STIFEL 2026 HEALTHCARE CONFERENCE - BETA BIONICS INC

John Block with Stiefel, day two of the Healthcare Conference. Welcome. I'm happy to introduce the team from Beta Bionics, Stephen Feider, CFO, and Blake Bieber, Manager of Investor Relations and Corporate Development. Guys, thanks for coming and joining us. Wonderful to be here. Thanks, John. We're going to hit it on a bunch of different topics. You've got a mint box, and we'll certainly talk about mint for a little bit. But I want to start with a 3Q26 recap. Yeah, you know, it was certainly a pretty good quarter and new customer starts were in line. I think maybe there was some noise on 3D intelligence, gross margin a little bit. You know, stock's been a bit weak since the quarter. So I'm just going to toss it over to you, Stephen. Just, you Know, your thoughts on what might be weighing on the stock a little bit. What's the investor feedback been since the quarter? Well, 3D was the first public promise in terms of a timeline that we've missed. And so we we when we received mint clearance at the same press release, we included this really the introduction of 3D as a concept and said that it would be commercializing by the end of 2026 and sent then subsequent to that just prior to our Q3 earnings call. FDA told us to withdraw the submission and we've had to resubmit it. We, in fact, since then have resubmitted it, which is good news, and I can get to that. But that particular timeline, then we moved to mid-2027 for 3D launch with the potential that we could still launch it in Q4 2026. But what I think some investors have been asking us about is, okay, why did that happen? Again, as a new management team to operating a public company, in the eyes of some investors, I think people maybe saw that as like, do these guys understand what's going on with their dealings with FDA? And I'll comment on that in a moment. But I think that's been sort of some of the negative sentiment we've seen. In terms of what actually happened with 3D and like why did we have to withdraw the application, not to kind of get into any particular drama here, but really there's been no questions from the FDA on the algorithms themselves that have us at all concerned. So we don't believe that the FDA is looking at the algorithm experiences that we're launching with 3DNCs, any problem with them whatsoever. Where their questions have been and where we were unable to answer within the time parameter was on validation of the simulator. So I'll just say briefly on what we're talking about here with the simulator is the FDA has been more open towards insulin dosing algorithm companies or insulin pump manufacturers creating enhancements or modifications to existing commercial algorithms using simulation, which is actually great for the industry. But predicated on that is that the FDA has to agree that whatever simulation tool you've built has been validated to represent a population of people who are living with diabetes. And in the case of beta bionics, we were fairly certain going through that process that FDA felt good about the simulation tool and validation of it. But what happened late in the submission process was we got additional feedback on our simulator and the validation associated with it that we were unable to answer within the 90 day parameter and they asked us to withdraw it. So it was disappointing for us, but that's like actually what happened. So I believe we've now addressed their questions, and hopefully they'll pick up right where they left off. But if they don't, they certainly have, statutorily, the 90 days to re-look at it. Okay. And, you know, I think on the earnings call, you said you're going to submit by the middle of the quarter. Just to be clear, you've already resubmitted. Yes, we've already re-submitted it. Okay. And just to go back to what you previously said, I mean, I thing to give the management team, you guys, credit, you said mint by the end of 27, then you pull it forward to 2Q, then pull it to 1Q. You said you'd find a way for a Type 2 adult label in sort of an efficient manner, and eventually you got there. So your point is with 3D intelligence, it was maybe the first stumble with the agency, and people are a little bit focused on that in the near term. Yeah, not only that, it Was our first time we've ever missed a date that we've communicated publicly. Okay. Okay. How about gross margin? And the quarter was below your expectations, but you said it was really a mixed thing, right? So maybe just talk to us about what was destocked, which I think was the pumps, which was stocked, which I thing was the supplies. And if there's like a normalized GM number that you might be able to give us for 3Q. Yeah, this area, I haven't really gotten a ton of feedback from investors subsequent to the call because I think the communication was really clear as to exactly what happened and it can be corroborated by the numbers that we share within our disclosure documents. But just reiterating briefly, you can review our transcript if