Tandem Diabetes Care, Inc.
Q2 2017 Earnings Call Transcript

Published: 28 Jul 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Tandem Diabetes Care Q2 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Susan Morrison, Chief Administrative Officer. Ma'am?

[Susan Morrison:]

Thanks. Good afternoon, everyone, and thank you for joining Tandem's second quarter 2017 earnings conference call. Today's discussions may include forward-looking statements. These statements reflect management's expectations about future events, product 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-K, Quarterly Report on Form 10-Q and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements whether as a result of new information, future events or other factors. In addition, today's discussion will 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. For additional information about our use of non-GAAP financial measures, please see the information under the heading use of non-GAAP financial measures in our press release. The company also announced in an SEC filing today, the commencement of an ATM or an at-the-market public offering of its common stock. The focus of this call is to discuss the company's financial results for the quarter ended June 30, 2017. In light of that and SEC rules and regulations, the company will not be discussing any ATM offering at any level of detail or answering questions about the offering. Kim Blickenstaff, Tandem's President and CEO will be leading today's call. And at this time, I'll turn it over to Kim.

[Kim Blickenstaff:]

Thank you, Susan. Hello, everyone, and thank you for joining us on today's second quarter earnings call. With me today is John Cajigas, our Chief Financial Officer. Looking back at the first half of 2017, I was very happy to see the demand for our next-generation t

[John Cajigas:]

Thanks, Kim. Good afternoon, everyone. Today, I'll be reviewing our Q2 results on both the GAAP and non-GAAP basis, and provide a color on our commercial and operational accomplishments. As a reminder, are non-GAAP results are adjusted from our GAAP results by excluding the impact of our technology upgrade program, which was initiated in July 2016. We believe that looking at our operating results on the non-GAAP basis provides useful information when comparing to our financial results for periods prior to Q3 2016. In 2017, the non-GAAP adjustments primarily included the recognition of sales and cost of sales previously deferred as a result of technology upgrade program accounting for upgrades that were fulfilled this year. We also recognized incremental upgrade fees and product cost incurred to fulfill the upgrade obligations. The program is scheduled to expire in September 2017. A reconciliation of GAAP results to non-GAAP results is included in today's earnings press release as an exhibit. Now looking at our sales and product shipments for Q2 of 2017, our GAAP sales were $21.3 million compared to $19 million for Q1 2017. Our non-GAAP sales were also $21.3 million compared to $17.5 million in Q1. The strong sequential growth was driven primarily by an increase in pump shipments as well as infusion sets sales. Although it remains competitive market as Kim mentioned, we continue to see signs of the pump market is beginning to unfreeze. And we anticipate this trend will continue throughout remainder of the year. During Q2 our pump GAAP sales were $13.3 million compared to $12.5 million in Q1. Our non-GAAP pump sales were $13.4 million compared to $11.1 million in Q1. We shipped a total 3,427 pumps, a 22% increase from 2,816 pumps we shipped in Q1. Our t

[Operator:]

Thank you. [Operator Instructions] Our first question is from Tao Levy of Wedbush. Your line is open.

[Tao Levy:]

Great. Thank you. Good afternoon. A couple questions at my end. So first, maybe you could talk about any potential programs that you may have needed to sort of push out or delay as you seek to reduce your operating expenses over the near term?

[Kim Blickenstaff:]

Well, I'd say, we are not trying to reduce our operating expenses, more control them. And obviously, we do rank our programs in terms of market importance and allocate our research and the manufacture and transfer dollars to those programs. So, now, we have pushed out guidance on G5 integration, PLGS or the TypeZero. Those remain our highest priorities. We'll talk more I think in future calls about some of the other improvements that are coming after those major programs for us as resources do free up.

[Tao Levy:]

Okay, great. And then, I don't know if you've ever talked about the sort of the percentage of your pump patients who are Medicare age. And, I guess, what I'm trying to figure out is will these patients be able to now transition to be able to use an integrated Tandem device like, you know, I guess, upgrade to the X2 or something where they can use a CGM if they're going to get reimbursement on G5?

[Kim Blickenstaff:]

So our Medicare age patients are generally in the 10% to 15% range of our…

[Susan Morrison:]

The people who are on Medicare, yeah.

[Kim Blickenstaff:]

Medicare and Medicaid, so that's sort of the population you're dealing with.

[Susan Morrison:]

And as far as their ability to use the product, so we won't know whether or not Medicare would be covering any of the integrated systems until following FDA approval. And so, unfortunately, we don't have an answer for that at this time. But it's something that we will be pursuing.

