Ladies and gentlemen, thank you for standing by. And welcome to the Third Quarter 2019 Insulet Corporation Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ms. Deborah Gordon, Vice President, Investor Relations and Corporate Communications. Thank you. Please go ahead.

Thank you, Lauren. Good afternoon and thank you for joining us for Insulet’s third quarter 2019 earnings call. Joining me today are Shacey Petrovic, President and Chief Executive Officer; and Wayde McMillan, Executive Vice President and Chief Financial Officer. The replay of this call will be archived on our Web site and our press release discussing our third quarter 2019 results and fourth quarter and full year 2019 guidance is also available in the IR section of our Web site. Before we begin, I would like to inform you that certain statements made by Insulet during the course of this call may be forward-looking and involve known and unknown risks and uncertainties that may cause actual results to be materially different from any future results implied by such statements. Such risks and uncertainties in addition to the inherent limitations of such forward-looking statements include those referenced in our Safe Harbor statement in our third quarter earnings release and in the company's filings with the SEC. Please note that we assume no obligation to update these forward looking statements even if actual results or future expectations change materially. Also, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year basis. With that, I'll turn the call over to Shacey.

Thanks, Deb, and good afternoon, everyone. It is an exciting time at Insulet as we continue to build on our incredible growth and progress. We delivered another quarter of strong financial and operational performance and we are well positioned to close the year with great momentum. Our strong performance has been years in the making and is the result of a very large and growing market, and the work we have done to build a powerful foundation for the company. Both the Type 1 and Type 2 diabetes segments represent significant unmet needs, which Insulet is uniquely positioned to address. The opportunity is huge. Approximately 1.7 million people in the United States live with Type 1 diabetes and about the same number in our international markets we serve today. Additionally, we estimate that the Type 2 insulin requiring population in the United States is between 2.5 million and 3 million people and growing with a similar size population in our international regions. The opportunity is also urgent, because many people living with diabetes are not achieving optimal glycemic targets, which can lead to near and long-term health complications. To unlock our market opportunities, we have spent the last couple of years transforming the business and executing on four strategic imperatives. One, expand market access; two, drive consumer-focused innovation with our Pod therapy; three, strengthen our global footprint; and four, ensure operational excellence throughout our organization. 2019 has been a year in which these strategic imperatives are now coming to fruition and our strong results are reinforcing our confidence in Insulet’s long-term prospects. We are beginning to realize the returns on our investments and hard work over the last several years, and we are just getting started. The successful execution of our strategy demonstrates that we have the right team and…

Thank you. As Shacey noted, we had another quarter of strong financial and operational performance. We are pleased that the continued execution of our strategy is building value for our shareholders and further our mission to improve the lives of people with diabetes. We remain focused on advancing our innovation pipeline and increasing market access to drive revenue growth and operate with excellence across the organization to expand margins. In the third quarter of 2019, we delivered revenue of 192.1 million representing growth of 41 million or 27%, which was 11 million above the high end of our guidance range. Breaking this down by product line; U.S. Omnipod revenue grew 34% to 109.5 million which was 7.5 million above the high end of our guidance range and marked our fourth consecutive quarter of accelerating growth in the U.S. This increased growth rate is mainly the result of accelerating volume growth, driven by growing our customer base and adoption of new product innovation with Omnipod DASH, primarily through the pharmacy channel. It is also due to the mix benefit on the premium for DASH and the shift to the pay-as-you-go model in the pharmacy. Our success to date is a testament for the continued execution of our commercial and operational teams as they have simultaneously launched a new product, in a new business model and in a new channel while establishing our first new manufacturing line in the U.S. International Omnipod revenue grew 35% to 67.7 million exceeding the high end of our guidance range by 5 million, primarily due to increased volume from growing demand for Omnipod within our existing European markets. As a reminder, in Q3 we anniversaried our go-direct strategy in Europe and therefore both periods reflect the 50% uplift in revenue in our European business. Drug delivery…

Thanks, Wayde. On behalf of our entire team at Insulet, I want to reiterate how pleased we are with the strong momentum of our company. 2019 has been a year of execution and it is clearer than ever that we have the right team and strategy in place to deliver on our commitments to customers, the broader diabetes community and to our shareholders. And now, I’ll turn the call back to the operator for Q&A. Operator.

