Insulet Corp (PODD) 2015 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation's First Quarter 2015 Earnings Conference 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 and Corporate Communications.

Thank you, Damon. Good afternoon and thank you for joining us for our first quarter 2015 earnings call. Joining me today are Patrick Sullivan, our President and Chief Executive Officer; Allison Dorval, Chief Financial Officer; and Dan Levangie, President, Insulet Drug Delivery.

The replay of this call will be archived on our website. Our press release discussing our first quarter results and second quarter and full year 2015 guidance, as well as a document that provides our quarterly revenue composition, are also available in the IR section of our website.

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 involve known and unknown risks and uncertainties that may cause actual results to materially different from any future results implied by such statements. Such factors include those referenced in our Safe Harbor statement in our first quarter earnings release and in the Company's filings with the SEC.

With that, let me turn the call over to Pat.

Thanks, Deb. Good afternoon, everyone. Thank you for joining us on the call today. During today's call, we'll cover the following topics.

First, I'll provide commentary regarding our first quarter performance, including a brief review of the state of the business and why we feel more strongly than ever about our future prospects. Next, Allison will review our first quarter financial performance in more detail.

I'll then provide our second quarter guidance and our full-year expectations and update you on the progress we're making on the key strategic initiatives we discussed during last quarter's conference call and some of our early wins. And finally, I'll turn the call over to Dan to update you on the exciting opportunities within our drug delivery business.

To start, I'd first like to address the factors behind the $7 million difference in our first quarter revenue results of $61 million compared to the midpoint of the guidance of $67 million to $69 million we provided on our call at the end of February. Approximately $4 million of this difference was from our international business, $2 million from drug delivery, and $1 million from our Neighborhood Diabetes business. We expect to still realize $6 million of this $7 million in 2015.

First of all, we recognized total international revenue of $3.7 million in the first quarter of 2015, which was $4 million below the level that we included in our Q1 guidance. As we discussed on last quarter's call, throughout most of 2014, Ypsomed increased their safety stock of inventory as a hedge against our historical production challenges. Also, as I had previously shared with you, they reduced their safety stock coming into this year based on their confidence in our ability to reliably and consistently produce and provide OmniPod product to them.

While working with Ypsomed to reduce their days on hand inventory during the quarter, we agreed to further reduce their days on hand target in the second half of March. This change in reduced days on hand target was driven by their desire to further reduce their working capital tied up in inventory and the financial impact of the significant strength of the US dollar. We also expect some additional residual impact in Q2, due to this revised target.

In spite of this reduction in Q1 revenue, due to the more efficient inventory management, we are bullish about our prospects internationally. Ypsomed has forecasted a more than 40% growth in the OmniPod patient install base for 2015, which has resulted in their increasing their full year 2015 consumption forecast, based on true end-user demand.

The 2015 forecast reflects Ypsomed's intended purchases and inventory levels at the end of Q2 that reflect a balance they are comfortable maintaining to support the revenue growth, which includes expansion in certain territories. With our production capacity and inventory levels in balance, we remain confident that our international business will return to growth in the second half of 2015 and for the full year 2016.

Our revenue of $5 million in our drug delivery business was $2 million below our original expectation. This delta is simply due to a timing of a planned March shipment as our manufacturing of pods for our pharmaceutical partner ramps up. We remain very confident in our full-year revenue guidance for this business in the range of $15 million to $20 million.

Neighborhood Diabetes revenue was almost $14 million for the quarter; approximately $1 million short of our expectations, primarily due from the harsh winter weather conditions we experienced in the Northeast in Q1. Those three factors represent the $7 million delta from our February 26 conference call.

Our revenue of $39 million in our US OmniPod business was roughly flat to Q1 of 2014 and in line with our expectations. The results in this business for the first quarter also reflected expected right-sizing of inventory levels within our domestic distributors.

This inventory reduction impacted our US diabetes business during the quarter, which we fully anticipated when we gave you guidance in February. As you know, approximately 40% of our US diabetes business runs through a network of distributors.

In the quarter, we placed our fourth OmniPod production line at Flextronics, we placed it into production, which increased our production capacity by 20%. It is now increasingly evident that we are able to supply high-quality product in time to meet our US distributors, increasing in end user needs compared to the early days of our new product launch in late 2013 and 2014, when we had less than 50% of our current capacity.

