Insulet 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended September 30, 2023

OR

Commission File Number 001-33462

INSULET CORPORATION

(Exact name of Registrant as specified in its charter)

Registrant’s Telephone Number, Including Area Code: (978) 600-7000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

As of October 26, 2023, the registrant had 69,827,619 shares of common stock outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

INSULET CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included in this quarterly report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs, which are subject to risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed under the headings “Risk Factors” and “Forward-Looking Statements” in both our annual report on Form 10-K for the year ended December 31, 2022 and in this quarterly report.

Overview

We are primarily engaged in the development, manufacture and sale of our proprietary Omnipod System, a continuous insulin delivery system for people with insulin-dependent diabetes. The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod (the “Pod”) device that the user fills with insulin and wears directly on the body for up to three days at a time, which delivers personalized doses of insulin, and the PDM or Controller, a wireless handheld device that programs the Pod with the user’s personalized insulin-delivery instructions and wirelessly monitors the Pod’s operation. The Omnipod System includes: Classic Omnipod, its next generation Omnipod DASH, and the most recent generation Omnipod 5, all of which eliminate the need for multiple daily injections using syringes or insulin pens or the use of pump and tubing.

We have also tailored the Omnipod System technology platform for the delivery of subcutaneous drugs in other therapeutic areas. Most of our drug delivery revenue currently consists of sales of pods to Amgen for use in the Neulasta® Onpro® kit, a delivery system for Amgen’s Neulasta to help reduce the risk of infection after intense chemotherapy.

Our long-term financial objective is to sustain profitable growth. To achieve this goal, we launched Omnipod 5 in the United States in 2022 and in the United Kingdom and Germany in June and August 2023, respectively. We are working on further building our international teams and advancing our regulatory, reimbursement, and market development efforts so we can bring Omnipod 5 to additional international markets. We plan to launch Omnipod 5 in more European markets in 2024.

We have completed a randomized control trial in the U.S. and France for Omnipod 5 with DexCom’s G6 continuous glucose monitor (“CGM”) to support our pricing and market access initiatives. We also continue to expand market access and awareness of Omnipod through our direct to consumer advertising programs and through growing our presence in the U.S. pharmacy channel, where access to Omnipod 5 and Omnipod DASH is simpler and affordable, as no up-front investment is required. As we continue our growth in the pharmacy channel, we plan to phase-out our Classic Omnipod in the U.S. this year, since the vast majority of our customer base is no longer using this product.

We have reached our enrollment goal for our pivotal trial for Omnipod 5 with the goal of expanding Omnipod 5’s indication to type 2 users. We expect to complete enrollment this year. Additionally, in April 2023, we received U.S. Food and Drug Administration (“FDA”) clearance for Omnipod GOTM, our basal-only Pod for individuals with type 2 diabetes age 18 or older who require insulin. During the third quarter of 2023, we began our commercial pilot program in the U.S. for Omnipod GO, which we expect to fully launch in 2024.

We also continue to take steps to strengthen our global manufacturing capabilities. We are currently constructing a new manufacturing plant in Malaysia to support our international expansion strategy, further ensure product supply, and drive higher gross margins over time. We expect to begin production at this new manufacturing facility in 2024.

Finally, we continue to focus on our product development efforts, including automated insulin delivery (“AID”) offerings, such as choice of smartphone integration and CGM, and enhancing the customer experience through digital product and data capabilities. We are actively enrolling participants in our clinical study of Omnipod 5 with the integration of the Abbott FreeStyle Libre 2 CGM. This includes participants with type 1 diabetes in both the adult and pediatric age groups in the United Kingdom, France and Belgium. Additionally, we recently received FDA clearance for the Omnipod 5 App for iPhone and expect to launch in the U.S. in 2024.

Results of Operations

Factors Affecting Operating Results

Our Pods are intended to be used continuously for up to three days, after which it may be replaced with a new disposable Pod. The Omnipod System’s unique patented design allows us to provide pump therapy at a relatively low or no up-front investment in regions where reimbursement allows for it and our pay-as-you-go pricing model reduces the risk to third-party payors. As we grow our customer base, we expect to generate an increasing portion of our revenues through recurring sales of our disposable Pods, which provides recurring revenue.

