Deborah Gordon - VP of Investor Relations & Corporate Communications Patrick Sullivan - President & CEO Allison Dorval - CFO

Danielle Antalffy - Leerink Partners Mike Weinstein - JP Morgan Ben Andrew - William Blair Bill Plovanic - Canaccord Jan Wald - Benchmark

Good day, ladies and gentlemen, and welcome to the Insulet Corp Q4 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will have a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Deborah Gordon, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Nick [ph]. Good afternoon and thank you for joining us for our fourth quarter 2014 earnings call. My name is Deborah Gordon and joining me on the call today are Patrick Sullivan, our President and Chief Executive Officer and Allison Dorval, Chief Financial Officer. A replay of this call will be archived on our website. Our press release discussing our fourth quarter results and first quarter and full year 2015 guidance, as well as a document that provides historical data on 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 forward-looking and involve known and unknown risks and uncertainties that may cause actual results to be materially different from any future results implied by such statements. Such factors include those reference and our Safe Harbor statement in our fourth quarter earnings release and the company's filings with the SEC. With that let me turn the call over Pat.

Thanks, Deb and good afternoon everyone and thank you for joining us today. During my remarks, I'll cover our fourth quarter and full year financial and operational highlights to specific actions that I've taken since joining the company and our strategy to drive sustained growth and shareholder value. I'll then turn the call over to Alison for further highlights on our financial performance. Let me start by saying that when I joined Insulet in September I was very enthusiastic about the opportunities for the company. Now, over five months later, I can tell you that I have even more enthusiasm and higher expectations for the results that this company can deliver. With our OmniPod system we are the market leader in tubeless insulin delivery and we believe our unique core technology will serve as the foundation for our leadership and intelligent drug delivery. Clearly we have more to do but we believe OmniPod is the most innovative and differentiated instrument than other drug delivery system on the markets. We are executing a strategy to ensure it remains well positioned or continue those option in the US and international markets. Let me start with our financial results. In the fourth quarter we achieved revenue of $72.6 million, a 6% increase compared with $68.5 million in the fourth quarter of 2013. We ended the year with total revenues of $288.7 million, an increase of 17% over 2013. I'd like to now provide you a further breakdown of our 2014 revenue. Revenues of our US OmniPod franchise were $173.4 million, defined as total US revenue excluding drug delivery and neighborhood diabetes. Revenues in drug delivery were $5.4 million, defined as cells or products and engineering serves to our pharmaceutical partners. Neighborhood Diabetes Revenue of $59.7 million, and included in this number is approximately 5% OmniPod revenue of neighborhood diabetes shipments of OmniPod for their patients. International OmniPod revenue of $50.2 million, this is the finest revenue to all of our international distributors including Ypsomed, GSK Canada and Group [ph]. We are providing this additional detail in order to give you additional insight into our business. We're committed to consistently reporting these metrics and will therefore provide you with the same components at the end of 2015. As we believe they are the most important drivers for the performance of the business. I think it's also important to point out that I have a senior executive who is completely accountable with the performance of each of these business areas. In addition to our commentary here today, we've also posted a document on our IR website that provides 2014 and 2013 quarterly revenues for each of these areas of our business. During the course of this year, we will also evaluate additional metrics that we should provide to you to provide insight into our operational and financial progress. Now turning back to our operational performance, our patient base continues to grow. As of the end of 2014 there are approximately 75,000 worldwide using OmniPod with approximately 75% in the United States. In the fourth quarter, approximately 70% of our new patient starts came from people who previously used multiple daily injections and we saw a 10% increase in new patient’s starts of children under the age of ten compared to the fourth quarter of last year. In 2014 our installed base of US OmniPod users grew sequentially every quarter in 2014 resulting in an almost 20% increase in our existing patient base in the US. Moreover, we expect a 20% year-over-year growth in new patient starts in the second half of 2015. We believe this growth will be driven by increased productivity of our existing sales force and the initial impact of the additions we're making this year. In addition, we anticipate further growth as a result of our peer-to-peer speakers program that started this month. We are well positioned to deliver even stronger performance including enhanced overall top line growth. I like to take the opportunity to make just several comments regarding the new patient start metric. First of all, in any given quarter only about 10% of our US OmniPod revenue is from new patient starts. As a new management team we are focusing not only adding new patients but capitalizing on the opportunity we see of increased OmniPod utilization that our existing customer base represents. While the majority of our customers order four times per year, we see an opportunity to focus on re-orders and increased utilization where 90% of our US OmniPod revenues come from. I'd now like to review a few of the actions that I've taken since joining Insulet five months ago. We completely restructured the US commercial team in addition to proven leaders across the Board including a new Chief Commercial Officer, Anhert Trup [ph]; three new Vice President of Sales, Marketing and Managed Care. All are experienced leaders with consistent records of outstanding performance with whom I have worked with in the past with great success. We've also expanded the sales force, augmenting the expansion that occurred during 2014 and due to our confidence in new commercial leadership we are further expanding the sales during the first half of 2015. We are also making a significant in Key Opinion Leader development but subsequent application of widespread medical education efforts. This is a proven initiative in marketing to healthcare providers. We are undertaking new initiatives of managed care marketing under the leadership of a proven managed care executive who is building a world class team with new focus on sustaining existing reimbursement and expanding better coverage, including Medicare and Medicaid coverage. We've also increased our focus on market segmentation and sales force targeting, including a renewed focus on the pediatric segment and laser focus on existing prescribers that have significant opportunity to expand their current use of the OmniPod system. We've made a significant upgrade to our customer service and support function with new experienced leadership which will provide a much improved ability to move newly prescribed patients due to the intake and reimbursement or vacation process by increasing our focus on customer retention and our re-order wait. We brought on two senior executives to focus on the significant opportunity we see in our drug delivery business. And finally, I've hired two senior executives to focus on our neighborhood diabetes business and our international OmniPod opportunities. These changes have been made and as a result we expect to see market really