Insulet Corporation (PODD) Q2 2020 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation Second Quarter of 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Deborah Gordon, Vice President, Investor Relations.

Thank you, Lauren. Good afternoon. And thank you for joining us today for Insulet second quarter 2020 earnings call. With me 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 website, and the press release discussing our second quarter 2020 results and third quarter and full year 2020 guidance is also available in the IR section of our website. 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 could materially differ from current expectations. We ask that you please refer to the cautionary statements contained in our SEC filings for a detailed explanation of the inherent limitations of such forward-looking statements. We will also discuss non-GAAP financial measures with respect to our performance, namely adjusted EBITDA and constant currency revenue, which is revenue growth excluding the effect of foreign exchange. These measures align with what management uses as supplemental measures in assessing our operating performance, and we believe that they are helpful to investors, analysts and other interested parties as a measure of our comparative operating performance from period to period. Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year basis, and all revenue growth rates will be on a constant currency basis. And with that, I’ll turn the call over to Shacey.

Thanks, Deb. Good afternoon, everyone, and thank you for joining us. While COVID-19 continues to challenge Insulet, our customers and our communities around the world. The dedication of our employees, partners and the healthcare providers, serving people with diabetes, helped us to deliver an extraordinary quarter on nearly every dimension. We achieved second quarter revenue of over $226 million, exceeding our expectations. This growth represented a 29% increase driven by 27% revenue growth in our total Omnipod product line. And it was a record revenue quarter across every single product line. Delivering these results in such uncertain times is a testament to the tremendous execution of our team. We are very fortunate to have strong fundamentals in place. The strength and durability of our recurring revenue model provide us significant insulation. Our performance in the first half of this year is reflective of our great momentum in 2019 and the first quarter of 2020. While we are seeing an impact of COVID, it’s a two-part story for Insulet. There are many aspects of our performance that we celebrate. We are creating new ways to serve our customers that are more scalable and more engaging. We’re making our supply chain and manufacturing operations more resilient and adding significant capacity in preparation for the Omnipod 5 launch next year. And even in the face of this pandemic, we are making exciting progress on our innovation programs. In the near-term, due to COVID impact on new starts, we have the reality of the compounding impact on our revenue growth rates in the second half of this year and the first half of next. But ultimately, we expect to grow total Omnipod revenue 18% to 20% in 2020, despite this impact. And we are building capabilities across the company to maximize our position in the market and serve our mission for many years to come. Insulet will emerge stronger and better from this challenge, thanks to our talented and committed team. On today’s call, I’m going to speak about how we are continuing to manage through the COVID environment, our achievements toward our strategic imperatives and our longer term expectations. Wayde will dive into the details of our financial results and guidance, and we will then take questions. We continue to grow our global customer base during the second quarter. As discussed on our last call, we had anticipated 50% to 75% fewer new Omnipod customers as compared to our original expectations at the start of the year. We landed closer to 50% exceeding our expectations. Our performance was driven by our commercial teams who throughout the quarter expanded utilization of our virtual onboarding tools, piloted novel programs to increase awareness and adoption of Omnipod and continue to expand affordable access to Omnipod across the globe. And it was supported by our innovation and operations teams who helped us to grow our manufacturing capacity and resilience and deliver an exciting new release of Omnipod DASH, while also advancing Omnipod 5 towards commercial launch. This quarter, we made continued progress on our strategic imperatives. One, to deliver consumer-focused innovation; two, ensure the best global customer experience; three, expand our global footprint; and four, drive operational excellence across the organization. Starting with consumer-focused innovation. The Omnipod form factor has been our key advantage since our founding. We hear from Podders around the world who come to us from MDI and other pumps that the ease of use and the freedom associated with the pod is life-changing. Over the last several years, we’ve benefited from the differentiated form factor and increasing market access to grow our Omnipod customer base. Last year, we fully launched Omnipod DASH and our growth accelerated, even as other CGM integrated automated insulin delivery systems came to market. This is a testament to the value of our consumer-focused innovation, including relentless focus on ease of use, companion apps and cloud connectivity. And it is a testament to the compelling form factor of Omnipod. In a few quarters, users will no longer have to choose between the Omnipod form factor and CGM integrated automated insulin delivery. Omnipod 5 offers both. Adoption of Omnipod DASH continues to grow, driven by both the ease of use of the platform and our pay-as-you-go business model, primarily through the pharmacy channel in the United States. This is a uniquely differentiated offering that eliminates restrictions and makes treatment accessible to a broader range of customers. We continue to see strong adoption among MDI users in both the type 1 and type 2 segments. In the second quarter, approximately 30% of our U.S. new Omnipod customers were typed 2 consistent with last quarter. We continue to make great strides within the type 2 diabetes population. A market we are uniquely positioned to serve, given our differentiated product and our access through the pharmacy with no restrictions and no upfront costs. Coverage for Omnipod DASH continues to expand with approximately 65% of lives now covered, primarily through the pharmacy channel. In June, we also launched a major Omnipod DASH release, including several features that further improve simplicity and ease of use. These include automatic data uploads so that users and their clinicians have instant real-time cloud access to data without the need to connect and download from a computer. We have been working on that vision for years to streamline clinic workflow. And we have already heard from users how valuable this is to enable telehealth visits in our current environment. We can also now push future software updates wirelessly to our customers. And we are delighted to now offer Spanish language as an option for Omnipod DASH users in the United States. In the second quarter, we saw expanding use of our virtual patient onboarding tools, which have been well received by consumers and healthcare providers. The vast majority of our new customers were onboarded virtually. Omnipod simplicity and ease of use are clearly