Insulet Corporation (PODD) Earnings Call Transcript & Summary

Okay. Good morning. We've got a pole over here in the middle. This is like my first apartment in Manhattan. Thanks for joining us for this fireside chat session. I'm Matt Taylor, the medical supplies and devices analyst here at Jefferies. I'm pleased to be joined by the management team from Insulet. To my right here, we have Jim Hollingshead, who's the CEO of Insulet; and also the new CFO, Ana Chadwick. So we'll try to give her the softball questions today. And Deb Gordon is here in the audience as well, who runs the Investor Relations function. So about 25 minutes for Q&A. That's all on me, so let's get it going.

I wanted to start a little bit high level. I know there's sometimes people in the audience who don't know the story with the quarterly granular detail that we like to press into. So Jim, maybe you can start with just talking a little bit about the evolution of Insulet. You've got a lot of new product launches coming on, a lot of exciting things happening. But maybe give us a brief history lesson in terms of how the company has gotten here and what you're excited about today.

Yes. Thanks, Matt, and good morning, everybody. Thanks for joining us. It's great to have the opportunity to be here with you today. Insulet is a company that started because a dad with a kid who was diagnosed with type 1 decided there was a better way for his child to manage his therapy. And we've grown consistently, and we -- our claim to fame is the Omnipod platform. I'm going to hold it up. For those who can see, there it is. That's the Omnipod. This is an Omnipod 5. We have 3 products on market in the Omnipod platform. You can see it's very small, wearable, disposable, waterproof insulin pump. You can wear it on your arm, your abdomen. Obviously, very unobtrusive, very convenient. When we launched the company, it took us a while to get this product to market. That's all predating both me and Ana. We then went through several generations. Our gen 4 product was we need substantial market share because of the convenience of wearing this pod. Very, very convenient, easy to use. Fill it with insulin, put it on your body, it automatically deploys the cannula that, typically, you don't feel the needle go in, that deploys the cannula. It's a flexible nylon cannula. It delivers insulin. And our gen 4 product, the Omnipod DASH, which has an indication for use for both type 1 and type 2 diabetes, that's managed through a control or a lock on your cellphone. You manage your basal rate, which is a consistent amount you get and you manage the bolus as a meal plan. Our Omnipod 5, we launched in August of 2022. It's our flagship product that was truly revolutionary product. What it did was it brought this form factor, which was already winning substantial share in the market into the world of automated insulin delivery or AID. Omnipod 5 connects to CGMs, the continuous glucose monitor. Right now, it's on market with the Dexcom G6. So that creates an -- almost an artificial pancreas system. You're wearing the Omnipod 5, your Dexcom G6 is reading your blood glucose. The Omnipod 5 algorithm, which is AI based, is automatically dosing your insulin to keep your blood sugar in the desired range 7 by 24. Fantastic innovative product. We launched it in August of 2022, and we leapfrogged the market, all of our competitors. Our competitors also have automated insulin delivery systems, but they all have tubes or cannulas. And so the big choice driver with this product is you don't have a tube. It doesn't get stuck in a doorknob. You don't have to [ bleed ] the air bubbles out of it when you set it up and so on. This is discrete. Many people choose it because they can wear whatever fashion they want. It's got a lot of consumer benefits that go beyond the high-end technology, but the high-end technology in this product is world class as well. So it's a very disruptive product. When we launched in August of 2022 in the U.S., demand really significantly exceeded our expectations. It's continued to be very, very strong. We're on market now with Omnipod 5 in the U.S. We recently launched in the U.K. and Germany, and both of those markets, Omnipod 5 is once again exceeding our expectations. And then we have a whole cascade of innovation coming this year in '24 and into '25 that I'm sure Matt will want to talk about. It's a really important market for a couple of reasons. One, people living with diabetes, whether type 1 or type 2, who need insulin have a huge burden of managing their care. So what Omnipod 5 does and what Omnipod DASH does is dramatically simplify your life if you're living with diabetes and you need insulin therapy. It's also important because it's large -- both markets, type 1 and type 2, are large and unpenetrated -- relatively unpenetrated. In the U.S., to give you some scale, there are about 1.6 million people living with type 1 diabetes. Those people need insulin every day to stay alive. That market is about 40% penetrated with technology. So with some sort of pump. The type 2 market is about 2.6 million people, so a larger market in the U.S. and very large worldwide. That market is, in the U.S., less than 5% penetrated with technology. And so we see that as a huge unmet medical need. And type -- both type 1 and type 2 really open field running, and we lead both markets. We lead the type 1 market and the type 2 market. So we've catapulted into a position of leadership, and we're very excited about the cascade of innovation we're bringing this year.

