All right. Good, good morning, everyone. Thank you for joining us for the last session of the morning. I am Danielle Antalffy. I'm the med tech analyst in the U.S. here at UBS, very excited to have with us a company I've known for a very long time, Tandem Diabetes, CEO, John Sheridan, CFO, Leigh Vosseller. Thank you guys for joining us. I know you drove very far-
That's right.
to get here.
Thanks for having us.
You are welcome. You know, one of the questions I want to ask you guys, after several years of very strong stock performance, it's been a tough, you know, tough few quarters here. Just wanted to maybe start with a question I actually usually end with, and that is: What do you think investors sell side might be missing about the Tandem story that has been driving some of the stock underperformance recently?
Yeah, that's a great question. I would say initially, or, or the first thing I would say is that it's a large and growing market. When you, when you look at what's happened over the last four or five years, we've seen more and more people come from MDI therapy to pump therapy, and that's just because the benefits of pump therapy have really improved greatly as AID systems come to market. You know, I, I think that the, you know, that, that's, it's not a zero-sum game. If the market's large enough and if this growth, I think is it's, it, it presents the opportunity for multiple companies to be successful simultaneously.
Mm-hmm.
Certainly in the last few quarters, we have seen pressure as a competitive new product has come to market, but that seems to have stabilized. I would say the biggest thing people don't or realize is just how successful our new products are going to be. When you look at our pipeline, we have the most exciting pipeline in diabetes, beyond a shadow of a doubt. We also are going to have four new products brought to market here in the next six months, which I think is unprecedented in the industry. Beyond that, we've got, you know, just a series of exciting new products that really are going to reduce the burden and improve the overall therapy for people living with diabetes, which we think is the key, you know, for adoption.
You know, I think that's the biggest key is, and so we do not get adequate credit, I think, for the pipeline. The pipeline, in my mind, is really going to be the, the key issue that drives a return to the growth that we've experienced in the past.
Yeah. There are two things you said there that I want to follow up on. The first thing was, this is not a zero-sum game. I actually very much agree with you there, and, and maybe that leads us to sort of the insulin pump market, where we are today, and where you see us going in the future. There's a lot of noise around, you know, GLP-1s and what that's gonna mean. Even before we get there, let's maybe talk about how you guys envision the insulin, insulin pump market continuing to evolve over the next few years.
Sure.
You do have, you know, as you mentioned, some competitive dynamics that are new over the next 12 months.
Yeah, certainly. I think that as you look at the, the market, you know, our competitors, Tandem, and even our partners, are all introducing new technologies that all help people move from pens and needles to, to pump therapy. I think the big issue is people have to wear a device, whether it's a sensor or a pump, 24/7, there's a burden that comes along with that. There's also an amazing, it's a, a powerful cognitive burden that diabetes introduces to people who are living with this condition. I think that, you know, it's the, the challenge is to reduce the cognitive burden by providing, you know, therapy that just makes it easier, provides, better therapy, and you just feel better every day. That, that's the thing that we are all doing.
I think everybody in this diabetes space is really innovating to bring new technology to market. I think that's going to drive a continued growth. We think that, I mean, right now, the market has penetrated in maybe 35% or 40% of the people who have Type 1 use pumps, and we think that can get to 60%-65% the next couple of years.
Yeah. I would argue even more, but we can quibble about that. The other thing that struck me that you said, was the, the comment around the recent competitive dynamics that you've been weathering over the last few quarters, and, and that stabilizing. Is that a new dynamic as of Q2? Or maybe talk a little bit about what you're seeing out there and what makes you say it's stabilizing.
I would say if, if you look at this year, I mean, certainly last year, in the third and fourth quarter, we did see a great deal of pressure, and we did see, you know, our new starts move in the wrong direction. I think as, as we've entered 2023, we definitely have seen stabilization from that pressure. I would say that things aren't getting better, but they're not getting worse.
Mm-hmm.
There's still a great deal of pressure in the marketplace, but I think we're, we're fending, fending it off and holding our own.
A plateaued basically.
A sort of plateau.
Yeah.
That's it, yeah.
Okay. Okay, got it. I guess as it relates to the, to the market, and we think about these new devices coming to market, including the Tandem portfolio as they come to market, the insulin pump market has been growing, call it, you know, again, these are estimates, our UBS estimates, you know, low, low double digits, sometimes mid-teens, depending on the quarter, in the U.S. These new products that are coming to market, do you see these as, as accelerators to growth? I think this is getting to the zero-sum game point. Like, is it just the market continues to grow where it is, and everyone just fights for share of that, or how do we think about that?
Yeah.
Like, are these enough from an innovation perspective to take that 30? We've been at 35 for, like, 5 years, you know, from penetration.
It's actually grown more than that.
Yeah.
I, I think if you look back five or six years, before there were actually AID systems in the market, we saw 25,000 people a year come to pump therapy from-
Yeah
-pens and needles. If you looked last year, we'd estimate that it was more like 75,000-80,000.
Okay.
It has ticked up, and I think it is the new technologies. I think that, you know, it's not just Tandem, but as, as the space innovates and brings new technologies to market, we expect that number to go up. It has to go up, in fact, to get to 60% or 65%.
