Insulet Corporation (PODD) Earnings Call Transcript & Summary

[indiscernible]. So again, I appreciate everyone showing up to day 3 of the William Blair Growth Stock Conference. Very happy to have you guys here. For those of you that don't know me, my name is Margaret Kaczor. I'm a research analyst here at William Blair & Company who covers Insulet. Before we begin, I am required to inform you that I personally own shares of Insulet. And beyond that, you can obtain a complete list of research disclosures or potential conflicts of interest at williamblair.com. Now we're very pleased to have an entire lineup and potentially the brain trust of Insulet here. We've got the new CEO, Jim Hollingshead, and potentially, your inaugural kind of buy-side event at least. We've got the CCO, Bret Christensen, who's been around for a long time, really doing well. Hopefully, we can keep going. And then the EVP of Innovation and Strategy, Eric Benjamin, here with us today. And you guys know I usually do an intro, I'm going to try to keep it hyper, hyper short here. But suffice it to say that for the second time of my career, I wrote probably a 200-page bull/bear weekly series of reports at the beginning of January. Every single time I do it, I always say I regret doing it just because it takes so much time. But in this scenario, it was truly worth, and we wanted to put in that time because we truly believe that Insulet is really standing at the precipice of a change within not only type 1 diabetics, which is I think what a lot of people assume insulin pumps are at, but also type 2 is also the hospital, also a technology innovation curve ahead of it that really gets us excited. And so again, that was a series of reports. And if you don't have one, reach out to your William Blair sales person. I'm sure they can send it over to you. So with that, I'm going to turn it over to Jim maybe for some intro comments, both on yourself as well as PODD, and we'll go into Q&A.

Thanks, Margaret, and thank you, everybody, for coming out today. This is quite literally my 1-week anniversary as the incoming CEO of Insulet. So you may not hear much from me today because Eric and Bret are going to know all the answers. So I'm just going to start us with a couple of contextual questions. I might comment a little bit along the way, but just to give you some background on Insulet, Insulet was launched about 20 years ago with a mission of improving the lives of people with diabetes. And we do that with our Omnipod product platform. So the Omnipod is a wearable, disposable insulin delivery system. It's about that big. You can wear it anywhere on different parts of your body. We've had a phenomenal success in simplifying the lives of people with diabetes and delivering insulin. We've had a couple of different products on the market. But we're really excited, incredibly excited right now because we are well into our limited market release of our next-generation product, the Omnipod 5, which we think is going to be a complete revolution. So the Omnipod 5 has the same patient-preferred form factor, incredibly easy to use. It's tubeless so it doesn't require an insertion set, really easy to use, wearable, disposable. But now the Omnipod 5 also brings with it true, automated insulin delivery, or AID. We've just come out of the ADA Conference held in New Orleans, where we presented an extension of our data. Our data -- our clinical data are fantastic. The AID system on the Omnipod 5 has -- reduces time in range. These are all -- for those of you who aren't necessarily familiar with diabetes, it reduces time in range for patients -- or rather increases time in range, reduces HbA1c, phenomenal clinical data for people who are insulin-dependent, people with diabetes, but it has the same preferred form factor. And we're getting -- in our launch, we're getting fantastic feedback. What it really does is simplify life for patients with diabetes. So we're very, very excited about that. And we feel like we're just -- as Margaret says, we're just on the precipice of really dramatic growth with that system. We think it's going to do extremely well. And the other thing, just from an investor point of view, this is our -- 2021 represented our sixth consecutive year of revenue growth of 20-plus percent. We continued that momentum into Q1 of this year. We feel great about what's coming in 2022 and beyond. So lots of buzz for us inside the company because the Omnipod 5 is such an exciting launch. Lots of buzz for us in our clinical community. Physicians and patients are really excited about the Omnipod 5, and we're thrilled to be here today to talk to you and answer any questions.

Perfect. So maybe just to start, let's size up -- this is a generalist conference. Just size up the type 1 and type 2 opportunities for us and kind of where is adoption today for pumps as well as for Pod within that.

