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

All right. Terrific. Well, thanks, everyone, for joining us. My name is Matt Miksic. I cover medical devices here at Crédit Suisse. We're very, very pleased to have with us again this year Tandem Diabetes and John Sheridan, President and CEO; Leigh Vosseller; EVP and CFO; and then we have Susan Morrison, EVP and Chief Administrative Officer.

And so, I guess, on a day like today, when everybody would like to think of the market, wants to think that the pandemic as being over, we know that not to be the case, but it feels good to pretend that for a minute, I guess. Not that it's what's in everybody's mind, but I would love to get a sense of where -- you talked a fair amount about what you saw in terms of this past quarter and heading into the end of the year. I think tempered some of your -- the strength that you saw in Q3 with what you thought might transpire in Q4. And if you could maybe just start with sort of level setting how you think about that transition over Q3 to Q4. I won't burden you with the futile questions around 2021 just yet, but maybe we'll start with that.

All right. Well, Mike, that -- and thanks for the questions. Yes. Well, first of all, our third quarter was a great quarter. It was a strong quarter, and I think it's largely driven by the success of Control-IQ. I think we see a lot of momentum with physicians, their growing confidence in the system. They're seeing amazing outcomes. And we're also seeing just great stories from people who are using it, describing it as life changing. It's just really having a very positive impact. So it was a good solid quarter. I think seasonally, the fourth quarter is always our largest quarter. I think it's still going to be a strong quarter for us. I'm excited about it. I think that we have the UHC. We benefit from UHC now in coverage with them. And I think we also are looking at the -- we're rolling out the Control-IQ OUS, and we've got our mobile app that's actually going quite well in the United States today. So we're excited about the quarter. We think the transition is going to be strong, and we look to finish the year well.

Okay. And your thoughts on continued strength from UNH in Q4 or sort of this view that it really potentially got an extra boost in Q3 due to some -- I don't know if it's theoretical backlog if that's one hypothesis as you try to understand the growth, is that still the way to think about it? I'm assuming this is only last week so the answer is probably yes.

So yes, I'll start with what we used to see from United before we lost access to the contract, was it represented just under 10% of our shipments. And since then, it was still running about 4% to 5%. So when we went into this quarter, we had prepared everyone for the fact that we think it really would go back to historical trends, which is that just under 10%. And we were very pleased to see that it was over 10% of our shipments this quarter. And it really started with the fact that we went back into our database for everyone that had ever started upon purchase but didn't fulfill it completely because they had United as their coverage provider. And so what happened was that a number of those folks came to the table that have been sitting on the sidelines. So as we look forward into Q4, right now, we're anticipating it will go back to that level that we had experienced in the past. And when I say past, I mean prior to losing the access. But we're optimistic about the future as we think about it. United represents roughly 15% of covered lives in the U.S. So for the longer term, we see that there's real possibility to continue to grow there.

Okay. And so your experience in the past of just sub-10% is a touch higher, I think, than the way you've talked -- you're sort of conservatively thinking like, okay, this is the first quarter, it was a big bump, maybe it'll moderate. I think if I could reword clumsily the way you were describing your tail end of the year sort of thoughts, it sounds like the historical trends would be better than that, that sort of mid- single-digit range. Just more like mid- to upper or something like that.

So the way we've described it is if you think of about 4% to 5% we have been seeing after the second quarter, adding a low to mid-single-digit lift to that. So that puts you in that just under 10% number. And you know our philosophy, we build our guide and our outlook based on things that we've seen trends on or that we feel like we can control. So we feel like the best indicator today would be what we were experiencing before.

Okay. That's encouraging. And then, John, you mentioned the app. Maybe talk a little bit about how that -- how that's manifesting itself in some of the results that you're seeing either in terms of just traction, patient selection or revenue growth. I mean how is the app coming through in terms of the numbers?

