Insulet Corporation (PODD) Earnings Call Transcript & Summary

Welcome, everyone. I'm Robbie Marcus, med-tech analyst at JPMorgan. I'm very happy to have Insulet for our next presentation. We're going to have CEO, Shacey Petrovic, lead the presentation and Q&A. Just some housekeeping reminders. Go ahead to the health care website, and you can follow along with the slide deck to Shacey's remarks. Also, you can e-mail a question to me, and I can ask it in Q&A,or submit a question on the conference website, and I'll do my best to ask in Q&A. So with that, Shacey, take it away.

Great. Thanks, Robbie. It's great to be here with you and to have the opportunity to share Insulet's great growth story with everyone. If we could open up the presentation? Great. So Insulet, for those of you that are not familiar, is a company centered on a simple but powerful mission to improve the lives of people living with diabetes. We are the manufacturer of the Omnipod, which is a disposable, wearable, waterproof pod that delivers 3 days of nonstop insulin. You can see Michelle and her daughter, Emma, here wearing the pod. They both live with Type 1 diabetes, and they both wear Omnipod. And I think it's hard not to smile when you see the freedom that our product brings customers of all ages living with Type 1 diabetes. We are laser-focused on helping people to spend less time managing their diabetes and more time doing the things that they love. And throughout the step, you'll see images of Omnipod users. Each one of them is an actual customer. And we're very fortunate to have this growing base of passionate users who want to share their pictures, want to share their stories. And we're very proud to showcase our Omnipod users and the incredible things they do, living life undefined and unhindered by diabetes. The next slide is our risk statement. So we'll move past that, but I'll be making forward-looking statements, and you could check our risks out on our SEC filings. Today, I will focus on the key drivers of Insulet's continued execution and how we're positioned for long-term sustainable growth. And there are 4 key takeaways. We are capturing a large underpenetrated and growing market. We are providing easy and affordable access to more customers across the globe. And we are breaking barriers with consumer-focused innovations, such as Omnipod DASH, which is our current generation and Omnipod IV launching this year, which I'll talk quite a bit about. And we are delivering and intend to continue to deliver strong revenue growth and expanding margins. And as you move to the next slide, you'll see in 2020, we had a remarkable year despite the pandemic and the challenging environment. In fact, we guided to Insulet's fifth consecutive year of 20-plus percent growth. We made significant advancement on Omnipod 5, our next-generation automated insulin delivery system. And with our current technology, Omnipod DASH, we saw a continued and strong adoption across people living with both type 1 and type 2 diabetes and continue to advance our very unique and differentiated business model, this pay-as-you-go business model, through the pharmacy channel. We also continue to invest for long-term success in terms of expanding our international footprint, our manufacturing operations. And what I might be most proud of is that we doubled our R&D headcount in 2020. So just a testament to this investment that we're making to bring innovation over the long-term and to the market to continue to deliver value to patients and continue to deliver growth. You'll see on the next slide, really, that behind these objectives and behind these numbers, we made great progress on our strategic imperatives. For the last 4, 5 years, we've been focused on these 4 imperatives. We want to ensure affordable broad access for users across the globe. We want to deliver on a robust innovation pipeline that is filled with consumer-friendly technologies like Omnipod 5 automated insulin delivery system. We will continue to grow our international footprint and, as a result, our addressable market. And we are driving operational excellence to ensure that we can get ahead of this scale and continue to produce high-volume, high-quality product to support this growth and expansion. And the team has just done a tremendous job executing certainly in 2020, but over the last several years on these strategic imperatives. And this progress, this consistent execution has laid a foundation for long-term sustainable growth at Insulet. So if we can dive into the growing market on the next slide. What you'll see here is just a very large, growing and underpenetrated market opportunity. Probably every one of us knows somebody living with diabetes. It is a global epidemic, and its incidence is increasing across almost every single country in the globe. Today, Omnipod is available just in a handful of markets. The United States, Canada, Israel and about a dozen countries in Europe. And in those markets alone, we believe, there are 10 million to 11 million people who require insulin on a daily basis and could benefit from Omnipod. And over the coming years, we will continue to penetrate into this market opportunity, and we will also grow our total addressable market over the coming years. There are many dynamics that are driving our growth. Some of them are investments that we are making. So pharmacy access, increased awareness, obviously, our innovation pipeline. And some of the growth drivers are market dynamics like CGM adoption and AID technology that are and will continue to help our adoption grow over the long term. We move to the next slide, please. So I think Omnipod's advantages are captured very nicely on this slide here. People who live with insulin-dependent diabetes essentially have 3 choices in terms of how they deliver their insulin. The vast majority, 95% of people across the globe who require insulin rely on multiple daily injections, which means that they inject themselves 4 to 5 times a day with a needle, either a syringe or a pen. For these people, Omnipod provides an incredible option that improves A1C and certainly improves quality of life and ease of use because 1 pod worn for 3 days replaces up to 14 daily injections. On the right-hand side, a much smaller portion of the market across the globe relies on conventional insulin pump therapy. And actually, this technology was introduced 40 years ago, but adoption, obviously, has been very limited. And the reasons for that are that it's a very complex system with a steep learning curve. It is not discrete because the system is a piece of capital equipment attached via 3 to 4 feet of tubing to your abdomen. And maybe, most importantly, it is an incredibly expensive technology that costs the payer or the patient about $5,000 upfront and then locks the patient into a 4-year contract. You could see Alicia in the center of the slide here. Alicia is an avid cook. And you can imagine compared to these other options, the freedom that Omnipod provides so she could do what she loves. If we move on to the next slide, please. So most of our users come from -- most of our new users come from multiple daily injections. This is the largest portion of the market. What we are doing is really growing the overall category as opposed to taking share from the smaller conventional insulin pump market. 