Thanks a lot for joining us for this session here with Tandem Diabetes . We have Leigh Vosseller, the CFO, and Katie from Investor Relations. We're going to have about a half hour for moderated Q&A. Leigh, I wanted to just kick things off with a good old high-level question. Maybe we can just talk a little bit about how Tandem's evolving, because you have gone from being a tube pump maker to one that's now integrating with a lot of technologies, having a software ecosystem around that pump, and now with a pipeline. It would be helpful to understand kind of where we are in that river and what you're excited about next.
Sure. Thanks for having us here today. It is an exciting time for us, and you just listed off a lot of really interesting things that are growth drivers for the business. I will add some more unique factors, because we have been driving the business up to now very focused on new product introduction and how we meet the needs of people who have not yet chosen pump therapy. There are two other ways we now have the opportunity to drive the business and drive revenue growth in the future that we are really excited about. One is when you think about the market size itself. We have been very focused on the type 1 community, but now with the expansion of the indication to type 2, that more than doubles our market size in the U.S. The other piece of it I would add is the pharmacy opportunity.
You take that, it's almost like a layer over these opportunities. It can be an accelerator as we think about penetrating more into the pharmacy channel and can really benefit from a margin perspective and a revenue growth perspective. We're excited where we are today. As you said, there's a number of really exciting products for us. We have really evolved in terms of our offerings. When I mention the needs of people who haven't chosen pump therapy before, that is what's behind all of the market research to get us to this portfolio of products that we're working on to deliver here in the coming years.
Great. I want to take a few of those in turn and talk a little bit more about some of these drivers. The first one, maybe we'll start with type 2. Would love to hear more about how you think that's going to evolve. You're there now with Tandem and Pod, having both gotten approval over the last six months, and it seems like there's a lot of room for therapy penetration to increase there. Could you give us some thoughts on where that penetration could go and how long it's going to take to achieve that?
Absolutely. Type 2 is going to drive meaningful value to us. As Leigh mentioned, it doubles, more than doubles, our current served available market. With recent approval, we really feel like we are ready to hit the ground running, offering our technology and our ability to reduce the burden of diabetes. When we look at our market, we are really focused on insulin-intensive individuals, because we believe that is where we can make a big impact. We are approved for all type 2, but we are starting a pilot where we are really going in and making sure that we have the right training, the right strategy, the right messaging to offer our portfolio of products. We are able to offer both t:slim and Mobi. Both products have great benefits.
Where t:slim , we have 300 units reservoir of insulin that we're able to offer, which can really be attractive to our type 2 customers. With Mobi, we offer more discretion, smaller form factor. We feel like we've got a great opportunity to come and to compete with our portfolio of products. With penetration, as you mentioned, it's a tremendous opportunity for us. With type 1, we've seen penetration rates increase throughout the year. With type 2, we're currently at around 5% penetration. We really think that as we continue to innovate, as we continue to have the right products, we're going to be able to see that penetration increase throughout the years. I wouldn't say we note 25%, that doesn't have to be a ceiling, but we see a pathway to get there.
Great. I'm glad you mentioned Mobi. I wanted to touch on that too. Could you talk a little bit about the momentum that you're seeing with Mobi and maybe highlight some of the recent trends with Mobi and how it's driving more MDI conversion?
Sure. Mobi, as I mentioned earlier, was designed for the needs of people that we aren't meeting today. There's still a healthy audience for X2, but there's also a new population of people choosing Mobi that we weren't attracting before. It's been very successful in the pediatric population. I think size is a big factor there. We've seen it be very competitive with the patch offerings. I think also the size comparison in that regard. It was first full quarter on the market just a year ago, second quarter of last year. We're still driving that momentum this year. We look forward to offering Mobi with Android by the end of this year and starting to roll it out in the markets outside the U.S. It's really making a difference for us.
