Outset Medical (OM) – Bridging The Gap
Outset Medical (OM) is a medtech company providing dialysis treatment for patients suffering from kidney failure, including acute kidney injury and chronic kidney disease. The company’s main product is called the Tablo Hemodialysis System. It is already FDA approved and it simplifies the dialysis process for operators by offering a “stand-alone enterprise solution that avoids the need for complex dialysis infrastructure.” In early-November, shares surged by nearly 30% after reporting its Q3 earnings:
Q3 Total Sales came in at $27.8M beating consensus estimates at $25.2M
Q3 Total Sales increased 11% Q/Q and 6% Y/Y
Q3 Gross Margins came in at 16.4% vs consensus estimates at 14.1%
Raised FY22 Guidance to $111M – $113M from $105M – $110M while consensus was at $108M
During the earnings call, management talked about a Home re-ramp that is taking place and really exceeding their expectations. Apparently, there was a “Home Ship Hold” where patients weren’t able to get their Tablo immediately, which resulted in them having to simply wait. There were other patients who chose another product but once Tablo became available, switched back to that.
CEO Leslie Trigg would say, “Customers could have migrated back to primarily using another home device. What we learned was that all our provider customers returned to Tablo and quickly. The choices made by patients and providers enabled us to close Q3 ahead of our expectations for home growth. We sent a record number of patients home during the last 30 days of the quarter and entered Q4 with a healthy backlog due to Tablo home orders more than doubling compared to Q3 2021.”
Separately, management would also call out an ongoing macro headwind: A nationwide shortage of dialysis nurses, which the company expects to extend into 2023. However, the company had decided to initiate a new program at mitigating this impact. Leslie Trigg would say:
“I’m pleased to report that the early results of what we call the bridge program have been very positive. The bridge program is expected to be margin accretive and is a temporary solution designed to bridge hospitals on staffing by providing short-term dialysis nurses, who deliver Tablo treatments both in the ICU and bedside on the floor, while the hospital completes the process of hiring its own permanent staff. As permanent staff is hired, the Outset nurses also help with training and onboarding. While still in an early phase, we are seeing evidence of the program’s effectiveness in giving health systems the confidence to move forward on in-sourcing initiatives.”
This leads me to a recent note from Stifel analyst Rick Wise, who had the opportunity to host a conference call with a hospital administrator at a Mid-Atlantic hospital system. The discussion centered around the hospital’s decision to move from outsourcing to insourcing dialysis patient treatment. Outset’s recently-launched bridge program aided this hospital as they transitioned to an insourced model.
Further expanding on the hospital’s rationale for insourcing on Tablo, the hospital administrator underscored multiple positive factors differentiating Outset’s hemodialysis solution from competitive devices. These include:
-Tablo’s “state of the art” design and ease-of-use enabling multiple caregivers to readily become experts at managing dialysis patient treatment.
-The system’s mobility both in terms of storing the device, and facilitating movement around the hospital for bedside treatment.
-Tablo’s ability to perform dialysis treatment without the need for a water treatment room.
-According to the hospital’s nephrologists, the consistency of treatments was cited.
“Since insourcing dialysis treatment, this hospital administrator noted that from day one, every provider’s feedback has been positive, we have not had a negative comment. As well, the hospital executive indicated that their dialysis patients have also been receptive to being treated on Tablo, given their suboptimal experiences and treatment side effects with other dialysis systems.”