Call Replay:
Transcript of Call:
Participants
- Lane Desborough, KOL
- Davida Kruger, KOL
- Jeb Besser, MODD CEO
- Deniel Mero, PropThink Editor
PropThink
Good afternoon everyone, welcome to PropThink’s Digital Conference. My name is Deniel Mero, Editor of PropThink. I will be hosting today’s event. PropThink Digital Conferences is a platform designed to give you access to subject-matter experts, including prominent investors, executives, KOLs, and others with unique insights into the healthcare space.
Today we’ve invited 3 renowned experts in diabetes care to discuss the current landscape and ongoing trends in the insulin pump market.
The experts include Lane Desborough, who has over 30 years of industrial experience, particularly in automated insulin delivery. He was formerly Co-Founder and Chief Engineer of Bigfoot Biomedical, which was acquired by one of the leading insulin pump players – Insulet.
We’re also joined by Davida Kruger, a top diabetes nurse practitioner that has dealt with diabetic patient for more than 40 years at the Henry Ford Health System in Detroit. She is also a former Chair of the American Diabetes Association Research Foundation.
And the third expert on the call today is Jeb Besser, CEO of Modular Medical, which trades on the Nasdaq as ticker M.O.D.D. Modular Medical is developing an insulin pump that is easy to learn, use and afford. He is also Managing Member of investment fund Manchester Management, which is the largest shareholder of Modular Medical.
We will open the call with a roundtable discussion and close with Q&A. So, with that, let’s get to it.
This first discussion topic is for you Lane. Can you talk about the complexity of today’s insulin pumps and give a few examples.
Lane Desborough, KOL
Sure. So first of all, I want to make a slight correction to my introduction. Unless something changed this morning, Bigfoot wasn’t acquired by Insulet, but some of the patents were acquired by Insulet.
So really happy to be here. And complexity has been on my mind, basically ever since my son was diagnosed with type one diabetes in 2009, which brought me into this space from other heavily automated industries.
Some examples of how it’s complex. One of the things we did about 10 years was benchmark just by adding up the number of things that you could set on a contemporary Medtronic insulin pump.
How many things, if you went into the menu, could you change if you desired to. There was something on the order of 1200 things you could change. So that sets up a pretty large barrier to both prescription and to use of these systems. They are very complex.
Part of the reason they’re so complex is to enable people who are very engaged to get the most out of management of their diabetes. As you know, blood glucose is affected by many things, around 40 things. Exercise, sleep, hormones, illness, stress and most of all food. So, food is a very large contributor to variation and so many of these things that contribute to the complexity really are in support of being able to manage mealtimes.
Mealtimes are very difficult, probably the most difficult, thing for people with diabetes to manage. For those who are very engaged, you can have all sorts of ways to manipulate and achieve excellent results through meal management and that’s one of the reasons why these pumps are so complex.
PropThink
Understood. Can you talk a little bit about AID – automated insulin delivery- systems and why they are hard to adopt and use for some folks? Can you explain the characteristics of users and that of non-users for AID?
Lane Desborough, KOL
Sure. Incidentally, that’s the reason why when my son was diagnosed, I chose to get into this space. I come from a world of industrial automation, where automation is done as a matter of course. There are many domains like this.
Automation made a big impact on commercial aviation 50 years ago. It made a big impact in industrial process control, oil refinery petrochemical control 35 years ago. When my son was diagnosed, I thought well how come we’re not taking advantage of automation. This absolutely transforms the experience in these other industries, so it is now starting to have the same effect in diabetes.
You think about what happens with diabetes, type 1 diabetes, in particular, where one day your endocrine system just isn’t working anymore. You go from a closed loop endocrine system figuring out the right amount of hormones peptides to secrete out of the pancreas, to now you’re doing it all yourself. So now you have somewhere in the order of 500 things you need to know how to do to manage diabetes.
What automated insulin delivery does is takes some of that control back. You go from being in the loop, sensing your own blood glucose, deciding how much insulin to take using these complex bolus calculators and then manually performing an injection of insulin.
Now all of those three aspects are automated. You’ve got a continuous glucose monitor doing the automated sensing, you’ve got algorithms, full closed loop hyper closed loop different things that say given my current blood glucose and my meal intentions, how much insulin should I take right now? Then things which automate the delivery in an insulin pump.
I think there were some that maybe thought automated automation algorithms are like a feature of a pump. They completely transform the experience. It’s like saying a radio is a feature of a car. No, it changes. It’s not a car anymore. It’s a different thing. It’s a materially different experience living with diabetes.
PropThink
We’re going to get back to the AIDs in in a minute. Davida, I wanted to ask you a few questions given your experience in the field. So, you you’ve been very successful in moving your patients to pumps. How have you been able to do this and what benefits do you and patients see as a result of adopting pumps, both with and without AIDs.
Davida Kruger, KOL
Well, remember too I work in an endocrinology office, so you know the patients we see all have diabetes. I think believing in insulin pumps but also understanding how they work. When I first started diabetes as you indicated in 1982, some pumps we had were very basic. They were big, they were bulky, but they were very basic.
In fact, they were about this big *makes foot long rectangle*. The new ones are very tiny. The patients had to be plugged in at night and insulin had to be diluted. We were very careful in terms of the choice of patients because first of all they were harder to get reimbursed, but also the technology was different.