you'd like. We sold fewer islet DME pumps in the third quarter relative to the second quarter. And we sold so few that I could even clarify it with this metric. Our DME suppliers purchased fewer DME bumps from Beta Bionics than what they sold to patients in the quarter. So there was a change in the inventory balance that was pretty significant from our DME distributors on islets in DME, which is a very high margin revenue channel for us. On the inverse of that, the exact opposite happened with DME supplies, and those are low gross margin. That's a low gross marginal revenue stream. So the two of those together created an unfavorable revenue mix for the sake of gross margin, Why I don't think this is considered a problem for the sake of investors is that we didn't change our guidance and our guidance in Q4 or our calendar year 2026 guidance implies a gross margin range of 58 and a half to 62 and a half in the fourth quarter. And answering your last point there, John, if you were to normalize, which I don'T really like normalizing unless things are considered one time in nature, but I understand your question. So I'll attempt to answer it. I think if you were to normalize the revenue mix to be something that was more normal, let's call it, in Q3, what I believe we would have saw in terms of gross margin in Q2 is more like 59%, which is a 2% bump from where we were. Okay. And that implied for Q, I have the same numbers, 58.3 to 62.7. Lower end, mid-range? I mean, anything in particular you'd point us to? Just because the implied for 4Q is obviously pretty wide with one quarter to go. Yeah, I generally am always implying midpoint for ranges like that. Okay, so even though it shows a pretty big step up, you're comfortable with that Q over Q? Mm-hmm. Okay. 3D intelligence, we're starting to do some work on that. And I think, you know, the early feedback from docs is it can really mean something for you guys as we go into 2027. How do we think about 3D Intelligence of the outcome? Do you expect it to have a bigger impact on it's going to enable us to get a greater percent of share of new customer starts at a practice where we already have, you know, where we уже exist, already scripting ILAT? Or is it something that can help new stores because there might have been a doc that was a little bit hesitant, you now, for their perception of I want a more conservative option. And therefore, is it bringing new stores on board or is it gaining a better, you kno, greater share of the existing stores? I believe, and I'll get to why in a moment, but I believe the biggest impact will be from accounts who wrote or prescribed ILIT to a given subset of their patients, tried it, had a particular patient who may have had a negative experience because they experienced some hypoglycemia for reasons I could get into. But again, we don't think our clinical data on ILIT creates, we think it's actually superior in terms of hypodata relative to other competitive pumps. and significantly superior relative to MDI. But in this particular case, a doctor prescribes islet. This patient has a hypo. There's nothing for the doctor to do to change the device. And then as a result, they've lost trust in the device and they stopped writing islet, so returning on that particular account. Now, I don't know if you would call that a new store sale because they've actually prescribed it in the past, but that's who I think 3D will have the largest impact on. And you've probably, for any investor listening here or listening to this recording, when you do endo calls, I think you probably hear that exact feedback occasionally that I just shared. Endos, in particular, on balance, I thinks see the benefits of automation, which is what our value prop or our differentiation is with our product, is that it's a turn-it-on, set-it, forget-it system that determines every single dose of insulin. I actually think doctors like that. But what they haven't all loved is that there's absolutely nothing they can do to change, to modify the system whatsoever. And what 3D does is it adds that lever. So think of it as if like everyone is driving in full self-driving in just one particular normal mode. And some patients may prefer a Mad Max mode. Some may prefer a sloth mode but they're with giving them that lever is enough power or enough control to satisfy that patient or that healthcare provider's desire but they don't necessarily don't actually what they're not saying when they say they want control is that they want to go under the hood into the controls and toggle individual settings and how to learn how the algorithm is learning and adapting that's not what they're saying they just want some control and that's what 3d does and And you can probably hear it in my voice. I know for sure that 3D is underappreciated or it's underrated in terms of the investor community. I don't blame you all for that. We haven't released any data whatsoever to show you what this is. All it is is us me telling, like, theoretically. But what we're going to see