Operator:

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded.

Deborah Gordon:

Thank you. Good afternoon, and thank you for joining us for Insulet's First Quarter 2024 Earnings Call. With me today are Jim Hollingshead, President and Chief Executive Officer; and Ana Maria Chadwick, Chief Financial Officer and Treasurer.

James Hollingshead:

Thanks, Deb. Good afternoon, and thank you for joining us. Coming out of the 2023 that saw Insulet emerge as the clear industry leader, we entered 2024 with significant momentum. We were off to a great start in Q1, fueled by continuing strong demand for Omnipod 5. Our global Insulet team continues to execute at a high level, bolstering our confidence in another year of robust revenue growth and margin expansion. Our first quarter revenue results exceeded our expectations for every product line. Given those results and the cascade of innovations that we plan to deliver this year, we have increased our guidance for both top line and operating margin growth.

Margaret Kaczor:

Maybe just to start with kind of a big picture question. 2024 certainly seems like a year probably as active as you guys have been with new launches with an eye maybe towards 2025 acceleration in revenues as the new patient starts to accelerate in the back half of this year. So one, I guess, is that how you guys are thinking about it? And then two, is it too forward to think that as new patients start to accelerate in the back half, those can add a step change in new start growth? Or is it going to be more of a steady acceleration as you launch all of these different initiatives in the back half of this year?

Operator:

Your next question comes from the line of Robbie Marcus with JPMorgan.

James Hollingshead:

I think there's a bunch of things. And let me start with the stocking question and then come back to the competitive question. So stocking, we're only ever going to call that out if there's something unusual. And channel -- the stock in the channel is back to normal. We don't see anything unusual happening, and we're not going to talk about that unless we ever see something change that we think changes the trend or whatever. So that dynamic is totally ordinary in the quarter.

Operator:

Your next question comes from the line of Jeff Johnson with Baird.

Michael Polark:

Maybe a quick follow-up on type 2 there. Is it the expectation that we'll see data from the SECURE trial at ADA?

Operator:

And your next question comes from the line of Travis Steed with Bank of America.

Ana Chadwick:

Travis, this is Ana. Thanks for the question. I think the main point here is to take a step back, and as you look at the U.S., we not only reaffirmed our full year guidance. We actually are taking up the low end. And as I mentioned in my prepared remarks, as we have all these cascade of new product launches, both in the U.S. and international, we're making assumptions. And as we do that, the key here is to remember that we believe the second half will be greater growth than the first, but we continue to expect the growth. And I think to call the exact timing is we're giving our best estimate. But the key important thing is that we're raising overall guidance for revenue, including international and the low end in the U.S.

Larry Biegelsen:

Jim, I wanted to circle back on new patient starts in the U.S. I heard robust U.S. type 1 and type 2 new starts in Ana's prepared remarks. Were new patients starts up year-over-year in Q1 in the U.S.? And do you still expect new starts to grow year-over-year in 2024? And talk about why you see G7 as a driver of new starts growth in the second half of the year.

Larry Biegelsen:

Just conceptually understand why G7 integration is a driver of that new start growth.

Operator:

Your next question comes from the line of Patrick Wood with Morgan Stanley.

James Hollingshead:

Thanks, Patrick. It's a great question. That's part of the purpose of the commercial pilot, is to get out in the real world and see how those practices operate because historically, our call point has been endocrinology practices. And so we're out calling on primary care and specifically on primary care who, when you look at their scripting behavior overall with things like CGM and insulin, look more like endo practices than like true general practices, right? And so we've been out in the world calling on those practices to see how they manage patients, how they manage diabetes therapy. And we've learned a lot.

Matthew Taylor:

I guess I was wondering if you could comment on pump market growth just with all the enhancements going on with integrations and technologies across the space. Can you comment on whether you think the market growth is accelerating or you think it will accelerate in the coming quarters or next year?

Operator:

Your next question comes from the line of Matthew O'Brien with Piper Sandler.

James Hollingshead:

Let me start on the pods, and then I'll ask Ana to comment, go back to the Q2 financials. So the G6, G7 pods, when we get to full release of -- for the G7 integration. Those will be backwards compatible pods. So the current pods only -- can only connect with G6. But when we launch G7, the G7 pods will be G7 and G6 pods and be backwards compatible. So what that will mean for a customer or a user is that if they want to stay on the G6, they'll be able to stay on the G6 because the pods will work with it, but it will also accept G7. And so it will be kind of a sensor of choice within the Dexcom family of CGM. Ana, do you want to take the...

Operator:

Your next question comes from the line of Jayson Bedford with Raymond James.

Ana Chadwick:

Thank you for the question. Listen, as I mentioned here, we took the entire guidance up 500 basis points, and that's given what Jim referred to. I mean the adoption we're seeing on Omnipod 5 is phenomenal and great. We're going to be in more markets as well. And the markets -- all of these European markets have slightly different dynamics. Some of them are in 4-year cycles, so on and so forth.

Operator:

Your next question comes from the line of Steve Lichtman with Oppenheimer & Co.

James Hollingshead:

Sure. We don't -- as you know, Steve, we don't give guidance on actual numbers and so on. But we did try to allude, I think, in the prepared remarks to the fact that Omnipod 5 is out of the gate so strong in the U.K. and Germany that already in Europe, more than half of our new customer starts are Omnipod 5. So that will give you some color on the strength of the adoption. We'll launch in France over the summer. And then the France -- we're in Netherlands in LMR, and we'll get to FMR in the Netherlands, and then we'll launch in France over the summer. And there's a ramp, as you all know, to the dynamic.

Joanne Wuensch:

I have 2. And the first one is I want to make sure I have an idea of what to expect when Libre 2 is integrated with Omnipod 5 and how you think about launching that and uptake. And then the second one is in addition to the type 2 clinical data at ADA, what else should we be looking for?

Danielle Antalffy:

Congrats on a great start to the year. Just a quick question on the new patient starts from competitive switches. Jim, I know you guys talked last quarter about the fact that one of your competitors was holding on to their installed base a little bit more. Just curious what you -- has that gotten worse? You have another competitive launch happening. Wondering if they're also holding a little bit tighter to their installed base. And how do you see this evolving? Is this something that we should be thinking an 85-15 MDI competitive switch split? And I appreciate that MDI is the key to the growth story, but just curious about what you're...

Operator:

Your next question comes from the line of Bill Plovanic with Canaccord Genuity.

James Hollingshead:

Thanks, Bill. We haven't given timing on Omnipod GO. And obviously, we haven't yet filed Omnipod 5. And so the commercial pilot is intended to make sure that we have enough learning in place to put the right commercial model in place. And we'll figure out exactly how we'll bring the portfolio. So we have not updated on timing for Omnipod GO, but you can -- I think you can easily envision that with a portfolio of products, the commercial model looks different than with a single product, right? So I'll put it that way, I think.

Marie Thibault:

I'll move away from the top line here and focus on margins. You had excellent operating margin again this quarter. I wanted to ask a little bit about the near-term cadence. Saw that you raised the guidance but also heard that you're expecting some incremental expansion of the sales force. So just any guidance on a quarterly cadence on that metric.

Christopher Pasquale:

Jim, I wanted to understand your GLP-1 comment better. The thesis around GLP-1 use in type 2 is that it would help those patients take a couple of steps back on the disease progression escalator, if you will. So maybe the insulin use can be delayed, or if they're already on insulin, they can use less. And now you're talking about the transition to insulin use actually being accelerated. So do you think being on a GLP-1 is really making them more likely to need insulin? Or is what you're picking up there just that these patients were not engaging with their disease previously and now they are and GLP-1s are the catalyst to get them more active?

Brett Gasaway:

This is Brett on for Mike. Just wanted to go back to the guide, I guess, on the high and the low end in particular. What are some of the assumptions in terms of just the G7 launch like? Does it take a certain time in the summer that that's going to launch to hit the high end of the guide or the midpoint of the guide? Or is there anything that we should be thinking about in terms of timing there? And then with that, just overall attrition and then the timing of the France launch as well, if there's any swing factors there in the OUS guide.

James Hollingshead:

France launch.

Operator:

Your next question comes from the line of Josh Jennings with TD Cowen.

James Hollingshead:

Thanks, Josh. Really, really good question, and it's something we could have a very complicated conversation about, right? But the very simple answer from our point of view is that what's unique about pharmacy access for Omnipod 5 is that the product fits the channel really, really well. And tubed pumps are durable equipment, and they don't fit the channel very well. So as anybody trying to enter the market and get into the pharmacy channel with some sort of durable equipment plus some consumable thing, it will be very difficult.

James Hollingshead:

Thanks, operator. In closing, we're off to a great start in 2024. We're transforming diabetes care globally with Omnipod 5, which now also includes our limited commercial launches with G7 in the U.S. and with G6 and Libre 2 Plus internationally. We've got a very strong market leadership position, the right product portfolio to address the needs of both the type 1 and the type 2 global markets and a clear and focused strategy to drive continued growth leveraging our significant competitive advantages.

Operator:

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

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation Fourth Quarter 2023 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.

Jim Hollingshead:

Thanks, Deb. Good afternoon, and thank you for joining us. With our strong Q4 2023 results, we kept off another transformational year, in which we firmly established Insulet as the market leader in automated insulin delivery. In 2023, we realized a 30% revenue growth, which marked our eighth consecutive year of 20-plus percent revenue growth and represented dollar growth of almost $400 million. We accomplished this while also significantly expanding margins and generating positive free cash flow. Our record new customer starts in 2023, fueled our global growth and our Omnipod 5 AID system, which generated $1 billion in revenue in 2023 is transforming diabetes management. We entered 2024 with significant momentum, and we are looking forward to a year of many growth catalysts ahead. On today's call, I want to do three things

Operator:

[Operator Instructions] Our first question comes from the line of Travis Steed with Bank of America.

Lauren Budden:

So yes, just in November when we gave guidance, it really hasn't changed much in our view. As I mentioned in the prepared remarks, we had a $30 million to $40 million shift in revenue -- or sorry, incremental revenue. Of that $10 million to $15 million was an increase in days on hand inventory levels. And so that, we have seen the inventory levels brought down earlier in the first half of the year. So that was a piece of that. The rest of it, the $20 million to $25 million was the shift that we saw in order timing from Q1 to Q4. So for that, that was in advance of our ERP. And if you were to normalize for that, which contributed about 12 points benefit to our U.S. revenue growth rate, we really achieved the high end of our guidance range there.

Rohin Patel:

This is actually Rohin on for Robbie. You came off a really great year on both the top and bottom lines with continued health and new patient growth in the U.S. as well. I was wondering, if you could elaborate more on some of the key growth drivers to new patient growth as well as margin expansion in 2024 and beyond.

Lauren Budden:

So yes, we have a lot of additional opportunities for improvement, especially if we exceed our revenue targets and you saw that in Q4, we had tremendous operating margin. It was over 20% on an adjusted basis. And if you normalize for the revenue shift, it was about 17%. So if we can exceed revenue, we can have a lot of incremental margin opportunity. But keep in mind that we will be balancing that with investment. So as Jim mentioned, we have a lot of new product launches coming up, and we want to make sure we're executing on our strategic imperatives to drive future growth in 2025 and beyond. So we will be balancing that with the revenue drop through to the bottom line.

Jeff Johnson:

Jim, you're encouraging to hear that O5 in the majority of the EU markets by the end of 2024. That's the good thing. I didn't hear anything on G7 integration with O5 in Europe. In 2024. I know you are specifically not providing that, but any color you can provide there, especially in the context of talking about your U.S. growth accelerating in 2024, just as the market is starting to move to G7 and you need to get that FMR on G7 out there in the U.S. to then take advantage of that move to G7 that Dexcom has seen. So I guess, it sounds like that lack of G7 integration could be a headwind in '24 offset by the O5 expanding in EU. So just how do we think about those 2 disparate factors, if you will?

Operator:

Our next question comes from the line of Jayson Bedford with Raymond James.

Jim Hollingshead:

Yes, Jason, great question. It has been -- we've talked about this consistently in the past. So what we want to do with Omnipod 5 is generate the evidence we need, which is we're doing with our G6 RCT, which I mentioned in the comments we're doing with our RADIANT trial. We're generating the evidence we need to establish Omnipod 5 as a first-line offering and then go and negotiate for reimbursement across our international markets. Reimbursement levels that are commensurate with the extra value we're creating with the Omnipod 5 offering. And so our goal is to drive a price premium. It's a little bit different from what we did in the U.S. because when we launched Omnipod 5 in the U.S., we launched it into the pharmacy channel, pricing parity with DASH because we knew that would streamline time to full coverage in the market. So we got to full coverage. In the European markets, what we need to do is make sure we're negotiating kind of reimbursement body. It's different in every market, and there's tenders, there's ministries of health and so on, but we need to negotiate those market by market, but we have to generate the evidence that's required to be able to have that conversation. So far, we've been very successful with that. So working in the U.K., we're very comfortable with where we've landed with reimbursement levels in the U.K., working in Germany and so on. And so we're going to continue to drive that and work really hard to achieve a premium for Omnipod 5 everywhere we launch it. And then remind me the second part of your question, it was all the gating factors. Gating factors, it's a little bit different by every market. Sometimes it's reimbursement -- sometimes it's sort of cloud connectivity. We've made a lot of progress on that latter technical front. And then it's just preparing for commercial launch and making sure that everything is lined up to do that. We're making terrific progress. And as we've said, I just want to clarify, actually, I think Jeff just said that we said we'd be in the majority of our markets. We haven't said that. What we've said is that by the end of 2024, there may be a technical problem on the call. What we said by the end of 2024, we will have the majority of our European customers have Omnipod 5 available.

Larry Biegelsen:

I wanted to follow-up on Travis' question on the guide. So I guess the crux, Lauren, of my question is, did anything change from the Q3 call and from JPMorgan. So you said the high end -- when you make these adjustments, you said the high end of this guidance implies mid-20s. So why the high end? I mean is there -- was there an incremental change? And I think you said at JPMorgan that new starts would grow year-over-year in 2024. I didn't hear that in your comments today. And I'm just curious, Lauren, your guidance philosophy in general, has anything changed from historically Insulet is guided pretty conservatively.

Operator:

Our next question will come from the line of Margaret Kaczor with William Blair.

Jim Hollingshead:

Thanks, Margaret. It's a great question. And again, I'll start and if Lauren wants to chime in on the back, I'd welcome that. Just to go back to context, we actually didn't put this in the prepared comments this quarter, but we've -- in the past, we've pointed out the endo market is somewhere around 70 -- 7,000 to 7,500 endos in the U.S. We know that a number of prescribers that we have are either endocrinologists themselves or their so-called physician extenders, which will include nurse practitioners and physician assistance, but we're clearly getting prescriptions beyond that. We're clearly getting prescription writing outside of endo practices, in PCP practices and in smaller practices, and that dynamic continues to grow, and we can see it in our own data. We don't have perfect insight into it out of the various available data. But we can see we're reaching more and more health care practitioners. And that's we believe we're doing that through word of mouth, through our promotion activities, which include both direct-to-patient activities and also direct-to-physician promotional activities online. And then the other thing I'll say is that it's been very, very powerful for us, sort of along the same lines. The Omnipod GO commercial pilot has proven to be a terrific investment for us this year because what we're learning -- we're learning a lot more about what happens in the primary care channel for people living with diabetes. And just a couple of things we're seeing, we've learned a lot about the target patient population for Omnipod, we've learned that primary care practices when they think pump, they think the [indiscernible] thing with a tube that they would never prescribe and then when they see Omnipod, there's a little bit of a head dynamic, and they say, "Wait, you know what, that's so easy. My patients could do that. We could do that." And so we're very confident we're going to be able to drive demand for the Omnipod platform across primary care. And I think we're seeing more type 1 patients than we anticipated in the primary care channel. So to your point, we're very optimistic that as we continue to drive learnings out of our Omnipod Go pilot, we're going to be able to find a new kind of new avenues for driving demand for Omnipod and really driving pod therapy -- Omnipod therapy into the world where patients need it most. And so we're very optimistic about that. And so we continue to see that trend as a positive signal for us, but we're really excited about what we're learning out in the world with our commercial pilot as we go.

Josh Jennings:

I was just hoping to better understand pricing dynamics through the pharmacy channel in the U.S. for Omnipod 5 and DASH. Was reimbursement stable that Insulet was receiving for Omnipod 5 and Omnipod DASH in ‘23? And how should we factor in reimbursement levels and pricing for Omnipod 5 and DASH in 2024?

Operator:

Your next question comes from the line of Joanne Wuensch with Citi.

Lauren Budden:

Yes, I'm happy to start off and then Jim feel free to add on. Yes, we definitely feel like we have room for expansion, both on margin and gross margin in the near term and in the longer term. We did great in Q4, and we have lots of opportunities as we're setting up with the product launches that we have this year that will accelerate the top line and be able to allow us to drop more through. We haven't put out guidance beyond 2024, but we are planning on doing a long-range plan later in this year.

Matthew O'Brien:

It is going to be one question, I promise. The first part is just more clarification kind of to Larry's question earlier, but I'm looking at the stock down kind of mid- to upper single digits in the aftermarket. I think it's on this guidance commentary. And again, the high end of the range gets you to that 25%. Was it a street modeling issue at 25% versus where it should have been 23%, 24%. I'm just making sure there's nothing competitively or pharmacy related that we should really be worried about? And then the real question is, Jim, when you guys came out with O 5, I think you went from 80/20 MDI to competitive conversions all the way to 60-40, and then it went to 70-30, now we're back to 80-20. Is it getting tougher and tougher to take those competitive conversions? And with G7, do you think that will start to get a little bit better, a little bit easier throughout the course of this year?

Lauren Budden:

Sure. So for 2024, even with the significant volume benefit that we realized in '23, we're guarding to very strong revenue growth. We expect to achieve almost $2 billion in revenue and our guide represents $300 million of revenue growth in terms of dollars. So your question in terms of what changed from the call we provided, it was really just that revenue shift of 20 million to 25 million of orders that were -- would have been Q1 but were placed in advance of our ERP implementation. So the estimated impact of that is 3 points on the total company and 4 points on U.S. Omnipod. So overall, our guide is strong. And as we've mentioned, we have many catalysts for growth in '24 that's going to help accelerate it and particularly in the back half with those new customer starts and provide strong revenue growth for the year and into 2025 and beyond.

Jim Hollingshead:

And we can always clarify this offline, right? So -- but it's a decrease in the denominator, increase in the numerator for '24, you get the normalized number, right? So it's a double whammy in that $20 million to $25 million. So the underlying guide remains the same, respectively. On the competition, yes, we continue to have really good new customer starts. And historically, we always had 80/20 of MDI and competitive switching. After the launch of Omnipod 5, we obviously caught a lot of competitive switchers, and we've done really, really well. We continue to have. So if you think about pre-Omnipod-5 and that 20% of competitive switches and with Omnipod 5 and 20% of competitive switchers, it's a larger number than it was, right? So because new customer starts are up overall, so we continue to do very, very well. And the underlying dynamic there is we also retain the vast majority of customers that we get from competitors. Retention is very, very strong. And we said that, we do think -- we had the benefit now of hearing our two competitors' calls, and we have the benefit of seeing what's happening out in the market. We don't see -- there's little things around the edges, I would say. We don't see any fundamental underlying shift in the competitive dynamic. Omnipod 5 continues to be the preferred product. But I would say that one of our competitors has done a better job of staunching the bleeding in their installed base. And so you can see a little bit of that dynamic going on in the market. But we're still clearly the preferred offer -- clearly winning with MDI and just winning with new customer starts overall very, very clearly in the market.

Mike Kratky:

So you've capitalized on having a competitive advantage in type 2 with broad pharmacy access. How are you planning on defending that position in the market as we start to see additional pumps expand into the pharmacy channel on both a near-term basis and then looking ahead to 2025?

Operator:

Your next question will come from the line of Chris Pasquale with Nephron.

Jim Hollingshead:

Yes, great question. The way to think about Omnipod GO is that we hear a different language about this. And I'd just be really clear, we're not in limited market release with GO, we're in a commercial pilot, right? And so that's a step before -- I think I said this last quarter on our call as well, that's a step before an LMR. The product itself is ready. It's out on patients, it's fully approved. We continue to grow coverage for it. So that's a step but we're ahead of schedule and coverage. So the way to think about the Omnipod GO commercial pilot is the gating factor is not timing, it's learning, right? So what we're using it for is to establish the right commercial model, both for GO and for the primary care chain. And one of the reasons we're so excited about the pilot is that we are learning an awful lot out of that pilot. And so -- and where we're going to land on this thing, whether we commercialize in '24 with GO or commercialize -- get to more of an FMR in '24 or sometime in '25, where we're going to land is we're going to be in the primary care channel first and second, one way or another, we're going to have call points in primary care. And the other thing is we will have the broadest offering for people living with type 2 diabetes who need insulin delivery. So we're already the market leader with DASH in that space very clearly. We know -- we have our pivotal trial going to Omnipod 5. As we said before, we know Omnipod 5 is actually being used off label. In a lot of cases, we're not promoting Omnipod 5 off-label, but we'll have -- our goal is to have the label for Omnipod 5 in the short order coming out of our pivotal trial, and we continue to have a plan to file with the FDA for that label extension in '24, and we'll have Omnipod GO. And that gives you the whole coverage for people using insulin with type 2 all the way from I'm initiating basal insulin 2, I'm using intensive insulin. And so we'll have that full portfolio of products, and we'll have a very clear way to commercialize that in both primary care and in the endocrinology channel. So that's why I'd say I'm very excited about the commercial pilot with Omnipod GO. We are learning the ton and it's going to make us much better commercially as we get into that and get that full portfolio on market.

Steve Lichtman:

As you start opening up the opportunity here to the Libre platform outside the U.S. and then in the U.S., can you give us your latest thoughts on the size of that opportunity. There's been estimates on what that new opportunity set looks like. It would be great to get your latest color on that.

Operator:

Your next question will come from the line of Marie Thibault with BTIG.

Jim Hollingshead:

Thanks, Sam. If you just look at the size of the end markets there, and I'll repeat numbers that we shared before. In the U.S., there are about 1.6 million people living with type 1 diabetes. And if that market is about, probably, something less than 40% penetrated with AID therapy. Then in the type 2 market, there are somewhere between 3 million and 4 million people living with type 2 who are on basal-only therapy. And somewhere around 2.5 million people living with type 2 in the U.S. who need intensive insulin therapy, so basal plus bolus. Omnipod 5 is really aimed at that intensive insulin therapy population, about 2.5 million people in the U.S. And therefore, it's a larger end market than Omnipod 5 plays in now with its current label. We know that, that market is less than 5% penetrated with AID therapy. And we are already the market leader in that segment of the market because Omnipod DASH has a label there, and we know we're the clear market leader in the space. So we're very optimistic. Omnipod 5 is very easy to use. It takes a lot of the burden off of managing your diabetes. That's why it's been so successful in the type 1 population. And we're very optimistic about that value proposition going into the intensive insulin using type 2 population, which is a larger end market than the one we're playing in today. So we think it is a really important opportunity and a market that, by the way, will continue to grow over time.

Danielle Antalffy:

Just a question on the wholesaler stocking and that whole dynamic because it is something now we have to start thinking about in the model, But and I know it's unpredictable. But qualitatively, maybe you could talk about how much visibility you have into when that pod that gets stocked goes on to a patient. I guess trying to get a sense of is this something that's going to happen to this level every single quarter, if they're going off the shelves very quickly? How long do the stocking sort of fit on the shelf there?

Operator:

And we do have time for one more question. That question will come from the line of Matt Miksic with Barclays.

Jim Hollingshead:

Thanks, Matt. I'll do those in reverse order. The first one is on the tubeless form factor. We obviously watch our competitor pipelines as closely as we can. And in terms of what is out there publicly that we can see, we don't see anything coming in that time frame that's even close to what we have in market right now with Omnipod 5, just in terms of the whole package, the convenience, the ease of use, the scalability, the wear experience, automated needle insertion, we could go on and on about the feature set that we are very confident in our competitive position. We're never complacent. We have a lot of respect for our competitors, and we know that what -- because Omnipod in general, but Omnipod 5 has been so successful, everybody wants to chase it. So that just makes sense, and that's how competition works. But we are very confident in our competitive position, and we don't see anything coming in anybody's pipeline that even matches what we have, and we're going to continue to drive innovation. So we're going to extend our lead. On the first part of your question, it's a really good question. Yes. We're obviously doing very, very well in the market with our existing offer. And as I said in the prepared remarks, it's really -- we really see it as our minimum viable product, and we've done so well with it. But on specifically the G6 and G7, what you're seeing and it's -- you can go look analytically at the underlying script data, what you're seeing is G7 is really doing well with new customer starts. So a lot of people going on to G7. And you guys have heard this is probably corny but you've heard me use the metaphor before, about fishing. If you think we're out fishing in the stock pond, the pond has a lot of G6 in it, but it's got more and more G7 in it all the time. And so we want to be able to go out there and fish in both bonds and proportionally, G7 is a larger and larger part of the market. We want to -- now I'm going to mix metaphors. We want that wind at our back of all the patients coming under G7. We know the offer together, Omnipod 5 and G7 is going to be terrific and drive a lot of growth for us just like Omnipod 5 with G6 had.

Jim Hollingshead:

Thank you, everybody, for joining us today. We are really excited to have delivered another outstanding year for Insulet. We're focused on extending our leading position with our deep expertise and strong emphasis on innovation, operational excellence and further improving the customer experience. We remain committed to driving value for our shareholders through margin expansion and cash flow generation, all while maintaining our emphasis on investing for growth. I also want to once again thank our outstanding Insulet global team for their dedication and their focus on innovation and passion to our customers. Thank you, everybody. And with that, I'll thank you all and wish you all a great evening. Good night, everybody.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation Third Quarter 2023 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.

