Memorandum

Insulet 4Q20 – Omnipod 5 submitted to FDA, limited launch to commence in 1H21, same pricing as Omnipod DASH; record revenue of $246 million (+18% YOY) driven by record new starts; global Omnipod user base surpasses 250,000 – February 23, 2021

Executive Highlights

  • Both prepared remarks and Q&A were dominated by discussion around Insulet’s Omnipod 5 hybrid closed loop system. The US pivotal trial for both pediatrics and adults (ages 7+) has been complete since September and the company looks for results to be read out at ENDO 2021 in March – that’s very exciting for the ENDO meeting and we are thrilled for the organizers that they will have such strong data unveiling. Omnipod 5 has already been submitted to the FDA. Insulet aims to launch Omnipod 5 in a “limited market release” beginning in the “first half” (i.e., before the end of June). Ultimately, the full market launch for Omnipod 5 is expected to go into “later this year or early next [year].”

  • Management announced that Omnipod 5 will be offered at price parity (the same price) with Omnipod DASH. Comments in the call emphasized that Insulet is choosing to focus first on broad access for Omnipod 5. Given the price parity, it’s hard to imagine any patients currently covered for Omnipod DASH would not be able to access Omnipod 5. This was a big deal to hear and we’re thrilled for patients to learn about it.

  • Insulet reported record total 4Q20 revenue of $246 million, rising 18% YOY (+15% operationally) on a tough comparison to 27% YOY growth in 4Q19. Sequentially, total revenue grew 5% compared to $234 million in 3Q20. FY20 global revenue hit a record $904 million, rising 23% YOY (+22% operationally) and easily beating out 2019’s previous record of $738 million (+31% YOY). This was a very impressive result given that for many, while it was a “bridge” to a meaningfully more innovative pump, it was not itself technology that was such a notable advance.

  • The fourth quarter saw a “record number of global new customers.” While management said this was driven by historically high US new customers starts and uptake of Omnipod DASH, we believe the increase was driven by a look ahead to what DASH will enable – the Omnipod 5 and automated insulin delivery. But, DASH was certainly a big deal - new customer starts rose “almost 40%” compared to 3Q20 and saw positive improvements in both US and OUS geographies. 4Q20 was also the only quarter in the year to see YOY growth in the number of new patient starts, following a very strong 2019. All of this drove Insulet to a global user base of “250,000” Omnipod users, a mark that CEO Stacey Petrovic said during Q&A that the company achieved early in 2021.

  • Omnipod DASH made up “over 65%” of new US patient starts in the quarter and continues to drive a number of positive trends for Insulet. Driven by DASH, “over 35%” of Insulet’s total US product volume ran through the pharmacy channel in 4Q20, up from “over 30%” in 3Q20. Looking forward, Insulet plans to launch Omnipod 5 only in the pharmacy channel, which should further drive the shift to this channel. Ms. Petrovic estimated “between 35% and 40%” of new US users in 4Q20 were patients with type 2 diabetes. This is a significant rise from “approximately one-third” of new US users in 3Q20 and is great to hear – insulin delivery is incredibly complicated for anyone but especially those with type 2 and we are thrilled to hear about so many people with type 2 benefit from continuous insulin delivery. Roughly 80% of new US customers are coming from MDI, in line with historical figures and a testament to Insulet’s ability to expand the pump market.

  • Insulet management praised Abbott at the end of the call’s Q&A, noting that Abbott is bringing “real time insights” to users and that “[Freestyle Libre and Dexcom G6] adoption is helping to fuel Omnipod adoption.”

  • Management also referenced Tidepool during Q&A, speaking positively about the organization, and taking time to explain that Insulet’s partnership with Tidepool was primarily been “a clinical and product development one.” As it has before, it emphasized that that Omnipod 5 was Insulet’s clear focus and given Insulet’s work on iOS, it sounds like Omnipod 5 compatibility with iOS has been worked on for a while. That Insulet’s Omnipod 5 would be ready for approval for use on iPhones would’ve been of interest to patients, many of whom may choose Insulet’s Loop option if that is approved first so that they can keep using their iPhones. We imagine Insulet would learn a great deal during an Android launch that could be referenced later and used. We urge flipping through our Q&A pages later in this report to learn more!

Insulet reported record 4Q20 and full year 2020 financial results this afternoon on a call led by CEO Shacey Petrovic and CFO Wayde McMillan. See our top highlights below.

Pipeline Highlights

1. Omnipod 5 submitted to the FDA with “limited market release” starting in 1H21; full market launch “later this year or early next”; pricing parity with Omnipod DASH

To literally no one’s surprise, both prepared remarks and Q&A were dominated by discussion around Insulet’s Omnipod 5 hybrid closed loop system. The US pivotal trial for both pediatrics and adults (ages 7+) has been complete since September and results are expected to be read out at ENDO 2021 in March. Today’s call brought a number of additional updates on the timing, pricing, and specifics around Omnipod 5.

