Tandem 3Q18 – Record sales rise 71% YOY to $46 million; First OUS sales of $2.5 million; t:slim X2 submitted to FDA as first iPump – November 1, 2018

Executive Highlights

  • Tandem reported record global 3Q18 sales of $46 million, rising an impressive 71% YOY on an easy comparison to 15% YOY growth in 3Q17. This represents Tandem’s largest quarterly growth in four years, a testament to excitement over t:slim X2, G6 integration, and Basal-IQ. Sales even surpassed the estimate for $42-$44 million shared at the Analyst Meeting in September. Sequentially, sales increased a whopping 36% from an already-high base of $34 million in 2Q18. For the first time, Tandem reported international sales of $2.5 million, nice early uptake out of the gate and already representing ~5% of total Q3 revenue.

  • A record 8,434 pumps were shipped in 3Q18, more than doubling YOY. This included a remarkable 1,055 pumps shipped internationally (lots of pent-up demand) and brings year-to-date US shipments to 18,325, already surpassing full-year 2017 pump shipments by 7%. Tandem’s estimated in-warranty installed base is now >70,000 users. The company shipped ~1,100 renewals, up 38% sequentially from 800 shipped in 2Q18.

  • 2018 guidance was raised meaningfully to $160-$165 million (+49%-53% YOY) up from the prior $150-$158 million (+39%-47% YOY). To meet this guidance, Tandem would need to see sequential growth of just 13%-24%, which, given its usually strong Q4, seems quite doable. This guidance includes reiterated guidance for $7-$8 million in international sales, implying quite a ramp in Q4.

  • Tandem ended the quarter with $114 million in cash and burned just $4.5 million in 3Q18 – wow! Management continues to aim for cash flow breakeven by 4Q19, requiring a 55% gross margin and an installed base of 80,000. At this burn rate, Tandem has serious runway.

  • As expected, the t:slim X2 was submitted to FDA in October as the first interoperable/integrated iPump. Tandem plans to follow the iPump submission with a separate PMA for the Control-IQ hybrid closed loop algorithm following completion of the ongoing pivotal trial, slated for spring 2019. The Control-IQ pivotal trial is now fully enrolled, and management continues to expect a launch in summer 2019 – giving Tandem’s the second hybrid closed loop in the US and the first worldwide with automatic correction boluses and Dexcom G6 integration.

    Tandem reported 3Q18 financial results this afternoon in a very positive call led by CEO Kim Blickenstaff. See below for the top financial, business, and pipeline highlights.

    Financial and Business Highlights

    1. Record sales of $46 million rise 71% YOY, 36% sequentially; First international sales of $2.5 million already represent 5% total revenue

    Tandem reported 3Q18 record global sales of $46 million (GAAP), rising 71% YOY on a fairly easy comparison (for Tandem) to 15% YOY growth in 3Q17. This marks Tandem’s largest YOY growth reported in four years, when sales climbed 76% YOY in 4Q14. Notably, 3Q18 revenue even surpassed management’s estimate for sales of $42-$44 million shared at the Analyst Meeting in September (+$2 million on the high end). Sequentially, sales climbed an impressive 36% from a high base of $34 million in 2Q18 (at the time, that was Tandem’s second-best sales ever). As expected, pump sales of $31 million were the lion’s share of revenue (67%), followed by infusion sets (23%), and cartridges (10%). Year-to-date sales of $108 million reflect robust 60% YOY growth following a tough first three quarters in 2017 for Tandem. CEO Mr. Kim Blickenstaff noted strong worldwide demand for the t:slim X2 and asserted that the Basal-IQ launch “aligned perfectly” with AADE.

    • For the first time, Tandem reported international sales of $2.5 million, already representing ~5% of total revenue. We learned at the Tandem Analyst Meeting in September, that the t:slim X2 launched in Italy, Scandinavia, Spain, the UK, South Africa, New Zealand, and Australia. Per Mr. Blickentsaff’s prepared remarks (see below) Tandem is already seeing “early indications of high demand.”

