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

All right. Good afternoon, everyone. I'm Larry Biegelsen, the medical device analyst at Wells Fargo. It's my pleasure to host this session with the management team from Tandem Diabetes. With us, we have John Sheridan, President and CEO; and Leigh Vosseller, Executive Vice President and CFO. In terms of format, it's a fireside chat. If anybody has a question, please raise your hand, come around with the mic. John and Leigh, thanks so much for being here.

Sure.

Thanks for having us. Nice to be here.

So let's start off with the GLP-1 since there's been so much attention around them for the past few weeks and even more so today, unfortunately. Can you talk about how you view the insulin pump market and the potential impact of GLP-1s on your addressable market, please?

Sure. I'm not -- prior to the last time we saw that article that was -- I guess it was a letter sent to internally. We would have said that we don't believe there's any real impact for GLP-1 on people with type 1. We still believe that, by the way. I think that there had been some questions raised by this information. I think if you look at it for what it's worth, it was an uncontrolled study, 10 people. And these people were in the early phase or the honeymoon phase of type 1. And so their pancreas is still functioning. They're still generating beta cells. So I mean, we would say that when you are in that honeymoon phase, you don't need a lot of insulin. And so, it's likely that GLP-1s could have reduced their total daily dose requirements of insulin to the point where maybe they didn't need to have basal insulin or they didn't need cranial insulin as well. I think that when we talk to Jordan Pinsker, who's our Medical Director, he's an esteemed endocrinologist, he would tell you that there's no correlation between GLP-1 and the function of your pancreas. It's about controlling your weight and it's the -- it's a cardiovascular benefit. It's a liver benefit but it's really -- when it comes to glycemic controller, it has little effects. So I mean I think there's more to be understood there, for sure. But I would say that it's probably more meaningful to discuss it as it relates to the type 2 population, because that's really what it's intended for and indicated for. And we're running a type 2 study today. In that study, it's a large one, over 300 people. We have a significant percentage of people in that study that are using over 100 units of insulin a day. And we also have a significant number of people in the study who are on GLP-1s. So we're going to have a data set here in a reasonable amount of time. That's going to give us information about that. But our team believes that if the sort of the -- in the perfect world scenario, where people are very compliant and using their GLP-1s on a frequent basis that we could potentially see a slowdown in how people kind of move through the cycle of type 2 diabetes, where they move from diet and exercise the medications to basal insulin to sort of type 2 with insulin intensive. It might slow it down, but it's not going to stop it. That's kind of what we believe. And I think that if you look at the market to begin with. In the U.S. today, there's 2.3 million people who have insulin-intensive type 2 and it's unlikely that they're going to transition out. Maybe there'll be a few, but there won't be many. And so it's a large market already. We intend to continue to pursue it. We're working on our study. We are developing products that we think will be applicable to that market. And then even OUS, for instance, it's over 6 million people that have insulin-intensive type 2. And so we still think it's a meaningful large market. And that I think there's more information that's needed on how these things actually act. These GLP-1s act over a longer period of time with the type 2 community. But we think that it's still an interesting exciting market and we're going to invest in it.

So let's just get the type 2 out of the way first. You've given numbers. It's a small part of your historical sale.

Today, it's about 5% of our total installed base. It's about 20,000 people in the U.S. and we're using the [ top ] label.

The status of your pivotal trial?

We're enrolling right now. I mean we've been rolling out for a couple of months. We would expect that the enrollment would probably be complete in the early part of next year. We probably have the study done in the second half of next year. And I think we'll get the data into the FDA. And we'll hopefully have an indication and certainly after that.

Okay. So big picture, it's kind of a greenfield opportunity for you?

Yes.

2.3 million people, maybe that comes down a little bit, but it's still a big market opportunity.

Yes, a big market. When you compare it to type 1, for instance, type 1 is 1.8 million people in the U.S. And so, it's a larger opportunity really than type 1. So it's something for us definitely to consider seriously.

