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

So everybody, welcome back to our Virtual Citi healthcare Conference. And I'm Joanne, and we have now the management of Tandem with us. John Sheridan, President and CEO; and Leigh Vosseller, EVP and CFO. John and Leigh, welcome.

Hi. How are you today?

Doing great. And yourselves?

We're doing great. Not as busy as you though.

No. A little day. So I want to spend some time because John, you took over as CEO of Tandem in 2019. And a few things have changed since then. And I'd like to just sort of take a moment to sort of look back, reflect and what may have surprised you the most on the positive side and what may have surprised you the most on the negative side?

Yes. I would say that there's not one answer to that. There's been a lot of positives. First of all, I'm really blessed to have a great team to work with, the management team as well as I should say overall company, just great, great people. And I think sort of the negative, obviously, was the pandemic this year, not expected. And I think the positive was just how well our team responded to it. I mean it was a flawless transition from working in the office to working at home. Our sales organization was just outstanding in terms of just helping physicians get set up to do virtual visits. And fortunately, we've been preparing to do virtual training anyway. So we were able to just step right into it and not really lose a beat. And I think, clearly, it was a great team effort from the company. And I think that the pandemic has affected everybody. It's been very unfortunate, but I think the transition was great. I'd say the other thing that was the really big surprise was, I mean, we knew that Control-IQ was going to have a meaningful impact on people. It was going to be positive. But we didn't anticipate just how positive the results would be. And when you hear sort of the patient testimonials, it's just very emotional when you just listen to how significantly Control-IQ has had -- the effect it's had on people's lives. So that's been a very, very positive that we all are very, very proud of.

Well, good. I mean we had a luncheon panel -- or a virtual luncheon panel that talked about telehealth and diabetes. And I'd love to get your impression of how it changed during the pandemic and how it's certainly here to stay?

Yes. I actually think there is a certain level of convenience and efficiency by having virtual training and virtual office visits. I know people who live in the LA area. They don't want to have to drive across the city to go see their endocrinologists. They'd much rather do it from the comfort of their home. So I think -- I honestly think that there's going to be the need to go in when you actually have to have physical checkups and vision checks and things like that. But I think the extent to which the virtual telehealth can be used, I think it will be. And right now, as soon as the pandemic sort of hit in the March time frame, we essentially went to 100% virtual training. And now it's kind of come back now to about 50%. And I think we see it kind of remaining in that area even going forward because like I said, it's a much more efficient use of our trainers. And I know that the people who are actually being trained really prefer the convenience. So I think it's one of those things where it happened rapidly. It probably couldn't have happened this fast any other way. And -- but now that it's here, I suspect it's going to stay at some level.

Good. And does this -- I mean, we spent some time last spring, wondering whether or not fewer people will be getting into visits to see their endocrinologists, fewer people would be getting a Tandem pump. And there was some headwind. Do you -- can you quantify that headwind? Has it all been worked through? Or do you have a little bit of what I would call, pent-up demand as you get into 2021 and in the past pandemic environment?

Leigh, you want to take that one?

Sure. So it really is difficult to quantify exactly the level of pressure. We were very fortunate, as John has said that Control-IQ came out when it did because it helped mitigate some of the pressure we may have seen otherwise. The best way for us to describe it really is we think about when we talk to our field sales reps and their experiences in the physician offices. Some of them will describe a setting where a physician is seeing just as many people as before and maybe even prescribing at higher levels because Control-IQ feels like a protectionary measure in an environment where people feel more vulnerable or at risk. But then you'll talk to someone who has a physician that's not prescribing at all, not seeing people at normal levels. And so things have really slowed down. I think over the quarters, it has varied. So I don't anticipate there's this large population that's going to be sitting on the side that one day, someone's going to say, "COVID's done," and boom, they're going to come to the table. I think we'll see it sort of meter out over time. There is the opportunity for some that have waited. But like I said I think there's just as many maybe who move forward more quickly than they would have without. But we look forward to the day when there is some level of normalcy again when our reps can be in the offices, meeting with the physicians and meeting with the patients. And then back to some -- to that environment where everyone's ready to go.

