UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-33462
INSULET CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
600 Technology Park Drive, Suite 200
Billerica, Massachusetts
(Address of Principal Executive Offices)
04-3523891
(I.R.S. Employer
Identification No.)
01821
(Zip Code)
Registrant’s telephone number, including area code:
(978) 600-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.001 Par Value Per Share
Preferred Stock Purchase Rights
Name of Each Exchange on Which Registered
The NASDAQ Stock Market, LLC
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the common stock held by non-affiliates of the registrant computed by reference to the last reported sale price of the Common
Stock as reported on The NASDAQ Global Market on June 30, 2015 was approximately $1.8 billion.
The number of shares outstanding of each of the registrant’s classes of common stock as of February 25, 2016:
Title of Class
Common Stock, $0.001 Par Value Per Share
Preferred Stock Purchase Rights
Shares Outstanding
57,015,489
—
The registrant intends to file a proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2015. Portions of
such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
INSULET CORPORATION
Table Of Contents
PART I
Item 1
Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
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13
33
33
33
33
34
36
37
45
45
77
77
79
79
79
79
80
80
81
81
83
PART I
Item 1. Business
Overview
We are primarily engaged in the development, manufacturing and sale of our proprietary OmniPod Insulin
Management System (the “OmniPod System”), an innovative, discreet and easy-to-use continuous insulin delivery
system for people with insulin-dependent diabetes. The OmniPod System features a small, lightweight, self-
adhesive disposable tubeless OmniPod device which is worn on the body for approximately three days at a time
and its wireless companion, the handheld Personal Diabetes Manager (“PDM”). Conventional insulin pumps
require people with insulin-dependent diabetes to learn to use, manage and wear a number of cumbersome
components, including up to 42 inches of tubing. In contrast, the OmniPod System features only two discreet, easy-
to-use devices that eliminate the need for a bulky pump, tubing and separate blood glucose meter, provides for
virtually pain-free automated cannula insertion, communicates wirelessly and integrates a blood glucose meter. We
believe that the OmniPod System’s unique proprietary design and features allow people with insulin-dependent
diabetes to manage their diabetes with unprecedented freedom, comfort, convenience, and ease.
We began commercial sale of the OmniPod System in the United States in 2005. We sell the OmniPod
System and other diabetes management supplies in the United States through direct sales to customers or through
our distribution partners. The OmniPod System is currently available in multiple countries in Europe, Canada and
Israel. In July 2015, we executed an asset purchase agreement with GlaxoSmithKline ("GSK") whereby we
acquired assets associated with the Canadian distribution of our products and we assumed the distribution, sales,
marketing, training and support activities for the OmniPod system in Canada. Additional information regarding this
acquisition is provided in note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.
In addition to using the OmniPod® for insulin delivery, we also partner with global pharmaceutical and
biotechnology companies to tailor the OmniPod technology platform for the delivery of subcutaneous drugs across
multiple therapeutic areas.
In June 2011, we acquired Neighborhood Holdings, Inc. and its wholly-owned subsidiaries (collectively,
“Neighborhood Diabetes”). Through Neighborhood Diabetes, we provided customers with blood glucose testing
supplies, traditional insulin pumps, pump supplies and pharmaceuticals, processing claims as either durable
medical equipment or through pharmacy benefits. In February 2016, we sold Neighborhood Diabetes to Liberty
Medical LLC ("Liberty Medical"). Additional information regarding the sale of Neighborhood Diabetes is provided in
note 18 to the consolidated financial statements included under Item 8 of this Form 10-K.
Insulet Corporation is a Delaware corporation formed in 2000. Our principal offices are located at 600
Technology Park Drive, Suite 200, Billerica, Massachusetts 01821, and our telephone number is (978) 600-7000.
Our website address is http://www.insulet.com. We make available, free of charge, on or through our website, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and
any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, as soon as reasonably practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission. The information on our website is not part of this Annual
Report on Form 10-K for the year ended December 31, 2015.
Our Market
Diabetes is a chronic, life-threatening disease for which there is no known cure. Diabetes is caused by the
body’s inability to produce or effectively utilize the hormone insulin. This inability prevents the body from adequately
regulating blood glucose levels. Glucose, the primary source of energy for cells, must be maintained at certain
concentrations in the blood in order to permit optimal cell function and health. In people with diabetes, blood
glucose levels fluctuate between very high levels, a condition known as hyperglycemia, and very low levels, a
condition called hypoglycemia. Hyperglycemia can lead to serious short-term complications, such as confusion,
vomiting, dehydration and loss of consciousness and long-term complications, such as blindness, kidney disease,
nervous system disease, occlusive vascular diseases, stroke and cardiovascular disease, or death. Hypoglycemia
can lead to confusion, loss of consciousness or death.
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Diabetes is typically classified as either Type 1 or Type 2:
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Type 1 diabetes is characterized by the body’s nearly complete inability to produce insulin. It is
frequently diagnosed during childhood or adolescence. Individuals with Type 1 diabetes require daily
insulin therapy, typically administered via injections or continuous infusion through pump therapy, to
survive.
Type 2 diabetes, the more common form of diabetes, is characterized by the body’s inability to either
properly utilize insulin or produce enough insulin. Historically, Type 2 diabetes has occurred in later
adulthood, but its incidence is increasing among the younger population, due primarily to increasing
childhood obesity. Initially, many people with Type 2 diabetes attempt to manage their diabetes with
improvements in diet, exercise and/or oral medications. As their diabetes advances, some patients
progress to multiple drug therapy, which often includes insulin therapy. Guidelines, including those
published by the American Diabetes Association in 2014, suggest more aggressive treatment for people
with Type 2 diabetes, including the early adoption of insulin therapy and more frequent testing. It is now
becoming more accepted for insulin therapy to be started earlier in people with Type 2 diabetes, and, in
some cases, as part of the initial treatment.
Throughout this Annual Report on Form 10-K, we refer to both Type 1 diabetes and insulin-requiring Type 2
diabetes as insulin-dependent diabetes.
The OmniPod Delivery System is an automated drug delivery platform. In addition to using the Pod for insulin
delivery we have also partnered with multiple pharmaceutical and biotechnology companies that utilize a
customized form of the OmniPod system to deliver a drug over a specified interval of time, at a certain administered
volume.
Managing Diabetes
Diabetes Management Challenges
Diabetes is often frustrating and difficult for patients to manage. Blood glucose levels can be affected by the
carbohydrate and fat content of meals, exercise, stress, illness or impending illness, hormonal releases, variability
in insulin absorption and changes in the effects of insulin on the body. For people with insulin-dependent diabetes,
many corrections, consisting of the administration of additional insulin or ingestion of additional carbohydrates, are
needed throughout the day in order to maintain blood glucose levels within normal ranges. Achieving this result can
be very difficult without multiple daily injections of insulin or the use of continuous subcutaneous insulin infusion
(“CSII”) therapy. Patients attempting to control their blood glucose levels tightly to prevent the long-term
complications associated with fluctuations in blood glucose levels are at greater risk for overcorrection and the
resultant hypoglycemia. As a result, many patients have difficulty managing their diabetes optimally. Additionally,
the time spent in managing diabetes, the swings in blood glucose levels and the fear of hypoglycemia can all render
diabetes management overwhelming to patients and their families.
Current Insulin Therapy
People with insulin-dependent diabetes need a continuous supply of insulin, known as basal insulin, to provide
for background metabolic needs. In addition to basal insulin, people with insulin-dependent diabetes require
supplemental insulin, known as bolus insulin, to compensate for carbohydrates ingested during meals or snacks or
for a high blood glucose level.
There are three primary types of insulin therapy practiced today: conventional therapy; multiple daily injection
(“MDI”) therapy using syringes or insulin pens; and CSII therapy using insulin pumps. Both MDI and CSII therapies
are considered intensive insulin management therapies.
Many healthcare professionals believe that intensive insulin management therapies are superior to
conventional therapies in delaying the onset and reducing the severity of diabetes-related complications. As a
result, we believe that the use of intensive insulin management therapies has significantly expanded over the past
decade, and that many Type 1 patients manage their diabetes using an intensive insulin management therapy. A
significantly smaller percentage of people with insulin-requiring Type 2 diabetes manage their diabetes using an
intensive insulin management therapy.
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The OmniPod System
The OmniPod Insulin Management System is an innovative continuous insulin delivery system that provides all
the proven benefits of CSII therapy in a way no conventional insulin pump can. The System's innovative design and
features allows people with insulin-dependent diabetes to live their life, and manage their diabetes, with
unprecedented freedom, comfort, convenience, and ease.
The long-term health benefits of better blood glucose control are well known. Maintaining near-normal blood
glucose levels can help people with insulin-dependent diabetes live a longer, healthier life with fewer diabetes-
related complications. The OmniPod System also has many practical, everyday benefits, including convenience,
freedom, flexibility and ease of use.
Continuous insulin delivery at preset rates eliminates the need for injections and the interruptions that come
with them. In addition, with the OmniPod System, insulin delivery can be changed with the press of a button to
adapt to snacks or unexpected changes in daily routine.
The OmniPod System works much like the pancreas of a person without diabetes by delivering insulin in two
ways:
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A small, constant background supply of insulin (called a basal rate) is delivered automatically at a
programmed rate, all day and night.
An extra dose of insulin (called a bolus) can be delivered when a patient needs it to match the
carbohydrates in a meal or snacks or to correct high blood glucose.
The OmniPod System is a discreet two part design, the OmniPod (Pod) and the PDM, that eliminates the need
for the external tubing required with conventional pumps.
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The Pod is a small, lightweight, self-adhesive device that the patient fills with insulin and wear directly on
the body. The Pod delivers precise, personalized doses of insulin into the body through a small flexible
tube (called a cannula), based on instructions that the patient programs into the Pod's wireless companion,
the PDM.
The PDM is a wireless, handheld device that programs the Pod with the patient's personalized insulin-
delivery instructions, wirelessly monitors the Pod's operation and includes a FreeStyle® blood glucose
meter.
We have designed the OmniPod System to fit within the normal daily routines of patients. The OmniPod
System requires the fewest steps to start insulin delivery of all CSII therapies on the market by automating much of
the process. In addition, the OmniPod System consists of just two devices, as opposed to up to seven for
conventional insulin pumps. As a result, the OmniPod System is easy for patients to use, which reduces the
training burden on healthcare professionals. We believe that the OmniPod System’s overall ease of use makes it
very attractive to people with insulin-dependent diabetes. We also believe that the OmniPod System’s ease of use
and substantially lower training burden helps to redefine which diabetes patients are appropriate for CSII therapy,
enabling healthcare professionals to prescribe CSII therapy to a broader pool of patients.
The OmniPod System’s unique patented design and proprietary manufacturing process have enabled us to
provide CSII therapy at a relatively low up-front investment compared to conventional insulin pumps. We believe
that our pricing model reduces the risk of investing in CSII therapy for third-party payors and makes CSII therapy
much more accessible for people with insulin-dependent diabetes.
Research and Development
Our current research and development efforts are primarily focused on the development of mobile applications
for the OmniPod, including a Bluetooth-enabled PDM, integration with continuous glucose monitoring technology, an
artificial pancreas platform, and development to support the use of concentrated insulin for Type I and Type II
patients with higher insulin-requirements. In addition to insulin delivery, we continue to work with multiple
pharmaceutical and biotechnology companies on alternative uses for our OmniPod System technology to use our
technology as a delivery platform for a range of different pharmaceuticals.
Manufacturing and Quality Assurance
We believe a key contributing factor to the overall attractiveness of the OmniPod System is the disposable
OmniPod continuous insulin delivery device. In order to manufacture sufficient volumes and achieve a cost-
effective per unit production price for the OmniPod, we have designed the OmniPod to be manufactured through a
semi-automated process.
We are currently producing the OmniPod on varying degrees of semi-automated manufacturing lines at a
facility in China, operated by a subsidiary of Flextronics International Ltd. (“Flextronics”). We purchase OmniPods
pursuant to our agreement with Flextronics. Under the agreement, Flextronics agrees to supply us with OmniPods
at a price reflective of the forecast that we provide pursuant to the agreement. The current term of the agreement
expires in December 2017 and is subject to automatic renewal for one-year successive terms subsequently. It may
be terminated by either party upon compliance with certain advance written notice provisions that are intended to
provide the parties with sufficient time to make alternative arrangements.
We seek to increase manufacturing capacity and reduce the per-unit production cost for the OmniPod. We
continue to invest in our manufacturing capacity in order to meet our expected 2016 demand and beyond for the
OmniPod.
We rely on outside vendors for the supply of components, sub-assemblies, and various services used in the
manufacture of the OmniPod System. Although a number of these suppliers are sole-source suppliers, we continue
to focus on identifying alternate supply sources and duplicate custom tooling.
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All outside vendors produce the components to our specifications and they are audited periodically by our
Quality Assurance Department to ensure conformity with the specifications, policies and procedures for the
OmniPods. Our Quality Assurance Department also inspects and tests the OmniPods at various steps in the
manufacturing cycle to facilitate compliance with our stringent specifications. We have received approval of our
Quality Management System from the BSI Group London, U.K., an accredited Notified Body for CE Marking and the
International Standards Organization (“ISO”). Processes utilized in the manufacture, test and release of the
OmniPod have been verified and validated as required by the U.S. Federal Food and Drug Administration ("FDA")
and other regulatory bodies. As a medical device manufacturer and distributor, our manufacturing facilities and the
facilities of our suppliers and sterilizer are subject to periodic inspection by the FDA, our notified body and certain
corresponding state agencies.
Intellectual Property
We believe that to maintain a competitive advantage, we must develop and preserve the proprietary aspect of
our technologies. We rely on a combination of copyright, patent, trademark, trade secret and other intellectual
property laws, non-disclosure agreements and other measures to protect our proprietary rights. Currently, we
require our employees, consultants and advisors to execute non-disclosure agreements in connection with their
employment, consulting or advisory relationships with us, where appropriate. We also require our employees,
consultants and advisors who we expect to work on our current or future products to agree to disclose and assign to
us all inventions conceived during their work with us that are developed using our property or which relate to our
business. Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to
copy aspects of the OmniPod System or to obtain and use information that we regard as proprietary.
Patents. As of December 31, 2015, we had obtained 15 issued United States patents, and had 10 additional
pending United States patent applications. We believe it will take up to four years, and possibly longer, for the most
recent of these U.S. patent applications to result in issued patents. We are also seeking patent protection for our
proprietary technology in other countries and regions throughout the world. The issued patents and pending patent
applications cover, among other things:
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the basic architecture of the OmniPod System, including the pump and the PDM;
the OmniPod shape memory alloy drive system;
the OmniPod System cannula insertion system;
communication features between system components;
software for controlling the OmniPod System; and
various novel aspects of the OmniPod System and potential future generations of OmniPod Systems.
Trademarks. We have registered various trademarks associated with our business, including INSULET,
OMNIPOD and the OMNIPOD design with the United States Patent and Trademark Office on the Principal Register
and in other appropriate jurisdictions.
Markets and Distribution Methods
We sell our OmniPod System through a combination of direct sales representatives and independent
distributors in both the United States and outside of the United States. Independent distributors can represent as
much as 40% of our total sales in the United States. We have been distributing the OmniPod System in certain
countries in Europe, through Ypsomed Distribution AG ("Ypsomed"), since 2010. In Canada, we had historically
sold our product through an independent distributor, however we acquired that business in July 2015.
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For the year ending December 31, 2015 the percentage of our total consolidated revenue from direct sales
and independent distributors was as follows:
Comprehensive approach across three interrelated constituencies. Our sales and marketing effort for the
OmniPod System is focused on patient retention and growing patient, clinician and payor demand for the OmniPod
System. We have a uniform sales and marketing approach, aligned across patients, physicians and providers, to
capitalize on the unique benefits of our OmniPod technology. We have three areas of focus:
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First, build patient awareness about the features and benefits that the OmniPod System provides.
Second, build physician support by increasing the clinical evidence that clearly demonstrates the benefits
that the OmniPod System provides.
Third, provide payors with the clinical and economic justification of why the OmniPod System is a greater
benefit for the patients whom they insure.
Training. We believe that patient training is critical to ensure successful outcomes and retain patients on the
OmniPod System. We have streamlined our new patient training by developing improved online resources, a
standardized approach as well as increasing our field clinician team to directly train our new patients.
Customer Support. We seek to provide our customers with high quality customer support, from product
ordering to insurance investigation, order fulfillment and ongoing support. We have integrated our customer support
systems with our sales, reimbursement and billing processes and also offer support by telephone and through our
website to provide customers with seamless and reliable customer support.
Competition
The medical device industry is intensely competitive, subject to rapid change and significantly affected by new
product introductions and other market activities of industry participants. The majority of our patients have
previously undertaken MDI therapy, which is substantially less expensive than CSII therapy. The OmniPod System
competes with a number of existing insulin delivery devices as well as other methods for the treatment of diabetes.
Medtronic MiniMed, a division of Medtronic has historically held the majority share of the conventional insulin pump
market in the United States. Other significant competitors in the United States are Animas Corporation, a division of
Johnson & Johnson, and Tandem Diabetes Care, Inc. We also compete with drug delivery device companies such
as West Pharmaceuticals.
Several of our competitors are large, well-capitalized companies with significantly more market share and
resources than we have. They are able to spend aggressively on product development, marketing, sales and other
product initiatives. Some of these competitors have:
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significantly greater name recognition;
established relations with healthcare professionals, customers and third-party payors;
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larger and more established sales forces and distribution networks;
greater experience in conducting research and development, manufacturing, clinical trials, marketing
and obtaining regulatory approval for products; and
greater financial and human resources for product development, sales and marketing and patent
litigation.
In addition to the established insulin pump competitors, several companies are working to develop and market
new insulin “patch” pumps and other methods for the treatment of diabetes, such as inhaled insulin. These
companies are at various stages of development. The companies working in this area of which we are aware
include Medtronic, Johnson & Johnson, Valeritas Inc., Cellnovo Limited, VinCentra, Debiotech S.A., Becton
Dickinson and Co., Enable Injections, Sensile Medical and Unilife.
Government Regulation
Domestic Regulation. The OmniPod System is a medical device subject to extensive and ongoing regulation
by the FDA and other federal, state, and local regulatory bodies. FDA regulations govern, among other things,
product design and development, pre-clinical and clinical testing, manufacturing, labeling, post-market adverse
event reporting, post-market surveillance, complaint handling, repair or recall of products, product storage, record
keeping, pre-market clearance or approval, advertising and promotion, and sales and distribution.
FDA’s Pre-Market Notification (510(k)) and Pre-Market Approval Requirements. Unless an exemption
applies, each medical device we seek to commercially distribute in the United States will require either prior 510(k)
clearance or pre-market approval (“PMA”) from the FDA. The FDA classifies medical devices into one of three
classes. Devices deemed to pose low to moderate risk are placed in either class I or II, which, absent an
exemption, requires the manufacturer to submit to the FDA a premarket notification requesting permission for
commercial distribution. This process is known as 510(k) clearance. Some low risk devices are exempt from this
requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or
implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are
placed in class III, requiring approval of a PMA application. We have obtained 510(k) clearance for the OmniPod
System. Both the 510(k) clearance and PMA processes can be expensive and lengthy and entail significant user
fees, unless an exemption is available.
In order to obtain pre-market approval and, in some cases, a 510(k) clearance, a product sponsor must
conduct well-controlled clinical trials designed to test the safety and effectiveness of the product. Conducting
clinical trials generally entails a long, costly and uncertain process that is subject to delays and failure at any stage.
The data obtained from clinical trials may be inadequate to support approval or clearance of a submission. In
addition, the occurrence of unexpected findings in connection with clinical trials may prevent or delay obtaining
approval or clearance. If we conduct clinical trials, they may be delayed or halted, or be inadequate to support
approval or clearance.
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510(k) Clearance. To obtain 510(k) clearance for any of our potential future devices (or for certain
modifications to devices that have previously received 510(k) clearance), we must submit a pre-market
notification demonstrating that the proposed device is substantially equivalent to a previously cleared
510(k) device or a pre-amendment device that was in commercial distribution before May 28, 1976 for
which the FDA has not yet called for the submission of a PMA application. The FDA’s 510(k) clearance
pathway generally takes from three to twelve months from the date the application is completed, but can
take significantly longer. After a medical device receives 510(k) clearance, any modification that could
significantly affect its safety or effectiveness, or that would constitute a significant change in its intended
use, requires a new 510(k) clearance or, depending on the modification, could require a PMA
application. The FDA requires each manufacturer to make this determination initially, but the FDA can
review any such decision and can disagree with a manufacturer’s determination. As further described
below, as part of an inspection conducted by the FDA in December of 2015, we agreed to submit a 510
(k) for modifications previously made to the OmniPod System. In addition, we also agreed to submit a
510(k) associated with the field action described below that we initiated in October 2015.
If the FDA disagrees with a manufacturer’s determination regarding whether a new premarket
submission is required for the modification of an existing device, the FDA can, at its discretion, require
the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval
of a PMA application is obtained. In addition, in these circumstances, we may be subject to significant
regulatory fines or penalties for failure to submit the requisite PMA application(s).
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PMA. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or
implantable devices, devices deemed not substantially equivalent to a previously cleared 510(k) device
or devices in commercial distribution before May 28, 1976 for which PMAs have not been required,
generally require a PMA before they can be commercially distributed. A PMA application must be
supported by extensive data, including technical information, pre-clinical and clinical trials, manufacturing
and labeling to demonstrate the safety and effectiveness of the device to the FDA’s satisfaction. After a
PMA application is complete, the FDA begins an in-depth review of the submitted information, which
generally takes between one and three years, but may take significantly longer. During this review
period, the FDA may request additional information or clarification of information already provided. Also
during the review period, an advisory panel of experts from outside the FDA may be convened to review
and evaluate the application and provide recommendations to the FDA as to the approvability of the
device. In addition, the FDA will conduct a pre-approval inspection of the manufacturing facility to
ensure compliance with Quality System Regulations, or QSRs, which impose elaborate design
development, testing, control, documentation and other quality assurance procedures in the design and
manufacturing process. The FDA may approve a PMA application with post-approval conditions
intended to ensure the safety and effectiveness of the device including, among other things, restrictions
on labeling, promotion, sale and distribution and collection of long-term follow-up data from patients in
the clinical study that supported approval. Failure to comply with the conditions of approval can result in
materially adverse enforcement action, including the loss or withdrawal of the approval. After any pre-
market approval, a new pre-market approval application or application supplement may be required in
the event of modifications to the device, its labeling, intended use or indication or its manufacturing
process. PMA supplements often require submission of the same type of information as a PMA
application, except that the supplement is limited to information needed to support any changes from the
device covered by the original PMA application, and may not require as extensive clinical data or the
convening of an advisory panel.
Ongoing Regulation by FDA. Even after a device is placed on the market, regardless of its classification or
premarket pathway, numerous regulatory requirements apply. These include, but are not limited to:
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establishment registration and device listing;
quality system regulation, or QSR, which requires manufacturers, including third party manufacturers, to
follow stringent design, testing, control, documentation and other quality assurance procedures during all
aspects of the manufacturing process;
labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved
or “off-label” uses, and other requirements related to promotional activities;
medical device reporting regulations, which require that manufacturers report to the FDA if their device
may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely
cause or contribute to a death or serious injury if the malfunction were to recur;
corrections and removals reporting regulations, which require that manufacturers report to the FDA field
corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device
or to remedy a violation of the Federal Food, Drug and Cosmetic Act that may present a risk to health.
In addition, FDA may order a mandatory recall if there is a reasonable probability that the device would
cause serious adverse health consequences or death; and
post-market surveillance regulations, which apply when necessary to protect the public health or to
provide additional safety and effectiveness data for the device.
With respect to corrections and removals, in July 2015 we implemented a field removal of certain lots due to
the possibility that some OmniPod Systems had a higher rate of failure than its current manufacturing standards. In
September 2015, as part of our product quality monitoring process, we identified that certain lots of the OmniPod®
had a slight increase (1% - 2%) in the reported cases in which the Pod’s cannula failed to deploy. On October 29,
2015, we implemented a field correction to advise patients of the possibility of a needle deployment failure and
provided recommendations on how to manage such an event. Both field actions were initiated with the knowledge
of the FDA and were reported to the agency in accordance with the requirements of 21 C.F.R. Part 806.
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Failure to comply with applicable regulatory requirements can result in enforcement actions by the FDA and
other regulatory agencies, which may include any of the following sanctions: untitled letters or warning letters, fines,
injunctions, consent decrees, civil or criminal penalties, recall or seizure of our current or future products, operating
restrictions, partial suspension or total shutdown of production, refusal of or delay in granting 510(k) clearance or
PMA approval of new products or modified products, rescinding previously granted 510(k) clearances or
withdrawing previously granted PMA approvals, or refusal to grant export approval of our products.
We are subject to announced and unannounced inspections by the FDA, and these inspections may include
the manufacturing facilities of our subcontractors. If, as a result of these inspections, the FDA determines that our
equipment, facilities, laboratories or processes do not comply with applicable FDA regulations and conditions of
product approval, the FDA may seek civil, criminal or administrative sanctions and/or remedies against us, including
the suspension of our manufacturing operations. Since approval of the OmniPod System, we have been subject to
FDA inspections of our facility on multiple occasions. Our facility located at 600 Technology Park Drive, Suite 200,
Billerica, MA 01821 was inspected by the FDA between March 11, 2015 and March 27, 2015, which resulted in four
inspectional observations (FDA Form 483) and a subsequent Warning Letter dated June 5, 2015. We have
completed all of the commitments from the Form 483 and Warning Letter responses, but have not yet received
notification that the FDA has closed the Warning Letter. More recently, our facility located in Billerica, MA was re-
inspected by the FDA between November 30, 2015 and December 11, 2015. This inspection also resulted in four
inspectional observations (FDA Form 483). We responded to the most recent inspectional observations on
December 31, 2015.
International Regulation. International sales of medical devices are subject to foreign government
regulations, which may vary substantially from country to country. The time required to obtain approval by a foreign
country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differ.
There is a trend towards harmonization of quality system standards among the European Union, United States,
Canada and various other industrialized countries. In April 2009, we received CE Mark approval for the original
OmniPod System, and in August 2011, we received CE Mark approval for our OmniPod product. The CE Mark
gives us authorization to distribute the OmniPod System throughout the European Union and in other countries that
recognize the CE Mark. In September 2009, we received Health Canada approval to distribute the original
OmniPod System throughout Canada, and in March 2013, we received Health Canada approval for our new
OmniPod product. We have been distributing the OmniPod System in certain countries in Europe, through
Ypsomed, since 2010. In Canada, we had historically sold our product through a distributor, however as a result of
our acquisition in July 2015, we now sell the OmniPod System direct.
Licensure. Several states require that durable medical equipment (“DME”) providers be licensed in order to
sell products to patients in that state. Certain of these states require, among other things, that DME providers
maintain an in-state location. Although we believe we are in compliance with all applicable state regulations
regarding licensure requirements, if we were found to be noncompliant, we could lose our licensure in that state,
which could prohibit us from selling our current or future products directly to patients in that state.
In addition, we are subject to certain state laws regarding professional licensure. We believe that our certified
diabetes educators are in compliance with all such state laws. However, if our educators or we were to be found
non-compliant in a given state, we may need to modify our approach to providing education, clinical support and
customer service.
Federal Anti-Kickback and Self-Referral Laws. The Federal Anti-Kickback Statute prohibits the knowing and
willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce the:
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referral of a person;
furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or
other governmental programs; or
purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or
ordering of any item or service reimbursable under Medicare, Medicaid or other governmental programs.
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We provide the initial training to patients necessary for appropriate use of the OmniPod System either through
our own diabetes educators or by contracting with outside diabetes educators that have completed a Certified Pod
Trainer training course. Outside diabetes educators are reimbursed for their services at contracted rates deemed to
be consistent with the market. Although we believe that these arrangements do not violate the law, regulatory
authorities may determine otherwise, especially as enforcement of this law historically has been a high priority for
the federal government. In addition, because we may provide some coding and billing information to purchasers of
the OmniPod System, and because we cannot assure that the government will regard any billing errors that may be
made as inadvertent, the federal anti-kickback legislation may apply to us. Noncompliance with the federal anti-
kickback legislation can result in exclusion from Medicare, Medicaid or other governmental programs, restrictions on
operating in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect
on our business and results of operations.
