Hi, I'm Robbie Marcus. I'm the MedTech Analyst at JP Morgan. Really happy to introduce our next speaker, Jim Hollingshead from Insulet, the CEO. Jim, I'll let you do the presentation, then I'll come up on stage. We'll do a little Q&A.
Perfect. Good morning, everybody. Thank you, Robbie. And thanks for the opportunity. Glad, glad to have the opportunity to talk with you all today and glad you're all here, so thank you for coming. I wanna start by introducing you to Kim Sue here on our cover page. Kim Sue is a digital creator. She's a stylist and an influencer, and she was diagnosed with Type 1 diabetes more than a decade ago, and she's been using Omnipod 5, our flagship product, since last year, just in the last year. And, Kim Sue loves this product. She tells us she's very active, she's doing things all the time, and what she tells us is that Omnipod 5 allows people with Type 1 diabetes to fly like she does. And we love that.
That's why people, the hundreds of thousands of customers like Kim Sue, are why we at Insulet get up every day to come to work and do what we do. Our mission is to help people living with diabetes really simplify their experience. We're here to simplify life with diabetes, and Kim Sue is one of our we call our customers Podders. We affectionately call them Podders. Kim Sue is one of our many, many Podders, and you'll see throughout our deck, I'll point out you'll see photographs. Every photograph of a person in our slide deck is a Podder. They're real Podders. They all have real stories. I'm not gonna have time to pause and tell you, unless we get a minute, I won't have time to pause and tell you the story of everybody we have in the deck.
But we are so motivated as a company to help simplify life for people with diabetes, and we really change people's lives, just as Kim Sue has told us we've changed hers. So very happy to have the opportunity to talk more about Insulet and how we're driving growth and what we're doing for customers and investors. I'm gonna make some forward-looking statements today. I think you're all familiar with that. I will refer you to our SEC filings so you can see the details and the limitations of those statements. And then the other thing, just to remind everybody, all of the numbers and guidance in our deck today are from our Q3 earnings call in November. We're not, we're not updating and changing guidance. It's all from our Q3 earnings call.
The four topics I wanna talk about today, briefly: First, how do we achieve our mission to simplify life for people with diabetes with our market-leading innovation? Second, I wanna talk about the strong financial fundamentals that our company continues to drive. I then wanna talk a bit about our Omnipod platform and how we lead in the diabetes market, both Type 1 and Type 2. And then I'll talk about our forward innovation roadmap and how we're gonna realize the opportunity of our flagship product, the Omnipod 5. As I've said, our goal is to simplify life for people living with diabetes, and we do that with our Omnipod product platform. Omnipod is a wearable, disposable patch insulin pump. It's incredibly discreet, it's easy to use, very easy to train on.
You don't feel the needle go into your arm or into your abdomen when you put the product on. Very simple experience. It reduces the burden of living with diabetes dramatically, and I'll show some more detail on that in a minute. It also improves outcomes. Our entire family of Omnipod products improve outcomes for people living, who need insulin, living with diabetes, who need insulin. We have multiple competitive advantages at Insulet. We have an incredibly deep, skilled, and talented team. Our people, I think, are actually our key asset. Not only do we have highly skilled people across the range of our business, we are so mission-focused, it's palpable. It's so exciting for me as a leader in the business to come in and work with my colleagues, who every day get up focused on how they can deliver for our customers.
We have an incredibly robust innovation roadmap. We have a number of pathways to grow our business and, more importantly, to deliver new offerings and improved offerings for all of our customers. We have scale. It says on this slide, we have scalable operations. We actually have scaled operations that we can continue to scale. We have a number of competitive advantages and moats around scale, including around manufacturing pods, which is a very challenging thing to do at scale with quality. There's a problem we solved several years ago and have a huge lead on. We have data resources and an advanced data infrastructure, and we will continue to scale our business over time. All of that, all of those advantages, allow us to deliver market-leading technology to our customers.