Right. I guess what I'm trying to think, so then do we go from 70,000-75,000 each year to 100,000 each year with these new products?
I think so, or even over that. Yeah.
Okay. Okay.
The other thing I think is important as well is that, you know, when you look at diabetes, it's, it's, it's a very segmented market, and people who have diabetes don't. They have different needs and different preferences. So we believe that because there's different segments, one product is not going to meet the needs of everybody in the marketplace.
Mm-hmm.
So we have a portfolio approach, when we intend to bring multiple different products to market to really meet the needs of these different segments.
Yeah.
By doing that, we think we continue to help increase that growth rate, 'cause we actually are going after specific needs that people have, which we think will drive the uptick.
You know, I ask this question every time we have something like this. The barriers to adoption that still exist, I mean, it's amazing to me that we're still only, you know, 35%-40% penetrated of Type 1. I think I know the answer, but what are the barriers that still exist, and where are we going from here to double that penetration rate?
Yeah, I think form factor is a big one.
Yeah.
I think that, as you've seen with Mobi, it's half the size, you know, of the t:slim pump. We have the Sigi pump, that's also another significant improvement in the form factor. I, I think that's, that's important. It needs to be discreet.
Mm-hmm.
I mean, people with diabetes don't want you to know they have it. Convenience and simplicity are also very, very important. I, I would say that if... You know, we have approximately 430,000 or 440,000 people using our technology today, and I would say that many of them are early adopters. They are people who are willing to, maybe, I don't want to say the product's more complex, but willing to use the product because they see the benefit. I think excuse me, to continue to advance that, we have to simplify the interface. We have to make it very, very simple for people to use.
Yeah.
That's definitely a priority of our organization today and the engineering teams. It's really form factor and then ease of use, and those are the things that we're really focused on.
Is cost still a barrier?
I think it is. I think it is, but at the same time, when people come to the Tandem product and they begin to use it, one of the things that they experience is a substantial reduction in adverse events. Because of that, you know, there's less hospitalizations, and hospitalizations are expensive as well. While the therapy itself might be perceived as expensive, it really does reduce the follow-on costs that you have just in living with diabetes. We know it's a substantial percentage reduction, well over 50%. That's a, that's a big benefit for people. Not only does it affect their wallet, but it's also a substantial improvement, just the quality of life.
Quality of life. Yeah, sure. You know, This might be a stretch, but, you know, capped insulin prices, is that something that could drive more pump adoption? Only because, you know, then patients do have more room in their wallet to spend money.
I, I mean, I think so. I think anytime you reduce the, the cost-
Yeah
you make opportunities available for other aspects of the therapy.
Yeah. Okay. Then just one more question on the, on the market here, and maybe this is a, a stretch. You know, we still have to do our sort of postmortem. We still have the big players.
Yeah
... yet to report, for Q2. It did seem like the U.S. market in Q2 decelerated a bit from Q1. I'm curious if you guys have, you know, have seen anything in the market, just for diabetes devices, CGM for, for pumps, and we're talking relative here, you know?
Yeah.
It's not, like, crazy, but-
I would say, it's, it's really difficult to assess the growth interquarter.
Yes, that's fair.
I think that we typically wait till the end of the year, and we just see what has happened. You know, you've got to triangulate, 'cause it's not. You have to sort of back into the calculations as to what's happened, 'cause nobody's really direct about what with their, with their starts. We have to wait till the end of the year, and I think that's that's usually the time when we feel reasonably comfortable about the numbers.
Yeah. There can be volatility in any quarter.
That's right. Yeah.
Yeah, that's fair. I have to ask, don't shoot the messenger. I have to ask the GLP-1 question. you know, how you guys are answering that for, for folks, I mean, have we cured Type 1 diabetes?
Well, yeah, I mean, I think it's, it's actually, it's indicated for Type 2.
Right.
And, and so-
is the answer.
I would say that, you know, we, we have a, a very capable group of physicians who work with Tandem, and I think their perception is that it's not gonna, it's not gonna prevent people from becoming insulin-intensive Type 2 users. It's gonna slow it down.
Yeah.
I think it's, it's also early. I mean, the market, the products have only been on the market for one year or so. I think use habits, longer term effects, things like that are, are still. People are formulating what those are.
Yeah.
I think making any kind of a big bet today, one way or another, it's probably risky. My guess is just let's just wait and see what happens. We still think when you look at the Type 2 insulin-intensive market, it's large, as it is today.
Mm-hmm.
There's over 2 million people in the U.S. and two or three times that, OUS. You know, only 5% of people with insulin-intensive Type 2 use a pump. We have seen from people who, who are using the Tandem product today, they get equally good results as people with Type 1. You know, it's a, it's an area of focus for us, and I think longer term, we'll definitely see the benefit. It's, it's gonna be a more complex sale, and we're gonna have to really explore and develop that market. Certainly, we think it's gonna be a part of our, our story going forward.
Today, what percent of your installed base is Type 2?
Approximately less than 5%.
Less than 5%.
There's about 20,000 people today who use our technology that have Type 2. It's all off-label.
It's about 5% penetrated, like, the, the Type 2.
That's right.
... 2.4 million.
