Modular Medical, Inc. (MODD) Earnings Call Transcript & Summary

Good day, and welcome to the iAccess Alpha Virtual Best Ideas Fall Investment Conference 2026. Our next presenting company is Modular Medical Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Jeb Besser, CEO, Modular Medical, Inc. Please go ahead.

Thank you, and thanks to everyone who's come to listen to our presentation. We're Modular Medical, ticker MODD on the NASDAQ, and we're a now commercial-stage medical device company commercializing a next-generation insulin pump. Through the forward-looking statement that we all love to read. And so Modular Medical is a medical device company commercializing next-generation insulin pump, which is designed to give a higher standard of glycemic management to people who have diabetes by offering them benefits of a pump while offering an attractive form factor and a simpler experience than has historically been available. The company was founded by Paul DiPerna, who founded Tandem Diabetes, ticker TNDM, and who designed their original insulin pump. We were cleared by the FDA with our device that we're going to market with in April of 2026. We put our first patient on right at the end of June. And we plan to roll out in multiple cities, five actually starting in October of 2026 and then broaden the launch from there. We believe that the pump addresses a $3 billion market. And of course, as you already know, we're publicly traded. So the first question that people usually have when they look at the company is, well, why is there an opportunity for a new company to come into the insulin pump space? There are three well-known companies, Medtronic or now the spin-off MiniMed, Tandem and Insulet, who serve this market plus Beta Bionics and Sequel are newer entrants who have come in. But fact is even though insulin pumps have been around for 25 years, and even though they offer the gold standard in glycemic care, only one out of every five people who should be on a pump clinically is actually on a pump today. And that's because the current pumps are some combination of too costly, too cumbersome or too complex for many users. And this is proven out by the numbers. People who have adopted pumps, are the most motivated, best insured and most technically savvy users and there needs to be a pump for the rest of us. The analogy I usually draw here is that current pumps, while they do a great job, are very much like a $2,000 latte machine that you forklifted onto your kitchen counter, makes a great cup of coffee, but most users of coffee machines have a Keurig now because it gives you 80% of the benefit for 10% of the work, and that product does not exist in pump land today in the right form factor. And that's what the Pivot pump is designed to accomplish. Another common pushback is, well, the reason that those four out of five people aren't wearing a pump aren't wearing one is because they won't wear anything at all. But the fact is many, many more people wear CGM or continuous glucose monitors than wear pumps, even though they're both devices that you need to wear all the time in order to drive better outcomes for your -- if you're a person with diabetes. And the reason we think there's such a difference in the penetration is because of this product that we talk about on this slide. Abbott FreeStyle Libre was introduced in 2016. And when it came out, it was panned by almost every key opinion leader in endocrinology because well, why does anyone want CGM that's less accurate and doesn't offer all features that Dexcom did at the time. It was less accurate, and that was because it didn't have a fingerstick to calibrate it. It was -- it didn't have a patient portal. It didn't have a real-time feed. You literally just wave the wand and it told you what your blood sugar was with a little coin-size device on your arm. Well, as you can see from the chart, after introduction -- five years after introduction, it had as many users as Dexcom. And that's because it was a totally different group of users, people who -- the lack of features were, in fact, features for this other group of users, and that is what drove the adoption of Libre. And so what we're trying to do is enter the market as a Libre-like product in pump land. Do the doctors think there's a need for this? Well, we've done surveys that we ran of about 10% of the endocrinologists and diabetes educators in the United States and asked them what percentage of your multiple daily injectors, the people who still haven't adopted technology and are using just needles and pens after all these years. What percentage of them would you put on a pump that was less full featured and easier to use and have the right form factor. And they say about one in four of their current multiple daily injectors. So we're not trying to take customers from the other pump companies. We're trying to grow the market. And we just went to the American Diabetes Educator Conference in early August, and I have to say I stood in the booth and think I don't think we met a clinician who didn't say, "I have patients for this kind of product right now." So what's the product? So the Pivot offers a different set of features than the leading patch pump right now, the Insulet Omnipod. We have a button on the device where you can bolus yourself without requiring a phone. We