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

All right. Still good morning. So good morning, everybody. I'm Matt Blackman, member of the Stifel MedTech team. I don't think we're going to have slides, but more than happy to play with them, if you like Susan. So welcome to our session with Tandem Diabetes. Very pleased today to have CFO, Leigh Vosseller, to my left; and Chief Administrative Officer, Susan Morrison, to my far left. As I said, we're going to talk Tandem Diabetes, artificial insulin delivery devices -- automated insulin devices. And this is a fireside chat format. I think the structure of which I'm going to try to build around sort of 4 topics. I'm going to sort of try to unpack the third quarter, which was, I think, a couple of weeks ago now and also talk about the implied 4Q guidance. And then there's a number of 2025 and beyond drivers that we'll talk about. And then finally, touch on profitability, pipeline and such. As always, questions from the audience are welcome and encouraged. So please just raise your hand. With that, thank you again for joining us. Thanks.

Thanks for having us here, Matt.

Always a pleasure. So if we could -- maybe we'll start by looking back first. The company reported the third quarter a couple of weeks ago. And for those of you that have been paying attention, the stocks struggled even into the print, really, frankly, some period from the summer until now. And it continues, I think, to face some headwinds, at least on the stock market. And I think there's this narrative out there that one of the new products, Mobi, that momentum there has slowed, some of that based on, what I'd call, lighter commentary provided on new patient trends in the second quarter. Another element was in the second quarter. The company beat and raised the guidance slightly above the beat in the second quarter. Third quarter, similar strong beat, but no raise above. Again, potentially feeding some narrative that the business momentum, Mobi in particular, may be slowing. And then the final piece that is layering on there were some comments about how to think about 2025. And so I was hoping if we could sort of this, I guess, Tuesday morning quarterback, maybe sort of just punch through some of those, maybe get a little bit more color, see what you're willing to share. Maybe just first, I think there's been some frustration just about the level of disclosure broadly for Tandem in the last couple of months. Now granted, this is a tactic that you've taken over the last couple of years, and there wasn't much complaining when things are going well, but people seemingly want more information. So why -- first of all, and I think in particular, as we think about the new patient numbers, why the hesitancy to be more specific about what you're seeing?

Sure. So I would start by saying we're more than happy to talk about the parts and pieces. It's not really a hesitation. Our focus are on the drivers that we think are most meaningful for what we're seeing in the business right now. And I'd like to highlight 2 really important elements. We did grow pump shipments in the U.S. year-over-year more than 20%. So that's an incredible achievement. And we had set a goal that we would grow new starts year-over-year for the first time in quite some time, which we did. I think secondly, and another important trend that we saw this quarter was that where we usually see, again, in the U.S. pump shipments flat to slightly down from Q2 to Q3, we grew through that from a seasonality perspective. And I would say Mobi was once again the star of the show. So why don't we -- let's go where you want to go, take it to the pieces.

Yes. So let's talk about Mobi specifically. The second quarter versus the third quarter, did you grow new patient starts sequentially?

Mobi absolutely grew Q2 to Q3. In fact, Mobi, we launched in February, we saw growth from Q1 to Q2, and we saw again growth from Q2 to Q3. So Mobi is still performing just like we would like to see it. It's bringing new doctors to Tandem. We're getting new patients because of it. It's really helping us, particularly with the MDI population. And I would say the younger ages.

And I'm curious if you're willing to share that point that I think is getting missed is the new prescribers to Tandem. These are -- Tandem has been around for quite some time, has had arguably the best algorithm on the market for some time, so very much resonating with physicians. But you're now getting Mobi to bring in new physicians. Can you -- is there any way to size that? Just -- maybe give us some context on what that potentially means for the business going forward?

Sure. So I would say we -- every quarter, we add new physicians, new script writers to the business. I think what we've seen since Mobi came is a notable increase. And what's been exciting is they've come to the table, they're interested in Mobi, they write that first script. And then what we see is behaviors that they start writing more scripts for Mobi and t:slim alike. So with t:slim having been out there for quite some time, maybe they hadn't noticed it before or didn't see it as a viable option, but now it's bringing them to the table. So we're seeing strength for Tandem overall because Mobi is leading us there.