Over the years, the technology has become easier to use. Not easy, but easier. As Lane pointed out there’s still a lot to understand, a lot to learn and a lot has to depend on trusting the pump. Not trying to override it, which is the biggest problem with the newer pumps. The AIDs you have to trust them enough to do the job.
I think you also have to be in a practice where I think it’s only fair that I understand and know every pump that’s on the market. It’s not my diabetes. I don’t go home with the patients at night, which is a good thing for them and a good thing for me. I want them to make choices based on their lifestyles.
Every patient is different. Every patient’s needs are different. So, we’ve been successful because we have taken it on to ourselves to understand this. Understand each pump. How it works and how it might fit into the lifestyle of the patient. We don’t just put the pump on the patient and goodbye. We support them through their career of diabetes. Some of the patients I’ve been seeing, I’ve been seeing for 40 years. Some of them only a year or two. But you know many of them I’ve been seeing long term.
Each iteration we try to update and upgrade and make sure the patient understands. I think it has to do with the healthcare provider adapting the concept making sure that both the provider and the patient are very well educated. Understanding what reimbursement looks like and how you have to get there. Really making sure that the patient owns their own diabetes but can do so with the technology that they’ve chosen. We support them to be successful.
PropThink
Got it, understood that. Historically what have been some of the biggest obstacles to getting patients on a pump and then staying on a pump? Has it been cost? Complexity? Time? A combination of these different factors?
Davida Kruger, KOL
I think it’s a combination. Originally you had to have type 1 diabetes and that was it. There was no discussion whether you could get an insulin pump with type 2 diabetes. There are guidelines, especially Medicare guidelines, that we all live and breathe by. Over time we’ve also been able to include people who have type 2 diabetes and so I think that it has to do with criteria for reimbursement, to do with complexity or lack of complexity, it has to do with patients’ lifestyle, what they want to do and what they don’t do.
The other thing too is that I don’t think you can be just very laid back about making these decisions with the patient because if the patient doesn’t buy into it, they’re not going to be successful long term. The patient really needs to know what it is and what it isn’t and how that will impact their lifestyle good or bad.
We used to hear oh my gosh I can’t sleep with it, I can’t have sex with it, I can’t do a thousand things with it. Well insulin pumps are getting smaller. They might still have tubing and some don’t but I just think it’s understanding what the needs of the patients are and meeting them.
Typically, once a patient goes on a pump, they may take pump breaks here or there, but they stay on insulin pumps because they see a better outcome and that’s, I think, key. Their life is improved by the technology we’re able to provide.
Propthink
Lane let’s jump back to you for a minute here. Complexity seems to be a keyword that has been brought up a few times. Why haven’t the existing pump companies already put something out there that is easy and simple for patients? Are they even able to do such a thing? Or is it something in their existing technologies that’s limiting them?
Lane Desborough, KOL
That’s an excellent question. I think if you look at how insulin pumps came to where they are today, as Davida said, they started out simple and then we got into this feature function checklist battle, kind of war between pumps. I have one basal pattern. Well, I have eight basal patterns. Well, I have 48 basal patterns.
I think part of this is just driven by this competitive pressure to add more features. Now, the unintended consequence of that is that it’s basically chasing the top of the pyramid of people who can engage with their diabetes. Those who are super motivated, versus when my son was diagnosed, we would do anything to help him. He was 10 years old at the time and it was my wife and I who was doing this. If that required carb counting to the gram and pre-mill bolusing and getting up five times at night, that’s what we did. That was our level of engagement. There’s nothing more powerful than that maternal and paternal instinct to protect your child.
Then he got older and took over the management himself. That was a completely different experience. He didn’t want to do any management of diabetes. He wanted to go do fun things. So all of those features that were so relevant and important to us became unimportant to him. In fact, annoying to him. Why am I getting all these alarms that are embarrassing me at school? I’m not going to wear a CGM anymore. Why do I have to do all this complex bolusing I’m just not going to do that anymore.
So the problem is; we’ve got sort of this race to a smaller and smaller cohort at the top of the engagement pyramid and I think what we’re doing is leaving behind the people who are basically not using the technology today. They’re saying I just can’t engage with my diabetes in that way. I’ve got
existential circumstances, I’ve got other things going on my life. I’ve got a new baby, I’ve got a new job, I’ve got high school priorities or college priorities.
Unfortunately, it’s really difficult for an incumbent to actually take a step back and simplify something. When is the last time you ever saw a version two of something that didn’t have more features than a version one?
You’ve got this challenge that we actually see in some of these insulin pumps. So, for instance, the Medtronic pumps they still have all of the old algorithms in them as well. You can use the fancy Flagship one, but you can still get predictive local glucose management and thresholds to spend. The algorithms that I was developing and implementing 10 years ago are still in those pumps. It’s just really hard for incumbents to remove features.
I honestly think that it’s easier to start from nothing than to try and take features out. So, an example, let’s say you’ve got a whole bunch of alarms and now you want to take some alarms out. You’re going to have to talk to the FDA about that because back in the past, you would have said to the FDA this is a risk management thing to have these alarms. Then when you come back 10 years later saying we’d like to remove that, did the risk go away? So, you see there’s just so many things conspiring to keep that complexity right now.