There's about 100,000 people in the U.S.
you know, GLP-1s won't cure Type 1 diabetes is a genetic-
Yeah, it's, it's your, your your pancreas stops working.
That's safe.
Yeah. Yeah.
The 2.4 million insulin-intensive Type 2s today, that's also safe because it's not gonna reverse it.
That's, that's correct.
We're talking about, I don't know, decades down the line when we slow the progression of, of building out that 2.4 million patients. Yeah. Let's talk. I think this is for Leigh, and this is the near-term sales outlook and your updated 2023 guidance. I mean, from our perspective, we published this. It feels like it's very much based, maybe even bear case scenario, really, you know, setting the bar at a, a very reasonable level. Can you talk about the, the puts and takes to the guidance reset? Also, as we look ahead to 2024, and you guys message sort of thinking about 10% growth, and what gives you confidence now that downside risk here is limited? Obviously, I have my own views, but we'd love to hear yours.
Sure. When we came into the third quarter, we were so excited to get the Mobi approval from the FDA on July 12th. What that did was it made a big difference in how we thought about the remainder of the year. We were still very confident with all of the factors in the market that we could achieve the numbers that we had out there. With the timing of the approval and the way our launch will scale, with general availability really being in 2024, we recognize, just like we've seen in the market, every time a new product has been introduced, that tends to be this pausing dynamic.
It usually is in that time frame from when there's approval to when there's full availability, and also even a little bit after, sometimes as the market's digesting what this new product offers. As physicians start to experience it, patients start to experience it, then people really know what it is. With being a different form factor, maybe not so much as you would with maybe a new algorithm. As we looked ahead, we said: Wow, this could really impact the timing of when customers decide to make their purchase. There's a lot of factors that go into consideration here.
You think about someone who is about to meet their deductible for the year or maybe has, and so they have their lowest out-of-pocket, ready to buy a pump, yet they've heard about Mobi coming around the corner, and so they're asking themselves: Do I want to buy now, or do I want to wait and buy Mobi then? They have to do that calculus of, well, what's my out-of-pocket today? We have a, I think, a wonderful opportunity with our switching program that allows people to convert for $200 if they buy a pump in the next two quarters. They'll be taking that into consideration, but it's going to be turbulent, and it's very difficult to predict.
To the guidance point, what we did was we took a look, and we said, first of all, we recognize that people have had trouble, realizing how we could hit our numbers anyway, and so we wanted to de-risk and think about with this lack of visibility, we should take it to a baseline level.
Yeah.
This is something that we felt like, as you said, someone could look at and say, "Wow, in the U.S., all Tandem has to do is ship as many pumps in the back half of the year as they did in the first half.
Mm-hmm.
That feels very doable, even in an environment where there's, there's this kind of noise going on.
Yeah.
We ourselves went through all of the different pieces of how do we think someone coming from MDI will behave in this environment with their purchasing, a competitive conversion, a renewal customer. We tried to assess, well, how much we thought the Tandem Choice Program would mitigate the pausing, and that's how we came out with the number that we have. We've set everyone up for 2023 with a baseline expectation, while I would generally be reluctant to give any indications of the next year at this point in time, we felt like it was important that. It would leave people hanging.
There would be the question mark would move, not from how do you get through the back half of this year to, I don't know what to think about next year.
Yes
- with the numbers that are out there. People maybe would adjust and wouldn't know where to put it, whatever it may be. We went through the same sort of exercise and said: What's a, a baseline that people can see a path to? We walked through the building blocks of, of what makes up our business, and it started with supply sales. It's very easy to project supply sales off of the installed base that we have and the growth that will come as people are in the base that are acquiring pumps this year for a full year next year. That's piece one. You layer on the renewal opportunity, and we have demonstrated a very consistent pattern in terms of new renewal opportunities coming to market and how many that we convert into pump shipments.
Interestingly, next year, or maybe excitingly, is the better word, we're going to have 70,000 new opportunities in the U.S. compared to 50,000 this year, compared to 30,000 last year. You start to build that up, again, another predictable revenue stream, and you get to a number where you kind of then, I would say, back into new pumpers. When you do all that calculus, you'll quickly come to the conclusion, like, wow, new pumpers don't have to grow at all.
Yeah
to achieve this number. In fact, they can go backwards and still get there. So I think that's, that's the comfort, I guess, we can give people, is they don't have to have heroic assumptions to see how we can achieve that number, and that's why it seemed like an appropriate threshold. Particularly because next year is going to be a super exciting year. I mean, this is, this is a baseline, not contemplating that Mobi, G7, FreeStyle Libre have any inflection in the business or provide any opportunity for us.
Yeah.
There are so many exciting things around the corner. We needed to get people to focus less on what's happening right now and be and understand better what could come in the future.
That's a good segue into my next question, which is these new product launches. I'd even focus, you know, like, take Mobi off the table for a second, just Libre integration alone, very large. I mean, yes, Dexcom has the majority of Type 1s, but still a very large Type 1 user base, and of course, insulin-intensive Type 2. And then you've got G7, which has obviously been doing very well. Could they be growth inflection drivers? I know that's not reflected in the guidance, but just conceptually, could they?