And who are these physicians that hypothetically hadn't heard of Tandem before. Are these endocrinologists? Are they primary care? Both? Is it leaning towards one of those particular specialties?

Yes. I don't think there's a particular demographic. I think it's just that Mobi is new and interesting. And so it's making them take a second look at something maybe they just haven't looked at in quite some time.

Okay. And what is resonating with these physicians and I guess, the new patients as well? What about Mobi is bringing them to the Tandem?

The differentiated form factor is a standout. And with that, it brings options and wearability. And I think when they look at it and they hear from their patients that it's lighter and they can wear it in new ways. And with the iOS operation, it's really creating a differentiated experience. Most of the people we are prescribing know and love Control-IQ. So when they come to the table or they've had a patient considering Tandem and maybe the t:slim form factor isn't what they're looking for, they love to have that alternative because they know bringing them on to Control-IQ is going to give them the best care.

Okay. So new patients grew quarter-over-quarter. The other piece of that pump shipped formula renewals. You've been doing a really good job over the last couple of years of getting folks to renew. I think the rate you've talked about is something in the 70% range. Anything to talk to relative to that historical metric? Are you hitting that? And this is, of course, with the backdrop of increasing number, so the denominator of opportunities keeps increasing.

Yes. So renewals remain fundamentally strong. It's something we've been, I would say, extra proud of in the last few years as it's been a pretty dynamic market and very competitive. And what we've seen is that we are renewing our customers at our highest rates we've seen in our history. And so we consistently get to a 70% capture rate within about 18 months of when warranties expire. And it's important for 2 reasons. One, as you said, the opportunity base is growing, and it means customers are highly satisfied. And then as we look ahead, the tail of customers coming from that continues to fuel growth in future periods, too.

And could you give us a sense of that magnitude? So like in '23 versus what you had in '24, and I guess, most importantly, in '25, that opportunity base?

Yes. So in 2023, we had about 50,000 warranties expiring. And that was quite a step-up from the prior year. I don't remember the year before that now. But coming into '24, we have about 70,000 warranties expiring. So pretty significant step-up. And again, that means in this year, there's 70,000 we can go after. There's a bigger percentage from last year that can come into the market this year. As we look into 2025, that steps up again to more than 80,000 warranty opportunities for us.

Okay. So your hope was that you would maintain that 70% rate over an 18-month period on that increasing base.

Yes. And there's nothing in our trends in our data and just in our customer surveys that would suggest otherwise. So we're very confident in achieving those retention rates.

These patients are renewing and getting on Mobi.

People, it's interesting. So some choose Mobi, some still choose X2. There's -- it's human behavior. Sometimes people are happy with what they know, what they're used to, what they're accustomed to. But Mobi is certainly an interesting option for people. And it goes back to some of Susan's comments. There are some significant differences in terms of wearability for both products, having a screen on the pump when using your phone as well as the reservoir size. So you still see people choosing X2, but you do see people choosing Mobi as well.

Okay. So the first point was you did grow new patients sequentially. Mobi was a big part of that. Second piece is your renewal trends and trajectory remain unchanged on an increasing base. Maybe we tackle, I think the other sort of pushback I've heard is unlike the second quarter, where you raised. And I think it was $5 million above the beat. Was it something...

$3 million, I believe Yes.

$3 million above the 2Q beat for the back half of the year, third quarter. You did not raise above the beat. Why?

So we -- when you look at what it implies for the fourth quarter, and keep in mind, we just came out of something where we thought we grew through the sequential -- the seasonal trend. The fourth quarter is usually a pretty significant step-up to the tune of high double-digit percentages. We look at it as a function of what percent of the [indiscernible] within the fourth quarter. And the implied is somewhere right around the midpoint of what we've seen in the past. So maybe a little better than what we've seen in the last couple of years, maybe not as strong as we saw in years past where we had launches. But I think it was a reasonable place to put the guidance. And we have a lot to drive here all the way through the end of December. And so we wanted to make sure we have at a level that we felt confident that we could achieve.