  • Omnipod 5 has already been submitted to the FDA. At Insulet’s JPM 2021 presentation, Ms. Petrovic expressed confidence that the review time for Omnipod 5 would not be significantly affected by the COVID-19 related delays of ~three months expected for other devices. Despite the delays at the FDA, Ms. Petrovic shared today that “Collaboration has been great and engaged on behalf of the Agency.” To that end, Insulet is benefitting from the Breakthrough Device Designation given to Omnipod 5 back in 3Q18 to help accelerate review time.

  • Insulet plans to launch Omnipod 5 in a “limited market release” beginning in the “first half” (i.e., before the end of June). The “primary governor” for the pace of Omnipod 5’s rollout will be Insulet’s ability to establish access through the pharmacy channel; Insulet currently does not intend to make Omnipod 5 available through the DME channel. In addition to establishing access through the pharmacy, Ms. Petrovic noted that Insulet will also be closely monitoring the customer training and access experience during the limited launch. Ultimately, the full market launch for Omnipod 5 is expected to go into “later this year or early next [year].”

  • Omnipod 5 will be offered at price parity with Omnipod DASH. Management emphasized that Insulet is choosing to focus first on broad access for Omnipod 5 – this was great to hear for patients and healthcare systems, given that some patients would pay more for it

  • . Given the price parity, it’s hard to imagine any patients currently covered for Omnipod DASH would not be able to access Omnipod 5. As noted above, coverage for Omnipod DASH through the pharmacy is currently in the ~75% of covered lives range. Previously, Insulet had confirmed they would not charge an upgrade fee to Omnipod 5, but was still discussing whether there would be a pricing premium. For now, Insulet is clearly committed to making access to Omnipod 5 as easy as possible as quickly as possible, something patients and providers can certainly appreciate.

  • As expected, Omnipod 5 will launch with full smartphone control for Samsung Android users. All users will be shipped a PDM device to be used as either the primary or backup pump controller. As we heard in 2Q20, the Omnipod 5 PDM will come with SIM connectivity, meaning that all users will be able to upload pump data to the cloud in real-time. This feature might be particularly useful for parents of young children without smartphones to still see their kid’s data real-time. During Q&A, Ms. Petrovic reiterated that Insulet is continuing to work on Apple iPhone compatibility for Omnipod 5.

  • Following launch of Omnipod 5 for pediatric and adult type 1s (likely ages 7+), Insulet also has plans to expand the system’s indication. On today’s call, Ms. Petrovic shared that a pivotal trial in “preschoolers” (ages 2-6) has already completed with the data being compiled for an FDA submission. All eighty children in that study completed the study and opted into the extension phase of the study, suggesting very positive results. Currently, Medtronic’s MiniMed 770G system is the only AID system available for this age group, but Omnipod 5’s tubeless form factor and lack of fingerstick calibrations should make the system a very compelling offering. As we heard at JPM, Insulet also continues to enroll for a 30–40-person type 2 feasibility study to expand Omnipod 5’s indication into that population.

Slide taken from JPM 2021.

2. Other AID projects: Tidepool specifics “still to be worked out” and Abbott integration work “is underway”

While Omnipod 5 will launch first with Dexcom G6 and Samsung smartphone control compatibility first, Insulet does have partnerships with other groups to drive patient choice.

  • One year ago, Insulet made a surprise announcement about plans to integrate Omnipod 5 (then referred to as Horizon) with Abbott’s FreeStyle Libre CGM. For now, FreeStyle Libre 2, though cleared as an iCGM in June, still comes with a contraindication against use with AID systems. Despite this, Insulet has continued to reiterate its long-term intentions to integrate FreeStyle Libre into its AID system (see EASD 2020 and JPM 2021 remarks). Employees are Insulet are already working on integrating FreeStyle Libre with Omnipod 5 and today, Ms. Petrovic promised updates in the future after Omnipod 5 gets to the market with Dexcom compatibility.

Slide taken from EASD 2020.

  • During Q&A, Ms. Petrovic was asked about Tidepool, particularly given Omnipod 5 will not launch with iPhone control compatibility initially. While Insulet has provided support to Tidepool on the regulatory and product development side, Ms. Petrovic noted that there is no commercial agreement in place and working out such an agreement would be a “tremendous undertaking.” As a reminder, Tidepool submitted its Loop algorithm to the FDA in December with a decision from the FDA expected to come sometime this year.

