Hey, everybody, or I guess, almost morning, afternoon, midday. But next up, we have Tandem Diabetes. So Leigh Vosseller, Executive Vice President, CFO, Susan Morris, Executive Vice President and Chief Administrative Officer. We have Katie Nicoletti, fairly recently appointed to investor relations. So welcome.
Thank you.
I think, Katie, you wanted to-
Thank you.
Start.
Yes. Good morning, everyone. Before we get started, I want to start off with our safe harbor statement. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development timelines, and financial performance and operating plans, and speak only as of today's date. These statements are not guarantees of future performance and involve a number of risks and uncertainties, and could cause actual results to differ materially from those expressed or implied in our forward-looking statements. Further details related to our forward-looking statements can be found on the safe harbor slide included in Tandem's conference materials. Back to you, Travis.
Mm-hmm. Great. And maybe, Leigh, I was just thinking, like, high level, like, you've said it quite a bit recently, is, you know, 2024 is, like, a transformational year for you. So maybe just kind of setting the stage, if you will, for kind of what this transformation is for, for Tandem.
Yes, happy to. I think we're at the turning point. It's been a long time coming, but with three new products introduced into the market this first quarter, what we saw for the first time in a long time was a great response to them. There's so much enthusiasm. All of them contributed to our growth this quarter, but I think Mobi's been the star of the show. It's really dominating the conversations with the investment community, with the physicians, with the customers. You see it all over social media, and so we couldn't be more excited about the prospects that it brings for us. You know, constantly you'll hear me say that it's just the beginning. These are data points right now, and we want to see real trends, but I would say everything's skewing in the right direction.
Great. And then, so Q1, you had a good quarter in Q1, a lot of that driven by Mobi. Just maybe kind of walk through some of the dynamics in Q1 and kind of what you saw there.
Sure. So, Mobi launched middle of the first quarter. It's actually a staged launch, so it's very interesting to see what, the performance we already have with just the beginnings. It began with just our direct customers. We opened the door to our distribution channel late in the first quarter, and we have the G7 integration coming late this quarter. And so we still have a fair number of people that are waiting for that next wave. And so G7, we expect to be, a big door opener for people who, want the Mobi product, but they've already converted to G7. And so it was a great start.
What we did see in the first quarter as well, probably some level of pent-up demand that came through, so some moving parts there, and we're anxious to see how these turn into trends.
So the kind of the pent-up demand, kind of that late mid-quarter launch for Mobi, is that pent-up demand kind of bigger in Q2? Is it gonna play out over the course of the year? How to think about the kind of the bolus for Mobi?
Yeah. I think once we get the G7 integration launched, when we get into Q3, Q4, we'll start to see more normalized patterns. We'll get past these variations, in customer behavior as we go through this launch phase.
How to think about the guidance for the full year? Kind of pass along the beat, but didn't kind of really raise the latter part of the year, given Mobi. Just kind of curious how you're thinking about the rest of the year.
Yes. So we're maintaining our guidance philosophy that we began the year with. And what that was, when we started, we said we can grow double digits this year just off of our growing install base, off of our growing renewal opportunity. And even with these new products coming to market, we're not gonna factor in any change that they can make to the business. Although we have great excitement and enthusiasm over them, we wanted to see sustainable trends before we start to build them into the guidance model. And so first quarter we did beat, and we raised by the amount of the beat, but we're gonna maintain that same view for the remainder of the year until we see these sustainable trends.
You actually gave specifically kind of Q2 guidance. What does that Q2 assume for Mobi and kind of the pent-up demand and all those kind of factors we just talked about?
Sure. It's actually still assuming same baseline, which is really mostly predicated on the renewal opportunity that's growing. So our number of renewals coming to market in 2024 is about 70,000 versus about 50,000 in 2023. So that stepped up pretty substantially. And so we'll have to. We want to see how this scaled launch plays out with that Mobi again before we actually build anything in.
What's been some of the kind of early feedback on Mobi so far?
People are even more enthusiastic about Mobi now that it's in hand, compared to even our earliest research. We are focused very heavily in understanding what the needs and preferences are of people living with diabetes, so the concept of wearability always had come through. But what we hear when people put it in their hand is that it's opening up new ideas, and it's really changing the conversation. Where I'd say a year ago, it was more focused on tube versus tubeless; today it's how do you want to wear your device, and how do you want to operate that device? And understanding the power of flexibility to be able to disconnect from an infusion set. So we're thrilled with the early feedback.
