Welcome to the 2024 Piper Sandler Healthcare Conference. My name is Adam Maeder. I'm one of the med tech analysts here at Piper. Very pleased to have the management team from Tactile Medical with us. We have Sheri Dodd, President and CEO, and Elaine Birkemeyer, CFO. Thanks so much for joining us.
Absolutely. Thank you.
Maybe a good place to start is with you, Sheri. You've been in the CEO role at Tactile for, I think, six or seven months now. I'll ask the question this way: What surprised you about the company and the opportunity, either on the positive or negative side of things? And how do you envision putting your fingerprints on the business going forward?
So, five months, but who's counting?
Okay.
But I have been, you know, I had the privilege of being on the board for three years, so it's not a company that's brand new to me. I think, and despite what you know from the board, it feels different, obviously, when you come in on the CEO side. But what has been really consistent for me and what really attracted me to the position in the starting place is to be in a place where the market fundamentals are phenomenal. So you have unmet need, underpenetrated markets. You're in a business that is profitable. You have one of the best quality products. You're able to make it. Your supply chain's really clean. I mean, these are really, really nice fundamentals. And you have a brand reputation and market leader in this space.
So the opportunities, as I see it, is just how do we continue to fortify our fundamentals, our base, you know, for scalability, profitably scale? How do we simplify the experience, not just for patients and physicians, but even for our own employees? How do we continue to be the voice of the patient? It's really important, I think, when you're a market leader that you take the dominant position to make sure that there is the right policy environment, that you're doing everything possible. And then really, how do you just bring together the collective assets? You know, we're 1,000 employees strong, and we have to be able to kind of make sure that we're optimizing that to get the work done versus being off in silos that you would find in a big company. But I found that that can happen in a smaller company as well. So it's really bringing the team together.
Perfect. Well, that's a great intro and a lot to unpack there. So, you know, let's just spend a minute on Q3, Q4 dynamics. And, you know, I guess stepping back, Tactile's shown very good progress on the P&L leverage this year. The top line, you know, has been a little bit challenged, and you did take down the guide last quarter. So, you know, I'm looking at the Q4, you know, kind of implied guidance. It does imply a step up versus Q3. I guess the question is the real level of confidence in delivering against this updated outlook and just some of the puts and takes that we should be thinking through for Q4.
Sure. So on the puts and takes, you know, we were heavily challenged this year with not a change in the reimbursement policy, but a change in the interpretation of the policy. That's tough. When there's a change in the policy and policy language, you can get there. But, you know, there was an early spring awareness that the interpretation of the LCD had changed, and we had to collect more documentation. Really impacted our rep productivity, which slowed down our business. And the majority of that impact, because it was Medicare, was on our—the CVI side of our business. So it hurt, and we had to revise guidance, obviously, in Q2. And then with more understanding of what that policy impact had, you know, we had to revise again.
And so I don't want to be in a position to have to revise guidance as things start to stabilize. And now with the retirement of the LCD and moving to the NCD, at least the policy environment feels a little bit more straightforward, although there's still some vagueness there. But I'm encouraged that we adjusted quickly on using technology to help with documentation collection. We readjusted the way we had reps spending more time with the physician and less time on training and educating the patient, and the way that we worked as a back office team to find a way of moving the orders through the process. So policy is always going to create an interesting dynamic, but we learned an awful lot beginning of this year, and those learnings are carrying through in Q4 and will carry through into 2025 as well.
Fantastic. And maybe we could just double-click on, you know, the policy changes that you just referenced. So, you know, the LCD policy governing pneumatic compression devices was retired. There's the existing NCD that I think is the sole CMS coverage policy in effect. I mean, what have you seen? And this, by the way, just took place, I think, November 14th. So have you seen any impact to your business at this point? How do you think about the impact in 2025?
Yeah. So I'll have Elaine weigh in as well. So it's only two weeks old, the new policy. And Medicare hasn't even done the training yet to their own employees, nor invited manufacturers into understanding how they're going to perceive that. We don't believe that that policy will be more stringent than the LCD. And in fact, this policy was in place in 2010, of which we followed it until the LCD was envisioned in 2015. So we know the policy. We understand where there's vague language, and we're just anxious for Medicare to do the training so that we understand the philosophy of how they're going to adjudicate the claims. And we're being very conservative right now. We are looking at the documentation as was required in the LCD, and we'll adjust as we learn more. In terms of what we're seeing so far, though, Elaine, just.
