Memorandum

Tandem 4Q20 – Record revenue of $168 million (+55% YOY); global user base passes 215,000; smartphone bolus control to launch in 1H21, further Control-IQ enhancements coming; new data management platform Tandem Source to launch later this year – February 24, 2021

Executive Highlights

  • Tandem reported a record $168 million in revenue for 4Q20, rising an astounding 55% YOY on a very tough comparison to 42% YOY growth in 4Q19. Sequentially, sales rose 36% (!) from the previous revenue record of $124 million in 3Q20 – this would’ve represented the third quarter that Control IQ was approved in the US (though 1Q20 was a partial quarter after the December 2019 FDA approval). Tandem historically sees strong growth in the fourth quarter; still, the 36% sequential growth rate represents the highest sequential growth in six quarters (2Q19) and from the highest base! Full year 2020 revenue totaled a record $499 million, rising 38% YOY on an extremely tough comparison to 97% growth in 2019. At $499 million, Tandem’s revenue easily surpassed 3Q20 guidance by $29 million at the midpoint. That guidance had already been raised $13 million from the guidance entering the year. This business is going extremely well, fueled by CGM that is enabling AID. It’s a dream, pretty much, what Control IQ does, for so many that remember diabetes BA (Before AID).

  • Worldwide pump shipments came in at a record 32,685 in 4Q20, rising 67% YOY. Tandem’s worldwide installed user base is estimated at “more than 215,000” users, rising 66% YOY from 4Q19. Based on Mr. Sheridan’s remarks during Q&A, we also believe there are at least 100,000 Control-IQ users outside the US. Broken down by geography, Tandem estimates “more than 170,000” users in the US and “nearly 45,000” international users. By our math, Tandem has added ~73,000 users in just the past twelve months – most of those additions coming amidst a global pandemic, no less. Given this math, pump shipments coming in at nearly 33,000 in 4Q20 show faster growth from a higher base – quite something! In our own corner of the world, Kelly called Tandem on December 28 (her birthday) to inquire about a Control IQ after thinking that it would be great experience to try the Control IQ and compare algorithms – her pump was approved by Aetna within 24 hours (before the end of 2020) and her co-pay was $0 (compared to a higher co-pay of $750 that would’ve been billed once the calendar rolled to January 1, 2021.

  • In a major pipeline update from the day, Tandem shared that smartphone bolus control, which was submitted to the FDA as of November, is slated for launch in 1H21. Notably, Mr. Sheridan noted that smartphone bolus control will mark Tandem’s fifth software update distributed through the Tandem Device Updater, which launched in 2016. This means that this meaningful improvement will be very easy to download and start experiencing. Also coming through the Tandem Device Updater soon, two Control-IQ enhancement filings have been submitted to the FDA to allow for “greater personalization in certain [correction factor] rates and [body weight] ranges” and to add an indication for Sanofi’s biosimilar rapid-acting insulin Admelog (insulin lispro). (Although this sounds like a big deal, anyone who wants to use Admelog just doses it – we don’t think it’s a real deterrent though it’ll be great for Tandem to have the approval.) Additionally, Tandem is currently planning for more significant Control-IQ enhancements soon, with clinical trials slated for later this year.

  • Tandem continues to build out its digital ecosystem, announcing plans for its second-generation data management application, Tandem Source. This seems like a great name. Based on management commentary today, it seems that Tandem Source will be a data platform akin to Dexcom Clarity, offering providers, users, and caregivers a personalized app- and web-based dashboard with data and insights that drive diabetes management improvements. As a “powerful complement” to Tandem’s pump-based algorithm, Source will also house algorithms to drive insights and diabetes management changes - we cannot wait to hear more! During his prepared remarks, Mr. Sheridan shared that Tandem Source will first launch in “select” international markets “later this year with a domestic launch to follow.”

  • Tandem’s t:sport insulin pump, previously slated for submission in the first half of this year and launch in 2H21, has now been delayed with a new FDA submission target for 4Q21. During prepared remarks, Mr. Sheridan shared that in December, Tandem’s team analyzed results from a number of human factors trials (both virtual and face-to-face) and determined that the “the sum of the opportunities identified during the testing did not meet the high user experience standards that we've committed to providing the diabetes community and have built our reputation.” While “none of the changes” planned are “particularly challenging,” the change does represent a delay of at least three months.

Tandem reported its 4Q20 and full-year 2020 financial results this afternoon on a call led by CEO John Sheridan and CFO Leigh Vosseller. See our top highlights below.

Table of Contents 

Financial and Business Highlights

1. Record worldwide revenue of $168 million (+55% YOY); FY20 record revenue of $499 million (+38% YOY) crushes guidance by $29 million at midpoint

Tandem reported a record $168 million in revenue for 4Q20, rising a remarkable 55% YOY on a very tough comparison to 42% YOY growth in 4Q19. Sequentially, sales rose 36% (!) from the previous revenue record of $124 million in 3Q20. As a primarily US-based business, Tandem historically sees strong growth in the fourth quarter; still, the 36% sequential growth rate represents the highest sequential growth in six quarters (2Q19). Tandem’s 55% YOY growth in the quarter also indicates strong recovery from COVID-19 related impacts earlier in the year and is evidence that demand for Control-IQ is growing faster than ever.