80% of our new users previously were multiple daily injection users, and most of them would not have come to pump therapy if not for Omnipod. For all of the reasons that we talked about, it's discretion, it's simplicity and it's ease of use. We also have a very simple onboarding and training program because it is such a simple technology. And all of this, including improved outcomes, has led us to benefit from industry-leading retention and customer loyalty. And just as our technology is consumer friendly and is differentiated, you'll see on the next slide that our business model is consumer friendly and incredibly differentiated. About 2 years ago, with our current generation technology, Omnipod DASH, we launched what we refer to as the pay-as-you-go model in the pharmacy channel. As I mentioned, with conventional pump therapy, the user or the payer is required to pay thousands of dollars upfront and then is locked into 4 years of a contract. And we view this as the antithesis of simplicity and consumer friendliness. And so with Omnipod, we do not charge a large upfront fee, and we do not lock people into a 4-year contract. We rely on our industry-leading retention and loyalty to continue to build our customer base. And we also offer our products through the pharmacy, which is unique. And this is where consumers are going to get their insulin and their blood glucose supplies and their CGM supplies. And so it's a very convenient channel for the user, much easier to prescribe for the physician. And we are the only insulin pump to offer a free trial of our technology. All of this amounts to breaking down barriers for people who otherwise might not have benefited from insulin pump therapy, such as people living with type 2 diabetes or MDI users reluctant to take on complex technology. We launched this product with DASH, which you'll see on the next slide, is our current generation technology, Omnipod 5 -- or Omnipod DASH, rather. And this technology picture on the right of the slide here, very simple, very intuitive user interface. It's based on a locked-on mobile phone who has a similar simplicity of a smartphone. And it is a Bluetooth mobile technology that serves as the foundation for our next-generation technology, Omnipod 5. But this is very appealing. Its simplicity, ease of use is very appealing to people living with both type 1 and type 2 diabetes. Now today, the majority of our new users across the globe are starting on Omnipod DASH. And that includes people living with type 2 diabetes, which you'll see on the next slide, represented by John Hale or John H. here. John is a remarkable individual, a veteran, an avid golfer, Mowtown aficionado and a guitar player. And you can imagine those things might be challenging with a tube pump, for example. So like many people living with type 2 diabetes, he was diagnosed late in life, attracted to Omnipod's simplicity and to our business model. And it's not just patients but also clinicians who are seeing the value of Omnipod DASH in people living with type 2 diabetes. And you can see a quote at the bottom of this slide by a principal investigator for Omnipod 5 and also our type 2 Omnipod 5 feasibility study. And he just notes Omnipod's reduction of burden, its simplicity and also the fact that it reduces total daily dose of insulin, and all of this making it incredibly well suited for the type 2 population. So we've been seeing great expansion with Omnipod DASH. On the next slide, I will note that the weight is almost over for Omnipod 5. We are incredibly excited about this. It is great to be standing here saying that this technology is coming this year in the first half of this year. And Omnipod 5 is our automated insulin delivery system in partnership with Dexcom. You could see Max on the right side here. Max is our first preschool participant in the trial, and he's holding on to his Omnipod 5 system. Feedback from his family has just been terrific in terms of how the system is working for him. Omnipod 5 will deliver a number of firsts to market. We will be the first tubeless, entirely wearable, automated insulin delivery system with the algorithm on the pod. So there's no reason to disconnect from AID. We will be the first to provide customizable glucose targets down to 110 and up to 150. We have tremendous features in this system. One that is new that we haven't shared publicly before is our CGM value and trend bolus calculator. And what this means is the system will rely not just on the CGM value, which automatically imports into the bolus calculator, but also on the trend, whether or not your CGM is going up or going down. Typically, users have to do a lot of math on their own to account for that, and we do that for them. We also have a technology called HypoProtect, which has resulted in tremendous performance of the system in hypoglycemia, which is the #1 cause of diabetes distress and cost to the health care system in terms of hospitalizations associated with hypoglycemia. We will be the first to market with phone -- with smartphone control, full smartphone control. And this is the #1 requested feature by our users. So no longer will you need the PDM controller. You'll be able to control a pod from your Android smartphone. And for those of us who are attached to our iPhones and don't yet want to move to a Samsung phone, we will provide a backup PDM that has SIM technology in it to ensure everybody is constantly connected to their data, very important for patients, physicians and loved ones keeping an eye on their Omnipod users. And we remain committed to pharmacy access and pay-as-you-go with Omnipod 5. So just an incredible amount of technology that we have worked very hard to put into a simple user-friendly, elegant system. And I thought we would take a look at a video to sort of bring these features to life. [Presentation]

