All right, good afternoon. My name is Bill Plovanic. I'm a senior medical device analyst here with Canaccord Genuity, and welcome to our 44th Annual Global Growth Conference. With us today, we have Tandem Diabetes, and we have John Sheridan, CEO, and Susan Morrison, EVP and CAO. Today's format is going to be a five to 10 minute presentation, followed by a fireside chat for another 10- 20 minutes. With that, I'd like to hand it over to John.
Thank you, Bill. This is actually, our first Canaccord Genuity conference, I believe. We just initiated coverage recently, so we're very happy to be here today. I want to give you just a brief overview of Tandem and some of the things we've got going on. Before I do, just want to say we are going to be talking about some forward-looking statements, and so if you have any questions about our policy, please get to our website, and you can basically see it there. Tandem was founded in 2007, and when we first started the company, we were focused on what we would call user-centric design. It's basically a combination of human factors, engineering, behavioral science. Our teams work very closely with people who are using the product to understand exactly how they use it.
We want to make the product simple, intuitive, and easy to use, not unlike the conventional devices that you use today, the conventional consumer devices that you use today. So, but the reason that's the case is because we believe ease of use drives adoption. And so it's really important to reduce the cognitive burden out in diabetes, 'cause people who have diabetes have to think about it almost every second of every day, and particularly every decision they make. So we want to make it simple and easy to use, which is, I think, the thing that's going to continue to grow the market. So it's a large and underpenetrated market. I'll talk to you about the specifics here in just a moment, but it's also a very segmented market.
If you look at diabetes, there's people have different ways they want to interact with, wear, and control their devices. And so as a result of that, we believe you need a portfolio. Like one device is not going to meet all of these needs. One size doesn't fit all. And so we have a portfolio of products, two of which we have on the market today. The third one is in development. And so, right now we have t:slim X2, which has been on the market for about 12 years. It's a very successful device. We have about 450,000 people worldwide using it. And Tandem Mobi is a new device that we just brought to market in the last couple of months.
It's a much smaller device, which I'll explain to you here shortly, but it's doing quite well in the marketplace, and we've seen significant uptake since it's been on the market. We have an algorithm that actually controls the pump. It takes data from a sensor, it uses that data to decide where the blood sugar is going to be in about 30 minutes, and it adjusts your insulin needs to basically keep your blood sugar in control. And so it's the best algorithm on the market. We've had this product on the market for about four years, and since we did bring it to market, we've seen substantial growth in the business. We also have integrated with multiple sensors.
Currently, the t:slim pump actually is integrated with two Dexcom sensors, the G6 and the G7, and also the Abbott FreeStyle Libre 3, excuse me, 2, and we're working on FreeStyle Libre 3. As I mentioned, we have 450,000 people worldwide using the pump, and we are continuing to invest in the product and the product line. I would say that we have the most exciting pipeline in diabetes, and I'll show it to you in just a second. And we are headquartered in San Diego. We have 2,400 people, and they are spread mostly across the United States. There's about 1,000 people in San Diego. So as I said, the market's large and underpenetrated.
In the U.S. today, there's about 1.9 million people living with Type 1 diabetes, and about 40% of them use a pump. OUS, it's a much larger market. About 3 million people have Type 1 diabetes and less, like 20% use a pump. So, I mean, it just represents a just a, it's a large opportunity and the market's continuing to grow. And with Type 2, there are about 2.3 million people in the U.S. that have Type 2, and this is insulin intensive Type 2, so it's very much like Type 1, and it's about, about 5% penetrated.
So when I say that there's only 5% or 20%-40% of people that are actually using pumps, it's unfortunate because the pump therapy today, with these AID systems, provides a substantial improvement in blood sugar and quality of life. There's I mean, there's longer term comorbidities that occur with diabetes, and if your blood sugar is in range, you basically you'll reduce substantially or eliminate the possibility of that happening. And then you just feel much better in the morning when you wake up in control. So it's a really big deal in the quality of life for people.
There's the Type 1, if you're not aware. Type 1 is an autoimmune situation where you have a cold, your autoimmune system, system kicks in, and it essentially attacks your pancreas, and then within a period of about 1 year, your pancreas stops working. With Type 2, it's not that simple. It's a situation where there's a lifestyle element, and there's also a genetic element. And over time, what happens is your performance of your pancreas degrades, and you develop a resistance to insulin. And so then you ultimately get to the point where you need to take insulin, similar to the way someone with Type 1 does. This is our flagship product, the t:slim. As I said, it's been on the market for about 12 years.
