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

All right. Well, thanks, everybody, for joining us this afternoon. We're very pleased to have with us, again, the management team from Tandem Diabetes, John Sheridan, President and Chief Executive Officer, as well as...

Katie Nicoletti.

Katie. Thank you very much.

Katie is our VP of IR.

VP of IR. So my name is Matt Miksic, I cover med tech here at Barclays.

I wanted to maybe start with one of the things that came out of the first quarter call -- or the fourth quarter call, was just around the way you've described growth and guidance for the year, confidence in the -- obviously, the top line guide that you gave, which was 10% to 11%. But then accounting for maybe some of the adjustments that you're expecting -- the alignment, right, so that's maybe 11% to 13%, adjusting for that. So maybe talk about how you arrived at that number and maybe to put it in context how your guidance generally has kind of changed in the last couple of years the way your -- your philosophy behind guiding?

Yes. I mean, first of all, I would say it really hasn't changed. We still tend to be conservative. If there's things we can't predict or have a good sense on how they're going to influence our guide, we typically don't include them. And so therefore, we include things we feel confident we can speak about. So the confidence in our guide for '25 is several factors. I'd say the first one is largely the introduction of Mobi has been very successful for us. Smaller infusion pump that's controlled by a mobile app. It's been very well -- I mean, the people who are using it love it and it's -- the uptake has been great. And so if you look at '24, we really didn't introduce it until like the midyear, when we got G7 integration. And so '25 now represents a full year of Mobi. In addition to Mobi, we have a number of other great pipeline additions. In just a few weeks, we're going to roll out Control-IQ+, which is a new version of our algorithm. Our algorithm remains the best on the market, and this is just an enhancement to it. We also have -- with Mobi, we're going to add Android capability today, it's just iOS. We're introducing the FreeStyle Libre 3, which is a very successful sensor that's been introduced by Abbott, our partner. And we've also got -- we have filed for CE Mark for Mobi, which will enable us to get into the European markets. European markets are larger. We think Mobi is going to do quite well there. So a lot of things on pipeline as well that we're excited about. The -- we have expanded our U.S. sales force. We've also given them additional data-driven tools to help the decision-making process. So I think that's a driver for us. And we have successfully navigated the introduction of the pharmacy channel. I know we'll talk about it in a moment. But I think certainly, the access improvement that comes with that, the out-of-pocket reduction for the patient is really a big deal. And then finally, we just had our type 2 indication approved. And we think that represents an opportunity for us in '25 also. There's a lot of things going on.

There are a lot of things, and that was my kind of reaction as well. And yet, I'll answer part of this next question for you, which was the reaction of the stock was quite severe. And I -- my answer to the question is, this is a market environment where any wrinkle or anything that makes folks nervous results in kind of an outsized. I'd kind of compare it to last summer, there was a few names that -- Dexcom, for example, was one where there was a lot -- I'd say there's a lot more new and -- adjustments to guidance and so on. But still, I think a lot of people looked at that move and said, "Wow, that is a big move." There was a few others that were down a big number. So I think market volatility has a lot to do with it. But I have to ask the question like in the conversations you've had after the quarter, which one of these, or what part of the story of rolling these things out, type 2, which has been a big driver for -- enthusiasm around Insulet for example, somehow just didn't land or resonate with folks in the same way when you made your announcement, which was ahead of schedule and obviously, quite positive, a little...