It makes perfect sense for all of our US distributors to reduce their days on hand inventory. We are confident that US distributors are at a reasonable level of inventory at the end of Q1 and that their future prospects will reflect end user demand.

During the quarter, we made great progress building out a world-class marketing and sales organization under the leadership of Shacey Petrovic, who joined us in February. Shacey has rapidly added sales executives to her team, dramatically improved our sales and customer training functions, has already begun to deliver significant improvements.

We are very excited to report to our new patient starts in the first quarter reached an all-time record high for any first quarter in history of the Company, up double-digits versus Q1 of 2014. We also saw a 36% in new patient starts for those under the age of 20.

We attribute these initial results to our focus on delivering our clinical selling message to physicians and their support teams through our comprehensive and focused medical education program launched during the quarter. These results also reflect increased Management focus on physician targeting and improved execution. We are very excited about the early returns from our US commercial team.

Based on achieving Ypsomed's revised days on hand inventory targets in Q2, their 40% year-over-year increase in their install base, and our strong outlook for our drug delivery business, and the early, very positive traction of our US commercial team, we are reaffirming our full-year guidance of $305 million to $320 million and are incredibly excited by our growth prospects for the second half of 2015 and 2016.

Before I turn the call over to Allison, I'd like to take a minute to thank her for her significant contributions during her seven year tenure with Insulet. As we announced earlier this month, Mike Levitz will join us next Monday as our CFO, bringing over 15 years of public company financial experience, a deep understanding of the medical device sector, and a proven track record of success.

His expertise leading global financial organizations will be valuable as we execute our strategies to position Insulet for accelerated growth. We greatly appreciate Allison's many years of dedicated service and wish her only the very best for the future. Allison?

Thanks, Pat. I've enjoyed being part of the Insulet team these past seven years and have complete confidence in the Company's success moving forward. As I review our results, unless otherwise stated, all of the commentary regarding changes will be on a year-over-year basis.

In the first quarter, we recognized revenue of $61.2 million, an 11% decrease compared to $69.2 million. The breakdown of first quarter 2015 revenue is as follows: our US OmniPod franchise was $39.2 million compared to $40.8 million; drug delivery was $4.7 million compared to $1.2 million; neighborhood Diabetes was $13.6 million compared to $14.4 million and included approximately 5% OmniPod revenue; and lastly, international was $3.7 million compared to $12.8 million.

Consolidated gross margins increased to 54% compared to 47%, reflecting operational improvements coupled with shifts in geographical and business line product mix. Operating expenses increased 19% to $41.4 million from $34.7 million.

Of the total operating expenses, $2.4 million in Q1 of 2015 and $200,000 in Q1 of 2014 related to management transition charges within R&D and G&A. Approximately half of the operating expense increase was within sales and marketing, with the other half split between R&D and G&A.

Net loss was $11.8 million compared to $6.1 million. The main difference between net loss and our $8.6 million operating loss was $3.2 million of net interest expense, which primarily related to interest on our 2% convertible notes.

$1.9 million of net interest expense was non-cash. Our cash balance was $145.6 million at the end of March compared to $151.2 million at December 31.

With that, I'll turn the call back over to Pat.

Thank you, Allison. We firmly believe OmniPod is the most innovative and differentiated insulin delivery pump on the market and has significant potential in other drug delivery applications. We continue to lay the foundation to ensure we remain well-positioned for continued accelerated growth and global adoption.

We're developing the right strategy, making the right investments, and implementing the strategy in a comprehensive and disciplined fashion. I'm extremely confident we have the right team and the proper focus to excel and win in all facets of our business.

Turning to the second quarter revenue guidance, we believe top line revenues will be in the range of $67 million to $70 million, down 3% to 7% from Q2 of last year and consistent with our expectation that 2015 growth will be in the second half. Let me now take a few minutes to recap the progress we've made during the quarter.

Our US commercial restructuring and expansion efforts are well underway and we've made exciting progress on strengthening our sales organization and our capabilities. To-date, we've filled approximately 75% of the open field positions.

We revised our sales incentive and training programs, along with rigorous performance measures, to drive greater accountability. As I previously mentioned, we saw significant improvements in generating new patient starts and while one quarter does not make a trend, it does show we believe we have opportunities for near and long-term growth.

One opportunity I mentioned in our Q4 conference call is to improve the retention rate of our OmniPod users. Although our attrition rate remains consistent with prior quarters at 9%, a small improvement in that rate can make a big difference since reorders represent about 90% of our OmniPod revenue.

