Insulet Corporation (PODD) Earnings Call Transcript & Summary

Yes. Okay. Great. Okay. Great. So just summing up the Type 2 opportunity. I think I hear the conviction that -- once you get past that first 90 days, these are durable customers, durable users. Where could type 2 IIT penetration go longer term 3 years, 5 years? I mean, are you willing to talk about just what that range could look like?

Yes. When we did our Investor Day last November, we talked about it getting to the 10% to 15% range from about 5% by 2028. And notwithstanding this conversation about us having more attrition in the first 90 days than we're happy with. The raw number of customers that we're adding NCS less attrition. We're on track to drive that kind of penetration. And so we're pleased with how the type 2 market is developing. I think when we take a step back and we look beyond that, Lee, we see opportunity for it to go significantly beyond the 10% to 15%. We look at where CGM is today, and that's always a source of inspiration and then we pay a lot of attention to, and they were about 5% today in the type 2 IIT. And that's part of what inspires like our type 2 fully closed loop, which is a disruptively simpler system designed to bring AID much deeper into primary care. And in order to do that, we have to take out a lot of the physician burden, which we've designed out of that system and take out a lot of the technology interaction requirements for the first most diabetes, which we've designed out of that system. So I think we draw inspiration from where CGM is at 55%. It's part of why we're innovating with our type 2 fully closed loop. And we're excited to take it a long way beyond the 10% to 15% that we see it getting to in the 2028 time frame.

Great. Excellent. We'll circle back on that, because -- just a quick question on basal-only users. Of course, you've got some wood to chop on the type 2 IIT 90-day retention issue before you can start thinking about basal-only users. But you have an indication there and you've got good clinical evidence that AID can improve outcomes versus basal insulin shots. What's your latest thinking on the longer-term opportunity there with basal only. .

We remain optimistic about the long-term opportunity for basal only. As you probably know, we had about 20% of the people in our secure T2D pivotal study that actually were on basal only and went straight to -- and as you might expect, we get a number of new customer starts today of customers who are coming straight from basal only. As you described, our commercial priority today is to penetrate the IoT market, the type 2 basal bolus market. But over time, we see a real opportunity in the 3 million people who are taking basal insulin too. And maybe just to characterize that, the people who are already coming on, are people with very high A1c for whom AID is life changing. And so back to kind of the core of who we are, we see an opportunity to change lives and continue to unlock another market segment to drive growth over time.

Yes, it does make more sense kind of physiologically for those people, right? You're giving them insulin when they need Okay. Okay. quality. Let's just -- 1 quick question on quality. Your ability to manufacture at scale is obviously key to your competitive moat a couple of recent medical device corrections have put added focus on quality. What have you learned from those recent issues? And what changes have you made in response?

So Lee, as we shared, we've fully addressed the handling challenges in our factories. What we learned taking a step back. We learned that there were places in our factories where we were handling sensitive parts of the cannula in ways that a lot of damage to happen. And that's unacceptable to our customers, and we've addressed it. And we've examined our factories across manufacturing processes to make sure that there aren't other opportunities we're similar damage could occur, and we've implemented corrective actions to address that. More broadly, we have just a really strong commitment to quality. We've been on a long-time journey on the belief that, look, we earn our customers every time they put on a bad. And -- so that trust and the experience is paramount. And moments like this just redouble our commitment to continuously improving quality for our customers. I think Lee, the other big picture learning is we also plan our supply chain with enough resilience to be able to get through moments when there's disruption. And this year, despite the disruption, we're proud of the fact that we didn't miss a single shipment to customers, and that's a testament to the supply chain resilience and global capability that we've built.

Yes. Great. Okay. Excellent. Manufacturing, these things at scale is not easy. You guys have been doing it for a long time. Okay. Let's hit the pipeline. You've highlighted Omnipod 5 algorithm enhancements plus Discover in 2026, OmniPod 6 next year and the type 2 fully closed loop agri -- maybe can you just elaborate 1 by 1 on why you're excited about those 3?

