x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
|
|
04-3523891
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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|
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600 Technology Park Drive, Suite 200
Billerica, Massachusetts
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|
01821
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(Address of Principal Executive Offices)
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(Zip Code)
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Large accelerated filer
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x
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Accelerated filer
|
¨
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|
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Non-accelerated filer
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¨
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(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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|
|
|
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Emerging growth company
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¨
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Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016
|
|
Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016 (Unaudited)
|
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Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016 (Unaudited)
|
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Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (Unaudited)
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|
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Item 1.
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Consolidated Financial Statements (Unaudited)
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(in thousands, except share and per share data)
|
September 30,
2017 |
|
December 31,
2016 |
||||
ASSETS
|
(Unaudited)
|
|
|
||||
Current Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
102,233
|
|
|
$
|
137,174
|
|
Short-term investments
|
173,523
|
|
|
161,396
|
|
||
Accounts receivable, net
|
47,173
|
|
|
28,803
|
|
||
Inventories, net
|
35,054
|
|
|
35,514
|
|
||
Prepaid expenses and other current assets
|
8,037
|
|
|
7,073
|
|
||
Total current assets
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366,020
|
|
|
369,960
|
|
||
Property and equipment, net
|
88,491
|
|
|
44,753
|
|
||
Other intangible assets, net
|
4,369
|
|
|
2,041
|
|
||
Goodwill
|
39,854
|
|
|
39,677
|
|
||
Other assets
|
1,614
|
|
|
216
|
|
||
Total assets
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$
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500,348
|
|
|
$
|
456,647
|
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current Liabilities
|
|
|
|
||||
Accounts payable
|
$
|
28,648
|
|
|
$
|
13,160
|
|
Accrued expenses and other current liabilities
|
44,897
|
|
|
41,228
|
|
||
Deferred revenue
|
1,395
|
|
|
1,309
|
|
||
Total current liabilities
|
74,940
|
|
|
55,697
|
|
||
Long-term debt, net of discount
|
344,953
|
|
|
332,768
|
|
||
Other long-term liabilities
|
6,201
|
|
|
5,032
|
|
||
Total liabilities
|
426,094
|
|
|
393,497
|
|
||
Commitments and contingencies (Note 12)
|
|
|
|
||||
Stockholders’ Equity
|
|
|
|
||||
Preferred stock, $.001 par value:
|
|
|
|
||||
Authorized: 5,000,000 shares at September 30, 2017 and December 31, 2016.
Issued and outstanding: zero shares at September 30, 2017 and December 31, 2016.
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—
|
|
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—
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|
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Common stock, $.001 par value:
|
|
|
|
||||
Authorized: 100,000,000 shares at September 30, 2017 and December 31, 2016.
Issued and outstanding: 58,156,128 and 57,457,967 shares at September 30, 2017 and December 31, 2016, respectively. |
58
|
|
|
57
|
|
||
Additional paid-in capital
|
774,714
|
|
|
744,243
|
|
||
Accumulated other comprehensive loss
|
(123
|
)
|
|
(726
|
)
|
||
Accumulated deficit
|
(700,395
|
)
|
|
(680,424
|
)
|
||
Total stockholders’ equity
|
74,254
|
|
|
63,150
|
|
||
Total liabilities and stockholders’ equity
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$
|
500,348
|
|
|
$
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456,647
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in thousands, except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Revenue
|
$
|
121,775
|
|
|
$
|
94,871
|
|
|
$
|
333,244
|
|
|
$
|
263,414
|
|
Cost of revenue
|
48,151
|
|
|
39,230
|
|
|
135,583
|
|
|
113,265
|
|
||||
Gross profit
|
73,624
|
|
|
55,641
|
|
|
197,661
