Insulet Corporation (PODD) Earnings Call Transcript & Summary

Good morning. I'm Josh Jennings, representing the Cowen medical devices research team, and we're excited to have executives from the Insulet team join us on this medical device track on the second day of the 42nd Annual Cowen Health Care Conference. I would like to introduce Eric Benjamin, Senior Vice President of Innovation and Strategy; Trang Ly, Senior Vice President and Medical Director; and Deb Gordon, Vice President of IR. Thank you all for joining the Cowen Health Care Conference again this year. And I think it's our first year of hosting a fireside chat because we just picked up coverage in mid-2021, but we're excited to have a great discussion this morning.

Great. Thanks for welcoming us.

Absolutely. I wanted to just start off. Eric, I've heard in multiple kind of webcasts or presentations over the years just about your team's view on innovation, and innovation is about simplifying patients' lives, and that's when you know innovation is successful. And I mean, clearly, with your tubeless Omnipod 5 approval and the first tubeless and only tubeless AID on the market, you've taken that innovation a step further. But maybe you can just start with -- from a high level just how -- why that's been such an important driver for Insulet and how you've been successful in accomplishing your innovation goal.

Great. Happy to do that. And Josh, maybe I'll just take a couple of moments here at the beginning to provide a brief intro of Insulet and who we are to set some color. So Trang and I are thrilled to be here to talk about our innovation and clinical initiatives here at Insulet. And these are really exciting times at Insulet along both of those dimensions. But it helps to just orient our story because it really does get to how we think about innovation. And so Insulet was founded almost -- a little over 20 years ago with really a singular mission to improve the lives of people with diabetes. And at root, that's why we innovate, and that's why we advance our clinical initiatives. And today, we deliver on that mission by serving our global customer base of approximately 300,000 users by manufacturing and selling Omnipod, which is a differentiated insulin delivery technology that is the only fully on-body insulin delivery technology that delivers 3 days of nonstop insulin. And so we compete in the global insulin delivery market and diabetes is a growing global epidemic. There's significant unmet need across the globe that is -- that applies to both folks who live with type 1 and type 2 diabetes, and so we are innovating on behalf of them. And there's a couple of reasons that we're well positioned to innovate for and deliver against those unmet needs. And the first is our differentiated pod-based tubeless form factor that we've refined over time. The second is the pay-as-you-go business model that that enables and the corresponding pharmacy access in the U.S. And the third is our global manufacturing scale and redundancy that it takes to build that and to do that at an acceptable margin at a quality level that users can enjoy the product. And so those are -- that's sort of the big picture that we think about when we drive innovation, and we are incredibly excited about Omnipod 5. And so when we think about that context and what we're doing with innovation, we do start with the user. We start with -- in order to penetrate what is an underpenetrated market, we need technology that users are going to demand and use successfully. And so that's what we've built with Omnipod 5. We've built the world's first tubeless AID system with full smartphone control. And what we saw and I'm sure Trang will talk a little bit about the clinical outcomes that we saw for Omnipod 5, but what we saw is when we build a simple enough product that folks demand, then you get great outcomes. And that's what's at root of how we think about innovation at Insulet.

Thank you for that download, Eric, and we appreciate. I apologize, there's some little bit of back noise -- background noise if people can hear it, but I'll make sure to mute after each question, did not anticipate that. But -- maybe just -- you mentioned the first tubeless AID system, it's now being commercialized and you've had really the only -- you've been the only company that's had success developing a tubeless system or a tubeless pump or a patch pump. I wanted to just -- I'm clearly deficient in understanding engineering, but just what are the biggest engineering hurdles? And you've had some competitors just, with Insulet's success, kind of talk now about their own pipeline and having -- developing tubeless systems. But maybe if you could help us understand your understanding or better understand the setup and why every other company that's tried to develop a tubeless system has failed historically. What are the biggest engineering hurdles? I'm sure it's miniaturization and a whole bunch of high-level things. But any help there we'd be grateful for.