Yeah, I think as we probably will likely take about 90 days, I think, for us to start to see through adjudication. Again, that supplier training that we expect to come here in the Q`1 of next year. I think, you know, remember that the big difference between the LCD and the NCD is really the pathway to the advanced pump and where the LCD required not only doing four weeks of conservative therapy, but also then doing four weeks of a basic pump trial before you could get to advanced pump. The NCD has a more clear pathway with unique conditions. It's those unique conditions that we're going to need to learn more about and which patients qualify for that more, you know, speedy path to that advanced pump there. So I expect that, you know, we'll learn a little bit more in Q1, but it may take a good part of next year to really start to see a good pattern of adjudication.
Okay. That's helpful detail. And I guess just to follow on there, do you view the NCD as being net neutral to net positive? Is there a chance that it actually works against you? Just any thoughts at this juncture in time and just kind of dovetailing off what you just talked about, Elaine, could this actually push patients through the funnel more quickly to advanced pumps?
I think that's our outlook in terms of not feeling it's going to be more restrictive. So it's either net neutral or it's going to be positive. Again, if you can eliminate, and I get really passionate about this, that if a patient has chest swelling and the basic pump does not cover the chest, it's not the right therapy for that patient. But the current policy forced that patient to try a therapy that likely was not going to be helpful for them to get the therapy that was helpful. We don't do this for antibiotics. We don't do this for, you know, any other type of procedure where we say, "We're going to give you something that isn't going to fit your condition, but we're going to do it just to say that we've done it." So it rationally doesn't make sense.
So that's where my optimism comes from, is that with a policy that says, "Look, we want the right pump based on the clinical condition of the patient," and we'll make that happen from a policy standpoint. And with the clinical information and the clinician saying, "For this patient, this is the right pump," I'm very hopeful that will be the direction that they'll go. It makes clinical sense. So I'm assuming that that will translate into policy. It's the best for medical spend to me right now. It's not efficient to spend money on two devices.
Yep. Okay. Perfect. I wanted to talk about some of the drivers on the lymphedema side of the business and, you know, specifically starting with a new basic pump that you launched called Nimble. Just update us, how is that product being received by customers? How quickly are you rolling out the product? Any, you know, supply challenges or kind of full speed ahead at this point?
This is such an exciting story to tell. So first of all, we launched when we said we were going to launch and launched after PDAC approval. We launched at the beginning of October to coincide with Breast Cancer Awareness Month. So this is a new platform for us. So when I say new platform, you should be thinking about it's smaller, it's lighter, it has a battery versus our current Entré Plus, you know, it's tethered, and then it's also connected. So it's connected to our Kylee app so that patient can actually engage and see the therapy sessions that they did, how long they did it for, et cetera. It's a great platform. So this is kind of our new go-forward platform. So we'll be launching lower leg extremity in the Q1 of next year.
So then we'll have both upper and lower, which will meet like the full basic pump. We will ultimately retire the current Entré Plus. So this is our new platform and our new E0651. We'll then be taking that platform, moving it to the advanced pump with the same concept of being a better patient experience: lighter, smaller, portable, and connected. In terms of uptake, really, it's just launched in October, so we haven't had a lot of experience here. But with the experience we've had, we found that we have 30% of our prescriptions for Nimble came from prescribers that had not prescribed a basic pump in over one year.
Wow.
So these are, for whatever reason, it could be that the prescriber saw the patient and thought, "I'm not sure this is going to fit your lifestyle on the Entré Plus," but decided that the Nimble product was a better fit for that patient compliance and adoption. So 30% of new prescribers was—I don't know that we had an expectation, but that was—it's a really nice number to see. And once we have lower leg extremity, I know that that'll continue to be a great product for patients.
Fantastic. You know, as we think about the basic pumps versus advanced pumps and just your revenue mix, basic pumps are relatively, you know, small today for Tactile. I think low to mid-teens on a percentage basis for lymphedema. Where do you think that can go over the long term? And certainly, I know there's some, you know, pricing differences, reimbursement differences between basic and advanced pumps, but any thoughts there, Sheri?