Jim Hollingshead:

Thanks Deb. Good afternoon and thank you for joining us. Q3 was another strong quarter for Insulet with rapid growth and achievement of many strategic milestones. Thanks to our global team's execution, dedication and focus we are on track to complete another transformational year and enter 2024 with significant momentum. On today's call, I want to do three things; discuss our financial results and market traction provide an update on our continuing progress in clinical and market access work, and review key developments in our innovation pipeline. Our third quarter revenue exceeded our expectations with total Omnipod growth of over 27% including US growth of 35%. We also achieved total company growth of 25%. These are remarkable results especially coming in the context of our strong prior year comparables. As a result, we raised guidance once again for the full year. Performance was driven primarily by the huge success of Omnipod 5, our revolutionary automated insulin delivery system. It is gratifying to see the positive impact Omnipod 5 is having as it continues to simplify and improve the lives of people with diabetes and we are only in the early innings. Q3 represented the anniversary of the US launch of our Omnipod 5 platform. Omnipod 5 is the only FDA-cleared fully disposable pod-based AID system and it continues to transform diabetes management. Its simplicity, ease of use, widespread and affordable access and improved real-world outcomes have made Omnipod 5, the leading AID offering on the market. With the added benefits of US pharmacy channel access pay-as-you-go model and an easy onboarding pathway, Omnipod 5 makes it simple and efficient for health care practitioners, patients and payers to conveniently prescribe access and afford our breakthrough technology. We are now also beginning the global rollout of Omnipod 5 in our international markets starting with the UK this past June. With one full quarter under our belts in the UK we are seeing very strong early adoption. In Q3, Omnipod 5 drove accelerated new customer starts in the UK taking revenue growth to almost 45% year-over-year and driving approximately 70% sequential growth in new customer starts. It's a strong early sign of the global power of Omnipod 5 to transform diabetes care. During Q3, we also commenced the rollout of Omnipod 5 in Germany in August and early momentum is exciting. Based on these results, we are confident that Omnipod 5 will emerge as the market-leading offer everywhere it is available. The success of Omnipod 5 led to another outstanding quarter of new customer starts both in the US and globally. In the US, Omnipod 5 continue to represent the vast majority of our new customer starts in Q3 and customer retention remains strong. In the US in Q3, Omnipod new customer starts coming from multiple daily injections and legacy tubed pumps was an estimated 80-20 percentage split which is in line with our historical mix. Omnipod was specifically designed for individuals on MDI and as expected, we are driving pump penetration across all age groups in both the Type 1 and Type 2 markets, while also growing our share positioning Insulet as a leader in these markets. We estimate that we are the clear leader bringing customers into the market from MDI. In addition to growing awareness of Omnipod and high product demand among patients, a growing number of HCPs are writing scripts for it. In Q3, we saw another increase in prescribers growing to over 17,000 up from over 15,000 in Q2. In a market where there are 7,000 to 8,000 endocrinologists this shows the broad appeal and ease of prescription of Omnipod 5. Importantly, this extensive reach is critical to access patients who are not seen at the high-volume pump-prescribing clinics that historically defines the pump market. Omnipod 5's broad appeal is also evidenced by the growing number of scripts that these HCPs write for our system. Omnipod loyalty amongst Podders has been a hallmark of our brand for many years and it is great to see the growing demand and confidence amongst the prescribing HCPs. In fact an increasing number tell us that when given the choice their patients overwhelmingly choose Omnipod. Our results in Q3 also strengthen our conviction that we'll be able to reach the millions of people with Type 2 diabetes who need insulin therapy as a part of their care. In the quarter, Omnipod adoption in the Type 2 market continued at a steady pace with Type 2 patients representing approximately 20% of our US new customer starts. These new customer starts come from across our Omnipod portfolio of products, demonstrating the clear benefits that our products offer the Type 2 population. Omnipod DASH continues to be the leading insulin pump offer with an indication for use in the Type 2 market. While we can't yet market Omnipod 5 for Type 2, the obvious underlying demand for AID in the Type 2 market is encouraging. And we look forward to bringing Omnipod 5 to these customers once we complete our pivotal trial and secure an extension to our existing indication for use. And to that end, we are very excited to announce that we have reached our enrollment goal this week in our US Type 2 pivotal study. As a reminder, this is a study of up to 400 participants with a 13-week protocol comparing Omnipod 5 to participants' previous therapy. The feedback from HCPs and study participants continues to be very strong and strengthens our confidence that Omnipod 5 will have a big impact in the critically underserved population of Type 2 patients who require insulin. We will provide further updates as the trial progresses. I'd like to make a few comments about the ongoing debate about the impact of GLP-1s on our markets. As we've made clear, we regard the GLP-1 class of drugs as an important innovation for people with Type 2 diabetes and they have been indicated for use in Type 2 diabetes for several years. These drugs help many of the same patients we aim to help and we applaud their innovation. Further as a reminder, we believe GLP-1s do not materially impact our end markets. They are not indicated for use in Type 1 diabetes which is an autoimmune disorder and there is no apparent mechanism for them to impact the course of type one as a condition. Likewise, there is no apparent mechanism for GLP-1 drugs to alter the underlying progression of beta cell decline that is characteristic of Type 2 diabetes. Last month we published a short slide presentation going into these issues in more detail. This week we published an update to those slides based upon data that was recently presented at EASD. In a large retrospective study of 23,000 users of semaglutide, the evidence presented suggests three important conclusions. First, semaglutide has almost identical impact on glycemic control as liraglutide in terms of the magnitude and duration of A1c reduction. Second, this real-world evidence shows a very clear relationship between dose adherence and glycemic control such that only the most adherent users receive the level of benefit that has been demonstrated in more controlled clinical settings. Finally and importantly, weight loss and the persistence of weight loss for semaglutide users in this study was demonstrated to be independent of glycemic control. In short, real-world evidence shows that patients using semaglutide continue to have their diabetes progress with limited or no incremental duration of effect over previous drugs and type 2 diabetes continues to progress even with weight loss. For those who are interested in more detail, we refer you to our updated presentation which is available on the Insulet Investor page. These data reinforce our existing view. Because the underlying disease continues to progress most people with type 2 diabetes will eventually need to incorporate insulin into their therapy. Insulet is incredibly well-positioned to serve these customers as they progress in their condition and need to add first basal and then intensive insulin into their treatment. We are already winning in this market and we continue to have strong conviction that people with type 2 diabetes represent a large and underserved population. We are continuing our efforts to bring the full power of a broad portfolio of insulin delivery options including Omnipod DASH, Omnipod 5, and Omnipod GO, which I will come back to in a few moments. In addition to our type 2 pivotal trial, we are progressing several additional clinical initiatives. We are pleased to have completed the protocol with the last participant in our randomized controlled trial using Omnipod 5 with Dexcom's G6. We're in the process of analyzing and preparing the data, which we expect to show the clear benefits of Omnipod 5 therapy over non-AID systems. We are also making great progress with the RADIANT study which is our Libre 2 Integration trial, for which we began enrollment in September. Clinicians have remarked about the simplicity and ease of transition for MDI users to Omnipod 5 in the outpatient setting including in regions where it is often the norm for AID therapy to occur in the hospital for days due to the complexity of existing tubed pump offerings. We are excited that our integration with Abbott's Libre 2 sensor has advanced to the point where study participants are using the system. Both of these studies will provide the evidence we need to drive pricing and market access initiatives as we launch Omnipod 5 across our international markets. I'd now like to turn to three key areas of innovation for us; expanding the Omnipod 5 platform, moving upstream in the type 2 market with Omnipod GO, and driving the future of AID with our advanced algorithm program. The widespread success of Omnipod 5 makes it easy to forget that the current version of our offering is in some ways our minimum viable product. In order to achieve the full promise of the platform, our aim is to expand on customer choice, both for phone control and for CGM use. In that context, we are excited to have received FDA clearance for our 510(k) for the Omnipod iOS app. This is another major innovation milestone for Insulet and iOS is one of the most requested features from our customers. We are thrilled to have the opportunity to provide the iOS option to our existing Omnipod 5 customer base as well as future customers. Because the iOS app represents a completely new software platform we expect to begin a US limited market release in early 2024. And upon successful completion, we will make iOS for Omnipod 5 broadly available as soon as possible. With regard to CGM, our efforts to expand our sensor integrations with our partners, Dexcom and Abbott, continue to steadily progress. I've already mentioned our progress with Libre sensor integration in the context of our European trial. We are also hard at work to complete our integration with Dexcom's G7 sensor and we are excited to announce that we are planning for a limited market release of Omnipod 5 plus G7 also in early 2024. Omnipod 5 is the market-leading offer and with these coming innovations, we are confident we will be able to maintain and extend that leadership. A key innovation effort that moves us upstream from AID is Omnipod GO, which is designed to radically simplify the initiation of basal insulin therapy for people who need to start insulin as their type 2 diabetes progresses. Even small penetration into this market will meaningfully contribute to our long-term growth trajectory. We have commenced the commercial pilot for Omnipod GO in the US, which includes HCPs that we don't typically call on who are new to Omnipod most of whom who are primary care physicians. Our commercial pilot is providing us with the opportunity to present Omnipod GO and also to educate PCPs on all of our Omnipod offerings. Although early in our pilot, PCPs are telling us that Pod therapy is much easier than pump therapy. As a result these HCPs want to learn about the entire Omnipod portfolio. We expect both Omnipod GO and Omnipod DASH to make the treatment pathway far easier for these type 2 patients. Learnings from our ongoing Omnipod GO commercial, pilot will help us to refine our plans for commercialization in 2024. We are continuing to progress work on our next-generation AID algorithm with our Evolution feasibility trial which we began earlier in the year and which is being conducted in New Zealand. The goal of this feasibility study is to test potential enhancements to the Omnipod 5 algorithm in order to further drive simplicity of use. We've been able to launch this study very early in the life cycle of our AID offerings, specifically because of the unique aspects of Omnipod 5, both because the on-market algorithm is highly effective and because of our ability to gather actual usage data from essentially the entire population of Omnipod 5 users. We expect that cloud connectivity for -- of Omnipod 5 coupled with our data sciences capabilities will allow us to materially accelerate our algorithm development efforts over time. Finally, an important update on our intellectual property portfolio, which is a key asset enabling our continued growth. In August, we filed a suit in the US against EOFlow and other affiliated parties to stop the misappropriation of Insulet's proprietary trade secrets. Last month, after requesting preliminary relief and obtaining some initial evidence, the court granted our request for a preliminary injunction against EOFlow, which prohibits EOFlow from manufacturing marketing or selling to any new customer any product that we designed developed or manufactured using or relying on Insulet's trade secrets. The court also extended the prior injunction issue to restrain EOFlow from disclosing to any third party information that contains derives from or incorporates Insulet's confidential information. In granting Insulet's motion the court found "very substantial indeed strong evidence of misappropriation" and "that Insulet is likely to succeed on the merits of its trade secrets claim." We have invested considerable resources over many years developing our Omnipod products and we are confident we have a clear lead technically and in terms of scalability. We will continue to vigorously defend our IP to protect those investments. In closing, we completed another outstanding quarter and we have sustained momentum across our business. We are enjoying continued rapid growth in the US type 1 market and we're seeing accelerating adoption in our international markets where Omnipod 5 is launched. We are also seeing continued growth in the type 2 market across our Omnipod offerings. We are excited about the catalysts coming in 2024 with iOS functionality CGM-integrated Omnipod GO that unlock a lot of market growth for many years to come. I want to thank our entire Insulet global team for their engagement and hard work as we continue to drive our mission to simplify life for the millions of people with diabetes around the world. Before I turn the call over to Lauren, I want to welcome and congratulate her on her role as our Interim CFO and Treasurer. Lauren is our Chief Accounting Officer and has been with Insulet for close to five years. She has long been a key member of our finance team and has contributed significant value to the company and to shareholders during her tenure with us. We are thrilled to have Lauren in this role to support our continued execution of our strategic priorities. With that, I will turn the call over to Lauren.

Operator:

Thank you. [Operator Instructions] Our first question comes from Robbie Marcus from JPMorgan. Please go ahead. Your line is open.

Jim Hollingshead :

Thanks Rohan. We're really excited about the growth catalysts that we have coming. We've obviously got great momentum continuing to drive really strong demand and new customer starts in the market really well positioned. And we're very excited about getting into the limited market releases for both iOS and G7 early in the year and also really excited about continuing progress with the Libre integration. So we think they do drive continued growth for us. And in terms of the guide we haven't really guided on the number for that. It's really in our color. But we do think it opens up a lot of potential growth for us across the board. They're all important. And I wouldn't want to necessarily weigh one over the other so we think they all drive catalyst. But I'll ask Lauren and Deb if they want to add any color to that.

Operator:

Our next question comes from Larry Biegelsen from Wells Fargo. Please go ahead. Your line is open.

Jim Hollingshead:

New customer starts were really strong not quite a record. And so second we're not we don't want to get in the table ranking all of our quarters all the time, but it was our second-highest quarter ever of new customer starts just coming in behind. Q2 was kind of a blowout quarter for us in new customer starts where everything hit on every cylinder. So really happy with the new customer starts, but not quite a record.

Jim Hollingshead:

Sure Charles. First of all we're really happy to have Lauren in the chair. She's been with us for a long time. She's such a great contributor to the company and to our senior finance team and really blessed to have somebody of Lauren's caliber to step in in this interim. And we're conducting a search. We're just out of the market now with the search. We've written the spec. And I don't really want to talk about the characteristics and so on that we're looking for. We think that the CFO job here is a really fun job. We have internal candidates who are really strong including Lauren and early look at the market looks really promising. We want to move as quickly as we can because we want to get to some stability there. But we're very confident we'll get the right person in the role.

Stephanie Piazzola :

Hi. Congrats on a good quarter. I wanted to ask more about margins, which were really strong in the quarter and throughout the year have been showing improvement each quarter. So appreciate the revenue color you gave on 2024. But if there's any color you could share on margins for next year that would be helpful, maybe any of the puts and takes to consider there? Thank you.

Jim Hollingshead:

Thanks Stephanie. I'll turn to Lauren on that. Go ahead. Sorry Lauren. Go ahead, go ahead.

Operator:

Our next question comes from Jayson Bedford from Raymond James. Please go ahead. Your line is open.

Jim Hollingshead:

Hi Jayson. [Indiscernible] So yeah, no we haven't changed our marketing message at all. The Omnipod 5 Pod and Omnipod DASH are so effective in insulin delivery. The pilot with The Omnipod 5 Pod though is -- we're learning a lot. It's going well. And GLP-1s are out there. GLP-1 has been indicated for some time in the market. And so we haven't changed our messaging. I think that we continue to learn about GLP-1s. And if we need to adapt our messaging we will. But we haven't had to change our messaging and we continue to obviously have a lot of success. Can you remind me of the second part of your question there, Jayson?

Jim Hollingshead:

I'm not sure I would jump to that split. Go ahead. Go ahead, Lauren.

Operator:

Our next question comes from Patrick Wood from Morgan Stanley. Please go ahead. Your line is open.

Jim Hollingshead:

Thanks. Yeah, we're so excited about getting Omnipod 5 into multiple markets in Europe. As we said -- as we detailed in the prepared remarks the U.K. launch is going really well. Germany is strong out of the gate. In direct answer to your question we don't see any barriers to driving really strong and robust growth where we launch Omnipod 5. And as I think I said in the prepared remarks we're very confident it's going to be a leading offer wherever we're able to put it in the market. So it's such a great solution it's so easy for customers to use. It drives such great real-world results. And as we get more evidence and we can drive access conversations we're also confident we can get a price premium for the value that Omnipod 5 creates. And so we're all systems -- full speed ahead in getting into our international markets with Omnipod 5.

Jeff Johnson:

Thank you. Good afternoon guys. Nice quarter. Jim maybe if I could pin you down on a little bit more detail on the Sensor Integration side. So in LMR on G7 integration in the U.S. early in the year I know it's going to depend on what you see in the field what the feedback is and all that. But just generally do we tend to think of LMRs I could go back and check my notes I guess in O5. Is that like a three-month LMR and then a full launch or just how to think about that? And then on the L2 front obviously you gave some updates internationally. How should we think about the time line L2 in the U.S.? And L3 OUS and U.S. any updates there at all, just once L2 comes out integration is it a 6-month or is it a year? How far down the road might we see L3? Thanks.

Operator:

Our next question comes from Matt Taylor from Jefferies. Please go ahead. Your line is now open.

Jim Hollingshead:

Thanks, Matt. Those are both great questions. First thing I'll say is, we're so strong in type 1, all right? So our offering in type 1 is bringing so many customers into the market from MDI that we expect to continue to drive penetration to the type one market and bring those customers who are currently not on a technology-based solution onto Pod therapy. And so -- and therefore that portion of the growth will continue. We're very bullish on growing MDI in type 1. Type two is a massively underpenetrated market. And we've been through the numbers on this a couple of times. And it's in our deck that we put up our investor deck that shows the market size for type two -- the progression of type two disease. But we've got 30-some-odd million people diagnosed with type 2 in the US who then progress on the basal and then on to intensive insulin therapy. Right now, there are about 2.5 million people in the US market who need intensive insulin as a part of their type two diabetes care. And they're just really underpenetrated as a market for pump therapy overall and therefore for Pod therapy. And we're very, very bullish on that. So if you think about -- we'll continue to penetrate type 1. Type two is actually a larger end market for intensive insulin therapy than type 1. So the proportion -- I do think to your point, the proportion will probably swing as we're able to get the indication for use and drive adoption in the market, but the numbers will go up. The total adoption number of customers will go up on both fronts.

Unidentified Analyst:

Hey this is Phil on for Matt. Thanks for taking our questions and congrats on the quarter. Just wait Jim, as we think about the key growth factors for the business being on the volume side of things, the ratio of MDI to conversions has marched from 50-40 to now 80-20 in the US. Are you seeing any kind of slowdown in your ability to convert competitive pumpers? Also, if you could provide that same ratio in OUS given the launch there, what does that MDI-to-conversion ratio look like in Europe?

Operator:

Our next question comes from Margaret Kaczor from William Blair. Please go ahead. Your line is open.

Jim Hollingshead:

Thanks Margaret. I'll do them in reverse order. We haven't put anything formally into the guide out of the Omnipod GO pilot and we're still planning -- so this is not even yet a limited market release. It's a commercial pilot. And so we haven't tried to quantify that or include any of it into the color that Lauren provided or the guide. The pilot the -- I'm really pleased that we're piloting it in the way we are because we are doing exactly what we wanted, which is we're learning a lot. And it's I would say a pleasant surprise as we get into these PCP practices and talk to them about the offering that not only do they recognize the target patient profile for Omnipod GO as we characterize it. But as we explain Omnipod GO and they see the ease of use of Omnipod GO they ask us about the broader product portfolio. And I don't think we anticipated that that would be happening. And so it's -- and what it tells us is that Omnipod therapy genuinely is so simple to use that it should open up the conversation in primary care. What we're using the pilot for is to figure out what are the mechanics of that. So what does it look like? How many reps? What's the call pattern? What's in the bag? And we're testing things like the target patient profiles and things like that. And so I continue to think of it as early days but the learnings from the pilot have been really, really productive for us as we think about how to approach type 2 patients in the primary channel.

Unidentified Analyst:

Good afternoon. This is actually Anthony [ph] on for Joanne. Thanks for taking our question. Just a quick easy one here. I just want to confirm the $10 million this quarter that was associated with the Omnipod 5 ramp dynamics. I just want to confirm that was the tailwind. And then are you providing any guidance on what this number could be next year whether it's a tailwind or a headwind? Thank you.

Operator:

Our next question comes from William Plovanic from Canaccord Genuity. Please go ahead. Your line is open.

Jim Hollingshead:

Hi, Caitlin. We're very confident in our competitive position. Omnipod 5 with G6 sensor is the best AID offering on the market. And what we see coming in competitor pipelines -- we think nothing in competitive pipeline is as good as Omnipod 5 with G6. And so -- and it doesn't mean that there won't be competition. As I said earlier, we see our competitors out there's a lot of promotional activity around from some of our competitors. So we see that out in the world. We haven't really seen it impact our results at this point. Now competition always -- I think -- first of all, I think, competition is great for business. It helps everybody learn and develop better products and it helps customers have better experience, which is what we're all trying to do. And so we know there's going to be competition. We know our competitors continue to try to innovate, but we're very, very confident in our competitive position and our growth profile. And that's why we're so excited about the growth catalysts we have coming in 2024. As to patch pump companies there's patch pumps -- we're the leader in patch pump. There's not really a viable patch pump competitor that we see on the horizon. And so that's another reason that we're very, very bullish on our position and expect to continue to lead the market.

Mike Kratky:

Hi, everyone. Thanks for taking our question. So regarding the ongoing SECURE pivotal trial for Omnipod 5. How are you thinking about how that could impact the commercial opportunity for this product over the next few years? And what are the other main drivers that you expect to increase penetration within the insulin-intensive Type 2 patients that remain so underpenetrated?

Operator:

Our next question comes from Steven Lichtman from Oppenheimer. Please go ahead. Your line is open.

Jim Hollingshead:

Great question, Steve. And I would say two things on that front. The first one is, we are considering expanding feet on the street and that's part of the Omnipod GO commercial pilot to figure out how many feet on the street we need to get the reach that we want. The other thing is we get a lot of leverage out of DTP. And so a lot of the physicians that are writing for us, don't necessarily have a rep calling on them right now. And what's happening is our DTP advertising often reaches physicians by the way. So they often see the product through our online media or maybe on the TV ad, but patients go in and ask for Omnipod into those practices that we don't necessarily have a call routine with. So we're getting leverage in that way already. And then we will consider adding feet on the street as you say as appropriate over the coming quarters.

Chris Pasquale:

Thanks. I just want to follow-up on the O5 type 2 opportunity. How are you thinking about the time line for FDA approval? And then also for presentation of that data - because it sounds like there's also already a fair amount of off-label interest. And it would seem like perhaps the data presentation itself could be a catalyst to spur even more interest before you actually get the labeling?

Operator:

Our next question comes from Marie Thibault from BTIG. Please go ahead. Your line is open.

Jim Hollingshead:

We haven't guided the timing on that Marie. You can imagine that that's a very urgent matter for us to get to. But we'll do first things first. And so we'll get an LMR with iOS which will be a G6 offering initially. And we'll get into LMR G7 and then the two systems will come together after that.

Q – Josh Jennings:

HI, good afternoon. Congratulations on another strong quarter. Wanted to follow up on Steve's question on the expanding prescriber base. Any chance, you can help us think through the penetration into the 7,000 to 8,000 US endocrinologists? And then of the additional prescribers, I guess if you're almost fully penetrated there 7,000 to 9,000? Are those -- some of those nurse, practitioners and endocrinology practices? Are they PCPs? Maybe just help us better understand where you're getting this prescriber expansion outside of endocrinology. Thanks a lot.

Deborah Gordon:

No. This is Deb. That's the color that we have, Jim. It's great because, what we are seeing is we're seeing increases from all aspects. We're seeing increasing prescribers from endos, increasing prescribers from HCPs. And it's great that we also have PCPs, that are becoming aware of the system and prescribing it. So, we look at the trend data and we see it increasing over the last quarter and it's been great. So, we'll see where it goes from there.

Q – Danielle Antalffy:

Hi, guys. Thanks so much for taking the question. Congrats on a really strong quarter. I guess my one question is a question I ask a lot, and that's around the primary care physician population here and just sort of what is was doing to ensure that they're appropriately servicing that prescribing base, because they do own the majority of the Type 2 so really executing upon that once you do get to Omnipod 5, Type 2, indication. And is it going to require you to add to the sales force? Or do you think you have enough to get to all the high-prescribing physicians? Thanks so much.

Operator:

Our last question today will come from Matt Miksic from Barclays. Please go ahead, your line is open.

Jim Hollingshead:

Yes. Thanks Matt. There are at least 3 million patients in the US who are on basal-only therapy. Some people say 4 million, so let's call it 3 million to 4 million people on basal-only insulin therapy who have type 2 diabetes in the US. Really only a small penetration in that market helps meaningful with our growth trajectory because our aim is to not only serve those patients but to introduce the Omnipod family of products to them such that when their disease progresses, which is essentially inevitable, as their disease progresses, we have a relationship with them. We're helping with the therapy early and then we stay -- they stay with us, we stay with them as their disease progresses. The target patient population there is -- there's a lot of people there and there's a lot of offerings in there. There's people on MDI. We've been asked before and we're conscious of the fact that the insulin companies are looking to launch once-a-week insulin, which will be a type of therapy in that market. We think there's a lot of room in that market for different offerings. And for us there's some clear benefits that we bring to market with Omnipod GO, which include there's no needles. So, there's a very significant percentage of patients don't want to do an injectable therapy because they don't like needles. And then the other thing is people forget to take their care. They forget to take their insulin. And so we think that we solve both of these problems for both patients and their physicians and that's what we're testing out in our commercial pilot. So, we think there is a meaningful market there for us for Omnipod GO with basal-only therapy. And importantly, we think when we get to those patients and help them early in their patient journey, we can help them throughout their patient journey. And eventually many of them will end up on Omnipod DASH or Omnipod 5. And so that's the theory of the case. It's both end. It's a meaningful market for us is a basal market. And it's early customer acquisition if you think about it that way early in the patient lifecycle, which helps us to acquire those patients much further upstream.

Jim Hollingshead:

Thank you everybody for joining us today. We're really excited to have delivered another outstanding quarter for Insulet with our Omnipod family of products, clearly driving growth and have great momentum in the type 1 market, both in the US and now excited internationally, as we've launched Omnipod 5 in the UK and Germany and are on track to deliver in other international markets. Clearly, leading the market in type 2, which is a very exciting development for us. I want to thank all of our Insulet employees for their dedication and for their focus on mission because it's helped us to get out and continue to reach all the people out there that we've reached helping them simplify their lives with diabetes. There are millions of people around the world that we intend to help and we're well on track to do that. Thanks everybody for joining us today and have a good evening.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation Second Quarter 2023 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to your host, Deborah Gordon, Vice President, Investor Relations.

James Hollingshead:

Thanks, Deb. Good afternoon, and thank you for joining us. In Q2, we enjoyed another quarter of sustained strong momentum, and we remain on track for another successful and transformative year. The entire global Insulet team is executing at a high level, and we continue to deliver strong financial performance while also achieving several key strategic and innovation milestones. On today's call, I'll touch on 4 main topics

Operator:

[Operator Instructions]. Our first question comes from Larry Biegelsen from Wells Fargo.

James Hollingshead:

Thanks, Larry. Thanks for your congrats, too, and thanks for your question. We're not seeing any kind of pause. The new customer starts for Omnipod 5 and the demand for Omnipod 5 has -- continues to be terrific. We obviously had record starts in the quarter. We see a lot of momentum across all age groups, as we said. And so we're very bullish on the growth. I know you're asking me a question to guide beyond '23 because you want to ask Wayde that question, but I'm actually going to throw this to Wayde so he can work through the numbers there for the second half.

Operator:

Our next question comes from Robbie Marcus from JPMorgan.

James Hollingshead:

Sure. Thanks, Robbie. I know it's a question of high interest. So as we've said before, we think it's terrific to see the pharmaceutical companies continue to innovate with therapies for people with type 2 diabetes. We get up every day to help people with diabetes, people living with type 1 and type 2 diabetes. So we think it's terrific that innovation is happening across all fronts. And the GLP-1 class of drug has actually been out for a while, but this latest generation of GLP-1s is clearly having a really big impact and has additional efficacy from the existing class. And obviously, they're off to a start. So we think all that innovation is really good. Having said that, we're confident it doesn't impact our TAM. And just to give you a couple of reasons why, the first 1 is the global problem with type 2 diabetes is enormous. There are more than 0.5 billion people living with diabetes around the world, and that number continues to grow. Most of them have type 2 diabetes. So it's a massive unmet medical need globally and in the U.S. and massively underserved as a population. So that's the first thing. The second thing is, when you look at our offerings, even in the U.S. alone, there are 2.5 million people living with type 2 diabetes who also need intensive insulin therapy today. So intensive therapy in basal plus bolus, so that's 2.5 million people in a U.S. TAM whose condition has progressed to where their relevant target market for us to help them with Omnipod DASH and soon with Omnipod 5. And so we're just scratching the surface of that market. Pump penetration in that market is in the low single digits, maybe the mid-single digits. And the Omnipod platform has a right to win in that market because of its simplicity and its channel access and et cetera. And the other third thing I'd point to is that we know that GLP-1 class of drugs has long coexisted with insulin. We saw that in our own type 2 feasibility trial, which we published 2 ATTDs ago. A lot of that population that used Omnipod 5 in that trial was already also using. That was an all-comer study in terms of the population. And many, many of those patients who were using GLP-1s has still got great benefit from the Omnipod 5 in that trial. So we're very confident that we have a huge market of people who need our help with our Omnipod platform and when we get the label of Omnipod 5. And we don't see the GLP-1s changing our TAM.

Malgorzata Kaczor:

I wanted to go a little bit deeper into the guidance on the U.S. I know I appreciate your comments to Larry. But the midpoint of the guide, obviously, is quite sizable relative to the beat this quarter, and you listed a variety of benefits. But can you give us just a rough sense, on a percentage basis, how meaningful each of those impacts is to the guidance range? And then whether you're seeing kind of some more meaningful, I guess, sequential increases in new patient adds that maybe is atypical for a traditional Insulet year?

Operator:

Our next question comes from Chris Pasquale from Nephron Research.