Financial and Business Highlights

1. Record 4Q20 revenue of $246 million, rising 18% YOY (+15% operationally); US Omnipod revenue of $149 million (+18% YOY); International Omnipod revenue of $82 million (+25% YOY)

Insulet reported record total 4Q20 revenue of $246 million, rising 18% YOY (+15% operationally) on a tough comparison to 27% YOY growth in 4Q19. Sequentially, total revenue grew 5% compared to $234 million in 3Q20. As has been the case for several quarters (see 1Q20, 2Q20, 3Q20), Insulet continues to outperform guidance; this quarter’s revenue came in ~$14 million above the high end of the guidance range given in November. This guidance beat was driven by total Omnipod revenue growth; Omnipod revenue in the quarter rose 20% YOY (+18% operationally) and 9% sequentially to $231 million. Drug Delivery, which finished “slightly ahead” of expectations (beating guidance by ~$1 million), also contributed to this overperformance. Overall, despite the rise in COVID-19 cases, deaths, and lockdowns globally, 4Q20 saw strong growth. Of note, 4Q20 was the first quarter to fall below 20% YOY total revenue growth in ten quarters, following nine straight quarters of >20% YOY growth – we’d attribute this more to a growing base, as well as compounding effects from slower new patient adds earlier in the year, than to any meaningful decline in company performance.

  • Despite a global pandemic, FY20 revenue outperformed pre-COVID guidance for $841-$871 million in FY20 global revenue and $788-$815 million in total Omnipod revenue. Actual FY20 global revenue hit a record $904 million, rising 23% YOY (+22% operationally) and easily beating out 2019’s previous record of $738 million (+31% YOY). Likewise, the year’s Omnipod revenue totaled $835 million, rising 24% (+23% operationally), surpassing the previous record of $674 million in 2019. Both full-year US and OUS Omnipod revenue beat pre-COVID expectations as well, totaling $527 million (+25% YOY) and $308 million (+22% YOY, 20% operationally), respectively. Finally, Drug Delivery also beat pre-COVID expectations, which anticipated a 15%-20% YOY decline in full-year revenue, instead rising 7% to $70 million. The chart below tells the story, with global annual revenue following a consistent line of growth since 2015.

  • The fourth quarter saw a “record number of global new customers,” driven by historically high US new customers starts and uptake of Omnipod DASH. New customer starts were up “almost 40%” compared to 3Q20 and saw positive improvements in both US and OUS geographies. New customer starts in the quarter were still down 10% compared to pre-COVID expectations, but the record 4Q20 new starts signal that COVID-19 did not have as huge of an impact on new starts as was previously expected. Mr. McMillan also shared that 4Q20 was the only quarter in the year to see YOY growth in the number of new patient starts, following a very strong 2019.

  • US Omnipod revenue totaled a record $149 million, rising 18% YOY on a very tough comparison to 36% YOY growth in 4Q19. Sequentially, US Omnipod sales grew 13%. US growth was driven by increased Omnipod DASH adoption and “continued mixed benefit” of moving to the pharmacy channel, where Insulet realizes higher per-patient revenue. Omnipod DASH continues to constitute the majority of new patient starts in the US, accounting for “over 65%” of new starts in the US in the quarter, a slight increase from “approximately 65%” in 3Q20. Additionally, the pharmacy channel continues to grow, now representing “over 35%” of total US volume, up from “over 30%” in 3Q20. Type 2 uptake continues to rise as well, rising from “approximately one-third” of new users in 3Q20 to “35-40%” of new users in 4Q20. On today’s call, Insulet again shared that “approximately 80%” of new patient starts in the US are coming from MDI. These metrics all continue to trend positively for Insulet and we discuss in more detail below – we’ll also discuss more in our upcoming industry pump analysis.

  • International Omnipod revenue was also a record, reaching $82 million on 25% YOY growth (+18% operationally) and 3% sequential growth. This growth was driven by a growing customer base and better than expected new customer starts due to the unexpectedly lower headwinds from COVID-19-related shutdowns in Europe. Similar to many other companies, Insulet is experiencing a slower recovery in Europe compared to the US, but Insulet is making up ground. (Commentary from Medtronic this morning guided for European recovery “a couple of months” behind that of the US).  Helping drive the recovery is broad commercial roll-out of Omnipod DASH in European markets.

  • Drug Delivery finished the quarter with $15 million in revenue, down 11% YOY and 47% sequentially. Management attributed this YOY decline to the “timing of production” and did not further elaborate. Drug Delivery ended the quarter “slightly ahead” of expectations, beating the guidance range by ~$1 million. Since 3Q16, Drug Delivery business revenue has hovered around $15-$19 million dollars and hasn’t received much attention in earnings calls. The only notable deviation from this trend occurred in 2Q20, when Drug Delivery revenue rose to $24 million as home delivery of medications during the pandemic became more appealing. Management did not expect this revenue to last, it appears; clearly Insulet’s focus is on its core Omnipod business.

