Q2 2020 Insulet Corp Earnings Call
[music] good afternoon, ladies and gentlemen, and welcome to select Corporation second quarter at 2020 earnings call. At this time all participants are in a lesson only married later and we will conduct a question and answer session and instructions will follow at.
That time, if anyone should require assistance during the conference Police Quest Star then zero on your Touchtone telephone as a reminder, at this conference call is being recorded I would like to turn the conference over to your house stuff for Gordon a vice President Investor Relations.
Thank you learn good afternoon, and thank you for joining us today for Insulet second quarter 2020 earnings call with me on today's call our chassis Petrovich, President and Chief Executive Officer, and weighed Mcmillan Executive Vice President and Chief Financial Officer.
The replay of this call will be archived on our website and the press release discussing our second quarter 2020 results and third quota in full year 2020 guidance is also available in the IR section of our website.
Before we begin I would like to inform you that certain statement me by Insulet. During the course of this call maybe forward looking and could materially differ from current expectations. We ask that you. Please refer to the cautionary statements contained in R. S. V C filings for a detailed explanation of the inherent limitations of such forward looking.
[noise] statements.
We will also discuss non gap financial measures with respect to our performance, namely adjusted EBITDA Inconstant currency revenue, which is revenue growth. Excluding the effect of foreign exchange. These measures aligned with what management uses a supplemental measures and assessing are operating performance and we believe that there.
[noise] helpful to investors analysts and other interested parties as a measure of our comparative operating performance from periods of period.
<unk> unless otherwise stated all financial commentary regarding dollar and percentage changes will be on a year over year basis, and all revenue growth rates will be on a constant currency basis and with that I'll turn the call over this AC thinks them. Good afternoon, everyone and thank you for joining us Wow Cove at 19.
Continues to challenge in sweat, our customers and our communities around the world the dedication of our employees partners and the health care providers, serving people with diabetes helped us to deliver an extraordinary quarter on nearly every dimension.
We achieved second quarter revenue of over $226 million exceeding our expectations. This growth represented a 29% increase driven by 27 per cent revenue growth in our total omnipod product line.
And it was a record revenue quarter across every single product line.
Delivering these results and such on certain times is a testament to the tremendous execution of our team.
We are very fortunate to have strong fundamentals in place the strength and durability of a recurring revenue model provide a significant installation.
Our performance in the first half of this year is reflective of our great momentum in 2019, and the first quarter of 2020.
Well, we are seeing an impact of covid.
It's a two part story for Insulet.
There are many aspects of our performance that we celebrate we are creating new ways to serve our customers that are more scaleable and more engaging.
We're making our supply chain and manufacturing operations more resilient and adding significant capacity in preparation for the Omnipod five lunch next year.
And even in the face of this pandemic, we are making exciting progress on our innovation programs.
And the near term due to Covid impact on new starts we have the reality of the compounding impact on our revenue growth rates and the second half of this year and the first half of next.
But ultimately we expect to grow <unk> total omnipod revenue 18 to 20 per cent in 2020. Despite this impact.
And we are building capabilities across the company to maximize our position in the market and serve our mission for many years to come.
<unk> will emerge stronger and better from this challenge things to our talented and committed team.
On today's call I'm going to speak about how we are continuing to manage through the cobot environment, our achievements toward our strategic imperatives and our longer term expectations.
Wade will dive into the details of our financial results and guidance and we will then take questions.
We continue to grow our global customer base during the second quarter as discussed on our last call. We had an <unk> anticipated, 50% to 75% fewer new omnipod customers as compared to our original expectations at the start of the year, we landed closer to 50% exceeding our expectations.
Our performance was driven by our commercial teams who throughout the quarter expanded utilization of our virtual onboarding tools piloted novel programs to increase awareness and adoption of Omnipod and continued to expand affordable access to omnipod across the globe.
And it was supported by our innovation and operations teams, who helped us to grow our manufacturing capacity and resilience and deliver an exciting new release of Omnipod dash, while also advancing omnipod five towards commercial lunch.
This quarter, we made continued progress on our strategic imperatives, one to deliver consumer focused innovation to ensure the best global customer experience.
Three expand our global footprint and four drive operational excellence across the organization.
Starting with consumer focused innovation.
The Omnipod form factor has been R. T advantage since our founding we hear from potters around the world who come to us from M. D I and other pumps that the ease of use and the freedom associated with the part is life changing.
Over the last several years, we've benefited from the differentiated form factor and increasing market access to grow our omnipod customer base.
Last year, we fully launched Omnipod dash and our growth accelerated even as other CGM integrated automated insulin delivery systems came to market.
This is a testament to the value of our consumer focused innovation, including relentless focus on he's abuse companion apps and cloud connectivity.
And it is a testament to the compelling form factor of Omnipod.
And a few quarters users will no longer have to choose between the unique omnipod form factor and CGM integrated automated insulin delivery Omnipod five offers both.
[noise] adoption or Omnipod dash continues to grow driven by both the ease of use of the platform and our pay as you go business model, primarily through the pharmacy channel in the United States.
This is a uniquely differentiated offering that eliminates restrictions and makes treatment accessible to a broader range of customers.
We continue to see strong adoption among M D I users and both the type one and type two segments.
And the second quarter, approximately 30 per cent of R. U S. New omnipod customers were type too consistent with last quarter.
We continued to make great strides within the type two diabetes population a market we are uniquely position to serve given our differentiated products and our access through the pharmacy with no restrictions and no upfront cost.
Coverage for Omnipod Dash continues to expand with approximately 65% of lives now covered primarily through the pharmacy channel.
In June we also launched a major omnipod dash release, including several features that further improve simplicity and he's abuse. These include automatic data uploads, so that users and they're clinicians have instant real time cloud access to data without the need to connect and download from a computer.
We have been working on that vision for years to streamline clinic workflow and we have already heard from users how valuable this is to enable telehealth visits and our current environment.