    Tandem Global Quarterly Sales, 2Q13-3Q18, millions

    2. 8,434 pumps shipped, more than doubling YOY, up 55% sequentially; active installed base over 70,000

    Tandem shipped a record 8,434 pumps in 3Q18, up 118% YOY (the largest YOY increase in pump shipments since +185% YOY reported in 4Q13) and increasing 55% sequentially from a high base of 5,447 pumps shipped in 2Q18. Q3 pump shipments included a whopping 1,055 pumps shipped internationally (huge pent-up demand, it seems), with the remaining 7,379 pumps shipped in the US. As CEO Ms. Leigh Vosseller pointed out, this brings year-to-date US shipments to 18,325, already surpassing full-year 2017 pump shipments by 7%. More than 70,000 pumps have been shipped in the US over the last four years, representing a “reasonable estimate” for Tandem’s in-warranty installed base, according to Ms. Vosseller. Of course, many use their pumps beyond four years, meaning the total number of Tandem users is probably higher than that.

    • Mr. Blickenstaff estimated that half of Tandem’s new users are new to pump therapy, consistent with 4Q17, 1Q18, and 2Q18. Ms. Vosseller provided more color during Q&A, sharing that in the last 3-4 quarters, conversions from Animas and Medtronic patients have doubled. While specifics weren’t broken out, taking 8,434 pumps means there were ~4,217 shipments to MDI users (half the total), 1,100 renewals from current customers, (see below), and 3,100 pumps shipped to pumpers switching from other companies.

    • Tandem shipped ~1,100 renewals, up an impressive 38% sequentially from the 800 shipped in 2Q18. We’d guess Basal-IQ, G6, and promise of Control-IQ next year are quite appealing to a wide range of patients. This brings total renewals to date to 4,300. Ms. Vosseller noted that 20% of renewals are still coming from customers who purchased a pump in 2012 or 2013, meaning that many pumps are used well past their four-year warranty expiration.

    Tandem Global Quarterly Pumps Shipped, 2Q13-3Q18

    3. 2018 guidance raised to $160-$165 million (+49%-53% YOY), up from $150-$158 million in September

    Management raised 2018 guidance to $160-$165 million (+49%-53% YOY), up from $150-$158 million (+39%-47% YOY) anticipated in September. To meet this guidance, Tandem would have to see sequential growth of just 13%-24%, which, given that Q4 is historically Tandem’s strongest seasonal quarter, seems doable. However, as Ms. Vosseller stipulated during Q&A, with Basal-IQ shipments starting in Q3, Tandem saw higher-than-usual sequential growth; it is possible that the “pump season” may have begun early, potentially softening the typically robust Q4 sequential increase. For context, 2017 saw 69% sequential growth between Q3 and Q4, and though the former was a softer quarter, this makes 2018’s Q3/Q4 gain seem quite doable. According to Ms. Vosseller, Tandem has increased annual guidance due to “extraordinary strength” in renewal opportunities, sales of supplies (totaling $15 million in 3Q18, up 67% YOY), and conversions from Animas users. “Better than expected” sales from the Basal-IQ launch also contributed to the increased guidance.

    • The updated guidance includes an expected $7-$8 million in international sales, which would require OUS revenue to more than double sequentially. Still, given the remarkable pent up demand already, plus anticipated Animas conversions and Canada entry, this goal also feels achievable.