James Hollingshead:

Thanks, Chris. I'll start with that one and then maybe Wayde will provide some color. So we're really excited about the Omnipod 5 launch in the U.K. It's going really well. I'll just share 1 story with you. There's so much pent-up demand for Omnipod 5 across our European markets and all of our markets. And one of the clinics we work really closely with was -- had so many customers waiting to get on therapy. They actually put up decorations all over their office and put up a disco glitter ball as they brought people in to get set up on therapy. It was a huge celebration. And as we said in our prepared remarks, our order rate has doubled. So it's off to a great start in the U.K. We're really excited about Germany. As to the percentages, we haven't broken those out. I don't think you'd find them materially different from a lot of medtech markets, but we haven't materially -- we haven't broken out those specific numbers for the markets. In terms of the growth in the U.S. versus the growth in European markets, every market is a little bit different. One of the reasons, maybe the main reason we had such an effect on anticipated growth with Omnipod 5 in the U.S., it was all of the customer sources in the U.S. were at the high end or above the high end of our expectations, and that's because of the pharmacy channel. So in most of the European markets, customers who are on a therapy are locked into a contract. And in the U.S., if you're locked into a contract with your tubed pump, you can cross over into a pharmacy benefit. And so that's what -- that's in the U.S., what's allowed us to have so many competitive conversions in our new customer starts. In the European markets, it's a little different everywhere, but it's less flexible for patients who are on a therapy. So they have to typically wait for their contract to come up. So therefore, most of our new customer starts are customers who are new to therapy and were getting some upgrades from our own products. And then we'll be bringing in new customer starts who are converting, but they're converting in that whatever the annual cycle is, whether it's a 4-year cycle, in some markets, it's a 5-year cycle. So when they come available, they're really relevant targets for us to move off of competitive pumps. But that just changes. It changes the dynamic of the flow.

Jeffrey Johnson:

Wayde, maybe I think we're all trying to kind of feel you out, obviously, on U.S. growth rates for next year, and I know you're not guiding to next year. But a couple of the moving pieces that you talked about this quarter, that reduction in channel inventory of $13 million, the $7 million in returns. How much of that do you think is left to play out, to go away as a headwind maybe as we get deeper into this year and heading into next year? And then I know you keep calling out every quarter this patient behavior of doubling up and getting maybe 4 months of inventory in a 3-month period when you first start O5. But that behavior has stayed pretty consistent now for the better part of the year, so it doesn't seem like there's a whole lot of change going on there. So to me, it almost feels like this net kind of neutralizing of those 2 factors should drop away on the headwind side and maybe you keep a little bit of that tailwind. So I guess my point on all that is you seem to be guiding to about 25% growth in the U.S. Omnipod business for the back half of this year. Obviously, a very strong number against that low to mid-40% comps. Is that crazy to think that could be a starting-off point on how we think of next year as you get the tough comps? You maybe get a little bit less of that premium upgrade from DME to pharmacy, but you also get a little drop-off of those headwinds that I was talking about?

Operator:

Our next question comes from Jayson Bedford from Raymond James.

Wayde McMillan:

Yes, Glenn. Sure, happy to start this one, Glenn. So we are through most of the Omnipod Classic exchange to either DASH or Omnipod 5 in the U.S. And so we have announced in the U.S. that our plan is to move our customers and discontinue the product in the U.S. Having said that, we're going to wait and see where we're at by the end of the year to make a final determination there. Obviously, we're going to take care of all of our Omnipodders, our customers that had been with us for some time. But they've got great options to move to DASH and Omnipod 5. Given the coverage levels that we have in the pharmacy channel now for both DASH and Omnipod 5, it is a lot easier for our former Omnipod Classic customers to move on to DASH. And so we are not seeing a higher attrition rate. In fact, our early estimates show us that our converting customers are staying with the product and really either Classic to DASH or Classic to Omnipod 5. In both cases, we've seen that at accelerated rates and the attrition has been really strong.

Travis Steed:

A quick clarification, Wayde. When I put up all the numbers that you gave in adjustments, I got to like 48% U.S. growth. Just wanted to clarify that number to make sure that was right, what I accounted for all the adjustments. And then on the Q4 guide, it looks like if you look at the Q4 implied guide, you're somewhere around 20% U.S. growth. Is that the right way to think about the starting point for 2024 and next year as you think about lapping some of the tougher comps?

Operator:

Our next question comes from Joanne Wuensch from Citigroup.

James Hollingshead:

Thanks, Joanne. We're really excited about all 3 of those programs. And as you know, as we said in the prepared remarks and we said at ADA, the iOS app is filed with the FDA. And so we're waiting clearance there and then we'll be prepping for launch as soon as we can, as soon as we practically can. So really excited about that, very requested feature. It's interesting. On that one, specifically, there are a lot of customers out there in Omnipod 5 who have made the decision to not pull back. And so when I talk to physicians when I'm out in the field, there's a lot of patients who are carrying their controller and their phone. They just -- they want to not have to carry both. And so that's a big requested feature. Having said that, there -- I'm sure there are some people who are waiting for iOS to come on to Omnipod 5. So it's hard for us to estimate what that is, but we do think that will give us a boost, and it'll certainly be a big customer satisfier for us and certainly help us to continue with such great retention rates and customer experience. So we're really bullish on that. With the 2 -- with G7 and with the FreeStyle, with our 2 partners, Abbott and Dexcom and FreeStyle family of sensors, obviously, we're working hard, working really well with both of them, great collaboration with both of them. We want to get on -- we want to get to a sensor of choice just as quickly as we can and the programs are proceeding really, really well. As you know, we don't forecast timings or talk about that -- talk about timings for those things. But it's obvious we have to be fairly far along with FreeStyle Libre 2 to be embarking on that study we're doing in the U.K. We're very bullish on that. But the partnership with both of them goes really well, and we're working hard to get those to market as quickly as we can. And we think that both of them provide a boost for us. Obviously, when you think about G7, it's off to a very quick launch and is a good -- a really good customer experience. And when you think about the FreeStyle Libre family of sensors, very, very well positioned, particularly in other geographies. And so we think they provide sustained growth for us, and they provide a great customer experience for us to be able to provide that kind of choice as quickly as we can to our customers.

Steven Lichtman:

On the HCP prescriber increase, I thought the sequential increase was notable. Can you talk about what you're seeing that's driving that prescriber expansion? Is it use of Omnipod 5 in type 2 even before formal labeling there? And are you calling on these HCPs or is this sort of more organic?

Wayde McMillan:

And Jim, I can pick up on the type 2 part of Steve's question as well. As you saw in our reported results here, type 2 making up 20% of our new customer starts, and that's a tick-up from what we've seen in the last 3 quarters. We've been running in at 15% to 20%. And so with a record new customer start quarter, we are still seeing good new customer starts. That is partially driven by DASH. But as you said, HCPs are writing for type 2. We cannot market for type 2 yet. As you know, we do not have the label. And so we don't condone it by any means. And our team is working incredibly hard, as Jim touched on in his prepared remarks, to get our type 2 pivotal trial for Omnipod 5 completed and submit that to the FDA so that we can get on label and start to market type 2 for -- or Omnipod 5 for type 2 patients. And so it is certainly core to our strategy. And a lot of people with diabetes with type 2 that we would like to bring Omnipod 5 to, and we're certainly working as hard as we can to do that.

Joshua Jennings:

I wanted to just ask about segment of the new patient starts and just on competitive pump conversions. Do you have any data on those conversions being end-of-warranty conversions versus middle-of-warranty conversions and how that's trending? And then potentially, just how are you thinking about a direct-to-consumer campaign for Omnipod 5? Any historic successes with DTCs in the past as a reference would be helpful, too.

James Hollingshead:

Yes. Thanks for the question, Josh. DTC is a very effective tool for us, and we're really confident that we have a strong return on investment in our DTC program. One thing that I'll just flag is that DTC doesn't just mean TV for us, right? We have a very robust mix of the way we reach out to customers and consumers, and that includes social. It includes what is called over-the-top or streaming media. It will include more broadcast TV. And it includes influencers. We have a really active campaign with influencers and so on. And we have a really good sense of which levers to pull and so on. And I'm very confident in what our team is able to produce, and we're getting really good at dialing it up and down based upon the results. And so you'll continue to see us doing DTC campaigns. You might periodically see us ramp up on TV as we feel like we need to, but we have a very broad mix and a very effective approach to it.

Matthew O'Brien:

I know we're getting a little late here. Just Wayde or Jim, just as you talk about the key growth drivers for the business being on the volume side, if I think back -- I think it was 3 or 4 quarters ago, 60-40 was the split between MDI and conversions and then 70-30, I think, last quarter, now 75-25. So what I'm asking for, and I know the denominator is getting a lot bigger, but are you seeing any kind of slowdown in your ability to convert competitive pumpers right now? And I don't know if it's because of Medtronic being in the market or something like that. And then it seems like the enthusiasm for O5 from the MDI patient population is as strong, if not stronger, than this time last year when you first launched it, is that fair? Just maybe talk about the trajectory of those 2 groups of patients.

Wayde McMillan:

Yes. I think it was just -- go ahead, Matt.

James Hollingshead:

Within MDI? Yes. If anything, the enthusiasm is even stronger. We're seeing record new customer starts. We're seeing the percentage mix is changing more because of MDI on the top, right? And so I think we're just so well positioned, and we're not -- the momentum for the business is terrific, and Omnipod 5 is just very, very broadly adopted and accepted. I'll give you an example. I was just out in the field last week, and I was in a pediatric clinic sitting with a physician who's been writing for us and for one of our main competitors for a long time. And she said to me, "Listen, Omnipod 5 is so good. But at this point, I'm not writing really for your competitive pump, unless somebody specifically asks for it. And not just that, but everybody I've converted from the competitor pump on Omnipod 5 just does better." And I started to probe around why and the details, so they just do better. They just have better outcomes, they have a better experience. And so I think that's a really good sign for us in terms of how the learning curve of the market. Here, a year in, I think the market has learned a lot about Omnipod 5, how easy to see is what kind of great real-world outcomes it's driving. And we just see a ton of momentum across age groups and across all sources of customers, including MDI.

Danielle Antalffy:

Congrats on continuing to deliver really strong results here. Wayde, this question, I think, is for you. And it's, again, I appreciate you're not giving guidance for 2024. But just qualitatively, looking at the different potential tailwinds that could offset some of the headwinds from a comp perspective and the benefit from the 2 scripts for every new patients added in 2023. And just want to make sure we are thinking about these offsets correctly. So thinking -- appreciating not giving timing, but L2, G7 integration, [indiscernible], you have the GO. Like maybe walk us through qualitatively how to think about the headwinds and tailwinds that will be coming international from a tailwind perspective in 2024.

Operator:

Our next question comes from Matt Taylor from Jefferies.

James Hollingshead:

Sure. I'll start on the pilot plan and then I'll let Wayde talk about financial contribution. So we're really bullish on getting that market out in the hands of our pilot physicians and clinics. And the great thing about GO is that it solves a lot of problems for people who are initiating insulin therapy, as we said before. It resolved the needle phobia. It resolves dosing and so on. But it's new to world and it's new for us and it's new for those clinics because some of those clinics are places where we don't necessarily have a very strong call point footprint. And so what we need to do is get it out in the clinics. We need to go out and educate the clinics on the use of GO, which is incredibly simple experience. And we need to kind of test the waters with a couple of things about the dosing SKUs and some other things. So we need to see it in the real world, in the hands of the clinics, in the hands of our reps and make sure we just have -- we have the approach to the selling pitch correct, make sure we understand how to support the clinics that we're going into and so on. And we're giving ourselves time because it's a new-to-world offer and it's a new -- and there's some things about it that are kind of new commercial model for us. And so that's why we're saying we're going to pilot it here in the near term. We're going to learn what we learn, give ourselves some time to adjust and then commercialize in 2024. And Wayde, if you want to talk about what we're modeling for financial impact.

Operator:

And we have time for one last question, it will come from Matt Miksic from Barclays.

Wayde McMillan:

You bet, Matt. It's Wayde. I can certainly take that one, and it is something that our teams are working through today. And in fact, we're going to learn a lot through this limited market release. One of the key things or key learnings that we're working on is what is the optimal staging or building of inventory in the channel to support the GO launches. But I think just qualitatively, you're right. Just like with Omnipod 5, we're going to have enough inventory in the channel to serve the customers. And so like we saw in Q2 last year, when we did the limited market release for Omnipod 5, we called out a days inventory-on-hand build for Omnipod 5. Assuming the same plays out for Omnipod GO, we'll let you guys know if there's a material amount of inventory that has to go into the channel to launch with Omnipod GO. But nonetheless, it's an exciting program. The teams internally are really excited to see how the limited market releases go. We're going to learn a lot. There's certainly a very large market, an underserved market that needs better technology. We are the natural owner. We've got many benefits with Omnipod and our auto-injection as well as our fluid mechanics. And I think the teams have done a really nice job of simplifying the Omnipod for this group of customers. And so we'll see how the limited market releases go. We'll have probably a lot more to say after that as we start to get into more of a full market release in 2024.

James Hollingshead:

Thanks, everyone, for joining us today. We are incredibly proud of the milestones we've achieved and the progress we've made. And thanks to our disruptive offerings and dedicated team who worked further along than our original expectations and setting our sights higher than ever before. Insulet has come a long way, and we are energized by the enormous market opportunity we are pursuing and the opportunity to drive rapid growth and substantial value for Insulet shareholders while fulfilling our mission to improve the lives of people with diabetes around the world. We look forward to continuing to update you on our progress over the year and next quarter. Thank you all for joining, and have a great evening.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation First Quarter 2023 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.

Jim Hollingshead:

Thanks, Deb. Good afternoon, and thank you for joining us. We're off to a great start to 2023. We entered the year with a clear strategic focus and momentum in our business, and the Insulet team continues to execute and deliver on our ambitious expectations. We expect 2023 to be another year of strong growth and strategic progress. Our first quarter results exceeded our expectations, and today, we increased our revenue outlook for the rest of the year. We achieved another record first quarter for U.S. revenue growth of 49% and 35% for total Omnipod and once again delivered another record for U.S. and global new customer starts for any Q1. Omnipod 5 continues to be a driving force of our strong U.S. growth and in Q1, it represented almost 95% of our U.S. new customer starts. This revolutionary offering is transforming diabetes management. Last week, we also received FDA clearance for our basal-only Pod named Omnipod GO. This is a unique product for the type 2 market. It provides us with early entry into treatment pathway, gives physicians and people with diabetes a comfortable non-injection option to deliver and receive insulin and provides patients an improved experience. By eliminating the personal diabetes manager and offering preset levels of basal insulin, we are easing patients into insulin management while leveraging Omnipod's comfortable tubeless technology. We're excited about bringing this innovation to market in 2024. Now to Omnipod 5, which continues to disrupt the diabetes market with its elegance and ease of use as well as consistently impressive real-world outcomes. It has strengthened our position as the market leader by revenue and is rapidly helping us take leadership among new pump prescriptions, thanks to our high share of multiple daily injection new starts and the large number of customer switches from competitive tube offerings. In Q1, the mix of Omnipod new customers coming from MDI and legacy tubed pumps was an estimated 70/30 split compared to our historical 80/20 mix as a result of the strong number of competitive switches we continue to capture. Omnipod 5's ease-of-use, simplified access, quality of life and strong clinical outcomes, coupled with our team's execution, has positioned us to continue to win across all market segments. Omnipod 5 is truly unmatched compared to other AID systems, and the feedback we hear from customers speaks to its unique benefits. We recently heard from a health care practitioner who operates a clinic with almost 3,000 patients across both type 1 and type 2, many of whom use one of our Omnipod solutions. He has hundreds of patients now on Omnipod 5, and he is using it himself. He called Omnipod 5 a "game changer" and said, "Thank you for everything you do. I've waited 40 years for this product, and it's more than what I had hoped for." This sentiment is echoed by so many HCPs who tell us that their Omnipod 5 patients span all age groups, including people over the age of 80 who have been on MDI for decades and would never have considered pumps before learning about and experiencing Omnipod 5. Omnipod 5 is delivering on our mission to improve the lives of people with diabetes. Much of this success is a testament to how we designed our system. As we do with all of our innovations, we designed Omnipod 5 with the customer 100% in mind, with a clear focus on how we could simplify each day, improve quality of life and drive better outcomes. We offer an algorithm that provides micro doses every five minutes to adjust the target versus other systems that need to adjust basal rates or give correction boluses. Plus with Omnipod 5, there is no need to disconnect. Our algorithm learns, adapts and personalizes for each user. Our users are able to achieve excellent time and range with the lowest incidence of hypoglycemia on the market. The real-world evidence we shared at ATTD with data from more than 31,000 Omnipod 5 users is unmatched by competitors. And we look forward to sharing a larger data set at the ADA Trade Show next month, building on the clinical outcomes and quality of life that only Omnipod 5 can provide. These clinical outcomes, combined with Omnipod 5's form factor and ease of use, are proving to be life-changing for our users. Our market leadership also depends on building awareness of and access to Omnipod, and our team continues to execute with excellence against these objectives. Our efforts to drive access and awareness are critically important, given how underpenetrated the global type 1 and type 2 pump markets are, driving growing need for advanced solutions. In the countries we serve today, we estimate there are approximately 11 million people with insulin-intensive diabetes who can benefit from Omnipod. Approximately 45% have type 1 and 55% type 2, and these markets remain vastly underserved. Pump penetration in the U.S. type 1 market is still only approximately 40% and only low single digits in type 2, and international market penetration is much below the U.S. There is a massive unmet need for insulin therapy solutions, which also means we have a massive market opportunity. The Omnipod platform, and especially Omnipod 5, will open that market even further. Prior to Omnipod 5, consensus was there was a natural cap on pump adoption of around 70%, but these estimates have all been built based upon the adoption curve of tubed pumps. You've heard us call Omnipod 5 a game changer, and we believe it changes this game. Omnipod 5's simplicity, ease of use, cost and access and, importantly, outstanding clinical outcomes driven by our advanced algorithm will allow us to bring customers into the market who would have otherwise never considered or never been considered for an insulin pump. We are seeing this in our market feedback already. Additionally, CGM is helping to pave the way by raising awareness for Omnipod and, in turn, we are bringing more people to CGM. Our sources indicate CGM U.S. type 1 market penetration is nearing 80%, making us even more confident in Omnipod 5's potential to grow penetration to well over 70% in the type 1 market alone. The Omnipod platform is quickly becoming the new standard of care for insulin delivery. A critical element to our access strategy is growing our presence in the U.S. pharmacy channel. This makes access to Omnipod 5 and Omnipod DASH much more affordable, convenient and efficient, with low co-pays and the ability to pick up product at the local pharmacy or through mail order with no lock-in periods. And the vast majority of Omnipod 5 prescriptions are filled in a matter of days compared to weeks through the DME channel. In the U.S. market, we price Omnipod 5 at parity with Omnipod DASH to drive access for Omnipod 5 quickly so we can make it affordable for the large number of people we knew would want it. The vast majority of our U.S. customers continue to pay less than $50 a month through the pharmacy channel, putting it relatively on par with customer costs for multiple daily injections. Combined with no upfront cost to start on Omnipod 5, we invite any patient to experience the difference of Omnipod. Omnipod 5, just like Omnipod DASH is widely covered in the U.S. Our team’s customer-centric focus and commitment to operational excellence enabled us to drive incredibly strong coverage for Omnipod 5 in a short period of time, positioning us for the enormous level of affordable broad-based adoption we have seen. And as such, we will no longer provide quarterly coverage updates similar to the approach we took with Omnipod DASH. In practical terms, both Omnipod 5 and Omnipod DASH are now fully covered. Our clinical initiatives continue to progress, including our type 2 pivotal study. As a reminder, this three month study will be the largest we have ever conducted, including up to 350 people with type 2 diabetes across 20 sites in the U.S. with a targeted focus on recruiting diverse and underserved populations. We began enrollment shortly after our last earnings call and we’re making great progress. We’re excited to show what Omnipod 5 can do for people with type 2 diabetes. We are also making great progress with our Omnipod 5 three month randomized controlled trial. The last study participant in the U.S. is nearing completion and in France enrollment is nearing completion and we expect the last participant to complete the study by the fall. We believe this RCT study will be beneficial when negotiating access and premium pricing. Both our type 2 pivotal study and our RCT will be valuable additions to the already strong clinical body of evidence that we have been building for Omnipod 5 over the last several years. Fueled by the success of Omnipod 5, our teams are already working on what’s coming next. As I mentioned, we received clearance for Omnipod GO in the U.S., which should further build on our type 2 leadership position. We estimate the total addressable market for Omnipod GO is at least 3 million people in the U.S. alone, doubling our U.S. TAM. We expect to begin a small pilot program this year in select locations and remain on track for a commercial launch in 2024. We have several competitive advantages in the type 2 space, including those that exist for us in the type 1 market, such as our unique form factor and our U.S. pharmacy channel access. In Q1, individuals with type 2 represented an estimated 15% to 20% of our U.S. new customer starts across our Omnipod portfolio of products. This percentage is lower than historical levels due to the tremendous success of Omnipod 5, which like all AID systems has an indication for only the type 1 market. On an absolute basis, new customer starts in the type 2 space remains strong. Our development work to integrate Omnipod 5 with DexCom’s G7 and Abbott’s Libre systems, as well as our iOS integration efforts continues to progress very well. I want to take a moment to congratulate Abbott on their recent Libre 2 and Libre 3 iCGM clearance milestones. That is quite an accomplishment. Both of our CGM partners have made exciting progress and we’re thrilled to be advancing our development efforts with both for the benefit of our current and future customers. We believe we offer the best AID system on the market and adding CGM of choice for our current as well as future customers will only strengthen that value proposition. Moving on to our international operations where we are excited to introduce Omnipod 5 in the UK in the middle of this year and in Germany in the fall, and we are currently training HCPs in both markets. This marks the first time we’re bringing a cloud connected Omnipod device to international markets, delivering the benefits of near real-time data management to our customers and HCPs. Our launch of Omnipod 5 in these countries marks the beginning of our stage international rollout with a broader rollout across our international markets next year. Another one of our competitive moats is our global manufacturing capabilities, which are critical to our long-term growth plan and ability to fulfill our mission. While we continue to navigate some challenging macro-related headwinds, we are securing components and producing pods ahead of forecasted demand levels, ensuring global supply for our expanding customer base. Additionally, we are making great progress building our new manufacturing facility in Malaysia, which will further strengthen our global capabilities. We are on target with our build schedule and expect to take possession of the facility by the end of this year, placing us on track to begin manufacturing in 2024. Earlier this week we published our 2022 sustainability report noting exciting progress across a number of environmental, social and governance initiatives. As a result of all of our initiatives, we were named by Newsweek as one of America’s most responsible companies for 2023. This past quarter, we also were pleased to be added to the S&P 500. This is a fantastic achievement for Insulet and speaks to the hard work and dedication of our entire global team as well as the success we are having growing the company and executing our mission. Before I turn the call over to Wayde, I want to comment on the changes to our organizational structure we announced this afternoon. Our business is enjoying incredible momentum and we are confident we can build on that. Omnipod 5 is transforming diabetes management and we are just getting started. Omnipod 5 is a revolutionary offering, delivering the most convenient therapy experience with world-class clinical outcomes as our results clearly demonstrate. And Omnipod 5 is also novel because it gives us the opportunity to use cloud connectivity and data to constantly improve all aspects of the end-to-end customer experience. In addition to that, we are now the market leaders in the type 2 space and we have a huge opportunity to expand there with the portfolio of therapy options. And of course, we are early in our efforts to expand internationally. In order to capture those opportunities and reach the millions of patients that need our help, we’ve decided to make some changes to how we operate. It has been almost a year since I assumed the CEO role and I could not be more proud of how well our team continues to execute. Over that time, we’ve taken a close look at our organizational structure and working processes and in order to both continue our momentum and capture the full palette of opportunities we see for growth, we need to do three things, elevate and integrate our technology stack and especially our cloud and data analytics capabilities, invest in regional and local markets to drive growth and expansion and most importantly, get even closer to our customers and orient the entire organization around the end-to-end customer experience. Therefore, as we announced earlier today, we have created two new roles in the organization effective July 1. The first is Chief Product and Customer Experience Officer responsible for product vision and execution, including franchise management, product management and driving the end-to-end customer experience across the enterprise. Eric Benjamin, our Executive Vice President of Innovation and Strategy will take on this new role. The second is Chief Technology Officer responsible for software and hardware engineering, information technology, cybersecurity, digital and data services and system architecture. Mark Field, our Group Vice President of Software Engineering will step into this new role. On behalf of the entire Insulet team, I’d like to congratulate Eric and Mark and thank each of them for their leadership. We also announced that in order to more effectively drive growth in our international markets, we are transitioning from a structure that had a Global Chief Commercial Officer role to one with two distinct commercial leaders, one for U.S. and another for international. As a result of that decision, Bret Christensen is leaving Insulet on May 5 to pursue other opportunities. He has agreed to provide consulting services during the transition period. We want to thank Bret for everything he has accomplished during his time at Insulet. He played an important role in so many key milestones for us, including our moving to the pharmacy channel and of course the launch of Omnipod 5. We wish Bret all the best and I know he wishes us all the best as he’s here today with us on the call as well. Thank you, Bret. I’m confident that the refinements we are making to our organization structure will help us to not only continue our terrific momentum, but also improve our efficiency, speed our time to market with new innovations and accelerate our growth in international markets. I look forward to continuing to work with our entire Insulet team to realize our company’s immense potential and continue to drive our mission to simplify the lives of the millions of people around the world living with diabetes. In closing, the first quarter marked a strong start to what we are confident will be another successful year for Insulet. Omnipod 5 is transforming the market and changing the way that people manage their diabetes. HCPs are adopting and championing Omnipod 5, helping to bring it to the thousands of people with diabetes who benefit from it. We are well positioned to continue to expand access to Omnipod 5 globally and lead the industry and innovation. It takes a company-wide effort of all of our employees to generate the growth we are consistently delivering, while investing in our business to drive sustainable growth and value creation for years to come. I will now turn the call over to Wayde.

Operator:

Thank you. [Operator Instructions] Our first question comes from Jeff Johnson from Baird. Please go ahead. Your line is open.

Wayde McMillan:

Yes. Hey, Jeff. We would love to start talking about Omnipod 5, but why don’t we go ahead and talk about international for a second. So as you point out, we had a strong Q1 at 10%, and that’s about what we’ve been performing over the last couple years. 11%, 12% performance over the last couple years, 10% Q1. Q2 does look a little higher, but it’s more just some of the choppiness that we see in the international markets due to the distributor nature. And so we do have a bit of a higher growth rate that we’re planning based on some of the order timing there. If you look at the second half growth rate, it offsets it, and then it looks to drive us in for the full year around the 6% to 10% or just double digits at the high end. And we’ve been performing at that level for the last couple years. We think we can continue to drive that at the high end. Really depends on how the second half performance goes. And as you know, we’re not participating in the AID portion of the market internationally. And so right now, DASH is doing really, really well. Without an AID system, we’re still growing double digits internationally. And as you know, we can’t wait to bring Omnipod 5 first to the UK mid-year and then Germany now in the fall, and then to further countries next year. And so we think we’ll significantly improve our performance even above the double digits we’re at now once we get Omnipod 5 and our AID system into that market.

Larry Biegelsen:

Good afternoon. Thanks for taking the question. Jim, I can’t help but ask about your congrats on a really good quarter here. I can’t help but ask about the comment you made about over 70% penetration of pumps in the type one population. I guess, could you put some timing around that? What do you think needs to get done to make pumps standard of care? It has moved relatively slowly and it is interesting to see that your 80/20 split has gone to 70/30 with Omnipod 5, which suggests that a higher proportion are coming from competitive pumps? Thanks for taking the question.

Operator:

Our next question comes from Robbie Marcus from JPMorgan. Please go ahead. Your line is open.

