Insulet (PODD) 10-K risk factor changes: FY2018 vs FY2017

[removed: We have] [added: Although we achieved operating income and net income in 2018, we previously] incurred significant operating [added: and net] losses since inception and cannot assure you that we will [removed: achieve] [added: sustain] profitability.

[removed: Since] [added: Prior to 2018 and since] our inception in 2000, we [removed: have] incurred significant operating losses.

Our net losses for the years ended December 31, 2017, 2016 and 2015 were $26.8 million, $28.9 million and [removed: $73.5] [added: $73.52] million, respectively.

The extent of [removed: our] [added: any] future [removed: operating] [added: net] losses and the timing of profitability are uncertain, and we may [removed: never achieve or] [added: not] sustain profitability.

As of December 31, [removed: 2017,] [added: 2018,] we had an accumulated deficit of [removed: $707.3] [added: $683.6] million.

| • | our ability to manufacture [removed: the Omnipod System efficiently;] [added: our products efficiently, or at all;] |

We believe the quarterly comparisons of our financial results [removed: are not necessarily meaningful and] should not be the only indication of our future performance.

We currently rely on sales of the Omnipod [added: System, and tailored versions of the Omnipod] System [added: in our drug delivery product line,] to generate [removed: most] [added: nearly all] of our revenue.

We expect to continue to derive [removed: a significant portion] [added: nearly all] of our revenue from the sale of this product.

Accordingly, our ability to [added: continue to] generate revenue is highly reliant on our ability to market and sell the [removed: devices that comprise the] Omnipod [removed: System.][added: System and to retain customers who currently use the product.]

| • | [removed: changes] [added: reductions] in reimbursement rates or [added: coverage] policies relating to the Omnipod System by third-party payors; |

Our ability to [removed: achieve] [added: sustain] profitability [removed: from a current net loss level will] [added: may] depend on our ability to sustain or [added: further] reduce the per unit cost of producing the Omnipod System by increasing customer orders, increasing manufacturing volume and productivity and reducing raw material and overhead costs per unit.

To [removed: achieve] [added: sustain] profitability, we [added: may] need to, among other things, sustain or [added: further] reduce the per unit cost of the Omnipod System.

If we are unable to sustain or [added: further] reduce raw material and manufacturing overhead costs through volume purchase discounts, negotiation of improved pricing and increased productivity and production capacity, our ability to [removed: achieve] [added: sustain] profitability [removed: will] [added: could] be [removed: severely constrained.][added: negatively affected.]

The occurrence of one or more factors that negatively impact the manufacturing or sales of the Omnipod System or increase our raw material costs [removed: may] [added: could] prevent us from [removed: achieving] [added: sustaining] our desired increase in manufacturing volume, which would prevent us from [removed: attaining] [added: sustaining and further increasing] profitability.

Adverse changes in general economic conditions in the United States and [removed: globally] [added: outside of the United States, predominantly in Europe,] could adversely affect us.

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 [added: ability to pay 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.

For example, the Tax Cuts and Jobs Act enacted on December 22, 2017, eliminated the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, commonly referred to as the [removed: individual mandate, beginning in] [added: "individual mandate", effective January 1,] 2019.

Additional [removed: changes] [added: legislative changes, regulatory changes, and judicial challenges related] to the ACA remain possible.

[removed: We expect] [added: It is possible] that the ACA, as currently enacted or as it may be amended in the future, and other healthcare reform measures that may be adopted in the future, could have an adverse effect on our industry generally and on our ability to maintain or increase sales of any of our products and achieve profitability.

| • | expenses we incur in manufacturing and selling [removed: the Omnipod System;] [added: our products;] |

| • | costs of developing new products or technologies and enhancements to [removed: the Omnipod System;] [added: our products;] |

We believe that our current cash, cash equivalents and short-term investments of [removed: $440.1] [added: $288.9] million, 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 [removed: 2018.][added: 2019.]

[removed: 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.

As of December 31, [removed: 2017,] [added: 2018,] we had outstanding principal amounts due of [removed: $751.2] [added: $747.5] million on our Convertible Senior Notes, which mature between [removed: 2019] [added: 2021] and 2024.

We rely on a number of suppliers who manufacture the components for and perform assembly of the [removed: Omnipods] [added: Pods] and PDMs.

We do not have long-term supply agreements with [removed: most] [added: all] of our suppliers, and, in many cases, we, or Flex on our behalf, make purchases on the basis of individual purchase orders.

In some [removed: other cases, where we do have agreements in place,] [added: cases] our agreements with suppliers can be terminated by either party upon short notice.

| • | our suppliers may make errors in manufacturing that could negatively affect the efficacy or safety of [removed: the Omnipod System or] [added: our products,] cause delays in [removed: shipment;] [added: shipment or negatively affect our reputation;] |

We [removed: do not have control over our European distributor's operational and financial condition, and we] are subject to foreign regulatory and import or export requirements.

In [removed: 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, [added: while we expect to begin U.S. production in the first half of 2019,] currently all of our Omnipod Systems are manufactured at a facility in China operated by Flex.

Our [removed: planned] assumption on July 1, 2018 of the commercial [removed: activities, including,] [added: activities for our Omnipod System in Europe (including,] among other things, distribution, sales, marketing, training and [removed: support, of our Omnipod System in Europe] [added: support)] following the expiration of our [removed: current] [added: prior] third-party global distribution agreement creates several business and operational risks related to the future sales of our Omnipod System in Europe.

[removed: We announced on July 20, 2017 our plan to assume, on] [added: On] July 1, 2018, [added: we assumed] all commercial activities (including, among other things, distribution, sales, marketing, training and support) of our Omnipod System across Europe following the expiration of our distribution agreement with our European distributor on June 30, 2018.

[removed: Also, healthcare] [added: Healthcare] market initiatives in the United States may [added: also] lead third-party payors to decline or reduce reimbursement for the Omnipod System.

[removed: In addition, coverage] [added: Coverage] decisions and rates of reimbursement increasingly require clinical evidence showing an improvement in patient outcomes.

Compliance with administrative procedures or requirements of these third-party payors may result in delays in processing approvals by those payors [added: for patients to obtain Medicare Part D coverage for the use of the Omnipod System.]

[removed: Finally, as] [added: 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 [removed: payors, including Medicare,] [added: payors] could have a material adverse effect on our business, financial condition and results of operations.

Other suppliers [removed: in the United States] [added: we compete with] include Tandem Diabetes Care, Inc. [added: and Roche Holdings Ltd.]

For the year ended December 31, 2018, we generated operating income of $27.4 million and net income of $3.3 million.

| • | market acceptance of our products; |

| • | the inability of our customers to continue paying for our products; |

Some of the provisions of the ACA have yet to be fully implemented, and certain provisions have been subject to judicial and Congressional challenges.

In addition, there have been efforts by the Trump administration to repeal or replace certain aspects of the ACA and to alter the implementation of the ACA and related laws.

Further, the Bipartisan Budget Act of 2018 among other things, amended the Medicare statute, effective January 1, 2019, to reduce the coverage gap in most Medicare drug plans, commonly known as the “donut hole,” by raising the manufacturer discount under the Medicare Part D coverage gap discount program to 70%.

It is unclear how the ACA and its implementation, as well as efforts to repeal or replace, or invalidate, the ACA, or portions thereof, will affect our business.

If we

| • | thefts of our trade secrets and intellectual property could occur with the third-party supply process; |

We sell the Omnipod in Europe, Canada and Israel.

In connection with the expiration of this distribution agreement on June 30, 2018, we are required to pay to the former European Distributor a quarterly per-unit fee for Omnipod sales by us between July 1, 2018 and June 30, 2019 to certain customers of the former European Distributor.

We are recognizing a liability and an associated intangible asset for this fee as qualifying sales occur.

The actual total fee could vary significantly depending on the number of customers who count for purposes of calculating the fee under the terms of the distribution agreement and the methodology applicable for determining this number under the agreement is subject to an active arbitration proceeding between the parties in Switzerland.We estimate that the final aggregate fee for the applicable twelve-month period could be in the range of approximately $10 million to $55 million.

Our establishment of commercial operations in Europe creates risk associated with Brexit

On June 23, 2016, in a referendum vote commonly referred to as “Brexit,” a majority of British voters voted to exit the European Union.

In March 2017, the U.K. government officially triggered the process to formally initiate negotiations for the terms of separation from the European Union.

In June 2017, the U.K. government began negotiations to leave the European Union.

A withdrawal could potentially disrupt the free movement of goods, services and people between the U.K. and the European Union, undermine bilateral cooperation in key geographic areas and significantly disrupt trade between the U.K. and the European Union or other nations as the U.K. pursues independent trade relations.

In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which European Union laws to replace or replicate.

The effects of Brexit will depend on any agreements the U.K. makes to retain access to European Union or other markets either during a transitional period or more permanently.

Because this is an unprecedented event, it is unclear what long-term economic, financial, trade and legal implications the withdrawal of the U.K. from the European Union will have and how such withdrawal could affect our business and applicable regulations in the U.K. and Europe.

In addition, Brexit may lead other European Union member countries to consider referendums regarding their European Union membership.

Any of these events, along with any political, economic and regulatory changes that may occur, could cause political and economic uncertainty in Europe and internationally and harm our business and financial results.

We expect to sell Omnipod DASH primarily through the pharmacy channel.

As such, this may require new or amended agreements with our intermediaries and payors.

The availability of Omnipod DASH may be limited or restricted if we are unable to secure the same level of reimbursement we currently have for the Omnipod.

operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements.

If our efforts to maintain the privacy and security of our customer, patient, third-party payor, employee, supplier or Company information are not successful, we could incur substantial additional costs and become subject to litigation, enforcement actions and reputational damage.

Our business, like that of most medical device manufacturers, involves the receipt, storage and transmission of patient information and payment and reimbursement information, as well as confidential information about third-party payors, our employees, our suppliers and our Company.

Our information systems are vulnerable to an increasing threat of continually evolving cybersecurity risks.

Unauthorized parties may attempt to gain access to our systems or information through fraud or other means of deceiving our employees or third-party service providers.

Hardware, software or applications we develop or obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information and device security.

The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of time.

We have implemented and regularly review and update processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss.

However, the ever-evolving threats mean we must continually evaluate and adapt our systems and processes, and our efforts may not be adequate to safeguard against all data security breaches, misuse of data or sabotage of our systems.

Any future significant compromise or breach of our data security, whether external or internal, or misuse of customer, third-party payor, employee, supplier or Company data, could result in additional significant costs, lost sales, fines, lawsuits and damage to our reputation.

In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs.

the agreement.

As amended in December 2018, this agreement has been extended through January 2023.

The agreement may be terminated prior to 2023 in the event of certain breaches by either party.

We began commercial sales of the Omnipod System in 2005.

For the year ended December 31, 2017, our operating loss was $7.4 million.

| | |

| --- | --- |

| • | market acceptance of the Omnipod System; |

| • | write-offs of receivables from customers; |

Currently, the gross profit from the sale of the Omnipod System is not sufficient to cover our operating expenses.

Any increase in manufacturing volumes must be supported by an associated increase in customer orders.

Each Omnipod System contains limited amounts of precious metals, the costs of which have fluctuated over the recent past.

Certain changes to the ACA have occurred in the 115th United States Congress and under the Trump Administration.

Establishment of a competitive bid program by CMS for conventional insulin pumps could negatively affect our operating results.

CMS has announced that it will establish a competitive bidding program nationwide for conventional insulin pumps effective January 1, 2019.

Since the Omnipod System is currently coverable by Medicare Part D through the pharmacy channel and not as durable medical equipment or as a prosthetic device, we would not be directly affected by this program.