Yes, it's actually pretty big. So far, we've got about 50,000 people download the app. And a significant portion of them are using it on a relatively frequent basis. As I mentioned in the call the other day, the #1 requested feature, though, is to have the ability to bolus from the app. Today, it's just a -- it's a secondary display, and it also has real-time upload of data to the cloud, which is beneficial to the physicians in this time frame with COVID-19 in that they don't have to call the patients prior to a visit to ask them to upload their pump. It happens automatically. So that's a big feature for the physicians today. Going forward, I think that the #1 feature -- and the only thing that you really need to do when you're outside of the home with your pump, when you have a t:slim is to bolus when you have needles. Otherwise, everything else you do in the privacy of your home. So I think that this is kind of -- I think it's going to be meaningful. It's going to be a meaningful driver of business going forward. I think there's a lot of -- the experience is going to be very positive, and I think people are excited about it. And it's just the discretion you get from being able to interact with your device through a mobile app on a phone. Just -- you can't tell -- everybody is interacting with their phones these days so you don't know if someone will have diabetes. So the discretion is a very important piece of the benefit of the system.

All right. No, that makes a lot of sense. But it sounds like as encouraging as the downloads and utilization is today, the real sort of pull, I guess, you've already had a pretty good record of sort of share capture new and renewing pump users over the past several years. But the sort of lift on that front, there is -- or if there is one, would come around the bolus feature, being able to do this in addition to the functionality of the current app. Is that the right way to think about it?

Yes. I think the thing driving our business today really is Control-IQ, and this will be kind of a benefit on top of that, that I think people really are interested in having. And we've submitted our filing to the FDA, and we're now just waiting for approval, which we're expecting to have here in the first half of next year. And as soon as we do that, we'll be able to upload all of the in-warranty customers with the new app that has that bolus feature on it. So we expect to see very significant uptake right away. Plus, I think that it's going to drive new business, whether it's competitive conversions or MDI conversions as well.

Okay. So let's talk for a second about the filings. That was a little bit of a change. And you talked about why as the FDA is communicating to you and to others that there may be some reallocation of resources. Maybe you could talk a little bit about that. And then about the decision to not file by the end of the year the t:sport submission.

Yes, sure. So we have frequent communications with the FDA. And over time, they -- initially, they were cautious as COVID began to hit. But I think more recently, they've been more specific about the fact that resources are being directed to COVID for devices and services that are supporting COVID research. And so I think that the expectation is that we're going to have less resources focused on the diabetes products. I think that the -- there's probably a finite time frame around it. I've heard them mention 90 days. So -- but the expectation is that there's going to be some delay. And there's a level of predictability that we didn't have before because they said specifically they can't sign up to meet the time lines that they have in the past. And I think that's the biggest thing that we've taken to heart. I think that when you consider t:sport, we did have a 2-phase strategy, where the first phase was to introduce -- or to file t:sport with the separate controller, followed by t:sport with the mobile app control. And we clearly plan to commercialize the mobile app control of t:sport. That's -- our primary intent is to commercialize it. And to have a device in front of that and under review, which has the potential of being delayed by the FDA just seemed not -- it wasn't a good decision at this point in time. So we shifted, and we now intend to file the one we really are interested in. Now it made sense 9 months ago to follow that strategy. But I think with the changes that are occurring today, the right thing for us to do is just to file the t:sport with the mobile control app, and that's what we intend to do. And we expect that, that will be filed sometime in the first half of next year, and we would see approval in the second half.

Great. Okay. It's helpful update on the cadence of those filings and approvals. Maybe one thing that I wanted to talk a little bit about -- I don't want to get off track too much. But the companion acquisition by Medtronic, I think a bunch of different ways to look at that. One is does that make them more viable or better even though given their scale, they should be a really viable competitor? But does it make them more so? But then there's sort of like the business development and market development side of it, which is taking a patient group that sort of was on the other side of the utilization hump of pumps, like where they really weren't necessarily being actively addressed as sort of aggressively to their needs as maybe they might be with a smart pen and the opportunity to migrate them back into pumps into a more sophisticated comprehensive platform. I think that's one of the things that -- I don't want to simplify it by saying that smart pens could be a feeder for pumps or some concept like that. What do you think that the impact of that acquisition is going to be and Medtronic's force behind it in terms of the way this market may change in terms of pacer flowers and patient development and maturity and managing their disease?

