My name is Bill Plovanic. I am a senior medical device analyst here at Canaccord. Welcome to our 46th Annual Global Growth Conference. With us up next, we have Tandem Diabetes, and for Tandem, we have Leigh Vosseller, CFO, and Susan Morrison, the Chief Administrative Officer. We are going to start out with a basic overview of the company, one slide, to give you a little background before we get into a fireside chat. With that, I will hand it over to Leigh.
All right, thank you. Thanks for having us here today. I will just hit on a few of the highlights because I think we are going to dive deep into the really exciting parts with some of your questions, Bill. Starting with the market overall, it is a very large and highly under-penetrated market. To contextualize, in the U.S., there are about 2 million people living with type 1 diabetes, and only 40% of people use pump therapy today, meaning we have 60% of people that we can still attract with our technology. The type 2 diabetes population is more than 2 million people in the U.S., and only 5% of people are using pumps.
We do operate in about 25 markets around the world, and in those markets, there are about 3 million people living with type 1 diabetes and only about 20% of people using pump therapy today. So a lot of room for us to run. The way we expect to win in this market is, number one, with the best clinical outcomes, number two, with wearability. We define wearability by offering a portfolio of products. We know it is not a one-size-fits-all need for people in the population, and we want to make sure we are offering something that can fit multiple different needs. We have two different pump platforms, and we are excited to share that one of those pump platforms will be able to become our first tubeless option here in the very near future.
We will be expanding even further into another category where we are not playing very well today, or we are not actually competing. The last piece really that has been a barrier to pump adoption is affordability. Cost has been one of the number one barriers to people starting pump therapy. By design, the DME model makes it very expensive for people who want to start on pumps. It can be $800-$1,000 out of pocket, even more if they have not met their deductible. We have moved into the pharmacy channel, and we are setting up a reimbursement model that is a pay-as-you-go model. Therefore, the pump will be given away for free, and people will only pay for the supplies along the way. So it makes it a much different dynamic for people who want to start pump therapy but could not afford it in the past.
We have about 500,000 people around the world using our technology today, and we are excited. A number of drivers that we have this year and in the future with our rich pipeline. We are excited to talk to you a little bit more, Bill, about Tandem.
Excellent. Thank you for the quick overview. Hopefully, you are not getting hit in the eyes by the light.
Got it worked out.
All right. We have a lot going on with Tandem, as always. I have been covering, I think, for three years now, and it seems like there are so many moving parts to this story, it makes it challenging for investors to know what the drivers are, especially for your company, your size, and market cap, right? It is the effort to market cap ratio on top of it. But it is a great market. This is a big transition year for you with the shift to pharmacy for the U.S. business, and then you are also shifting international from distributor to direct. On top of that, we have got multiple new products. You will be the first tubeless patch pump, I think. We could argue Sequel was out there, and obviously Insulet pioneered the market.
You are next up with probably the next key product coming between now and year-end, then throw a couple more CGM integrations into this. That is a lot. I want to unpack all of this, but just to kick it off, where should investors focus the most? If I just wanted to say, "Okay, what one or two things should I focus on for Tandem," what would it be? Let us start high level.
Sure. Sure, and you called it challenging, I will call it exciting because it means we have multiple shots on goal. There is not just one way to win. As I mentioned earlier, it is about the best clinical outcomes, it is about wearability of the products, and it is about affordability. So we have a number of things underway, but I think in the first and second quarter even more so, we demonstrated great progress in all of those ways against our initiatives this year. So at the very moment, we have products in flight. We launched FreeStyle Libre 3 end of last year, Tandem Mobi coming into this year. But I think the three biggest areas of particular drivers would be the pharmacy conversion, it would be the impending clearance of Mobi tubeless, and it would be the direct transition outside the U.S.
I think those are the primary focus today. If you talk to anyone in the organization, that is where all of our attention is.
Everything else just kind of helps everything else.
Helps us.
Helps it all.
Yes.
The system. I am surprised I still get this question on GLP impact on the space. It just surprises me given all the data and everything we've seen. But anything just high level for people?
