My back is killing me. Anyway, I wanna talk a little bit about the insulin pump market.
Oh, Hi Joanne. It's great to see you.
Hi.
Thank you for having us. Good to see all you guys.
Insulin pump market okay?
Yes, insulin pump market's good.
Excellent, then I'm in the right room. All right, so first I wanna start with a high-level question, which is: How do you think about the market development in the U.S. and globally? How do you think about increasing the penetration rates? I'm gonna just throw a third one on the table. How do you think about Type 1 versus Type 2 in pumps?
Well, I would say that competition is good for diabetes, I think that if you look over the last couple of years, we have a very competitive market. Not only with our competitors, but with our partners, who are all developing new technologies. These technologies are all great technologies, and they're really driving a better outcome for people living with diabetes. I think that, you know, when you see what happened maybe five years ago and before that, we saw maybe 25,000 people coming to Type 1, coming to pump therapy annually. It's a small number, and it was pretty consistent for the years before that. We brought Basal-IQ to market in 2018, and it was on with the G6, you know, which was a finger no finger sticks.
Our device basically was a simple algorithm that prevented people from getting hypoglycemia. Finally, people could sleep through the night. They didn't have to finger stick. We saw a surge that year in people coming from MDI therapy. We brought Control-IQ to market a couple years later, and we saw another surge. We've gone from 25, I think in 18 was 30, maybe 45, 50 or 60, and then in 2021 it was 70. We've seen this steady increase in people coming from MDI pens and needles because of its improved ease of use, and ease of use drives adoption. It's not just Tandem, it's our competitors. Like I say, they are both innovating right now themselves. Clearly there's been a new competitive market, product in the market this year, which has definitely had a favorable effect.
My sense is that there are people who are using pens and needles that would not have come to market without having a tubeless device that's on the market today. The same thing with Dexcom and Abbott. You know, we're all driving technology, and by doing that, improving the experience, improving the therapeutic outcomes and the experience. I think that's the thing that has to continue. I think when you look at the marketplace, if you look at Tandem and our competitors, there's a lot of interesting technology that will be coming to market over the next several years as well, which I think will continue to drive that adoption, the penetration rate.
As we've said, our goal is to get to a million people using our products by 2027, and that penetration rate has to go up to roughly 65% for us to be successful doing that. If you look at the CGM companies, they have already been successful. They have gotten to the point where I think on average it's about 70% roughly penetration for CGM, and they think that could even get higher. You know, I think that's what our objective is to get to the 65. It's driven by innovation. I think the whole market benefits, the diabetes community benefits from it.
Okay. How many people do you think adopted pump therapy last year?
We are now able to do that since one of our competitors came out with their earnings call recently, it's like, l ike I said, in 2021, we think it was 70,000. This year, it's again, this is estimates that it would basically be 75,000-80,000 people came to pump therapy in 2022. It did moderate a bit. It slowed down a little bit. You know, that's what we think the number is, we think that it could be macro factors, could be a variety of issues, but we certainly saw it slow down a little bit. There was still growth.
We think again, this year, we have several new products coming to market, all of which are gonna be very appealing to people with Type 1, and so we think that's gonna continue to drive the growth.
How fast do you think the market is growing?
I mean, it's, well, I mean, just this past year was roughly, you know, over 10, roughly 10% or so. you know, that's this year, but again, this was slower. I think it was growing a little bit faster prior to that. What would you say?
In 2023 or 2024, would you like to venture? Is this a double-digit pump market in the US, or is it a different number?
You know, I think that, you know, depending on how the economy progresses, inflation and those sorts of things, I think it's likely to be, we're assuming it's gonna be at least as good. I think with when we bring the new products to market, you know, it'll be a full year with one of our competitors having a new device in the market. I would anticipate that it would grow even more than that.
Okay. can you talk a little bit about how the market gets divided up between traditional tubed pumps and patch pumps, and how do you think that Tandem fits in that continuum?
Yeah. I mean, I think that, you know, prior to this new device in the marketplace, you know, people would go to their endo, they would have decided to get a pump. They're gonna go on pump therapy. The first question they would be asked is, "Do you want a tube or tube pump?" I think that back in, you know, when it was just the DASH device, it was about 50/50, Tandem, 50/50. You know, we would get 50%, and they would get 50% of the MDI conversions. I would say that there's been a lot of excitement about the new product on the market, and so I think that is skewed in their favor this year, particularly in the last three quarters. I think that, you know, I think that there's a.
