Memorandum

Insulet 1Q18 – Big access wins with UHC, Medicare Part D (Express Scripts); Dash PDM limited release in mid-late summer; Breakeven operating profit for first time – May 3, 2018

Executive Highlights

  • Worldwide sales of $124 million grew a strong 21% YOY in 1Q18, down only 5% sequentially from the blowout record high in 4Q17. Sales exceeded guidance ($119-$123 million), and also came on a challenging comparison to 1Q17’s 25% gain. 1Q18 US Omnipod sales of $70 million grew 18% YOY and declined 8% sequentially from a strong Q4. OUS sales of $38 million hit a record for the eighth straight quarter, rising 53% YOY, 8% sequentially, and driving 60% of overall Q4 growth – nice momentum ahead of direct EU distribution starting on July 1. Drug Delivery sales declined 12% YOY to $15 million.

  • Management raised 2018 revenue guidance to $565-$580 million (+22%-25% YOY), a $5-million bump on the bottom of the range. Most of the gain was attributed to higher US confidence, especially with the recent access wins (see below).

  • 1Q18 saw two major access wins with Medicare and UHC. Combined, Insulet has now opened “a pathway to ~40% of the US [type 1] market, or roughly 600,000 individuals who previously had little or no access to Omnipod.” Wow! CMS clarified in January that Omnipod may be covered under Medicare Part D, and formulary negotiations are off to a fast start: Express Scripts and Magellan just added Omnipod as a covered Part D benefit effective April 1, 2018, well ahead of the guidance for coverage to start formally on January 1, 2019. Insulet also secured in-network coverage with UnitedHealthcare starting April 1, and that is already benefiting the business in 2Q18. Finally, Omnipod’s Medicaid coverage has been strengthened, adding ~2 million covered lives in 1Q18. Management tempered expectations, noting that the recurring revenue model means a big impact won’t accrue until 2019+.

  • The Bluetooth-enabled Omnipod Dash PDM and pod remain under FDA review following a January submission, with plans for a limited market release in “mid/late summer.” The limited launch is expected to last six months, taking it to the end of year – and implying a full launch in ~early 2019. Dash will have a big presence at ADA.

  • Insulet reported breakeven operating profit in 1Q18 – the first time ever! – and is “very well-positioned” to achieve its 2018 goal of being EBIT-positive. For context, operating loss was $5 million in 1Q17. Gross margin was 61% in 1Q18, up meaningfully from 58% in 1Q17 on improved manufacturing and supply chain operations.

  • Insulet is “all systems go” to take over direct Omnipod distribution in Europe (from Ypsomed) on July 1. Nearly 100 people are now on the Insulet Europe team. Roughly 75% of Insulet’s EU base is in four countries – France, Germany, UK, Netherlands – where the company will go direct. Insulet has signed new distribution deals (Theras Group, Nordic Infucare) for Omnipod in Italy and the Nordic markets – in these more fragmented/smaller markets, it makes less sense for Insulet to go direct.

  • Insulet has 10 abstracts accepted to ADA, including free-living studies of the Omnipod Horizon AID system (tested down to 2+ years). Based on the data, the company will either move to a pre-pivotal or do another study – presumably this puts a pivotal trial in 2019 at this point. Insulet/Lilly will also share data on the use of Omnipod U500 vs. MDI in type 2 diabetes.

Insulet Quarterly Sales – 2Q13-1Q18

Guidance – 2018 and 2Q18

2018 Guidance

Total Revenue

$565-$580 million

+22%-25%

US Omnipod

$319-$323 million

 

+17%-19%

International Omnipod

$186-$194 million

 

+56%-62%

Drug Delivery

$60-$63 million

 

Decline of 13%-17%

2Q18 Guidance

Total Revenue

$130-134 million

+18%-22%

US Omnipod

$75.5-$77 million

 

+16%-18%

International Omnipod

$38.5-$40 million

 

+45%-50%

Drug Delivery

$16-$17 million

 

Decline of 7%

 

-- by Adam Brown and Kelly Close