Insulet Corporation (PODD) Earnings Call Transcript & Summary

Okay. Great. Thank you for joining us for the next fireside chat as part of the Bank of America Virtual Vegas Healthcare Conference of 2021. I appreciate everybody being here. Really excited to have Insulet here for the next fireside chat. On behalf of the company, you have Wayde McMillan and Deb Gordon here, who I think everybody knows. So I wanted to thank both Deb and Wayde for joining us here this afternoon. Thank you for coming.

Yes. Thanks for having us, Bob.

Great to be here.

Yes. Absolutely. So I just -- I thought maybe as a place to start, Wayde, I'd ask you if you wouldn't mind to just maybe give some of your kind of top-down thoughts exiting the quarter? What do you think were the most important points that you were trying to drive home to investors, seeing as it was just so recently that you guys actually reported?

Yes. It's a great place to start, Bob, and we had a couple of key messages coming out of the quarter. Certainly, Omnipod 5 is a big story for us and a big innovation that we're focused on bringing to the market. And we did give a market update there that we think it could take longer for clearance. And so we gave an update that we will now anticipate to start our limited market release in the second half of 2021 versus the first half. And the good news is even though it's taking -- we think it's going to take longer for clearance, the teams aren't standing still. So the key message we had there was our teams are working on, in particular, 2 of the main pacing factors for the limited market release: number one is access, and two is the customer experience. And so even though it's potentially is taking longer for us to work through with the FDA and get to clearance, we're working hard on making sure that we've got access when we get to limited market release and that we're working out as many of the process issues as we can. That would be typically things that we work on during the limited market release. And so the takeaway should be that even though clearance may take us a little longer, it may not even come by the end of June, it may spill over into Q3 that we would expect limited market release now to be in the second half. But that we can work our way through it and really shouldn't change how we think about Omnipod 5. And in fact, we can think about it in more of a derisked fashion because we've had great collaboration with the FDA. And we're more confident, more enthusiastic than ever that we will get to clearance, that it's just a matter of time. We certainly understand the workload challenges that the FDA is working through. We're trying to do everything on our end to make things as efficient as possible for them. But nonetheless, we think that we're more confident than ever that we'll get to Omnipod 5 clearance, get to the limited market release and be on our way to full market release. The only other message, I think, that was important was around the pandemic and its impact on our business. And Bob, I know you know this well and others do as well. But we have this annuity model, and it creates a real, durable revenue stream for us. And throughout the pandemic last year, it helped us stay above 20% growth rate, and that's really helpful. And we're very happy to grow 20% through the pandemic. But it also means that in the middle of 2020, we had some lower new customer start quarters. And those are like an annuity, and they build into the next 4 quarters. And so we're working through some of that now, and that's impacting our growth rates. Having said that, the U.S., we think, has really turned the corner at the end of 2020 and that we're starting to build momentum back in the business. We've just had 2 record-setting new customer start quarters in Q4 and Q1. So we think we're well on our way to recovery and accelerated growth in the U.S. International, a bit of a different story, where we're seeing more pandemic headwinds, in particular, some regions that are important to us, like U.K., France and Canada that are seeing more pandemic challenges and lockdowns. And so we're working through that. As a result, the message for the quarter there was that we think international will be a little harder impacted by the pandemic longer into 2021. Having said that, we've got guidance in double digits, mid-teens for international, which is still good growth. Our teams are doing a great job adapting to the new environment with the pandemic. We would expect the international regions to be in the high-teens, low-20s. So we think we're going to get close to that in the second half, but it will take all of 2021, we think, to work through the annuity model internationally and get back into that growth rate where we want to be. So those were a couple of the key messages out of the quarter, Bob.

Okay. Wonderful. And I also forgot to introduce Lorenzo Bean, who's my associate, who works very closely with me on everything diabetes-related and a whole lot more as well. So Lorenzo, hopefully, you'll chime in here in a little bit. Just to follow-up on some of those comments. Just want to make sure we ask the FDA question a little bit more granular. So just to sort of be specific, you feel like this is purely an issue related to workload? I mean, obviously, you guys are not the only ones being impacted by this. But just to be super clear, you feel like that's really the only issue causing the slight delay?

