Hi, everyone. Thanks for joining us today. My name is Mike Kratky, and I'm the Senior Med Tech Analyst over here at Leerink. Really thrilled today to be joined by Tandem CEO, John Sheridan, and CFO, Leigh Vosseller. So thank you both very much for joining.
Thanks for having us, Mike.
It might be helpful just to start with a quick overview of the company, you know, some of the key upcoming milestones, and maybe just walk through the setup for the rest of 2024 for a couple of minutes.
Sure. But before I do, I just want to point to the safe harbor slide that's probably showing right now, or it was. If you have any questions about it, you can see our website just for that information. But today is a very exciting day for Tandem. We, in fact, announced that we have the full integration for Mobi with the G7 from Dexcom. It's been something that we've been working on for a while. I'm very proud of the team to make this happen. A lot of work went into it, and we are the first product on the market now that has integration with two sensors. It's the smallest durable pump on the market, and I think we're very excited about how that's going to play in the marketplace.
There's a lot of dynamics that this addresses for Mobi and the uptake in the market, so excited about that. I'll just say that, you know, it's a large underpenetrated market, both in the U.S. and in the OUS markets. You know, our strategy to address that really is to develop products that are simple, intuitive, and easy to use. We think that ease of use drives adoption. So from the very beginning, we've had design principles that focus on what we would call user-centric design. And this is a combination of behavioral science, human factors, and user experience and engineering. Because we think that by reducing the friction that people have in wearing a device 24/7 is the ticket to really getting people to use these devices and wear them.
Certainly, we have the best algorithm on the market, and so we think that, combined with the usability and wearability, is really important. The second thing that we're focused on really is the fact that it's a very segmented market, and there's no single solution that really is going to meet the needs of the varying segments that are in Type 1 and Type 2. So our focus there is to develop a portfolio of products. So Mobi is really the second of the three devices that we intend to bring to market. t:slim X2 is the first, Mobi is the second, and then Sigi, which is a full patch device, which is under development right now, is the third.
We think having these three devices gives us a much better chance of really penetrating these various segments in terms of how people want to wear, how they want to control, and how they want to use the technology. And so we wrap that with an ecosystem of data-driven products and services, which we call Source, and we think we have the full solution. And we're excited about where we're at. As I said, you know, this really is an important point for Tandem. I think it gets us back onto a growth curve for the future. I think it really is the beginning of this transformational part of the story.
Perfect. Yeah, I mean, a lot of exciting developments this year. I mean, maybe before we get into some of the company's specific developments, one thing I'd be curious to get your thoughts on really is just kind of the cadence of the growth for the insulin pump market. I mean, 40% penetration in Type 1. What really are going to be the factors that get this market to accelerate, and how quickly do you think that we can do that?
Yeah, I think it's technology-based. I think that if you look over the last 5 years, it really started to change. We started to see the growth curve in MDI conversions when we brought Control-IQ to market. Certainly, I think that the Omnipod 5 has helped that, and so has the 780G. But these products have been on the market for a relatively short period of time. But in each case, I think we have seen additional penetration into the market. So we're at 35% or 40% today. We think that in the U.S., in the next three-five years, you can get to 65% plus. If you look in the OUS markets, it's even less penetrated.
It's more like 10%-15% in Type 1, and that can get up to 25%, we think, in roughly the same time frame. The Type 2 market is even less penetrated. In the U.S., insulin-intensive Type 2, there's about 2 million+ people with insulin-intensive Type 2, and it is about 5% penetrated, less OUS, larger and less penetrated OUS. So we think, as I said, it's a there's a large underpenetrated market. We think that technology that improves wearability, that provides great therapy, drives people to, you know, consider wearing pumps. Because I think the, the longer-term reduction in the comorbidities associated with diabetes are significant, and then you just feel better every day when you have AID systems working properly.
Yeah, understood. So like you started out with some exciting news today with the Mobi integration, with G7. You know, one question that we've gotten from folks in the last couple of months is, you know, to what extent is this going to be something that really helps unlock new patients? Was Mobi lack of integration with G7 something that you thought maybe was, you know, a gating factor early on?
