Q3 2021 Insulet Corp Earnings Call
[music].
Good day, and thank you for standing by and welcome to the Insulet Corporation's third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your first speaker today to Deborah Gordon Vice President Investor Relations. Please go ahead.
Thank you Joanne and good afternoon, and thank you for joining <unk> third quarter 2021 earnings call with me today are Stacy Petrovich, <unk>, President and Chief Executive Officer, and Wade Mcmillan Executive Vice President and Chief Financial Officer, Greg Christiansen, Our executive Vice President and Chief Commercial Officer.
There is also with US today for the Q&A portion of our call.
Both the replay of this call and the press release discussing our 2021 third quarter results and guidance will be available on the Investor Relations section of our website.
Four 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.
We will also discuss non-GAAP financial measures with respect to our performance, namely adjusted EBITDA and 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 they are helpful to investors.
Theres analysts and other interested parties as measures of our operating performance from period to period. 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.
<unk> basis with that I will turn the call over to Stacy. Thanks, Debbie Good afternoon, everyone and thank you for joining us our third quarter results reflect outstanding execution by our Insulet team and momentum across our global business, we delivered 17% revenue growth driven by total omnipod growth of 22 <unk>.
<unk>.
While we are experiencing headwinds related to the ongoing impact of the global pandemic revenue growth was near the high end of our expectations.
We achieved these strong results thanks to our annuity model, which is a competitive differentiator that provides insulation from market disruption.
We continue to achieve strong new customer additions and we celebrated another record setting quarter in the United States. We are seeing more impact from Covid internationally and expect this to continue over the short term.
We are also seeing increasing preference for automated insulin delivery systems among people with type one diabetes setting us up for an exciting launch of our first AI system Omnipod five.
Until then we expect these factors to affect our top line results in Q4 and for a portion of 2022 now.
Nevertheless, we continue to expect double digit revenue growth in Q4 of this year, including high teens to low 20% per total omnipod with positive momentum entering 2020 to Wade will elaborate on this in his remarks.
Our team has done a remarkable job navigating this dynamic time in the market and 2021 will mark not only another year of strong revenue growth, but also tremendous advancement of our strategic priorities.
Diabetes is becoming more prevalent and pump penetration in both the type one and type two market is low in fact, we believe the U S type one market can double over the coming years from its current penetration rate of approximately one third.
Additionally, the type two market with a U S penetration rate in the low single digits offers significant room for growth.
We already see people with diabetes adopting technology at accelerated rates driven by pod therapy and automated insulin delivery.
Internationally, both the type one and type two insulin intensive markets are even less penetrated with sizable runways for expansion.
We continue to disrupt the old market paradigm with a leading technology and differentiated business model that deliver an improved customer experience and improved outcomes. Our success in the type one and type two markets demonstrates the power of Omnipod and the value it delivers compared to MDI and legacy pump therapy.
<unk>.
While not having a commercialized AIB system presents some competitive headwinds in the near term our performance without Omnipod five highlights the incredible growth opportunities that we will begin to unlock in 2022 and beyond.
We expect AI adoption and our highly differentiated platform to provide years of exciting growth as we advance our mission to improve the lives of people with diabetes.
Our journey will take a major step forward with the expected upcoming FDA clearance of Omnipod, five which remains on track to occur later this quarter.
We recently shared we submitted our responses to the Fda's request for additional information in September. We are pleased to have that part of the process complete and can't wait to bring omnipod five to market. As we are confident it will be a transformative product for people living with diabetes. We are in the final stages of the review and our team is.
Working closely with the FDA, who has been a great partner in the process.
Advancing toward Omnipod five clearance is not the only strategic progress. We made this quarter, we continued to drive growing omnipod dash coverage and volume through the U S pharmacy channel and further penetrate the type two market, where we are uniquely positioned with our product innovation and differentiated business model.
<unk> dash has proven to be a terrific solution for people living with type two insulin requiring diabetes, where today, we have established a leadership position.
Additionally, we continue to amass compelling clinical evidence that supports omnipod. Many benefits. This includes impressive new omnipod five data we shared in September at Ust.
Taken together, we are on track to deliver another year of strong financial and operational performance and outstanding strategic progress.
I will now speak to each of our strategic imperatives, including expanding access and awareness delivering consumer focused innovation.
Growing our global addressable market and driving operational excellence.
Access and awareness both remain critically low throughout the global diabetes market, despite millions of newly diagnosed people each year.
Wariness of advanced technologies, like Omnipod needs to increase, especially awareness of its many benefits such as its simplicity discretion improved quality of life and better outcomes in.
