Well, good morning, everyone. I know that we sit between this session and lunch, but maybe appropriate for a diabetes management company. Very pleased to welcome Que Dallara, Chief Executive Officer, and Chad Spooner, EVP and CFO of MiniMed. I know we want to jump into the business, but I thought just coming off of ADA, it'll be a great opportunity to hear your perspectives on what were some of the takeaways from the conference. Maybe if you could just give your view, maybe market perspective, and then MiniMed specifically.
It was a great ADA. For us, it was affirmation that AID is where the market is growing, and there's enormous headroom. I say that because even if you look at CGM on its own, in Type 1, 80% penetration, Type 2 in the U.S., 60%-70%. The reality, though, is that for the AID market, it's not about putting more CGM on. It's about automating therapy. That was a lot of the conversation, a lot of what we saw in terms of the data being presented. For MiniMed, we had a great show. We had MiniMed Go, which is our smart MDI solution. We just started taking orders for that in late May, so we launched that. Then, of course, Flex, we had a lot of traffic to our booth, looking at our new form factor, the new software. It was super cool.
Of course, coming here, we got to watch the French Open and watch Sascha Zverev win the French Open, first Type 1 pro to do that. Of course, he's a brand ambassador for us, so we were really pleased for him.
Excellent. Maybe just jump into some of that in a little bit more detail. You've obviously gone to ADA as Medtronic Diabetes-
You specifically, leading that business. What did you do differently this year as a standalone company, and what was the message you were trying to convey to your customers now that you're an independent company?
Well, we had a huge brand launch with our new product. Hopefully, when people saw our booth, it looked different. It didn't look like Medtronic, which is a great brand, but a hospital brand. It looked very consumer. It was very fresh and modern, very digital, and it very much parallels the product launches that we're doing. We had a great customer event. We had over 250 customers come to our event. We had it in the Caesars Superdome. It was great to see MiniMed in the lights in the middle of the football stadium. Hopefully you get a sense of that, and if you cyberstalk anyone on social media, you're going to see that we show up very differently on your Instagram and your Facebook feeds.
Excellent. One of the things that came up actually yesterday in an investor meeting that I was in was, is MiniMed a turnaround, or is MiniMed a growth story? How do you kind of contextualize the evolution of the business and what is it to you now?
It's 100% growth story. When I think about turnaround, I think that you've got a broken business that you had to fix, and that was true historically. We had regulatory challenges, we had CGM form factor challenges, and those are all behind us. Not only that, we're launching within 18 months, wherever you are on your diabetes journey, whether you want to stay on injections or you want to be on automated insulin delivery, we've got something for you with MiniMed Go, MiniMed Flex, and then of course our patch pump and a new algorithm. We are chock-full in terms of our pipeline, and I don't think you can call a business that's delivered the 11th consecutive quarter of high single digit, low double digit growth a turnaround. Think you'd want that all day long.
I think our story is we're the only system in the market that has CGM, pumps or dosing devices, algorithm software all under one roof, and we have this unique razor blade business model, and that's really the growth story. We're going to execute our pipeline, and we have a commercial footprint in 80 countries. We're not building a new sales force to go execute on that growth.
Okay.
I think it says growth.
Where I think you probably get a lot of questions on that is, well, what about the U.S.?
Talk to us about where we are in the U.S. growth curve. Should we think about Q4 as a trough for the U.S.? How are you kind of positioning the U.S. in the context of that overall message?
Let me talk about the pipeline. Then maybe Chad, you can jump in on sort of the shape of the curve. Look, the pipeline is unbelievable in the next year, really. In the U.S., we have four major programs launching that significantly changes the user experience, the hardware, the software changes, the algorithm changes. In addition to that, we're rapidly expanding into the pharmacy channel. We both have DME and pharmacy, and our position in the U.S. is unique because we are a DME supplier and we are a pharmacy. What that means is it's easier to prescribe. It's also easy for us to stay on track of patients and ship directly to them and essentially hold their hand throughout the journey. It's not simple getting on these therapies. We're trying to make it simple. If we execute this pipeline, which I know we will.
Yeah.
