Again, my name is Josh Jennings. I'm leading the medical devices team here at TD Cowen, and we're excited to continue down the Medical Devices Track at the 43rd Annual TD Cowen Health Care Conference. We're thrilled to have Insulet team here today to join us for a fireside chat. With a quick introduction, that's President CEO, Jim Hollingshead, and Executive Vice President and Chief Financial Officer, Wayde McMillan. Gentlemen, thanks so much for coming over a little bit, I guess, south from your headquarters. Is that right? Coming down to Boston and having this discussion. We're gonna let you kick off with some introductory remarks, then we'll dive into a little bit of Q&A, if that's okay.
Great. That's perfect.
Thank you.
Thanks, Josh. Thanks for having us. Good morning, everybody. Great to see you all. Just a couple of quick comments. I'm guessing most of you in the room know us. Insulet is the maker of the Omnipod insulin delivery platform. We've just launched in last August, brought to market our 5th generation of that platform. We're very excited with Omnipod 5. Omnipod 5 is a tubeless, wearable, disposable insulin patch pump that also brings automated insulin delivery, or AID, to the market. It's our flagship product. It's the product that we were founded as a company to build. It is out of the gate incredibly strong because it delivers a great wear experience, great channel economics, and most importantly, great outcomes and quality of life for our customers.
With Omnipod 5, we had tremendous growth in our U.S. market over Q3 and Q4 on top of what was already strong growth. Internationally, we're very happy with our Omnipod DASH platform, which is the Gen 4 product. That's what we're doing internationally in our markets. We intend to launch Omnipod 5 in the U.K. and Germany this year. U.K. in the middle of the year, Germany by the second half of the year. Our results in 2022 were 22% growth in 2022, which represents the seventh consecutive year that we achieved revenue growth of 20% or higher, we think we're very proud of our growth record. It's really a signal of how revolutionary our product set is.
Just a couple of other highlights I wanna hit, that we touched on in our Q4 call as well. With Omnipod 5, one of the great features and capabilities it brings to the market is constant cloud connection. We were just in Berlin at ATTD, our technology conference, presenting the first slice of real world data off of 31,000 patients. The real world evidence for us coming off of all of our patients will, in the midterm, be a significant competitive advantage for us, allowing us to constantly improve the experience and constantly improve the algorithm and constantly improve patient workflows. The data we showed in Berlin showed the product is performing incredibly well as designed and as we intended. That's one highlight, and I'm happy to talk about that, Josh.
I don't know if you have a question about that or not. The other thing I'll just highlight for us in 2022, we had a terrific year, another terrific year building our intellectual property portfolio. We completed a number of agreements and cleaned up a number of existing agreements. We announced in our Q4 call just a couple of weeks ago that we made a couple of really powerful intellectual property acquisitions, including part of the patent portfolio from Bigfoot Biomedical and acquiring some IP from AGC, which is a company we had been working with for several years. The IP portfolio, it puts us in a terrific position, both for continuing innovation. We've developed, as you might imagine, a lot of internal intellectual property.
We've acquired some other IPs, so there'll be opportunities for us to build that into our roadmap. It also provides us the opportunity to defend our position in the market, and we've done that. We've done that in the past. We've recently defended our position against a company called Medtrum who had been infringing on our products. We just recently, as an example, got a preliminary injunction in Germany against a company called EOFlow, which has EOPatch about 2023, and we're even more bullish about our growth with the Omnipod 5 as a revolution. We have other things in the pipeline that I'm guessing Josh may ask us about. With that, I'll just stop. Did I miss anything, Wayde?
That sounds great.
Okay.
Thanks for that download, Jim. That was fantastic. Very thorough, but also concise. Impressive. Maybe just to ask you, and you did bring it up in your intro, just about the data that came out and just how meaningful do you think that is? Maybe just give a high level recap of what came out of ATTD.
Thanks, Josh. We're very excited about the ability of Omnipod 5 to gather usage data from every... It was data from 31,000 Omnipod 5 users who had been on the product for 90 days. I'll just talk about what the data, what we presented, and then talk about why it's an advantage. What we presented was from all of those users, from 31,000 users, and those are all comers. They don't need to opt in. They don't need to bring their device in and plug in. We get that data out of the cloud. What we presented was the performance of Omnipod 5 in a couple of different contexts. One context is we designed Omnipod 5 to allow users to set different glucose...