In addition access to technology is still far too complicated we have broken down barriers through our innovative pay as you go business model in the U S pharmacy and raised awareness through our direct to consumer campaigns. We are pleased with the impact both efforts have had on improving access for many who require care even with our success.
To date, however, many opportunities remain to improve access and awareness in order to empower more people with diabetes to live healthier easier lives.
In the United States, our pay as you go business model in the pharmacy channel provides benefits for everyone. It's more efficient for Insulet and provides an improved experience and lower out of pocket costs for consumers with the vast majority paying less than $50 per month through the pharmacy.
Additionally, it's easier for physicians to prescribe and offers numerous benefits to payers.
In the third quarter, we expanded Omnipod Dash U S covered lives to over 80%, which in turn drove increased volume through the pharmacy channel.
Shares are increasingly recognizing the economic benefits of offering omnipod dash in the pharmacy.
In the U S. Our new customer starts once again reflected the value omnipod offers compared to MDI as well as our growing strength in the type two market.
MDI conversions represented over 80% of our U S. New customer starts and the percentage that were type two remains in the 35% to 40% range, even with the strong new customer growth within the type one population.
Our MDI conversion rate continues to trend upward as we successfully drive adoption among people living with type two diabetes, the majority of whom come from MDI.
In addition to expanding affordability. We are also driving access to omnipod in a number of other ways in order to provide more options for people living with diabetes. We recently received FDA clearance for use of Lilly's loom job with Omnipod. We are the only insulin pump manufacturer in the United States to obtain this indication.
<unk>, which we pursued to provide more alternatives and flexibility for customers.
A key component of our awareness strategy remains our DTC advertising our efforts in the U S and select international markets continue to generate a highly positive response. The feedback has been enthusiastic and the increased awareness interest and leads are contributing to our new customer growth.
Our efforts are attracting MDI users and competitive pumper as both base unmet needs that omnipod helps address.
Additionally, our DTC efforts are driving increased interest from individuals with type two diabetes as more primary care physicians learn about the benefits of Omnipod for this underserved population.
So DTC will remain a core component of our awareness efforts and we are encouraged by the early results.
We are a consumer centric company and our innovation efforts are focused on delivering the best experience to our consumers.
To that and we are confident omnipod five will mark an enormous step forward and drive accelerated adoption.
Today, we offer a two bliss on body experience that is unique compared to anything else in the market and an access model in the U S that has eliminated needless barriers and burdens some costs.
The experience that Omnipod Dash provides is unparalleled and omnipod five will mark another breakthrough in diabetes care that builds upon our existing competitive advantages.
Omnipod five will deliver ground breaking technology firsts, including full compatible smartphone control with an algorithm residing on the pod and Sim cards in each handheld controller.
On the pod five as a transformative innovation and we will remain highly accessible and affordable through the pharmacy channel it.
It will be priced at parity with Omnipod dash, despite the increased value and advanced technology. The system offers.
In turn we believe this will drive faster coverage of Omnipod five and we are already off to a great start while we eagerly await omnipod five clearance our efforts to prepare for a successful launch have been moving at full speed, including securing coverage pay.
Here's our generally reluctant to negotiate coverage terms prior to product clearance. However, given excitement around omnipod five we already have secured substantial coverage.
We expect this head start on access to position us for a highly successful launch of Omnipod five.
We cannot wait to receive clearance as we know the incredible impact our advanced technology will have on people living with diabetes.
The power of Omnipod is clearly demonstrated by the compelling clinical data we have shared over the course of 2021.
One recent highlight was our new pivotal study extension results for Omnipod five presented at ESC.
This study marked a total of one year of Omnipod five use and ages six through 70 years old we.
We were thrilled to find that the outstanding safety and improved glycemic outcomes first observed in the three months Omnipod five pivotal study were maintained over 12 months of home use.
The data demonstrated the trifecta of insulin management, a sustained reduction in <unk> improved time and range and minimal hypoglycemia. This long term data demonstrates the durable benefits, but omnipod five offers.
We are also close to submitting to the FDA, our preschool expanded indication down to age two and expect to do so shortly following omnipod five clearance. We continue to plan for an expanded indication in 2022.
Additionally, we advanced our type two clinical efforts and remain in the six month extension phase of our Omnipod five type to feasibility study. The early data is very promising and we expect to share the results at a future conference.
Following clearance for Omnipod five we will begin discussions with the FDA on pivotal trial requirements for an expanded indication in this patient population. We are excited to be pioneers and bringing the benefits of automated insulin delivery to people living with type two insulin dependent diabetes.
