Insulet Corporation (PODD) Earnings Call Transcript & Summary

Hello, everyone. I'm Robbie Marcus, the Med Tech Analyst at JPMorgan. Really happy to bring up our next session, Insulet, and I'm going to introduce the CEO, Jim Hollingshead. We'll do a presentation, then a little Q&A. Jim?

Robbie, thank you very much. It's great to be here with all of you. Thank you all for coming today. I want to start with an introduction. On the slide here, you can see Christian. Christian is 6 years old. When he was 3, he was diagnosed with Type 1 diabetes. What he likes to do is he like swimming, he likes hoverboard, and he likes playing with his sisters. And if you look really closely in the photo there, you can see just on the back of his arm, the Omnipod 5. That's the device on the back of his arm. And Christian and his parents love the Omnipod 5, because it allows him to run around and be a kid and play and do all that stuff. It allows him to go to sleep at night, all staying with time and range, keeping his blood sugar time and range. And it's the reason we get out of bed every day is we like helping people like Christian and people all over the world to manage their diabetes. And I'll just flag for you because we have a lot of these photos in our presentation. Every photo in the presentation is an actual user of our products. And so we call them Podders and every single one of them has a story. I'm not going to stop and tell you the story of every Podder we have in the deck, but everyone has a story, and we're so excited especially now with Omnipod 5 to see the impact that we're having on real people's lives every day, and Christian is just one of them. I know you guys see these disclaimer statements all day long. I'm just going to say they're important. I'm going to inevitably talk about forward-looking statements. I'm going to inevitably talk about non-GAAP numbers. Please refer to our website for other guidance and details. I will also remind everybody that I'm working off of our Q3 numbers. We're not guiding for Q4 in this session today, so we're working off of Q3, and just as a reminder. What I want to do today is take you through 4 topics. The first thing I want to do is share with you why we think we have such a massive market opportunity of Insulet because we have a huge underserved, underpenetrated market that we're playing in. The next thing I'm going to do is explain to you why we think Omnipod 5 is a truly revolutionary product. Then I want to turn to our innovation portfolio and have an emphasis on what we're doing in Type 2 diabetes, but I'll talk broadly about what's in our portfolio. And then finally, I'll close with a few comments on our commitment to growing the business and driving shareholder returns. Insulet's mission is to simplify life for people living with diabetes. And we do that with some basic fundamental tools. The first thing is, of course, our Omnipod platform, wearable, disposable, tubeless insulin delivery pump. We've been very successful with that product. It's patient preferred everywhere we go. And now we've launched our fifth generation product the Omnipod 5, and I'll talk more about that. What our offerings do is reduce the burden of living with diabetes. People with diabetes have a lot they have to do to manage their disease. And I'll talk a little bit about that, but it's a big burden both for people with type 1 diabetes and people with type 2 diabetes. There's a lot they have to manage, and our offerings are designed to reduce that daily burden of living with diabetes. We also improve outcomes. So by managing your condition better, you have better time and range, you have better health outcomes, you have better quality of life. And now we've automated that with Omnipod 5. We have several advantages as a company. The first and foremost, I would say, is we have great people. And I've been in the CEO seat now for 7 months, I have to say I've spent a lot of time getting to know people around the company, one of the things that most impressed me. I had been sitting on the Board, I knew our fantastic executive team, but I've spent a lot of time going around meeting people in sites. I've been doing a lot of -- because of the nature of how we are working, how I've been doing a lot of one-on-one meetings with people in the company on Zoom remotely. I am just massively impressed by the quality of the talent that Insulet brings to bear, the people that we brought into the company and really impressed and amazed at the level of commitment and dedication they feel to our mission. So we have a huge advantage in our people. We have a phenomenal innovation engine. We have fantastic engineering. We have fantastic product development, fantastic commercial and marketing operations. And so we continue to innovate in the market. It's a big advantage for us. We're to the point now as a company where we're also operating at scale, and that really represents a set of advantages for us that are very important because we were large enough now that we're not only at scale, we not only have very robust manufacturing and high volume is a very difficult thing to do with a patch pump offering like what we build, but we can continue to scale and drive more efficiency in our business because of the size. We'll continue to do that. And then finally, just briefly, Omnipod 5, in particular, is a cloud-connected offering. And so we have a huge advantage in the cloud connection of our offering and in the data infrastructure that's required to make that work for patients. That's another area where we have real advantages and where it would be very difficult for people to replicate what we're doing. What that leads to is market-leading technology, market-leading revenue growth, and the long-term value creation