Yes. Margaret, I can start with that one. Hello, everybody. So diabetes is a vast, large and growing market, unfortunately, worldwide as type 1 -- the incidence of type 1 continues to grow, but also type 2, as you all know, is growing at a pretty rapid pace. And our focus is on insulin-intensive diabetes, so people that need both basal insulin and bolus insulin. And we size that opportunity roughly about 1.7 million type 1 in the U.S. and about 2.4 million people with insulin-intensive type 2 in the U.S. And that market, at least we'll start with the type 1 marketplace, it is very underpenetrated, considering we've been around for 20 years, as Jim said. The first insulin pump came out nearly 40 years ago, yet the type 1 market within the U.S., which is probably one of the highest penetrated markets in the world, is only about 1/3. So about 1/3 of people with type 1 diabetes use an insulin pump or Pod like Omnipod. The type 2 market, insulin-intensive type 2 market is much less penetrated, low single digit. So we are at this, as Margaret said, sort of this precipice of opportunity. We do see the type 1 market in the U.S. doubling over the next 3 to 5 years from about 1/3 penetrated to about 2/3 penetrated.

And so kind of walk us through that aspect, right, because you were talking of doubling from -- within type 1. So what has normally been a gatekeeper for that market? Was it clinical? Was it technology, cost?

Yes, all those things. But probably 3 broad categories. The first is the technology, of course. The technology has to reduce the burden of people living with diabetes. And for those of you that know someone who has type 1 diabetes or insulin-intensive type 2 diabetes, they're thinking about it all day long. It's a very burdensome disease. And so you're constantly thinking about your exercise, your stress levels, your sleep, and then everything that you eat, you need to count carbs and try to make sure you get that amount of insulin so that you stay in range, as Jim said. So what -- our mission is to reduce the burden of people living with diabetes. And technology 40 years ago certainly wasn't there. And today, it is. And we're introducing now the best form factor in the marketplace with a tubeless insulin pump, a 3-day wearable Pod. And now we're adding automated insulin delivery, which means every 5 minutes, you're getting a reading from your CGM that you're wearing, your continuous glucose monitor, and today it interfaces with the Dexcom G6. And then you're getting a microdose of insulin every 5 minutes that's driving you to the target that you've set. So it's keeping you in range. So technology has come a long way. That's the first reason we're excited about the increase in penetration. But also cost. A few years ago, we moved our product from the DME channel, the durable medical equipment channel, to the pharmacy channel. And what that -- that did a number of things for us. It took away the upfront fee for users. Historically, people paid somewhere between $5,000 and $7,000 to start on an insulin pump. And they're locked into a 4-year contract where they can't upgrade their technology. We removed all of that in the pharmacy channel. Today, the vast majority of people in the pharmacy channel on Omnipod pay a co-pay that's $50 or less each month, and most of it is less than that. So it's affordable. That's the second thing. And then the third thing that we're just sort of getting into now is awareness. Surprisingly, only about 1/3 of people with type 1 diabetes in the U.S. can name a product like Omnipod by name. And so we're actively engaged in direct-to-consumer marketing. We're running TV commercials, and we're trying to generate awareness for this great technology. And that's why we're optimistic that it can double.

Great. I want to talk about the form factor. As basic as it is, it's actually revolutionary. You guys worked on it for many years. I actually remember covering PODD back in the early kind of 4/2010, and I think the gross margins were 30%, maybe less. And the idea, ultimately, is you've brought in a lot of innovation to the space. You've been able to raise those gross margins above 60%, nearing 70% and beyond. So from a patient perspective, when we do surveys, we've seen surveys suggest that, all things being equal, patch pumps would be selected 2/3 of the time relative to a traditional tube pump. And so how do you change that? I mean our estimate is you're maybe 15%, 20% market share at this point. That's well short of 2/3. So how do you get to that in the future?

