Insulet Corporation (PODD) Earnings Call Transcript & Summary

So that makes total sense. So Shacey, and you can just feel like because we have an awesome product, Matt, I'm fine if that's the answer. I've been stunned by the low churn rate. through the pharmacy so far. Why is it so low?

Well, this is an area where we predicted actually that attrition might tick up because we have essentially removed all barriers through adoption of the product and to getting off and on the product, right. There's no longer any upfront cost associated with that. We don't lock people into a 4-year contract. We did that, we removed those barriers because we wanted to expand adoption of Omnipod throughout these populations, particularly in MDI. It is an awesome product, and we always knew that. And in fact in our business model for years, even though we were working through the DME model where there was this upfront fee and then on -- we actually didn't spend a lot of time and resources unlike the other traditional 2 pump companies at that 4-year mark going after patients and getting them to buy another PBM and renew their contracts. We didn't do that and yet we had the best retention in the business. So it was a very calculated risk. When we moved into pharmacy, we removed the barriers, we removed the upfront costs in that lock-in period. But we already knew that we had best-in-class retention and that we had a product that was very sticky among our patient population. We still expected attrition might tick up, and it's, frankly, very exciting to see that it hasn't. I think it just speaks to the power of the technology and the preferred form factor and kind of the whole preferred customer experience through the pharmacy channel. Now patients can get their technology that's fantastic, and they can get it at a very predictable out-of-pocket cost without this need for this large upfront fee. And I always point out that the barriers to get on to the other products still exist, right. They still have to go pay thousands of dollars upfront to go adopt some other technology. So all of those things work in our favor. It's been terrific. It's been terrific to see that now both clinicians and patients can think about the therapy for patients that they might not otherwise have done that because they were worried about their compliance or worried about how well suited, they needed the technology. Now just try it, right. There's no harm in just trying the technology and seeing if it works for you. And clearly, based on the retention data, it's working for people.

Okay. Got it. That's great to hear. I mean is it a function of ease of use, time and range? And then I'm just curious if -- time and range, I mean, when we get to Omnipod 5 and that integration, it's going to be even better, I would imagine. And so I don't want to say -- you're already best-in-class as far as churn goes, but just in terms of adoption and then any churn that you do see, I mean, could it even tick lower from here?

Yes. I think it's a really interesting question around attrition and retention and the impact that Omnipod 5 has. When you think about how we have been competing as a company, we've been growing 20%, 30% a year, based essentially on our form factor, and that's how powerful the form factor is. The form factor enables people to get great outcomes because they wear the system constantly. They don't have to disconnect and that experience all of the challenges associated with disconnection. And great quality of life and great reasonable out-of-pocket costs. All of those things are what we know our barriers typically to adoption of pump therapy, and we've removed those with our current system. I think what you are speaking to about Omnipod 5 is why we get so excited when we think about the next few years because Omnipod 5 has the potential to take that form factor that has been competing so well and add to it what we know is the #1 reason why a patient might not choose Omnipod, right. It's not because they're choosing a pump with tubes, it's because they're choosing a pump with CGM integration and automated insulin dosing. And so once we add that, we know significantly differentiated form factor along with integration and automation, really exciting product offering in the field. And I think certainly, we expect it to have an acceleration impact on new patient starts. I think it will be interesting to see what happens with retention, to your point.

Understood. Okay. That's interesting. And you mentioned the form factor, Shacey. I'm going off script here a little bit, forgive me for that. But there was some news out from Lilly and Ipsen yesterday or the day before, that they're going to move ahead with a traditional pump, but they're scrapping -- they're scrapping their patch pump MOVE. I know Medtronic has talked a little bit about trying to get into the space. They've talked about it for years now and they've tried in the past. So I think that's something that -- it'd be helpful just to get a little bit more color around as far as the form factor and how unique, and more importantly, how difficult it is to introduce a product into this area and then scale it, et cetera, as we kind of hear some of this different rhetoric from various providers that are considering it.

Yes. Yes. I mean I think to me, the fact that companies like Medtronic and Lilly want to get in with a patch pump are really illustrate of how powerful the form factor is. And how -- what a great business we've built, frankly. We always fully expect that there might be a second comer because we've built this really attractive differentiated market space. I think though there are tremendous competitive moats to being able to do this well. And it's not a surprise to me that companies might get a couple of years in in terms of investment and research and development and then decide that the hurdles may be too big. You think about what we've invested in terms of innovation, we're a decade ahead on IP, know-how on trade secrets, what it takes to scale. I think the last number I mentioned maybe a year ago is that we were manufacturing 30 million pods a year. To do that well at scale, there's 72 components in each pod. That's 4 billion components we're managing on a yearly basis. Think about the supply chain and then think about replicating that supply chain in the U.S., in Asia, maybe in other parts of the world, that is a massive moat. And one that, frankly, we're really proud of. And I fully expect we have to behave as if somebody will enter this market. We're not going to rest on our laurels. We'll continue to innovate on this platform. But I think it's just a sign of how attractive the differentiated space that we've carved out in this marketplace is. The optimism regarding what this form factor can do and what this channel and this business model can do in the marketplace. But not a surprise that -- I always say it's not for the faint of hearts, because it's a significant moat that we've built around the business.

