Insulet Corporation (PODD) Earnings Call Transcript & Summary

Okay. Good afternoon, and welcome to the Raymond James Human Health Innovation Conference. My name is Jayson Bedford. I'm the medical device analyst here at Raymond James. And first, thank you for joining us today and special thanks to Wayde McMillan, Bret Christensen, Deb Gordon and Shacey Petrovic, who's informed me it's her birthday today. So happy birthday, Shacey.

So we've got a lot to learn here in the next 30 minutes. So let's just jump into it. And I wanted to start with the ADA, your thoughts coming out of the conference. At least to me, the form factor differences for Omnipod 5 versus other -- and I guess we're calling it that now. Or are we still Horizon? I'm not sure, but you know what I'm talking about. Form factor difference is very apparent. Time in closed loop, which kind of was expected, was also quite strong, but there was also a nice improvement in hypo. And so are these the big differentiators when we think about Omnipod 5 versus other systems out there? Is there something else we should be thinking about as you intend to commercialize this?

Well, I think you've captured most of them, Jayson. The results were really exciting coming out of ADA. When we think about the time-in-loop, which was best-in-class, a lot of that is reflective of the work and the time that we invested to put the algorithm on the pod as opposed to some separate device that needs to be disconnected. So Omnipod 5 users will be able to shower and exercise without disconnecting, and you can see that then resulted in the time-in-loop and the amount of time that people are spending in loop and presumably getting the benefits of automated insulin delivery. I think the fact that we got very strong time-in-range results without compromise in on hypoglycemia is a really significant differentiator in the field. You think about hypoglycemia, it's this big driver of hospitalizations, big driver of diabetes distress. So to be able to deliver for time-in-range and then have really virtually 0 hypoglycemic events, really, really exciting. And that also is reflective of a lot of the technical work and clinical work that went into refining the algorithm. You're always trading off performance on time-in-range versus safety, and we never want to compromise on safety. This is particularly important to us as we thought about more challenging populations like pediatrics. So to be able to deliver a really strong competitive time-in-range with that hypoglycemia performance is pretty exciting. And then the thing that maybe didn't get as much clinical attention, but I think it's going to be a pretty significant differentiator in the field, is the usability scores. So if you listened to the ADA presentation, you saw the moderator highlight that our usability scores were in the 90%, 90-plus percent range, and he even mentioned that is in line with Apple's iPhone. So I think that speaks a lot to our strategy to deliver on time-in-range, deliver on time-in-loop, deliver on hypoglycemia. But really, what's unique about our strategy is delivering the simplest, easiest to use systems that delight the users so that we can really expand adoption of these devices across the millions of people who can benefit from them.

Okay. That's helpful. Shacey, when we think about the potential results of the pivotal trial relative to what we saw in the pre-pivotal, obviously, it's a bigger sample size. But I'm wondering if there's been any changes made to the system itself, from the time of the pre-pivotal to the pivotal? And could that make the data even better?

Well, we are, first of all, really thrilled with the data. So we think it's going to be a terrific performing system. It's probably too early to comment on the pivotal because we're still about halfway through that. And so we'll see what that data delivers. But the one thing that's not factored in there is phone control. And so as we move to phone control as a feature, that is a very exciting differentiator. We'll lead the way in the field there and to be able to eliminate a component of the system. I think you already have kind of world-class usability scores, but that has the potential to drive even more enhanced usability, ease of use and discretion for the user. So there's still features coming that I think are going to be really exciting for our users and for the clinical community.

Okay. And have you decided which conference or when we'll see the full Horizon pivotal data?

We have not. So we're still determining that. And a lot of that will depend on how quickly we can get through the trial. Obviously, our focus is on completing the trial, getting the submission in and getting the product to market early -- or in the first half of next year. And so that's the primary focus. And along the way, we will determine when is the best time, and we will do it as quickly as we can because we know there's tremendous enthusiasm in the market for the data. And especially now that we presented such a strong start with this pre-pivotal and the first outpatient studies, people really want to see the larger data sets. So we're going to do that as quickly as we can, but it's a second priority to getting the submission in.

