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

Welcome. Thank you so much for joining us virtually. It's a pleasure having you here and talking to you, as always. For folks in the audience who don't know, on the screen there, on the top right, is John Sheridan, who's the President and CEO of Tandem; top left is Leigh Vosseller, who's the EVP and CFO; and then on the bottom is Susan Morrison, who is the CAO and runs Investor Relations as well. So we're going to have a 45-minute fireside chat with the team. And as always, if you want to ask questions through the iPad, just use the instructions on your table.

So I'll kick things off with just a high-level question. Why don't you give us an overview on some of the business trends? Talk about how the business has been performing, and any update on recent trends you can provide would be greatly appreciated.

Sure. Well, first of all, thanks for having us, Matt. And we apologize that we're not able to make it there in person. And hopefully, the next time you have a conference we can do that. So as you probably have seen, we had a great quarter. We had strong growth domestically and international, 40% year-over-year domestically and almost double in the OUS countries. And it's all about the continued momentum and strength of Control-IQ. It's just doing extremely well. I've talked about the fact that physicians trusted -- they have confidence in it. And so they -- as more and more people prescribe it, they see their practices, just the success rates that the patients are having. And the patients just continue to talk about how it's life changing. So we're really excited about it. I think that we expect that Control-IQ is going to continue to do extremely well, both in the U.S. and now that we're rolling it out in OUS, OUS is even less penetrated on their star for technology there. So we've seen great growth. We expect to see that growth continue. So it's really an exciting opportunity. When it comes to the trends, we've -- I think this year, as more and more people have been vaccinated, we have seen practices opening up, being more open to having our sales force come in and actually have more and more face-to-face trainings. And so that's all been good. I would say that, most recently, we've seen this thing. I guess, we heard call it a reopening headwind where now that people are actually able to go places, a lot of physicians and patients have decided just to take a well-deserved vacation. So that's something that we're dealing with right now, and I know Leigh will talk about it more. But I think that there's still some unpredictability in the back half because of COVID. Clearly, the Delta variant is raising its head and it's raising concerns. And I thought I would just let Leigh talk a little bit more about some of the thoughts that she has relative to the business trends, particularly in the second half.

Sure. As we thought about the back half of the year, you haven't necessarily asked about guidance, but I can talk a little bit about our thoughts on how we factored it in this year. We've been cautious about COVID and the changing dynamics. As John said, there's been factors of things reopening, which created this reopening headwind that we didn't necessarily anticipate and that just speaks to the highly unpredictable nature of the environment right now. The Delta variant, we're starting to see things where our field reps are not able to visit physicians and -- again for a period of time. And so we'll have to see how that plays out. But when we think about the outlook for the back half of the year, we've heavily factored in that COVID is going to continue to be highly unpredictable.

Okay. Great. Maybe just a follow-up on that. Your business has been 1 of the more durable ones in diabetes in general through the pandemic, even with these variants or rises in cases, been able to use digital and patients have been able to access technology and their physicians much more than other med-tech businesses. So I guess the question is how bad would it really have to get for this to be a major disruption to your business?

Yes. Well, what's been interesting as we think about the third quarter, what's been a little bit different is because of this vacation -- I'm going to call it concentration -- is different than what we've seen in the past. Typically, you would see the summer be a little soft because people start going on vacations when the school year ends, and it happens more spread out or more dispersed across the summer up until the time when schools reopen. And what seems to have happened this time is it's much more concentrated in a single period. So in the U.S., at least, it feels more like what we see when we look outside the U.S. and Europe that happens naturally every year more concentrated. And that's an example of something that we didn't necessarily anticipate. To your point, we have performed very well in this environment. We've adapted well. We've been still growing very rapidly in the environment. And so we're just, at this point, taking a cautious approach just because it's an unknown that we can't predict necessarily.

Okay. Very good. And why don't I ask you 1 about Europe since we talked about kind of the buyer vacation there with seasonality. Europe has been a really strong point for the company over the last couple of quarters. We've seen access reopen there and with your launches driving really, really strong growth. Can you talk about trends in Europe and what we should expect for the second half of the year there?