One opportunity we've identified is to standardize and improved our new patient training for the OmniPod product. We've added expert personnel to our commercial team with a view toward improving programs by providing world-class training tools and support.

These efforts aim to ensure our patients get off to a great start with OmniPod, that they achieve improved A1C control, and remain on the product for life. This team is assessing our current onboarding program, identifying key areas where we can quickly add value, and developing a long-term strategy for patient training excellence.

On the marketing front, we're also making significant success. As I touched on during our last earnings call, we've been focused on increasing patient awareness of the OmniPod system and increasing healthcare professionals' and managed care plans' understanding of our products clinical and economic benefits.

During Q1, we launched our peer-to-peer physician education program with a little more than half a dozen programs completed and another 45 scheduled. Initial feedback is very positive and we are pleased with the results. We are further driving our customer segmentation marketing initiatives in order to better connect the patients depending on their specific needs.

We've aligned our marketing team in several key areas, including pediatrics, each with a specific customer focus. These new refocused teams are developing strategies to drive increased adoption of OmniPod and the respect of customer segments.

On the market access front, we are pursuing multiple parallel paths to secure Medicare coverage as quickly as possible. Today, when an OmniPod user turns 65 after benefiting from the unique advantage of OmniPod for years, they may be forced to either pay cash for their supplies or potentially go back to multiple daily injections. I get letters from patients all the time who are unhappy with the lack of Medicare coverage for OmniPod and my highest priority this year is to gain Medicare and Medicaid coverage for the product.

Finally, we've had senior level private payer discussions on the clinical benefits of OmniPod. Payers are pleased and interested to see the clinical data. As I've mentioned in the past, our strategy is to provide more clinical evidence as quickly as possible to demonstrate the clinical and economic benefits of OmniPod for patients, payers, and providers.

Turning to R&D, we continue to make progress on the development of our new personal diabetes manager and remain on track for filing the 510(k) by the end of the year. This new PDM will have a modern user interface with touchscreen technology and incorporate bluetooth low-energy capabilities.

Our clinical trial [ability] remains on track and we have scheduled meetings with certain investigators for this summer. We've also launched an artificial pancreas project with the team, focused initially on algorithmic evaluation and our customer requirements.

We remain focused on investing in efforts to drive innovation and next generation game-changing technology. Our investment in our overall customer experience includes continually enhancing our portfolio to broaden value to our patients and to other stakeholders.

We are focused on our road map and plan to invest more in our research and development efforts this year to support this plan. We'll share more with you on our future calls once we complete a thorough strategic review of our key initiatives and any investment required.

I'd like to now turn the call over to Dan Levangie to discuss the tremendous opportunities with our drug delivery business. Dan?

Thanks, Pat. I'm very excited to have joined the Insulet Management team and see incredible opportunities for growth within our drug delivery business. As we said earlier, we feel very good about our 2015 drug delivery revenue guidance of $15 million to $20 million.

As you may be aware, today, Insulet has two very important non-insulin drug company partners with Ferring Pharmaceuticals and Amgen. We diligently work to support these customers and their patients, while responding to a fairly robust stream of incoming projects.

Our Ferring relationship is long-standing and still has the potential for growth. And as we've reported, the Amgen product was introduced to the market during the first quarter. In addition to these revenue-generating agreements, we have additional agreements in place and are active in early-stage development programs with a number of other companies; each with a therapeutic agent that could become a major advance in their respective category, ultimately delivered using our OmniPod technology.

Keeping in mind that these early-stage projects came to Insulet with very little, if any, outbound commercial effort, our intention now is to be proactive in pursuing other drug delivery opportunities. Since I joined the leadership team in February, we've begun to sort through the universal of currently marketed subcutaneously administered drugs and have found a substantial number of commercial opportunities that we will vigorously pursue.

To exploit these opportunities, we've started to build a sales, marketing, and medical team and have added to our manufacturing operations and product development teams to support what we predict will be a portfolio of exciting drug delivery programs that will generate substantial revenue and profits for Insulet in the future. We expect to make additional investments in our drug delivery business during 2015. We'll initiate our proactive commercial efforts in June of this year and will provide as much transparency as possible, given the confidential nature of these early-stage programs and the comparatively long timelines from initiation to marketing approval and revenue generation.