differentiated in this environment and both type 1 and type 2 MDI users can easily get started on Omnipod from the comfort of their homes. Our virtual training capabilities have helped to mitigate the impact of COVID on growth of new Omnipod customers. And they also lay a foundation for consumer-friendly, cost-effective and scalable onboarding of new users to Omnipod 5 when it launches. In addition to the success we’re having with Omnipod DASH, we made great progress on Omnipod 5 and remain on track to launch in the first half of next year. We resumed our pivotal study in June and presented our first data from the Omnipod 5 pre-pivotal study at the American Diabetes Association Virtual Conference. The results demonstrated best-in-class usability and time and closed loop, excellent time and range and statistically significant improvements in hypoglycemia compared to prior therapy. More than half of the participants have completed the Omnipod 5 pivotal study, and all participants should finish by Q4 putting us in a solid position to launch Omnipod 5 in the first half of 2021. Virtually all cryo participants have enthusiastically requested to continue using Omnipod 5. So we are supporting an extension phase to enable them to remain on product. This allows us to collect additional longer term data, which will be helpful insights for clinicians, payers and for our Omnipod 5 innovation pipeline. Participant feedback has been terrific. Just last week, we were touched to hear from a parent who said “with Omnipod 5, I now have my child back, and my family has their mom back”. We know that we’re third to market, and as such, we didn’t design Omnipod 5 just to be an incremental improvement automated insulin delivery. We designed our system to revolutionize insulin delivery for people living with Type 1 and insulin dependent Type 2 diabetes, and to bring AID to millions of people still relying on multiple daily injections. Omnipod 5 brings together the pods compelling form factor, excellent time and range, low hypoglycemia, customizable set points, and adaptively that is designed to limit the extent to which HCPs need to tweak the system to help users get great outcomes. Our platform will also offer unique benefits, including complete personal smartphone control, which eliminates the need for a separate PDM. Thanks to our effort to put the algorithm on the pod, we expect users to be able to download the Omnipod 5 app, pair with their pod and enjoy the benefits of Omnipod; no infusion sets, no separate controller and nothing else to think about. We also know that smartphone control isn’t for everyone, but we wanted to ensure that our users could enjoy the benefits of real-time data being available in our companion apps and cloud data platform. Omnipod 5 PDMs will therefore include a SIM card. This enables every Omnipod user, even pediatrics without smartphones, and those without Wi-Fi to benefit from our companion apps that will provide real-time insulin and CGM data to caregivers, loved ones and clinicians. And all of this comes in a system that has been designed to be exceptionally easy to start and easy to use as evidenced by our remarkably high usability scores. We’ve also begun to work on what comes after Omnipod 5. We see the Type 1 pump market nearly doubling in the coming years as more users discover the ease of use and clinical benefits of second generation AID systems like Omnipod 5 and beyond. And we see enormous opportunity to serve those living with insulin dependent Type 2 diabetes, given our unique form factor and pharmacy access. So we are investing to serve these growing markets. We are investing in next generation technologies and in demonstrating the benefits of Omnipod 5 in expanding populations, including very young pediatrics and people living with insulin dependent Type 2 diabetes. We are advancing our algorithm to increase automation, improve outcomes and further simplify the experience for users. And we are continuing to integrate our products with next generation technologies from our partners at Dexcom, Abbott and Tidepool, all with the goal to reduce burden and improve outcomes for the millions of people living with insulin dependent diabetes across the globe. Now turning to our progress in our international markets; this area of our business has been more heavily impacted by the pandemic and we are seeing a slower recovery in some European markets. This does not diminish our enthusiasm for our international opportunity, both in terms of continued growth in our existing markets and expansion into others with significant unmet need. We made good progress throughout the quarter, preparing our markets for the expansion of our Omnipod DASH launch. Our limited market release in the UK, Netherlands and Italy was successful and our customers love the product. The international team has been focused on training, market readiness and launch preparations, and we’re looking forward to moving into full market release with Omnipod DASH early next year. And finally, turning to operational excellence; for the last four years, we have been strengthening our global manufacturing and supply chain operations. We have increased capacity and made our operations more resilient with the addition of our U.S. manufacturing plant to compliment our facility in China. This has served us especially well during the current pandemic. As many of you know, during the last 15 months, we began producing Omnipod on our first two highly automated U.S. manufacturing lines. Although the pandemic has had an impact on how quickly we’ve been able to ramp these lines, we continue to increase capacity and gain efficiencies throughout our global operations. In the near-term, this ensures we can deliver the highest quality product to each and every one of our customers. Over the long-term, our U.S. manufacturing will provide required capacity and support as demand for our products continues to grow. We plan to further expand our U.S. manufacturing capacity across our supply chain and manufacturing operations, to prepare for what we are confident will be enthusiastic demand for Omnipod 5. As part of our corporate sustainability goals, we have taken steps to reduce the environmental impact of our supply chain and operations. To this end, we have localized a large portion of our supply chain to reduce logistics emissions. We also moved to ocean freight, which has the benefit of being both cost – more cost effective and more environmentally friendly. In June, as a further step, we transitioned our company headquarters and U.S. manufacturing facility to be fully powered by solar-based renewable energy. We understand the urgency and importance to protect our environment and reduce our carbon footprint. And we are committed to fostering a sustainable business to support the long-term wellbeing of our customers, our employees and our communities. In summary, while there are certainly short-term challenges that our business faces due to COVID, our team is rising to these challenges in remarkable ways. The strength and durability of our recurring revenue model provide us significant insulation and differentiation and are key to our ability to continue to deliver attractive growth in these uncertain times. Our investments in product and business model innovations and our talented dedicated team, position us over the long-term to drive strong organic growth and value creation and to bring powerful new technologies to market; and most importantly, to improve the lives of people living with diabetes. I will now turn the call over to Wayde.