improved performance, in the US OmniPod business beginning in Q3 2015. We are confident that this routine will increase its option of our unique system and we anticipate returning the double digit growth in the US during the second half of 2015 and accelerating growth going forward. I have challenged each of these new executives to drive focus, growth, and increased accountability throughout the entire organization. These executives bring a history of executional excellence, as well the experience of working together as a team and I'm confident this leadership team will take Insulet to the next level. After national sales meeting in January, we outlined many of these initiatives. There is palpable energy from the sales team who are energized by our new focus and additional materials and additional support they will received in 2015. Along with the additions to our field sales team and other key factors in our success will be to enhance our marketing efforts. We've been focused on increasing patient that wears OmniPod system and increasingly healthcare professionals and managed care plans understanding our products unique benefits. That is why we are on the process of further analyzing patient out information, identifying key clinical source, daily resources to improve our marketing materials and drive adoption. We're also engaged in refining our market segmentation. We know that 15% of our new starts in 2014 were under the age of 10; over 35% were under the age of twenty. We've aligned the marketing organizations to focus on the pediatric segment. In fact we had nice success from his segment were limited marketing focus and therefore we strongly believe we can accelerating growth in this area. We will continue to drive marketing initiatives through a specific customer segment. We need to connect this with a patient of a parent of a child differently with pipeline diabetes in a very different want then we do the 35 year old who has managed diabetes using multiple daily injections. Our marketing team is fully committed to finding the exact message why resonates and giving our sales team the resources they need. These market segmentation initiatives are very important to our future with customer adoption and retention. I'm also very excited about our international business. As you know Ypsomed is the key partner for us in Europe and we are very pleased with their performance. They continue to drive new patient adoption of OmniPod with approximately 70% growth in the installed base in 2014. We believe based on the 2014 run rate they will continue to increase their installed base by over 40% in 2015. I'd like to now address some of the recent questions that many of you have had related to our sales to Ypsomed. As a background, we entered into our relationship with Ypsomed in June of 2010 with an initial contract exploration of 2016. Under the terms of the agreement if Ypsomed meet certain purchase volumes in 2013 and 2014 the contract would automatically be extended in additional 12 months. They meet the requirements in both years and as a result the contract has been extended through the middle of 2018. Ypsomed launched the OmniPod into the European market in the middle of 2013, slightly ahead of the United States. And as you are aware Ypsomed had challenges in supplying the market in both, the US and internationally during 2013. As a result Ypsomed brought inventory in advance to support their market expansion and we were shipping behind their request. In fact, we shipped about $4 million Q4 2013 order in Q1 of 2014, and throughout most of 2014 Ypsomed increased their safety stock of inventory as a hedge against our production challenges. Now that Ypsomed is confident in our ability to reliably and consistently produce OmniPod, they’ve decided to reduce their safety stock in Q1 2015. It's important to note here that we do anticipate product shipments to Ypsomed this quarter and our international revenues return to a more normalized quarterly trend beginning in the second quarter of 2015 and forward. We now have visibility of Ypsomed’s new patient starts and re-order rates and feel comfortable this trend will continue beyond 2015, and a fact should we turn to year-over-year growth in 2016. We've recently hired an executive whose main job is to work with Ypsomed on building out the international markets and driving growth. As you've seen in our press release this morning, we are also excited about going direct in Canada. As many of you know we've been working with GSK as our distribution partner since 2011 and we've just announced we decided to take this business direct. We will assume the distribution sales and marketing of OmniPod in Canada, and we're working with closely with GSK on a transition plan to go direct this summer. This is a meaningfully step as we look to drive top line growth and establish OmniPod as the worldwide standard of care and go to our offerings internationally. In addition to our sales and marketing effort, our operations team have also been driving hard. Our best-in-class manufacturing capabilities are a key barrier for anyone trying to compete in the past pump space. Just last month we qualified our fourth manufacturing line of Flextronics and near 50,000 pods produced in one day. The team has done a tremendous job in giving the line up and running, making sure that our quality remains at the highest levels. We are at this point where we have sufficient manufacturing capacity in place, and aligned for [ph] gives us even more confidence. Turning to R&D, we are also working on a number of development projects within our diabetes business. In order to maintain continued success we just continue to innovative, making progress under development of our new personal diabetes manager with a goal of filing for 510(K) clearance at the end of the year. This new handheld will have more modern user interface with a touchscreen technology and a corporate booth to low end energy capabilities. We see this as one of the most important announcements as it will allow us two way communication with other platforms such as Dexcom’s shared platform. Earlier this month we've announced that we've renewed our partnership with Abbott Diabetes Care and the blood processing will be incorporated into our new PDM. We're very excited about these partnerships as we move into 2015. As you know, we are also working closely with Eli Lily on the ionic broad system, the way you use himulin, use 500 insulin, this product continues to track and the clinical trial expected to start by this year. Outside the Diabetes space I'm incredibly excited our opportunity to use our technology to deliver other drugs. There has been a shot from pharmaceuticals to biologic in the drugs delivery space. My challenge is to come with a delivery - occurred a very interesting opportunities. Current delivering methods of typically auto injections, injectors and syringes, but the only part is significantly changing that. Our part introduces intelligent drug delivery with capabilities and monitoring compliance. It will also allow for varying dosing and alarm sensing [ph]. We believe OmniPod is very well positioned to increase the ease of the use and treatment compliance for a variety of relevant resulting in improvement outcomes. In 2015 we plan to add resources to support OmniPod’s anticipated growth outside of diabetes. Since our first commercial non-insulin product loss in 2011 referring we partner with a number of other companies. And in January Amgen announced that they received FDA approval for their new on-body deliver system. Injector for this systems uses our OmniPod with some customization for the actual deliver. Under our agreement, we now sell products to Amgen which are packaged in the new kit [ph]. We also have number of other drug delivery partnerships in various stages and we're very excited about that opportunity. With those remarks, I'd now like to turn the call over to Allison for financial summary. Alison?

