Mitra Ramgopal
Okay, good afternoon, everyone, and welcome to the Sidoti August Microcap Virtual Investor Conference. My name is Mitra Ramgopal. I'm happy to be the host for our next presenter, Modular Medical. With us from the company today is CEO, Jeb Besser.
As a reminder, the presentation all in is 30 minutes, so there will be some time for Q&A. Any questions you have, please type them in the Q&A tab. I'll try to relay as many as possible. With that, I'd like to hand it over to Jeb.
Jeb Besser, Modular Medical CEO
Thank you, Mitra. I appreciate it. Hi, everyone, good to have you with us today. So, I'll get right into the presentation since obviously we're on a tight schedule here. Modular Medical is developing a next-generation insulin pump to help with the management of diabetes for people that require daily insulin.
The company was founded by Paul DiPerna, who founded Tandem Diabetes, ticker TNDM, and was the first employee and CEO of the company when their original T-Slim pump was cleared by the FDA. He also has 70 patents in microfluidics and is a 30-year veteran in the medical device industry.
We're trying to address a $3 billion unmet market need in insulin pumps, and we're headquartered in San Diego. We're listed on the NASDAQ under MODD, and we anticipate filing with the FDA for clearance in Q4 of this year.
Why do we think that there's a need for a fourth entrant in the insulin pump space? The space is dominated by 3 billion dollar companies. Medtronic, which bought the original MiniMed, Insulet, which has the Omnipod and has been taking share, and Tandem Diabetes, the company that Paul founded.
Tandem was the latest entrant into the space in 2011, and there hasn't been a major new entrant since then.
First of all, why are pumps gold standard of care? They're standard of care because pumps give you both a slow basal drip of insulin that accounts for about 50% of your insulin throughout the course of the day and then allows you to just push a button to bolus, and so you bolus more frequently but in smaller amounts than you do just by using needles and syringes. As a result, you get better care because we know now that the damage that you suffer from taking daily insulin and from your diabetes happens with these massive excursions up and down over your baseline.
But the pump space must be doing well, right? Look at Insulet, which trades at more than 10 times revenues. Well, the reality is that the penetration of pumps in type 1 people with diabetes is
about 35%. That is up from about 32% or 33% back in 2006. Penetration is virtually unchanged for the last 15 years, and now penetration in type 2s has gone from zero to a little less than 10%, but there are still many, many people who have not gone on a pump. That's despite the fact that getting on a pump not only makes you feel better but also saves the insurance companies a fortune. The average savings per patient year is more than $10,000 fully loaded, including a $5,000 placeholder for the cost of a pump if the insurance companies get you to go on a pump, but they make it hard for you to go on a pump because the current products are too complex, too costly, or too cumbersome for many users or some combination thereof, and so the insurance companies erect barriers to make it hard for you to go on a pump because they're afraid they're going to buy you a multi-thousand dollar medical device and then have you use it for a few weeks and say, you know what, this is just too much work, not for me, which
is not surprising because the average amount of time that a person with diabetes spends managing their pump is 30 to 60 minutes a day.
What other proof do I have that this is true? We think that the most motivated, most technically sophisticated users and best-entered users have gone on a pump, but the people where the most benefit would be gained from taking them to say a 10 or 11 A1C to a 6 or 7, they haven't been reached yet, and that's proven by my last fact on this slide.
In 2006, 21% of type 1s were making their ADA targets. In 2021, it was the same number. We brought much better care to the most motivated, most organized people, but we haven't moved the middle.
The next pushback I usually get is, well, Jeb, that's because this next group of patients won't wear anything at all. They just simply don't want to have a device intrusively on their body all the time.
The problem with that thesis is that there's another device, a continuous glucose monitor commercialized largely by Dexcom, Abbott with the Freestyle Libre, and Medtronic to a very small extent that you also have to wear all day long in order to get better results with your diabetes. The penetration of CGMs is almost four times, it's three times here, but now it's almost four times as much as pumps.
