Insulet Reports

Insulet Reports

At the start of today’s call Insulet (NASDAQ:PODD) CEO Pat Sullivan reflected a little on how things have gone since he took over a year ago. To say that Pat’s first year has been a tough one is a major understatement as he basically inherited a dysfunctional company. For a while it seemed like as much as he bailed the water kept rising. While we won’t say that all the problems are over and there is smooth sailing ahead, we will say that at least for one quarter nothing else bad happened.

The big issue continues to be increasing demand while reducing costs. Looking at the numbers it would seem demand has increased until you dig deeper. As the company noted the sales force expansion, which is now complete, has resulted in increased sales. Now we hate to state the obvious but this is what’s supposed to happen when you have more reps in the field. Frankly had sales not improved after this expansion that would have been just another problem the company would be forced to deal with. Simply put the better numbers aren’t related to increased demand and this not a good thing.

Looking ahead the company continues to lag behind the competition. Although the company noted that the integration with the Dexcom (NASDAQ:DXCM) continues to move forward the fact is it’s still not here. The fact is the Animas Vibe and Tandem (NASDAQ:TNDM) t:slim G4 are here. The fact is the longer this takes the more sales they are going to miss. As we noted previously sensor augmented pumps are becoming the standard and Insulet doesn’t have one.

We also found it ironic, more like crazy that the company seems to believe they can clinically differentiate the OmniPod from the competition. That a patient would achieve better outcomes using an OmniPod over a competing pump. The fact is all insulin pumps do basically the same thing the same way. The fact is a well-trained educated and motivated insulin pump patient will see better outcomes. Simply put the hardware, which pump a patient uses is immaterial. Still if Insulet wants to waste money trying to prove that the OmniPod produces better outcomes they are free to try. As Momma Kliff used to say when it comes to crazies let them be crazy.

In another sign that the company is behind the curve is the new PDM which is supposed to come with a more patient friendly user interface. The company hopes to have this product to the FDA sometime next year and on the market by the end of next year. We hate to be redundant but it seems that we said a long time ago that design matters and a more patient use interface is one of the reasons Medtronic (NYSE:MDT) and Johnson and Johnson (NYSE:JNJ) are thinking about acquiring Tandem. But we digress.

The reality is Pat desperately wants out of diabetes. That he would like nothing better than to transform Insulet into a drug delivery company. That he sees how competition in the insulin pump market is intensifying and he also knows as innovative as the OmniPod WAS being wireless is just not enough. The fact is Insulet never capitalized on a great concept. They never moved from phase one to phase two. Whether this is the fault of the previous management is frankly immaterial and it’s up to Pat and his handpicked team that has little diabetes device experience to fix it.

Perhaps the good news here is that Pat is no longer throwing the previous management team under the bus blaming them for every piece of bad news. That he has accepted ownership of the mess he inherited. He is a man with a plan the only problem is will the Board allow him enough time to make this plan happen.  Just because the ship is no longer taking on water doesn’t mean it will stay afloat. The reality is the water that’s weighing down the boat must be bailed, repairs must then take place and then maybe it will sail without incident.

The bottom line here is that shares of Insulet have fallen 26% over the past year and we can guarantee that’s one number Pat doesn’t want to ever see again. That if there isn’t a move forward he won’t be around to celebrate his second year at the helm.