this have a massive impact. It is the number two sales objection that we get commercially for our current product. Number one is Tubeless and number two is this. Steven, anywhere to frame, you know, what I'll describe as a dormant account, I'll go with that, right? Like they were writing scripts for Islet. They had something that made them, you Know, pull back a little bit. And now you'll have this conservative mode. Like, is there any way to frame a 5% of our accounts went dormant, 10, anything around there? There is, but I don't really want to share the metric. Okay. Okay. And we'll just see timing-wise when you guys get across the goal line on 3D. That's right. Okay. been submitted uh we have we have hopes that it could still come this year but more likely first half 27. okay as well and this draws back to your to your first question around just reaction and and general takeaways and questions we're getting from earnings but i think one thing that may have been unclear on the call that we've gotten questions on is whether the potential delay of 3d intelligence impacts our mint launch timing and what it looks like as far as rolling out 3d goes and so to clarify that piece it does not impact our timing for a full mint launch in q1 we are able to launch mint with without 3d as mint we don't expect that to impact mint especially in the early days and then as far as rolling out 3d goes it's just a firmware over the air update to anyone on a beta bionics product whether that's a iot or mint you could do that overnight If we happen to get the 3D clearance prior to the Mint launch, we'll ship out the reusable component of Mint with 3D already on it. Okay, got it. So easy, even if the Mint start going out the door, you get 3D intelligent three months later, you just push it out overnight, and it's got that capability. You got it, okay, fair enough. And that's probably a good segue to Mint, and I'll start with manufacturing in 27. So you talked about 1.5 million units for the year, gets you to roughly 20,000 customers for 2027? No, actually more than that. And the reason that your math may be a little wrong is we will launch with significantly less annualized capacity than 1.5 million. But by the end of 2027, we will have an annualized manufacturing capacity of far greater than 1.9 million. I'm getting like 2.5. Directionally, that's fine. But that what ends up at 135 mints per year, and again, growing that manufacturing capacity, we will have more new starts, slightly more new start on mint, I believe in 2027 on that number. Okay. That's helpful. So I'll jump around. The more than 20,000 will go with two thirds, one third is the thought in terms of what's going to be earmarked, ideally, for new customer starts versus ILAT to Mint upgrades? All right. Well, yeah. So I want to, I think that over the fullness of time, somewhere between 80% to 90% of all Beta Bionics users are going to prefer Mint, or that they do prefer Mint. I should say. So that one third, what he did, just restating what John said a moment ago. He's saying, of all the new starts that we have on Mint in 2027, 2 thirds of them are new to beta bionics, and 1 third are islet going to Mint. That 1 third number could be a lot higher if we had enough manufacturing capacity to satisfy it. So it's us allowing a certain portion of our existing islet users to transition to Mint while prioritizing new users on the product. Here in all this, that what I'm extremely confident in at the moment, based on initial demand, experience from people who are already using Mint, endocrinologist feedback from what they know about the product, that we will sell what we make in 2027 in terms of Mints. So we're, this point that you brought up, and I think we must have shared on a prior call with you, this two-third, one-third. It's more of a allocation discussion for how we plan to operate the business, not like the limitations of demand. And how do you control that dynamic? Let's just say there was a lot more that wanted men out of the gate in your current install base. How do you put some parameters around? I don't want to say want more than want there, but obviously you'd rather have the new customer starts just from sort of a P&L perspective. So what are the Salesforce marching orders or how you control the dynamic of it? there's there's it may not be immediately obvious but there's one key detail about our operational model when we launch mint that actually allows us to do this and it's that we operate our own pharmacy so every single mint will get prescribed to beta bionics pharmacy and then we actually then have the patient demand captive at our pharmacy where then we can just we can dictate what demand gets fulfilled and we can care we can interact with the patient to characterize where they are in terms of their process or their timeline in order to get the product. So I think that addresses your question if you kind of see what I mean by this. Where this would be really challenging is, let's say mint was only available in retail