Jim Hollingshead:

Thanks, Robbie. We’re really bullish on the coming five years for our business and for our growth trajectory. And the mix of the – mix of patience for us MDI versus competitor, has moved a little bit in the quarter and that sort of thing. I’ll just say a couple of things. The first one is we have the best offer on the market. So if you’re just thinking competitive, sort of the three main competitors in the market. Our offering is clearly superior. We’re clearly winning in the market right now. We’re taking – we’re bringing a lot of people out of MDI into the market, and we’re taking competitive share and driving competitive switching, which continues to run ahead of our historic pattern and ahead of frankly our expectations and in terms of competitive switching. But we don’t think about the market that way. The way we think about the market is not as a zero sum game amongst the pump players. We think of the market as a market with literally tens of millions of people that need insulin therapy that need a much simpler solution. And so our entire offer is geared to bring people off of multiple daily injections and all of the burden of multiple daily injections into a simple wearable, disposable, waterproof pump. That requires them to not have to do a lot of calculations, don’t do finger sticks and just manage their condition that way. And so we’re extremely bullish. We have a very clear lead on the whole package. We have a fantastic algorithm. And the whole package for Omnipod 5 is so simple. The wear experience is simple. The channel access is simple. The economics are great for patients. The economics are great for payers. So overall, we’re extremely bullish on the ongoing growth. And given our lead, we’re just going to extend that lead. We have tons of innovation coming in the pipeline and our reorganization is going to allow us to move even faster with that. So we think our – we love the momentum we have right now. We intend to continue it, and we think the midterm, long-term outlook is really, really strong for us.

Joanne Wuensch:

Thank you very much for taking the question. Two questions. How should we think about drug delivery over time? Does this essentially go to zero? And then the second question is, ADA is coming up. What should we be looking forward to? Thank you.

Wayde McMillan:

So just, Jim covered it really well. I'll just add quickly on the drug delivery side of things. We have a great partnership with Amgen, and we're very proud of the fact that our technology combined with their product has really helped them continue to sell their product and defend against biosimilars given our delivery device. And so we do think it's going to have a long tail, Joanne, we would expect it to be several years, if not five or more years, that will continue to provide the product for them. We're not going to guide, as Jim said, it's a lumpy business just based on the order patterns. But we think we'll continue to provide that product. The overall strategy for the drug delivery business has not changed for us, although there are many growth options for us there. We are laser focused on the diabetes side of the business. And we've got so many investment opportunities to grow the diabetes side of the business and invest and create value that we are just not turning our focus to drug delivery at this time. But it still remains as growth options for us out there in the future.

Margaret Kaczor:

Hey, good afternoon, everyone. Thanks for taking the question. I wanted to follow up on Larry's question and maybe push a little bit more on that 70% plus market penetration. But maybe tie it to some of the comments around the organizational change. First of all, Bret, congratulations on everything you've accomplished. It's been awesome working with you. And hopefully, our paths cross again, but you deserve everything that you've done. But maybe as we think about kind of that market penetration, there's a lot of T1D patients that maybe don't routinely go to an endo. You talked about getting closer to the patient. I think you talked about both regional, local offices. But Jim, you're a strategist. I've seen your work. So is this a commercial effort to try to get into the PCPs? Is there a more virtual way of doing that? How are you guys thinking about it as you think about that 70%? Thanks.

Operator:

Our next question comes from Matthew O'Brien from Piper Sandler. Please go ahead. Your line is open.

Jim Hollingshead:

Thanks, Matt. We continue to work really closely with both Dexcom and Abbott, our 2 great CGM partners. We're really pleased to see their continued technology advancements in the market. We were excited to see G7 approved earlier in the year. And as we said and as I said in our prepared comments, we congratulate Abbott on getting both Libre 2 and Libre 3 cleared as iCGM. That's a big accomplishment. So we're very excited to bring sensor of choice to all of our customers as soon as we can. We're making great progress with both partners on completing those integrations. And we haven't guided on timing. I'm not going to speak to what our competitors are going to do, but we're moving as fast as we can. And we're excited to bring those innovations to market just as quickly as we can. In terms of – there's – you've got two big players out there. So your question about penetration in different sensors and who will choose what, we think Omnipod 5 is the best offer in the market. We think it's going to be the best offer for anybody wearing any sensor, which is why we want to bring choice to all of those customers and all of those patients. It's obvious that between those two players, they have millions of patients out there that are already using their sensors. And for us, that creates a kind of a – I think I've said – I've used this metaphor before on these calls. I used to go fishing with my dad. He would always say, well, let's go to the pond that they just stocked with the trout. So as we get out there, we're fishing in a stocked pond. And so they've been paving the road for us. There's lots and lots of patients out there that both of our partners are delivering terrific, wearable on-body experiences in managing their diabetes. And we think that Omnipod 5 will very seamlessly slide into that on-body experience and provide great solutions to people wearing both Dexcom and Libre sensors.

Travis Steed:

Hey, thanks for the question and congrats on a good quarter. Maybe a quick clarification for Wayde. I wanted to make sure we had the numbers right on the stock, destock this quarter. It looks like the net impact would have been a negative $2 million headwind, so U.S. growth, 50% in Q1. So I wanted to make sure I had those numbers right. And then the question is really on the guide up in Q2. I don't know if that's what you're seeing in April, if it's really the strong Q1 you that had. And then – and how to think about the second half because it looks like the second half guide is about mid-teens growth, which looks conservative at this point. I just want to make sure I understand the flow of the year for the U.S. growth.

Operator:

Our next question comes from Chris Pasquale from Nephron. Please go ahead. Your line is open.

Jim Hollingshead:

Thanks, Chris. Obviously, we received clearance for Omnipod GO, which is one of the poles in the tent. We're really excited to get that in such an expeditious way. It's terrific. There's other things that we need to get in place to make sure that we can launch at scale. As you said, one of the main ones is reimbursement. And so we announced when we filed Omnipod GO, actually, if you guys remember just before we filed Omnipod GO, because we wanted to be able to go to payers and start to talk about coverage. And those conversations are going, they're going pretty well. And we expect to be able to have broad enough coverage to launch certainly in 2024. And then the other things we have to figure out is Omnipod GO is a new-to-world offer. So it's in the Omnipod product form factor, but it has no controller, it doesn't take a CGM feed. So it's very, very simple to use. It's a multiple SKU product because each SKU will have a basal rate associated with it. So the way we've designed it is a physician would write a prescription for Omnipod GO 10 units or something very simple like that. But we need to go out and make sure that the customer experience is – we fully understand the customer experience of getting that new-to-world product, and we fully understand the physician experience of writing it and making sure there's appropriate access for everybody. So we'll be doing some pilots to test out those models, to test market reaction and test customer experience and so on. And when we're confident we have those right, we'll move to a commercial launch. We're not gating them on a date. We're not holding back the date. We want to make sure we're ready to launch the experience that we want to deliver to all of our customers, including both patients and health care providers. And we're moving pretty quickly, so we'll move as quickly as we can, but we're going to continue to guide to 2024.

Caitlin Cronin:

Hi. This is Caitlin on for Kyle. Congrats on a great quarter. Just to kind of go off of the GO question earlier, have you begun enrollment on the T2 pivotal study? And can you kind of remind us of the time lines for the study? And then U.S. customer starts coming from Q2, where do you really think this could go in the future as you kind of gear up GO in the longer term? Thanks.

Operator:

Our next question comes from Jayson Bedford from Raymond James. Please go ahead. Your line is open.

Jim Hollingshead:

Thanks, Jayson. Our intent is to deliver enough evidence into various markets such that we can go and secure reimbursement that we think is more in line with the value that we deliver with Omnipod 5. We think Omnipod 5 delivers a lot of value through its improved patient experience and improved outcomes. And so – and those negotiations are going and will go market by market. And so I think that what you’ll see is we’ll probably have slightly different reimbursements and slightly different levels of premium in any given market depending on what we’re able to prove to those state payers and what we’re able to negotiate over time. We may be also able to ramp reimbursement over time as we’re able to deliver more evidence. But as we’re entering into those conversations, we want to have as much evidence as we possibly can, which is the purpose of that RCT. And as a reminder on that one, it’s a two geography study, it’s U.S. and France. The U.S. – the last U.S. patient is completed. We have about 75% enrolled patients in France, and we expect that to wrap up in the fall. And then we’ll have that as another era in our quiver of evidence as we go and talk to those payers to secure the – what we think is fair reimbursement for the value Omnipod 5 creates.

Matthew Taylor:

Hi. Thanks for taking the question. So I wanted to go back to your comment on the penetration rate, potentially going through 70%, given all your advantages. I wouldn’t dispute that, but you made some interesting comments that you’re starting to kind of see the green shoots of that. And so my question on the follow-up there is what kind of rate of change are you seeing or do you think that we could see driven versus the traditional 75,000 or so MDIs coming to market converting to pump every year in the U.S.? Any thoughts on that?

Operator:

Our next question comes from Steven Lichtman from Oppenheimer. Please go ahead. Your line is open.

Wayde McMillan:

Yes, Steven great question to think down the P&L as well, we’ve got a lot of momentum on the top line and we think that we’re going to be adding significant value with gross margin and operating margin expansion over time. Focusing here on the gross margin, and to your question, medium to long-term, we’re not putting numbers on it, but we know we’ve got a lot of tailwinds. We’re not assuming the component higher inflationary costs to improve, but we’re also not assuming they get worse from here. We’re assuming they’ve sort of leveled out and that’s what we’re going to live with for some time. And so assuming the inflationary environment then stays flat for us, the built-in benefits that we have with scaling the business, additional volume and the move, the geographic mix of growing the U.S. faster as well as the move into the pharmacy channel is all going to provide us some tailwinds to gross margin. The other side of the coin, what we have to watch is how fast we expand internationally. And just given that we use a distributor model there, our gross margins are sometimes lower. That doesn’t mean our operating margins are lower because we obviously have a lower cost to serve where we use the distributor market there. And so it’s going to be a combination of those things, but we’re not going to put numbers to long-term guidance at this point, but we do think we can continue to grow gross margins over time. And we’ve had a long-term goal of getting to 70%. We still think that’s in view over the medium horizon here. But we just have to manage all of these dynamics continue to improve our manufacturing performance, which is also another driver for us. And that’s going to help us work our way to 70% over time.

Sam Eiber:

Good afternoon, everyone. This is Sam Eiber on for Marie. Thanks for taking the questions here and congrats on a nice quarter. Maybe I can just ask on OUS, so we’re gearing up for initial market introduction in the UK in the next couple months or so. I guess any other work that’s needed in terms of developing that cloud infrastructure and you mentioned some market preparation. Any more details in terms of what that looks like going on now ahead of some of those launches? Thanks for taking the questions.

Operator:

This concludes our Q&A section. I would like to turn the conference back to Jim Hollingshead.

Operator:

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

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation Fourth Quarter and Full Year 2022 Earnings Call. [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.

Jim Hollingshead :

Thanks, Deb. Good afternoon, and thank you for joining us. In Q4, the global Insulet team delivered another record quarter of growth, which was a strong end cap to a remarkable 2022. We exceeded our expectations once again, achieving revenue growth of 45% in the U.S. and over 35% for total Omnipod and our U.S. and global new customer starts were at record levels. And 2022 marked our seventh consecutive year of 20-plus percent revenue growth. This past year, we not only drove consistently strong financial performance, we also achieved a number of critical milestones. We now have roughly 360,000 active global customers on the Omnipod platform, including more than 100,000 customers on Omnipod 5. In fact, during Q4, Omnipod 5 represented over 90% of our U.S. new customer starts. This transformative technology is the leading offer in the market and is proving to be the obvious choice for consumers. The 2022 full market release of our Omnipod 5 automated insulin delivery system was a huge achievement. This is the product our company was founded to make. And we continue to build on that momentum throughout the year, adding CE Mark approval and quickly extending our label in the U.S. to include pediatric customers down to age 2 for Omnipod 5, as well as completing the 510(k) submission for our type 2 basal-only pod. During 2022, we also further strengthened our intellectual property mode representing a culmination of work throughout the year that should protect our innovation capabilities and opportunities for years to come. And we made notable advancements in our clinical efforts, including the recent publication of our first look at real-world evidence for Omnipod 5. I'll speak in more detail about the highlights of these accomplishments in a few minutes. I could not be more proud of everything the Insulet team has achieved in advancing our mission to improve the lives of people with diabetes. And on top of everything we've achieved during 2022, I am confident our best is yet to come. Omnipod 5 is truly unmatched as an AID system. With Omnipod 5, we have delivered a number of market firsts -- it's the only tubeless waterproof pod-based AID system and the first to offer full compatible smartphone control with constant cloud-based connectivity -- this means doctors don't have to wait for data to be uploaded when or if a patient visits a physician. With Omnipod 5, customers no longer need to plug in their devices to access their data. Our smart bolus calculator helps patients manage their blood glucose levels and trends, and there are no other AID systems that include the adaptive algorithm that Omnipod 5 has. It works right out of the box and learns each customer's specific usage and then predict their trends and automatically personalizes their care. These all are competitive advantages that significantly improve and simplify diabetes management. Omnipod 5 continues to drive customer adoption from all market segments. MDI users are growing at the high end of our forecast as are those switching from competitive tube pumps. And the number of current Omnipod customer conversions are exceeding our expectations. In Q4, the percentage of customers coming from MDI and traditional tube pumps was an estimated 65-35 split compared to our historical 80-20 mix due to significantly more competitive switches. This again speaks to the value Omnipod 5 brings to MDI and traditional tube pump users. We also continue to win back thousands of customers who had once been potters and returned to us in Q4 to adopt Omnipod 5. Adopters are coming from all age groups. Due to higher-than-expected demand for Omnipod 5, we increased investments in our support capabilities, primarily within our call centers. These investments have helped drive our customer and product support experience back to historical levels of excellence. This has included taking quick action to address certain complaints regarding the Omnipod DASH and Omnipod 5 handheld devices. We previously announced the medical device correction for Omnipod 5 due to an issue with the controller charging port in cable. The FDA subsequently classified this as a Class 2 correction, and we are in the process of providing replacements to our customers upon request. With respect to the previously announced Omnipod DASH MDC, we expect to complete the replacement of personal diabetes managers within the coming months. I am proud of our global team's focus to ensure these corrective actions were executed with a sense of urgency and care. Consumer-focused innovation is central to everything we do. Omnipod 5 was designed with the user 100% in mind, and the results and feedback we receive speak to our shared success. One recent story from a mother of an 8-year-old with diabetes was particularly touching. She said, " Omnipod 5 has given me my life back. I sleep through the night. I feel like me again. Diabetes has moved from the foreground to the background in our daily lives. This speaks to the power of Omnipod 5 and supports why we designed the product and the customer experience the way we did. A critical element to our continued strong Omnipod growth is an unwavering commitment to expand access and awareness, and we're doing this through multiple initiatives. First is through our growing presence in the U.S. pharmacy channel. With low co-pays and broad coverage, access to Omnipod 5 and Omnipod DASH is affordable and simpler, which helps drive adoption and makes Omnipod more attractive and accessible, especially during challenging economic times. Second, we priced Omnipod 5 at parity with Omnipod DASH, resulting in our ability to meaningfully expand commercial coverage for Omnipod 5. By year-end, coverage approached 90% of U.S. lives. Additionally, because the vast majority of our U.S. customers pay less than $50 a month through the pharmacy channel, the cost is similar to multiple daily injections, even though our technology offers improved outcomes, glycemic control and quality of life. Our annuity business model and pharmacy access also benefit physicians and payers. We have eliminated large upfront costs and lengthy lock-in periods. This offers real value to payers compared to traditional tubed pumps sold through the durable medical equipment channel. This is especially true when you consider that on average, individuals in the U.S. change insurance plans every couple of years. I also want to share that we recently notified U.S. classic Omnipod customers about our plans to phase out that technology by the end of this year since the vast majority of our customer base no longer is on our legacy product. We value every classic Omnipod customer and will help them through their transition to either Omnipod 5 or Omnipod DASH. 2022 also was another exciting year for Insulet in terms of advancing our clinical efforts, and that momentum is carrying into 2023. We recently finalized our type 2 pivotal study protocol with the FDA and received IDE approval. We plan to begin enrollment in the 3-month study in the coming weeks. This will be the largest clinical study we've conducted to date and rolling up to 350 people with type 2 diabetes from 20 sites across the U.S. There will be a targeted focus to recruit diverse and underserved populations to demonstrate safety and efficacy of Omnipod 5. Omnipod 5 also opens up new avenues for clinical evidence. Yesterday, at ATTD, we shared the first release of real-world evidence for Omnipod 5 with data from more than 31,000 people using the system for at least 3 months. This kind of data is unmatched by competitors and gives us valuable insights into how people use the product and the outcomes they're achieving. We're able to see which device settings contribute to maximum time in range and minimal hypoglycemia. The data demonstrated glycemic results in line with those observed in our pivotal trials and also reinforced the benefits of our customizable target glucose settings. These are some of the reasons why Omnipod 5 will be a market leader for years to come. Our enthusiasm is shared by a health care practitioner who recently said the Omnipod 5 real-world data set is striking and that it includes all users since everyone is connected to the cloud-based system. With this large sample and limited selection bias, we see strong time in target range and minimal time below range exceeding glycemic targets on average. This is extremely promising for long-term benefit in the real world. Our real-world data for Omnipod 5 will be incredibly powerful over time since every user is cloud connected. For patients, this means we can continue to personalize and improve the overall experience. For physicians, this means we will be able to streamline their workflows. Over time, our intention is to tie that usage data to claims data to further drive Omnipod 5 adoption as well as build a host of other enhancements such as population-based health management for payers. Nobody else in diabetes therapy can create evidence from data that includes all patients on therapy. This means that we will have unprecedented insights into actual population level usage patterns, which will allow us to constantly improve our offerings and build on our already market-leading product differentiation. While we are thrilled with the market response to Omnipod 5, winning in the global diabetes market requires a commitment to innovation. Today, we have a strong innovation pipeline that includes our type 2 basal-only pod, future AID offerings and digital and data capabilities. Today, our unique form factor and access model are helping us win in the type 2 population in addition to type 1. We deliver a market-leading experience. And as a result, in Q4, individuals with type 2 represented an estimated 15% to 20% of our new U.S. customer starts. We expect to build on our leading competitive position in this market as well as expand our total addressable market with the planned 2024 commercialization of our new basal-only pod. This will be a unique product for the type 2 market and will provide us with early entry into the treatment experience and help patients become comfortable with the Omnipod on-body experience. We believe this innovation will offer users a clear pathway to adopt Omnipod 5 as their insulin needs progress. We estimate the total addressable market for our basal-only pod is approximately 3 million people in the U.S. alone, doubling our U.S. TAM. We are also making great headway in our development work to integrate Omnipod 5 with DexCom's G7 and Abbott's Libre systems, and our iOS integration efforts continue to progress very well. We offer the best AID system on the market today and our future generations of technology, including CGM of choice, will continue to strengthen our leading value proposition. To continue to deliver our unique and leading technologies, a key priority for us is our intellectual property. We have significantly expanded our patent portfolio over the last few years. And in this past year, we more than doubled it both organically and through record patent filings and an acquisition. We acquired the pump and AID patent portfolio of Bigfoot Biomedical, including approximately 400 patents and a large number of global patent applications. Over many years, Big Food has developed a strong patent library covering areas such as closed loop technology, smartphone control, secure communications and improved user experience innovations. Our acquisition of these patent assets add significant strength to our overall intellectual property portfolio. Additionally, in the fourth quarter, we entered into a mutual agreement with Medtronic not to assert our patents at each other for certain diabetes technologies. With certain exclusions, this agreement applies to both companies' existing products as well as new products commercialized over the next 7 years and does not permit cloning each other's products. The agreement replaces an earlier one and provides more certainty around covered products and the agreement's duration. Through these efforts, we have created a broad and deep IP moat that positions us incredibly well to build upon our current leading innovative platform and continue to grow our expanding innovation pipeline. Moving on to our international operations. We had a solid year of double-digit revenue growth, even with the ongoing impact of AID competition. We expect to begin to offset those headwinds in 2023 with the launch of Omnipod 5 in the U.K. midyear and in Germany towards the end of this year, marking the beginning of our staged international rollout. We plan to launch Omnipod 5 more broadly internationally during 2024. Lastly, our global manufacturing capabilities continue to support our long-term growth trajectory and serve as another competitive moat. While macro conditions remain challenging, we continue to support our growing global customer base and the strong demand for Omnipod 5. Our operations team has worked tirelessly to secure components and build products ahead of our forecasted demand. We remain committed to providing uninterrupted supply and the highest quality product to all our global customers. In closing, the fourth quarter marked a terrific end to a remarkable year of strong financial performance and operational achievements. We have so many exciting opportunities in the years ahead, and the entire Insulet team remains committed to executing our mission and strengthening our long-term growth trajectory. I will now turn the call over to Wayde.

Operator:

[Operator Instructions] Our first question comes from Robbie Marcus from JP Morgan.

Jim Hollingshead:

I'll start with that, Robbie, it's Jim. Thanks for your congrats, by the way. I'll start and then either way or Brent might want to add color -- we're very bullish on Omnipod 5. There's -- obviously, we're so strong out of the gate here. And as Wayde talked about in his prepared remarks, and we talked about last quarter, there are some things going on here with starter kits, and so it's hard for us to get a quantitative trend. But in terms of the nature of demand, we think it's really strong, and we're really bullish. Omnipod 5 is going to be such a revolutionary offer -- it's such a great experience for customers is delivering such great results that we think demand will continue to persist for the long -- not just through '23, but for the long haul. But I'll invite Bret or way Bret and Wayde to comment.

Bret Christensen:

Ravi, I'll just pile on to since you asked about new starts. MDI is probably the biggest indicator of it. So is waiting Jim Bill said record MDI, record competitive conversions, record overall new starts. The MDIs, we think, is absolutely sustainable. But also, remember, we were still optimizing things in Q4. There were some speed bumps with the onboarding process. access was not maximized, but did get to 90%, which mirrored our our new starts for the quarter. And then we are just really starting to promote Omnipod 5 in earnest, and you'll see some DTC rolling out. So from my standpoint, I think MDI growth can absolutely sustain throughout the year.

Jeff Johnson:

Congratulations on the quarter. Just wanted to ask a question, I guess, on the international launch of Omnipod 5. Obviously, we've now got a couple of markets that we know is coming into here in the second half of this year. Jim, maybe you can just level set us again. I know there's some stricter restrictions on the warranty periods in some of these markets. You're going to have to pursue reimbursement in some of these markets. There's cloud-based data regulations, you're waiting their way through. But I'm going to tell you, I mean over here at ATTD, it was helpable yesterday, the interest in 05 to the point that I was a little worried for Dr. Li with some of the feedback from some of the doctors just on how much they were battling to get her to commit to launching 05 sooner in a lot of these countries in that. I mean there is true interest as you guys, I'm sure, well know. So how fast can new patients start MDI win competitive converts, those kind of things ramp in the international markets relative to what we've seen so strong here out of the gate in the U.S.

Operator:

Our next question comes from Jayson Bedford from Raymond James.

Bret Christensen:

Jayson, I'll take that one. This is Bret. It's -- there could be, but it's not in the same way that you might see with other companies because remember, we do have a Part D indication from CMS, which means all of our Medicare business goes through the pharmacy channel. Medicaid business goes through the pharmacy channel. All Omnipod 5 business goes to the pharmacy channel. So really, there's not a ceiling, except for the fact that we do still have DME contracts with our legacy product which, of course, we announced we will phase out at the end of the year and then a little bit with DASH. But outside of that, if you just look past those products with Omnipod 5 and beyond, there really is not a ceiling to the volume that we get it in the pharmacy channel is all of Omnipod 5 will go through the pharmacy channel and all Medicare, Medicaid. So we're going to be much higher than I think most companies in diabetes don't know if we'll ever get to 100%, but don't see a ceiling that prevents us from getting there.

Larry Biegelsen:

Congratulations on a really strong quarter here. I wanted to shift gears and ask about the basal-only pod. You've submitted the 510(k). When do you expect approval, mid-'23? Is that reasonable? How quickly do you expect to commercialize it do you expect a similar kind of LMR to what we saw with Omnipod 5? And what kind of contribution are you expecting this year and next year? And just lastly -- I'm sorry for all the questions. Who is the sweet spot for this product, which patients do you think are ideal Thanks, Larry. I'll start -- I'm going to start with the back end of your question and ask Bret to comment on the front end of your questions. We think the sweet spot customer is a person with type 2 diabetes who is currently doing daily injections or it has not started daily injections. And so because they've been putting it off because they have a needle phobia or the Cetin convenience are trying to do it or they are on daily injections, but they're missing their daily injections because they don't like doing it. I mean so what basal only does is it gets upstream in the patient progression for people with type 2 diabetes. And people with type 2 diabetes as a general rule, have a lot going on. They have a lot to manage. And so we think there's real power with that customer at that stage of transitioning into or having just casting into insulin usage where we can really radically simplify their experience, make sure they get their daily insulin with high convenience, ease of use, no felt needles. We think there's a lot of power in it. The research we've done shows that there's power in it, and we expect it to really need a need in that part of the market. And then importantly, those customers will use Omnipod, the Omnipod platform, they'll get used to the on-body experience. Almost every person with type 2 diabetes who needs insulin, progresses in their needs for insulin and they need -- they go from they go from, say, once-daily basal to intensive insulin need, which is a basal-bolus which is Omnipod 5. And so we're moving upstream with an offer that genuinely simplifies the experience for those people. But then gets them ready to transition as their needs transition on Omnipod 5. And Bret, you might -- if you could get the other part of Larry's question, that would be great.

Operator:

Our next question comes from Matt Taylor from Jefferies.

Jim Hollingshead:

Thanks, Matt. I'll start with that. The first thing is we're thrilled to see innovation in the diabetes space. That's why we get out of bed every day -- we want to help people with diabetes -- we want to make sure they get the care they need. We want to simplify their lives, we want to improve their outcomes. And so to see a lot of companies innovating in this space, whether it's drug companies, device companies, data companies. We're really happy to see that kind of innovation for the same people we're trying to help. And so that's all a positive. In terms of all the -- all these new drugs, it's early days to see. I mean, there's been -- obviously, there have been a lot of noise and results in the market around it. I think it's early days to know how they will impact the progression, really, they're aimed at people with type 2 diabetes and they may or may not impact the progression of disease. I think if you look at some of the clinical studies, what you see is, in many cases, the people in the clinicals for those drugs were actually also insulin users, which is an interesting dynamic. But what I keep coming back to is there are 0.5 billion people on the planet with diabetes. Most of them have type 2 diabetes, -- everywhere the Western diet goes, type 2 diabetes follows. And so it's a massive unmet global medical need. And I don't think it's going to have a material impact on our business. There's so many people for us to help. It's a massively underpenetrated market. And as happy as we are to see people get helped with new innovations, our goal is to continue to innovate our platform, and we think there will be more than enough people for us to sustain quite a lot of growth as we help them.

Operator:

Our next question comes from Travis Steve from Bank of America. I did want to ask about the patents. -- been 11 movements in the patents on your side lately in the last few weeks. So is that more about protecting the current portfolio? Or is it more about building a pipeline -- are you expecting the space to get more litigious over the course of the next 2 years? And then I also wanted to ask about the -- I think you heard you leverage in leverageable investments, and I know that how you thought about kind of margin kind of beyond 2023, if you can get back to the kind of normal couple of hundred basis points of margin expansion.

