Good afternoon, everyone. Suraj Kalia, Senior Medical Device Analyst at Oppenheimer. Pleased to have here with us this afternoon Dan Reuvers, CEO, and Elaine Birkemeyer, CFO, of Tactile Medical. Dan, Elaine, it's a pleasure to have you.
Thank you.
Thanks, Suraj.
So Dan, obviously lot of questions, and Tactile is one of the names that keeps coming up regularly in client conversations. You've been at the helm for a few years, Dan, now. What would you say is the shift in the challenges for adoption of pneumatic compression for lymphedema? Let's say, when you just joined to now, how do you see the difference?
Yeah. So I think the first one is, you know, building and helping develop an underserved market is a long journey, and that's one of the things I've been humbled to be reminded of, I think, over the last four years. But I think that, on the specialist side, we've made good progress educating vascular surgeons, educating oncologists, certainly lymphedema therapists. I think as I think about the future and how we might need to adapt and pivot, perhaps some of the tipping point components, I think, Suraj, are the primary care physicians. They continue to be the gatekeeper for so many patients, especially in more rural communities, and I think continuing to find ways to engage and educate them, move upstream, up the funnel, if you will.
We know the average patient with lymphedema suffers symptoms for over three years and goes through almost four HCPs before they get their definitive diagnosis, so we have to continue to migrate north. I think the other one is to appeal to the consumer directly through either social media, the simplicity of the product, and engaging with them through a variety of different mediums. I think those are all opportunities that still lie ahead of us. But certainly, I think the one thing I've been reaffirmed is that the number of patients that suffer from lymphedema that are still grappling to get their definitive diagnosis and treatment, that's what really energizes our organization.
Dan, I totally agree with your point about the incidence of lymphedema-
Sure
... especially, post-radiation therapy. Dan, you know, one of the things that also comes up regularly as a question is compliance rates, right? And, you and I have talked about this offline. I remember my father's lymphedema. It was brutal. I mean, it was absolutely brutal seeing it firsthand. And, you know, that was more physical therapy in India.
Yeah.
But here, obviously, you provide an automated approach to the same thing, but patient compliance, where do we stand on that, and how do you see Tactile pushing the envelope on patient compliance, and hence, hence outcomes, quality of life, however you wanna measure it on the back end?
Yeah, I think it's a good question, and I think, look, any chronic condition that a patient suffers from, compliance is always a consideration, whether it's people with OSA that continue to use their sleep apnea device every night, whether it's patients with diabetes that continue to do the right thing based on the information from their monitors. We have the same considerations. I do think, though, that when you consider, as I said, these patients have gone through almost four HCPs, one of the things it tells us is, they're motivated to get to relief. They want to solve their problem because they've been tormented with it for quite some time, and it's typically just gotten worse.
So I think we're benefiting from at least a patient who has very visible symptoms, and I think this is one of the things that energizes them. That said, we've also made, I think, as you know, some really, important improvements in our garments, our Flexitouch specifically. We added zippers and just ways for the garments to go on more easily. Knowing that the patient has to put that garment on for therapy every single day, we wanna make it easy and take away the reasons why they're gonna... Self-talk is gonna say, "Ah, this is just too much work. I'm not gonna do it today." We're trying to make it simpler with, for the Flexitouch patient.
I think the other one is, you know, we're working on a new device that we're looking forward to introducing, probably around the end of the year, that we'll introduce a new platform for our therapy patients for Lymphedema. We've been a little bit discreet about it for competitive purposes, but I think it's safe to say that we think this will be the most consumer-friendly product that we've had available for these patients with Lymphedema. I think that the more we can make it easy for them to integrate it into their lifestyle, certainly, the easier it is for them to be compliant regularly.
I think the last one is, you know, the digital companion with Kylee, we think is another way to just like with my Fitbit, it prompts me, it encourages me, and it engages me to make sure I'm trying to do the right thing. It's a little bit of a, an initiator for me, and Kylee is intended to perform the same way.
