Insulet Gains Strength in Q4 That Should Last Into 2023 Thanks to Omnipod 5

Insulet PODD finished the full year with stellar results in the fourth quarter. We plan to modestly raise our fair value estimate to reflect that strength, which we anticipate will continue into 2023 as the rollout of Omnipod 5 continues. Fourth-quarter U.S. Omnipod growth of 45% drove full-year sales growth to 22% in constant currency, which substantially exceeded our estimate. On the other hand, gross margin of 62% in 2022 fell far short of the 68% we’d expected. The lower profitability in the quarter partially offset the strong top-line growth. Importantly, the robust uptake of Omnipod 5 in the United States and anticipated gross margin improvement will likely lead us to bake in more optimistic projections for 2023. Insulet’s ability to deliver a tubeless pump that offers hybrid closed-loop functionality and integration with Dexcom’s continuous glucose monitor is a substantial achievement and underscores our confidence in the firm’s narrow economic moat.

While we think rival Medtronic’s regulatory tangles that have delayed the U.S. launch of its next-generation 780G pump probably offered an opening for Insulet to more easily capture market share with Omnipod 5, we also think Insulet’s impressive performance could stand on its own even if competitive conditions weren’t so favorable. For instance, competitor Tandem Diabetes, which offers its own hybrid closed-loop pump, saw fourth-quarter U.S. pump revenue fall 6%. We believe this strong market reception to Omnipod 5 reflects the underlying patient demand for a tubeless pump, even though Insulet was last to market with an integrated hybrid closed-loop pump. We anticipate this strength should last into 2023 in the U.S., helped along by commercialization in international markets. The dip in gross margin should ease through the year as manufacturing ramps up and scrap levels fall with this new pump.