Insulet Corporation (PODD) Earnings Call Transcript & Summary

We're also on the web, too, so the rest of the world has access as well. Well, good. Let's go ahead and get started. Yes, mic's on. Welcome to the noon session, day 2 of the Wolfe Healthcare Conference. My name is Mike Polark, medical device analyst at Wolfe Research. Pleased to be joined in this session by Insulet, famously ticker PODD. With the company, we have Chief Financial Officer, Ana Chadwick; and EVP, Chief Product and Customer Experience Officer, Eric Benjamin. Ana and Eric, thanks for being here.

Excited to be here.

Look forward to the conversation. Look, things are rolling at PODD, there's no doubt about it. I'm going to start small picture on the quarter, and then I want to zoom out to some of the bigger-picture topics. The Street kind of obsesses over the starts commentary and we all have our own models on this. And the conclusion in U.S. in 3Q was you were up sequentially. You didn't commit to say you were up year-on-year. We can choose our own adventure on that. But for 4Q, the message was clear: In the U.S. starts -- new patient starts up sequentially again and year-on-year. What I want to understand is, what's driving that? I have some suspicions, G7 pod is now fully available. It's kind of been a phased rollout through the summer and fall. Maybe that's a piece. Libre 2 Plus on the tape this morning, maybe that integration starts to contribute. Like how would you have folks think about the drivers of that new patient activation phasing?

Mike, great place to start. Maybe if we just pull up 1 level above that even and just hit a couple of quick highlights on the quarter. So we were really excited about the quarter. Raised guidance to over $2 billion, over 20% top line, raised op margin to 14.5%. And the way we think about the business, there's 3 big things going on. There's innovation that's helping us drive that sequential, and in Q4, year-over-year growth in new starts in type 1. There's the type 2 launch, which is a brand-new market, brand-new TAM, and we're going after that. And then there is success in Europe, which has been fueled by a small number of markets where we've got Omnipod 5 now, and we've got 10 more markets we're going to bring Omnipod 5 to in throughout 2025, really early in '25, a lot of those. So in that context, what happened in Q3? It was 2 things. A lot of it was G7, and then we had 1 month that came in ahead of our expectations, our team did an incredible job. And we had September with the type 2 launch also helping us.

And in terms of kind of things picking up into 4Q, it's -- I was trying to figure out like the G7 pod availability. Like it wasn't -- when was it fully released in the U.S. pharmacy channel?

We had the benefit of G7 throughout the third quarter. So we've gotten good at the specialty pharmacy operation. And it does require a little bit of behavior change in the part of health care providers, and so our team has to go and educate health care providers to sell a script through the specialty pharmacy channel when we do that. And so it's a little bit of commercial friction for us. We executed really well and had the benefit of being able to provide G7 to customers through the specialty channel for all of the third quarter, and that was a nice benefit for us. We also had the type 2 uptick starting in September. As we look to the fourth quarter, it's really the first 2 things that I described. We've now got 3 launches that are coming in, in Q4. We'll have G7 not just in specialty, also in retail. Helps a little bit in commercial efficiency. We launched iOS in October, which we shared, hit the #1 medical app today. We announced it in the App Store, which we're proud of. And the customer feedback has just been tremendous. And then we've got Libre launching today here in the U.S. We've got 3 launches all helping on the platform extensions. And we've got type 2 ramping. And again, the team has done a really nice job with that launch and we've seen great receptivity in the market. So those things coming together is what gives us confidence in year-over-year and sequential growth in Q4.

I'm interested in digging into Libre first. So a great milestone this morning. 2 Plus in the U.S. You've had some experience in Europe with 2 Plus. It sounds like the proof points are positive. It's kind of an interesting dynamic. Round numbers, 2 million type 1s in the U.S., Abbott, their own number's maybe 400,000 Libre type 1 users in the U.S. And implicitly, these folks, maybe there's some nuance, they're not using AID. And now with these integrations, that unlocks for them. And 400,000 people, if you believe these numbers, on a 2 million kind of addressable pool, that's a real unlock. So like what's your expectation for Libre sensor integration as a catalyst in the U.S.? And how have you seen it play out to this point in Europe?