Super. Thanks, Jim. So maybe with that preamble, you could talk a little bit about the outlook for the pump market and the growth there. It's not just you innovating, but a lot of the competitors also have new products. And that's been simulating a lot more people to come to pump therapy over the past few years. So maybe give us your high level thoughts on the market.

Yes. The market continues to grow in a very healthy way. The breakthroughs in the market, the first breakthrough many years ago was just having a pump, instead of having to do multiple daily injections where you're using a syringe or a smart pen to inject yourself with insulin. And that grew the market and started to -- the technology side of the market start to penetrate. We launched the Omnipod Gen 3, Gen 4 products in that period, Omnipod DASH in that period. Omnipod 5, our entire strategy is to make delivering your insulin so easy that you come off of -- we're bringing people out of what we call the MDI, or the multiple daily injection, part of the market on to Omnipod therapy. And so our goal is to grow that part. And the U.S. market, as I said, that's about 60% of the type 1 market. It's underpenetrated. It's really clear since we launched, in particular, Omnipod 5 that we lead that part of the market. So we're growing the market. And we've proven the case now. So one of the things that we've done with Omnipod is we've proven the case that people want something that's wearable, smaller, discrete, disposable. And so what you see is our main competitors who were commercialized and then some start-up companies who are coming around, they're all trying to chase the smaller form factor. But we have -- we're the first and only patch pump therapy with AID in the U.S. market. And all the other competitors are chasing us, even with smaller form factors are -- they're all still tube pumps. And so we have a rather substantial lead. We believe that -- previously, we said last year on one of our calls, in our market model, historically, people have talked about the insulin delivery market getting to something like 50% to 60% penetration in the U.S. We think we can get it into the 70s and beyond. We think it will closely follow CGM penetration. And the reason is people don't go on pumps if they're extrusive, they have tubes, they have inconvenience. People don't see those barriers with the Omnipod. And so our fantastic revolutionary discrete product is driving a lot more market penetration. So the market is now about competing for bringing people off of MDI, and we're focused on that part. That's what we designed for. Those are the patients we're looking for. We -- in the installed base, there's competition where we actually win, in general, the switching game. But really, the play is to penetrate that 60% in type 1 and then the 95% of people in type 2 who are not yet using technology.

And as you're talking about following CGM, it's a good time to bring up integration. So maybe we could talk about your time line for integration with Dexcom's new G7 and also Abbott and how those could catalyze your growth.

We're really excited to be integrating with new sensors. So we've been on the market now with Omnipod 5 for almost -- DexCom has launched their next-generation sensor, the G7. That sensor is getting very widespread adoption, and so it creates a tailwind for us because more and more people on MDI will be using G7 because it's the product that Dexcom is promoting aggressively and so on. So we're just wrapping up our limited market release of the G7. And we've announced that we expect to be launching the full release of G7 over the summer. It's -- the limited market release is going really, really well. We expect that to -- that's a near-term event with moving to full market release. DexCom's main competitor is Abbott, and Abbott has a family of continuous glucose monitors called FreeStyle Libre family. They have the Freestyle Libre 2 and the FreeStyle Libre 3, both of which have been granted FDA clearance for use with those in insulin -- in an automated insulin delivery system. We're really excited because we're in our limited market release with the Libre 2 Plus. That's -- they're putting the Plus moniker on the sensors that will be used in AID systems. It's essentially the same sensor. There are a couple of small differences, and it's cleared by the FDA. So the Libre 2 Plus in the U.K. and in the Netherlands, that limited market release is also going extremely well. And what's nice about that from a patient point of view is that there are many millions of people -- literally, both companies have 1 million plus, I think, and they're both 4-plus, 5-plus million patients in their installed base. Many, many more patients will have access to Omnipod therapy. And so we're committed to giving our patients, our customers a sensor of choice. They can -- and we don't want their sensor choice to limit their ability to access Omnipod. So by getting on the G7 and getting on Libre 2, that opens up hundreds of thousands, if not millions, of patients to Omnipod therapy. And again, with -- we're doing the LMR and then the FMR first in Europe with Libre 2 because Libre 2 is the most widely adopted sensor in the European theater. G7, I think that was crossed over to be the most widely adopted sensor in the U.S. I -- maybe, you shouldn't quote me on that. You can ask our devcom colleagues if that's right. But it just opens up the market for us. And then we'll be following with Libre 3 in short order. Those are the 4 main sensors that are approved by the FDA and what's called iCGM. So we will -- this year, we've got launches. We are very excited to have those 2 sensor integrations coming in the near term. We'll cross over. So G7 gets to Europe, Libre 2 gets to the U.S. Libre 3 is coming...