Yeah, I think the way it works right now is that Dexcom has been very successful in updating their install base from G6 to G7. And so there's many people out there today who are MDI users that are using the Dexcom G7. And so, you know, at this point, they're not going to go back to G6. They've already got supplies, et cetera, and I don't think their physicians want to put them back onto G6. And so there's definitely people out there that have been waiting for the G7 integration. And so we think that now that the G7 integration with Mobi is there, we will start to see the real uptake occur. I mean, it's been, you know, it's been on the market for, you know, two months or so at this point, and we have definitely seen a great deal of interest.
I think that this really unlocks that last element that, you know, that's been holding people back from actually getting onto the system.
Understood. Maybe just from a technical standpoint, based on the press release today, I think my understanding is that, you know, current Mobi users basically will just, will have a software update, that they'll be able to get the integration, but it's not like they need another prescription or, or need to go get a separate Mobi, correct?
That's correct.
Okay.
So there's two things. One, every new pump we ship as of today will have the ability for Mobi to use a G6 or G7. So I think that's an important element. And then there are people who have purchased Mobi over the last two months or so, and we will make a software update available to them free of charge.
Understood. Very helpful. You know, I think maybe just sticking with Mobi, you know, 3+ months into the launch now, how has the initial Mobi launch trajectory aligned with your internal expectations, and what have been the main features that have really been driving the enthusiasm?
Well, I think it's-- when you, when you actually hold it in your hands, it's much lighter and smaller than you think. I think people are surprised by that. Physicians have been surprised by that. So that, that's one element. It's just so small and light, and, and to the extent that when people wear it, they forget they have it on. That's one of the common things that people say: they forget they've got it. So there's, there's an improved wearability factor. I think prior to the availability of Mobi, there was this argument that it's a tube, tubeless, you know, it's tubed or tubeless, and, and basically, tubes are gonna take over the-- tubeless is gonna take over the world. Well, that- that's just not the, the case.
It's really about wearability and the flexibility to put it wherever you'd like on your body, and also just take it off when you feel like you have the need to just take a holiday from using a system like that. So we think that's an important aspect of Mobi, is this wearability enhancement. Plus, now we have a choice, and we also have what we would consider to be the best algorithm on the marketplace. And I think if you talk to endocrinologists, they'll confirm that. So the other element about it is, it's very discreet.
I mean, you have a mobile app on a phone that's controlling the system, and so you can be with a crowd of people at lunch, and you can take your mobile phone, and you can give yourself a bolus. And I think that typically, that's in the past, with with t:slim, you know, you'd have to take it out, or you'd have to go someplace private. And so I think there's a great deal of convenience that comes along with having a mobile app, as well as discretion. So we think wearability with choice and the algorithm, plus the convenience and discretion that comes along with the systems, are very compelling.
Got it. Then, yeah, just going back to the kind of expectations. I mean, this has been something where you had the launch starting in mid-February. What has the initial reception been, you know, relative to your expectations?
I mean, I think it's been. It's exceeded our expectations. It's been. There's been strong interest in the product. I think that, as I said, it's really, it's now that we've got G7 integration, that we expect to see the uptake start to achieve what we think it can. Because it's been a scaled launch. We first just went direct. We added distributors at some point in time, you know, but it was a few weeks later. And now with G7, you know, we think that it's going to be as I said, it's going to achieve the expectations that we have for the product. I would say that, you know, physicians, they love it. People love it.
There's been very, very positive feedback that we've received, more so than normal. The device has a bolus button on it, and it if you lose your, your phone or your phone dies, the system continues to work. You have the sensor that talks to the algorithm that's on the pump. So Control-IQ is working all of the time, even without the phone. And if you do need to bolus for a meal, it's got a small little button on it, you can do that. So the system has complete functionality with or without your phone, which I think is a real positive. And physicians love the fact that it has the...
They love the fact that it has Control-IQ, and they love that little button, because that does give people the opportunity to stay in control when things may have happened with yourself, et cetera.
Yeah. No, understood. And then maybe, you know, a lot of enthusiasm about the Mobi launch in the U.S. When should investors expect to get an update on an OUS Mobi launch and what that timeframe could look like?
