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

Okay. So thanks, everyone, joining us. Good afternoon, my name is Matt Miksic, I cover U.S. Medical Devices here at Barclays, and we're very pleased to have with us again Tandem Diabetes. So John Sheridan, President and CEO; and Leigh Vosseller, CFO. So...

Can say 1 thing real quick.

Yes.

We're going to be reporting and talking about forward-looking statements. Please look at our website in the IR section for the slides that describe our policy on forward-looking statements.

Okay. Good to know. Well, why don't we start with like recent events then. so maybe there's lots to talk about. But most recent launches, most recent feedback from clinicians. We know that you have 3 pretty important new products. I think I'm counting them right in integration with G7, integration with Libre and of course, Mobi, all kind of -- began various stages of launches in December and into January and February. And so would love to get your sense of what the feedback has been so far? Whether we're at full strength launch on those or how they're -- how we should expect them to ramp over the next couple of quarters?

Yes, sure. Well, we actually had another one. It's actually 4...

I knew there is going to be one.

And that would be Tandem Source, it is our data management platform. and that's been rolling out really in the second half of last year. And it's very important to us because Tandem Source is it's the data that's used by the physicians to manage their patient population. And with source, we've made it a lot more efficient for the practice to use the data and just more effectively keep track with their patients. There's customizability. And it's also a one-stop shop for all the patients and their loved ones. People can go there, look at their data. They can get order supplies. They can do updates, they can get technical support if they like it. So it's a one-stop shop for all of our constituents and a really important part of the ecosystem we intend to build going forward. And then as you said, you're right. We've had the 2 sensor integrations at the end of last year. Both of them have gone quite well. G7 was, I think, in the November timeframe, and they have a relatively large installed base, and we have 300,000 people today who use the G6, and many of them have already updated to the G7 capability. And we even heard that in the third and fourth quarter, our sales force was reporting that there was some pausing going on, people waiting for the G7, G4, they would select the pump. So obviously, we were able to satisfy that at the end of the quarter. And I'd say the launch is going very well. There's the ATTD Conference in Florence this past week. And there's this very, very cool photo. It's a photo in the Dexcom, it's giant, and it just says Mobi and G7 integration. And then you look on the ground, there's like there's a little tiny pump you can barely see. So it just really does highlight the fact that Mobi is such a small pump. We've also had the Libre 2 integration to t:slim that happened in the early part of the year. We think that's a very important part of our business going forward because in the U.S., at least, there's 300,000 to 400,000 people who have type 1 that use the Libre Sensor that don't use the pump. So this represents just a big group of people who could really benefit from the therapy that we provide. And we're, of course, collaborating with Abbott, working with their sales organization, they're marketing for us, and that's going quite well also. I guess, 4 months ago, we began to introduce Mobi. We have about -- we had about 150 people using it for that 4-month period. There were about half the people who were from Tandem, half of the people were from several large clinics. The people in the clinics were people that had used, they use the pod, they used the 780G, and they were MDI. So they're good representation of the patient population that's out there. And the intent of that period was really to make sure that the product was performing properly. And it did very well over the 4 months. We really didn't have to do anything to change the product. We just -- out of the box, it was just performing just as we had hoped it would, but it also gives us time to make sure that the training materials as well as the CTS organization, the customer service team, are prepared to handle the questions that come in. So we spend a lot of time just optimizing that. We don't want to create problems. And of course, when people are being sought out to help them solve problems, we want to make sure they can do that. So the idea of that first phase is to really be sure the organization is prepared as well as to make sure there's nothing going on that's going to cause an influx of calls when it does get into the marketplace. So as I said, that was a very positive experience. And then on February 13, we rolled it out commercially. And I would say the feedback we got from the people using it in that 4-month period was very, very positive. We expect it to be positive, but it was much more so than we anticipated. I would say that the #1 thing people are just completely surprised by is just how small it is. It's very small and very light. And the most common way people are wearing is, we have an adhesive patch that you can put pretty much anywhere on your body. You can put it on your leg, your arm, your abdomen, your -- just pretty much anywhere you'd like and insert the pump into it with a very small infusion set, it's a 5-inch infusion set. And people have said they forget they have it on. And they describe it as it's freedom, it's liberating, it really is a substantial reduction in the burden of diabetes. And it's controlled entirely by a mobile app. So there's a great deal of convenience that comes along with the mobile app as well as discretion. Because when you're interacting with your mobile app, nobody knows you're managing your diabetes. So the response has been very, very positive. We trained the sales force in the January timeframe, and now they are out training the physicians and their staff. And the response from physicians has also been incredibly positive. We -- they have -- many of them actually have type 1 and wore it during that 4-month period. They liked it. They like the fact that it's got a bolus button on it. If you lose your cell phone, the sensor continues to talk to the pump. The pump has the algorithm on it. So it's continued to make decisions. But if you need to give yourself a bolus for some food you might have had, there's a button on it that allows you to do that without the cell phone. So it's really -- it's gone quite well. And so we're very excited about it. I think that it was an incredible feat for the entire organization to introduce 4 products in a relatively short period of time. Very proud of the team. And I think it's going to really change the trajectory of our business as we go into 2024 and beyond.