However, should this program commence in 2019 on a nationwide basis as announced, it is expected that there would be a reduction in the amount reimbursed by CMS for conventional insulin pumps.

This may negatively impact our ability to negotiate future pricing with private payors comparing the price of the Omnipod System to conventional insulin pumps.

We use an exclusive distributor of the Omnipod System under an agreement that is in place through June 2018 in multiple countries in Europe including France, Germany, the United Kingdom, the Netherlands, Switzerland, Austria, Italy, Norway, and Sweden.

In addition to the Omnipod System, our European distributor also markets and sells a suite of other products for the treatment of diabetes and has introduced and sells its own branded conventional tubed insulin pump.

Therefore, this distributor could have a greater financial incentive to sell its proprietary products rather than the Omnipod System through the contract expiration in June 2018.

We also sell the Omnipod System in Canada.

Until the expiration of the agreement, our current distribution agreement for our Omnipod products in Europe will remain in effect.

While we do not expect this transition to materially affect our financial trends during the first half of 2018, there could be a negative effect on our sales during the transition period if our European distributor places more emphasis on selling its own proprietary products and other products, instead of ours, during this period, thereby reducing our sales.

In addition, to retain current revenue streams after July 1, 2018, we will need to secure the existing customer installed base of Omnipod users in Europe, and there can be no assurance that we will succeed in doing so.

More generally, if we are unable to effectively establish direct distribution and commercial support for the Omnipod System in Europe in a timely manner (which will include hiring employees in many of these jurisdictions), we may not be able to service the current Omnipod users in Europe and grow the business as we anticipate.

Any of the foregoing risks could negatively affect our future revenues and, depending on severity, potentially cause a materially adverse effect on our business and results of operations.

for patients to obtain Medicare Part D coverage for the use of the Omnipod System.

In addition to the Omnipod System, our European distributor markets and sells a suite of other products for the treatment of diabetes and also sells its own branded conventional tubed insulin pump.

This distributor may have a greater financial incentive to sell its proprietary products rather than the Omnipod System.

For example, other diabetes-focused companies, including Abbott Diabetes Care, Inc. ("Abbott"), Becton Dickinson and Company, 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.

For example, we are working with DexCom 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 will require substantial clinical support and are subject to regulatory approvals.

As amended, this agreement runs through January 2020.

The agreement may be terminated or limited in geographical scope by Abbott or us under certain circumstances.

Our non-insulin drug delivery product line has grown substantially over the past years.

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 product line could be significantly impaired, which in turn could materially and adversely impact our business and financial results.

collected in a particular country be stored and/or processed within that country.

| RGH Enterprises, Inc. | | 11% | | 10% | | 13% |

Any disruption at either of these locations could increase our expenses.

The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod [removed: device,] [added: device] which is worn on the body for approximately three days at a [removed: time,] [added: time] and its wireless companion, the handheld PDM.

[removed: In contrast, the] [added: The] Omnipod [removed: System] [added: System, which] features [removed: only] two discreet, easy-to-use [removed: devices that eliminate the need for a bulky pump and tubing,] [added: devices, communicates wirelessly,] provides for virtually pain-free automated cannula [removed: insertion, communicates wirelessly] [added: insertion] and [removed: integrates a blood glucose meter.][added: eliminates the need for traditional MDI therapy or the use of traditional pump and tubing.]

We began commercial sale of the Omnipod [removed: System] in the United States in 2005.

We sell the Omnipod [removed: System in the United States] through direct sales to customers or through our distribution partners.

The Omnipod [removed: System] is currently available in multiple countries in Europe, as well as Canada and Israel.

The majority of our drug delivery revenue currently consists of sales of [added: pods used in] Amgen's Neulasta Onpro [removed: kit.][added: kit, an innovative delivery system for Amgen’s white blood cell booster to help reduce the risk of infection during intense chemotherapy.]

We [removed: are constructing] [added: have substantially completed the construction of] a highly-automated manufacturing facility in Acton, Massachusetts, with planned production out of the facility beginning in [removed: early] [added: the first half of] 2019.

The facility [removed: will] also [removed: serve] [added: serves] as our global headquarters.

We expect [removed: that] [added: that, following start up related activities,] the new facility will allow us to lower our manufacturing costs, increase supply redundancy, add capacity closer to our largest customer base and support growth.

[removed: We announced on July 20, 2017 our plans to assume, on] [added: On] July 1, [removed: 2018,] [added: 2018 we assumed] all commercial activities (including, among other things, distribution, sales, marketing, training and support) [removed: of] [added: for] our Omnipod System across Europe following the expiration of our [added: prior] distribution agreement with our [added: former] European [removed: distributor] [added: Distributor] on June 30, 2018.

[removed: | • | Also in January] [added: In June] 2018, [removed: we submitted a premarket notification 510(k) to] the FDA [removed: requesting] [added: provided] clearance for [added: the] commercial distribution of our DASH TM System, which is our [removed: next generation of the] [added: next-generation digital mobile] Omnipod [removed: System,] [added: platform,] featuring a secured Bluetooth [removed: Low Energy] enabled Pod and PDM with a touch screen color user interface [removed: |][added: supported by smartphone connectivity.]

[removed: | • | During 2017, we began construction of our new, highly-automated U.S. manufacturing facility in Acton, Massachusetts. We believe that this manufacturing facility will allow us to] [added: To] lower our manufacturing costs, increase supply redundancy, add capacity closer [added: to] our [removed: growing U.S.] [added: largest] customer base and support [removed: our growth. The] [added: growth, we have been constructing a highly-automated manufacturing] facility [removed: will also serve] [added: in Acton, Massachusetts, which serves] as our [removed: global] [added: corporate] headquarters. [removed: |]

[removed: 2017] [added: 2018] Revenue Results:

| • | Total revenue of [removed: $463.8] [added: $563.8] million |

| ◦ | U.S. Omnipod revenue of [removed: $271.6] [added: $323.5] million, [removed: an 18%] [added: a 19%] increase year over year |

| ◦ | International Omnipod revenue of [removed: $120.0] [added: $172.0] million, a [removed: 67%] [added: 43%] increase year over year |

| ◦ | Drug Delivery revenue of [removed: $72.2] [added: $68.3] million, [removed: an 11% increase] [added: a 5% decrease] year over year |

Our long-term financial objective is to [removed: achieve and] sustain profitable growth.

Achieving these objectives is expected to require additional investments in certain [removed: personnel] [added: initiatives] and [removed: initiatives,] [added: personnel,] as well as enhancements to our supply chain operation capacity, efficiency and effectiveness.

We derive [removed: most] [added: the majority] of our revenue from global sales of the Omnipod System.

[removed: Our revenue] [added: We] also [removed: includes sales of] [added: sell] devices based on the Omnipod System technology [removed: platform] to global pharmaceutical and biotechnology companies for the delivery of [removed: subcutaneous] [added: their] drugs across [removed: multiple] therapeutic areas.

Cost of revenue consists primarily of raw material, labor, warranty, inventory [removed: reserve] [added: scrap] and [added: excess and obsolescence adjustments, and] overhead costs such as freight-in and [removed: depreciation,] [added: depreciation] and the cost of products we acquire from third party suppliers.

Research and development expenses consist primarily of personnel [removed: costs] [added: costs, license fees] and outside [removed: services] [added: service expenses] within our product development, regulatory and clinical [removed: functions,] [added: functions] and [removed: product development projects.][added: well as innovations related to our global supply chain and manufacturing process.]

Sales and marketing expenses consist primarily of personnel costs within our sales, marketing, reimbursement [removed: support,] [added: support and] customer care [removed: and training] functions, [added: as well as] sales commissions paid to our sales representatives, costs associated with promotional activities and participation in industry trade shows.

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 [removed: costs.][added: costs including depreciation of office facility-related property and equipment.]

This section discusses our consolidated results of operations for [removed: 2017] [added: 2018] compared to [removed: 2016,] [added: 2017,] as well as [removed: 2016] [added: 2017] compared to [removed: 2015,] [added: 2016,] and should be read in conjunction with the consolidated financial statements and accompanying notes included under Item 8 of this Form 10-K.

| (In Thousands) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | $ [removed: Change] | | | | % [removed: Change] | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | $ [removed: Change] | | | | % [removed: Change] | |

| U.S. Omnipod | $ | [removed: 271,597] [added: 323,528] | | | $ | [removed: 229,785] [added: 271,597] | | | $ | [removed: 41,812] [added: 51,931] | | | [removed: 18] [added: 19] | % | | $ | [removed: 229,785] [added: 271,597] | | | $ | [removed: 189,604] [added: 229,785] | | | $ | [removed: 40,181] [added: 41,812] | | | [removed: 21] [added: 18] | % |

| International Omnipod | [removed: 119,953] [added: 172,020] | | | | [removed: 71,889] [added: 119,953] | | | | [removed: 48,064] [added: 52,067] | | | | [removed: 67] [added: 43] | % | | [removed: 71,889] [added: 119,953] | | | | [removed: 40,339] [added: 71,889] | | | | [removed: 31,550] [added: 48,064] | | | | [removed: 78] [added: 67] | % |

| Drug Delivery | [removed: 72,218] [added: 68,275] | | | | [removed: 65,315] [added: 72,218] | | | | [removed: 6,903] [added: (3,943] | | [added: )] | | [removed: 11] [added: (5] | [removed: %] [added: )%] | | [removed: 65,315] [added: 72,218] | | | | [removed: 33,950] [added: 65,315] | | | | [removed: 31,365] [added: 6,903] | | | | [removed: 92] [added: 11] | % |

| Total Revenue | [removed: 463,768] [added: 563,823] | | | | [removed: 366,989] [added: 463,768] | | | | [removed: 96,779] [added: 100,055] | | | | [removed: 26] [added: 22] | % | | [removed: 366,989] [added: 463,768] | | | | [removed: 263,893] [added: 366,989] | | | | [removed: 103,096] [added: 96,779] | | | | [removed: 39] [added: 26] | % |

| Cost of revenue | [removed: 186,599] [added: 193,655] | | | | [removed: 155,903] [added: 186,599] | | | | [removed: 30,696] [added: 7,056] | | | | [removed: 20] [added: 4] | % | | [removed: 155,903] [added: 186,599] | | | | [removed: 130,622] [added: 155,903] | | | | [removed: 25,281] [added: 30,696] | | | | [removed: 19] [added: 20] | % |

| Gross profit | [removed: 277,169] [added: 370,168] | | | | [removed: 211,086] [added: 277,169] | | | | [removed: 66,083] [added: 92,999] | | | | [removed: 31] [added: 34] | % | | [removed: 211,086] [added: 277,169] | | | | [removed: 133,271] [added: 211,086] | | | | [removed: 77,815] [added: 66,083] | | | | [removed: 58] [added: 31] | % |

| Gross margin | [removed: 59.8] [added: 65.7] | | % | | [removed: 57.5] [added: 59.8] | | % | | | | | | [removed: 2.3] | | | [removed: 57.5] [added: 59.8] | | % | | [removed: 50.5] [added: 57.5] | | % | | | | | | [removed: 7] | |

| Research and development | [removed: 74,452] [added: 88,606] | | | | [removed: 55,710] [added: 74,452] | | | | [removed: 18,742] [added: 14,154] | | | | [removed: 34] [added: 19] | % | | [removed: 55,710] [added: 74,452] | | | | [removed: 43,208] [added: 55,710] | | | | [removed: 12,502] [added: 18,742] | | | | [removed: 29] [added: 34] | % |

| Sales and marketing | [removed: 121,617] [added: 142,321] | | | | [removed: 94,483] [added: 121,617] | | | | [removed: 27,134] [added: 20,704] | | | | [removed: 29] [added: 17] | % | | [removed: 94,483] [added: 121,617] | | | | [removed: 78,407] [added: 94,483] | | | | [removed: 16,076] [added: 27,134] | | | | [removed: 21] [added: 29] | % |

