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

I'm Matt Taylor, the U.S. medical supplies and devices analyst. I'm pleased to be joined by management from Tandem Diabetes Care. So we have John Sheridan, the CEO; and Leigh Vosseller, the CFO. And this is meant to be a fireside chat. I think if anybody has burning questions, it's okay, if you want to raise your hand a little bit through the session here. But John, maybe to start, there are some folks here that probably don't know the story in the weeds at a deep level. Maybe you could just give us a little bit of an overview on where Tandem sits in the insulin pump market, talk a little bit about your legacy technology innovations and a sense for sort of where we are in the river. You have a lot of new technologies to come out over the next 6 months and maybe one of the most...

Six weeks.

Six weeks. And maybe one of the most kind of fruitful times in terms of your pipeline. So...

Sure. Well, Tandem's been around for about 10 years. And from the very beginning, we focused on what we would call user-centric design. Our goal is to make products that are simple, intuitive and easy to use and also provide excellent therapy. And we today are the -- we're the market leader in insulin pump technology in the U.S. We have a device in the market that's call Control-IQ. It's the most advanced algorithm. It takes data from a Dexcom sensor, uses that data to decide whether to increase or decrease amount of insulin we're using in it, substantially reduces the burden of diabetes and improves the therapeutic outcomes. In the last 18 months, there's been some competitive pressure for us in the marketplace. There's a few new devices that have come to market kind of in between our own product cycles. And so we have definitely experienced the pressure, and we've seen some flattening in our growth. The growth is really driven largely by innovation. And I'll say that Tandem has innovated faster than our competitors. We are introducing new technologies on a 12- to 18-month basis. And if you look at our competitors, it's more like 3 to 4 years. So we're at this position today where we have a wave of innovation that's about ready to be introduced to the marketplace. We have 4 new devices that are coming to market in the next several weeks literally, and I think that's going to really turn the tide for Tandem. We would expect 2024 to be a transformational year for us, and we would expect to return to the growth that we've seen up until this point in time.

Great. So maybe I'll start with thinking about the pressure that you're seeing. I know you've talked a lot about this pausing effect ahead of the Mobi launch as being one of the main factors causing the temporary slowdown. What are some of the indicators you look at in terms of indications of interest in Mobi, things like that, to gauge how much is due to the pause versus other factors?

Well, I would say that Mobi is a device -- it's the smallest stirrable pump in the market. It's controlled entirely by a mobile app. And it's small and flexible. I think that the initial response -- we have people right now that are wearing it in our early access phase of introduction and commercialization. And people absolutely love it. We knew the response was going to be positive, but it's extremely positive. And I think the people are -- the things that are -- the attributes that people appreciate, it's very small. It's about half the size of the current product. And it's -- you're able to actually wear it in a very flexible manner. It has an adhesive patch so you can locate it on your abdomen, your legs, your arms. We actually just had somebody run the New York Marathon with it last week and did quite well. So the flexibility that comes along with that is very important. It's also, as I said, controlled entirely by a mobile app. And so there's a great deal of convenience that comes by having the mobile app to control product as well as discretion. Leigh, you may want to just talk about some of the data we've been collecting on interest from the general population.

Sure. We got approval in early July and within 2 or 3 weeks, we already had thousands of people sign up on an interest form that we have put online. And so that information is something that we're using now with our customer service teams to go through and actively come and reach out to people and understand their level of interest, if they're already a customer today, if they're interested to becoming a customer for the first time, checking their insurance benefits and working them through the cycle, making sure they understand that we have a switching program for people. So if you buy your pump today, when you're -- when you've met your deductible and you're using your end-of-year insurance benefits, there's a low switching cost next year when Mobi becomes available. We also anecdotally hear from physicians frequently that they have a number of patients that are waiting to purchase. They haven't reached out to us necessarily because they're just waiting for more news about it being available. But we're getting signals from many different places of this high level of interest that John was referring to.

Maybe talk about how the initial launch is going. I know you did some testing here in the Q4. And then when do we see the full power of the launch happen in Q1?