for our investors. As I turn to the market opportunity, we have a massive unmet need that we're tackling with people with diabetes. More than 0.5 billion people worldwide live with diabetes. And more than 60 million of those people require insulin injections. That's huge. It's a massive unmet medical need across the world, and it's a growing global epidemic. In the markets and our geographies where we currently play in our current markets, we estimate the total addressable market of being about 11 million people, and that split 40-60 people with type 1 diabetes, people with type 2 diabetes. We just announced on our Q3 call that we're filing for a new product, a new-to-world product called basal-only pod, and I'll talk a bit more about that in a second. By adding that product into our portfolio just in the U.S., we add another 3 million people to our TAM. And so our -- in our current markets with what's in hand for us, we have a TAM of about 14 million people. Now I get asked this question a lot. People ask me what's the market size here, what's the market size there? And there's different estimates and you all see different estimates. I'll just to put this number in perspective for all of you, that 14 million person number represents somewhere between 30 and 40x our current installed customer base. So we have a huge growth opportunity as we try to tackle and work to tackle this huge global epidemic. And we have lots of runway for growth. The Omnipod platform has been unlocking the biggest part of that opportunity. So I'm going to talk about the platform first and then I'm going to talk about Omnipod 5. Here in the middle of the page, you can see Alicia. And again, if you look closely, you can see Alicia is wearing the Omnipod 5 on the back of her arm. And that's the Omnipod sitting right below her. What are the alternatives to Omnipod? Omnipod is such a fantastic user experience because it's small. It's easy to use. It's disposable. There are no needles. There's no tubes. There's nothing to get stuck on a doorknob as you walk through the room. It's waterproof. I mean it's just a fantastic form factor. And the alternatives to that are first, and this is often what people talk about when they look at the company, one alternative to that is to use a tubed insulin pump, and there's a photo here on the left of somebody using a tubed insulin pump, he's got it in his hand. He's controlling it. He's got a cannula tube going up to an insertion set. Now that total penetration globally for insulin pump therapy represents only 5% of the current market opportunity. With Omnipod 5, actually, we've competed brilliantly with Omnipod DASH for years because of the form factor. With Omnipod 5, we're taking even more share in that part of the market that is the tubed pump or the pump market. But really, the opportunity, both globally and in our -- and in the markets we compete in now, generally, is to bring people into the market away from their typical therapy, which is multiple daily injections. And what this slide shows is there's a handful of syringes on the right. This is what you're doing if you're not on a pump. You're injecting yourself multiple times a day. And over the 3 days of wear that Omnipod provides, probably injecting yourself 13, 14, 15x in that span. So the Omnipod removes the burden of self-injection with multiple daily injections. And you can see it's by far the largest part of the market opportunity. 95% of the world is still doing multiple daily injections. And our offerings are designed to bring people out of multiple daily injections, significantly remove the burden of caring for themselves and bring them into streamlined, simplified here on the Omnipod platform. And we've been incredibly successful with that over the last several years. That's the platform. Omnipod 5 is our next-generation platform that we just launched in full market release in the U.S. in early August. And Omnipod 5 wins on all dimensions in this space. First, it has all of the benefits of the form factor in the Omnipod platform. No needles or tubes, it's discrete, it's wearable, it's disposable, it's waterproof. It brings pay-as-you-go economics. It's a really important point. If you're using a tubed pump, one of our competitor products, you're paying upfront for the capital equipment, your payer is paying upfront for the capital equipment. And in effect, if you don't use the therapy, both you and the payer are out-of-pocket on several thousand dollars of investment before your own care. With Omnipod, it's pay-as-you-go, you're basically paying for the pods as you use them. It's a huge benefit to customers because their co-pays are much lower. So our average co-pay in the U.S. per patient per month is less than $50. Most patients pay much less than that. Many of our patients pay $0 in co-pay because of the coverage we've been able to develop on the Omnipod platform for both Omnipod DASH and Omnipod 5 in the pharmacy channel. The pharmacy channel is also a fantastic benefit for everybody because of the ease of access, very easy for patients to get the product, very easy for physicians to write the script, and we remove the upfront capital outlay for payers. And so already, we've got huge benefits with Omnipod as a platform. When you turn to Omnipod 5, what we've added is an automated insulin delivery algorithm, which is a fantastic algorithm. It's a unique algorithm. I'm not going to try to walk you through the graphic in the middle of the slide, but what that does is it depicts how our algorithm works, which is it tracks, it connects to the Dexcom G6, takes a signal from that CGM is tracking blood glucose. Every 5 minutes, it looks at the level of blood glucose and the trend and then the algorithm determines whether or