| General and administrative | [removed: 88,487] [added: 111,818] | | | | [removed: 71,597] [added: 88,487] | | | | [removed: 16,890] [added: 23,331] | | | | [removed: 24] [added: 26] | % | | [removed: 71,597] [added: 88,487] | | | | [removed: 60,392] [added: 71,597] | | | | [removed: 11,205] [added: 16,890] | | | | [removed: 19] [added: 24] | % |

| Total operating expenses | [removed: 284,556] [added: 342,745] | | | | [removed: 221,790] [added: 284,556] | | | | [removed: 62,766] [added: 58,189] | | | | [removed: 28] [added: 20] | % | | [removed: 221,790] [added: 284,556] | | | | [removed: 182,007] [added: 221,790] | | | | [removed: 39,783] [added: 62,766] | | | | [removed: 22] [added: 28] | % |

| Operating [removed: loss] [added: income (loss)] | [removed: (7,387] [added: 27,423] | | [removed: )] | | [removed: (10,704] [added: (7,387] | | ) | | [removed: (3,317] [added: 34,810] | | [removed: )] | | [removed: (31] [added: 471] | [removed: )%] [added: %] | | [removed: (10,704] [added: (7,387] | | ) | | [removed: (48,736] [added: (10,704] | | ) | | [removed: (38,032] [added: 3,317] | | [removed: )] | | [removed: (78] [added: 31] | [removed: )%] [added: %] |

| Interest expense and other, net | [removed: (19,187] [added: (22,197] | | ) | | [removed: (16,114] [added: (19,187] | | ) | | [removed: (3,073] [added: (3,010] | | ) | | [removed: 19] [added: 16] | % | | [removed: (16,114] [added: (19,187] | | ) | | [removed: (12,654] [added: (16,114] | | ) | | [removed: (3,460] [added: (3,073] | | ) | | [removed: 27] [added: 19] | % |

There are two primary types of insulin therapy practiced today: 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 the person’s body.

Insulin pump therapy has been shown to provide people with insulin-dependent diabetes with numerous advantages relative to MDI therapy.

We estimate that approximately one-third of the Type 1 diabetes population in the United States and less than one fifth of the Type 1 diabetes population outside of the United States use insulin pump therapy.

An even smaller portion of the Type 2 diabetes population in the United States who are insulin-dependent use insulin pump therapy.

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 subcutaneous drugs across other therapeutic areas.

From the purchase of this facility in late 2016 through December 31, 2018, capital expenditures for the construction of the Acton facility and related equipment purchases have been approximately $193 million.

In 2019, we expect to invest additional capital in this facility to support our growth funded by our existing cash and investments.

In January 2018, we announced that the Centers for Medicare & Medicaid Services ("CMS") has issued guidance clarifying that Medicare Part D Plan Sponsors may provide coverage for products such as the Omnipod System under the Medicare Part D (prescription drug) program.

We have been securing coverage with Medicare Part D carriers to ensure beneficiaries living with diabetes have access to the Omnipod System.

Securing Medicare Part D coverage also provides us with a direct pathway to increased Medicaid coverage at the state level, as many state-run Medicaid programs follow CMS prescription drug guidance to determine coverage.

This allows access for lower-income individuals and families on Medicaid for whom Omnipod currently is not a covered option.

In April 2018, we also significantly increased our market access when we secured in-network coverage of Omnipod with United Healthcare, the largest commercial payer in the United States.

We commenced a U.S. limited commercial release of Omnipod DASH TM in the third quarter of 2018 prior to a U.S. full market launch in the first half of 2019.

We expect our efforts in 2019 to focus primarily on commissioning our U.S. manufacturing facility, commencing a U.S. full market release of Omnipod DASH, continuing our

product development efforts, and continuing to work with Medicare, Medicaid and commercial payors and intermediaries to expand access.

Research and development expenses also include engineering and operational costs, such as training and start up activities, associated with our newly constructed U.S. manufacturing facility.

Commission costs that are direct and incremental to obtaining a new customer are capitalized and amortized to sales and marketing expense over the expected period of benefit.

| | | | | | | | | | Change | | | | | | | | | | | | | | | Change | | | | | |

Our International Omnipod revenue increased to $172.0 million, up $52.1 million, or 43%, primarily due to both higher volumes and pricing as a result of our commencement of direct sales of our Omnipod System across Europe following the expiration of our prior distribution agreement with our former European Distributor on June 30, 2018.

Our U.S. Omnipod revenue increased to $323.5 million, up $51.9 million, or 19%, as we continue to expand access to and awareness of the Omnipod System.

Our drug delivery revenue declined to $68.3 million, down $3.9 million, or 5%, primarily reflecting a lower number of shipments during the year, partially offset by the favorable impact of adoption of new accounting rules that require a portion of our drug delivery revenue to be recognized as the product is produced rather than at time of shipment (as further described in Note 2 to the consolidated financial statements).

For 2019, we expect strong revenue growth driven by continued Omnipod expansion globally, partially offset by lower drug delivery revenue.

Internationally, we expect higher revenues primarily due to increasing sales and the full year effect of more favorable pricing as a result of our mid-2018 transition to direct commercial operations in Europe.

In the U.S., we expect higher revenues primarily due to increasing sales as a result of expanded payor coverage and greater awareness and availability for the Omnipod.

Cost of revenue increased to $193.7 million, up $7.1 million, or 4%, in 2018 compared to 2017, primarily due to an increase in sales volumes, partially offset by improvements in supply chain operations in 2018.

Gross margin increased to 65.7%, up approximately 590 basis points, in 2018 compared to 2017.

The increase in gross margin was due primarily to (i) favorable pricing following expiration of our former distributor agreement in Europe and (ii) lower product cost as a result of continued improvements in manufacturing and supply chain operations.

For 2019, we expect full-year gross margins to be relatively consistent with 2018, as the benefits of continued improvements in manufacturing and supply chain operations and the full year effect of our mid-2018 assumption of direct commercial operations in Europe is expected to be offset by start-up costs and inefficiencies as we ramp up our new U.S. manufacturing operations.

Research and development expenses increased to $88.6 million, up $14.2 million, or 19%, in 2018 as compared to 2017.

The increase in research and development expenses was primarily due to an increase in expenses related to our development projects, including Omnipod DASH, and our Omnipod Horizon automated insulin delivery system.

Research and development expenses also increased due to engineering and operational costs, such as training and start up activities, associated with our newly constructed U.S. manufacturing facility, with planned production beginning in the first half of 2019.

Sales and marketing expenses increased to $142.3 million, up $20.7 million, or 17%, in 2018 as compared to 2017.

The increase in sales and marketing expenses was primarily due to investments to support our assumption in mid-2018 of direct commercial operations in Europe as well as the expansion of our U.S. sales force and customer support personnel.

These increases were partially offset by the capitalization of commission costs related to new customer contracts (as further described in Note 8 to the consolidated financial statements).

General and administrative expenses increased to $111.8 million, up $23.3 million, or 26% in 2018 as compared to 2017.

General and administrative expenses in the current year include $12.6 million of severance-related charges associated with the retirement of our former CEO, of which $8.2 million related to stock-based compensation for the acceleration of share-based awards and the remainder represented cash severance benefits.

General and administrative expenses also increased due to our commencement of direct commercial operations in Europe.

Interest expense and other, net, increased to $22.2 million, up $3.0 million, or 16%, for 2018, compared to 2017.

Interest expense and other, net, includes $9.8 million of cash interest expense and $29.3 million of non-cash interest expense associated with our convertible debt, partially offset by $10.2 million of interest capitalized as part of the cost of our U.S. manufacturing facility and by $6.7 million of interest income on our investment portfolio.

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 addition to the diabetes market space, we have partnered with 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.

We expect capital expenditures for the construction of the Acton facility and related equipment purchases will approach $200 million when production begins in 2019 and will be funded by our cash flows from operations and proceeds from our senior convertible debt offerings.

Once we assume commercial activities following the expiration of the current distribution agreement, we expect our revenue and gross margins to increase, as average customer pricing in Europe is higher than the current distributor pricing to our European distributor.

Throughout 2018, we expect to incur increased operating expenses as we invest in our European operations.

Once European operations are established, excluding nonrecurring transition-related costs, we expect that the assumption of direct distribution will be accretive to our consolidated results of operations.

Highlights and Recent Developments:

| | |

| --- | --- |

| • | In January 2018, we announced that CMS has issued guidance clarifying that Medicare Part D Plan Sponsors are permitted to provide coverage for products such as the Omnipod System under the Medicare Part D (prescription drug) program. The CMS guidance empowers us to begin working with Medicare Part D carriers to ensure beneficiaries living with diabetes have access to the Omnipod System. Securing Medicare Part D coverage also provides us with a direct pathway to gain Medicaid coverage at the state level, as many state-run Medicaid programs follow CMS prescription drug guidance to determine coverage. This allows access for lower-income individuals and families on Medicaid for whom Omnipod currently is not a covered option. The Company estimates that obtaining Medicare and Medicaid coverage extends Omnipod System coverage access to approximately 450,000 additional individuals with Type 1 diabetes in the United States. |

supported by smartphone connectivity.

Upon clearance, we would begin a limited commercial release of the product prior to a full market launch.

| • | In November 2017, we issued and sold $402.5 million in principal amount of 1.375% Convertible Senior Notes due in 2024 and repurchased $63.4 million in principal amount of our 2.0% Convertible Senior Notes due in 2019. |

| • | In July 2017, we announced plans to assume distribution and commercial support for the Omnipod System in Europe as further discussed above. We believe that our strategy of accessing our customers directly in Europe will allow us to have better control over existing and future markets, be closer to our customers, gain a better understanding of innovation needs specific to the European market, and expand our customer base. |

We expect our efforts in 2018 and 2019 to focus primarily on the construction and commissioning of our U.S. manufacturing facility, the establishment of our European operations, the launch of new products, such as the DASH TM Omnipod System, continuing our product development efforts, and taking the necessary actions such as amending or creating payor or distributor contracts to allow us to service patients who receive benefits through the Medicare Part D and Medicaid programs.

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.

For 2018, we expect strong revenue growth driven by our expansion in the U.S. and internationally, as well as the transition to direct distribution of our Omnipod System across Europe following the expiration of our global distribution agreement with our European distributor on June 30, 2018, partially offset by lower drug delivery revenue.

For 2018, we expect gross margin to increase as compared to 2017 primarily due to improvements in supply chain operations and our assumption of distribution of our Omnipod System in Europe in the second half of 2018.

The increase in research and development expenses in the current period was primarily due to an increase in expenses related to our development projects, including our digital mobile Omnipod platform, which involves interaction with continuous glucose monitoring technology, our concentrated insulin program and our artificial pancreas program.

Our U.S. Omnipod revenue increased to $229.8 million, up $40.2 million, or 21%, primarily due to growth in our installed base of Omnipod users which was greatly driven by the expansion in 2015 and 2016 of our sales force and customer support personnel and strategic initiatives introduced in mid-2015 to expand awareness of the Omnipod System.

The results for 2015 were also partially impacted by unfavorable distributor ordering patterns in the first quarter of 2015 which stabilized thereafter.

Our International Omnipod revenue increased to $71.9 million, up $31.6 million, or 78%, primarily due to growth in distributor sales from continued adoption in existing markets and to a lesser extent from entry into new markets.

The results for 2015 included lower International Omnipod sales which partially resulted from unfavorable distributor ordering patterns in the first and second quarters of 2015, which stabilized thereafter.

