Why don't we kick this one off? Morning, everyone. Patrick Wood. I run the US MedTech team and delighted to have Insulet here. We've got Ana Chadwick, who is the CFO and runs the finance side of things, and Pat Crannell, who runs the international business for what should be a fun fireside chat, so thanks for joining us.
Thanks for having us.
Thank you.
And thanks to everyone for being here as well. Just because it's topical, I'd love to start both globally and OUS with Type 2. I think for those in the audience maybe not aware, it might be worth giving a quick background to the expansion into Type 2 patients. And then maybe if we split it between U.S. and OUS, what it means for Insulet, what it means for growth, and how you expect that to come through into the numbers.
Thanks, Pat. Great to see everyone here. Thanks for your interest in Insulet. I'll just start with a quick introduction. Insulet is about a 25-year-old company with a very big purpose, and it started with a father who had his son diagnosed with Type 1 diabetes, and for that, you, of course, are insulin requiring, and the options at the time were really injecting daily, multiple daily injections. The passion of this father to solve the problem developed the technology that we have today, and this has advanced significantly, and we'll talk more about the technology in a second, but there's a difference between Type 1 and Type 2 diabetics, and the company started in Type 1, and we'll talk more about that, and we continue to be very focused on growing that.
Now the most recent event that happened that's very significant is at the end of August in the U.S., we got clearance for the label expansion for Type 2. What that means in simple terms, and I'll start with the U.S. and I'll pass it over to international in a second. In the U.S., there's roughly 1.8 million Type 1 diabetics. About 40% of them use a form of technology. We are one of those who provide that technology. We continue to grow the market, especially from converting people who don't use technology and adapt our technology, which is very cool because it's tubeless, it is very small, it's wearable, and it has a great form factor, it's weather resistant, water resistant, it's pay-as-you-go model. There's a lot of benefits there.
Then moving to Type 2, which is our most recent development here. There are about 2.5 million Type 2 in the U.S. that require intensive insulin to live their daily lives. And that's only 5% penetrated with technology. It gives you a really good idea of the potential we have there. And we are the only automated insulin delivery system that's approved for Type 2 in the United States. So it's our market to go develop. And third, in the U.S., we have basal only. That's another 3 million people that can benefit from technology as well. So anyways, I just wanted to give that quick background, and maybe you can touch a little bit on international.
Yeah, thank you, Ana. Internationally, our primary focus is in the Type 1 segment, and if you look at the markets where we operate today, it's about 3.5 million people living with Type 1 diabetes, and what we see in these countries is that the use of pumps is actually very low. It's somewhere in the overall 20% range of pump adoption there. So really for us right now, the near-term focus is as we're launching Omnipod 5, which is our AID solution out there, it's really focused on reaching more of those 3.5 million people living with diabetes. We know that people living with Type 2 diabetes see the same benefits as Omnipod 5 brings to people living with Type 1. Our SECURE-T2D trial that we released earlier this year demonstrates that.
But really in the international markets, what we see is it's going to take time for treatment guidelines as well as funding to actually support more people in Type 2 getting access to pumps. So we're excited with the opportunity that we've got with Type 1 right now. We're expanding with Omnipod 5. And then Type 2 is really probably a little bit further out on the horizon for us in select countries.
I'd love to dig into that a little bit, actually, especially on the Type 1 side, OUS. How do you affect change in that funding environment? How does that discussion in practice actually end up happening with regulators?
Yeah. Obviously, clinical practice takes time to change, right? And really what we see is it's driven by data. And that's really what it's going to come down to. And so as long as we can produce real-world evidence that shows that we're improving people's lives, we're improving outcomes, we're improving time in range, that's really the data that's out there. And I think really within the community there, over the last few years, there really has been this focus on it that putting more people on insulin delivery devices, in our case, the Omnipod, it produces better outcome. And so that has an overall benefit not only to that patient, but to the healthcare system in general there. So this is something that's increasing with momentum. And I think you see certain countries are a little bit further down the track on that.
But I think this is something that will continue to accelerate, at least internationally, that 20% pump penetration is going to continue to grow. And if you were to just contrast that with the U.S., the U.S. is roughly around a 40% pump penetration. So there's a lot of area for us just to continue growing and getting more people onto Omnipod.
Then maybe just to finish up a little bit more on the Type 2 side of things, Ana. You're definitely not asking for a 25 guide. You're definitely not. You have the unenviable task of thinking about how that sort of ramps. And there isn't, I mean, really a precedent. Type 1 and Type 2 patients are quite different in how they just qualitatively, how are discussions about that internally? Do you have a divergent set of opinions within the Insulet team at the speed of that? I'm guessing you do. And what are some of the puts and takes of that discussion that happens internally on how people think that adoption curve looks? Do you see what I mean?