I mean, there's a lot of interest in that. There's a lot of early adopters that are out there trying it and testing it. You know, we have a slew of new products that are gonna be coming to market this year and beyond, and we think that's gonna continue to. Well, let me just say this. We believe that you have to have a portfolio of products to be successful in diabetes. It's not a one-size-fits-all condition. There's very different segments in the marketplace. Tubeless and tubed are clearly part of that. There's also how you want to control the product, how you want to interact with the device. There's just a variety of different mechanisms that are, you know, create these segments. We believe a portfolio approach is necessary.
We intend to have t:slim on the market as a tubed option. We intend to have Mobi on the market with both a tubed and tubeless option, and then we intend to have Sigi on the market, and that will be a completely tubeless option. I think that we see the portfolio approach really getting at the different segments that are in diabetes, and we think that's necessary. You know, there's definitely needs out there for tubed, and there's preferences out there for tubed and tubeless. I think that's why we intend to have a portfolio.
if before the introduction of Omnipod 5, the new pumps in your calculation was 50/50.
Yeah.
Nw pumpers. What do you think it is, today? I'll even ask you, what do your numbers imply it'll be at the end of the year?
Well, I would say that it's as I said, it's leaned in their favor this year.
Mm-hmm.
I mean, I don't know what the exact numbers are, but it's leaned in their favor. I would say that the one thing that we have seen in the last couple of months is we've seen, you know, stabilization, I think, and we've seen things basically remain the same. Since our third quarter call in November, we've seen things stay the same. It hasn't gotten any worse. It hasn't gotten any better. That would imply to us that, you know, things are stabilizing.
I'm gonna push you a little bit on that. If it's no worse or no better, if I take a look at the fourth quarter of new pumpers, it looks worse. What am I seeing wrong?
I mean, it, the number did drop, but I'm saying since that time.
Oh, since that time.
As we look.
Since the end of the calendar year.
Even the last month or two of December, I would say. The last four months or so, we've seen things pretty much stabilize.
Okay. How do you define stabilized?
Again, no better, no worse. I mean, we see competitive threats. We see the, you know, the macro factors and COVID. They all still exist. That's why I think when you look at our plan for 2023, it's conservative, and it assumes that we will not see any change in the market and the market dynamics.
One of the things that really struck me on the, on the earnings call was how strong the renewal rate was. Why do you think that is? I'm sorry, but the impression is that when people have the opportunity to get off a tubed pump, they jump. Why are you seeing such strong renewal rates?
Sure. I mean, just what you said, it tells us that's not the case. When people have had a positive experience with Control-IQ, it shows or demonstrates that they want to stick with the product because it is the better product. Even in a year where we didn't have a new product offering to launch to motivate people to move forward with a renewal, even in a year where there was a challenging economic environment, we still saw people renewing with our product at higher rates even than we had seen in years past. I think it's a testament to the strength of our Control-IQ algorithm.
Yeah. I would say if anybody was going to switch, you would assume that people who are up for renewal would. If anything, this year we saw people there was more stickiness. I mean, more people renewed faster. We're seeing great strength in our renewals. I would also say that, you know, we are not seeing attrition. I mean, I know people speak about attrition, and it is likely that there are some people who have tried the new product, and they've stayed on it for a month or two, maybe three, but they've come back. Most of the people that we have you know, exposure to, they have tried it, and most if not all, have come back to Tandem. We have great stickiness. I think the battle really today is on the MDI conversion front.
People who don't know about our technology. You know, people who are, you know, again, a tubeless option appeals to them. That's really where the battle is. That's really what we're basically shoring up our messaging. We're differentiating our technology and products in the endos offices and with consumers. We're also, like, really focused on our pipeline.
Okay. Talk us through or talk me through the Tandem Choice Program. That's new and this is for the first time my model has a GAAP/ non-GAAP revenue line. Talk through the product program, please, and then how we should think about that revenue contribution over time.