Yes. I can start with that. I think the first thing, Margaret, as you said is it's been an incredible journey to get the platform to where it is. As Bret just described, Omnipod 5 brings so much that's new for users. So we'll have the patient-preferred form factor, leading clinical data, the only fully phone-controlled system on the market. And so the first part of the equation of how we change it is to have the leading technology, which we now have. And the second piece is, as Bret just described, we've done a huge amount of work over the last 5 years to make the technology affordable. If we play way back to Insulet's 20-year history, I sort of think about the innovation curve in 3 phases. In the first decade, we were basically working on the core hardware platform. As you described, Margaret, that's a really difficult technology to get right. It's an extraordinary device for patients. And in the first decade, the company was getting the core of the device working and at the 60% to 70% margins that Margaret described. The second phase, we're getting the commercial model sort of tied to the unique pay-as-you-go form factor and getting the affordability that Bret just described. So that's relatively new in the Insulet story for us to be able to offer our unique technology in a differentiated commercial model. And finally, in the last couple of years, we've been adding the automated insulin delivery and the digital components to the technology, all of which differentiated extraordinarily in the marketplace. And so I think why we're so excited is that we're standing at this moment where all of those pieces are now in place. And so we're ready to capitalize on that huge interest from customers in the unique form factor.

So let's pivot to Omnipod 5 because, obviously, it's a massive launch. You guys are technically in a limited launch. It's kind of this hybrid limited launch because I think anyone can prescribe it. You're just looking for more access at this point. So how has it gone so far in the first few months, I guess, of it being on the market?

Yes, it's going very well, Margaret. And as you said, we're in a limited market release today, and we're probably about 4 months into our limited market release. So there's a reason why we're launching it in this fashion. Even though we're in the pharmacy channel with a product called DASH today, Omnipod 5 is very differentiated. And so there's a lot that we're watching and monitoring, and not just around the product because we're pretty confident in the product, people have been on product for more than a year now, but we've done a lot with the onboarding tools and self-service. Diabetes has been a really labor-intensive industry, lots of paperwork, lots of prior auths, just lots of hoops to jump through to get on product. That's been by design because of this large upfront fee to start on product, which we don't charge for anymore. We eliminated it. And so because we eliminated this upfront fee and we eliminated the 4-year lock-in period, anybody on Omnipod today can start on Omnipod 5. And as you said, Margaret, any physician can write a prescription. So we want people that are used to Omnipod and have been wearing Omnipod to quickly upgrade to Omnipod 5 without us having to do in-person training, a lot of paperwork. And so we've created a lot of tools to enable that. It's going to be really important for us because as we strive to innovate in shorter cycles more quickly, we can't always afford to spend a lot of time on the base, getting them to the latest product. We have to grow the base. And so these self-service onboarding tools are the things we're watching really closely until we get to our full market release.

You had an interesting concept there, which maybe Eric can help us with, which was accelerating kind of the innovation base and the ability to launch new products. So either one of you or all 3 of you, any thoughts around what that could look like? Because ResMed actually went through it as well.

Yes. So for those in the audience, I just came from ResMed, where I was running the Sleep and Respiratory Care business, and the core business at ResMed is sleep apnea. And at ResMed, what we did was we digitized the patient pathway and the clinical pathway back in 2014. And what that did was totally change the dynamic of that industry. And the parallels to Insulet are really strong. So I joined the Board of Insulet about 3 years ago, and one of the reasons the Board was interested in me joining was because of ResMed's experience. And the ResMed journey was around digitizing, and Insulet was clearly coming down that path. And so when I joined the Board about 3 years ago, I would have said that Insulet was 3 or 4 years behind, but I have to say, Margaret, that I think Insulet, in many ways, is kind of caught up and in some ways even past where ResMed was. And what we -- and I think particularly in this area of patient self-serve. So a big part of the Omnipod 5 offer, it's not only a great clinical platform and a fantastic experience for the patient on therapy because it so dramatically simplifies the experience on therapy, but the way we're bringing it to market through the pharmacy channel with an end-to-end digitized experience as well. So that's the other digital side of the Insulet offer. It's really revolutionary. And so we learned on the ResMed side that if you can improve the patient experience, you can improve everything for every stakeholder in the chain. It's -- you can solve, and we can go into this in more depth. I'll just say briefly, you solve a lot of problems for physicians. You solve a lot of problems for payers as well. But you're focused on making the patient experience in managing their chronic condition as simple and as easy as possible because then they can get on therapy, they can stay on therapy, they have a better quality of life, they have better outcomes. And that's how you solve for every stakeholder in the chain.

