Insulet Corporation (PODD) Earnings Call Transcript & Summary

Let's get the show on the road. Obviously, Patrick from the U.S. Medtech team. Disclaimers, none of you going to read them. You're never going to go there but they are, if you desperately want them. And what is a lot more exciting than disclaimers, [ low bar ] to be fair, is just to be joined by Dr. Trang and Ana from Insulet, as Chief Medical Officer and Chief Financial Officer, respectively, for what is a highly topical company in a highly topical area. So massive thank you for agreeing to do this and joining us today.

I guess maybe if we start with big picture, maybe, Ana, because it's kind of interesting, is it 4 months now, I think?

4 months.

I'd love to hear your perceptions on what you assumed you were going to be walking into versus now that you're in the business and how you're feeling about it in the industry?

Thank you, Patrick and thank you, everybody, for being here and for the interest on learning more about Insulet. When I joined, it was actually a pretty easy decision. You look at the company from the outside and you see 8 years of 20-plus percent growth, margin expansion. And then I go and meet this fantastic team that shares the same values. And most important is a company with a fantastic purpose. I'm like, I'm in. And then you get there and you kind of start looking under the covers and you see that innovation pipeline and you see the amount free cash flow we're producing, so we're self-sustaining. And everything that I have seen since I've been here has been to the positive of everything that I saw from an outside in. So I'm super excited to be here. I think these are one of the most exciting times for the company. Maybe 2 years ago when Omnipod 5 was launched, it was probably another big milestone. But what we have going on here is this cascade of innovation. And that's really going to fuel the growth, not only today but into the future. And I'll just name a few because I can't keep them all in my short-term memory. But you guys all know we've been working hard and this is the work of getting a lot more sensors connected. We just put out the G7. We're in that process. We also have the iOS limited market release for G6 in the U.S., coming into full market release very shortly. We have Libre 2 Plus coming in a little bit later in the year. And before I talk about type 2, because I'm going to pass it over to Trang for that. We also have an incredible performance taking Omnipod 5 that's winning in every market, we're taking it internationally. So we feel we're in a very unique spot. And in addition, getting the good news from the hard work and the quality of the data that we produced in our SECURE-T2D to get the FDA label expansion earlier than we were even anticipating. But I know that's going to be the topic. It's the label expansion. I'll pass it over to Trang and maybe share a few words on that.

Yes. Go for it. The type 2 is a big area.

Yes.

Yes. So just last Monday, we announced the expansion of type 2 indication for automated insulin delivery. And so we are the first company to have that indication. And it's going to completely change every conversation that we have with doctors. So super excited about that. And as Ana mentioned, that all comes hot off of the heels of our SECURE-T2D data that we presented at ADA this year. And this is going to really expand our total addressable market. We mentioned that it's grown by $6 million. And then the -- really, there's really 2 components of that. People who are on intensive insulin, so that's the 2.5 million people living with type 2 diabetes today, requiring multiple daily injections. They are the ones who are at an advanced stage in their disease who need insulin therapy and are not getting it effectively today. And Omnipod 5 worked very well in this population. And they already are seen by endocrinologists and like PCPs in our current call points commercially. So we're going to be leveraging our current call points and commercial strategy to call upon these doctors who see these patients. So that will -- that's in play today. And so last Monday was our release and we -- I was in Mississippi at the time and we walked straight into [ Altus HCP ] education program, where we were talking about type 2 to both endos and PCPs locally. So that was super exciting for us.

In some quarters historically, type 2 had actually been a reasonable chunk of new patient starts. Obviously, some of that was a little bit basal. But the O5 off-label usage that we know had happened a bit, to you guys, what does that tell you about the underlying demand, I guess, for this patient pool, given it was willing to be used a little bit off-label before?