It's interestingly enough, this device here was a number of firsts that we achieved with t:slim. It was the first device that's rechargeable. It's the first device to use a touch screen. And these seem like pretty easy decisions today, but I will say back in the day when we were considering these things. There was a lot of debate going back and forth as whether these were the right things to do. Interestingly enough, since t:slim is using a touch screen, we can change the functionality of the system entirely with software upgrades. And so we've done that, and so this is also the first pump on the market that actually has update ability. And so we invest a significant amount of money in software development, algorithm improvement, and those sorts of things.
If you're in warranty, an in-warranty customer, we will provide you free updates when these are available. This has happened multiple times. In fact, Control-IQ, which was probably our most meaningful software update, was given free of charge to our entire install base, which is pretty substantial. It's also interoperable. There's a scheme that the FDA has worked out to reduce the regulatory burden of these products. We work closely with them, and we have an interoperable pump that's capable of working with an interoperable sensor from Dexcom or Abbott, and our algorithm is also interoperable. What that means is we can put the algorithm on any of our pumps, and we don't have to go through a regulatory filing to do that.
So again, it's a substantial simplification of the process and really significantly improves time to market. This is Tandem Mobi. It's this right here. It's about half the size of t:slim. It doesn't have a touch screen on it, and it's fully controlled by a mobile app. And so there's a substantial improvement in wearability. When people have this device today, if you talk to them, they'll tell you they forget they have it on. Not uncommon for people to wear it in a small adhesive patch with a very small infusion set, and you can pretty much put it anywhere in your body. And I think that's a huge compliment when they say they forget to have it on, because it's that issue of wearability and the cognitive burden that comes along with it.
And by virtue of the fact that you're controlling the device entirely from a mobile app, there is a great deal of discretion, 'cause you can be sitting at a table with friends at lunch, controlling your diabetes, and nobody knows that. And it's also very convenient, 'cause people have their mobile apps with them at all times. We introduced this product in February of this year. Prior to that, we had probably a 4- or 5-month run-in period, where we're just testing it to make sure it was working properly, working the way we wanted it to. And we had several physicians at the Barbara Davis Center in Denver evaluate it, and they looked at the performance of the product in this group, and then they surveyed, analyzed, and presented the information at the ADA.
What they found out was that, first of all, high customer satisfaction. People said they either were very satisfied or satisfied at about 86%, which is a very high number for a technology like this. And when they asked what was the thing about it that they really enjoyed about it, again, it was when they first picked it up, they couldn't believe how small it is. And when they had it filled with insulin, they couldn't believe how light it was. So that's why I think this adhesive patch is the way most people are wearing it. And then if you look at people who were.
So this study was done with people who had using pens and needles, people with MDI, multiple daily injections, former Tandem employees using t:slim, former Medtronic users, and former Insulet users. What was really interesting is there was the people who were from Insulet, who have basically used the patch pump before, the things that they appreciated, they appreciated, first of all, the size and wearability. That was the very important element to them, 'cause they're used to having a smaller pump. But the thing that kind of surprised us was that they really liked Control-IQ algorithm. They felt that the algorithm was actually performing better than the one that they're used to from Insulet.
As a result, in the first couple of months of the commercialization of the product, we have seen a spike in the number of people coming to Tandem from Insulet, and this is really the first time that we've seen that. As I mentioned, Control-IQ is the leading technology in the marketplace today. I think if you were to survey any endocrinologist, they would tell you that they favor this algorithm. It basically is the only algorithm on the market that has an automated correction bolus. So it provides basal insulin to either reduce your blood sugar, or it'll turn off insulin if it wants to get your blood sugar up. But it also gives you a correction bolus if it sees a serious spike in your blood sugar.
And by doing that, you get much better performance in terms of control and time and range. So today, as I said, we believe we have the best products in the market and the most exciting pipeline. You know, our focus is on providing choice in systems and also choice in sensors. And we think that you know as we go forward we you know this is again the way to address the various segments of the marketplace. And I'll just wrap up with the next device that we're working on right now is a full patch, and we call it Sigi. We acquired it from a business in Switzerland about a year and a half ago, and we're actively working on development of the product right now.
