Insulet Corporation (PODD) Earnings Call Transcript & Summary

It's probably not going to be the first quarter or 2, because it'd be a limited launch for the first few months, as we typically do as part of best practice. Shacey talked a little bit about this on the Q2 call. As we bring more and more people on to the product, we'll pace ourselves to make sure that we're happy with everything that's going on with the launch. And a lot of that is beyond the product itself to make sure that our onboarding procedures and how we're treating our customers as they come through the new Omnipod 5 new patient start process and getting them the product. Having said that, we are really excited about the pool of customers out there. And CGM is, no question, technology that's driving awareness for people that are seeking better therapy. And as we think about our product, both its form factor and now eventually getting to Omnipod 5 with CGM integration, I agree with you. I think we will see a large number of people who have either chosen other technologies that are already integrated with CGM or MDI users who see the combination of CGM and our Omnipod 5 as a therapy that they would like to move on to. And so we can't talk to what the ramp will look like yet at this point. It's still too early. But having said that, we're really excited about it. Bret may have a few things to add. Him and his team have been doing a great job in prelaunch planning here.

Yes. And we've always talked about the CGM success as a pipeline for Omnipod. And so it is very exciting. There's -- to your point, Jeff, there's a good portion of Omnipod users that already utilize CGM. And so those should be early adopters for Omnipod 5. There's also -- I think it means something for CGM -- the CGM companies too, because it is a little bit surprising that so many users of Omnipod aren't using the CGM. They're already using a wearable. So those 2 products, in my mind, are a perfect fit for each other. And once a patient gets used to a wearable, whether it's Omnipod or a CGM, they ought to marry the two together once they're talking and working as a complete AID system. And so yes, we're extremely excited about the technology. That's the one thing that users will tell us if they do choose a competitive technology over Omnipod, is our lack of CGM integration or lack of an AID system. So the power of the form factor that we always talk about that people love and it's kind of carried us a little bit here, is really going to shine once we check those boxes with Omnipod 5 and CGM integration in a big way.

Yes. And Bret, I guess just continuing on kind of the 5 pathway, any evolution in the thought on choosing access over price, meaning still thinking probably going to keep the same DASH price, so you don't have to renegotiate contracts or formulary issues? And just to confirm, any change from the FDA on having full phone control, at least on Android, I guess, at the time of launch? There's still -- FDA is still feeling comfortable with the mobile bolusing options and what have you through a phone?

Okay. Yes, I'll touch on both of those, and Wayde, you can carry anything that I miss. But we haven't made a decision on pricing for Omnipod 5. And so to your point that the consideration in the 2 things that we are weighing are speed of acquiring access and commanding a premium for Omnipod on day 1 -- Omnipod 5 on day 1. And so we do believe that Omnipod 5 is a better product and will provide better outcomes for payers and patients alike and should command a premium. What we know, though, and certainly what we learned from DASH is that anytime you're changing pricing, and for DASH, we did lift that heavy burden, because we wanted to move patients to the pharmacy channel and we wanted to establish this pay-as-you-go model, which we think is just the way these products should be reimbursed in this marketplace. So that heavy lift will help us. And the choice we have to make, and we're modeling it now, is price Omnipod 5 at parity with DASH, because that should provide an easy pathway for access. Now that we've got these pharmacy relationships and widespread payer contracts, it seems like a pretty easy add to say, look, here's a better product, it's priced the same way. That should scale access quicker, which means more new starts and more utilization for Omnipod 5 sooner. The other side of it is work for that premium early on and get it. And so we're -- we're just kind of weighing those 2 options right now, and we'll make a decision soon on that, but have not made a decision today. But that's the thought process that's going on behind the scenes. Your second question around FDA phone control. When I said that we're confident in our time lines for the first half of next year, that does include phone control. Phone control has always been part of the story. We're having really good conversations with the FDA about the time line for Omnipod 5 and having phone control at launch. And so we're confident in that as well for having at least Android phone control at launch with some models of phones. We will add, of course, iOS and Google and other platforms at a later date.

Yes. And then when I think about the margin profile, BLE is already in, DASH, obviously. So has anything else changed the margin profile of Omnipod 5? We know with one of your competitors that the royalty they're paying has dragged their margins down just a little bit, and I'm sure with volume, that will not impact them over time. But anything we have to think about with the cost profile of 5 versus DASH of being an incremental margin good guy or bad guy way?