In summary, we're enthusiastic about our progress to date and are building the internal capabilities to aggressively pursue and capitalize on a number of attractive drug delivery opportunities. Ultimately, we believe that the OmniPod technology can improve patient care by reducing dosing complexity and improving patient compliance with what, in many cases, are life-saving therapeutic interventions.

With that, operator, I'd like to have you open the line for questions.

(Operator Instructions)

Tao Levy, Wedbush.

Great, thanks, good afternoon. Maybe we could just first start off, just to make sure I understand, here in the first quarter, the drug delivery business that was off by a few million -- how come you weren't able to manufacture that product? My understanding was this was product that was supposed to have been sold or filled in the fourth quarter, the approval didn't come until late and then, now it sounds like there's maybe some more manufacturing changes that need to happen or ramp up so that you can fulfill the rest of the Amgen order? Is that --?

Let me try to explain. The approval of the Amgen product didn't occur until late in the fourth quarter, so we were not able to build product prior to FDA approval. And it's important to keep in mind that the drug delivery product is different than our diabetes product. The differences are in the supply chain and in the manufacturing and sterilization process.

As a result of that, these longer lead times and longer sterilization interval caused us to come up a bit short during the quarter. We've got that under control now. We're manufacturing product, we have product in the sterilization process right now, and we'll make up this $2-million shortfall before the end of the year.

Okay. My follow-up, as you look at the guidance for the second quarter, it sounds like the big delta there is coming from the international side of the business. Maybe you can -- again, I know you talked about it in the call, but just give a little bit more clarity as to what you're seeing in that business that gives you confidence that these orders are going to start taking place again in the second half of the year. And the revenue that you generated here in the first quarter, how does that flow through in terms of what we'll see in the second quarter?

First of all, I think we are very confident with Ypsomed prospects for all of 2015. Dan, Shacey, and I traveled to Switzerland and met with their team earlier in the first quarter, and I would say they have a very strong plan to provide increased -- a 40% increase in their install base in 2015 over 2014. In addition, they're going into additional territories during this year. So, we're very optimistic about their prospects. They have a very good plan in place, and we're very confident on their ability to execute.

I think the challenge for us in the second quarter is the residual impact of them wanting to reduce their days-on-hand inventory due to the strength of the US dollar. It's -- the US dollar has had significant impact, I think, on many multinational companies this year, so far, and I think this is an impact that we're seeing on our business, which is, they buy the product in US dollars, but the Swiss franc, obviously, is subject to the strength of the US dollar and they wanted to reduce their exposure.

Shaun Rodriguez, Cowen and Company.

First, want to follow up on the last, so just to be clear, I think the initial expectation and guidance was for OUS revenue to be about flat for the year and you talked about expecting to grow again in the second half and grow for the full year in 2016. But, to be clear, is the expectation still about flat or is the updated view on OUS that we should be expecting a decline?

We expect it to be flat versus last year and, essentially, what's happening is that the growth that they're going to see is making up for the reduction we're doing in the inventory. So, flat year over year.

Okay, so still flat year over year. And, I guess, as a follow up on that, it does sound like you spent a lot of time with Ypsomed in March. Could you provide an updated perspective on what's giving you the comfort that them launching their own pump in the coming months won't be a significant factor in their expectations and your expectations of -- from them for OmniPod? Thank you.

I think the difference there -- the Ypso pump, which we spoke about with them in -- earlier in the first quarter, is focused on the lower-resourced areas of the market and where they are -- would be opted out of tenders that are basically focused on cost. The OmniPod is positioned completely differently, and we don't see any cannibalization occurring between those two market segments.

Danielle Antalffy, Leerink Partners.

Good afternoon, guys, thanks so much for taking the question. Patrick, I was hoping you could comment on reiterating guidance, despite the lower first and second quarter, at least relative to consensus, and it's very back end loaded. One of my questions is, as it relates to US OmniPod new patient starts -- very positive commentary from you, encouraged to hear that -- how are you feeling relative to how we're thinking about the growth in new patients for the year?

Do you feel better about that 20% plus year-over-year new patient growth number as we exit -- as we get into the back half of the year? Or do you think that -- are you sticking to that number? I'm trying to get to, is there a potential upside, given your positive commentary and what you're seeing so far in Q1?

I think one quarter doesn't make a trend, so I think we're going to need to get some more experience under our belt as we get into Q2. I will say that the commercial team, in my view, having really started very much early in the quarter and the year, joining very early in January, really hit the ground running and I think have had a significant impact, exceeded my expectations on their ability to really have an impact this quickly.