Certainly, we thought about it. I would say that we had a great year, first of all, 2024 was a fantastic year for us. At the beginning of the year, we guided to 10%. We grew at 18%. We saw double-digit growth in MDI conversions, which is really the first time we've seen growth in MDIs. And we saw Mobi have sequential growth in demand throughout the year. So we thought it was a fantastic year. We have mapped out the seasonality of the year very carefully over the last 10 years or so, and we know pretty much what's going to happen every week of every quarter. And if you look at the fourth quarter, we see consecutive growth in opportunities every week. And that goes from the very beginning of October to the end of December. And as we were halfway through December, we have seen -- continue to see the growth and the opportunities, but strangely, the -- there was softening in the last 2 weeks of the quarter, which impacted us. And I think the other thing that happened is we had shipment -- we had made shipments in the last week of the quarter. And historically, they would have arrived before the quarter was over for some reason, a number of them didn't. So we had these 2 issues ended up causing us to miss U.S. guidance, which I think was -- that's the #1 thing I think drove the disappointment. I think the other thing that happened is that we did set a conservative guide for 2025. And again, that's our philosophy. But as we just went through, there's a lot of really exciting things that are happening. And we absolutely intend to beat that, but that's the -- intent really is we expect to exceed what we've put in there, but that's what we commit to because that's what we feel comfortable with at this point in time. So I think that that's another factor that contributed. I think that the -- there's -- just based on what you mentioned, we are expanding the U.S. sales force, which is essentially done now. But I believe there is a fear that there might be disruption that comes along with that, that others have experienced, which I have to say we intentionally designed the expansion to minimize the disruption. We know how disruption occurs. And again, it's been very intentional. And so we think that's overblown. And I think when there's sales force expansion, when there is -- when we're going direct OUS in certain countries, when those things happen, I think that there's a wait and see, let's just wait and see how this goes, and we'll get back in after this has been done. But as I said, it's been managed carefully. We feel that the impacts are going to be de minimis this year. And -- but I think those are probably the main issues contributing to the response.

Yes. Yes. I think after I mentioned last year, not to call out the companies, have been widely discussed, but they realigned their sales force. And I'd say it sounds like a much different way.

Yes, they renewed call points...

You're expanding and you're going direct. Expansion in the U.S. and going direct to other geographies in Europe.

And we're not going -- we're going direct in select countries in a stepwise manner. So it's not going to be dramatic. It's just going to be managed carefully.

Right. Okay. So instead of moving a bunch of sales reps around, which might be one definition of realignment or changing your sales force, your -- is this -- I mean, I don't want to put words in your mouth, but like more traditional like splitting territories, adding territories, adding reps, like investing in places where you see opportunities for penetration, like that kind of expansion, is that...

Yes, I would say we want to increase share of voice, reach and frequency. When you consider what's going on in the market, there's increased competition. There's new sales forces out there. There's -- when you look at our big competitors, they have larger sales forces. It's a logical thing for us to do is to expand the sales force to [indiscernible] our competitive footprint. And when you look at the -- we did realign several territories, but -- and we added territories as well. But when we did that, we minimized the effect by controlling the number of new physicians, the new call points that people in those territories have. And I think that's really the source of disruption is when you have to establish a new relationship, you got to get in there and sell the product. Well, we minimize that. And so we think that it's definitely manageable.

Okay. So maybe a couple of things about the sales force is increasing share of voice. You have new competitors in Beta Bionics, kind of investing in their sales force and making a push now. But also, you're communicating, I guess, with clinicians in a different way in certain geographies as you kind of ramp up your access to pharmacy. Maybe talk a little bit about how you expect growth in '25, performance of the sales force in '25 to maybe be different than it was in '24? [ Some of ] those things.

We have new sales leadership, and they have brought in new analytics and tools to help the sales organization become more effective. And in '24, we piloted these tools. And we found out -- it's basically -- it's external data on how our competitors are doing in each individual practice, our own data. And then characteristics of the physicians, what's the -- what are the selling points that the physician appreciates. And so we armed our sales organization with this data today, so they actually can go and hunt and go to the locations that have the biggest opportunities for us to grow. So these tools, I think, are really important. So that combined, I think, with the new -- the size of the sales force, I think we're going to be a lot more effective this year.

Okay. Anything, again, kind of comparing '24 to '25, because -- I mean, there are some things that are new and different to '25, the sales force reorg being one of them. But guiding to sort of, call it, low double digits, delivering high double digits last year, what were some of the difference makers that surprised you to get to that level of performance? And how should we think about the opportunity to outperform this year?

