Tandem shipped a total of 18,687 pumps worldwide in 2Q20, falling 12% YOY on a very tough comparison to “onetime dynamics” in 2Q19. The YOY decline in worldwide shipments can largely be attributed to the fulfillment of a major order backlog in 2Q19. The US saw its second highest quarter in pump shipments with 14,735 pumps shipped (+15% YOY). Internationally, 3,952 pumped were shipped, falling 53% YOY and 6% sequentially.
Tandem’s worldwide in-warranty user base is “nearly 170,000,” up from about 155,00o in 1Q20. Once again, “approximately half” of new patients in the quarter came from MDI, the other half switching from competitors’ pumps. This is encouraging to see, as some have speculated there may be fewer patients converting from MDI with the lack of in-person trainings during COVID-19.
In one big highlight from the call, Mr. Sheridan shared that “more than 60%” of Tandem’s US installed base is now on Basal-IQ or Control-IQ. That would put at least 76,000 people in the US on some sort of automated insulin delivery system. Of those 76,000, we also know that at least 40,000 are on Control-IQ. For context, Medtronic last reported its global MiniMed 670G user base at ~249,000 in 1Q20. The total number of people on AID systems around the world is well past 300,000 now, without even accounting for those on DIY, international Basal-IQ users, and other less popular pumps.
- Tandem reported record quarterly revenue of $109 million in 2Q20, rising 12% sequentially and 17% YOY on a very challenging comparison to 173% YOY growth in 2Q19. Once again, Tandem’s US business led the way with $89 million in revenue (+27% YOY), which was driven by building customer awareness of Control-IQ, and successful telehealth training. International sales hit $20 million for the second time ever, although they fell 13% YOY on a very tough comparison to 2Q19 due to “onetime dynamics.” Still, this quarter’s OUS sales “exceeded [Tandem’s] expectations” with distributors restocking orders and continued demand for the t:slim X2 pump even during the pandemic.
With what many assumed would be the toughest quarter of the year out of the way, Tandem chose to reinstate its original FY20 guidance “based on the continued high demand for our t:slim X2 insulin pump.” The updated guidance was identical with pre-COVID-19 guidance: $450-465 million in revenue in FY20, representing 24-28% YOY growth with OUS revenue of $70-$75 million.
It was a busy quarter in Tandem’s pipeline, headlined by recent launch of its long-awaited t:connect mobile app (App Store, Google Play), which has already been downloaded by 15,000 users “even without broad promotion.” In addition to secondary display of pump and CGM data, the app for wireless uploading of t:slim X2 insulin dosing data and CGM data, removing the burden of cable transfers for patients and providers. Human factors testing has also begun for smartphone pump control and Tandem is now targeting FDA submission in 4Q20 with clearance in 1Q21. Finally, the first Control-IQ update is expected in the “second half of 2021,” bringing improvements around clinical outcomes, personalization, and system usability.
On the hardware pipeline side, human factors testing for t:sport has also begun and clearance is now targeted for “summer of 2021” with smartphone control. Tandem also finalized its partnership with Abbott in the quarter and CEO John Sheridan expressed confidence that the integration wouldn’t be too affected by the FDA’s “warning/ limitation” against using FreeStyle Libre 2 with AID systems.
Tandem reported 2Q20 financial results today in a call led by CEO John Sheridan and CFO Leigh Vosseller. Check out our top highlights below.
- Financial and Business Highlights
- 1. Pump shipments total 18,687, + 8% sequentially, - 12% YOY on very tough comparison; worldwide in-warranty user base “nearly 170,000”; “more than 60%” of US base is on AID
- 2. Worldwide revenue of $109 million, rising 17% YOY; US revenue rises to $89 million (+27% YOY); OUS sales of $20 million, falling 13% YOY on very tough comparison
- 3. Full-year guidance reinstated: $450-$465 million in revenue (+24%-28% YOY); same guidance, new reasoning
- 4. Gross margin of 50%, impacted by Control-IQ royalties; $426 million in cash, following $250 million cash raise; net loss of $27 million
- 5. Two new board members, Peyton Howell and Dr. Kathleen McGroddy-Goetz, expected to bring reimbursement and AI expertise
- t:slim X2 and Control-IQ Highlights
- 1. t:connect mobile app for t:slim X2 launched: secondary display and wireless data uploads; “approximately 15,000 people have downloaded the app”
- 2. Control-IQ in new markets: pediatric indication down to 6+ years; launched in UK and South Africa, with broader rollout in 2H20
- 3. Smartphone bolus control: human factors testing “right now,” FDA submission planned for 4Q20, with clearance in 1Q21
- 4. First Control-IQ update in “second half of 2021”: intended to improve clinical outcomes, personalization, and system usability
- 5. Abbott partnership finalized; no concerns around FreeStyle Libre 2 AID limitation
- Pipeline Highlights
- Analyst Q&A
Financial and Business Highlights
1. Pump shipments total 18,687, + 8% sequentially, - 12% YOY on very tough comparison; worldwide in-warranty user base “nearly 170,000”; “more than 60%” of US base is on AID
Tandem shipped a total of 18,687 pumps worldwide this quarter, falling 12% YOY on a very tough comparison to “onetime dynamics” in 2Q19. Sequentially, worldwide pump shipments rose 8% from 1Q20, bouncing back from the seasonal 4Q-1Q dropoff. The US saw its second highest quarter of pump shipments with 14,735 pumps shipped (+15% YOY). Internationally, 3,952 pumped were shipped, falling 53% YOY and 6% sequentially.