Yes, we see a lot of possibilities there. We have had great, tremendous success being partnered with Dexcom along the way, and with G7 expanding the market, we expect to grow right along with them. And that will be, I would say, probably more. Well, however they inflect, we could follow suit, I should say. I don't want to make bets on how much they drive their business, but it will be good for us. Libre is a whole different opportunity because there's a large population of people. Last report we heard about a year ago was that they had 300,000 people living with Type 1 diabetes, using their sensor. These are people, and our research suggests that there are very few that use pumps, but definitely people who've never had the benefit of an advanced algorithm.
Now with this partnership and the opportunity to market directly to those customers, we also, from our survey work, understand many people are interested in pump therapy, but they like the sensor they have. It opens the door for a whole new world of possibilities in terms of people who could move to pump therapy that weren't, I would say, real candidates for us before.
Yes.
Mobi is another great opportunity. Mobi provides advantages that aren't out there with the products on the market today. You compare it to the durable pumps, it's got the same flexibility that you have to detach, but it's much smaller. You compare it to the patch pumps of the world, it's closer to the same size, form factor-wise, but you have the flexibility to wear it in different ways and that detachability. It's unique in its form factor, and it may attract people that... Or we actually expect it will attract people that weren't attracted to the other form factors that were out there today. Of course, it's gonna have Control-IQ, which is hands down the best-
Yes
algorithm out there.
Yes, two follow-up questions there on, on Mobi and, and the pause dynamic that you've talked about. You went through this as well with Control-IQ, to an extent.
Right.
The difference here, I was just thinking about this the difference here is that Control-IQ was really just a software upgrade, a software push, and there was a training component to it, whereas Mobi is an entire hardware change. Is it right to think this pause, and I think Control-IQ was a quarter, two, maybe? Is it right to think that this could be, you know, longer because of the hardware dynamic?
Yes. A couple things. The Control-IQ example is, is great because it does show that even when it is so easy to get a software update, people might still mentally say, "It's easier for me to wait for when it's fully available.
Yeah.
We saw that build across the fourth quarter. We had gotten approval, everyone expected approval late third quarter. It came late fourth quarter, so we started to see a little bit of it. Once it came, then people really pushed to, "When is it available?" And that was a modest level of pausing in the market. When years back, when 670G was introduced and, and touted as the artificial pancreas, we saw a very dramatic pause in the market, so very different environment, and that lasted for multiple quarters.
Okay.
It goes back to the point is, once the product's fully available, that's when you see that dissipate. With the timing of our launch, we expect for the next two, there will be pausing, and it could build. I think a, a point I didn't make earlier is, when we got approval, we, we did a, press release from an investor relations perspective. We didn't start fully marketing to customers, physicians, anyone. At a few shows, we heard overwhelming enthusiasm for it and interest in it.
Hmm, my friend Jane did text me immediately.
Wow!
That, "Mobi's approved," and I'm like, "Simmer down. It's not gonna launch anytime. You're not gonna get it anytime soon.
Another point, just on that, you, you bring up a good point. One was software, and this is hardware. What Leigh said, I think we got approval for Control-IQ in December.
Yeah
- of 2019, and we had it on the market in late January. It was a relatively quick introduction.
Yes.
With a, with a piece of hardware that's brand new, it's, there's, there's a lot of stuff we have to do for, just to get it ready to get on the market after approval. We have to train, and then we also need to be cautious because as a new hardware platform, we need to evaluate it more carefully than, ... Not to say we don't evaluate the software carefully, it's just, it's just more complicated.
Yeah.
That's really what happens. We will get it to market in the early part of the fourth quarter, and then we're gonna have hundreds of people using it for a period of time because we wanna make sure that there's no corner cases or nuance, you know, or just issues that affect customers' perception of the device in, in that first month or two, before we really step on the gas.
Yeah.
I think that's, you know, you can test software thoroughly, and we can get it out to the market faster than you can with hardware, and that's a big difference as well. I think so there's a longer timeframe for that to occur, which again, there's just more pausing like, likely to be a result of that.
Yep, that makes sense. I wanted to follow up on one other thing, on the integration with Libre, and I wanted to bounce something off you. One of the things I'm hearing is, you know, as we do due diligence around this, "Oh, if a patient wanted to go on a pump, they, you know, they would've just gotten the Dexcom integrated system. No, you know, we don't have patients waiting for an integrated Libre system." I think maybe what we're missing there is, "No, the patients really want the Libre. They'd be open to a pump. They just don't have the Libre integrated system." I guess, how, how would you address that? You know, if you hear someone say that, what, what do you say to them?
Yeah. Well, we've done our own research into that population of people and have absolutely heard that there's interest. It's kind of back to that point of people, when they become accustomed to a technology, they're reluctant to change it. When you find something, you live with this, with this condition that is so difficult to manage, mental burden that it has on you, when you find something that works, you just wanna stick with it. So I think people were, you know, the integration with that product, as we've been talking about it for a few years, so people probably presumed it was coming, and they're like, I can just wait for it. So it's not that they're not interested in the technology, and so we're excited to be able to, start marketing to that base directly.
Yeah.
Yeah. We've talked to thousands of people-
Yeah
who use the Libre device.
