Insulet Corporation (PODD) Earnings Call Transcript & Summary

Okay. Good morning, everyone. Thank you so much for joining us. My name is Danielle Antalffy. I'm one of the senior medtech analysts here at SVB Leerink, and we are very lucky to have with us Insulet management team. We have CFO, Wayde McMillan; and we have CCO, Bret Christensen. We also have Deb Gordon, Head of Investor Relations in the audience there. We're just going to launch into Q&A. This is a fireside chat format. If you have any questions, feel free to raise your hand, and we'll get a mic to you. So guys and gals thanks for joining us.

Why don't we start. You guys did just report earnings, Q4 earnings on Tuesday night, and you did issue guidance of 14% to 18% for 2020. And I think one of the questions I've been getting as it relates to guidance is sort of it feels conservative. Just trying to get a sense of what's in the guidance. It feels like there's a lot of momentum in the business. It doesn't feel like anything structurally changed that would drive a slow -- any sort of meaningful slowdown after putting up, I think, what was it like, 30% growth in Q4. So maybe talk a little bit about what's driving the guidance. How much of it is conservatism versus something you're seeing in the business that maybe people aren't aware of?

Yes, sure. Good morning, Danielle. Good morning, everybody. So I think one of the -- well, first of all, we have a lot of momentum in the business. Our business is strong. We have a lot of catalysts, many of which was the strategy in the making for the last several years that really started to take hold in the second half of last year. The largest drivers are our biggest new innovation with DASH, our move into the pharmacy and the Part D designation and then our pay-as-you-go model. That's very disruptive and really changing the market paradigm for both type 1s, but in particular, type 2s. Having said that and just having an opportunity to speak with people now since the call, getting this question a lot, one of the things that people miss the most or really just didn't quite understand was the drug delivery piece of that 14% to 18%. So what we've started with -- for people is just getting to understand the Omnipod, the really core driver of our business. And the guide there is 18% to 22%, with 20% at the midpoint. So we think that's a very strong guide for our Omnipod business. And just highlighting for people that the drug delivery side of the business for us is really controlled by our partner. We don't have any impact to the end-user sales or end-user market there. We are just an OEM manufacturer of our pod for our partner there. So our forecast is basically dependent upon their ordering patterns and their forecast. So if you set drug delivery aside and focus on the Omnipod piece of the business, we think it's a very strong guide because we looked at last year and said, if we can grow similar dollars, it's what we did in a fantastic year last year, then we'll put up a good year. And what we weren't going to do is put our guidance at a trajectory off of last year. If we talk about the U.S. business, in particular, we had record new patient starts every quarter for 4 quarters. And we weren't going to drive trajectory line and say that's momentum. We think momentum for us is a business that's growing in the 18% to 22% range. Again, 20% at the midpoint on a business that's approaching $1 billion. So we feel if we can grow the same dollars as last year, that will put us at the high end of the range. We do have a lot of strength and the momentum you mentioned, Danielle, that could put us above that range. But it's early in the year. It's a very similar setup that we had last year, and we'll see how the year progresses.

Okay. That's fair. Just if I could follow up on that. So as it relates to the 18% to 22%, it would -- doing the math, the numbers would assume a pretty -- I don't want to say meaningful, but a slowdown in new patient adds. So much fewer new patient adds this year versus last year. And I guess, just given the shift to the pharmacy, given the fact that 30% of your new patient adds, I think, was the number in Q4 came from type 2 patients, which is phenomenal. Why would new patient adds slow down so much? There's still a lot of penetration to go in this market.

Yes, I think it's exactly what I said. We're not going to draw that trajectory line and say that we're going to continue to accelerate from here in guidance. Our strategy certainly is that we hope to continue to accelerate. We have many factors within our strategy that should give us the opportunity to do that. We're just not going to guide at those levels.

Sure. That's fair. So it's more like, I guess, some of the concern is around always the low-hanging fruit. Have we reached sort of near-peak penetration? And I -- my answer is, no.