The YOY decline in pump shipments can largely be attributed to high number of OUS pump shipments in 2Q19, which driven by the final Animas conversions and the fulfillment of a major order backlog. In her prepared remarks on today’s call, Ms. Vosseller noted, “This quarter, we shipped approximately 4,000 pumps [internationally] which is of course down from the 8,500 shipped last year due to those onetime dynamics, but meaningfully more than our expectations at the beginning of the quarter.”
Tandem’s worldwide in-warranty user base is “nearly 170,000,” up from about 155,00o in 1Q20. The US now has 137,000 in-warranty Tandem pump users, rising from “approximately 127,000” in 1Q20. With some simple math, that leaves about 33,000 OUS in-warranty users, rising 5,000 from 1Q20. We’d note that these estimates are likely conservative, as they only count purchases from the last four years; in reality, Tandem is probably renewing pumps that expired over four years ago.
In one big highlight from the call, Mr. Sheridan shared that “more than 60%” of Tandem’s US installed base is now on Basal-IQ or Control-IQ. Given the comment that the US, in-warranty user base is ~127,000, that would put at least 76,000 people in the US on some sort of automated insulin delivery system. Of those 76,000, we also know that at least 40,000 are on Control-IQ. For context, Medtronic last reported its global MiniMed 670G user base at ~249,000 in 1Q20. The total number of people on AID systems around the world is well past 300,000 now, without even accounting for those on DIY, international Basal-IQ users, and other less popular pumps.
Driving AID adoption in Tandem’s base, Mr. Sheridan also shared that “more than 60%” of t:slim X2 users are on Dexcom CGM. This represents a doubling from “about 30%” two years ago. Though not mentioned, the two figures together indicate effectively all t:slim X2 and Dexcom CGM users are using some sort of AID, a strong testament to the usability and effectiveness of Basal-IQ and Control-IQ.
In the second quarter, Tandem shipped pumps to “approximately 3,000” pump renewal customers, more renewal shipments than there were in all of 1H19. Though she didn’t share the renewal rate, Ms. Vosseller reiterated throughout the call that progress was “strong and steady” with Tandem’s renewal efforts. Throughout 2019, the rate of renewal captures ranged from “about half” in 1Q19 to “more than half” in 4Q19. Of course, as Tandem’s user base continues to expand, capturing renewals will become an increasingly important revenue contributor and part of the business. The availability of easy and free software updates could certainly be a compelling reason for patients to stay on Tandem’s pumps.
Once again, “approximately half” of new patients in the quarter came from MDI, with the other half switching from competitors’ pumps. Although a trend in Tandem’s new user base for many quarters now, this update is particularly notable for 2Q20, as it indicates that the COVID-19 pandemic and restrictions around and lack of in-person trainings have not dissuaded pump-naïve patients from starting pump therapy. It will be fascinating to see next week if the same trend holds for Insulet, which reported that “over 80%” of its new users in 4Q19 came from MDI.
Throughout the call, Mr. Sheridan expressed enthusiasm for Tandem’s virtual pump trainings. In Tandem’s 1Q20 call, they had indicated that some trainings were “going remote” but not necessarily all. However, in today’s call, Mr. Sheridan stated that “nearly all” new customer pump trainings were performed virtually in the quarter. Per Mr. Sheridan, user engagement and satisfaction has been quite good: “We are receiving extremely high marks from customers on the training experience. In fact, customer confidence and Net Promotor Scores have increased. And while a small percentage of people have opted to wait for live training, many have moved forward virtually.” We hope that Tandem will publish data of the efficacy of their virtual trainings – Medtronic reported outcomes from MiniMed 670G virtual training this week, and we found the results quite informative!
“I would definitely say that our ability to operate in this virtual environment was really a tailwind to the organization. Again, our sales team has been working on this for quite a while. They were ready. We didn't anticipate COVID-19, but as soon as it happened, I think we responded extremely well to it. And we've talked a great deal about our pivot towards digital health. And I think that virtual training and virtual interaction with physicians is going to be an increasingly important part as we develop new products and services that are going to use data and make the physicians' daily interaction just more efficient and like we have with our pump products, reduce the burden that they experience in their practices.” – Mr. Sheridan
2. Worldwide revenue of $109 million, rising 17% YOY; US revenue rises to $89 million (+27% YOY); OUS sales of $20 million, falling 13% YOY on very tough comparison
Tandem reported quarterly revenue of $109 million in 2Q20, rising 12% sequentially and 17% YOY on a very tough comparison to 173% YOY growth in 2Q19.The $109 million in revenue represents the company’s highest quarterly revenue ever, just beating out the previous record $108 million in 4Q19. Revenue in 2Q20 far exceeded Tandem’s conservative 2Q20 guidance from its 1Q20 call, in which the company guided for worldwide revenue of “at least $85 million” and only $10 million in international revenue.
Tandem’s US business continued to lead the way, reporting revenue of $89 million (+27% YOY). Sequentially, US revenue rose 12% from $80 million in 1Q20. The strong growth amid the COVID-19 pandemic continues to be driven by Control-IQ and Mr. Sheridan noted several times throughout the call that Tandem’s efforts around virtual pump trainings have been very successful so far. Sales of pumps in the sales in the quarter totaled $56 million, or 63% of sales. The $33 million of revenue from infusion sets and cartridges grew ~40% YOY, reflecting the strong growth in Tandem’s user base over the past year.