Arguably, that's part of why pumps are 1/3 penetrated even with some of the competing technologies having AIDs already on the market.

Yes. I think we believe that a lot of the reasons that pumps are only a 1/3 penetrated are just the technology hasn't quite been good enough. And I think as we've already spoken about, Omnipod 5 gets technology to a point that it's life changing for people. We all just came from the American Diabetes Association Conference in New Orleans, and we got to meet dozens of people who are now Omnipod 5 users, and they described it as a vacation compared to other systems and life changing for themselves and their entire families. And so the feedback that we're getting is just extraordinary. And circling back to your other question about speed, there are a couple of things that are just real in medtech. Hardware platforms take a long time to fully replatform and fully prove out. Similarly, things that depend on clinical trials and long-term regulatory submissions, there's just -- there's a cadence to those that has to be managed. And the thing that's really interesting about where Insulet has gotten to and what Jim was describing that some other companies that we've learned from have done is once you build around the product with digital experiences that have a big impact on simplifying life, which is so critical for us in diabetes, you can accelerate those offers in ways that aren't possible when you're trying to replatform hardware or go through clinical pathways. So we have really exciting stuff coming in terms of data and insights that will simplify life for users, caregivers, HCPs and other things that just wasn't possible a few years ago.

Is that more onboarding? Or is that kind of on the back as they're on the product already?

To be honest, it's all of the above. We're constantly looking at how we take friction out of the experience to drive penetration. And that's from onboarding to use to the entire family and care team.

From a -- let's go back maybe to the O5 launch, [indiscernible]. So if there's a patient that maybe isn't participating with an O5 pharmacy, how do they get access to the product?

Yes. So any physician can write a prescription. And what many people don't know is that with our legacy products, and DASH included, when we moved to pharmacy, all of those patients started through a specialty pharmacy or mail order pharmacy or both. And that's how we're doing this limited launch with Omnipod 5. So it is something they're used to. Most of those patients have since migrated to retail pharmacy where 80% of our pharmacy business is with a retail chain. But they're used to it. They're used to starting that way, and we'll help them. So today, they get a prescription, they get it to us, we direct them to the specialty pharmacy that can fill that prescription, and that's how they'll start. Once we move to a full market release, they'll be able to migrate to any of the 88,000-plus retail pharmacies in the U.S., and we expect that people will do that.

Some of the things that you had discussed, trying to simplify the onboarding of a patient, simplify that upgrade process for a patient, do you think you're at a point at this point where you can seamlessly do that and add as many patients as you want, I guess? What's the...

Well, I think that will be full market release, right? And we'll -- the great thing about the pharmacy channel is it creates tremendous scale for us. I mean the -- these pharmacies are very efficient channels. They're efficient with their inventory. They're efficient with their benefit checks. They're efficient with their onboarding and filling patient orders. And so effectively we're off-loading all of that to the pharmacy channel and did a few years ago when we moved to the pharmacy. And when we moved to retail, which we'll define as full market release, we will off load all of that to pharmacies. But we want to make sure we're in a good spot with all of those onboarding tools and that there's no confusion with these pharmacists that now will get 2 prescriptions effectively for Omnipod 5 to start: a starter kit that includes the controller so that anybody that's not using pure phone control can control their Omnipod and they'll also get the supply of Pods and the ongoing supply of Pods. And so we just want to -- again, we want to make sure that that's all working smoothly because it does create tremendous scale for us, and we'll be able to take all comers with full market release.

Now we don't have Wayde here, but does that help on the bottom line as well over time?

Over time, for sure. Yes, it does. Any time you roll out a new product, there's potentially some headwinds, right, with costs and things like that. But over time, again, it's an efficient channel. We've seen a lot of help to the bottom line with the pharmacy channel because although we removed the upfront fee, which is helpful in the short term, the premium that we put on the Pods longer term is -- has been really accretive for us and good for the bottom line.

What do you -- is there an opportunity, I guess, for O5 to actually get a premium price on top of what you saw from DASH?

