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

Good afternoon. Welcome to the Raymond James Human Health and Innovation Conference. I'm Jayson Bedford, the medical device analyst here at Raymond James. Thanks to those on the webcast, and thanks to John, Leigh and Susan for participating and spending some time with us this afternoon, or I guess, late morning, depending on where you are. The video component of this is nice, and it's given me a great excuse to wear a long sleeve shirt without a collar, which hasn't happened in a while.

So let's just get started with today's announcement. Congratulations on the approval for ages 6-plus. I hate to put you on the spot here. But when you think of the 1.6 million people with type 1 diabetes in the U.S., roughly how many are between the ages of 6 and 13? And how many are on pumps? And what does this mean to the business?

Sure. Domestically, there's nearly 200,000 people with type 1 who are under the age of 20. So we don't have a breakout of what that represents from between 6 and 13. But if you look at it on more of a global scale, there's about 1.1 million people under age 20 who have type 1 diabetes, of which about 100,000 kids are under age 15. So we would assume that it's probably a similar ratio here domestically.

Yes. I think the thing that's meaningful about this is that when you look at that group, if you look at the stratification of A1cs by age, the adolescents and young adults really have a hard time controlling their blood sugar. And so -- and you've now seen the data, it was presented at ATTD. I think it was all represented here at the ADA this week. There's substantial improvement in time and range for this group. And so we're really hoping that this has a meaningful impact on that performance over time because people do talk about how this trend really hasn't improved, but there really haven't been devices out there that have shown the ability to do that. So we believe that Control-IQ for this population is very important.

And in terms of pump penetration into this age population, does it mirror that of the broader type 1 space?

It is. It's similar.

Okay. Okay. I wanted to touch on ADA. Most folks have likely read your release, seen the real-world and pediatric data that was presented. But I'd like to get your takeaways from the conference. And frankly, whether you believe the perception of Tandem will strengthen, weaken or stay the same coming out of the conference?

No. I think we're strengthened. I thought that the data that we presented for the real-world data as well as the pediatric data just showed that we have the superior product on the market. The data we showed on real-world for Control-IQ was, it was cut short because we had -- there was a deadline to submit to the ADA in March. And so what we were able to do is we were able to look at about 1,600 people who had 1 month not using Control-IQ, followed by 1 month where they used Control-IQ. And in that group, we saw a time and range improvement of 10%, going from the high 60s to the high 70s. So we're very pleased with that result. And I think that as we just talk about, the pediatric data was also very, very encouraging. So I think that when you look at the competitive presentations, the pivotal studies, and I've said this in the past, the study is as much about -- or the results of the study are as much about the design of the product and -- as well as the design of the study. And I think that when you -- we've spoken about how the pivotal study for Control-IQ was a scientific study. It was intended to look at the entire age population of people with diabetes in the United States as well as the span at different levels of control. So there really were no inclusion criteria. When you look at the competitive products that were presented this past week, there was -- people had to have -- they had to be on pump therapy for 6 months beforehand. They had to have no incidence of hyper or hypoglycemia. So there was exclusion criteria. And when you look at the results, people were generally very well controlled. I mean clearly, I think both products showed improved time and range. The 670G to the 780G showed better time in closed loop, less alarms, all of those factors that contribute to the patient experience. It improved, but it was about a 5% time and range improvement, whereas our study showed 11%. So we think we still have the best product in the market. And clearly, when you look at the sensor and the pump in terms of the ease of use, no fingersticks, we feel very confident in our competitive position going forward with the product we've got today.

Okay. That's helpful. There was a lot of talk around flexible blood glucose targets at ADA, which is clearly a feature included in the 2 upcoming hybrid closed-loop offerings from your competitors. We know that you plan to release periodic updates of Control-IQ and the algorithm there, which targets a range, frankly, as opposed to a singular blood glucose level. Is more customization or personalization of the blood glucose range something that could be included in a future update? And do you think it's even needed?