You’ve got maybe some key opinion leaders who are saying, “Well I’m not going to prescribe your pumps anymore if they don’t have all those features.” What fraction of America has access to a KOL or even an endocrinologist, sadly? I think that also further distances the people who need the technology most from the huge benefits that it can accrue from automated insulin delivery.
PropThink
That makes a lot of sense. Going back to AIDs for a minute Lane. They seem to be complex with different features. How do you think these would be accept in underserved or less engaged cohorts of the population, that are the so-called “almost-pumpers” jumping to be converted into pumpers going into pretty complex AID or even non-AID systems?
Lane Desborough, KOL
I think that’s a great question and this is something that we’ve lived with at home honestly. My son, who’s now almost 25, just stopped wearing a CGM three years ago. It was too annoying. I’m not going to wear it anymore.
As you know, you need a CGM if you’re going to take advantage of AID so this was just at the time when some of the new systems from Tandem were coming out and we managed to get him to adopt one of these. The only way we could get that system to meet his needs was to essentially de-feature it and hack it ourselves. Turn off everything that could be turned off and basically do the management of the system itself. So we’ll do the maintenance, you just need to drive the car. You just need to be in the car. It was a completely transformative experience.
The frustrating thing for me and the opportunity that I think Modular has is we had to basically hack or work around the complexity of an existing system in order to be able to take advantage of the huge benefits of AID. His A1C drop from 12.1 to 7.6 in 10 weeks of AID three years ago and that’s been a durable result. More importantly he doesn’t want to stop.
I think the opportunity with Modular is how do we have everybody be able to get that experience where we can meet them where they are instead of having to hack one of these complex systems and obscure and paper over the complexity of it.
All of that complexity takes time and money to develop, to regulate, to go through clinical trials, to train. That’s why you have 300 page manuals for these things. So that which you do not have doesn’t require any of complexity. I think complexity just propagates downstream and creates all sorts of barriers to access.
The last thing I would say is that AID has the potential to help the least engaged people. They have the hardest outcomes. They’re the ones who have the A1C of 12 and 14 and so therefore they’re the ones who are having the most difficult time and experience with diabetes. Imagine if you could get somebody going from 30% time in range to 60% time and range. That’s a big difference than somebody at the top of the pyramid going from 80% to 85% time in range.
PropThink
Davida, I want to get you to chime in here for a minute. With regards to the complexity has there been a patient population that that you and other healthcare practitioners would have liked to move over to pumps but have not been able to for even complexity reasons. What are some of these characteristics of the patient populations?
Davida Kruger, KOL
Well first I’d just like to add a little one thing on to what Lane had said. I don’t want to throw the baby out with the bath water and I think that AID and a CGM are two different arenas. I want to make sure that our audience understands that whatever pump we pick, including Modular, that it doesn’t have to be integrated for a CGM to benefit our patient.
I for one would want every patient to have a CGM. My theory is that it should be a right, not a privilege. I think when you see the changes that Medicare’s just made with CGM, saying all you have to do is breathe and be on insulin, and have diabetes, you get a CGM. It doesn’t mean it has to be integrated because there’s plus and minuses to AID, but I don’t want to throw that baby out with a bath water.
I know Lane agrees with me, but he just got really excited about his AID stuff.
Here’s the thing you can imagine I work in the inner city. I’m from Detroit and I literally see a little bit of everything. I see indigent patients; I see multi-millionaires. Literally, I’m not making that up at all. I see people that their ability to engage in their diabetes is only as good as what I can offer them in health care and support and product.
I have to understand that absolutely I have to be patient where their needs are and sometimes if you’re living on the street, if you’re living in a shelter, you can’t take all of this stuff with you. You could take something tiny, you’re not going to necessarily take syringes. There’s a whole lot of things that we have to think about as healthcare providers. When I think about that, there is a huge cohort of our patients, mind you we have over 2 000 people on the insulin pumps that are on the market today, and that grows every day. That doesn’t mean we’re touching how many other people could benefit by something simple.
There are two devices that I can think of off the top of my head. One has basal bolus and one is just bolus that might benefit our patients, but not quite enough. That’s where I think talking more about something like Modular would fit that group of patients that I haven’t moved to an AID, with or without the closing the loop. Because you’re right, you can put them on and you know if a patient chooses one but doesn’t like the sensor, they end up choosing a sensor from somewhere else and they’re not on a closed loop anyway. They need simplicity.
We need to find something simple and easy so that these individuals who are willing, when you talk to them about insulin pumps, the shield that goes down. “I saw that on someone else, I saw the work to set up, to fill everytime. Ain’t gonna happen. Not interested, not gonna do it.”
I don’t have anything truly that’s that simple. I think the closest thing we have is the new eyelet pump where literally you wear it and do nothing. But that still in terms of filling the infusion line, all that kind of stuff, but anyway I think there’s another cohort of patients that were missing the boat on.
PropThink
Understood. Aside from complexity and simplicity, what should new entrants leverage when entering the pump market to have the best shot of success with patients? Also keeping the patient’s best interest in mind.
Davida Kruger, KOL
Nobody has been able to do this; is that the type of patients we’re talking about, and not to put anybody in a box, are more in the primary care world than the endo world. We have plenty that would benefit by something simpler, but I really think we’re missing the boat because there’s so many of our patients that we don’t get the referral until their life is a mess.
