Q1 2023 Insulet Corp Earnings Call
Comms and quality of life that only omnipod can provide.
These clinical outcomes combined with Omnipod <unk> form factor and ease of use are proving to be life changing for our users.
Our market leadership also depends on building awareness of and access to Omnipod and our team continues to execute with excellence against these objectives.
Our efforts to drive access and awareness are critically important given how underpenetrated the global type one and type two pump markets are driving growing need for advanced solutions.
In the countries. We serve today, we estimate there are approximately 11 million people with insulin intensive diabetes, who can benefit from omnipod.
Approximately 45% have type, one and 55% type two and these markets remain vastly underserved.
Pump penetration in the U S type one market is still only approximately 40% and only low single digits in type two.
And international market penetration is much below the U S.
There is a massive unmet need for insulin therapy solutions, which also means we have a massive market opportunity.
Omnipod platform, and especially Omnipod five will open that market even further.
Prior to Omnipod five consensus was there was a natural cap on pump adoption of around 70%.
But these estimates have all been built based upon the adoption curve of tube pumps.
You've heard us call Omnipod five a game changer, and we believe it changes this game omni.
Omnipod five simplicity ease of use cost and access and importantly outstanding clinical outcomes driven by our advanced algorithm will allow us to bring customers into the market, who would have otherwise never considered or never been considered for an insulin pump.
We are seeing this in our market feedback already.
Additionally, CGM is helping to pave the way by raising awareness for Omnipod and in turn we are bringing more people to CGM.
Our sources indicate CGM use type one market penetration is nearing 80%, making us even more confident in omnipod five's potential to grow penetration to well over 70% in the type one market alone.
The Omnipod platform is quickly, becoming the new standard of care for insulin delivery.
A critical element to our access strategy is growing our presence in the U S pharmacy channel.
This makes access to Omnipod five an omnipod dash much more affordable convenient and efficient with low co pays and the ability to pick up product of the local pharmacy or through mail order with no lock in periods.
And the vast majority of Omnipod five prescriptions are filled in a matter of days compared to weeks through the <unk> channel.
In the U S market, we priced omnipod five at parity with Omnipod dash to drive access for Omnipod five quickly. So we can make it affordable for the large number of people we knew would want it.
The vast majority of our U S customers continue to pay less than $50 a month through the pharmacy channel, putting it relatively on par with customer cost for multiple daily injections.
Combined with no upfront cost to start on Omnipod five we invite any patients who experienced the difference of omnipod.
Omnipod five just like Omnipod dash is widely covered in the U S.
Our team's customer centric focus and commitment to operational excellence enabled us to drive incredibly strong coverage for Omnipod five in a short period of time positioning us for the enormous level of affordable broad based adoption we are seeing.
And as such we will no longer provide quarterly coverage updates similar to the approach we took with Omnipod dash in practical terms, both omnipod five and Omnipod dash, our now fully covered.
Our clinical initiatives continue to progress, including our type two pivotal study.
As a reminder, this three month study will be the largest we have ever conducted including up to 350 people with type two diabetes across 20 sites in the U S with a targeted focus on recruiting diverse and underserved populations.
We began enrollment shortly after our last earnings call and we're making great progress.
We're excited to show with Omnipod five can do for people with type two diabetes.
We are also making great progress with our Omnipod five three months randomized controlled trial.
The last study participant in the U S is nearing completion and in France enrollment is nearing completion and we expect the last participant to complete this study by the fall.
We believe this RCT study will be beneficial when negotiating access and premium pricing.
Both our type two pivotal study and our RCT will be valuable additions to the already strong clinical body of evidence that we have been building for omnipod five over the last several years.
Fueled by the success of Omnipod five our teams are already working on what's coming next.
As I mentioned, we received clearance for Omnipod go in the U S, which should further build on our type two leadership position.
We estimate the total addressable market for Omnipod go is at least 3 million people in the U S alone doubling our U S. Tam.
We expect to begin a small pilot program this year in select locations and remain on track for a commercial launch in 2024.
We have several competitive advantages in the type two space, including those that exist for us in the type one market such as our unique form factor and our U S pharmacy channel access.
In Q1 individuals with type two represented an estimated 15% to 20% of our U S. New customer starts across our omnipod portfolio of products.
This percentage is lower than historical levels due to the tremendous success of Omnipod, five which like all AI systems as an indication for only the type one market.
On an absolute basis, new customer starts in the type two space remained strong.
Our development work to integrate Omnipod five with decks Com is G seven and Abbott's Libre systems as well as our iOS integration efforts continues to progress very well.
I want to take a moment to congratulate Abbott on their recent libre, two and Libre three IC GM clearance milestones that is quite an accomplishment.
Both of our CGM partners have made exciting progress and we're thrilled to be advancing our development efforts with both for the benefit of our current and future customers.
We believe we offer the best AI system on the market and adding CGM of choice for our current as well as future customers will only strengthen that value proposition.
Moving onto our international operations, where we are excited to introduce Omnipod five in the UK in the middle of this year and in Germany in the fall and we are currently training hcp's in both markets.
This marks the first time, we're bringing in cloud connected omnipod device to international markets delivering the benefits of near real time data management to our customers and Hcp's.
Our launch of Omnipod five in these countries marks the beginning of our staged international rollout with a broader rollout across our international markets next year.
Another one of our competitive moats as our global manufacturing capabilities, which are critical to our long term growth plan and ability to fulfill our mission.
While we continue to navigate some challenging macro related headwinds, we are securing components and producing pods ahead of forecast of demand levels, ensuring global supply for our expanding customer base.
Additionally, we are making great progress building, our new manufacturing facility in Malaysia, which will further strengthen our global capabilities.