Yes. I mean I think it's not a one size fits all disease. People do want the ability to adjust their targets to their specific needs. And so we made it clear before that there's a couple of things that we're looking at. Personalization is one of them, being able to adjust the range of -- that controls the system up or down, depending on where you want to actually be, that's important one. We also want to make the bolus calculator easier to interact with and reduce the complexity of that. Because if you look at the data, there was a presentation made on Tuesday -- or excuse me, on Saturday morning, by Laya Ekhlaspour from Stanford. And what she showed is, she showed stratification of A1cs by -- time and range by A1cs. And if you look at the group above an A1c of 8.5, they basically didn't use -- they didn't do any meal boluses themselves. They depended entirely on the automated correction bolus. And so their time and range improvement went from about 33% to 55%, largely driven by an improvement in a reduction in hyperglycemia. And the other group, the other groups at the low end, like less than 6, they saw a time and range improvement by reduction in hypoglycemia, but they relied entirely on meal boluses. They did their meal boluses. And so clearly, if you bolus for meals with this system, you get great results. And so by looking at the data with these primarily adolescents and young adults, we think there's an opportunity to make the system -- help, so people become more compliant by reducing the burden of actually -- adjusting the systems for meals. So that's another thing that we're looking at as well.

Okay. By the time t:sport launches in '21, could that product potentially be launched with an update to the algorithm, whether that be customizable targets or something else?

We haven't really spoken specifically at timing. We definitely plan -- or the features that we do plan to come out with next. But we definitely will have improvements to the algorithm in the 2021 time frame.

Okay. Okay. Do you think your real-world data this weekend, maybe Medtronic's data, with the pediatric approval today, do you think that will have any impact on United and their coverage decisions?

Everything helps, right? The 670G is approved for age 7 and above. So our being at 6 and above is similar, obviously, but a bit better. So there's no real update on the United front. But just to remind everyone of what the opportunity really looks like there. United members represented about 4% to 5% of our new domestic customers last year as well as in Q1. And it came from a combination of people who are on government plans and kids who are below Medtronic's age indications and then also just one-off negotiated cases for medical necessity. So if you look at the prevalence of type 1 diabetes in the U.S., we estimate that there's probably about 250,000 members of United plans who have type 1, and about 1/3 of them probably use an insulin pump. So it's really difficult to estimate our -- the pediatric indication and just in general, what type of benefit having access to United customers could provide. For modeling exercises, we typically assume that it would provide a low- to mid-single-digit improvement in the domestic new pump shipments. But that's really based on what we experienced when we did have the access to their membership prior to 2016 and really less what we experienced recently. So obviously, we're totally different business models than what we were back in 2016. It's just kind of our best point of reference.

Okay. That's very clear. One other thing coming out of ADA was Libre 2. It's now approved. And according to Abbott, they can push forward with their pump partners while they work on fixing the vitamin C interference dynamic. Walk us through the next year with Abbott and Tandem and what needs to happen?

Well, I really don't think it changes much. When we announced the fact that we plan to work with Abbott, we didn't specifically indicate which technology we are planning to work with. We basically -- I think people assumed it was Libre 2 because of the timing of the submission. But right now our goal really is to get through the agreement. We've been working with them very well over the last couple of months. And we're not too far off from getting this taken care of. So once we have the agreement in place, we can then begin to get the technical teams together and begin to understand what that implementation is going to look like. And at the same time, I know that Abbott is going to be working to address this because clearly, they want these systems to also be used in automated insulin delivery products.

Okay. John, is it safe to assume that you don't expect any impact on your business over the next 6 to 9 months because of the Libre 2 approval?

No, we never really -- we basically indicated that this is at least a year for us to develop the product. So let's say we get approval in the next month or so, it's going to be latter half of 2021 best case at this point. So nothing really that's going to happen in the next 12 months or so.

Okay. I'd like to switch gears a little bit to COVID and maybe invite Leigh into the discussion here as well. In just -- in terms of the impact it's had on your business. So maybe to start, are your reps back visiting endocrinologist offices? And then kind of when does that really start to occur, if not?

Let me just start off by saying that we've been very happy with the way the organization has responded to COVID. We made the transition very quickly. And then over the last 3 or 4 months, the organization has really operated. It's just business as usual. So we're very happy with that. We have recently seen a lot of interest from physician practices opening up and there's definitely been in the San Diego area, there's been some that we've moved from Phase I to Phase II and we're now into early Phase III. So right now, we're going to give our employees the option to actually come into the office in San Diego beginning of the July time frame. It's going to be controlled. We're going to be very careful about how we do this. And we clearly have to monitor how COVID evolves over the next several months to see exactly what we do next. Similarly, we've given our employees in the field the option to go into practices. And that's, again, largely driven by the interest from physicians as well. So we're going to do the exact same thing. It's going to be careful. It's going to be controlled. It's probably going to go state by state. We'll have to know depending on what the requirements are. And we'll also have to follow the Control-IQ situation and just manage it based on what we see happening going forward. But that being said, we've been very pleased with the Tandem performance over this quarter. The t:slim X2 has actually had solid results. We think that's largely been driven by the overwhelming interest in Control-IQ. We have the consumer-based business model. And also, we basically think that the use of telehealth has really helped the adoption of Control-IQ. And internationally, we're beginning to see more progress because people are now aware of Tandem and our products. And we also believe that we're seeing some positive performance because of the entrance into these new markets. With that, I'll let Leigh talk a little bit more about what that means for our performance.

