# Insulet Corp: Form 10-Q for the period ended Mar 31, 2020

- Company: [Insulet Corp](/companies/podd.md) (CIK 1145197)
- Form: 10-Q
- Filed: 2020-05-08
- Accepted by EDGAR: May 7, 2020, 18:01 ET
- Period: 2020-03-31
- Accession: 0001145197-20-000009
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1145197/000114519720000009/podd-2020x03x3110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1145197/000114519720000009/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $198.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-01-01 to 2020-03-31 | $71.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2020-01-01 to 2020-03-31 | $126.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2020-01-01 to 2020-03-31 | $35.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | $7.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $11.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | −$500.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | −$2.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-01-01 to 2020-03-31 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-01-01 to 2020-03-31 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-01-01 to 2020-03-31 | 62,883,672 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | −$3.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $26.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2020-03-31 | $201.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $541.3m | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $1.11bn | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $130.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-03-31 | $1.05bn | us-gaap:Liabilities |
| Long-term debt | at 2020-03-31 | $899.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2020-03-31 | $59.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,599 characters.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included in this quarterly report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed under the headings “Risk Factors” and “Forward-Looking Statements” in both our annual report on Form 10-K for the year ended December 31, 2019 and in this quarterly report.

### Overview

We are primarily engaged in the development, manufacture and sale of our proprietary Omnipod® System (“Omnipod”), an innovative, continuous insulin delivery system for people with insulin-dependent diabetes. There are two primary types of insulin therapy practiced today: multiple daily injection (“MDI”) therapy using syringes or insulin pens; and pump therapy using insulin pumps. Insulin pumps are used to perform continuous subcutaneous insulin infusion, or insulin pump therapy, and typically use a programmable device and an infusion set to administer insulin into a person’s body. Insulin pump therapy has been shown to provide people with insulin-dependent diabetes with numerous advantages relative to MDI therapy. The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device (“Pod”) that is worn on the body for up to three days at a time; and its wireless companion, the handheld Personal Diabetes Manager. The Omnipod System, which features discreet and easy-to-use devices communicates wirelessly, provides for virtually pain-free automated cannula insertion and eliminates the need for traditional MDI therapy or the use of traditional pump and tubing. 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.

In addition to the diabetes market space, we have partnered with pharmaceutical and biotechnology companies to tailor the Omnipod System technology platform for the delivery of non-insulin subcutaneous drugs across other therapeutic areas. Most of our drug delivery revenue currently consists of sales of Pods to Amgen for use in the Neulasta® Onpro® kit, an innovative delivery system for Amgen’s white blood cell booster to help reduce the risk of infection after intense chemotherapy.

Our mission is to improve the lives of people with diabetes. To assist in achieving this mission, we are focused on the following key strategic imperatives:

- delivering consumer-focused innovation;
- ensuring the best customer experience globally;
- expanding our global footprint; and
- driving operational excellence.

Our long-term financial objective is to sustain profitable growth. To achieve this goal, we expect our efforts in 2020 to focus primarily on the pivotal trial for Omnipod, powered by Horizon™, in the United States. In order to support our continued growth and the expected launch of Omnipod, powered by Horizon in the first half 2021, we continue to focus on adding capacity to our U.S. manufacturing plant. During the first quarter of 2020, we began producing salable product on our second manufacturing line in the U.S. and we plan to install a third line in the second half of 2020, on which production is expected in 2021.

Additionally, in 2020, we had planned to further roll out our Omnipod DASHTM Insulin Management System (“Omnipod DASH”), our next generation digital mobile Omnipod platform, in Europe and Canada and enter five new countries in Western Europe and the Middle East to expand the commercial sale of Omnipod and our global footprint. We are still committed to the further roll out of Omnipod DASH and to entering new countries, although the timing has shifted to early 2021 primarily due to the coronavirus pandemic discussed under Recent Developments below. This change in expected timing will not have a material impact on our 2020 revenues since we did not expect these actions to have a meaningful contribution in 2020, although they are expected to contribute to our long-term growth.

Finally, we plan to continue our product development efforts and expand awareness of and access to our products. Achieving the above strategic imperatives is expected to require additional investments in certain initiatives and personnel, as well as enhancements to our supply chain operation capacity, efficiency and effectiveness.