We are on target with our build schedule and expect to take possession of the facility by the end of this year, placing us on track to begin manufacturing in 2024.
Earlier. This week, we published our 2022 sustainability report, noting exciting progress across a number of environmental social and governance initiatives.
As a result of all of our initiatives, we were named by Newsweek as one of America's most responsible companies for 2023.
This past quarter. We also were pleased to be added to the S&P 500. This is a fantastic achievement for Insulet and speaks to the hard work and dedication of our entire global team as well as the success, we are having growing the company and executing our mission.
Before I turn the call over to Wade I want to comment on the changes to our organizational structure, we announced this afternoon.
Our business is enjoying incredible momentum and we are confident we can build on that omnipod five is transforming diabetes management and we are just getting started.
Omnipod five is a revolutionary offerings delivering the most convenient therapy experience with world class clinical outcomes as our results clearly demonstrate an omnipod. Five is also novel because it gives us the opportunity to use cloud connectivity and data to constantly improve all aspects of the end to end customer experience.
In addition to that we are now the market leaders in the type two space and we have a huge opportunity to expand there with a portfolio of therapy options and of course, we are early in our efforts to expand internationally.
In order to capture those opportunities and reach the millions of patients that need our help we have decided to make some changes to how we operate.
It has been almost a year since I assumed the CEO role and I could not be more proud of how well our team continues to execute.
Over that time, we've taken a close look at our organizational structure and working processes and in order to both continue our momentum and capture the full pallet of opportunities we see for growth we need to do three things.
Elevate and integrate our technology stack, and especially our cloud and data analytics capabilities invest in regional and local markets to drive growth and expansion and most importantly get even closer to our customers and Orient the entire organization around the end to end customer experience.
Therefore, as we announced earlier today, we have created two new roles in the organization effective July one.
First as chief product and customer experience officer responsible for product vision and execution, including franchise management product management and driving the end to end customer experience across the enterprise.
Eric Benjamin our executive Vice President of innovation and strategy will take on this new role.
The second as Chief Technology Officer responsible for software and hardware engineering information technology, Cyber security digital and data services and system architecture.
Mark fields, our group Vice President of software Engineering will step into this new role.
On behalf of the entire Insulet team I'd like to congratulate Eric and Marc and thank each of them for their leadership.
We also announced that in order to more effectively drive growth in our international markets. We are transitioning from a structure that had a global chief commercial officer role to one with two distinct commercial leaders one for U S and another for international.
As a result of that decision Bret Christiansen is leaving Insulet on may five to pursue other opportunities. He has agreed to provide consulting services during the transition period.
We want to thank Brad for everything he has accomplished during his time at Insulet. He played an.
<unk> role in so many key milestones for us, including our move into the pharmacy channel and of course, the launch of Omnipod flawed.
We wish Brad all the best and I know he wishes us all the best as he is here today with us on the call as well thank.
Thank you Brett.
I am confident that the refinements, we are making to our organization structure will help us to not only continue our terrific momentum, but also improve our efficiency speed, our time to market with new innovations and accelerate our growth in international markets.
Look forward to continuing to work with our entire Insulet team to realize our company's immense potential and continue to drive our mission to simplify the lives of the millions of people around the world living with diabetes.
In closing the first quarter marked a strong start to what we are confident will be another successful year for insulet.
Omnipod <unk> is transforming the market and changing the way that people manage their diabetes.
Hcp's are adopting and championing omnipod five helping to bring it to the thousands of people with diabetes, who benefit from it.
We are well positioned to continue to expand access to omnipod five globally and lead the industry in innovation.
It takes a companywide effort of all of our employees to generate the growth we are consistently delivering while investing in our business to drive sustainable growth and value creation for years to come.
I will now turn the call over to Wade.
Thanks, Jim.
First quarter results exceeded our expectations and we made further strategic progress.
We delivered record U S and global new customer starts for any Q1 and.
And in the U S. They were the second highest of all time slightly.
Slightly below last quarter's record.
We generated 23% revenue growth in Q1, finishing above the high end of our guidance range.
This was driven by total global Omnipod growth up 35%.
On a reported basis, where total revenue foreign currency was a 210 basis point headwind compared to Q1 of last year.
U S Omnipod revenue growth was 49%.
Exceeding our guidance range.
Revenue growth continues to be driven by our annuity based model with cumulative record new customer starts and growing U S pharmacy volume.
This includes an increasing contribution from Omnipod five.
In our premium for the Omnipod, five and Omnipod dash pods in the U S pharmacy, where we provide the personal diabetes manager for no charge.
Omnipod five ramp dynamics.
Unlike prior quarters.
Resulted in a net headwind for the quarter.
Of $2 million.
Similar to last quarter, we benefited from an estimated $14 million net volume benefit associated with new Omnipod five customers.
In large part.
Due to existing customer conversions to mommy blood Dash and classic Army club.
Who received their starter kits and first refill orders in the quarter.
As well as some initial stocking and retail pharmacies.
This is net of some omnipod five customers skipping an order in the period.
This benefit was more than offset by a reduction in estimated channel inventory days on hand.
Omnipod five of approximately $8 million in.
And another $8 million reduction associated with actual and expected sales returns for Omnipod dash and Omnipod classic as retail pharmacies convert their inventory to Omnipod five.
Consistent with Q4.
Q1, Omnipod five and Omnipod dash, new customer starts combined were 100% of our total U S new customer starts.
Which we expect to be the case on an ongoing basis.
This is especially important given our focus on moving increasing volume through the pharmacy channel.
Which was over 85% of our total U S volume in the quarter.
International Omnipod revenue increased 10% in Q1 exceeding our guidance range driven by ongoing Omnipod dash adoption.
