Good day, ladies and gentlemen and welcome to the Second Quarter 2019 Insulet Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct 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 introduce your host for today's conference, Mrs. Deborah Gordon, Vice President, Investor Relations and Corporate Communications. Ma'am, please go ahead.

Thank you, Lauren. Good afternoon and thank you for joining us for Insulet Second Quarter 2019 Earnings Call. Joining me today are Shacey Petrovic, President and Chief Executive Officer; and Wayde McMillan, Executive Vice President and Chief Financial Officer. The replay of this call will be archived on our website and our press release issued after market close today discussing our second quarter 2019 results and third quarter and full year 2019 guidance is also available in the Investor Relation 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 be materially different from any future results implied by such statements. Such risks and uncertainties in addition to the inherent limitations of such forward looking statements include those referenced in our Safe Harbor statement in our second quarter earnings release and in the Company's filings with the SEC. Please note that we assume no obligation to update these forward looking statements even if actual results or future expectations change materially. Also, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year GAAP basis. And with that, I'll turn the call over to Shacey.

Thanks, Deb, and good afternoon everyone. The second quarter of 2019 was another important and exciting one for Insulet and we are extremely pleased to have made great progress on our strategic imperatives as we cross the midpoint of the year. We entered 2019 from a position of operational and financial strength after working throughout our 2018 to solidify our foundation for long-term sustainable and profitable growth. We remain focused on our strategic imperatives; first driving innovation across our business; Second, expanding market access; third: strengthening our global footprint and fourth ensuring operational excellence throughout our organization. Thanks to our disciplined focus and these imperatives and the team's great execution Insulet achieved another quarter of accelerated revenue growth. As a result, we are raising our full year 2019 guidance. Our market opportunity is large, it is growing and it is under-penetrated. Today, we estimate our addressable market in the countries we currently serve almost 10 million people living with Type 1 and insulin dependent Type 2 diabetes. Globally both the incidence of diabetes and the use of technology to manage the disease are growing. These trends provide strong tailwinds for our business. We have a number of near and long-term growth catalyst such as our new product innovation and global expansion which we expect will both increase our addressable market and our penetration into that market. These growth drivers will make us confidence in our 2021 financial targets and our ability to drive continued long-term growth. On today's call, I will share financial highlights from the quarter and review the progress on our strategic imperatives. I will then turn the call over to Wade, who will provide additional detail on our second quarter financial results and share an update to our 2019 outlook. We will then open the call for…

Thank you, Shacey. As Shacey noted at the beginning of the call, we had another strong quarter as we continue to execute across our strategic imperatives, We are realizing improved financial results each quarter by accelerating revenue growth profitably as we scale while remaining focused on carrying out our mission of improving the lives of people with diabetes through our innovative solutions. In the second quarter of 2019, we had revenue of $177.1 million representing growth of $52.9 million or 43% which was $12 million above the high end of our guidance range. By Product, line US Omnipod revenue grew 26% to $98.1 million which was $7 million above the high end of our guidance range. This was the third quarter in a row of accelerating growth in the US while managing the transition to pharmacy and the launch of a new product. This acceleration resulted from growth in our customer base driven by expanded market access and the launch of Omnipod DASH primarily through the pharmacy channel and the mix benefit of the premium from the shift to the pay-as-you-go model. In the quarter, we exceeded the high end of our guidance range because we are able to successfully navigate through the DASH launch and business model shift including a no-charge PDM. International Omnipod revenue grew 120% to $62.7 million exceeding the high end of our guidance range by $4 million primarily due to growing demand for Omnipod within our existing European markets and the benefit of our direct business model in Europe. As a reminder, Q2 international Omnipod revenue growth reflects the final quarter of the year-over-year incremental 50% uplift in price in our European business from converting to a direct model. Additionally, we had an easier comparison in Q2 due to the negative impact from the inventory…

Thanks, Wade. I speak on behalf of the entire team when I say that I am excited about the opportunities ahead for Insulet. Our financial out-performance in the first half of 2019 and continued execution of our proven strategy ensure we are in a great position to continue our strong track record of shareholder value creation. Now, I would like to turn the call back to the operator for Q&A.

Thank you. [Operator Instructions] And our first question comes from Jeff Johnson with Baird. Your line is open.