We think that having these three products on the market really will drive much better uptake and improve the penetration rates internationally, which is really what our intent is. In addition to these products here, we are also wrapping up a Type 2 clinical study, which will be done in just a matter of weeks. We will submit that data to the FDA, and we will hopefully have an indication for Type 2 in 2025. We're also working on a seven-day infusion set. The infusion sets that we currently use are produced by a third party, and they're for three days, and we're working on a seven-day infusion set, which is a substantial improvement to the experience that people have as they use that set.
We have a number of other CGM implementations and algorithm development activities that are underway. So with that, I'll just wrap that up, and Bill, you and I, and Susan can sit down and talk.
All right.
You wanna sit here?
No, I'll take that.
Okay.
Thank you. Great, thanks, John.
Yep.
Thanks, Susan, and welcome to the audience. Thank you for joining us today. We're gonna kick this off. So yeah, just as John knows, I'm newer to Tandem. I just started coverage of the company last week, but I'm not new to diabetes. I've started covering the sector since pre-FDA approval for Dexcom.
Wow, a long time.
That gives you. So we're talking 2005, DexCom IPO. [crosstalk]
You don't look that old.
So, start out with the financials, and then we'll work our way through. But just out in the second quarter, I mean, you had a really strong quarter, second highest in your history, only behind the fourth quarter last year, and Q4 is a strong quarter. Walk us through your comments on just U.S. starts on the second quarter call, and how your outlook on that has changed and why.
So this was really the first quarter that we had, the full quarter of Mobi on the market. It was still staged to a certain extent, but we had the product at least available for the entire quarter. And, one of the things that's a real important barometer of the success of the business is the number of MDI conversions. Again, it's, it's the largest market opportunity, and that's why, you know, we're focused on increasing MDI conversions by providing devices that are very usable with great therapeutic outcomes. And so when Mobi came to market, we saw a substantial increase in the number of people who are MDI users coming to Tandem.
And in fact, if you look at just general performance of the second quarter, we had the highest number of MDI conversions in six quarters, you know, and that was really the first time that Insulet's product was first introduced. But with Mobi, Mobi had more than half of the starts from Mobi were from people new to Tandem, and then more than half of those were from MDI. So it was, you know, overall, a very positive start for Mobi. It's still early. There could be some pent-up demand because the G7 integration was implemented during that quarter. And so, you know, we're cautiously optimistic about the second half of the year.
Excellent. Do you see the durable and patch pump markets as two distinct separate sub-segments of the pump market? 'Cause with Mobi, it's a durable, but it's a wearable, so it's almost creating a new category. Or do you see the launch of the Mobi device as, you know, basically, is this market expanding, cannibalistic? How do you view this? And I'm not talking about this quarter, next quarter.
Yeah.
I'm like, how should we think about this?
I mean, I think that Mobi is absolutely market expanding. That's what we're seeing as people come from MDI therapy to use the product. Again, it's very small and discreet, and it's also convenient, easy to use. And at the same time, we also believe that there is a need for a full patch device. So, Sigi, the device that last time I showed you, is a full patch, and this is back to having our portfolio devices where we believe there's a meaningful attraction from people for each of those three particular devices. There are certain things that people like about them. Sometimes they're very subtle, sometimes they're not.
But we think by having the three devices on the market at once, that we'll do a much better job in appealing to people who are using pens and needles, and getting those penetration rates up into much higher numbers.
I think you strategically left that slide up there, so we still get to see it. And then, you know, as I look at... You know, you mentioned one of your competitors on the patch pump side. If I look at that, you know, I think they're at 80%-85% of their new patients are typically MDI. Considering that Mobi, you now have Mobi and its market expanding, do you think that's something that we could see for your business longer term, where, you know, obviously, the overall number of new patients go up.
Mm-hmm
... but it, a lot of that will be driven by MDI rather than competitive trialing?
Yeah, I think, I think that's right. I think when you look at our business, we're designing these products to really attract MDI participants to Tandem. The other area that we get it, obviously, with competitive conversions, and then the third area that new starts come from are people who are just renewing their pump that have been through the four-year warranty period. So, you know, I think that we've seen substantial growth in the opportunity for renewals over the last couple of years, and that's certainly helped us. I think that with, you know, with having Mobi now and Sigi ultimately in a year or two, we expect that we're gonna drive penetration rates, and that's what it's all about.
