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

Okay. Well, it looks like we can about kick things off here. Hi, everyone. Thanks for joining us today. My name is Mike Kratky, and I'm the senior med tech analyst over here at Leerink. Really thrilled today to be joined by Tandem CEO, John Sheridan and CEO, Leigh Vosseller. So thank you both very much for joining.

Thanks for having us, Mike.

So it might be helpful just to start with a quick overview of the company, some of the key upcoming milestones and maybe just walk through the setup for the rest of 2024 for a couple of minutes.

Sure. Before I do, I just want to point to the safe harbor slide that's probably showing right now where it was, and if you have any questions about it, you can see our website just for that information. But today is a very exciting day for Tandem. We, in fact, announced that we have the full integration for movie with the G7 from Dexcom. And it's been something that we've been working on for a while. Very proud of the team to make this happen. A lot of work went into it. And we are the first product on the market now that has integration with two sensors. It's the smallest durable pump in the market. And I think that we're very excited about how that's going to play in the marketplace. There's a lot of dynamics that this addresses for Mobi and the uptake in the market. So excited about that. And I'll just say that it's a large underpenetrated market, both in the U.S. and in the OUS markets. And our strategy to address that really is to develop products that are simple, intuitive and easy to use. We think that ease of use drives adoption. And so from the very beginning, we've had design principles to focus on what we would call user-centric design. And this is a combination of behavioral science, human factors and user experience in engineering because we think that by reducing the friction that people have in wearing a device 24/7 is the ticket to really getting people to use these devices and wear them. And certainly, we have the best algorithm on the market. And so we think that, combined with the usability and wearability is really important. The second thing that we're focused on really is the fact that it's a very segmented market. And there's no single solution that really is going to meet the needs of the varying segments that are in type 1 and type 2. And so our focus there is to develop a portfolio of products. And so Mobi is really the second of the three devices that we intend to bring to market. t:slim X2 is the first. Mobi is the second and then Sigi, which is a full patch device, which is under development right now is the third. We think having these three devices gives us a much better chance of really penetrating in these various segments in terms of how people want to wear, how they want to control and how they want to use the technology. And so we wrap that with a ecosystem of data-driven products and services, which we call source, and we think we have the full solution. And we're excited about where we have -- where we're at. As I said, this really is an important point for Tandem. I think it gets back -- gets us back on to a growth curve for the future. I think it really is the beginning of this transformational part of the story.

Perfect. Yes. I mean a lot of exciting developments this year. I mean maybe before we get into some of the company-specific developments, One thing I'd be curious to get your thoughts on really is just kind of the cadence of the growth for the insulin pump market. I mean 40% penetration in type 1, what really are going to be the factors that get this market to accelerate? And how quickly do you think that we can do that?

Yes. I think it's technology-based. And I think that if you look over the last 5 years, it really started to change. We started to see the growth curve and MDI conversions when we brought Control-IQ to market. Certainly, I think that the Omnipod 5 has helped that and so has the 780. But these products have been on the market for a relatively short period of time. But in each case, I think we have seen additional penetration into the market. So we're at 35% or 40% today. We think that in the U.S. in the next 3 to 5 years, it can get to 65% plus. If you look in the OUS markets, it's even less penetrated. It's more like 10% to 15% in type 1, and that can get up to 25%, we think, in roughly the same time frame. The type 2 market is even less penetrated in the U.S. insulin-intensive type 2, there's about 2 million plus people with insulin intensive type 2. And it is about 5% of interest rate, less OUS a larger and less penetrated OUS. So we think, as I said, there's a large underpenetrated market. We think that technology that improves wearability that provides great therapy drives people to consider wearing comps because I think the longer-term reduction in the comorbidities associated with diabetes are significant, and then you just feel better every day when you have AID systems working properly.

Yes. Understood. So like you started out with some exciting news today with the Mobi integration with G7. One question that we've gotten from folks in the last couple of months is, to what extent is this going to be something that really helps unlock new patients? Was Mobi lack of integration with G7, something that you thought maybe was a gating factor early on?