And then the type 1 information was new last night, so maybe -- and that's your core market. I mean do you think that article is going to encourage physicians to start using them in type 1 off-label? Do you think -- I mean, do you -- there must be other data on type 1 out there. I didn't have a chance to do a literature search. You guys have probably been looking at this before last night. Novo and Lilly, I don't know of them having any plans to pursue a type 1 indication. We've heard about hypoglycemic risk and DKA risk in the type 1 population. I mean why -- yes, I understand this might have been a selected patient population, as you described. But why isn't this going to be something that just kind of increases over time? Why won't people -- why won't it increase over time?

As I said, I think our medical team believe that there's no correlation between the function of a GLP-1 and insulin producing pancreas. And so there's no correlation between the 2. It's like the function of the GLP-1s have nothing to do with that. Therefore, it's unlikely that's going to stop the progression of diabetes and caused me to not to use insulin. That's the premise at this point in time. I think that certainly, when data comes with -- when data like this comes out, and there's a lot of data out there already. I'm sure people are going to look for correlations to suggest one way or the other. But I think at this point in time, we don't think it's going to affect the type 1 market.

Okay, all right. Fair enough. Okay. Let's just transition then to the other parts of the -- it sounds like I let you off too easy. Is there anything else also so you've been meeting the people. So is there anything else you've been asked on that topic that you think would be helpful to share?

I mean, people are -- they think it's just it's a data point that really drives. There's no conclusion you can draw from the data point. It might cause people to want to go off and look at more data to see if there is more of a correlation. But I think there's just no correlation. There's no conclusions you can draw from it at this point in time.

Okay. So just transitioning to '23. You lowered the '23 guidance because you expect potential customer pauses ahead of the Mobi launch. This was on the Q2 call. What are you seeing so far? And why would -- one question I've been asked is why would people pause with $199 Tandem Choice upgrade program?

Sure. I'll talk about that. So when we adjusted the guidance, we were contemplating that we have this limited visibility. And what we have typically seen in the market before between FDA approval and a full commercial availability, there tends to be this pausing dynamic. That is why we made the adjustment with the promotional pricing on the Tandem source program to alleviate that as much as possible. But when you think about the behaviors of the individuals who will be looking forward to buying a pump by the end of the year, you can think about it from the perspective first of it maybe a renewal patient. That $200 switching price could be very exciting to them because they'll be facing their lowest co-pay in the year. So maybe they have an $800 out-of-pocket. And they could buy their t:slim now, which they already know how to use. They've already understand Control-IQ. They wear infusion sets and it's easy to switch when Mobi comes about. But if you go to the other end of the spectrum and you think about someone coming from multiple daily injections, that's someone who might be facing the question mark of, gosh, I've not used pump therapy before. And why would I want to learn one pump when I really want the other pump and it's just around the corner. So even with the low switching costs, I could see that someone from that population might be more inclined to say, I'll just wait a few months. In fact, if I know what my deductible is at that time, I can go ahead and start saving towards it. I'm going to meet my deductible at some point during the year anyway. So why not go ahead and do it early in the year and buy the Mobi pump then. So we were contemplating that there could be a lot of different behaviors that influence what could happen in the back half of this year. We really hope that the Tandem Choice program helps people as they think through this calculus, but we do expect there to be some pausing.

Okay. That's helpful. John, Mobi is a very different form factor from other pumps in the market. When you think about the patient decision-making process, is there a type of profile, person or patients that you think would be most likely to select Mobi? And are these people who would choose another pump if it were not available?

I think that Mobi is about half the size of the t:slim. It doesn't have a touchscreen interface. It's wirelessly charged. It's controlled entirely by a mobile app. And I think that we have done -- we've looked at a variety of different personas of peoples -- characteristics of people who we think would be interested in this device. Certainly, I think people who are tech savvy, who appreciate consumer electronics. I mean, I think that certainly, the size really does provide flexibility in terms of how you locate it and where you locate it. And the device also comes with an adhesive patch and a very small infusion set. So that you can actually -- you can put it on the patch on your abdomen, put the pump into it and then have a small infusion set. And essentially, you're good for 3 days, controlling it entirely by the mobile app. The mobile app gives people a great deal of convenience. It's just very easy to manage your diabetes when you have the app there because you haven't got to take the pump out. You can just do it on your mobile app. And as we all know, people are interacting with those devices frequently. And there's also a great deal of discretion that comes along with that, which we think is really important. So we think there's definitely people out there that probably otherwise would not have selected a pump therapy and that Mobi is going to help them. We also believe that it's a very, segmented market. And that there are different segments out there where people have different desires in how they use, how they interact, how they control their pumps. And therefore, we think having a portfolio of products, having t:slim X2 with Mobi, Mobi Tubeless and ultimately a fully patched by Sigi on the market simultaneously is the best way to provide a variety of options for the various segments of people in diabetes.

