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

Well, I'll go back to your earlier comment. Germany is one of the largest markets. And so as we continue to drive penetration there, there's -- that's one of the biggest opportunities for us and is one of the main drivers in our meeting our installed base goals in the long term. So we're very excited to be there.

Okay. And switching gears to United. I guess the question is, first question is, what are you seeing so far since that went into effect, I think, July 1?

Yes. Great enthusiasm. We always laughingly say people ask, "How do you get the word out to physicians?" I think on July 1, every physician was contacted by our sales reps. So everyone's been waiting for this day to share that message. We also have a number of people that are in our own database that have reached out to purchase the pump in the past but couldn't move forward because of that barrier. So we immediately contacted all of those patients as well. So it's been great enthusiasm and interest. And the big key is the timing. And so when can a patient move forward with that pump purchase. So if they're already locked into a 4-year warranty, we won't have to wait until their warranty expires before we can move forward. But then there are others who maybe are there in the MDI community or even our own patients who weren't able to renew before and move forward here in the very near term.

Okay. And there have been a lot of numbers. You've seen Street estimates put out there. I mean we estimate, it's about a 50 million incremental opportunity for you over the next few years. Any reaction?

So I think the way to think about it is what is that real opportunity? It's understanding the whole size of it. As we thought about our near term guidance, what we factored in was consistent with what our history was. So before 2016, United had been just under 10% of our pump shipments. I mean in recent quarters, that was up to 4% to 5%. And so we factored in a low to mid single-digit increase this year. But when you look at the overall opportunity with them having roughly 50 million subscribers and you assume the population -- the national population preference of Type 1 that would say that there are about 250,000 people with Type 1. And of that, if you assume the same pump penetration, there's about 80,000 people on pumps. So that's why I said timing is really important here. The 80,000 become an opportunity for us over the next 4 years as their warranties expire. But what this can do is help improve our renewal on rates as we move forward because our own patients and move forward with the purchase maybe they have been folding out all this time waiting to have access again. It's that MDI population that we expect to continue to ship and see those people come off the sidelines that can move forward with a pump purchasing decision more in the near term than the long term.

Okay. Thank you. So I wanted to switch gears to competition. John, I think, I asked you during our bus tour in June about smart pens, Medtronic is obviously now acquiring Companion. What are your thoughts on what impacts smart pens can have on the pump market?

Well, as I mentioned back then, I don't think it's a competitive situation for us. I think that pens actually will lead people. It's almost a feeder to pump therapy in time. I think clearly, Medtronic acquiring Companion is going to help them, provide resources, sales support, that sort of the visibility which I think they're small and they lack that today. When we discussed this back in June, I think that the thing that it's a brand new market. The sort of the clinical data is still pretty sparse when it comes to the benefits of these pens versus pumps. And so I think that there's also big competitors that are the insulin companies that are also getting into this market. So at least at this point, our thoughts are, let's watch, see what happens. And if it does appear that there's an ability to drive or increase the rate of MDI conversions using pump -- excuse me, using pens then we can potentially engage at that point. But at this point, we're -- let's just watch and see what happens. We think that -- we think it does feed pump therapy, and therefore, by having the best pump in the market, we think we'll benefit from it.

So if I'm hearing you correctly, you're leaving the door open to whether Tandem would be interested in being in the smart pen market at some point in the future, depending on how the market evolves?

Yes. I mean that's fair. I think we're always evaluating opportunities like that. And I think we have not written off, excuse me, pens at all. It's just more a matter we want to see what happens here in the next year or so as some of the bigger players get involved.

Okay. And look, people are aware of Beta Bionics planning to launch their single-hormone pump sometime in 2021. And physicians seem pretty excited about their technology. I guess my question is, what are you doing to neutralize any perceived advantage they may have?

Well, first of all, I think that Ed Damiano and his team are a very confident organization. They're absolutely emotional committed to being successful. And so I think that they're working really hard at this. The -- Tandem started back in 2008, we commercialized our first device in 2013. And it took hundreds of millions of dollars for us to build the commercial organization, the manufacturing team, the sales support, that's huge investments and then it didn't happen overnight. We had a great product as well back then, but it doesn't happen overnight. So I think it's -- they're going to -- I mean, my guess is that they'll probably be successful raising money and allow them to commercialize the product, but I don't think it's -- it's not going to come to market all of a sudden just change the dynamic entirely. It's -- I see it as happening gradually. Now I think that the way we deal with this is we continue to evolve the technology that we have. As we mentioned a moment ago, we plan to make iterative improvements to Control-IQ. We plan to bring newer pump technology to the market, and we also plan to build a digital ecosystem around our products so that we have this stickiness in our ecosystem when people start to use our products. They want to stay with it, and physicians are inclined to basically prescribe them because it's so much easier for them to do that.

