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

Good afternoon, everyone. Thank you so much for joining us at the SVB Leerink Global Healthcare Conference. And my name is Danielle Antalffy. I'm one of the senior medtech analysts here at SVB Leerink. We are very lucky to have with us from Tandem Diabetes CEO John Sheridan and CFO Leigh Vosseller. We also have Investor Relations on the line as well, but she is hiding right now, Susan Morrison. But I'm sure she'll jump in as needed. So guys, thanks for joining us, guys and gals.

Hi. Danielle. How are you?

Good. Thank you.

So this is a timely -- from the perspective of you just did report your Q4 earnings, a tremendous feat again. And you issued 2021 guidance ahead of the Street and I wanted to maybe start there. So I think it was $600 million to $615 million. The implication is something, I think, low 20% to mid-20% growth or thereabouts. So I'd just curious about what you're seeing. We still are in the world of COVID. Obviously, your business wasn't as dramatically impacted as maybe some other medtech companies were. But what you're seeing today that gives you the confidence to issue that $600 million to $615 million guidance, what you're seeing in the market broadly, and then more specifically as it relates to Tandem? And I don't know if, John, you want to start or Leigh?

Well, I can -- just in general, I think what's happened over this past year is that clearly, COVID has had -- there's been a headwind effect, but there's also been a bit of a tailwind, in that people who have diabetes are more impacted by it. And so I think that there's been motivation for people to actually get on to a system that actually has -- offers better control. And I think that, as I said in the call, today we have about 100,000 people or more who actually are using Control-IQ. And the physicians who are prescribing it really have a great deal of confidence in the system. They see the results in their patients. The patients love the system. And their results are spectacular. They're just seeing time and range. That's quite amazing. And so I think that this momentum is building, where we're seeing more and more physicians come into the Tandem pool and begin to prescribe. And then those that are prescribing, they're prescribing more and more pumps. So it's -- there's a momentum build. There's a wave building behind Control-IQ. And I think that's really what -- that's what 2020 was all about, the success of Control-IQ. And we also began to see -- it's been more turbulent OUS, just -- it's just been a little bit -- it's kind of spotty. But clearly, I think as we roll Control-IQ out OUS, we're also seeing a lot of interest. We're seeing the same kind of enthusiasm about it. And I think we expect to see equal kind of strength once things begin to settle down. So with that, Leigh, I think you can kind of go back through the -- sort of methodology, I think, that you used to get to the point of $600 million to $615 million.

Absolutely. So our guidance philosophy hasn't changed. And the basis for that has always been we factor things in that we feel like we have more control over or more of a line of sight into. So for example, Control-IQ is a great one. It's been on the market now for a year. We've seen the momentum, so we feel strongly about how it will compete this year. Another factor we have this year is UnitedHealthcare. Last year, we didn't have access to that full subscriber base for the whole year. It didn't start until July 1. So that's also a bit of a tailwind, especially in this first half compared to last year's first half. But then on the other side of it, we also are cautious around items that we don't feel have as good of a line of sight or control over. And one of those is COVID. We're not making any predictions on it lifting or changing. And so really, we've factored in the same level of pressure that we were seeing in 2020 just to continue on through the year. And optimistically, the world will come back to some level of normalcy as the vaccine continues to roll out and maybe we'll start to see some benefit from that in the future. The only other element that we were cautious about this year in particular, and we're always cautious to some extent, but this year we feel like there's going to be more competitive noise in the market than we've seen in the past. And not that we don't feel that we are -- can adequately compete with Control-IQ, but just -- it creates turbulence. We tend to see ahead of product launches, even our own. Control-IQ is a great example, where people were pausing in anticipation of it, even though it was a free software update. And so it shouldn't have disrupted any -- shouldn't have made them delay at all, but you just see it happen. So we're factoring in that there could be some sort of disruption this year. Until products get out, people start seeing them, and then they move forward with their purchasing decisions.

Okay. That's really helpful. And I want to follow-up on a few of those things that both of you mentioned. I guess the first question I have, Leigh, maybe this is more for you. As you talk about sort of assuming the same level of pressure in 2021 versus what you saw in 2020. And I assume this is -- it's global but probably more international versus the U.S. It seems like U.S. was able to pivot very well to adding patients remotely. But is there any way to quantify the impact that you saw in 2020? Or how you think underlying growth would have played out if it weren't for COVID? I know that's probably almost impossible to answer, but I'm asking it anyway.

