10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

______________________________

FORM 10-Q

________________________________

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021 or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to

Commission File Number: 001-38468

______________________________

Inspire Medical Systems, Inc.

(Exact name of registrant as specified in its charter)

______________________________

Delaware	26-1377674
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5500 Wayzata Blvd., Suite 1600 Golden Valley, MN	55416
(Address of principal executive offices)	(Zip Code)

(844) 672-4357

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	INSP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

As of October 26, 2021, the registrant had 27,358,099 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
	Forward-Looking Statements	3
PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements	5
	Balance Sheets	5
	Statements of Operations and Comprehensive Loss	6
	Statements of Stockholders' Equity	7
	Statements of Cash Flows	9
	Notes to Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II.	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
	Signatures	40

2

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements, including statements regarding our future results of operations and financial position, business strategy, the impact of the ongoing and global COVID-19 pandemic on our business, financial results and financial position, prospective products, international product approvals and commercializations, our expectations regarding the new American Medical Association reimbursement codes, our expectations regarding the final reimbursement levels for Inspire therapy procedures, research and development costs, timing and likelihood of success, other insurance providers' plans to begin approving our Inspire therapy, and the plans and objectives of management for future operations.

In some cases, you can identify forward-looking statements by terms such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘anticipate,’’ ‘‘could,’’ ‘‘intend,’’ ‘‘target,’’ ‘‘project,’’ ‘‘contemplate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘predict,’’ ‘‘potential’’ or ‘‘continue’’ or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties and assumptions, including, but not limited to:

•our history of operating losses and dependency on our Inspire system for revenues;

•commercial success and market acceptance of our Inspire therapy;

•our ability to achieve and maintain adequate levels of coverage or reimbursement for our Inspire system or any future products we may seek to commercialize;

•competitive companies and technologies in our industry;

•the impact on our business, financial condition, and results of operation from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease;

•our ability to expand our indications and develop and commercialize additional products and enhancements to our Inspire system;

•future results of operations, financial position, research and development costs, capital requirements, and our needs for additional financing;

•our ability to forecast customer demand for our Inspire system and manage our inventory;

•our dependence on third-party suppliers and contract manufacturers;

•risks related to consolidation in the healthcare industry;

•our ability to expand, manage, and maintain our direct sales and marketing organization, and to market and sell our Inspire system in markets outside of the United States;

•our ability to manage our growth;

•our ability to hire and retain our senior management and other highly qualified personnel;

•risks related to product liability claims and warranty claims;

•our ability to address quality issues that may arise with our Inspire system;

3

•our ability to successfully integrate any acquired business, products or technologies;

•changes in global macroeconomic conditions;

•any failure of key information technology systems, processes or sites or damage to or inability to access our physical facilities;

•our ability to commercialize or obtain regulatory approvals for our Inspire therapy and system, or the effect of delays in commercializing or obtaining regulatory approvals;

•any violations of anti-bribery, anti-corruption, and anti-money laundering laws;

•risks related to our indebtedness;

•our ability to use our net operating losses and research and development carryforwards;

•the risk that we may be deemed to be an investment company under the Investment Company Act of 1940;

•U.S. Food and Drug Administration ("FDA") or other United States or foreign regulatory actions affecting us or the healthcare industry generally, including healthcare reform measures in the United States and international markets;

•our ability to establish and maintain intellectual property protection for our Inspire therapy and system or avoid claims of infringement;

•risks related to our common stock; and

•other important factors that could cause actual results, performance or achievements to differ materially from those contemplated that are found in "Part I, Item 1. Business," "Part I, Item 1A. Risk Factors," and "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as updated by “Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Unless the context requires otherwise, references to “Inspire,” the “Company,” “we,” “us,” and “our,” refer to Inspire Medical Systems, Inc.

4

PART I—FINANCIAL INFORMATION

Item 1.    Financial Statements.

INSPIRE MEDICAL SYSTEMS, INC.

BALANCE SHEETS

(in thousands, except share and per share amounts)

	September 30, 2021		December 31, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	210,200	$	190,518
Investments, short-term	—		43,844
Accounts receivable, net of allowance for credit losses of     $95 and $42, respectively	26,675		25,063
Inventories	15,574		8,479
Prepaid expenses and other current assets	3,046		1,965
Total current assets	255,495		269,869
Investments, long-term	9,984		—
Property and equipment, net	7,915		5,311
Operating lease right-of-use asset	5,296		5,805
Other non-current assets	204		204
Total assets	$	278,894	$	281,189
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	9,989	$	7,209
Accrued expenses	17,477		13,516
Current portion of notes payable	6,125		—
Total current liabilities	33,591		20,725
Notes payable, non-current portion	18,799		24,746
Operating lease liability, non-current portion	6,080		5,886
Other non-current liability	124		85
Total liabilities	58,594		51,442
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized; no shares      issued and outstanding	—		—
Common Stock, $0.001 par value per share; 200,000,000 shares authorized; 27,350,959 and 27,069,276 issued and outstanding at September 30, 2021 and December 31, 2020, respectively	27		27
Additional paid-in capital	497,280		467,038
Accumulated other comprehensive (loss) income	(9)		29
Accumulated deficit	(276,998)		(237,347)
Total stockholders' equity	220,300		229,747
Total liabilities and stockholders' equity	$	278,894	$	281,189

The accompanying notes are an integral part of these unaudited financial statements.

5

INSPIRE MEDICAL SYSTEMS, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue	$	61,685	$	35,842	$	154,996	$	69,372
Cost of goods sold	8,624		5,211		22,123		10,462
Gross profit	53,061		30,631		132,873		58,910
Operating expenses:
Research and development	9,614		7,307		27,056		18,807
Selling, general and administrative	53,243		33,216		143,846		89,249
Total operating expenses	62,857		40,523		170,902		108,056
Operating loss	(9,796)		(9,892)		(38,029)		(49,146)
Other expense (income):
Interest income	(22)		(125)		(110)		(1,015)
Interest expense	537		533		1,590		1,584
Other expense (income), net	33		(2)		90		(83)
Total other expense	548		406		1,570		486
Loss before income taxes	(10,344)		(10,298)		(39,599)		(49,632)
Income taxes	3		87		52		87
Net loss	(10,347)		(10,385)		(39,651)		(49,719)
Other comprehensive loss:
Unrealized gain (loss) on investments	3		(81)		(38)		(29)
Total comprehensive loss	$	(10,344)	$	(10,466)	$	(39,689)	$	(49,748)
Net loss per share, basic and diluted	$	(0.38)	$	(0.39)	$	(1.46)	$	(1.93)
Weighted average common shares used to    compute net loss per share, basic and diluted	27,300,377		26,835,603		27,225,499		25,767,497

The accompanying notes are an integral part of these unaudited financial statements.

6

INSPIRE MEDICAL SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(in thousands, except share amounts)

	Nine Months Ended September 30, 2021
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
Balance at December 31, 2020	27,069,276	$	27	$	467,038	$	29	$	(237,347)	$	229,747
Stock options exercised	133,421	—		3,550		—		—		3,550
Issuance of common stock	376	—		73		—		—		73
Stock-based compensation expense	—	—		5,997		—		—		5,997
Other comprehensive loss	—	—		—		(20)		—		(20)
Net loss	—	—		—		—		(16,216)		(16,216)
Balance at March 31, 2021	27,203,073	27		476,658		9		(253,563)		223,131
Stock options exercised	49,318	—		1,719		—		—		1,719
Issuance of common stock	329	—		72		—		—		72
Issuance of common stock for employee stock purchase plan	11,351	—		1,760		—		—		1,760
Stock-based compensation expense	—	—		6,341		—		—		6,341
Other comprehensive loss	—	—		—		(21)		—		(21)
Net loss	—	—		—		—		(13,088)		(13,088)
Balance at June 30, 2021	27,264,071	27		486,550		(12)		(266,651)		219,914
Stock options exercised	86,473	—		3,843		—		—		3,843
Issuance of common stock	415	—		77		—		—		77
Stock-based compensation expense	—	—		6,810		—		—		6,810
Other comprehensive income	—	—		—		3		—		3
Net loss	—	—		—		—		(10,347)		(10,347)
Balance at September 30, 2021	27,350,959	$	27	$	497,280	$	(9)	$	(276,998)	$	220,300

The accompanying notes are an integral part of these unaudited financial statements.

7

INSPIRE MEDICAL SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(in thousands, except share amounts)

	Nine Months Ended September 30, 2020
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity
Balance at December 31, 2019	24,107,350	$	24	$	319,865	$	102	$	(180,156)	$	139,835
Stock options exercised	254,142	—		787		—		—		787
Issuance of common stock	897	—		72		—		—		72
Stock-based compensation expense	—	—		2,749		—		—		2,749
Other comprehensive income	—	—		—		193		—		193
Adoption of ASU 2016-13, Financial Instruments - Credit Losses	—	—		—		—		12		12
Net loss	—	—		—		—		(16,245)		(16,245)
Balance at March 31, 2020	24,362,389	24		323,473		295		(196,389)		127,403
Stock options exercised	70,853	—		732		—		—		732
Issuance of common stock	1,119	—		73		—		—		73
Sale of common stock from follow-on public offering, net of offering expenses	2,300,000	3		124,651		—		—		124,654
Issuance of common stock for employee stock purchase plan	16,730	—		1,059		—		—		1,059
Stock-based compensation expense	—	—		2,903		—		—		2,903
Other comprehensive loss	—	—		—		(141)		—		(141)
Net loss	—	—		—		—		(23,089)		(23,089)
Balance at June 30, 2020	26,751,091	27		452,891		154		(219,478)		233,594
Stock options exercised	168,970	—		2,312		—		—		2,312
Issuance of common stock	784	—		72		—		—		72
Stock-based compensation expense	—	—		3,311		—		—		3,311
Other comprehensive income	—	—		—		(81)		—		(81)
Net loss	—	—		—		—		(10,385)		(10,385)
Balance at September 30, 2020	26,920,845	$	27	$	458,586	$	73	$	(229,863)	$	228,823

The accompanying notes are an integral part of these unaudited financial statements.

8

INSPIRE MEDICAL SYSTEMS, INC.

STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

	Nine Months Ended September 30,
	2021		2020
Operating activities
Net loss	$	(39,651)	$	(49,719)
Adjustments to reconcile net loss:
Depreciation and amortization	874		587
Amortization (accretion) of investment premium (discount)	15		(66)
Accretion of debt discount	178		166
Non-cash lease expense	509		743
Stock-based compensation expense	19,148		8,963
Non-cash stock issuance for services rendered	222		217
Other, net	53		(89)
Changes in operating assets and liabilities:
Accounts receivable	(1,743)		(7,921)
Inventories	(7,095)		(3,132)
Prepaid expenses and other current assets	(1,081)		(15)
Accounts payable	3,490		2,262
Accrued expenses and other liabilities	4,228		(931)
Net cash used in operating activities	(20,853)		(48,935)
Investing activities
Purchases of property and equipment	(4,135)		(1,851)
Purchases of investments	(9,993)		(52,721)
Proceeds from sales or maturities of investments	43,800		129,803
Net cash provided by investing activities	29,672		75,231
Financing activities
Proceeds from the exercise of stock options	9,112		3,831
Proceeds from the sale of common stock	—		124,654
Proceeds from issuance of common stock from employee stock purchase plan	1,760		1,059
Net cash provided by financing activities	10,872		129,544
Effect of exchange rate on cash	(9)		5
Increase in cash and cash equivalents	19,682		155,845
Cash and cash equivalents at beginning of period	190,518		22,860
Cash and cash equivalents at end of period	$	210,200	$	178,705
Supplemental cash flow information
Cash paid for interest	$	1,417	$	1,422
Change in property and equipment acquired but not yet paid	657		—

The accompanying notes are an integral part of these unaudited financial statements.

9

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

1. Organization

Description of Business

Inspire Medical Systems, Inc. is a medical technology company focused on the development and commercialization of innovative and minimally invasive solutions for patients with obstructive sleep apnea ("OSA"). Our proprietary Inspire system is the first and only United States ("U.S.") Food and Drug Administration ("FDA") approved neurostimulation technology that provides a safe and effective treatment for moderate to severe OSA. 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. 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.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, the results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods. For a complete discussion of our significant accounting policies and other information, the unaudited financial statements and notes thereto should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Follow-On Public Offering

On April 16, 2020, we completed a follow-on offering that included our offer and sale of 2,300,000 shares of common stock at a public offering price of $58.00 per share. We received net proceeds of approximately $124.7 million after deducting underwriting discounts and commissions and offering expenses.

Cash and Cash Equivalents

We consider all highly liquid securities, readily convertible to cash, that mature within 90 days or less from the date of purchase to be cash equivalents. The carrying amount reported in the balance sheets for cash is cost, which approximates fair value.

Foreign Currency

Sales and expenses denominated in foreign currencies are translated at average exchange rates in effect throughout the year. Foreign currency transaction gains and losses are included in other expense (income), net, in the statements of operations and comprehensive loss. Assets and liabilities of foreign operations are remeasured at period-end exchange rates with the impacts of foreign currency remeasurement recognized in other expense (income), net in the statements of operations and comprehensive loss.

10

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

Investments

At December 31, 2020, our short-term investments consisted of commercial paper, corporate bonds, and U.S. government securities, which are classified as available-for-sale and had maturities less than one year. Our long-term investments at September 30, 2021 consisted of U.S. government securities. Investments are reported at their estimated fair market values which are based on quoted, active or inactive market prices when available. Any unrealized gains and losses due to interest rate fluctuations and other external factors are reported as a separate component of accumulated other comprehensive (loss) income. We had less than $0.1 million of unrecognized loss in accumulated other comprehensive (loss) income at September 30, 2021 and less than $0.1 million of unrecognized gain in accumulated other comprehensive (loss) income at December 31, 2020. Any realized gains and losses are calculated on the specific identification method and reported net in other expense (income), net in the statements of operations and comprehensive loss. For both of the three months ended September 30, 2021 and 2020, we recognized $0 of realized gains, net. For the nine months ended September 30, 2021 and 2020, we recognized $0 and $0.1 million of realized gains, net, respectively.

We recognize expected credit losses on investments in accordance with Accounting Standards Update ("ASU"), ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which we adopted effective January 1, 2020 using the modified retrospective approach. The adoption of ASU 2016-13 did not have a material impact on the amount and timing of credit losses recognized in our financial statements.

We reassess our estimated credit losses on investments each reporting period. U.S. government securities and cash equivalents are under a "zero-loss exception" for credit losses, meaning no credit loss risk calculation is necessary on those instruments due to the exceptionally low rate of default, which continues to decrease as the securities approach maturity, which for us is no longer than two years. For non-U.S. government securities, we use a discounted cash flow approach to calculate expected credit losses using estimated default rates based upon historical loss data, current conditions, as well as expectations of future economic conditions. We record changes in the allowance for credit losses for available-for-sale debt securities with a corresponding adjustment in credit loss expense on the statement of operations and comprehensive loss. No reversal of a previously recorded allowance for credit losses may be made to an amount below zero. The total allowance for credit losses was $0 at both September 30, 2021 and December 31, 2020.

Fair Value of Financial Instruments

We measure certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents and investments. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs, such as quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3—Unobservable inputs that are supported by little or no market activities, which would require us to develop our own assumptions.

We use the methods and assumptions described below in determining the fair value of our financial instruments.

Money market funds: Fair values of money market funds are based on quoted market prices in active markets. These are included as Level 1 measurements in the tables below.

11

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

Commercial paper: Short-term, highly liquid investments are included as a Level 2 measurement in the table below.

Corporate bonds: Consists of short-term notes and bonds with various yields. These are included as a Level 2 measurement in the table below.

U.S. government securities: Consists of U.S. government Treasury bills and notes with original maturities of less than one year to two years. These are included as a Level 1 measurement in the tables below.

The following tables set forth by level within the fair value hierarchy our assets that are measured on a recurring basis and reported at fair value as of September 30, 2021 and December 31, 2020. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Fair Value Measurements as of
	September 30, 2021
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	189,355	$	189,355	$	—	$	—
Total cash equivalents	189,355		189,355		—		—
Investments:
U.S. government securities	$	9,984	$	9,984	$	—	$	—
Total investments	9,984		9,984		—		—
Total cash equivalents and investments	$	199,339	$	199,339	$	—	$	—

	Fair Value Measurements as of
	December 31, 2020
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	179,389	$	179,389	$	—	$	—
Total cash equivalents	179,389		179,389		—		—
Investments:
Commercial paper	$	13,275	$	—	$	13,275	$	—
Corporate bonds	6,540		—		6,540		—
U.S. government securities	24,029		24,029		—		—
Total investments	43,844		24,029		19,815		—
Total cash equivalents and investments	$	223,233	$	203,418	$	19,815	$	—

There were no transfers between levels during the periods ended September 30, 2021 and December 31, 2020.

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash equivalents, investments, and accounts receivable.

Our investment policy limits investments to certain types of debt securities issued by the U.S. government and its agencies, corporations with investment-grade credit ratings, or commercial paper and money market funds issued by the highest quality financial and non-financial companies. We place restrictions on maturities and concentration

12

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

by type and issuer. We are exposed to credit risk in the event of a default by the issuers of these securities to the extent recorded on the balance sheets. However, as of September 30, 2021 and December 31, 2020, we limited our credit risk associated with cash equivalents by placing investments with banks we believe are highly creditworthy.

We believe that the credit risk in our accounts receivable is mitigated by our credit evaluation process, relatively short collection terms, and dispersion of our customer base. We generally do not require collateral, and losses on accounts receivable have historically been within management's expectations.

Accounts Receivable and Allowance for Expected Credit Losses

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customer credit terms are established prior to shipment with the general standard being net 30 days. Collateral or any other security to support payment of these receivables generally is not required.

We recognize expected credit losses on accounts receivable in accordance with Accounting Standards Update ("ASU"), ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which we adopted effective January 1, 2020 using the modified retrospective approach through a cumulative-effect adjustment to retained earnings. The adoption of ASU 2016-13 did not have a material impact on the amount and timing of credit losses recognized in our financial statements.

Each reporting period, we estimate the credit loss related to accounts receivable based on a migration analysis of accounts grouped by individual receivables delinquency status, and apply our historic loss rate adjusted for management's assumption of future market conditions. Any change in the allowance subsequent to the effective date of January 1, 2020 from new receivables acquired, or changes due to credit deterioration on previously existing receivables, is recorded in selling, general and administrative expenses. Write-offs of receivables considered uncollectible are deducted from the allowance. Specific accounts receivable are written-off once a determination is made that the amount is uncollectible. The write-off is recorded in the period in which the account receivable is deemed uncollectible. Recoveries are recognized when received and as a direct credit to earnings or as a reduction to the allowance for credit losses (which would indirectly reduce the loss by decreasing bad debt expense).

Inventories

Inventories are valued at the lower of cost or net realizable value, computed on a first-in, first-out basis and consisted of the following:

	September 30, 2021		December 31, 2020
Raw materials	$	1,865	$	892
Finished goods	13,709		7,587
Total inventories, net of reserves	$	15,574	$	8,479

We regularly review inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, incur charges to write down inventories to their net realizable value. The determination of a reserve for excess and obsolete inventory involves management exercising judgment to determine the required reserve, considering future demand, product life cycles, introduction of new products and current market conditions. The reserve for excess and obsolete inventory was $0.3 million and $0.1 million as of September 30, 2021 and December 31, 2020, respectively.