have the battery included in the disposable. It's a 2-part piece. So you take the 90 -- the pump that lasts 90 days and you stick you put it together with the cartridge that you fill yourself, which lasts 3 days and the cartridge has the battery power to get through the 3 days. So no external controller, no charging or battery replacement. You don't need the phone in order to bolus. The device that you're getting is almost exactly the same volume as Insulet's Omnipod. It weighs 13% less and it holds 50% more insulin, which is critically important for a large number of users because about 2/3 of type 2s and about 25% of type 1s can't get through 3 days on 200 units of insulin, they need 300. And we offer that to them in a form factor that's a lot more attractive than the other pumps for someone who needs that 300 units. And it's removable. Another complaint we frequently hear about the Omnipod is that once you put it on for that 3 days where you cannot take it off again. Our products, you can. You can take a break. You want to take a shower, if you want to go swimming if you want to just have some time away from the pump, if you're engaging in athletic activity, you can put it on pause and set it to the side. So very different kind of approach than what's been done before. And that's enabled by our eight families of patents and the way we -- that enable the way we pump insulin, which is we are a linear peristaltic pump, so we pulse much more frequently and in smaller amounts in a very power-efficient way we pump with negative pressure because the biggest safety concern at the pump is that it fails open and that all the insulin inside goes into the user and the user dies in a couple of minutes. So our product creates negative pressure in the reservoir. So if the whole thing failed mechanically would actually pull insulin away from the patient. And we use an air pressure sensor to measure how much we've pumped because we actually sense exactly what's being delivered. Other pumps intuit that by using a very precisely machined cannula. And the other thing about our design is, of course, it's for the name of the company. It's modular. And that means that we are reusing the most expensive componentry, the pumping mechanism, the Bluetooth chip, the NFC chip and the system on chip for 90 days, instead of three for Insulet when you throw the whole pod away. And we think that over time, this will drive a much lower cost of goods than the leading patch pump. This is more of the same point. The Omnipod is a beautifully designed device that is very complicated. It has more than 75 discrete components, some analog and some digital. And changing anything about it is devilishly hard when you have as much automation as you do with the current Insulet product line. And we're designed from the ground up for automated manufacturing. So how are we going to go to market with this? One thing I'd like to say is you can sometimes find a key opinion leader practice in a major city like Stanford Medical Center or a Mass General Hospital where you won't find any people who aren't on a pump. But we know that the statistics say that 8 out of 10 people who should be on a pump aren't. So we want to go to markets that have a relatively high rate of diabetes a relatively low pump penetration rate, some willing to adopt new technology and where other kinds of technologies that have been introduced to help in the care of diabetes have had success. So initially, we'll roll out in -- and of course, the right initial reimbursement coverage because not all payers are created equal in terms of their willingness to pay for new products in the market. So our initial markets are Atlanta, Cincinnati/Lexington, Tampa, Houston and Dallas. And these markets contain about 14% of the highest volume insulin prescribers, 15% of all new insulin prescriptions, and about one in five of the prescribers who have had a high affinity for more creative products to try and serve this market. We've already hired our reps and we plan to put feet on the street in October in these markets and expand from there as we gain experience. A huge number of people who are -- who require daily insulin are seen by primary care physicians who have historically been very unwilling to prescribe pumps and because of the complexity that goes with pumps. Pumps are oftentimes a training course for a pump as you go on, can be 4 hours. That's a huge time commitment for a lot of people and the process for learning all the different features is quite arduous. We think that our product is simple enough that it can be accessible enough that it can be prescribed at a primary care physician's office and our product has huge advantages over multiple daily injections done badly where you could come back -- the patient could come back a year later and you might see that their weight is up, their A1C number is terrible and yet you have no idea if they're noncompliant. You have no idea if they're just not performing they're not dosing properly, you just don't know. With a pump, you have better information. And just giving someone a basal dose and the ability to bolus themselves by pushing a button instead of excusing themselves and stabbing themselves in the bathroom is a huge advantage for many, many people. And a lot of the most expensive patients from a payer perspective who get hospitalized frequently. And we saw this in a survey we did of 100 multiple daily injectors that we did with Thrivable. 