So it's a brand-new pump technology for us. It's new technology. It hasn't been really -- it hasn't been on the market before. It's been used in, I'd say, more defense applications. So we want to make sure that it works properly. It works -- and it doesn't create any customer service issues in the marketplace. So what we do is we typically we'll go out and we'll have several hundred people using the product which is going on right now. And in that time frame, we want to evaluate exactly how it works, make sure that there's no bugs, there's nothing that's going on with our systems internal to the company, our customer service, our training, and we're in the middle of evaluating all that right now. As time goes on, we'll increase the number of people that are using it. And as we have more and more confidence with the system, we'll go to a full launch, which will probably be in the first quarter of 2024. So we expect that -- we'll continue to operate as we are right now. We've got a couple of other product launches that are on going as we speak. So the organization's quite busy just supporting those. And I think that we'll really put the foot on the gas when it comes to Mobi in the first quarter.

All right. And -- well, you talked a little bit about this on the call. Normally, there's a lot of seasonality in the business because of insurance and deductibles. Could that be different in 2024 with the timing of the Mobi launch?

It could, actually. So what we typically see in the U.S., because of the insurance benefits and how deductibles reset at the beginning of the year, is that roughly 60% of pump shipments fall in the back half of the year and the fourth quarter is by far the largest. Next year, as we go ahead, we haven't put out any guidance yet that factors in what the new products can do for the business in terms of the catalyst. But we do believe because of the timing of these multiple products that we've talked about rolling out at the beginning of the year that as awareness grows, there will be momentum in the market that it could really push to a much larger back half loaded year than we might have seen in years past. And we have evidence of that when we launched products in Basal-IQ in the early years, Control-IQ even that shows that you really can push people to the third and fourth quarter.

To remind everybody, you talked about 10% growth next year off of a new base. We've seen renewals really pick up and your conversion there remains high. I guess the question a lot of investors have had is how much of that 10% growth could just be covered by renewals and supplies, frankly? Or what does it assume for new pumps?

Right. Great question. So we did put out an indication for next year, a baseline. And we thought it was important based on where we're ending up this year with this pausing dynamic. But just to show that even in the environment that we're in, if nothing were to change, so as John mentioned, there's been some competitive pressures, there's been some economic pressures in the market of people timing their purchases differently now just because they're weighing where they want to spend their money, that it's a bit challenging to predict what next year looks like. And so by putting out this baseline of a 10% growth rate, it's to show that with just the customers that we have today purchasing supplies next year, and just the customers already in our base whose warranties will be expiring that are coming up for renewal, those two factors alone will be a significant part of that growth opportunity. New customers coming to Tandem could be flat or even slightly decline compared to this year, and we could still achieve that 10% growth rate. And as we get more information about the new products, how they're rolling out, the trends and some data behind that, we'll talk more about what kind of upside that can bring to the business next year. But for now, I believe we can achieve 10% but like I said, status quo environment.

Got you. And John, you mentioned some of the other product launches you have going on right now. Maybe we could walk through some of those.

One of the things that we really don't talk a lot about is a product we call Tandem Source. What it is, it's a data management platform that's actually inside the health care provider's offices. And it also is for people who have just the pump, can get access to it on their computers. And it's -- we've just basically -- we've had a system on the market for 10 years now, and we've completely revamped it. So it's brand new. It has data that the physicians themselves can determine exactly what they see and what they want to see, use this type of technology, so they can choose different graphs and things like that, that help them better manage the patient diabetes situation. So that's -- and it's almost -- we're almost completely rolled out that in the U.S. And we're getting prepared to make that happen OUS today. The next product that we're working on right now is the Dexcom G7 implementation. So that is actually -- the implementation is complete. We're in the phase where we're actually beginning to ramp up. And I'd say in a couple of weeks, we'll be in general availability where all of the U.S. market will have access to the technology. And this is a software update. So people who currently have our pump, if they're in warranty, can update the pump remotely in their homes. And of course, any new pump that we ship in several weeks, will just -- will all still have the technology on it as well. We're also working with Abbott, and we're a little -- a few weeks further behind on Abbott, but it's also going to happen in this quarter, where we'll begin to roll out the implementation with the Abbott Libre 2 sensors in the U.S. So that's -- those are 2 big important introductions, the 2 sensor integrations we think are going to be important for the fourth quarter and also drive demand in 2024. The thing about Abbott that's interesting is that there's currently about 300,000 or 400,000 people in the U.S. that have type 1 that use the Abbott sensor that don't use a pump. And we believe that there's a great deal of interest in that group and it's a big opportunity, I think, for us to continue to capture share as these pumps come to market.