Sure. Okay. I think you've recently alluded that you'd look at pricing of Horizon and look at a potential price premium. Is this decision really tied to the data? And I guess who would shoulder the higher cost here? Is it the payer or the user? Just walk us through that thought process.

You -- Bret.

Yes, Jayson. So we have not made a decision yet on how to price Omnipod 5 powered by Horizon. What we have talked about is the trade-off. And so we -- on one hand, we know that payers pay for outcomes. And just as you spoke about with Shacey, we're really excited about the potential for greater outcomes with Omnipod 5 and we expect that because it will have better outcomes, it should command a premium price. That said, the trade-off there is speed to access and access for our user base. What we learned with DASH is that any pricing discussion at all with payers takes time to contract for. Even as we eliminated the upfront cost of DASH altogether and assumed that risk that of utilization, that took time and meant that some of our users did not have access to DASH the day that it launched and even sometime after it. And so those are the considerations that we're weighing. We definitely understand that access to a product like Omnipod 5 is going to be very, very important to our user base. And that said, it will have better outcomes. So it should command a premium price. But as we get closer to launch, we'll announce that once we've made that decision, but no decision as of yet.

Okay. Okay. I'd say the other kind of semi-related news coming out of ADA was yesterday, and that was the approval of Libre 2. With this device now approved, I got the impression that Abbott can kind of push forward with their pump partners, while they work on fixing the vitamin C interference dynamic. So maybe walk us through the next year with Abbott and Insulet in terms of what needs to happen.

Yes. Well, the teams have started collaborating even before this announcement that Libre 2 was cleared as an iCGM. And so the teams -- we've established the program teams on each side. We've established the joint steering committee and very excited about the potential to combine Libre 2 and Omnipod 5 to be able to bring this product to so many people. You think about their patient population, it's enormous and growing rapidly. They're actually the market leader. And particularly, when we think about our markets outside of the United States, where they may be the only choice for sensor partnership, we believe that the combination will be very powerful in terms of bringing our technology to so many more people across the globe. So the work has just started in terms of a technical collaboration in terms of understanding the product development road map and then mapping out the regulatory strategies and the market launch strategies. So we're at the beginning stages. We've had a long-standing collaboration with Abbott, and so our teams work well together. I think -- I'm optimistic about the collaboration and certainly confident in our partner that they understand what needs to happen in order for Libre 2 to be able to be used in an interoperable fashion with Omnipod 5.

Do you think Libre 2 has any impact on your business over the next year?

I do not. No, I think these programs take a bit of time. I think people sometimes assume because it meets the iCGM thresholds that it's a fairly simple technical program. But the products, the sensors that we've been working with do communicate differently. They have different nuance in terms of performance. And so there is technical and clinical work to be done in order to complete this integration, and that's going to take some time. We haven't put a time line on it because we're still defining the program with Abbott.

And do you anticipate commercial launch internationally before the U.S.?

I think that's a good question, Jayson. Because if we look at our population, in the United States, there's dramatic overlap. Probably half of our users use a Dexcom CGM. In the -- outside of the United States, the vast majority of people using CGM that also use Omnipod are using a Libre. And so the value proposition may be greater in one market versus another. We'll look at all of that and then determine the regulatory pathway as we get through the clinical development time lines and road map. So a lot of that is pre or is to be determined yet. I think the takeaway, though, is the opportunity is enormous. They're growing dramatically across the globe. And this will certainly strengthen our offering globally to all of the people that can benefit from it.

Okay. Fair enough. Maybe for Bret or Shacey, just switching gears to COVID. Is your sales team back in the field calling on endocrinologists?

We've started the process, Jayson, of allowing some of them to go back. There's a small number of our reps that are back in the field, but we're treating every territory uniquely. So we're looking at the environment of each state, each city and then one by one, we're allowing them to go back into the field as we see it that it's safe. I think you can count on us to continue to be cautious here. We are -- we benefit in some ways that we don't rely so much on new starts as others do that really the focus for us has been maintaining the base, supporting our existing users, getting new starts where we can. But there's a lot to like about telehealth in this virtual environment and some things that we hope are sustainable and continues, some things like virtual trainings. And so we can accomplish a lot from home, so you can probably expect us to be more cautious than others in letting the field back to work. But we have started that process. Some of our reps are back and we'll follow the guidance of those states and those endocrinology offices as some physicians will surely be hesitant to allow reps to come back into the office for some time. [ We'll look at ] each territory.

