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

Hello, everyone. Welcome back to the Oppenheimer Life Sciences and MedTech Summit. My name is Steve Lichtman, Senior Medical devices analyst here at Oppenheimer. Very happy to have with us up next Tandem Diabetes Care. With us today is John Sheridan, President and CEO; Susan Morrison, EVP and CAO; and Ms. Gasser, EVP, Strategy and Corporate Development. I'm going to turn the podium briefly over to John, who's going to have a couple of remarks to kick us off. And then we're going to do a fireside chat format, which I'll lead the Q&A. And if you have any questions, please submit them through the link that was sent to you, and I'll get them right over to management. And with that, I'm going to turn it over to John.

Thanks, Steve. It's really nice to be here today. I'd just like to start off by reminding people of where we came from. And that is that Tandem for the very beginning, has been focused on developing easy to use intuitive devices that really reduce the burden of diabetes for -- and over the last couple of years, we've integrated sensor technology, and we've integrated algorithms onto the system. And as a result, we've seen substantial improvement in the therapy of the therapeutic outcomes. Looking forward with our t:sport pump and -- I'm sorry, pivot towards digital technology, we really are looking to improve the -- first of all, the discretion that comes along with the digital technology, but also people are now going to be able to use common devices that they have in their everyday lives to manage diabetes, and that's going to substantially improve the discretion, as I've mentioned. And I think what's happening here is there's really a renaissance, I think, occurring right now in diabetes technology. And the benefit of this is that it's certainly going to help people living with diabetes, but it's also, I think, going to drive the penetration rate of people using pens and needles. And we really believe this is going to increase the number from today is in the low 30s, to greater than 50%, which I think is really important for our ongoing growth. So when you look at Tandem, our -- the key drivers to our success really are continuing to lead in pump technology, basically using that to show the improvement in competitive conversions that we have, the MDI conversions I've just mentioned. And also, now we're going to start to see improvement and increase in renewals. So we're very excited about our future. We think Control-IQ is doing extremely well in the marketplace today. And I think that -- with that, I'll just turn it back over to you, Steve, and let's jump into this.

Perfect. So just -- first, just the near term question, of course. The state of the endocrinologist offices, from what your sales force has heard on the ground, where do you sense they are relative to pre-COVID levels overall?

Yes. I would say that we're seeing stabilization right now. I mean, clearly, in the March time frame, there was a great deal of turbulence, and it took us some time to work with the endocrinologist to set them up, so they had the ability to manage their patient therapy from their homes using our t:connect system. And we actually were able to make that transition pretty quickly. And so people, for the most part, work directly out of their office, their homes for a couple of months. And it wasn't until the maybe May, June time frame when people started to go back into the offices. And so we've seen that increasing over the last couple of months and today, as I said, it's stabilizing. We aren't going into the offices for sales calls, but we are going there to support training as needed. And we have very good communication with the endocrinologists and the offices. And we're seeing steady flow of interest in the product. And it's clearly -- there's clearly an effect from COVID, but it's definitely improving and it seems to be continuing to improve.

Your international business has become an increasingly important part of the -- of your story. What about internationally? What are you seeing there in terms of relative impact today versus a few months ago?

There's still uncertainty there. And I would say that, clearly, the international countries saw a bigger hit because the basic diabetes therapy and management occurs in hospital setting as opposed into individual offices. And so there is a greater hit. I think right now, it's just kind of the summertime, which also adds a level of uncertainty as the country essentially just doesn't shut down, but a great deal of people take vacation at this time. So it's -- we're really waiting to see as we enter into September and October to see what happens before I think we're going to have a better sense on what's going to happen internationally for the rest of the year.

Great. You mentioned, John, where type 1 penetration is today in the low 30s. It does seem to be underlying accelerating, of course, COVID has had a significant impact. But what do you attribute the biggest driver in terms of acceleration or an interest in pumps overall over the last couple of few years?

I think it's 2 things. I think first of all, the devices with the algorithms today, I mean, we're certainly seeing amazing therapeutic outcomes. We had the pivotal study published last year -- late last year. And in the study, we basically saw about 11% improvement in time in range up to 71%. But in the real-world data we're seeing today, there's many people that are observing time in range in the high 80s and low 90s. So the therapeutic benefit of the algorithm and the system that we've got today is just extraordinary. And so that's clearly one very big improvement. The other one is these devices are reducing the friction, they're reducing the burden of diabetes in their lives. They're easy to use. There's no longer fingersticks. And so we think ease of use, it drives adoption. And the technology improvements that we're going to see over the next couple of years, are certainly going to do that. And we have high confidence that we're going to get to the point where it's greater than 50% adoption from MDI -- just MDI from pens and needles.

And in terms of the Control-IQ launch, can you just update us exactly sort of where you think you are at relative to that? Because it's shockingly still relatively new. It feels like, obviously, million things have happened since January. But where are you in terms of the launch? And then also -- well, I'll get to type 2 after that. So just if you could just update on the launch itself, yes.