Yeah. And I'll have Elaine weigh in as well. So from the payment standpoint, advanced pumps are paid about three times more than basic pumps. So again, and there are patients that meet the criteria for advanced pumps, and they should get them. And there are patients that meet the criteria for basic, and that's the best pump for them. Where we're seeing in that category of the E0651 is that as patients fail conservative therapy and a group of patients that are going to meet the criteria for basic, we're seeing a few tailwinds that are helping us with that. First is the Lymphedema Treatment Act. So that went into effect last year in January. So it'll be one year this January. It takes a while for new policies to be understood by clinicians and by patients.
We didn't see an impact of the Lymphedema Treatment Act this year, but we expect to see that more, and we expect a lot of those patients to be rolling into that basic pump. So we see an opportunity for growing there. That's also an opportunity where there's a bit more competition. And so we want to make sure that we're super competitive in that market. We believe we have the right product with Nimble being there. So it'll be an important component of our overall portfolio to win in the E0651. And then we'll, you know, continue to have, I think, the best advanced pump that's out there as well. So have a portfolio of the right product to whatever the patient needs are. Anything else on the? Yeah. And I think we've been showing that the basic pump has been growing faster than the advanced pump.
I think two primary drivers is that basic pump market is bigger, and this is that's the first entry point. So that makes sense. It's only when you have more profound lymphedema that you would see it in that more advanced pump market. But also we've been the dominant, you know, share in that advanced pump where we haven't been the same penetration in the basics. We've more share growth as well in that space. So that's another reason for the catalyst of continued faster-paced growth in the basic versus the advanced.
Sure. Good color there, and Sheri, I did catch what you said, basically trying to, you know, port over what you're doing with Nimble, which you view to be a platform technology, to the advanced pump side, so I feel like we have to talk about that. You know, I guess the first question is timing, so when could we see the advanced pump portfolio be refreshed?
Yeah, so we're definitely looking at our product roadmap and seeing what all those iterations are, making sure that, you know, as we think about the platform moving over, we're also looking at garments. You know, how do you continue to make the garment so that it's easy to don and doff? That's a super important experience: lighter, more comfortable fabric, all of those things, so we'll be able to share a bit more on our roadmap in that way, but when we launched this and launched it in upper extremity, we really launched this with the message of platform. This is not just a new product to cannibalize our 651. This is what we feel is important for patients: portable, lighter, connected. It's super important for patients and for compliance for wearing the therapy, for sure.
Okay. We'll stay tuned there. Excellent, and another kind of, I'll call it a catalyst. What I view to be a catalyst is head and neck. So just remind us when you expect to see data from that randomized control trial. Do you have a specific data or venue in mind? And then I guess, you know, what's needed from a reimbursement standpoint and from a kind of a physician-patient awareness standpoint to kind of drive that market?
Yeah. I'll talk about time and have Elaine talk about on the reimbursement side because there are some nuances there both commercial and with Medicare, so the database is in the process of being locked right now. This is the largest randomized head and neck lymphedema trial ever. It was a six-month follow-up, and then the patients, all the patients, have completed six months, so we're locking the database in December. We're writing up the two-month abstract right now that's just talking about the two-month data. I have an entire publication planned, so our timing of being able to release that will have a lot to do with abstract acceptance at the various conferences that we're looking at. And that's probably going to be the first way we get the news out and then followed up with publications, so we're very excited about the study.
Like I said, this is the first of its kind, and we think it's a really pivotal study for patients that really suffer. Head and neck cancer has an impact on swallowing, has an impact on speaking, has an impact on range of motion. And the fact that there isn't clear policy right now that supports full reimbursement for that, I think is pretty egregious. And we have a responsibility for doing the data and excited about those results. You want to share more on the reimbursement and the?
Yeah.
We've had longstanding reimbursement for lymphedema on all parts of the body except for the head and neck. It's been either the policy is silent or it actually calls it investigational and experimental. And so really what we've been doing this year to kind of get ready for this RCT data is really kind of pursuing kind of a more clear coding strategy where there's a clear way to bill for head and neck, as well as starting to kind of create all the dossiers and information to start the dialogue with particularly the commercial insurers of that this is really an area that needs treatment. It's unfortunate because head and neck lymphedema is actually one of the most debilitating areas of the body to get lymphedema because it affects your ability to speak, swallow, and so forth.
