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

Hi, everybody, thanks for joining us. Matt O'Brien, I cover Med-Tech here at Piper. Very excited to have the Tandem Diabetes management team here with us. From the company, we've got John, who's the CEO, and then Susan, who's the Head of IR and Corporate Communications. Leigh can't be here because of a family issue, unfortunately, which is much more important than talking to Matthew O'Brien. I can assure you of that. But thank you, so much for coming. I do appreciate it.

Yes.

I guess -- so sick of talking about these GLPs, but let's start with that, first of all. Type 1 penetration, about 40% today.

Yeah. 35%, 40%.

In our model. A few years ago, penetration was growing about 100 bps per year, that's accelerated. Is there any indication that, that growth should slow down as far as penetration within the type 1 patient population? And then we can get into GLPs in the type 2 side here in a second.

Yes, I'd say that longer term, we anticipate that getting up to about 65%. So we would see over the next 4 to 5 years, continued growth, to the point, where I think you'd have to have a little over 100,000 people coming from MDIs to type 1 to pump it and use annually. I would say that this year, in particular, though, it's been a little bit bumpy because when new products come to market, there is pausing that comes along with that. And then, so not only did Medtronic, but we have our own coming. And so we won't be able to tell what the actual number looks like until everybody has reported for the fourth quarter calls, but we would expect it to be kind of flat to what we saw last year. And last year, it was about 75,000 to 80,000 would come from MDI.

Okay. So 75,000 to 80,000 again this year, so you're probably expecting...

I'd say in that range.

All right. Got it. And then on the OUS side, is there any deviation in terms of growth within the market on the pump side?

No, I think we -- it's less penetrated and it's a much larger market. The people that are there really appreciate the technology that we're bringing to the market. So we expect to see higher growth OUS than we do in the U.S. And I think that it's a huge opportunity for us. Right now, the U.S. market has about 1.8 million people with Type 1, 40% penetrated. OUS, it's about 4 million people, 4 million plus. And it's only about 10% or 15% penetrated. So a huge opportunity for us. And I think that, what I think has helped -- as the state health or the country health plans see the benefits of the technology, they're beginning to be proactive in terms of actually encouraging people to use it.

Okay. Okay. And then starting to turn a little bit on the GLP-1 side of things. But for starters, what percentage of your user installed base is type 2?

It's a small number. We have -- in the U.S., we have about 300,000 people using our technology. About 20,000 are type 2, who are using the system off label. When you look at the market in the U.S., it's about -- there's about 2.3 million people who have insulin-intensive type 2, which means they need basal and bolus insulin. Therefore, that's similar to type 1 and that they need a pump, it will improve their therapy. In the U.S., there's about 100,000 people that have insulin pump therapy out of that 2.3 million. When you look at Tandem and Medtronic and Insulet, they all have devices on the market today that use AID algorithms. None of them are approved for type 2. So all 3 companies are working on clinical studies today to get the approval with the FDA. And we're all roughly same timing.

Okay. And what are you seeing? I know it's early days with these GLPs, but your second-generation GLPs. Are you seeing some of your patients roll off of the pump because of the GLPs out of that 20,000 patients?

No, I don't think so. I mean it's hard to say. It's a small number, but I don't think there is. And this is why I'll say. We are currently running studies for type 2. We've got a feasible -- feasibility study that we just completed a few months ago, when we've reported the data. And roughly half of the people in the study were using GLP-1s before they got into the study. These people are using MDI, they're using pens and needles and they're using over 100 units of insulin a day. So it's a large amount of insulin with GLP use. And they still were not achieving their glycemic targets. They had A1cs well over 6.5%. It wasn't until I got into the study and began using Control-IQ with the GLP-1s that they actually met their glycemic targets. So I think that when you're in that category of people, who are using a lot of insulin and you have type 2, it's insulin intensive. It's actually complementary. I think the use of GLP-1s and the Control-IQ algorithm really do provide better therapy and better results overall.

Okay. Got it. So let's just talk a little bit about Q3 then, I'll get off this GLP discussion for a bit you guys were surprised by what happened as far as the pause with Mobi. What was it that was surprising because we all knew this was coming out. Was it the time of the year that surprised you? Because Insulet introduced 05 early in the year, and so they didn't have to deal with some of the seasonality in Q3 and then obviously Q4 being a big quarter, historically, they didn't have to deal with that. You do have to deal with that because people are pausing now this quarter. So what really got you in terms of the prices versus kind of, you knew this is coming heading into the year with Mobi timing?