I've got a couple of follow-ups on that. So the first is with G7, and that's kind of an upgrade. Do you expect that to be a driver of people getting on pump? Or do we see that in the revenue? Or is that more just to make your customers happy?

No, it's been surprising. When we talk to our sales organization, quite a few people are pausing, waiting for it to be available. And so I think that there's likely to be some impact of that in the fourth quarter. I think that the product, it's smaller, it's got a great form factor, it warms up faster. So there's a lot of things about it that are really very appealing to people. So I think it's definitely going to continue to drive demand for us and we certainly drafted up Dexcom and their success. I think that, as I said, the Abbott opportunities is probably larger for us right now because there are some people in the U.S. who are using the sensor who aren't using the pumps. And our early research would suggest they want to.

And maybe talk a little bit more about that. So you're ahead of your competitor there. Abbott is a greenfield opportunity. Remind us -- I think 1/4 of your base in -- is connected with Dexcom. Is that a good proxy for Abbott over time?

I would say right now that everybody who uses our product is using Dexcom. So we represent about 1/4 of Dexcom's installed base. And so I think that's a fair proxy I would say for the same thing to occur with Abbott.

All right. What about the timing on that? Is that a 3-year conversion cycle or a 5-year cycle?

To get to the point where we -- I'd say, it's hard to predict. I mean, we're going to co-market and sell with Abbott. We'll take advance of their resources. Certainly, there's also a large OUS population of people using Abbott sensors that are a big opportunity for us. We definitely think that -- as we've indicated, we plan to get to 1 million people using our technology in the next 3 to 4 years. And Abbott is a big part of that. And we haven't been really specific about exactly how many we expect to get in 2024, for instance. But I think there's definitely a meaningful opportunity for us to take it out there and take advantage of the large numbers.

That's a good pivot maybe to International. I wanted to talk about a couple of topics there. One is we've received some questions about just kind of what happened in the third quarter with some of the changeover that your distributors were going through. Maybe you could just unpack that a little bit and talk about what happened there and when that will resolve.

Sure. At the highest level, I would say we hit a few, what I would call, speed bumps outside the U.S. with a few of our largest distributors. And I would put them in a category being near term, onetime, not anything systemic, but just some things that we needed to work through in terms of efficiency of their operations, how they manage product rollouts and such. And so one example in one of our larger markets, our distributor was working through software rollout process. And in the U.S., it's very simple. You send a code out to the customers and they update their software in their home at their leisure. There's no assistance required, if you will. In this market, in particular, it requires that a clinician is involved. And so what it did was it took away the distributor sales team from their selling activities. They were helping manage the install base. And why we were surprised, it's something that they had to do in the past, but the size of the company now in that market is so big and our installed base is so large that it was, I think, a surprise in terms of the capacity that they need in order to manage through this. And so it impacted their orders because they weren't selling, as I said. And so they had to adjust and they're back on track now as we look into the next quarter. I mean, another one of our large markets, in particular, and this is impacting a few, but one of the larger ones that impacted the sales numbers, we have G7 rolling out just after the first of the year. And so it's influencing the timing of the distributors' orders. So orders that we had anticipated were coming in the fourth quarter now will shift into the first quarter as they prepare for the G7 rollout. And so those were, like I said, surprises to us in terms of what we had forecasted, what we had expected, but near term, it's something that we clearly can work through.