We can also now push future software updates wirelessly to our customers and we're delighted to now offer Spanish language as an option for Omnipod dash users in the United States.
And the second quarter, we saw expanding use of our virtual patient onboarding tools, which have been well received by consumers and healthcare provider's. The vast majority of our new customers were onboard it virtually.
<unk> simplicity and ease of use are clearly differentiated in this environment and both type one and typed too MDI users can easily get started on omnipod from the comfort of their homes.
R virtual training capabilities have helped to mitigate the impact of Covid on growth of new Omnipod customers.
And they also lay a foundation for consumer friendly cost effective and Scaleable onboarding of new users to Omnipod five when it launches.
In addition to the success, we're having with Omnipod Dash, we made great progress on Omnipod five and remain on track to launch and the first half of next year. We resumed are pivotal study in June and presented our first data from the Omnipod five pre pivotal study at the American Diabetes Association Virtual conference the result.
[noise] demonstrated best in class usability and time and closed loop excellent time in range and statistically significant improvements and hypoglycemia compared to prior therapy.
More than half of the participants have completed the Omnipod five pivotal study and all participants should finish by Q for putting us in a solid position to launch Omnipod five and the first half of 2021.
Virtually all trial participants have enthusiastically requested to continue using omnipod five so we are supporting an extension face to enable them to remain on product.
This allows us to collect additional longer term data, which will be helpful insights for clinicians payors and for our Omnipod five innovation pipeline.
Participant feedback has been terrific just last week, we were touched to hear from a parent who said quote with Omnipod five I now have my child back in my family has their mom back.
We know that we're third to market and as such we didn't design omnipod five just to be an incremental improvements automated insulin delivery.
We designed our system to revolutionize insulin delivery for people living with type, one and insulin dependent type two diabetes and to bring a I D to millions of people still relying on multiple daily injections.
<unk> five brings together the pods compelling form factor excellent time in range low hypoglycemia customizable set points and add up <unk> that is designed to limit the extent to which hcp's need to tweak the system to help users get great outcomes.
Our platform will also offer unique benefits, including complete personal smartphone control, which eliminates the need for a separate P. D M.
Thanks to our effort to put the algorithm on the pod, we expect users to be able to download the omnipod five app pair with their pod and enjoy the benefits of Omnipod no infusion sets no separate controller and nothing else to think about.
We also know that smartphone control isn't for everyone, but we wanted to ensure that our users could enjoy the benefits of real time data being available in our companion apps and cloud data platform.
<unk> five P. M will therefore include a Sim card.
This enables every omnipod user even pediatrics without smartphones and those without Wi Fi to benefit from our companion apps that will provide real time insulin and CGM data to caregivers loved ones and clinicians.
And all of this comes in our system that has been designed to be exceptionally easy to start and easy to use as evidenced by a remarkably hi usability scores.
We are also begun to work on what comes after Omnipod five we see the type one pump market nearly doubling in the coming years as more users discover the ease of use and clinical benefits a second generation AIG systems like Omnipod, five and beyond and we see enormous opportunity to serve those living with insulin.
Pendant type two diabetes, given are unique form factor and pharmacy access.
So we are investing to serve these growing markets. We're investing in next generation technologies, and and demonstrating the benefits of Omnipod, five and expanding populations, including very young pediatrics and people living with insulin dependent type two diabetes.
We are advancing our algorithm to increase automation improve outcomes and further simplify the experience for users and we are continuing to integrate our products with next generation technologies from our partners at <unk> Com Abbott and tie pool.
All with the goal to reduce burden and improve outcomes for the millions of people living with insulin dependent diabetes across the globe.
Now turning to our progress in our international markets. This area of our business has been more heavily impacted by the pandemic and we are seeing a slower recovery and some European markets. This does not diminish are enthusiastic them for our international opportunity. Both in terms of continued growth and our existing markets and <unk>.
Spansion into others with significant unmet need.
We made good progress throughout the quarter preparing our markets for the expansion of our Omnipod Dash launch are limited market release in the UK, Netherlands in Italy was successful and our customers love the product. The international team has been focused on training market readiness and launch preparations and we're looking forward to.
I'm moving into full market release with Omnipod Dash early next year.
And finally, turning to operational excellence.
For the last four years, we have been strengthening our global manufacturing and supply chain operations, we have increased capacity and made our operations more resilient with the addition of R. U S manufacturing plant to complement our facility in China. This has served us, especially well during the current pandemic.
As many of you know during the last 15 months, we began producing omnipod on our first too highly automated U S manufacturing lines.
Although the pandemic has had an impact on how quickly we've been able to ramp. These lines, we continue to increase capacity and gain efficiencies throughout our global operations.
And the near term this insurers, we can deliver the highest quality product to each and every one of our customers.
Over the long term R. U S manufacturing will provide required capacity and support as demand for our products continues to grow we plan to further expand R. U S manufacturing capacity across our supply chain and manufacturing operations to prepare for what we are confident will be enthusiastic demand for omnipod five.
As part of our corporate sustainability goals, we have taken steps to reduce the environmental impact of our supply chain and operations.
To this and we have localized a large portion of our supply chain to reduce logistics emissions.
We also moved to Ocean freight, which has the benefit of being both cost more cost effective and more environmentally friendly.
In June as a further stopped we transition to our company headquarters and U S manufacturing facility to be fully powered by solar based renewable energy.
We understand the urgency and importance to <unk> to protect our environment and reduce our carbon footprint and we are committed to fostering a sustainable business to support the long term wellbeing of our customers our employees in our communities.
And salary well there are certainly short term challenges that our business faces due to covid. Our team is rising to these challenges in remarkable ways the strength and durability of a recurring revenue model provide a significant installation and differentiation and our key to our ability to continue to deliberate attractive growth and these.
Certain times.
