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

Good morning, everybody, I guess almost morning afternoon, midday. Next up, we have Tandem Diabetes. So Leigh Vosseller, Executive Vice President and CFO; Susan Morrison, Executive President and Chief Accounting Officer. We have Katie Nicoletti, fairly recently appointed to Investor Relations. So welcome. I think Katie you wanted to...

Good morning, everyone. Before we get started, I want to start off with our safe harbor statement. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development time lines and financial performance and operating plans and speak only as of today's date. These statements are not guarantees of future performance and involve a number of risks and uncertainties and could cause actual results to differ materially from those expressed or implied in our forward-looking statements. Further details related to our forward-looking statements can be found on the safe harbor slide included in Tandem's conference materials. Back to you, Travis.

And maybe, Leigh, I was just thinking like high level, you said it quite a bit that recently, 2024 is a transformational year for you. So maybe just kind of setting the stage, if you will, or what this transformation is for Tandem?

Yes, happy to. I think we're at the turning point, it's been a long time coming. But with 3 new products introduced into the market this first quarter, what we saw for the first time in a long time was a great response to them. And there's so much enthusiasm, all of them contributed to our growth this quarter, but I think Mobi's been the star of the show. It's really dominating the conversations with the investment community, with the physicians, with the customers you see all over social media. And so we couldn't be more excited about the prospects that it brings for us. Constantly, you'll hear me say that it's just the beginning. These are data points right now, and we want to see real trends. But I would say everything is skewing in the right direction.

And then so Q1, yes, a good quarter in Q1. A lot of that driven by Mobi. Just maybe kind of walk through some of the dynamics in Q1 and kind of what you saw there?

Sure. So it began -- so Mobi launched in middle of the first quarter. It's actually a staged launch. So it's very interesting to see what the performance we already have with just the beginnings. It began with just our direct customers. We opened the door to our distribution channel late in the first quarter, and we have the G7 integration coming late this quarter. And so we still have a fair number of people that are waiting for that next wave. And so G7, we to be a big door opener for people who want the Mobi product that they've already converted to G7. And so it was a great start. And what we did see in the first quarter as well, probably some level of pent-up demand that came through. So some moving parts there and we're anxious to see how these turn into trends.

And so the kind of the pent-up demand it kind of have a late mid-quarter launch for Mobi, does that pent-up demand kind of bigger in Q2? Is it going to play out over the course of the year? How to think about the kind of the bolus for Mobi?

Yes. I think once we get the G7 integration launched, when we get into Q3, Q4, we'll start to see more normalized patterns. We'll get past these variations in customer behavior as we go through this launch phase.

And how to think about the guidance for the full year? So pass along the beat, but didn't kind of really raise the later part of the year, given Mobi. Just kind of curious how you're thinking about the rest of the year.

Yes. So we're maintaining our guidance philosophy that we began the year with. And what that was, was when we started, we said we can grow double digits this year just off of our growing installed base, off of our growing renewal opportunity. And even with these new products coming to market, we're not going to factor in any change that they can make to the business. Although we have great excitement and enthusiasm over them, we wanted to see sustainable trend or a intention to the guidance model. And so first quarter, we beat and we raised by the amount of the beat, but we're going to maintain that same view for the remainder of the year until we see these sustainable trends.

And you actually gave specifically kind of Q2 guidance, what does that Q2 assume for Mobi and kind of the pent-up demand and all those kind of factors you've just talked about.

Sure. It's actually still assuming same baseline, which is really mostly predicated on the renewal opportunity that's growing. So our number of renewals coming to market in 2024 is about 70,000 versus about 50,000 in 2023. So that stepped up pretty substantially. And so we'll have to -- we want to see how this scale launch plays out with Mobi again before we actually build anything in.

What's been some of the kind of the early feedback on Mobi so far?

People are even more enthusiastic about Mobi now that it's in hand compared to even our earliest research. We have founded very heavily in understanding what the needs and preferences are of people living with diabetes. So the concept of wearability always had come through. But what we hear when people put it in their hand is that it's opening up new ideas, and it's really changing the conversation where I'd say a year ago, it was more focused on tube versus tubeless. Today, it's how do you want to wear your device and how do you want to operate that device and understanding the power of flexibility to be able to disconnect from an infusion set. So we're thrilled with the early feedback.