  • Full year 2020 revenue totaled a record $499 million, rising 38% YOY on an extremely tough comparison to 97% growth in 2019. At $499 million, Tandem’s revenue easily surpassed 3Q20 guidance by $29 million at the midpoint. That guidance had already been raised $13 million from the guidance entering the year. By geography, the US made up $416 million in sales (+38% YOY), driven largely by Tandem’s Control-IQ launch in January 2020. Full-year OUS revenue totaled $83 million, also rising 38% YOY. For some context, Tandem’s full-year revenue just two years ago was $184 million (FY18), reflecting a compound annual growth rate of 65% over the past two years. While that level of growth was not possible to sustain, Tandem clearly has a lot of momentum behind it.

  • US sales in the quarter totaled $139 million, rising 42% YOY and making up 82% of all sales. Sequentially, US sales rose 33% from $108 million in 3Q20. It’s clear that Control-IQ is continuing to drive great interest and sales for Tandem in the US. In the past, Tandem has also shared successes with its virtual pump trainings during the COVID-19 pandemic. While we would imagine Insulet training is easier, the Tandem growth numbers are very relevant for the pandemic, when we imagine demand for closed loop pump systems are greater than the initial forecasts.

  • International revenue totaled $29 million in the quarter, more than doubling (+128% YOY) on a tough comparison to 42% growth in 4Q19. Sequentially, sales grew an impressive 78%. As a reminder, 3Q18 marked the first quarter of international sales for Tandem and while t:slim X2 is available in “nearly 20 countries,” Control-IQ has only been rolled-out in approximately “half” of Tandem’s OUS markets indicating significant room for growth. Additionally, Mr. Sheridan highlighted lower overall pump penetration in OUS markets. Specifically, Mr. Sheridan shared that Tandem’s existing markets include roughly 4 million people with type 1 diabetes and only an estimated “400,000” of them currently use pump therapy (i.e., ~10%).

  • Tandem’s pump sales represented 63% of all revenue with 26% of sales coming from infusion sets and 11% of revenue from cartridges. This is down slightly from Tandem’s 3Q20 numbers when pumps represented 65% of all sales and can be attributed to Tandem’s rapidly growing user base.

2. Record worldwide pump shipments of 32,685 (+67% YOY); global user base of “more than 215,000” (+66% YOY)

Worldwide pump shipments came in at a record 32,685 in 4Q20, rising 67% YOY. Sequentially, shipments rose 48%. The impact of Control-IQ, launched in 1Q20, is incredibly clear in the graph above. As usual, the majority of growth came from the US where a record 24,552 pumps were shipped in the quarter (+41% YOY). International pump shipments also made a significant contribution to growth with 8,133 total shipments in the quarter (+278% YOY). In particular, Ms. Vosseller noted that shipments in Germany accounted for “approximately half” of all OUS shipments in the quarter – we found this to be a particularly big deal as it denotes so much change in Germany from a decade ago, when it was quite challenging to be offering new technology but no reimbursement.

  • Full year global pump shipments totaled a record 90,771 pump up 24% YOY. US FY20 pump shipments totaled 70,825 pumps (+32% YOY) and OUS FY20 pump shipments totaled 19,946 (+1% YOY). As a reminder, 2019 saw the satisfaction of some pent-up demand that had been related to supply constraints. It’s also worth noting that Tandem continued to see strong shipment growth in 2020 despite the disappearance of all remaining Animas conversion opportunities.

  • Tandem’s worldwide installed user base is estimated at “more than 215,000” users, rising 66% YOY from 4Q19. Based on Mr. Sheridan’s remarks during Q&A, we also believe there are at least 100,000 Control-IQ users globally. Broken down by geography, Tandem estimates “more than 170,000” users in the US and “nearly 45,000” international users. Doing some quick math, we estimate ~15,000 sequential new adds in the US with ~52,000 US new additions in 2020. On the OUS side, we estimate ~10,000 sequential new adds and a total of ~21,000 new adds in 2020. In all, Tandem has added ~73,000 users in just the past twelve months – most of those additions coming amidst a global pandemic, no less. As a reminder, we view these estimates as likely conservative as they only represent purchases from the last four years; in reality, Tandem is probably renewing pumps that expired over four years ago.

    • For some perspective on the competitive landscape, we heard from Insulet yesterday that it currently has a global user base of “~250,000” Omnipod users. Unsurprisingly Medtronic still boasts more pump users than either Insulet or Tandem with an estimated “~249,000” users on its MiniMed 670G system alone as of 1Q20, suggesting its total installed pump base is considerably higher. For some comparison, we estimated that the global CGM market has surpassed the 4 million user mark. Specifically, as of 4Q20, Abbott shared it had “nearly 3 million” global FreeStyle Libre users and Dexcom estimated its user base at “~900,000.”