Well, I've talked to two, so.
There are people who are really interested in pump therapy.
Yeah.
There's also a product in the market, or U.S. today, that are using Libre, and they're seeing uptake as well. I think that it's, you know, it's, it's one of these things where we have to build and develop the market. We have to work with Abbott, you know, to, to communicate and market towards those people and help them understand the benefits of the technology. We certainly think it's gonna be key. Good uptake in time. We, you know, as we get to 1 million customers in the next two years, that's a meaningful part of that.
Yeah.
That's a meaningful part of the growth that we expect to see.
Well, let's also, too, talk about the Abbott sales force and the marketing muscle behind this. My understanding is Abbott, too, has a much... Maybe I'm wrong here. Correct me if I'm wrong, a very strong presence in the primary care physician's office that still, at the end of the day, is managing a very large number of these Type 1 patients. Is that something that we should be considering as well, or am I overstating the importance of that?
Oh, I would just say that collaborating with Abbott is something that's, that's absolutely going to happen. I think that the we, we currently do work with PCPs, and I think it's, you know, what we look at really is we look at the insulin usage of various practices. If we see a PCP that has a high volume of insulin usage, we know that they're probably prescribing to Type 1s, and we will sell and work with those practices. But, you know, I think as we get into Type 2, you know, our relationship with a broader group of PCPs is going to be important for us.
Yeah.
I think anything that helps us achieve that is great, I think a relationship with Abbott is likely to make that happen.
Okay. Okay, got it. Let's talk about renewals. That's been a very positive, you know, dynamic, even through the first half of this year. On the, on the renewal side of things, you know, how has that been tracked? I know it's hard to track because patients sometimes don't renew right away, but as best you can, how has that been tracking, in the last few quarters? You know, how are you thinking about competitive threats there? Are you seeing any switches?
Sure. I'll, I'll start by saying, 2022, we were seeing our best capture rates ever. What I mean by that is, as new new warranty new warranty opportunities, warranties were expiring, we were renewing at a higher rate in each quarter than we ever had before. In the first 90 days, you get X%, in the next 90 days, you get Y%. That builds up to our goal of 70%. We've been achieving our 70% goal in older cohorts, older populations, but what we saw in 2022 is we're migrating there faster.
Yeah.
Even through the competitive challenges we've seen in the last year, guess what? Our rates have remained consistent with where they were in early 2022. It shows that once people are in the Tandem family, they like the product, they want to stick with it. We haven't seen any disruption there. Mobi could disrupt it simply because these are Tandem people who are like: "Well, I want Mobi instead.
Sure.
We fully expect to be back on track as soon as Mobi is fully available, and we'll have to see. The Tandem Choice Program may help people bridge that gap anyway. And so it's really exciting considering the number of renewal opportunities continues to grow, and we're only beginning our renewal opportunities outside the U.S.
Got it.
It's going to be another tailwind for that market.
Yep. Okay.
I, I think it's meaningful also to point out that we saw this excellent performance in renewals at the exact same time that we were experiencing great competition in the marketplace. I think it just, it just goes to show that people who are part of the Tandem family prefer to stay in it. I think that makes us feel very good about the device, the offerings that we have, particularly as we, as we move forward into 2024.
I think that's an important point, and I think I overuse the cell phone analogy, but, like, if you put an Android phone in front of me, I'm like I don't even know how to turn this on.
See what I've got right here. Doesn't that make sense?
I know you have an Android, too, don't you?
Yeah.
No, you're an iPhone?
Yeah.
Okay, good.
I'm a believer.
At least one of you is normal. Okay. The other, you know, revenue stream here. I was just kidding, John.
Right.
The other revenue stream here has been, you know, competitive switches, right? You did have a major competitor, had a majority of the market. Now, the, the, the thing that I think folks have been focused on there is that installed base has declined meaningfully over the last year. Inherently, the number of patients that are available to you every year is smaller, one, and you've got other players in the market competing for those patients. How do we think about that? You've consistently been sort of 50/50 MDI competitive switches. How's that going to evolve?
Yeah, you know, I mean, we fully expect it, so this is not a surprise to us as well. Fully expected that it would migrate this direction. It's been consistently still 50/50, even through the second quarter. We expect, as we move forward, that MDIs will start to outweigh the competitive conversions just, just because the sheer number of opportunities-
Yeah
... is going down. That's why, our portfolio is back to that. It's not a zero-sum game. We're very focused on how to drive penetration in the MDI population because we know that, there's room for us all to be successful, and we won't have as generous of a, a tailwind from-
Yeah
here in the future.
Yeah. Okay. Then, you know, maybe other competitive opportunities do come up. Yeah. Well, let's talk about business model here. You know, pharmacy access, one of your competitors has had a lot, a lot of success there, and I know it comes up a lot. You know, do you think not having pharmacy access has kept you from putting any patients on a Tandem pump? I guess maybe let me ask it this way: Is there any doctor that's like, "I'm not writing a script for a pump that can't get through the pharmacy?
It's a great question. I don't think it's prevented someone from being on our pump that wants to be on our pump. I do think it has benefited them in terms of the marketing opportunities with the pay-as-you-go and the low upfront.
Sure.
