus Inspire Therapy

In the largest study to date comparing Inspire therapy to sleep surgery, an international team retrospectively evaluated sleep surgery outcomes, including UPPP and tongue-base procedures versus similarly selected patients who received Inspire therapy.

This study included several hundred patients in each cohort.

Their findings demonstrated that Inspire therapy had a larger median reduction of 20 events/hours versus a reduction of 16 events/hour with sleep surgery.

Additionally, therapy outcomes were more predictable with Inspire therapy, with 70% of patients meeting the commonly used Sher response definition of a 50% decrease in AHI and fewer than 20 events/hour after treatment, versus a 48% response rate in those receiving sleep surgery.

Comparison of Sleep Surgery Complication Rates versus Inspire Therapy

A 2021 paper published in Otolaryngology – Open Journal found that Inspire therapy had a lower complication rate and shorter hospital length of stay compared with sleep surgery, despite the fact that the Inspire population was older and had more co-morbidities.

Combined with previous studies on sleep surgery outcomes, this demonstrates that Inspire therapy may be safer and more effective than sleep surgery in selected patients.

Upper Airway Surgery Improves Patient Symptoms Similarly as CPAP

In 2021, Cleveland Clinic published on the first comparison of patient-reported outcomes between Upper Airway Surgery ("UAS") and CPAP.

These results showed that UAS and CPAP had similar degree of improvement of patient symptoms of sleepiness, daytime energy, depression, and insomnia.

The results also showed that UAS patients were more likely to have a clinically meaningful improvement of symptoms than CPAP patients.

This high degree of improvement was maintained through at least one-year in the UAS patients.

In this first study comparing UAS versus CPAP patient symptoms, they conclude that this improvement is likely due to UAS’s high ease of use, effectiveness, and high rates of adherence, recommending it as an alternative to CPAP.

Two-incision Procedure has Similar Outcomes as Three-incision Procedure

The new two-incision implant technique was compared to the legacy three-incision technique.

This study of several hundred patients in a multi-center registry showed that the new two-incision technique is 39 minutes faster than the legacy technique (129 minutes vs.

86 minutes, p<0.001), while maintaining similarly low complication rates of 1%, and equivalent outcomes of reductions in AHI and Epworth Sleepiness Scale.

Thus, the new two-

incision technique is faster, without compromising safety and efficacy, saving operative time for physicians and enabling shorter recovery time for patients.

Sales and Marketing

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We sell our Inspire system through a direct sales force that primarily targets ENT physicians and sleep centers in the U.S.

and Europe, and through a distributor in Japan.

The implant procedure for our Inspire therapy is typically performed by an ENT physician or in some cases by neurosurgeons.

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We have 157 sales territories in the U.S.

and nine in Europe.

and 12 in Europe.

We seek to recruit sales representatives with strong sales backgrounds, direct experience developing markets with new technologies, and core knowledge of medical device coding, reimbursement, and the prior authorization process.

In Japan, we rely on our distribution partner for local sales and promotional activities.

We also utilize direct communication channels to inform and educate patients about Inspire therapy and to enable them to connect with active clinical sites that offer our Inspire systems.

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We believe our patient outreach efforts have been effective in bringing potential patients to our website and facilitating contact with our clinical sites.

During 2020, we had over 4.8 million visits to our website from over 3.7 million unique users, of which 237,000 used our "Find a Doctor" function to find a physician in their area.

During 2021, we had over 7.3 million visits to our website, of which 410,000 used our "Find a Doctor" function to find a physician in their area.

This generated more than 95,000 contacts with physicians throughout the year and approximately 33,000 visitors to our website signed up to attend a local or online Inspire informational event.

In 2020, we launched the Inspire Sleep app for patients' smart phones.

The first version of the app was an educational tool, and the second version interfaces with the Inspire Cloud and allows physicians to collect clinical data from patients directly.

This app is an educational tool for patients and also interfaces with the Inspire Cloud to allow physicians to collect clinical data from patients directly.

We continue to enhance the functionality of this app as part of our overall digital platform development.

During 2020, over 7,000 copies of the app were downloaded to smartphones.

During 2020 and 2021, over 26,000 copies of the app were downloaded to smartphones.

Commercial Activities Outside of the U.S.

We have nine sales territories in Europe, six of which are located in Germany.

Our general practice is to limit commercial investments in European countries until such time as there is a determined reimbursement pathway.

We provide consistent training in Europe as is conducted in the U.S.

Our general practice is to limit commercial investments in countries until such time as there is a determined reimbursement pathway.

We have 12 sales territories in Europe, 8 of which are located in Germany, and we sell our products through a distributor in Japan.

We provide consistent training in Europe and Japan as is conducted in the U.S.

and have established a support team in Europe for patient outreach and education, implant support, and device programming.

We expect to continue to

scale our commercial activities in Europe as we continue to develop country-wide reimbursement in additional markets.

We continue to work on the reimbursement process in Japan and Australia and hope to commercialize Inspire therapy there.

In Japan we assist our distribution partner with patient outreach and education initiatives.

We expect to continue to scale our commercial activities in Europe as we continue to develop country-wide reimbursement in additional markets.

We continue to work on the reimbursement process in Australia and hope to commercialize Inspire therapy there.

Third-Party Reimbursement

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Third-party payors require physicians and hospitals to identify the service for which they are seeking reimbursement by using CPT codes, which are created and maintained by the AMA.

Implantation of our Inspire neurostimulator and stimulation lead is described by CPT code 64568, which is the code describing the implantation of a cranial nerve stimulator.

Implantation of our Inspire pressure sensing lead is described by CPT code 0466T, a Category III code published by the AMA in January 2017.

At the October 2020 AMA CPT Editorial Panel meeting, the AMA approved the creation of new Category I CPT codes to separately identify hypoglossal nerve stimulator devices.

A Category I code was also approved for Drug-Induced Sleep Endoscopy, which is the final procedure to determine which patients are appropriate for Inspire therapy.

These new codes are scheduled to go into effect beginning January 1, 2022.

With these approvals, a formal survey will be conducted to determine the Medicare reimbursement levels assigned to each code.

The results of this survey are expected to be announced in July 2021 and reviewed by CMS in conjunction with the annual Medicare Physician Fee Schedule rulemaking cycle.

While CMS has significant discretion over the final reimbursement rates assigned, the Company believes that these coding changes will have a positive impact on Medicare reimbursement related to our technology.