Thank you. [Operator Instructions]. And our first question comes from Ryan Blicker with Cowen. Your line is open.

Hi. Good afternoon. Thanks for taking my questions. Maybe just starting with the pharmacy channel transition. You mentioned the pharmacy channel was an overall net positive to U.S. revenue in Q3 and that you now expect a greater tailwind from the Pod pricing premium. I believe previous guidance assumed about a $6 million to $8 million tailwind from the Pod pricing premium to offset the $6 million to $8 million PDM headwind. What do you expect now for pricing tailwinds year-over-year?

Sure. So regarding the transition here, there’s really two major components. So as we think about it, the headwind from the no charge PDMs is actually less than we expected even though we are seeing the headwind as we transition to our pay-as-you-go model, we’re selling more PDMs in our legacy DME and direct businesses as those businesses continue to perform pretty well and continue to grow. The other side of it is the premium that we’re getting on our new DASH product as well as in the pay-as-you-go model in the pharmacy. And so our original estimates given that it was such a new channel, we were conservative and I think now we’re falling more in the middle of our range where we had run scenarios. But what I have to say is it’s still very early days. And so we are seeing some benefit today, but we’re just a couple of quarters into strategy that has significant change to our business. And so now we’re finding ourselves kind of in the middle of our scenarios. We’re very happy for where we’re performing right now. But having said that, I think we still have long ways to go to see how this plays out.

Yes, I think that’s right. It’s early days. If you think about it, we’re three quarters into a strategy that took three years to develop and design and we’ll be deploying for many years. So it’s just a changing situation. The channel is growing rapidly and so price is changing as we bring on new payers, et cetera.

Got it. And then maybe just digging into the U.S. number a bit more, really impressive results. Can you provide any more color on new patient trends? I guess assuming that utilization didn’t increase meaningfully versus Q2, it seems like U.S. new patient starts could have approached or exceeded 10,000 in the quarter. Is that in the ballpark or did utilization increase sequentially? I just want to make sure we don’t get ahead of ourselves moving forward. Thank you.

It was another record quarter in terms of new patient starts. So we’re not really giving that color. I think if you think about what drove revenue, the reason we moved to volume and gave you that kind of highlight around volume and mix is that it’s just the primary driver behind revenue. As we move into the pharmacy, so now we’ve got 20% of our U.S. base and 50% of our new patient starts, we start to lose a little bit of visibility to the customer base, not to new patient starts as much but to the whole customer base. You can imagine we’re just sort of becoming more like a pharmaceutical company where we’ve got visibility to prescriptions as opposed to customers and even that is a little bit delayed. So I hate to sort of – I’m not avoiding the question, but really we just have limited visibility. We think that’s the right tradeoff because the pharmacy channel is such a better customer experience and it’s a more efficient channel for us.

Thank you. Our next question comes from Robbie Marcus with JPMorgan. Your line is open.

Great. Thanks for taking the question and congrats on a really nice quarter.

Thanks, Robbie.

I wanted to really try and dive in around the change that’s happening in the pharmacy, because it’s clear that this is materially increasing the patients that are signing up for DASH. So I was hoping you could give us if there’s any survey work you’ve done on these early patients here or any kind of qualitative feedback you can provide on what you think it is that’s driving such strong new patient growth here for DASH in the pharmacy?