Thank you, guys, Good afternoon. Congratulations on the quarter and the quarter back news I guess. So two questions here, one just on the mix of patients in the quarter, Shacey are you seeing any increased mix T2? Obviously a little bit easier through the pharmacy channel to get a T2 coverage with DASH, so any change there or any change on competitive wins versus MDI conversions?

Yes, I think it's a great question, Jeff. So the rate of competitive wins from MDI versus 2 pumps pretty steady. So still approximately 80% of our new patients coming from multiple daily injections while we have started to see some early indications of what I think is could turn into an exciting trend is the tight 2 mix in our new patient starts on DASH. So there we have started to see a tick up and it's too early really to call it a trend but I think we are encouraged that our messaging and our focus on that population is starting to resonate with physicians and with users.

All right , that's helpful and then Wayde maybe a manufacturing question for you, I don't want to read between the lines too much on some of your comments but are we see in anything where manufacturing costs maybe a little bit higher than initially expected or would you say the start-up in the ramp-up costs are pretty much right in line kind of with how you were thinking. And just to make sure what percentage of your US demand can you service out of the US manufacturing facility over the next 6 months to 12 months or I don't think there's any tariff issues to consider but I just want to confirm that? Thank you.

You bet. Hi Jeff. So, regarding manufacturing costs, they are right in line with our expectations. We have not changed our guidance for gross margin since the beginning of the year. And so very much in line, what I would say is, it makes it lumpy, right. As we manage through the volume and we have a lot of scenarios running for volume between our legacy plant in China and our ramp up of our new US manufacturing here and so as we work through that we have lots to deal with. We have the period costs, period expenses as we initially start to ramp up and then inventory made in US manufacturing is at a higher cost because it's absorbing a lot more overhead across a very small in the beginning, small amount of volume and so we put more product in inventory at a higher cost. So it's going to take us a while to work through that. It's going to be lumpy but having said that we're right in line with our expectations and the team has been working on this for several years. It's a big part of our strategy , we get the redundancy from it. We also get long term efficiency out of it. And so it's just something that we're going to have to work through here in the medium term and working through the financials but at the end of the day it's the right strategic move. And then regarding US demand, we won't be at full scale for US demand in the next 6 to 12 months, it will take longer than that. We'll have to get into our second line, and that will come in 2020. And then last third part of the question, if I caught it all was regarding tariffs and the team still is doing a great job mitigating the tariff impact to date, it's immaterial and that's why we're not calling it out to this point and I think like everybody we're waiting to get the details on the latest round of tariffs and what exactly those mean but I think the team has done a real nice job here of mitigating to date. And then although obviously not part of the strategy for US manufacturing , it was driven by a redundancy and increased capacity for the team but as it turns out once we do get to scale here in our US manufacturing facility, we will be able to serve the US from the US and the tariffs won't be an issue at all. So, very happy with how our long-term manufacturing strategy is coming together.

Thank you. Our next question comes from David Lewis with Morgan Stanley, your line is open.

Good afternoon and congrats, clearly an inflection quarter and Shacey and I wanted to start with, obviously the US inflection is where people are going to be focused on it. So I wonder, just give us more details Shacey, it's hard for you to move your business this quickly historically but yet you did it. So when you think about the drivers, this particular quarter in the US, is it greater access because of the pharmacies that just lowering access to getting on the system? Is it enthusiasm around DASH, payer access, It would be helpful, I just have a quick question for Wayde.

Thanks David. And really, it is all of the above. I highlight the pharmacy is really helping to improve the customer experience, our strategic rationale for the pharmacy was that combined with pay as you go, it would be a better customer experience and over time, it would be a more attractive channel for us and then you could lower barriers to adoption. And so I think what you're seeing is clearly DASH is an appealing product for patients and for physicians but this idea that physicians can now prescribe a product for a patient without having to worry so much about walking a patient in for four years, I really think that that's helping to change the way that both patients and physicians are thinking about Omnipod and visibility to prescribe it earlier and maybe for a subset of patients that you might not otherwise have done and just a little bit more color we're starting to see that in terms of the complexion of our user base, starting to see more type 2 users certainly more Medicare aid users so that increased access there is also helping to expand the patient population. So it really is combine the strength in the product platform, really the strength of the business model, the pay-as-you-go business model and then the increased access both in pharmacy and in Medicare and Medicaid helping to drive that record new patient starts installed base growth.