Once we launched Mobi, we returned to growth in new pump starts, particularly with the MDI population. It is bringing more people over than what we had seen in the past. We saw double-digit growth in MDI starts each of the last four quarters. We do attribute that to Mobi's strength and the receptivity it's getting in the market. I think I'll add one last piece too. We saw a notable increase in new prescribers to Tandem. These were people who hadn't prescribed a Tandem pump ever before. They started prescribing Mobi and also started prescribing X2. It also says something about the portfolio offering. When you bring something new, you bring awareness to Tandem. Whether or not they choose Mobi or t:slim doesn't really matter to us. It's the fact that they come into the Tandem family.
Mobi's attracting awareness in a way that we were not able to before.
Got it. Maybe we'll stay on the pipeline for a second. I know we have coming around the bend at some point, Mobi and Sigi, you have stopped giving disclosure on the exact time frame, but could you talk about when we might be able to see those and what they could do incrementally on top of Mobi?
I mean, with Mobi, it really has longevity. We're just getting started. We have launched for a year. We started just with G6, moved to G7, and we continue to add additional innovation and additional integration. We're excited that we're going to be able to offer Libre 3 Plus shortly here. That's going to open up additional areas of the market. We think that we're also going to continue to evolve Mobi with our tubeless functionality. That will enable even more choice and even more optionality where we can allow our customers to choose how do they want to wear their pump for a particular day. They could have the traditional Mobi, or they could use it as a patch pump. It is the same device. It's Mobi. It's really just the consumable that's changing.
It's an important development within that one pump platform. If you look at timeline, we're really focused on the evolution of Mobi right now. We're also very excited for Sigi, but in time, you would think first we'd focus on the tubeless functionality of Mobi and then moving on to Sigi.
I was curious, just with ADA coming up and the pipeline we're talking about here, anything that investors should look out for at ADA, any data or pipeline updates that we might see?
I think what's exciting is we're going to share more about our Control-IQ study, Control- IQ+ . With that, we were able to, one, be able to extend our approval for type 2, also expand the indication for type 2 for ages two and above. We were also able to demonstrate tremendous outcomes if you are, number one, carb counting, and also if you are doing fixed dosing. I think that that's an interesting conversation related to ease of use and the ability, again, going back to the choice that we offer. For more hands-on discipline management, we can offer that. For more ability to have a little more hands-off, more of fixed dosing, we're able to do that as well. We'll talk about that a little bit more. Also, just the positive benefits that we're also seeing combined with GLP-1s.
More related to that study should be shown.
Okay, great. I wanted to pivot and talk about kind of a new hot topic in margins. The first thing I'll ask is, on the last call, for the first time kind of pulled forward the potential for gross margins to expand, you talked about 60% sometime in 2026. Not really clear if that's the full year or exiting 2026. Maybe you could talk about that. What are the key elements for you to get there from kind of the 51% where you were in Q1?
Sure. Maybe I'll start with framing up the long-term goal. We still have a long-term goal of 65% gross margins. Originally, we had correlated that to about a million customers in our installed base. People were having trouble seeing that line. Like, when does that come? How far away is that? A few of the big contributing factors are new product introductions. Mobi, in particular, is expected to get us more than halfway to that gross margin target. Also, other new product introductions coming. Everything's being designed with the thesis that it should have a lower cost profile than existing products on the market today. We also layer in manufacturing efficiencies, but the last piece of this, which I think is very pivotal that we haven't talked much about, would be our reimbursement strategies.
Pharmacy is playing a big role in this now with Mobi just being introduced into the pharmacy channel. What we wanted to do is help people understand, what is the line of sight to 65%? With the combination of the traction we are seeing in Mobi today with its lower cost profile, as well as the pharmacy early learnings. I say early learnings. We had very low volumes in the first quarter, but what they did was provide us with a number of proof points to give us the confidence that what pharmacy can deliver for us in the long term. With that in combination, we see a line of sight to a 60% gross margin as early as 2026. I would say maybe the way to think about it initially is as an exit rate.
