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

Well, it looks like Matt is not here yet. And so maybe what I can do is to start off by giving you kind of an update on how the business is doing. And if you guys have any questions, more than happy to field them right here. There he is. I will start off by saying that last year was a challenging year for Tandem. We anticipated that we would see some challenges from COVID and from our competition but we didn't really anticipate that we would be -- the macroeconomic [indiscernible] that was somewhat of a surprise to us. And if you go through the year, certainly in the back half of the year as the competition came to market, we did see our growth rate slow. When you look at exactly how that happened, it was primarily from MDI conversions, people who are moving from pens and needles [indiscernible]. And I think that we finished the year, we actually grew 15%. And rather than try to just evaluate all of these factors and how they're going to affect us this coming year in 2023, we took a relatively conservative approach. And we set a baseline at 10% to 12% growth this year, which we think assumes all the factors that we have seen in the latter half of 2022 persist and they persisted the entire year. And so that's what our assumptions are. And I'll also say that the growth that we've highlighted in our guidance, assumes no new product activity even though we have quite a bit of new products that are coming to market in the year. So we're quite excited about that because if you look back at our history, every single time we've introduced a new product, we have seen a significant impact on our growth and as we anticipate that happening this year, we expect it to continue.

All right. Well, thanks again for joining us. I am -- I'll maybe continue along that sort of line of questions. And maybe ask you to talk a little bit about the products that have come in or let's say, catalysts that have come into focus with [indiscernible] approval, G7 clearance and understand both of those were not in your kind of baseline guide?

Yes, there's no new product activity [indiscernible] guidance.

S Right. So thinking of those as integration with Abbott as a product or a catalyst integration with G7 as a catalyst, maybe talk about a little bit of the timing and where those could start to add to the plan?

So we have 2 great partners with Dexcom and Abbott, and we've been working with Dexcom now for quite a while. And they have just a fantastic product in the market today, and G7's even better. G7 has a short warm-up period, it's got a very painless inserter and it's ergonomically very friendly. So we've been working with them now to implement that for the last year or 2. We've -- this is our fourth generation of sensor technology that we've implemented from Dexcom. And we anticipate that the product will be in the market in the second half or the latter part of the second quarter. So I think that's -- we're definitely going to see a tailwind from that. I think that as the product gets out in the market and people respond to it and Dexcom sees growth, we would anticipate that we'll also see growth as we get to the market. We believe we'll be the first to market with Dexcom G7 and I think that even gives us a little bit more runway before some of the competitor devices also integrate with it. As you mentioned, this past week, we were excited to hear that Abbott got approved for Libre 2 and Libre 3, could be used in an AID system. I think there were some feelings that there was uncertainty about the timing of that. And so to have them both approved relatively early in the year is a great thing. The -- I guess the thing that we still have to work our way through is the -- in order to get this product to market, we have to modify the manufacturing process and make the changes that were approved by the FDA in the devices that will be shipped and timing-wise, they indicated that would be in the latter half -- in the second half. So sometime in the second half, they're going to come to market with a modified device, which is the one that's able to use AID. And we should be in that -- we would anticipate that we would have a second half introduction also. But I think we want to actually have more time to talk and meet with Abbott people to be more specific about what that timing might look like. And so we'll probably announce it more specific information on the first quarter call, which is the latter part of April. And we think that's a big opportunity for us. There's quite a few people in the U.S. with type 1, hundreds of thousands that use the Abbott Libre sensor, which is just a greenfield for us. None of them use an AID system today. And so we believe we have the best AID system in the market. It's immediate and sustained improvement. And I think that people who are using the sensors, will substantially benefit from the therapeutic value the system provides. So that's another opportunity in terms of new products. And we also have the Mobi pump. Mobi pump is about half the size of the t:slim pump. It doesn't have a touchscreen. It's controlled entirely by a mobile app. It's waterproof. It's wirelessly charged and it has a bolus button on it. And the importance of that is if you ever lose your phone or your phone dies, the system still has algorithms on it. The sensor is talking to the pump and the pump has a bolus button. So you can continue to operate and manage your diabetes without the cell phone. Certainly, the cell phone provides a lot of advantages. And that -- one of that is convenience. It's a very convenient system. When you're out and about and you're with friends, for instance, having lunch and you need to give yourself a bolus for a meal you might have just eaten, you can do that with cell phone. And so nobody knows you're managing your diabetes. So discretion is a huge benefit you get from using Mobi and also obviously the convenience. So we think it's going to be a great product. We think it's going to definitely drive increased sales. And we also think it's going to be an interesting product for the type 2 market once we get the type 2 indication. Timing-wise, we submitted the filing to the FDA last year. We are now in the process of working through questions with the FDA. We are responding to questions. We are also seeking clarification on some of the questions that they did ask us. As I mentioned just in this past week or so, when you look at the questions that they have asked us, I would say there's nothing that keeps us awake at night. I would also say that there does not appear to be any need to do additional clinical testing or human factors testing, which could significantly extend the time line of the filing. The FDA is -- things are sort of returning to normal, I'd say. We've got a good group of people who are supporting us at the FDA on this product, but it's difficult to predict the actual clearance timing. And so I think that if you look at some of the other diabetes products that have come to market recently, they've all been delayed a bit [indiscernible] predict exactly when we're going to get clearance, what we're going to do is we're going to plan to have the product be ready to introduce the product in the second half of this year. It will take us approximately a quarter to get the product on the market after we receive the approval. So that's hopefully a second half device as well. One thing we haven't talked about is a new data platform that we call Tandem Source. Tandem Source is going to be rolled out starting in the middle of the year. It's a completely updated data management platform that really is targeted to support the physicians. It gives the physicians the opportunity to customize the reports that they look at. It also helps them manage their patient populations a lot more effectively and still provides a great data to people who have diabetes who are using the system. So this is something that we haven't really spoken about, but we think it's going to be meaningful for physicians, and it's going to -- when you consider that physicians are actually the #1 influencer of people when it comes to selecting a pump, we think that providing products and services in their ways that improves their practice is another way to continue to get Tandem recognized in these offices.