Okay, very helpful Shacey and Wayde just --can you just give us the underlying ex-US growth this quarter adjusted for inventory indirect gross up and any comparisons which you mindful of as we head into the third quarter which is really the first apples to apples quarter and how we should be thinking about second half ex-US growth on an apples-to-apples basis. Thanks so much. Nice quarter.

You bet. Hi David. So the biggest impact for the Q2 growth rate and the sequential decline to our guidance is process around converting to our distributor in Europe last year in Q2 and basically boil it down into two big pieces, one on a positive note, we had 50% price increase from going direct and then also the challenge or disruption is moving through the direct process where we had to buyback inventory as well as work through some tougher comps that were out there in Q2 last year which become an easy comp for Q2 this year. So if you put all that together normalizing it, it's about a 90% to 100% impact, David, so you can think about working from Q2 to Q3, down about 90% to 100% just for the international transition and other than that really when you look at our guidance range at the high end, we're really anchoring that to the performance that we've had over the first half. And so pretty strong growth. And that's really across both US and O-US regions. And then I think I would just add for Q3, we are actually a little higher than we've talked about on a normalized basis. So, we've said several times and again in the guidance this quarter that we think the normalized growth rate internationally is high teens, low-20s and looking at the guidance here for international were above that and there's a couple of reasons there is a small hangover from the disruption in Europe last year that gives us a slight increase. And then we've got good visibility into our pipeline in Q3 it look strong. And so we took the momentum. The strength of our pipeline and small impact of a slightly or easy comp compared to Q3 last year and that's what gets us to the 22% to 26% here in Q3.

Thank you. Our next question comes from Robbie Marcus with JPMorgan. Your line is open.

Thanks for taking my question and congrats on a really nice quarter. Wayde, maybe you could help us understand kind of similar then a question that David just asked on international but for the US that if you strip out all the price increases that we're seeing, you said there was a good portion of patients that we're getting the higher price DASH in the quarter. What do you think the underlying patient volume was in second quarter? And how do we think about that for the 2020?,

Rob, you still there? We might have lost just the end of your question. Rob, you still there?

I do apologize. It looks like we did just lose the line of Robbie Marcus.

Okay,

We will go on to the next question, our next question...

Why don't we do that, then -- when Robbie comes back in queue, please let us know and then we'll get to his question.

Perfect. Yes, sir, until then, we'll take the next question from Joanne Wuensch with BMO Capital Markets. Your line is open.

Good afternoon, everybody. Two questions, the first one is the steps to the Horizon launch and we are talking about starting clinical trials shortly and then it sounds like it's still on track for the end of next year, how do we get from clinical trials to full launch?

Thanks Joanne. Yes, we are excited and I think as we've said with Horizon we're focused in three areas. So, the first is, we're really focused -- from a development perspective on just ease of use and ensuring that we have a system that multiple daily injection users can transition to, we're focused on phone control which all the market research indicates is going to be a game changer for our users. And then the third is, we are focused on launching with the pediatric indication which is why we were so excited about the data that was presented at EDA. So the work that flat between now and pivotal is to complete the commercial development of the product and then to enter into pivotal and achieve those outcomes that we're looking for and we believe that we're going to benefit from the breakthrough devices designation of the FDA of an accelerated review and we are hopeful that because we'll have entered pivotal with the commercial system that we'll be able to either leverage that as a limited market release or to a somewhat protracted limited market release and then move into full market release with the system. So our goal is to be on the market in the second half of next year.

Thank you. And then, and then a question, I think this is such a small percentage of your revenue but I did want to ask about drug delivery with a little bit better or less worse, the way you look at, is there something just to call out there or just normal course of business?

It's normal course of business, Our guidance for and performance for drug delivery is always based primarily on the forecast from our largest customers. So that's what that reflects both from a guidance and performance standpoint.

Thank you. And Robbie Marcus has rejoined the queue. Our next question does come from him, Robbie Marcus, JP Morgan. Your line is open.

Thank you, and hopefully the second time will be a little better. Wayde, I just, I don't know how much you heard but I just wanted to ask, kind of like what David asked on underlying volumes in international growth, we know that DASH comes at a higher price but without the PDM it appears that there was a substantial portion of your underlying base that upgraded the DASH that didn't need to get a PDM. So it's just pure price increase year for year. Can you help us understand what the underlying US patient volume growth was? And how to think about the installed this growth for 2019? I know you did metric in ' 17 and '18, just help us understand that this year.