13

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization and consisted of the following:

	September 30, 2021		December 31, 2020
Computer equipment and software	$	1,391	$	1,305
Manufacturing equipment	4,322		2,285
Other equipment	249		249
Leasehold improvements	281		192
Construction in process	4,380		3,125
Property and equipment, cost	10,623		7,156
Less: accumulated depreciation and amortization	(2,708)		(1,845)
Property and equipment, net	$	7,915	$	5,311

Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease. Depreciation and amortization expense was $0.3 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, and $0.9 million and $0.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Impairment of Long-lived Assets

Long-lived assets consist primarily of property and equipment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that an asset be tested for possible impairment, we compare the undiscounted cash flows expected to be generated by the asset to the carrying amount of the asset. If the carrying amount of the asset is not recoverable on an undiscounted cash flow basis, we determine the fair value of the asset and recognize an impairment loss to the extent the carrying amount of the asset exceeds its fair value. We determine fair value using the income approach based on the present value of expected future cash flows or other appropriate measures of estimated fair value. Our cash flow assumptions consider historical and forecasted revenue and operating costs and other relevant factors. We did not record any impairment charges on long-lived assets during either of the nine months ended September 30, 2021 or 2020.

Accrued Expenses

Accrued expenses consisted of the following:

	September 30, 2021		December 31, 2020
Payroll related	$	14,876	$	11,965
Interest	155		160
Current operating lease liability	27		—
Other accrued expenses	2,419		1,391
Total accrued expenses	$	17,477	$	13,516

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"). Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, either upon shipment of the product or receipt of the product,

14

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

depending on shipment terms. Our standard shipping terms are free on board shipping point, unless the customer requests that control of the inventory transfer upon delivery. In those cases where shipping and handling costs are billed to customers, we classify the amounts billed as a component of cost of goods sold.

Revenue is measured as the amount of consideration we expect to receive, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, which is based on the invoiced price, in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. The majority of our contracts have a single performance obligation and are short term in nature.

Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Variable consideration related to certain customer sales incentives is estimated based on the amounts expected to be paid based on the agreement with the customer using probability assessments.

We offer customers a limited right of return for our product in case of non-conformity or performance issues. We estimate the amount of our product sales that may be returned by our customers based on historical sales and returns. As our historical product returns to date have been immaterial, we have not recorded a reduction in revenue related to variable consideration for product returns.

See Note 9 for disaggregated revenue by geographic area.

Cost of Goods Sold

Cost of goods sold consists primarily of acquisition costs for the components of the Inspire system, overhead costs, scrap and inventory obsolescence, warranty replacement costs, as well as distribution-related expenses such as logistics and shipping costs, net of shipping costs charged to customers. The overhead costs include the cost of material procurement, depreciation expense for production equipment, and operations supervision and management personnel, including employee compensation, stock-based compensation, supplies, and travel.

Research and Development

Research and development expenses consist primarily of product development, clinical and regulatory affairs, quality assurance, consulting services, and other costs associated with products and technologies in development. These expenses include employee compensation, including stock-based compensation, supplies, materials, consulting, and travel expenses related to research and development programs. Clinical expenses include clinical trial design, clinical site reimbursement, data management, travel expenses, and the cost of manufacturing products for clinical trials.

Stock-Based Compensation

We maintain an equity incentive plan to provide long-term incentives for eligible employees, consultants, and members of the board of directors. The plan allows for the issuance of restricted stock units ("RSUs") and non-statutory and incentive stock options to employees and RSUs and non-statutory stock options to consultants and directors. We also offer an employee stock purchase plan which allows participating employees to purchase shares of our common stock at a discount through payroll deductions.

We recognize equity-based compensation expense for awards of equity instruments to employees and directors based on the grant date fair value of those awards in accordance with ASC Topic 718, Stock Compensation ("ASC 718"). ASC 718 requires all equity-based compensation awards to employees and directors, including grants of RSUs and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values. We estimate the fair value of stock options using the Black-Scholes option

15

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

pricing model and the fair value of RSUs is equal to the closing price of our common stock on the grant date. The fair value of each purchase under the employee stock purchase plan is estimated at the beginning of the offering period using the Black-Scholes option pricing model. We have not granted any stock-based awards to our consultants.

The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the expected share price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) the expected dividend yield. Due to our limited operating history and a lack of company specific historical and implied volatility data, we have incorporated our historical stock trading volatility with those of a peer group of public companies for the calculation of volatility. The group of peer companies have characteristics similar to us, including stage of product development and focus on the life science industry. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. We use the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees and directors as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a U.S. government Treasury instrument whose term is consistent with the expected term of the stock options. We use an assumed dividend yield of zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.

We expense the fair value of our equity-based compensation awards granted to employees and directors on a straight-line basis over the associated service period, which is generally the period in which the related services are received. We account for award forfeitures as they occur.

Advertising Expenses

We expense the costs of advertising, including promotional expenses, as incurred. Advertising expenses were $13.4 million and $6.8 million during the three months ended September 30, 2021 and 2020, respectively, and $34.0 million and $18.2 million during the nine months ended September 30, 2021 and 2020, respectively.

Leases

Operating leases are included in operating lease right-of-use ("ROU") asset, accrued expenses, and operating lease liability – non-current portion in our balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of our incremental borrowing rate requires management judgment based on information available at lease commencement. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on our balance sheets.

Income Taxes

We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Valuation allowances against deferred tax assets are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. As we have historically incurred operating losses, we have recorded a full valuation allowance against our net deferred tax assets, and there is no provision for income taxes other than

16

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

minimal state taxes and an accrual for uncertain tax benefits. Our policy is to record interest and penalties expense related to uncertain tax positions as other expense in the statements of operations and comprehensive loss.

Comprehensive Loss

Comprehensive loss consists of net loss and changes in unrealized gains and losses due to interest rate fluctuations and other external factors on investments classified as available-for-sale. Accumulated other comprehensive (loss) income is presented in the accompanying balance sheets as a component of stockholders' equity.

Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Because we have reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all potentially dilutive shares consisting of outstanding stock options, unvested RSUs, and shares issuable under our employee stock purchase plan were antidilutive in those periods.

Recent Accounting Pronouncements

We have reviewed and considered all recent accounting pronouncements that have not yet been adopted and believe there are none that could potentially have a material impact on our business practices, financial condition, results of operations, or disclosures.

3. Investments

Our investments are classified as available-for-sale and consist of the following:

	September 30, 2021
	Amortized		Unrealized Gross				Aggregate
	Cost		Gains		Losses		Fair Value
Long-Term:
U.S. government securities	$	9,993	$	—	$	(9)	$	9,984
Long-term investments	$	9,993	$	—	$	(9)	$	9,984

	December 31, 2020
	Amortized		Unrealized Gross				Aggregate
	Cost		Gains		Losses		Fair Value
Short-Term:
Commercial paper	$	13,275	$	—	$	—	$	13,275
Corporate bonds	6,543		—		(3)		6,540
U.S. government securities	23,997		32		—		24,029
Short-term investments	$	43,815	$	32	$	(3)	$	43,844

As of September 30, 2021 and December 31, 2020, we had no investments with a contractual maturity of greater than two years. Currently, we do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. We do not consider those investments to be other-than-temporarily impaired as of September 30, 2021. At the end of each reporting period, we evaluate potential credit impairment on available-for-sale securities in an unrealized loss

17

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

position, based on the expected cash flows to be collected and the yield-to-maturity on those securities. Securities with a valuation allowance for expected credit losses and deemed uncollectible are permanently written-down, and a reversal out of the valuation allowance occurs.

4. Leases

In September 2018, we entered into a non-cancelable operating lease agreement to sublease approximately 45,000 square feet of office space for our corporate headquarters, which included real estate taxes and operating expenses in the base rent. This lease commenced January 15, 2019 and expired November 30, 2020.

In May 2019, we entered into a new, non-cancelable operating lease agreement for the same space directly with the landlord. The initial lease term commenced on December 1, 2020 and expires May 31, 2028 with an option to renew for one additional period of five years at the then-prevailing market rate. The exercise of the lease renewal option is at our sole discretion and was not included in the lease term for the calculation of the ROU asset and lease liability when the lease commenced on December 1, 2020 as it is not reasonably certain of exercise.

Beginning December 1, 2020, in addition to base rent, we also pay our proportionate share of the operating expenses, as defined in the lease. These payments are made monthly and adjusted annually to reflect actual charges incurred for operating expenses, such as common area maintenance, taxes and insurance. In conjunction with this lease, the landlord agreed to provide a $0.6 million rent abatement and a refurbishment allowance in the amount of the cost of any leasehold improvements, not to exceed approximately $1.1 million upon Inspire providing the necessary documentation evidencing the costs of the leasehold improvements that are completed by May 31, 2022. However, the lease allows us to allocate the refurbishment allowance against base rent instead of taking a tenant improvement reimbursement. At this time, we intend to allocate the full amount of the refurbishment allowance against base rent.

In August 2021, we entered into a new, non-cancelable operating lease agreement for approximately 25,000 square feet of additional corporate office space with our existing landlord. The initial lease term commences on October 1, 2021 and expires May 31, 2028 with an option to renew for one additional period of 5 years at the then-prevailing market rate. The exercise of the lease renewal option is at our sole discretion and will not be included in the lease term for the calculation of the ROU asset and lease liability when the lease commences on October 1, 2021 as it is not reasonably certain of exercise.

Beginning October 1, 2021, in addition to base rent on the additional space, we will also pay our proportionate share of the operating expenses, as defined in the lease. These payments will be made monthly and will be adjusted annually to reflect actual charges incurred for operating expenses, such as common area maintenance, taxes and insurance. In conjunction with this lease, the landlord agreed to provide a $0.2 million rent abatement and a refurbishment allowance in the amount of the cost of any leasehold improvements, not to exceed $0.4 million upon Inspire providing the necessary documentation evidencing the costs of the leasehold improvements that are completed by May 31, 2022. However, the lease allows us to allocate the refurbishment allowance against base rent instead of taking a tenant improvement reimbursement. At this time, we intend to allocate the full amount of the refurbishment allowance against base rent. The total minimum lease payments related to this forward-starting lease are $3.6 million.

18

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

The following table presents the lease balances within the balance sheets:

	September 30, 2021		December 31, 2020
Right-of-use assets:
Operating lease right-of-use asset	$	5,296	$	5,805
Operating lease liabilities:
Accrued expenses	27		—
Operating lease liability, non-current portion	6,080		5,886
Total operating lease liabilities	$	6,107	$	5,886

As of September 30, 2021, the remaining lease term was 6.7 years and the discount rate was 5.2%. The operating cash outflows from our operating leases were $0.1 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $0.1 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively.

5. Long-Term Debt

In August 2015, we entered into a loan and security agreement that initially provided for a term A loan facility in the amount of $15.5 million, which was fully funded on the closing date, and a term B loan facility in an amount between $3.5 million and $10.0 million, subject to our achievement of certain revenue milestones. We refer to our term A loan facility and our term loan B facility together as our credit facility.

In February 2017, we amended the loan and security agreement to, among other things, increase borrowings under the term A loan facility by $1.0 million, for a total of $16.5 million outstanding under the credit facility, and reduced borrowings available under the term B loan facility to $9.0 million.

In February 2018, we borrowed an additional $8.0 million under the term B loan facility portion of the credit facility for a total of $24.5 million outstanding under the credit facility.

On March 27, 2019, we amended the loan and security agreement. The amendment modified the terms of the loan and security agreement to: (1) extend the interest-only date from March 1, 2020 to April 1, 2022 and extend the maturity date from February 1, 2022 to March 1, 2024; (2) reduce the final payment percentage from 5.50% to 3.50%; (3) modify the basic rate to be a per annum rate of interest (based on a year of 360 days) equal to the sum of (i) the greater of (A) the 30 day U.S. LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or (B) 2.50%, plus (ii) 5.10%; provided, however, under no circumstances will the basic rate be less than 7.60%; (4) provide a mechanism for determining an alternative interest rate to replace the U.S. LIBOR rate upon the occurrence of certain circumstances; and (5) revise the prepayment fee to be between 1.00% and 3.00% of the principal amount, depending on the timing of any prepayment. Upon closing the amendment to the loan and security agreement, payment of the previously accrued final payment under the credit facility was required.

In addition to the principal and interest payments, under the credit facility, we are required to pay a final payment fee of 3.50% on all amounts outstanding, which is being accreted using the effective interest rate method over the term of the loan and security agreement and shall be due at the earlier of maturity or prepayment. Borrowings are prepayable at our option in whole, but not in part, together with all accrued and unpaid interest thereon and, if not previously made, the final payment, subject to a prepayment fee of 1.00%.

The credit facility includes affirmative and restrictive covenants and events of default, including the following events of default: payment defaults, breaches of covenants, judgment defaults, cross defaults to certain other contracts, certain events with respect to governmental approvals if such events could cause a material adverse change, a material impairment in the perfection or priority of the lender's security interest or in the value of the collateral, a

19

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

material adverse change in the business, operations, or condition of us or any of our subsidiaries, and a material impairment of the prospect of repayment of the loans. Upon the occurrence of an event of default, a default increase in the interest rate of an additional 5.00% could be applied to the outstanding loan balance and the lender could declare all outstanding obligations immediately due and payable and take such other actions as set forth in the loan and security agreement.

Our obligations under the credit facility are secured by a first priority security interest in substantially all of our assets, other than our intellectual property. There are no financial covenants contained in the loan and security agreement. We were in compliance with the affirmative and restrictive covenants as of September 30, 2021.

Expected future principal payments for the credit facility are as follows:

Year ending December 31:
2021 (remaining)	$	—
2022	9,188
2023	12,250
2024	3,062
Total expected future principal payments	$	24,500

6. Employee Retirement Plan

We sponsor an employee retirement plan covering all of our full-time employees. The plan allows for eligible employees to defer a portion of their eligible compensation up to the maximum allowed by IRS Regulations. We may elect to make a voluntary contribution to the plan. We have not made contributions since inception.

7. Stockholders' Equity

Stock-Based Compensation

We adopted the 2007 Stock Incentive Plan (the "2007 Plan") in November 2007, which terminated in accordance with its terms on November 28, 2017; however, the outstanding stock options may continue to be exercised in accordance with their terms. Immediately following the termination of the 2007 Plan, we adopted the 2017 Stock Incentive Plan (the "2017 Plan"), which contains substantially similar terms and conditions as the 2007 Plan. Upon the IPO, no further grants were made under the 2017 Plan and we adopted the 2018 Stock Incentive Plan (the "2018 Plan").

The purpose of the 2018 Plan is to promote the interest of our company and our stockholders by aiding in attracting and retaining employees, officers, consultants, independent contractors, and directors capable of assuring the future success of our business and to afford such persons an opportunity to acquire a proprietary interest in our company. The board of directors may amend, alter, suspend, discontinue, or terminate the 2018 Plan at any time with the approval of our stockholders. A total of 1,386,809 shares of common stock were initially reserved for issuance under the 2018 Plan, and this share reserve will automatically be supplemented each January 1, commencing on January 1, 2019 and ending on and including January 1, 2028, by an amount of shares equal to the lesser of: a) 739,631 shares, b) 4% of the shares outstanding on the final day of the immediately preceding fiscal year and c) such smaller number of shares as determined by the board of directors. As of September 30, 2021, there were 3,284,769 shares reserved for issuance under the 2018 Plan, of which 1,293,557 shares were available for issuance.

The following table presents the components and classification of stock-based compensation expense recognized for stock options and RSUs granted under the 2017 Plan, the 2018 Plan and under our Employee Stock Purchase Plan (the "ESPP"):

20

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Stock options	$	6,405	$	2,984	$	18,065	$	8,303
Restricted stock units	29		—		77		—
Employee stock purchase plan	376		327		1,006		660
Total stock-based compensation expense	$	6,810	$	3,311	$	19,148	$	8,963
Cost of goods sold	$	88	$	36	$	250	$	122
Research and development	1,153		535		3,229		1,252
Selling, general and administrative	5,569		2,740		15,669		7,589
Total stock-based compensation expense	$	6,810	$	3,311	$	19,148	$	8,963

Stock Options

Prior to the IPO, the exercise price of stock options represented fair value of the common stock at the time of issuance and was determined by the board of directors with the assistance of a third-party valuation specialist. Post-IPO, options are granted at the exercise price, which is equal to the closing price of our stock on the date of grant. The stock options granted to employees include a four-year service period and 25% vest after the first year of service and the remainder vest in equal installments over the next 36 months of service. The stock options granted to the board of directors vest in one or three equal annual installments, in each case, subject to the director's continuous service through the applicable vesting date. The stock options have a contractual life of ten years.

A summary of stock option activity and related information is as follows:

	Options	Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020	2,857,564		$	66.09	7.9	$351,626
Granted	184,845		$	208.12
Exercised	(269,212)		$	33.92		$47,176
Forfeited/expired	(93,790)		$	113.37
Outstanding at September 30, 2021	2,679,407		$	77.47	7.3	$416,515
Exercisable at September 30, 2021	1,355,413		$	28.54	6.1	$276,959

The aggregate intrinsic value of options exercised is the difference between the estimated fair market value of our common stock at the date of exercise and the exercise price for those options. The aggregate intrinsic value of outstanding options is the difference between the closing price as of the date outstanding and the exercise price of the underlying stock options.

As of September 30, 2021, the amount of unearned stock-based compensation to be expensed from now through the year 2025 related to unvested employee and non-employee director stock options is $70.0 million, which we expect to recognize over a weighted average period of 2.5 years. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase, or cancel any remaining unearned stock compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional stock-based awards.

We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing model using the fair market value of our common stock on the date of grant and a number of other assumptions. These

21

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

assumptions include estimates regarding the expected term of the awards, estimates of the stock volatility over a duration that approximates the expected term of the awards, estimates of the risk-free rate, and estimates of expected dividend rates.

The fair value of options granted to employees and non-employee directors was estimated as of the grant date using the Black-Scholes option pricing model using the following assumptions:

	Nine Months Ended
	September 30,
	2021	2020
Expected term (years)	5.50 - 6.25	5.50 - 6.25
Expected volatility	55.0 - 55.9%	42.3 - 49.3%
Risk-free interest rate	0.79 - 1.40%	0.36 - 1.42%
Expected dividend yield	0.0%	0.0%
Weighted average fair value	$109.81	$38.33

Expected Term — Due to our limited amount of historical exercise, forfeiture, and expiration activity, we have opted to use the "simplified method" for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting terms and the original contractual term of the option. We will continue to analyze our expected term assumption as more historical data becomes available.

Expected Volatility — Due to our limited operating history and a lack of company specific historical and implied volatility data, we have incorporated our historical stock trading volatility with those of a group of similar companies that are publicly traded for the calculation of volatility. When selecting this peer group of public companies on which we have based our expected stock price volatility, we generally selected companies with comparable characteristics to it, including enterprise value, stages of clinical development, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. We will continue to analyze the historical stock price volatility assumption as more historical data for our common stock becomes available.

Risk-Free Interest Rate — The risk-free rate assumption is based on the U.S. government Treasury instruments with maturities similar to the expected term of our stock options.

Expected Dividend Yield — The expected dividend assumption is based on our history of not paying dividends and our expectation that we will not declare dividends for the foreseeable future.

The amount of stock-based compensation expense is recognized on a straight-line basis over the vesting term and is reduced by actual forfeitures as they occur.

Restricted Stock Units

RSUs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The RSUs include a four-year service period and vest in equal installments on each of the first four anniversaries of the date of grant, provided the employee remains continuously employed with the Company. The fair value of the RSUs is equal to the closing price of our common stock on the grant date.