They've allowed us to deliver market-leading growth and terrific financial fundamentals, and they've put us in a position to continue to drive long-term value creation for investors. Turning to our financial results, our compound annual growth for revenue over the last five years is 24%. We've had seven straight years of 20%+ growth on the bottom line, and with the guidance we issued in Q3, we expect to have our eighth straight year of 20%+ growth on the top line in this business, which is phenomenal performance. We continue to invest as well. So we continue to invest both in R&D and in OpEx because we have so many growth opportunities that we want to capture that opportunity. We are, however, so you can see, we've the compounding of growth for our R&D spend over the last, that same timeframe is 19%.
You can see that we're continuing to get leverage. So we're investing in growth, investing in innovation, investing in commercial expansion, while still dropping more to the bottom line. And so we've expanded our operating margins by 11 points in that timeframe, and we're committed to continue to expand our operating margin, expand our gross margins, and deliver more profitability to investors as we continue to grow and capture the growth opportunities that are in front of us. All of that is powered by the Omnipod 5 platform in particular. Omnipod 5 is now the most prescribed automated insulin delivery system in the U.S. market and is the clear market leader. We're in a position to continue to penetrate a massive TAM that is underpenetrated globally and in the U.S.
So you can see at the top of this graphic, there are more than 500 million people living with diabetes today globally. That number is expected to more than double by 2050 to 1.3 billion people living with diabetes. In the markets we compete in right now, there are more than 64 million people who require insulin, and the addressable market for us for intensive insulin is 11 million patients in our current markets. A little bit less than half of those patients are Type 1 diabetes patients, and a little bit more than half are Type 2 diabetes patients. That's for intensive insulin delivery, which is the target market for both Omnipod DASH and Omnipod 5. We're in pilot with and have approval for Omnipod Go, which is a basal-only product for deliver basal insulin.
That expansion brings us to another Three million patients in the U.S. alone. So we have an addressable market in front of us and a market that's growing, and as we expand internationally, we'll be able to reach more and more of those patients, but we've hardly begun to penetrate our core markets. Turning to the Omnipod platform, why is Omnipod so appealing to patients and providers? Well, the reason is living with diabetes creates a huge burden. If you live with diabetes and you have a need for intensive insulin every day, you're the historic way you would treat your own disease, take care of your own disease, is you would do multiple daily injections, which is shown here in the middle of the chart. You're using a syringe or a pen.
You're making tens, dozens of decisions every day about, testing your blood sugar, deciding what to dose, taking insulin in the morning, taking insulin at mealtime. All of those involve needles or finger sticks. It's very burdensome, it's hard to do, and it's hard to get it right to keep your blood glucose in the right range. The alternative that emerged over the last decade plus is a pump, and that's shown here on the left of this slide. Conventional pumps, load with insulin. They have a cannula, a needle insertion set, something that's worn externally, probably on your belt, for example, and you can manage your insulin flow that way. But they're cumbersome, they're difficult to use, and they're obtrusive. They're obvious. It's, it's a difficult experience to use tubs, pumps, and you can see tubed pumps.
You can see on this chart, globally, only about 5% of people living with intensive insulin needs and diabetes use a tubed pump. Still, about 95% of people living with insulin that have that intensive insulin need are using multiple daily injections. That is our target market with the Omnipod product platform. You can see here on the right, Ximena is wearing, who's five years old, who's been wearing Omnipod 5 for about a year and a half, two years. You can see her there with her Omnipod 5 on her stomach, and as her mom says, "Omnipod 5 is a game changer for us because there are no more multiple daily injections." One Omnipod, worn over three days, replaces approximately 14 injections. It massively simplifies the burden of living with diabetes for patients and for their families and caregivers.
That's why it's had so much appeal. Its form factor is so simple to use. It doesn't have a tube. It doesn't have a needle. You don't feel the needle go into your arm for the most part. Very, very simple, replaceable, disposable, waterproof. You can be active with the Omnipod platform, whether Omnipod DASH or Omnipod 5. That's why we've driven so much growth in market share over the years. We have just anniversaried the launch of Omnipod 5. We launched Omnipod 5 in August of 2022, and what Omnipod 5 does is it brings the added dimension of automated dosing to people who need insulin. So on the left here, the Omnipod platform, which I've just summarized, no needles or tubes, discreet, wearable, disposable, pay-as-you-go economics.