Thank you. I want to echo Shacey’s gratitude to our Insulet team members who have adapted to these extraordinary times. Thanks to their hard work, we delivered another quarter of strong financial results that exceeded our expectations. We continue to make excellent progress on our strategic imperatives as we invest for growth, enhance our global competitive differentiation and serve our mission of improving the lives of people with diabetes. In the second quarter of 2020, we delivered revenue growth of 29%, which was $10 million above our guidance range. This strong performance continues to be fueled by our total Omnipod growth of 27% and was $6 million above our guidance range. Regarding new Omnipod starts, we communicated that our guidance for Q2 included an estimate that the pandemic would lower our expectations from the beginning of the year by 50% to 75% with the U.S. closer to 50% and international closer to 75%. Actual Q2 results were favorable in both regions, as the combined impact was approximately 50%. Attrition and utilization came in near expected levels with slightly higher attrition and slightly lower utilization. Breaking down our revenue results by product line, U.S. Omnipod revenue grew 31% exceeding our guidance range of 21% to 25%. Approximately $4 million to $5 million of the increase resulted from the net impact of estimated distributor channel and end customer inventory levels. In Q2, we grew U.S. volume through the pharmacy channel to over 30% of our total volume. Pharmacy channel growth contributed to the increased inventory levels. Stocking for the pandemic also drove channel inventory increases across all three channels, including our DME and Direct. New Omnipod starts were also favorable versus our expectations. Our growing customer base and Omnipod DASH adoption primarily through the pharmacy channel, as well as the mixed benefit from the premium on DASH, continued to be the primary drivers of our growth. In the second quarter, volume growth of Omnipod DASH continued to drive over 60% of our U.S. new Omnipod starts. International Omnipod revenue grew 20% compared to our range of 15% to 19%, including a benefit of approximately $2 million of channel inventory build due to COVID and to a lesser extent, better than expected new Omnipod starts. Drug delivery revenue increased 49% to $24 million, which was $4 million above our guidance range. While we expected greater than normal revenue growth in Q2 resulting from the shift in timing of production from Q1, the overachievement was due to our partners increased forecast related to the current environment. Overall, we achieved robust revenue growth in the second quarter building off of our strong momentum from 2019 and Q1 of 2020. Turning to gross margin. We delivered 63%, down 270 basis points year-over-year in line with our expectations. The year-over-year change, included headwinds primarily due to the ramp of our U.S. manufacturing lines, as well as an approximate 180 basis point unfavorable impact from COVID-related costs and 40 basis points from foreign exchange. These headwinds were partially offset by the favorable revenue mix benefit from Omnipod DASH growth through the pharmacy channel and pay-as-you-go business model with no upfront charge for the PDM, as well as continued improvements throughout our global manufacturing and supply chain operations. Operating expenses in the second quarter were in line with our expectations and we ended the quarter with adjusted EBITDA of 20%. Our strong adjusted EBITDA was due to the favorable revenue performance, lower travel and meeting expenses and timing of certain expenses, including Omnipod 5 clinical trial expenses, much of which moved from the second quarter into the third quarter. Regarding cash and liquidity, we are in a strong cash position with the earliest debt maturing in 2024 and low cash interest expense. We ended the second quarter with $868 million in cash and investments, including the additional cash raise of $477 million from the equity offering in May. The cash raise strengthen our balance sheet and ensures we can continue to invest for growth, including R&D, commercial and capital expenditures in order to execute our strategic imperatives and provide additional liquidity during the pandemic, should we need it. We have a differentiated position in a large and under-penetrated market, and we want to come out of this pandemic stronger by continuing to grow in our global markets. Turning to guidance. Although COVID impacts are not predictable, last quarter we continue to provide guidance in order to help investors forecast our business, understand our growth drivers and highlight the areas of the business that will be most impacted. Given the information we had and an estimate of the impact of the macro indicators, along with the durability of our recurring revenue model, we maintained our full year 2020 revenue guidance at the low end of our original total company range. As a result of second quarter revenue that exceeded expectations and a stronger second half outlook, we are raising our total company full year 2020 revenue guidance growth rate to a range of 17% to 19% up from our previous expectation of 15%. This includes raising total Omnipod to a range of 18% to 20%. By product line for U.S. Omnipod, we’re raising our expected revenue growth to 19% to 21%. And for international Omnipod, we’re raising our expectations to 17% to 19%. The key drivers of our increased full year guidance for total Omnipod are the compounding benefit of second quarter hire new Omnipod starts, which add incremental revenue in the second half of the year and our expectations of improved new Omnipod starts in the third quarter. In terms of expected new Omnipod starts, our guidance now assumes an improvement in the third quarter, global new starts compared to our guide last quarter. We now estimate that new starts will be approximately 30% to 50% lower than our beginning of year estimate with the U.S. again at the low end and international near the high end. This compares to the 50% we guided to on our Q1 call. We anticipate fourth quarter global new starts will still be approximately 25% lower, consistent with last quarter’s guide. This results in the achievement of approximately 60% to 75% of our original pre-COVID assumptions at the start of the year. Our revised guidance of new Omnipod starts factors in a gradual improvement from Q2 to year end. We continue to assume downward pressure on utilization and an uptick in attrition to account for potential pandemic related headwinds. While current trends are beginning to show signs of improving conditions, COVID continues to create uncertainties and it is difficult to accurately predict the progression Of the pandemic. Our global diabetes business remains well positioned to manage through multiple scenarios and continue strong growth this year, as well as in 2021 and over the long-term. Lastly, for drug delivery, we now anticipate growth of 3% to 6% resulting from the increased forecast from our business partner. Turning to the rest of the P&L. On a full year basis, we are reaffirming gross margin of approximately 63%, which includes an estimated $7 million to $10 million of one-time costs related to COVID safety and mitigation efforts versus our prior guide of $5 million to $10 million. Also factored in is the slower ramp in our U.S. manufacturing lines due to the pandemic. Our 2020 and long-term financial strategy and capital deployment plan remain unchanged. And we continue to expect capital expenditures to be consistent with last year, as we plan to invest for growth in our innovation pipeline, global commercial initiatives and with our manufacturing and supply chain operations. For full year 2020 adjusted EBITDA, we are reaffirming our expectation as a percentage of revenue at the low end of the 13% to 17% range. For the third quarter of 2020, we are guiding to total company revenue growth of 13% to 15%. This includes total Omnipod revenue growth of 12% to 14%. By product line, we expect U.S. Omnipod growth of 14% to 16%, international Omnipod of 9% to 11% and drug delivery of 23% to 28%. As a reminder, the pandemics impact on our global new starts in the second quarter has a compounding effect on revenue, which mostly impacts the second half of the year. Nevertheless, the durability of our differentiated recurring revenue model insulates us to a large degree, since we generate the vast majority of our revenue from our large existing customer base. As a result, we still plan to achieve double-digit revenue growth in the third quarter of 2020 and the full year, despite the impact of COVID. For our 2021 outlook, assuming market conditions stabilized in 2021, we remain on track to deliver our long range plan target of $1 billion in revenue. As communicated on our Q1 earnings call, we expect gross margin of 67% to 70% and operating income as a percentage of revenue in the mid teens, closer to the low end of the range. In conclusion, we had significant momentum to start the year and our first half 2020 results benefited from that momentum. Our differentiated business model and product platform, operational excellence and strong financial profile enable us to continue to invest for growth, while mitigating the impacts of COVID and related headwinds. As a result, we expect to deliver 18% to 20% revenue growth this year. We have a very healthy and robust business and are well positioned for continued growth over the long-term. With that, we’ll turn the call over to the operator for Q&A.