But again, we should not be reading into this as some message about the momentum or lack thereof in the underlying business.

Not at all. It's very much in line with what -- we are very happy and pleased with how the year is trending out, and we think that it's a solid end to the year.

Okay. And I'm curious too, some of the -- at least part of our thesis as we moved past the sensor integrations that it would be a tailwind. Are you seeing some of this market unlock? I think it certainly was a headwind earlier in the year for the pump market as a whole. Are you seeing this tailwind now that you've got G7 integration? And then obviously, we look forward to next year where you get Libre integration.

Yes, absolutely. All the products that we launched this year are contributing, but Mobi has still been the main star of the show. That's what's bringing people to Tandem overall. But everything provides contribution.

Okay. So we tackled the guidance for the fourth quarter, 2025. So you commented on the call that we should be thinking about a similar framework that you alluded to just a second ago that you used for the 2024 guidance as you look ahead to 2025. Maybe sort of walk folks through that explicitly, and then we'll talk about what that message was meant to be.

Sure. Well, maybe I'll -- actually, it's okay if I start with.

You can do whatever you...

It's really just framing up of how we think about setting expectations. So there's 2 elements to how we look at the business. When we look ahead, we have a number of opportunities. So we came into '24 and we said, we're launching 4 new products. We want to see some sustainable trends before we start factoring those into expectations. As we look ahead to '25, we've got the continued tail of those products we're launching this year that can help drive growth. On top of that, we have at least 4 new opportunities to drive growth for the business. And so our aspirations are high. We have -- we set very high bar for ourselves and what we want to achieve. Contrast that to how we'd like to set expectations in the market. So we want to make sure that everyone is aligned and calibrated with our approach. And we focus it really on a couple of pieces. There's the predictable revenue trends. And the 2 easiest ones to point to are always the renewal trend, as we just discussed, as well as the supply sales that come from the installed base. And we have 480,000 people worldwide buying supplies now. So it's a pretty substantial piece of the business. We also think about other factors that we -- again, that are, I would say, are known or that have good trends behind them. And so as we see how Mobi trends out through the end of the year, that's something we could consider factoring into expectations. But at the onset, we won't -- we do not anticipate including things like the type 2 indication, the FreeStyle Libre launches. We're going to be launching that both in the U.S. and outside the U.S. We've talked a lot about pharmacy access, what that can do to drive the business. When we set expectations, we will be more clear on the timing of those and how to think about them from a contribution perspective. But we tend to take the approach of looking at it from a more risk-based perspective and so weigh towards the risky end of it and let those come to us by contribution.

And I think when you were asked on the call, the consensus number was at sort of 12%. And I think some of the takeaways from you setting that guidance is that maybe you weren't comfortable with that. Feel free or not to comment on your level of comfort with that. But was there a reason -- I mean, I know there were a couple of outliers when we sort of looked at consensus, talking about north of 20% growth. Was that message for them? Was it something Colin or I, should we be going back and looking at and scrubbing our numbers? Just help us understand what -- we understand this is your construct, but was there something further behind that we should be sensitive?

Yes, yes. When we see a wide range of how people are thinking about it, we think it's important to sort of center people so they're all thinking the same way. So that's why we thought it was important to make the comments to help people understand. It's way too soon to give guidance, which is what people really want. They just want us to tell them the number. But like I said before, the biggest quarter of the year is around the corner. So we're in the midst of it right now, we need to deliver on the fourth quarter, and we just wanted people to understand the approach and the logic. And it's very similar to what we did with 2024, where we set the expectations at the beginning of the year at a 10% growth rate. And here we are after the end of the third quarter, guiding to 17% to 18% growth year-over-year. So it's about seeing how those catalysts can drive upside to the business before we begin to factor them in.

And Susan, do you think the message was heard as you look at the wide range of estimates out there?

