BTIG analysts Marie Thibault and Sam Eiber met with Embecta (Nasdaq:EMBC) executives last week and received an update on the company’s current position.
Thibault and Eiber met with Embecta CFO Jake Elguicze and Head of Investor Relations Pravesh Khandelwal.
Among a series of updates, the BTIG report said Embecta expects a “transitional period” in the next 12-18 months. That includes standing up its own business units and exiting remaining transition service agreements (TSAs), plus investing in growth opportunities.
The report also updated on the BD diabetes spinoff’s insulin patch pump development and other potential business opportunities. Thibault and Eiber maintained a “Neutral” rating on Embecta stock.
“We continue to like EMBC’s quarterly beats, their stable core market serving diverse geographies, and cash flow generation with dividend payments,” they wrote. “However, we remain at Neutral because we do not have certainty on catalysts for the product pipeline and the company’s EV/ Sales, EV/EBIT, and P/E multiples look fairly valued when accounting for a flattish revenue profile and expected near-term margin declines.”
Embecta remains coy on patch pump timelines
Speaking to DDBN, Kurdikar explained why Embecta elects to remain quiet on the development of its insulin patch pump. The company is designing the patch pump to address the unmet needs of type 2 diabetes. He said those with type 2 diabetes require more insulin today than type 1. Because of this, the company designed the pump with an increased reservoir capacity.
“We have some but not all of the infrastructure already in place,” he said. “We’re very excited about it but did not say anything about timing. We want to get further ahead on development before we get specific on timing, but we’re very excited about the progress.”
That wait for development goes on as Thibault and Eiber said Embecta does not plan to update on its regulatory submission until the FDA has its device.
However, the analysts received some details on what the pumps look like. The first version will be an open-loop pump that will go through the FDA 510(k) regulatory review process. Embecta also has a closed-loop version under development to follow. That version features an embedded algorithm that requires Embecta to run a clinical study, the analysts wrote.
Embecta dedicated roughly two-thirds of its R&D budget to patch pump development, they added.
The company faces stiff competition in the pump space. Insulet aims for label expansion of the next-generation Omnipod 5 for type 2 patients. It recently submitted a type 2 basal-only pod to the FDA with plans for commercialization in 2024.
Tandem Diabetes Care also recently acquired AMF Medical and its Sigi rechargeable patch pump with pre-filled insulin cartridges. The analysts say Tandem plans for commercialization around 2027.
According to Thibault and Eiber, private players could represent competition in the space, too.
“[Embecta] believes they can carve out a niche in this market, even if they are the second or third entrant,” they wrote. “We acknowledge this will be a competitive market given Insulet’s early success tapping into this patient population with Omnipod Dash and Omnipod 5 (off-label), but one which could drive a material lift to top-line growth if successful.”
Other business opportunities
Thibault and Eiber wrote that Embecta could leverage core competencies in high-volume manufacturing, international infrastructure and relationships with industry partners like pharmacies to support growth. The analysts see four potential areas for this type of opportunity.
Embecta could recognize royalty revenue through low-risk partnerships. The company has a co-promotional agreement with blood glucose monitor maker Intuity Medical. According to the analysts, this could be a complementary collaboration that overlaps its core patient population.
Additionally, Thibault and Eiber say Embecta could acquire pre-revenue assets with milestone-based deals. The company could also acquire distribution partners. Finally, they said Embecta could pursue larger M&A deals.
“We think [Embecta’s] capacity to purchase a large asset is likely limited in the near-term,” the analysts wrote.
Thibault and Eiber also noted that Embecta plans to temporary suspend operations at its Suzhou, China, manufacturing facility. This comes as Embecta officially takes legal ownership from BD and involves updating product registration and undergoing reviews and inspections.
The company built up inventory to meet customer demand during this shutdown to limit disruptions. However, the analysts say Embecta will “realize negative variances” from this undertaking.