Wayde McMillan:

Jim, I could pick up on the margin piece of the question. And so Travis, as you said, we've been committed to margin expansion. -- and we've had to hit pause here for a couple of years, and that's mainly driven by the macroeconomic pressures that many businesses have felt. And from an investment strategy standpoint, we had a choice to make, and we decided that instead of reducing our investment in commercial expansion and research and development, that we would continue to invest through this inflationary cycle -- and even though we're paying higher cost for components and it's putting pressure on our gross margins, in addition to some of the business model challenges like with Omnipod 5 at a slightly higher cost and our U.S. manufacturing facility taking some time to hit an inflection point and still a higher cost facility for us. We decided to continue to invest heavily in our leadership position, and that is just because of this large market opportunity that Jim just referenced. And we've got a really strong leadership position to build on here. and we want to make sure that we're as best positioned as possible. And then you're right, Travis, we included in our prepared remarks, that continued commitment. And we think that given the investments that we're making up till now and through 2023 will put us in a position to start to leverage gross margins and operating margins again starting in 2024. We haven't put a number on it yet or given guidance yet. We're just confident that we're in a good position with the investments we're making now, both in the U.S. and internationally and across our operations to start to leverage again in 2024.

Bret Christensen:

Josh, I'll take the first part of that question and I can let Wayde comment on guidance. So the 15% to 20% that we referenced, -- that's a percentage of all new starts. So new starts for us are new to brand, never been on Omnipod. And those are -- so those are truly coming from either MDI or a competitive to pump, and that's the percent of all new starts that were type 2 for us. So historically, that's been as high as 40%. It's a lower percentage today, but only because the Omnipod 5 numbers are so high. And for the second half of this past year, we've been spending a lot of time in the field speaking to physicians about Omnipod 5, educating the staff, explaining the algorithm, helping patients get on board. And so a good portion of our field time has been devoted to the launch of that new product. But the raw numbers type 2 patients new to Omnipod are really not that different. It's just the percentages are down. We think the offering is fantastic. We look forward to this year where now that physicians are comfortable with Omnipod 5 or writing prescriptions that we can start to have a portfolio sell in the field and start to talk about the type 2 offering with DASH and the value that Omnipod firing. So it's still a fantastic opportunity for us that is really, really underpenetrated and we're excited about.

Margaret Kaczor:

I wanted to maybe talk a little bit about the volume benefits that you guys have had and part of it is the retail pharmacy part is a just the upgrade from older generation Omnipod. So if we take those 2 individually, you've got 80,000 retail pharmacies in the U.S. should all of them have 05 as of what you've seen to date, which ones do? And I guess, how is throughput there? And then similarly, in terms of the volume benefits of upgrades, where are we right now within that process if you guys could us kind of even a rough percentage and whether or not that should impact the '23 numbers at all or guidance?

Bret Christensen:

Yes, Margaret. We have talked about the 85,000 or so retail pharmacies in the U.S. And we don't report out on how many of those pharmacies have distributed Omnipod, but we do get that information from IQVIA is obviously it's substantial. But the reason is -- I don't think it's that important because what's really important to me is how many pharmacies have access to 75 and can dispense Omnipod 5? And the answer to that is really almost all of them because we've done a really good job building the channel out. We've got product with all the major wholesalers and those wholesalers supply Omnipod 5 to the pharmacy. So -- as far as the 85,000 retail pharmacies as far as the are there and how much Omnipod is on the shelf, it's really not that much because when a physician sends a prescription to a pharmacy, it's about 24 hours that a wholesaler will send Omnipod to that retail pharmacy. In most cases, that's how it's happening. In some cases, those retail pharmacies do stock Omnipod when they know they've got regular Omnipod customers picking up their product every month. But the channel is really strong. And the reality is that most of those pharmacies have the ability to distribute Omnipod.

Chris Pasquale:

I was Hoping you could provide some more detail on when you think you could have G7 integration. Is that something we should expect in the second quarter -- and then the lack of an iOS app has really been sort of an afterthought in not successful the 05 launch has been, but you've been working on it for a while now. Is that something we should expect in the next quarter or in '23? Any clarity there would be great. Thanks.

Operator:

Our next question comes from Kyle Rose from Canaccord Genuity. This is Caitlin on for Kyle. What's the full impact of pricing in 2023, including the upgrades of everyone to DASH and '05? And can you break that out from a volume mix perspective?

Operator:

And we have time for one more question. It will come from Matthew O'Brien from Piper Sandler.

Wayde McMillan:

I didn't leave a lot on the bone there, Matt. That's a broad question with a lot of areas to answer. I think -- and I got to be honest, I didn't follow the stocking math that you were doing there that we don't have anything that we track in the order of magnitude that you were talking about there. So let me try to get at, I think what the question is getting at, which is how are we continuing to grow the business and in particular, in the U.S. And because we don't have any hundreds of millions, normalization items that you're talking about. From time to time, we will call out increases or decreases in the channel. And so just to confirm, for 2022, -- we had nothing in Q1. In Q2, we had $7 million channel increase as we started to roll out Omnipod 5. And then here in the third and fourth quarter, we've called out this additional script benefit, $16 million in Q3 and $15 -- so when you normalize for those, we're talking about a 4% impact in the U.S. And so not to the orders of magnitude you were getting at, but something that we certainly want to be aware of because most of that volume benefit is being driven by converting customers. And just so everybody is aware of what this dynamic is that we keep talking about. It's -- as we launch Omnipod 5, the new customer will get a starter kit, which is their personal diabetes manager as well as their initial order of pods. And if they also get their first pharmacy script order, they will get, say, for example, 2 months in September. So September, they get their initial starter kit and they get their first order. What we're curious to see is how that would impact our second quarter of Omnipod 5. And what we did see is a good percentage of customers actually skip an order and use up those pods. And so we did see a benefit as well, again, for people getting 2 scripts in Q4. And when you net the 2 of those out, it was approximately $15 million. And so that was our estimate. If you -- again, if you normalize for those, we're talking about a 4% impact and that's why we're calling it out. If you go to the share -- part of your question then, Matt, was, are we taking share? Absolutely. There's no question that we're growing at accelerated rates in the United States, way above market growth. And as Bret and Jim highlighted earlier in the call, we had a record number of competitive switches, which means, in the past, we used to get about 20% of our customers from competitive switches, 80% from multiple daily injection. You see in the metrics we provided here, that's now 65% MDI, 35% competitive switches. Both of those are record numbers, record number of competitive switches, record number of MDs coming new customers, new to pump therapy coming on to our products. So we do think that we'll be a share taker for some time to come. We've talked about a lot of the things on the call today that we think are continued drivers of our business that keep us in the leadership position. So I'll probably leave it there, Matt. I look forward to catching up with you after the call and see if we can clear any other parts of your question.

Steve Lichtman :

Congrats, everyone. You mentioned on DTC that you'll be putting the foot down here near term. Can you talk a little bit about what your plans are there? What form will it take? When are you planning on kicking that off? And do you see that as a particular opportunity once you get a type 2 label for Omnipod 5?

Operator:

This will conclude today's Q&A section. I would like to turn the conference back to Jim Hollingshead for closing remarks.

Jim Hollingshead :

Thanks, Deb. That's a real-time catch everybody. So I hope everybody stayed on the call long enough to get that update. So thanks, Deb. And thanks, Julian, for shepherding the call. And more importantly, thank you, everybody, for joining us today. These are remarkable and really exciting times at Insulet, and we are just getting started fulfilling our mission to improve the lives of people with diabetes around the world. Omnipod 5 is clearly transforming the diabetes landscape, and we continue to deliver strong financial performance and strengthen our global competitive position. So thank you all, and have a great evening.

Operator:

Good afternoon, ladies and gentlemen and welcome to the Insulet Corporation Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session, and instructions will follow at that time. 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 of Investor Relations.

Jim Hollingshead:

Thanks, Deb. Good afternoon, and thank you for joining us. The third quarter marked a continuation of our strong revenue performance, new customer growth and strategic progress. We increased our full year revenue outlook and the entire Insulet team continues to execute at a high level and advance our mission. We're focused on finishing the year strong and carrying sustained momentum into 2023. In Q3, we achieved several notable milestones. We once again delivered record U.S. and global new customer starts which helped us achieve a remarkable 42% year-over-year growth in the U.S., our highest U.S. revenue growth rate in at least a decade. This was driven in large part by an incredible start for our U.S. full market release for our revolutionary Omnipod 5 automated insulin delivery system. The feedback on Omnipod 5 from our Podders and their caregivers continues to be fantastic. And of course, we are far from finished. We continue to work to expand access to Omnipod 5 as well as increase the total addressable market for our Omnipod platform. During the quarter, we expanded Omnipod 5's indication down to H2 and secured CE Mark. We also continue to drive growth with Omnipod DASH, both in our international markets and in the U.S., especially in the type 2 diabetes market. Building on that, we are incredibly excited to announce that we have developed and will soon submit a 510(k) for a new basal-only PODD to accelerate our future growth in type 2. It's a clear indication of our commitment to further innovate for people with diabetes and expand our addressable market, and I'll share more about this in a few moments. We could not be more excited about what's yet to come for insulin and our customers. The market enthusiasm for Omnipod 5 is greater than even we anticipated. Demand is coming from all across the market. Our core target market of MDI users is growing ahead of our own forecast and continues to be the greatest source of new customers for us. But we are also seeing significant increases in customer conversions. Current Omnipod users are converting to Omnipod 5 at a much higher rate than we saw with previous product launches, demonstrating that even current Podders see Omnipod 5 as a breakthrough offering. In addition to those coming from MDI, we are seeing significant volumes of customers converting from tubed pump technologies. And in many cases, we are winning back customers who had once been Podders. Thousands of people returning to us and adopting Omnipod 5. And this strong demand also comes from all age groups. We achieved record new customer starts with both adult and pediatric users. In Q3, after only two months of its full market release, Omnipod 5 represented over 80% of U.S. new customer starts compared to over 25% in Q2. This validates the power of Omnipod 5 and the competitive advantages it offers. It is the only tubeless AID system with an adaptive algorithm that works as designed right out of the box, delivering high time and range. The algorithm then learns from each patient's specific usage and automatically personalizes care over the first 2 or 3 pods. Because of that personalization, we are seeing consistent reports of increased time and range, reduction in A1c and markedly low hypoglycemia. It is the combination of clinical effectiveness and our unique Omnipod platform that is fueling our success. As a result, our historical 80-20 mix of those coming from MDI and traditional tubed pumps is changing. In Q3, we saw an estimated 60-40 split due to significantly more competitive takeaways. We're excited by our early progress and are gratified to see how Omnipod 5 is transforming diabetes management. We have long believed that superior innovation, offering simplicity, discretion and improved outcomes, will drive adoption in our large underpenetrated markets. Omnipod 5 is demonstrating this to be true. Omnipod 5 offers more than any other AID system on the market, including a number of market firsts. It's the first pod-based AID system, the first fully compatible phone-controlled AID system the first system that no one has to plug in to access data and the first AID system with a predictive algorithm, our smart bolus calculator, that directly incorporates not just blood glucose levels, but also blood glucose trends. And the stories are inspiring. We recently heard from a health care practitioner who has patients on Omnipod 5, several of whom called her related about the dramatic improvements in their diabetes management. This HCP said she and her patients are amazed with our system. And for the first time, they have been in range 100% of the time. They called their experience "life-changing". It's clear Omnipod 5 is making it easier for our customers and their caregivers to manage diabetes, and it's simplifying the interaction between patients and their HCPs. We expect Omnipod 5's contribution to further accelerate growth as we gain additional market traction and increased commercial coverage. To that end, we've made significant strides with access. And by the end of Q3, we secured coverage for over 80% of U.S. covered lives for Omnipod 5, well ahead of our initial expectations. We have also experienced a few challenges that we are hitting head on. The incredible market response has placed pressure on our onboarding capabilities, particularly incoming call volumes. Additionally, the voluntary medical device correction we initiated last month for our Omnipod DASH personal diabetes managers in response to the battery issue we identified also slightly elevated call volumes. Given this, we are in the process of carefully reviewing the early field data on the Omnipod 5 controller to ensure it meets our high expectations for safety and user satisfaction. We have received a few inbound calls highlighting a potential issue related to charging the controller. Our work is ongoing and if we ultimately decide to take a particular action, you can expect it to be swift and transparent. Every single aspect of the Omnipod 5 experience is important to us. We are investing to increase our onboarding and call center resources, and are already seeing significantly improved response times. We're driving customer growth through our access and awareness efforts. We have a differentiated business model and a unique leadership position in the U.S. pharmacy channel. Both make access to our technology extremely simple, efficient and affordable, which further differentiates Omnipod during challenging economic times. We have long focused on improving functional access for our customers. As a result, the vast majority of our U.S. customers continue to pay less than $50 a month through the pharmacy channel for both Omnipod DASH and Omnipod 5, and the average co-pay is less than $50. Consistent with our commitment to drive expanded access, we are proud to offer our technology at a similar cost to multiple daily injections, while also delivering improved outcomes and quality of life. We also remain focused on the benefits our model provides to physicians and payers. Our pay-as-you-go model makes access easier and more affordable for customers while also eliminating lengthy lock-in periods. At the same time, it provides a superior value proposition and is less expensive for payers. We eliminate the large upfront costs that are common in the durable medical equipment channel with traditional tube pumps, which make those offerings far more expensive, especially since individuals in the U.S. change insurance plans every couple of years on average. In addition to growing our strong position in the type 1 market, our initiatives are also key drivers of our leadership in the type two space. People with type 2 diabetes are becoming increasingly comfortable with an on-body tubeless device, and we offer an unmatched user experience with Omnipod DASH and classic Omnipod. We were pleased with the recent local coverage determination proposal that would provide CGM coverage for basal insulin patients. This proposal, if approved, increases access to CGMs. At the same time, CGM awareness is rising, and we are well positioned to capitalize on this market expansion opportunity. Today, we're a leader in the type 2 space, and now we are taking this a step further with another novel innovation. We have developed a version of Omnipod specifically designed to treat type 2 patients on basal-only therapy, which we plan to submit to the FDA in a few days. It should greatly improve both the user experience and adherence by completely removing the use of needles. It is the perfect product for people with needle phobia and others who may struggle with adherence to daily or weekly injections. The total addressable market for our basal-only pod is estimated to be approximately three million people in the U.S. alone. It leverages our unique Omnipod platform, including auto insertion, comfortable wear and affordable access through the U.S. pharmacy channel, creating a winning first-of-its-kind product for this population. The basal-only pod is incredibly simple to use and requires no controller or phone application to deliver a fixed rate of rapid-acting insulin for 72 continuous hours. This new innovation allows early entry into the type 2 treatment pathway, gets patients comfortable with Pod Therapy and creates a clear pathway for them to adopt other Omnipod product offerings as their insulin needs evolve. Pending regulatory clearance, we plan to begin U.S. commercialization in 2024. Our basal-only pod is expected to drive TAM expansion and revenue growth for years to come while further improving the lives of people with diabetes. This innovation builds upon our leadership position in the type 2 market. During the third quarter, individuals with type 2 represented an estimated 15% to 20% of our U.S. new customer starts. As expected, this percentage is declining given our success driving Omnipod 5 adoption in the type 1 market. However, we remain confident that the simplicity of our Omnipod 5 platform represents a significant competitive advantage that will allow us to expand our customer base in both the type 1 and type 2 populations. As a reminder, like all AID systems, Omnipod 5 is currently indicated for use only for people with type 1 diabetes. However, the number of individuals with type 2 adopting Omnipod DASH remains very strong. Serving the type 2 population is a priority for us, and we are confident the combination of our form factor, access model and innovative product portfolio will continue to drive customer adoption. Another area of focus is advancing our clinical efforts. Our Omnipod 5 randomized controlled trial is progressing well. We're on track to complete enrollment of 120 participants in the U.S. and expect to soon begin enrollment of up to 80 participants in France. We believe the results will demonstrate Omnipod 5's benefits compared to non-AID pump use with CGM. We are confident this will strengthen our position to secure broad reimbursement and pricing for Omnipod 5 in our international markets. As I mentioned, we were excited to receive our expanded indication down to age two for Omnipod 5. We are a leader in the pediatric segment and are confident Omnipod 5 will truly change the lives of these young children and their families. Based on our positive Omnipod 5 type 2 feasibility study results, I'm happy to share that we expect to begin a type 2 pivotal trial for Omnipod 5 in 2023. We continue to advance our robust innovation pipeline with a focus on future AID offerings as well as building our digital and data capabilities. Our iOS integration work is ongoing as is our development work to integrate Omnipod 5 with DexCom's G7 and Abbott's CGMs. We remain committed to building on our product offering and also providing CGM of choice to our customers. Our investments in R&D and innovation are a strategic priority that we fully expect will drive sustainable long-term growth and continued value creation. Our priorities in this area are clear

Operator:

[Operator Instructions] And I show our first question comes from the line of Jeff Johnson from Baird.

Jim Hollingshead:

Sure. Thanks, Jeff. It's really early days. So let me start first and foremost with for us, patient safety is absolutely the top priority, right? And in terms of the complaints we're seeing on the charging of the Omnipod 5, it's a small number of complaints. At this point, we're looking at like a couple of dozen complaints, but we're looking at it really closely. And we don't yet have enough data to be able to understand exactly what's going on and what the risk levels are. And so we're looking at it. We're going to fully investigate it. And if we have to take any kind of action we're going to be -- as I said in the prepared comments, we're going to be really fast. We're going to be completely transparent with our customers, completely transparent with investors and obviously with the FDA, right? So I think it's too early to say, and we're looking at it really closely.

Travis Steed:

Congrats on a really great quarter. I guess just to focus on -- a lot of things to ask, but to focus on the dynamic if you're talking about more to pump patients coming your way, I think you even said the word thousands. We'll have a little more color there. Do you think this is like a onetime bolus where you think people are just waiting for Omnipod 5? Or do you think this is a more sustainable trend where the 60-40 can hold? And then how that carries over to 2023. I think the Street's modeling 20% growth. I would think the U.S. could do a little better than that and OUS may be below that?

Bret Christensen:

Travis, it's Bret. So as you know, for years, we've talked about this 80-20 split where 80% of all of our new starts come from MDI. That has been our focus. It will continue to be a focus. But as Jim said, we don't have to -- or patients don't have to make that choice now between the superior form factor of Omnipod and an AID system, so they can get it all. And so it's not surprising to us the split changed from 80/20. We'll see where it settles in. We don't know yet if that -- if there's a bolus of to pump users that wanted to try Omnipod or if it's going to settle in there, it's likely to settle in somewhere different than 80-20, but we're excited to finally be offering a choice to those that chose an AID system, but really preferred the form factor of Omnipod. So we'll see where it settles in, in the coming quarters. But again, it's really an exciting development that we're getting these two pump conversions.

Operator:

And I show our next question comes from the line of Robbie Marcus from JPMorgan.

Bret Christensen:

Robbie, I can take that one. This is Bret. So as far as the macro trends in the field, we're not feeling it. We're in the midst of an Omnipod 5 launch, demand is incredibly high. The team is excited and patients are wanting to started out 2.5. I can't say that we're feeling any of the effects of a lingering COVID or any sort of macro inflationary recession-type concerns. But as you mentioned, our business model is different. And we've spent years planning a scalable, affordable business model that would allow for patients to upgrade from existing Omnipod products and start. And so we've got very low co-pays that remained below $50 on average, with the vast majority of all co-pays in the pharmacy channel being less than $5. We've said that with DASH and really the Omnipod 5 co-pays almost mirror DASH exactly where we price Omnipod 5 at parity. You've got added to the contracts with payers and pricing is very similar as far as out-of-pocket goes for our users. As far as basal-only pod, I don't know if that's the question you're asking about out-of-pocket and co-pays. We're not there yet. We'll be building reimbursement and having discussions with payers now that we've mentioned this basal-only pod. But we do have some basal usage with our existing products, primarily DASH is type 2 axis. It's very good for DASH, and they'll take DASH, they'll customize it and use it as a basal-only pump. And that reimbursement is the exact same for type 1s and type 2s for basal and for insulin intensive. So more to come on the commercialization plans of our basal-only pod, but we'll be building reimbursement next year with that product.

Margaret Kaczor:

I wanted to follow up, I guess, in more detail even on that basal specific pump. What are the features that we're going to look for there? Is this a mechanical pump? Is this a smart pump? Is it going to have the closed-loop features? Is this going to be maybe in the pivotal Type 2 trial or not? Or is it going to be a separate trial together?

Jim Hollingshead:

Yes. In fact, I'll just tag on to Bret's comments. That's a key thing for us in terms of growing the TAM. We obviously -- we have the leading offer right now for patients with type 2 diabetes with Omnipod DASH, as Bret just referred to. But with the basal-only pod, we'll be getting much earlier and much further upstream into the journey of patients. And because it will be the same core Omnipod platform as a product, patients will get used to using our Omnipod product. And then as their insulin needs change, it creates the pathway for them on to our other offerings. So it's a great experience for patients. We're going to dramatically simplify the use of basal insulin for those type 2 patients. And then those customers as they progress in their therapy will have a natural pathway and/or other offerings.

Larry Biegelsen:

I'll echo my congratulations on a really strong quarter here. Wayde, I wanted to focus on the U.S., the $60 million, I think, in onetime items in Q3, do you expect more in. And I'm trying to reconcile, if I back that out, we, I get to about 33% growth in Q3, ex onetime items, why are you guiding to 27% to 30%, for Q4 a little bit slower. And how do we put that into the context of the 2023 color you gave, if I heard you correctly, low 20% range for U.S. Omnipod growth next year, given the Q4 guidance that you've given?

Operator:

And I show our next question comes from the line of Caitlyn Cronin from Canaccord Genuity.

Bret Christensen:

Kyle, thanks for the question. So we've got a really strong type 2 offering today, as you know, with access that mirrors type 1 in the pharmacy channel. So start there. Got a really good product with DASH. It's got an indication for all insulin requiring patients, great coverage. We're going to add to that offering with getting an indication for Omnipod 5 as we've started that trial, that clinical. And we're going to add the basal-only pod in 2024. And we think what that does for us is it does allow us to capture patients at the moment they need insulin. It's too early to say what the commercial model will look like for that product. But we know we can capture some of it today with just the existing sales force and team that we have as many of those patients do reside in endocrinology and we do call on a small number of primary care physicians with the existing sales teams. So more to come there. I think it does just depend on how quickly we can build reimbursement, how quickly that launch goes and then how we start to think about primary care and capturing patients where they reside. But we'll talk more about that probably later in 2023. There's a lot to consider there. It's really exciting. It more than doubles our TAM, with more than 3 million patients in the U.S. that are basal-only. So we're excited about it, and there's a lot to consider as far as how we commercialize it in 2024.

Jayson Bedford:

Just 2 questions that require quick answers. On the '23 guidance, just kidding, Wayde. I know it's not guidance, but just what's the expected FX impact on revenue? And then second, on the basal-only pod, you mentioned submitting in the next few days, but I think your commercialization not until '24. So one, I just want to know, is it a 510(k)? And second, why the big gap between selling and commercialization?

Jim Hollingshead:

So on Basel, yes, it is a 510(k). we were submitting it imminently. Just a couple o. We don't want to get out in front of time lines on approvals. So we don't want -- don't want do that publicly. We'll let you guys know as we get approval and what we're going to do. And then as Bret was saying, there's work to be done on the commercialization plan. And I think the reason for that is it's a new-to-world offer. It's not a new pod. It's an Omnipod platform built on our core offering. But the patient set is new, the channel might be new. The call points might include new call points. There's just a lot to consider in the commercial offering that we need to work through. And so we don't want to jump the gun on talking about these things until we have more certainty.

Steve Lichtman:

Just a couple of quick follow-ups. One, can you give any more color on timing of iOS? And two, relative to basal-only, I apologize if you mentioned this, but do you anticipate that being a lower COGS device given maybe a different price point as you go into that channel?

Wayde McMillan:

Sure. On the pricing and pricing, which we're not.

Operator:

And I show our next question comes from the line of Chris Pasquale from Nephron Research.

Bret Christensen:

Yes. Chris, great question. The reimbursement today for basal-only patients, the answer to that is there really is no difference between insulin-intensive type 2 patients and basal patients as far as reimbursement goes. However, Omnipod was not built with basal only in mind. And so while there are some patients using it for basal only, just wasn't really built that way. And again, there's complexity with PDMs, there's complexities with settings. And so if you're going to use a product like DASH today, although it's reimbursed, you effectively have to kind of program DASH to say, look, we're going to get rid of all the mealtime features, a lot of the features and just use it as a basal-only product. So not ideal for basal-only wasn't built that way. It does seem complex some to like a primary care physician, that simply wants to write a prescription, which is what they would do with basal-only pod. And so while the reimbursement is there, we plan on changing it because it will be a different code. And so it will be a different reimbursed rate at a different price. We just haven't -- we're just not ready to talk about that. We've got work to do before we get confident in talking about what that will be, what we'll contract for. As far as the CGM goes, that's a lift for us because, as you know, CGMs provide the user with tremendous information that requires them to act. It shows physicians' time and range. And that's going to be really valuable for driving demand for a product like basal-only pod, but our initial thinking is we really don't want those 2 products to speak to each other because it does add complexity as you mentioned. And so the thought on basal-only pod to keep it as simple as possible as featured as possible. We want a position to write a prescription and that really is it. And so that means no communication with no reports, no settings. That's what we're thinking about today. And we think that's the best way to go broad and capture that marketplace.

Marie Thibault:

In your comments, you mentioned that current Omnipod users are converting to Omnipod 5 at a much higher than previous launches. I'm just curious what portion of that installed base has converted at this point? And what portion you think could eventually convert over time? And congrats on the great quarter.

Operator:

And our next question comes from the line of Matthew O'Brien from Piper Sandler.

Jim Hollingshead:

Thanks, Matt. Look, I think as we said earlier in the call, customers no longer need to choose. So a number of customers have forever been drawn to the great simplicity and elegance and ease of use of the pod form factor. And with Omnipod 5, we're offering a fantastic AID algorithm. And so to get AID therapy and the preferred form factor, to get into the channel they want, to get it with the economics they want. And so it's actually not surprising to us to see a number of people switch from tubed pump offerings. The offering is just so easy to use and it delivers great clinical outcomes, incredible ease of use and great economics. And so we've had -- we were pleased to see the rate of switching in the quarter. In terms of forward look, I think we're going to have to wait and see how it plays out. But as I said earlier, I don't think that this -- the Omnipod 5 offering will become any less appealing either to customers coming from MDI or to customers who might be using the tooth pump who went there because they wanted an AID offer. So we're very confident in the robustness of the offer.

Unidentified Analyst:

I guess there's been a lot of questions on the U.S., which is looking great. I wanted to ask an international one. You mentioned a few catalysts there, obviously, the CE Mark, but some evidence development that's going on there as well to expand coverage. I was just hoping you could kind of frame how you expect those kind of things to help your international growth next year and going forward?

Operator:

And I show our last question in the queue comes from the line of Matt Miksic from Barclays.

Bret Christensen:

Matt, thanks for the question. So as we sort of highlighted, we are the leader in driving penetration from MDI, and that has always been our focus. So the bulk of our new starts. And for us, a new start is the first time you start on an Omnipod product. We don't count renewals. We don't count other shipments. If you start on Omnipod, new start once in your lifetime. And our focus has always been MDI, and that's where the 80-20 number has come from, where 80% of those new starts have come from MDI. This quarter, we did see that shift where only 60% came from MDI because we had a bolus of people coming from 2 pumps that we hope continues. And the other -- we've also been the leader in pediatrics. I think you're kind of asking about where our customers come from. Pediatrics has always been our strength. If you think about the form factor of Omnipod 5, very attractive to parents and to children. We lost a little bit with the lack of an AID system where parents were actually forced again to make that decision between the form factor that's perfect for pediatrics and an AID system. Now they don't have to make that. So we did see a lift, a significant lift in pediatrics as a percentage of our new starts this past quarter. We're excited about that. Those are patients that are newly diagnosed that we want to start on Omnipod and want them to use our products for life. So excited about that trend, excited to be beginning to get competitive to pump users. And I think you asked sort of about people coming back. And as Jim highlighted at the beginning of the call, we did see thousands of people this past quarter have come back to Omnipod. So they left us for a reason. Likely that was an AID reason and the lack of. And so with Omnipod 5, they're coming back to that product. We've seen attrition be very stable, and we're excited about what Omnipod 5 does to strengthen retention with our existing users.