Things we found, which was consistent with our intent, is that the younger the user, the more likely they were to set higher targets at different points of the day. That's because, you know, parents wanna have their kids, you know, have activity. If you're, you know, sort of a teenager, early 20s, you often set your target a little higher because you're out and about and more active. We saw that usage pattern. It's very interesting. You can see the utility of having multiple targets first. The second, what it showed was that performance to target set is very, very good for Omnipod 5. When you set the target in Omnipod 5, the algorithm chases the target. It demonstrated that the product is performing extremely well. The other approach that we.
Not just time to target, but time and range is very, very strong. Low 70% for everybody who just set it at 110 and went. If they also bolused and, you know, more frequently, so bolused with each meal, their time and range went up into the mid-70s. Really terrific performance for the product clinically in general. Really happy with that. Now, why is it an advantage? I know it's a long answer. I'm sorry, Josh. The reason it's an advantage is because, you know, our competitors have presented real-world evidence, but their data sets. I'm not throwing rocks. It's great that everybody's presenting real-world evidence. That's where chronic care has to go, and that's the promise of med device in chronic care, because we can actually see how devices get used, right?
When our competitors present their data, they have to present data that comes from people who either are highly engaged, so they're actually actively uploading their data, or their physicians insist that they come in and upload their data. It's well known that that set of patients is just more highly engaged in their care. They will get better results. We're presenting data from everybody. We're presenting data from people that love the therapy, are engaged in the therapy and self-care, and we're presenting, you know, the whole spectrum. Patients who are using it maybe don't wanna be using it. Maybe they don't wanna be caring for themselves. Our performance is astounding.
The reason that's a massive advantage for us competitively is with all of that data, we will be able to use that data, protect the privacy, protect the security, de-identify it, and then use deep analytics and machine learning to constantly improve the offer. We'll be able to see where patients drop off of therapy. We'll be able to see bolusing behavior. We'll be able to see that by splits. We'll be able to see it for pediatrics. We'll be able to see how the algorithm is performing in different settings, and then ultimately improve the algorithm. We'll be able to report interesting things to physicians. There's a whole range of things that we're gonna be able to do off of that data asset. It's I think it's telling that we showed 31,000 patients, you know, when we were only five months on market.
That's effectively the first 31,000 patients on the product. Our competitors' data sets after a couple of years on market tend to be sort of in the 8,000 number range, right? Just that comparison will tell you. We are extremely excited about data and our ability to use data to improve the patient experience and improve the offering for all stakeholders in the system over time, because we think it will change the basis of competition and drive even stronger product preference for Omnipod 5.
Outstanding. Well, congratulations on such a strong launch. Not even a full year yet, and it's exceeded all of the street's expectations. Not sure if it exceeded internal expectations or not, but the ones that you share with the street, I'm sure they're a little bit different internally. I mean, super strong launch. Wanted to just ask about the drivers. I mean, I'm sure it's a mix, but I think the differentiators, you know, you have the algorithm that you just described. The footprint, the patch pump, then you have the pharmacy access. I mean, you think those two are just both in parallel kind of driving this the demand in tandem?
Is there one element, the patch pump or pharmacy access kind of driving it a little bit more than the other? Maybe a hard question to answer without any maybe no data behind it. Any just thoughts on that topic?
It's a, it's a great question. You know, if you think about our offering, the Omnipod platform itself, before we launched Omnipod 5, which included AID, the Omnipod platform itself was taking, you know, I would say more than fair share of the market just on the overall experience. To hit some of those points that you're raising, Josh. It's small, it's unobtrusive, it's wearable, disposable, waterproof, tubeless, in effect needleless because it has an auto insertion of a plastic cannula. That wear experience, that form factor experience, strongly preferred by customers, by patients everywhere. You think about the channel access. The economics of Omnipod, just as a platform in the U.S. market through the pharmacy channel, it means you have a pay-as-you-go opportunity as a patient.