Thank you, Pat. Unless otherwise stated, all of my commentary regarding changes will be on a year-over-year basis. Pat already provided the revenue growth rate as there is added color, international OmniPod revenue represented 18% of our Q4 2014 revenue company's to 14% in Q3 3023. For the full year international OmniPod revenue represented 17% versus 10% in 2013. As Pat mentioned, our international partners continue to drive growth in 2014 and our international OmniPod revenues doubled. Consolidation gross profit increased 11% in the fourth quarter to $36.7 million. Gross margins were 51% reflecting approximately 60% margins on our US OmniPod business, offset by lower margins from our international OmniPod and neighborhood diabetes businesses. Gross profit for the full year of 2014 was $143.3 million, an increase of $30.9 million or 27%, and gross margins improved to 50% versus 45% last year. We continue to drive efficiencies with our manufacturing process and our focus is paid off, we experienced improved manufacturing throughout 2014 driving lowest entry [ph] cost and overall improvement in customer satisfaction. Q4 2014 operating expenses increased 19% to $38.9 million and included $3.8 million of charges related to the management team transition. There are no one-time charges in Q4 of last year. Operating expenses were $155.6 million for the full year of 2014 compared to $141.5 million in 2013. Operating expenses in 2014 including approximately $17.4 million of management transition and patent litigation settlement charges. Operating expenses in 2013 included approximately $10 million related to patent litigation settlement and next generation OmniPod launch cost. Net loss for the fourth quarter of 2014 was $5.4 million or $0.10 per share compared to $2.5 million or $0.04 per share in the prior year. The 2014 full year net loss was $51.5 million or $0.93 per share compared to $45.0 million or $0.83 per share in 2013. The main difference between our full year 2014 net loss and our $12.3 million operating loss was the $39.1 million of net interest expense which included the loss on extinguishment of our 3.75% convertible notes in addition to interest on our outstanding 2% convertible notes. Our cash balance was $151.2 million at the end of 2014 compared to $149.7 million at the end of 2013, and we had approximately 56.3 million shares outstanding. Turning to guidance, we expect full year 2015 revenue to be in the range of $305 million to $320 million representing a year-over-year increase of 6% to 11%. The majority of the growth is expected in the back half of the year as we gain traction from the new team and commercial initiative. We expect to see growth primarily within our US OmniPod business resulting from the renewed focus of the commercial team. We also expect to see solid growth within our drug delivery business, in fact we've previously stated that we anticipate $10 million to $20 million of revenue from this business and we now expect this range to be $15 million to $20 million. Lastly, 2015 revenue from both our international OmniPod and neighborhood diabetes businesses are expected to remain relatively consistent with prior year level. For the first quarter of 2015 we expect revenues of $67 million to $69 million, driven by a reduction of inventory levels by our international partners. This reduction will be partially offset by the expected increase in revenue from our drug delivery business. With that operator, please open the line for questions.

[Operator Instructions] And we have a question from the line of Danielle Antalffy with Leerink Partners. Your line is now open, please proceed with your question.