Thank you. [Operator Instructions] Our first question is from Larry Biegelsen with Wells Fargo. Your line is now open.

Good afternoon, guys. Thanks for taking the question and congrats on a nice quarter. Shacey, just one on Omnipod 5 for you and Wayde one for you on the margin. So Shacey, just any update on the timeline for iOS integration and how are you feeling about price premium for Omnipod 5 versus DASH? And Wayde, on the 2021 gross margin, can you talk about the drivers to that 67% to 70%? Should we be thinking about the low end? It’s a pretty big step up from a 63% in 2020. Thanks for taking the questions guys.

Great. Thanks, Larry. So in terms of iOS, we have not guided any timeframe there, only to say, that we fully expect to follow our initial launch on Android with iOS. So that work is underway and is that timeline becomes more clear, we’ll communicate that out. First, we want to get Omnipod 5 to market, which is coming soon. And in terms of a price premium, and we also haven’t given much insight into our price strategy. The one thing, I will highlight though, is we are entirely committed to a pay-as-you-go model in the United States with Omnipod 5. And so what that means is all of our existing DASH users will be able to transition to Omnipod 5 without having to worry about a lock-in period or having to pay some sort of upgrade fee. Now that doesn’t mean that Omnipod 5 doesn’t warrant a premium, because obviously, the performance in terms of hypoglycemia and other key performance indicators certainly deliver value to the market and so that’s what’s being evaluated. But we are committed to the pay-as-you-go model. And that’s important for us because as we think about the pace of innovation increasing in the market, we want to be positioned to be able to deliver that innovation most quickly to our customers and not make them wait out these industry warranty periods, et cetera. So that we’re committed to and we’ll see on the price premium.

Okay. And Larry on the margins for 2021, first of all, margins are an important part of the story for us. We have significant strategies running across the business to make sure that we have the strongest gross margins possible. And we see them as a big part of the differentiated story here for us. And when we look at the most recent quarter, what we’ve called out in impact from COVID 180 basis points in foreign exchange. So if you take out those two, one items, the most recent quarter would be 65%. So COVID is having a pretty significant impact as well as FX on our gross margins. So that takes a bit of a step up away. And then when we look at how we progress in 2021, we have made a significant investment in our manufacturing operations, mainly here in the U.S. but also in our China facility. And we continue to make progress on our operations as well as our supply chain efficiencies. And so we have high confidence that we will get into the 67% to 70% range in 2021. And we still have high confidence that we can get to 70% over time. We’re just a bit delayed here for a quarter or two, as our teams have shifted focus to deal with COVID and the safety and mitigation efforts related to that. But it has not diminished our game plan at all to push for 70% gross margins. And I know the team is doing a lot to keep that in focus while they deal with the current environment. And I know that we’ll get back on track here in the next couple of quarters and be confident when we issue our guidance for 2021.

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

Thanks. And there’s a lot I can ask about in the quarter here. But Shacey, I actually want to focus on two longer term focus questions on points that you made. The first was that the number of pump users could double over the coming years. I’m guessing coming means something like 5-ish. So if there is 400,000, 500,000 pump users in the U.S., I mean, that’s a massive new patient opportunity over the next several years. I just want to make sure that I’m thinking about the right way and how should we think about the number that Insulet can possibly grab during that time?

Yes. You’re seeing it the way we see it Robbie. We see this pretty significant technology inflection happening in Type 1 and actually beginning to happen in Type 2. So I think a lot of this is driven by adoption of CGM. And then, of course, we know that there’s going to be great demand. It’s one of the most anticipated developments in the pipeline with Omnipod 5. And so we do see that, we’ve always said, we thought 50% was a pretty reasonable estimate for penetration into the pump market because you just needed to look at pediatrics. But we’re seeing even pediatrics expand utilization of pumps in Type 1 pretty rapidly. And then I think this expansion of CGM has really driven more adoption too. So we do see that as a realistic TAM for us and an exciting one. And then we look at CGM, penetrating into Type 2s now, for us, that’s just pipeline. We see a tremendous opportunity to bring Omnipod 5 to people living with Type 2 insulin-dependent diabetes. And I would say, we have the right to win in both of those markets. We have the specific obviously, really differentiated form factor advantages, and really excited about what integration with our sensor partners will bring to both of those populations.

