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

Okay. Thank you, everybody, for joining us for the next fireside chat as part of the virtual biggest Bank of America Healthcare Conference. We appreciate everybody being here this afternoon. Very happy to have the senior leadership team from Tandem Diabetes Care on the line with us today, including John Sheridan and Leigh Vosseller and Susan Morrison. I'm going to hand it over to John for a presentation. And then we'll have some Q&A at the end. And just again, on behalf of BofA, thank you very much for your participation today.

Thanks, Bob. It's great to see you, and welcome, everybody. So I'm on Slide 1 right now, and I just wanted to say that we had a great start to 2021. Clearly, our first quarter was -- it was really extraordinary. And we can move to Slide 3. And when you think about Q1, a couple of really important highlights. First of all, we saw significant growth in pump shipments. We grew pump shipments by 46% year-over-year. We saw revenue growth of 44% year-over-year to $141 million. We saw increased gross margins, and we saw a significant improvement in operating margin. The thing that was really a standout, which I know many of you have noticed, is we had a great OUS experience this quarter. We saw steady growth from fourth quarter into the first quarter, which we thought was really meaningful. And I think this is all really built on the strength of Control-IQ. Control-IQ continues to build momentum in the U.S. markets, and now we're actually seeing the benefit of OUS. And I think that we have today roughly 150,000 people using Control-IQ worldwide, which I think is extraordinary when you think of this as just roughly a little over a year to make that happen. And as I mentioned on the call, we have about 20 million patient days in our t:connect system, which is just -- it's a powerful amount of information that really gives us the benefit to learn from that data and apply it to improvements that we're going to make to the products in the future. So today, we have 240,000 patients worldwide. We have a steady cadence of very exciting new products. The factors that affect our growth -- have affected our growth in the last 2 years, where we've really seen a great deal of success are in place today. And I think when we combine that with our pipeline, we're very excited about where we're going. I think that the -- we have a -- we substantially have evolved the organization over the last 3 years. Our explosive growth and our consistent execution really prepare us well to achieve what we've set out to do this year in 2021 and beyond. I think that we're no longer a comeback story. I think it's important that people recognize that we're a major player in this market. And we're excited about that. So if we move on to Slide 4. The improved patient experience and ease of use have really been key design tenets for Tandem from the very beginning. And we think that this, combined with the strategy of relentless innovation, have really led to a very exciting pipeline of products over the last 10 years. You can see that -- I think we're innovating faster than our competitors. We've had 7 major new product introductions in this time frame. You could see the impact that these product introductions have had on our product pipeline. And clearly, t:flex and t:connect have just seen exponential growth, practically doubled the company twice in a row in the last 2 or 3 years. So that's been very exciting. As I said, we have a great deal of confidence in our pipeline. We know there are some concerns about the competitive situation in the second half of this year, but we feel very confident that we're going to be effective and we're going to achieve our objectives that we set out for ourselves. We could move on to the next slide. Our focus on innovation as a company has really led to a history of firsts. We were the first with a touchscreen, the first with a rechargeable battery. We have remotely updatable software, which is hugely important. I think that there was uncertainty as to what really that means when we first introduced it. But as we've made Basal-IQ and Control-IQ available for free to our user population, the benefits are now very, very apparent. And as I said, we have 150,000 people currently using Control-IQ, that was largely possible because of the updater. And we updated well over 60,000 people in the past year, which just brings the benefits of the innovation that we're driving to our patient population real time, which we think is hugely important. We've also been a leader in the whole idea of interoperability. We've worked closely with the FDA and our partners to get iCGM integrated onto our pump to actually be the first to get the ACE pump designation, and also to get the iCGM -- or excuse me, the iAGC designation, which allows us to have an iAlgorithm that can be used on different base pump platforms. Simply -- it simplifies the workload of the FDA, but also makes the regulatory path for Tandem much easier. We've introduced Control-IQ, Clearly, it's the first product in the market with an Automatic Correction Bolus. And now we have a mobile app that also works in iOS and in Android, and we'll talk about that in a few minutes, but that's an important part of our pipeline going forward. As I mentioned, the factors that affect our growth in the past couple of years are the same, and I'm going to let Leigh walk us through those here for the next couple of slides.