Why are so many more people willing to go on a CGM than on a pump? We think it's because of this product, the Abbott Freestyle Libre. When it was introduced in 2016, all the KOLs panned it and said, why does anyone want this poor man's Dexcom? It's less accurate. It's only accurate within 14% each time it takes a sample, whereas Dexcom was accurate within eight.
It doesn't give you a real-time fee. You have to swipe the wand over in order to get your number.
It doesn't have the patient portal, so it doesn't tell you, it doesn't allow your family to see your numbers in real time. It doesn't have all the alarms so that you know when you're going out of range, and yeah, it doesn't have a finger stick, but who cares? People with diabetes prick themselves all the time. But five years after it was introduced, six years after Dexcom came into the market, Freestyle Libre had as many users and was doing as much revenue as Dexcom, so they were all wrong because it accessed a different patient population.
In fact, but Dexcom critically continued to grow because if you surveyed a Dexcom user, they sound a lot like the current pump users. I work hard and I get better results. Freestyle users say things like, this makes my life easier. I only want to know my number when I want to know my number. Taking away the finger stick in the morning to calibrate is just one less thing I have to do to manage my diabetes, and I don't want the alarms. The alarms mean that I have to explain to my coworkers why I'm diabetic. I don't want the patient portal because I don't want my family yelling at me if I had chocolate cake with lunch.
The lack of features for a Libre user were a feature. There's no product in the pump space that looks like a Libre. That's how we think about our product, trying to address this next group of users who haven't
adopted because they want something simple like a Libre. Do the doctors agree with us?
We surveyed 10% of the endocrinologists in the United States who see patients, and we asked them if there was a pump out there that was less full featured, less expensive, and easy to train on what percentage of your multiple daily injectors, not your current pump users. We're not trying to convert people who are already on pump. Multiple daily injectors, how many of them would you put on a pump?
They said one in four, but they don't just say one in four. They usually literally list off five to 10 patients that they see in their practice every month who have said, I want a pump, but, and they've been looking at the current three platforms for the last 10 years and saying, I won't do that because I know how much work that is, or that's too hard for me to do for some reason. So the doctors think there's a market for us.
Then we surveyed thousands of multiple daily injectors and we asked them, would you ever go on a pump? And 45% said, yeah, I do want to go on a pump. I know it's better care. You have to make it easy for me to learn, easy for my doctor to prescribe, easy to get insurance coverage, and the bottom line is if I have to spend more than 10 minutes a day dealing with this device, I'm not doing it and I don't care what happens to me 15 or 20 years down the road.
Look, diabetes is a disease of everyone. You get varying levels of education, reimbursement, technical sophistication, et cetera. One size fits all is not a good approach and the current products are very complicated and expensive and there's no, I mean, if you were to use the coffee analogy, all the other
products are like a thousand-dollar latte machine on your kitchen counter, we're a Keurig. That's the inspiration we want to be, but they both make coffee.
So what do we design? This is the MODD1. We think this answers as many of the concerns of the almost pumpers as we call them, as we possibly could have in this first single product. So first they say they want a patch pump, like what Omnipod has. So this is a patch pump. It's almost the same size in terms of volume as an Omnipod, but unlike an Omnipod where you throw the entire thing away every three days, this is a two part pump. You've got a 90 day reusable, which clicks on top, which has the button that you pushed to bolus, and then it has a three day disposable with, which holds the reservoir for the insulin
that you buy separately and inject, which is true of all current pumps, a battery, and then the pumping, the rest of the pumping mechanism. And then it has a little pigtail out the side to actually put the injection port in.
Why we picked this form factor and what were the complaints? First the patient said, I do not want an external controller. I just want to push a button to bolus and the Omnipod wall, it is very easy to put on
requires a second cell phone for you to carry that allows you to manage the pump. You can't even put it on without that second cell phone. So you have people have charging anxiety and anxiety about keeping track of this second device.
They told us that they do not want to have to charge the device while it's on their body at night, which is what you have to do with the Tandem. They told us they don't want to have to change batteries constantly like you do with a Medtronic Minimed, which takes AA batteries. And they told us they want it to be removable.