Physician reimbursement under Medicare generally is based on a defined fee schedule, the Physician Fee Schedule, through which payment amounts are determined by the relative values of the professional service rendered.

The procedure performed to implant our device was previously described for billing purposes using a Category I CPT code (64568), which was used in conjunction with a temporary Category III CPT code (+0466T).

At the October 2020 AMA CPT Editorial Panel meeting, the AMA approved the creation of new Category I CPT codes (64582, 64583, and 64584) to separately identify hypoglossal nerve stimulator services.

A new Category I code (42975) was also approved for DISE, which is the final procedure to determine which patients are appropriate for Inspire therapy.

These new codes went into effect on January 1, 2022.

Physician reimbursement under Medicare is based on a defined fee schedule, the Physician Fee Schedule, through which payment amounts are determined by the relative values of the professional service rendered.

Medicare provides reimbursement to our hospital customers under the hospital outpatient prospective payment system ("HOPPS") which provides bundled amounts generally intended to reimburse the hospital for all facility costs related to procedures performed in the hospital outpatient setting.

Under the HOPPS, the 2022 national average Medicare payment to the hospital for this procedure is $30,063, which is intended to cover the hospitals’ costs for the device and the implantation procedure.

The 2022 ASC reimbursement rate is $24,828.

The physician’s professional services are reimbursed separately under the Medicare Physician Fee Schedule.

The 2021 national average physician fee for the primary implant (CPT code 64568) is $600.

The reimbursement rate for the professional service to implant the pressure sensor (add-on CPT code 0466T) is subject to contractor pricing, which means the rate is set by each MAC individually.

Of the published contractor rates in 2021, the MACs have assigned professional service fees ranging from $434 to $628 for CPT 0466T.

The 2022 national average physician fee for the implant (CPT code 64582) is $888.

The 2022 average reimbursement rate for the DISE procedures is $115.

Reimbursement rates from commercial payors vary depending on the procedure performed, the commercial payor, contract terms, and other factors.

Commercial Payor and Government Program Coverage

A core pillar of our reimbursement strategy involves broadening our third-party payor coverage.

A core pillar of our reimbursement strategy involves broadening our third-party payor coverage when possible.

We continue to have active discussions with commercial payors to establish new and modify existing positive coverage policies by highlighting our compelling and robust clinical data, increased patient demand, and support from leading medical societies and key opinion leaders.

We have been successful in obtaining prior authorization approvals from over 500 commercial payors for the Inspire device and procedure.

We have been successful in obtaining prior authorization approvals from most commercial payors for the Inspire device and procedure.

Historically, commercial payors approve prior authorization requests for approximately 70% of Inspire implants in the U.S.

We estimate that the majority of patients who meet the FDA indication for Inspire therapy are covered by commercial insurance companies and we have secured coverage policies with most major national commercial payors.

A number of small regional commercial payors currently consider hypoglossal nerve stimulation to be investigational, including procedures involving the Inspire system, and therefore do not have formal coverage policies.

All seven MACs published final policies in 2020 that provide coverage of Inspire therapy when certain coverage criteria are met.

Previously, procedures involving our Inspire system were reimbursed on a claim-by-claim basis for some Medicare patients.

Medicare beneficiaries have historically accounted for approximately 25% of all Inspire system implantations in the U.S.

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A second pillar of our reimbursement strategy includes leveraging our market access team to assist patients and physicians in obtaining appropriate prior authorization approvals in advance of treatment on a case-by-case basis where positive coverage policies currently do not exist.

We believe our market access team is highly effective in working with patients and physicians to obtain prior authorizations for our Inspire system including assisting with the appeals process.

By the end of 2020, we had received multiple prior authorization approvals from all of the largest commercial payors, for example Anthem, Cigna, Blue Cross Blue Shield, Aetna, United Healthcare, and Humana.

In addition, in 2020, our market access team helped 97% of patients who pursued the appeals process fully to secure prior authorizations with a median approval time of about 12 days, with approximately 2% being denied at external medical review, while the remainder were lost to follow-up.

Our market access team supported approximately 3,000 individual patient submissions in 2019 and nearly 4,000 individual patient submissions in 2020.

We believe our market access team is highly effective in working with patients and physicians to obtain prior authorizations for our Inspire system including assisting with

the appeals process.

We have received multiple prior authorization approvals from all of the largest commercial payors, for example Anthem, Cigna, Blue Cross Blue Shield, United Healthcare, and Humana.

We believe we will continue to benefit from this efficient prior authorization process in the near-term and in the longer-term by expanding positive coverage policies.

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The amount for the G-DRG is calculated annually by the InEK based on empirical cost data supplied by reference hospitals.

The locally negotiated ZE fee is paid additionally and usually covers device fees for the Inspire system, additional procedural equipment, and service costs that are not included within the G-DRG.

The ZE fee is negotiated locally with each hospital, paid additionally and usually covers device fees for the Inspire system, additional procedural equipment, and service costs that are not included within the G-DRG.

Before January 1, 2021, Germany’s reimbursement for the Inspire procedure was provided through Neue Untersuchungs-und Behandlungsmethoden ("NUB") Status 1 coverage.

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NUB Status 1 is the highest of four levels and allowed for full reimbursement for our Inspire system.

NUM reimbursement requires the negotiation of a respective agreement with the treating hospital and applies for a limited term.

Under NUB Status 1, payors at these hospitals were obligated to cover the gaps in treatment costs for the Inspire system.

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This allows patients to receive the Inspire system in certain hospitals and within the indication covered by the Swiss DRG.

Reimbursement in other countries is established through individual hospital innovation budgets, or through the use of generic payment codes.

We continue to pursue permanent reimbursement in target markets across

Europe, including Belgium, France, Spain, the United Kingdom, the Nordic region, and any other new markets that we may enter in the future, such as Japan and Australia.

In Japan, Inspire therapy is paid for by Japan's National Health Insurance system, following coverage requirements established by the Ministry of Health, Labour and Welfare.

Reimbursement in other countries can often be established through a combination of private (commercial insurance) and public funding sources, or at the hospital level through innovation budgets.

We continue to pursue permanent reimbursement in target markets across the Asia Pacific, including Australia, and Europe, including Belgium, France, Spain, the United Kingdom, and the Nordic region.

Research and Development

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After our November 2007 inception and contemporaneous spin-off of the Inspire business from Medtronic, our primary focus was to requalify the Inspire II system and resume clinical trial activity.