In addition to Omnipod five we also presented results from our largest cohort study of people living with type one diabetes, who use omnipod dash.
Across approximately 4800 people the results demonstrated low time in hypoglycemia and a significant decrease in <unk>. After 90 days of use for children adolescence and adults for adults. The decrease in <unk> was achieved while also demonstrating a <unk>.
8% reduction in total daily dose of insulin used.
As we build our portfolio of clinical evidence for our near term innovations. We are also investing in the technologies required to position Omnipod for long term growth. Our teams are diligently working on an iOS version of the Omnipod five mobile App globalizing, our AI system to bring it to international markets.
And integrating Omnipod five with both Abbott freestyle Libre and <unk> Com G. Seven we're excited to continue collaborating with these two great partners and in time offer CGM choice to our customers.
We are also leveraging our significant digital capabilities to expand the ecosystem around omnipod.
Omnipod view App was built for caregivers today. It allows caregivers of Omnipod dash users to see real time insulin data remotely.
Omnipod five enhances the power of Omnipod view because of the incorporation of Sim cards in every controller.
Sim cards mean every user will have the unique experience of constant connectivity and being able to share real time, insulin and CGM data with caregivers and loved ones.
<unk> also mean no omnipod five customer will need to manually upload data when visiting with his or her care team. Thanks to cloud to cloud data transfer.
Looking to the future our algorithm and data science teams have already processed the data from our pivotal studies and type two feasibility study and are hard at work on our next generation AI system. We believe we've built a blockbuster with Omnipod five and we are excited to continue to innovate on the extraordinary tech.
<unk> platforms it provides us.
Now turning to global expansion, where we are growing our global addressable market across attractive international regions. Our international expansion unlocks the power of Omnipod for people across the world and we will further increase our global addressable market beyond the 11% to 12 million people, we estimate our living.
With insulin dependent diabetes throughout the global markets. We currently serve.
During the last 12 months, we expanded our global presence in seven new countries within Europe, the Middle East and Asia Pacific While it takes time for new markets to meaningfully contribute to our results given the nature of our business model, we see strong long term growth potential through our growing presence in multiple.
Regions.
The work to bring Omnipod five to our international markets is ongoing and we are making great progress Omnipod Dash has been a major global growth driver and we believe adding our game changing AIG system to our product offering will further strengthen our competitive position across our international markets.
Moving forward, we see a number of attractive opportunities to expand our global presence to further penetrate our existing markets and to introduce advanced technology to underserved regions.
We continue to assess many markets throughout the globe, where we know people with diabetes can greatly benefit from Omnipod and where we are confident we can drive strong adoption and growth.
Our near term focus is on growing our global presence throughout the middle East and Europe and over the medium term we plan to expand further within the Asia Pac region.
Lastly, we continue to invest in our global manufacturing operations, which will further strengthen our production capabilities efficiency and scale.
Today, we are producing tens of millions of pods, a year and doing so at the highest quality our manufacturing expertise is a competitive advantage and the investments we have made over the last several years to expand our operational excellence and establish redundant manufacturing capabilities, while securing stu.
<unk> partnerships with key suppliers are critical.
This positions us to support growing global demand for Omnipod dash the upcoming launch of Omnipod five our international expansion and our innovation pipeline it.
It has also helped to mitigate global supply chain issues throughout the pandemic and represents an important long term driver of sustainable revenue growth and gross margin expansion.
In closing we remain on track to deliver another year of double digit revenue growth and have made significant progress across each of our strategic imperatives, the clearance and limited market release of Omnipod five are just around the corner and we could not be more excited for just how transformative this innovation will be for people living with.
Diabetes.
Our passionate and hard working global team is our greatest strength and we are focused on finishing the year strong and carrying the underlying momentum in our business into 2022 and well beyond.
Now I'll turn the call over to wait.
Thank you Susie the.
The third quarter marked the continuation of our strong financial performance and strategic progress.
We generated strong new customer starts despite continuing to feel the pandemics impact, which speaks to the durable power of Omnipod and our success driving expanded awareness and eliminating access barriers.
We remain incredibly excited about the upcoming launch of Omnipod five and what it can do for people living with diabetes.
We generated 17% revenue growth in the third quarter, finishing near the high end of our guidance range driven by total omnipod growth of 22%.
In Q3, we delivered U S omnipod revenue growth of 26% within the range of our expectations.
As a reminder, our Q3 growth rate benefited from the impact of the estimated $4 million distributor channel Destocking last year.