On a reported basis foreign currency was a 620 basis point headwind over the prior year, which was in line with our guidance.
Our estimated global attrition increased slightly to approximately 10% in Q1.
We estimate international attrition increased to over 10% as a result of continued competition.
While U S attrition improved.
Under 10%.
We estimate global utilization trends remained consistent with seasonal trends.
Drug delivery revenue declined 98% within our guidance range.
Gross margin was 67, 2%, representing an approximate 380 basis point decrease.
Which included a favorable foreign currency impact of approximately 30 basis points.
Cost of revenue included income of $8 million due to a lower estimated costs associated with the medical device corrections, we announced last year.
Excluding this benefit gross margin was 64, 9%, representing a 610 basis point decrease.
In line with our expectations.
Our growing volume in the U S pharmacy channel, including the associated premium positively contributed to gross margin.
This was more than offset by expected higher mix of costs due to the ramping of Omnipod fine.
And our U S manufacturing operations as well as unfavorable mix from lower drug delivery revenue.
Operating expenses were slightly above our expectations.
Support higher than expected revenue and were higher than Q1 of last year as we further invested in our business.
Adjusted operating margin and adjusted EBITDA were five 5% and 13, 6% respectively.
Both exclude the favorable medical device correction adjustment of $8 million and both were above our expectations due to a higher than anticipated revenue.
Turning to cash and liquidity.
We ended the quarter with over $620 million in cash and the full $100 million available under our credit facility.
Our financial position remains strong and offers us the flexibility to strategically invest in our business.
Other strengthen our innovation pipeline and deliver growth for years to come.
Now turning to our 2023 outlook.
For the full year, we are raising our expectation for total omnipod revenue growth to a range of 21% to 25% and total company revenue growth to 18% to 22%.
For U S. Omnipod, we are increasing our revenue growth outlook to 27% to 31% driven by continued strong omnipod five adoption.
From both new customer starts and ongoing conversions from other omnipod products as well as recurring revenue from Omnipod dash and the benefits of our pay as you go model.
We continue to expect the cadence of our revenue growth to be weighted more to the first half of the year given a tougher comparison in the second half of the year.
Resulting from the Omnipod five full market release in the U S. In August of 2022.
This includes the related volume benefit from the accelerated pace of customer conversions in the second half of 2022.
For International Omnipod, we are reaffirming expected revenue growth of 6% to 10%.
On a reported basis, we now estimate a favorable foreign currency impact of approximately 200 basis points.
Growth will be driven by ongoing omnipod dash adoption, partially offset by AIB competitive headwinds.
As a reminder, given the nature of our annuity model, we are not expecting a material contribution from <unk> five in our international markets in 2023.
Lastly for drug delivery, we continue to expect a decline of 55% to 45% representing a dollar decline.
Similar to what we experienced in 2022.
Turning to 2023 gross margin.
Excluding the impact of the voluntary medical device correction, we continue to expect gross margin to be in the range of 65% to 66%.
Consistent with 2022 at the high end.
Favorable impacts this year include the benefit of increasing volume in the U S pharmacy channel.
Favorable geographical sales mix and manufacturing improvements.
These drivers will be offset by higher costs associated with our U S manufacturing ramp.
Product line mix due to increasing Omnipod five volume.
Inflation.
As we've said before we expect many of these factors to impact our results into 2024.
We expect Q2 gross margin to be near the low end of the range in the second half of the year to be closer to the high end of the range.
This improvement will be driven by increasing volumes in the pharmacy channel and improving manufacturing performance.
We continue to expect operating expenses to rise due to investments in our sales and marketing efforts, including the phased launch of Omnipod five in our international markets as well as expanding our innovation pipeline and clinical efforts and scaling our support functions.
We continue to expect adjusted operating margin to be in the high single digits similar to 2022 levels.
We also expect improvement in the second half of the year over the first half.
Due to timing of investments and improved second half gross margins.
We remain committed to margin expansion and expect to begin to leverage investments in 2024 and beyond.
We continue to expect capital expenditures to be at a lower level than 2022.
Turning to our second quarter 2023 revenue guidance.
We expect total omnipod growth of 29% to 32% and total company growth of 27% to 30%.
For U S omnipod.
Expect growth of 37% to 40%.
Our growth drivers remain the same the ongoing adoption of Omnipod five including the benefits of U S Pharmacy channel and our continued strong new customer starts.
As well as the benefits of our annuity model.
For International Omnipod, we expect growth of 13% to 16% driven by ongoing Omnipod dash adoption, partially offset by AIB competitive headwinds.
On a reported basis, we estimate a favorable foreign exchange impact of approximately 100 basis points.
Finally, we expect a Q1 drug delivery revenue decline of 25%.
20%.
In conclusion, we are on track to deliver another strong year of financial results and operational performance.
We achieved a number of milestones this past quarter and are incredibly excited about the year ahead and the opportunities we see to further our mission.
Prove our customers' lives and drive value for shareholders.
With that operator, please open the call for questions.
Thank you if you have a question at this time. Please press the Star then one key on your Touchtone telephone.
<unk> has been answered or you wish to remove yourself from the queue. Please press star one again.
We are limiting each participants question to one however, please feel free to go back into the queue as time permits and we will be more than happy to take your follow up question at that time.
Our first question comes from Jeff Johnson from Baird. Please go ahead. Your line is open.
Okay.
Thank you good afternoon, guys and congratulations on the quarter Brett.
Miss talking to you at the meetings. So good luck in your next endeavors.
Jim.
Wait I wanted to look at your international guidance for <unk> I'm sure. There's a lot of questions. We could ask about the strength in the U S for.