We completed a phase I feasibility trial along with a phase II dosing or patient selection trial in 2009.

We completed a phase I

feasibility trial along with a phase II dosing or patient selection trial in 2009.

In 2011, we began our phase III pivotal STAR trial.

The STAR trial was completed and published in the New England Journal of Medicine in January 2014 and we received PMA approval in April 2014.

The STAR trial was completed and published in the New England Journal of Medicine in January 2014 and we received PMA in April 2014.

Additionally, we received a CE mark for commercialization in Europe in 2011.

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This smaller profile is intended to simplify surgical placement along with several other features to enable easier implanting, and potentially reduce surgical time for an ENT surgeon.

Our next generation of the Inspire neurostimulator is in development, and we also have active projects to improve the physician programmer and the patient remote control, which will be Bluetooth enabled.

Our next generation of the Inspire neurostimulator is in development, and we also have an active project to improve the physician programmer.

Our Bluetooth® enabled patient remote control was approved by the FDA in December 2021.

We have launched a cloud-based patient management system called Inspire Cloud, which allows physicians to monitor patient compliance and more efficiently coordinate patient care.

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We consider our primary competition to be other neurostimulation technologies designed to treat OSA, though we are currently the only such technology approved for commercialization in the U.S.

Outside the U.S., we compete with LivaNova, which markets an open-loop neurostimulation device.

LivaNova is currently conducting clinical trials of its device in the U.S.

Nyxoah, which developed a bilateral hypoglossal nerve stimulation device, is conducting its first pivotal trial as it seeks FDA approval.

We believe other emerging businesses are in the early stages of developing neurostimulation devices.

Outside the U.S., we compete with LivaNova and Nyxoah.

LivaNova, which markets an open-loop neurostimulation device, is currently conducting clinical trials of its device in the U.S.

Nyxoah markets an open-loop bilateral hypoglossal nerve stimulation device in certain countries outside the U.S.

and is conducting its first pivotal trial as it seeks FDA approval in the U.S.

We believe other emerging businesses are in the early stages of developing neurostimulation devices or early-stage pharmaceutical approaches.

We also compete, both within and outside of the U.S., with invasive surgical treatment options such as UPPP, maxillomandibular advancement ("MMA") and robotic tongue reduction surgery, and, to a lesser extent, oral appliances, which are primarily used in the treatment of mild to moderate OSA.

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• company, product, and brand recognition;

• product safety, reliability, and durability;

• product safety, efficacy, reliability, and durability;

• quality and volume of clinical data;

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• dedicated practice development and clinical training teams.

Most of the other OSA treatments against which we compete have a greater penetration into the OSA treatment market.

Oral appliances and other surgical treatments are better known to ENT physicians, sleep centers and the other physicians on whom we rely for referrals, but we believe physician awareness of our Inspire therapy is increasing.

Some other OSA treatments against which we compete, such as oral appliances, MMA, and UPPP, have a greater penetration into the OSA treatment market.

Oral appliances and some other surgical treatments are better known to ENT physicians, sleep centers and the other physicians on whom we rely for referrals, but we believe physician awareness of our Inspire therapy is increasing.

We also compete with other medical technology companies to recruit and retain qualified sales, training and other personnel, including members of our in-house prior authorization team.

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Our suppliers manufacture the components they produce for us and test our components and devices to our specifications.

intend to maintain sufficient levels of inventory to enable us to continue our operations while we obtain another supplier in the event that one or more of our single-source suppliers were to encounter a delay in supply or end supply.

We intend to maintain sufficient levels of inventory to enable us to continue our operations while we obtain another supplier in the event that one or more of our single-source suppliers were to encounter a delay in supply or end supply.

We have experienced and continue to experience some minor supply disruptions during the COVID pandemic, but have managed to avoid any significant supply and inventory issues.

Government Regulation

Our products and our operations are subject to extensive regulation by the FDA and other federal and state authorities in the U.S., as well as comparable authorities in the European Economic Area ("EEA"), and in Japan and Australia (where our products are approved for sale but where we have not yet commercialized them).

Our products are subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act ("FDCA") as implemented and enforced by the FDA.

The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.

Our products and our operations are subject to extensive regulation by the FDA and other federal and state authorities in the U.S., as well as comparable authorities in the European Economic Area ("EEA") and Japan, and in Australia (where our products are approved for sale but where we have not yet commercialized them).

In the U.S., our products are subject to regulation as medical devices under the Federal Food, Drug, and Cosmetic Act ("FDCA") as implemented and enforced by the FDA.

The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing,

recordkeeping, premarket clearance or approval, import, export, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.

In addition to U.S.

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Unless an exemption applies, each medical device commercially distributed in the U.S.

requires either FDA clearance of a 510(k) premarket notification or PMA approval.

requires either FDA clearance of a 510(k) premarket notification or PMA.

Under the FDCA, medical devices are classified into one of three classes-Class I, Class II, or Class III-depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness.

Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the QSR, facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials.

Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the FCA's Quality System Regulation ("QSR"), facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials.

Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device.

These special controls can include performance standards, post-market surveillance, patient registries, and FDA guidance documents.

While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device.

The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance.

Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or another commercially available device that was cleared through the 510(k) process.

Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or another legally marketed device that was cleared through the 510(k) process.

Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.

Some pre-amendment devices are unclassified, but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed.

Our currently marketed Inspire products are Class III devices which have received PMA approval.

PMA Approval Pathway

Class III devices require PMA approval before they can be marketed although some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k) process.

The PMA process is more demanding than the 510(k) premarket notification process.

Our currently marketed Inspire products are Class III devices which have received PMA.

In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials.

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The FDA may or may not accept the panel’s recommendation.

In addition, the FDA will generally conduct a preapproval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the Quality System Regulation ("QSR").

The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s).

The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or requirements to conduct additional clinical studies post-approval.

The FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use.

effective for its intended use(s).

The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA or requirements to conduct additional clinical studies post-approval.

The FDA may condition PMA on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use.

In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients.

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The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin.

If the FDA determines that there are deficiencies or

other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.

If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.

An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects.

In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board ("IRB") for each clinical site.

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If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements.

Acceptance of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials.

During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping, and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them.

The clinical investigators in the clinical study are also subject to FDA regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements.

The clinical investigators in the clinical study are also subject to FDA regulations and must obtain patient informed consent, rigorously follow the investigational plan and study

protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements.

Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.

