Q2 2020 Tandem Diabetes Care Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to tandem second quarter 2020 earnings call.
At this time all participants on E listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that today's conference maybe recorded.
You acquire any further assistance please press star zero.
I would now like to end the conference over to your hosts SVP and Chief administrative officer, Susan Morrison Madam. Please go ahead.
Great. Thank you and welcome everyone to tandem second quarter 2020 earnings call.
Today's discussion will include forward looking statements. These statements reflect management's expectations about future events product development timeline and financial performance and operating plan 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.
Just a factors that could cause actual results to be materially different from those expressed or implied 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 and.
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 adjusted EBITDA, which is a non-GAAP financial measure adjusted EBITDA as a team measure used by us to evaluate operating performance generate future operating plans and make strategic decisions for the allocation of capital. Please refer to our press release issued earlier today for further information.
Okay.
John shared and President and CEO, and Lee Bossler Executive Vice President and Chief Financial Officer will be participating on today's call. Following our prepared remarks, well open up the call for questions. Thanks for limiting yourself to asking two questions before getting back into the queue with that I'll now turn the call over to John.
Thanks, Susan and good afternoon, everyone and welcome to todays call looking back at the first half of 2020, the broader issues impacting to world continue to be at the forefront of our March.
Incredibly even in this challenging global environment, our business has excelled in its commercial operational and strategic performance.
I'd like to say special thanks to our employees for their steadfast focus and commitment to improving the lives of people living with diabetes is only through their hard work and dedication that our customers are able to succeed and it was the result, so with our business.
I'm very proud of the team and all that we have accomplished.
I'd also like to extend to continue thanks to the healthcare providers supporting diabetes community and to the frontline workers looking after all of US. During these challenging times. In addition to all of our suppliers, who continue to support us without disruption. Thank you to everyone.
Next I'd like to take a moment to extend an extra welcome to our two new board members, Kathy Mcgrady guess and Peyton Howell Kathy has extensive experience commercializing pioneering technologies that span from microelectronics through software advanced data analytics.
Artificial intelligence with an emphasis on healthcare and life science applications.
Hey, it's a reimbursement extra expert across a broad range of disease states, including diabetes and brings a broad wealth of the healthcare knowledge across in hospital pharmacy and home care settings.
We're very fortunate to welcome caffeine Peyton scoreboard prospectus will be extremely valuable as we work to execute on our long term strategy to lead in insulin therapy management.
The addition of these two talented individuals were too many meaningful recent announcements.
Since our last call. We also further strengthened our balance sheet with a successful completion of a convertible debt offering of nearly $290 million.
Presented compelling real world clinical outcomes, but early adopters of our control like you technology.
Earned FDA clearance lowering of the age indication for control at Q from an Ace 14 down to 86 in above.
Announced our acquisition of the popular sugarcane app.
Finalize our agreement with Abbott to integrate their CGM technology with our pumps and completed of cross license agreement with Medtronic.
As if this long list of accomplishes was not enough. We're also able to share a highly anticipated decision by United Healthcare to include Tandems products in their network.
All the while we also achieved record worldwide sales in the second quarter, which are even better than expected when we entered the quarter with the challenges of cobot 19.
Based on the continued high demand for our T. slump X two insulin pump we are reinstating our original sales guidance.
That we said at getting of 2020.
Domestically the feedback for are easy to use Bluetooth enabled T. Slim X. Two platform continues to be outstanding. This has furthered by the growing awareness of our control like you technology thats, demonstrating even better real world clinical results than in our pivotal study.
Our t. connect data provides us great customer insight and indicates that overall, our domestic integrated dexcom CGM use has increased from approximately 30% just two years ago to more than 60%. Today. Similarly, the data also indicates that more than 60% of our customers in the us use either days like you.
Or control like Q.
And looking just at part two two new domestic customers the present using CGM as meaningfully higher than the 60% in the overall installed base.
These customers who are adopting peaceful next to therapy from multiple daily injections more than half are using CGM.
This supports our belief that once a person has their CGM information it often highlights opportunities for greater glucose control, which is we're pump therapy in automated insulin delivery comes into play.
Importantly, we are also continued to see about half of our new customers report adopting pump therapy for the first time for multiple daily injection.
This was consistent throughout the month of the second quarter, which was meaningful as there was a natural assumption that people may be less likely to adopt pump therapy during the pandemic.
The other metric of note is that people with type one are making up more than 90% of our new customers.
Evidenced that we are continuing to make progress in our broader strategic goal to bring the benefits of pump therapy to more people with diabetes by expanding the type one insulin pump market from just over 30% today to 50%.
It also points to there being a largely unsupported market of people with insulin dependent type two diabetes that have not been our primary focus in the past, but we are evaluating how our technology can help address the unmet needs of this population.
Another interesting arbors observation from the quarter is that nearly all of our new customer pump trainings were performed virtually and we are receiving extremely hard marks from customers on the training experience in fact customer confidence and satisfaction scores have increased and while small percentage of people have opted to wait for like training. Many have moved forward virtually.
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Today, we estimate that the vast majority of our accounts are seeing some of their patients in the office, Although limited access for commercial activities continues our sales reps and educators are using their discretion based on geography of whether that they will participate in line in these live visits.
On a direction overall this to limit interactions and were promote as much as possible.
Even with the challenges of Cowen 19, we're expecting growth throughout this year. We anticipate this will continue to be driven by some level of seasonality along with strong interest in control I Q and the expanded access to the United Healthcare members.
Unitedhealthcares recent decision is one that we celebrated with the entire diabetes community as it provides people living with diabetes greater choice in their therapy management.
Access is an initial step towards improved outcomes and we look forward to bringing the benefits of the T. Slim X two insulin pump so United healthcare members.
