Tandem Diabetes Care Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 17 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Tandem Diabetes Care Quarter 2 2024 Earnings Conference Call. There will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Susan Morrison, Executive Vice President and Chief Administrative Officer.

Operator

Please go ahead.

Speaker 1

Hello, everyone, and thanks for joining Tandem's Q2 2024 Earnings Call. Today's discussion will include forward looking statements. These statements reflect management's expectations about future events, our product pipeline, development timelines and financial performance and operating plans and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward looking statements is highlighted in our press release issued earlier today and under the Risk Factors portion and elsewhere in our most recent annual report on Form 10 ks as updated by our most recent quarterly report on Form 10 Q.

Speaker 1

We assume no obligation to publicly update any forward looking statements, whether as a result of new information, future events or other factors. Today's discussion will also include references to a number of GAAP and non GAAP financial measures. Non GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non GAAP financial measures facilitate better comparisons of operating results across reporting periods. Any non GAAP information presented should not be considered as a substitution independently or superior to results prepared in accordance with GAAP.

Speaker 1

Please refer to our earnings release issued today and available on the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. John Sheridan, Tandem's President and CEO, will be leading today's call, and he'll be joined by Mark Navarro, Executive Vice President and Chief Commercial Officer and Lee Vosler, Executive Vice President and Chief Financial Officer. I'll now turn the call over to John.

Speaker 2

Thank you, Susan, and welcome, everyone, joining today's call. It's been a tremendous first half of twenty twenty four. We began the year with meaningful aspirations for growth, new product introductions and operational progress. And I am proud to say that in the first two quarters, we delivered on all fronts. We're successfully executing our strategy to offer a leading portfolio of automated insulin delivery systems reinforced by an ecosystem of data driven products and services for our customers and healthcare providers.

Speaker 2

It's the result of our entire organization maintaining focus and executing at an extremely high level. And I'd like to thank our employees for their continued dedication and hard work. Q2 was a particularly exciting quarter for Tandem as we progressed the rollout of multiple new product introductions, including our new pump platform Tandem Mobi, new sensor integrations and the launch of Tandem Source outside the United States. Our financial outperformance in the quarter was largely driven by the strong demand for our latest technologies. We had an opportunity to showcase these new offerings at the recent American Diabetes Association Scientific Sessions, Removii took center stage as the world's smallest durable automated insulin delivery system.

Speaker 2

The positive feedback on pump users and healthcare providers continues to be incredible. During the product theater, key opinion leaders from Barbara Davis Center For Diabetes shared survey data on early Mobi users. The survey found that 86% of participants were satisfied or very satisfied with Mobi regardless of prior therapy and agreed that Mobi helped improve their quality of life. Nearly all MDI users reported that Mobi experiences were consistent or better than expected. MOBI offers users the freedom to disconnect and choice and wearability.

Speaker 2

The most popular way to wear it was as a patch using the adhesive sleeve. To date, our users have shared 18 different ways to wear Mobi. It's this type of flexibility, discretion and comfort that's attracting people from all segments of the market along with the outcomes for automated insulin delivery technology, Control IQ. In fact, former patch users had Control IQ as the highest driver of satisfaction with the system. These real world insights are extremely valuable as they provide evidence that Mobi not only meets but exceeds user expectations.

Speaker 2

To help provide color on how these insights are translating over into the commercial environment, I've asked Mark Tavara, our EDP and Chief Commercial Officer to join today and share his thoughts. Mark has had a substantial impact on our business since he joined last November with a focus on delivering worldwide growth along with building scalable global commercial operations and best in class customer experiences. Mark? Thanks, John. I'm happy to

Speaker 3

have joined Tandem at such a transformative time for the company. The technology is compelling, the people are passionate and the market is large, growing and underpenetrated. This combination provides meaningful opportunity to bring the benefits of our automated insulin delivery systems to people living with diabetes worldwide. To do so, we recognize there is no one size fits all solution in diabetes management and we're executing our strategy to provide people choice through our portfolio of diabetes technologies. We offer choice in form factor, choice in how they interact with their pump and choice in CGM integration, all backed by our best in class Control IQ technology.

Speaker 3

In the second quarter, we saw strong demand for both t:slim X2 and Tandem Mobi, demonstrating the value of our expanding product portfolio. We have taken a staged and rigorous approach to launching Mobi and we saw its contribution increase meaningfully across the quarter. I'm also encouraged by the emerging purchasing trends from customers and prescribing trends of healthcare providers. HCPs have long contended that Control IQ is the best algorithm on the market with its strong clinical outcomes. Like our enthusiastic customers, HCPs are also responding positively to Mobi based on its small size and wearability.

Speaker 3

Mobi is resonating really well across their patient population, kids, teenagers and adults for both first time pumpers coming from MDI and current AID users seeking more from their system. Some of the verbatim feedback I've gotten from HCP refer to Mobi as the pump that reduces diabetes burden, but also the pump to give you the best time and range. We hear other comments like, it's so small you can wear it anywhere and that it provides meaningful improvements to quality of life. We have also seen an increase in new unique prescribers for Mobi, demonstrating that Mobi's new compelling value proposition is resonating with an expanded prescriber audience.