22

INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

A summary of RSUs and related information is as follows:

	Restricted Stock Units	Weighted Average Grant Date Fair Value			Aggregate Intrinsic Value (in thousands)
Unvested at December 31, 2020	—		$	—	$	—
Granted	2,275		$	201.51
Unvested at September 30, 2021	2,275		$	201.51	$	530

There were no RSUs granted prior to 2021. The aggregate intrinsic value of RSUs outstanding was based on our closing stock price on the last trading day of the period. As of September 30, 2021, there was $0.4 million of unrecognized stock-based compensation expense related to RSUs to be recognized over a period of 3.3 years.

Employee Stock Purchase Plan

Our ESPP allows participating employees to purchase shares of our common stock at a discount through payroll deductions. The plan is available to all of our U.S.-based full-time employees. Participating employees may purchase common stock, on a voluntary after-tax basis, at a price equal to 85% of the lower of the closing market price per share of our common stock on the first or last trading day of each stock purchase period. The plan provides for six-month purchase periods, beginning on January 1 and July 1 of each calendar year.

A total of 277,362 shares of common stock were initially reserved for issuance under the ESPP, and this share reserve will automatically be supplemented each January 1, commencing on January 1, 2019 and ending on and including January 1, 2028, by an amount of shares equal to the lesser of: a) 184,908 shares, b) 1% of the shares outstanding on the final day of the immediately preceding calendar year and c) such smaller number of shares as the board of directors may determine. On June 30, 2021, 11,351 shares were purchased under the ESPP, utilizing $1.8 million of employee contributions. As of September 30, 2021, 754,752 shares were available for future issuance under the ESPP. The current purchase period under the ESPP began on July 1, 2021 and ends December 31, 2021.

8. Income Taxes

At both September 30, 2021 and 2020, a valuation allowance was recorded against all deferred tax assets due to our cumulative net loss position. We recorded income tax expense of $0 and $0.1 million in the three months ended September 30, 2021 and 2020, respectively, and $0.1 million for both of the nine months ended September 30, 2021 and 2020. The nominal Income tax expense in those periods reflects minimal state income tax expense and an accrual for uncertain tax benefits.

We filed our 2020 U.S. federal income tax return during the third quarter of 2021. Considering provision to return true-ups, our gross federal net operating loss carryforward as of December 31, 2020 was $234.8 million, which will expire at various dates beginning in 2028. In addition, net operating loss carryforwards for state income tax purposes of $145.6 million that include net operating losses will begin to expire in 2028. We also have gross research and development credit carryforwards of $4.4 million as of December 31, 2020, which will expire at various dates beginning in 2033.

Utilization of the net operating loss carryforwards may be subject to an annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986 and similar state provisions. We have not performed a detailed analysis to determine whether an ownership change has occurred. Such a change of ownership would limit our utilization of the net operating losses and could be triggered by subsequent sales of securities by us or our stockholders.

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INSPIRE MEDICAL SYSTEMS, INC. 

NOTES TO FINANCIAL STATEMENTS (Unaudited) 

(Table amounts in thousands, except share and per share amounts)

Realization of the deferred tax assets is dependent upon the generation of future taxable income, if any, the amount and timing of which are uncertain. Based on available objective evidence and cumulative losses, we believe it is more likely than not that the deferred tax assets are not recognizable and will not be recognizable until we have sufficient taxable income. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.

We had $0.1 million of gross unrecognized tax benefits as of each of September 30, 2021 and December 31, 2020.

We file income tax returns in the applicable jurisdictions. The 2018 to 2020 tax years remain open to examination by the major taxing authorities to which we are subject. We do not expect a significant change to our unrecognized tax benefits over the next 12 months.

9. Segment Reporting and Revenue Disaggregation

We operate our business as one reporting segment. An operating segment is defined as a component of an enterprise for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

We sell our Inspire system to hospitals and ambulatory surgery centers in the U.S. and in select countries in Europe through a direct sales organization. Revenue by geographic region is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
United States	$	58,298	$	33,121	$	145,420	$	63,379
Europe	3,387		2,721		9,576		5,993
Total revenue	$	61,685	$	35,842	$	154,996	$	69,372

All of our long-lived assets are located in the U.S.

10. Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Because we have reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all of the following potentially dilutive shares were antidilutive in those periods:

	September 30,
	2021	2020
Common stock options	2,679,407	2,514,801
Restricted stock units	2,275	—
Employee stock purchase plan	6,124	—
Total	2,687,806	2,514,801

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited financial statements and the related notes thereto, and the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, such as information with respect to our plans and strategy for our business and the impact of the ongoing and global COVID-19 pandemic on our business, financial results and financial condition on our business, financial results and financial condition includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.

Overview

We are a medical technology company focused on the development and commercialization of innovative and minimally invasive solutions for patients with 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. We have developed a novel, closed-loop solution that continuously monitors a patient’s breathing and delivers mild hypoglossal nerve stimulation to maintain an open airway. 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 U.S. must have been confirmed to fail or be unable to tolerate positive airway pressure treatments, such as CPAP, and be 18 years of age or older, though there are no similar requirements for patients in Europe.

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. Our direct sales force engages in sales efforts and promotional activities focused on ear, nose and throat ("ENT") physicians and sleep centers. In addition, we highlight our compelling clinical data and value proposition to increase awareness and adoption amongst referring physicians. We build upon this top-down approach with strong direct-to-consumer marketing initiatives to create awareness of the benefits of our Inspire system and drive interest through patient empowerment. This outreach helps to educate thousands of patients on our Inspire therapy.

Although our sales and marketing efforts are directed at patients and physicians because they are the primary users of our technology, we consider the hospitals and ASCs where the procedure is performed to be our customers, as they are the purchasing agents of our Inspire system. Our customers are reimbursed the cost required to treat each patient through various third-party payors, such as commercial payors and government agencies. Our Inspire system is currently reimbursed primarily on a per-patient prior authorization basis for patients covered by commercial payors, under Local Coverage Determinations for patients covered by Medicare, and under U.S. government contract for patients who are treated by the Veterans Health Administration. We have secured positive coverage policies with all large national commercial insurers and we estimate that the majority of patients who meet the FDA indication for Inspire therapy are covered by commercial insurance companies or Medicare.

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). There are significant changes to the CPT code set for Inspire therapy which will take effect on January 1, 2022. These changes include three new CPT Category I codes, the deletion of the current Category III codes, and the addition of a new CPT code for the Drug Induced Sleep Endoscopy ("DISE") procedure. The three new CPT Category I codes are as follows: 64582 for the insertion of hypoglossal nerve neurostimulator electrode and generator and breathing sensor electrode; 64583 for the revision or replacement of hypoglossal nerve neurostimulator electrode and breathing sensor electrode with connection to existing generator; and 64584 for the removal of hypoglossal nerve neurostimulator electrode and generator and breathing sensor electrode. Temporary

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Category III codes 0466T, 0467T, and 0468T will be deleted from the 2022 code set. The new CPT code for the DISE procedure is 42975, for the evaluation of sleep-disordered breathing by examination of upper airway using an endoscope. While the Center for Medicare & Medicaid Services ("CMS") has significant discretion over the final reimbursement rates assigned, we believe that these coding changes will have a positive impact on Medicare reimbursement related to our technology.

In July 2021, the proposed 2022 Medicare reimbursement rates were announced for physicians implanting Inspire therapy and performing DISE procedures. The 2022 national average physician payments are expected to be approximately $870 for implantation of a hypoglossal nerve stimulator and approximately $113 for the DISE procedure. Also announced in July 2021 were the 2022 proposed rates of Medicare reimbursement to our hospital and ASC customers under the outpatient prospective payment system. The proposed rate for hospitals increased approximately 3% over the 2021 rate, but the proposed rate for ASCs decreased by approximately 28%. In determining the ASC reimbursement rates under the proposed rules, CMS defaulted to a device offset rate of 31%, rather than retain the existing offset rate of 88.07% that was previously applied prior to the new CPT code. The device offset is generally the device-related portion of the relevant procedure code under the Healthcare Common Procedure Coding System. The result of this proposed change by CMS reduced the payment for the Inspire procedure in ASCs from nearly $25,000 to approximately $17,500. In August 2021, CMS convened the advisory panel on hospital outpatient payment to review several considerations, including ASC classifications for multiple device types. The panel voted unanimously, with no abstentions, to recommend to CMS that it apply the device offset rate of 85.71% and that there be no multiple procedure discounting, which would result in the 2022 rate for ASCs to be approximately consistent with the 2021 rate. We believe that steady or increased Medicare reimbursement rates may positively affect demand for our Inspire system and may have a beneficial impact on our result of operations. The final 2022 reimbursement rates are expected to be announced in late November or early December 2021.

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. We currently plan for the initial implants of Inspire therapy to occur in Japan by the end of 2021. In August 2020, the Australian Therapeutic Goods Administration approved Inspire therapy to treat moderate to severe OSA, and we are currently seeking reimbursement in Australia.

For the nine months ended September 30, 2021, 93.8% of our revenue was derived in the U.S. and 6.2% was derived in Europe. No single customer accounted for more than 10% of our revenue during the nine months ended September 30, 2021.

Our marketing efforts during the first half of 2020 included refocused direct-to-consumer marketing strategies, which initially included a shift from radio and TV in our larger markets that were affected by COVID-19 towards more digital and TV in smaller markets. During the second quarter of 2020, and continuing through today, we resumed radio and TV initiatives in our larger markets as the impact of COVID-19 lessened in those areas. We continue to monitor the impacts of COVID-19 in each advertising market and may again change our advertising strategy on a market-by-market basis if needed. Further, our team has leveraged virtual tools, such as the new Inspire Sleep app released during the second quarter of 2020, to continue physician training and patient education. In January 2021, we began airing four new TV commercials and we expect to continue to increase our digital and social media presence.

In early 2020, we started a call center concept, the Inspire Advisor Care Program ("ACP"). The primary purpose of this program is to assist patients with making a connection with a qualified healthcare provider based on their specific needs. As of November 2, 2021, approximately 450 of our U.S. centers were utilizing the ACP, up from approximately 180 centers at December 31, 2020. We plan to continue to increase the number of our U.S. centers using the ACP during the remainder of 2021.

We rely on third-party suppliers to manufacture our Inspire system and its components. Many of these suppliers are currently single source suppliers. We seek to maintain higher levels of inventory to protect ourselves from supply interruptions, and, as a result, we are subject to the risk of inventory obsolescence and expiration, which could lead to inventory impairment charges. In the U.S., our products are shipped directly to our customers on a purchase order basis, primarily by a third-party vendor with a facility in Tennessee, although we do ship some products from

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our facility in Minnesota. Warehousing and shipping operations for our European customers are handled by a third-party vendor with a facility located in the Netherlands. Customers do not have the right to return non-defective product, nor do we place product on consignment. Our sales representatives do not maintain trunk stock.

Since our inception in 2007, we have financed our operations primarily through sales of our Inspire system, private placements of our convertible preferred securities, amounts borrowed under our credit facility and registered offerings of our common stock. In April 2020, we sold 2,300,000 shares of common stock at a public offering price of $58.00 per share and received net proceeds of approximately $124.7 million after deducting underwriting discounts, commissions, and offering expenses. We have devoted significant resources to research and development activities related to our Inspire system, including clinical and regulatory initiatives to obtain marketing approval, and sales and marketing activities. For the three months ended September 30, 2021, we generated revenue of $61.7 million with a gross margin of 86.0% and had a net loss of $10.3 million compared to revenue of $35.8 million with a gross margin of 85.5% and a net loss of $10.4 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, we generated revenue of $155.0 million with a gross margin of 85.7% and had a net loss of $39.7 million compared to revenue of $69.4 million with a gross margin of 84.9% and a net loss of $49.7 million for the nine months ended September 30, 2020. Our accumulated deficit as of September 30, 2021 was $277.0 million.

We have invested heavily in product development. Our research and development activities have been centered on driving continuous improvements to our Inspire therapy. We have also made significant investments in clinical studies to demonstrate the safety and efficacy of our Inspire therapy and to support regulatory submissions. We continue to make investments in research and development efforts to develop our next generation Inspire systems and support our future regulatory submissions for expanded indications and for new markets such as Europe, Japan, and Australia. For example, in March 2021, we received FDA approvals for both a new Inspire physician programmer platform and an improved surgical implant procedure that eliminates one incision with a revised placement of the pressure sensing lead. In May 2021, we received CE Mark approval in Europe for the two-incision implant procedure. In April 2020, we received FDA approval for an expanded age-range for Inspire therapy to include 18 to 21 year old patients. 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.

We also continue to make significant investments to build our sales and marketing organization by increasing the number of U.S. sales representatives and continuing our direct-to-consumer marketing efforts in existing and new markets throughout the U.S. and in Europe. In the three months ended September 30, 2021, we activated 68 centers bringing the total to 603 U.S. medical centers implanting Inspire therapy as of September 30, 2021. At September 30, 2021, ASCs made up 20% of our total U.S. implanting centers, up from 16% at December 31, 2020. Additionally, we created 11 new territories during the three months ended September 30, 2021, bringing the total to 141 U.S. territories as of September 30, 2021.

Because of these and other factors, we may continue to incur net losses for the next several years, and we may require substantial additional funding, which may include future equity and debt financings.

Outlook

We expect the COVID-19 pandemic to continue to adversely impact our revenue due to decreases and delays in the number of Inspire therapy procedures performed and patients screened for eligibility for Inspire therapy. Beginning in the second week of March 2020, substantially all of the scheduled Inspire therapy procedures were postponed and numerous other authorized cases were unable to be scheduled. During April 2020, the widespread shutdown in elective surgical procedures continued, with surgical volumes increasing in May and even further in June, yet still remaining below pre-COVID-19 levels. Surgical volumes continued to increase steadily during the remainder of 2020, with most implanting centers performing procedures by October 2020. A portion of the remaining 2020 procedures performed were those rescheduled from the first half of 2020, and, as a result of which, the initial backlog of postponed cases was largely eliminated by the end of 2020. Resurgences of COVID-19 during 2021 in various U.S. and European regions have, and may in the future, negatively impact our procedure volumes, although surgical volumes generally returned to pre-pandemic levels by the end of the first quarter of 2021. Additionally, while

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procedural volume rates for elective surgeries generally returned to pre-pandemic levels in the U.S. and Europe by March 31, 2021, the COVID-19 pandemic continues to rapidly evolve and its impact on our business will depend on several factors that are highly uncertain and unpredictable.

In response to the spread of COVID-19 and in line with recommendations from federal and local government and healthcare agencies, in March 2020 we transitioned employees, except for those deemed essential to key aspects of our business, to a remote work environment. Beginning in May 2020, our corporate office re-opened with strict sanitation and physical distancing protocols, although some corporate employees continue to work remotely as a heightened precautionary measure. Additionally, our field staff continues to primarily work remotely and must adhere to applicable COVID-19 protocols when visiting hospitals and ASCs. During the period in which surgical procedures were significantly limited, we identified and implemented innovative solutions to support patients who have Inspire therapy, as well as continued to educate patients who may be struggling with their sleep apnea. Patients continue to reach out to learn more about the therapy and get connected to a healthcare provider, and we are supporting this interaction through the use of several virtual tools, including the Inspire Sleep app that was released in 2020, and other online tools. We are also continuing with our planned expansion in recruiting Territory Managers and sales support roles.

To date, we have not experienced disruptions to our supply chain network as a result of the COVID-19 pandemic. We have also not reduced our capital expenditures and are continuing to invest in research and development, however, we may determine to allocate resources differently due to impacts of the COVID-19 pandemic.

We believe that our existing cash resources will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months. For additional information, see “— Liquidity and Capital Resources.”

Components of Our Results of Operations

Revenue

We derive primarily all of our revenue from the sale of our Inspire system to hospitals and ASCs in the U.S. and select countries in Europe. We recognize revenues from sales of our Inspire system when the customer obtains control of the product, which occurs at a point in time, either upon shipment of the product or receipt of the product, depending on shipment terms.

Our revenue has fluctuated, and may continue to fluctuate, from quarter to quarter due to a variety of factors. For example, we have historically experienced seasonality in our first and fourth quarters and have experienced adverse impacts on our revenue due to the COVID-19 pandemic.

Cost of Goods Sold and Gross Margin

Cost of goods sold consists primarily of acquisition costs for the components of the Inspire system, overhead costs, scrap, and inventory obsolescence, warranty replacement costs, as well as distribution-related expenses such as logistics and shipping costs, net of shipping costs charged to customers. The overhead costs include the cost of material procurement, depreciation expense for production equipment, and operations supervision and management personnel, including employee compensation, stock-based compensation, supplies, and travel. We expect cost of goods sold to increase or decrease in absolute dollars primarily as, and to the extent, our revenue grows or declines, respectively.

We calculate gross margin as gross profit divided by revenue. Our gross margin has been and we expect it will continue to be affected by a variety of factors, including manufacturing costs, the average selling price of our Inspire system, the implementation of cost-reduction strategies, inventory obsolescence costs, which generally occur when new generations of our Inspire system are introduced, and to a lesser extent the sales mix between the U.S. and Europe as our average selling price in the U.S. tends to be higher than in Europe. Our gross margin may increase slightly over the long term to the extent our production volumes increase and we receive discounts on the costs

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charged by our contract manufacturers, thereby reducing our per unit costs. However, our gross margin may fluctuate from quarter to quarter due to seasonality.

Research and Development Expenses

Research and development expenses consist primarily of product development, engineering, clinical studies to develop and support our products, regulatory expenses, quality assurance, testing, consulting services and other costs associated with the next generation versions of the Inspire system. These expenses include employee compensation, including stock-based compensation, supplies, materials, consulting, and travel expenses related to research and development programs. Additionally, these expenses include clinical trial management, payments to clinical investigators, data management and travel expenses for our various clinical trials.

We expect research and development expenses to increase in the future as we develop next generation versions of our Inspire system and continue to expand our clinical studies to further expand positive coverage policies from private commercial payors in the U.S. and enter into new markets including additional European countries, Japan, and Australia. We expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts and new clinical development activities.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of compensation for personnel, including base salaries, stock-based compensation expense and commissions related to our sales organization, finance, information technology, and human resource functions, as well as spending related to marketing, sales operations, and training and reimbursement personnel. Other selling, general and administrative expenses include training physicians, travel expenses, advertising, direct-to-consumer promotional programs, conferences, trade shows and consulting services, professional services fees, audit fees, insurance costs and general corporate expenses, including facilities-related expenses.

We expect selling, general and administrative expenses to continue to increase as we expand our commercial infrastructure to both drive and support our planned growth in revenue and as we increase our headcount and expand administrative personnel to support our growth and operations as a public company including finance personnel and information technology services. Additionally, we anticipate an increase in our stock-based compensation expense with grants of restricted stock units, stock options, and shares of our common stock purchased pursuant to our employee stock purchase plan.

Other Expense (Income)

Other expense (income) consists primarily of interest expense payable under our credit facility and interest income.

Seasonality

Historically, we have experienced seasonality in our first and fourth quarters, and we expect this trend to continue. In the U.S., we have experienced, and may in the future experience, higher sales in the fourth quarter as a result of patients having paid their annual insurance deductibles in full, thereby reducing their out-of-pocket costs. Historically, 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 became fully integrated into the German hospital reimbursement system (“G-DRG”), and we therefore may experience less seasonal fluctuations in Germany.