Yes, you bet Robbie glad to have you back. So the customer growth is not significantly different than what we experienced overall and a reminder for DASH, It's a new product, and so for people who are coming on DASH for the first time are new patient starts there isn't a price increase but as you mentioned we are getting some mix benefit and on the premium of existing customers that move from another channel into the pharmacy and where we don't have to give them a PDM. And so, when you net all that out, we believe that our the PDM headwind as well as a benefit from it was just a slight unfavorable for the quarter and really not a material impact on our results. So netting the PDM headwind with the benefit of the mix and people moving in on DASH in the pharmacy. So I think you can think about our growth rate as not significantly different from our overall customer growth plus the mix or premium benefit of people moving onto or new patients on DASH that we didn't previously have because they're not moving from another product So we don't have a price increase on those.

Great and then if I think about guidance and the balance of the year, it seems like price headwind from the lost PDM and the benefit of DASH are offsetting each other to a degree, I don't know if you've commented on it if there is any stocking in the pharmacy, when I look at guidance for the balance of the year it does appear to have credit decelerating trends from the second quarter. So, just help us understand if underlying volume growth is pretty reflective of the second quarter results? New patient starts don't have a huge benefit in each individual quarter, help us understand what gets you to the slower growth in the second half. Thanks a lot.

Sure. Yes, you bet. Well, there is a lot there Robbie so worked through it, let me know if I miss any of it. So regarding the PDM, we had a pro rata, We've talked about a pro rata amount over the three quarters, Q1 to Q4. As I mentioned, we had a slight unfavorable in Q2, we're assuming the same for Q3 and then we're still planning for a net neutral across 2019, so that assumes that as we accrue more patients in the pharmacy on DASH that we will start to offset the PDM fully here in 2019 and on a net basis for 2019 be neutral. So from a guidance standpoint, if you look at the high end of our US growth rate for Q3, 24% that's the same growth rate as we've had in the first half. So the way we're thinking about it is if we continue with the acceleration that we've seen in the first half will end up at the high end of our guidance. If we end up growing more like we did last year in 2019 which we're still accelerating and doing very well, we'll end up more like at the lower end of our guidance range. So it's really just thinking about how we've been accelerating through 2019 and how we're accelerating here in the first half of 2019 and at either end of the spectrum, we believe its strong growth. Having said that we have a lot of things we're working through. Shacey talks a lot about years in the making, well, we just had one quarter of managing through a new patients and a new product launch as well as our shift in our business model and the US teams are doing an incredible job here just working with them here for the past few months and seeing all that they're doing in the US, but they're also sharing capabilities and helping our European teams build capabilities and ramp up and then obviously getting pulled into US manufacturing and all that has to happen to make our US manufacturing run. So just an incredible amount of things happening here at the same time and very proud of the team and how we work through it and actually exceeded our expectations during Q2. So that's what gives us confidence that we can hit the high end but also just being realistic that we're working through a lot of things. And frankly, if we end up at 20% in the US at the low end of the range that will still be above what we did all of last year in 2019.

Thanks again and nice quarter.

Thank you. Our next question comes from Danielle Antalffy with SVB Leerink. Your line is open.

Hey, good afternoon guys. Thanks so much for taking the question. Congrats on a really great quarter. Just a follow-up question as we think about the -- Shacey, to follow up on your commentary around better customer experience with DASH etc., can you talk about what that could mean or maybe you already have some sense of what that has meant from an attrition perspective? Have you seen the needle start to move there and where do you think that can ultimately go over time with DASH and also I guess. going through the pharmacy?

Danielle, I think it's a great question and it's something we've been monitoring closely. We actually predicted that as we lower barriers to get onto the product that we could see attrition tick up. On balance, all of our analysis demonstrate to us that that was the right decision because we were ultimately going to grow the customer base and even if we end up with a slightly Higher attrition rate, we'd be able to grow the customer base at a higher rate. There is no evidence this quarter that the attrition rate was higher. And so what we're seeing is early indications that our expectation that the customer base would grow in an accelerated way because of DASH and the business model, both how appealing the product was , but also just how differentiated the business model was. So I think our early indications are good that we were right about the business model attractiveness. I think we're going to be watching the attrition rate, very carefully. Just to see what happens as we lower these barriers to get onto the product, so stay tuned on that front. We'll certainly provide color as we get it.