Okay. So with that in mind, you had guided 10% this year, which in the world of diabetes is a -- sort of a muted conservative sounding growth rate for good reason. Can you talk a little bit about what assumptions were in that in the top line, and then we can proceed from there, I guess.

Sure. So the guide was that based mostly on what I would call our predictable revenue streams. And so it's been a tough year in 2023. But as we look ahead, we have a significant amount of revenue that's coming from our supply sales and as our installed base growth that continues to grow with it. We also have a significant opportunity from our own patient renewals. And so, in 2024, the new opportunities coming to market is about 70,000 and that's growing more than 30% from what it was in 2023 to about 50,000. And what's really important about the renewal element to the business is even in the trouble times, it was a tough competitive environment. We were renewing our patients at rates that were highest in our history. And so if you apply those going forward, you'll see a really nice growth rate coming from renewals. And then from a new patient perspective, [indiscernible] have it's original guidance. We're setting it kind of to John's point, it does not reflect the trajectory that we think the products can have on the business. And so it's really set at a baseline. If the competitive environment were to remain the same, if the new products didn't change the dynamics, we could bring at least as many new customers in 2024 as we did in 2023. So you put all those pieces together, and it does set a solid baseline for 2024. And then we look forward to as we see how these launches progress, develop some sustainable trends to further inform folks how to think about the guidance and the opportunity for the rest of the year.

Okay. So if -- and I use this analogy sometimes talking to investors or sometimes clinicians about like you're talking to a new pumper, a new person who's going to get a pump and there's like -- there were, I guess, 3 or 4 pumps on the table in front of them and the patient is kind of looking at each one. And I think we know it is widely known that over the past year or so, many of them have begun with the tubeless -- like that's -- boy, that looks attractive to someone who hasn't used a pump before. And so if you were to add Mobi to that mix, and you were to end up kind of splitting your share, in other words, it doesn't really change the share that you're getting on new pumpers, whatever that is, then you -- that would be kind of in line with your expectations for the year. Whereas if you were to add Mobi to that mix, and you pick up some incremental new pumper share because they pick it up, look at it and say, wow, I kind of like, can move it around, et cetera, then that would represent upside. Is that a fair way to think about your guidance?

Yes, it's a really good characterization.

Okay.

Yes, we certainly think that the new products are going to drive just growth and demand. But I think that we want to start after the starting point that we think is absolutely achievable without them.

Of course. And then sort of another kind of vector is the integrations. You've talked a bunch of times over the past, I think, a couple of years about this 400,000 Libre users who are insulin-intensive, candidates for pumps, but not currently on a pump, right? Or is that the right...

They're not on pumps. That's right, yes.

And so again, if you were to start pulling through an incremental flow from those folks because of your integration, not available, really, you're the only pump now, right...

There's a pump in Europe that actually uses a Libre Sensor too.

In the U.S.

Yes, in the U.S., we are the only pump.

So that would also be kind of incremental to your guidance, say, if you picked up whatever number that is.

Yes, absolutely.

Hard to kind of figure out the Dexcom G7 increment. You're also ahead of the game there, I think. But yes, that's a little bit harder to sort of line of sight, make a judgment call and how much...

I mean, it's a good product. It's a big improvement in the form factor. It warms up faster, and we certainly have benefited from the relationship with Dexcom over the last 7 or 8 years. And we definitely draft off them. And so as new technology comes to market, we think there's -- more people will try that sensor. And once they've tried the sensor, then they're more apt to try wearing a pump when they see the benefits of the technology itself, the therapeutic benefits, but also the customer service and support that they get from the organization. So we think it's going to be a real positive for us. But I think if you look -- our goal over the next 4 or 5 years is to be -- to have 1 million people using our product. We have 450,000 today. And I think we look at the -- this fun factor opportunity with that as a big part of our ability to get to that number longer term.

Okay. And so maybe just changing gears here for a second on margins, I think that's another question I get often is, wow, this Mobi pump must be great, because I think 3, 4, 5 years ago, you had called out, as you should that this is a -- it's a smaller pump. It's a lower cost of goods, does not include the sort of Samsung screen that's -- the OEM screen that's used on t:slim and so there's obviously a margin opportunity there. Maybe walk us through like from launch to scale production, how does -- what sort of change or benefit could we see on the gross margin line? And then given that you're rolling this out, you're doing a lot of training, you're doing a lot of field support to maximize this launch, which has translated into OpEx. What's that trajectory look like over the next, I don't know 12, 18 months, just to set our -- level set our expectations?