Control-IQ, the feedback from physicians has been really quite stellar. And did that surprise you? Or I'm just going to stop there. Did that surprise you?

Well, when you look at the pivotal study results, we saw a time and range in the mid -- low 70s. We saw a lot of positive attributes to our feedback on the patient experience. And so we expected it to be good. But we're seeing people today that have a time and range in the mid-80s to mid-90s. And I think that was a surprise. And I think what we're seeing is that if you manage your diabetes carefully, you bolus for meals, that you can get those types of numbers. And I think that was the surprise because -- and I think that -- the sort of the effect that's having on people's lives is so positive. And we just really are very proud of that. But it was -- I think we knew it was going to be good. We didn't expect it to be as good as it actually -- as it turned out to be.

So one of the things that we saw or we've heard about during the pandemic because the diabetic population is at most -- or not most, but adversely impacted, in some ways, more than others. It's really been a spur to action for overall better health care for diabetics. Have you seen that also?

I think as Leigh said, we believe that we could have done better without the pandemic this year, but we do believe that there was incentive to -- for endocrinologists to get people on to Control-IQ because it does have that favorable effect. And when you talk to people who have loved ones or themselves who've actually contacted COVID, what we've heard is that it's actually just -- the system has enabled people to worry less about their diabetes and help manage their -- either their own situation with COVID or their loved ones. And so it's had that sort of ancillary effect as well, which has been very positive.

And one of the things I frequently hear from investors is some combination of, "Oh, they've annualized Control-IQ." And why is that the wrong way or the right way to think about starting 2021?

I'm not sure what you mean when you say annualized?

Well, you launched at the beginning of 2020?

Oh, yes. So we had a full year of Control-IQ. And I think that the -- we -- as I said last night, when we -- within the first several months because of our Tandem Device Updater, we had 50,000 people using the product. And now it's into the hundred thousands of people that are using Control-IQ. And so the benefit of that is that there's a large population of endocrinologists who have experience with it, and they have a lot of experience with it. And so they have confidence in the system. They trust the system because they see the spectacular results their patient populations are experiencing. So I think that's a real positive thing because I think there's momentum that we've built that typically would take a long time. It would take a long time to get a number of people on to a system. And that's happened so quickly. The confidence has gone up so quickly that we really believe is going to continue to drive momentum on Control-IQ for the years to come.

And the other pushback that I get, and this was covered a fair amount last night, but I think it's worth spending another minute or 2 on it is competition. And the statistic, I think you talked about is about 50% come from MDI, new Control-IQ or Tandem users and 50% come from of transfer students.

Yes. Right. That's right.

How does that -- that ratio has been very stable over quarters. How does that change going forward with different products coming in?

I think that we believe that the market is big enough and that we're going to continue to see roughly the same ratio for the near future, I'd say. I'd say out in time, it's likely that we'll see more people move from MDI therapy and less people from competitive conversions as we take more market share going forward.

And I'm going to ask it a different way. Why should we not worry about those new competitive products coming out?

Well, as I said, first of all, we have a great deal of momentum right now, and we have the trust and confidence of the physicians. And we are in practically every clinic, and people have experience using our product. So there's more and more people prescribing it, and there's people who are -- they're prescribing more and more. So there's 2 elements to a technical -- sort of adoption of new technologies. One is just making sure that you get the therapeutic outcomes, and I think we've proven that. And then second half of that is just the -- it's the patient experience. And I think that we have absolutely proven that Control-IQ improves the lives of people. It reduces the burden. As I said, there's no fingersticks, people could sleep at night. There's -- this huge improvement in their patient -- their experience. And I think it's beyond just the pump as well. It's interaction with the entire system and the Tandem, the company. We have excellent customer service. We have a digital ecosystem that provides convenience and simplicity as people interact with the company. So as we look around, we have tried to look at all of the touch points that people have with Tandem and make them a very positive experience so that they get the therapy and they have sort of experience that just drives them back and keeps them coming to the company. We feel very confident about Control-IQ next year. As we talked about last night, there's a slight delay in t:sport. But even with that delay, we still think that Control-IQ is going to do very well against the competition this coming year.

