What makes or breaks a medical innovation? Learning from the Flight of Butterfly Network

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

With years of market validation that provides confidence and supports proof-of-concept, Butterfly The decision to go public (via a special purpose acquisition company or SPAC) was in service of the company’s long-term growth and sustainability.

But despite the fact that the device is the first of its kind with the enormous potential to ‘democratize’ the use and access of ultrasound for all, with device costs of ~$2,000 versus existing solutions that are more than 10x more expensive, it seems insisting that Butterfly’s timed leap into the public sphere ultimately made for a rough financial landing, while lessons were learned for other healthcare technology providers thinking about taking 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 – for the company trade as of this writing, just over $1 per share, and burning nearly $300 million in 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 revenue growth of 14% in the first quarter of 2024 – the strongest first quarter in the company’s 13-year history,” says DeVivo, where he expects revenue growth of 15-20% this year.

This recapture of revenue growth can be partially attributed to the company’s latest technology release: the Butterfly iQ3, the U.S. Food and Drug Administration (FDA)-approved third-generation Point-of-Care Ultrasound System (POCUS). And DeVivo points to Butterfly’s one-device-fits-all-clinical-settings design as its competitive advantage in the POCUS space.

“Our single, ultra-portable device works well for all use cases in the hospital, out-of-hospital clinics or in any other healthcare environment in the world,” he says, comparing it to the large incumbent ultrasound companies, “which have handhelds that work for specific specialties in the hospital, but no single device that meets all the needs of a generalist.â€

With plans to expand its offering both at 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 research and development to enable technologies of the future stimulate, appears Butterfly is focused on market expansion and developing solutions to help achieve its stated financial goals of achieving breakeven cash flow by the end of 2027 and exceeding $500 million in sales by 2030, as announced during their Investor Day in March.

But broad market adoption of any healthcare innovation takes time, as DeVivo knows firsthand, where in the middle of the journey he offers this advice to healthcare technology innovators: “Be patient. You can’t predict market timing. It happens when it happens, not always when you think it will happen. Plan for it to be twice as long and twice as hard as you expected, and when you succeed it will be twice as rewarding.”

Learning from Butterfly’s Evolution: Lessons for Healthcare Technology and Digital Healthcare Companies

While the wings of progress are certainly flying, Butterfly’s journey reflects the challenges of the slow pace of healthcare innovation and the difficulties of managing investor expectations when it comes to longer-term returns.

But the obstacles Butterfly faces ultimately raise a bigger question worth the healthcare industry’s consideration: why, despite how revolutionary or necessary a medical innovation is (e.g., a wearable, fully specialized POCUS), do the companies announce that it innovations falter? Why, no matter how much utility a healthcare product has, don’t we see greater adoption of it?

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

1. The importance of doctors’ love for the product: The ease of use, usability and low cost of Butterfly’s wearable device made it an incredibly attractive tool for clinicians – one they would purchase themselves and take straight into the healthcare setting, connecting right up to their smartphones . Butterfly took off in part because of this product-focused, bottom-up growth strategythat focused on physicians as consumers and champions of the technology and optimized the solution for their clinical workflows.

For healthcare technology providers, Butterfly’s satisfied end users should be a reminder of how crucial it is to consider clinical workflows and designs for your ultimate end user and for their organization.

2. Navigating the Complexity and Inertia of Healthcare Enterprises: Individual physicians love the Butterfly product and DeVivo noted that 60% of medical students now train with Butterfly. But these two points don’t just shape a healthcare market. For example, already practicing physicians have trained in other products and healthcare organizations have invested in existing ultrasound and imaging technologies and associated workflows that are enterprise-level and manufactured by companies with extensive customer and market relationships. In addition, hospital purchasing cycles are notoriously complex and lengthy, and integrations require resources and planning.

Many healthcare startups put enormous energy into simply getting their feet in the doors of potential customers. Hiring experienced salespeople with existing relationships and the knowledge (and patience) to navigate a complex sales process can help, as can implementation and clinical support teams who understand the nuances of implementation and can speak the customer’s language.

3. Managing Investor Expectations: Investors’ expectations for Butterfly’s IPO put pressure on the company to deliver immediate results. Huge sales growth. A new business model for recurring revenue. Operating leverage and a clear path to profitability. But according to point 2 above, driving behavior change and adopting new healthcare technology takes time and effort. With this in mind, “The only thing I would change in the past would be managing expectations,” DeVivo says of the timing of Butterfly’s IPO and any alleged missteps related to its shaky post-IPO financial performance .

Clearly, we are in a different macro environment today than we are in 2021. But for companies in the midst of raising capital, whether that process takes place now or in the future, the lesson should apply: it is up to business leaders to set and manage expectations about 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 deploying scarce resources to achieve a specific, clearly defined goal. By definition, this means that sometimes you have to say ‘no’ to some good ideas. “The company’s strategy was perfect. The only problem was that they all went after it at the same time,” explains DeVivo, who joined the company in 2023. One of his first orders of business was to right the ship given the company’s revenues and cash position, reducing its workforce from about 500 people. to 230.

Most healthcare companies have already made tough decisions and are profitable, have a clear path to profitability, or are managing to achieve cash burn with sufficient runway and clear milestones. But new ideas and opportunities emerge all the time, so having a clear decision-making process and framework can ensure the company only spends resources on those that are most attractive and likely to deliver returns.

Take flight

Regardless of any strategic missteps, DeVivo is optimistic about the future – not only for Butterfly as a company, but also for the technology powering its offering and the impact it will have on providers and patients, as well as investors.

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

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