First, we're really excited to be launching Libre in the U.S. today. Abbott's a terrific partner. And the Omnipod 5 integration with Libre 2 Plus is a really slick integration. It's an all-in-one experience. It was by the way the Libre sensor is designed, it works really well for some people. The feedback from customers who've used that integration in Europe has been really strong, really high customer satisfaction for both customers and HCPs. So we're super excited about it. As we think about the opportunity, we think about that opportunity as another thing that we're doing to bring choice and to bring kind of broader access and reduced friction for people getting on to Omnipod 5. When we zoom out, 55% of people live with type 1 still haven't adopted the technology. And as we think about our strategy, we're trying to do things that make the product better and offer customers a choice that help meet them where they are the so they can -- so that those folks who have not adopted this technology can choose Omnipod. That's how we think about Libre 2. It's 400,000 people who now can just add Omnipod 5 to their lives and get the benefits of automated delivery. And we'll be doing that going to market with a great partner in Abbott.

Dumb question. Omnipod 5, as it ramps, let's call it on-label in type 2, can leverage all the sensor integrations, right? There's no...

Precisely. Everything we do for the platform, we get that benefit in type 1, we get that benefit in type 2.

Yes. Let's dig into type 2. You've been in this market in the U.S. with the label for DASH for a while. It's kind of consider you the market of type 2 pumping at this point. You don't have 100%, but you have a majority share and 20-ish percent of your U.S. user base. But still way underpenetrated relative to the opportunity set. So my first question on this, obviously, Omnipod 5 is now labeled. The T2D data kind of profiled very well. A lot of kind of interesting proof points there around interplay with GLP-1s and reducing insulin use for a high insulin-using population. All those things are important for your hardware solution. As you empower your sales team to go out with the type 2 push, how does the pitch change? What are the talking points now for this relative to what they've been to physicians?

Yes, so maybe I'll answer that 2 ways. First, what's changed relative to DASH? And why is -- why are our expectations high for what we're going to do with type 2 and the type 2 population? And that's a couple of things. The first one is all the benefits of Omnipod: Tubeless, easiest way to get started, delivering insulin with technology, low co-pay, available through the pharmacy channel. Now with the benefits of automation and supported by really robust clinical evidence. And it's those 2 things, automation and really robust clinical evidence, that are helping us change conversation in health care provider offices, office-by-office every day. And our team, the early feedback from our team is that those messages are resonating really well with health care providers. We saw that the future is automation. That was part of what drove us that make the decision we did with Omnipod GO. And what we hear back from health care providers is yes, automation is the right way to deliver insulin, and the clinical data [ validates it. ]

I asked this question on the public call, so it's kind of pedantic for me to follow up on it, but I want to fish again. So the physician -- the prescriber base, type 2 to this point, is it over-concentrated in a minority? Like only a small portion of the docs that lean into pumping for type 1 have also leaned into it for type 2? Or would you say that across the physicians that prescribe pumps at a reasonable level, the penetration is similar for type 2? I'm just -- I'm trying to understand kind of the distribution of the type 2 embrace to this point amongst the physician user base.

Maybe a couple of perspectives to try to help paint that picture. The first is one of the common things that our sales team here is when we walk into offices and folks who have been prescribing some amount of technology to those who have type 2 diabetes is, as an HCP, someone might say, "I don't distinguish between type 1 and type 2. If folks who are using multiple daily injections, I'll offer technology." And until we were on label, that's where the conversation had sort of stopped. That was just things we were listening to. Now we can ask questions. Now we can say something like. "Really interesting. Tell me about who you don't offer technology to today." And the kinds of things we hear back are illuminating. There are kind of things like people who don't carb count or people who may be just less comfortable with technology. And so we start to actually hear the subpopulations that folks are just not considering at all for the technology. And that's an opportunity for us to meet them with, "Actually, did you know, folks did not have to start carb counting in order to get the benefits of Omnipod 5 and SECURE-T2D. And it turns out we've got lots of folks who are Medicare age who are really successfully using Omnipod." So we're starting to be able to actually have those conversations in a rigorous way, even with those who would have told us that they were already adopting technology. That's maybe perspective one. Second one, we've shared our current call point. We estimate that we call on about 30% -- excuse me, we call on the HCPs that care for about 30% of those who live with type 2 and take multiple daily injections. That population is less than 5% penetrated. So that gives you a sense of where the market is.

You brought up carb counting, and there's a lot of great innovations that have come to pumping. One kind of being prosecuted by a small competitor is this notion of very light burden around meal announcement, small, medium, large, I guess, which can potentially improve patient experience. So I'm curious like the update on your algorithm, kind of what is that meal announcement/carb count burden today? What's reasonable over the next couple of years?