Yes. I think it’s a great question. What’s exciting to me is some of the feedback that we’re getting from physicians in terms of prescribing Omnipod earlier in the treatment pathway and for physicians that they might not have otherwise. And the reason why that’s happening is number one, all the things that we know about the pay-as-you-go model, the fact that we’ve reduced the commitment upfront and the lock-in period, those are really disruptive and really transformative for how clinicians can think about Pod therapy for their customers. And I think the other thing that we’re trying to give color around is just the increasing use among people living with Type 2 insulin-dependent diabetes. So we know we’re in a strong coverage position in the pharmacy for that population. And then as we work to establish more and more Medicare coverage, that’s also really important to unlocking the Type 2 insulin-requiring patients, because we know that 60% of people living with Type 2 are over – sorry, 40% are over the age of 60. So there’s a large contingent of people living with Type 2 diabetes that are covered by Medicare. So the work that we’re doing to establish Medicare access in the pharmacy is really helping to unlock that huge opportunity and huge unmet need.

Yes. And just one more question here on DASH. I think it’s really clear the value benefit to patients having a lower co-pay out of pocket and diabetes with very expensive disease, right now you’re getting most of the new patients from MDI, but as you cycle through the year in deductibles, reset and as you go through the year where the warranties expire, do you think there is an opportunity here to pick up a meaningful amount of competitive switches from Tandem and Medtronic? Thanks.

Sure. I think we remain really focused on our target segment which we view as the multiple daily injection user. If you think about why that is, it’s really because it’s the vast majority of the opportunity even among Type 1 still 60% to 65% of the – most of the opportunity is multiple daily injections and it’s 95% or more of the Type 2 population, the 2.5 million to 3 million people living in the United States. So it really is the larger opportunity and where we’re focused. Nothing has changed in terms of our trends. We continue to see 75% to 80% of our new users come from that segment. And of course that means we still get 20% to 25% of our new users from pump transitions, it’s just less of a focus for us.

Thank you. Our next question comes from David Lewis with Morgan Stanley. Your line is open.

Good afternoon. Just two questions from me. I’ll start with Wayde. Wayde, could you just walk through the international guidance for the fourth quarter? It’s lower on a dollar basis, but I’m just trying to – if you can just help bridge us here to the fourth quarter number just given the underlying momentum in the third quarter? We’re just into the fourth? And I had a quick follow up for Shacey.

You bet. Hi, David. So two ways to think about it. We had a very strong Q3. And so we recognized that our guide is a deceleration from Q3, but Q3 was very strong for us. We do have a bit more of a lumpier business given that a majority of our business goes through distributors. And so we did see insight to a stronger Q3 given the distributor order patterns there. So we had a bit of that going on from a deceleration standpoint. But then what I would bring us back to is we believe that the international markets we’re in, given the strong team that we have there and our position in the marketplace that we’re in this high teens, low-20s range. And so that’s right where our guide sits, including the impact of FX. So we do have about a 4% unfavorable impact of FX included in our guidance. So we’re guiding to 16 to 20. If you factor in the 4% unfavorable FX, it puts us at 20% to 24%. So we’re really right where we want to be from an international standpoint, including FX granting that we had a very strong Q3 and it looks like – some of it is deceleration, but again right where we want to be for Q4.

Okay, so a little bit of pull forward, but the underlying demand you think is there?

We do.

Okay. And then, Shacey, I know it’s a little early but you think about next year sort of reiterating the timelines around Horizon. As we think about next year and just given the innovation around that product, is there any reason to believe that rolling out Horizon will be at all disruptive to sort of a core channel and core product as you think about sort of the introduction of that launch in the back half of next year? Thanks so much.

Sure, David, it’s a good question, something we’re working on today in terms of our launch plans and preparation. And so of course anything of that magnitude could offer some distraction. But I’ll tell you that the team is doing all of the right things, even thinking about market access and how do we leverage all of the market access that we built in the pharmacy channel for Horizon so that we can have rapid and broad access across the channel. So I think we’re doing the right things to try to minimize distraction and be able to bring that product to market as quickly and successfully as we can, because we know people are waiting for it.

Thank you. Our next question comes from Jayson Bedford with Raymond James. Your line is open.

Good afternoon and congrats on the progress. Just a couple quick ones here. Shacey, I think you mentioned that you believe you’re in a strong coverage position for Type 2. Just curious, was that in reference to Medicare or were you referring to commercial in general?