Yes. No, I think it's the question of the hour for sure. And listen, we've been very thoughtful about how to invest in the market through sales force expansion, through direct-to-consumer, and all that that brings along. And we can talk more about that. The market development is we are there breaking into this market, opening this market. And what I will say kind of qualitatively is early indications since we launched are pretty aligned with our expectations. So we're seeing the demand. We're seeing the new customer starts come in. And we will give it a little bit more time. And we'll come back in February with the latest view that we have and our guidance for 2025.
Love it. I'd love to drill in a little bit to OUS. I mean, how has, to your mind, the Omnipod 5 reception been? Has it been different between different markets? Because we always say OUS or international, but as I know more than anybody, that's a wide selection of different markets.
Yeah, it's a great question. So Omnipod 5 is our newest offering. And we just started launching it outside the U.S. last year. So our first markets were U.K., Germany last year. And then as we moved into this year, we've since launched in France and in the Netherlands. Really, the feedback, it's been amazing. We've really outperformed our own expectations in each one of these launches. And what we're seeing is we know Omnipod 5 is a great product. And the evidence continues to build and demonstrate that. But when we enter these markets, the amount of pent-up demand that is there has really surprised us. And if you've seen our financial results this year, the international, we've been raising our expectations as we move through the year here. And it's largely due to those launches that we did last year because we operate in this annuity model.
So as we add customers this year, we really feel that benefit as you get that full year, that annualization of them. So really, the launches in the U.K. and Germany have contributed significantly to some of the growth we've seen this year. With that said, though, our core business in all our regions has actually grown. In Q3, we grew in every region where we operate around the world there. So what we're seeing, though, is there's a great demand out there. Those early launches are really benefiting us this year. And then obviously, as we move into 2025, we'll get the annualization of the 2024 launches. And then as we've shared, we have 10 new countries that we're going to be launching Omnipod 5 into as we enter 2025. So that continues to give us growth as we move through the years here.
From my seat, if I zoom out, many of the diabetes companies in totality, including the CGM players, the international has markedly picked up. It's been very noticeable, and it's been broad-based. Has something changed or happened? Has there been more of a receptivity to paying for this, or is there a dialogue change? You know what I mean? Because it's really picked up.
I think it comes back to my point of the data needs to back it up, and the evidence is there, and I think the CGM growth has been a nice precursor that you see, hey, people living with diabetes, we introduce technology, and their health improves. And the way that they can manage and monitor their health improves, and the benefits you see with that, and so I think it's been a natural outgrowth of that as these AID, which is the automated insulin delivery systems, which Omnipod 5 is, so we communicate with the CGM to then dose the insulin there. And really what you've seen is, again, the evidence shows great improvements in time in range for these individuals, and I think that's really where you're starting to see that turning point. Now, obviously, it needs to bring value to a healthcare system.
So the payer is going to look at that and say, "Okay, what costs am I avoiding or where are the savings within the system there?" And I think as this continues to grow, the evidence is pointing to you avoid that patient going to the emergency department for a treatment because they're able to maintain glycemic control. So I think it really has been the evidence and the awareness out there. It gets back to that clinical inertia. The more people get experience with these systems, they see how simple Omnipod 5 is. And then as patients come into their office, they're more willing to try that product on these patients because they've seen the outcomes and the improvement that it brings.
You guys are entering 10, I think it's 10 new markets basically on the international side. A, what were some of the learnings in the core markets that you think can help you in those? And B, how do you, you've got a large roadmap in place you can play. What are some of the factors that lead you to choosing those 10?
Yeah. So really, when we look at it, we know the product's fantastic, and it can help people around the globe, right? And that's really a challenge for us: how do we get it into new countries to serve the most people that we can? And if you look at the launches that we've done to this point, really with U.K., with Germany, with France, those are some of our larger markets. And so those are markets that there's an established use of pump technology. There's market access and reimbursement pathways for us there. And we know that when we get on market, we can reach a lot of patients. Really, if you look at the next set of markets that we're going to be bringing Omnipod 5 to, they represent a significant part of our business. But these are markets that we've built up a DASH business.
That was the generation prior to Omnipod 5. We have a good customer base out there. Really, we're looking at those markets that we can build upon that and now bring it to that many more patients. As far as the learnings, it's really been a capacity challenge. Different healthcare systems have different models how they provide the care to patients. Whether it's in France, they're using a prestataire model, which is more of a home care type model. In the U.K., it's a hospital clinic type model, so where the patients are seen and how they receive their care. Really, when Omnipod 5 comes to the market, we actually enlarge the number of people that are using pump technology.