We're -- we take the meal burden very seriously. We've actually just done 2 things that help make the meal experience even better and make it even easier for those who don't want to count carbs at meals to live with Omnipod. The iOS app, when it launched, had a feature called Custom Foods that was designed in part to help people do small, medium, large and fixed-dose sliding scale meals. And we just added that to Omnipod 5 today as we launched Libre. So we now have a way for folks to do the meal experience without counting carbs with Omnipod 5 with Custom Foods effective today on both controller and iOS. That's terrific. It's a really important feature set that helps us, again, meet folks where they are, especially type 2. But actually the occasional type 1 prefers that, too. As we think ahead, sort of beyond even simplifying the meal experience to how do we automate the meal experience? Certainly a goal that we are working towards. We've got 2 clinical development programs on the algorithm side that we've shared. Presented data at ATTD earlier this year, fully closed loop, both type 1 and type 2. And then we've got a study running, our [ STRIVE ] set of studies, which will be an incremental next-generation algorithm that will add to the Omnipod 5 platform.

Excellent. Maybe closing the loop on type 2 here. This was asked on the last public call, I thought it was a good one. I want to revisit it. This notion of capacity, as type 1, 45% penetrated on pumping, say, in the U.S. Clearly room to still grow, is growing. I think we all see it. You all see it in your numbers. We see it in the data that we can put together. Type 2 coming now. And it just -- it's obviously in terms of number of patients, it's larger than type 1. And so I guess, as I've covered medtech, too, like there's often no shortage of TAM but supply side matters too. And it's provider capacity and kind of patient throughput. What's your vision for how this unfolds? Is it that type 1 in terms of market or your performance like starts stay or can keep growing and type 2 adds on it? Or is the supply situation on the provider side such that, like overall starts like growing for sure, but maybe type 1 has to come down to accommodate type 2? How do you guys try to model this or think about this?

We think about that first, that type 2 is incremental. So type 1, we've seen an acceleration over the last couple of years and adoption of technology led by us because of the simplicity of tubeless, simple, automated delivery with Omnipod 5. We expect that to -- we expect to continue to lead in type 1. We see what we're doing now and leading the market into type 2 as the only AID system cleared for type 2 today as incremental on top of that. The capacity issue is real but the solutions are twofold and they are actually linked to the simplicity of Omnipod. So the first is we are -- we have been seeing growth in prescribers who hadn't been prescribing pumps. They are now driving a fair amount of Omnipod. That's a good chunk of our business today. That's piece one. We're actually just bringing more prescribers into the prescribing fold and helping them get comfortable prescribing AID. And again, they can do that because of the simplicity of Omnipod. Additionally, we've shared more than 20,000 prescribers have prescribed Omnipod and we call on a fraction of those. So in addition to the folks that we are bringing into AID prescribing by calling on them, there are also folks that we are -- that are becoming prescribers by activating from our DTC efforts, which is we're actually creating capacity in the system to bring more people on to AID. That's what gives us confidence we can keep leading in type 1 and add type 2 incrementally.

And maybe to add a proof point here. In the third quarter, when we reported for the U.S. that sequential growth, coming from MDI, we experienced that sequential growth on both type 1 and type 2. So that's really that key market that we're bringing into expanding a population that uses technology.

I'll follow up on the prescriber thread. I find this number interesting, and that comment about basically self-activated. I don't know if that's a way to characterize what you just described. But rough cut, 8,000 endos in the States. I've heard about as many endo-like PCPs-ish in terms of their insulin prescription volume. So that's 15,000 or 20,000. But there's 250,000 PCPs and kind of general practitioners. Do you have a vision or an internal target or framework for HCPs you'd like to [indiscernible]? How big can the HCP number get in terms of prescribers for you as you activate more docs?

I think the way we think about it, we are going to get to the people who take insulin. And we're going to do that in part through feet on the street and continue to expand our commercial footprint. And we're going to do that in part by activating patients as we do today with DTC. And we know our -- we're able to measure our lead productivity and various call points, and therefore we can dial and we can inform when it's time to do more feet on the street, when it's time to do more DTC. So we're just going to keep working that over time. But Mike, what we know is that there's a couple of million people who live with type 1, there's 2.5 million people who live with insulin-intensive type 2, and there's 3 million to 4 million people who take basal insulin. And so there are a lot of people in our TAM that we need to go get to. We're developing the muscles to do that, inclusive of more digital technology that makes it easier for folks to self-activate when they see an ad or are interested in Omnipod.