Sure. I'm actually going to start with the long-term piece of it. As John mentioned, our goal is to get to 1 million customers. At that target, we expect to have 65% gross margins and 25% operating margins. Mobi is very critical to achieving that goal. In fact, from where we sit today, Mobi can get us more than halfway to that gross margin target and obviously brings great profit to the bottom line as well. And it starts this year. So right now, we're not building Mobi at a level of scale that allows us to absorb all the capacity in the overhead. And so initially, it's going to be dilutive to margins as we launch into 2024. But by the time we exit 2024, we expect to start seeing some of that benefit. So as we turn into '25, you'll start to see what comes from Mobi. Piece 1 would be every time we sell a pump. So that Mobi pump has about a 10% to 15% lower manufacturing cost than the t:slim. And as you mentioned, with the lack of the touch screen, it's not only a cost savings on the bill of materials, but also from a warranty perspective, crack screens tend to be a high failure category for us. And so it eliminates that as a challenge. And so as we build up more Mobi volumes across the years, and we start to get to a scale and to a meaningful share of our installed base ordering the cartridges, we'll see continued benefit on the gross margin. The cartridge compared to t:slim X2 is about 20% lower cost to manufacture. So Mobi is going to start showing that benefit in '25 and with a continued tailwind across the coming years. And as I said, it is 1 of the single biggest drivers for our margin targets in the future. To the OpEx commentary, for this year, we have guided to adjusted EBITDA breakeven. We are funding our sales and marketing incremental investments with some savings that we're seeing and the way that we support our customer operations. But we want to make sure that we spend appropriately in order to drive that top line growth in order to achieve those upside scenarios. So this year is not really about margin expansion, but 2025 will be both on gross margin and operating margins.

Got it. And just not to get ahead of [ ourselves ] here talking in detail about 2025 margins, which I'm sure you will not entertain. But any thought on do we see the benefits first in gross margin and then followed by OpEx or...

We're not going to provide any color on 2025 at this point. We'll focus on achieving our 2024 goals.

It's worth to try, but I figured that was a...

They're going to be higher.

That was a dead end alley that conversation. So -- but fair enough. Maybe just talk a little bit about the -- 1 of the things that underappreciated is your manufacturing capacity and where it's located and maybe talk about how much capacity do you have now -- I mean, to support now how much additional CapEx is required to build out build out capacity to support Mobi because 1 of the things that people think of often when there's a new line or a new thing is that wow that sounds like a lot more CapEx, and maybe talk about that.

Yes. So I would say we've already built up sufficient CapEx for upside scenarios on our 2024 plan. And when you think about capital investment for our products, the cartridge in particular, the automated equipment, it's measured in the millions of dollars, not even the tens of millions of dollars. So incremental investments aren't that costly to us as an organization. And in fact, in our CapEx across the years, we've been continuing to build up our t:slim capacity, and it's hardly noticeable, I would say, in terms of cash flows. And so it's not something that we have a great concern about or that people should be concerned about from a cash burn perspective.

Okay. So it would be different if you were making a daily or a disposable or something like that...

It's more complicated and requires more significant investments in capital, hundreds of millions...

Sure. Exactly. All right. So this is more incremental build-out maybe production lines within existing facilities like Mobi line within the facility that's supporting a t:slim line. Is that a fair way to characterize your manufacturing operations?

Yes. We do have a manufacturing facility in San Diego, where we'll be beginning the production there. For t:slim X2, we've actually shifted all of the cartridge manufacturing to a third party to get more cost benefits. And that's something we might consider down the road. But initially, when a new product launches, we like to keep it, I'll say, close by near to our R&D team so we can quickly address any nuances or things that come up. That you learn when you're building a new product.

Okay. let's talk maybe about the pipeline. This is something, again, I'm not going to say it's a blind alley, but there's -- you're not going to give us a ton, I would imagine, timelines. But as exciting as what we just talked about has been and how nice it is to see it kind of coming and finally hitting the market, you do have a number of pretty cool things in the pipeline. So maybe if you could talk about those, and any sense of whether these are '25 events, whether they're potentially '26 events, if you could help us slot them into a calendar?