The trend of record U S. New customer starts continued in the third quarter falling within our expected range, we continue to execute and drive strong topline growth and expect to finish the year with continued momentum.
Also in Q3, we once again increased our volume through the U S pharmacy channel and drove strong omnipod dash adoption globally, among both type one and type two customers.
During Q3, Omnipod dash drove 80% of our U S. New customer starts and we've increased pharmacy channel volume to almost 50% of our total U S volume.
In Q3.
Actual omnipod revenue grew 14%.
At the high end of our guidance range. As a reminder, Q3 growth was impacted by the estimated $4 million to $5 million of distributor channel stocking that we experienced in the third quarter of last year ahead of the international full market release of Omnipod Dash.
Today, all our new customers starting start on Omnipod dash, which continues to drive adoption across our markets and our expanding customer base.
That said, we continue to experience pandemic related headwinds with a lagging revenue effect due to the compounding impact of our annuity model.
During Q3, we saw the biggest impact from Covid and several of our international markets.
The increased restrictions implemented in the first half of the year.
As a result of the virtual training and Onboarding capabilities, we built at the start of 2020 as well as the teams adaptability and execution, we have successfully mitigated much of the short term headwinds.
Nevertheless, we will continue to feel the effects on our top line over the next few quarters.
Additionally, we expect Omnipod Dash will drive continued solid adoption, we're seeing increased competition in some markets from AI systems.
Tracy mentioned, we are excited to advance our Omnipod five innovation efforts as we look to bring what we believe.
To be a transformative.
Matched AIB system to all of our markets.
The fundamentals of our international business remains strong and we continue to grow our existing markets and expand our global footprint.
We also continue to augment our team and capabilities to drive sustainable growth over the long term I'll touch on our near term expectations in a moment.
Lastly, our estimated global attrition in the high single digits and pod utilization remained stable during Q3.
While we saw a slight impact on attrition and a few international markets, where these systems have been launched the changes are not material overall.
Drug delivery revenue declined 30% during the third quarter, finishing around the high end of our expectations.
As a reminder, order volumes were elevated in the prior year as a result of the pandemic.
Gross margin was 68, 5% in the third quarter, representing a 360 basis point increase or 330 basis point increase on a constant currency basis.
Performance was in line with our expectations.
The primary drivers of our gross margin performance, where our improved manufacturing operations and the mix benefit of growing volume through the U S pharmacy channel.
These drivers were partially offset by the expected higher mix of costs as we continue to ramp U S manufacturing.
Operating expenses were in line with our expectations as we continued to invest in our robust innovation pipeline.
Clinical initiatives, our commercial efforts to support the expected upcoming launch of Omnipod five and.
And also our continued international expansion.
Operating margin was 12, 2% up 200 basis points and adjusted EBITDA margin was 22% up 210 basis points.
<unk> income was in line with our expectations as we invest throughout our global business to fuel our long term growth trajectory.
Turning to cash and liquidity, we finished Q3 with 857 million in cash and short term investments.
$60 million available under our revolving credit facility.
In a strong financial position with no near term obligations.
We have opportunities to further invest across key areas of our business.
We continue to take measured steps to strengthen our overall capital structure as we noted on our second quarter call. We used the proceeds from our term loan b financing to repurchase 92% of our convertible notes due 2024.
In July and additional 5% of the outstanding balance was converted which resulted in a $1 $5 million loss on extinguishment. During Q3 that is excluded from adjusted EBITDA.
Also in July we raised an additional 43 million of cash through an equipment financing, which further helps to reduce our overall cost of capital.
Now turning to our outlook for the remainder of this year.
We are updating our full year revenue guidance, and now expect 18% to 20% growth, including Omnipod revenue growth of 18% to 20%.
We now expect full year U S. Omnipod revenue growth in the range of 22% to 24% driven by increased access and awareness.
69% likely closer to the low end of the range.
Our gross margin performance represents a notable year over year increase and reflects both are enhanced manufacturing capabilities as well as the benefits of our growing volume through the U S pharmacy channel.
We continue to expect operating expenses for the full year to rise in line with revenue as we have been investing in our innovation pipeline.
Sales and marketing capabilities global manufacturing and international expansion.
We believe these investments are critical to sustaining the momentum in our business and building upon our foundation for long term sustainable growth.
We are reaffirming full your operating margin and the low double digits range. The key drivers of our growth include our strong top line revenue growth in gross margin expansion.
We continue to expect an approximate 100 basis point improvement in our operating margin on an annual basis going forward.
