Insulet Corporation (PODD) Earnings Call Transcript & Summary

Okay. Great. I see we got Eric and Bret. Waiting for Deb there. Can you guys hear us okay?

Yes. We can hear you fine, Matt. I think Deb was going to join as participant and wasn't going to be in this panel for…

Oh, okay. My bad. Okay. So why don't we get started? I can introduce everybody. So this panel is going to be a 45-minute fireside chat with Insulet. This is -- both -- if you look on the left-hand side, Eric Benjamin, Senior VP of Innovation and Strategy. We also have Bret Christensen, EVP and CCO of the company. So really appreciate you guys joining us, and it's a unique opportunity. We always get to talk to you guys, so I'm really looking forward to it. As always, if you have questions for me to ask the team to send them through the app. And why don't we get going? I'm going to come down here in the lounge. Okay, guys. Maybe to start, why don't we just start with a big picture overview? Talk a little bit about the business and your mission. And let's just discuss how you've been performing, which has actually been rather well.

Yes. And thank you, Matt, for having us. So yes, halfway through the year, we just reported Q2 earnings and strong financial performance. We continue to deliver on our financial goals, but also our strategic imperatives which are really critical to our future success. More importantly, I think the key performance indicators for the quarter and the year and fundamentals of the business are very strong. We mentioned on the call that Q2 was a record new patient start quarter for us in both the U.S. and worldwide, but we continue to see strong drivers in type 2, where in the U.S., somewhere between 30% and 40% of all of our new starts are type 2. We've grown DASH access consistently in the U.S. now to about 80%, and about 75% to 80% of all of our new starts are on DASH and in the pharmacy channel. And then internationally, we have continued to have strong growth drivers in DASH and international expansion. So the fundamentals are very strong. We point to those because our model is a durable annuity-type model, where any one quarter of earnings is not necessarily representative of the performance in that quarter, but more likely the performance of the previous 4 quarters. So we try to have sustained new start growth, low attrition. And those add up and provide sustained durable growth.

Great. Fantastic. Thanks for that intro. Can we talk a little bit about more recent trends? And I ask because Delta is very topical. And maybe you could speak to, a, any trends that you're seeing, obviously; but b, the durability of your business through COVID last year, even when things were really bad.

Yes, I'll start there. Actually, Matt, last year, when -- in Q2, just a year ago, when COVID was just starting and everything was shutting down, including the work life at Insulet, where we started to work from home, that was a challenge for many companies. But because of -- again, because of our durable business model, what we actually reported out in Q2 was really the result of the previous 4 quarters of new start -- really strong new start growth and had a very strong revenue quarter of about 30% growth in the U.S., even though it was one of our worst quarters for new starts. So again, we live with that life of a running year of new starts and performance because we are this annuity. We don't rely on that upfront revenue, of course, like others do. We really just make our money with selling Pods, and so it's really important to us to have a large user base that is very active and using and ordering Pods. As far as COVID goes, we've gotten really good at doing business in this new world. Last year, the majority of our trainings were virtual. Majority of our sales calls were virtual, and we continue to, throughout the year, slowly progress and improvement on that performance. Today, we are watching this new Delta variant closely. We're not seeing a material impact on our business, but we have a lot of growth drivers really working against any headwind that is still there, including our direct-to-consumer efforts in the U.S. and in some parts of Europe like the U.K. And I always like to remind everyone that we launched DASH in the middle of the COVID in Europe, where we rolled out DASH to all of our markets outside the U.S. We have really strong growth drivers that are helping assist with any headwinds that still remain with COVID.

Okay. Great. Thanks for that. And you touched on Europe. I was going to ask one about geographic trends and mix. Maybe just touch on anything that you're seeing differently there to call out. What's the further catalyst pathway for Europe?

Yes. The growth drivers in Europe are different, frankly, than they are in the U.S. DASH has been the primary growth driver to date. So we rolled out DASH at the end of last year, and that's been tremendous for us because as access has been a bit of a challenge with -- access to physicians and sales force to have a new product like DASH to talk about has been really instrumental in keeping that momentum. We also do have a really strong effort underway for international expansion. We mentioned that we rolled out Omnipod to 5 new markets at the end of last year. We launched in Turkey at the beginning of this year, and then we called out that we would launch in Australia later this year, and, in fact, we issued a press release last night, announcing that we have officially launched in Australia, and we'll begin taking orders at the end of August. So we have plenty of growth drivers outside the U.S. Inside, of course, in the U.S., the growth drivers are a little bit different, type 2, the pharmacy channel, our strong access in pharmacy with low co-pays and pay-as-you-go. And then, of course, in bulk markets, in the U.S. and outside the U.S., we anxiously look forward to the launch of Omnipod 5, which we think is going to be an accelerator to all of these growth drivers.