Great. And you talked about this on the call that qualitatively, you thought that the integrations would drive an acceleration in new patient starts in the U.S., where a lot of people are focused. Can you talk about how that could roll into your results over the next couple of quarters? And when could you get back to new start growth and record new starts again kind of through that?

Our new starts are -- continue to be very strong, as we said, Matt. And I know you know, we had very strong demand. In Q1, hit -- Q1 hit right on our expectations. And we expect to have sequential growth all year long. But when we complete the G7 integration in the U.S. and release it to the full market, that will accelerate, our new patient starts, because it's -- I use this metaphor all the time. It's like -- it's -- what fish are being stocked in the pond. My dad and I used to go trout fishing. We would always go to the lake that had just been stocked. And so for the last couple of years, Dexcom has been stocking the pond with G6. Right now, Dexcom has been heavily stocking the pond with G7. So we need to be out there fishing with the right bait for people on G7. So by being able to integrate with G7, we -- it will create a tailwind for us because it's so much easier for a patient who's already on a G7 to transition to an Omnipod 5. For the last quarter, 1.5 quarters, if you wanted to get on Omnipod 5, sometimes, you've actually been written a script for a G7 and you have to go back and get a script for G6. So it's created an extra step. So by getting full market release of G7, we see that as a tailwind, and there's a very large number of patients who are now in G7 in the U.S., who are also in type 1 -- with type 1 diabetes. So we expect our growth to be heavier in the second half. It would normally seasonally be stronger in the second half than our industry. But G7 will create a tailwind. And so we expect the full market release of G7 to create an upswing for our new customers.

Great. And you touched on international as well in your comments about integration and moving into some new countries, and that was a real bright spot in Q1. You basically crushed your guidance and raised it by a lot. So maybe just talk about the trends in the international markets and give us a preview on some of the new market entries that we could see over the next year or 2.

Yes. So we've been really pleased -- it's funny. As I said, when we launched Omnipod 5 in the U.S., we had pretty bold expectations, and we blew through would be an -- maybe a wrong term, but we blew through our expectations. The demand for Omnipod 5 was off the charts. So as we launched in the U.K. and Germany, which was last June and August, we said to ourselves, let's make sure we're ready for that. And now those are massively exceeding our expectations. We did plan for more customer support, which was important. So we've been able to manage that. And then we're very excited that we were launching in France this summer also. We've said -- we have clearance, we have reimbursement. We have everything we need in France. We're down to the final throes of negotiations with distributors. So that's also a very near-term event. With those 3 markets, we are now in the 3 largest markets in Europe, and you can sort of figure out what would come next. We've talked publicly about the Nordics and Italy that we're working on. We haven't put timing on those, but those -- we're working on those as we speak to get those launches going. And that's why the success of U.K. and Germany, coupled with our coming launch in France, which is ahead of our internal schedule, which is great, that's why we raised our guide in international by 500 basis points in Q1. It's very unusual for us to raise guidance on the Q1 call. But we saw the results in U.K., Germany. We saw where we were in the France process, and we said we have to raise guidance internationally. And that's great. The international team, they are raring to go. And it's so exciting. I just got back -- we just got back, Ana and I, from London where we were having a Board meeting, and we had a key opinion leader, who I won't name because I didn't get permission to name her in investor conference, a very well-known key opinion leader, who came in and was just raving about Omnipod 5 for her patient. She has -- most of her patients are on Libre 2 plus. Most of them -- the vast majority of them, who are interested in the automated insulin delivery will not do tubes. And so already in her clinic, even in the limited market release, she's got people lining up to get in Omnipod 5 therapy. And that's what we see. So Omnipod 5 wins wherever it goes. And so as we can continue expand it -- to expand it across European theaters and other markets that we're in, we expect to have really, really strong growth.