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Results of Operations

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
	(in thousands, except percentages)
Revenue	$	61,685	$	35,842	$	25,843	72.1	%	$	154,996	$	69,372	$	85,624	123.4	%
Cost of goods sold	8,624		5,211		3,413		65.5	%	22,123		10,462		11,661		111.5	%
Gross profit	53,061		30,631		22,430		73.2	%	132,873		58,910		73,963		125.6	%
Gross margin	86.0%		85.5%						85.7%		84.9%
Operating expenses:
Research and development	9,614		7,307		2,307		31.6	%	27,056		18,807		8,249		43.9	%
Selling, general and administrative	53,243		33,216		20,027		60.3	%	143,846		89,249		54,597		61.2	%
Total operating expenses	62,857		40,523		22,334		55.1	%	170,902		108,056		62,846		58.2	%
Operating loss	(9,796)		(9,892)		96		(1.0)	%	(38,029)		(49,146)		11,117		(22.6)	%
Other expense, net	548		406		142		35.0	%	1,570		486		1,084		223.0	%
Loss before income taxes	(10,344)		(10,298)		(46)		0.4	%	(39,599)		(49,632)		10,033		(20.2)	%
Income taxes	3		87		(84)		(96.6)	%	52		87		(35)		(40.2)	%
Net loss	$	(10,347)	$	(10,385)	$	38	(0.4)	%	$	(39,651)	$	(49,719)	$	10,068	(20.2)	%

Comparison of the Three Months Ended September 30, 2021 and 2020

Revenue

Revenue increased $25.8 million, or 72.1%, to $61.7 million for the three months ended September 30, 2021 compared to $35.8 million for the three months ended September 30, 2020. The increase was attributable to a $25.2 million increase in sales of our Inspire system in the U.S. and an increase of $0.7 million in Europe, primarily in Germany. Revenue growth was primarily due to the continued widespread impacts of COVID-19 in the third quarter of 2020, increased market penetration in existing territories, the expansion into new territories, and increased physician and patient awareness of our Inspire system.

Since March 2020, our revenue growth in the U.S. and Europe has been impacted by the COVID-19 pandemic, which disrupted our ability to access our clinician customers and their patients. Specifically, we saw healthcare facilities and clinics restricting access to their clinicians, reducing patient consultations and treatments, or closing temporarily due to COVID-19. As a result, beginning in the second week of March 2020, substantially all of our Inspire therapy procedures were postponed and numerous other cases, which had received prior authorization, were not able to be scheduled and, therefore were also postponed. During April 2020, the widespread shutdown in elective surgical procedures continued, with surgical volumes increasing in May and even further in June, yet still remaining below pre-COVID-19 levels. During the third quarter 2020, surgical volumes increased steadily, but remained negatively impacted by the COVID-19 pandemic, and the backlog of cases from the first half of 2020 was largely eliminated. Revenue during the three months ended September 30, 2021, was also impacted by COVID-19, although to a much lesser extent than in the same prior year period as surgical volumes generally returned to pre-pandemic levels by the end of the first quarter of 2021.

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Revenue information by region is summarized as follows:

	Three Months Ended September 30,
	2021				2020				Change
	Amount		% of Revenue		Amount		% of Revenue		$		%
	(in thousands, except percentages)
United States	$	58,298	94.5	%	$	33,121	92.4	%	$	25,177	76.0	%
Europe	3,387		5.5	%	2,721		7.6	%	666		24.5	%
Total revenue	$	61,685	100.0	%	$	35,842	100.0	%	$	25,843	72.1	%

Revenue generated in the U.S. was $58.3 million for the three months ended September 30, 2021, an increase of $25.2 million, or 76.0%, compared to the three months ended September 30, 2020. Revenue growth in the U.S. was somewhat due to the continuing impacts from the COVID-19 pandemic in the third quarter of 2020, but was also attributable to increased market penetration in existing territories, the expansion into new territories, increased physician and patient awareness of our Inspire system, and additional positive coverage policies during the three months ended September 30, 2021. As noted above, U.S. revenue during both periods was negatively impacted by the COVID-19 pandemic.

Revenue generated in Europe was $3.4 million in the three months ended September 30, 2021, an increase of $0.7 million, or 24.5%, compared to the three months ended September 30, 2020. Revenue growth in Europe was somewhat due to the continuing impacts from the COVID-19 pandemic in the third quarter of 2020, but was also attributable to increased market penetration in existing territories, the expansion of our European sales representatives into new territories, and increased physician and patient awareness of our Inspire system during the three months ended September 30, 2021. The remainder of our increased revenue from Europe was due to favorable exchange rates. As noted above, European revenue during both periods was negatively impacted by the COVID-19 pandemic.

Cost of Goods Sold and Gross Margin

Cost of goods sold increased $3.4 million, or 65.5%, to $8.6 million for the three months ended September 30, 2021 compared to $5.2 million for the three months ended September 30, 2020. The increase was primarily due to product costs associated with higher sales volume of our Inspire system.

Gross margin increased to 86.0% for the three months ended September 30, 2021 compared to 85.5% for the three months ended September 30, 2020. Gross margin for the three months ended September 30, 2021 was higher primarily due to increased sales volume and manufacturing efficiencies.

Research and Development Expenses

Research and development expenses increased $2.3 million, or 31.6%, to $9.6 million for the three months ended September 30, 2021 compared to $7.3 million for the three months ended September 30, 2020. This change was primarily due to an increase of $1.6 million of compensation and employee-related expenses, mainly as a result of increased headcount and stock-based compensation expense, $0.8 million for ongoing research and development costs, including the Inspire Cloud, the next generation Inspire system, and our physician programmer, partially offset by a decrease of $0.1 million in regulatory submissions and clinical studies expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $20.0 million, or 60.3%, to $53.2 million for the three months ended September 30, 2021 compared to $33.2 million for the three months ended September 30, 2020. The primary driver of this change was an increase of $11.9 million in compensation, including salaries, commissions, and stock-based compensation, and other employee-related expenses, mainly as a result of increased headcount. In addition, marketing expenses increased $7.1 million, primarily consisting of direct-to-consumer initiatives, including new TV advertisements, which began airing in January 2021, and the expansion of our Advisor Care

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Program call center. Other drivers of the change to selling, general and administrative expenses included an increase of $1.0 million due to general corporate costs such as office rent, insurance costs, consulting fees, and information technology supplies and equipment.

Other Expense, Net

Other expense, net changed by $0.1 million, or 35.0%, to $0.5 million of expense, net for the three months ended September 30, 2021 compared to $0.4 million of expense for the three months ended September 30, 2020. This change was primarily due to a decrease in interest income of $0.1 million earned on our cash, cash equivalents and investments balances due to lower interest rates.

Income Taxes

We recorded a provision for incomes taxes of less than $0.1 million for the three months ended September 30, 2021 compared to $0.1 million for the three months ended September 30, 2020. This decrease was primarily due to lower state income tax expense.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Revenue

Revenue increased $85.6 million, or 123.4%, to $155.0 million for the nine months ended September 30, 2021 compared to $69.4 million for the nine months ended September 30, 2020. The increase was attributable to a $82.0 million increase in sales of our Inspire system in the U.S and an increase of $3.6 million in Europe, primarily in Germany. Revenue growth was primarily due to the widespread impacts of COVID-19 in the nine months of 2020, increased market penetration in existing territories, the expansion into new territories, and increased physician and patient awareness of our Inspire system.

Beginning in March 2020, our revenue growth in the U.S. and Europe was impacted by the COVID-19 pandemic, which disrupted our ability to access our clinician customers and their patients. Specifically, we saw healthcare facilities and clinics restricting access to their clinicians, reducing patient consultations and treatments, or closing temporarily due to COVID-19. As a result, beginning in the second week of March 2020, substantially all of our Inspire therapy procedures were postponed and numerous other cases, which had received prior authorization, were not able to be scheduled and, therefore were also postponed. During the second quarter 2020, the widespread shutdown in elective surgical procedures continued, with surgical volumes increasing in May and even further in June, yet still remaining below pre-COVID-19 levels. During the third quarter 2020, surgical volumes increased steadily, but remained negatively impacted by the COVID-19 pandemic, and the backlog of postponed cases from the first half of 2020 was largely eliminated. During the nine months ended September 30, 2021, resurgences of COVID-19 in various U.S. and European regions disrupted our ability to access our clinician customers and their patients, although to a lesser extent than in the same prior year period as surgical volumes generally returned to pre-pandemic levels by the end of the first quarter of 2021.

Revenue information by region is summarized as follows:

	Nine Months Ended September 30,
	2021				2020				Change
	Amount		% of Revenue		Amount		% of Revenue		$		%
	(in thousands, except percentages)
United States	$	145,420	93.8	%	$	63,379	91.4	%	$	82,041	129.4	%
Europe	9,576		6.2	%	5,993		8.6	%	3,583		59.8	%
Total revenue	$	154,996	100.0	%	$	69,372	100.0	%	$	85,624	123.4	%

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Revenue generated in the U.S. was $145.4 million for the nine months ended September 30, 2021, an increase of $82.0 million, or 129.4%, compared to the nine months ended September 30, 2020. Revenue growth in the U.S. was primarily due to the widespread shutdown of elective surgical procedures in the first nine months of 2020, but was also attributable to increased market penetration in existing territories, the expansion into new territories, increased physician and patient awareness of our Inspire system, and additional positive coverage policies during the nine months ended September 30, 2021. As noted above, U.S. revenue during both periods was negatively impacted by the COVID-19 pandemic.

Revenue generated in Europe was $9.6 million in the nine months ended September 30, 2021, an increase of $3.6 million, or 59.8%, compared to the nine months ended September 30, 2020. Revenue growth in Europe was primarily due to the widespread shutdown of elective surgical procedures in the first nine months of 2020, but was also attributable to increased market penetration in existing territories, the expansion of our European sales representatives into new territories, and increased physician and patient awareness of our Inspire system during the nine months ended September 30, 2021. The remainder of our increased revenue from Europe was due to favorable exchange rates. As noted above, European revenue during both periods was negatively impacted by the COVID-19 pandemic.

Cost of Goods Sold and Gross Margin

Cost of goods sold increased $11.7 million, or 111.5%, to $22.1 million for the nine months ended September 30, 2021 compared to $10.5 million for the nine months ended September 30, 2020. The increase was primarily due to product costs associated with higher sales volume of our Inspire system.

Gross margin increased to 85.7% for the nine months ended September 30, 2021 compared to 84.9% for the nine months ended September 30, 2020. Gross margin for the nine months ended September 30, 2021 was higher primarily due to higher sales volumes and manufacturing efficiencies.

Research and Development Expenses

Research and development expenses increased $8.2 million, or 43.9%, to $27.1 million for the nine months ended September 30, 2021 compared to $18.8 million for the nine months ended September 30, 2020. This change was primarily due to an increase of $4.8 million of compensation and employee-related expenses, mainly as a result of increased headcount and stock-based compensation expense, $3.8 million for ongoing research and development costs, including ongoing development of the Inspire Cloud and the next generation Inspire system, somewhat offset by a $0.3 million decrease in regulatory submissions and clinical studies expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $54.6 million, or 61.2%, to $143.8 million for the nine months ended September 30, 2021 compared to $89.2 million for the nine months ended September 30, 2020. The primary driver of this change was an increase of $33.8 million in compensation, including salaries, commissions, and stock-based compensation, and other employee-related expenses, mainly as a result of increased headcount. In addition, marketing expenses increased $18.4 million, primarily consisting of direct-to-consumer initiatives, including new TV advertisements which began airing in January 2021 and the expansion of our Advisor Care Program call center. During the nine months ended September 30, 2020, we initially refocused our direct-to-consumer marketing strategies by shifting from radio and TV in our larger markets that were affected by COVID-19 towards more digital and TV in smaller markets. During the second quarter of 2020, we resumed radio and TV initiatives in our larger markets as the impact of COVID-19 lessened in those areas. Further, our team leveraged virtual tools, including the new Inspire Sleep app released in the second quarter of 2020, and telemedicine to continue physician training and patient education. Other drivers of the change to selling, general and administrative expenses included an increase of $2.4 million primarily due to office rent, insurance costs, and banking fees.

33

Other Expense, Net

Other expense, net increased by $1.1 million, or 223.0%, to $1.6 million of expense, net for the nine months ended September 30, 2021 compared to $0.5 million of expense for the nine months ended September 30, 2020. This change was primarily due to a decrease of $0.9 million in interest income due to lower interest rates on our cash, cash equivalents and investments balances and a $0.2 million decrease in gains on investments and foreign currency translation.

Income Taxes

We recorded a provision for income taxes of $0.1 million for the both of the nine months ended September 30, 2021 and 2020.

Liquidity and Capital Resources

As of September 30, 2021, we had cash, cash equivalents and investments of $220.2 million and an accumulated deficit of $277.0 million, compared to cash, cash equivalents and investments of $234.4 million and an accumulated deficit of $237.3 million as of December 31, 2020.

Our sources of capital have historically been from private placements of our convertible preferred securities, sales of our Inspire system, borrowings under credit facilities and registered offerings of our common stock. In April 2020, we completed a follow-on offering that included our offer and sale of 2,300,000 shares of common stock at a public offering price of $58.00 per share. We received net proceeds of approximately $124.7 million after deducting underwriting discounts, commissions, and offering expenses.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition. However, we believe that our existing cash resources will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months. We may also seek liquidity through additional securities offerings or through borrowings under a new credit facility. We cannot ensure investors that we will be able to obtain such financing on commercially reasonable terms if at all.

Cash Flows

The following table presents a summary of our cash flow for the periods indicated:

	Nine Months Ended
	September 30,
	2021		2020
	(in thousands)
Net cash provided by (used in):
Operating activities	$	(20,853)	$	(48,935)
Investing activities	29,672		75,231
Financing activities	10,872		129,544
Effect of exchange rate on cash	(9)		5
Net increase in cash and cash equivalents	$	19,682	$	155,845

Operating Activities

The net cash used in operating activities was $20.9 million for the nine months ended September 30, 2021 and consisted of a net loss of $39.7 million, non-cash charges of $21.0 million, and a decrease in net operating assets of $2.2 million. The non-cash charges consisted of stock-based compensation, depreciation and amortization, non-

34

cash lease expense, stock issued for services rendered, accretion of the debt discount, and amortization of the investment premium, and other, net. Operating assets includes inventories, which increased due to manufacturing of systems inventory to meet increased sales, accounts receivable which increased due to higher sales, and prepaid expenses and other current assets which increased primarily due to prepaid insurance. Operating liabilities includes accrued expenses, which increased primarily due to accrued compensation, and accounts payable, which increased generally due to our increased business volume year-over-year and the costs to support the growth of our operations, including compensation and personnel-related costs.

The net cash used in operating activities was $48.9 million for the nine months ended September 30, 2020 and consisted of a net loss of $49.7 million, a decrease in net operating assets of $9.7 million and an increase in non-cash charges of $10.5 million. The non-cash charges consisted of stock-based compensation, non-cash lease expense, depreciation and amortization, stock issued for services rendered, and accretion of the debt discount, offset by the non-cash income related to the accretion of the investment discount, and other, net. Operating assets includes accounts receivable, which increased due to higher sales, and inventories, which increased due to continued manufacturing of systems inventory. Operating liabilities includes accrued expenses, which decreased primarily due to the payment of accrued compensation as annual bonuses were paid during the first quarter of 2020. Operating liabilities also includes accounts payable, which increased generally due to the costs to support the growth of our operations, including compensation and personnel-related costs.

Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2021 was $29.7 million and consisted of proceeds from sales or maturities of investments of $43.8 million, partially offset by purchases of investments of $10.0 million and purchases of property and equipment of $4.1 million.

Net cash provided by investing activities for the nine months ended September 30, 2020 was $75.2 million and consisted primarily of proceeds from sales or maturities of investments of $129.8 million, partially offset by purchases of investments of $52.7 million and purchases of property and equipment of $1.9 million.

Financing Activities

Net cash provided by financing activities was $10.9 million for the nine months ended September 30, 2021 and consisted of proceeds from the exercise of stock options of $9.1 million and proceeds from the issuance of common stock from our ESPP of $1.8 million.

Net cash provided by financing activities was $129.5 million for the nine months ended September 30, 2020 and consisted primarily of $124.7 million in proceeds from our follow-on offering in April 2020. Proceeds from the exercise of stock options of $3.8 million and proceeds from the issuance of common stock from our ESPP of $1.1 million made up the remainder of the cash provided by financing activities.

Indebtedness

In August 2015, we entered into a loan and security agreement with Oxford Finance, as lender and collateral agent. The loan and security agreement initially provided for a term A loan facility in the amount of $15.5 million, which was fully funded on the closing date, and a term B loan facility in an amount of at least $3.5 million but no more than $10.0 million, to be available in the future subject to our achievement of certain revenue milestones. We refer to our term A loan facility and our term loan B facility together as our credit facility. In February 2017, we amended the loan and security agreement to, among other things, increase borrowings under the term A loan facility by $1.0 million, increase the minimum amount of the term B loan facility to $5.0 million and reduce the maximum amount of the term B loan facility to $9.0 million. In February 2018, we borrowed an additional $8.0 million under the term B loan facility portion of the credit facility. As of September 30, 2021, we had $24.5 million of outstanding borrowings under our credit facility. No borrowings remain available under this credit facility.

In March 2019, we amended the loan and security agreement. Following such amendment, outstanding borrowings under the credit facility bear interest at an annual rate equal to the sum of (i) the greater of (A) the 30 day U.S.

35

LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or (B) 2.50%, plus (ii) 5.10%; provided, however, under no circumstances will the basic rate be less than 7.60%. We are required to make monthly payments of interest only through April 1, 2022. Following the interest-only period, we will be required to make monthly payments of interest and principal in 24 consecutive monthly installments. Outstanding borrowings under the credit facility mature on March 1, 2024. On the maturity date, in addition to our regular monthly payments of principal and accrued interest, we will be required to make a payment of 3.50% of the total amount borrowed under the credit facility, which we refer to as the Final Payment, unless we have already made such payment in connection with an acceleration or prepayment of borrowings under the credit facility.

Borrowings under the facility are pre-payable at our option in whole, but not in part, together with all accrued and unpaid interest thereon and, if not previously made, the Final Payment (as defined in the loan and security agreement), subject to a prepayment fee of 1.0%. We are also required to prepay the amounts outstanding under the credit facility upon the occurrence of certain customary events of default, as well as the occurrence of certain material adverse events. The credit facility also includes certain customary affirmative and negative covenants, but does not include any financial covenants. The credit facility is secured by substantially all of our personal property other than our intellectual property. We were in compliance with all covenants under the credit facility as of September 30, 2021.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations and commitments from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. We have reviewed and determined that those critical accounting policies and estimates remain our critical accounting policies and estimates as of and for the three and nine months ended September 30, 2021.

Recent Accounting Pronouncements

We have reviewed all recently issued standards and have determined that such standards will not have a significant impact on our financial statements or do not otherwise apply to our operations.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

The risk associated with fluctuating interest rates is primarily limited to our cash equivalents which are carried at quoted market prices and our short-term investments. We do not currently use or plan to use financial derivatives in our investment portfolio. The interest rate for our outstanding debt is variable. A hypothetical 1% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

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Credit Risk, Foreign Currency Risk, and Inflation Risk

For market risks related to changes in credit, foreign currency and inflation, reference is made to Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II of our Annual Report on Form 10-K for the year ended December 31, 2020. Our exposure to these risks has not materially changed from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Item 4.    Controls and Procedures.

