Modular Medical(MODD) - 2024 Q4 - Annual Report

Part I Item 1. Business Overview Modular Medical is a pre-revenue medical device company developing the MODD1 insulin pump to expand the market by offering a simpler, more affordable two-part patch pump Overview - Modular Medical is a pre-revenue medical device company focused on designing, developing, and commercializing innovative insulin pumps to increase adoption in the diabetes marketplace[20] - The company's initial product, an innovative two-part patch pump, aims to fundamentally alter the trade-offs between cost and complexity, expanding the wearable insulin delivery device market beyond 'super users' to the mass market for both Type 1 and Type 2 diabetes patients[20] Differentiation - Modular Medical believes existing insulin pumps have shortcomings in complexity, cumbersomeness, cost, outdated style, and pump mechanism limitations, which deter adoption[21][22] - The company's MODD1 pump addresses these issues by being easy to afford, learn, and use, with a revolutionary design and proprietary pumping method that allows for precision, low-cost manufacture, and high reproducibility[22][24] - The MODD1 features a two-part system (one reusable, one disposable), a one-button interface, 90-day reusable/3-day disposable components, no external controller, and a slim, lightweight profile[26] Diabetes Classifications and Therapies - Diabetes is classified into Type 1 (T1D), an autoimmune condition requiring daily insulin, and Type 2 (T2D), characterized by insulin resistance or insufficient production, with 1.6 million T2D individuals in the U.S. requiring intensive insulin therapy[27] - Current therapies include Multiple Daily Injection (MDI) and Continuous Subcutaneous Insulin Infusion (CSII) via insulin pumps, with CSII generally offering better glycemic control and reduced hypoglycemia[28] - Despite benefits, pump adoption is limited due to complexity, cumbersome design, and high costs, leading to a segment of 'Almost Pumpers' who are aware of benefits but deterred by current products[29] Market - Globally, approximately 537 million people lived with diabetes in 2021, projected to increase to 783 million by 2045. In the U.S., 34 million people have diabetes, including 1.8 million with T1D and 1.6 million T2D requiring MDI therapy[32][33] - Only 33% of T1D Americans and very few T2D intensively treated with insulin currently use pumps, totaling about 670,000 users, despite pumps offering better glycemic control and lower healthcare costs[35] - The 'Almost Pumpers' segment, representing about 32% of the T1D market, is a $1.9 billion growth opportunity, seeking less expensive, less time-consuming, less intimidating pumps without separate controllers[36] - The company estimates a total addressable market of approximately $3 billion, assuming cartridge revenue of $4,100 per patient per year, by converting 'Almost Pumpers' with an easier-to-use, learn, and access technology eligible for insurance reimbursement[41] Diabetes Care is at an Inflection Point - The insulin pump market is at an inflection point due to increased diabetes awareness post-COVID-19, widespread adoption of telehealth, and a shift towards Pharmacy Benefits Manager (PBM) reimbursement for patch pumps, simplifying access[43][44][45][46] - The rise of Continuous Glucose Monitoring (CGM) devices like Freestyle Libre has made glucose measurement easier and more affordable, increasing patient comfort with technology and wearables, creating a natural market for new pumps[39][46] Our Insulin Pump - Modular Medical's pump uses proprietary insulin measurement methods and high-volume consumer electronics parts to break the cost-vs-functionality curve, creating a modern, cost-effective design[49] - The MODD1 pump features a simple button for insulin delivery, a low-power Bluetooth and NFC chip for smartphone communication, a three-day disposable cartridge with an integrated coin cell battery, and a soft 6mm cannula with automatic needle removal[52][53] - The company submitted a 510(k) premarket notification to the FDA in January 2024 and is responding to comments received in March 2024, while also preparing for production with manufacturing partner Phillips-Medisize[50] Technological Advantages - The MODD1's adoption of ultra-high volume, miniaturized technologies from consumer electronics allows for easier manufacturing scale-up, lower cost of goods (estimated 50% lower than competitors), and high availability of components[56][58] - The MODD1 is smaller and lighter than Insulet's Omnipod (20g empty vs. 26g, 23g filled vs. 28g) but holds 3mL (300 units) of insulin, 50% more than Omnipod's 2mL reservoir, addressing the needs of Type 1 and Type 2 patients requiring higher doses[58][61] - The new pumping modality is expected to provide the most even basal insulin delivery in the industry, and the device can be removed and replaced without insulin loss, unlike other patch pumps[59][61] - Future plans include MODD1+ with phone-based control and AID capability for CGM integration, and MODD2, a full-featured, multi-chamber pump for fully autonomous closed-loop insulin delivery and broader drug delivery applications[62][63][85] Our Solution - Modular Medical's pump is designed to address existing market shortcomings, appealing to 'Almost-Pumpers' and dissatisfied current pump users by offering a simpler, less expensive, and easier-to-prescribe product[64][65] - The company's immediate goal is to obtain regulatory approvals and commercialize its pump, with a long-term goal of becoming a leading provider of insulin pump therapy by focusing on consumer and clinical needs[67] - Business strategies include using innovative proprietary technology for a simpler, more affordable pump, and maintaining low costs during design and development, leveraging the expertise of its President, Paul DiPerna[68][69] Commercialization Strategy: Overcoming the Insurance Hurdles - The commercialization strategy aims to establish MODD1 as the preferred option for new pump patients by expanding the market to 'Almost Pumpers' and newly motivated CGM users[70] - MODD1's lower manufacturing cost (50% less than Omnipod) enables offering the pump with no upfront cost to patients, driving preferred status with a 20% discount for payors and using existing PBM/CMS codes for reimbursement[71] - The company plans to simplify the 'insurance journey' and training by providing free samples and streamlined training at the clinician's office, supported by telehealth[71] - Europe is a large potential market, with MODD1 targeting mid-2025 for European and UK approval, aiming to offer a cost-effective solution to increase pump uptake in single-payor healthcare systems[72] Marketing - MODD1's marketing strategy focuses on maximizing adoption through a 'frictionless launch' program, reducing reimbursement effort and cost for HCPs, and encouraging patient trials with free samples, insurance verification, and telehealth support[73] - The company will leverage MODD1's 300-unit chamber to appeal to Type 2 patients requiring higher insulin doses and work with health plans to establish MODD1 as a first-line pump for both Type 1 and Type 2 patients[73] - A soft launch and clinical study program in major markets are planned post-510(k) clearance, expected to commence in early 2025, to gather feedback and develop competitive claims[73] Tie-in with telehealth - Telehealth is seen as a force multiplier for diabetes treatment, enabling a small group of endocrinologists to serve a large market more effectively[75] - MODD1 is designed for affordability and self-