For Omnipod, five, but that 13% to 16% growth, it's about four to 500 basis points above where the street setting for <unk>. Obviously, you talked about some increased AIB adoption that we all know what's going on over there where you talk about the increased attrition.
Hard for me to reconcile the strength youre expecting in <unk> and even over the balance of the year. There. If <unk> is not going to contribute a lot. So so what's going right in the international business and how are you accelerating that growth given some of those attrition and competitive factors you talked about thanks.
Hey, Jeff.
We would love to start talking about Omnipod five but why don't we go ahead and talk about international for a second so as you point out we had a strong Q1.
At 10% and that's about where we've been performing over the last couple of years, So 11%, 12% performance over the last couple of years, 10% Q1.
Q2 does look a little higher but it's more just some of the choppiness that we see in the international markets due to the distributor in nature and so we do have a bit of a higher growth rate that we're planning based on some of the order timing. There. If you look at the second half growth rate. It offsets it and then it looks to drive us in for the full year around the 6% to 10.
Percent or just double digits at the high end and we've.
We've been performing at that level for the last couple of years. We think we can continue to drive that at the high end really depends on how the second half performance goes and as you know we're not.
Dissipating the AIB portion of the market internationally and so right now a dash is doing really really well without an AI system, we're still growing double digits internationally and as you know we can't wait to bring Omnipod five first to the UK mid year, and then Germany now in the fall and then to further.
Countries next year and so we think we will significantly improve our performance even above the double digits right now once we get only bud five in our system into that market.
Our next question comes from Larry Pete Wilson from Wells Fargo Securities. Please go ahead. Your line is open.
Good afternoon, and thanks for taking my question, Jim I can't help but ask about your and congrats on a really good quarter here I can't help but ask about the comments you made about over 70% penetration of pumps in the type one population I guess could you put some timing around that what do you think needs to get done to make.
Pumps standard of care it has moves relatively slowly.
And it is interesting to see.
That your 80 20 split has gone to 70 30 with Omnipod, five which suggests that a higher proportion are coming from.
Competitive pumps, thanks for taking the question.
Thanks, Larry Thanks for your congrats on the quarter.
We're very happy with the quarter too.
Yes, I think the key point, we don't have a timeframe on that overall pump penetration I think the key point, we're trying to make is that omnipod.
Omnipod five the Omnipod platform, and especially Omnipod five.
<unk> fundamentally different and better from tube pump offerings that were first introduced into the market and because of that they are so simple to use that as the market goes through a learning curve. We firmly believe we're seeing hints of it alright, right now already and we firmly believe that more and more people will both consider using a pump or <unk>.
It will pump and more and more doctors will consider putting patients onto an omnipod five platform product that they were.
Wouldn't have considered a year ago.
It's just because of the ease of use is so high effect, we'd go back to last year. One of our investigators finished his talk about omnipod with.
With the statement that given this offering.
Now the case that everybody in the market should be considered for pump therapy.
So we think that those penetration models, which everybody has been talking about and Danny around numbers for quite a long time.
Our really obsolete, we think that Omnipod five is going to bring more and more people to market that's going to be true in type one where CGM is already very well penetrated in this paved the road for US we think it'll be even truer for us in the type two market because.
People with type two diabetes have such a burden in managing their disease, it's very difficult for them to get approved for insulin pumps, it's very difficult for them to manage everything they're doing along with the tube insulin pump. We think the simplicity of Omnipod five is going to drive penetration in that market as well and see it as a huge opportunity.
Our next question comes from Robbie Marcus from Jpmorgan. Please go ahead. Your line is open.
Oh, great and congrats on a really nice quarter.
For my question Omnipod side that is clearly doing great its taken share record new patients.
<unk>.
Hey.
And our first quarter just below a fantastic fourth quarter. So I think the current momentum isn't it question here, but as we look forward do you have in guidance growth slowing a bit really wanted to get your sense on how you think about balancing bringing in those new patients that are not.
Using a pump right now versus some competitive entrants, particularly Medtronic 700, atg and tandem's.
Moby that's coming later this year and how you think the trajectory of new patient adds can continue not just in the short term, but over the next let's say five years or so.
Yeah.
Thanks Ravi.
Really bullish on the coming five years for our business and for our growth trajectory.
And.
The mix of the mix of patients for us MDI versus competitor.
Has moved a little bit in the quarter and that sort of thing.
I'll just say a couple of things. The first one is we have the best offer on the market. So if you're just thinking.
<unk> sort of the three main competitors in the market our offering is clearly superior we're clearly winning in the market right now.
We're taking we're bringing a lot of people out of MDI into the market and we're taking competitive share and driving competitive switching which continues to run ahead of our historic pattern and frankly.
Frankly, our expectations are in terms of competitive switching, but we don't think about the market that way the way, we think about the market is not as a zero sum game amongst the <unk>.
Pump players, we think of the market as a market with.
Literally tens of millions of people that need insulin therapy that need a much simpler solution and so our entire offer is geared to bring people off of multiple daily injections and all of the burden of multiple daily injections into a simple wearable disposable waterproof waterproof pump.
Requires them to not have to do a lot of calculations don't do finger sticks, and just manage their condition that way and so we're extremely bullish we have it we have a very clear lead on the whole package, we have a fantastic algorithm.
And the whole package for Omnipod five is so simple.
Where experience is simple the channel access access is simple the economics are great for patients and the economics are great for payers. So overall, we're extremely bullish on the on the ongoing growth and given our lead.
Just going to extend that lead we have tons of innovation coming to the pipeline and.
Our reorganization is going to allow us to move even faster with that so so.
So we think our we love the momentum we have right now we intend to continue it and we think the midterm long term outlook is really really strong for us.