    4. Cash at $114 million, just $4.5 million burned in Q3; Goal for cash flow breakeven by 4Q19

    Tandem ended the quarter with $114 million in cash, reflecting the net impact from $109 million in net proceeds from the company’s equity financing completed in August to fully repay Tandem’s term loan agreement. Excluding these transactions, Tandem used just $4.5 million in cash in 3Q18, a remarkably low amount and considerable decline relative to $19 million used in 3Q17. Per Ms. Vosseller’s prepared remarks, Tandem is aiming for cash flow breakeven and a 55% gross margin by 4Q19 – a more specific and bit later timeline than the previously expected “2H19.” To hit these goals, Ms. Vosseller expects Tandem’s installed base may reach 80,000 customers earlier than 2H19, leaving some room for the full base to be consistently ordering supplies by 4Q19. The installed base number should be doable with Basal-IQ and Control-IQ and OUS expansion; a bigger question is whether gross margins can rise eight percentage points within a year from the current 47% level.

    • Gross margins reached 47% in 3Q18, up three-percentage points from 44% in 2Q18. Ms. Vosseller cited higher production volumes to meet increased demand, significant contribution from pump sales, and a strong 65% YOY increase in infusion set sales as contributors. Additionally, she referenced seasonality, product mix, direct vs. distributor mix, and the proportion of sales from OUS markets as factors that have and will continue to impact gross margin.

    5. 6,500 t:slim X2 patients upgraded to Basal-IQ; “Overwhelmingly positive” user feedback

    Mr. Blickenstaff shared that Basal-IQ has been offered to the >30,000 t:slim X2 customers and that 6,500 patients have already obtained a prescription, completed the requisite online training, and updated the X2 software to include Basal-IQ with Dexcom G6 integration. He claimed to be “extremely happy” with the product launch and noted that feedback from users has been “overwhelmingly positive.” In fact, Mr. Blickenstaff shared that “many describe the product as life changing.” Clinicians at AADE were particularly struck by the feature’s simplicity, especially that there is only one new screen used to run Basal-IQ. We too have heard good things about Basal-IQ; see Will Dubois’ review here, a highly-regarded patient leader at DiabetesMine. We also believe rollout of Dexcom’s G6 is probably a gating factor for Basal-IQ; many t:slim X2/G5 users are probably waiting to move to G6 before upgrading to Basal-IQ. We imagine many patients have sensors to work through, and Dexcom does have some order delays for G6.

    6. T:slim X2 shipments expected in Canada by end of 2018; “Early indications of high demand” OUS

    Mr. Blickenstaff was very optimistic regarding the international launch of t:slim X2 with G5 integration, highlighting Health Canada’s recent approval in October. He noted that the direct sales and clinical organizations in Canada are staffed and trained. The next step, according to Ms. Vosseller, is to obtain reimbursement in each of the provinces. Tandem expects to begin shipping pumps by the end of this year, in line with timing from the October press release though leaving some ambiguity as to the cadence of when sales will materialize – Q4 or mostly Q1? More broadly, Mr. Blickenstaff noted that Tandem has been “working through various pre-launch activities” in “select geographies” and expects these efforts will continue to scale over the next year. Still, he emphasized that Tandem is “already seeing early indications of high demand.” At Tandem’s Analyst Day, management listed France, Germany, and the Netherlands as the next international targets for Tandem. No updates were provided on entry into these markets on today’s call.

    • As we learned at Tandem’s Analyst Day, pump reimbursement and pricing differs markedly between US and international geographies. While Tandem receives ~$4,000 for each four-year pump in the US, it is about half of that outside the US, coming in “slightly above” $2,000. Still, total realized per patient over a four-year reimbursement cycle is roughly equivalent, given greater reimbursement for annual OUS pump supplies ($5,000) as compared to US ($4,000).

    Pipeline Highlights

    1. t:slim X2 submitted to FDA as first iPump in October; Control-IQ trial fully enrolled, spring 2019 completion; Interoperability commentary