Okay and then just one quick follow-up. Wayde probably, this one's for you. You lots of transitioning from a manufacturing perspective, were you guys at all supply constraint here in the quarter and did that have any impact on sales? Was that a headwind maybe actually could have done better?

Hi, Danielle. No, we're in really good shape from a supply standpoint and that's part of the redundancy plan here. In fact heading into the DASH launch, we built inventory and heading into the act and manufacturing ramp up we built some inventory just to make sure we're ahead of it. So we're feeling very good about the situation we're in from a manufacturing and supply standpoint.

Thank you. Our next question comes from Matt Taylor with UBS. Your line is open.

Hi, thank you for taking the question. So I just wanted to ask one question about the horizon. I just wanted to make sure that you are still targeting late 20, I don't know if you have said that today. And when you think about combination systems. Can you talk about your plans or ability to drive to other combination systems with other sensors in the future with the ace designation?

Sure. Thanks, Matt. Yes, I did confirm that we still plan to be in the market in the second half of next year and we're on track and to pivotal at the end of this year. And so I'm very excited about that progress. We do fully expect our system to be inter-operable and it's one of the rationales behind partnering with tight pool that we have a system that can work with other algorithms other sensors, etc. So, we see the value in interoperability and are planning for that down the road but at this point, our partner is Dexcom and we are very excited about the value of horizon with the Dexcom Partnership their sensor, which is terrific and firm control.

Thank you. Could you just talk about the trends that we're seeing in the pump market. More broadly, your competitor was talking about the accelerating trends, clearly you've had very strong growth here too. Can you talk about what you think the underlying growth for the market is and how that could be sustained over the next couple of years as these new technologies come out?

Sure. You know Matt, we always say that the pulp market is growing and it has accelerated in the last few years in part due to accelerating adoption of CGM and as CGM has grown that's been terrific for us because what happens is the patients get visibility to their glucose trends, they recognize that there are opportunities to get better control and then they look for tools to get better tighter control and Omnipod is obviously a big piece of that. So the increasing adoption of CGM has certainly helped to fuel the overall growth of the pump market and in particular Omnipod has been a big part of that too because the other thing that's CGM does is get a patient comfortable with a wearable and so that's one of the hurdles to Omnipod adoption that CGM growth has helped to address and of course the vast majority of our patients are coming from multiple daily injections, so overall we're helping to go grow the category. We believe in the United States that the market itself is growing somewhere around a 10% CAGR and outside of the United States in the markets that we compete in, which are primarily these more mature European markets, it's growing somewhere less than that somewhere between 5% and 10%. And so a nice growth overall and obviously we're getting a bigger share of that market.

Thank you. Our next question comes from Margaret Kaczor with William Blair. Your line is open.

Good afternoon, everyone. Thanks for taking the questions. First off , thank you guys for all the helpful metrics on the front on the call, that was helpful. Maybe just a follow-up on some of those as you guys have gains from the new coverage for DASH at 50% now. I think is what you referenced, should we assume that these are all under pharmacy and inclusive of the Type 2 patients? And then as we see kind of that mix benefit, it start picking up higher, why shouldn't we see that continue to benefit numbers if you're about 15% to 20% of patients on pharmacy today?

Thanks, Margaret. It's a DASH has covered both under pharmacy and DME But the vast majority of the coverage today is through the pharmacy. So obviously we've spoken in the past about the reduced barriers for adoption in the pharmacy particularly for the Type 2 patient. And so that's true for the vast majority of the coverage that we have established for DASH users in the pharmacy. In terms of acceleration of adoption, I would expect that DASH adoption will accelerate commensurate with the establishment of access and we started to see that already, as I think Robbie mentioned earlier, it takes a long time for us to move the needle on the overall base but we're seeing indications already in new patient starts where we obviously ramped access throughout the quarter but we landed the quarter in a third of our new patient starts being DASH and so that's an indication of kind of an early indicator of where adoption is going. So that's exciting from our perspective, I think the early indications are very strong.

