The operator welcomes participants to the Insulet Corporation Fourth Quarter 2023 Earnings Call and provides instructions for the call. Deborah Gordon, Vice President of Investor Relations, introduces the speakers and mentions that the call will be recorded. She also directs listeners to the company's website for additional information and reminds them of the limitations of forward-looking statements. Non-GAAP financial measures will be discussed and are believed to be helpful in assessing the company's performance.

In the second paragraph, the speaker, Jim Hollingshead, thanks the listeners for joining and discusses the company's financial results and market traction. He mentions a 30% revenue growth in 2023 and the company's eighth consecutive year of 20-plus percent revenue growth. He also talks about expanding margins and generating positive free cash flow. He then discusses the record new customer starts and the success of their Omnipod 5 AID system, which generated $1 billion in revenue. He mentions that they have significant momentum and growth catalysts ahead. He also plans to discuss their clinical efforts and key developments in their innovation pipeline. He concludes by thanking the global team for their execution and dedication.

The company is proud of the impact their Omnipod product platform is having on people with diabetes. They have achieved milestones of 425,000 active global customers and almost 250,000 customers on Omnipod 5, which is revolutionary. Their unique technology sets them apart from competitors and has fueled their growth and established their leadership position in the market. The on-body wearable AID experience of Omnipod 5 reduces the daily burden of living with diabetes and its simplicity and affordability has led to rapid adoption. The company has invested in U.S. pharmacy channel access and continues to strengthen access and affordability through their innovation pipeline. In the U.S., Omnipod 5 represents the majority of new customer starts and customer retention remains strong.

The majority of people with diabetes still use multiple daily injections (MDI) as their mode of care, presenting a large opportunity for Omnipod to gain market share. Omnipod 5 has become the most prescribed AID system in the U.S. due to increasing demand and confidence from healthcare providers. Omnipod is also gaining traction in the type 2 diabetes market, with only a small percentage of those who need intensive insulin therapy currently using any type of pump. Omnipod is well positioned to serve both current and future individuals with type 2 diabetes.

The fourth quarter saw a significant increase in new customer starts for the Omnipod suite of products, with type 2 diabetes patients representing 20-25% of these starts. The company plans to market Omnipod 5 to type 2 patients once they have an expanded indication, with the expectation of completing the pivotal trial and submitting results to the FDA by the end of 2024. The success of Omnipod 5 in European markets has led to a strong quarter of new customer starts globally. The company is also on track with their Omnipod 5 plus G6 European launch plans and is excited to begin launching Omnipod 5 integrated with Abbott's Freestyle Libre 2 Plus sensor. They will be presenting data for the Omnipod 5 plus G6 randomized controlled trial at the upcoming ATTD International Conference.

The company is excited about their recent publication in the Diabetes Technology and Therapeutics Journal, which showcases the effectiveness of their Omnipod 5 algorithm in a large and diverse population with type 1 diabetes. They are also conducting a feasibility study in New Zealand to further improve their algorithm and simplify therapy for people with diabetes. Additionally, they are actively enrolling participants in their RADIANT study in Europe, which aims to integrate the Libre 2 sensor into their Omnipod 5 system and establish it as a superior first-line therapy.

The company is providing an update on their innovation progress, focusing on three key areas: expanding the Omnipod 5 platform, moving into the type 2 market with Omnipod Go, and building their digital and data capabilities. They mention that their current Omnipod 5 system is their "minimum" viable product, but they have plans to expand it to more operating systems and continuous glucose monitoring partners. They have recently released Omnipod 5 with G7 and plan to release it with Libre 2 Plus in the first half of this year. These integrations will provide more choice for customers and are expected to be significant catalysts for growth in 2024 and beyond.

Insulet is launching Omnipod 5 with the G6 system and iOS app, which will be a major innovation milestone for the company. They are also working on Omnipod GO, a solution for individuals with type 2 diabetes who require basal-only insulin. This will allow them to reach a larger market and move upstream in the patient care pathway. Insulet is also focused on their digital and data capabilities, with the real-time data provided by SIM cards in every controller and the largest real-world data set on AID. They plan to use this data to improve their products and user experience, streamline physician workflows, and maintain their competitive advantages.