For the second time in Tandem’s history, OUS revenue hit $20 million, down 13% YOY on a particularly tough comparison to 2Q19 which had “onetime dynamics” (see above). Sequentially, international sales were up 9% from 1Q20, easily exceeding expectations. Through the first six months of the year, Tandem’s OUS revenue has totaled $38 million, compared to $34 million in 1H19. Removing the ~$7 million in estimated effect from the onetime backlog in 1H19, YOY revenue growth for Tandem’s OUS business came in at a robust 41% for 1H20. This is quite impressive, considering the opportunity for Animas conversions has essentially disappeared at this point. Launch of Control-IQ in the UK and South Africa, and broader rollout later this year, will certainly help drive growth and adoption.
Per Mr. Sheridan, “Internationally, our new pump sales also exceeded our expectations. We assumed that there would not be many pump placements during the quarter as many people with diabetes receive their care through hospital systems outside of the United States. However, our distributor restocking orders and their feedback demonstrated that there is continued demand for the t:slim X2 even in this challenging environment.”
Management briefly noted that 70% of Tandem’s business continues to be through distributors. The company aims to increase their direct distribution from 30% to 50% in the long term to “gain some efficiencies in operations from that shift.”
3. Full-year guidance reinstated: $450-$465 million in revenue (+24%-28% YOY); same guidance, new reasoning
With what many assumed would be the toughest quarter of the year out of the way, Tandem chose to reinstate its original FY20 guidance “based on the continued high demand for our t:slim X2 insulin pump.” The updated guidance was identical with pre-COVID-19 guidance: $450-465 million in revenue in FY20, representing 24-28% YOY growth with OUS revenue of $70-$75 million. This announcement followed a strong 2Q20 in which the company was able to better grasp how COVID-19 might impact their operations and sales. . Domestically, Tandem anticipates achieving ~$380-$390 million in US sales. The US guidance considers the seasonal uptick in revenue towards the end of the year (4Q typically makes up 35%-40% of FY sales), continued interest in Control-IQ, and the coverage win with UnitedHealthcare.
Notably, while Tandem’s full-year guidance is the same as that of pre-COVID-19, the drivers being considered have changed. In particular, Ms. Vosseller referenced Tandem’s excitement around the opportunity with UnitedHealthcare members, which they “did not anticipate” in the previous guidance and “the momentum we’re seeing from Control-IQ,” which had not been factored in before. However, in the effects of COVID-19 are expected to continue placing some pressure on the business, something that certainly was not factored into guidance before the year.
“At the beginning of the year we were very focused on how quickly or how much more the MDI market would grow compared to what we had seen last year which showed an escalation as well as we were cautious about Control-IQ because we just launched it. And while we believe there could be an inflection from it, we weren't building that until we began to see some trend. So here we are halfway through the year and everything's flipped on its head, it's very different now and that COVID is applying pressure, we're seeing great momentum from Control-IQ so we're factoring that into the back half of the year. And now we have United, which we also didn't anticipate before. It's much different dynamics but fortunately we're still going to be coming out with a very strong year with a great growth over last year.” – Ms. Vosseller
Tandem is guiding for gross margin in the “low-to-mid” 50s% range in 2020 and adjusted EBITDA margin in the “low-to-mid” teens. For comparison, gross margin in 2019 came in at 54% and adjusted EBITDA margin was 13%.
4. Gross margin of 50%, impacted by Control-IQ royalties; $426 million in cash, following $250 million cash raise; net loss of $27 million
Tandem reported a gross margin of 50% in 2Q20, in line with that of 1Q20 (51%), but a marked decline from 54% in 2Q19. Management attributed the 4% YOY absolute decline in gross margin to (non-cash) stock-based compensation and royalty expenses. Stock-based compensation affected gross margin by 1% in 2Q19, compared to 2% in 2Q20. Royalties related to Dexcom’s ownership of the Control-IQ/inControl algorithm represented 2% of sales ($1.7 million) in the quarter, an expense that did not exist one year ago. This 2% gross margin impact from royalties is slightly higher than the 1% in 1Q20, but Ms. Vosseller noted that these would eventually decline as a percentage of sales. Also affecting gross margin in the quarter, Ms. Vosseller reported that pump manufacturing capacity was down ~15% in 1H20 compared to 1H19 due to additional safety precautions and more complicated supply chain management from COVID-19. For 2020, Tandem is guiding for “low-to-mid” 50s% gross margins, but Ms. Vosseller maintained confidence that gross margins would reach 60+% long-term.
Tandem finished the quarter with a record $426 million in cash, representing a $266 million increase from 1Q20, which had been Tandem’s first quarter with negative cash flow. In the quarter, Tandem completed a $250 million convertible note offering that netted ~$245 million in cash.
Tandem reported a $27 million GAAP net loss, compared to a net loss of $1.5 million in 2Q19. This was driven by a large rise in operating expenses in the quarter, which totaled $66 million, rising 27% from 2Q19. Given the 17% YOY revenue growth, this is not great leverage, though Ms. Vosseller explained that the increased expenses represented investments in the company’s long-term sales and profitability.
Adjusted EBITDA in 2Q20 came in at $6.6 million, or 6% of sales. This represents a YOY decline in adjusted EBITDA from $12 million in in 2Q19 and a sequential improvement from $4 million in 1Q20 (4% of sales).
