Insulet PODD  posted fourth-quarter performance that was consistent with our projections, and we are inching up our fair value estimate to $16 per share.  Nonetheless, Insulet's shares remain slightly overvalued, from our perspective.  Insulet's revenue growth of 57% during 2011 came very close to the 58% we had estimated. Manufacturing and R&D expense came in a bit lower than we had expected, but this was offset by slightly higher-than-expected spending on sales and marketing. Our projections for 45% revenue growth in 2012 falls right into the midpoint of management's outlook.

Insulet is on the cusp of a big transitional year, now that its next-generation OmniPod has received regulatory approval in Europe, and we expect FDA approval to come along by this summer.  Management has set out an ambitious goal of converting all the current OmniPod user to the new product by the end of the year.  We stress that there are a number of hurdles for Insulet to hit its objective.  First, the firm currently only has one production line that is producing limited numbers of next-gen pumps. Insulet needs to ramp up production on that line, and add two more production lines by the end of 2012 to have capacity up to one million units per month. Second, the firm already has pushed forward to bulk up its sales and marketing staff by approximately 24 new additions. Once hired, the new personnel will need to be trained; management aims to have this group ready to hit the pavement by the end of first quarter. Insulet is also looking to leverage its new relationship with Ypsomed in Europe with the roll out of this next-gen OmniPod.  Finally, the timing of recent device approvals at the FDA has been delayed in some cases. Both Edwards Lifesciences EW  and St. Jude Medical STJ  received FDA approval later than expected on key new products. Although Insulet has responded to the FDA's questions coming off its initial application for the next-gen pump, it is not clear whether exactly when regulatory clearance will come. We expect FDA clearance in the first half of 2012, but it could be later. If Insulet is able to hit all its mile markers for the next-gen OmniPod in the first half of the year, then we could see top- and bottom-line growth accelerate in the second half.