Thanks so much guys for taking the question, good afternoon. Patrick, I was hoping you can give a little bit of color on the dynamics of the current market, so obviously the US OmniPod business has historically been significantly lower, it sounds like you're saying that was due to poor execution, correct me if I'm wrong. And - so how do we think about the current market dynamics going forward? Is there anything specific to OmniPod beyond poor execution, you touched on it, but what are you doing to reintegrate growth in that business? And what do you see as a sustainable growth rate, maybe you confirm with us what market share OmniPod has in the US insulin pump market because based on the installed base that we're hearing about stay, it might be much lower than what we had thought.

I would start off by saying that the opportunity that I see to expand our OmniPod businesses is significant, we're only about 5% of the current type I diabetes patients and I think there is tremendous opportunity based upon the characteristics of the OmniPod system to significantly increase that. And I think with the appropriate focus on managing - marketing to the healthcare providers, as well as targeted marketing to the insurance companies we can knock down the obstacles that currently exist in getting OmniPod more widely adopted in the marketplace. I think fundamentally I've talked about this a lot that we fundamentally need to show the clinical benefit and the economic benefit to both, the doctors and the patients to provide widespread adoption for the product, we're focused on doing that with mining data sources that we have at the performance of the product in the field, as well as taking that information to the insurance plans which differentiates our product and show it's benefit to those - to the healthcare marketplace.

Okay, that's helpful. And then - so it sounds like historically the OmniPod has been more of a patient driven therapy, you know patients going to their providers and asking for the OmniPod, so it sounds like that focus is shifting, will you still focus at all on the patient or if this is now just focusing strictly on the providers and the payer. And a follow-up to that if I could, on the payer side I think, is there anything specific to OmniPod beyond UNH and if you could confirm that, the UNH issue is now completely behind as you have started getting new UNH patients, is there any reimbursement issue that we should be aware of when it comes specifically to the OmniPod?

I think just to knock off the UNH issue, the issue that faced the company last year was paperwork issue and that issue with UNH has been resolved and we don't anticipate any further impact from that event that occurred last year. Let me frame the marketing effort, I think in order to really market any product you have to market - in our case, the three constituencies, we have to market to the healthcare providers, the doctors, in the office who prescribe the product; we have to market to the healthcare insurers who pay for the product; and finally we have to market to the patients who use the product. And in order to - we have to get all three of those moons in alignment to provide for widespread adoption. We have to market the features and benefits of our product and patients awareness for the patients know that this technology is available. We have to market the clinical and economic benefit to the doctors in the office so that they understand the benefit that this product has for their patients. And finally we have to market to the insurance carriers, the people that pay for it, the clinical and economic benefit for the people for whom they provide diabetes reimbursement, and I think it's - you have to get all those three moons in alignment to really provide the widespread adoption and I think historically the focus at Insulet has been on one moon, it's been mostly on the patients providing the tubeless technology in a convenience for the patients. And to a certain extent I think we really now need to change the focus to the healthcare providers who prescribe the product and the healthcare insurance companies that pay for it, and that hasn’t been done historically.

Okay, thank you for that.

Our next question comes from the line of Mike Weinstein with JP Morgan. Your line is now open, please proceed with your question.

Thanks guys for taking the question. So many time you clarified a couple of items. So you said that the patient base is growing [ph] - grew 20% in the aspect that revenues were up only 15%, is that right?

Yes.

Okay. So what's the disconnect there between the patient base growing 20% or close to and revenues growing 15%?

Part of it Mike is the timing that the patients are growing, so as you know we have discussed that, we added more new patients towards the back end of this year than we have it in the early part of this year. So that would account a portion of it.

I did circle on that but at this stage that shouldn't be the difference but we can come back to that one. So let's talk about international, so in my understanding that your expectation is that revenues will be roughly flat this year that's what you were saying now?

That's correct, expect revenues too internationally to be relatively flat.

Okay. And so the destocking - it will be worked down daily to catch up with the demand relative being in forth. Do you think that takes a quarter or even that takes more than a quarter?

We are shipping - we anticipate shipping to Ypsomed this quarter, we expect it to finish this quarter and back to normal ordering patterns - the quarterly ordering patterns in quarters two, three and four.

Okay. So international is relatively flat, neighborhood is relatively flat in taking out in comments, and given the guidance on the piece that would imply roughly 5% to 11% growth for the US OmniPod business but it sounds like just from the commentary that you expect the first quarter to be lot lower than that and the second half to be a lot higher based on acceleration in business in the back half of the year. Am I capturing that correct?

Yes.

Okay. And then let me ask you one last question, in fact we've talked about this - the tainted landscape is external delivery as it is wrapped in that over the last 18 months, I'm really starting with the 530G launch next product which certainly from the numbers it's like - it's really slowed your meaning [ph] for insulin at that time, you've got 530G, you've had the ramp of ten and you've had now - just see in the first quarter the J&J guide launch, and everybody has got launches coming over the next few years. So it feels like it's a much more competitive environment than it was two years ago, how do you think about that and how do you think about to be able to be into those world purchase maybe important in the world two or three years ago for insulin. Thanks.

Well, obviously there has been more competitor activity but I'll come back to the tremendous opportunity and where we are getting the majority of our relative converting the MDI patients to OmniPod and quite frankly, we have not done a great job of differentiating the product to healthcare providers, to insurance plans, and we need to increase patient awareness as well. So I think with the opportunity for us, while we do worry about competition but I think our major competition is MDI quite frankly, and that's where we need to focus.

