Insulet Going to the Market – Again
Just two days after Insulet (NASDAQ:PODD)
announced their third quarter earnings the company has decided it’s time to go
back to the capital markets and raise even more money. According to a company issued
press release;
“Insulet
Corporation (NASDAQ: PODD) today announced that it will initiate, subject to
market conditions, an underwritten public offering of 5,500,000 shares of
common stock under an effective shelf registration statement on file with the
Securities and Exchange Commission. It is currently anticipated that the
underwriters will be granted an over-allotment option to purchase up to an
additional 825,000 shares of common stock.”
This
offering, which is expected to price as early as tomorrow, poses some
interesting questions as to the company’s long term strategy. First and foremost this news indicates that
company won’t be sold anytime soon nor will they have a deal signed for international
distribution. Secondarily, the timing of this announcement calls into question
the company’s recently completed deal with Deerfield Management.
Back in late
September, the company amended the credit facility they had with Deerfield.
Back then Diabetic Investor couldn’t figure out exactly why Insulet rushed into
this deal especially when one considers that the company indicated they could
easily go to the capital markets and raise additional funds. Knowing that the
company was having a decent quarter, Diabetic Investor thought that
strategically Insulet would be in a stronger negotiating position had they
waited until after the earnings announcement to deal with Deerfield. In fact
when Diabetic Investor asked the company when this deal was announced why they
felt it necessary to do something, they indicated that by amending the
Deerfield credit facility they would not have to go back to the markets and
further dilute the stock.
As everyone
knows when the original credit facility with Deerfield was negotiated no one
was in the mood to provide Insulet with the capital they desperately needed.
Deerfield took full advantage of this situation extracting terms that would
make a Chicago alderman (or a certain ex-Illinois Governor) blush. Considering
that market conditions have improved and the company appears to be doing better,
it seemed only logical that it was Insulet’s turn to put the screws to
Deerfield and exact a little revenge.
Instead
Insulet rushed into a deal with Deerfield and compounded their mistake by going
back to the capital markets, yet again, further diluting the stock. Even worse
they did so just two days after telling everyone that things we’re just fine, that
they working on an international distribution deal and that given the way
things were going there was really no need to raise more money.
Diabetic
Investor has no problem with the company raising more capital, market
conditions have improved and the additional capital does provide the company with
some additional breathing room. What we question is how management handled the
Deerfield negotiations and why they weren’t more forthcoming with information
during Monday’s conference call.
Still this
isn’t the first time that the company has told investors one thing than done
another. Just before the Deerfield deal was done, the company was telling investors
that an international distribution deal with Roche was basically a done deal
and the company would receive an upfront payment of $5 to $10 million plus
would be paid for the product sold to Roche. The only supposed hold up for this
deal to get done was Insulet insistence that the agreement be structured in
such a way that it could be unwound if another company came and acquired
Insulet. As everyone knows this deal with Roche didn’t get done and according
to very high sources at Insulet this was due to the changes that were taking
place at Roche.
Looking over
the statements made by the company and the follow on actions actually put in
place one has to wonder if any statement made by management holds water. If all
this sounds familiar it should as Dexcom followed a similar communication strategy,
basically telling everyone one thing and then doing the exact opposite. A
strategy that eventually cost their then CEO his job, a strategy their new CEO
Terry Gregg quickly stopped upon taking over.
As everyone
knows Diabetic Investor has been a long and strong supporter of Insulet. And to
their credit the company has come much further than many thought they ever
would. They have validated the market for wireless pumping and are also doing something
that many, including Diabetic Investor, once thought impossible, as they are
actually expanding the market for insulin pumps. As we have noted previously
the OmniPod is an excellent product and should have no problem fending off the
many OmniPod wannabes that are coming to market.
We have also
noted on several occasions the Insulet story is actually a very simple story,
focus on lowering cost of goods sold. Once this issue is taken care of it’s
just a matter of time before the company is acquired by a bigger player and
everyone is happy. Or put more basically with Insulet it’s all about execution
and execution comes down to leadership. And when the management team isn’t
providing the leadership the company’s board of directors has an obligation to step
in, just as Dexcom’s board did when they brought Terry Gregg in to be their
CEO.
While
Medtronic (NYSE:MDT) continues to issues with their patch pump, the issues will
eventually be solved. The same is true for the many Insulet wannabes, while
some have little to offer, Diabetic Investor has seen some intriguing possibilities
that if given the resources could give Insulet some serious competition. Simply
put, while Insulet owns the market today competition is coming and their window
of opportunity to sell the company will only be open for a short period of
time. Insulet’s board of directors should take notice as before you know it
that window will be closed and a great opportunity will be missed. Then no one
will be happy and everyone will do what they always do when a company that had
the cat by the tail and fails to close the deal; they will point fingers trying
to assign blame.
The bottom
line here is it’s time for the Insulet Board of Directors to step up to the
plate or they’ll have no one but themselves to blame for Insulet’s missed opportunity.