Another big advantage for us, it's not a tube pump that is a durable piece of equipment that requires a big upfront outlay of capital. So if you're wearing one of those tube pumps, typically call that a $5,000 investment on the front end. The payer is going to pick up $4,000 of that, typically. Typically, the patient is going to pick up $1,000 of that in a copay. That's burdensome economics to start therapy on a tube pump. Omnipod, the platform, is all pay-as-you-go economics. There's no capital outlay. You can pick it up in your pharmacy. You can get it from mail order. The payer doesn't take risk on that payment because the payer only reimburses as the customer uses the product, and the patient doesn't have a big copay.
The vast majority of our patients pay less than $50 a month in copay, and many of our patients in the U.S. have $0 copay to move on to Omnipod. So the economics work really well for both customers, users and for payers, and it's easy access through the pharmacy. We are widely covered in the U.S. in the pharmacy channel with well north of 90% of covered lives available through the pharmacy channel for Omnipod. That's just the platform. That's true of both Omnipod DASH and Omnipod 5. When we launched Omnipod 5, what we did was successfully introduced a fantastic automated insulin delivery algorithm. Our algorithm is cutting edge and what it does, to describe the algorithm quickly, you can see a little bit on this chart. The Omnipod 5 takes a data feed right now from the Dexcom G6.
It sees where your blood glucose is, it predicts where your blood glucose will be in 60 minutes, and it makes a decision if it's going to dose insulin every five minutes. It either gives you a microbolus dose or it doesn't, and it keeps the user's blood glucose in very tight range and can be set to multiple targets. Fantastic clinical outcomes with this algorithm. Second to none algorithm, industry-leading time and range, and very low hypoglycemia with the Omnipod 5 platform. Clearly superior to our competitors on hypoglycemia. We're approved down to age two. So when we launched last year with Omnipod 5, we launched a product that became the obvious choice for both providers and for patients. Fantastic form factor, ease of use, great economics, and automated insulin delivery with fantastic outcomes, and terrific time and range.
As a result of that, we're number one in new customer starts in the U.S. market with Omnipod 5. We have a huge roadmap in front of us with Omnipod 5. Just to turn to catalysts that are coming this year, we're driving outcomes already. We've got a world-class customer experience, and you can see here, the Omnipod 5 in the upper right of this chart, you can see with the Dexcom G6. The software platform that we use for Omnipod 5 right now is Android-based, whether it's on our, on our Personal Diabetes Manager, which is the Omnipod 5 Controller, or with Android phone apps. We're in the U.S., and we recently launched in the U.K. and Germany. Both of those launches are going terrifically well. The catalyst for us include extending the platform.
So on the lower left of this slide, you can see we, we will be in LMR with Dexcom G7 this quarter. We're working really hard with Libre 2. We will be, we intend to launch Libre 2 integration in the first half of the year in Europe, in the U.K., and in the Netherlands. Libre 3 will come after that. So we have sensor. Our plan is to provide sensor of choice to customers, so that you can be using any sensor that's an iCGM sensor and adopt the Omnipod 5. And that will open up the market for us and allow us to reach many, many more customers and patients. We also have FDA approval for our iOS phone controller. We will be launching, LMR for iOS early this year.
That is our most requested feature from customers and patients because so many of them are using an Apple phone, and so we're very excited. That platform extension, the way I think about our Omnipod 5 offering right now, as the leading offer in the market, number one in new customer starts, most prescribed AID system in the U.S., and it's our minimum viable product. We're here in the Silicon Valley. It's the MVP. And so these platform extensions for us will continue to keep us in the lead in the market, open up our growth, and open up Omnipod 5 solution for more and more customers. We're incredibly excited about the catalyst coming for us in 2024. In addition to that, we will continue to roll out Omnipod 5 into our existing markets.
So we'll be launching, as I just said, in the Netherlands in the first half with Omnipod 5, and our intent by the end of 2024, which we said publicly, is that for our European markets, for our European customers, the majority of our customers will have access to Omnipod 5 by the end of 2024. We will continue. We haven't announced timing on individual markets, but we will continue to launch in European markets over the course of the year. Then we have other catalysts coming that will represent additional moats, including data products and including expansion of and improvement of the overall customer experience with Omnipod 5. Because of its data connectivity, we can see into the usage of every single Omnipod 5 customer, and that's going to allow us to do things like virtualized care, virtualized onboarding, help providers track their patients.