Speaker 4

When we

Speaker 3

look at who chose Mobi, more than half were people new to Tandem. This supports our research that Mobi's form factor and versatile wearability will drive AID market penetration by addressing previously unmet needs in the diabetes community. We also continue to see healthy conversion rates from the competition with a notable increase from disposable patch pumps. Another encouraging early data point is that Mobi is attracting a younger demographic compared to t:slim, which is in line with our market research and product positioning. As you can see, Mobi is beginning to serve as a catalyst for our business, allowing us to further our mission to improve the lives of people with diabetes and we are just getting started.

Speaker 3

New sensor integration has also been a commercial highlight for us in 2024. We are proud to offer our customers a best in class AID technology, while providing choice in CGM sensor. For people who are insulin dependent, adoption of CGM can be a first step towards interest in using AID technology. Both Dexcom and Abbott have been great in helping promote the power of AID and we appreciate their partnership. I would also like to highlight TandemSource as an important part of our strategy with our global launch starting in the U.

Speaker 3

S. Late last year. Source provides a fast and easy way to visualize diabetes therapy management data from our pumps and integrated CGMs. This is an important differentiator for Tandem as healthcare providers typically have very full days and only a short amount of time with patients. So their time is precious.

Speaker 3

We recently began scaling source outside the U. S. And are already hearing the same positive feedback. SORC is foundational to our comprehensive understanding of the Tandem patient base. Today, we have more than 200,000,000 days of real world patient data on Control IQ with nearly 90% of customers uploading their data.

Speaker 3

We use this information to demonstrate to HCPs and payers the powerful clinical outcomes of our AID system across a wide and varied population. The utility of the data improves with Mobi since it's continuously uploaded automatically through the phone control app. This allows us to see real world data from the entire Mobi user base on a daily basis and it opens up opportunities to deliver value added services in the future. Another new international product introduction in 2024 is the launch of t:slim X2 with G7 integration, which began in Q1 and was announced as approved in Canada earlier this week. We are pleased with the growth contribution from offering this integration and continue to prepare for additional new product offerings internationally.

Speaker 3

In addition to the worldwide product launch activities, our commercial organization has also been focused on applying best practices in sales force effectiveness and commercial excellence. In the U. S, we are taking a rigorous data driven approach to segmentation and targeting, equipping our sales teams with new tools and capabilities and bringing greater discipline to channel management. Outside the U. S, we've been taking steps to expand our sales and marketing resources as we work to fortify our international business.

Speaker 3

We also welcome new leadership based in Switzerland, who are focused on advancing how we work with our distributor partners with increased attention on aligning and executing on clear commercial plans, maturing our business processes and partnerships and leveraging global best practices. Overall, we are encouraged by the worldwide commercial environment that Tandem is operating in, which remains highly underpenetrated. It's a competitive market, but we are confident that our product leadership and customer care solutions position Tandem to drive both near and longer term growth. With that, I'll turn the call over to Lee to discuss more about our 2nd quarter results and increased guidance expectations. Leigh?

Speaker 5

Thanks, Mark. As a reminder, unless otherwise noted, many of the financial metrics I will be discussing today are on a non GAAP basis. Reconciliations from GAAP to non GAAP results can be found in today's earnings release, which is available on the Investor Center portion of our website. We started 2024 with a plan to return to growth. As you can see in today's results, we are delivering on that goal.

Speaker 5

We have now achieved 2 quarters in a row of 12% worldwide sales growth reaching $222,000,000 this quarter. This is the 2nd highest sales quarter in Tandem's history exceeded only by a seasonally strong Q4 in 2022. On a year to date basis, worldwide sales were $415,000,000 on approximately 55,000 pump shipments. We are now on pace to deliver 15% sales growth in 2024 and set quarterly sales records for the remainder of the year. Beginning with our sales performance in the U.

Speaker 5

S, we continued to see strength from the launch of our new products with Tandem Mobi in particular gaining momentum across the first half of this year. In the second quarter, total pump shipments surpassed 20,000 in the U. S, growing sequentially more than 30%. Consistent with the Q1, pump shipments to new customers exceeded renewals and people choosing pump therapy from MDI exceeded competitive conversions. This quarter reflected our highest number of customers from MDI choosing Tandem compared to the last 6 quarters.

Speaker 5

We saw meaningful improvement in shipments to new customers across the 1st 2 quarters of this year and are on track to return to growth from new customers in the second half. As anticipated, our retention of existing customers remained high with renewal shipments increasing nearly 40% year over year on a growing number of warranty expirations. U. S. Sales in the 2nd quarter grew 20% sequentially and 8% year over year to $157,000,000 due largely to these strong pump shipment trends and an increase in supply sales in line with installed base growth.

Speaker 5

ASPs also generated additional tailwinds from both price increases and favorable mix within the DME channel. Offering Mobi through the pharmacy channel remains a top priority for Tandem as we look ahead. We view success in the pharmacy channel as profitable access, achieving the goal of lowering patient out of pocket costs while also realizing the health economic value of Control IQ through improved pricing. We will be intentional and selective about the contracts that we will accept. We have already made meaningful operational progress this year and feel confident we will achieve goals we set for 2024 that position us to begin recognizing benefit from these efforts in 2025.