Yes, Josh. So obviously, I can't speak to what others have tried, but I'm happy to talk a little bit about our own journey and what we understand about the space. And developing a pod-based tubeless AID system has a really difficult set of challenges. And when we reflect on our own innovation journey to get here, I think about it in sort of 3 phases and 3 steps. And so the first of those is the first set of engineering challenges that you just described, which is, to produce a competitive wearable technology. And that is an unusually hard set of engineering problems to solve the bioelectrical and mechanical challenges associated with putting that much technology into a disposable. But that's really just the first step, that is, producing something that users are going to respond well to. And that was the first step that Insulet took. The second step then is to scale that and to learn to make it at a cost, at a quality and at a scale that can serve global needs and that really is a second set of investments. And those who've been with our journey for a while have watched us make those investments in the R&D refinement and in the manufacturing capacity, capital and process refinement, to be able to build tens of millions, again, at a cost that delivers an acceptable margin and at a quality level that users expect. And commensurate with that scaling manufacturing is also scaling the business model. We talk a lot about our pay-as-you-go business model that is uniquely enabled by our differentiated technology, and that's a build, too. It's a very different business model to build pharmacy access and to build the capabilities to be able to sell and distribute through the pharmacy channel. And so together, the scaling of manufacturing and scaling that pay-as-you-go business model is the second thing that's really hard. And the third thing that we've been working on for the last 4 or 5 years and where we opened the call is Omnipod 5. Once one has a tubeless, pod-based system that they can build at scale and quality, now there's a third hurdle, which is, you need AID expertise, and you need all of the digital technologies surrounding that to do things like phone control. So it's a very challenging set of technologies, and it's been a wonderful journey for Insulet.

Excellent. Maybe just to build on that answer, Eric, and ask about just the SmartAdjust technology, I think you referenced it in your last couple of sentences there. But, I mean, how differentiated is that? I mean how long did it take Insulet to develop the -- those capabilities in that feature within Omnipod 5?

Yes, Josh, it's a great question. Maybe I'll start and then Trang can build because it really is both a set of technical challenges and a set of clinical challenges in order to do AID. And so our journey with that started 5 or 6 years ago. And our SmartAdjust technology is a really exciting proprietary AID technology that we had to do a couple of things. The first, getting back to where we started the conversation. We wanted to make it really simple. We wanted it to enable -- we wanted the AID technology to enable folks coming from MDI or from another tube pump who had never used Omnipod to get started on the product and use it successfully. That simplicity is just who we are. And that makes the engineering work harder to deliver that simplicity. And so our team spent countless hours and countless feasibility studies, refining the algorithm in order to get to that level of simplicity. And maybe, Trang, do you want to build a little bit on how we did that and what some of the outcomes were?

Yes, happy to. The -- yes, the -- in terms of the algorithm, we're incredibly proud of what we've built with Omnipod 5. It is what is giving our users the incredible feedback that we're getting. And yes, so in all the trials that we have done for clearance, including all the way down to 6 years of age up to 70 years of age, we've shown a reduction in A1c, improvement in time and range, and also reduction in hypoglycemia as well. And so that is really the power behind Omnipod 5 is proven clinical evidence that backs this technology. And what I'd say also and just to build on what Eric said before about the amazing technology that is already in Omnipod, I do think there are features such as the auto cannulation where patients really don't have to handle any types of needles or infusion sets, which really sets Omnipod apart from any other technology out there. And it's something that we do think about in terms of, okay, what is the trade-off here in terms of cost versus simplicity and ease of use for our patients. And I'm really proud of the team for making these decisions to really provide simplicity and ease of use for our users. And it is what sets our technology apart from others is that people don't have to handle any needles. The pod automatically inserts or retracts that needle straight away and we deliver 72 hours of continuous insulin delivery. And then building on that, with Omnipod 5, we have the algorithm inside the pod and then talks wirelessly with CGM. So the user doesn't have to wear any additional devices. They are already wearing the Omnipod that they already love and adore and then Dexcom CGM, a fantastic sensor, and then they have on-body wearable AID. It truly is differentiated technology that to date no one -- we can't see anyone surpassing for a long time.

Excellent. And how big of a deal is the customizable glucose target with the bottom end of that range at 110 milligrams per deciliter?