Federal law also includes a provision commonly known as the “Stark Law,” which prohibits a physician from
referring Medicare or Medicaid patients to an entity providing “designated health services,” including a company that
furnishes durable medical equipment, in which the physician has an ownership or investment interest or with which
the physician has entered into a compensation arrangement. Violation of the Stark Law could result in denial of
payment, disgorgement of reimbursements received under a noncompliant arrangement, civil penalties, and
exclusion from Medicare, Medicaid or other governmental programs. Although we believe that we have structured
our provider arrangements to comply with current Stark Law requirements, these arrangements may not expressly
meet the requirements for applicable exceptions from the law.
Additionally, as some of these laws are still evolving, we lack definitive guidance as to the application of certain
key aspects of these laws as they relate to our arrangements with providers with respect to patient training. We
cannot predict the final form that these regulations will take or the effect that the final regulations will have on us. As
a result, our provider and training arrangements may ultimately be found not to be in compliance with applicable
federal law.
Federal False Claims Act. The Federal False Claims Act provides, in part, that the federal government may
bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false or
fraudulent request for payment from the federal government, or who has made a false statement or used a false
record to get a claim approved. In addition, amendments in 1986 to the Federal False Claims Act have made it
easier for private parties to bring “qui tam” whistleblower lawsuits against companies under the Federal False
Claims Act. Penalties include fines ranging from $5,500 to $11,000 for each false claim, plus three times the
amount of damages that the federal government sustained because of the act of that person. In any event, we
believe that we are in compliance with the federal government’s laws and regulations concerning the filing of
reimbursement claims.
Civil Monetary Penalties Law. The Federal Civil Monetary Penalties Law prohibits the offering or transferring
of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence
the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services.
Noncompliance can result in civil money penalties of up to $10,000 for each wrongful act, assessment of three
times the amount claimed for each item or service and exclusion from the federal healthcare programs. We believe
that our arrangements comply with the requirements of the Federal Civil Monetary Penalties Law.
State Fraud and Abuse Provisions. Many states have also adopted some form of anti-kickback and anti-
referral laws and a false claims act. We believe that we are in conformance with such laws. Nevertheless, a
determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate
in these jurisdictions.
Administrative Simplification of the Health Insurance Portability and Accountability Act of 1996. The Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”) mandated the adoption of standards for the exchange
of electronic health information in an effort to encourage overall administrative simplification and enhance the
effectiveness and efficiency of the healthcare industry. Ensuring privacy and security of patient information is one of
the key factors driving the legislation. We believe we are in substantial compliance with the applicable HIPAA
regulations.
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Patient Protection and Affordable Care Act. The Patient Protection and Affordable Care Act (“ACA”) enacted
significant changes to the provision of and payment for healthcare in the United States. Under the ACA and related
laws and regulations, federal and state government initiatives are focused on limiting the growth of healthcare costs
and implementing changes to healthcare delivery structures. These reforms are intended in part to put increased
emphasis on the delivery to patients of more cost-effective therapies. While uncertainty exists regarding some
aspects of the ACA, we expect that the ACA will continue to have a significant impact on the delivery of healthcare
in the United States and on our business.
Physician Payments Sunshine Act. The Physician Payments Sunshine Act (“Sunshine Act”) seeks to
increase the transparency of relationships between medical device, pharmaceutical and other companies and
healthcare professionals (“HCPs”). Under the Sunshine Act, we are required to track and publicly report many
types of payments made and items of value provided to HCPs. Moreover, several states have imposed similar or
more restrictive requirements. In addition, we have adopted policies and codes of conduct regarding our
interactions with HCPs. Our failure to adhere to these requirements could materially adversely impact our business
and financial results.
Third-Party Reimbursement
In the United States, our products are generally reimbursed by third-party payors, and we bill those payors for
products provided to patients. Our fulfillment and reimbursement systems are fully integrated such that product is
generally shipped only after confirmation of a physician’s valid statement of medical necessity and current health
insurance information. We maintain an insurance benefits investigation department that works to simplify and
expedite claims processing and to assist patients in obtaining third-party reimbursement.
We continue to work with third-party payors in the United States to establish coverage and payment for the
OmniPod System and other diabetes management supplies. Our coverage contracts with third-party payors
typically have a term of between one and three years and set coverage amounts during that term. Typically,
coverage contracts automatically renew for specified incremental periods upon expiration, unless one of the parties
terminates the contract.
Third-party payors may decline to reimburse for procedures, supplies or services determined not to be
“medically necessary” or “reasonable.” In a limited number of cases, some third-party payors have declined to
reimburse us for a particular patient because such patient failed to meet its criteria, most often because the patient
already received reimbursement for an insulin pump from that payor within the warranty period, which is generally
four years, or because the patient did not meet their medical criteria for an insulin infusion device. Common
medical criteria for third-party payors approving reimbursement for CSII therapy include a patient having elevated
A1c levels, a history of recurring hypoglycemia, fluctuations in blood glucose levels prior to meals or upon waking
or, severe glycemic variability.
As part of our international distribution agreements, our distribution partners establish appropriate
reimbursement contracts with third-party payors in countries and provinces in which they distribute the OmniPod
System prior to distributing the OmniPod System in each territory.
Currently, there is not an established mechanism for Medicare coverage for the majority of the OmniPod
System. However, we are continuing a dialogue with Centers for Medicare & Medicaid Services ("CMS") about
Medicare coverage for the OmniPod System.
Employees
As of December 31, 2015, we had 647 full-time employees. None of our employees are represented by a
collective bargaining agreement, and we have never experienced any work stoppage. We believe that our
employee relations are good.
Item 1A. Risk Factors
This Annual Report on Form 10-K contains forward-looking statements. Forward-looking statements relate to
future events or our future financial performance.
We generally identify forward looking statements by terminology such as “may,” “will,” “should,” “expects,”
“plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,”
“potential” or “continue” or the negative of these terms or other similar words. These statements are only
predictions. We have based these forward-looking statements largely on our current expectations and projections
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about future events and financial trends that we believe may affect our business, results of operations and financial
condition.
The outcomes of the events described in these forward-looking statements are subject to risks, uncertainties
and other factors described in this Item 1A Risk Factors and elsewhere in this Annual Report on Form 10-K.
Accordingly, you should not rely upon forward-looking statements as predictions of future events. We cannot
assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur,
and actual results could differ materially from those projected in the forward-looking statements. The forward-
looking statements made in this Annual Report on Form 10-K relate only to events as of the date of this report. We
undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date
on which the statement is made or to reflect the occurrence of unanticipated events.
Risks Relating to Our Business
We have incurred significant operating losses since inception and cannot assure you that we will
achieve profitability.
Since our inception in 2000, we have incurred significant operating losses. We began commercial sales of the
OmniPod System in 2005. For the year ended December 31, 2015, our operating loss was $60.8 million. Our net
losses for the years ended December 31, 2015, 2014 and 2013 were $73.5 million, $51.5 million and $45.0 million,
respectively. The extent of our future operating losses and the timing of profitability are highly uncertain, and we
may never achieve or sustain profitability. As of December 31, 2015, we had an accumulated deficit of $651.5
million.
We may experience significant fluctuations in our quarterly results of operations.
The fluctuations in our quarterly results of operations have resulted, and may continue to result, from
numerous factors, including:
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delays in shipping due to capacity constraints;
practices of health insurance companies and other third-party payors with respect to reimbursement for
our current or future products;
market acceptance of the OmniPod System;
our ability to manufacture the OmniPod efficiently;
timing of regulatory approvals and clearances;
new product introductions;
competition; and
timing of research and development expenditures.
These factors, some of which are not within our control, may cause the price of our stock to fluctuate
substantially. In particular, if our quarterly results of operations fail to meet or exceed the expectations of securities
analysts or investors, our stock price could drop suddenly and significantly. We believe the quarterly comparisons of
our financial results are not necessarily meaningful and should not be the only indication of our future performance.
We currently rely on sales of the OmniPod System to generate most of our revenue. The failure of the
OmniPod System to achieve and maintain significant market acceptance or any factors that negatively
impact sales of this product will adversely affect our business, financial condition and results of
operations.
Our main product is the OmniPod System, which we introduced to the market in 2005. We expect to continue
to derive a significant portion of our revenue from the sale of this product. Accordingly, our ability to generate
revenue is highly reliant on our ability to market and sell the devices that comprise the OmniPod System. Our sales
of the OmniPod System may be negatively impacted by many factors, including:
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the failure of the OmniPod System to achieve and maintain wide acceptance among opinion leaders in
the diabetes treatment community, insulin-prescribing physicians, third-party payors and people with
insulin-dependent diabetes;
manufacturing problems;
actual or perceived quality problems;
changes in reimbursement rates or policies relating to the OmniPod System by third-party payors;
claims that any portion of the OmniPod System infringes on patent rights or other intellectual property
rights owned by other parties;
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adverse regulatory or legal actions relating to the OmniPod System;
damage, destruction or loss of any of the facilities where our products are manufactured or of the
equipment therein;
conversion rate of patient referrals to actual sales of the OmniPod System;
write-offs of receivables from our customers;
attrition rates of customers who cease using the OmniPod System;
competitive pricing and related factors; and
results of clinical studies relating to the OmniPod System or our competitors’ products.
If any of these events occurs, our ability to generate revenue could be significantly reduced.
Our ability to achieve profitability from a current net loss level will depend on our ability to sustain or
reduce the per unit cost of producing the OmniPod by increasing customer orders, increasing
manufacturing volume and productivity and reducing raw material and overhead costs per OmniPod.
Currently, the gross profit from the sale of the OmniPod System is not sufficient to cover our operating
expenses. To achieve profitability, we need to, among other things, sustain or reduce the per unit cost of the
OmniPod. If we are unable to sustain or reduce raw material and manufacturing overhead costs through volume
purchase discounts, negotiation of improved pricing and increased productivity and production capacity, our ability
to achieve profitability will be severely constrained. Any increase in manufacturing volumes must be supported by
an associated increase in customer orders. Each OmniPod contains limited amounts of precious metals, the costs
of which have fluctuated over the recent past. The occurrence of one or more factors that negatively impact the
manufacturing or sales of the OmniPod System or increase our raw material costs may prevent us from achieving
our desired increase in manufacturing volume, which would prevent us from attaining profitability.
Adverse changes in general economic conditions in the United States and globally could adversely
affect us.
We are subject to the risks arising from adverse changes in general economic market conditions. While the
U.S. economy appears to be improving at a moderate pace, the worldwide economy remains sluggish. Further
deterioration of economic conditions, such as a U.S. or global recession, could negatively impact our current and
prospective customers, adversely affect the financial ability of health insurers to pay claims, adversely impact our
expenses and ability to obtain financing of our operations, cause delays or other problems with key suppliers and
increase the risk of counterparty failures.
Healthcare spending in the United States could be negatively affected in the event of a downturn in the U.S.
economic conditions. For example, patients who have lost their jobs or healthcare coverage may no longer be
covered by an employer-sponsored health insurance plan and patients reducing their overall spending may
eliminate purchases requiring co-payments. Since the sale of the OmniPod System to a new patient is generally
dependent on the availability of third-party reimbursement and normally requires the patient to make a significant
co-payment, an economic downturn on our potential customers could reduce the referrals generated by our sales
force and thereby reduce our customer orders. Similarly, existing customers could cease purchasing the OmniPod
System and return to MDI or other less-costly therapies, which would cause our attrition rate to increase. Any
decline in new customer orders or increase in our customer attrition rate would reduce our revenue, which in turn
would make it more difficult to achieve our per-unit cost-savings goals, which we are attempting to attain in part
through increases in our manufacturing volume.
Healthcare reform laws could adversely affect our revenue and financial condition.
During the past several years, the U.S. healthcare industry has been subject to an increase in governmental
regulation at both the federal and state levels. Efforts to control healthcare costs, including limiting access to care,
alternative delivery models and changes in the methods used to determine reimbursement scenarios and rates, are
on-going at the federal and state government levels. There are new provisions of law that provide for the creation
of a new public-private Patient-Centered Outcomes Research Institute tasked with identifying comparative
effectiveness research priorities. For example, establishing a research project agenda and contracting with entities
to conduct the research in accordance with the agenda. Research findings published by this institute are publicly
disseminated. It is difficult at this time to determine, whether a comparative effectiveness analysis impacting our
business will be done, and assuming one is, what impact that analysis will have on the OmniPod System or our
future financial results.
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Beginning in 2013, sales of certain medical devices became subject to a 2.3% federal excise tax. We believe,
based on advice from our tax advisor, that the sales of our products are exempt from this excise tax. However, if it
is subsequently determined that sales of one or more of our products are subject to this excise tax, these tax
obligations could materially adversely affect our financial results, although that would not occur until 2018 because
of recent federal legislation that suspended the tax for two years.
In addition, the Affordable Care Act and related healthcare reform laws, regulations and initiatives have
significantly increased regulation of managed care plans and decreased reimbursement to Medicare managed care.
Some of these initiatives purport to, among other things, require that health plan members have greater access to
drugs not included on a plan’s formulary. Moreover, to alleviate budget shortfalls, states have reduced or frozen
payments to Medicaid managed care plans. We cannot accurately predict the complete impact of these healthcare
reform initiatives, but they could lead to a decreased demand for our products and other outcomes that could
adversely impact our business and financial results.
There may in the future be additional changes in government policy, including additional modifications to the
healthcare laws, which could increase our cost of doing business and negatively impact our ability to sell our
products and achieve profitability.
We may need to raise additional funds in the future, and these funds may not be available on acceptable
terms or at all.
Our capital requirements will depend on many factors, including:
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revenue generated by sales of our current products and any other future products that we may develop;
costs associated with adding further manufacturing capacity;
costs associated with expanding our sales and marketing efforts in the United States and internationally;
expenses we incur in manufacturing and selling the OmniPod System;
costs of developing new products or technologies and enhancements to the OmniPod System;
the cost of obtaining and maintaining FDA approval or clearance of our current or future products;
costs associated with any expansion;
the cost of complying with regulatory requirements;
costs associated with capital expenditures;
costs associated with litigation; and
the number and timing of any acquisitions or other strategic transactions.
We believe that our current cash and cash equivalents, together with the cash to be generated from expected
product sales, will be sufficient to meet our projected operating requirements through at least the end of 2016.
We may in the future seek additional funds from public and private stock offerings, borrowings under credit
lines or other sources. In June 2014 we issued $201.3 million of 2% Convertible Senior Notes which will mature in
2019 and we may need to raise additional debt or equity financing to repay these Notes. If we issue equity or debt
securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt
securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we
raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to
relinquish valuable rights to our potential future products or proprietary technologies, or grant licenses on terms that
are not favorable to us.
Our ability to raise additional capital may be adversely impacted by current economic conditions, including the
effects of any disruptions to the credit and financial markets in the United States and worldwide. As a result of
these and other factors, we do not know whether additional capital will be available when needed, or that, if
available, we will be able to obtain additional capital on terms favorable to us or our stockholders.
If we are unable to raise additional capital due to these or other factors, we may need to further manage our
operational expenses to reflect these external factors, including potentially curtailing our planned development
activities. If we cannot raise additional funds in the future on acceptable terms, we may not be able to develop new
products, execute our business plan, take advantage of future opportunities or respond to competitive pressures or
unanticipated customer requirements. If any of these events occur, it could adversely affect our business, financial
condition and results of operations.
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We are dependent upon third-party suppliers, making us vulnerable to supply problems and price
fluctuations.
We rely on a number of suppliers who manufacture the components of the OmniPods and PDMs. For
example, we rely on Phillips Medisize Corporation to manufacture and supply several injection molded components
of the OmniPod and Freescale Semiconductor, Inc. to manufacture and supply the application specific integrated
circuit that is incorporated into the OmniPod. In addition, a subsidiary of Flextronics in China provides the supply of
complete OmniPods. We do not have long-term supply agreements with most of our suppliers, and, in many cases,
we make our purchases on a purchase order basis. In some other cases, where we do have agreements in place,
our agreements with suppliers can be terminated by either party upon short notice. Additionally, our suppliers may
encounter problems during manufacturing for a variety of reasons, including failure to follow specific protocols and
procedures, failure to comply with applicable regulations, equipment malfunction, component part supply
constraints and environmental factors, any of which could delay or impede their ability to meet our demand. Our
reliance on these third-party suppliers also subjects us to other risks that could harm our business, including:
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we are not a major customer of many of our suppliers, and these suppliers may therefore give other
customers’ needs higher priority than ours;
we may not be able to obtain an adequate supply in a timely manner or on commercially reasonable
terms;
our suppliers, especially new suppliers, may make errors in manufacturing that could negatively affect
the efficacy or safety of the OmniPod System or cause delays in shipment;
we may have difficulty locating and qualifying alternative suppliers for our sole-source supplies;
switching components may require product redesign and submission to the FDA of a new 510(k);
our suppliers manufacture products for a range of customers, and fluctuations in demand for the
products these suppliers manufacture for others may affect their ability to deliver products to us in a
timely manner;
the occurrence of a fire, natural disaster or other catastrophe, impacting one or more of our suppliers,
may affect their ability to deliver products to us in a timely manner; and
our suppliers may encounter financial hardships unrelated to our demand, which could inhibit their ability
to fulfill our orders and meet our requirements.
We may not be able to quickly establish additional or alternative suppliers, particularly for our sole-source
suppliers, in part because of the FDA approval process and because of the custom nature of various parts we
require. Any interruption or delay in obtaining products from our third-party suppliers, or our inability to obtain
products from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the
demand of our customers and cause them to cancel orders or switch to competing products.
Establishment of a competitive bid program by CMS for conventional insulin pumps could negatively
affect our operating results.
CMS has established through 2016 a pilot competitive bidding program in limited areas that includes
conventional insulin pumps. Since the OmniPod System is not currently covered or reimbursed by Medicare, we
are not directly affected by this pilot program. However, in the event this pilot program is geographically expanded,
is extended beyond 2016, and results in a reduction in the amount reimbursed by CMS for conventional insulin
pumps, then this may negatively impact our ability to negotiate future pricing with private payors comparing the
price of the OmniPod System to conventional insulin pumps.
If we are required to pay sales tax on sales of certain products, our results of operations could be
adversely affected.
We believe that sales of most diabetes supplies are exempt from sales tax in most jurisdictions. However, if it
is subsequently determined that sales of one or more of our products are subject to sales tax in such jurisdictions,
our obligation to pay such sales taxes could materially adversely affect our financial results.
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Our financial condition or results of operations may be adversely affected by international business
risks.
Ypsomed is our exclusive distributor of the OmniPod System through 2018 in multiple countries including
Germany, the United Kingdom, the Netherlands, Switzerland, Austria, Italy, Norway, and Sweden. Our agreement
with Ypsomed also covers France, China, and a number of other countries. Ypsomed’s introduction of the OmniPod
System in certain countries has been delayed due to a number of factors. Future delays would likely result in
reduced purchases by Ypsomed, which could adversely affect our revenue. In addition to the OmniPod System,
Ypsomed also markets and sells a suite of other products for the treatment of diabetes and has announced its
intention to introduce and sell its own branded conventional insulin pump. Ypsomed could have a greater financial
incentive to sell its proprietary products rather than the OmniPod System. We also sell the OmniPod System in
Canada. As a result of our international sales, we are exposed to fluctuations in product demand and sales
productivity outside the United States, which may be partially attributed to foreign exchange rate changes, and have
to manage the risks associated with market acceptance of the OmniPod System in foreign countries. Our efforts to
introduce our current or future products into foreign markets may not be successful, in which case we may have
expended significant resources without realizing the expected benefit. Ultimately, the investment required for
expansion into foreign markets could exceed the results of operations generated from this expansion. We do not
have control over Ypsomed’s operational and financial condition, and we are subject to foreign regulatory and
export requirements.
In addition, in order to reduce our cost of goods sold and increase our production capacity, we increasingly
rely on third-party suppliers located outside the United States. For example, currently all of our OmniPods are
manufactured at a facility in China operated by Flextronics. As a result, our business is subject to risks associated
with doing business internationally, including:
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political instability and adverse economic conditions;
trade protection measures, such as tariff increases, and import and export licensing and control
requirements;
potentially negative consequences from changes in tax laws;
difficulty in staffing and managing widespread operations;
difficulties associated with foreign legal systems including increased costs associated with enforcing
contractual obligations in foreign jurisdictions;
changes in foreign currency exchange rates;
differing protection of intellectual property;
unexpected changes in regulatory requirements;
failure to fulfill foreign regulatory requirements on a timely basis or at all to market the OmniPod System
or other future products;
availability of, and changes in, reimbursement within prevailing foreign health care payment systems;
adapting to the differing laws and regulations, business and clinical practices, and patient preferences
in foreign markets;
difficulties in managing foreign relationships and operations, including any relationships that we
establish with foreign partners, distributors or sales or marketing agents; and
difficulty in collecting accounts receivable and longer collection periods.
In addition, expansion into foreign markets imposes additional burdens on our executive and administrative
personnel, research and sales departments and general management resources. Our future success will depend in
large part on our ability to anticipate and effectively manage these and other risks associated with doing business
outside of the United States. Any of these factors may have a material adverse effect on our production capacity
and, consequently, our business, financial condition and results of operations.
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Failure to secure or retain adequate coverage or reimbursement for our products by third-party payors
could adversely affect our business, financial condition and results of operations.
We expect that sales of the OmniPod System will be limited unless a substantial portion of the sales price of
the OmniPod System is paid for by third-party payors, including private insurance companies, health maintenance
organizations, preferred provider organizations, federal and state government healthcare agencies and other
managed care providers. We currently have contracts establishing reimbursement for the OmniPod System with
national and regional third-party payors that provide reimbursement for patients residing in all 50 states. While we
anticipate entering into additional contracts with other third-party payors, we cannot assure that we will be
successful in doing so. In addition, these contracts can generally be terminated by the third-party payor without
cause. Also, healthcare market initiatives in the United States may lead third-party payors to decline or reduce
reimbursement for the OmniPod System. Moreover, compliance with administrative procedures or requirements of
third-party payors may result in delays in processing approvals by those payors for patients to obtain coverage for
the use of the OmniPod System. We are an approved Medicare supplier and current Medicare coverage for
continuous subcutaneous insulin infusion, or CSII therapy exists. However, existing Medicare coverage for CSII
therapy is based on conventional insulin pumps. We have been in the process for several years of seeking
appropriate Medicare coverage for the OmniPod System. No assurance can be provided that we will ever secure
Medicare coverage of the OmniPod System. As a result, we have focused our efforts in establishing
reimbursement for the OmniPod System by negotiating contracts with private insurers. In addition, coverage
decisions and rates of reimbursement increasingly require clinical evidence showing an improvement in patient
outcomes. Generating this clinical evidence requires substantial time and investment and there is no guarantee of
a desired outcome. Finally, as we expand our sales and marketing efforts outside of the United States, we face
additional risks associated with obtaining and maintaining reimbursement from foreign health care payment
systems on a timely basis or at all. Failure to secure or retain adequate coverage or reimbursement for the
OmniPod System by third-party payors, including Medicare, could have a material adverse effect on our business,
financial condition and results of operations.
We face competition from numerous competitors, most of whom have far greater resources than we
have, which may make it more difficult for us to achieve significant market penetration and which may
allow them to develop additional products for the treatment of diabetes that compete with the OmniPod
System.
The medical device industry is intensely competitive, subject to rapid change and significantly affected by new
product introductions and other market activities of industry participants. The OmniPod System competes with
several existing insulin delivery devices as well as other methods for the treatment of diabetes. Medtronic MiniMed,
a division of Medtronic has been the market leader for many years and has the majority share of the conventional
insulin pump market in the United States. Other significant suppliers in the United States include Animas
Corporation, a division of Johnson & Johnson and Tandem Diabetes Care, Inc.
In addition to the OmniPod System, our principal international distributor, Ypsomed, markets and sells a suite
of other products for the treatment of diabetes. Also, Ypsomed has announced its intention to introduce and sell its
own branded conventional insulin pump. Ypsomed may have a greater financial incentive to sell its proprietary
products rather than the OmniPod System.
Many of our competitors are large, well-capitalized companies with significantly more market share and
resources than we have. As a consequence, they are able to spend more aggressively on product development,
marketing, sales and other product initiatives than we can. Many of these competitors have:
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significantly greater name recognition;
different and more complete reimbursement profiles;
established relations with healthcare professionals, customers and third-party payors;
larger and more established distribution networks;
greater experience in conducting research and development, manufacturing, clinical trials, marketing
and obtaining regulatory approval; and
greater financial and human resources for product development, sales and marketing and patent
litigation.
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We also compete with MDI therapy, which is substantially less expensive than CSII therapy. MDI therapy has
been made more effective by the introduction of long-acting insulin analogs that can be used in combination with
easy to use bolus devices such as pens or nasal inhalants. While we believe that CSII therapy, in general, and the
OmniPod System, in particular, have significant competitive and clinical advantages over traditional MDI therapy,
improvements in the effectiveness of MDI therapy may result in fewer people with insulin-dependent diabetes
converting from MDI therapy to CSII therapy than we expect and may result in negative price pressure.
In addition to the established insulin pump competitors, several companies are working to develop and market
new insulin “patch” pumps and other methods for the treatment of diabetes, such as inhaled insulin. These
companies are at various stages of development. The companies working in this area of which we are aware
include Medtronic, Johnson & Johnson, Valeritas Inc., Cellnovo Limited, VinCentra, Debiotech S.A., Becton
Dickinson and Co., Enable Injections, Sensile Medical and Unilife.
Our current competitors or other companies may at any time develop additional products for the treatment of
diabetes. For example, other diabetes-focused pharmaceutical companies, including Abbott Diabetes Care, Inc.
("Abbott"), Eli Lilly and Company, Novo Nordisk A/S and Takeda Pharmaceuticals Company Limited, are developing
similar products. All of these competitors are large, well-capitalized companies with significantly greater product
development resources than we have. If an existing or future competitor develops a product that competes with or
is superior to the OmniPod System, our revenue may decline. In addition, some of our competitors may compete
by changing their pricing model or by lowering the price of their insulin delivery systems or ancillary supplies. If
these competitors’ products were to gain acceptance by healthcare professionals, people with insulin-dependent
diabetes or third-party payors, a downward pressure on prices could result. If prices were to fall, we may not
improve our gross margins or sales growth sufficiently to achieve profitability.
We rely on the proper function, availability and security of our information technology systems to
operate our business and a cyber-attack or other breach or disruption of these systems could have a
material adverse effect on our business and results of operations.
We rely on information technology systems to process, transmit and store electronic information in our day-
to-day operations. Moreover, the nature of our business involves the receipt and storage of personal and financial
information regarding our patients. We use our information technology systems to manage or support a variety of
business processes and activities, including sales, shipping, billing, customer service, procurement and supply
chain, manufacturing and accounts payable. In addition, we use enterprise information technology systems to
record, process, and summarize transactions and other financial information and results of operations for internal
reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information
technology systems may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by
computer hackers, failures during the process of upgrading or replacing software, databases or components
thereof, power outages, hardware failures, telecommunication failures, user errors or catastrophic events. Any
failure by us to maintain or protect our information technology systems and data integrity, including from cyber-
attacks, intrusions, disruptions or shutdowns, could result in the unauthorized access to patient data and personally
identifiable information, theft of intellectual property or other misappropriation of assets or the loss of key data and
information, or otherwise compromise our confidential or proprietary information and disrupt our operations. If our
information technology systems are breached or suffer severe damage, disruption or shutdown and we are unable
to effectively resolve the issues in a timely manner, our business and operating results may be materially and
adversely affected.
Technological breakthroughs in diabetes monitoring, treatment or prevention could render the
OmniPod System obsolete. In addition, our own new product development initiatives may prove to be
ineffective or not commercially successful.
The diabetes treatment market is subject to rapid technological change and product innovation. The
OmniPod System is based on our proprietary technology, but a number of companies, medical researchers and
existing pharmaceutical companies are pursuing new delivery devices, delivery technologies, sensing technologies,
procedures, drugs and other therapeutics for the monitoring, treatment and/or prevention of insulin-dependent
diabetes. For example, FDA approval of a commercially viable “closed-loop” system that combines continuous
“real-time” glucose sensing or monitoring and automatic continuous subcutaneous insulin infusion in a manner that
delivers appropriate amounts of insulin on a timely basis without patient direction could have a material adverse
effect on our revenue and future profitability. Medtronic has developed such an FDA-approved product combining
continuous glucose sensing and CSII therapy, which could negatively impact our business. In addition, the National
Institutes of Health and other supporters of diabetes research are continually seeking ways to prevent, cure or
improve the treatment of diabetes. Any technological breakthroughs in diabetes monitoring, treatment or prevention
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could render the OmniPod System obsolete, which would have a material adverse effect on our business, financial
condition and results of operations.
