Insulet Reports – Gaining Traction
Late yesterday Insulet (NASDAQ:PODD) reported solid second quarter results nearly doubling the number of patients using the OmniPod system. At the end of the quarter the company stated there were nearly 2,450 patients on the system up 40% from 1,750 patients at the end of the first quarter. Diabetic Investor is not surprised by this growth rate and expects growth to accelerate in the coming quarters as the company continues to add sales people.
Based on the questions asked during this morning’s call the Street has shifted their focus from whether the company can compete to can they meet patient demand. Along this line the company stated they have begun to receive product from Flextronics which combined with their production in Bedford provides the capacity to meet even greater demand.
Insulet decision to rollout the OmniPod regionally has served the company well, unlike some others in this space the company understood that in order to succeed over the long term they would need to work out the kinks before expanding. As Diabetic Investor has stated several times making the system while difficult is not the hard part, the true test for any insulin pump company is developing a sales force, providing patients with 24x7x365 customer support and dealing with managed care. Insulet is progressing nicely on all fronts.
Looking ahead Diabetic Investor sees growth combined with manufacturing initiatives providing the ability to lower production costs, a key element for the company to reach profitability.
Should they form an alliance with Dexcom (NASDAQ:DXCM) and combine the OmniPod with Dexcom’s continuous glucose monitor, this would put the company as the only serious threat to market leader Medtronic (NYSE:MDT). The future of insulin pump therapy are semi-closed loop systems and with the Paradigm 722 Medtronic is the only player. Still with a retail cost of over $7,000 the 722 is out of reach for a large portion of the pump population. Besides offering tubeless pumping the OmniPod also carries a substantial price advantage over conventional pumps. While no one knows what a combined OmniPod/Dexcom unit would cost, Diabetic Investor sees such a unit being priced well below the 722.
Long ago Diabetic Investor stated that Insulet had the ability to make the insulin pump market a two horse race, while there still is a long way to go the company is closing the gap rapidly. With the Cozmo system all but dead and the Accu-Chek Spirit being a subpar offering it won’t be long before the OmniPod begins to appear in Animas’s rear view mirror. Now part of Johnson and Johnson (NYSE:JNJ) Animas has the resources to compete but lacks innovation in their product offerings. While Medtronic and Insulet move towards semi-closed systems, Animas can’t even get their pumps to communicate with a conventional glucose monitor. The Animas product has several nice features unfortunately few of these features have much to do with improving pump therapy.
Investor’s would be wise to use history as their guide when deciding whether or not to own Insulet shares. Medtronic paid nearly $4 billion for MiniMed, JNJ paid nearly $550 million for Animas, while Roche paid over a billion dollars for Disetronic. History as they say is destine to repeat itself.