Yes. I mean I think we have the most exciting pipeline in diabetes today. I think that not -- we've just introduced these 4 products. And just sort of to wrap, we will have G7 implementation on the Mobi pump here in the late spring. And we're working right now to kind of fast follow with the Abbott [indiscernible] implementation. In the European market this year, we're going to be introducing Tandem Source. We have a mobile app that's currently used with t:slim that has a bolus capability on it. And we also are going to be implementing the Libre 3 OUS on the t:slim. The OUS's market is very important. So right now, we're working on sort of preparing to get the Mobi pump into the regulatory channel to get that into that marketplace. So there's a number of things that are going on that are -- we're kind of wrapping up loose ends, if you will, to get the whole portfolio of products integrated with the same sensors and into both of these markets. If you look at beyond that, we have -- we currently have -- the t:slim has been on the market for quite a while. And it has complicated electronics in it that they only have -- they have a relatively short life. So we want to prepare ourselves for long lifetime for the t:slim and address some of the supply chain -- potential supply chain challenges. So we're going to be doing a technical upgrade to t:slim here in the near future. And it's basically to take advantage of more powerful, less expensive electronics to avoid any kind of a supply chain issue. So that's happening as we speak. We're also working on a -- it's a supplies play for Mobi. I mean, currently, there is a cartridge and an infusion set. And the infusion set is the tube piece. We are working on a tubeless version of that, where we have a cartridge that integrates with an infusion site that has a cannula that's injected into your body that provides the insulin. And you can locate the pump with this modified cartridge onto the sled and you basically have a tubeless experience. And so we think, again, wearability with choice and sensors and the best algorithm on the market, really is the way to go. And I think having that wearability, flexibility with Mobi where it can be tubed, you can detach, or you can wear it as a tube system, it's going to be very appealing to the marketplace. Beyond that, we acquired a business about a year ago, and this business has developed a patch pump. And we're working right now to harden the design to get that to the market also. And the patch pump has unique characteristics. First of all, it's rechargeable, which is, I think, a benefit environmentally and from a sustainability point of view, but it also uses a prefilled insulin cartridge. So very simple changing procedures. This takes -- also it takes seconds to change the cartridges out and move forward. It has a very ergonomic design, and we think it's going to be quite a compelling product that's on the market. We haven't said specifically at the times, but we have said [indiscernible] Mobi tubeless and Sigi and that's pretty much how we intend to bring those to market here over the next years -- couple of years. On top of that, we also have a relatively large team working on algorithm enhancements. So we have current improvements that we've made to Control-IQ, which we'll be bringing to market this year. And we're, as an organization, really committed to bringing a fully closed loop system to market as well. We think that by eliminating the need to do bolusing, that's a big part of the burden of diabetes by eliminating that at the same time achieving the same time in range is an important part of our future development initiatives.

Okay. So more on any of these things at ADA...

Yes, I think you're obviously -- I think we've chosen for competitive reasons not to just to refrain from talking about specific timing. My sense is as we get close to the commercial process for each of them, we'll then let the investment community know how it's coming. And I think that -- part of the best thing for us to do.

Sure. Any clinical data to watch out for? I mean there was some recently, but I don't know, clinical data that would give us some insight into some of the platforms you described?

Well, I think that right now, we're about -- we're in the midst of a clinical study, a large pivotal study for our type 2 indication. And we expect that to get finished in the second half. Probably won't have a lot of -- we won't have enough data to present at ADA. My sense is that there's still a lot of work that's going onto show the benefits of Control-IQ. And so I would expect to see that sort of data there as well as just, I think, data on the performance of the Mobi pump in various settings.

Sure. Plus actual new products...

That's right. Yes, exactly. I think there'll be a lot of focus on all the new products.

Yes. That makes sense. Any other, I guess, dynamics that you'd point out in terms of the marketplace. I mean we look at about a minute...

I think quickly, it would be worth having Leigh just explain the pharmacy channel, and how we're looking at that as a potential business model improvement.

That's just terrific.

Yes. So pharmacy channel is a major initiative for the organization right now. And ultimately, our goal is to be able to take Sigi directly into the pharmacy channel. And we're using Mobi, I'd say, as almost a pilot or a test case. And so we have a cross-functional team spending an enormous amount of effort building up the infrastructure and the capability to get us ready. And our market access team is very focused in having active discussions with many different payers and PBMs. And so first and foremost, our goal would be to lower the out-of-pocket cost for the patient, which the pharmacy channel does give you that ability either through the rebating structure and/or co-pay buydowns and assistance. And so we want to take away that mental barrier that pump therapy is expensive. Secondly, we think there are opportunities to optimize the business model. It doesn't necessarily mean if you're in pharmacy, you go full subscription, but it does give us ways to think about differently to how DME is so structured and regimented in the way that it is, but shifting economics around or even using the value proposition of our clinical data to achieve higher reimbursement. And so that's all underway. We look forward to giving more color in the coming quarters as we make progress, but it's something very important that we think can really also change the dynamics of the business.

Okay. And I think that brings us to time. So there's a lot of follow-up questions, but we'll take those offline. Thanks so much.

Thanks, Matt, good talking to you.

Thanks, Matt.

You too.