Modular Medical (Nasdaq: MODD) has had an eventful 1H22. The company raised $23mm through two transactions, uplisted to Nasdaq, and appointed its largest institutional shareholder, Jeb Besser of Manchester Management, as CEO. These moves were all made to support the company’s final push towards a 510(k) submission for its insulin patch pump, MODD1, which is anticipated shortly.
Originally earmarked for late-21, Modular’s 510(k) submission timelines for MODD1 have been reset, largely due to cash and COVID. The former was resolved through the company’s $15mm February IPO, followed shortly thereafter by a $8mm registered direct in May, and the latter, well let’s just say that we foresee FDA will be substantially through its review of Modular’s 510(k) by the time cold/flu/COVID season kicks in.
It’s worth spending a few sentences on the finance journey Modular took, starting in late-21 and ending with the aforementioned registered direct in May. Modular filed their S-1 in late-21 for an IPO through Opco, but due to market conditions never kicked off the marketing process. Although market conditions continued to deteriorate in January, the company opted to push ahead with the IPO, a difficult decision but necessary, in our opinion, given the potential for further delays in the 510(k) timelines due to cash constraints. Originally trying to raise up to $30mm, in February the company revised its S-1, and closed a $15mm unit offering at $6. Manchester Management, the company’s largest institutional shareholder, participated in the deal, leaving them at ~25% ownership. The company also made a CEO change after the IPO, with Jeb Besser, managing partner of Manchester, stepping into the role. Having known Jeb for years, we believe he will be an excellent steward for Modular, both from an operational and capital perspective, while also being a vocal champion for the company with the capital markets. Early evidence of his ability to engage with the street came with the consummation of an $8mm registered direct with Sio Capital, a dedicated life science fund with $300mm AUM. Sio is that “smart-money” validating life science investor, that was candidly lacking for Modular. The company should be safely financed through the 510(k) process and likely into the soft-launch phase for MODD1.
The company’s current guidance is that they are pushing towards a June 510(k) submission, but our assumption is that these timelines may get pushed slightly into July/August. Sitting here in early June with Modular currently running the final tests to support its submission, any slight delays in the tests would easily push the 510(k) into July. Furthermore, we aren’t certain whether the company will announce the filing of its 510(k) or wait until FDA has accepted the 510(k) for substantive review (usually 3-weeks after the submission). Regardless of the exact timing, we are confident that the MODD1 submission, once accepted for review, will have a high probability of FDA clearance. Our confidence is emboldened with the knowledge that Paul DiPerna, Modular’s founder and chief technology officer, has previously shepherded an insulin pump through the 510(k) process while CEO of Tandem (Nasdaq: TNDM).
In our opinion, the U.S. insulin pump market is ready for some disruption. The incumbents, Tandem, Insulet (Nasdaq: PODD), and Medtronic (NYSE: MDT), have all pushed for integration with CGMs, at the expense of addressing form factor, user-friendliness, and cost. We aren’t suggesting that pump-CGM integration, the push towards the so-called artificial pancreas, isn’t a worthwhile endeavor, rather that these software/algorithm improvements that drive CGM integration, have come at the expense of meaningful hardware changes, that could arguably reduce costs and thereby improve patient accessibility. This is the market Modular hopes to address, the T1D patient that is interested in pumping, but has resisted due to pump cost and/or complexity, the so-called “almost pumper”. Modular believes their first pump, MODD1, could have a 50% COGs advantage over the incumbent pumps, because it was purposefully designed with consumer electronics components to, as Jeb commonly says, “benefit from the scale of the greatest and most optimized supply chain electronics history”. By targeting a T1D audience that is largely ignored by its big pump peers, we believe Modular has an appealing strategy. Carrying a modest $50mm cap, we believe there is substantial upside in Modular’s equity from here, especially as they begin to check off regulatory milestones.