Animas – Why the numbers don’t add up
After listening to the Animas (NASDAQ:PUMP) second quarter conference call one might come away with the impression that the future looks brighter than the past. The company reported solid results, raised revenue estimates and from all appearances has a solid pipeline of new products for the future. Taking a closer look at all the numbers tells a different story.
1. 1. For the six months ended on June 30th the company reported R&D spending of $3.8 million or 9.27% of revenues. This is actually a decrease in percentage terms form last years number of 11.16% of revenues. With all the initiatives mentioned in the call, in particular the Micro Pump, one would suspect that more would be spent to get this product to market. This is especially true when Insulet is set to introduce their OmniPod system next week at the American Association of Diabetes Educators conference in Washington D.C. There is a great deal of buzz surrounding the OmniPod as it is a truly innovative product that will likely be the hit of the show. Yet, according to Kathy Crothall, President and CEO of Animas, the company isn’t even sure they will show a mock up of the Micro Pump. A highly unusual decision for a product that is supposed to be so unique, even if the product isn’t fully developed Animas could try and steal some of Insulet’s thunder. Diabetic Investor doesn’t buy the company’s explanation that they don’t want to show the Micro Pump for competitive reasons as the design is likely to change several times before reaching the market.
2. 2. Roche’s re-entry into the market is NOT a threat to any pump company. As Diabetic Investor has previously reported the new Accu-Chek Spirit insulin pump is actually a step backwards in pump technology. About the only real threat Roche poses is their huge sales force, yet given that Spirit is technological disappointment Diabetic Investor doubts that Animas, MiniMed or Smiths has anything to worry about from the Spirit.
3. 3. Why if things are going so well and the future looks so bright are insiders selling their stock? In last three months alone there have been 10 insider sales and no buys, over the past 12 months 25 sales and no buys.
4. 4. Short Interest is growing. All along the goal of Animas was to grow large enough to be an attractive takeover target. With Johnson and Johnson (NYSE:JNJ) owning almost 10% of the company it was widely anticipated that it was just a matter of time before JNJ bought the company. Back when market leader MiniMed, now owned by Medtronic (NYSE:MDT), was for sale JNJ expressed strong interest only to walk away when the price became unattractive. Why would JNJ now buy Animas? The price may be easier to swallow however the market dynamics have changed and not for the better. The fact of the matter is, the insulin pump market is not large enough nor is it growing fast enough to support all the current and expected future players. Given that MiniMed has a commanding share of the market, nearly 70% and a solid pipeline of future products, it is unlikely that any pump company could seriously threaten their market leadership.
5. 5. The real battle in this market is for the number two spot. Diabetic Investor sees Animas and Smiths Medical sharing the number two spot and surprisingly Roche is number three, this in spite of being away from the market for over two years. Although the new Spirit pump is a disappointment, Roche has the financial and human capital necessary to give both Animas and Smiths cause for concern. And let’s not forget about the exciting newcomer Insulet. Wouldn’t the battle for second place become more interesting should Roche acquire Insulet? Interesting indeed!
David Kliff
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