Thanks. And maybe if we think about, Shacey, the comments you made on the lower new patient adds in 2020, and that will impact the back part of this year and the first half of next year. I just want to make sure, do you see something with street numbers that worry you? We all know this is a recurring revenue business model and fewer new patients starts equal somewhat of a headwind next year. Does something worry you about where the Street is for next year? Because seeing what your competitor is doing with an integrated offering, Horizon 5, potentially, should be even better. There’s a lot of enthusiasm around the launch next year. I just want to make sure that’s more just the reality of the business model rather than trying to talk down expectations. Thanks.

That’s right, Robbie. We are not worried. I just always take the opportunity because we have such a different business model relative to obviously other insulin pump players out there. Just to educate on that. And Wayde, I don’t know if you have any other color you want to add regarding the Street estimates.

Yes. No, first of all, it’s a really good question, because one of the reasons we elected to provide guidance last quarter was to give insight for people to understand our business model. And so the reason that Shacey is highlighting here, just to remind people that in the recurring business model that we’ll be dealing with this headwind for the second two quarters of this year and into the first half of next year. But having said that, we have a lot of positive drivers in the business and when we – as specific with to your question on estimates that are out there, we have raised our guidance more than for the Q2 beat here. And so there should be some room in the second half, as you know, we’ve also taken up the second half guidance.

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

Good afternoon. Thanks for taking the question. Just a two number of questions for me, I’ll start with Shacey. So Shacey, during this earning season, a lot of diabetes companies have talked about international sluggishness recovery related to the U.S. and just sort of, can you walk us through for your business and how this dynamics ex-U.S., or varying versus the U.S.? Is it a country specific, or do you think it’s across multiple regions of your ex-U.S. business?

Sure. Yes, David and you’ve hit on it. The recovery that we’re seeing in Europe is definitely more modest than what we’re seeing in the U.S. today. And it is very much varied across the markets. Some are doing okay. And then others like France, which is obviously an important market for us is still very challenged. As hospitals don’t open and many of those new patients would be served by the prestataire and they are occupied with other priorities. And so it’s kind of a tale of multiple parts across Europe. And the other area that is more challenged is endo visits. And so there’s been slower uptake of telehealth in Europe and many larger European markets see their Omnipod or new pump starts in hospital, the clinics rather than in private offices. And so obviously, hospitals are really challenged right now in many parts of the world. So I think, we’re seeing encouraging things across all of our markets in terms of – endo visits starting to reopen in terms of our pipeline and new starts. But we’re not back to normal still know that endo visits even in the United States are not back to where they were pre-COVID levels. So it’s encouraging, but in the – in Europe, we are forecasting that it will be a much more moderate recovery from here through the rest of the year.

Okay. Very helpful. And then kind of related question, just thinking about the broader new patient start impact. So, improving here in the third quarter guidance from prior, you’re still saying 25% new patients start impact for the fourth quarter. So, the way to think about that is that simply a reflection of a conservatism or if I say you’re ahead of pace here, you’re sort of assuming, you’re a little ahead of pace, but resurgence of flu season and what have you could impact that in the fourth quarter. And I guess, the question I would say is, I would sort of assume that the channel will be more able to handle a resurgence given telehealth patient conditioning, physician conditioning in the back half of the year. So, just help us understand that 25% maintenance relative to the improvement in the third quarter? Thanks so much.

Yes. This is the most important metric for us. Our attrition and utilization metrics, although ticked up are very similar versus our historic levels. So, it really is all about new patients starts for us. And we’ve estimated the U.S. around a third impacted here in Q3. And as Shacey said, given the dynamics internationally, we’ve called it 50% internationally impact, it is – we’re seeing a slower recovery there. And that is exactly it; we’re just making sure that we keep some room for ourselves for resurgence here. And if we see headwinds in certain states within the U.S. or regions outside the U.S. start to be more impacted obviously, at the low end of the range of 50% impact overall for us, would mean Q3 would have to look like Q2, and we hope that we’re not going back there. We – that’s the low end. We hope that we can improve on that. Get closer to the 30% at the high end of the range and that’s on a global basis. So that would mean that the regions combined would have to be 30% for us to be at the high end of the range. And so we see a lot of different scenarios playing out. Obviously, we don’t know where the pandemic is heading? We’re trying to do our best to give ourselves a good estimate here. If we think about why we set guidance originally, it was to put these stakes in the ground, so that we can then help everybody understand how we’re performing against them. And in Q2, we did very well, came in at the bottom end of the range and beat expectations in both regions. So, we’ve moved the steak a little bit more favorable here in Q3. We’ll see how the pandemic progresses. And then the last part of the question, David, around telehealth for the endos and for us virtual training, it has changed the game. I think the benefit of virtual training and the ability for patients to still get the therapy they need, even in a COVID-related world. We have the capability to do that, as Shacey said; most of our trainings in Q2 were virtual. And so we have that capability built now, and that should help us offset, what could have been a worse impact.

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

Thank you. Good afternoon. Shacey, I wanted to go back to some of the comments you made on Omnipod 5 in some of the potential competitive advantages, you’ve listed through form factor and customization, and what have you? I thought the adaptability point you made was interesting, and we’d love to hear you maybe flesh that out a little bit. I’m not sure off the top of my head; I know, exactly what you were referring to there? Thanks. And then I do have a follow-up. Thanks.