So we haven't provided any gross margins for the product, but I think you're thinking about it right along the same lines as DASH. We have talked about adding a SIM card to Omnipod 5, which allows real-time data access to the cloud. That will obviously add some cost. And then as you know, with any new product launch, the volumes are lower in the beginning and it takes some time to ramp up volumes. But the -- to -- looking at the outside of the product and the makeup of the product, it will be similar to DASH. As Bret said, DASH was our first step towards Omnipod 5. And so the appearance of the product will be similar, which you can translate to a lot of the componentry will be similar and should end us in a similar position. Having said that, we've got ways to go yet until we launch it. And depending on the price premium that Bret said, we think given the investment and the significant step-up in technology is merited. But the other side of the coin for us is we want to get this product to as many customers as possible as soon as possible, and that's on the other side of the coin. We've talked about the CGM technology that's really creating demand in the marketplace for AID solutions, integrated solutions. And so we want to make sure that we participate as soon as possible in that. And that all leads us to getting the product out at parity and getting into our customers' hands as quickly as possible. So those are the big drivers to where the gross margin ends up on this thing. But I think your starting point is correct. You can think about it as similar to DASH out of the gate once volumes are on a similar ground. And then it really just comes down to additional technology like the SIM card we put in it. And in the pay-as-you-go model, as Bret mentioned, we give the PDM away with no charge. So we're at risk for the period of time that patients are using the product until we can recover the cost of the PDM. As long as we're selling Omnipod 5 in that same pay-as-you-go model, the dynamics of when we get the ROI on that should be similar to DASH as well.

All right. Great. And then once 5 does launch, I thought one of the coolest things that Shacey talked about last quarter was the adaptability of the product. It can learn as the patient goes. We know there's been some rumor or some slip of the tongue from some people out there on that G7 is going to have an accelerometer built into it. And as we think about that, I could imagine some scenarios where around exercise, Omnipod 5 could use that accelerometer data and maybe change basal dosing levels, things like that. But just talk to me about some of the competitive advantages you think coming out with kind of a second or third generation, whatever you want to call, Omnipod 5. How do you think it's going to be competitively positioned just purely from a technology standpoint once it does launch?

Yes, sure. I can start with that, Jeff. We think the features that we already have planned and we'll launch with Omnipod 5 will be really competitive. And so you mentioned some of those, the adaptability of the algorithm, which enables it to sort of learn over time its patient's behavior, so that it can adjust the amount of insulin that is being delivered. There's a couple of other things I would point to. And you saw with our pre-pivotal data at ADA, timing range was strong. And there are a couple of things that we talked about. One was the multiple set points and the flexibility of moving between those multiple set points. So anywhere from 110 to 150, that's unique to Omnipod 5 that others won't have the ability to have that type of flexibility to move. The other thing is a feature we talked about called HYPOPROTECT, which you think about situations where you're in intense exercise or if you have a lot of stress or sending your child off to a sleepover or to camp, you might want to utilize this feature just to have extra assurance that you can avoid a hypo event. And so the data that we showed at ADA got a lot of buzz around -- [ its investments ] timing range was -- a lot of the buzz was around the lack of or very little hypo events associated with Omnipod. We think that's really important. It's the #1 fear for patients with diabetes. And for payers, it's a critical outcome that is short term, and they point to. And so we know timing range drives better outcomes and better savings for payers in the form of avoiding vision problems for patients, avoiding organ problems and those types of things that are long term and associated with being out of control over a long period of time. But payers will often talk about hospitalizations, those are mostly associated with hypo events. And they'll talk about those, because that's a real tangible short-term savings that a payer can get by avoiding those. Remember, payers keep their patients somewhere between 2 and 2.5 years before they migrate between payer plans. If you can avoid hospitalizations for payers and avoid hypo events, that's a tremendous story that we hope to be able to tell with Omnipod 5.

Yes. And maybe just in the last few minutes here, I want to switch over to type 2, obviously, another big opportunity that you've been unlocking with DASH. And I think with the penetration in type 2 probably, what, less than 5%, and insulin-dependent type 2s anyway, maybe 5% or so across the broader market. Where do you think penetration goes there? I think in type 1, 35% currently going to 50% or maybe somewhere north of 50% over the next 5 years, we all feel comfortable with from an AID perspective, helping drive that. But where in type 2 would you think now that we have pharmacy access and expanding access, this easy-to-use DASH product and what have you, where does that go?