|
|
|
150,149
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Research and development
|
20,141
|
|
|
13,734
|
|
|
55,670
|
|
|
39,676
|
|
||||
Sales and marketing
|
28,718
|
|
|
22,147
|
|
|
86,288
|
|
|
69,119
|
|
||||
General and administrative
|
22,718
|
|
|
17,342
|
|
|
62,322
|
|
|
47,923
|
|
||||
Total operating expenses
|
71,577
|
|
|
53,223
|
|
|
204,280
|
|
|
156,718
|
|
||||
Operating income (loss)
|
2,047
|
|
|
2,418
|
|
|
(6,619
|
)
|
|
(6,569
|
)
|
||||
Interest expense
|
4,709
|
|
|
3,029
|
|
|
14,512
|
|
|
9,252
|
|
||||
Other income (expense), net
|
556
|
|
|
211
|
|
|
1,478
|
|
|
510
|
|
||||
Loss on extinguishment of long-term debt
|
—
|
|
|
2,551
|
|
|
—
|
|
|
2,551
|
|
||||
Interest expense and other income, net
|
4,153
|
|
|
5,369
|
|
|
13,034
|
|
|
11,293
|
|
||||
Loss from continuing operations before income taxes
|
(2,106
|
)
|
|
(2,951
|
)
|
|
(19,653
|
)
|
|
(17,862
|
)
|
||||
Income tax expense
|
121
|
|
|
66
|
|
|
318
|
|
|
195
|
|
||||
Net loss from continuing operations
|
(2,227
|
)
|
|
(3,017
|
)
|
|
(19,971
|
)
|
|
(18,057
|
)
|
||||
Loss from discontinued operations, net of tax ($0 for each of the three months ended September 30, 2017 and 2016 and $0 and $408 for the nine months ended September 30, 2017 and 2016, respectively)
|
—
|
|
|
(64
|
)
|
|
—
|
|
|
(1,703
|
)
|
||||
Net loss
|
$
|
(2,227
|
)
|
|
$
|
(3,081
|
)
|
|
$
|
(19,971
|
)
|
|
$
|
(19,760
|
)
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
||||||||
Net loss from continuing operations per share
|
$
|
(0.04
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.32
|
)
|
Net loss from discontinued operations per share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.03
|
)
|
Weighted-average number of shares used in calculating net loss per share
|
58,100
|
|
|
57,341
|
|
|
57,925
|
|
|
57,189
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net loss
|
$
|
(2,227
|
)
|
|
$
|
(3,081
|
)
|
|
$
|
(19,971
|
)
|
|
$
|
(19,760
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment, net of tax
|
329
|
|
|
(102
|
)
|
|
594
|
|
|
302
|
|
||||
Unrealized gain (loss) income on available-for-sale securities, net of tax
|
76
|
|
|
(43
|
)
|
|
9
|
|
|
(35
|
)
|
||||
Total other comprehensive income (loss), net of tax
|
405
|
|
|
(145
|
)
|
|
603
|
|
|
267
|
|
||||
Total comprehensive loss
|
$
|
(1,822
|
)
|
|
$
|
(3,226
|
)
|
|
$
|
(19,368
|
)
|
|
$
|
(19,493
|
)
|
|
Nine Months Ended September 30,
|
||||||
(in thousands)
|
2017
|
|
2016
|
||||
Cash flows from operating activities
|
|
|
|
||||
Net loss
|
$
|
(19,971
|
)
|
|
$
|
(19,760
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
||||
Depreciation and amortization
|
10,533
|
|
|
10,474
|
|
||
Non-cash interest and other expense
|
12,185
|
|
|
6,117
|
|
||
Stock-based compensation expense
|
23,551
|
|
|
16,850
|
|
||
Loss on extinguishment of long-term debt
|
—
|
|
|
2,551
|
|
||
Provision for bad debts
|
1,502
|
|
|
1,889
|
|
||
Other
|
519
|
|
|
139
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
(19,757
|
)
|
|
2,994
|
|
||
Inventories
|
428
|
|
|
(21,287
|
)
|
||
Prepaid expenses and other assets
|
(1,290
|
)
|
|
(3,268
|
)
|
||
Accounts payable, accrued expenses and other current liabilities
|
10,502
|
|
|
(632
|
)
|
||
Deferred revenue
|
537
|
|
|
(982
|
)
|
||
Other long-term liabilities
|
668
|
|
|
756
|
|
||
Net cash provided by (used in) operating activities
(1)
|
19,407
|
|
|
(4,159
|
)
|
||
Cash flows from investing activities
|
|
|
|
||||
Purchases of property, equipment and software
(2)
|
(47,813
|
)
|
|
(19,205
|
)
|
||
Purchases of investments
|
(115,056
|
)
|
|
(76,241
|
)
|
||
Receipts from the maturity or sale of investments
|
101,384
|
|
|
8,905
|
|
||
Proceeds from divestiture of business, net
|
—
|
|
|
5,714
|
|
||
Net cash used in investing activities
|
(61,485
|
)
|
|
(80,827
|
)
|
||
Cash flows from financing activities
|
|
|
|
||||
Principal payments of capital lease obligations
|
(269
|
)
|
|
(4,727
|
)
|
||
Proceeds from issuance of convertible notes, net of issuance costs
|
—
|
|
|
333,904
|
|
||
Repayment of convertible notes
|
—
|
|
|
(153,628
|
)
|
||
Proceeds from exercise of stock options and issuance of common stock
|
10,735
|
|
|
4,848
|
|
||
Payment of withholding taxes in connection with vesting of restricted stock units
|
(3,816
|
)
|
|
(2,839
|
)
|
||
Net cash provided by financing activities
|
6,650
|
|
|
177,558
|
|
||
Effect of exchange rate changes on cash
|
487
|
|
|
158
|
|
||
Net (decrease) increase in cash and cash equivalents
|
(34,941
|
)
|
|
92,730
|
|
||
Cash and cash equivalents, beginning of period
|
137,174
|
|
|
122,672
|
|
||
Cash and cash equivalents, end of period
|
$
|
102,233
|
|
|
$
|
215,402
|
|
•
|
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.