Sure. The Tandem Choice Program was developed really in anticipation of the Mobi launch. Today, when someone buys a Tandem pump, they know that they have the comfort that if a new software innovation comes to market, they can get that software update for free. What this does is it provides a pathway for people if there's a new hardware offering. With Mobi around the corner, we wanted people to know if they buy a t:slim today and they decide they want Mobi in the future, that they're not stuck with the product that they have while they're in warranty. What it does is it creates some very complex accounting, which is why we are now reporting our sales on a non-GAAP basis.
The purpose of the non-GAAP sales is to show or reflect sales that are calculated with the same economic factors in place as you would have seen in a historical period. It creates better comparability. It takes out the accounting, which is heavy deferrals upfront and unknown of the timing of when you'll recognize that revenue later that comes with that program. I think the important pieces to note are that when we sell a t:slim today, we still receive the same price for it. We still receive it at the same time we always have. The revenue that we're deferring is not at risk. It's just a matter of when we will recognize it. I think those are two key elements. I stress to look at non-GAAP sales if you want to look at comparability over historical periods.
If you're looking at this as sort of a bridge program, for lack of a better term, it's really just a 2023 event, that by the time I get to 2024, you won't have to be bridging people.
The program expires. It's began already. Anyone who's buying a pump today has this as an option. When Mobi is launched, we will stop. They will no longer be eligible. People who have purchased at that time can choose between the pump of their choice, so they don't need the upgrade right? People who have the option will have that option into 2024. They'll have time to make that decision. We'll see this for two years.
Okay. Are you finding it helps people get over the hurdle? I mean, I mean, the number was notable, but not like, "Oh wow, that's a lot."
Yeah. The thing is today, we're hardly talking about it. It's for the person who is very well connected that might have heard about Mobi, and they ask the question, "Wait a minute, what should I do? Should I buy a pump today or wait for this new pump to come out?" It's to let them know there's a pathway, but frankly, not very many people even know that Mobi's around the corner. It's hardly being discussed. I think one other key point about it is no one makes an election today. No one has to make an election or even has to consider it until Mobi is cleared, and that's when the conversations will begin in earnest.
Okay. How much is the economy impacting, do you think, upfront expenses associated with tube pumps?
You know, right now we have been seeing pressure across the past year and into the first months of this year. It's hard to say how much of that is economic, separated from the competitive environment, separated from still some of the lingering COVID effects. That was the reason that we launched our broad-based, or broadly marketed our payment plan offering. It can take that objection off the table. For anyone who has the perception that pump therapy is expensive, that there's a large upfront payment, we can let them know, "Look, you don't have to worry about it this time. Just call and find out what you actually, and we can spread that out for you.
You don't have to worry about this one time upfront that might be a large out-of-pocket." It's been beneficial from the perspective of the sales reps, because before, when they're in the field and people are asking that question, "I heard there's a big upfront for yours, but this other product doesn't have one." They can explain the payment plan program to them and have people still call in and pursue the purchase. Where before, they didn't have the ability to have that sort of conversation.
What I'm sort of trying to get at also, thank you for that by the way, is if historically revenue was, call it 20%, some years, quarters higher, and now guidance for this year is 10%-12%. How much of the 8%-10% swing is economics? How much of it is competition? Maybe there's a third component that's not as obvious.
Right. That's, that's been the challenge. I would say two quarters ago, we were trying ourselves to parse out how much was.
Yeah.
Equal for each piece, what the weight was towards each one. What we quickly learned was that in combination, it's hard to parse them out and assign a value to any of them. To John's point earlier, thankfully, we're seeing an environment where I would call it more stable. What does that mean exactly? It means the ordering patterns are starting to follow more of what a historical norm looks like. Where we typically see trends through the end of the year and how they grow. Where we typically see a sequential step down in the first quarter due to the reset of deductibles, things are falling in line with what our historical averages look like. Even though we're still feeling pressure across the top, we feel like we're back in an environment where it's more predictable in terms of what direction it's headed.
Lots of questions to ask. One of the things that showed up on the Insulet earnings call was that 35% of new Podders were coming from competitive accounts. That would imply that they are picking up Tandem users, but you're not seeing it, so help me reconcile that.