Yes. There's a lot there. I think, first of all, you're right. When it's an early -- it's early, right? Companion is really the only product in the market today. And they've got -- they have a relatively small group of users on their pump today. There's a small amount of clinical data really on the benefits of it. Clearly, I think with Medtronic and investing in that technology, they're going to be able to accelerate a lot of the growth in their sales force and that sort. So I think there's -- it's going to grow more faster than it did. We've been looking at it for a while. I think our concerns are it's early in the market, it's turbulent. And I think that there are a couple of big players that are also working on smart pens, I mean, namely the insulin manufacturers. And so I think when they come to market with their products, we were just concerned that they could just undercut the price. They could practically give away the pens in order to sell insulin. And so with the viability of a stand-alone device -- pen manufacturer was just uncertain to us at that point in time. So that's -- so it's really -- I think we want to step back and see what happens here in the next year or so and just make decisions after we've had a chance to do that. But I would say when it comes to the technology, we don't view it as competitive. It is a conduit, in our mind. And I think that it makes sense to try to help do anything you can to take people and help people who are on MDI and get them to pump therapy. And if -- a pen is a transitional point where you get into a system, you get to see what -- you can use the data management services that these companies have, you can work with their customer service organizations and just get comfortable with an organization that has that bandwidth and support mechanisms. Ultimately, you may make the decision to transition to a pump. And I think when you make that decision, it's really -- they're going to make the decision to go to the best pump. And so I think that's -- so we feel good about that right now. We still -- we have the best pump in the market. We intend to continue to have the best pump in the market. So I think, ultimately, we view it as a conduit, and it's just beneficial for all of us who are in this market.

Sure. Yes. No, the idea that more folks would be ready to consider a pump is good for the company. Getting the vast majority of share of new pumpers, I guess, you could say. So maybe -- you talked a fair amount about this on the conference call last week around type 2 and the importance of discretion and we just mentioned it now, not needing to get your pump and fiddle with it maybe if you don't want to in public. What other elements down the road? I mean, t:sport, we've all been hearing and focused on t:sport for some time and this concept of remote management of a different kind of pump. Where can we expect you to go beyond that? Sorry to push you beyond t:sport. But sort of what's the continuum just because other folks approaching this from a smart pen perspective have a continuum in the future beyond pumps and the long-acting and bolus and so on?

Yes. I think we're always looking at pump technology, and we intend to continue to advance it. I mean t:sport will be our next-generation system. We'll have 2 products in the market, but we are investing and definitely looking at the next-generation systems as well. We haven't spoken much about it, but we will in time. We'll begin to talk more about where we're going beyond t:sport. I'll also say, though, that advancing our automated insulin delivery algorithms is very important. We clearly partnered with TypeZero and with Dexcom, and it's a great partnership. But we think it's core to the company to have that capability in-house, and we are investing in organizational resources and technology to make sure that we are advancing the algorithm. So I think you can expect to see advances in the algorithm over time. We've talked a lot recently about our digital health strategy. We think building an ecosystem of data-driven products and services around the pump is going to be extremely important to improving the overall experience that the patient has who uses it, but not only the patient, but the health care provider and potentially the payer. So there's sort of an opportunity for us to build this ecosystem that's going to increase the stickiness of our products inside the -- in sort of the diabetes technology continuum.

Okay. And I think we've talked a little bit about this in the past, sort of like how you get there, where is the value in a world where sort of the algorithm is starting to grow larger and the intelligence and machine learning and domain data that goes into creating a smarter, better experience that you're describing. How do you wind up in that place, owning that value as opposed to owning the less important, less innovative elements of the sort of value stream?