### Recent Developments

A novel strain of coronavirus (COVID-19) was identified in China in December 2019, and subsequently declared a pandemic by the World Health Organization in March 2020. The COVID-19 outbreak in China resulted in abnormally low production at our contract manufacturer in China during the first two months of the quarter. As a result, we incurred incremental depreciation expense for under- utilized plant capacity for the first two months of the quarter. In response to this outbreak, we took measures to ensure our ability to continue to provide product to our customers, including providing manufacturing incentives to our contract manufacturer in China and utilizing expedited, but more costly, shipping measures to transport product from China. In addition, we implemented strict screening and additional sanitation measures.

China, where we manufacture a significant portion of our products, has begun to experience recovery from COVID-19 and we have been able to produce at normal capacity since March. Additionally, our second highly automated manufacturing line in our U.S. manufacturing plant has provided additional manufacturing redundancy to help mitigate manufacturing risks stemming from COVID-19. Once fully ramped, we expect the two highly-automated lines in our U.S. manufacturing plant to provide us with capacity in the U.S. that is equivalent to all our current lines in China. Refer to *Item 1A. Risk Factors* for a discussion of COVID-19 risks.

### Results of Operations

*(dollars in millions)*

| Revenue: | Three Months Ended March 31, 2020 | 2019 | Percent Change | Currency Impact | Constant Currency (1) |
| --- | ---: | ---: | ---: | ---: | ---: |
| U.S. Omnipod | **$116.6** | $86.1 | 35.4% | —% | **35.4%** |
| International Omnipod | **73.1** | 56.9 | 28.5% | (3.4)% | **31.9%** |
| **Total Omnipod** | **189.7** | 143.0 | 32.7% | (1.3)% | **34.0%** |
| Drug Delivery | **8.3** | 16.6 | (50.0)% | —% | **(50.0)%** |
| **Total** | **$198.0** | $159.6 | 24.1% | (1.2)% | **25.3%** |

(1) Constant currency revenue growth is a non-GAAP financial measure, which should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. See “Management’s Use of Non-GAAP Measures.”

### Revenue

Total revenue for the three months ended March 31, 2020 increased $38.4 million, or 24.1%, to $198.0 million, compared with $159.6 million for the three months ended March 31, 2019. Excluding the 1.2% unfavorable impact of currency exchange, the remaining 25.3% increase in revenue was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix. These increases were partially offset by a decline in Drug Delivery revenue.

#### U.S. Omnipod

U.S. Omnipod revenue for the three months ended March 31, 2020 increased $30.5 million, or 35.4%, to $116.6 million, compared with $86.1 million for the three months ended March 31, 2019. This increase was primarily due to higher volumes driven by growing our customer base, the launch of Omnipod DASH at the end of the first quarter of 2019 and growth through the pharmacy channel. Pod prices in the pharmacy channel have higher average selling prices due in part to the fact that we offer the PDM for no charge. For full year 2020, we expect strong Omnipod revenue growth driven by continued market penetration and volume growth of Omnipod DASH, primarily in the pharmacy channel.

#### International Omnipod

International Omnipod revenue for the three months ended March 31, 2020 increased $16.2 million, or 28.5%, to $73.1 million, compared with $56.9 million for the three months ended March 31, 2019. Excluding the 3.4% unfavorable impact of currency exchange, the remaining 31.9% increase in revenue was primarily driven by higher volumes as we continue to expand awareness and access to the Omnipod. Similar to in the U.S, for the full year 2020, we expect higher International Omnipod revenue due to continued volume growth and market penetration.

#### Drug Delivery

Drug Delivery revenue for the three months ended March 31, 2020 decreased $8.3 million, or 50.0%, to $8.3 million, compared with $16.6 million for the three months ended three months ended March 31, 2019, due to a shift in the timing of production between the first and second quarter. For full year 2020, we expect Drug Delivery revenue to decline due to a lower demand forecast.

### Operating Expenses

*(dollars in millions)*

|  | Three Months Ended March 31, 2020 Amount | Percent of Revenue | 2019 Amount | Percent of Revenue |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | **$71.1** | **35.9%** | $52.9 | 33.1% |
| Research and development expenses | **$35.5** | **17.9%** | $32.5 | 20.4% |
| Selling, general and administrative expenses | **$83.9** | **42.4%** | $66.9 | 41.9% |

17

#### Cost of Revenue

Cost of revenue for the three months ended March 31, 2020 increased $18.2 million, or 34.4%, to $71.1 million, compared with $52.9 million for the three months ended March 31, 2019. Gross margin was 64.1% for the three months ended March 31, 2020, compared with 66.9% for the three months ended March 31, 2019. The 280 basis point decrease in gross margin was primarily due to two months of higher depreciation expense for under-utilized plant capacity, expedited shipping costs and manufacturing incentives totaling $3.1 million associated with our contract manufacturer in China and the coronavirus pandemic as well as start-up costs and inefficiencies related to our new U.S. manufacturing operations. We expect full year 2020 gross margin to be approximately 63%, which reflects an estimated $5 to $10 million of costs resulting from the coronavirus pandemic, in addition to start-up costs and inefficiencies as we continue to ramp up our U.S. manufacturing operations, partially offset by continued improvements in our global manufacturing and supply chain operations and the move into the pharmacy channel in the United States.