Okay. And part of the question was kind of understanding the revenue model, because as you guys get that mix benefit, maybe going from one channel and maybe having more direct control that patient yourself and maybe moving some of the existing installed base into that channel, why shouldn't we continue to see that again going into the second half of this year and into next year. And then just kind of on a Type 2 side, any kind of update of your coverage there with any notable changes maybe either that happened this quarter or going forward. Thanks.

Yes, I think we would expect to see that continue to grow in that tailwind as we had through the rest of this year and going forward as we transition into the pharmacy that was part of the strategic rationale but it was a more attractive channel for us for the patient for the physician, etc. And the same thing is true for type 2 which is why I shared that in my opening remarks that we expect that population to continue to grow as we establish access in the pharmacy that is a great channel for people living with Type 2 insulin dependent diabetes to access Omnipod. And so as we establish more access there we do expect that population to grow as well.

Thank you. Our next question comes from Jayson Bedford with Raymond James. Your line is open.

Hi, good afternoon. Just a couple of quickies here. I wanted to ask about US growth. Is there any way you can comment or quantify the number of new prescribers meaning an expansion on the prescriber base if that is indeed a source of the faster growth you're seeing?

Thanks, Jason. We haven't shared that in the past. I will say we track of both new prescribers or new clinics as well as penetration into our existing clinics and both are increasing significantly. So we are getting, I guess to put it in a more colloquial term we're getting more same-store sales and more new store sales both across the board.

Okay. And then, when do you expect to file for ace designation?

We haven't shared that. We have said that we fully expect to take advantage of that pathway, but for us, it's really not necessary until we have additional sensors. You know that our ICGMs. So we're not in a hurry but it is part of our strategy for both at Tidepooll and likely Horizon.

Thank you. And our next question is from Ryan Blicker with Cowen and Company. Your line is open.

Hi, good afternoon and thanks for taking my questions. Maybe just starting with installed base growth, do you still expect the US installed base growth in 2019 to be consistent with revenue growth? And similar question for international, I guess given the higher second half guidance, do you now expect the international installed base to grow at least in the low '20s per year or is it still in that range that you mentioned previously?

Sure. Yes. So this is Wayde, I can serve Ryan. We are assuming that the installed base is growing similar to the overall sales growth rate and it's a bit of a tough number to gauge right now because it bounces around a little bit but at this point, we don't see a significant deviation and just one clarification there is I think a lot of people think about the change in pricing in DASH but for people who are new to DASH that we're not on a product before, it's not a price increase because they're are new to DASH and they're not moving from anything. So although we are getting premium for the pod with DASH because it's been primarily in the pay-as-you-go model that is an uplift to our overall average selling price but it's not a price increase for us. From an international standpoint, we think it's going to -- the customer base should also grow in that high-teens-low '20s growth rate. And so that's our expectation is the primary driver for growth in the region.

Great. Okay. And then, just sticking with international, you talked about starting some new market expansion in 2020, it doesn't sound like it will be any major new markets but how should we think about that maybe that incremental growth off of that high teens to low '20s basically you've talked about, could it be significant or should we think of that is only a slight incremental benefit to 2020. Thank you.

Thanks, Ryan. Yes, I think for us, the business model is all about the long term. So any one market in any given year isn't going to be a major contributor at all, it's really all about retaining and building that business and that customer base over the long term. So we really want to be thoughtful about that. I wouldn't expect it to be a significant contributor at all in 2020. It's really about the long-term story and how that can contribute over a number of years.

Thank you. Our next question comes from Ravi Misra with Berenberg Capital, your line is open.

Hi, great, thank you. Can you hear me okay?

Yes.

Great, thanks for taking the questions. Shacey, just one question on Type 2 and then I had a follow-up or Wayde. So on the Type 2 commentary that you mentioned, can you just help us think about do these patients have the same reorder patterns as Type 1 and kind of how does this early success, it seems fit into your strategy with some of the more concentrated Insulin Delivery Systems that you're working on?