Due to the simplicity of our offer, there's people that are doing multiple daily injections that would never consider going on a complicated tube pump solution. But when we bring Omnipod 5, there's patients that are saying, "Hey, I want to try that. I want to come and start using Omnipod 5." And what that does is it puts a capacity constraint on a lot of these healthcare systems of how do they actually onboard these patients. So one of the early learnings for us is we said, "Omnipod 5, it's so straightforward, it's so simple, we can do virtual training." And beyond just virtual training, we can do virtual group training. So it's really working with these healthcare providers to say, "You're going to have patients that are going to want to access Omnipod 5.
How do we make it as seamless as we can for you, your staff, and for that patient to experience Omnipod 5?" So it's really been changing clinical practice in a way. There's an example we've seen here in the U.K. that they went and they moved to going group starts for Omnipod 5. And they said, "Look, it's quite simple. We're going to do a group start of 60 individuals at a time. There's no way you can do that with a tube pump. There's just too many parts and components, and people are at different places in their learning curve." So it's really the simplicity and how we open up that capacity for the healthcare systems.
I definitely want to come back to international. But relative to some of your tube pump competitors, one of the notable things for POD is your margin structure is considerably better, which no one ever would have guessed 10 years ago, given it's a disposable product. Maybe could you give the audience a bit of a vision for how you think margins will evolve over time? And also as part of that, a little shorter term, but maybe the background of the Malaysia facility and the benefits.
Great. No, thanks for the question. Ourselves, as overall industry in med tech, international margins tend to be lower than U.S. margins. And that's consistent. Starting with the U.S., in the U.S., we moved from the durable medical equipment to pharmacy. And through that process, we actually saw price lift in the U.S. Now, in our latest third quarter earnings, we reported that virtually 100% of our U.S. volume is through pharmacy. So we anticipate just to continue to keep the strong pricing in the U.S. As we move to international, as Pat was mentioning, Omnipod 5 is winning everywhere it goes. And the good thing is the data is very strong. And as we've been talking to the different health ministries and everything, they have acknowledged the value that it brings.
We have seen price appreciation at different levels as we've launched the Omnipod 5 automated insulin delivery product in the international markets where we've launched. As we look at gross margin, we anticipate continued growth, but at a smaller rate than what we have experienced in the past. Having said that, we are incredibly committed to delivering operating margin expansion of at least 100 basis points a year. We can do that because we get scale. With the scale, of course, we've been growing 20% a year for the last nine years as we've guided here in 2024. That brings our ability to scale and to scale ourselves in many of our enabling functions and in many of the things that we do, but also scale from a manufacturing capacity. We launched our new manufacturing facility in Malaysia.
It is actually, from a footprint perspective, double the size of our Acton, Massachusetts facility. And the great thing that we have is we've leveraged the automation that we've already implemented in our other facilities as we've launched in Malaysia. So we anticipate to be slightly accretive even to margins in the first year of operations. And the other thing that I'll mention in Malaysia, which of course we're very excited about, is with that capacity that we've added and we continue to add production lines into that footprint, we have enough production capacity for the next 3+ years. So we feel we're in a position of strength both in the top line and also in our margin expansion and delivering in the bottom line.
One question that frequently comes up is with label expansion and that side of things and the sheer amount of growth in the market. How do you think about the relative investment rate and requirements to drive in the U.S. Type 2 adoption, OUS Type 1 adoption? How do you think about the investment rates and what that means for margins?
Yeah, no, that's a great question, and I'll start by saying we are cash flow positive, and as cash flow positive, we actually have the capital to invest in ourselves, and from a capital allocation priority, and I joke about this a little bit, our number one priority is investing in ourselves, number two, and number three, and we do that because our strategy is very simple. We have a three-pronged strategy. We want to expand our Omnipod platform. By that, what we mean is we want to have connectivity to all the CGMs. We want to have iOS, iPhone, Android. We want to make it as seamless as possible for anyone out there to adapt to our technology. We want to have more data capabilities built there, so that's number one. Number two is we have the lead in Type 1 in the U.S. Type 2 is huge.
We're going to continue to invest there. Number three is how quickly can we go into the international market. That's a pretty simple strategy. That's how we go about allocating our capital. We invest between 10%-12% of our revenue in research and development, and we continue to do that. Of course, there's a lot of things that we have on the horizon that we're investing not just for the short term, but for the long term. That cash flow positivity is what allows us to invest in ourselves.