Yes. Again, maybe I'll start and Trang can build. I think the way we think about it is we wanted back to simplicity, right? What did we want? We want a system that no matter who's coming to it, they can confidently get started on the system, whether they're coming from MDI or coming from tubed pumps. And so when we think about things like adjustable set points, we do think it's a big deal. We think it's a significant leapfrog feature that helps position us with an AID system that is second to none in the marketplace. And -- but the why behind that is because we believe that it lets folks start confidently no matter where they're coming from. And that is the thing that's unique about Omnipod. And that's why we've been a category grower for so long is that Omnipod is great at -- for folks who are coming from MDI.

And just -- go ahead, go ahead, Trang, sorry.

Yes. I can just build on that. The uniqueness of the feature allows people to set where they want to go with their glucose control and then really let the system do the work. And so today, pump therapy is still pretty complicated out there and that a physician really has to fine-tune the glucose -- the insulin delivery settings. And what we've really pushed with Omnipod 5 is really reducing the work for both clinician as well as the user in terms of augmenting all the different basal and bolus deliveries to really let the system do more of the work and handle that. So that's -- the customizable glucose targets is something that has been really well received by patients throughout the clinical trial, especially in our pediatric population.

And I think it's clear about the win on simplifying patients' lives with Omnipod 5. But just to circle back on some of the clinical study results and just looking at the hemoglobin A1c reduction for both children and adults and adolescents, time and range and hypoglycemia, how is your team kind of marketing those 3 different buckets relative to the competitive pumps that are out in the marketplace? I mean I think the entire package is differentiated, and we'll talk a little bit more about the pharmacy channel in a minute, which is another advantage for Omnipod 5. But just wanted to get your sense on how your team is going to be marketing the clinical study results in those 3 different buckets.

Yes. Our clinical trial results have been very well received by clinicians and the scientific community. And it's -- because it's not just the results that we saw over the 3-month period, but also the 6-month and 12-month extension phases, where we saw durability of those clinical results, really shows the ability for the system to grow with the user and maintain these very fantastic results for our patients. And I think, in general, these have been very well received and the -- this common question we get from physicians is when is this going to be available for them to prescribe. So I think the clinical trial results stand alone in terms of exactly everything you want to see from an AID system, which is improvement in time and range, reduction in A1c and then not at the cost of creating more hypoglycemia. So I think clinicians who've been prescribing AID for a long time, prescribing any insulin will clearly appreciate that.

Great. And just thinking about -- I know you guys have described the early commercial launch for Omnipod 5, and we're not going to focus on that in this discussion. But just on the development side for iOS smartphones and [indiscernible] compatibility, integrating and opening up access to that segment of the diabetic population. What's left? I mean I think you guys have been working on that for a while. But is that a challenging engineering hurdle to clear? Or is that -- I mean you guys are on the cusp of finalizing that project and submitting.

Josh, thanks for the question. I will actually start maybe with how we're starting the LMR because, I think, it's relevant to the question about iOS. So I think as we've described, our goal for the limited market release is to ensure that we get great feedback across the various archetypes of people who are coming to Omnipod 5. We believe we've developed a great product for folks coming from MDI, folks with long experience with Omnipod, folks coming from tubed pumps. But they all have slightly different journeys on how they get to product, and they all actually experience the product in slightly different ways based on where they're coming from. And so we're really proud that we began the limited market release as quickly as we did after clearance. And quite deliberately, we actually began that with our controller configuration. So you may recall we released 2 things with Omnipod 5. We have an Insulet-provided controller, every one of which comes with a SIM card, every one of which is shipped at no cost to users. So every user gets an Insulet-provided controller. In addition, we have the Omnipod 5 app, which users with a compatible smartphone can use to fully control the system. For a variety of reasons, we knew that the -- or we expect, I should say, that the predominant configuration in the market, at least the one that will drive launch this year, will actually be the controller configuration. And so quite deliberately, we began the limited market release with the controller configuration so that all the great feedback we're getting is actually that. And so consistent with our plan, we've been doing that now for a number of weeks. And sometime in the next month or so, we'll also begin collecting feedback on the phone control configuration. And we're also collecting feedback on all the onboarding processes that we've described. As folks know, there are no upfront costs. There are no switching costs with Omnipod. And because we've chosen to price Omnipod 5 at parity with DASH, most users will enjoy the same very low out-of-pocket cost, typically less than $50 a month and about the same as MDI to use Omnipod 5. And so we designed all the onboarding to support no matter how somebody is getting to Omnipod to be as seamless and streamlined as we could. And so that's part of what we're testing, and this limited market release is to ensure that we're ready to deliver on our commitment to users to have a great experience no matter how they're coming to Omnipod.