Great. Thank you. So we could not be more excited to bring this technology to market. And on the next slide, you'll see that our investigators and our trial participants are also incredibly excited about the technology. And people are highlighting here it's incredible ease of use. In fact, we have right now usability scores that are best-in-class. We have done a tremendous amount of design work to really, as Dr. Desalvo points out, make this about the patients and the caregivers and incredibly easy to use. And other people just point out that they are finally getting good night sleep and living healthier, happier lives. And so that is incredibly rewarding to hear and makes us very excited to get this technology to market. All of this is driven by the clinical performance of the system, which we'll see on the next slide here. What we're showing on this Slide 15 is the prepivotal data. And if our pivotal data is consistent with our prepivotal data, then we have a lot to be excited about. You can see 73% time-in range. That was a 15-point improvement from baseline. So 15 points is remarkable and certainly clinically significant, with virtually no hypoglycemia and no cases of severe hypoglycemia or DKA. So it's great to see the movement in time-in range and improved outcomes without compromising on hypoglycemia. The system was safe and effective across both adults and children down to age 6. Our -- or sorry, actually, all children. No serious adverse events. And because of its constant connectivity and the algorithm being on the pod, participants remained in closed loop for the vast majority of the study period. And breaking news, we will present our pivotal data at ENDO in just a few months in March here. So exciting clinical data. On the next slide, you'll see that we continue to invest clinically in Omnipod 5. We view this as a platform technology that has great value to provide multiple patients and new segments. So as I mentioned, we've completed our pivotal. As I mentioned, we have launched our preschooler pivotal to study kids aged 2 to 6 like Max. And we're also studying certain features of the system like HypoProtect to really be able to validate those clinically because we believe they helped to drive the impressive hypoglycemia performance. And then we're looking at the value of Omnipod 5 in new populations like people living with type 2 diabetes. And then finally, we're supporting an IIT looking at Omnipod 5 in the in-patient setting. So as we execute on this clinical pipeline, we expect to have label expansions and new product launches over the coming years. So very exciting there. And Omnipod 5 is just the beginning of the story. On the next slide, you'll see that we do have a very exciting pipeline ahead of us. Our mission is to reduce burden and to improve outcomes. And we have what we think is a very exciting innovation road map beyond Omnipod 5. We have focused on really 4 key values as it relates to our innovation programs: simplicity, outcomes, empowerment and choice. And simplicity obviously starts with our on-body pod and the automated needle insertion, but we are looking to drive simplicity through every aspect of how the user interfaces with the system. We certainly did that with Omnipod 5, and that was reflected in its best-in-class usability scores. But we want to do that in even more fashion for future generations of products. In terms of outcomes, we're continuing to deliver improved outcomes with automated insulin delivery with Omnipod, but our journey to provide improved outcomes is really just beginning. We're continuing to improve outcomes primarily by continuing to work to improve and advance the performance of the algorithm. On empowerment, we believe that it's very important for people living with diabetes to be empowered and to have control of this disease. And we think that a user's data can be incredibly empowering if it is analyzed and presented in the right way. And of course, now that we have connected devices and a connected world, data can empower people like never before. And that was one of the driving factors for us to get to the phone so that over time, we have more access to data to provide more empowerment for users. And then finally, we are very dedicated to user choice. With the launch of Omnipod 5, a user would be able to control their pod via a secure app on their Samsung smartphone. And we are committed to continuing to expand phone platforms, operating systems. And with this first-generation product, a user will be able to integrate with the Dexcom sensor. And we're committed to bringing