Internationally, our new pump sales also exceeded our expectations, we assumed that there would not be many pump placements during the quarter as many people with diabetes received their care through hospital systems outside of the United States.
However, our distributor restocking orders and their feedback demonstrated that Theres continued demand for the TCIL next to even in this challenging environment.
The T. Slim next to pump software is now available and 12 languages and we've been receiving the same positive feedback from international users on their experience with our east to use T Slim X two system.
Im also excited to share that we have commenced the international launch of our control I see technology, which is at the early end of our second half of 2020 goal.
Control I Q is now available in the UK in South Africa, and we plan to continue rolling it out more broadly internationally throughout the remainder of the year.
As you can see our worldwide commercial efforts are progressing extremely well, which we attribute to both our product innovation and our emphasis on customer service. Similarly, our corporate and operational functions continued to perform at a very high level.
Employees, who are able to perform their job functions remotely continued to do so and we do not feel any immediate pressure have them return to the office and potentially put them at increased risk.
Our manufacturing and warehouse employees continue to operate on site with heightened safety precautions in place as does our third party cartridge manufacturer just across the border in Mexico.
These teams at the excelled in the face of coded 19 challenges and are continuing to work towards our production goals, while preparing for future growth.
Scalability continues to be a focus for us, particularly as we advance our new products in development.
Overall, we view the R&D impact from Covre 19 to be a delay of just over a quarter and when considering the circumstances are very happy that there was no further impact.
In the next 12 months, we're focused on preparing to bring three new products and features to market in us, including the launch of our T. connect mobile App, which is underway now.
Future edition of the mobile bolus delivery feature through an app.
And the clearance of the transport insulin delivery system.
As a reminder, Archie connect mobile App is the center of our digital health strategy moving forward, which is why we took a more metered approach to its launch over the past few weeks.
Even without broad promotion approximately 15000 people have downloaded the app since its release for both Android and iOS devices.
Most importantly feedback on the user experience of the App has been excellent and we're confident in its ability to serve as a foundation for future offerings. We would we will be ramping up his promotion now so both customers and healthcare providers are aware of what's key benefits such as a secondary display and the wireless upload a pump data.
The wireless upload feature takes way up burdensome step from our customers and their health care providers of having to upload data through a USBC cable to see tracking and trending information and T. connect this improves the HCP office efficiency by streamlining visits and providing an important resource for the delivery of care using tele health platforms.
The ability for our users to deliver a bolus through an app is the next major feature we plan to launch and one that is already in high demand human factors testing has started and will take several weeks to complete at various sites across the country. Then we will compile and analyze the data which will be used in a five 10-K submission to the FDA in the fourth quarter.
There is not a commercially available app that delivers insulin from a consumer mobile device and FDA resources are being prioritized recovered 19, so the timing for the clearance is difficult to predict but we are preparing to launch in the first quarter of 2021.
For mobile as capability as a meaningful step towards full mobile control, which is our next major feature we plan to launch on our App for the operation of our next generation hardware platform the T. sport pump.
Sport is meaningful to our business ethics expands the family of insulin pump offerings and offers customers a choice depending on whether they prefer to program there therapy management using a touch screen on the pump or they prefer upon us about half the side and fully controlled controlled through a mobile app both platforms will offer the latest automated insulin.
Delivery algorithm I.
Im happy to share that human factors testing for two sport is now underway as a reminder, t. sport, we'll have to a two part regulatory strategy. The first filing is expected to include both sport hardware and a dedicated controller and is now planned for the fourth quarter due to the cobot 19 delays.
This will be followed by a separate filing for the T support product.
Utilizing the full pump control through our mobile app.
While the second filing is under review, we plan to gather expanded real world user experience with upon scalar manufacturing processes.
However in light of this multiple step strategy. It's also more difficult to predict the ultimate FDA clearance and broad commercial availability, but we are preparing for clearance in the summer of 2021, after which time will commence our commercial launch.
Rounding out our digital health activities in the quarter was the acquisition of sugar made a popular app with a complimentary features to tecan that should permit also integrates with consumer devices, such as the Apple watch Alexa and Carplay and helps visualize therapy data in innovative ways, which is key to supporting our insulin therapy management.
We estimate that more than half of the 30000 people using sugar may do not using insulin pump today.
So we expected to help us deliver new features to tandem pump users as well as to a broader community of people with diabetes is to first acquisition for our company and a small but important step in the future development of digital health platforms that reinforce our strategy to lead in insulin therapy management.
Also in support of the strategy, we continue to advance our internal development efforts on features and enhancements of our control I Q technology.
We aren't providing a schedule yet for competitive reasons, but broadly they are centered around algorithm enhancements that are intended to further improve clinical outcomes, new features with greater personalization and refinement of the overall systems usability. We're planning the first of our control like you update in the second half of 2021.
In other exciting business development activities. This quarter, we're happy to finalize our agreement with Abbott to develop and commercialize and integrated system using your technology.
The product development teams are kicking off integration efforts now from which will be able to established commercial timelines, we look forward to bringing the benefits of integration and automation insulin deliveries out as customers and more people living with diabetes.
As you can see we are very busy and each of our accomplishments. This quarter individually represents a tremendous amount of cross functional work.
Collectively as a reflection of the strength of our organization and the high level at which we are functioning to drive the near and longer term growth of our business and further our admissions to improve the lives of people living with diabetes.
I'd now like to turn the call over to leave for further discussion of results for the quarter as well as financial guidance.
Thank you John and good afternoon, everyone.
It it's remarkable that we achieved our high sales quarter ever and the Facebook has a 19 pandemic. We entered the second quarter with a great deal of uncertainty regarding the pandemic impact while we did experience negative pressure on our volume the impact was far less pronounced than originally anticipated.