All right. Beginning with Slide 6. When we entered 2019, we had a little over 80,000 people in our installed base. And we said what was probably seemed a very ambitious target at that time to reach 500,000 people in our installed base by the end of 2024. And we're well on our way right now to achieving that with about 240,000 people in our installed base today. And so I'm going to take you through some of the factors that have made us successful through here and that will continue to be factors for us as we go forward. Moving on to Slide 7. The #1 growth driver is just the under-penetration and the size of the U.S. market. When you think about the type 1 population, there are about 1.7 million people with type 1 in the U.S., and only about 35% of people are using pump therapy today. That's actually grown pretty significantly. If you look back about 3 years ago, that number had been fixed at about 27%. So just with the technologies that have come to the market in the last few years, including our own Basal-IQ and Control-IQ products, we've really seen growth in that pump penetration rate, and we think we can be and continue to be a big driver as we look forward. One thing that we've seen is, last year, about 50,000 to 60,000 people moved from (sic) [ to ] pump therapy, and we think at least as many people will be moving to pump therapy this year. Q1 was already a great indicator for us. So we saw significant growth year-over-year in that regard of people coming to pump therapy from MDI. And so it's always been about half of our new customers, and we expect that to continue going forward. Moving on to Slide 8. The next major growth driver for us would be the under-penetration in the OUS markets. So when you think about the U.S. markets and only being at about a 35% penetration rate and continuing to move up, the OUS markets that we operate in today have about 4 million people who have type 1, and only about 400,000 people use pumps. So depending on the geography, it's anywhere from 10% to 20% in terms of penetration rate. And we're just at the beginning stages of what we saw in the U.S. a few years ago with the advancement of technologies coming to market. And we think we're going to see a similar shift in the OUS markets going forward. So there's a very large opportunity there for us as well. We currently operate in about 20 different countries. We're adding a few more countries this year. Our most notable, though, were the countries we launched into last year. Our largest are Germany and France, which today, we are only selling Basal-IQ and we expect to roll out Control-IQ later this year. But otherwise, Control-IQ is already beginning to drive momentum in the existing markets. Moving on to Slide 9. The third leg of our growth here, if you think about it, you have the MDI population moving to pump therapy at significantly increased rates to the past. You have the OUS and U.S. markets, and then you have the conversion opportunities. So all those people who already are on pumps today, their warranties expire every 4 years. And so about 25% of people come up for renewal. In the U.S., we estimate there are about 700,000 people on pumps today. So that's a significant number of people purchasing pumps in the market every single year that we have been very successful at attracting. As I mentioned earlier, in the U.S., about half of our new pumpers are coming from conversion opportunities. So we see this as a growing opportunity going forward. And then the fourth driver I want to touch on would be our renewal opportunity. So on Slide 10, you can see it's a very interesting dynamic at how our business has scaled over time. So just like those people who are on pumps that can convert from other pumps, we have been very focused on our own retention and renewal initiatives. So we continue to have new opportunities come to the table every year. And today, where a warranty expiration happens once every 4 years, what we see is about a 5-year renewal cycle. So what's going to be very exciting for us as we look back is what's happened in our business in 2018 and beyond when we really started to scale and grow the business. Those opportunities are going to start coming to the table in the coming years. And so that's going to be another significant and meaningful contributor to our growth and all in getting us to that 500,000 installed base target in 2024. And then moving on to Slide 9 -- or Slide 11, I guess, the last driver, I'm going to actually turn back to John to talk about the pipeline and what's really going to motivate people to continue to want to buy our products.