So I mean to ask you directly, I mean, I guess the advantage, the perceived advantage for Beta Bionics is you just have to -- patients just has to enter using her weight. You don't have to count cards. I mean is that -- you've talked about improving the algorithm? How difficult -- is that something that you're contemplating?

Well, I think we are definitely looking at personalization. We're looking at ease of use. And we're looking at basic improved therapeutic outcomes. And I think personalization would allow people to adjust asset points to basically mirror where their desire -- their personal desires are. People -- some people want to be lower, some people want to be higher. We also think that ease of use does -- if there's an opportunity to reduce the complexity of a bolus calculator. And that would be a very positive thing. And there's also opportunity for us to make the algorithm more aggressive. So those are things we're absolutely thinking about. But it's hard to say what exactly is going to get through the FDA from Insulet and from Beta Bionics and from Medtronic. They have to get their device through the FDA at this point in time. And we'll wait and see what the actual features are of the product when it comes to the market. And I think that the offerings that we have coming are going to compete effectively against all the products that are coming to market. We're excited about our pipeline. We think it's strong, and we're continuing to invest in R&D, so that is not -- I mean, it's this thing that happens over time, as I've said in the past.

Right. So why don't we transition to your pipeline, and maybe if we could start with any updates on the status of human factor testing, both for the mobile bolus delivery and t:sport.

Yes, we're engaged in both. I mean, we've just -- we've been able to get that back on track. I said we lost a little over a quarter in both cases as a result of COVID. But the human factors is actively engaged right now. The teams are working hard to do that. We expect that we'll have a fourth quarter filing for the mobile bolus feature as well as for t:sport. And so those are underway as we've defined in the past.

It sounds like you guys, from past comments, think that the mobile bolus is underappreciated. Do you think that could have a bigger impact in the market than maybe investors do. I don't know if that's fair, but what kind of impact do you think the mobile bolus can have?

I think it's going to be significant. I think that when you -- we have the mobile app in the market today, and over 20,000 people are using it as we speak. And the #1 request we're getting from people board. First of all, they love it. Because they can see all the data that they have today on -- that's normally on their pump and their mobile app, and they can see exactly how they're doing. So very positive response to it. But the one significant request we get is to have the ability to bolus from the app. And the benefit that, that provides people is the discretion you get. Everybody has a mobile phone, everybody interacts with a phone on a frequent basis. And so it just provides discretion. And basically, it hides the fact that people are bolusing for meals, which is a big deal. And so we think it's going to be big. So I think that the form factor of t:sport in combination with the mobile app is also going to be a huge deal. And I think it's going to cause a similar type of inflection point in our revenue as we've seen from Basal-IQ, and now we're seeing from Control-IQ. We believe sport will do something similar to that into the 2021 time frame.

John, I want to follow-up on that. But maybe just one on Control-IQ before t:sport. I think you had said on the Q2 call that the first updates for Control-IQ are planned for the second half of 2021. I guess, can you tell us today what those updates are? I doubt you're going to tell us, but maybe conclude.

I think as I just said, that's true. It is planned for the second half. And as I said, it's really is personalization. It's the -- it's ease of use and it's the therapeutic improvements. Those I just mentioned. So those are the areas that we're focused on. And we haven't specifically outlined the details because of the competitive reasons. But we feel very good about the improvements that we've got in the pipeline, and we're excited to bring them to market. And I think it's really important that people understand that we do not plan to sit back and make these improvements and stop iterating at that point in time. We are looking to see a cadence of potentially annual improvements to Control-IQ over time. We're building an organization internally that has the ability to develop algorithms, to test algorithms. So we think it's a core capability that we need to have in our company. We've got partnerships with Dexcom and others that also have the ability to advance algorithm technology. So it's an important part of our future, and we're going to continue to provide it using the updater to our patient population.

And so moving to t:sport. You're saying that it can have a similar impact on your business that Control-IQ has had. Why do you think it's going to have such a big impact? How do you segment the market with t:slim and t:sport?