Our investments and product in business model innovations and are talented dedicated team position us over the long term to drive strong organic growth and value creation and to bring powerful new technologies to market and most importantly to improve the lives of people living with diabetes.
I will now turn the call over twin.
I wanted to echo shoes gratitude towards <unk> team members to the Doctor to these extra ordinary tones.
Thanks, you, they're hard work, we delivered another quarter of strong financial results that exceeded our expectations.
Continue to make excellent progress on our strategic converge as we invest for growth enhanced our global competitive differentiation and serve our mission of improving the lives of people with diabetes.
And the second quarter of 2020, we delivered revenue growth of 29%, which was 10 million above our guidance room.
The strong performance continues to be fueled by our total omnipod growth of 27% and was six marine above our guns range.
Regarding new Omnipod starts we communicated that are guidance for Q too.
The depend on at the lower our expectations from the beginning of the year by 50% to 75% with the U S closer to 50 per cent and international closer to 75%.
Actually two two results were favorable and both regions of the combined in fact, we approximately 50%.
Attrition and utilization came in near expected levels were slightly higher nutrition and slightly lower utilization.
And down our revenue results blood product alone.
U S. Omnipod revenue grew 31% exceeding are guidance range of 21% 225%.
Approximately $4 million to $5 million of the increase resulted from the met impact of estimated distributor channel and customer inventory levels.
And cute too we grew U S volume through the pharmacy channel to over 30% of our total volume.
Farmers, who challenged roof contributed to the increase inventory levels.
Stocking for the pandemic also drove channel inventory increases across all through channels, including R. D on me and direct.
New Omnipod starts we're also favorable versus our expectations.
Are grown customer base and Omnipod gosh adoption, primarily through the pharmacy channel.
Well as the mixed benefit from the premium on Dash continued to be the primary drivers of our growth.
And the second quarter volume growth of Omnipod Gosh continued to drive over 60% of are you a new omnipod starch.
International Omnipod revenues route, 20% compared to a range of 15% 219%.
<unk> and benefit of approximately 2 million channel inventory build due to <unk> into a lesser extent better than expected new Omnipod search.
Drove D. Every revenue increased 49% $224 million, which was $4 million above Oregon's range, while we expected greater than normal revenue growth in Q2, resulting from a shift and timing of production from Q1. The overachieve meant was due to our partners increased forecast.
Related to the current environment.
Overall, we achieved robust revenue growth and the second quarter building off of our strong momentum from 2019 and Q1 of 2020.
Turn into gross margin, we delivered 63% down 200, 270 basis points year over year in line with our expectations. The year over year change included headwinds primarily due to the ramp a R. U S manufacturing ones as well as an approximate 180 basis.
Unfavorable impact from <unk> related costs, and 40 basis points from foreign exchange.
These headwinds were partially offset by the favorable revenue mixed benefit from Omnipod dash growth through the pharmacy channel and pays you go business model with no upfront charged for the P. D M.
As well as continued improvements throughout our global manufacturing and supply chain operations.
Operating expenses and the second quarter, we're in line with our expectations and we ended the quarter with adjusted EBITDA of 20%.
Are strong adjusted EBITDA was due to the favorable revenue performance.
Lower travel a meeting expenses and timing of certain expenses, including Omnipod five clinical trial expenses much of which moved from the second quarter into the third quarter.
Regarding cash and liquidity, we are in a strong cash position with the earliest that maturing in 2024 and low cash interest expense. We ended the second quarter with $868 million in cash in investments, including the additional cash roost a $477 million from the equity offering.
The cash room, Strengthener balance sheet and insurers, we can continue to invest for growth, including R&D commercial and capital expenditures in order to execute our strategic imperatives and provides additional liquidity during the pandemic should we need it.
We have a differentiated position and a large and underpenetrated market and we want to come out of this pandemic stronger, but continuing to grow and our global markets.
Turning to guidance, although tube and banks are not predictable last quarter. We continued to provide guidance in order to help investors forecast our business understand our grilled drivers and highlight the areas of the business that will be most impacted.
Given the information we had an an estimate of the impact of the macro indicators along with the durability of a recurring revenue model. We maintained are full year 2020 revenue guidance at the low end of our original total company range.
As a result of second quarter revenue that exceeded expectations and a stronger second half outlook, we're raising our total company full year 2020 revenue guidance growth route to a range of 17%, 219% up from our previous expectation of 15 person.
Sent.
This includes raising total omnipod to a range of 18% to 20%.
Bye product line for you S. Omnipod, we're raising are expected revenue growth, 219%, 221%.
And for international Omnipod, we're raising our expectations to 17% 219%.
The key drivers of our increased full year guidance for total Omnipod are the compounding benefit of second quarter hire new Omnipod starts, which add incremental revenue and the second half of the year and our expectations of improve new omnipod starts and the third quarter.
In terms of expected do Omnipod starts are guidance smell assumes an improvement in third quarter global new starts compared to our guide last quarter. We know estimate that new starts will approximate will be approximately 30% to 50% lower than are beginning of your estimate with the.
S again at the low and and international near the high end.
This compares to the 50% we guided two on our Q1 call.
We anticipate fourth quarter global new starts will still be approximately 25% lower consistent with lost quarters God.
This results and the achievements of approximately 60% 275% of our original <unk> assumptions at the start of the year.
Ah revised guidance of new Omnipod starts factors in a garage will improvement from Q2, two year and.
<unk> continued to assume downward pressure on utilization and an uptick in nutrition two accounts for potential pandemic related headwinds Walker churns are beginning to show signs of improving conditions Covid continues to create uncertainties and it is difficult to accurately predict the progression of depend demick.
Our global diabetes business remains well positioned to manage through multiple scenarios and continues strong growth this year as well as in 2021 and over the long term.
Lastly for drug delivery, we know anticipate growth of 3% two 6%, resulting from an increased forecast from our business partner.