I do. People came way closer to the center. And I think the biggest thing that we commented to was the alignment of philosophy and making sure that we're all on the same starting point so that then we can give better information based on data from the fourth quarter and based on timing for things like regulatory clearances.

Maybe -- and I want to dive into -- we sort of touched on it briefly, type 2 and pharmacy. But just maybe a step back and just the competitive backdrop in pumps today, more competitors on the market, more options for patients. Any change in sort of the -- well, the competitive landscape, certainly, but just the underlying growth of the market?

I think it continues to be a large and underpenetrated market, both in the United States and even more so outside the United States. And we have the product to be very competitive, both in the United States and outside the United States to be able to grow in both markets.

Okay. I think before I get into the pipeline type 2 and such, sort of frame this before, you talk about 2024, you started with a 10% plus top line outlook. And essentially, there were 2 wildcards, right? It was Mobi, what's Mobi going to do new patient growth, nothing factored in and potentially sort of pricing elements that have been a tailwind for you in the past as you think about what might be different. You sort of listed them, but I'll be more precise here. When I go into 2025, got the same base business with a larger because you did grow new patients in 2024, a larger installed base that you're servicing. And on top of that, you still have Mobi, which is still early days. You have Libre integration in the U.S. You've got potentially at some point, type 2. At some point, we'll have a contribution from pharmacy. You still have those pricing tailwinds that we can talk about. Am I capturing again, all of the moving parts here? And again, just I'm not the brightest guy, but you went from 10% to 18% with 1 major driver. You've got -- obviously, the orders of magnitude may be different, but you've got several more in 2025. Am I thinking about that setup correctly? Or is there something I need to be sensitive to?

I'd probably just add 2 more. FreeStyle Libre 3 outside the United States as well in addition to Mobi Android. Right now, we're only able to address a portion of the population. But with that, that obviously expands the opportunity.

And which -- what do you think is the biggest in terms of the order of magnitude? What could be the biggest?

That's one of our favorite questions because it's more about the stack up and you've got multiple shots. And so it doesn't have to all rely on one opportunity. I think they all contribute to driving growth.

Okay. So let's -- we'll talk about some of those. I am going to talk about type 2. That market is coming into focus a lot faster, I think, than people appreciated. And I think one of the things that people do not appreciate is you will be there quite soon, I think, with a type 2 specific indication. So just remind folks again, the time lines, I know you completed the pivotal, where you are in terms of submission. And again, I know you're not going to talk to explicit time lines for potential approval from FDA, but would be crazy to think that it's a second half 2025 event, just given the time line, the turnaround time that I said that we've seen from FDA, which has been really fast in diabetes in particular.

Yes. No, it's been great to see they're kind of increasing review times. So you're correct, we've completed our pivotal study, and we'll submit that to the FDA by the end of this year. It's using the same algorithm the FDA recently saw when we lowered our age indication down to age 2. So it's hard to predict FDA time lines. But at the same time, we're doing the preparation work right now for our go-to-market strategy and look forward to sharing more about that in the future.

Okay. And you have a randomized controlled trial as the basis of your filing. Others don't. Why?

We have high confidence in the algorithm and that the algorithm is driving patient benefit, and we want to be able to market to that. So we chose to do a more intense study, but at the same time because we had a high level of confidence in the outcomes.

And remind me again what they're randomized against?

Against CGM use basically or baseline pump...

Okay. And we should see that data at ATTD. Is that right?

We're not committed to a time line, but I think you're right, right after -- conceptually right after the 1st of the year is a great time to be able to show data.

Okay. Makes sense. Maybe help frame folks. So what you think the type 2 opportunity is, number of intensive insulin users in the U.S. It's a similar sized sort of patient pool as type 1, but the question is really about what the ultimate penetration of that market. How are you thinking about it even in these early days, how to segment that opportunity?