pharmacies. We would have no idea where the demand was. Like if you got prescribed a mint, and you wanted it to be sent to Costco, I don't know if you're a Costco guy, I am, but you get sent to Moscow, So we wouldn't be privy to that prescription. We wouldn't know it existed until you started on Mint and synced it to your phone. So in our case, because all the prescriptions get sent to Beta Bionics, we can then have the ability to control demand. And we've created our own algorithm, per se, for how we plan to do that. Now, I'm not suggesting this is going to be perfectly quiet and elegant. people who want mint who are on islet we would love to be able to provide that to them and i think it there will be hard conversations so i'm not suggesting oh yeah john this is going to be super easy and the patients will won't mind and he gets it you know and and everyone understands there's scarcity for new products like that's not really the way we like the world we live in today people people expect when they order something it shows up the next day okay okay that was helpful color though that was good context uh maybe just a couple more down this road. I think we all have our own models and new customer start assumptions. We had you guys running around high single digit share of new customer starts with Islet, maybe for most of the past handful of quarters. When we take a step back, huge introduction, big priority for the company, gets you into that patch pump market. How do we translate that and walk it back to your percent of new customers starts for 2027? well embedded in the revenue consensus numbers is a growth in new patient starts that's pretty significant so it goes up from your what you're saying is mid or high single digits so it'll grow grow in terms of percentage of new patient stars but i don't want to be specific about the exact percentage so that's the direct answer but i think it's important that i just say we are we've built mint and we're building this company to be the market leader like it is entirely uninteresting to me and sean our ceo to build a company that is targeting like a narrow portion of the market like we're coming for the market leading product here and then that's that is ever like the internal planning is to as quickly as possible become the leader of not only of all insulin pumping and And I think that'll happen over a period of time that I don't want to quantify because I don' t like long range guidance, but don't think of us as like, oh, yeah, you know, this whatever mid-single-digit growth. We want to go to 11. Yeah, we're trying to go 11. And then maybe the next year we'll go up another couple, like that's not the vision. The vision is scale manufacturing for mint as fast as possible to get it to the level where our incumbent is or the patch pump incumbent and crush the competition. Okay. Guys, if you have any questions, please throw your hand up. Handful more on Mint. I'll speak for myself, maybe somewhat obsessed on this. At $1.5 million and as your eggs are at $2.5 billion in capacity, what other variables or dynamics could constrain the launch or Mint starts, whether it's around customer support, maybe talk about reimbursement, where it starts, where it goes, just away from purely the manufacturing side of things? well there's there are so many potential constraints like yes you could say reimbursement is one of them but i'm not worried about that one we will launch with at least 40 percent of all patients who can buy mint using their pharmacy benefit growing to 50 percent by the first year um man you could make a case supply chain but i feel good about the components that we are using within mint and our order volumes and the orders that we already have in place and the reliability of those suppliers, second sourcing of single source suppliers. So I feel good about that. Those are just two examples. You could also say, yeah, the commercial infrastructure and the plumbing associated with operating the company, that's what you're buying. To me, that's a big benefit of launching a product like Mint to an existing company who already has over $100 million in revenue and a fully functioning commercial infrastructure. The systems are very much in place for the company be 10x the size and you know it would scale certainly marginally but you get the point so to me the real constraint on our ability to manufacture mint is comes down to the actual nuts and bolts on the manufacturing line like these mints today i'm holding a i call it a box but yeah it's a starter kit that contains 10 mints in it these are being made in our irvine facility with the uh the manufa on the manufacturer line that we're operating with you know several shifts um but today it's mostly done by humans it's a it's like it's across it's in its crawling stage we have humans moving the pieces from one station to the next there's about 20 stations and frankly like for a variety of reasons we can't get to building 10 million a year if we don't change the manufacturing lines um