Yes. As I mentioned earlier, we've got the most exciting innovation pipeline we've ever had, Lee. And the launch earlier this year of our second-generation algorithm it gave people an option for a lower target glucose, which gives people an option for tighter glycemic control with no increase in hypoglycemia has been really well received by customers since launch a couple of months ago. In addition to that, we launched the FreeStyle Libre 3 integration, helping Omnipod 5 connect with the 450,000 or so people with diabetes who use Freestyle Libre 3 here in the U.S. And we talked a lot about Omnipod Discover and the impact of that will have on people with diabetes and streamlining office visits for health care providers. So 2026 has been a terrific year for innovation at Insulet. We're even more excited about next year with the launch of Omnipod 6 Lee. Omnipod 6 brings a new automated insulin delivery algorithm that delivers more automated insulin with less bolus burden. It's an opportunity for people to get even better clinical outcomes and interact less with the system. It also has new hardware to -- that gives dramatically improved wear flexibility. We know that true wearable experience, people want to wear it where they can take an injection of insulin. And as sensors have gotten smaller AID devices had to be closer and closer to sensors, somewhat limiting wear flexibility. And we've made the investments in the technology and manufacturing to address that Omnipod offering people dramatic wear flexibility, they experience. And finally, it's a single SKU updatable pod. So it simplifies prescribing for health care providers, and it accelerates future innovation to customers by allowing us to push updates directly to pods that are in customers' homes rather than having to put new technology on pods in our factories and ship them through the channel. So we're incredibly excited about Omnipod 6. And finally, we spoke a little bit about our fully closed loop for type 2 already coming in 2028. That system is in pivotal study now. Enrollment is progressing well. And that is a disruptively different technology. So as I described, that's a technology where the physician does not need to put any information about insulin into the system. So they write a script and the customer goes to the pharmacy to pick it up and the customer starts in a very CGM-like way. So they self-start. We were just doing studies of this in people's homes in Oklahoma, having people self-start on an AID system with no manufacturer or health care provider intervention. They put on the system wear it for 3 days and live. And that sort of disruptive simplicity is what we know is required in order to break down the barriers to adoption, which are that today -- we're proud of the fact that there's 30,000 writers of Omnipod, but there's more than 100,000 writers of CGM. And if we want to get penetration in type 2 to where it is in CGM, we know we need to dramatically broaden who can write and that's what we're doing with type 2 fully closed loop system coming in 2028.

Excellent. Great. Omnipod 6, 1 clarification. The algorithm there is already cleared. -- you're just waiting on the full system clearance. Is that right? The plan is...

Or 2027, sorry. Correct. Omnipod 6, we'll come in 2027. We have gotten the algorithm clearance, and we have the system submission coming up. So we're working through regulatory and working through launch readiness.

And then clarification now fully closed loop. You talked about starting with Type 2 here. Why start there? And is there a potential for type 1 fully closely?

So we're starting with type 2 because of the opportunity that we just described. I think when we say fully closed loop, what we really mean is a disruptively simple system that does not require input from a physician or from a person with diabetes. And that design profile is what unlocks the 70% of the type 2 TAM, the almost 2 million people who are cared for by primary care. Those primary care providers, we are slowly penetrating them, but it's a few thousand at a time. If we want to unlock tens of thousands of those writers, we need a disruptively simple system. We're starting with type 2 because we can do it, and we see the opportunity and the unmet need to go bring AID technology to those people. We are also advancing what we think of as a hybrid closed-loop system that some people will use as a fully closed loop system and choose not to engage and choose not to bolus. . So we're launching Omnipod 6 as the next step in that regard next year. And we've already said we'll be launching another algorithm update the year after that with continued algorithm improvements to come as we push towards the system doing more and people doing less forever.

Got it. Got it. It's a recognition that some type 1s want to have that flexibility to bolus when necessary. And I think that's 1 of the nuances conversation about type 1 fully close then?

Yes. I think in our research, most type 1s actually want the flexibility to engage. And so we view as we keep building better and better hybrid closed-loop systems -- that will be a system that most people with type 1 will choose and some people with type 2 will choose to want that engagement too. But the having the portfolio of a system that it requires much less of both health care provider and person with diabetes is what unlocks almost a 2 million person type TAM that just can't be served with a hybrid closed-loop system where there's more to learn and more to manage.