Yes. Why don't I start that one and then I'll hand it off to Bret, just from a guidance perspective, and then I'm sure Bret will weigh in on the market dynamics. But our -- I'm glad you brought this one up. It is early days. We are 6 months into significant changes to our strategy. It is early days for our patch pump design really with a new product launch in the middle of last year, really being very competitive in this marketplace. And then there's a lot of drivers in the market, getting people more aware of their glucose levels and looking for better control, and we want to be the best answer for those people.

Yes. And I think we've been very deliberate in calling out certain things with new starts. We have called out record new patient starts. So again, on this last earnings call, we called out record worldwide new patient starts or new starts. We've also got really more specific with type 2 because that we -- that's something we've talked about now for 3 quarters in a row. It's a trend that is positive, and we were specific with that 30% on the call, just to give you an idea, but that is something that we think is sustainable. This -- we're still trying to assess the true demand there because what we did for years, for tens of years as we conditioned physicians to not even talk about pumps or pods with type 2 patients because they knew they weren't going to get access to it. There were too many restrictions in the DME channel. And so what we're seeing is probably the true demand for type 2 just in the endocrinology offices and things that we call on. So it's encouraging, and we think it's sustainable.

Yes. Okay. That's great. One other question, while we're on this, what questions have we been getting since the earnings call, on COVID-19 and the impact there. And you guys did talk about this, but I think what folks are trying to get a handle around is, is there any risk to the guidance? Or do you feel like this is very much under control and reflected in the guidance from a supply perspective, you obviously don't sell into China?

Yes. So no impact to the guidance at this point. What we said on our earnings call on Tuesday was that we had sufficient inventory going into the quarter. We are lucky enough to be one of the people in China that has our employees ramping up at the plant. We are manufacturing at the plant. We're shipping, and we also have our U.S. manufacturing with our first-line ramping up here in the U.S. So that's providing us some redundancy already. It's still early in that line 1 and the yield coming off that line, but it is starting to contribute. So between our China manufacturing ramping up, our U.S. manufacturing starting to produce and the inventory we had, we feel confident at this time. As Shacey said on the call, our #1 concern is our employees there and our people traveling. And so we're monitoring that very closely. We're also monitoring our ramp-up over time. It is a day-to-day thing. Our team is very focused and working with our third-party manufacturer, literally, daily. We have a very strong team here, experienced team working it. So that gives us the confidence that we'll be able to continue to ramp in our third-party facility. We'll continue to ramp in the U.S. and gives us the confidence that we'll be able to manage through this. Having said that, I don't think anybody really knows where this thing is going to go over time. And so we just have to continue to manage it literally day-to-day.

Right. Okay. I guess another way to ask this question. Well, first of all, so to know your manufacturing is open and running right now in China and not shut down, yes. So another way to ask the question is, how much supply, like based on your guidance, do you have supply through Q1? Do you have supply through the first half of the year?

Yes. We didn't provide that on the earnings call. We're not going to update that at this time. We're just managing it. And we believe, based on our current ramp and where we're at that we'll be able to manage through it.

Okay. Great. So you do have a new product launch coming up here. And late this year, early next year, it sounds like Horizon. So another thing that I think folks are trying to get a handle on myself included is, how to think about the incremental ramp with Horizon to be your first truly integrated system with the CGM? We saw one of your competitors, when they launched an integrated system, they saw a big step-up in new patient adds. Is that something that can happen with Horizon? I know it's off a much larger base. So curious how to think about the contribution from Horizon. And it sounds like, is there anything in 2020 guidance for Horizon? Or that's really a 2021 contributor?

So I get the last piece, maybe guidance, and hand it over to Bret. So we do not have a large step-up from Horizon in our guidance. We're planning to launch it in the second half of the year. It will be on a limited basis to start like we typically do. So we don't have a large inflection in our guidance for 2020. And when we do get to that full market release then we'll include it in our guidance. So depending on when it is in 2020. But Bret maybe...