Okay. And is that something that you would sort of call out as a catalyst for growth that's not in your plan? Or is it sort of a different sort of infrastructure ecosystem kind of support?

The latter. I think we don't see this driving revenue in a substantial way. It's very important, though, to provide easy access to data in a manner and have it in a design that the physician wants to see. And that's really what this is about [indiscernible] actually to provide ease of use to the physician.

Okay. So like maintaining a service level with clinics and accounts, which is important. So -- and to be clear on Mobi, you've received questions, but I don't think you've disclosed that you have responded to those yet right here?

It's a process. It's not all at once. We're responding to some, seeking clarifications on others.

Okay. And then I guess any historical events that you'd point to in terms of G7 integration, sort of G6 integration or something that could give an indication of what that's done to pump growth or adoption or...

It's interesting because the -- when we introduced G6, it was on Basal-IQ back in 2018. And so it was a new algorithm combined with the sensor, and Basal-IQ did extremely well on the market. It just really was [indiscernible] we saw a significant trajectory of our growth, it really started to go up rapidly. The next time we introduced the product was Control-IQ, and it was also G6, so this is the first time we'll have introduced just [indiscernible] I'm not trying to say it [indiscernible] but a sensor by itself with no change to the product. So it will be really interesting to see. But we anticipate it will be -- there'll be a strong growth in demand because of this.

Okay. One of the things that I think we talked about late last year and early this year was this. In the search for some sense of stabilization in terms of new patient flows, particularly after the Omnipod 5 launch last year. In the search for that science and stabilization, was this idea that you talked about where clinicians having received more experience with Omnipod 5 would now be able to kind of discuss with patients in a more even-handed [indiscernible]. Have we reached anything like that yet in the clinical community? You're starting to get that feedback up from the sales books yet? Or are we on the -- do you expect that this coming quarter? Where are we in terms of timing on that phenomenon?

Yes. It's -- because of COVID, there's been staffing challenges within the endocrinologist offices, and so people aren't -- I mean I think prior to COVID people were seeing their endocrinologists not once a quarter. And today, it's probably maybe 3, maybe 2x a year. So it's slowed down a bit. And I think that's certainly affecting the dynamics you're talking about. I think we've seen stabilization in the last several months, and I would say that means things have gotten no better and they've gotten no worse. So we have seen stabilization. My sense is it's probably going to take us the rest of this quarter and maybe into the second quarter to really see things return to a steady state. I mean prior to the introduction of Omnipod 5, I would say that on the MDI conversions, Tandem and Insulet basically split it 50-50. I'd say now that the Omnipod 5 is on the market, we're probably seeing that skew towards Insulet. It could be 55% or maybe even 60% in favor of them. The thing that's important to recognize is even with that transition, the market's growing. And so I think as it grows, there's still more opportunity for Tandem to grow from the MDI conversion. And we're also seeing really strong growth in our renewals, which increasingly is a more important part of our revenue growth. When you look back 4 years ago, in 2023, we went from 30,000 people in '22 -- excuse me, 30,000 in '18 to 50,000 people who started Tandem in '19. And so they are now candidates for renewals this year. And as I said, we've been seeing very strong growth in renewals. A lot of people are -- many more people are renewing faster, which is a really good sign, particularly in light of the fact that there's a new product on the market this year.