Yes. Got it. Okay. Let's talk about competition. One of your competitors got FDA clearance for their patch pump just 10 days ago. They're planning for U.S. launch in Q1 of 2027. They've got a 2-piece architecture with some reusable electronics, which means they can do those over-the-air software updates. There's no need to repair the Bluetooth during patch changes and there's less waste versus fully disposable option. So maybe just talk a little bit about how you think about those claims or how you respond to those claims. How does the world change with...

Yes. Lee, maybe a couple of big picture thoughts before we do in. I think first, just back to being a large and underpenetrated TAM, if you look at what's been happening in the market, patch has been the almost sole source of market growth. And so as we see the need to drive more penetration having more players with products that customers want is a good thing to help get technology in the hands of people who need it. And so we think the patch category is going to expand significantly with there being more entrants. Meaning that both AID will expand and patch as a fraction of total AID will expand. And we see that as a good thing for getting technology in the hands of people with diabetes. . I think as we then look ahead, we have confidence in 3 things. The first is that we will sustain technology leadership. There is only 1 fully disposable automated cannula inserted waterproof wearable AID system. And that's Omnipod. And I met a guy at ADA last year, who would climb Mount Denali taking Omnipod with them with the confidence that if he had a problem, he'd have a backup pot, and he could keep going, right? I'm not Denali. So I think the reality is there is a huge amount of security and ease of use that comes with the fully disposable form factor that's a little bit underappreciated until people have lived 1 way or the other with it. Additionally, we're continuing to innovate. We just talked about our pipeline, Lee, but Omnipod 6 is a tremendous product that we know will be a delight to customers. and we're going to keep innovating beyond that, too, with our updates in 2029, and we're already hard at work on stuff beyond that. So we have confidence we're going to sustain technology leadership. The second thing, we talked a little bit about manufacturing and supply chain and readiness to execute at scale. But just to dimensionalize that, we will have added more than 100,000 incremental customers per year in 2025 and 2026. If you just look back on our disclosures. We added more than 100,000 in '25. We've said we'll add more than that in 2026. At 120 pods a year, that's more than 25 million pods worth of capacity that we had ready for incremental demand last year and this year. And we're ready to keep doing that in 2027 and 2028 to keep driving growth. And so we, I think the second big thing that gives us confidence in continuing to sustain and extend market leadership is our operational readiness to keep driving the market and serving the growth that we are creating. And the third piece is we have a large recently expanded talented field team and a beloved brand that's blooded by 600,000 podders and respected by health care providers around the world. And we are using our leadership in the market to keep expanding our commercial footprint. And we've recently invested in clinical and competitive selling training for our field because we've been used to selling on form factor. And the reality is Omnipod5 delivers life-changing clinical benefits that we haven't been selling all of -- so between our confidence in sustaining technology leadership, operational reading for continued growth at scale and leading commercial footprint that is now even readier to sell clinically and competitively in a more crowded marketplace. We're confident in sustaining and extending leadership.

That's great. Thank you for that. Excellent. So -- the market, of course, is getting a little bit more competitive to more competitors hoping to launch patch pumps in the U.S. by the middle of next year. some additional new features there, 7-day wear a couple of well-liked algorithms, 1 offers flexibility to switch between tube and tubeless. One of them has a 300-unit reservoir. Maybe 1 way to get at the question is, you've been really successful for a long time with 1 form factor, which limits complexity and helps your margins a lot -- as the market gets more competitive, do you see Insulet offering a broader portfolio over time? Or do you think the current approach is the winning approach.

There's a lot of success in simplicity, Lee. And I think what we -- we always work back from what our market needs. And what market needs are improve outcomes, reduce burden and remove barriers to access. And so we just worked back from those 3 things and improving outcomes, we're focused on algorithm innovation to keep improving outcomes. In terms of reducing burden, the fully disposable easy-to-use form factor and algorithms that require less of people. Those are the best ways to reduce burden. And in terms of removing barriers, that's why disruptive innovation like our fully closed loop for type 2, removing barriers to technology by bringing it to tens of thousands of potential new prescribers are so important. And so I think it when we just take a step back and we look at what are the market needs and how do we best meet them. We have confidence that the technology and the portfolio that we are working toward are the right ones.