Yeah, I would say that if you look at the clinical outcomes, particularly for people living with type 2, we actually see the greatest improvement when someone uses a GLP-1 in conjunction with automated insulin delivery. It was demonstrated in our clinical study last year that was published in The New England Journal, and so we really see it as a complementary therapy. Even if it was to slow down the funnel, there is a huge number of people, over 2 million people who are insulin dependent living with type 2 today. So there is an opportunity to help a lot of people using both.
But the biggest pushback I get is everybody's got the N of, hey, this person was on insulin, and they're no longer insulin dependent because they went on a GLP.
Yep, and I'd say that's at your very top of the funnel, and so it may slow down the number of people who progress to being insulin dependent, but it is a progressive disease. And so there's a lot of people already in that category, and even if it was to slow down, the funnel coming into it is huge.
Okay. The other high-level pushback I get is competition. Oh, yeah, Sequel come into the market, Beta Bionics come into the market. Now we went from basically a three-player market to a five-player market, and everybody else is. There's probably a couple other in the shadows. What's your response to that, where it's so competitive that it becomes a fight to the death over new patients?
Yeah. I'd say it is a highly competitive market, but Leigh touched on three areas that are the basis of competition, where we, I think, have strengthened our profile as a business over the past year and have a forward-looking lens to continue doing so, and that's going to be affordability, clinical outcomes, and then the wearability of the products.
Let's go into the pay-as-you-go model, which is the affordability aspect of it. As you look at this transition, where are you now versus your expectations? What are the lever points that could accelerate or decelerate? Based on what you are saying today, what should we pay attention to if that is one of the three things we should?
Sure. Absolutely. I will start by saying we are progressing very well, so we are excited with where we are at this moment. The first most important measure is you have to have coverage. That is something we have been able to gain this year. We are at about 45% formulary coverage. Keep in mind, we are doing this off cycle, so the PBMs and the payers usually operate in annual cycles, and today they are already thinking about next year. But we are there talking about what we are offering. They like our products. They want competition in the category. They were willing to bring us in right away, so we were able to kick off the pay-as-you-go model in March. We are only three to four months in. There is a lot to learn when you implement a big change like this. We are gaining efficiencies.
We are getting better operationalizing internally how things flow through the system. There is a huge change management initiative with physicians. They have to learn differently how to prescribe. We need to build the awareness with patients so that they know that this is an option for them. But everything is going very well. It is a strong start. A lot of people are asking about, from where you are today, how can you get where you want to be? I would say, think about it as directionally we are on the right track. We are focused on where we are going to be in two to three years, and these first early months, while we are doing very well, it is not as important where we are right at this very minute, but the progress that we are making as we go.
We think we are delivering on all the right pieces in order to get to our two to three-year goal, which would be to have about 80% of our pumps going through pharmacy.
As you talk about the knocking down the PBMs, then the payers. Does it have to be in that order? Is there a cadence it has to be, or can you end up getting all the payers and then the PBMs come on? How does that work?
Yep. You need the PBMs, but you can use the payer relationships to push the PBMs at the same time. We are talking to the PBMs where we already have about 80% of lives covered. We are also talking to the payers to get them attached to those PBM agreements, and that is where we have about 45% of lives covered. Then we need to build the awareness with the physicians. One thing that we are doing is we are targeting and letting them know, for instance, if we have a new plan in the Northeast, we go and we make sure that our reps can talk to the physician about the opportunity that might exist with their patients, may be different from what they could see on the West Coast.
It is about building that awareness now so people know to come to us, that it is now a driver of coming to Tandem. It is not a, if I can afford it, I want to go to Tandem. You do not have to let that stop you anymore.
For the supplies, I think which caught almost everybody off guard, which is a genius move, taking your existing customer supply, shifting them to the pharmacy model. Even your competitors did not see that one coming. Why can not that go faster? If I am a patient and DME usually means I am paying a lot out of pocket for any DME. If I ship to pharmacy, it is going to be a whole lot less. Why would not everybody sign up for it immediately if they are already covered? You are saying you are going to exit at 20%, I think it is, of U.S. sales or whatever it is overall. If you have 45% coverage, why would not everybody sign up almost as soon as you offer it? Because you do it on supply renewal, so DME is supplying probably every 30 or 90 days, for the most part.