I got to take myself off mute. I think the noise is gone now. But I wanted to ask about the -- pursue the type 2 opportunity, and I think you've begun discussions with the FDA on pivotal trial requirements for -- to expand indication in the type 2 diabetic patients. Any updates just in terms of how that clinical trial design could shape up? And any timing of when that trial could be initiated?

Josh...

Sorry, please, Trang.

Yes, I can take that. So the -- we haven't provided timing on the clinical trial design yet. It's something we'll be working through this year. But we're really super excited to be presenting our type 2 data at ATTD, which is in April this year. And that -- those -- the data that we'll be presenting is from the first feasibility trial that we did for 24 patients with type 2 diabetes. And if you will recall, at ENDO last year -- in March of last year, we presented early data on just 4 patients were very promising, but the data on the 24 patients will be really unique and it will be really first of its kind for AID in type 2. And the reason why it's unique is we specifically targeted patients who had suboptimal glucose control and also who were pump-naive and many of those were also CGM-naive. And so we really wanted to see how -- which really represents the majority of type 2 patients out there. We wanted to see how they would do on our system and whether -- in fact, people with type 2, do they really even need an AID system. There are really a lot of unanswered scientific questions about the suitability of AID for type 2. So we're super excited to be sharing that this year. And then really, our success in type 2 just shows how incredible the opportunity is for our patients. As you know, the Omnipod DASH is highly successful in our U.S. market, where pharmacy access has enabled patients to try this technology at very low out-of-pocket costs for our type 2 patients. And it really shows if affordable and if accessible, this technology is really incredible for really anyone who requires insulin therapy. We have clinical data to show also, again, reduction in A1c and reduction in insulin usage for the type 2 population. So it's something that we're excited to be working on through the year and really excited to be learning more and really absorbing this information. And also to note, this is going to require a large clinical investment as well. So that is -- that will be coming in the next little while.

Excellent. Excellent.

Josh, if I may -- yes, if I may just build on just a couple of things...

Sure.

To underscore a couple of things Trang said. The first is, as recently as Q4 of 2021, in the high 30s percentage of our new users were folks with type 2. And so what Trang described about access and affordability and the technology all sort of fitting together to really meet an unmet need, Omnipod DASH is doing that today. And I think what we're excited about is that we see that continuing even as we're working on proving that Omnipod 5 will also work great for type 2.

Excellent. I wanted to just ask a little bit about the pharmacy channel and that unique acquisition point for patients and the convenience and, again, simplifying lives and the experience. I guess, are you -- is your team expecting other pumps to be able to access the pharmacy channel? Our team have a hard time envisioning a traditional pump that's not tubeless, ultimately, getting access to the pharma channel. But one, I just wanted to ask you that. And then secondly -- secondarily, what percentage of your DASH users are coming from the pharmacy channel today? And then how do you see that progressing as Omnipod 5 is launched? Is it going to -- we're assuming it's going to continue to increase the pharmacy channel access in terms of new patients and -- but those are 2 questions in one for you on the pharmacy channel.

