Insulet Taking on Water

Insulet Taking on Water

What did they know and when did they know it? These questions come to mind after listening to the Insulet (NASDAQ:PODD) presentation yesterday. It seems as though new CEO Patrick Sullivan has a bigger job than originally anticipated. Here is just some of what was disclosed yesterday;

New Patient starts are DOWN and not growing as previous management had lead everyone to believe. Mr. Sullivan noted that new patient starts were down 9% in 2014 while the former management team was indicating that new patient starts would grow 20%+.

The company just to fuel on a raging fire then guided to a 4th quarter that would be BELOW current street estimates. Lowering revenue projections to $76 to $81 million when the street was expecting $81 million+.

We could go on here but much of this has already been reported and not surprisingly shares of Insulet got hammered down over 18% today.

The more important question is where the company goes from here. It’s also worth wondering whether the company’s board of directors had any idea just how bad things were and if they didn’t why didn’t they know. As Diabetic Investor noted when the company announced that Duane DeSisto was “retiring” there was much more to the story. Yet we had no idea that the previous management team was basically lying every time they opened their mouths. But then again we really aren’t that surprised as this not the first time the previous management was less than truthful.

Given the well documented discrepancies between what the previous management team publicly stated and what the new team has revealed it should shock no one if investors file a class action lawsuit. Is it any wonder that Mr. Sullivan has basically cleaned house and brought in a new management team.

But let’s get back to the more important question, where the company goes from here. Now we know this will sound crazy, but it wouldn’t be the first time people will think we’ve lost it, Diabetic Investor actually believes that Mr. Sullivan is doing the right thing by coming clean and simply telling the truth.  He has a mandate from the board to sell the company something now made a little easier as, hopefully, there are no more surprises. Better to get all the bad news out at once, take the well-deserved punishment and move on.

As we have noted with regularity the insulin pump is undergoing a transformation. This is no longer a business about who has the best hardware, this is all about who has the best diabetes management system. The fact is insulin pumping is no longer about technology as all pumps do basically the same thing the same way. When it comes to choosing a pump the choice has more to do with which system the patient is comfortable with rather than which has the best technology. Here Insulet actually has somewhat of an advantage as they are still the only wireless option available, so if the patient wants to wireless Insulet is the only option.

The real question can this new management team which is devoid of diabetes experience, grasp the market quickly and implement strategies which will turn things around. We should also alter something we wrote when the management changes were initially announced. Back then we thought it wasn’t a big issue that new team had little diabetes experience and actually speculated this could work to their advantage as they would not be handicapped by preconceived notions. Now that we know just how bad things really are we’re not so sure this was the right move. Time will obviously tell but given the extent of the issues Insulet is facing it wouldn’t have been such a bad idea if some of team had some experience in this wacky world.

One thing is very clear, that is other than the previous management team was less than truthful, Insulet won’t be sold anytime soon. We’ll also learn whether Mr. Sullivan has what it takes to navigate the company through some very turbulent waters. It seems as though he inherited a ship that was already taking on water with a less than competent crew. Now that the previous crew has been thrown overboard and for the moment the ship is not taking on any more water, the repair work can begin.

Given that he’s new to this wacky world Diabetic Investor has given Mr. Sullivan a hall pass while he gets his feet wet. Well the hall pass is no longer valid and it’s time to see some action. Welcome to the wacky world Pat.