Finally, we expect capital expenditures in 2021 will slightly decreased from 2020 compared to our previous expectations of an increase.
Primarily due to time and we continue to invest throughout our global manufacturing operations as well as our strategic initiatives.
Turning to our fourth quarter 2021 guidance, we expect total company revenue growth of 19% to 25%.
This includes total omnipod revenue growth of 17% to 22%.
For you S. Omnipod, we expect queue for revenue growth of 22% to 27%.
Core drivers of this growth or the cumulative impact from a record new customer starts during 2021, the benefits of our annuity model and increased Omnipod pod dash volume through the U S pharmacy channel.
We expect queue for international Omnipod revenue growth of 7% to 13% driven.
Driven by continued Omnipod dash adoption across our international markets.
We expect the Tailwinds in both product lines will be partially offset by the same headwinds mentioned for the full year got.
Lastly, we expect Q for drug delivery revenue increase 45% to 65% based on our partners current forecast.
In conclusion, we're on track for another successful year as we continued to deliver solid financial performance and broad strategic progress.
We're focusing on finishing the year strong and are excited for the expected upcoming clearance of Omnipod five.
We're investing in the critical areas of our business that will build on our current competitive advantages.
And drive further differentiation in the near and long term.
There are significant growth opportunities ahead, and we we remain well positioned to continue to drive meaningful value to all of our stakeholders.
With that we'll turn the call over to them to open up for questions.
Thank you Sir.
If you have a question at this time. Please press star one on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.
We ask that you. Please keep your questions to no more than one but please feel free to go back into the queue and if time permits will be more than happy to take your follow up questions at that time.
Please stand by while we populate the Q&A roster.
I show. Our first question comes from the line of Margaret Cats are from William Blair. Please go ahead.
Hey, good afternoon, everyone. Thanks for taking my question.
I wanted to start with type two.
[noise] mentioned, a few updates for them to call.
Physically kind of on the side.
Side.
Yeah, I'm trying to make progress on Oh, five so I was curious you know what kind of a pivotal study yeah, what that Tyndall study could look like and then as you think about the types of patients that could benefit from Omnipod no five specifically would it be intensely manner, you need to or could you.
Actually I can't accelerate somebody afterwards to other types of Tai T anyway. Thanks. Thanks.
Thanks, Margaret for the question and yes, so maybe I'll take us back a few months if you remember and we shared really compelling data and no back in March that demonstrated the impact of Omnipod five [noise].
That it can have on people living with tech queue insulin dependent diabetes and that data demonstrated early data, but it demonstrated at more than a doubling of time in range from 27% to 59%. So we do believe that the technology has tremendous potential to you.
To make a positive impact on outcomes for people living with insulin dependent type two diabetes. We are looking at the intensively managed group for this after this technology and as.
When trend, we see macro trend in the market that we see is that there is growing utilization of CGM. Among type two users, particularly intensively managed type two users. So our belief is that as more CGM use happens that will drive more seeking of these patients for tools to manage.
There.
Their disease and that Omnipod five will be right there with the best wearable Aig's system for this population in terms of what the pivotal as steady could look like I think that's a great question. You know this is unchartered territory for people living with type two diabetes and so we are really proud to be doing the work to bring this technology to this population and to be pioneer.
Here's.
The low end up to 18%. So we're 18% to 20% now for both total company and total Omnipod, but as you mentioned, we've tightened the guidance ranges for each product line for the year, although still really strong growth, especially in the United States.
So what are we factoring in we're factoring in the lagging impact of the pandemic.
As well as some competition from AIG systems in the market as we mentioned in our prepared remarks.
So overall our queue for guide is very strong at the high end. It is our highest growth rate for the year for both Omnipod and total company with 17% to 22% for total total Omnipod and then 19% to 25% for total company.
As as our annual guide still 18 to 20, and we keep an eye on on the annual guide as we think about Q4 as well so.
Despite some COVID-19 headwinds independent makes impact on new customer starts last year that factored into the growth rate this year as well as the delayed clearance here for the launch Omnipod five we're still at that high end for the full year and you know if we hit the high end, we'll have now grown 20% for the last two years.
Through Covid and with increasing AIG competition here. So a couple of specifics rub your international down sequential at the midpoint, we don't really think about the mid point, we factor in our total puts and takes and it's sequential growth at the high end sequential decline at the low end one of the things we have.
To watch for internationally as some order patterns, we sell a lot of our product through distributors internationally and sometimes there's order patterns, who have to account for that in addition to the other factors I just mentioned and in the U S. Again, we have the strongest guide for the year at 27 per.