Margaret, there was an opportunity. But if you remember, years ago, when we talked about our strategy into getting Omnipod 5 quickly approved with payers, we said we would price it at parity to DASH. And the reason to do that was simply that to scale access really quickly. We know that our patients have been waiting for this product for a long time. There's a lot of demand for people that want to start on Omnipod but have been waiting for AID, which is included with Omnipod 5. And so our strategy was to tell payers, look, we're going to give you a product that's going to provide better outcomes for your patients, and we're going to price it at parity to what we price DASH. So that's going to allow for a more quickly scalable market access strategy for us.

As we look at Libre 3 now, and you guys are partnered with Dexcom for G6 on O5. Libre 3 has got a lot of patients on board as well in the U.S. as well as even more internationally. So can you guys start working with them relatively quickly? Have you been? Does that accelerate the time frame that they get FDA approval?

Yes. Libre 3 looks like a great sensor. We work closely with both of our partners, Dexcom and Abbott, on the devices that they have on the market and on the things that they have in the pipeline. And we've been excitedly working on a Libre-integrated Omnipod 5 for some time and can't wait to bring it to users because there are lots of them who would be great candidates for Omnipod.

Do you have to wait for the vitamin C interference to be resolved? Or can you work on it?

We've begun the work with Abbott. We've begun the work.

Okay. I want to hit a little bit on Beta Bionics and some of the other companies that are out there. Why couldn't you guys do some of these algorithms and software advantages yourselves internally, things like Snap. And maybe describe some of those interesting platforms that you're seeing in diabetes today.

Yes. Look, I think when we think about what the future looks like, we think of innovation basically along 2 dimensions. We think of one dimension being the physical experience. And today, we're the only Pod-based insulin delivery platform. And so that's a really unique physical experience that has taken us a long time to get right that we're going to keep making better and better over time. And the second dimension is the ease of the overall experience, which certainly includes all the automation, all of the simplification of onboarding and management of the system, all of the automation of glucose excursions and wanting to make the entire use of the system as easy as possible. And so those are the 2 dimensions that we think about innovating. Those are the 2 dimensions that we think will drive penetration higher and higher over time. And so we have active efforts -- even though we're only in the early stages of the Omnipod 5 launch, we have had active efforts working on our next-generation algorithms to increase automation, simplify how people get access to and start up the technology, minimize the maintenance of the technology that physicians would have to do. We're working on all those things. And the thing that gives us such confidence is that the world has the tools to solve those problems. And we have the capabilities to bring those solutions to bear and bring the innovations that are going to drive penetration higher and higher over time.

From a commercial perspective, it's -- I feel like that's maybe underappreciated by Wall Street. And I actually look at ResMed as a potential example because I don't know the exact market share you guys had prior to doing some of these digitized efforts, but I would say it was probably close to 30% on generators and it probably went to 50% plus within a matter of a couple of years. So is there that opportunity of that big of a potential shift in insulin pumps? Or is it just a slower space where it takes a little bit more convincing and hand-holding?

I don't think we want to -- ResMed was never public on our market share numbers, Margaret, as you remember, although you're not far off. But I don't think we want to get into predictions of market share and things like that today. But I will say that I think that the Omnipod 5 is genuinely a revolutionary product because the feedback we're getting -- so down at ADA, just to give you an example, I was -- I had dinner with some physicians. And one of the physicians I was talking to himself has type 1 diabetes, his daughter has type 1 diabetes. She's off at college. He put her on the Omnipod 5. And now this is a very engaged person with type 1 diabetes, whose dad is a physician. She's been managing her type 1 diabetes very effectively for years, and she called him up on day 5 of the Omnipod 5 and said, "The thing that's amazing about this product is I've almost forgotten that I have to manage my diabetes." It's remarkable, right? And so the experience of it, so simple to wear, so simple to use. And because it's automated and the algorithm is so good, it keeps people in their time in range. So they have very few highs. They have very few lows, which is what most people with diabetes worry about, is getting to a low blood glucose level. And so that's the sort of thing where the kind of feedback we're hearing out of our limited market release suggest to me that this is really going to be a revolutionary product. And so I think that we've got -- we've had real success with this very small form factor before having automated insulin delivery. And now we have automated insulin delivery, AID, and I really think there's -- it's -- I think we're just at the beginning of a very big ramp. I think it's going to be a big revolution.