Is it -- the direct-to-consumer, direct-to-patient program, would you expect your investment and commitment to this to step up as type 2 kind of becomes a bigger push? Or would you envision that the activity's, in '25 similar to '24, maybe with -- speaks to targeting? How do you -- overall spend or commitment to the DTP effort?

Yes, I'll start with that. We prioritize our investments, whether it's adding to the sales force in the field, whether it's direct-to-consumer advertising, based on the returns. And we have, as Eric mentioned, really good metrics around that. So we will continue to do that. Keep in mind that this is real hardcore market development. And we will continue to invest, and that's a key priority for us as we progress through '25 and beyond. So there's no specific formula. We'll just continue to assess and make prioritization decisions as we go along. But we're very committed to growing the type 2 market.

I'm going to ask a couple of questions about the pharmacy channel. I think it was 2 calls ago like the retail versus specialty topic came up. I don't want to dwell, but I just want to ask simply. Like patient experience, provider experience, your experience, what's the difference in when someone accesses Omnipod 5 through specialty versus retail pharmacy?

The simplest way to think about it is the retail channel is what health care providers have muscle memory for. So when all of us go to the doctor, young kids, they usually go for an antibiotic script of some kind. When we go to the doctor, the health care provider just sends it to the local pharmacy. It's like muscle memory for them because it's what they do all day long. And the HCP and the patient are in total control of that muscle. They're used to it. The patient goes and gets it. They're sort of watching it end to end. Specialty pharmacy is a little bit of a flip. It takes a little bit of thought from the HCP so that's our team has to go coach HCPs to send it to that channel. And so the HCP has to think, "Oh right, I have to send this to specialty pharmacy." And then the patient experience is, they're going to get phone calls, they're going to get texts from our partner to help them get through that process instead of it being HCP and patient led. It's a great experience. Our team has built -- has made that really patient-centric. It's just not what the health care providers have muscle memory for.

Are you indifferent? Or do you see long term one of these channels as more -- one of these concepts more advantaged than the other?

We have different pros and cons. We'll continue to use a mix. So as we launch Libre, we'll start that in the specialty channel. It's a great way for us to get started so that we can help folks navigate. Where we're still building access, for example, it helps us provide more support in those moments. It also helps us, when we have to do things like with G7, where we want to accelerate a launch, that is really impactful for new customers but maybe the whole base doesn't care about as fast, it lets us manage inventory a little better. And they're both good experiences for patients. And so as long as we're prepared to go help health care providers know which option to choose, then we're indifferent and we can deliver what's best for patients.

Do you feel closer to patient with specialty? I've always perceived that as like a higher-touch kind of better wrapper or...

It is. We do feel slightly closer to the patient when we do that. However, we don't want to influence that choice for patients if they have a preference. In the end, we want to meet patients where they are.

The other topic on pharmacy is, I guess, you have 3 competitors, 2 very large, 1 small. 2 of the 3, one of the larger ones and the smaller one are talking about the pharmacy channel. And look, it sounds like a process, it's not going to be a flip of the switch, and that's very clear. The question to you is you've often said that -- I'm just trying to get my ducks in a row on this, the Is dotted, Ts crossed. You often said, Omnipod fits this channel well and the durable pumps do not. What does that mean?

So 2 points on that one, Mike, and then maybe I'll add a couple of comments just about the pharmacy channel in general. First is the pharmacy channel is a really impressively efficient distribution network that likes high volume of high- to moderate-value things because they're earning a pretty low distribution margin on going through that channel. It's designed for high turn, high efficiency. That's what it's good at. Omnipod fits that perfectly. It's a high-value disposable that, from an economics and a physicality perspective, is a lot like a drug. So just the actual physical channel dynamics and how the economics is set up align with what that channel is designed to do. Second thing is that the value of Omnipod is in the disposable. And so when we think about how we contract with payers, for example, one of the things that they like is we earn our patients every time they put on a pod. Every single time that one of our customers puts on a pod, they're making a choice to use Omnipod. And there's not some big capital outlay that was done 2 years ago that committed that patient to do that. They're making a choice every 3 days when they put on a pod. And when they do that, they're getting a clinical benefit, they're getting a life benefit. And that works for payers on the other side of it. And those are the 2 big reasons that we fit really well. If we just want to take a step back, like our journey and our strength in the pharmacy channel builds from those 2 things and just adds a couple of other things, which include long relationships, having worked now for about 7 years to get really broad coverage. And the opportunity to have shown our payer partners, their members demand Omnipod, they get great outcomes when they're on Omnipod, and Omnipod is differentiated from the other choices in the market.