Evaluation of disclosure controls and procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and other procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.    Legal Proceedings.

From time to time we may be involved in claims and proceedings arising in the course of our business. The outcome of any such claims or proceedings, regardless of the merits, is inherently uncertain. We are not party to any material legal proceedings.

Item 1A.    Risk Factors.

For a discussion of our potential risks and uncertainties, see the information in "Part I, Item IA. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

None.

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Item 6.    Exhibits.

Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed/ Furnished Herewith
3.1	Seventh Amended and Restated Certificate of Incorporation of Inspire Medical Systems, Inc.	8-K	001-38468	3.1	5/7/2018
3.2	Amended and Restated Bylaws of Inspire Medical Systems, Inc.	8-K	001-38468	3.2	5/7/2018
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					*
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					*
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					**
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					**
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document					*
101.SCH	Inline XBRL Taxonomy Extension Schema Document					*
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document					*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document					*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document					*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document					*
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)					*

_______________________________________________________________________________

*    Filed herewith.

**    Furnished herewith.

39

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Inspire Medical Systems, Inc.
Date:	November 2, 2021	By:	/s/ TIMOTHY P. HERBERT
			Timothy P. Herbert
			President, Chief Executive Officer and Director
			(principal executive officer)
Date:	November 2, 2021	By:	/s/ RICHARD J. BUCHHOLZ
			Richard J. Buchholz
			Chief Financial Officer
			(principal financial officer and principal accounting officer)

40

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Timothy P. Herbert, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Inspire Medical Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 2, 2021	By:	/s/ TIMOTHY P. HERBERT
			Timothy P. Herbert President, Chief Executive Officer and Director (principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Richard J. Buchholz, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Inspire Medical Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 2, 2021	By:	/s/ RICHARD J. BUCHHOLZ
			Richard J. Buchholz Chief Financial Officer (principal financial officer and principal accounting officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Inspire Medical Systems, Inc. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:	November 2, 2021	By:	/s/ TIMOTHY P. HERBERT
			Timothy P. Herbert President, Chief Executive Officer and Director (principal executive officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Inspire Medical Systems, Inc. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:	November 2, 2021	By:	/s/ RICHARD J. BUCHHOLZ
			Richard J. Buchholz Chief Financial Officer (principal financial officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

Cover Page - shares	9 Months Ended
	Sep. 30, 2021	Oct. 26, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Document Transition Report	false
Entity File Number	001-38468
Entity Registrant Name	Inspire Medical Systems, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	26-1377674
Entity Address, Address Line One	5500 Wayzata Blvd.
Entity Address, Address Line Two	Suite 1600
Entity Address, City or Town	Golden Valley
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	55416
City Area Code	844
Local Phone Number	672-4357
Title of 12(b) Security	Common Stock, $0.001 par value per share
Trading Symbol	INSP
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		27,358,099
Entity Central Index Key	0001609550
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3

XML

BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 210,200	$ 190,518
Investments, short-term	0	43,844
Accounts receivable, net of allowance for credit losses of $95 and $42, respectively	26,675	25,063
Inventories	15,574	8,479
Prepaid expenses and other current assets	3,046	1,965
Total current assets	255,495	269,869
Investments, long-term	9,984	0
Property and equipment, net	7,915	5,311
Operating lease right-of-use asset	5,296	5,805
Other non-current assets	204	204
Total assets	278,894	281,189
Current liabilities:
Accounts payable	9,989	7,209
Accrued expenses	17,477	13,516
Current portion of notes payable	6,125	0
Total current liabilities	33,591	20,725
Notes payable, non-current portion	18,799	24,746
Operating lease liability, non-current portion	6,080	5,886
Other non-current liability	124	85
Total liabilities	58,594	51,442
Stockholders' equity:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding	0	0
Common Stock, $0.001 par value per share; 200,000,000 shares authorized; 27,350,959 and 27,069,276 issued and outstanding at September 30, 2021 and December 31, 2020, respectively	27	27
Additional paid-in capital	497,280	467,038
Accumulated other comprehensive (loss) income	(9)	29
Accumulated deficit	(276,998)	(237,347)
Total stockholders' equity	220,300	229,747
Total liabilities and stockholders' equity	$ 278,894	$ 281,189

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BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Allowance for credit loss	$ 95	$ 42
Preferred shares, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred shares, authorized (in shares)	10,000,000	10,000,000
Preferred shares, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	200,000,000	200,000,000
Common stock, issued (in shares)	27,350,959	27,069,276
Common stock, outstanding (in shares)	27,350,959	27,069,276

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STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Income Statement [Abstract]
Revenue	$ 61,685	$ 35,842	$ 154,996	$ 69,372
Cost of goods sold	8,624	5,211	22,123	10,462
Gross profit	53,061	30,631	132,873	58,910
Operating expenses:
Research and development	9,614	7,307	27,056	18,807
Selling, general and administrative	53,243	33,216	143,846	89,249
Total operating expenses	62,857	40,523	170,902	108,056
Operating loss	(9,796)	(9,892)	(38,029)	(49,146)
Other expense (income):
Interest income	(22)	(125)	(110)	(1,015)
Interest expense	537	533	1,590	1,584
Other expense (income), net	33	(2)	90	(83)
Total other expense	548	406	1,570	486
Loss before income taxes	(10,344)	(10,298)	(39,599)	(49,632)
Income taxes	3	87	52	87
Net loss	(10,347)	(10,385)	(39,651)	(49,719)
Other comprehensive loss:
Unrealized gain (loss) on investments	3	(81)	(38)	(29)
Total comprehensive loss	$ (10,344)	$ (10,466)	$ (39,689)	$ (49,748)
Net loss per share, basic (in dollars per share)	$ (0.38)	$ (0.39)	$ (1.46)	$ (1.93)
Net loss per share, diluted (in dollars per share)	$ (0.38)	$ (0.39)	$ (1.46)	$ (1.93)
Weighted average common shares used to compute net loss per share, basic (in shares)	27,300,377	26,835,603	27,225,499	25,767,497
Weighted average common shares used to compute net loss per share, diluted (in shares)	27,300,377	26,835,603	27,225,499	25,767,497

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STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Follow-on Offering	Cumulative Effect, Period of Adoption, Adjustment	Common Stock	Common Stock Follow-on Offering	Additional Paid-In Capital	Additional Paid-In Capital Follow-on Offering	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Accumulated Deficit Cumulative Effect, Period of Adoption, Adjustment
Beginning balance (in shares) at Dec. 31, 2019				24,107,350
Beginning balance at Dec. 31, 2019	$ 139,835		$ 12	$ 24		$ 319,865		$ 102	$ (180,156)	$ 12
Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)				254,142
Stock options exercised	787					787
Issuance and sale of common stock (in shares)				897
Issuance and sale of common stock	72					72
Stock-based compensation expense	2,749					2,749
Other comprehensive income (loss)	193							193
Net loss	(16,245)								(16,245)
Ending balance (in shares) at Mar. 31, 2020				24,362,389
Ending balance at Mar. 31, 2020	$ 127,403			$ 24		323,473		295	(196,389)
Stockholders' Equity [Roll Forward]
Accounting Standards Update [Extensible List]	Accounting Standards Update 2016-13 [Member]
Stock options exercised (in shares)				70,853
Stock options exercised	$ 732					732
Issuance and sale of common stock (in shares)				1,119	2,300,000
Issuance and sale of common stock	73	$ 124,654			$ 3	73	$ 124,651
Issuance of common stock for employee stock purchase plan (in shares)				16,730
Issuance of common stock for employee stock purchase plan	1,059					1,059
Stock-based compensation expense	2,903					2,903
Other comprehensive income (loss)	(141)							(141)
Net loss	(23,089)								(23,089)
Ending balance (in shares) at Jun. 30, 2020				26,751,091
Ending balance at Jun. 30, 2020	233,594			$ 27		452,891		154	(219,478)
Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)				168,970
Stock options exercised	2,312					2,312
Issuance and sale of common stock (in shares)				784
Issuance and sale of common stock	72					72
Stock-based compensation expense	3,311					3,311
Other comprehensive income (loss)	(81)							(81)
Net loss	(10,385)								(10,385)
Ending balance (in shares) at Sep. 30, 2020				26,920,845
Ending balance at Sep. 30, 2020	$ 228,823			$ 27		458,586		73	(229,863)
Beginning balance (in shares) at Dec. 31, 2020	27,069,276			27,069,276
Beginning balance at Dec. 31, 2020	$ 229,747			$ 27		467,038		29	(237,347)
Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)				133,421
Stock options exercised	3,550					3,550
Issuance and sale of common stock (in shares)				376
Issuance and sale of common stock	73					73
Stock-based compensation expense	5,997					5,997
Other comprehensive income (loss)	(20)							(20)
Net loss	(16,216)								(16,216)
Ending balance (in shares) at Mar. 31, 2021				27,203,073
Ending balance at Mar. 31, 2021	$ 223,131			$ 27		476,658		9	(253,563)
Beginning balance (in shares) at Dec. 31, 2020	27,069,276			27,069,276
Beginning balance at Dec. 31, 2020	$ 229,747			$ 27		467,038		29	(237,347)
Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)	269,212
Ending balance (in shares) at Sep. 30, 2021	27,350,959			27,350,959
Ending balance at Sep. 30, 2021	$ 220,300			$ 27		497,280		(9)	(276,998)
Beginning balance (in shares) at Mar. 31, 2021				27,203,073
Beginning balance at Mar. 31, 2021	223,131			$ 27		476,658		9	(253,563)
Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)				49,318
Stock options exercised	1,719					1,719
Issuance and sale of common stock (in shares)				329
Issuance and sale of common stock	72					72
Issuance of common stock for employee stock purchase plan (in shares)				11,351
Issuance of common stock for employee stock purchase plan	1,760					1,760
Stock-based compensation expense	6,341					6,341
Other comprehensive income (loss)	(21)							(21)
Net loss	(13,088)								(13,088)
Ending balance (in shares) at Jun. 30, 2021				27,264,071
Ending balance at Jun. 30, 2021	219,914			$ 27		486,550		(12)	(266,651)
Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)				86,473
Stock options exercised	3,843					3,843
Issuance and sale of common stock (in shares)				415
Issuance and sale of common stock	77					77
Stock-based compensation expense	6,810					6,810
Other comprehensive income (loss)	3							3
Net loss	$ (10,347)								(10,347)
Ending balance (in shares) at Sep. 30, 2021	27,350,959			27,350,959
Ending balance at Sep. 30, 2021	$ 220,300			$ 27		$ 497,280		$ (9)	$ (276,998)

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STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Operating activities
Net loss	$ (39,651)	$ (49,719)
Adjustments to reconcile net loss:
Depreciation and amortization	874	587
Amortization (accretion) of investment premium (discount)	15
Amortization (accretion) of investment premium (discount)		(66)
Accretion of debt discount	178	166
Non-cash lease expense	509	743
Stock-based compensation expense	19,148	8,963
Non-cash stock issuance for services rendered	222	217
Other, net	53	(89)
Changes in operating assets and liabilities:
Accounts receivable	(1,743)	(7,921)
Inventories	(7,095)	(3,132)
Prepaid expenses and other current assets	(1,081)	(15)
Accounts payable	3,490	2,262
Accrued expenses and other liabilities	4,228	(931)
Net cash used in operating activities	(20,853)	(48,935)
Investing activities
Purchases of property and equipment	(4,135)	(1,851)
Purchases of investments	(9,993)	(52,721)
Proceeds from sales or maturities of investments	43,800	129,803
Net cash provided by investing activities	29,672	75,231
Financing activities
Proceeds from the exercise of stock options	9,112	3,831
Proceeds from the sale of common stock	0	124,654
Proceeds from issuance of common stock from employee stock purchase plan	1,760	1,059
Net cash provided by financing activities	10,872	129,544
Effect of exchange rate on cash	(9)	5
Increase in cash and cash equivalents	19,682	155,845
Cash and cash equivalents at beginning of period	190,518	22,860
Cash and cash equivalents at end of period	210,200	178,705
Supplemental cash flow information
Cash paid for interest	1,417	1,422
Change in property and equipment acquired but not yet paid	$ 657	$ 0

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Organization

9 Months Ended

Sep. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

Description of Business

Inspire Medical Systems, Inc. is a medical technology company focused on the development and commercialization of innovative and minimally invasive solutions for patients with obstructive sleep apnea ("OSA"). Our proprietary Inspire system is the first and only United States ("U.S.") Food and Drug Administration ("FDA") approved neurostimulation technology that provides a safe and effective treatment for moderate to severe OSA. 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. 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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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, the results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods. For a complete discussion of our significant accounting policies and other information, the unaudited financial statements and notes thereto should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Follow-On Public Offering

On April 16, 2020, we completed a follow-on offering that included our offer and sale of 2,300,000 shares of common stock at a public offering price of $58.00 per share. We received net proceeds of approximately $124.7 million after deducting underwriting discounts and commissions and offering expenses.

Cash and Cash Equivalents

We consider all highly liquid securities, readily convertible to cash, that mature within 90 days or less from the date of purchase to be cash equivalents. The carrying amount reported in the balance sheets for cash is cost, which approximates fair value.

Foreign Currency

Sales and expenses denominated in foreign currencies are translated at average exchange rates in effect throughout the year. Foreign currency transaction gains and losses are included in other expense (income), net, in the statements of operations and comprehensive loss. Assets and liabilities of foreign operations are remeasured at period-end exchange rates with the impacts of foreign currency remeasurement recognized in other expense (income), net in the statements of operations and comprehensive loss.

Investments

At December 31, 2020, our short-term investments consisted of commercial paper, corporate bonds, and U.S. government securities, which are classified as available-for-sale and had maturities less than one year. Our long-term investments at September 30, 2021 consisted of U.S. government securities. Investments are reported at their estimated fair market values which are based on quoted, active or inactive market prices when available. Any unrealized gains and losses due to interest rate fluctuations and other external factors are reported as a separate component of accumulated other comprehensive (loss) income. We had less than $0.1 million of unrecognized loss in accumulated other comprehensive (loss) income at September 30, 2021 and less than $0.1 million of unrecognized gain in accumulated other comprehensive (loss) income at December 31, 2020. Any realized gains and losses are calculated on the specific identification method and reported net in other expense (income), net in the statements of operations and comprehensive loss. For both of the three months ended September 30, 2021 and 2020, we recognized $0 of realized gains, net. For the nine months ended September 30, 2021 and 2020, we recognized $0 and $0.1 million of realized gains, net, respectively.

We recognize expected credit losses on investments in accordance with Accounting Standards Update ("ASU"), ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which we adopted effective January 1, 2020 using the modified retrospective approach. The adoption of ASU 2016-13 did not have a material impact on the amount and timing of credit losses recognized in our financial statements.

We reassess our estimated credit losses on investments each reporting period. U.S. government securities and cash equivalents are under a "zero-loss exception" for credit losses, meaning no credit loss risk calculation is necessary on those instruments due to the exceptionally low rate of default, which continues to decrease as the securities approach maturity, which for us is no longer than two years. For non-U.S. government securities, we use a discounted cash flow approach to calculate expected credit losses using estimated default rates based upon historical loss data, current conditions, as well as expectations of future economic conditions. We record changes in the allowance for credit losses for available-for-sale debt securities with a corresponding adjustment in credit loss expense on the statement of operations and comprehensive loss. No reversal of a previously recorded allowance for credit losses may be made to an amount below zero. The total allowance for credit losses was $0 at both September 30, 2021 and December 31, 2020.

Fair Value of Financial Instruments

We measure certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents and investments. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs, such as quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3—Unobservable inputs that are supported by little or no market activities, which would require us to develop our own assumptions.

We use the methods and assumptions described below in determining the fair value of our financial instruments.

Money market funds: Fair values of money market funds are based on quoted market prices in active markets. These are included as Level 1 measurements in the tables below.

Commercial paper: Short-term, highly liquid investments are included as a Level 2 measurement in the table below.

Corporate bonds: Consists of short-term notes and bonds with various yields. These are included as a Level 2 measurement in the table below.

U.S. government securities: Consists of U.S. government Treasury bills and notes with original maturities of less than one year to two years. These are included as a Level 1 measurement in the tables below.

The following tables set forth by level within the fair value hierarchy our assets that are measured on a recurring basis and reported at fair value as of September 30, 2021 and December 31, 2020. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Fair Value Measurements as of
	September 30, 2021
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	189,355	$	189,355	$	—	$	—
Total cash equivalents	189,355		189,355		—		—
Investments:
U.S. government securities	$	9,984	$	9,984	$	—	$	—
Total investments	9,984		9,984		—		—
Total cash equivalents and investments	$	199,339	$	199,339	$	—	$	—

	Fair Value Measurements as of
	December 31, 2020
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	179,389	$	179,389	$	—	$	—
Total cash equivalents	179,389		179,389		—		—
Investments:
Commercial paper	$	13,275	$	—	$	13,275	$	—
Corporate bonds	6,540		—		6,540		—
U.S. government securities	24,029		24,029		—		—
Total investments	43,844		24,029		19,815		—
Total cash equivalents and investments	$	223,233	$	203,418	$	19,815	$	—

There were no transfers between levels during the periods ended September 30, 2021 and December 31, 2020.

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash equivalents, investments, and accounts receivable.

Our investment policy limits investments to certain types of debt securities issued by the U.S. government and its agencies, corporations with investment-grade credit ratings, or commercial paper and money market funds issued by the highest quality financial and non-financial companies. We place restrictions on maturities and concentration

by type and issuer. We are exposed to credit risk in the event of a default by the issuers of these securities to the extent recorded on the balance sheets. However, as of September 30, 2021 and December 31, 2020, we limited our credit risk associated with cash equivalents by placing investments with banks we believe are highly creditworthy.

We believe that the credit risk in our accounts receivable is mitigated by our credit evaluation process, relatively short collection terms, and dispersion of our customer base. We generally do not require collateral, and losses on accounts receivable have historically been within management's expectations.

Accounts Receivable and Allowance for Expected Credit Losses

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customer credit terms are established prior to shipment with the general standard being net 30 days. Collateral or any other security to support payment of these receivables generally is not required.

We recognize expected credit losses on accounts receivable in accordance with Accounting Standards Update ("ASU"), ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which we adopted effective January 1, 2020 using the modified retrospective approach through a cumulative-effect adjustment to retained earnings. The adoption of ASU 2016-13 did not have a material impact on the amount and timing of credit losses recognized in our financial statements.

Each reporting period, we estimate the credit loss related to accounts receivable based on a migration analysis of accounts grouped by individual receivables delinquency status, and apply our historic loss rate adjusted for management's assumption of future market conditions. Any change in the allowance subsequent to the effective date of January 1, 2020 from new receivables acquired, or changes due to credit deterioration on previously existing receivables, is recorded in selling, general and administrative expenses. Write-offs of receivables considered uncollectible are deducted from the allowance. Specific accounts receivable are written-off once a determination is made that the amount is uncollectible. The write-off is recorded in the period in which the account receivable is deemed uncollectible. Recoveries are recognized when received and as a direct credit to earnings or as a reduction to the allowance for credit losses (which would indirectly reduce the loss by decreasing bad debt expense).

