Dive Brief:

• Outset Medical reported its third-quarter revenue grew 423% to nearly $13.8 million during its earnings call Wednesday afternoon, its first since going public.

• The portable dialysis system company benefited from the pandemic environment, which is driving increased interest in home dialysis and growth in its base business. With the COVID-19 tailwind fading, Outset Medical expects sales to be flat sequentially in the fourth quarter. 

• The results report comes shortly after CMS formally rejected its request for an add-on payment. In response, Outset Medical is considering re-applying in 2021 or 2022.

Dive Insight:

Outset Medical, whose portable Tablo system has FDA clearance for use at home or in acute or chronic care facilities, went public in September. It netted $255 million to support the expansion of its sales and support organization while investing in R&D. The stock soared when it began trading, more than doubling from the $27 IPO price before settling down around the $45 point.

The third quarter results provide an early look at whether Outset is on track to justify the interest shown by investors. Sales rose 423%, albeit from a low base of $2.6 million, due to increases in both product and service revenues. With spending on R&D and sales and marketing rising, Outset posted a gross loss of $5.1 million, compared to a gross loss of $5.3 million one year ago.

Outset shared indications it can continue to grow on its third quarter results conference call. In the quarter, Outset signed contacts with three new national customers and three regional health systems, setting it up to work with six of the largest health systems in the country. Those contracts can support further growth of Outset’s Tablo device. 

“They'll start with a smaller number of hospitals in their network, integrating Tablo and quantifying the cost reduction impact [and] how easy it is for them to train their own nurses to deliver dialysis. Once that data has been established, we've seen their next step pretty quickly to be spreading that model across perhaps a division or a group of hospitals and then fairly quickly over time network-wide,” Outset CEO Leslie Trigg said on Wednesday's earnings call.

The cadence of expansion allows opportunities to grow sales from existing customers while working to sign up additional healthcare systems. The company is targeting the top 50 regional health systems. Having signed up “over a dozen of them,” Trigg sees a “very long runway” for the company.

Analysts at SVB Leerink see Outset targeting the acute market in the near term, per a note to investors.

"In the mid- to long-term, we see Tablo potentially driving a paradigm shift to home hemodialysis (HHD) from in-center dialysis – something that the broader market has anticipated for some time and that now seems much closer to reality given the upcoming Advancing American Kidney Health Initiative."

Securing Transitional Add-on Payment Adjustment for New and Innovative Equipment and Supplies (TPNIES) from CMS could have boosted Outset’s efforts to grow the business. Trigg said the add-on payment would be a tailwind, leading Outset Medical to consider reapplying, but framed the overall CMS’ proposed rule as a positive despite the rejection of its TPNIES application.

"The question was whether they would include capital equipment in the TPNIES eligibility criteria. And what came out in the final rule is that, yes, capital equipment is included. We were hoping this would be the outcome and obviously we're pleased to see the allowance for this kind of capital,” Trigg said. 

If Outset Medical successfully reapplies, it will be a tailwind, Trigg said, but the company is not reliant on the add-on payment for growth. Rather, Outset Medical is continuing to push its messaging around cost reduction and operating efficiency as it tries to claim slices of the acute and home care settings from Fresenius and Baxter.