Yes. I think last year, at the beginning of the year, we had just introduced several new products. It's G7 integration, FreeStyle Libre 3, our Tandem Source. And then early in the first quarter, we introduced Mobi. And so really -- I don't -- we don't -- we didn't give ourselves any credit for any of those introductions. And certainly, we saw a significant benefit from the G7 integration, from Mobi's integration -- Mobi's availability. And so I think that the processes don't commit until we understand and we saw continued growth for the entire year. And I think it was largely a result of the new products that we brought to market earlier in the year.

Even though they kind of scaled in, I mean, like Mobi was sort of quarter speed first quarter, half speed...

That's why I'm saying this year as we have a full year of Mobi in the market, with new features and capabilities, we expect to see the continued benefit of that on our new product starts.

Okay. But not dialing in any benefit really from these new products? Same philosophy applies.

The new products that are not on the market yet. I mean we have some -- we have single-digit growth in new products, largely driven by Mobi -- new starts, largely driven by Mobi. But I think when it comes to the features that we're adding, there's no credit for those. There's minimal to no credit for pharmacy or type 2 in the guidance either. And we all know that those are going to have a favorable effect on our business this year. It's just that we don't want to commit not knowing what would it likely be.

Sure. Overcommit and hit a soft spot or something. Coming back to the things that did surprise you in the fourth quarter. Anything -- I'm sure you thought a ton about this, but anything that you can do now that that's happened to kind of mitigate the risk of those kinds of mid late quarter surprises going forward?

Yes. I think when we look back and try to [ ask ] what really happened. Certainly, economics is part of inflation. I think concern for potential recession, those sorts of things are impacting people's purchasing habits. And you see it across the board in other industries as well, in markets and things like that. So that was -- that's a factor. And then I think the other factor is in -- there's more people today who are purchasing high deductible insurance plans. And last year -- and over the last couple of years, the CGM manufacturers have gravitated towards pharmacy, and the majority of their business now goes through pharmacy. So the impact on the deductibles is minimized. Therefore, in certain cases, we think people's deductibles just haven't reset and they decided to wait as opposed to purchasing a system, right? So I think a combination of those 2 things. When you look at next year, I think that we have continued to emphasize the -- we have a payment plan that's also available for people who want to just distribute the upfront across a couple of years, if necessary. Pharmacy channel also is going to reduce the out-of-pocket for the patient, which is really one of the main reasons we're doing that. And then I also think that the pharmacy channel provides us access. I mean it's easier for the physician to prescribe it. It's easier on their practice. And so I think the benefits of that can have a favorable impact. And we intend to -- I mean, we have 20% of covered lives today, which is a huge step for the first year really focusing on it the way we have. And we definitely plan to improve that number, increase it, and really take advantage of it and push as much product as possible through the pharmacy channel.

Okay. That's helpful. And maybe just on margins. And I'd also say if anyone has a question in the audience, feel free to put up a hand. But on margins, you're obviously investing in field in the middle of the P&L for sales in U.S., but you're converting some of your geographies to direct. So maybe talk about those offsets, the benefits. Where we should see them? Obviously, not so much of a benefit in -- maybe not in '25 for the investments in the field force, but how those things maybe offset each other as you get through the end of '25 and into '26?

I'll say that we're intently focused on profitability. It's very important for the business. We understand that we're a $1 billion company. We really need to do a better job there. If you look at -- in '24, our EBITDA -- we were negative 1% EBITDA. In '25, it's 3%. And I think that the company and the team have really focused on looking for costs, taking costs out to enable us to grow the sales force and go direct and, at the same time, improve the profitability position. So I mean, we really have spent a lot of time over the last couple of quarters looking for cost reductions and savings. So we can grow. So that's certainly one of the things that has happened. When it comes to the OUS, it's a '26 actual event. This year is prep. I mean we'll be adding -- adding the team, building out the capabilities of the team, but nothing is going to start until 2026. And then there's going to be -- it'll probably be a '26, '27 timing to get several of the countries from distributor to direct. And the benefit for us, I think, really, when you consider that is, we have control over the sales force. We have control over the message. And we think we do a really good job here in the states, and I think we will there as well. So there is just -- in terms of just relationships with the KOLs, clinical relationships, marketing relationships, there's a benefit for us doing that. And then there's also the margin benefit as well. And so I think the combination of those two things is just it's back to -- we think we're at a point in the company's size and history, there's a level of maturation that comes along, and this is a natural step that that business has taken, and we're just doing that now.

