STIFEL 2026 HEALTHCARE CONFERENCE - BETA BIONICS INC

Financial Performance:

• Q3 2026 new customer starts were in line with expectations, though the stock faced pressure following the delay in 3D Intelligence.
• Gross margins for Q3 2026 were below internal expectations due to inventory destocking of high-margin Islet DME pumps by distributors, partially offset by increased sales of lower-margin DME supplies, resulting in a temporary unfavorable revenue mix.
• Normalized Q3 2026 gross margin is estimated at approximately 59%, representing a 2% increase over Q2; full-year 2026 and Q4 2027 guidance remains a range of 58.5% to 62.5%.
• Company operates with a fully functioning commercial infrastructure generating over $100 million in revenue, providing a foundation for scaling.
• Cash flow is supported by a recent successful capital raise, mitigating immediate liquidity concerns.

Guidance and Future Outlook:

• 3D Intelligence FDA submission has been resubmitted; while a Q4 2026 launch remains a possibility, a Q1/Q2 2027 launch is the base case.
• Mint launch is scheduled for Q1 2027 without 3D Intelligence; 3D features will be delivered via a subsequent firmware over-the-air update to existing and new users.
• 2027 manufacturing capacity is targeted at a minimum of 1.5 million units annually, with full year-end capacity expected to exceed 1.9 million units.
• Revenue growth in 2027 is expected to be driven by significant increases in new patient starts, aiming to capture market leadership; specific percentage share targets are not disclosed but the goal is to become the market leader.
• Gross margin is projected to drop to the low 50s in 2027 due to Mint's initial lower margins, with a trajectory to improve linearly over three years post-launch to match or exceed the incumbent patch pump leader's margins.
• Reimbursement coverage for Mint is expected to start at 40% of eligible patients using pharmacy benefits, growing to 50% by the end of 2027.

Business Segments and Product Lines:

• Mint: A reusable, tubeless insulin pump designed to be smaller and lighter than competitors; features a disposable component with integrated batteries (no user recharging required) and a controller with a two-year lifespan. It aims to replace the incumbent patch pump (Omnipod) through superior algorithm performance and form factor.
• 3D Intelligence: A new feature adding "conservative modes" to the automated insulin delivery system, allowing physicians to tweak settings (e.g., "Sloth" or "Mad Max" modes) to regain trust with patients who experienced hypoglycemia on standard modes. This addresses the second-largest sales objection to the current Islet system.
• Islet: The current standard product; management estimates 80-90% of long-term users will prefer transitioning to Mint when available.
• Manufacturing: Currently a manual "crawling stage" at the Irvine facility with 20 stations; actively transitioning to a robotic, automated "walking stage" to scale capacity and improve margins without requiring FDA manufacturing line validation.
• Commercial Model: Utilizes a proprietary pharmacy to control patient demand, allowing the company to prioritize new customer starts over upgrades from the Islet base in the initial phases of Mint availability.

Market and Competitive Landscape:

• The company aims to dominate the insulin pumping market, targeting immediate market leadership over the incumbent patch pump and emerging competitors (e.g., Tandem, Insulet).
• Competitive advantages cited include: superior algorithm, smaller weight/dimensions than upcoming competitors (e.g., Tandem Tslim, Insulet Omnipod 5), and the convenience of a non-rechargeable controller (integrated battery in disposable).
• 3D Intelligence is expected to win back dormant accounts (doctors who stopped prescribing Islet due to hypoglycemia concerns) and increase share of wallet in existing practices.
• The reimbursement landscape for Mint is expected to improve rapidly compared to the incumbent, leveraging the established path paved by existing patch pumps.

Risks and Challenges:

• Regulatory Timeline: The delay in 3D Intelligence represents the first missed public timeline, causing investor skepticism regarding FDA relations, though the delay was due to simulator validation questions rather than algorithm safety.
• Manufacturing Scalability: Achieving the 1.5 million+ unit target relies on successful short-term automation of the manual production line; high human turnover rates in the current "crawling" stage pose operational risks.
• Supply Chain & Demand Imbalance: Managing the transition from Islet to Mint requires balancing limited initial capacity between new patient acquisition and existing Islet upgrades, managed via the captive pharmacy model.
• Sales Force Retention: Acknowledges a standard turnover rate for sales staff, viewing the removal of low performers as a necessary part of the cycle rather than a negative indicator.

Management Commentary and Tone:

• Management displayed confidence and transparency regarding the 3D Intelligence delay, framing it as a manageable regulatory hurdle regarding simulator validation rather than product failure.
• Tone was assertive regarding long-term goals, explicitly stating an intention to "crush the competition" and become the market leader in insulin pumping, rather than targeting narrow market segments.
• Stephen Feider (CFO) was cautious about providing specific forward-looking metrics for gross margins beyond the 2027 guidance, preferring to outline the directional trend of margin improvement.
• Blake Bieber emphasized the strategic advantage of the company's proprietary pharmacy model for controlling demand and optimizing customer acquisition.

Analyst Questions and Answers:

• 3D Delay: Clarified that the FDA withdrawal was due to unanswered validation questions on the simulator within the 90-day window, not the algorithm itself; resubmission has occurred.
• Gross Margin Mix: Explained that Q3 margin compression was a temporary mix issue caused by DME distributor inventory destocking, not a structural cost issue; normalized margins expected to return to ~59%.
• Mint Capacity Allocation: Addressed how the company will split capacity between new users and Islet upgrades, confirming the use of the captive pharmacy to prioritize new starts while managing upgrade demand.
• Mint Competitive Win: Highlighted that the algorithm is the primary differentiator against the incumbent, while size and the non-rechargeable controller design differentiate against future entrants.
• Reimbursement: Confirmed 40% coverage at launch with a target of 50% by year-end 2027, avoiding specific future timelines.
• Sales Force: Indicated no massive expansion of the sales team is expected in 2027, with only marginal growth and continued focus on retention and performance management.
• Full Closed-Loop: Discussed a Type 1 and Type 2 trial initiated this quarter with a roughly 400-patient enrollment and 13-week primary efficacy endpoint; specific approval dates not provided.

Other Key Points:

• Inventory Dynamics: The Q3 discrepancy in gross margin was driven by Islet DME suppliers purchasing fewer pumps from Beta Bionics than they sold to patients, indicating a shift in distributor inventory levels.
• Regulatory Flexibility: As a 510(k) product, Mint allows for manufacturing line changes (e.g., adding robots) without new FDA submissions, facilitating rapid scaling.
• Operational Control: The ability to dictate demand fulfillment via the proprietary pharmacy is a key strategic lever to manage the transition from the legacy product to Mint.
• Cost Structure: Gross margin improvement for Mint is expected to come primarily from reducing direct labor costs through automation and spreading fixed manufacturing overhead over higher volumes.