Thank you again generically suppliers and distributors to continue to have our tirelessly to support our customers.
Worldwide sales in the second quarter were a record 109 million, representing 17% growth over last year, which we already had anticipated to be a tough comparison due to international dynamic in 2019.
Our worldwide installed base has reached nearly 170000 customers with 18700 pumps shipped was light this quarter.
Overall, our worldwide sales in the first half of 2020 were 207 million, our strong 30% growth year over year.
As our international operations continue to become a more meaningful targeted business, it's important to understand the different trends in the U.S. and are you Latin America.
Starting with the U.S., our domestic pump shipments grew 15% year over year to 14700.
We attribute this growth to the appeal of our you pump with the ability to offer run as Safra update and the building customer awareness of our country like to technology and the improved clinical benefits. It offers as well as our successful Kevin to operating in a telehealth and bank Mick.
Our second quarter shipments included approximately 3000 times renewal customers is it more than we shipped renewing customers for the entire first half of 2019, and we're happy with steady progress they continue to make on our renewal and retention initiatives.
In total we achieved 89 million in domestic sales in the second quarter 33 million of which four from sales of supply.
This growth in supply sales reflects the more than 40% increase in our domestic installed base compared to last year, which has now reached approximately 137000 in warranty customers.
On a year to date basis, our domestic sales are 169 million for 35% growth versus 125 million in 2019.
Outside the U.S., our second quarter results are not directly comparable to last year as a reminder, and the second quarter at 2019, our international sales benefited significantly from the last major influx of anaemic patients converting containers as has the fulfillment of the $7 million back last kind of supplier component constraints months earlier.
This quarter, we shipped approximately 4000 path, which is of course down 78500 shipped last year give you those onetime dynamic that meaningfully more than our expectations at the beginning of the quarter.
As a result, and the second quarter 2020, we achieved 20 million in international sale.
On a year to date basis, our international Safra 38 million versus 34 million in the prior year, which represents 12% growth due largely to the supply contribution from our growing international installed base.
We now have approximately 32000 customers outside the U.S. and just under two years I.
By comparison in the U.S., we did not reach an installed base at that site for more than three years post launch.
As we look forward, we're confident in reinstating our original 2020 worldwide sales guidance that we set at the beginning of the year of 450 million to 465 million.
Included in our assumptions is that balance at the headwinds and Tailwinds, we are experiencing including the continued unpredictable nature of the corporate 19 pandemic. It is important to note that we continue to feel pressure from the pandemic and do not anticipate returning to full recovery in 2020.
That being said several positive factors give us confidence and the remainder of the year. These factors are the strong positive feedback from control like too so far in its continued scaling rollout worldwide.
Our demonstrated six that operating in a remote environment and to the anticipated benefit from United healthcare, including tandem as a network provider.
We anticipate achieving domestic sales of approximately 389 to 399 in the U.S., we had historically significant seasonal uptick across the year, particularly in the fourth quarter, where our pump shipments have typically represented 35% to 40% of four year.
At this time, we are assuming that the benefits from seasonality along with control like you and access United Healthcare members will drive sequential benefit and the third and fourth quarter, but I think overall pressure relating to the pandemic will remain on target.
Outside the U.S., our 2020 sales guidance assumes approximately 70 million to 75 million sales.
This expectation reflects continued pressure from Kevin 19 on existing and new markets.
Aside from that we consider the likely variability in the ordering patterns of our distributors from typical European third quarter holidays understanding launch of control like you should remain during the year.
The majority of the decline with term royalty and noncash stock based comp.
Great royalty expense associated with control like you is a new element of gross margin in 2020 for which there with no comparable expense in 2019.
We recognize royalty expense for every new concept is filled with control like to install as well as for the three software updates in the quarter.
And the second quarter royalty expense with nearly 2% of sale.
R&D expenses, the president of sales may fluctuate in the near term depending on the number of free Safra update in any given period that will eventually decline as a percentage of sales I.
Additionally, noncash stock based compensation on cost of sales increased to 2% of sales in the second quarter of 2021% in the second quarter at 2019.
Fluctuating sales and manufacturing volumes also had an impact on the gross margin this quarter. The sales benefit we saw in Q2 last year from the backlog fulfillment resulted in an increased pumping manufacturing volumes to meet the incremental demand.
In contrast in recent months, we have reduced our pump manufacturing dose by managing our inventory to appropriate level. During a pandemic as a result, our manufacturing volumes were down more than 15% in the first half of 2020 compared to the prior year, which increased overhead cost per unit in the second quarter and will continue into the third quarter.
As an essential the starring Kevin. We also made certain decisions that resulted in slightly increased cost in order to de risk I guess manufacturing disruption and ensure continuity of supply to our customers that just hearing a larger number of direct labor inflation.
Other impacts on gross margin this quarter and create a slight benefit from from average selling prices pressure from product mix and higher spending levels to both increased cartridge manufacturing capacity and support our digital health product offerings.
Overall, we anticipate that our gross margin for 2020 will be in the low to mid 50% range.
We continue to execute on our margin improvement initiatives and feel confident in achieving our long term gross margin goal that at least 60%.
Our adjusted EBITDA margin, which excludes the impact of noncash stock based compensation with 6% and the second quarter, continuing that trend of reporting positive quarterly adjusted EBITDA margins since the fourth quarter of 2018.
Prior to the onset of covert 19, we made a conscious decision to fund investments in 2020 that we're focused on driving our long term sales and profitability initiatives.
Due to the strengthen our balance sheet, we are committed to continuing these investments even in the face at the closing 19 pressures.