So, I think all of the signs are pointing in the right directions, but we've got work to do, and we want to make sure we've got all of the foundations in place to make sure that we've got a very solid commercial effort. It's going to take some time marketing to the payors and to the clinicians with some of the preliminary clinical data we've got, so we've got to build out the marketing message before we get too overly optimistic.

Sure, that's fair. And then, on the drug delivery business, just trying to get a handle on exactly what is in guidance, since it's very early days. So, just want to confirm that it's just Amgen in guidance for this year and, if not, maybe how much of Amgen is included in guidance? Before I drop, Allison, I just wanted to say, we'll miss you. It was great working with you. Thanks so much, guys.

With respect to the drug delivery guidance, we've got two commercial relationships: one with Ferring, the other with Amgen. The Amgen is the new edition, so you would expect that the lion's share of the growth will come from that relationship. But, overall, it's $15 million to $20 million for the year.

Mike Weinstein, JPMorgan.

Thanks for taking the questions. Let me just clarify for a couple items here, I want to make sure we heard you right. You still expect, even with the first-half shortfall from Ypsomed, that your OUS revenues will be flat year over year at the $50 million you reported last year? And then, the second question is, the US OmniPod sales were down 10% sequentially, but you said the attrition rate held at 9%.

I just want to check, are you sure about that? And are you sure -- how confident are you in that attrition number? And then, is that 10% decline really all inventory destocking at your distributors, because that's a pretty good drop off. Thanks.

We did have destocking in the quarter that affected our US OmniPod business. Your first question, I think, was on Ypsomed. Yes, Ypsomed, we -- I'm sorry, we expect our international revenues to be flat. We do see a residual effect of the inventory days-on-hand reduction target that was a reduction made in March that we're going to have some residual in Q2 as result of that. One of the other things, Mike, to remember is that about 25% of our OUS business comes from our other distribution partners in other parts of the world, Canada and Israel.

Brooks West, Piper Jaffray.

Thanks for taking the question. Pat, obviously, a lot of concern around the international guidance. Maybe you could just help us a little bit more with the mechanics of that. I know that these aren't contractual orders from Ypsomed as they talk about the build in the second half. But, generally, when -- how do you ship those throughout the quarter? Is it right at the end of the quarter, and what's your visibility into that ordering pattern? Is it a three-month, is it a six-month hard visibility into those patterns out of that partner in particular?

We have full-year visibility into Ypsomed plans and what their expected out of their door sales are going to be into the end-user markets, so we have their --those sales projections that they're focused on. And then you back that into the days-on-hand inventory that they want -- that they're comfortable with.

And what we saw in the back half of March was their desire to reduce that days on hand even further than they -- than we anticipated at the end of February. So, it was taking it down even further, based upon our ability to manufacture and supply product to them, and the strong increase in the value of the US dollar.

Okay, but they could absolutely do that to you again if their forecast doesn't come through. I think that's what we're trying to get to.

We're developing a new relationship with Ypsomed. As I mentioned, Dan, Shacey, and I went over there. We're going to continue to go over there frequently. We have our head of operations over there, as we speak, working on improving the supply chain delivery of product and trying to help them get it much more quickly. So, I think, it's a new relationship, we've got a person on the ground in Europe that his total focus is on Ypsomed.

I think we're developing a new relationship, we've got the constant dialogue, and very confident about their projections for the future. We're working hand in hand with them, supporting them in the expansion and new markets that they wanted to open up previously that we're going to open up this year. So I think it's -- we're very optimistic and very pleased with their performance thus far and confident in the future.

Let me -- then, for a follow-up, one of the questions I get a lot from investors is, you've put together a great management team, but you don't really have anybody on the team that has deep diabetes experience. I wonder if you can just react to that and maybe, as you're now a little bit further into this, relate your experience in diabetes versus some of the other businesses you've run in the past?

I would say the senior management team has -- doesn't have direct experience in the diabetes space. They do have a lot of experience in growing new and innovative products in the medical-device markets and have been extraordinarily successful. And all have dedicated themselves to learning the diabetes market extensively.

And, to counter the other piece of it, we have a medical director on board, we have our clinical services managers in the field that interact with not only the sales folks but with our management team to help us learn the diabetes business and some of the nuances and the attributes of the diabetes space. So, I'm very comfortable that, with the existing capabilities we have within the Company, as well as our dedicated team to learn diabetes, that we'll learn it in short order and have a very positive impact in this space.