Really to both. So it’s referring to the pharmacy as a really good channel for the Type 2 insulin-dependent patient.

Okay. And then there’s obviously a few moving parts on price, channel, et cetera. I just want to make sure that you’re still expecting growth in the U.S. installed base to be similar to U.S. sales growth. Is that fair?

We pointed out the benefit of mix and now we talk a little bit to the premium on the Pod, so I would draw you to that. And it’s the other reason why we’re really giving you the color around volume. Because if you think about it, we’re just becoming a bit more like a pharmaceutical company in terms of the visibility and now we’ve got 20% of our total base going through the pharmacy more than that actually and 50% of our new patient customers. And so we’re pointing you to volume. And then also with the benefit of mix in the pharmacy as one of the primary drivers behind revenue. We lose a little visibility as we move into the pharmacy, especially as you get out from the wholesalers to retail pharmacies and specialty pharmacies. That’s the right tradeoff for sure because we know it’s a much better customer experience and a better channel for Insulet, but it is the reality of where we are today.

Shacey, with DASH, have you seen any change in attrition?

We have not. As you might remember, we have been watching that pretty carefully and of course as I mentioned, we do lose some visibility in the pharmacy. But what we can estimate, we haven’t seen a change in attrition.

Thank you. Our next question comes from Danielle Antalffy with SVB Leerink. Your line is open.

Hi. Good afternoon, guys. Thanks so much for taking the question. Congrats on a really strong quarter again. A question for you, Wayde, wondering if I can push you a little bit on the Q4 guidance. It looks like you’re assuming some deceleration and I’m just wondering is there anything unique driving that? Is there seasonality we should be thinking of? And also one of the other pump companies like night talked about a pause ahead of their new product launch. So I assume the pay-as-you-go model we wouldn’t be seeing any impact from new product cycles and pauses and such. But just wondering if you can parse out a little bit what’s driving the decel, and specifically I’m looking at U.S. Omnipod growth?

Yes, you bet. And we just talked about international a couple of minutes ago and just to clear that one more time, we do not see any issues in international growth rates. In fact, FX were above the high-teens, low 20s with a guidance of 6 to 20 with the 4% of unfavorable FX in there. So international very strong. And on the U.S., I think it’s great we’re talking about 27% to 28% guidance as a deceleration. We’ve had a great year-to-date and so how we’re thinking about it is great year-to-date, 27% growth, a particularly great Q3 where as Shacey said, we had record new patient starts. And we’re guiding to a very strong Q4 of 25% to 29% with our year-to-date 27% right in that range. In other words, if we perform the way we have year-to-date, we’ll be right in the middle of the range. Even the low end of the range requires very strong new starts and it would be our highest revenue quarter ever. So there’s a couple of things going around seasonality, a couple of notes. One would be as we’re increasing volume and as we said in our prepared remarks, volume through the pharmacy now is at 20%. As that grows, we would expect a headwind from seasonality in Q4 because of the switch from deductibles to co-pay. But again, it’s going to be small and slight and something we’re going to be watching carefully here this Q4. But certainly as we move more and more of our volume into the pharmacy, that will be getting more of a headwind to seasonality year-over-year in Q4, but probably going to be pretty small right now just given the percentage of volume through the pharmacy. The other thing we talked about was monitoring our…

Okay, totally fair point and sorry to be greedy there. And just a last question. Shacey, you talked last quarter about how you really saw strength in the U.S. across all pieces of the business, including the DME channel, you saw a pretty strong Type 2 quarter. Was wondering if you could give us a little bit more color on whether – it looks like that continued into this quarter, but just curious about what you can say as to the drivers in Q3 of the U.S. growth? Thanks so much.

Sure, Danielle. And I think Wayde really covered this well. We saw strength across every channel in the U.S. and that includes pharmacy, DME and direct. But we are a bit sort of cautious about that because long term we do expect that the DME and to a lesser degree the direct business will soften as we move more of this business into the pharmacy. So Q3, amazing quarter for us. Everything was strong maybe to a greater degree than we expected it to be in the DME channel. As we look forward, we expect that to soften a bit.