Our drug delivery revenue increased to $65.3 million, up $31.4 million due to strong growth in demand for our primary drug delivery device following regulatory approval in December 2014.

Cost of revenue increased to $155.9 million, up $25.3 million, or 19%, in 2016 compared to 2015, primarily due to an increase in sales volumes, partially offset by $11.5 million of costs incurred during 2015 that were considered non-recurring in nature, along with supply chain operation efficiency and effectiveness improvements made in 2016.

Gross margin increased to 57.5%, up approximately 7 points, in 2016 compared to 2015, primarily due to $11.5 million of costs incurred in 2015 that were considered non-recurring in nature, along with supply chain operation efficiencies and effectiveness improvements made in 2016.

Research and development expenses increased to $55.7 million, up $12.5 million, or 29%, in 2016 compared to 2015, primarily due to an increase in expenses related to our development projects, including our mobile application development which involves interaction with continuous glucose monitoring technology, artificial pancreas program, development efforts with Eli Lilly and Company for the use of concentrated insulin for patients with higher insulin-resistance and other Omnipod product improvement initiatives.

Sales and marketing expenses increased to $94.5 million, up $16.1 million, or 21%, for 2016 compared to 2015, primarily due to an increase of $16.0 million in personnel-related expenses, including increased incentive compensation costs resulting from growth in the business, as well as costs associated with the expansion in 2015 of our sales force and customer support personnel.

General and administrative expenses increased to $71.6 million, up $11.2 million, or 19%, for 2016 compared to 2015.

This increase includes a charge of $6.1 million related to in-process internally developed software recorded in the fourth quarter of 2016 due to a change in our longer-term enterprise resource planning system requirements.

In addition, the increase was also due to a $4.6 million increase that was primarily attributable to personnel-related costs on higher incentive compensation associated with growth in our business, as well as additional staff to support our growth expectations and fees paid for external consultants.

Interest expense and other income, net increased to $16.1 million, up $3.5 million, or 27% for 2016 compared to 2015, due to $3.0 million of net additional interest expense associated with the issuance of the 1.25% Notes and a $2.6 million charge recorded for the extinguishment of debt related to the repurchase of $134.2 million in principal of the 2% Notes.

This was partially offset from a slight decrease in capital lease interest expense.

Income tax expense was not material to our results of operations in the years 2016 or 2015.

Loss from Discontinued Operations, Net of Tax

The loss from discontinued operations decreased by approximately $10.2 million in 2016, compared to the year ended December 31, 2015.

This decrease was primarily the result of a $9.1 million impairment charge recorded in the fourth quarter of 2015 for the long-lived assets of Neighborhood Diabetes which we sold in February 2016.

As the Neighborhood Diabetes business was sold in February 2016, 2016 includes less than two months of full operations compared to a full year for 2015.

As of December 31, 2017, we had $272.6 million in cash and cash equivalents and $293.0 million in short-term and long-term investments.

We [added: currently] do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts.

[removed: We consider investments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents.The] [added: 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 [added: mainly] in [removed: cash equivalents,] short-term [added: investments] and [removed: long-term marketing securities.][added: cash equivalents.]

As of December 31, [removed: 2017,] [added: 2018,] we had outstanding debt [added: related to our convertible senior notes] recorded on our consolidated balance sheet of [removed: $566.2] [added: $592.0] million, net of [removed: deferred financing costs and] unamortized [removed: debt] discount [added: and issuance costs] totaling [removed: $185.0 million, related to our Convertible Senior Notes.][added: $155.5 million.]

Changes in the fair value of our outstanding debt, which could be impacted by changes in interest rates, are not recorded in these consolidated financial statements as the debt is accounted for at cost less unamortized discount and issuance costs.

The fair value of the debt, which is disclosed in Note 4 to the consolidated financial statements, is also impacted by changes on our stock price.

A substantial portion of our operations are located in the United States, and the majority of our sales since inception have been made in United States dollars.

During 2018, following the assumption of direct operations in Europe, our business became more exposed to foreign currency exchange rate fluctuations.

Fluctuations in the rate of exchange between the United States dollar and foreign currencies, primarily the Euro and the British Pound, could adversely affect our financial results, including our revenues, revenue growth rates, gross margins, income and losses as well as assets and liabilities.

We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

As the interest rates are fixed and the notes are not carried at fair value, changes in interest rates do not affect the value of our debt.

We are primarily exposed to currency exchange rate fluctuations related to our subsidiary operation in Canada and, to a lesser extent, Europe.

Currently, the majority of our sales outside of the U.S. are transacted in U.S. dollars and are not subject to material foreign currency fluctuations.

We expect that as we establish our commercial operations in Europe during 2018 that our business will become more susceptible to foreign exchange rate volatility, primarily related to the Euro and the British Pound.

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 cash flows, financial condition or results of operations.

We are primarily engaged in the development, manufacturing and sale of our proprietary Omnipod® [removed: Insulin Management System (the “Omnipod System”),] [added: System,] an innovative, discreet and easy-to-use continuous insulin delivery system for people with insulin-dependent diabetes.

The Omnipod System features [added: two discreet, easy-to-use devices:] a small, lightweight, self-adhesive disposable tubeless [removed: Omnipod device,] [added: Pod ("Pod"),] which is worn on the body [removed: for approximately] [added: and provides up to] three days [removed: at] [added: of non-stop insulin delivery without the need to see or handle] a [removed: time,] [added: needle;] and [removed: its wireless companion: the] [added: a] handheld Personal Diabetes Manager [removed: (“PDM”).][added: ("PDM").]

[removed: In contrast, the] [added: The] Omnipod System [removed: features only two discreet, easy-to-use devices that eliminate the need for a bulky pump and tubing,] [added: communicates wirelessly,] provides for virtually pain-free automated cannula [removed: insertion, communicates wirelessly] [added: insertion] and [removed: integrates a blood glucose meter.][added: eliminates the need for traditional MDI therapy or the use of traditional pump and tubing.]

The Omnipod [removed: System] is [removed: currently] [added: also] available in multiple countries in Europe, as well as in Canada and Israel.

Securing Medicare Part D coverage also provides [removed: us with] a direct pathway to [removed: gain] [added: increased] Medicaid coverage at the state level, as many state-run Medicaid programs follow CMS prescription drug guidance to determine coverage.

This [added: increased Medicaid access] allows access for lower-income individuals and families [removed: on Medicaid] for whom Omnipod [removed: is currently] [added: had previously] not [removed: an] [added: been a covered] option.

The majority of our drug delivery revenue currently consists of sales of [added: Pods used in] Amgen's Neulasta Onpro [removed: kit.][added: kit, an innovative delivery system for Amgen’s white blood cell booster to help reduce the risk of infection during intense chemotherapy.]

We [removed: are constructing] [added: have substantially completed the construction of] a highly-automated manufacturing facility in Acton, Massachusetts, with planned production out of the facility beginning in [removed: early] [added: the first half of] 2019.

The facility [removed: will] also [removed: serve] [added: serves] as our global headquarters.

We expect [removed: that] [added: that, following start-up related activities,] the new facility will allow us to lower our manufacturing costs, increase supply redundancy, add capacity closer to our largest customer base and support [removed: growth.][added: our growth trajectory.]

[removed: Diabetes] [added: It] is caused by the body’s inability to produce or effectively utilize the hormone [removed: insulin.][added: insulin, which prevents the body from adequately regulating blood glucose levels.]

| • | 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 to [removed: survive, typically administered via injections or continuous infusion through pump therapy.] [added: survive.] It is estimated that approximately [removed: 1.5] [added: one] million [added: to two million] people [removed: have Type 1 diabetes] in the United [removed: States.] [added: States have Type 1 diabetes.] |

| • | Type 2 diabetes, the more common [removed: form of diabetes,] [added: form,] 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 [removed: 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 therapies, which often include insulin therapy. It is estimated that approximately [removed: 1.7] [added: two] million [added: to three million] people in the United States have Type 2 diabetes [removed: requiring] [added: that requires] daily insulin administration. |

Achieving this result can be very difficult without multiple daily injections of insulin or [removed: the use of continuous subcutaneous] insulin [removed: infusion (“CSII”), often referred to as] pump therapy.

As a result, many patients have difficulty managing their [removed: diabetes optimally.][added: diabetes.]

Additionally, the time spent [removed: in] managing [removed: diabetes, the swings] [added: fluctuations] in blood glucose levels and the fear [removed: of] [added: associated with] hypoglycemia can [removed: render diabetes management overwhelming] [added: be incredibly stressful] to patients and their families.

Insulin pumps are used to perform continuous subcutaneous insulin [removed: infusion, or insulin pump therapy,] [added: infusion] and typically use a programmable device and an infusion set to administer insulin into the person’s body.

MDI therapy involves the administration of [removed: a rapid acting] [added: fast-acting] insulin before meals (bolus) to [removed: bring] [added: lower] blood glucose levels [removed: down into the] [added: to a] healthy range.

MDI therapy may also require a separate injection of a long-acting (basal) insulin, to control glucose levels between meals; [removed: this type of insulin is] typically [removed: taken] once or twice per day.

By comparison, insulin pump therapy uses only [removed: rapid acting] [added: fast-acting] insulin to fulfill both mealtime (bolus) and background (basal) requirements.

Insulin pump therapy allows [removed: a person] [added: individuals] to customize their bolus and basal insulin doses to meet their insulin needs throughout the day, and is intended to more closely resemble the physiologic function of a healthy pancreas.

For example, insulin pump therapy eliminates individual insulin [removed: injections,] [added: injections (approximately five per day),] delivers insulin more accurately and precisely than injections, often improves HbA1c (a common measure of blood glucose levels) over time, provides greater flexibility with meals, exercise and daily schedules, and can reduce severe low blood glucose levels.

We estimate that approximately one-third of the Type 1 diabetes population in the United States [added: and less than one fifth of the Type 1 diabetes population outside the United States] use insulin pump therapy.

[removed: In addition, we believe less than 10%] [added: An even smaller portion] of the [added: insulin-dependent] Type 2 diabetes population in the United States [removed: who are insulin-dependent] use insulin pump therapy.

We believe that [removed: the] [added: these] distinct [removed: advantages] [added: advantages, including technological advancements] and increased awareness of insulin pump therapy as compared to other available insulin therapies will continue to generate demand for insulin pump devices.

[added: Our Solution:] The Omnipod System

The Omnipod [removed: Insulin Management] System is an innovative continuous insulin delivery system that provides all the [removed: proven] benefits of insulin pump therapy in a way no conventional insulin pump can.

The Omnipod System's innovative design and differentiated features [removed: allows] [added: allow] people with insulin-dependent diabetes to live their lives, and manage their diabetes, with unprecedented freedom, comfort, convenience and ease.

[removed:  ][added: |  |  |  |]

[removed: Continuous] [added: The Omnipod System provides continuous] insulin delivery at preset [removed: rates eliminates] [added: rates, eliminating] the need for individual [added: insulin] injections and the interruptions that come with them.

In addition, [removed: 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.

| • | A small, constant background supply of insulin [removed: (basal)] is delivered automatically at a programmed rate, all day and night. |

| • | An extra dose of insulin [removed: (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 [removed: two part] [added: two-part] design, the [removed: Omnipod device (“Omnipod” or “Pod”)] [added: Pod] and the PDM, that eliminates the need for the external tubing required with conventional pumps.

| • | The PDM is a wireless, handheld device that programs the Pod with the user's personalized insulin-delivery [removed: instructions,] [added: instructions and,] wirelessly monitors the Pod's [removed: operation and includes a FreeStyle® blood glucose meter.] [added: operation.] |

The Omnipod System consists of just two [removed: devices,] [added: devices] as opposed to up to seven for conventional tubed insulin pumps.

