EUR 850.00 For Business Accounts Only

Morningstar | Insulet Posts Stellar 3Q, Boosted by Direct Distribution in Europe; No Change to Our FVE

Insulet reported stellar results from the third quarter that were generally consistent with our expectations, and our slight adjustments did not materially shift our fair value. Quarterly sales of OmniPod rose 24% year over year, driven by 55% growth in the international segment. Now that we’ve gotten a glimpse of how well Insulet can drive European growth of OmniPod with direct distribution, we may slightly raise our projections for 2019 international revenue. However on a preliminary basis, even a substantial boost is unlikely to move the needle much on our valuation, as international OmniPod sales account for a minority of total sales. We still think the firm’s positive moat trend accurately describes the firm’s competitive position, especially as it works on developing and commercializing innovative technology.

In the near term, we’re most intrigued by the limited commercial launch of OmniPod Dash, a user-friendly touch screen electronic unit that patients use to control their OmniPod pump. Generally speaking, insulin pumps haven’t necessarily been very user-friendly in the past. So, improvements in this area can make a big difference to patients. Full commercial launch of Dash is planned for early 2019, and we expect  some acceleration in U.S. sales growth next year. Aside from the Dash, Insulet also has OmniPod Horizon--the next-gen pump that will offer interoperability with the continuous glucose monitor and integration with smartphone to control the pump--on deck for commercialization in the second half of 2020. We recognize Medtronic is aiming to release its successor to the 670g pump in early 2020. However, considering how Insulet’s product is highly differentiated from Medtronic’s tubed pumps, we think Insulet can continue to draw in new pump users from multiple daily injections.

Finally, CEO Patrick Sullivan announced that he would be stepping down and Shacey Petrovic, current president and COO, would be stepping into the CEO role. Although we’re not surprised that Sullivan might bow out at this point--now that the team he assembled is operating well and the firm has turned around and is back on track for aggressive growth and profitability--we are less confident that management is ultimately seeking to sell Insulet to a larger med-tech company. Originally when Sullivan joined Insulet, we expected him to follow the same playbook he used for Cytyc, which he’d shepherded from development-stage to a commercial operation bringing in more than $700 million in revenue before selling it to Hologic for $6.2 billion. With Petrovic taking the reins, we think it’s more likely that Insulet will remain independent and remain focused on penetrating the pump market both in the U.S. and abroad. Considering Petrovic’s strong leadership and the results she has delivered through every position she’s held at Insulet, we’re entirely comfortable that she’s the right leader to grow Insulet.