Our next question comes from Joanne Wuensch from Citibank. Please go ahead. Your line is open.
Thank you very much for taking my question two questions.
How should we think about John delivery over time does that essentially go to zero.
And then the second question is 88 is coming up what should we be looking forward. Thank you.
Thanks Joanne.
Take a shot at both of those but I'll invite either either way to Brett to comment and give some color. So first one on drug delivery.
That's been a great business for us.
It's because as we grow as <unk> grows in particular is becoming less and less material for us.
But we've really enjoyed delivering that product to our partner at Amgen and we know that product makes a difference in people's lives in that therapy area.
That business is lumpy for us and has been so.
And so we expect that to continue to decline.
I don't know Wade if we're going to guide on dropping to zero, we expect some revenues and we've made some progress there so I'll turn that to way, but first let me comment on EBITDA.
We're excited about Ada in San Diego. This year I think you all know that I'm based in San Diego. So it's right here in my backyard very excited for it to be here, we will be bringing more real world evidence publications to Ada will be showing some real world evidence around type one usage will be showing some real world evidence around tied to usage, we're really excited to build on what we see.
At AT&T D. This year and as I've as I said in the past and you've heard us say in the past, we think that the cloud connectivity of Omnipod five puts us in a unique position to be able to have insights into into real usage cases across the population of people who are using the omnipod five pump. So we'll be showing more exciting data at Ada and we hope you come and see us.
Wei.
Yes, so just Jim Jim covered it really well I'll just add quickly on the drug delivery side of things, we have a great partnership with Amgen and we're very proud of the fact that our technology combined with their product has really helped them.
Continue to sell their product and defend against Biosimilars.
Given our delivery device and so we do think it's going to have a long tail Joanne we would expect it to be.
Several years, if not five or more years that will continue to provide the product for them, we're not going to guide as Jim said, it's a lumpy business just based on the order patterns.
But we think we will continue to provide that product.
Overall strategy for the drug delivery business has not changed for us. Although there are many growth options for US. There. We are laser focused on the diabetes side of the business and we've got so many investment opportunities to grow the diabetes side of the business and invest and create value that we're just not turned.
Our.
Focus to drug delivery at this time, but it still remains as growth options for us out there in the future.
Our next question comes from Margaret <unk> from William Blair. Please go ahead. Your line is open.
Hey, good afternoon, everyone. Thanks for taking the question.
I wanted to follow up on Larry's question, and maybe push a little bit more on that 70% plus market penetration, but maybe tie it to some of the comments around the organizational change.
First of all Brian Congratulations and I can think of accomplished.
Awesome, working with you and hopefully our paths cross again.
Because everything that we've done.
But maybe as we think about kind of that market penetration.
A lot of <unk> patients that maybe don't routinely go CNN.
You talked about getting closer to the patient and I think you can classify both regional local offices, but Jim.
Just a senior works out is this.
Commercial effort to try to get into the PCP as there are more virtually of doing that how are you guys thinking about it.
When you think about that 70%.
Thanks.
Thanks, Mario for the question, it's a great question.
We think first thing I'll say is the logic of it is such that right. So to me. The Omnipod five operating is just so compelling that and what we see when we are patient feedback.
Ease of use are just so high and we get these messages from patients literally every day.
And we think it's just there is a compelling logic for people to be using omnipod five instead of MDI.
It's a better life experience, it's better outcomes with MDI and so just just on the weight of that it's really important.
I'll point out that there are many endo practices right now.
We're more than 70% of their type one users are on a pump and most of them on an omnipod Fox alright, and so omnipod five has allowed them to bring more of their more of their patients on ton refined five therapy and so we see that we see that playing out but if I just pick up on the other side of your question, which is around channel.
A couple of things I think are just really powerful for us.
The first one is we certainly know we know that there are <unk> out there who already are heavy riders, obviously have a big part of their focus treating people with insulin therapy treating people with diabetes.
We have those maps.
We periodically call on them with Omnipod go thats going to be an even more important part of our business and part of what we'll be doing as we do commercial pilot just figuring out the mix of how we call on those kind.
Hi, riders quote unquote in the PCP market.
But omnipod five simplicity will also help pcp's feel comfort in writing and we're seeing an expansion of.
Of people, who write prescriptions for Omnipod five so just but just put some numbers to that.
We've said you've heard us say before that physicians are increasingly comfortable with writing prescriptions for Omnipod five and we've seen that learning curve goes through the market.
And in this quarter, we had more than 11000 health care practitioners, who wrote a script for Omnipod five.
And that's in a market, where there just about 7000 endocrinologists out in the market. So more than 11000 people writing from five five so we see a lot of evidence that we're going to be able to do exactly what we set out to do as a company. When we found it which is bring a simple really simplifying offer broadly to the market that's easy for patients to use <unk>.
Easy for physicians to prescribe it easy for people to get access to and get set up on so we're very bullish on on driving more and more penetration and bringing more people in market. Our play is a growth play it's not a competitive switching play I think that's really important.
Our next question comes from Matthew O'brien from Piper Sandler. Please go ahead. Your line is open.
Afternoon. Thanks for taking my question I would just love to hear a little bit more about integrating with <unk> seven and Libre two and three just general thoughts on timing there or do you think youll be second MAA.
EMEA market with both of those new CGM products, and then any kind of commentary just as far as.
What opportunity you see with accessing libre patients to me it seems.
It's likely that they would probably go with O five if they do decide to go on a pump.
It kind of general commentary there would be helpful. Thank you.
Thanks, Matt.
We continue to work really closely with both <unk> Com and Abbott are two great CGM partners.
