What Next For Insulet?

What Next For Insulet?

It’s been nearly a week since Insulet (NASDAQ:PODD) released their 2008 full year results. Shares closed at $6.62 the day before the announcement and have now fallen to below $3. Given the precarious state of Insulet’s balance sheet many are now calling into question the long term viability of the company. While others believe with shares at or near all time lows it’s just a matter of time before the company is acquired.

The question is can they raise the necessary capital that will allow them to achieve their long term value? Besides the current state of the capital markets which makes raising capital difficult, the company must also contend with Medtronic (NYSE:MDT) who keeps telling anyone who will listen they soon will have their own patch pump on the market. Before we go any further it’s about time someone told it like it really is and Diabetic Investor might as well be the one. Yes, Medtronic does have a patch pump under development. However what the company isn’t telling everyone is the project is not only behind schedule the product is nowhere near as good as the OmniPod.

Industry sources who have seen the Medtronic product are less than thrilled and have labeled the product sub-par when compared to the OmniPod. In an effort to cut manufacturing costs, Insulet’s Achilles heel, Medtronic’s patch pump is only partially disposable. This convoluted device requires greater patient intervention rather than the simple OmniPod device. As Al Mann, MiniMed’s founder once said, “The more times you give the patient the opportunity to screw up the more likely they will.”

The Medtronic system is also subpar in other aspects as it does not offer automatic cannula insertion one of the biggest benefits of the OmniPod system. Still Medtronic continues to hype this product as if it’s the best thing since sliced bread and soft soap. The reality of the situation is Medtronic knows the more they hype the harder it is for Insulet to raise more money.

The bottom line for Insulet hasn’t changed from day one, it’s all about COGS. By moving manufacturing offshore and increasing sales it appeared the company was on its way to solving this issue. However, based on comments made during last week’s call no one is quite sure what level of production is needed to drive down manufacturing costs. During their third quarter call the number thrown around was somewhere north of 200,000 pods per month, yet on this most recent call the number jumped to over 300,000 pods per month. Yes that is north of 200,000 but that’s like saying Chicago is slightly north of Miami Beach.

In the long run Diabetic Investor believes Insulet will be able to raise the money they need but they will pay a steep price. It’s also likely changes are in store for the company as investors will likely seek greater control over how the company is managed. To date the company has done an excellent job of validating the wireless pump market. There is no question wireless pumping is here to stay and that the OmniPod is light years ahead of the competition. By the time the Insulet wannabes get to the market, Insulet will have their second generation device ready to go.

While it’s possible the company could be acquired in the near term, Diabetic Investor believes potential buyers are taking a wait and see attitude believing the situation may get worse before it gets better. These potential buyers also know that even if the company raises additional capital they can still come in and buy the company for a fraction of it what it was once worth. With over 10,000 patients, a growing market share and the leading wireless system Insulet has something to offer. The question is can they fix their current issues allowing the company and their investors the opportunity to receive full value?