  • During prepared remarks, Ms. Vosseller shared that Tandem is seeing a strong rate of customer renewals, with approximately 55% of its 50,000 eligible users renewing in 2020. A renewal rate of 55% comes in above the 50% renewal rate of 2019 and indicates Tandem is moving in the right direction toward its goal of a 70% renewal rate. Notably, looking ahead to 2021, Ms. Vosseller shared that Tandem’s “consumer renewal opportunity would scale from 50,000 [in 2020] to more than 65,000.” Converting renewal opportunities will become increasingly important for Tandem as it comes up on the four-year mark for all of the users added in recent years.

  • Tandem continues to see “about half” its new patients coming from MDI, with the other half switching from competitors. This trend has been stable for a number of quarters now (3Q20, 2Q201Q204Q193Q19). While 50% of new users from MDI indicates strong market expansion, we heard from Insulet yesterday that approximately “80%” of its new Omnipod users are coming from MDI, suggesting Insulet is still expanding the pump market more quickly than competitors. It’s also worth noting that both Tandem’s “about half” and Insulet’s ~80% figures have remained stable throughout the pandemic, suggesting there hasn’t been any decline in interest in pump therapy from MDI users, despite the inability to perform pump trainings in person. 

  • Shipments to UnitedHealthcare customers represented “10%” of US shipments in 4Q20. We heard in 3Q20 that United Healthcare customers accounted for “over 10%” of all shipments, suggesting a pullback in 4Q20. Still, during Q&A, Ms. Vosseller also added that in the longer-term Tandem expects shipments to UnitedHealthcare customers “will grow closer to their overall market share which is estimated at about 15%.” As a reminder, UnitedHealthcare first began covering t:slim X2 for all customers starting in July.

3. FY21 revenue guidance of $600-$615 million, representing 20-23% growth; guiding for FY21 gross margins of “approximately 55%”

Tandem provided full year 2021 guidance of $600-$615 million in worldwide revenue, representing YOY growth of 20-23%. Broken down by geography, Tandem is guiding for $490-$510 million in US revenue and $105-$110 million in OUS revenue. As we noted above, in FY20, Tandem easily exceeded its initial guidance for 2020 by ~$42 million at the midpoint. That said, Ms. Vosseller did caution investors that Tandem expects to see “continued variability in the quarterly ordering patterns” of distributors in 2021 due to changing COVID-19 restrictions and purchasing patterns as Tandem enters new markets.

  • Tandem is guiding for 2021 gross margins of “approximately 55%,” in-line with margins for the last two years. Notably, Ms. Vosseller shared that Tandem expects to “pass the break-even point” for full year 2021 operating margin and expects 2021 adjusted EBITDA margin “in the range of 14% to 15%.” For reference, operating margin and adjusted EBITDA margin in FY20 were -2% and 12%, respectively.

4. Gross margin of 55% in 4Q20; FY20 gross margin of 52%; $485 million in cash and short-term investments; net loss of $17 million in 4Q20

Tandem reported gross margins of 55% in 4Q20, roughly even with 56% gross margin in 4Q19. Sequentially, gross margin improved from 53% in 3Q20. Gross margin continues to be impacted by royalties associated with Control-IQ (due to Dexcom’s ownership of TypeZero), but this percentage is expected to decline as a percentage of sales over time. In 4Q20, Control-IQ royalties represented “just over 1%” of sales, compared to “just over 1%” in 3Q20 and 2% in 2Q20. For FY20, Tandem reported gross margins of 52%, declining from 54% in 2019. Presumably, COVID-19 impact and the Control-IQ royalty make up most of this decline. Looking ahead to 2021, Tandem is guiding for 55% gross margins in-line with goals shared at the company’s 2018 Analyst Day.

  • Tandem ended 2020 with $485 million in cash, cash equivalents, and short-term investments. For the full year, Ms. Vosseller shared that the company generated “$25 million in cash” from operations with another “$314 million” from financing activities. Most significantly, these financing activities included a $250 million convertible note offering in May.

  • Net income in 4Q20 totaled $17 million, while net loss for FY20 totaled $34 million. The $34 million net loss in FY20 compared to a $25 million net loss in 2019. Operating loss for all of 2020 came in at 2% of sales. Operating expenses for the year rose 27% from 2019 ($269 million), but given 38% YOY revenue growth, Tandem is exhibiting strong leverage.

t:slim X2 and Control-IQ Highlights

1. Smartphone bolus control slated for 1H21 launch; Tandem anticipates being the “first FDA-cleared use of a personalized mobile device for the delivery of insulin”

In a major pipeline update from the day, Tandem shared that smartphone bolus control, which was submitted to the FDA as of November, is slated for launch in 1H21. This is in-line with long-standing expectations; although the 2Q20 timeline for clearance wasn’t specifically reiterated during today’s call, a 1Q21 clearance seems reasonable given the reiteration of a 1H21 launch, although that is pure speculation. Notably, Mr. Sheridan noted that smartphone bolus control will mark Tandem’s fifth software update distributed through the Tandem Device Updater, which launched in 2016. As a reminder, once approved, smartphone control will be offered to “in-warranty customers in the US for no cost.” For the past five years, the Tandem Device Updater has been a fantastic selling point for Tandem, offering patients the reassurance that they will have access to the latest software innovation.

