Bringing the band back together

Bringing the band back together

Perhaps no one has noticed but things at Insulet (NASDAQ:PODD) haven’t been going all that well this year. The stock is down some 30% so far this year, customer complaints appear to be increasing, sales are stagnate at best and new CEO Patrick Sullivan appears intent on replacing anyone who was associated with previous management with people he has worked with in the past.

The most recent example of this came just two days ago when Michael Levitz was appointed CFO replacing Allison Dorval, who replaced Brian Roberts. Mr. Levitz becomes the fifth person to be hired by Insulet who has ties to Sullivan when he was at Cytyc. A company which back in May 2007 was acquired by Hologic for $6.2 Billion.

Now it’s not all that unusual for a new CEO to bring in people he’s worked with in the past. Terry Gregg did this when he took over at Dexcom (NASDAQ:DXCM) and given the excellent performance of the company it’s hard to argue with this approach. However there is a huge difference between what Mr. Gregg did and what Mr. Sullivan is doing. As unlike the current Insulet team the Dexcom team has a wealth of experience in the wacky world of diabetes.

As we have noted previously Mr. Sullivan’s main goal and frankly only goal is to replicate the success he had running Cytyc.  While it seems like a distant memory today Insulet never thought they would be independent in 2015. From the moment the company was formed the goal was clear build it and then sell it. Back in the day no one even considered the possibility that hey they might actually have to run the company.

We’ve said it before and we’ll say it again building an insulin pump is not the hard part running an insulin pump company however takes real talent and as we have said before when it comes to diabetes devices real talent is rare. Let’s be honest there aren’t many Terry Gregg’s around.

Now this does not mean that the team Mr. Sullivan has assembled does not have talent, however they lack any experience in this wacky world. As we have seen recently with the failed attempts by Asante and Valeritas to go public investors aren’t exactly enamored with insulin pump companies today. We hate to keep repeating ourselves, but this happens when you get old, the insulin pump market is not large enough nor is it growing fast enough to support not just the existing companies already in the market but the many who want to enter the market.

Could it be that Mr. Sullivan wants to transform Insulet from an insulin pump company into a drug delivery company? That seems likely given many of his recent moves, however this is also something that should have been done long ago. Quite frankly time is not on Sullivan’s side as Insulet stakeholders want the company sold like yesterday. Like it or not Insulet will be valued as an insulin pump company and right now that isn’t a good thing.

We will not repeat the many issues facing Insulet or review the many issues facing the insulin pump market. What we will state is that we’re not sure now is the time to be devoid of people who understand this wacky world. It’s not like Sullivan took over a well-oiled machine, the former CEO of Insulet left Sullivan a huge mess. A mess which continues to hamper his efforts to transform the company from an insulin pump company into a drug delivery company. A mess which must be cleaned up as this is the only way to regain investor trust and eventually sell the company.

The good news is that Mr. Sullivan has sold a company before and understands what it takes to make that happen. Considering that he’s bringing the band back together it also looks he’s preparing to repeat what he did at Cytyc. The question is will Insulet stakeholders give him the time he needs to get this done. Listen we can’t blame these stakeholders if they are just a little impatient as they expected Insulet to be sold years ago. However patience is what they need and like real talent in this wacky world, patience is also in short supply.

In the near term we see more pain for Insulet stakeholders but we are reaching the point where shares are looking attractive. The fact is Mr. Sullivan and his team do not have to fully transform the company before someone comes along and buys it. All they really need to do is get this process started, show its potential and then hand the reigns over to another company who can take it the rest of the way. Remember this is the wacky world of diabetes where anything can and usually does happen.