This coming year-end or next year, I just want to make sure.

End of the year, yes, absolutely. Absolutely, yes. The year -- in 2022, we'll have t:sport in the market. And I think t:sport changes the dynamic.

So let's talk a little bit about that delay because it was one of the new things last night. What is it you -- to the degree you can share, what did you discover that you went, "Time out, let's do a little bit more work here and then submit it to the FDA?"

Yes. It really -- it just has to do with sort of the transition from a very small touchscreen to a larger touchscreen. And it's the interaction that the person has with the system. We want it to be intuitive so that there's -- it's a very obvious next step as you walk through the system. And when we test it, we look at misses and near misses. And so we understand what the experience that the people are having that are using the system in the test environment. And we just did -- we weren't happy that it was -- it met the requirements and standards that we have for our devices in the market today. It's nothing fundamental to the design of the system. I'd say it's more iterative improvement so that the experience has a very high -- a very positive effect on the people using it.

So for folks who are not familiar with the product, t:sport, can you give us sort of a high level or a detailed idea of what makes this worth the investment? And then how -- where it fits in the treatment paradigm in terms of...

Sure, yes. So it's about half the size of the t:slim. It doesn't have a touchscreen on it. The system will be controlled entirely by a mobile app. It will be charged wirelessly. All of the technology that's in the system today is up-to-date and current with what's available in the marketplace. We expect it to be very reliable. It will be waterproof. There's a number of elements that come along with that system. But I think the biggest one is the discretion that comes from the size, the form factor and then also using a mobile app. That -- you can basically interact with the system, and it doesn't appear that you're doing that when you're in public. Most people are on their phones all of the time. So you can be interacting with your phone, managing your diabetes. And no one's going to know that. So I think that discretion is a huge important element of this product. And when we did market studies on this, it really gets to the one of the issues that I think that the MDI population has. We think that most of the high preference scores on the system came from the MDI population and from pediatrics. And so our goals are to continue to drive penetration in the MDI population from. Currently, it's in the mid-30s up to 50%. And we think that t:sport is going to go a long way to increasing that penetration, which is one of our corporate goals.

And how long is it worn for?

It's going to be -- well, first, it's a 4-year pump and the cartridge will be a 3-day cartridge. It has 200 units of insulin. So it's a little less than we have in t:slim. But our -- when you look at the people who are currently using the t:slim, most people only use approximately 200 units in that time frame.

So divide it out for me. I'm a new patient that might come in. Do I go on to t:slim? Or do I go on to t:sport? What's the decision tree?

Well, I think it's -- that's the opportunity we have. I think that people now have choice of a system to select from. You might be more tech savvy. You might be more into sort of active lifestyle and therefore, you might, as a result of that, choose the t:sport with the mobile app. You might be more concerned about just having the separation of the touchscreen from the pump itself. And so therefore, you may just want to have that touchscreen on the device. But there's a variety of different factors that people take into account as they select this device. I think the size is also a very important part. So -- but the benefit we have now is we bring 2 elements to the marketplace, 2 new systems to the marketplace. And when you -- if you look at the end of 2022, they'll be -- basically, there'll be 4 pumps in the market, and 2 of them will be Tandem's.

Okay. The Control-IQ has partnered with Dexcom's G6. Will t:sport be partnered with anything?