Very good. Very good. Okay. So this question could be really for either one of you, but I just wanted you to articulate patient and physician preference for patch pumps versus tube pumps. A lot of people talk about your footprint on the body and the form factors being an advantage. Maybe talk about how you see that. And I'll throw in another curveball, I guess. Would you ever think about having a tubed option as well?

Yes. Thanks, Matt. I'll start with that one, and I might steal one of Bret's lines to answer that last part. I'll maybe start with the last part, which is when we imagine the world, we imagine if folks have the option, would you pick a pump for its tubes? And the answer to that, we believe strongly is, no. And when we think about what is it that makes Omnipod unique, it's the simplicity of the experience that allows folks to get great outcomes, combined with our unique pay-as-you-go business model and access through the pharmacy channel. And so when we think about that simplicity of the experience that we think is so critical to helping folks get outcomes, folks who as evidenced by the fact that 80% of our new starts come from MDI -- because people just wouldn't have chosen technology if it weren't for Omnipod. And so we believe that that simplicity leads to outcomes, and then we've made it really accessible through pay-as-you-go in the pharmacy channel.

Yes. Matt, I'll just add, it is clear to us why people choose Omnipod and why they do not. And we believe that in a patient's journey to selecting technology, they come to this crossroads where they have to choose the form factor and simplicity that is an obvious advantage for Omnipod and AID and CGM integration, which is a clear miss in our product offering today, which, again, is why we're so excited about Omnipod 5. It's also probably why we don't see a lot of movement and competitive conversions between tubeless and tube pumps because you are getting AID or you're getting the form factor of Omnipod. And we look forward to checking all those boxes and having a complete offering with Omnipod 5.

Great. Yes, I do want to get to Omnipod 5. Before we do that, let me just ask a couple of broader business questions. The first one is you talk about the mix between MDI and competitive conversions. Your MDI mix is pretty high. I guess, a, could you just remind us how much of that has been MDI versus competition? And how do you see that changing over time, especially as you get into having closed-loop systems?

Yes. We -- in Q2, we said it was 80%, again, so 80% of all of our new starts came directly from multiple daily injections. That's been pretty consistent for us over the past few years, where around 75% to 80% of all of our new stocks have come directly from MDI. It might have dipped down in -- a couple of years ago when Animas was pulling off of the market, and there were some of those conversions coming from that technology. But still, even in those quarters, we were very high for MDI as far as percentage of new starts. That's our focus. That's what we want to see. We know that this is a very underpenetrated marketplace, and we look to grow it. We really do look to get more and more people with type 1 and type 2 diabetes on technology like Omnipod, and so our focus has been MDI. It's been at 80%. It stayed there. As far as how it might -- may change, again, I think we don't get competitive conversions en masse. I guess about 20% of our new starts, by definition, I guess, come from competitive technologies. But I don't see that increasing until we get Omnipod 5 because, again, I think you get used to the Omnipod form factor and want to stay with that or you get used to AID, automated insulin delivery, and don't want to give that up. When we launch Omnipod 5, we might see that change. We'll see. But it certainly is an opportunity for those that are on a different technology to try Omnipod and see if they want to switch. We also, Matt, as you know, have a free trial that we -- we're the only ones that have, we call it 30 days of freedom, where anybody can try Omnipod for free. You can get 30 days of product and try it with no strings attached, no commitment, no charge upfront.

Got it. And just a follow-up to that. So in the last couple of years, we've definitely seen the confluence of all these technologies driving more MDIs into the pump market. Are you still seeing that? Is that accelerating at all? Maybe just describe the trends that you're seeing in terms of conversion at a high level.

Yes. I guess the market is, by definition, growing. You hear us talk about record new starts. And of course, 80% of those still coming from an MDI. I think what you'll hear from the tube pump companies is also an increasing number of new starts on product and a good amount coming from MDI. So the market is getting more penetrated. It makes sense to me. It's -- technology has been around for a long time, but there's been really 3 obstacles that have stood in the way of strong penetration, at least in the type 1 marketplace, and that is the products themselves. Technology needs to be simple, and it really does need to reduce the burden of living with diabetes and not contribute to it through complexity. So as technology gets better, you'll see more and more people who are on MDI look to technology as long as it's affordable, which is another obstacle. We believe what we've done in the pharmacy channel and pay-as-you-go is tremendous and means a really predictable, low co-pay for people that want to try Omnipod and stay on Omnipod. And then the third one, really, is awareness. There's still -- surprisingly, there are a lot of people that are not aware of their options and how much improved technology really is in the diabetes industry. And so we're doing our part there as well to make sure that we can increase awareness, including DTC.