43% of them have been hospitalized at least twice in the last year, self-identified as hospitalized more than twice in the last year by -- because of diabetes-related complications and events. That's costing the system a lot of money. And just giving someone a basal drip and the bolus -- the ability to bolus easily will help that. And when you say, why wouldn't they just go to an endocrinologist? 70% of U.S. counties now don't have a single endocrinologist, huge numbers of Americans live more than a 5-hour drive from an endo even if they can get an appointment. And it's a very small number of endocrinologists nationwide. So we think it's important that you have the right product for the patient. I think we already said that we're positioning ourselves for full-scale commercialization. We partnered with a seasoned organization in a CSO, a large medical device experience sales organization to help us develop the commercial infrastructure and execution. The former Head of the ADA, Bob Gabbay, is going to be the Chair of our Innovation Council, who's giving us advice on how to serve this group of patients better. We continue to make improvements to the pump. We do have automated insulin delivery, which is the artificial pancreas, hot button word in the industry in our road map and all the chip all the processing power and communications technology and accuracy that is needed to do ACE is already in the product. It's just a question of implementing the right algorithm and the right software. And so we're working on that, but we think these initial patients will benefit so much from just having a pump because much like when cell phone cameras were only half a megapixel. The reason that they were successful in digital cameras were 10 megapixels is the best camera is the one that you have on you and that you're actually willing to carry around and that is the same experience that we're going for in pump land. The best pump for you is one you are actually willing to wear. So because we only have five reps initially and because we're a new product, I wouldn't expect huge numbers right out of the gate in these five markets, but we think that as we expand full traction about a 1% share at current reimbursement rates of the U.S. market would be a $150 million business. We have an experienced team, Paul DiPerna, who I already talked about, who founded Tandem Diabetes, Kevin Schmid, who was a key employee in the early days of ramping up Insulet and helped build their first two plants and a variety of other seasoned executives from the industry. I should also say that we just recently landed our first national PBM contract. There -- we want to be on the pharmacy benefit because the pharma benefit requires a lot less paperwork, no upfront costs, reasonable co-pays and a smaller upfront co-pay and is the preferred as one of the reasons that Insulet has been so successful. I think everyone's going to us driving towards the pharmacy benefit as fast as they can and our product was designed from the ground up to be a pharmacy benefit product. But in order to that, you have to be on formulary with the pharmacy benefit managers. And we have one of the three and stay tuned for more progress on that front later. We also are in the Compendia already, which means that 30% of U.S. commercial lives are covered by the are covered under the open pharmacy benefit. So if you're in the Compendia, you can be reimbursed. And obviously, we -- when we looked at our first five markets, we looked at markets where the dominant payer in those markets, accept that open pharmacy Compendia reimbursement. Let's see Capital structure, it's very straightforward. 8.15 million shares out as of last SEC filing, 3.2 million warrants, which are all struck much higher average weighted warrant price, $20.33, the lowest warrants we have in issuance besides and prefunded warrants are at $5.25 and we have no debt. Why is this a good time to look at Modular Medical? Before I scoot over to questions. One, we're at this inflection point, we're about to have the first signs of commercial traction and commercial acceptance proven out finally by the market. We think that a patch form factor based on Insulet valuation relative to everyone else's and they're ramping sales since 80% of new pump starts are Omnipod or our patch, which is only Omnipod right now. We think this is a great time for another patch to come into the market, and there's plenty of room for different form factors with different features to help dramatically increase the penetration of pumps among people with diabetes and provide much better care. We also think there's a big leg to our growth in Europe, and we plan to apply for the CE Mark early next year. And obviously, I should just say something about my view of this, which is just that I think that it's pretty clear that we could make a go of this as an independent company, but we're also obviously open to partnering this because there are lots of other companies in this space who have a broader sales force and more commercial resources and we're not averse to that either. We'll do whatever is best for shareholders. I'm going to flip up and see if we have some questions since that was 19 minutes.