Okay. I'll let somebody else jump in and then I'll get back in the queue. Thank you guys.

Our next question comes from the line of Ben Andrew with William Blair. Your line is now open, please proceed with your question.

Great, thank you for taking the questions. Allison can you help us a little bit with the revenue breakdown you were able to give and I really appreciate that detail, it's extremely helpful. Is there something in the neighborhood diabetes line that gets down to $60 million and beyond, kind of peer distribution, is there any Omni pattern there? I mean I was under the impression that was running more like $7 million or $8 million a quarter, so I'm just trying to understand the disconnect with where we were at.

Ben, in the past commentary if you talked about 5% of that neighborhood number incorporating OmniPod revenue, that's what the neighborhood businesses is selling on behalf of OmniPod.

And the balance of it is just routine diabetes products such as testing and supplies, from supplies CGM, CGM supply etcetera, as well as the old service pharmacy.

Sure, okay. As we sit here and talk - think about kind of the canes through 2015, you talked about 20% plus revenue growth in the back half or patient growth, what do you see in the first part of this year, this is the net of the inventory stocking, so what is international and what do you think it can be kind of first and second quarters in the United States?

I'm not sure I fully understood your question Ben.

Okay, I'm just trying to understand the cadence over the course of 2015, I know Mike has just talked about this but just - the net of inventory adjustments where do you think they are in Q1 and where do you think Q1 patient heads out for insulin as we started - can it go to the transition with the new marketing programs coming out?

I think we're going to continue to add new patients starts as we go throughout the year but the balance - more significant increase is going to be in the back half of the year as we get these marketing programs and sales force up to speed and fully productive in the field.

Okay. And then Pat, as we look at the market growth of MDI switching over to pumping, our analysis suggest that last year you guys were sort of holding share in terms of your percentage if you will of your current installed base versus what you were getting out of the MDI converters. Do you think you can convert that - accelerate that or would you start taking more share with the investments and over what timeframe can that happen?

As I had mentioned, I think - I'm thoroughly confident the team will put in together, I mean if you think about it's not only sales and marketing, managed care marketing, it's - we, the whole commercial team have confidence that we're going to be able to increase the OmniPod revenue as we move forward with initial reporting in places just to get in and starts to have an effect.

Okay, alright. Thank you.

Our next question comes from the line of Bill Plovanic with Canaccord. Your line is now open, please proceed with your question.

Great, thanks, good evening. Can you hear me okay?

Yes.

Great, thank you. So just on the GSK, as you make that transition with them mid-summer, are there going to be any take backs on that relationship?

What's a take back?

Inventory, so you have to take back any of the inventory or is that been sold through or how should we think about that, and if so, does it hit any particular quarter?

So overall the relationship has been sell in, but GSK is purchasing inventory based on their demand, I'm sure that they will have some level of inventory in their warehouse on the date that we make that transition and I think as we finalize the agreement one week over the rest in Canada, there may be some repurchase of that inventory but it shouldn't be a take back of revenue by any means.

Okay. So probably as we think about it, you have Ypsomed working inventory down in Q1, those normalize and get back on ordering in Q2 but then GSK will probably have to transition in Q2 to really it's probably Q3 feel forward international it's more normalized?

No, I think it’s Q2 is more, it's going to be more normalized and GSK is not as nearly as large component of our new international revenue, Ypsomed is.

Okay, good. And then as we think of Q1, I mean you've given guidance, how much is the bonus of the stock in for drug delivery that we should think about in Q1?

What we would have but what we anticipate in shipping in Q4 of last year, moving into Q1, is that your question?

Yes, I think if I remember correctly, it was like $5 million or something like that?

That's right.

Okay. And then as we think about it, one of the things you've talked about, you've added a lot of support to start focusing on the payers, the physicians, even also the patients; if you could just help us out with where does the customer focus whether it be the physician/patient focus, distribution channel, where does that end 2014 in terms of quantifying that number? And then what should we expect in 2015 and just as a base of reference, where was that in 2013?

We talked about investing about $15 million or so in our commercial organization in 2015, I think that we need to get through 2015, see how the resources have come into play, make sure that they are being productive and then we'll talk about what we are planning to do in 2016 but I think at this point we're talking about 2015 and $15 million of additional spend over 2014.

I think my question - I'm sorry, maybe I wasn't clear is, how reps did you have at the end of 2013, how many do you have at the end of 2014 and where do you think 2015 will be?

We had 135 roughly, at the end of 2014 we're going to 150.

Okay. And then I think - in your guidance you gave its revenue guidance, there wasn't anything on operating loss, how should we think about 2015 in terms of operations, in terms of gains or losses for the year or even just qualitatively relative to 2014? Thank you very much.

I think as you're planning through the year I think we are anticipating getting to an operating breakeven level by Q4 of 2015.

Thank you.

Our next question comes from the line of Jason Betfur [ph] with Raymond James. Your line is now open, please proceed with your question.