We have a variety of means and data points that we use to understand whether or not we're seeing, you know, people leaving. I would say that we have a mobile app that's used by roughly half the people in the United States. You know, we can see the data that's uploaded from the mobile app. We also have sales of supplies. The sales of supplies are, you know, we can look on a quarterly basis and see are we getting the same number on average for each individual, you know, from a supply base, you know, in terms of the financial impact. We have anecdotes, word of mouth, people who are actually talking to people who have tried it and have come back. We have several others that we use.
Like I said, we do not see attrition. We do not see people leaving Tandem to go. I mean, people have said, "You're losing market share." We're not losing market share. What's happening is they're taking, you know, they're being more successful than they have been, you know, in the MDI front. People are not moving over to them. It could very well be, as I said, that there might be people who have tried it, and that shows up in their numbers. And it could also be that they're taking more Medtronic. Those are the two things I think that. We're not seeing attrition.
Okay. I do wanna spend some time, or a lot of time, talking about Mobi, and how you're thinking about FDA approval and then, planning for launch and then ultimately launch.
Yeah. Yeah. Of course, as we've talked about in the call, we're under review right now. We submitted the 510(k) last year. It's a ACE pump, and so the ACE pump basically means that it can be used in an AID system once it's approved. When we do get approval, it'll have Control-IQ on it, and it'll be integrated with whatever sensors are available at that point in time. We received questions recently, and we're basically responding to them. We're preparing our responses. We're having communications with the FDA. We're having communications that I would say is normal for this stage in the process. Some people have asked me questions as to whether or not you're gonna have to repeat any clinical or human factors studies, and the answer is no.
I mean, based on the questions that we've received, we do not anticipate having to do any additional clinical or human factors work, which is time-consuming. There is work for us to do. We're engaged in it. We have, you know, I'd say that, you know, the FDA is doing a much better job in terms of their resources. There's more resources dedicated to the diabetes community, and we're seeing better support. It's still unpredictable. It's still difficult to try to say exactly when we'd anticipate to get an approval. What we believe is we're gonna plan on a H2 launch. That's essentially what we're planning on a H2 launch, and we basically have said that we will basically have product in the market approximately a quarter after we receive clearance.
Okay. Do you think you'll have built enough supply?
Yeah, we're building product now.
What do you think is the right patient for Mobi?
You know, it's back to this segmented market. I've mentioned this before, but we've done a great deal of market research on Mobi. I think that the device, first of all, it's about half the size of the t:slim. It's controlled entirely by a mobile app. It has a bolus button on it. It is gonna be wirelessly charged. You know, it's waterproof. It's got a number of advantages. It's very discreet. I mean, you can wear it's small. It has a patch you can actually wear. Put it on your abdomen with a very short infusion set. There's a lot of advantages that come with it.
I mean, the mobile control, it's a very discreet feature, and that allows people conveniently to manage their diabetes without anybody knowing that they have diabetes. That's a very big plus. I would say that, you know, again, it's a very segmented market. In the market research that we've done, there's definitely a group of people who are interested in the t:slim, and there's a group of people who are interested in Mobi. We would probably say it's people who are more tech-savvy, people who might be more mobile. I think that people who are more interested in discretion and the convenience of the mobile app. You know, we anticipate that there will be, you know, a significant uptake in the market once we get Mobi into the market.
We expect it'll be like Control-IQ and Basal-IQ when both of them came. you know, we think it's gonna be a mover when we get it, and we're excited to have it.
The shorter tubing, six inches.
Yeah.
Does that mean it can be worn in different locations or does it limit the number of locations since it's short?
No, you can wear it in multiple locations. It's five inches, and you can wear it on your abdomen, you can wear it on the back of your arm, you can wear it on your leg. And the beauty of Mobi is that, you know, we're gonna come to market with a tubed version this year. In a year or two, in several more years, we are in the process of developing a tubeless version that it'll allow people to choose between a tubed or tubeless implementation for the exact same pump. It's basically, it's almost like it's a different cartridge, or an infusion set and a different cartridge or a sled. In either of those two implementations, you get tubed or tubeless. We think that's the best of both worlds.
That's something that we also think will be, you know, in terms of just providing choice to our customer base, it's a real big positive feature.
Okay. through the DME or through the pharmacy channel?