We're really pleased to see their continued technology advancements in the market. We were excited to see <unk> seven approved earlier in the year and as we said and as I said in our prepared comments.
Gratulate Abbott on getting both.
The Libre, two and Libre III cleared as <unk>, that's a big accomplishment. So we're very excited to bring sensor choice to all of our customers as soon as we can.
We're making great progress with both partners on completing those integrations and.
We haven't guided on timing I'm not going to speak to what our competitors are going to do but we're moving as fast as we can and we're excited to bring those innovations to market just as quickly as we can.
In terms of you've got two big players out there. So your question about penetration and different sensors and rule, which is what we think omnipod five as the best offer in the market. We think it's going to be the best offer for anybody wearing any sensor, which is why we want to bring choice to all of those customers and all of those patients.
It's obvious that.
Between those two players they they have millions of patients out there that are already using their sensors and for us that creates a kind of a.
I think I've said I've used this metaphor before on these calls you know what I used to go fishing with my dad. He would always say well, let's go to the let's go to the pond. They just stopped with the trials so.
We get out there and we're fishing and stocked pond.
So they've been paving the road for us, there's lots and lots of patients out there that both of our partners are.
Are delivering terrific wearable on body experiences in managing their diabetes, and we think that Omnipod five will very seamlessly slide into that on body experience and.
Provide great solutions to people wearing both decks com and libre sensors.
Our next question comes from Travis Steed from Bank of America. Please go ahead. Your line is open.
Hey, Thanks for the question and congrats on a good quarter, maybe a quick clarification for Wade I wanted to make sure. We had the numbers right on the stock destock this quarter. It looks like the net impact would have been a negative 2 million dollar headwind. So U S growth, 50% in Q1, so I wanted to make sure I had those numbers right and then the <unk>.
<unk> is really on the guide up in Q2, I don't know if thats, what youre seeing in April if it's really the strong Q1 that you had and then how to think about the second half because it looks like the second half guide is about mid teens growth, which looks conservative at this point I just want to make sure I understand the flow of the year for the U S growth.
Hey, Travis Yes, I'm glad you asked because we do have these dynamics with only bought five as we ramp up and as you know we haven't annualized yet. This is just our third quarter ramping with Omnipod five and so it does cause.
Some unique dynamics and we experienced similar stocking.
Majority of the $14 million, we called out is due to our existing.
Moving from either classic Omnipod dash onto our new Omnipod system.
And when they do that some customers will get their starter kit and their first reorder in the pharmacy and that creates a onetime volume benefit.
We also benefit from new customers, who have that same dynamic.
And then to a much lesser extent <unk>.
<unk> build and the retail pharmacies as retail pharmacies start to stock Omnipod five as their foot traffic increases with the rollout.
So that ended up with $40 million, which is very similar to the <unk> and the $50 million. We've had in the last two quarters. What was unique this quarter and added to that that resulted in a net small headwind as you mentioned the $2 million headwind was the.
The return reserve that we had to put up. So this is a new dynamic for us as the pharmacy channels are switching over from Dash and classic Omnipod to only about five and Theyre doing it at such an accelerated rate that they have the contractual right to return to us the prior products and so.
We set up a reserve we saw that increase here in Q1. So a portion of that is actuals in the quarter. The rest as a reserve for what we estimate to come throughout the rest of the year.
So those are the major drivers for us, including a days on hand.
Decrease and this was for the Army bought five business and of course, we don't control the inventory levels at our wholesalers.
And their inventory goes up and down from time to time.
Just a reminder than in Q2 of last year, we saw a $7 million channel increase for Omnipod five so in some respects. This is just giving that back and leveling out the channel here took a few quarters for that to happen. So we're going to keep a close eye on it but we want to make sure whenever we see a change material change.
And days on hand, we call it out for you all.
And then in reference to the guidance Travis.
Do see really strong momentum we've set record new customer starts in the U S for multiple quarters and so that's what gives us confidence in raising the growth rate for Q2, and then comparatively when you are looking at first half to second half growth percentages. The second half is when we annualized omnipod five from the prior year and so.
It's a much tougher comp and then inside of that we have our remaining customers converting from classic and dashed Omnipod, five which will start to ramp down in the second half of this year and we think we'll be through most of the eligible customers to convert and so we won't get as much benefit in the second half of this year as well.
In the second half of last year, and so that compounds, the tough comp a bit but if youre looking at the pure growth rates on an.
Extrapolated basis for the U S. We're looking at the second half.
And at the high end over 20% low twenty's growth rate at the high end and so that's what we're focused on.
Continuing to drive the business, even with a tougher comp well over 20%.
So that's the major dynamics.
We've got plenty of year to go yet so we.
<unk> the second half growth rate because we've got good line of sight to that given our annuity model, we're going to continue to monitor the second half and we'll provide further updates as we go throughout the year.
Our next question comes from Chris Pasquale from Nephron. Please go ahead. Your line is open.
Thanks, and congrats on the quarter I wanted to spend a minute on Omnipod go and the path forward. There can you walk us through some of the key milestones between now and when you think you'll be ready for commercial launch and in particular I'm curious about coverage in market access because I know you've highlighted those as gating factors before so there's some studies you want to run or anything else, it's going to get done this year to get you right.
For next year. Thanks.
Thanks, Chris.
Obviously, we received clearance for Omnipod go which is one of the one of the Poles in the tent, we're really excited to get that in such a an expeditious way it was terrific.
Other things that we need to we need to get in place to make sure that we can we can launch and scale.
You said that one of the main ones as is reimbursement and so we announced when we filed Omnipod go actually if you guys remember just before we filed on me if I go.
Because we wanted to be able to go to payers and start to talk about coverage and those conversations are going they're going pretty well.