Yes. I mean I think central to everything we do is the pipeline. And that's really how we take advantage of competitive conversions that drive for MDI conversions as well as renewals. And I think that over the -- I mean, when you look at our pipeline over the last couple of years, it's evolved. We started off as a company that was delivering a system that just -- it was insulin delivery. We've evolved to therapy management, and now it's to insulin therapy management. I think the pump hardware is the most important element of the product -- of our pipeline. It's where we're focused. We recognize it in order to be successful in this inventory. We have to continue to invest in the pump and have the best pump on the market. So that's clearly number one. We have worked with our partner, Dexcom and now our partners, Dexcom and Abbott, to integrate CGM, which we think is incredibly important. It allows us to draft off their success. It allows us to get into new markets that we're not in today. So there's a lot of benefit in doing that. Our automated insulin delivery systems have been basically market-leading, world-leading. We continue to plan to invest there and benefit from the therapy improvements that people see and the experience -- the positive experiences that they have over time. And then finally, we've made this shift towards -- it's a pivot towards digital health. We think that's going to be an important driver of the patient experience not only for the person using the pump, but for their caregivers and for health care providers in time as it becomes a vehicle to allow us to provide data, systems, and again, therapy management to all of these people and entities in time. So if we move on now to Slide 12, I'll talk just a little bit about our mobile bolus and our advancing our mobile app. I mean clearly, we're waiting on approval for the mobile bolus feature. This is incredibly important for us, because it will be the first time that a mobile app with on a mobile phone has been used to dose insulin. We think it's important, and it's another first that Tandem will achieve. We are going to advance that when it comes to t:sport, because t:sport will be fully controlled by a mobile app. So it will be a next step. It's really why we put mobile bolus in first. We wanted to learn from that so that when t:sport came to market with a mobile app, we would have benefit from that experience with the FDA, which is a strategy that's really working. Beyond that, there's opportunities to use the mobile app to provide commercial- and consumer-oriented experiences that people have today on their existing phones. You can order supplies. You can text our health -- our customer service organization. We believe that there's the possibility of integrating with other apps, whether there are apps that have dietary information or activity tracking. But these things are all potentially integrated with the system and decision support. Right now, we're providing algorithm information. We're providing decisions on -- of every 5 minutes, which really is not seen by the person using the pump. But we think that we could have algorithms that look at data over a longer period of time and make suggestions and recommendations to the people using our system on the mobile app that will benefit their therapy. Moving on to Slide #13. Tandem Source is a complete redesign of our data management system. We think it's going to be very important going forward not only for the pump user, but also for the health care provider. One of the important factors about this, it allows personalization. It allows the person who is interacting with the data management system to be able to change and observe data that they are interested in seeing. Today, if you talk to health care providers, if you were getting a room with 10 health care providers and ask them what information they want to see on a screen in our beta management system, you get 10 different answers. The way we're going to address that is we're going to allow them to change the data that they do see, so it's meaningful to them and their practices. We think this is going to be very important. So personalization is huge. It's going to also be the infrastructure that allows us to provide, as I said, more consumer-oriented interaction with the company. It will be one stop where you can interact, you can buy supplies, you can track your supply orders, you can track your pump orders. So it's a big deal for us, and I think it's going to be meaningful as we move forward into the digital health age. On Slide #14, t:sport is our next-generation platform. We're excited to bring it to market. It's half the size of t:slim. It doesn't have a touch screen on it. It uses a mobile phone to control it. We think that discretion that comes along with the size and the mobile control of the system is hugely important. And it will also enable us to enter into the type 2 market, something that we're interested in doing. If we move on to Slide 15, as I've mentioned in the past, we are definitely investing in our automated insulin delivery capabilities. Not only are we investing in the team, we're investing in -- as I just mentioned, we brought Dr. Jordan Pinsker into the organization. He's a very renowned physician who is going to really help us move faster as we look to bring new features to our current Control-IQ system in time. If we move on to Slide 16, we've talked a great deal about the integration with CGM. We have a great partner today in Dexcom. We plan to advance the technology to include G7 in time as well as with Abbott now a new partner as they bring their Libre technology to market here. And we think both, as I said, open up new opportunities we can draft behind their success, and we can look at markets that we may not be in today. And then finally, I just want to say that we -- on Slide 17, we are really focused about improving the experience and driving ease of use for all the entities that we're involved with. Again, it's the patients, it's their caregivers, it's the health care providers, and it's also the payers. We believe that working with payers, with our digital ecosystem, we can provide them data so that they can make a more important decision and see the benefits of the technology that we have as it affects their patient population. And so as I said, we have a very exciting year ahead of us on Slide 18. I'm just going to wrap up the presentation. We have a very exciting year ahead of us. We feel very confident with where we're at. Clearly, we revised guidance after the first quarter call. And so I think that says a lot about where we see our -- the second half performance as well as the performance into 2022. 2022 is going to be a very exciting year for us. We've got t:sport. We have the renewals that Leigh talked about. We'll see significant advancement in the renewals and the opportunity there. As well as we have integrations with Abbott and with Dexcom. So 2022 is going to be another exciting year for us where we see a great and aggressive growth. And I guess, as I said, we are confident where we're going. And with that, Bob, I'll turn it over to you, and we can get back into some of the questions.

Yes. That's great. And we don't have a ton of time here, but I'd like to just maybe hit on a couple of things. First is a market question. You guys know these markets incredibly well. Just very big picture, why do you think right now the CGM market is growing so much faster than the pump market?

That's a good question. I would say that access is easier. That's -- I think that when you're actually integrating the sensor, it's -- I think that it's the first step really from somebody who is in MDI therapy. There's a benefit to having access to that CGM data. They can use it, they can manage -- they can see how they're doing, and they can modify lifestyle based on that. So it's basically something that -- it's applicable to type 1 and type 2. Clearly, there's a large focus on in both Abbott and Dexcom to get into the type 2 market space. So I think that it's definitely accelerating faster than us. But I think that we believe that pump there, we can also -- the penetration in pump therapy can also accelerate. We said specifically, we believe we can get to 50% pump penetration here in the States. It's even less in the OUS countries. And the factors that are affecting penetration here in the States are very active there as well.