During 2022, we issued two voluntary Medical Device Corrections (“MDCs”), one in October for our Omnipod DASH PDM related to its battery and the other in November for our Omnipod 5 Controller related to its charging port and cable. In addition to the estimated liability we recorded in 2022, we have a performance obligation to replace Omnipod DASH PDMs and Omnipod 5 Controllers sold subsequent to the MDC issuances, which is expected to negatively impact gross margins and net income in 2023,

most notably in the first half of the year. However, during the nine months ended September 30, 2023, we recorded $10.7 million of income associated with a change in our estimated liability for the MDCs primarily due to lower distribution costs, which offsets the negative impact to gross margin.

We continue to experience challenges stemming from the global supply chain disruption; however, while there is no guarantee of future performance, to date we have been able to successfully mitigate this disruption and ensure uninterrupted supply to our customers by increasing our inventory levels and taking other measures. While our mitigation efforts and inflation are expected to negatively impact gross margins and net income throughout the year, we intend to continue to work to improve productivity to help offset these costs.

Revenue

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

Total revenue for the three months ended September 30, 2023 increased $91.9 million, or 27.0%, to $432.7 million, compared with $340.8 million for the three months ended September 30, 2022. Constant currency revenue growth of 25.1% was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix.

Total revenue for the nine months ended September 30, 2023 increased $251.7 million, or 26.9%, to $1,187.3 million, compared with $935.6 million for the nine months ended September 30, 2022. Constant currency revenue growth of 26.8% was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix, partially offset by decreased drug delivery revenue.

U.S. Omnipod

U.S. Omnipod revenue for the three months ended September 30, 2023 increased $82.5 million, or 34.6%, to $320.6 million, compared with $238.1 million for the three months ended September 30, 2022. This increase was primarily due to higher volumes driven by growing our customer base and, to a lesser extent, growth through the pharmacy channel, where Pods have a higher average selling price due in part to the fact that we offer the PDM/Controller for no charge. These increases were partially offset by higher conversions to Omnipod 5 in the prior year as users fill both their Omnipod 5 starter kit and their first month of refills simultaneously.

U.S. Omnipod revenue for the three months ended September 30, 2023 includes $112.0 million of related party revenue, compared with $58.9 million for the three months ended September 30, 2022. The $53.1 million increase primarily resulted from growth through the pharmacy channel.

U.S. Omnipod revenue for the nine months ended September 30, 2023 increased $247.8 million, or 40.7%, to $856.4 million, compared with $608.6 million for the nine months ended September 30, 2022. This increase primarily resulted from higher volumes driven by growing our customer base and, to a lesser extent, growth through the pharmacy channel, where Pods have a higher average selling price due in part to the fact that we offer the PDM/Controller for no charge. This increase was also driven by conversions to Omnipod 5 as users generally fill both their starter kit and their first month of refills simultaneously. These increases were partially offset by a reduction in estimated inventory days-on-hand at our distributors.

U.S. Omnipod revenue for the nine months ended September 30, 2023 includes $318.0 million of related party revenue, compared with $162.8 million for the nine months ended September 30, 2022. The $155.2 million increase primarily resulted from growth through the pharmacy channel.

For full year 2023, we expect strong U.S. Omnipod revenue growth driven by continued volume growth of Omnipod 5 in the pharmacy channel, continued sales of Omnipod DASH, and the benefits of our recurring revenue model. We expect these increases to be partially offset by lower conversions to Omnipod 5 in the second half of the year compared to 2022.

International Omnipod

International Omnipod revenue for the three months ended September 30, 2023 increased $13.4 million, or 15.2%, to $101.4 million, compared with $88.0 million for the three months ended September 30, 2022. Excluding the 7.2% favorable impact of currency exchange, the remaining 8.0% increase in revenue was primarily due to higher volumes as we continue to expand awareness and access to Omnipod DASH and, to a lesser extent, product mix from the launch of Omnipod 5 in the U.K. These increases were partially offset by higher attrition as we continue to be impacted by competition from AID systems and lower distributor orders.