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FDA guidance on off-label dissemination of information and responding to unsolicited requests for information;

• the federal Physician Sunshine Act and various state and foreign laws on reporting remunerative relationships with health care customers;

• the federal Anti-Kickback Statute (and similar state laws) prohibiting, among other things, soliciting, receiving, offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as Medicare or Medicaid.

A person or entity does not have to have actual knowledge of this statute or specific intent to violate it to have committed a violation;

• the federal False Claims Act (and similar state laws) prohibiting, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing, or knowingly and improperly avoiding or decreasing, an obligation to pay or transmit money to the federal government.

The government may

assert that claim includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statute;

• clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of a supplement for certain modifications to PMA devices;

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• post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.

We may be subject to similar foreign laws that may include applicable post-marketing requirements such as safety surveillance.

Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods and the facilities, controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation, and servicing of finished devices intended for human use.

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• operating restrictions or partial suspension or total shutdown of production;

• refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;

• withdrawing 510(k) clearances or PMA approvals that have already been granted;

• refusing or delaying requests for 510(k) marketing clearance or PMAs of new products or modified products;

• withdrawing 510(k) clearances or PMAs that have already been granted;

• refusal to grant export or import approvals for our products;

• criminal prosecution.

Regulation of Medical Devices in the EEA

There is currently no premarket government review of medical devices in the EEA (which is comprised of the 27 Member States of the European Union ("EU") plus Norway, Liechtenstein, and Iceland).

However, all medical devices placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices (the "Medical Devices Directive" or "MMD").

There is also a directive specifically addressing Active Implantable Medical Devices (Directive 90/385/EEC)(the "Active Implantable Medical Devices Directive" or "AIMDD").

The most fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others.

In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner.

The European Commission has adopted various standards applicable to medical devices available in the EU.

These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices.

There are also harmonized standards relating to design and manufacture.

While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical matter.

Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device satisfies that essential requirement.

To demonstrate compliance with the essential requirements laid down in Annex I to the MDD, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification.

Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product, and post-market experience in respect of similar products already marketed.

Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology), a conformity assessment procedure requires the intervention of a notified body.

Notified bodies are organizations designated by an EU country to assess the conformity of certain products before being placed on the market.

These bodies carry out tasks related to conformity assessment procedures set out in the legislation and typically audit and examine a product’s technical dossiers and the manufacturers’ quality system.

Foreign Regulation

In order for us to market our products in countries outside the U.S., we must obtain regulatory approvals or certifications and comply with extensive product and quality system regulations in other countries.

These regulations, including the requirements for approvals, clearance or certifications and the time required for regulatory review, vary from country to country.

Some countries have regulatory review processes that are substantially longer than U.S.

Failure to obtain regulatory approval or certification in a timely manner and meet all of the local requirements including language and specific safety standards in any foreign country in which we plan to market our products could prevent us from marketing products in such countries or subject us to sanctions and fines.

Regulation of Medical Devices in the European Union

The European Union (“EU”) has adopted specific directives and regulations regulating the design, manufacture, clinical investigation, conformity assessment, labeling and adverse event reporting for medical devices.

Until May 25, 2021, medical devices were regulated by Council Directive 93/42/EEC (the “EU Medical Devices Directive”), and Directive 90/385/EEC (“AIMDD”) which have been repealed and replaced by Regulation (EU) No 2017/745 (the “EU Medical Devices Regulation”).

Our current certificates have been granted under the EU Medical Devices Directive and the AIMDD whose regime is described below.

However, as of May 26, 2021, some of the EU Medical Devices Regulation requirements apply in place of the corresponding requirements of the EU Medical Devices Directive and the AIMDD with regard to registration of economic operators and of devices, post-market surveillance and vigilance requirements.

Pursuing marketing of medical devices in the EU will notably require that our devices be certified under the new regime set forth in the EU Medical Devices Regulation when our current certificates expire.

Medical Devices Directive

In the EU, there is currently no premarket government review of medical devices.

However, all medical devices placed on the EU market must meet the essential requirements, including the requirement that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others .

In addition, the device must achieve the performance intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner.

Compliance with the essential requirements is a prerequisite for European Conformity Marking (“CE mark”) without which medical devices cannot be marketed or sold in the EU.

To demonstrate compliance with the essential requirements, medical device manufacturers must undergo a conformity assessment procedure, which

varies according to the type of medical device and its (risk) classification.

Except for low-risk medical devices ( Class I non-sterile, non-measuring devices ), where the manufacturer can self-assess the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology) , a conformity assessment procedure requires the intervention of a notified body.

Notified bodies are independent organizations designated by EU member states to assess the conformity of devices before being placed on the market.

A notified body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system.

If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity.

The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the EEA.

Once the product has been placed on the market in the EEA, the manufacturer must comply with requirements for reporting incidents and field safety corrective actions associated with the medical device.

In order to demonstrate safety and efficacy for their medical devices, manufacturers must conduct clinical investigations in accordance with the requirements of Annex X to the MDD, Annex 7 to the AIMDD, and applicable European and International Organization for Standardization (“ISO”) standards, as implemented or adopted in the EEA Member States.

Clinical investigations for medical devices usually require the approval of an ethics review board and approval by or notification to the national regulatory authorities.

Both regulators and ethics committees also require the submission of serious adverse event reports during a study and may request a copy of the final study report.

On May 25, 2017, the new Medical Devices Regulation (2017/745 or “MDR”) entered into force, which repeals and replaces the EU MDD and AIMDD.

Unlike directives, which must be implemented into the national laws of the EEA Member States, regulations are directly applicable, i.e., without the need for adoption of EEA Member State laws implementing them, in all EEA Member States and are intended to eliminate current differences in the regulation of medical devices among EEA Member States.

The MDR, among other things, is intended to establish a uniform, transparent, predictable, and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation.

The MDR was due to become applicable in May 2021, but in light of COVID-19, on April 23, 2020, the European Parliament and the Council of the EU adopted a proposal to extend the transitional period of the MDR by one year, i.e.

until May 26, 2021.

However, devices lawfully placed on the market pursuant to the MDD or AIMDD prior to May 26, 2021 may generally

continue to be made available on the market or put into service until May 26, 2025.