That's helpful. And can you remind us of the stages of Mobi's rollout? And what happens during this time? Have you already started the pilot?

No, we're going to start it here in a matter of weeks. So we had approval in the middle of July. Once you get approval, typically, what happens is the FDA marks up all of your labeling, your manuals and things like that. So we've got to go back and make the changes and reprint. One of the really important things that goes on right now is that we're training our sales force to enable them to go out and train healthcare providers and their staff and that's going to begin here in a matter of weeks. We will begin what we would call an early access program early in October. And in that, we'll have hundreds of people using the system in a couple of different centers just, to basically get a sense on its performance in a 24/7 setting. And the things that we'll be looking for in this setting will be how does it -- what's the customer service like? Is the system working as we expect it to? Is it providing a good experience for people? Are there small nuance level issues that have to do with training or the way the systems that is performing and maybe irritating to people that we can correct. But we want to get a sense on how the system works. It's a brand new pump. It's a brand new pumping mechanism. It's really important that we get this information before we step on the gas and really start to sell in high quantity. So this will take us a couple of months to do that. So we would anticipate that early in the first quarter, we will begin to roll it out commercially into the marketplace. We will do a -- what we have done limited launch where there's thousands of people. And then we would have a full launch or general availability at the end, probably at the end of the first quarter, early second quarter and then just move aggressively in terms of selling the device for the rest of the year.

That's helpful. And remind us of the pricing and cost profile for Mobi and how it contributes to your margin goals?

Sure. So when you think about Mobi and we have a long-term margin goal of 65% out there, Mobi gets us more than halfway to that goal. It starts with the pump itself. It has about a 10% to 15% lower manufacturing cost. The cartridge then as it becomes a bigger piece of the supply pool also provide benefit. The manufacturing cost of the cartridges are greater than 20% lower than the t:slim. So that will provide significant benefit over time. From a pricing perspective, I would say, initially think about it as same price as t:slim as we set up all of our contracts with the DME channel. It will go through the same code that we use today. Having said that, we are pursuing the pharmacy channel with Mobi as our entry point for access there. That's a capability that will likely take years to build if you watch the progression of other companies in our space or anyone building out the pharmacy channel to get broad coverage. I would say if you had asked me a year ago, how confident was I that we could get it into the pharmacy channel, I still had a bit of hesitation about whether or not a durable pump could be a fit. But with the early conversations that we've been having, we feel more and more convicted that it's possible. It will just take time to get there. The most important piece of it is we want to lay the foundation, build the relationship. So we can take Sigi range into the pharmacy channel when it launches.

And it's interesting. You talked about pharmacy in the context of pricing. So is there a -- you do give up price to go through the pharmacy. We saw that with Dexcom.

Yes. So our goal would be to continue to enhance price. And we do that by talking about the product as the value of the system, the value proposition of the data that comes with our products and particularly with Mobi, because we'll be getting real-time information from all patients using it since they're using the phone as the access point for the uploads. And so it's something that we believe we can demonstrate improved outcomes, which shows reduction in cost to the payer. And by having that ability to share that data, we think we can seek price premiums.

Even if you go through the pharmacy?

That's correct.

Okay. That's helpful. So John, obviously, CGM integration has been another pipeline focus for Tandem.

Yes.

Could you give us an update on where you are with G7 and Libre, please?