Great. How are you thinking about, you know, there's kind of three different buckets of patients to go after. You've got the competitive wins, you've got your own renewals, and you've got, you know, patients that aren't on pump today, kind of the new opportunity. And how is Mobi changing those three buckets for you?
Yeah, we're thrilled to see the traction in each of those buckets. Back to Leigh's point about data points, it's a little bit early to draw trends and say who exactly is the customer that's most drawn to Mobi, but we've been very happy to see that it's been attracting from each of the different buckets.
Any kind of details on, when you think about competitors, specific competitors, like patch versus durable pump, is this gonna be more competitive in your mind with that patch pump?
... I'd say this is a large under-penetrated market, and I think that underpins everything that we do at Tandem. With 60% of people using multiple daily injections still, that's who our focus is on. What we always heard in our research was that there was a reason why some people didn't go to a durable or didn't go to a patch historically, and a lot of those are really being, we're able to answer those concerns or the reluctances that people had through the features that we're offering with Mobi. We see this as a market expander.
What are some of those inhibitors, and then what, how does Mobi change that?
Yeah. One is just, again, that flexibility to disconnect, and options for how you wear your device is so important. It's a very lightweight pump. Also, it has a bolus button on the bottom of it. So even if you don't have your controlling device, you're still able to deliver mealtime insulin, and it's also able to stay in its closed loop, which is so important. Some of the other things that we hear, just feedback-wise, is that people are able to tuck it in different spots where they maybe wouldn't have other, or you couldn't actually wear a patch device or a more traditional durable device. Also, just the convenience of the app. We hear that it's very intuitive, very easy for people to use, and because of that, people have a higher degree of comfort with being able to adopt the technology.
Do you feel like the pump market's been kind of steady at a kind of low double-digit growth rate at this point? Do you think, like, some of this new technology is gonna accelerate the market at all, or are we kind of low double-digit growth rate's the way to think about this?
I think technology drives adoption and innovation, and when you look at our pipeline, we, I think, have the most robust pipeline out there, with waves of innovation that will allow us to continue driving adoption. And so it's hard to say as a percent what that'll look like over time, but for us to move from 40% penetration, where we are today, to 65% is very reasonable.
Thinking through kind of the new patient starts, like, kind of the lifeblood of the business, kind of getting those new starts and kind of growing your installed base. Like, roughly, I think we estimated kind of like 8,000 new patients to the business in Q1, down roughly 30%-35% year-over-year on the tough comp. How should we think about that in Q2 and, you know, Q3, Q4? And I think your guidance is kind of flat-ish year-over-year total.
Yeah. So on an annual basis, we said that we could deliver as many new pumpers as we did in 2023, so flat to slightly down. And it came in just as expected for us in the first quarter. Obviously, our internal expectations were well above where we set the street expectations, but it was still down year-over-year. The decline was lower than we had seen in the two or three recent quarters just prior to that. And so we expect that we're turning the corner this year, and in the back half of the year, we will see growth year-over-year, partly due to easier comps, but also just as we see momentum across the year and, and new products start to take hold.
Do you feel like that kind of new start bucket can start growing again in 2025, I guess?
With our new product offerings, as Susan said, we expect to continue to grow that new start population.
Do you kind of feel like you're, like, I kind of look at the installed base growth in the U.S. Let's take that. Do you feel like that U.S. installed base growth can grow kind of in line with the overall pump market?
Well, we believe that we're gonna continue to grow the pump market, so we will be one of the key drivers in that, and we do expect to continue to grow the installed base at high rates.
Okay, that's fair. The kind of split between you and your competitor was kind of 50/50-ish before on new starts, and it'd gone 60%-70% to them and, you know, 20%-30% to you guys. How are you seeing that kind of going forward with Mobi? Do you think you can get back to kind of the 50/50% share of new starts?
We certainly hope to improve that ratio. I think one important factor is to remember that one doesn't have to lose for the other to win. We grow the market in different ways, and so it's back to our products are uniquely designed to attract a portion of the market that needs aren't being met today. And so we think we will continue to pull people that won't be candidates for their product, whereas they were pulling people in the last year or two that were better candidates than for what we offered. And so we continue to focus on that segment that has not chosen pump therapy before and how we can attract them to it.