Yes. Obviously, we can't speak on behalf of the FDA, but we do know that throughout the pandemic that they've been challenged with a lot of other resource demands and certainly understand that. And so we're just doing everything we can to try to efficiently do things on our side. Having said that, it's been very collaborative. We are in a breakthrough device program, which means we've had great collaboration with the FDA and feel fortunate to be in the breakthrough device program and having that collaboration throughout the process. And so we're going to look to continue responding to FDA's questions as quickly as possible. And again, it may take a few more weeks or a few more months to get to clearance than would normally take through a process like this. But it doesn't diminish our excitement for launching the product here in the near future.

And I have a couple of the topics I want to hit on, but you mentioned the annuity model and the -- some of the issues for 2020 and how those affect the current growth rate of the company. Is it just basically very straightforward math as to when that anniversaries, you get a better reflection of -- to underlying growth?

Yes. That's it, Bob. There's obviously a lot of different factors that play into the growth rate. But one of the biggest drivers for us are our accumulation of new customer starts. And the more customers we bring on the product, the more momentum that gets built into the growth rate. And so when we have a couple of low quarters like we saw in Q2 and Q3 in the U.S. and are continuing to see internationally, that weighs down the growth rate for the next 4 quarters. And so we've just had 2 really strong quarters in the U.S. and as I mentioned, starting to turn the corner, build that momentum back up again. We think it's going to take a few more quarters internationally to get that momentum going again.

Yes. Yes. No, it makes sense. So the topic I wanted to spend a little bit of time on is I think there's -- not I think. There's clearly a lot of people that are really excited about the opportunity for Omnipod 5 and the ability to expand the market, take share. And it means great things for the company over the next couple of years. What I'd love to get to your more detailed view on right now is the pacing of it. Just from the timing of approval, kind of what happens in the first 3 months? And then what happens in the first 6 months? And just trying to get a sense for how we should be thinking about the pace of that market expansion that could result from the approval and also the pace of the share gains that could result post approval. So would just love you to chat about that for a little bit if you don't mind.

Yes, you bet, and we are spending a lot of time on this, Bob. It's a great place to share some insights. We share your enthusiasm and others' enthusiasm around Omnipod 5. We do think it is going to be a game-changing innovation. And we're excited to bring this type of technology and experience to people with diabetes, in particular around the launch. And so once we get clearance, we will move into limited market release. This is a best practice that we've used in the past, and we used it with DASH as well just a couple of years ago when we launched that new innovation. And in particular, the areas that we are going to be paying very close attention to through that limited market release will be how fast we can add access. We've had actually really good luck so far building interest and educating our payers. And people who are going to be reimbursing the product, but it is a brand-new product. There are no other AID systems in the pharmacy in the U.S. And so now that we've got the pivotal data out, we can share that pivotal data and start to talk more about the product. But most payers won't sign up a new product until you get FDA approval. And so we're going to be in that period of educating and presenting the information about the product, but it won't be until we get FDA approval that we'll be able to really start ramping access. And so the limited market release and launch and how fast we ramp customers will be heavily gated by how fast we grow access. With that in mind, we've made a couple of key decisions that we think are going to help us with that process. We've decided to price Omnipod 5 at parity with DASH at the same price. That price is very similar to what customers will pay out-of-pocket for multiple daily injections, either pens or syringes. It's very low, predictable out of cost -- out-of-pocket cost. And so with that in mind, we're going to bring a lot more value at the same price at parity. And then the other factor we're going to be monitoring very closely is the customer experience. And so obviously, we'll have the product in place, but there's a lot to work out, a lot of different channels, a lot of ways to onboard customers. And of course, this is all brand-new and novel through this technology. Just to give you an example of what that looks like is an existing Omnipod customer should have one channel of how they'll move from, say, Omnipod DASH onto Omnipod 5, and that can be very efficient. It may be just a virtual training. But then there are other customers who may be new to CGM, and they may be new to pods. And so there's going to be a significant education process that they have to go through. So there will be multiple different channels and iterations for how we bring people on the product. So we'll be testing all of those customer experience pathways to make sure that we've got really good processes, and we've worked out anything that needs to be put in place for the best customer experience. So that's what we'll be doing. We have said in the past, Bob, that we think a limited market release is somewhere between a 3-month and a 9-month process with the average being about 6 months. And that's what we had built into our guidance for the year that would be in limited market release throughout the second half of 2021. And that's still the case. And we have confidence in that even if the clearance takes us a little bit longer because our teams are working on all those things. And even if we can't get the payers actually signed up to agreements, we can continue to work with them and work with more of them. So the longer the clearance takes, the longer our team works on access and customer experience before launch. And so that's why we've held guidance. We don't think it will be a big disruptor to our revenue even if we don't get Omnipod 5 approved here for a little bit longer.