#### Research and Development Expenses

Research and development expenses for the three months ended March 31, 2020 increased $3.0 million, or 9.2%, to $35.5 million, compared with $32.5 million for the three months ended March 31, 2019. This increase was primarily due to spend related to Omnipod, powered by Horizon, our automated insulin delivery system. We expect research and development spending for the full year 2020 to increase compared with 2019.

#### Selling, General and Administrative Expenses

Selling general and administrative expenses for the three months ended March 31, 2020 increased $17.0 million, or 25.4%, to $83.9 million, compared with $66.9 million for the three months ended March 31, 2019. This increase was primarily attributable to an increase in headcount year over year, primarily associated with the expansion of our U.S. sales force, as well as investments in customer support initiatives to support our growth. These increases were partially offset by severance-related charges for certain executives that were incurred in the prior period. We expect selling, general and administrative expenses for the full year 2020 to increase compared with 2019 due to expansion of our U.S. sales force and customer support personnel and investments in our operating structure to facilitate our continued growth.

### Non-Operating Items

#### Interest Expense, Net

Interest expense, net, increased $5.3 million to $10.1 million for the three months ended March 31, 2020, compared with $4.8 million for the three months ended March 31, 2019. This increase was driven by a $3.5 million increase in non-cash interest expense associated with our 0.375% Notes issued in September 2019 and a $1.9 million decrease in capitalized interest primarily due to the placement of our first U.S. manufacturing line into service during the second quarter of 2019.

#### Other Income, Net

During the three months ended March 31, 2019, we had other income, net of $2.2 million, driven by a $1.8 million insurance recovery for damaged inventory in excess of our cost.

#### Income Tax Expense, Net

We had an income tax benefit of $0.5 million on loss before income taxes of $2.6 million for the three months ended March 31, 2020, compared with income tax expense of $0.3 million on income before income taxes of $4.7 million for the three months ended March 31, 2019. This resulted in effective tax rates of 18.4% and 6.9% for the three months ended March 31, 2020 and 2019, respectively. The increase in the effective tax rate was driven by a shift in expected geographic mix of income.

### Adjusted EBITDA

The table below presents reconciliations of Adjusted EBITDA, a non-GAAP financial measure, to net (loss) income, the most directly comparable financial measure prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”):

*(in millions)*

|  | Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| **Net (loss) income** | **$(2.1)** | $4.4 |
| Interest expense, net | **10.1** | 4.8 |
| Income tax (benefit) expense | **(0.5)** | 0.3 |
| Depreciation and amortization | **8.9** | 5.1 |
| Stock-based compensation | **7.9** | 5.8 |
| **Adjusted EBITDA** | **$24.3** | $20.4 |

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### Non-GAAP Financial Measures

Management uses the following non-GAAP financial measures:

Constant currency revenue growth, which measures the change in revenue between current and prior year periods using a constant currency, the exchange rate in effect during the applicable prior year period. We present constant currency revenue growth because we believe it provides meaningful information regarding our results on a consistent and comparable basis. Management uses this non-GAAP financial measure, in addition to financial measures in accordance with accounting principles generally accepted in the United States (“GAAP”), to evaluate our operating results. It is also one of the performance metrics that determines management incentive compensation.

Adjusted EBITDA, which represents net income (loss) plus net interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation and other significant unusual items, as applicable. We present Adjusted EBITDA because management uses it as a supplemental measure in assessing our operating performance, and we believe that it is helpful to investors, securities analysts and other interested parties as a measure of our comparative operating performance from period to period. We recognize Adjusted EBITDA as a commonly used measure in determining business value and as such, use it internally to report results. It is also one of the performance metrics that determines management incentive compensation.