2. Full-year 2021 guidance: revenue growth of 15%-20% ($1.04-$1.08 billion), total Omnipod revenue growth of 17%-21% ($977 million-$1.01 billion)

Despite COVID headwinds, Insulet saw strong growth in 2020 and is now guiding for 2021 full-year revenue growth of 15%-20% YOY. Based on $904 million in FY20, this would represent 2021 guidance for $1.04-$1.08 billion. Omnipod revenue in 2021 is expected to grow 17%-21% ($977 million-$1.01 billion), driven by continued Omnipod DASH volume growth, further movement into the pharmacy channel, and expanded access to and adoption of Omnipod in the type 1 and type 2 markets, as well as the limited commercial launch of Omnipod 5 (see more below). US Omnipod revenue growth is guided for 21%-25% YOY ($638-$673 million) and international Omnipod revenue growth is guided for 10%-15% YOY ($339-$354 million). Notably, if total revenue guidance is met and the high end of total Omnipod guidance is achieved, 2021 will mark Insulet’s first year with over $1 billion in revenue and will meet the five-year goal first set at Insulet’s Investor Day in 2016.

Slide taken from Insulet’s 2016 Investor Day.

  • For 1Q21, Insulet expects 20%-24% revenue growth, representing a revenue range of $238-$246 million compared to $198 million in 1Q20. Total Omnipod revenue is expected to total $220-$226 million (+16%-19% YOY operationally) with US Omnipod revenue rising 20%-23% operationally to $140-$144 million and OUS Omnipod revenue rising 9%-12% operationally to $80-$82 million. Drug Delivery revenue is expected to total $18-$20 million, up a whopping 225%-250% YOY from $8 million in 1Q20.

  • During Q&A, Mr. McMillan confirmed that Insulet expects to achieve a 67%-70% gross margin in 2021. Insulet’s 1Q21 gross margin is expected to come out “below 67% and then we’ll build into the range as we go through the year.” Mr. McMillan also noted that while Insulet may not achieve 70% in 2021, “we’re confident that we’ll get the 70% over time.” The upper end of 2021 gross margin guidance matches the goal outlined at JPM 2020 for gross margin of 70% in 2021.

  • Although asked to provide longer-term three-to-five-year guidance during Q&A, Mr. McMillan shared, We're not going to provide long range plan guidance update until we get to the other side of Omnipod 5. It is a real pivotal launch for the company, and we're excited about what it can deliver, so we're pacing ourselves for an update to the long-range plan. We'll get a few quarters under our belt with Omnipod 5, and then we'll be updating from there.”

3. Net loss of $17 million in 4Q20, FY20 net income of $7 million; gross margin of 66% in 4Q20; $948 million in cash and short-term investments

Insulet reported a GAAP net loss of $17 million in 4Q20, compared to net income of $5 million in 4Q19. For the full year 2020, Insulet reported a net income of $7 million, compared to $12 million in 2019 and $3 million in 2018.

  • Gross margin in 4Q20 came in at 65.5%, up 150 basis points YOY, which included ~40-basis points of unfavorable impact from COVID-19-related costs. Per Mr. McMillan, Insulet’s gross margin expansion by improved manufacturing efficiency and the move to the pharmacy channel. Insulet’s gross margin has remained fairly consistent over the last nine quarters between 64% and 67% and appears to be on track to achieve its gross margin guidance of 67-70% in FY21.

  • 4Q20 operating losses totaled $7.3 million, compared to $18.2 million in operating income in 4Q19. It’s worth noting that operating expenses in 4Q20 include the $14.6 million loss related to the ~$36 million settlement of Insulet and Ypsomed’s legal dispute. During the call, Mr. McMillian explained that operating expenses in the quarter also included “a stock award to all employees for their execution in a very challenging environment, as well as to mark our 20th anniversary as a company.”

  • Insulet ended the quarter with $948 million in cash and short-term investments. This is up compared to $376 million at the end of 2019 and $289 million at the end of 2018. As a reminder, Insulet shared that “subsequent to Q3” (i.e. in 4Q20), Insulet raised an additional $130 million in cash beyond the $897 million reported in 3Q20, which at that point in November, put Insulet likely at more than a billion in cash and short-term investments. Certainly, Insulet is in a strong position to make the investments necessary to expand access to Omnipod and successfully launch Omnipod 5.

4. Third highly automated US manufacturing line installed; continued investments in marketing and direct-to-consumer “pilots”

Insulet continued to build up its manufacturing capacity in 4Q20, with the successful installation of a third US manufacturing line and the opening of a second contracted manufacturing site in China. The installation of Insulet’s third US manufacturing line is in-line with prior plans to have that line up and running by “2020.” Insulet other two automated manufacturing lines in the US are currently capable of producing sellable product and the company expects its third US manufacturing line “to begin sellable production this year.” Both Ms. Petrovic and Mr. McMillan highlighted Insulet’s growing manufacturing capacity as important wins for “supply chain redundancy” to ensure Insulet can support continued new patient growth into the future. As a reminder, Insulet’s second US manufacturing line began production in 1Q20 and is continuing to ramp its capacity. All three highly automated US lines are located at the company’s Acton, MA site with plans to install an additional fourth manufacturing line as part of a $200+ million investment to move Insulet’s global headquarters to Acton, MA. Both the US and Chinese manufacturing lines are also key drivers for Insulet to reach its long-term gross-margin goals, with the new line opening in China that effectively “doubles the capacity” of Insulet’s Chinese manufacturing.