If you have a patient or customer who's thinking about going on an insulin pump, if they're going on our competitors' pumps, that's durable medical equipment. It's reimbursed through the durable medical equipment category. That means that there's a $5,000 or $6,000 cost of that pump. The payer's laying out $4,000, say, you know, it depends on the plan. The patient's paying out an initial copay of $1,000. There's a huge barrier to getting onto that platform. With Omnipod DASH and Omnipod 5 through the pharmacy channel, there's no upfront cost. Then the copay for the patient is about the same as the copay for somebody who's doing multiple daily injections. The economics are about in the same ballpark for those customers.
There's no upfront cost, there's no barrier to starting, and their out-of-pocket, you know, the vast majority of our patients have a copay that's less than $50. Many of our patients have a $0 copay to be on therapy. The economics are better. The pharmacy channel itself is much more convenient for people than the DME channel. They can go into the pharmacy, they can get their product or mail order pharmacy. It's the same way they're getting their insulin. All of that's even before Omnipod 5. All of that is a massive appeal, and that's why we've done so well with Omnipod DASH, even after the introduction of AID algorithms. Now add to that equation a really strong, really effective AID algorithm that is also a learning algorithm that personalizes your care.
As a, as a customer, as a patient, why would you choose something else, right? You may have over the last couple of years, when our competitors had AID systems in their, in their big tube pumps, you may have chosen AID instead of form factor. Now you can have form factor and AID. For me, it's hard to separate the two.
Sure. Sure.
AID is actually the feature that unlocks the key to us just being the obvious choice. It is the obvious choice. If you lay those three systems down in front of a customer that's thinking about a pump, almost universally, they say, "Give me the Omnipod." We've removed all the barriers to adopting our system. I, you'll always give you long answers, Josh. I'll stop with that.
No, I appreciate the long answer. You're a lot of great intel. Appreciate it.
AID is the key piece.
Understood. Understood. Just one of the reasons I asked that question to lead into the next question is just the pharmacy channel and just the parameters for a diabetes device to gain coverage through the pharmacy. Is just review that for us, because I think there's some speculation that the pharmacy channel could open up for other pumps that and there are I think there are some rules. What is your-
Sure.
team's understanding of what qualifies a diabetes device or a pump, I guess, to be.
Well, it was a big innovation for us to get into pharmacy, Josh. I can tell you know, rather than talking in the abstract about what other companies might do or what rules, I'll tell you what we had to do.
Okay, that's perfect.
All right. What we had to do to get into the pharmacy channel was we had to have the bulk of the value of the product be in a consumable, which is true for us. The pod contains the chipset, contains the algorithm, so that's a consumable, disposable component of the product. The bulk of it had to be a consumable. There had to be no capital upfront. To do that, we gave away the PDM. When a customer started the PDM... I'm sorry, you know, you guys may all know, but PDMs are personalized diabetes manager, personal diabetes manager. It's a locked-down phone. That's the one piece of durable equipment. That comes in the starter kit, that's given away at the onset. You've got a consumable with no capital upfront cost, so that fits the pharmacy channel reimbursement criteria.
The other thing was, we needed a new product. We couldn't take a product that was a DME product and then convert it to pharmacy. You know, and then we were able to get pharmacy reimbursement with Omnipod DASH, and that proved to be a huge revolution, right? To get into that channel has been terrific for us, and more importantly, terrific for customers. Now, will somebody be able to follow that? They're gonna have to have those same criteria met. We don't foresee that happening right now in the competitive landscape in any... Never say never. We watch that very closely. It was a difficult thing for us to do, and it's intrinsic to our offer that it fits the pharmacy channel.
Thank you. Wanted to ask a little bit about the pipeline. You talked about how the capturing all of this data to be able to enhance the algorithm. Are there next generation algorithms in the pipeline? My understanding that there are. There may be some components that could be advanced, maybe on the semiconductor side.
Mm-hmm.
Maybe just talk about some of those things in terms of where does the plan take Omnipod 5? Maybe getting a little bit ahead of myself.
Yeah.
We're only a couple quarters into the watch year.
Yeah.
We're always looking for outyear action.
Yeah. You might imagine, we have a pretty robust portfolio and we're thrilled with Omnipod 5 and obviously the performance of Omnipod 5. We do have concepts in the pipeline around how to improve the algorithm, and there's some work to be done there. We're always looking at better form factors. We're looking at, you know, different footprints for the pod and, you know, things like that. We are laser focused on pod pump therapy, right? That's what we're focused on. We wanna constantly improve the physical wear experience. We wanna constantly improve the algorithm. With data products, we wanna constantly improve the experience around that as well. We want the app and the PDM to be a great experience.