Why wouldn't those people automatically shift?
Yes. So it goes to some of the changes that you have to make, change management in the channel. First thing that we do when a patient comes up to order their supplies, we check both benefits, and if they have coverage, we explain to them what that looks like. Now, at that point, we're comparing supply cost to supply cost, and in some cases, people's out-of-pocket for DME on supplies is very low, $20. Some people have no out-of-pocket. So first of all, it has to be compelling financially. Then we help them to understand that it is compelling, if it can be for them, and they're willing to change, and why might they not be willing to change? For some people, it's just inertia. It's different. If it's around the same cost, it's like, "Why bother?
I'm fine with where I am." But once we convince them that it's the right thing, then we have to go to physicians to get a new prescription. When you think about what was happening in the second quarter and what's going to continue to happen is physicians, like us, are very interested in getting more people on pump therapy so they can get the better outcomes. If a physician has to prioritize, what do I have time for in my day today? My patients who can already get their supplies in DME, I can put that aside and focus on the patient that I need to convince them to be on pump therapy. I need to help them decide what pump to choose.
And so that's why we maybe saw a little bit of outpacing on the pump side, but we're going to continue to work with the patients to help them understand the benefits and work to move them over at the same time.
Okay. I'm going to shift to actually a guidance question. I try to stay away from these. Your new pump starts were flat year-over-year in the second quarter, a few hundred short of your internal plan. Even with the 20%+ sequential jump, you need roughly 12%-13% year-over-year in the second half to reach that guidance. What are the two or three concrete drivers of that acceleration? How much are you already seeing as we've gotten through July and into August?
Yes. Very early in August.
Sure.
Traditionally, our year has a steep curve to it at the back half of the year. We're still going to have 80% of our shipments in the U.S. through the DME channel this year. Remembering this is-ish, right? The assumptions we gave for pharmacy, they're modeling assumptions for how to get to the revenue plan. Let's say 80% will be going through DME. The largest portion of those people purchase in the fourth quarter. That's just one natural driver of why you have more growth at the back part of the year. We also have the building momentum for the products we launched earlier this year, late last year. As I mentioned earlier, FreeStyle Libre 3, Mobi with Android, and in fact, adding Android to Mobi's continued to helping drive that growth.
We saw that Mobi became more than half of our new pump starts in the second quarter. Good traction there. Then pharmacy. The fact that our sales reps can go out and share with people, "Let's check your benefits. You might not have any out-of-pocket." All of those drivers together will continue to gain momentum and help us drive that teens growth in the back half of the year.
A lot of focus by investors is on new patient starts, then MDI. Your MDI mix has gone up, and it is like, okay, so-and-so is gaining a point of share, losing a point of share, the minutiae of it all. MDI has been a bright spot for you. What is the durable growth rate of the MDI funnel? Because that is really the underlying growth of type 1 and type 2, and even the 70% as you go more type 2, it will drive MDI higher because most of them have never been on anything.
Right.
What is it, removing that affordability barrier through pharmacy? How should we think about just you and grabbing market share and your fair share, whatever it may be as we move forward?
Yes. We believe that we are well-positioned with the tools we have in our bag today, and adding the Tandem Mobi tubeless opportunity later, because today we are operating in the space that is the durable pump space. With Tandem Mobi tubeless, there is a whole other segment of the market, in which we have not been competing. Not to put a number on it, but we grew MDI conversions mid-single digits this year in the second quarter. We are just at the beginning. All of these drivers are just building momentum, and they are the catalyst that will continue to drive that growth for us. We are talking all about the U.S. We have not even talked about the international markets, where we have great growth opportunity there as well.
We will get there.
Okay.
I promise.
Okay.
Since you rolled over to Mobi Tubeless, I'll go there. Scaled 2-half launch, 2027 is the first full year it should be material. How meaningful can this inflection be?
