Insulet Files S1- What it means for the insulin pump market
Insulet, the company that makes the OmniPod Insulin Management System has filed an S-1 with the Securities and Exchange Commission (SEC). (The S-1 can be found on the SEC’s web site www.sec.gov) According to the filing the company is looking to raise nearly $90 million in capital.
Over the past few years Diabetic Investor’s views on the insulin pump market are well known. We continue to believe that the market is not large enough or growing fast enough to support all the existing players and the many new players getting ready to enter the market. The fact of the matter is insulin pump is not superior to patients on multiple daily injection (MDI) therapy. For every study that shows better outcomes for pump patients there is a corresponding study that shows patients on MDI achieving similar control. The real benefit of pump therapy isn’t better control it’s improvement in the patient’s lifestyle. This is where Insulet has a leg up on the current crop of pumps on the market.
The OmniPod is the only wireless insulin pump on the market. Unlike conventional pumps a patient using the OmniPod is not tethered to their pump. The system consists of a pod which contains up to 200 units of insulin and lasts for three days. When the insulin is depleted or three days has passed the patient simply throws away the old pod and activates a new one. The pod is programmed and run by a Personal Diabetes Manager (PDM) which is a similar to a PDA. The PDM also contains a FreeStyle blood glucose meter so the patient does not have to carry a separate meter along with PDM. Simply put the PDM contains the features of today’s “smart” glucose monitors and insulin pumps.
Besides being the only wireless pump on the market the OmniPod’s pricing structure is unique as well. While most conventional pumps carry a $6,000 plus price tag just for the pump, the OmniPod Starter Kit which contains the PDM and two pods is priced at just $800. Replacement pods which come in boxes of 10 are priced at $34.50 each. Patients using a conventional pump spend on average $1,700 for pump supplies. Put another way it costs a patient almost $8,000 for the first year of pump therapy compared to $4,940 for the OmniPod. This cost differential is not lost on insurance companies.
While annual usage costs of the OmniPod is higher than conventional pumps, on a total cost basis based on the life of conventional pumps which typically are replaced every fours years, the OmniPod does not reach total cost parity until the third year of usage.
The keys for Insulet to be successful are as follows:
1. Lower manufacturing costs. Currently it costs more to make pods than they can be sold for. The company is taking steps to lower manufacturing costs by installing an automated manufacturing line and outsourcing production overseas.
2. Volume – Like any medical device the more that are sold the better pricing the company receives for components. While the company has been successful in their early sales efforts the system is not yet available on nationwide basis. Diabetic Investor believes the company made a wise decision with their initial limited rollout, they can only reach scale by having the system available nationwide.
3. Litigation – The insulin pump world is all about intellectual property (IP) and who owns it. As Diabetic Investor has previously reported the current market leader in pumps Medtronic (NYSE:MDT) has publicly stated they will be vigorous in protecting their huge IP portfolio.
4. Innovation – It would not be an understatement to say that the OmniPod is a revolutionary product; its innovative design makes it stand out from the competition. Insulet must continue to be innovative as competition is coming. (more on the competition later) In the S1 the company disclosed they have an agreement with Abbott (NYSE:ABT) to incorporate the Navigator continuous glucose monitor into future versions of the OmniPod. This would help the company directly with Medtronic’s Paradigm 722 which combines the company’s pump with their continuous glucose monitor. With the Navigator still awaiting FDA approval it could be sometime before a combination with the OmniPod becomes a reality.
5. Competition Part One – With 70% of the market Medtronic is the 800-pound gorilla of the insulin pump market. Also in the market is Animas, now part of Johnson and Johnson (NYSE:JNJ), Roche and Smiths Medical. Abbott has received FDA approval for their Aviator pump but has not yet decided how they plan on proceeding into the market, if at all. It is also public knowledge that Medtronic and Animas have wireless systems under development.
6. Competition Part Two – Besides the established players in the market there are a host of companies with development projects underway. Not the least of which being Novo Nordisk (NYSE:NVO). Novo is taking a two pronged strategy here with one internal project and making investments in start-ups.
Diabetic Investor will take a detailed look at the current and future state of the insulin pump market in an upcoming issue. For now we see no reason to change our previously stated position that the insulin pump market is a race for second place behind market leader Medtronic. Insulet has a window of opportunity to take that position and the upcoming IPO is step in that direction. Life will become more difficult for the company as it makes the transition from being a private company to a public company under the watchful eye of the Street. The company has what it takes to be a player in the market and armed with capital from the IPO could become a serious threat to the established players. The key now is execution and managing expectations.
Finally in the interest of full disclosure it should be noted that I have been using the OmniPod system for the past few months and have generally been impressed with the product. I transitioned from a Paradigm 715 system and have found the OmniPod to be easy to use and comfortable to wear. I should state for the record that I found the 715 to be an excellent system the only drawback for me was being wired. There have been no major issues since I have started using the OmniPod and from discussions with other patients on the system my impressions are consistent with other patients. About the only thing I don’t like is the FreeStyle meter, not a big fan of the FreeStyle test strips but that’s really from my preference for end fill test strips. This does not however stop me from using the strips as I like the fact that I don’t have to carry around a meter as it is contained in the PDM. Overall the wireless aspect of the OmniPod is for me what makes it a winner.