By the end of the year, we should be able in the fourth quarter to get there. The ability to achieve that earlier will depend on how much more traction we get with Mobi and how much more we can accelerate into pharmacy. At this point, we thought that was a very useful milestone for people to understand. I think maybe a surprise to many. It is something important for us. We wanted to get out there.
Great. I know you haven't updated this, but conceptually, the 65 long-term goal before, I don't think it had a lot of this pharmacy goodness in it. Is it possible that you could actually get to a higher number over time?
I would say that it's never a ceiling on what our ambitions are. What the pharmacy channel does for us is it secures us getting there and actually accelerating the pathway to it. We'll continue to push on that. Let us get to 65%, and then we'll talk about our next target.
Very good. Now, you're also going through some transitions with the Salesforce and your go-to-market model in Europe. I just wanted to ask about that first as it relates to the margins, meaning as you're going direct next year in Europe, how much does that help with gross and operating margins?
Yes. That is a contributor. Just to explain what's happening is we are in about 25 countries globally, of which we're only direct in the U.S. and in Canada. What we're starting to do in some of the other markets, there's a few select markets that we plan to set up direct operations beginning as early as 2026. What that means is in 2025, we're building that infrastructure that we need. Think about putting in CRM systems, general ledger instances, building out the sales team, building out the customer support infrastructure. All of that legwork is being done now so we can go direct on day one. What that means for us in the long term, it's a great opportunity for us as a business. We feel like by going direct in those markets, we have more control over the ability to drive growth there.
We see such a significant opportunity outside the U.S. In the U.S., the type 1 penetration is around 40% and has been improving over the last few years. In the markets where we operate outside the U.S., the penetration rate is still below 20%. We believe as we get closer to the physicians and the customers ourselves, we'll be able to drive that penetration further. What you also suggested, which is true, is we see it as a profit opportunity. Today, because our distributors take on so much of those customer interactions, we give up a piece of margin in order for them to sustain their businesses. As we take it on, it's a margin improvement opportunity for us, also factored into hitting the 65% gross margin target.
We haven't yet shared the magnitude of that impact, but as we go ahead, we'll give more color in the future. What we've said in the past is that our international operations have a modest impact on our gross margins today. You can think of that as a modest benefit going forward.
Okay, great. Maybe we could talk a little bit more about pharmacy. I know the way that you've been talking about it now is kind of like you're testing the waters. You wanted to get these proof points. You've now gotten those. Previously, you had always been saying, "We're kind of laying the groundwork for Sigi." Is that still the way to think about it, or do you think now pharmacy could become a more material piece of your business before Sigi?
Yeah, it's a great question. The strategy that we set out to accomplish was this: keep t:slim in the DME channel. It's very consolidated, consistent. We understand pricing. We understand the inner workings. It's not broken. Don't fix it. With Mobi, we wanted to take the opportunity to pilot or step into pharmacy. One of the very first questions we had to answer was, "Will a durable pump product be accepted into the pharmacy channel?" That was one of the proof points that we needed. I think we proved that in a pretty big way now because with Mobi, we have about 30% of lives in the U.S. covered under pharmacy agreements. The long-term goal ultimately was when Sigi launches to take it directly into the pharmacy channel.
That is still the strategy at this point, but as we get more learnings, it allows us to consider and reconsider whether or not we want to pivot in any way, shape, or form. With the large amount of coverage that we have, can we get to full coverage faster with Mobi? What does that mean for the business overall? Other proof points that we measured in the first quarter, we wanted to see first. Secondly, after the coverage piece was what does reimbursement look like? More importantly, the business model look like? Many people believe that if you're in the pharmacy channel, it has to be a subscription-like model. It doesn't. The contracts that we have in place today very much mirror our DME contracts, but we do see profit opportunity there.
