Big money for Bigfoot

Big money for Bigfoot

According to a company issued press release Bigfoot Biomedical, Inc. has raised another $35.5 million. The release states;

“Bigfoot Biomedical, Inc., a highly anticipated precision medicine company founded by people directly impacted by Type 1 Diabetes (T1D) today announced a Series A investment of $35.5 million, led by entities advised by Quadrant Capital Advisors, with participation from Cormorant Asset Management, Senvest Capital, and Visionnaire Ventures. The funding will support final development activities for Bigfoot’s smartloop™ automated insulin delivery service, the world’s first Internet-of-Things medical device system delivered as a monthly service.”

First congrats to the folks at Bigfoot and second this should come as no surprise given the high level of interest in closed loop insulin delivery systems. Yet what we see as the most intriguing aspect is not the hardware but the monthly pricing model. The fact is as we have been saying consistently hardware is just a commodity as all insulin pumps do basically the same thing the same way and it will be no different as more closed loop systems come to market.

The monthly pricing model, think Shave Club for Men, opens up some intriguing possibilities. Cost is a huge obstacle to greater insulin pump adoption. Payors may be more receptive to Bigfoot’s model which eliminates the high upfront cost of on-boarding an insulin pump patient. It also brings with it cost predictability for the payor, something else they like. Finally, this pricing model is conducive to value based contracting which is becoming the de facto standard. This is the good news.

Now comes the hard part, first getting the system approved by the FDA which we see as a minor obstacle. However, getting the product in the hands of patients is a much higher hurdle too clear. Not because the system is flawed in anyway, rather it will be entering a very crowded marketplace with a limited potential patient base. As we’ve been noting Medtronic (NYSE: MDT) not only has a new closed loop system of their own but they are pushing the edge of the envelope with payors. Simply put the competition for patients and formulary access will be fierce.

This is the Achilles heel at Bigfoot as even with this new money they lack the deep pockets needed to make the monthly pricing model work. Now all this would change rapidly if say another company located in the Mountain View area comes along and swoops up the company. A company which just so happens to have an established relationship with Dexcom (NYSE: DXCM) the leader in CGM which just happens to be an integral piece of hardware for the Bigfoot system.

Keep in mind many believed that Insulet (NASDAQ: PODD) besides having the only tubeless system also has a unique pricing model. Although not quite the shave club for men model, the company also eliminated the high upfront cost of ion-boarding a patient. Now we won’t list the many reasons the OmniPod was not more successful when it was initially launched, it’s a very long list, but payors quickly figured out while the upfront cost may be lower over time the OmniPod reached cost parity with conventional pumps after 3 and half years. Simply out payors really weren’t saving money over the life of the system.

This is something else Bigfoot must avoid, if they are to have any chance at all they must SAVE payors money either through lower overall costs or value based contracts where the accept a portion of the financial risk. This is the reason they need deep pockets when you’re not getting a big upfront payment to cover the high cost of running an insulin pump company you need patients on your system to stay on the system. Think about leasing a car or something like Netflix, the money is not made upfront but over time. It becomes a battle of subscriber growth and keeping those subscribers in the fold.

Bigfoot also will not have the luxury of spreading costs over a huge installed base like Medtronic can. Medtronic can be aggressive as they know they have an annuity with their huge installed base. This why even if Bigfoot’s neighbors come along they should not stop with Bigfoot but also go after Tandem (NASDAQ: TNDM), Animas and Insulet. This not only will make them a serious threat to Medtronic but will protect their partnership with Dexcom.

Yes, things are getting more interesting by the day.