We also have on-going initiatives to develop products to improve the treatment of Type 1 diabetes and to treat
patients with highly insulin resistant Type 2 diabetes. For example, we are working with DexCom, Inc. to integrate
its continuous glucose monitoring technology with the OmniPod System and we continue to explore partnership
opportunities with other companies that have blood glucose monitoring and continuous glucose monitoring
technologies. We are also developing with Eli Lilly and Company a new version of the OmniPod System
specifically designed to deliver Humulin® R U-500 and U-200 insulin, which are more concentrated forms of insulin
than traditional U-100 insulin for patients with higher insulin-resistance. In each of these cases, these projects are
at an early stage of development, will require substantial clinical support and are subject to regulatory approvals.
No assurances can be given that these or other development initiatives by us will be successful. The failure to
successfully bring any of these products to market could have an adverse effect on our business and results of
operations.
If our existing license agreement with Abbott is terminated or we fail to enter into new license
agreements allowing us to incorporate a blood glucose meter into the OmniPod System, or if Abbott's
FreeStyle meter is less desirable to our current and potential customers, our business may be materially
adversely impacted.
Our rights to incorporate the FreeStyle blood glucose meter into the OmniPod System are governed by a
development and license agreement with Abbott. This agreement provides us with a non-exclusive, fully paid, non-
transferable and non-sublicensable license in the United States under patents and other relevant technical
information relating to the FreeStyle blood glucose meter during the term of the agreement. As amended, this
agreement runs through January 2020. The agreement may be terminated or limited in geographical scope by
Abbott under certain circumstances. Termination of this agreement could require us to either remove the blood
glucose meter from PDMs to be sold in the future, which would impair the functionality of the OmniPod System, or
attempt to incorporate an alternative blood glucose meter into the PDM, either of which would require significant
development and regulatory activities that might not be completed in time to prevent an interruption in the
availability of the OmniPod System to our customers, which could have a material adverse effect on our business,
financial condition and results of operations.
The FreeStyle blood glucose meter in our PDM is only approved for use with FreeStyle test strips. Not all third
party payors reimburse patients for the purchase and use of FreeStyle test strips to the same extent as they
reimburse patients for other brands of test strips. The absence or reduction in such reimbursement may make the
OmniPod System less desirable to our current and potential customers.
In the future, we may need additional licenses to intellectual property owned by third parties in order to
commercialize new products. If we cannot obtain these additional licenses, we may not be able to develop or
commercialize these future products. Our rights to use technologies licensed to us by third parties are not entirely
within our control, and we may not be able to continue selling the OmniPod System or sell future products without
these technologies.
Our growing non-insulin drug delivery business faces challenges which, if not met, may impair its future
success and continued growth.
Our non-insulin drug delivery business has grown substantially over the past years. This business typically
involves the development, manufacturing and sale of a modified OmniPod for delivery of a specific drug other than
insulin. The marketing and sales initiatives driving this business differ markedly from those on which we rely for our
sales of OmniPod Systems to treat diabetes since the non-insulin drug delivery devices depend on marketing and
sales to pharmaceutical companies, not to patients and clinicians. We expect that the continued growth of our non-
insulin drug delivery business will face several challenges, including:
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our identification of drug delivery opportunities appropriate for a modified OmniPod;
our achievement of satisfactory development and pricing terms with the pharmaceutical companies that
sell such drugs;
our development of appropriate modifications to our OmniPods to address the needs and parameters
required for the respective drug-delivery opportunities;
• manufacturing issues relating to the modified OmniPod;
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long lead-times associated with the development, regulatory approvals and ramp up applicable to the use
of modified OmniPods for the delivery of such drugs;
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relatively small number of modified OmniPods needed to address each drug-delivery opportunity;
uncertainties regarding the market acceptance of such drugs and the modified OmniPods as appropriate
delivery devices;
uncertainties relating to the success of the pharmaceutical companies in marketing and selling such drugs
as well as the modified OmniPods as the appropriate delivery devices;
intense competition in the drug-delivery industry, including from competitors which have substantially
greater resources than we do;
• maintaining appropriate gross margins for non-insulin drug delivery products; and
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regulatory requirements and reimbursement rates associated with such drugs.
If we are unsuccessful in overcoming one or more of these challenges, our ability to capitalize on these
opportunities and to continue to grow our non-insulin drug delivery business could be significantly impaired, which
in turn could materially and adversely impact our business and financial results.
The patent rights on which we rely to protect the intellectual property underlying the OmniPod System
may not be adequate, which could enable third parties to use our technology and would harm our
continued ability to compete in the market.
Our success will depend in part on our continued ability to develop or acquire commercially-valuable patent
rights and to protect these rights adequately. Our patent position is generally uncertain and involves complex legal
and factual questions. The risks and uncertainties that we face with respect to our patents and other related rights
include the following:
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the pending patent applications we have filed or to which we have exclusive rights may not result in
issued patents or may take longer than we expect to result in issued patents;
the claims of any patents that are issued may not provide meaningful protection;
we may not be able to develop additional proprietary technologies that are patentable; and
other companies may design around technologies we have patented, licensed or developed.
We also may not be able to protect our patent rights effectively in some foreign countries. For a variety of
reasons, we may decide not to file for patent protection. Our patent rights underlying the OmniPod System may not
be adequate, and our competitors or customers may design around our proprietary technologies or independently
develop similar or alternative technologies or products that are equal or superior to ours without infringing on any of
our patent rights. In addition, the patents licensed or issued to us may not provide a competitive advantage. The
occurrence of any of these events may have a material adverse effect on our business, financial condition and
results of operations.
Other rights and measures we have taken to protect our intellectual property may not be adequate,
which would harm our ability to compete in the market.
In addition to patents, we rely on a combination of trade secrets, copyright and trademark laws, confidentiality,
non-disclosure and assignment of invention agreements and other contractual provisions and technical measures to
protect our intellectual property rights. Despite these measures, any of our intellectual property rights could be
challenged, invalidated, circumvented or misappropriated. While we currently require employees, consultants and
other third parties to enter into confidentiality, non-disclosure or assignment of invention agreements, or a
combination thereof where appropriate, any of the following could still occur:
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the agreements may be breached;
we may have inadequate remedies for any breach;
trade secrets and other proprietary information could be disclosed to our competitors; or
others may independently develop substantially equivalent or superior proprietary information and
techniques or otherwise gain access to our trade secrets or disclose such technologies.
If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our
ability to protect our rights and have a material adverse effect on our business, financial condition and results of
operations.
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We may need to initiate lawsuits to protect or enforce our patents and other intellectual property rights,
which could be expensive and, if we lose, could cause us to lose some of our intellectual property rights,
which would harm our ability to compete in the market.
We rely on patents to protect a portion of our intellectual property and our competitive position. Patent law
relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent
positions in the medical device industry are generally uncertain. In order to protect or enforce our patent rights, we
may initiate patent litigation against third parties, such as infringement suits or interference proceedings. Litigation
may be necessary to:
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assert claims of infringement;
enforce our patents;
protect our trade secrets or know-how; or
determine the enforceability, scope and validity of the proprietary rights of others.
Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from
other business concerns. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing. Additionally, we may provoke third parties to assert claims against us. We
may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be
commercially valuable. The occurrence of any of these events could have a material adverse effect on our
business, financial condition and results of operations.
Claims that our current or future products infringe or misappropriate the proprietary rights of others
could adversely affect our ability to sell those products and cause us to incur additional costs.
Substantial litigation over intellectual property rights exists in the medical device industry, and we have settled
infringement suits in the past. We expect that we could be increasingly subject to third-party infringement claims as
our revenue increases, the number of competitors grows and the functionality of products and technology in
different industry segments overlaps. Third parties may currently have, or may eventually be issued, patents on
which our current or future products or technologies may infringe. For example, we are aware of certain patents
and patent applications owned by our competitors that cover different aspects of insulin infusion and the related
devices. Any of these third parties might make a claim of infringement against us.
Such litigation, regardless of its outcome, could result in the expenditure of significant financial resources and
the diversion of management’s time and resources. In addition, such litigation could cause negative publicity,
adversely affect prospective customers, cause product shipment delays, limit or prohibit us from manufacturing,
marketing or selling our current or future products, require us to develop non-infringing technology, make
substantial payments to third parties or enter into royalty or license agreements, which may not be available on
acceptable terms or at all. If a successful claim of infringement were made against us and we could not develop
non-infringing technology or license the infringed or similar technology on a timely and cost-effective basis, our
revenue could decrease substantially and we could be exposed to significant liability. A court could enter orders
that temporarily, preliminarily or permanently enjoin us or our customers from making, using, selling, offering to sell
or importing our current or future products, or could enter an order mandating that we undertake certain remedial
activities.
We are subject to extensive government regulation, both in the United States and abroad, which could
restrict the sales and marketing of the OmniPod System and could cause us to incur significant costs.
Our medical device products and operations are subject to extensive regulation by the FDA and various other
federal, state, local and foreign government authorities. Government regulation of medical devices is meant to
assure their safety and effectiveness, and includes regulation of, among other things:
• design, development and manufacturing;
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testing, labeling, content and language of instructions for use and storage;
clinical trials;
• product safety;
• marketing, sales and distribution;
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regulatory clearances and approvals including premarket clearance and approval;
conformity assessment procedures;
• product traceability and record keeping procedures;
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• advertising and promotion;
• product complaints, complaint reporting, recalls and field safety corrective actions;
• post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were
to recur, could lead to death or serious injury;
• post-market studies; and
• product import and export.
The regulations to which we are subject are complex and have tended to become more stringent over time.
Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than
anticipated costs or lower than anticipated sales.
Before a new medical device, or a significant modification of a medical device, including a new use of or a new
use of or claim for an existing product, can be marketed in the United States, it must first receive either 510(k)
clearance or pre-market approval from the FDA, unless an exemption applies. In the 510(k) clearance process, the
FDA must determine that a proposed device is "substantially equivalent" to a device legally on the market, known
as a "predicate" device, with respect to intended use, technology and safety and effectiveness, in order to clear the
proposed device for marketing. Clinical data is sometimes required to support substantial equivalence. In
December 2012 we received 501(k) clearance for our new OmniPod System. We may be required to obtain a new
510(k) clearance or pre-market approval for significant post-market modifications to the OmniPod System.
Obtaining 510(k) clearance or pre-market approval for medical devices can be expensive and lengthy, and entail
significant user fees, unless an exemption is available. The FDA’s process for obtaining 510(k) clearance usually
takes three to twelve months, but it can last longer. In the PMA approval process, the FDA must determine that a
proposed device is safe and effective for its intended use based, in part, on extensive data, including but not limited
to, technical, pre-clinical, clinical trial, manufacturing and labeling data. The process for obtaining pre-market
approval is much more costly and uncertain and it generally takes from one to three years, or longer, from the time
the application is filed with the FDA. Modifications to products that are approved through a PMA application
generally need FDA approval. The FDA may demand that we obtain a PMA prior to marketing certain of our future
products. Further, we may not be able to obtain additional 510(k) clearances or pre-market approvals for new
products or for modifications to, or additional indications for, the OmniPod System in a timely fashion or at all.
Delays in obtaining future clearances could adversely affect our ability to introduce new or enhanced products in a
timely manner which in turn could harm our revenue and future profitability.
We also are subject to numerous post-marketing regulatory requirements, which include quality system
regulations related to the manufacturing of our devices, labeling regulations and medical device reporting
regulations, which require us to report to the FDA if our devices cause or contribute to a death or serious injury, or
malfunction in a way that would likely cause or contribute to a death or serious injury. If we fail to comply with
present or future regulatory requirements that are applicable to us, we may be subject to enforcement action by the
FDA, which may include any of the following sanctions:
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untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
customer notification, or orders for repair, replacement or refunds;
voluntary or mandatory recall or seizure of our current or future products;
administrative detention by the FDA of medical devices believed to be adulterated or misbranded;
imposing operating restrictions, suspension or shutdown of production;
refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses
or modifications to the OmniPod System;
rescinding 510(k) clearance or suspending or withdrawing pre-market approvals that have already been
granted; and
criminal prosecution.
The occurrence of any of these events may have a material adverse effect on our business, financial condition
and results of operations.
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In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise
existing regulations, or take other actions that may prevent or delay approval or clearance of our products under
development or impact our ability to modify our currently approved or cleared products on a timely basis. For
example, in 2011, the FDA announced a plan of action to modernize and improve the FDA's premarket review of
medical devices, and has implemented, and continues to implement, reforms intended to streamline the premarket
review process. In addition, as part of the Food and Drug Administration Safety and Innovation Act of 2012, or
FDASIA, Congress enacted several reforms that further affect medical device regulation both pre- and post-
approval. In addition, these regulatory requirements may change in the future in a way that adversely affects us.
For instance, the FDA is in the process of reviewing the 510(k) approval process and criteria and has announced
initiatives to improve the current pre-market and post-market regulatory processes and requirements associated
with infusion pumps and other home use medical devices. As part of this effort, the FDA is reviewing the adverse
event reporting and recall processes for insulin pumps. Any change in the laws or regulations that govern the
clearance and approval processes relating to our current and future products could make it more difficult and costly
to obtain clearance or approval for new products, or to produce, market and distribute existing products.
The OmniPod System is also sold in a number of European countries and Canada. As a result, we are
required to comply with additional foreign regulatory requirements. For example, in April 2009, we first received CE
Mark approval for our OmniPod System. The CE Mark gives us authorization to distribute the OmniPod System
throughout the European Union and in other countries that recognize the CE Mark. Additionally, in September
2009, we first received Health Canada approval to distribute the OmniPod System throughout Canada. As we
expand our sales efforts internationally, we may need to obtain additional foreign approval certifications.
There is no guarantee that the FDA will grant 510(k) clearance or PMA approval of our future products,
and failure to obtain necessary clearances or approvals for our future products would adversely affect our
ability to grow our business.
Some of our new or modified products will require FDA clearance of a 510(k) or FDA approval of a PMA. The
FDA may not approve or clear these products for the indications that are necessary or desirable for successful
commercialization. Indeed, the FDA may refuse our requests for 510(k) clearance or premarket approval of new
products. Even early stage review may result in issues. For example, the FDA has issued guidance documents
intended to explain the procedures and criteria the FDA will use in assessing whether a 510(k) and PMA
submissions meets a minimum threshold of acceptability and should be accepted for substantive review. Under the
“Refuse to Accept” guidance, the FDA conducts an early review against specific acceptance criteria to inform 510(k)
and PMA submitters if the submission is administratively complete, or if not, to identify the missing element(s).
Submitters are given the opportunity to provide the FDA with the identified information. If the information is not
provided within a defined time, the submission will not be accepted for FDA review. Significant delays in receiving
clearance or approval, or the failure to receive clearance or approval for our new products would have an adverse
effect on our ability to expand our business.
If we, our contract manufacturer or our component suppliers fail to comply with the FDA’s quality
system regulations, the manufacturing and distribution of our devices could be interrupted, and our
product sales and operating results could suffer.
We, our contract manufacturer and our component suppliers are required to comply with the FDA’s quality
system regulations, which is a complex regulatory framework that covers the procedures and documentation of the
design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our
devices. Compliance with applicable regulatory requirements is subject to continual review and is monitored
rigorously through periodic, sometimes unannounced, inspections by the FDA. We cannot assure you that our
facilities or our contract manufacturer or component suppliers’ facilities would pass any future quality system
inspection. If our or any of our contract manufacturer or component suppliers’ facilities fails a quality system
inspection, the manufacturing or distribution of our devices could be interrupted and our operations disrupted.
Failure to take adequate and timely corrective action in response to an adverse quality system inspection could
force a suspension or shutdown of our labeling operations or the manufacturing operations of our contract
manufacturer, or a recall of our devices.
If we, or our manufacturers, fail to adhere to QSR requirements, this could delay production of our products
and lead to fines, difficulties in obtaining regulatory clearances, recalls, enforcement actions, including injunctive
relief or consent decrees, or other consequences, which could, in turn, have a material adverse effect on our
financial condition or results of operations.
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Our facility located at 600 Technology Park Drive, Suite 200, Billerica, MA 01821 was inspected by the FDA
from March 11-27, 2015, which resulted in four inspectional observations (FDA Form 483) and a subsequent
Warning Letter dated June 5, 2015. The Company has completed all of the commitments from the 483 and
Warning Letter responses, but has not yet received notification that FDA has closed the Warning Letter. More
recently, our facility located in Billerica, MA was re-inspected by the FDA from November 30-December 11, 2015.
This inspection also resulted in four inspectional observations (FDA Form 483). We responded to the most recent
inspectional observations on December 31, 2015.
If our products, or malfunction of our products, cause or contribute to a death or a serious injury, we
will be subject to medical device reporting regulations, which can result in voluntary corrective actions or
agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers are required to report to
the FDA information that a device has or may have caused or contributed to a death or serious injury or has
malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the
device or one of our similar devices were to recur. Any such adverse event involving our products could result in
future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection
or enforcement action. Adverse events involving our products have been reported to us in the past, and we
cannot guarantee that they will not occur in the future. Any corrective action, whether voluntary or involuntary,
will require the dedication of our time and capital, distract management from operating our business and may
harm our reputation and financial results.
Our current or future products may be subject to product recalls even after receiving FDA clearance or
approval. A recall of our products, either voluntarily or at the direction of the FDA, or the discovery of
serious safety issues with our products, could have a significant adverse impact on us.
The FDA and similar governmental bodies in other countries have the authority to require the recall of our
current or future products if we or our contract manufacturers fail to comply with relevant regulations pertaining to
manufacturing practices, labeling, advertising or promotional activities, or if new information is obtained concerning
the safety or efficacy of these products. A government-mandated recall could occur if the FDA finds that there is a
reasonable probability that the device would cause serious, adverse health consequences or death. A voluntary
recall by us could occur as a result of any material deficiency in a device, such as manufacturing defects, labeling
deficiencies, packaging defects or other failures to comply with applicable regulations. The FDA requires that
certain classifications of recalls be reported to the FDA within 10 working days after the recall is initiated. Recalls of
any of our products would divert managerial and financial resources and have an adverse effect on our reputation,
results of operations and financial condition, which could impair our ability to produce our products in a cost-
effective and timely manner in order to meet our customers’ demands. We may also be subject to liability claims,
be required to bear other costs, or take other actions that may have a negative impact on our future sales and our
ability to generate profits. Companies are required to maintain certain records of recalls, even if they are not
reportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do
not require notification of the FDA. If the FDA disagrees with our determinations, they could require us to report
those actions as recalls. A future recall announcement could harm our reputation with customers and negatively
affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were
conducted.
With respect to corrections and removals, in July 2015, Insulet implemented a field removal of certain lots
due to the possibility that some of the OmniPod Systems have a higher rate of failure than its current
manufacturing standards. In September 2015, as part of Insulet’s product quality monitoring process, the
company identified that certain lots of the OmniPod had a slight increase (1% - 2%) in the reported cases in
which the Pod’s cannula failed to deploy. On October 29, 2015, Insulet implemented a field correction to advise
patients of the possibility of a needle deployment failure and provided recommendations on how to manage such
an event. Both field actions were initiated with the knowledge of FDA and were reported to the agency in
accordance with the requirements of 21 C.F.R. Part 806.
Further, under the FDA’s medical device reporting, or MDR, regulations, we are required to report to the
FDA any incident in which our product may have caused or contributed to a death or serious injury or in which
our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or
serious injury. Repeated product malfunctions may result in a voluntary or involuntary product recall, which could
divert managerial and financial resources, impair our ability to manufacture our products in a cost-effective and
timely manner, and have an adverse effect on our reputation, results of operations and financial condition. We
are also required to follow detailed recordkeeping requirements for all firm-initiated medical device corrections
and removals, and to report such corrective and removal actions to FDA if they are carried out in response to a
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risk to health and have not otherwise been reported under the MDR regulations. In addition, in October 2014, the
FDA issued guidance intended to assist the FDA and industry in distinguishing medical device recalls from
product enhancements. Per the guidance, if any change or group of changes to a device addresses a violation
of the Federal Food, Drug, and Cosmetic Act, that change would generally constitute a medical device recall and
require submission of a recall report to the FDA.
If the third parties on which we rely to conduct our clinical trials and to assist us with pre-clinical
development do not perform as contractually required or expected, we may not be able to obtain regulatory
clearance or approval or commercialize our products.
We rely on third parties, such as contract research organizations, medical institutions, clinical investigators
and contract laboratories to conduct some of our clinical trials and pre-clinical investigations. If these third
parties do not successfully carry out their contractual duties or regulatory obligations or meet expected
deadlines, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our
clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or
clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory
approval for, or successfully commercialize, our products on a timely basis, if at all, and our business, operating
results and prospects may be adversely affected. Furthermore, our third-party clinical trial investigators may be
delayed in conducting our clinical trials for reasons outside of their control.
We may be subject to enforcement action if we engage in improper marketing or promotion of our
products.
Our promotional materials and training methods must comply with FDA and other applicable laws and
regulations, including the prohibition of the promotion of unapproved, or off-label, use. Doctors may use our
products off-label, as the FDA does not restrict or regulate a doctor’s choice of treatment within the practice of
medicine. However, if the FDA determines that our promotional materials or training constitutes promotion of an
off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or
enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or
criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action
if they consider our promotional or training materials to constitute promotion of an off-label use, which could
result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for
reimbursement. In that event, our reputation could be damaged and adoption of the products could be impaired.
Although our policy is to refrain from statements that could be considered off-label promotion of our products, the
FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion. In
addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims
are expensive to defend and could divert our management’s attention, result in substantial damage awards
against us, and harm our reputation.
We are subject to federal and state laws prohibiting “kickbacks” and false or fraudulent claims, which, if
violated, could subject us to substantial penalties. Additionally, any challenge to or investigation into our
practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm
our business.
The federal anti-kickback statute and several similar state laws, prohibit payments that are intended to induce
physicians or others either to refer patients or to acquire or arrange for or recommend the acquisition of healthcare
products or services and impose civil and criminal penalties for noncompliance that can be substantial. These laws
constrain our sales, marketing and other promotional activities by limiting the kinds of financial arrangements,
including sales programs, we may have with hospitals, physicians or other potential purchasers of medical devices.
We conduct various marketing and product training activities that involve making payments to healthcare
providers and entities. While we believe that our activities are compliant with all applicable laws, even an
unsuccessful challenge or investigation into our practices could cause adverse publicity, and be costly to respond
to, and thus could have a material adverse effect on our business, financial condition and results of operations.
We participate in federal and state programs such as Medicare and Medicaid, under which we are subject to
numerous state and federal laws and regulations overseeing reimbursement and intended to prevent fraud and
abuse. Medicare and Medicaid regulations are complex and may require management’s interpretation. Our
compliance with Medicare and Medicaid regulations may be reviewed by federal or state agencies, including the
United States Department of Health and Human Services’ Office of the Inspector General (“OIG”), CMS, and the
Department of Justice. To ensure compliance with Medicare, Medicaid and other regulations, government agencies
conduct periodic audits of us to ensure compliance with various supplier standards and billing requirements.
27
If we are found to have violated laws protecting the confidentiality of patient health information, we could
be subject to civil or criminal penalties, which could increase our liabilities and harm our reputation or our
business.
There are a number of federal and state laws protecting the confidentiality of certain patient health
information, including patient records, and restricting the use and disclosure of that protected information. In
particular, the U.S. Department of Health and Human Services promulgated patient privacy rules under Health
Insurance Portability and Accountability Act ("HIPAA"). These privacy rules protect medical records and other
personal health information by limiting their use and disclosure, giving individuals the right to access, amend and
seek accounting of their own health information and limiting most use and disclosures of health information to the
minimum amount reasonably necessary to accomplish the intended purpose. If we are found to be in violation of
the privacy rules under HIPAA, we could be subject to civil or criminal penalties, which could increase our liabilities,
harm our reputation and have a material adverse effect on our business, financial condition and results of
operations.
Product liability suits, whether or not meritorious, could be brought against us due to an alleged
defective product or for the misuse of our devices. These suits could result in expensive and time-
consuming litigation, payment of substantial damages, and an increase in our insurance rates.
If our current or future products are defectively designed or manufactured, contain defective components or
are misused, or if someone claims any of the foregoing, whether or not meritorious, we may become subject to
substantial and costly litigation. Misusing our devices or failing to adhere to the operating guidelines of the
OmniPod System could cause significant harm to patients, including death. In addition, if our operating guidelines
are found to be inadequate, we may be subject to liability. Product liability claims could divert management’s
attention from our core business, be expensive to defend and result in sizable damage awards against us. While
we believe that we are reasonably insured against these risks, we may not have sufficient insurance coverage for
all future claims. Any product liability claims brought against us, with or without merit, could increase our product
liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry
and could reduce revenue. Product liability claims in excess of our insurance coverage would be paid out of cash
reserves harming our financial condition and adversely affecting our results of operations.
Our ability to grow our revenue depends in part on our retaining a high percentage of our customer
base.
A key to driving our revenue growth is the retention of a high percentage of our customers. We have
developed retention programs aimed at both healthcare professionals and patients, which include appeals
assistance, ongoing patient communications, newsletters, support, training and an automatic re-order program for
certain patients. We have had a satisfactory customer retention rate; however, we cannot assure you that we will
maintain this retention rate in the future. Current uncertainty in global economic conditions, higher levels of
unemployment, changes in insurance reimbursement levels and negative financial news may negatively affect
product demand. If demand for our products fluctuates as a result of economic conditions or otherwise, our ability
to attract and retain customers could be harmed. The failure to retain a high percentage of our customers would
negatively impact our revenue growth and may have a material adverse effect on our business, financial condition
and results of operations.
We depend on a small number of customers for a large portion of our business, and changes in our customers’
orders could have a significant impact on our operating results. If a major customer, either in our insulin or non-
insulin drug delivery businesses significantly reduces the amount of business it does with us, there would be an
adverse impact on our operating results. In the year ended December 31, 2015, two customers represented 11%
and 10% of total revenue, respectively. In the year ended December 31, 2014, two customers represented 15%
and 11% of total revenue, respectively. In the year ended December 31, 2013, one customer represented 13% of
total revenue.
We have sponsored, and expect to continue to sponsor market studies seeking to demonstrate certain
aspects of the efficacy of the OmniPod System, which may fail to produce favorable results.
To help improve, market and sell the OmniPod System, we have sponsored, and expect to continue to
sponsor market studies to assess various aspects of the OmniPod System’s functionality and its relative efficacy.
The data obtained from the studies may be unfavorable to the OmniPod System or may be inadequate to support
satisfactory conclusions. In addition, in the future we may sponsor clinical trials to assess certain aspects of the
efficacy of the OmniPod System. If future clinical trials fail to support the efficacy of our current or future products,
our sales may be adversely affected and we may lose an opportunity to secure clinical preference from prescribing
clinicians, which may have a material adverse effect on our business, financial condition and results of operations.
28
If future clinical studies or other articles are published, or diabetes associations or other organizations
announce positions that are unfavorable to the OmniPod System, our sales efforts and revenue may be
negatively affected.
Future clinical studies or other articles regarding our existing products or any competing products may be
published that either support a claim, or are perceived to support a claim, that a competitor’s product is clinically
more effective or easier to use than the OmniPod System or that the OmniPod System is not as effective or easy to
use as we claim. Additionally, diabetes associations, healthcare providers that focus on diabetes or other
organizations that may be viewed as authoritative could endorse products or methods that compete with the
OmniPod System or otherwise announce positions that are unfavorable to the OmniPod System. Any of these
events may negatively affect our sales efforts and result in decreased revenue.
Substantially all of our operations related to the OmniPod System are conducted at a single location and
substantially all of our OmniPod System inventory is held at a single location. Any disruption at either of
these locations could increase our expenses.
Substantially all of our manufacturing of complete OmniPods is currently conducted at a single location on
manufacturing lines owned by us at a facility located in China, operated by a subsidiary of Flextronics. We take
precautions to ensure that Flextronics safeguards our assets, including insurance and health and safety protocols.
