Will Insulet's Monopoly Crumble? Appellate Court Ruling Signals Shift in Automated Insulin Delivery Systems Market

On Tuesday, Blue Orca Capital released a report on Insulet Corporation PODD, saying it is short on the insulin delivery patch pump manufacturer.

The report added that Blue Orca is long on its upstart Korean competitor EOFlow Co Ltd as last week the Court of Appeals for the Federal Circuit killed a preliminary injunction that protected Insulet’s key monopoly against competition from EOFlow. 

The report adds that the injunction is undisclosed to investors.

The report notes, “In our opinion, it is highly misleading for Insulet to conceal from investors that the appellate court killed the very injunction which protected its competitive moat and was so material to its stock that, when the injunction was granted, its market capitalization gained $1.8 billion. This injunction is now dead. Competition is here.”

Insulet has maintained a stronghold on tubeless insulin patch pumps, constituting a significant portion of its revenue. 

However, EOFlow’s introduction of the “EOPatch” posed a substantial threat to this monopoly, prompting legal action from Insulet.

Surprisingly, the U.S. district court initially granted Insulet a preliminary injunction against EOFlow thwarting Medtronic Plc’s MDT acquisition plans. 

This decision bolstered Insulet’s market position, leading to a surge in its market capitalization.

Medtronic announced it would acquire EOFlow in May 2023 for $738 million, but in December, the medtech giant terminated the deal.

With the EOFlow deal, Medtronic could add EOPatch to its existing AID system and quickly offer tubeless automated insulin delivery systems in the U.S. to directly compete with Insulet’s flagship product, the OmniPod 5.

EOFlow appealed the decision, and after oral arguments, the appellate court delivered a verdict in favor of EOFlow, nullifying the preliminary injunction. 

The court’s order undermines Insulet’s protective barrier and opens avenues for competition in the automated insulin delivery systems market.

The impending drop in Insulet’s share price is anticipated to exceed 15% as investors digest the implications of the court ruling. 

Conversely, EOFlow stands to benefit from a resurgence in its stock value, potentially reclaiming a 600% gain from its pre-injunction levels.

The flawed legal reasoning behind the initial injunction underscores the precariousness of Insulet’s position in the face of emerging competition. The appellate court’s decision marks a pivotal moment for both companies, with significant ramifications for the AID systems industry.

Last week, Insulet reported first quarter adjusted EPS of $0.73, beating the consensus of $0.39.

The company reported sales of $441.7 million, beating the consensus of $424.05 million, including Omnipod revenue of $433 million, an increase of 21.1%.

Price Action: PODD shares are up 5.11% at $169.26 at last check Tuesday.

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