  • Ms. Petrovic reaffirmed Insulet’s desire to increase advertising citing positive feedback from the Omnipod DASH pilot DTC campaign. Notably, Ms. Petrovic highlighted Insulet’s growing DTC and other marketing initiatives as key components of increasing Omnipod adoption among type 2 patients. Additionally, during Q&A, Mr. McMillan shared that Insulet is pursuing OUS pilot DTC campaigns in many of its new markets looking to continue the strong international roll-out of Omnipod DASH. We have seen DTC campaigns become a growing component of marketing in the diabetes tech world with the most recent push coming from Dexcom. We expect that for Insulet DTC marketing will be especially useful for expanding into the type 2 population and maintaining its position as a leader in the pediatric insulin pump market.

Omnipod Highlights

1. Global Omnipod user base of “~250,000” includes both Omnipod legacy and DASH users; JP Morgan analyst estimates 51,000-52,000 patients added in 2020 alone

Published in Insulet’s 4Q20 press announcement, Insulet has “250,000” global Omnipod users, representing a significant milestone for the patch pump company. Insulet’s last publicly shared installed base update was ~145,000 users in 4Q17, indicating the company has gained over 100,000 new users in the last three years. During Q&A, JP Morgan’s med-tech analyst Robbie Marcus estimated that Insulet added 51,000-52,000 new patients in 2020 alone, something Ms. Petrovic declined to confirm or deny. This most recent figure of 250,000, achieved in early 2021, includes both Omnipod and Omnipod DASH users around the globe. With a quarter million users, Insulet appears to be outpacing Tandem which reported “nearly 190,000” in-warranty users as of 3Q20 – we hope for another user base update on Tandem’s 4Q20 earnings call tomorrow. Unsurprisingly Medtronic still boasts more pump users than either Insulet or Tandem with an estimated “~249,000” users on its MiniMed 670G system alone as of 1Q20 suggesting its total installed pump base is considerably higher. For some comparison, we estimated that the global CGM market has surpassed the 4 million user mark. Specifically, as of 4Q20 Abbott shared it had “nearly 3 million” global FreeStyle Libre users and Dexcom estimated its user base at “~900,000.”

2. Omnipod DASH continues positive trends: “over 35%” of US volume running through pharmacy, 35-40% of new US users are type 2s; international rollout continues

In 4Q20, Omnipod DASH drove “over 65%” of new patients starts in the US, rising slightly from the “approximately 65%” figure we heard in 3Q20 and 2Q20. The growing adoption of DASH comes as Insulet has secured coverage for “approximately 75%” of covered lives in the US across type 1 and type 2 populations at the end of 2020. This represents an increase from “65% to 70%” in 3Q20 and “approximately 65%” in 2Q20. We didn’t hear Medicare and Medicaid updates, but as of 1Q20 “over 50% of Medicare” and “approximately 70%” of Medicaid beneficiaries had coverage for DASH. However, while we didn’t hear any coverage updates, Ms. Petrovic did characterize Insulet’s Medicare coverage as “very strong” continuing to say Omnipod DASH “adds zero dollars out-of-pocket” for the Medicare user. Overall, Insulet’s pay-as-you-go, pharmacy channel, no upfront-cost, Omnipod DASH system continues to drive a number of positive trends for the company:

  • “Over 35%” of Insulet’s total US product volume ran through the pharmacy channel in 4Q20, up from “over 30%” in 3Q20. Going further back, this metric was “almost 30%” in 1Q20, “over 25%” in 4Q19, “over 20%” in 3Q19, 15%-20% in 2Q19, and 10%-15% in 1Q19. Ms. Petrovic reiterated comments from previous quarters sharing that the majority of DASH users pay “less than $50/month” out of pocket through the pharmacy channel. Notably, Ms. Petrovic also shared that for many users, $50/month is on-par with what they would pay for MDI therapy making Omnipod an affordable alternative. During today’s call, Mr. McMillan described the pharmacy channel as a “key priority” for Insulet’s business model “as it reduces barriers and drives expanded access for Omnipod and is more efficient for our customers providing low, more predictable out-of-pocket costs and is easier to prescribe for physicians, not to mention the number of benefits for payers.” Looking forward, Insulet plans to launch Omnipod 5 only in the pharmacy channel, making the past efforts in expanding pharmacy coverage for Omnipod even more valuable.