Yes. Right now, t:sport will -- when we actually have it approved, it will be an ACE pump. And so as an ACE pump, it will be able to be used with iAGC algorithm, which Control-IQ is, and therefore, we'll be able to integrate those 2 systems after it receives its ACE pump designation. And that would be -- the intent would be to introduce t:sport with the next-generation or the latest generation Control-IQ algorithm.

Okay. Well, that gets me to some of the conversation that you started last night, which is we've got 2 different new CGMs, which are coming out in the next 18 months, probably less than that. You've got G7, and you've got Libre 3. I mean you already sort of -- or part of the G family already. So what are the steps to bringing the G7 into your pump system?

Well, I think it's just a matter of integrating the sensor onto the communication mechanism for the pump. We plan to do that for both t:slim and t:sport. We've worked with Dexcom now. This will -- the G7 will be our fifth generation of sensors that have been integrated onto the product. So we have a great deal of experience working with them. They're just around the corner from us. Our engineering team has worked very closely together. So I think that we are talking to them now about this. And as I said last night, we expect that we will have this device available in the market shortly after they receive their FDA approval in the U.S.

So there should be a lag, got FDA approval and within a reasonable period of time, you like...

A quarter, we would expect that we'd have that out in the market.

Okay. And on Libre, how do you think about moving that on to the platform?

Well, we've been working with Libre now, the team at Abbott for the last couple of quarters. It's a great team. We have a great collaborative working relationship. I think that when you sort of look at the priorities, Tandem and Abbott are focused on integrating the sensor into our system. And then Abbott is focused on addressing the vitamin C issue with the Libre sensor. And so I think that we need the system to be and want the system to be an automated insulin delivery system. And we have confidence that Abbott is going to solve these issues, and that when we actually do bring it to market, we'll have a system that has the connectivity and it's also an automated insulin system. So we're looking forward to bringing that to market. It's going to provide people with choice. There's a lot of people out there that prefer Dexcom, and there's a lot of people out there that prefer Abbott. And I think that what we want to do here is provide the choice so they can select sensors that they have the most interest in using.

But when you say provide the choice, is it the patient that provides a choice or you're providing the choice to, is it a physician or both?

Well, I think that -- I'm sure the physician is involved in this decision. But when it comes to Tandem, we're going to allow the patient to select which sensor they want to use.

Okay. And this starts to get into the direction that we spent a lot of time on last night on the call, which is the type 2 population, and in particularly the insulin-intensive population. And what is your estimate of what percentage of the type 2 insulin-intensive is currently using a pump?

Well, I think the statistics would suggest there's approximately 2 million people in the U.S. that are insulin-intensive type 2s, and about 100,000 are using a pump. So that's roughly 5%. So it's clearly an underpenetrated market. It's an opportunity for us to look at, and that's what we're doing it for.

And last evening we were talking about what are the triggers to -- not triggers, but what are the steps that need to be taken to move that 100,000 up? And can you please recap some of your thoughts? And I think one of the things I walked away with is that t:sport might be that sort of tipping point?

Yes. I mean I think we're kind of looking at a multi-part strategy right now that involves additional clinical data, design considerations, algorithm considerations and channel access. And so I think the most obvious thing for us to -- right now, Control-IQ is only approved for type 1. So we think the next step for us is to get it approved for the type 2 community. We actually had clinical data presented at ADA last year, which showed a substantial improvement in time and range for people who did have type 2 that went from a sensor augmented pump to the Control-IQ system. So initial data looks very strong, but we need more. So getting this age indication will allow us to do that -- excuse me, getting the indication for the type 2 community will allow us to do that. And as you mentioned, t:sport has a form factor that does provide discretion and discretion is also a very important element of managing diabetes for people with type 2. So we think that we have these 2 products. Let's use them, and let's see how successful we can be. While in parallel, we look at other discrete designs that are directed more towards the type 2 community that possibly have a smaller form factor that have maybe a simplified user interface or most advanced algorithm. And it's also going to give us a chance to explore the access to the channel.

Control-IQ got a pediatric label last year. How has that rolled out?