Sure, Jeff. Yes. So, when I talk about adaptability, I’m really referring to other systems that are in the market, where the – there are still many dobbs – knobs and dials to adjust on these systems in terms of various inputs regarding, for example your basal rate or your total daily dose, or your insulin to carb ratio, such that, if the algorithm and the system is not working aggressively enough or in a satisfactory way for the patient that they have to go back into the physician and have adjustment made in order for the system to work more effectively for them. Our system and the algorithm has really been designed to grow and learn with the patient and consciously, we’ve taken a lot of those knobs and dials away, so that the system can actually do its job and simply adapt and perform better for the patient. And so that really, the goal there is to make it much easier, both for the clinician and for the patient, and to rely on the algorithm, to grow with the user. So, there are examples of, if the user adopts a new exercise routine, that means that their insulins, they require potentially less insulin. The system is designed to notice that and to learn and adjust; same thing with children as they get older, they may require more insulin. The system is designed to see that and adjust to that. So that’s what we’re really excited about what adaptability will bring. We’re also really excited just about the flexibility of the system. We’ve talked about customizable set points and other things with the system that should make it just incredibly user-friendly. And I think that was demonstrated at ADA when the moderator compared our usability scores to iPhones. I mean, that’s really how simple the system is designed to be.

Yes. Understood. Very helpful. And then Wayde maybe just – I think you mentioned here just in passing to David’s question that ask was maybe down closer to that 33% or a third below your expectations at the start of the year and I know that’s relative to expectations. I think if I look at your – one of your competitors, who gives pretty clear numbers and you can back into numbers, their new patients starts in 2Q seemed like they might have been flat even up 10% or 15% year-over-year from MDI population perspective. So, if your new patient starts in to 2Q again, relative to expectations, but if I adjusted that maybe, down 10% or 15% or something, help me bridge that gap, maybe between a competitor be in flat to up and you guys may be in down year-over-year on new patient starts from the MDI channel. Thanks.

Sure. Well, just to start with, we still get most of our new patients from the MDI channel. So, it’s about 80% and I can’t really speak to the math for the competitors, but certainly, can give you more insight to our pipeline. We had record new patient starts quarter-on-quarter coming into 2020, and we set our guidance appropriately, and we’re not expecting continued record new patients start quarters every year, but we still had a pretty significant number of new patients starts in there. And so still coming in at 50% of our expectations globally is strong. And the U.S. was better than the 50% and had a pretty good quarter there as well as evidenced by the 31% growth rate in the quarter. We certainly got the benefit of inventory there. But we’re still mid-20s growth rates for the U.S. And so although we were exceeding that in the last few quarters of 2019, I think at 26%, 27% growth rate ex-inventory build is still a really healthy quarter. So, it gives you a sense of yes, we’re off our expectations for the year, but still very strong new patient start growth.

Thank you. Our next question comes from Joanne Wuensch with Citibank. Your line is now open.

Good evening, everybody. And thank you for taking the questions. I have two quick ones. I think. you mentioned the moderator at ADA and the commentary there, we really haven’t had the chance to sort of group catch up with you post-ADA. And I was curious if there’s anything else you want to highlight that really caught your eye?

Coming out of ADA, I think, what would be noticeable is just that we’re in this sort of technology adoption and pace of technology increasing in the market for people living with diabetes. It’s just a really exciting time. I mean, there were multiple AID systems, multiple next generation sensors presented. And so when we think about, what that could bring to people living with the disease, it’s very exciting. To me, it’s part of why we remain so bullish on adoption of technology among people living with both Type 1 and Type 2 diabetes. And obviously, we’re really excited about the role that we’ll play in that. I think this year’s ADA, if you just looked at the enthusiasm, I think there were thousands and thousands of physicians, who had dialed into to listen to our presentations. There’s just tremendous enthusiasm for automated insulin delivery and what it will bring to the community.

And my second question is, as you prepare for Omnipod 5 launch, can you walk us through sort of the steps that you think about, so that you’re not in back order supply right out of the gate once it’s out the door?

Sure, sure. I think that’s a great question. We’re thinking a lot about that right now. We’ve been – obviously; I highlighted it in my remarks. We’ve been already thinking about, how do we build capacity and be in a position to be a very strong from an inventory position. The next steps for us outside of getting through our clinical work and securing clearance are to really think about market access. As I mentioned with Larry at the first question, we are committed to this pay as you go model. And so what that means is that everybody will be able to transition to Omnipod 5, as soon as they have access. We’re not going to regulating this with a four-year warranty period or upgrade fees or anything like that, which means there’s going to be tremendous demand both among our existing users and what we anticipate to be tremendous demand among new users. And a lot of that will be regulated by access. And so our teams are already now thinking about how do they rapidly expand access, particularly in our pharmacy channel. I think we’re very fortunate, because we did all of the work to really establish our – both the new business model, the new wholesaler distribution and the pharmacy access. And so this should go much more smoothly and much more rapidly than it did with DASH. And actually, it went very well with DASH. But that work is already underway as well. And then we’ve had a lot of work going on around onboarding and training of patients, which is why we were ahead of the game in terms of being able to launch all of our virtual tools with Omnipod during the pandemic. But what’s great about the experience that we’ve had is that we know that patients of all sorts of demographics can be very happily and successfully trained at home. And we had less of an experience before the pandemic. Now, we know it for certain across all patient demographics. And so that sets us up, I think, for a lot of success rapidly and cost-effectively being able to bring patients onto Omnipod 5.

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

Hey, good afternoon, guys. Thanks so much for taking the questions and congrats on, on a really strong quarter, given – given all that everyone’s going through right now. Wayde, if I could, just one question on the guidance, sorry to harp on this, but I guess as I look through the back half of the year implied guidance for Q4 plus what you gave for Q3. it does look like on a comp adjusted basis, growth is decelerating. And I’m just curious to pick your brain a little bit more about that. Just given the fact that it feels like we’re past peak unemployment, right. So, it feels like attrition should actually stabilize at this point to move lower. Am I thinking about that wrong? And it feels like new patient ads should start to accelerate maybe, just a little bit of color there would be great.