Jayson Bedford, Raymond James.

Hi, good evening, and thanks for taking the questions. I don't mean to be redundant with these questions, but on the international guidance, can we assume that what's baked in the guidance is contractual minimum, or are there contractual minimums for Ypsomed in 2015?

There are contractual minimums for Ypsomed in 2015. What we've baked into the guidance is actually reflective of what they are saying their end-user demand will be for 2015.

Okay. And then, my second question is, I realize the US OmniPod business was down slightly, but can you give us an idea of the year-over-year growth in the direct US OmniPod business?

We haven't broken out the pieces between direct versus the indirect US business. We're comfortable with the breakout that we've provided so far. It's on our website on the Investor page. That's probably as far as we're willing to go with the breakout for now.

All right, thank you.

Bill Plovanic, Canaccord.

Thanks for taking my questions. I'd like to focus on two things. One, new patient starts, you gave us a number, it was the best quarter ever. On international, could you clarify -- was that up, down, year over year, and where are you on new patients? I know you're saying the business will be flat year over year, but do think there will be growth in the new patients international and what will that be? And then, that same question for the US business.

On the international side, as I indicated, Ypsomed will grow, or anticipates growing, their installed base by 40% 2015 over 2014. We gave you the census of the installed base in January -- and we're going to update that on a yearly basis, not on a quarterly basis -- for the total patient population worldwide. So, I think you've got enough information from back in January to triangulate it.

Okay. Would you say Q1 was indicative of the year for Ypsomed? Or can you not -- since they're destocking, they would also be destocking starter kits, so you just can't see that yet?

We have visibility into their quarterly new patient starts, and I would say that their first-quarter new patient starts were in line with our expectations on what they were planning for the year.

Raj Denhoy.

Hi, good afternoon. Maybe I can ask a little bit about some of the expense lines. The gross margins were strong in the quarter, my sense of that's probably because of the mix between US and international. How do you expect gross margins will trend over the balance of the year?

Raj, I think for the full year, as we talked about on our last call, we do expect a lot of our growth this year to come from our US business and our drug delivery business. Both of those are the higher-margin revenue lines for us. So I expect that what you're seeing in Q1 should trickle throughout the year.

Okay. I guess with a caveat though that, as international picks up very strongly in the back half, as you're suggesting, that, that should start to bend that back down, right?

We're going to get some lift from our going direct in Canada, which we expect to do at the end of the second quarter or early third quarter.

Okay, fair enough. And then, on the operating expense line, the $41.4 million, I think, is a new high watermark for you guys in terms of overall spending. Should we expect that you're going to keep it plus or minus that $41 million level for a while now, or how should we think about that?

I think some of that $41 million, as Allison mentioned, had some one-time stock comp charges or other one-time charges. I think as we look at the revenue plan that we have, as well as the opportunities to further develop the OmniPod product as we look at CGM integration and focusing on the artificial pancreas opportunity, in addition to some of the investments we're going to need to make in the drug delivery opportunity to build that business out, I think we're likely to be investing.

Ben Andrew, William Blair.

Great, I've got a couple questions. Thank you for taking the call. Given that in the US or in general, new patients in a given quarter don't have a lot of impact on reported revenues and we've got this big second half/first half change in revenues, is that second-half spike only usage or is there an assumption of inventory recovery in the back half baked into the guidance?

I think that we will have the balance of the inventories in both international distributors as domestic distributors will be right sized, so everything will be reflective of end-user demand. We won't have that underbrush.

Okay. And then, maybe a question for Dan, since we haven't had him on the call before. If you look out, say, three to five years, Dan, and you've had some time to work the opportunities on the new drug side, what percentage -- what's your goal for revenue from that business? Is it $20 million? Is it $120 million? How do you think about where we can be in that longer horizon? Because, obviously, the insulin business is going to do what it's going to do here with all the new efforts, but this is the greenfield opportunity for you guys. Thank you.

Yes. I'll just say, Pat has set much higher objectives for me than the ones you've just described; however, we've not given any guidance past the 2015 and I don't think we're prepared to do that right now.