I think the growth will follow up really readily.
When you think about the strength of what's been driving the curve in OUS, for example, which has had very strong growth historically, it's been products. The product launches that really drive our business.
OUS had 780G first, had Simplera first. Now the U.S. has Instinct, you saw the impact of getting the new products even in Q3 as Instinct launched, you saw the new pumps sold increase in the U.S. The shape of the curve will be steady growth throughout the year. We'll see several weeks of selling Flex actually in the U.S. in the first quarter, the second quarter, Flex with Instinct on the H2 of Q2. In Q3, you're going to see a fully formed selling with everything we have. You also see OUS getting Instinct as well. You're going to see our curve progressing up.
Okay. That's super helpful. I just have one more market question, which I meant to ask in the ADA discussion was, you can't really have a diabetes technology discussion without GLP-1s. I don't want to ask a leading question because I have some views about what the take was at ADA on just kind of the impact of GLP-1s. Maybe what's your latest read, and what did you hear over the weekend?
Look, I think GLP-1s are a great advancement. I think in terms of how it impacts our business, it doesn't cure diabetes. If you have type 1, you're still going to need an AID system, or you need smart MDI. You still have to dose insulin. That's true. Penetration of AID is still incredibly low, not just in the U.S., but globally. When it comes to type 2, if you take the worst case scenario, which is GLP-1s, say, is used more prevalently, costs come down, it's used more. It may slow down the progression of type 2s that progress to insulin dependency. It doesn't stop it. It just slows it down. When we look at the overall market in the United States, there's still 2 million people who are type 2s that need insulin today. That's not going to change.
They already are dependent on insulin, penetration of AID in type 2s is pretty small. The headroom is there, of course, U.S. penetration is even lower than that. We see significant runway in the market.
Okay, great. I want to see if there are any questions in the audience. Otherwise, I'm happy to keep going. Okay. You talked about the pipeline for MiniMed. You talked about being in 80 countries. Do you have all the other pieces in place to execute the strategy now? You have the products. Do you have the upstream, downstream distribution? Where are you on building out the rest of the kind of human capital of the business?
Yeah. I think one of the questions I get a lot is what happens to the commercial team because does that stay with Medtronic? The answer is diabetes therapies are outpatient therapies. They're not in-hospital. We've always had a separate commercial team. We have thousands of people in 80 countries already in place, and they came with the business when we separated. Most of our business is direct. We have some distribution arrangements, principally some of the emerging markets, but we largely go direct where we can because having that direct connection to the providers as well as the patients is very important. That's already in place. We also run a support infrastructure. This is all the tech support, the 24 by seven call center. We have 1,500 people running that in 26 languages already in place.
In addition to that, when it comes to reimbursement, which is a country-by-country model that you need to have, we already have those people in place as well. Having the pipeline on top of that commercial foundation is what's going to allow us to go very quickly. We don't need to wait to set up a sales team or go into a market. We are already there. We need to fill their bags with new products and continue to expand market access around the world.
Have you generally retained the U.S. sales force over the past-- I think if you go back to pre-regulatory issues, and I think in dollars, the business is actually still smaller today than what it was then. Have you retained the commercial organization even with the revenue volatility?
We have. Every year, as I'm sure Chad can mention, we've driven leverage in the business. We always look for efficiencies. We drive commercial excellence across the world in our commercial teams. Yes, we've retained our sales team. We continue to invest or reallocate in certain areas. For example, I think we mentioned on the earnings call that we have the beginnings of a primary care sales force driving MiniMed Go, our smart MDI solution into primary care is an example of where we've reallocated some of our commercial investments.
Okay. I think there are some unique elements of your distribution and ordering that don't totally map to your peers. I think this is one of the dynamics that I don't know that fully appreciated by investors. Maybe you sort of talk through MiniMed Pharmacy and the ordering infrastructure you have and how that might be different from how people generically interpret the market.