Sure. So we're very close to G7 also. I would say that in the next few weeks, we'll be rolling G7. Again, it will be the same kind of a program except where we have early access, limited launch and general availability, but that's all going to occur within a few weeks. It's just a -- we can quickly test the software and get it out into the marketplace. And so we would expect that we'll have people using the system here in a matter of weeks. And that by midway through the quarter, we'll have general availability and we'll be providing software updates to the 300,000 people who are out there today in the U.S. as well as shifting new pumps and have that software on it.

And Libre?

Libre 2 in the U.S. will be also -- it will also occur. Similarly, as the delayed by a few weeks after that in the fourth quarter and we'll start the limited launch and early access programs in the fourth quarter. And general availability probably won't be until sometime in the early part of the first quarter.

And Libre 3 is how far behind?

Libre 3, we haven't said specifically, but there's definitely more work to be done there. We're going to fast follow with it here in the U.S. And we're also going to introduce the Libre 3 on the t:slim OUS instead of the Libre 2. That's our plan at this point in time.

And International for G7 and Libre or how far behind the U.S.

G7 is going to be in the fourth quarter also.

International, too?

It will be international in the fourth quarter. And again, I think that the -- there's still a lag on the Libre 3 International. So it's going to be a little bit more time than that.

Okay. And I don't think -- the Street is giving a lot of credit for kind of…

No question about our pipeline. I mean I want to say that we have the most exciting pipeline in diabetes. And I think it's unprecedented for a company to introduce 4 products in 6 months and we're going to do that. We also have a history of introducing brand-new significant product introductions on an annual to 18-month basis. And again, we get very little if any credit for that.

Okay. That's fair. So -- but it sounds like you're -- well, obviously, you think there's a good opportunity with the G7 integration and the Libre.

Yes, they both going to have a meaningful impact on revenue. They're both great products. And there certainly our people out there that like either or. So Tandem intends to be switch into this. We're just going to make the technology available on our pump. We believe it's going to control the algorithm. In each case, it will control it very well. And it's just a matter of what peoples' personal preferences are. And we want to give people choice, which is what we're doing for at Tandem.

I mean like a scorecard to keep track here. But the integrations that you talked about was just with the t:slim?

Yes.

Mobi integrations will be how far behind?

We'll have -- we'll be introducing Mobi's integration with G7 at general availability. And then beyond that, on Libre 3, we haven't spoken specifically. But it's a little while after that in order for us to get Libre 3 on it.

The general availability is the first half of next year for Mobi until you'll have it on G7?

Yes.

In the U.S.

In the U.S.

And International?

And international as well.

Okay. So well, I'd be remiss not to ask you about the competitive environment, the Omnipod 5 and 780G. And there's been some other recent clearances with Beta Bionics and deck pump, which I don't think is bigger in a launch, but just curious what you think on that. And then obviously, Roche's solo pump. So a lot to cover there, John, maybe you can talk a bit there.

Sure. I mean, I think there's -- I mean the Omnipod 5 launch has been going on now for roughly a year. We definitely have experienced some competitive pressure from the product. It's a good product. I would say that we are holding our own though and I think things have stabilized. And I think that when we bring Mobi to market with various sensor integrations as well as the t:slim with sensor integrations, we anticipate that we'll begin to take more of the U.S. MDI starts, which is really where that device has hurt us the most. And so we're excited about this. So it's a great deal of momentum in the company. We've got these things teed up and ready to go. And we've been here before. We know how to do it. So I think that we're going to be in a different situation as we start to enter 2024, and we're excited about that. I think on the 780G, it's the same form factor for the pump. It's a sensor that requires or finger sticks and its incremental improvement to the algorithm. So I would say that is there a large and effective marketing entity and they certainly know how to do that. I think when you compare it, though, to t:slim and Mobi now with the different sensor integrations, I think we're still in a significantly better competitive position. We have a competitive advantage over them. So our sense is that typically, when a new product comes to market, there is pausing. People are going to want to see how does, this device perform. So we'd anticipate there's going to be some pausing here in the near term. They may me even get more of their own renewal stream now that they've got that device. But I think after a quarter or so my sense is that we'll return to the point where we'll be continuing to take competitive share from there.