Yes. When we did our initial market research and focus group studies, we saw a great deal of interest in t:sport from MDI and pediatrics. So I mean, the idea here is, I think it's just going to continue to help us increase the penetration rate of MDI conversions. And at the same time, I think that the pediatric population is also very interested in it. So it's clearly -- it's a form factor improvement plus the discretion that comes from the mobile app. We think they're both meaningful and I think that the advantages of the algorithm will be on the pump. And so I think that's -- it's really the form factor and the mobile app feature that are going to really differentiate this product.

Why would someone choose -- still choose t:slim once t:sport is in the market?

Well, it's interesting because when we did these market studies, what we did is we basically created an environment where we wanted to see how t:slim did and how t:sport did. In 2021, when the competitors included the 780, the Omnipod 5, Beta Bionics, and at that point, where we first did this, it had the big foot device in there as well. And we just compared -- how would t:sport do in that market. It did very well. How would t:slim do in that market, and it also did well. And when we actually had both products, we saw the greatest gain in preference share when both products were available. So we think that there's choice. Some people will just prefer to have the ability to interact with the device using the pump itself. Others who may be more tech-savvy are more comfortable using a mobile app and want that level of discretion. So we think having choice is very important, and we saw substantial interest in both. And so we plan to offer both at the same time. I mean there could be cannibalization from t:sport when it hits the market. We'll have to watch and see carefully how that happens, but we're planning to come forward with both next year.

And you've said, I think in the past that you are interested in a tubeless option at some point, down the road. Is that a fair characterization?

I haven't said that specifically, but I will say that we're always looking at evolving the pump technology. We believe that we have to be the leader in pump technology. We think we are today. And so we are always looking at ways to do that, and we will continue to iterate the pump platform itself.

Okay. And I wanted to ask Leigh about the P&L. I think the goals you've set for 2024 are a little, to be candid, a little surprising to me, given that you're a growth company. I think a gross margin of 60%, but the operating margin is a little surprising to me, 25%. What are the drivers of those improvements? And why such an ambitious operating margin goal given that you're a growth company?

Sure. I'll say, first and foremost, we are focused on top line growth. And so we would sacrifice the profitability target, if it meant we could drive the revenues higher. But having said that, when we look at the profile of the business, we've been really focused on first gross margin improvement, and that's going to be a big portion of the operating margin improvement as it drops down to the bottom line. And that comes from improvements in technologies at where we have product design that will help find cost efficiencies that's leveraging our capacity. And even as we're expanding our capacity, we're building out our machines and our facilities. And so that it will be a more efficient environment as well. And then we're really focused on the reimbursement side of things. But from the operating expense side of things, where we're really focused are you trying to utilize technology solutions to improve our processes. So we have a number of Lean Six Sigma type projects that are in place. We're continuing to invest in IT resources in order to help simplify. So it's not always a person-to-person conversation when we need to work with a patient or an interested patient. We can use portals to help people facilitate the purchasing process. We can find -- provide avenues for people to get answers to their questions without having to make a phone call. We launched our Boise facility last year so that we have a lower cost location with lower cost wages to also help support as we grow the people base. So there are a number of ways where we can find efficiencies in the business that can drive that type of operating margin improvement, even as we continue to focus on execution for driving the top line.

And have you said anything about the margins of t:sport, the gross margin, how that's going to impact your overall gross margin?

We haven't given any specific color, although we have stated that the design of it does have cost improvements embedded. One misnomer is that because it's half the size, it's half the cost. That's not the case, just to be clear, but there are efficiencies built into it. And so the benefit that it can offer will depend on the speed of the uptake and how much -- what percent of it becomes our business. So we want to see how it plays out in the market before we start committing to the type of benefit it will drive.

Right. Perfect. Well, we're out of time. John, wanted to give you a chance to wrap here, if you want to make any concluding remarks.

Yes. Sure. I think that we're very excited about our product pipeline. I think that the factors that have made Tandem successful in the past will continue to make us successful in the future. And that is to have the best pump to focus on the MDI penetration on renewals and on the competitive conversions. And I think that with the pipeline we've got today and the investments that we're making into it, we think we're going to continue to see the growth that we've experienced in the last couple of years. And thanks for having us today.

Perfect. Thank you for being with us, John and Leigh. And have a good rest of the day and good rest of the year. Thank you.

Thank you very much. You too.

Thank you very much.