Memorandum

Insulet to supply Amgen with drug delivery device for oncology medications – December 17, 2013

Executive Highlights

  • As part of a newly announced five-year commercial agreement, Insulet will supply Amgen with drug delivery devices specifically designed for Amgen’s oncology medications.
  • We believe that this business expansion will increase gross and net margins for Insulet, provide more funds for R&D, and raise the visibility of Insulet’s Diabetes Care business.

On December 10, Insulet announced a five-year commercial agreement to supply Amgen with “a delivery device specifically designed around the unique delivery needs of biotechnology medicines.” While the press release did not specify, we believe it’s safe to assume this refers to the “oncology partnership” that management has been referencing as in the works for some time. The drugs in question likely refer to Neulasta and Neupogen, two white blood cell boosters used after chemotherapy.

While not directly related to diabetes, this business expansion is good news for Insulet. Deal specifics have not been disclosed, though we believe this partnership could help the company’s gross and net margins, as well as provide more funds for R&D. Insulet’s operating expenses will likely be minimized, as Amgen is buying the devices and Insulet will not have to absorb the costs of marketing and sales. Furthermore, we believe the price of delivery devices will be higher than the OmniPod, since the going rate for oncology treatment is so much higher than for diabetes treatments. Insulet could also expand its broader visibility through this partnership and bring more awareness (and business) to the core OmniPod business. Looking to the future, management also hopes that this partnership will lead to additional deals with drugs in other arenas, both at Amgen and other companies.

As a reminder, Insulet also has an existing partnership with Lilly to develop a special OmniPod for use with U-500 insulin. This Amgen partnership will add synergistically to the efforts with Lilly, both through greater funds for R&D, experience in partnering with Big Pharma, and learnings from customizing the OmniPod for a new drug. We noted in our coverage of Insulet’s 3Q13 call that the company’s business model continues to mature (two quarters in a row of positive cash flow, and an expectation to be EBIT profitable and cash flow positive in 2014), a trend that should enable these partnerships to really get off the ground. We look forward to more updates at JP Morgan 2014 in early January.

  • Insulet’s patch pump offers multiple advantages for drug delivery, especially in the oncology space. For example, certain drugs benefit from delivery over an extended period of time, which allows for smaller doses and potentially reduces side effects (relative to a larger volume in a single injection) Additionally, there is potential benefit from delayed delivery (i.e., a patient receives a treatment in a doctor’s office, and then a drug is delivered 24 hours later to enhance the benefits of the prior treatment). This is especially critical in cases where patients don’t make it back to the doctor.
  • We wonder how the OmniPod will be modified for oncology drug delivery.  We assume patients would not carry a PDM to self-administer an oncology drug; rather, it’s likely the physician would use the PDM to activate the device, and then it would run on “basal” delivery. Additionally, we wonder if some sort of indicator (e.g., an LED light) would tell the patient that drug administration is complete.
  • Looking at Amgen’s pipeline, we are hopeful that this oncology partnership continues long-term; Amgen’s AMG 876, an undisclosed fusion protein for diabetes, is in development, and we wonder if Amgen would consider a patch pump for the administration of this drug. That said, the protein is still in phase 1, so it’s very early to speculate on where things could go.
  • Using Insulet’s delivery device may help Amgen retain business after the drugs’ patents run out. If the device adds benefits to the drugs’ prescription (i.e., improved adherence), the delivery device might serve to “extend” the patent and reduce the threat of generic drugs taking business. Neulasta’s US patent will expire at the end of 2013, and it has already expired in the EU. Neupogen’s patent is set to expire in August of 2015 in the EU and October 2015 in the US.
  • Read our 3Q13 Amgen and Insulet reports to learn more about the companies’ pipelines and financial results.
    • Per remarks from Insulet’s 3Q13 call, the project with Lilly to build a special version of the OmniPod for use with U-500 insulin is still "in the early days." Management noted that the teams are "meeting regularly." Work has commenced on modifying the software in the PDM for use with concentrated insulin (many HCPs talk about how confusing concentrated insulin is, so we imagine this will be highly scrutinized on the regulatory and human factor side). According to the 1Q13 call, the new OmniPod for use with U-500 insulin will be a two-part regulatory filing, requiring a drug label update from Lilly and a 510(k) application from Insulet.

Close Concerns’ Questions

Q: What is the regulatory timeline/process for securing approval of an Insulet device to deliver oncology drugs?

Q: What will be the price of the device to Amgen? To payers? To patients?

Q: How will Amgen market the device with its oncology drugs? Could this be a model for diabetes?

Q: How will the agreement affect Insulet’s diabetes business? Insulet’s partnership with Lilly?

Q: Which drugs will next use Insulet’s delivery device? Is Insulet looking into non-insulin diabetes drugs for use in an OmniPod-like delivery device (e.g., Symlin, GLP-1 agonists)?

--by Hannah Martin, Adam Brown, and Kelly Close