Turning to the rest of the piano on a full year basis, where reaffirming gross margin of approximately 63% which includes an estimated seven.
$210 million of one time costs related to <unk> safety and mitigation efforts verses are prior god of $5 million to $10 million.
Also factored in as the floor ramp and R. U S manufacturing loans due to the pandemic.
Or 2020, and long term financial strategy and capital deployment plan remained unchanged and we continue to expect capital expenditures to be consistent with last year as we plan to invest for growth and our innovation pipeline global commercial initiatives and with their manufacturing and supply chain operations.
Four full year 2020, adjusted EBITDA, where reaffirming our expectation as a percentage of revenue at the low end of the 13% to 17% range.
For the third quarter of 2020, we are guiding to total company revenue growth of 13%, 215%. This includes total omnipod revenue growth of 12% to 14% by product line, we expect U S omnipod growth of 14% to 16% International.
Part of 9% to 11% and drug delivery of 23% 228%.
As a reminder, depend on impact on a global new starts and the second quarter as a compounding effect on revenue, which mostly inbox. The second half of the year. Nevertheless, the durability of our differentiated recurring revenue model Insulates us to a large degree since we generate the vast majority of our revenue from our large.
<unk> existing customer base.
As a result, we still plan to achieve double digit revenue growth and the third quarter of 2020 and the full year. Despite the fact that stupid.
Four 2021 outlook, assuming market conditions stabilize in 2021, we remain on track to deliver or long range plan target of 1 billion and revenue.
As communicated on our Q1 earnings call, we expect gross margin of 67%, 270% and operating income as a percentage of revenue in the mid teens closer to the low end of the range.
In conclusion, we had significant momentum to start the year and our first have 2020 results benefited from that momentum.
Our differentiated business model and product platform operational excellence and strong financial profile enable us to continue to invest for growth.
While mitigating the impacts of <unk> and related headwinds.
As a result, we expect to deliver 18% to 20% revenue growth. This year, we have a very healthy and robust business and Ah well positioned for continued growth over the long term.
With that will turn the call over to the operator for Q&A.
Thank you. Thank you have a question at this time. Please press Star then one key on your Touchtone telephone. Thank you question has been answered or you wish to remove yourself from the queue. Please press the pound Keith we ask that you keep your questions to know more than one plus a follow up but please feel free to go back into Q and if time permits will be more than happy to take your follow up questions at that time.
Our first question is from Larry be Wilson with bought Wells Fargo. Your line is now open.
Good afternoon, guys. So thanks for taking the question.
I'm glad to the nice quarter JC, just a one on Omnipod five for you and weighed one for you on the margins JC just any update on the tie in line for iOS integration and and how are you feeling about price premium for Omnipod five versus dash and wait on them too.
Thousand 21 gross margin.
Can you talk about the drivers to the 67, 270% should we be thinking about the low and.
Pretty big step up from 63% in 2020, thanks for taking the questions guys. Great. Thanks, Larry So in terms of Iowa, we have not guided any timeframe there at only to say that we fully expect to follow.
You know our initial launch an Android with I O S. So that work is underway and isn't that timeline becomes more clear will communicate that out.
We want to get Omnipod five to market, which is coming soon and in terms of a price premium and we also haven't given much insight into our price strategy. The one thing I will highlight though is we are entirely committed to a pay as you go model and the United States with Omnipod five and so what that means as all of our existing <unk>.
Users will be able to transition.
Two omnipod five without having to worry about a lock in period or having to pay some sort of upgrade fee.
Now that doesn't mean that <unk> doesn't warrant a premium because obviously the performance in terms of hypoglycemia and other key performance indicators.
[noise] deliver value to the market and so that's what's being evaluated but we are committed to the pay as you go model and that's important for us because as we think about the pace of innovation increasing in the market, we want to be positioned to be able to deliver that innovation most quickly to our customers and not make them wait out these industry.
Warranty periods et cetera, so so that we're committed to and we'll see on the price premium.
Okay, and Larry on the margins for 2021.
First of all margins are an important part of the story for US we have significant strategies running across the business to make sure that we have the strongest gross margins possible and we see I'm a big part of the differentiated story here for us.
And when we look at.
Most recent quarter, what we call though.
In <unk>.
Impact from Covid hundred 80 basis points and foreign exchange. So if you take out those two one items. The most recent quarter be 65%. So cove. It is having a pretty significant impact as well as effects on our gross margins. So that takes a bit of a step up with and then when we look at how we progress in 2021.
Have made a significant investment and our manufacturing operations, mainly here in the U S. But also in our China facility.
And we continue to make progress on our operations as well as our supply chain efficiencies and so we have high confidence that we will get into the 67% to 70% range and 2021, and we still have high confidence that we can get to 70% over time, we're just a bit delayed here for a quarter or.
Two as our teams have shifted focus to deal with Cove. It in the safety of mitigation efforts related to that but it has not diminished our game plan at all to push for 70% gross margins I know the team is doing a lot to keep that in focus while they're deal with the current environment and I know that will get back on track here.
And the next couple quarters and.
Confidence when we issue or guidance for 2021.
Thank you. Our next question comes from Mcrobbie Marcus of J P. Morgan. Your line is now open.
Thanks.
There's a lot I can ask about in the quarter here, but chaser actually want to focus on two longer term focus questions on points that you made the first was that the number of pump users could double over the coming years, I'm guessing coming mean, something like five ish.
So if there is 400 500000 pump users in the U S.
A massive mutation opportunity over the next several years I just want to make sure that I'm thinking about the right way and how should we think about.
Then the number that insulate can possibly grabbed during that time.
Yeah, it's you're seeing it the way we see it rabbit, we see this <unk>.
Pretty significant technology inflection happening in type, one and actually beginning to happen in type too.
So I think a lot of this is driven by adoption or CGM and then of course, and we know that there's going to be great demand. It's one of the most anticipated developments in the pipeline with Omnipod five and so we do see that we are always said, we thought 50%.