  • Being able to dose insulin from a personal smartphone (or even smartwatch) is a highly requested feature and if all goes as planned, Tandem could be the first pump company with the capability. During yesterday’s call, Insulet too claimed that it expects to be the first company offering smartphone pump control, which it intends to launch with Omnipod 5 in a limited launch in 1H21. Of course, Tandem and Insulet can’t both be the first to have smartphone control, but we’d predict that they accurately could both make this claim if Tandem secures smartphone bolus control first and Insulet subsequently secures full smartphone control (both basal adjustments on bolus control via an app). Regardless, patients will not care who is technically first if the two companies launch this capability in the same timeframe. During today’s call, Tandem specifically used the language, “It will be the first FDA-cleared use of a personalized mobile device for the delivery of insulin,” and in yesterday’s call, Insulet management specifically stated, “Our system will be the first to provide full smartphone control.” It’s also worth noting that Tandem’s smartphone control will be available on both iOS and Android devices, whereas Insulet’s will first be available only on Android devices – technically, of course, Insulet has already had smartphone control for eons, since Loop has it and Loop was available with Insulet pods from simply ages ago (but without customer service).

  • During Q&A, Mr. Sheridan shared additional commentary on the importance of the smartphone bolus control launch: “When you talk to people right now that are using the system with Control-IQ, they really have no reason to take it out of their pockets or wherever they have it during the day or while they're outside their home unless they have to bolus for a meal. There is a great deal of excitement; it's a number one requested feature really for us today. […] It’s going to be a very easy to use, and it's going to accessible to our entire patient population in a short period of time. And so I think it's going to be a meaningful driver, and I think it's really going to go right after the MDI group because of the device discretion that they currently don't have. We're always trying to reduce these barriers that the MDI people perceive as objections for using pump technology, so we're excited about it and I think it's going to be important.”

2. Control-IQ algorithm enhancements: expanded body weight and correction factor ranges + indication for use with Sanofi’s admelog already submitted to FDA; clinical trials to run later this year for “more meaningful” system improvements

On today’s call, we heard more details about Tandem’s plans for enhancements to Control-IQ. As a reminder, these enhancements have been hinted at since a year ago. During his prepared remarks, Mr. Sheridan shared that two Control-IQ enhancement filings were submitted to the FDA to allow for “greater personalization in certain rates and ranges” and to add an indication for Sanofi’s biosimilar rapid-acting insulin Admelog (insulin lispro). While sales for have Admelog have declined in recent quarters (-18% YOY in 4Q20), the expanded indication is certainly meaningful for some. Perhaps more exciting, the expanded indication for Admelog might suggest further expansions for newer ultra-rapid acting insulins (i.e., Novo’s Fiasp or Lilly’s Lyumjev). During Q&A, Mr. Sheridan further expanded on the submission, noting the enhancements are “about improving access to the technology.” Specifically, the submission would expand the body weight and correction factor setting options for pediatric patients and for those with higher insulin needs. Importantly, Tandem “[doesn’t] believe” these enhancements require clinical studies. Notably, it seems that although the enhancement has been filed with the FDA, the FDA has not actually begun the review process: “We’re waiting on the FDA right now to get onto this and to begin to actually look at the review process.” Given the well-documented delays at the FDA due to the focus on COVID-19-related filings, management smartly declined to offer a specific timeline for the enhancement and expanded indication’s clearance and launch. During Q&A, Mr. Sheridan did briefly note that Tandem anticipates that the FDA’s resources and capacity will “free up” in the “latter half of 2021,” suggesting that these filings may see decisions in 2H21.

  • While the expanded range enhancements to the Control-IQ algorithm might only affect a subset of current or potential Control-IQ users, Tandem has several undisclosed “more meaningful” improvements slated for clinical trials this year. In the past, we’ve heard that these enhancements will be “centered around algorithm refinements that are intended to even further improve clinical outcomes, new features for greater personalization, and improvements to the overall system usability.” The need for clinical trials suggests these enhancements may be more significant than the expanded weight and correct factor settings and may more integrally enhance the system.

  • During his prepared remarks, Mr. Sheridan again reiterated Tandem’s commitment to achieving a fully closed loop system: “Ultimately, we are working to provide the diabetes community a fully closed loop system and each feature update and enhancement brings us one step closer.”