Yeah. If you take a product like MiniMed Go, which is a self-start smart MDI product. It's an insulin pen that's paired with CGM real-time, and there's an app that drives dosing recommendations and keeps a log of all the dosing decisions. Something like that, we don't want our teams to touch it. You could come onto our website. You can do that today. You can order it online through an e-commerce solution, or you can have your doctor send us the prescription, which comes to MiniMed Pharmacy. Because we are a licensed pharmacy, we can then dispense the product, and then we ship directly to the patient. What that does is it's super scalable because our typical DME team doesn't touch that. We keep the relationship with the patient, and then refills and so forth can be done in the same way.
That's an example.
Okay. Maybe that's a good opportunity to address one of the questions I get a lot.
Was like, "Oh, when they start selling through the pharmacy and CGM goes through the pharmacy, the price is just going to get wrecked.
How do you myth bust that for people?
Well, the good news is if you look at our consumables and our CGM, which are available through DME and through pharmacy, we have very comparable pricing. The way that we do that is we have direct contracts with payers. We have contracts with the PBMs, we also have direct contracts in the DME side. Yes, that's a myth, but the answer to that isn't what I think. It's what we have in contract with payers.
Why would you sustainably be able to maintain a disproportionately high ASP versus the other two players?
There's really two big drivers to that. One is we don't go in and just have a commercial conversation. We go in, and the payers understand our install base. They understand that these are largely Type 1 patients that use the therapy, so it's not wasted investment. We come in with our clinical evidence. We explain how it works. You can't really substitute our CGM for another CGM because our CGM works within our system, and it drives certain health outcomes, and that matters. As much as PBMs enjoy the rebate, they care about health outcomes as well, and we make a very compelling case around how our patients do on our therapies, how does that compare to the national average, that's very compelling.
That's one, I would say, discussion that we have, and we've been very successful in translating that into contracts and pricing. The second thing that's important is we serve people who need insulin. We are not in non-intensive people with diabetes. We're really with people who need insulin. That's very much a smaller volume of the overall market. What the payers care about is, can I substitute one CGM for one company versus another in a standalone basis? Yeah, that's pretty easy and very substitutable, it isn't in the case in our therapies.
Okay. Maybe the last question on CGM. I get a lot of inbounds on, well, isn't the addressable market for MiniMed actually, if they cut it in 1/2 because they don't have access to the Dexcom population? How do you respond to that? Maybe just remind people strategically why you're not going to integrate with G7.
We have a great relationship with Abbott. Our vision is if you think about the way that diabetes technology has evolved over the last 40 years, it started off being a pump market, CGM became the standard of care. More recently in the last decade, we've had hybrid closed loop. Historically, hybrid closed loop was okay, not amazing. Still complicated, a lot of settings. Where we see the future is further simplification, further automation. Further simplification of the user experience as well as what the physicians have to do. If you look at our algorithm in the future, you can go hands-free. In a way, it's like a self-driving car for diabetes. You don't have to do anything, and you can still get outcomes above ADA guidelines. The direction of travel is simplicity, and less tinkering with technology.
That's very important because if you look at type 2 and where type 2s get treated, that's more primary care. More and more, these therapies shouldn't require four hours of training or a lot of setup. It should be something that can be self-trained by the majority of people and can be prescribed ideally in, say, the primary care as well as the endo channel. That's where it's going. To deliver that experience that's simple, you need something a bit more like Apple, where it works better together. We spend a lot of time curating that experience, and that's very hard to do when you're mixing and matching. You pick a CGM, you pick a pump from four or five different companies. It's not guaranteed to work seamlessly. You've got multiple apps.
You've got some of our pump peers release Android only or Apple only. We will always launch with Apple and Android because we're trying to make it simple. You don't want the doctor to say, "Hey, are you on Android or iOS?" before you prescribe therapy. This is exactly what's happening in the market. That's why we have the system we have. The second reason for it is we have a razor blade model. We make more revenue per patient because we sell the pump, and we have all the follow-through consumables and CGM. That's what makes us unique in the overall market.
Maybe it's a good segue to talk about the pipeline a little. This is a market that has lived and died on form factor-based decision-making, which admittedly puts 780G.
In the U.S.
In the U.S. a little at a disadvantage.
Yes.
