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Coverage Initiation: Insulet Corporation
Value Line recently initiated coverage of Insulet Corporation (PODD) in its flagship product, The Value Line Investment Survey. Insulet is a medical devices company that develops, manufactures, and markets insulin infusion systems for people with insulin-dependent diabetes. The company’s primary product is the OmniPod Insulin Management System, which consists of the OmniPod disposable insulin infusion device and its handheld, wireless Personal Diabetes Manager (PDM). This is the only commercially available insulin infusion system of its kind, and was launched in August of 2005, after receiving FDA approval earlier that year. What makes the product unique is that it features only two discreet, easy-to-use devices that eliminate the need for bulky pumps, tubing, and a separate blood glucose meter. It also provides nearly pain-free automated cannula insertion, communicates wirelessly, and integrates a blood glucose meter.
Insulet is headquartered in Bedford, Massachusetts, and was founded and incorporated in Delaware in 2000. It had 576 employees as of December 31, 2011. In order to achieve lower per-unit costs of its products, the company manufactures its OmniPods at a plant in China, which is operated by a subsidiary of Flextronics International. In the United States, Insulet is typically reimbursed by third-party payers for its products, including Medicaid and Medicare. In January of 2010, the company entered into a distribution agreement with Ypsomed Distribution in which that company became the exclusive distributor of the OmniPod System in eleven countries, including Germany, the United Kingdom, the Netherlands, and Switzerland. The company also entered into an agreement with GlaxoSmithKline to distribute its products in Canada.
In June of 2011, Insulet acquired Neighborhood Holdings, a leading durable medical equipment distributor that specializes in direct-to-consumer sales of diabetes supplies. The company is based in Massachusetts and serves more than 60,000 customers with diabetes, primarily in the Northeast and the Southeast regions of the United States. It provides blood glucose testing supplies, insulin pumps, and pharmaceuticals to its customers.
Competition in the medical device industry is intense, and affected by product introductions and the entry of new participants. Insulet’s primary competitor is Medtronic MiniMed, which has been the market leader for many years. Other players in the industry include Animas Corporation, a division of Johnson & Johnson, and Roche Diagnostics, a division of F. Hoffmann-La Roche. These companies have a higher market share and more resources than Insulet.
The company remains concerned with certain healthcare initiatives in the United States. These plans could lead to third-party payers declining or limiting reimbursements for its core products. Many may choose to pay for lower-cost alternatives to the company’s OmniPod System. The company is also heavily reliant on its OmniPod System to generate most of its revenues and, as a result, the failure of this product to maintain market acceptance would hurt results.
From an operational standpoint, Insulet has posted a loss in every quarter since its inception in 2000. However, sales have jumped in each of the last three years, from $66 million in 2009, to $97 million in 2010, and $152 million in 2011. The company plans to achieve profitability by continuing to increase volumes, both domestically and internationally, and reduce per-unit costs. This ought to improve absorption of manufacturing overhead costs. Until now, the company has financed most of its operations through debt and equity offerings.
Insulet will likely post ongoing losses in the near term, but could see a move to the black by the end of next year. Insulet has been posting strong new patient additions in recent quarters, which has been driving sales gains. It also continues to benefit from its Neighborhood acquisition. The company is currently waiting for approval of its next-generation OmniPod from the FDA, which we think will occur by yearend.
Subscribers interested in learning more about this medical devices company are advised to consult Value Line’s quarterly reports for Insulet, as well as any supplemental reports and relevant articles that may arise as important news comes to light.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.