Speaker 5

With the launch of MobiNow scaling, we've also begun taking next steps with our Tandem Choice program. Late in the Q2, we began offering eligible t:slim X2 customers the choice to switch to Mobi. As a reminder, the pump shipments and non GAAP financials do not include any impact from the Tandem Choice program. On a GAAP basis only, we ceased deferring any portion of sales upon Mobi's availability in the Q1. In the Q2, we began recognizing sales and cost of goods sold with each individual election to switch to Mobi.

Speaker 5

The opportunity to switch was only offered to a limited number of customers in the Q2, so the difference between our GAAP and non GAAP financials associated with the program was negligible this quarter. This difference will increase in the 3rd quarter as we offer the opportunity to more customers. The previous revenue deferrals totaling $31,000,000 at the end of the second quarter will be fully captured by the end of 2024. For further details on the GAAP accounting for this program, please refer to the accounting policy discussion in our 10 Q. Outside the U.

Speaker 5

S, our sales grew 22% year over year to $65,000,000 primarily driven by an increase in supply sales of 50%. The prior year baseline reflected variability and distributor ordering patterns for both pumps and supplies through the end of the second quarter when the European distribution center transition was completed. Therefore, comparisons to the prior year are not particularly meaningful. With the operational efficiencies in effect, orders in 2024 have begun to more closely mirror true market demand and geography mix. We shipped approximately 10,000 pumps in the 25 markets in which we operate outside the U.

Speaker 5

S, which aligned with actual pump demand in the quarter as measured by pumps placed with patients. While reported shipments were down 6% year over year, actual pump demand grew nearly 10%. The majority of pump shipments in the quarter came from customers new to Tandem with a growing opportunity from renewals in the coming year considering we commenced operations in 2 of our largest markets just 4 years ago in late 2020. On a year to date basis, our sales outside the U. S.

Speaker 5

Grew 39% to 120 $7,000,000 compared to $92,000,000 in the prior year. In the first half of twenty twenty three, the European distribution center transition created a sales headwind of approximately $20,000,000 with the majority occurring in the Q1. Turning to gross margin. We exceeded initial expectations reaching 51% in the 2nd quarter on higher sales. We continue to make progress on fundamentals impacting gross margin with pricing and cost improvement initiatives.

Speaker 5

The margin improvements are temporarily being offset by the higher manufacturing costs of Mobi at the volumes we are building today. We have had sufficient capacity to support Mobi volumes year to date and are well positioned based on our expectations for the remainder of the year. We anticipate Mobi Pumps will become accretive to gross margin as we leverage this overhead exiting 2024 and begin driving benefit in 2025. From an operating expense perspective, we are focused on investing in growth through sales and marketing to support the new product launches this year. We are also continuing to advance our product pipeline to enhance longer term market expansion opportunities.

Speaker 5

Even so, operating expenses increased only 9% versus 2023 on a year to date basis compared to 12% sales growth. This resulted in adjusted EBITDA of negative 4% of sales for the first half of twenty twenty four. We saw a sequential improvement to negative 1% of sales in the 2nd quarter. As pump sales increase across the remainder of the year, we expect to turn the corner to positive EBITDA and free cash flows in the second half. We ended the second quarter with more than $450,000,000 in total cash and investments.

Speaker 5

Looking ahead, we are again increasing our 2024 sales guidance in consideration of the early market trends from our multiple new product launches. Worldwide, we expect sales in the range of $885,000,000 to $892,000,000 or 15% growth year over year compared to the 10% growth anticipated when we began this year. This breaks down to a range of $640,000,000 to $645,000,000 in the U. S, reflecting an increase of more than 10% year over year and a range of $245,000,000 to $247,000,000 outside the U. S, an increase of 27% to 28%.

Speaker 5

From a profitability perspective, we are maintaining our full year expectation of 51% for gross margin and breakeven for adjusted EBITDA. This continues to be a dynamic market and so we are also providing sales for the Q3 in the range of $222,000,000 to $225,000,000 worldwide, which is an increase of 15% to 16% compared to the Q3 of 2023. For the U. S, we are anticipating sales in the range of $162,000,000 to 165,000,000 reflecting a continuation of trends we have gathered from early data in the Mobi launch. Outside the U.

Speaker 5

S, we anticipate seasonal pressure due to the typical European summer holiday season in the Q3 and therefore anticipate a sequential step down to approximately 60,000,000 dollars With worldwide sales relatively in line with the Q2, we anticipate gross margins to remain relatively flat at 51% and breakeven adjusted EBITDA. I'll now turn the call back to you, John.

Speaker 2

Thanks, Lee. As you can see, we delivered a strong financial performance with positive commercial trends in the first half of the year and are set up for an exciting back half of twenty twenty four. In addition to the growth trends and operational progress we are demonstrating, I am proud of how our organization steps up to quickly correct issues when they do arise. In March, we had an FDA recall for our t:swim iOS app due to a software issue that caused the pump's battery to drain faster than typically expected. After the issue was identified, we were able to quickly implement a software solution and more than 98% of users updated their mobile app with a fix within days.