International Omnipod revenue for the nine months ended September 30, 2023 increased $30.9 million, or 11.3%, to $303.7 million, compared with $272.8 million for the nine months ended September 30, 2022. Excluding the 0.3% favorable impact of currency exchange, the remaining 11.0% increase in revenue was primarily due to higher volumes as we continue to expand awareness and access to Omnipod DASH and, to a lesser extent, the timing of revenue recognition related to deferrals associated with our DASH MDC and a technology upgrade program, partially offset higher attrition as we continue to be impacted by competition from AID systems and lower distributor orders.

For full year 2023, we expect higher International Omnipod revenue due to continued volume growth driven by the ongoing adoption of Omnipod DASH, and to a lesser extent, driven by new customers and conversions to Omnipod 5 in the U.K. and Germany. We expect these increases to be partially offset by competition from AID systems.

Drug Delivery

Drug Delivery revenue for the three months ended September 30, 2023 was $10.7 million compared with $14.7 million for the three months ended September 30, 2022. The $4.0 million decrease was driven by a lower forecast from our partner.

Drug Delivery revenue for the nine months ended September 30, 2023 decreased $27.0 million, or 49.8%, to $27.2 million, compared with $54.2 million for the nine months ended September 30, 2022. The decrease primarily resulted from a lower forecast from our partner, partially offset by a higher selling price. For full year 2023, we expect Drug Delivery revenue to decline $26 million to $29 million due to a lower forecast from our partner, partially offset by a higher selling price.

Operating Expenses

Cost of Revenue

Cost of revenue for the three months ended September 30, 2023 decreased $13.1 million, or 8.6%, to $139.4 million, compared with $152.5 million for the three months ended September 30, 2022. Gross margin was 67.8% for the three months ended September 30, 2023, compared with 55.3% for the three months ended September 30, 2022. The 12.5 point increase in gross margin was primarily driven by the $36.8 million charge associated with the Omnipod DASH PDM MDC notice issued in October 2022, which did not repeat in the current period. The increase was also driven by improved manufacturing efficiencies and higher average selling price due to growth in the pharmacy channel. These increases were partially offset by higher expected production costs as U.S. manufacturing continues to ramp and become a larger portion of our total production.

Cost of revenue for the nine months ended September 30, 2023 increased $41.3 million, or 11.9%, to $388.6 million, compared with $347.3 million for the nine months ended September 30, 2022. Gross margin was 67.3% for the nine months ended September 30, 2023, compared with 62.9% for the nine months ended September 30, 2022. The 440 basis point increase in gross margin was primarily driven by the $36.8 million charge associated with the Omnipod DASH PDM MDC notice issued in October 2022, which did not repeat in the current period. The increase was also driven by higher average selling price due to growth in the pharmacy channel. These increases were partially offset by higher costs associated with Omnipod 5 production, higher expected production costs as U.S. manufacturing continues to become a larger portion of total production.