the system design system meaning if we were to just say oh yeah what we're going to do is just duplicate that manual line and put it in the for the rest of the facility or expand that Irvine facility, there's too many things that would break. That's way too many people. The turnover would be insane. So what is happening in parallel to our crawling stage to get to the walking stage is we are adding robots for automation to move the material handling from one station to the next, removing some of the humans from the process and making the processes more reliable. That is already in motion, but why the... And so if you're going to bet on our ability to exceed the 1.5 million of capacity in 2027, which to be clear, we're calling that a minimum number of mints that we manufacture, you're betting on our ability to add automation to that process in the short term. Now, another question I get occasionally from people who are, I realize you guys cover tons of names, is that this is a 510k product, mint, and there's no line validation required in order to make changes to the manufacturing line. So we don't have to submit a bunch of documents to the FDA when we want to add these robotics. As long as it fits within our quality standards and the specs of the product don't change, we can make these changes to actual manufacturing environment without any regulatory submission. Hence doing it in parallel. Hence doing in parallel and also that just makes any changes that you would make to that extremely quick relative to like a process like a PMA where you had to submit the manufacturing. Okay. Yeah. And that's another good segue when we're talking about automation to the gross margin side of things. So you talked about this being diluted to corporate gross margins in 27. I think the street's sort of low 50s gross margin. That's near term. You've talked long term about this being at a margin or maybe even superior to that of the market leader. How about sort of the midterm? Like, when does Mint's gross margin profile cross over current corporate or ILIT? Is that a 2028 phenomenon? Yeah, I don't like giving more guidance, like longer range, but I'll give you a framework you can use to directionally answer your question. So what John is getting at is that today we're high 50s gross margin as a company. Next year we'll drop to low 50s. Well, if the ILIT gross margin profile doesn't change in 2027, ILIT being what we currently sell, then that means that Mint's overall gross margin is somewhere in the 40s, okay? And then what I've also said, and I'll just reiterate, is that within three years of launching Mint, we believe that Mint will have a gross margin profile that is as good or better than the current patch bump incumbent. And there's reasons for that. The design decisions of our product allow that to be true. Between those two periods, what I expect to see is that you'll see continued improvement in gross margin, where the line, I think, will be relatively linear. I mean, I don't want to be held to that necessarily. Like, you can look for my guidance in each of the respective quarters and years. But directionally, there's no, like, massive step change. Like, they're not going to see us, like hum along at a 40% gross margin and then just a massive step changed to, like something above 70. It'll be more gradual. And that sort of implies just like the layering in of the automation along the way and the scale along the ways. That's right. And the main ways, so the bill of materials on mint is already actually pretty low. So the material costs associated with it, and frankly, because there's just not much in each of the mints. So there can only be so much compression on that. The materiality on improvements there is reasonably low. The opportunities come from removing direct labor from the product, which I just communicated is even a near-term problem that we'll solve. And then the fixed manufacturing overhead is really a scale problem. So you have a fixed manufacturing overheard cost structure, and the more mints that you make, the more units that spread over, and that's the easiest lever within your cost per unit to grow or to improve as you scale. Okay. A couple more on Mint, and then maybe we'll hit on a few other topics to close. But just, if you had to call it the two or three variables that allows Mint to win, and we're going to actually have a doc panel here at lunch on diabetes and have two leading endocrinologists. But it's not just an Omnipod thing, right? Because the competitive environment isn't going to be static. You're going to have Toby. You're gonna have Fit. Like just for the audience, like what would you emphasize the two or three characteristics that allow it to win against the other handful of players that will be out on the market in 2027? I'll be fast here and you can ask any follow-ups because we could talk really long about it. But against the current incumbent patch pump, it's our algorithm. That's the winning. The form factor is as good or better. and the user