Speaker 2

The fix resulted in meaningful improvement, but this recall is still open as we continue to implement additional solutions. Next week, we'll be releasing an update to our t:slim iOS app that's designed to resolve the issue. These recall activities did not impact sales, but I'm mentioning it today as you'll likely see a press release or other FDA notifications for the next 2 weeks and a follow-up to help raise customer awareness of our iOS app update. Our team is committed to continuous improvement of our current offerings in addition to delivering new technologies in the future. As we look to our new product initiatives, we are delivering on the most innovative and robust portfolio in insulin therapy management.

Speaker 2

We're making great progress towards bringing integration with Abbott's FreeStyle Libre3 plus sensor to market. It will be a scaled launch in 2025, starting with t:slim X2 integration both in the U. S. And OUS, followed by integrations with Tandem Mobi. Having multiple pumps with multiple CGMs in multiple countries have certainly increased the complexity of our system launches and I'm impressed how our organization has built experience to handle this complexity.

Speaker 2

We've also been active clinically in the Q2. Our extended wear infusion set trial is actively enrolling and we aim to finish the study by the end of the year. In addition, enrollment in our Type 2 pivotal study, which is a randomized control trial is now complete and we are targeting an FDA filing by the end of this year. This study uses our enhanced version of Control IQ, which is now FDA cleared for people living with type 1 diabetes down to age 2 and offers greater settings personalization. We will launch our newest algorithm on both t:slim X2 and Mobi.

Speaker 2

Initially, it will serve the 2 plus community and when we receive FDA clearance for people living with type 2 diabetes, it will also serve these individuals. We remain committed to developing a fully closed loop AID system, which has and will continue to generate periodic feasibility studies around the globe. Driving innovation and maintaining our leadership in AID systems is a top priority for our organization. Lastly, we put substantial efforts into our digital health platforms, which first launched more than a decade ago with our T Connect data management system and now our TandemSource platform. As Mark discussed, Source delivers analytical insights to people using our pumps, but its primary value proposition is physician facing, offering deep patient therapy insights and the capabilities to manage the population of Tandem users in a given practice.

Speaker 2

Looking forward, our roadmap includes greater customization of reporting and data insights for physicians, target integrations with EMR platforms to improve practice workflows and using our real world data to demonstrate health economic benefits to payer communities. We certainly have an extraordinary opportunity at Tandem and I believe we have the right products and the right people to achieve the company's near and longer term goals. Expanding our management team and welcoming new talent has been a key step in this endeavor. Most recently, we welcomed JC Kyrillos as our new EVP and Chief Operating Officer. J.

Speaker 2

C. Brings deep experience in healthcare and a great balance of technical, operational and leadership skills from multiple roles in large and small medical technology companies. He shares our passion for improving the lives of people with diabetes by continuing to offer smaller, more advanced insulin delivery technologies along with our commitment to delivering profitable growth. As you can see, in the Q2, we made meaningful steps toward delivering on our strategy and in improving lives of people with diabetes. Market fundamentals are strong, our products are outperforming and we're executing operationally to get Mobi in the hands of our customers.

Speaker 2

As we look to the future, our positive momentum positions us well for the remainder of 2024 and beyond. I'll now ask the operator to open up the call for questions.

Operator

Thank you. Our first question comes from the line of Brooks O'Neil from Lake Street Capital Markets.

Speaker 6

Good afternoon, everyone. Congratulations on a strong first half. It's great. I guess I'm curious, John, I think I heard you say that you're seeing some switching from the patch pump competitor to Mobi. And I'm curious what your salespeople or your market research are telling you about what is driving that?

Speaker 2

Yes, sure. It's good to hear from you Brooks. When we were in the ADA, we actually had several physicians from Barton Davis Center talk about the product. And there's a great deal of excitement and interest. It really does redefine wearability.

Speaker 2

But the one thing that people, the former patch users are saying is that it's the same size, it has a improved wearability, but it's the Control IQ algorithm that really is appealing to them. They really do feel it's a better performing algorithm and that's really what's been driving it. A it's something that we haven't seen really ever. We haven't seen a significant number of people coming from the patch devices to tandem, But this there's been a meaningful jump in the last two quarters.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Matthew Blackman from Stifel.

Speaker 3

Good afternoon, everybody. Thanks for taking my question. Can you hear me okay?

Speaker 2

I hear you perfectly, Matt.

Speaker 3

Great. Maybe if I could, Lee, I just want to push a little bit and maybe see if we're coming in sort of the right ballpark for new patients. I mean just thinking about the math and some of the metrics you gave us. I mean we're coming out with roughly 11,000 new pumps which would be, call it, down 10%, 11% year over year. Is that are we in the right ballpark?

Speaker 3

Is that the right message you want to send about greater than 50% mix being new patients? Or is there another number we should be working with?

Speaker 5

Sure. Thanks for the question, Matt. You're correct that our new patients were still down year over year, although that has declined substantially or decelerated, I guess, I would say, compared to the prior quarters. And we're moving in the right direction. As we turn into the Q3 and back half of the year, we expect to see new patient growth, again.

