Insulet Reports

Insulet Reports

This evening Insulet (NASDAQ:PODD) reported fourth quarter earnings and for the first time the company provided greater detail in terms of where revenue is coming from. While this greater detail will surely be appreciated by the analysts who follow Insulet, the greater detail only confirms what they should already know. Namely growth is slowing and it’s too early to tell whether the many changes instituted by the new management team will yield the desired results.

Listening to the call Diabetic Investor had a good laugh when CEO Pat Sullivan stated that Insulet is the market leader when it comes to tubeless insulin delivery. Now we hate to state the obvious here but Insulet is the ONLY company that has a tubeless insulin delivery system. Heck if they aren’t the leader they have a bigger problems than we thought.

We were also a little confused when Pat noted that the company wanted to increase revenue by getting their existing customer base to order/use more pods. Again we hate to overstate the obvious but pods are designed to last three days which basically means an OmniPod patient will use approximately 10 pods per month or 120 per year. Exactly how the company can increase usage among existing patients seems a bit of a stretch or wishful thinking.

Judging from the tone of the questions from analysts there was a noticeable lack of trust. To paraphrase a great rant by the former coach of the Arizona Cardinals football team Denise Green analysts are beginning to think Insulet isn’t the company they thought it was. Now keep in mind these are the same analysts who pumped this stock when the previous management was being given a pass and never questioned about their many suspect statements which turned out to be outright fabrications. Sensing that their credibility may be at stake analysts seem intent on questioning every number and statement made by the company. As the old saying goes fool me once shame on you, fool me twice shame on me, fool me three times welcome to the wacky world of diabetes.

The harsh reality is that it will be a long tough road for Insulet. Market dynamics are not favorable, competition is intense, prices are falling and competitive bidding looms on the horizon. And did we mention that one company has a near stranglehold on almost 70% of the market. Do we need to mention that the insulin pump market is not large enough nor is it growing fast enough to support not just the existing players and the many crazy enough to enter this market?

Now as crazy as this is going to sound and given all that’s gone on today this may seem redundant, Diabetic Investor is aware of other companies who actually want to be in the patch pump business. Even crazier they want to start from nothing. They seem to believe that unlike Insulet they can succeed because their system has … wait for it .. a lower cost of goods. Now we hate to keep repeating ourselves but in this case we must, anyone can build a pump it takes real talent to run an insulin pump company and extraordinary talent (some would say incredible luck) to actually make money in the insulin pump business.

Insulet came to market with a truly innovative product, they proved that patients would be receptive to wireless pumping and built a nice user base. Yet like so many others in this market they have run into a wall and the future is cloudy at best. While the current management team can lay the issues facing the company at the doorstep of previous management, these issues do exist and must be dealt with. The question is can this current team which is notably void of diabetes experience get the job done. Do they see things as they really are or will this lack of experience doom them to fail? The statement about being the leader in tubeless insulin delivery does not inspire much confidence and leads Diabetic Investor to believe that management is still learning.

Now that would be great IF things were fine and they hadn’t inherited more problems than John Fox did when he agreed to become the head coach of the Chicago Bears. The difference is Fox has a proven track record of not just turning things around but turning them around quickly.  The jury is still out with the new Insulet team but unlike coach Fox time is NOT on their side. Their once passive fan base, analysts, are now pressing for results, real, not imagined results. Like Bears fans they don’t want to wait another 29 going on 30 years for another Superbowl championship.

Up until today Diabetic Investor has been giving Pat Sullivan and his newly assembled team somewhat of pass as they became accustomed to the wacky world of diabetes. Well that time is over and it’s time for this team to get in the game and produce some results. Otherwise the Insulet board of directors, already burned once by the previous management team, will be quick to pull the trigger and find a team that wins. Pat, the gun is locked, loaded and ready to fire.