|
•
|
Revenue is recognized when title and risk and rewards of ownership have transferred to the customer.
|
•
|
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.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Amgen, Inc.
|
16%
|
|
17
|
%
|
|
16%
|
|
17%
|
Ypsomed
|
23%
|
|
16
|
%
|
|
21%
|
|
15%
|
RGH Enterprises, Inc.
|
11%
|
|
10
|
%
|
|
10%
|
|
10%
|
Note
|
4
|
|
Page
|
||
|
|
|
|
|
|
Convertible Debt
|
Note
|
6
|
|
Page
|
|
|
|
|
|
|
|
Note
|
8
|
|
Page
|
||
|
|
|
|
|
|
Note
|
9
|
|
Page
|
||
|
|
|
|
|
|
Other Intangible Assets
|
Note
|
10
|
|
Page
|
|
|
|
|
|
|
|
Accrued Expenses and Other Current Liabilities - Product Warranty Costs
|
Note
|
11
|
|
Page
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
Note
|
12
|
|
Page
|
|
|
|
|
|
|
|
Equity:
Stock-Based Compensation
|
Note
|
13
|
|
Page
|
|
|
|
|
|
|
|
Note
|
14
|
|
Page
|
(In thousands)
|
Three Months Ended September 30, 2016
|
|
Nine Months Ended September 30, 2016
|
||||
Discontinued operations:
|
|
|
|
||||
Revenue
(1)
|
$
|
—
|
|
|
$
|
7,730
|
|
Cost of revenue
|
133
|
|
|
5,502
|
|
||
Gross profit
|
(133
|
)
|
|
2,228
|
|
||
Total operating, interest and other (income) expenses
(2)
|
(69
|
)
|
|
3,523
|
|
||
Loss from discontinued operations before taxes
|
(64
|
)
|
|
(1,295
|
)
|
||
Income tax expense
|
—
|
|
|
408
|
|
||
Net loss from discontinued operations
|
$
|
(64
|
)
|
|
$
|
(1,703
|
)
|
|
|
|
|
|
(1)
|
Revenue includes revenue from the operations of Neighborhood Diabetes through date of sale in February 2016.
|
(2)
|
Includes
$1.3 million
loss on sale of Neighborhood Diabetes for the nine months ended September 30, 2016.
|
•
|
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.
