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Value & Appreciation. Like Two Peas In A PODD

|About: Insulet Corporation (PODD), Includes: MDT, TNDM

Insulet is poised for a parabolic move similar to Tandem.

The Omnipod Dash has immense quality of life improvements over its competitors.


The Health Care Equipment & Supplies industry has two main lines of business. One sub-industry supplies health care equipment to hospitals and patients in outpatient care. The other sub-industry focuses on the creation of new and more technologically advanced medical equipment to improve the efficiency and accuracy of patient care.

The industry remained relatively strong throughout the past bear markets and slowly improving economy. As the improvements in the economic backdrop propelled exciting growth in many industries, the Health Care Equipment & Supplies industry’s performance has been comparatively lackluster. However, the industry environment has remained largely positive. There are a couple of main growth factors that have driven this industry to perform well. The first and most influential demographic factor for this industry is the increasing age of the population. The total elderly population has grown significantly, while “baby boomers” have shifted into their 60s and 70s.

Not only is the average life span increasing, but people are also remaining much more active later in life than in the past. This has expanded demand for many products supplied by this industry ranging from medical devices for serious conditions that, more often than not, affect the older population (such as pacemakers and stents) to devices and surgeries that help improve the quality of life (such as joint replacements and laser eye surgery).

Another factor is the growing demand by patients and doctors alike for improved technology and better health care equipment. This has caused health care equipment suppliers to increase their research and development expenditures to try to discover more efficient and effective products. One concern for this industry is the potential for federal budget cutbacks that would negatively affect those companies receiving some form of federal funding. ObamaCare, also known as the Affordable Care Act, adding more patients covered by health insurance could increase the customer base for this industry.

The future of the industry has a positive outlook, due to the continually aging population. The key factors mentioned above not only indicate the increase in the industry’s clientele, but also show that the Health Care Equipment & Supplies industry is actively working towards helping health care facilities improve their ability to treat this clientele more accurately and efficiently.


Insulet is primarily engaged in the development, manufacturing and sale of its proprietary Omnipod® Insulin Management System (the OmniPod System), an insulin delivery system for people with insulin-dependent diabetes. The OmniPod System features a small, self-adhesive disposable tubeless OmniPod device which is worn on the body for approximately three days at a time and its wireless companion, the handheld Personal Diabetes Manager. The OmniPod System features only two devices that eliminate the need for a bulky pump, tubing and separate blood glucose meter, provides for automated cannula insertion, communicates wirelessly and integrates a blood glucose meter.

Insulet reports revenues through three segments:

The company earns a huge share of revenues from the Omnipod System in the United States, Canada, Europe and Israel. It operates in these markets either directly or through intermediaries. In fourth quarter of 2018, the company’s 56.5% of total revenues came from the U.S. Omnipod sales, while 33.4% was generated from the International Omnipod sales.

Drug Delivery Business (10.1% of total revenues in fourth-quarter 2018): Insulet has tied up with pharmaceutical and biotechnological companies which use a customized form of the Omnipod System to deliver a drug at a certain administered volume and over a specified period of time.


Insulet is a buy.

Though unperturbed in my reasoning, there are many mixed signals affecting this decision. The companies strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth (which will be parabolic soon), and great cash flow. Unfortunately, the downside risks to these positions are seen in its premium valuation, the performance of the stock itself, and higher debt management risk.

The Highlights:

  • The Four-Point Strategy Bodes Well:
    • Insulet has been progressing well with respect to its four-pillar strategy and seems to be well on track to achieve revenues of $1 billion, 70% gross margin and above-market profitability in 2021.
    • Notably, the four key strategic initiatives are expanding Omnipod’s market access, executing on its innovation roadmap, building the U.S. manufacturing facility successfully, and implementing its plan to sell directly in Europe from July onwards.
  • Build Out of US Manufacturing Facility:
    • Management seems to be particularly upbeat about the manufacturing unit in Acton, Massachusetts. The company was building it to reduce manufacturing costs, increase capacity to accelerate growth as well as overcome supply shortfall issue. Per management, one line in this new manufacturing facility in the United States will deliver up to 50% of the capacity of its total China operations along with around 90% less headcount. 
    • The installation of Insulet’s first highly automated manufacturing line in the United States is expected to begin real soon and the company is also on track to begin production in the new facility in early-2019.
  • Omnipod's Market Access Expansion Continues:
    • Insulet kick-started 2018 with positive reimbursement updates. The company has achieved several milestones with respect to expanding Omnipod’s market access. In this regard, Insulet is already gaining from the limited commercial launch of the Omnipod DASH system.
    • At the end of 2018, Insulet secured approximately a third of Medicare Part D and almost half of all Medicaid covered lives for Omnipod. Thus, along with the in-network coverage for Omnipod through UnitedHealthcare, the company has gained access to the additional 40% of the U.S. diabetes market, where it didn't have presence initially.
    • Providing a boost, Insulet announced the receipt of ISO (International Standards Organization) 27001 certification of its Omnipod DASH System in November 2018. The company has also received the DTSec (Diabetes Technology Society’s) Cybersecurity Standard for Connected Diabetes Device Security certification for the same. These developments have earned Insulet the status of being the only insulin pump company to be awarded with both the certifications. In the same month, Insulet partnered with Samsung Electronics America, for a Samsung Galaxy smartphone-controlled Omnipod System.
    • Moreover, Insulet’s Omnipod System was selected as the preferred insulin pump for diabetic patients in the province of British Columbia, Canada, under the expanded British Columbia PharmaCare insulin pump program in July 2018.
    • CMS issued guidance in January which required Omnipod to be covered under the Medicare Part D prescription drug benefit program. This move expanded the company’s access to around 450,000 individuals with Type 1 diabetes who have Medicare/Medicaid coverage.
    • Insulet projects that around one-third of the Type 1 diabetes population in the United States uses insulin pump therapy. It also believes that less than 10% of the Type 2 diabetes population in the United States, who are also insulin dependent, uses insulin pump therapy.


  • Sole Reliance on Omnipod:
    • Insulet’s financial results continue to largely depend on the performance of its lead product — Omnipod System. Per the company, any adverse changes in the market acceptance of the product or worsening of the factors that negatively influence the sale will dent the company’s financials majorly.
  • Economic Uncertainty Hampers Growth:
    • Weaker global economic conditions may reduce demand for Insulet’s products, intensify competition, exert pressure on prices, dent supply and lengthen sales cycle. Moreover, a number of countries in Western Europe are facing a liquidity crunch. Insulet is also exposed to the risk of a reduction in healthcare spending in the United States, Canada and Europe due to an economic slump. We are particularly cautious as growth could moderate further if the economic scenario worsens.
  • Tough Competitive Pressures:
    • Insulet operates in a highly competitive environment, dominated by firms ranging from large multinational corporations with significant resources to start-ups. Also, the competitive and regulatory conditions in the markets where the company operates limit Insulet’s ability to switch to strategies like price increases and other drivers of cost increases.
    • The company’s Omnipod System primarily competes with Medtronic’s market-leading MiniMed, a division of Medtronic. Notably, MiniMed boasts a major part of the conventional insulin pump market share in the United States. Other suppliers in the United States include Tandem Diabetes Care, Inc..

Disclosure: I am/we are long PODD.