Speaker 5

But I would like to highlight even with that decline that from MDI conversions in particular, we saw our highest rate of capture since late or for the last year and a half or two years. So it definitely is moving in the right direction, and we're excited about how Moby is helping to drive this.

Operator

Our next question comes from the line of Steve Lichtman from Oppenheimer and Company.

Speaker 7

Thanks. I'm going to ask my question and follow-up, so don't get cut off. Hi, guys. On Mobi, did you see a pickup exiting the quarter with G7 launch? And also on that, on Mobi, are you seeing more attraction in the Type 2 community?

Speaker 7

I know you're not on label yet there, but just given its size. And then the quick follow-up, it sounds like you're getting more visibility on Link Grade 3 integration. Am I reading that right? And anything more in terms of U. S.

Speaker 7

Versus OUS as we enter 2025? Thanks.

Speaker 2

Steve, I think I'm going to let Mark talk about the about Mobi and the Mobi uptake through the quarter. Mark, I think you're muted.

Speaker 3

Yes. Thank you, John for passing on and Steve for the question. Yes, I think overall, I'd say we're very encouraged with Mobi in terms of the source of growth and the patient mix. The funnel has been healthy and just the feedback from both HCPs and patients has been really positive. And so I think an important point I think as well is that more than half of the MoVI customers are new customers to Tantum.

Speaker 3

And of these new customers, more than half are coming from MDI. So we look at that as an important leading indicator, right, because we're expanding the market by attracting new customers and prescribers. I always remind myself that and others that we're operating in a growth market. But in terms of competitive conversions, I mean, we're pleased overall right across all competitors, but especially the higher number of conversions from disposable patch pumps versus network t:slim platform.

Speaker 2

And Steve, I'll just briefly answer the question on Type 2. Yes, we are as we've said in the script, we are we've completed enrollment and we expect the study to be done in the relatively near future. Our goal is to get the product filed with the FDA before the end of the year. We feel good about that. And the FDA has seen Control IQ 3 at least 3 times now.

Speaker 2

So we would expect that it's going to move through pretty quickly. And our commercial teams are doing a great job getting ready. We're looking at channel access, the clinical and commercial strategies and doing everything we can. So then when we do get approval in 2025, we'll be ready to jump on it. So thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Matt Miksic from Barclays.

Speaker 8

Hey, good evening. Thanks so much for taking the questions guys. And congrats on a really, I think exciting quarter. I think that's the word you used, John, at the outset. So great to see the traction picking up.

Speaker 8

Maybe if one of the things that we all were thinking about and I think talking to you about and trying to understand heading into the back half of the second quarter was how much of the demand say that might have been on the sidelines or building up around the G7 integration with Mobi? How much of that could be fulfilled in the Q2 and how much of that might come through into the Q3? And I'm so sorry if you've hit on this topic already. I've been bouncing back and forth between a few calls, but we appreciate any color you can provide on that sort of dynamic. Thanks.

Speaker 2

I'll just say, Matt, that we did see sort of steady growth in demand on Mobi through the quarter. And certainly, in the June timeframe, we saw that continue. June was obviously the last month of the quarter and that was really the 1st month that we had G7. I think it's a bit early to sort of say specifically that it was about pent up demand for G7. But I do say just based on everything that we've heard we've seen, Mobi is differentiating and I think that people really are relating to it.

Speaker 2

And so I think we expect to see strong demand for it in the second

Speaker 9

half and we're excited about that. Terrific. If I could,

Speaker 8

Just on the longer term pipeline, I think you don't love getting into things that happen after the end of this year, but everyone has to ask if someone hasn't asked already just about the Tubulus platform for Moby. Any hints or thoughts on whether we could see that at some point during next year or whether that's a 'twenty six event, any color would be welcome. Thanks again.

Speaker 2

Yes. I don't think we're going to talk about the dates. I will say that we're excited about Tubeless. Our market research suggests it's going to have a it's going to be another differentiator and we'll see as a result inflection in Mobi demand because of it. It's the 1st tubeless durable pump that's body worn.

Speaker 2

And so it's also it's a medical device and it's life saving. And so because of that, we just have to make sure that we design it so that it's going to work every single day and it's not going to create problems. Our team is doing a fantastic job. I will say that we are completely aware of the benefit and the priority. So, I think that we want to develop an excellent product that provides a very positive customer experience and that's exactly what we're working on.

Speaker 2

So we expect to see it not too distant future.

Operator

Our next question comes from the line of Chris Pasquale from Nephron Research.

Speaker 10

Thanks and congrats on the quarter guys. Two questions from me. One, we did hear from some doctors during the quarter that patients might be waiting a bit to get access to Moby. Just curious if you could comment on whether you were supply constrained at all. As you went through the quarter, you felt you were able to get to everyone.

Speaker 10

And then John, you mentioned how Mobi was expanding your prescriber base. You also talked about some of the prep work you're doing ahead of Type 2 approval. How are you feeling about your sales force and whether you might need to invest additional resources to get the coverage that you're going to need over the next 12 to 18 months? Thanks.