We haven't said specifically. In fact, what we've done recently is we've decided to refrain from giving specific dates on our new products. I will say, of course, that we're working as hard as we can to get it OUS'd, you know, and I think that the bigger issue really is just this, it's more of a regulatory thing, you know, getting through the regulatory requirements to get into the new markets. And we're in 25 markets, and so there's actually differences in certain markets as to work that's and testing that's needed to occur. But, rest assured, we're working as hard as we can to get that into these markets.
Got it. Yeah, I appreciate that. You know, maybe just turning to the guidance approach. I mean, this has been something where, alongside the Mobi launch and some of the enthusiasm that, you know, we and others on the street have seen, it seems like that's not necessarily been something that's meaningfully factored into guidance today. So, you know, I am curious, just in terms of how you expect that to, you know, change, if at all, throughout the year, or what you'll need to see to start, you know, building in meaningful credit for that.
Yeah. So I'll, I'll take that. From a guidance perspective, when we started the year, we took the approach of basing it more on the factors that were well within our control or where we had demonstrated trends. And so when you think about the building blocks, there's usually three main pieces. And first are just the supply sales, which have been about half of our sales in the last couple of years, which just moves with the growth in the install base of the customers. The second is the renewal opportunity, which is mostly in the U.S. right now. And year-over-year, from 2023 to 2024, the number of new opportunities or people whose warranties are expiring is growing by more than 30%. So it's a substantial step-up in opportunity for us in 2024.
And then from a new pumper perspective, in the U.S. in particular, we expect that we could bring as many as we did in 2023 to market. And that's a very important assumption there. That's based on assuming the market is status quo, so with the same competitive dynamics that we were seeing in 2023, and it does not include any incremental contribution that could come from the new products. And so, as you said, we have great enthusiasm for those products. We think there's significant opportunity, but we want to make sure we have some sustainable trends before we start to factor those into the guidance.
Understood. Yeah, I think that makes total sense. You know, maybe just going back to some of the commentary on, you know, the outlook for the year, but I think earlier this year, you'd kind of talked about new starts in the U.S. being roughly flat to down. You know, it seems like after the 1Q number, that might imply that we're gonna see an acceleration in the back half of this year. So, you know, kind of just curious, what is kind of driving that assumption? Is that, is that still the case? And then, how should we think about kind of the cadence of new starts for the back half?
Yes. So, what we did see in the first quarter is new starts were still unfortunately down year-over-year, but that was right in line with our expectations. The decline was less so than we had seen in the previous few quarters. So we're already starting to improve in that regard. As we go across the year, we expect to start to see a transition to growth in the back half of the year. And it's based on a couple of things. Part of it's just there's easier comps in the back half of the year. Last year, for Q3 and Q4, we saw that many potential customers were waiting for Mobi to become available before they moved forward with their pump purchase.
Then the other piece is just the standard seasonal uptick, because as I already said, this doesn't factor in that there are new products driving incremental contribution. This is just standard seasonal curve coming off of that Q1 as a base.
Got it. Yeah, no, that's—it's really helpful. Just to think about kind of the market, I'm sure we'll probably go into some of the competitive dynamics. You know, alongside the Mobi launch, I think one thing that's been interesting that we've seen is that, you know, the ADA guidelines were really just updated this past December to kind of support insulin pump use upon initial diagnosis of Type 1. It's probably tough to parse out, you know, alongside a couple different factors, but, you know, is that something that you've heard is gonna be kind of an underlying growth driver for this year or beyond?
It's something that we see as an opportunity for the long term. I would say it's not something we've necessarily factored into our expectations at this point. It's certainly good for the market and the industry that it has become standard of care. There's still a vast population of people in the MDI community who have been on shots for years and years, so it doesn't impact that yet. And that's where, as John described earlier, the new products are really aimed at focusing on why they haven't chosen pump therapy before now. But as we go forward, it bodes very well as anyone is newly diagnosed, the fact that they can move on to pump therapy much faster than we've seen in years past.
I just say the ADA guidelines were for AID systems.
Got it.
Yeah, I think that's, that's a very important element, because that's really what controls and improves the therapy.
Understood. You know, during the 1Q call, and kind of just now, you mentioned the idea that the distribution channel wasn't necessarily even up and running until the end of the quarter. So, you know, to what extent is that gonna be something that is a, you know, meaningful catalyst, or how should we think about, you know, kind of like quantifying the impact of that?