Yes. I appreciate the asking. And you're right, we haven't quantified it because it is incredibly difficult to quantify. I'll start with the U.S. side of it, though, because you're right, it's different also from U.S. to OUS. In the U.S., we are still hearing from our field sales reps that things aren't normal in many practices. There are some practices that are prescribing at the levels they were before; they've become very comfortable with telehealth. And in some cases, we've heard prescribing more than they did before because they feel like their diabetes community is more at risk in this COVID environment and they see Control-IQ as a protectionary measure. But there are still many practices that are not prescribing at all. They're just waiting until they feel more comfortable with maybe an in-person visit or a training or maybe they have patients that they think will be more successful if they can have a live interaction in that way. So that's where we're still seeing some level of (technical difficulty) we expect it to continue. And like I said before, not going to make any predictions about that. From the OUS perspective, it's been different. At least in the U.S., it felt like the pressure was somewhat consistent across the quarters, and it wasn't varying too much. But outside the U.S., it feels like there have been a lot of fits and starts. Market's open, market's closed. One country open, another country not. And so we were seeing a lot of up and down, very little consistency in ordering patterns from the distributors themselves as they're trying to manage in that environment. And so that's why it's more challenging from an OUS perspective because we're not looking at one broad geography, we're looking at many different countries operating in different ways. We were very actually excited at the end of the year to see Germany really start to open up because we launched our product there. Our commercial launch happened in the third quarter. It couldn't have been a worse time to try to launch a new product, when you're not able to visit physicians. But through our remote efforts and telehealth programs and those sorts of activities, we actually were able to build demand, and that came to the table in the fourth quarter. So we saw that demand that had been sitting out there, actually we were able to fulfill that. And then basically cleaned off their shelves in that distributor's office, and they had to replenish. So it's a really great story for Germany, and we look forward to 2021 where that -- those launch efforts will continue to take hold as well as in France, 2 of the largest markets we launched into last year.

Great. Okay. And then the other question that I had or I wanted to -- point I wanted to follow up on. Actually, there were 2. The first one, John, you mentioned more physicians coming into the "Tandem pool", I think, were the words that you said, over the last year. I mean, is there a way to sort of even directionally guide us there? So how -- from an increase in number of prescribing physician perspective, what are we talking here? Has it like doubled? Or is it something more marginal?

We said that over the last 3 years, it's grown by about 80%. So that -- and I think today, we're probably in every practice. And I think that what's really happening today is it's more about depth. We're actually -- there's -- the people who are part of the practice are just prescribing more pumps. So I think that -- while there are a few -- there's a handful of people out there really that are -- that haven't -- that are now doing it. But I think most of what is going on now is that it's the people who have prescribed it are just prescribing more units.

More. Okay. And then -- so we've talked a lot in the past about pump -- where we are with -- let's focus on type 1 pump penetration. We've been kind of stuck, even with seeing this uplift in adoption for yourselves, for one of your competitors, Insulet, in this 35-ish to 40% range, do you feel like we're finally breaking out of that? It feels like we've been inflecting. But like when are we really starting to move the needle on that number?

Yes. I mean I think it's definitely happening. Over the last couple of years, we've seen it go from like people moving from MDI to pump therapy has been about 25,000 to about 30,000. And then this past -- last year, it was like 40,000 to 50,000. This year it was 50,000 to 60,000. So we're seeing steady progress. I think clearly, it was impacted by COVID this year. But I think that the new technology that's coming to market is basically -- there's a threshold, I think, that people have to get over to move from MDI to pump therapy. And I think what's happened is with the outcomes that pump therapy provides today. And I'm talking about the entire automated insulin delivery system. But the threshold is going down, things are easier to use. The benefits are spectacular in terms of time and range. And it's not just Tandem either. There's a lot of innovation that's going on with the CGM companies and the other pump companies as well. So I think it's a good thing for people that have diabetes to move the needle and to get people off needles and pens into a therapy that actually does have a substantial improvement on their lives. And that's what's happening. And so I think that, to get to 50%, which is our goal, it's still -- it's a big lift. But I think it really is technology that's driving this new adoption, and we expect it to continue to move in the right direction.

You -- and literally move the needle, get it? Like you get off the needle? Just kidding. So as it relates to ultimate pump penetration, so you guys have put out sort of your peak goal. But again, it feels like we're -- I would argue that the adoption momentum is even accelerating or is this inflection, do you feel any differently about that number that you put out there of 50% penetration?

Well, I think it's a good go. It's not to suggest that we're going to stop when we get there, right? We're going to continue to look at ways to continue to improve that. Right now, the CGM companies are indicating that they think they can get to 70% penetration into the type 1 community, which I think is great. And we're definitely drafting off them. There's a very favorable effect. When people start to use CGM, and they're comfortable with technology, they see the benefits, then I think they're more willing to consider our technology. And the fact that we're partnering with Dexcom, and we will be partnering with Abbott, I think only goes to help us in that particular area.

Yes. Okay. All right. Got it. And I know this is probably an annoying question at this point. You alluded to the more competitive market environment likely at some point this year. So I have to ask on competition. And what you think this market will look like in 12 months from a market -- with the advent of competition from a market growth, from a market share perspective, do you think that you can sustain the sort of 50%, 50% of your new patient adds coming from replacement and competitive switches versus MDI? Like help us understand what you think this market could look like in 12 months, this time next year?

