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

Good morning, everyone. Thank you for joining us for the last session of the morning. I am Danielle Antalffy. I'm the medtech analyst in the U.S. here at UBS and very excited to have with us the company I've known for a very long time, Tandem Diabetes. CEO, John Sheridan; CFO, Leigh Vosseller. Thank you guys for joining us. I know you drove very far to get here.

Thanks for having us.

You are welcome. So one of the questions I want to ask you guys after several years of a very strong stock performance. It's been a tough few quarters here. And I just wanted to maybe start with a question I actually usually end with. And that is, what do you think investor sell-side might be missing about the Tandem story that has been driving some of the stock underperformance recently.

Yes, that's a great question. I would say initially -- or the first thing I would say is that it's a large and growing market. When you look at what's happened over the last 4 or 5 years, we've seen more and more people come from MDI therapy to pump therapy. And that's just because the benefits of pump there have really improved greatly as AID systems come to market. So I think that the -- that's -- it's not a zero-sum game. And if the market is large enough and this growth, I think it presents the opportunity for multiple companies to be successful simultaneously. And certainly, in the last few quarters, we have seen pressure as a competitive new product has come to market, but that seems to have stabilized. I would say the biggest thing people don't realize it's just how successful our new products are going to be. And when you look at our pipeline, we have the most exciting pipeline in diabetes beyond a shadow of a doubt. And we also are going to have 4 new products brought to market here in the next 6 months, which I think is unprecedented in the industry. And then beyond that, we've got just a series of exciting new products that really are going to reduce the burden and improve the overall therapy for people living with diabetes, which we think is the key for adoption. So I think that's the biggest key is we do not get adequate credit, I think, for the pipeline and the pipeline in my mind is really going to be the key issue that drives a return to the growth that we've experienced in the past.

Yes. There are 2 things you said there that I want to follow up on. The first thing was the -- this is not a zero-sum game. I actually very much agree with you there. And maybe that leads us to sort of the insulin pump market where we are today and where you see us going in the future. And there's a lot of noise around GLP-1s and what that's going to mean. But even before we get there, let's maybe talk about how you guys envision the insulin pump market continuing to evolve over the next few years because you do have, as you mentioned, some competitive dynamics that are new over the next 12 months?

Yes, certainly. I think that as you look at the market, our competitors, Tandem and even our partners are all introducing new technologies that all help people move from pens and needles to pump therapy. And I think the big issue is, people have to wear a device whether it's a sensor or a pump 24/7. And there's a burden that comes along with that. There's also an amazing -- it's a powerful cognitive burden that diabetes introduces to people who are living with this condition. And I think that the challenge is to reduce the cognitive burden by providing therapy that just makes it easier -- provides better therapy and you just feel better every day. And that's the thing that we are all doing. I think everybody in this diabetes space is really innovating to bring new technology to market. So I think that's going to drive continued growth. And we think that, I mean, right now, the market is penetrated and maybe 35% or 40% of the people who have type 1, use pumps. And we think that can get to 60% to 65% in the next couple of years.

Yes. I would argue even more, but we can quibble about that. And the other thing that struck me that you said was the comment around the recent competitive dynamics that you've been weathering over the last few quarters and that's stabilizing. Is that a new dynamic as of Q2? Or maybe talk a little bit about what you're seeing out there and what makes you say it's stabilizing?

And I would say, if you look at this year, I mean, certainly, last year in the third and fourth quarter, we did see a great deal of pressure, and we did see our new starts move in the wrong direction. But I think as we've entered '23, we definitely have seen stabilization from that pressure. And I would say that things aren't getting better, but they're not getting worse. There's still a great deal of pressure in the marketplace, but I think we're fending it off and holding round.

Plateaued.

It sort of plateaued. Yes.

Okay. Got it. And I guess, as it relates to the market and when we think about these new devices coming to market, including the Tandem portfolio as they come to market, is this -- the insulin pump market has been growing, call it, again, these are estimates, our UBS estimates, low double digits, sometimes mid-teens, depending on the quarter in the U.S. These new products that are coming to market, do you see these as accelerators to growth? Or I think this is getting to the zero-sum game point? Like is it just the market continues to grow where it is and everyone just fights for share of that? Or how do we think about that? Like are these enough from an innovation perspective to take that -- we've been at 35% for like 5 years [ from penetration ].

It's actually done more than that. I think if you look back 5 or 6 years before they are actually AID systems in the market, we saw 25,000 people a year come to pump therapy from [indiscernible]. If you look last year, we'd estimate that it was more like 75,000 to 80,000. So it has picked up, and I think it is the new technologies. And I think that it's not just Tandem as the space innovates and brings new technologies to the market, we expect that number to go up, and it has to go up, in fact, to get to 60% or 65%.