The CGM integrations, you guys have been kind of ahead of the game on. What's kind of allowed you to be kind of the first to integrate some of the newer CGMs?
Yeah, we've got a lot of internal knowledge on CGM integration, and it takes experience to be able to do this. And so we've integrated, obviously, with the Dexcom G4, G5, G6, and now G7. With Libre 2 Plus, we're working on the Libre 3. And so with that, with each time, you're gaining experience, communication protocols, security, and it allows us to bring new innovations, I think, to market faster than our competitors.
Are you seeing some sort of kind of stall or kind of pent-up demand or delay for the CGMs? Like, when I wait until the G7 is integrated before I upgrade or before I add a new pump.
We are seeing that. I mean, we launched with Mobi, with G6 intentionally. It was the first time we were launching the new product or the new platform onto the market. We wanted to have time to make sure we were gaining experience with it, with G6, a sensor that we've got a lot of experience with. And then we're layering on G7. That'll become available later this quarter, which is really important timing relative to the American Diabetes Association show that happens at the end of June. And so I do think it's something that people have been waiting for.
We do hear, especially within the MDI population, a number of people have already moved to the G7 sensor, and so if they're looking to adopt pump technology, they want to make sure that they're going to adopt that after it already matches with their sensor, so that it aligns with their backup of supplies.
Have you assumed anything on the full year guidance around the G7 integration in the back half of the year?
No. Really, the guidance was just based on the environment that we were operating in, I would say, back half of 2023, and that we could continue to capture the same amount of shares we were before. And so any opportunities that come from the CGM integrations or the Mobi product are really upside to what we established for guidance.
Okay. And then Libre integration?
... It's to follow. So we have not given specific timelines. About a quarter ago, we made the decision to pull back from getting more detailed timelines, and so we wanna give you the next line of sight, which is G7 this quarter, and then Libre is beyond that. It's an active project that we're excited to be able to bring to market, but we haven't given the exact timing yet.
But internationally, you've done some integration with Libre or about to, right?
We have Libre available in the U.S. with Libre 2 on t:slim, and so we said it's to come internationally also, which I do think opens up a meaningful opportunity.
Then what's the plan for Mobi internationally?
Regulatory work is happening now, as well as kind of the additional R&D work, language translations, things like that. We're looking at it on a country-by-country basis to determine the timing, and we'll be providing updates on that in the near future.
Great. In the U.S., moving more into the pharmacy channel. So how should we think about the dynamics there on the pharmacy channel and kind of the progress you're making on some of those contract and payer discussions?
Sure. It's the pharmacy conversation's always very complex. I would say first and foremost, what's important is we are in many conversations with different payers and PBMs, and the question mark of whether or not a durable pump would be accepted in the pharmacy channel is off the table. So we're well beyond that point, and we're more focused on business model, what it looks like, how it fits in to their structure. And what that structure is can vary widely, and so a misconception is that pharmacy equals subscription model in terms of revenue, and that's not necessarily the case. In our conversations, we're talking with some about what looks more subscription model like, but we're talking to others about what looks more DME like.
So from an outsider looking into our P&L, it would look very consistent with what we saw or what we already see with our DME contracts. But I think two important points of what our goals are. A, number one, we don't have to take any contract. So Mobi is sort of the pilot for us into the pharmacy channel, with our long-term goal of getting Sigi straight into the pharmacy channel. And if a contract doesn't meet two important goals, we won't accept it. And number one is that it needs to broaden access for patients by lowering the out-of-pocket.
And so one of the biggest challenges people will say to us is that, "I'm interested in pump therapy, but that's such a high upfront cost." And so if our financial assistance plans don't help them today, they're looking for other avenues, and we know there are ways through the pharmacy channel where we can lower that out-of-pocket or what that looks like for a patient. Secondly, we look to have something that is improved economics over what we see in the DME channel. We have some very good DME contracts, and we don't wanna just put those aside, and so we hope to have at least as good as or better reimbursement when you look at it over the four-year life of a patient. And so this is gonna be a multiyear initiative.