For full year 2023, we expect gross margin to be in the range of 66% to 67%. We anticipate gross margin to increase from 61.7% in 2022 due to significant costs associated with the MDCs in 2022, which we do not expect to recur, higher volume in the pharmacy channel and favorable geographical sales mix and manufacturing efficiencies. We believe these increases will be partially offset by higher production costs as we further scale U.S. manufacturing, unfavorable product line mix due to higher costs associated with Omnipod 5 production, and higher costs as we contend with inflation.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2023 increased $12.8 million, or 28.4%, to $57.8 million, compared with $45.0 million for the three months ended September 30, 2022. Research and development expenses for the nine months ended September 30, 2023 increased $32.3 million, or 24.7%, to $163.0 million, compared with $130.7 million for the nine months ended September 30, 2022. The increases for both the three and nine months ended September 30, 2023 were primarily due to year-over-year headcount additions to support our continued investment in the development of Omnipod products. We expect research and development spending for the full year 2023 to increase compared with 2022 as we continue to invest in advancing our innovation and clinical pipeline.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2023 increased $40.3 million, or 28.7%, to $180.7 million, compared with $140.4 million for the three months ended September 30, 2022. Selling general and administrative expenses for the nine months ended September 30, 2023 increased $78.6 million, or 17.7%, to $522.1 million, compared with $443.5 million for the nine months ended September 30, 2022. The increases for both the three and nine months ended September 30, 2023 were primarily attributable to year-over-year headcount additions, mainly to support information technology, international growth and commercial operations, higher third-party customer service costs to support Omnipod 5 adoption, and an increase in software license fees driven by investments in new systems due to our growing business and increased headcount. To a lesser extent, the increase was due to higher consulting costs, third-party training costs and higher amortization of cloud computing implementation costs. These increases were partially offset by $27.3 million of legal costs related to the settlement of a patent infringement lawsuit, associated legal fees, and an estimated liability to settle a contract dispute in the prior year.

We expect selling, general and administrative expenses to increase in 2023 compared with 2022 primarily due to investments in our operating structure, primarily headcount additions, to facilitate continued growth, including customer support and a new enterprise resource planning system. Additionally, we plan to make additional investments to support the Omnipod System, including market acceptance and access, and the phased launch of Omnipod 5 in our international markets. We expect these increases to be partially offset by $25.2 million of legal charges incurred in 2022, related to the settlement of patent infringement lawsuit, associated legal fees, and the settlement of a contract dispute, that are not expected to recur.

Non-Operating Items

Interest Expense

Interest expense for the three months ended September 30, 2023 was $10.4 million, compared with $9.2 million for the three months ended September 30, 2022. Interest expense for the nine months ended September 30, 2023 was $29.5 million, compared with $27.3 million for the nine months ended September 30, 2022. Interest expense primarily relates to interest incurred on our outstanding borrowings, net of our interest rate swaps.

Interest Income

Interest income for the three months ended September 30, 2023 increased $6.2 million to $8.6 million, compared with $2.4 million for the three months ended September 30, 2022. Interest income for the nine months ended September 30, 2023 increased $19.1 million to $22.4 million, compared with $3.3 million for the nine months ended September 30, 2022. The increases for both the three and nine months ended September 30, 2023 were primarily driven by higher interest rates.

Income Tax Expense

Income tax expense was $1.8 million for the three months ended September 30, 2023, compared with an income tax benefit of $0.5 million for the three months ended September 30, 2022, resulting in effective tax rates of 3.4% and 9%, respectively. Income tax expense was $3.8 million for the nine months ended September 30, 2023, compared with an income tax benefit of $0.1 million for the

nine months ended September 30, 2022, resulting in effective tax rates of 3.6% and 0.7%, respectively. The changes in the effective tax rates for both the three and nine months ended September 30, 2023 were primarily driven by jurisdictional distribution of profits and losses.

Adjusted EBITDA

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

Non-GAAP Financial Measures

Management uses the following non-GAAP financial measures:

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

Adjusted EBITDA represents net income (loss) plus net interest expense, income tax expense, depreciation and amortization, stock-based compensation and other significant transactions or events, such as legal settlements, medical device corrections, and loss on extinguishment of debt, that affect the period-to-period comparability of our performances, as applicable. We present Adjusted EBITDA because management uses it as a supplemental measure in assessing our performance, and we believe that it is helpful to investors, and other interested parties as a measure of our comparative performance from period to period. Adjusted EBITDA is a commonly used measure in determining business value and we use it internally to report results.

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

Liquidity and Capital Resources

We believe that our current liquidity as further described below will be sufficient to meet our projected operating, investing and debt service requirements for at least the next twelve months.

Capitalization

The following table contains several key measures to gauge our financial condition and liquidity:

Convertible Debt

To finance our operations and global expansion, we have periodically issued convertible senior notes, which are convertible into our common stock. As of September 30, 2023, the following notes were outstanding:

(1) Per $1,000 face value of notes

Additional information regarding our debt is provided in Note 10 to the consolidated financial statements.