Insulet had a successful year in 2023, with strong momentum and multiple catalysts for future growth. They saw a 37% increase in revenue in the fourth quarter, driven by global Omnipod growth and a shift in order timing. The company continues to focus on simplifying diabetes management for customers and caregivers through digital and data-driven products. The success is credited to the dedication and passion of the Insulet team and their commitment to innovation. In the fourth quarter, they also saw strong demand for Omnipod 5 in the U.S. and two European markets, leading to a 43% increase in U.S. Omnipod revenue. Overall, foreign currency also had a positive impact on their reported revenue.

The pharmacy channel remains a key source of volume for the company, with most of their U.S. volume going through this channel. The Q4 net volume benefit from new customers and existing customers converting to Omnipod 5 was in line with expectations. However, there were two unexpected dynamics that contributed to a $30-40 million increase in revenue in Q4, leading to a 12-point growth in U.S. revenue. The company is pleased with their Q4 performance, despite a tougher comparison due to the full market release of Omnipod 5 in August 2022. New customer starts in Q4 were slightly lower than Q3 as the market is transitioning to Dexcom's G7 sensor. The company expects new customer starts to accelerate throughout 2024 as they ramp up commercial efforts.

The business and revenue growth for Omnipod has been strong, driven by the success of Omnipod 5 and continued demand. International revenue increased due to strong adoption of Omnipod DASH and new launches in the U.K. and Germany. Foreign currency also had a positive impact. Drug Delivery revenue was higher than expected. Gross margin increased due to improved manufacturing efficiencies and favorable product mix, but was partially offset by higher production costs. Operating expenses increased as the company invested in future growth. Adjusted operating margin and EBITDA were both above expectations, primarily due to a revenue benefit and higher gross margin. Cash and liquidity are also strong.

In 2023, the company successfully repriced their Term Loan B, generating positive free cash flow of $70 million. They expect to see continued growth in 2024, with total company revenue approaching $2 billion and Omnipod revenue growth of 13% to 18%. However, this growth is adjusted to exclude the impact of accelerated orders in 2023 and shifted orders in 2024. Despite these factors, the company expects to see mid-20% growth at the high end of their range in 2024.

In 2024, new customer starts for Omnipod 5 with G7 are expected to be slightly lower in the first half due to seasonality, but an acceleration is anticipated in the second half after a full market release. Revenue from Omnipod 5 with iOS app and Omnipod GO is expected to be insignificant. Revenue growth is expected to be weighted towards the second half of the year, with a 7% to 10% growth in international Omnipod driven by DASH adoption and recent launches in the U.K. and Germany. Launches in European markets are expected to contribute more significantly to growth in 2025. Drug Delivery is expected to decline by 50% to 60% in 2024.

The company expects gross margin to increase in the second half of the year due to favorable product mix and manufacturing efficiencies, offset by higher costs for new product launches. They plan to expand both gross and operating margins in 2024 through investments in R&D and sales force expansion. Despite increased investments, they anticipate significant margin expansion and remain committed to increasing shareholder value. The operating margin is expected to be approximately 13%, a 100 basis point increase from 2023, and 200 basis points higher in 2024 due to revenue ramping and continued manufacturing improvements. The company has many growth opportunities and aims to efficiently scale the business while investing in their innovation pipeline and commercial efforts.

Insulet expects capital expenditures to increase in 2023 to support their new manufacturing facility in Malaysia and to improve their other manufacturing locations and IT infrastructure. They also expect significant growth in the first quarter of 2024, with a 15% to 18% growth in Omnipod sales and a 17% to 20% growth in total company revenue. However, these expectations exclude 6 points of growth due to orders that shifted into 2023. They also expect growth in the U.S. Omnipod market to be 19% to 22%, excluding 8 points of growth from shifted orders. The company also expects a favorable foreign exchange impact and $5 million to $6 million in drug delivery revenue in the first quarter. The company is optimistic about their future growth and plans to invest in innovation and margin expansion. They believe they are well positioned to create long-term value for shareholders and fulfill their mission for customers. During the Q&A portion of the call, a question was raised about the guidance for U.S. growth, which seems to imply a lower growth rate than previously expected.

