Q4 2020 Insulet Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation fourth quarter and full year of 2020 earnings conference call at.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call is being recorded I would now like to turn the call over to your host Deborah Gordon Vice President Investor Relations.
Thank you and good afternoon, and thank you for joining us for Insulet to fourth quarter and full year 2020 earnings call with me today are Stacy Petrovich, <unk>, President and Chief Executive Officer, and Wade Mcmillan Executive Vice President and Chief Financial Officer, both the replay of this call and.
A press release discussing our 'twenty 'twenty results in 2021 guidance will be available on the Investor Relations section of our website.
Before we begin I would like to inform you that certain statements made by Insulet. During the course of this call may be forward looking and could materially differ from current expectations. Please refer to the cautionary statements in our SEC filings for a detailed explanation of the inherent limitations of such statements.
He will also discuss non-GAAP financial measures with respect to our performance, namely adjusted EBITA adjusted operating income in constant currency revenue, which is revenue growth. Excluding the effect of foreign exchange. These measures aligned with what management uses as supplemental measures in assessing our operating performance.
And we believe that they are helpful to investors analysts and other interested parties as measures of our operating performance from period to period. Additionally.
Additionally, unless otherwise stated all financial commentary regarding dollar and percentage changes will be on a year over year reported basis with the exception of revenue growth rates, which will be on a year over year constant currency basis with that I'll turn the call over to Stacy.
Yeah.
Thanks, Dan and good afternoon, and thank you all for joining us.
On today's call I'll discuss our key accomplishments and our strategic priorities Wade will share our 2020 financial results and introduce our 2021 guidance and then we will open the call for your questions.
Fourth quarter marked a strong finish to another very successful year for insulet in the face of extraordinary challenges, we executed our strategy delivered consistently strong growth and advanced our key imperatives.
This past year more than any other clearly demonstrated the loyalty of our customers. The durability of our pay as you go model and the strong value proposition of our differentiated technology.
What we've accomplished in 2020 is a clear indicator of the resiliency and strength of our people and our culture together, we embraced a new reality, while staying committed to our core mission, we not only supported each other but also our customers and the communities we serve.
Moving slips greatest strength is our mission driven customer centric culture.
This was particularly evident this past year as our team rose to the challenges and showed an incredible ability to learn adapt and perform in an ambiguous and rapidly changing environment.
We executed with an unwavering commitment to our customers and delivered another compelling year of growth.
Our mission remains the same and improve the lives of people with diabetes and every insulet employees drive towards this goal with unmatched passion.
In the face of Covid, we didn't Miss a beat and we consistently advanced our innovation commercial and operational initiatives. We entered 2021 with strong momentum with our Omnipod five commercial launch on track and expanding clinical and innovation pipeline and a growing global addressable market.
It.
In 2020, we delivered over 20% annual revenue growth for the fifth consecutive year, a remarkable achievement given up ended working conditions and market challenges.
In fact, we finished 2020 ahead of our beginning of the year pre COVID-19 expectations.
We achieved record annual and quarterly revenue for both our U S and international Omnipod product lines.
We also completed the year with a fourth quarter record number of global new customers driven by U S. New customer starts that were higher than any quarter in <unk> history.
Well, we finished the year strong and overcame most of the pandemic challenges it certainly impacted our global new customer additions during 2020.
As we look to 2021 this will serve as a slight headwind to revenue growth.
Nevertheless, our financial performance has been impressive and our overall outlook remains strong.
Let's turn to our strategic imperatives centered around expanding access and awareness of.
Delivering consumer focused innovation.
Growing our global addressable market and driving operational excellence.
I'll start with access and awareness and what we're doing to deliver the best customer experience.
Our primary goal is simple breakdown existing access barriers for Omnipod. There are far too many people living with diabetes that don't have access to or are unaware of omnipod, many benefits compared to other therapies outcome.
Outcomes are being limited because access traditionally has been too complicated and too costly.
I only pad offers a simple discreet form factor and an easy to use product platform that is unmatched.
We provide our customers broad affordable access and a simpler customer experience, while making it easier to prescribe for physicians.
Our new customer starts industry, leading retention and customer loyalty are clear indicators of the value Omnipod delivers.
We continue to attract approximately 80% of our new customers from multiple daily injections and in the fourth quarter between 35% and 40% of our new Omnipod customers were type two up from Q3.
Our current system Omnipod dash not only marked our move to mobile technology and represents the platform for our next generations.
It also is powering our success, attracting both MDI users and individuals with type one and type two as well as expanding pharmacy access.
By the end of the fourth quarter, we had secured coverage for approximately 75 per cent of U S covered lives for Omnipod dash up significantly from last quarter today, most of our new customers throughout the globe start on Omnipod dash.
While we remain focused on providing our customers easy access through our pay as you go model and the U S. Pharmacy channel. We also continue to increase Omnipod awareness of the benefits, we deliver to people living with diabetes. The diabetes market is dramatically underserved and increased omnipod awareness is driving growth.
Our recent direct to consumer advertising campaign has provided us with great insights the reaction to our pilot and the early read of key lending leading indicators have been positive. So we've decided to continue advertising to support our efforts. We look forward to updating you all on our progress throughout the year.
Taking a step back omnipod adoption and retention have been incredibly strong despite not having a CGM integrated product in the marketplace.
This year that technological GAAP will not only be closed it will be surpassed we are thrilled to be on the verge of introducing our next evolution of consumer focused innovation.
We could not be more excited and we know our customers and our future customers have been waiting for our transformative technology.
<unk> five our automated insulin delivery system in partnership with Dex Com is designed to deliver unmatched freedom for people living with diabetes and to greatly simplify insulin management and improved glucose control.
We will be the first to Blitz entirely wearable aig's system with the algorithm on the pod.
Other than a pod change every three days there will be no need to disconnect or stop therapy.