We're working on other data products both for patients and for-.
Just Libre 2 and 3 were approved for integration with AIDs, this week. How big a deal is that, just in terms of the Libre patient population, particularly in the type 1 segment that could arguably be convinced to move into AID therapy.
Yeah.
Now that, because they were gonna kinda take that first step with the CGM.
Yeah. We work very closely with our CGM partners, Abbott and Dexcom. We have great relationships. I'll just say congratulations to Abbott to hitting that clearance milestone. That's a big deal. They've put a lot of effort into that. We were expecting the clearance. We've been working obviously on doing data integrations with the Libre family of sensors. We have a work plan. We're working diligently to make those integrations happen. We anticipated FDA clearance, and it doesn't actually move our joint working timeline. It's just, you know, something that had to happen in that mix. Congratulations to them. I think it's great. In terms of what it does for patients, you know, Libre has I think their latest number, and I'm not, you know, here representing them.
I'll tell you what, I think their latest number is about 4.5 million patients in their installed base, which is mostly Libre 2. They have launched Libre 3, but it's mostly Libre 2. That's a huge installed base for us. Again, I use this phrase, you know, it's a stocked pond, right? I used to do a lot of fishing with my dad.
Mm.
It's a stocked pond for us to go fishing in. They're very heavily positioned in the type 2 market, but they also have quite a lot of patients living with type 1 diabetes in their installed base. Obviously for us, our core market is right now with Omnipod 5, with AID, is mostly type 1 patients. We do have type 2 patients. Obviously in DASH, we're the leader in pump therapy for people with type 2 diabetes with DASH. We have announced that we have had FDA approval for our pivotal trial, and we are about to start enrolling our pivotal trial to get FDA clearance for Omnipod 5 as a type 2 therapy, right? Both for.
As we finish that integration, Libre's installed base and growing base of type 1 patients with their CGM, and then their installed base and their growing base of type 2 patients represent a big TAM for us, to, you know, a bunch of people that need our help. We're very excited from that, from that point of view as well.
Excellent. Any timelines that you can either remind me of or issue on, Libre 3 integration? I know Abbott has a couple more steps.
Yeah.
You can go live with that, but also on the G7, Dexcom G7 side.
Josh, you know that we don't announce anything until we're, you know, getting them to market or filing them. I'll just say that we've been working really closely with both partners. We're working hard on G7, working hard on the Libre family. I think the work is going really well, but it's just a matter of getting the work done, and there's some complexity. One thing I'll say is that each of those four sensors is actually different from a data protocol point of view. It's a separate integration with each of the Despite the sort of, you know, interconnectivity premise of it, each of them is a little bit different, and so there's actual different software work to do with each of them. The work's going well.
The partnerships are both terrifically strong, and we'll get them to market as fast as we can.
Great. maybe another near-term pipeline, topic is just the basal pod.
Yeah.
You know, day seven or, seven-day wear, I believe is just we had a diabetes panel with some endocrinologists earlier in the week. Yesterday, just yesterday. You know, they just brought up the fact that there's gonna be a seven-day kind of insulin dosing product coming out on the therapeutic side and maybe that. I just wanted to get your thoughts on that potential introduction and how basal pod fits into that dynamic.
We're excited basal pod, it's a new-to-world product built on our product platform as a way to think about it. basal pod will be the basic Omnipod form factor. The idea behind it is very simple way for people that need basal-only insulin to get their insulin and adhere to insulin therapy. You picture the same form factor, but it's a much simpler product. What it will do is, it doesn't require a locked-down phone, a PDM. It doesn't require a CGM. You get your pod, you fill it with insulin, you put it on your arm, it gives you a trickle dose of your basal rate over three days. It runs for three days, then it reminds you to change it.
It's a very simple offer, and it's new to world. One of the many things that led us to do this, one of the things that led us to do it was we discovered that Omnipod DASH, which does a basal and a bolus capability, has a basal bolus capability. A number of type 2 patients were being put on Omnipod DASH just for basal use. Already we know there's market demand. Our market research suggests that patients want it and that PCPs love it. These, those patients are largely managed by PCPs.