3. Tandem announces second-gen data management application Tandem Source, building out digital ecosystem; will first launch internationally “later this year” with domestic launch to follow

Tandem continues to build out its digital ecosystem, announcing plans for its second-generation data management application, Tandem Source. Based on management commentary today, it seems that Tandem Source will be a data platform akin to Dexcom Clarity, offering providers, users, and caregivers a personalized app- and web-based dashboard with data and insights that drive diabetes management improvements. As a “powerful complement” to Tandem’s pump-based AID algorithm, Tandem Source will also house algorithms to drive insights and diabetes management changes - we cannot wait to hear more! Tandem also anticipates that the platform will be useful in third-party integrations, for example, by directly integrating data from both CGMs and pumps to drive “new insights that make it easier for users to manage their diabetes.” Management also suggested that the platform may be used to integrate e-commerce and customer service directly into the digital ecosystem to enhance purchasing onboarding and support interfaces. During his prepared remarks, Mr. Sheridan shared that Tandem Source will first launch in “select” international markets “later this year with a domestic launch to follow.” It’s worth noting that Tandem acquired the popular “CGM companion” app Sugarmate back in June; we’re curious to see how much of the Sugarmate functionality makes its way into Tandem Source. On the competitive front, Insulet’s JPM 2021 presentation also highlighted the potential for a new data analytics-driven software platform, though Insulet didn’t confirm any specific products or launches. 

  • During his prepared remarks, Mr. Sheridan also drew upon the success the of t:connect mobile app. The app, which launched in July, “more than 80,000” users. Tandem’s software portfolio now includes the t:connect web application, mobile app, Tandem Device Updater, customer portal, and Sugarmate). According to Mr. Sheridan, the digital ecosystem is playing a role in driving patient and provider interest and uptake in its pump and AID systems. We certainly see benefits to creating a digital ecosystem surrounding diabetes technology – it is so important to make the data from CGMs and pumps easy to access, interpret, and use to drive data-driven improvements to diabetes self-management and care. While we applaud CGM and pump companies for creating platforms to make data and insights accessible, we are also curious about whether these companies are also advocating for direct EMR integration of their data, which would likely drive further uptake and make their technologies all the more powerful. We’d have to imagine that they are, in their spare time … we are eager to learn the ins and outs of that.

4. Tandem to integrate Control-IQ with G7 “within one month” of G7 clearance; Abbott integration expected “as soon as possible in 2022”; new Dexcom and Abbott sensors will be growth catalysts in 2022

Tandem’s partnerships with Dexcom and Abbott received significant airtime during today’s call. Based on today’s commentary, it seems that new sensor integrations are unlikely to launch in 2021, although that possibility is not 100% off the table given the murkiness of the US G7 timeline. Rather, integrations with G7 and an Abbott FreeStyle Libre CGM are currently slated for some time in 2022 and should be excellent growth drivers.

  • On Dexcom, Mr. Sheridan shared excitement about integrating G7 into Tandem systems, which will be the fourth (!) Dexcom sensor integrated into Tandem technology. Notably, Mr. Sheridan stated intentions to integrate G7 with Control-IQ “within one quarter following their receipt of FDA clearance.” While this would be hugely exciting for Control-IQ users, the statement doesn’t give us much clarity on when that actually would occur. During its 4Q20 call a few weeks ago, Dexcom offered a murky timeline for its US G7 launch, which may or may not be in the group of market launches that are slated for the back half of 2021. Speculatively, we’d expect a US launch in late 2021 or early 2022, suggesting that if all goes according to plan, a combined t:slim X2/Dexcom G6/Control-IQ system could be available early in 2022.

  • On Abbott, we heard the most specific commentary on the partnership, which was finalized in June. Offering the first timeline update yet, Mr. Sheridan stated that the integration is slated for “as soon as possible in 2022” and will begin with a US launch. Which FreeStyle Libre CGM will be integrated is still somewhat unclear and per Mr. Sheridan, will depend on “the timing of Abbott’s FDA clearance supporting AID use,” suggesting that both FreeStyle Libre 2 and 3 are being considered. As was reiterated in November, Mr. Sheridan noted that although the warning/limitation for FreeStyle Libre 2 wouldn’t affect integration from a technical perspective, Abbott does have to work on its FreeStyle Libre 2 indication before the integration can launch. This suggests that an integration with FreeStyle Libre 2 is not out of the question and that Tandem is not necessarily waiting for FreeStyle Libre 3’s FDA clearance before integrating with Abbott’s CGMs. Yesterday afternoon, Insulet offered similar confidence in eventual integration of its AID system with Abbott’s CGM sensor, despite FreeStyle Libre 2’s current contraindication for use with AID systems.