As a result, our operating expenses grew to 66 million in the second quarter at 2020, including 14 million of noncash stock comp.
By comparison, our operating expenses were 52 million in the second quarter 2019, including 11 million of stock comp.
We anticipate achieving adjusted EBITDA margins in the low to mid teens as a percentage sales in 2020, which as we continue to focus on prudent spending to meet the objectives in our strategic plan.
Our total cash and investments at the end of the second quarter were 426 million up from 176 nine at the end of 2019.
This increase includes 245 million in net proceeds from the convertible debt transaction that we completed in May 2020, as well as 31 million generated year to date from employee stock plans and warrant exercises.
In summary, we anticipate 2020 worldwide sales could be in the range at 450 million to 465 million, which includes international sales in the range of 70 million to 75 million.
We remain committed to investing in key initiatives that are expected to deliver both sales and profitability returned to beyond 2020. As a result, we anticipate that gross margins in 2020 will be in the low to mid 50% range and adjusted EBITDA margins will be in the low to mid teens as a percentage of sales.
With that I will turn it over to the operator for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone again Thats Star wondering you touched on telephones ask a question to withdraw your question press the pound.
Please standby, while we compile the Q and a roster.
Well the questions are being compiled wanted dimension that there is a short delay in filing our 10-Q due to Edgar issue and we expect it to be filed as soon as the system comes back online. Thanks.
Thank you. Our first question comes from the line Brooks O'neil of Lake Street Capital. Your line is open.
Good afternoon, all congratulations on a terrific performance here in the positive outlook as well so.
Nice work thanks. Thanks.
So I was listening as carefully as they could.
And I Didnt hear you, specifically say a lot about what the trends have been in July and what changes.
You've been seeing in the most recent time period could you give us just a little field for what you're seeing out there.
Recently.
Sure Bucks. Thanks for the question, but to go back just a little bit further as well talk a little bit more about what we saw in the second quarter that led us to give confidence to reinstating our guidance for the year and really what happened with where we were on our first quarter earnings probably ended April we were starting to see a little bit of softness in may which is why we withdrew the annual.
Guidance when we gave a number just for the second quarter, but what happens in the middle to late part of the quarter. We started to see what I guess I would refer to as a stabilization and so rather than the normal seasonal uptick we saw some strength, but not as strong leasing in the past on as you move into July we're very excited because now we have the opportunity to there too.
Okay go after the United Healthcare members now that we're in network, there again and based on the strength that we were seeing in the second quarter and the momentum were seeing some control like Q as we go forward, we're very confident in the numbers that we given for the rest of the year, but still cautious about the impact that company like you could put on that.
Next I'd also say that we've been very successful operating the tele health environment or sales team and training team are doing an outstanding job and that's that's really helping us outfield.
So would you say just as a quick follow up but not really my second question, but would you say you don't anticipate any problems continue in more of a parallel for environment's going through the third quarter it into the fourth.
I mean, I think the team is operating very efficiently in the Tele health World and I think that.
Right now I think that the the health care providers are as well are getting used to it and there has been some opening up of offices as of late.
It's shutdown entirely in the late March.
April and May timeframe, but late maybe starting to see opening up and there was even more of that in the in the June timeframe, but I think that its tele health is going to be something thats important going forward and I think our key feels very comfortable doing that we've been we've been prepared and we've been doing this for a while now so I don't think thats going to have an impact on us.
Great. So second question I had was could you just talk a little bit about more about international Im really excited about opportunity with Abbott given their enormous success internationally, but my sense is right now you're primarily marketing Bazell IPO Ed.
Tell us how that's going to tell us.
Any changes you've seen when you're beginning to switch over to control like you and how that might be changing the dynamics internationally in the near term.
Okay. So we we began introducing bays like you in second half of 2019 and wins that we have at that point roughly 12 countries. Most of those countries now are actively using bays like you and there's the same kind of success the same kind of excitement and positive feedback that we see in the state. We're now also see.
Or use and then as we indicated we just now began to launch control as Hugh and ends in the UK and in South Africa, and so thats earlier than we expected and we have a planned to launch control like you by geographies between now and the ended the year for the rest of the geographies. So we're excited about that we build.
Leave that control like you is very competitive we think that the certain San competitive dynamics were seeing here in the us are going to exist or use so we're very confident with that.
We're excited about it and.
That is great for the use of pump users I will say that there has been some unpredictable unpredictability in the ordering patterns.
You asked and this is predominantly because most of the patient visits occur in hospital settings, and because of that were just there's uncertainty in how we might.
Actually see the O us demand materialize in the second half as it's less that way in this space, but I think thats kind of that headwind that I think is is basically countered by the.
The tailwind of the control like you introduction.
Yes, thats great. Thank you so much for taking my questions sure. Thanks.
Thank you. Our next question comes from Travis Steed of Bank of America. Your question. Please.
Hi, congratulations on a great quarter.
So the fully discharges.
Full year guys. The same now as it was before but just curious now that you're halfway through the year. If you're tracking ahead of that original plan or.
Or below that plan and now you have you in eight.
To kind of fill the void just just kind of curious.
If you get like a video review here, where you stand.
Sure that we're fortunate to be able to reinstate our original guidance, but its with much different dynamics now than we had we're thinking I guess I would say when we set the original guidance. So at the beginning at the year I guess I just start with our guidance philosophy just to remind everyone is that we factoring elements that we think are more within our control and more cautious about on areas, where we don't have as much.
Control so from a renewal perspective, so very competent and where those numbers are heading on at the beginning of the year. We were very focused on how quickly or how much more the anti market with growth compared to what we've seen last year, which showed an escalation as well as we were cautious about controlling too because we had just launched debt and while we believe there could be an inflection is on that we weren't.