Yes. So we -- obviously, we began to launch in the January time frame. And as we continue to build momentum, I would say that today, the majority of the devices that we're shipping that are new are Control-IQ and the last time I looked, we had over 50,000 people who had Basal-IQ or had an update -- or pump that had converted over to Control-IQ also. So it's a substantial number of people that are out there currently using the technology. And as I said, the results are extraordinary. You can see it yourself on social media. People are extremely pleased with the results they're getting. And it's having a substantial impact on their lives. I mean there's they think about diabetes less and they have great outcomes. And so it's been just a wonderful thing to watch.

And then what has been the receptivity of Control-IQ among type 2 patients? I think with you guys, we don't tend to talk about type 2 as much yet. We had a survey last week where you -- Control-IQ ranked very highly among endocrinologists in type 2. So talk to us a little bit about that opportunity. And are there any hurdles just beyond educating endocrinologists and patients?

Well, it's interesting you asked. I mean, I think that -- I think there's just under 10% of our current population of patients used -- that have type 2 that use our devices. And we actually reported data at the ADA this past June, where we showed a group of people who were using Control-IQ that had type 2 before and after they made the transition to Control-IQ. And we saw a substantial improvement in time in range. So we see this as a huge market, very underpenetrated, but a number of people have attempted to get into it unsuccessfully. And so we're carefully evaluating it right now. There's -- we have to look at the clinical data and continue to build clinical evidence that our technology can make a big difference. When you look at the feature set, we think that discretion is also incredibly important for the type 2 community because the negative social stigma that goes along with that. And so we think t:sport is really going to offer an opportunity for us to really put our toe in the water there and see how that device is -- see what the uptake looks like with that community. We also think that there's opportunity to continue to improve the feature set with Control-IQ for both t:slim and on t:sport. So that's an opportunity. And there's also the channel, as you mentioned. I mean right now, I think the majority of people that have type 2 actually are managed through their PCPs. And so the question is, how do we deal with that? How do we get access to that channel? And so we're considering our digital health initiatives as a means to actually access, potentially train and support that physician population as we move forward. So right now, what we're doing is it's more of a measured assessment of these 3 areas, the clinical, the product features and the channel and really trying to put together a comprehensive plan to look at moving more aggressively into this area. I mean it's an opportunity that we have really haven't focused on up until this point in time, we've been primarily a type 1 organization. But the opportunity is too big for us not to look at seriously.

Got it. And we asked last week in this survey as well about some features that are available today amongst pumps and what the endocrinologists thought were important to their patients. And low upfront costs were very high. Interestingly, pharmacy was kind of in the middle. So it wasn't necessarily through the pharmacy, but certainly about the cost side. So talk to us a little bit about what you guys can do. I know you've got a payment plan option for patients to keep that low cost down, so that's not a barrier to entry for patients.

Sure. And I can touch on the payment plans. So we offer a variety of plans and really have the conversation with the patient upfront to understand what their financial challenges may be. It's not uncommon if someone has a 20% co-pay out of pocket, that would result in $800 from the patient, and we could spread that out over 12, 24, 48 months. So I mean, that could bring it down to less than $20 a month, and something that's much more reasonable. And so it's interesting, though, even in these more challenging economic times for some folks, we haven't seen increased utilization in those plans, at least nothing that's been material or worth noting. So we look at that really as a potential early indicator or a driver for where that economic or that financial pressure may be impacting purchasing decisions. But at this point, we've not seen that.

Maybe just building on that a little bit because I think it's fair to say that you can act on the upfront cost fairly effectively through payment plans to reduce the out-of-pocket for the patient transitioning to pump therapy. I do think it's important to step back a little bit and look at the total cost of ownership over the lifespan of a patient on a pump. And so if you look at the price of the Tandem solution today, it's about $8,000 over 4 years. It's about 50-50 between the upfront pump cost and then the consumables. That works out to about $5.50 a day, right? And so the mental model we have in place there is if you compare that to disposables, they're about $10 a day to the payer even through the pharmacy channel, right? And so from a total cost of ownership perspective, durable pumps are actually far more cost effective on a per dollar per day of use basis before you even account for the improved outcomes that we're achieving for that payer community through the application of a technology like Control-IQ.

Steve, you're muted.

Sorry was I mute. Yes, yes. Sorry, about that. That's really interesting, Liz. I wonder what's the receptivity of payers to that argument? Because I guess there's always the sense of, well, maybe they won't be our patient in 4 years or what have you. So I mean, are you finding a real understanding about that whole period commentary versus the upfront?

Yes. I'll take a quick pass. And then I think, John, you probably have more color on this one. I think the primary conversation we find ourselves having is far more around the outcomes as opposed to necessarily the upfront payment in the 2-year lifespan. I have heard that anecdotally when you do survey work out there in the market with payers. But we don't find it to be a massive impediment. And actually, if you run that $10 a day, it breaks even in 27 months. So I'm not sure the 2-year magic mark is a particular impediment either. John, you've got a bit...