One of the major, even though people love the Omnipod form factor, which is different than the other pumps, because the other pumps are like the size of a Blackberry roughly, but they have 48 inches of tubing that sticks into your head, that hangs out and then goes into your abdomen. A lot of people think that's ungainly and don't like the appearance, think it's cumbersome, et cetera. So people love the Omnipod form factor, but once you put an Omnipod on, you peel off that adhesive patch, and then you fire that auto injector, and then you withdraw it and leave a soft cannula, you cannot take it off for three days. If you do, you lose the insulin and the device. And insurance won't pay for more than one device every three days. And if you bump into a door frame and knock it off, five minutes after you put it on, that's a very expensive mistake. Ours is removable. So the patients want that psychological and physical freedom to be free from the adhesive for a little while or to do some activity where they don't want to
be wearing a pump, et cetera. So we're giving them that.
Also, from a practical perspective, because the injection site in an Omnipod is underneath the device, the most likely place that a device will include is at the point of injection. And if it's under the device, are you going to clear it? Oh, you're going to have to lift it up. Now it's garbage. So ours, you can clear it by just simply changing that 15 cent set rather than throwing away the entire device. So we think we're easier to you.
Also very important, the insulin capacity of an Omnipod is only 2mLs. Ours is 3, just like the Medtronic and the Tandem. And so if you want a patch bump and you need 3mLss, you can't get through three days with an Omnipod. And that's 25% of all type 1s and 65% of all type 2s. So we think there's a big market out there for people who want a patch bump, but can't get through three days with the current product.
However, unlike the Libre, we're not asking you to sacrifice accuracy for simplicity. We are just as accurate as the leading pumps. And we think if cleared, we would be the safest pump on the market. Here's what I mean. Pumping insulin, even though you're buying the insulin separately and putting it into a device, is actually a really nasty and complex problem. If you fail open with that 3mL reservoir and it goes into the patient, they die in about two minutes. So the FDA does not allow any human trials other than human factors studies because they view it as unethical that experimental pump could kill someone.
So our path to approval is 24 engineering-style torture tests to prove that we don't fail open, that we pump with great accuracy, but we're pumping with great accuracy in a microliter level, smaller than a 200th of a drop. And we have to be off only in the single digits on average. You can't use most kinds of pumping because the main preservative in insulin is zinc-based. When you agitate a zinc-based mixture, it clumps. When it clumps, it jams the pump like crazy. And the other preservative is an insulin, react very badly to most kinds of plastics.
You're also material restricted. We think that we would be the safest pump on the market because unlike all the other pumps, we pump using negative pressure. If our pump fails, it actually pulls insulin back out of the intermediate chamber, out of the cannula, and back into the reservoir. And we have eight families of patents around the way that we pump insulin. We also, whenever we pulse every 30 seconds and they pulse every five minutes. So we actually expose you to less than an eighth of the insulin each time we rotate the can that the other products do. That's great in terms of safety, great in terms of ease of use.
But what about cost? Cost is very important in today's healthcare system. So when Paul told his engineers about how we were going to design this product, he told them, you don't get to use it unless it comes from commercial from consumer electronics, cell phones and drones. So we reuse some of the electronics from cell phones and drones. And as a result, we have scale that our competitors who use a beautifully designed bespoke medical device don't have, even though they do a billion in revenue,
because we're reusing componentry from the biggest, most optimized supply chain the world has ever seen. Also, our product was designed in the last five years. Their products were designed, you know, between 1996 and 2007. And manufacturing has changed a lot since then. So our disposable is 12 molded plastic pieces and a coin cell battery pictured here on the right. The insulin Omnipod on the left is 75 components, some analog, some digital. You're talking about the whole pumping mechanism, remember, and $75 million production line, capacity production line for us costs $6 million to produce automation alone for the last Omnipod facility with $65 million. So we think we're highly scalable. We think we have a better mouse trap.