And the reason it's, not an unimportant question, is that while I think most people are very bullish in your technology, but because the market isn't growing 40% and because there is this notion that you may gain less share in the future, given all the competitive launches out there, that fact that the market is growing a little bit less is just something that weighs a little bit more. So I guess this is a question you've gotten a lot over the course of the last 12 months. But I guess I'll just ask it again, because we're getting closer to all these new technology launches. If you're talking to a new investor that's looking at the diabetes space and sees all this technology coming, kind of how do you argue that you can maintain your momentum next year with so much new competition? And again, I don't think people think you're going to lose share. It's just a question of gaining less share than you have done in the past.

Well, I think, first of all, the market is growing. I mean we have seen an acceleration in the penetration rate -- the MDI penetration rate over the last couple of years. So that's -- we've seen it a couple of years ago, there was about 25,000 people coming to market from MDIs annually. Now it's 50,000 or 60,000. We think that's largely been driven by the new technologies that are coming to market. I think OUS, that factor is even more apparent where there's even less penetration. And for us, at least in the 20 markets we're in today, there's 4 million people that have type 1. So it's even a more significant opportunity OUS. I would say when you look -- when you talk about competition, though, there's still 3 of us. There's still 3 players here in this market. I mean I don't see anybody else coming to market. There's not going to be any new entrants here for a while. And so I think that there's a share for everyone. I think that when you look specifically at the competition today, we don't know what Insulet is bringing to market. It hasn't been approved yet. And I think that we have to wait and see what the product is. On the 780G, the 780G is in Germany, and Tandem is competing effectively in Germany with Basal-IQ. You've seen significant growth in the fourth quarter and the first quarter in Germany. And I think that when you look at that product, it's an incremental improvement to an algorithm, and it's the same form factor and the same sensor that they have on the device today. And we feel like Control-IQ, as it is, is still going to be very effective and competing against it. We do a lot of channel checks when it comes to Insulet system. I think most of the endocrinologists that we speak to believe that it's still back to tubed versus tubeless. That's the decision today, the lion's share of people in the world to use a tubed pump. And so I think that -- we think that while it's the first foray that they have with sensor and automated insulin delivery, I'm sure it's going to be a good product. But I think we still think it's tubeless, and we're going to compete effectively against that. We would like that product to get to market soon and -- because we think it's the bubble. And I think right now, there's a perception about what the product is going to look like and how it's going to perform. And we would like to see it in the market, so we compete against it as opposed to a lot of hype that's -- I think that has affected the investment community.

Yes. I think there's a lot of people looking forward to 2022. I'm going to argue that Tandem is probably looking forward to 2022 more than any other company that I follow, just so we can get some answers to these long-standing questions. So on the last question I want to lease in time for Lorenzo to ask a quick question. On the international front, can you just talk about the durability of the growth rates that you're seeing right now in that area?

Sure. I think it's been a very interesting dynamic in the last 2 or 3 quarters. What we were seeing last year was COVID was really pressuring those markets. And we weren't able to get the traction that we wanted, particularly in the new markets that we were launching into. And so what Q1 and Q4, but really more so Q1 demonstrated to us is that there's a lot of long-term opportunity. What we're hearing loud and clear from our distributors is that the Tandem name is out there. People really want the product. There's a high demand for the product. What we saw for the first time in a number of quarters is that everyone ordered across all the distributors. And so that was an encouraging sign that maybe things are turning a little bit more back to normal from a COVID perspective, but also this demand element of it. So we think it's a strong indicator of where this can go in the future. And as we've said now a few times, we don't even have Control-IQ in all of those markets yet, but we're competing very well. And so I think Control-IQ will start to take hold this year and really begin to drive momentum into the coming years outside the U.S.

Okay. That's helpful. Lorenzo, we only have a couple of minutes left. But if you want to throw any questions, please do.

Yes. Yes. Thanks, Bob, and thank you guys again for being here. I guess, I wanted to ask one question on t:sport. We talked about sort of expanding access. And particularly in the type 2 patient population, I'm really interested. I know that your base today represents around 10% in the last data that you guys gave. I'm just curious to know how you guys think about t:sport, the new product launch and how that might raise awareness and drive penetration in the type 2 patient population. Is it form factor is a slightly better sort of reiteration of Control-IQ? Or is it sort of the D2C strategy that will come with the product launch? Just want to get a sense of how this might expand your presence there in type 2.