Okay. And then in terms of the kinds of patients maybe that enter this market or have entered this market by a Libre versus folks who had -- you're integrating with now, for example, on the G6 side, soon to be G7. Does Libre open up any -- is that demographic different? Is the sort of payer mix different? Is there anything different [indiscernible] a few hundred thousand patients that are now on Libre and could be on a pump that aren't?

It's a good question, and I don't think I have a solid answer for it at this point in time. I think it's a bit early. But we have heard of a number of physician channels for people who have been asked that question, and they would anticipate that 20% of their Libre users would likely be candidates for pump therapy, which is a good number to start with when you -- that's roughly 60,000 people. So that's a data point that we've heard recently. I think that when I look at the benefits that Control-IQ provides to people with a substantial reduction in the burden of -- managing diabetes as well as you see great therapeutic outcomes. And so I think it's an opportunity for us to sell to like I said, a large group of people who I think -- in my mind, why wouldn't it be 35% penetration, the same is with type 1 generally. And I think that would be a good target for us to endeavor to achieve.

Okay. Any questions from the audience?

[indiscernible] When we can pay you to your primary competitor, there may be a different ratio of disposable value versus sort of durable value components in their device. So how does that work for your guys? You've got one part that's effectively very costly and very durable. So how do we think about that transition to pharmacy and making that work?

Sure. It's a great question. We often get asked about our progress in the pharmacy channel. And so if you had asked a year ago, we would have said that with the type of product we have and with the payer mindset that we fit more squarely in the DME channel. But what we're doing with Mobi is we're taking a different approach on it. So we're a much bigger organization now, and we're accessing people at different levels of [indiscernible]. So people who have the ability [indiscernible] perspective, you think it's not really in about how they manage their product offerings. And we're taking Mobi in as an opportunity to talk about the value of the system with the technology that it offers, the clinical benefit that is realized by the patients and the cost reductions that they could see in their system, and we're trying to change that [indiscernible] mindset. Down the road, Mobi might not be the one that gives us the broadest access in the pharmacy channel, but it certainly can help pave the way for building the relationship, building [indiscernible] structure so that we can ensure that we can go right into the pharmacy channel down the road. I'm going to say I'm more encouraged every time I hear feedback from our market access team when they have these conversations that this ambition with Mobi is possible. And I look forward to it down the road being able to [indiscernible] early this year, you may hear news on progress. But today, as we [indiscernible].

I'd also point out that, you said it's more expensive. It's more expensive to access this initially. But if you look at over the life of the system, it's less expensive to have the product through the DME versus the pharmacy.

Any other questions from the audience?

One thing I'd like to point out is that we believe that diabetes is a very [indiscernible]. You really don't -- there's no one-size-fits-all solution to address the needs of people with diabetes. And so I think that just having one pump on the market, you can be successful, but you're going to limit the segments that [indiscernible] increase in that product. And so at Tandem, we really believe in having a portfolio approach. We think we need 2 pumps. We need the t:slim on the market. Mobi is coming to market, as we've just discussed, it initially will come to market with a tube option but we're working on tube-less option as well. So once that is available, [indiscernible] it's really just a matter [indiscernible] which we think is highly differentiated. It's a rechargeable system. So there is a significant environmental benefit of having this device to the market. And it also uses the [indiscernible] a substantial improvement in sort of the convenience and simplicity of making changes to [indiscernible] insulin use. So we think with these 3 devices, when you look and consider the fact that we'll also have multiple sensor integrations, we have algorithms that have different capabilities, and we're targeting type 1 and type 2, that portfolio approach, we think will do a much better job of driving the penetration rate in the U.S., for instance, with type 1 from 35% to 65%, and in the OUS where the market is twice the size of it is in the U.S., but much less penetrated, it will be going from 10% or 15% up to 25% in the next 3 to 5 years. And when you look at those numbers, those are big numbers as [indiscernible] so we really do believe that the portfolio approach is the right one and that by doing that, we do drive people to pump therapy that they wouldn't consider it before, and we grow the market.