I think the Q3 number, we actually hit the Q3 number, it's really close. I think that -- the thing that we didn't anticipate was we expected to get approval for Mobi in the first half. We got approval in the third quarter. And so typically, it takes a couple of months to get the product ready to actually get on people, which for us is now the case. We have people using the technology today. And then it's a brand-new pump. So it just takes time to get through the process to be sure the pump works properly and our internal systems are supporting it properly. So it was -- I think it's just a matter of timing that it -- that took longer to get to the FDA than we anticipated. And when it came out, the availability of the product was in the fourth quarter, and we weren't able to sort of provide the demand. If it had happened when we anticipated, we would have been in a much different position. We would have been able to sell the product and sell it in volume. And unfortunately, that's not really going to happen now until the first quarter.

Okay. Okay. But just to push a little bit on this, and forgive me. But you did -- kind of -- everybody thought you kitchen sink guidance, right, for the year coming out of Q2 and then coming out of Q3, it's like, oh no, it's actually another step lower. But you knew the timing of Mobi, it got pushed a little bit. So what was it that changed to where you had to lower Q4 even more see what I'm saying?

Yes. I think that the Q4 guidance -- the issue in the Q4 guidance was largely because of OUS issues. It was the rebates that we're in that we experienced with the additional reimbursement. There's a charge we had to take to deal with the rebates. And then there was also a distributor that had an order in. And the order was pushed into the first quarter because of the availability of the G7 integration. They wanted G7 product, and that was not going to be available really until the very end of this quarter. Therefore, they decided, well, we don't want to upgrade the G6 pumps like that we would purchase, and they just moved it to the first quarter. It was these factors here that don't really relate to specific market in these conditions, it's kind of one-off because of these factors, these other factors.

That makes total sense. Okay. So let's flip into Mobi then for a second. Would love to hear -- and I know it's early, but just where are we at as far as the ramp of that product goes? [indiscernible] and I was a friends and family for a little while. I mean, where are we at in terms of rolling that product out?

So we have it on well over 100 people right now, and there are people who are Tandem employees. And there's also 2 clinics, 2 clinics that are large, well-known clinics in the U.S. that are -- they have a substantial number of people that are MDI pod users, 780 users. And the response is -- I mean we knew the response was going to be positive, but the response has been overwhelmingly positive. And people refer to it as the pump in the patch. And it's -- I think that there's this belief that it's a product extension. Well, it's really not. It's a whole different form factor that we think is going to drive demand next year. It's a -- it's really is with a tubeless argument up until this point. And I think with Mobi that comes a choice and wearability argument because with Mobi, it's a small. You can use an adhesive sleeve with a very small infusion site. And with that, it's very much like a patch, and you can put it practically anywhere in your body. We had a woman who ran in the New York Marathon, just did a personal best with Mobi on. We had another woman who ran a Marathon a few days before that. And she actually wore on her body. So the wearability options are incredible. And again, people forget they've got it on because it's so small. And there's -- it comes with the -- it's controlled fully by a mobile app. So there's a great deal of convenience and discretion that comes along using the mobile app. And people love it. We think it's going to be a significant growth opportunity for us in '24.

Okay. When you say overwhelmingly positive, what have you heard specifically? Is it just the size of the thing being so much smaller or something else in terms of the feature set of the product?

It's very light. And because it's smaller, you can put it anywhere in your body, and then people forget they've got it on. So it's not invasive at all. It's not like you have something that's sticking off your body, it bumped off or I mean the t:slim is a great product. It's heavier. And so it's so light that people just forget they have it on. I think that, therefore, it's -- you're controlling it from your mobile app. It's just like a patch. And so that's why people are calling it -- it's a pump at a patch, and I think it's going to do quite well in the marketplace.

Got it. Is there any thought in December rolling it out to a bunch more people? Or is it more in Q1, but more so Q2 because it's seasonally a stronger quarter generally in terms of a pump placement?

Yes. It's -- the process we follow is we want a limited number of people to be on the system for a while. Since it's a brand-new pump platform, we want to be sure it's working properly. And so that's the phase we're in today. We're evaluating it. We've got hundreds of people who are wearing it 24/7. So we have call centers that are set up. We've got teams that are looking at every call that comes in. We're also testing our internal systems. We want to make sure that our -- the training we provide to patients is effective. It's not generating its own set of problems. And then we want to make sure that our customer service organizations are prepped and trained. And then we're also working on training to optimize health care providers access to the system. So we're getting those things already right now. I think as we move into the first quarter, we'll start to ramp-up the volume. We'll have thousands of people on the product in the first quarter. And then as we exit the first quarter, we'll go into a first -- a full commercial launch. And what that will entail is it will have the G7 integration as well as G6, and then it will be available to anybody who wants it.