|
|
Fair Value Measurements
|
||||||||||||||
(in thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
September 30, 2017
|
|
|
|
|
|
|
|
||||||||
Recurring fair value measurements:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market mutual funds
|
$
|
45,343
|
|
|
$
|
45,343
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total cash equivalents
|
$
|
45,343
|
|
|
$
|
45,343
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency bonds
|
$
|
113,294
|
|
|
$
|
92,344
|
|
|
$
|
20,950
|
|
|
$
|
—
|
|
Corporate bonds
|
47,625
|
|
|
—
|
|
|
47,625
|
|
|
—
|
|
||||
Certificates of deposit
|
12,604
|
|
|
—
|
|
|
12,604
|
|
|
—
|
|
||||
Total short-term investments
|
$
|
173,523
|
|
|
$
|
92,344
|
|
|
$
|
81,179
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2016
|
|
|
|
|
|
|
|
||||||||
Recurring fair value measurements:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents:
|
|
|
|
|
|
|
|
||||||||
Money market mutual funds
|
$
|
93,467
|
|
|
$
|
93,467
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate bonds
|
4,203
|
|
|
—
|
|
|
4,203
|
|
|
—
|
|
||||
Certificates of deposit
|
735
|
|
|
—
|
|
|
735
|
|
|
—
|
|
||||
Total cash equivalents
|
$
|
98,405
|
|
|
$
|
93,467
|
|
|
$
|
4,938
|
|
|
$
|
—
|
|
Short-term investments:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency bonds
|
$
|
79,093
|
|
|
$
|
49,963
|
|
|
$
|
29,130
|
|
|
$
|
—
|
|
Corporate bonds
|
56,653
|
|
|
—
|
|
|
56,653
|
|
|
—
|
|
||||
Certificates of deposit
|
25,650
|
|
|
—
|
|
|
25,650
|
|
|
—
|
|
||||
Total short-term investments
|
$
|
161,396
|
|
|
$
|
49,963
|
|
|
$
|
111,433
|
|
|
$
|
—
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||||||||||
(in thousands)
|
Carrying
Value
|
|
Estimated Fair
Value
|
|
Carrying
Value |
|
Estimated Fair
Value |
||||||||
2% Convertible Senior Notes
|
$
|
61,849
|
|
|
$
|
84,097
|
|
|
$
|
59,737
|
|
|
$
|
71,909
|
|
|
|
|
|
|
|
|
|
||||||||
1.25% Convertible Senior Notes
|
$
|
283,104
|
|
|
$
|
391,196
|
|
|
$
|
273,031
|
|
|
$
|
320,969
|
|
(in thousands)
|
Amortized cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
||||||||
September 30, 2017
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency bonds
|
$
|
113,456
|
|
|
$
|
—
|
|
|
$
|
(162
|
)
|
|
$
|
113,294
|
|
Corporate bonds
|
47,660
|
|
|
1
|
|
|
(37
|
)
|
|
47,624
|
|
||||
Certificates of deposit
|
12,605
|
|
|
—
|
|
|
—
|
|
|
12,605
|
|
||||
Total short-term investments
|
$
|
173,721
|
|
|
$
|
1
|
|
|
$
|
(199
|
)
|
|
$
|
173,523
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2016
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency bonds
|
$
|
79,211
|
|
|
$
|
—
|
|
|
$
|
(118
|
)
|
|
$
|
79,093
|
|
Corporate bonds
|
56,742
|
|
|
—
|
|
|
(89
|
)
|
|
56,653
|
|
||||
Certificates of deposit
|
25,650
|
|
|
—
|
|
|
—
|
|
|
25,650
|
|
||||
Total short-term investments
|
$
|
161,603
|
|
|
$
|
—
|
|
|
$
|
(207
|
)
|
|
$
|
161,396
|
|
|
As of
|
||||||
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
||||
Principal amount of the 2% Convertible Senior Notes
|
$
|
67,084
|
|
|
$
|
67,084
|
|
Principal amount of the 1.25% Convertible Senior Notes
|
345,000
|
|
|
345,000
|
|
||
Unamortized debt discount
|
(58,994
|
)
|
|
(69,684
|
)
|
||
Deferred financing costs
|
(8,137
|
)
|
|
(9,632
|
)
|
||
Long-term debt, net of discount
|
$
|
344,953
|
|
|
$
|
332,768
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Contractual coupon interest
|
$
|
1,449
|
|
|
$
|
1,041
|
|
|
$
|
4,276
|
|
|
$
|
3,054
|
|
Accretion of debt discount
|
3,612
|
|
|
1,901
|
|
|
10,690
|
|
|
5,330
|
|
||||
Amortization of debt issuance costs
|
505
|
|
|
222
|
|
|
1,495
|
|
|
785
|
|
||||
Loss on extinguishment of long-term debt
|
—
|
|
|
2,551
|
|
|
—
|
|
|
2,551
|
|
||||
Total interest and other expense
|
$
|
5,566
|
|
|
$
|
5,715
|
|
|
$
|
16,461
|
|
|
$
|
11,720
|
|
|
Three and Nine Months Ended September 30,
|
||||
|
2017
|
|
2016
|
||
2.00% Convertible Senior Notes
|
1,442,433
|
|
|
1,442,433
|
|
1.25% Convertible Senior Notes
|
5,910,954
|
|
|
5,910,954
|
|
Unvested restricted stock units
|
1,007,729
|
|
|
971,814
|
|
Outstanding options
|
3,489,393
|
|
|
3,541,936
|
|
Total dilutive common share equivalents
|
11,850,509
|
|
|
11,867,137
|
|
|
As of
|
||||
|
September 30, 2017
|
|
December 31, 2016
|
||
Amgen, Inc.