Yes. It's been very exciting, as you said. So what's great is it -- what's been -- what's great is in efforts in the second quarter. What we've seen is balance -- what we've seen outside the U.S. in the first and second quarter is balanced growth across all of the markets. So last year, it was very spotty, if you want to call it that, where you had pockets. Sometimes some countries order, sometimes they wouldn't. Now we're starting to see the efforts that were put into all of our marketing in the past and Control-IQ is starting to take hold, which is driving growth from all of the markets. And so the only question mark about the back half of the year is how much of that was a little bit of rightsizing inventories of getting things back in place as they work through these COVID dynamics. And we think this will be a strong growth trend going forward, but it could have been a little bit outsized in the first half of the year. What's great is that Control-IQ is really starting to take hold there. And so I think that inflection is going to come next year, particularly as it launches in Germany and France in the back half of this year. And those are 2 of our largest markets. And so we'll start to really see some change, just like we saw in the U.S., where as word got out as people started having the experience, it really drove the momentum.

Matt, I would just add that we talk to our OUS distributors quite a bit, and they're extremely pleased and have really seen record interest in our products at this point in time. And that's -- we think that's a great sign for them and for us.

Got it. Maybe 1 more on Europe. So talk about the catalyst pathway for that for the rest of the year. I know we could have Control-IQ launching in Germany and France. Is there anything else to pay attention to, any new markets or other product introductions that could help drive further growth?

It's really mostly focused on Control-IQ at this point. We have launched it in about half of our geographies by the end of 2020. But obviously, COVID had some impact on the ability to have uptake there. But when we have it in Germany and France and now with Canada, which really we just started having access late Q1, early Q2, those are about half of our OUS opportunity, thinking about 4 million people with type 1. About half of those are concentrated in those 3 markets. So that's really going to be the shining star when we look at the OUS markets this year. We're still looking at other markets. We have other smaller ones that we're launching into, but they're not of a size or magnitude when you think about some of the ones I just spoke of. So stay tuned for those in the future. We do have ambition to continue to expand outside the U.S., and that will come in the coming years.

Great. Leigh, let me ask you 1 more about guidance and conservatism. You've mentioned several times that you took into account greater seasonality. There's some conservatism in there for competitive launches. Maybe talk about how much that is? Is it more than normal in terms of the prudence that you put into the second half guide?

Sure. Actually, I'd like to go back and just frame up our thoughts on how we were looking at the beginning of the year and how that's contrasting now. When we started the year, we were thinking about COVID, and it actually felt like we were starting to come out of it. So we were hopeful that by the back half of the year, it would start to lessen and have less of this unpredictability. And at that time, there was believed to be this concentration of new products coming to market all in the back half of the year. So we were a little bit nervous about the noise that, that might create in the market as people stop to look around. Now I would say it's switched quite a bit in terms of the COVID unpredictability is where we've put more of the caution for the back half of the year just because of these changing dynamics. It continues to surprise us and we want to be thoughtful about not getting ahead of that. But when it comes to the competitive dynamics, now with delays at the FDA, delays with products coming to market, we don't feel like that there's going to be as much risk when you think of a concentration of new products coming all at 1 time. It's likely to be dispersed over a longer period of time and really much less impactful to us as an organization, particularly as these launches delay and near more our next competitive response. And so when you look at it this year, I would say COVID is the biggest magnitude in terms of conservatism, and I would say competitive dynamics would be much smaller.

Okay. Fantastic. Very clear on that. And this could probably be for any of you, but I'll direct it to John. I just wanted to ask you about patient and physician preference for tubes versus tubeless pumps in general. And talk about that as the first part of the decision tree. What drives people to choose 1 versus the other? And how do you continue to expect to enhance your core offerings to compete more for the customers who might prefer a tubeless pump today?