How are you thinking about there's kind of 3 different buckets of patients to go after, you've got the competitive wins, you've got your own renewals and you've got patients that are on pump state kind of the new opportunity. And how is Mobi changing those 3 buckets for you?

Yes, we're thrilled to see the traction in each of those buckets. We are direct to Leigh's point about data points. It's a little bit early to draw trends and say who exactly is the customer that's most drawn to Mobi, but we've been very happy to see that it's been attracting from each of the different buckets.

And any kind of details on when you think about competitors, specific competitors like patch versus durable pump, is this going to be more competitive in your mind with that patch pump?

I'd say this is an area under penetrated market. And I think that underpins everything that we do at Tandem. With 60% of people using multiple daily injections still, that's who our focus is on. And what we always heard in our research was that there was a reason why some people didn't go to a durable or didn't go to a patch historically. And a lot of those really were able to answer those concerns or the reluctancies that people had through the features that we're offering with Mobi. So we see this as a market expander.

What are some of those inhibitors? And how does Mobi change that?

Yes. One is just, again, that flexibility to disconnect and options for how you wear your device is so important. It's a very lightweight pump. Also it has a bolus button on the bottom of it. So even if you don't have your controlling device, you're still able to deliver mealtime insulin, and it's also able to stay in its closed loop, which is so important. Some of the other things that we hear just feedback wise is that people are able to tuck it in different spots where they maybe wouldn't have other, you couldn't actually wear a patch device or a more traditional durable device. Also, just the convenience of the app. We hear that it's very intuitive, very easy for people to use. And because of that, people have a higher degree of comfort with being able to adopt the technology.

Do you feel like the market has been kind of steady at a kind of low double-digit growth rate at this point? Do you think like some of this new technology is going to accelerate the market at all? Or are kind of low double-digit growth rate is the way to think about this?

I think technology drives adoption and innovation. And when you look at our pipeline, we, I think, have the most robust out there with waves of innovation that will allow us to continue driving adoption. And so it's hard to say as a percent, what that will look like over time. But for us to move from 40% penetration where we are today to 65% is very reasonable.

And thinking through kind of the new patient starts to -- the lifeblood of the business and getting those new starts and kind of growing on installed base, like roughly, we estimated 8,000 new patients to the business. And Q1 is down roughly 30%, 35% year-over-year on the tough comp. How should we think about that in Q2 and Q3, Q4? And you think your guidance is kind of flattish year-over-year total?

Yes. So on an annual basis, we said that we could deliver as many new pumpers as we did in 2023. So flat to slightly down. And it came in just as expected for us in the first quarter. Obviously, our internal expectations are well above where we set the Street expectations, but it was still down year-over-year. The decline was lower than we had seen in the 2 or 3 recent quarters, just prior to that. And so we expect that we're turning the corner this year. And in the back half of the year, we will see growth year-over-year, partly due to easier comps, but also just as we see momentum across the year and new products start to take hold.

Do you feel like that new start bucket is can start growing again in longer '25, I guess?

With our new product offerings, as Susan said, we expect to continue to grow that new start population.

Do you feel like you're -- I look at installed base growth in the U.S. Let's take that. Do you feel like that U.S. installed base growth can grow kind of in line with the overall pump market?

So we believe that we're going to continue to grow the pump market, though we will be one of the key drivers in that, and we do expect to continue to grow the installed base at high rates.

Okay. That's fair. The split between you and your competitor was kind of 50%, 50-ish before on new starts and it's gone 60%, 70% to them and 20% to 30% to you guys. How are you seeing that kind of going forward with Mobi. Do you think you can get back to kind of the 50%, 50% share of new starts?

We certainly hope to improve that ratio. I think one important factor is to remember that one doesn't have to lose for the others to win. We grow the market in different ways. And so it's back to our products are uniquely designed to attract a portion of the market that needs aren't being met today and so we think we will continue to pull people that won't be candidates for their product, whereas they were pulling people in the last year or two that were better candidates than for what we offered. And so we continue to focus on that segment that has not chosen pump therapy before and how we can attract them to it.