Right. I guess what I'm trying to think -- so then do we go from 70,000, 75,000 each year to 100,000 each year with new products.

I think we are even over that. The other thing I think is important as well is that when you look at diabetes, it's a very segmented market. And people who have diabetes don't -- they have different needs and different preferences. And so we believe that there's -- it's a -- because there's different segments, one product is not going to meet the needs of everybody in the marketplace. And so we have a portfolio approach when we intend to bring multiple different products to the market to really meet the needs of these different segments. And by doing that, we think we continue to help increase that growth rate because we actually are going after specific needs that people have, which we think will drive the uptake.

And I ask this question every time we have something like this, the barriers to adoption that still exists. I mean, it's amazing to me that we're still only 35% to 40% penetrated of type 1. So what -- I think I know the answer, but what are the barriers that still exist and where are we going from here to double that penetration rate?

Yes. And I think form factor is a big one And I think that as you've seen with Mobi, it's half the size of the t:slim pump, we have the Sigi pump that's also another significant improvement in the form factor. So I think that's important. It needs to be discrete. I mean people with diabetes don't want you to know they have it and convenience and simplicity are also very, very important. And I would say that we have approximately 430,000 or 440,000 people using our technology today. And I would say that many of them are early adopters. There are people who are willing to maybe I don't want to say the product is more complex, but willing to use the product because they see the benefit. I think to continue to advance that, we have to simplify the interface. We have to make it very, very simple for people that use it. And that's definitely a priority of our organization today and the engineering teams. So it's really a form factor and an ease of use, and those are the things that we're really focused on.

Is cost still a barrier?

I think it is. I think it is. But at the same time, the thing -- when people come to the Tandem product and begin to use it, one of the things that they experience is a substantial reduction in adverse events. And because of that, there's less hospitalizations and hospitalizations are expensive as well. So while the therapy itself might be perceived as expensive, it really does reduce the follow-on costs that you have just in living with diabetes. And we know it's a substantial percentage reduction well over 50%. So that's a big benefit for people. And not only does it affect their wallet, but it's also a substantial improvement just the quality of life.

Yes, sure. And this might be a stretch, but capped insulin prices, is that something that could drive more pump adoption only because then patients do have more room in their wallet to spend money?

I mean, I think so. I think any time you reduce the cost, you make opportunities available for other aspects of the therapy.

Yes. Okay. And then just one more question on the market here. And maybe this is a stretch. We still have to do our sort of [indiscernible]. We saw the big players yet to report for Q2. But it did seem like the U.S. market in Q2 decelerated a bit from Q1. And I'm curious if you guys have seen anything in the market just for diabetes devices, CGM for pumps. And we're talking relative here if not like...

It's really difficult to assess the growth intra-quarter. And I think that we typically wait till the end of the year, and we just see what has happened, and you got to triangulate because it's not -- you have to sort of back into the calculations as to what's happened because nobody is really direct about with their starts. But we have to wait until the end of the year. And I think that's usually the time what we feel reasonably comfortable about the numbers.

Yes. There can be volatility in the intra-quarter.

Yes.

That's fair. And I have to ask, don't shoot the messenger, have to ask the GLP-1 question. And how you guys are answering that for folks? I mean, have we cured type 1 diabetes?

Well, yes, I mean, I think it's actually -- it's indicated for type 2. And so I would say that we have a very capable group of physicians who work with Tandem. And I think their perception is that it's not going to prevent people from becoming insulin intensive type 2 users, it's going to slow it down. And so I think it's also early. I mean the market -- it's only been -- the products have only been in the market for a year or so. And I think it's -- I think use habits, longer-term effects, things like that are still -- it's -- people are formulating what those are. So I think making any kind of a big bet today, one way or another, it's probably risky. And my guess is just let us wait and see what happens. We still think when you look at the type 2 insulin intensive market, it's large as it is today. There's over 2 million people in the U.S. and 2x or 3x that, OUS. And so only 5% of people with insulin intensive type 2 user pump, and we have seen from people who are using the Tandem product today, they get equally good results as people with type 1. So it's an area of focus for us. And I think longer term, we'll definitely see the benefit. It's going to be a more complex sale, and we're going to have to really explore and develop that market. But certainly, we think it's going to be a part of our story going forward.

And today, what percent of your installed base is Type 2.

Approximately less than 5%. It's about 20,000 people today who use our technology that have type 2, it's all off-label.

And it's about 5% penetrated like the type 2 -- the 2.4 million...

It's about 10,000 people in the U.S.

And GLP-1s won't cure -- type 1 diabetes is a genetic...

Your pancreas stops working.

That's safe and the 2.4 million insulin intensive type 2s today that's also safe because it's not going to reverse that.