Once applicable, the new regulations will among other things:

• strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

• establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance, and safety of devices placed on the market;

• improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;

• set up a central database to provide patients, healthcare professionals, and the public with comprehensive information on products available in the EU;

• address strengthened rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

Following the end of the “Brexit” Transition Period, from January 1, 2021 onwards, the Medicines and Healthcare Products Regulatory Agency (“MHRA”) will be responsible for the UK medical device market.

The new regulations will require medical devices to be registered with the agency (but manufacturers will be given a grace period of four to 12 months to comply with the new registration process).

Manufacturers based outside the UK will need to appoint a UK Responsible Person to register devices with the MHRA in line with the grace periods.

By July 1, 2023, in the UK (England, Scotland, and Wales), all medical devices will require a UKCA (UK Conformity Assessed) mark but CE marks issued by EU notified bodies will remain valid until this period.

However, UKCA marking alone will not be recognized in the EU.

The rules for placing medical devices on the Northern Ireland market will differ from those in the UK.

The manufacturer may then apply the CE mark to the device, which allows the device to be placed on the market throughout the EU.

Throughout the term of the certificate of conformity, the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements.

In particular, there will be a new audit by the notified body before it will renew the relevant certificate(s).

Medical Devices Regulation

On April 5, 2017, the EU Medical Devices Regulation was adopted with the aim of ensuring better protection of public health and patient safety.

The EU Medical Devices Regulation establishes a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensures a high level of safety and health while supporting innovation.

Unlike the EU Medical Devices Directive and the AIMDD, the EU Medical Devices Regulation is directly applicable in EU member states without the need for member states to implement into national law.

This aims at increasing harmonization across the EU.

The EU Medical Devices Regulation became effective on May 26, 2021.

The new Regulation among other things:

• strengthens the rules on placing devices on the market (e.g.

reclassification of certain devices and wider scope than the EU Medical Devices Directive and the AIMDD) and reinforces surveillance once they are available;

• establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;

• establishes explicit provisions on importers’ and distributors’ obligations and responsibilities;

• imposes an obligation to identify a responsible person who is ultimately responsible for all aspects of compliance with the requirements of the new regulation;

• improves the traceability of medical devices throughout the supply chain to the end-user or patient through the introduction of a unique identification number, to increase the ability of manufacturers and regulatory authorities to trace specific devices through the supply chain and to facilitate the prompt and efficient recall of medical devices that have been found to present a safety risk;

• sets up a central database (Eudamed) to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU;

• strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to undergo a clinical evaluation consultation procedure by experts before they are placed on the market.

Devices lawfully placed on the market pursuant to the EU Medical Devices Directive or the AIMDD prior to May 26, 2021 may generally continue to be made available on the market or put into service until May 26, 2025, provided that the requirements of the transitional provisions are fulfilled.

In particular, the certificate in question must still be valid.

However, even in this case, manufacturers must comply with a number of new or reinforced requirements set forth in the EU Medical Devices Regulation, in particular the obligations described below.

The EU Medical Devices Regulation requires that before placing a device, other than a custom-made device, on the market, manufacturers (as well as other economic operators such as authorized representatives and importers) must register by submitting identification information to the electronic system (Eudamed), unless they have already registered.

The information to be submitted by manufacturers (and authorized representatives) also includes the name, address and contact details of the person or persons responsible for regulatory compliance.

The new Regulation also requires that before placing a device, other than a custom-made device, on the market, manufacturers must assign a unique identifier to the device and provide it along with other core data to the unique device identifier (“UDI”) database.

These new requirements aim at ensuring better identification and traceability of the devices.

Each device – and as applicable, each package – will have a UDI composed of two parts:

a device identifier (“UDI-DI”) specific to a device, and a production identifier (“UDI-PI”) to identify the unit producing the device.

Manufacturers are also notably responsible for entering the necessary data on Eudamed, which includes the UDI database, and for keeping it up to date.

The obligations for registration in Eudamed will become applicable at a later date (as Eudamed is not yet fully functional).

Until Eudamed is fully functional, the corresponding provisions of the EU Medical Devices Directive and the AIMDD continue to apply for the purpose of meeting the obligations laid down in the provisions regarding exchange of information, including, and in particular, information regarding registration of devices and economic operators.

All manufacturers placing medical devices on the market in the EU must comply with the EU medical device vigilance system which has been reinforced by the EU Medical Devices Regulation.

Under this system, serious incidents and Field Safety Corrective Actions (“FSCAs”) must be reported to the relevant authorities of the EU member states.

These reports will have to be submitted through Eudamed – once functional – and aim to ensure that, in addition to reporting to the relevant authorities of the EU member states, other actors such as the economic operators in the supply chain will also be informed.

Until Eudamed is fully functional, the corresponding provisions of the EU Medical Devices Directive and the AIMDD continue to apply.

A serious incident is defined as any malfunction or deterioration in the characteristics or performance of a device made available on the market, including use-error due to ergonomic features, as well as any inadequacy in the information supplied by the manufacturer and any undesirable side-effect, which, directly or indirectly, might have led or might lead to the death of a patient or user or of other persons or to a temporary or permanent serious deterioration of a patient's, user's or other person's state of health or a serious public health threat.

Manufacturers are required to take FSCAs defined as any corrective action for technical or medical reasons to prevent or reduce a risk of a serious incident associated with the use of a medical device that is made available on the market.

An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device.

FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or to the end users of the device through Field Safety Notices.

For similar serious incidents that occur with the same device or device type and for which the root cause has been identified or a FSCA implemented or where the incidents are common and well documented, manufacturers may provide periodic summary reports instead of individual serious incident reports.

The aforementioned EU rules are generally applicable in the European Economic Area (“EEA”) which consists of the 27 EU member states plus Norway, Liechtenstein, and Iceland.

Since January 1, 2021, the Medicines and Healthcare Products Regulatory Agency (“MHRA”) has become the sovereign regulatory authority responsible for Great Britain (i.e.

England, Wales and Scotland) medical device market according to the requirements provided in the Medical Devices Regulations 2002 (SI 2002 No 618, as amended) that sought to give effect to the three pre-existing EU directives governing active implantable medical devices, general medical devices and in vitro diagnostic medical devices whereas Northern Ireland continues to be governed by EU rules according to the Northern Ireland Protocol.

Following the end of the Brexit transitional period on January 1, 2021, new regulations require medical devices to be registered with the MHRA (but manufacturers were given a grace period of four to 12 months, depending on the classification of the device, to comply with the new registration process) before being placed on Great Britain market.

The MHRA only registers devices where the manufacturer or their United Kingdom (“UK”) Responsible Person has a registered place of business in the UK.

