Memorandum

Insulet 1Q17 – International sales grow 63% to a record-high; US sales rise solid 18%; installed base on track to grow 20% by year-end; Dash PDM to be shown at ADA, 2H17 FDA submission; 2019 Horizon launch – May 8, 2017

Executive Highlights

  • Total 1Q17 revenue of $102 million exceeded the mid-point of guidance by ~$4 million ($96-$99 million) and grew a strong 25% YOY on a very challenging comparison to 69% YOY growth in 1Q16.
  • US OmniPod revenue of $60 million grew 18% year-over-year (YOY) in 1Q17, hitting the second highest mark ever. International OmniPod sales of $25 million hit an all-time high for the fourth straight quarter, increasing 63% YOY and providing 47% of Insulet’s overall 1Q17 growth.
  • Putting to rest concerns about the MiniMed 670G, Insulet continues to see strong installed base growth: 30% YOY growth in 1Q17, including over 60% growth outside the US and 15% growth in the US. Close to 80% of new OmniPod users are from MDI.
  • The new Bluetooth-enabled Dash PDM and pod will be shown at ADA and be submitted to the FDA in 2H17 (launch in late 2017/early 2018). The OmniPod Horizon Automated Glucose Control system is expected to launch in “2019,” with a pre-pivotal study planned for this year and a pivotal study in 2018. The Lilly U500 and U200 OmniPods remain “on track” for 2019 and 2020 launches.

Insulet reported strong 1Q17 financial results today in a call led by CEO Patrick Sullivan, CFO Michael Levitz, and President/COO Shacey Petrovic. In the midst of a challenging insulin pump landscape, Insulet continues to record strong topline sales and grow its installed base in MDI (now close to 80% of new users) – both in the US and internationally. See the call’s top highlights below!

Financial and Business Highlights

1. US OmniPod revenue of $60 million grew 18% year-over-year (YOY) in 1Q17, hitting the second highest mark ever (after 4Q16). US sales again easily exceeded guidance ($56.5-$57.5 million), and the YOY comparison was also quite difficult (28% growth in 1Q16). Sales declined only 5% sequentially from a record-high 4Q16. 2Q17 US OmniPod revenue is expected to be $62.5-$64.5 million, reflecting more modest 13% YOY growth at the midpoint.

2. International OmniPod sales of $25 million smashed the previous record ($21 million in 4Q16), increasing 63% YOY, providing 47% of Insulet’s overall 1Q17 growth, and hitting a record-high for the fourth straight quarter. The YOY comparison was difficult (sales tripled in 1Q16), and revenue also rose an impressive 21% sequentially from the previous high in 4Q16. Management cited strong momentum in France, which should continue as 2Q17 growth is expected to remain high at 54% YOY ($25-$26 million).

3. Putting to rest concerns about the MiniMed 670G, Insulet continues to see strong installed base growth: 30% YOY growth in 1Q17, including over 60% growth outside the US and 15% growth in the US. Management reaffirmed 2017 guidance for 20% YOY growth in the global installed base, with 15% YOY growth in the US. This would take the global installed base to ~130,000 users by the end of 2017. “Closer to 80% of new users” are from MDI, and the “vast majority” of pumpers coming to Insulet are from Medtronic (not particularly surprising since Medtronic owns the market overall).

4. Total 1Q17 revenue of $102 million exceeded the mid-point of guidance by ~$4 million ($96-$99 million) and grew a strong 25% YOY on a difficult comparison (whopping 69% YOY growth in 1Q16). This marked the second straight quarter of exceeding $100 million in sales, translating to Insulet’s second-highest revenue ever in the post-Neighborhood Diabetes era (after 4Q16). The OmniPod business supplied ~91% of 1Q17 growth, the highest point in more than two years.

5. Management raised 2017 sales guidance on the low-end by $5 million, with full-year revenue now expected at $425-$440 million (up 18% YOY).

6. Insulet achieved a gross margin of 58% in 1Q17, increasing a strong four percentage points from 54% in 1Q16 and down only slightly from 59% in 4Q16. Insulet remains on track to approach 60% gross margins for 2017, be sustainably EBIT positive beginning in 2018, and reach 65% gross margins long term

7. Insulet ended the quarter with $254 million in cash, down from $300 million at the end of 4Q16 – this reflects spending on new highly automated manufacturing plant in Massachusetts. The plant remains on track to be operational in 2019.