However, a natural or other disaster, such as a fire or flood, could cause substantial delays in our operations,
damage or destroy our manufacturing equipment, and cause us to incur additional expenses. The insurance we
maintain may not be adequate to cover our losses in any particular case. With or without insurance, damage to our
manufacturing equipment, or to any of our suppliers, may have a material adverse effect on our business, financial
condition and results of operations.
In addition, substantially all of our OmniPod System inventory is held at a single location in Billerica,
Massachusetts. We take precautions to safeguard our facility, including insurance, health and safety protocols and
off-site storage of computer data. However, a natural or other disaster, such as a fire or flood, could cause
substantial delays in our operations, damage or destroy our inventory, and cause us to incur additional expenses.
The insurance we maintain may not be adequate to cover our losses in any particular case. With or without
insurance, damage to our facility or our other property may have a material adverse effect on our business, financial
condition and results of operations.
Our success will depend on our ability to attract and retain personnel.
We recently made significant changes to our senior management team. We believe we will benefit
substantially from the leadership and performance of our new senior management. As such, our success will
depend on our ability to retain our new management and to attract and retain additional qualified personnel in the
future, including clinicians, engineers and other highly skilled personnel. In addition, it is important to the success of
the Company that the transition of the new senior management be largely seamless. Our failure to effect this
seamless transition may result in a disruption to our business. Competition for senior management personnel, as
well as clinicians, engineers and other highly skilled personnel, is intense and there can be no assurances that we
will be able to retain our personnel. The loss of the services of members of our senior management, clinicians,
engineers and other highly skilled personnel could prevent or delay the implementation and completion of our
objectives, or divert management’s attention to seeking qualified replacements.
Additionally, the sale and after-sale support of the OmniPod System is logistically complex, requiring us to
maintain an extensive infrastructure of field sales personnel, diabetes educators, customer support, insurance
specialists, and billing and collections personnel. We face considerable challenges in recruiting, training,
managing, motivating and retaining these teams, including managing geographically dispersed efforts. If we fail to
maintain and grow an adequate pool of trained and motivated personnel, our reputation could suffer and our
financial position could be adversely affected.
If we do not effectively manage our growth, our business resources may become strained, we may not
be able to deliver the OmniPod System in a timely manner and our results of operations may be adversely
affected.
Since the commercial launch of the OmniPod System, we have progressively expanded our marketing efforts
to cover the entire United States. In addition, the OmniPod System is sold in a number of European countries and
Canada. As we continue to expand our sales internationally, we will need to obtain regulatory approvals and
reimbursement agreements with government agencies or private third-party payors in those countries. Failure to
obtain such agreements would limit our ability to successfully penetrate those foreign markets. In addition, the
geographic expansion of our business will require additional manufacturing capacity to supply those markets as well
as additional sales and marketing resources.
29
We expect to continue to increase our manufacturing capacity, our personnel and the scope of our U.S. and
international sales and marketing efforts. This growth, as well as any other growth that we may experience in the
future, will provide challenges to our organization and may strain our management and operations resources. In
order to manage future growth, we will be required to improve existing, and implement new, management systems,
sales and marketing efforts and distribution channels. We will need to manage our relationship with Flextronics and
other suppliers going forward. We may also need to partner with additional third-party suppliers to manufacture
certain components of the OmniPod System and complete additional manufacturing lines in the future. A transition
to new suppliers may result in additional costs or delays. We may misjudge the amount of time or resources that
will be required to effectively manage any anticipated or unanticipated growth in our business or we may not be
able to manufacture sufficient inventory or attract, hire and retain sufficient personnel to meet our needs. If we
cannot scale our business appropriately, maintain control over expenses or otherwise adapt to anticipated and
unanticipated growth, our business resources may become strained, we may not be able to deliver the OmniPod
System in a timely manner and our results of operations may be adversely affected.
If we choose to acquire or invest in new businesses, products or technologies, instead of developing
them ourselves, these acquisitions or investments could disrupt our business and could result in the use
of significant amounts of equity, cash or a combination of both.
From time to time we may seek to acquire or invest in new businesses, products or technologies, instead of
developing them ourselves. Acquisitions and investments involve numerous risks, including:
•
•
•
•
•
•
•
•
•
•
the inability to complete the acquisition or investment;
disruption of our ongoing businesses and diversion of management attention;
difficulties in integrating the acquired entities, products or technologies;
risks associated with acquiring intellectual property;
difficulties in operating the acquired business profitably;
the inability to achieve anticipated synergies, cost savings or growth;
potential loss of key employees, particularly those of the acquired business;
difficulties in transitioning and maintaining key customer, distributor and supplier relationships;
risks associated with entering markets in which we have no or limited prior experience; and
unanticipated costs.
In addition, any future acquisitions or investments may result in one or more of the following:
•
•
•
•
•
•
•
•
dilutive issuances of equity securities, which may be sold at a discount to market price;
the use of significant amounts of cash;
the incurrence of debt;
the assumption of significant liabilities;
increased operating costs or reduced earnings;
financing obtained on unfavorable terms;
large one-time expenses; and
the creation of certain intangible assets, including goodwill, the write-down of which in future periods
may result in significant charges to earnings.
Any of these factors could materially harm our stock price, business, financial condition and results of
operations.
30
We may not be able to generate sufficient cash to service our indebtedness represented by our 2%
Convertible Senior Notes due June 15, 2019. We may be forced to take other actions to satisfy our
obligations under our indebtedness or we may experience a financial failure.
In 2014, we sold $201.3 million in principal amount of 2% Convertible Senior Notes, due in 2019. Our ability
to make scheduled payments or to refinance the 2% Convertible Senior Notes or other debt obligations depends on
our financial and operating performance, which is subject to prevailing economic and competitive conditions and to
certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level
of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on
our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we
may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or
restructure or refinance our indebtedness, including the 2% Convertible Senior Notes. We cannot assure you that
we would be able to take any of these actions, that these actions would be successful and permit us to meet our
scheduled debt service obligations or that these actions would be permitted under the terms of our future debt
agreements. In the absence of sufficient operating results and resources, we could face substantial liquidity
problems and might be required to dispose of material assets or operations to meet our debt service and other
obligations. We may not be able to consummate those dispositions or obtain sufficient proceeds from those
dispositions to meet our debt service and other obligations when due.
We need to expand our distribution network to maintain and grow our business and revenue. If we fail to
expand and maintain an effective sales force or successfully develop our relationship with distributors, our
business, prospects and brand may be materially and adversely affected.
We currently promote, market and sell the majority of our OmniPod Systems through our own direct sales
force. We currently utilize a limited number of domestic distributors to augment our sales efforts. In addition, in
January 2010 we entered into an exclusive distribution agreement with Ypsomed to promote, advertise, distribute
and sell the OmniPod System in certain countries. This agreement expires in mid-2018. We cannot assure you
that we will be able to successfully develop our relationships with third-party distributors. If we fail to do so, our
sales could fail to grow or could decline, and our ability to grow our business could be adversely affected.
Distributors that are in the business of selling other medical products may not devote a sufficient level of resources
and support required to generate awareness of our products and grow or maintain product sales. If our distributors
are unwilling or unable to market and sell our products, or if they do not perform to our expectations, we could
experience delayed or reduced market acceptance and sales of our products.
If we are unable to successfully maintain effective internal control over financial reporting, investors may
lose confidence in our reported financial information and our stock price and our business may be
adversely impacted.
As a public company, we are required to maintain internal control over financial reporting and our
management is required to evaluate the effectiveness of our internal control over financial reporting as of the end of
each fiscal year. Additionally, we are required to disclose in our Annual Reports on Form 10-K our management’s
assessment of the effectiveness of our internal control over financial reporting along with a registered public
accounting firm’s attestation report on the effectiveness of our internal controls. If we are not successful in
maintaining effective internal control over financial reporting, there could be inaccuracies or omissions in the
consolidated financial information we are required to file with the Securities and Exchange Commission.
Additionally, even if there are no inaccuracies or omissions, we will be required to publicly disclose the conclusion of
our management that our internal control over financial reporting or disclosure controls and procedures are not
effective. These events could cause investors to lose confidence in our reported financial information, adversely
impact our stock price, result in increased costs to remediate any deficiencies, attract regulatory scrutiny or lawsuits
that could be costly to resolve and distract management’s attention, limit our ability to access the capital markets or
cause our stock to be delisted from The NASDAQ Global Market or any other securities exchange on which it is
then listed.
The price of our common stock may be volatile.
The market price of our common stock is affected by a number of factors, including:
•
•
•
•
•
failure to maintain and increase production capacity and reduce per unit production costs;
changes in the availability of third-party reimbursement in the United States or other countries;
volume and timing of orders for the OmniPod System;
developments in administrative proceedings or litigation related to intellectual property rights;
issuance of patents to us or our competitors;
31
•
•
•
•
•
•
•
•
the announcement of new products or product enhancements by us or our competitors;
the announcement of technological or medical innovations in the treatment or diagnosis of diabetes;
changes in governmental regulations or in the status of our regulatory approvals or applications;
developments in our industry;
publication of clinical studies relating to the OmniPod System or a competitor’s product;
quarterly variations in our or our competitors’ results of operations;
changes in earnings estimates or recommendations by securities analysts; and
general market conditions and other factors, including factors unrelated to our operating performance or
the operating performance of our competitors.
At times, the fluctuations in the market price of our common stock have been unrelated or disproportionate to
our operating performance. In particular, the U.S. equity markets have at times experienced significant price and
volume fluctuations that have affected the market prices of equity securities of many technology companies. Broad
market and industry factors such as these could materially and adversely affect the market price of our stock,
regardless of our actual operating performance.
Future sales of shares of our common stock in the public market, or the perception that such sales may
occur, may depress our stock price.
We have been a public company since May 2007. Since becoming a public company, the average daily
trading volume of our common stock on The NASDAQ Global Market has been approximately 400,000 shares.
In addition to our outstanding shares of common stock, we issued $201.3 million of 2% Convertible Senior
Notes in June 2014. A substantial number of shares of our common stock could potentially be issued upon the
conversion of these Convertible Senior Notes. The issuance of substantial amounts of common stock underlying
the Convertible Senior Notes, or the perception that such issuance may occur, could adversely affect the market
price of our common stock.
Furthermore, the price of our common stock also could be affected by possible sales of our common stock by
investors who view the 2% Convertible Senior Notes as a more attractive means of equity participation in us and by
hedging or arbitrage trading activity that we expect will develop involving our common stock. A decline in the price
of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of
our common stock or other equity securities.
Conversion of any of our 2% Convertible Senior Notes may dilute the ownership interest of existing
stockholders.
The conversion of some or all of the 2% Convertible Senior Notes may dilute the ownership interests of
existing stockholders. Any sales in the public market of any of our common stock issuable upon such conversion
could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion of the
Convertible Senior Notes into a combination of cash and shares of our common stock could depress the price of
our common stock.
We could be subject to indemnification obligations in connection with the disposition of our former
Neighborhood Diabetes supplies business.
In February 2016, we sold Neighborhood Diabetes to Liberty Medical for $5 million in cash. Under the
terms of the sale, we agreed to indemnify Liberty Medical for certain customary matters primarily related to our
pre-closing operation of the business. Although we currently do not expect any material indemnification
obligations to arise, we could be required to reimburse Liberty Medical for such claims in the event that they
were to arise.
Our ability to use net operating loss carryforwards may be subject to limitation.
Section 382 of the U.S. Internal Revenue Code of 1986, as amended, imposes an annual limit on the amount
of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone
significant changes in its stock ownership or equity structure. Our ability to use net operating losses may be limited
by prior changes in our ownership, and may be further limited by the issuance of common stock in connection with
the conversion of our Convertible Senior Notes, or by the consummation of other transactions. As a result, if we
earn net taxable income, our ability to use net operating loss carryforwards to offset U.S. federal taxable income
may become subject to limitations, which could potentially result in increased future tax liabilities for us.
32
Anti-takeover provisions in our organizational documents, our shareholder rights plan and Delaware law
may discourage or prevent a change of control, even if an acquisition would be beneficial to our
stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to
replace or remove our current management.
Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control
of our company or changes in our board of directors that our stockholders might consider favorable. Some of these
provisions:
•
•
•
•
•
authorize the issuance of preferred stock which can be created and issued by the board of directors
without prior stockholder approval, with rights senior to those of our common stock;
provide for a classified board of directors, with each director serving a staggered three-year term;
prohibit our stockholders from filling board vacancies, calling special stockholder meetings or taking
action by written consent;
provide for the removal of a director only with cause and by the affirmative vote of the holders of 75% or
more of the shares then entitled to vote at an election of our directors; and
require advance written notice of stockholder proposals and director nominations.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit
certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and
other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for
stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by
our then-current board of directors, including a merger, tender offer or proxy contest involving our company. Any
delay or prevention of a change of control transaction or changes in our board of directors could cause the market
price of our common stock to decline.
In addition, in November 2008, our board of directors adopted a shareholder rights plan, implementing what is
commonly known as a “poison pill.” This poison pill significantly increases the costs that would be incurred by an
unwanted third party acquirer if such party owns or announces its intent to commence a tender offer for more than
15% of our outstanding common stock or otherwise “triggers” the poison pill by exceeding the applicable stock
ownership threshold. The existence of this poison pill could delay, deter or prevent a takeover of us.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease a total of approximately 120,000 square feet of office space, laboratory, warehousing and other
related facilities. Approximately 90,000 of the total square footage consists of laboratory and office space for our
corporate headquarters in Billerica, Massachusetts under leases expiring in 2022.
Additionally, we lease approximately 18,000 square feet of warehousing space in Billerica, Massachusetts
under a lease expiring in 2019. We lease other facilities in Canada, Singapore, New York and Florida containing a
total of approximately 12,000 square feet under leases expiring from July 2016 to July 2019.
Item 3. Legal Proceedings
The information required by this Item is provided under "Legal Proceedings" in note 13 to the consolidated
financial statements included under Item 8 of this Form 10-K, and is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
33
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
MARKET FOR REGISTRANT'S COMMON EQUITY
Our common stock has been listed on The NASDAQ Global Market under the trading symbol “PODD” since
our initial public offering on May 15, 2007. The following table sets forth the high and low closing sales prices of our
common stock, as reported by The NASDAQ Global Market, for each of the periods listed.
Fiscal Year 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
$
$
$
$
$
$
$
50.18
49.07
41.11
47.51
45.18
31.85
34.39
39.32
$
$
$
$
$
$
$
$
35.83
31.69
32.94
36.75
29.39
26.23
25.64
26.36
As of February 25, 2015, there were approximately 11 registered holders of record of our common stock. The
number of beneficial stockholders of our shares is greater than the number of stockholders of record.
Performance Graph
The chart set forth below shows the value of an investment of $100 on December 31, 2010 in each of Insulet
Corporation common stock, the NASDAQ Composite Index, and the NASDAQ Health Care Index. All values
assume reinvestment of the pre-tax value of dividends paid by companies included in these indices and are
calculated as of December 31, 2015. The historical stock price performance of our common stock shown in the
performance graph below is not necessarily indicative of future stock price performance.
Insulet Corporation
NASDAQ Composite
NASDAQ Health Care
34
2010 2011 2012 2013 2014 2015
$ 100 $ 121 $ 137 $ 239 $ 297 $ 244
200
271
189
259
166
204
101
106
117
132
100
100
The material in this performance graph is not soliciting material, is not deemed filed with the Securities and
Exchange Commission (“SEC”) and is not incorporated by reference in any filing of Insulet Corporation under the
Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act of 1934, as amended, whether made
on, before or after the date of this filing and irrespective of any general incorporation language in such filing.
Dividend Policy
We currently intend to retain future earnings for the development, operation and expansion of our business
and do not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized For Issuance Under Equity Compensation Plans
The following table sets forth information regarding securities authorized for issuance under our equity
compensation plans as of December 31, 2015.
Plan Category
Equity compensation plans approved by
security holders(1)
Equity compensation plans not approved by
security holders(2)
Total(4)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
2,929,887
881,277
3,811,164
$
$
$
23.43
28.87
24.69
6,152,904
—
6,152,904 (3)
(1) Includes our Amended and Restated 2007 Stock Option and Incentive Plan. Outstanding restricted stock units convert to common stock
without the payment of consideration. As of December 31, 2015, 655,792 restricted stock units were outstanding. The weighted-average
exercise price of outstanding options as of such date issued under these Plans (excluding restricted stock units) was $30.19
(2) Consists of the following inducement grants made to certain executive officers upon their initial hire by us: one inducement grant of 499,468
shares of non-qualified stock option awards made to Patrick J. Sullivan upon being hired by us in September 2014; one inducement grant of
26,756 non-qualified stock options and 18,182 restricted stock units (6,060 of which were exercised during the year ended December 31,
2015) made to Brad Thomas upon being hired by us in November 2014; one inducement grant of 79,936 non-qualified stock options and
56,965 restricted stock units made to Shacey Petrovic upon being hired by us in February 2015; one inducement grant of 58,852 non-qualified
stock options and 43,028 restricted stock units made to Michael Levitz upon being hired by us in May 2015; one inducement grant of 29,581
non-qualified stock options and 21,627 restricted stock units made to David Colleran upon being hired by us in June 2015; and one
inducement grant of 30,511 non-qualified stock options and 22,431 restricted stock units to Michael Spears upon being hired by us in July
2015. These non-qualified stock option awards and restricted stock units were granted outside of our Amended and Restated 2007 Stock
Option and Incentive Plan in compliance with Nasdaq Listing Rule 5635.
(3) The maximum number of shares of our common stock that remain available for future issuance under our 2007 Stock Option and Incentive
Plan as of December 31, 2015 is 6,152,904 shares.
(4) As of December 31, 2015, 811,965 restricted stock units were outstanding. The weighted-average exercise price of outstanding options as of
such date issued as inducement grants (excluding restricted stock units) was $35.08.
For more information relating to our equity compensation plans, see footnote 14 to our consolidated financial
statements.
Issuer Repurchases of Equity Securities
We did not repurchase any of our equity securities during the quarter ended December 31, 2015, nor issue
any securities that were not registered under Securities Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
35
Item 6. Selected Financial Data
Consolidated Statements of Operations Data:
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative(4)
Total operating expenses
Operating loss
Interest and other expense, net
Income tax benefit (expense)
Net loss
Net loss per share basic and diluted
Weighted-average number of shares used in
calculating net loss per share(1)
Consolidated Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Current portion of long-term debt and capital lease
obligations
Long-term debt and capital lease obligations(2)
Other long-term liabilities
Total stockholders’ equity
Years Ended December 31,
2015
2014
2013
2012
2011(3)
(In thousands, except share and per share data)
$
324,225
$
288,720
$
247,084
$
211,369
$
152,255
176,071
148,154
145,432
143,288
134,683
112,401
119,033
92,336
43,208
88,352
77,359
27,900
60,844
66,841
21,765
55,694
64,077
24,359
52,708
51,240
85,543
66,712
21,863
43,233
44,083
208,919
155,585
141,536
128,307
109,179
(60,765)
(12,464)
(291)
(12,297)
(39,061)
(142)
(29,135)
(15,739)
(100)
(35,971)
(15,684)
(212)
(42,467)
(14,576)
11,212
(73,520) $
(51,500) $
(44,974) $
(51,867) $
(45,831)
(1.29) $
(0.93) $
(0.83) $
(1.08) $
(0.98)
$
$
56,785,646
55,628,542
54,010,887
47,924,324
46,689,880
2015
2014
2013
2012
2011(3)
As of December 31,
(In thousands)
$
$
$
$
$
$
$
122,672
125,605
275,126
5,519
171,967
3,952
34,051
$
$
$
$
$
$
$
151,193
163,900
297,182
3,380
166,283
2,774
83,829
$
$
$
$
$
$
$
149,727
155,824
286,541
2,637
117,627
1,943
124,597
$
$
$
$
$
$
$
57,293
61,650
196,055
14,429
101,726
1,867
44,176
$
$
$
$
$
$
$
93,955
104,640
218,725
—
105,943
2,052
82,735
(1)
(2)
(3)
(4)
In June 2011, we issued 1.2 million shares in connection with the acquisition of Neighborhood Diabetes. In January 2013, we sold 4.7
million shares of common stock to the public. In July 2014, we issued 0.3 million shares of common stock in connection with the
repurchase of the 3.75% Senior Convertible Notes. See Footnote 14 to our consolidated financial statements included in this Annual
Report on Form 10-K.
In June 2008, we sold $85.0 million principal amount of 5.375% Convertible Senior Notes due June 2013 in a private placement to
qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In June 2011, we issued $143.8 million
of 3.75% Convertible Notes due June 2016 and repurchased $70 million in principal of the 5.375% Notes. In June 2014, we issued
$201.3 million of 2% Convertible Notes due June 2019 and repurchased $114.9 million in 3.75% Notes. In July 2014, the remaining
principal balance of the 3.75% Notes were converted and the principal was settled in cash. In 2013 and 2014 we acquired $9.0 million
and $1.5 million, respectively, of manufacturing equipment under capital leases. See Footnotes 5 and 6 to our consolidated financial
statements included in this Annual Report on Form 10-K.
On June 1, 2011, we completed the acquisition of Neighborhood Diabetes, a durable medical equipment distributor, specializing in direct
to consumer sales of diabetes supplies for an aggregate purchase price of approximately $37.9 million in cash and $24.4 million in
common stock. Neighborhood Diabetes supplied its customers with blood glucose testing supplies, insulin pumps, pump supplies,
pharmaceuticals, and other products for the management and treatment of diabetes.
Included an impairment charge of $9.1 million related to the impairment of the Neighborhood Diabetes asset group. See Footnote 11 to
our consolidated financial statements included in this Annual Report on Form 10-K.
36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Level Overview
We are primarily engaged in the development, manufacturing and sale of our proprietary OmniPod System, an
innovative, discreet and easy-to-use continuous insulin delivery system for people with insulin-dependent diabetes.
The OmniPod System features a small, lightweight, self-adhesive disposable tubeless OmniPod device which is
worn on the body for approximately three days at a time and its wireless companion, the handheld PDM.
Conventional insulin pumps require people with insulin-dependent diabetes to learn to use, manage and wear a
number of cumbersome components, including up to 42 inches of tubing. In contrast, the OmniPod System
features only two discreet, easy-to-use devices that eliminate the need for a bulky pump, tubing and separate blood
glucose meter, provides for virtually pain-free automated cannula insertion, communicates wirelessly and integrates
a blood glucose meter. We believe that the OmniPod System’s unique proprietary design and features allow people
with insulin-dependent diabetes to manage their diabetes with unprecedented freedom, comfort, convenience, and
ease.
We began commercial sale of the OmniPod System in the United States in 2005. We sell the OmniPod
System and other diabetes management supplies in the United States through direct sales to customers or through
our distribution partners. The OmniPod System is currently available in multiple countries in Europe, Canada and
Israel. In July 2015, we executed an asset purchase agreement with GSK whereby we acquired assets associated
with the Canadian distribution of our products and we assumed the distribution, sales, marketing, training and
support activities for the OmniPod system in Canada. Additional information regarding this acquisition is provided in
note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.
In addition to using the Pod for insulin delivery, we also partner with global pharmaceutical and biotechnology
companies to tailor the OmniPod technology platform for the delivery of subcutaneous drugs across multiple
therapeutic areas.
In June 2011, we acquired Neighborhood Diabetes. Through Neighborhood Diabetes, we provided customers
with blood glucose testing supplies, traditional insulin pumps, pump supplies and pharmaceuticals and had the
ability to process claims as either durable medical equipment or through pharmacy benefits. In February 2016, we
sold Neighborhood Diabetes to Liberty Medical. Additional information regarding the sale of our Neighborhood
Diabetes business is provided in note 18 to the consolidated financial statements included under Item 8 of this Form
10-K.
Highlights and Recent Developments:
•
•
•
•
Exceeded expectation within our Drug Delivery business with initial launch of the OmniPod technology for
use with Amgen's Neulasta product and expanded the pipeline to six development agreements.
Sold our Neighborhood Diabetes business in February 2016 to focus on faster growing innovative products.
Signed development agreement with Eli Lilly and Company for OmniPod delivery of U200 concentrated
insulin, significantly expanding OmniPod's addressable market for Type 1 and Type 2 diabetes.
Signed development agreement with algorithm partner for OmniPod Artificial Pancreas.
2015 Revenue Results:
•
Total revenue of $324.2 million
U.S. OmniPod revenue of $186.8 million
International OmniPod revenue of $40.3 million
Drug Delivery revenue of $34.0 million
Neighborhood Diabetes revenue of $63.1 million.
Our long-term financial objective is to achieve and sustain profitable growth. Our efforts in 2016 will be focused
primarily on the expansion of our customer base in the United States and internationally and increasing our
profitability. Achieving these objectives is expected to require additional investments in certain personnel and
initiatives, as well as enhancements to our manufacturing efficiency and effectiveness. We believe that we will
continue to incur net losses in the near term in order to achieve these objectives. However, we believe that the
accomplishment of our near term objectives will have a positive impact on our financial condition in the future.
37
Components of Financial Operations
Revenue. We derive most of our revenue from global sales of the OmniPod System. Our revenue also
includes (i) sales through Neighborhood Diabetes of other diabetes related products including blood glucose testing
supplies, traditional insulin pumps, pump supplies and other pharmaceuticals to customers and third-party
distributors who resell the product to customers and (ii) sales of devices based on the OmniPod technology platform
to global pharmaceutical and biotechnology companies for the delivery of subcutaneous drugs across multiple
therapeutic areas.
In June 2011, we entered into a development agreement with a U.S. based pharmaceutical company (the
"Development Agreement”). Under the Development Agreement, we were required to perform design,
development, regulatory, and other services to support the pharmaceutical company as it worked to obtain
regulatory approval to use our drug delivery technology as a delivery method for its pharmaceutical. The
pharmaceutical company received regulatory approval in December 2014 and now purchases product from us for
use with its pharmaceutical under a supply agreement.
Cost of revenue. Cost of revenue consists primarily of raw material, labor, warranty, inventory reserve and
overhead costs such as freight-in and depreciation and the cost of products we acquire from third party suppliers.
Research and development. Research and development expenses consist primarily of personnel costs and
outside services within our product development, regulatory and clinical functions, and product development
projects. We generally expense research and development costs as incurred.
Sales and marketing. Sales and marketing expenses consist primarily of personnel costs within our sales,
marketing, reimbursement support, customer care and training functions, sales commissions paid to our sales
representatives and costs associated with participation in medical conferences, physician symposia and
promotional activities.
General and administrative. General and administrative expenses consist primarily of salaries and other
related costs for personnel serving the executive, finance, legal, information technology and human resource
functions, as well as legal fees, accounting fees, insurance costs, bad debt expenses, shipping, handling and
facilities-related costs.
38
Results of Operations
This section discusses our consolidated results of operations for 2015 compared to 2014, as well as 2014
compared to 2013, and should be read in conjunction with the consolidated financial statements and accompanying
notes included under Item 8 of this Form 10-K.
TABLE 1: RESULTS OF OPERATIONS
Years Ended December 31,
Years Ended December 31,
2015
2014
$ Change % Change
2014
2013
$ Change % Change
(In Thousands)
Revenue
Cost of revenue
Gross profit
Gross margin
Operating expenses:
Research and
development
Sales and marketing
General and
administrative
Total operating
expenses
Operating loss
Interest and other expense,
net
$324,225
$288,720
$ 35,505
12 % $288,720
$247,084
$ 41,636
176,071
148,154
145,432
143,288
30,639
4,866
21 % 145,432
3 % 143,288
134,683
112,401
10,749
30,887
45.7%
49.6%
49.6%
45.5%
43,208
88,352
27,900
60,844
15,308
27,508
55 %
45 %
27,900
60,844
21,765
55,694
6,135
5,150
77,359
66,841
10,518
16 %
66,841
64,077
2,764
208,919
155,585
(60,765)
(12,297)
53,334
48,468
34 % 155,585
141,536
14,049
394 % (12,297)
(29,135)
(16,838)
(12,464)
(39,061)
(26,597)
(68)% (39,061)
(15,739)
23,322
Income tax expense
(291)
(142)
149
105 %
(142)
(100)
42
Net loss
$ (73,520)
$ (51,500)
$ 22,020
43 % $ (51,500)
$ (44,974)
$
6,526
Comparison of the Years Ended December 31, 2015 and December 31, 2014
Revenue
17 %
8 %
27 %
28 %
9 %
4 %
10 %
(58)%
148 %
42 %
15 %
Our total revenue increased to $324.2 million, up $35.5 million, or 12%, in the year ended 2015 compared
to the year ended 2014, primarily led by growth in U.S. OmniPod revenue and our on-body injection device for drug
delivery, offset by lower international OmniPod revenue. Our U.S. OmniPod revenue increased to $186.8 million,
up $13.2 million, or 8%, reflecting growth in our installed base of OmniPod users, offset in part by unfavorable
distributor ordering patterns and a reduction in royalty revenues of $3.2 million. Our drug delivery revenue
increased to $34.0 million, up $28.6 million, due to strong growth in demand for our on-body injection device
following regulatory approval in December 2014. Our Neighborhood Diabetes revenue increased to $63.1 million,
up $3.4 million, or 6%, reflecting growth in patient demand. Our international OmniPod revenue decreased to $40.3
million, down $9.7 million, or 19%, primarily reflecting lower distributor sales due to changes in distributor ordering
patterns despite continued growth in our installed base of OmniPod users. This decrease internationally was
partially offset by growth in Canada (we acquired our Canadian distributor in July 2015).