And we expect to be able to have brought enough coverage to launch certainly in 2024 and then the other things we have to figure out is.
I mean, if I go as a new to world offer.
So it's in the Omnipod product form factor, but it has no control or it doesn't take a CGM pizza is very very simple to use.
It's a multiple SKU product because <unk> will have a basal rate associated with it so you would.
The way we've designed it as a physician would write a prescription for Omnipod go 10 units or something very simple like that but we need to go out and make sure that the customer experience as we fully understand the customer experience of getting that new to world product and we fully understand the physician experience of writing it and making sure there's appropriate access for everybody. So we'll be doing.
Some pilots to test out those models to test market reaction that test customer experience and so on.
And when we're confident we have those right we'll move to commercial launch.
We're not gaining we're not getting a lot of data we're not holding back the date, we want to make sure we're ready to launch the experience that we want to deliver to all of our customers, including both patients and healthcare providers.
We're moving pretty quickly so we'll move as quickly as we can but we're going to continue to guide to 'twenty four.
Our next question comes from Kyle Rose from Canaccord Genuity. Please go ahead. Your line is open.
Hi, This is Kate on for Kyle.
That's on a great quarter just to.
Kind of go off of.
Question earlier.
Have you begun enrolment on the T. Two pivotal study and can you kind of remind us of the timeline for this study and then.
U S customer starts coming from Q2, where do you really think this could go in the future as you kind of gear up though in the longer term. Thanks.
Thanks Caitlin.
Omnipod five type two pivotal is going really well and just as a reminder, I think we said in the comments to today.
That it's a it's intended to be up to 350 patients across 20 sites in the U S.
And we're already enrolling that enrollment is going really well we have.
Both patients and investigators are really keen to be in that study and so enrollment is going really really well, we're really excited about it.
We haven't put a timeline on it for everybody, but I'm sure everybody understands what happens is we have to.
It's a 90 day every patients in the trial for 90 days. So you enroll the patients each patient stays on the trial for 90 days and so theres a rolling cadence on the patient screening in the trial and then the last patient completes then you gather the data then you clean the data then you analyze the data.
And then when that's already we send it into the hands of the FDA and so theres multiple steps we have to go through we haven't put a timeline on that but.
But we're very confident first that is moving pretty quickly and second we're really confident in the results you can youre doing a trial because you have to get the results to finish the trial, but.
We know from our feasibility study that we published.
Last year that the.
The results of our Omnipod five for people with type two are terrific.
Really terrific time and range and significant reduction in actual daily dose of insulin, which is a benefit both the patients and to payers. So we're very bullish on that.
The overall do you think about the overall landscape we're already the leader in type two with Dash, we continue to have.
And enjoy a lot of new customer starts.
As a percentage of our new customer starts most of those are coming on to dash, because thats, where we have an indication for you. So we're already the market leader and insulin pump therapy with Omnipod Dash. We know we're getting off label usage right now for people with type two diabetes using omnipod five we don't promote omnipod five for people with type two diabetes, but physicians.
Physicians prescribe it and so we know we're seeing that already which is also an early indication of success for us.
We really would love to be able to promote it which is why we want to get the indication for use and then Omnipod go is upstream.
Of intensive insulin therapy. So omnipod go designed to really simplify.
Management their condition for people with type two diabetes, who are on basal only which is how most people in the U S initiated insulin therapy on a basal rate so by launching Omnipod go we move upstream we simplified.
Basal rate and insulin therapy therapy for people initiating and then as their needs progress they're already used to the Omnipod form factor had to put on a patch how to use it how to using omnipod product and when they need intensive insulin therapy, we anticipate it being very seamless for them to slide onto.
You are never going to happen tomorrow would be on the dash, but the timing will probably be such that most of those patients will be progressing onto omnipod five product once it gets its indication for years. So we think we have a terrific portfolio of offerings already entitled to and we're really excited to continue to drive growth in that market and drive solutions where people.
<unk> living with type two diabetes.
Our next question comes from Jayson Bedford from Raymond James. Please go ahead. Your line is open.
Hi, good afternoon I'll be quick here.
On the RCT, you mentioned that it would support premium pricing I just wanted to clarify is that premium pricing relative to two pumps or premium pricing relative to your current offering in Europe .
Thanks, Jason.
Our intent is to deliver enough evidence into various markets such that we can go and secure reimbursement that we think is more in line with the value that we deliver with Omnipod five we think omnipod five delivers a lot of value.
Through its improved patient experience and improved outcomes.
And so and those.
<unk> are going we'll go market by market and so I think that what youll see is.
We'll probably have slightly different reimbursements and slightly slightly different levels of premium.
In any given market, depending on what we're able to prove to those to those state payers.
And what we're able to negotiate over time, we may be also able to ramp reimbursement over time as we are able to deliver more evidenced that as we're entering into those conversations we want to have as much evidence as we possibly can which is the purpose of that RCT and as a reminder on that one.
Two geography study its use in France.
The U S. The last patient has completed we have about 75% enrolled patients in France, and we expect that to wrap up in the fall and then we will have that as another as another arrow in our quiver of evidence as we go and talk to those payers to secure.
What we think is fair reimbursement for the value of Omnipod five creates.
Our next question comes from Matthew Taylor from Jefferies. Please go ahead. Your line is open.
Hi, Thanks for taking the question.
Wanted to go back to your comment on the penetration rates potentially going through 70% given all your advantages.
I wouldn't dispute that but.
Made some interesting comments that youre starting to see the green shoots of that and so my question on the follow up there is what kind of rate of change are you seeing or do you think that we could see driven versus the traditional 75000 or so MDI.