Yes. I think the way it works right now is that Dexcom has been very successful in updating their installed base from G6 to G7. And so there's many people out there today who are MDI users that are using the Dexcom G7. And so at this point, they're not going to go back to G6. They've already got supplies, et cetera. And I don't think their physicians want to put them back on to G6. And so there's definitely people out there that have been waiting for the G7 integration. And so we think that now that the G7 integration with Mobi is there, we will start to see the real uptake occur. I mean, it's been on the market for 2 months or so at this point, and we have definitely seen a great deal of interest. But I think that this really unlocks that last element that's been holding people back from actually getting on to the system.

Understood. And maybe just from a technical standpoint, based on the press release today, I think my understanding is that current Mobi users basically will have a software update that they'll be able to get the integration, but it's not like you need another prescription or need to go get a separate Mobi, correct?

That's correct. So there's two things. One, every new pump we ship as of today will have the ability for Mobi to use a G6 or G7. So I think that's an important element. And then there are people who have purchased Mobi over the last 2 months or so, and we will make a software update available to them free of charge.

Understood. Very helpful. I think maybe just sticking with Mobi. 3-plus months until the launch now, how is the initial Mobi launch trajectory aligned with your internal expectations? And what have been the main features that have really been driving the enthusiasm?

Well, I think it's -- when you actually hold it in your hands, it's much lighter and smaller than you think. I think people are surprised by that. Physicians have been surprised by that. So that's one element. It's just so small and light and to the extent that when people wear it, they forget they have it on. That's one of the common things that people say they forget they've got it. So there's an improved wearability factor. I think prior to the availability of Mobi, there was this argument that it's tube or tubeless and basically tubes are going to take over the world. Well, that's just not the case. It's really about wearability and the flexibility to put it wherever you like on your body, and also just take it off when you feel like you have the need to just take a holiday from using a system like that. So we think that's an important aspect of Mobi is this wearability enhancement plus now we have a choice, and we also have what we would consider to be the best algorithm in the marketplace. And I think if you talked to endocrinologist, they'll confirm that. So the other element about it is it's very discrete. I mean you have a mobile app on a phone that's controlling the system. And so you can be with a crowd of people at lunch, and you can take your mobile phone, you can give yourself a bolus. And I think that typically, that's in the past with t:slim, you'd have to take it out or you'd have to go some place private and so I think there's a great deal of convenience that comes along with having a mobile app as well as discretion. So we think wearability with choice and the algorithm plus the convenience and discretion that comes along with the systems are very compelling.

Got it. And then yes, just going back to the kind of expectations, I mean, this has been something where you had the launch starting in mid-February. What is the initial reception been relative to your expectations?

I mean I think it's been -- it's exceeded our expectations. It's been -- there's been strong interest in the product. I think that the -- as I said, it's really -- it's now that we've got G7 integration that we expect to see the uptake start to achieve what we think it can because there's been a few -- it's been a scaled launch. We first went direct. We added distributors at some point in time, but it was a few weeks later, and now at G7, we think that it's going to be -- as I said, it's going to achieve the expectations that we have for the product. I would say that physicians are -- they love it. People love it. There's been very, very positive feedback that we received more so than normal. The device has a bolus button on it. And if you lose your phone or your phone dies. The system continues to work. You have the sensor that talks to the algorithm that's on the pump. So Control-IQ is working all of the time even without the phone. And if you do need a bolus for [indiscernible], it's got a small little button on, you can do that. So the system has complete functionality with or without your phone, which I think is a real positive. And physicians love the fact that it has the -- they love the fact that it has Control-IQ and they love that little button because that does give people the opportunity to stay in control when you -- when things may have happened with yourself, and et cetera.

Yes. No, understood. And then maybe a lot of enthusiasm about the Mobi launch in the U.S. when should investors expect to get an update on an OUS Mobi launch and what that time frame could look like?

We haven't said specifically. And in fact, what we've done recently is we've decided to refrain from giving specific updates on our new products. I will say, of course, that we're working as hard as we can to get it OUS. And I think that the bigger issue really is, it's more of a regulatory thing, getting through derivatory requirements to get into the new markets. And we're in 25 markets. And so the there's actually differences in certain markets as the work that's -- and testing says that's needed to occur. But rest assured, we're working as hard as we can to get that into these markets.

