Insulet Corporation (PODD) Earnings Call Transcript & Summary

Well good morning everyone and welcome to the Morgan Stanley Healthcare Conference. As we progress through the morning, I am coming to you live from San Francisco. I love saying that. I'm probably going to say it several times during the next several days. But thank you all for joining us. It's a pleasure to be moved to the morning to have with us here another medical device company, Insulet. As many or a couple of you know, we have multiple members from management with us from the company, including Shacey Petrovic, their CEO; Wayde McMillan, their CFO; as well as Bret Christensen, their EVP and COO. You didn't know this, but Shacey has promised exciting updates throughout this presentation. We're super excited to hear some of these updates, and we'll get to it in a second. As you've heard me say, please look at the Morgan Stanley website under Research Disclosures to see interesting funs and facts about myself. With that, Shacey, the floor is yours. I'll turn it over to you for a brief preamble and then we'll get into it.

Great. It's so good to be with you today, David. As you noted, the momentum behind our business and our team and some of the progress that we've been making on our strategic imperatives has remained strong at Insulet, even in the face of our current environment. And so today, I know you and so I know that we will hit all of these areas, but we do have great updates across clinical, across our international expansion objectives, even across manufacturing and commercial. And so I'm thrilled to be able to talk about those areas and some of the great things happening here today and great to be with you.

Great. So let's start with the more mundane. Maybe you can let Wayde speak a little bit as we try to keep him cozy as much as possible. Let's talk about the COVID recoveries where we're starting most of our companies this conference. So how are you -- the relative guy, how are you tracking relative to that sort of 30% update you provided last quarter for sort of the third quarter? You gave very specific guidance for the third and the fourth quarter, both U.S. and international. I just want to get an update on sort of how we're tracking relative to those expectations.

Yes. Dave, I can start with that. Wayde, you could chime in if you want to add something here. But we -- we guided to -- well, first of all, we had a strong guide for the year, and we didn't say what our new patient start guide was for the year. But when COVID hit, we anticipated a slowdown in new starts. In our earnings call, we talked about a reduction from what we thought at the beginning of the year of about 30% to 50% in Q3 and then improving to about 25% below our initial projections in Q4. We are seeing some really encouraging signs across both the U.S. and the international markets. We're tracking really closely the interactions that physicians are having with patients. We noticed still that many of those are telehealth, so about 30% or so are still via telehealth. And all that means is that the world is not normal for us. So there's still some hesitation from physicians to change therapy. And as you know, David, about 80% of our new starts come from MDI. That's a jump in change of therapy from MDI that physicians -- some physicians still might be hesitant to take on during this time. But we are encouraged by the trends, and we do see it improving throughout the year.

Yes. And I can help tie that up. Bret and his team are closest to the customers and the physicians, and so it's good insight, Bret. David, if you take a step back, look at the full year, given the guidance that we've provided, it would put us at about 65% to 70%, 75% of our new patient starts for the full year. And that will still be about 20% growth for the year. And so we're not going to get all the new patient starts that we had planned. We're certainly facing a headwind here. And as Bret said, maybe taking down a more micro level, April was the low for us. We saw improvements through June and July in our call and early August. And it's only been a few weeks, so we're not going to provide an update from there. But our guidance shows a continual improvement, 30% to 50% in Q3. And what we talked about is the only way it looks like 50% in Q3 is if it looks like Q2, we're ahead of global lockdown. And of course, we didn't know when we set the guidance what Q3 was going to look like. We sit here in better shape today. And then Q4, continued gradual improvement, as Bret said, to 25%. And I'll just close by saying, we don't know where the pandemic is going. We do see fits and starts across the globe in different countries. Even in the U.S., we see some states opening and then some more challenged. And so at the end of the day, we put these stakes in the ground so that everyone can understand our business model and that we have something to speak to when the actual results come in. That worked well for us in Q2. We came in right at the low end of our global range. Hopefully, Q3 continues, and we can do the same in the Q3. And as Bret said, however, there are still headwinds. Based on the dynamics in the field, we don't think that we're back to normal until we get beyond 2020.

Okay. So you've seen steady month-over-month improvement it sounds like. We're not back to normal, but the improvement trend has continued here into July and August.