That R&D investment, you already have an excellent algorithm. The algo is great. The form factor is great with O5. I mean, I'm not an engineer, but there's only so small you can make a pump with the reservoir and things like that. And integration with the CGMs, iOS, we're getting there. So is there a point where you might be able to dovetail off a little bit of the R&D? Or to your point, is there enough in the pipeline that you just see that and do you want to tell us what's in the pipeline?
So nice way of asking.
That's a tough one.
But of course, we can't share. But actually, we do see a lot more in the pipeline. We do see a lot more that we can simplify the lives of people with diabetes. And that's really exciting and good. In addition to that, we continue to see, I mean, we're not in many markets. I mean, we're only in 25 markets around the world. And there's a huge demand. It has to be the right market. It has to have significant CGM penetration already. There's significant insulin prescriptions, the right reimbursement environments, and things like that. But there's a very capable team here with Pat that's constantly analyzing where to go next. So we feel very good with where we are. The other thing I'll say is with this cash flow positivity that we have, we will continue to strengthen the balance sheet.
We have convertible debt coming up in 2026. We don't want to let that go current. It gives us a lot more optionality in what to do with that, and we're very selective, but we have a very strong theme on strategy looking at capabilities out there in the market, so we'll continue to explore all angles.
I'm definitely losing track of time. I can't remember whether it was Monday or Friday, but obviously, I meant calendar-wise. Calendar-wise. But I mean, you got Libre 2+ integration on the CGM side. I think that was Friday or Thursday or something. And in general, the CGM integration has been going better. I guess both for US and then also OUS, how do you think about the precedence of what that did for your volumes when you brought new integration on the CGM side on board, when you simplify people's lives by getting iOS on board? How do we think about the pickup or not of volumes? Is that a very gradual thing?
No, this is a great question and this is to make everything less friction to come into our product, so just to recap, over the summer, late summer, we launched G7 integration in the U.S. Then we went out and we did iOS, and I'll touch on that because the feedback we've been getting, it's transformative for people to just be able to carry one device, which is phenomenal, and then we, as you mentioned, Libre 2+ . Now, Libre 2 +, interestingly, we've had it in the U.K. and Netherlands, and I'll let Pat talk a little bit about how that has happened, how the adoption there, because it's been operating a bit longer, but we have seen, as we have anticipated and in line with what we've guided, the ramp of people having that preference for their CGM.
And now that we've opened up those buckets of the market, we have seen our ramp of new customer starts. We're very lucky to have both Abbott and Dexcom as partners and really in continuing to stay close to them as they develop new technology on the CGM that we can continue to pair up into the future. But maybe you want to comment a little bit on Libre 2+ in the U.K. and Netherlands.
Thanks, Ana. You know, we launched earlier this year with the Libre 2+ integration. So at that point, we were on with the Dexcom G6 and with Abbott, Libre 2+ . And really, having multiple CGM options, it speeds the access to Omnipod 5 because the customer doesn't need to go back, see their doctor, set an appointment, get a new script, change the CGM that they're on. They choose the CGM that fits their lifestyle. And so having that, we're going to launch G7 internationally in the first half of next year for us as well. The more sensor integrations we have, it just reduces friction in the system. It reduces friction for that patient to be able to access Omnipod 5 quicker. And it's a little bit of that differentiation back to your question of investment. There's so much we can do to invest in ourselves.
We're generating so much data. And that's really going to become the next chapter for us as we move forward here that we need to be the connected device with as many partners that are out there. And then we need to take this data and provide insights to the healthcare providers and to the users, our customers of the product. And that's really where we see that next frontier. And we're going to get there by continuing to invest and continuing to integrate.
I know sometimes with U.S. companies mentioning competitors is like mentioning Voldemort or something. But basically, I'm curious for the international business, some of the same players, but the weighting is quite different. How do you see the competitive environment? Do you feel like the competitors are investing the same proportionally internationally as they do in the U.S.? Do you see what I mean? Is the texture the same between the two?
It's interesting. Internationally, we have a few different competitors that you don't see present in the U.S. today. But really, if I were to talk about that, any of the competitors that we face internationally, they can't match what we offer today, right? We're the only tubeless, waterproof, form factor, multiple CGM integrations, real-world evidence out there to back up what Omnipod provides. And I think from that perspective, that's why we continue investing. We have this head start on the competition, and we're really running in a lane of our own right now. So for us, it's really continuing to build on what we have out here. And again, expanding the penetration of pump technology. That's really what we're doing right now.