If we could intervene in the primary care world, so much better. We think of how many people do have diabetes, endocrinology cannot touch. There’s not enough. We have six nurse practitioners and 11 endocrinology. I’m sorry seven, I forgot to count myself. So, there’s 18 of us providing care in four different places. We can’t touch all of the referrals that primary care would like to send us so. That’s one thing I really think that someone out there needs to start thinking is how do we manage patients in a primary care world. How do we access them and make the primary care provider more comfortable.
Now, as a nurse practitioner, I think we need to have a ton more MVs and PAs in primary care who can manage diabetes because we love diabetes. We do such a good job, that’s a personal comment, but I really think we need someone to think about what’s happening, that we’re missing and a lot of that’s in primary care. That’s number one and that’s going to take a lot of time, talent and education to make that comfortable level for somebody to want to do that.
Number two: reimbursement. It’s not that insurance companies don’t want to pay for a product. They can’t figure out what codes are coming at them. They understand an insulin pump as we’ve described but they don’t understand some of the other bolus devices that benefit our patient or smart pens that benefit our patients. They’re lost in this world of what is it you want, how do we reimburse? I would challenge you that when you bring this product to market, you figure out how to help the insurance companies understand what it is and what it isn’t. And pay for it. I truly believe it is not that the insurance companies don’t want to provide it or pay for it. They don’t know how to reimburse based on codes they have. Codes you’re giving them. Codes that have been approved. I think that would be the other thing. Of course, it has to be a price point that will pay for it.
Then finally I would say support to educate the patient. Given my practice, we do not use the companies trainers for every product because I’m busy seeing patients. I can’t train the patients and my diabetes educators for the most part can’t get reimbursed to train them. So we use the companies and if you want to broaden the scope and get into primary care, and it doesn’t have to be face to face, we all learned during the pandemic what we could manage virtually. We never thought we could do that but every day I would come to work for that entire time and every day I would teach virtually, I would do my visits virtually. We’ve learned that patients have all types of needs, can learn virtually so you will have to bring also trainers to support the patient to be successful.
Those are just the things I’ve noticed in practice is that I can’t practice without the trainers helping me. I can’t practice if I can’t get a product. I mean, I can’t offer it. We’ll fight for those products; we’ll call the insurance companies and we’ll fight and argue. That’s not going to happen in a busy primary care practice and it’s down the hall. I can promise you the endocrinologists are going to say yeah, I couldn’t get it two or three times. I’m not going to write for it again. That may sound silly, but in order to get product into patients we’ve got to make sure those things are accomplished before product comes to market.
PropThink
Well that was great. Jeb, let’s get your input here for a minute. Given the landscape that that Davida and Lane have outlined, how does modular Medical’s MODD1 pump fit into this market and satisfy this unmet need.
Jeb Besser, MODD CEO
First let me say that our survey data echoes everything that Lane and Davida have said in great detail. We’ve surveyed thousands of people who are multiple daily injectors and asked them what would it take for them to go on a pump. They say make it easy for me to learn, easy for my doctor to prescribe, easy to get reimbursement. Bottom line if it takes more than 10 minutes a day for me to do it, and it’s as complex as the pumps that I’ve seen on my friends, I’m not doing it no matter what happens to me down the road.
So you have to bring the product to the patient and I think we saw this in the market in 2016 when Libre 1 was introduced. It was a less capable CGM than what was out then, what Dexcom had out there. But because it was easier to use, because it didn’t have the alarms, because it only told you your number when you wanted to know it, that was appealing to a totally different segment of patients. It didn’t stop Dexcom’s growth, but it led to a much greater adoption of CGMs.
I think the people that are on the pumps today are the most motivated, are the most sophisticated, are the best reimbursed. That’s not everyone and that’s why even though pumps have been out since the 80s, penetration in type 1 is still below 40%. Penetration in type 2 is below 10%. A lot of the features that Lane was describing, people don’t use. There’s a great study out of Germany and another one out of the ADA that shows that a little under half of all pump users have ever changed their basal rate. They’re not using all the algorithms, they’re not using all the complexity.
Just getting them on a pump where half of their insulin is coming from that basal drip and half of it is coming from more frequent boluses that you get in study after study from being able to just push a button, that’s a huge benefit to health care system. It’s also important for the insurance companies not to be taking that upfront risk of I bought you this, and now you won’t use it. It’s only been a few weeks because it’s too much work. That’s what there that’s another thing that they’re afraid of.
So how do we address this? We really designed the MODD1 to try and answer as many of these usability concerns as we could, while also using a new kind of pumping that we think is both safer and also lower cost than the current solutions by reimagining the hardware. We don’t have an external controller like an Omnipod, we just have a button on top of our reusable 90 day that clicks on top of the cartridge. We have a full 3mLs in a patch pump. The Omnipod, which is the only patch bump on the market today, only has 2mLs, which means 25% of all type 1 and 65% of all type 2 can’t get through three days on 2mLs.
It’s removable because, to Davida’s point, there are times where you want to take a pump off. You might want to be intimate, you might want to go on a date and not talk about your diabetes, you might want to go to a ball game and not wear it. If you want a patch pump right now, the Omnipod cannot be removed for three days unless you want to throw it in the garbage along with all insulin that’s left in it. If the adhesive bothers you, these are all things that make you say maybe I don’t want to do that.
