Tandem Diabetes Care, Inc. (TNDM) Earnings Call Transcript & Summary

Thank you, and good afternoon, everyone. I'm Anthony Petrone with the research group here in New York. Welcome to the afternoon session, Day 2, the Jefferies 2020 Virtual Health Care Conference. Up next, we have Tandem Diabetes. With us, we're happy to have John Sheridan the company's CEO; Leigh Vosseller, the company's CFO; and Susan Morrison, the company's CAO. We're going to do a 25-minute fireside chat session. We have several topics. We're going to go over, and we're going to jump right into it. So first, I want to welcome everyone. I hope everyone is doing well through this cycle and everyone's healthy. Everyone on the call home with their families and the team at Tandem. So thank you for joining us.

Thank you.

A place to start, certainly would be as these discussions have evolved over the past day or so, is the COVID-19 impacts coming out of the first quarter and what we've seen here in the April and May time frames. And I think what's unique to Tandem is certainly that the company emerged as being one of the least impacted overall, specifically, on Control-IQ launch, which we'll talk about a little bit later. But maybe just a little bit on the exiting 1Q trends, post mortem on those trends? And any notable highlights that you can provide on April and May.

Sure. So it's actually been pretty interesting, to your point, people believe that we were going to have a larger impact than we have been seeing, including us, to some extent. And so I think the most important element is that there's not necessarily a direct line drawn between when a person visits their physician and when they actually make their purchasing position. There's no question as we came into the second quarter that we are seeing some level of pressure like many other folks and other companies out there. But the pressure hasn't been as substantial as expected. And one element in particular, the hypothesis was that, a person who is moving from multiple daily injections might be least likely to go -- move to pump therapy in this environment where we're on a more remote basis. But what we've seen is just like we had experienced as a company from the beginning of our history, all the way up to now is that we're still seeing the same mix of people coming from multiple daily injections as well as people coming from competitor conversions and our renewals continue to be strong as well. So while we're seeing pressures that came into the second quarter, it wasn't to the extent that we anticipated. And as we looked at it, when we went out on our earnings call at the end of April, we felt like we have enough visibility that we could at least give an indicator of where the second quarter was heading, which is why we guided to the $85 million this quarter.

When we look at that phenomenon, and we have a whole segment on Control-IQ and we'll get into that. But when you consider that physician offices were closed, so there was a little bit of impact on the funnel there. We were able to offset the telemedicine to a certain extent. But maybe with the exception of the launch, was there other drivers in there that helped mitigate the impact?

Really, we attribute a great deal to Control-IQ and that successful launch. It was very crucial that we had all the physicians trained early in January, and also helps that, not only people were buying the pump with the Control-IQ on it, but we had over 30,000 people update their software very early in the quarter. So that experience that people are having and their physicians are seeing helped encourage physicians to continue to prescribe it even throughout this environment because people feel like it's important to get on that technology because it helps protect them at a time at which they might be even more at risk.

Maybe a little bit before we move on, just CV-19 had -- sort of questions is just a quick one on the manufacturing side. It seems that overall, as it relates to pumps manufacturing was really not impacted to any great extent. However, on some of the consumables, cartridges and infusion sets, maybe there was a slight headwind that possibly the company was dealing with. So maybe just a quick update there.

Sure. So you're right. We started working with our suppliers back in January, when we first learned of the situation in China. And fortunately, we haven't seen any interruption in supply from these suppliers. Pump manufacturing continues to work well. We just -- we saw a little bit of a run on cartridges before -- right at the end of the quarter. There's nothing that we're concerned about, just that we did see that. We actually have just brought on a third party, a new third party, very reputable, high-quality manufacturer here in the area, and we've installed our first new cartridge manufacturing line in that facility, it's now up and running on plan and on schedule. So we feel good about our ability to continue to move forward and produce cartridges. There was a -- our supplier for infusion sets did have an issue with one of their third parties. The infusion sets were produced, they had to send it to this other organization, and there were some bottlenecks there that -- where people were competing because of COVID-19. I think they've been able to resolve that now and there's going to be a month or 2 where we don't necessarily have the infusion sets to provide, but we may not have the exact color or just -- it's more nuance-related, not necessarily supply oriented.

No. That's very helpful. So maybe want to transition to Control-IQ. But before we get into the specifics of the launch, just to level set where Tandem sits in terms of pump share and the statistics that are thrown out there as it relates to T1 and T2, and we pulled some of those last night ahead of this meeting. And so when you sort of look at those, a lot of statistics in there, but you exited 1Q at 155,000 users. We're familiar with the T1 stats at 1.8 million, 6 million in insulin-dependent patients. And you kind of shake all of that out, we're coming up with t:slim share of about 23%, 24% overall. So just a quick recap of those statistics, are we in the ballpark and does that all of that make sense?