Manufacturers based outside the UK need to appoint a UK Responsible Person that has a registered place of business in the UK to register devices with the MHRA in line with the grace periods.

By July 1, 2023, in Great Britain, all medical devices will require a UKCA (“UK Conformity Assessed”) mark but CE marks issued by EU notified bodies will remain valid until this time.

Manufacturers may choose to use the UKCA mark on

a voluntary basis until June 30, 2023.

However, UKCA marking will not be recognized in the EU.

The rules for placing medical devices on the market in Northern Ireland, which is part of the UK, differ from those in the rest of the UK.

Compliance with this legislation is a prerequisite to be able to affix the UKCA mark to our products, without which they cannot be sold or marketed in Great Britain.

An MHRA public consultation was opened until end of November 2021 on the post-Brexit regulatory framework for medical devices and diagnostics.

MHRA seeks to amend the UK Medical Devices Regulations 2002 (which are based on EU legislation, primarily the EU Medical Devices Directive and the EU In Vitro Diagnostic Medical Devices Directive 98/79/EC), in particular to create new access pathways to support innovation, create an innovative framework for regulating software and artificial intelligence as medical devices, reform IVD regulation, and foster sustainability through the reuse and remanufacture of medical devices.

The regime is expected to come into force in July 2023, coinciding with the end of the acceptance period for EU CE marks in Great Britain, subject to appropriate transitional arrangements.

The consultation indicated that the MHRA will publish guidance in relation to the changes to the regulatory framework and may rely more heavily on guidance to add flexibility to the regime.

In addition, the Trade Deal between the UK and the EU generally provides for cooperation and exchange of information between the parties in the areas of product safety and compliance, including market surveillance, enforcement activities and measures, standardization-related activities, exchanges of officials, and coordinated product recalls.

As such, processes for compliance and reporting should reflect requirements from regulatory authorities.

Similarly, we are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of:

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• necessity of testing performed in country by distributors for licensees.

The time required to obtain clearance required by foreign countries may be longer or shorter than that required for FDA clearance, and requirements for licensing a product in a foreign country may differ significantly from FDA requirements.

Federal, State, and Foreign Fraud and Abuse and Physician Payment Transparency Laws

In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practices.

The time required to obtain clearance or certification required by foreign countries may be longer or shorter than that required for FDA clearance, and requirements for licensing a product in a foreign country may differ significantly from FDA requirements.

Federal, State, and Foreign Fraud and Abuse Laws

In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal, state, and foreign laws restrict our business practices.

These laws include, without limitation, foreign, federal, and state anti-kickback and false claims laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers.

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Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly.

Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor.

Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute.

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The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious or fraudulent and, unlike the federal civil False Claims Act, requires proof of intent to submit a false claim.

The Civil Monetary Penalty Law imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is

likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier.

knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

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Foreign laws and regulations may vary greatly from country to country.

For example, the advertising and promotion of our products is subject to EU directives concerning misleading and comparative advertising and unfair commercial practices, as well as specific EEA Member State legislation governing the advertising and promotion of medical devices.

For example, the advertising and promotion of medical devices is subject to some general principles set forth in EU legislation.

According to the EU Medical Devices Regulation, only devices that are CE marked may be marketed and advertised in the EU in accordance with their intended purpose.

Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example, requiring that advertisements are evidenced, balanced and not misleading.

Specific requirements are defined at a national level.

EU member states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals.

These laws, which vary between jurisdictions (thus making compliance more complex), may limit or restrict the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.

Many EEA Member States have adopted specific anti-gift statutes that further limit commercial practices for our products, in particular vis-à-vis healthcare professionals and organizations.

Many EU member states have adopted specific anti-gift statutes that further limit commercial practices for our products, in particular vis-à-vis healthcare professionals and organizations.

Additionally, there has been a recent trend of increased regulation of payments and transfers of value provided to healthcare professionals or entities and many EU member states have adopted national “Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements in the United States, on medical device manufacturers.

Certain countries also mandate implementation of commercial compliance programs.

Also, many U.S.

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Additionally, there has been a recent trend of increased foreign, federal, and state regulation of payments and transfers of value provided to healthcare professionals or entities.

The federal Physician Payments Sunshine Act imposes annual reporting requirements on certain drug, biologics, medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or CHIP for payments and other transfers of value provided by them, directly or indirectly, to physicians, as defined by statute, certain other healthcare providers beginning in 2022, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

In the U.S., the federal Physician Payments Sunshine Act imposes annual reporting requirements on certain drug, biologics, medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or CHIP for payments and other transfers of value provided by them, directly or indirectly, to physicians, as defined by statute, certain other non-physician practitioners such as physician assistants and nurse practitioners, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

Manufacturers must submit reports by the 90th day of each calendar year.

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states also mandate implementation of commercial compliance programs, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation, and other remuneration to healthcare professionals and entities.

Violation of any of the federal and state healthcare laws described above or any other governmental regulations that apply to device manufacturers may result in significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if the entity becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of operations.

entity becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of operations.

Data Privacy and Security Laws

We are also subject to various federal, state, and foreign laws that protect personal information including certain patient health information, such as the EU General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”) which became effective as of January 2020, and restrict the use and disclosure of patient health information by healthcare providers, such as HIPAA, as amended by HITECH, in the U.S.

HIPAA established uniform standards governing the conduct of certain electronic healthcare transactions and requires certain entities, called covered entities, to comply with standards that include the privacy and security of protected health information (“PHI”).

HIPAA also requires business associates, such as independent contractors or agents of covered entities that have access to PHI in connection with providing a service to or on behalf of a

covered entity, of covered entities to enter into business associate agreements with the covered entity and to safeguard the covered entity’s PHI against improper use and disclosure.

The HIPAA privacy regulations cover the use and disclosure of PHI by covered entities as well as business associates, which are defined to include subcontractors that create, receive, maintain, or transmit PHI on behalf of a business associate.

They also set forth certain rights that an individual has with respect to his or her PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, or to request restrictions on the use or disclosure of PHI.

The security regulations establish requirements for safeguarding the confidentiality, integrity, and availability of PHI that is electronically transmitted or electronically stored.

HITECH, among other things, established certain health information security breach notification requirements.

A covered entity must notify any individual whose PHI is breached according to the specifications set forth in the breach notification rule.