Yes. Okay. Great. Excellent. Just 1 on pricing. You mentioned on the Q2 call that as new competitors have entered the pharmacy channel, both Insulet and other players have remained disciplined on price so far. Can you just elaborate a little bit on what you're seeing in the pharmacy channel lately? .

Lee, as we shared on our Q2 call, the pricing environment is stable. And for us, that means flat to slightly up. So at this point in the year, we are through we're well into negotiations for 2027, and those are proceeding in accordance with our expectations.

Yes. No change expected on that front. Okay. Great. Let's say international briefly. The international business has been a major source of growth for Insulet. 75% of the OUS DASH installed base has now converted over to Omnipod 5 but there's still plenty of opportunity outside the U.S. Maybe can you frame some of the big drivers of U.S.

Yes. As you mentioned, so far through Q2, our international business has been standout growing more than 30% plus year-over-year. As we look ahead to 2027, that because we are 75% converted from DASH to Omnipod 5, we'll get a bit less of the price/mix realization that we get from that conversion in 2027. So we'll still get it, but it will be less. And so most of our growth in 2027 will be volume. And and we're driving high levels of volume growth today, and we expect to continue doing that in 2027. A couple of catalysts for that. In July, we just entered Spain with Omnipod 5. That's a direct market for us, typically one of the top 5 med tech markets, and that's a great new entrant that we're excited about driving in 2027. Second, we're launching our Libre 3 integration in both Germany and Canada between now and the end of the year. Those are both markets where sensor of choice is important, and this will be the first time that we have a Libre integration in those markets because Libre 2 was actually not available. And so we're excited about being able to drive some incremental growth in both of those. And finally, we have high share and are focused on continuing to win share to drive new customer start growth year-over-year. And so together, that's what gives us confidence in high level of growth that we communicated as the framework. We think in about 2027 and taking a big step back, the market is only 25% penetrated. And so we're continuing to work on the more systemic things that have to be done like in the U.K., Peds penetration is now pretty good. We're focused on helping get adult penetration up. And in other markets, it's sort of different in each one. But we're working on both driving growth, winning share, launching technology and breaking down the systemic barriers to help adoption rise. We're focused on helping get adult penetration up. And in other markets, it's sort of different in each one. But we're working on both driving growth, winning share, launching technology and breaking down the systemic barriers to help adoption rise.

Okay. Amazing. Last 2 here, just to close. First, we're expecting LRP update on the Q4 call. Between now and then, what are the real operational metrics that you're monitoring most closely to give you confidence in that refreshed LRP?

Yes. Lee, we're focused on delivering is the short answer. So we are always watching how we're doing on retention, how we're doing on new customer starts. -- and pricing, ASP and utilization, which we've just talked about. So these are the metrics by which we run the business. And in this moment, we're really focused on those. And we're -- as I described, we're also watching some more real-time indicators, especially for retention so that we know that our execution plan, 4 points that we spoke about earlier on retention is having an impact. Okay. Great. Excellent. So just wrapping up, over the next 12 months, you've got some work to do on several fronts, improving the first 90-day type 2 experience, rolling out Discover, responding to these competitive launches, preparing Omnipod 6, maintaining that strong quality control. What are the couple of 2, 3 milestones that would give you confidence that the company is on track to maintain market leadership?

Yes.

Lee, what has been true for my whole 10 years at Insulet is that success comes from seeing what needs to happen and then executing those things. And in this case, on the -- how do we address type 2 retention, we see clearly what needs to happen. And those are the 4 things that we've talked about. That's changing the playbook for sampling, that's adjusting field incentives, adding the support during those first 90 days, and it's accelerating the launch of Omnipod Discovery in the second half of the year. So we see it, and we're focused on executing it. For Omnipod 6, we see the opportunity for a really impactful launch of Omnipod 6. As you mentioned, we've already got regulatory clearance for the algorithm, and we're focused on executing the regulatory clearance for the system and getting ready operationally for a really impactful launch. And then we're also focused on getting this fully closed loop for type 2 pivotal study complete and getting that ready for submission in 2027. When we do those things and we deliver the operational metrics we're always focused on, that's what gives me confidence that the next decade is our best, Lee.

Excellent. All right. Great. Well, thanks so much for being here, Eric. We really appreciate it. Thanks.