The intent behind it is no needles or eliminate needle phobia, get the patient on therapy, get them adherent on therapy, because people that are taking a daily dose of insulin often forget to take their jab or they don't wanna take their jab because they don't like needles, so they're not that highly adherent. Our work with KOL suggests that, you know, a KOL will tell us, "Just get their basal rate right for a type 2 patient, and you're really adding value." What we wanna do is bring an offer that got people on insulin, didn't give them fear of needles, got them delivering an adherent basal rate of insulin. We think there's a place for it in the market. There's a lot happening in that part of the market, right?
You've got people that do basal, you know, basal rate with MDI, with simple syringes. You've got people that do basal rate with a pen with daily, and we will see once-a-week injections. You're talking a market in the U.S. alone that's at least 3 million people. Abbott would tell you it's 4.5 million people. We tend to go on the conservative side, so we think it's somewhere between 3 million and 4.5 million people that need basal insulin and often delay the use of their insulin or they don't adhere well. We're really excited about it because we think we dramatically simplify basal rate care. The other thing from a business point of view that it will do is people will get used to wearing the Omnipod platform.
They get used to the simple needle insertion and so on. Those patients almost always progress to intensive insulin, so they need both basal and bolus. We intend to commercialize basal only in 2024. By the time we're getting to scale with that, we intend to have the IFU sometime. You know, I'm not guiding to that date, but we're doing the trial right now. In some reasonable timeframe, we should have the IFU for Omnipod 5. If things go as planned, we'll be getting to scale with basal. People will transition their needs, and as their insulin needs transition, they'll be transitioning on to Omnipod 5. If we don't have the IFU for Omnipod 5, they'll be transitioning on to DASH.
It becomes a feeder for our core business, but it also solves, we think, a big problem for some measurable % of people on insulin only or on basal only.
Just within that dynamic before Omnipod 5 has an IFU, physicians can prescribe their patients, type 2 patients, through the pharmacy channel Omnipod 5 today.
That's right.
I don't know why I've been fixated on this for since ADA last year because it just seems like a unique little door opener for the type 2 segment for Omnipod 5. Is that a common scenario? I mean, are you seeing more, I know I probably don't want to quantify it.
Right.
Is Omnipod finding, getting traction on that even with the type 2?
Yeah. We are not promoting it, right?
Sure.
We don't have a label.
Absolutely.
In fact, I just came from our national sales meeting where we reminded everybody that we're not promoting it, right? We don't have the label. We are very successful with Omnipod DASH, where we do have the label for type 2. We are definitely seeing prescriptions for people with type 2 diabetes onto Omnipod 5. We're definitely getting off-label use despite not promoting it. To your point, I think the fact that both products are reimbursed through the pharmacy channel, docs can write what they want to write. It's also where those customers go to get their insulin. It's, you know, in some cases, it's where they get their CGM. It makes it all very, very easy for them to do it in one place.
Great. We've been talking about kind of some pipeline action mostly during this discussion. Wanted to ask, you know, 2023 is a year of investment and maybe just to help us think through, you know, the margin guidance, but also, you know, when should investors think about seeing some leverage and some margin expansion? Understandably, that you're in the middle of a launch and you need to fuel that growth.
Yeah. Thanks, Josh. It, you know, really gives us an opportunity to talk about that overall investment thesis and to put the context around that. We think, as Jim just highlighted a lot of reasons, we're in a leadership position in a very large unpenetrated market. We're at a very early chapter in bringing what we think was. I love Jim's open, where he said, "You know, this is the product Insulet was founded to create." We know we're in a very early chapter in a leadership position. We're gonna make those investments, as Jim just said, to broaden our CGM partners, so we can bring G6 now and eventually G7 and the Libre portfolio of CGMs to interact with and build out our automated insulin delivery system.
We're gonna invest in an iOS platform, which I know you've asked us about in the past. As well as expanding internationally. It really is a year of significant investment for us, and we're building a platform. All of these investments are new, including the cloud infrastructure that Jim referenced, which we think is a real differentiator for us. It's a heavy investment at this front end of what we think is, you know, decades plus of a growth platform that we can grow off of and continue to iterate on, including the hardware, software, algorithm improvements that Jim referenced, that are deeper back in our pipeline. With all that, we made the decision to continue investing heavily to make sure we maintain a leadership position here.