Already a benefit for a healthcare provider who's prescribed Omnipod 5, if they have a patient call them up who's using an Omnipod 5, they can log into our portal and see the actual usage of that customer, every single one of them. It's a huge benefit in the market, and we'll be able to use that data to improve the customer experience over time and also to improve our product over time. And so we have advanced algorithms that we have in development right now, based upon the real-world evidence we have across our customer base. It will accelerate our innovation. So those are catalysts that will be coming in the near term, in the midterm, which will represent additional moats for our business. I wanna just do a double click on the Type 2 market, because we're the leader in Type 2.
We have, we have the largest installed base of customers using, Omnipod DASH, for any customer using an insulin pump in the U.S., using Omnipod DASH product. Type 2 is a progressive disease. It's different from Type 1. Once you're diagnosed with Type 2, you go on a multi-year progression, where your pancreas is trying to produce more insulin because your body is not responding to insulin, and that dynamic tends to snowball. And so over several years, your pancreas will be less and less effective, and almost all of these patients progress to where they eventually need some sort of extrinsic insulin. So they start, here down on, on the left, they start with diet and exercise as their first prescription. They will start with an oral med, they'll then go to an injectable.
But over time, they tend to progress to the need for insulin, and right now, there's the Omnipod DASH. Omnipod DASH is a terrific solution. We have an indication for use with Omnipod DASH, and we're the market leader in the type 2 space with that product. Recently, we received clearance for a product called Omnipod Go, which I just mentioned a couple of minutes ago. Omnipod Go is a solution designed for people that only need basal insulin, not basal and mealtime insulin. The point of Omnipod Go is to allow patients to launch insulin therapy much more easily. It's an incredibly simple-to-use product. It doesn't require a connection to a CGM. It doesn't require a controller. It's preset for a daily rate of basal insulin.
Put it on your arm, it senses that it's been put on your arm, it waits a beat, and then it deploys the cannula, and then it starts delivering insulin. We think the benefit is many people in this market have needle phobia. They don't want to be injected, so it will allow them to start their insulin therapy earlier. It will also, we believe, drive up adherence to insulin therapy. The benefit to our business is that it will get us further upstream in the patient journey for people living with Type 2 diabetes and get them familiar with the Omnipod platform. And as their needs progress onto intensive insulin, if that happened today, a patient using Omnipod Go would transition on to Omnipod DASH, but in the nearer term, we think those patients will transition onto Omnipod 5.
We have a pivotal trial going for Omnipod 5 to get the indication for use with Omnipod 5 in Type 2 diabetes. We announced in Q3 that we had completed the minimum enrollment for that trial. We have since announced that we've completed enrollment for that trial overall, and we've announced that we will be filing for that indication for use for Omnipod 5 in Type 2 diabetes with the FDA this year in 2024... When that's all completed, we will have, Insulet will be offering a platform through the Omnipod product platform that will meet the broadest needs of patients living with Type 2 diabetes who need insulin therapy. We are incredibly excited about where we're headed in this space, because there is a massive unmet need in the Type 2 market.
It's incredibly large and still growing, and we have a clear lead, and we think these will be the, it will be much easier for customers who are living with Type 2 to come to Omnipod therapy than other forms of insulin therapy. Type 2 is just one of our levers for growth. I've touched on most of them here, but just to summarize the innovation horizons we have for growth coming over the next, in 2024 and beyond. First, drive Omnipod 5 platform expansion. As I've said, we wanna drive the platform. We'll continue to drive U.S. growth, where we're number one. We'll launch in our existing international markets, as I've said. We'll expand our CGM compatibility, and we'll launch iOS phone control. And we're on market with the minimum viable product.
That will get us closer to the whole product, and we'll continue to lead the market, and we'll continue to drive innovation on the Omnipod 5 platform. We will expand our TAM, and that will be because we're expanding Omnipod Go and moving upstream in Type 2. We intend, obviously, to have the label for Omnipod 5 in Type 2. That will be a big market expansion for us. We'll expand geographically, and we will begin to expand with data products over the course of the next several quarters. And then finally, we'll continue to dig those additional moats. So we'll continually improve the customer experience. The whole point of our offerings is to simplify life for people with diabetes.