Okay. Yes. So question?

So I was just wondering kind of how it's going when you guys expect to have your own infusion set on the market? And then what does that mean for margins and maybe -- are you still going to use outsourced infusion sets? And how do you envision that [indiscernible]?

All a bunch of good questions. First of all, we did acquire Capillary Biomedical in the summer of last year. It's a company that's making it extended infusion sets. So it's going to go from 3 days today to 7 days. And so I think that's a substantial improvement to the quality of life for somebody living with diabetes. I mean, that's it's less for you to do that you can keep a sensor for the infusion set on for twice the amount of time. But from a margin point of view, you basically -- it's essentially the same cost to build that device and you build on a per day basis. And so there's a substantial margin improvement when we bring the Capillary Biomedical device to market. In terms of timing, that we've been working with them over the last 7 or 8 months just to go through some additional testing and just make sure that we feel like we're in a great place to do a pivotal study, and we intend to start the pivotal study in the second half of this year. And that study will allow us to submit the data to the FDA and get approval probably sometime in late '24 or early '25 would be our guess. With regards to -- I mean, our -- we have a partner we've been working with now for 10 years plus and they, for the most part, provide most of the infusion sets that are used by diabetes in the world. I mean they're the primary supplier. And I would say that our relationship has evolved with them from one that was -- we were treating them as a supplier as opposed to a partner. So I think it's changed recently. And we now view them as a strategic partner. And I think that we're always going to continue to work with the company. They have great management team and a very capable organization. And I think as opposed to just purchasing products from them, I see as co-developing products and co-developing allowing us to seek better financial terms on the products that we are developing together and also just use the capabilities and skills that their organizations have to develop exciting new products for diabetes. So it's a good relationship. I think we're always going to be important partners to each other.

Any other questions from the audience? So one follow-up in the last couple of minutes. I think last year, one of the things that was an early sort of hot topic of conversation as Omnipod launch lifted off and you were getting more and more questions about your growth rate versus their growth rate. Was this an idea that is cheaper, I think for $50 a month, you can particularly in June, we're heading into fear over recession. I think one of the early sort of calls between the 2 stocks was they're going to be better in the recession because it's cheaper or something like that, and patients are going to have to decide. You came back with a plan and an offer to sort of level the playing field with -- you can -- yes, there's a co-pay, but you could pay it over 48 months for $50 a month. And in fact, then you can stop paying, I guess, as you add month 48 and not have to keep paying for your pump, I'd love to get a sense of how they obviously made a lot of traction, and we're on that marketing message early. Wondering how you feel like the traction in that offer is going? And if you feel like in the marketplace, that's starting to normalize as you communicate endocrinologists about the out-of-pocket to facing patients?

Sure. If we launched that payment funding offering in late September, and so I would say from the perspective of the field, it's been a very useful tool in having that conversation to your point sort of equalize the playing field because our [indiscernible] product-oriented, clinical-oriented, the benefits that you get but they didn't really have a tool for the objections of people who would bring up the cost piece of it. And then now the sales reps can bring that up on the center and help the physicians understand that, that should even be part of the conversation because we do have the ability to give people that offering. In the fourth quarter, I would think the actual uptake of it will not significantly change. And that's not unexpected considering in that quarter is when most people have met their deductibles and don't have [indiscernible]. I think it's an important tool that we got rolled out to get the conversation started because at the beginning of the year, deductibles are reset, it may [indiscernible] utilization as we look ahead. But the most important part is that it helps with the compensation piece. What we did notice in the usage of it though was that it wasn't for patients who were renewing, who were taking advantage of that. It was more so patients who are new to Tandem. And I think that speaks a lot to Control-IQ, the strength that it has, people going through the renewal cycle, having the opportunity to plan and prepare and they know it to risk the spend. And so they're ready to make an out-of-pocket movement. From the MDI population, there's still that convincing piece of it to get people to understand how beneficial the product can be and that we can help them as we consider the economic piece.

That's super helpful. And with that, we're out of time. So thank you again for coming.

Thanks for having us, Matt.