8. Insulet completed a sales force expansion during 1Q17, though the size of the expansion was not disclosed. The team is expected to be at full productivity starting in 4Q17.

9. Discussions with Medicare continue and are focused on whether the OmniPod should fit into Part B or Part D. CEO Patrick Sullivan said he has “every confidence we will get Medicare coverage,” and the process will wrap up “hopefully soon.”

Pipeline Highlights

10. The new Bluetooth-enabled OmniPod Dash PDM (locked down Android phone) and pod will still be shown at ADA. An FDA submission is expected in 2H17, paving the way for a possible launch in late 2017 or early 2018. The 4Q16 call positioned Dash to firmly launch by the end of 2017 in a limited market release running into 1Q18. The team is clearly going to take the time to get the product right.

11. The OmniPod Horizon Automated Glucose Control system is expected to launch in “2019,” with a pre-pivotal study planned for this year and a pivotal study in 2018. This timing may be running a bit earlier than the previous “late 2019” launch expectation.

12. The Lilly U500 and U200 OmniPods remain “on track” for 2019 and 2020 launches, respectively – these timelines were less specific than the investor day timelines for “1H19” and “late 2019-early 2020” launches. Final U500 “patient follow-up and clinical data compilation” is expected to complete by the end of 2018, which is far longer than we would have guessed.

Financial and Business Highlights

OmniPod Sales, US and International (2Q13-1Q17; millions)

1. US OmniPod revenue of $60 million grew 18% year-over-year (YOY) in 1Q17, hitting the second highest mark ever (after 4Q16). US sales again exceeded guidance ($56.5-$57.5 million), and the YOY comparison was also quite difficult to a 28% gain in 1Q16. Following record-high US sales in 4Q16, this follow-up performance saw only a modest 5% sequential decline. Management was extremely pleased with the US momentum, which contributed 44% of Insulet’s 1Q17 growth. Like 4Q16, remarks highlighted Insulet’s differentiated business model and focus on MDI. 2Q17 US OmniPod revenue is expected to be $62.5-$64.5 million, reflecting more modest 13% YOY growth at the midpoint on another difficult YOY comparison.

2. International OmniPod sales of $25 million smashed the previous record ($21 million in 4Q16), increasing 63% YOY, providing 47% of Insulet’s overall 1Q17 growth, and hitting a record-high for the fourth straight quarter. The YOY comparison was difficult (sales tripled in 1Q16), and revenue also rose an impressive 21% sequentially from the previous high in 4Q16. Management cited strong momentum in France, which should continue as 2Q17 growth is expected to remain high at 54% YOY ($25-$26 million). Insulet and Ypsomed are in active contract discussions to renew their agreement, and management was quite neutral about what might happen – we would expect the terms to change in some ways (higher margins for Insulet?) or for Insulet to go direct in some countries, as it has in Canada.

3. Putting to rest concerns about the MiniMed 670G, Insulet continues to see strong installed base growth: 30% YOY growth in 1Q17, including over 60% growth outside the US and 15% growth in the US. Management reaffirmed 2017 guidance for 20% YOY growth in the global installed base, with 15% YOY growth in the US. This would take the global installed base to ~130,000 users by the end of 2017, up from ~105,000-110,000 at the end of 2016. As a reminder, ~60%-65% of users are in the US. President Shacey Petrovic said that “closer to 80% of new users” are from MDI, and the “vast majority” of pumpers coming to Insulet are from Medtronic – again, good news for Insulet in this competitive environment.

4. Total 1Q17 revenue of $102 million exceeded the mid-point of guidance by ~$4 million ($96-$99 million) and grew a strong 25% YOY on a difficult comparison (whopping 69% YOY growth in 1Q16). This marked the second straight quarter of exceeding $100 million in sales, marking Insulet’s second-highest revenue ever in the post-Neighborhood Diabetes era (after 4Q16). The OmniPod business supplied ~91% of 1Q17 growth, the highest point in more than two years. Drug Delivery sales held steady at $17 million, growing 12% YOY and down 14% sequentially. Management said sales are on track to hit $1 billion by 2021, in line with the November Investor Day.