Yes. Well, I think it's -- when you think about the decision-making process, I think what happens is the physician presents opportunities to the patient, and they size them up and make the decisions themselves. And if you look back even many, many years ago before any pop was CGM integrated or had an algorithm. At that point in time, it was -- the decision was about 70% of the people chose a durable pump. And that trend has continued even to now where there's other opportunities out there, other products on the market. I would say that the base decision, the most important 1 is the ability to disconnect. It gives you the flexibility to do things in your life. You may want to take a shower. You may want to sit in the bath. You may want to go out on the beach. But with our pump, you have the ability to disconnect, take it off. And that's something obviously that doesn't -- you can't do that with a patch pump. Another thing that's pretty important is just the flexibility of being able to move the pump around your body. Depending on what you're doing in your life, you may want to put it in different locations, your pocket, you may want to -- a woman maybe want to put it in her bra. But you have this flexibility to move it around. And that's actually very important when you talk to people who are using the system. And I think also very importantly is when you look at the -- we have a number of infusion sets that we offer with the pump. I mean, there's probably 10-plus infusion sets. And these infusion sets have different adhesives. They have different cannula angles. They have different materials. They have different lengths of actually the infusion tubing. And so there's a lot of flexibility that comes along with that. I would say that the infusion side itself is about the size of a nickel. And when you look at the patch product, it's the same adhesive. It's the same plastic, and it's the same cannula angle. And it's also much larger than the size of the infusion set site. So I think that flexibility -- I mean as you live with diabetes, things change and you may need to optimize the sort of the attachment of the infusion set depending on things that do change in your life. And I think when we have this high number of infusion sets and the flexibility to move it and also the ability to disconnect, we think all of those really add up to be a compelling decision for people and a reason for them to select tubed pump going forward.

And why don't we follow that thread and talk a little bit about t:sport and how that will add to the flexibility and the competitiveness of your offering versus a patch pump, for example.

Sure. We've done a lot of market research on t:sport and we're continuing to do that. And the community that is people who use tube most are MDIs and pediatrics. Now when you look at the patch pump, sort of the new starts for patch pumps, it is primarily from MDI conversions and from pediatrics. So we think that what's going to happen is with -- the device now is going to be essentially the same size as the patch device. And I think people, while they may make the decision tubed versus tubeless, now that it's another variable that's there and it's the size. And so I think it actually does change the competitive dynamics. Today, we don't see people switching back and forth between either company. They've either selected 1 or the other, and they pretty much stay there. I think when the size of the device changes, that's going to just -- it's also going to change the competitive dynamic. The other thing I'll say about it is the t:sport will be controlled entirely by a mobile app. We think that's going to be very compelling. It's going to offer discretion. And I think there's people in the -- people, for instance, type 2 where the discretion is very important to them. That mobile device will give them the benefit of that. And we think that there's also going to be a lot of interest in t:sport in the type 2 community as well.

Fantastic. And you touched on MDI, and I wanted to ask you 1 about mix. So it's been pretty consistent for the last couple of years, really, in terms of the customers you're gaining from MDI versus competition. Can you offer some thoughts about how that could evolve going forward? Do you expect more to come from MDI? You obviously can't gain share forever. When could you start to see some of the share gains attenuating and then will these offerings help you gain more from MDI?

Yes. I mean I think that the technology that we're bringing to market, that our competitors are bringing to market and our CGM partners are bringing to market really is driving adoption from MDI. It's really reducing the threshold by providing better therapy and reducing the cognitive burden of diabetes. And so we think this technology that's occurring in the market today is going to continue to drive enhanced growth and enhanced penetration from MDIs. We've talked about the numbers. Several years ago, there was about 25,000 people with MDIs coming to market -- coming to pump therapy annually, and we see that number practically double last year. We think it was 50,000 to 60,000. And just based on what we're seeing in the first half of this year, we think it's continuing to accelerate. So that's definitely expanding, and we think we'll benefit from that as everybody would. I think when that market expands, I think everybody benefits from it. Like I think that there's just a lot of opportunity for everybody to participate in and continue to see the growth we're seeing. I think when you look at the competitive conversions, it's primarily just 1 company that we're taking share from. And I think that for the foreseeable future, we don't think that's going to change. So for the next couple of years, I would imagine that we're going to continue to take share from them. And we feel that the products we've got are very competitive and will do quite well against the new products that they're bringing to market.