Good afternoon, thanks for taking the questions. In your prepared comments you mentioned an increased focus on reorders and increased utilization, and I never really saw utilization as an issue so just on the reorder rate, prior management had talked about an attrition rate of 10%, have you seen any change in that attrition rate or is that 10% number correct?

We have not seen a change in that, the 10% number is correct.

Okay.

I think what we're talking about increased utilization of that is all base is quite simply this, there are - although the vast majority of our patients or four times a year, there are those that don't order or less than four times a year, what we like to do is get all of our patients, order four times a year and we see that as an opportunity to increase utilization. And some of the reasons they don't order four times a year maybe that they - during the summer time or certain periods of the year they go back to MDI therapy and whatever reasons and in some cases the insurance coverage may change and they won’t any longer be - this happens in fact with Medicare, if a person is on OmniPod right now and they go on Medicare, since we don't have Medicare coverage they lose that current Medicare coverage and as you know Medicare doesn't currently reimburse for the OmniPod. So we're taking actions to try to get information to our patients that there are some important things for their health is to be on OmniPod 24/7/365, and secondly taking down the bury of Medicare reimbursement for the patients that are turning 65 and going on Medicare coverage. Those are the types of utilization initiatives I'm referring to.

Okay. And just on the reimbursement, it's not like we're all kind of conditioned to think that reimbursement wasn't really an issue or hurdle to growth, it seems like you’re a little bit more focused on the reimbursement, you brought on a new executive. What are the goals there, meaning, is it primary goal Medicare reimbursement? And then secondly, just to circle back on an earlier question, have there been any new issues with reimbursement that has cropped up to the last - let's say six months?

No, I think in general as you all know pump therapy is reimbursed by insurance company. However, my point here is that insurance companies have certain requirements that patients must provide in order to have access to pump therapy or OmniPod and in some of those cases it's measurements of A1 fee [ph] over the period of time, glucose levels, other types of things that they need to do in order to be put on pump therapy. The way I think about this is, I can imagine a world where we have demonstrated the clinical and economic benefit to the insurance plans, that they would reduce those barriers to adopt to make more widely available insurance coverage for those patients, and in order to do you got to market for the insurance plans to show them your ability to change A1 fee levels for example and to provide other quality measurements that convinces them that reimbursing or having more people on pump therapy and OmniPod in particular is important for them. And so that's what I refer to when I talk about marketing to the insurance plans, it's because they make it sometimes difficult for patients to qualify or to be put on pump therapy because all of the hops they have to jump through. And secondly on Medicare coverage, we - as you know we don't have Medicare coverage and for patients over 65 that's an issue and something we're working on.

That's helpful, I appreciate Pat. I'll get back in queue.

Our next question comes from the line of Tail Levy with Wedbush [ph]. Your line is now open, please proceed with your question.

Great, thanks. So quick clarification in terms of the new patient additions, the number that's included in the neighborhood that you provided on the quarter, is that similar historically?

Yes, I would say it's probably around the 5% range of the neighborhood’s total revenues, 5% of that is OmniPod product that they are shipping to their patients or customers.

And when you talk about new patients additions and in total patients, whether it's US - I guess, mainly in the US, you're not including - are those patients in any of - 5% of those patients included in the neighborhood?

They are not, we don't - they would be not a big number. So we don't include those new patients, it's just to ease your poise, not to break that out at this point.

Okay, great. And in terms of the drug delivery orders, I know someone asked about the inventory buildup there, any feedback thus far from that in terms of how the product is being used, ordering patterns throughout the year, are they happy to go back to design board or anything like that?

Based on our contract with Amgen we're not committed to provide any color on what they are doing. I can tell you that as Allison talked about early in the conference call we have taken the bow drug delivered estimate for the year up from $10 million to $15 million. So perhaps that's an indication of how it's going.

Perfect. And then just lastly, the change of - I guess the continuation of the exclusive relationship, does that have any financial changes to that relationship, do you have - is there any financer to doing that, rather than going to with J&J?

Not really much different than what we were receiving under the J&J agreement - what we would have received under the J&J agreement.

Okay, thank you.

Our next question comes from the line of Suraj Kalia [ph] with North Line Securities. Your line is now open, please proceed with your question.

Good afternoon, everyone, thank you for taking my questions. So Patrick let me start on to your - you mentioned a bunch of factors in your prepared remarks, let me see if I can kind of tie all of them together and can get your perspective on what's going on at least from a core growth perspective. OmniPod has obviously grown like a rocket ship over the last five or six years and now the growth seems to somewhat slowing, in your opinion of the five months you've been at the helm, do you think it's more of a function of the low hanging fruit being taken, product application, reimbursement, customer services or competition? I mean, I'm just trying to put various buckets together, what you think is the key - product education is one of the things that you mentioned, should I infer from that, that other factors are having a demonimous impact per say?