That's something you were asking about, preparation for launch. That's something we're working on actively, and I'm gonna say yes to both. Today what we have is the market access team is first and foremost going to get it added to all of our DME contracts as quickly as possible. That's the fastest path to access for the commercial launch. Simultaneously, we're exploring the pharmacy channel. How do we get this to fit into that channel? What are the opportunities for reimbursement there? Those are all underway, it's a two-pronged approach and something that we hope to be talking about a lot more later this year after we get clearance for it. I also I would love to highlight too, as John mentioned, the opportunities for Mobi that it's not in guidance this year.
When you ask about the growth rate, just to clarify that it's not part of our guidance expectations, so it'd be an upside opportunity for us.
Okay. Thank you for that. I want to get to the words simultaneously exploring. What does that mean?
What does it mean? you know, the medical devices, particularly the tubed devices, have not been viewed as a pharmacy product. What it's about is we have to go and talk with payers and talk with payers at a different level of the organization than we have before. Not going in through the DME pathway, but talking through the innovation areas of the payer organizations to say, "We have a product today that's very different from maybe what your expectations are. It doesn't fit in a category like a wheelchair or an orthotic. It truly is technology-based. It provides valuable claims data and valuable information that can be used to compare to claims data." What we wanna sell is the value of the system, not just a particular device.
We're beginning those conversations to see what kind of doors this could open up for us in terms of pharmacy access.
Okay. Is there a timeline on that?
No, it's underway, and it's something we can report about in the future.
Okay. Did the FDA request any new data that would require another clinical or human factor study?
No.
No. That's a no.
Okay. Straightforward. We talked about if it's approved in the middle of the year, it's a quarter later. You've talked about Mobi being a major contributor to your longer-term gross margin goal of 65%. Can you walk us through the benefit of both the pump and the supply side and how long it takes you to get there?
Yeah, absolutely. It's a comment I often get asked is, will you see headwinds when you initially launch? We could because when you're not building at scale, you tend to see higher costs on your products. I tell people to think about it as about one year from commercial launch is where we'll begin to get to scale. To your point of what does that really mean? The pump itself is expected to have a manufacturing cost about 10%-15% less than the t:slim X2. You start seeing benefit right away from the pumps as they're sold. The cartridge, on the other hand, also has margin benefit, the cost at scale for the cartridges is expected to be more than 20% less than the t:slim X2 today.
You think about that evolution as more and more people are using that product and the install base is growing, you'll see continued margin benefit over time. Between now and 2027, where our goal is to be at a 65% gross margin, Mobi, both the pump and the cartridges, will get us more than halfway there.
What gets you the other halfway?
The next most beneficial contributor would be extended wear infusion sets. As we think about that technology when it comes to market, will also be a significant contributor.
When are extended wear infusion sets coming to market?
We're going to plan on implementing or initiating a pivotal study at the H2 of this year. I, you know, that's gonna take us through probably end of the year, make a filing, and I would assume that we'd get approval sometime in 2024.
In 2024. Okay. The acquisition of AMF Medical closed in January, bringing you the Sigi pump. I'm sorry. I've received so many questions on this product, and so I'm gonna just toss a bunch of stuff out there. Grab it, please. Why was this the right pump? Why is this the right time? Why did you then I mean, I understand it's better maybe than your internal program, but is it also a sign that your internal program wasn't going where you wanted it to?
All fair questions. I would say that we have been doing market research on patch pumps for quite a while. Back in 2018, in the end of the year, 2018 or 2019. End of 2019. No, excuse me, end of 2020.
Okay.
Sorry.
20 it is.
We had an investor day, in investor day we launched, you know, we basically shared with the investor.
Mm-hmm.
Community our R&D pipeline.
Remember it.
At that point in time, we basically said we are going to pursue, you know, t:slim X3, a Mobi tubeless option, and a patch. We felt that, again, that portfolio approach was really important. We indicated back then that we had been, and we continue to plan to work on a patch pump. We did have an internal program, and I say the internal program was focused more on smaller, a smaller device, and probably using a concentrated insulin.
Okay.
B ecause the reservoir would have to shrink. We had been developing that for a while, and I think we'd made good progress. As we did market research this past year on patch pumps, what we found. We looked at patch pumps that are on the market, and we looked at patch pumps in companies that are in development, smaller entities. We just found that the appeal of the sort of the features of the Sigi pump was just significantly better than anything out there. I think that the two elements that are really important are, one, it's rechargeable. It's environmentally friendly. We're not throwing away batteries in the circuit board every three days.