Absolutely. So there's just over 2 million people in the United States who use intensive daily rapid-acting insulin. And those are really where we see the opportunity to help improve lives. So we used to ask people in market research, how many people are considering a pump therapy, who we consider to be near-term pumpers. That number would hover right around 15%. In more recent surveys, that number has increased more like 25-plus percent. And we really associate that with the adoption of CGM. And as people get a greater level of comfort with using technology and having information on their blood glucose levels, then what are you going to do about it? And that's where pump therapy comes into place. And automated insulin delivery is giving such better outcomes that it's encouraging more people to take a look at the therapy and to be into that near-term pumper category.

So today 5%, you think 25% is a potential [ resource ].

I think that's realistic.

And that doesn't seem out of whack as I think about penetration today of type 2 intensive CGM use.

Correct.

Right. Because it's not going to be higher than that.

I do think that CGM is a leading indicator.

Okay. And then maybe talk a little bit about -- because you do have a type 2 business today, the stuff is being written off label, how that looks in terms of whether you want to give it as a share of your patients in any given quarter or share of the installed base, however, best you want to frame it?

Yes, happy to provide both. So in any given quarter, it's between 5% and 10% of our new pump shipments. When you look at how that's added up over time, it represents about 30,000 people in the U.S.

Okay. So maybe we'll shift now. We'll talk about pharmacy. That was the other interesting update on the third quarter call, something you've been talking about for some time, something that is doubted for perhaps even longer than you've been talking about is the ability to get a durable pump into the pharmacy channel. So tell us what you announced, first of all, and then we'll talk about what the implications are.

Absolutely. So we had set out a goal this year to have our first pharmacy contract. And indeed, we have already signed our first agreement. It's 1 of 1 right now, but we have many conversations still underway. So the opportunity still exists to have more for 2025. So stay tuned on that as we continue to make progress. But we're excited to have achieved this milestone because you make a good point there, which is that people didn't believe it was possible. I would say even us, years back, didn't think it was possible, but there is much more of an openness now on the -- from the view of the payers to reimburse for a pump -- a durable pump on that side of the benefit.

Why do you think that inertia may have changed?

I think part of it is there's already 1 player in there, and the payers like to have competition. So I think they're looking to bring others in there.

Okay. And in your mind's eye, again, it all depends on when you get to steady state, how many actual pharmacy covered lives you've got. But what's a reasonable mix of the business to think about that could go through the pharmacy. It's obviously the entirety of one of your competitors' business, but you obviously have a durable pump that goes through the Medicare channel. How should we think about that mix at steady state, whenever that may be?

Yes. So maybe I'll frame up what our overall strategy is. So first, we have t:slim today, which is very well reimbursed and well rooted in the DME channel. And so at this point, there doesn't seem to be any reason to take that, keep it going just like it is. And we actually get price increases there, and we have some really good contracts where, in some cases, patients don't pay anything out of pocket for the pump. Mobi was sort of a pilot for us. And so it started in DME. It's the fastest path to market. The codes exist. We get the same reimbursement as X2, but we took it as the opportunity to introduce ourselves to the players on the side of the pharmacy channel at the payer groups. And so it was very effective. I mean they were very intrigued by the pump, what it can offer. And so we will continue over the next few years to push Mobi into the pharmacy channel still almost as a pilot to see what's possible, get ourselves ready because the real goal is to take Sigi down the road directly into the pharmacy channel. So what this could look like over time is Mobi will migrate probably over the next 3-ish years -- 3 to 4 years. And depending on how good the contracts are, we could accelerate that or we might slow it down, but Sigi will go directly in. And so it will depend on how those play out as a mix of the business.

And I know you said -- we haven't said a lot about this contract for, I think, obvious reasons. But is it unreasonable to think that similar to the pricing in the pharmacy channel versus DME that there could be a premium associated with this particular contract?

Yes. I think that's a fair way to think about it. What we had said was that we wouldn't accept the contract that wasn't at least as good as or better than our DME reimbursement today. And so we did accept this contract. So there's reason to believe there could be opportunity there from a pricing perspective. That's one part of the initiative. Another very important piece though is really bringing more patients to pump therapy because we see one of the biggest obstacles is the out-of-pocket piece. And so that's really more of the goal is to open the door for people to come in and to be able to pay less. And so that's not a prohibitor.