No, I think in order to provide continued and accelerated OmniPod growth we've got - as I mentioned, the aftermarket - we have more effective and targeted marketing to the healthcare providers and to the patients when we talked about focus on pediatric patient population. And I think continued demonstrating the clinical and the economic benefit to the payers. And I think as part of the product offering you always have to, in this market offer a service component that provides getting to patient from the doctor prescription onto the product and trend etcetera, and we are making some investments in our inside organization to improve the customer service experience or those patients that are not only coming on the product and ensuring that they have a very great patient experience in the first 90 days but for the existing customers, to reach out to them more frequently and communicate and really have a more comprehensive marketing program for our customers.

Okay. And Patrick, forgive me if I missed this in you guys remarks, what's the status on the CGM development program for the OmniPod and part of the reason I asked also is, you know Medtronic is launching a 640G in Europe, I'd love to get some color from you how you see any of these pseudo artificial pancreas/pumps impacting business or like they are off? Thank you for taking my questions.

Yes, I would say our strategy is that as it relates to the artificial pancreas, we are putting together strategy so that OmniPod is a very significant part of the artificial pancreas product offering in the future. And with that you need to have a CGM product offering, as well as an offering to put the three units together if you will, and as you know we have been working internally on our own CGM development which continues but also we have an agreement with - already have an agreement with Dexcom to use their CGM sensor along with our new PDM to integrate that those two products together, and I think with that combination used in algorithm and we're looking at opportunities to have an algorithm that we could then provide the full package. I'd also say that we would evaluate and look at opportunities with Abbott and others that would have potential CGM integration opportunities for us. So in the short term we're looking at other people that have CGM capabilities and algorithm capability, but at the same time we are continuing at a low level our own efforts in our own CGM product development.

Thank you.

Our next question comes from the line of Jarred Logo [ph] with Newbird Securities. Your line is now open, please proceed with your question.

Thank you very much and good afternoon. I'm pleased to say I'm not only a financial professional, I'm an end user. And first to address customer service, I've been extremely pleased with the level of support from the trainings I had with my local reps to the staff that I have defective pod, they’ve been very prompt and courteous. I would say I'm one of your most active cheerleaders down in South Florida since I learned the pod from my young daughter, I probably told a hundred people about it, shown them and to a person they’ve all been very amazed. My endocrinologist last visit he had four or five different brochures from other products and despite my enthusiasm and my continued success with the OmniPod I haven't seen any brochures in his waiting room. So I'd like to propose the following because I believe your end users, your consumers are the best marketers. I suggest having a coupon offer that you do a direct mail to all your consumers with a return envelope, and simply if they would include their endocrinologist business card, send it back into the company, they receive a $10 credit against their next order and you receive thousands of leads from professionals across the country. That's what I wanted to suggest, I am building my client base with the stock, I'm an end user that goes a long way. But again the marketing has to be ramped up because everyone has shown are impressed and I think this could have driven some retail sales because again, I think your consumers are your best marketers. Thank you.

Well, first of all I'd like to thank you for your very complimentary remarks concerning the customer service. Our organization and your interaction within to it, as it relates to our OmniPod business, and then I'd also like to say we want to make that customer service experience even better for you, thank you. Secondly, I think you make a very good point where reference selling or having people that are currently on the product, refer it to their friends and physicians is a very important part of the overall strategy that we're developing through to get all three of the moons in alignment; the doctors, the patients, and the payers, so that we have broader adoption of the marketplace that more physicians are prescribing it and more healthcare/insurance companies are paying for it. So I think you were spot on, I'm going to pass that directly onto our marketing for its consideration and thank you for the great idea.

Our next question comes from the line of Jan Wald with Benchmark. Your line is now open, please proceed with your question.

I guess I have a couple of questions. Your commercialization effort is something that I just said is very important, you're going to focus on going forward. Two components of that, that you mentioned over, the clinical studies, the economic studies and the - I was just wondering if you could go into little bit more detail then towards the topline information you provided, how are you going to go about that, what kind of study should we expect, are they ongoing, when should we see presentations of those studies to help the providers make the kind of decisions you want them to make?

I think as it relates to clinical evidence I would use the term and in my remarks I didn't talk about new clinical studies, what I'm referring to is actually clinical data that's already available. There are many places throughout the country that we have a large base of OmniPod users and hopefully we're working to try to find a way to mind that database to show the clinical evidence of - for example, A1C levels on a person that was on MDI not going to OmniPod. So I think there is a fair bit of clinical data already out there that we simply need to mind, but as we go down the road it's getting more clinical trials and clinical evidence, we may need to look at - and incorporate doing some clinical trial work but that's not contemplated at this point, additional work is not contemplating at this point in time. And yes that is same information also it will be helpful with working for providers to serve the benefits of this - of the OmniPod as it relates to the performance for their patients.

So right now you think the retrospective analysis are going to be good [ph]?

I think - well, let me tell you where we are today, we have data on 59 patients that shows 0.59% reduction to me when sea levels. We have data in the field and available I think that we can mind - initial data shows that 1.1 reduction in A1C on little over a thousand patients. So that data is available - we'll get a statistical analysis and hope to use that in marketing to doctors and payers. The other thing I would mention is that, insurance plans are often evaluated by their customers, by big large employers on quality measurements related to the - measurements and those are quality measures that are used to - basically a report card for insurance plans and they specifically heated measures related to A1C levels and other measurements of diabetes care, and I think that's another avenue where if you can show an insurance plan that you can improve their A1C compliance, their A1C numbers, that's meaningful for them as they market to the large employers throughout the country. That's the kind of value proposition we need to bring to insurance companies that here before hasn’t been done.