Got it. Okay. That's really helpful. So I have questions about Q4 guidance and all this other stuff. I don't think that's nearly as important as Omnipod 5 and Horizon as we look into next year. So I'm going to spend the last few minutes there. You've talked about this idea of a limited market release for the 5, given how high profile that product is. What are you really looking forward to in terms of, okay, we're comfortable with where this thing sits and then moving into a full commercial launch? Is it access, manufacturing, feedback, anything there would be really helpful. And then how do we think about the level of push that you're going to be putting behind that? I don't know if it's going to be 6 months later, it's going to be 9 or 12 months later. How do we think about that launch as when it comes out?

Sure. Yes. So I think you've articulated it very well in terms of what we would look for in a limited market release. We'll be looking as we did with DASH for market access milestones. So kind of the wholesaler distribution, which we have established with DASH already, but contracted and access through the pharmacy channel. We'll be looking at testing a lot of our virtual training tools and new onboarding tools. And we will be looking at feedback on how the product is working. This product is integrated with Dexcom's sensor. So there is some collaboration there on patient support. We'll be looking to test those systems to make sure that they're working. And really just general feedback. We know this is an incredibly highly visible and anticipated launch in the market. And so we want to get it right before we expand dramatically, and we're going to take the time to do that. Everybody asks me, well, how long is a limited market release, and we really can't answer that question. It depends entirely on the feedback that we get through the market release. And the same thing happened with DASH, we were testing integration with IT systems with pharmacies, the ability to ping benefits in pharmacies. Those are the types of systems that we want to make sure are all in place and working well before we expand broadly in the market. But this will be a game changer product. We don't want to shortchange the launch. And in terms of investment, that you've seen some of the investment we talked about on the last earnings call, we're investing ahead in manufacturing. We're investing to really understand and be able to influence awareness. And we're investing significantly in terms of commercial support for this product. I think Wayde alluded to on the last call, increase in sales and marketing investment, increase in clinical investment. We do view Omnipod 5 as a platform technology. And so there's a lot more to do in terms of expanding its application and value in other areas like pediatrics like Type 2. So there's a lot of investment going on, a lot of excitement around this platform and where it will take us over the coming years.

Got it. Okay. I know it's definitely exciting. Just a few minutes left here. And forgive me Wayde, I've been asking Shacey a ton of questions, and I'm probably going to stay there for a second for the last few minutes. But what we're trying to get our arms around is you've done a great job with Omnipod in terms of the MDI patient population. Do you think that the 5 is going to be just more evidence of how great this technology is and convert more MDI patients over? Or do you think it can be a product where you're more aggressively able to capture competitive pump share away from the traditional pumps?

Yes. I think those are true. I think certainly, the system we've design we designed to be the easiest-to-use system on the market. We know that one of the hurdles to adoption for pump therapy and as these systems get more complex, we want to give the user more, but ask less of them, and not all systems have made good on that progress. And there have been systems launched with a lot of complexity and that has hindered adoption. So we set out with Omnipod 5 to make the simplest system on the market. And I think we have succeeded on that front. The data is extraordinary. The usability scores at ADA rivaled the usability scores of the iPhone. It's a very simple intuitive system, very much designed to grow the market and to bring more multiple daily injection users on to these systems. That said, it's also demonstrated in pre-pivotal data incredibly competitive clinical data in terms of time and range, best-in-class hypoglycemia. Best-in-class time in loop, so I think it's going to be very competitive in the marketplace with these other systems. And we know from the market research data that Omnipod is a preferred form factor and that when people choose a tube pump, it's typically because of either inertia or because of CGM integration and automated insulin delivery. So once we check those boxes, I think we're going to have a very exciting, very competitive technology on the market.

Got it. Got it. Okay. And just real quick last question and probably for Wayde. You know, Wayde, I don't watch a lot of TV. I have been seeing some Insulet commercials hitting. How do we think about – having seen some of those commercials, how do we think about DTC with Omnipod 5? And how aggressive are you going to be there? And more importantly, how expensive is it going to be to implement something like that.

Yes. Well, we're very excited about the DTC program. We've seen others in the space take advantage of it and have talked publicly about the success they've had. Having said that, it's still very early days for us. We're just doing a pilot here in Q4. We're testing different markets. It sounds like we must be testing some of the markets you're in, Matt. And we're testing different messaging and looking at different metrics. And so we're going to be monitoring these pilots over the next few months. And really, we're just building our knowledge base for when we eventually get to Omnipod 5 and create another lever for us to continue to drive demand over time. This has been a lever that we've known about for years, for a long time. It's been a long-awaited program. Bret and the commercial team have spent a lot of time developing capabilities and building up the team and they've been doing a lot of work to eventually get to this point. So we're very happy to get to this milestone where we've launched our pilots in DTC. But we're going to learn a lot. Specific metrics we're looking at is the pull-through. Do we pull patients through who are interested in the product like we do in our typical channels or normal channels? And then after they're on the product, are they typical attrition patterns, retention patterns or something different. So we're doing a lot of monitoring, a lot of testing and learning, and we do think that DTC will be a lever for us over time.

Got it. Got it. Okay. Well, I think I've asked about 1/4 of the questions that I had for you, and I could go all day, but taken enough of your time. So I'm going to go ahead and cut it off there. Shacey and Wayde, thank you so much for all the feedback. I really do appreciate it.

Thanks, Matt. It was a pleasure.

Thank you.

Thanks, Matt. Bye-bye.