Great. And can you talk about when fully resolves? And then what that means for growth in international markets next year?

Sure. I mean, I think once we turn around the first of the year, it should be behind us in terms of those two disruptions in particular, and also the learnings we have of how we can better predict or anticipate these sorts of changes as we go on. The OUS market next year, it's got a pretty easy comp in the baseline. But aside from that, demand is still great outside the U.S. The markets are vastly under-penetrated compared to where we sit in the U.S., where pump penetration in the U.S. is about 35% to 40%, but outside the U.S., it's still in the teens as a percent. And so great opportunity, demand is high, and we expect to see a good, sustainable growth going forward.

And international is a little bit on its way in terms of when you're rolling out all these products. Just help us understand, is there anything really fundamentally different about the competitive landscape or reimbursement that would change your performance or success rate in international markets versus what you've done in the U.S.?

I think the only thing I'd say is from a business model point of view, we're dealing specifically with the health care systems of the individual countries. And so there's a tender process that you go through to establish reimbursement. There's no pharmacy channel, for instance, in the OUS countries. And so there's definitely an advantage that provides to one of our competitors in the U.S. and that doesn't exist outside of the U.S. Other than that, I'd say that the competitive landscape is essentially the same, the products speak for themselves. And I think that there's a little bit more competition. There's a few other products in the market OUS. But we're working very hard to get all of the new technology that we have here, that's going to be available in the U.S., OUS...

Sorry about that. And I just want to -- we have a couple of questions, but let me just ask you about, last week, I don't know if a lot of people saw this, but you got a NICE recommendation from the U.K. talking about moving people to -- close to the systems and how that should be preferred. Maybe just help us understand how big of an opportunity that is for you in the U.K. specifically. And I think there's 14,000 people in Wales or something -- but in the U.K. And then does that recommendation help you in other markets as well?

Do you want to take it?

Sure. So they sized the opportunity as almost 300,000 people living with type 1 diabetes in the U.K. and Wales, to your point. And the recommendation has been to put pump therapy as standard of care for certain age groups and adults with A1cs over a certain level. And so it does create a nice opportunity in that market. It's going to be a progressive rollout. And so because of capacity constraints in that environment, we've been told to expect a 5-year rollout. So it's overtime. But I think what's important is it's an indication that pump therapy is being recognized as the appropriate therapy for people living with type 1 diabetes. And many times, you'll see this percolate across other markets after you see it especially in the U.K. So we're excited about that. And I'll add too, in France, in particular, Control-IQ now has differentiated reimbursement. So I think it says a lot about pump therapy, but also our technology, in particular, that it's being recognized and so we hope to see that in other markets as well.

Got you. I think we have a couple of burning questions here in the audience. I want to go over here.

Can you talk a bit about size. Three questions. One, [Technical Difficulty]?

That's a great question. I'd say that right now, there's a reservoir inside the pump that contains the insulin. And that's really what drives the size of the system. We were actually -- we were able to shrink the size of the Mobi system because we took the touchscreen off of it. It's roughly the same size as the pod. I think one of the areas that we've been investigating has been concentrated insulins. And if you can go to a concentrate, you can even make the reservoir smaller. It's certainly something that we're thinking about for next generation technology, maybe patch [indiscernible] device. Yes?

So in there, where are you with the Sigi pump technology? How should we think about positioning type 1, type 2, just good to get an update there?

Sure. Sigi, first of all, it's a great technology. Before we acquired the business, we actually did quite a bit of market research comparing its technology to the other devices that are on the market as well as devices that were in development. And it really scored off the charts. And one of the most important factors is it's rechargeable, it's not disposable. And there's a substantial environmental benefit from doing that. And it also has a prefilled insulin cartridge. So there's simplicity that comes along with that as well. We would expect this device to be available for both type 1 and type 2s. When it's available, it will have the Control-IQ algorithm, it will be integrated with the same sensors that are on the market today and the ones that we're integrated as well. Right now, we acquired the business in January. And so we've been working carefully with the team to just make sure they're resourced adequately to get the product to market as quickly as we can. And we would anticipate it to be on the market in the '26, '27 time frame.