We include the battery in the disposables so that you don’t ever have to think about changing batteries on the fly like you do with the Minimed. You don’t have to charge MODD1 at night like you do with a t-slim. You know, all these usability issues that are subtle and people told us over and over again I don’t want to deal with it I don’t want the anxiety of having to worry about my phone being charged. I just want to be able to push a button.
Unlike the Libre when it was introduced in 2016, we’re not asking you to sacrifice accuracy for simplicity, because we’re just as accurate as the leading pumps. Every time our cam rotates we’re only exposing you to an eighth of the insulin that they’re exposing you to. We have a much smaller chance of giving you a sub-optimal dose and because we pump with negative pressure, a failure on our part actually pulls insulin out of the cam and out of the cannula and back into the reservoir so you think it would be the safest form of pumping on the market.
Also, we designed it with componentry that we repurposed from other industries so that we think our cost of goods at scale is significantly lower than the leading patch pump. We want to take that savings from being designed from the ground up to be optimized for modern manufacturing techniques and pass this savings back along to the users, both in terms of training, in terms of copay buydown, in terms of couponing. All these things are critically important.
Look, the net result of this is at a 50% lower cost of goods than our highly scaled patch pump peers, that enables us to come in with about a 20% rebate, per our payor survey, and still having almost 80% gross margin at scale. That’s very helpful and that’s including spending 15% of our revenue on all the things I just described – first month free coupon, couponing, copay buydowns and training.
We did a study, to Davida’s point about making this applicable to primary care, we did a study of 30 multiple daily injectors who had never used a pump before. We gave them our quick start guide and our product and said what is this and how do you use it. We didn’t even tell them it was a pump. 8/10 in less than 10 minutes could put it on correctly and said it’s a pump. Obviously, that’s the kind of usability that might enable a primary care physician to get comfortable describing a product like this.
PropThink
That was helpful. I think that did a pretty good job of giving an overview of how you satisfy this unmet need. Can you provide an update on the FDA submission for MODD1. In the past there have been a few delays. Can you talk about these prior delays, what you’ve learned from them and why is this time any different.
Jeb Besser, MODD CEO
Yeah, so I would say delays before last year were all based around a lack of funding and resources. After we uplisted to the NASDAQ last February, we were heading towards submission and then we discovered, and you know we’ve already had our pre-submission meeting with the FDA, so we know what the 24 tests are that are required.
One of those 24 tests is insulin stability test and where you must keep intact 95% of the molecules after you’ve run them through 30 pumps after six days, which is twice their expected life versus the control, where you’ve just hit dumped them out of the vials into a beaker. Because of a materials compatibility issue in the back half, we were unable to hit that number. It’s a pass/fail test.
It took about five months, but we found the material that was causing the problem. We eliminated it from the design, and we moved the design to our commercial version, which is produced on a line that right now with two shifts can do 75 million in revenue, based on our current reimbursement expectations. That doesn’t use any of the offending materials and reflects an entire year of running these FDA tests. It’s better in 100 small ways that I won’t bore you with. So, we think it’s both manufacturable, actually more accurate than the earlier version. I don’t lose any sleep anymore about passing insulin stability test. We plan to submit late in the year.
PropThink
Great, you look well rested, so I believe what you’re saying.
Jeb Besser, MODD CEO
Look, it’s never over until it’s over. It’s a test done at a third-party lab, so the commitment I’ve made to our investors is that we’re going to share the results when we have a report from the third party if we pass. So that no one else has to worry about this or ever ask me about how this test is performed again.
PropThink
It makes sense. Can you walk us through the marketing, commercial, pricing strategy once MODD1 is cleared by the FDA. How will this be different from the existing players that are out there right now? How will it benefit Modular?
Jeb Besser, MODD CEO
First of all and I think we’ve touched on this already a little bit. You know Insulet’s biggest innovation isn’t that they’re a patch pump, it’s that they’re on the prescription drug benefit. That eliminates one of the payors’ biggest objections, which is the upfront cost for no use risk. They pioneered that and kudos to them. The nice thing about that for us is that we can fast follow.
Our reusable lasts 90 days and we plan to give it away. There’s no question that we would qualify for the prescription benefit. We did a payer survey of a third of the commercial lives in the U.S and we asked them, “Given our more limited feature set, how much of a rebate do we have to give versus Insulate in order to be equal or preferred day one?”. Their response was 10 to 20%, so all of our models assume a 20% discount. Why will the insurers cover us? Because they’re going to make more money honestly. They’re going to say because right now they’re paying a thousand dollars more per year for Insulet than they are for Medtronic or Tandem. They’re willing to do that because they don’t have the upfront risk. If you stop using the product, they stop paying for it. So, we can incentivize the payers.
We can say we can solve a problem for Davida and her colleagues because for the patient who comes in, and that they’ve been seeing for years, who says I won’t go on a pump because of all these of any one or more of the objections that we’ve already covered. Now you can send a sample home with them. You can send a dummy cartridge and a reusable and say, “Why don’t you take this home and try this and see if you can learn to use this yourself with a 10 minute YouTube video.”
As I said, our studies have shown that people can. So instead of detailing the individual patients like our competitors have done for years and years, we plan to detail the doctors and the big drivers of pump choice – the nurse diabetes educators- who have to actually teach the teach people how to use these products and give them an alternative solution. Not for the people who are coming off warranty on a t-slim or a Minimed.