Okay. Great, great questions. What gives you confidence? I'll go with the last one first. "What gives you confidence that Pivot can expand pump adoption rather than simply compete for existing pump users?" I guess the first thing that gives me confidence on that is looking at is talking to clinicians themselves. Who immediately looked at who we saw at ADCES, who immediately looked at the product and said aha, this is for a different group of patients than who I would normally think of as prescribing a pump. In fact, I talked to a clinician from one of our launch markets. And I said, what kind of pumps would do you find this product interesting? And they said, "Yes, this would be a great product for my group of patients." And I said, what pumps do you normally prescribe? And they said, "I don't normally prescribe pumps. My patients aren't up for that technically." So I think there's so much physician feedback that we collected over the years and patient feedback that says, "Look, I want -- there are reasons that I haven't adopted a pump to date and this overcomes as many of those objections as we could possibly design it to." So we wish the other companies in the space, lots of success, providing better care to people, but we think that our product is designed very, very thoughtfully for our audience. Okay. So we've answered that question. "What are you seeing from the first customers using Pivot since the initial shipments began?" Well, I would just say that the initial shipments, given that we just hired our salespeople have been very, very modest. We're just trying to gain that initial feedback, delivering insulin, getting comfortable, fixing. We saw that we just got an FDA clearance on some fixes and upgrades recently. One of those fixes was that -- the initial clearance that we got was that each button push would only deliver two units of insulin and it wasn't customizable. The new clearance allows us to -- that allows you to set the amount of insulin you're delivering from anywhere from half unit per push to five units per push, which is important because people are radically different sizes, and you don't want them pushing the button more than 10x at once because people aren't very accurate at counting after you get above the number 10. So we have some customers, we've gotten some good initial feedback. We're making some initial adjustments and I think we're excited about getting out into the broader market in the fourth quarter. Okay with that question. "How many users are we targeting in the first 3 months?" We haven't disclosed that. And I think -- I don't think we're going to make a projection on that initially aside from talking about the demographics of the market that we're serving. "When is ACE approval coming for the pump?" We plan to submit for ACE in the first half of next year. That's our current plan. But once again, initially, it will not launch with an AID system. We think that there are plenty of users who just simply want the convenience of the button push and the clinical value of the basal. Okay. Questions answered. "What needs to happen for Pivot to move from an early launch into a meaningful commercial ramp?" Well, we need to see that what we -- that our selling tactics are effective, that we're communicating the value proposition and then we will broaden out to probably 15 to 20 markets. And that's one of the -- another reason to partner with a CSO is that we can bring in the internal sales resources that we can bring to make those sales resources internally in our initial markets and then we can have their help to broaden out into more markets much faster than we could on our own. "How scalable is the current manufacturing process if demand begins to accelerate?" Our current manufacturing line in Queretaro, Mexico can support about 6,000 users concurrently. We -- and obviously, that equates to current reimbursement to over $20 million in revenue. We can expand that at less than $2 million per line up to 30,000 users in 6,000 patient increments by just building more manual lines. After that, we would have to invest in a more scalable automated line, which would dramatically lower our costs. We already have the supply chain, multi-cavity tools to support over 30,000 customers. So what we would do is we would build more manual lines in the interim before we ordered a much larger line. Let's see. "Can we give investors any quantitative indication of the demand already building ahead of the October launch? Patient pipeline prescribing clinics or covered lives or whether or not you believe commercial revenue can reduce the need for further refinancing?" So pumps are not a product where you build a backlog. I think it's -- when we talk to the physicians, they say, "I have people who come in who are frustrated that they don't have more choices." And so those patients have to come back or we have to incent them in some way to start to mine the database of people that they have that are in their practice who they think could benefit from a solution like this. It's one of the reasons that we have a gamified training tool that we -- that's going to roll out in the fourth quarter also to incent them to try this with their group of patients. But look, when the volumes are really, really