Credit Agreement

We have a $300.0 million three-year senior secured revolving credit facility (the “Credit Facility”), which expires in 2028. At September 30, 2023, no amount was outstanding under the Credit Facility. The Credit Facility contains a covenant to maintain a specified leverage ratio under certain conditions when there are amounts outstanding under the facility. It also contains other customary covenants, none of which are considered restrictive to our operations.

Summary of Cash Flows

Operating Activities

Net cash provided by operating activities of $100.5 million for the nine months ended September 30, 2023 was primarily attributable to $98.7 million working capital cash outflow, partially offset by net income, as adjusted for depreciation and amortization, and stock-based compensation expense. The working capital outflow was driven by a $67.3 million increase in accounts receivable, a $65.3 million increase in inventories and a $24.5 million increase in prepaid expenses and other assets, partially offset by a $41.5 million increase in accounts payable and a $16.9 million increase in accrued expenses and other liabilities. The increase in accounts receivable was primarily due to an increase in sales in the U.S. pharmacy channel, which has longer payment terms. The increase in inventories was primarily driven by a planned inventory build to mitigate supply chain risk and prepare for the broader launch of Omnipod 5 internationally and Omnipod Go in the United States. The increase in prepaid expenses and other assets was driven by an increase in prepaid raw materials, cloud computing implementation and upgrade costs, and other receivables. The increase in accounts payable was primarily driven by the timing of payments. Finally, the increase in accrued expenses and other liabilities was primarily driven by

an increase in accrued rebates mainly due to revenue growth in the pharmacy channel, partially offset by warranty fulfillment associated with the voluntary MDCs issued in 2022.

Investing Activities

Net cash used in investing activities was $87.8 million for the nine months ended September 30, 2023, compared with $102.7 million for the nine months ended September 30, 2022.

Capital Spending—Capital expenditures were $46.3 million and $58.5 million for the nine months ended September 30, 2023 and 2022, and primarily related to the purchase of equipment to increase our manufacturing capacity. We expect capital expenditures for 2023 to decrease compared with 2022 given our significant investments to build capacity in 2022, including the acceleration of some of our spending on machinery and equipment for our new Malaysia facility that is under construction. We expect to fund our capital expenditures using existing cash.

Investments in Developed Software—Investments in developed software were $6.2 million and $10.4 million for the nine months ended September 30, 2023 and 2022, respectively, and primarily related to investments in projects to support our cloud-based capabilities.

Acquisitions—During the nine months ended September 30, 2023, we paid Bigfoot Biomedical, Inc. $25.1 million, including transaction costs, to acquire patent assets related to pump-based AID technologies. During the nine months ended September 30, 2022, we paid $26.0 million to acquire substantially all the assets related to the manufacture and production of shape-memory alloy wire assemblies that are used in the production of Omnipods from Dynalloy, Inc. The remaining $3.0 million purchase price for this acquisition was paid during the nine months ended September 30, 2023.

Investments—During the nine months ended September 30, 2023 and 2022, we made strategic investments in private companies in the amount of $7.2 million and $7.8 million, respectively.

Financing Activities

Net cash used in financing activities was $15.8 million for the nine months ended September 30, 2023, compared with $25.8 million for nine months ended September 30, 2022.

Debt Repayments—During the nine months ended September 30, 2023, we made $20.3 million in aggregate principal payments on our equipment financings, term loan, and mortgage, compared with $18.3 million for the nine months ended September 30, 2022.

Proceeds from Option Exercises and Shares Issued Under Employee Stock Purchase Plan (“ESPP”*)—*Total proceeds from option exercises and issuance of shares under the ESPP were $17.9 million and $9.2 million for the nine months ended September 30, 2023 and 2022, respectively. The $8.7 million increase was primarily driven by option exercises by former executives.

*Payment of Taxes for Restricted Stock Net Settlements—*Payments for taxes related to net restricted and performance stock unit settlements were $13.1 million and $16.7 million for the nine months ended September 30, 2023 and 2022, respectively. The $3.6 million decrease was primarily driven by lower achievement of the performance stock units that vested during the period.