new CGM platforms to work with Omnipod 5 and future generations as well. So with Omnipod, the users will have more choice than ever before. We have a very exciting innovation pipeline, and we're looking forward to sharing more details on that in the coming years. On the next slide, you'll see that we're working very hard to expand our global footprint and to bring these new exciting innovations to more people across the globe. In 2020, despite the pandemic and a challenging environment, we were very pleased to make good on our original expectations to expand into 5 new markets. And these are primarily ancillary markets in Europe and our first steps into the Middle East. There is a ton of work underway for larger markets like Asia Pacific and Latin America. And in 2021, this year, we expect to continue our expansion efforts. In the early part of this year, we will move into Turkey. And later on this year, we will move into Australia, 2 really exciting markets that add about 1 million patients to our addressable market. And we are seeing great adoption with Omnipod DASH across our international markets. The vast majority of our new users are now starting on DASH. And next week, DASH launches in Canada. And then all of our new users internationally will start on DASH. So very exciting progress there. And this will become a great growth driver. It is a growth driver for us. It will continue to be a great growth driver as we penetrate these existing markets and grow our addressable market over time. To support all of this growth and expansion, on the next slide, you'll see that we have made significant investments in our operations and supply chain excellence. We can move forward to the next slide. There we go. Okay. So we have been investing significantly here. We see this as a competitive strategic advantage and essentially a competitive moat, because as we get more capable in manufacturing, we're able to expand margin, expand capacity. And those are very important to us. If you think about what we do every day, every year, we manufacture tens of millions of pods a year. And each pod has 72 components. So we manage billions of components in our supply chain. We're growing 20% a year. That means our business is doubling every 3.5 to 4 years. So this is an incredible undertaking from a manufacturing standpoint. A few years ago, actually about 3 years ago now, we invested in highly automated U.S. manufacturing. And you can see an image of that here on the right. This is at our Acton facility, which is in my virtual background. But you can see just an incredible operation here that enables us to deliver high-quality, high-volume pods with very little labor and rely on very sophisticated automation. And this, along with continued expansion and performance improvement in our operations in China, has enabled us to expand margins, which we believe is very important because it allows us to plow investment back into innovation and other growth opportunities across the company. On the next slide, you'll see our financial performance and our targets for 2021. Just a terrific expansion across revenue, gross margin and operating margin. We are on track to meet our long-term targets that were communicated approximately 4 or 5 years ago now of $1 billion in revenue this year in 2021. We expect 67% to 70% gross margins, which will be industry-leading in our market. And obviously, terrific expansion there. On the operating margin target here, we are adjusting our target in 2021 slightly. We had previously communicated an expectation of mid- double-digit operating margin. Now we expect low double-digit operating margin in 2021. And that is simply because we have so many exciting investment opportunities before us, and we want to make those investments to drive continued growth. But great expansion across each of these areas. And I think a reflection, ultimately, of this large underpenetrated market, how differentiated our technology and business model are and the team's terrific execution. So in summary, on the next slide, I'll just note that we will continue to execute in these areas that we've talked about here, capturing our large and underpenetrated market opportunity, providing easy, affordable access to users and breaking barriers with consumer-focused innovation and continuing to deliver strong revenue growth and expanding our margins. And all of that, we're doing in order to ensure that we can make good on our mission for a long time to come for people like Martha, one of our European podders, and others like her across the globe. So thank you very much.

