Insulet Corporation (PODD) Earnings Call Transcript & Summary

Well, everybody, welcome back to day 2 of the Citi Healthcare Conference. Virtually, it's great to see you all again. And this morning, we're going to start off with Insulet, and very pleased to have Wayde McMillan and Bret Christensen with us this morning. Wayde and Bret, good morning.

Morning, Joanne.

Morning.

One of the things, when we started to write these questions together, as we thought about our time together this morning, was to think about -- Wayde, I know you were only at Insulet relatively recently, maybe just a couple of years, and yet so much has happened in the last few years. Could you take a little bit of time just to reflect back on what you saw when you first joined and what you've seen that's been accomplished?

It's interesting, Joanne. Yes, it has actually just been 2 years this month, and it has gone by very fast. One thing I think about a lot is just the uniqueness of this market. If you contrast it to a lot of other markets in medical technology, a lot of large disease states, diabetes is right at the beginning of the technological evolution. It's just many other areas of medtech are several chapters deep in evolving technologies. And here we sit in diabetes with really the 2 parts of it, CGMs taking away fingersticks and just opening up a whole new market opportunity and insights for customers. And then you pair that with breaking the old market paradigm with new innovation in insulin delivery that we're bringing to market. And we think about just how early days that is. Our CEO, Shacey, often talks about just how we're just scratching the surface on the technological opportunities here. So we think we're at the front end of a significant technological evolution here, bringing new technologies to a market that just hasn't really evolved. Type 1s, maybe about 1/3 of all the way from multiple daily injections. Type 2s, single-digit numbers of people that are using some other technology other than multiple daily injections. And so our whole mission is to bring technology to market, make it easier and simpler for people and to help move people away from multiple daily injections, help them manage their disease much better, Joanne. So we think about it a lot. That's one of the reasons I came to this company, frankly, is just see a significant market opportunity.

What has surprised you the most on the upside and maybe somewhat on the downside?

I think surprising on the upside, I would probably go internally. I've worked in medtech for a long time, but the passion at Insulet is just incredible. We have many people who have been touched by diabetes, whether in their immediate family or extended family. And so there is -- medtech missions are great, I think, all across medtech. There's something special that, I think, we have in Insulet and there's just an incredible drive within our company. On the downside, we've had quite a run, Joanne. The only thing that really pops to mind is the pandemic that we've had to deal with here over the last year. Other than that, as we track our key performance indicators for the company, we have 12 of them. Each of the last 2 years, the team has done an amazing job of delivering on them. We've developed the innovations that we wanted to bring to market with DASH and soon, Omnipod 5. We've increased our manufacturing capability, both quality and capacity. Bret could talk about our commercial expansion and all the things that we've done there. So it's tough to pick at, frankly, because we've really been delivering on those important key performance indicators for the company.

Wonderful. One of the things that struck me is when I first started covering Insulet, it was really a [ TAM ] company. And if you listen to the -- I'm sure you did listen to the earnings call the other night, there were a lot of questions on type 2. So how do you think about penetrating both of those cohorts or paradigms?

Yes, Joanne. We're really happy with our progress in the type 2 segment, and it's something that we talk more and more about. This past earnings call, we highlighted that 35% to 40% of all of our starts in the U.S. identified as type 2. It's something that we've always seen as a possibility, and we've always believed that Omnipod should be the strongest offering and the pump of choice for type 2 users because what we deliver was simplicity and ease of use, freedom, discretion. The challenge, as you know, has always been access. There's been very limited access for people with type 2 diabetes. That stems from the channel, the DME channel, where we used to sell Insulet and our Omnipod. There's restrictions there, and rightfully so because in that model, there's this large upfront fee that payers will have to reimburse. They would just want to be sure that the user is going to utilize the products so they can get the outcomes. And so we changed that with our pay-as-you-go model, moving into the pharmacy. That just unlocked access for type 2 users. And now what we're seeing is probably the true interest. And it scaled up a little bit as we educate health care providers and type 2 patients themselves that Omnipod is an option. And so we're really happy to be making some progress into that segment.