not it needs to do a micro bolus of insulin or not. If the trend is up and the glucose is higher, we'll do a micro dose. If not, it won't dose. It's very streamlined, very smooth curve, fantastic results for our customers. So it's a novel algorithm. We have industry-leading time and range. We do very well in particular with this algorithm with preventing hypoglycemia and we're approved now in the U.S. down to age 2. So really strong position in the pediatric market. When you put those 2 things together, all the benefits of the Omnipod platform along with the industry-leading and novel AID algorithm we've introduced in Omnipod 5, Omnipod becomes the obvious choice. It's clearly the leading offer in the market. In fact, we get asked all the time, why would somebody choose something else to which we say, exactly. Why would somebody choose something else? This is a revolutionary product. And it's out of the gate very strong. I know you've all looked at our Q3 results. Growth for Omnipod in the U.S. of 42% in Q3 as the market speaks for itself. This is a life-changing product that's the feedback we get from our customers and the market is showing it, too. So let me turn a little bit to where we're going next because you could say, well, Omnipod 5 is the product that Insulet was founded as a company to launch. Here it is wearable disposable patch pump AID, fantastic results. That's true, but we're certainly not stopping. We have a fantastic innovation road map, and I want to start a little bit with what we're doing with type 2 diabetes, the market for type 2 diabetes. And let me start just first with the patient journey. Type 1 diabetes and type 2 diabetes are actually quite different conditions. And for people with type 2 diabetes, they go through a patient journey that starts on the left when they get diagnosed with a prescription for diet and exercise, basically behavioral prescriptions watch your diet, exercise more. As their condition advances as it generally does, they get medications, they get oral medications that might get some injectables. And at some point, what happens is their doctor says to them, you need insulin therapy. And so they go on what's called basal insulin which is a daily base rate of insulin so that they can manage their blood glucose levels on kind of a baseline basis. And then eventually, almost always, they progress to basal plus bolus or sometimes called intensive insulin where they have to do both the base rate and then injections for when they're going to eat. So that's a very complicated patient journey for people to go through. There's a lot for them to manage. We're already the market leader for insulin pump therapy in the type 2 diabetes market. Omnipod DASH, which is our fourth generation product has an indication for use for type 2 diabetes in the U.S. And up until our recent launch of Omnipod 5 People with type 2 diabetes represented roughly 1/3 of our new customer starts for that -- the previous several months. So already leading offer for type 2 diabetes. What we announced in Q3 is that we're filing with the FDA, and we did, in fact, file. We said on the call, we were imminently going to file. We did, in fact, file in November for a 510(k) with the FDA for a new-to-world product that is the basal-only pod. We haven't yet branded. I'm sure we'll have a brand right now, we're just calling it the basal-only pod. And what that offering does is it removes needles. So there are a lot of people who are trying to transition on to insulin. A lot of people are needle-phobic. It's one of the big barriers to starting insulin therapy. So removes the need for needles, and it doesn't require a controller, and it doesn't require a CGM. Basically, what it does is the patient will fill that pod with insulin, put it on their arm or their stomach, and it will deliver a trickle rate of their basal therapy over the course of 3 days. Now we think that, that's going to remove insulin hesitation, which is important because many endocrinologists will tell you that people should get on insulin earlier in this journey for better outcomes. We think it will remove barriers because of needle phobia, and we think it will drive up adherence to insulin therapy. The other thing it does for us as a business is it gets us upstream in the patient journey in this very large market. So this -- going to the left here, as I said before, increases our TAM by about 3 million patients alone in the U.S., a very significant increase in our TAM more than doubles our total addressable market with people with type 2 diabetes in the U.S. market. And it gets those patients, those customers used to the pod, it familiarizes them with the pod. So as their needs progress, as their condition progresses, they will be transitioning off of a basal-only pod on to a basal bolus pad. Right now, that would be Omnipod DASH. But we also said on our Q3 call that we will do a pivotal trial in 2023 for Omnipod 5 to get the indication for use for Omnipod 5 in type 2 diabetes. So we're at work right now defining that protocol, and we will launch that trial here in the U.S., probably most of the market who goes on basal pod will end up transitioning seamlessly on to Omnipod 5. And we know from our pivotal trial, which we published last year at ATTD, the impact of Omnipod 5, the outcomes for people with type 2 diabetes Omnipod 5 is outstanding, dramatic increases in time and range. And interestingly, dramatic reduction in total use of insulin. So that is a fantastic product for people with type 2 diabetes who need insulin therapy, intensive insulin therapy. And we'll move upstream with the basal pod and then have those patients transition onto Omnipod 5. With those offerings, we will have the broadest range of insulin delivery solutions