There's a different value placed in that part of the payer world on clinical data and information, which we have mounds of with Control-IQ and even more so now with Control- IQ+ . There is the ability to see improvement in the revenue per patient as we look ahead. Those are the main things that we were looking at. I want to add the third piece is really the out-of-pocket cost for the patient. This is another very important piece to the pharmacy channel. Even if it did not have uplift on a price perspective, one of the biggest objections that we face with customers is that durable pumps seem expensive. It is that first out-of-pocket cost when they buy the pump.
In the pharmacy channel, the way we structure the contracts and with the copay assistance that's available for that channel, we're able to influence what out-of-pocket costs look like. Some of the things that we saw in the first quarter was really as we tested claims through that channel, we wanted to see what does a patient's responsibility look like with and without copay assistance. We saw a wide range. This is not representative of a full sample by any means, but we saw some people with zero out-of-pocket. We saw some people with thousands of dollars, but what that does is helps us test how we might deploy copay assistance, how we might negotiate future contracts. So far, it gave us a lot of confidence in what pharmacy can do for our business, and it gave us a lot of excitement.
If you ask me today what one of the biggest opportunities is for Tandem, I think it is to continue the penetration in the pharmacy channel.
Got it. Now, still early, I mean, maybe I'd ask you to make some kind of prediction on what percentage of your business the pharmacy could represent in five years, sort of over the investable horizon. Could it be the majority, or do you think it would be kind of a strong minority? It would be more likely based on what you know today?
Yeah. What we've seen as other people have transitioned in the pharmacy channel, first of all, is it takes three to five years to get to that broad coverage point. Considering we're doing this with Mobi and t:slim separate, we'll have to see what that might look like in a couple of years. As we learn more, we'll give more color. I think what you heard was even without pharmacy as a majority of the business next year, it can have a meaningful benefit to gross margins when you couple that with the cost benefit on the Mobi product itself and the lower manufacturing cost.
Gotcha. Now, I guess with all this innovation happening, I know you get asked this a lot, but are you seeing the market already accelerating, or do you think it will accelerate through the next couple of years because of type 2, the innovation that you're bringing, the integrations? A lot of your competitors are also innovating as well. It is just better products all around and more access.
Yes. We've always believed, I think, and demonstrated that innovation drives adoption. It definitely moves the needle in terms of penetration. I think what we witnessed in the first quarter, not necessarily a trend, but we saw strength in the market overall. We participated in a nice way in that growth. We believe with what we're delivering to the market, we can be a market leader in terms of that MDI conversion to pump therapy. We would expect the market will continue to grow. The penetration rates will move up. Katie talked about what we think that can do in the type 2 population. In the type 1 population, we think it can move from 40% upwards to 60%-65%. There is a lot of room for growth as a business in the future.
Again, we feel like our pipeline is going to help us deliver on that.
Gotcha. You highlighted Android. I did not know if you thought that was actually a material driver, but maybe put that in context. Do you expect that to be an accelerant when you have phone control on Android system? And how important is that relative to, let's say, the Abbott integration?
Yeah, I would call Mobi Android an enabler. It's about rounding out the Mobi offering so that when you're out talking to a customer, you don't have to say, "This product has this. This product doesn't have that." It's about making sure it's the full suite of benefits that someone can get from that platform. We've seen that iOS users are a bigger part of our base, but we do want to make sure that we're able to serve all customers. It's an important driver for us. I would probably put the FreeStyle Libre 3 integration higher or above that in terms of opportunity for both t:slim and Mobi. There's a sizable population of Abbott type 1 users in the U.S. that are limited from having integration with pump therapy.
We look forward to partnering with Abbott in order to deliver on that combined innovation so that we can bring more people to pump therapy. We see it as a very meaningful opportunity for the business. All of these, though, are not, I would not expect that they would be overnight sensations or immediate inflections. They will all build over time on each other. I think they will drive long-term growth trends for us, especially as we think about our commitment to driving double-digit revenue growth in the coming years.
Got it. Okay. A couple of things we haven't talked about yet are your Salesforce expansion in the U.S. Could you talk about how that's progressing? Could you frame kind of how big of a progression that is, and are you getting the results that you wanted there?