Thank you. Our next question comes from Mathew Blackman with Stifel. Your line is open.

Good afternoon, everyone. Thanks for taking the questions. Maybe to start, Shacey, I’m just curious as you’re having ongoing dialog with payers to expand coverage, is there anything interesting coming out of those conversations worth sharing? How eager or open are payers? Are there any common points of pushback in those conversations? And how are they responding to the new models that you’re putting out there? And then I have one follow-up.

Sure. The response has been terrific and I think that’s evidenced in the broad access that we’ve established in such a short period of time. If you think about it, we've really just been at it for a few quarters. And we've got more than 50% coverage established now in the U.S. for DASH, primarily in the pharmacy channel. So that is a testament to how well-received this risk sharing model is and how novel it is for the market. And I think we see the benefit in how rapidly payers are establishing access, and then also obviously in the record setting new patient start quarters that we’ve had over the last three quarters. One interesting dynamic that I’ll point out, it might not be exactly what you’re looking for Mathew, but is around Medicare and other contracting. So if you think about it, we now have more than 50% of covered lives established and we talked about this premium on the Pod that was a little bit higher than expected this quarter. And a lot of that could be driven also by pricing for payers, particularly on the Medicare side, where we haven’t established contracts yet, but we’re having a lot of success with the appeals process or with the exception process. So as we establish coverage with these payers, that will actually act as a little bit of a headwind. As we look to Q4 and beyond into 2020, as we establish more access, we would expect that price point to come down, especially if we’re pursuing preferred positions on those payers. But by and large, the discussions have been very productive. We feel really good about having a strong foundation for DASH and one that will be leverageable for Horizon as we look to 2020 and beyond.

All right, I appreciate. That's very helpful. And then I guess the follow-up question and for you, Shacey, again, if we're at 20% pharmacy today, I don't know, look out the next five years in your mind's eye, what would you hope the ultimate channel mix would end up being for you guys?

We want the vast majority of our business to be going through the pharmacy. I think there is some benefit – actually I should take that back. We want the vast majority of our business to be pay-as-you-go. We believe that that is the best thing for payers and the best thing for patients. And we see great attractiveness in the pharmacy channel. So I would hope that the vast majority of that would be through the pharmacy channel. But there’s a benefit in having some of the business serve direct and DME as well, but we do see the best patient experience in the pharmacy channel.

Thank you. Our next question comes from Jeff Johnson with Baird. Your line is open.

Thank you. Good evening. Shacey, maybe a demand question and then a Horizon question. On the demand side, can you break out at all kind of your mix or are you seeing any shift in mix at all between T2 and T1? Obviously, you’re talking a lot about good T2 traction, but any way to help us kind of quantify or break that out? And same question on the MDI side. This one's kind of a tougher question I guess, but any way to know what percentage share capture you're enjoying of new to pump MDI patients relative to the market this quarter versus the last few qualitatively? Do you feel that's going up?

Great questions, Jeff. I'll start with the MDI question. It’s very challenging to get good data on this, but we do believe that it's increasing. As I mentioned in my prepared remarks, every quarter this year, we have had a record number of new starts, the vast majority of those being multiple daily injection users adopt Omnipod. So we do believe we are seeing accelerating momentum there. And that's thanks to this investment in the pay-as-you-go model and in such a simple, easy-to-use device that is DASH. And then the other question was regarding Type 2, and I gave a little bit of color in my opening remarks here. Again, this is something we're watching very closely. We have designed messaging and education for clinicians and patients on the benefits of DASH and Omnipod for the Type 2 user, and we are starting to see traction there. So we'll call it out as we get more and more of a trend, but this is the second quarter in a row where we have had a marked increase in the number of new users through the pharmacy that have Type 2 versus Type 1. So it does seem like our early efforts around education and awareness are working in this population.

Thank you. And our next question comes from Margaret Kaczor with William Blair. Your line is open.