It's also uses a prefilled insulin cartridge, so substantial improvement in the ease of use of loading and actually getting the system onto you. It's also ergonomic. It's very ergonomically and well designed. The people who designed it are incredibly diligent and understand, sort of designing miniaturization as well as design for manufacturability. Cost, automation, and things like that are gonna follow on naturally. We just felt it was a, you know, it was a better option for the marketplace. It would do better in the marketplace than our current. It wasn't that our current. It's just, we just felt it was a better option. I think that the reason we did it now is because we want to implement Control-IQ sensor integration onto this system.
We want it to be, you know, a device that it's a base pump with an AID system on it. If we were to wait and do it later, you know, we would lost that time. I think that by, you know, acquiring the company now, our engineers can start to work with them. They can continue to optimize the pump and the pump performance, reliability, and those sorts of things while we work to implement, you know, the technology, the Control-IQ technology and the CGM integration. That's really why we did it. We think it's gonna be a great product. We, you know, when we initially indicated that we had acquired the business back in December, we had said 2027 was our target date.
I can say that we were conservative intentionally at that point because we hadn't really had a chance to sit down with the engineers from Sigi and AMF and really understand the challenges that they had, as well as what will it take to integrate the technologies that we just described. I can tell you that we're working closely with them right now. We're gonna do everything we can to pull that date in, and we think it's very likely we will. I think that the thing I wanna stress is that we're gonna do everything we can to bring this product to market as quickly as possible.
What does as quickly as possible mean?
I mean, before 2027 for sure.
Okay.
Yeah.
All right, 'cause that's been a pushback I've received.
Yeah.
Which is they spent all this money to buy a product they were already developing, and they didn't pull forward the timeline.
Yeah. I think that we didn't have enough information to commit at that point in time, and we're still working on the plan with them. It's just that we need to get to the point where we're all comfortable with it. I think at that point, in the not too distant future, we'll share commercialization timelines.
Okay. We're gonna go with before 2027 with time commercial up-updates.
Yeah.
I'll take that for today. All righty. Moving on. You're starting two new pivotal studies this year, between your study set, extended wear infusion set, and the Type 2 indication for Control-IQ. Can you walk us through those trials and what to expect in terms of timelines?
Yeah. We're working right now with the FDA on a Type 2 study. The Type 2 study is gonna start in a matter of weeks. It's gonna be a large study. It's going to be a three-month study. Three months means it's probably like six plus months to get people enrolled and off the system through the whole study. It's probably gonna take us through the end of this year to collect that information. We would anticipate having a filing to the FDA sometime in early 2024. That's an exciting new indication that we'll have next year.
That's file early 2024, approval late 2024?
Yeah, that's what we're thinking. Again, we haven't been very specific about it, but I think it's fair to assume that that's what's going to happen.
Which product will this be on?
It'll be on every product. This is the approval for the algorithm to be used in Type 2. The algorithm will be on every pump we've got.
I'm struggling to see a Type 2 user, or even one who's insulin dependent, using a tubed pump. Should I not be struggling with that?
I think so. I mean, right now we have 20,000 people who are using t:slim.
Yep.
Off-label that are Type 2, They get fantastic results. You know, we see great results We're not marketing it. These are people who are using it by going to their physician and asking them to give them this device off label.
Okay, there is a market for a type.
Absolutely. Again, we also think though that Mobi is going to be a very appealing product for them, that community. It's a small, discreet. Again, it has a mobile app. I think it's gonna be appealing. you know, that will be really, I think, where most of the focus goes, is on using Mobi.
We had a physician here yesterday that talked about Mobi as being niche. Is that right or wrong?
You know, we really haven't had a chance to get out there and promote it.
Okay.
We can't do that until it's approved by the FDA. Only if. I mean, I think investors are aware of it, and a few physicians are aware of it, but I don't think anybody's ever see, I don't think many. I mean, if there are physicians who've seen it's a small number.
Okay.
We still have to wait for approval, and then we'll go out with aggressive marketing, and I think people will.
You don't think it's niche?
Oh, absolutely not, no. We think it's gonna be. Again, when we did market research on this product, there's definitely significant demand for it. Again, it's going to be a very popular product.