Was a pretty reasonable estimate for penetration into the pump market because you just needed to look at pediatrics, but we're seeing even pediatrics expand utilization of pumps and type one pretty rapidly and then I think this.
Expansion of CGM has really driven more adoption too so we do see that as a realistic.
Tam for us and and an exciting one and then we look at CGM.
Penetrating into tight two's now for US that's just pipeline, who we see at tremendous opportunity to bring Omnipod five two people living with type two insulin dependent diabetes and I would say we have the right to win in both of those markets.
We have a specific obviously.
[noise] differentiated form factor advantages and really excited about what integration with our censor partners will bring to both of those populations.
Thanks and.
Maybe if we think about.
<unk> comments, you made on the lower new patient ads in 2020, and that'll impact the back part of this year on the first half of next year I just want to make sure do you see something with street number is that where are you. We all know this as a recurring revenue business model and fewer new patient starts equal.
Somewhat of a headwind next year.
There's something where are you about where the street is for next year, because seeing what your competitors doing with an integrated offering horizon five potentially.
It should be even better there's a lot of enthusiasm around the launch next year.
Want to make sure that's more just the reality of the business model rather than than trying to talk down expectations. Thanks. That's right. That's right Rabbit, we are not worried I just.
Take the opportunity because we have such a different business model relative too.
Obviously other insulin pump players out there just to educate on that and wait I dunno. If you have any other color you want to add regarding the street estimates yeah. No first of all it's a really good question because one of the reasons. We elected to provide guidance last quarter was to give insight for people to understand our business model and so the reason.
Sure. It's these highlighting in here is just to remind people that in the recurring business model that will be dealing with this headwind for the second two quarters of this year and into the first half of next year.
But having said that we have.
A lot of positive drivers in the business and when we.
Specifically for your question on.
Estimates that are out there we have raised our guidance more than for the cue to beat here and so there should be.
Some room in the second half as we are also taken off the second half guidance.
Thank you. Our next question comes from David Louis of Morgan Stanley. Your line is now Olsen.
Good afternoon. Thanks for taking the question just to.
Questions for me I'll start with JC. So she actually during the theater any season, a lot of diabetes companies have talked about international sluggishness recovery relative to the U S. I just sort of can you walk us through for your business.
This dynamics X U S are very versus the U S and as a country specific or do you think it's it's across multiple regions of your X U S business.
Sure Yeah, David and your <unk> head on it.
The recovery that we're seeing in Europe is definitely more modest than what we're seeing in the U S. Today and it is very much varied across the markets.
Some are doing okay.
And then others like France, which is obviously an important market for US is still very challenged is hospitals don't open and many of.
Those new patients would be served by the press the tear and they are occupied with other priorities and so it's kind of a a tail tale of multiple parts across Europe.
Any other area that.
More challenged is endo visits and so there's been slower uptake telehealth and.
In Europe, and many larger European markets.
See their omnipod or new pump starts in hospital clinics, rather than in private offices and so obviously hospitals are really challenged right now in many parts of the world. So I think we're seeing encouraging things across all of our markets in terms of.
And no visit starting to reopen in terms of our pipeline in new starts, but we're not back to normal still know that endo visits even in the United States are not back to where they were pre covid levels. So it's encouraging but in the euro in Europe, we're forecasting that it will be a much more moderate recovery from here through the.
[noise] rest of the year.
Okay very helpful. And then when it kind of related question just thinking about the broader new patients start impact so improvement here in the third quarter guidance from prior you still seeing 25% new patients start impact for the fourth quarter. So just the way to think about that is that simply a reflection of conservatism or if I say you're ahead of pace here you are sort of assuming you're a little I had to pay.
[noise], but resurgence flu season, what have you could could it back to add the fourth quarter.
I guess, but the question I would say as I would sort of assumed that the channel will be more able to handle a resurgence given telehealth patient conditioning physician conditioning in the back half of the year. So just help us understand that 25 maintenance relative to the improvement in the third quarter. Thanks, So much.
Yeah. This is the most important metric for us.
<unk> and utilization metrics, although picked up are very similar.
Versus our historic level. So it really is all about new patient starts for us and.
We have estimated the U S around a third impacted here in Q3, and a shapes you said given the dynamics internationally, we've called at 50%.
Internationally impacted as we're seeing slower recovery there.
And that is exactly that we're just making sure that we keep some room for ourselves for resurgence here and if we see headwinds.
In certain.
States within the U S or regions outside the U S start to be more impacted obviously at the low end of the range of 50% impact overall for US would mean Q3 would have to look like Q too and we hope that we're not going back there.
That's the low and we hope that we can improve on that get closer to the 30% at the high end of the range.
On a global basis.
So that would mean that.
The region's combined would have to be 30% for us to be at the high end of the range and so we see a lot of different scenarios playing out obviously, we don't know where the pandemic is heading we're trying to do our best to give ourselves a good estimate here. If we think about why we set guidance. Originally it was to put these sticks in the ground. So that we can then.
Help everybody understand how we're performing against them and and Q too. We did very well came in at the bottom end of the range and beat expectations and both regions. So we've moved mistake a little bit more favorable here in Q3, we'll see how the pandemic progresses and then the last part of your question David around Telehealth for.
<unk> and for US virtual training it has changed the game I think the.
Benefit of virtual training and the ability for patients to still get the therapy they need even in a covid related world. We have the capability do that Ashish you said.
Most of our trainings in Q2 word virtual and so we have the capability built now and that should help us offset what could've been worse impact.
Thank you. Our next question comes from Jeff Johnson, a bird you line is now open.
Thank you good afternoon ish JC I wanted to go back to some of the comments you made on Omnipod five.
It depends on competitive advantages you listed through form factor in customization or what have you.
Talk to your adaptability point, you made was interesting and would love to hear you may be flesh that out a little bit I'm not sure off the top of my head I know exactly what you were referring to there.