Sure. So at the end of April, we obviously provided guidance. And we took a different approach to it where we normally provide a range, and we gave a -- we would do at least as good as number. And so the number we put out was $85 million in sales for the quarter with $10 million coming from international. And at that time, what was important to know was that we obviously knew what April's results were. We had a really good line of sight into May based our average 30-day turnaround time from when a patient orders a pump to when we actually are able to fulfill and June was the part that we weren't very certain about. And also with international, we were a little more cautious because of the COVID restrictions there and more people visiting their physician in the hospital setting routinely. But what I'm happy to report today is that we're actually experiencing greater strength than what we even anticipated then when we set that guidance number. And the strength is coming from both the domestic and the international market. On to John's point, in the domestic market, a lot of it has to do with the fact that Control-IQ has been so successful, and we've executed very well in the telehealth environment. We started to see favorability to that original assumption really around the middle of the quarter. But it was too soon for us to say, "Gosh, this is an actual trend or a line." And so we wanted to see more of that behavior before we came to any conclusions about it. But like I said, we're seeing more strength than we have anticipated when we set that guidance number. When it comes to international, again, most of that number was predicated on supply sales, just recurring across the quarter because we really didn't expect many -- much in the way of pump orders. What we've heard from the distributors, they're continuing to see demand in the market for our product, and they've been placing pump replenishment orders. So again, with all of that together now, we really expect to exceed that 85 -- even more confident and expect to exceed that $85 million number. And -- but I want to be really clear, we're still seeing pressure on the business. We haven't returned to levels that we would have anticipated pre-COVID in a normal seasonal curve for Q2 but better than we anticipated when we established our original guidance number.

We should have invited Leigh into the discussion a little earlier. She is all the good stuff,

Exciting, isn't it?

Yes. Okay. You answered a lot there. So I guess on a relative basis, when we think of the $85 million in 2Q, is it stronger relative to what you're thinking internationally or in the U.S.? Or is it pretty even?

Yes. Right now, pretty even compared one to the other. It's just we're strength -- and it's been great, I should say, too, because when we came into this quarter, the inclination was to think that Tandem's business relies so much on people coming from multiple daily injections that we're going to be hurt worse than others. Because those patients might not be inclined to move forward with pump therapy. But we've seen continued strength in that half of our business is still from MDI and half from competitor conversions. And so that's really made a difference in what our original expectations were for this quarter and where it's headed right now. And then like I said, on the international side, we gave a very conservative number. It was mostly based on supply sales. And so with the opening environments, that's really helping make a difference.

Okay. That's very clear and very helpful. Maybe get back to John. You mentioned telehealth has really helped adoption. Can you just walk through why that's the case? And then if you can fit in answering the question of do you think telemedicine, telehealth is actually beneficial for endocrinologists in being able to see more patients?

I think it's Control-IQ has helped adoption. That's really -- I think the interest in Control-IQ in a COVID environment where people are aware that blood sugar control is very important and diabetes has sensitivity to it. So I think that really has been a driver. I mean when we first moved to sort of virtual visits and virtual training, there was some initial turbulence. And since then, we've been able to help our physicians install the data management systems in their homes. They have access to all the information they need to get to so they can actually do the therapy management. So that's gone smoothly. I think that the physicians now working from home are actually more accessible. We can have meaningful conversations with them over the phone. Or virtually just like this versus when they're in the practice they're running from 1 visit to another. So we found them to be more accessible, which has been very good because we've been helping educate them and train them on issues that have to do with Control-IQ. And we've been working on virtual training for a while now for probably the last 18 months. And we did it initially because we just wanted our diabetes educators to be more efficient. People can spend half their time in a car going from visit to visit to visit. And of course, if you can do this virtually, you can be a lot more efficient. So we put in place the systems, the pre-training videos and things like that as well as just kind of scripted out the best way to perform the training when you're in front of the patient. And we have 3 day follow-up. We have customer service surveys, and we're carefully managing and watching the data that comes from our customer support lines to see just how people perform in this. And what we found is we found that people are -- they love it. They're more inclined to want to do virtual trainings just because of the efficiency it adds to their own lives, the customer survey scores have been very high. And we really haven't seen any significant deterioration in the issues that you might experience after you've been trained. So we're quite happy with it, and we would expect that both the virtual training and virtual visits will continue. It may not be at 100% or at a very high percent like it is today. But I would imagine that it will drop somewhat. But I think that both the physicians and the people that are living with diabetes, see the benefit of it doing it this way. So I think it's going to be a part of therapy management and training for a long time.