Speaker 2

Sure. Well, let me just say definitively that there was no Mobi supply chain problem and there was no product shortages. We did not have an extended period of time where we're not shipping. And I have seen the reports and I understand there was one physician that had issues. We're not familiar with what exactly went on there.

Speaker 2

So I'm not going to speculate, but we will contact him to find out. We have over 10,000 people prescribing our pumps today. And so if one person has a problem while we're not happy with it, it's definitely not reflective of what's going on. This is the launch where just getting Mobi kicked off. And as a result, it's a scaled launch.

Speaker 2

And sometimes during a scaled launch, you do pause for issues that need to be reconciled within the company. These pauses were short measured in days. And I can say that none of the positives that did occur were related to product shortages. Our commercial teams have done a great job in terms of just preparing for the launch and developing capacity and the supply chain. And so we feel very confident we can meet even the most aggressive demand on Movi that we hope to see this year.

Speaker 2

And relative to sales force, I'll just let Mark answer that briefly.

Speaker 3

Yes. Thanks, John. So, yes, I mean, as you'd expect, I mean, we're evaluating many aspects of the commercial and go to market model, both here in the U. S. As well as OUS.

Speaker 3

And so in the U. S. Specifically, it's too early to say. But we're taking a very analytical and fact based approach to determine the optimal commercial model. And of course, in addition to evaluating future expansion, we're also very focused on sales force effectiveness and putting new tools and capabilities in the hands of our sales

Operator

force. Thank you. Our next question comes from the line of Mike Kratzky from Leerink Partners.

Speaker 11

Hi, everyone. Thanks for taking our questions. And let me start by saying I appreciate the color on supply. Turning to 1 on your guidance, can you just confirm whether you're sticking with the wait and see approach before building in additional credit for Mobi sales? Or asked another way, I mean, to what extent is your updated guidance range for both 3Q and the full year starting to build in any additional credit for Mobi extension?

Speaker 5

Thanks for the question, Mike. So when we put together the guidance expectations for this year going up to 15% annual growth, We did obviously factor in the amount of that we beat by in the Q2, but we raised by an increased factor based on the early trends that we're seeing from the new product launches. And so it is still early, and there's a lot of data points and not necessarily suggestive of what long term trends may look like, but we felt confident putting this in the expectations for the remainder of the year.

Operator

Thank you. One moment for our next question. Our next question comes from the line of

Speaker 6

Larry Biegelsen from Wells Fargo.

Operator

Hey, this is

Speaker 12

Simeren on for Larry. Thanks for taking the question. So I just wanted to ask a follow-up on U. S. New starts.

Speaker 12

How are you thinking about new start trends through Q3 and Q4? And do you still expect U. S. New starts to be flat to slightly down year over year for the full year?

Speaker 5

Hi, thanks for the question. So as we look ahead to the 3rd and the 4th quarter, we do expect to see trends in the U. S. Of new starts growing year over year, and that will be mostly driven by the MDI conversion still being the leader compared to the competitive conversions. And so we did we factored that into our guidance expectation.

Speaker 5

So the original expectations you're referring to as being flat to slightly down were based on how we started the year. But now basically, we're assuming some level of improvement in those new pumpers coming to Tandem based on the early trends that we're seeing from the Mobi launch.

Operator

Our next question comes from the line of Matt Taylor from Jefferies.

Speaker 13

Hi, thanks for taking the question.

Speaker 7

I kind of just wanted

Speaker 14

to clarify 2 things that were already asked about in part. The first is, John, when you talk about the scale launch through the quarter, I know you said you had no disruptions, but I guess I think people are trying to get at did you exit the quarter basically at full scale where you weren't at full scale through the quarter just to inform what could happen in the second half of the year? And then the other clarification question was Lee on the guidance. In the past few quarters, you've really been taking this different guidance philosophy and guiding basically to renewal and supply growth. And I guess I'm just asking, is that changing now?

Speaker 14

And if so, could you articulate how you're changing the way you're guiding?

Speaker 2

Hey, Matt. I'll just I'll say that we actually introduced, Mobi midway through February and it was direct only for that time for the 1st several weeks. We moved to direct and DME at the very beginning of the second quarter. And then really the month of June was when we went to G7. We have a number of things that are planned.

Speaker 2

Of course, there's Mobi tubeless, there's an Android version, there's a Mobi Freestyle Libre 3, there's OUS Mobi. These things are all coming. But I think Mobi with G7 right now in the U. S. Is a fantastic other elements and features that I just spoke about, it will only improve the elements and features that I just spoke about, it will only improve the product's performance and make it available for the OUS markets at the same time.

Speaker 5

And to your question on guidance, Matt, I would not say that we're changing our philosophy by any means. We tend to set our guidance expectations based on what we have the best visibility to. And as we started the year, I would say that was mostly leaning on our knowledge of supply sales and how they trend as well as the renewal opportunities based on the consistent capture rates we've seen for the last few years. And in the midst of launching a new product, it's hard to really say how things will perform and it can be a little bit up and down at the very beginning. And so we wanted to gather more data before we put any of that into our guidance expectations.