Dan, where do we... I remember in the yesteryears, and again, I think so you and I have talked about this offline also, you know, there were maybe I am jumbling up the numbers, 5,000 or so high-volume physicians that were identified from a database prescribing lymphologists. You know, when you look at the different lymphedema buckets for Tactile, how should... You know... How would you characterize penetration? High, medium, low volume. Just kind of set the stage for us how you think about that, where are you putting your resources in terms of growth or reengaging some of these buckets.
Yeah. Yeah, good question. And we talk about in our mission, the underserved community, which is lymphedema as well as bronchiectasis. So just to frame it for the audience, we believe that the undiagnosed lymphedema community in the U.S. represents around 20 million people. More specifically, those that have been diagnosed, that number is a more modest. Last time we got one from some third-party data was about 1.4 million patients. We look forward to updating that soon. We're in the process of trying to acquire the latest data to see what kind of additional expansion we've seen. But even among the 1.4, let alone the 20, the number of those that are getting the therapy that they deserve is very nominal.
We put out 75,000 pumps last year, so you can assume that, you know, you do the math, and that's roughly 5%. We're the biggest player in the market. We're the, by far, the dominant player in 652 or advanced pumps, and we're growing in, and taking share and, and continuing to expand the market on the basic or entry-level 651 pumps, what would be our Entre Plus. So, lots of runway for continued, growth.
I think we're still seeing a lot of prescribers that will direct a patient to a CLT therapist, but they still don't necessarily get to a pump, and that's where we want to engage those therapists because they also see the patients that we can help, and they know that they only have a narrow window of time that they're gonna be able to engage. Then we had a study that we did, and we were able to summarize a heat map that shows what the access to CLT therapists are. In the high populous markets, it's surprisingly scant. What we've also come to learn is that the average patient could sit in the queue for months before they even get into their CLT.
So we wanna make sure that this is an audience that we can let know that there is available treatment, that they can take control of themselves without, you know, being in a long queue. And I think that finally, you know, it's probably one-third oncology-related, Suraj, and the other, maybe roughly two-thirds would be vascular involvement. The oncology, although it's only one-third versus two-thirds, continues to represent what I believe is an increasingly good opportunity for us to grow. There's some good evidence out there. Our RCT on head and neck cancer survivors and the benefits that our therapy can bring, I think that's a segment that will certainly continue to get some solid attention from our team.
Yeah, again, how would you characterize resource intensity for Tactile over the four years that you've been? What do I mean by that? To generate every $1, you know, I had to put in so much. I mean, we can look at the margins and all that, but more on a qualitative level, is resource intensity easing somewhat? Do you need to put in more feet on the ground? Set the stage for us in terms of your infrastructure and the resource intensity.
Yeah, so I would say, you know, resource intensity is really a response or an output from a payer policy.
Yeah.
One of the big consumers, especially of our sales force time, is doing in-home demos for patients because it's required by certain payers. We did almost 45,000 in-home demos last year. That's a huge distraction for a sales professional sales team that wants to be engaging with prescribers. So we've started to shift some of that onto our patient trainers, who are equally and perhaps even better trained to continue to engage with patients in their home, and it liberates the sales force. So I think that's a kind of a what I would call a resource balance or attempted to right-size the balance. I think the other places are the back office.
We spend a good amount of resources, including people and headcount, to support the collection of all the necessary medical records and submission to the payer community. It's a place where we've chosen to invest this year. Our goal is to introduce, by the back half of the year, a process whereby prescribers can submit their prescription to us, along with all of the requisite accompanying documents, in a simpler way. Think about a point-and-click, Amazon-like order experience. I don't know that it'll be quite that elegant, but certainly moving in that direction, and that's a resource-intensive part of the process for HCPs as well as for us.
The easier we can make it for the HCP, the more they are inclined to do the right thing, which is not overlook a patient that could benefit because it's gonna be a distraction, for their practice or their resource, pool. So I think those are a couple of things that, will probably play out here over the course of the next year or two.
And then in terms of the 255 or so reps that you guys have, would you consider those... Obviously, some of them are new. We know that. How would you characterize the – what's the word I'm looking for? Let's say, your rep productivity or whatever... our territory is here, this is where optimal is. You know, how would you characterize the gap difference based on the current sales rep infrastructure?