Yes. I think that you've got to -- well, right now, we're kind of focused on building the ecosystem. We're building the infrastructure, the web and cloud services. And I think that, as I said, it's all about the experience. I think that when you look at technology adoption, there is the importance of actually having the technology to provide the output or outcomes you expect. But it's also you got to reduce the friction. And I think that right now, we believe that we can use technology to reduce the friction. I mean, clearly, as our design concept is make the device easy to use. But if we can have technology that provides, for instance, the ability for you to order all of your supplies and services online, to interact with our customer support organizations online, to use text instead of calls, there is this opportunity, I think, to continue to build on the experience. You could also consider having follow features, where you have the ability to follow loved ones using your mobile app. You have the ability to integrate with other mobile apps that might provide activity or dietary information that would be beneficial to integrate with the algorithms that we currently have on the system itself. And there's also the idea of generating algorithms that can help physicians become more efficient. I mean, today, they have 15 minutes every quarter to do their best to try to provide therapy advice for their patients. We think that we can have algorithms that actually help with decision support, algorithms that help with basically optimization of settings on the system. Looking at the -- their overall patient population and basically suggesting that some people here might need more support than others. So we believe that while this is -- it's difficult to monetize data and data-driven products and services. You can use it over time, I think, to just increase the brand and the experience so that people, as I said, want to continue to use your product because of all the services that go around and just makes that interaction a very positive experience.

That makes sense. So I don't want to make this about what the competitors are doing necessarily, but you are kind of leading the pack in pumps at the moment. So not only is Medtronic I think trying to sort of turn that business around into one where they are a preferred pump or they are giving you a run for your money. You have another competitor coming to the launch. How do you think about -- or I know that you're -- in all likelihood, you're working on getting your launch to market with the right features at the right level of quality as soon as possible? But how do you think about the timing next year and the competition that you'll be facing in the back half, your potential for trialing or new interest or whatever happens when a new a new system like a Horizon or something like it reaches the market? How does that factor into the way you think about the year and the year after?

Well, I think that Control-IQ by itself is going to be competitive against both products. I think when you look at the time and range of the Control-IQ pivotal study and you compare it to the data that's been presented for both the Medtronic and PoD data, it's the same. And this gets back to -- well, I think it's all about the experience then. It's the integration of the sensor. It's the ease of use and just the utility of the device and how you interact with it. So I think it's -- I don't think there's going to be a huge transition because other devices come to market. I think that Control-IQ is still going to do very well. When you look at the competitors, there's issues that they currently have with sensors and sort of the form factors of -- one of the competitors isn't going to change. And I think as a result of that, I think Control-IQ will do quite well against that. I think then when you look at the t:sport device coming to market next year, I think it's going to do quite well as well. It actually is -- I think it's a strong competitive response to the Omnipod 5 system.

No, that makes -- so if I hear what you're saying, is the timing of t:sport not so important to the competitive -- your performance against competition, say, you want to think of it that way next year just because of the superiority of Control-IQ. Add to that the mobile bolus and I guess, not to put words in your mouth, but you would say that competitive lineup is enough to sort of carry you well into when you might be looking to t:sport to have an impact. Is that a fair way to...

I think that the other thing to consider is that the -- when I look at launched products in the past, they have started with a soft launch and taken a few months before they actually begin to go aggressive with a commercial strategy. So I think that that's -- we basically have -- when we've introduced products, we've gone aggressively as soon as we have. So we would anticipate that when we bring t:sport to market, we would move aggressively in a commercial strategy implementation. So I think timing-wise, there's going to be noise next year with -- because there are so many different things happening competitively. But as I said, I think that we're well positioned, I think, timing-wise. I don't think the timing is as important because I think that, as I said, Control-IQ is a great product that I think will still stand up to the test when it is in front of some of these other products.

Okay. So a question on your partners. You've got a great relationship with Dexcom, obviously. You talked last year about formalizing the agreement with Abbott. And so, I guess, any comments or updates or thoughts that you would give on where things stand there? How this environment may have affected the timing? How Libre 3 potentially factors into your thinking as a partner? Anything that you share would be helpful.