Then just flip into the model level a little on the leverage. You know, what should we expect in terms of overall operating leverage to come from over the next couple of years? Is it gross margin with Mobi? 'Cause I know you guys get a good bump off of that once you get to scale. Is it R&D? Is it G&A, sales and marketing? How do we think about that? And does AID penetration impact that?
Yeah, I think AID is definitely a driver of the uptake. I would say that we have corporate objectives to get to 1 million users, 65% gross margin, and 25% operating margin. We had a time stamp on that of 2027, but over the last 18 months, we have, you know, had a period of some slowness, and so we're in the process of reevaluating that. But, you know, we think that Mobi. We're right now, our gross margin's in the low 50s. We think that Mobi can get us halfway to 65%. So there's certainly opportunity there, and we have other. Every new product we develop, we're developing it so that it's got a higher gross margin profile and will be accretive to the business as they are introduced.
So that's definitely one element. I think when you look at R&D, you know, I think that R&D spending is this year, in particular, has been affected significantly by 2 large clinical studies. We're not gonna be doing those all the time, and so I think there's an opportunity to not necessarily grow R&D as fast as we'd anticipate our sales growing, and then just leverage that. And then there are functions within in the sales team. Our customer service organization is really the largest team that we've got in the company. It's about approximately 900 people there. And up until recently, most of the communication that we had with that team is voice-centric. And every time, you know, you grow the revenue, if you have to talk to somebody, you need more people to do that.
So we've been focused a great deal on automation and also multi-channel systems that use text, chat, and things like that, that are more efficient, just to drive that number down. So we would expect that that number, percentage-wise, would drop over time. So there's a lot of focus on this. We, you know, we really are focused on profitability. We understand that, you know, we've gone through a couple of quarters here where it hasn't been, but we expect to finish this year profitable and continue to drive progress as we move forward.
Then how deep into the transition to the multi-channel communication are you? Are we a quarter in, two quarters in, or are we, you know, is that what-
We've been working on it for a while now, and it's going to continue to take effort. I think the system's installed, portions of it are functioning, and the automation's also very important. We're looking at, you know, continuing to do the automation.
Yeah. Big news last week out of Medtronic and Abbott on future integration of the pump CGM for them.
Mm-hmm.
which, you know, that's a big shift for Medtronic.
It is, yeah.
... to go to a new CGM partner. Just any thoughts?
I mean, I think that it makes a lot of sense for Abbott. Abbott wants to have as many people using AID systems, because I think if you talk to Abbott or Dexcom, they'd tell you that the people using AID systems are the most compliant. They use a sensor every single day, whereas people are not using a pump with a, you know, an AID system, may not be as compliant. So that's certainly makes sense. And it's, I would say that it's not something that's going to happen immediately. It's going to take two years, I would say, to get to the point where this is on the market, and we certainly aren't going to stop innovating in that timeframe. So we feel like we have a very competitive offering when you compare us to Medtronic today.
They're a very capable organization, and we don't take them for granted, but I think that, you know, we think that we've got a very competitive offering, and we're going to continue to compete effectively against them.
Yeah, and I'd also add to that, if you have all things equal from a CGM side, the decision comes down to pump versus pump and algorithm versus algorithm, and those are areas where Tandem competes very strong, both today and if you look at the portfolio that John walked through.
Perfect. Let's go to the Type 2 opportunity. Yeah, we published a lot on the diabetes space yesterday. I'm a huge fan of AID in Type 2. I don't think it'd be a surprise to anybody. I think this is going to be transformational for the market, but with these regulatory clearances, can you just you discussed on the Q2 call, you expect to submit, and you just talked about it again for that indication by year-end. In, you know, an approval would be 2025, but I think sometime, right? It usually takes about six months, but that's my words, not yours. Walk us through, so it's a label expansion, reimbursement's in place. It would like all your pumps and sensors that are approved in your algorithm, it would just hit everything because it's off the algorithm, right?
Right.
So and as you said, for you, everything's interconnected, so once you get the algo approved, everything, or cleared, whatever the-
Yeah, exactly.
Everything is cleared.
So it would be an interoperable algorithm, so it can be used on all of our pumps as soon as it's cleared. So that would be, at that point, it'll be t:slim and Mobi. And there's differences. Today, we have about 20,000 people that have Type 2 that are using it off-label on our systems off-label, and they're using t:slim for the most part. And we think that discretion is very important for people with Type 2. They don't want you to know that they have diabetes. And so I think that you get that with Mobi. It's also very simple to change the cartridge. So we think Mobi is a compelling product.