Yes. I mean I think that we're going to continue to do very well. As I said, we have a great deal of confidence in Control-IQ. We're going to add features to it throughout the year that I think are going to only improve the patient experience. As I said in the call, it's not the algorithm that drives the patient experience. It's the interaction with the entire device, all of the elements of the device are very important. And not only that, it's the company, it's the customer support systems. It's the ease of access to the company. These are all part of the patient experience. And we're investing a significant amount in all of these areas to really, really improve the patient experience, not only from the technology but from the support systems and our digital health initiatives. So we feel very confident that we're going to continue to take share. We're going to continue to convert MDIs. And I wouldn't be surprised if that number looks the same at the end of the year. I would say that Leigh has taken into account the potential turbulence that we might see, which I think there's going to be a lot of noise. But I think when it all settles out, I think that we're going to continue to grow, and I wouldn't be surprised if our competitors grow. But I think the market is large enough. We think that we're going to be in a great position at the end of the year. And I think that -- we feel very confident about the numbers that we put up there.

Yes. Understood. Okay. That's all fair. Specifically on the 50% of the patients that you had in any given quarter coming from replacements, the primary donor there will be launching a new product. It sounds like you feel confident that you're still going to be able to capture meaningful portion of their patients coming up for upgrade. But maybe talk about like the numbers, but maybe Leigh this is for you. Talk about the numbers behind that, if you could? And sort of how -- what gives you the confidence that even with a new product launch from them, you'll be able to continue doing that? Or John, whoever.

Sure. I mean as John said -- yes, either way. I mean, as John said, it comes down to our confidence in our product and one key element of it is we've gained so much of the trust of the physicians over the last few years. They've seen our product. They've seen it demonstrated in the real-world. Better real-world results than even were demonstrated in the pivotal. And so that alone says a lot about the product. And physicians aren't quick to jump and switch to something else. Many times, they want to see that it's going to deliver what was promised as well. So that's why we feel very confident because we've been out there for at least a year now with Control-IQ. And another thing is you talk to the patients. So the testaments that they're making to how the technology is working in their daily lives and how they feel and actually how it helps them to just let go of having to manage their diabetes. So all of those factors we think are key and important to the success. And that's why we think we'll still be able to increase the number that we are taking from the share donors this year.

Yes, yes, understood. And actually, just I wanted to follow-up, John, on something you said. The whole context of this is a holistic experience that the patient has. It doesn't just come down to the algorithm. And maybe you could talk a little bit about the current product and some of the differentiating factors as it relates to that like full experience for the patient? And then I'd be definitely curious about where you're going over the next 12 months with t:sport, with some control, things like that?

Yes, absolutely. Well, right now, it's all about reducing the burden. And I think that Control-IQ has been proven to do that. And so it's the experience. People are having a positive experience. They can live their lives and not think as much about diabetes. And that's really where we're going. And I think that you know we're coming forward with our mobile bolus feature that will be available in the first half of the year. We think that's just another step in a positive direction from the point of convenience, but also from the point of discretion. When you talk to people today who use Control-IQ, the only time they really need to take their pump out is when they're outside of their homes, is to bolus for meals. And so with this feature, basically, you can do that now from a mobile app. And so you could be interacting with your phone and giving yourself a meal bolus and nobody will know that. And that's a very positive effect. And it's also just convenient. So -- and we continue to see ourselves advancing this technology from mobile bolus control to full control, and ultimately, to the point where you can use the app to interact with our customer support organization. You could potentially order supplies from it. You can do a lot of things that you're used to doing today from more consumer-oriented devices that you have on your phone. And that's the direction that we're heading in. So I think that by doing that, we're, again, increasing the appeal, the simplicity and the efficiency of interacting with Tandem and manage your diabetes, which I think are all very, very important. And we've talked a lot about our digital ecosystem. This is kind of fundamental to that as it affects the person using the pump. In addition to that, there's the health care provider. So we're coming forward now with Tandem Source, which is our next-generation data management system. But it will also have commerce elements to it as well. And a patient experience element to it as well. So it's going to be kind of a one-stop shop for everybody. And the benefit of that is that we're going to give the physicians flexibility in terms of looking at data in the way they want to. I mean, today, basically, we have canned reports. They look at those reports, some people like them, some people don't. But now we're going to give physicians the flexibility to change things around so that they can look at exactly what they want to. And then they can use that to help manage their patient population. So that's a big step forward as well in terms of the health care providers' experience. And then ultimately, we see ourselves providing potential decision support tools, settings optimization tools and doing things to help them manage their patient population and have their practices become more efficient. So I think those are all things that we plan to build around our world-class pump and technology. And by doing that, we create stickiness so that people who use our pump today or people who prescribe it, continue to do that because they really enjoy the features that we make available to them. And then as people hear about these features, they come -- that more people will be tending to come towards Tandem as the services and technology we provide.

Yes. Understood. Okay. And then as t:sport specifically, so that does have a different footprint. And I'd love to hear how you think, first of all, t:sport coexists with control -- with the current generation of Control-IQ. And second of all, how much t:sport enables you to unlock the insulin intensive type 2 patient population?