We’re trying to give them an alternative. For the 60%+ of market in type 1 and 90% of the market in type 2 that so far rejected pumps, are on nothing and that’s really what we’re competing with. We’re competing with needles for a much better patient outcome with very little incremental work.
PropThink
There have been some recent developments in the insulin pump market where we’ve seen the big three acquire different patch pumps companies. Obviously this is validating for what MODD is doing with their strategy but it also brings up the question: who’s left to acquire MODD if a takeout is the ultimate exit strategy here.
Jeb Besser, MODD CEO
I think we should probably just describe quickly what transactions you’re referring to. Before December of 2022 there had not been a pre-clearance pump company acquired by a major in 12 years, when Roche acquired snap for $170 million in 2010.
In December 2022, Tandem bought AMF Sigi for $70 million in cash up front and $140 million in earnout and milestones. On their call they said that they were planning to submit that product to the agency sometime in late 26 or early 27. This set a new baseline for what a quite a ways away from clearance pump might look like in terms of valuation. It’s a patch pump, so for a company that only had a tube base pump before, that certainly was a strong endorsement of the market wants patch-based pumps.
Then in May, Medtronic announced that they were tendering for EO Flow. EO Flow is a Korean company that’s cleared in Korea and in Europe with the CE Mark. Not cleared in the U.S. Has a product that is very similar to the Omnipod. One might say it’s almost identical in terms of its use and form factor, but not cleared in the U.S. They’re paying $740 million for it, assuming they closed that transaction. So, once again big company with a tube-based pump saying we need a patch pump in order to be credible in this space on a go forward basis, but also buying something that doesn’t address a lot of the problems that we’re addressing in terms of usability and simplicity.
I would say those are the two big recent developments, along with Beta Bionics islet getting cleared, which is also a tube base pump. Looks very similar to a Minined. We see that as a product that might appeal to a new pump start or a more sophisticated user who just wants to use an easier AID algorithm, is not looking for something as simple as what we’re describing.
That’s a lot more activity in six months than there has been in 12 years. So, the other obvious question is well, who’s left to acquire us? I think the answer is there are a lot of companies that are in adjacent spaces here. Be it CGM, be it diabetes supplies. In this business, in other territories, frankly there’s plenty of room for one of the other guys, from one of the existing players to say, “You know what, this would this would fit because it’s serving a totally different niche than what I’m serving right now.”
One thing we are hearing consistently from strategics that we’ve talked to, frankly, and once again just to be totally candid about this is they want to see FDA feedback and they want to see some ability to scale. There are products that are cleared in other territories that are made by hand that will never have good gross margins, never scale and are not likely to ever be cleared in the United States. So, they want to know that if they acquire something, it’s going to be a product that they could make a couple hundred million dollar product within a year or two, rather than a five years from now we’re still doing $10 million in revs because we really can’t figure out how to make it. Because our consumable is 12 molded plastic pieces and a coin cell battery, it is ideal for lights out scalable, low-cost manufacturing.
PropThink
Got it okay, that makes there with the potential acquisition targets. On the capital markets front, you raised $10 million back in May of this year. Where does this get you? Do you need to raise more to get to FDA clearance, and then to be able to show that scalability that you mentioned?
Jeb Besser, MODD CEO
Well, the good news is it fully funded the commercial line. I’m sitting in San Diego right now and it’s a few feet away. It’s pretty close to being fully validated, so we now have in-house a line that with a couple shifts on it, could do $75 million in revenue with the reimbursement assumptions that I’ve described. That, we think, ticks the box on scalability and removes that risk.
This money will take us through obviously the construction of that line, the production of all the R&D product and the running all the FDA tests and the submission and probably the first set of FDA questions. It’s not quite enough to get us to clearance, assuming an average clearance time of six months. We’re only short a few million dollars.
We’ve now got full accessibility on our shelf. At some point, hopefully at much better prices given how depressed our valuation is versus the two transactions I already described, to bring in some more capital. Bring in the capital that remains to get us over the finish line.
Look, we’ve made no secret of the fact that our plan, when we get our final set of FDA comments that’s likely to lead to clearance, is that we’re going to hire a bank to explore a. what would a strategic pay for us or b. what’s our cost of capital on raising the $50 million it would take us to get to profitability. This is obviously a tenth of what it took other companies in the space to get to profitability. Bring in a commercial CEO who doesn’t want to take execution risk for the FDA
PropThink
Thanks Jeb, that was a very detailed explanation. We’ll now start the Q&A portion of the event. You may submit a question using the text box at the bottom right corner of your screen. Let’s just wait. I think a few have already been submitted. The first question here. What will MODD’s margins look like once commercial and what variables impact this and how does this compare to comps?
Jeb Besser, MODD CEO
We believe, at scale, our margins will be close to 80%, given a 15% spending on free samples, first month free, large training budget etc. The other products have good gross margins, but you know they’re essentially attempting to pump with a Rolex and we’re pumping with a Casio. There’s just a much more expensive complex solution.
The problem is that, because they’re complex, they have these big direct sales forces, and big training budgets because it takes that much money and effort to educate a patient on the features and benefits and why they should choose this product. At the end of the day, you can’t sample a four-thousand-dollar medical device and leave it with the patient for two reasons. One is they might keep it and two is it’s self-filled so they might fill it up without proper instruction and hurt themselves badly.