Hi. This is Brandon in for Margaret. Thanks for taking the questions and congrats on a great quarter. I'd like to kind of hit first on the Medicaid and as that's becoming a larger part of revenues, and Shacey you were talking about it a little bit earlier, but can you remind us if there is any meaningful differences in the commercial channel for Medicaid? And part of the reason I'm asking is, I'm sure you're all aware that on the CGM side, maybe the prerequisites are a little bit different and the reimbursement models are a little bit different. It sounds like it's a slight premium for all of you and is that how we should be thinking about it going forward? And if there is any kind of different I guess prerequisites to get onto a pump for Medicaid?

Yes. I want to just clarify. In my opening remarks and in some of these questions that we've covered already, it's really Medicare that has become a growing population for us. And we call that out because we've always been a market leader and incredibly strong in pediatrics. And as we have started to establish access among Medicare, it's really starting to change the complexion of our – particularly, our new patient starts where we're seeing more from Medicare and older populations, as well as more in Type 2, and Medicare coverage is really helping to drive that. And when I talk about there being a bit of a premium on Medicare, right now that's because we're taking advantage of very successfully the exception and appeals process. And as we establish coverage, we would not expect to retain that premium as we get coverage with these Medicare payers. In terms of Medicaid, we continue to see that ticked up, but I wouldn't say it's – I would not say that it is one, a premium price population, and I would not say that it's a outsized portion of our new patient starts like we see with Medicare.

Got it. That's helpful. And then looking at 2020 in the international, as you launch DASH in your international markets, will you be able to utilize kind of the same pay-as-you-go model? I can appreciate you probably won't be able to do a pharmacy channel, but going back to one of the earlier comments you made in clarifying, it seems like the pay-as-you-go has been one of the bigger catalysts for the U.S. business. So can you utilize that model? And then the follow up with that, can it be as impactful as it was to U.S. growth through 2020? Thanks.

Sure, Brandon. Those are great questions. And we have challenged our teams across our different international geographies to determine whether or not we can bring value to people living with diabetes and to governments that are paying for these technologies through our business model, and pay-as-you-go. We've had some success with that, particularly I think of an example in Canada, for example. But we're still in the early days of understanding. You probably know that in many of these international geographies with single payer national healthcare systems that there's pretty established routes and it can be a pretty significant task to try to change pathways. But it's something that we're exploring, both for the existing markets, as well as for new market entries where we may be able to really bring value through this risk-sharing agreement to these markets.

Thank you. Our next question comes from Kyle Rose with Canaccord. Your line is open.

Great. Thank you very much for taking the questions and, again, congrats on a strong quarter. So just two questions from me. One, you talked about the emerging growth in the Type 2 opportunity. Maybe just give us a little more color on what you're seeing from these patients? How are they different specifically? I know you talked about attrition, but maybe from a utilization standpoint, how are they different from requirements on your sales and your customer support teams, just things of that sort? And then, I'll just give my follow up now and hop in queue. You've got ACE designation. You've got multiple algorithms both with Horizon and loop. You only have one CGM partner. We saw Tandem announce a partnership with Abbott, the other CGM player. Do you expect to work with additional CGMs in the future and just what should we expect around timing there? Thank you.

Thanks, Kyle. So I’ll start with Type 2. Really this has been I think an eye-opening experience for us because we had really thought maybe we were limited in this and our ability to serve this population. And what we're seeing is, because Omnipod reduces the total daily dose of insulin and because DASH has taken ease-of-use – DASH and pharmacies have taken ease-of-use and access to new levels that we have a stronger right to win in this population than maybe we had previously predicted. I wouldn’t say we see notable differences in terms of utilization or requirements from our clinical team. Typically, these patients are being seen by an endocrinologist and so it’s the same call point and the same process in terms of training and implementation for the Type 2 population that requires insulin as it is to Type 1 today. But it’s early days really. This is two quarters in. So we're watching it very closely. And as we – we certainly want to provide the same level of market leading support for these patients. And so if that requires a different type of investment or approach, we will react accordingly. And then the second question was on interoperability and other sensors. We always design DASH which is our interoperable pumps that will be the basis of the submission for Horizon to be interoperable. It's why we went to the phone, because Dexcom is already on the phone with their app, and so is Libre. We don’t have anything to announce right now. We are incredibly excited about our partnership with Dexcom on Horizon. But I will say we see a great experience in Europe where there's a lot of overlap between Libre and Omnipod users as well. So we're focused on Horizon and we see great opportunity for interoperability with DASH and Horizon.