  • Ms. Petrovic estimated “between 35% and 40%” of new US users in 4Q20 were patients with type 2 diabetes. This is a significant increase from “approximately one-third” of new US users in 3Q20 and bodes well for development. Type 2 users got significant attention on today’s call with numerous questions during Q&A focusing on long-term type 2 market penetration goals. While Insulet did not share specific goals, Ms. Petrovic reaffirmed Insulet’s commitment to expanding into the type 2 market stating, “We’ve got a product today that is incredibly simple and being very enthusiastically embraced and then as we have kind of the next wave as we bring the simplicity of Omnipod 5 to the Type 2 market, we think that can further unlock it. We’re excited about the long-term prospects for the Type 2 space.” Ms. Petrovic also shared that in addition to hearing full results from the Omnipod 5 pivotal read out at the ENDO Conference next month, we can also expect a presentation from the Dr. Bruce Bode on recently collected feasibility data for Omnipod 5 among type 2s.

  • In-line with historical figures, roughly “80%” of new US customers are coming from MDI. This figure has been holding steady at 80% since 1Q20. which is impressive given Insulet’s necessary transition to virtual trainings due to COVID-19. It is also worth noting that Tandem typically seems roughly half of its new customers coming from MDI, suggesting Insulet is doing an excellent job expanding the overall pump market likely in part due to its pay-as-you-go model and simple form factor.

  • Despite stronger international COVID-19 headwinds, Insulet has continued to expand its international presence into five new countries in the fourth quarter. Insulet also expanded into Turkey just last week and has plans to move into the Australian market “later this year.” Notably, as of 3Q20, “100%” of new customers in Europe start on DASH, which may place Insulet in a strong position when it brings Omnipod 5 into international markets. We also heard about Insulet’s international expansion plans at JPM 2021 and were excited to see DASH launch in Canada last month.

Investor Q&A

Q (Larry Biegelsen, Wells Fargo): Just one from me on the rollout of Omnipod 5. Shacey, what does a limited launch mean? Who is going to have access and who now have access and how is that going to involve through the course of 2021? Thank you.

Shacey Petrovic, CEO: Sure. Thanks for the question, Larry. I did want to share in the Q&A that we are under review now and that's part of what gives us great confidence in the launch into limited market release in the first quarter. Collaboration has been great and engaged on behalf of the Agency. So, as we move into limited market release, we're looking to test a few things. So the primary driver (editor’s note – we were not 100% clear how to translate this word) as I said in my openings remarks is going to be access you know we've to establish broad access in the pharmacy channel that work is underway but will take us time to scale and so that's going to be the priority primarily but what we'll be looking for in limited market release, is indicators that it's successful and that we're ready to continue to expand as market access expands. We'll be looking qualitatively  … to understand the customer experience, the training experience, and the access experience for people who are coming onto the product from multiple daily injections, for our existing users that are transitioning onto the product, and for tubes pump users that are transitioning onto the product. So, we're just going to want to test that all of our systems, our training, our clinical support are going as we expect them to and the products experience is going as we expected to in each of those groups as we validate that and as we establish access that's what will help us expand through the rest of this year and into full market launch later this year or early next.

Q (Robbie Marcus, JP Morgan): I'm going to squeeze two [questions] into my one here. One, Shacey, I was coming out you know that 40% growth number over third quarter was fantastic I'm coming out that's it for the year at something a little over 51,000 new patient adds, 52,000, I just want make sure that's the right ballpark and then, Wayde, as you look at cadence through the year, what are you assuming for a new patient growth firm from Omnipod 5 and how are you expecting that to impact the cadence throughout 2021? Thanks.

Wayde McMillan, CFO: Robbie, thanks for the question and you're right. We were very happy to see the sequential improvement from Q3 to Q4. The pandemic certainly impacted us, in the middle of the year, even in the US, and just as importantly international. Actually, Q4 was the first quarter that we saw improved new customer starts in both regions over prior year 2019 and in 2019 there was a really tough comp we had record breaking new customer starts in 2019. So, you're absolutely right, that sequential improvement was important for us to see. We're not going to comment on specific numbers of customers. But as we as we shared in our earnings release we now have 250,000 global customers. So ,it's a good data point, I think, for you. And then on new patients start growth for Omnipod 5, as Shacey said in her prepared remarks it'll be a limited release and so there's a lot of scenarios running on that one. It really depends on what point in the year we get it launched here in the first half, and then, how we ramp. And as Shacey said you know we're going to be monitoring a lot of things. We want to do a great job of both the user experience as well as developing access. And so again just like Shacey said it's those two things that will be pacing the ramp up over time. And none of that diminishes our excitement around getting Omnipod 5 into the market next year. We've had just an immense interest from customers and our teams are and have been gearing up to launch Omnipod 5 for a couple of years now. So, a lot of momentum, a lot of excitement building, but we want to keep ourselves in check to make sure that we have the most successful launch we can. And part of that is limiting the ramp as we move through the end of the first half and into the second half of the year.

