Insulet Reports-All in with Eros
This weekend 9 lucky poker players will gather in Las Vegas to determine the winner of the World Series of Poker Main Event. This event which started way back in the summer with nearly 9000 players has seen more than its share of ups and downs. This weekend it’s very likely we’ll see where one hand can sink the fortune of one player while vaulting another to the title. This is not unlike the situation currently facing Insulet (NASDAQ:PODD) who reported results late this afternoon. It was obvious from the start of the call that the company is going all in with their new, not yet FDA approved Eros pod.
Based on the comments made by the company and the many questions on when the FDA will approve the Eros pod here’s what we know to be true:
While the company had originally hoped to have Eros approved by the end of this year, it’s looking more likely that this approval won’t come until sometime in the first quarter of 2012. The company noted that they will be submitting their responses to the FDA’s questions on November 21, and given the upcoming holiday season it would be “highly unlikely” that they would receive an approval before the end of the year.
The company is bulking up for the launch of the new pod as they are in the process of hiring 25 new sales reps.
This is what we know to be true, what’s unknown is what happens if the FDA delays the approval, asks for more data or heaven forbid makes Insulet go back to the drawing board. Although Diabetic Investor sees no reason for the FDA to not approve the new pod, a delay or the need for additional data has to be taken into consideration given the FDA’s history. Considering what’s at stake any delay would not be a good scenario for the company.
While sales look ok, the company did lower guidance for the fourth quarter, the main reason being is there was a manufacturing issue with the existing pod which forced the company to delay shipment of replacement pods for a select group of patients from the third quarter to the fourth quarter which therefore pushed their reorder cycle for these patients into early next year. Simply put without this issue these patients would have remained on the normal reorder cycle and the revenue would have been received this year.
The company did acknowledge that this manufacturing issue did increase pod failure rates, something Diabetic Investor has been reporting, but there were no safety related issues and the issue, which they noted related to a five cent part, has now been corrected.
Surprisingly there was no update or even a question on when the new FreeStyle test strip will be approved for use with the OmniPod; a rather important matter as the supply of the “old” FreeStyle test strips is quickly dwindling.
Overall it almost doesn’t matter what they did last quarter and based on the tone of today’s call it won’t matter all that much what they do in the fourth quarter. Everyone is clearly focused on the Eros pod, not unlike how everyone at Amylin (NASDAQ:AMLN), Lilly (NYSE:LLY) and Alkermes (NASDAQ:ALKS) is focused on Bydureon which like the Eros pod is likely to see FDA approval early in the New Year. Although one is a device and the other a drug, the two situations are similar in another respect, as neither product will sell itself and if the companies don’t demonstrate the ability to execute it won’t matter what their respective potentials were.
Looking at Insulet’s mixed track record Diabetic Investor is not yet convinced that even with a quick approval of the Eros pod the company can execute consistently. Something that was evident again today with yet another manufacturing issue impacting results, as we have noted previously serious damage has been done to the Insulet reputation and new pod or not, this damage will not just go away. It won’t be much fun for the new reps when physicians pester them with questions on pod reliability issues, physicians who are unlikely to trust what surly will be the company line when Eros finally gets here- “Yes we know we had some issues with the old pod but this new pod is just great and we really did get it right this time.”
The insulin pump market may be big business but it is a very small and tight knit community and rarely will physicians, CDE’s or patients give a company a second chance when they screwed up the first one.
So the question is; Is Insulet truly holding aces in the hole or are they trying to bluff their way out of a bad hand? We’ll soon find out.