Sure. And I hope you’re right. on unemployment, I think we’ve got long ways to go to understand, where we’re at in this pandemic. But it really speaks to the point that Shacey highlighted in her opening remarks and that I provided some more detail in my remarks as well, is the way that our business model works. And when we take half, the new patients starts that we’re planning out of Q2 and even though we have an improving Q3 and improving Q4 through the end of the year, when you take new patient starts out, it creates a headwind to the growth rate compared to last year. So, it really highlights the very tough comp that we created for ourselves in 2019. If you think about, where we were in the second half of 2019, we launched DASH. we entered the pharmacy channel and we launched our pay-as-you-go model. So, we had record new patient starts quarter-on-quarter through the end of 2019. So, we set up some very tough comps and you can look at the comps individually by metric; sales, price, utilization, attrition. And if all of those are fairly consistent, it’s all about new patient starts. And so with the COVID headwinds here, although we have improving new patient starts through the end of the year. by no means, are we stacking up new patients starts on a record-breaking nature like we did last year. So that’s going to impact our growth rates with those tough comps. We’ll see how we go, pandemic is making forecasting more challenging than ever. I like that we put these stakes in the ground last quarter. We’re going to continue to measure ourselves against them, see how we do here again in Q3.

Yes. thanks for that. And yes, I was going to say, Wayde, that really – this pandemic is really making you work hard for your money there. The follow-up question I had was on a potential bolus of new patients, and I’m not sure how you guys are thinking about this. but I guess, as patients start to sort of go back to their endo, do you expect to see a bolus of new patients at some point; anecdotally, I have a friend who just recently got diagnosed. He wants to go on the Omnipod. He’s waiting though. And so just curious to see how you guys are thinking about a potential bolus at some point.

Yes. Thanks, Danielle. It is something we’re thinking about. it’s difficult to predict obviously. But we do know that endo; in the U.S., where we have the most visibility. We do know that endo visits are down still significantly. And so – and then there’s a portion that’s just happening by a telehealth, people are less likely, and physicians are less likely to transition to new technologies via telehealth than they are in in-person visits. So, I do think that there is this dynamic, where people who probably need better technology and better care are not getting it today. And that’s really concerning, frankly, because it’s a vulnerable population as it relates to COVID. And so I will do everything that we can to educate the community, educate clinicians about this and that there’s, it’s very easy to transition to get a prescription to be able to trial the device and be able to get started at home. And there may very well be a bolus of people. we are not counting on it. But certainly, I hope that everybody who needs care is getting it, or we’ll get it soon as the economy start to continue to reopen.

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

Hey, everyone. thanks for taking the questions and congrats on the quarter. I wanted to follow up first on virtual training. There’s a lot of benefits now. you’ve kind of alluded to the future benefits and can you outline for us maybe, the speed of patients coming on. how that differs versus in-person as well as the cost? And I guess in a nutshell, is this hundreds of basis points of margin, for example, in the time or can you cut down the time by a third?

So, I’ll start with the first part and then maybe Wayde can comment although I don’t know how much insight we have yet into sort of the cost differential or the impact on margin. I will say that just feedback from both clinicians, who have attended trainings in some cases with their patients that we’re hosting virtually as well as directly from new customers has been absolutely fantastic regarding virtual training. And one of the pieces of the feedback is that it’s just much easier to schedule in everybody’s life. And so certainly, we see an easier time getting scheduled and we can also leverage our field team better in terms of being able to automatically schedule them and have people support multiple areas or multiple territories. And so I think all of those things bode well and we view this, as I said very much as not just a temporary thing that we’re doing to support patients and clinicians during COVID. but as a viable, very exciting way that we can scale our Omnipod 5 training and delight customers, because it’s clear that people love being trained in the comfort of their own homes.

Yes. I think the only thing I could add there really is, just keep in mind what Shacey said it’s early days. I think there’s some silver linings with the COVID pandemic here. and maybe, one of them is a situation, where we’re forced into more virtual trainings, both us to support it as well as patients and physicians. And I think we’re all learning that there are some benefits. patients enjoy getting trained at home in the comfort of their own homes and we’re finding out that it could be more efficient as Shacey said. We don’t have to have our clinical reps in – within driving distance of all the customers that we want to bring on in person. So, there are certainly efficiencies to be gained. The real question is how large of a percentage does virtual training become over time. There are benefits to being in person. We know that clinicians see a lot of those benefits to seeing their patients in person. So, I think it’s going to be a mixed bag over time. Margaret, I think just we’ll keep in mind that it’s early days, we’re learning a lot. We certainly know a lot more now than we did at the start of Q2.

Okay, great. Helpful. And then I just wanted to follow up in terms of some of the commentary on next generation products. You guys, obviously, you find the treasure around the corner, and you’re already starting to talk about G6, maybe some other software, digital health advancements. but as you guys look at that next generation product, you referenced type two. So, I assume you’ve kind of done a little bit of work of what are the primary gatekeepers showed adoption, why haven’t pumps succeeded and access is one, but how do you address some of the other issues on the engineering side, limiting patient touch and seamlessness and the payers.

Sure. Margaret, I think it’s a good question. I actually think we’ve learned a lot, because of DASH. I mean, we’ve seen a great uptake in this patient population as a result of the simplicity of the platform and just how powerful pharmacy access is. In that experience and understanding how that user segment is using DASH has given us insight into how Omnipod 5 five and future generations of omnipod 5 could be impactful in that population. So, I don’t want to reveal too much there from a competitive standpoint, but I will say that you’ll see us start the clinical work just to evaluate our technology in that population. And I think we’ll learn even more then, and we’re confident based on our experience with DASH and based on the fact that more and more people living with insulin dependent type 2 are adopting CGM, that we have a great technology to bring to that market.

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

Hi, good afternoon. Just a few quick clarification questions. On the 2Q new patient ads, you did 50% of your original goal. Did you quantify the level between U.S. and international?

Hi, Jayson, we have not, but we can provide a little more color. The U.S. was better than the 50% and outside the U.S. was higher than the 50%. The combination of the two got us to the 50% for the quarter.