We also have a substantial advantage because of our cost in terms of the way we're going to commercialize this. The way the current products are sold today is that you have to keep a diary for 60 days of all your diabetic events for your eligible for pump. At the end of that 60, and that's a pure
proxy for compliance. At the end of that 60 days, you get the business cards for usually two out of
the three current pump companies and their salesperson does a feature and benefit sale for you of why you should pick their pump. And then you go back to the nurse diabetes educator and then you have to decide in consultation with them which pump you're going to use and take a week-long training class.
That's a lot of complexity. And the reason that they sell that way is that they can't really sample to you in an effective way because for Medtronic and Tandem, it's a $4,000 plus medical device that they'd be leaving with you, which you might not bring back. And also, if you fill it up yourself without taking the training class, you could kill yourself. So it's very hard for them to sample. And the Insulet Omnipod, even though you throw the whole pod away every three days, does require that lockdown cell phone in order to use. So that's very hard to sample as well.
Our plan to go to market is to sample to the nurse diabetes educators who drive a lot of the pump choice, and the endocrinologists who currently prescribe pumps, and the endos who don't because there are only 4,000 endos in the US who see patients and only 1,500 have ever written a script for a pump. 80% of the scripts come from 1,000 endos. And of those 1,000 endos, they're usually attached
five to 10 at a time to a single nurse diabetes educator training practice in the area who helps people decide what pump to pick.
So we're going to give them first month free, which nobody does here. We're going to do co-pay buy downs, as long as it's not Medicare or Medicaid, because that's illegal. We're going to do sample aggressively. We're going to spend 15% of our revenue on those things. And that's not been done in this space before. You want to make it easy for you to try if you're a multiple daily injector who's been rejecting the current pumps for a long period of time in your schedule. And we're solving a huge problem for the NDEs who to date have nothing to give someone who has a flip phone, for instance, and just isn't technically sophisticated enough to use one of the current pumps.
So what about the insurance companies? What do they think of this? We surveyed a third of the commercial lives in the US and asked them, we said, first of all, we said we wanted to be on the prescription drug benefit, because that is Insulet’s key innovation along with the design of their product. They don't have an upfront cost. And the insurance companies are willing to pay $1,000 more per year for Insulet than the other products because they don't have the upfront risk. If you stop using it, they stop paying for it. So we wanted to be on the PBM benefit.
We asked third of the commercial lives in the US, what kind of a rebate do we have to give you in order to be equal or preferred to Insulet they want? They said 10 to 20%. So all my numbers assume a 20% discount, which is roughly $1,000 versus Insulet. Even at that level, though, I still make money excluding cost of sales force at scale. And once I get, if I get you to stay on the product and have insurance pay for one month, even if I give you the first month for free, those are great unit economics. And they're unheard of in this space where nobody gives you gross ads because the customer turn, we think, is pretty substantial.
What kind of a business model does this drive? If we get 1% of the people who require daily insulin in the US or about 36,000 people, that's $150 million business assuming that 20% discount. And that's break even for us. At a 2% share for $300 million where we have a 20% on margin. Contrast that to our peers, Tandem who doesn't make money at almost $900 million in revs and an Insulet who's barely profitable at $1 billion in revs. So we think we have a great business model.
FDA pathway, 24 physical tests, we're submitting to the agency in Q4. It's a predicate device. Our predicate device is the tandem T-Slim, which Paul designed. So nobody knows that application better than him. And we think it should be about a six month clearance process, which results in us being on the market sometime in the middle of next year. I will tell you, we're going to skip this because we really don't have time for it.
There's a big market overseas in the EU that's untapped penetration of pumps in the EU overall is less than 10%, well less than 10% because the single payers think the current solutions are too expensive. So we think there's an opportunity for us there, particularly in England.
So what's the strategic plan here? Well, there's been more activity in this space strategically in
the last seven months than there has been in the last 12 years. Tandem bought a startup in Switzerland
called AMF for $70 million upfront and 140 million earnouts and milestones and said that they would be submitting their patch pump to the FDA sometime in late 26 or early 27. Contrast that to our evaluation.