Yes. I was just going to add that we initially have made the decision to give Control-IQ and Basal-IQ to the patient population at low cost. And we do that because we have confidence that we can go to the payers and work with them over time and just show them the clinical benefit, also the cost reductions because we know that you will see less hospitalizations when you have substantial reductions in hypoglycemia and hyperglycemia. So it's a process that we've begun that it's one of those things that doesn't happen quickly, but we still have confidence that we can get additional reimbursement for these because there's -- it's a value sharing. There's a substantial value by -- when you use a Control-IQ system. And even in a 2- or 3-year time frame, there's still a substantial cost reduction potential because of the lower likelihood of hypoglycemia.

Got it. I wanted to touch a little bit on the pipeline. So I think smartphone control, in my view, is a little bit -- still underappreciated, I think, as an opportunity for you guys, especially since it's coming before t:sport. And so maybe just update us on the timing of the remote bolusing option that hopefully comes with t:slim.

Sure. Well, we're very excited about this. And our mobile app really is the foundation of our digital health pivot towards the patients. And so I think that we introduced the mobile app a couple of months ago. And it's very, very popular. I mean, again, I haven't really been keeping track of the number lately, but it was in excess of 20,000 people have downloaded the app and really got very high scores when you look at the store, the app stores. So great experience so far. The #1 requested feature, as you might imagine, though, is the ability to remote bolus from the phone. And so that's what we're working on now. And we have plans to submit the regulatory documentation to the FDA in the fourth quarter. We're just wrapping up our human factor studies, which were impacted, unfortunately, by COVID-19, but we're back on track to what we had indicated. So we plan to submit it in the fourth quarter, and we're planning on commercializing the technology in the first quarter of 2021. And as you mentioned, we plan to -- the next step then would be full control on our t:sport system, which we think is a very important element of the discretion. And then going forward, we have the ability. And when you've got this mobile technology now to add the follow feature to allow loved ones to actually follow you on their mobile apps and see how you're doing in terms of managing your diabetes. And then there's other more consumer-oriented features that we can add such as we can add -- you could order supplies from your mobile app. You can see videos for training. If you have questions, we can answer them on your mobile app. We can integrate with other mobile apps to add potential exercise and dietary information that would continue to improve the experience. So the mobile technologies is a real big shift for us. And I think it's going to be something that we, as an organization, focus on significantly over the next couple of years. Liz, do you want to add anything to that?

No, I think that last point on the digital platforms is really important because we spend a lot of time talking about how we can affect the physical burden with form factor and the cognitive burden with the algorithms. And then there's the overarching experience of just managing your suppliers and your information and your interaction with your endocrinologist and your interaction with your family. And we're really focused in the next 18 to 24 months. And in continuing to build out those touch points into the various stakeholders around the patients, such that in addition to having -- delivering the best pump experience, we can also deliver the best overall support experience that takes friction out of the process for that patient and their care team.

Great. That's really helpful. And I know you guys have been talking about the digital strategy for some time. I think going back to your Analyst Day, gosh, a couple of years ago. And so in terms of the data that you can accrue through that strategy, can you talk to how that could help with payers? And then also, how does this all help potentially with the telemedicine theme that, of course, we're increasingly seeing play out now?

Liz, why don't you take that one?

Yes, happy to. So we tend to think of it in -- effectively in 3 buckets, if you will. There's obviously the experience you build around the patient. And so there, you're focusing a lot on, okay, how can I help the patient engage with their information, to make decisions, how can I make engagement customer support experience, how can I improve training? And there's a fairly well-worn path there around building value-added solutions. I think as you get into the physician and the payer portions of the value chain, for the physician, you're fundamentally thinking about impact to work flow, if you will. So how do I view my patient base's data, how can I view them in a collected fashion such that I might be able to triage and intervene where I see information that is adverse and my care team can reach out. And then more generally, from there, how do I feed into the new telehealth solutions that the physicians, frankly, are being forced to learn and forced to learn quickly, whether that's video consultations or whether that's integration with multiple data platforms. And then from there on to the payer side, you then start thinking about, okay, well, how do -- we can already do a fair amount, demonstrating the efficacy of Control-IQ and how we're impacting time in range and outcomes using the base of data we've built. And the primary use of data with that group for the time being will obviously be to do that to demonstrate and reinforce the value of the pump. Down the road, that does create optionality around population health. I'd say, we're probably not there yet. I think there's a meaningful amount of work to do to understand what the payers find as valuable and what they need from us. And those options sit out there in the future, too. I think the key thing we try and keep in front of us right now, though, is I've been working in IoT solutions for the better part of the past 15 years. And the reality is that you don't sell data. Data itself is not the commodity. And in fact, it's a breach of patient trust if you start to think of it that way. So we're really looking at how do we apply the data in service of the patient's needs to deliver more compelling therapies and support solutions for the support infrastructure that's around that end user. John, anything you'd add?

No. I thought that was very complete. Thanks.

Great. And then as we dial forward to t:sport, what do you think the biggest incremental opportunity for t:sport is? I mean, do you -- I think you alluded to type 2 earlier, John, but maybe talk a little bit more about what t:sport adds to the Tandem story overall.