Sure. So, we intentionally scaled the Mobi launch to make sure that we could get learnings as we start putting more and more people on the product. So in the first quarter, we did launch in the middle of February, and we only launched to customers with whom we had direct contracts with their insurance provider. So it was a limited population. And for us, our direct versus distribution business in the US has roughly been about a third direct and about two-thirds distribution. So it was quite a limiting factor in the first quarter. As we moved into the second quarter, we did have that open up, and so now it's available to everyone within our market. But the other gating factor now has been the G7 availability.
So what you're seeing across these first two quarters are, again, it's a intentionally metered launch. We don't anticipate that we'll start to still see real behaviors or true customer, you know, behavior patterns until we get into the third quarter, when it's been opened in all ways, you know, to the full population.
Got it. Yeah, no, that's really helpful color. I'd love to kind of transition to, you know, the issue of kind of DME versus pharmacy. I think that this has come up a lot in our investor discussions over the past couple of weeks. But, you know, one thing I think a lot of folks are still trying to wrap their heads around is just how to think about kind of the accounting or financial impact of a potential migration from DME to pharmacy. You know, high level, how are you thinking about that today?
Sure. It's a question I get asked often as well. And so the thing that I can share at this point is, what the pharmacy channel does is it offers us more options for how to think about business model and how to really, expand access for customers from an affordability perspective. And so, as we're in a multitude of conversations with various PBMs and directly with some of the insurance payers, what we're seeing already is that there's no foregone conclusion on what that business model looks like. So what I fully anticipate is that we will build this up over the course of two or three years, and that each contract could look a little bit different.
And so while some could have a full subscription-like model, which might have an initial impact on revenue, I—we're gonna see just as many, I believe, that are more DME-like, and so it looks just like what you would see from us today. But because we're limiting our pharmacy access to the Mobi pumps, and also because, as I said, we think this will scale up over the course of years, I don't anticipate there's gonna be any material impact to revenue in any particular quarter as we launch and stage this.
Yeah, no, that's, that's great color. And I think that, that scenario that you just kind of walked through of the, you know, subscription-type model, pay-as-you-go, relative to the DME upfront model, you know, how viable of a scenario is that? Is there, like, any analog to think that this is gonna be something that is, like, very feasible, or is it still kind of exploratory for now?
I would say the exploratory part, the question that's been taken off the table is whether or not a durable pump could fit into the pharmacy channel. So we've checked that box. Right now, it's really about pen to paper and the negotiations on the contract themselves and on the type of business model and the reimbursement that comes with that. And so that's where, you know, I would say, stay tuned for now. We'll expect to have more information. Ideally, we'll have at least eight contracts signed this year, but we won't see any benefit from that until 2025, I would say, at the earliest.
Got it. Yeah, no, I think that was kind of my next question is, at what point investors could kind of learn a little bit more about this. But, yeah, I mean, I think longer term, it seems like that is a very clear opportunity in terms of, you know, just what it means for the business?
Yes, and for sure, I think the most important factor here is to highlight that we are being very intentional about this, and we don't have to take a contract. So if it's not good for the Tandem business, it's not one we have to accept today. And our focus is really on improving the revenue stream and/or margins from a Tandem perspective, but even more so on the patient out-of-pocket piece, because we believe this is a way we can solve that affordability question for people with the various levers that are offered in the pharmacy channel in terms of the economics to the patient. And so we believe it can really broaden access and can bring more people to pump therapy, for which cost has been the source of resistance.
Yeah, understood. And then, you know, I think alongside the pharmacy, part of the discussion is just inherently on the Type 2 opportunity. So again, I'd be really curious to hear you kind of walk through to what extent you think the Type 2 is really gonna be an accessible commercial opportunity for you in, you know, 2025, or is it 2026? And at what point could we see some real acceleration there?
Well, we have a clinical study that's underway right now, and none of the companies that have AID pumps have approval for Type 2 yet. We're all running studies or have just finished studies. We've enrolled the last patient, and we are, you know, about three months away from having completion of our study. We're gonna be working diligently to get the filing into the FDA before the end of the year, and we would anticipate getting an approval in 2025. And so as I said, it's a very underpenetrated market, and people who... If you look at some of the data that we've already published, people who use Control-IQ see substantial improvement in their A1Cs. And there's a, I mean, there's a lot of questions more recently on GLP-1s.