Q (Jeff Johnson, Baird): A whole lot of things I'd like to ask, but let me just focus I guess on longer terms. Wayde, I know, you just gave 2021 guidance and still dealing with some COVID uncertainties, but for the past few years we've kind of had that guiding light out there with your five-year plan that you were calling for a $1 billion in revenue by this year and in mid-teens operating margins as well by this year. It looks like you're going to deliver revenue above that guidance this year, margins maybe fall short a bit for all the Omnipod 5 investment reasons you've talked about, but is there any way to help us think about maybe the next three to five years, again kind of give us a guiding light there even if you're not going to officially kind of comment on five year outlook, can revenue growth sustain above 20% over the longer term here intermediate to longer term and do margins start to expand again, once we get through this heavy investment period in 2021 do we think about margin expansion then going forward in 2022, 2023? Thanks.

Mr. McMillan: Yeah. Thanks for the question Jeff. And we're spending a lot of time on it ourselves as well. I went through a robust long term strategic planning session here and – but we're not going to provide long range plan guidance update until we get to the other side of Omnipod 5. It is a real pivotal launch for the company and we're excited about what it can deliver. So we're pacing ourselves for an update to the long range plan. We’ll get a few quarters under our belt with Omnipod 5 and then we'll be updating from there. You highlighted a few important things to the story though which include the guidance here in 2021, which we feel is really strong in particular for the US 21% to 25% guidance for US and less in international because we do see the pandemic headwinds persisting internationally more.

We've covered a lot in our revenue guide in the prepared remarks. I think gross margin is pretty well understood at 67% to 70% in 2021 and there's going to be some phasing to that. We should expect Q1 to be below 67% and then we'll build into the range as we go through the year. There's quite a few drivers that will dictate whether we end up at the low end of that 67% to 70% range or at the high end. If we don't make 70% this year we are committed to getting to 70% over time. So I think that was part of your question Jeff as we think about gross margins, they are a key component of our financial thesis and we're confident that we'll get the 70% over time. And then you mentioned the bottom line as well, we have a very strong operating margin guide here for 2021 in the low double digits, that's a significant step up from 2020. But we should not assume the same step up beyond 2021. That is one area while we've not guided to 2022 and beyond, we want to make sure that everyone understands our investment thesis here is to continue to invest to capitalize on our differentiated position in this very large and unpenetrated market both Type 1 and Type 2 markets. So you should expect us to continue to invest heavily beyond 2021. In particular in R&D and innovation clinical selling and marketing, we are going to be driving efficiencies as we scale in G&A and support functions. And so that will help us along with the gross margin expansion to build a strengthening financial profile over time. But just to come back directly to your question, Jeff, I think we will continue to tick operating margin up annually probably more like a 1% but not stepping it up every year like we are this year from 2020 to 2021. So we're not given specific operating margin guidance for the future years but did want to make sure everyone fully understands our investment thesis here, and that we're balancing our continued investments with our strengthening financial profile over time. Thanks, Jeff.

Q (David Lewis, Morgan Stanley): Wayde, just want to come back to the Omnipod guidance globally. The US number, I think, is a little stronger than people are expecting and obviously the OUS number a little weaker based on the commentary you discuss in terms of European recovery. But we did see European recovery and European business in absolute dollars get better the last two quarters sequentially your guidance implies that we'll take a step back for the first time in the first quarter to down 1Q versus 4Q. So just beyond what you're seeing in terms of resurgence is there: anything going off a competitive perspective 780G, Control-IQ what have you because it just seems that you are seeing some improvement in Europe in the first quarter guide in the 2022 guide sort of the 2021 guide. So, it doesn't suggest that continues. If you could flush it out that be great. Thanks so much.

Mr. McMillan: Good question, David. Thanks. And we spend a lot of time on this because you know as you know and a lot of companies are challenged with really trying to peg guidance. In fact a lot of companies aren't guiding for this specific reason. The pandemic is tough to peg. You know obviously more difficult outside the US at least for us. We saw a pretty significant step up and improvement in the US as we've progressed through the year. And as we said in our prepared remarks were only 10% off of our beginning of your expectations in Q4. The US is on the better side of that. So almost back to our beginning of your expectations and it was a record-breaking quarter for us ever. And so a lot of confidence in that US guide. And like you said you know we think it's a strong guide at both the high end and the low end. It'll be higher growth dollars than it was in all of 2020.

International as you mentioned, David, it is feeling more of the compounding effect of our annuity model. So, because the new customer starts were heavier impacted internationally in the last three quarters of 2020 it's going to feel it more in the first half of 2021. And then unlike the US, we're anticipating further pandemic impacts, the pandemic persisting into the first half of 2021 internationally. So that continues to compound into the number. So it is quite dramatic. Having said that, we've got a lot of momentum in our international business too, we've got the DASH rollout across all of our new, all the regions internationally. We've got seven new countries. We're making investments and sales force expansion. We're also investing in marketing and direct-to-consumer pilots there as well. So that's what gives us the confidence to still guide to pretty strong double digits you know 10% to 15% in the face of a challenging pandemic environment internationally. So that's what we're comfortable with at this point of the year here at the start and happy to be providing guidance and insights for you all. And you know we'll certainly track it as we go throughout the year.