Inventories

Inventories are valued at the lower of cost or net realizable value, computed on a first-in, first-out basis and consisted of the following:

	September 30, 2021		December 31, 2020
Raw materials	$	1,865	$	892
Finished goods	13,709		7,587
Total inventories, net of reserves	$	15,574	$	8,479

We regularly review inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, incur charges to write down inventories to their net realizable value. The determination of a reserve for excess and obsolete inventory involves management exercising judgment to determine the required reserve, considering future demand, product life cycles, introduction of new products and current market conditions. The reserve for excess and obsolete inventory was $0.3 million and $0.1 million as of September 30, 2021 and December 31, 2020, respectively.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization and consisted of the following:

	September 30, 2021		December 31, 2020
Computer equipment and software	$	1,391	$	1,305
Manufacturing equipment	4,322		2,285
Other equipment	249		249
Leasehold improvements	281		192
Construction in process	4,380		3,125
Property and equipment, cost	10,623		7,156
Less: accumulated depreciation and amortization	(2,708)		(1,845)
Property and equipment, net	$	7,915	$	5,311

Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease. Depreciation and amortization expense was $0.3 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, and $0.9 million and $0.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Impairment of Long-lived Assets

Long-lived assets consist primarily of property and equipment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that an asset be tested for possible impairment, we compare the undiscounted cash flows expected to be generated by the asset to the carrying amount of the asset. If the carrying amount of the asset is not recoverable on an undiscounted cash flow basis, we determine the fair value of the asset and recognize an impairment loss to the extent the carrying amount of the asset exceeds its fair value. We determine fair value using the income approach based on the present value of expected future cash flows or other appropriate measures of estimated fair value. Our cash flow assumptions consider historical and forecasted revenue and operating costs and other relevant factors. We did not record any impairment charges on long-lived assets during either of the nine months ended September 30, 2021 or 2020.

Accrued Expenses

Accrued expenses consisted of the following:

	September 30, 2021		December 31, 2020
Payroll related	$	14,876	$	11,965
Interest	155		160
Current operating lease liability	27		—
Other accrued expenses	2,419		1,391
Total accrued expenses	$	17,477	$	13,516

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"). Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, either upon shipment of the product or receipt of the product,

depending on shipment terms. Our standard shipping terms are free on board shipping point, unless the customer requests that control of the inventory transfer upon delivery. In those cases where shipping and handling costs are billed to customers, we classify the amounts billed as a component of cost of goods sold.

Revenue is measured as the amount of consideration we expect to receive, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, which is based on the invoiced price, in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. The majority of our contracts have a single performance obligation and are short term in nature.

Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Variable consideration related to certain customer sales incentives is estimated based on the amounts expected to be paid based on the agreement with the customer using probability assessments.

We offer customers a limited right of return for our product in case of non-conformity or performance issues. We estimate the amount of our product sales that may be returned by our customers based on historical sales and returns. As our historical product returns to date have been immaterial, we have not recorded a reduction in revenue related to variable consideration for product returns.

See Note 9 for disaggregated revenue by geographic area.

Cost of Goods Sold

Cost of goods sold consists primarily of acquisition costs for the components of the Inspire system, overhead costs, scrap and inventory obsolescence, warranty replacement costs, as well as distribution-related expenses such as logistics and shipping costs, net of shipping costs charged to customers. The overhead costs include the cost of material procurement, depreciation expense for production equipment, and operations supervision and management personnel, including employee compensation, stock-based compensation, supplies, and travel.

Research and Development

Research and development expenses consist primarily of product development, clinical and regulatory affairs, quality assurance, consulting services, and other costs associated with products and technologies in development. These expenses include employee compensation, including stock-based compensation, supplies, materials, consulting, and travel expenses related to research and development programs. Clinical expenses include clinical trial design, clinical site reimbursement, data management, travel expenses, and the cost of manufacturing products for clinical trials.

Stock-Based Compensation

We maintain an equity incentive plan to provide long-term incentives for eligible employees, consultants, and members of the board of directors. The plan allows for the issuance of restricted stock units ("RSUs") and non-statutory and incentive stock options to employees and RSUs and non-statutory stock options to consultants and directors. We also offer an employee stock purchase plan which allows participating employees to purchase shares of our common stock at a discount through payroll deductions.

We recognize equity-based compensation expense for awards of equity instruments to employees and directors based on the grant date fair value of those awards in accordance with ASC Topic 718, Stock Compensation ("ASC 718"). ASC 718 requires all equity-based compensation awards to employees and directors, including grants of RSUs and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values. We estimate the fair value of stock options using the Black-Scholes option

pricing model and the fair value of RSUs is equal to the closing price of our common stock on the grant date. The fair value of each purchase under the employee stock purchase plan is estimated at the beginning of the offering period using the Black-Scholes option pricing model. We have not granted any stock-based awards to our consultants.

The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the expected share price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) the expected dividend yield. Due to our limited operating history and a lack of company specific historical and implied volatility data, we have incorporated our historical stock trading volatility with those of a peer group of public companies for the calculation of volatility. The group of peer companies have characteristics similar to us, including stage of product development and focus on the life science industry. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. We use the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees and directors as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a U.S. government Treasury instrument whose term is consistent with the expected term of the stock options. We use an assumed dividend yield of zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.

We expense the fair value of our equity-based compensation awards granted to employees and directors on a straight-line basis over the associated service period, which is generally the period in which the related services are received. We account for award forfeitures as they occur.

Advertising Expenses

We expense the costs of advertising, including promotional expenses, as incurred. Advertising expenses were $13.4 million and $6.8 million during the three months ended September 30, 2021 and 2020, respectively, and $34.0 million and $18.2 million during the nine months ended September 30, 2021 and 2020, respectively.

Leases

Operating leases are included in operating lease right-of-use ("ROU") asset, accrued expenses, and operating lease liability – non-current portion in our balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of our incremental borrowing rate requires management judgment based on information available at lease commencement. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on our balance sheets.

Income Taxes

We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Valuation allowances against deferred tax assets are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. As we have historically incurred operating losses, we have recorded a full valuation allowance against our net deferred tax assets, and there is no provision for income taxes other than

minimal state taxes and an accrual for uncertain tax benefits. Our policy is to record interest and penalties expense related to uncertain tax positions as other expense in the statements of operations and comprehensive loss.

Comprehensive Loss

Comprehensive loss consists of net loss and changes in unrealized gains and losses due to interest rate fluctuations and other external factors on investments classified as available-for-sale. Accumulated other comprehensive (loss) income is presented in the accompanying balance sheets as a component of stockholders' equity.

Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Because we have reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all potentially dilutive shares consisting of outstanding stock options, unvested RSUs, and shares issuable under our employee stock purchase plan were antidilutive in those periods.

Recent Accounting Pronouncements

We have reviewed and considered all recent accounting pronouncements that have not yet been adopted and believe there are none that could potentially have a material impact on our business practices, financial condition, results of operations, or disclosures.

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Investments

9 Months Ended

Sep. 30, 2021

Investments, Debt and Equity Securities [Abstract]

Investments

Investments

Our investments are classified as available-for-sale and consist of the following:

	September 30, 2021
	Amortized		Unrealized Gross				Aggregate
	Cost		Gains		Losses		Fair Value
Long-Term:
U.S. government securities	$	9,993	$	—	$	(9)	$	9,984
Long-term investments	$	9,993	$	—	$	(9)	$	9,984

	December 31, 2020
	Amortized		Unrealized Gross				Aggregate
	Cost		Gains		Losses		Fair Value
Short-Term:
Commercial paper	$	13,275	$	—	$	—	$	13,275
Corporate bonds	6,543		—		(3)		6,540
U.S. government securities	23,997		32		—		24,029
Short-term investments	$	43,815	$	32	$	(3)	$	43,844

As of September 30, 2021 and December 31, 2020, we had no investments with a contractual maturity of greater than two years. Currently, we do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. We do not consider those investments to be other-than-temporarily impaired as of September 30, 2021. At the end of each reporting period, we evaluate potential credit impairment on available-for-sale securities in an unrealized loss

position, based on the expected cash flows to be collected and the yield-to-maturity on those securities. Securities with a valuation allowance for expected credit losses and deemed uncollectible are permanently written-down, and a reversal out of the valuation allowance occurs.

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Leases

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

Leases

Leases

In September 2018, we entered into a non-cancelable operating lease agreement to sublease approximately 45,000 square feet of office space for our corporate headquarters, which included real estate taxes and operating expenses in the base rent. This lease commenced January 15, 2019 and expired November 30, 2020.

In May 2019, we entered into a new, non-cancelable operating lease agreement for the same space directly with the landlord. The initial lease term commenced on December 1, 2020 and expires May 31, 2028 with an option to renew for one additional period of five years at the then-prevailing market rate. The exercise of the lease renewal option is at our sole discretion and was not included in the lease term for the calculation of the ROU asset and lease liability when the lease commenced on December 1, 2020 as it is not reasonably certain of exercise.

Beginning December 1, 2020, in addition to base rent, we also pay our proportionate share of the operating expenses, as defined in the lease. These payments are made monthly and adjusted annually to reflect actual charges incurred for operating expenses, such as common area maintenance, taxes and insurance. In conjunction with this lease, the landlord agreed to provide a $0.6 million rent abatement and a refurbishment allowance in the amount of the cost of any leasehold improvements, not to exceed approximately $1.1 million upon Inspire providing the necessary documentation evidencing the costs of the leasehold improvements that are completed by May 31, 2022. However, the lease allows us to allocate the refurbishment allowance against base rent instead of taking a tenant improvement reimbursement. At this time, we intend to allocate the full amount of the refurbishment allowance against base rent.

In August 2021, we entered into a new, non-cancelable operating lease agreement for approximately 25,000 square feet of additional corporate office space with our existing landlord. The initial lease term commences on October 1, 2021 and expires May 31, 2028 with an option to renew for one additional period of 5 years at the then-prevailing market rate. The exercise of the lease renewal option is at our sole discretion and will not be included in the lease term for the calculation of the ROU asset and lease liability when the lease commences on October 1, 2021 as it is not reasonably certain of exercise.

Beginning October 1, 2021, in addition to base rent on the additional space, we will also pay our proportionate share of the operating expenses, as defined in the lease. These payments will be made monthly and will be adjusted annually to reflect actual charges incurred for operating expenses, such as common area maintenance, taxes and insurance. In conjunction with this lease, the landlord agreed to provide a $0.2 million rent abatement and a refurbishment allowance in the amount of the cost of any leasehold improvements, not to exceed $0.4 million upon Inspire providing the necessary documentation evidencing the costs of the leasehold improvements that are completed by May 31, 2022. However, the lease allows us to allocate the refurbishment allowance against base rent instead of taking a tenant improvement reimbursement. At this time, we intend to allocate the full amount of the refurbishment allowance against base rent. The total minimum lease payments related to this forward-starting lease are $3.6 million.

The following table presents the lease balances within the balance sheets:

	September 30, 2021		December 31, 2020
Right-of-use assets:
Operating lease right-of-use asset	$	5,296	$	5,805
Operating lease liabilities:
Accrued expenses	27		—
Operating lease liability, non-current portion	6,080		5,886
Total operating lease liabilities	$	6,107	$	5,886

As of September 30, 2021, the remaining lease term was 6.7 years and the discount rate was 5.2%. The operating cash outflows from our operating leases were $0.1 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $0.1 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively.

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Long-Term Debt

9 Months Ended

Sep. 30, 2021

Long-term Debt, by Current and Noncurrent [Abstract]

Long-Term Debt

Long-Term Debt

In August 2015, we entered into a loan and security agreement that initially provided for a term A loan facility in the amount of $15.5 million, which was fully funded on the closing date, and a term B loan facility in an amount between $3.5 million and $10.0 million, subject to our achievement of certain revenue milestones. We refer to our term A loan facility and our term loan B facility together as our credit facility.

In February 2017, we amended the loan and security agreement to, among other things, increase borrowings under the term A loan facility by $1.0 million, for a total of $16.5 million outstanding under the credit facility, and reduced borrowings available under the term B loan facility to $9.0 million.

In February 2018, we borrowed an additional $8.0 million under the term B loan facility portion of the credit facility for a total of $24.5 million outstanding under the credit facility.

On March 27, 2019, we amended the loan and security agreement. The amendment modified the terms of the loan and security agreement to: (1) extend the interest-only date from March 1, 2020 to April 1, 2022 and extend the maturity date from February 1, 2022 to March 1, 2024; (2) reduce the final payment percentage from 5.50% to 3.50%; (3) modify the basic rate to be a per annum rate of interest (based on a year of 360 days) equal to the sum of (i) the greater of (A) the 30 day U.S. LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or (B) 2.50%, plus (ii) 5.10%; provided, however, under no circumstances will the basic rate be less than 7.60%; (4) provide a mechanism for determining an alternative interest rate to replace the U.S. LIBOR rate upon the occurrence of certain circumstances; and (5) revise the prepayment fee to be between 1.00% and 3.00% of the principal amount, depending on the timing of any prepayment. Upon closing the amendment to the loan and security agreement, payment of the previously accrued final payment under the credit facility was required.

In addition to the principal and interest payments, under the credit facility, we are required to pay a final payment fee of 3.50% on all amounts outstanding, which is being accreted using the effective interest rate method over the term of the loan and security agreement and shall be due at the earlier of maturity or prepayment. Borrowings are prepayable at our option in whole, but not in part, together with all accrued and unpaid interest thereon and, if not previously made, the final payment, subject to a prepayment fee of 1.00%.

The credit facility includes affirmative and restrictive covenants and events of default, including the following events of default: payment defaults, breaches of covenants, judgment defaults, cross defaults to certain other contracts, certain events with respect to governmental approvals if such events could cause a material adverse change, a material impairment in the perfection or priority of the lender's security interest or in the value of the collateral, a

material adverse change in the business, operations, or condition of us or any of our subsidiaries, and a material impairment of the prospect of repayment of the loans. Upon the occurrence of an event of default, a default increase in the interest rate of an additional 5.00% could be applied to the outstanding loan balance and the lender could declare all outstanding obligations immediately due and payable and take such other actions as set forth in the loan and security agreement.

Our obligations under the credit facility are secured by a first priority security interest in substantially all of our assets, other than our intellectual property. There are no financial covenants contained in the loan and security agreement. We were in compliance with the affirmative and restrictive covenants as of September 30, 2021.

Expected future principal payments for the credit facility are as follows:

Year ending December 31:
2021 (remaining)	$	—
2022	9,188
2023	12,250
2024	3,062
Total expected future principal payments	$	24,500

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Employee Retirement Plan	9 Months Ended
	Sep. 30, 2021
Retirement Benefits [Abstract]
Employee Retirement Plan	Employee Retirement PlanWe sponsor an employee retirement plan covering all of our full-time employees. The plan allows for eligible employees to defer a portion of their eligible compensation up to the maximum allowed by IRS Regulations. We may elect to make a voluntary contribution to the plan. We have not made contributions since inception.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

Stockholders' Equity

Stockholders' Equity

Stock-Based Compensation

We adopted the 2007 Stock Incentive Plan (the "2007 Plan") in November 2007, which terminated in accordance with its terms on November 28, 2017; however, the outstanding stock options may continue to be exercised in accordance with their terms. Immediately following the termination of the 2007 Plan, we adopted the 2017 Stock Incentive Plan (the "2017 Plan"), which contains substantially similar terms and conditions as the 2007 Plan. Upon the IPO, no further grants were made under the 2017 Plan and we adopted the 2018 Stock Incentive Plan (the "2018 Plan").

The purpose of the 2018 Plan is to promote the interest of our company and our stockholders by aiding in attracting and retaining employees, officers, consultants, independent contractors, and directors capable of assuring the future success of our business and to afford such persons an opportunity to acquire a proprietary interest in our company. The board of directors may amend, alter, suspend, discontinue, or terminate the 2018 Plan at any time with the approval of our stockholders. A total of 1,386,809 shares of common stock were initially reserved for issuance under the 2018 Plan, and this share reserve will automatically be supplemented each January 1, commencing on January 1, 2019 and ending on and including January 1, 2028, by an amount of shares equal to the lesser of: a) 739,631 shares, b) 4% of the shares outstanding on the final day of the immediately preceding fiscal year and c) such smaller number of shares as determined by the board of directors. As of September 30, 2021, there were 3,284,769 shares reserved for issuance under the 2018 Plan, of which 1,293,557 shares were available for issuance.

The following table presents the components and classification of stock-based compensation expense recognized for stock options and RSUs granted under the 2017 Plan, the 2018 Plan and under our Employee Stock Purchase Plan (the "ESPP"):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Stock options	$	6,405	$	2,984	$	18,065	$	8,303
Restricted stock units	29		—		77		—
Employee stock purchase plan	376		327		1,006		660
Total stock-based compensation expense	$	6,810	$	3,311	$	19,148	$	8,963
Cost of goods sold	$	88	$	36	$	250	$	122
Research and development	1,153		535		3,229		1,252
Selling, general and administrative	5,569		2,740		15,669		7,589
Total stock-based compensation expense	$	6,810	$	3,311	$	19,148	$	8,963

Stock Options

Prior to the IPO, the exercise price of stock options represented fair value of the common stock at the time of issuance and was determined by the board of directors with the assistance of a third-party valuation specialist. Post-IPO, options are granted at the exercise price, which is equal to the closing price of our stock on the date of grant. The stock options granted to employees include a four-year service period and 25% vest after the first year of service and the remainder vest in equal installments over the next 36 months of service. The stock options granted to the board of directors vest in one or three equal annual installments, in each case, subject to the director's continuous service through the applicable vesting date. The stock options have a contractual life of ten years.

A summary of stock option activity and related information is as follows:

	Options	Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020	2,857,564		$	66.09	7.9	$351,626
Granted	184,845		$	208.12
Exercised	(269,212)		$	33.92		$47,176
Forfeited/expired	(93,790)		$	113.37
Outstanding at September 30, 2021	2,679,407		$	77.47	7.3	$416,515
Exercisable at September 30, 2021	1,355,413		$	28.54	6.1	$276,959

The aggregate intrinsic value of options exercised is the difference between the estimated fair market value of our common stock at the date of exercise and the exercise price for those options. The aggregate intrinsic value of outstanding options is the difference between the closing price as of the date outstanding and the exercise price of the underlying stock options.

As of September 30, 2021, the amount of unearned stock-based compensation to be expensed from now through the year 2025 related to unvested employee and non-employee director stock options is $70.0 million, which we expect to recognize over a weighted average period of 2.5 years. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase, or cancel any remaining unearned stock compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional stock-based awards.

We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes option pricing model using the fair market value of our common stock on the date of grant and a number of other assumptions. These

assumptions include estimates regarding the expected term of the awards, estimates of the stock volatility over a duration that approximates the expected term of the awards, estimates of the risk-free rate, and estimates of expected dividend rates.

The fair value of options granted to employees and non-employee directors was estimated as of the grant date using the Black-Scholes option pricing model using the following assumptions:

	Nine Months Ended
	September 30,
	2021	2020
Expected term (years)	5.50 - 6.25	5.50 - 6.25
Expected volatility	55.0 - 55.9%	42.3 - 49.3%
Risk-free interest rate	0.79 - 1.40%	0.36 - 1.42%
Expected dividend yield	0.0%	0.0%
Weighted average fair value	$109.81	$38.33

Expected Term — Due to our limited amount of historical exercise, forfeiture, and expiration activity, we have opted to use the "simplified method" for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting terms and the original contractual term of the option. We will continue to analyze our expected term assumption as more historical data becomes available.

