Insulet Corporation, the maker of the Omnipod insulin delivery system, delivered another impressive quarter, exceeding expectations for both revenue and profits. Their main product, the Omnipod 5 Automated Insulin Delivery (AID) system, continues to be a market leader, attracting the most new users and driving strong growth. However, a potential problem is hidden within this success: Insulet's strong focus on selling through retail pharmacies, while contributing to its current dominance, might make it vulnerable in the future.

The transcript from Insulet's first quarter 2024 earnings call shows the company is very confident about its competitive position. CEO Jim Hollingshead proudly stated that Omnipod 5 is successful in "every market it goes" and highlighted its "ease-of-use, pay-as-you-go economics, affordability, and widespread access," all of which are closely tied to its retail pharmacy strategy. In fact, Insulet has a strong presence in retail pharmacies, with Omnipod 5 available within five miles of over 85% of the US population. This easy availability, combined with the convenience of getting an AID system alongside regular insulin refills, has definitely been important in attracting new customers, especially those switching from Multiple Daily Injections (MDI).

However, this reliance on retail pharmacies might be creating a blind spot for Insulet. While the company celebrates its success in converting MDI users and points to the large untapped market in this segment, it seems to be ignoring changes happening within the group of people who already use insulin pumps. The earnings call transcript reveals a small change in where new customers are coming from, with the percentage switching from competitor pumps decreasing slightly.

This change, though small, could point to a growing trend: Insulet's dominance in retail pharmacies, designed for converting MDI users, might not work as well for attracting people already using pumps. These users, familiar with pump technology, might care less about the convenience of retail pharmacies and more about advanced features and how well the system works clinically.

"Insulet's current strategy of relying on a single-phone (Android) and single-CGM partner (Dexcom G6) makes this potential weakness even worse. While the company is working on integrating with Dexcom G7 and Abbott's Freestyle Libre 2 Plus, these efforts are mainly aimed at new customers. People already using pumps, often looking for the newest technology and more choices, might prefer competitors who offer a wider range of options, including support for multiple CGM systems and phone control."

This potential weakness in keeping current pump users is highlighted by Hollingshead's admission that a competitor has managed to "staunch the bleeding" in their existing user base. While Insulet still wins the most customers from competitors, this success seems to come mainly from attracting MDI users, not from outperforming other pump makers within their established customer base.

Hypothetical Impact of Customer Sources on Market Share

Let's imagine a scenario to illustrate this potential problem. Let's say the total US AID market has 1 million users, split 60% MDI users and 40% current pump users. If Insulet gets 70% of new MDI conversions (representing 10% of all MDI users), they would gain 42,000 new customers. However, if they only get 40% of conversions from other pump users (assuming 10% of them are ready to switch due to four-year lock-in contracts), they'd only gain 16,000 new customers. This shows that while MDI conversions are the biggest growth driver, Insulet's smaller share of the current pump user base could limit its overall market share growth.

Beyond Retail Pharmacies: Strategies for Future Growth

To address this potential weakness, Insulet needs to look beyond its focus on retail pharmacies. It needs to actively engage current pump users, highlighting the clinical advantages of Omnipod 5 with strong real-world evidence, which they plan to present at the upcoming American Diabetes Association (ADA) conference.

Adding support for multiple CGM systems and phone control is crucial to attracting this tech-savvy group. While Omnipod 5's ease of use is still a big selling point, the company needs to actively promote its advanced features, such as the low rates of low blood sugar events (hypoglycemia) with its algorithm, to stand out from competitors who only focus on time-in-range metrics.

Insulet's success is undeniable. Omnipod 5 has changed diabetes management, making AID therapy accessible and attractive to more people. However, its retail-focused strategy, while very effective now, might not be sustainable in the long run for capturing the whole AID market. To stay in the lead, Insulet needs to change its approach, actively engage people already using pumps, and build a complete ecosystem that meets the changing needs of a tech-savvy and demanding customer base.

"The Omnipod 5 is nicknamed the "tubeless wonder" in the diabetes community because it's the only fully disposable, tubeless AID system. This makes it discreet and easy to wear, especially for active people and children."