Building that initially began to see some travel. So here, we are halfway through the year and everything and slip on it had a very different now and that kind of it is applying pressure, we're seeing great momentum from control like Houston, we're factoring that into the back half of the year and now we have United which we also don't anticipate before so much different dynamics that Fortunately, we're still going to be coming.
And at the very stronger with a great growth over last year.
Okay and it looks like if you look at the new patient you asked for Q2, it's only about 15 1500 500 below trend. So very in line with trend just kind of trying to tease out the negative impact from covance patients delaying versus the benefit from control on Q you have any sense for.
How many patients you think delayed and if those come out in the second house and.
Also on the second half just trying to think of Theyre going to be a bolus of patients from you in age that that come through our if you think that will be more steady state and thanks for taking the questions.
Sure. Thanks, Travis it's hard to stay exactly how much less pressure from closing versus offset some control like Q. When it came say if that Q2 didn't come in where we had originally anticipated, but when we entered the quarter here recall, we were much more cautious about half how qt would turn out and really we attribute control like you to being that driving force the giving us greater.
Strengthen the second quarter and so when it comes to United Healthcare, what I can say right now at least that there's been great excitement for people who are are anxious to actually have to switch to our pump or satcom therapy for the first time that we're going to be able to you before because there was an access to our technology. So we expect as we think about United healthcare.
We've communicated that we expected to be in mid single digit lift to the business and so again another element that we are very excited about for the back half.
Thank you. It next question comes on the line of Alex Nowak of Craig Hallum. Your line is open.
Great. Good afternoon, everyone first congrats on getting back in network with United Healthcare Big win.
Obviously that announcement appears to have come with sounds preferential language towards the competitor Medtronic cages explained how this is going to affect the reentry into the United Hope population, then what's sort of targeted marketing actions can you take to get those that are weighing to switch to a pump to switch the panel.
I would just say that.
We really are in a position to talk about the.
So in marketing practices that.
You NHL as we were careful and we basically we're closer to them to do exactly as they asked.
I think that now that the exact words out we're able to discuss it.
I don't think that there's any competitive advantage that medtronic may have against us in this situation right here.
I have mentioned prior ops prior offs are things that we deal with routinely is something the organization knows how to manage and there's really no benefit I think from that against what we're dealing with today. So we're excited about it we think the diabetes can DC will benefit from this.
And we're happy to provide benefits control human our pump therapy to the the UN see you NH.
A population.
Okay understood and then just staying on Medtronic they put out data in June on their next Gen pump seven AG.
Since you do have some really good visibility into orders on a almost a week to week basis did you see any change in order patterns. After this product announcement on all the blogs started to talk about the data and then just maybe can you speak about have you talked with endos on their thoughts on the Medtronic data compared to control like you.
I would say that we haven't seen any effect I mean, as you saw that half of our.
Our new sales were competitive conversions and is predominantly Medtronic at this point in time, so really really nothing happened I say as a result of that you know I think that the data that they presented was was good data.
I think that it was better than the successfully Angie we all know that the issue that they're dealing with however is really the sensor and so I think until they get the center under control all the the performance of the sensor in line with.
With Dexcom at Abbott I think they're going to continue to struggle. So.
I think.
We feel very good about control like you compete against the disseminate EG and.
We'll have to wait and see what happens when it gets the market here.
Okay understood congrats.
Thank you.
Thank you. Our next question comes from the line of Danielle Antalffy of SVB Leerink. Your line is open.
Hi, good afternoon, guys. Thanks, the questions and congrats on a really strong quarter.
Just to follow switch question and Medtronic.
You mentioned John here in the last question that 50% of your new year, New starts were competitive switches Betsy that's consistent I think with the past few years, how sustainable do you think that is going forward and do you see that shifting at all on.
The pump market continues to evolve and your competitors launch new products.
I think we have.
The best product on the market today, and I think we've got to continue to innovate to maintain that position and I think the combination of the improved therapeutic outcomes. As you I think you can clearly see when you listen to people talk in social media as well as ease of use are the two things that drive adoption and so we intend to continue to focus on that we are excited about.
Our mobile app with the.
Mobile bolus capability cheese or is going to add another very competitive products here in the future and we're also talking about improvements to the algorithm. So I think that when you look at US competitively. We've got a great deal of innovation lined up and I think we have the best product on the market today. So we continue to.
We remain confident about our position in this market.
Yes, Okay, Great and then and then following up component here I mean, you guys have been doing such a phenomenal job. So much credit to you and your team there and it does feel like Tele health is here to stay in more of a way than it has has been a whole dynamic is sort of accelerated tele health do you actually think that.
Your abilities, there strengthens your competitive position because from my perspective it seems.
Could be a competitor for you guys and sort of how far ahead of you from the competition from a telehealth perspective. Thanks, So much sure I would definitely say that our ability to operate in this virtual environment was really a tailwind to the organization.
Again, our sales our sales team has been working on this for quite a while they were ready we didn't anticipate control.
Coated 19, but assume that happened I think we responded extremely well to it.
We've talked a great deal about our our pivot towards digital health and I think that virtual training and virtual interaction with physicians is going to be an increasingly important part as we develop new products and services that are going to use data and make the.
The physicians daily interaction just more efficient.
And like we have with our pump products reduced the burden to the experience in their practices.
Thank you.
Thank you nice talking to Daniel.
Thank you. Our next question comes from the line of Matthew Black men of Stifel. Your question. Please.
Good afternoon, everyone. Let me join the the course of congratulations on a truly remarkable quarter.
Just a couple of questions maybe John to start I want to I wanted to follow up on some of your CGM and type two comments in the in the script.