Yes. You are in the ballpark. I'd say the numbers are very difficult to pin down overall. And it's mainly because of the information is derived from U.S. Census Data, and they just ask people if they have diabetes. And then there's a presumption that it's between 5% and 10% of those have Type 1. But when you really start to cut it down versus diagnosed and undiagnosed diabetes, the statistics would suggest that we've got about 20% market share. And that there's about 1.6 million people in the United States with type 1 diabetes and pretty much an equivalent size of people with type 2 diabetes, who use daily rapid-acting insulin. So those are your intensive insulin management folks who would be candidates for pump therapy. And then the pump penetration breakdown is just over 30% on the type 1 side and then less than 10%, right around 7% on the type 2 side as far as pump penetration.

Well, that's a good transition into Control-IQ. So we've done our checks and hosted several cable calls, and it's really echoing that this technology is game-changing. For T1 users and early T2 users. So maybe from where the company sits, what have you been hearing on which features are so impactful that make this "a game changer" for a lot of patients out there?

I'd say that the time and range numbers are really surprisingly high. As you know, we had the pivotal study data presented a year ago at ADA, and there was a slight disappointment with this -- the number that came in, it was 71% time and range. We were able to explain that because the population of people that participated in the study really represented United States. And there was just a wide range of people with some, with very good control and others that didn't have such good control. All in all, the pivotal study was a fantastic achievement, and we're very happy with that. Now that we've been able to observe real-world data, what we're seeing now is we're seeing people that actually have time and range in the high 80s and low 90s. And this is just a significant number of people that are experiencing this. If you don't have diabetes, your time and range is in the 90s and the low 90s. And so it's really an amazing accomplishment. So people -- that's clearly the first thing we hear. The other thing is the sleep mode. The system is aggressive at night. It brings you into control. So you're at approximately 110, your blood sugar is at 110 when you wake up in the morning and you feel normal and you're in control and you have much higher likelihood of just having a really good day. So these things happen immediately as soon as you begin to use it. And again, I think that the people are just -- people are telling us, it's life changing. It's not what we're saying.

That's excellent. Maybe a little bit on the 1Q trend. So Control-IQ offset some of the CV-19 pressures. And you're giving the statistics, 155,000 pump users. I'm wondering, if you could share actually how many Control-IQ that were turned on in 1Q? Were they sourced from Basal-IQ users or were they just new to on-therapy?

We had approximately 35,000 people transition from Basal-IQ or from an updatable pump to Control-IQ in the first quarter. So it was a really big tip. We're continuing to see people convert. But I mean, as soon as the software updates were available, we saw just a big, big jump in the first, probably 1.5 months to 2 months.

And I would imagine that, it can continue to draw on the existing base. So how are the trends just kind of out of that experience? Do you imagine at some point that the majority of users will switch on Control-IQ?

Yes. I would think, like today, most of the people who are actually purchasing pumps are purchasing Control-IQ. There are some that still purchase Basal-IQ for one reason or another, but the majority are purchasing Control-IQ. And I think as we see the momentum and the information and social media, as we see all of that kind of build, I would expect that the lion's share of people who have updatable pumps would convert to Control-IQ. The outcomes are just incredible. And it's just -- it's so much better for you today and in the longer-term that it just makes sense for people to do that.

As the word gets out there just on the user feature share and the benefits of Control-IQ, there's still these large buckets in the pump market. Existing share that is controlled by other competitors, but also existing MDI users. And so when you look at those 2 buckets, how influential do you think Control-IQ will be and growing gains from both of those buckets over time?

Well, we've always talked about the -- we believe that the technology drives ease of use, which drives pump adoption. And so we've continued to invest in our technology to make sure that we've got the latest and most advanced features set available. So we think that the growth that we saw last year, and the MDI penetration rate was largely a result of the Basal-IQ. Control-IQ, it's a better product. It has better outcomes. We expect to see continued growth this year. Certainly there's turbulence because of COVID-19. But we expect Control-IQ to continue to drive improvement in the penetration rate. Our goal as a company is 50% in the next 3 to 5 years. We think we're going to get there. We also think competitively, Basal-IQ -- it stacked up quite well against 670G. I think that Control-IQ will do the same against the 780G when it is on the marketplace. We believe we've got 6 months, maybe 12 months of runway to allow us to continue to build the momentum in a competitive environment. So we feel very good about where we're at.