For the year ending December 31, 2016 we expect strong revenue growth in our continuing operations from
all of our product lines as we continue our expansion in the United States and internationally. As we increase
commercial sales with our drug delivery partners, we expect that the revenue from our on-body injection devices will
be a higher relative percentage of our overall growth. In the fourth quarter of 2015, we continued to see strong
growth of approximately 20% in U.S. OmniPod new patient starts and expect this pattern to continue. New patient
starts is an early indicator of future growth in our recurring revenue model rather than an explanation of growth for a
given quarterly period. Increased revenue is dependent upon the success of our sales efforts, our customer
retention and our ability to produce our products in sufficient volumes as our patient base grows and is subject to
other risks and uncertainties. Beginning in the first quarter of 2016, Neighborhood Diabetes will be reported as
discontinued operations, and not included in revenue, as a result of the sale in February 2016.
Cost of Revenue
Cost of revenue increased $30.6 million in the year ended 2015 compared to the same period in 2014
primarily due to an increase in sales volumes, as well as $11.5 million of costs directly and indirectly attributable to
a voluntary Field Safety Notification that we initiated in November 2015 after identifying certain lots of OmniPod
product which had a slight increase in the reported cases in which the needle mechanism failed to deploy or there
was a delay in the deployment of the needle mechanism. The product manufactured in this condition was
contained prior to distribution and will ultimately be scrapped.
39
Gross Margin
Gross margin in the year ended 2015 decreased by approximately 4 points compared to the same period in
2014. The decrease primarily resulted from approximately $11.5 million of costs directly and indirectly attributable
to the voluntary field safety notification. The decrease in gross margin also reflects an increased investment in
product quality and related policies and procedures to stand behind our products, which contributed to a $3.3 million
increase in warranty expense year over year, of which $0.4 million related to the voluntary field safety notification.
For the year ending December 31, 2016, we expect gross margin to increase primarily from enhancements to
our manufacturing efficiency and effectiveness, a favorable product mix primarily driven by the sale of our
Neighborhood Diabetes business.
Research and Development
Research and development expenses increased $15.3 million to $43.2 million for the year ended December
31, 2015, compared to $27.9 million for the same period in 2014. The increase was the result of expenses related
to our development projects, including a new PDM, the use of concentrated insulin for patients with higher insulin-
resistance and investment in our artificial pancreas program, as well as expenses related to software development
costs of $10.5 million.
For the year ending December 31, 2016, we expect overall research and development spending to
increase due to the development efforts on our on-going projects including mobile application development,
integration with continuous glucose monitoring technology, development efforts with Eli Lilly and Company for the
use of concentrated insulin, our artificial pancreas program, and the continued investment to support the use our
technology as a delivery platform for other pharmaceuticals.
Sales and Marketing
Sales and marketing expenses increased $27.5 million to $88.4 million for the year ended December 31,
2015, compared to $60.8 million for the same period in 2014. The increase was mainly the result of a $19.9 million
increase in employee related expenses associated with the expansion of our sales force and customer support
personnel. Additionally, there was a $7.3 million increase in costs associated with marketing campaigns, new
market opportunities and other strategic initiatives as we continue to expand awareness of the OmniPod System
and our on-body injection devices for drug delivery.
We expect sales and marketing expenses in the year ending December 31, 2016 to increase as we see the
full-year impact of the 2015 commercial team expansion and invest in initiatives that will enhance awareness,
customer satisfaction and drive increased adoption of the OmniPod System as well as increased adoption of our
technology as a delivery platform for other pharmaceuticals.
General and Administrative
General and administrative expenses increased $10.5 million to $77.4 million for the year ended December
31, 2015, compared to $66.8 million for the same period in 2014, mainly the result of the $9.1 million impairment
charge associated with our Neighborhood Diabetes business, a $2.0 million increase in expenses associated with
claims and settlements, and an increase of $1.8 million in technology and license fees and technology consulting
services. Additionally, there was an increase in shipping costs of $1.0 million, an increase of $0.8 million in audit,
professional services and consulting fees and an increase in employee related expenses of $0.8 million. This
increase was offset by a decrease in legal fees of approximately $7.4 million related to the Becton, Dickinson and
Company litigation settlement in 2014.
For the year ending December 31, 2016, we expect overall general and administrative expenses to increase
as compared to 2015 as we continue to grow the business and make investments in our operating structure to
support this continued growth.
Interest and Other Expense, Net
Interest and other expense, net was $12.5 million for the year ended December 31, 2015, compared to
$39.1 million for the year ended December 31, 2014. The significant changes in interest and other expense, net
was primarily related to the loss from extinguishment of long-term debt of $23.2 million in 2014 as well as the
change in interest rate on our long-term debt to 2% in mid 2014 from 3.75%.
Income Tax Expense
In the years ended December 31, 2015 and 2014 Income tax expense was $0.3 million and $0.1 million,
respectively. Income tax expense is comprised of a current and deferred portion. The current portion primarily
related to state and foreign taxes and the deferred portion primarily related to federal and state tax amounts.
40
Additional information regarding income tax expenses is provided in note 16 to the consolidated financial
statements included under Item 8 of this Form 10-K.
Comparison of the Years Ended December 31, 2014 and December 31, 2013
Revenue
Total revenue increased $41.6 million in the year ended 2014 compared to the same period in 2013,
primarily the result of an increase in U.S. and international OmniPod revenue, partially offset by lower revenue from
Neighborhood Diabetes. Our U.S. OmniPod revenue increased to $173.6 million, up $22.2 million, or 15%,
reflecting growth in our installed base of OmniPod users. Our international OmniPod revenue increased to $50.0
million, up $25.5 million, reflecting increased installed base as well as increased stock of on hand inventory from
our international distributor during 2014. Our Neighborhood Diabetes revenue decreased to $59.7 million, down
$4.1 million, or 6%, reflecting a reduction in revenue related to certain mail-order diabetic testing supplies such as
blood glucose testing strips and lancets to Medicare beneficiaries that we were no longer eligible to service under
the Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies ("DMEPOS") Competitive Bidding
Program, which took effect on July 1, 2013.
Cost of Revenue
In the year ended December 31, 2014, cost of revenue increased $10.7 million compared to the same
period in 2013 primarily due to higher sales volumes in the United States and internationally. These increases were
partially offset by lower per-unit costs of the OmniPod System resulting from cost savings on raw materials, volume
discounts from our suppliers and increased absorption of manufacturing overhead driven by increased production
volumes.
Gross Margin
Gross margin in the year ended 2014 increased by approximately 4 points compared to the same period in
2013 due to efficiencies in the manufacturing process.
Research and Development
Research and development expenses increased $6.1 million to $27.9 million for the year ended December
31, 2014, compared to $21.8 million for the same period in 2013. The increase was primarily the result of expenses
related to our development projects and included a $3.3 million increase in employee related expenses.
Additionally, we incurred a $2.0 million increase in consulting and temporary labor related to our development
projects and a $0.5 million increase in supplies and consumables.
Sales and Marketing
Sales and marketing expenses increased $5.1 million to $60.8 million for the year ended December 31,
2014, compared to $55.7 million for the same period in 2013. The increase was primarily the result of a $3.5 million
increase in employee related expenses including management transition costs and stock-based compensation and
costs related to the addition of employees as we continue to expand our sales force. Additionally, we incurred a
$1.2 million increase in costs associated with marketing campaigns and other advertising costs.
General and Administrative
General and administrative expenses increased $2.7 million to $66.8 million for the year ended December
31, 2014, compared to $64.1 million for the same period in 2013 The increase included approximately $9.1 million
related to management retirement and transition costs, an increase of $1.2 million in employee related expenses
including stock compensation and $0.5 million in infrastructure costs. The increase was partially offset by a year
over year decrease of $4.0 million in legal expenses, $2.5 million of nonrecurring impairment charges for equipment
no longer being used which was recorded in 2013, a decrease of $0.9 million in amortization expense related to the
customer relationship asset acquired in the June 2011 acquisition of Neighborhood Diabetes, and a decrease of
$0.7 million in shipping expenses.
Interest and Other Expense, Net
Interest and other expense, net was $39.1 million and $15.7 million for the years ended December 31, 2014
and 2013, respectively. The significant change in interest and other expense, net was primarily related to the loss
from extinguishment of long-term debt of $23.2 million in 2014, as well as the change in interest rate on our long-
term debt to 2% in mid 2014 from 3.75% in the prior periods.
Income Tax Expense
41
Income tax expense was $0.1 million for both the years ended December 31, 2014 and 2013. Income tax
expense is comprised of a current and deferred portion. The current portion primarily related to state and foreign
taxes and the deferred portion primarily related to federal and state tax amounts.
Liquidity and Capital Resources
As of December 31, 2015, we had $122.7 million in cash and cash equivalents. We believe that our current
cash and cash equivalents, together with the cash expected to be generated from sales, will be sufficient to meet
our projected operating and debt service requirements for at least the next twelve months.
Equity
In July 2014, in connection with the extinguishment of $28.5 million in principal amount of 3.75% Notes (as
defined below), we issued 348,535 shares of common stock to the holders representing the conversion value in
excess of the principal amount.
Additional information about our common stock issuances is provided in note 14 to the consolidated
financial statements included under Item 8 of this Form 10-K.
Debt
In June 2014 we sold $201.3 million in principal amount of 2% Convertible Senior Notes due June 15, 2019
(the "2% Notes"). The interest rate on the notes is 2% per annum, payable semi-annually in arrears in cash on
June 15 and December 15 of each year. The 2% Notes are convertible into our common stock at an initial
conversion rate of 21.5019 shares of common stock per $1,000 principal amount of the 2% Notes, which is
equivalent to a conversion price of approximately $46.51 per share, subject to adjustment under certain
circumstances.
Cash interest expense related to the 2% Notes was $4.0 million and $2.3 million in the years ended
December 31, 2015 and 2014, respectively. Non-cash interest expense related to the 2% Notes was $7.7 million
and $4.0 million in the years ended December 31, 2015 and 2014, respectively.
As of December 31, 2015, we included $171.7 million on the balance sheet in long-term debt related to the
2% Notes, which represents the principal amount of the notes, less unamortized debt discount and deferred
financing costs.
Additional information regarding our debt issuances is provided in note 5 to the consolidated financial
statements included under Item 8 of this Form 10-K.
Capital Leases
As of December 31, 2015 and December 31, 2014, we have approximately $13.7 million and $8.0 million of
manufacturing equipment acquired under capital leases, respectively. The obligations under the capital leases are
being repaid in equal monthly installments over 24 to 36 month terms and include principal and interest payments
with an effective interest rate of 13% to 17%. At December 31, 2015, $5.5 million was included in current liabilities
and $0.3 million was included in long-term liabilities on our balance sheet related to these capital leases.
Additional information regarding our capital leases is provided in note 6 to the consolidated financial
statements included under Item 8 of this Form 10-K.
42
Summary of Cash Flows
(In thousands)
Cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Years Ended December 31,
2015
2014
2013
$
(12,552) $
8,920
$
3,348
(15,323)
(11,486)
(371)
(275)
4,032
—
(7,307)
96,393
—
Net (decrease) increase in cash and cash equivalents
$
(28,521) $
1,466
$
92,434
Operating Activities
Our net cash used in operating activities for the year ended December 31, 2015 was $12.6 million
compared to net cash provided by operating activities of $8.9 million in the year ended December 31, 2014. The
decrease was primarily due to the increased investment in business operations in 2015 to support the growth of the
business.
Our net cash provided by operating activities was $8.9 million for the year ended December 31, 2014
compared to $3.3 million in 2013. The $5.6 million increase in net cash provided by operating activities was
primarily attributable to a lower net loss after non-cash adjustments including debt extinguishment costs and stock
based compensation expense. This is partially offset by changes in working capital requirements, including an
increase in accounts receivable and inventory.
Investing Activities
Our net cash used in investing activities in the year ended December 31, 2015 was $15.3 million compared
to $11.5 million in 2014. The $3.8 million increase primarily related to the acquisition of our Canadian distributor in
July 2015 of $4.7 million, partially offset by lower capital purchases.
Net cash used in investing activities in the year ended December 31, 2014 was $11.5 million compared to
$7.3 million in 2013. The $4.2 million increase primarily related to the purchases of property and equipment, of
which the majority related to the purchase of manufacturing equipment for use in the production of the OmniPod
System.
Financing Activities
We had net cash used in financing activities for the year ended December 31, 2015 of $0.4 million
compared to $4.0 million in net cash provided by financing activities in 2014. The $4.4 million decrease was
primarily attributable to the increase in payments due to our purchase of additional capital lease property and
equipment in 2015 as well as a $5.0 million net decrease in proceeds related to the 2014 issuance of long term
debt.
Net cash provided by financing activities in the year ended December 31, 2014 was $4.0 million compared
to $96.4 million in 2013. The decrease mainly related to the net proceeds from the 2013 issuance of common stock
in connection with the public offering and the exercise of employee stock options.
Commitments and Contingencies
We lease our facilities in Massachusetts, New York, Florida, Canada and Singapore. Our leases are
accounted for as operating leases. The leases generally provide for a base rent plus real estate taxes and certain
operating expenses related to the leases.
Certain of our operating lease agreements contain scheduled rent increases. Rent expense is recorded
using the straight-line method and deferred rent is included in other liabilities in the accompanying balance sheets.
43
The following table summarizes our principal obligations as of December 31, 2015 (in thousands):
Contractual Obligations
Operating lease obligations
Debt obligations(1)
Capital lease obligations(2)
Purchase obligations
Total
2016
2017
2018
2019
2020
Later
$ 15,174
$ 2,285
$ 2,322
$ 2,306
$ 2,181
$ 2,146
$ 3,934
215,170
6,143
2,000
4,025
5,874
2,000
4,025
4,025
203,095
269
—
—
—
—
—
—
—
—
—
—
—
Total contractual obligations
$238,487
$ 14,184
$ 6,616
$ 6,331
$205,276
$ 2,146
$ 3,934
(1)
(2)
The interest rate on the convertible debt is 2% per annum. We have included future payments of interest on the long-term debt in our
obligations.
The effective interest rate on the capital lease obligations is 13-17%. We have included future payments of interest on the capital leases in
our obligations.
Legal Proceedings
The significant estimates and judgments related with establishing litigation reserves are discussed under
"Legal Proceedings" in note 13 of the consolidated financial statements included under Item 8 of this Form 10-K.
Off-Balance Sheet Arrangements
As of December 31, 2015, we did not have any off-balance sheet financing arrangements.
Critical Accounting Policies and Estimates
Our financial statements are based on the selection and application of generally accepted accounting
principles, which require us to make estimates and assumptions about future events that affect the amounts
reported in our financial statements and the accompanying notes. Future events and their effects cannot be
determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual
results could differ from those estimates, and any such differences may be material to our financial statements.
Based on the sensitivity of reported financial statement amounts to the underlying estimates and
assumptions, the relatively more significant accounting policies applied by us have been identified by management
as those associated with the following:
•
•
•
•
•
•
•
Revenue recognition
Stock-based compensation and equity investments
Business Combinations
Goodwill
Intangibles and other long-lived assets
Accounts receivable and allowance for doubtful accounts
Warranty
Additional information on our critical accounting estimates and significant accounting policies, including
references to applicable footnotes, is provided in note 2 to the consolidated financial statements included under
Item 8 of this Form 10-K.
Recent Accounting Pronouncements
Information with respect to recent accounting developments is provided in note 2 to the consolidated financial
statements included under Item 8 of this Form 10-K.
44
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We do not use derivative financial instruments in our investment portfolio and have no foreign exchange
contracts. Our financial instruments consist of cash, cash equivalents, accounts receivable, accounts payable,
accrued expenses and long-term obligations. We consider investments that, when purchased, have a remaining
maturity of 90 days or less to be cash equivalents. The primary objectives of our investment strategy are to
preserve principal, maintain proper liquidity to meet operating needs and maximize yields. To minimize our
exposure to an adverse shift in interest rates, we invest mainly in cash equivalents. We do not believe that a 10%
change in interest rates would have a material impact on the fair value of our investment portfolio or our interest
income.
As of December 31, 2015, we had outstanding debt recorded on our consolidated balance sheet of $201.3
million related to our 2% Notes and $5.8 million related to capital lease obligations. As the interest rates are fixed,
changes in interest rates do not affect the value of our debt or capital lease obligations.
Foreign Currency Exchange Risk. Our business is subject to risks, including, but not limited to: unique
economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and
foreign exchange rate volatility. We are exposed to currency exchange rate fluctuations related to our subsidiary
operations in Canada and Singapore.
Fluctuations in foreign currency rates could affect our sales, cost of goods and operating margins and could
result in exchange losses. In addition, currency devaluations can result in a loss if we hold deposits of that
currency. A hypothetical 10% increase or decrease in foreign currencies that we transact in would not have a
material adverse impact on our business, financial condition or results of operations.
Item 8. Financial Statements and Supplementary Data
Our financial statements as of December 31, 2015 and 2014 and for each of the three years in the period
ended December 31, 2015, and the Report of the Registered Independent Public Accounting Firm are included in
this report as listed in the index.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the Years ended December 31, 2015, 2014, 2013
Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2015, 2014, 2013
Consolidated Statements of Stockholders' Equity for the Years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
46
47
48
49
50
51
52
45
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Insulet Corporation
We have audited the accompanying consolidated balance sheets of Insulet Corporation as of December 31,
2015 and 2014, and the related consolidated statements of operations, comprehensive loss, stockholders' equity
and cash flows for each of the three years in the period ended December 31, 2015. Our audits also include the
financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Insulet Corporation at December 31, 2015 and 2014, and the consolidated results
of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for
presenting debt issuance costs as a result of the adoption of the amendments to the FASB Accounting Standards
Codification resulting from Accounting Standards Update No. 2015-03, ‘‘Simplifying the Presentation of Debt
Issuance Costs,’’ effective December 31, 2015.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Insulet Corporation's internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission 2013 framework and our report dated February 29, 2016 expressed an unqualified
opinion thereon.
Boston, Massachusetts
February 29, 2016
/s/ Ernst & Young LLP
46
INSULET CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Current portion of capital lease obligations
Total current liabilities
Capital lease obligations
Long-term debt, net of discount
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ Equity
Preferred stock, $.001 par value:
Authorized: 5,000,000 shares at December 31, 2015 and 2014.
Issued and outstanding: zero shares at December 31, 2015 and 2014.
Common stock, $.001 par value:
Authorized: 100,000,000 shares at December 31, 2015 and 2014.
Issued and outstanding: 56,954,830 and 56,299,022 shares at December 31, 2015 and
2014, respectively.
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2015
December 31,
2014
$
122,672
$
151,193
48,387
14,043
5,659
39,882
13,099
4,022
190,761
208,196
$
$
41,793
2,721
39,747
104
37,069
14,064
37,536
317
275,126
$
297,182
18,649
$
38,627
2,361
5,519
65,156
269
171,698
3,952
241,075
14,659
24,703
1,554
3,380
44,296
2,263
164,020
2,774
213,353
—
57
—
56
686,193
661,811
(654)
(13)
(651,545)
(578,025)
34,051
83,829
$
275,126
$
297,182
The accompanying notes are an integral part of these consolidated financial statements.
47
INSULET CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
2015
2014
2013
Years Ended December 31,
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
$
324,225
$
288,720
$
247,084
176,071
148,154
145,432
143,288
134,683
112,401
43,208
88,352
77,359
27,900
60,844
66,841
21,765
55,694
64,077
Total operating expenses
208,919
155,585
141,536
Operating loss
Interest expense
Other income (expense), net
Loss on extinguishment of long-term debt
Interest and other expense, net
Loss before income taxes
Income tax expense
Net loss
Net loss per share basic and diluted
Weighted-average number of shares used in calculating net loss
per share
(60,765)
(12,580)
116
—
(12,464)
(73,229)
(291)
(12,297)
(14,687)
(1,171)
(23,203)
(39,061)
(51,358)
(142)
(29,135)
(16,889)
1,475
(325)
(15,739)
(44,874)
(100)
$
$
(73,520) $
(51,500) $
(44,974)
(1.29) $
(0.93) $
(0.83)
56,785,646
55,628,542
54,010,887
The accompanying notes are an integral part of these consolidated financial statements.
48
INSULET CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss
Other comprehensive loss, net of tax
Foreign currency translation adjustment, net of tax
Total other comprehensive (loss) income, net of tax
Years Ended December 31,
2015
2014
2013
$
(73,520) $
(51,500) $
(44,974)
(641)
(641)
6
6
(19)
(19)
Total comprehensive loss
$
(74,161) $
(51,494) $
(44,993)
The accompanying notes are an integral part of these consolidated financial statements.
49
INSULET CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Common Stock
Shares
Amount
48,359,063
$
48
Additional
Paid-in
Capital
$ 525,679
Accumulated
Deficit
$
(481,551)
Accumulated
Other
Comprehensive
Total
Stockholders’
Equity
$
44,176
Balance at December 31, 2012
Exercise of options to purchase common
stock
Issuance for employee stock purchase
plan
Stock-based compensation expense
Restricted stock units vested, net of
shares withheld for taxes
872,073
12,970
—
217,281
Issuance of common stock, net of offering
costs of $5.0 million
4,715,000
Exercise of warrants to purchase common
stock
Issuance of common stock pursuant to
conversion of debt
Foreign currency translation adjustment,
net of tax
Net loss
47,392
646,645
—
Balance at December 31, 2013
54,870,424
$
Exercise of options to purchase common
stock
Issuance for employee stock purchase
plan
Stock-based compensation expense
Restricted stock units vested, net of
shares withheld for taxes
Net impact of conversion of 3.75% Notes
Allocation to equity for conversion feature
on 2% Notes, net of issuance costs
Issuance of common stock pursuant to
conversion of debt
Foreign currency translation adjustment,
net of tax
Net loss
754,522
13,620
—
311,921
—
—
348,535
—
Balance at December 31, 2014
56,299,022
$
Exercise of options to purchase common
stock
Issuance for employee stock purchase
plan
Stock-based compensation expense
Restricted stock units vested, net of
shares withheld for taxes
Foreign currency translation adjustment,
net of tax
Net loss
449,149
22,039
—
184,620
—
Balance at December 31, 2015
56,954,830
$
1
—
—
—
5
—
1
—
55
1
—
—
—
—
—
—
56
1
—
—
—
—
57
9,479
445
12,616
(3,265)
92,807
—
13,325
—
—
—
—
—
—
—
—
(44,974)
(19)
9,480
445
12,616
(3,265)
92,812
—
13,326
(19)
(44,974)
$ 651,086
$
(526,525) $
(19) $
124,597
11,084
583
22,432
(8,665)
(61,728)
34,455
12,564
—
—
—
—
—
—
—
11,085
583
22,432
(8,665)
(61,728)
34,455
12,564
—
(51,500)
6
6
$
(51,500)
$ 661,811
$
(578,025) $
(13) $
83,829
7,198
652
19,178
(2,646)
—
(73,520)
(641)
—
$ 686,193
$
(651,545) $
(654) $
7,199
652
19,178
(2,646)
(641)
(73,520)
34,051
The accompanying notes are an integral part of these consolidated financial statements.
50
INSULET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities
Years Ended December 31,
2015
2014
2013
$
(73,520) $
(51,500) $
(44,974)
Depreciation and amortization
Non-cash interest and other expense
Stock-based compensation expense
Loss on extinguishment of debt
Provision for bad debts
Impairment and other charges
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Deferred revenue
Prepaid expenses and other assets
Accounts payable, accrued expenses and other
current liabilities
Other long-term liabilities
Net cash (used in) provided by operating
activities
Cash flows from investing activities
Purchases of property and equipment
Acquisition of Canadian distribution business
Net cash used in investing activities
Cash flows from financing activities
15,838
7,678
19,178
—
1,184
9,086
(9,793)
(722)
809
(1,460)
17,986
1,184
12,223
10,253
22,519
23,203
3,254
—
(10,069)
(3,635)
654
662
525
831
11,806
9,731
12,683
325
4,741
2,511
(4,514)
5,403
(4,545)
(320)
10,425
76
(12,552)
8,920
3,348
(10,608)
(4,715)
(15,323)
(11,486)
(7,307)
—
—
(11,486)
(7,307)
Principal payments of capital lease obligations
(5,576)
(3,858)
(994)
Proceeds from issuance of long-term debt, net of issuance
costs
Repayment of long-term debt
—
—
194,490
(189,521)
—
(2,000)
Proceeds from issuance of common stock, net of offering costs
7,851
11,586
102,652
Payment of withholding taxes in connection with vesting of
restricted stock units
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information
Cash paid for interest
Cash paid for taxes
Non-cash investing and financing activities
Allocation to equity for conversion feature for the 2% Notes
Common stock issued in exchange for 3.75% Convertible Senior
Notes
Purchases of property and equipment under capital lease
(2,646)
(371)
(275)
(28,521)
151,193
(8,665)
4,032
—
1,466
149,727
(3,265)
96,393
—
92,434
57,293
122,672
$
151,193
$
149,727
4,025
109
$
$
4,657
124
— $
35,638
— $
12,564
5,721
$
1,474
$
$
$
$
$
5,704
321
—
13,000
9,021
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
51
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business
Insulet Corporation, the "Company," is primarily engaged in the development, manufacturing and sale of its
proprietary OmniPod Insulin Management System (the “OmniPod System”), an innovative, discreet and easy-to-use
insulin infusion system for people with insulin-dependent diabetes. The OmniPod System features a unique
disposable tubeless OmniPod which is worn on the body for approximately three days at a time and the handheld,
wireless Personal Diabetes Manager (“PDM”). Conventional insulin pumps require people with insulin-dependent
diabetes to learn to use, manage and wear a number of cumbersome components, including up to 42 inches of
tubing. In contrast, the OmniPod System features two discreet, easy-to-use devices that eliminate the need for a
bulky pump, tubing and separate blood glucose meter, provides for virtually pain-free automated cannula insertion,
communicates wirelessly and integrates a blood glucose meter.
The Company acquired Neighborhood Holdings, Inc. and its wholly-owned subsidiaries (collectively,
“Neighborhood Diabetes”) in June 2011. Through Neighborhood Diabetes, the Company provided customers with
blood glucose testing supplies, traditional insulin pumps, pump supplies and pharmaceuticals and had the ability to
process claims as either durable medical equipment or through pharmacy benefits. In February 2016, the Company
sold Neighborhood Diabetes to Liberty Medical LLC ("Liberty Medical"). Additional information regarding the sale of
Neighborhood Diabetes is provided in note 18 to the consolidated financial statements included under Item 8 of this
Form 10-K.
Commercial sales of the OmniPod System began in the United States in 2005. The Company sells the
OmniPod System and other diabetes management supplies in the United States through direct sales to customers
or through its distribution partners. The OmniPod System is currently available in multiple countries in Europe,
Canada and Israel.
On July 7, 2015, the Company executed an asset purchase agreement whereby it acquired the Canadian
OmniPod distribution operations from GlaxoSmithKline ("GSK"). With the acquisition, the Company assumed all
distribution, sales, marketing, training and support activities for the OmniPod system in Canada. Additional
information regarding this acquisition is provided in note 3 to the consolidated financial statements included under
Item 8 of this Form 10-K.