Great. And since you brought the guidance raise, maybe I'll ask you to comment on that a bit. It is kind of rare for you to raise in Q1. You were forced to because you performed so well. So I guess, I want to understand better because your qualitative comments are really positive. You're talking about accelerating growth through the year. Now the guidance calls for basically similar growth in the first half versus the second half. Why wouldn't we see more acceleration in the second half of the year?

I think that we're very prudent in how we guide. And so there are a number of moving parts for us. And I'm -- actually, I'm going to turn to Ana. Since I'm doing all the talking anyway, Ana, why don't you take that one?

Yes, sure. No. Thanks. So first of all, the growth is fantastic. It's stellar growth. And vis-a-vis expectations, as you say, we're even raising that. There's a few dynamics. 2023 was a fantastic year, and we saw very significant growth in the second half as well of last year. So when you look at the comparison, it's still massive growth. When you look at it on a dollar basis, it's much higher growth. When you look at it on a rate basis, it's still raising the guidance to the full year. So I just want to concentrate on the fact that it's growth. It will have some lumpiness as it goes through a particular quarter. But look at it in the full year for the entire company raising guidance, both on the low end and the high end, up to 18% overall is fantastic. And in addition to that, we did that while also increasing margins. So we gave a raise of operating margin of 50 basis points up to 13.5%. So we feel we're in a very, very strong position, both on the growth and the margin.

Yes. I'm glad you brought up the margins. I wanted to ask about that as well. And you've essentially raised the margins twice in the last year or so and making a lot of progress on operating margin. I guess, I was just hoping you could talk at a high level about the cadence of operating margin expansion going forward and how you think about balancing that with driving growth with a lot of investment opportunities.

Yes. You hit it on the nail, absolutely. I keep thinking about this as kind of what's the rate and pace. As we grow, we, of course, have margin expansion from our scale and all of those things, in addition to the strong discipline we have around productivity, lean, Six Sigma, all the natural things you expect in a manufacturing site. We're also expanding into Malaysia with our new site coming later in the year here. And we expect all the benefits of all the learnings that we have from our Acton, Massachusetts site to be translated into our new sites. So all of those things are going to yield further productivity, and we continue to stay incredibly focused. Prior to my arrival, and I love this, the company have stated about 100 basis points of margin improvement -- op margin improvement per year. And that's where the rate and pace kind of comes in. So we want to continue to set aside those funds for all those innovations and, as a company, manage so that we stay -- keep our competitive edge on our product development, on our cascade of innovations and, at the same time, return to the bottom line. So that's the fine balance we're working through.

Great. And maybe I'll pivot back to Jim. And you talked about type 1 and how that market could evolve. And I was hoping you could talk a little bit about type 2 because you will have some data coming out there soon too and could get an indication to finally market to type 2. So already, you are clamoring to get your products seemingly from your new start disclosures. So talk about the progress in type 2, please, and then what we can see from the data when you can get an indication and what that could do for you.