|
13
|
%
|
|
16
|
%
|
Ypsomed
|
28
|
%
|
|
19
|
%
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
||||
Trade receivables
|
$
|
50,210
|
|
|
$
|
31,714
|
|
Allowance for doubtful accounts
|
(3,037
|
)
|
|
(2,911
|
)
|
||
Total accounts receivable, net
|
$
|
47,173
|
|
|
$
|
28,803
|
|
|
As of
|
||||||
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
||||
Raw materials
|
$
|
2,289
|
|
|
$
|
1,911
|
|
Work-in-process
|
15,168
|
|
|
15,681
|
|
||
Finished goods, net
|
17,597
|
|
|
17,922
|
|
||
Total inventories
|
$
|
35,054
|
|
|
$
|
35,514
|
|
|
As of
|
||||||||||||||||||||||
|
September 30, 2017
|
|
December 31, 2016
|
||||||||||||||||||||
(in thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Book Value
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Book Value
|
||||||||||||
Customer and contractual relationships, net
|
$
|
2,149
|
|
|
$
|
(1,726
|
)
|
|
$
|
423
|
|
|
$
|
1,994
|
|
|
$
|
(1,466
|
)
|
|
$
|
528
|
|
Internal-use software
|
7,175
|
|
|
(3,229
|
)
|
|
3,946
|
|
|
4,064
|
|
|
(2,551
|
)
|
|
1,513
|
|
||||||
Total intangible assets
|
$
|
9,324
|
|
|
$
|
(4,955
|
)
|
|
$
|
4,369
|
|
|
$
|
6,058
|
|
|
$
|
(4,017
|
)
|
|
$
|
2,041
|
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
||||
Employee compensation and related costs
|
$
|
27,389
|
|
|
$
|
21,999
|
|
Professional and consulting services
|
8,972
|
|
|
6,753
|
|
||
Supplier charges
|
932
|
|
|
2,886
|
|
||
Warranty
|
1,583
|
|
|
1,642
|
|
||
Other
|
6,021
|
|
|
7,948
|
|
||
Total accrued expenses and other current liabilities
|
$
|
44,897
|
|
|
$
|
41,228
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Balance at the beginning of the period
|
$
|
4,817
|
|
|
$
|
4,294
|
|
|
$
|
4,388
|
|
|
$
|
4,152
|
|
Warranty expense
|
1,483
|
|
|
1,149
|
|
|
3,123
|
|
|
3,288
|
|
||||
Warranty claims settled
|
(1,303
|
)
|
|
(1,101
|
)
|
|
(2,514
|
)
|
|
(3,098
|
)
|
||||
Balance at the end of the period
|
$
|
4,997
|
|
|
$
|
4,342
|
|
|
$
|
4,997
|
|
|
$
|
4,342
|
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
||||
Composition of balance:
|
|
|
|
||||
Short-term
|
$
|
1,583
|
|
|
$
|
1,642
|
|
Long-term
|
3,414
|
|
|
2,746
|
|
||
Total warranty liability:
|
$
|
4,997
|
|
|
$
|
4,388
|
|
(in thousands)
Years Ending December 31,
|
Minimum Lease
Payments
|
||
2017 (remaining)
|
$
|
725
|
|
2018
|
2,702
|
|
|
2019
|
2,681
|
|
|
2020
|
2,402
|
|
|
2021
|
2,383
|
|
|
Thereafter
|
2,131
|
|
|
Total
|
$
|
13,024
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
Unamortized Expense
|
|
Weighted Average Remaining Expense Period (Years)
|
||||||||||||||
($ in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
At September 30, 2017
|
||||||||||||
Stock options
|
$
|
3,127
|
|
|
$
|
2,578
|
|
|
$
|
8,815
|
|
|
$
|
7,372
|
|
|
$
|
18,264
|
|
|
2.4
|
Restricted stock units
|
5,621
|
|
|
3,439
|
|
|
14,358
|
|
|
9,359
|
|
|
30,411
|
|
|
1.9
|
|||||
Employee stock purchase plan
|
149
|
|
|
71
|
|
|
379
|
|
|
142
|
|
|
99
|
|
|
0.2
|
|||||
Total
|
$
|
8,897
|
|
|
$
|
6,088
|
|
|
$
|
23,552
|
|
|
$
|
16,873
|
|
|
$
|
48,774
|
|
|
|
•
|
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.