We wanna simplify the whole experience, not just how you get your insulin, but how you live with diabetes, how you get prescribed the product, how you get set up on the product, how you use the product over time. So we will have next-generation algorithms that will simplify, simplify usage. We are always working on next-generation hardware, and we'll be increasingly deploying AI and machine learning in our product offerings to simplify life for our customers. We have a massive roadmap for growth in front of us. We're very, very excited about where we're going. And as the market leader right now, we're really pleased with our position and very happy to continue to simplify life for hundreds of thousands of customers. So that's it. We're achieving our mission with market-leading innovation.
We continue to deliver strong financial fundamentals and growth for the business and for shareholders. We will continue to lead in the diabetes markets and penetrate both Type 1 and Type 2, and we will expand that Omnipod 5 platform and maintain our leadership and continue to solve new problems for our customers. Thank you very much.
Well, great. I'm gonna start off with a high-level question. We've seen pretty much every competitor of yours in the insulin pump space talk about how they're coming to market or trying to come to market with a patch pump.
Mm-hmm.
Where all of a sudden, it was a niche offering a few years ago, you're now the most prescribed pump. U.S. probably, not sure if that holds globally as well, but in the U.S. for sure, of new patients. You know, yet at the same time, I think a lot of investors don't understand how hard it is to manufacture consumer scale, yet at FDA grade. So maybe talk about, one, the difficulties and how big of a moat it is versus your competition and what you've actually put into getting to where you are today to be able to manufacture at that degree and that scale.
Yeah. Thanks, Robbie. It's no surprise to us that our competitors are all talking about patch pumps because we've proven the case with Omnipod. We've proven the case with Omnipod DASH, and then we've proven that you can put automated insulin delivery into a patch pump, which was not an easy, easy task to accomplish. And because we've jumped into lead and leapfrogged the market, it's obvious to our competitors that they need to, they need to follow. It is extremely difficult to make high-quality patch pumps, you know, at FDA level at scale. And that's something, if you look back over our company history, you know, more than a decade ago, it was obviously difficult for us to accomplish that. It was very, very challenging for Insulet to get the Omnipod to market.
Very, very challenging for Insulet to then sustain the quality that was required in the market, and that's a, that's a 2-decade journey plus for us. We've invested, if you went and totaled it up, we've invested, I'm sure, more than $1 billion in getting scalable patch pump production. Manufacturing is a very, very difficult task. We, we manufacture millions and millions of pods. And so it's one thing to say that we have a design for a patch pump that's coming, and we're working on clinicals, and then, you know, we'll go to the FDA and get approvals. But it's a totally different game to then be able to manufacture that at the volume you need to manufacture, to be able to penetrate the market, make sure you have high-quality, sustainable supply for customers that can keep them on pods for life.
And that's why we think we have a very, very strong moat. And that's without talking about IP and trade secrets that we have. And we could talk more about that if you wanted to get into it, but we are very strongly positioned with our IP. We've been very successful in both defending our IP, shoring up our IP. Sorry, I hit the mic. And then obviously successful so far in a lawsuit that we have underway to protect our trade secrets. And so we think we have a very strong moat, both in terms of capability and design, but also with IP and trade secret protection.
What do you think it is exactly about the patch format where... You know, when I first started covering Insulet way back when, it was it was sort of, they looked at it as, as the other option that a lot of patients then moved to. What do you think has evolved? Is it the patch format? Is it what you've brought with Omnipod 5?
Well, I think if you asked any given customer, if you take a tube pump and put an Omnipod on the table for a customer to look at, they all prefer Omnipod. If you just, you know, if you look at it, it's small, it's unobtrusive, there's no tube, there's no needle. And so just on a preference basis, you'd always want the most discreet, least obtrusive, easiest-to-use thing. But it was hard to produce that. You know, there's a colleague of mine who likes to say, "We produce something that's like a Swiss watch that you replace every three days." When you, you know, you fill it with insulin, it uses up the insulin, and you replace it. It's incredibly complex.