Yes. Good question. I think it's all of the above actually. I mean I think we're very excited about the type 2 opportunity. Last year at ADA, we presented some data that showed meaningful improvement in time and range with the type 2 community. We have a paper that's going to be presented at ATTD by Boris Kovatchev, which shows about 400 people with type 2 that have been using Control-IQ for a year. And they've shown time and range improvement from the high 60s to 78. So again, meaningful improvement. So we're excited about Control-IQ and its ability to impact the therapy management for people with type 2. The Control-IQ is not approved yet, unfortunately, for the type 2 application. And so we're working now to get that taken care of. When you look at the t:sport, we think t:sport combined with Control-IQ will have meaningful acceptance by the type 2 diabetes community. When we've done market research on t:sport, it's really the MDI community most who is interested in that. So I mean, clearly, many and most of the people with type 2 today use pens and needles. So I think they're part of that interest. We think that the discretion and the form factor, the size and discretion of t:sport really addressed that issue. It's very important to people with type 2. There's a negative social stigma for people that have type 2. It's believed to be associated with diet and exercise, which is -- it's just an oversimplification and is not the case. So I think having a discrete device that uses a mobile app, having a smaller form factor that you're going to move flexibly whenever -- wherever you want to in your device on your body and then having an algorithm that's proven to actually really improve the control of your diabetes, we figure that as a short-term winning opportunity for us. And so we look forward to getting the approval. And then we'll implement it quickly on t:sport. And then we definitely are going to market actively when that's available.

Got you. And then one more question there. If you look at the type 2 patient population, a lot of these patients are really receiving their diabetes care through their primary care physicians who take care of other comorbidities, cardiovascular disease. They're dosing their metformin and Lantus. And I just want to get a sense of, as part of your commercial strategy, are you reaching out the primary care practitioners in the U.S.? Is that -- are you running any clinical trials there? Do you view that as an important sort of potential pathway in raising access in type 2?

Yes. It's a very good question. Clearly, we don't have any clinical trials running yet. We are planning to work with the FDA to just basically present a significant amount of data for the last year on Control-IQ with people that have type 2. We believe that, that data ought to suffice as the information necessary to get approval for this device. If not, we'll have to run the study for it. But we're hoping that what we've got today will be adequate. I think that the -- sorry, I just lost my train of thought. The second half of the question was...

Primary care.

Primary care.

Sorry, I apologize. Yes, primary care. So right now, as you know, we just invested in CeQur. And CeQur is a very different device. It's a very different segment. And so as you know, diabetes is not a one-size-fits-all condition. There's many segments and many preferences in terms of how and how you want to be treated. So we're going to learn a lot from a segment that we're not necessarily familiar with today, because it's very different from our device. We're going to learn a lot from that. But also by working with CeQur, we can find out things about access, about how you get into the PCP office about what they need to be effective as well. We think that training -- we think digital health is probably an avenue to support the PCPs. But there's a lot to learn there still. And I think that we believe that we go aggressively with Control-IQ on t:sport and then we learn in the meantime so that we can go off and develop a more comprehensive strategy that has clinical elements, that has the access elements and potentially even a discrete device that's more targeted toward that population. And that's probably a longer-term 3- to 5-year horizon for that.

We look forward to seeing that over time. That's all from me, Bob.

All right. Not the first time those words have been used the last few days.

Yes, for all of us.

So last question. You mentioned it out a few times. How long post approval of Libre 3, assuming they get the kind of approvals they need to integrate with the pump? How long do you think it will take to bring a commercial product to market?

First of all, we haven't really specified which technology we plan to bring to market, although it will be Libre. I think that nothing has really changed since the last time we spoke here. There's a parallel activity in place. Tandem is working closely with Abbott to integrate the sensor onto our system. It's a good team relationship. We're working well. That's happening. And in parallel, Abbott is obviously working to address the vitamin C issue that they've got. We're interacting with Abbott. They feel confident they can do that. Time lines seem to work out to be roughly around the same time. So we expect that product to be a 2022 product. And we think it's going to be great for us, because as you know, they have -- there's a significant uptake in the type 2 community. There's also a significant uptake OUS. So as I mentioned, I think that this has an opportunity to open up new areas that we haven't got access to today, and we're excited about that.

Terrific. John, Leigh, Susan, thank you very much for participating today. We appreciate the comments, and I hope to see you a lot next year.

Yes. Thanks, Bob. Thanks, Lorenzo. It's a great team both of you.

Thanks, Bob. Thanks, Lorenzo.

Okay. Thank you very much.