All right. Fantastic. One more follow-up on that dynamic. I just wanted to understand if you see any real difference in the MDI versus competitive dynamic in Europe versus the U.S.

Not really. We do see a lot more competition as far as the number of companies in Europe. There are small patch pump companies and a few more different players in Europe, but the real main competitors are the same ones that we see in the U.S. And I think the competitive landscape feels about the same in Europe as it does in the U.S.

Very good. Okay. So now I want to transition and talk a little bit about Omnipod 5. This is probably questions that both of you can chime in on. The first one is, you talked about this U.S. approval in the second half now of '21 toward the end of the year. Maybe we could start just by discussing the key benefits of Omnipod 5. Talk about how it's differentiated from other closed-loop systems.

Yes. I can take that. So look, we're incredibly excited to bring Omnipod 5 to market because it is differentiated from other offerings in a number of ways. As we just talked about, the tubeless pay-as-you-go form factor is unique, bringing AID to an on-body experience like that is transformative in and of itself. It's also -- it will be the only AID system available through the pharmacy channel, will be the only AID system with user-selectable set points. We're going to price it at parity with Omnipod DASH in the U.S., so that it will be extremely affordable, and we can take advantage of some of the broad access that you've already begun to put in place. That gives rise to low out-of-pocket monthly costs. So we think we're going to be able to take all of the benefits that we've been putting in place for Omnipod DASH and add to them a differentiated AID experience. Again, on-body, algorithm, phone control, user-selectable set points, so we think we can't wait to bring it to market.

So let me ask you a follow-up on that because we've had some interesting discussions in the past, and I've had investors ask me about the algorithm. So just talk about how your algorithm is different and some of the enhancements that you could make to the algorithm over time.

Yes. So I think there's 2 things that really differentiates the Omnipod 5 algorithm as it will come to market. The first is it lives on the Pod. What that facilitates is what we call full smartphone control. So a user will be able to have 2 on-body disposables, a Pod and a CGM, and remain in closed loop. So we've done all the work over the last couple of years to get that algorithm as part of the wearable and not as part of the durable. So that's big piece number one. Big piece number two, as I described, is the user-selectable set points. So we've heard from folks in our pivotal trial how valuable it is to be able to elegantly and straightforwardly customize therapy to what they need, and it's been incredibly valuable in young pediatrics and adolescents, sleepovers. So all the use cases that you would imagine and that we dreamt about as we were designing the system have been borne out as we've done clinical studies. So from an algorithm perspective, it's really the on-body form factor and the user-selectable set points. Over time, we have very high aspirations for what we'll be able to deliver from an AID experience. As I said a few minutes ago, we believe that simplicity of the experience is what unlocks the ability for people to get great outcomes, and we see lots of opportunity to continue enhancing the automation of the automated insulin delivery experience, taking away more burden and thereby helping people get even better outcomes over time.

Good. Thanks.

The on-body experience for the algorithm is so important because we talk about phone control all the time, and it's going to be a tremendous experience for our user. It also eliminates a component of the system. But now imagine, you're swimming in the middle of the ocean and don't even have your phone near you. The Pod and the CGM are continuing to talk to each other and adjust insulin real time, so it's going to be a fantastic experience. I'm not sure anybody really appreciates how powerful that is for the time in loop component of AID, but also the user experience is something we really look forward to our users’ experience.

Great. Well, thanks for adding that. And then you mentioned the phone control. So I think is it right that you're initially going to launch with Android, and iOS will follow? Can you give us the time lines on that?

Yes. Thanks, Matt. So we will initially launch with Android, and iOS will follow. And what we've shared is that we know that iOS is widely anticipated. We've been -- we've had the work underway for quite a while, and we look forward to updating on it as soon as we get Omnipod 5 into the hands of users who are waiting for it. One thing that may just be worth clarifying is Omnipod 5 will be available to everybody, everybody who has access on day 1. So whether they're an iOS user or an Android user, we'll provide everybody a controller, just like we do with DASH today. And so everybody who is interested in getting Omnipod 5 in a transformative Pod-based AID experience will have it day 1. And then we'll layer on additional benefits like Android-based phone control, iOS-based phone control and future innovations over time.