for people with type to diabetes on the market. Let me -- that's -- type 2 is just a subset of what's in our road map, and I can't even get everything that's in our road map on this page, but let me just talk more broadly then about our innovation and the horizons of growth that we see coming, the things that will drive our growth. First, on the first horizon here, we're going to continue to drive U.S. growth with Omnipod 5. It's out of the gate very strong. We're getting fantastic customer feedback and you've seen the growth results. We will then launch -- and as we've been public, we're launching international markets with Omnipod 5 starting in the middle of 2023. And our intent is to launch a first market in the middle of 2023. And our intent is the year and a second market towards the end of the year 2023 internationally. We will then cascade those launches over the next 1.5 years or so to get into our international markets at Omnipod 5. We're going to expand our connectivity with our CGM partners. Right now, as I said, we connect with the Dexcom G6. We're working really closely and very happy with our relationships with both Dexcom and Abbott. We're collaborating closely with them. And our intent is to get to a sensor of choice offering so that an Omnipod 5 customer can choose, can say which sense are they're on, and they can use really any iCGM sensor enabled. We're working on that very hard. And I think everybody in the room probably knows we've been working on our iOS control app, our phone control with iOS. That work continues. It's going very, very well. We have some work still to do on that app, and we'll let you know when we file that we filed with the FDA, but that work is going well. Second horizon is really to continue to expand our total addressable market. And as I said, type 2 diabetes represents a huge TAM expansion for us with basal-only pod and with Omnipod 5 with an indication for use in the U.S., we will continue to expand geographically right now, we're in 24 markets, and we'll continue to look at other geographic expansion. And we will begin to launch data products for providers and our customers that will further streamline the experience on Omnipod and Omnipod 5 products. And then finally, we have a lot in our road map for the future. We're working on next-generation algorithms. We're working on next-generation hardware and improved form factors for our offerings. And we will build -- now we're building right now and we'll continue to build out the capability to use all of this data, Omnipod 5, very, very novel offering in its cloud connectivity. We get a lot of usage data. We'll be able to use that data with AI and machine learning to constantly improve the patients, the customers experience of care and constantly improve workflows for physicians and providers. That's something that's work. I think it's a massive opportunity for us and quite unique to our offerings. So you can see we have massive market in front of us, and we have really robust road map. And I want to say that what that has produced for us is obviously a fantastic top line growth. So on this slide, you can see we had 22% growth CAGR over the last 5 years with 6 straight years of 20% plus top line growth. What we do with that growth is we reinvest it. As I've said, we have this massive TAM, this huge opportunity. So we're reinvesting to capture that opportunity. You can see our investment in innovation and R&D has grown 19%, slightly below our revenue growth. We get a little bit of leverage there, but we're investing to capture this huge opportunity and we have consistently expanded our operating margins. And what's interesting about these numbers is that these are backward-looking numbers. These are backwards-looking numbers off of the products and the offerings we brought to market over the last 5 years. But this is just the beginning of the story. Omnipod 5 is a threshold event for Insulet. As I said before, it's the product that Insulet was founded to create, and we're now out in the real world with it, and it's going great. And so we have an incredibly exciting chapter in front of us with Omnipod 5 and with the offerings we're building now. So I'm just going to summarize and then quickly close. As I said before, just recapping what I said, we're playing in a very large underpenetrated market. We have a massive growth opportunity. Omnipod 5 is a revolutionary offering and is driving real changes in people's lives. We're going to penetrate and grow in the type 2 market as just part of a very robust innovation portfolio, and we're committed to driving top line growth and real results and shareholder value for our investors. And I'll just finish where I started. I want to introduce you here to Grant. Grant is 9 years old. He was diagnosed to type 1 diabetes while he was on vacation. And he was briefly hospitalized. And his doctors said to his parents, listen, we want to put Grant on an insulin pump, but we want to wait until he's stabilized. So he came back from the hospital. His man went to the endocrinologist office. Grant got online and did his research on insulin pumps, 9-year-old boy. When his mom came home with brochures, he said, "oh, mom, that's Omnipod 5. That's the one I want." And so that's what he's on. And it's obviously a very bright young man. This is a photo that was taken. I think this is actually a clip from an Instagram video that his parents put up online that chokes me up every time I see it because he's so excited when his Omnipod 5 arrives at his house. This is why we do what we do to have this kind of impact on people's lives. I think it's really remarkable. There are millions of people who need our help, and we're just getting started, and I'll close with that. Thank you very much.

