PODD

Insulet Corporation (PODD)

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Insulet Corporation (PODD)

Q3 2008 Earnings Call Transcript

November 6, 2008, 5:00 pm ET

Executives

Duane DeSisto – President and CEO

Carsten Boess – CFO

Analysts

Mike Weinstein – JP Morgan

Paul Choi – Merrill Lynch

Matt [ph] – William Blair

Bruce Cranna – Leerink Swann

Philip Legendy – Thomas Weisel Partners

Mimi Pham – JMP Securities

Bill Plovanic – Canaccord Adams

Shawn Fitz – Stephens Inc.

Hamed Khorsand – BWS Financial

Suraj Kalia – Sanders Morris Harris

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Insulet Corporation third quarter 2008 earnings conference call. My name is Ann and I will be your coordinator for today's call. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of the presentation.

I would now like to turn the presentation over to Duane DeSisto, President and CEO of Insulet Corporation. Please proceed.

Duane DeSisto

Thank you, operator. Good afternoon, everyone, and welcome. With me today is Carsten Boess, Insulet's Chief Financial Officer. Thanks for joining us to discuss our results from the third quarter of '08, another solid quarter for Insulet.

We will be making forward-looking statements about various aspects of our business, so please refer to our most recent 10-Q for a full discussion of our risk factors.

I am very pleased to report that, in the third quarter, we continued to make significant progress in strengthening Insulet's commercial and manufacturing operations and we achieved two impressive milestones, our first quarter of revenue in excess of $10 million and our first month of positive gross profits in September.

Our impressive top-line growth was driven by approximately 160% year-over-year growth in new customers. In the first half of 2008, we strengthened our sales and marketing infrastructure, achieving nationwide sales force coverage to drive the growing demand for the OmniPod System.

Q3 was the first full quarter in which we were able to leverage this expanded organization and nearly 2,000 new customers began using the OmniPod System. This growth is coming from all over the country, with all territories now up to speed and growing strongly.

Several years ago, when we finalized the design of the OmniPod System, we were confident that the products customer-friendly form factor would appeal to people with diabetes and their physicians and that our pay-as-you-go model would appeal to both patients and third-party payors. We were sure that if we could deliver insulin pump therapy that overcame the challenges of conventional pumps we could eliminate the obstacles preventing so many people from choosing the best possible treatment for Type 1 diabetes.

As I've said before, we knew the tough part was going to be building the manufacturing capacity to meet the markets eventual demand for such an innovative product.

After our dramatic jump in production in the first half of 2008, we turned our efforts to the challenge of driving down the costs per OmniPod. We met this challenge by successfully transitioning the majority of the OmniPod manufacturing to China over the course of the third quarter.

In the second quarter, approximately 80% of our production came out of Bedford, with the remainder from China. In the most recent quarter, the inverse is the case, with approximately 85% of our production coming from China. This was a swift and impressive transition and I'm proud of our accomplishment.

As a result of this transition, we were able to maintain our production volumes at a consistently high level of approximately 200,000 OmniPod's per month, which enabled us to decrease per unit costs and break through to positive gross profits in September. We expect the fourth quarter to be our first full quarter of positive gross profits.

Our operational infrastructure is also positioned to deliver cost-effective growth of the innovative and easy-to-use OmniPod Insulin Management System. We reversed the trend of increasing operating expenses in the third quarter, while posting significant top line in new customer growth.

The increase in new customers is partially a reflection of the success of our DTC campaign. We continue to see impressive results from these DTC programs, including magazine and Internet banner advertising, direct mail, as well as ads on dLife, a television program targeting the diabetes community.

Our DTC campaign has dedicated links and 800 numbers toward our unique trial tool, the OmniPod Product Demonstration Kit or PDK. We believe this call to action is a significant competitive advantage and a key element of the success of these programs.

In Q2, our conversion rate, as a percentage of referrals, went from the 70% range to the 60% range. We've made progress on turning this trend around, although we're not yet where we want to be. As part of this effort, we've added a few more internal resources and still have a few key hires to go.

We've also augmented our referral processing by starting to work with select distributors to give us indirect access to certain key managed care contracts we didn't previously have ourselves. We continue to invest in further demonstrating the clinical and functional benefits of the OmniPod System and expand the market for its potential uses.

The Company is supporting the first investigator initiated clinical trial of the OmniPod System to deliver concentrated U500 insulin to patients with Type 2 diabetes. This study, which completed enrollment in the third quarter is being conducted by Dr. Wendy Lane at the Mountain Diabetes and Endocrine Center in Ashville, North Carolina.

Read the rest of this transcript for free on seekingalpha.com