Legal Proceedings

The significant estimates and judgments related to establishing litigation reserves are discussed under “Legal Proceedings” in Note 12 to the consolidated financial statements included in this Form 10-Q.

Off-Balance Sheet Arrangements

As of September 30, 2023, we had various letters of credit totaling $16.9 million, primarily related to amounts issued under our $20 million uncommitted letter of credit facility to backstop a bank guarantee that serves as security for land and building in Malaysia while under construction.

Critical Accounting Policies and Estimates

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

Our accounting policies for revenue recognition and contingencies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. There have been no significant changes to the above critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations and financial condition.

The outcomes of the events described in these forward-looking statements are subject to risks, uncertainties and assumptions. These risks and uncertainties include, but are not limited to:

• adverse changes in general economic conditions as well as risks associated with public health crises and pandemics, government actions and restrictive measures implemented in response, supply chain disruptions, delays in clinical trials, and other impacts to the business, our customers, suppliers, and employees;

• dependence on a principal product platform;

• ability to maintain and grow our customer base;

• ability to scale our business to support revenue growth, maintain an effective sales force and expand our distribution network;

• ability to secure and retain adequate coverage or reimbursement from third-party payors;

• impact of healthcare reform laws;

• impact of competitive products, technological change, and product innovation;

• ability to design, develop, manufacture and commercialize future products;

• inability to maintain or enter into new license or other agreements with respect to CGMs, data management systems or other rights necessary to sell our current product and/or commercialize future products;

• challenges to the future development of our non-insulin drug delivery product line;

• international business risks, including regulatory, commercial and logistics risks;

• supply problems or price fluctuations with sole source or third-party suppliers on which we are dependent;

• failure to retain key suppliers;

• ability to protect our intellectual property and other proprietary rights and potential conflicts with the intellectual property of third parties;

• extensive government regulation applicable to medical devices as well as complex and evolving privacy and data protection laws;

• adverse regulatory or legal actions relating to the Omnipod System or future products;

• failure of our contract manufacturer or component suppliers to comply with the FDA’s quality system regulations;

• potential adverse impacts resulting from a recall, or discovery of serious safety issues, product liability lawsuits relating to off-label use, the potential violation of anti-bribery/anti-corruption laws; breaches or failures of our product or information technology systems, including by cyberattack;

• unfavorable results of clinical studies, including issues with third parties conducting any studies, or future publication of articles or announcement of positions by diabetes associations or other organizations that are unfavorable;

• the concentration of manufacturing operations and storage of inventory in a limited number of locations;

• loss of employees or inability to identify and recruit new employees;

• risks associated with potential future acquisitions or investments in new businesses;

• ability to generate sufficient cash to service our indebtedness or raise additional funds on acceptable terms or at all;

• the volatility of the trading price of our common stock;

• risks related to the conversion of outstanding Convertible Senior Notes; and

• potential limitations on our ability to use our net operating loss carryforwards.

The risk factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and in this Quarterly Report could cause our results to differ materially from those expressed in forward-looking statements. In addition, there may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Actual results could differ materially from those projected in the forward-looking statements;

accordingly, you should not rely upon forward-looking statements as predictions of future events. We expressly disclaim any obligation to update these forward-looking statements other than as required by law.

Refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our market price sensitive instruments and foreign currency exchange risk.

Evaluation of Disclosure Controls and Procedures

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

Our management, with the participation of our chief executive officer and interim chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023. Based on the evaluation, our chief executive officer (principal executive officer) and interim chief financial officer (principal financial officer) concluded that, as of that date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Information regarding our material pending legal proceedings, if any, is provided in Note 12 to the condensed consolidated financial statements in this Form 10-Q and incorporated herein by reference.

Refer to the “Risks Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of risks to which our business, financial condition, results of operations and cash flows are subject. There have been no material changes to the risk factors disclosed in the aforementioned Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Rule 10b5-1 Plans

During the period covered by this Quarterly Report on Form 10-Q, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.