Maybe just give us some perspective. First of all, when the whole conversation this weekend was not about form factor. It was clearly about algorithm simplification of the therapy, how to make it more hands-off, and it seemed to dominate most of the sessions at ADA on AID. How do you think Flex and Fit fit into the evolving dynamic of the market, and do you think market decision making is going to evolve also?
We think so. We think that Fit and our patch pump and Flex, the next, the durable pump that we're shipping in a few weeks, not just levels the table stakes in terms of form factor, and it's not just the hardware, it's also software and how discreet it is. It's also different from a wearability standpoint. If we just take that off the table and assume the hardware's modern and fresh and people like it, they like the appeal of it, then the conversation should be where it should always have been, which is, this is a medical device. It's treating a condition. How well does it work? How effective is it? I think this is where we believe we have an advantage. With our algorithm, we have more miles driven in our algorithm than anybody else.
We have a pivotal trial going on right now with our next-generation algorithm, Vivera. We believe that our algorithm delivers the best outcomes. It's the most clinically validated system on the market, with more than 280 studies in peer-reviewed journals. We have a lot of data, almost half a million patients on 780G. The conversation should be, and when that's the conversation, we believe.
Maybe just to talk a little bit more about Fit and the timelines there. I think you said filing this fall.
Yep.
What are the remaining steps between that need to be ticked off before you're ready to file?
The design's frozen. We're finalizing test reports. We're getting ready to submit. The goal isn't to submit, the goal is actually to launch, which is why I think we're the only company that said at launch, we'll have capacity for 20,000 patients, and we're already expanding capacity from that point onwards. It is all preparing for launch.
Human factor testing done.
Done.
It's documentation mostly to get from here.
Yeah, it's documentation. It's getting ready to file and of course, all the preparation that is involved in launching commercially, market access conversations, things like that. It's not technical.
Okay. You'll have a type 1 and type 2 indication.
Type 1 and type 2 indication. It will be available through pharmacy only. The software, if you look at MiniMed Go, MiniMed Flex, if you came to our booth, the software is very similar. For Fit, it will be exactly the same as MiniMed Flex. The usability, again, is not something someone has to learn again.
I think if you look historically at pump clearance timelines, it's five to nine months, f rom filing to clearance. I think Flex you got in four months or something like that. What's a reasonable benchmark for Fit?
Got it less than three months, just over two months. It's, I think, one of the fastest pump approvals. Can't comment on the agency's timeline. That's up to the agency. Hopefully, we've done a good job. We have done our homework. They're very familiar with our system, how our algorithm works, we're hopeful that it will be a speedy approval.
Where does the 20,000 number come from? How validated is that? How'd you-
We know our yields.
Okay.
We know how many lines we have. We know what we can produce. What we're really trying to do is match capacity expansion with market access, because it will be available through pharmacy. That's going to take a minute. We want to make sure that our investments in capacity kind of mirror our ability to sell the product.
The take a minute comment about getting on a formulary?
Getting on formulary, typically, you have to get the product approved, then you have the conversation, and so forth. It just takes time. It's not necessarily unique to us. It's just part of getting on formulary.
Okay. Maybe just as you put your pipeline together, one of the other obvious questions that people talk about is, this just looks like it's a market that's going to be very competitive. If you zoom out a lot, today you have, or before COVID, you had 780G, you had Omnipod 5, you had Tandem Mobi, iLet and Twiist o n the market. If you fast-forward three years, you'll have these six. Maybe you won't be selling 780G anymore. You're adding Mobi, Flex, Fit, Omnipod 6, and Mint. I think it's five companies and 11 products. Just sounds like a lot competitively. How do you think this all shakes out? Why shouldn't people be freaked out about pricing trends? Where do you see this landing?
I think that these products are not substitutable. We're very confident in our pipeline and how differentiated our overall system and experiences is. We have great clinical data, I think more than anyone else. We've got unbelievable form factors coming in, ultimately, this is a business, especially if you talk about something like patch, generally speaking, with AID systems, you need to have scale. You need to have scale in manufacturing. You need to have scale in terms of your development foundation. If you look at what we're producing and how fast we're doing it's because we have technology platforms we can leverage. The software's the same app. We have the same CareLink that can incorporate all of it. We have that already. A lot of the electronics are shared between pump platforms.