As a result, the Omnipod System is easy for patients to use, which also reduces the training burden on healthcare professionals and [removed: users.][added: end-users.]

We [removed: also] believe that the Omnipod System’s [added: overall] ease of [removed: use] [added: use, flexibility,] and substantially lower training burden [removed: helps] [added: make it very attractive] to [removed: redefine which] [added: people with insulin-dependent] diabetes [removed: patients are appropriate] [added: and help redefine] for [added: whom] insulin pump [removed: therapy,] [added: therapy is appropriate,] allowing healthcare professionals to prescribe pump therapy to a broader [removed: pool] [added: group] of patients.

The Omnipod System’s unique patented design and proprietary manufacturing process allow us to provide [removed: CSII] [added: pump] therapy at a relatively low up-front investment compared to conventional tubed insulin pumps.

The [added: diabetes] medical device [removed: industry] [added: market] is [removed: intensely] [added: highly] competitive, subject to rapid change and significantly affected by new product [removed: introductions and other market activities of industry participants.][added: introductions.]

The Omnipod System consists of two product lines: the Omnipod Insulin Management System (“Omnipod”), which we have been selling since 2005, and our next generation Omnipod DASHTM Insulin Management System ("Omnipod DASH" or "DASH"), which began a U.S. limited market release in 2018.

Collectively, we refer to these products as the "Omnipod System".

We believe these factors present a significant available market for the Omnipod System globally.

The Pod can be worn in multiple locations, including the abdomen, hip, back of upper arm, upper thigh or lower back and, because it is waterproof, there is no need to remove it when showering, swimming or performing other activities.

We began commercial sales of the Omnipod in the United States in 2005 and we sell the Omnipod directly to end-users or through intermediaries.

On July 1, 2018, we commenced direct commercial operations for the Omnipod in Europe immediately following the expiration of our distribution agreement with our former European distributor.

In June 2018, the U.S. Food and Drug Administration ("FDA") cleared for commercial sale our Omnipod DASH, which is our next-generation digital mobile Omnipod platform within the Omnipod System family, featuring secured Bluetooth wireless technology for connectivity between the Pod and the color touchscreen smartphone PDM.

The DASH PDM is optimized for use with the CONTOUR® NEXT ONE Blood Glucose (BG) Meter for the direct transfer of blood glucose readings to the PDM's bolus calculator.

Bluetooth functionality will also provide connectivity to our smartphone apps.

We commenced a limited commercial release of Omnipod DASH in 2018 prior to a planned full market launch in the U.S. in the first half of 2019.

For the year ended December 31, 2018, approximately 69% of our consolidated revenue was from sales in the United States and approximately 31% from international sales.

During 2018, we began securing coverage with Medicare Part D carriers to ensure beneficiaries living with diabetes have access to the Omnipod System.

In April 2018, we also significantly increased our market access when we secured in-network coverage of Omnipod with UnitedHealthcare, the largest commercial payer in the United States.

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 subcutaneous drugs across other therapeutic areas.

Market Opportunity: Management of Diabetes

As previously noted, there are two primary types of insulin therapy practiced today: MDI therapy and insulin pump therapy.

Insulin pumps are used to perform continuous subcutaneous insulin infusion and typically use a programmable device and an infusion set to administer insulin into the person’s body.

Insulin pump therapy has been shown to provide numerous advantages relative to MDI therapy.

| | | |

| --- | --- | --- |

| | | |

| Pod | Omnipod PDM | Omnipod DASH PDM |

We believe that our pricing model, which includes little or no initial investment, reduces the risk to third-party payors of significant up-front investments commonly associated with traditional tubed insulin pumps.

Several publications over the past decade have found that compared to multiple daily injections therapy, the use of the Omnipod System by individuals with both Type 1 and Type 2 diabetes across all age groups is associated with good glycemic control, reduced total daily dose of insulin, and reduced frequency and severity of hypoglycemic episodes.

These results are consistent with other published literature of other continuous subcutaneous insulin infusion devices similar to the Omnipod System.

In addition, research in adults with Type 1 diabetes has found that compared to prior treatment modality, the use of the Omnipod System is associated with improved quality of life.

We believe that this data is clinically meaningful to healthcare providers and provides support for the use of the Omnipod System in the treatment of both Type 1 and Type 2 diabetes.

We have partnered with Glooko Inc. ("Glooko") to connect our Omnipod System user data with Glooko's comprehensive diabetes data management system (including Glooko and Diasend in selected regions).

Glooko provides a cloud-based application for clinicians and patients accessible through a kiosk, home computer or a mobile application on the user's smartphone that provides patients and their health care providers access to insulin delivery trends, blood glucose levels and other integrated data.

We have been successful in securing coverage with Medicare Part D plans, which allows many additional people with diabetes to access our product.

In addition, in April 2018, we also significantly increased our third-party reimbursement when we secured in-network coverage of Omnipod with UnitedHealthcare, the largest commercial payer in the United States.

In Europe, in connection with of our recent assumption of direct operations in mid-2018, we have worked with local healthcare systems to establish coverage and payment processes for the Omnipod System.

In certain non-U.S. locations in which we sell through a distributor, our distribution partners establish appropriate reimbursement contracts with healthcare systems in those countries and provinces.

In 2018, following FDA clearance, we also commenced a limited commercial release of Omnipod DASH directly to customers in the U.S. For the year ended December 31, 2018, approximately 46% of our Omnipod System sales in the United States were through intermediaries.

Consistent with CMS’s decision in 2018 that products such as the Omnipod System are coverable under the Medicare Part D prescription drug benefit, we have been expanding access to our Omnipod System through the pharmacy channel, which we believe provides several competitive advantages over the durable medical equipment ("DME") distribution method used by traditional pump companies.

Internationally, the majority of our sales are through intermediaries.

Our current research and development efforts are primarily focused on making improvements to the Omnipod System, including adding features and functionality that will deliver economic value, convenience and simplicity to our customers, and improving our supply chain operations.

These efforts include:

Omnipod DASH.

Bluetooth functionality also provides connectivity to our smartphone apps, allowing users and those they approve (e.g. caregivers) to view their Omnipod DASH data on their personal smartphones.

Conventional tubed 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.

We began commercial sale of the Omnipod System in the United States in 2005.

We sell the Omnipod System in the United States through direct sales to customers or through our distribution partners.

We believe this guidance will allow many additional people with diabetes to begin accessing our product in the future.

The Company estimates that obtaining Medicare and Medicaid coverage extends access to Insulet's Omnipod System to approximately 450,000 additional individuals with Type 1 diabetes in the United States.

We announced in 2017 our plans to assume, on July 1, 2018, all commercial activities (including, among other things, distribution, sales, marketing, training and support) of our Omnipod System across Europe following the expiration of our distribution agreement with Ypsomed Distribution AG ("Ypsomed" or our "European distributor") on June 30, 2018.

In addition to the diabetes market space, we have partnered with 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.

In January 2018, we submitted a premarket notification 510(k) to the U.S. Food and Drug Administration ("FDA") requesting clearance for commercial distribution of our DASHTM System, which is our next generation of the Omnipod System, featuring a secured Bluetooth Low Energy enabled Pod and PDM with a touch screen color user interface supported by smartphone connectivity.

Upon clearance, we would begin a limited commercial release of the product prior to a full market launch.

Our Market

This inability prevents the body from adequately regulating blood glucose levels.

| | |

| --- | --- |

In addition to the diabetes market space, we have partnered with pharmaceutical and biotechnology companies that utilize a customized form of the Omnipod System to deliver specific drugs over a specified interval of time, at a certain administered volume.

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.

We believe that the Omnipod System’s overall ease of use makes it very attractive to people with insulin-dependent diabetes.

We believe that our pricing model reduces the risk of investing in pump therapy for third-party payors and makes this therapy much more accessible for people with insulin-dependent diabetes.

In 2017, the results of a clinical study were published in a peer-reviewed, scientific journal demonstrating that insulin infusion devices similar to the Omnipod System can effectively maintain the blood glucose levels at a basal level across a representative sample of individuals, including children and adolescents, with Type 1 diabetes.

This study further demonstrates the effectiveness of the Omnipod System and builds on the catalog of clinical evidence that helps us build support for our product within the physician community.

In 2016, there were three publications in peer-reviewed, scientific journals demonstrating the clinical and quality of life benefits associated with use of the Omnipod System.

Two publications reported results of a retrospective study of patients with Type 1 and Type 2 diabetes.

The study demonstrated clinically meaningful and statistically significant improvements in HbA1c (an important measure of blood glucose control), reduction in total daily dose of insulin and reduction in the frequency and severity of self-reported hypoglycemic episodes after three months of Omnipod System use compared to previous treatment with either multiple daily injections or traditional tubed insulin pumps.

The third publication reported results of a second study that surveyed current adult Omnipod System users of which the majority reported positive changes in quality of life including perceived control over their diabetes, reduced diabetes distress, improved overall well-being and sense of hypoglycemic safety since initiating treatment with the Omnipod System.

In addition, the majority of patients also reported significant improvement in glycemic control with more than one-third reporting a decrease in severe hypoglycemic episodes.

Also, we compete with companies in the insulin pump therapy market, which consist of conventional tubed pump companies and patch-pump companies.

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:

| • | significantly greater name recognition; |

| • | established relations with healthcare professionals, customers and third-party payors; |

| • | 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. |

Our current research and development efforts are primarily focused on the development of mobile applications for the Omnipod System, including:

In addition to insulin delivery, we continue to work with pharmaceutical and biotechnology companies on alternative uses for our Omnipod System technology as a delivery platform for a range of different pharmaceuticals and therapies.

We purchase our devices pursuant to an agreement with Flex.

The contract 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.

As part of our investment strategy, in 2016 we announced our plan to establish a highly automated manufacturing operation in the United States, and we expect to begin production through this operation in early 2019.

The information required by this Item is provided under "Legal Proceedings" in Note [removed: 12] [added: 14] to the consolidated financial statements included under Item 8 of this Form 10-K, and is incorporated herein by reference.

| | For the fiscal year ended December 31, [removed: 2017] [added: 2018] |

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. [added: x]

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, [removed: 2017] [added: 2018] was approximately [removed: $3.0] [added: $5.0] billion.