And then I do have a follow up thanks.
Sure just yeah, so when I talk about adaptability.
Referring to other systems that are on the market, where the there are still many dobbs knobs and dials to adjust on these systems in terms of various inputs.
Guarding for example.
You're Basil right or your total daily dose or your insulin the car ratio such that if the algorithm in the system is not working aggressively enough or in a satisfactory way for the patient that they have to go back into the physician and have adjustment made in order for the system to work more effectively for them our system and the algorithm.
Has really been designed to grow and learn with the patient and consciously we've taken a lot of those knobs and dials away. So that the system can actually do its job and simply adopt and performed perform better for the patient and so that that really the goal there is to make it much easier both for the clinician.
And for the patient and to rely on the algorithm to grow with a user. So there are examples.
If the user adopts a new exercise routine that means that their influence they require potentially less insulin. The system is designed to notice that and to learn and adjust same thing with children as they get older.
They may require more insulin the system is designed to see that and adjust to that so that's what we're really excited about what adaptability will bring we're also really excited just about the flexibility of the system, we've talked about customizable set points and other things at the system that should make it just incredibly user friendly and.
I think that was demonstrated at <unk> when the moderator compared are usability scores to iphones I mean, that's really how simple the system is designed to be.
Understood very helpful. And then wait maybe just I think you mentioned here just in passing into David's question that you <unk>, maybe down closer to that 33% or a third below.
Your expectations at the start of the year and I know that's relative to expectations.
I think if I look at your one of your competitors, who who gives pretty clear numbers and you can back into numbers, they're new patient searching <unk> seemed like they might have been flat to even up 10 or 15% year over year from eight MDI population.
Perspective, so if you're new patients starts and two Q again relative to expectations, but if I. If I just for that may be down 10, or 15% or something.
Help me bridge that gap maybe between.
Competitor be in flat top and you guys, maybe be a down year over year on new patient sorry, it's gonna be MDI channel.
Sure just to start with we still get most of our new patients from the MDI channels. So it's about 80% and I can't really speak to the amount for the competitors, but certainly can give you more insight to our pipeline.
We had record new patient search corner on quarter coming into 2020, and we set our guidance appropriately and we're not expecting continued record new patient start quarters every year, but we still had a pretty significant number of new patient starts in there and so.
Still coming in at 50% of our expectations globally is strong and the U S was better than the 50% and and had a pretty good quarter, there as well as evidenced by the 31% growth rate in the quarter.
We certainly got the benefit of inventory there, but we're still mid twenties growth rates for the U S and so although we were exceeding that and the last few quarters of 2019, I think a 2627% growth rate X inventory build is still a really healthy quarter. So it gives you.
A sense of yeah, we're off our expectations for the year, but still very strong new patient start growth.
Thank you. Our next question comes from Joanne Whoosh with Citibank. Your line is now open.
Good evening, everybody and thank you for taking my questions.
I have two quick ones I. Thank.
You mentioned the moderator at eight a M a commentary there.
I haven't had a chance to start a group catch up with you post 88, and I was curious if there's anything else you want to highlight that really caught your eye.
Coming out of <unk> I think.
What would be noticeable is just that we're in this sort of <unk>.
Technology adoption and pace of technology, increasing in the market for people living with diabetes.
Really exciting time, I mean, there were multiple AIB systems.
Multiple next generation sensors presented and so when we think about.
What that could bring two people living with a disease, it's very exciting.
To me, it's part of why we remain so bullish an adoption of technology among people living with both type one and type two diabetes and obviously, we're really excited about the role that will play on that I think this year is 88, if you just looked at the enthusiasm.
I think there were there were thousands and thousands of physicians, who had a dialed into.
To listen to our presentation, there's just tremendous enthusiasm for automated insulin delivery and what it will bring to the community.
And the second question is as you prepare for the Cob five launch can you walk you through the steps that you think about so that you're not in back order or supply right out of the gate once it's out the door.
Sure I think that's a great question, we're thinking a lot about that right now.
Obviously I highlighted in my remarks, and we've been already thinking about how do we build capacity and be in a position to be very strong from an inventory position.
Steps for us outside of getting through are clinical work and security clearance are to really think about market access as I mentioned with Larry at the first question.
We are committed to this pays you go model and so what that means is that everybody will be able to transition to omnipod five as soon as they have access we're not going to be regulating this with a four year warranty period or upgrade fees or anything like that which means there's going to be tremendous demand both among our existing users.
And what we anticipate to be tremendous demand among.
New users and a lot of that will be regulated by access and so our teams are already know thinking about how did they rapidly expand access, particularly in our pharmacy channel I think we're very fortunate because we did all of the work to really establish.
Or both the new business model, the new wholesaler distribution and the pharmacy access and so this should go much more smoothly and much more rapidly than it did with dash and actually it went very well with dash.
But.
[noise] work is already underway as well and then we've had a lot of work going on around Onboarding in training of patients, which is why we were ahead of the game in terms of being able to launch all of our virtual tools.
With omnipod during the pandemic, but what's great about the experienced that we've had is that we know that patients of all sorts of demographics can be very happily and successfully trained at home and we had less of an experienced before the pandemic now we know it for certain across all patient demographics, and so that sets us.
Up I think for a lot of success rapidly and cost effectively being able to bring patients onto omnipod five.
Thank you. Our next question comes from Danielle <unk> with US SBB Leerink. Your line is now open.
Oh good afternoon. Thanks, so much for taking that coke the questions and congrats on on a really strong quarter, given given huh all of them everyone's going through right now.
Wait if I if I could just one question on the guidance sorry to harp on this but I guess as I look through the back half of the.
Guidance for Q4, plus what you gave for Q3 it does look like on a cop adjusted basis.
Girls is decelerating and I'm just curious to take.