5. Two new board members, Peyton Howell and Dr. Kathleen McGroddy-Goetz, expected to bring reimbursement and AI expertise
Tandem recently announced the appointments of two new members to the company’s Board of Directors, Peyton Howell and Dr. Kathleen McGroddy-Goetz. Both women have a wealth of experience, totalling over 50 years of leadership experience in and around healthcare. Both management and analysts expressed enthusiasm for the two new appointees during today’s call, highlighting Ms. Howell’s expertise around reimbursement and Dr. McGroddy-Goetz’s around data analytics and AI.
Ms. Peyton Howell will be installed on the board effective August 3, 2020. She currently serves as the Chief Commercial and Strategy Officer at Parexel International, an organization that helps conduct clinical trials for biopharmaceutical companies. Ms. Howell also has experience around patient access and reimbursement from her time working at AmerisourceBergen and the Lash Group.
“Peyton is a reimbursement expert across a broad range of disease states including diabetes, and brings a broad wealth of the health care knowledge across in hospital, pharmacy and home care settings.” – Mr. Sheridan
Dr. Kathleen McGroddy-Goetz has been serving on the board since June 8, 2020. Dr. McGroddy-Goetz currently serves as Global Head of Strategic Partnerships at Medidata Solutions, a company that develops software as a service for clinical trials. She brings decades of experience commercializing cloud, data analytics, AI, and other digital technologies focusing on healthcare. According to Tandem’s press announcement, she played a “critical role” in launching Watson Health when working at IBM and has a PhD in molecular biophysics from Cornell.
“Kathy has extensive experience commercializing pioneering technologies that spanned from microelectronics through software, advanced data analytics, artificial intelligence with an emphasis on health care and life science applications.” – Mr. Sheridan
t:slim X2 and Control-IQ Highlights
1. t:connect mobile app for t:slim X2 launched: secondary display and wireless data uploads; “approximately 15,000 people have downloaded the app”
Just a few weeks ago, Tandem launched its long-awaited t:connect mobile app (App Store, Google Play), which has already been downloaded by 15,000 users “even without broad promotion.” Tandem had originally planned to launch the app with Control-IQ (launched in January), but has seen some delays. The t:connect app serves as the “center” of Tandem’s “digital health strategy” and gives users easy access to pump information, including Dexcom CGM trends, insulin on board, recent boluses, and basal information. Tandem’s t:connect smartphone app also allows for wireless uploading of t:slim X2 insulin dosing data and CGM data, removing the burden of cable transfers for patients and providers. Mr. Sheridan noted this might be a particularly appreciated feature during the COVID-19 pandemic, given the rise in telehealth and remote monitoring usage. To the best of our knowledge, the wireless data transfer between t:slim X2 and t:connect makes t:slim X2 the first pump with truly no-cable uploads (we believe Omnipod Dash must be plugged into a Mac/PC to upload to Glooko). The t:connect mobile app will also be able to automatically upload Dexcom CGM data allowing patients to access all their pump related data from a single app; the Omnipod Dash DISPLAY app only shows the pod’s information and requires patients to run Dexcom’s CGM app separately.
According to Mr. Sheridan, Tandem has received “excellent” early user feedback for the t:connect mobile app. On the Apple App Store, the app has 4.6/5 stars with 111 ratings, while the Android version has 3.5/5 stars on the Google Play Store. Looking ahead, Tandem plans to “ramp up” the promotion of the app to providers and users beyond the 15,000 who have already downloaded the app.
Once again, Mr. Sheridan emphasized the t:connect mobile app as just the beginning of Tandem’s digital health strategy. In addition to the smartphone bolus and control features planned (see below), Mr. Sheridan also touched on Tandem’s recent acquisition of the diabetes app, Sugarmate. That app has ~30,000 users, “more than half” of which do not currently use insulin pumps. Beyond helping Tandem reach a wider community of people with diabetes, Mr. Sheridan also highlighted Sugarmate’s particular “expertise” and “DNA” in building sleek and easy-to-use software that will become part of Tandem’s larger digital health initiatives. During Q&A, Mr. Sheridan also noted that the plan is not immediately to monetize digital health initiatives, but rather to reduce the burden for patients and providers and ultimately “increase stickiness” of the Tandem ecosystem.
In addition to secondary display of insulin and CGM data, the mobile app pushes alerts and notifications from the t:slim X2 pump (e.g., site change reminders, insulin low). The interface looks attractive and similar to the demo we saw at AADE 2019.
2. Control-IQ in new markets: pediatric indication down to 6+ years; launched in UK and South Africa, with broader rollout in 2H20
In June, Tandem announced expanded pediatric indication for t:slim X2 with Control-IQ for children ages 6-13 in the US. Control-IQ has been available for users over 14 since its launch in January and, according to Mr. Sheridan, some endocrinologists had been prescribing it to younger patients, off-label, since then. However, this expanded indication is likely to make endocrinologists much more comfortable prescribing Control-IQ for their younger patients and, obviously, improves visibility by allowing Tandem to market openly to this population. Pivotal data from Control-IQ in pediatrics was presented at ATTD back in February, with the algorithm driving significant improvements in Time in Range compared to sensor-augmented pump therapy (+2.9 hours/day). As with adults, much of this improvement for Control-IQ users took place overnight with Control-IQ users reaching 80% Time in Range overnight compared to 54% in the control group. Previously, Medtronic’s MiniMed 670G (approved for children 7+ years old) was the only hybrid closed loop system available in this population since 2018. Looking ahead, we saw early data from Control-IQ in even younger children (ages 2-5) at ADA 2020; given the fact that the study required some special modifications from Tandem engineers and the small size of the study (n=12), we’d imagine Control-IQ won’t be coming to very young children anytime soon. In the nearer term, Medtronic plans to make MiniMed 770G (MiniMed 700 series hardware + MiniMed 670G algorithm) available to patients sometime before April 2021, which would be the first AID system available in this group in the US.