So the manufacturing for design, there are certain things in our patch pump that have obviously been built over years and years, that just make it so simple. The auto insertion of the you know, using a very tiny needle to auto insert a cannula and then withdraw. That's a very tricky thing to do. You know, our pumping mechanism at that level of miniaturization. There's a lot of things in the Omnipod that are just extremely difficult to get to, and they will be extremely difficult to replicate or create a better offer. And so everybody wants the small, unobtrusive form factor, but we've delivered it at scale, reliably with quality, and now, obviously, with Omnipod 5, more than a year in with automated insulin delivery and dosing.
How important is the out-of-pocket cost to patients? So you have an advantage going through the pharmacy. It's generally easier and cheaper for patients to get in the pharmacy. We're starting to see some of your competitors on the durable pump side migrate or attempt to migrate into the pharmacy as well. Do you feel like you still have the, you know, the competitive edge in terms of out-of-pocket costs and sustainability in the, the pharmacy channel?
We do. We think we have a big advantage in the pharmacy channel. It's not a huge surprise to see our competitors trying to follow that aspect of our business as well. But we obviously have the broadest reach in the pharmacy channel. We have, you know, 95 some odd% of covered lives covered in the pharmacy channel. And the pod itself lends itself really well, not just to mail order pharmacy, but to retail pharmacy. Because it's packageable, you can drop by your Walgreens or CVS and pick it up. But I will say, as you look at, you know, what we have with Omnipod 5 is all in the best offer, and it leads basically on every dimension of the offer. So it leads on ease of use, it leads on discretion.
You know, I can wear whatever I want as clothing, and I don't have to worry about what I'm doing with my Omnipod 5. It leads on pay-as-you-go economics. It leads on algorithm and clinical results. It leads on real-world evidence. So I would expect to see all of our competitors try to come after different dimensions of our offer, but nobody has, in the market now or in their pipeline, anything that we can see that even comes close to matching the all-in experience of Omnipod 5.
I want to turn to the preliminary 2024 guidance you gave on the third quarter earnings call. Mid-20s U.S. growth, high single-digit international growth with low double digits in the second half of the year, and a decline, I believe, in the drug distribution. So when you... Look, the street's kind of sitting there. If you walk us to sort of what's included in guidance
Also, you know, what are some of the things you haven't included in guidance that could be upside? Just maybe walk us through why that's the right starting point for insulin.
Yeah, it's a great question. You know, we feel, what's in guidance is we feel, confident in continuing to drive new customer starts, continuing to drive leadership in the U.S. market. We feel confident in rolling out Omnipod 5 into European markets, and you can see with our U.K. launch, where the order book has more than doubled, and, you know, we're out of the gate so strong in the U.K. You can see in Germany, out of the gate, incredibly strong in the German market. As we roll into more European markets, we're very confident that we'll continue to have great success in having customers and HCPs adopt the product.
One of the ways to think about our guidance for 2024 is that, unlike our durable equipment competitors, where their revenue comes up front with a new customer start, our revenue is a recurring revenue model, as you know, Robbie. And so when we get a new customer start, we get the first box of pods, and then that ramps. And so as we drive new customer starts in new markets in Europe, what you'll see is that, we'll get a lot of new customers, but the revenue becomes more material as the usage ramps. It's a recurring revenue model that stacks up.
And so what we've said in the guidance for Europe, for example, is, we think we'll see the growth in Europe, more materially in the second half of the year rather than the first half of the year, right? And so just from an adoption and revenue point of view, we're very, very confident. I do think there are, there are potential upsides in each of those launches. And I will say, even in the U.K., where we launched in June, we've been surprised on the upside, not just with new, with new customer starts, but also with customer conversions.
And so, you know, we've had hospital systems in the U.K. actually more proactively convert patients off of DASH onto Omnipod 5 than we expected, because they're actually in a four-year contract on DASH, but it's at the discretion of the hospital, which is something we hadn't planned for. And so we've had, we've had hospitals upgrade more customers from DASH to, to Omnipod 5 than we expected, and that brings for us, revenue premium. And so I do think that, in, you know, in our guidance, I think you, you know how we guide.
Mm-hmm.