Sure. I'd add, you know, as we look at market penetration and market awareness, this is an important part of our strategy to make sure that we have the people on the ground where we're increasing our market awareness, our footprint out there. We announced it recently, but this has been something that we've been looking at for a period of time. We have new commercial leadership that has been very data-driven, looking at how do we ensure that we've got the right level for expansion, how do we make sure we arm them with the right data, and how do we make sure that our physicians that are prescribing high levels of insulin have high touch points with our Salesforce. It's been something that we've been looking at. We had most of the hiring complete exiting 2024. Q1 really hit the ground running.
Within our guidance for 2025, we have incorporated the fact that there could be potential disruption. I think that when you look at our Q1 performance, we are seeing things as expected. Q1 revenue was record for U.S. and O.U.S. Q1. We are tracking as expected. Throughout the year, we will see productivity improve. The way we look at it is it might take 9-12 months for a sales rep to really get to full productivity. That is why you will see as we go throughout the year, it may be a little bit more back-end loaded, but we feel like it is on track and will add value to the business.
Great. Glad you brought up Q1 was a nice beat, a nice result, and yet you maintained the guidance. I wanted to ask you about how much of that is just conservatism. Is it early in the year and you did not want to raise yet, or are there other headwinds that you are worried about?
Sure. We were very excited to report that performance, by the way. When we looked at the building blocks for the business, we did not have any change in thoughts around our assumptions for what we put together to build the guidance. It always starts with supplies and our large install base, and we are seeing great retention there. Next is coupled with renewals where we have very consistent track records in terms of people when they fall out of warranty, when they buy their next pump. The risks and opportunities more so usually fall on the MDI or the new start population. Nothing changed about what we are seeing in the business or what we think we can deliver on. What is happening is there is more turmoil, I would say, in the macro environment, things I would say that are more outside of our control.
Turmoil might be the wrong word. It's not necessarily that we see it happening, but it's the risk that it could occur, just a lot of changes in the environment. We wanted to be thoughtful about how anything may impact the business. We thought it was prudent at this time, even with the beat, to just hold where we were and just continue to execute and demonstrate what we can deliver on.
Let me just ask you about guidance philosophy because for a while there, you were sort of taking a more conservative approach. Is that still the case, or are we going to evolve further to, I'll call it more sort of down the fairway guidance?
Yeah. It's a good question. I don't know that I would describe us as conservative or down the middle or any way you want to say it. What I would say is we look at the risks and opportunities and we weigh those. I would say in some situations, the opportunities came in better than we expected or overachieved or exceeded. In some cases, the risks really came to fruition. It's been an interesting environment. It's highly competitive in the market. A lot of changes have been occurring in the last two years in particular. I think we have performed relatively well. With the pipeline that we're delivering on, I think we're well positioned for the future. I would say it's just a matter of what weight we put to those risks and opportunities.
It's a similar approach, but the environment changes each time as we reevaluate.
Gotcha. Maybe I could ask you a couple about competition. There's been some changes in the environment. The first one would be any thoughts that you had about Medtronic spinning their business. Do you think that changes the competitive dynamic at all?
You know, it's really hard to say how this will play out. I don't think it will make a difference at all when we're out in the field talking to physicians and patients in terms of our ability to compete there. We've always competed very well against them. In fact, we're very successful in the MDI population. They've been a donor, if you would say that, in the past in terms of renewal opportunities, but that has been declining over time in line with our expectations. We will just keep a watchful eye. I think it can always be disruptive for an organization as they're going through a significant change. We are going to continue to just focus on selling the merits of our products and hopefully driving far ahead of them.
The other follow-up I would have is you have Sigi, which you've been working on for a while. It seems like you're optimistic about potentially accelerating that timeline by bringing some of the development into California. I was hoping that you could elucidate that a bit more. I guess looking forward a year or two, you may have two or three patch pumps coming into the market at the same time. I was hoping you could illustrate what you think your ability will be to compete differentially with Sigi. What do you think's really unique about it and about Tandem behind that?