Got it. And I've never asked you this before. Is the dynamic the same in the U.S. and outside of the U.S. in terms of the percentage coming from MDI and competition?

It's a little early to say, and we don't get that specific type of information from our distributors yet. We're working on that. But we don't really have that level of granularity at this point in time.

Okay. All right. Fair enough. Let's transition and talk about the pipeline. There's a lot to talk about there. The first thing I wanted to hit on was the Control-IQ update -- upgrade. And you made some comments on the call, adjusting that time line somewhat. Can you talk about that and the progress you're going to make in the short term and longer term with Control-IQ?

Yes. Sure. So we submitted a version of Control-IQ that I would call it had modest changes to the algorithm and the technology. And we gave that to the FDA back in the fourth quarter. We saw some just clarifying questions in the spring time frame. But more recently, we actually had substantive interactions with them. We intentionally -- we basically believed that we could use real-world data and simulations to justify the changes. And that's what our intent was in that submission. It turns out in the conversation that we just had with them they clarified that. They actually would like to see some clinical data to confirm some of the assumptions that were in there, which was -- that's different than we had planned on or anticipated. And so as a result of that, we're going to have to do clinical studies now to get approval for the changes that we had in this first version. And so the beauty of this, though, is that we -- as I mentioned in the call as well, we're going to begin a clinical study for type 2s, and we're also in the midst of a clinical study for an indication for age 2 years and older. Both of those will use this advanced version of Control-IQ, and we'll be able to collect information from that to then to provide that back to the FDA. So I would say that the timing of the approval of this first submission is -- it's difficult to predict at this point in time because we are going to have to go back and look at our clinical strategy, see what we can collect directly from these other 2 studies and see what we might have to do independently. And once we have that information, I think we'll be able to discuss it in a little bit more in detail. The second half to your question, we are definitely looking to get more advanced changes to the algorithm. We have talked about just simplification of the user interface. We have talked about personalization where people actually have set points that might be more targeted to where they prefer to offer, right, with their blood sugars and adaptability. And these are things that the team has been working on now for the last 1.5 years or 2 years and they are making great progress. And we have Dr. Jordan Pinsker on the team right now. We're absolutely working to develop clinical studies that will go off to confirm the effectiveness of this next generation of studies. And so again, it's difficult to talk about the timing of these things, but we're definitely planning the clinical studies to make these things happen. And I think we're going to actually execute these studies here in the near future.

Great. And as a follow-up to that, you mentioned both the type 2 and the pediatric studies that you're going to be running. Maybe just talk about the importance of those in turn. What would getting those approvals mean for you? How expansive could that be for your business for growth?

Yes. Well, I'll talk about the pediatrics first. I think that, that market segment is actually relatively small, and it's not going to have a meaningful effect on our overall business or growth but it's very, very important. And we definitely want to have -- we want to make available this life-changing technology to that community also. And so that's the reason we're doing this. And I think getting a 2-year-old indication is very important for Tandem and it's also very important to children and parents who are living with diabetes as well. So that's something that's underway right now. We're working with UVA, with Stanford and with University of Colorado. And it's a controlled study that's already underway. And hopefully, it will be completed by the end of this year or early 2022. On the type 2 side, we had talked about in the past that we have a tremendous amount of real-world data on type 2s using Control-IQ. And we presented data at ADA and ATTD last year, and we're also going to present data this weekend of just Control-IQ and the effectiveness of Control-IQ in the type 2 community. We had taken that data and we had shared it with the FDA and we sat down with them and discussed it. And there are -- well, they said the data is fantastic. There were elements of the data that we didn't have that they wanted us to collect. So as a result of the conversation with the FDA, we are now going to embark on a clinical study to collect the information that they're looking for. And that study is going to start here in a month or so, relatively short period of time. And we're excited about this. We're going to do a preliminary study initially. That will probably take the rest of this year to complete and get the data to analyze. And then that data will be used to design a pivotal study for the type 2 community that will begin next year.