It's correct.

So we're talking about, I don't know, decades down the line when we slow the progression of building out that 2.4 million patients, yes. Okay, let's talk, I think this is for Leigh and this is the near-term sales outlook and your updated 2023 guidance. I mean from our perspective, we published this, it feels like it's very much based, maybe even bare case scenario, really setting the bar at a very reasonable level. But can you talk about the puts and takes to the guidance reset? And also, as we look ahead to 2024, you guys message sort of thinking about 10% growth. And what gives you confidence now that downside risk here is limited. Obviously, I have my own views, but would love to hear yours.

Sure. So when we came into the third quarter, we were so excited to get the Mobi approval from the FDA on July 12. And what that did was it made a big difference in how we thought about the remainder of the year. So we were still very confident with all of the factors in the market that we could achieve the numbers that we had out there. But with the timing of the approval and the way our launch will scale with general availability really being in 2024, we recognize just like we've seen in the market every time a new product has been introduced that there tends to be this pausing dynamic. And it usually is in that time frame from when there's approval to when there's full availability and also even a little bit after sometimes as the market is digesting what this new product offers. So as physicians start to experience it, patients start to experience it, then people really know what it is. With being a different form factor, maybe not so much as you would with maybe a new algorithm. But as we looked ahead, we said, wow, this could really impact the timing of when customers decide to make their purchase. And there's a lot of factors that go into consideration here. And so you think about someone who is about to meet their deductible for the year or maybe has until they have their lowest out-of-pocket ready to buy a pump yet they've heard about Mobi coming around the corner. And so they're asking themselves, do I want to buy now? Or do I want to wait and buy Mobi then. And so they have to do that calculus of, well, what's my out-of-pocket today. And we have, I think, a wonderful opportunity with our switching program that allows people to convert for $200 if they buy a pump in the next 2 quarters. And so they'll be taking that into consideration. But it's going to be turbulent and it's very difficult to predict. And so to the guidance point, what we did was we took a look and we said, first of all, we recognize that people have had trouble relating how we could hit our numbers anyway, and so we wanted to derisk and think about what the lack of visibility, we should take it to a baseline level. And this is something that we felt like as you said, someone could look at and say, wow, in the U.S., all Tandem has to do is ship as many pumps in the back half of the year as they did in the first half. That feels very doable even in an environment where there's this kind of noise going on. So we ourselves went through all of the different pieces of how do we think someone coming from MDI will behave in this environment with their purchasing a competitive conversion, a renewal customer. And we tried to assess how much we thought the Tandem Choice program would mitigate the pausing and that's how we came out with the number that we have. So we've set everyone up for 2023 with a baseline expectation. And while I would generally be reluctant to give any indications of the next year at this point in time, we felt like it was important that it would leave people hanging. So there would be -- the question mark will move not from how do you get through the back half of this year to I don't know what to think about next year with the numbers that are out there, people maybe would adjust and wouldn't know where to put it, whatever it may be. And so we went through the same sort of exercise and said, what's a baseline that people can see a path to and we walk through the building blocks of what makes up our business. And it started with supply sales. So it's very easy to project supply sales off of the installed base that we have and the growth that will come as people are in the base that are acquiring pumps this year for a full year next year. So that's piece one. Then you layer on the renewal opportunity. And we have demonstrated a very consistent pattern in terms of new renewal opportunities coming to market and how many that we convert into pump shipments. And so interestingly, next year or maybe excitingly is the better word, we're going to have 70,000 new opportunities in the U.S. compared to 50,000 this year compared to 30,000 last year. So you start to build that up, again, another predictable revenue stream. And you get to a number where you kind of, I would say, back into new pumpers. And when you do all that calculus, you'll quickly come to the conclusion of like, wow, new pumpers don't have to grow at all to achieve this number. In fact, they can go backwards and still get there. And so I think that's the comfort, I guess, we can give people as they don't have to have heroic assumptions to see how we can achieve that number, and that's why it seemed like an appropriate threshold, particularly because next year is going to be a super exciting year. I mean this is a baseline not contemplating that Mobi, G7, Freestyle Libre have any inflection in the business or provide any opportunity for us. And so there are so many exciting things around the quarter. We needed to get people to focus less on what's happening right now and understand better what could come in the future.

And that's a good segue into my next question, which is these new product launches. And I'd even focused like take Mobi off the table for a second, just Libre integration alone, very large. I mean, yes, Dexcom has the majority of type 1, but still a very large type 1 user base and, of course, insulin intensive type 2. And then you've got G7, which has obviously been doing very well. So could they be growth inflection drivers? I know that's not reflected in the guidance, but just conceptually, could they?