Or sent for Q4, and so although we've tightened the range is somewhat we're still looking at a very strong quarter for Q4.
Thank you.
I show next question comes from the line of Danielle and tell fee from S. V. B Leerink. Please go ahead.
Yeah, Hi, good afternoon, guys. Thanks, so much for taking the question and and apologies if I missed.
My first question keeping it for you on your confidence in Omnipod five approval by the end of the year kit kit.
Trying to push it a little bit make sure you know is it gonna slipped again. So just curious what gives you the confidence I was just waiting now for at da or have you had more back and is there still more back and forth happening with that yeah, and then I have one quick follow up.
Okay. Danielle we may need your follow up now are you may you may not fit it into do you want to ask you know Oh sure sorry, So just as you as it relates to the Omnipod five launches well I'm curious if you guys think about you know what learning.
I spoke to you manufacturing the product you know all of that stuff. So we are ready to go and couldn't be more excited in and I'll, Let Brian answer. Your second question, Yes, Danielle it's Brett So theres a lot that we can build upon from the learnings of Dash and Chase you highlighted some of what we anticipate in the LMR. The reason we're doing the limit.
The release is so we could.
Test some of these these things and established access early we're well ahead of the game on access and as well as the user experience, which is some of what I think youre getting that with the integrated systems, there's a lot to understand there so.
The introduction of Omnipod five the Onboarding experience will be unique and different from anything we've ever done which is part of what will be tested in the LMR. Some of that depends on their experience with both <unk> com and with Omnipod and depending on their experience. Each onboarding experience is unique to the individual and in some cases.
There'll be able to completely self serve and onboard and so that's going to be really exciting. It's gonna established tremendous commercial scale for us enable us to onboard many of our existing partners that are so excited about omnipod five.
And.
All of that is the cooperation between decks com and Insulet on customer support will also be unique as we sort of worked through all the different use cases and scenarios, where there'll be warm transfer is going back and forth to different to the company is dependent on what the potential issue it could be but all of that stuff is when we talk about the customer.
<unk> will be testing the limited release before we move to a full market release, but we're well prepared for all of those things.
Yeah.
Thank you.
I show. Our next question comes from the line of Lawrence <unk> from Wells Fargo. Please go ahead.
Hey, guys. Good afternoon, and thanks for taking the question chasing one Big picture question on International we've seen it slow the last couple of years and the midpoint of the guidance is 13%. This year, how should we think about international growth before omnipod bars.
<unk> outside the U S and any color on whether that could start happening in 2022 or should we be thinking about international Omnipod five launches more like 2023, thanks for taking the question.
Yes, Thanks, Larry.
I think our international business has been performing well as Wayne said in the face of some challenges related to Covid and some market dynamics around AI D adoption.
Really medium term it should be a great trend for us.
Thank you.
I show next question comes from the line of Jeff Johnson from Bear. Please go ahead.
Thank you good evening, guys, where you've mentioned the competitive impact of Aib's systems. A couple of times every time you do it seems like it's focused on the international market. So one we've got at least one of those AIG systems here in the U S who are not mentioning it as much from a U S perspective is that just given the pharmacy access the T to access things like that that's covering that up or is there.
Something specific in the international markets relative to the U S.
Is causing some of that issue number one and number two shaping just to push on that or U S O five.
Timeline in commentary you add.
They give a Tory wise what would you have to do can you use use pivotal data to get a C E Mark and launched in Europe, maybe in Canada things like that or would you have to go through trials. There that you haven't yet contemplated or started thanks.
Hey, Jeff can certainly start and I.
I appreciate the question on this evolving dynamic that she just highlighted eventually becomes a positive for us.
Do think the dynamic is different between the U S and international.
In the U S. Certainly we've got AIG systems to contend with but as you mentioned, we have done a great job with other significant growth drivers D. T C. Our business model and the pharmacy channel with pages ago, certainly dash was performed well in the U S. So we have a lot of momentum behind it and international.
We've just launched dash over the last year and have good momentum there.
Growing in the mid teens internationally.
But as we mentioned in the prepared remarks, where you have seen a couple of countries start to see some more stronger competition and is Tracy mentioned as CGM adoption reps certainly that brings these systems with it. So we do think the headwind is stronger internationally.
And get to your question regarding and high five internationally. There is not any clinical trial requirement to get C E mark to be able Q as solid market Omnipod five in our international markets is a regulatory pathway. The MTR pathway that we will submit through for CE, Mark and there will be click.