And so we've been really partnering with the societies to make sure we've got that dialogue started. And so then when we bring forth this data, we really feel like, you know, the ground has been, you know, the groundwork has been paved for us to be able to hopefully move more quickly to change policy there. Last thing I'll say about that, I think 90% of patients with head and neck cancer will have lymphedema. Not all patients with breast cancer have lymphedema. So if we think about the oncology side or pelvic cancer, we'll have lymphedema, but 90% of head and neck. So if it's quite likely a patient's going to have lymphedema, how do we even think about getting that earlier in the care pathway when someone's starting to go through that procedure and get them on the right therapy, knowing that it's, you know, 90% chance that they're going to have that as a side effect of their treatment?
Yeah. Okay. That's really good color. A couple follow-ons on this topic. So I guess from here to when you guys commercialize head and neck, you know, what needs to happen with FDA? Do you have to submit for a specific claim, or is this really something just that you have to kind of sort out with the payers, which it sounds like you're in the process of?
Yep. So there was a discussion with CMS prior to starting this study asking them what they would need. Of course, they said clinical trial data. So the clinical trial has been underway. So we'll be going back to CMS with those discussions as well as developing the value dossiers, et cetera, for commercial payers and continuing to really be an advocate for these patients and making sure that the policy language is very clear and opening up access for this therapy.
I got it. And sorry to push on timing, Sheri, but I think before you said that we would see the data, I can't remember, it was Q1 or first half of 2025. Is that still true?
I'm comfortable with first half. Yeah.
First half.
Of the year.
Okay. Perfect. Okay. Good. And just I'll ask the same question or another question to head and neck. Do you think this helps the entire category, or does Tactile uniquely benefit given that you have the data? And I don't suspect your competitors do.
I think it's two fronts. One is it would be unique in terms of it would be for us. And we are the only manufacturer that has a head and neck garment. So it kind of goes with the partial that it's one thing if you have the garment, but you don't have the data. We're the only ones that have the garment and will have the data.
Yep. Okay. Perfect. Two other lymphedema questions, just a little bit of housekeeping. So one would love to get an update on head count in terms of where the lymphedema sales force is coming out of Q3 and just maybe remind us where you started the year in terms of head count and how do you think about that in 2025?
Yep. So we're ending with 270, and we started at 254. So we increased our overall head count in that area, and we'll be landing where we had guidance it was going to be between 270 and 275. So we're really comfortable being there for this year. As we think about for next year, you know, so much of what I'm really focused on, we're all focused on, is rep productivity. So having 270 reps in the field, where are they spending their time in right now? The proportion of time they're spending collecting documentation, some of it's in training and education. We want them selling. They're the product experts. They're the physician experts. And knowing and explaining both the disease state and the product benefit, that's where we want them.
When we can unlock more productivity by bringing in technology, changes in process to help alleviate that administrative non-selling time, we're feeling really comfortable that we're going to have a, you know, we have a best-in-class sales force, but they'll be optimized with their productivity.
Yep. Fantastic. The other housekeeping item on lymphedema is, you know, the update out of the 10-Q regarding qui tam. I'm guessing you're probably limited in terms of what you can say, but any comments that you want to make on the matter or timeline to resolution?
Yeah. So we can't comment on active suits. What we can say is once the qui tam became unsealed, government has 90 days to determine whether they're going to take that forward. So the clock has been ticking. And so 90 days, they'll either decide to take it forward or they won't. If they don't, the relators have an opportunity of taking it forward or they don't. And that's where we are right now.
Okay.
I'm very, you know, we have a really robust compliance program. Our compliance officer is an attorney. We have a really strong compliance program. The board has committees that are on compliance. You know, this is unfortunate. This was back in 2021 is when these were the allegations were made, and we'll continue to see where this evolves.
Yep. Okay. Perfect. Let's switch over to AffloVest. You know, a multi-part question here. You know, I think you've talked a little bit about some uneven or lumpy buying patterns from some of your DME customers. Maybe just elaborate on that comment. And how do you think about kind of the environment heading into 2025? Do you see stabilization, or do you think it's likely going to be a little bit bumpy?
It's interesting. The lumpy bumpy may be part of that business being indirect, but we'll be better at forecasting it. When I think the company acquired AffloVest three years ago, of course, there's a huge uptick that happens with the company acquiring. They had access to resources they didn't. Then you had the PHE in place. So again, more access. It's only been six months, am I right? Yeah, six months since the PHE waiver where we're actually starting to see normal business. And so we're learning a lot about the buying patterns. Elaine can talk about just the dynamics of capped rental and what that means for a DME. Yeah. I think what we've been learning now that we're in that more normal state is one, a little bit more about seasonality. We can see it more.
