Outset Medical rounds up $91M to make dialysis options more attractive

Dialysis player Outset Medical attracted a lot of media attention last month when it released an SEC filing for a $60 million equity financing. Now, it's ready to give a much more detailed account of the financing and the plans for its Tablo product, which it touts as the first consumer-friendly, all-in-one dialysis device to get through the FDA.

Tablo dialysis device--Courtesy of Outset

The company said that the recent financing was in fact for $91 million, contrary to the earlier filing, with a $51 million equity component and $40 million in debt.

The cash will go to back a launch of its Tablo System next year, which the FDA cleared in November, as well as toward executing an in-home use trial to gain an FDA nod specifically for that indication. Its existing clearance from the agency is specifically for acute and chronic care settings including dialysis clinics and hospitals.

The company expects to launch Tablo next year in the U.S., likely in the clinic setting that is dominated by Fresenius Medical Care and DaVita ($DVA). There are more than 6,500 U.S. hemodialysis clinics. Tablo is CE-marked, but the company has opted to hold out for a U.S. launch first.

Outset sees its first task as transforming the dialysis service model within the clinic. It expects Tablo could lower costs for the major dialysis clinics by enabling a "self-care" option for users that would obviate about half the costs associated with dialysis, which are tied up with staffing and infrastructure.

Outset CEO Leslie Trigg

"What really interested me about this field is there's been so very little innovation in the space over the last 20 or 30 years, on technology and service," Outset Medical CEO Leslie Trigg said in an interview. "Clinics look similar to how they look in the '80s. How could you use technology to catalyze service innovation? When you strip it all away that's what we're trying to do--for cost reduction and to change the patient experience."

A 2014 Medicare document estimates about a $125 payment per clinic dialysis visit, with 80% ($100) of the payment coming from Medicare and the remaining 20% ($25) from the patient. That's after the patient's annual deductible has been satisfied. The dialysis clinics have been highly receptive to Outset Medical's pitch, Trigg said.

"Medicare pays a rate, a fixed rate that will continue to go down. Clinics have about half of their costs wrapped up in labor and infrastructure, we're going after both," added Trigg. "Tablo provides all the key functions of a dialysis clinic. Historically, clinics are tied to large industrial water purifying machine with water pumped throughout the clinic. It's expensive infrastructure to maintain that we could theoretically eliminate."

Most patients have dialysis in-clinic; it can be used to help patients with chronic kidney problems caused by all sorts of diseases including diabetes and hypertension. In-home dialysis has largely been peritoneal dialysis, in which a large volume of fluid is pumped into the patient's abdomen that absorbs toxic dissolved substances from the blood including urea, glucose and albumin. The fluid is then removed. The Tablo, however, is a hemodialysis machine, like those already used in clinics--these remove blood from the body, filter it externally and then return the filtered blood.

The Tablo in-home use trial is slated to start this year and report data next year, Trigg said. Having patients learn to use the devices themselves in the clinic could help them to transition to in-home use. The FDA has signed off on a 40-patient IDE trial for Tablo in-home use that will have patients use the Tablo device for 8 weeks in the clinic with a healthcare professional conducting the dialysis. Then they will be given instructions on using Tablo themselves and instructed to use it by themselves at home for a further 8 weeks.

The results will compare urea clearance, which is a standard measurement, to establish comparable efficacy and track adverse events to compare relative safety. Outset is seeking to establish the device as comparable on safety and efficacy with home use by a nonprofessional as compared to in-clinic use by a healthcare professional.

Tablo's built-in touchscreen--Courtesy of Outset

The table-height Tablo System is intended to look and feel more like a consumer product than a medical device. It takes less than half of the steps to set it up as current common home dialysis machines. It also incorporates a touchscreen that walks the user through with 3-D animation and instructions. Data regarding usage is sent wirelessly at the end of each session from the Tablo to healthcare providers. The process of data transmission is usually a manual one with existing at-home dialysis machines.

More than 460,000 U.S. chronic kidney disease patients are dialyzing at least three times weekly, with a total of more than 72 million dialysis treatments occurring in the country each year. The costs to Medicare alone, according to a 2011 estimate from the United States Renal Data System, are more than $34 billion annually.

New investor Fidelity Research and Management led the equity financing, with participation from existing investors Warburg Pincus and The Vertical Group, as well as new investors Partner Fund Management, Perceptive Advisors and Capital Royalty Group (CRG). The debt financing was also led by CRG. Warburg Pincus was the founding investor for Outset Medical in 2010.

"As the first institutional investor in Outset, we have been thrilled with the company's progress in bringing Tablo through key development milestones," said Noah Knauf, managing director at Warburg Pincus, in a statement.

- here is the release