    Tandem submitted the t:slim X2 to the FDA as the first interoperable/integrated “iPump” in October, aligning with expectations from September’s Analyst Day. Tandem has been working with the FDA to establish the special controls for the iPump indication, which will be highly important for the field. COO Mr. John Sheridan did not provide much detail as to what those special controls might look like; obviously, these are especially important for other pumps, depending on how high the bar is and what is required to be an iPump. Mr. Sheridan emphasized that the interoperable designation does not mean that elements of an interoperable AID system can automatically be used together (i.e., like buying Bose headphones and using them with your Apple computer and Android phone). Rather, the involved organizations must have formal agreements to define product support, complaint reporting and resolution, and financial terms – for instance, Tidepool cannot just integrate the t:slim X2 into Tidepool Loop without first working with Tandem. (Insulet is the first Tidepool Loop partner, announced on its 3Q18 call today.) Mr. Sheridan explained that Tandem plans to follow the iPump submission with a separate PMA for Control-IQ “as soon as the clinical data is available” next year. The Control-IQ iDCL pivotal trial is now fully enrolled, with completion expected in spring 2019. Tandem still expects to meet its goal of launching Control-IQ in summer 2019; it’s again ambitious timing, but Basal-IQ did launch on time and we assume Control-IQ could go fast with FDA.

    • Mr. Sheridan clarified that, while UVA and TypeZero developed the “core technology” underlying Control-IQ, Tandem will be the PMA holder for the algorithm as integrated into the Control-IQ system. This means that any other company using the TypeZero algorithm would still have to establish its own specifications and implement the algorithm into their own particular system, requiring completion of one or more clinical studies.

    • During Q&A, Mr. Sheridan shared that Tandem is working on improving the Control-IQ algorithm. While the current TypeZero-developed algorithm is being used in the fully enrolled study – and therefore the version that is submitted to the FDA – “at some point in the future” multiple algorithm updates will be rolled out to patients remotely. Nice!

    2. Confirmed 2020 launch for miniaturized pump t:sport with smartphone control

    During Q&A, Mr. Sheridan reiterated the expected 2020 launch for Tandem’s miniaturized pump, t:sport. He noted that the team is fully staffed and “working aggressively” towards bringing the product to market. Tandem plans to submit the t:sport as an iPump with Control-IQ, leveraging the path noted above and eliminating the need for a clinical study. Rather than submitting a whole new PMA, Tandem will only need to demonstrate that t:sport meets the specifications for an iPump in order to integrate it with Control-IQ, demonstrating the degree to which FDA’s new interoperable pathways should dramatically accelerate innovation and reduce burden for everyone (especially companies and FDA). As Mr. Sheridan noted in his prepared remarks: “the FDA's interoperability initiative is evidence that the agency recognizes that the pace of technology is accelerating and they support bringing new products to market in a more rapid pace.” In line with expectations shared at Tandem’s Analyst Day, Mr. Sheridan confirmed that t:sport will launch with smartphone control, noting that “it’s something that we’ve talked to the FDA about, and they’ve been very encouraging.” For more on t:sport read our coverage from Tandem’s Analyst Day here.

    3. Paired t:slim X2 smartphone app (secondary display) expected in “early 2019;” Smartphone control “immediately” to follow

    During Q&A, Mr. Sheridan confirmed that Tandem is “working on” a paired t:slim X2 smartphone app (secondary display), slated for availability in “early 2019.” It was unclear if this was a delay from September’s expectation, which expected a “beta launch” by the end of 2018 and broader availability in 2019. Following launch of the paired secondary display app (Tandem’s “first priority”) Mr. Sheridan said that Tandem is “definitely” going to “immediately jump” to smartphone control – keeping pace with Insulet’s own plans announced on its 3Q18 call today. At Tandem’s Analyst Day, management expected smartphone control will come for the t:slim X2 before t:sport launches, implying a launch of smartphone pump control could happen in 2H20 or even sooner. (Insulet expects Horizon to launch with smartphone control, also in 2H20.) Per commentary from Tandem’s Analyst Day, Tandem hopes to eventually add many features to the t:slim X2 app: Apple Health app integration; biometric authentication (presumably a fingerprint or Face ID for a bolus); integration with diet, sleep, and exercise information; decision support; and smartwatch integration.


    --by Maeve Serino, Adam Brown, and Kelly Close