GLPs have absolutely killed the diabetes market pretty much across the board this year. And unfortunately, you guys have been one of the worst hit by that. How much of that do you think is overblown? How much the GLPs changed the opportunity size? And how are you looking at the markets reaction this year to that?

I'm kind of surprised Matt didn't ask that question. I would say that -- I mean, the SELECT data just came out this weekend. And in the SELECT data, what it suggested is that there's a reduction in the progression of people moving from prediabetes to insulin-intensive diabetes, but it doesn't stop it from happening. And so that's been our position from the very beginning. First in type 1, your pancreas discontinues function. And so you absolutely need insulin in type 1. In type 2, it's progressive. And you get to the point where you need insulin every day for both basal and bolus. And as I said, we expected that the GLP-1s will slow that but not stop it. If you look at the market today, it's very large as it is. There's about 2.3 million people in the U.S. that have insulin-intensive type 2. We've just completed a feasibility study for our type 2 indication and in it what we saw is there's people who use GLP-1s. They were on MDI. They're using pens and needles, using GLP-1s, and they weren't meeting their -- the standards of diabetes care. 0They were still at very high A1cs. It wasn't until actually that they were in the study and they were using Control-IQ with the GLP-1 that they achieved their targets. They got their A1Cs down below 6.5. And so we believe that if you are insulin-intensive, that the combination of the GLP-1 and Control-IQ is good. And we've seen it's complementary, and we've seen that's how these people have been able to maintain control. I'll say that the amount of insulin people are using, who have insulin intensive type 2, it's hundreds of units of insulin a day. So it's very unlikely that we would see that group go into remission. We can see potentially less insulin but it's still a lot of insulin to start with. So I mean, the way we look at it is it's potentially slows the progression. There's big questions, I think, around adherence to the GLP-1s. I mean, people often stop taking them. I mean, once you start -- stop taking them, you're back on to progression again. So -- I mean, there's a lot to be learned in the next couple of years, but we intend to continue to invest in type 2, the products that we've got type 2 indication we think it's an important market, and we're definitely going to be there in the near future.

What if GLP-1s cure knee cancer? Maybe just to remind people, most of your business is in type 1.

Right now, it is.

I'd love if you talked about that, being able to grow it quite a bit. So can you unpack the type 1 versus the type 2 opportunity?

Yes. I mean, in the U.S. today, the type 1 market -- there's 1.8 million people with Type 1. It's about 35% to 40% penetrated. So it's about 700,000 people that are using pump therapy. The others -- the people who aren't using, obviously, they're potential candidates for devices and others. In the U.S., there's 2.3 million people who use -- who have insulin intensive type 2 and about 5% use pumps. So it's about 100,000 people who are using pumps that have type 2. We have about 20,000 people in the U.S. that are using our technology off-label. In the OUS markets, there's about 4.6 million people with type 1, and it's about 10% to 15% penetrated. And there's -- I think there's 5 million or 6 million people with insulin intensive type 2. So the OUS markets in both cases for type 1 and type 2 are quite large and represent a big opportunity for us in the future.

Could you ever foresee yourself running a study with GLP-1s in the future?

The -- all of the -- so we just finished a feasibility study with about 30 or 40 people and about half of the people had GLP-1s. We are doing our pivotal study right now for type 2. It's going to have over 300 people in it. And the FDA wants you to have -- they want the people in the study to be representative of the population. And so a significant percentage of the people that are in this pivotal study will be using GLP-1s. And that's -- and we anticipate that when it's done, we'll see the same thing. We'll see that people who have been on MDI using GLP-1s will get better control of their diabetes when they use Control-IQ and GLP-1. So again, we think it's a complementary situation and we'll benefit from it. And the data will speak for itself when it's available next year.

Great. I think we're out of time. We have to end there, but thanks so much for your time.

Thank you, Matt.

Thanks for your interest in Tandem.

Thanks, everybody.