Good but not great

Good but not great

There is no question a trend has developed with each earnings release during COVID. At first companies were basically clueless about what the true impact of COVID would be. Some decided rather than guess the prudent move was to pull future guidance. As we moved into the second quarter the COVID picture became clearer and for many the impact wasn’t as bad as first thought. Those who pulled guidance reinstated others adjusted their revised guidance upward. As we now move into the third quarter companies seem to have a better feel of COVID, with the natural caveat that things can change quickly, and while it’s not business as usual it’s business as usual as long as COVID is here.

Insulet who released results yesterday falls into this pattern. Results came in better than anticipated which resulted in guidance being revised upward. This is the good news.

COVID has also resulted in some positive trends particularly in the diabetes toy chest. Thanks to COVID companies such as Dexcom, Tandem and Insulet have invested heavily in virtual patient onboarding Additionally they have gone one step further moving more of customer support to a virtual experience. Given the competitive dynamics and cost savings virtualization generates this would have happened without COVID but thanks to COVID this move towards virtualization was accelerated. This is also a very good thing.

Looking at Insulet specifically we see two areas of concern, they are not major concerns but concerns, nonetheless. First the company spent a great deal of time talking about the OmniPod 5, previously dubbed the Horizon. Being the solid management team they are they acknowledged the obvious that being the third hybrid closed loop system to come to market OmniPod 5 had to be better than not just on par with the competition. This is in sharp contrast to Medtronic whose 780G is just an incremental move forward and from what we have seen will not be as good as what’s on the market already or what’s coming.

This additional detail on OmniPod 5 also shows that when it comes to the insulin pump market sensor augmented systems are now the standard. This is great news for Dexcom and could be for Abbott if they ever fix the issues with Libre2 or future versions. Yet since OmniPod 5 isn’t here yet, according to the company expected launch will be early next year, sales are being adversely impacted. The impact isn’t killer and frankly isn’t surprising.

Social media continues to be filled with patients extolling the virtues of the Control IQ from Tandem. As we have noted the Control IQ is not perfect, but it is now the standard from which all systems are judged. And the impact of these social media endorsements should not be underestimated as insulin pump patients are the most engaged and rely heavily on the experience of other pumpers when deciding which system to use. Hence the reason Insulet is trying to leapfrog the Control IQ and become the new coolest toy in the toy chest.

While many of the analysts seem to believe that OmniPod 5 will demand a premium price we don’t see it that way. This business is still about money and payors are in no mood to pay more even if this system is the coolest toy ever. The fact is Insulet will make more money by adding scale and manufacturing efficiencies. As we have said many times, and this has not changed when it comes to the insulin pump market scale means everything. The days of major price increases are gone forever.

A possible problem on the horizon and yes this play on words is intentional is the arrival of Tyler. Of all the insulin pump companies Insulet is the most vulnerable to Tyler as the majority of their new patients convert from multiple daily injection (MDI) therapy. This excuse the expression is Tyler’s sweet spot as with Tyler these patients will achieve pump like outcomes.

Even with Insulet’s pay as you go recurring revenue model Tyler presents another problem, he’s much cheaper and as we just said this is all about money and payors love cheaper. Payors through their decisions have already decided that if they are going to add any cost it will be covering CGM. Given that Lilly and Novo Nordisk have already noted they plan on giving away for FREE their connected insulin delivery device, whether it is a durable or cap cover, all that’s left is the app which collects, analyzes the data and then makes dosing recommendations an app that also will be free.

Bottom line Tyler does NOT add cost to the system.

It’s for this reason we were surprised that the company stated that the insulin pump market could grow aggressively. Yes we see the market growing but more in the low to mid double-digit range. Not to be redundant but once again this isn’t about way cool whiz bang and all the major advantages hybrid closed loop systems bring with them, this is all about money.

All in all what we heard was good but not great. One thing that remains however and this is a huge plus for Insulet is their talented management team. This team has demonstrated that no matter what’s thrown their way they are up to the task. And again not to be repetitive but as we have said many times anyone can build an insulin pump, but it takes real talent to run a commercially successful insulin pump company and talent is something Insulet has in abundance.