[Tao Levy:]

Got you. Okay. And then just lastly in terms of the timing, the PLGS I think you're talking about now, summer 2018 is a realistic goal for a launch, I think that's a little bit further behind than early 2018. And is that just being conservative or is that based on your feedback from the FDA? Thanks.

[Kim Blickenstaff:]

Well, it's just a combination of the reality of the trial initiation, recruitment and that timeline. And then, we're assuming a standard review time for the FDA. So it probably would slipped most of all.

[Tao Levy:]

Okay, great. Thanks a lot.

[Susan Morrison:]

Thanks, Tao.

[Operator:]

Thank you. Our next question is from Matt O'Brien of Piper Jaffray. Your line is open.

[JP McKim:]

Hi, good afternoon. This is JP on for Matt. Thanks for taking the question. I just want to touch back with the timeline there. You are saying that it took a little longer to recruit than expected. And the FDA, proving your ability of X2 to talk with G5, that should be in the near future. But that doesn't really - that's not going to have affect the timeline of the low glucose suspend, right?

[Kim Blickenstaff:]

No, no, that's right. PLGS is independent of the TypeZero program. And they're totally different to investigators that are involved in those, also different size of clinical trial for both.

[JP McKim:]

Okay. So the midsummer launch of PLGS is not going to be the one talking with Dexcom sensor. That's going to be at the end of 2018, which is more of a closed loop.

[Kim Blickenstaff:]

The G5 will obviously talk with - the Dexcom sensor receives that signal. But we also use their transmission app to the Droid and the Apple platform. So you have that Share feature which others don't have in that marketplace. And what's really unique about that is it if you think about a parent sending children off to school. There is no way to get blood glucose values from them other than pick up the phone and call, call the school nurse. Now, they can actually track their children's control during the day. And we hear a lot about boyfriend, girlfriend or spouses actually looking over the other person's shoulder to see how they're doing, especially at night, because otherwise you have to wake people up and do a finger stick or wake people up and look at their PDA. So that's going to be a big advantage. I think people are really going to enjoy with the G5 in advance of PLGS being the automated hypo minimizer algorithm.

[JP McKim:]

Got you. And then, yours will have - the one at 2018 will actually have an auto bolus correction, that you're probably the person on the market with that, correct? Do you know where Medtronic is in their process there?

[Kim Blickenstaff:]

Yeah, there is an announced process there. I don't know that I have the dates, but it's farther out than our program.

[JP McKim:]

Got it. And then will you need to do anything once the G6 is out in terms of going back to the FDA or will it just be kind of a software update on your end?

[Kim Blickenstaff:]

Well, G6 is already being worked on by Dexcom to go the FDA in the same timeframe that we're predicting to be done with our trial and get approval. So that we'll have get approved and our X2 will have been approved with PLGS. Now, we're getting approval for the G6 plus the TypeZero algorithm. So we haven't forecasted any benefit from the FDA having seen these pieces coming sequentially. But that's sort of the order of events for the TypeZero product that is a G6 driven product.

[JP McKim:]

Got you. And then a couple of more, one on t

[John Cajigas:]

It's going to be in the tens of millions. The way we sort of look at it is a customer who buys our product on a direct basis somewhere between 1,200 and 1,400 on a total basis for consumables, which includes cartridges and infusion set. And infusion sets are about 60% to 70% of that.

[JP McKim:]

Okay. That's helpful. And then the last one for me on your kind of the pump market. You said - you commented that it's unfreezing a little bit, your feedback on synergies and mix. Have you seen sort of customer maybe trailing it or customers that were on hold come back to you guys thus far?

[Kim Blickenstaff:]

I would say, they are early in the trial phase still. Our best estimates is about 1,000 people are on the 670G. There is 20,000 in that queue in the priority access program. So I really have to say everything is anecdotal. There maybe a few cases of people coming back to us, but it's nothing we can measure trends on, because the end number of people actually trailing that 670G is pretty small, yeah.

[JP McKim:]

Got it. Thanks for taking the question.

[Operator:]

Thank you. Next question is from Ryan Blicker of Cowen and Company. Your line is open.

[Ryan Blicker:]

Hi, thanks for taking my questions. You discussed launching X2 internationally next year and said you plan to use distribution partners. Have distribution partners already been established or is that something you hope to achieve over the next couple of quarters?

[John Cajigas:]

We are in the middle of that process now having discussions, but we have not selected partnership.