We think that our product is designed to be sampled. Sampled effectively and cheaply. We think our net margins are better, significantly better and will require much less cost to ramp up because we’re targeting with marketing, like every other med device and pharmaceutical that I know, we’re marketing to the prescribers and not to the patients directly.
PropThink
Next question here. Why do you think pumps have not been adopted like CGMs up to now? That’s for Lane or Davida.
Davida Kruger, KOL
I would just say it’s like talking about apples and oranges. A CGM is something that’s standalone in terms of how we manage diabetes. Every comer should be afforded a CGM. There’s research that shows in type 2 diabetes, if you put a CGM on somebody, their A1C, without changing medications, can come down two percent just because they now have the knowledge of what they’re doing or what they’re not doing. A CGM can be for safety, for those patients who have hypoglycemia.
A pump is something that’s unique to the needs of the individual, where I think CGM, for me, is for all comers to get help, get them to goal and keep them safe.
PropThink
Next question. Can you explain what the artificial pancreas is for insulin pumps and is it realistic, attainable? How far are we?
Lane Desborough, KOL
Sure, so let me see, I was working for Medtronic as the Chief Engineer when we came out with what we called the next step towards the artificial pancreas. I was leading the engineering team doing that particularly and there was such blowback, justifiable from the community, for calling it an artificial pancreas. It’s like, “What do you mean there’s an artificial pancreas? All this does is some management of my insulin. There’s a whole bunch of other things going on with diabetes.”
So, this was really sort of the rebranding of this to automated insulin delivery, to be more specific about what it does. I’ve been watching and been deeply involved in this space for 13 years now and absolutely it is realistic. It is now sort of the standard of care. People are getting 95% time and range from even existing systems, what is called hybrid closed loop. Hybrid closed loop systems are partially automated, partially manual. The reason this is so common to have hybrid closed loop right now is insulins are comparatively slow, so even these ultra rapid acting insulins, insulin analogs are comparatively slow as compared to somebody without diabetes their pancreas secreting something into the portal vein and reaching the liver in a few seconds.
The reason I bring this up is insulins are getting faster. We are seeing other peptides and other co-formulations and ultra rapid acting insulins, ultra-ultra rapid insulin is coming. This need for doing mealtime blousing, premium blousing, carb counting, which is where I would estimate 90% of the complexity is coming from, is going away. It’s going away in the future. So, I think Modular is well positioned to take advantage of these new peptides that are coming, these new formulations that are going to ultimately hasten in the transition to what’s called full closed loop. Where you no longer need to bolus at all at mealtime.
PropThink
Davida, would you add anything to that? For the patients that you deal with?
Davida Kruger, KOL
We published two articles last year. One in the New England Journal of Medicine and one in Diabetes Technology on the use of the Beta Bionics islet. I had 50 patients that were on the pump and it was remarkable. You’re right it’s not totally there, but it was remarkable that that pump was smarter than I was. In terms of the patient just wore it, woke up and told it what the patient weighed and then before each meal said this is my usual meal and the pump knew what to do. Even if it lost connection with their CGM, the pump had enough of a memory.
I think that Lane is actually right. We’re moving in that direction. Now, is that the same patient that I might offer a MODD to? Probably not. You have to know the patient. If I had a patient who wants to nitpick everything, and I do have people that adjust their basal rates daily, that’s not necessarily a pump for him. But it’s a huge step in the right direction for making sure the patient doesn’t have to do a lot and still has a great outcome.
Jeb Besser, MODD CEO
I applaud the people who are willing to jailbreak their pump and engineer their own closed loop system and so on. I sort of describe someone who’s got that level of sophistication, if I were to draw an analogy, it’s like saying someone who’s a professional Xbox gamer is a gamer and someone who plays Candy Crush on their phone is a gamer. It’s just a different level of engagement and sophistication.
You can have people who like to do both. There are people who have a thousand dollar latte machine on their counter and then there are people who have a Keurig. They both make coffee. There’s no Keurig in this space right now, but there is in CGM. Libre One was a Keurig. It was very easy to use and had a very limited feature set and didn’t have the alarms in the patient portal and a different group of people liked it. That’s why Dexcom kept growing when Libre was growing to be as big as Dexcom.
PropThink
Well Keurig and Candy Crush have both had pretty successful businesses. *laughing*
Davida Kruger, KOL
I drink from a Keurig, but I think I want something else in a pump I’m just saying. *laughing*
Jeb Besser, MODD CEO
Everybody wants different things.
Davida Kruger, KOL
I agree with you 100% and my kids say I can use my Keurig as long as I fill those little cups with coffee rather than throwaway ones. *laughing* As a provider I love to have the options and that’s what I’m more excited about. I can sit and tell you the pros and cons of every pump, every device, every CGM and I can help match it up to the patient, but at the end of the day I have to have options. I have to have options for my patients and that’s what I’m excited about what you say.
Can I try the next one? How do competing approaches like GLP-1 and beta cell therapy impact the pump market?
We had this conversation this morning. So, you know we’re going to use insulin later in type 2 diabetes but remember how many people have type 2 diabetes. If you use GLP-1, it does control some of the postprandial blood sugars. So, for some people, we won’t need to use the type of technology we’re talking about here in the early part of their career with diabetes. We know it’s a progressive disease and at some point in their life, they most likely could benefit from these technologies. I agree the need is moving it down a little bit, but we’ve got millions of people that are not getting GLP-1 or technology that we really need to think about.