It turns out that when you look at a population of people with Type 2, many of them use GLP-1s. With daily pens, basal insulin pens, and bolus shots, and GLP-1s, they're still not achieving their diabetes targets. They're still having high A1Cs. If you look at the study data that we published, we've seen that people who are using these GLP-1s, who go on to Control-IQ, see a substantial improvement in their diabetes performance. And they also see a reduction in the use of insulin. So we, we think that there's absolutely a market there. We have been talking to people who have Type 2. We, there's a group of people we would call near-term pumpers, people who are willing to consider the therapy.
And I think that we're developing our commercial strategy right now, the product portfolio. We think that, you know, that the Mobi pump with choice in sensors and the discretion that comes along with that is gonna be a very appealing offering. We're also considering how to get access to the PCPs, because many people who have Type 2 are managed and cared for, you know, in the PCP channel. So that's an important element of that. So, you know, this, this is all work that's going on internally today, and it's even more of an opportunity OUS. So I think that it's one of those things that it's another opportunity to, you know, to see growth in the business over the next two to three years.
Yeah. Yeah, no, really exciting time on that side. I think we'll probably see some upcoming data from a competitor at ADA, so it seems like it'll just be another step towards the field-
Yeah
G etting more access in that, that market. So, you know, you mentioned Control-IQ a couple of times, and I think that that's consistent. You know, we've had some survey work that's also pointed to, you know, that being incredibly highly regarded among the field. But can you just address how you think about the durability of growth for Tandem, having that in the portfolio kind of beyond this year?
Yeah, I mean, I think that, we licensed, Control-IQ from Type Zero in the roughly 2015 timeframe, and that's because at that point in time, we didn't have our own development engineering team that was focused on algorithms. But at that, as soon as we licensed it, we started developing our own internal team, and we have been working on algorithm development since then. And we have our own our an internal team. We also have partners that we're working with outside of, Tandem, who are looking at, you know, next-generation algorithms. We are certainly committed to getting to a fully closed loop system, which is something that we think is really important for the marketplace.
Timing hasn't been defined yet, but we are doing work internally, we are doing studies, and you know, that is something that we think is a very important part of our long-term strategy. We just got approval in December for an enhancement to Control-IQ to enable us to use the product on pediatrics down to age two. It also has some enhanced personalization elements to it, and it'll be the product that's going to be used for the Type 2 community as well. So this is something that will make available to the marketplace in the second half of this year. So it's sort of the first big change that we've made to Control-IQ will be accessible in the second half of this year, and it's something that we continue to invest in.
We continue to believe it's important to make ongoing improvements. Like our other software enhancements, as we make these available, if people are in warranty, this will be something that they'll get free of charge. I think it's something that, you know, drives the renewal interest in the company and continuing to want to renew products going forward.
Yeah, understood. You know, maybe sticking with kind of the outlook beyond 2024, you know, more just anecdotally, but I guess I'd be curious about how you think about Mobi could be positioned from a competitive standpoint in 2025. You know, is this gonna be something that has the opportunity to compete for, you know, the number one insulin pump on the market, or is it likely that something like a tubeless Mobi or Sigi will really help you, you know, kind of gain pole position there?
Yeah, I mean, as I said, we believe we need to have a portfolio of devices, and that, and that with the portfolio, we can meet the multiple segments that are out there in the marketplace. So, you know, I think that there's going to be... I mean, I think that the size, the wearability, and the convenience that comes along with Mobi is gonna definitely drive interest. And I think that, you know, over the last 18 months, we've seen pressure when it comes to MDI conversions, specifically for Tandem... We think that Mobi is going to help us get back to where we were in the past. And I think as we bring Mobi tubeless to market, we think we'll actually even start to take share from some of our competitors with that device in the marketplace.
Certainly, as Sigi comes to market, you know, in the next couple of years, we think that's going to, you know, sort of provide now the complete picture. At that point in time, we think we're going to be in quite a good competitive position in the marketplace.