Okay. Well, great, Shacey. A couple of questions have come in, but I want to start off here with Omnipod 5. This is clearly the big thing to talk about in not just 2021 but beyond. It puts you at the forefront of technology by integrating a leading CGM platform along with your highly differentiated pump. So maybe we could just start out, and we hear from everyone else that as soon as you submit a filing in diabetes right now, the department is so focused on COVID that, right off the bat, a 90-day delay. The difference is you have a breakthrough designation. So maybe you could just, for the record, update everyone on your thoughts on timing for Omnipod 5 and when it was submitted, if it has been, and when we should see approval?

Yes. So you're right, Robbie. There have been delays communicated to 510-ks in diabetes and potentially other areas at the agency. As you know, we benefit from the Breakthrough Devices program. And what that means is that over the last few years, the FDA has been engaged in a very collaborative review of our submission modules, leading up to the formal submission. And so we remain very confident in our ability to launch in the first half of this year. The responsiveness and collaboration with the agency has not diminished as they have become more engaged and in work around COVID. And so we remain confident. And we have been communicated by the agency that Breakthrough Devices have priority. And so we're feeling pretty good about the target that we laid out to launch in the first half of this year.

That's refreshing. And it looks like we're going to see the pivotal data in the next few months here. I know you're not probably going to give us targets of what it looks like. But is it fair to say that a lot of patients are not time in range and so don't think of it as one competitor, 70, 71, 176. Think of it as anything that gets a patient in the ballpark of 70% or so is viewed by endocrinologists as just a home run for patients. Is that the right way to think about it?

I think that's right. I would say a few things. One, I'd look at the point improvement, which is why I mentioned that Omnipod 5 delivered an average of 15-point improvement from the baseline. That is significant movement. The average person living with diabetes is spending 40% to 50%, maybe 60% time-in range. So to see that movement is clinically very significant. And the other thing I would point out is just how important the usability of these systems are. Because in a clinical trial, we will see a certain type of performance. But the truth, and we saw this with previous generations of technologies, the truth will -- in terms of how these will work for patients and how retention will look will really come down to how usable this system is. And that's the other reason why we highlight all the work that went into making Omnipod as simple as possible. And the usability scores that we saw at ADA approaching 90%, just a remarkable usability and a testament to what we think is going to be a system that performs on a time-in range standpoint but is, maybe more importantly, embraced, trusted and used consistently by our customers.

Great. A couple of questions have come in. How do we think about the pricing strategy for Omnipod 5? I know you've been going back and forth on that. And a lot of us use iPhones. I imagine a lot of type 1 and type 2 diabetics use iPhones and non-Samsung phones. So when should we think about the timing for an upgrade to that platform?

