The Insulet Corporation is hosting an earnings call to discuss their second quarter 2023 results. Deborah Gordon, Vice President of Investor Relations, is the host of the call, and Jim Hollingshead and Wayde McMillan from Insulet are also present. The replay of the call and press release discussing the quarterly results and guidance are available on the Insulet website. During the call, non-GAAP financial measures will be discussed to assess the company's performance. The financial commentary will be on a year-over-year reported basis, except for revenue growth rates which will be on a year-over-year constant currency basis. Jim Hollingshead will then begin the call.

In the second quarter of the year, Insulet enjoyed strong momentum and achieved several key strategic and financial milestones. The company saw total Omnipod growth of 33%, including U.S. growth of 41%, and total company growth of 32%, prompting them to raise their outlook for the year. The flagship offering, Omnipod 5, continues to be a major driver of U.S. revenue growth, and was responsible for a record quarter of U.S. and global new customer starts. In addition, Insulet completed the commercial launch of Omnipod 5 in the United Kingdom and plans to launch it in Germany this fall. They also presented new real-world data from the first year of Omnipod 5 in the U.S. at the ADA in June.

Inoxico is excited to have submitted their 510(k) to the FDA for the Omnipod 5 iOS app for the iPhone, which will offer customers simple and easy-to-use technology, an unmatched form factor and customer experience, affordability and broad access through the pharmacy channel. Additionally, they have seen a 75-25 percentage split of Omnipod new customers coming from multiple daily injections and legacy tubed pumps, as well as an increase in the number of HCPs who wrote scripts for Omnipod 5 in Q2. The feedback they have received from the diabetes community has been positive, showing the power of Omnipod 5.

Omnipod 5 has seen success in the type 1 and type 2 markets, driving pump penetration to over 70% in the type 1 market. The pharmacy channel provides convenient, affordable access and the majority of customers pay less than $50 a month. Recent clinical initiatives included presenting Omnipod 5 real-world evidence at ADA, which included data from 60,000 individuals.

Omnipod 5 is cloud-connected and collects data from its rapidly growing customer base, which can be used to improve customer care and streamline physician workflows. In addition, a trial is beginning soon in the U.K., France, and Belgium to test the effectiveness of Omnipod 5 with the FreeStyle Libre 2 CGM, with the primary endpoint of change in A1c. The data from the trial is expected to support pricing and access initiatives.

In the second quarter, Insulet Corporation has made significant progress in their integration with Abbott's Libre and began their first feasibility study of a next-generation AID algorithm. They have also begun their type 2 pivotal study and expect to complete enrollment by the end of the year. Participants have expressed their desire to stay on the product after the trial's completion. The final participant in France is on track to complete their Omnipod 5 with Dexcom's G6 randomized controlled trial, and once complete, they will analyze the data and negotiate access and premium pricing for Omnipod 5 in their international markets. Insulet is confident that their product will disrupt diabetes management and that their innovation pipeline will drive sustainable growth.

Omnipod GO is about to enter a limited commercial rollout in the U.S., which will bring its reach to new HCPs and at least 3 million people who require basal-only insulin. This will help inform the full release in 2024 and increase adoption with Omnipod DASH and Omnipod 5. Additionally, the company has competitive advantages such as a differentiated form factor, an affordable pay-as-you-go business model, and pharmacy channel access. During Q2, type 2 diabetes represented 20% of new customer starts in the U.S. and the company also submitted a 510(k) for the Omnipod 5 iOS app.

Insulet is advancing their integration efforts with CGM partners to provide future CGM of choice with Omnipod 5. They are also expanding their intellectual property portfolio and have taken legal action against EOFlow for misappropriation of their trade secrets and infringing on their patents. They have also recently commercially launched Omnipod 5 in the U.K. and have received a positive response.

In the second quarter of 2023, Omnipod 5 was launched and saw an almost doubling of typical customer order rates. It was made available in Germany in the fall and by the end of 2024, the goal is to have it available for the majority of European customers. The quarter saw record U.S. and global new customer starts, with 32% revenue growth and 33% global Omnipod growth. Foreign currency was a 20 basis point tailwind. U.S. Omnipod revenue growth was 41%.