experience, in our belief, is as good or better from the actual design of the form factor. But the algorithm is a massive improvement. So relative to that particular competitor, that's how we'll win. Relative to the other ones coming, two reasons. One is size profile. So size really does matter. And the size of our product and the incumbent are smaller in terms of both weight and the dimensions of the product than the other two that are coming. So I think that's one. And then the second is recharging of the device. So with the current patch pump that's on the market, it's a fully disposable, no recharging required. Our belief structure was that that is a nice characteristic of the product. And any patch pump has to have that same characteristic to it in order to be competitive. So we've designed Mint where the batteries are in the disposable, which you throw away every three days. And that powers on to the control. When you connect the controller and the disposable together, it powers on the devices and there's no re-charging associated with it. So the device I'm holding in my hand here, which is the controller part of Mint, that's where all the intelligence lives. This is what lasts two years. Patients get one of these. You never – there's no charger for this. Again, there's – and there's not batteries in it. It only works when it's plugged into a Mint. Okay. So any follow-up questions on that, on what allows them to win? Let's see what we can get through in three minutes. You mentioned earlier, Stephen, that maybe 80% or 90% of ILAT people would want a Mint, and formulary coverage starts at 40% for Mint out the gate. 50% by year in 27, can you approach 70% or 80% by the following year where essentially you're, you know, further along in terms of removing that as a barrier? Sorry, I don't want to answer that one. I don'T want to give guidance beyond that. I do have confidence in our ability to get to, by the way, I DON'T know if it was, it's ironic that you shared that percentage, but like directionally, that's where I think our patch pump competitors reimbursement is today. The 70-80? Yeah. And so I think it's actually quite a bit easier for the second comer to the market to get to that kind of level than what it's taken them. They paved that road for patch bumps and reimbursement, but I don't want to give you an exact timeline of when I think that'll be. Okay. Last few topics, sales reps. In the background, you've done a good job of increasing the sales force ahead of Mint, ahead of 3D intelligence. Maybe talk about the retention of that sales force, and you're still smaller than, you know, call it your bigger competitors. What else, if anything, do you need to do from a sales rep perspective in 27? Well, I'd like the size of our sales force today in anticipation of the mid-launch. So we may grow the sales force marginally in 2027, but you're not going to see a massive uptick. Okay. Retention, we've been retaining the sales for us at a level that it meets my expectations. Like they're that particular function of the business is has a turnover rate that's consistent with everywhere else in the company i think you actually want some turnover like you this may sound a little draconian but like your lowest performing territories like you actually won out so like that's just the nature of the game so i don't if you would if you were if i was a company sitting up here and saying we retained every sales rep that in the last two years like that to me means you have too rich of an incentive comp plan um or keeping your bottom or you're keeping your bottom performers. Yeah. And then I'll just hit on maybe some 2027 thoughts, which you've already conveyed at a high level. I mean, I think you said you're comfortable with where the street is in 27 because some of that deferred revenue comes out of 4Q, 26 and the 27. We discussed low 50s GM. OPEX as a percent of sales de-levered this year in 26, even with good top line growth because of hiring the reps. I don't think cash is a problem because you just did a very big successful raise but do we see opex leverage coming in the fold in 27 as maybe some of the incremental reps step down yeah that was really well characterized by the way but yes we do and we'll see that at every line item within opex okay last one 10 seconds fully closed loop um you said that will be initiated this quarter on type one and type two anything high level around timing for approval i don't want to share approval timelines at this time but i think what you'll see from the posting on clinicaltrials.gov, generally speaking, 13-week primary efficacy HbA1c outcome, roughly, you know, 400 patients enrolled. So I think the timelines, or at least the study, will generally look like what you're used to traditionally in this space. And so I think the timelines can generally be anchored to maybe what you were previously used to. Okay. Thank you. I didn't want to end on I can't answer that question, so that was very helpful. Thanks, guys. Appreciate it. All right, thank you.