Yes, we see a lot of possibilities there. So we have had great -- tremendous success being partnered with Dexcom along the way and with G7 expanding the market, we expect to grow right along with them. And that will be, I would say, probably more -- well however they inflect we could follow suit, I should say. I don't want to make bets on how much they drive their business, but it will be good for us. Libre is a whole different opportunity because there's a large population of people. Last report we heard about a year ago was that they have 300,000 people living with type 1 diabetes using their sensor. So these are people and our research suggests that there are very few that use pumps, but definitely people who've never had the benefit of an advanced algorithm. And so now with this partnership and the opportunity to market directly to those customers, we also from our survey work, understand many people are interested in pump therapy, but they like the sensor they have. And so it opens the door for a whole new world of possibilities in terms of people who could move to pump therapy that weren't, I would say, real candidates for us before. And then Mobi is another great opportunity. Mobi provides advantages that aren't out there with the products in the market today. So you compare it to the durable pumps. It's got the same flexibility that you have to detach, but it's much smaller. So then you compare it to the patch pumps of the world, and it's close to the same size form factor wise, but you have the flexibility to wear it in different ways and that detachability. So it's unique in its form factor. And it may attract people that -- or we actually expect it will attract people that weren't attracted to the other form factors that were out there today. And of course, it's going to have Control-IQ, which is hands down the best algorithm out there.

Yes. And so 2 follow-up questions there on Mobi and the pause dynamic that you've talked about. So you went through this as well with Control-IQ to an extent. But the difference here, I was just thinking about this, the difference here is that Control-IQ was really just a software upgrade, a software push. And there was a training component to it, whereas Mobi is an entire hardware change. And so is it right to think this pause? And I think Control-IQ is a quarter or 2 maybe. Is it right to think that this could be longer because of the hardware dynamic?

Yes. A couple of things. Control-IQ example is great because it does show that even when it is so easy to get a software update, people might still mentally say, it's easier for me to wait for when it's fully available. And we saw that build across the fourth quarter. We had gotten approval -- everyone expected approval late third quarter. It came late fourth quarter. So we started to see a little bit of it but once it came, then people really push to when is it available. And that was a modest level of pausing in the market. When -- years back when 670G was introduced and touted as the artificial pancreas, we saw a very dramatic pause in the market. So a very different environment and that lasted for multiple quarters. And it goes back to the point is once the product is fully available, that's when you see that dissipate. So with the timing of our launch, we expect for the next 2, there will be pausing and it could build. I think a point I didn't make earlier is when we got approval, we did a press release from an Investor Relations perspective, we didn't start fully marketing to customers, physicians anyone yet at a few shows, we heard overwhelming enthusiasm for an interest in it.

My friend, Jane, did text me immediately now that Mobi is approved, and I'm like simmer down, it's not going to launch -- you're not going to get it anytime soon...

Another point just on that, you bring up a good point, one of the software, and this is hardware. If you -- what Leigh said is, I think we got approval for Control-IQ in December of 2019, and we had it on the market in late January. So it was a relatively quick introduction with a piece of hardware that's brand new. There's a lot of stuff we have to do for -- just to get it ready to get on the market after approval. We have to train and then we also need to be cautious because as a new hardware platform, we need to evaluate it more carefully than -- and not to say we don't evaluate the software carefully. It's just more complicated. And so that's really what happens. We will get it to market from the early part of the fourth quarter, and then we're going to have hundreds of people using it for a period of time because we want to make sure that there's no corner cases or nuance or just issues that affect customers' perception of the device in that first month or 2 before we really step on the gas. And I think that's -- we -- you can test software thoroughly and you can -- we can get it out to the market faster than you can with hardware. And that's a big difference as well. And I think so there's a longer time frame for that to occur, which, again, there's just more positive likely to be a result of that.

Yes. That makes sense. And then I want to follow up on one other thing on the integration with Libre, and I wanted to bounce something off you because one of the things I'm hearing is as we do due diligence around this, "Oh, if a patient wanted to go on a pump, they would have just gotten the Dexcom integrated system." So no, we don't have patients waiting for an integrated Libre system. But I think maybe what we're missing there is no, the patients really want the Libre, they'd be open to a pump. They just don't have a Libre integrated system. And I guess how would you address that, if you hear someone say that, what do you say to them?

Yes. Well, we've done our own research into that population of people and have absolutely heard that there's interest. And it's kind of back to that point as people when they become accustomed to a technology, they're reluctant to change it. When you find something -- you live with this condition that is so difficult to manage mental burden that it has on you. When you find something that works, you just want to stick with it. And so I think people were -- the integration with that product as we've been talking about for a few years, so people probably presumed it was coming and they're like, I can just wait for it. And so it's not that they're not interested in the technology. And so we're excited to be able to start marketing to that base directly.

Yes. We've talked to thousands of people who use the Libre device.