So one of the things I want to spend some time on is the type 2 population. 35% to 40% of all new starts are type 2, and I think that metric was about 1/3 in the last quarter. Does it reach a stage where it's 50-50? Does it reach a stage where type 2 is 70% of new starts because the market is so much underpenetrated? And do you really care where the patients are coming from?

Yes, it's great. It's going to continue to progress a little bit. I don't know where it ends up. But do we really care? Not really in that we have a goal of putting as many people on product as we can, and we also sort of highlighted recently a milestone of 250,000 users on Omnipod. So we -- all these metrics that we talk about externally are really important. Internally, to me, that's the most important metric is the number of people that we are able to change their life and deliver Omnipod to. There is importance, though, to each of these segments and we’ve talked a lot about pediatrics. Certainly, the younger we can start it, the sooner we can start users on Omnipod, the better for us. And we'd love to do that at diagnosis, whether that's the moment that you get prescribed insulin as a type 2 user or the moment you're diagnosed with type 1 diabetes. And so we look to Omnipod 5 to even strengthen what's already a market leadership position in pediatrics as we'll add CGM integration and AID, which is just so important for parents with young children who have type 1 diabetes. But the answer is, it's great to be serving the entire spectrum now of age populations with a strength in pediatrics and now really strong Medicare reimbursement in a type 2 offering.

And Joanne, I could just add one quick data point on to what Bret shared there, which I think could be helpful insight for people. Well, first of all, I think everybody knows we're launching Omnipod 5 in the first half of 2021 here. And the -- I think, as Bret said, we're happy to serve type 1s or type 2s. The important part of the strategy is that we are unlocking the type 2 side of the market, which is a larger market, a larger number of insulin-intensive people with type 2. And so we're happy to see that strategy working. The data point I just wanted to share is we've been progressing nicely. As you said, about 1/3 of new customer starts last quarter were type 2. It's growing to 35% to 40% this quarter. When we launch Omnipod 5, it will have an indication, a label for type 1s only. We have our type 2 feasibility study starting now. And so it could be that, that mix changes somewhat when we launch Omnipod 5. And then once we get the type 2 feasibility study and eventually the pivotal and get the label on type 2, then we'll probably start to see that mix change again. So I just want to highlight that for people that we could see the type 2 mix shift somewhat as we launch Omnipod 5. But not to be alarmed, it's by plan because that's just the label we have when we first launched Omnipod 5. Once we get through the clinical studies on the type 2, we'll add that to the label. And then my guess is the mix would start to then more represent the size of the market opportunity. Type 2 is a bigger market and less penetrated, so we should get back to where we are today, where type 2s, again, start to take up a bigger percentage of it. And then clearly, we have a more differentiated position in the type 2 market from a competitive standpoint as well.

So let's get some dates around this, if possible. We've mentioned pediatric label and we have mentioned a type 2 label. Is there a time frame that we can look for those to check off?

We haven't -- we -- all we've talked about so far, Joanne, is that we are doing a feasibility study for type 2 patients, and we do have our preschool pediatric study going on as well. So we don't have time lines for either as to when we'll present those [ data ]. And for type 2, in particular, it probably progresses from a feasibility study to a discussion with the FDA and then likely a pivotal of some kind to establish that label. We just haven't announced any time lines there.

Okay. So if your Omnipod 5 is going to be type 1 that would indicate to me you're still going to be manufacturing the Omnipod 4. So you'll be running dual capacity manufacturing for a period of time.

Yes. And Omnipod 4, we call DASH. And honestly, even if we had a type 2 label on day 1, we like the idea of having a portfolio of products for now anyway. And so we don't have any plans of discontinuing something like DASH. It's a fantastic product offering and will provide a good solution for many users. We've still got to establish access for Omnipod 5, remember. So even with a label on day 1, which we wouldn't have for type 2, we want to make sure we get Omnipod 5 access and reimbursement to the level at least that we are with DASH today.

So you have to get separate reimbursement for Omnipod 5. And what is the time frame for getting that?