Ana, the capital allocation side, cash generative, margins going up, balance sheet's in a good spot. At some stage, you'll have a very good problem of working out what to do with the money. How do you guys think about buybacks relative to M&A, relative to, I don't know, organic CapEx? How do you think holistically about what to do with the dollars?
Yeah, no, it's a great dilemma to have, of course, and the way we think about it is quite simple, actually. Invest in ourselves, invest in ourselves, and invest in ourselves, and the other thing that I mentioned, of course, we have the convertible debt coming due in 2026. We don't want to let that go current, so we're exploring alternatives on the most efficient use even of our own cash on hand, so I would say that really ends there, but as I mentioned before, I mean, our strategy team is really strong, and they're out there looking for potential investments. The real challenge the team has, and I say it with a smile, is got to be top-notch accretive to what we're doing, and that's why I continue to insist investing in ourselves is the best solution, but we're not immune.
We also actually are investing, and I know we touched on this at the beginning, on our Type 2. We always scale our sales force. Every year, as we've been growing, we continue to scale that. In the same infrastructure that we have today, we are scaling that, and we're putting more dollars into direct-to-consumer. That's really to tap into our US opportunity for Type 2 in addition to strengthen. The beauty of that is our advertising dollars become that much more efficient because before you were targeting the Type 1 population, and now it's more eyeballs watching the same ad that can get you even more productivity, so we're already seeing some of the fruits of that here even as we are in the fourth quarter.
That's a good point. I hadn't thought about that. I think that's almost perfect timing. So massive thank you to both of you and to the audience for everyone. Thank you.
Thank you very much for having us.
Thank you very much.
All righty. Okay, we'll kick this one off. Thank you, everyone. It's Patrick on the U.S. MedTech team and delighted today with Jay, Carolynne, and Kevin to join us as CFO, head of Investor Relations, and the head of the PDX business from GE HealthCare. Super topical, good for a tech conference as well on the Nasdaq side. So thank you so much for joining.
Yeah, Patrick, thanks. Thanks for having us here today. We appreciate the opportunity with Nasdaq, and thanks to the folks in the room who've joined us for our session today. We appreciate your interest in our company.
You guys had obviously your Investor Day fairly recently, what, two, three weeks ago now, I think it was, on the New York side of things. I don't know if it's worth just, before we kick into the direct Q&A, just key points that you felt like you really wanted to communicate just high level about the business from that day.
Yeah, I think for us, it's about a real excitement around the future driven by innovation and supported by solid fundamentals. It starts with, over the last year and a half since the spinoff, almost two years now, we've made tremendous progress in terms of delivering on a revenue profile, delivering on an innovation promise, and delivering on margin expansion. So a really good start as an independent public company. And then as we sit here today and look to the future, we were able to confirm and improve upon the midterm outlook that we previously shared from a financial standpoint. We expect compounded sales growth of mid-single digit, margin expansion of high teens to 20%+ , continued free cash flow conversion. And all of this is built on exciting innovation, be it in the pharmaceutical diagnostic business. We're so thrilled to have Kevin here today.
That's really a new feature that we've started to emphasize in the portfolio that was much less emphasized during the last Investor Day, and then in addition, continued progress in terms of enhancing leadership positions or bolstering our position in imaging and ultrasound and some of the core modalities, so really exciting Investor Day. We walked away incredibly excited. It's still available online, I believe. For those that want to watch that, it's a worthwhile exercise if you're interested in our company.
If we maybe start with the base market environment, maybe starting with the U.S., and then we can talk about some of the geographies here. What are you hearing from the hospital executives on the willingness to invest in that side of things?
Yeah, the hospital environment has been good in the U.S. What we're seeing is a willingness to invest, in particular, in revenue-generating assets in hospitals, so we've seen a fairly buoyant environment. If you look back at our third quarter results, we saw 8% growth in the U.S. business, so really, really robust sales performance. And in addition to that, we had very good orders growth in the U.S. as well. We're pleased with that backdrop, and it's something that, of course, we survey it every quarter, and we'll be conducting a survey in January as we really assess the health of the customer, but so far, so good.
Yeah, we did our usual year-end survey, and it sounded very good for the U.S. on the core imaging platforms. I mean, I guess as well, before we pivot off the U.S. into some other stuff, the base environment, I mean, PDX has been very strong.
Yep, absolutely.
What are you hearing from your customers in terms of patient volumes and the outlook going forward?
Yeah, look, I think as we shared at the Investor Day, when you think about our business, we segment into contrast media and radiopharmaceuticals. Contrast media, we said two years ago, we're expecting CT and X-ray contrast to double in the next 10 years. There's nothing we've seen in the last two years that would change that outlook. Look, and we're continuing to invest.