Okay. And the G7 integration is on time for the end of this year?

Not on, not on Mobi. But that will be on t:slim.

On t:slim.

t:slim, the G7 integration, we have thousands of people on it right now. And in a very short period of time, we will go to a full commercial launch in the U.S.

Okay. And any updates on Libre?

Yes. Libre is in the early phases. Since, we've got, again, hundreds of people using it today. It's a few months behind. I'd say where G7 is, but very positive response as well. I mean people are using it to control insulin. It's working quite well on the system. We expect it to be a great opportunity and a great product for us going forward. So every single new product that we've talked about now is it's in a -- one of the phases of commercial launch. And the results we're seeing for all of them is very positive. So I think that we're excited. The organization is very pumped up about this. There's a lot of momentum and excitement with the team. So we're ready to get this in the market because we think it's going to -- when you think of 2024, we'll have all 4 in the market for the entire year. And I think that it's going to be a transformational year for us as a result of these new products.

Okay. Okay. I'm excited. Fingers crossed there. On the Libre side of things were those new to pumping folks? Or were they using something else already because that's the other thing, talking about all these Libre users out there, how many are going to start on pump therapy with any...

Initially, the people that are initially using it are Tandem employees, who have a diabetes. That's how we start. And we want to make sure that we have very close observation of what's going on there. We talk to them quite frequently. Next step will be to add some Abbott employees that have Type 1. And then we kind of just add more and more. And there's -- we've got a list of people that we've actually -- asked people if they're interested in signing up for it. So we've got a list of people we'll go to and start to get more and more people on it.

Okay. And just back to the infrastructure side of things. Is there anything you're seeing so far from a manufacturing, call center, et cetera, perspective that you're worried about with in terms of Mobi?

I mean nothing that's significant. I think we're -- from Mobi's point of view, it's going very well. It's going incredibly well.

Got it. Okay. And forgive this question, why could Beta Bionics get to the pharmacy so quickly? And you guys can't, especially now with Mobi. Why can't you get through the pharmacy quicker? Is there something structural with the business or it's like, well, hey, look, we're really good with DMEs, and you have to take a hit in the near term? Or is there something else that...

No, nothing at all. I think that -- the first thing we did with Mobi is we wanted to get approved in the DME because we want to be reimbursed immediately. We have a team of people that have been working on this for quite a while. I would say that maybe 6 to 12 months ago, there was a question as whether it's even possible? I think we're definitely past that now. It's not if it's when. We are working with the PBMs. We're working with payers. I think that if I was a small startup, I wouldn't want people to know anything exciting about what was going on in the organization. And having a PBM agreement necessarily mean you have agreements with payers, which is the next step. I think we're doing this in a very measured manner. We want to make sure that we have all of the variables that are part of getting pharmacy reimbursement are locked up, and we've got solid commitments from the various organizations. It's a complex model to deal with. I will say we will definitely have contracts in place with the pharmacy this year for Mobi.

In 2024?

Yes, '24.

Okay. Okay. Excellent. I'm sorry, just walking through this a little bit. Oh, I know what it was. On the competition side of things, I've been hearing some stuff out of Medtronic, which hasn't floated yet with their numbers, and I'm still trying to get my head around. Beta seems like they're doing pretty well and Insulet still doing pretty well. How is the competitive dynamic right now, especially with 2 newer players on the market, 1 that may be able to go through the pharmacy with a traditional pump. How do we think about that impact on the business as we head into '24?

I'd say that of all 3, Insulet is still having the most effect on our business. And -- but it's stabilized, as I said. We're still out there. We're in the transit we're battling, but it's stabilized. I would say that the Medtronic device, it's -- we're seeing that Medtronic is doing a better job with their own renewals. And it's what we expected. And I think there's no surprises there. It's not like this overwhelming all of a sudden jump in their demand. I can't flip their numbers, honestly. I'm not going to try to because what we're seeing in the field is that it's what we expected. They're doing better. I don't think they're getting any if they order very few MDI conversions. It's really -- and there's no attrition from Tandem into Medtronic. I would say that with Beta, it's really early. They're still trying to get a sales force in place. We do hear about the product in the clinics that actually supported their clinical studies. But beyond that, we haven't heard this.