Okay. And yes, I assume since you're making that comment about 2021 that, that would also apply to, however one was thinking about 2022 that this shouldn't really change that thought process?

Yes, that's the right read, Bob. And the way we're thinking about it is not just '22, but this is going to be a new platform for growth for a long time. It's a very large, underpenetrated market that we have here. And we just think Omnipod 5 will be multiple years of runway of growth. And so if it takes us a couple weeks or months longer here at the front end, we're going to do everything we can to compensate for that. But it does not change how we think about '22 -- 2022 and beyond. You're right.

Okay. And then if you think about, simplistically, the 2 ways to accelerate the growth rate of the company as a result of this platform, you can expand the market or you can take market share to oversimplify. I guess there's always opportunity for more revenue per case, but I'm not sure that, that's really the -- that's not really in the cards here. So if you think about, call it, a 5-year trajectory, in the early years, is it more weighted to market expansion versus share gain? Which is easier at the beginning? Which is easier as time goes by, and which is the bigger opportunity?

Yes. So by far, the bigger opportunity is the multiple daily injection part -- piece of the market. If we talk about type 1 first, 2/3 of that market is still multiple daily injection. For type 2s where we have a significant advantage, a very differentiated position in the pharmacy with the disruptive business model that we've initiated with the pay-as-you-go in the pharmacy with no charge upfront for our PDMs. We've got a real strong position for type 2. So by far, the largest opportunity for us and the focus of our efforts is still on multiple daily injection customers. Having said that, we are going to change the game. But we know that today, we've been growing our business very well based on the form factor and the business model and all that we bring to the table. But the one piece that we've been missing is AID with CGM integration. And over the past few years, if customers have rated or weighed CGM integration higher, they've gone with other solutions. And we do know that people feel very strongly about Omnipod 5, and there are people that, I think, may take a look at Omnipod 5 again once we've got an AID and CGM integrated product in the marketplace. So it could be that we see more conversions than we have historically, about 20% of our business historically. So we can grow mid-single digits just off of conversions, about 20% of our business comes from converting competitive customers. But again, 80% -- and that's really stayed pretty consistent throughout the pandemic, throughout our shift to DASH, throughout our change in the business model. We are a category grower. We bring a lot more MDI customers into the served portion of the market.

Yes. Okay. That's helpful. Do you think that probably won't change? It would still be that 80-20 as you go forward?

We'll see. I think there is potential for more conversions. Again, we're going to really level the playing field and our competitive capabilities with Omnipod 5 and AID integration. So it's tough to say at this point. What we do know is the majority of our customers are going to continue to come from MDI. And I think it will be an accelerant on both of those drivers that you talked about, Bob.

Yes. Is there -- this may be a relatively naive question, but obviously, the platform you're bringing is quite differentiated. Would -- is there a way that you guys could ever make it make economic sense for a customer to switch midstream before their 4-year cycle is up? Or does that just not make economic sense? It's mostly going to be at the kind of the at the every 4-year cycle where you have a new shot to take share?