Jim Hollingshead:

Thanks, Dalam, and thanks, everyone, for joining us today. These are incredibly exciting times at Insulet as Omnipod 5 is out in the market transforming diabetes management for thousands of people, and that number keeps growing. And we could not be more excited to further expand our addressable market with our new innovation in Type 2 for the type 2 community with our basal-only pod. We've got an incredible team, and with significant momentum and to continue to execute on our mission. Thank you, and have a great evening.

Operator:

Good afternoon, ladies and gentlemen and welcome to the Insulet Corporation Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session, and instructions will follow at that time. 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 of Investor Relations.

Jim Hollingshead:

Thanks, Deb. Good afternoon, and thank you for joining us. I’m excited to be here with you today on my first earnings call as CEO of Insulet. This past quarter, we exceeded our revenue expectations resulting from sustained momentum across our business. We are halfway through the year and the entire Insulet team is executing at a high level. We increased our full year outlook for US Omnipod, delivered record US and global new customer starts, had our second highest new customer starts quarter internationally and meaningfully advanced each of our strategic imperatives. Accomplishing this was no easy task, given the challenging global macro environment that we and other companies are facing. We are incredibly excited to have recently entered full market release for Omnipod 5. And now our differentiated transformative technology is available broadly through retail pharmacies. The results to-date have been amazing. Omnipod 5 is proving to be the game changer we thought it would be. Customer and healthcare provider feedback has been overwhelmingly positive, and our teams are doing a remarkable job executing the launch. Our CE Mark submission review is progressing very well, and we are in the final stretch toward approval. This represents a key milestone in our plan to bring Omnipod 5 to people with diabetes around the world. This approval is one step in our strategy to participate in the international AID market, which is being driven largely by CGM reimbursement. We have also advanced our clinical efforts. Our FDA submission for an expanded indication for Omnipod 5 in the US down to age two is progressing very well, and we are confident in the near-term clearance. The value that Omnipod 5 can deliver to young children and their families is abundantly clear, and we’re thrilled to soon bring Omnipod 5 to this highly vulnerable population. We shared compelling data at ADA, demonstrating how powerful Omnipod 5 can be for the Type 2 insulin requirement population, a market segment that is further adopting Omnipod due to our unique value proposition. And in the Type 1 population, we are currently enrolling for a 200-patient 3-months randomized controlled trial in France and the US to demonstrate superior efficacy for Omnipod 5 compared to non-AID pumps and CGM alone. Lastly, we broke ground at our future Malaysian manufacturing facility, which will strengthen our global manufacturing capabilities and redundancy, as well as support our international expansion strategy. Before moving into a broader view of the quarter on our progress, I want to take a step back and reflect on my first two months as CEO. I was aware of the strength and commitment of the entire Insulet team from my three years on the Board of Directors. Now that I’m CEO, I’m even more impressed. Our global teams are exceptional. The shared commitment to our mission of improving the lives of people with diabetes is inspiring and is pervasive throughout our organization. Diabetes is a growing global epidemic and Insulet’s ability to serve unmet needs and provide improved outcomes has never been more important. It is clear that we have the team, the product portfolio, the innovation roadmap, and most importantly, the passion to improve millions of lives, and I’m excited and privileged to lead Insulet on that journey. Expanding access and awareness are keys to driving our business forward. Despite improvements over the last few years, only a small percentage of people with Type 1 diabetes globally benefit from insulin delivery technology. Access and awareness are important levers that will significantly drive increased penetration over the coming years. We are making terrific progress building awareness and securing coverage globally, including broad coverage for Omnipod 5 in the US. We’ve built a unique leadership position in the US pharmacy channel, which improves functional access for both the Type 1 and Type 2 populations. The vast majority of our US customers continue to pay less than $50 each month through the pharmacy for Omnipod DASH and now Omnipod 5, with many paid nothing. We’ve eliminated lengthy lock-in periods and upfront costs that are common in the DME channel, and our pay-as-you-go model provides easier and more affordable access for our customers and removes risk for payers. And we are delivering this easier access, combined with lower costs, while also delivering an improved customer experience and better outcomes. That’s a winning combination and one that resonates with people using multiple daily injections, a population from which we continue to capture approximately 80% of our new customers. Our pharmacy channel and pay-as-you-go business models also connect with people with Type 2 diabetes. We are acutely focused on making access simple and more affordable, providing an unmatched form factor and generating clinical evidence that supports what Omnipod can do for the Type 2 population. Because the Omnipod offering is so compelling, during the second quarter, Type 2 users represented almost 30% of our US new customer starts. As expected, this is a percentage reduction from prior quarters, because Omnipod 5 is indicated for use with people with Type 1 diabetes, as is the case with all AID systems. Therefore, we expect the mix percentage of new customers to change as more people with Type 1 adopt Omnipod 5. We saw this begin in Q2 and we’re excited to see it continue now that we are in full market release. Nevertheless, we continue to see a strong number of new customers with Type 2 adopting Omnipod DASH, and we remain confident in our ability to further penetrate this underserved population. A major component of our awareness efforts is our direct-to-consumer advertising campaign. We ramped our DTC program ahead of the full market release of Omnipod 5 and have since accelerated our spend. This has resulted in more people wanting to learn about Omnipod 5 and the impact it can have on their lives and those they care about. We expect our DTC efforts for Omnipod 5 will be even more effective than what we have experienced for Omnipod DASH. We are also using DTC to drive awareness for Omnipod in select international markets. Customers love Omnipod 5. That’s because of the number of firsts it brings to the market. It’s the first pod-based AID system, the first fully compatible phone controlled AID system, the first system no one has to plug in to access data and the first with a smart bolus calculator to directly incorporate trends. We’ve heard humbling and inspiring stories from countless customers and we’re just getting started. I want to share a couple of stories we’ve heard from individuals adopting Omnipod 5 and how impactful it’s been for their lives. An individual who had been using an insulin pump for over a decade and recently switched to Omnipod 5, told us that after 10 years of worrying about visible tubes, getting caught on door knobs and dealing with the nuisances of being tethered to his pump. He now spends more time focusing on life. His outcomes have improved, including his overnight blood sugar, and he no longer has to live his life with diabetes top of mind. We also heard from a physician who has lived with Type 1 diabetes for 43 years. He noted that during that time, he’s seen treatment options evolve and change, but Omnipod 5 is the largest leap in improvement he has ever seen. This very experienced physician called our system "remarkable". These two stories are just a small representation of the amazing testimonials we continue to receive from Omnipod 5 users. There’s a common thread that connects all the stories we hear from users. Omnipod 5 is redefining how people manage their disease and it’s making their lives simpler. The impact Omnipod 5 is having is clear and it’s powerful. In Q2, the first full quarter of limited market release, Omnipod 5 already represented over 25% of our US new customer starts. We expect that percentage to accelerate with the US full market release as we now sell through a broader distribution channel, including all of our wholesalers that supply products to approximately 88,000 retail pharmacies. We are also having outstanding success securing coverage for Omnipod 5. Today, we have over 55% covered lives for Omnipod 5, which is well ahead of where we were when launching Omnipod DASH, and represents a significant increase from Q1. Our team has done an amazing job, and we expect to make meaningful progress the rest of this year and into the next. Omnipod 5 is now fully available through retail, specialty and mail order pharmacies to anyone with a prescription and coverage in line with our expected timing. Our limited market release provided key learnings about how healthcare professionals and customers interact with our product on board and virtually trained, all of which are dramatically easier than ever before. Already, the small improvements we have implemented are resonating with users, especially those coming from a tubed pump who transition to a more simplified experience. In fact, one of the key learnings is that, physicians and patients can rely on the automation of the system to do the work for them during the first few days. Omnipod 5 works with the first pod out of the box and then it learns and adapts to personalized care for each individual user, typically within the first or second pod change. This ability to automatically personalize therapy clearly differentiates Omnipod 5 from all other systems on the market. Quite simply, Omnipod 5 eliminates significant burden and shared work between patients and their physicians. Although our target market continues to be MDI, not surprisingly, many of our Omnipod 5 new customers come from competitive pumps and people are loving the experience. The clinical benefits from Omnipod 5 were clearly demonstrated by the Preschool Pivotal Extension Data we shared at ADA that built on the strong results we saw during the study’s initial phase, which were recently published in the peer-reviewed journal, Diabetes Care. During the first three-month phase of the study as well as through the end of the extension phase, patients achieved an average A1c of 6.9% compared to 7.4% at baseline. The data clearly demonstrated these individuals maintained their improved levels through the extension phase. Time in range and percent time in hypoglycemia also showed sustained improvements during the extension phase, demonstrating the durability and power of Omnipod 5 for this critical population. We look forward to receiving our preschool indication for Omnipod 5 this year. The engagement around Omnipod 5 at ADA was really something to see. We met with hundreds of attendees at our booth and held a product theater that was standing room only. It was here where we shared patient case studies and the real-world experience of HCPs who have had remarkable success with Omnipod 5. The overwhelming feedback was that Omnipod 5 clearly stood out as the most robust AID offering. And many of the MDI and tubed pump users in attendance have since adopted our technology. Overall, ADA marked another opportunity to highlight our products and clinical accomplishments that demonstrate how Omnipod can change the lives of people with diabetes around the globe and how important and meaningful our mission is. We are also advancing our innovation pipeline. We’re developing the next generations of Omnipod 5, furthering our iOS development and working closely with our CGM partners, Dexcom and Abbott. Our innovation priorities are focused on growing our addressable market, building our next-generation AID technology, and creating digital and data-driven products to make diabetes management easier for our customers and their physicians. Moving on to our international operations. Our Omnipod 5 CE Mark submission is moving swiftly through review, and we expect approval over the next couple of months. This is an important milestone for our international business as we work to bring Omnipod 5 to people around the world. CE Mark clears the way for us to focus on completing a cloud-based infrastructure that is compatible with local data protection regulations, developing country-specific launch plans, channel and customer experience approaches and seeking reimbursement. Omnipod 5 is a transformative platform, and we look forward to entering our first international markets in mid-2023. We will take a staged approach to entering markets so we can ensure successful launches in each country in which we operate. In addition to bringing Omnipod 5 to global markets, we continue working to enter new markets and recently launched Omnipod DASH in the United Arab Emirates and Saudi Arabia. Omnipod is now available in 24 countries, and we’re building local teams and advancing our regulatory and reimbursement goals. These efforts will serve us well as we bring Omnipod 5 to our international markets and strengthen our competitive position. Lastly, the global supply chain and inflation, each presents significant challenges to Insulet as they do for most manufacturers across a range of industries. However, we continue to navigate these headwinds and increase our resiliency, ensuring ample product supply, including supporting the Omnipod 5 launch and the needs of our growing global customer base. We are mitigating supply risks by securing components well ahead of our capacity needs. While this comes at an increased cost that will have a near-term impact on margins, we are taking the appropriate steps in these turbulent times to ensure uninterrupted supply for our current and future customers. The footprint of our global manufacturing operations is one of our many competitive advantages, and we advanced our efforts to further strengthen our capabilities. We recently broke ground at a new manufacturing location in Malaysia, the future facility located in Johor Bahru represents an investment of approximately $200 million over the next five years, will provide approximately 400,000 square feet of manufacturing space and house more than 500 full-time employees at capacity. Our regional sourcing strategy includes the use of local suppliers for components and we have already outlined our plans to utilize environmentally responsible and resource-efficient materials in our building design. We expect to begin production at this new facility by the end of 2024. This facility supports our operational strategy to increase our global manufacturing redundancy, build our global talent base and support future international market expansion efforts. In closing, the second quarter marked a number of financial, commercial and operational milestones. Our entire Insulet team continues to execute with an unwavering commitment to our mission and to our customers. We are proud of all the work and accomplishments we achieved this quarter, and now we are setting the stage for sustainable long-term growth. I’ll now turn the call over to Wayde.

Operator:

Thank you, sir. [Operator Instructions] I show our first question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

Wayde McMillan:

Hi, Larry. So for our margins, as you mentioned, we stepped them down this quarter for both some micro and macro issues. You know I think as has been well publicized across many companies, the macro environment is tough, both from an inflationary and foreign exchange, and we’ve felt that as well. We also have a couple of things that impacted us in the quarter. You saw us talk about our warranty increase on our PDMs as well as some of the volume that we’re increasing in our Acton facility. And then just a highlight for folks. You saw us take down our gross margin guidance for drug delivery. That’s a higher margin product line. And so when we reduce revenue guidance there, that’s a headwind for us. And then we’ve increased our volume for Omnipod 5. Our expectations for Omnipod 5 are growing even above what we originally thought. And cost of goods sold are slightly higher for Omnipod 5 as well. So, although that’s a good thing that we’re growing volumes with Omnipod 5, it is a headwind to our cost of goods sold. So that creates about a 2% impact to gross margins, and that really is what drops through to operating margins. We also have other inflationary headwinds throughout operating expenses, given the wage environment as well as services and other increased costs out there that most companies are dealing with. So that’s the reason that we changed our guidance. It’s a little too early to tell what expectations will be beyond 2022, we have to monitor closely the macro environment here. What we do know is that, we are paying higher cost for inputs, raw materials and components to build capacity. And you can see it in our inventory as we continue to grow inventory, our operations teams are doing a great job of identifying capacity and growing inventory in this environment, but it is coming at a higher cost. And with the inventory that we’ve built, a lot of that is deferred over a six-month period of time. And so that’s already starting to impact what our gross margins will be next year. So, although we’re very happy to be building inventory and developing extra capacity, it does come at a higher cost. And so that’s going to impact us for some time. But we’re not going to look out beyond that at this point, Larry. I think we’ve got to monitor the macro environment and see what it looks like. What we are going to commit to is that over time, we will continue to expand gross margins and operating margins, that’s a key focus for us. It may not be in any particular year, especially with the macro headwinds that we’re dealing with today. But you can count on us to continue to expand margins over time.

Operator:

And I show our next question comes from the line of Robert Marcus from JP Morgan. Please go ahead.

Jim Hollingshead:

Thanks, Robbie. Thanks for the congratulations, too. I think it’s a little bit early to say about how the rates are going to settle out. We’re very happy with adoption of Omnipod 5 across the board. As we said, you know more than 80% of our new customer starts are patients coming from MDI, and so – you know that’s our target market. We are seeing a high percentage of patients converting from Omnipod DASH. And you know to me, that’s a great sign of demand, because what it shows is that, patients who are already on the Omnipod experience, we know they’ve been waiting for Omnipod 5. And so we’re actually, I think, getting a somewhat higher percentage of conversions already. And if you remember, during limited market release, what we’ve been telling the market is the fastest way to get an Omnipod 5 is to get an Omnipod DASH and then convert. So we’re seeing that very well. And we are seeing conversions from other tubed pump offerings. And so we’re getting a mix across the board, and we’re really happy with that.

Operator:

Thank you. And I show our next question comes from the line of Travis Steed from Bank of America. Please go ahead.

Wayde McMillan:

Yeah. Hi, Travis, it’s glad you asked this question, we get to provide a little more color here. So first of all, you called out the $7 million of channel inventory build, and that’s something that you have to factor into the first half, second half as you’re thinking about the guidance. The other thing to normalize for is, we had an incredibly strong Q4 last year, and so that creates a tough comp for us. So if you include normalization for the channel build, and think about the tough comp, the second half is actually a stronger percentage growth rate and certainly on an absolute dollar basis, a much higher than the first half. So we’ve got a really strong US guide into the second half of the year. And on the channel inventory build, we don’t factor in any major channel build into our guidance. You know we do factor some trends and some normal order patterns and some normal stocking. But whenever we see a large material or significant channel build or channel destock, we call them out, just like we have in the past. And so as we talked about in the prepared remarks here, we’re going to continue to see Omnipod 5 inventory ramp. That will be offset by reductions of our classic Omnipod and Omnipod DASH at our distributors. And depending on how that matches up or is mismatched, it could result in an inventory channel build. And so again, when we see it material, we’ll factor that in and let you guys know in our prepared remarks. But from here, we typically don’t build in large stocking or destocking into our guidance.

Steve Lichtman:

Thank you. Hi, guys. Just on your clinical programs, what is the latest outlook for a Type 2 pivotal study? And on the clinical study you mentioned versus non-AID, are you hoping to use that for enhanced reimbursement? Have you received feedback from payers that that is possible? Thanks a lot.

Deborah Gordon:

Yeah. Hi, how are you? We’re excited about the randomized controlled trial. And you’re right, we are doing that in order to grow our clinical body of evidence, but also it’s really focused on driving access and reimbursement in our international markets. You know as you’re aware, we’re – we consider ourselves our own category with the tubeless AID system. And what we want to do is, chart out reimbursement specific for our offering that we know will be well received internationally, and it will help, we believe, with the strength of the data from the RCT should help us with negotiating pricing and setting reimbursement in countries where that either is not reimbursement today with AID or certainly, we want to get higher reimbursement for our offering. So, really excited about doing the study. We are in the United States and France, because they’re two of our largest markets. And in fact, we actually very early on in the enrollment process, but we already have almost 50 people enrolled in seven sites in our US market, and we’ll be soon enrolling our new first patients in press. So really excited. It’s just one of the many levers that we are pulling in order to get ourselves ready to launch next year in our international markets with Omnipod 5.

Chris Pasquale:

Thanks and congrats on the quarter guys. Wade, I want to circle back on margins. You talked about a lot of the puts and takes on gross margin, but SG&A was up meaningfully year-over-year, even if you back out some of the one-time stuff. Just curious, was there anything to call out there? And how do you think about that moving forward? And then one just detail on O 5. Are you getting a price premium there versus DASH? Some of the prescription data suggests that it might be priced a little higher. Thank you.

Bret Christensen:

Yeah. Hi, Chris. The pricing of Omnipod 5 versus DASH, remember, we said we would price it at parity to DASH, and we’re sticking to that. So we are offering payers the exact same rebates for Omnipod 5 that we offered for DASH. The exception to that – and the reason you might see some discrepancies in pricing are mainly around mix. And remember, Omnipod 5 is a pharmacy-only product. So we did have a few payers that were in DME that we are not offering Omnipod 5 in DME and so they do have to move to the pharmacy channel. So that will cause you know a little bit of price lift, frankly, in the pharmacy channel for the average pod pricing, but per payer, there’s pricing at parity with just a few exceptions.

Joanne Wuensch:

Thank you for taking the question and nice quarter. As you prepare for the international launch of Omnipod 5, what have you learned so far in the limited version here in the US that you can take over there? And should we think of a limited launch in the international market arena also? Thanks.

Jim Hollingshead:

I’ll just tag on the back of that, Bret, that one thing to bear in mind is, you know as we launch Omnipod 5 and we go market-by-market, with all of that work we’re doing to pioneer the cloud-based offerings, we’re also digging a huge moat. We’re going to do it sequentially. We’re going to do it right and we’re going to do it to win. It will be very difficult for anybody to follow.

Cecilia Furlong:

Hey, good afternoon and thank you for taking the question. I wanted to ask if you could just provide a bit more color just in terms of takeaways from your limited distribution period, what was incorporated or adjustments that you made as you transition to full market launch? And then kind of on the heels of that, too, just your free trial period with Omnipod 5, that really the rationale shifting from 30-days to 10-days? And thank you for taking the question.

Jim Hollingshead:

And the second part was, I think are on the free trials.

Operator:

Thank you. And I show our next question comes from the line of Margaret Kaczor from William Blair. Please go ahead.

Wayde McMillan:

Sure. Hey, Margaret, it’s Wayde. Why don’t I start with the inventory and maybe a little on the new product adds, I’ll pass it over to Bret, because he’s got the insights from the team. So on the inventory build, you know some of this is just timing and the way it happened you know as we shifted from limited market release into full market release. And you know limited market release, as you recall, we stepped into it by adding in mail order pharmacies, specialty pharmacies, but held back on the large you know bolus of retail pharmacies. And when we then move to the retail pharmacies, that’s when we had significant inventory to move into the channel so that those wholesalers and distributors can feed as Jim said in his prepared remarks, the 88,000 retail pharmacies across the country. And so that’s just timing. And we’ll continue to build inventory with Omnipod 5, and it just depends on the end of the quarter where we’re at with the reductions on the DASH and classic, if we have more inventory builds in the future. But you’re right, it does speak to the excitement out there and the demand that’s building out there, and that’s why we’re trying to get as much channel inventory out there as soon as we can now, because of the access as Jim mentioned as well in his prepared remarks, we’re well ahead on access. That was one of the other major metrics that we were managing in order to go to full market release. And now that we’re over 50% access out there, there are many people that can get prescriptions and now get Omnipod 5. So it’s pretty exciting to see the inventory stocking in the channel and all the pharmacies across the country that people be able to access the product in. And from a domestic adds standpoint, you’re right, that is one of the reasons that we exceeded the high end of our guidance this quarter. We don’t get a significant amount of revenue from new customer starts in any particular quarter, just because of the annuity-based model that we’re in that I know you’re familiar with. But, Bret, any color you want to add on the domestic adds?

Operator:

Thank you. And I show our next question comes from the line of Jayson Bedford from Raymond James. Please go ahead.

Wayde McMillan:

Sure, Jayson, it’s Wayde. I can take that one. And this is what we’ve seen historically as well. So we do get this question from time to time. It’s typically when we see that sequential down. And it’s certainly an understandable question, because it’s an annuity model. But what we see happening across our international business, and this is the case in prior years as well. Because we sell a lot of our revenue through the distribution channel, we have ebbs and flows in the distributor inventory patterns and order patterns and depends at the end and beginning of quarters where we’re at and fulfilling those orders. So, it lends itself to be a little bit more difficult to understand, because it is an annuity model. But that’s it. You’ve also seen us call out internationally, whenever we’ve had stocking or destocking of a material nature, you’ve seen us call that out as well. So when we don’t, and we see a couple of million dollar swings between the quarters, it’s really just an order trend and nothing that we’re concerned about or I think we should be calling out as well. And as we move into the second half of the year, you’re right, Q3 goes up, but we typically see a seasonal decline in Q4 as well. And that’s some of the distributors, I think, managing their inventory at the calendar year end. And so, really nothing to talk about here, Jayson, other than just some normal inventory trends. And you know again, we’ll call it out when we see anything material.

Brian Kennedy:

This is Brian for Josh. Thank you for taking my question. On the cost of therapy, a competitor cited patients delaying pump purchases, specifically because of the upfront cost. How big of a factor do you judge cost to be as a driver for Omnipod 5 adoption? And do you have an ability to or, I guess, an interest in lowering current co-pays further should pump manufacturers introduce payment plans that match the typical co-pay?

Operator:

Thank you. And I show our next question comes from the line of Matthew O’Brien from Piper Sandler. Please go ahead.

Wayde McMillan:

Yeah, Matt. I’m not sure I quite followed all that math. But I think if I followed you right, what you’re saying is you know first half, you know strong growth rates. And if you do normalize for that $7 million channel inventory build, we have about a 26% growth rate in the US in Q2. And so, then you take that and you look at the second half guide, where, as you said, we’re in the mid-20s, and that’s a strong guide for us, especially given that tough competitive comp we have in Q4 of last year was such a strong quarter. And then, where is the growth going to come from? It’s all the above, Matt. It’s pretty exciting. As you know, all of the drivers that we’ve had in the business before Omnipod 5 are really what are continuing to drive the business here. The pay-as-you-go model, the DASH product itself, all the economic benefits that Bret just mentioned. And so, as well as the differentiated opportunity we have in Type 2 in the pharmacy channel. So, a lot of drivers, and that is going to be what continues to drive the business. And then Omnipod 5 at 25% of the new customer starts here in Q2 will continue to be a driver as that continues to ramp. So, you know we’ve got a lot of growth momentum in the US, and I think the guidance reflects that.

Jeff Johnson:

Thank you. Good afternoon, guys. This is actually Jeff on for Dane. I apologize on having some phone issues today. But two questions, I guess. One, Wayde, just clarifying, we keep talking about the $7 million stocking tailwind in the second quarter. I thought you said some of that was netted out between old Omnipod 5 inventory coming out. Should we be thinking about that as a one-timer of $7 million? Or is it a little less than that? And then, Jim, just wanted to ask you, you know this is your first full quarter now as CEO or first quarter as CEO, spending is going way up. Is this conceptually how we should think about you, you’re a revenue guy, you’re going to drive revenue and cost be damned or at least cost don’t matter in the near-term, we are going to push the top line in the competitive mode as much as possible. Just trying to understand your style here, maybe. Thanks.

Jim Hollingshead:

Jeff, thanks for your question. And I actually love your question. And it’s – by the way, it’s great to be here on my first quarter, and I’m loving this, and we have a great team and a great strategy, and we have incredibly talented people and so much passion. But an answer to your question, I don’t think you should think of me as somebody who’s going to you know, cost be damned. We have massive growth opportunities in front of us. You know our investment thesis remains the same, which is, we’re going to drive Omnipod 5. We’re going to drive successful launch and successful growth with Omnipod 5. We’re going to continue to drive international growth with DASH. We’re going to continue to drive Type 2 growth with DASH. And we’re going to fund all of our great innovations that are coming to market, but we’re going to be very prudent with cost and how we do that. You know, we’re obviously in a macro environment that presents a lot of challenges. We are not immune to that. You know that’s happening across industries, it’s happening in our industry. So we’re going to be very prudent with costs and we’re very mindful of that. But we have fantastic growth in front of us, and we’re going to capture it.

Jim Hollingshead:

Thanks, Dilem, and thanks, everyone for joining us today. We’ve made terrific progress in the second quarter, and we’re on track for another successful year, despite having to navigate through the challenging macro environment. The full market release of Omnipod 5 is an exciting milestone, and we’re really thrilled to be in full market release with that offering. And our goal is to drive that growth and to finish the year strong and sustain our growth for the long-term. I’ve been really inspired – just on a personal note, I’ve been truly inspired in my first two months here as CEO. We’re making great progress. We are changing people’s lives. We’ve got great and talented people. We have one of the best management teams in MedTech, and we’ve got phenomenal offerings. Insulet has never been in a better position to deliver on our mission to simplify and improve the lives of people at diabetes. Thanks, everyone, and have a great day.

Operator:

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation First Quarter 2022 Earnings Call. [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.

Shacey Petrovic:

Thanks, Deb. Good afternoon, everyone, and thank you for joining us. Before we turn to our first quarter results, I'd like to take a moment to talk about this afternoon's announcement that for personal reasons, I will be stepping down from my executive positions at Insulet. After careful consideration over some time, I have made the very difficult decision to reduce my professional obligations in light of medical issues and other circumstances that have been impacting my family and those I care deeply about. Effective June 1, Jim Hollingshead, a member of our Board of Directors since 2019, will succeed me as President and CEO. I am extremely proud of what we have accomplished in my time as CEO. We have made significant strides to improve the lives of people with diabetes while enhancing Insulet's ability to innovate and operate with excellence. Insulet is well positioned for the full U.S. commercial launch of Omnipod 5 and poised for continued growth and impact for shareholders and the diabetes community. I remain profoundly committed to Insulet and the company's long-term success, and I look forward to continuing to serve as a director on Insulet's Board and as an adviser to Jim and the team. I will be working hand-in-hand with Jim to ensure a seamless transition of leadership responsibilities. In recent years, we have made great progress improving the lives of people with diabetes by delivering consumer-focused innovation, growing the company's global addressable market and driving operational excellence. Hundreds of thousands of Podders around the world are leading happier and healthier lives because of our work and dedication. And with Omnipod 5, we will offer significantly improved outcomes and incredibly simplified diabetes management to millions of people across the globe. I have never been more excited or confident about Insulet's future. Insulet has a deep, talented team and is firing on all cylinders and poised for incredible growth. I know Jim well from our service on the Insulet Board together, and I'm delighted that he is the one to step into the role of CEO at this important time. The company will be in great hands under his leadership. He knows our company, our culture and our team and the strong relationships he has fostered with our management team will immediately serve the company well and ensure a smooth transition. His significant experience at the rapidly evolving crossroads of medical technology and digital solutions will also be incredibly valuable to the company. Jim has joined us today, and I'd like to turn the call over to him for a few remarks.