Okay. And that's the 1 thing I was curious about on the renewal side because they've been saying like, "Hey, we're getting some people to switch over and actually a fair number. You're not seeing that?

No. I mean, we see very little attrition.

Even to Insulet?

Yes, very little even to Insulet. We have some people who try it. I mean, when it first came to market, most of our employees tried it. I'd say -- and all of -- I mean, they came back to Tandem. So we look very carefully at attrition. And Leigh spends a great deal of time just looking at various signals that we'd have in the organization. And we have a lot of data, and we have data scientists that are looking at this for us. And there's always been a small number, but it really hasn't changed from the small number that we've seen. I think that we're competing directly with Insulet is for the MDI conversions, and they're doing a better job than they have in the past. And I think that these new products that we bring to market here in the near future will kind of get us back to where we have been.

Okay. So 75,000, 80,000 patients coming off of a shot into pumping next year. I mean, can you start getting back closer to some of the numbers you were doing historically last year, or is it more of a '25, but you've got everything out?

I think that I think we'll start to see the impact next year. It may not be as visible until the second half of the year, when we actually have meaningful volume for these devices. But I think we'll start to see a -- we may not get back to 50-50 where we were, but I think -- I mean, right now, we probably estimate we're like maybe 65%, 35%, I think it's going to move in our favor.

Okay. And on the renewal side of things, do you see people still pausing and waiting for Mobi? Or are they just converting and then like, I'll just pay the $200 down the...

In order to get that, the Tandem Choice program. And that's -- if you buy a pump today, a t:slim pump between June and December, you were eligible to get a Mobi pump in 2024, when it's available for $200. So that's encouraging people to actually renew today and not wait. It's -- I think it's more economic, that's more favorable economically for them to do it this year and then wait and start it in the first half of next year. So we think that Choice is a good program, and we think it's definitely helping.

Okay. Everybody is focused on you guys getting MDI patients, getting some of the competitive conversions on the top line. What does Mobi do for you guys on the bottom line and how quickly? Because I know it's an area that you've talked about historically. But how big of an influence can that product be?

Yes. Sure. So Mobi will scale throughout the year. Of course, there's going to be gross margin pressure initially. But to your point, the pump is going to cost 10% to 15% less than t:slim, and on the cartridge is at least 20% better. So we've got meaningful opportunity. It will scale across the year. But really, when you look at it at scale, Mobi gets you halfway to our 65% gross margin target. So it's a meaningful opportunity for the company.

Okay. And then the rest of the business, Susan, how do we think about some leverage in the rest of the business as you're making all these investments in medical education, all these new products. And even other stuff that's still in development, we haven't even talked about tubeless or Sigi yet. How do we think about leverage there?

Absolutely. So we started expense management activity as well over a year ago. And so what you're starting to see now is some of the benefit also from investments that we've made, things like automating, ability for customers to renew purchases. So for their supply reordering, we don't actually have to scale the headcount associated with supporting that portion of the business is the way that we did in the past. They're going to see operating margin leverage just from that portion alone. And so we've got a number of initiatives throughout the business as well as, of course, volume and things like that, that will contribute. But obviously, the benefit from product, you're going to start to see is it scales across the year.

Infusion sets will help. And I think that ultimately pharmacy channel as well, where we would expect to get additional reimbursement over what we received today for DME.

Okay. Why do you think you're going to get extra reimbursement?

I think that if you look at the competitors that are already in that marketplace, they're getting a significant benefit from that, and we may not get the same, but we think it's going to be more than DME.

Okay. So there could be a pricing tailwind that we see in '25, '26?

Yes, I think so.

Okay. The other question, and I don't know if this is for Susan or not, but just the concern that investors have, obviously, with the burn rate you have right now with additional investments that are coming, are you going to need to raise additional capital and then you got to convert that's coming up. I think it's '25?

Yes, '25.

So those things are starting to make people nervous as well. Like do you need to raise more capital? And then what are you going to do with the convert in '25?

Yes, we feel very comfortable with our balance sheet right now. I mean if you look at it, we have over $500 million. And so part of it with the convert is deciding what makes sense and what is the right timing. But to your point, yes, comes current May '24, but it doesn't mature until May '25. And so we've got some time to make some decisions on what's right for the business.

What made that -- sorry, go ahead.