Q (Jayson Bedford, Raymond James): Just a quick one for me, the recent milestone of 250,000 users … how recent was that? A 2020 event or 2021 and just is there been any changes in the attrition or retention … ?

Ms. Petrovic: Thanks. Sure. Jason, yeah we are thrilled to be celebrating the milestone of a quarter of a million users relying on Omnipod, it's really exciting for the organization! That's a recently-hit milestone. Obviously, it's all estimates. So I always want to sort of predicate it with that. But that was a 2021 event. And there have not been changes in attrition or utilization those are really remained steady. That's terrific actually because obviously as we had anticipated the impact of the pandemic, we did anticipate that potentially attrition could tick up and we didn't see that. And that's part of the driver behind the really strong performance in 2020 in the face of the pandemic. So that's great news on the business model and just the customer loyalty.

Q (Chris Lin, Cowen): It seems like Tidepool could receive FDA approval imminently. I was curious if you have any commercialization plans for Omnipod and the Loop algorithm upon launch and how this could impact your thinking on Omnipod with iPhone. And more specifically, do you have anything factored into 2021 revenue guidance related to this product. Thank you.

Ms. Petrovic: Sure. Thanks for that question Chris. Our partnership with Tidepool has primarily been a clinical and product development one. So, we've been supporting their regulatory submission and their development work. We don't have a commercial agreement at this point with Tidepool. So that's still to be worked out. I will say it's a tremendous undertaking to do that. So there's still a lot of work ahead of us. But, that said, we do … we have said that we are working underway or we have work underway here with Omnipod 5 on the iOS platform. So, I think it remains to be seen who's going to hit the market first with iOS. And we're certainly really excited about Omnipod 5. That remains our priority at this point. And we'll continue to support Tidepool's efforts in terms of their submission and their development.

Q (Anthony Petrone, Jeffries): One would be on the pre-school opportunity for Omnipod 5 - can you quantify how large that opportunity is and maybe characterize the demand among parents to get pre-schoolers on an automated solution. And a quick one for Wayde would be on the automated US and China lines when those reach scale how would you quantify the gross margin tailwind? Thanks.

Ms. Petrovic: Great. Thanks, Anthony. And I don't have the size for the pre-school segment. This is a smaller segment so ages two to six. But I can tell you it's an outsized importance important segment both in terms of the value of the technology to this group as well as the value of this group to Insulet. You know today we are the market leader in pediatrics. We see our ability to maintain and expand that segment. And you think about the benefits of Omnipod for this segment and the ease of use and the discretion for young active children versus small active children having to contend with three to four feet of tubing and a large device. It's a particularly differentiated technology today without CGM integration and automated insulin delivery. And when we combine that for this group it's going to be incredibly powerful. So we know based on the response and the feedback from our trial participants and I think the strong indicator that 100% of users completed the trial and moved on to the extension phase you know all really important indicators that we're going to have a winning product in this population.

Mr. McMillan: Anthony, it's critical to our overall strategy given that we want to make sure that we not only have capacity but also quality products and redundancy across the globe to make sure we can continue servicing our customers. And so along the lines of your question from the automated lines in the US, we have to producing now and a third line installed that will be producing saleable product on this year. So that more than doubles the capacity in our legacy China facility. And then you referenced the other China lines, which is the fact that we stood up a second third-party manufacturer in China during 2020 which also doubles our capacity out of our legacy facility. So, all of that together gives us significant capacity increase as well as the ability to balance it between the facilities, and that redundancy is important for us. The gross margin tailwind. It is the single largest driver actually of our gross margin improvement over time, as we begin to put more volume through all the plants we scale more efficiently. But in particular are US manufacturing facility that is automated and has mostly fixed costs limited variable costs – the more volume we put through there will become the most efficient plant that we have. And so that will be a gross margin tailwind for us. So, all of the operations strategies are designed, number one to get good quality product a reliable product to our customers and also drive gross margin favorability for us.

Q (Matt Taylor, UBS): You mentioned on that working on these sensor integrations, I was hoping you could just flesh that out a bit more and talk about the partnership and the timing there to any extent that you can.

Ms. Petrovic: Sure, Matt. And we're excited to be partnered with Abbott. Their product has been particularly adopted in international markets are certain countries where they are a dominant shareholder. And as they continue to drive ease of use and awareness they're a terrific partner for us. So as I mentioned we won't be giving updated timelines until we get our current generation with Dexcom out onto the market. We're very excited about the value that that's going to drive. But you know both sensor partners Dexcom and Abbott are driving you know they are transforming the market. They are bringing real time insights to users and that adoption is helping to fuel Omnipod adoption. And so both are very important to us. And we see the potential to bring a long line of innovations with our partnerships with both Dexcom and Abbott. So we're working on that just like iOS we have had teams of people focused on that integration and that work is underway and excited to update the market you know after we get Omnipod 5 to market.

--by Hanna Gutow, Katie Mahoney, Albert Cai, and Kelly Close