And the number one request from current and prospective customers is the ability to control the pod from a personal smartphone.
Our system will be the first to provide full smartphone control.
This means we can remove an entire component of the system, resulting in reduced burden and dramatically improve simplicity and ease of use.
Our goal is to provide our customers much more and to ask them to do much less.
Omnipod five well first launch with control from Android mobile phones, and all customers will receive a backup personal diabetes manager with Sim technology. This ensures constant connectivity to data, even when not near our Wi Fi and this allows for real time remote monitoring.
With Omnipod five parents will always know how their children are doing on our system.
We've heard from many about how much of a relief. It has to have to have confidence in omnipod five to control glucose and be able to periodically monitor their children in real time.
As a result trial participants have told us that their families are finally sleeping and that they are better parents and spouses since starting on Omnipod five.
Omnipod five is disruptive technology that we believe will revolutionize the market and the lives of people living with insulin dependent diabetes. We are on track for a limited commercial launch in the United States in the first half of this year with pharmacy access and our pay as you go model.
Unlike other therapies omnipod five customers will not have to pay upfront nor will they have an upgrade fee or be locked into a four year contract.
Anyone with coverage even existing tube pump users can try omnipod at any time for free with our 30 days of freedom trial.
Omnipod five will be offered at price parity with Omnipod dash in the U S.
While we know our AI system commands a premium our focus is on securing broad payer coverage and customer access.
Omnipod dash the majority of Omnipod five customers will have a pharmacy monthly co pay of under $50.
Pricing omnipod five at the same level as Omnipod Dash will drive affordable coverage accelerated customer adoption and is consistent with our efforts to eliminate barriers and broadened access.
We anticipate we will be in a limited launch period for the majority of this year. This gives us time to secure broad pharmacy coverage since omnipod five will be available in only this channel.
We are confident to Omnipod five will be a game changer for people living with diabetes and believe the primary driver of a broader commercial rollout will be consumer access. We've invested ahead to build our manufacturing and supply chain operations and are more than prepared to meet market demand.
As we gear up for our highly anticipated launch we continue to build clinical evidence to support many applications of Omnipod five as we believe our technology can perform can provide enormous value to broad groups of patients within multiple markets and settings.
We therefore, we will continue to heavily invest clinically and have a robust roadmap, including our ongoing work to expand our indication to preschoolers ages two to six.
We recently completed our preschool pivotal study and we are compiling the data for submission to the FDA.
The study had 80 young children on product and we are delighted to share that 100% have completed the trial and 100% have elected to continue into an extension phase.
This is a clear indication of the value that omnipod five can deliver for these young children and we continue to plan for an expanded indication by the end of this year.
Also enrollment for our type two feasibility study continues upon that study's completion, we plan to conduct additional studies with the goal to further expand omnipod five indications.
Lastly from a clinical perspective, we look forward to presenting our omnipod five pivotal data at the Endo Conference next month, if our pre pivotal data is any indication. It should demonstrate just how powerful omnipod five is for improved outcomes and improved quality of life.
We are incredibly excited about the upcoming launch of Omnipod five and a successful rollout remains our top priority, but we also continue to advance in innovation roadmap that extends well beyond our AI system.
In fact in 2020, we doubled the number of product development employees to support our robust roadmap, particularly in the areas of software development and data science.
We are committed to investing in future innovations to deliver increased value to our customers for many years to come.
We are working on innovation programs designed to drive.
Net paralleled simplicity of our user interactions with our systems.
Improved outcomes through algorithm advancements in.
Insights and value from our growing data sets and analytics and user choice of sensor and smartphone integrations.
We are committed to integrating omnipod, five and our future generations with multiple CGM platforms and are delighted to be partnering with Dex com and Abbott Libre in these efforts.
Their CGM offerings are helping to drive increased omnipod adoption in both the type one and type two segments.
This is extremely beneficial as the global diabetes market remains critically underserved and far too many people remain uninformed about their treatment options.
By working together, we expect to deliver a long line of innovative offerings that further improve the lives of millions of people around the globe.
Now turning to global expansion.
During the fourth quarter, we entered five new countries within Europe, and the Middle East just this week, we expanded into Turkey and plan to launch in Australia later on this year.
In the countries. We serve today, we estimate there are 11 to 12 million people living with insulin dependent diabetes.
We are in a strong position to capitalize on this large addressable market given our focus to provide simple and widespread access to Omnipod technology, we know greatly simplifies lives and provides better outcomes and quality of life.
We are expanding internationally in a targeted and strategic manner and are building our go to market plans to enter larger geographies over time.
We expect our total addressable market will grow significantly as we continued to expand internationally bring innovations like omnipod five to market and further displace legacy therapies.
We have made significant investments throughout our entire global business to support our robust innovation pipeline and global expansion.
And in the face of Covid. The progress we made this past year in our manufacturing and supply chain operations was remarkable.
We not only maintained a high quality production kept facilities open and met product demand levels. We also opened a new manufacturing facility in China and installed our third U S manufacturing line further expanding our manufacturing and supply chain redundancy.
In summary, we delivered another strong quarter finished the year on a high note and enter 2021 with significant momentum across our business.
Our competitive differentiators remain unparalleled and the upcoming launch of Omnipod five will significantly strengthen our market position.
And marks a major milestone in our mission to simplify and improve the lives of people with diabetes I will now turn the call over to Wade.
Thanks.
Our fourth quarter results completed another year of solid growth and execution.
Although challenged with the pandemic through 2020, we entered 2021 with positive momentum.
This past year, we meaningfully advanced our strategic imperatives are.
Our focus to invest for accelerated revenue growth and expand margins, while strengthening our financial profile will continue to drive significant value for all of our stakeholders and further our mission.
In the fourth quarter, we delivered over 15% revenue growth.
9 million above our guidance range. The key driver of this outperformance was total omnipod growth of 18%, which was $8 million above our guidance range.