Yes. Fair enough. Have you guys been surprised at the pace of state openings? If I look at Tenet, yesterday, realized different market, but they've -- I think hospital use has really come back, procedures have come back quite strong. Has that surprised you guys at all?

I don't know that it surprised us because we didn't really have a date put out there when we would get back into the field, right? So again, some states are moving quicker than we might have thought, some slower, but we're taking each state and each territory as kind of as it is and just allowing the field to get back to work. But the field is obviously anxious to take it back out there. And so we'll allow them to do so just as it's appropriate.

Okay. And if I look at the guidance for 2020 here, there's a slowdown in growth in the second half implied in the guide. I think it's understandably reflective of the impact of COVID both from a new user standpoint as well as lower utilization. Is it all COVID? Or are you assuming any change in market share positioning at all?

Jayson, it is both of those metrics as well as utilization are the 3 key metrics that we're monitoring. We do think the new patient starts if compounded over a few quarters has a bigger impact. And what's challenging for us is we had such momentum coming out of '19. A lot of exciting things happening in the business, as you know, with DASH and the pharmacy and our new innovation coming, and we've had a lot of momentum. And so that really helped us in Q1 with a strong quarter and helped us with a strong 2Q guide. And now the real challenge for us was to say how much of an impact we think will hit Q2 and then how much compounds into the second half. And that's one of the reasons we provided guidance, is we wanted to make sure everybody understood how our model worked. And so what we've put out there is a stake in the ground, and we tied it to what we assumed would be a gradual reopening, and we expect that to continue to be a headwind for us through the end of the year. And that will be reflected, as you said, in new patient starts, and we also ticked up attrition in the U.S. We don't believe attrition will change much outside the U.S. given the dynamics of social health care. But in the U.S., with this unemployment rate that we're looking at, we do believe there will be a fraction of people who probably have a challenge gaining access to insurance and are more challenged to stay on the product. So we ticked up attrition for that. We also ticked down utilization a little bit because there may be people that try to stretch out an order or skip an order. And so we're watching those metrics very closely, and we'll be able to provide an update after Q2 here.

Okay. Okay. Wayde, you kind of guided or talked about the slowdown in new patient adds. I'm just curious, was that lack of -- was that due to lack of access to the physician? Or was it due to potential economic issues faced by your future customers, users?

Yes. So I can start this one, and I'm sure Bret would like to weigh in as well. Our assumptions that we built into the guidance was really both. Those are primary leading indicators. So as we all know, when economies around the globe shut down, it was challenging for customers to get in to see their physicians and to try to seek better therapy and we saw a stark reduction at the end of March. And for us, the good news is we had a lot of customers in process that carried us into -- through March and into the start of April. But we -- as we said on our Q1 call, a stark reduction in those -- the front end of that process in March and then sales leads or qualified leads, as we call them, through our earnings call on May 7. And so we've updated through then. And then -- so obviously, the recovery then requires people to be able to get back and meet with their physicians. And so the headwind there is how long it takes people to be able to get back and meet their physicians. On the other side of the ledger is, will there be a bolus of people who are interested and try to get back to see their physician at the end of this as well as COVID has been a particular problem for people with diabetes. And so could that create more awareness for people who want to deal and treat their disease and seek a different therapy? And so it's a combination of factors. We've set up some additional operating mechanisms to be able to dig deep into these leading indicators and monitor them. And again, a little too early to tell here in the middle of the quarter, but we're getting close to the end, and we'll be happy to provide an update for people going into our Q2 call. Bret, anything else you'd like to add there?

To add, I mean, it's -- the biggest thing is really the -- just the sheer number of interactions that patients have with their physician. And so everything we've done with telehealth and telehealth tools, much of what we're showing at ADA this week and last week is -- are designed to help physicians through that to get them comfortable that they can see a patient, that they can recommend Omnipod, they can change therapy for diabetes and that they virtually get patients trained on the product. So that's the big -- the biggest really headwind for me is just the sheer number of interactions because even though telehealth is up several hundred percent in this pandemic, it's not fully compensating for the lack of face-to-face interactions with patients. So that's really the biggest downside there.