Okay. How do you think about the pathway to profitability?
Something that we're very focused on, particularly in a year where the top line sales aren't growing as fast of a rate as we've seen in the past. We spent a lot of time, particularly in this budget season, making sure that we were prioritizing the right programs, the right initiatives that would drive top line. They could also bear fruit in terms of leverage opportunities in the future. You see that we prioritize the acquisitions, so we have incremental spend associated with AMF and with Capillary Biomedical. We also are very focused on then savings opportunities really in the SG&A functions. A lot of it centers around how we support our customers today.
The Tandem Source product that will be coming out this year as well is a new baseline infrastructure off which we can build some efficiencies in our processes and more automation. You can think about it along the lines of having a better, almost like a retail experience for our customers as opposed to thinking about it as a medical device where they call in for every piece of information they need to share or want to ask about. It offers solutions like an Amazon type platform. That will help us over time, not to have to add as many people to support the customer base as we do today. Some of that leverage opportunity really begins in the back half of this year.
That's one of our big drivers beyond our product, improvement opportunities we talked about for gross margin. The customer service, efficiencies over time will be one of the next big drivers of operating and margin efficiency.
Okay. In terms of research and development, I mean, you call that R&D as sort of 3% of sales this year. How do you think about leveraging that?
One piece of that from the Capillary Biomedical acquisition this year has to do with the clinical trial. That's something that's a cost in 2023 that won't repeat itself in the future. The last few years we've really been focused on R&D investments to shore up all of our teams to get the depth of expertise we need in each of the pillars, being hardware, software, mobile, and digital technologies. Now is the time where it won't grow at as fast of a rate as we go forward. All of this was already factored into our plan to meet our five-year targets when we originally laid those out, as John pointed out at our investor day. It's this year it will start to be the beginning of that. We're very focused on finding these savings.
Excellent. How should we think about international sales? Those have been lumpy. Is that the right word?
That is.
What's the right word?
Yes, that's a good word for it. Variable. Not indicative of real demand, though. I think that's been the challenging part. Hard to explain and see as an outsider looking in. When you can see beyond the shipments to our distributors, for instance, in 2022, patient placements grew 20%. That shows a very high demand in some vastly under-penetrated markets. What we're doing to help remedy this is. The reason it's been so lumpy and variable has a lot to do with our distributors today have been picking up their inventory from our San Diego location, and they have to deal with all the logistics challenges to get it to their warehouses. This is mostly focused on Europe here that I'm speaking of.
We have now opened a distribution center in the Netherlands, which means now our distributors get to pull inventory from that local location, and they don't have to deal with all these other challenges. What's happened over the years as they've been dealing with these challenges, they've been building up their inventories to higher safety stock levels to accommodate for when they have uncertainty in the timing of when something will actually be delivered. We have many examples of a distributor placing an order, and they can't even find a freight forwarder to pick it up or gets stuck on a boat for months. There's unreliability in terms of when it appears on their dock. Many of them, their inventory levels have been built up to three or more months of inventory.
Now we're in this winding down period where they will adjust their inventory levels to something more like two to four weeks of inventory, and then you'll start to see their ordering patterns will begin to match more closely real demand patterns. That's to come, I would say, starting in the back half of this year, we should have this transition complete.
What happens when Mobi gets launched outside the United States? First of all, when is that? Is that more of a U.S. product or is that a global product also?
Global product. We have not yet given the timing for the OUS markets, but it is every product that we launch you should think of as a global product.
Okay. When we are here in a year, what will we be talking about?
The excitement around Mobi launch.
Okay.
The fact that we have choice in multiple new sensor technologies also connected to it. I'm sure you're gonna be asking me questions back down about t:slim X3, about Mobi 2, Listen, about Sigi. I would say that I think we're going to, you know, we'll be experiencing the full launch of Mobi with new technologies on sensors. I think that that's gonna be a big part of the conversation because we think those products by themselves get us back to growth rates that people are typically used to seeing from Tandem, and we expect that that'll happen with these new devices on the market.
Terrific. You wanna add to that? You're good.
I will be very excited to be talking about those things as well.
Excellent. Okay. Well, John and Leigh, thank you so much for joining us today.
Great talking to you.
Thank you.
Have a great day.
Yeah. Thanks, everybody.