Expected Volatility — Due to our limited operating history and a lack of company specific historical and implied volatility data, we have incorporated our historical stock trading volatility with those of a group of similar companies that are publicly traded for the calculation of volatility. When selecting this peer group of public companies on which we have based our expected stock price volatility, we generally selected companies with comparable characteristics to it, including enterprise value, stages of clinical development, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. We will continue to analyze the historical stock price volatility assumption as more historical data for our common stock becomes available.

Risk-Free Interest Rate — The risk-free rate assumption is based on the U.S. government Treasury instruments with maturities similar to the expected term of our stock options.

Expected Dividend Yield — The expected dividend assumption is based on our history of not paying dividends and our expectation that we will not declare dividends for the foreseeable future.

The amount of stock-based compensation expense is recognized on a straight-line basis over the vesting term and is reduced by actual forfeitures as they occur.

Restricted Stock Units

RSUs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The RSUs include a four-year service period and vest in equal installments on each of the first four anniversaries of the date of grant, provided the employee remains continuously employed with the Company. The fair value of the RSUs is equal to the closing price of our common stock on the grant date.

A summary of RSUs and related information is as follows:

	Restricted Stock Units	Weighted Average Grant Date Fair Value			Aggregate Intrinsic Value (in thousands)
Unvested at December 31, 2020	—		$	—	$	—
Granted	2,275		$	201.51
Unvested at September 30, 2021	2,275		$	201.51	$	530

There were no RSUs granted prior to 2021. The aggregate intrinsic value of RSUs outstanding was based on our closing stock price on the last trading day of the period. As of September 30, 2021, there was $0.4 million of unrecognized stock-based compensation expense related to RSUs to be recognized over a period of 3.3 years.

Employee Stock Purchase Plan

Our ESPP allows participating employees to purchase shares of our common stock at a discount through payroll deductions. The plan is available to all of our U.S.-based full-time employees. Participating employees may purchase common stock, on a voluntary after-tax basis, at a price equal to 85% of the lower of the closing market price per share of our common stock on the first or last trading day of each stock purchase period. The plan provides for six-month purchase periods, beginning on January 1 and July 1 of each calendar year.

A total of 277,362 shares of common stock were initially reserved for issuance under the ESPP, and this share reserve will automatically be supplemented each January 1, commencing on January 1, 2019 and ending on and including January 1, 2028, by an amount of shares equal to the lesser of: a) 184,908 shares, b) 1% of the shares outstanding on the final day of the immediately preceding calendar year and c) such smaller number of shares as the board of directors may determine. On June 30, 2021, 11,351 shares were purchased under the ESPP, utilizing $1.8 million of employee contributions. As of September 30, 2021, 754,752 shares were available for future issuance under the ESPP. The current purchase period under the ESPP began on July 1, 2021 and ends December 31, 2021.

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Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

At both September 30, 2021 and 2020, a valuation allowance was recorded against all deferred tax assets due to our cumulative net loss position. We recorded income tax expense of $0 and $0.1 million in the three months ended September 30, 2021 and 2020, respectively, and $0.1 million for both of the nine months ended September 30, 2021 and 2020. The nominal Income tax expense in those periods reflects minimal state income tax expense and an accrual for uncertain tax benefits.

We filed our 2020 U.S. federal income tax return during the third quarter of 2021. Considering provision to return true-ups, our gross federal net operating loss carryforward as of December 31, 2020 was $234.8 million, which will expire at various dates beginning in 2028. In addition, net operating loss carryforwards for state income tax purposes of $145.6 million that include net operating losses will begin to expire in 2028. We also have gross research and development credit carryforwards of $4.4 million as of December 31, 2020, which will expire at various dates beginning in 2033.

Utilization of the net operating loss carryforwards may be subject to an annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986 and similar state provisions. We have not performed a detailed analysis to determine whether an ownership change has occurred. Such a change of ownership would limit our utilization of the net operating losses and could be triggered by subsequent sales of securities by us or our stockholders.

Realization of the deferred tax assets is dependent upon the generation of future taxable income, if any, the amount and timing of which are uncertain. Based on available objective evidence and cumulative losses, we believe it is more likely than not that the deferred tax assets are not recognizable and will not be recognizable until we have sufficient taxable income. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.

We had $0.1 million of gross unrecognized tax benefits as of each of September 30, 2021 and December 31, 2020.

We file income tax returns in the applicable jurisdictions. The 2018 to 2020 tax years remain open to examination by the major taxing authorities to which we are subject. We do not expect a significant change to our unrecognized tax benefits over the next 12 months.

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Segment Reporting and Revenue Disaggregation

9 Months Ended

Sep. 30, 2021

Segment Reporting [Abstract]

Segment Reporting and Revenue Disaggregation

Segment Reporting and Revenue Disaggregation

We operate our business as one reporting segment. An operating segment is defined as a component of an enterprise for which separate discrete financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

We sell our Inspire system to hospitals and ambulatory surgery centers in the U.S. and in select countries in Europe through a direct sales organization. Revenue by geographic region is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
United States	$	58,298	$	33,121	$	145,420	$	63,379
Europe	3,387		2,721		9,576		5,993
Total revenue	$	61,685	$	35,842	$	154,996	$	69,372

All of our long-lived assets are located in the U.S.

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Loss Per Share

9 Months Ended

Sep. 30, 2021

Earnings Per Share [Abstract]

Loss Per Share

Loss Per ShareBasic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Because we have reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all of the following potentially dilutive shares were antidilutive in those periods:

	September 30,
	2021	2020
Common stock options	2,679,407	2,514,801
Restricted stock units	2,275	—
Employee stock purchase plan	6,124	—
Total	2,687,806	2,514,801

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, the results of operations for the interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods. For a complete discussion of our significant accounting policies and other information, the unaudited financial statements and notes thereto should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Cash and Cash Equivalents

Cash and Cash Equivalents

We consider all highly liquid securities, readily convertible to cash, that mature within 90 days or less from the date of purchase to be cash equivalents. The carrying amount reported in the balance sheets for cash is cost, which approximates fair value.

Foreign Currency

Foreign CurrencySales and expenses denominated in foreign currencies are translated at average exchange rates in effect throughout the year. Foreign currency transaction gains and losses are included in other expense (income), net, in the statements of operations and comprehensive loss. Assets and liabilities of foreign operations are remeasured at period-end exchange rates with the impacts of foreign currency remeasurement recognized in other expense (income), net in the statements of operations and comprehensive loss.

Investments

InvestmentsAt December 31, 2020, our short-term investments consisted of commercial paper, corporate bonds, and U.S. government securities, which are classified as available-for-sale and had maturities less than one year. Our long-term investments at September 30, 2021 consisted of U.S. government securities. Investments are reported at their estimated fair market values which are based on quoted, active or inactive market prices when available. Any unrealized gains and losses due to interest rate fluctuations and other external factors are reported as a separate component of accumulated other comprehensive (loss) income.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

We measure certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents and investments. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs, such as quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3—Unobservable inputs that are supported by little or no market activities, which would require us to develop our own assumptions.

We use the methods and assumptions described below in determining the fair value of our financial instruments.

Money market funds: Fair values of money market funds are based on quoted market prices in active markets. These are included as Level 1 measurements in the tables below.

Commercial paper: Short-term, highly liquid investments are included as a Level 2 measurement in the table below.

Corporate bonds: Consists of short-term notes and bonds with various yields. These are included as a Level 2 measurement in the table below.

U.S. government securities: Consists of U.S. government Treasury bills and notes with original maturities of less than one year to two years. These are included as a Level 1 measurement in the tables below.

The following tables set forth by level within the fair value hierarchy our assets that are measured on a recurring basis and reported at fair value as of September 30, 2021 and December 31, 2020. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Fair Value Measurements as of
	September 30, 2021
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	189,355	$	189,355	$	—	$	—
Total cash equivalents	189,355		189,355		—		—
Investments:
U.S. government securities	$	9,984	$	9,984	$	—	$	—
Total investments	9,984		9,984		—		—
Total cash equivalents and investments	$	199,339	$	199,339	$	—	$	—

	Fair Value Measurements as of
	December 31, 2020
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	179,389	$	179,389	$	—	$	—
Total cash equivalents	179,389		179,389		—		—
Investments:
Commercial paper	$	13,275	$	—	$	13,275	$	—
Corporate bonds	6,540		—		6,540		—
U.S. government securities	24,029		24,029		—		—
Total investments	43,844		24,029		19,815		—
Total cash equivalents and investments	$	223,233	$	203,418	$	19,815	$	—

There were no transfers between levels during the periods ended September 30, 2021 and December 31, 2020.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash equivalents, investments, and accounts receivable.

Our investment policy limits investments to certain types of debt securities issued by the U.S. government and its agencies, corporations with investment-grade credit ratings, or commercial paper and money market funds issued by the highest quality financial and non-financial companies. We place restrictions on maturities and concentration

by type and issuer. We are exposed to credit risk in the event of a default by the issuers of these securities to the extent recorded on the balance sheets. However, as of September 30, 2021 and December 31, 2020, we limited our credit risk associated with cash equivalents by placing investments with banks we believe are highly creditworthy.

We believe that the credit risk in our accounts receivable is mitigated by our credit evaluation process, relatively short collection terms, and dispersion of our customer base. We generally do not require collateral, and losses on accounts receivable have historically been within management's expectations.

Accounts Receivable and Allowance for Expected Credit Losses

Accounts Receivable and Allowance for Expected Credit Losses

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Customer credit terms are established prior to shipment with the general standard being net 30 days. Collateral or any other security to support payment of these receivables generally is not required.

We recognize expected credit losses on accounts receivable in accordance with Accounting Standards Update ("ASU"), ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which we adopted effective January 1, 2020 using the modified retrospective approach through a cumulative-effect adjustment to retained earnings. The adoption of ASU 2016-13 did not have a material impact on the amount and timing of credit losses recognized in our financial statements.

Each reporting period, we estimate the credit loss related to accounts receivable based on a migration analysis of accounts grouped by individual receivables delinquency status, and apply our historic loss rate adjusted for management's assumption of future market conditions. Any change in the allowance subsequent to the effective date of January 1, 2020 from new receivables acquired, or changes due to credit deterioration on previously existing receivables, is recorded in selling, general and administrative expenses. Write-offs of receivables considered uncollectible are deducted from the allowance. Specific accounts receivable are written-off once a determination is made that the amount is uncollectible. The write-off is recorded in the period in which the account receivable is deemed uncollectible. Recoveries are recognized when received and as a direct credit to earnings or as a reduction to the allowance for credit losses (which would indirectly reduce the loss by decreasing bad debt expense).

Inventories

We regularly review inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, incur charges to write down inventories to their net realizable value. The determination of a reserve for excess and obsolete inventory involves management exercising judgment to determine the required reserve, considering future demand, product life cycles, introduction of new products and current market conditions.

Property and Equipment

Depreciation is determined using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease.

Impairment of Long-lived Assets

Impairment of Long-lived AssetsLong-lived assets consist primarily of property and equipment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that an asset be tested for possible impairment, we compare the undiscounted cash flows expected to be generated by the asset to the carrying amount of the asset. If the carrying amount of the asset is not recoverable on an undiscounted cash flow basis, we determine the fair value of the asset and recognize an impairment loss to the extent the carrying amount of the asset exceeds its fair value. We determine fair value using the income approach based on the present value of expected future cash flows or other appropriate measures of estimated fair value. Our cash flow assumptions consider historical and forecasted revenue and operating costs and other relevant factors.

Revenue Recognition

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"). Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, either upon shipment of the product or receipt of the product,

depending on shipment terms. Our standard shipping terms are free on board shipping point, unless the customer requests that control of the inventory transfer upon delivery. In those cases where shipping and handling costs are billed to customers, we classify the amounts billed as a component of cost of goods sold.

Revenue is measured as the amount of consideration we expect to receive, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, which is based on the invoiced price, in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. The majority of our contracts have a single performance obligation and are short term in nature.

Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Variable consideration related to certain customer sales incentives is estimated based on the amounts expected to be paid based on the agreement with the customer using probability assessments.

We offer customers a limited right of return for our product in case of non-conformity or performance issues. We estimate the amount of our product sales that may be returned by our customers based on historical sales and returns. As our historical product returns to date have been immaterial, we have not recorded a reduction in revenue related to variable consideration for product returns.

Cost of Goods Sold

Cost of Goods Sold

Cost of goods sold consists primarily of acquisition costs for the components of the Inspire system, overhead costs, scrap and inventory obsolescence, warranty replacement costs, as well as distribution-related expenses such as logistics and shipping costs, net of shipping costs charged to customers. The overhead costs include the cost of material procurement, depreciation expense for production equipment, and operations supervision and management personnel, including employee compensation, stock-based compensation, supplies, and travel.

Research and Development

Research and Development

Research and development expenses consist primarily of product development, clinical and regulatory affairs, quality assurance, consulting services, and other costs associated with products and technologies in development. These expenses include employee compensation, including stock-based compensation, supplies, materials, consulting, and travel expenses related to research and development programs. Clinical expenses include clinical trial design, clinical site reimbursement, data management, travel expenses, and the cost of manufacturing products for clinical trials.

Stock-Based Compensation

Stock-Based Compensation

We maintain an equity incentive plan to provide long-term incentives for eligible employees, consultants, and members of the board of directors. The plan allows for the issuance of restricted stock units ("RSUs") and non-statutory and incentive stock options to employees and RSUs and non-statutory stock options to consultants and directors. We also offer an employee stock purchase plan which allows participating employees to purchase shares of our common stock at a discount through payroll deductions.

We recognize equity-based compensation expense for awards of equity instruments to employees and directors based on the grant date fair value of those awards in accordance with ASC Topic 718, Stock Compensation ("ASC 718"). ASC 718 requires all equity-based compensation awards to employees and directors, including grants of RSUs and stock options, to be recognized as expense in the statements of operations and comprehensive loss based on their grant date fair values. We estimate the fair value of stock options using the Black-Scholes option

pricing model and the fair value of RSUs is equal to the closing price of our common stock on the grant date. The fair value of each purchase under the employee stock purchase plan is estimated at the beginning of the offering period using the Black-Scholes option pricing model. We have not granted any stock-based awards to our consultants.

The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (i) the expected share price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) the expected dividend yield. Due to our limited operating history and a lack of company specific historical and implied volatility data, we have incorporated our historical stock trading volatility with those of a peer group of public companies for the calculation of volatility. The group of peer companies have characteristics similar to us, including stage of product development and focus on the life science industry. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. We use the simplified method, which is the average of the final vesting tranche date and the contractual term, to calculate the expected term for options granted to employees and directors as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a U.S. government Treasury instrument whose term is consistent with the expected term of the stock options. We use an assumed dividend yield of zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.

We expense the fair value of our equity-based compensation awards granted to employees and directors on a straight-line basis over the associated service period, which is generally the period in which the related services are received. We account for award forfeitures as they occur.

Advertising Expenses

Advertising ExpensesWe expense the costs of advertising, including promotional expenses, as incurred.

Leases

Leases

Operating leases are included in operating lease right-of-use ("ROU") asset, accrued expenses, and operating lease liability – non-current portion in our balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of our incremental borrowing rate requires management judgment based on information available at lease commencement. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on our balance sheets.

Income Taxes

Income Taxes

We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. Valuation allowances against deferred tax assets are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. As we have historically incurred operating losses, we have recorded a full valuation allowance against our net deferred tax assets, and there is no provision for income taxes other than

minimal state taxes and an accrual for uncertain tax benefits. Our policy is to record interest and penalties expense related to uncertain tax positions as other expense in the statements of operations and comprehensive loss.

Comprehensive Loss

Comprehensive Loss

Comprehensive loss consists of net loss and changes in unrealized gains and losses due to interest rate fluctuations and other external factors on investments classified as available-for-sale. Accumulated other comprehensive (loss) income is presented in the accompanying balance sheets as a component of stockholders' equity.

Loss Per Share

Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Because we have reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all potentially dilutive shares consisting of outstanding stock options, unvested RSUs, and shares issuable under our employee stock purchase plan were antidilutive in those periods.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

We have reviewed and considered all recent accounting pronouncements that have not yet been adopted and believe there are none that could potentially have a material impact on our business practices, financial condition, results of operations, or disclosures.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Schedule of assets and liabilities measured at fair value on a recurring basis

The following tables set forth by level within the fair value hierarchy our assets that are measured on a recurring basis and reported at fair value as of September 30, 2021 and December 31, 2020. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Fair Value Measurements as of
	September 30, 2021
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	189,355	$	189,355	$	—	$	—
Total cash equivalents	189,355		189,355		—		—
Investments:
U.S. government securities	$	9,984	$	9,984	$	—	$	—
Total investments	9,984		9,984		—		—
Total cash equivalents and investments	$	199,339	$	199,339	$	—	$	—

	Fair Value Measurements as of
	December 31, 2020
	Estimated Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	179,389	$	179,389	$	—	$	—
Total cash equivalents	179,389		179,389		—		—
Investments:
Commercial paper	$	13,275	$	—	$	13,275	$	—
Corporate bonds	6,540		—		6,540		—
U.S. government securities	24,029		24,029		—		—
Total investments	43,844		24,029		19,815		—
Total cash equivalents and investments	$	223,233	$	203,418	$	19,815	$	—

Schedule of inventory

Inventories are valued at the lower of cost or net realizable value, computed on a first-in, first-out basis and consisted of the following:

	September 30, 2021		December 31, 2020
Raw materials	$	1,865	$	892
Finished goods	13,709		7,587
Total inventories, net of reserves	$	15,574	$	8,479

Schedule of property and equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization and consisted of the following:

	September 30, 2021		December 31, 2020
Computer equipment and software	$	1,391	$	1,305
Manufacturing equipment	4,322		2,285
Other equipment	249		249
Leasehold improvements	281		192
Construction in process	4,380		3,125
Property and equipment, cost	10,623		7,156
Less: accumulated depreciation and amortization	(2,708)		(1,845)
Property and equipment, net	$	7,915	$	5,311

Schedule of accrued expenses

Accrued expenses consisted of the following:

	September 30, 2021		December 31, 2020
Payroll related	$	14,876	$	11,965
Interest	155		160
Current operating lease liability	27		—
Other accrued expenses	2,419		1,391
Total accrued expenses	$	17,477	$	13,516

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Investments (Tables)

9 Months Ended

Sep. 30, 2021

Investments, Debt and Equity Securities [Abstract]

Short-term investments available-for-sale

Our investments are classified as available-for-sale and consist of the following:

	September 30, 2021
	Amortized		Unrealized Gross				Aggregate
	Cost		Gains		Losses		Fair Value
Long-Term:
U.S. government securities	$	9,993	$	—	$	(9)	$	9,984
Long-term investments	$	9,993	$	—	$	(9)	$	9,984

	December 31, 2020
	Amortized		Unrealized Gross				Aggregate
	Cost		Gains		Losses		Fair Value
Short-Term:
Commercial paper	$	13,275	$	—	$	—	$	13,275
Corporate bonds	6,543		—		(3)		6,540
U.S. government securities	23,997		32		—		24,029
Short-term investments	$	43,815	$	32	$	(3)	$	43,844

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Leases (Tables)

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

Lease Balances within the Balance Sheets

The following table presents the lease balances within the balance sheets:

	September 30, 2021		December 31, 2020
Right-of-use assets:
Operating lease right-of-use asset	$	5,296	$	5,805
Operating lease liabilities:
Accrued expenses	27		—
Operating lease liability, non-current portion	6,080		5,886
Total operating lease liabilities	$	6,107	$	5,886

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Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2021

Long-term Debt, by Current and Noncurrent [Abstract]