I was just going to say, I mean, the real issue that happened this year was the transition to the European distribution center. That slowed us down at the very beginning of the year, and we did burn more cash than we typically -- in the second half of the year, that we don't -- we tend to be adjusted EBITDA positive. And I think as we get the growth we anticipate in 2024, we expect to return to cash flow positive.

Okay. Okay. Appreciate that. What about on the G7 infusion side of things? Where are we at with that? I think there was a study that had to be run...

Yes, we're just about -- I mean, we're working on the final details of starting the study. The study will take 6 to 9 months. So latter half of next year, we'll have the data for the FDA, and 2025, we'll have a product in the market. And as Susan mentioned, that's the products. And so Mobi and this extended wear infusion set really do have an impact on the gross margin.

Okay. What about tubeless and Sigi, where are we at in terms of development on those 2 products?

Yes, we're moving ahead in both cases aggressively. The Mobi tubeless, it's a tubeless implementation for the exact same pump. So with Mobi you can have a small tube, or you can have a tubeless implementation. It gets people choice, we think is very important. That's what we're working on that aggressively right now. We would say that that's probably 18 to 24 months out in time. And I think that we've just -- we closed a deal with Sigi is a Swiss patch pump that uses rechargeable and uses a prefilled insulin cartridge. We think that's going to be a very favorable competitor against the current options that are in the market today, that's more like a '26, '27 product. In both cases, where we've got great teams in place. We've got activity. We've got plans to get these products done. And we have confidence that they're going to come to market. So we've got these 4 products we're bringing to market right now in the not-too-distance future. We've already teed up these in the other 2, which we think are going to have another meaningful impact on growth, and it's going to help us get this MDI conversion to get the penetration rate up to 65% we've talked about.

Do you think you need Sigi with tubeless? Because I know tubeless can be a little bigger, but it's not going to have tubes, you move it all...

I think that the -- I mean when you look at Sigi, again, it's a rechargeable device and you have a device that you throw every 3 days. We think that, that environmental differentiation is going to be important. It's also very convenient. You can change the cartridge on Sigi in a matter of seconds. You can just get a pre-filled cartridges at your refrigerator, pop it back in and you're going. So the combination of those 2 is highly differentiated. And I think that when you look at the 2 products right now, it's not a -- tubeless, obviously, but there's a big benefit, I think, to choosing one. If you go to Europe today, they're highly concerned about the environment. I think young people in the states are. Now I think increasingly, I think we'll see more of the older population U.S. become more concerned about it as well. So we think that the environmental, the rechargeability factor is important.

Okay. And you guys know how was skeptical of Sigi. I see a lot of other companies develop that before. Sorry.

It's okay.

What have you learned since you've had the asset now? And how do you feel about your ability to develop it and get it to market? Because Medtronics tried, [ Novos ] tried. I mean there's I mean, you go on and on with all these guys, who have tried in the past side and failed. What have you learned and just the confidence you have?

Well, first of all, it's a very different product than a 3-day use device. And so a 3-day use device, the equipment that's required to build that automation line is about $100 million. It's very different for a device that's going to be used -- a durable device that's going to be used over time. So we have a lot more flexibility in terms of the manufacturing design process. I would say we just implemented Sigi -- excuse me, Mobi. Mobi is roughly the same size and in terms of complexity. We've miniaturized the device already. We know how to do that. And it's a durable pump as well. So it's really the fact that they have -- this device is disposable. That's where the challenges come from. And that's why others have failed at it because the manufacturing process is probably more complicated than the product design, and they are definitely integrated when you do that. With a durable device, you've got more degrees of freedom. Automation equipment cost $1 million or $2 million And so it's a completely different problem. And so we feel very confident we can do that, and we've demonstrated that we can already.

Okay. And last one, just last few seconds. I'm sitting here listening to all these new products and new opportunities and everything else. And I'm just thinking back to at least saying 10% growth next year, why is 10% right number with -- OUS should be much better. You're not going to have all the headwinds there. All these new products coming in...

It doesn't have a product activity. It's all that the number -- it's a baseline, first of all. It was really just to manage expectations when we changed our guidance in the middle of 2023. And so I think that we expect that these new products are going to drive increased demand as well the other programs that we've got going on, but it's really just a baseline to sort of to set it. And it's -- we can achieve that 10% when you look -- with just the renewal growth as well as supplies. And so it's really -- and we feel very confident we can achieve that. But again, it's just the baseline.

Okay. Got it. Well, I've kept this over. So we'll cut it off there. Thank you so much, John.

Nice talking to you.