We're not gonna. It's not gonna flip on overnight with everything's in pharmacy. It's only the Mobi portion of our business, and it'll probably be a few contracts at a time, and it will be building across two- or three-year timeframe, at least.
Why only do a couple contracts at a time and not just go, go faster?
Yeah, you know, I don't think it's as much in our control to do that. And so it's more about the cadence of working with the other parties and what's the right timing for when they wanna put something on formulary, when we get to the right type of contract in that negotiation. If the opportunity existed to accelerate it and it met our goals, we would certainly consider it. But just when you've watched anyone transition from DME to pharmacy channel, you usually see this progression taking a few years.
Is it more on Mobi, or are you gonna do that with t:slim, too?
Our plans are to keep t:slim where it is, and so t:slim works very well. It's established in the DME channel. It's really to take Mobi as that pilot and start to look for opportunities with Mobi.
Is there sort of like a needs to be kind of break even neutral on a 12-month basis or some kind of thinking about the model and kind of the revenue model and not seeing kind of a gap in revenue upfront?
Yeah. We're more focused on the full four-year life value of a patient since that's what we with our four-year warranty cycle. So it's something we'll continue to monitor and evaluate, though, as again, as contracts are presented, if they fit, then we will certainly move forward with them.
Today, like you typically lock the customer up for four years, and is that still gonna be the case in a pharmacy contract, or is it gonna be a little bit more open?
I would say what pharmacy does, it opens the door to reconsider everything, and so, it goes back to how the reimbursement may be structured. The warranty cycle could look like DME or it might be different. And so again, those are all the pieces that we're working through now. That's the stage where we are in these conversations.
In Q1, you actually saw a better price in the U.S. Is that from payer discussions and getting more reimbursement? Just kind of curious how... What percent of your contracts you're getting that on, and is that gonna be another tailwind for growth?
Yeah, so that, it was great to report that. That's been a lot of hard work from our market access team, really through the DME side. So to highlight that DME does work well, and it was through contract negotiations that have been ongoing for a year or two, and they really started to fold in across 2023. What you saw was the magnitude of it, the hit in Q1, had a really good comp compared to Q1 of last year. And so it's a, it's a new good baseline for the rest of 2024, and we'll continue to pursue price increases.
But, I would say our success is pointed partially or, in great part due to Control-IQ, partially due to the inflation conversations, kind of following what CMS did with their pump, price increase a year or so ago. And so we were very successful, and we will continue to pursue those.
The Control-IQ, kind of updated Control-IQ software coming? I'd love to hear more on that.
Absolutely. So we received clearance for our updated Control-IQ algorithm in the fourth quarter, and so we're gonna be rolling that out on t:slim. But one of the things we wanted to do was to roll it out on Mobi at the same time, and so it had a lower age indication, down to age two. So we recently actually got a lower age indication for Mobi as well. So we'll be rolling that out later this year, so the lower age indication is a piece of it. We're also using that same algorithm right now in our Type 2 trial, and so that'll be a great offering. But when you think about it, greater feature set, personalization, greater customization, and we'll be providing more details as we roll it out.
Same, no, no difference in price for that?
... Correct.
Okay, and how does that improve over time? What's the next steps, and when do we see that? Is there gonna be annual kind of updates to the algorithm?
Yeah, the algorithms all require clinical work, and so it's something that we're very focused on, on our goal to ultimately have a fully closed loop product. We do see a line of sight to getting there, and so we haven't outlined each of the stages, but I do think that this is a great first step.
On Type 2 , when I think the trial's completed this month?
Yep.
When are we gonna see the data for that?
So enrollment wraps up this month, and so then you complete, obviously, the trial, and then there's the data analysis and synthesis that will, comes out of that, and then we'll actually do the regulatory filing. To think about it as a 2025 timeframe is the right way. We will look for opportunities to provide the data readouts before then, around obviously major shows.
So you get kind of the indication for Control-IQ on Type 2 , right? And so, like, you can get payer coverage and would you expect to see kind of that play out in kind of Type 2 new starts?
Yeah, I'd say the indication portion of it allows us to market the device, which I think is very important. The payer coverage piece is really associated with the pump portion of it, and so the algorithm for us is really a marketing opportunity in how do we bring the benefits of our technology to more people living with diabetes.