low and you have all the absorbed overhead of the manufacturing line, you are not going to be very profitable on those first few users. So I don't think that the initial commercial revenue will reduce the need for further equity financing. But I will say that at current reimbursement, we have a decent gross margin even on our little manual pilot line if it's fully utilized. "Given the current cash burn, how are you balancing commercial investment with the need to preserve capital?" Well, I mean, I think we're -- that's why aside from just gaining experience with how to sell, we're doing a five-city launch instead of a bigger launch because that's within the realm of our capacity, what we can absorb right now and what we can afford. So that's I think we want to prove the case to show why we merit further an uptick in valuation and further investment. But right now, cost of capital for us is very high. So I don't want to spend a ton of money on a broad launch that won't without us getting the valuation uptick that we should have when people see how appealing our product is to a different segment than the pump industry has traditionally served. "How rapidly do you expect your revenue to ramp with the PBM contracts in place? And how will that play into your potential need for an upcoming capital raise?" Well, I mean, to be quite honest, as a little company, you always worry about your ability to get the attention of the three huge national PBMs and get them to contract with you. And I would say the fact that we've gotten 1 already is a nice feather in our cap. If you're going to be on the pharmacy benefit, 85-plus percent of pharmacy lives are covered by three PBMs. And that's not -- doesn't mean that you're always on formulary with the underlying plans, but you have to get the PBM contracts as table stakes to even be there. So the fact that we have one in place already that is live right now is excellent news. And I would say "Stay tuned for more news in that department later on." We have to have this in order to be commercially credible. And I think it's a nice validation of what we're doing. "How to invest should investors think about future financing needs and the potential for additional dilution?" Well, obviously, we're not making money right now. We the fourth quarter will be our first quarter with revenue. And so I think it's reasonable to expect that we'll have to finance at some point in the future, unless one of the larger companies in the space says, you know what, there's a huge accretion value to owning this asset because this fits a different need than my current products or the products that have planned in my road map, and it's already cleared. And I'll just say we believe that our hardware our processing power and our communications technology would fit with the algorithm, if any AID algorithm that's out there today. So there's a real opportunity for synergy there if we were to partner with someone else in the space. But that does -- that's not to say that we can't make a go of it on our own. And there are other AID technologies out there that aren't partnered at least in the United States with other players. That we could bring on to this platform at a later date. But there's plenty of business to be had with people who would just benefit from just simply wearing a pump, getting that basal drip and being able to bolus themselves. Okay. It's -- that is just shy of, oh, wait, I've got a refresh. Sorry. Okay. "Is it reasonable to expect a 1% market share in 3 to 5 years?" We think so. And we also think that it's reasonable to expect that we should -- that we can go into other markets besides the U.S. and where it can be even more capital efficient to roll out. "Is there any recurring revenue?" Well, basically, the way pumps work is under the pharmacy benefit is that you basically -- it's like filling a drug prescription, you fill the prescription and then you get 10 pods that last you for the month. And so the revenue model is somewhat recurring in that as long as the people stay on the product, they will request you go on. Then you get recurring revenue. Gross margins, we haven't given any guidance on that yet. I think we've said at scale that the margins should be well in excess of 70%, but scale is tens of thousands of users away. "Are we done with the FDA for the time being?" Well, we're going to go back to them for ACE clearance later to work with an AID, I mean you're really never done with the FDA because you always have to go back and as you learn things and you make further improvements, you have to go back and do more things with them. But I think we have the core clearance that we need in order to launch the product. Let's see, "How many devices do you have to sell to breakeven? When do you think you get to breakeven?" We haven't given guidance on that yet. "And when is the first quarter revenue? That is Q4. I think you hit all five markets at once?" Yes, we have reps already hired, and we'll be launching in those initial five markets. Okay. How far is your cash room? All right. I think we're out of time, operator. It's 1:30 and people have to move on to their next calls.

Thank you, that concludes Modular Medical, Inc.'s presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.