Got it. Okay. So yes, the EBITDA was one of the things that obviously needed to come down. Street estimates were a little higher when you printed and guided. I guess maybe a hard question to answer, but it seems like...

Let Katie answer it then.

Maybe this is for Katie. But there's some amount of that, like, I wouldn't call it a reduction, but coming in lower than consensus that was -- that was aligned with coming in a little more conservatively on the sales side as well [indiscernible] readjustment. So anything else that you'd would attribute to a more tempered -- a tempered initial look at EBITDA for '25 anyway?

We certainly want to hit the number, and we want to beat it. And I think when you look at the things we just spoke about, we have 10% to 12% or 10% to 11% in the guide. With the things I just outlined for you, we expect it to be numbers. So that was -- it will drop to the bottom line, obviously. And the pharmacy channel, in addition to lower out-of-pocket, improved access. The ASP is also beneficial. In 20 -- in '25, we'll also see the benefit of Mobi being on the market and the margin benefits of that. So those things are -- again, a lot of the things we're talking about that aren't planned will absolutely have a favorable effect on the top and bottom line.

Okay. So with upside to sales and not that we're like predicting, our estimates are in line with your guidance, but should you outperform in any way like you did last year, then some of that should result in...

I think the other thing, too, is the -- we've made a lot of investments in R&D over the last several years. We've acquired a few businesses. We've taken on their staff. And so it's -- this year, I don't think there's any reason to grow as aggressively as we have in the past. And I think we definitely would -- we would leverage -- I mean, we expect to grow the top line a lot like at a higher rate than we would the R&D team. So that's another big expense that's been part of it.

Okay. One on this -- this is like, I guess, a little bit of a surprise. You mentioned pharmacy and pricing benefit leading into this contract during last year and a lot of the discussion, even after the quarter was well. Pharmacy is good, but pharmacy will be bad for cash flows. But it sounds like it's sort of -- one of the surprises was it's like a little better for cash flows, maybe no difference in cash flows.

It's interesting...

Talk about that.

I think there's a perception that the only way this would work in pharmacy if we were to have an economic situation where we gave away the pump. And it was -- all of the revenue came from increased ASP for the supplies. Well, that didn't happen. We actually spent quite a bit of time with these large organizations and help them understand the model, and there was this educational process. And in the contracts that we have signed, it's -- the economics very much likely are for the DME model, meaning that we get a large upfront for the pump, and then the supplies we pay on a quarterly basis over a 4-year period of time. In both cases, though, the ASP for the two of those, [indiscernible] supplies and the pump are higher than what we're seeing for DME, but it's the same economics. So I think if we were a start-up, that would be what we would want. I think that the annuity model doesn't really make sense. But I think that as we continue to develop contracts, we would anticipate we will potentially have agreements that do that where you have to give away the pump and -- but I think we feel comfortable that we can tolerate that.

Right. Yes. And I think the mantra all along has been obviously better to be in pharmacy than not to be in pharmacy. But access has been...

I mean, I think the way we look at it, it's really multichannel. We want to have access to both and we want to be able to -- I mean, depending on what happens in one or the other, move business and volume to the most optimum financial situation.

Right. And given what you said about some sensitivity, deductibles, consumer kind of behavior, if you will, of these folks not wanting to plunk down, just -- out of market just kind of takes some of the edge off of that going forward.

Absolutely, yes.

So you're at -- maybe talk about where you are in terms of covered lives and coverage because I think you've also made a bit more progress on the pharmacy side than at least we were expecting. So what are you seeing now about by the end of the year, by the end of next year in terms of covered lives access via pharmacy?