Their, their business model is just different anyway, even was in DME. What we understand when we talk to physicians, first of all, pharmacy is generally simpler, but there are complexities there as well, so it's not always as straightforward as it may seem. Physicians, we understand, are reluctant to recommend or choose a product because of, of a, a channel, because they also don't always know how it's going to turn out.
Mm-hmm.
Just because you're in pharmacy, doesn't mean you don't have occasionally a deductible or you don't have a prior authorization either. Physicians care more about your clinical outcomes and what you will stick with, and so they're going to prescribe the pump that will work best for you because it's better for your long-term health and your outcomes than what channel you might be going through. Having said all of that, we do think it's important to build our presence in the pharmacy channel, and this is about improving patient access overall. While we have broad coverage in DME, again, in some cases, pharmacy is simpler and easier, and we want to make sure that we have that opportunity for our customers. We are using Mobi as our first opportunity as the entry point.
I will say today, as soon as we got approval, the market access team's number one priority was to get all of our DME contracts updated, because that is our bread and butter right now, and we don't wanna impede commercial access when we have full availability of the product. Simultaneously, we've been starting and engaging in these pharmacy conversations. Sometimes it's the same people, different side of the house. It's been interesting. There, there absolutely is appetite for it. How this plays out long term and how quickly you get there, those are the question marks. When you watch other companies' progression to pharmacy, it's a multiyear effort.
Mm-hmm.
You have to go payer by payer. I'm often asked, "Well, can you become a subscription model?" I would say everything is possible, but it's still payer by payer. It's individual negotiations. There are many times there are set points when they will allow new products onto formularies, and so it's not like this can happen overnight. While I want people to be encouraged by the idea that we think there's opportunity there, it's probably not gonna be a big 2024 conversation.
Yeah
All of a sudden, we flip that switch.
Yeah.
We do view it as an opportunity, and we are pursuing it.
As you're talking, I'm thinking about how complicated this model is gonna get to build.
Right.
Once you guys have pharmacy.
We'll help you.
I mean, the way to look at it, though, is we have this opportunity with Mobi right now, and let's get in there and learn, establish a, you know, a beachhead.
Yeah
Do the best we can so that when Sigi comes to market here in a couple of years, you know, we've established that, and we can get Sigi into that channel.
Yeah
almost immediately.
Yeah, yeah. Good point. I wanna talk about the pipeline a little more, Before we go there, let's talk about international, 'cause that's also been a bright spot for, for Tandem. Your installed base continues to grow strong double digits. How do the international pump market dynamics differ from the U.S.? First, from a penetration perspective, thinking about so low today, Second, you know, so are the barriers to adoption different, et cetera. Then second, from a competitive perspective, because, for example, there isn't pharmacy access-
Mm-hmm.
You know, so you don't have that same... You still pay as you go, but it's a different differentiation.
Yeah. Well, we're super excited about the OUS opportunity. There's still a lot of room to grow. To your point, it's vastly underpenetrated. Part of that is the social systems there. There's a lot of work to be done to prove the cost benefit of these types of products. While we've gotten some level of traction, we're working closely with our distributor partners to continue to advance that and use our clinical data and information to share, so that we can use that to turn the tide. It's still about building presence, awareness in the markets, and we have a really great distributor partners there, and it will help also, the Abbott integration in the future will also be a great benefit, just like we're expecting to be in the U.S. We continue to focus on, on driving the business there.
The competitive market is, it's very similar to the U.S. There are some other new entrants that are creating some noise. At this point, that was part of the reason why when we made the guidance change and did the reset, we decided to go ahead and adjust OUS as well.
Yep.
Just so that, there's no surprises there and to sort of de-risk those numbers. Otherwise, it's still a great opportunity, and, and we look forward to continuing to demonstrate, high double-digit growth.
Yep. Okay. Is there any world in which the international can catch up to the U.S. from a penetration perspective, or is that just unrealistic?
I-
I think international is what? Like, 5% penetration.
10, 10, 15.
10.
I think it can. There's no reason. I mean, when we talk to people in the international countries, they're just as interested in technology. I think what's happened is the technology has recently become available, that is very exciting. I think it's got huge potential for us. You know, right now, the U.S. is 1.8 million people with Type 1. OUS is over 4.
Mm-hmm.
It's a significantly larger market and less penetrated, and I think that the same factors that make us successful in the U.S. exist in the OUS markets also.
Yep. Okay. Well, let's talk about the pipeline. I think we've talked quite a bit about Mobi. I'm not sure if there's anything you guys want to add there, but, I mean.
It's an awesome product.
Yeah. Well, we got to see it at ADA, which was very exciting. We also got to see the, the Mobi-
Two.
Tubeless Mobi.
Two.
I forget what you were.
We call it internally.
Tobi.
Tobi. That's right, yeah.
Tobi. Just thinking about timing there and then also timing on Sigi. What are the regulatory steps that have to happen for those products?
Sure
to hit the market?