Speaker 5

And so now we have some early data points. I would say they're not necessarily suggestive of long term trends, but it was enough to give us confidence to improve our expectations a little bit through the back half of the year based on the early learnings from the Mobi launch.

Operator

Our next question comes from the line of Izzy Kirby from Redburn Atlantic.

Speaker 15

Hi, guys. Thanks for taking my question. Hope you can hear me okay. You made a comment about the expansion of your prescriber base. Would love to sort of get any numbers you could share behind that, potentially the extent to which Mobi has gotten you into new accounts?

Speaker 15

And then any comment on whether those new accounts are more in the specialist space or more on the primary care side of things? Thanks.

Speaker 2

Hi, Izzy. I'm going to let Mark take that question.

Speaker 3

Yes. Thanks for the question, Izzy. Yes, I mean, we're pleased with the number of new prescribers for Mobi. I mean, it's definitely another one of those important leading indicators for any product launch. And so I won't comment on actual numbers, but we're confident that Mobi's value proposition is resonating with an expanded prescriber audience.

Speaker 3

It's too early, but we have some really good compelling early signals.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Joanne Wuensch from Citi.

Speaker 16

Good afternoon and thank you so much for taking the question and very nice quarter. I'm trying to get my head around what happens when you get the Type 2 label from Mobi. Clarify first, is it for Mobi or for TESOLIN? And then the second piece of it is, how do you view that market opportunity and how do you view uptake of it? Thank you.

Speaker 2

It's a thanks, Joanne. It's actually going to be an interoperable algorithm. And so it will be approved for both use on t:slim and Mobi and eventually on Siggi. So we would expect all of our products to have the latest generation algorithm working on that. We're certainly looking at a lot of different variables when it comes to market.

Speaker 2

We think, however, that Mobi with the discretion, convenience, that comes along with that is going to be a very appealing product. But at the same time, it only has 200 units where t:slim has 3. So I think there's likely to be interest in both products. We have about 20,000 people today that are currently using t:slim. SLIM.

Speaker 2

And so, we're in the throes of the planning process right now. We would expect the product to be available sometime in 2025. And I think when we get there, we'll be more specific about commercial strategy, product strategy, clinical strategy, etcetera. But those are things that we're working through as we speak.

Operator

Our next question comes from the line of Matthew O'Brien from Piper Sandler.

Speaker 7

Hey, this is Phil

Speaker 13

on for Matt. Thanks for taking our questions and congrats on the great quarter. I guess for the 1, in the past you've made comments about Mobi expanding the market for pumps. Has this been your experience with Mobi early on here? What patient might that be if you had to characterize it?

Speaker 13

And then on these new prescribers you talked about, are they traditional endo practices you might not have been in before? Are they maybe a new type of prescriber, maybe PCP, just thoughts there?

Speaker 2

I'll take the first half and I'll let Mark answer the second. But I just want to reinforce what Lee and Mark said in the opening comments. And that is that this is the 2nd highest revenue quarter we've ever had. And it was talked by the second quarter or the Q4 of 2022 and that's obviously seasonal. We saw the highest number of MDI conversions this quarter and we have seen in the last 6 quarters.

Speaker 2

And as Mark had said, about over half of the new users of Mobi were they were new to Tandem and then over half of those were MDI. So I think that the leading data suggests absolutely that Mobi is going to drive MDI conversions and that's really I think that's the thing that we expected to accomplish. And certainly in the early days, we're seeing that. Mark, I'll let you just wrap up the second half in terms of some of the characteristics of the users.

Speaker 3

Yes. I mean, we are calling on endos, PCPs, but also support providers, NPs and PAs. And so it's a pretty mixed audience, but primarily we're calling on endos. And I think what we're doing is just getting more data driven and how

Speaker 13

we

Speaker 3

look at targeting our commercial model. To how we look at targeting our commercial model. But for the time being, we're focusing primarily on endos and any broader expansion into primary care is something that we're not commenting on at this point.

Operator

Our next question comes from the line of Travis Steed from Bank of America Securities.

Speaker 4

Hey, thanks for taking the question. I wanted to ask about the new patient growth and trying to think about how that kind of carries forward into next year. Is the second half of this year new patient growth the right way to think about that as a jumping off point? Or is kind of the 2024 full year growth the right way to think about 2025? Just trying to kind of titrate new patient starts and how those kind of carry forward into next year?

Speaker 4

And any color on how to quantify the margin benefit in 2025 from OBI that you mentioned? Yes.

Speaker 5

Thanks for the questions, Travis. I'll just start by saying it's a little early for me to give too much in the terms of numbers for 2025 expectations, but maybe just a little more information to help you to think about it the way we think about it. I would say right now, it's still a little bit early for us to think about what those trends might look like into next year. We're just getting early insights into Mobi and we have enough visibility to think about some benefit for the remainder of this year, but we want to see how more of that comes together before we think about contribution in 2025 and beyond. But when you think about next year, the way we look at it, the way we started this year is thinking about how our business has evolved so much.