Yeah. So I think it's worth reminding, in 2023, we grew lymphedema business about 14%, and we didn't add salespeople. So that was effectively an expansion in productivity. I think the question is, what's the destination? What's the target sweet spot-
Optimal, yep
... for productivity? It's hard to pick a terminal value without contemplating the, any changes in payer policy, because that's really what has as much influence on rep productivity as anything. How much engagement, what is the rigor of the process for a patient to become eligible? So there's two components to it. I think one is, we're trying to liberate the rep from more of these in-home demos so they can spend more time selling. We're also putting energy into making sure that we're engaging with the payers, so the payer policy is both consistently applied and practical.
There are some times where a payer may not pay for a Flexitouch for a woman who's a breast cancer survivor, who has both chest and arm swelling, and they say, "You've gotta start with a basic pump." You can start with a basic pump, but it doesn't cover chest. So it's a little bit of an unnecessary or an inconvenient step when we know what the destination is going to be. So, the payer policy is one of the drivers or influence points of rep productivity, but I think the other one is simplicity of the product, along with making sure that we've got the right tasks assigned to the right, support people.
And I don't mean to pin you down on a number, Dan. Let's say exiting 2024, let's say next summer, right, 2025 summer.
Yep.
If I use the ratio of 45,000 in-home demos divided by 75,000 pumps last year, right, if I use that, so let's say-
Yep
... a 40% ratio, right? Should we think, like, at summer of 2025, we are looking at at least 50% ratio or... And that frees up the sales guys. I guess I'm just trying to understand or quantify a bit more. This is just a very simple lever to pull on the sales, and we should start seeing an uptick or a step change in the top-line growth.
Yeah, I think, you know, as I said, it was pretty much all productivity gains last year. This year, we're depending on two levers. One is adding more salespeople in the first half of the year, and we expect we'll add somewhere in the high teens, probably, to a denominator of about 250, so a little bit less than 10%, in the first half, which we think will contribute later in the year. And then the other piece is expanding the productivity. I think some of the numbers that are worthwhile, the 45,000, if we assumed we could get to 40%, instead of ramping up to 30% last year, you know, if you compare it to two years ago, that's over 20, you know, roughly 20,000 home demos that the sales rep wouldn't have to do.
Each one of those takes a couple of hours by the time you commute to and from, and you're in the patient's living room. All of that time that's bought back can be spent in clinic with targeted high prescribers or potential high prescribers that see a high velocity of patients with lymphedema. So that, that's kinda, you know, how we reconcile those two.
Got it. Dan, have you talked about reimbursement earlier? Are you seeing any shifts on the commercial side, just in terms of Medicare requires, you know, like you said, the first step towards the, the Entre or the ACTitouch, and then to the Flexitouch eventually? Is that a shift on the commercial side also? Are you feeling any tangible changes on the commercial side?
Maybe ask Elaine to-
Yeah
... elaborate on that one.
I would say in general, I think the commercials typically follow kinda closer to-
Mm-hmm
... Medicare. I would say, obviously, there are some differences. As a reminder, there is an increasing number of Medicare patients who are moving to commercial MA plans, and those often, you know, mimic and follow similar Medicare profiles, where in this case, you would still be required to start with an Entre before moving to a Flexitouch.
And, Elaine, the Medicare Advantage, there's a lot of turmoil in general on the Medicare Advantage side. Is that something that we should keep an eye out vis-à-vis Tactile?
You know, there's nothing that specifically has sort of impacted this, the particular benefit category as it relates to Medicare Advantage plans.
Got it. Okay. Then when we talk about high-frequency chest wall oscillation, right, you know, obviously, given your history and the rationale for going after AffloVest, you know, it's been a few years. Help us understand, you know, when you do the gap analysis, what met your expectations, what didn't meet your expectations on AffloVest in particular?
Yeah. So, as you allude to, I've had history with the original vest product, so I've been in this space for a long time. I would say, overall, I've been delighted. You know, even with a little bit of a hiccup in the back half of 2023, we've still... If you skip 2022, we've almost doubled the business in two years. So just for a little bit of history, we bought the AffloVest when it had trailing twelve-month sales of $17 million, we did a little over $34 million, so we doubled it in 2023, our first—or 2022, our first year of ownership. And then we took a little bit of a step back at $32 million and change last year.