Yes. I think there's incredible demand for this product. So in -- on our last call, we said that 25% of new customers to Omnipod were actually type 2 diabetes. The majority of those patients were written off-label for Omnipod 5. We also know that through our direct-to-consumer leads, about 50% of those have type 2 diabetes. And as you mentioned before, Omnipod 5, when we only had Omnipod DASH, which was our stand-alone insulin pump, 35% to 40% of our new patient starts at that time were type 2. So we're already the leader in type 2 diabetes. This is a massive underpenetrated market. So of that 2.5 million, less than 5% are using pumps. And the issue is that with multiple daily injections, it is -- people don't take that insulin, either they forget, it's not convenient, they don't know exactly much to give. They're worried about the side effects of too much insulin delivery. And so it becomes a very ineffective therapy, that multiple daily injection. So for us, this is an enormous opportunity where we can -- we've shown that we can take these patients, put them straight on to Omnipod 5, fill the pod with insulin, put it on, put a sensor on, off you go, bolus from a phone. Simple, easy, something that people can do discreetly. And on top of that, it's affordable as well. So we've already shown success in type 2 diabetes, we're the leaders in both type 1 and type 2 diabetes. Enormous market. Very accessible as well.

One of the questions I got a fair bit and we were chatting about it last night, I feel sometimes gets missed in the clinical data, is the proportion of patients that are heavy -- like heavily insulin resistant and like big unit users and the T2D data that you guys put out, the insulin reduction that pulls a bigger proportion of those type 2 patients into being able to use a 200-unit reservoir. Maybe expand on that for people a little bit.

Yes. For those new to our company, our Omnipod product lasts to 3 days and holds 200 units of insulin and people replace it every 3 days. And the product was -- is essentially -- has a cannula that is inserted under the skin and delivers small increments of insulin and it requires only short-acting insulin. So when people come on to the product, they don't need long-acting insulin any longer. So just back to SECURE-T2D, 305 patients, very diverse population. And not just racially there, so we had 22% Black, 24% Hispanic population but very real world representation. About 50% had less than $50,000 annual income. And about 1/3 had the highest education level of high school. So very representative of the general population, which is important because, for us it was important to show that Omnipod 5 could be used by a general population. We have no restriction on -- in terms of the upper end of insulin requirements. So our maximum -- the highest insulin total daily dose for 1 patient was 357 units a day. And overall, for all of our patients, we saw a 29% reduction in insulin when they used Omnipod 5. So we went from an average of 80 units a day down to 57 units a day on insulin. And for those insulin-resistant patients who are generally more than 100 units a day, we saw a 64% reduction in insulin. So people who are needing about 150 units a day, they were dropped by more than a -- approximately 100 units down to about 50. And I think there are 2 reasons for that. One is, as I mentioned, multiple daily injections. People aren't getting all that insulin that they're being prescribed. So that's why that's problematic. But also, when you're delivering insulin via a pump, it's much more physiological and they're getting the insulin that they need, exactly when they need it. So on top of the efficacy improvement, so we saw a 2.1% improvement in A1c, for those who had an A1c baseline greater than 9%. On top of that, we saw no increase in hypoglycemia, as well as the reduction in total insulin. So overall, highly effective and safe and I think this gives doctors a lot of confidence in using automated insulin delivery in patients with type 2 diabetes.

Ana, you've got the unenviable task as we later approach, next year of having to think about integrating the type 2 label and ramp into numbers. I don't know from -- I guess, you'd have a few months to sort of start to see how that curve is looking. Have you guys sort of holistically and philosophically have any thoughts about how to begin doing that because the curve could be many different things, right?

Yes. So absolutely, we're paving new grounds here. We're the first ones with this label and we have been out there with a smaller commercial pilot on Omnipod GO, which taught us a lot, taught us a lot around a lot of PCP offices that really act like endo offices based on the number of patients with type 1 and type 2 diabetics that are in the population. When you take a step back, we have our existing sales force. And the way we're thinking about this launch is very programmatic, right? So we're going to take our existing call points, which today cover a significant amount of that type 2 population in those call points that we have today. And we're going to take that -- and we've already started training all of our sales force with new materials, especially coming out of all that great data that Trang just mentioned. And we're just going to be able to not have our arm tied around our back when we're selling. And that's just going to give us a new first-phase population. As you might recall during our earnings prepared remarks, we talked about sales force expansion. We were thinking this was coming anyway. So we were already, as a natural progression, we've been doing it all the time, we've been expanding our sales force. So we've already hired some of those people and we're in the process of training them and making them productive sales people as fast as we can. So that's on the sales force. Then we have the direct-to-consumer type of marketing that we do. We do a lot of that through social media. And that's just going to have more eyeballs and we're going to target that to not just the type 1 but also broaden that to the type 2. And third is, then we get there, somewhere we're -- I don't know, somewhere in '25, we have all these learnings. And then from there we go on and we say there's the -- both the basal market for type 2, that's another 3.5 million that can have some specialized targeting. But we're really going to be very programmatic. And it's -- what's hard is to predict that ramp and that's really where we're going to spend here a little bit of time before we wrap up 2024. And as we wrap up 2024, we'll be able to give everybody a little bit more of our thinking of what that means for guidance into 2025.

