
Tough Few Months for Dialysis Company Outset Following FDA Warning Letter, Novo Nordisk GLP-1 Data, and Now Pre-Released Revenue Miss
Outset Medical, Inc. (OM) reported its preliminary financial results for the third quarter of 2023. The company achieved a revenue of $30.4 million compared to consensus forecasts of $36.0 million, reflecting a 9% increase compared to the third quarter of 2022, when the revenue was $27.8 million. However, the quarters performance marks the lowest revenue in the last four quarters. The company cited challenges due to the recent FDA warning letter it received in July and a more cautious outlook on capital spending by hospitals, which are expected to continue as headwinds through the fourth quarter, leading outset to also lower its full year guidance.
Outset sells the Tablo home dialysis system. Tablo is a portable, easy to use device offers remote monitoring and only needs tap water, a drain, and a power outlet. Nurses can be trained on the device in four hours and patients typically take two weeks. Unlike other systems that require frequent dialysis, advance preparation of dialysate, and complex setup, Tablo provides on-demand dialysate production minimizing prep time and eliminating the need for batching. Clinical trial survey results revealed that 85% of patients who had prior experience with different home dialysis technology preferred Tablo, highlighting its user-friendly and efficient design.
In July Outset received an FDA warning letter because the FDA believed that their TabloCart with Prefiltration could be classified as a device and require FDA approval. Additionally, the FDA took issue with some of the promotional messaging on the company’s website. Outset has said that it will cooperate with the FDA and pursue 510-k clearance for the TabloCart. On the company’s earnings call they cited that several customers have delayed purchases until the cart is once again available.
The company also addressed the recent controversy related to Novo Nordisk’s FLOW study, focusing on the potential benefits of Ozempic®, a glucagon-like peptide 1 (GLP-1) receptor agonist, for patients with chronic kidney disease (CKD) and type 2 diabetes. On October 10, 2023, Novo Nordisk announced that it had decided to halt the FLOW trial, a kidney outcomes study involving semaglutide for individuals with type 2 diabetes and chronic kidney disease. This positive read-through on the potential for the drug has led to a sell-off in dialysis stocks such as Outset and led to DaVita issuing a statement in response questioning the potential impact. Outset stated on the call that they did not expect the drug’s potential approval to dramatically impact the dialysis market. They expect 130,000 new dialysis patients to enter the market every year and continue to expect a total addressable market for their products of $11.5 billion per year. According to the National Institute of Health, there are 808,000 patients in the U.S. with end-stage kidney disease and 69% are on dialysis (or about 558,000 individuals).
Outset updated its financial guidance and is now calling for total revenue of $130 million – previously the company had called to be at the low end of its guidance range of $144 to $150 million. The new guidance implies a relatively flat fourth quarter relative to the third quarter. As of September 30, 2023, the company had total cash, including restricted cash, cash equivalents, and short-term investments, amounting to $197 million. Cash utilization has been a concern, but there are no near-term liquidity risks. On its call, Outset stated it would discuss its plans to reduce costs and improve gross margins in more detail during its normal 3Q23 earnings call.