Inspire Medical Faces New Legal Probe Amid Growth Reset and Regulatory Scrutiny

What happened

Kahn Swick & Foti, LLC has initiated an investigation into Inspire Medical Systems' officers and directors, announced on February 13, 2026, adding another layer to the company's legal challenges. This probe follows an ongoing Department of Justice civil investigative demand related to marketing and reimbursement practices, as disclosed in SEC filings from 2025. Inspire is already contending with a sharp growth reset from 28% in 2024 to guided 12-13% in 2025, driven by GLP-1 competition and execution missteps during the Inspire V transition. Despite maintaining high gross margins of 84-86% and a net cash position of approximately $411 million, the stock has plummeted over 50% in the past year, reflecting deep investor skepticism. The new investigation threatens to further undermine management credibility and could delay the anticipated benefits from the 2026 Medicare reimbursement uplift, which is critical for earnings recovery.

Implication

Investors must prepare for increased legal costs or potential settlements that could strain Inspire's strong balance sheet and impact near-term profitability. Management attention may shift from operational execution to legal defenses, risking further missteps in the Inspire V rollout and market share defense against GLP-1 therapies. This could lead to heightened stock volatility and erode investor confidence, making it harder for the company to achieve its base-case scenario of stabilized growth. However, if the investigation resolves without material fines or restrictions, Inspire's core fundamentals—high margins, cash reserves, and reimbursement tailwinds—could still support a recovery, provided execution improves. Ultimately, close monitoring of legal developments and quarterly financials is essential to gauge whether the risk-reward profile remains attractive or if downside risks have escalated beyond acceptable levels.

Thesis delta

The DeepValue report already highlighted regulatory scrutiny as a key risk, but this new investigation confirms and potentially amplifies that risk, increasing the probability of negative outcomes like fines or management distraction. While the base thesis of a potential buy—centered on high margins, net cash, and 2026 reimbursement uplift—remains intact, the added legal uncertainty shifts the balance toward more caution, requiring investors to weigh heightened execution and regulatory risks against the unchanged fundamental drivers. Until clarity emerges on the investigation's scope and impact, the investment case leans slightly more bearish, with a need to reassess if legal headwinds materially impair growth or financial stability.