Drug delivery also finished slightly ahead of expectations by $1 million.
While the pandemic was less of a headwind than initially estimated negatively impacted global new customer starts throughout 2020.
Largely beginning in the second quarter.
As a reminder, this dynamic created a compounding impact on revenue in the second half of 2020.
Looking ahead, we expect the impact to revenue will continue in 2021, although to a lessening degree.
In the fourth quarter the impact on new customer starts was more favorable than estimated in both the U S and international regions for the combined effect of approximately 10% off of our beginning of the year expectations.
We were encouraged to see continued sequential improvements.
We added almost 40% more global new customers in Q4 than we did in Q3.
U S. Omnipod revenue grew 18% in the fourth quarter, our solid top line performance was driven by our growing customer base increased omnipod dash adoption and a continued mix benefit as we shift into the pharmacy channel.
Omnipod dash drove over 65% of our U S. New customer starts and we grew volume through the pharmacy channel to over 35% of our total U S volume.
This represents a continued increase in adoption of Omnipod dash in the pharmacy.
Moving forward shifting our business model to the pharmacy remains a key priority as it reduces barriers and drives expanded access for Omnipod is more efficient for our customers for.
Provides little more predictable out of pocket costs and is easier to prescribe for physicians.
Not to mention the number of benefits for peers.
International Omnipod revenue also grew 18% driven by a growing customer base and more favorable favorable performance in Europe than expected.
Despite COVID-19 related shutdowns in many European countries.
Global attrition and utilization were again stable in the quarter drug delivery revenue decreased 11% due to timing of production.
Gross margin was 65, 5% in the fourth quarter, representing a 150 basis point increase in line with our expectations are.
Our gross margin expansion continues to be driven primarily by our improved U S manufacturing operations as we further ramp our new automated lines as well as the ongoing benefit of volume mix shift into the pharmacy channel.
Foreign currency was a 70 basis point tailwind, partially offset by a 40 basis point headwind from Covid related safety and mitigation costs.
Operating expenses in the fourth quarter were above our expectations due to a $15 million charge related to the resolution of a contingency payments.
Disclose the positive resolution in late December and we're pleased to have reached favorable terms with our former European distributor and within our estimated range.
Excluding this charge operating expenses were in line with our expectations, including a stock award to all employees for their execution in a very challenging environment as.
As well as to Mark our 20th anniversary as a company.
As a result, we incurred a 7 million dollar expense relating to a one time equity bonus.
This grant also serves as a way for our employees to be more invested in our company and our future, especially as we enter an exciting new phase with the launch of Omnipod five.
This charge was offset somewhat by lower R&D, and selling and marketing expenses due to timing of projects, which we now expect will occur in 2021.
Adjusted EBITDA margin was 14% from Q4 down from 17% in the prior year, we continue to invest throughout our business, including increases in advertising and brand awareness innovation as well as scaling our global business to support our growth.
For the full year, we delivered total omnipod revenue growth of 23% and total company revenue growth of 22% achieving another record year and further illustrating the strength and durability of our annuity revenue model.
In 2020, we achieved gross margin of 64, 4% down 70 basis points and in line with our expectations. This included a 90 basis point unfavorable impact from Covid related costs, and a favorable foreign currency impact of 20 basis points ex.
Excluding COVID-19 related costs, our gross margin finished on target with the original guidance, we set at the start of the year.
We're clearly seeing the benefit from our increased capacity and strengthen global manufacturing capabilities as we scale to meet growing global demand for Omnipod.
We're also seeing the mixed benefit from Omnipod dash.
Old through the U S pharmacy channel.
For the full year, we achieved adjusted EBITDA margin of 16% up from 15% exceeding our guide due to timing of spend.
Yeah.
Turning to cash and liquidity, we remain in a strong position with our earliest debt maturing in 2024 and little cash interest expense, we ended 2020 with $962 million in cash and investments.
Our sound financial position gives us flexibility to continue to invest in support of our long term growth strategy.
Now turning to our outlook for 2021, our foundation for long term sustainable growth and value creation is clear.
Though we will still be dealing with the global pandemic effect on new customer starts from 2020 and into 2021.
For the full year, we expect total omnipod revenue growth of 17% to 21% and total company revenue growth of 15% to 20%.
The product line, we expect U S omnipod revenue growth of 21% to 25%.
This will be driven by volume growth of Omnipod dash.
Aided by our increased investment and awareness are differentiated pay as you go model in the pharmacy with a mixed benefit.
<unk> access and Omnipod adoption in the type one and type two markets.
We will also benefit from the limited commercial launch of Omnipod five as we begin to ramp in the second half of the year.
We expect full year 2021 international Omnipod revenue growth in the range of 10% to 15% driven by further growth in our current and new markets. This will be offset in part by the expected persistence of the global pandemic in Europe as well as the compounding impact of law.
Sure customer starts from 2020.
While we are encouraged that new customer starts.
Proved as we exited 2020, the recent impact of Covid has been felt more strongly in Europe than the U S.
Lastly, we expect drug delivery to be in the range of an 11% decrease to a 4% increase based on our partners' current forecasts.
Looking now at gross margin for full year 2021, we continue to expect to achieve our stated gross margin target of 67% 270 per cent.
This expansion will be driven by global Omnipod volume growth positive mix from the U S moving into the pharmacy and benefits from our enhanced manufacturing operations. Our teams continue to build efficiencies and scale into our manufacturing operations. We currently have two lines producing sellable product today and expect our.
Third line to begin Sellable production this year.
In addition, our second contract manufacturer in China is an extension of our capabilities in that region.
Creasing, our capacity and redundancy, while balancing volume between the two sites.
We are in a solid position to drive margin expansion this year.
During 2021, we expect our operating expenses will largely largely rise in line with revenue growth as we continue to invest and build upon our differentiated consumer focused innovation and position in the large and Underpenetrated type one and type two markets.