Jeb Besser, MODD CEO
I think this is a good point for me to jump in for one second and just say so what does success look like for Modular? If you look at the patient population of people who require daily insulin,, who might benefit from a pump, 1% share at a 20% discount to Insulate’s reimbursement is $150 million business for us. 2% share is a $300 million business, where at our model we’re making a 20% net margin. We don’t have to take Tandem’s patients, we don’t have to take Omnipod’s patients, we don’t have to take
Medtronic’s patients. We have to convince 2% of this patient population, who has so far rejected pumps, that there’s a benefit for me to trying this.
Davida Kruger, KOL
I think the bigger thing is that you you’re also looking to convince the providers who manage those patients who aren’t using pumps now. That’s humongous. There is no shortage of people out there with diabetes who could benefit. That’s the whole thing. You’re absolutely right we don’t have to say, “you come off of that, you come off of that”. We just need to go out and give it to people we haven’t given it to.
Jeb Besser, MODD CEO
I see there are a couple questions here I can quickly tick off that are kind of stock market.
Given the transactions in the marketplace, why do you think there’s such a large disconnect in your company’s valuation?
Well, we’re a year and a half late on submission. It looked like early in the year we didn’t have enough money to either build the line or get to submission. I think these transactions have happened relatively recently and I think we just have to execute, we have to get to submission, do what we say we’re going to do.
The one thing I would say is we just added a new member to our Board. Duane DeSisto, who was the first CEO of Insulate, and was CEO when they launched the Insulet Omnipod. Don’t take Jeb’s word for it that we think we can deliver on this. Nobody knows more about launching a patch pump in the United States than him, because he’s the only person who’s ever done it. Since the guts of an Omnipod today are the same as when he was CEO, if you want outside validation that someone looked at our cost base and said, “Oh yeah this could be cheaper and this serves a totally different segment than the company that I worked at”, I think it’s a good validator.
Then differences between Omnipod and MODD?
Were removable. Because we have a small tube, we think we would work a Velcro strap for people who are adhesive averse. We have a button that you can push that actually boluses insulin whereas an Omnipod requires the phone controller or their proprietary controller. And of course, you’re throwing the entire device away which isn’t very green including the pumping mechanism. As a result of that, their consumable has 75 components some discrete, some analogs, some digital, some have to be put in place with tweezers still and ours has 12 molded plastic pieces and a battery.
Davida Kruger, KOL
It’s also the AID part of it is a little hard for patients to grasp because if you choose not to bolus it really does mess up the algorithm. If you make a change today, you don’t see it for three days or the next pod. There’s some glitchy things there that make me crazy.
Lane Desborough, KOL
We’re going to see more algorithm development and that sort of physiology individualization path so that’s sort of the next vanguard, one of the two vanguards of AID coming up which Modular will be able to take advantage of.
Jeb Besser, MOD CEO
At the end of the day, here’s how here’s how we see the market developing 10 years from now. I don’t know whose app on your phone is going to be managing your diabetes. Might it be Apple Health, might it be Google Health, might it be Dexcom, might it be Abbott, might it be someone else, might it be Livongo, or someone else entirely? I have no idea.
I think it is extremely unlikely that 10 years from now it will be a Modular Medical app on your phone managing your pump. Give it that would be a little arrogant for me to say at this point. But 10 years from now you’re still likely to need a device that delivers the hormones that you need to manage your diabetes on your body that’s controlled by these other devices. The winner in that space is going to be the one who’s the safest, most accurate, lowest cost and smallest form factor. That is where our emphasis is and that’s how we win. That’s why we’re a part of this ecosystem. MODD1 is a great product to go where the competition isn’t.
We have a 95% finished dual hormone patch pump. If Beta Bionics successfully develops the multi-hormone market or if we decide that the artificial pancreas does, in fact, require multiple hormones, we want to be an enabling technology for that. We’re very agnostic as far as whether or not we’re using Ace whether or not we’re using your AID algorithm, someone else’s AID algorithm. We think that’s partner rent etc. That’s not where we make our hay in terms of differentiating ourselves. We’re happy to be a fast follower because so many companies are doing so many interesting things in developing new stuff in that space.
None of the big three are innovating on, you know Beta Bionics is essentially a Minimed in terms of its hardware, no one’s innovating on what is actually sitting on your arm or on your abdomen that’s actually delivering the insulin. We are the only one who has a new method of pumping insulin that’s very differentiated.
PropThink
I think you touched on a lot of these. Question here which talks about the future products and the Modular pipeline
Jeb Besser, MODD CEO
We’re going to a set that’s tubeless as well just to give people another option because we think that people should have options. Initially we’ve heard a lot of feedback from patients that say they like the little tube because it’s not 48 inches, so it gets in the way and gets caught on things. It allows them to see inclusion and clear it at the site of injection. Rather than with an Omnipod, the site of injection is underneath the device and if you lift up the device, it’s garbage so an occlusion can frequently happen at the site of injection. Or if you maybe you’ve put it on old scar tissue. For any number of reasons, you want to be able to see that site of injection, or a lot of patients who said they want to be able to from a practical perspective. It also enables it to be easier to remove.
PropThink
These are all the questions that I see in the queue right now. We’ll cap it there. Everyone thank you so much for your time. The event obviously proved to be very insightful. This concludes the presentation and the Q&A portion.
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