In Q2, revenue growth was driven by a record number of new customers, an increasing contribution from Omnipod 5, and 90% of U.S. volume coming from the pharmacy channel. International Omnipod revenue increased 15%, and delivery revenue increased 18% due to favorable production fees and timing. Foreign currency was a 50 basis point tailwind over the prior year, and estimated global attrition and utilization remain consistent.

Gross margin was 66.8%, up approximately 320 basis points due to a premium from volume growth in the pharmacy channel, improved manufacturing efficiencies, and a decrease in warranty expense. Operating expenses were up year-over-year to support higher-than-expected revenue. Adjusted operating margin and adjusted EBITDA were 7.6% and 15.5%, respectively. The company ended the quarter with $660 million in cash and extended its credit facility to $300 million. For the full year, they are raising their expectation for total Omnipod revenue growth to a range of 25% to 28% and total company revenue growth of 22% to 25%.

In 2023, Omnipod is expecting 33-36% revenue growth driven by strong Omnipod 5 adoption, recurring revenue from Omnipod DASH, and the pay-as-you-go model in the pharmacy channel. International Omnipod growth is expected to be 7-10%, with a favorable foreign currency impact of 300 basis points. Drug Delivery is expected to decline by 50-45%, and adjusted gross margin is expected to be in the range of 65-66%, impacted by increasing volume in the US pharmacy channel, geographical sales mix, improved manufacturing, and higher costs associated with US manufacturing ramp, product line mix, and inflation. These factors are expected to continue into 2024.

Insulet is expecting gradual improvement over the coming years, with gross margin near the high end of the range and operating expenses rising with investments. They are expecting high single digit adjusted operating margin, with improvement in the second half of the year. For Q3 2023, they are expecting total Omnipod growth of 20-23% and total company growth of 18-21%, driven by the adoption of Omnipod 5 and new customer starts, with International Omnipod growth of 2-5%. Drug Delivery revenue is expected to decline by 25-30%. In conclusion, Insulet is on track for long-term sustainable growth.

Jim Hollingshead and Wayde McMillan discussed how they are continuing to experience strong growth with Omnipod 5 and how they are bullish on the growth going forward. They mentioned that they are lapping some tough comps in the second half of the year, but despite this, they are still expecting 20%+ growth beyond 2023. They also discussed the onetime contributions they received from first and converting customers in the second half of 2022.

James Hollingshead is confident that the recent developments in GLP-1 drugs, which have additional efficacy from the existing class, will not impact the total addressable market (TAM) for diabetes. He believes that the innovation is good and will help people with both type 1 and type 2 diabetes. The global problem with type 2 diabetes is still enormous, and he is confident that this will not affect the TAM.

Insulet Corporation is targeting a large and underserved population with their Omnipod platform, and their U.S. guidance for the quarter is significantly higher than their previous quarter's beat. They are confident that their platform will be successful due to its simplicity and channel access, and that the GLP-1 drugs will not affect their Total Addressable Market.

Wayde McMillan explains that the guidance range is subject to a headwind of 5-10% due to the tough comparison to last year's Omnipod 5 ramp. However, they have confidence in the high end of the range due to their durable business model, record customer starts, and stable attrition and utilization. Additionally, the pharmacy channel has contributed to the premium and 90% of their volume is now in the pharmacy channel, which is a significant increase from this time last year.

James Hollingshead starts off by discussing the success of the Omnipod 5 launch in the U.K. and the pent-up demand for the product across Europe. He then explains that the installed base model will take time to flow through, but that the U.S. example shows an immediate growth inflection from the Omnipod 5 launch. Wayde may provide additional color on the topic.

The company had a big celebration for the launch of their therapy in the UK, and the order rate has doubled. The growth in the US and European markets is different due to the pharmacy channel in the US being more flexible for customers who are on a therapy. Most of their new customer starts are customers who are new to therapy and are getting upgrades from their products, and they will be bringing in new customer starts who are converting but have to wait for their contract to come up.

Jeffrey Johnson asked Wayde McMillan about the headwinds that have been affecting the U.S. Omnipod business, such as the reduction in channel inventory and returns. McMillan responded by discussing the dynamics of the days inventory on hand, noting that the pharmacy channel has become more efficient and that they have seen the effects of Omnipod 5.