One item to note is that as we mature as a company and shift from developing Omnipod five two marketing and expanding access to the product certain clinical trial efforts will shift to support our commercial strategy.
Other R&D activities, we'll see a similar shift.
As a result, we estimate approximately $15 million of costs will shift from R&D to SG&A in 2021.
We expect 2021 operating margin to be in the low double digits range up significantly from five 7% in 2020.
This balances our continued investment for growth with strengthening our financial profile.
Finally, we expect capital expenditures to increase in 2021, primarily due to continued investments in manufacturing operations and expanded manufacturing capacity to support our fast paced growth and the launch of Omnipod five as well as some carryover of expenditures from last year.
Turning to first quarter 2021 guidance, we expect total company revenue growth of 20% to 24%.
This includes total omnipod revenue growth of 16% to 19%.
Product line, we expect U S. Omnipod revenue growth of 20% to 23 per cent and international Omnipod revenue growth of 9% to 12%, reflecting the carryover headwind of lower global new customer starts in 2020 related to the pandemic as well as a continued impact on 2000 <unk>.
21, primarily internationally, we also expect drug delivery revenue of 18 million to $20 million.
In conclusion, we are proud of how our team persevered in 2020, we delivered over 20% revenue growth advanced our strategic imperatives and remain on track to launch Omnipod five in a few months.
The unmet need in the diabetes market is extraordinary and we expect omnipod to further replace legacy therapies as we continue to grow our addressable market.
Our priorities are clear.
We expect the investments, we're making and the capabilities. We're building will drive sustainable long term growth and create long term value for shareholders and allow us to deliver a strong pipeline of future innovations to the diabetes community.
With that I will turn the call over to the operator for Q&A.
Thank you Sir.
If you have a question at this time. Please press star one key on your Touchtone telephone if for your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
We are limiting each participants questions. Two one however, please feel free to go back into the queue and if time permits we will be more than happy to take your follow up questions at that time.
Hi, first question is from Larry Big Olson from Wells Fargo. Please go ahead.
Good afternoon, guys and congratulations on a nice into the year here.
So I guess just one for me on the rollout of Omnipod five chassis. What is a limited launch mean who's going to have access and who won't have access and how is that going to evolve through the course of 2021. Thank you.
Sure. Thanks for the question, Larry and I did want to share in Q&A that and we are under review now and that's part of what gives us great confidence in the launch into limited market release in the first quarter and collaboration has been a great and engaged on behalf of day.
Agency, so as we move into a limited market release, we're looking to test a few things.
Primary governor as I sat in my opening remarks is going to be access we have to establish broad access in the pharmacy channel that work is underway, but will take us time to scale and so that's going to be the governor primarily but what we'll be looking for in limited market release, just in terms of.
Indicators that it's successful and that we're ready to continue to expand as market access expands is I will be looking qualitatively just to understand the customer experience the training experience and the access experience for people who are coming onto the product from multiple daily injections for.
For our existing users that are transitioning onto the product and for tube pump users, they're transitioning onto the products. So we're just going to wanted to test that all of our systems. Our training our clinical support are going as we expect them to in the product experience is going as we expected to in each of those groups as we validate that band as we establish access that's what will.
You know have us expand through the rest of this year and into full market launch either later this year or early next.
So we can move onto the next question. Thanks.
Next question comes from the line of Robbie Marcus from JP Morgan. Please go ahead.
Oh, great congrats on a great quarter.
I'm going to squeeze in two into my one here.
One Stacy I was coming at that 40% growth number over third quarter was fantastic I'm coming out.
For the year at something a little over 51000, new patient adds 52000, I just want to make sure. That's the right ballpark and then weighted as you look at cadence through the year. What are you assuming for new patient growth for them from Omnipod five and how are you expecting that to impact the <unk>.
<unk> throughout 2021 thanks.
Yes, Wade you want to share a concerted Robbie thanks for the question.
Youre right, we were very happy to see the sequential improvement from Q3 to Q for the pandemic certainly impacted us in the middle of the year, even in the U S.
And just as importantly international interest to see it actually Q4 was the first quarter that we saw improved new customer starts in both regions over prior year 2019 in 2019. It was a really tough comp we had a record breaking new customer starts in 2019. So.
You're absolutely right that sequential improvement was important for us to see we're not going to comment on specific numbers of customers, but as we as we shared in our earnings release, we now have 250000 global customers.
So that's a good data point I think for you and then on new patient start growth for Omnipod five Ashish said in her prepared remarks, it'll be a limited release and so.
There's a lot of scenarios running on that one it really depends on what point in the year, we get it launched here in the first half and then how we ramp and as <unk> said, we're going to be monitoring a lot of things we want to do a great job of both the user experience as well as developing ex us and so again just like <unk> said, it's those two.
Things that will be.
<unk> the ramp up over time.
None of that diminishes, our excitement around getting omnipod five into the market next year. We've had just an immense interest from customers and our teams are and have been gearing up to launch Omnipod five for a couple of years now so a lot of momentum a lot of excitement building, but we want to keep keep ourselves in check to make sure.
That we have the most successful launch we can and part of that is limiting the ramp as we are as we move through the end of the first half and into the second half of the year.
Thank you our.
Our next question comes from the line of Jeff Johnson from Baird. Please go ahead.
Thank you good afternoon, a lot of things I'd like to ask but let me just focus I guess on the longer term if I couldnt wait maybe a two parter for you I know you just gave 2021 guidance and still dealing with some COVID-19 uncertainties, but for the past few years, we've kind of had that guiding light out there with your five year plan that you were calling for $1 billion in revenue by this year and mid teens operating <unk>.
<unk>.
As well by this year it looks like Youre going to deliver revenue above that guidance. This year margins, maybe fall short a bit for all the omnipod five investment reasons, you've talked about but is there any way to help us think about maybe the next three to five years again kind of give us a guiding light there, even if youre not going to.
