It’s becoming the norm with each passing
earnings release from Insulet (NASDAQ:PODD) that each piece of good news also
comes with some bad news. In the good news department revenues increased 28% on
a sequential basis with gross margins improving as well. In the not so good
news department operating expenses continue to exceed revenues although the
margin between the two numbers is narrowing. While the company raised full year
revenue guidance they also raised the lower end for full year operating loss.
Looking a little deeper at the numbers the
28% growth rate is not necessarily an indication that new patient ads are
accelerating. After you back out the additional revenue from existing patients
upgrading to the new PDM, which according to the company accounted for slightly
over $1 million in revenue, the sequential increase goes down to 20% or so.
Still not a bad number especially when you consider that Insulet is one of the
few pump companies that has grown by converting patients who never used a pump
to insulin pump therapy.
While the company continues to make
progress towards lowering cost of goods sold, COGS now under $20 per pod remain
too high and need to come down to the mid teens or lower.
One perplexing aspect of today’s call came
when the company noted that referrals are going strong. While this is nice to
hear, a more important number is how many of these referrals actually turn into
paying customers. Here the company seemed to be talking on two sides of the
same issue, on the one hand talking up the referrals yet on the other
indicating that conversion rates (referrals to sales) where up “slightly.”
Looking beyond these numbers for just a
moment it should be noted that Insulet’s numbers reflect another trend emerging
in the insulin pump market. Medtronic (NYSE:MDT) the current market leader is
facing some serious competition from Animas. As Insulet indicated today 7 out
10 new patients using the OmniPod were previously on multiple daily injection (MDI)
therapy. As noted earlier this is very good news for Insulet as they are one of
the few insulin pump companies who have actually been able to expand the market
for insulin pumps rather than just stealing share from the competition.
However, what that statement also says is that Medtronic, who has been losing
share, is losing it to Animas.
It should also be noted that as also has become
the norm there were several questions on Medtronic’s patch pump and when it
would get here; as well as today’s news about Medingo. The fact is Medtronic’s
patch pump will eventually get here but it’s anyone’s guess on when that day
will be. Diabetic Investor continues to hear that this project is behind
As we wrote earlier today the supposed deal
for Medingo is really no deal at all. In the real world everyone knows that a
non-binding letter of intent is just that non-binding. Should this deal ever
come to reality then we’ll have something to talk about, until that day comes,
if it ever comes, today’s announcement from Medingo was nothing more than a
glorified advertisement telling everyone the company is for sale and this is
the price we’re looking to sell it at.
So at the end of day down on the farm the
Insulet story hasn’t really changed. The goal remains to sell to a bigger
player. To achieve that goal the company must demonstrate that can generate
consistent profits, which means lowering COGS. The company no longer has to
prove there is a market for wireless pumps, their success plus the many Insulet
wannabes around proves wireless pumping is here to stay.
The question is no longer if someone will
buy Insulet, the question is now who it will be and how much will they pay. The
reality is Insulet’s management team controls their own destiny, if they
perform well their efforts will be rewarded handsomely. Should they miss-step
they’ll find themselves in another part of the farm that isn’t so pleasant and will
be stepping in it all day.