|
|
Number of
Options (#)
|
|
Weighted Average
Exercise Price ($)
|
|
Aggregate
Intrinsic
Value ($ in 000s)
|
|
Weighted Average
Remaining Contractual Term (Years)
|
|||||
Balance, December 31, 2016
|
3,441,303
|
|
|
$
|
32.27
|
|
|
|
|
|
||
Granted
|
519,231
|
|
|
45.23
|
|
|
|
|
|
|||
Exercised
(1)
|
(385,345
|
)
|
|
26.11
|
|
|
$
|
7,696
|
|
|
|
|
Canceled
|
(85,796
|
)
|
|
34.82
|
|
|
|
|
|
|||
Balance, September 30, 2017
|
3,489,393
|
|
|
$
|
34.82
|
|
|
$
|
70,718
|
|
|
7.8
|
Vested, September 30, 2017
(2)
|
1,860,596
|
|
|
$
|
33.41
|
|
|
$
|
40,326
|
|
|
7.1
|
Vested or expected to vest, September 30, 2017
(2)(3)
|
3,282,804
|
|
|
|
|
$
|
67,057
|
|
|
|
|
|
|
|
|
(1)
|
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
nine months ended September 30, 2017
and
2016
was
$7.7 million
and
$4.4 million
, respectively.
|
(2)
|
The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common stock as of
September 30, 2017
, and the exercise price of the underlying options.
|
(3)
|
Represents the number of vested options as of
September 30, 2017
, plus the number of unvested options expected to vest.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
U.S. Omnipod
|
$
|
70,065
|
|
|
$
|
59,641
|
|
|
$
|
195,081
|
|
|
$
|
166,691
|
|
International Omnipod
|
32,481
|
|
|
19,107
|
|
|
84,200
|
|
|
51,046
|
|
||||
Drug Delivery
|
19,229
|
|
|
16,123
|
|
|
53,963
|
|
|
45,677
|
|
||||
Total
|
$
|
121,775
|
|
|
$
|
94,871
|
|
|
$
|
333,244
|
|
|
$
|
263,414
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
United States
|
$
|
89,294
|
|
|
$
|
75,764
|
|
|
$
|
249,044
|
|
|
$
|
212,368
|
|
All other
|
32,481
|
|
|
19,107
|
|
|
84,200
|
|
|
51,046
|
|
||||
Total
|
$
|
121,775
|
|
|
$
|
94,871
|
|
|
$
|
333,244
|
|
|
$
|
263,414
|
|
(in thousands)
|
September 30, 2017
|
|
December 31, 2016
|
||||
United States
|
$
|
68,106
|
|
|
$
|
19,341
|
|
China
|
20,456
|
|
|
25,431
|
|
||
Other
|
60
|
|
|
197
|
|
||
Total
|
$
|
88,622
|
|
|
$
|
44,969
|
|
•
|
risks associated with our dependence on our principal product, the Omnipod System;
|
•
|
fluctuations in quarterly results of operations;
|
•
|
our ability to sustain or reduce production costs and increase customer orders and manufacturing volumes;
|
•
|
adverse changes in general economic conditions;
|
•
|
impact of healthcare reform laws;
|
•
|
our inability to raise additional funds in the future on acceptable terms or at all;
|
•
|
potential 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;
|
•
|
failure to retain supplier pricing discounts and achieve satisfactory gross margins;
|
•
|
failure to retain key supplier and payor partners;
|
•
|
international business risks;
|
•
|
our inability to effectively assume the distribution and commercial support for our Omnipod System in Europe following the expiration of our global distribution agreement with Ypsomed on June 30, 2018;
|
•
|
our inability to secure and retain adequate coverage or reimbursement for the Omnipod System by third-party payors and potential adverse changes in reimbursement rates or policies relating to the Omnipod System;
|
•
|
failure to retain key payor partners and their members;
|
•
|
failure to retain and manage successfully our Medicare and Medicaid business;
|
•
|
potential adverse effects resulting from competition;
|
•
|
reliance on information technology systems and our ability to control related risks, including a cyber-attack or other breach or disruption of these systems;
|
•
|