Not only that, we have an unbelievable commercial team globally that can go and distribute the product. Scale matters a lot in terms of profitability and long-term cash flow generation. We already have those things in place. In the end, I think there is a lot of noise because it's a very attractive market, it's not surprising to me that people want to get into the market. The ability to sustain that and be a leader in this market, you need the kind of scale that MiniMed has.
One thing, though, that we also emphasize, and you brought it up, is it's going into a world where clinical outcomes matter. Next year, when we launch Vivera, we will be the only one in the market with a truly fully closed loop for type 1 and type 2, and that's going to be a significant differentiator when form factor's off the table for everyone.
Do you think, will there be a tube pump market in five years?
We think so. Today, one and a half million people are on tube pumps, half a million, growing faster admittedly, are on patch pumps. I think people who are experienced pumpers, there's something for that. They like to disconnect from the pump. They want to go swimming. Our French team has a campaign called We Disconnect to Connect. Only the French can do that. Those things are important. These things matter in people's lifestyles. You want options for patients.
That's a great anecdote. See, I always feel kind of dumb. The next question's a financial one after that. Maybe just turning over to the business, as I look at your guidance for FY 2027, excluding the extra week, you're effectively guiding to similar growth to FY 2026. Q2, you grew 7.5%-ish, but every other quarter, you were in this 8.5%-9% range, which is effectively the guidance for 2027. There's a lot of new stuff happening in 2027 when I compare it to 2026. You have a full year of Instinct out. You'll have Flex in 2027 versus 0 in 2026. You have a standalone operating model. Why don't things get better in 2027?
The way that we talk about guidance is we set guidance that we're confident that we can hit. You have a guidance that we're confident that we can hit. When you look in the full year, you're talking 8% going up to north of that, obviously, with the extra week. We also think about it as a phasing. It's the momentum that you're going to see in the second half because you have this pausing because we have six months earlier FDA approved on MiniMed Flex. You're going to have that build up in the H1 of the year. We're going to have benefits from Instinct in OUS in the H2 . We feel confident. The way Alex said it is we're confident in a plan that we can hit.
As we see these numbers execute throughout the year, we look to prove that that's the case.
You say build up. It's not a dramatic ramp from Q1 through the rest of the year, though.
It's a progression.
Progression.
It's a progression.
Okay. That's all that's tied to the timing of product launches?
Yeah. Product launches will have a big impact, as you look at what's driving everything. It's quarter by quarter incrementally, more and more comes in.
Does the swap-out option that you provided patients with on the early MiniMed Flex, does that have a material impact either way?
No.
Okay.
It drives it. The thing is, between that and the people who just pause and say, "You know what? I'm not going to go to a 780G," than to switch technologies, to be able to quantify those two is very difficult. The actual program we offered is not material.
There are a couple moving parts on the P&L. You're still driving adjusted EBITDA margin expansion on a year-over-year basis, but I think there's some moving parts between gross margin and OpEx. Is that, do you think, isolated to FY 2027? How do you think about both short and longer term financial algorithm?
There's two elements. The first element is, and I'll start with the operating expense, is not tied to 2027. It's what we've been doing over the last three years. Delivering over 300 basis points of operating leverage year in and year out. That kind of operating leverage should continue as you look at the fact that our sales and marketing organization doesn't need to grow as Q spoke about, our R&D organization is in place. We'll continue to drive that. What you're going to see in 2027 from a gross margin standpoint is as we launch new products and as we expand new products like Simplera, you're going to see a little bit of softness in gross margin, but then it stabilizes out after 2027, you're going to see the full effect of the operating leverage every single year after that.
Either strategically or financially, how much does it really matter, Simplera versus Instinct? At scale, it's bad for the P&L.
Yep.
How do you think about the interest, both the go-to-market strategy, also financially?
