Insulet looks north of the border with GlaxoSmithKline deal

March 2, 2011 By MassDevice staff Leave a Comment

UPDATED 3/3/2011 10:20 a.m.

Insulet Corp. (NSDQ:PODD) inked a Canadian distribution deal with GlaxoSmithKline plc (NYSE:GSK) for its OmniPod insulin management system.

The deal gives the British pharma giant — stung by recent problems with its Avandia diabetes drug — exclusive rights to market and sell Bedford, Mass.-based Insulet’s OmniPod system north of the border.

GSK, which was Insulet’s first choice for Canadian distribution, brings a level of scale and frequency that the company would struggle to be able to match, Insulet CFO Brian Roberts told MassDevice.

Financial terms of the agreement were not disclosed. Independent diabetes analyst David Kliff said the earnings impact for Insulet would probably not be immediate.

Kliff, who publishes the Diabetic Investor, writes that the deal could be Glaxo’s attempt to improve its reputation in the diabetes market after the Avandia debacle. For Insulet, the deal is an expansion into a small but important market, according to Kliff.

The company focuses on Type I diabetes. In Canada, that means 200,000 to 250,000 patients, of which about 10 percent use insulin pumps, Roberts said.

It’s hard to say how much of that market Insulet can carve out for itself, but the company has taken a 7 percent share of the U.S. market about two years after completing the build-out of its national sales force, he added.

"If you put that in comparison with companies like Medtronic, which have the lion’s share, they’ve been at it for 25 years," he said.

To compete, Insulet focuses on patients who have never used an insulin pump device; about 70 to 75 percent of the company’s customers are "first-time pumpers," Roberts said.

The GSK deal is also an expansion of Insulet’s international distribution operation. In January 2010, it signed a five-year, $100 million deal with Ypsomed Holding AG (SWP:YPSN) to distribute the OmniPod in 11 countries, including China.

Insulet reported higher sales but wider losses during the fourth quarter. Annual losses, however, narrowed by 16 percent, and the company made a final, $33 million payment on its $60 million credit line with Deerfield Partners in December 2010, more than nine months ahead of schedule.

Roberts expects Insulet to be "operating cash break-even," which means they’re not covering their interest, by the beginning of 2012, and reach profitability by the end 2012 or the beginning of 2013.

The company is hoping for Food & Drug Administration 510(k) clearance for its cheaper-to-produce, next-generation OmniPod by the end of this year, which would bring a significant gross margin improvement, Roberts said. That device would cost about a third less to make, he added, noting that if the company does win FDA clearance it plans to bulk up its sales operation.

Kliff pointed out that the "key to Insulet’s future" is the lowering its cost-of-goods-sold.

The additional volume provided by the Canada deal should help in that regard, he writes, but the new product and a larger sales force can’t hurt the company’s prospects as well.

PODD shares closed the day at $17.65, up slightly less than 1 percent.

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