Got it. Yes. I appreciate that. Maybe just turning to the guidance approach. I mean, this has been something where alongside the Mobi launch and some of the enthusiasm that we and others on the street have seen, it seems like that's not necessarily been something that's meaningfully factored into guidance today. So I'm curious just in terms of how you expect that to change if at all throughout the year, what you'll need to see to start building a meaningful credit for them?

Yes. So I'll take that. From a guidance perspective, when we started the year, we took the approach of basing it more on the factors that were well within our control or where we had demonstrated trends. And so when you think about the building blocks, there's usually three main pieces. And first are just the supply sales, which have been about half of our sales in the last couple of years, which just moves with the growth in the installed base of the customers. The second is the renewal opportunity, which is mostly in the U.S. right now. And year-over-year from '23 to '24, the number of new opportunities are people whose warranties are expiring is growing by more than 30%. So it's a substantial step-up and opportunity for us in 2024. And then from a new pumper perspective, in the U.S., in particular, we expect that we could bring as many as we did in 2023 to market. And that's a very important assumption there. That's based on assuming the market is status quo. So with the same competitive dynamics that we were seeing in 2023, and it does not include any incremental contribution that could come from the new products. And so as you said, we have great enthusiasm for those products. We think there's significant opportunity, but we want to make sure we have some sustainable trends before we start to factor those into the guidance.

Understood. Yes, I think that makes total sense. Maybe just going back to some of the commentary on the outlook for the year. But I think earlier this year, you kind of talked about new starts in the U.S. being roughly flat to down. It seems like after the 1Q number, that might imply that we're going to see an acceleration in the back half of this year. So kind of just curious what is kind of driving that assumption? Is that still the case? And then how should we think about kind of the cadence of new starts for the back half?

Yes. So what we did see in the first quarter is new starts were still unfortunately down year-over-year, but that was right in line with our expectations. The decline was less or so than we had seen in the previous few quarters. So we're already starting to improve in that regard. As we go across the year, we expect to start to see a transition to growth in the back half of the year, it's based on a couple of things. Part of it is just there's easier comps in the back half of the year. Last year for Q3 and Q4, we saw that many potential customers were waiting for Mobi to become available before they move forward with their pump purchase. And the other piece is just the standard seasonal uptick because as I already said, this doesn't factor in that there are new products driving incremental contribution. This is just standard seasonal curve coming off of that Q1 as a base.

Got it. Yes. No, that's -- it's really helpful. And just to think about kind of the market, I'm sure we'll probably go into some of the competitive dynamics alongside the Mobi launch. I think one thing that's been interesting that we've seen is that the ADA guidelines were really just updated this past December to kind of support insulin pump use upon initial diagnosis of type 1. And it's probably tough to parse out alongside a couple of different factors. But is that something that you've heard is going to be kind of an underlying growth driver for this year beyond?

It's something that we see as an opportunity for the long term. I would say it's not something we've necessarily factored into our expectations at this point. It's certainly good for the market and the industry that it would has become standard of care. There's still a vast population of people in the MDI community who have been on shots for years and years. So it doesn't impact that yet. And that's where, as John described earlier, the new products are really aimed at focusing on why they haven't chosen pump therapy before now. But as we go forward, it bodes very well as anyone is newly diagnosed, the fact that they can move on to pump therapy much faster than we've seen in years past.

I just said the ADA guidelines were for AID systems. I think that's a very important element because that's really what controls and improves the therapy.

Understood. During the 1Q call and kind of just now you mentioned the idea that the distribution channel wasn't necessarily even up and running until the end of the quarter. So to what extent is that going to be something that is a meaningful catalyst? Or how should we think about kind of like quantifying the impact of that?

Sure. So we intentionally scaled the Mobi launch to make sure that we could get learnings as we start putting more and more people on the product. So in the first quarter, we did launch in the middle of February, and we only launched to customers with whom we have direct contracts with their insurance provider. So it was a limited population. And for us, our direct versus distribution business in the U.S. has roughly been about a third direct and about 2/3 distribution. So it was quite a limiting factor in the first quarter. As we moved into the second quarter, we did have that open up, and so now it's available to everyone within our market. The other gating factor now has been the G7 availability. So what you're seeing across the first 2 quarters are again, it's intentionally meter launch. We don't anticipate that we'll start to see real behaviors are true customer behavior patterns until we get into the third quarter when everything -- when it's been open in all ways to the full population.