Thank you. Our next question comes from Ravi Misra with Berenberg. Your line is open. Ravi, your line is open. If you’re phone’s on mute, please un-mute. Again, Ravi, your line is open. If you’re on mute, please un-mute your phone. [Operator Instructions].

We can move on and put him back in the queue, if he comes back on.

Perfect. Thank you. Our next question comes from JP McKim with Piper Jaffray. Your line is open. Matt O’Brien: Good afternoon. Thanks for taking the questions. This is actually Matt in for JP. Shacey, as you think about the DME and pharmacy channels going forward and the stocking that you see there, you’re growing really quickly right now early days, but how do you manage the inventory levels in those channels going forward? Are they meaningful? Is it not that meaningful for you from a stocking perspective on the pharmacy side, so that’s something that’s easy to manage or is that something that you have to keep a close eye on going forward?

Hi, Matt. It’s Wayde. I could take that one. So very different channels. First of all, the pharmacy channel is just a couple of quarters old here, very early days. So we’re signing up wholesalers and distributors, it seems like every month, and expanding our logistics channel here and significant investment going into the IT side of things and EDI interfaces and moving from manual to more automated. So a lot of work going on in this area which means that we are learning every day. Having said that, we do have good insights into our wholesaler and distributor partners from a reporting standpoint. What we’re learning is it’s a very efficient channel. And so we’ve got good insights there. As I said earlier, we are seeing that start to build. And then the second stage of that is when our product gets stopped in retail pharmacies. And so that’s also very early days as we get our contracts put in place for the CVSs, the Walgreens and other retail pharmacies in the U.S. And so I think we’ll see inventories start to build more in both of those as that channel matures. And then on the DME side of things, we’re very experienced in this area, have a very good handle on our inventories with our DME partners and manage it along with them. And so we feel confident there as well and understanding those. And we did see those come down somewhat this quarter and it offset the build we saw on the pharmacy. So on a net basis between the two channels, we did not see a channel inventory build this quarter.

The only thing I’ll add, and Wayde’s right. As the channel grows, we would expect for inventory to grow to support that, but the pharmacy is proving to be a very efficient channel. So the inventory turns very quickly and it gets distributed very quickly. So it’s something we’re keeping a close eye on and we will give as much color as we feel is necessary to make sure you guys have a good handle on what’s going on in the business. Matt O’Brien: Okay, that’s helpful. And then the follow up is for Wayde actually on the gross margin side. Your [indiscernible] sometime next year, how do we think about the headwinds there on the gross margin line from those two lines that come out over the next year or so? And [indiscernible] see things improve and then how do you manage [indiscernible] efficient, et cetera? Thank you.

Yes. So, Matt, you were a bit in and out there, but I think I got the gist of your question around gross margins. And this is one of our most significant investment areas, right. In automated manufacturing here in the U.S., many advantages to that, right. We get the redundancy and it is going to be the single largest contributor to us getting to our long-term 70% plus gross margin targets over time. What it does mean is this investment is going to create a headwind for us and it is here in the second half of '19 as we start to ramp up our first line. And then as we mentioned in our prepared remarks, we’re bringing in a second and a third line in 2020. So we will be adding to the headwinds here as we work through 2020. And then the plan is, we’re learning on line one already. We are already making adjustments that we’re learning that we’re implementing on line two and line three. We feel really good about the talented team, the capability that we’re building here. And so we’re going to be able to leverage this capacity. And then what it comes down to is volume. So as we start to scale, we move from putting very inefficient cost of goods sold inventory into inventory and moving it to more efficient cost of goods sold in inventory. So there’ll be an inflection point. We’re not giving guidance for 2020 yet, but you can assume that we’ll be having the majority of our headwind throughout 2020 as we ramp the first line and we bring in our second and third line, and that will position us well for efficiencies over the long term.