The speaker discusses the company's recent financial guidance and how it has not changed much since the last report. They attribute the growth to a shift in revenue and order timing, as well as the success of their Omnipod 5 product in gaining new customers and taking market share. They also mention plans for continued growth and margin expansion in the future.

In 2024, the company plans to drive growth through international expansion for Omnipod 5 and the launch of G6 in the Netherlands and the UK. By the end of 2024, Omnipod 5 will be available to the majority of customers in European markets. The company is also excited to have accelerated their G7 LMR release and expects it to drive new customer starts. The company has a lot of opportunities for improvement, particularly in terms of operating margin, if they can exceed revenue targets. However, they will also be balancing this with investments in new product launches and strategic initiatives for future growth in 2025 and beyond.

In response to a question about G7 integration in Europe, Jim Hollingshead explains that Dexcom is prioritizing the sequencing of their product releases, with O5 being the main focus for EU markets by 2024. He also mentions that the LMR for G7 in the US will provide valuable learnings for international integration, and that they are also working on accelerating the LMR for Libre 2 Plus integration in Europe. The RADIANT trial has shown positive results for this integration.

Insulet is accelerating the launch of Omnipod 5 in Europe and learning from it. They have not given a timeline for the US launch but are working on integrating sensors and prioritizing customer access to Omnipod 5. In international markets, they plan to negotiate for reimbursement levels that reflect the added value of Omnipod 5.

The company has launched Omnipod 5 in the U.S. through the pharmacy channel with pricing parity with DASH to streamline coverage. In European markets, they need to negotiate reimbursement and generate evidence for each market. They have been successful in the U.K. and Germany and will continue to work towards premium reimbursement for Omnipod 5. Gating factors for launch differ by market, including reimbursement and cloud connectivity. The majority of European customers will have access to Omnipod 5 by the end of 2024. There have been no changes to the guidance since the previous quarter.

The speaker is responding to a question about the company's guidance for revenue and new customer starts. They explain that there has been no major change from the previous guidance, except for an increase in operating margin for 2024. This increase is due to strong operating income in 2023 and the unusual order pattern that pulled forward $20-25 million in revenue. The 13% operating margin for 2024 represents a 100 basis point increase from 2023 and a 200 basis point increase without the revenue pull forward. This is the only significant change from the previous guidance given in November.

During a conference call, Margaret Kaczor from William Blair asks about the growth of HCP prescribers for a company. She wants to know if these prescribers are regularly prescribing and how this compares to the number of pump prescribers in the U.S. She also asks about the company's efforts to reach more intensive insulin patients outside of endocrinologist offices. Jim Hollingshead responds, stating that the endo market has around 7,000-7,500 endocrinologists and that they are seeing prescriptions from other types of healthcare practitioners, such as nurse practitioners and physician assistants. He believes this is due to word of mouth and their promotional activities.

Insulet's Omnipod GO commercial pilot has been a successful investment, as it has provided valuable insights into the primary care channel for people with diabetes. The company has learned about the target patient population for Omnipod and how primary care practices view pump therapy. They are confident in their ability to drive demand for Omnipod through this channel and have seen more type 1 patients than anticipated. They are optimistic about the potential for Omnipod therapy in this market and continue to learn from their commercial pilot. When asked about pricing dynamics for Omnipod 5 and DASH, the company stated that reimbursement levels and pricing are stable and that they have seen a significant increase in price due to conversions into the pharmacy channel.

The company has completed most of its conversions and there was a minimal price increase in September. The focus should be on volume rather than price for 2024, but there is room for margin expansion in the near and long term. The company plans to release a long-range plan later this year. The stock is down in the aftermarket, potentially due to the guidance commentary.