Well, I've talked it too.

And there are people who are really interested in pump therapy. And there's also products in the market or U.S. today that are using Libre, and they're seeing uptake as well. So I think that it's one of these things where we have to build and develop the market. We have to work with Abbott to communicate then market towards those people and help them understand the benefits of the technology. But we certainly think it's going to be good uptake in time. And we -- as we get to 1 million customers in the next couple of years, that's a meaningful part of that. It's a meaningful of the growth that we expect to see.

Well, and let's also to talk about the Abbott sales force and the marketing muscle behind this. And my understanding is Abbott team has a much -- maybe I'm wrong here, correct me if I'm wrong, a very strong presence in the primary care physician's office that still, at the end of the day is managing a very large number of these type 1 patients. Is that something that we should be considering as well? Or am I overstating the importance of that?

I would just say collaborating with Abbott it's something that's absolutely going to happen. I think that the -- we currently do work with PCPs. And I think it's -- what we look at really is we look at the insulin usage of various practices. And so if we see a PCP that has a high volume of insulin usage, we know that they're probably prescribing to type 1, and we will sell and work with those practices. But I think as we get into type 2 relationship with a broader group of PCP is going to be important for us. And I think anything that helps us achieve that it's great. And I think a relationship with that likely to make that happen.

Okay. Okay. Got it. Let's talk about renewals. That's been a very positive dynamic even through the first half of this year. And on the renewal side of things, how has that been tracking? I know it's hard to track because patients sometimes don't renew right away. But as best you can, how has that been tracking in the last few quarters? And how are you thinking about competitive threats there? Are you seeing any switches?

Sure. So I'll start by saying 2022, we were seeing our best capture rates ever. And what I mean by that is as new warranty opportunities, warranty for expiring, we were renewing at a higher rate in each quarter than we ever had before. So in the first 90 days, you get X percent. In the next 90 days, you get Y percent. And then that builds up to our goal of 70%. So we've been achieving our 70% goal on older cohorts, older populations. But what we saw in 2022 is we're migrating there faster. And so then even through the competitive challenges we've seen in the last year, I guess what, our rates have remained consistent with where they were in early '22. And so it shows that once people are in the Tandem family, they like the product, they want to stick with it. We haven't seen any disruption there. Mobi could disrupt it simply because these are Tandem people who are like, well, I want Mobi instead, but we fully expect to be back on track as soon as Mobi's fully available. And we'll have to see the Tandem Choice program may help people bridge that gap anyway. And so it's really exciting considering the number of renewal opportunities continues to grow, and we're only beginning our renewal opportunities outside the other. So it's going to be another tailwind for that market.

I think it's meaningful also to point out that we saw this excellent performance in renewals at the exact same time that we are experiencing great competition in the marketplace. And so I think it just goes to show that people who are part of the Tandem family prefer to stay on it. And I think that makes us feel very good about the device, the offerings that we have, particularly as we move forward to 2024.

I think that's an important point. And I think I overuse the cell phone analogy, but like if you put an Android phone in front of me, I'm like, I don't even know how to turn this on.

I've got right here. Does that make sense?

I know you have an Android too. you have an iPhone.

Yes.

Okay. At least one of you is normal. Okay. So the other revenue stream here, I was just -- the other revenue stream here has been competitive switches, right? So you did have a major competitor had a majority of the market. Now the thing that I think folks have been focused on there, that installed base has declined meaningfully over the last few years. So inherently, the number of patients that are available to you every year is smaller one, and you've got other players in the market competing for those patients. So how do we think about that? You've consistently been sort of 50-50 MDI competitive switches. How is that going to evolve?

Yes. I mean we fully expect it. So this is not a surprise to us as well, fully expected that it would migrate this direction. It's been consistently still 50-50 even through the second quarter. But we expect, as we move forward, that MDIs will start to outweigh the competitive conversions just because the sheer number of opportunities is going down. And that's why our portfolio is back to that -- it's not a zero-sum game. We're very focused on how to drive penetration in the MDI population because we know that there's room for us all to be successful. And we won't have as generous of a tailwind from them in the future.

Yes. Okay. And then maybe other competitive opportunities to come up. So yes, let's talk about business model here. pharmacy access, one of your competitors has had a lot of success there, and I know it comes up a lot. How do you think not having pharmacy access has kept you from putting any patients on a Tandem pump. I guess maybe let me ask it this way. Is there any doctor that's like I'm not writing a script for a pump that can't get through the pharmacy?