It's-
It's long-awaited, right? Well, it's on time, but everybody's kind of been waiting for these patch pump alternatives.
Absolutely. We filed with the FDA in the second quarter, and now we're just waiting on that clearance timing. From there, we're going to start the scaled launch. We're excited about it. We think this presents a huge opportunity to play in a segment that we haven't been able to address historically, especially with a differentiated feature like extended wear. Wear times of up to seven days in combination with tubeless, we think it's going to have an impact on the market.
I want to unpack the regulatory pathway a bit, because it's a little unique. The algorithm's there, the extended wear approval is there. Even the pump itself is there. It's like a couple of disposable components and maybe the carriage it sits on. From a regulatory risk, it seems like it's less than most.
I think that's fair. We have recently approved predicate devices, and that always helps. It always is a conversation with the FDA, but we feel very comfortable with the submission that's in place and look forward to bringing it to market.
We talked about ADA on your last conference call and the physician panels and the excitement there, but we have other competitive patch pumps arriving later this year and next year. How do you plan on remaining differentiated in what could become a crowded market?
Sure. I think you can differentiate from a form factor perspective, as we touched on with the extended wear portion. Also, it's going to be the only system that allows you the flexibility to wear it as tube or tubeless. That's a decision a person can make when they're changing out their supplies. That's a meaningful feature also. I think we also differentiate the actual hardware by the software that we offer. Control-IQ+ technology is the best algorithm that's available, and we plan to maintain leadership in AID by furthering that with a fully closed loop algorithm. You have to look at it as the strength of the system, and we're going to start, too, with differentiation with the form factor and then build on that by strengthening our algorithms.
I want to shift into type 2. Your competitor this quarter talked about a hiccup into that market as they've gone deep into it. I do not think you've really, you have the label, but it is not something you've delved into yet super deep. My speculation was that you're really waiting for Tandem Mobi tubeless to give you kind of a real fighting chance in that market. As you think of the physicians, one of the questions I got today at lunch was, as we get in this type 2 market is, how are the physicians or the prescribers going to differentiate amongst these products, and who's making the decision for that patient? Are they going to see all four, five, six pumps, or is it going to be they're going to be offered one or two? What does your diligence come back with for that?
Yeah. It is going to be what drives the greatest compliance, and that's going to be systems that are easy to use. I'd highlight with our algorithm, for example. We moved from having to require a person to do carb counting to doing fixed dose insulin therapy, and that was approved for people living with type 2 as part of Control-IQ+ technology last year. With that also brings an ease to the prescriber because they have to train less. A big portion of this is the prescriber's ability to identify who is going to be successful with the therapy, and then us as a company identifying how do we support them from a training perspective and make this easy? How do we support them from a hardware perspective?
For example, if you do not need to change out or do an insertion on as frequent of a basis, does that allow for it to be easier for the user? We think that's a driver for type 2 adoption also.
Yeah. Another question on type 2 I received at dinner last night was that 200 units is not enough for a type 2 patient. What percentage of the type 2 population does 200 units not cover?
I love the question, because it's not enough over what period of time, right? If you can change your insulin cartridge separate from the infusion site, you are no longer tied to trying to match those two up every two or three days. For us, you put in one infusion site, and you can change it out as many times as you need to without having to do a new insertion. It starts to reduce the dependence on the volume of insulin that is available at any one time. Mobi, the tubeless cartridge, holds 200 units of insulin. You can see you could change that out three times if you needed to, or even more, depending on what the person's insulin needs are, which is particularly important for people with greater insulin needs, people living with type 2.
If the C-peptide requirement was eliminated, how do you see that impacting the type 2 market for CMS volumes?
Yeah. Well, it would be a great opportunity. Today, roughly or a little more than half of people in type 2 are Medicare age. We do really need that to help get us more traction in the market. Today, physicians could prescribe it even with that test, and they would have to go through an appeal process many times to really lobby to get someone on the pump, and it is too much work and effort. To get that out of the way can make a significant difference for us in our type 2 opportunity.