Do you roughly, where's the Type 2 of your installed base today in the U.S.?
It's about 5%, which is pretty consistent, so over 20,000 people. But again, without that concentrated marketing effort, because we don't have the claims.
Right. Do you think that can actually grow as a percentage of the installed base with that indication?
I'd say that it can grow in an absolute number. We also have great expectations for our overall installed base-
Right.
So we'll wait to see what it looks like as a percent. But I also would say that people living with Type 2 who are insulin dependent, we're also very focused on what are the needs of that community. And so we're looking at things from a product perspective that may allow for us to do greater offerings there. For example, even Mobi, it's more discreet. It's operated through the iPhone, and so being able to offer things like that, we think will allow for greater penetration with that Type 2 .
Your competitor is also, I think, getting Type 2 data this summer at ADA and indication later this year into next year. Is that impactful to you in any way?
No, I think that we expect for multiple companies to be pursuing Type 2 indication, but back to the overall market, only about 5% of people living with Type 2 who are insulin dependent use a pump today.
Mm-hmm.
So there's a huge opportunity for multiple players to be able to impact more lives.
Anything that we should think about at ADA in June?
You know, for us, it's such a different show than it was a year ago. We're able to talk about four new products that we didn't have this time last year, so it's very exciting for us. Mobi is obviously going to be part of our marquee event. We do have a product theater going on. It's a Scientific Sessions, and so we obviously have a lot of different things happening from a clinical perspective as well, handful of posters, and so it should be a great show for us.
Did want to touch on international. And I think 10,000 pumps in the U.S., kind of, and 40,000 a year, roughly for years. How should we think about kind of the international opportunity?
Yep. So another really large opportunity for us. When you compare to penetration in the U.S., which is about 40% in Type 1s outside the U.S., in the 25 markets where we operated, averages in the 10%-15% range. So there, there are some of our markets that are much more like the U.S., closer to that 40% number, but there are some that are vastly underpenetrated. So we still, we see that as a large opportunity for us, and we're working to launch products to get at parity with what we're already offering in the U.S., which will drive that momentum. We're also working to expand our footprint there to some extent.
So our distributors manage our customer relationships from start to finish, but how can we complement what they offer with more clinical presence to help with those physician conversations or even reimbursement conversations as needed? That's a way that we're looking to put our foot on the gas a little bit more outside the U.S. And so that's the excitement and enthusiasm side of where it can go. From a guidance perspective, we were cautious this year. We expect it's gonna be a bit of a noisy environment from a competitive perspective, so we took that into consideration when we built the guide for this year.
Maybe talk a little bit more on the competitive environment internationally.
Yeah. Right now, I'd say that we always expected that things were going to be increasing internationally, and especially as new competitors are launching products. There's also competitors that are available outside the United States that we don't compete with here. So I'd say everything's in alignment with our expectations. So it's... We expect new competition. The competition is there, but it's within our expectations.
I guess you're in 24 countries now, internationally. I think you've got one competitor that's like 120, and the others in a lot fewer countries, at least with a new product. So what do you—what's your goal for expanding countries outside the U.S. over the next year to 2? And then on the other side of the coin, you know, as that competitor launches their new algorithm, you know, Pod 5 in these other countries, like, when you see them coming to a country, are you seeing the growth rates change in a big way in the country they launch in?
Sure. So I'd say one thing is that we recently welcomed new commercial leadership overall, and our international new leadership also. And so they're very focused on how do you provide the offerings and the benefits of our product within those specific countries. We are adding additional clinical support in those regions, and I think there's a lot of things that we can do to drive greater penetration within those markets. So that's a big focus for us with our product offerings today. As new products are launched in these, we expect them to come, and the biggest thing we need to do is answer that with innovation, and that's absolutely in our pipeline, and we plan to offer as well.
Speaking of innovation, maybe just kind of go through the longer-term pipeline, but it's probably more focused on the U.S. at this point, in Sigi and the patch pump.
Yeah. If you think about it, we have a portfolio approach, and that's very different than a lot of the other manufacturers. We recognize this as a highly segmented market in different needs and preferences that drive adoption within diabetes. And so we focus our pump platforms in three main ways. One is the t:slim, which we remain committed to. We see where that continues to attract a large audience, that all-in-one availability to see your information from your CGM right there on your pump. So we want to continue that platform with the t:slim X3. Next is really Mobi, which we obviously are launching the portion today that's used with an infusion set.
