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

All right. Good morning, and welcome. This is Marissa Bych from Morgan Stanley Equity Research. I work with David Lewis in Medical Devices. I'm very excited this morning to have John Sheridan, the CEO; and Leigh Vosseller, the CFO of Tandem Diabetes with me this morning. And Leigh and John, I hosted you both last year in-person, more fortunately, but we have the opportunity to talk a little bit about the Basal-IQ success that you had, had. And obviously, now we get to talk more about Control-IQ's success. So let's maybe start off with some of the nearer-term dynamics and then work into product specifics and what you have in the pipeline catalysts ahead. But it's great to have you both here.

The first thing I want to talk about is just that there were a lot of moving factors in your recent results, right? So Control-IQ momentum most clearly. And COVID-19, obviously, has been a headwind across the board. But you also have had telehealth and virtual adoption now, Germany reimbursement, so all of this kind of obscured some of the COVID-19 impact for you. So I want to talk about -- can you help us understand what COVID-related dynamics you're seeing today, if you can discern them? And if it's differing materially U.S. versus OUS versus the update that you gave us on your 2Q call?

Yes. I believe -- I'm sorry, John, go ahead.

I would say it's -- go ahead.

It's hard to believe it was a year ago we last talked and how much things have changed, since that time, the whole world has turned upside down. But to your point, COVID has made such a big difference this year. But thankfully, with some of the initiatives that we already had in place and our quick pivot to telehealth and supportive telehealth, we've actually been much more successful than we anticipated when the COVID environment started. And so I think one important point is that a patient deciding to move forward with pump therapy isn't necessarily tied to an office visit, and I think that's very key to our success in Q2 as well as what we're experiencing in Q3. We get asked a lot of times about how many people are actually visiting their physicians, how many are we seeing in a telehealth-type environment versus in person. And frankly, that doesn't really [Audio Gap] our business. That decision usually starts with a visit at some point where a physician might recommend pump therapy, but it's up to the patient. And they may think about it for months, quarters, even a year before they decide to move forward. And so while we're still seeing some pressure from COVID, and I think a lot of it has to do with people's thoughts about the economic environment and where this might go and how long this might last, it's been well offset by the fact that we've had great momentum with Control-IQ as well as the fact that now that we have coverage from UnitedHealthcare. So to the point of what the driving factors are for the remainder of the year, we really point to those dynamics for us. It has been very different in the U.S. versus outside the U.S. In the U.S. [Audio Gap] to see some evidence of that first, which we did begin to see in Q2. And then, of course, the United coverage opened a whole new door for us. Again, that has not been there for the last 4 years, and so we were able to factor in some level of benefit from United for the remainder of the year. Outside the U.S., it's a little bit different in that one thing we had to take into consideration in the third quarter in particular was that we still expect to see some level of seasonality associated with the fact that they have that summer holiday season, and it's hard to tease out how much of that is from holidays versus still some pressure from COVID-19. But Control-IQ is just beginning its rollout there at this point, so we are not really focused yet on that being a key driver for the rest of this year, more a momentum driver as we go into next year.

Got it. Very clear. And that is something I wanted to touch on, too, because I noticed the Street is modeling a pretty significant step-up from 3Q into 4Q pump, whereas 2Q and 3Q look a little more similar. So it sounds like that's a traditional seasonality dynamic for you, it's not necessarily a dynamic where COVID-19 is having ongoing or outsized pressure during the third quarter versus earlier in the year. So I think that's clear. Next, let's talk about renewal dynamics, if that's okay. Your renewals rose, I think, materially in the second quarter versus the first quarter. And this opportunity becomes incrementally more significant, obviously, over time. What do you think guidance assumes for the second half renewals? And should investors think about renewals as something that should kind of increase steadily quarter-to-quarter over time? Or should investors think more of renewals as offsetting the inflections that you actually had in pump sales over the past 4 years and kind of mirroring those more closely?

So renewal state has been a story of strong, steady growth. Part of it was getting acquainted with the renewal process from the very beginning and obviously, the opportunities weren't as great in those early years as they are and as they will continue to be as we look forward in the next 3 to 5 years. We did see a nice step-up in Q2 and as we look forward into Q3 and Q4, we have a few other dynamics that will help that renewal trend and one in particular goes back to UnitedHealthcare coverage. If you think about it, we were restricted from access beginning in 2016, so any patient really who's ever come up for renewal who had a Tandem pump did not have the ability to move forward and purchase their next Tandem pump. And so we believe there's a fair portion of people who are waiting for this opportunity before they made their next renewal purchase. So whether or not that's a large population that comes to the table here in the very near term, at least it removes that barrier on the go-forward for anyone new that's coming up for renewal. And we have continued to invest in initiatives to support the renewal, driving those renewals forward, and we refer to it as retention and renewal initiative because it doesn't just start when a person's warranty is expiring, it's really about that first point when they purchase the pump and making sure that they are well adapted to it and becoming acquainted with it and it's providing them the benefit that we expect that they will get over time. And so it's starting from day 1, providing them that great customer experience over the 4 years. So when it comes time to purchase their next pump, it's a natural step for them to move forward for -- to receive our latest and greatest technology.