Yes, it's a great question. I don't think it's prevented someone from being on our pump that wants to be on our pump. I do think it has benefited them in terms of the marketing opportunities with the pay-as-you-go and the low upside. But their business model is just different anyway, even was in DME. And so what we understand when we talk to physicians, first of all, is generally simpler, but there are complexities there as well. So it's not always as straightforward as it may seem. And so physicians, we understand are reluctant to recommend or choose a product because of a channel because they also don't always know how it's going to turn out. And so just because you're in pharmacy doesn't mean you don't have occasionally a deductible or you don't have a prior authorization either. So physicians care more about your clinical outcomes and what you will stick with. And so they're going to prescribe the pump that will work best for you because it's better for your long-term health and your outcomes than what channel you might be going through. Having said all of that, we do think it's important to build our presence in the pharmacy channel. And this is about improving patient access overall. While we have broad coverage in DME again, in some cases, pharmacy is simpler and easier, and we want to make sure that we have that opportunity for our customers. And so we are using Mobi as our first opportunity as the entry point. I will say today, as soon as we got approval, the market access teams, #1 priority was to get all of our DME contracts updated because that is our bread and butter right now, and we don't want to impede commercial access when we have full availability of the product. But simultaneously, we've been starting and engaging in these pharmacy conversations. Sometimes it's the same people a different side of the house. And It's been there interesting. There absolutely is appetite for it. How this plays out long term and how quickly you get there, those are the question marks. When you watch other companies' progression in a pharmacy, it's a multi-year effort. You have to go payer-by-payer. And I'm often asked, well, can you become a subscription model? And I would say everything is possible, but it's still payer-by-payer. It's individual negotiations, there are many times there are set points when they will allow new products onto formularies. And so it's not like this can happen overnight. And so while I want people to be encouraged by the idea that we think there's opportunity there, it's probably not going to be a big 2024 conversation also we flip that switch. But we do view it as an opportunity, and we are pursuing it.

As you're talking, I'm thinking about how complicated this model is going to get to build [indiscernible]

We'll help you.

But I mean, the way to look at it, though, is we have this opportunity with Mobi right now, and let's get in there and learn establish a beachhead as best we can so that when Sigi comes to market here in a couple of years, we've established that and we can get Sigi into that channel almost immediately.

Yes. Yes, good point. And I want to talk about the pipeline a little more. But before we go there, let's talk about international because that's also been a bright spot for Tandem. Your installed base continues to grow strong double digits. How do the international pump market dynamics differ from the U.S.? And first, from a penetration perspective, thinking about it so low today. But second, so are the barriers to adoption different, et cetera. But then second, from a competitive perspective because, for example, there isn't pharmacy access so that. You don't have that same -- you don't pay as you go, but it's a different differentiation.

Yes. So we're super excited about the OUS opportunity. There's still a lot of room to grow, to your point, it's vastly underpenetrated. Part of that is the social systems there. There's a lot of work to be done to prove the cost benefit of these types of products. And so while we've gotten some level of traction, we're working closely with our distributor partners to continue to advance that and use our clinical data and information to share so that we can use that to turn the tide. But it's still about building presence awareness in the market. And we have a really great distributor partners there, and it will help also that Abbott integration in the future will also be a great benefit, just like we're expecting to be in the U.S. So we continue to focus on driving the business there. The competitive market is -- it's very similar to the U.S. There are some other new entrants that are creating some noise at this point. That was part of the reason why when we made the guidance change and did the reset, we decided to go ahead and adjust OUS as well just so that there's no surprises there and to sort of derisk those numbers. But otherwise, it's still a great opportunity, and we look forward to continuing to demonstrate high double-digit growth.

Yes. Okay. Is there any world in which the international can catch up to the U.S. from a penetration perspective? Or is that just unrealistic. I think international is what, like 5% penetration?

10. But I think it can. There's no reason. I mean when we talk to people in the international countries, they're just as interested in technology. And I think what's happened is the technology has recently become available that is very exciting. And so I think it's got huge potential for us. Right now, the U.S. is 1.8 million people with type 1; OUS is over 4 million. So it's a significantly larger market and less penetrated. And I think that the same factors that make us successful in the U.S. exist in the OUS markets also.

Yes. Okay. Well, let's talk about the pipeline. I think we've talked quite a bit about Mobi. I'm not sure if there's anything you guys [indiscernible] at there, but...

It's an awesome product.

Yes. Well, we got to see it at ADA, which was very exciting. And we also got to see the Mobi -- Tubless Mobi.

We call it internally, Tobi.

Tobi. So just thinking about timing there and then also timing on Sigi and what are the regulatory steps that have to happen for those products?