Yes. And we're obviously excited about Horizon, right? We've talked about some of the features that it will add that we don't have today the algorithm on the pod, phone control, which effectively eliminates one component of the system. It will still be a pay-as-you-go model, right? In the pharmacy channel, the strength of that algorithm, the integration with Dexcom, you see there's a lot of boxes that it checks today. We know today with record new patient starts, why users have chosen Omnipod. And we even get some good research on why maybe they didn't, right? And so what excites us about Horizon is that it checks some of those boxes. The real -- yes, sure. So DASH actually added a lot of those checkbox right. Our #1 request for years was a touchscreen display that looks like a smartphone device. We check that box with DASH. CGM integration, of course, is a big one. And the CGM utilization has increased in the U.S., particularly in worldwide. Those patients have overcome some obstacles of wearing a piece of technology on their body, and now they want it to talk to their Omnipod. And so we're excited about those features. We haven't guided to anything, obviously, about what it means to growth. But certainly, it's checking a lot of the boxes that we don't have today, and so we're excited about it.

Got it. Okay. So as it relates to -- let's talk about the overall market. And I think that's another thing that folks want to get a handle on because you've got the insulin pump market, you've got the CGM market. It feels like the CGM market, it's like sky is the limit apparently. For the insulin pump market, it does feel like that's a more sort of discrete market. Can you talk about where we are from a pump penetration perspective today? I'd love to take this to type 1 versus -- and then separately type 2. So let us first talk about type 1s where peak penetration can truly go in this patient population. And what are the barriers that do still exist that need to come down to get to that peak penetration?

Okay. I can start with that, and Wayde can add. But I'll start with the barriers, right, because we've been getting this question a lot lately. And I think it stems from, why isn't everybody on pump or pod, right? And why is penetration not higher? And it's a good question, but it's a question we didn't get a lot years ago because -- and I think because it was understood. And pumps and pods were for a certain segment of users. So for type 1 patients, we'll start with -- pumps have been around for 30-plus years, right? And we still talk about penetration within the type 1 market being around -- probably north of 35%, right? And the question comes from, why isn't everybody on these cool pieces of technology that come out? Well, those pieces of technology are new, right? Some of what we've done with innovation is new. So there's 3 obstacles, I think, to penetration. One has always been cost, and that's been the one that everyone is excited. So what we did with DASH with removing the upfront fee, moving to a pay-as-you-go model has been instrumental. So patients now have a predictable co-pay, the way they do with their prescriptions, with their insulin, with anything they get from a pharmacy, that's been the key. Technology has been lagging in this industry for a long time, but moving very quickly now. And so as we talk about DASH and with Horizon in the future, we're checking some of those boxes. And then the third one is just awareness. So where can it get to for just type 1s? What I'd like to point to is the pediatric segment because type 1 patients are diagnosed at a young age. Today, more than half of pediatric patients are on a pump. We lead in that segment of the industry. So we're the leader in pediatrics. And I think that as technology improves, you'll see more and more patients, as they are diagnosed, move to pods and pumps more quickly. And that's a -- it's an indicator where it will go. So if more than 50% of those patients are already on a pump of some kind, as they age, will exceed that 50%. So I don't know where it can go, but certainly, as technology improves, as costs come down, and then as we generate more awareness, you'll see penetration move much more rapidly.

Got it. And just on the pediatric. So if there's over 50% of patients are -- pediatric patients are on a pump, but then pump penetration overall is something like 35%. Why does the peds, as they age, drop off a pump? I mean what's causing that? And can...

Yes. I don't think that they do. I mean certainly, some do, right? But I don't think it's a trend that they drop off. I think that it's that they didn't adopt patients who are our age, right, when we're diagnosed did not adopt pump therapy. And as you get into a routine in diabetes, you don't want to change. And so you have to be -- really significant technology changes to get an older patient that's used to MDI to move to this technology. And so that's why I think what's happening with pediatrics is they're getting on pumps and pods, and they're staying on it, but they're younger, right? And so they'll -- will grow into that.