Shacey Petrovic:

Thanks, Jim. We are off to a great start in 2022 with financial results that finished ahead of expectations as our team continues to execute and build on the momentum in our business. We, once again, had record Q1 U.S. and global new customer starts in the first quarter, building on our success throughout 2021. We have meaningfully advanced our strategic imperatives and are on track for another successful year. Our position in the underserved global diabetes market has never been stronger. We are especially excited about the overwhelmingly positive feedback we have received during our limited market release from users of Omnipod 5, the first tubeless automated insulin delivery system with full compatible smartphone control. The feedback has been nothing short of spectacular. Users love the system and have shared how it greatly simplifies their diabetes management and is truly changing their lives. HCP feedback has been equally strong. Our efforts to bring Omnipod 5 to our international markets are well underway, including our CE mark submission under active review, and we continue to expand our global presence. We also recently shared compelling data from our type 2 feasibility study at the ATTD diabetes conference, which demonstrates the value Omnipod 5 can bring to the type 2 community. Omnipod offers an unmatched option for people living with type 2 diabetes given our pay-as-you-go model, pharmacy access, attractive form factor, growing clinical evidence and unparalleled simplicity. In the first quarter, type 2 users represented approximately 35% of our U.S. new customer starts. Our competitive advantages and exciting innovation pipelines in both the type 1 and type 2 market segments position us to drive long-term revenue growth, increase our market share and total addressable market and expand our margins. Also, last week, we published our 2021 sustainability report to provide all of our stakeholders a view into Insulet's approach to environmental, social and governance programs and the exciting progress we've made across a number of fronts. Just a few examples. In 2021, we reached 60% gender diversity on Insulet's Board, millions of used pods were diverted from landfills globally through product take-back programs and solar panels at our Massachusetts headquarters generated almost 800,000 kilowatt hours of renewable energy. Insulet is committed to the 3 pillars of our sustainability strategy

Operator:

[Operator Instructions] Our first question comes from the line of Larry Biegelsen from Wells Fargo.

Operator:

Yes. One moment, sir.

Operator:

Yes. I am on the line.

Operator:

Okay. All right. So go ahead Mr. Biegelsen, could you please repeat your question.

Shacey Petrovic:

Sure.

Jim Hollingshead:

Thank you, Larry. I really appreciate the question. Look, I have been on the Insulet Board now for 3 years. And the first thing I would say is, it's such an honor to be entrusted with leadership for our next chapter of growth by Shacey and by the whole Board. I think Shacey's leadership has just been remarkable. It's one of the main reasons I was drawn to join the Board and was so privileged to join the Board. And Shacey has accomplished so many things in her tenure here, 7-year tenure here and 3 years as CEO, we wouldn't have time to list them all. But I will say one of the main things that Shacey has accomplished is she's built this incredible executive team here at Insulet. And so when I think about stepping in, I think we're not going to miss a beat. I think the key thing is that we continue to grow. We continue to succeed with innovation. We're driving opportunities to change the lives of people with diabetes. We're in the middle of a fantastic product launch with a revolutionary product. And couple that with the fact that Shacey is going to stay on the Board, which is, I'm just really excited. She's going to continue to advise us in a formal capacity. I think the key thing is we're just charging straight ahead, and we're not going to miss a beat.

Robbie Marcus:

Great. Congrats on a nice quarter. And I'll also add, Shacey, we'll miss you, wish you the best. And Jim, welcome, looking forward to working with you. I wanted to ask on new patients here. Maybe you could walk us through what happened in first quarter in terms of new patient adds. Some of your peers faced some difficult times in January, February. Maybe if you could comment on U.S. new patient growth and international new patient growth and what it was for the quarter and how it trended. We're looking and focused more on the exit rate. And I just wanted to clarify the comments you made. Is a full launch still possible in the second quarter? I just wanted to clarify it based on the comments you made.

Bret Christensen:

Just, Robbie, we're selling our strength, still the only tubeless form factor in the market, the simplicity of Omnipod. And then we do believe, again, that the message that the fastest pathway to Omnipod 5 is to get DASH, and that seems to be resonating, and we believe there's a little bit of a lift there as well. But all in all, this is another record quarter for new starts, and we're happy with the performance in the U.S. and around the globe.

Operator:

I show our next question comes from the line of Travis Steed from Bank of America Securities.

Bret Christensen:

Travis, it's Bret. I can give a little bit more color on the limited market release to full market release. So it's probably helpful to start with the end and how we are defining the full market release. And we do define a full market release as being in the retail channel, which Shacey said is where 80% of our pharmacy business is today. So this next phase is with a limited distribution network and that just means mostly mail-order and a smaller number of distributors. But it does mean that any physician can write a prescription and any patient that has access and reimbursement can get our product. They just have to go through a channel that maybe they're not currently going through in the pharmacy channel. So it won't be a flip of the switch, as Shacey said. We'll continue to progress in that way. What's exciting, I guess, about this next phase is that it does test our scale. So we started with hundreds, a predetermined number of patients in the LMR. Now we're going to start driving prescriptions, scaling the release. And it will continue to scale until we get to the full market release. We'll continue to learn. And a lot of what we're learning today is around the pathway that patients take to get on product. If you remember, we talked about the limited market release in probably hundreds of different pathways, depending on what a user's current experience is with CGM, with MDI, tubed pumps, et cetera, that they could take a unique training pathway for each of them. So some of the things we're learning in LMR is just how to tweak that experience a little bit to maybe set better expectations with some of those patients so that when they start, they know exactly what to expect with Omnipod 5. And we'll continue to learn, but we're right on track to what we said we would do, which is sometime between 3 and 9 months. We're 3 months in now. And we're excited about this next phase. But the next phase really is after this one really is full market release, and we'll just progress until we get there, which is a retail launch.

Jeff Johnson:

And Shacey, nothing but the best. I just want you to know how much I've appreciated holding you up as such a great example of professional success for my 17-year-old daughter. And let me just ask a question outside the U.S. I know a lot of questions on the U.S. O5 launch. But outside the U.S., have you had any conversations with EU regulatory authorities at this point? Just maybe any updated thoughts on time line to CE mark and how soon you could maybe flip over to commercialization once you do get CE mark?

Bret Christensen:

Sure. Jeff, we're doing a lot of work now to prepare for the launch of Omnipod 5 outside the U.S. And contrasting it to our DASH launch, if you remember when we got approval for DASH, it was pretty quickly that we rolled out to all of our markets internationally and very quickly got to almost 100% of all new starts on DASH. The difference with Omnipod 5 is probably twofold. One, there's infrastructure with the cloud that's going to be unique by country depending on data privacy and different requirements. The other thing is reimbursement. So the reimbursement pathway for each country is different frankly because this is a new category of product where DASH was simply the same category as our legacy product. So there's different reimbursement pathways, different infrastructure to consider. And so you'll probably see more of a staged launch by country outside the U.S. once we do get clearance.

Steve Lichtman:

Shacey, all the best to you. And good luck, Jim, in your new role. I wanted to also ask on financial, excuse me, on international, saw some nice upside there in 1Q. I guess, one, are you seeing some of the Omnipod 5 excitement starting to build, giving greater visibility that it's coming with the CE mark filing and U.S. approval, so seeing some pull forward as Bret mentioned earlier with U.S. And it would seem that based on the second quarter guidance coming off of this better 1Q that you could be trending towards the high end of your full year range. So overall, how are you feeling about that international business even ahead of Omnipod 5?

Wayde McMillan:

Yes. Sounds good. As Bret said, we're doing very well competing with the form factor. And so we've been in this low teens, low double digits range now for a little over a year. And it's good double-digit growth, but we know we could be growing faster if we had our AID system as we've talked about. We just don't participate in that part of the market today. And so that's what's reflected in our Q2 guide as well as you mentioned, Steve, for the full year. And just a reminder, the second half of the year guide is a little stronger because we have a slightly easing comp especially in Q4. And then the impact of the pandemic over the last 4 quarters, just to remind everybody with our annuity model, impacts us. And so even though the pandemic is easing, we're still annualizing those quarters from last year. And so as we do that throughout the year, you'll see our growth rates start to strengthen in the second half.

Danielle Antalffy:

And Shacey, I can't even tell you how bummed I am to hear that you are leaving and you will definitely be missed. You've been a girl crush of mine for a long time. So don't worry, you'll stay my girl crush. So just a question on primary care physician. We've been doing a lot of work on the diabetes space, and it feels like there's still so much learning to be had on the primary care side of things for pumps and CGMs, which is actually the crux of a lot of the work we've been doing. I'm just curious about how you guys at Insulet are going after the primary care doctor and how it's different versus the endo? And how you think the mix, the prescriber mix will evolve over time? So yes, I'll leave it at that.

Bret Christensen:

Yes. Danielle, we spent a lot of time thinking about primary care because as we desire to penetrate the type 2 market, in particular, more vigorously that many of them do reside with primary care. So today, we're getting leads in primary care mainly through our DTC campaigns. We get a lot of patients to see their physician. And so we're sort of reactive for the most part with primary care because we're waiting for a patient to become a lead and then we're reaching out to that particular primary care doc and getting them started on Omnipod DASH. But we also do call on a very small number of primary care physicians, but mainly those that sort of operate like an endocrinologist and write a lot of insulin prescriptions, for instance. We get good information from IQVIA. We know who they are. But we do want to expand more into that segment. I think a couple of things are the challenge with primary care that we have to solve for. One is just their willingness to tackle complexity. And they see pump therapy, in general, has been more complex than something they typically do today. So we have to solve for that. Virtual training is the way we can do that. The simpler we make the product, the easier it is to onboard the pharmacy channel, low co-pays. All those things we're doing will help, for sure. The other thing is just breadth. There's over 200,000 primary care physicians in the U.S. We obviously will have a sales force to tackle that. So we'll look to penetrate primary care in the future through more direct-to-consumer, more digital marketing and then ultimately better solutions and products that more succinctly fit the type 2 segment. But there's a lot of work to do there. Most of the success we're having with type 2 today is within the endocrinology segment, but we know the opportunity is massive and we do get a lot of leads from direct-to-consumer.

Joanne Wuensch:

And may I also say thank you and good luck. And I don't know, anything more than that, I might start crying. So 2 quick questions. What percentage of your new patients were type 2? And the second question has to do with your new patients that are coming on and you expect to see using Omnipod 5. Are those transfer students from your current platform or do you see it pulling more patients from MDI and/or tubed pumps?

Operator:

I show the next question comes from the line of Matthew O'Brien from Piper Sandler.

Shacey Petrovic:

Sure. Great question. And I think we likely are. And that was Bret's point that, in fact, the fastest way to get on to Omnipod 5, which we know today is indicated for the type 1 user is through Omnipod DASH. So we do believe that part of that is what's driving our record new customer starts and also probably driving a slight shift in percentages there. But I don't want to dismiss the fact that 35% of our new users are type 2. The product Omnipod DASH is still doing tremendous things for that segment, bringing better outcomes and still obviously an incredibly appealing product that's driving great growth there.

Jayson Bedford:

And Shacey, I wish you the best. I hope everything works out. Just so I understand the current phase of the limited market release and it was kind of touched on before, but any physician can write a script, but the user has to access the technology in the specialty channel, kind of the non-retail pharmacy channel. I'm just wondering, is this due to capacity on your part? Is it more of a reflection of your discussion with payers? Just wondering what you need to see before you broaden the launch.

Operator:

I show our next question comes from the line of Margaret Kaczor from William Blair.

Shacey Petrovic:

Sure. Thanks, Brandon. Yes, the data was really strong. It was really great to see. Our feasibility study included type 2 users that were at a pretty low baseline of control. So I mentioned many who had not used the CGM and only one who had used a pump. So really representative of that broad type 2 population out there. Baselines were at 32% time in range for basal-only and 46% time in range for MDI. And depending on that cohort, we saw a 30% to 50% increase in time in range, so quite extraordinary performance there. So I think overall, we feel like we're in a, the feasibility data accomplished what it did or what we set out to do, which is demonstrate that this technology has probably enormous value in the type 2 population. So this supports our discussions. This data supports our discussions with the FDA to determine the right size and design for our pivotal study. This is really the, probably the wrap-up of our feasibility study and then we will move into a pivotal. We believe that pivotal study is likely to look very similar based on our early discussions, very similar to the type 1 pivotal, so hundreds of patients over 3 months looking at similar endpoints. But we need to finalize those discussions. We're in discussions with the FDA on a number of fronts regarding type 2 diabetes. And once we finalize that design and then start recruiting for the pivotal, you guys will be the first to know. And I guess I'd just emphasize that in the meantime, we have this great product with DASH that's making a difference for people with type 2. That will continue to drive value for us. And it also continues to help us learn more and more about the clinician population and the patient population that we're serving with type 2.

Shacey Petrovic:

Thanks, Dalam. So I think you all know that it has been the honor of my career to lead the remarkable team at Insulet. And I know the company is in great hands with Jim leading the organization into its next chapter. As you heard today, Insulet is delivering terrific results and is poised for even greater growth and value creation for our shareholders and people with diabetes across the globe as we progress toward the full U.S. commercial launch of Omnipod 5. I am really excited to continue supporting and contributing to our success as a director and adviser. Insulet is just getting started, and our future is very bright. Thanks for your support, your comments today and taking the time to join the call. Have a great afternoon.

Disclaimer*:

This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.:

Deborah Gordon:

00:44 Thank you, Dalam. Good afternoon and thank you for joining us for Insulet's fourth quarter 2021 earnings call. With me today are Shacey Petrovic, President and Chief Executive Officer; and Wayde McMillan, Executive Vice President and Chief Financial Officer. Bret Christensen, our Executive Vice President and Chief Commercial Officer is also with us today for the Q&A portion of our call. Both, the replay of this call and the press release discussing our 2021 fourth quarter results and 2022 guidance will be available on the Investor Relations section of our website. 01:19 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. Please refer to the cautionary statements in our SEC filings for a detailed explanation of the inherent limitations of such statements. 01:37 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 they are helpful to investors, analysts and other interested parties as measures of our operating performance from period to period. 02:04 Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year reported basis with the exception of revenue growth rates, which will be on a year-over-year constant currency basis. 02:18 With that, I'll turn the call over to Shacey.

Wayde McMillan:

18:01 Thank you, Shacey. Our fourth quarter performance closed out another year of progress for Insulet on many fronts. Our focused investments and consistent execution of our strategic imperatives continue to strengthen our financial profile while driving meaningful value for all of our stakeholders. 18:20 In the fourth quarter, we generated 26% revenue growth finishing above our guidance range with record U.S. and global Omnipod new customer starts. On a reported basis for total revenue, foreign currency was a 70 basis point headwind over the prior year. We delivered U.S. Omnipod revenue growth of 28% also exceeding our guidance range. The trend of record U.S. new customer starts continued through the fourth quarter, a primary reason for our strong U.S. revenue growth. 18:55 Also contributing was our success driving volume growth through the pharmacy channel due to continued Omnipod DASH adoption. Omnipod DASH drove over 80% of our U.S. new customer starts and we increased pharmacy channel volume to almost 55% of our total U.S. volume. In Q4, International Omnipod revenue grew 6%, which was below our guidance range. Our growth was impacted by an estimated $5 million channel inventory reduction due to a European distributor returning to more normalized levels from the higher balanced carried throughout much of the pandemic. This occurred sooner than anticipated and it was not fully factored into our guidance. 19:42 It negatively impacted our Q4 growth rate by approximately 600 basis points. As a reminder, the majority of our revenue is sold through distributors in international regions, and fluctuations in inventory levels can impact our results. We also continue to be affected by increasing AID competition and the compounding impact of the pandemic on our annuity model. 20:07 On a reported basis for international Omnipod, foreign currency was a 180 basis point headwind over prior year. Our estimated global attrition and Pod utilization remained stable during Q4. Drug delivery revenue increased 113% during the fourth quarter finishing above our guidance range due to increased production volume driven by higher-than-expected demand from our partner. 20:34 Gross margin was 69.3% in the fourth quarter, representing a 380 basis point increase or 370 basis points on a constant currency basis. The primary drivers were the mix benefit of growing volume through the U.S. pharmacy channel, product mix in our improved manufacturing operations. These drivers were partially offset by an expected higher mix of costs as we further ramp U.S. manufacturing. 21:05 Our year-end inventory balance includes higher component costs as a result of inflationary pressure in 2021, and this is expected to continue in 2022. This will affect our gross margin in 2022 as we sell the product out of inventory. I will touch on that more in a few minutes. 21:27 Operating expenses were in line with our expectations as we continue to strategically invest in our innovation pipeline, sales and marketing capabilities, global manufacturing operations and international expansion. These investments are designed to fuel sustainable long-term growth and expand our total addressable market while we further advance our mission. Operating margin was 16.2% and adjusted EBITDA margin was 23.7%. Both showed an increase over prior year and were in line with our expectations as we grow profitably, while also investing across our business for long-term growth. 22:10 Turning to full year results, we delivered total Omnipod revenue growth of 19% and total company revenue growth of 20% achieving another record year at 1.1 billion demonstrating the strength and durability of our annuity model. On a reported basis, foreign currency was favorable to 2021 total revenue by 180 basis points. In 2021, we achieved gross margin of 68.4%, up 400 basis points and in line with our expectations. 22

Jayson Bedford:

32:07 Hi. Good afternoon and congrats on the approval. I wanted to the start on the international side. If I add back the $5 million to the fourth quarter in terms of the inventory got down, the international is still down quarter-on-quarter, and is it just a function way to -- the inventory build in 2Q and 3Q that just got unwind (ph) within the fourth quarter and I guess just more specifically will be install base on a net basis increase over the last few quarters and then if there has been internet pricing changes in international markets, so it is still kind of related to the same question.

Operator:

34:59 Thank you. I show our next question comes from the line of Josh Jennings from Cowen. Please go ahead.

Shacey Petrovic:

35:33 Great. Thanks, Eric for the question. Yes, we are excited to be under active review for CE Mark. We don't really have a timeline to share beyond that as you may know, this is a new regulatory pathway, the Medical Device Regulation pathway and obviously a complex submission. We know that data looks great and we're very confident in the quality of the submission, but it could take some time for us to secure this approval. So, we haven't given guidance for timing. Just wanted to let everybody know that we are under active review and looking forward to getting that out onto the market. 36:12 In terms of what the limited market release will look like, we are still finalizing that strategy, it's very likely that we would enter into select markets as part of the limited market release and then expand from there, very similar to how we rolled out DASH in our international markets where we started with a handful of markets as part of the limited market release and then expanded from there. Thanks for the question.

Robbie Marcus:

36:45 Great. Thanks for taking the questions. So I was wondering if you could just elaborate on the limited launch and the impact it's having on user buying patterns and new patient starts. U.S. had a good fourth quarter, but I would say first quarter is looking a little below where the Street was thinking for the U.S. and for the full year as well. So would love to just get a sense of what you're seeing in those buying patterns and if patients are waiting.

Wayde McMillan:

38:28 Great. And regarding guidance Robbie, one thing we have to keep in mind when we compare Q4 to Q1 is the seasonality, particularly in the U.S. and a couple of years ago, we thought that that may wane somewhat with move up volume into the pharmacy channel, but similar to what we experienced last year from 2020 into '21 and is that there are just inherent built-in behaviors in people start stocking up with more pods in Q4 and driving seasonality higher in Q4. And then, as a result lower in Q1. 39:08 So we're following those similar trends in our guidance, and we'll wait and see if in fact that does wane this year or not, but our expectation is, given the strength of the utilization in Q4 and what we learned last year of just what's built into the marketplace and people buying behavior that we'll still see pretty strong behavior -- pretty strong buying behavior in Q4, even though we've moved good percentage over half of our volume into the pharmacy channel.

Lawrence Biegelsen:

39:48 Hi. Good afternoon and thanks for taking the question. Shacey, did I hear you say the limited launch would be three to nine months or three to five months.

Lawrence Biegelsen:

40:01 And so my question is kind of what gets you to kind of the why such a wide range what would get you to the low end of that versus the high end of that, if you will, the nine months and what is the goal for covered lives, you start exiting 2022. Thanks for taking my question.

Bret Christensen:

41:45 Yeah, Larry. Its Bret. I'll just add that one of the reasons why it's important is, we want to move quickly at the full market release. And so some of the systems that we're testing during the LMR or the ordering process, the onboarding process, both of which provide tremendous amount of self-service for our users. Remember, we don't have a four-year lock-in period with our user base and so there's going to be a tremendous amount of demand from existing podders to move to Omnipod 5. We want them to be able to self-serve, and it’s a self-start on the product and so the reason why those systems need to move go flawlessly as Shacey puts is so we can move really quickly and continue to focus on new starts during the FMR. 42:25 And so what we're testing those two parts of the system along with access as you mentioned, but access is going to be probably not the limiting factor to get to full market release, because we had a head start, we were said that we were ahead -- well ahead of where we were at with DASH before we launched that product. So access will probably be an acceptable level. And once we get comfortable with those two systems, the ordering and on-boarding process that will enable us to move really quickly during FMR.

Unidentified Participant:

43:01 Hi. This is Brandon on for Margaret. Thanks for taking the question. I wanted to focus on the 2022 guidance. There is a lot of moving pieces. A lot of good and exciting things going on through the year. So I was wondering, if you could just talk about what is and what is not factored into that guidance. And I guess the three maybe things that I would focus on are one what's factored in for the global or let's say a cadence of global launch of Omnipod 5. What are you considering for a mix of Type 2 as a percent of users. And then maybe DTC investments, what are those factored into guidance is kind of ramping up. So, any color around those dynamics and what is and what is not factored in the guidance would be helpful.

Bret Christensen:

46:00 Yeah. Thanks, Wayde. So I think once we get to Omnipod 5 what we really will have the most complete offering. We pointed to the lack of an AID system is being a headwind for us, not just internationally, but the U.S., but we've had these tailwinds of pharmacy Type 2 and DTC and in my mind, when we add AID now to the best form factor in the marketplace in Omnipod awareness becomes the next frontier for us. So we've already made tremendous strides in DTC, TV commercials, our learnings in converting those leads that come in to new starts have been tremendous. 46:40 And I look forward to the improved messaging in the addition of AID to Omnipod. That should be an enhancement to DTC at a better message and should drive even better conversion rates. So it’s something we'll continue to do. We look forward to doing it throughout the year. And you'll see our message evolve as we approach the full market release of Omnipod 5 to include that AID message in those TV commercials.

Operator:

47:17 Thank you. I show our next question comes from the line of Jeff Johnson from Baird. Please go ahead.

Shacey Petrovic:

48:12 Yeah, Jeff. It's such a good question because there is a lot of work in terms of market development and we talk about Europe or international as if it's one thing, but we all know, Europe is 20 for us, 20 plus different countries, different business models, different market registrations and different reimbursement pathways. The good news is we have that work underway. So we have teams who are doing the market development work today, but there will be work, depending on the market, some will go faster and some will go slower in terms of establishing coverage and access for Omnipod 5. So I can't really put a window on MDR. We are one of -- it's still early days for MDR, and so the pathway is just not that established. We're very confident in the submission. And we are under review, but it's one of the reasons why it's not built into guidance this year. It's just -- it's an unpredictable pathway at this point. We will let you know obviously as we make progress there. 49:12 And I would say we will move into a market release that looks -- limited market release that looks fairly similar to what we have in the U.S., just based on the need to do that remaining market development work in terms of establishing access and market registrations, et cetera, once we have CE Mark.

Joanne Wuensch:

49:45 Good evening and thank you for taking the question. You certainly have a lot going on, but I do want to ask about Libre 3 and G7. And it's a two-part question. How long do you think it takes to integrate it with Omnipod 5 and is that something that needs to be submitted by you buy them or what's the regulatory pathway?

Operator:

51:28 Thank you. I show our next question comes from the line of Danielle Antalffy from SVB Leerink. Please go ahead.

Shacey Petrovic:

52:26 Yeah. Thanks, Danielle. And maybe I'll start with a limited market release question and then Brett can give some insight into the international market dynamics around AID. For the limited market release, what we're really looking to understand as Brett said, remember we don't lock our users into four-year agreements. And so that means that everybody who has market access and coverage and has access to Omnipod 5. So that's could be 10s of thousands, if not more than 100,000 users in the United States. And so we certainly want them to be able to get onto product, but we want them to be able to self-serve, so there are training pathways that are purely virtual for these different patient segments. 53:12 So if you are on Omnipod today and DexCom, you should not even need to meet with a clinician or a physician to be able to get onto the product, you need a prescription and to go through our training pathways. So that's an example of something that we want to test that pathway, make sure that everybody is satisfied and having a good experience and good success with the product after the training. And then there are a myriad of other patient pathways, the MDI user will have a different training pathway that does involve for example meeting with a physician and most of this is really focused on the user as opposed to the clinician, the product itself is incredibly simple, it's been designed to be as hands off as possible for the physician's office and to be very simple to use for the patient. So those are the types of things that we are testing and we just need to make sure that we get a good amount of patients across each of those patient pathways. 54:06 And then we have good feedback and confidence in the experience across each of those pathways, and then of course, we're building access in the background. But those are the types of things that we're looking to test. And then I'll ask Brett to take the second part of your question.

Operator:

55:59 Thank you. I show our next question comes from the line of Matt Taylor from UBS. Please go ahead.

Shacey Petrovic:

56:27 Sure, Matt. Yeah. Thanks for the question. We do -- we have had the iOS work underway for a while and there is no timeline update there, but I can tell you that the work is going well and we certainly are excited about it. Our plan has always been to take the learnings from our limited market release with our phone control on Android and factor those into the submission, and the launch plan for iOS. And so we do want to wait to get through that, before we would end up submitting, but right now, that's not the long pole in the tent, it's likely to be the completion of the technical work. This does require a 510(K) submission. So we are going to wrap up our technical work and then factor in any learnings from our limited market release with Android full phone control and then submit that for 510(K) clearance to the FDA.

Steve Lichtman:

57:33 Thank you. Hi, everyone. Just wondering how we should think about the potential for Omnipod 5 to positively impact new patient flow even before the full launch, I think, Shacey, you've talked in the past about given no capital upfront that people who are on Omnipod can switch to 5 once available, does that provide an opportunity for you, even if you're not explicitly building it into 2022 guidance.

Bret Christensen:

59:06 Yeah. Steve, this is Bret. Part of our message to both health care providers and patients is that, the quickest pathways Omnipod 5 is to be on DASH today because there is self-service training component for anybody that's on DASH. So the training doesn't become a bottleneck for anybody that wants to start on Omnipod 5 right away. The best thing they really can't do is start on DASH today go through the training, so that when Omnipod 5 comes out in a full market release fashion they're able to self-serve on that training and more quickly onboard with Omnipod 5. So that's the message that's resonating. Shacey [indiscernible] agree it's not really driving additional new starts, but it is preventing people from waiting, which is what we're trying to do.

Operator:

60:28 Thank you. I show our next question comes from the line of Matthew O'Brien from Piper Sandler. Please go ahead.