The number of shares outstanding of each of the registrant’s classes of common stock as of February [removed: 16, 2018:][added: 20, 2019:]

| Common Stock, $0.001 Par Value Per Share | | [removed: 58,391,036] [added: 59,278,993] |

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, [removed: 2017.][added: 2018.]

| Item 1 | [removed: [Business](#sA05C734DD0765110B65E35003B3AF7DE)] [added: [Business](#sAE3B5E6214835FBF90EC0C0832162015)] | [removed: [3](#sA05C734DD0765110B65E35003B3AF7DE)] [added: [3](#sAE3B5E6214835FBF90EC0C0832162015)] |

| Item 1A | [Risk [removed: Factors](#s49864FD00A4D5796BD047EA9BAE696D1)] [added: Factors](#s2CAFFB15A273514FBD7B71778B9C8DB4)] | [removed: [16](#s49864FD00A4D5796BD047EA9BAE696D1)] [added: [14](#s2CAFFB15A273514FBD7B71778B9C8DB4)] |

| Item 1B | [Unresolved Staff [removed: Comments](#sBE74A5031063514EA5502D0131F82065)] [added: Comments](#s326D20514D055CD0BF8088CB3C4865F5)] | [removed: [39](#sBE74A5031063514EA5502D0131F82065)] [added: [32](#s326D20514D055CD0BF8088CB3C4865F5)] |

| Item 2 | [removed: [Properties](#sDBC3A78F72855D109DDE1C3AD968DA36)] [added: [Properties](#s79C5BB1C63835F9CA3A8584D3D4995B6)] | [removed: [39](#sDBC3A78F72855D109DDE1C3AD968DA36)] [added: [32](#s79C5BB1C63835F9CA3A8584D3D4995B6)] |

| Item 3 | [Legal [removed: Proceedings](#s3FF7C448152F5C89BBB9E479A60FE057)] [added: Proceedings](#sE3992B27F84D5CC488770733B8D0B4CB)] | [removed: [39](#s3FF7C448152F5C89BBB9E479A60FE057)] [added: [32](#sE3992B27F84D5CC488770733B8D0B4CB)] |

| Item 4 | [Mine Safety [removed: Disclosures](#s7F1F57B6160857F2B15BAB00C21E6DB1)] [added: Disclosures](#s1737D3A3BF485C4996014242B182E92F)] | [removed: [39](#s7F1F57B6160857F2B15BAB00C21E6DB1)] [added: [32](#s1737D3A3BF485C4996014242B182E92F)] |

| Item 5 | [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#sD7BD37589A24508F9097DE1BE20A9987)] [added: Securities](#sA616FDA88EDB549985843E2B5D6F7B64)] | [removed: [40](#sD7BD37589A24508F9097DE1BE20A9987)] [added: [33](#sA616FDA88EDB549985843E2B5D6F7B64)] |

| Item 6 | [Selected Financial [removed: Data](#s12741FE0D64756B68AD6EB8598339A1F)] [added: Data](#s4A746FF4B43756CF8B15519B7A2D3A43)] | [removed: [42](#s12741FE0D64756B68AD6EB8598339A1F)] [added: [34](#s4A746FF4B43756CF8B15519B7A2D3A43)] |

| Item 7 | [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s089108C747785BEBBC68A5D5B59187C5)] [added: Operations](#sD4EA96519C5654C292CE2832F93BF3FE)] | [removed: [44](#s089108C747785BEBBC68A5D5B59187C5)] [added: [36](#sD4EA96519C5654C292CE2832F93BF3FE)] |

| Item 7A | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s40544B5EE7C55FFC9E6441C1C262CD95)] [added: Risk](#sD5D7594CAE0C5A868CDC210F89EC2B62)] | [removed: [53](#s40544B5EE7C55FFC9E6441C1C262CD95)] [added: [44](#sD5D7594CAE0C5A868CDC210F89EC2B62)] |

| Item 8 | [Financial Statements and Supplementary [removed: Data](#sC374D2ED03E2518C91D9A7668DE5ECF2)] [added: Data](#s74AA98ADDDA35F578105BAD213F3C881)] | [removed: [53](#sC374D2ED03E2518C91D9A7668DE5ECF2)] [added: [44](#s74AA98ADDDA35F578105BAD213F3C881)] |

| Item 9 | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s1C5D651BDFEF5D5A8D902A90EF66CBCF)] [added: Disclosure](#s5DC8AEF6DAC9544B98659BD1DD2DAFF4)] | [removed: [91](#s1C5D651BDFEF5D5A8D902A90EF66CBCF)] [added: [78](#s5DC8AEF6DAC9544B98659BD1DD2DAFF4)] |

| Item 9A | [Controls and [removed: Procedures](#sCBE260B1DEE45E9FB6E254934812CE44)] [added: Procedures](#s81A32BD98B325B81983134BC92F4B687)] | [removed: [91](#sCBE260B1DEE45E9FB6E254934812CE44)] [added: [78](#s81A32BD98B325B81983134BC92F4B687)] |

| Item 9B | [Other [removed: Information](#s2E2DCF20526A581FA63FDC60647AE177)] [added: Information](#sA39E593549905A7EB942A6F6CDA3E9B9)] | [removed: [93](#s2E2DCF20526A581FA63FDC60647AE177)] [added: [80](#sA39E593549905A7EB942A6F6CDA3E9B9)] |

| Item 10 | [Directors, Executive Officers and Corporate [removed: Governance](#s35E9F37747E7526181CB44A9C5E3D40D)] [added: Governance](#s1937B10967C5586B903512C4A03C2383)] | [removed: [93](#s35E9F37747E7526181CB44A9C5E3D40D)] [added: [80](#s1937B10967C5586B903512C4A03C2383)] |

| Item 11 | [Executive [removed: Compensation](#s52C7F1CCF2B25B1DBA6D42F23F7ED5D5)] [added: Compensation](#s2F1614226D7656EB86234A0508B8A8DC)] | [removed: [93](#s52C7F1CCF2B25B1DBA6D42F23F7ED5D5)] [added: [80](#s2F1614226D7656EB86234A0508B8A8DC)] |

| Item 12 | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s1484EE9B5BEB55938DC03C0B2B754A8A)] [added: Matters](#s5EE62EC6EA995DFAB490016BC27F4C90)] | [removed: [93](#s1484EE9B5BEB55938DC03C0B2B754A8A)] [added: [80](#s5EE62EC6EA995DFAB490016BC27F4C90)] |

| Item 13 | [Certain Relationships and Related Transactions, and Director [removed: Independence](#s43F0CCFEC9E0517CA46A845EC9C2A2BC)] [added: Independence](#sEC3D7A2EE2B3568386C9ADF98E900970)] | [removed: [93](#s43F0CCFEC9E0517CA46A845EC9C2A2BC)] [added: [80](#sEC3D7A2EE2B3568386C9ADF98E900970)] |

| Item 14 | [Principal Accounting Fees and [removed: Services](#s6DCB9DAEED245EE6BF8A6E10C618F3F6)] [added: Services](#sFCBD2A9D28435223BE0BE19332E137F7)] | [removed: [93](#s6DCB9DAEED245EE6BF8A6E10C618F3F6)] [added: [80](#sFCBD2A9D28435223BE0BE19332E137F7)] |

| Item 15 | [Exhibits, Financial Statement [removed: Schedules](#s7C7BC0C475475240A318429164E6AAE0)] [added: Schedules](#sE723A0257FE55AE6A27D496EBF58D6F1)] | [removed: [94](#s7C7BC0C475475240A318429164E6AAE0)] [added: [81](#sE723A0257FE55AE6A27D496EBF58D6F1)] |

| Item 16 | Form 10-K Summary | [removed: [94](#s4531EFEECB6C5BF8888E1F825DBC9E5E)] [added: [81](#s1B839859ADF450659AF8E7B291579F6D)] |

| | [EXHIBIT [removed: INDEX](#s119711DA1D3C5BD1BA672EF058FB56A0)] [added: INDEX](#s6DE703CC4A4A56AEB961112E90A459F4)] | [removed: [96](#s119711DA1D3C5BD1BA672EF058FB56A0)] [added: [83](#s6DE703CC4A4A56AEB961112E90A459F4)] |

10-K 1 podd-2018x12x31_10xk.htm 10-K_PODD-2018-12-31

| 100 Nagog Park Acton, Massachusetts | | 01720 |

| [PART I](#sC23E4D0345475A9CB4C7293B5E0D6F50) | | |

| [PART II](#sE7C668342C0750D6B18FB35F8EBA0112) | | |

| [PART II](#sE7C668342C0750D6B18FB35F8EBA0112)I | | |

| [PART I](#sE7C668342C0750D6B18FB35F8EBA0112)V | | |

| | [SIGNATURES](#s5E981599A2B95F059576FBD3C849E5F7) | [81](#s5E981599A2B95F059576FBD3C849E5F7) |

10-K 1 podd-2017x12x31_10xk.htm PODD-2017-12-31_10-K

| 600 Technology Park Drive, Suite 200 Billerica, Massachusetts | | 01821 |

| Preferred Stock Purchase Rights | | The NASDAQ Stock Market, LLC |

| Preferred Stock Purchase Rights | | — |

| [PART I](#s91446BB515B15429810950D819CFBCC0) | | |

| [PART II](#sED75D7A694DF5396BB231EED7F93F5A0) | | |

| [PART II](#sED75D7A694DF5396BB231EED7F93F5A0)I | | |

| [PART I](#sED75D7A694DF5396BB231EED7F93F5A0)V | | |

| | [SIGNATURES](#sC74C1655C2B55D44963158386E5C1D6B) | [94](#sC74C1655C2B55D44963158386E5C1D6B) |

We [added: also] lease a total of approximately [removed: 143,000] [added: 149,000] square feet of [removed: office space, laboratory,] [added: office, research and development and] warehousing [added: space] and other related [removed: facilities.][added: facilities primarily in the U.S., Europe and Canada.]

In December 2018, we substantially completed the construction of our 195,000 square foot U.S. manufacturing and office facility in Acton, Massachusetts.

The property serves as our global headquarters.

Approximately 100,000 of the total square footage consists of laboratory and office space for our corporate headquarters in Billerica, Massachusetts under leases expiring in November 2022.

Additionally, we lease approximately 29,000 square feet of warehousing space in Billerica, Massachusetts under a lease expiring in September 2019.

We lease other facilities in Canada, China, the United Kingdom, California and Tennessee containing a total of approximately 14,000 square feet under leases expiring from April 2018 to December 2020.

In December 2016, we purchased property for our U.S. manufacturing facility in Acton, Massachusetts.

The property includes 195,000 square feet of manufacturing and office space.

| Fiscal Year [removed: 2016] [added: 2018] | | | | | | | |

As of February [removed: 16, 2018,] [added: 20, 2019,] there were approximately [removed: 11] [added: 8] registered holders of record of our common stock.

The chart set forth below shows the value of an investment of $100 on December 31, [removed: 2012] [added: 2013] 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, [removed: 2017.][added: 2018.]

[removed: ][added: ]

| | [removed: 2012 | | |] 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | [added: 2018 | | |]

The following table sets forth information regarding securities authorized for issuance under our equity compensation plans as of December 31, [removed: 2017.][added: 2018.]

| Equity compensation plans [added: not] approved by security [removed: holders(1)] [added: holders(2)] | [removed: 3,598,462] [added: 679,338] | | | $ | [removed: 35.10] [added: 34.87] | | | [removed: 5,058,556] [added: —] | | |

| Equity compensation plans [removed: not] approved by security [removed: holders(2)] [added: holders(1)] | [removed: 773,122] [added: 2,398,286] | | | $ | [removed: 35.08] [added: 40.38] | | | [removed: —] [added: 4,439,383] | | |

(1) Includes our Amended and Restated [added: 2017 and] 2007 Stock Option and Incentive [removed: Plan.][added: Plans.]

As of December 31, [removed: 2017, 860,123] [added: 2018, 752,207] 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 [removed: $32.76.][added: $40.38.]

| • | one inducement grant of [removed: 26,756] [added: 79,936] non-qualified stock options made to [removed: Bradley Thomas] [added: Shacey Petrovic] upon being hired by us in [removed: November 2014;] [added: February 2015;] |

| • | one inducement grant of [removed: 79,936] [added: 29,581] non-qualified stock options [removed: and 56,965 restricted stock units (37,976] [added: made to David Colleran (1,849] of which have [removed: vested] [added: been exercised] as of December 31, [removed: 2017) made to Shacey Petrovic] [added: 2018)] upon being hired by us in [removed: February] [added: June] 2015; [added: and] |

| • | one inducement grant of 58,852 non-qualified stock options [removed: and 43,028 restricted stock units (28,685 of which have vested as of December 31, 2017)] made to Michael Levitz upon being hired by us in May 2015; |

| • | one inducement grant of [removed: 29,581] [added: 30,511] non-qualified stock options [removed: and 21,627 restricted stock units (14,418] [added: made to Michael Spears (17,161] of which have [removed: vested] [added: been exercised] as of December 31, [removed: 2017) made to David Colleran] [added: 2018)] upon being hired by us in [removed: June 2015; and] [added: July 2015.] |

These non-qualified stock option awards [removed: 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.