Earlier this week your your CDN partner Heighted highlighted that I think roughly 20% percent of there.
Our installed base has now type two and and largely intensive patients. So the question is similar to how you think about type one penetration and runway you think as.
CGM penetration goes in type two so we'll go pump penetration with that constructs somehow be different linzess patient cohort.
So as I indicated in the.
And the remarks.
Right now about 60% of the people using our pumps.
CGM and if you look at the most recent quarter just the second quarter its appreciably higher.
So I think that we believe that.
For people and that the other important statistic I think with the fact that.
Ultimately half of the people who are empty I come into pump therapy also use CGM. So I think when it comes to type one people start using CGM and then they see the benefits of pump therapy with automated insulin delivery systems and just improving their glycemic control. So it's a natural as a national move I think two to come onto pump therapy just just.
For the benefits for their C and again, the but benefits that were we're seeing today in the marketplace are remarkable I think that clearly the tie to markets under penetrated at something that we're interested in.
We are exploring in evaluating it.
I think right now we presented data on the tied to market on type two patients using controlled by Q early adopters. The data was great. They saw significant improvement. So it's it's encouraging we intend to collect more clinical data. We believe that T. Sport is a strong pump offering that.
That provides discretion that's appealing to the tied to marketplace. So we expected thats going to help drive adoption of the company into an intensive type two patients and we're evaluating what a commercial strategy might look like.
The sales touch points.
The channel, which we're evaluating all of these things right now to to decide exactly how we move into this type two space because there has been a number of companies that I've tried to do it on successfully and we want to make sure that as we do move into what we do it.
Well thought out plans.
All right appreciate appreciate that color John.
My follow up question, but Medtronic patent cross licensing announcement was was pretty unique I think is there anything we should read into that as we think about the competitive landscape over the next several years and do you think we should expect as more competition comes over the next 12 months that there maybe a more but to just pump market backdrop.
I think thats.
This is good for the diabetes community, we can Val weeks, the two companies can now innovate and develop products.
And not have to worry about this the.
The little litigations and the impact that has on the organizations I mean, we just don't want to have the distraction of litigations going on in the background and so I think this is clearly is just gets good for us.
I think that we have demonstrated the ability to innovate faster than our competitors over the last seven years and we think we can continue to do that.
I would say that one thing that I think stands out as the fact that I think the agreement really suggests that tenants IP portfolio was very strong and I think just like I said I think this is good for the entire diabetes community.
Thank you appreciate it and congrats again.
Thank you expect.
Thank you. Our next question comes from Ryan Blicher of Cowen.
Question. Please.
Hi, Thanks for taking my questions, maybe a follow up on international.
Can you.
Can you.
Guidance.
You talked about earlier, the unpredictability of ordering patterns from distributors.
Can you talk a little bit about the first half was there any meaningful stocking.
For distributors in your new geographies I guess Im just wondering.
Despite the unpredictability, you're launching control like unit bunch of geographies, you're launching into some new really meaningful geographies I'm, just wondering again by international guidance at all a bit higher for the year.
Sure.
As John mentioned, there is a lot of variability in the ordering patterns.
International basis, and its compounded by Kobe 19, and the impact on those market economics, we look forward to the back half of the year.
Our cautious about one factor, which is the aside from Korea, which is the summer holiday season that happens in Europe, which typically slows down. This is there I will also be rolling out control like you and when we rolled out eight unlike Q last year, we saw a little bit is on turbulence or disruption in the ordering patterns at that time as well for Justin thoughtful about the impacts of those.
From our new market perspective, we're still very excited about that opportunity I'm wondering about Germany in particular with that we needed one last piece of reimbursement approval in order to start truly marketing and thank you have some patients, which we received that the ended June and we expect that the full marketing push starting here in the back half of the year. So that just another element that are being thoughtful about about how.
That takes off like I said, though still we're still very encouraged by what we're hearing is being there and excited about the future international market.
Got it very helpful.
And then on virtual training.
You continue to trend that will be sustained to some degree whenever we hopefully get through this pandemic and if so could you talk about what that might mean for year for your opex infrastructure overtime.
I'll just talking about the training itself and I think that we you can talk about the financial elements. So I.
I think that is going to stick around I think that patients like it and physicians liken it might not be something that occurs every visit.
We got some visits require physical exam, so things like that but but I think that theres a significant.
Sort of the reduction in and stress, it's just more convenient and and people really like it and as we as we mentioned in the script.
We're seeing really good customer service response from it people like it they actually are more confident and they do very well outdoors, we track certainly our our customer service statistics and make sure that.
We're not seeing any increase as people do more and more of it. So I think it's definitely hearsay.
I think it's it's this potentially going to reduce some cost years as we as we do move toward and it clearly makes the people who are providing the trading more efficient because there's less travel time and all of the things that go along with that so I think it's you're saying that you may want to add to that I'll, just add injury stat and the training cost or actually a component of cost of goods sold so they.
Impact to gross margin and virtual training for selling that we're piloting before Kobe came about as that gross margin opportunity and that's just help prove that it can be very successful. So yes, we do expect to see benefit in the future.
Excellent I could just sneak one more you talked about a lot of exciting pipeline initiatives can you confirm that you still expect to launch a new algorithm in 2021.
And then longer term, you're you're making a lot of moves to continue to differentiate on ease of use do you believe over the next one to two years he will be able to continue to differentiate on outcomes as well. Thank you.
Yes, we do plan to launch an update to the control Q algorithm second half of next year. We haven't said what the features are going to be for competitive reasons, but we have spoken about the fact that we're focused about and on improving therapeutic outcomes personalization and ease of use thats really where has that.