technological breakthroughs and innovations adversely affecting our business, and our own new product development initiatives may prove to be ineffective or not commercially successful;
|
•
|
potential termination of our license to incorporate a blood glucose meter into the Omnipod System, or our inability to enter into new license agreements;
|
•
|
challenges to the further development of our non-insulin drug delivery business;
|
•
|
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;
|
•
|
our products and operations are subject to extensive government regulation, which could restrict our ability to carry on or expand our operations;
|
•
|
failure of our contract manufacturers or component suppliers to comply with the FDA’s quality system regulations;
|
•
|
potential adverse impact resulting from a recall, or discovery of serious safety issues, of our products;
|
•
|
the potential violation of federal or state laws prohibiting “kickbacks” or protecting the confidentiality of patient health information, or any challenge to or investigation into our practices under these laws;
|
•
|
product liability lawsuits that may be brought against us;
|
•
|
reduced retention rates of our customer base;
|
•
|
unfavorable results of clinical studies relating to the Omnipod System or the products of our competitors;
|
•
|
potential future publication of articles or announcement of positions by diabetes associations or other organizations that are unfavorable to the Omnipod System;
|
•
|
the concentration of substantially all of our manufacturing operations at a single location in China and substantially all of our inventory at a single location in Massachusetts;
|
•
|
our ability to effectively manage the construction of our planned manufacturing facility in the U.S.;
|
•
|
our ability to attract and retain personnel;
|
•
|
our ability to manage our growth;
|
•
|
risks associated with potential future acquisitions or investments in new businesses;
|
•
|
our ability to generate sufficient cash to service all of our indebtedness;
|
•
|
the expansion of our distribution network;
|
•
|
our ability to successfully maintain effective internal control over financial reporting;
|
•
|
the volatility of the price of our common stock;
|
•
|
risks related to future sales of our common stock or the conversion of any of our 2% Convertible Senior Notes due June 15, 2019 and 1.25% Convertible Senior Notes due September 15, 2021;
|
•
|
potential indemnification obligations in connection with the disposition of our former Neighborhood Diabetes supplies business;
|
•
|
potential limitations on our ability to use our net operating loss carryforwards; and
|
•
|
anti-takeover provisions in our organizational documents.
|
•
|
Total revenue of $
121.8 million
|
◦
|
U.S. Omnipod revenue of $
70.1 million
|
◦
|
International Omnipod revenue of $
32.5 million
|
◦
|
Drug Delivery revenue of $
19.2 million
|
TABLE 1: RESULTS OF OPERATIONS
|
|||||||||||||||||||||||||||||
(Unaudited)
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
(in Thousands)
|
2017
|
|
2016
|
|
Change $
|
|
Change %
|
|
2017
|
|
2016
|
|
Change $
|
|
Change %
|
||||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
U.S. Omnipod
|
$
|
70,065
|
|
|
$
|
59,641
|
|
|
$
|
10,424
|
|
|
17
|
%
|
|
$
|
195,081
|
|
|
$
|
166,691
|
|
|
$
|
28,390
|
|
|
17
|
%
|
International Omnipod
|
32,481
|
|
|
19,107
|
|
|
13,374
|
|
|
70
|
%
|
|
84,200
|
|
|
51,046
|
|
|
33,154
|
|
|
65
|
%
|
||||||
Drug Delivery
|
19,229
|
|
|
16,123
|
|
|
3,106
|
|
|
19
|
%
|
|
53,963
|
|
|
45,677
|
|
|
8,286
|
|
|
18
|
%
|
||||||
Total revenue
|
121,775