Yes. Some good ones there. Maybe I'll take them in reverse. And our volumes, see, they are not what I'm closest to, so, Deb, if you need to straighten me out here, please do. But I think it's something a little over half of our volume today that it goes through the pharmacy channel in the U.S. And with Omnipod 5, it will be our first product that is only available in the pharmacy channel. And so that is certainly one of the things that we're really excited about, among many others, is that Omnipod 5 is going to help us sort of finish pulling through that strategy and getting even more of our volume through the pharmacy channel. So it's a -- we do believe it's a access simplifier. The pay-as-you-go is better for everybody, it's better for users, it's better for payers. It just means that we're holding a little more risk on the user, but that's better for the health care system and overall. So we're excited about it. So I think that's sort of where we see pharmacy going. As it relates to what it takes to get there, again, I don't know that we can comment on others, but we know our own experience.

Sure.

Our own experience was that it both takes investment and capabilities to figure out how to leverage the pharmacy channel successfully, and it is, like any other, an access journey that has certain nuances associated with it. And certainly being able to prove that the value is in the recurring portion was a critical step that we had to go through. And so there's -- it's a great channel for us. We believe it's become a competitive advantage because of some of the unique things that our pod-based platform enables. And so we're excited about it and excited about growing it with Omnipod 5.

Excellent. Thinking about another kind of indication expansion and the data that you've secured in pediatric patients, can you just review the pathway to indication expansion in the peds and how big of an opportunity that is? And I think you think about the need for simplification of diabetics experience. I think it's probably even more stronger case in the youth of -- in our population. But anyway I'll leave it at that, and, Trang, it looks like you're ready to answer.

Yes. Thank you, Josh. Yes, so our 2- to 6-year-old indication is currently being reviewed by FDA. And we shared the data around that last year. Really incredible results. Again, improvement in time and range, reduction in A1c and hypoglycemia reduction as well. And so that population is close to my heart as a pediatric endocrinologist. I really see this technology as being so incredibly necessary even from the first day of diagnosis and being much safer than what is available out there. And so that is currently with FDA, and we expect that indication sometime this year. And why it's so important is, the earlier you can maintain good glycemic control, the better it will be for the patient in terms of the entire lifetime of morbidity from this condition. And it is my belief that the earlier you can intervene and course correct, you can really change the trajectory of someone's life if you can maintain good glycemic control. And so it is a population that is very near and dear to our hearts, and we expect that indication in 2022.

Excellent. I feel bad asking this question because you've just completed a big journey and got Omnipod 5 approved, but there's always the what's next question even in these early days of a new commercial launch. And I think you guys have talked about this before. You clearly have talked about this before, but just the potential to improve algorithms and integrate technology in the type 2 patient population and the technology ecosystem that help providers on kind of 3 kind of angles I think you've talked about in terms of what's next. And any -- can you build on that, Eric and Trang, in terms of what's next after Omnipod 5? And I know because of probably competitive reasons, you won't go into too much detail, but I would love to just hear some high-level thoughts.

Yes. Josh, great. I think the place we'd start with is when we think about the market, there's sort of been 2 big forces driving the market. And one was pod or a tethered pump and the other was AID or not AID. And that's sort of how the market has been competing for the last several years. And so the reason we're so excited about Omnipod 5 is it puts us in the pod AID category uniquely in the market. And so we really do view that as a leadership position and one in which Omnipod 5 has leapfrogged the competition. And so when we think about where we're going next, it's how we extend leadership. And so we think about that in 3 chunks. We think about it as how we extend the Omnipod 5 platform with things like sensor integrations with our great partners, things like iOS. We think about it in terms of strengthening the data ecosystem around Omnipod 5 so that all stakeholders get the most out of Omnipod 5. And we think about continuing to simplify the AID experience so that we can greater penetrate the really underserved markets that we're in. And we think we're playing from a position of strength with Omnipod 5, and we're making significant investments for long-term growth in all of those areas.

I think we're out of time, but I agree with everything Eric said, and I would just say that Omnipod 5 is a really incredible product for our patients.

Yes, we're looking forward to following along on the launch and the progress and the share gains over the next 12, 24, 36 months and then maybe we'll see what's actually next in the pipeline. But thank you, guys, so much for joining us today and really appreciate you participating in our conference. Great discussion, and thanks for all the updates.

Josh, it was a pleasure. Thanks for hosting us.

Thanks, Josh.

Thanks. So we'll be in touch. Have a great rest of the day.

Bye now.