Yes. I'm glad you brought up that question, Bob, because we get this one a lot. And along with a lot of things we're disrupting in the marketplace, we're really trying to change the market paradigm for prescribing physicians, for customers, for payers. And we're doing that with our pay-as-you-go model. As you know, by taking away the upfront payment, we've moved it into the pharmacy channel, which changes the access, in particular for type 2s. And we're bringing a lot of value to payers because we've taken away that large upfront fee. And that's that old market paradigm where people are locked into a 4-year commitment because they have that large upfront payment. So to your question, we absolutely changed the game. We absolutely changed the economics. When we launched the pay-as-you-go model, we are essentially an at-risk model for payers. When they pay for Omnipod 5 for customers, it's only when they use the product. If people are using Omnipod 5, you use it. And in that at-risk model, the economics are very strong for payers and for customers. And so we do think that, that will be something that could be disruptive in the marketplace as well.

Okay. What would be the out-of-pocket for someone to switch over in terms of when a patient -- if you're a Medtronic or a Tandem user right now and you see this approval and you're like, I want that. What is the out-of-pocket to start?

Sure. And actually, probably a great opportunity to bring Deb into the conversation. Deb, you want to take that one?

Yes, sure, Bob. We get that question a lot, and it's great because, as Wayde mentioned, there's no upfront cost and no lock-in period for us. But one of the great things and unique things about our product, Omnipod DASH and soon Omnipod 5, going through the pharmacy channel is individuals pay -- the majority of individuals pay a co-pay monthly of less than $50. And it's actually consistent with MDI despite the better outcomes and experience Omnipod provides. So a lot pay 0, but the majority pay less than $50. So great value there, and it's just one more reason why we're really well positioned to penetrate the market and to bring on new patients and accelerate that growth.

What do you guys -- I mean, what does your market data tell you right now about the total growth of the pump market overall and the conversion from MDI? What do you think that market is growing right now as you look at it?

Yes. And it's a great question, Bob, because this is why we're here. We have a significant, large, underpenetrated opportunity to change the life of people with diabetes. So as we think about the markets that we serve, the countries that we're in today, we frame that as an $11 million to $12 million TAM, total available market. But I think your question is more on the served portion of the market, right? The -- how many customers are using pump, traditional tube pump or patch pump today. And we saw that through the pandemic headwinds, we saw kind of a mid-single to high single-digit growth rate. But we think outside of the pandemic, it's more of a double-digit growth rate. And that's heavily dependent on us because we are the largest grower of the space. The total TAM itself really grows with the population, it's people with the incidence of the disease and that size of a population. But it's really that served portion of the market where we are the largest grower. And so we're the accelerant for that growth rate to grow faster than the overall population. And so frankly, the more successful we are bringing customers from MDI into the pump space, we're not as dependent on a renewal cycle for our growth. Our growth is, as I said, 80% based on bringing new customers into Pod Therapy.

And do you need to do much incremental marketing? I don't think I've ever seen a more anticipated product launch, a more visibly anticipated product launch. So I don't know who you'd be marketing to that doesn't know this is coming, but curious as to your strategy there post approval?

Well, you'd be surprised, Bob. So what our research shows is that in the type 1 space, and of course, type 1s are insulin-dependent usually from a very young age. Awareness for any pump, not just Omnipod, but for any pump beyond multiple daily injections is really low, like we're talking 30% awareness. And so on type 2s, it's even significantly lower than that. So we do know that we've got some market development work to do and some awareness work to do. And one of the best tools we have to address that is direct-to-consumer advertising. We've been doing a lot of digital advertising and traditional channels over the last couple of years. So one of the things we did recently was we started running direct-to-consumer television commercials in the U.S. at the end of 2020. And we saw great success with that. So we're continuing with that. We're ramping up that investment here in 2021. We think it's one of the things that's helped us grow 20% through a pandemic is that we've been growing awareness for the product. We recently started a pilot in the U.K., outside the U.S. as well. So we're going to experiment and pilot with direct-to-consumer outside the U.S. And remember that there are 2 technological revolutions going on for people with diabetes. The CGM, continuous glucose monitoring, companies are disrupting finger sticks and BG, blood glucose, monitoring. And then once people have a better understanding of their glucose, then they need to do something about it. And that's why we're following beyond -- behind CGMs. They have done a great job of driving awareness using TV commercials and direct-to-consumer advertising. And so we've learned a lot from the CGM experience over the past few years, and we're looking to follow-on, really just follow-on the CGM process where they'd use direct-to-consumer to increase awareness. We're hoping to do that. And we're very uniquely positioned in the pump space as well, given our consumer nature of our product and sold through the pharmacy. We've got significant advantages in direct-to-consumer advertising and being able to drive awareness like we do. And a lot of that has to do with the form factor, the simplicity of our form factor and the messaging that we can send to consumers.