Well, what's, what's interesting is there's been three conferences in the last two months that. This is after we've received approval for Mobi. The only thing that we did from an advertising point of view was basically issue a press, press release the day, you know, we got it approved. There hasn't been a lot that's gone on yet, and we have been overwhelmed in, in these conferences, and I think that the sales organization, very positive, they knew it was gonna do well, but they were completely surprised by the excitement that people have in these conferences, which has been great. That's a, that's a-- that's something that really is exciting for the whole organization. From a timing point of view, we were just talking about this. We have to...
You know, there's, there's work we have to do just based on some of the input we get from the FDA. We have to update all the manuals, and so we have to change and print and all the labeling, it's time-consuming, unfortunately, for us to do that. we have to train. The most important thing is to train our own staff, and then train the physicians and their staff inside the offices to make sure that they're comfortable with it, and that takes about a quarter. that's really what we're doing right now. We're going through all of that work, and as I said, we intend to have the product on the market.
Hundreds of people will be using this thing in the early fourth quarter, and we'll probably spend most of that quarter just making sure that it, it's working the way we expect it to, so that, you know, roughly in the first part of, of the first quarter of 2024, we'll step on the gas and really get it out there commercially into the marketplace. So that's essentially what the plans are right now for Tandem Mobi. In the, in the meantime, though, we obviously have the Dexcom G7, which is, in, in a matter of weeks, will be on people in, in, to a great extent, and then followed by Libre 2. I think that, you know, when we say early fourth quarter, that's, that's the-- that's sort of when we really commercially step on the gas.
Okay.
Same thing for Libre 2, but we will start to get people on both of those products here in the relatively near future. It's the real commercial activity begins in the fourth quarter. You know, what we have said in the past is, we've said that, when, when you look at our performance, we've introduced a new product roughly every 12-18 months, and we have a very predictable cadence of doing that. The next device that we have coming to market is t:slim X3. We believe in a, a, a portfolio, and we believe there's gonna continue to be needs and interest in t:slim. It's been on the market now for 10 years, and we've, we've done technology improvements to it over that timeframe.
You know, it's really there's an opportunity now, I think, to really bring it up to speed with the current technology in the market. It gives us an opportunity to cost reduce it, and increase some of the microprocessor power, and things like that. These are all things we have to do to, one, just take advantage of what's out there, but also eliminate any potential longer-term supply chain issues you might experience. This is something that we're working on now, and as I said, it's, like, roughly every 12- 18 months, you can anticipate. After that is the, it's the tubeless version of Mobi. That is not the Mobi pump does not change at all. It's the exact same pump that's going on the market today.
It's more of a modification to the mechanism in how you wear it.
Mm-hmm.
Today, you have a cartridge and you have an infusion set. The infusion set is almost like a catheter that delivers the insulin to your body. With the Mobi tubeless version, we will have a sled that you adhere. It's an adhesive sled, and you put that on your body, and then you will have a different cartridge on Mobi that enables it to connect up to the sled. When Mobi tubeless comes to market, it's going to enable people to have tubed or tubeless options for the exact same pump. We think that's very desirable. Again, it's the flexibility, as we were saying a moment ago, form factor, and how you wear it is important to people, and this gives people ultimate flexibility, I think. We're excited about that.
We think that's going to be, again, a meaningful driver of interest and uptake in the product, and that's beyond X3. Then Sigi, we, we have been working on our own patch pump now for a while, and we continuously do market research. We've been looking at all of the companies that are out there, the smaller companies that are developing their own patches, and comparing it to what we're doing. You know, we, we looked at Sigi, and Sigi has a very compelling offering. The thing, When we were looking at a device internally, that was going to be, I mean, the differentiation was just going to be smaller than the current product on the market, and we were going to use concentrated insulin. That's a, that's a relatively challenging objective.
Yeah.
When we saw, when we saw Sigi, the benefit it has is, first of all, it's rechargeable. We think that, the environmental impact of throwing away a, a device every three days with a couple batteries, and an integrated circuit, and a PCB, it's a big deal. I think in time, people, I mean, when you go to Europe, people are highly sensitive to the environmental impact of the products that we have on the market, and so we think rechargeability is a big deal. Then it also uses a prefilled insulin cartridge, and you can essentially switch the cartridge in a matter of seconds. It's just take it out of the refrigerator, take the old one out, pop the old the new one in, you can put it right back on, and you continue to provide.
We think that when the product is on the market, you know, and you look at the current available products versus Sigi, it is highly differentiated. You have to make a decision at that point in time.
Mm-hmm.
We think that people are I mean, when we, when we have done market research, it's kind of scored, it scores off the charts, and which is the reason we acquired the business, and sort of put our own internal development on hold, and now are moving aggressively to bring that product to market. We've said, we anticipate it's, we feel comfortable that it would be on the market in 2027, but we're doing everything we can right now to pull that in.
Yep.
We would anticipate, you know, as, as time goes on and we have more interaction and, and, and visibility to the team there, we would expect that we'll pull it in.
Okay. Then, G7, one thing I wanted to ask, G7 and Libre integration internationally, is that tracking in line with the U.S. basically?
G7 will be in the fourth quarter also.
Okay.
It'll be OUS. It'll be, you know, pretty quick. We're going to go to OUS with Libre 3, that's a little more complexity there.
Okay. Yeah.
It's gonna take a little more time for us to do that, but we think that's the right decision to make. U.S., Libre 2, go to Libre 3 quickly, and then OUS, Libre 3 first.