In Q2 of last year, there was an inventory build which was a headwind for the quarter. Days inventory on hand decreased again this quarter, so it is uncertain if it will stay at this level or increase again. The benefit of converting Omnipod customers to Omnipod 5 is starting to decrease and has been offset by increases in the return reserves and days inventory on hand. If these two dynamics do not change, it is expected that the 2 script benefit will continue, but to a lesser extent in 2024.

InnoMed is in the process of converting Omnipod Classic users to either DASH or Omnipod 5 in the U.S. and they plan to discontinue the product in the U.S. by the end of the year. They are not seeing higher attrition rates from the Classic users and have found that the customers that are converting are staying with the product and the attrition rate is strong.

Wayde McMillan and James Hollingshead answer Travis Steed's question about the 48% U.S. growth and the Q4 guide. Wayde clarifies that the net headwind of $4 million adds a couple of percentage points to this quarter, and the implied guide for Q4 should be near 30% at the high end of the range. James is excited about the integration of the iOS app, G7, and L2, which have been filed with the FDA.

The Omnipod 5 is a highly requested feature as customers do not want to carry both a controller and phone. The company is working closely with Abbott and Dexcom to create a sensor of choice and has already begun a study in the U.K. G7 has had a quick launch and is providing a good customer experience, while the FreeStyle Libre family of sensors is popular in other geographies.

James Hollingshead reports that the HCP prescriber increase is largely due to the ease of use of Omnipod 5, which is accessible to a wide range of healthcare professionals. The interest in Omnipod 5 was demonstrated at the ADCES conference in Houston over the weekend, where the workshops and showcases had standing-room-only attendance.

Wayde McMillan discusses the 20% of new customer starts that are type 2 patients, which is a tick-up from the last 3 quarters. He notes that they cannot market to type 2 patients yet, as they do not have the label. He then talks about competitive pump conversions and asks Jim to provide an update on their direct-to-consumer strategy.

In response to a question about competitive conversions, the company stated that they do not track whether the conversions are in warranty or not. They make estimates but it is too difficult to quantify. James Hollingshead then spoke about the company's DTC strategy, which includes a mix of TV, social, streaming media, broadcast TV, and influencers. They have a good sense of which levers to pull and are confident in their team's ability to produce results.

James Hollingshead reports that the enthusiasm for Omnipod 5 is strong, with record new customer starts and high adoption and acceptance rates. He notes that the momentum for the business is strong, and that they are seeing a lot of competitive conversions from their competitors as well as MDI patients. He also states that the enthusiasm from MDI patients is even stronger than before.

Wayde McMillan discussed how Omnipod 5 has been successful and has resulted in better outcomes for customers. He noted that there are more tailwinds than headwinds for the business in 2024, and that the success of the second half of 2023 will be the key factor.

The company is expecting strong customer starts in the second half of the year, and has a number of new innovations lined up for release in the future. On the international side, competition is strong and new customer starts are lower than usual, leading to lower growth rates for the next four quarters. However, with the launch of Omnipod 5 internationally and the addition of more countries, the company is expecting to be able to compete better in the AID market and see an inflection of growth rates in the second half of 2024.

James Hollingshead discusses the plans for the Omnipod GO, a device designed to resolve needle phobia and dosing issues for those initiating insulin therapy. The company is taking a cautious approach, conducting a pilot program and educating clinics on the use of GO before releasing it to the full market in 2024. They are also adjusting their commercial model to accommodate the new device.

Wayde McMillan and Jim discuss the financial impact of Omnipod GO in 2024. They plan to take their time and do the launch right as it is a new-to-world product. They do not plan to communicate financial numbers at this time, but they are working on the optimal staging of inventory in the channel to support the GO launches. Matt Miksic from Barclays follows up with a question about inventory numbers.

Insulet is proud of the progress they have made with their disruptive offerings and dedicated team, and is now setting their sights even higher. They plan to have a limited market release of their Omnipod GO product in 2024 and will update shareholders on their progress over the year and next quarter.

The speaker thanked the participants for their participation and wished them a good day before telling them they can disconnect.

This summary was generated with AI and may contain some inaccuracies.