Going to the well yet again

Going to the well yet again

Yesterday Insulet (NASDAQ:PODD) announced they are going back to the capital markets as they need even more money. According to a company issued press release;” Insulet Corporation (NASDAQ: PODD), the leader in tubeless insulin pump technology with its OmniPod Insulin Management System, today announced the sale of $85 million of its common stock pursuant to an underwriting agreement with Canaccord Genuity Inc. The last reported sale price of Insulet’s common stock as reported by the Nasdaq Global Market on January 3, 2013 was $21.72 per share.

Insulet intends to use the net proceeds to fund sales and marketing activities associated with its next generation OmniPod System, to fund product development and for general corporate purposes.”

Given the company’s history this announcement should shock no one as Insulet has gone to the capital markets several times since they have become a public company.  So many times in fact that one has to wonder how their stakeholders feel with this continual dilution of their holdings. All along the game plan for Insulet has been the same, get the OmniPod onto the market, gain some share and get bought by a bigger player. Needless to say things haven’t exactly gone as planned and since it costs a small fortune to run an insulin pump company, the company is continually raising money which when added up is a large fortune.

This latest money grab comes on the heels of the FDA’s approval of their new smaller, less costly to make pod. Insulet is hoping investors will buy into the story they’ve been telling back when the Eros pod was awaiting approval, which once approved this new pod will increase sales, expand margins and ultimately lead the company to true profitability, which hopefully will eventually lead to the company being sold to a bigger player.

What the company doesn’t want to investor to think about is can they actually make these pods in the quantity needed, have no serious quality issues and will this smaller pod actually increase sales. Getting FDA approval, a process which took way longer than anticipated, is good first step but is only that, a first step. Keep in mind that Insulet has installed user base here in the US of approximately 40,000 patients, each of whom uses approximately 10 pods per month, which loosely translates into 400,000 pods per month.  To fully appreciate the extra issues facing Insulet consider that Medtronic (NYSE:MDT), their main competitor only needs to produce 20,000 or 30,000 new systems each year. A disposable insulin pump is a true innovation but a manufacturing nightmare.

Now Diabetic Investor has no direct knowledge that there are any manufacturing issues with the new pod and is basing our comments strictly on what the company has stated publicly to this point and the fact that the FDA approval took so damn long. The company to their credit has made it clear they will not fully launch the new pod, along with the new personal diabetes manager (PDM) which controls the pod, until they are sure there no issues. As has been noted before once this conversion process begins there is no turning back. Just as the country was facing a fiscal cliff, Insulet will soon face the Eros cliff because if they don’t get it right they will surly fall into the abyss.

Normally in a situation like this one would look backwards before looking forward using history as guide to the future. It’s been said many times those who ignore history are doomed to repeat past mistakes. Something Insulet is hoping they can avoid as the launch of the initial OmniPod didn’t exactly go all that well as their numerous pod failures, so many that the company’s reputation is still tainted in the eyes of many patients, CDE’s and endocrinologists. As revolutionary as the OmniPod is and as much as being wireless can be great, it’s meaningless if the system keeps failing.

Let us reiterate we have no direct knowledge there is anything wrong with the new Eros pod or that company cannot manufacture the new pods in the quantity and quality needed to be successful.  However, having been around the wacky world of diabetes, and diabetes devices in particular, for some time we have learned that history often repeats itself. And for anyone who believes that insulin pumps, even conventional insulin pumps have become more reliable over the years we suggest they take a gander at the FDA’s MAUDE database. Heck just take a look at how many recalls there have been for glucose monitors which is a far simpler device.

It should also be noted that Insulet has a new competitor they must contend with as the t:slim from Tandem Diabetes with its iPhone like interface is gaining lots of attention. So not only must they compete against insulin pump behemoth Medtronic and Animas, a unit of Johnson and Johnson (NYSE:JNJ), there is new way cool threat to deal with and if there is one thing that attracts the attention of insulin pump patients it’s new and way cool.  While Diabetic Investor does not see the Roche system as major threat it is one more competitor who is also looking to rebuild their insulin pump business and cannot be ignored.

What Insulet has going strongly in their favor is that when it comes to wireless pumping they are the only game in town. The Solo system from Roche is still not ready for prime time, Medtronic’s entry is going nowhere and may never see the light of day and everyone who wants to be a an OmniPod copycat is running in place. The fact is patients on the OmniPod absolutely love being wireless, what they don’t like is system failures.  Hopefully the company has learned from the past and won’t jeopardize its future and will wait to fully launch the Eros when it’s 100% ready.  The company is getting a second bite at the insulin pump apple and that doesn’t happen very often even in the wacky world of diabetes.

Diabetic Investor hates to keep repeating ourselves but there are certain truths that cannot be ignored in the insulin pump business and the ability to execute is one of them. Insulet has a great system and has the potential to do what everyone has attempted to do but failed, and actually take away share from Medtronic.  The company is betting the ranch on the Eros pod, let’s hope they have learned from the past, as if they have they are company worth watching. If they haven’t they won’t be a company when it’s all said and done.