Coming to market.
Converting to pump every year in the U S any thoughts on that.
Hey, Matt squid happy to take that and you know I think Jim covered it well, but maybe just a couple of things that I could add to that I think as Jim said one of the best indicators. We have is that there are some type one endocrinologists that are already have more than 70% of their type ones on a pump.
So it's a clear early indicator one of the other things. We're looking at is the pediatric penetration rate, which is much higher than the adult penetration rate.
Already in excess of 50% and so.
That tells us that as the population ages over time, we're already seeing a higher penetration rate out of the pediatric space. So just be a natural increase in penetration as the population of people on pumps increases and of course, we're the market leader in peds.
And really driving that early penetration rate for <unk>.
Type ones and so the rate of change I think it's a great question that you have it's going to be interesting to see how the market curve develops here, but just.
Just one other thing I would add Jim mentioned that we're bringing we've got a full list of innovations to bring to market.
This early indicator, where we see some clinics already over 70% and Thats before we bring CGM of choice before we bring iOS before we bring software and hardware improvements over time and the competition was also improving their products over time, and so I think between all of US we're going to bring great.
<unk> for people with diabetes and for our customers here and just going to have much better technology solutions for delivery of insulin and so that's what gives us the confidence that we can take this to 70% and above of course, Jim covered this but the CGM early indicators. They are paving the way for us in all markets now even just the base.
The only market, which is one of the one of the great things about the only Bud go program, but just sticking with the type one in the U S and the and the <unk>.
Market given that Cgm's are up at 80% today, and we know that we bring more customers to CGM as well. So there's a lot of other early indicators there that tell us that we can get this penetration of 70% or above overtime.
Great question on the rate of change.
See how that market develops.
The good news is we have many other growth platforms, obviously, our leadership position in <unk> in the U S. And then our international expansion plans and bringing our Omnipod five aig's system to international markets and then of course, expanding our offerings with Omnipod go in the basal only market. So what's the good.
Excited about with our innovation pipeline today.
Our next question comes from Steven Lichtman from Oppenheimer. Please go ahead. Your line is open.
Thank you hi, guys and congratulations.
Just thinking on gross margin, obviously, a lot of moving parts here you talked.
Q some of some of that falling into 'twenty, four but thinking over the medium to long term you've just given some of the work youre doing an expansion in Malaysia.
Are you thinking about leveraging that line as you look out.
Over that medium term.
As international offset that just trying to think through the cadence over the next three to five years. Thanks.
Yes, Steven Great question to think down the P&L as well, we've got a lot of momentum on the top line and we think that we're going to be adding significant value with gross margin and operating margin expansion over time, focusing here on the gross margin and to your question medium to long term, we're not putting numbers on it but we know we've got a lot of tailwind.
We're not assuming the component.
Inflationary cost improve but we're not we're also not assuming they get worse from here, we're assuming they sort of leveled out and that's what we're going to live with for some time and so assuming the inflationary environment then stays flat for us the built in benefits that we have with scaling the business additional volume.
And the move the geographic mix of growing the U S faster as well as the move into the pharmacy channel is all going to provide us some tailwind to gross margin.
The other side of the coin where we have to watch is how fast we expand internationally and just given that we use a distributor model. There are gross margins are sometimes lower.
It doesn't mean, our operating margins are lower because we obviously have a lower cost to serve where we use the distributor market there and so it's going to be a combination of those things, but we're not going to put numbers to long term guidance at this point, but we do think we can continue to grow gross margins over time, and we've had a long term goal of getting to 70% we still.
Think thats in view over the over the medium horizon here.
But we just have to manage all of these dynamics continue to improve our manufacturing performance, which is also another driver for us.
And that's going to help us work, our way to 70% overtime.
We have time for one last question will come from Marie Thibault from BTG. Please go ahead. Your line is open.
Hey, good afternoon, everyone. This is Sam on for Murray, Thanks for taking the questions here and congrats on a nice quarter.
Maybe I can just ask on O U S. So we're gearing up for initial market introduction in the U K in the next couple of months or so.
I guess any other work thats needed in terms of developing that cloud infrastructure and you mentioned some market preparation any more details in terms of what that looks like.
Going on now ahead of some of those launches thanks for taking the questions.
Thanks, Sam we're really pleased we're very excited to be bringing omnipod five to the U K in Germany. This year.
Obviously since we are really late stage readiness, there and we are ready to launch those products the cloud infrastructure in those markets is completely ready.
To go and we're training health care practitioners right now and our teams are really excited to launch so we'll be doing those as we said in the summer and then some in the U K and in the fall in Germany.
There is some work to do the cloud infrastructure is scalable and so we're in we're in.
Good position in terms of how we're building out cloud across Europe . There is some specific work market by market to be done.
This technical sometimes its agreement base because the regulations by market are a little bit different in terms of data privacy and security.
And the channels are a little bit different and so your.
As you step into a market youre launching a cloud based offering you might have a different.
You might have a different agreement with a different hospital system things like that that have to be worked through so those are really the steps that we have to do.
But we're excited to get those launches going in Europe and then.
Really excited to continue to Cascade.
Cascade across the international geographies in 2024.
This concludes our Q&A section I would like to turn the call conference back to Jim Hollingshead.
Great. Thank you everybody. Thanks again for joining us today obviously.
We're thrilled with our start in 2023, and we're focused on sustaining that momentum for our entire business.
Both for the rest of the year and beyond the future for Insulet has never looked brighter and the future for people with diabetes is incredibly bright.
We look forward to continuing to update you on our progress over the year and next quarter. We will see you then thanks.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day.
We look forward to continuing to update you on our progress over the year and next quarter. We'll see you then thanks.