Good. Awareness is something else we spoke a little bit about. So what kind of DTC efforts do you guys have in place? And arguably, I would assume you ramp those pretty meaningfully in the next couple of years.

Yes. We are a leader in this category, too. There's not another insulin delivery device that is doing TV commercials, for instance. But we realized that although we are a medtech company, we're very tailored to the consumer experience, and it's something we wanted to showcase. Omnipod shows so well on a TV commercial. It's the only patch pump that's doing tubeless form factor and we wanted to show that. We wanted to show the ease of use and how simple it is to eliminate 4, 5 injections every single day for somebody that has diabetes. And we wanted to create that awareness. So we've been doing that now for probably 1.5 years, and it's something we will continue. And certainly, we'll start to tailor our messaging now. It's exciting because now we get to add automated insulin delivery to that message, which is going to be really exciting because to Jim's point, people have been making this trade-off. They have been saying, "Do I want the tubeless form factor, the ease of use of Omnipod? Or do I need an AID system that's going to automatically adjust my insulin?" And they don't have to make that trade-off anymore. And so we want to make sure we get that message out there. It's something we're going to continue to work on. As you know, it takes a while to build awareness. And we'll start running Omnipod 5 commercials in the near future, maybe even before full market release. We'll see how that goes, but it is something you'll see us do in the short term.

And arguably, that's both type 1 market as well as the type 2 market for intensives, and we haven't spent too much time on that. But maybe give us a little bit of flavor as to why intensively managed type 2s are adopting today, why your platform and how does that kind of look with O5?

Yes. Thanks, Margaret. We haven't talked too much about type 2, and it's this big opportunity. And we are the market leader here mainly because we've opened up access for type 2s. And we did that again by eliminating that upfront fee. It's widely believed that people with type 2 diabetes might not be as compliant, meaning they might get a pump and stop using it. And if you're a payer and you're paying $6,000 right up front, you want to avoid that. So there's a lot of barriers for people with insulin-intensive type 2 to get on pumps with the exception of Insulet, where we moved the product to the pharmacy channel. We don't build that upfront fee so we take the risk away from payers of utilization, and that's opened up the type 2 market for us. We're also really, we believe, the best product for type 2s because of its ease of use and its discretion. You can wear a Pod almost anywhere on the body and hide that if you want to. And so we're a great product for type 2s. We've opened up access, and we see it as a really important opportunity for us. And to date, about 35% to 40% of all of our new starts have been type 2 in the U.S. So it's an important market for us. We're learning a lot, and we'll continue to do more to penetrate the type 2 market.

Good. Eric, we've got you here, and we don't normally. So just from kind of an innovation and strategy perspective, how do you look at what a type 2 patient needs relative to what a type 1 patient needs?

Yes, Margaret, it's a great question. I think one of the interesting learnings, if we go way back to when we were working on DASH, we are sort of obsessive about the user experience. You probably heard it from all of us that we're really focused on simplifying life for people with diabetes. And one of the things that we learned early on in developing our user interfaces is that if we design for the type 2 user, we end up with better products because folks who live with type 1 don't really want the complexity either, they were just willing to tolerate it because they didn't have a choice. And so it's actually been in our DNA and in our design processes to think hard about the needs of the type 2 user and indeed to design products for them now for probably 5 years. And that's part of why we see proof points like Bret described, where 35% to 40% of our new users have been folks with type 2. And as we look ahead, I think we see tremendous opportunity to continue simplifying our products, which is going to help everybody with insulin-intensive managed diabetes.

Good. Well, with that, we are down to 42 seconds on the big clock. So I really appreciate everyone showing up this morning. We will head to the breakout room for more Q&A. That will be the Mayor room. And again, thanks to Jim, Bret and Eric for being here, and look forward to keeping on with the discussion.

Thank you, Margaret.

Thanks, everybody.

Thank you, everybody.