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Insulet Corp. Reports Operating Results (10-Q)

August 06, 2009 | About:

Insulet Corp. (PODD) filed Quarterly Report for the period ended 2009-06-30.

INSULET CORPORATION is an innovative medical device company dedicated to improving the lives of people with diabetes. The Company\'s OmniPod Insulin Management System is a revolutionary discreet and easy-to-use insulin infusion system that features two easy-to-use components with no tubing and fully-automated cannula insertion. Through the OmniPod System Insulet seeks to expand the use of continuous subcutaneous insulin infusion (CSII) therapy among people with insulin-dependent diabetes. Insulet Corp. has a market cap of $200.8 million; its shares were traded at around $7.21 with and P/S ratio of 5.5.

Highlight of Business Operations:

At June 30, 2009, of the $27.5 million of outstanding debt related to the Facility Agreement, $20.8 million is included in long-term debt in the condensed consolidated balance sheet, which reflects the net proceeds reduced by the fair value of the warrants of $6.1 million and the $1.2 million transaction fee paid to Deerfield Management Company, L.P. The $7.3 million debt discount is being recorded as interest expense over the 42 months of the loan. Approximately $1.3 million of interest expense was recorded in the three and six months ended June 30, 2009. Of the $1.3 million, approximately $0.7 million relates to cash interest and $0.6 million relates to amortization of the debt discount and deferred financing costs.

At June 30, 2009, the outstanding amounts related to the 5.375% Notes of $62.3 million are included in long-term debt in the condensed consolidated balance sheet and reflect the debt discount of $22.7 million. At December 31, 2008, the outstanding amounts related to the 5.375% Notes of $60.2 million are included in long-term debt and have been retroactively restated as required by FSP APB 14-1 to reflect the debt discount of $24.8 million. The debt discount includes the equity allocation of $25.8 million (which represents $26.9 million less the $1.1 million of allocated financing costs) offset by the accretion of the debt discount through interest expense from the issuance date in 2008 over the 5 year life of the notes. We recorded $1.1 million and $2.2 million of interest expense related to the debt discount in the three and six months ended June 30, 2009, respectively. At June 30, 2009, the 5.375% Notes have a remaining life of 4 years. The statement of operations for the 2008 periods subsequent to the debt issuance on June 15, 2008, has been retroactively restated to reflect the additional interest expense pursuant to FSP APB 14-1. We recorded $0.2 million of interest expense related to the debt discount in the three and six months ended June 30, 2008.

We received net proceeds of approximately $81.5 million from this offering. Approximately $23.2 million of the proceeds from this offering were used to repay and terminate our outstanding term loan, and we are using the remainder for general corporate purposes. On June 16, 2008, we repaid the entire outstanding principal balance, plus accrued and unpaid interest, under our existing term loan in the aggregate of approximately $21.8 million. Additionally, we paid a prepayment fee related to the term loan of approximately $0.4 million, a termination fee related to the term loan of $0.9 million, and incurred certain other expenses related to the repayment and termination of the term loan. We incurred interest expense related to the term loan of approximately $0.9 million and $1.5 million for the three and six months ended June 30, 2008, respectively. The term loan was subject to a loan origination fee of $0.9 million, which was recorded in the condensed consolidated balance sheet and was amortized as a component of interest expense over the term of the loan. The remaining balance of deferred financing costs of approximately $0.6 million was written off at the repayment and termination date. In connection with this term loan, we issued warrants to the lenders to purchase up to 247,252 shares of Series E preferred stock at a purchase price of $3.64 per share. The warrants automatically converted into warrants to purchase common stock on a 1-for-2.6267 basis at a purchase price of $9.56 per share at the closing of our initial public offering in May 2007. We recorded the $0.8 million fair value of the warrants as a discount to the term loan. Upon repayment and termination of the term loan, we recognized approximately $0.5 million as interest expense for the unamortized balance of the warrants fair value. The difference between the amount paid, including the prepayment fee, and the carrying value of the term loan, including the remaining deferred financing costs and unamortized warrants to purchase common stock, was recognized as a $1.5 million loss from early extinguishment of the term loan.

Research and development expenses decreased $0.1 million, or 3%, to $3.3 million for the three months ended June 30, 2009 compared to $3.4 million for the same period in 2008. Research and development expenses increased $0.2 million, or 3%, to $6.5 million for the six months ended June 30, 2009 compared to $6.3 million for the same period in 2008. For the three months ended June 30, 2009, the slight decrease in research and development expenses was primarily attributable to a decrease of $0.1 million in employee related expenses including stock-based compensation and a decrease of $0.1 million in clinical trial expenses, offset by an increase of $0.2 million in manufacturing product expense and an increase of $0.1 million in travel related expenses. For the six months ended June 30, 2009, the slight increase in research and development expenses was primarily attributable to an increase of $0.3 million in employee related expenses including stock-based compensation, an increase of $0.3 million in samples, tools and supplies and an increase of $0.2 million in travel related expenses offset primarily by a decrease of $0.5 million in outside services and temporary help.

General and administrative expenses increased $0.4 million, or 8%, to $5.8 million for the three months ended June 30, 2009, compared to $5.4 million for the same period in 2008. General and administrative expenses increased $2.7 million, or 26%, to $13.3 million for the six months ended June 30, 2009, compared to $10.6 million for the same period in 2008. For the three months ended June 30, 2009, the increase in general and administrative expenses was primarily due to an increase of $0.4 million in employee compensation and benefit costs, including stock-based compensation, associated with the hiring of additional employees. For the six months ended June 30, 2009, the increase in general and administrative expenses was primarily due to an increase of $0.5 million in allowances and write-offs for doubtful trade accounts receivables, $0.8 million increase in employee compensation and benefit costs, including stock-based compensation, associated with the hiring of additional employees, $0.5 million in consulting-related fees, $0.3 million in other licensing fees and $0.3 million in depreciation expense.

Sales and marketing expenses decreased $0.5 million, or 4%, to $10.5 million for the three months ended June 30, 2009, compared to $11.0 million for the same period in 2008. Sales and marketing expenses decreased $0.3 million, or 1%, to $19.3 million for the six months ended June 30, 2009, compared to $19.6 million for the same period in 2008. For the three months ended June 30, 2009, the decrease in sales and marketing expenses was primarily due to a decrease of $0.9 million in samples and Patient Demonstration Kits and a $0.2 million decrease in convention and printing fees. These decreases were offset by an increase of $0.5 million in employee compensation and benefit costs resulting from the hiring of additional employees in our sales and marketing areas throughout 2008 and higher commissions and related taxes earned in connection with higher sales volumes and $0.3 million in outside consulting services, which include our external trainers. For the six months ended June 30, 2009, the decrease in sales and marketing expenses was primarily due to a decrease of $2.2 million in samples and Patient Demonstration Kits. The decrease was offset by an increase of $1.4 million in employee compensation and benefit costs resulting from the hiring of additional employees in our sales and marketing areas throughout 2008 and higher commissions and related taxes earned in connection with higher sales volumes and $0.6 million in outside consulting services, which include our external trainers.

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