I can -- Jeff, I'll talk a little bit about the problems we need to solve to drive that penetration. The biggest one was always cost and reimbursement, right? So in the U.S. at least, with the pharmacy channel, we've established access for type 2 patients in the exact same way the type 1 patients get access. So that was the biggest barrier to remove right away. But there are a number of other things that we need to overcome, including complexity. Type 2 patients value simplicity in a product. They value discretion in a product, ease of use in a product, even more than type 1 patients do. So as we make the Omnipod experience even more simple for type 2 patients, it will be better equipped to drive penetration into that market. The other thing is just thinking about awareness for type 2 patients. That's very low as well. And so some of them are with endocrinology, and that's where we are having success today is, if you're a type 2 patient, you're insulin-intensive. You're seeing an endocrinologist, where we have a call point. That's where we're driving that utilization today and having some success in the U.S. with that pharmacy channel. So we have to unlock some of these other challenges around complexity and awareness to drive penetration even further into that marketplace. But you're right, it's very low penetration and something that we're really excited about and often talk about.

Okay. And Wayde, maybe any -- in the last couple of minutes here, any update on the international markets? Obviously, they were behind the U.S. as far as bigger declines, makes sense in France and some of those markets that are more hospital-based. Have you seen any kind of incremental pickup there? Are they starting to recovery -- recover kind of at the pace and the surprisingly solid pace we might have seen in June and July for the U.S.? Are they just a few months behind? Or are there still some structural issues to recovery in the international markets?

Yes. Well, as you know, international is important part of our story, and we've made significant progress there over the last few years. And it was exciting to see the acceleration and then the pandemic hit here. And as you pointed out, it's been a bigger headwind than we've seen in the U.S. We're not going to provide an update from the Q2 call. It's only been a couple of weeks and a little too early to provide any kind of a material update. But we can pick up on a few things that we said in the call that I think are helpful. And we saw April as the low point. And then we did see progression through June and through July in the time of our earnings call. And then our guidance assumes improvement here for Q3 and then improvement again in Q4. So we do see this trend of improvement over time. Some color on the international market, it is incredibly different depending on the country that you're looking at. We have some countries where new patient starts are not happening. Basically, we're nowhere near normal. Our reps are having difficulty setting up appointments and getting into the hospitals to get the wheels of momentum turning again, and it's just taking a longer period of time. There's other countries in Europe that are doing really well. They look a lot like the U.S. and are finding ways to get patients in and have them adopt new technology. Even in our markets where we go through distribution, some of our distributor partners are doing a great job with virtual training and getting patients onboard even in this environment. So it's a broad spectrum outside the U.S. It's one of the reasons we have a range on our guidance like we do. I hope that we don't end up in Q3 looking at all like we did in Q2, where overall for the business, we were down 50% from our expectations. That's at the worst end of our 30% to 50% range. I think outside the U.S., in Q2, it was worse than 50%. We got less than half of the new patient starts we had expected. I'd like to see international business getting close to half and better here in Q3 and then progressing to that 25% off expectations in Q4. But having said that, all in, if you factor in our guidance to the second half and actuals for the first half, we're still going to see about 2/3 to 3/4 of the new patient starts we expected this year, and that will put us at a 20% growth rate for the year. So all in, I know we're fighting some headwinds with trying to get patients in and getting them on the technologies that they want and help them with their therapy, but we're doing a pretty good job of it here so far. I think if we continue to see improvement through the end of the year -- and we're never going to be normal again. I think we're all on this understanding that it will be a new normal when we get back to it. And adding virtual training is certainly a benefit for our patients. And so international will continue to improve, hopefully, through the end of this year and look at a new normal next year, Jeff.

Great. Well, I think that's a good place to leave it. I am going to ask one quick follow-up to that, Wayde. When you talk about the good guys in the international markets and then maybe the slower recovery elsewhere, if I think about a bell-shaped distribution curve, is it similar breakout between who the good guys and the bad guys are? Or is there a big bias one way or the other on which countries are recovering faster and which are slower?

I think it's a big bias, yes. Some countries are definitely more like the U.S. and recovering quicker. And there's other countries that are much slower. And I think it's a question mark where we'll be even by the end of the year. And we don't have clear line of sight to where they're at yet. But that's okay. I mean we understand the situation is different by country, and we'll be there for the customers when they're ready and when their endocrinologists, which are mostly hospital-based outside the U.S., will be there to meet them when they're ready to adopt their technology.

All right. Great. Well, that is very helpful, Bret and Wayde. Thank you very much, Deb. Good to talk to you today as well. Good luck on the rest of your meetings today. I appreciate the time as always. And I think we will end it there. So have a good day.

Great. Thank you, Jeff. Thank you, everybody.

Thanks, guys. Yes, take care.

Bye-bye.