|
|
|
94,871
|
|
|
26,904
|
|
|
28
|
%
|
|
333,244
|
|
|
263,414
|
|
|
69,830
|
|
|
27
|
%
|
||||||
Cost of revenue
|
48,151
|
|
|
39,230
|
|
|
8,921
|
|
|
23
|
%
|
|
135,583
|
|
|
113,265
|
|
|
22,318
|
|
|
20
|
%
|
||||||
Gross profit
|
73,624
|
|
|
55,641
|
|
|
17,983
|
|
|
32
|
%
|
|
197,661
|
|
|
150,149
|
|
|
47,512
|
|
|
32
|
%
|
||||||
Gross margin
|
60.5
|
%
|
|
58.6
|
%
|
|
|
|
|
|
|
59.3
|
%
|
|
57.0
|
%
|
|
|
|
|
|
|
|||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Research and development
|
20,141
|
|
|
13,734
|
|
|
6,407
|
|
|
47
|
%
|
|
55,670
|
|
|
39,676
|
|
|
15,994
|
|
|
40
|
%
|
||||||
Sales and marketing
|
28,718
|
|
|
22,147
|
|
|
6,571
|
|
|
30
|
%
|
|
86,288
|
|
|
69,119
|
|
|
17,169
|
|
|
25
|
%
|
||||||
General and administrative
|
22,718
|
|
|
17,342
|
|
|
5,376
|
|
|
31
|
%
|
|
62,322
|
|
|
47,923
|
|
|
14,399
|
|
|
30
|
%
|
||||||
Total operating expenses
|
71,577
|
|
|
53,223
|
|
|
18,354
|
|
|
34
|
%
|
|
204,280
|
|
|
156,718
|
|
|
47,562
|
|
|
30
|
%
|
||||||
Operating income (loss)
|
2,047
|
|
|
2,418
|
|
|
(371
|
)
|
|
(15
|
)%
|
|
(6,619
|
)
|
|
(6,569
|
)
|
|
(50
|
)
|
|
1
|
%
|
||||||
Interest expense and other, net
|
4,153
|
|
|
5,369
|
|
|
(1,216
|
)
|
|
(23
|
)%
|
|
13,034
|
|
|
11,293
|
|
|
1,741
|
|
|
15
|
%
|
||||||
Loss from continuing operations before income taxes
|
(2,106
|
)
|
|
(2,951
|
)
|
|
845
|
|
|
(29
|
)%
|
|
(19,653
|
)
|
|
(17,862
|
)
|
|
(1,791
|
)
|
|
10
|
%
|
||||||
Income tax expense
|
121
|
|
|
66
|
|
|
55
|
|
|
83
|
%
|
|
318
|
|
|
195
|
|
|
123
|
|
|
63
|
%
|
||||||
Net loss from continuing operations
|
(2,227
|
)
|
|
(3,017
|
)
|
|
790
|
|
|
(26
|
)%
|
|
(19,971
|
)
|
|
(18,057
|
)
|
|
(1,914
|
)
|
|
11
|
%
|
||||||
Loss from discontinued operations, net of tax
|
—
|
|
|
(64
|
)
|
|
64
|
|
|
(100
|
)%
|
|
—
|
|
|
(1,703
|
)
|
|
1,703
|
|
|
(100
|
)%
|
||||||
Net loss
|
$
|
(2,227
|
)
|
|
$
|
(3,081
|
)
|
|
$
|
854
|
|
|
(28
|
)%
|
|
$
|
(19,971
|
)
|
|
$
|
(19,760
|
)
|
|
$
|
(211
|
)
|
|
1
|
%
|
|
|
Nine Months Ended September 30,
|
||||||
(In thousands)
|
|
2017
|
|
2016
|
||||
Cash provided by (used in):
|
|
|
|
|
||||
Operating activities
|
|
$
|
19,407
|
|
|
$
|
(4,159
|
)
|
Investing activities
|
|
(61,485
|
)
|
|
(80,827
|
)
|
||
Financing activities
|
|
6,650
|
|
|
177,558
|
|
||
Effect of exchange rate changes on cash
|
|
487
|
|
|
158
|
|
||
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(34,941
|
)
|
|
$
|
92,730
|
|
|
|
INSULET CORPORATION
(Registrant)
|
|
|
|
Date:
|
November 2, 2017
|
/s/ Patrick J. Sullivan
|
|
|
Patrick J. Sullivan
|
|
|
Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
Date:
|
November 2, 2017
|
/s/ Michael L. Levitz
|
|
|
Michael L. Levitz
|
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Performance Metric 1
|
[Description of Performance Metric 1]
|
Performance Metric 2
|
[Description of Performance Metric 2]
|
Performance Metric 3
|
[Description of Performance Metric 3]
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
|
/s/ Patrick J. Sullivan
|
||
Patrick J. Sullivan
|
||
Chief Executive Officer
|
||
|
|
|
Date:
|
November 2, 2017
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
|
|
|
/s/ Michael L. Levitz
|
||
Michael L. Levitz
|
||
Chief Financial Officer
|
||
|
|
|
Date:
|
November 2, 2017
|
|
|
|
|
|
|
|
/s/ Patrick J. Sullivan
|
||
Patrick J. Sullivan
|
||
Chief Executive Officer
|
||
|
|
|
Date:
|
November 2, 2017
|
|
|
|
|
|
|
|
/s/ Michael L. Levitz
|
||
Michael L. Levitz
|
||
Chief Financial Officer
|
||
|
|
|
Date:
|
November 2, 2017
|
|