Take your brain, a little bit more about that just given the fact that it feels like we're past peak unemployment right. So it feels like attrition should actually stabilize at this point to move lower I'm I'm thinking about that wrong and it feels like new patient at should start to accelerate maybe just a little bit of color there would be great.
Sure.
And.
I hope you're right on unemployment I think we've got a long ways yeah.
Understand where we're at in the spend Emmick.
But it really speaks to the point the chassis highlighted in her opening remarks and that I provided some more detail and my remarks as well is the way that our business model works and when we take half the new patient starts that we're planning out of Q too and even though we have in improving Q3, and improving Q4 through the end of the year when you take new.
Patient starts O.
It creates a headwind to the grocery compared to last year. So it really highlights the very tough comp that we created for ourselves in 2019, if you think about where we were in the second half of 19, we launched dash, we entered the pharmacy channel and we launched or pays you go model. So we had record.
New patient starts quarter on quarter through the end of 2019. So we set up some very tough comps and you can look at the comps individually biometric.
Sales price utilization nutrition, and if all of those are fairly consistent it's all about new patient starts and so with a covid headwinds here, although we have improving new patient searched through the end of the year by no means are we stacking up new patient starts on our record breaking nature like we did last year, so that's going to impact our growth rates with those.
Tough comps.
See how we go pandemic is making forecasting more challenging than ever.
I like that we put these sticks in the ground last quarter, we're going to continue to measure ourselves against them see how we do here again in Q3.
Yeah, Thanks for that and Yeah, I was going to say weighed they're really that makes really making you work hard for your money there.
[laughter]. That's a follow up question I had was on a potential bullis of new patients and I'm not sure. How you guys are thinking about this but I guess.
Patients and start to sorta go back to their <unk>.
Do you expect to see a bullis of new patients at some point.
Anecdotally I have a friend who just recently got diagnosed he wants to go on the Omnipod. He's he's waiting, though and so just curious to see how you guys are thinking about a potential bowlus at some point.
Yeah. Thanks, Danielle it is something we're thinking about it it's difficult to predict obviously, but we do know that and in the U S where we have the most.
Visibility, we do know that endo visits are down still significantly in so.
There's a portion that's just happening by a telehealth people are less likely and physicians are less likely to transition to new technologies via telehealth and they are in in person visits. So I do think that there is this dynamic where people, who probably need better technology and better care are not getting it today and that's.
That's really concerning frankly, because it's a vulnerable population as it relates to cove, it and so I will do everything that we can to educate the community educate clinicians.
About this and that.
It's very easy to transition to get a prescription to be able to trial the device and be able to get started at home.
And there may very well be bowlus of people were not counting on it.
Certainly.
Nope that everybody who needs.
Needs care is getting it or will get it as soon as the economy start to continue to reopen.
Thank you. Our next question comes from Margaret Zora with William Blair. Your line is now open.
Okay, everyone thinks for taking the questions and congrats on the quarter.
I wanted to pull up first on virtual training.
There's a lot of benefits now you've kind of alluded to the future benefits can you outline for us maybe the speed of patients coming on how that differs.
Versus in person as well as the cost and I guess in a nutshell is the hundreds of basis points of margin for example, the time.
Or can you cut down the time by a third.
So I'll start with the first part and then maybe wait can comment although I don't know how much it looks like we have yet into sort of the cost differentiator the impact on margin I will say that just feedback from both clinicians who are attended trainings in some cases with their patients that we're hosting virtually.
As well as directly from new customers has been absolutely fantastic regarding virtual training and one of the pieces of the feedback is that it's just much easier to schedule in everybody's life [laughter] and so as certainly we see an easier time getting scheduled we can also leverage our field team better.
And being able to.
At a medically schedule them and have people support multiple areas are multiple territories and so.
I think all of those things bode well and we view this as I saw it very much.
Not just a temporary thing that we're doing to support patients and clinicians during covid, but as a viable very exciting way that we can scale are omnipod five training and delight customers because it's clear that people love being trained in the comfort on their own homes.
Yeah, I think the only thing I could add they're really just keep in mind with cheese you said, it's early days.
I think there's some silver linings with the Covid pandemic here and maybe one of them as a situation, where we're forced into more virtual trainings, both us to supported as well as patients and physicians and I think we're all learning that there are some benefits patients enjoy getting trained at home and the comfort of their own homes.
And we're finding out that it could be more efficient issues you said.
We don't have to have are clinical ups in within driving distance of all the customers that we want to bring on in person. So there are certainly efficiencies to begin.
The real question is how large of a percentage those virtual training become overtime there are benefits to being in person, we know that clinicians C. A lotta those benefits to seeing their patients in person. So I think it's giving me a mixed bag of our time Margaret I think just we'll keep in mind that it's early days, we're learning a lot. We certainly know a lot more now than we do.
At the start of cute too.
Okay, Great and helpful. And then I just wanted to follow up in terms of.
Some of the commentary next generation products you guys. Obviously, two five is right around the corner and you're already starting to talk about <unk>, maybe some other software digital health advancements.
But as soon as he doesn't look at that next generation products that you referenced type too.
So I assume you've kind of done a little bit of work what are the primary gatekeepers to adoption why haven't pump succeeded and access is one but how do you address some of the other issues on the engineering side, you know lemonade patient touching Seamlessness <unk>.
Sure Margaret and I think it's a good question I actually think we've learned a lot because of dash I mean, we've seen a great uptake in this patient population as a result of the simplicity or the platform and just how.
Just how powerful pharmacy access is.
And that experience an understanding how that user segment is using dash has given us insight into.
How omnipod five and future generations of Omnipod five could be impactful in that population. So I didn't want to reveal too much there from competitive standpoint, but I will say that you'll see us start the clinical work just to evaluate our technology and that population and I think we'll learn even more than and we're confident based on.
Our experienced with dash and based on the fact that more and more people living with insulin dependent type two are adopting CGM.