5. Control-IQ in “more than half” of Tandem’s existing markets; plans to launch in 25 geographies by end-of-year 2021

Control-IQ is now available in “more than half” of Tandem’s existing markets, on schedule with expectations from November. The “more than half” also represents an improvement from Tandem’s 3Q20 call when Control-IQ had only launched internationally in the UK and South Africa, where rollout began in July. By year’s end, Tandem intends to launch Control-IQ in 25 geographies, bringing the total addressable market to ~4 million people, of which only ~400,000 use pumps today, suggesting a total market penetration of ~10%. Since launching t:slim X2 internationally in late 2018, “approximately 45,000 people” use Tandem pumps in “nearly 20” countries, reaching a OUS userbase in two years that took Tandem four years to achieve domestically. Excitingly, there’s still room to grow – per Mr. Sheridan’s commentary today, total OUS pump penetration is still only 10%-20%. Outside the US, Tandem is likely to face stiffer competition, as Medtronic generally holds a stronger position and, as we learned yesterday, MiniMed 780G has already launched in 26 countries. Insulet has also continued its international rollout for Omnipod DASH, moving into Turkey just last week and Canada last month.

Pipeline Highlights

1. t:sport FDA submission delayed to 4Q21, as human factors testing reveals opportunities to improve system usability; will be a 2022 “growth catalyst”

Tandem’s t:sport insulin pump, previously slated for submission in the first half of this year and launch in 2H21, has now been delayed with a new FDA submission target for 4Q21. During prepared remarks, Mr. Sheridan shared that in December, Tandem’s team analyzed results from a number of human factors trials (both virtual and face-to-face) and determined that the “the sum of the opportunities identified during the testing did not meet the high user experience standards that we've committed to providing the diabetes community and have built our reputation.” While “none of the changes” planned are “particularly challenging,” the change does represent a delay of at least three months. As a reminder, human factors testing for t:sport first got underway back in 2Q20, delayed ~three months by impact from COVID-19. Ultimately, Mr. Sheridan continued to express confidence in the product, saying it could be just as much of a catalyst for interest and sales as Control-IQ – certainly a high bar!

  • 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.

  • During Q&A, Mr. Sheridan was asked to give some more commentary on the delays around t:sport: “Well, I think that you know we did experience the delays due to COVID when COVID first hit. We probably lost an entire quarter and I would say that it was just difficult to actually do the human factors testing when the market did open back up. We had virtual human factors and we had face-to-face, but we had a hard time getting the correct number of patients in various groups to do the appropriate types of testing. As I said, what happened is that we began to look at the data thoroughly in the December timeframe and we just saw issues that we weren't satisfied with. I think the most important takeaway here is that we want to get this product right and we're willing to sacrifice a few months to do that, because we understand the long-term benefits of this technology and we know it's going to drive demand from the MDI segment. So, we think that we have a reputation that's built upon ease of use intuitive and simple to use devices. We've got to continue to do that. I would say that none of the changes that we're making are significant. It just requires us to go back and correct the issues, test them again, and then just move forward. As we mentioned, we're going to be doing this with our submissions plan for the fourth quarter. There's still some uncertainty because we are entering into additional human factors testing now and it's still the COVID environment. As I mentioned in the FDA, they're pretty backed up right now and it's uncertain as to when they're going to get back to their normal cadence of review. But, this is still our number one priority as an organization. We have a lot of confidence in the device and how it's going to impact the market. And, so, we're moving forward aggressively to get it to market.

Slide taken from Tandem’s 2018 Analyst Meeting (note that the launch timing expectation is no longer up to date).

2. Penetrating the type 2 market: Control-IQ indication + t:sport will be a starting point, but more investments in ease of access and simplicity

During Q&A, analysts asked about multiple topics related to getting Tandem pumps into the underpenetrated type 2 market. Currently, type 2s represent “less than 10%” of Tandem’s total domestic customer base (i.e., <17,000 customers) and the company’s internal research estimated pump penetration of just 7% for insulin dependent type 2s. Mr. Sheridan noted that Tandem plans to expand the indication for Control-IQ to type 2s, with the combined t:sport + Control-IQ system serving as a “starting point” for approaching the type 2 market. In particular, he highlighted the discretion offered by t:sport with smartphone bolus control, which should help boost uptake in type 2s. Mr. Sheridan also explained that further penetration might need a dedicated solution.

  • For a dedicated type 2-focused solution, Mr. Sheridan suggested a few areas of focus: simplification of the user interface and tailored support. When asked about the pharmacy channel potentially making Tandem’s devices easier to access, Mr. Sheridan shared his belief that by providing the right personalized support experience powered by digital tools, “There is no reason why we can't have customer access points that replicate the experience that people have through the pharmacy channel.” In another discussion during Q&A, Mr. Sheridan noted that Tandem is also looking into further miniaturization (i.e., a smaller pump), as well as compatibility with concentrated insulins.

Investor Q&A

Q (Steven Lichtman, Oppenheimer): John you mentioned you guys have submitted for an algorithm enhancement. Is this the one you've been targeting for 2021 overall? When should we expect to see that and can you talk a little bit more about what it's going to do for customers? Thanks.