Okay. What was the estimated impact of stocking in 2Q? I think, I thought it was $6 million to $7 million, but I just want to be strong there?

Sure. It was actually very similar to Q1. So in the U.S., we had an impact of $4 million to $5 million and for outside the U.S., it was $2 million, so a global $6 million to $7 million impact.

Thank you. Our next question comes from Travis Steed with Bank of America. Your line is now open.

Hi, good afternoon. Thanks for taking the questions. I’ll ask both of mine upfront in interest of time. Wayde, the 30% to 50% that you’re guarding to below expectations for Q3, just curious how that compares to what you’re seeing in June and July, if you’re assuming get worsen here, or assuming that were stable? And then Shacey on horizon, just kind of walked through some of the roadmap here between finishing up the trial, submitting the data. When we’re going to see the data and some of the gating factors to launch that earlier in the first half versus later in the second half? Thanks for taking the questions.

Sure.

Hey, Travis, I can start. Yes. So in regards to the Q3, 30% to 50% new patients start reduction from expectations, that is better than we saw in Q2, it was 50% in Q2. So by definition, everything below 50% will be better just to clarify that. And that is as a result of seeing gradual improvement coming out of Q2 into July. So it is different by region, as I mentioned upfront, every state, we see our reps in some cases getting back and meeting with customers and physicians and then in some cases that stops. Clinic-by-clinic, they’re turning on, turning off. There is a lot of variability, as Shacey said, just across the U.S. And outside the U.S., it’s a tough call because some countries are opening up and doing better. And as Shacey referenced, some countries are almost nil and still locked down and really not bringing on new patients. So very much a mixed bag out there, but just generally, we are starting to see improvements coming out of Q2, and that’s where we’re guiding to more of a 30% to 50% or a third to a half versus a half that we saw on Q2.

That’s great. Thanks. And then your question regarding Omnipod 5 five. So as I mentioned in my remarks, all of our patients will be completed or all participants will be completed with the Omnipod 5 study at the – by Q4. And then we don’t – just as general practice, we don’t give estimates on submission, but that timing of completion of participants in the trial gives us great confidence in our limited market release in the first half of 2020. And then in terms of data, we’ve been invited to share our data at ATTD. So we will definitely expect to do that, as that takes place in February, and is likely to be a virtual conference.

Thank you. Our next question comes from Matt O’Brien with Piper Sandler. Your line is now open.

Hi, good afternoon. This is Jason on for Matt, and thanks for taking the questions and squeezing us in here. Really just focused on one point here, Shacey, just wondering if there’s any newer adjusted contracting we should consider with payers heading into the launch of Omnipod 5? I mean, do you plan to have all that in place heading into 2021? Is that a dynamic you’d expect to work through once you get this system approved? Really I just wonder how that paradynamic plays into some of the access points talk to on a couple of questions so far.

Yes. So I think we’re in a good spot because what this is, is an amendment to existing contracts, as opposed to what we had to accomplish with DASH, where we had to go build the relationships and then go establish contracts and pricing in terms with all of our payers. So we are way ahead of the game on that front. But we do plan to use the data to be able to establish a reimbursement with our payers. And so that data will hopefully be available shortly after, our patients or our participants complete the trial in Q4. And I would imagine that the end of 2020, beginning of 2021, our teams are working very hard on establishing access for Omnipod 5.

Okay. And then just actually within that just one quick follow-up then. I mean, if it is as simple as an amendment, is that – would that amendment be the same or would it be a simple amendment, if you’re seeking a price premium? Or is that an amendment just to provide access?

No, Jayson, you’re hitting on a really important point and this is the debate that’s going on internally currently. We know that the performance of Omnipod 5 demands a premium. It’s a product that delivers pretty remarkable outcomes for users. What we’re going to be weighing that against and where there’s a lot of analysis going on right now is, the trade off there is just how quickly we can establish access. And so that’s the work that’s underway with the teams right now, and we have not yet shared. And I’m not even sure we’ve landed completely, but shared where we plan to be with a premium. But the access will happen very quickly or much more quickly, if we don’t have a premium or we have a minimal premium, and it will take a much slower ramp if we decide to attach a premium to it. So that’s the rub.

Thank you. And we have time for one last question. This question comes from Matt Taylor of UBS. Your line is now open.

Thanks for taking the question. Since nobody focused on it, I wanted to ask about drug delivery, since it was a lot higher and you had forecast, and I mean, I think it makes sense during COVID that you want to have more at-home delivery of these drugs. Can you comment on whether you think that’s going to be a lasting trend? I know you don’t have the full forecast past few quarters. But do you think that this could change the trajectory of that business or you’re focused on it?

Thanks, Matt for the question, I really – I think it’s durable to the extent that the pandemic is durable. So I don’t know that it changes the trajectory significantly, it’s really great to see the power of the pod in drug delivery. But it’s probably not an area that we see changing dramatically. And I maintain that, right now it’s very difficult to see any opportunities that are more attractive than the massive growing market that is before us in diabetes. We see just the CGM and technology adoption is at this inflection point and we’re on the cusp of launching Omnipod 5, and so that’s where we’re focused.

Okay, great. Thanks a lot.

Thanks, Matt.

Thank you. And this does conclude today’s question-and-answer session. I would now like to turn the conference back to Shacey Petrovic.

Great. Thank you. Despite the continuing effects of the pandemic Insulet delivered strong operational and financial performance, and our team continues to demonstrate an ability to adapt quickly to challenges and execute on behalf of our customers, our shareholders and our stakeholders. So to all of our employees, I want to thank you for your relentless hard work and dedication. I’m incredibly proud of how we’ve rallied together to support one another and to ensure we continue to advance our mission. Thank you all for joining us today and we look forward to providing updates on our progress throughout the remainder of the year.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation, and have a wonderful day. You may all disconnect.