Control-IQ is now available internationally in the UK and South Africa, with broader rollout through the rest of the year. This announcement comes actually on the earlier side of previous expectations that Control-IQ would launch internationally in the second half of 2020. Impressively, the OUS launch of Control-IQ has not been delayed by COVID-19. Currently, t:slim X2 pump software is available in twelve languages and we’d assume Tandem plans to launch Control-IQ in all geographies where t:slim X2 is currently available. During Q&A, Ms. Vosseller shared that Tandem received “one last piece of reimbursement approval” in Germany “at the end of June,” and the company will start a full marketing push there in 2H20. Getting Control-IQ in Europe should help drive its international sales and serve as a very compelling AID competitor to Medtronic’s MiniMed 670G.
3. Smartphone bolus control: human factors testing “right now,” FDA submission planned for 4Q20, with clearance in 1Q21
Human factors testing has resumed as part of Tandem’s plan to bring full smartphone pump control to t:slim X2, following a delay due to COVID-19. As expected, the FDA is not requiring additional clinical trials for smartphone bolusing – according to Mr. Sheridan, “human factors data is the only real information from the field we’re required to produce.” The human factors studies are being conducted “right now” which puts them just ~three months behind pre-COVID-19 timelines. Though, as Mr. Sheridan explained in 1Q20, human factor testing only takes “a day or two,” the studies are expected to take place in various locations in the country through the next “several weeks.” Following data collection and analysis, FDA submission is slated for 4Q20 and clearance for 1Q21. However, Mr. Sheridan did note: “one thing we’ve got to be cautious about is that the FDA has indicated that they’re prioritizing COVID-19 projects. So, there’s potential that there might be a longer review process than normal, but we’re expecting approval in the first quarter” with “launch of this feature at that point in time.” Of course, being able to dose insulin from a personal smartphone (or even smartwatch) is a highly requested feature and if all goes as planned, Tandem would be the first pump company with the capability. Insulet’s Omnipod 5 powered by Horizon used smartphone control in its pre-pivotal trial (results presented at ADA) with very high user satisfaction results and that system is expected to launch in 1H21.
“We've been working with the FDA on this a while now, but human factors data is the only real information from the field that we're required to produce. As I said we are actively conducting the testing right now. When we originally had put the schedule in place at the beginning of the year, we anticipated that we'd be filing this with the FDA at the end of the summer. It's just a little bit longer than a quarter's delay, because of COVID-19. Now, we're planning to do this in the fourth quarter. I think that the one thing we've got to be cautious about is that the FDA has indicated that they're prioritizing COVID-19 projects, so if there's a potential that there might be a longer review process than normal but we're expecting approval in the first quarter and we're planning a launch of this feature at that point in time.” – Mr. Sheridan
4. First Control-IQ update in “second half of 2021”: intended to improve clinical outcomes, personalization, and system usability
Following the launch of Control-IQ in January, Mr. Sheridan announced Tandem plans its first Control-IQ updates for “the second half of 2021.” Mr. Sheridan declined to give many specifics, but said this update would focus on “algorithm enhancements” to improve clinical outcomes, add “greater personalization, and refine overall usability. This was noticeably different than comments from February, in which Tandem said it planned to bring a fully closed loop system capable of complete bolus and basal insulin automation” with its next AID update in “2021.” As we wrote back in February, this timeline seemed aggressive. Based on today’s comments, we would imagine Tandem still has fully closed loop ambitions: in the 1Q20 update, Mr. Sheridan said Tandem was planning to run a pivotal study for the fully closed loop algorithm in “2021,” but would first focus on algorithm enhancements that won’t require “a great deal of clinical work.” Regardless of timing, any enhancements would probably be welcome from patients and providers, particularly given how easy it is to update t:slim X2 pumps.
5. Abbott partnership finalized; no concerns around FreeStyle Libre 2 AID limitation
In June, Tandem finalized its partnership with Abbott to integrate Abbott’s FreeStyle Libre CGM with t:slim X2 pumps. This announcement came on the heels of the FDA’s approval of FreeStyle Libre 2 as iCGM. However, the FDA’s decision letter came with a “warning/limitation” against using FreeStyle Libre 2 in AID systems. During Q&A, concern was raised about whether or not this limitation would affect the Tandem-Abbott partnership and Mr. Sheridan assured analysts it would not. Mr. Sheridan added that Tandem and Abbott have not decided which specific models of their pumps and CGMs they plan to integrate, but the warning/limitation for FreeStyle Libre 2 has nothing to do with the integration of “our pump with their sensor” from a technical perspective. Instead, as we’ve written about in some detail, the warning/limitation comes from potential interference FreeStyle Libre 2 has with high doses of vitamin C (ascorbic acid). Mr. Sheridan asserted the partnership would move forward as planned and that they are still in the early stages “preparing and getting together to put together the details of a development plan and a pipeline plan.”