Okay. And I'm making these numbers up, but just so we can maybe frame what this could mean as we think about our model, let's say, at some point, in some year, not to be named, you've got 10% of your patients going through the pharmacy channel and there's a 20% premium relative to DME. If I think about the simple math, that's 200 basis points of extra growth, all things equal, simply because of price. Is that -- I'm not saying that's -- those are the numbers, but conceptually that math.

Conceptually, that makes a lot of sense that it could be a driver for top line revenue growth and a contributor to gross margin expansion and bottom line.

And we're not talking about it. We'll see as it plays out, but there is some friction in the DME channel that may be impacting people onboarding beyond economics, maybe C-peptide test and things like that, that get removed. Is there an opportunity also that you may see volume increase as you get more patients going through the pharmacy because it's just easier to do.

Yes. I certainly think that potential exists. Also, I want to point out, we're not abandoning the DME channel. All of those efforts are still underway to do what you just said is to streamline and remove the friction there as well. So we want to continue to optimize the DME channel. But the way pharmacy operates today, it already has a step-up and advantage there.

Okay. We're a little bit on a long time, so I'm going to scoot forward. When we hear something from a time line standpoint on Tobi, and Tobi would be the tubeless version of Mobi, if that's what you're calling it.

And that's more of an internal name, and I appreciate that it's kind of been adopted more broadly. But for anyone not familiar with it, this is our same Mobi pump, and then we have an alternative cartridge option for people, that's tubeless. So it provides even more options and wearability. We're really excited about the device. It's a major focus for us internally from a development perspective, but we're not providing time lines on it, mainly for competitive reasons.

Okay. And similarly, where are we on Sigi? Are you happy with the progress? It's been a couple -- you announced it on our bus trip, I think, a few years ago, that was an early morning for all of us. Where are we with Sigi in terms of -- just haven't gotten a ton of updates in terms of the progress there?

Absolutely. Still a priority for us. We see where Sigi and the tubeless feature for Mobi absolutely address different segments of the market. And overall, having slim, the Mobi platform and Sigi will allow us to capture the broadest market share. So we aren't providing development updates, but it is a priority for us internally.

Is it safe to say that whatever resources you put forth towards Mobi have now been reallocated towards Tobi and Sigi and maybe that helps accelerate that process as well?

It has both the tubeless feature for Mobi as well as Sigi did have resources. And so it wasn't a full rollover, but it allows us to strengthen the resources that we're allocating there, yes.

Okay. Maybe in the last couple of minutes, we can talk about profitability, which is sort of the other part of the story here. I think you're still committing to commentary of Mobi and when you launch a new product, it's usually dilutive to margins. But that by the fourth quarter exiting maybe 2024 is the better way to frame it, that Mobi would be accretive or at least no longer dilutive. Is that still in the cards?

Yes, that is true. And maybe I'll start overall saying that, that was another accomplishment, I would say, this quarter is that we did turn EBITDA positive at 2% of sales. And that's with Mobi continuing to be a bit of a headwind this year. But Mobi is long term, one of our most important drivers of gross margin leverage. As we move into 2025 is when we will start to see the benefit from the pump side of things. And so as we scale the pump volumes up across 2025, it will contribute more and more across the year. The supplies also are expected to contribute to gross margin expansion. But just from a volume perspective, just the percent of people in the worldwide installed base using Mobi, it likely won't be meaningful in our worldwide gross margin until we get into 2026. So it's a multiyear opportunity for us, but Mobi is going to be a good first step.

So you would at least expect. And again, I'm sort of asking for guidance, but as we walk through 2025, gross margin is at least stable, maybe directionally walking higher.

I would say we're committed to profitable growth and Mobi is -- I'm going to say again, Mobi is a good first step, and it will become accretive in 2025.

Okay. Any questions from the audience? No. All right. Why don't we just leave it there.

Thanks again.

Thank you, guys. Really appreciate it. Thank you all for joining.