These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. In addition, the above definitions may differ from similarly titled measures used by others. Non-GAAP financial measures exclude the effect of items that increase or decrease our reported results of operations; accordingly, we strongly encourage investors to review our consolidated financial statements in their entirety.

### Liquidity and Capital Resources

As of March 31, 2020, we had $201.4 million in cash and cash equivalents and $181.0 million of investments in marketable securities. We believe that our current liquidity will be sufficient to meet our projected operating, investing and debt service requirements for at least the next twelve months. As of March 31, 2020, we had $76.5 million in capital commitments.

### Convertible Debt

To finance our operations and global expansion, we have periodically issued convertible senior notes, which are convertible into our common stock. As of March 31, 2020, the following notes were outstanding:

| Issuance Date | Coupon | Principal Outstanding (in millions) | Due Date | Initial Conversion Rate per Share of Common Stock | Conversion Price per Share of Common Stock |
| --- | ---: | ---: | --- | ---: | ---: |
| November 2017 | 1.375% | $402.5 | November 2024 | 10.7315 | $93.2 |
| September 2019 | 0.375% | 800.0 | September 2026 | 4.4105 | $226.7 |
| **Total** |  | **$1,202.5** |  |  |  |

Additional information regarding our debt issuances is provided in Note 8 to the consolidated financial statements.

### Summary of Cash Flows

*(in millions)*

| Cash (used in) provided by: | Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Operating activities | **$(3.6)** | $6.5 |
| Investing activities | **13.4** | 7.6 |
| Financing activities | **(19.0)** | 1.5 |
| Effect of exchange rate changes on cash | **(3.1)** | (0.2) |
| **Net (decrease) increase in cash and cash equivalents** | **$(12.3)** | $15.4 |

#### Operating Activities

Net cash used in operating activities of $3.6 million for the three months ended March 31, 2020 was primarily attributable to net loss, as adjusted for non-cash interest, stock-based compensation, depreciation and amortization, partially offset by a $30.8 million working capital cash outflow driven by a $20.4 million decrease in accounts payable, accrued expenses and other current liabilities and a $14.6 million increase in accounts receivable. The decrease in accounts payable, accrued expenses and other current liabilities was driven by the annual payout of cash bonuses for performance in the prior year. The $14.6 million increase in accounts receivable was primarily due to an increase in International Omnipod revenue and sales in the U.S. pharmacy channel, both of which generally have longer payment terms.

Net cash provided by operating activities of $6.5 million for the three months ended March 31, 2019 was primarily attributable to net income, as adjusted for non-cash interest, stock-based compensation, depreciation and amortization, partially offset by a $16.9 million working capital cash outflow driven by an increase in accounts receivable and a decrease in accrued expenses. The increase in accounts receivable was driven by the timing of shipments and related payment terms of U.S. distributors. The decrease in accrued expenses was largely driven by the annual payout of cash bonuses for performance in the prior year.

#### Investing Activities

Net cash provided by investing activities was $13.4 million for the three months ended March 31, 2020, compared with net cash provided by investing activities of $7.6 million for three months ended March 31, 2019.

*Capital Spending—*Capital expenditures were $26.9 million for the three months ended March 31, 2020 and primarily related to equipment to increase our manufacturing capacity. Capital expenditures of $44.4 million for the three months ended March 31, 2019 were primarily associated with the construction of our manufacturing and corporate headquarters facility in Acton, Massachusetts. For the full year 2020, we expect capital expenditures to be relatively consistent with 2019 as we continue to expand manufacturing capacity to support our growth and the launch of Omnipod, powered by Horizon, in the first half of 2021. We expect to fund our capital expenditures using a combination of existing cash and investments as well as cash generated from operations.

*Purchases and Sales of Investments—*Net sales of marketable securities were $40.8 million for the three months ended March 31, 2020, compared with $52.9 million for the three months ended March 31, 2019.

#### Financing Activities

Net cash used in financing activities was $19.0 million for the three months ended March 31, 2020, compared with net cash provided by financing activities of $1.5 million for three months ended March 31, 2019.

*Option Exercises and Payment of Taxes for Restricted Stock Net Settlements—*Total proceeds from option exercises were $6.2 million and $9.0 million for the three months ended March 31, 2020 and 2019, respectively. Payments for taxes related to net restricted and performance stock unit settlements were $25.2 million and $7.5 million for the three months ended March 31, 2020 and 2019, respectively. The $17.7 million increase in payments for taxes related to restricted stock net settlements was primarily due to a higher achievement percentage on performance stock units vested in the first quarter of 2020 compared to the prior year.

