June 20, 2024

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What Makes Or Breaks A Medical Innovation? Learning From Butterfly Network’s Flight

Facing increased investor scrutiny and competition from every angle, healthcare technology companies are often forced to walk a tightrope between speed, execution, innovation and longer-term sustainability. Butterfly Network, Inc. (NYSE:BFLY), with its progressive point-of-care, pocket-sized ultrasound device, is one such company that’s been trying to regain its balance since its entry into the public market in 2021.

With years of market validation providing confidence and supporting proof of concept, Butterfly’s decision to IPO (via a special purpose acquisition company or SPAC) was in service of the growth and long term sustainability of the company.

But despite having a first-of-its-kind device with the immense potential to “democratize” ultrasound use and access for all with a device cost of ~$2,000 versus existing solutions more than 10X as expensive, Butterfly’s seemingly ill-timed leap into the public sphere ultimately made for a rough financial landing – while providing lessons learned for other healthcare technology vendors thinking of walking a similar path.

Righting the Ship and Recapturing Revenue: Butterfly’s Priorities in 2024

The years since its 2021 IPO have been challenging for Butterfly and its investors – with the company trading at just over $1 per share as of the time of this writing, and burning through almost $300 million of cash without meaningful revenue growth. But Butterfly’s newest president, CEO and chairman, Joseph DeVivo, sees 2024 as the year the company gets its mojo back.

“We saw 14% revenue growth in Q1 2024 – the strongest first quarter in the company’s 13-year history,” says DeVivo, where he anticipates 15-20% revenue growth for the year.

This recapturing of revenue growth, in part, can be attributed to the company’s latest technology release: the Butterfly iQ3, its third-generation, US Food and Drug Administration (FDA)-approved point-of-care ultrasound (POCUS) system. And DeVivo points to Butterfly’s one-device-fits-all-clinical-settings design as its competitive advantage in the POCUS space.

“Our single, ultraportable device works well for all use cases in the hospital, out of hospital clinics, or in any other care setting around the world,” he says, as compared to the big ultrasound incumbents, “which have handhelds that work for specific specialties in the hospital, but not a single device that meets all the needs of a generalist.”

With plans to expand its offerings both into the home and internationally, plus its move towards AI integration in co-development with “Butterfly Garden” partners, on top of its continued investments in semiconductor chip R&D to drive future-state technologies, it appears Butterfly is focusing on market expansion and solutions development to help achieve its stated financial goals of achieving cash flow breakeven by the end of 2027 and exceeding $500 million in revenue by 2030, as announced during their Investor Day in March.

But broad market adoption of any healthcare innovation takes time, as DeVivo knows first-hand, where he offers the following advice to health tech innovators in the midst of the journey: “Have patience. You can’t predict the market timing. It happens when it happens, not always when you think it will. Plan for it to be twice as long and twice as hard as you expected, then it will be twice as rewarding when you succeed.”

Learning From Butterfly’s Evolution: Lessons for Healthcare Tech and Digital Health Companies

While the wings of progress are certainly flapping, Butterfly’s journey reflects the challenges of the slow pace of healthcare innovation and difficulties of trying to manage investor expectations when it’s a longer-term return opportunity.

But the obstacles that Butterfly faces ultimately surface a bigger question that’s worth the healthcare industry’s consideration: Why, despite how revolutionary or necessary a medical innovation is (e.g., a handheld, all-specialty POCUS), do the companies heralding those innovations falter? Why, regardless of how much utility a healthcare product has, do we not see more widespread adoption?

With Butterfly’s technology offering and company journey in mind, there are a few lessons that healthcare technology companies can learn about what factors stand to make or break an innovation and the business behind it:

1. The importance of clinician love for the product: The ease-of-use, utility and low cost of Butterfly’s handheld device made it an incredibly attractive tool for clinicians – one that they’d purchase on their own and bring directly into the care setting, hooking it up to their smartphones. Butterfly took flight in part because of this product-led, bottoms-up growth strategy, which targeted clinicians as consumers and champions of the technology and optimized the solution for their clinical workflows.

For healthcare tech vendors, Butterfly’s satisfied end users should be a reminder of how critically important it is to consider clinical workflows and design for your ultimate end user as much as their organization.

2. Navigating enterprise complexity and inertia in healthcare: Individual clinicians love the Butterfly product, and DeVivo noted that 60% of medical students now train using Butterfly. But those two points do not alone make a market in healthcare. For instance, already-practicing clinicians have trained on other products, and healthcare institutions have invested in existing ultrasound and imaging technologies and associated workflows that are enterprise-grade and are manufactured by companies with extensive customer and market relationships. Beyond this, hospital procurement cycles are notoriously complex and lengthy, and integrations take resources and planning.

Many health tech startups focus enormous energy on simply getting their feet in prospects’ doors. Hiring experienced salespeople with existing relationships and the savvy (and patience) to navigate a complex enterprise sales process can help, as can implementation and clinical support teams who understand rollout nuances and can speak the customers’ language can help.

3. Managing investor expectations: Investor expectations accompanying Butterfly’s IPO placed pressure on the company to deliver immediate results. Tremendous revenue growth. A new recurring revenue business model. Operational leverage and clear path to profitability. But, to #2 above, driving behavior change and adoption of new healthcare technology takes time and effort. With this in mind, “The only thing I would change in the past would be the management of expectations,” says DeVivo of Butterfly’s IPO timing and any purported missteps related to its rocky post-IPO financial performance.

Clearly, we’re in a different macro environment today than in 2021. But for companies in the midst of raising capital, regardless of whether that process takes place now or in the future, the lesson should hold: it’s up to company leaders to set and manage expectations as to what results are realistic, and over what time frame.

4. The importance of discipline and saying “not now” to some initiatives: Effective business strategy is the art of allocating scarce resources to meet a specific, clearly defined objective. By definition, this means saying ‘no’ to some good ideas at times. “The company’s strategy was spot on. The only problem was they pursued it all at once,” explained DeVivo, who joined the company in 2023. One of his first orders of business was righting the ship given the company’s revenue and cash position, reducing headcount from ~500 to 230.

Most health tech companies have by now already made tough decisions and are profitable, have a clear path to profitability, or are being managed to a cash burn with plenty of runway and clear milestones. But new ideas and opportunities crop up constantly, so having a clear decision-making process and framework can help ensure the company pours resources only into those most attractive and likely to yield returns.

Taking Flight

Regardless of any strategic missteps, DeVivo is bullish about the future – not just for Butterfly as a company, but for the technology that powers its offering and the impact it will have on both providers and patients, as well as investors.

“Just like digital photography overtook film, we will leverage Moore’s Law and our digital ultrasound will overtake analog,” says DeVivo, adding that investors should take note. “When you combine Butterfly’s impressive roadmap of next-generation Ultrasound-on-Chip capabilities, alongside our proven execution today, investors should be really excited about the future.”

As the healthcare industry continues to track Butterfly’s flight, the company’s story serves as a learning opportunity for aspiring healthcare technology startups. While innovation and ambition are essential drivers of success, they must be tempered with patience, prudence, and clearly communicating and managing expectations with management and investors along the way.