How are you guys thinking about the interplay between, you touched on it, like investment relative to the opportunity? Because you also have that head start as well as like differentiated form factor but there's obviously, presuming there's a temptation to keep investing really quite heavily to drive the share of new patients in that pool, is that fair?

Yes. So it's going to be a prioritization. And I think we have a really good problem in the sense that just by taking our existing base, we're just going to get the highest returning. And then as we go forward, we will continue to analyze each one of those investments in either additional resources or additional direct-to-consumer or sampling programs, or just so many other things that we do. And we're going to continue to have the same discipline we've been having for many years in progressing to expand our new customer starts in the most productive manner.

For type 2, how should we think about the impact of Libre integration on the speed of adoption within that pool? It's been used off label already before, so clearly, it's not super critical necessarily. But is there -- do you expect like an inflection with Libre integration or how you think about that?

Yes, we expect Libre integration, which is coming at the end of this year, to be another tailwind to our growth. It's really fantastic to be in the market with 2 sensor partners, 2 leading sensors in the market. We have G6 and G7 today in the U.S. And in the U.K. and Netherlands, we have the -- both G6 and Libre 2 Plus integration. And there are enormous markets for us. And what that will do is enable less friction people who want to choose AID, whether that's a Dexcom sensor or a Libre sensor to be able to access AID. And what we found is that the people choose their AID first. And the differentiated form factor that Insulet has been the only tubeless insulin pump and is -- will be a key differentiator for us. And we're going to continue to grow next few quarters and we see incredible momentum behind this expanded indication.

Last one for now, specifically on type 2. I thought it was very interesting discussion last night actually around the arbitrariness of the definition between basal and intensive treated as discrete buckets. But actually, there's a large subset who are basal but only because the doc doesn't really trust that they'll be able to do MDI and the HbA1c is actually 8 or 9 in some instances. Might be, what -- for those who are less familiar, expanding on -- because I think people do segment those 2 markets completely as a divided line.

Yes. It's a continuum. And so when -- with type 2 diabetes, as the disease progresses with beta cell death that occurs over time, people are generally started on a basal insulin first. And that originated out of convenience really. But what people really need as the disease progresses is postprandial or mealtime insulin. And often, doctors are reluctant to prescribe it because it does add more complexity to people's lives. You can imagine, if you have diabetes, you've got to remember to inject for breakfast, lunch, dinner and snacks. And that's a lot of things to remember and so doctors are reluctant to add that additional complexity for their patients. And so what generally happens is that people just coast along A1c that's elevated and that's problematic in terms of complications for their diabetes and increased in terms of morbidity and life-threatening complications. And so we've -- in our press release, actually, we talked about the fact that only 25% of people living with type 2 diabetes on insulin are actually at a target glucose of less than 7%, the other remaining 75% are above 7%. And that is a marker of disease progression. And so for us, the first opportunity is to go after that 2.5 million people on multiple daily injections today, intensive insulin therapy, who behave very much like an insulin-deficient type 1 diabetes patient. And they're already in the call points that we call on today. And that's a very familiar patient for the doctor to think about AID therapy for that patient. And so that, that lift is relatively small in terms of it making sense for that type 2 patient. In terms basal insulin only, so these are people who are taking once-a-day injection, they're not taking mealtime insulin, they're coasting along, what generally happens is, as their A1c creeps up, people tend to just crank up their basal insulin. But in our SECURE-T2D study, we actually recruited 21% basal patients and we put them straight on to Omnipod 5. These were patients who were not at their target glucose. And what we found was that they -- it could go straight on to Omnipod 5. They do not need to go to multiple daily injections and then on to Omnipod 5. So we see that as an enormous opportunity for us in the future. And what's really exciting about all of this is that this is not something that we're going to see massive growth in just the next couple of quarters, it's going to be multiyear growth for us. There are just so many patients out there who have life-limiting disease and we have the opportunity, unique opportunity here with simple products to be able to help these people get their insulin in, more effectively. And that's been borne out in our clinical trial results.