Yes, sure. And type 2 -- as type 2 progresses, people go on to oral meds and then they go on to other drugs, typically injectables. There's been a lot of talk about GLP-1s, which we can get into, if you want to. And they've been progressing through GLP-1s in our market for 7, 8, 10 years, depending on which class of GLP-1 you're talking about. And then they end up needing insulin therapy. And so that's where the Omnipod would come in. We're already the leader in insulin delivery in the type 2 market with our Omnipod DASH product because it's so simple to use and it's so much easier than doing multiple daily injections. And so for several years now, we've been the leader in "pump therapy," although we think of it as pod therapy in type 2 with Omnipod DASH. With Omnipod 5, Omnipod 5 has all the same benefits for somebody who's doing multiple daily injections for type 2 as it does for type 1, but we don't have the label for it. Omnipod 5 is right now indicated for use only for people living with type 1 diabetes. So we've done, as you would, a series of clinical studies. And right now, we are just about ready to file with the FDA for -- with our pivotal trial to get the label extension for Omnipod 5 for use of people with type 2 diabetes. Matt's alluding to the study -- this is at ADA. We're at ADA in 3 weeks, 2 weeks down in Florida. We'll be sharing data from that study. So it's a large pivotal trial of about 350 patients. They come from -- they're type 2 -- people living with type 2 need insulin. In some cases, they only need basal. So it's basal and basal bolus patients. We'll be showing the whole data set at ADA. We're very excited about it. We anticipate that, that large data set will prove the case for our feasibility trial we published earlier. So in our feasibility trial, what it showed was a dramatic increase in time and range, which is the term of art for keeping your blood glucose in that tight range, the dramatic increase in time and range for those patients and also a reduced insulin dose on a daily basis, which is important clinically and also important from a cost point of view. Those are really important results. That feasibility trial also showed that people who are on GLP-1s actually did better on Omnipod 5 than people who were not on GLP-1s, which is another interesting finding. But we'll be exploring that as well with showing some subset data. In our pivotal trial, about half of those patients are on GLP-1s. And so that will be -- it will be scientifically meaning -- meaningful sample that we can share data on. So as we committed to publicly, we will file for that label extension by the end of '24. We think that we're well ahead of schedule on that right now. But by the end of '24 is what we're committed to. Once we have that label extension, we'll be able to promote Omnipod 5 to people who have been -- to doctors and people living with type 2 diabetes. We already get a lot of off-label prescriptions because doctors see the power of Omnipod 5. We don't promote it. We're very careful of saying we don't promote it. But when we can untie that one arm that's -- our reps have behind their back and actually actively promote Omnipod 5 for type 2, we expect that to also be a tailwind for us and drive a lot of new patients.

Great. Before you mentioned that the type 1 market could go from 40% penetration to maybe 70% or a higher number in the future. Can you talk about that framework for type 2 as well?

Yes. We haven't quantified that in -- publicly in a kind of rigorous way, but it's sitting there at 5%. We know those patients face so much burden. People who are living with type 2 have so many things going on. We anticipate really open field running in terms of penetrating that market. We haven't yet publicly stated where we think it can get to, but the thing to remember about both of these markets is that CGM has always paved the road for Omnipod. And so CGM penetration of type 1 is high and climbing. Omnipod therapy is not far behind that. And both Abbott and Dexcom, our 2 partners, our 2 key partners, have received broadened labels and broadened indications for use in the type 2 population. More and more people living with type 2 are going to be wearing on-body technology. That on-body technology is required for Omnipod 5. And so we expect to be able to penetrate that market. And I think we have a very clear right to win. We expect to be first to market with that indication for use. And we are the simplest technology on the market by a lot. And so we have a clear way to win in that space.

Great. I think we're almost out of time. I can't tell because of the pole, but...

We are.

37 seconds.

37 seconds. So let me ask you one on GLP. So it seems almost like a bad dream from last year that all these stocks were negatively impacted by GLP-1 fears. I'd love to ask you, a, do you still feel like there's some fear in the stock from GLP-1s? And you -- have you seen any impact to date on your business from GLP-1s?

My sense is -- and Matt, you would know and people in the room know, my sense is there is still an overhang on the stock from GLP-1s. We continue to think it's unfounded. All of the data show that GLP-1s have a temporary effect. They're beneficial drugs. We think they're good drugs. We like pharm innovation. We're trying to serve the same patients. They have a temporary effect. Patients almost always progress on insulin. And we -- there are some things that we haven't seen on our website. There's some slides we put up showing that dynamic. GLP-1s have been on our market for many years. And we will be showing new data in the next 2 or 3 weeks that show that if you're on a GLP-1, you actually are -- have a higher likelihood of going on insulin therapy in that first 12 months than if you were not on a GLP-1. And if you go on a GLP-1 and you drop off from GLP-1, which more than half of patients do, you're more likely still to go on insulin therapy that you're -- both of those at a higher rate than the underlying rate. And so that's a counterintuitive finding for us, and we'll put out some more data so that you can all inspect it and understand it. But GLP-1s do not create a headwind for our business. And the overhang out there is -- we're going to surprise on the upside when we drive growth in type 2 because the overhang is there, and it shouldn't be.

Great. Well, I think that's a good place to end. Thank you so much for your time, Jim and Ana. And thanks for your interest in Insulet.

Matt, thank you very much. Thank you, all.

Thank you.