How do I reconcile kind of the pausing and the guidance you gave for the second half of '23 with your stabilization comments with Omnipod, because if their script trends look like their TRXs continue to grow. What I'm saying is that they continue to grow, but you have this pausing -- the reported numbers may not show the stabilization, if you understand where I'm going? What do you mean by stabilization if you're also seeing pausing?

Yes. So I think the point is if you think about what we believe we can capture as new MDIs are coming to market, we're at a new point of share balance there. If not for the Mobi pausing, we believe we have good predictable patterns that we could trend through the year and we've seen normal seasonality. So it's stabilization of the environment overall. The softness we might see won't be because we're losing people, it's because they're waiting until next year.

Okay. Yes, I think that's an important point. It's really Mobi. Mobi is going to -- I mean every time we've seen a new product come to market, whether it's as simple as a software upgrade to the pump, where you've already got the pump, we've seen pausing. And so, it's just this natural phenomenon that happens here. People want to -- I mean the people in diabetes community talk a great deal. They want to get feedback and hear what others are saying about the products. And that's just that ultimately ends up with people waiting to make their decision.

I can understand the pausing. I'm just saying when people -- when you report the numbers, if there's pausing, it may not look like stabilization is all I'm saying.

Correct. A great point.

Okay. In Beta Bionics, I just wanted to ask about because they just raised $100 million. So I guess they have more resources now. What are you seeing from them in the market?

In the market, not a lot at this point in time. I mean, I think when we talk to the sales force about Beta Bionics, they are in several institutions in the same institutions they did their clinical studies. And that's where they're seeing people use the technology, but not broadly beyond that. I mean I think now that they've got this new funds that they've they raised, there's an opportunity to go out and hire sales, the sales organization and build the commercial infrastructure, which is I'm sure what the team is going to be focused on doing right now. We think it's a different product. I mean, I think when you look at it, there's less requirements to interact with the system. But I think that comes with a cost of less time and range as well. Our belief is that when you talk to people with type 1, when you talk to physicians, physicians want the ability to look at data and use that data to titrate and improve the performance of the system over time. And that's something we're seeing and hearing about when you compare this the t:slim to the Omnipod. There's more data and they can use the data and they can actually make adjustments to the system to improve the performance. That's important. And I think that same plan is a likely one with the Beta Bionics system. I would say that it's probably more -- maybe it's a more effective product with the type 2 community, where I think simplicity is very important. But we'll just have to wait and see if they get into the marketplace.

Okay. Fair enough. So Leigh, you expect growth in 2024 of at least 10% of the new '23 guidance. What are some of the assumptions that went into the 10% growth for the U.S., International? And I'm just also interested in new starts. Do you expect them to grow next year in the U.S.?

Sure. So I think first, it's important to frame what we put out there. We ordinarily would not have given guidance this early in the year for the following year. But it was important based on the adjustment to 2023 that we set a good foundation. And so the way to look at that is at the baseline off of which we can grow. And the building blocks behind it are -- there's a heavy weight to the predictable revenue streams that we have. And there's not a lot built in for driving any new business. And so it starts with the supply sales stream, which is running about 50% of our business now. That's easy to model based on our trends that follows our installed base growth. And you get a natural step-up just from the annualization of people we add to the installed base in 2023. Then, you layer on the renewals. And renewals have been the most exciting part of the story in the last 12 months. Through this challenged environment, we've been demonstrating our highest renewal capture rates ever as new warranties are expiring. And so this year, where we have 50,000 warranty expirations in 2023 and 2024 in the U.S. alone, that grows to 70,000 warranty expirations. So just assuming we can hold the rates the same on the increased opportunity that gives you a nice another piece of growth. And basically, what that leaves you with, well, what do I do with new pumpers? And all you have to assume to get to 10% then is that new pumpers are flat to slightly down from 2023. So when you look at that, you say, I can see an easy path to achieving those numbers in 2024. That doesn't factor in the upside that we expect to come from all these new products that we're launching now. There's -- we expect both of the integration plus the Mobi product to drive significant growth, but that's to come. And so for now, we just want to set people at the baseline before those are factored in.