Thank you. Our next question comes from Matt Taylor with UBS. Your line is open.

Thank you for taking the question. I was hoping first, you could be a little bit more descriptive about the international market dynamics. What are you seeing there that’s similar and different to the U.S. in terms of patient mix in Type 2, and talk a little bit more about next year? You mentioned entering some meaningful new markets. What are they and how much growth do they have?

Sure. Thanks, Matt. The first question on international markets, it’s a little challenging to answer because if you think about our international markets or Europe, when we refer to Europe, Europe has actually a dozen different business models, different reimbursement schemes and different access availabilities for the technology. So I would say that the percentage of, for example, Type 1 and Type 2 varies dramatically across the market depending on the access restrictions. But by and large, in these national healthcare systems, there is less access for Type 2 that will take some market development work over the long term to unlock that population, but fairly good and established access for people living with Type 1 diabetes. And certainly what we see across every international market that we’re in today is that we have a differentiated technology that is patient preferred and growing pretty dramatically across these markets and that’s evidenced by the performance this year and what we expect for Q4. And I think --

The second one was just around the new markets, I think, what were they expecting?

Yes. And so as we give a little bit of color, I wouldn’t expect us to add material revenue in 2021. We’re not going to list out the markets, but really talking about a handful of markets in 2020. We’ve got a lot of work to do in 2020 to convert our markets to DASH and then to start to think about new markets to enter into. And I’m really excited about the opportunity. But right now, we want to make sure that we enter these markets in the right way. When we make a commitment to a market, we’re making a commitment for the rest of a patient’s life. And so we’re being really thoughtful about the markets that we select. I would expect that those will be the first tranche. In 2020 will be in Europe and potentially the Middle East.

Thank you. Our next question comes from Raj Denhoy with Jefferies. Your line is open.

Hi. Good evening. Maybe just a question for you, Shacey, on Horizon. I guess I’m curious about how confident you are in the timing of the late 2020 approval or the second half of 2020 as you described it. With the trial just starting, it’s essentially a year from now. And I guess given the unique nature of the product with the algorithms residing on the Pod itself, is there any risk that that timing could slip a little bit?

I appreciate the question. I feel great actually about the timeline. We’ve got a terrific team developing this and Dr. Trang Ly leading it, who is arguably one of the world’s experts in artificial pancreas research and development. We also I think really benefit from some great regulatory tailwinds. Remember, we’ve got an iCGM that is already cleared. We’ve got an ACE pump that is already cleared. And what we’re working on is the algorithm clearance and the system clearance. So we’ve got a lot of tailwinds behind us and we also benefit from the breakthrough devices program. And just to give a little color there, I think this last pre-sub with the agency is the seventh one we’ve had this year. So the level of collaboration and support on behalf of the agency has just been fantastic. So if you think about the timeline, we feel like we’re in really good shape. This trial will take approximately three months and then we’ll move into compilation and submission and we feel confident that we’ll be on the market in the second half of next year.

Great. Thank you.

Thank you. And that does end today’s question-and-answer session. I would now like to turn the call back to Ms. Shacey Petrovic for any closing remarks.

Thanks, everyone. Just a few weeks ago, Insulet was awarded the 2019 Massachusetts Economic Impact Award, the result of substantial investment and job creation we have made in Central Massachusetts. This award has been presented since 2003 to honor companies that have made a significant impact on the Massachusetts economy. And just last week, Insulet UK was awarded the Medical Device Company of the Year by Diabetes Professional Care Association, which celebrates standards of excellence, quality and positive outcomes led by companies working in the diabetes community. I want to congratulate our entire team for taking home these goals, a great recognition of everybody’s terrific execution and our deep commitment to our mission. We are just so proud to be making such a positive impact in our local communities and to be making a positive impact on people with diabetes across the globe. Thanks and have a great evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.