And the CGM integration you guys have been ahead of the game on what's allowed you to be kind of the first to integrate some of the newer CGMs?

Yes. We've got a lot of internal knowledge on CGM integration. And it takes experience to be able to do this. And so we've integrated obviously with the Dexcom G4 G5, G6 and now G7 with Libre 2 Plus. We're working on the Libre 3. And so with that, with each time you're gaining experience, communication protocol, security. And it allows us to bring new innovations, I think, to market faster than our competitors.

Are you seeing some sort of stall-up or kind of pent-up demand or delay for the CGM like -- would have to wait until as G7 is integrated before upgrade or before I add a new pump?

We are seeing that. I mean we launched with Mobi with G6 intentionally. It was the first time we were launching the new product or the new platform onto the market. And we wanted to have time to make sure we were gaining experience with it, with G6, a sensor that we've got a lot of experience with. And then we're layering on G7. That will become available later this quarter, which is really important timing relative to the American Diabetes Association Show that happens at the end of June. And so I do think it's something that people have been waiting for. We do here, especially within the MDI population. A number of people have already moved to the G7 sensor. And so if they're looking to adopt pump technology, they want to make sure that they're going to adopt that after it already matches with their sensors so that it aligns with their backup of supplies.

Have you assumed anything on the full year guidance around the G7 integration in the back half of the year?

No. Really, the guidance was just based on the environment that we were operating in, I would say, back half of 2023 and that we could continue to capture the same amount of shares we were before. And so any opportunities that come from the CGM integration or the Mobi product are really upside to what we established for guidance.

And then Libre integration?

Just to follow. So we have not given specific time lines. About a quarter ago, we made the decision to pull back from getting more detailed time lines. And so we want to give you the next line of sight, which is G7 this quarter. And then Libre's beyond that. It's an active project that we're excited to be able to bring to market, but we haven't given the exact timing yet.

But internationally, you've done some integration with Libre or about to, right?

We have Libre available in the U.S. with Libre 2 on t:slim and so we said, it is to come internationally also, which I do think opens up a meaningful opportunity.

And then what's the plan for Mobi internationally?

So regulatory work is happening now as well as kind of the additional R&D work, language translations, things like that. So we're looking at it on a country-by-country basis to determine the timing, and we'll be providing updates on that in the near future.

Great. In the U.S., moving more into the pharmacy channel. So how should we think about the dynamics there on the pharmacy channel and kind of the progress you're making on some of those contract on payer discussions?

The pharmacy conversation is always very complex I would say, first and foremost, what's important is we are in many conversations with different payers and PBMs, and the question mark of whether or not a durable pump will be accepted in the pharmacy channel is off the table. So we're well beyond that point. And we're more focused on business model, what it looks like, how it fits into their structure. And what that structure is can vary widely. And so a misconception is that pharmacy equals subscription model in terms of revenue, and that's not necessarily the case. In our conversations, we're talking with some about what looks more subscription model like but we're talking to others about what looks more DME like. And so from an outsider looking into our P&L, it would look very consistent with what we saw or what we already see with our DME contracts. But I think 2 important points of what our goals are. A, number one, we don't have to take any contract. So Mobi is sort of the pilot for us into the pharmacy channel with our long-term goal of getting Sigi straight into the pharmacy channel, and if a contract doesn't meet 2 important goals, we won't accept it. And number 1 is that it needs to broaden access for patients by lowering the out-of-pocket. And so the biggest challenges people will say to us is that "I'm interested in pump therapy, but that's such a high upfront cost." And so if our financial assistance plans don't help them today, they're looking for other avenues and we know there are ways to the pharmacy channel where we can lower that out-of-pocket or what that looks like for a patient. Secondly, we look to have something that has improved economics over what we see in the DME channel. We have some very good DME contracts, and we don't want to just put those aside. And so we hope to have at least as good as or better reimbursement when you look at it over the 4-year life of a patient. And so this is going to be a multiyear initiative. We're not going to -- it's not going to flip on overnight with everything in pharmacy. It's only the Mobi portion of our business, and it will probably be a few contracts at a time, and it will be building across 2- or 3-year time frame, at least.