### Commitments and Contingencies

Following the expiration of an agreement with a former European distributor on June 30, 2018, we were required to pay a quarterly per-unit fee for Omnipod sales to certain customers of the former European distributor for a one-year period through June 30, 2019. The methodology applicable for determining the total fee under the distribution agreement is subject to an active arbitration proceeding in Switzerland. The final amount of the fee could vary significantly depending on the number of customers who count for purposes of calculating the fee under the terms of the agreement. We estimate that the final aggregate fee for the applicable twelve-month period could be in the range of $5 million to $55 million, of which $5.1 million had been paid as of March 31, 2020.

### Legal Proceedings

The significant estimates and judgments related to establishing litigation reserves are discussed under “Legal Proceedings” in Note 9 to the consolidated financial statements included in this Form 10-Q.

### Off-Balance Sheet Arrangements

As of March 31, 2020, we had various outstanding letters of credit and bank guarantees totaling $2.9 million, none of which are individually significant. We have restricted cash that serves as collateral for these outstanding letters of credit and bank guarantees that is included in cash and cash equivalents on our consolidated balance sheet.

### Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We believe that our accounting policies for revenue recognition, accounts receivable and allowance for credit losses, product warranty and contingencies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. There have been no significant changes to the above critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019, except our accounting policy for our allowance for doubtful accounts (now termed allowance for credit losses). As of January 1, 2020, we adopted Accounting Standards Update 2016-13, *Credit Losses (Topic 326)*, as described in Note 1 to the consolidated financial statements in this Form 10-Q.

### Accounting Standards Issued and Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, *Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.* ASU 2019-12 eliminates certain exceptions in the current guidance regarding the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This new guidance also simplifies the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies such things as the accounting for transactions that result in a step up in the tax basis of goodwill. The guidance is effective for us beginning in the first quarter of 2021 with early adoption permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

### FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q 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 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 assumptions. These risks and uncertainties include, but are not limited to:

- risks associated with public health crises and pandemics, such as the COVID-19 global pandemic, including the duration of the outbreak, government actions and restrictive measures implemented in response, supply chain disruptions, delays in clinical trials, and other impacts to the business, or on our ability to execute business continuity plans;
- risks associated with our dependence on our principal product platform, the Omnipod System, and our ability to design, develop, manufacture and commercialize future products;
- our ability to reduce production costs and increase customer orders and manufacturing volumes;
- adverse changes in general economic conditions;
- the impact of healthcare reform laws;
- supply problems or price fluctuations with sole source or third-party suppliers on which we are dependent;
- the potential establishment of a competitive bid program for conventional insulin pumps;
- failure to retain key supplies and/or supplier pricing discounts and achieve satisfactory gross margins;
- international business risks, including regulatory, commercial and logistics risks associated with selling our products in Europe in light of the uncertainty related to the separation of the United Kingdom from the European Union (Brexit);
- our inability to secure and retain adequate coverage or reimbursement from third-party payors for the Omnipod System or future products and potential adverse changes in reimbursement rates or policies relating to the Omnipod System or future products;
- failure to retain key payor partners and their members;
- adverse effects resulting from competition;
- technological change and product innovation adversely affecting our business;
- changes to or termination of our license to incorporate a blood glucose meter into the Omnipod System or our inability to enter into new license or other agreements with respect to the Omnipod System’s current or future features;
- challenges to the future development of our non-insulin drug delivery product line;
- our ability to protect our intellectual property and other proprietary rights;
- conflicts with the intellectual property of third parties, including claims that our current or future products infringe or misappropriate the proprietary rights of others;
- adverse regulatory or legal actions relating to the Omnipod System or future products;
- failure of our contract manufacturers or component suppliers to comply with the U.S Food and Drug Administration’s quality system regulations;
- the potential violation of the U.S. Foreign Corrupt Practices Act or any other federal, state or foreign anti-bribery/anti-corruption laws or laws prohibiting “kickbacks” or protecting the confidentiality of health information or other protected personal information, or any challenge to or investigation into our practices under these laws;
- product liability and other lawsuits that may be brought against us, including stemming from off-label use of our product;
- breaches or failures of our product or information technology systems, including by cyber attack;
- reduced retention rates of our customer base;
- unfavorable results of clinical studies relating to the Omnipod System or future products, or the products of our competitors;
- future publication of articles or announcement of positions by diabetes associations or other organizations that are unfavorable to the Omnipod System;
- the concentration of our manufacturing operations and storage of our inventory in a limited number of locations;
- our ability to attract and retain personnel;
- our ability to scale our business to support revenue growth;
- fluctuations in quarterly results of operations;
- risks associated with potential future acquisitions or investments in new businesses;
- our ability to generate sufficient cash to service all of our indebtedness or raise additional funds on acceptable terms or at all;
- the expansion of our distribution network;
- the volatility of the trading price of our common stock;
- risks related to future sales of our common stock or the conversion of any of our convertible debt;
- potential limitations on our ability to use our net operating loss carryforwards; and
- anti-takeover provisions in our organizational documents.