But as you look at the opportunity (laughter) -- I'll have to chime in here -- as you look at the opportunity, I think, as Dan described, there's number of drugs that the use of the OmniPod technology for subcutaneous drug delivery is tremendous. And I think, as I have said before and still believe, that the drug delivery business can be, in the long run, larger than our diabetes business. But it takes longer and it's higher risk, obviously, because of the FDA process.

Mike Weinstein, JPMorgan.

Thanks for letting me back in queue. Just to clarify on two items. Number one, Pat, the assumption that sales are flat internationally, does that assume that there's a -- sounds like maybe a significant stocking order with the new distributor in Canada in the third quarter? And -- maybe go ahead and do that one and then I'll circle back on the next one.

No, Mike. We're going direct in Canada, as I indicated, at the end of this quarter or early next quarter. And there is no -- we will be -- that will be our inventory in Canada, so there won't be any significant stocking order at all.

Okay. And then, maybe just two quick follow-ups. The new patient growth, there's people who are confused whether that was a worldwide number or US number and, given the history, it's probably worth clarifying which of that, that is. And then, the whole commentary around the Amgen order and the fact that you weren't able to give them the supply you expected in the first quarter, it sounds like you're not expecting to make that up in the second quarter, either, and that it's actually going to take longer. So, can you just maybe clarify this, why it's not an issue of it's slipping a month, but sounds like maybe slipping a few months? Thanks.

I'll hit the new patient starts. I apologize, I should have indicated -- the new patient starts that I indicated being the record in the first quarter was US only. It was the -- with a new team, it's hard to find a metric that they could have an impact on in the same quarter in which they came, and so I chose that as the metric -- or as an indication, and that was US only. We've not given any new patient start growth in international.

And I didn't mean to confuse. The product that we weren't able to get out the door, the drug delivery product, we weren't able to ship in Q1 will ship in Q2.

Okay. So you will recapture what you lost in the first quarter, you'll get that. So, in that second quarter, in that lowering of the second quarter guidance, you're actually assuming that you make up the non-insulin piece in the second quarter. So the shortfall, relative to your prior model, is just OUS?

The full-year model, Mike? Or the --?

No, the second quarter. Yes, I'm talking about the second quarter. So, you guys lowered -- you were originally expecting the second quarter to be $67 million to $70 million, you lowered that by $3 million. It sounds like, actually, the Amgen business will be more than you were assuming because you'll catch up in that business, but your net is still $3 million lower.

No, the second quarter guidance was $67 million to $70 million.

Right, and now you're at $64 million to $67 million.

No, I don't know where you got that from.

(Multiple speakers) I just, on the prepared remarks, indicated Q2 guidance at $67 million to $70 million.

Okay. My apologies, my bad. And then, maybe one last clarification. The US OmniPod business, does that grow, in your thinking, in the second quarter?

Yes. It grows in the second quarter.

Suraj Kalia, Northland Securities.

Good afternoon, everyone. Patrick, my apologies, just been juggling between two calls, in case you guys already mentioned this. Did you highlight who your CGM partner is for the artificial pancreas project?

We have not highlighted who our partner is for the -- our artificial pancreas CGM partner. We are exploring opportunities. We are in discussions with Dexcom. They have -- we've worked with an agreement with them to provide their G5 sensor, potentially providing data to our OmniPod PDM and think that they're a very promising and strong candidate. I also would say we've had discussions with them and we'll continue have discussions with them along those lines.

Fair enough. And, in terms of Q3/Q4, Patrick, I know, and forgive me if you've already mentioned this, for the US OmniPod side of the business, what are the net patient starts that you guys are assuming? Or at least that you can give us some directional color, and I'm saying net of attrition, because even the US business has to see a pretty big ramp up in Q3 and Q4. Any color would be great.

We expect new patient starts to continue to be increased throughout the year. But, again, if you look at the new patient starts in any given quarter, they are a small fraction of the overall OmniPod revenue and the vast majority of the revenue comes from the reorders. We haven't given guidance on new patient starts for the year. It's all baked into our guidance, overall, for the $305 million to $320 million in overall revenue for the business.

Chris Cooley, Stephens.

Thank you, appreciate your taking the questions. I just have two, maybe, main questions. One, could you speak to utilization trends that you saw, both domestically and abroad, within your OmniPod wearer base? I'm still trying to do some of the math here as I think about the [hads-on] patients and your growth targets. And then, secondly, when we think to the drug delivery business and specifically in June, could you remind us what we should be looking for maybe more specifically as you initiate those proactive commercial activities? What are some of the metrics that we can be looking for at that time? Thanks so much.