I think we're pretty straightforward. We wanna... I think we're prudent and maybe a little bit conservative in how we guide. And, and so we do see upsides, for us in the, in the year, but we don't, we don't like to promise anything we don't think we can deliver. And so I think as we roll out Omnipod 5 again, sorry, as we roll out Omnipod 5, we, we do have the potential for upside of adoption in those markets.
when you went from DASH to Omnipod 5, we saw a pretty staggering improvement in the growth in the U.S. business, where, I don't know if you'd agree, one hand tied behind your back, and now you're out in front, right?
Mm-hmm.
In Europe, I feel like it's even a bit more, 'cause you don't have the pharmacy access with DASH today. So can we see a similar improvement in your outside the US business that we saw in the US once you launch Omnipod 5 more globally?
We do see huge pent-up demand across our European markets. And, in fact, I'm here with Dr. Trang Ly, who's sitting in the audience, and, when we've presented at European conferences this year, Trang has usually been mobbed at the stage with key opinion leaders from different countries coming up and saying, "When will we have Omnipod 5 in our market?" So we know we have huge pent-up demand. The dynamic in Europe is a little bit different because in most Europe and each of them is different from the other, but in most European markets, a customer who is already on an AID system is locked into a four-year contract.
And so one of the things we saw in the U.S., that was a pleasant surprise for us, a surprise on the upside for us, was we had a lot more competitive conversion in the U.S. market from our two pump competitors when we launched Omnipod 5. We believe that will be more restricted in Europe. And so we were so then hence, we were more surprised at the upgrades from DASH, 'cause those DASH customers are on a contract. But we think the reason that's happening in the U.K. is because it's an Insulet product. So it, it's a little less fluid as we launch in European markets for someone to cross out of existing AID onto an Omnipod platform. However, those markets are much less penetrated.
You know, the European markets, the core European markets, are somewhere around 15% penetrated with AID systems. So our target market is customers coming off of multiple daily injections. You have something like 80%-85% of people living with diabetes who need insulin doing MDI in Europe. That's our target market. So we're very bullish on delivering Omnipod 5 into those markets. I don't think we'll see the same outsized competitive conversion.
You usually give your new patient growth or installed base on the fourth quarter earnings call, so we'll wait for that.
But maybe walk us through, one, do you feel like your new patient starts can be higher in 2024 than they were in 2023? And if so, what are the drivers behind that?
We do think we can continue to drive very strong new customer starts and growth in new customer starts. And the drivers would be, first, we're leading in the U.S. market right now, and the U.S. market in Type 1 is only about 40% penetrated from MDI. And that, as I said before, that's our target market. The customers that aren't using AID right now, that's our market. We're growing the market with our new customer start growth. We're not fighting a zero-sum game share battle with our competitors. And so we think we can continue to drive new customer starts, continue to bring MDI users into the market in the U.S. in Type 1. Type 2 continues to be a big catalyst for us. So we have the largest installed base of insulin pump users in the Type 2 space.
Omnipod 5, you know, we are not promoting, just to be clear, we're not promoting Omnipod 5 for Type 2 users because we don't have the indication for use. But we know that many physicians are writing Omnipod 5 off-label, which they have a perfect right to do. We don't promote it. But when we get approval for Type 2 in the U.S., and we'll be able to... That's, that's a one-hand tied behind the back scenario where we're not promoting it. It's actually being used that way, along with Dash. When we start to promote Omnipod 5 for Type 2 in the U.S., we think that will be a material growth driver. And then international expansion for Omnipod 5 will be a very material growth driver, and we'll see how the adoption curves go in those markets.
We feel very confident in our competitive position and in the compelling nature of our offer for those patients.
What about iOS? You're launching that early in 2024 here.
That's right.
Would you size that as minor, moderate, or major?
We have a big internal debate-
Mm-hmm.
about that. So, so yeah, my belief is that we haven't seen a lot of customers hold back from Omnipod 5 because they want iOS, but we get that request all the time. And so, I was in a pediatric clinic recently talking to a key opinion leader physician and asked her: "Well, what about your patients?" She's like: "All my patients, all of my families want iOS." And I said, "Well, how many have held off?" And she said, "None," you know. But then we know there are other clinics where people have held off. So we don't— It's hard for us to quantify the lift when we launch iOS. I do think there'll be some lift in new customer starts with people that have held out. And we're very excited to get...