Okay. Great. We'll talk more about the latest and greatest technology looking forward here. But just to wrap up on kind of COVID-19 and the dynamics that you're seeing now, I just want to ask if you think that this pandemic has ultimately positioned you maybe more or less favorably into the next year or so ahead and it's going to be compounded by Control-IQ, I'm sure. But if you think about kind of your growth rate between maybe 2020 and 2022, do you think some of these headwinds, like potentially new patient starts, OUS, unemployment or coverage headwinds versus maybe you can say tailwinds of COVID-19 being an accelerant on virtual training, telehealth, awareness of diabetes risk and kind of device management, do you ultimately think that this period is kind of net disruptive or net accelerating to your growth plan?

Yes. That's an interesting question. It's hard to say that it's an accelerator, except that as we come out of this with the pressure we're seeing, that will dissipate over time, so I would say that it could help growth rates just from a comp perspective year-over-year. One thing that you mentioned, which I think is really important, is we have accelerated, for instance, one of our initiatives. We have really started looking at remote trainings probably 12 to 18 months ago as a cost savings opportunity. It would be more efficient. It would reduce travel time. It would allow our reps to see more patients or to talk to more patients, train more in a single day, and so that was something that we had just started. And with COVID-19, we accelerated that to being 100% virtual training. And so that was, if you could say there's a silver lining, that's one thing that really helped us and advanced one of our cost savings initiatives. I think it also built closer relationships with the physicians. As they were adapting to telehealth, we found that we became a great resource for them because we had already implemented some of these virtual-type activities. And so I think that also will help us on the go-forward as we were partners almost, if you will, through this change and this transition. So I think both of those bode well for the future. But I mean, at the end of the day, I can't point anything more really than Control-IQ and the great success it's had just because of the technology itself and the experience the patients are having.

Got it. I think that's very reasonable. And let's just level set on kind of those future goals while we're talking about them. You have an installed base of around 170,000 today, I think your goal is for 500,000 patients on Tandem pumps in 2024. What kind of type 1 and type 2 assumptions go into that? You've talked more recently about having some interest in the type 2 patient population and how they can benefit, especially obviously, insulin intensive from pump therapy. Should we think about that 500,000 2024 goal as majority-driven by type 1 still with potentially some lighter penetration into type 2? Or could type 2 be maybe upside to that? And then secondly, as you talked about type 2, should we be expecting more commentary on this year from you looking forward? And is it possible you may introduce some data sets on this?

I'll start with the long-term goals, and I'll let John talk to the type 2 component of it. But when we set that guidance, it was really still focused primarily on the type 1 market. We've seen just under 10% of our business come from the type 2 population. And while it's an area of interest, our primary focus up to now has been on type 1, and some of the initiatives -- the major initiatives we have in place right now from an R&D perspective, clinical perspective have really been focused on still that type 1 opportunity. It's a large and growing market, especially since -- due to the fact that we believe that the MDI population will continue to shift over at a very rapid clip, much like the acceleration we've started to see in the last 12 to 18 months. But I'll let John talk about the type 2 opportunity and how we're thinking about it for the go forward.

Sure. Well, absolutely. It's a big market. As Leigh said, we currently have approximately -- maybe a little less than 10% of our patient population are type 2 today. We have been really thinking hard about this, we -- I think there's a couple of different areas we're focusing on. There's a clinical component, there's a product and features component and then there's a channel component. And I think that there's a number of companies that have tried to get into type 2 space with pumps but haven't been successful, so we really want to take a measured approach and make sure that we have a good handle on each of those factors as we move forward. We actually presented some very good clinical data at the ADA on a patient population that had not used Control-IQ that were type 2 and actually used it for several months, and we saw a pretty significant improvement in time in range. So I think that there's an opportunity for us to continue to collect clinical data and just understand the benefits that the technology has to this patient population. We think that discretion is very, very important for the type 2 community. It's a group that has had a negative social stigma associated with them because of the perception that the diet and exercise just have led to the type 2 situations they've encountered, which is -- it's not the case. It's really a lot more complicated than that, but because of that, discretion is very important. And so we think that when we come to market next year with t:sport, which has a much smaller form factor and also uses a phone for full control that, that increased level of discretion will be very appealing to that group. Now the pump that we currently have today is -- it's really designed for type 1. It's a little more complicated, I think, than the type 2 community would want to use, but we think that there's opportunities to modify the user interface to simplify it for that group. But I think that the t:sport system enables us to just begin to see how appealing that is to that market. And then the next one is just the channel and currently, we deal primarily with endos, and I think that the type 2 community goes primarily through PCPs, so it's -- we have to explore how do we get access to that channel. We don't want to replicate our sales force that we have for the endos, for the PCPs. Obviously, that's -- that would be too large of an expenditure. But it does mean that the digital health initiatives that we're working on right now might have the ability to access and provide training and support for the PCPs. So it's really trying to get our handle around all of these issues, understand it and then begin to move forward in a more communicated way, what we actually explained to you what we're thinking about doing. I think that's something that's going to happen in the next 6 months to a year.