Great. So lots to talk about in terms of the company and the updates here. But I want to start with a question for you on Omnipod 5. And it historically had been a product and a decision tree where people would start with, don't want a tube or a tubeless pump. And if you want a tubed, you go elsewhere, if you want a tube -- or vice versa, tubeless to Insulet to the other competitors. And there wasn't traditionally a whole lot of switching between tube and tubeless. We started to see that change now with Omnipod 5. So maybe you could talk about the trends that you've been seeing since the Omnipod 5 launch, anything if you could comment on fourth quarter, if you want, and what's your expectation for the competitiveness of Omnipod 5 versus those tubed pump platforms?

I'm not going to comment on Q4, I'll just -- I'll stick to Q3. What we've seen is new customers demand coming from all places. So our target market is, as I said in the slides, are MDI users. That's a market growth play for us. Historically, our new customer starts came about 80% out of patients using MDI and about 20% out of competitors switching from 2 pumps. And what we saw in Q3 was a shift mix on that, so -- or a mix shift on that. So we saw about 60% of our new customer starts come from MDI. And then about 40% come from competitor pumps, which is a big increase in the number. And there's -- I think there's lots of reasons for that, but the main one is just that the Omnipod 5 offering is just so compelling for people. So you don't have to -- you don't have to wear a tube, you don't have to wear a needle. I went through all this and all the advantages economically, all the advantages of the wear experience. And so fantastic demand. Also, I should mention, we also had really high demand for conversion from our own platform. So we had very high demand for converting from Omnipod DASH on Omnipod 5. And there's a lot of things going on there, but I think a lot of it is people have been waiting for a patch pump AID. So to your point, Robbie, it was -- do you want a tubed pump? Do you want a patch pump? And now it's, you really -- you don't have to choose. You can get AID in a patch pump. We're first to market with an AID-based patch pump. People often talk about us as third to market with AID, but we're first to market with a patch pump that has AID. So I think the offering has been incredibly compelling. And just to give you a sense of the scale, we had record new customer starts in Q3. But if you took that 60-40 split and kind of notionally took the 40% of competitors switching, [ ]cut in a half a minute sort of 80-20 again, we still would have had record new start. So Omnipod 5 is -- it's an offer that people have been waiting for, and it solves so many problems for customers that I think it will continue to have very high demand.