The HIPAA privacy and security regulations establish a uniform federal “floor” and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing PHI or insofar as such state laws apply to personal information that is broader in scope than PHI as defined under HIPAA.

HIPAA requires the notification of patients, and other compliance actions, in the event of a breach of unsecured PHI.

If notification to patients of a breach is required, such notification must be provided without unreasonable delay and in no event later than 60 calendar days after discovery of the breach.

In addition, if the PHI of 500 or more individuals is improperly used or disclosed, we would be required to report the improper use or disclosure to the U.S.

Department of Health and Human Services ("HHS") which would post the violation on its website, and to the media.

Failure to comply with the HIPAA privacy and security standards can result in significant civil monetary penalties and criminal penalties.

HIPAA authorizes state attorneys general to file suit on behalf of their residents for violations.

Courts are able to award damages, costs and attorneys’ fees related to violations of HIPAA in such cases.

While HIPAA does not create a private right of action allowing individuals to file suit against us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care cases in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.

In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities, and their business associates for compliance with the HIPAA privacy and security standards.

It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the civil monetary penalty paid by the violator.

In addition, California enacted the CCPA, effective January 1, 2020, which, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information.

The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach.

Although the law includes limited exceptions, including for “protected health information” maintained by a covered entity or business associate, it may regulate or impact our processing of personal information depending on the context.

Further, the California Privacy Rights Act (“CPRA”), recently passed in California.

The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.

It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement.

The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.

In the EU, the EEA and the United Kingdom we are subject to laws which restrict our collection, control, processing, and other use of personal data (i.e.

data relating to an identifiable living individual) including the GDPR and the United Kingdom Data Protection Act 2018 (and any applicable national laws implementing the GDPR).

We process personal data in relation to our operations, including clinical investigations.

We process data of our employees, contractors, suppliers, distributors, service providers, and our customers, as well as patient or clinical investigation participants, including health and medical information of such participants.

We need to ensure compliance with the GDPR (and any applicable national laws implementing the GDPR) in each EU and EEA jurisdiction where we are established or are otherwise subject to the GDPR (i.e., jurisdictions in which we are

targeting or monitoring EU and EEA located individuals, or offering goods or services to EU located individuals.

We also need to ensure compliance with the Data Protection Act 2018.

The GDPR imposes onerous accountability obligations including:

maintaining a record of data processing;

implementing policies and a privacy governance framework;

disclosing to data subjects how their personal data is to be used;

limiting retention of personal data;

mandatory data breach notification requirements;

and high standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.

In addition, the GDPR permits EU Member State derogations for certain matters and, accordingly, we are also subject to EU national laws relating to the processing of genetic data, biometric data, and health data.

We have a robust program that we believe ensures compliance with these obligations.

Fines for certain breaches of the GDPR are significant:

up to the greater of EUR 20 million or 4% of total global annual turnover.

In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our use of data, enforcement notices, as well potential civil claims including class action type litigation where individuals suffer harm.

We are also subject to GDPR requirements with respect to cross-border transfers of personal data out of the EU and we need to ensure that such transfers are legitimized by valid transfer solutions and/or derogations under the GDPR (where required), including by entering into the EU Commission approved model contracts for the transfer of personal data to third countries (i.e., the standard contractual clauses).

The law is also developing rapidly and, in July 2020, the Court of Justice of the EU limited how organizations could lawfully transfer personal data from the EEA to the U.S.

As such, there is a possibility that the standard contractual clauses may be invalidated as a compliant data transfer mechanism in the near future.

In addition, following the end of the Transition Period, the UK has become a “third party” for the purposes of EU-to-UK personal data transfers.

The significant implications of this are mitigated by the agreement of a 4-6 month grace period, during which time the EU Commission will consider whether to grant an adequacy decision which would continue to permit unrestricted EU-to-UK personal data transfers following the expiry of the grace period.

We have enlisted the help of external advisors to implement a robust GDPR program that we believe achieves and maintains compliance with these obligations, but it is likely it will require us to expend additional capital and other resources for upcoming GDPR changes.

We depend on a number of third parties in relation to the operation of our business , a number of which process personal data on our behalf.

With each new provider we perform security assessments and detailed due diligence, enter into contractual arrangements which require that they only process personal data according to our instructions, and which require that they have sufficient technical and organizational security measures in place.

We have enlisted the help of external advisors to provide assistance in implementing these contractual arrangements with our existing providers.

There is no assurance that these contractual measures and our own privacy and security-related safeguards will protect us from the risks associated with the third-party processing, storage, and transmission of such information.

Any violation of data or security laws by our third party processors could have a material adverse effect on our business and result in the fines and penalties outlined above.

We are also subject to evolving EU privacy laws on cookies and e-marketing.

The EU is in the process of replacing the E-Privacy Directive with a new set of rules in the form of a regulation, which will be directly applicable to all EU Member States.

The draft E-Privacy Regulation imposes strict opt-in marketing rules with limited exceptions for business-to-business communications, alters rules on third-party cookies, web beacons, and similar technology and significantly increases fining powers to the same levels as the GDPR (i.e.

the greater of 20 million Euros or 4% of total global annual revenue for certain breaches).

The e-Privacy Regulation is still going through the European legislative process and commentators expect it to be agreed during 2021, after which a two year transition period will follow before it is in force.

We have enlisted the help of external advisors to implement a robust GDPR program that achieves and maintains compliance with these obligations, but it is likely it will require us to expend additional capital and other resources for upcoming GDPR changes.

Numerous state, federal and foreign laws, regulations, and standards govern the collection, use, access to, confidentiality and security of health-related and other personal information, and could apply now or in the future to our operations or the operations of our partners.

In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, and consumer protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal information.

In addition, certain foreign laws govern the privacy and security of personal data, including health-related data.

For example, the General Data Protection Regulation (the "GDPR"), imposes strict requirements for processing the personal data of individuals within the European Economic Area, or the EEA.

Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.

Further, from January 1, 2021, companies have had to comply with the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law.

The UK GDPR mirrors the fines under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of global turnover.

Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.

Healthcare Reform

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Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the Affordable Care Act.

By way of example, the Tax Cuts and Jobs Acts was enacted, which, among other things, removes penalties for not complying with the individual mandate to carry health insurance, beginning in 2019.

On December 14, 2018, a U.S.

District Court Judge in the Northern District of Texas, ruled that the Affordable Care Act’s individual mandate to carry insurance coverage is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the Affordable Care Act are invalid as well.

On December 18, 2019, the U.S.