5. Management raised 2017 sales guidance on the low-end by $5 million, with full-year revenue now expected at $425-440 million (+18% YOY). Guidance was maintained for 2017 US OmniPod sales ($258-$265 million, +14% YOY), though increased by two-percentage points at the midpoint for the international OmniPod growth (+38% YOY, $97-$100 million). Drug delivery is still expected to growth 10% YOY ($70-74 million).

6. Gross margin was 58% in 1Q17, increasing a strong four percentage points from 54% in 1Q16 and down only slightly from 59% in 4Q16. Insulet remains on track to approach 60% gross margins for 2017, be sustainably EBIT positive beginning in 2018, and reach 65% gross margins long term. Management cited improvements over the last year in manufacturing and supply chain as driving factors in margin expansion, in line with 4Q16 and investor day comments.

7. Insulet ended the quarter with $254 million in cash, down from $300 million at the end of 4Q16 – this reflects significant capital expenditures as it kicks off building its new highly automated manufacturing plant in Massachusetts. The plant remains on track to be operational in 2019.

8. Insulet completed a sales force expansion during 1Q17, though the size of the expansion was not disclosed. The team is expected to be at full productivity starting in 4Q17, which should provide a nice tailwind as the year goes on.

9. Discussions with Medicare continue and concern whether the OmniPod should fit into Part B or Part D. CEO Patrick Sullivan said he has “Every confidence we will get Medicare coverage,” and the process will wrap up “hopefully soon.” It sounded like the change in administration has slowed things down, though Mr. Sullivan was very complementary.

Pipeline Highlights

10. The new Bluetooth-enabled OmniPod Dash PDM (locked down Android phone) and pod will still debut at ADA. An FDA submission is expected in 2H17, paving the way for a launch in late 2017 or early 2018. The latter was a bit behind the 4Q16 plan to launch by the end of 2017 and run into 1Q18 – in Q&A, Ms. Petrovic emphasized that a couple months here or there won’t make a difference for Insulet’s revenue, so the focus is on launching the best possible product. Dash has been tested with more than 100 consumers and clinicians, and feedback has been “incredibly enthusiastic.” Insulet continues to focus on simplicity and greatly reducing time to perform common tasks.

11. The OmniPod Horizon Automated Glucose Control system is expected to launch in “2019,” with a pre-pivotal study planned for this year and a pivotal study in 2018. This timing is actually sounds earlier than the previous “late 2019” launch, which makes sense: the product has completed two clinical studies already in more than 80 patients, both pediatrics and adults. Ever since the “late 2019” timing was announced, we thought it was a bit conservative, and Insulet would obviously be well served to launch earlier. The adolescent and pediatric data is expected at ADA following the first data at ATTD in February.

12. The Lilly U500 and U200 OmniPods remain “on track” for 2019 and 2020 launches, respectively – these timelines were less specific than the investor day timelines for “1H19” and “late 2019-early 2020” launches. Final U500 “patient follow-up and clinical data compilation” is expected to complete by the end of 2018, which is far longer than we would have guessed – the 416-patient U500 trial has a study completion date listed as this month. Insulet is now in FDA discussions regarding U200 trial design, which is expected to start by early next year. This pipeline project has moved at a glacial pace and does not seem to be speeding up. 

Pipeline Summary

Pipeline Product

Timeline

OmniPod Dash Platform: locked down Android hone, Bluetooth-enabled pod, mobile app for secondary display, Dexcom G5 app integration on phone

 “Debut” at ADA 2017; FDA submission in 2H17; launch expected by late 2017 or early 2018.

OmniPod Horizon Automated Glucose Control system

OmniPod with built-in Bluetooth and control algorithm, Dexcom G5 or G6 CGM, Dash PDM

Launch expected in 2019. Two in-clinic feasibility studies completed in adults and pediatrics. First data presented at ATTD 2017; more data at ADA 2017.

Lilly U500 OmniPod PDM

Expected to launch in 2019. Study underway, slated to wrap up in May 2017.

Lilly U200 OmniPod PDM

Expected to launch in 2020. Clinical study expected to start in early 2018.

Drug Delivery

- Amgen Neulasta Delivery Kit (oncology)

- Ferring (infertility)

- Capricor (heart failure)

- Other possible partnerships (obesity, pulmonary hypertension, oncology, and Parkinson’s medications)

 

- Launched

- Launched

- Supplying for phase 2 trial

- No specifics shared

 

-- by Adam Brown and Kelly Close