I don't talk about international and the renewal opportunity outside the U.S.

Yes. The renewal opportunity there is really just beginning. It's a little bit different dynamic than in the U.S. because in the U.S., I tend to point people back to what we shipped 4 years ago. That's because our -- when we ship pumps in the U.S., they go on patients pretty quickly. There's very little that sits on the shelf at our distributor locations. Outside the U.S., it's been a very different dynamic where we've had distributors carrying somewhere around 3 or more months of inventory at different times. And so when you look back, you really need to look back 4 years and call it, maybe 6 extra months before you can think about that as actually being on patient. So that opportunity from -- in 2019, we shipped about 20,000 pumps. You can think about those as being an opportunity beginning next year. And it's important to remember, as we learned along the way, in the U.S., we are giving tips and hence our distributors about how to approach the renewal opportunity, but there will be a learning curve for them as well. So you might not see that quick ramp-up like we're -- with the same rates we're seeing today, but I expect that to continue to improve over time.

And you also have like an easy comp next year internationally, right, because you had about a $20 million headwind in the first half of this year from the distributor change.

That's correct, it's a great point.

Distribution center?

Yes, we have about -- we've seen about $20 million of headwinds in the first half of the year, which now is fully behind us. But you're right so that -- we will have that in the baseline.

Okay. But basically, U.S. starts, you said flat to slightly up?

Flat to slightly down.

You can still get to your 10% number?

Absolutely.

Okay. And you would hope that it starts to grow next year?

Yes, of course.

We certainly expect them to, with all of our new product launches. But it's important that we make sure we get everyone in the right place to begin.

So John, you talked earlier about launching 4 or 5 products and not getting a lot of credit for the pipeline. You're pursuing this portfolio approach, which is different from other players in this space. Why is this -- the right strategy?

I mean we've done a great deal of market research and in looking at focus groups and the feedback we get on focus groups. I think that we have seen with -- just with Mobi and t:slim, for instance. And the focus group work we've done with those 2 products. When both of them are available in the review by the people in the focus groups, we see a significant increase in the overall market preference to the point where we have 50% of the preference share when people see those 2 devices. And so that's an important piece of data for us. I mean, we anticipate that people are going to continue to be interested in t:slim, yet other people are going to prefer Mobi. And we also believe that having it a patch device is important as well. And I think this is just because when you think about it, it's hard to believe that a single device is going to meet the need of everybody and because of these needs are different controlling mechanisms, wearing mechanisms, just how you interact with the device. I don't think one device is going to meet those needs. And so what we're trying to do here is provide multiple devices that do multiple software iterations type 1, type 2. So there's a number of different variables that we have in mind as we continue to expand the portfolio. But starting with these 3 pumps, we think these platforms will be more appealing than just having 1.

And in the last few minutes here, John, I mean, it sounds like you don't feel like you're getting credit for the pipeline. Anything else that people are misunderstanding about?

You're right, I don't. I think the other thing is it's a -- I think that the market has been growing. I think 4 or 5 years ago, I think that we would see annually about 25,000 new people come from MDI therapy to pump therapy. I think this past year, we would estimate that that number was 75,000 -- maybe 75,000 to 80,000 people came to market. We think it's going to continue to grow and that we'll see in the over --

That's U.S.?

U.S., that's right. We think we'll see over 100,000 people. We believe that the penetration rate in type 1 will go from 35% to 40% today up to 60%, 65%. And in order for that to happen, we've got to get the average MDI conversions annually over 100,000. So there's a great deal of innovation that's going on in this marketplace today. We're driving it, our competitors are driving and our partners are driving it. And I think as a result of that, we believe that it's a largely growing market where there's opportunity for multiple companies to be successful. I think that's another thing. I believe that people sort of consider that this marketplace is really a 0-sum game. And if I win, you lose, it's not like that. I think the market is growing. And I think that will play out here next year as we bring these new technologies to market.

All right, perfect. Thanks so much for being here.

It was nice talking to you, Larry.

Thanks, Larry.