“We really never spoke about the specific model that we are going to actually integrate with or the technology. So, that's still something that's that we're working with Abbott on right now. I would say that we have now just begun to work with them our teams are preparing and getting together to put together the details of a development plan and a pipeline plan. Abbott has come forward and said that the issues they're experiencing have to do with ascorbic acid, vitamin C. The issues that are contributing to that have nothing with the integration of our staff our pump with their sensor, so we intend to continue to move down that path. I would imagine that Abbott will do this in parallel. They'll be working to address the issues that will allow that system to be used with in an AID system which is what we ultimately would expect. So, it's all good at this point in time. We have talked to Abbott. They're very confident they can address this and we're just going to continue to work closely with them.” – Mr. Sheridan
1. Human factors testing for t:sport “now underway”; preparing for clearance with smartphone control by “summer of 2021,” with launch shortly after
During prepared remarks, Mr. Sheridan shared that human factors testing for Tandem’s t:sport pump is “now underway.” During Tandem’s 4Q19 call, Mr. Sheridan outlined a two-part regulatory strategy for t:sport, with plans to submit t:sport hardware with a dedicated pump controller first, followed by the t:sport hardware with full smartphone control. Both submissions will utilize the ACE pump pathway. Today’s timelines for t:sport were about three-months behind pre-COVID-19 expectations: the first submission, t:sport with a dedicated pump controller, is now planned for 4Q20, compared to previous expectations to submit “this summer.” Tandem is now expecting the second submission, t:sport with smartphone control, to be cleared “in the summer of 2021,” with commercial launch shortly after. This comes at a slight delay from pre-COVID-19 plans to launch t:sport with smartphone control in the “first half of 2021.” With the two-part regulatory approach, Tandem also outlined plans to “almost have a soft launch” for t:sport after initial clearance of the pump with a dedicated controller, collecting real-world data “with small numbers”; we’d estimate this around the first part of 2021.
As a reminder, t:sport is a screenless, wirelessly controlled tubed pump (short infusion set), which will include the Control-IQ algorithm and iCGM integration (no new clinical data will be needed). t:sport is half the size of the current t:slim; will switch to a syringe-driven pumping mechanism (a big manufacturing change for Tandem); and will add wireless charging, water resistance, an on-device bolus button, and an easier fill process. Closed loop will still run on the pump if the phone is out of range, keeping Tandem more competitive with the on-body system design of Insulet’s Omnipod Horizon.
Slide taken from Tandem’s 2018 Analyst Meeting (note that the launch timing expectation is no longer up to date, unsurprising given COVID-19).
Q: I was listening as carefully as I could and I didn't hear you specifically say a lot about what the trends have been in July and what changes you've been seeing in the most recent time period. Could you give us just a little feel for what you're seeing out there recently?
Leigh Vosseller, CFO: Thanks for the question. To go back just a little bit further, I’ll talk a little bit more about what we saw in the second quarter that led us to give confidence to reinstating our guidance for the year. Really what happened was, when we were on our first quarter earnings call at the end of April, we were starting to see a little bit of softness in May which is why we withdrew the annual guidance and we gave a number just for the second quarter. What happened in the middle to late part of the quarter, we started to see what I guess I would refer to as a stabilization. And so, rather than the normal seasonal uptick we saw some strength, but not as strong as we've seen in the past. As we moved into July we're very excited because now we have the opportunity to go after the United Healthcare members now that we’re in-network there again. And based on the strength that we were seeing in the second quarter and the momentum we're seeing from Control-IQ like as we go forward we're very confident in the numbers that we've given for the rest of the year, but still cautious about the impact that COVID-19 could put on us.
John Sheridan, CEO: I'd also say that we've been very successful operating the telehealth environment. Our sales team and training team are doing an outstanding job and that's really helping us out in the field.
Q: Would you say you don't anticipate any problems continuing in more of a telehealth environment going through the third quarter and into the fourth?
Mr. Sheridan: I think the team is operating very efficiently in the telehealth world. I think that the health care providers are, as well. They're getting used to it. There has been some opening up of offices as of late. It's shut down entirely in the late March, April and May timeframe. But late May, we're starting to see opening up and there was even more of that in the June timeframe. But, I think that telehealth is going to be something that's important going forward. And I think our team feels very comfortable doing that. We've been prepared and we've been doing this for a while now, so I don't think that's going to have an effect on us.
Q: Could you just talk a little bit about more about international? I'm really excited about the opportunity with Abbott given their enormous success internationally. My sense is, right now, you're primarily marketing Basal-IQ and tell us how that's going and tell us any changes you've seen when you're beginning to switch over to Control-IQ and how that might be changing the dynamics internationally in the near term?
Mr. Sheridan: We began introducing Basal-IQ in the second half of 2019 and we had at that point roughly 12 countries. Most of those countries now are actively using Basal-IQ and there's the same kind of success, the same kind of excitement and positive feedback that we see in the States we're now also seeing OUS. As we indicated, we just now began to launch Control-IQ in the UK and in South Africa and so that's earlier than we expected. And, we have a plan to launch Control-IQ between now and the end of the year for the rest of the geographies. So, we're excited about that. We believe that Control-IQ is very competitive. We think that the same competitive dynamics we're seeing here in the US are going to exist OUS. So, we're very confident with that and we're excited about it and I think that it's great for the OUS pump users.
I will say that there has been some unpredictability with COVID-19 OUS and this is predominantly because most of the patient visits occur in hospital settings. And because of that there's uncertainty in how we might actually see the OUS demand materialize in the second half. It's less that way in the States. But I think that's kind of the headwind that I think is basically countered by the tailwind of the Control-IQ introduction.