Note 2. Summary of Significant Accounting Policies
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions in the application of certain of its significant accounting policies that may materially affect the
reported amounts of assets, liabilities, equity, revenue and expenses. The most significant estimates used in these
financial statements include the valuation of; stock-based compensation expense, acquired businesses, accounts
receivable, inventories, goodwill, deferred revenue, equity instruments, the lives of property and equipment and
intangible assets, as well as warranty and doubtful accounts allowance reserve calculations. Actual results may
differ from those estimates.
Foreign Currency Translation
For foreign operations, asset and liability accounts are translated at exchange rates as of the balance sheet
date; income and expenses are translated using weighted average exchange rates for the reporting period.
Resulting translation adjustments are reported in accumulated other comprehensive loss, a separate component of
stockholders' equity. Gains and losses arising from transactions and translation of period-end balances
denominated in currencies other than the functional currency are included in other expense, net, and were not
material for fiscal years 2015, 2014 and 2013.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For the purpose of the financial statement classification, the Company considers all highly liquid investment
instruments with original maturities of 90 days or less, when purchased, to be cash equivalents. Cash equivalents
include money market accounts, which are carried at cost which approximates their fair value. Outstanding letters
52
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of credit, related to security deposits for lease obligations, totaled $1.2 million as of December 31, 2015 and
December 31, 2014.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated
useful life of the respective assets. Leasehold improvements are amortized over their useful life or the life of the
lease, whichever is shorter. Assets acquired under capital leases are amortized in accordance with the respective
class of owned assets and the amortization is included with depreciation expense. Maintenance and repair costs
are expensed as incurred.
Business Combinations
The Company recognizes the assets and liabilities assumed in business combinations on the basis of their fair
values at the date of acquisition. The Company assesses the fair value of assets, including intangible assets, using
a variety of methods and each asset is measured at fair value from the perspective of a market participant. The
method used to estimate the fair values of intangible assets incorporates significant assumptions regarding the
estimates a market participant would make in order to evaluate an asset, including a market participant’s use of the
asset and the appropriate discount rates for a market participant. Assets recorded from the perspective of a market
participant that are determined to not have economic use for the Company are expensed immediately. Any excess
purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill.
Transaction costs and restructuring costs associated with a business combination are expensed as incurred.
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is
available that is evaluated on a regular basis by the chief operating decision-maker ("CODM") in deciding how to
allocate resources to an individual segment and in assessing performance of the segment. The Company has
concluded that their Chief Executive Officer is the CODM as he is the ultimate decision maker for key operating
decisions, determining the allocation of resources and assessing the financial performance of the Company. These
decisions, allocations and assessments are performed by the CODM using consolidated financial information.
Consolidated financial information is utilized by the CODM as the Company’s current product offering primarily
consists of drug delivery and diabetes supplies, including the OmniPod System as well as other diabetes related
products and supplies such as blood glucose testing supplies, traditional insulin pumps, pump supplies, and
pharmaceuticals. The Company’s products are relatively consistent and manufacturing is centralized and consistent
across product offerings. Based on these factors, key operating decisions and resource allocations are made by the
CODM using consolidated financial data and as such the Company has concluded that they operate as one
segment.
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the fair value of identifiable net assets
acquired. The Company follows the provisions of Financial Accounting Standards Board ("FASB") ASC 350-20,
Intangibles - Goodwill and Other (“ASC 350-20”). The Company performs an assessment of its goodwill for
impairment on at least an annual basis or whenever events or changes in circumstances indicate there might be
impairment. The Company's annual impairment test date is October 1st.
The majority of the Company's goodwill resulted from the acquisition of Neighborhood Diabetes in June 2011.
This goodwill largely reflects operational synergies and expansion of product offerings across markets
complementary to the existing core OmniPod offerings.
As the Company operates in one segment, the Company has considered whether that segment contains
multiple reporting units. The Company has concluded that there is a single reporting unit as the Company does not
have segment managers and discrete financial information below consolidated results is not reviewed on a regular
basis. Based on this conclusion, goodwill was tested for impairment at the enterprise level. The Company performs
an annual goodwill impairment test unless interim indicators of impairment exist. The Company has the option to
first assess the qualitative factors to determine whether it is more likely than not that the fair value of its sole
reporting unit is less than its carrying amount. This qualitative analysis is used as a basis for determining whether it
is necessary to perform the two-step goodwill impairment analysis. If the Company determines that it is more likely
than not that its fair value is less than its carrying amount, then the two-step goodwill impairment test will be
performed. The first step compares the carrying value of the reporting unit to its fair value using a discounted cash
flow analysis. If the reporting unit’s carrying value exceeds its fair value, the Company would record an impairment
loss to the extent that the carrying value of goodwill exceeds its implied fair value. There was no impairment of
goodwill during the years ended December 31, 2015, 2014 or 2013.
53
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the change in carrying amount of goodwill during the period indicated:
(In thousands)
Goodwill:
Beginning balance
Goodwill as a result of acquisition
Foreign currency adjustment
Ending balance
Revenue Recognition
Years Ended December 31,
2015
2014
$
$
37,536
$
37,536
2,403
(192)
—
—
39,747
$
37,536
The Company generates nearly all of its revenue from sales of its OmniPod System and other diabetes related
products including blood glucose testing supplies, traditional insulin pumps, pump supplies and pharmaceuticals to
customers and third-party distributors who resell the products to patients with diabetes.
Revenue recognition requires that persuasive evidence of a sales arrangement exists, delivery of goods
occurs through transfer of title and risk and rewards of ownership, the selling price is fixed or determinable and
collectability is reasonably assured. With respect to these criteria:
•
•
•
The evidence of an arrangement generally consists of a physician order form, a patient information form
and, if applicable, third-party insurance approval for sales directly to patients or a purchase order for
sales to a third-party distributor.
Transfer of title and risk and rewards of ownership are passed to the patient or third-party distributor
upon shipment of the products.
The selling prices for all sales are fixed and agreed with the patient or third-party distributor and, if
applicable, the patient’s third-party insurance provider(s) prior to shipment and are based on established
list prices or, in the case of certain third-party insurers, contractually agreed upon prices. Provisions for
discounts, rebates and other adjustments to customers are established as a reduction to revenue in the
same period the related sales are recorded.
The Company offers a 45-day right of return for sales of its OmniPod System in the United States, and a
90-day right of return for sales of its OmniPod System in Canada to new patients and defers revenue to reflect
estimated sales returns in the same period that the related product sales are recorded. Returns are estimated
through a comparison of the Company’s historical return data to its related sales. Historical rates of return are
adjusted for known or expected changes in the marketplace when appropriate. When doubt exists about
reasonable assuredness of collectability from specific customers, the Company defers revenue from sales of
products to those customers until payment is received.
In June 2011, the Company entered into a development agreement with a U.S. based pharmaceutical
company (the "Development Agreement”). Under the Development Agreement, the Company was required to
perform design, development, regulatory, and other services to support the pharmaceutical company as it worked to
obtain regulatory approval to use the Company’s drug delivery technology as a delivery method for its
pharmaceutical. Over the term of the Development Agreement, the Company has invoiced amounts based upon
meeting certain deliverable milestones. Revenue on the Development Agreement was recognized using a
proportional performance methodology based on efforts incurred and total payments under the agreement. The
impact of changes in the expected total effort or contract payments was recognized as a change in estimate using
the cumulative catch-up method. The pharmaceutical company received regulatory approval and now purchases
product from the Company for use with its pharmaceutical under a supply agreement. Product revenue under this
arrangement is recognized at the time that all of the revenue recognition criteria are met, typically upon shipment.
The Company deferred revenue of $2.5 million and $1.6 million as of December 31, 2015 and
December 31, 2014, respectively. Deferred revenue as of December 31, 2015 included $0.2 million classified in
other long-term liabilities. Deferred revenue primarily relates to undelivered elements on certain arrangements
within our developmental arrangements and other instances where we have not yet met the revenue recognition
criteria.
54
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
International OmniPod revenue accounted for approximately 12%, 17% and 10% in the years ended
December 31, 2015, 2014 and 2013, respectively.
Shipping and Handling Costs
The Company does not typically charge its customers for shipping and handling costs associated with
shipping its product to its customers. These shipping and handling costs are included in general and administrative
expenses.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents.
The Company maintains the majority of its cash with two financial institutions.
The Company purchases OmniPods from Flextronics International Ltd., its single source supplier. As of
December 31, 2015 and December 31, 2014, liabilities to this vendor represented approximately 26% and 24% of
the combined balance of accounts payable, accrued expenses and other current liabilities, respectively.
In the year ended December 31, 2015, two customers represented 11% and 10% of total revenue,
respectively. In the year ended December 31, 2014, two customers represented 15% and 11% of total revenue,
respectively. In the year ended December 31, 2013, one customer represented 13% of total revenue.
Reclassification of Prior Period Balance
Certain reclassifications have been made to prior periods amounts to conform to the current period financial
statement presentation. These reclassifications have no effect on previously reported net income.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09").
ASU 2014-09 requires that a company will recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for
those goods or services. Under this guidance, a company may make additional estimates regarding performance
conditions and the allocation of variable consideration. The guidance is effective in fiscal years beginning January
1, 2018, with early adoption permitted. The Company is currently evaluating the impact of ASU 2014-09. The
Company has not yet selected a transition method nor has it determined the effect of the standard on our
consolidated financial position and results of operations.
In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718),
Accounting for Share-Based Payments when the terms of an award provide that a performance target could be
achieved after the requisite service period ("ASU 2014-12"). ASU 2014-12 clarifies the period over which
compensation cost would be recognized in awards with a performance target that affects vesting and that could be
achieved after the requisite service period. Compensation cost would be recognized over the required service
period, if it is probable that the performance condition will be achieved. The guidance is effective in fiscal years
beginning after January 1, 2016, with early adoption permitted. Based on the Company's current equity practices,
the Company does not anticipate that the adoption will have a material impact.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements- Going Concern
("ASU 2014-15"). ASU No. 2014-15 requires management to evaluate whether there is substantial doubt about the
entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The new standard is effective for fiscal years ending after December 15, 2016. Early adoption is permitted. The
Company has concluded, that if this standard had been adopted as of December 31, 2015, substantial doubt about
the Company’s ability to continue as a going concern would not exist.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU
2015-03"). ASU 2015-03 amends existing guidance to require the presentation of debt issuance costs in the
balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge.
The guidance is effective for annual reporting periods beginning after December 15, 2015, and must be applied
retrospectively. Early adoption is permitted. The Company has adopted ASU 2015-03, as of December 31, 2015.
The Company historically presented deferred debt issuance costs, or fees related to directly issuing debt, as assets
on the consolidated balance sheets. As of December 31, 2014, the adoption of this standard resulted in the
reclassification of $5.0 million from other assets to long-term debt. These costs will continue to be amortized as
interest expense over the term of the corresponding debt issuance.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory ("ASU 2015-11").
ASU 2015-11 amends existing guidance and requires entities to measure most inventory at the lower of cost and
55
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
net realizable value. The guidance is effective prospectively for annual reporting periods beginning after December
15, 2016. Early adoption is permitted. Upon adoption, entities must disclose the nature of and reason for the
accounting change. The Company is currently evaluating the impact of ASU 2015-11.
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement Period
Adjustments ("ASU 2015-16"). ASU 2015-16 eliminates the requirement that an acquirer in a business combination
account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement
period adjustment during the period in which it determines the amount of the adjustment, including the effect on
earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the
acquisition date. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2015-16.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU
2015-17 requires companies to classify all deferred tax assets and liabilities, along with any valuation allowance, as
noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The
guidance does not change the existing requirement that only permits offsetting within a jurisdiction. The ASU is
effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early
adoption is permitted. During the fourth quarter of 2015, the Company elected early adoption of this standard as it
improved the efficiency of the year end financial reporting process for income taxes and applied the changes
retrospectively to all prior periods presented in its consolidated financial statements. Adoption did not have a
material impact to the financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires
lessees to recognize the assets and liabilities on their balance sheet for the rights and obligations created by most
leases and continue to recognize expenses on their income statements over the lease term. It will also require
disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash
flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018,
and interim periods within those years. Early adoption is permitted for all entities. The Company is currently
evaluating the impact of ASU 2016-02.
Other Significant Policies:
The following table identifies the Company's other significant accounting policies and the note and page
where a detailed description of each policy can be found.
Fair Value Measurements
Accounts Receivable and Allowance for Doubtful Accounts
Inventories
Intangibles and Other Long-Lived Assets
Warranty
Stock-Based Compensation
Income Taxes
Note
Note
Note
Note
Note
Note
Note
4 Page
8 Page
9 Page
11 Page
12 Page
14 Page
16 Page
57
62
62
64
65
67
71
56
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Business Combinations
On July 7, 2015, the Company executed an asset purchase agreement with GlaxoSmithKline (GSK) whereby
the Company acquired GSK's assets associated with the Canadian distribution of the Company's products. With
the acquisition, the Company assumed all distribution, sales, marketing, training and support activities for the
OmniPod system in Canada through its wholly-owned subsidiary, Insulet Canada Corporation.
The acquisition allows the Company to establish a local presence in Canada that enables it to engage directly
with healthcare providers and OmniPod users. The aggregate purchase price of approximately $4.7 million
consisted of cash paid at closing, subject to certain adjustments.
The Company has accounted for the acquisition as a business combination. Under business combination
accounting, the assets and liabilities were recorded as of the acquisition date, at their respective fair values, and
consolidated with the Company. The excess of the purchase price over the fair value of net assets acquired was
recorded as goodwill and largely reflects operational synergies complimentary to the existing business. The
operating results of GSK Canada have been included in the consolidated financial statements since July 7, 2015,
the date the acquisition was completed. These results are not material to our revenues or operating results.
Prior to the acquisition the Company had a pre-existing relationship with GSK. As a result of the acquisition,
the pre-existing relationship was settled by Insulet, with Insulet repurchasing the $0.5 million of inventory held by
GSK at the date of the asset purchase. The inventory repurchased had been sold to GSK during the second
quarter of 2015, however no revenue was recognized by Insulet on these sales given the expectation to
repurchase. As the inventory was repurchased at cost, there were no gains or losses associated with this
transaction. This transaction was accounted for separately from the business combination.
The table below details the consideration transferred to acquire GSK (in thousands):
Cash
Employment liability transfer fee
Total consideration
$
$
5,000
(285)
4,715
The assets acquired and liabilities assumed were recorded at fair value at date of acquisition as follows:
Goodwill
Contractual relationships
Inventory step up
Assumed liabilities
$
2,403
2,100
230
(18)
$
4,715
During the year ended December 31, 2015, the Company incurred transaction costs of $0.1 million, consisting
primarily of legal fees, which have been recorded as general and administrative expenses. The Company
determined that there was no value to the reacquisition of the Canada exclusivity contract due to the contribution
charges of the contractual relationships.
Note 4. Fair Value Measurements
The Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”) related to the fair value measurement of
certain of its assets and liabilities. ASC 820 defines fair value as the price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. A single estimate of fair value results
from a complex series of judgments about future events and uncertainties and relies heavily on estimates and
assumptions. When estimating fair value, depending on the nature and complexity of the asset or liability, the
Company may use one or all of the following approaches:
• Market approach, which is based on market prices and other information from market transactions
involving identical or comparable assets or liabilities.
•
•
Cost approach, which is based on the cost to acquire or construct comparable assets less an allowance
for functional and/or economic obsolescence.
Income approach, which is based on the present value of the future stream of net cash flows.
57
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, as
described in ASC 820, of which the first two are considered observable and the last unobservable:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — observable inputs other than quoted prices in active markets for identical assets or liabilities
Level 3 — unobservable inputs in which there is little or no market data available, which require the
reporting entity to develop its own assumptions
Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value
because of the short-term maturity of these financial instruments.
The following table provides a summary of assets that are measured at fair value as of December 31, 2015
and 2014, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
December 31, 2015
Recurring Fair Value Measurements:
Cash Equivalents - Money Market Funds
Non-Recurring Fair Value Measurements:
Long-lived assets held and used(1)
December 31, 2014
Recurring Fair Value Measurements:
Cash Equivalents - Money Market Funds
Fair Value Measurements
Total
Level 1
Level 2
Level 3
$ 98,223
$ 98,223
$
— $
—
$ 1,800
$
— $
— $ 1,800
$123,141
$123,141
$
— $
—
(1)
Long-lived assets held and used relate to the asset group of the Neighborhood Diabetes business which consists of definite lived
intangible assets and property and equipment. During the fourth quarter, the Company recognized an impairment charge on this asset
group totaling $9.1 million, which represented the difference between the fair value of the asset group and the carrying value. As a result of
the impairment the asset group has been recorded at fair value as of December 31, 2015. The fair value for the asset group was
determined using the direct cash flows expected to be received from the disposition of the asset group, which was completed in February
2016 (level 3 input).
Debt
The estimated fair value of debt is based on the Level 1 quoted market prices for the same or similar issues
and included the impact of the conversion features.
The carrying amounts and the estimated fair values of financial instruments as of December 31, 2015 and
2014, are as follows (in thousands):
December 31, 2015
December 31, 2014
Carrying
Value
Estimated Fair
Value
Carrying
Value
Estimated Fair
Value
2% Convertible Senior Notes
$
171,698
$
207,882
$
164,020
$
237,475
The Company issued $201.3 million in principal amount of 2% Notes (as defined below) in June 2014. The
carrying value of the 2% Notes at December 31, 2015 includes a debt discount of $25.7 million which is being
amortized as non-cash interest expense over the term of the 2% Notes. The decrease in the estimated fair values
of these liabilities from December 31, 2014 to 2015 represents the impact of the quoted bond prices at those dates.
58
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5. Debt
The Company had outstanding convertible debt and related deferred financing costs on its consolidated
balance sheet as follows (in thousands):
Principal amount of the 2% Convertible Senior Notes
Unamortized debt discount
Deferred financing costs
Long-term debt, net of discount
As of
December 31,
2015
December 31,
2014
$
$
$
201,250
$
201,250
(25,704)
(3,848) $
(32,256)
(4,974)
171,698
$
164,020
Interest expense related to the 3.75% Notes (as defined below) and the 2% Notes was included in interest and
other expense on the consolidated statements of operations as follows (in thousands):
Contractual coupon interest
Accretion of debt discount
Amortization of debt issuance costs
Loss on extinguishment of long-term debt
Total interest and other expense
3.75% Convertible Senior Notes
Years Ended December 31,
2015
2014
2013
$
4,025
$
4,657
$
5,704
6,552
1,126
—
8,007
895
23,203
10,492
590
325
$
11,703
$
36,762
$
17,111
In June 2011, the Company sold $143.8 million in principal amount of 3.75% Convertible Senior Notes due
June 15, 2016 (the "3.75% Notes"). The interest rate on the notes was 3.75% per annum, payable semi-annually in
arrears in cash on December 15 and June 15 of each year. The 3.75% Notes were convertible into the Company’s
common stock at an initial conversion rate of 38.1749 shares of common stock per $1,000 principal amount of the
3.75% Notes, which was equivalent to a conversion price of approximately $26.20 per share.
In connection with the issuance of the 3.75% Notes, the Company repurchased $70 million in principal amount
of its 5.375% Convertible Senior Notes due June 15, 2013 (the "5.375% Notes") for $85.1 million, a 21.5% premium
on the principal amount. The investors that held the $70 million in principal amount of repurchased 5.375% Notes
purchased $59.5 million in principal amount of the 3.75% Notes and retained approximately $13.5 million in
principal amount of the remaining 5.375% Notes. These investors’ combined $73.0 million in principal amount of
convertible debt ($13.5 million of 5.375% Notes and $59.5 million of 3.75% Notes) was considered to be a
modification of a portion of the 5.375% Notes and was accounted for separately from the issuance of the remainder
of the 3.75% Notes.
The Company recorded a total debt discount of $25.8 million related to the modified debt. This discount
consisted of $10.5 million related to the remaining debt discount on the $70 million in principal amount of 5.375%
Notes repurchased, $15.1 million related to the premium payment in connection with the repurchase and $0.2
million related to the increase in the value of the conversion feature. The total debt discount was being amortized
as non-cash interest expense at the effective rate of 16.5% over the five year term of the modified debt.
Additionally, the Company paid transaction fees of approximately $2.0 million related to the modification, which were
recorded as interest and other expense at the time of the modification.
As of December 31, 2013, the 5.375% Notes were repaid in full and no amounts remained on the Company's
balance sheet related to these notes.
59
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Of the $143.8 million in principal amount of 3.75% Notes issued in June 2011, $84.3 million in principal amount
was considered to be an issuance of new debt. The Company recorded a debt discount of $26.6 million related to
the $84.3 million in principal amount of 3.75% Notes. The debt discount was recorded as additional paid-in capital
to reflect the value of its nonconvertible debt borrowing rate of 12.4% per annum and was being amortized as non-
cash interest expense over the five year term of the 3.75% Notes. The Company incurred deferred financing costs
related to this offering of approximately $2.8 million, of which $0.9 million has been reclassified as an offset to the
value of the amount allocated to equity. The remainder was recorded as other assets in the consolidated balance
sheet and was being amortized as non-cash interest expense over the five year term of the 3.75% Notes.
In June 2014, in connection with the issuance of $201.3 million in principal amount of 2% Convertible Senior
Notes due June 15, 2019 (the “2% Notes”), the Company repurchased approximately $114.9 million in principal
amount of the 3.75% Notes for $160.7 million, a premium of $45.8 million over the principal amount. Investors that
held approximately $80.0 million of 3.75% Notes purchased approximately $98.2 million in principal amount of the
2% Notes. The repurchase of the 3.75% Notes was treated as an extinguishment of debt since the fair value of the
conversion feature changed by more than 10%. The extinguishment of the 3.75% Notes was accounted for
separately from the issuance of the 2% Notes. The $160.7 million paid to extinguish the debt was allocated to debt
and equity based on their respective fair values immediately prior to the transaction. The Company
allocated $112.4 million of the payment to the debt and $48.3 million to equity.
The 3.75% Notes were convertible at the option of the holder during the quarter ended June 30, 2014 since the
last reported sales price per share of the Company's common stock was equal to or greater than 130% of the
conversion price for at least 20 of the 30 trading days ended on March 31, 2014. The 3.75% Notes and any unpaid
interest were convertible at the Company’s option for cash, shares of the Company’s common stock or a
combination of cash and shares of the Company’s common stock.
Beginning on June 20, 2014, the Company had the right to redeem the 3.75% Notes, at its option, in whole or
in part, if the last reported sale price per share of the Company’s common stock was at least 130% of the
conversion price then in effect for at least 20 trading days during a period of 30 consecutive trading days. In June
2014, the Company met the redemption requirements and notified holders of its intent to redeem the outstanding
$28.8 million in principal amount of 3.75% Notes in July 2014. Prior to the redemption date, holders of $28.5
million in principal amount of 3.75% Notes exercised their right to convert their outstanding 3.75% Notes. The
Company settled this conversion of the 3.75% Notes in July 2014 by providing cash of $28.5 million for the principal
amount of the outstanding 3.75% Notes converted and issuing 348,535 shares of common stock for the conversion
premium totaling $12.6 million, for a total consideration paid of $41.1 million. The Company settled the redemption
of the remaining $0.3 million in principal amount in exchange for a cash payment of $0.3 million representing
principal and accrued and unpaid interest. The Company allocated $27.9 million of the total consideration paid to
the debt and $13.5 million to equity.
The Company recorded a loss on extinguishment of debt of $23.2 million in connection with the repurchase
and redemption of the 3.75% Notes during the year ended December 31, 2014, representing the excess of the
$140.3 million allocated to the debt over its carrying value, net of deferred financing costs.
Certain features related to a portion of the 3.75% Notes, including the holders’ ability to require the Company
to repurchase their notes and the higher interest payments required in an event of default, were considered
embedded derivatives and were required to be bifurcated and accounted for at fair value. The Company assessed
the value of these embedded derivatives at each balance sheet date.
No cash interest expense was recorded related to the 3.75% Notes in the year ended December 31, 2015.
Cash interest expense related to the 3.75% Notes outstanding was $2.4 million and $5.4 million in the years ended
December 31, 2014 and 2013, respectively. There was no non-cash interest expense recorded in the year ended
December 31, 2015 related to the 3.75% Notes, compared to $4.9 million and $10.8 million in years ended
December 31, 2014 and 2013, respectively.
As of December 31, 2014, no amounts remain outstanding related to the 3.75% Notes.
2% Convertible Senior Notes
In June 2014, the Company sold $201.3 million in principal amount of the 2% Notes due June 15, 2019. The
interest rate on the notes is 2% per annum, payable semi-annually in arrears in cash on June 15 and December 15
of each year. The 2% Notes are convertible into the Company’s common stock at an initial conversion rate of
21.5019 shares of common stock per $1,000 principal amount of the 2% Notes, which is equivalent to a conversion
price of approximately $46.51 per share, subject to adjustment under certain circumstances.
60
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company recorded a debt discount of $35.6 million related to the 2% Notes. The debt discount was
recorded as additional paid-in capital to reflect the value of the Company’s nonconvertible debt borrowing rate of
6.2% per annum. This debt discount is being amortized as non-cash interest expense over the five year term of the
2% Notes. The Company incurred deferred financing costs related to this offering of approximately $6.7 million, of
which $1.2 million has been reclassified as an offset to the value of the amount allocated to equity. The remainder
is recorded as a reduction to debt in the consolidated balance sheet and is being amortized as non-cash interest
expense over the five year term of the 2% Notes.
The 2% Notes contain provisions that allow for additional interest to the holders of the Notes upon the failure to
timely file documents or reports that the Company is required to file with the SEC. The additional interest is at a rate
of 0.25% per annum of the principal amount of the notes outstanding for the first 180 days and 0.50% per annum of
the principal amount of the notes outstanding for a period up to 360 days.
If the Company is purchased by a company outside of the US, then additional taxes may be required to be paid
by the Company under the terms of the 2% Notes.
The Company determined that the higher interest and tax payments required in certain circumstances are
considered embedded derivatives and should be bifurcated and accounted for at fair value. The Company
assesses the value of the embedded derivatives at each balance sheet date. The derivatives had de minimis value
at the balance sheet date.
Cash interest expense related to the 2% Notes was $4.0 million and $2.3 million in the years ended December
31, 2015 and 2014, respectively. Non-cash interest expense related to the 2% Notes was $7.7 million and $4.0
million in the years ended December 31, 2015 and 2014, respectively.
As of December 31, 2015, the Company included $171.7 million on its balance sheet in long-term debt related
to the 2% Notes.
Note 6. Capital Lease Obligations
As of December 31, 2015 and 2014, the Company has approximately $13.7 million and $8.0 million of
manufacturing equipment acquired under capital leases, included in property and equipment, respectively. The
obligations under the capital leases are being repaid in equal monthly installments over 24 to 36 month terms and
include principal and interest payments with an effective interest rate of 13% to 17%.
The assets acquired under capital leases are being amortized on a straight-line basis over 5 years in
accordance with the Company's policy for depreciation of manufacturing equipment. Amortization expense on
assets acquired under capital leases is included with depreciation expense. Amortization expense related to these
capital leased assets was $2.5 million, $1.3 million and $0.6 million in the years ended December 31, 2015, 2014
and 2013, respectively.
Assets held under capital leases consist of the following (in thousands):
Manufacturing equipment
Less: Accumulated amortization
Total
As of
December
31, 2015
December 31,
2014
$
$
13,705
$
(4,346)
9,359
$
7,984
(1,885)
6,099
The aggregate future minimum lease payments related to these capital leases as of December 31, 2015, are
as follows (in thousands):
Years Ending December 31,
2016
2017
Total future minimum lease payments
Interest expense
Total capital lease obligations
Minimum Lease
Payments
5,874
269
6,143
(355)
5,788
$
$
$
The Company recorded $1.2 million of interest expense on capital leases in the years ended December 31,
2015 and 2014, and $0.4 million of interest expense on capital leases in 2013.
61
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares
outstanding for the period, excluding unvested restricted common shares. Diluted net loss per share is computed
using the weighted average number of common shares outstanding and, when dilutive, potential common share
equivalents from options, restricted stock units and warrants (using the treasury-stock method), and potential
common shares from convertible securities (using the if-converted method). Because the Company reported a net
loss for the years ended December 31, 2015, 2014 and 2013, all potential dilutive common shares have been
excluded from the computation of the diluted net loss per share for all periods presented, as the effect would have
been anti-dilutive.