You know, its Control-IQ has been reviewed by the FDA now three times, and there's not a whole lot of, you know, changes for the Type 2 community that are in here. So I don't-- I think it's going to be a relatively quick review. That's just, you know, my, my personal opinion. And,
I just heard first quarter.
Who said that?
Just-
I would say that, you know, that we are focused right now on establishing the commercial capabilities. There have been some positive movements, you know, and, you know, from a reimbursement point of view, which may end up changing some of the Medicare requirements. There's a number of requirements I think many physicians would say are probably not valid to do, but they are required today. So I think that's a positive thing that's potentially out there. But the organization right now is just working on making sure that we've got strong clinical data, that we've got market access figured out, because, you know, there's not only is it endocrinologists, but it's also primary care physicians as well. And then just getting, you know, the sales force ready, trained, and organized.
So there's a lot of work to prepare the commercial team today. That's all underway.
And you talked about Medicare. What about the commercial payers? So if you, you know, you said you already have a lot of patients on off-label that's-- And I know you don't market it that way, but is it, you know, is it once the label hits in, like outside of Medicare, the commercial payers are happy to pay for it, and do they fight back or?
They actually will pay for it off-label today. We do have about 20,000 people who live with Type 2 Diabetes using our technology today, and so it's really at the physician's discretion to determine the technology, and then that's supported by the payers. So the big opportunity for us is really on that marketing side.
Okay. And then, you know, as I think about this market and, you know, looking at the players out there, I think Medtronic has almost always exclusively mostly been focused on the endos and the Type 1 patients. You know, Tandem and Insulet's been out there a while, and they've been very vocal about that PCP channel. Where are you in developing the PCP relationships? A nd how do you feel that maybe your portfolio will either give you a benefit or not as you go into that Type 2 market?
Our sales organization does targeting by looking at insulin use, whether it's a PCP or whether it's an endo. So we today are working with large PCP practices that actually prescribe pumps. So that's not new. I think it's really, you know, it's really developing the process to find physicians who are willing to understand how to prescribe a Tandem pump for a Type 2 patient, and bringing them through the process to get them up to speed so that they can do that. So there's a number of things that we're thinking about to get them ready, and to be sure they really want to do this. 'Cause there's an investment in our time to make sure that they're ready.
But the organization's absolutely thinking about this and actually has some experience in doing this in the past.
I'm gonna go back to regulatory clearance for Type 2 and, you know, one of my thoughts is, you know, we're watching Insulet submit, and they're maybe about six months ahead of you.
Yeah.
Sometimes we've seen the FDA, when they bring a new label expansion to market, they really wanna bring multiple products at the same time. Do you think there's an opportunity that maybe you'd get cleared right around the same time as them or?
You know,
Since Control-IQ, as you said, you're on your fourth gen, this is just Type 2, it should be a pretty quick review.
I don't think that the FDA would do anything like that. I mean, I think that if Insulet gets there and they get approval, I'm sure they're not gonna wait. I think there's just a lot of benefit to add to people living with Type 2, and so I think they want to get that in the market as fast as they can.
We're out of time, but I want one more question is, you know, Insulet, we saw the data from SECURE-T2D. Fantastic outcomes. You talked about the Control-IQ algo, you know, probably expecting similar, if not better, but at least similar outcomes. How are the trials different? Like, when we see this data, is there anything that, you know, is going to be different than maybe the data trial they ran? And if so, what, what might that be?
There is one big difference. First of all, I would say that the FDA is making us do roughly the same size and the same breakout in terms of people who are maybe using GLP-1s or have large insulin usage. So those things are probably all the same. The difference is ours is a randomized control trial. So we will have a control group, a control arm, that we'll actually be able to see the exact differential and benefit that's provided by the Control-IQ algorithm, where, you know, our two competitors did safety studies with no control arm. So I think that it's just a stronger clinical study, which potentially can give us leverage in terms of actually defining outcomes from the system.
So, if I, you know, and last question, I promise, because we are out of time, but I'd like to ask is: there's a big valuation spread between you and the only other independent pump company on the market. What, what are investors missing? What do you think?
Yeah, I think the biggest thing is we've got a portfolio of products that are allowing us to expand the market. We're showing evidence of that already. You've seen it in the beginning of this year. We're bringing more people over from multiple daily injections.