Okay. Now just - again on commercialization effort, the - benefits, it is easy to list sort of the topline - what are the ones that you really are going to try to detail and go towards the pairs in the docs worth?

I think it's the - as you think of the benefits of the product, I mean there are many from product features that tubeless delivery among others, but I think the clinical benefit is that what are the A1C levels of individuals on MDI therapy before they go on the OmniPod and what are they have been on the OmniPod for a while, the data when you see consistently shows a reduction in A1C levels that are in our view significant. So I think that's the principal one is also in the data we've mined so far - 15 unit per day reduction in insulin usage. So I think there is a number of different metrics we can mind that's going to give us a dataset we can take the doctors and to payers.

Our next question comes from the line of Sean Rodrigues with Cohen & Company. Your line is now open, please proceed with your question.

Hi, good afternoon, thanks for taking the question. So first trying to put some of your commentary back in the context of your guidance assumptions, so on the commercial organization you've made some leadership changes expanding the headcount and then trying to really drive some cultural changes to the organization but are you assuming you will see things like productivity increases or that the new reps become meaningfully productive this year or what you're doing in the guidance assumption that's not necessarily linked that way?

We are definitely assuming improved representative productivity sales force effectiveness in the field. The team that I put together on the whole commercial side under our Chief Commercial Officer is - have all worked together, know how to drive sales forces, how to design sales forces, and to relate and try top line growth. So - absolutely we've got improvements in sales force productivity baked into our assumptions.

Okay. And that includes the new hires that you will be making and obviously the time it will take for them to get up and running in productive?

That's correct.

Okay. And then I'm trying to understand the US OmniPod dynamics the past year or so in the context of the comp dynamics that you're facing in 2015, so you talked about the capacity improvements, how much do you think that capacity was the limiter of US growth last year given the international growth and the Ypsomed stocking that you talked about or do you not consider this as a significant factor in the past year performance?

No I don't think capacity was a big driver of 2014, I think in Q1 and Q2 we were able to bring our manufacturing lines back up to the levels that we needed them to be producing it, so I don't think it was the capacity.

Okay, helpful. Thank you.

Operator, we'll take one more question if there is any available.

Our next question in the queue comes from the line of Steven Eichmann [ph] with Oppenheimer. Your line is now open, please proceed with your question.

Thank you, hi guys. Just a follow-up on the expense side of the equation, where should we be thinking about gross margin in 2015 and where do you see that going over the medium to long term?

I think for gross margin we talked about in the call that our US OmniPod sales are just over 60% gross margins, I think what you will see in 2015 is that any improvement in gross margin will largely be driven by mix, and we did mention that our international business as well as our neighborhood diabetes businesses are at lower gross margins, so as you bring in more US OmniPod sales, as you bring in more drug delivery, you will see some improvement in that gross margin level.

Okay. And then Allison on the fourth quarter, the profitability point you made is that on a GAAP basis or non-GAAP basis, or cash basis?

Operating profit.

On a GAAP basis, okay. On the Lily type II process, when do you anticipate that trial starting, and any early sense of what that trial will look like?

We expect the trial to begin this year and we have worked with delay on the protocol, both, what they are going to do, what we're going to do, and FDA has basically given us green light; it will start later this year, probably won’t be commercial until 2017.

Okay. And then in terms of the destocking side of Ypsomed, what level are you expecting in the first quarter, what is - approximately what's build into that guidance and what was it in the fourth quarter, I know that impacted you somewhat in the fourth quarter?

We haven't spoken out exactly how much was related to the international market, and unlike Pat said earlier, if that is ordering product again here in Q1, so we see the order volume getting back to where it should be and we expect by Q2 that will - that destocking will all be done.

Okay. But in terms of the level of decline from the fourth quarter to the first quarter, even though you're going to have the Amgen revenue, is that, that level of decline principally because of this destocking or how should we be thinking about that versus what you would breakout or think about in the US?

The Q4 to Q1 decline was being primarily related to the destocking.

Okay, alright. Thank you.

There no further questions. I would like to turn the call over to Patrick for closing remarks.

Thank you very much. First of all I want to reiterate how excited I am to be at Insulet and how strongly I believe there are so many untapped opportunities before us. Our new senior leadership team is very well positioned to capitalize and provide improved commercial execution over a strong platform with our OmniPod system that will not only allow us to drive featured options with the right operating strategy in place, that will provide us with the unique and incredible opportunity to drive growth within the drug delivery business. I'm confident we are driving forward on the right strategy to position Insulet on long term accelerated growth and create shareholder value. I look forward to meeting many of you at Investor conferences over the coming months and keeping you updated on our progress on future calls, as well as providing you additional details about our execution, strategy and future vision. Thank you very much.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Have a good day everyone.