Thank you. Our next question comes from Matthew O'brien of Piper Sandler Your line is open.
All right. Thanks afternoon. Thanks for taking my questions just for starters I know until they broke out you guys had rolled out a flexible spending.
Plan, what kind of reaction did you get from patients, especially new patients.
We're in the second quarter, how impactful was that did it cost you money.
Material revenue.
In Q2, and then how does that factor into your Green city guidance for the rest of year.
Sure I think Gary Thank you, our Phoenix size, which actually we've always had payment plans of the option for patients.
And what we've seen its been very.
He lives at a very low level in the second quarter, we didnt see much of a differential in their usage that we're mindful that in the future.
Maybe use at a higher rate that really no impact on the material they said.
Okay Thats helpful. Thank you and then.
The.
Opportunity with Abbott, obviously, a significant given their presence in the space but.
The label came out with 2.0, there was a little bit different than I think some people are expecting especially on a I'd side.
So does the label was the label kind of what you expected. When you were thinking about developing a system with Abbott or do you need 3.0 that has a little bit more.
CGM like to really integrate effectively.
With with the lift with 10 Im going forward, how do we think about that relationship. Thank you.
Now, we really never spoke about these specific.
Modeled that we're going to actually integrate with for the technology.
So thats still that's something that said, we're working with Abbott on right now.
I would say that you know we have now just begun to work with them. Our teams are preparing and getting together to put together. The the details of development plan and our pipeline plan Abbott has come forward and said that the issues, they're experiencing has to do with exclusive assortment acid with vitamin C.
I think that the issues that are contributing to that have nothing to do with the integration of our so our our pump with our sensor. So we intend to continue to move down that path and I would imagine that Abbott. We'll do this in parallel will there will be working to address the issues that will allow that system to be used within the I'd.
In the I'd system, which is what we ultimately we expect so it's all good at this point in time, we have talked Abbott Theyre very confident that can address this and we're just going to continue to work closely with them.
Okay, but John that's really helpful. Just to be clear, though is that T. Slim plus LIBOR rate 2.0 is the plan at this point there will be a product with those two there's two components.
Having said that.
Okay. Thank you.
Yes.
Thank you. My next question comes from alignment, Jason Bedford Raymond James. Please go ahead.
Hi, This is Matt was going on for Jason Bedford, Thanks for taking the questions here.
My question is on the.
The percentage of view and the guys coming from CGM. So I think you wrote about 50% of them are coming from CGM. One is that right and are you seeing the the rate of Dexcom easing on MD I've seen acceleration of them, but those users converting to pumps and his tandem.
Executing kind of a purposeful strategy to target those dexcom users on FDI. Thanks.
You're right, we said that of the people who are coming from MD.
50% are using CGM when they come to tandem so thats the correct statistic and I think that if you look at the.
So the adoption of CGM over the last couple of years two years ago. It was about 30% and now in the average of our entire US installed base as I've said at 60%. So in two years, we saw a meaningful increase as you look at the just this quarter's data is even higher than that so clearly I think whats half.
Running is that people are coming to tandem they're using either based like you were control like you in order for those systems to work you need CGM and so I think thats whats driving the uptake of.
Of the CGM uses that people are they believe in the.
In the algorithms and they're satisfied and happy with the results are achieving as they as they do you see systems.
Okay. Thank you so a mess and I guess, just a follow up and then some the 88 dynamics. So the real world data that you guys presented was very strong.
Has that had an impact or is that improved demand at all or interest from from Endos and maybe maybe that along with the the PK data. Thanks.
Yes, I would say that.
It's step it can't hurt I think that what's happening today is as more and more endocrinologists started having experiences with control like you there were actually seeing the power of the system and the extraordinary real world data that we presented so it's definitely I think is definitely having a positive effect and I think thats as we saw a days like us.
More and more people became familiar with the technology. They began to use it and prescribe it more and I think that I've talked about there being at an inflection point as a result of.
The introduction of control like you. We we clearly have had headwinds with Covance 19, but control at Q is really helped us get through this and I think you saw the results as we just announced today. So we're very excited about we think it's going to continue to drive demand going forward for the foreseeable future.
I appreciate the questions.
Yes.
Thank you My next question come from Joann ones.
Citi. Your line is open.
Yes, Hi, this is Matt Henriksen in for Joanne markets, the streak of mats going into culinary process.
Let's start with the pediatric label.
Thats kind of been under the radar during this call Meli label, but summer camps aren't open how is the strategy changed with get reaching out to those kids and kind of how is that expected to be a tailwind for the remainder of the year.
I think we still intend to do that there was a virtual card versus a few weeks ago. It was children with diabetes. It's a very popular conference and I think we had a great deal of visibility because of a control control like you being.
Receiving that the indication for six enough. So we saw very part a very very positive response, there and I think that we now are able to markets is this group and and we are definitely adjusting our marketing material. So that we can actually let people know the benefits of the technology to the younger crowd I think thats endocrinologists.
We are aware, but coming I think that they're now more comfortable in a situation of prescribing it although in the past and I think that there were some endocrinologists that were prescribing. It off label. So I think it's as a positive thing it allows us to market openly and again, we're excited to bring to the benefits of this technology that population.
That's helpful. And then go into the mobile bolus feature under App, you talked about going through human factor testing over the next few weeks before reaching out to the FDA.
Do you expect that there would be any need for clinical data.
For the FDA provides than the approval or an expanded label.
No. We don't we've been working with the FDA is for a while right now the human factors data is the only.
Real information from the field that were required to produce.
As I said we are.
Actively conducting the testing right now when we originally had put the schedule in place at the beginning of the year, we anticipated that we'd be filing this with the FDA at the end of the summer and so it's just a little bit longer than a quarter's delayed because of coded 19, and so now we're planning to do this in the.