Great. Okay. And then, Bret, I want to ask you one about limited launch. So you're the Chief Commercial Officer. What does limited launch mean to you? Why are you doing it? How limited is it? How long does that period last?

Yes. A limited launch is something we just believe is the best practice. It's something we did with DASH. It gives us an opportunity to test, to get comfortable with a number of things. And so right now, we anticipate approval later in the year or later in Q4. We'll immediately move into a limited market release. What that essentially means is we will limit the number of users we'll put on product for some period of time and gradually scaling. We'll be looking at testing a number of things, mostly the user experience. So not just the product experience, but also, we're building a lot of capabilities with Omnipod 5 that we haven't talked too much about but will be very apparent at launch. Some of those are with the onboarding experience. When we went to the pharmacy channel and pay-as-you-go and effectively eliminated this 4-year warranty period, lock-in period for users, what that means is it's a great thing. It's a great thing for users and patients because, as we innovate, we do hope to innovate in short cycles, all of our users should be eligible to continue to upgrade to the latest and greatest Omnipod. But that doesn't provide the natural governor that exists with other companies, where a small portion of their base is eligible for upgrades as everybody is locked into a warranty. So for us, commercial scale and this bolus of interest from our existing base is something that's always been on our mind. So we are building and have built a lot of self-service for Omnipod 5, which means all of our users and potential first-time users can go to a website, can check their own benefits, can express interest in Omnipod and can effectively walk themselves through the onboarding process without having to talk to somebody at Insulet and go through a lot of the handholding that we do today to get somebody on product. It's really important for us for commercial scale, but it's also a completely new experience for our users and potential users. So we're going to make sure we test all of those different scenarios, and they are very unique because depending on your experience, if you have experience with Dexcom G6 and Omnipod, it's a really short cycle to get on product. If not, it's a little bit longer with a little bit more involved training. So there's hundreds of different pathways. We want to make sure they all go pretty smoothly before we open up the floodgates and offer it to everybody. So to your question, Matt, how long does it last? We'll see. We've always said it's between 3 and 9 months. If there's a silver lining between a later approval of Omnipod 5, it just means we have more time to invest some of these things. And we also have more time to build access, which we've always said was the long pole in the tent. So market access, we want to be at a level that doesn't create a lot of frustration with our existing users and new users as well. And we always said that that wasn't going to start in earnest until we got approval as payers were going to be unlikely to sign contracts. But what we found is that we've been able to get some access already. We said that we have more access today than we had at the launch of DASH for that product. So that tells you we've made some pretty good progress more than we thought we would. But the answer is a vague one. We'll see how it goes. When we enter LMR, we need to test all of those user experiences, and we still need to build access to an acceptable level before we open up the floodgates.

Great. Thanks for that. Let me just ask a clarification there. So what do you think is likely going to be the long pole in the tent? I mean, what pushes you more towards 3 months versus 9 months in the most likely scenarios?

From what I know now, I'd still say it's access, even though we're ahead of the game there. But again, the reason why we do LMR and test all these different user experiences because we don't know. We don't know. And so we've actually tested these internally already. They look great. If we saw any issues there, we'd already be fixing them. But we need to do it in bulk, and we need to do it in the real world. And so if I had to guess, I'd say it's still access, although we're ahead there, but you never know.

Got it. And that's just blocking and tackling and getting the data in front of the payers and getting them onboard?

It is. It was a heavy lift when we launched DASH because we were moving from DME to the pharmacy channel, and I know you know this. But we weren't just establishing access for the product, we were reinventing access in this industry. We were shifting the paradigm from a large upfront fee and a 4-year lock-in period to pay-as-you-go, no upfront fee, no lock-in period. So that whole concept had to be negotiated, understood and accepted by payers. We also had to negotiate rebates because there was no baseline to go off of, so we had to negotiate the pricing, the model. And they were all new contacts and entirely new channel. So DASH took us some time. And the reason I call out all that complexity is it's not going to be that way this time with Omnipod 5 because all of those things are in place and established. And as Eric said, we made the announcement we were going to price Omnipod 5 at parity. So probably the most difficult thing in these negotiations is the price or the rebate, and we've taken that out of the equation. So I do anticipate it to go much quicker than DASH for uptake.