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Tuesday, 04/18/2023 11:27:42 PM

Tuesday, April 18, 2023 11:27:42 PM

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>>> Insulet's (PODD) New Omnipod, Strategic Moves Drive Growth

Zacks Equity Research

April 18, 2023

Insulet PODD continues to gain on solid prospects in the diabetes market. The company is progressing well with respect to its four-pillar strategy. Yet, its heavy reliance on the Omnipod System and a tough competitive landscape add to the woes. The stock carries a Zacks Rank #2 (Buy).

In the past year, Insulet has been outperforming its industry. The stock has risen 24.1% against the industry’s 35.2% fall.

Insulet exited the fourth quarter of 2022 with better-than-expected earnings and revenues. The company’s performance benefited from record quarterly U.S. and Total Omnipod new customer starts. This was driven mainly by a strong start to the company’s U.S. full market release of the Omnipod 5 automated insulin delivery system.

The company recently achieved the milestone of 360,000 estimated active global customers using the Omnipod System, with more than 100,000 customers in the United States using Omnipod 5.

Insulet has been progressing well with respect to its four-pillar strategy, where the first two pillars are expanding access and awareness, and delivering consumer-focused innovation.

In terms of the first strategy of access and awareness, the global diabetes market is growing rapidly, with millions of people expected to be newly diagnosed in 2022. Further, there has been a rapid adoption of CGM among people living with Type 1 and Type 2 diabetes.

During the fourth quarter, the company witnessed continued uptake of Omnipod through the U.S. pharmacy channel. This includes a growing contribution from Omnipod 5 and a premium for the pod, given the PDM is provided at no charge in the pharmacy channel.

In terms of the second strategy of delivering consumer-focused innovation, Insulet’s sales and marketing teams and international expansion efforts are aligned with its long-term growth profile. The company is focused on advancing its initiatives. Notably, Insulet will continue to work to expand access to Omnipod 5 as well as increase the total addressable market for the Omnipod platform.

The third part of Insulet’s four-pillar strategy is to grow its global addressable market. In this regard, Insulet expanded its efforts and the rollout of Omnipod DASH across the international markets through targeted geographic expansion. It entered the Asia Pacific region through Australia and also expanded into Turkey. The Omnipod DASH was also launched in Saudi Arabia and the United Arab Emirates. Together, these countries expand Insulet’s total addressable market by nearly 1 million.

Per the fourth-quarter earnings update, Omnipod 5 continues to drive customer adoption from all market segments. In Q4, individuals with type 2 represented an estimated 15% to 20% of new U.S. customer starts. Insulet expects to build on the leading competitive position in this market and expand its total addressable market with the planned 2024 commercialization of the new basal-only pod.

On the flip side, during the fourth quarter, the substantial fall in Insulet’s Drug Delivery sales is discouraging. Contraction in margins does not bode well. On a year-over-year basis, the company expects gross margin to be impacted by higher costs associated with the U.S. manufacturing ramp, product line mix due to the ramp-up of Omnipod 5 and lower drug delivery revenues. Supply chain disruptions and inflationary pressures continue to challenge business operations.

Gross margin of 58.8% contracted a significant 1051 basis points. Meanwhile, selling, general & administrative expenses rose 18.6%. Research and development expenses rose 18.4% year over year.

We note that 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 factors that negatively influence the sale will dent the company’s financials majorly.



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