The risk factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and in this Quarterly Report could cause our results to differ materially from those expressed in forward-looking statements. In addition, there may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Actual results could differ materially from those projected in the forward-looking statements; accordingly, you should not rely upon forward-looking statements as predictions of future events. We expressly disclaim any obligation to update these forward-looking statements other than as required by law.

## Market risk

As filed, 273 characters.

Refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of our interest rate risk, market price sensitive instruments and foreign currency exchange risk.

## Controls and procedures

As filed, 1,272 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31, 2020. Based on the evaluation, our chief executive officer and chief financial officer concluded that, as of that date, our disclosure controls and procedures were effective.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,666 characters.

Please refer to the “Risks Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of risks to which our business, financial condition, results of operations and cash flows are subject. Other than as set forth below, there have been no material changes to the risk factors disclosed in the aforementioned Annual Report.

***Our financial condition and results of operations have been and may to continue to be adversely affected by the recent coronavirus outbreak.***

A novel strain of coronavirus (COVID-19) was identified in China in December 2019, and subsequently declared a pandemic by the World Health Organization in March 2020. To date, this outbreak, which has surfaced in nearly all regions around the world, and preventative measures taken to contain or mitigate the outbreak, have caused, and are continuing to cause, business slowdown or shutdown in affected areas and disruption in the financial markets globally. This has led to a significant increase in unemployment and a loss of employee-sponsored insurance coverage for many people in the United States. As a result, consumers may reduce their spending and our customer attrition rate may increase, which could have a material adverse effect on our business, sales, financial condition and results of operations.

The COVID-19 pandemic also has the potential to significantly impact our supply chain if the manufacturing plants that produce our products or product components, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize our products, are disrupted, temporarily closed or experience worker shortages for a sustained period of time. Although China, where we manufacture a significant portion of our product, has begun to experience recovery and we are currently producing at pre-COVID-19 levels, should China suffer a COVID-19 relapse, it could hinder our ability to produce product and have a material adverse effect on our business and results of operations.

The further spread of COVID-19, and the requirements to take action to help limit the spread of the illness, may impact our ability to carry out our business as usual. For example, the COVID-19 pandemic may divert healthcare resources away from the conduct of clinical trials and interruption in the operations of the U.S. Food and Drug Administration and comparable foreign regulatory agencies, which could delay product approval timelines. Further, we could experience limitations on employee resources that would otherwise be focused on the conduct of preclinical studies and clinical trials, including because of sickness of employees or their families, the requirement for employees to avoid contact with large groups of people and the reliance on working from home. The continued spread of COVID-19 may also slow potential enrollment of clinical trials, reduce the number of eligible patients for our clinical trials and impact our ability to recruit principal investigators and site staff. As a result of the COVID-19 pandemic, including related governmental guidance or requirements, the majority of our employees are working from home, which may negatively impact productivity and cause other disruptions to our business. In addition, if the pandemic continues, we may experience a decline in sales activities, which may hinder new patient starts and negatively impact our revenue growth.

The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted. In addition, the pandemic could cause an economic slowdown of potentially extended duration and lead to a global recession. Any sustained disruption in the capital markets from the COVID-19 pandemic could negatively impact our ability to raise capital. If the macro-economic disruption continues for pro-longed periods, we may need to raise additional capital and capital may not be available on acceptable terms, or at all. While we have a strong balance sheet as of March 31, 2020 and currently do not need to raise additional capital, should the opportunity arise to raise capital on favorable terms, we may choose to do so in order to minimize this risk. We cannot predict when the macro-economic disruption stemming from the coronavirus will ebb or when the economy will return to pre-coronavirus levels, if at all.

Filed May 8, 2020.
Source: SEC EDGAR, the filing index for accession 0001145197-20-000009. Last ingested by Listed: Nov 4, 2026, 16:38 ET. No prices; not investment advice.