Yes. Great. So we will communicate kind of the final decision and plan around the commercial model on the upcoming earnings call as we lay out our plans for 2021 for the full year. And as it relates to iOS, we have that work underway. We've had it underway for a number of months now. It is an undertaking. The operating system operates fairly differently than Android. And DASH was already an Android platform, which is why we started with Android. But we are underway with the work and expect to follow as quickly as we can. We have not communicated a time line on that yet. But I will say that the experience for an iPhone user is going to be a great experience because you really only need the PDM when you are bolusing or when you are timing a pod. And otherwise, you will have your data visible on your iPhone, and you will be connected to the system regardless of whether you have your PDM with you. And then the addition of SIM technology in the PDM means that even without the mobile app on your smartphone, you will always have access to your data. And this has been -- this is a big differentiator from other systems out there. You can imagine for kids, for loved ones, just always knowing and always being connected to how they're doing. That's an important feature.

And the pricing strategy?

Yes. We'll communicate that on our next earnings call as we lay out the plan for 2021.

Great. Jumping around a little bit, you put the 2021 guidance targets in the presentation. I've had a couple investors ask, does this mean by you including it, you're reiterating these targets here? Or I see a footnote is just as the third quarter. I'm just trying to gauge which one it is or both potentially.

Yes. So we're confident in achieving those long-term targets that we laid out a number of years ago now, which is what I was communicating. We will communicate our 2021 guidance specifically on the next earnings call.

And clearly, I haven't seen any fourth quarter preannounced numbers, but are you able to provide any comments about how new patient training, when or any unexpected issues that came up during the fourth quarter?

I would just say that what we communicated in the third quarter is that we saw continued improvement from -- throughout the year as it relates to the impact of the pandemic, and we continue to see a new patient adoption in our virtual tools and all of the support and strategies that the team laid out in -- towards the beginning of the year with the -- in response to the pandemic that those continue to be well embraced and utilized. And we're feeling good about our momentum heading into 2021.

Great. Another question that came in, just a follow-up on the Omnipod 5 strategy at launch. Is this just going to be a software upgrade for DASH users when it's approved? Can you just flip a switch and have everybody move from DASH to Omnipod 5? Or is there something in the hardware that needs to be changed out here?

Yes. We will provide new PDMs for users, and there's a few reasons for that. One is we are requiring users to register in order to have access to Omnipod 5. This gives us better visibility to the data and the ability to provide better support for our users. But remember, we don't charge for the PDM. And we are committed to this pay-as-you-go model and not charging upfront to be able to continue to knock down barriers and get more people access to our technology. So even if we do provide a new PDM, users will not have to pay for it.

Does that mean we should see an associated slight bump at a minimum on the cost of the pod to make up for the new PDM charge?

Potentially, but I don't believe that, that will be material. It certainly will not be material in 2021 because we'll move into a limited market release and then see expansion over the second half of the year.

Great. We have 2 minutes left, Shacey. I want to leave you with one last question. And you do a phenomenal job getting your new patients from multiple daily injection users. It's about 80%. Taking Omnipod plus an algorithm plus G6, I feel like, in my head, that could be the winning answer here. So do you think over time you could win over a lot more of your competitor pump users and not just MDI patients with the Omnipod 5 offering?

I do think the system is incredibly differentiated. And when all of our market research indicates when somebody chooses an alternative insulin pump, a tubed insulin pump, they're not typically -- especially if they're coming from MDI, they're not doing that because they like the tubes. They're doing that because of CGM integration or automated insulin delivery capabilities. And so with Omnipod 5, we will check all those boxes and many more. So to me, it'll be really exciting to see what happens in terms of our -- just natural taking of share in the marketplace. But we remain -- as I said, our kind of core innovation value is simplicity. We believe, in the long run, that is going to win. It's the larger market opportunity in order to really see the potential unlock. We need to be able to design and bring technologies to more people, not just trade share among tube pumps. So yes, I think we may get more share because the system will be the most differentiated and most exciting system on the market. But our long-term gain is to really unlock the multiple daily injection population. It's simple, easy to use, easy to adopt, broadly accessible technologies.

Well, great. Unfortunately, we're out of time. I have a lot more questions for you, but we're going to have to leave it there. Shacey, thank you so much for joining and everybody for tuning in. Have a great day.

Thanks, Robbie. It was a pleasure.