The speaker asks about the impact of street modeling on the company's revenue growth and whether there are any competitive or pharmacy-related concerns. They also question the difficulty of converting competitors and if the new product G7 will make it easier. The response clarifies that the company is still expecting strong revenue growth in 2024, with a shift in revenue due to advance orders for their ERP implementation. The company is confident in their growth and has multiple catalysts for future growth. The speaker also confirms that the U.S. is currently modeling a 25% growth on a normalized basis.

Lauren provided some color on the Q3 call, stating that the company would be in the mid-20s, around 24 to 26. This aligns with the company's expectations for U.S. growth and total company growth. However, there was a shift of $20 million to $30 million, which ended up being double due to a decrease in the denominator and an increase in the numerator. The underlying guide remains the same. The company continues to have good new customer starts and has caught a lot of competitive switchers since the launch of Omnipod 5. Retention of customers from competitors is strong. After hearing competitors' calls and observing the market, the company does not see any major changes in the competition.

The company does not see a major shift in competition and their Omnipod 5 product remains the preferred option. However, one competitor has been able to reduce the loss of their customer base. The company is confident in their position in the type 2 market due to their success in the pharmacy channel. Competitors are trying to enter this channel with durable tube pumps, but the company believes their product is better suited for this market. They have established market leadership and are confident in their ability to defend their position.

The speaker discusses the advantages of their consumable pod and wide coverage in the pharmacy channel, which has led to successful growth with PBM partners. They mention the positive progress of their commercial pilot for Omnipod GO, but clarify that it is not yet in limited market release. The product is fully approved and coverage is expanding, but a full launch is not planned for the near future.

The Omnipod GO commercial pilot is focused on learning and establishing the right commercial model for GO and the primary care chain. The company is excited about the pilot because it will help them learn and improve their commercial strategy. They plan to launch Omnipod GO in 2024 or 2025 and will have a full portfolio of insulin delivery products for people with type 2 diabetes. They are also looking to expand the use of Omnipod 5 and will file for a label extension in 2024. The company is confident in their ability to commercialize their products in both primary care and endocrinology channels.

Jim Hollingshead, CEO of Insulet, believes that the integration of their Omnipod with Dexcom and Abbott's sensors will open up a large and substantial market for them in the U.S. and Europe. Both partners have large installed bases and their CGM technology paves the way for future Omnipod users. The upcoming pivotal data at ADA and filing for label expansion for type 2 diabetes could potentially bring a significant uplift for the company.

Jim Hollingshead discusses the potential impact of Omnipod 5 on the type 2 diabetes market, which is larger than the current market for Omnipod. He notes that there are 3-4 million people with type 2 diabetes on basal-only therapy and 2.5 million who need intensive insulin therapy, which is where Omnipod 5 is targeted. He also mentions that Omnipod 5 is easy to use and takes a lot of burden off of managing diabetes, making it a valuable option for patients. The final question from Danielle Antalffy is about the unpredictability of wholesaler stocking and how it may impact the availability of pods for patients.

The speaker, Lauren Budden, addresses a question about the company's inventory levels and stocking in the market. She explains that the inventory turnover is efficient and they do not have control over the visibility into the date on hand. She mentions that there was a double whammy this quarter with the inventory levels being increased and the ERP pull forward dynamic. She also mentions that they cannot guide to this and will only call it out when it happens. The last question is about the company's growth potential with the G7 integration and the potential competition from other tubeless pumps in the market.

Jim Hollingshead, the CEO of Insulet, discusses the company's competitive position in the tubeless insulin pump market and their plans for continued innovation. He expresses confidence in their current product, Omnipod 5, and says they do not see any competitors with a similar offering in the near future. In terms of their current products, the G7 is performing well with new customer starts. Hollingshead uses the metaphor of fishing to explain their market strategy, saying that while the majority of their product is still the G6, the G7 is steadily gaining traction.

Insulet is focused on expanding their market share in both bonds and proportionally, with G7 being a key driver of growth. The company is confident in the success of their Omnipod 5 and G7 offer, which has shown strong growth in the past. The Q&A section of the conference call has ended and Jim Hollingshead, CEO of Insulet, thanks everyone for their participation and emphasizes the company's commitment to innovation, operational excellence, and customer satisfaction.

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