Okay. It's very clear. And you mentioned t:sport and the channel as potential drivers. What about CGM? There's obviously a lot of talk about CGM moving into type 2 insulin intensive, which is already somewhat penetrated, and further non-insulin intensive, which may not be so much of a use case for pumps. But how much do you think CGM in the insulin-intensive population of type 2 can be a funnel for pump?

Yes, certainly a tailwind. I think that we definitely benefit from CGM adoption. It's really helped us, I think, with both Basal-IQ and Control-IQ. The ease of use, the lack of fingersticks, that really has been a catalyst for our success. So I think that when you look at the type 2 adoption of CGM, both with Abbott and with Dexcom, it's an opportunity for us to get access to that community as well. So we think it's definitely going to be helpful, very positive for us.

Okay. Great. Let's shift gears and talk a little bit about kind of the pipeline and the catalyst path. I think your nearer-term catalyst, correct me if you feel differently, but just the Control-IQ rollout in Europe, which I think is still in early stages now. I think you talked about rolling out in the U.K. so far, so I think it's probably early for broader feedback. But have you heard anything different so far from OUS adopters versus the response you've had domestically? And is there any other color you'd share on the rollout so far?

It's real early. I think it's just been a few months now. I don't think we anticipate anything different than what we've expected in the United States. We expect there to be a great deal of excitement, significant improvement in their outcomes. So we expect to see similar improvements OUS as we have in the States. So I think that it's just early, it's early as we speak.

Yes. I think I'll add on that scaling rollout. A lot of it is timed by the fact of when the distributors are ready to receive that product into the market, and some of it has to do with regulatory approvals and reimbursement approvals. So you're right, it's still very early stages. But for instance, we recently filed for a submission in Canada where it requires regulatory approval. And so we expect to see more from Control-IQ outside the U.S. through the end of the year and early in 2021. But to John's point, there's been a lot of excitement about its arrival.

Okay, great. Let's talk about the mobile bolus feature, which I think is the bolus through the smartphone app. I think you've talked about this as somewhat of an underappreciated driver for you. And so maybe start with why is this still important, why do you think it might be harder to appreciate, maybe in the investor community versus the patient community? And if you can just remind us the timing that you have for the bolus-only approval?

Sure. Well, we think that we're making a big pivot right now towards digital health, and we think that's a very important step for the company. We believe that developing an ecosystem of data-driven products and services is really going to help reduce the burden of people using the pump. It's going to help physicians by providing tools to help them become more efficient, and there's also data opportunities to work with payers. So it's a big step for us. And I would say that the mobile app is the first major step in that direction. We currently released the mobile app in the last couple of months, and we're seeing great success with it. Currently, it's only a secondary display. So you can see all of the information that comes off of your pump on your mobile app, which is very beneficial and people really like it. And the real benefit today is that it sends all of that data directly to the cloud. So particularly with COVID-19, there's some difficulty for the physicians to actually get access to the data so they can actually provide therapy management with their patients. So this allows that data to be available in t:connect almost immediately, so it's a big change for us and very beneficial. I think the thing that people don't appreciate is how much discretion matters to people with diabetes. And I think that by integrating the capability of mobile bolus onto the app, you significantly improve discretion because the only thing that people really do with the pump outside of their home is bolus for meals, and so now you can do that directly from your phone. So we think that's a very big feature, and it's a stepping-stone to the point where we will have full mobile control on t:sport when that's introduced later next year. Timing-wise, we are planning to submit the mobile bolus feature for t:slim in the fourth quarter. And just pending the FDA approval, we anticipate commercialization in the first quarter. So we're very excited about it. We think it's going to have a meaningful effect on -- it's all about reducing the burden. And I think that when people are able to interact with the devices that they have in their daily lives, it's going to help us do that.