Court of Appeals for the 5th Circuit upheld the District Court's decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well.

Supreme Court is currently reviewing the case, although it is unclear how the Supreme Court will rule.

It is also unclear how other efforts, if any, to challenge, repeal or replace the Affordable Care Act will impact the Act or our business.

On June 17, 2021, the U.S.

Supreme Court dismissed the most recent judicial challenge to the Affordable Care Act without specifically ruling on the constitutionality of the Affordable Care Act.

Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace.

The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.

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In the first quarter of each year in Germany, we have experienced reduced demand for our Inspire therapy as Neue Untersuchungs-und-Behandlungsmethoden ("NUB") coverage status is being determined and as hospitals are establishing their budgets pertaining to allocation of funds to purchase our Inspire therapy.

Beginning January 1, 2021, Inspire therapy is fully integrated into the German hospital reimbursement system (“G-DRG”), and we therefore may experience less seasonal fluctuations in Germany.

Beginning January 1, 2021, Inspire therapy is fully integrated into the German hospital reimbursement system (“G-DRG”), and we therefore may experience less seasonal fluctuations in Germany although it may not eliminate them.

Human Capital

As of December 31, 2020, we had 317 employees in the U.S.

and 24 in Europe.

As of December 31, 2021, we had 485 employees, of which 459 are in the U.S., 25 are in Europe and one is in Japan.

We increased the number of employees by 42% during 2021 to support the rapid growth of our business.

Our internal promotion and progression rate was 15%, of which 60% were women and diverse employees.

We continue to experience a minimal voluntary attrition rate of 6%, despite the market's strong competition for talent.

None of our employees is subject to a collective bargaining agreement or represented by a trade or labor union.

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We strive to create a culture in which all employees feel heard, respected, and valued.

During 2020, all employees attended our Decency, Dignity & Respect online training program.

The goals of this program are to encourage broad and diverse viewpoints to achieve the best outcomes for our patients, healthcare providers and employees, and to build awareness of how our own behaviors impact our colleagues.

All new employees participate in training focused on appropriate, respectful, and inclusive workplace behavior.

In 2020, we created an engaging training initiative for all employees which encourages awareness of unconscious bias and microaggressions.

Building on our 2020 program, we implemented sessions specifically for Inspire leaders in their roles to create respectful culture within their teams.

The goals of these programs are to encourage broad and diverse viewpoints to achieve the best outcomes for our patients, healthcare providers, and employees, and to build awareness of how our own behaviors impact our colleagues.

Talent Management & Development

Critical to our success is hiring the right employees and developing existing employees in their current roles as well as preparing them for future roles within the Company.

We created a structured talent acquisition process which supports our resource plans.

The process includes recruitment strategies to encourage diverse candidates to apply to positions for which they qualify.

With our aggressive growth objectives, it is imperative that we have a strong pipeline of external candidates as well as opportunities for current employees to grow within our organization.

To support these critical success factors, we have continued to invest in our talent acquisition group.

In addition, we have created an internal Learning and Development organization to lead our development initiatives.

To encourage further professional development of our employees, in 2022 we introduced a tuition reimbursement program for those pursuing a degree.

Through internal promotions, we proactively reorganized our U.S.

sales team structure to execute continued rapid growth.

To help support the expanded role of our leadership, we created a new leadership program specially designed to help our new leaders be successful in their expanded roles, as well as provide coaching opportunities for our leaders through external partners.

On an annual basis, our leadership team participates in a talent review and succession planning exercise to identify organizational needs, development opportunities, and potential future leaders.

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Our human capital strategies, initiatives, and outcomes are reviewed on a regular basis with our board of directors ensuring alignment with the Company’s overall business strategies.

To ensure Inspire is able to attract, retain and develop high performing teams, the compensation committee of our board of directors established a compensation philosophy.

This committee engaged external compensation advisors to ensure rewards programs are competitive with a group of our peer companies.

To accomplish our objectives throughout the year, headcount plans and attrition rates are monitored and reviewed regularly with the board of directors.

We continue to evaluate all reward-related strategies to remain competitive externally and internally and ensure our rewards are aligned with our compensation philosophy.

At the direction of the compensation committee of our board of directors, we continue to partner with a consulting firm to benchmark our peer group companies and other key companies from which we recruit talent.

As a result of this analysis, we have implemented a number of changes to our rewards practices which allows us to maintain our competitiveness in the market.

We continue to believe strongly in providing employees the opportunity to participate as owners in the Company.

This is done through equity programs such as the employee stock purchase program and the grant of stock options and restricted stock units.

Additionally, we have incorporated a 401(k) employer match for all U.S.-based employees starting in 2022.

COVID-19 Health and Safety

The health and safety of our employees is a top priority.

The COVID-19 pandemic has presented a unique challenge to maintain employee health and safety while continuing successful operations.

Through teamwork and the adaptability of our management and staff, we were able to quickly and efficiently transition most of our employees to be able to work from remote locations.

Many employees continue to work remotely.

Employees that work on site are provided with personal protective equipment and enhanced cleaning supplies and are required to adhere to appropriate protocols for social distancing, taking temperatures, reporting and documenting exposures and wearing masks at all times, all in accordance with recommendations and guidelines issued by the Centers for Disease Control or mandated by local regulations.

COVID-19 continues to impact our employees, healthcare providers, and patients, which requires us to find creative and flexible strategies to address the effects.

Our top priority is the health of our employees and their families while ensuring business continuity.

Our safety practices align closely to the guidance set by the Centers for Disease Control and locally mandated regulations.

We have continued with contact tracing of all potential or

confirmed COVID-19 cases throughout our organization to minimize exposure to our employees as well as our external partners, and we have implemented a flexible work schedule to accommodate quarantine situations and the care of family members impacted by COVID-19.

Community Engagement

Throughout the year, Inspire engages in community programs which align with our Company values.

In 2020, Inspire was a Silver Sponsor of the American Heart Association's Twin Cities Heart Walk and our CEO served as the Executive Chair of the event.

Additionally, our leadership team volunteered for Loaves and Fishes as a community service project feeding families in need.

Annually, we also participate in Toys for Tots.

Traditional means of community involvement, however, continue to be a challenge through the pandemic.

Where feasible, we encourage employees to participate in local level in community service programs, including the American Heart Association's Twin Cities Heart Walk, and also companywide participation in the annual Toys for Tots campaign.

Available Information

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Item 1. Business