Yes. It's not necessarily separate reimbursement. It is adding it to formulary with each of the payers where we have DASH and classic access. So it's -- we announced we would come out with a price parity decision, which means as we talk to payers, there's a few things we're trying to establish. One, we're introducing AID for the first time to these payers in the pharmacy because while there are other AID systems on the market, those reside in the DME channel. So it's a concept we've been socializing with payers. We're already talking about that. We will hopefully eliminate much of the price discussion because we'll tell them that it's the same price as DASH. And then we just got to add it to the formulary. So the work is being done now. Once we get approval, we think payers will start to sign those contracts and we should be in a good spot there. It will just take some time because, as you know, it's work and it's contracts and there's a lot of payers out there. So that's what we've highlighted. It will be much easier for us than DASH because we won't be building this large channel in the pharmacy. We won't be talking about pay-as-you-go for the first time, but we do have to add Omnipod 5 to the formulary.

So I'm going to ask 2 questions here. One is -- I'm starting to build a matrix of Omnipod 5, DASH. And then you have not only different pharmacy and I'm sure they're still coming through the DME. But then you have like a regional 3D matrix going on here. How do you think about managing that?

Yes. It's a great question. I can tell you what some of our goals are and what we're trying to do. One, we want to maximize access for end users. And so today, it is -- it's a mix of DME, pharmacy and then different products in each of those categories. We did say that we'll launch Omnipod 5 only in the pharmacy. So that will simplify some things in a lot of ways where that's the only place it will be offered. For DASH, it's primarily in the pharmacy channel, but we just believe that is a better experience for patients, for physicians. We think it's a better model for payers. We really want to make a push with Omnipod 5 to make sure that it's pay-as-you-go and that it's in the pharmacy so we can meet patients where they already are. It's just a much more pleasant experience for physicians and patients.

Talk a little bit about education and education as patients, education as physicians and obviously, education as payers. How do you approach those 3 constituents?

Yes. Well, we're really conscious of all 3 stakeholders and the value that they get from Omnipod. And so we've been a consumer-oriented company. We think our offering is more consumer-friendly than everything else out there. And so I think we start with the user. We clearly develop products that are going to be user-friendly. We favor simplicity and ease of use over everything else. We've moved the payment model to pay-as-you-go so there's not this upfront fee, there's no 4-year lock-in period. Just a lot of things we've done to really try to express the value of Omnipod and our offering to consumers. For health care providers, it's about workload because we believe that health care providers widely understand that all pumps offer outcomes for their patients. And so why isn't every patient recommended continuous insulin infusion? And it's about workload and complexity and cost. And so we're trying to do that for physicians as well and health care providers. It's -- the ease of use of simply sending in an e-prescription for Omnipod is going to be fantastic. And then we're working on the training burden that they've had to bear in some cases in the past to really simplify that and take that away as well. And then for payers, I think we talked about the model and pay-as-you-go and how that means we assume the risk of utilization for a payer. And so once -- we've got a strong value proposition across all 3 stakeholders. And then to me, it's about awareness and telling the story. And it's what you're highlighting, Joanne, is how do we educate and how do we communicate this great offering to each of those 3 stakeholders? And we've got a lot of work to do on awareness across the board. And we're doing that and ramping it up quite a bit. We've announced that we are doing direct-to-consumer marketing in the form of TV commercials, which we're the first insulin pump company to be doing that. And we think that's going to be great for just raising awareness of the strength of the Omnipod offering.

One of the things I sometimes hear from physicians is they will say, "Well, the Omnipod is only for active patients." And it takes everything in me to say, "Shouldn't they all be active?" So how do you get a physician not to just sort of label those active patients? How do you get them to think, hey, everyone can benefit?