To access a omnipod through the pharmacy than it is to access pump therapy through the D. M E channel and so that is you know what's what is fueling part of our growth and why we've got 35% to 40% of our new starts to type two are the same value proposition exists in terms of the clinical impact the improvement in <unk> C and the reduction in total daily dose of.
Insulin, but we've got more work to do clinically to demonstrate that health care economic argument outside of the U S and to establish a reimbursement and coverage access really for type two outside of the U S. And then Brian I know we've had some progress on pay as your pod is you want to talk a bit about that yes sure. That's a great question.
And because of the growth drivers today are a little bit different in the U S than they are internationally, but we see those as opportunities and <unk> highlighted do we can we can move to pay as you go the pharmacy channel type two.
Those are related because remember the reason why we have such great type two access in the U S is because we don't build that upfront fee and so pay as you go really as more key than the pharmacy channel is in we'll be looking at all of these opportunities internationally, but certainly.
We see lots of opportunity to move to a pay as you go.
Reimbursement model in the markets that we're in and in future markets that could open up the door for type two access we think thats a good start because when you don't charge that upfront fee you eliminate that risk for the payers. So all these things that are carrying us today in the U S that really make the growth rates different than they are internationally as headwinds are fairly similar.
Those are all opportunities for opportunities for us in the international markets.
Thank you.
Our next question comes from the line of Travis Steed from Barclays. Please go ahead hey.
Thanks for taking the question just curious if you could give a little more color on kind of what youre seeing with Covid vacations or you think staffing issues of endo offices.
And a little color on kind of how you see some of the puts and takes on 2022, obviously omnipod. Five is is the big unknown at this point when that actually comes but just curious if you could give some puts and takes on next year, especially given some of the unusual seasonality. We saw this year with COVID-19.
Sure and we're lucky enough to have Brett on Brett do you want to touch on what we're seeing internationally and around vacations and staffing and things and then.
I can pick up on some some thoughts on 2022.
Yes, sure I can touch on both of those so.
I guess, the vacations and staffing are both real I think the staffing is actually more of a real issue within some of the endocrinology offices and that becomes an issue for companies like ours only if we rely on those staff to do some of the war for Onboarding and that's an effort that we've had underway.
For a long time now to take that work away from health care providers to do more of the trainings to do more of the Onboarding and we believe that we are the easiest product to train and onboard on because of the ease of use of Omnipod and so we don't see that as a real headwind, although those are real issues for our customers and endocrinology offices its not.
Slowing us down in any way.
Great and just picking up on 2022, so regarding how we're thinking about our outlook there at this point.
We don't issue formal 2022 guidance until Q4 call in February per usual, however, we're happy to give.
Give you some of our thinking here and we do think that we're in a good position to start strong again in the 15% to 20% range for total diabetes, it's a good place to start.
We do have some differences between the regions given the different dynamics some of them. We've talked about here I think we see U S. Omnipod with really strong momentum and we're thinking again, thats, probably a high teens low twenty's kind of.
Start to the year international more in the low double digits at the lower end of that.
10% to 20% or even below.
So it's looking like 15 to 20 for total Army pod, which was strong growth off a growing base and we have opportunities to exceed that but certainly some risks to consider.
Most differentiated technology in the AI space, we see follow on indications pretty rapidly with pediatrics, we see international expansion, we see iOS and we see additional CGM integrations over the coming couple of years, and so really exciting trajectory of innovation and growth over the next few years.
Thank you.
I show. Our next question comes from the line of Jayson Bedford from Raymond James. Please go ahead.
Good afternoon.
She's right after that last answer I'm kind of tempted to ask about 'twenty three guidance, but I won't.
So.
Have a couple of.
Pharmacy questions Pharmacy access is now near 50% of your U S volume can we assume that the majority of these folks will have access to omnipod fog upon launch.
And my second question is for the other half.
Folks that are not accessing omnipod through the pharmacy.
It looks like two thirds may have coverage, but are not yet going through the pharmacy I'm. Just wondering why are those folks not choosing to go through what seemed like a better a better access point.
Yeah, Hey, Jason it's Brett I can I can take those questions. So.
Yes.
Thank you.
I show. Our next question comes from the line of Cecilia furlong from Morgan Stanley. Please go ahead.
Hey, Thanks for taking the questions I wanted to ask about just the percentage of patients coming from MDI.
It sounded like it ticked up slightly this quarter, but just as you think about Oh five lunch I'm going forward. How do you think about the ability of O five to really expand pump utilization versus drive competitive conversions going forward relative to dash and thank you.
Thanks.