Yes. Through our call, we're not going to provide any updates from first week of August yet because it's only been a few weeks from then, and it's too dynamic to tell. As I mentioned, even in a particular state in the U.S. where we see improvements and our reps are getting access back to physicians and things are starting to look like more normal, then a clinical step-back. Actually, it will be harder for our reps to get there. And as Bret said, the key here is a lot of telehealth happening. Best estimate, around 1/3 of customers are interacting in telehealth basis with their physicians. And the challenge there is less likely to prescribe new technology or change therapy via telehealth. And so that for us is the strongest headwind in the U.S., and it fits and starts across the U.S. Internationally, it is very much a dynamic country by country. We talked on our last quarter call about some countries are almost at no new patient starts still, that they're just not adopting new technology in the clinics, in the hospitals. Other countries are doing great. Even through some of our distributor countries, some of our distributors are doing a great job with virtual training, and it's getting closer to normal. It looks a lot like the U.S. at faster recovery but a very much deeper spectrum outside the U.S. and in our international markets as far as the recovery goes. So this is the biggest dynamic for us. As new patient starts, we'll continue to track it. We like the stakes in the ground that we put out there. I think it gives us some room in Q3 and Q4, but we'll see. It all depends on the resurgence.

Okay. And just last question on recovery, then I'll move on to the fancy stuff. My sense was off the second quarter, the U.S. was probably tracking slightly better than expectations and maybe ex U.S. was tracking slightly below expectations. I guess 2 questions is, is that sort of still the case today? And is there anything structural that you're seeing, ex U.S.? You're not the only diabetes company that struggled, ex U.S., in the second quarter. Is there anything structurally, ex U.S., that would suggest to investors that we don't really start to see more significant recovery here as we get into '21?

Yes. I'll touch up the guidance then I'll hand it over to Bret on the structural input. So actually, we performed better in both regions in Q2. We had a range of 50% to 75% reduction of our expected new patient starts. We came in globally right at the low end of 50%. The U.S. was slightly better than that, so slightly less than 50%. And international was just above 50%. So the net of the combined global was at 50%. And we had thought that international was actually going to be worse than that, closer to 75% when we set the guidance. So having them both come in on a combined basis at 50%, U.S., a little less; international, a little more, both were ahead of expectations for Q2.

And then the only thing I'll add to that, David, as you know, and we've said this, but outside the U.S., many new starts happen in the hospital setting. So of course, the impact to COVID has been more of a distraction outside of the U.S. And then Q3 is seasonally our lowest quarter, outside the U.S. is with holidays and things like that going on so this might be a tough quarter to really understand the trends, but again, we do have some encouraging signs in many of our countries, but it's just hit and miss depending on which country we're talking about.

Okay. All right. Well let's transition out of COVID here for a little bit here. It's not the only thing we should be focused on. If you see, there's 2 big dynamics going on in the business we're now from a shift perspective, the shift to pharmacy, and obviously, the shift to type 2, and I'm going to talk about both a little bit here. So the pharmacy shift was sort of 30% here in the early part of this year. I'm sort of curious where you think that number is going and how should we think about Omnipod 5 next year in terms of where it's going to be offered. Is it exclusively going to be offered in the pharmacies so you get a pharmacy plus DME? Let's start there.

Yes. Sure. So I'll start a little bit in terms of where this is going and then, obviously, Bret leads the teams for pharmacy. And I think I would point to our new patient starts in terms of where a pharmacy can head. So what we said is it just takes some time for the entire base to transition over. We need to establish access for all of them. And they have to be motivated eventually to change channel if they're currently getting served in the DME channel. But if we look at new patient starts, what we've said is about 60% of new patient starts are starting on DASH, the vast majority of them in the pharmacy channel. So I think that's a good indication of where this can go and also a good reflection of where we've established access. So we now have access established for approximately 60%, 65% of covered lives for DASH, most of that in the pharmacy channel. We see pharmacy as a significant competitive advantage. It offers our pay-as-you-go business model, it offers better out-of-pocket cost for the customer and a better customer experience. And so we're certainly motivated to help drive more volume into the pharmacy channel. And I think Omnipod 5 will be instrumental in helping us make that happen. Right now, for people to be motivated for DASH, it's somewhat of an incremental advantage relative to our legacy Omnipod product. But we know that Omnipod 5, the anticipated demand is such that there's going to be incredible motivation across our current users and new users. And so we do see Omnipod 5 as an opportunity to drive more volume through the pharmacy channel. And Bret, I'm sure you have some color to add there.