Then Medtronic announced in May the acquisition of EOFlow, which is a very similar product to the Omnipod. I'll say that is very similar because there's an ongoing lawsuit between Insulet now and EOFlow for $738 million. So we think that the evaluation now on a pre-clearance pump has been established to be potentially much higher than maybe the markets appreciated today. And the FDA has now cleared three pumps, none of which have what I would call it terribly a novel pumping technology, but have cleared three pumps in the last four months. So this FDA division right now is not the Department of No.
We have a great team. Paul, who of course got the Tandem T-Slim through our, COO came from Insulet after doing another company in between, but he was the COO at Insulet at one point, Kevin Schmidt,
and the former CEO of Insulet, Wayne DeSisto, just joined our board in July. So we think we've got a quality team. And then I guess I would just say about me, I'm also the PM of the largest investor here in the company, and I work for a dollar. So I'm highly incented along with other public market investors to do the right thing for the equity.
Simple cap structure, 21 million shares outstanding, and a variety of warrants at between 5 million at $1.22, and then another 6 million at between $6 – $6.60. No debt. Pretty straightforward.
Mitra Ramgopal
Okay, great. Yes, thanks, Jeb. And once again, if there are any questions, please type them in the Q&A tab. I guess I'd like to start first with this morning's announcement. If you can provide some additional color on the significance of the partnership with Phillips Medisize.
Jeb Besser, Modular Medical CEO
Phillips has actually been working with us on designing our production line, and our commercial version of our product for more than a year now. But I think we made the announcement today because we wanted to, you know, because they were willing to let us use their name. And because we think this indicates that we have the production line in place ready to go, and it's making product for the FDA testing process, after which Phillips, once we submit, Phillips will move it down to their facility and manage it from here on out. Look, there are $4 billion company annual turnover. They don't just
partner with any startup. I think we want to signal to the market that this company took us, thinks that we're credible and a potential new source of revenue and, is willing to partner with us because we have a shot in the pump market, and they're very experienced in insulin delivery devices. So we think they're a great partner, and it's been a great fit for us. We're very happy with them.
Mitra Ramgopal
Where do you manufacture these pumps?
Jeb Besser, Modular Medical CEO
So right now, the non-human use R&D product is being made in our facility in San Diego, as we validated and qualified all the equipment for the commercial version of the line. After that's done, we'll be shipping the whole production line to a Phillips facility where they will manage the production for human use.
Mitra Ramgopal
Okay. Thanks. I know you referenced the EU market. How about the Asia market? Is that an opportunity for you?
Jeb Besser, Modular Medical CEO
Yes. Asia is an opportunity. Overseas any market that requires a lower cost product. There's 71 countries where Medtronic is the only approved pump. But we think the biggest opportunity is in Europe where pump penetration is low, reimbursement could potentially, you know, where distribution would not be expensive because if it's going through a single player, you don't have a big sales model. And there are a bunch of niche opportunities like what we describe in our slide with the NHS where, you know, I'll go into a little more detail since we have time.
The NHS has a legal mandate that every pediatric type one needs to be on a pump. But their budget is such that they can only afford to do one out of every three because they're standardized on Medtronic. If they took our product, maybe they could do all the kids because you can imagine two out of three parents losing the lottery and knowing their kids getting substandard care, it's not a very popular policy. We think that's an opportunity for us to slide in and gain European traction.
Mitra Ramgopal
Okay. Thanks. You recently successfully completed a capital raise. Do you anticipate having to do another round pre FDA approval in terms of your product going to market?
Jeb Besser, Modular Medical CEO
So, what I'll say about this is it's very dangerous to linearly view our burn rate because our expenses go up and down as we do FDA testing, bring in pieces of equipment for the commercial line, et cetera. Our current raise, we believe, gets us through submission and per set of FDA comments. And we think we're roughly $3 to $4 million, assuming a normal FDA review timeline from being able to get through clearance.