It's a great question, what we know is those percentages will change, it's a little hard to predict but when I think about omnipod five I think about it as a additive growth driver. So all of the exciting growth that we're driving because of the pharmacy and because of type two adoption, which is primarily multiple daily injections today in the type two users.
That will continue we know we've got a leadership position there and we have a differentiated technology for the type two user, but omnipod five will be additive in terms of the growth eventually when we get into full market release and in terms of the patients that it's bringing in and it should make us more competitive.
And for those users that are choosing AI D over pump therapy, and we know that that's the primary reason why somebody doesn't choose omnipod when they come on to pump therapy. So we would guess that R.
Our pump conversions will increase with the launch of Omnipod five.
Thank you.
I show. Our next question comes from the line of Anthony Petrone from Jefferies. Please go ahead.
Alright. Thanks.
Congratulations on a good quarter up three quick ones just a quick update on DTC continues.
Let's see but in supply chain redundancy and that investment has really helped us to manage through.
Some of the challenges that we've seen.
All environments all industries in terms of the supply chain around freight around certain components et cetera. So our team at while we may have encouraged some additional costs. They've also done a terrific job offsetting those costs and ultimately.
There's been no impact at all to customer supply. So that's a testament to how hard our teams are working to support the growth and also managed through these very real challenges that exist today.
Yeah, I could do that.
Redundancy and supply chain improvements in investments that shakes just talked about we have been very successful we growing our inventory ahead of revenue sore inventories have grown significantly over the last year, we feel very good about that given where the where we were in the pandemic.
Teams did a fantastic job managing through that we actually built inventory through the pandemic and then.
With the more recent supply chain challenges globally team has done a really nice job managing that and so I think what you'll continue to see US do is continue to build capacity and build inventory ahead of our operational performance and we do that to make sure. We're in the best position possible to serve our customers.
And for new customers coming on board. So I don't see a major chain store working capital cycle, just given that we've increased inventories. So much to this point, but you will see us continue to invest in a growing inventory number to make sure that we've got more than ample supply for existing customers and for our future growth plans.
Thank you.
I show next question comes from the line of Mat O'brien from Piper Sandler. Please go ahead.
Hi, Good afternoon. This is drawn from that and thank you for taking questions and brass on the a solid corner here.
I appreciate the color on next year I, just want to follow up a little bit so I can understand it better.
Obviously, your business and growing 20% plus the last couple of years, even despite the pandemic in here that should fade a bit next year and then.
Definitely still room on desk penetration then obviously the O five launch at some point next year.
So is the 15% to 20% really a function of your U S business more towards the higher end of that range and Oh, yes, more towards the lower or is that more a function of you're expecting that ramp of oh five to not kick off in a meaningful way to the business until more later in the year.
And so I don't know, Brad if you want to add anything else there.
Yes, well said way drew I would just say your question is right. It. It really is a stronger U S growth next year, that's really driven by the current growth drivers. So DTC our type two access at the pharmacy model all of those things will continue to drive the U S growth. We do we did build in some.
Some growth for Omnipod five as Wade suggested.
But again with the annuity model it takes a little bit of time. So there is still some uncertainty of the length of the LMR the time to get to full market release, and then once we get to full market release.
It is an annuity model doesn't really represent growth right away. It takes some time to build that into the rates and revenue.
Thank you.
Sure. Our last question comes from the line of Joanne Wuensch from Citi. Please go ahead.
Thank you so much for squeezing me in I really appreciate it.
I'm trying to get my head around something which is on the pod five comes out.
What does that do in terms of the portion of the market that youre most likely to address.
And what I'm also trying to do is cross reference that with increasing new patient starts in Q U C.
D G.
Do you see your market wondering maybe spend is the wrong word or expanding or just help me understand when it arrives and as it arrives.
Happen.
Sure Joanne I will start and perhaps Brett will have some additional thoughts to offer but I.
We believe that Omnipod five will be additive to our growth. So as you think about the momentum that exists today in our business. We will focus on the U S. Because that's where we're going to launch first and there's a lot of momentum being driven today by DTC, so increasing awareness theres a lot of momentum being driven today by type to use.
What are the biggest headwinds that we have today, which is AIG competition. So omnipod five does check all the boxes. It's why we think it's going to be best in class product offering and we're so excited about what it does to growth once we get the full market release.
Thank you.
That concludes our Q&A session at this time I'd like to turn the call back over to Shake Petrovich for closing remarks. Please go ahead.
Thank you and thanks to everyone for your participation and questions today.
[music].
[music].
[music].