John Sheridan, CEO: Sure. Yeah. Thanks for the question. I would say that this enhancement to the algorithm really is about improving access to the technology. We're expanding body weight and correction factors just to enable a broader range of a pediatric population to use the system and also people who have larger insulin needs. There's mobile bolus, bolusing experience improvements, and I've mentioned admelog. You know, I think these are changes that we don't believe require clinical studies and as I said we submitted them this past – this past year or so. We're waiting for the FDA right now to get onto this and to begin to actually look at the review process. There's a little bit of uncertainty as one would expect to see this happening. I would say that we have a lot more meaningful improvements planned that do require clinical studies and we'll be conducting those this year.

Q (Larry Biegelsen, Wells Fargo): John, maybe a little bit more color on what led to the delay in t:sport, what still needs to be done and if you're confident you can address this in it with just one quarter delay if I heard correctly pushing out from third quarter to fourth quarter filing? Thanks for taking the question.

Mr. Sheridan: Yeah, sure. Well, I think that you know we did experience the delays due to COVID, when COVID first hit. We probably lost an entire quarter and I would say that it was just difficult to actually do the human factors testing when the market did open back up, we had virtual human factors we had face-to-face but we had a hard time getting the correct number of patients in various groups to do the appropriate types of testing. But, as I said what happened is that we began to look at the data thoroughly in the December timeframe and as we revealed we just saw issues that we weren't satisfied with. I think the most important takeaway here is that we want to get this product right and we're willing to sacrifice a few months to do that because we understand the long-term benefits of this technology and we know it's going to drive demand from the MDI segment. So we think that we have a reputation that's built upon ease of use - intuitive and simple to use devices. And we've got to continue to do that. I would say that none of the changes that we're making are significant. It just requires us to go back and correct the issues, test them again, and then just move forward. So as we mentioned we're going to be doing this now our submissions plan for the fourth quarter there's still some uncertainty because we are entering into additional human factors testing now and it's still the COVID environment. And as I mentioned in the FDA as they're pretty backed up right now and it's uncertain as to when they're going to get back to their normal cadence of review. But we are – this is still our number one priority as an organization. We have a lot of confidence in the device and how it's going to impact the market. And so we're moving forward aggressively to get it to market.

Q (Alex Nowak, Craig Hallum): One question for you. Can you speak to the competitive environment and how that will morph over 2021. Medtronic is being more vocal with their pump this year. They’re new patch pumps coming as well as some new players. So how do you expect growth to modulate this year and next with competition and what actually you taken to defend that?

Mr. Sheridan: Well, I guess I'll start off by saying that we have a great deal of confidence and control even without t:sport in the market this year. I think that we've demonstrated a history of innovation and we intend to continue to keep that trend. When you look at competition I think it's really important, the couple factors I think that are important that impact adoption. First, it's basically being able to achieve the therapeutic outcomes that that you said you would and then how do you improve the patient experience. And if we look at those in that light if you look back and on the competitors that are coming to market this year, they have data from a clinical study that I would say it's measured in the hundreds of patients. By contrast, we have real world data today on 100,000 patients. Control-IQ, it's been on the market for a full year. We actually got – we updated people in the marketplace in about four or five months. We had about 50,0000 people using our system in the marketplace. So healthcare providers got to see an immediate bump and had immediate experience in interacting with Control-IQ and the outcomes have been tremendous. I mean people have had actually experienced great results and healthcare providers have a great deal of confidence now and trust in the system. And so I think that's a really important. It's really important to understand that a tremendous number of healthcare providers have confidence in the system and it's in many, many people's hands. More and more people are prescribing our pump. And of the people who are prescribing it they're prescribing more and more systems. So I think that when it comes to the clinical efficacy we've clearly demonstrated that and we demonstrated in a big way in a very short period of time.

When you consider the patient’s experience, I think it's important to point out that the patient experience is not all about the algorithm. As far as I'm concerned today the algorithm is table stakes. The patient experience is really about the interaction with the entire system the entire product and for that matter the entire company. I think when you look at Control-IQ, you know system absolutely provides a very positive experience today. I mean people can basically if we are using Control-IQ think more about their lives than their diabetes. You know it works in the background, people trust it, they can sleep, there is no fingersticks, there are no need to carry a second device to measure diabetes. I think the mobile bolus feature is going to be a turning point, it's going to increase the demand for the system by providing additional discretion and is going to improve the convenience. We have world class customer service that's working in the background and we also have this digital ecosystem that we are going to wrap around all of these products that provide support, simplicity, and efficiency for our patients and health care providers. So, I think with the competition coming up I think Tandem is in a very strong position both clinically and reducing the burden and so as I said I feel very confident that was going to continue to do extremely well this year with Control-IQ and we will have t:sport in the market in 2022. I think that will also continue to drive demand for our products.

Q (Chris Pasquale, Guggenheim): Curious, do you have an estimate for the percentage of US new patient starts that came from United this quarter?

Leigh Vosseller, CFO: Yeah. So, the way United settled again for us gaining full access again starting July 1st, it ended up 10% of our domestic shipments and as we look forward into 2021, that's a good baseline for our starting point, and the longer term we anticipate that that will grow to be closer to their overall market share which is estimated at about 15%, but that will take time as we continue to gain access to people who are attending after the warranty renewals.