Sure. Well, what's interesting is there's been 3 conferences in the last 2 months that -- and this is after we've received approval for Mobi. And the only thing that we did from an advertising point of view is basically issue press release the day we got it approved. So there hasn't been a lot that's gone on yet. And we have been overwhelmed in these conferences. And I think that the sales organization very positive. They knew it was going to do well, but they were completely surprised by the excitement that people have in these conferences, which has been great. So that's something that really is exciting for the whole organization. And from a timing point of view, we were just talking about this. We have to -- there's work we have to do just based on some of the input we get from the FDA. We have to update all the manuals and so you have to change and print and all the labeling. And it's time consuming, unfortunately for us to do that. And then we have to train. The most important thing is to train our own staff and then train the physicians and their staff inside the offices to make sure that they're comfortable with it. And that takes about a quarter. And so that's really what we're doing right now. We're going through all of that work. And as I said, we intend to have the product on the market. Hundreds of people will be using this thing in the early fourth quarter. And we'll probably spend most of that quarter, just making sure that it's working the way we expect it to, so that roughly in the first part of the first quarter of '24, we'll step on the gas and really get it out there commercially into the marketplace. And so that's essentially what the plans are right now for Mobi. In the meantime, we obviously have the G7, which is in a matter of weeks will be on people to a great extent and then followed by the Libre 2. And I think that when we say early fourth quarter, that's sort of when we really commercially step on the gas. Same thing for Libre 2. But we will start to get people on both of those products here in the relatively near future, but it's the real commercial activity begins in the fourth quarter. So what we have said in the past, is we said that when you look at our performance, we've introduced a new product roughly every 12 to 18 months, and we have a very predictable cadence of doing that. So the next device that we have coming to market is t:slim X3. And we believe in a portfolio, and we believe there's going to continue to be needs and interest in t:slim and it's been on the market now for 10 years, and we've done technology improvements to it over that time frame. But it's really -- there's an opportunity to now I think to really bring it to up to speed with the current technology in the market, gives us an opportunity to cost reduce it and increase some of the microprocessor power and things like that, that there are all things we have to do to want to just take advantage of what's out there, but also eliminate any potential longer-term supply chain issues you might experience. So this is something that we're working on now. And as I said, it's like roughly every 12 to 18 months, you can anticipate. After that, it's the tubeless version of Mobi. And that is not -- the Mobi pump does not change at all. It's the exact same pump that's going on in the market today. It's really -- it's more of a modification to the mechanism in how you wear it. And so today, you have a cartridge and you have infusion set is almost like a catheter that delivers the insulin to your body. With the Mobi tubeless version, we will have a sled that you would adhere -- it's adhesive sled and you put that on your body and then you will have a different cartridge on Mobi that enables them to connect up to the sled. And so when Mobi tubeless comes to market, it's going to enable people to have tubed or tubeless options for the exact same pump. And so we think that's very desirable. Again, it's the flexibility as we were saying a moment ago, form factor and how you wear it, it's important to people. And this gives people ultimate flexibility, I think. And so we're excited about that. We think that's going to be, again, a meaningful driver of interest and uptake in the product. And that's beyond X3. And then Sigi, we have been working on our own patch pump now for a while, and we continuously do market research. And we've been looking at all of the companies that are out there, the smaller companies that are developing their own patches and comparing it to what we're doing. And we looked at Sigi and Sigi has a very compelling offering. And the thing -- when we were looking at a device internally that was going to be -- I mean the differentiation was just going to be smaller than the current product on the market and we were going to use concentrated insulin. That's a relatively challenging objective. And when we saw Sigi, the benefit it has is, first of all, it's rechargeable. And we think that the environmental impact of throwing away a device every 3 days with a couple of batteries and integrated circuits in a PCB, it's a big deal. And I think in time, I mean when you go to Europe, people are highly sensitive to the environmental impact of the products that we have in the market. And so we think rechargeability is a big deal. And then it also uses a prefilled insulin cartridge. And you can essentially switch the cartridge in a matter of seconds. So just take it out of a refrigerator, take the old one out, pop the new one in, and you can put it right back on and you continue to provide. So we think that when you have -- when the product is on the market, and you look at the current available products versus Sigi, it is highly differentiated. And so you have to make a decision at that point in time. And we think that people are going to favor -- I mean when we have done market research, it's kind of -- this score is off the charts, which is the reason we acquired the business and sort of put our own internal development on hold. And now we're moving aggressively to bring that product to market. We said we anticipate it's -- we feel comfortable that it would be on the market in '27. We're doing everything we can right now to pull that in. And we would anticipate as time goes on, we have more interaction and visibility to the team there, we would expect that we'll pull it in.

Okay. And then G7, one thing I wanted to ask G7 and Libre integration internationally. Is that tracking in line with the U.S. basically?

G7 will be -- it will be in the fourth quarter also. So it will be -- OUS, it will be pretty quick. We're going to go to OUS with Libre 3. And that's a little bit more complexity there. So it's going to take a little more time for us to do that. But we think that's the right decision to make U.S. Libre 2, go to Libre 3 quickly and then OUS Libre 3 first.