Q: The full-year guidance is the same now as it was before. But just curious now that you're halfway through the year if you're tracking ahead of that original plan? Or you're below that plan and now you have United Health to kind of fill the void? Just kind of curious if you get like a mid-year review here where do you stand?
Ms. Vosseller: Sure. We're fortunate to be able to reinstate our original guidance, but it's with much different dynamics now than we had. I guess I should start with our guidance philosophy just to remind everyone is that we factor in elements that we think are more within our control and we're cautious about areas where we don't have as much control. So, from a renewals perspective we feel very confident in where those numbers are heading. At the beginning of the year we were very focused on how quickly or how much more the MDI market would grow compared to what we had seen last year which showed an escalation as well as we were cautious about Control-IQ because we just launched it. And while we believe there could be an inflection from it, we weren't building that until we began to see some trend.
So, here we are halfway through the year and everything's flipped on its head, it's very different now and that COVID is applying pressure, we're seeing great momentum from Control-IQ so we're factoring that into the back half of the year. And now we have United, which we also didn't anticipate before. It's much different dynamics but fortunately we're still going to be coming out with a very strong year with a great growth over last year.
Q: It looks like if you look at the new patient additions in Q2, it's only about 1,500 to 2,500 below trend, so very in line with trend. Just trying to tease out the negative impact from COVID patients delaying versus the benefit from Control-IQ. Do you have any sense for how many patients you think delayed and if those that come out in the second half? Also in the second half, just trying to think if there could be a bolus of patients from UNH they come through or if you think that'll be more steady state?
Ms. Vosseller: It's hard to say exactly how much was pressure from COVID versus offset from Control-IQ. What I can say is that Q2 didn't come in where we had originally anticipated. But, when we entered the quarter as you recall, we were much more cautious about how Q2 would turn out. And really, we attribute Control-IQ to being that driving force to giving us greater strength in the second quarter.
When it comes to UnitedHealthcare, what I can say right now is that there's been great excitement for people who are anxious to – and actually now to switch to our pump or start pump therapy for the first time that weren't going to be able to before because there wasn't access or our technology. So, we expect as we think about UnitedHealthcare, we communicated that we expect it to be a mid-single-digit lift to the business. And so again, another element that we are very excited about for the back half.
Q: First, congrats on getting back in network with UnitedHealthcare, big win. Obviously, that announcement appears to have come with some preferential language towards the competitor, Medtronic. Can you just explain how this is going to affect the re-entry into that UnitedHealth population and what sort of targeted market actions can you take to get those that are waiting to switch to a pump to switch to Tandem?
Mr. Sheridan: I would just say that we now really are in a position to talk about marketing. We were careful and we basically work closely with them to do exactly as they asked. I think that now that the word is out, we're able to discuss it. I don't think that there's any competitive advantage that Medtronic may have against us in this situation right here. They have mentioned prior auths or things that we deal with routinely. It's something the organization knows how to manage and there's really no benefit I think from that against what we're dealing with today. So, we're excited about it. We think the diabetes community will benefit from this. And we're happy to provide the benefits of Control-IQ and our pump therapy to the UNH payer population.
Q: Staying on Medtronic, they put out data in June on their next-gen pump 780G. Since you do have some really good visibility into orders on almost a week-to-week basis, did you see any change in order patterns after this product announcement and all the blogs started to talk about the data? And then just maybe can you speak about – have you talked with endos on their thoughts on the Medtronic data compared to Control-IQ?
Mr. Sheridan: I would say that we haven't seen any effect. I mean, as you saw that half of our new sales were competitive conversions and it’s predominantly Medtronic at this point in time. So really really nothing happened I'd say as a result of that. I think that the data that they presented was good data. I think that it was better than the 670G. We all know that the issue that they're dealing with however is really the sensor. I think until they get the sensor under control the performance of the sensor in line with Dexcom and Abbott I think they're going to continue to struggle. So, I think you know we feel very good about Control-IQ competing against 780G. And we'll have to wait and see what happens when it gets to market here.
Q: You mentioned, John, that 50% of your new starts were competitive switches. That's consistent I think with the past few years. How sustainable do you think that is going forward? And do you see that shifting at all as the pump market continues to evolve and your competitors launch new products?
Mr. Sheridan: I mean, I think we have the best product on the market today. I think we've got to continue to innovate to maintain that position. And I think the combination of the improved therapeutic outcomes as you I think you can clearly see when you listen to people talk in social media as well as ease of use are the two things that drive adoption. And so we intend to continue to focus on that. We are excited about our mobile app with the mobile bolus capability t:sport is going to add another very competitive product here in the future. And we're also talking about improvements to the algorithm. So, I think that when you look at us competitively, we've got a great deal of innovation lined up and I think we have the best product on the market today so we continue to remain confident about our position in this market.
Q: It does feel like telehealth is here to stay in more of a way than it has been a whole dynamic has sort of accelerated telehealth. Do you actually think that your abilities there strengthened your competitive position?
Mr. Sheridan: I would definitely say that our ability to operate in this virtual environment was really a tailwind to the organization. Again, our sales team has been working on this for quite a while. They were ready. We didn't anticipate COVID-19, but as soon as it happened, I think we responded extremely well to it. And we've talked a great deal about our pivot towards digital health. And I think that virtual training and virtual interaction with physicians is going to be an increasingly important part as we develop new products and services that are going to use data and make the physicians' daily interaction just more efficient. And like we have with our pump products, reduce the burden that they experience in their practices.