That's helpful. Bret, just on the theme of telemedicine. As endocrinologists adopt telemedicine, do you feel like it will make them more efficient, meaning will they be able to see more patients?

Yes, there's a lot to like about telemedicine. And yes. The answer is yes. You can be much more efficient with telemedicine. The sort of the deciding factor there has been reimbursement. And so what we did see with payers and Medicare is that many of them opened up telehealth reimbursement during the pandemic. They haven't shut that down. And if that persists, you might see physicians utilize telehealth much more readily going forward. I hope that's the case. We know from our own experience with trainings, we train the vast majority of patients on Omnipod. We do that directly with our field sales force and our clinical service managers in the field. It's a much more efficient way to train patients. We don't have to rely on them to meet at a certain location. We don't have to travel to the patient. They have the benefit of being trained in the comfort of their own home, amongst family and friends. As you know, diabetes is a family disease and requires a vast support structure. All of that is much better through telehealth. And so we hope that much of it persists. We're planning on continuing with virtual trainings because we don't have to rely on reimbursement there. That's something we do. And if reimbursement persists, we think physicians will use telehealth much more often in the future.

Okay. Okay. Perfect. I wanted to switch gears a little bit to cost and access. And this is a number that's always stood out to me, but you've mentioned that roughly 80 -- I think it was 84%, 85% of your patients who are accessing Omnipod in the pharmacy channel are doing so for, I think you said $49 or less. I'm assuming that's a monthly number, and so basically, these patients or users are paying $5 a pod, which is quite low. Can I assume that, that setup is after the deductibles are met, implying that on a yearly basis, they're paying a little bit more than that? But still, it's still quite a low number.

Yes. Let me -- I'll clarify that a little bit, if I can.

Sure. Please.

The 84% of our users, our existing users pay a co-pay that is monthly 40 -- so $49 is the high end for that 84% of our user base. Some of those individuals pay a $0 co-pay every month. So it goes from $0 to $49, but the vast majority, that's the co-pay they pay every single month. Remember, in the pharmacy channel, there is no deductible. So what we've always said we liked -- and one of the reasons we threw that statistic out there is we want to make the point that, one, the pharmacy channel is really inexpensive for out-of-pocket for patients. And it's a predictable cost for patients. And so what you see in the DME channel is January, February, March, there's a lot of cost out-of-pocket for patients. Many hundreds of dollars even after they've started on pump therapy. If they're new to pump therapy, they can pay thousands of dollars out-of-pocket right away. There is no deductible in the pharmacy channel. So in December, if you're co-pay is, call it, $25, January is going to be a $25 co-pay as well. And so that predictability of out-of-pocket cost just means better utilization for the product and the patients can better stay on product for each month and not start and stop as we see happen in the DME channel.

Okay. That's a helpful clarification. And when you say 84%, that's 84% of patients accessing in the pharma.

That's right. That's right.

And is it roughly 30% of the U.S. base is accessing Omnipod through the pharmacy?

That's what we've said. Yes. Yes, roughly 30% of the volume is through the pharmacy. That's right.

And just one thing to note is I think we said on the call that it was 60% or greater of the new patient starts. So I just think that's important. It's a metric we always look to, Jayson, to see how the complexion of the base is changing and how successfully we're moving into pharmacy. It will obviously take a while for Bret and his team to convert the base, this large base that we have to pharmacy, but it's great to see that of new patients coming in, pharmacy is obviously a really attractive thing for all the reasons that Bret just talked about, and we're capturing those people and getting them into the pharmacy channel. And then the next effort has to be on converting that base.

Okay. What is realistic kind of peak volume of pods going through the pharmacy channel? Meaning, I'm assuming 100% isn't attainable, but how high can we get here?

Yes. I mean, as Shacey said, it should -- if nothing changes, it should move to 60% over time because 60% of our new start [ begin ] in that channel, right? But is 100% unattainable? Could be just because we're offering choice today. And there's a lot of reasons why patients choose the legacy Omnipod product over DASH in the pharmacy channel. One of those might be cost. One of them might be just routine and what they're used to. It's an interesting thing in diabetes where patients get stuck in this routine and don't want to migrate to a new therapy, whether it's better or not, which is still why the majority of patients choose MDI over an insulin pump. So could we get to 100%? The only way we really get to 100%, I think, is if we've migrated all of our patients to DASH or Omnipod 5, which could happen one day. But for now, we want to offer choice to our patients, and many of them will choose to stay where they're at, on the product they currently use.