Understood. You know, before we get into maybe some of the profitability, and the margins in kind of the last few minutes, we do have ADA coming up, and I'm just curious about expectations there. You know, what should investors hope to walk away with in terms of, you know, what you or others could present?
Yeah, I think it's going to be all about Mobi, Mobi G7 integration. I mean, we're going to have—we have a great booth, great location. You know, we'll, we'll have the ability to demonstrate it with people actually wearing it. You'll see and feel how small it is, how wearable it is, and some of the benefits that come along, which is the, the user interface on the system. We're, we're going to have a, it's a, a product, product showcase. I believe it's on Saturday morning, where we'll have Jordan Pinsker, who is our Chief Medical Officer, and several other physicians who have been prescribing Mobi, talk about the benefits that come along with that. And so we, we think that's going to be very exciting.
We have a number of papers and posters that are going to be presented about Control-IQ, the benefits in Control-IQ in different groups. And then we have a couple of other events that will be going on over the weekend, but we're excited about it. I think it's going to be the, you know, the sort of coming out party for Mobi, if you will. And I think that, you know, I think it's going to be a great weekend for us.
Awesome. Yeah, looking forward to it. You know, maybe, Leigh, maybe for you, just in kind of the last few minutes, you know, we talked earlier about the transition from DME to pharmacy. How should we think about the potential impact of that on gross margins in the next couple of years?
Sure. So, as we're looking ahead, and when we think about that transition, we believe there's opportunity to improve revenue and gross margin as we move into the pharmacy channel, just looking at the comps in our space. And so we think that could be a helpful driver. But I would say more important to our gross margin opportunity comes from Mobi itself and our product portfolio. Mobi has—the pump itself, has about a 10%-15% lower manufacturing cost than X2 once we get to scale. So we expect to start to achieve that as we exit this year. So 2025, we'll start to see more of a step change in gross margin just as Mobi becomes a bigger piece of the business. Also, the cartridge has about a 20% lower manufacturing cost than the X2 does.
And so over time, you'll see as the install base grows, you'll see Mobi more and more contribution. So I would say, products are probably, more important to driving gross margin for us, the expansion, more so than on some of our revenue initiatives, although there are some very important ones as we think about pricing in the future.
Yeah, understood. And what feels like a realistic kind of exit rate as you think about the back half of this year? Maybe start there.
Yeah. So, the way our business usually works is the gross margins usually scale up across the year seasonally as pumps are a larger portion of the sales. So we do expect, and we also, I would add to it, this year had a little bit of a headwind in the first half of the year from Mobi, because currently, at the low volumes, it does have higher cost to manufacture than the t:slim. So we should see a tick up of margins across this year, with fourth quarter being the highest. And then as we turn into 2025, as I said, no numbers yet, but, with Mobi in the mix, at full volume and at scale, we'll start to see some real movement in gross margin.
Yeah, that's super helpful. You know, maybe similar question just in terms of the operating leverage. I mean, this is something where, you know, alongside this growth, how much of the upside could kind of trickle down into the, the bottom line in terms of your, your operating leverage?
Sure. It's always. There's always a balance, right? So we do expect that some of it would drop to the bottom line, so we could really show some leverage on the profit, on EBITDA in particular. But there's also still investments we need to make in the business, so we will be balancing that, what's appropriate at this time. But we do have an important focus on profitability in the long term. So I don't think I said it, but our gross margin target is 65% with an operating margin of 25%. And so we're very focused on finding cost-saving solutions and efficiencies. And we started to demonstrate that in 2023, actually. But our Tandem Source platform offers even more for us as we go forward in how we engage with our install base, which is growing and growing.
Yeah, understood. You know, maybe just in the last minute or so, you know, kind of talked about profitability as a strategic priority for the company. But, you know, how are you thinking about the opportunity, you know, for business development as it emerges, as it comes up, as you see, you know, assets that you might want to kind of build into your portfolio, or just the overall interest in, you know, diabetes and insulin pumps from other parties?
Yeah. Matt, over the last two years, we've acquired two businesses, and we're busily integrating the organizations and developing the products that come along with that. Our team is always looking. We're always looking in the marketplace to look for technologies that may enhance the portfolio or potentially get products to market faster, certainly those-