It's not just the typical as products get cheaper as you work through your copay, but there's also the fact that bronchiectasis gets exacerbated in winter months with cold and flu, and so we're kind of seeing that a little bit more, and then we're also seeing really the dynamics as these DMEs are starting to scale more, a bigger focus on CapEx, and so as a reminder, this product is a capped rental, so not only is it on their balance sheet until they put it into use, but it actually stays on their balance sheet for that 13-month period in use, so we're continuing to work with them to get better line of sight as to both their buying patterns, but also really how they're thinking about that capital management and things that we can do to sort of, you know, get win-wins working together there.
That's helpful. You know, I think at one point in time, I was thinking about the AffloVest business as kind of being growth accretive to Tactile's growth. You know, it's been a little bit bumpy, as we just talked about. Do you still see this as a growth accretive segment, you know, over the medium to long term? And then just maybe talk about what some of the growth catalysts are for AffloVest, whether it's new products, new DME relationships, reimbursement changes, just anything that you'd like to call out.
Yeah. I'll pick off some of these and have Elaine weigh in as well. So it's still an unmet population. So the patients are still there. So that's not going away. Those market dynamics are there, unfortunately. Fortunate for us, but bad for patients. Second is similar to lymphedema in terms of disease awareness is a challenge. One of the benefits that may be happening is Insmed is launching a pharmaceutical product for bronchiectasis. It'll be the first of its kind. I see that as a positive because that product helps suppress inflammation, but there's a whole disease process that happens with bronchiectasis. So the vest is still an important component versus now all you need is a pharmaceutical. So we think that that will be helpful for overall awareness. So that'll be a lift there for the AffloVest team.
In terms of DMEs, we already are on contract with the top 10 DMEs. So we're not looking to, we don't need to continue to go broader. It's really going deeper. And as Elaine said, how do we partner with the DMEs so that we have a better understanding of how they're going to manage, you know, the CapEx? And the more AffloVest patients they put on, the more they're carrying that right on their balance sheet. So how do we think about that? Anything else?
No, I think, you know, from a coverage and policy, there's good coverage. It's clear. It's just we've also really made sure we've got the right training resources so that they're educated on how to quickly qualify patients and kind of get that paperwork through as well.
Yep. Just one clarification, Sheri. So you just referenced the drug that you think could be a tailwind. Is that Dupixent? Or is that a different?
No, it's I can't pronounce it. I can pronounce bronchiectasis, so I give myself points for that one. I can't remember the name of the drug, but the company's called Insmed.
Okay.
I just can't.
Yeah. Okay. No, no. It happens to me all the time, so no worries. I'll make a note to circle back there. Short on time here, but did want to ask about, you know, 2025. I show consensus revenue at, I think, $322 million. That's a touch under 10% growth. You know, any reaction to that figure? And then I'll also just give you the opportunity to talk about P&L next year. You know, you have done a fantastic job driving leverage. Should we expect that to continue into next year?
Yeah. I'll take the latter, Elaine, because I want to really kind of call out Elaine and her team. It's been such a nice job. They really focused on the P&L management in 2023, and you see that reflected now, and that's healthy and will stay healthy. It's an important part of not just growing and eroding everything that's been built over time, so they both need to happen at the same time, so that needs to happen for sure. I'm very focused on growth. Again, when I talked in the very beginning, what excites me, the market fundamentals are there. We're a leader in this
space. We have the best, not just best product, super effective product. Product's not the challenge. It is more how do we kind of generate and get the referrals in, maximizing the resources that we have and keep that patient connected all the way through. So I'm really optimistic about next year. Takes time. I know that. But I'm really happy that we're fortifying our base with both technology, process, products, and people. It's a really nice combo.
Yeah. I think that all the work that we've done in 2023 and even here in 2024 has been to set us up to be able to start to invest and scale for growth. And so we've started this year. I do see next year continuing to be a year where we'll have continued investments. Those investments, though, will all in that long run drive both that top-line growth as well as enable us to continue to see profitability growth as well.
Perfect. Well, we're out of time, so we'll leave it there. But I want to say thanks again, Sheri and Elaine, for joining us. Really appreciate it.