Initially kind of comment on five year outlook can revenue growth sustain above 20% over the longer term here intermediate to longer term and do margin start to expand again once we get through this heavy investment period in 2021 do we think about margin expansion then going forward in 'twenty two 'twenty three things like that thanks.
Yeah. Thanks for the question, Jeff and we're spending a lot of time on and ourselves as well went through a robust long term strategic planning session here.
But we're not going to provide a long range plan guidance update until we get to the other side of Omnipod five it is a real pivotal launch for the company and we're excited about what it can deliver so we're pacing ourselves for a an update to the long range plan.
So we get a few quarters under our belt with Omnipod five and then we'll be updating from there.
Delighted a few important things to the story, though which include.
The guidance here in 2021, which we feel is really strong in particular for the U S, 21% to 25% guidance for U S.
In less than international because we do see the pandemic headwinds persisting internationally more we covered a lot on our revenue guide in the prepared remarks, I think gross margin is pretty well understood at 67% to 70% in 2021, and theres going to be some phasing to that we should expect Q1.
To be below 67% and then we will build into the range as we go through the year, there's quite a few drivers that will dictate whether we end up at the low end of that 67% to 70 range or at the high end.
If we don't make 70%. This year, we are committed to getting to 70% over time. So I think that was a part of your question, Jeff as we think about gross margins. They are a key component of our financial thesis and we're confident that we'll get to 70% over time and then you mentioned the bottom line as well we have a very strong opt.
For any margin guide here for 2021 in the low double digits, that's a significant step up from 2020.
But we should not assume that.
The same step up beyond 2021 that is one area, while we've not guided to 'twenty, two and beyond we want to make sure that everyone understands our investment thesis here is to continue to invest to capitalize on our differentiated position in this very large underpenetrated market both type one and type two markets. So you should expect.
For us to continue to invest heavily beyond 2021.
In particular in R&D and innovation clinical selling and marketing we are going to be driving efficiencies as we scale in G&A and support functions and so that will help us along with the gross margin expansion to build a strengthening financial profile overtime, but just to come back directly to your question, Jeff I think we will.
New to tick operating margin up annually, probably more like a percentage, but not stepping it up every year like we are this year from 'twenty to 'twenty. One so we're not giving specific operating margin guidance for the future years, but did want to make sure everyone fully understands.
Stands our investment thesis here and that we're balancing.
Our continued investments with our strengthening financial profile overtime. So thanks, Jeff.
Thank you.
Our next question comes from the line of David Lewis from Morgan Stanley. Please go ahead.
Good afternoon, Thanks for taking the question and congrats on a nice quarter, well I just want to come back to the Omnipod guidance globally I mean, the U S. Number I think is a little stronger than people were expecting and obviously the ex U S number a little weaker based on the commentary you discussed in terms of European recovery, but we did see European recovery European business in absolute dollars get better.
The last two quarters sequentially your guidance implies that will take a step back for the first time in the first quarter sort of down <unk> versus <unk>.
So just beyond what youre seeing in terms of resurgence is there anything going on from a competitive perspective, seven atg control IQ what have you because it just seems that you were seeing some improvement in Europe in the first quarter guide and the 'twenty two guys sorry, 'twenty. One guide sort of doesn't suggest that continues so if you could flesh that out that'd be great. Thanks, so much.
Yeah. Good question, David Thanks, and we spent a lot of time on this because as you know in a lot of companies are challenged with really trying to peg guidance in fact, a lot of companies arent guiding for this specific reason.
The pandemic is tough to peg you know obviously.
More difficult outside the U S at least for US we saw.
Pretty significant step up in improvement in the U S. As we've progressed through the year and as we said in our prepared remarks, we're only 10% off of our beginning of your expectations in Q for the U S was on the better side of that so almost back to our beginning of your expectations and it was a record breaking quarter for us ever and so a lot of <unk>.
<unk> net U S Guide and like you said, it's we think it's a strong guide.
At both the high end and the low end it'll be higher growth dollars than it was in all of 2020.
International as you mentioned, David It is feeling more of the compounding effect of our annuity model. So because the new customer starts were heavier impacted internationally in the last three quarters of 2020, it's going to feel it more in the first half of 2021 and then unlike the U S. We're anticipating.
Further pandemic impacts the pandemic persisting into the first half of 2021 internationally. So that continues to compound into the numbers. So it is quite dramatic having said that we've got a lot of momentum in our international business too.
We've got the dash rollout across all of our new all the regions internationally. We've got seven new countries, we're making investments in sales force expansion. We're also investing in marketing and direct to consumer pilots there as well. So that's what gives us the confidence to still guide to pretty strong double digits, 10% to 15%.
In the face of a challenging pandemic environment internationally. So that's what we're comfortable with at this point of the year here at the start and happy to be providing.
<unk> and insights for you all and we'll certainly track it as we go throughout the year.
Thank you our next.
The next question comes from the line of Jayson Bedford from Raymond James. Please go ahead.
Hi, Good afternoon, just a quick one for me.
The recent milestone of 250000 users I guess, how recent was that for 2020 event or 2021.
And just has there been any changes in the attrition or retention. However, you want to frame it.
Sure Jason Yes, we are thrilled to be celebrated the milestone of a quarter of a million.
Users relying on Omnipod, it's really exciting for the organization. That's a recently hit milestone obviously, it's all estimates so I always want to sort of predicated with that but that was a 2021 event and.
There have not been changes in attrition or utilization doesn't really remained steady that's terrific actually because obviously as we anticipated the impact of the pandemic. We did anticipate that potentially attrition could tick up and we didn't see that and thats part of the driver behind the really strong performance in <unk>.
<unk> 20 in the face of the pandemic. So that's great news on the business model and just the customer loyalty.
Thank you.
Our next question comes from the line of Chris Lin from Cowen. Please go ahead.