Potential dilutive common share equivalents consist of the following:
3.75% Convertible Senior Notes
2.00% Convertible Senior Notes
Unvested restricted stock units
Outstanding options
Total dilutive common shares
Note 8. Accounts Receivable
Years Ended December 31,
2015
2014
2013
—
—
5,487,642
4,327,257
4,327,257
—
811,965
746,612
1,011,893
2,999,199
1,847,669
1,828,613
8,138,421
6,921,538
8,328,148
Accounts receivable consist of amounts due from third-party payors, patients, third-party distributors and
government agencies. The Company records an allowance for doubtful accounts at the time potential collection
risk is identified. The Company estimates its allowance based on historical experience, assessment of specific risk,
discussions with individual customers or various assumptions and estimates that are believed to be reasonable
under the circumstances. The Company believes the reserve is adequate to mitigate current collection risk.
Accounts receivable from two customers represented approximately 18% and 16% of gross accounts
receivable as of December 31, 2015, respectively. As of December 31, 2014 accounts receivable from two
customers represented approximately 19% and 10% of gross accounts receivable, respectively.
The components of accounts receivable are as follows (in thousands):
Trade receivables
Allowance for doubtful accounts
Total accounts receivable
Note 9. Inventories
As of
December 31,
2015
December 31,
2014
$
$
52,841
$
(4,454)
48,387
$
45,719
(5,837)
39,882
Inventories are held at the lower of cost or market, determined under the first-in, first-out method. Inventory
has been recorded at cost as of December 31, 2015 and 2014. Work in process is calculated based upon a buildup
in the stage of completion using estimated labor inputs for each stage in production. The Company periodically
reviews inventories for net realizable value based on quantities on hand and expectations of future use.
Inventories consist of the following (in thousands):
Raw materials
Work-in-process
Finished goods, net
Total inventories
As of
December 31,
2015
December 31,
2014
$
$
632
$
1,960
11,451
14,043
$
853
254
11,992
13,099
62
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10. Property and Equipment
Property and equipment consist of the following (in thousands):
Machinery and equipment
Lab equipment
Computers
Software
Office furniture and fixtures
Leasehold improvement
Construction in process
Total property and equipment
Less: accumulated depreciation
Total property and equipment
* Lesser of lease term or useful life of asset
Estimated
Useful Life
(Years)
As of
December 31,
2015
2014
2-5
2-3
3
3
3-5
*
—
$
49,059
$
35,690
1,615
2,067
2,566
1,468
927
12,275
69,977
$
1,585
4,511
5,618
1,253
826
10,502
59,985
(28,184)
(22,916)
41,793
$
37,069
$
$
Property and equipment by geographic location consist of the following (in thousands):
Property and equipment:
U.S. property and equipment
Non-U.S. property and equipment
Less: accumulated depreciation
Total property and equipment
As of
December 31,
2015
2014
$
$
19,267
$
50,710
(28,184)
22,814
37,171
(22,916)
41,793
$
37,069
Depreciation expense related to property and equipment was $11.5 million, $8.2 million, and $6.9 million for
the years ended December 31, 2015, 2014 and 2013, respectively. The Company recorded $0.2 million of
capitalized interest in the years ended December 31, 2015 and 2014 and $0.3 million of capitalized interest in 2013.
Construction in process mainly consists of infrastructure improvements and internal use software.
Depreciation on software does not begin until the assets are integrated into the current systems.
During the years ended December 31, 2015 and 2014, the Company wrote-off $5.4 million and $19.8 million,
respectively, of fully depreciated assets, as the assets were no longer in use. No gain or loss was recognized in the
year ended December 31, 2014 related to the write-off of these assets.
63
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11. Other Intangible Assets
The Company’s finite-lived intangible assets are stated at cost less accumulated amortization. The Company
assesses its intangible and other long-lived assets for impairment whenever events or changes in circumstances
suggest that the carrying value of an asset may not be recoverable. The Company recognizes an impairment loss
for intangibles and other finite-lived assets if the carrying amount of a long-lived asset is not recoverable based on
its undiscounted future cash flows. Any such impairment loss is measured as the difference between the carrying
amount and the fair value of the asset. The estimation of useful lives and expected cash flows requires the
Company to make significant judgments regarding future periods that are subject to some factors outside its control.
Changes in these estimates can result in significant revisions to the carrying value of these assets and may result in
material charges to the results of operations.
The Company recorded $32.9 million of other intangible assets as a result of the acquisition of Neighborhood
Diabetes in 2011. In December 2015, the Company completed a long-lived asset impairment test for Neighborhood
Diabetes and determined that the carrying value of the long-lived asset group, which included intangible assets,
exceeded the undiscounted cash flows expected to be generated from the asset group. The Company compared
the fair value of the intangible assets and the related asset group, which was estimated based on the subsequent
sales price of the asset group as of February 2016. As a result, an impairment charge of $9.0 million was recorded
within general and administrative expenses for the year ended December 31, 2015. The impairment charge was
allocated on pro-rata basis based on the carrying value of the assets within the asset group. As a result, impairment
charges of approximately $7.4 million and $1.6 million, respectively, were recorded on the customer relationship and
trade name intangible assets.
The Company recorded $2.1 million of other intangible assets in the year ended December 31, 2015 as a
result of the July 2015 acquisition of its Canadian distribution business (see Footnote 3 for further description). The
Company determined that the estimated useful life of the contractual relationship asset is 5 years and is amortizing
the asset over the estimated lives, based on the expected cash flows of the assets, accordingly. The amortization
expense of other intangible assets was approximately $1.0 million for the year ended December 31, 2015, which
was recorded in general and administration expenses on the statement of operations.
Other intangible assets consist of the following (in thousands):
As of
December 31, 2015
December 31, 2014
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
Customer and contractual
relationships, net(1)
Tradename
Total intangible assets (2)
$
$
3,399
$
(1,000) $
2,399
$
30,100
$
(18,167) $
11,933
322
—
322
2,800
(669)
2,131
3,721
$
(1,000) $
2,721
$
32,900
$
(18,836) $
14,064
(1)
(2)
Includes foreign currency translation loss of approximately $0.2 million.
As a result of the impairment recorded on the Neighborhood Diabetes asset group, the Company recorded an impairment charge of
approximately $9.0 million on the related Neighborhood Diabetes intangible assets. This resulted in the gross carrying value and
accumulated amortization of the Neighborhood Diabetes intangibles being reduced by $31,112 and $22,087 respectively at December 31,
2015.
Amortization expense was approximately $4.3 million, $4.0 million and $4.9 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
64
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortization expense expected for the next five years and thereafter is as follows (in thousands):
Years Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
Amortization Expense
Customer and
Contractual
Relationships
Tradename
Total
$
$
831
507
417
341
237
66
$
2,399
$
$
31
31
31
31
31
167
322
$
862
538
448
372
268
233
2,721
As of December 31, 2015, the weighted average amortization period of the Company’s intangible assets is
approximately 5.8 years.
Note 12. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
Employee compensation and related items
Professional and consulting services
Sales and use tax
Supplier charges
Warranty
Other
Total accrued expenses and other current liabilities
Product Warranty Costs
Years Ended December 31,
2015
2014
17,487
$
5,661
1,484
5,712
1,592
6,691
38,627
$
10,243
4,373
3,843
1,852
981
3,411
24,703
$
$
The Company provides a four-year warranty on its PDMs sold in the United States and a five-year warranty on
its PDMs sold in Canada and may replace any OmniPods that do not function in accordance with product
specifications. The Company estimates its warranty at the time the product is shipped based on historical
experience and the estimated cost to service the claims. Warranty expense is recorded in cost of goods sold on the
statement of operations. Cost to service the claims reflects the current product cost which has been decreasing
over time. As these estimates are based on historical experience, and the Company continues to introduce new
products and versions, the Company also considers the anticipated performance of the product over its warranty
period in estimating warranty reserves.
65
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the changes in the Company’s product warranty liability is as follows (in thousands):
Balance at the beginning of the period
Warranty expense
Warranty claims settled
Balance at the end of the period
Composition of balance:
Short-term
Long-term
Years Ended December 31,
2015
2014
2,614
$
4,964
(3,426)
4,152
$
As of
3,090
1,665
(2,141)
2,614
December 31,
2015
December 31,
2014
1,592
$
2,560
4,152
$
981
1,633
2,614
$
$
$
$
Note 13. Commitments and Contingencies
Operating Leases
The Company leases its facilities in Massachusetts, New York, Florida, Canada and Singapore. The
Company’s leases are accounted for as operating leases. The leases generally provide for a base rent plus real
estate taxes and certain operating expenses related to the leases.
In 2013, the Company entered into a new lease agreement for approximately 90,000 square feet of laboratory
and office space for its corporate headquarters in Billerica, Massachusetts. The lease term began in August 2014
and expires in November 2022 and contains escalating payments over the life of the lease. In 2015, the Company
extended its Singapore lease which now expires in July 2016. In 2014, the Company amended its existing lease for
warehouse space in Billerica, Massachusetts which extended the term and increased the approximate square
footage under the lease. The lease now expires in September 2019. Additionally, in 2014, the Company amended
its existing lease for office space in New York which now expires in January 2019. The Company's Florida lease
expires in July 2019. In the second quarter of 2015, the Company entered into a new lease agreement of office
space in Ontario, Canada. The lease term began in June 2015 and expires in May 2018.
Certain of the Company’s operating lease agreements contain scheduled rent increases. Rent expense is
recorded using the straight-line method and deferred rent is included in other liabilities in the accompanying balance
sheets. The Company has considered FASB ASC 840-20, Leases in accounting for these lease provisions.
The aggregate future minimum lease payments related to these leases as of December 31, 2015, are as
follows (in thousands):
Years Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
Legal Proceedings
Minimum Lease
Payments
2,285
2,322
2,306
2,181
2,146
3,934
$
15,174
The Company is in the process of responding to a revised audit report received in December 2015 on behalf of
the Centers for Medicare and Medicaid Services and the State of New York alleging overpayment of certain
Medicaid claims to Neighborhood Diabetes.
66
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is in the process of responding to a draft audit report received in June 2015 from the
Connecticut Department of Social Services Office of Quality Assurance alleging overpayment of certain Medicaid
claims to Neighborhood Diabetes.
The Company is in the process of responding to a revised audit report received in February 2016 from the
Massachusetts Department of Revenue for sales and use tax audits related to Insulet Corporation.
The Company is in the process of responding to a revised audit report received in February 2016 from the
Massachusetts Department of Revenue for sales and use tax audits related to Neighborhood Diabetes.
The Company has determined that it is probable that a loss has been incurred for the four audits discussed
above and has recorded an aggregate liability of $1.7 million through general and administrative expense as of
December 31, 2015 based on the Company's current estimate of potential loss.
In October 2013, the Company received a letter from the Office of the Massachusetts Attorney General
contending that prior to September 2012 Neighborhood Diabetes engaged in improper sales practices by
automatically refilling certain prescriptions for MassHealth patients. The Company responded to this letter, stating
that Neighborhood Diabetes’ refill practices during the period in question were appropriate and consistent with
applicable laws. The Company entered into a Settlement and Release Agreement and paid approximately $1.5
million in connection with the settlement of this matter in the first quarter of 2015. This amount was previously
accrued as of December 31, 2014.
In July 2015, the Company reached a settlement agreement for $0.8 million with the Massachusetts
Department of Revenue for sales and use tax audits related to Neighborhood Diabetes, which included a $2.9
million reduction of the previously recorded liability and a credit to general and administrative expenses in the
second quarter.
The Company received a warning letter from the FDA in June 2015 that related to the release of certain lots of
OmniPods that did not conform to final acceptance criteria. A voluntary recall of the identified lots was issued and
the Company incurred $0.1 million as warranty expense. The Company has replied to the FDA’s letter, and
received a response indicating that its corrective actions appear to have adequately addressed the issue outlined in
the letter.
In November 2015, the Company initiated a voluntary Field Safety Notification after identifying 18 lots of
OmniPod product which been distributed and had a slight increase in the reported cases in which the needle
mechanism failed to deploy or there was a delay in the deployment of the needle mechanism. There were an
additional 41 lots of product manufactured in this condition which were contained prior to distribution and will
ultimately be scrapped. The Company incurred $0.4 million as warranty expense due to this Field Safety
Notification.
Between May 5, 2015 and June 16, 2015, three class action lawsuits were filed by shareholders in the U.S.
District Court, Massachusetts, against the Company and certain individual current and former executives of the
Company. Two suits subsequently were voluntarily dismissed. Arkansas Teacher Retirement System v. Insulet, et
al., 1:15-cv-12345, which remains outstanding, alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the
Securities Exchange Act of 1934 by making allegedly false and misleading statements about the Company’s
business, operations, and prospects. The lawsuit seeks, among other things, compensatory damages in connection
with the Company’s allegedly inflated stock price between May 7, 2013 and April 30, 2015, as well as attorneys’
fees and costs. Due in part to the preliminary nature of this matter, the Company currently cannot reasonably
estimate a possible loss, or range of loss, in connection with this matter.
The Company is, from time to time, involved in the normal course of business in various legal proceedings,
including intellectual property, contract employment and product liability suits. Although the Company is unable to
quantify the exact financial impact of any of these matters, the Company believes that none of these currently
pending matters will have an outcome material to its financial condition or business.
Note 14. Equity
The Company accounts for stock-based compensation under the provisions of FASB ASC 718-10,
Compensation — Stock Compensation (“ASC 718-10”), which requires all share-based payments to employees,
including grants of employee stock options and restricted stock units, to be recognized in the income statement
based on their fair values. Share-based payments that contain performance conditions are recognized when such
conditions are probable of being achieved.
In July 2014, in connection with the extinguishment of $28.5 million in principal amount of 3.75% Notes, the
Company issued 348,535 shares of its common stock to the holders representing the conversion premium.
67
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-based compensation expense related to share-based awards recognized in the years ended December
31, 2015, 2014 and 2013 was $19.2 million, $22.5 million and $12.7 million, respectively, and was calculated on
awards ultimately expected to vest. At December 31, 2015, the Company had $37.6 million of total unrecognized
compensation expense related to unvested stock options and restricted stock units.
Stock Options
In May 2007, in conjunction with the Company's initial public offering, the Company adopted its 2007 Stock
Option and Incentive Plan (the "2007 Plan"). The 2007 Plan was amended and restated in November 2008, May
2012 and May 2015 to provide for the issuance of additional shares and to amend certain other provisions. Under
the 2007 Plan, awards may be granted to persons who are, at the time of grant, employees, officers, non-employee
directors or key persons (including consultants and prospective employees) of the Company. The 2007 Plan
provides for the granting of stock options, restricted stock units, stock appreciation rights, deferred stock awards,
restricted stock, unrestricted stock, cash-based awards, performance share awards or dividend equivalent rights.
Options granted under the 2007 Plan generally vest over a period of four years and expire ten years from the date
of grant. As of December 31, 2015, 6,152,904 shares remain available for future issuance under the 2007 Plan.
In the year ended December 31, 2015, the Company awarded 194,500 shares of performance-based incentive
stock options. The stock options were granted under the 2007 Plan and vest over a four year period from the grant
date with the potential of an accelerated vesting period pursuant to the achievement of certain performance
conditions.
The Company uses the Black-Scholes option pricing model to determine the weighted-average fair value of
options granted. The Company determines the intrinsic value of restricted stock and restricted stock units based on
the closing price of its common stock on the date of grant. The Company recognizes the compensation expense of
share-based awards on a straight-line basis for awards with only service conditions and on an accelerated method
for awards with performance conditions. Compensation expense is recognized over the vesting period of the
awards.
The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is
affected by the stock price and the following assumptions, including expected volatility, expected life of the awards,
the risk-free interest rate, and the dividend yield.
•
•
•
•
Expected volatility measures the amount that a stock price has fluctuated or is expected to fluctuate
during a period and is computed over expected terms based upon the historical volatility of the
Company's stock.
The expected life of the awards is estimated based on the midpoint scenario, which combines
historical exercise data with hypothetical exercise data for outstanding options, as the Company
believes this data currently represents the best estimate of the expected life of a new employee option.
The Company stratifies its employee population into two groups based upon organizational hierarchy.
The risk-free interest rate assumption is based on U.S. Treasury zero-coupon issues with remaining
terms similar to the expected term on the options.
The dividend yield assumption is based on Company history and expectation of paying no dividends.
The Company has never declared or paid any cash dividends and does not plan to pay cash dividends
in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Stock-based compensation expense recognized in the financial statements
is based on awards that are ultimately expected to vest. If the Company’s actual forfeiture rate is materially different
from its estimate, the stock-based compensation expense could be significantly different from what the Company
has recorded in the current period.
The Company evaluates the assumptions used to value the awards on a quarterly basis and if factors change
and different assumptions are utilized, stock-based compensation expense may differ significantly from what has
been recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, the
Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation
expense.
68
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated grant date fair values of the employee stock options were calculated using the Black-Scholes
option pricing model, based on the following assumptions:
Risk-free interest rate
Expected term (in years)
Dividend yield
Expected volatility
Years Ended December 31,
2015
2014
2013
1.16% - 1.75% 0.12% - 1.98% 0.93% - 1.91%
4.86 - 5.25
1.0 - 6.25
—
—
6.25
—
37% - 38%
37% - 63%
63% - 66%
The Company grants share-based awards to employees in the form of options to purchase the Company’s
common stock, the ability to purchase stock at a discounted price under the employee stock purchase plan and
restricted stock units. The weighted average grant date fair value of options granted for the years ended
December 31, 2015, 2014 and 2013 was $11.09, $15.88 and $15.42, respectively.
The following summarizes the activity under the Company’s stock option plans:
Balance, December 31, 2014
Granted
Exercised(1)
Canceled
Balance, December 31, 2015
Vested, December 31, 2015(2)
Vested and expected to vest, December 31, 2015(2)(3)
Number of
Options (#)
Weighted
Average
Exercise Price ($)
Aggregate
Intrinsic
Value ($)
1,847,669
$
2,002,141
(449,149)
(401,462)
2,999,199
947,909
2,685,514
$
$
(In thousands)
26.99
32.48
16.03
$
8,582
33.20
31.37
27.91
$
$
$
20,743
9,613
18,899
(1)
(2)
(3)
The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common
stock as of the date of exercise and the exercise price of the underlying options. The aggregate intrinsic value of options exercised in the
years ended December 31, 2015, 2014 and 2013 was $8.6 million, $20.4 million and $17.8 million, respectively,
The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common
stock as of December 31, 2015, and the exercise price of the underlying options.
Represents the number of vested options as of December 31, 2015, plus the number of unvested options expected to vest as of
December 31, 2015, based on the unvested options outstanding at December 31, 2015, adjusted for the estimated forfeiture.
At December 31, 2015 there were 2,999,199 options outstanding with a weighted average exercise price of
$31.37 and a weighted average remaining contractual life of 8.4 years. At December 31, 2015 there were 947,909
options exercisable with a weighted average exercise price of $27.91 and a weighted average remaining
contractual life of 6.9 years.
Employee stock-based compensation expense related to stock options in the years ended December 31,
2015, 2014 and 2013 was $9.2 million, $7.7 million and $4.6 million, respectively, and was based on awards
ultimately expected to vest. At December 31, 2015, the Company had $20.7 million of total unrecognized
compensation expense related to stock options that will be recognized over a weighted average vesting period of
1.4 years.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (“ESPP”) authorizes the issuance of up to a total of 380,000 shares of
common stock to participating employees.
All employees who are employed by the Company 20 days prior to the first day of the offering period and
whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any
employee who owns 5% or more of the voting power or value of shares of the Company’s common stock is not
eligible to purchase shares under the ESPP.
69
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company will make one or more offerings each year to employees to purchase stock under the ESPP.
Offerings usually begin on each January 1 and July 1 and continue for six-month periods, referred to as offering
periods.
Each employee who is a participant in the Company’s ESPP may purchase shares by authorizing payroll
deductions of up to 10% of his or her cash compensation during an offering period. Unless the participating
employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to
purchase common stock on the last business day of the offering period at a price equal to 85% of the fair market
value of the common stock on the last day of the offering period. Under applicable tax rules, an employee may
purchase no more than $25,000 worth of common stock, valued at the start of the purchase period, under the ESPP
in any calendar year.
The accumulated payroll deductions of any employee who is not a participant on the last day of an offering
period will be refunded. An employee’s rights under the ESPP terminate upon voluntary withdrawal from the plan or
when the employee ceases employment with the Company for any reason.
The ESPP may be terminated or amended by the Board of Directors at any time. An amendment to increase
the number of shares of common stock that is authorized under the ESPP and certain other amendments require
the approval of stockholders.
The Company issued 22,039 shares of common stock in 2015, 13,620 shares of common stock in 2014 and
12,970 shares of common stock in 2013 to employees participating in the ESPP. The Company recorded
approximately $0.1 million of stock-based compensation expense related to the ESPP in each of the years ended
December 31, 2015, 2014 and 2013.
Restricted Stock Units
In the year ended December 31, 2015, the Company awarded 708,446 restricted stock units to certain
employees and non-employee members of the Board of Directors, which included 114,287 restricted stock units
subject to the achievement of performance conditions (performance-based restricted stock units). The Company
recognized stock compensation expense of $1.4 million in 2015 as it expects a portion of the performance-based
restricted stock units granted will be earned based on its evaluation of the performance criteria at December 31,
2015. The restricted stock units were granted under the 2007 Plan and vest annually over a three year period from
the grant date.
The restricted stock units granted have a weighted average fair value of $30.37 per share based on the closing
price of the Company’s common stock on the date of grant. The restricted stock units granted during the year
ended December 31, 2015 were valued at approximately $21.5 million on their grant date, and the Company is
recognizing the compensation expense over the vesting period. Approximately $8.5 million, $14.7 million and $8.0
million of stock-based compensation expense related to the vesting of non-performance based restricted stock units
was recognized in the years ended December 31, 2015, 2014 and 2013, respectively. Approximately $16.9 million
of the fair value of the restricted stock units remained unrecognized as of December 31, 2015 and will be
recognized over a weighted average period of 1.1 years. Under the terms of the awards, the Company will issue
shares of common stock on each of the vesting dates.
The following table summarizes the status of the Company’s restricted stock units:
Balance, December 31, 2014
Granted
Vested
Forfeited
Balance, December 31, 2015
Shareholder Rights Plan
Number of
Shares (#)
Weighted
Average
Fair Value ($)
746,612
$
708,446
(271,118)
(371,975)
811,965
$
31.40
30.37
28.96
33.00
30.58
In November 2008, the Board of Directors of the Company adopted a shareholder rights plan (the
"Shareholder Rights Plan”), as set forth in the Shareholder Rights Agreement between the Company and the rights
agent, the purpose of which is, among other things, to enhance the ability of the Board of Directors to protect
70
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
shareholder interests and to ensure that shareholders receive fair treatment in the event any coercive takeover
attempt of the Company is made in the future. The Shareholder Rights Plan could make it more difficult for a third
party to acquire, or could discourage a third party from acquiring the Company or a large block of the Company’s
common stock.
In connection with the adoption of the Shareholder Rights Plan, the Board of Directors of the Company
declared a dividend distribution of one preferred stock purchase right (a “Right”) for each outstanding share of
common stock to stockholders of record as of the close of business on November 15, 2008. In addition, one Right
will automatically attach to each share of common stock issued between November 15, 2008 and the distribution
date. The Rights currently are not exercisable and are attached to and trade with the outstanding shares of
common stock. Under the Shareholder Rights Plan, the Rights become exercisable if a person or group becomes
an “acquiring person” by acquiring 15% or more of the outstanding shares of common stock or if a person or group
commences a tender offer that would result in that person or group owning 15% or more of the common stock. If a
person or group becomes an “acquiring person,” each holder of a Right (other than the acquiring person) would be
entitled to purchase, at the then-current exercise price, such number of shares of the Company’s preferred stock
which are equivalent to shares of common stock having a value of twice the exercise price of the Right. If the
Company is acquired in a merger or other business combination transaction after any such event, each holder of a
Right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company’s
common stock having a value of twice the exercise price of the Right.
Note 15. Defined Contribution Plan
The Insulet 401(k) Retirement Plan (the “401(k) Plan”) is a defined contribution plan in the form of a qualified
401(k) plan, in which substantially all employees are eligible to participate upon hire. Eligible employees may elect
to contribute 100% of their eligible compensation up to the IRS maximum. The Company has the option of making
both matching contributions and discretionary profit-sharing contributions to the 401(k) Plan. Since 2011, the
Company has offered a discretionary match of 50% for the first 6% of an employee’s salary that was contributed to
the 401(k) Plan. The Company match vests after the employee attains one year of service. The total amount
contributed by the Company under the 401(k) Plan was $1.8 million, $1.2 million and $1.0 million for the years
ended December 31, 2015, 2014 and 2013, respectively.
Note 16. Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in
the financial statements. Deferred tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be
in effect in the years in which the differences are expected to reverse. The Company reviews its deferred tax assets
for recoverability considering historical profitability, projected future taxable income, and the expected timing of the
reversals of existing temporary differences and tax planning strategies. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company follows the provisions of FASB ASC 740-10, Income Taxes (“ASC 740-10”) on accounting for
uncertainty in income taxes recognized in its financial statements. ASC 740-10 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. In addition, ASC 740-10 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes estimated
interest and penalties for uncertain tax positions in income tax expense.
The Company files federal, state and foreign tax returns. These returns are generally open to examination by
the relevant tax authorities from three to four years from the date they are filed. The tax filings relating to the
Company's federal and state tax returns are currently open to examination for tax years 2011 through 2013 and
2010 through 2013, respectively. In addition, the Company has generated tax losses since its inception in 2000.
These years may be subject to examination if the losses are carried forward and utilized in future years.
At December 31, 2015 and December 31, 2014, the Company provided a valuation allowance for the full
amount of its net deferred tax asset because it is not more likely than not that the future tax benefit will be realized.
71
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income tax expense consists of the following (in thousands):
Current:
Federal
State
Non-U.S.
Total current expense
Deferred:
Federal
State
Non-U.S.
Total deferred expense
Total income tax expense
Years Ended December 31,
2015
2014
2013
$
— $
— $
(76)
73
321
394
76
2
(181)
(103)
58
3
61
76
5
—
81
88
4
16
76
8
—
84
$
291
$
142
100
The following table reconciles the federal statutory income rate to the Company's effective income tax rate:
Tax at U.S. statutory rate
Changes from statutory rate:
State taxes, net of federal benefit
Tax credits
Permanent items
Change in valuation allowance
Other
Effective income tax rate
Year Ended December 31,
2015
2014
2013
34.00 % 34.00 % 34.00 %
4.56
1.27
(1.77)
4.04
1.26
0.71
(4.21)
4.98
(5.49)
(38.77)
(38.79)
(29.32)
0.31
(1.50)
(0.18)
(0.40)%
(0.28)%
(0.22)%
Pre-tax income attributable to the Company's operations located outside the U.S. was approximately $0.3
million, $0.1 million and $0.1 million for 2015, 2014 and 2013, respectively. In general, it is the Company's practice
and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2015,
the Company has chosen to indefinitely reinvest approximately $0.1 million of earnings of certain of its non-U.S.
subsidiaries. Generally, such amounts become subject to U.S taxation upon the remittance of dividends and under
certain other circumstances. No provision has been recorded for U.S. income taxes that could be incurred upon
repatriation. It is not practical to estimate the amount of deferred tax liability related to such earnings.
72
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Significant components of the Company’s deferred tax assets (liabilities) consists of the following (in
thousands):
Deferred tax assets:
Net operating loss carryforwards
Start up expenditures
Tax credits
Provision for bad debts
Depreciation and amortization
Other
Total deferred tax assets
Deferred tax liabilities:
Prepaids
Amortization of acquired intangibles
Amortization of debt discount
Goodwill
Total deferred tax liabilities
Valuation allowance
Net deferred tax liabilities
Year Ended December 31,
2015
2014
$
178,048
$
161,888
1,168
8,173
1,981
2,528
13,102
1,416
6,968
2,174
897
9,777
$
$
205,000
$
183,120
(1,249) $
(662)
(9,503)
(383)
(935)
(5,218)
(11,947)
(304)
$
(11,797) $
(18,404)
$ (193,405) $ (165,020)
$
(202) $
(304)
In the future, the Company will generate additional deferred tax assets and liabilities related to its amortization
of acquired intangible assets for tax purposes because these long-lived intangible assets are not amortized for
financial reporting purposes. The tax amortization in future years will give rise to a temporary difference and a tax
liability, which will only reverse at the time of ultimate sale or further impairment of the underlying intangible assets.