Yes. I mean there's just so much to talk about with the pharmacy channel, David. There's so much that we love about it. All those things Shacey mentioned, the patient experience, the physician experience, but we've often talked about the scale that we gain from the pharmacy channel. And so if you think about how easy it might be for a physician to send an e-prescription to a pharmacy and a patient to pick that order up, for us to potentially virtually train that patient, all of that provides tremendous scale, which will be key to our growth. There's also some really unique things about the pharmacy in the way of marketing them. And one of those, we're in the process now of running 2 different campaigns with some large national pharmacies, something like bag tags, which is something that the DME world is not familiar with, an opportunity that we never had in DME. But when a patient shows up to pick up their insulin at a pharmacy, the white bag that they get will now have like an Omnipod app for some of those patients that would encourage them to go to our site to try a free trial of the product. So all that is an opportunity that we just didn't have in the DME world. That scale is going to enable us to promote things much more heavily. So we talked a lot about awareness and how we've just got to generate a tremendous amount of awareness in this under-penetrated industry. We're in the process now. We haven't talked about this, but we are going to run a test that starts actually today, a broad national campaign for direct-to-consumer marketing. Even today, you might see a commercial on TV for Omnipod. So something the team has been working on for a long time. We know that awareness is the next box that we need to check, so we're really excited to finally be on TV and be running commercials. But it is a small test. And so for the next several weeks or so, we'll be running some ads on national cable and try to just understand the benefit of that campaign for a company like ours to inform what we'll do in the future.

Okay. So you're going to target specific regions if you see stimulation in local [ health care ] clinics, you may look to make this a broader national campaign with more covered lives targeted?

Yes. It's actually a national campaign now, David, but a really small. So channels like CNN, A&E, VH1, FOX News, those will all be having Omnipod commercials over the next several weeks in some limited number. And we'll track our website traffic. We'll track new starts in those areas and just understand what that investment means to us. But it has been something we wanted to do for a long time. We've often talked about awareness. We've scaled our digital marketing quite a bit, and this is really taking the next step to find out what it means for us.

So it's an attractive time to do that, obviously, heading down with Omnipod 5 next year. So kind of a couple kind of MDI questions around that. One, DASH came with a premium, Shacey. Is Omnipod 5 going to come at the similar DASH pricing? Or given the feature set, could come at a more enhanced pricing? And second question, just as you think about the MDI market, it was Medtronic's recent acquisition of Companion, people hear the InPen market getting a large backer, also, that's a competition for MDI. How does InPen change your views about your ability to kind of grow this MDI market?

Sure. So the first question was -- sorry.

Sorry. I meant -- so just think about Omnipod. Omnipod 5 pricing is our vast premium, are we getting this further premium on Omnipod 5? Sorry. It's my fault for asking 2 questions.

Okay. I got them both. Okay. So in terms of pricing, and I think what you're highlighting is the tension, our -- we know that the product performs such that it should command a premium. The data so far in prepivotals has been pretty terrific in terms of providing better outcomes, improved time and range, lower hypoglycemia, which is a pretty significant advantage because it drives -- it's one of the main causes of hospitalizations. And so payers obviously are very focused on reduction of hypoglycemia. So we do believe that the product commands a premium. It just takes time to then renegotiate contracts and get established broadly across all of the payers that we want to get established across. And so that then would temper adoption and available access for patients. So we are doing all of that modeling and looking at different premiums, different uptake rates, different rates of establishing access versus the value of the premium in order to determine the right strategy. And ultimately, we haven't landed that plane yet, but I think these are champagne problems to use my work because we're really -- we're balancing very broad uptake versus the potential for premium. Either way, we are committed to pay-as-you-go and the pharmacy model, which means that we will be looking at pricing similar to or better than DASH in terms of having moved the premium into the pod and out of the piece of capital equipment, the handheld. And that's obviously particularly important for Omnipod 5 because we're launching with phone control, and there will be people who don't use the handheld device. So TBD on pricing, but either way, we will look at, at or favorable to DASH. And then the second question was on Companion and smart pens. So we've had smart pens in the market for a little while now. I think there's 2 prevailing lines of thought. One is they could potentially delay a pump or pod adoption because you may see some incremental improvement there. Or they could drive more pump or pod adoption. And I think we sort of lean in that direction based on what we've seen so far. I view it very much as sort of a rising tide for all patients. If you fast-forward -- if you look back a couple of years, you're comparing pens and pumps or pods, you look forward and you're going to be comparing smart pens versus AID systems. And that's a good thing. Both should improve outcomes or improve ease of use. But the really critical trend that we see that drives Omnipod adoption is the adoption of CGM therapy. And when patients get comfortable wearing a wearable, get comfortable getting that data, seeing that they're out of control, they look for tools to provide them better control. And there's just nothing that would lead us to believe that smart pens are going to provide the type of control that Omnipod today or certainly Omnipod 5 next year will provide. And so we feel very confident that if this trend drives more CGM utilization, that's a very good thing for us in the long run. And then ultimately, it's likely to cannibalize on MDI therapy, but there are millions of people who can benefit from these technologies and plenty of value that we can add and growth to be had there.

Okay. So a step to partial control and it's going to lead to more people wanting full control, which makes a lot of sense.

That's a great way to phrase it. Yes.