Circling back a little bit just on that commentary, John. One would be -- when you look at the 50% share, was that Tandem or was that overall pump of share, A, I guess, in type 1 and then, B, as we look at toward ADA in the next couple of weeks, are you planning on presenting some of the real-world data that you just shared here today?

Yes. The data -- the data I'm referring to is Tandem starts. So Tandem starts -- the half the starts are MDI conversions and then half of our competitive conversions. And that trend is considered -- it's been consistent even up until now. And so there is a submission deadline for the ADA that it was in the -- I think, in the March time frame. We did make 2 submissions that were accepted that will be real-world data. But as you might imagine, it's only -- it's not a lot of data. We're working now on building significant amounts of data, since we do have thousands and thousands of people on the system, and we'll be submitting those to journalists here shortly. We also have a presentation or -- its a 2 to 6-year-old population. It was a study that was done last year. That's going to be shown. There's going to be some real-world data on Basal-IQ, where it shows a reduction in adverse advance using that technology. So it's not going to be as meaningful to the company as the ADA was last year. But we definitely have a lot of content that's going to be interesting. I think people will appreciate the benefits of our technology as a result of it.

It's a good segue into the pediatric indication for Control-IQ, that trial was done earlier this year. Although the time line seeming to be shifting a little. So maybe just a quick update on the time lines for the pediatric indication, just given the COVID-19 impacts?

Yes. So we submitted the data to the FDA in February. We expected to get approval here in the near future, but the FDA has come back and said that they're prioritizing devices and systems that support COVID-19. So it's difficult for us to anticipate what the impact is going to be on the schedule. I can say that the interaction that we've been having with the FDA is much like it was before COVID-19. Whenever we need to speak to them, they're available. We have good interaction. So from those point of view, we don't -- it's hard to say that the reason that it was important for us to get approval for the pediatrics before the summertime is that, in the summertime, a large endocrinology practices have camps for kids. And we can't market the device in these camps unless it's approved. So there was that opportunity that we were afraid, we'd miss out on. I would say, that now at COVID-19, it's unlikely that they won't happen anyway. So that's kind of the situation we find ourselves in. And I'll also say that physicians can prescribe Control-IQ to that population today off-label. It's just that, it's the marketing we aren't able to participate in, which we expect, again, as soon as we get approval, we'll be jumping on that.

You mentioned off-label. I mean once you're on the label, how much of -- how many patients do you think could be brought into the fold? In other words, is there pent-up demand do you think out there that's not tapped yet?

Yes. I think the distribution of our patient base is pretty wide. I mean we have people who are, of course, 6 years old, all the way up to 90, our mean is in the 30s. It's definitely an opportunity. I know a lot of endocrinologists believe that you want to get children that have diabetes on pump therapy immediately, because you want them to be comfortable with it, using it, as they become adolescents, where it's a lot more difficult to get adolescents to comply with the requirements of pump therapy. So getting them on early is important. I don't think we've spoken specifically about how much revenue we intend to get from this pediatric population. We're just excited to get out there because it is so much better therapy, and we know it's going to have a meaningful impact on their lives.

Yes. Absolutely. I think also, that's also a good segue into the pipeline. So maybe we could spend a moment on the 2 key solutions in the pipeline, bolus delivery feature on the X2, but also the t:sport. So maybe when we sort of look at those 2 programs, the bolus adds certainly -- promises to have a lot of features, both for patients and health care practitioners. So maybe speak a little bit about bolus. What you're hearing out there in terms of demand and the updated time lines for the bolus feature? And then we can get this forward.