I think on the OmniPod utilization, I would characterize it as remaining unchanged. It's basically been very consistent. Drug delivery --?

As I said, we're going to begin our commercial activities in June. We have identified a target list of pharmaceutical properties that we're going to go after to try and develop a relationship with and a development agreement. Today, we have in hand a handful of early-stage development agreements and our objective is to add to that throughout the year. We're not going to give specific numbers of agreements, but certainly we would expect to add several new development agreements to our portfolio during the year.

Bill Plovanic, Canaccord.

Great, thanks. If I could just follow up on Mike's question and then a couple more. On OmniPod, you said up. Is that up year over year, or up sequentially, on the US OmniPod business?

Sequentially. We expect it to be --

Sequentially.

Sequentially. I'm sorry, I was -- it's up sequentially. That was the way I was thinking about it. I don't think year over year, quite frankly (laughter). Flat year over year, up sequentially.

That's helpful. And then, you're reaffirming guidance, but it seems, given the first-half guidance, that we're probably shooting for the low end of expectations?

We're shooting for the range of $305 million to $320 million at the midpoint.

Ben Andrew, William Blair.

Great, thank you for taking the extra questions. I guess, Pat, as we talk about what's going on with the new sales organization that you're putting in place, give us a sense of some of the activities in terms of rate or impact that you've already seen versus what that rate or impact may be or what you're assuming in Q3 or Q4. You've obviously got to see a nice acceleration in the domestic business in Canada, et cetera, to get towards those ranges.

I'm not sure what you mean by rate. Are you --?

In touch points, are you doing basically, okay, we did 17 in educational efforts in the first quarter, we're going to be doing 47 per quarter in Q3 and 50 in -- whatever. Just trying to get a sense of how you -- the effectiveness of your field organization is assumed to be different in the back half of the year versus the first half of the year, given that it's obviously new.

The sales organization -- the new is the leadership team. The sales organization, by and large, are -- have remained consistent. We've had only about a 5% turnover rate in the sales organization and I think that's going to be consistent. We've put in place, I think, incentive plans that have provided more incentive for the sales organization.

We're going to be improving the training and the customer service organization so that patients have a better patient experience. We're doing the medical education. We've already done a handful. We've got 45 scheduled. We're going to continue to do that throughout the year. And, really, focusing on managed care.

Managed care makes a big difference, as everyone knows, in this market. And I think we are somewhat handicapped, at the moment, by our Medicare and Medicaid coverage. We do have some state plans that are covering for Medicare -- Medicaid, as we speak, but we need to get the Medicare coverage to really open this up in a big way and we're focused on getting that done.

But I think the sales organization is focused on the fundamentals, the basics -- the blocking and tackling, the management of the team, making sure that they are making their requisite number of calls per day and calling on physicians. I think it's all about the fundamentals and we've got team in place to drive that execution and I think -- I'm confident we saw that in the first quarter already.

Okay. And then, Amgen, in their call, had talked about 800 customers using the product -- that's a quarter of their large customers, high acceptance above plan. Are you constraining them at this point with the supply that you're able to provide?

We've been supplying according to their forecast and, in terms of their utilization, I'd just direct you back to them. But we've been able to supply to their forecast.

Thank you.

(Operator Instructions)

I'm showing no further questions. At this time, I would now like to turn the conference back to Pat Sullivan.

Thank you very much. While we took some very definitive and deliberate steps this quarter that impacted our first-quarter results, we continue to believe there are many long-term untapped opportunities that exist for Insulet. I am very encouraged by the progress we've made in laying the groundwork to support our path to success. While we're in the early stages of a long-term transition, our experienced senior leadership team and their respective teams have made great progress executing on the key initiatives.

We are well positioned to capitalize and improve our commercial execution, in addition to our commercial efforts and our sales and marketing investments that will raise awareness and drive results. We're keenly focused on R&D investments to build our leading-class products. And I'm confident we have a sound strategy which is in line with, if not exceeding, our planned timeline of execution.

I'm also confident that our strategy will lead to long-term accelerated growth and shareholder value creation. I can tell you that I'm even more energized now by the many positive prospects I see ahead. With the right leadership, the focused strategy, and commitment to consistent execution, I believe we have a winning formula to deliver long-term growth. I'm excited to share with you our progress as 2015 unfolds, and thank you for your participation in the call today.

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