Okay. Very helpful. You've talked about just broader market pump penetration. You've talked about 50% penetration for pumps in 3 to 5 years. By our math, pump penetration has kind of ticked up slowly for quite some time. We're still kind of in the low 30s here. Why is 3 to 5 years? Why is that time frame realistic? And what are the biggest risks to achieving that goal?

We actually saw a pretty substantial jump in 2019. It's been flat up until 2019. And what we saw in 2019 was nearly a doubling of the amount of people moving from MDI to pump therapy. And I think it's the overwhelming innovation that's occurring in diabetes in general and the amount of new technology that's coming to bear. I think that there's now very accurate sensors that are small and they don't require fingersticks. They last for longer periods of time. The automated insulin delivery systems are showing meaningful results and are coming to market, and it's all reducing the burden of diabetes. And when you look at our pipeline, our pipeline is intended to continue to make that happen over time. So we think that by reducing the burden, making things simple, intuitive and easy to use, it just drives adoption. We're seeing it. And clearly, there was some turbulence this past quarter because of COVID-19 but we think once we're past that, we get -- we expect to be back up on the same trajectory that we were to continue to see these MDI conversions. So it was a goal we set for ourselves. There's a similar goal for people with -- the CGM companies have set goals in the 70%. We think these are absolutely achievable. And I think that our organization is continuing to look at the issues and the factors that are preventing people from wanting to gravitate towards pump therapy, and we're trying to knock them down one by one. But we think we've got a great path for the next couple of years. And we'll be continuing to innovate so that this objective of ours is achievable in that time frame.

Okay. That's helpful. Are the majority of your new Control-IQ users already on CGM?

Susan, you have to answer that. I'm not sure if I know the answer to that specifically off the top of my head.

No. Just over half of our users use CGM. And so just the fact that we have an equal mix coming from MDI as well as coming from competitive system. Combined with that, it suggests that it's probably similar and that it's just over half of our new customers who are also using CGM. So I think there's an opportunity for us to drive penetration in CGM as people say, no, I've got a pump. But look at how much more benefit that I could gain from CGM. And to the converse, as people get new information from their CGM trends, it really drives the decision of pump therapy making sense because now they're actually empowered to do something with that information.

I mean certainly, people who are using Basal-IQ and Control-IQ have to use a sensor to get the benefit of the technology. And most of the people who are, right now, coming to Tandem are absolutely using Control-IQ. So we definitely expect to see that number increase in time as we have more and more people using this advanced technology.

Yes. I guess what I was getting at is Dexcom obviously has a large installed base of U.S. users who are not using a pump. And so the thought process there was just you have Dexcom users who are still using MDI with a better solution out there with Control IQ or are they just adding the pump in the algorithm?

I do think that as people are -- have that information, it does help drive pump adoption because they can see their trends and can recognize we're using it as a complete system, gives even better outcomes.

Okay. I wanted to get back to the COVID question in another way, just internally, you've talked about the efficiency improvements with COVID. Does that give you more confidence in the long-term operating margin profile?

I don't know of more confidence, but it gives us that we still have the same level of confidence in achieving our long-term operating margin goals. This year, even pre-COVID was a lot about investing in the business in ways that don't necessarily drive this year's top line sales. So it starts with manufacturing capacity expansion, a significant amount of R&D investment, thinking about the product pipeline in the next 2 or 3 years as well as a lot of investments in technology solutions that make all of the departments more efficient across the board. And so we're continuing on those same initiatives. And then from COVID, we are seeing, though, for instance, remote training was already always a part of our margin improvement plan. What happened was we went from really more of a pilot of it in the last year or so to a complete acceleration to testing it out. And so it helps to solidify, I guess, getting to those [indiscernible]

Okay. That's helpful. Since you mentioned pipeline, any update on when you can start human factors testing for both the remote bolus feature and t:sport?