Due to the uncertain timing of this reversal, the temporary difference cannot be considered as a source of future
taxable income for purposes of determining a valuation allowance; therefore, the tax liability cannot be used to
offset the deferred tax asset related to the net operating loss carryforward for tax purposes that will be generated by
the same amortization.
A valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of the
evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After
consideration of the available evidence, both positive and negative, the Company has determined that a $193.4
million valuation allowance at December 31, 2015 is necessary to reduce the deferred tax assets to the amount that
will more likely than not be realized. The Company provided a valuation allowance for the full amount of its net
deferred tax asset for the years ended December 31, 2015 and 2014 because it is not more likely than not that the
future tax benefit will be realized. In the year ended December 31, 2015, the Company’s valuation allowance
increased by $28.4 million to $193.4 million from the balance at December 31, 2014 of $165.0 million. The change
in the valuation allowance is primarily attributable to an increase in net operating loss carryforwards along with a
decrease in deferred tax liabilities related to acquired intangibles as a result of an impairment charge recorded
during the period.
At December 31, 2015, the Company had approximately $546.7 million, $289.6 million and $8.2 million of
federal net operating loss carryforwards, state net operating loss carryforwards and research and development and
other tax credits, respectively. If not utilized, these federal carryforwards will begin to expire in 2020 and will
continue to expire through 2035, and the state carryforwards will continue to expire through 2035. At December 31,
2014, the Company had approximately $500.6 million, $246.7 million and $7.0 million of federal net operating loss
carryforwards, state net operating loss carryforwards and research and development and other tax credits,
respectively. The utilization of such net operating loss carryforwards and the realization of tax benefits in future
years depends predominantly upon having taxable income. Under the provisions of the Internal Revenue Code,
certain substantial changes in the Company's ownership may result in a limitation on the amount of net operating
loss carryforwards which may be used in future years. There will be a yearly limitation placed on the amount of net
operating loss available for use in future years. Additionally, it is probable that a portion of the research and
development tax credit carryforward may not be available to offset future income.
73
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities does
not include certain deferred tax assets as of December 31, 2015 and December 31, 2014, that arose directly from
tax deductions related to equity compensation greater than compensation recognized for financial reporting. Equity
will be increased by $22.6 million if and when such deferred tax assets are ultimately realized. The Company
utilizes ASC 740 ordering when excess tax benefits have been realized.
The Company had no unrecognized tax benefits at December 31, 2015.
Note 17. Change in Accounting Estimate
The Company capitalizes eligible software development costs, including salaries and payroll-related costs of
employees who devote time to the development. Capitalization begins when a detail program design is completed
and technological feasibility has been established. These costs are amortized on a straight-line basis over the
estimated useful life. In the second quarter of 2015, based on changes in one of the Company's ongoing projects,
the Company determined that the detailed program designs were no longer sufficiently complete to establish
technological feasibility of this project. As such, all costs previously capitalized for this project, approximately $1.3
million, and all subsequent costs incurred through December 31, 2015, approximately $9.2 million, have been
recorded to research and development expense.
The Company records inventory at cost according to ASU No. 330, Inventory ("ASU 330"). In the third quarter
of 2015, the Company identified that certain lots of OmniPods had increased complaints relating to the deployment
of the needle mechanism. The Company believes that all goods produced with the specific tooling changes of
needle mechanism components are subject to replacement, including certain OmniPod lots that were held as
inventory. As such, the Company has determined that it will not recover any amounts related to this inventory.
Accordingly, this change in estimate increased our cost of revenue in the year ended December 31, 2015 by
approximately $7.3 million.
74
INSULET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Subsequent Events
In February 2016, the Company sold Neighborhood Diabetes to Liberty Medical for approximately $5 million in
cash, subject to certain customary closing adjustments. Neighborhood Diabetes did not meet the held for sale
criteria and was not presented in discontinued operations as of December 31, 2015 as a sale was not approved by
the Board of Directors as of December 31, 2015.
The major classes of assets and liabilities for Neighborhood Diabetes consists of the following (in thousands):
ASSETS (1)
Current assets
Total assets
LIABILITIES (1)
Current liabilities
Total liabilities
(1)
December 31,
2015
$
$
9,252
11,208
5,319
5,703
These amounts represent the direct assets and liabilities, including intangible assets, that are that are expected to be transferred as part
of the sale.
19. Quarterly Data (Unaudited)
Revenue
Gross profit
Net loss
Net loss per share
(1)
2015 Quarters ended
December 31(1)
September 30
June 30
March 31
(In thousands, except per share data)
$
$
$
$
100,119
45,321
$
$
87,303
35,651
$
$
75,588
34,375
$
$
61,215
32,807
(27,327) $
(18,927) $
(15,432) $
(11,834)
(0.48) $
(0.33) $
(0.27) $
(0.21)
Included in net loss for the fourth quarter of 2015 was a charge of $9.1 million related to the impairment of the Neighborhood Diabetes
asset group.
Revenue
Gross profit
Net loss
Net loss per share
(2)
2014 Quarters ended
December 31
September 30
June 30(2)
March 31
(In thousands, except per share data)
$
$
$
$
72,561
36,673
$
$
74,985
38,042
$
$
72,013
35,765
$
$
69,161
32,808
(5,400) $
(10,845) $
(29,111) $
(6,144)
(0.10) $
(0.19) $
(0.53) $
(0.11)
Included in net loss for the second and third quarters of 2014 was a charge of $18.9 million and $4.3 million, respectively, related to the
loss from extinguishment of long-term debt.
75
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activities in our accounts receivable reserve and deferred tax valuation allowance
accounts:
Description
Year Ended December 31, 2015
Allowance for doubtful accounts
Deferred tax valuation allowance
Year Ended December 31, 2014
Allowance for doubtful accounts
Deferred tax valuation allowance
Year Ended December 31, 2013
Allowance for doubtful accounts
Deferred tax valuation allowance
Balance at
Beginning of
Period
Additions Charged
to Costs and
Expenses
Deductions
Balance at
End
of Period
(In thousands)
$
$
$
5,837
$
1,184
$
2,567
$
4,454
165,020
28,418
33
193,405
7,133
$
3,254
$
4,550
$
5,837
158,323
21,070
14,373
165,020
6,627
$
4,741
$
4,235
$
7,133
145,927
32,050
19,654
158,323
76
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2015. The term “disclosure controls
and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the company’s management, including its
principal executive and principal financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives and management necessarily applies its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation
of our disclosure controls and procedures as of December 31, 2015, our chief executive officer and chief financial
officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable
assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended
December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as such term is defined in Exchange Act Rule 13a — 15(f). Our internal control system was designed to
provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair
presentation of published financial statements. All internal control systems, no matter how well designed have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation. Our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment,
our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission 2013 (“COSO”) in Internal Control — Integrated Framework (the COSO criteria).
The scope of management's assessment of the effectiveness of internal control over financial reporting as of
December 31, 2015 excluded an assessment of the internal control over financial reporting of Insulet Canada.
Insulet Canada is the Company’s wholly owned subsidiary which is comprised of the assets and operations of
GSK's Canadian distribution business which was acquired during the current year. The results of this acquired
company are included in our 2015 consolidated financial statements and represent approximately 3% of
consolidated total assets as of December 31, 2015 and 2% (for a partial year) of consolidated revenue for Insulet
Corporation for the year then ended.
Based on our assessment we believe that, as of December 31, 2015, our internal control over financial
reporting is effective based on those criteria. The effectiveness of our internal control over financial reporting as of
December 31, 2015 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as
stated in their report which appears below.
77
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Insulet Corporation
We have audited Insulet Corporation’s internal control over financial reporting as of December 31, 2015, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission 2013 framework (the COSO criteria). Insulet Corporation’s
management is responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting,
management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not
include the internal controls of Insulet Canada. Insulet Canada is the Company’s wholly owned subsidiary which is
comprised of the assets and operations of GSK's Canadian distribution business which was acquired during the
current year. Insulet Canada is included in the 2015 consolidated financial statements of Insulet Corporation and
represents approximately 3% of consolidated total assets as of December 31, 2015 and 2% (for a partial year) of
consolidated revenue for Insulet Corporation for the year then ended. Our audit of internal control over financial
reporting of Insulet Corporation also did not include an evaluation of the internal control over financial reporting of
Insulet Canada.
In our opinion, Insulet Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated
statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2015 of Insulet Corporation and our report dated February 29, 2016 expressed an
unqualified opinion.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 29, 2016
78
ITEM 9B. OTHER INFORMATION
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Certain information required by this Item 10 relating to our directors, executive officers and corporate
governance is incorporated by reference herein from our proxy statement in connection with our 2016 annual
meeting of stockholders, which proxy statement will be filed with the Securities and Exchange Commission (the
“SEC”) not later than 120 days after the close of our year ended December 31, 2015.
Audit Committee Financial Expert
As of December 31, 2015, the audit committee of our board of directors consisted of Steven Sobieski
(Chairman), Regina Sommer, Joseph Zakrzewski and Dr. Jessica Hopfield. In February 2016, David A. Lemoine
joined the board of directors and the audit committee of the board of directors. Our board of directors has
determined that each member of the audit committee is “independent” as that term is defined in the rules of the
SEC and the applicable Nasdaq rules. Our board of directors has determined that Mr. Sobieski, Ms. Sommer, and
Mr. Lemoine all qualify as an “audit committee financial expert” as such term is defined in the rules of the SEC. In
making its determination, our board of directors considered the nature and scope of the experiences and
responsibilities these members have previously had with reporting companies. Stockholders should understand
that this designation is a disclosure requirement of the SEC related to the experience and understanding of the
members of the audit committee with respect to certain accounting and auditing matters. The designation does not
impose upon any duties, obligations or liability upon the members of the audit committee that are greater than are
generally imposed on other members of the audit committee and our board of directors and designation as an audit
committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any
other member of the audit committee or the board of directors.
Code of Ethics
We have adopted a “code of ethics,” as defined by regulations promulgated under the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934 as amended, that applies to all of our directors and
employees worldwide, including our principal executive officer, principal financial officer, principal accounting officer
or controller, or persons performing similar functions. A current copy of the Code of Business Conduct and Ethics is
available at the Corporate Governance section of our website at http://www.insulet.com. A copy of the Code of
Business Conduct and Ethics may also be obtained, free of charge, upon a request directed to: 600 Technology
Park Drive, Suite 200, Billerica, Massachusetts 01821, Attention: Secretary. We intend to disclose any amendment
to or waiver of a provision of the Code of Business Conduct and Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions, by
posting such information on our website available at http://www.insulet.com.
For more corporate governance information, you are invited to access the Corporate Governance section of
our website available at http://www.insulet.com.
Item 11. Executive Compensation
Certain information required by this Item 11 relating to remuneration of directors and executive officers and
other transactions involving management is incorporated by reference herein from our proxy statement in
connection with our 2016 annual meeting of stockholders, which proxy statement will be filed with the Securities
and Exchange Commission not later than 120 days after the close of our year ended December 31, 2015.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain information required by this Item 12 relating to security ownership of certain beneficial owners and
management is incorporated by reference herein from our proxy statement in connection with our 2016 annual
meeting of stockholders, which proxy statement will be filed with the Securities and Exchange Commission not later
than 120 days after the close of our fiscal year ended December 31, 2015. For information on securities authorized
for issuance under equity compensation plans, see the section entitled “Market for Registrant’s Common Equity,
Related Stockholders Matters, and Issuer Purchases of Equity Securities “ in Part II, Item 5. in this Annual Report
on Form 10-K.
79
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain information required by this Item 13 relating to certain relationships and related transactions, and
director independence is incorporated by reference herein from our proxy statement in connection with our 2016
annual meeting of stockholders, which proxy statement will be filed with the Securities and Exchange Commission
not later than 120 days after the close of our year ended December 31, 2015.
Item 14. Principal Accounting Fees and Services
Certain information required by this Item 14 regarding principal accounting fees and services is set forth under
“Principal Accounting Fees and Services” in our proxy statement in connection with our 2016 annual meeting of
stockholders, which proxy statement will be filed with the Securities and Exchange Commission not later than
120 days after the close of our year ended December 31, 2015.
80
Item 15. Exhibits, Financial Statement Schedules
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of Insulet Corporation are included in Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - Years ended December 31, 2015 and 2014
Consolidated Statements of Operations - Years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Loss - Years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Stockholders' Equity - Years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows - Years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
Certain schedules to the consolidated financial statements have been omitted if they were not required by Article 9 of
Regulation S-X or if, under the related instructions, they were inapplicable, or the information was contained elsewhere herein.
(A)(3) EXHIBITS
The exhibits listed in the Exhibit Index following the signature page of this Form 10-K are filed herewith or are incorporated
herein by reference to other SEC filings.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: February 29, 2016
Date: February 29, 2016
INSULET CORPORATION
(Registrant)
/s/ Patrick J. Sullivan
Patrick J. Sullivan
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael L. Levitz
Michael L. Levitz
Chief Financial Officer
(Principal Financial and Accounting Officer)
81
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Insulet Corporation, hereby severally constitute and appoint
Patrick J. Sullivan and Michael L. Levitz, and each of them singly, our true and lawful attorneys, with full power to
them and each of them singly, to sign for us in our names in the capacities indicated below, on all amendments to
this Report, and generally to do all things in our names and on our behalf in such capacities to enable Insulet
Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities on February 29, 2016.
Signature
Title
/s/ Patrick J. Sullivan
Patrick J. Sullivan
/s/ Michael L. Levitz
Michael L. Levitz
/s/ Sally Crawford
Sally Crawford
/s/ John Fallon, M.D.
John Fallon, M.D.
/s/ Dr. Jessica Hopfield
Dr. Jessica Hopfield
/s/ David A. Lemoine
David Lemoine
/s/ Timothy J. Scannell
Timothy J. Scannell
/s/ Steven Sobieski
Steven Sobieski
/s/ Regina Sommer
Regina Sommer
/s/ Joseph Zakrzewski
Joseph Zakrzewski
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
82
Listed and indexed below are all Exhibits filed as part of this report.
EXHIBIT INDEX
Number
Description
3.1(4)
Eighth Amended and Restated Certificate of Incorporation of the Registrant
3.2(40)
Amended and Restated By-laws of the Registrant
4.1(4)
4.2(9)
4.3(9)
4.4(11)
4.5(27)
Specimen Stock Certificate
Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Insulet Corporation
classifying and designating the Series A Junior Participating Cumulative Preferred Stock
Shareholder Rights Agreement, dated as of November 14, 2008, between Insulet Corporation and Registrar and
Transfer Company, as Rights Agent
Amendment, dated September 25, 2009, to Shareholder Rights Agreement, dated as of November 14, 2008,
between Insulet Corporation and Computershare Trust Company, As Rights Agent
Indenture, dated as of June 9, 2014, between Insulet Corporation and Wells Fargo Bank, National Association,
as Trustee
4.6(27)
Form of 2.00% Convertible Senior Notes due 2019 (included in Exhibit 33.3)
10.1(2)+
Development and License Agreement between TheraSense, Inc. and Insulet Corporation, dated January 23,
2002
10.2(1)
Insulet Corporation 2000 Stock Option and Incentive Plan
10.3(31)
10.4(31)
10.5(31)
10.6(31)
Form of Non-Qualified Stock Option Agreement for Company Employees under the Second Amended and
Restated 2007 Stock Option and Incentive Plan
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the Second Amended and
Restated 2007 Stock Option and Incentive Plan
Form of Time Vesting Restricted Stock Unit Agreement for Employees under the Second Amended and Restated
2007 Stock Option and Incentive Plan
Form of Incentive Stock Option Agreement under the Second Amended and Restated 2007 Stock Option and
Incentive Plan
10.7(1)
Employment Agreement between Duane DeSisto and Insulet Corporation, dated May 4, 2005
10.8(3)
Form of Employee Non-Competition and Non-Solicitation Agreement by and between Insulet Corporation and
each of its executive officers
10.9(5)+
Master Supply Agreement between Insulet Corporation and Flextronic Marketing (L) Ltd., dated January 3, 2007
10.10(5)+
Addendum to Master Supply Agreement between Insulet Corporation and Flextronic Marketing (L) Ltd., dated
October 4, 2007
10.11(6)+
Amendment No. 1 to Development and License Agreement, dated as of March 3, 2008, by and between Abbott
Diabetes Care, Inc. (ADC), formerly known as TheraSense, Inc., and Insulet Corporation.
10.12(31)
Amended and Restated Executive Severance Plan
10.13(8)
Seconded Amended and Restated 2007 Stock Option and Incentive Plan
10.14(12)
Offer Letter by and between Insulet Corporation and Brian Roberts, dated March 2, 2009
10.15(14)
Offer Letter by and between Insulet Corporation and Peter Devlin, dated July 16, 2009
10.16(32)
Insulet Corporation Second Amended and Restated 2007 Employee Stock Purchase Plan
10.17(16)+ Distribution Agreement dated January 4, 2010 by and between Insulet Corporation and Ypsomed Distribution AG
10.18(17)+ Amendment No. 2 to Development and License Agreement, dated as of June 30, 2010, by and between ADC
formerly known as TheraSense, Inc., and Insulet Corporation
10.19(20)
Offer Letter by and between Insulet Corporation and Paul Lucidi, dated May 11, 2010
10.20(21)
Offer Letter by and between Insulet Corporation and Charles Liamos
83
Number
10.21(22)
Amendment No. 1 to Distribution Agreement dated April 10, 2012 by and between Insulet Corporation and
Ypsomed Distribution AG
Description
10.22(22)
Amendment No. 3 to Development and License Agreement, dated as of April 5, 2011 by and between ADC and
Insulet Corporation
10.23(22)
Amendment No. 4 to Development and License Agreement, dated as of March 29, 2012 by and between ADC
and Insulet Corporation
10.24(23)
Amendment No. 5 to Development and License Agreement, dated as of June 21, 2012 by and between ADC
and Insulet Corporation
10.25(24)+ Settlement and Cross-License Agreement, dated September 18, 2013, by and among the Company and
Medtronic Inc., Medtronic MiniMed Inc., and Medtronic Puerto Rico Operations Co.
10.26(31)
Form of Time Vesting Restricted Stock Unit Agreement for Singapore Employees under the Second Amended
and Restated 2007 Stock Option and Incentive Plan
10.27(31)
Form of Time Vesting Restricted Stock Unit Agreement for Non-Employee Directors under the Second Amended
and Restated 2007 Stock Option and Incentive Plan
10.28(31)
Form of Incentive Stock Option Agreement for Section 16 Officers under the Second Amended and Restated
2007 Stock Option and Incentive Plan
10.29(31)
Form of Non-Qualified Stock Option Agreement for Section 16 Officers under the Second Amended and
Restated 2007 Stock Option and Incentive Plan
10.30(31)
Form of Time Vesting Restricted Stock Unit Agreement for Employees at the Vice President Level and Above
under the Second Amended and Restated 2007 Stock Option and Incentive Plan
10.31(31)
Form of Time Vesting Restricted Stock Unit Agreement for Section 16 Officers under the Second Amended and
Restated 2007 Stock Option and Incentive Plan
10.32(26)
Convertible Notes Underwriting Agreement dated June 4, 2014 between Insulet Corporation and J.P. Morgan
Securities LLC, as underwriter.
10.33(28)
Third Addendum to Manufacturing Services Agreement between Insulet Corporation and Flextronics Marketing
(L) Ltd., dated May 29, 2014
10.34(28)
Four Addendum to Manufacturing Services Agreement between Insulet Corporation and Flextronics Marketing
(L) Ltd., dated July 15, 2014
10.35(28)
Fifth Addendum to Manufacturing Services Agreement between Insulet Corporation and Flextronics Marketing
(L) Ltd., dated July 15, 2014
10.36(29)
Retirement Agreement by and between Insulet Corporation and Duane DeSisto dated September 16, 2014
10.37(29)
Employment Agreement by and between Insulet Corporation and Patrick J. Sullivan dated September 16, 2014
10.38(30)
Agreement by and between Insulet Corporation and Brian K. Roberts dated November 5, 2014
10.39(31)
Form of Non-Qualified Stock Option Agreement for Patrick J. Sullivan under the Second Amended and Restated
2007 Stock Option and Incentive Plan
10.40(31)
Form of Incentive Stock Option Agreement for Christopher Barber under the Second Amended and Restated
2007 Stock Option and Incentive Plan
10.41(31)
Form of Time Vesting Restricted Stock Unit Agreement for Christopher Barber under the Second Amended and
Restated 2007 Stock Option and Incentive Plan
10.42(31)
Form of Incentive Stock Option Agreement under the Second Amended and Restated 2007 Stock Option and
Incentive Plan - October 2014 New Hires
10.43(33)
Rules and Conditions for the Directors' Compensation Program
10.44(33)
Form of UK Time Vesting Restricted Stock Unit Agreement for Employees at the Vice President Level and Above
under the Second Amended and Restated 2007 Stock Option and Incentive Plan
10.45(33)
Form of Incentive Stock Option Agreement under the Second Amended and Restated 2007 Stock Option and
Incentive Plan - 2015 Sales Plan
10.46(33)
Form of Non-Qualified Stock Option Agreement for Brad Thomas under the Second Amended and Restated
2007 Stock Option and Incentive Plan
84
Number
10.47(33)
Form of Non-Qualified Stock Option Agreement for Shacey Petrovic under the Second Amended and Restated
2007 Stock Option and Incentive Plan
Description
10.48(33)
Form of Time Vesting Restricted Stock Unit Agreement for Brad Thomas under the Second Amended and
Restated 2007 Stock Option and Incentive Plan
10.49(33)
Form of Time Vesting Restricted Stock Unit Agreement for Shacey Petrovic under the Second Amended and
Restated 2007 Stock Option and Incentive Plan
10.50(33)
Form of UK Non-Qualified Stock Option Agreement for Employees at the Vice President Level and Above under
the Second Amended and Restated 2007 Stock Option and Incentive Plan
10.51(34)
Agreement by and between Insulet Corporation and Michael Levitz dated March 23, 2015
10.52(34)
Agreement by and between Insulet Corporation and Allison Dorval dated April 1, 2015
10.53(35)
Third Amended and Restated 2007 Stock Option and Incentive Plan
10.54(36)
Agreement by and between Insulet Corporation and Patrick Ryan dated June 25, 2015
10.55(37)
Form of Canada Non-Qualified Stock Option Agreement for Company Employees under the Insulet Corporation
Second Amended and Restated 2007 Stock Option and Incentive Plan
10.56(37)
Form of Canada Time Vesting Restricted Stock Unit Agreement under the Insulet Corporation Second Amended
and Restated 2007 Stock Option and Incentive Plan
10.57(37)
Form of Performance Vesting Restricted Stock Unit Agreement under the Insulet Corporation Second Amended
and Restated 2007 Stock Option and Incentive Plan
10.58(37)
Form of Incentive Stock Option Agreement under the Insulet Corporation Third Amended and Restated 2007
Stock Option and Incentive Plan
10.59
10.60
10.61
10.62
10.63
10.64
Form of Non-Executive Employee Time Vesting Restricted Stock Unit Agreement under the Insulet Corporation
Third Amended and Restated 2007 Stock Option and Incentive Plan
Form of Non-Executive Employee Incentive Stock Option Agreement under the Insulet Corporation Third
Amended and Restated 2007 Stock Option and Incentive Plan
Form of Section 16 Officer Time Vesting Restricted Stock Unit Agreement under the Insulet Corporation Third
Amended and Restated 2007 Stock Option and Incentive Plan
Form of Section 16 Officer Incentive Stock Option Agreement under the Insulet Corporation Third Amended and
Restated 2007 Stock Option and Incentive Plan
Form of Vice President Time Vesting Restricted Stock Unit Agreement under the Insulet Corporation Third
Amended and Restated 2007 Stock Option and Incentive Plan
Form of Vice President Incentive Stock Option Agreement under the Insulet Corporation Third Amended and
Restated 2007 Stock Option and Incentive Plan
10.65(38)
Agreement by and between Insulet Corporation and Peter J. Devlin dated January 6, 2015
10.66(39)
Form of Non-Qualified Stock Option Agreement for Michael Levitz, David Colleran and Michael Spears
10.67(39)
Form of Time Vesting Restricted Stock Unit Agreement for Michael Levitz, David Colleran and Michael Spears
12.1(25)
Insulet Corporation Statement Regarding Computation of Ratios of Earnings to Fixed Charges
21.1
23.1
24.1
31.1
31.2
32.1*
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP)
Power of Attorney (included on signature page)
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, by Chief Executive Officer and Chief Financial Officer.
85
Number
101
The following materials from Insulet Corporation’s Annual Report on Form 10-K for the year ended December
31, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii)
the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Loss; (iv) the
Consolidated Statements of Changes in Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows
Description
_________________________
*
+
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
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(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
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(29)
(30)
(31)
(32)
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(40)
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934,
or otherwise subject to the liability of that Section, nor shall it be deemed to be incorporated by reference into
any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Confidential treatment granted as to certain portions of this exhibit.
Incorporated by reference to Amendment No. 2 to our Registration Statement on Form S-1 (File No. 333-140694) filed April 25,
2007
Incorporated by reference to Amendment No. 3 to our Registration Statement on Form S-1 (File No. 333-140694) filed May 8,
2007
Incorporated by reference to our Registration Statement on Form S-1 (File No. 333-140694) filed February 14, 2007
Incorporated by reference to our Registration Statement on Form S-8 (No. 333-144636) filed July 17, 2007
Incorporated by reference to our Registration Statement on Form S-1 (File No. 333-146810) filed October 19, 2007
Incorporated by reference to our Current Report on Form 8-K, filed March 5, 2008
Incorporated by reference to our Current Report on Form 8-K, filed June 20, 2008
Incorporated by reference to our Definitive Proxy Statement on Form DEF14A, filed April 2, 2012
Incorporated by reference to our Form 8-A, filed November 20, 2008
Incorporated by reference to our Current Report on Form 8-K, filed March 16, 2009
Incorporated by reference to our Current Report on Form 8-A/A, filed September 28, 2009
Incorporated by reference to our Current Report on Form 8-K, filed March 5, 2009
Incorporated by reference to our Current Report on Form 8-K, filed September 28, 2009
Incorporated by reference to our Annual Report on Form 10-K, filed March 9, 2010
Incorporated by reference to our Current Report on Form 8-K, filed June 21, 2010
Incorporated by reference to our Quarterly Report on Form 10-Q/A, filed November 19, 2010
Incorporated by reference to our Quarterly Report on Form 10-Q/A, filed November 19, 2010
Incorporated by reference to our Current Report on Form 8-K, filed June 7, 2011
Incorporated by reference to our Current Report on Form 8-K, filed July 5, 2011
Incorporated by reference to our Annual Report on Form 10-K, filed March 10, 2011
Incorporated by reference to our Current Report on Form 8-K, filed January 10, 2011
Incorporated by reference to our Quarterly Report on Form 10-Q, filed May 9, 2012
Incorporated by reference to our Quarterly Report on Form 10-Q, filed August 8, 2012
Incorporated by reference to our Quarterly Report on Form 10-Q, filed November 7, 2013
Incorporated by reference to our Registration Statement on Form S-3, filed June 22, 2011
Incorporated by reference to our Current Report on Form 8-K, filed June 6, 2014
Incorporated by reference to our Current Report on Form 8-K, filed June 12, 2014
Incorporated by reference to our Quarterly Report on Form 10-Q, filed August 7, 2014
Incorporated by reference to our Current Report on Form 8-K, filed September 16, 2014
Incorporated by reference to our Current Report on Form 8-K, filed November 5, 2014
Incorporated by reference to our Quarterly Report on Form 10-Q, filed November 5, 2014
Incorporated by reference to our Annual Report on Form 10-K, filed February 28, 2014
Incorporated by reference to our Annual Report on Form 10-K, filed February 26, 2015
Incorporated by reference to our Current Report on Form 8-K, filed April 1, 2015
Incorporated by reference to our Definitive Proxy Statement on Form DEF14A, filed April 2, 2015
Incorporated by reference to our Current Report on Form 8-K, filed June 30, 2015
Incorporated by reference to our Quarterly Report on Form 10-Q, filed August 12, 2015
Incorporated by reference to our Current Report on Form 8-K, filed January 7, 2015
Incorporated by reference to our Registration Statement on Form S-8 (No. 333-208387) filed December 8, 2015
Incorporated by reference to our Current Report on Forn 8-K, filed February 26, 2016
86