How are you thinking about fully closed loop and the impact on type 2? Because to me, easy use is probably the biggest thing to ever drive markets. I would imagine that that would take training from how long does it take to train a type 2 patient today versus if you had a fully closed loop system.
You are right. You are requiring so much less of the person. For us, we are really looking for a clinical target for time in range at 70%+. We are confident in the ability to improve lives, improve outcomes, while having no meal announcement from the patient. That being said, if they want to engage with the system, if they want to provide additional information, we are providing the personalization options for them to be able to do so. To your question, that allows for a healthcare provider to support the systems easier and have a greater degree of confidence in their patients' outcomes because they are not going to have to have the same degree of interaction with the device.
I promised I would get back to OUS. You continue to transition OUS markets. I think it was 13% was direct as of last quarter.
Yes.
How should we think about this cadence of future transitions? At what percentage of OUS sales do you expect shifting to direct over the next two years?
Yes. It is expected to continue to grow. We are not giving the percentage yet for next year, but we just started in three markets, the U.K., Switzerland, and Austria, the beginning of this year. We are moving into France later this year, and we have other markets already queued up for next year, which we will be talking about further as we get closer to those launches. It is a meaningful opportunity when you compare, first, if you just say price to price. Every country we step into, it is at least a 30% step-up in selling prices, and so you just get the nice margin benefit from that alone. Being closer to the patients in those markets will also help us drive more volume. So we can get to know the customer better, the physician better.
We can bring our practices we've used for renewals here in the U.S., and we can help penetrate those markets further and renew our own patients more rapidly than what we're seeing today. We're excited about the opportunity to have more of a direct relationship.
What's the eventual target for direct versus non, for distributor?
Stay tuned. We haven't laid that out yet.
In this transition, what has gone right, and what have you learned that you've had to pivot on?
I would say it's like anything, I talked about the implementation of pharmacy earlier. You learn something every single day. It's about how you bill. It's about how you connect with the customers, and there's lots of learnings along the way, but nothing that I would say was startling. It's just normal learnings and learning curve that will just make us more operationally efficient, things that we can quickly change and modify so we can move ahead faster.
Okay. I'm going to open it up for questions here, see if there's any questions in the audience. Crickets.
Actually, Bill, there is one.
Oh, go ahead.
Just adding on to the international scale. Obviously, it becomes more complex how you address government aspects of it.
Can you repeat the question?
Yes. The operating model for as we go direct and the complexity of it. What we've been doing is we have to implement new systems because we don't have a direct relationship today, so we're implementing new CRM and ERP systems in every market. We have to build out the customer support functions, and we're looking at ways to leverage that across multiple markets, so we're not building independent shops in every country where we go direct. It's about having the sales force in place. It's understanding the reimbursement requirements. There's a lot of work. It's building a little mini company every place we go direct. But we've learned a lot already being there across the years, and the value of being able to directly market and sell, we think is incredible for our business. It's good for us for long-term margins.
I wanted to circle back on the fully closed loop. You have the IDE approval in the second quarter. You plan to start the pivotal trial later this year. This is going to eliminate the meal announcement for both type 1 and type 2 users.
Correct.
Realistically, what is the timeline to market, and do you plan on running that study with existing users, new users, and which pump do you expect the trial to be based? Is this a Mobi tubeless trial? How should we think about this?
Sure. We are designing the system to be able to use from people who are pump naive, so new to pump therapy, multiple daily injection, as well as people who are converting from a competitor's system as well as from our own. It is designed for all comers, and so we have not said specifically which of the pumps we are going to use. In general, if you think about these studies, 18 months roughly, it is all going to depend on the time for enrollment. To emphasize your point, this is designed for both people living with type 1 diabetes as well as people living with type 2 diabetes.
Okay. I think we are out of time. Are there anything you would like to leave us with or questions we did not ask?
Go ahead. I would just emphasize that Tandem has tremendous opportunity. We touched on a few of them here today, but we are transforming our business model, both in the U.S. as well as internationally, and you are going to see that in terms of profitable growth as well as starting to really expand our impact on the diabetes community.
Great. Thank you very much.
Thank you.