We think of it as patient choice. We want to give the patients choice, and that's what it's all about. Simplera's there and Instinct is for patient choice. From a margin standpoint currently, Instinct is equivalent to our legacy Guardian sensors from a revenue and a margin standpoint. Even Simplera, they're all the same from a revenue standpoint. We have modeled in our assumptions on Simplera usage, and we're happy with it as it ramps up. That's in our forecasts.
Okay. Then just as you think about the P&L as you go forward, I know we talked a little about the U.S. sales organization, it would seem like your earnings are understated because you've carried the U.S. sales organization. You've obviously had to pay merit increase annually, you've had revenue declining. As that flips the other way, shouldn't there be outsized operating leverage in the P&L?
What you'll see, I look at everything on a global basis. Because we invest. Don't forget that in the U.S., we're also going to do, we've started some small investments in PCP sales force as we do MiniMed Go. There's a constant investment. We're not going to just say we're cutting cost or not going to invest. You have to continue to invest in the portfolio and the business, and that's why we see this continued leverage. I think the amount of leverage we've been able to deliver and consistently be able to do that as we continue to invest in growth is a pretty good formula.
The one other question we got a lot during the IPO process around cash flow, because you do have some wonkiness in free cash flow. How does that mature over time to look more like other profitable businesses?
What you're going to see is for the first year or two years, as we're doing separation, there's these one-time things. There's the Blackstone payments, things to that effect. If you look at the core operating part of the business, you're going to see a very strong cash flowing business. As we get out of this period of separation, you're going to see a very robust cash flow coming out of it.
I know you would say, "Why'd you ask all these questions on margin expansion if you're going to ask this question?" I'll ask it. There's a register of competitors out there. Some of them have very different levels of capitalization to what you have.
Is there any reason to spend more given the increasingly competitive nature of the market and your starting point position?
We started from a great position, right? $350 million of cash on the balance sheet and $500 million of a revolver if we need to access it. We think that we've allocated the right amount. As a good operator, you don't just spend money because you have access to it. That's not a good equation. We think that we've balanced it out, and if you look at all of the products that we're launching, when I think of capital allocation, it goes to internal growth. You're going to see us spending on how do we accelerate MiniMed Fit to get the capacity in place that we need to drive more and more growth. That's where we're going to be putting money. We're not going to hold back on that, but we don't need to spend just to spend.
Okay, great. Maybe just last couple minutes here, I'll see if there are any questions from anyone in the audience. If not, I'll turn it back to Que. Maybe you can sort of wrap this up for us. You've obviously been with Medtronic Diabetes a while, but now you've sort of flown the coop-
Yeah.
So to speak, a couple of months of being a public company. Coming out of ADA, and your fourth quarter earnings call first as a public company conference day, what message do you want to leave people with, and what should we expect to see from you over the next couple of months?
I think probably three big things I would say, David. One is if you look at our capital allocation and where our strategic focus is on intensive insulin therapy, that's what we're focused. There are 37 million people around the world that need to take injections every day, eight to 10 injections a day. Our job is to automate that. That is significant runway into the future. That's where we're focused. I would say that you're seeing a lot of the pipeline today. In the future, we hope to come back and talk to you about what's beyond MiniMed Fit, our patch pump, and Vivera. We're already executing both the short-term and long-term. Having that strategic focus has been very helpful without the annual cycles that you know happen in big companies. That's one. Second part is, hopefully, you can see the intensity of which we're executing.
In our execution, we're sharpening the pencil on how we do that. We are showing up much more in a consumer way, because largely, our business is direct to patient. Hopefully you'll see more of that. This is just the start. Lastly, our ability to connect the work we do to the results we drive from a compensation standpoint is a new level we didn't have. The culture and accountability of the organization to deliver for people with diabetes as well as our shareholders is really pronounced now that just in the few months that we've been out on our own.
Excellent. Well, I'll tell you at least from my perspective, when we first started down this process in January, I was admittedly very skeptical, having had the Medtronic Diabetes baggage. You certainly converted at least one person in team as believers. Certainly coming out of ADA, it seems like you have a lot of momentum. Look forward to getting the next update in August and appreciate your making the trip.
Great. Thanks for having us.
Sure.
Thank you.
Thank you.