Speaker 5

We now have a much larger piece of our sales that come from recurring sources. And so when you think about our supply sales, you think about our renewal opportunities, which are growing significantly again into 2025, I think you can get a good solid baseline or starting point for how to think about growth for next year. And then we look forward to learning more about the new products and what kind of trajectory they can drive for the business. And as you mentioned on margins, Mobi is particularly important because it has such a meaningful impact on gross margin towards our long term targets.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jayson Bedford from Raymond James.

Speaker 9

Good afternoon. Apologize if I missed this. Just a clarification. Lee, I thought I heard you mention renewals were up 60%. I'm not sure if I have the right context there.

Speaker 9

If you could just kind of give us the messaging on renewals, that would be great. Thanks.

Speaker 5

Sure. Thanks for the question, Jason. Renewals still continue to be a bright spot for us. They were actually up about 40 percent year over year, so really strong double digit growth. I can say that as we look at the new opportunities coming to market, we're still seeing the same consistently high capture rates that we've been seeing for the past 2 years.

Speaker 5

So, renewals, like I was just mentioning on the last question, have become a very predictable revenue stream for us. It shows the high loyalty of our customer base. I think how good our products are, how good our customer service is, and we're very proud of how far we've progressed with the renewals.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jeff Johnson from Baird.

Speaker 11

Thank you. Good evening, guys. Lee, you gave us some good information, I think, on the new pump starts in the second quarter. When I plug that into my model, I get competitive converts probably down, I don't know, maybe 30% or so. That's somewhat consistent with last quarter.

Speaker 11

I'm just trying to reconcile that math. 1, am I ballpark accurate on that? And 2, I mean, I think we all understand that Medtronic, your biggest tube pump competitor, is doing a better job of holding on to their patients with some of their new CGM launches in that. But I'm trying to reconcile kind of that math with your comments about taking more cash pump share. I had your competitive converts down about the same last quarter.

Speaker 11

So either my math is off or I'm just trying to think is Medtronic doing an even better job this quarter and that then is getting offset by your ability to take some more patch pump share? Just kind of help us understand the moving parts between patch and your biggest tube competitor on the competitive conversion side. Thank you.

Speaker 5

Yes. Great questions, Jeff. So the way we think about it is, first of all, I would say the trends that we're seeing across the different elements are pretty much in line with our expectations. I will say that the notable increase in the disposable patch pump conversions was maybe a bit more than we anticipated, but we're certainly pleased with that performance and that people are moving our direction because of Mobi in particular. But you mentioned Medtronic, we did anticipate with 780 gs on the market.

Speaker 5

And again, just with the size of their installed base that we would see a decline in our opportunities there. So nothing is an outlier. We're very pleased with the mix. It was exactly how we were thinking things would trend as we move into the future with a much more reliance on the MDI expansion.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Joshua Jennings from TD Cowen.

Speaker 13

Thanks. This is Brian for Josh. I heard your earlier comments on Mobi supply, but can you speak specifically to your ability to scale in the very near term for the upcoming Libre integrations when they come, Just given that there's likely a lot of pent up demand for these. Thanks.

Speaker 5

So, I'll comment to our so for Mobi in particular, as John mentioned, we have had no supply constraints. We came into the year with sufficient capacity to meet the targets and the goals and even upside scenarios to that for Mobi through all of this year, getting us right set as we head into 2025. So while we would love to be challenged with having pent up demand come to the market and push on the limits that we have, but we feel very good about what we have in place.

Speaker 2

And you're right, we are excited about the FreeStyle with Libre 3 plus implementation. There's a large population of people who use that sensor that don't use AID systems, both in the U. S. And OUS. And so we're moving as aggressive as we can to get that product into the market.

Operator

Our next question comes from the line of Danielle Antalffy from UBS.

Speaker 12

Hey guys, good afternoon. Thanks so much for taking the question. Congrats on a really strong quarter here. Just a question on my favorite question on market growth. I mean, we now have your numbers as well as the pre announcement from one of your competitors.

Speaker 12

I mean, it just really feels like the market continues to accelerate here. Any comments you can make on market growth and what you've seen, how it's evolved over the last few quarters and where you see it going from here? Thanks so much.

Speaker 2

Yes. I think that last at the end of last year, we decided not to even talk about that, DeMarcus. We're the only company that was really talking specifically about the number of new pumps that we had seen and where they came from. It's also midway through the year and it's typically something you've got to wait till the end before and you've got to hear everybody talk about their situation before you can actually estimate what it looks like. That being said, I think that this is a it's an underserved market.

Speaker 2

It has a great deal of growth potential and we think that the penetration rates can get up from 35 or 40 today up to 60 to 65 in the next couple of years. And we think the technology that we, our partners and our competitors are bringing to market are certainly going to have a favorable impact on that and also help people living with diabetes. And so I think that we said we can get to a 1000000 users. We took the time away from that. That's still our objective.

Speaker 2

And I think that in order for that to happen, let's say, in the next 5 years, the number has got to eclipse 100,000 annually. And so I think, as I said, with new technologies, that's very possible.

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Earnings Conference Call
Tandem Diabetes Care Q2 2024
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