That offering is gonna be terrific. I think we'll get a lift, but I don't think it's as big as, for example, some other catalysts. I think, for example, Dexcom G7 LMR, which we'll get into this quarter, I think that will be a big catalyst for us. G7's a great sensor. It's very simple to use. It's already growing the CGM market, and that paves road for us. And so we think the LMR, and then the launch for G7 is a great catalyst for us. We think the Libre integration is a great catalyst for us, and iOS is at least a customer satisfier and probably also a growth catalyst for us.
Do you think the Libre integration is a bigger benefit for you in Type 1 patients or Type 2 when you get approval for Omnipod 5?
I think it will drive growth in both.
Mm-hmm.
You know, so, and as you well know, Abbott and Dexcom, you know, are the two leading players in that market. They both have very well-established, large, installed bases of customers. I think we just heard that, there are 5 million Libre users in a presentation that happened about 30 minutes ago down the hall. And so Abbott has a huge installed base. Dexcom has a huge installed base. They're a little different. Dexcom tends to lead in Type 1, Abbott tends to lead in Type 2, but they both have customers, in Type 1 and Type 2. And, you know, we, we think the solution with, with the Libre family of sensors and the Dexcom family of sensors is such an improvement, both in ease of use, but also in clinical outcomes.
If you're trying to make the decision about how much to dose yourself, you know, even if you're using a CGM, there's a lot of variability in how you're delivering insulin to yourself. And so by going to an AID system, you get better clinical outcomes with less effort. And so there's a huge open market waiting for us to go there, and anybody that's using a CGM is used to having a wearable on their body. So Omnipod is not a leap for them to do a wearable. And that's why we think that it's such an obvious solution for us, and that's why we always say that our CGM partners are paving the road for us.
Any update on the CFO search?
No update on that, but
It's underway. Yeah.
Well, along the CFO type of question here, you know, Insulet has historically said roughly 100 basis points of operating margin expansion a year. I guess my question to you is: Why can't it be a lot more than that? I look at your top line, I look at the investment needed to grow the top line, and I feel like you should be able to give us a whole lot more. So is that a fair comment, and what's holding you back from delivering more down the P&L?
We, we know how important it is to investors for us to deliver more to the bottom line, and I would say, if anything, we've seen the market shift to a greater emphasis on the bottom line as opposed to top-line growth over the last year. I think that's, that's fairly obvious. So we know how important it is. We remain committed to expanding our gross margins and our operating margins over time, and we had made that commitment previously of 100 basis points per year.
Though what we're balancing against, you know, we do these in our planning cycle, and then we make calls throughout the year. We have so much. You can see from my presentation. We have so many opportunities to continue to innovate and drive our market leadership. You know, from my point of view, we have open field running. We're in a fantastic competitive position. We're bringing customers out of multiple daily injections use into the Omnipod platform. That there's many, many opportunities to innovate the product on top of that and stay in front of all, though you started the questions with competitors, stay in front of our competitors, and so we want to continue to invest in our innovation. We want to continue to invest in our commercial expansion. We're very mindful, and we're balancing all the time.
What does that mean in terms of what we're investing now, R&D, you know, operating expense, against how we're delivering to the bottom line? We understand it's important to investors, and we're committed to continuing to expand the bottom line.
Last question before we run out of time here. If I look at Omnipod 6, which there's been no disclosure on yet, is it gonna look more different on the hardware side, or is it more on the software side, or both?
That's a great question. We have. You can imagine, and, you know, in the R side, the research side of the R&D portfolio, we're looking at all kinds of things. We're always looking at form factor improvements. We're always looking at software improvements, and we have very active programs improving our algorithms. So I wouldn't want to call it now. We don't have any announcements to make. I would say there's opportunities in all three of those areas, so, you know, physical product, software usage and UI, and managing the product through software, and then what the product does.
Yeah
how it delivers insulin, how smart it is, and how easy it is for delivering insulin. We have programs in all, on all bases, so I don't want to call it early.
All right.
Okay?
Well, we're out of time. Thanks a lot.
Robbie, thank you very much.
Thank you.
Thank you, everybody.
Thanks, everyone, for joining.