Maybe to touch on channel dynamics and competition in that side. There's a narrative that sometimes out there that some of the success for you guys has been a function of an excellent pharmacy business, essentially. Of course, everyone recognizes the form factor and the algo and those sort of things but the pharmacy is a component of that success. Thus far, apart from sort of one very small player, kind of none of the durable pumps have made their way really meaningfully into the pharmacy. How would you both think that the competitive environment evolves as they begin to make some of that transition? I know it's still a debate for durable pumps on what that model would even look like. Is it that standard [ 4000 ] upfront? Or is it a use over time? But do you expect any competitive impact from that channel being shared amongst a few more players? And if so, how you're thinking about that?

I can start.

Yes, you can start.

So with pharmacy, that's been a multiyear investment for us to build that coverage. So today, we have over 90% of covered lives in the U.S., that's over 300 million people and that is both for type 1 and for type 2. So we are out of the gate covered for our patients. And that is really incredible and really quite remarkable and there's a lot of plans out there that we had to negotiate to -- in order to get that coverage. So we have a very unique position. And all of Omnipod 5 goes through the pharmacy channel. And so we have incredible volume to leverage as well. And so we see ourselves in a pretty unique position. So we're covered through Medicare, Medicaid, commercial plans, Medicare Part D, where there's no C-peptide requirement. And that access is just so important when it comes to out-of-pocket costs for patients. Again, back when I was in Mississippi, people will really talk about this product and the first question the doctor asks is, "Okay, how much is it going to cost my patients?" Well, it's pretty remarkable to be able to say what we're seeing through in general for Medicare patients it's $11 co-pay for their pods per month, which is remarkable. And overall, I don't think I've said this yet but we have -- the majority of our patients paid less than $50 out of pocket for their pods and actually 1/3 of our patients pay $0 out of pocket. So really, in the case where you need to pay a co-pay for your long-acting insulin, it becomes cost neutral in many cases. And look, you have -- on top of having a great product, you have to be accessible to patients. So pharmacy has been a huge driver of growth for us because it's made it accessible to so many patients. But also the volume of prescriptions that we put through, puts us in a very unique position compared to other new players coming to the market.

Yes. I mean you've said it all. I do think that the point you mentioned at the beginning, we've been in this journey for over 4 years establishing ourselves. And the way the pharmacy channel works, it's a volume, it's a rebate based and that volume matters. So we're just going to continue helping people, giving them access, pay-as-you-go model and just continue our lead and just stay there. There will be competitors. There'll be different pressures at different times. I believe our product is differentiated enough that we should continue to have the strength and the lead and we have more things in our pipeline to keep that going.

This is going to sound a cheesy question and I suspect my clients will roll their eyes. But did -- to what degree do you think the brand is also a barrier to entry? And what I mean by that is, the literal design of the product and how it looks, people referencing it to each other, calling people podders. Building that consumer brand equity of it not really looking like a device, being a little bit more discrete and out of sight. Some of your peers who have hybrid patch like pumps but they still sort of look like devices. How do you think about like building that consumer-level relationship and brand? And do people miss that? Or am I just going down the wrong path?

I think it's a huge advantage for our company, is the loyalty that our customers have to the product. And it's actually very accessible nowadays with the success that our sensor partners have had. People are used to seeing people wear CGM and wearable diabetes technology is becoming commonplace. When I was in Mississippi, I actually went to the Delta region, which literally nobody goes to. And I spoke to these physicians. And I said, "Have you heard about Omnipod?" And they said, "Yes, I've got patients coming in who have seen your ads and want to use the product." And so with very little training, they're prescribe Omnipod and we train the patients but the barrier to entry is pretty low just because of the simplicity of the product. And as a reminder, I think on our -- after our first quarter call, we said 20,000 providers have prescribed Omnipod 5 and there's only about 7,000 or 8,000 endocrinologists in the U.S. So that means that almost 2/3 of the population are PCPs and PAs. And so it's reaching a very broad population of prescribers as well as patients and ease of use and simplicity is a key component of that, as well as the advocacy that patients themselves tell their doctors, they have a good experience and that's what gives doctors the confidence to want to prescribe it for other patients.

