On balance Insulet (NASDAQ:PODD) is holding up well compared to their competitors in the insulin pump market. The company has begun selling the OmniPod System overseas and while the issues at the FDA are impacting the launch of their new, smaller pod and integration of the OmniPod with the Dexcom (NASDAQ:DXCM) Seven Plus system, these delays should not have a material impact on future earnings. The simple fact is Insulet still is the only company marketing a disposable system. The company continues to benefit from the issues facing Medtronic (NYSE:MDT) who’s patch pump system remains delayed and well behind schedule.
Looking forward the company must remain focused and work through the issues at the FDA. The new, smaller pod carries with it a lower cost to manufacturer a critical factor for Insulet. As Diabetic Investor has stated on numerous occasions the main issue standing between Insulet and a possible buyer has been COGS. While margins are improving the current system still does not carry with large enough margins to make Insulet attractive as an acquisition target.
That being said, Diabetic Investor sees the value of Insulet increasing as the interest in the insulin pump market remains high. It’s no secret that Sanofi-Aventis (NYSE:SNY) is actively looking at entering the market and that Animas, a unit of Johnson and Johnson (NYSE:JNJ) continues to struggle in their attempt to eat into Medtronic’s huge market share. While we don’t see anything happening in the near future, the reality is it’s far cheaper to buy an existing franchise with 20,000+ patients than it is to start from ground zero and try and build a customer base.
Contributing to this increase in value is the plain fact that newcomers to the pump market must deal with the FDA and have no existing patients to offset this increase in development costs. The simple fact is any company with an approved system already on the market has a major advantage over any new system, no matter how good it may be, which still must navigate the difficult and changing conditions at the FDA. For insulin pump companies like Insulet, the difficult conditions at the FDA are actually a net positive as it prevents competitors from coming to market.
Overall, the company is performing fairly well given the economy and the FDA. Diabetic Investor does not see any serious competition on the horizon and the new pod, when introduced should provide a nice boost to sales. It’s just a matter of time before someone comes along and realizes that it’s cheaper to buy share than build share. Just who this will be is still anyone’s guess but the number of interested parties seems to grow with each passing day.
While Diabetic Investor is not overly optimistic regarding the long term growth prospects for the insulin pump market, that does not seem to matter to the many companies who see owning an insulin pump company as their way to increase either test strip or insulin sales. Looking at an insulin pump company from that perspective, where the pump itself is part of an overall diabetes management system, Diabetic Investor can understand the interest in getting into the market.
It won’t be until these companies are actually in the insulin pump market that they will understand just how difficult the market truly is. To their untrained eyes owning an insulin pump company looks like the answer, the only problem is most of these companies are asking the wrong questions. But when it comes to the wacky world of diabetes devices, insulin pumps in particular, history tells us that companies like to shot first and ask questions later.