This is one more kind of top-down market question. Why do you think the -- given all that you just said, why do you think the pump market is kind of growing in that 5% to 10% range, but the CGM market is growing in the 40% range? What do you think is the biggest difference right now between those 2 growth rates? And do you think they can converge over time?

I do think they can converge. And if we just wind the clock back a few years, there's been traditional 2 pumps in the market for decades. And the type 1 market has gone to about 1/3 of penetration. And type 2 market is nascent, small single-digit penetration. And so we think we're on the verge of a few things. I mentioned CGM is driving better glucose awareness. So people are understanding their glucose levels better and that they need to look for different solutions. And of course, we want to be the preferred solution, but we also think that we are changing the market. We think that we are disrupting the business model. We're bringing new innovation, and with Omnipod 5 like the other traditional 2 pumps that already have CGM integration, we'll add that with Omnipod 5. And so I do think those are the things that are going to change the ability to penetrate both type 1s and type 2s, disrupting the business model, really making it easier for physicians, make it more economical for payers, making it more simple and easy and better clinical results for customers. So there's just a lot of catalysts that are really driving an insulin delivery evolution or revolution alongside of glucose monitoring and CGMs. And so I do think we're at the front end of this inflection in this marketplace, Bob. And I think that's what will drive significantly higher growth rates. Again, I think through the pandemic, we were mid-single, high single digits. You have to factor in attrition for all the companies in order to figure that out. But at the end of the day, I do think we will start to bring more and more multiple daily injection users into the served market. That's why I think we can get into that double-digit, sustainable double-digit market. We're going to grow far beyond that because we're the ones growing the category.

And Deb, do you mind if I ask you a question about kind of what you're hearing from investors? Because obviously, when you look at the performance of the stock, when you look at the valuation of the stock, there's a favorable bias out there towards the company, given the pipeline and all that you've accomplished. What do you think investors are -- what do you think you guys need to show to generate that next round of incremental interest in the name? Is it as simple as what's right in front of us? People are waiting to see this launch and see how successful it is? Or is it something more complex?

It's a great question. I would say a mix. So I think very, very near term, sure, people are just anxious to see how Omni 5 performs in the market. I think we all believe very strongly. We know it's going to perform very well and be a game changer. I would say, actually, Bob, it's a type 2 opportunity. Oftentimes, people are just sort of learning about it. A lot of interest was raised, and I've got way more questions about that following last quarter's call, the Q4 call, and the interest is growing on type 2. So I think people are really realizing it's not just the type 1 market. It's in the U.S. and internationally. It's not our international expansion only. But the type 2, we're so uniquely positioned within that space and where it's becoming an increasingly larger percentage of our new customer starts. And I think one data point that we're excited about is we also presented some early results of our type 2 feasibility study at ENDO in March. And it showed that time and range improvements more than doubled in the first 8 weeks. It went from 27% during standard therapy to 59%. And then recently, what's also getting some notice is that we recently had some data published that involved about 3,600 patients. And the data demonstrated not only the statistically significant reduction in A1c. But incredibly, it reduced total daily dose of insulin by 32%, which is over 30 units per day. So I think it's just important to show data like that. It really frames the market opportunity, and it shows what Omnipod -- the true value of Omnipod can bring to a completely different market segment that, as Wayde mentioned, is very, very underpenetrated.

Great. That's helpful perspective. I appreciate it. Well, the next topic I want to ask about is going to require 15 minutes, and we have one. So I think rather than get a half-baked answer, I think we'll just call it there. And I'll say thank you to Wayde and Deb for your willingness to participate in this fireside chat. We appreciate it. I know investors do as well. So on behalf of Lorenzo and the rest of the BofA team, thank you very much for your participation.

You bet, Bob. Thanks for hosting us, Bob and Lorenzo. And I appreciate the time and the interest. Take care.

Okay. Thank you very much.

Bye-bye.

Bye-bye.