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Here's Why Insulet Corporation Is Plunging Today

By Brian Feroldi – Updated Nov 2, 2016 at 9:02AM

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Shares of the insulin pump maker dropped in the wake of disappointing quarterly results from two other diabetes-focused companies.

Image source: Insulet

What happened

Shares of Insulet Corporation (PODD 0.66%), a medical device maker primarily focused on diabetes, dropped by 11% as of 2:30 p.m. EDT on Wednesday.

So what

Given that we are in the middle of earnings season, you'd likely assume that the drop is being caused by the company's weak quarterly results, but that's simply not the case. The insulin pump maker isn't set to report third-quarter earnings until the market closes on Thursday.

Rather, today's plunge is likely because two other diabetes-focused medical device companies posted disappointing quarterly results. 

First, Tandem Diabetes Care -- an insulin pump manufacturer and one of Insulet's direct competitors -- reported a 22% decline in sales in the third quarter. While the company actually managed to grow its insulin pump shipments year over year, a large number of customers took advantage of its "Technology Upgrade Program," which deferred $8.4 million of sales. Investors are not taking the news well, pushing shares down more than 55% in afternoon trading.

Second, shares of Dexcom (DXCM 1.56%) are also under a lot of selling pressure today. The continuous glucose monitoring company reported strong revenue growth in the third quarter, but expenses came in much higher than the markets were expecting. To add insult to injury, it said that its full-year revenue was going to come in a bit shy of Wall Street's projections.

The market appears to be taking a "guilty by association" approach to Insulet's stock today, hence shares are dropping.

Now what

The biggest unknown for Insulet's investors heading into 2017 is how the company will be affected by Medtronic's (MDT 1.82%) recently approved "artificial pancreas." For what it's worth, Dexcom CEO Kevin Sayer believes that the media hype surrounding the approval is overselling the capabilities of the technology, saying:

We recently attended a diabetes charity event where it was declared from the podium [that] type 1 diabetes has now been cured because of the FDA-approved artificial pancreas. Clearly, this is not the case, patients and caregivers are showing signs of skepticism and frustration due to the over-hype of the promise of this technology. Our review of the currently available data suggests that although this product may be an incremental step in automated insulin delivery, it appears to be an extremely complex system and its real world performance remains to be seen." 

Unfortunately, Insulet's investors still have some waiting to do before they learn what kind of impact Medtronic's new device could have on its business. The device doesn't officially start shipping until early next year.

I'd advise Insulet's long-term investors to listen in on its conference call on Thursday afternoon to hear what management has to say about the new device and the potential impact on its business. While it is possible that Insulet's tube-free design will help to insulate it from the upcoming competition, until we know more, the smart move is to remain cautious.

Brian Feroldi owns shares of Insulet. Like this article? Follow him on Twitter where he goes by the handle @Longtermmindset or connect with him on LinkedIn to see more articles like this.

The Motley Fool owns shares of Medtronic. The Motley Fool recommends Insulet. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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