We have a great technology to bring to that to that market.
Thank you. Our next question comes from Jason Bedford Raymond James Your line is now open.
Alright, good afternoon just.
Two quick clarification questions on the the two two new patient as you did 50 per cent of your original goal did you quantify the level between the U S. An international.
Hi, Jason we have not but we can provide a little more color.
U S was better than the 50% an outside the U S was higher than the 50% the combination of the two got us to the 50% for the quarter.
Okay.
Okay, what was the estimated impact of stocking and <unk>.
I think I thought it was six to seven but I just wanted to make sure that sure. It was actually very similar to Q1. So in the U S. We had an impact of four to 5 million.
And for outside the U S. It was $2 million, so a global $6 million to $7 million <unk>.
Thank you. Our next question comes from Travis Steed with Bank of America. You line is now open.
Hi, good afternoon, thanks for taking the questions I'll ask both of them on upfront and interest of time.
The 30% to 50% of your dotting two below expectations for Q3, just curious how that compares to what you're seeing in June and July if you're a similar things get worse from here or I was thinking that more stable.
And then JC on horizon, he was kind of walk through some of the roadmap here.
<unk> finish up the trial submitting the data.
When we're going to see the data.
Some of the getting factors to launch that earlier in the first off versus later in the second half thanks for taking the questions.
Sure.
Sure I was so I can start so in regards to the Q3, 30% to 50% new patient start reduction from expectations.
It is better than we saw in Q2, it was 50% in Q too. So by definition everything below 50% will be better just to clarify that and that is as a result of seeing gradual improvement coming out of Q2 into July. So it is different by region as I mentioned upfront every state <unk>.
C R reps in some cases getting back and meeting with customers and physicians in some cases that stops.
Bye clinic, they're turning on turning off there's a lot of variability issue. So you said just across the U S and outside the U S.
It's a tough call.
Because some countries are opening up and doing better and she she reference some countries are almost nil instill.
Locked down and really not bringing on new patient so very much a mixed bag out there, but just generally we are starting to see improvements coming out of cute too and that's where where guiding to more of a 30% to 50 or a third do a half versus a half that we saw on cue to.
That's great. Thanks, and then your question regarding Omnipod five.
So as I mentioned in my remarks, all of our patients will be completed are all participants will be completed with the Omnipod five study at the by Q4.
And then we don't just a general practice, we don't give estimates on submission, but that timing of completion of participants in the trial gives us great confidence in our.
Limited Margaret release in the first half of 2020, and then in terms of data <unk> been invited to share our data at HGTV. So we will definitely expect to do that that takes place in February and is likely to be a virtual conference.
Thank you. Our next question comes from Matt O'brien with Piper Sandler Your line is now open.
Good afternoon. This is Jason on for Matt Thanks for taking the questions and squeeze in this in here.
Really just clips on one point in your <unk> just wondering if there's any newer adjusted contracting we should consider with players heading into the launch Omnipod five.
Do you plan to have all that in place I needed to 2021 is that a dynamic you'd expect to work through once you get the system approved.
Really I just wondered how that Paradyne NAMIC plays into some of the access points you talked to you on a couple of question so far.
So I think we're in a good spot because what this is an amendment to existing contracts as opposed to what we had to accomplish with dash, where we had to go build the relationships and then go establish contracts in pricing in terms with all of our players. So we are way ahead of the game on that front end, but we do plan to.
Use the data to be able to establish reimbursement with our payers and so that that data will hopefully be available. Shortly after our patients are are participants complete the trial and Q4 and I would imagine that the end of 2020 beginning of 2021, our teams are working.
Very hard on establishing access for Omnipod five.
Okay, and then just extra within that was one one quick follow up then I mean, if it as simple as an amendment is that would that amendment be the same or would it be a simple amendment, if you're seeking the price premium or is that an amendment just to provide access no Jason you're hitting on a really important point and this is the debate that's going on internally.
We know that the performance of Omnipod five demands a premium it's a it's a product that delivered pretty remarkable outcomes for users.
What we're going to be waiting that against and where there's a lot of analysis going on right now is.
The tradeoff there is just how quickly we can establish access and so that's the work that's underway with the teams right now and we have not yet shared and I'm not even sure we've landed completely but shared where we plan to be with a premium but access will happen very quickly or a much more quickly. If we don't have a premium or we have a milk.
Premium and it will take a much slower ramp if we decided to attach a premium to it. So that's the that's the rub.
Thank you and we have time for one last question. This question comes from that Taylor of UBS. Your line is now open.
Hi, Thanks for taking the question.
Focused on that I wanted to ask about drug deliveries since it was a lot higher.
Forecast and I think it makes sense during covid that you'd want to have more.
Do you think that this could change the trajectory of that business or your focus on it.
Thanks, Matt for the question I I really I, you know I think its durable to the extent that the pandemic as dry hole.
So I don't know that it changes the trajectory.
Significantly, it's really great to see the power of the pod in drug delivery.
But it's probably not an area that we see changing dramatically and I maintain that.
Right now, it's very difficult to see any opportunities that are more attractive than the massive growing.
Market that is before us in diabetes, we see just this CGM and technology adoption is at this inflection point and we're on the cost of launching Omnipod five and so thats where were focused.
Okay, great. Thanks, Thanks loss.
Thanks, Matt.
Thank you and this does conclude today's question and answer session I would now like to turn the conference back to Shacey Petrovic.
Great. Thank you.
Despite the continuing effects of the pandemic insulet delivered strong operational and financial performance and our team continues to demonstrate an ability to adapt quickly to challenges and execute on behalf of our customers our shareholders in our stakeholders. So to all of our employees I want to thank you for your relentless.
Good work and dedication I'm incredibly proud of how we have rallied together to support one another and to ensure we continued to advance our mission. Thank you all for joining us today, and we look forward to providing updates on our progress throughout the remainder of the year.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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