That resonated, I appreciate that. I used to cover Amerisource, Cardinal and McKesson, so you brought me back to some older days. Okay, an OUS question, and then I want to hit on margin, and then we probably have to wrap. Maybe 2-parter on OUS, type 1 and then type 2. So U.K. and Germany, I guess the question is, in watching O 5 enter those markets, you were here. It sounds like you're here. Has that -- like to the extent you had an algorithm for this, which is how the U.S. went, like have the launches there kind of mapped as you experienced in the U.S.?

What I'll say is we put our plan together and we gave guidance at the beginning of the year with a lot of very good assumptions founded on what we experienced in the U.S. and different things. As you can tell now 3 quarters later, for our out of U.S. revenue guidance, we've increased it 1,700 basis points. So the conclusion is it has exceeded our expectations. And the bottom line is Omnipod 5 is really taking over the market and winning everywhere it's going. To add some color to that, U.K. and Germany, we have the Netherlands over the summer, France a little bit after right at the end of summer, just getting started. And as we talked during our third quarter earnings call, there's another 10 markets that we're looking into 2025. So we see a tremendous runway for us outside of the United States.

I asked the question poorly. Maybe can you comment, U.K., Germany, let's stay there, the 2 biggest markets, the first 2 for O 5. Before the O 5 launch, share was -- your estimate of share was what? And 1 year, 1.5 years in, share is what?

I don't have the specifics of share by market. I actually don't think we've shared that publicly. But it's much higher.

Okay, fair enough. Type 2 OUS, is there a path? Any of these countries more amenable than others, sooner versus later?

There will be a path. It's really something we're working on. We haven't put out sort of guidance on timing or anything else. What we know is that there are a significant number of people outside the U.S. who need insulin, and Omnipod 5 is going to deliver the same incredible outcomes for them as we've shown in SECURE-T2D. So we're working on it.

Okay. We're going to wrap on business efficiency, operating margin. Investor Day next year, are we doing that or no? Maybe? TBD?

Stay tuned.

Okay, stay tuned. All right. So the soft circle in recent commentary has been 100 bps a year. This year, you're going to expand operating margin over 200 basis points. Last year, it was almost 300 basis points. And as we pressure-test the model, like there just seems to be room. So why is 100 the right number as you think about kind of the gross margin opportunity, all of the investments you could or should make to continue to develop the market? Pushes and pulls to get to 100 as kind of the right cadence for the company over the next few years?

Excellent. We're excited by where we can take our operating margin. I've stated that at least 100 basis points a year, and we need to start with gross margin. Gross margin has benefited significantly over the past few years. A lot of that has come from pricing in the U.S. as we moved away from DME into pharmacy. And as you might recall in the third quarter earnings call, I mentioned we're really now at 100% in pharmacy. So some of that tailwind that we saw into our gross margin expansion has reached that level of capacity. We will see some price increase in international. But the key point to remember here is now we guided here at 69%. So we're getting really close to that 70% mark, which is by far an industry-leading level of gross margin. We are not stopping there. We will see additional gross margin, but it will be more moderate. It will come from the hardcore engineering and manufacturing mix and managing all of those things. Now going to the bottom line for operating margin, we are absolutely committed to the incremental innovation, R&D. We want to continue to invest in sales and marketing. And we're going to do all of those things and still deliver at least 100% operating margin to the bottom line. Very committed to the margin growth. With that, I'll just add, we are free cash flow positive now for a little while here. We've been generating our own cash flow that supports our own innovation. And our #1 priority is to invest in ourselves, our #2 priority is to invest in ourselves, and our #3, because we are able to generate those returns not only by helping people with diabetes, but for our investors.

Last one, and then we'll wrap just on kind of COGS efficiency. A large investor recently in Malaysia. Is there a way to frame how like the incremental cost saves of that plant on a per pod basis when it's fully up and running? I mean, I presume there's a play there. I'm wondering if you have a numeric framework.

Yes. So we're excited by our launch in Malaysia here. We officially launched it in August. And we see the mix of our production having different places, it gives us a lot of flexibility. It is an efficient plant. It is one that has more capacity to continue to expand in that rooftop. And we're excited by that being one to levers that we will use to drive that gross margin expansion.

Excellent. Well, we will stay tuned for the Investor Day, and I appreciate the conversation. Ana and Eric, thank you for being here.

Thank you.