We're actually seeing the market open up. We're definitely in the -- in conversations and early planning phases with the sites to get these things going. So I think it's not unlikely that we'll see this happen here in the next month or so. So we'll continue to keep you guys informed as to when we have definitive plans and what the effect is going to be on the schedule for the mobile bolus features as well as t:sport. But right now, we're clearly seeing markets opening, and we're going to take advantage of that as quickly as we can to get this work scheduled and actually implemented.

Okay. That's helpful. John, we're waiting for approval of the mobile app, what does that do to the business?

We're not waiting for approval. We -- this is a Class II nonexempt device. So it doesn't require approval. It's basically a secondary display. And I think more importantly, particularly now in the COVID-19 era, is it has real-time upload of data to the cloud. And so today, in fact, I was on a call this morning with a number of endocrinologists and they were talking about how much burden it is today to have to call their patients ahead of time and to get them comfortable with uploading their pump data to the cloud, so they can actually see the data and do the therapy analysis. But when they have this mobile app in place, it will be there real-time essentially. And I think that, that's going to be a big benefit for them. So they'll be able to see the data essentially as soon as it comes off the pump. Now this is really our first platform. It's a platform that we intend to add to over time. And so we -- this platform will ultimately be the platform that we add the mobile bolus feature to later this year. And it will also be the platform that we intend to integrate with the t:sport pump in time as well. So all of the work we're doing now is -- it's additive. And we feel like this is really something that's going to give us a great opportunity to improve the patient experience over time. Because as you might imagine, after we have full control, then we can have the ability to share information with loved ones. You can have potential training, you could order supplies. There's just so much you'll be able to do from the mobile app that simplifies your life, that improves the experience for the person using the pump. So we're really excited to get this to the market. Right now, we saw with Control-IQ, as soon as we let people know that the update was available, 30,000, 40,000 people used it very quickly. And so we're just making sure right now that the infrastructure we've got can handle going from 0 to 50,000 people practically overnight. That's really -- that's what we're doing right now. It's just focused on the infrastructure to make sure that we're ready for it. And we still expect it to come out here in a short period of time, and we're very excited to get it to market.

Last couple, we've got a few minutes left. Just in terms of access, we were speaking with Insulet earlier, they've had some success in the pharma channel. Can you just update us on your thinking as it relates to the pharma channel? And if that's an avenue that's being seriously discussed at Tandem?

The pharmacy channel is something that we think about. I would say when it comes to our managed care initiatives, our #1 priority today is really shifting the needle from some of our distributor business to become more direct. And we've made strides this past year. At the beginning of 2019, our direct business was roughly 25% of our shipments. And now after this first quarter, it was a little over 30%. So we're really moving to push that needle to more of a [indiscernible] balance from the managed care perspective. And really, that's important next step, one, because building the relationships with the payers, we believe, is the best way to determine what the right channel would be for us in the long term or what's the right avenue is, whether it's a channel decision, it's a form of reimbursement and it's some efficiencies in the process. And so that's something that we're looking at, haven't necessarily made the decision that it's the right thing for Tandem and for our product, but we'll continue to consider it.

Okay. That's fair. The convert earlier this quarter, what are you planning on doing differently relative to spending levels?

It was fairly opportunistic. It's something we've been thinking about for quite some time to further bolster the balance sheet. Even without it, we had a number of initiatives planned this year, and we thought our cash balance and our cash flows were more than enough to support what our initiatives were. What this does is really just gives us flexibility. So if we decide we want to accelerate any sort of programs, embark on new programs or other avenues like that, it just gives us more flexibility in the long term.

Okay. And Leigh, just getting back to your comments on the second quarter, is there any way to kind of quantify what you're seeing in the business today? Or is that for a 2Q earnings call?

Earnings call. We're going to wait until that time. I mean it's really normally unusual for us to give any indication at this point. But with the environment and the way things are working right now, we thought we wanted to give people an indication of how things were moving, and we're very happy with the performance, but really, Q2 earnings call is when we'll be able to talk about it more.

Okay. That's very clear. We're bumping up against our allotted time here. So thank you very much. I appreciate all of the time and congrats on the continued momentum in the business.

Thanks, Jayson. Nice talking to you.

Thank you. Bye now.

Bye-bye.