But we also recognize with options and wearability, that you can also use that and change out the cartridge portion of it using the same pump, and instead, that cartridge is used with an infusion site. So you've got the option every three days. Do you wanna wear it as more of a patch configuration, or do you wanna wear it with an infusion set and have that flexibility to disconnect? And so that's really that next step in innovation for Mobi. It's that tubeless cartridge portion. And then the third pump platform is our Sigi product, which we acquired through AMF Medical about a year ago. And so that's a really exciting technology because it uses pre-filled cartridges, and it's a durable pump still. And so it also offers the ability for someone to take the pump portion off without changing their infusion site.
That's really meaningful, and it's powerful, especially as we look into continued ease of use for different populations. So the other innovation I'd point to is just extended wear technology. With all of these, our goal is to reduce the burden of diabetes management. The easier we can make it for patients, the more we're gonna be able to be successful by driving adoption. And so extended wear, by allowing people to change that site in longer periods, six days, seven days, for example, that I think allows us to drive adoption for each of our different products. So you'll notice I didn't provide timelines. We aren't providing specific dates for each of these, but I'd say they are all in active development. And again, we do look to have regular waves of innovation that will drive growth.
The AMF Medical, I think, acquisition for your Sigi patch pump was a year and a half, two years ago, off memory. Just kind of curious, since you've bought that asset, have you been able to accelerate some of the timelines and work around that?
We're always focused on accelerating the timelines, but we also wanna make sure that any product, how is it going to be tested from a durability perspective? How do we make sure that it's being put through the rigors that we do within our own product development? And so we are looking to accelerate things, but never at the cost of quality of the product.
Makes sense. And Leigh, I can't let you off the hook without margins. So maybe talk about, I guess, Q1, EBITDA was negative 7%, and kind of guiding the negative 5% to Q2, and then stepping up to more break even for the full year. Can you kind of walk through, you know, the ramp from that negative 7 to kind of break even for, for the full year?
Yes. So, the margins, both gross and, EBITDA margins, generally follow the pump sales. As we've built the guide and as is normal in our business, you see a seasonal uptick, and so by the back half of the year or in the fourth quarter, in particular, that's your highest percent of pump sales. The margins will follow suit there. This year, there's still a bit of pressure on gross margin, particularly as we've launched Mobi. It's expected to have significant benefit to gross margins in the long term, but in this first year, building at such small volumes, we're not able to leverage all of the overhead. As we exit this year, you'll start to see it become accretive. Mobi, as a system, gets us more than halfway to our 65% margin target.
So 2025 is the year in which you'll see that first real step up, and that will come from the pump itself, with a 10%-15% lower manufacturing cost. And then, as the number of people using Mobi and the installed base grows, you'll start to see the tailwind come from the cartridges, which have a 20% lower manufacturing cost than t:slim. And so that's gonna be the, I would say, the biggest driver and opportunity for gross margin in the near term. But as Susan laid out, the product portfolio, everything that we're developing is with a, a line of sight to also improving gross margin on the products.
Q1 operating expenses in total grew 5% year-over-year.
Correct.
Is that kind of more mid-single-digit growth rate on OpEx the right way to think about what you need to kind of spend to keep funding the pipeline?
Yeah, so we expect across 2024 at least, that we'll see modest step-ups in spending through the year. Part of it will be investments in sales and marketing as we're launching these new products. Some of it will be R&D. R&D may fluctuate quarter to quarter, depending on what stage we are in within a clinical trial. So that's some of what could be a moving part there. But we are very focused also on other cost-saving initiatives to fund the investments needed in R&D and sales and marketing. And that really comes from another product that we haven't even spoken of today, which is our Tandem Source product.
While it offers great efficiency opportunities for physicians, which can create stickiness in the market, it also creates opportunities for us to automate some of our operations and to reduce the number of live interactions we would have with customers. They can self-serve more with that platform. That's something that is really expected to drive leverage in the longer term and help drive us to our 25% operating margin target.
All right, great. I think we're out of time, unless there's anything you wanted to close with? All right, great. Thanks a lot.
Thanks, Travis.
Thanks so much.