It's a great question. We've got work to do with physicians, honestly. Everyone can benefit. Everyone should be active, to your point, Joanne, but not just active in the form of athletics and exercise. But everyone should be able to go about their day in the way that they go about their day without diabetes. And that means you should be able to get in the shower without disconnecting. You should be able to do a lot of things without having to disconnect. And what we love about Omnipod 5, among many things, is that the algorithm will be on the pod, which means you don't have to have your PDM or phone nearby. That just really further strengthens the freedom component of Omnipod and what it offers. And yes, it's true that there are some physicians that say that. I think what they're saying is, "Look, Omnipod has got tremendous form factor and ease of use, and it doesn't have CGM integration and AID." And that is true until we launch Omnipod 5. And I think you're going to start to hear physicians and health care providers talk about Omnipod differently when the outcomes are clear, the clinical data is there. But that's a message we have to deliver very strongly with health care providers, no question.

I want to shift a little bit to international. I think I'm losing a little bit of track of time. It was just 2 years ago, you built a direct sales force outside the United States. How has that evolved? How many countries are you in now? How many countries do you want to be in?

Sure. I can start that one, Bret, if you want. It is one of our strategic pillars, and we think that we've got waves of growth opportunity for beyond the 5- and 10-year time frames here. And we're starting to build the teams to do that today. We're investing in regulatory and international expansion teams that are working on that strategy. We're in 20 countries today, Joanne. Most of those through Europe, Middle East and then obviously, North America. We have plans to continue to expand globally. Bret and the team have built significant commercial infrastructure, as you said, over the last couple of years after taking our business direct in Europe, and so continuing to build on those investments. This year, we'll be rolling out DASH throughout all of our countries, so bringing new innovation. We're also expanding our sales force and our marketing capabilities including, like the team has done in the U.S., starting some direct-to-consumer pilots. It's different by country, the ways that you can market. And so the teams are working through all that now. But I think we'll be able to continue to leverage the differentiated form factor we have as we continue to expand internationally. Bret, anything else you'd add there?

Just that we're going to be really thoughtful with this, Joanne. Our goal in middle of 2018 when we went direct was to stand up that organization to make sure there wasn't any disruption for our users outside North America. And we just know that we're making a lifetime commitment to future podders once we go into a country. And so we're being really thoughtful, we're accessing these marketplaces. We've got a strong presence in Europe, and we're starting to get into the Middle East with these 20 countries total. Asia Pacific will obviously be something that we'll look at into the future. But I think over the next 4, 5 years, I think expansion will be a big part of our story. We have a strategic imperative of just expanding access. And to me, that's 2 things. It's making sure that coverage and functional coverage is strong for our existing markets and then making sure we expand geographically so that we just expanded the overall TAM for Omnipod.

There's a statistic that's been pretty consistent for several quarters now. 50% of new podders come from MDI and 50% are what we call transfer students. Is that something you see static? Or is that, as you get into Omnipod 5 and technology shifts, that you might see a shift in that update or not update type of patient?

Yes, Joanne. And just to clarify, we've been right around 80% of our new starts, new users coming from MDI. So that leaves around 20% that come from another technology. And it's clear to us as to why that is the case. One, we have a focus on MDI, on those users that still use multiple daily injections to manage their diabetes. And two, it's -- we know why we don't get more competitive switches and why somebody might choose something other than Omnipod when they start out with pump therapy. And that's simply CGM integration and AID, automated insulin delivery. So it's no surprise to us that they really are almost 2 markets today. You either choose automated insulin delivery and CGM integration or you choose the ease of use and form factor of Omnipod. And once you made that decision, you're just less likely to migrate. So we will see what happens with Omnipod 5 because we will check the boxes of CGM integration and AID. And we also have a program that is a free trial for 30 days that anybody can use that we call 30 Days of Freedom, that we hope the 2 pumpers will give it a shot. Once we check the box of CGM integration, which they say they have to have, and AID, try Omnipod for 30 days and we'll see what happens. But for now, we've been really consistent around 80% coming from MDI.

Okay. So leading straight to Omnipod 5, yes, that is being launched this year, which is exciting. But how do you think about marketing that to the patient? And you just led me straight into that, so thank you. It's checking both boxes, it's the ease of use and the AID.

Yes. I'll just start with that, Wayde, because there's so much to talk about here, Joanne.

I know. We're sort of limited on time, but here we go.