Insulet Reports – Not out of the woods just yet.

Insulet Reports – Not out of the woods just yet.

Looking over the results Insulet (NASDAQ:PODD) released late this afternoon two things are evident; the cost cutting measures the company has taken are working while at the same time it’s also quite clear that the company is not yet out of the woods just yet.

In sign that Insulet has become a full blown insulin pump company they announced today they would no longer provide a patient count. This decision isn’t all that surprising as every company in the insulin pump market makes this transition from providing patient counts to just providing revenue numbers.

Looking at those revenue numbers Diabetic Investor continues to be confused as to why the company is having a difficult time getting paid from managed care providers. Some may recall that during their last call the company indicated that several managed care providers weren’t paying their bills. When asked if this issue had been solved the company said they are “slogging through” the issue and it is not yet solved. When asked why this issue does not appear to be happening with other companies in the insulin pump market, the company said there could be several reasons for this including they are just being more honest than their competitors.

If the company is truly being honest with this issue it would have been great if they provided more clarity as just how much revenue we’re talking about here. Like others Diabetic Investor has looked into this “issue” and cannot find anyone else with a similar problem. Frankly Diabetic Investor is having a hard time buying what the company is selling here.

At the end of the day the issue with Insulet hasn’t changed. When it’s all said and done this is a story about COGS. The fact of the matter is even if the company reaches the low end of their COGS estimate at $15 per pod this is still too high. Realistically COGS need to come in below $10 per pod if the company ever hopes to be acquired. As revolutionary as the OmniPod is, it’s not exactly a great business model to continually lose money on every pod you sell.

The bottom line here is all the cost cutting in the world cannot make up for COGS that are just too high. Given that Insulet’s efforts to lower COGS are directly related to how many systems they sell, it would be foolhardy to cut costs too much particularly with their sales team. For the moment the company has yet to cut their sales team, however should COGS remain too high and sales don’t increase to a level where COGS can be lowered some very interesting choices will need to be made.

One last note here when asked about their integrated system  the company is working on with both Abbott (NYSE:ABT) and Dexcom (NASDAQ:DXCM), the company was asked if Abbott remains committed to this project given the recent developments with the Navigator. While the company would not publicly embarrass their partner it was obvious from their answer that the integration with Dexcom is moving forward while the integration with Navigator has been placed on the back burner. Just one more piece of evidence that its only a matter of time before Navigator joins the growing ranks of once promising diabetes devices that failed and disappeared from the market.