Schedule of expected future principal payments for the credit facility

Expected future principal payments for the credit facility are as follows:

Year ending December 31:
2021 (remaining)	$	—
2022	9,188
2023	12,250
2024	3,062
Total expected future principal payments	$	24,500

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

Schedule of stock-based compensation expense recognized

The following table presents the components and classification of stock-based compensation expense recognized for stock options and RSUs granted under the 2017 Plan, the 2018 Plan and under our Employee Stock Purchase Plan (the "ESPP"):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Stock options	$	6,405	$	2,984	$	18,065	$	8,303
Restricted stock units	29		—		77		—
Employee stock purchase plan	376		327		1,006		660
Total stock-based compensation expense	$	6,810	$	3,311	$	19,148	$	8,963
Cost of goods sold	$	88	$	36	$	250	$	122
Research and development	1,153		535		3,229		1,252
Selling, general and administrative	5,569		2,740		15,669		7,589
Total stock-based compensation expense	$	6,810	$	3,311	$	19,148	$	8,963

Summary of the company's stock option activity and related information

A summary of stock option activity and related information is as follows:

	Options	Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020	2,857,564		$	66.09	7.9	$351,626
Granted	184,845		$	208.12
Exercised	(269,212)		$	33.92		$47,176
Forfeited/expired	(93,790)		$	113.37
Outstanding at September 30, 2021	2,679,407		$	77.47	7.3	$416,515
Exercisable at September 30, 2021	1,355,413		$	28.54	6.1	$276,959

Summary of weighted average assumptions for fair value of options granted

The fair value of options granted to employees and non-employee directors was estimated as of the grant date using the Black-Scholes option pricing model using the following assumptions:

	Nine Months Ended
	September 30,
	2021	2020
Expected term (years)	5.50 - 6.25	5.50 - 6.25
Expected volatility	55.0 - 55.9%	42.3 - 49.3%
Risk-free interest rate	0.79 - 1.40%	0.36 - 1.42%
Expected dividend yield	0.0%	0.0%
Weighted average fair value	$109.81	$38.33

Schedule of restricted stock units activity

A summary of RSUs and related information is as follows:

	Restricted Stock Units	Weighted Average Grant Date Fair Value			Aggregate Intrinsic Value (in thousands)
Unvested at December 31, 2020	—		$	—	$	—
Granted	2,275		$	201.51
Unvested at September 30, 2021	2,275		$	201.51	$	530

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Segment Reporting and Revenue Disaggregation (Tables)

9 Months Ended

Sep. 30, 2021

Segment Reporting [Abstract]

Schedule of revenue by geographic region

Revenue by geographic region is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
United States	$	58,298	$	33,121	$	145,420	$	63,379
Europe	3,387		2,721		9,576		5,993
Total revenue	$	61,685	$	35,842	$	154,996	$	69,372

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Loss Per Share (Tables)

9 Months Ended

Sep. 30, 2021

Earnings Per Share [Abstract]

Schedule of dilutive securities excluded from computations of diluted weighted average shares outstanding

Because we have reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share as all of the following potentially dilutive shares were antidilutive in those periods:

	September 30,
	2021	2020
Common stock options	2,679,407	2,514,801
Restricted stock units	2,275	—
Employee stock purchase plan	6,124	—
Total	2,687,806	2,514,801

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Summary of Significant Accounting Policies - Follow-On Public Offering (Details) - Follow-on Offering $ / shares in Units, $ in Millions	Apr. 16, 2020 USD ($) $ / shares shares
Subsidiary, Sale of Stock [Line Items]
Shares sold (in shares) | shares	2,300,000
Sale of stock, price per share (in dollars per share) | $ / shares	$ 58.00
Proceeds from sale of stock | $	$ 124.7

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Summary of Significant Accounting Policies - Investments (Details) - USD ($)	3 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Accounting Policies [Abstract]
Unrecognized loss (gain) in accumulated other comprehensive loss (income), less than		$ 100,000		$ 100,000
Realized gains	$ 0	100,000	$ 100,000
Allowance for credit loss	$ 0	$ 0		$ 0

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Summary of Significant Accounting Policies - Fair Value of Financial Instruments (Details) - Recurring basis - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Cash equivalents:
Total cash equivalents	$ 189,355	$ 179,389
Investments:
Total investments	9,984	43,844
Total cash equivalents and investments	199,339	223,233
Commercial paper
Investments:
Total investments		13,275
Corporate bonds
Investments:
Total investments		6,540
U.S. government securities
Investments:
Total investments	9,984	24,029
Money market funds
Cash equivalents:
Total cash equivalents	189,355
Level 1
Cash equivalents:
Total cash equivalents	189,355	179,389
Investments:
Total investments	9,984	24,029
Total cash equivalents and investments	199,339	203,418
Level 1 | Commercial paper
Investments:
Total investments		0
Level 1 | Corporate bonds
Investments:
Total investments		0
Level 1 | U.S. government securities
Investments:
Total investments	9,984	24,029
Level 1 | Money market funds
Cash equivalents:
Total cash equivalents	189,355
Level 2
Cash equivalents:
Total cash equivalents	0	0
Investments:
Total investments	0	19,815
Total cash equivalents and investments	0	19,815
Level 2 | Commercial paper
Investments:
Total investments		13,275
Level 2 | Corporate bonds
Investments:
Total investments		6,540
Level 2 | U.S. government securities
Investments:
Total investments	0	0
Level 2 | Money market funds
Cash equivalents:
Total cash equivalents	0
Level 3
Cash equivalents:
Total cash equivalents	0	0
Investments:
Total investments	0	0
Total cash equivalents and investments	0	0
Level 3 | Commercial paper
Investments:
Total investments		0
Level 3 | Corporate bonds
Investments:
Total investments		0
Level 3 | U.S. government securities
Investments:
Total investments	0	$ 0
Level 3 | Money market funds
Cash equivalents:
Total cash equivalents	$ 0

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Summary of Significant Accounting Policies - Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Accounting Policies [Abstract]
Raw materials	$ 1,865	$ 892
Finished goods	13,709	7,587
Total inventories, net of reserves	15,574	8,479
Reserve for excess and obsolete inventory	$ 300	$ 100

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Summary of Significant Accounting Policies - Property and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Property and Equipment
Property and equipment, cost	$ 10,623		$ 10,623		$ 7,156
Less: accumulated depreciation and amortization	(2,708)		(2,708)		(1,845)
Property and equipment, net	7,915		7,915		5,311
Depreciation and amortization expenses	300	$ 200	900	$ 600
Computer equipment and software
Property and Equipment
Property and equipment, cost	1,391		1,391		1,305
Manufacturing equipment
Property and Equipment
Property and equipment, cost	4,322		4,322		2,285
Other equipment
Property and Equipment
Property and equipment, cost	249		249		249
Leasehold improvements
Property and Equipment
Property and equipment, cost	281		281		192
Construction in process
Property and Equipment
Property and equipment, cost	$ 4,380		$ 4,380		$ 3,125
Minimum
Property and Equipment
Estimated useful lives			3 years
Maximum
Property and Equipment
Estimated useful lives			5 years

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Summary of Significant Accounting Policies - Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Accounting Policies [Abstract]
Payroll related	$ 14,876	$ 11,965
Interest	155	160
Current operating lease liability	27	0
Other accrued expenses	2,419	1,391
Total accrued expenses	$ 17,477	$ 13,516

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Summary of Significant Accounting Policies - Stock Based Compensation (Details)	9 Months Ended
	Sep. 30, 2021
Accounting Policies [Abstract]
Dividend yield	0.00%

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Summary of Significant Accounting Policies - Advertising Expenses (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Advertising Expenses
Advertising expenses	$ 13.4	$ 6.8	$ 34.0	$ 18.2

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Investments (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Debt Securities, Available-for-sale [Line Items]
Investments with maturity greater than one year	$ 0	$ 0
Long-term Debt
Debt Securities, Available-for-sale [Line Items]
Cost	9,993,000
Unrealized Gross Gains	0
Unrealized Gross Losses	(9,000)
Fair Value	9,984,000
Short-term Debt
Debt Securities, Available-for-sale [Line Items]
Cost		43,815,000
Unrealized Gross Gains		32,000
Unrealized Gross Losses		(3,000)
Fair Value		43,844,000
Commercial paper | Short-term Debt
Debt Securities, Available-for-sale [Line Items]
Cost		13,275,000
Unrealized Gross Gains		0
Unrealized Gross Losses		0
Fair Value		13,275,000
Corporate bonds | Short-term Debt
Debt Securities, Available-for-sale [Line Items]
Cost		6,543,000
Unrealized Gross Gains		0
Unrealized Gross Losses		(3,000)
Fair Value		6,540,000
U.S. government securities | Long-term Debt
Debt Securities, Available-for-sale [Line Items]
Cost	9,993,000
Unrealized Gross Gains	0
Unrealized Gross Losses	(9,000)
Fair Value	$ 9,984,000
U.S. government securities | Short-term Debt
Debt Securities, Available-for-sale [Line Items]
Cost		23,997,000
Unrealized Gross Gains		32,000
Unrealized Gross Losses		0
Fair Value		$ 24,029,000

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Leases - Narrative (Details) ft² in Thousands, $ in Thousands	1 Months Ended		3 Months Ended		9 Months Ended		18 Months Ended
	Aug. 31, 2021 USD ($) ft² renewal_option	May 31, 2019 renewal_option	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	May 31, 2022 USD ($)	Dec. 31, 2020 USD ($)	Sep. 30, 2018 ft²
Lessee, Lease, Description [Line Items]
Operating lease sublease land agreement (square feet) | ft²	25
Number of renewal options | renewal_option	1
Renewal term	5 years
Operating lease liability	$ 3,600		$ 6,107		$ 6,107			$ 5,886
Remaining lease term			6 years 8 months 12 days		6 years 8 months 12 days
Discount rate			5.20%		5.20%
Operating lease payments			$ 100	$ 300	$ 100	$ 800
Forecast
Lessee, Lease, Description [Line Items]
Operating lease income							$ 600
Leasehold improvements							1,100
Incentive from landlord, rent abatement							200
Incentive from landlord, refurbishment allowance, maximum							$ 400
Office Space Sublease
Lessee, Lease, Description [Line Items]
Operating lease sublease land agreement (square feet) | ft²									45
Number of renewal options | renewal_option		1
Renewal term		5 years

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Leases - Assets and Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Aug. 31, 2021	Dec. 31, 2020
Right-of-use assets:
Operating lease right-of-use asset	$ 5,296		$ 5,805
Operating lease liabilities:
Current operating lease liability	27		0
Operating lease liability, non-current portion	6,080		5,886
Operating lease liability	$ 6,107	$ 3,600	$ 5,886
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Accrued expenses		Accrued expenses

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Long-Term Debt (Details) - USD ($)	Mar. 27, 2019	Sep. 30, 2021	Mar. 26, 2019	Feb. 28, 2018	Feb. 28, 2017	Aug. 31, 2015
Expected future principal payments
2021 (remaining)		$ 0
2022		9,188,000
2023		12,250,000
2024		3,062,000
Total expected future principal payments		$ 24,500,000
Term loan facility
Credit Facility
Final payment percentage			5.50%
Increase in interest rate in default		5.00%
Term loan facility | February 2017 Amendment to Loan and Security Agreement
Credit Facility
Outstanding credit facility amount					$ 16,500,000
Term loan facility | March 2019 Amendment to Loan and Security Agreement
Credit Facility
Final payment percentage	3.50%
Variable interest rate	2.50%
Variable interest rate on credit facility	5.10%
Term loan facility | Minimum | March 2019 Amendment to Loan and Security Agreement
Credit Facility
Basic interest rate	7.60%
Prepayment fee	1.00%
Term loan facility | Maximum | March 2019 Amendment to Loan and Security Agreement
Credit Facility
Prepayment fee	3.00%
Term A loan facility
Credit Facility
Maximum borrowing amount under credit facility						$ 15,500,000
Term A loan facility | February 2017 Amendment to Loan and Security Agreement
Credit Facility
Additional borrowing amount under credit facility					1,000,000
Term B loan facility
Credit Facility
Outstanding credit facility amount				$ 24,500,000
Additional borrowing amount under credit facility				$ 8,000,000
Term B loan facility | February 2017 Amendment to Loan and Security Agreement
Credit Facility
Outstanding credit facility amount					$ 9,000,000
Term B loan facility | Minimum
Credit Facility
Outstanding credit facility amount						3,500,000
Term B loan facility | Maximum
Credit Facility
Outstanding credit facility amount						$ 10,000,000

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Stockholders' Equity - Stock-Based Compensation (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2021	Jan. 01, 2019	Dec. 31, 2018
Stock Options
Unearned stock-based compensation	$ 70.0
Weighted average recognition period	2 years 6 months
Options
Stock Options
Contractual life of stock options	10 years
Options | Directors | Minimum
Stock Options
Service period	1 year
Options | Directors | Maximum
Stock Options
Service period	3 years
Options | Vesting after first year of service
Stock Options
Service period	4 years
Percentage of shares to vest	25.00%
Options | Vesting in years two through four
Stock Options
Vesting period	36 months
Stock Incentive Plan 2018
Stock Options
Number of shares reserved for issuance (in shares)	3,284,769		1,386,809
Number of additional shares reserved for issuance, maximum (in shares)		739,631
Number of additional shares reserved for issuance, percentage, maximum		4.00%
Number of shares available for issuance (in shares)	1,293,557

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Stockholders' Equity - Stock-Based Compensation Expense Recognized (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Stock Options
Total stock-based compensation expense	$ 6,810	$ 3,311	$ 19,148	$ 8,963
Cost of goods sold
Stock Options
Total stock-based compensation expense	88	36	250	122
Research and development
Stock Options
Total stock-based compensation expense	1,153	535	3,229	1,252
Selling, general and administrative
Stock Options
Total stock-based compensation expense	5,569	2,740	15,669	7,589
Stock options
Stock Options
Total stock-based compensation expense	6,405	2,984	18,065	8,303
Restricted stock units
Stock Options
Total stock-based compensation expense	29	0	77	0
Employee stock purchase plan
Stock Options
Total stock-based compensation expense	$ 376	$ 327	$ 1,006	$ 660

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Stockholders' Equity - Stock Option Activity (Details) $ / shares in Units, $ in Thousands	3 Months Ended	9 Months Ended
	Mar. 31, 2021 USD ($) $ / shares shares	Sep. 30, 2021 USD ($) $ / shares shares
Options
Outstanding at beginning of the year (in shares) | shares	2,857,564	2,857,564
Granted (in shares) | shares		184,845
Exercised (in shares) | shares		(269,212)
Forfeited /expired (in shares) | shares		(93,790)
Outstanding at ending of the year (in shares) | shares		2,679,407
Exercisable (in shares) | shares		1,355,413
Weighted Average Exercise Price
Outstanding, beginning of the period (in dollars per share) | $ / shares	$ 66.09	$ 66.09
Granted (in dollars per share) | $ / shares		208.12
Exercised (in dollars per share) | $ / shares		33.92
Forfeited/expired (in dollars per share) | $ / shares		113.37
Outstanding, end of the period (in dollars per share) | $ / shares		77.47
Exercisable (in dollars per share) | $ / shares		$ 28.54
Weighted Average Remaining Contractual Term
Outstanding	7 years 10 months 24 days	7 years 3 months 18 days
Exercisable		6 years 1 month 6 days
Aggregate Intrinsic Value
Outstanding, beginning of period | $	$ 351,626	$ 351,626
Exercised | $		47,176
Outstanding, end of period | $		416,515
Exercisable | $		$ 276,959

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Stockholders' Equity - Assumptions Used to Calculate Fair Value of Options (Details) - $ / shares	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Weighted average assumptions
Expected dividend yield	0.00%
Options
Weighted average assumptions
Expected dividend yield	0.00%	0.00%
Weighted average fair value (in dollars per share)	$ 109.81	$ 38.33
Options | Minimum
Weighted average assumptions
Expected term (years)	5 years 6 months	5 years 6 months
Expected volatility	55.00%	42.30%
Risk-free interest rate	0.79%	0.36%
Options | Maximum
Weighted average assumptions
Expected term (years)	6 years 3 months	6 years 3 months
Expected volatility	55.90%	49.30%
Risk-free interest rate	1.40%	1.42%

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Stockholders' Equity - Restricted Stock Units (Details) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($) $ / shares shares
Aggregate Intrinsic Value
Unearned stock-based compensation	$ 70,000
Weighted average recognition period	2 years 6 months
Restricted stock units
Stock Options
Service period	4 years
Vesting period	4 years
Restricted Stock Units
Unvested at December 31, 2020 (in shares) | shares	0
Granted (in shares) | shares	2,275
Unvested at June 30, 2021 (in shares) | shares	2,275
Weighted Average Grant Date Fair Value
Unvested at December 31, 2020 (in dollars per share) | $ / shares	$ 0
Granted (in dollars per share) | $ / shares	201.51
Unvested at March 31, 2021 (in dollars per share) | $ / shares	$ 201.51
Aggregate Intrinsic Value
Unvested at December 31, 2020	$ 0
Unvested at June 30, 2021	530
Unearned stock-based compensation	$ 400
Weighted average recognition period	3 years 3 months 18 days

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Stockholders' Equity - Employee Stock Purchase Plan (Details) - USD ($) $ in Thousands			3 Months Ended		9 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Sep. 30, 2021	Jan. 01, 2019
Stock Options
Issuance of common stock for employee stock purchase plan			$ 1,760	$ 1,059
Employee Stock Purchase Plan
Stock Options
Employee stock purchase plan, percent					85.00%
Number of shares reserved for issuance (in shares)					754,752	277,362
Number of additional shares reserved for issuance, maximum (in shares)						184,908
Number of additional shares reserved for issuance, percentage, maximum						1.00%
Issuance of common stock for employee stock purchase plan (in shares)	11,351
Issuance of common stock for employee stock purchase plan		$ 1,800

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Income Taxes (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Operating Loss Carryforwards [Line Items]
Income tax expense	$ 3,000	$ 87,000	$ 52,000	$ 87,000
Unrecognized tax benefits	100,000		100,000		$ 100,000
Significant change to unrecognized tax benefits over the next 12 months	$ 0		$ 0
Federal
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards					234,800,000
State
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards					145,600,000
R&D credit
Operating Loss Carryforwards [Line Items]
Credit carryforwards					$ 4,400,000

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Segment Reporting and Revenue Disaggregation (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($) segment	Sep. 30, 2020 USD ($)
Segment Reporting [Abstract]
Number of reporting segments | segment			1
Segment Reporting and Significant Customers
Revenue	$ 61,685	$ 35,842	$ 154,996	$ 69,372
United States
Segment Reporting and Significant Customers
Revenue	58,298	33,121	145,420	63,379
Europe
Segment Reporting and Significant Customers
Revenue	$ 3,387	$ 2,721	$ 9,576	$ 5,993

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Loss Per Share (Details) - shares	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Loss Per Share
Antidilutive securities excluded from computation of diluted weighted average shares outstanding (in shares)	2,687,806	2,514,801
Common stock options
Loss Per Share
Antidilutive securities excluded from computation of diluted weighted average shares outstanding (in shares)	2,679,407	2,514,801
Restricted stock units
Loss Per Share
Antidilutive securities excluded from computation of diluted weighted average shares outstanding (in shares)	2,275	0
Employee stock purchase plan
Loss Per Share
Antidilutive securities excluded from computation of diluted weighted average shares outstanding (in shares)	6,124	0