Bret Christensen:

61:15 Yeah, Matt. Hi. This is Bret. I can take that one. Our sales reps are compensated on new starts and new to Omnipod starts. So they're going to want to focus on really building our customer base and starting brand new users that are coming from MDI or from a tube pump conversion that are new to Omnipod. Those tools that we talked about both the ordering process and the on-boarding process should allow them to do that to focus solely on new starts. That is our intent. As we think about this pay-as-you-go model, this no upfront fee and patients will always be able to upgrade to the latest Omnipod technology, that's a good thing. And it's one of the reasons why we've been spending years now building these self-service tools in anticipation for the launch of Omnipod 5, so that we can innovate in short cycles and people will always be able to self-serve and upgrade to the latest version of Omnipod. And so that is our intent, it is one of the reasons why we've put this range on the LMR because we've got to test those system, so we've had people on product remember for over a year. We're pretty confident that Omnipod 5 is a fantastic product that people love it. These systems develop ordering and onboarding our new and we're testing this in the LMR because that is our intent, we want the sales and marketing teams to focus on new starts and we want existing partners to really quickly migrate to Omnipod 5 on their own.

Kyle Rose:

62:44 Great. Good evening, everyone, and thanks for fitting me in. So I wanted to just ask a more of a bigger picture I guess business model question. Wayde, I think you reiterated the comment about future years of leverage being in the ballpark of 100 bps. And I guess I'm just trying to understand if you could unpack that for us just a little bit, when I think about the work you're doing on manufacturing. I think about the some of the investments you're making. I understand that they take investments upfront, but they do appear to be more scalable long-term thinking, things like the pharmacy channel, patient led onboarding, DTC advertising. I guess maybe what additional investments from a fixed cost or an infrastructure perspective, need to be put in place that would kind of constrain that to only 100 bps year-over-year moving forward assuming the topline growth is there.

Operator:

66:29 Thank you sir, I'm showing no further questions at this time. I would now like to turn the conference back to Shacey Petrovic for closing.

Operator:

68:04 Ladies and gentlemen, this concludes today's conference. Thank you for participation and have a wonderful day. You may all disconnect.

Operator:

Good day and thank you for standing by. Welcome to the Insulet Corporation Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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 first speaker today to Deborah Gordon, Vice President, Investor Relations. Please go ahead.

Shacey Petrovic:

Thanks, Deb. Good afternoon, everyone, and thank you for joining us. Our third quarter results reflect outstanding execution by our Insulet team and momentum across our global business. We delivered 17% revenue growth, driven by total Omnipod growth of 22%. While we are experiencing headwinds related to the ongoing impact of the global pandemic, revenue growth was near the high end of our expectations. We achieved these strong results, thanks to our annuity model, which is a competitive differentiator that provides insulation from market disruption. We continue to achieve strong new customer additions, and we celebrated another record-setting quarter in the United States. We are seeing more impact from COVID internationally and expect this to continue over the short term. We are also seeing increasing preference for automated insulin delivery systems among people with type 1 diabetes, setting us up for an exciting launch of our first AID system, Omnipod 5. Until then, we expect these factors to affect our top line results in Q4 and for a portion of 2022. Nevertheless, we continue to expect double-digit revenue growth in Q4 of this year, including high-teens to low-20% for total Omnipod, with positive momentum entering 2022. Wayde will elaborate on this in his remarks. Our team has done a remarkable job navigating this dynamic time in the market, and 2021 will mark not only another year of strong revenue growth, but also tremendous advancement of our strategic priorities. Diabetes is becoming more prevalent, and pump penetration in both, the type 1 and type 2 markets is low. In fact, we believe the U.S. type 1 market can double over the coming years from its current penetration rate of approximately one-third. Additionally, the type 2 market with a U.S. penetration rate in the low single digits offers significant room for growth. We already see people with diabetes adopting technology at accelerated rates, driven by Pod therapy and automated insulin delivery. Internationally, both the type 1 and type 2 insulin-intensive markets are even less penetrated with sizable runways for expansion. We continue to disrupt the old market paradigm with a leading technology and differentiated business model that deliver an improved customer experience and improved outcomes. Our success in the type 1 and type 2 markets demonstrates the power of Omnipod and the value it delivers compared to MDI and legacy pump therapies. While not having a commercialized AID system presents some competitive headwinds in the near term, our performance without Omnipod 5 highlights the incredible growth opportunities that we will begin to unlock in 2022 and beyond. We expect AID adoption and our highly differentiated platform to provide years of exciting growth as we advance our mission to improve the lives of people with diabetes. Our journey will take a major step forward with the expected upcoming FDA clearance of Omnipod 5, which remains on track to occur later this quarter. As we recently shared, we submitted our responses to the FDA’s request for additional information in September. We are pleased to have that part of the process complete and can’t wait to bring Omnipod 5 to market, as we are confident it will be a transformative product for people living with diabetes. We are in the final stages of the review and our team is working closely with the FDA, who has been a great partner in the process. Advancing toward Omnipod 5 clearance is not the only strategic progress we made this quarter. We continue to drive growing Omnipod DASH coverage and volume through the U.S. pharmacy channel and further penetrate the type 2 market, where we are uniquely positioned with our product innovation and differentiated business model. Omnipod DASH has proven to be a terrific solution for people living with type 2 insulin requiring diabetes, where today, we have established a leadership position. Additionally, we continue to amass compelling clinical evidence that supports Omnipod’s many benefits. This includes impressive new Omnipod 5 data we shared in September at EASD. Taken together, we are on track to deliver another year of strong financial and operational performance and outstanding strategic progress. I will now speak to each of our strategic imperatives, including expanding access and awareness, delivering consumer-focused innovation, growing our global addressable market and driving operational excellence. Access and awareness both remain critically low throughout the global diabetes market, despite millions of newly diagnosed people each year. Awareness of advanced technologies like Omnipod needs to increase, especially awareness of its many benefits, such as its simplicity, discretion, improved quality of life and better outcomes. In addition, access to technology is still far too complicated. We have broken down barriers through our innovative pay-as-you-go business model in the U.S. pharmacy and raised awareness through our direct-to-consumer campaigns. We are pleased with the impact both efforts have had on improving access for many who require care. Even with our successes to date, however, many opportunities remain to improve access and awareness in order to empower more people with diabetes to live healthier, easier lives. In the United States, our pay-as-you-go business model in the pharmacy channel provides benefits for everyone. It’s more efficient for Insulet and provides an improved experience and lower out-of-pocket costs for consumers, with the vast majority paying less than $50 per month through the pharmacy. Additionally, it’s easier for physicians to prescribe and offers numerous benefits to payers. In the third quarter, we expanded Omnipod DASH U.S. covered lives to over 80%, which in turn drove increased volume through the pharmacy channel. Payers are increasingly recognizing the economic benefits of offering Omnipod DASH in the pharmacy. In the U.S., our new customer starts once again reflected the value Omnipod offers compared to MDI as well as our growing strength in the type 2 market. MDI conversions represented over 80% of our U.S. new customer starts, and the percentage that were type 2 remains in the 35% to 40% range, even with the strong new customer growth within the type 1 population. Our MDI conversion rate continues to trend upward as we successfully drive adoption among people living with type 2 diabetes, the majority of whom come from MDI. In addition to expanding affordability, we are also driving access to Omnipod in a number of other ways in order to provide more options for people living with diabetes. We recently received FDA clearance for use of Lilly’s Lyumjev with Omnipod. We are the only insulin pump manufacturer in the United States to obtain this indication, which we pursued to provide more alternatives and flexibility for customers. A key component of our awareness strategy remains our DTC advertising. Our efforts in the U.S. and select international markets continue to generate a highly positive response. The feedback has been enthusiastic and the increased awareness, interest and leads are contributing to our new customer growth. Our efforts are attracting MDI users and competitive pumpers as both base unmet needs that Omnipod helps address. Additionally, our DTC efforts are driving increased interest from individuals with type 2 diabetes as more primary care physicians learn about the benefits of Omnipod for this underserved population. So, DTC will remain a core component of our awareness efforts, and we are encouraged by the early results. We are a consumer-centric company and our innovation efforts are focused on delivering the best experience to our consumers. To that end, we are confident Omnipod 5 will mark an enormous step forward and drive accelerated adoption. Today, we offer a tubeless on-body experience that is unique compared to anything else in the market and an access model in the U.S. that has eliminated needless barriers and burdensome costs. The experience that Omnipod DASH provides is unparalleled, and Omnipod 5 will mark another breakthrough in diabetes care that builds upon our existing competitive advantages. Omnipod 5 will deliver groundbreaking technology first, including full compatible smartphone control with an algorithm residing on the Pod and SIM cards in each handheld controller. Omnipod 5 is a transformative innovation and will remain highly accessible and affordable through the pharmacy channel. It will be priced at parity with Omnipod DASH, despite the increased value and advanced technology the system offers. In turn, we believe this will drive faster coverage of Omnipod 5, and we are already off to a great start. While we eagerly await Omnipod 5 clearance, our efforts to prepare for a successful launch have been moving at full speed, including securing coverage. Payers are generally reluctant to negotiate coverage terms prior to product clearance. However, given the excitement around Omnipod 5, we already have secured substantial coverage. We expect this head start on access to position us for a highly successful launch of Omnipod 5. We cannot wait to receive clearance as we know the incredible impact our advanced technology will have on people living with diabetes. The power of Omnipod is clearly demonstrated by the compelling clinical data we have shared over the course of 2021. One recent highlight was our new pivotal study extension results for Omnipod 5 presented at EASD. This study marked a total of one year of Omnipod 5 use in ages 6 through 70 years old. We were thrilled to find that the outstanding safety and improved glycemic outcomes first observed in the 3-month Omnipod 5 pivotal study were maintained over 12 months of home use. The data demonstrated the trifecta of insulin management, a sustained reduction in A1c; improved time and range; and minimal hypoglycemia. This long-term data demonstrates the durable benefits that Omnipod 5 offers. We are also close to submitting to the FDA our preschool expanded indication down to age two and expect to do so shortly following Omnipod 5 clearance. We continue to plan for an expanded indication in 2022. Additionally, we advanced our type 2 clinical efforts and remain in the six-month extension phase of our Omnipod 5 type 2 feasibility study. The early data is very promising, and we expect to share the results at a future conference. Following clearance for Omnipod 5, we will begin discussions with the FDA on pivotal trial requirements for an expanded indication in this patient population. We are excited to be pioneers in bringing the benefits of automated insulin delivery to people living with type 2 insulin-dependent diabetes. In addition to Omnipod 5, we also presented results from our largest cohort study of people living with type 1 diabetes who use Omnipod DASH. Across approximately 4,800 people, the results demonstrated low time in hypoglycemia and a significant decrease in A1c after 90 days of use for children, adolescents and adults. For adults, the decrease in A1c was achieved while also demonstrating a 20% reduction in total daily dose of insulin used. As we build a portfolio of clinical evidence for our near-term innovations, we are also investing in the technologies required to position Omnipod for long-term growth. Our teams are diligently working on an iOS version of the Omnipod 5 mobile app, globalizing our AID system to bring it to international markets, and integrating Omnipod 5 with both Abbott’s FreeStyle Libre and Dexcom’s G7. We’re excited to continue collaborating with these two great partners and in time, offer CGM choice to our customers. We are also leveraging our significant digital capabilities to expand the ecosystem around Omnipod. Our Omnipod VIEW app was built for caregivers. Today, it allows caregivers of Omnipod DASH users to see real-time insulin data remotely. Omnipod 5 enhances the power of Omnipod VIEW because of the incorporation of SIM cards in every controller. SIM cards mean every user will have the unique experience of constant connectivity and being able to share real-time insulin and CGM data with caregivers and loved ones. SIM cards also mean no Omnipod 5 customer will need to manually upload data when visiting with his or her care team, thanks to cloud-to-cloud data transfer. Looking to the future, our algorithm and data science teams have already processed the data from our pivotal studies and type 2 feasibility study and are hard at work on our next-generation AID system. We believe we’ve built a blockbuster with Omnipod 5, and we are excited to continue to innovate on the extraordinary technology platforms it provides us. Now, turning to global expansion, where we are growing our global addressable market across attractive international regions. Our international expansion unlocks the power of Omnipod for people across the world and will further increase our global addressable market beyond the 11 million to 12 million people we estimate are living with insulin-dependent diabetes throughout the global markets we currently serve. During the last 12 months, we expanded our global presence in seven new countries within Europe, the Middle East and Asia Pacific. While it takes time for new markets to meaningfully contribute to our results given the nature of our business model, we see strong long-term growth potential through our growing presence in multiple regions. The work to bring Omnipod 5 to our international markets is ongoing, and we are making great progress. Omnipod DASH has been a major global growth driver, and we believe adding our game-changing AID system to our product offering will further strengthen our competitive position across our international markets. Moving forward, we see a number of attractive opportunities to expand our global presence, to further penetrate our existing markets and to introduce advanced technology to underserved regions. We continue to assess many markets throughout the globe where we know people with diabetes can greatly benefit from Omnipod and where we are confident we can drive strong adoption and growth. Our near-term focus is on growing our global presence throughout the Middle East and Europe, and over the medium term, we plan to expand further within the Asia Pac region. Lastly, we continue to invest in our global manufacturing operations, which will further strengthen our production capabilities, efficiency and scale. Today, we are producing tens of millions of Pods a year and doing so at the highest quality. Our manufacturing expertise is a competitive advantage. And the investments we have made over the last several years to expand our operational excellence and establish redundant manufacturing capabilities while securing strong partnerships with key suppliers are critical. This positions us to support growing global demand for Omnipod DASH, the upcoming launch of Omnipod 5, our international expansion and our innovation pipeline. It has also helped to mitigate global supply chain issues throughout the pandemic and represents an important long-term driver of sustainable revenue growth and gross margin expansion. In closing, we remain on track to deliver another year of double-digit revenue growth and have made significant progress across each of our strategic imperatives. The clearance and limited market release of Omnipod 5 are just around the corner, and we could not be more excited for just how transformative this innovation will be for people living with diabetes. Our passionate and hard-working global team is our greatest strength. And we are focused on finishing the year strong and carrying the underlying momentum in our business into 2022 and well beyond. I’ll now turn the call over to Wayde.

Operator:

Thank you, sir. [Operator Instructions] I show our first question comes from the line of Margaret Kaczor from William Blair. Please go ahead.

Shacey Petrovic:

Thanks, Margaret, for the question. Yes. So, maybe I’ll take us back a few months. If you remember, we shared really compelling data at ENDO back in March that demonstrated the impact of Omnipod 5 that it can have on people living with type 2 insulin-dependent diabetes. And that data demonstrated -- early data, but it demonstrated more than a doubling of time and range from 27% to 59%. So, we do believe that the technology has tremendous potential to make a positive impact on outcomes for people living with insulin-dependent type 2 diabetes. We are looking at the intensively managed group for this technology. And as -- one trend we see -- macro trend in the market that we see is that there is growing utilization of CGM among type 2 users, particularly intensively managed type 2 users. So, our belief is that as more CGM use happens, that will drive more seeking of these patients for tools to manage their disease, and that Omnipod 5 will be right there with the best wearable AID system for this population. In terms of what the pivotal study could look like, I think that’s a great question. This is unchartered territory for people living with type 2 diabetes. And so, we are really proud to be doing the work to bring this technology to this population and to be pioneers. The feasibility data looks promising, and we still need to really have the discussion with the FDA on what a pivotal could look like. I think, we could see a lot of range here. It might be that we can use some real-world data because it’s clear that there will be type 2 users of Omnipod 5 upon launch because of the access position that we’re in or it could look like a full-blown pivotal like we did in the type 1 population. So, that will remain to be seen once we’ve had the conversation with the FDA. And we’ll certainly keep everybody posted because we do view this as a really exciting opportunity for that segment.

Robbie Marcus:

Wayde, I wanted to ask on U.S. and international Omnipod for fourth quarter. And I was hoping you could just sort of walk us through some of the puts and takes here. It looks like in the international market that the midpoint of the guide is down sequentially on a dollar basis. So, just wondering what would drive that. Are people using less Pods? I would imagine with the annuity model, if utilization was the same, it’d probably increase. And then, also, in the U.S., you’re still seeing record new patient starts. So, I was just sort of wondering what brought you down off the top end of the guidance range there, and walk us through some of the dynamics there. Thanks.

Operator:

I show next question comes from the line of Danielle Antalffy from SVB Leerink. Please go ahead.

Shacey Petrovic:

Okay. Danielle, we may need your follow-up now or you might not fit it in. So, do you want to ask it now?

Shacey Petrovic:

Great. Okay. Thank you for your questions, Danielle. Yes. So, I’ll take the one on Omnipod -- confidence in Omnipod 5, and then I’ll let Bret just what we expect to learn with an integrated system launch. So, the interactions have been frequent and very collaborative with the FDA. As I mentioned in my prepared remarks, obviously, we had submitted the update to the app back in September. And since then, we’ve had multiple back and forth with the FDA. And frankly, it’s that back and forth that gives us the confidence that the system will be cleared before the end of the year. We are down to the final mile, and we’re really appreciative of the FDA’s responsiveness and engagement. It is a breakthrough device-designated technology, and it is a breakthrough device because of so much breakthrough technology in the system with full phone control, with the algorithm on the Pod. No one has ever done this before, including the FDA. And so, we are plowing new ground here, which we’re excited about. But, we feel very confident in the quality of the submission and very positive about the interactions that we’ve had with the FDA. And then, I would just say before I pass it off to Bret, the teams are doing a terrific job. Bret is leading a lot of this effort, just an outstanding job preparing for our limited market release. And that includes all of the testing of the training systems, the support, the benefits investigations, obviously, establishing coverage, which I spoke to, manufacturing the product, all of that stuff. So, we are ready to go and couldn’t be more excited. And I’ll let Bret answer your second question.

Operator:

I show our next question comes from the line of Lawrence Biegelsen from Wells Fargo. Please go ahead.

Shacey Petrovic:

I think, our international business has been performing well, as Wayde said, in the face of some challenges related to COVID and some market dynamics around AID adoption. DASH has really been helping us to drive that growth. And I think, ultimately, we are seeing double-digit growth, despite the fact that the environment is changing in terms of CGM access, in terms of AID access and awareness. And so, that’s great. We expect that to continue. We expect new patient adds to continue in our international markets. And it’s one of the reasons why we’re working so hard to bring Omnipod 5 to our international markets. We’re not going to give a time line on that yet. We really wanted to wait to get Omnipod 5 into the market before we give guidance, so you can expect that sometime next year. But, I can tell you that the work is underway, fully committed to bringing our system to our global markets, and we will do that as quickly as we can. I think ultimately, these trends, while they present some near-term headwinds, they are very favorable trends for us, both in the U.S. and internationally. As we think about increasing awareness and adoption of AID in the U.S., as we think about increasing access for Dexcom’s CGM and increasing access and adoption of AID in our international markets, that paves the way for a successful launch of Omnipod 5. So, while it presents some near-term challenges, really medium term, it should be a great trend for us.

Jeff Johnson:

Wayde, you’ve mentioned the competitive impact of AID systems a couple of times. Every time you do, it seems like it’s focused on the international market. So one, we’ve got at least one of those AID systems here in the U.S., you’re not mentioning it as much from a U.S. perspective. Is that just given the pharmacy access, the t2 access, things like that that’s covering that up, or is there something specific in the international markets relative to the U.S. that is causing some of that issue, number one? And number two, Shacey, just to push on that OUS O5 time line and commentary you had. Regulatory-wise, what would you have to do? Can you use U.S. pivotal data to get a CE Mark and launch in Europe, maybe in Canada, things like that, or would you have to go through trials there that you haven’t yet contemplated or started? Thanks.

Shacey Petrovic:

And Jeff, to your question regarding Omnipod 5 internationally, there is not a clinical trial requirement to get CE Mark to be able to sell and market Omnipod 5 in our international markets. It is a regulatory pathway, the MDR pathway that we will submit through for CE Mark. And there will be clinical work that is done to establish increased adoption and increased access and coverage of the technology, but we don’t actually require any type of clinical to get clearance to be able to sell and market the technology in our international markets. So, the work that is underway is the technical work around translations, unit of measure, that stuff for the system, internationalizing the label and the system. And then, of course, we’ve got some regulatory work and then some clinical commercial work really for more of the commercial elements of the launch.

Matt Taylor:

So, I just want to ask one about international, just as a educational question. I mean, you talk a lot about pharmacy and pay-as-you-go in the U.S. And I just wanted to characterize how much of those types of channel and trialing advantages were translatable in the international markets, given they’re heterogeneous and you have a different go-to-market strategy there. Could you talk a little bit about that?

Bret Christensen:

Yes. Sure. Matt, it’s a great question, because the growth drivers today are a little bit different in the U.S. than they are internationally, but we see those as opportunities. And Shacey highlighted that we can move to pay-as-you-go, the pharmacy channel type 2. Those are related because remember, the reason why we have such great type 2 access in the U.S. is because we don’t build that upfront fee. And so, pay-as-you-go really is more key than the pharmacy channel is. And we’ll be looking at all of these opportunities internationally. But, certainly, we see lots of opportunity to move to a pay-as-you-go reimbursement model in the markets that we’re in and in future markets. That could open up the door for type 2 access. We think that’s a good start because when you don’t charge that upfront fee, you eliminate that risk for the payers. So, all these things that are carrying us today in the U.S. that really make the growth rates different than they are internationally as headwinds are fairly similar. Those are all opportunities for us in the international markets.

Travis Steed:

Just curious, Wayde, if you could give a little more color on kind of what you’re seeing with COVID vacations. And are you seeing staffing issues at ENDO offices? And a little color on kind of how you see some of the puts and takes on 2022? Obviously, Omnipod 5 is a big unknown at this point when that actually comes. But, just curious if you could give some puts and takes on next year, especially given some of the unusual seasonality we saw this year with COVID.

Bret Christensen:

Yes, sure. I can touch on both of those. So, I guess, the vacations and staffing are both -- I think the staffing is actually more of a real issue within some of the endocrinology offices. And that becomes an issue for companies like ours, only if we rely on those staff to do some of the work for onboarding. And that’s an effort that we’ve had underway for a long time now to take that work away from healthcare providers, to do more of the trainings, to do more of the onboarding. And we believe that we are the easiest product to train and onboard on because of the ease of use of Omnipod. And so, we don’t see that as a real headwind, although those are real issues for our customers and endocrinology offices, it’s not slowing us down in any way.

Shacey Petrovic:

I think, Travis -- Wayde, that was very well articulated. Travis, I would just point out to what Wayde is saying that Omnipod 5 will be an accelerator. It’s just a matter of when we can get into full market release in the U.S. and then when we can get it into market in our international markets. And obviously, the work is underway and the teams are very focused on making that happen. And then, as we look beyond 2022, we couldn’t be more excited because we’re launching what we think is going to be the most differentiated technology in the AID space. We see follow-on indications pretty rapidly with pediatrics. We see international expansion. We see iOS. And we see additional CGM integrations over the coming couple of years. And so, really exciting trajectory of innovation and growth over the next few years.

Jayson Bedford:

Geez, Wayde, after that last answer, I’m kind of tempted to ask about 2023 guidance, but I won’t. So, I have a couple of pharmacy questions. Pharmacy access, it’s now near 50% of your U.S. volume. Can we assume that the majority of these folks will have access to Omnipod 5 upon launch? And then, my second question is for the other half of folks that are not accessing Omnipod through the pharmacy, it looks like two-thirds may have coverage but are not yet going through the pharmacy. I’m just wondering, why are those folks not choosing to go through what seems like a better access point?

Operator:

Thank you. I show our next question comes from the line of Cecilia Furlong from Morgan Stanley. Please go ahead.

Shacey Petrovic:

Thanks, Cecilia. It’s a great question. What we know is those percentages will change. It’s a little hard to predict. But, when I think about Omnipod 5, I think about it as a additive growth driver. So, all the exciting growth that we’re driving because of the pharmacy and because of type 2 adoption, which is primarily multiple daily injections today in the type 2 users, that will continue. We know we’ve got a leadership position there and we have a differentiated technology for the type 2 user. But Omnipod 5 will be additive in terms of the growth eventually when we get into full market release and in terms of the patients that it’s bringing in, and it should make us more competitive for those users that are choosing AID over pump therapy. And we know that that’s the primary reason why somebody doesn’t choose Omnipod when they come on to pump therapy. So, we would guess that our pump conversions will increase with the launch of Omnipod 5.

Anthony Petrone:

Thanks and congratulations on a good quarter. I have three quick ones. Just a quick update on DTC, continuing to see the TV ads, and so just wondering if there’s any update on return on investment there on DTC? And what are the plans as you get into O5? And then, just on supply chain constraints, as we look into 2022, do you see any potential impacts to the working capital cycle as we get into next year?

Shacey Petrovic:

And on the supply chain question, I can maybe start us off and then ask Wayde to comment about the impact on working capital. But, what I can tell you is that our teams are doing a marvelous job managing these dynamics. And to me, it highlights the value of the investment that we’ve made over the last several years, not just in manufacturing redundancy but in supply chain redundancy. And that investment has really helped us to manage through some of the challenges that we’ve seen in all environments, all industries in terms of the supply chain around freight, around certain components, et cetera. So, our team -- while we may have incurred some additional costs, they’ve also done a terrific job offsetting those costs. And ultimately, there’s been no impact at all to customer supply. So, that’s a testament to how hard our teams are working to support the growth and also manage through these very real challenges that exist today.

Operator:

I show our next question comes from the line of Matt O’Brien from Piper Sandler. Please go ahead.

Wayde McMillan:

Yes. Drew, I can start that and then Bret may want to add some color as well. So, specific to the numbers, yes, 15% to 20%, I think you have it right in the sense that the U.S. will be at the high end of that range. We’re calling it high-teens, low-20s just to give ourselves some room there. But, as you said, the U.S. has lots of momentum, and you’ll certainly see low-20s in that range. And then, international at the other end of the guidance, as we said, low double digits because of the dynamics we’ve just talked about on the call today. Although double-digit growth internationally still good growth, strong growth on the back of DASH, we don’t have an AID system there, and we haven’t announced when we will yet. And so, we always put a thoughtfully appropriate guide in place for the year. We think diabetes at 15% to 20% on what’s now a $1 billion base of business is a good place to start. And again, we haven’t given formal guidance yet, just trying to help people understand some of the major puts and takes heading into 2022. And then, as you mentioned, Omnipod 5, that has a lot of variability to it. We’ve talked about here the limited market release and how long that takes. We’ve said publicly before, it’s usually a three to nine-month time frame. Depending on how fast that can be will dictate how fast we move to full market release. Access is also another gating factor. We’re starting really strong in a good position here, but it may take some time to build enough access. So, there’s just lots of things to consider around Omnipod 5. What we said is that we’ll start somewhere in this range, and we’ll update as we go through the year and as we progress with Omnipod 5. And so, I don’t know, Bret, if you want to add anything else there?

Operator:

Thank you. I show our last question comes from the line of Joanne Wuensch from Citi. Please go ahead.

Shacey Petrovic:

Sure. Joanne, I will start and perhaps Bret will have some additional thoughts to offer. But, we believe that Omnipod 5 will be additive to our growth. So, as you think about the momentum that exists today in our business, we’ll focus on the U.S. because that’s where we’re going to launch first. There’s a lot of momentum being driven today by DTC, so increasing awareness. There’s a lot of momentum being driven today by type 2 users of DASH, the increasing use in the pharmacy, and then the benefits of the pharmacy for all users and then, of course, our differentiated form factor. And that’s what’s driving our growth today. All of that remains. And then, Omnipod 5 comes and is additive, and we believe will make us more compete in the type 1 space. And there is also likely to be type 2 users of the technology, although we will not market directly to them until we have an expanded label. But, we do think the technology has value there to offer. So, I think we know for all of the people that are coming out of MDI and on to pump therapy, the primary reason that someone doesn’t choose Omnipod, which is clearly tests and market research to be a preferred form factor is AID. And with Omnipod 5, obviously, we check that box, and we believe we check that box with the very best system that will be on the market. And so, we think we get a lot more competitive, which is why I said earlier that the numbers will change, the ratios will change. Today, we get 80% of our users from multiple daily injections. We’re going to continue to get those people, and we will get more. We will get more competitive switchers as a result of Omnipod 5.