Hi, Thanks for taking my questions.
Just maybe one on type for it seems like typhoon to receive FDA approval in Italy. I was curious if you have any commercialization plans for Omnipod and El Duque algorithm upon launch and how this could impact your thinking on Omnipod omnipod that iPhone.
More specifically do you have anything factored into 'twenty and 'twenty, one revenue guidance related to this product. Thank you.
Sure. Thanks for the question, Chris our partnership with Tide pool has primarily been a clinical and product development. One so we've been supporting their regulatory submission and.
Their development work, we don't have a commercial agreement at this point with titanfall. So that's still to be worked out I will say, it's a tremendous undertaking to do that and so.
There's still a lot of work ahead of us and but that said.
We do we have said that we are working under way or we have work underway here with Omnipod five on the iOS platform. So I think it remains to be seen who's going to hit the market first for the iOS app.
And we're certainly really excited about omnipod five that remains our priority at this point.
We'll continue to support <unk> efforts in terms of their submission in their development.
Thank you.
Our next question comes from the line of Joanne Wuensch from Citibank. Please go ahead.
Good evening and thank you for taking the question I was curious about the 35% to 40% type two metric that seems to be a nice step up sequentially and I'm. Just curious if some of your DTC campaigning is heading towards that and that's why we're seeing that or if it's just sort of a natural development of the market.
Sure. Thanks Joanne Yeah.
Really excited about just the continued expansion in the type two segment. It's just a group of users that have responded so well to the simplicity of dash and some of the product benefits I would say two things driving that and one is you know it's just increased awareness. So that you know there are obviously a.
A lot of people in the United States, we estimate over 2 million people living with insulin dependent type two diabetes, who can benefit from the product and so advertising is part of what's unlocking that the other thing as you saw the step up in increased access and as we drive more availability in the pharmacy with this really differentiated.
This model that allows people to access it was such an affordable under $50 a month in.
Out of pocket cost that is in line with the cost of multiple daily injections. For example, so it is incredibly affordable broad access that doesn't have the constraints that exist in other channels for the type two segment and thats sort of been our strategy really you know and we believe as we drive more simplicity into the product.
We establish broader and affordable access to the tune of access in line with the cost of multiple daily injections that that's how we bring our technology to millions of patients not just hundreds of thousands of patients and so we're excited to see that and I think that's part of what's been driving the type two adoption and growth.
Yeah.
Thank you.
Our next question comes from the line of Margaret Katzer from William Blair.
Hey, everyone. Thanks for taking the questions.
Got a couple of follow ups on the type twos to Jo Ann's point. So can you guys give us a sense of how big type twos are as a percentage of the installed base.
What percent maybe have coverage under pharmacy is at close to that 75 per cent that you've referenced on the call for.
For the type one patient.
And then anything around utilization for the type two patients given there and some of them and for me excuse me for since the type one.
Sure Yeah, I'll start and then Wade may have some color to add.
We don't have a lot of visibility on explain why and you know as we drive more utilization into the pharmacy channel we have less visibility at this point to add diagnosis at.
Our coverage and so that is a little bit of a challenge for us because and obviously all of our Medicare reimbursement is through the pharmacy channel and 40% of people living with insulin dependent type two diabetes are over the age of 50 or 60 and so.
You can imagine that there's a lot of overlap behind our Medicare coverage in the pharmacy channel and the type two segment and in terms of access.
75% is the number for all commercial coverage there actually isn't a distinction in the pharmacy channel between type one and type two coverage. So that number is good for both segments and given the progress we've made particularly in Medicare access coverage is very strong and probably at $0 out of pocket.
For the Medicare user so it's a really affordable really broad access for the type two user in the pharmacy channel, particularly for the Medicare type two user. So I think all of that is contributing to the growth and unfortunately, we don't have our updated total base numbers from what we gave a few years ago, because we've been driving so much growth.
Into the pharmacy channel. This is great for users great for payers and great for us, but right now comes with a bit of a visibility challenge.
Thank you.
Our next question comes from the line of Matt O'brien from Piper Sandler.
Hi, This is <unk> on for Matt We were hoping you could provide an update on the iPhone compatibility for Omnipod. Five do you think that will come later this year or will that be more of a 2022 event and with over half of the population having an iPhone. How are you, making sure that isn't a limitation to uptake.
Sure.
So we're not going to give an update on the timeline, we really want to get Omnipod five to market and then we can start updating our timelines for all of the innovations that will follow around additional sensor integrations and additional phone platforms and but I have said multiple times in the last couple of calls that this work is underway. So we have our teams at very talent.
Good people working on iOS phone control, we don't envision this will be a limiting factor for two reasons. One is we will provide every user backed up P. D M. With Sim technology. This gives users a constant connectivity to data and all the benefits of Omnipod five and remember you all.
And they need that PDF or your Samsung phone for using phone control to pair a pod and to announce a meal otherwise.
And for every three days when your prime a pod, but otherwise you can remain in automated mode in closed loop because of the algorithm on the pod without your phone or your P. D M and all of your data is able to be viewed via our apps on your iPhone.
So and you're still going to get all of that visibility and ease of use through our apps on your iPhone. So we think it's gonna be a great user experience for Apple users and we're working very hard to get them full phone control as quickly as possible and we'll update that once we get to market with omnipod.
Thank you.
Our next question comes from the line of Anthony Petrone from Jefferies.
Thank you a quick one for KC and quick one for Wade one would be on the preschool opportunity from the pod five skin can you quantify how large that opportunity is and maybe characterize the demand among parents to get preschoolers on.
An automated solution I had a quick one for Wade would be on the automated U S and China lines when those reach scale, how would you quantify the gross margin tailwind.
Great. Thanks Anthony.
I don't know the size for the preschool segment. This is a smaller segment. So ages two to six but I can tell you it's an outsized.
Important segments, both in terms of the value of the technology to this group as well as the value of this group to Insulet.