For more information relating to our equity compensation plans, see [removed: footnote 13] [added: Note 15] to our consolidated financial statements.

We did not repurchase any of our equity securities during the quarter ended December 31, [removed: 2017,] [added: 2018,] nor issue any securities that were not registered under Securities Act.

| First Quarter | $ | 87.20 | | | $ | 68.49 | |

| Second Quarter | $ | 101.93 | | | $ | 83.27 | |

| Third Quarter | $ | 108.13 | | | $ | 81.43 | |

| Fourth Quarter | $ | 105.19 | | | $ | 73.27 | |

| Insulet Corporation | $ | 100 | | $ | 124 | | $ | 102 | | $ | 102 | | $ | 186 | | $ | 214 | |

| NASDAQ Composite | 100 | | | 115 | | | 123 | | | 133 | | | 172 | | | 166 | | |

| NASDAQ Health Care | 100 | | | 129 | | | 135 | | | 111 | | | 133 | | | 126 | | |

| Total | 3,077,624 | | | $ | 39.16 | | | 4,439,383 | | |

| First Quarter | $ | 37.54 | | | $ | 24.68 | |

| Second Quarter | $ | 35.15 | | | $ | 26.89 | |

| Third Quarter | $ | 45.07 | | | $ | 30.46 | |

| Fourth Quarter | $ | 40.72 | | | $ | 30.73 | |

| Insulet Corporation | $ | 100 | | $ | 175 | | $ | 217 | | $ | 178 | | $ | 178 | | $ | 325 | |

| NASDAQ Composite | 100 | | | 142 | | | 162 | | | 173 | | | 187 | | | 242 | | |

| NASDAQ Health Care | 100 | | | 156 | | | 199 | | | 208 | | | 170 | | | 204 | | |

| Total(4) | 4,371,584 | | | $ | 35.10 | | | 5,058,556 | | (3) |

| | |

| --- | --- |

| • | one inducement grant of 30,511 non-qualified stock options and 22,431 restricted stock units (14,954 of which have vested as of December 31, 2017) made to Michael Spears upon being hired by us in July 2015. |

(3) The maximum number of shares of our common stock that remain available for future issuance under our 2017 Stock Option and Incentive Plan as of December 31, 2017 is 5,058,556 shares.

(4) As of December 31, 2017, 994,364 restricted stock units were outstanding.

The weighted-average exercise price of outstanding options as of such date issued as inducement grants was $35.08.

| (In thousands, except share and per share data) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| Revenue | $ | [removed: 463,768] [added: 563,823] | | | $ | [removed: 366,989] [added: 463,768] | | | $ | [removed: 263,893] [added: 366,989] | | | $ | [removed: 231,321] [added: 263,893] | | | $ | [removed: 185,139] [added: 231,321] | |

| Cost of revenue | [removed: 186,599] [added: 193,655] | | | | [removed: 155,903] [added: 186,599] | | | | [removed: 130,622] [added: 155,903] | | | | [removed: 104,195] [added: 130,622] | | | | [removed: 95,364] [added: 104,195] | | |

| Gross profit | [removed: 277,169] [added: 370,168] | | | | [removed: 211,086] [added: 277,169] | | | | [removed: 133,271] [added: 211,086] | | | | [removed: 127,126] [added: 133,271] | | | | [removed: 89,775] [added: 127,126] | | |

| Total operating expenses | [removed: 284,556] [added: 342,745] | | | | [removed: 221,790] [added: 284,556] | | | | [removed: 182,007] [added: 221,790] | | | | [removed: 136,000] [added: 182,007] | | | | [removed: 116,450] [added: 136,000] | | |

| Operating [removed: loss] [added: income (loss)] | [removed: (7,387] [added: 27,423] | | [removed: )] | | [removed: (10,704] [added: (7,387] | | ) | | [removed: (48,736] [added: (10,704] | | ) | | [removed: (8,874] [added: (48,736] | | ) | | [removed: (26,675] [added: (8,874] | | ) |

| Interest expense and other, net [removed: (3)] | [removed: (19,187] [added: (22,197] | | ) | | [removed: (16,114] [added: (19,187] | | ) | | [removed: (12,654] [added: (16,114] | | ) | | [removed: (39,006] [added: (12,654] | | ) | | [removed: (15,783] [added: (39,006] | | ) |

| Net [removed: loss] [added: income (loss)] from continuing operations | [removed: (26,831] [added: 3,292] | | [removed: )] | | [removed: (27,210] [added: (26,831] | | ) | | [removed: (61,602] [added: (27,210] | | ) | | [removed: (47,940] [added: (61,602] | | ) | | [removed: (42,480] [added: (47,940] | | ) |

| Loss from discontinued operations, net of [removed: tax(2)] [added: tax] | — | | | | [removed: (1,669] [added: —] | | [removed: )] | | [removed: (11,918] [added: (1,669] | | ) | | [removed: (3,560] [added: (11,918] | | ) | | [removed: (2,494] [added: (3,560] | | ) |

| Net [removed: loss] [added: income (loss)] | $ | [removed: (26,831] [added: 3,292] | [removed: )] | | $ | [removed: (28,879] [added: (26,831] | ) | | $ | [removed: (73,520] [added: (28,879] | ) | | $ | [removed: (51,500] [added: (73,520] | ) | | $ | [removed: (44,974] [added: (51,500] | ) |

| Net [removed: loss] [added: income (loss)] from continuing operations per [removed: share] [added: share:] | [removed: (0.46] | | [removed: )] | | [removed: (0.48] | | [removed: )] | | [removed: (1.08] | | [removed: )] | | [removed: (0.86] | | [removed: )] | | [removed: (0.78] | | [removed: )] |

| Net loss from discontinued operations per share | — | | | | [removed: (0.03] [added: —] | | [removed: )] | | [removed: (0.21] [added: (0.03] | | ) | | [removed: (0.06] [added: (0.21] | | ) | | [removed: (0.05] [added: (0.06] | | ) |

| Weighted-average number of shares used in calculating net [removed: loss] [added: income (loss)] per share | [removed: 58,003,434] | | | | [removed: 57,251,377] | | | | [removed: 56,785,646] | | | | [removed: 55,628,542] | | | | [removed: 54,010,887] | | |

| (In thousands) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| Cash and cash equivalents | $ | [removed: 272,577] [added: 113,906] | | | $ | [removed: 137,174] [added: 272,577] | | | $ | [removed: 122,672] [added: 137,174] | | | $ | [removed: 151,193] [added: 122,672] | | | $ | [removed: 149,727] [added: 151,193] | |

| Short-term investments | $ | [removed: 167,479] [added: 175,040] | | | $ | [removed: 161,396] [added: 167,479] | | | $ | [removed: —] [added: 161,396] | | | $ | — | | | $ | — | |

| Working capital | $ | [removed: 451,146] [added: 345,629] | | | $ | [removed: 314,263] [added: 451,146] | | | $ | [removed: 125,605] [added: 314,263] | | | $ | [removed: 163,900] [added: 125,605] | | | $ | [removed: 155,824] [added: 163,900] | |

| Long-term investments | $ | [removed: 125,549] [added: 140,784] | | | $ | [removed: —] [added: 125,549] | | | $ | — | | | $ | — | | | $ | — | |

| Total assets | $ | [removed: 816,744] [added: 928,744] | | | $ | [removed: 456,647] [added: 816,744] | | | $ | [removed: 275,126] [added: 456,647] | | | $ | [removed: 297,182] [added: 275,126] | | | $ | [removed: 286,541] [added: 297,182] | |

| Current portion of long-term debt and capital lease obligations | $ | — | | | $ | [removed: 269] [added: —] | | | $ | [removed: 5,519] [added: 269] | | | $ | [removed: 3,380] [added: 5,519] | | | $ | [removed: 2,637] [added: 3,380] | |

| Long-term debt and capital lease [removed: obligations(3)] [added: obligations] | $ | [removed: 566,173] [added: 591,978] | | | $ | [removed: 332,768] [added: 566,173] | | | $ | [removed: 171,967] [added: 332,768] | | | $ | [removed: 166,283] [added: 171,967] | | | $ | [removed: 117,627] [added: 166,283] | |

| Other long-term liabilities | $ | [removed: 6,030] [added: 9,010] | | | $ | [removed: 5,032] [added: 6,030] | | | $ | [removed: 3,952] [added: 5,032] | | | $ | [removed: 2,774] [added: 3,952] | | | $ | [removed: 1,943] [added: 2,774] | |

| Total stockholders’ equity | $ | [removed: 158,516] [added: 212,099] | | | $ | [removed: 63,150] [added: 158,516] | | | $ | [removed: 34,051] [added: 63,150] | | | $ | [removed: 83,829] [added: 34,051] | | | $ | [removed: 124,597] [added: 83,829] | |

| Basic | $ | 0.06 | | | $ | (0.46 | ) | | $ | (0.48 | ) | | $ | (1.08 | ) | | $ | (0.86 | ) |

| Diluted | $ | 0.05 | | | $ | (0.46 | ) | | $ | (0.48 | ) | | $ | (1.08 | ) | | $ | (0.86 | ) |

| Basic | 58,859,574 | | | | 58,003,434 | | | | 57,251,377 | | | | 56,785,646 | | | | 55,628,542 | | |

| Diluted | 61,008,024 | | | | 58,003,434 | | | | 57,251,377 | | | | 56,785,646 | | | | 55,628,542 | | |

| | | | | | | | | | | | | | | | | | | | |

| Operating expenses: | | | | | | | | | | | | | | | | | | | |

| Research and development | 74,452 | | | | 55,710 | | | | 43,208 | | | | 27,900 | | | | 21,765 | | |

| Sales and marketing | 121,617 | | | | 94,483 | | | | 78,407 | | | | 50,552 | | | | 45,176 | | |

| General and administrative (1) | 88,487 | | | | 71,597 | | | | 60,392 | | | | 57,548 | | | | 49,509 | | |

| Loss from continuing operations before income taxes | (26,574 | | ) | | (26,818 | | ) | | (61,390 | | ) | | (47,880 | | ) | | (42,458 | | ) |

| Income tax expense (benefit) | 257 | | | | 392 | | | | 212 | | | | 60 | | | | 22 | | |

| Net loss per share basic and diluted: | | | | | | | | | | | | | | | | | | | |

| | |

| --- | --- |

| (1) | Includes a charge of $6.1 million related to in-process internally developed software in 2016. |

| (2) | Includes an impairment charge of $9.0 million in 2015 related to the impairment of the Neighborhood Diabetes asset group. See Note 19 to our consolidated financial statements included in this Annual Report on Form 10-K. |

| (3) | In June 2008, we issued and sold $85.0 million principal amount of 5.375% Convertible Senior Notes due June 2013. In June 2011, we issued and sold $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 and sold $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 September 2016, we issued $345.0 million of 1.25% Convertible Notes due September 2021 and repurchased $134.2 million in principal of the 2% Notes. In November 2017, we issued $402.5 million of 1.375% Convertible Notes due November 2024 and repurchased $63.4 million in principal of the 2% Notes. See Note 11 to our consolidated financial statements included in this Annual Report on Form 10-K. |

Our financial statements as of December 31, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] and for each of the three years in the period ended December 31, [removed: 2017,] [added: 2018,] and the [removed: Reports] [added: Report] of the Registered Independent Public Accounting [removed: Firms] [added: Firm] are included in this report as listed in the index.

