Back in the day, Butterfly Network, the maker of the handheld ultrasound device Butterfly IQ, was hailed for its vision to disrupt the world of expensive ultrasound and democratize medical imaging. Whole-body ultrasound powered by semiconductor chips and performed at the point of care as envisioned by the company was going to revolutionize everything from the annual physical to urgent care interactions and even how hospitals conducted ultrasounds.
On the back of this vision, Butterfly Network raised millions — including receiving a $5 million grant from the Bill and Melinda Gates Foundation — achieved unicorn status in 2018 and ultimately went public through a $1.5 billion SPAC reverse merger on February 16, 2021. The hope was that just as digital photography and semiconductor chips had laid waste to film photography, chip-powered ultrasound devices like Butterfly IQ were going to shake up the hegemony of the piezoelectric crystal-based ultrasound made by the likes of GE Healthcare and Phillips.
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But 12 years after being founded by the visionary and award-winning innovator Dr. Jonathan Rothberg and two others, the reality and vision couldn’t be further apart. In the nine months that ended September 30, Butterfly Network’s revenue fell more than 9 percent to $49.3 million, down from $54.4 million in the same period a year ago. The Burlington, Massachusetts company narrowed its loss to $89.6 million, or 44 cents a share, in the nine months ended September 30, from $135 million, or 68 cents per share, in the same, year-ago period. The stock has also slid significantly over the years having achieved a high of $25.97 days after going public. Today it trades at just over a $1.
What happened?
Joseph DeVivo, the company’s newest CEO (and its chairman), believes the vision at inception was not flawed. Rather, the founders and other CEOs who preceded him simply misjudged the pace at which such fundamental changes occur.
“Point of care ultrasound is inevitable. That genie is out of the bottle. [But] that’s the only mistake that the founders and the prior CEOs made was believing that from here to here would be done in this amount of time,” said DeVivo in an in-person interview Wednesday during the J.P. Morgan Healthcare Conference in San Francisco. “Healthcare doesn’t like change. And there’s also a lot of constituents who like the way it is, and it takes time.”
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Semiconductor chips entirely replacing piezoelectric crystals in ultrasound could happen in five, 10 or 20 years, DeVivo says, underscoring the uncertainty for such a major shift. So will Butterfly Network have the financial wherewithal to stick it out over however long this takes given falling revenue and persistent losses? Investors may have patience for startups being unprofitable as long as they can point to growing revenue. But Butterfly has failed there in the recent past.
Nonetheless, DeVivo appeared confident. He noted that Butterfly has $160 million in cash, which should see it through 2026. The company’s board has also taken certain steps have to rein in spending.
“So the first four years, the company grew 20% off, but it spent a significant amount of money. We realized that we weren’t going to get there with that current spending, the board made some management changes and so in [2023] we took almost $200 million of cost out of the company,” he said, adding that Butterfly Network’s current workforce is at 200, down from a high of 500 employees.
Further, he believes 2024 will bring a return to revenue growth. That confidence stems from the firm belief that Butterfly’s hand-held ultrasound is by far the best product on the market. Most importantly, DeVivo said Butterfly Network’s smartphone-connected ultrasound has sold far many more units than competitive devices from GE Healthcare, which makes the VScan Air portable ultrasound.
“We’ve sold over 100,000 units,” DeVivo declared. “They’ve sold 50,000. We’re the only true point of care ultrasound. And I say that because in Ukraine we have a thousand devices …. Every medic has it on their belt. You can’t say that about any other company because you’d have to have four devices on their belt for GE. You’d have to have seven for Phillips or Clarius. We’re the only device that has a single device that has multi array that can operate.”
While that may be true, the company may have had too many “irons in the fire” in the past to truly win in the marketplace. Now, DeVivo will oversee a company that is chasing fewer markets. Here are the efforts that he is most excited about:
Butterfly Garden
Aside from building its own in-house AI capability, Butterfly has launched the Butterfly Garden — an AI marketplace — through which developers can access the company’s software development kit to build AI applications on top of Butterfly Network’s system.
One company which has joined the Garden is U.K.-based ultrasound AI company ThinkSono, which plans to build a deep vein thrombosis (DVT) clinical solution for use with Butterfly’s single-probe. Partners like ThinkSono will develop the app and add it to the App Store or Google Play pending any regulatory approvals that may be required.
“The customer will buy it, they’ll get provisioned, and then when they open their app on their phone, they plug in a Butterfly, and then Butterfly’s capabilities come into their app. ThinkSono pays us for the ability to link into our system and then we revenue share on the success of them selling to our customer,” explained DeVivo.
Including ThinkSono, the company has 12 partners in the Butterfly Garden that launched in September.
Powered By ButterFly
DeVivo explained that investors in the company have spent $500 million in building a very powerful semiconductor chip. Now, DeVivo wants other companies to leverage that capability to build entirely new applications in markets that Butterfly Network’s device is not intended to reach.
He calls it the “Intel inside” approach though the formal term he used is “Powered by Butterfly.” One company with which Butterfly is partnering is Forest Neuratech that is using its chip in a minimally invasive brain implant that Forest is developing that will measure brain-wide function such that therapeutics can be updated and modulated accordingly. The company was spun out of CalTech and expects to be able to treat Parkinson’s and other brain diseases, DeVivo said. Forest will pay Butterfly Network development fees as well for each implant built using their chip. It opens up a new revenue stream, DeVivo said. But Forest Neurotech was only founded in 2023, and so it might take a while before any meaningful revenue stream materializes.
Butterfly Network’s Next-Generation Device
The company is on the cusp of launching its third-generation probe, which DeVivo contends has — in a handheld version — an image quality as good as any non-portable ultrasound on the market. This might eventually allow the company to address a market it couldn’t access in the past — hospitals or imaging centers that use ultrasound for cardiology or OB-GYN or other purposes.
In fact, instead of chasing down markets to image the entire body simultaneously, DeVivo said Butterfly is concentrating on building apps for three distinct areas: pulmonary, cardiac and OB.
“Okay we want to do all 20, but I can only do maybe two or three at a time,” he said.
The narrowed focus, combined with a new probe and new partnerships with the possibility of new revenue streams, should buoy the company’s future. At least that is what DeVivo believes.
“So ’23 was our transition and we should get credit for de-costing our business. I just have to prove now that ’24 is the year that we’re going to go back to revenue…. ’24 is going to be a year where we get our mojo back.”
Butterfly Network is a public company reporting its financial performance quarterly. We certainly will be watching.
Photo: Hong Li, Getty Images