Yeah, maybe I'll start, Katie, if you want to chime in. First, just talk a little bit about what we did and the why and what benefit we get from it. We did reorganize our teams where everything was centered in Switzerland, where the company was originally acquired. We now have opportunities in San Diego as Mobi is moving up the scale in terms of its maturity is the wrong word, but it's out there. Now we're adding more features, not wholesale changes to it. It means we have a team in San Diego with a great deal of expertise on delivering on hardware platforms. What we thought should happen is it made a lot of sense to combine the talent on those teams and leverage the efficiencies we can get from that. To really secure the delivery of an excellent product in Sigi.
We look forward to continue to drive. It is one of our number one priorities, the tubeless benefits that come from Sigi. Remember, we have tubeless Mobi in the meantime, which is our bridge. Our tubeless innovation will first come with Mobi earlier than Sigi, but we are still very excited about the ability to deliver on that as we have discussed in the past.
If you want to jump in.
I think I would just add that our strategy is to offer a portfolio of products. We think that we want to meet our customers where they are. We realize that it is very individual in their choice. Being able to offer both t:slim and Mobi and ultimately Sigi, we still think that there is a market interest in all of those platforms. That is what we are looking for to be the option of choice and optionality.
Super. We have a couple of minutes left. I did have one follow-up on Sigi. I mean, in the past, you talked about this choice to make a durable component to the patch. And I know you did market research, and so I'd love to hear a little bit more about that. But one thing I was wondering was just the design for manufacturability because seemingly if you're only replacing the cartridge, that could drive a lot of efficiency. I was also curious, I don't think you've commented much on this, but how would you view the kind of ease of use for the patient versus the other options that are out there today?
Yes. I'll start with the design for manufacturability piece. It was an important element as we evaluated on-body offerings. We looked at what's out there today versus the durable pump that we have. One of the greatest features of a durable pump is that it is detachable. You find that people want to be able to remove it at their leisure over the course of a three-day cycle before they change their cartridge. We wanted to keep that incorporated. Plus, it's a major sustainability initiative for us. There's not that disposal of all those electronic components every three days. That was an important part of how we thought about the patch pump or on-body type evolution was that detachability.
It also, from a cost perspective, is from a manufacturer, the investment for manufacturing equipment is far lower with this design than it would be if it were a full on-body disposable offering. That played into the economics of the choices that we were making in terms of the design for this product.
Great.
From the patient perspective, I think was the last question.
The last one, yeah. Was there sort of an ease of use benefit?
Yes. Sigi is, first of all, it's just the size, it's the discretion that comes with it. It's very simple to remove. It's very simple to change the cartridge. While Mobi is simpler and easier to use than t:slim to some extent, Sigi, again, is being designed to meet those same requirements for a patient. It has a prefilled cartridge capability, which also means they do not even have to fill the cartridge. That also has some benefits to it as well from the customer perspective.
Great. We have one minute left. Maybe I'll just round this out by asking you, it seems like the company has some real momentum now and some good things coming in the pipeline and on the margin side. I'm wondering, in investor conversations that you have, what do you feel like is underappreciated about the story and how has the tenor of those conversations been since the Q1?
Yeah. You know, I think the most underappreciated part of our story, honestly, has been the pharmacy opportunity. I feel like the conversations around that have changed in a more positive way where people are starting to appreciate what it can do for the business. I mean, everyone has always complimented us on our products. Everyone always says, "We know hands down your algorithm is the best." I think we've been one of the most consistent in delivering on new innovations. I think the portfolio approach has resonated. What people want to see is something more near-term that not only drives revenue, but also demonstrates profitability. I think pharmacy is the last little piece to plug in to give people the confidence in our ability to grow sustainably and efficiently.
Super. I think that's a great way to wrap it up. Thanks so much, Leigh.
Thank you.
Thanks a lot.