Okay. Perfect. I wanted to switch gears. We've got about 5 minutes left here. I want to talk about manufacturing, which doesn't get brought up too often, but I think you guys have been -- you clearly had the foresight to move more manufacturing to the U.S. How long are we from Insulet being able to supply the vast majority of its U.S. patient base with U.S. manufactured product?

It's a good question. We haven't given guidance on that. What we have said is that with our second line fully operational, that we will have doubled our capacity. So all of the lines in China, we said 1 line produces 50%, 2 lines produces 100% virtually of what we were producing, what we are producing in China. The challenge is the business is growing very rapidly. And so there's a number of scenarios that we've modeled. And so we don't want to put an exact data out there. But I think the great takeaway is that we have this redundancy, not just in the manufacturing capacity, but also in the supply chain. To set up our U.S. operations, we had to replicate the entire supply chain from China to the United States. So we have a lot of resiliency now built in, and of course, redundancy built into our manufacturing operations, and that will continue to expand as we bring on more lines in the United States and continue to sort of strengthen our supply chain around that. So I think you're right. It was a terrific investment. We wanted to get control of our manufacturing. We wanted to bring it back closer to our innovation so that we could get better at launching and technology transfer more frequently as we made this investment in innovation. And of course, now with the global dynamics, it looks like a genius move. But the goal was really around being able to launch new innovation to market, have redundancy and resiliency and capacity built into our manufacturing road map.

Okay. That's helpful. One area that I have a little bit of concern with on Omnipod 5 is the manufacturing with the algo on the pod. Does that change the manufacturing process at all? And can you just maybe talk about the complexities tied to this and your confidence level there?

Sure. So when we moved to DASH, actually, that was sort of step 1 in moving towards Horizon for 2 reasons. One, we've talked about publicly, which is that it was a consumer lockdown phone. So it was one step towards phone control. But the other reason is moving to Bluetooth meant that we were putting the chip in the phone that could house the algorithm. So this is a software change, not a manufacturing change to put -- sorry, a chip in the pod, the Bluetooth chip, not in the phone, so that the pod can communicate. That chip houses the algorithm. So this is not a manufacturing hardware change. It's a software change and a relatively straightforward one from a manufacturing standpoint. I think it's great because we were really thoughtful in terms of the steps that we took with DASH on our way towards building those capabilities, building the manufacturing strategy, building the clinical and regulatory strategy on our way towards Omnipod 5 powered by Horizon.

Mouthful. You recently raised $500 million. How will your spending levels change post the equity raise?

Jayson, it's Wayde. I can take that one. And thanks for bringing it up because it is a really important part of our strategy at this time, dealing with the pandemic. And we're very happy to get that financing in place. Actually, by definition, our spending levels shouldn't change because we did the financing. So it gives us the confidence to continue in this heavy investment cycle that we're in. We feel we're in a really strong market position in a really under-penetrated market. And so really, what we wanted to do is make sure that our balance sheet was even stronger. And whatever the pandemic brings, we wanted to make sure that we can continue to invest in the opportunities as we see them. And this gives us the freedom to continue to identify initiatives and invest in them and the control to really have confidence that we can continue to invest in those and not be in a situation where we're looking to mitigate and pull back on spending and hold off on initiatives that we see value in just in case the pandemic hits us harder than we might have been thinking. So we're excited to be able to strengthen the balance sheet. We're actually in our annual strat planning, so we're working through additional opportunities for the business. And so as we change our spending level, it will be related to the financing, but the financing gives us confidence to be able to manage to whatever initiatives we decide to fund.

Okay. That's very clear and very helpful. We're at the bottom of the hour and our allocated time. So I certainly appreciate it, Wayde, Deb, Bret. Shacey, happy birthday.

Thank you.

Thank you so much, and good luck with the growth going forward.

Great. Thanks, Jayson.

Thanks, Jayson.

Thanks, Jayson.