Yes, I think it's a great question. So there is no indication really that utilization or reorder patterns differ with the type 2 insulin dependent patient versus type 1. but again it's really early days. So we're just starting to see indications of strength in this patient population in our new patient starts. As we gather a larger base over time, we'll learn more about utilization and retention and reorder patterns in that base. As it relates to our concentrated insulins, making great progress there. I think we had mentioned either ADA or in the last call that we have submitted U-500 to the FDA. And that has never, we never really intended that to have a major contribution to revenue, it's more of a niche product. U-200 probably has more potential but we have also been saying for about a year now that market research and now this early experience with DASH is showing us that concentrated insulins will be helpful but definitely not required to see significant growth in the type 2 insulin dependent patient population, and in fact with Omnipod's ability to reduce the total daily dose of insulin and with how appealing the product is from a simplicity and discretion standpoint, we probably have access to the majority of people living with insulin dependent type 2s and we're certainly making an effort to demonstrate the value of this technology in that patient population today and not wait for concentrate insulin's at both come to market.

Great, thanks. And then Wayde, it's just one for you, just maybe a little bit accounting vanquish, but just curious as you kind of flow through the PDM or give that away or phase that out. Just curious, how should we think about the warranty expense associated with that and is that built into your kind of three year targets around that 70% gross margin approaching or is that incremental upside? Thanks.

It is built in and we would assume depending on the experience level. So as our experience levels change then we change our warranty accrual but we wouldn't see it as upside or benefit because we accrue the warranty at our cost of goods sold and that's still what we're issuing the product that .So we don't see a change to the warranty materially as a result of the new product, unless our experience factor changes on the new product and it's early days on that. So we don't have an updated estimate.

Thank you. Our next question comes from Suraj Kalia with Northland. Your line is open.

Good afternoon, everyone. Thanks for taking my questions and congrats on a nice quarter. Shacey, let me start out with ADA and one of the things that, at least on the fundamental level, we all kind of trying to understand the competitive advantage rendered with any of the closed-loop systems TIR for I think control IQ was 71 you guys have preliminary data at 73, Medtronic seems to be in that ballpark. I guess where I'm headed Shacey, I love to get your thoughts, would you think and this was also raised at last year's ATTP about a clustering and the relative lack of advantages, I'd love to get your thoughts, what do you think is the key thing that needs improvement? Is it the pump? Because you did mentioned the architecture of Omnipod, is it the algorithm? Or is it the CGM? There seems to be a disconnect somewhere in terms of one system breaking free from the remaining?

Thanks for the question, Suraj. I would say that 73% time in range especially in children, which is a very, very challenging population ages 2 to 6 that's a remarkable improvement from average time and range today. The average person living with Type 1 diabetes I think is sitting in the '40s, maybe 50% time and range. So this is a marked increase that automated insulin delivery and the addition of great sensors and algorithms and great pumps are bringing to the community and it will make a difference in terms of outcomes and quality of life. When I think about a breakthrough system actually it would come down to ease of use because all of these systems in well-controlled clinical trials are going to deliver great outcomes but what's going to actually deliver great quality of life and great outcomes in the real world is just how easy these systems are to use and that's one of the reasons why we focus so much on the MDI user on ease of use and on phone control, which we think can help drive more adherents more convenience and more ease of use. So that's really where we focused and where we think we can get differentiation and kind of breakthrough to use your words.

Got it. And finally, Shacey, in terms of and I know a number of comments were made a third of the patients and please correct me if I misheard it, a third of the new patient starts had DASH, the other thing I heard was a number of DASH patients work T2s. Can you parse out what a percent of your new patient adds were T1's versus T 2's. I guess just trying to put our arms around the current penetration of T1s in the US. Tandem obviously give some numbers Medtronic, we know, I know you guys, we have summer of idea but I'd love for you guys to parse out T 1's and T 2's and see the level of penetration especially within T1S. Thank you for taking my questions and congrats on a great quarter.

Thanks, Suraj. Yes, we don't break that out, but I will say that this was a -- as I mentioned just an all-time record high for us in terms of new patient starts. And so we did have great adoption across both Type 1 and insulin dependent Type 2s which is notable in the DASH population that T2 had picked up significantly in new users and that was an interesting leading indicator we're going to tell everybody. If it turns into a trend.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Ms. Shacey Petrovic for any further remarks.

Thank you and thanks everyone for joining us on today's call. We are building just great positive momentum from a strong start to the year and delivered better than expected results in the first half of 2019 and now expect a stronger second half finish. None of this progress would be possible without the tremendous Insulet team around the world who works day in and day out to improve the lives of people living with diabetes. Thank you all for your hard work and dedication to our Company and to all of us impacted by diabetes. With that, I look forward to updating all of you on our continued progress in the months ahead. Thanks and have a great evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.