One of the other things, you had 3 tiers in the future of innovation. One of them, you talked about was an iOS app. Is that something we might see in 2023?

We're working as fast as we can. We really want to get that offering out in the market. It's actually our most requested product feature. And so you know we've been working on it. But I would say a couple of things about it. First one is our anecdotal sense, we don't have great data on this, but our anecdotal sense is that people are not waiting to go on Omnipod 5, mostly -- for the most part, for the iOS app. And so I do think we want to get it out there, we want to improve and streamline the customer experience, which is very much what we're about in general. We're working on it very hard. But you don't have to wait. Just if anybody is listening out there, is thinking about this as a customer. You don't have to wait because the iOS app will really only remove -- it allow you to control your bolus and allow you to leave your what we call the PDM or the controller at home, but you can get a great experience already without the iOS app. But we want to get it to market as soon as we can, and we'll update you all as we get closer.

What is it that's taking longer than the Google...

Well, it's a totally new software platform, and it is a medical device -- and so we've done a lot of build and verification and validation. And now there's just that tail cycle of finishing out the app. And then, of course, we have to file with the FDA and they have to review it.

One of the other things in that same bucket of near term was integration with other CGM platforms. I could think of 2 assets, and I could think of Dexcom's new G7. So how should we think about the timing for each of those? And Dexcom is now approved with G7? How long until we can see an Omnipod 5 with the G7 and vice versa, what...

We haven't guided, Robbie, on the timing of those things. We don't talk about those time lines. I will say that we're working really closely with both Abbott and Dexcom. And as I think I said in the remarks, we're really pleased with the level and kind of engagement of collaboration with both partners and -- but we haven't guided on timing, and I don't want to get out in front.

It's funny because they said, we'll leave it to Insulet to update on that.

That's great. I think we were presenting third, so they just like -- so yes.

One of the other things like you said, it was the first announced on the third quarter earnings call was this basal pump. And I think a lot of people, including myself, were caught by surprise. And historically, it hasn't been a patient population that's been thought of for use with a pump. So maybe spend a minute and tell us one, how this is different than your basal bolus products, both from a platform and also maybe what's on the inside that's different. And then how do you see this fitting in with this patient population, which historically hasn't really been a tech forward type of population?

Yes. First, how -- what does the offering look like? It's essentially the Omnipod platform offering. So it's the same form factor, same auto insertion and all of those things and really, really easy to use. So the patient will load the basal-only pod with insulin, put it on their arm. It will come at different SKUs that have different basal rates. And so it's all automated. And therefore, it doesn't require a connection with the CGM and it doesn't require a phone controller. So it's very, very simple, easy to use. Go to the pharmacy, pick it up with your dose that your doctor has prescribed, put it on and for 3 days, you get at a trickle rate, you get your daily basal rates. So it's super simple. We think it will drive up adherence and no needle phobia. On this -- why these customers? There is a huge market, and we know that people get on insulin too late. And we know that people are afraid to inject themselves. We think the time is right for this offering. So if you look at -- we're very happy to see, for example, the reimbursement that will come for basal rate patients with CGM, but that's going to pave the road for us. It doesn't require connectivity to do it. But one of the benefits for us of both Avon and Dexcom developing markets as they've constantly paved the road for us. And people are more and more used to wearables and more and more used to managing their care that way. And so we think it's a very, very timely offer and will be a great experience for patients.

Uptake is just one -- or demand is one component of it. Reimbursement is the second. What are you doing as a company to help drive reimbursement? Are there studies that you think will be needed to get insurance companies to want to pay for this?