Okay. Fantastic. Maybe we should follow that up and just talk more broadly about your aspirations in type 2. What are some of the things that you need to do beyond getting the specific approval to be able to make the offerings that you have more palatable and to drive more penetration into that group?

Yes. I think that our focus really short term is to get approval for our existing devices. And I think that we believe that the combination of Control-IQ on t:sport will be very compelling to the type 2 community. Size and discretion are really important as we just talked about the size of the t:sport is about half the size of t:slim. There's no touch screen. You therefore have to use a mobile app. And the mobile app just gives everybody convenience and discretion, which we think is compelling. And we believe that's going to be a very exciting product. We obviously can't advertise or market it until we get the indication for Control-IQ. And so as I just mentioned, we're going to be doing pivotal studies next year. We expect to see progress with the FDA on t:sport next year. So roughly at the same time, I believe we'll have a great combo product that we can actually begin to take advantage of in the type 2 community. It's kind of a -- it's a no-brainer for us to take this approach and we're putting a lot of investment and emphasis on that. In the meantime, we're building a team internally that is looking at the marketplace. We think there's a lot to understand. It's a very segmented market. There's channel access issues we need to understand. There's features and product design issues that we need to understand. I mean, as you know, most people who have type 2 are treated with PCPs, how do you get access to the PCP in that channel? So there's a lot of research that we're doing right now in parallel to the sort of the first phase that we expect to help us decide how exactly we go after the type 2 community with -- in a bigger way. And I think we're actually looking at the potential for a discrete type 2 product that would be available here in the longer term based on this research that we're doing.

Okay. Great. Thanks for the thoughts there, John. So there's 2 other things I wanted to touch on, on the pipeline. One was you mentioned mobile bolus, the importance of that a couple of times. The first question there is, just remind us with the change in the time line around Control-IQ, what that means ultimately for mobile bolus and the timing of review there?

Yes. I mean they're really independent. The mobile bolus interaction with the FDA is -- it's not related to the Control-IQ data or anything like that. And when we do introduce mobile bolus, it will be introduced initially on the t:slim and the t:slim will obviously have Control-IQ on it. And so the -- I would say that when we first started working with the FDA on the mobile bolus product and the app, we really focused on the things that we thought were going to be more sensitive to the FDA like cybersecurity. Those were the first things we hit in the interaction and conversations. And we feel like we've basically done a great job in responding to their requests. They were very pleased with the design approaches that we have taken there. And so we think that is behind us at this point in time. And based on just the interaction, it's behind us. But as we've worked with the FDA on this app, it's really the first step that will come to market controlling an insulin delivery device. There is other things about it that I would characterize as learning curve that have just become apparent as we've had these conversations. And so the -- as I've mentioned, we've gotten feedback from the FDA just in the spring time frame. It has to do with issues that I would characterize as the user experience. It's not necessarily, I think, fundamental to the design of the app or the algorithm. It's really just the user experience and how we make that user experience positive for the person interacting with the mobile app. And we've essentially completed all of that work now. We're going to be submitting the last data to them here in a few days. And so at that point in time, it really goes back to the FDA and they'll assess where we're at. And we believe, though, that when you consider the complexity of the changes, consider where we are in the overall review process, that we're in a good position to get approval for this app here in the second half.

All right. Fantastic. And looking at your kind of digital health ecosystem, I'd love to hear more about Tandem Source. I know you started, I think, piloting that here recently. Could you talk about what that enables? And any other areas in terms of health or data capabilities in that ecosystem that you think is underappreciated or differentiated from your competitors?