Today, we are the market leader in pediatrics.
See our ability to maintain and expand that segment and you think about the benefits of Omnipod for this segment and the ease of use and the discretion for young active children versus small active children, having to contend with three to four feet of tubing and a large device, it's a particularly.
<unk> technology today, without CGM integration and automated insulin delivery and when we combine that for this group, it's going to be incredibly powerful so we know.
Based on the response and the feedback from our trial participants and I think the strong indicator that our 100% of users completed the trial and moved onto the extension phase.
All really important indicators that we're gonna have a winning product in this population.
Great. Thanks for the question on the operations strategy as well Anthony it's critical to our overall strategy given that we want to make sure that we not only have capacity, but also quality products and redundancy across the globe to make sure. We can continue servicing our customers and so along the lines of your question.
From the automated lines in the U S. We have two producing now in a third line installed that will be producing sellable product on this year, so that more than doubles the capacity in our legacy China facility and then you referenced the other channel Alliance, which is.
The fact that we stood up a second third party manufacturer in China During 2020, which also doubles our capacity out of our legacy facility. So all of that together gives us significant capacity.
Increase as well as the ability to balance it between the facilities.
And that redundancy is important for us.
Gross margin tailwind. It is the single largest driver actually of our gross margin improvement over time as we begin to put more volume through all the plants, we scale more efficiently, but in particular, our U S. Manufacturing facility that is automated it has mostly fixed costs limited variable costs.
The more volume we put through there will become the most efficient plant that we have and so that will be a gross margin tailwind for us. So all of the operations strategies are designed number one to get good quality product a reliable product to our customers and also drive gross margin favorability for us.
Thank you.
I share. Our next question comes from the line of Matt Taylor from UBS.
Hi, Thanks for taking the questions.
That's what I had was you mentioned have been.
Working on these sensor integration I was hoping you could just.
Flesh that out a bit more and talk about the partnership and the timing there to any extent that you can.
Sure Matt.
Excited to be partnered with Abbott and <unk>.
There are product has been particularly.
Adopted in international markets, there are certain countries, where and you know they are a.
Shareholder.
And as they continue to drive ease of use and awareness, they're a terrific partner for us. So as I mentioned, we won't be giving updated timelines until we get our current generation with <unk> com out onto the market. We're very excited about the value that that's going to drive but.
Both our sensor partners desk com and Abbott are driving.
They are transforming the market they are bringing real time.
Insights to users and that adoption is helping to fuel omnipod adoption and so both are very important to us.
And we see the potential to bring a long line of innovations with our partnerships with both booked ex com and Abbott. So we're working on that just like iOS. We have had teams of people focused on that integration and that work is underway.
And excited to update the market after we get Omnipod five to market.
Thank you I show. Our next question comes from the line of Matthew Blackman from Stifel. Please go ahead.
Good afternoon, everyone. Thanks, very much for the question.
Thinking ahead to the Endo meeting next month for looking at some of the early abstracts posted on the meeting website. It looks like beyond the pivotal beyond the pivotal study. There is also a presentation from Dr. Bodie looking at Omnipod poverty in type two patients can you just remind us what that study is and how it relates to or even helped inform the larger type two study just started.
And Ralph Thanks.
Sure, Yes, that's a great question so Dr. <unk> will be presenting and some early results from our feasibility study in type twos. If you remember we had mentioned.
On the last call that we had launched our feasibility work and I mentioned in my remarks today that that continues enrollment continues that.
Research is going very well, we expect and we are learning a great things regarding the type two segment and so from those learnings. We will then enter into a larger pivotal study, which will then drive expansion in indications in the label for Omnipod five so that is what we.
Will play out over the coming months and potentially a year or longer we haven't given a timeline on that but Dr. <unk> will be sharing his experience.
And and his research with our Omnipod five in the type two segment, we believe that our technology can bring tremendous value to this segment and to.
To drive improved outcomes, certainly and tremendous ease of use and so we are committed to doing the research and he's been a great partner with us on that from.
Yeah.
Thank you.
I show. Our next question comes from Kyle Rose from Canaccord. Please go ahead.
Great. Thank you very much for taking the questions.
I heard you say this excuse me in the prepared remarks.
Correct me, if I'm wrong, but it sounded like you will be launching five omnipod five only in the pharmacy channel So I guess.
One is that correct and then two it sounded like access is going to be you know one of the more important.
Drivers during the limited launch so maybe just help us think about the timeline.
To getting broader access in the pharmacy channel for.
Romney pod five and maybe some of the conversations you've had with payers that that have driven your decision to go solely on the pharmacy side sure.
Sure Kyle you heard it correct that we will be launching omnipod five are in the pharmacy channel and we will be launching at price parity. So that was a very thoughtful decision that we've made and the goal behind that is really just to drive.
More rapid access and more affordable access and so what this means it's actually really exciting because what this means is today as I mentioned earlier.
Dash user at pays less than $50 a month on average for the technology, we're going to be able to bring our remarkable and advanced technology and omnipod to five for the same type of co pay for users I mean in line with with MDI from any user. So that is really exciting and we think the right thing to do to truly.
Lock it is population and it's a great channel for payers, a great channel for patients and a great channel for Insulet and we are driving into the pharmacy channel because of all of the benefits that we've talked about and we view omnipod five as an opportunity to bring more users into that channel, which has great benefits for for payers and for.
For patients frankly, so and you are right that access will be the primary governor I think back to dash we established.
It took us it took us about two years to establish broad access.
We are in the 70 plus percent range with Dash and I would expect if you think about what we were doing with dash. We were also launching a new business model and establishing the channel so all of our partnerships and.
Integrations with wholesalers and pharmacies all of that work is now transferable and and they're an established for Omnipod five our conversations are underway with payers and making good progress and so we do expect that we will establish access more rapidly than dash.