Q: With guidance, you talked about earlier the unpredictability of ordering patterns from distributors. Can you talk a little bit about the first half? Was there any meaningful stocking for distributors in your new geographies? I guess, I'm just wondering despite the unpredictability you're launching Control-IQ in a bunch of geographies, you're launching into some new really meaningful geographies. I'm just wondering again, why international guidance is a little bit higher for the year?
Ms. Vosseller: Sure. So as John mentioned, there is a lot of variability in the ordering patterns on an international basis and it's compounded by COVID-19 and the impact on those markets. And so as we look forward to the back half of the year, we're cautious about one factor which is aside from COVID which is the summer holiday season that happens in Europe which typically slows down business there. We'll also be rolling out Control-IQ and when we rolled out Basal-IQ last year, we saw a little bit of turbulence or disruption in the ordering patterns at that time as well. So we're just being thoughtful about the impacts of those. From our new market perspective, we're still very excited about that opportunity. One thing about Germany in particular was that we needed one last piece of reimbursement approval in order to start truly marketing and placing pump patients which we received at the end of June. So we expect that's the full marketing push starting here in the back half of the year. So that's just another element that we're being thoughtful about about how that takes off. Like I said, still we're still very encouraged by what we're hearing and seeing there and excited about the future of the international market.
Q: And then on virtual training, do you think of the trend that will be sustained to some degree whenever we hopefully get through this pandemic? And if so, could you talk about what that might mean for your OpEx infrastructure over time?
Mr. Sheridan: I'll just talk about the training itself and I think that Leigh could talk about the financial elements of it. I think that it's going to stick around. I think that patients like it and physicians like it. It might not be something that occurs every visit, because some visits require physical exams and things like that, but I think that there's a significant sort of reduction in stress. It's just more convenient and people really like it. And as we mentioned in the script, we're seeing really good customer service response from it. People like it. They actually are more confident. And they do very well afterwards. We track carefully our customer service statistics and make sure that we're not seeing any increase as people do more and more of this.
So, I think it's definitely here to stay. I think it's potentially going to reduce some cost here as we do move toward it. And it clearly makes the people who are providing the training more efficient because there's less travel time and all of the things that go along with that. So I think it's here to stay. And Leigh may want to add to that.
Ms. Vosseller: I'll just add on that the training costs are actually a component of cost of goods sold, so they impact the gross margin. And virtual training for something that we were piloting before COVID came about as a gross margin opportunity, and this just helped prove that it can be very successful. So, yes, we do expect to see benefit in the future.
Q: You talked about a lot of exciting pipeline initiatives. Can you confirm that you still expect to launch a new algorithm in 2021? And then longer term, you're making a lot of moves to continue to differentiate on ease of use. Do you believe over the next one to two years you will be able to continue to differentiate on outcomes as well?
Mr. Sheridan: Yes, we do plan to launch an update to the Control-IQ algorithm in the second half of next year. We haven't said what the features are going to be for competitive reasons, but we have spoken about the fact that we're focused on that and on improving therapeutic outcomes, personalization and ease of use. That's really where it's at.
Q: Just for starters, I know when COVID broke you guys had rolled out a flexible spending plan. What kind of reaction did you get from patients especially new patients here in the second quarter how impactful was that that? Did it cost you any material revenue in Q2? And then how does that factor into your reinstated guidance for the rest of the year?
Ms. Vosseller: Sure. So, I think you're referring to our payment plans which actually we've always have payment plans as an option for patients. And what we've seen it's been utilized at a very low level. In the second quarter we didn't see much of a differential in their usage but we're mindful that in the future it may be used at a higher rate, but really no impact on the material basis.
Q: So, I guess just a follow-up on some of the ADA dynamics. The real-world data that you guys presented was very strong. Has that had an impact or has improved demand at all or interest from endos and maybe that along with the feeds data?
Mr. Sheridan: Yeah. I would say that it can't hurt. I think that what's happening today as more and more endocrinologists are having experiences with Control-IQ, they're actually seeing the power of the system and the extraordinary real-world data that we presented. I think it's definitely having a positive effect. And I think that as we saw with Basal-IQ, as more and more people became familiar with the technology, they began to use it and prescribe it more. And I think that I've talked about there being an inflection point as a result of the introduction of Control-IQ.
We clearly have had headwinds with COVID-19 but Control-IQ has really helped us get through this. And I think you saw the results as we've just announced today. So we're very excited about it. And we think it's going to continue to drive demand going forward for the perceivable future.
Q: Let's start with the pediatric label. That's kind of been under the radar during this call. Now that you have that label but summer camps aren't open how has the strategy changed with reaching out to those kids? And kind of how is that expected to be a tailwind for the remainder of the year?
Mr. Sheridan: I think we still intend to do that. There was a virtual conference just a few weeks ago it was Children with Diabetes. It's a very popular conference and I think we had a great deal of visibility because of Control-IQ being – receiving the indication for 6 and up. So we saw a very positive response there. And I think that we now are able to market this group and we are definitely adjusting our marketing materials so that we can actually let people know the benefits of the technology to this younger crowd.
I think that endocrinologists we're aware of it coming. I think that they're now more comfortable in a situation of prescribing it. Although in the past and I think that there were some endocrinologists that were prescribing it off label. So I think it's a positive thing it allows us to market openly. And again we're excited to bring the benefits of this technology to that population.
--by Hanna Gutow, Katie Mahoney, Albert Cai, and Kelly Close