Okay. Got it. Can we talk about Type 2 for a little bit? I mean we talked about it a little bit already. But just as far as where we are from a type 2 perspective, I know you're working on the form factors and things like that, but also clinical data. So from a clinical data perspective, I mean, where do you think -- how much more clinical data do you think we need to get the coverage for the insulin-intensive type 2 patients that would be necessary to, I think, really drive growth in those markets?

Well, we had hoped that we could use the data we have from the 20,000 people currently using the pump to give to the FDA and make a submission. And in conversations with the FDA, they first of all, don't have a lot of information. There's not a whole lot of studies that have been run with AID systems in type 2. And then the type 2 community is a lot more diverse. People use different types of medication. There's all sort -- I mean, there's different body weights. There's all sorts of things that really make it -- it's not a homogeneous group, whereas I think it's more homogenous when you look at people with type 1. So the studies that we have to do are much larger and they contain people that have all these differences. That was a real important thing for them. And so obviously, control acute , none of the AID systems in the market today are approved for use with Type 2. And all 3 of the companies currently that have products are working on it. So we started our pivotal study just a few months ago when we are enrolling patients now. We would expect that it will take us probably to the -- sometime in '24 to complete it. We all submit the information to the FDA. We've had 3 major submissions already with Control-IQ to the FDA, and they've all been successful. We don't expect this will be any different. It's just a matter of getting it to the FDA and get -- just going through that review process. So it's more likely that this will be an early 2025 product, but we just have to wait and see because there's factors that affect enrollment and things like that. But roughly at '25 product sometime. And again, I think that's the first step. And I think that the idea of using Mobi, which is form factor convenient, discrete with that initially makes sense and then looking at ways to simplify the user interface because I think that people with type 2 have different needs in terms of how they interact with the pump and we want to make it very, very simple for them.

And then as far as reimbursement goes, I mean, do you think the clinical trial that you're executing right now that's also going to be enough to secure reimbursement here?

Well, I mean, I think we're getting reimbursed today for it. You want to talk about -- and there's also work that Leigh's team is doing to try to remove some of the barriers that exist out there. And we think we're making progress. It's just -- agencies we're working with are slow.

Yes. I mean there is an industry coalition trying to remove some of the barriers. But from the commercial perspective, there -- a lot of those barriers have already been removed. And so really, it's about being able to market to that population and tell doctors like this is approved for use in.

That's backwards the way it usually works.

It is very much so.

All right. Well, in the last few minutes here, let's shift to the P&L and talk about the different drivers of leverage because part of the upcoming product portfolio revamp here involves lower COGS, lots of leverage. So Leigh maybe talk about what the drivers are and how you're thinking about margin expansion over the next few years.

Sure. So you're right. The new products are the biggest driver of gross margin expansion. Mobi being the single biggest one in terms of -- it will get us more than halfway to our goal of being at 65% margins in the longer term. It won't happen overnight. So next year is going to be about building up to the level of scale in order to drive that. So the real margin movement will probably come in the years following. But it starts with the pump, which has a lower manufacturing cost of it by about 10% to 15% compared to t:slim. The cartridge too as the installed base grows using Mobi, has a manufacturing cost greater than 20% lower than t:slim. So a lot of opportunity to drive margins there. Next year, we are going to continue to be focused on expense management. You've probably seen from Q1 to Q2, we actually reduced operating expenses and expect them to be flat for the remainder of this year. But in order to fund our initiatives, we have a number of efficiencies in our customer support operations that we can implement to fund things like R&D investment, continued marketing investment as we think about rolling out these new products and growing our presence.

Okay. And I know that was good, but I'm going to ask one more question because I don't care what that clock says. The extended wear infusion set. That's something that's important that I forgot to touch on. So maybe talk about timing around that and how you think about that changing the decision of a patient going...

A lot of advantages are having that. First of all, from a timing point of view, we're going to be starting our clinical study here in the near future in a month or so. We're just in the process of getting everything getting sites up to speed. The ID has been approved. So we expect it starts in probably in the fourth quarter. And it's not unlike the type 2 study. It won't be as large, but it's going to take us in the '24 submission, and that's probably early '25 we'll get approval. But we're excited about it. And Leigh, you can talk about some of the financial benefits that it offers us.

Sure. It's the next single biggest driver for gross margin opportunity just in terms of the way reimbursement structure today. So we look forward to having that be a part of our portfolio between Mobi and Steadiset you'll get the majority of the way to our 65% target. The rest comes from pricing opportunities that comes from just regular old lean efficiencies or actual efficiency sort of thing.

All right. That was great. Thank you, guys. Bye, everyone.

Great talking to you.