And maybe if I could just add, for the more finance population here, when you look at our utilization on a monthly basis, the number of pods being used on a monthly basis and also you look at our retention, we're seeing very stable. So we're seeing that once we get that patient in through the door, the form factor, the attachment that we just talked about, the pay-as-you-go model, the accessibility, all of those things are coming together very nicely in our financial model.

And Malaysia as a manufacturing hub, obviously, [indiscernible] is going to become pretty important. How should we think about what the implications of that could be over a, whatever, 1, 2, 3-year time horizon, however you want to characterize it?

Yes. No, this is a great thing. I mean taking a step back, it's all about our margins as well, right? So not only do we have to have the capacity to have the pods needed over time to be built but we also want to make them with high quality, in the most efficient manner. So our production facility in Acton, where a lot of, I would say, our R&D development of the technology we use to actually do the mass production, happens there. We've leveraged that with China and Sanmina and now in Malaysia. The good news is, we have the rooftop capacity to supply the needs for 3-plus years down the road. So the biggest part of our capital investment has happened. Once we have that rooftop, then we expand lines. So those are incremental investments that will need to happen. Malaysia is just super special. I was just there during the opening here, in the month of August. The energy, the quality of the people, the quality of the product we're putting out, in 2024, I mean, it's really a fraction, it's really the ramp. And because of that advantage that we have in terms of the cost of that production, we see margin expansion, not only from the volume, because this is a fixed cost leverage play. But we also have a lot of the mix of the sites that I just mentioned and we also have a lot of hardcore quality, lean, Kaizen, Six Sigma engineers out there making it better and better every day. So we continue to feel very confident with our gross margin. Here in the second half, it's going to be around that 70% gross margin. And we continue to see that incremental margin expansion as we move into the years.

Maybe also a slightly shorter-term question. The -- there's obviously some noise that's created from that inventory movement for the G6 to G7 pods. [ Gsax ] could be a good product name. But the 6 to 7 pod inventory and the stocking situation, maybe for those who aren't aware of that situation, an update there on how things are tracking versus expectations.

Sure. So we -- when we launched G7, we made a very conscious decision that we wanted to take the experience for both the physician prescribing it and the patient to be a very good one. And in this case, what we wanted to avoid was a patient on G7 unfortunately getting a G6-only pod, because that would have just destroyed that experience. So in order to facilitate that, we decided to go through the specialty pharmacy channel and that will ensure that, that pairing and that match happen. Our goal is to be full-blown retail through all the pharmacies. And the key about the pods that we're producing for G7 is that they're G6-backwards compatible. So 1 SKU will cover both G6 and G7. But there's G6 inventory in the distribution and in the pharmacy. So we wanted to let that kind of flush through and avoid having a lot of returned pods, because produce them and we use them. So we actually took that 2-step approach, going through specialty pharmacy to ensure that experience happens really good for the customer and allows the depletion of that -- of those G6 pods. So we anticipate being full retail pharmacy here in -- towards the end of September, beginning of October. It's kind of hard to call the exact timing. And again, it was a very conscious decision. We feel the demand for G7 is very strong and it's just the way that we supply to the end customer in a phased approach.

I guess rounding it out for each of you. You obviously spend a lot of time internally doing things -- there are things that you spend a lot of time and energy on internally that you feel don't get reflected externally or don't come up in conversations, or are they things that come up externally where you're a bit perplexed why they keep coming up, relative to your expectations.

Do you want to start?

I think we've got incredible growth drivers coming up ahead in terms of all of our sensor integrations and delivering iOS, which is iPhone compatibility. And I think there is -- the main thing is that we're very innovation-driven at our company. It's a very competitive market, as you can see just from the news of this week. And so we're very much driven by continuing to deliver innovation and to stay #1 in this market.

Yes. So maybe just to wrap the conversation here. We definitely -- our #1 mission is to simplify the lives of people with diabetes. And again, I've only been in the company for a short time but all of our meetings have the customer at the center of everything. And that is what drives the innovation, that also drives our financial performance. Our desire to have that free cash flow to reinvest itself is a top priority and we live it and breathe it every day in the company.

Ana and Trang, thank you so much for agreeing to do this. Thanks, everyone.

Thank you.