I think it's back to our -- this won't surprise you, but rather than commit, we'll just go ahead and -- we've got 20% today, which is -- I mean, we started off the year last year in '24 saying, let's get 1 million covered lives. Well, we got a lot more than that. And there's no reason to believe that we can't continue to accelerate, achieve more than what was achieved in '24. We have a great team. They've got a lot of experience. They've done this before in other companies. So it's -- I think it's just a matter of executing and getting these things done. But we definitely will continue to grow access to the number of covered lives and take advantage of it.

Yes. And just to put a number on that, 20% is like 30 million or something?

It's twice that.

Okay. Really, Wow, I thought covered lives were -- okay. So that's great. Terrific. All right. So then maybe in the 2 minutes that we have let's just cover type 2 [indiscernible]. I think just the question I would have is I think you were distinguishing -- you've made sort of some differentiated comments around type 2 around the lift required. Like this is going to be a market development, that this is going to be -- this is not going to switch it on and when we're just like penetration in pumps in type 2 is just going to start to take off, I mean, you sort of recognize the investment that you were going to have to make in market development that's required. So maybe talk about like, I want to ask you what percentage that gets to. You've talked about that or other companies have. But when do we start to notice that? Do you think in your results? Is it 6 months away, is it 9 months away? Is it 2026 in terms of adoption and penetration in type 2?

Yes, I think that the introduction of AID systems in type 1 has -- it's been noticed by people with type 2. And type 2, it's very similar to type 1. You have to have basal-bolus insulin, and you have this longer-term comorbidities, if you're not managing it properly. And so we've done quite a bit of research with the type 2 community. And what we've learned is that they're more willing to consider pumps at this point. And so we would call these people near-term pumpers. They're well educated. They've got good jobs. They've got good insurance and they care about their health. And why wouldn't they use an AID system if it's going to help improve their health. And the therapy benefits are substantial. So I think that a couple of years ago, we -- there's about 100,000 people using pumps today. We -- that could get up -- which is about 5% penetrated. So we thought that could be potentially 10% or 15%. And I think now with the new technology, they're simpler, they're smaller, they're more discrete, mobile control. All these benefits have come along with them. These people are now willing to consider it. And so our numbers would say we can get north of 25% or 30%, which is -- that's a big change right there. I think that there's -- from a technology point of view, I think we need to simplify the system. And that's something that we're obviously focused on. When you see the type 2 data, you'll see that there's things that we've done to even simplify the interaction with the system on the existing products. And this Control-IQ+ that's coming out, it has some features on it that simplify the starting process for somebody with MDI substantially. So we're doing these things already so that we think that that's going to be a benefit. But it's an ongoing thing that we're going to have to do over time is to really optimize the product. I think that when you look at access, the commercial plans all cover type 2 as if it's type 1, it's really the government plans. And so there's activities we have underway to reduce some hurdles that the government plans require to get people on a pump. And I think that's an important thing that we're working on. Then I think it's just -- I think that obviously type 2s are prescribed by endos and PCPs, more PCPs. And so I think there is just getting into that area and getting the PCPs trained, understanding the technologies, the benefits of the technologies and getting them comfortable prescribing them. And so I think that we're going to start with a pilot and a pilot in multiple territories, and we're going to understand how the training, how the data -- how the physicians respond to the data, how the marketing materials work, how the access works and they were going to optimize that. And I think as soon as we feel comfortable that we're making headway, expand it to the remainder of the country. And so I think that there's -- there will be immediate benefit from that once it's there and once we start. But I think that it's not going to be a step function change in demand. I think it's going to be a gradual increase in demand over time. And I think it has the opportunity to accelerate as more salespeople are selling it. More PCPs are aware of it, and the data is out there. And I think that having more than one company in the market is beneficial because we're all doing the same thing, and we're doing it to the same people. So it's going to take a little time. Like I said, it won't be a step function, but it will definitely be meaningful. I mean, we're doubling the TAM. And so that's a big deal for us.

Sure. Well, thanks so much. We're at time. So I appreciate you coming.

Good talking to you, Matt.

Yes, always. Thank you.