We have committed to start to leverage operating margin again in 2023, or pardon me, in 2024. Some of the big drivers for that are gonna be our gross margin expansion. We've been challenged, like many companies, with the macro environment, but we're very proud of the fact that, you know, we're still mid-60s in our gross margin, and we've got headroom to continue to grow that over time. That'll be one of the biggest opportunities for us to drive expansion on the bottom line. All the investments that we're creating today are leverageable over time. Those will be also opportunities for us to expand operating margins.
The one thing we would say is that we're gonna continue to invest heavily in R&D, and that innovation pipeline is important for us, so that'll be an area that we won't leverage much over time. SG&A and leveraging all the infrastructure that we're building today, including in the U.S. and internationally, will be something that will provide opportunity for us to help with margin expansion over time.
Thanks for that. maybe last topic, a couple minutes left. Just, you know, some competitors, more and more noise about patch pump development programs. you know, you've got Embecta, Tandem made an acquisition. I think Medtronic has an internal program and made the investment in another company. What does your team have on the competitive radar? Are there any technologies that, you think have any kind of next 12, 24, 36 month potential to get into the U.S. ? We don't see any ourselves. I just wanted to sanity check that with you.
I'm gonna start, and then I'm gonna ask Wayde to answer your call on that. We watch the competitive space, as you might imagine, really closely.
Exactly, yeah.
We're very, I think it's a, at Insulet place, we're very productively paranoid on what's going on in the space. You know, I imagine we probably see patch pump programs before most people see them, to tell you the truth.
Okay
...in what we do. We're watching very closely. There are lots of people. The first thing, it's very telling that most of our competitors are chasing a patch pump offering, and we're not trying to develop a tube pump offering. That would tell you the market dynamics. Given that, you would expect eventually competition to emerge eventually. At the moment, I think we have some really clear greenfield running in front of us, and I, and I think that our offer is so compelling, and as we roll it out internationally, it will be just as compelling to patients internationally as it is in the U.S. This is where I actually want you to pick up and talk about the scale effects. We have so many scale advantages.
We've got a strong IP portfolio, and over time, data will become a different dimension of competition. I'd like you to talk about that.
Yeah, sure. There's lots to talk about here. you know, from a scale standpoint, obviously brings a lot of investment in quality, regulatory, and all the advancements in our manufacturing capability to scale our manufacturing operations to support the growth. We like that a lot. We also like that we're, as Jim said, we're laser-focused on being the best patch pump in the market. We're investing heavily, as we just talked about. All of our R&D dollars go into our patch pump design, which is different than our competitors who are having to spread their investments across, you know, the legacy tube pump platforms, maybe something in the middle, and then eventually getting to patch pumps.
In our view, as long as we can continue investing, you know, as much or more than the competition and focusing it all in one area, we should just broaden over time. We're very excited about, you know, the advancements in other areas of diabetes, as Jim referenced earlier. May not be a bad thing if there's other people in the market with a patch pump who can help us convince the market that patch pumps are better than some of the other alternatives out there. Kinda like the CGM space. You know, we see that both competitors are doing incredibly well by moving the market from BGM to CGM. It actually may be a benefit for us if we saw another competitor in the marketplace on the patch side to help drive the messaging.
You can see us do direct-to-consumer advertising in the past. We know that there's a lot of power when we start that back up again. We, we are, you know, obviously, as Jim said, you know, healthily conscious of the competition out there and trying to improve lives for people with diabetes. To the extent we can do that and be the best patch pump offering, that's our goal. As the market moves to patches, we wanna be the best. Obviously, the basal program we talked about earlier, even broadening the TAM and addressing additional people with basal-only needs, that's what gets us excited and gets us motivated every day. It's a passionate group of people at Insulet today, and yeah.
In context of the competition, you know, I think we'll definitely see it over time. We can see that there's advantages for patches over the legacy products in the marketplace. You know, I'm sure we'll see them over time. It's our job to be the best patch pump option for customers.
I appreciate that. We don't have any competitive entrant in the U.S. in the next 36 months. I don't know if you guys have that on your radar?
We'll take that.
We'll take that.
Okay.
Great. All right. Well, gentlemen, thank you guys so much for spending time with us today. Really appreciate you participating in the TD Cowen Health Care Conference.
Thanks, Josh. Pleasure to be here.
Thanks, everybody.