Yes. We're about ready to introduce the mobile app as a secondary display here. We think that it's going to be on the marketplace here in a short period of time. Right now, we're just making sure that the system is bulletproof because we know as soon as it becomes available, probably the majority of our customers are going to want to use it. So we don't plan to necessarily have a lot of fanfare around the introduction of the bolus -- the first mobile system. But I think we will be staging it and releasing it here, like I said, in the near future. Later this summer, we had planned originally to have the mobile bolus feature, which is the #1 requested feature for a pump these days. And the reason that's important is because, when you think about leaving the home, the only thing that you really need to do outside your home with your system is to just -- is to bolus for meals when you're eating. And having that feature now on a mobile app gives the pump user a great deal of discretion. So there's a huge amount of interest in that. As we mentioned in our last call, because of COVID-19, we have human factor studies that are required for us to actually make this submission to the FDA. And unfortunately, we've had to delay these studies. The human factor studies, they take a day or 2 to do them. We would go to 6 or 7 sites across the United States with maybe 10 people in each site. So -- so it's quick. It's not overly complicated. We would summarize the data and get it into a report. So it's like -- we're like losing day for day, until we can get back out to the marketplace. But as we're seeing now, things do seem to be opening up, and we expect that we'll be able to initiate these studies through shortly. So it's not a significant date, delay, but there has been -- there has been some. We are very excited about t:sport. The same human factors testing that we have to do for the mobile bolus feature, also it has to be done for t:sport. So we're going to see some lengthening of the schedule as a result of that. But we plan to submit the t:sport system with a separate controller here. Once things free up, probably, sometime in the second half of the year, get approval for that and then resubmit the t:sport with full mobile control. So we believe that the introduction of a device is important, that we have full mobile control. So that's -- it's going to be a 2021 product at this point. But we're very excited about it. I mean the size and the discretion that you get from the mobile control, really is a big advantage. And I think it's going to be another game changer.

Two quick follow-ups there. One would be are the human factor studies for sport larger because it's new -- the requirement there, is it larger because of -- for the fact that it's a new form factor, one. And then, two, in terms of the mobile feature compatibility, will that be operable with G6 and Libre? And in terms of the mobile phone ecosystem, is it both Apple and Android?

Yes. It will be Apple and Android. And once we have a sensor that's integrated with the system, the mobile app will have the data from either one of our partner systems. So we'll make sure that it's available for the -- for all of the sensor partners that we've got, when it's on the market.

Got you. And again, that t:sport human factor requirement, is it a larger patient set that has to be enrolled because it is a new form factor? Or is it similar to the mobile?

It's roughly the same. It's roughly the same [ bus ]. You have to do these things all the way through the development process. And we are actually able to do remote human factors testing for the interim or the formative studies. It's really the summit study, which is the last one that you collect the data from to submit to the FDA that needs to be done face-to-face. We're actually talking to the FDA as potentially allowing us to go-to remote summit of studies. We've got conversations that are going on with them right now. So it's possible that in the future, this won't be an issue. Right now, unfortunately, it is.

We have about 5 minutes left. So 2 quick topics I want to touch on. One would be strategic collaborations. Secondly, would be the recent financing. So on collaborations obviously, engaged with Dexcom on G6, compatible with Control-IQ. You also had an existing relationship with type 0, has the type 0 relationship changed at all after the Dexcom acquisition? And in terms of just marketability of that combined system, how does that work from both the Tandem and Dexcom angles? Who is actually pushing the marketing agenda?

I think that with type 0 and with Dexcom, once they were acquired by Dexcom, type 0, it was obviously integrated with their company. And we have a great relationship with Dexcom. They're great partners of ours. They're just up the street. We've been working with them now for several years. So I think that it's clearly their product. And they are going to market it, and they have, in fact, recently announced a collaboration that they've got with another company using the type 0 algorithm. We're continuing to invest and develop and enhance the technology that surrounds our Control-IQ system, which involves the algorithm, we're investing in people that are coming into the organization that have the ability to develop and enhance these systems. So we feel like, we're going to continue to work closely with Dexcom, but we're also going to take responsibility for these improvements ourselves and just drive better products in time.

Last question would be on the financing, $250 million convert. How does that stack up in terms of the needs for cash to invest in manufacturing capacity, A? And then the capped call hedge, like, how much does that offset dilution and up to what price?

Sure. So the financing that we did was purely opportunistic. It's something that we've looked at over a time, and we felt like this was the right time to move forward with it. When we came into this year, even at the end of the first quarter, we are -- still felt like we have sufficient cash on the balance sheet to drive the initiatives that we had in front us but it gives us more security. And even some strategic flexibility, if we find opportunities, maybe ways we can accelerate programs that we have in place or just evaluate other opportunities for the business overall. So from an -- it was, like I said, purely an opportunistic way. In terms of dilution, we added the capital feature. So our reference price was in the mid-80s, our conversion price is in the 120 -- I mean, $120 range. By putting the capital in place that pushed the dilution out to something where we are perhaps, at present to exceed $170 for there to be any dilution on that. So we felt like it was the right move based on our view of where the stock could go in the next 5 years, to have that protection measure on top.

That's excellent. And we are just about out of time. I want to thank everyone for joining us this year. This is an excellent story. We continue to be supporters of Tandem. Thank you for joining the Jefferies 2020 Virtual Conference.

Thanks, Anthony. Stay safe.

You as well.