The reason that the growth had a hiccup in 2023 was one of our large distributors, our largest distributor, had been taking advantage of the PHE waiver, some relaxed criteria during COVID that expired in May. The primary difference was now they had to restore the requirement that the patient had a high-res CT scan on file that demonstrated definitive bronchiectasis, in addition to all of the other criteria they had been following. All of this was well within the confines of what Medicare had allowed, but I think the point is, by restoring that added criteria or that added requirement in May, we saw a step down in their volumes in May of 2023.
What we've said is, we simply have to lap that until May of 2024, and then we expect, you know, continued growth from the field of DMEs. We've continued to have business with this one, but I would say overall, I mean, you know, to be able to double the business in the first couple of years, to move from number 4 to number 2 share, we feel really good about it. And I would just add, here's some interesting piece about this one, Suraj, is that the selection to take the truly portable vest, which we have, and put it in the bag of a respiratory DME...
We just had a conversation with one of our partners, one of the leaders, CEOs at one of our partners yesterday, and they were talking about how they were growing energized about their ability to start mining their own data. So many of these big DMEs that we work with have huge universes of oxygen patients on service, who are also using nebulizers and nighttime ventilation, and they can start to mine this data, and with the benefit of some, what I would call, basic AI, identify, "Who in our service universe is already a candidate, meets a lot of this criteria?" And we can introduce this to our prescribers as another value that we can bring to these complex patients.
So the fact that we chose not to be direct, versus the competition, who basically has a direct sales force that sells only an airway clearance vest, and we've embedded ourselves in DMEs that represent all of the companion products that treat these patients, I think that, this is the right place for us. I've always believed that this is another underserved space. About 500,000 bronchiectasis patients in the U.S. have been diagnosed. We think that there's over 4 million more. The minority of them get vest therapy, and I think that the reach and the access that the respiratory DME, specifically, channel has at finding and reaching and accessing these patients, is probably one of the newest unique variables in this whole HFCWO vest space in the last decade.
So we're still very optimistic about what the future holds and our ability to grow the business. And I think once we get past the halfway point this year and the you know the lapping of the change in circumstance with this one DME, we expect that you know growth should look a bit more like we expect.
Dan, you talked about how y'all can shift gears on the lymphedema side with sales rep productivity.
Yeah.
How would you characterize that on the AffloVest side? Obviously, you'll have doubled your sales, right? And the market - all the numbers are pointing in the right direction. Obviously, you'll have done something differentiated on the AffloVest, on the HFCWO side.
Yeah.
What are the additional levers on this side of the business?
Yeah. So while I'm pleased with the progress, I can tell you it's still very much an 80/20 dynamic. Even the DMEs that we work with have a lot of branches that aren't participating, and many of them that are participating at, you know, onesie-twosies. We track the ones that are doing, you know, multiple units in a given window, and that's what we aspire to. So we're trying to work with and target, make sure that the messaging is consistent with the DME's leadership, making sure that the incentive plans are in place. We are adding to our channel. The support that we provide, I think, is unique in our space. The respiratory DMEs are not accustomed to the kind of influence that we're trying to exert, in a good way.
You know, the number of co-travels that we do, the number of branch trainings, the number of virtual trainings that we're doing, you know, we've got a very dedicated group of specialists that does that, and we're adding to that as well. So not just on the lymphedema side, we're adding to our channel on the AffloVest side as well. And then, this last few months, we added a payer relations resource that can continue to be a source of information for our DMEs, who are a little less accustomed to working in this space, so we can be a resource to them as well. So we're really trying to provide as much of the demand generation support, as opposed to just the demand fulfillment, which most of what they do.
So, you know, I think there's a lot more hand-in-hand work that is starting to take root. And I think that the more they start to get success with this, the more energized the leadership we're finding in some of these DMEs are, and they get more committed to: How can they mine their patient database? I can tell you, I mean, AdaptHealth, I listened to their CEO at an investor conference a while back. They had 300,000 patients on oxygen at a given moment. That's a huge universe of complex respiratory patients, and that doesn't count the Aprias, and the Lincares, and the Viemeds, and all of the regionals that we work with. So, I think that, you know, it's a good marriage.