| [removed: [Reports] [added: [Report] of Independent Registered Public Accounting [removed: Firm](#s0C0004D3459E59EB9B0CC0468302BA94)s] [added: Firm](#s37F3B033B774504EB63735C438242F85)] | [removed: [54](#s0C0004D3459E59EB9B0CC0468302BA94)] [added: [45](#s37F3B033B774504EB63735C438242F85)] |

| [Consolidated Balance Sheets as of December 31, [removed: 2017] [added: 2018] and [removed: 201](#s83D032D6637A5D2DAD45A14F3FD4D588)6] [added: 201](#s24BA22C9DEF85587BFE1F3BA8C750F93)7] | [removed: [56](#s83D032D6637A5D2DAD45A14F3FD4D588)] [added: [46](#s24BA22C9DEF85587BFE1F3BA8C750F93)] |

| [Consolidated Statements of Operations for the Years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 201](#sD17E3F319FC7530292C7D549926CBF36)5] [added: 201](#s5D09AC1455225460BB04066B6AA9B269)6] | [removed: [57](#sD17E3F319FC7530292C7D549926CBF36)] [added: [47](#s5D09AC1455225460BB04066B6AA9B269)] |

| [Consolidated Statements of Comprehensive [removed: Loss] [added: I](#s058F8B111D7F571D993818CED1C849D1)ncome (Loss)] for the Years [removed: ended] [added: Ended] December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 201](#s7A1CAD5E63E355F9A73F495AA16F7350)5] [added: 2016] | [removed: [58](#s7A1CAD5E63E355F9A73F495AA16F7350)] [added: [48](#s058F8B111D7F571D993818CED1C849D1)] |

| [Consolidated Statements of Stockholders' Equity for the Years ended December 31, [removed: 2017, 2016] [added: 201](#sA50637552B375FD1A068C53B1E322083)8, 2017] and [removed: 201](#s36049B99681653E6BD2C4674CE82E1E0)5] [added: 2016] | [removed: [59](#s36049B99681653E6BD2C4674CE82E1E0)] [added: [49](#sA50637552B375FD1A068C53B1E322083)] |

| [Consolidated Statements of Cash Flows for the Years ended December 31, [removed: 2017, 2016] [added: 201](#s2E654B58A3795A60AAFE2B5C9242FA18)8, 2017] and [removed: 201](#sB06E0831ACC25F1D9095C87E5AB011FA)5] [added: 2016] | [removed: [60](#sB06E0831ACC25F1D9095C87E5AB011FA)] [added: [50](#s2E654B58A3795A60AAFE2B5C9242FA18)] |

| [Notes to Consolidated Financial [removed: Statements](#s4AEB11ABF1D55898A955D49D2B085219)] [added: Statements](#s279D2DFE55AE5A8DB219071380139C47)] | [removed: [61](#s4AEB11ABF1D55898A955D49D2B085219)] [added: [51](#s279D2DFE55AE5A8DB219071380139C47)] |

We have audited the accompanying consolidated balance sheets of Insulet Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] the related consolidated statements of operations, comprehensive [removed: loss, shareholders’] [added: income (loss), stockholders’] equity, and cash flows for each of the [removed: two] [added: three] years in the period ended December 31, [removed: 2017,] [added: 2018,] and the related notes and schedule (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the results of its operations and its cash flows for each of the [removed: two] [added: three] years in the period ended December 31, [removed: 2017,] [added: 2018,] in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and our report dated February [removed: 21, 2018] [added: 25, 2019] expressed an unqualified opinion.

| | [added: As of] December 31, 2017 | | [removed: | | December 31, 2016 | | |]

| [removed: Cash and] [added: Cash,] cash equivalents [removed: | $] [added: and restricted cash, beginning of year (3)] | 272,577 | | | [removed: $] | 137,174 | | [added: | | 122,672 | | |]

| Short-term investments | [removed: 167,479] [added: 175,040] | | | | [removed: 161,396] [added: 167,479] | | |

| Accounts receivable, net | [removed: 53,373] [added: 63,294] | | | | [removed: 28,803] [added: 53,373] | | |

| Inventories | [removed: 33,793] [added: 71,414] | | | | [removed: 35,514] [added: 33,793] | | |

| Prepaid expenses and other current assets | [removed: 9,949] [added: 24,254] | | | | [removed: 7,073] [added: 9,949] | | |

| Total current assets | [removed: 537,171] [added: 461,286] | | | | [removed: 369,960] [added: 537,171] | | |

| Long-term investments | [removed: 125,549] [added: 140,784] | | | | [removed: —] [added: 125,549] | | |

| Property and equipment, net | [removed: 107,864] [added: 258,379] | | | | [removed: 44,753] [added: 107,864] | | |

| Other intangible assets, net | [removed: 4,351] [added: 10,383] | | | | [removed: 2,041] [added: 4,351] | | |

| Goodwill | [removed: 39,840] [added: 39,646] | | | | [removed: 39,677] [added: 39,840] | | |

| Other assets | [removed: 1,969] [added: 18,266] | | | | [removed: 216] [added: 1,969] | | |

| Total assets | $ | [removed: 816,744] [added: 928,744] | | | $ | [removed: 456,647] [added: 816,744] | |

| Accounts payable | $ | [removed: 24,413] [added: 25,500] | | | $ | [removed: 13,160] [added: 24,413] | |

| Accrued expenses and other current liabilities | [removed: 59,256] [added: 88,973] | | | | [removed: 41,228] [added: 59,256] | | |

| Deferred revenue | [removed: 2,356] [added: 1,184] | | | | [removed: 1,309] [added: 2,356] | | |

| Total current liabilities | [removed: 86,025] [added: 115,657] | | | | [removed: 55,697] [added: 86,025] | | |

| Long-term debt, net | [removed: 566,173] [added: 591,978] | | | | [removed: 332,768] [added: 566,173] | | |

| Other long-term liabilities | [removed: 6,030] [added: 9,010] | | | | [removed: 5,032] [added: 6,030] | | |

| Total liabilities | [removed: 658,228] [added: 716,645] | | | | [removed: 393,497] [added: 658,228] | | |

| Commitments and contingencies (Note [removed: 12)] [added: 14)] | | | | | | | |

| Authorized: 5,000,000 shares at December 31, [removed: 2017] [added: 2018] and [removed: 2016.] [added: 2017.] Issued and outstanding: zero shares at December 31, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] | — | | | | — | | |

| Authorized: 100,000,000 shares at December 31, [removed: 2017] [added: 2018] and [removed: 2016.] [added: 2017.] Issued and outstanding: [removed: 58,319,348] [added: 59,188,758] and [removed: 57,457,967] [added: 58,319,348] shares at December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively | [removed: 58] [added: 59] | | | | [removed: 57] [added: 58] | | |

| Additional paid-in capital | [removed: 866,206] [added: 898,559] | | | | [removed: 744,243] [added: 866,206] | | |

| Accumulated other comprehensive loss | [removed: (493] [added: (2,905] | | ) | | [removed: (726] [added: (493] | | ) |

| Accumulated deficit | [removed: (707,255] [added: (683,614] | | ) | | [removed: (680,424] [added: (707,255] | | ) |

| Total stockholders’ equity | [removed: 158,516] [added: 212,099] | | | | [removed: 63,150] [added: 158,516] | | |

| Total liabilities and stockholders’ equity | $ | [removed: 816,744] [added: 928,744] | | | $ | [removed: 456,647] [added: 816,744] | |

| (In thousands, except share and per share data) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

February 25, 2019

| Cash and cash equivalents | $ | 113,906 | | | $ | 272,577 | |

| Unbilled receivable | 13,378 | | | | — | | |

| Basic | $ | 0.06 | | | $ | (0.46 | ) | | $ | (0.48 | ) |

| Diluted | $ | 0.05 | | | $ | (0.46 | ) | | $ | (0.48 | ) |

| Basic | 58,859,574 | | | | 58,003,434 | | | | 57,251,377 | | |

| Diluted | 61,008,024 | | | | 58,003,434 | | | | 57,251,377 | | |

| Net income (loss) | $ | 3,292 | | | $ | (26,831 | ) | | $ | (28,879 | ) |

| Exercise of options to purchase common stock, net of shares withheld and retired to satisfy cashless exercises | 409,428 | | | 1 | | | | 12,798 | | | | | | | | | | | | 12,799 | | |

| Extinguishment of conversion feature on 2% Notes, net of issuance costs | | | | | | | | (3,210 | | ) | | | | | | | | | | (3,210 | | ) |

| Adoption of ASC 606 (Note 2) | | | | | | | | | | | | 20,349 | | | | | | | | 20,349 | | |

| Net income | | | | | | | | | | | | 3,292 | | | | | | | | 3,292 | | |

| Other comprehensive loss | | | | | | | | | | | | | | | | (2,412 | | ) | | (2,412 | | ) |

| Balance, December 31, 2018 | 59,188,758 | | | $ | 59 | | | $ | 898,559 | | | $ | (683,614 | ) | | $ | (2,905 | ) | | $ | 212,099 | |

| Net income (loss) | $ | 3,292 | | | $ | (26,831 | ) | | $ | (28,879 | ) |

| Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | | | | | | | | | |

| Loss on extinguishment of long-term debt | — | | | | 609 | | | | 2,551 | | |

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 the person’s body.

Insulin pump therapy has been shown to provide people with insulin-dependent diabetes with numerous advantages relative to MDI therapy.

The Company estimates that approximately one-third of the Type 1 diabetes population in the United States and less than one fifth of the Type 1 diabetes population outside the United States uses insulin pump therapy.

In June 2018, the FDA cleared for commercial sale the Company's Omnipod DASHTM Insulin Management System ("Omnipod DASH" or "DASH"), which is its next-generation digital mobile Omnipod platform within the Omnipod System family, featuring secured Bluetooth wireless technology for connectivity between the Pod and the color touchscreen smartphone PDM.

The Company commenced a limited commercial release of Omnipod DASH in 2018 prior to a planned full market launch in the U.S. in the first half of 2019.

The majority of the Company's drug delivery revenue currently consists of sales of Amgen's Neulasta Onpro kit, an innovative delivery system for Amgen’s white blood cell booster to help reduce the risk of infection during intense chemotherapy.

The facility was substantially complete in December 2018, with planned production out of the facility beginning in the first half of 2019.

For the year ended December 31, 2018, net foreign currency realized and unrealized losses were approximately $1.0 million and were not material for the years 2017 and 2016.

Intangible assets, such as internal use software or customer relationships acquired outside of a business combination, are recorded at cost and amortized over their expected period of benefit.

Comprehensive income (loss) combines net income (loss) and other comprehensive items, which are reported as components of stockholders' equity, including foreign currency translation adjustments and unrealized gains and losses on available-for-sale marketable securities.

Changes in each element of accumulated other comprehensive income (loss), net of tax, were as follows:

| (in thousands) | | Foreign Currency Translation Adjustment | | | | Unrealized losses on available-for-sale securities | | | | Accumulated Other Comprehensive Items | | |

| Balance at December 31, 2017 | | $ | 46 | | | $ | (539 | ) | | $ | (493 | ) |

| Other comprehensive income (loss) | | (2,174 | | ) | | (238 | | ) | | (2,412 | | ) |

| Balance at December 31, 2018 | | $ | (2,128 | ) | | $ | (777 | ) | | $ | (2,905 | ) |

The Company adopted Accounting Standards Codification 606 ("ASC 606") on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

The reported results in 2018 reflect the application of ASC 606 guidance while the reported results for 2017 and 2016 were prepared under the guidance of ASC 605, Revenue Recognition ("ASC 605"), which is also referred to as the "previous guidance".

In accordance with ASC 606, revenue is recognized when a customer obtains control of the promised products.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these products.

To achieve this core principle, the Company applies the following five steps as outlined in ASC 606:

1) Identify the contract with a customer;

2) Identify the performance obligations in the contract;

| | |

| --- | --- |

Report of Independent Registered Public Accounting Firm

Insulet Corporation

Boston, Massachusetts