Insulet: Low-Cost Pricing And Promising Pipeline To Drive Sales

Summary

• Insulet’s Omnipod has low or zero up-front costs and better reimbursements.
• The innovative pipeline at below par pricing should sustain sales growth.
• Manufacturing shift and direct access to the European market should lift margins.
• Revenue and margin expectations for 2021 indicate an undervalued stock.
• A ‘Buying’ opportunity as the short-term target wards off possible disruptions.

Investment Thesis

With its low up-front costs, Omnipod of Insulet Corporation (NASDAQ:PODD) has positioned itself to become diabetics’ first choice in pump therapy as they wean off the daily injections. The company’s top line has expanded at a compound annual growth rate (CAGR) of 29% in the last three years, and Insulet now targets $1 billion in revenue by 2021 at 21% of CAGR.

The innovative pipeline, better third-party reimbursements, and the focus on pharmacy channel could expand the domestic market share while the start of direct European operations could lift the international sales. Meanwhile, the gross margin target of 70% seems convincing, as the economies of scale and domestic manufacturing lower the cost base.

The relative valuation using Insulet’s price to sales and EV/ EBITDA multiples for the last twelve months (LTM) indicate a capital gain of 36% to 55% by 2021. Despite the moderate gain of 15% to 22% CAGR, the medium-term target and revenue diversification benefits lessen the impact of disruptive innovations on the top line supporting a ‘Buy’ recommendation on the stock.

Source: Company Presentation

A niche player in a promising sector

With no known cure yet, diabetes mellitus (DM) is a chronic illness in need of life-long treatment. There are two types of DM. In Type 1 diabetes mellitus (DM1), patients are unable to produce the hormone, insulin, and in more common Type 2 diabetes mellitus (DM2), there is inadequate production or utilization of the hormone. Insulin regulates the level of glucose, the energy source in the human body. All DM1 patients and a small percentage of DM2 patients require long-term treatment with insulin administered either through the daily injections (MDI therapy) or insulin pumps.

The manufacturer of the tubeless insulin delivery system, Omnipod^TM, Insulet is one of the three major manufacturers of insulin

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.