Okay, got it. Can we talk about Type 2 for, for a little bit? I mean, we've talked a, about it a little bit already, but, just as far as, you know, where we are from a Type 2 perspective, I know you're working on the form factors and things like that, but also clinical data. From a clinical data perspective, I mean, where do you think we-- how much more clinical data do you think we need to get the coverage for the insulin-intensive Type 2 patients that would be necessary to real- I think, really drive growth in the market?
Well, we, we had hoped that we could use the data we have from the 20,000 people currently using the pump to give to the FDA and make a submission. In conversations with the FDA, they, first of all, don't have a lot of information. There's not a whole lot of studies that have been run with, with AID systems in Type 2.
Yeah.
Then, the Type 2 community is a lot more diverse. People use different types of medication. I mean, there's different body weights. There's all sorts of things that really make it a non-homogeneous group.
Yeah.
Whereas I think it's more homogeneous when you look at people with Type 1. The studies that we have to do are much larger, and they contain people that have all these differences. That, that was a real important thing for them. Obviously, Control-IQ, none of the AID systems on the market today are approved for use with Type 2, and all three of the companies currently that have products are working on it. We started our pivotal study just a few months ago, and we are enrolling patients now. We would expect that it'll take us probably sometime in 2024 to complete it. We'll submit the information to the FDA. We've had three major submissions already with Control-IQ to the FDA, and they've, they've all been successful. We don't expect this will be any different.
It's just a matter of getting it to the FDA and getting them, you know, just going through that review process. You know, it's more likely this will be an early 2025 product, but we'll just have to wait and see because there's factors that affect enrollment and things like that. You know, roughly a 2025 product sometime. Again, I think that that's the first step, and I think that the idea of using Mobi, which you know, form factor, convenient, discrete with that initially makes sense, and then looking at ways to simplify the user interface. Because I think that people with Type 2 have different needs in terms of how they interact with the pump, and we want to make it very, very simple for them.
Then as far as reimbursement goes, I mean, do you think the clinical trial that you're executing right now, that's also going to be enough to secure reimbursement here?
Well, I mean, I think we're getting reimbursed today for it.
Okay.
There's also work that, Leigh's team is doing to try to remove some of the barriers that exist out there.
Yeah.
We think we're making progress. It's just the agencies we're working with are slow.
Yeah. Yep. There, I mean, there is an industry coalition trying to remove some of the barriers, but from the commercial perspective, there, a lot of those barriers have already been removed, and so really, it's about being able to market to that population-
Okay.
to tell doctors, like, this is approved for use and...
Okay, interesting.
Sure.
It's backwards, the way it usually works.
It, it, it is, yes, very much so.
All right. Well, in the last few minutes here, let's shift to the P&L and talk about, you know, the different drivers of leverage, because part of the, you know, upcoming product portfolio revamp here involves lower COGS, lots of leverage. Leigh, maybe talk about what the drivers are and, you know, how you're thinking about margin expansion over the next few years.
Sure. So you're right, the new products are the biggest driver of gross margin expansion. Mobi being the single biggest one in terms of it will get us more than halfway to our goal of being at 65% margins in the longer term. It won't happen overnight, so next year is gonna be about building up to the level of scale, in order to drive that. The real margin movement will probably come in the years following.
Okay.
It starts with the pump, which has a lower manufacturing cost of it by about 10%-15% compared to t:slim. The cartridge, too, as the installed base grows using Mobi, has a manufacturing cost greater than 20% lower than t:slim, so a lot of opportunity to drive margins there. Next year, we are gonna continue to be focused on expense management. You've probably seen in from Q1 to Q2, we actually reduced operating expenses and expect them to be flat through the remainder of this year. In order to fund our initiatives, we have a number of efficiencies in our customer support operations that we can implement to fund things like R&D investment, continued marketing investment as we think about rolling out these new products and growing our presence.
Okay, I know that was good, but I'm gonna ask one more question because I don't care what that clock says. The extended wear infusion set.
Mm-hmm.
That's something that's important that I forgot to touch on. Maybe talk about timing around that and how you think about that changing, you know, the decision of a patient.
Yeah
going forward.
A lot of advantages of having that. First of all, from a timing point of view, we're gonna be starting our clinical study here in the, in the near future, in a month or so. We've, you know, we're just in the process of getting everything, getting sites up, up to speed. The IDE has been approved. We'd expect it starts in probably the fourth quarter.
Okay.
It's not unlike the Type 2 study. It won't be as large, but it's gonna take us into 2024 submission, and then probably-
2025
... early 2025, we'll get approval. We're excited about it. Leigh, you can talk about some of the financial benefits that it offers us.
Sure. It's the next single drive- biggest driver for gross margin opportunity, just in terms of the way reimbursement is structured today. We look forward to having that be a part of our portfolio. Between Mobi and SteadiSet, you'll get the majority of the way to our 65% target. The rest comes from pricing opportunities. It comes from just, regular old lean efficiencies.
Sure
... and or efficiency sort of thing.
All right. That was great. Thank you, guys.
Thanks, Danielle.
Sorry we went a little over.
Great talking to you.
All right. Thanks.