After clearance or roundabout clearance, we're going to pursue a process where we explore what a strategic would pay for us versus what our cost of capital is on raising $50 million. We think we need to get the profitability
Mitra Ramgopal
O. Thanks. If we, the survey you guys did with the 10% endocrinologists in the U.S. is that data reflective of the country as a whole, rural, urban, suburban, racial diversity, et cetera?
Jeb Besser, Modular Medical CEO
Yes. In fact, we think it's one of the better surveys that's been done because, you know, most of the current surveys and endocrinologists are quite biased by the fact that endocrinologists are one of the worst paid specialties in the United States. The average endocrinologist makes $115,000 a year because they're like derms before they had Botox and other cosmetic procedures. They just, all they have are lab visits and office visits. And so there, a lot of them are extraordinarily overworked. And so the doctors that have the time to fill out the surveys tend to be in the largest, best, well-heeled academic centers
and have the best educated, best reimbursed patients. They are biased towards more complex pumps.
Per my commentary, 2,500 out of 4,000 endos who see patients in the U.S. have never written a pump script, ever. And 20% of all people who require daily insulin are still seen by their PCP, partly because maybe there isn't an endo in their area and they're, they're somewhere in, you know, in a place that isn't very urban. And so, you know, we don't think those PCPs are comfortable writing the current pumps either. It's too much training burden, too much work, too much technical know-how.
Our products is designed to meet that need and not compete with the current products.
Mitra Ramgopal
Okay, thanks. How many sales people do you think would be required for initial launch in the U.S.?
Jeb Besser, Modular Medical CEO
Well, so we think that our initial target audience would be these nurse diabetes educator practices that have to deal with the business end of training people how to choose, how to learn a pump and how to choose which pump they're going to learn. And those people have an immediate need for this and can easily name patients who they think should be on a pump; our pump.
We think we would need about a 20 person sales force because we're not detailing the patients. We're detailing the doctors and the NDEs. And, you know, the total doctor audience of high prescribing endos is only 1,000. And as I said, five to 10 at a time, they're attached to a single nurse diabetes training practice in their area. So, really, you're looking at a very small number of training practices
that you would have to address.
We're not going in there saying, how many of your Medtronic customers are rolling off their four-year warranty this week and can I talk to them? Versus what about Felicia with the flip phone and when she coming in again? When she does come in, why don't you give her this sample?
Mitra Ramgopal
Okay, thanks and time for maybe one more question. If you can just maybe talk to the share price
since you went public last year and where trading today? Is the pullback you attribute to market
conditions or is this something else or what investors are missing or not giving you credit for?
Jeb Besser, Modular Medical CEO
Well, just to clarify, so we actually went public through a reverse merger in 2017, but the stock didn't really start trading until 2021 in any kind of meaningful way. We uplisted to the NASDAQ in February of 2022. And I guess what I would say is at that point, we were expecting to submit to the FDA last year and we encountered a technical problem with our device relating to the material compatibility for a test called insulin stability. We think we've addressed that problem by switching to the commercial version and eliminating the problematic materials. That necessitated a roughly year-long delay in submission. So I think people have put us in the penalty box because of that.
So, I wouldn't say it's market conditions. I would say it's penalty box plus perception that well, you know, are these guys really credible? And I hope Dwayne joining our board and the Phillips announcement today indicates that serious people within the industry think that we're real and that that discount should narrow as we get closer to submission.
Mitra Ramgopal
Okay, thanks. One final one. How long after FDA approval, do you think reimbursement from CMS would be established?
Jeb Besser, Modular Medical CEO
We plan to accept the Insulet code, but with a rebate. We're not asking for more money. We're asking for less. And our label is identical. It would be identical upon clearance to all the other products in the space. So we don't think we require a separate code, at least, at least on the CMS DME benefit, which is the only way they pay for pumps right now.
If we go PBM, obviously each one of those codes has to be individually negotiated with the insurers. So our only guidepost on that is the reimbursement study we've done of the third of the commercial lives in the US, which we covered already.
Mitra Ramgopal
So, on behalf of everyone, I'd like to thank Jeb Besser for sharing with us the Modular Medical story this afternoon. Look forward to future updates and have a great rest of the day, everyone.
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