[Ryan Blicker:]

Okay. And then, maybe another on G5 display integration. You've made very clear from the start that you'll offer that update free of charge to customers. However, why not charge a nominal fee just to help the near-term cash flow?

[Kim Blickenstaff:]

Well, I think our market standpoint, we really want people to actively do that upgrade, so they get the sense of the power of the Device Updater. I mean, we all are giving updates to our cell phones and giving them latest and greatest improvements, and we used to do it via computer, now we're doing it via our providers. But I really think this is something that we 20,000 of the X2 patients and we really want to push this out there quickly, and help them understand the power of what they're getting. So the healthcare providers really begin to buy into the importance of upgradability during the four year life of a product, because if you look at the next 2, 2.5 years, we're going to have three upgrades here. And so we just want to make sure, we get the broadest experience as we launch this first update.

[Ryan Blicker:]

Okay. That makes sense. And then I guess along those lines, after you've established that as you look forward to future software updates, is that something you'd be consider.

[Kim Blickenstaff:]

That is something we will consider in the future. I think, this first round, we really want establish the evidence that the way we go about upgrade, it's a simpler and easier process that doesn't involve clumsy hardware exchange programs.

[Ryan Blicker:]

Got it. And then one more quick one for me. Just on the trial timelines for the predictive low glucose suspend product. Can you provide any more details - more granular details and maybe when you expect to start that pivotal trial? Thank you.

[Susan Morrison:]

Sure, we're preparing for a moment of the participants now, it's just based on the anticipated timing that that's going to be, and then with the crossover nature of the study. We don't expect the trial going to actually wrap up until just before year-end. And just based on the nature of the time it takes for the centers to prepare the reports, and then are filed the submission and then regulatory timeline. That's where you add it up. We also just - previously we've said, we believe that there's going to be a benefit because the FDA will just review t

[Ryan Blicker:]

Got it. Thank you.

[Operator:]

Thank you. Our next question is from Jeff Johnson of Baird. Your line is open.

[Unidentified Analyst:]

Hi, guys. This is Tim in for Jeff this afternoon. Thanks for taking the questions. First on new patient dynamics in the quarter, when looking at the 60% of new patients that came from competitive conversions, I know you called majority of those coming from Medtronic and then J&J. But I'm just wondering if you've seen a shift in that mix. If you're noticing less coming from Medtronic and more from J&J as J&J has recently spell their channel support.

[Kim Blickenstaff:]

Well, I would say, the trend we've seen is increasing MDI usage. I mean, obviously we were at 50% sort of total in our base and now we're on the margin up in the 60% range. But I don't think there's any other trends that we've seen in the converting of population that we have. I mean, obviously, Roche is essentially out of the market, doesn't count for much. And we traditionally have not converted insulin pump patients, so over to a durable pump they like that patch pump, lack of a catheter feature. So MDI is very promising, the rest of it is just sort of static.

[Unidentified Analyst:]

Okay, great. That's very helpful. And then in terms of your international rollout, I know, you call that Canada specifically, but would you be willing to provide any color on other geographies, particularly in Europe that you guys are going to be looking to get into first?

[Kim Blickenstaff:]

Yes, we've got some time to put that all together, we were looking at them, and there are some countries in Europe that have better reimbursement environment so forth. And obviously some of that reimburse pump. So we're putting that plan together, but Canada definitely is more like the U.S., addition that we can execute fairly easily. But we will give you more on which countries and when as we develop our plans toward the end of the year.

[Unidentified Analyst:]

Okay. Great. And then, I guess, one last one. As you move to kind of a more of a recurring revenue stream with t

[Kim Blickenstaff:]

I think at this point, we think our business model is the way to go especially with the current reimbursement dynamics that are out there.

[Unidentified Analyst:]

Okay. Great. Thank you.

[Operator:]

Thank you. At this time, there are no other questions in the queue. I'll turn it to Mr. Blickenstaff for closing remarks.

[Kim Blickenstaff:]

Well, thanks everybody for joining our all today. We do have one healthcare conference between now and the next Q3 conference call. And that's the Wedbush conference which is in New York City and we're presenting on August 15. That's just several weeks away. So anyway, just in conclusion I think we have demonstrated strength in the first half of 2017. We have great product potential for the back half of the year with our G5 launch. And then beyond as we bring our PLGS and our TypeZero treatment [ph] range products to the market through our Tandem Updater, without these complex swap up programs. So we look forward to keeping you updated as we continue to make progress on our financial front and on our product rollout front. Talk to you next quarter Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.