But, you know, we're still making progress.
Again, when would you say, "You know what? Both these business segments have become more pull-through segments." There is a pull-through sales component, component rather than, you know, pushing it into the channel, so to speak, where you have to have reps. What needs to happen between point A to point B?
So when you say pull through, I'm-
So-
I just wanna make sure I understand the context.
Yeah, but I guess my point is, you know, rather than hunting down the next account or the next DME or whatever, you know-
Yeah
... it's, like, basically, for the most part, right, and, in existing accounts, it's just basically reorders, right? Utilization keeps on increasing, or maybe utilization is a better way to think about it. You know, how do you see this playing out, where utilization within same accounts, you know-
Yeah
... keeps on, you know, j-
So-
Uh, Dan.
Yeah, I think that the key here is that so many of these patients still don't get vest therapy, that they treat the symptoms, but they don't treat the underlying condition. So when the patient has an exacerbation, they're hospitalized, they put them on antibiotics, they may get airway clearance in the hospital, and they send them home, and the lion's share of those patients will not innately get a prescription for a vest. So I think that the pull-through piece here is continuing to work with the DMEs, who are starting to be a lot more thoughtful about having a questionnaire that they'll follow. And it's, you know, were they in the hospital? If they're on oxygen, have they had an antibiotic round necessary?
Suddenly, they start to surface all of these patients in their own service universe that they're already supporting, and all they have to do is go back to the physician. So having these care path surveys that they're starting to deploy, I think is a fantastic way for them to understand which patients can best benefit and how they can, frankly, find new ways to bring useful therapies to patients that they're already on service. Most of the patients that can benefit from vest therapy are already being served by one of our respiratory DMEs for something. It would be a very rare circumstance where they've never been, or needed oxygen or nebulizers, the only thing they need is vest therapy. So most of these patients are already in the database.
They're already being served, and making sure that they're using the right tools to start to mine those out and recognize which ones we can bring this extra therapy to patients that will benefit them. It's an underserved and undertreated component of their complex respiratory condition. This is a really good opportunity for them to grow their business and bring some real value to patients on the underserved side.
Got it. Folks, we are coming up on time. Elaine, FY 2024 guide, right?
Mm-hmm.
You have the three buckets, Medicare, commercial, VA, and obviously the mix shift. We understand the mix shift, but, you know, fill in the blanks for us in terms of the key growth drivers within these three buckets. Partly I'm jaded, and Dan knows this from the yesteryears growth, right? So trying to bridge the gap, qualitatively and quantitatively, walk us through the different, moving pieces in all these three buckets for FY 2024 guide.
Yeah. So I think, Suraj, I know you and I have talked about this. You know, we, we don't target by payer, so this is a lot around, you know, the patients that we encounter. And so, I think we've talked about, as we've spent time in oncology, we tend to see a younger patient that can tend to skew more towards commercial. Vascular can skew a little bit towards Medicare. But again, we encounter both in both areas. We also, as you know, work with the VA. So, you know, I think we're really less focused on growing a specific channel. But to Dan's point, you know, earlier, how do we continue to increase awareness both with patients and clinicians?
And the levers, you know, we've talked about as we think about in 2024, you know, are really around, you know, having more sales reps who are able to help us find it, allowing them to be more productive, making it easier for prescribers. And, you know, all of that applies to all the clinicians that we call on and who serve all the patients. So, you know, we're, again, hoping to continue to grow across, you know, all the channels, without targeting one in specifically.
Got it. Dan, Elaine, we are up on time. You know, for what it's worth, you know, you guys continue to make progress, and I know inherently some of the challenges in the space, but I think, so you guys are a steady eddy and some of the building blocks, you know, like Kylee, and I was really intrigued by your comment about using AI, you know, within, within existing databases to target. So we can certainly take it offline. Congrats on all the progress and thank you so much for taking the time. Really appreciate this.
Thanks. Thanks for hosting us, Suraj.
Thank you.
We appreciate it.
Thank you, everyone.
Okay.
Take care.
Bye-bye.