Q: John, the comments around type 2 and the opportunity there, we're very interested in. When you think about a dedicated platform for those patients and what they really need. Do you see t:sport as fulfilling those need and we are checking all those boxes or do you think that down the road you're going to need existing platform from the two that you already going to have in your portfolio to really address that population?

Mr. Sheridan: Yeah, I think our intent really is to start t:sport and to explore how the type 2 diabetes community interacts with that. At the same time continue to collect information from a focused few things like what people and what their preferences are. We definitely see a sort of simplification in the user interface and we also believe that there is a way to improve access through tailored support solutions. We think that there is no reason why they can't customer access points that replicate the experience that people have through the pharmacy channel using our digital assets. So, there's lot of opportunity here. But, I would say that t:sport is clearly where we are going to start as, as we, as we mentioned we're the first thing we're going to do is get the indication for Control-IQ and then we are going to just jump right into this with our multi point strategy.

Q (Matthew O’Brien, Piper Sandler): Leigh, on the renewals, I wasn’t quite following the commentary as far as what you are seeing on the renewal side. What you are seeing in terms of an acceleration there and what we should be expecting. To me it sounds like things are starting to get much better on the renewal side and that could be a meaningful tailwind for the company over the next 12 years, is that what you are trying to say. And then drive us to kind of finish off a final point that you are making earlier on the type 2 side, on the discrete side, is there going to be a renewal component, oh not a renewal scheme there an annuity component with the technologies you are thinking about there. Thank you.

Ms. Vosseller: Thank you for the questions. Starting with renewals, so just to frame up how where things are looking today, it's up through the end of December, we have had about 50,000 people in total whose warranties have expired, and of that we have renewed about 55% of them and when you compare that to where we were a year ago at the end of 2019 we had renewed about 50% of all of the opportunities that were available. So, that 50% to 55% demonstrates really great progress on the renewals front and I agree with you, it will be a growing part of our business as we look forward, because if you think about the acceleration you have had in the business in the last three years, all of those folks will start coming to the table as well, and so its been a lot of investment in that stream and it's also just building up the better patient experience, which we think is what's driving this improvement in the renewal rate.

Mr. Sheridan: I will just say that relative to the annuity aspect, I mean we're continuing to invest in our pump technology and we believe that miniaturization is really the direction to go, so as I mentioned we're looking at concentrated insulins as well, so but we haven't spoken about what would happen next factor is going to be just post that.

Q (Ravi Misra, Berenberg): So, I wanted to probe a little bit more on the type 2 acces commentary that you talked about earlier John, and one of your peers yesterday on their call basically said that they feel that having pharma access is something that kind of sets them up really nicely into type 2. Maybe, if you could comment on that and your potential ability to get there these days – I know that's been something you have been trying for a while, or is there another kind of channel of venue that we should be thinking of that – you know we're not that would – would kind of in general that?

Mr. Sheridan: I would say that you know when we interact with physicians today they do not make decisions on whether or not the system is going into a pharmacy channel or whether it is going into the DME. So, we believe that you know that we make the system and interactions with our products as this is accessible and easy as a pharmacy channel using some of our digital health initiatives. I think the reason will be when you look at some of our competitors, the reason that is important is we sell our pump once every four years, and so when you consider this touch points that we have got, its very reduced and I think that if we can even improve that, when I think you get a long way to improving access. There is no way we can't. There is no way where we can't automate the supply sales. We are going to automate that, we can make that happen automatically and I think that that's something that simplifies that part of the process. I think when we look at the competitive patch forms when they’re selling pumps, you know they are using it every three days, so you know it is a lot more interaction, I think that – that is that access and we can see a better action make the pharmacy channel important for them. You want to add anything, Leigh?

Ms. Vosseller: I would say John framed it very well. I think first and foremost it is about having the right product because that's what physicians will recommend and it's a channel simplify phase, we will continue to look for ways to optimize or create efficiencies within our own channel and maybe when it comes down to it, we are focused on getting stronger relationships with the payers through more direct contracts and in those conversations then we can have a deeper discussion about what's the right channel, what makes sense for us with the type of product that we have, it would be much more specialized and a disposable type product.

Q: And if I could just ask one more, is there an FX component to the OUS revenue? Thanks.

Ms. Vosseller: Very immaterial.

Q (Danielle Antalffy, SVB Leerink): Just wanted to ask one question on replacement, given the competitive environment. Historically 50% of your new patients have come from replacements. How sustainable do you that is given the fact that the primary driver of those replacement, and the replacement group, is Medtronic and they're launching the 780G which might be more competitive?

Mr. Sheridan: Danielle, as you can see we are confident in our competitive positioning next year. And we would anticipate that we would continue to see a strong component of our total sales coming from reimbursements.

 

--by Hanna Gutow, Katie Mahoney, Albert Cai, and Kelly Close