But at this point I think that's the primary performance indicator that we will be updating all of you on is just how we're doing with covered lives because that's going to be the primary driver of our success as we move through the limited market release.
Thank you.
I show. Our next question comes from the line of Steven Lichtman from Oppenheimer <unk> co. Please go ahead.
Thank you hi, everyone.
Now, let me pause five for for new potential customers interested in getting it.
Can't yet as you ramp pharmacy access is there any reason for them to hold off or is it will it be pretty seamless for someone moving from dash Omnipod <unk> any thoughts on how that transition from dash omnipod viable works for customers that would be would be great.
No reason for them to hold off in fact, there may be reasons for them to get on and I'll explain that.
When we think about the training pathways that user interface with dash is sort of the foundation and the user experience is the foundation for Omnipod five and so the training is likely to be much more streamlined for somebody who's moving from for example, Omnipod Dash Omnipod five and so it may just help you speed up the process if you will.
Get onto Omnipod Dash is you're headed to Omnipod five, but certainly no reason to hold off and as we said, we're not going to be charging any upfront conversion fee anybody frankly, who is using any technology and whether that is omnipod dash, whether that is legacy omnipod or.
Or a tube pump.
As soon as we have pharmacy access established for them they should be able to get onto the product with no upfront fee and very reasonable out of pocket costs, and we've worked really hard to kind of conceive of and deploy that strategy to help bring our technology to more people more rapidly.
Thanks Tracy.
Thank you.
Our next question comes from the line of.
Ravi Misra from bearing debt capital. Please go ahead.
Hi, Thanks for taking the question can you hear me Okay, yes.
Yes, we got you.
Great. Thanks, So I just wanted to sorry, if I ask if this has been asked in jumping between calls, but just on the type two kind of commentary that you've been seeing very strong adoption.
Very impressive in my view.
Just from can you help understand kind of what.
It seems like there's a little bit of a.
Victoria Circle are going on here between CGM adoption in type two and pump adoption can you kind of maybe help tease out some of the dynamics. There in terms of as access is getting easier for both is it kind of your kind of technology, that's leading more people to get onto CGM, therefore, creating a virtuous cycle there.
There or is it the CGM usage, that's kind of bringing your guys into there and then maybe layering on how we think about the Abbott product and the work that you may be doing with them.
In this type two segment thanks.
Sure I think all great observations there.
There are in my view three things that are driving type two.
Adoption for Omnipod.
And the first is we have the right business model and the right channel for type two users. So the fact that we can provide this very affordable broad access with.
Few constraints is part of what is driving our adoption. The second is just increasing awareness of the simplicity of our technology and that's coming through.
Our efforts on both the sales and marketing front and the third is CGM adoption and this is actually a really important dynamic for us as we think about not just 2021, but the next several years.
The CGM companies have done is really dramatically displace them.
Blood glucose monitoring in the type one population and now they have their sights set on the type two population and we've been benefiting significantly from that conversion as patients first in type, one and and now more significantly in type two as these users get visibility to their data.
And how little time, they are spending in range, they're looking for tools like omnipod to help get them in range and Theyre also comfortable wearing something because CGM has gotten them over that that's.
That psychological barrier. So all three of those things are helping to drive our success in type two.
And I think the technology is really well suited so as we see progress and further advancement in adoption of CGM. This is a great trend for us in the market.
Thank you.
I show our last question comes from the line of Danielle and coffee from SBB Leerink. Please go ahead.
Hey, good afternoon, everyone. Thanks, so much for squeezing me in and congrats on a pretty stellar year, given given the environment actually regardless of the environment.
Question for you on on type two and how we should think about just echoing everyones sentiments I mean, you've done so well there, but what should we be thinking permit ultimate penetration perspective for insulin dependent type two patients I mean is this a patient population that given the barriers that you guys have broken.
Do you think could reach close to.
Maybe let's put it standard of care versus MDI is there is there is there some different way.
That this patient population manages their disease that they just might not be relevant for the majority of them can you help us understand what you're thinking for ultimate penetration I'm, sorry that was for sure.
I think I won't comment on ultimate penetration because I just think it's going to take time with the segment. We're just didn't really early days here relative to the type one segment. So we're more comfortable saying hey type ones can get over 50% because were mature and where we see where we are in that adoption curve. We're at we're standing on the precipice of Smith.
Type twos, and we're seeing great adoption, but its very small penetration into this massive opportunity. When you think about the intensively managed type two user there really isn't much difference in their need and we do think that all of the work we're doing to establish broad affordable access to drive.
Unparalleled simplicity into our technologies that those advantages are I.
I would argue more important for the tech to use it in the type one user but regardless they are important for all of our users and should drive continued adoption and we see both segments type one, particularly as we start as we bring omnipod five to market.
Think that will be an accelerator for growth in the marketplace and then as we look at type two we've got a product today that is incredibly simple and being very enthusiastically embraced and then as we kind of the next wave is as we bring the simplicity of Omnipod five.
For the type two market, we think that can further unlock it. So we're excited about the long term prospects for the type two space.
Thank you for this <unk>.
<unk> Q&A session I would like to turn the conference back to Stacy Petkovic.
Thank you and I wanted to share that recently one of our Omnipod five principal investigators for our pivotal study Dr. Desalvo from Baylor. He shared his feedback on Omnipod fight with us and what he said was to quote not only have you achieved outstanding clinical results, but the diabetes burden.
It has been ameliorated and the satisfaction is unlike anything I have experienced before especially for caregivers. It's clear that this is about the patients and their families.
And he's right. It is about our customers and their families. This is what gets US going every single day. We are so proud of the progress. We've made we're now changing the lives of a quarter of a million people across the globe and we're not going to stop there.
<unk> and our customers days.
Best days are still ahead. So thank you very much have a great evening, we'll talk to you next quarter.
Yeah.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participation and have a wonderful day you may all disconnect.
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Sure.
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