In the fourth quarter I think that the one thing we've got to be cautious about is that the FDA has indicated that they are prioritizing cobot 19 projects and so if there's a potential that there might be a longer review process than than normal, but we're expecting approval in the first quarter and we're planning a launch of is that this feature at that point in time.
Great. Thanks for taking the questions.
Sure.
Thank you. Our next question comes from Chris Pasquale of Guggenheim. Your question. Please.
Thanks, a couple of questions. One on piece for just wanted to clarify the plan. There I think before you had said you would wait for the full mobile control before launching a commercially is that still to plan and.
And then I wasn't clear with at summer of 2021 estimated timing was was that the estimate for the final approval or was that when the second filing would just be submitted.
Good question, we as I said, we plan we had planned on submitting the first.
Filing for T. sport in the summer also in the late summer also and so we've seen a similar delay so we're planning on making that in the in the fourth quarter, we expect to get the approval. It again in the first in the first quarter and and then we will at that point in time file the combined device with with the mobile App.
So we expect to get approval in the summertime and as a result of that we would basically launching shortly after that but once we get approval for the device with the Standalone controller, we're in a position where we can actually do.
Just collect real world data almost have a soft launch.
And evaluate the device in the market again.
Small with small numbers at the same time to provide refine manufacturing processes and get things ready for a full launch during the summer timeframe, that's what our plans.
Okay makes sense TOEFL and then just explain the commentary on manufacturing number of pumps shipped in the first half year was about the same as last year, but you mentioned lower volumes as a headwind for gross margin could just walk through what exactly happened there.
Last year, we were thinking something different in the markets and a couple things are going on particularly related to international.
Last major shift at analyst patients, so our pump and so we are producing at higher levels to fulfill that belong and add to that that we had a backlog situation, which began in the fourth quarter 2018 and into first half of last year, we kind of for manufacturing to fulfill that backlog that we were pretty despite the volume on a sale side, we were pretty.
Looking at higher level last year, and I'll get to meet that demand.
Okay. Thanks.
Thank you. Our next question comes from Steven Lichtman of Oppenheimer. Your question. Please.
Thank you hi, guys.
I guess first among the strong drivers in the quarter was was better renewals can you can you talk about the progress, you're making and capturing that opportunity how control like he was bolstering added and what your latest thoughts on the capture rate you're looking ahead.
Sure and renewal, Steve it's really kind of the 0.3, we just continue to make strong steady progress.
Hey, guys.
[laughter] so.
Not really a surprise element there and what's going on is that we have continued opportunity being added to that denominator and so this year are right. Now we're already have about 40000 people and grants hurdle has got to warranty had expired and were adding at least 8000 more to that in the back half of this year. So we continue to make progress on premium.
People who purchased.
As one two years ago as well as people who are when he's our freshly sparing here in the very near term.
Thanks, Lee and then.
Turning to you can talk a little bit more about sugar made and how it adds to your capabilities with respect to your digital strategy in your mobile apps, specifically, how do you expect to integrate that into your efforts.
Sure well first of all we're excited to have sort of made as part of the Stanley family in tandem.
They bring a very innovative ways of presenting data and there's also some unique connectivity aspects where connects to an Apple watch it connects to.
Alexa connects to Carquest, a lot of different areas and so there's a certain expertise in DNA that that trigger make brings the tandem that will allow us to to utilize that going forward. They also have.
You know us essentially a follow feature that is available today. So I think thats going forward. Our plants today are really to bring should have made into tandem and stabilizes continue to provide the excellent service that that organization has to his 30000.
Numbers and if we're going to gradually.
Bring the tandem support services in place to work with that organization from a customer service and the quality systems those sorts of things I never going to begin working on developing products and integrating ideas that sugar may will bring with our with our digital health platform. So we see is a very complementary.
Exercise I think that it's going is going to add a lot to our own digital health initiatives and we're excited to have them as part of our team.
Great. Thanks, a lot.
Youre welcome.
Thank you. Our next question comes from Matt Taylor of yes.
Please go ahead.
Hi, Thanks for taking my question.
Just two quick ones I mean, one was.
You talked about some momentum outside of the U.S.
Yes.
Any dynamics there that that favor you are put you at a.
This advantage versus the U.S. or is it largely the same so few different competitors in different dynamics. So just was curious what you're seeing.
I would say the competitive dynamic.
Oh, you asked is comparable to what it is here in the state funding, it's it's tandem Medtronic and Insulet and I think that you know here, it's two versus tumors and we compete essentially against Medtronic and that's what's going to happen when we start to bring control like you to market.
You know in those countries, which is going to happen in the back half of this year. So I think we're excited about it we're excited about our opportunities out there I think that we're going to continue do very well.
Great and then just another follow up have you seen any notable changes in renewal or attrition rates just wanted to get a quick update there.
And we have not really renewals I would say continued growth that as Sean said, Hey, Hermine attrition perspective, we haven't seen any change in people purchasing patterns. We did have people accelerate some purchasing in Q1.
When we take or whether it's our first place, but in the second quarter assessing the thing I level customers that coupled order on the go far right. So other than some of the Kobe pressures. We discussed that we think adapting and have begun to this tele health environment and no significant items of note.
Great Thanks, much and congrats.
Thank you like that.
Thank you. Our next question comes from Jess Johnson of Baird. Please go ahead.
Hi, this is clean on for Jeff.
On pricing for United Health, and more broadly has comet had any impact on pricing and generally speaking the United Health pricing shakeout similar to other payers or are there any requirements given medtronics deferred pricey. The change how you think about pricing and payer channel. Thank you.
Thanks for the question and we really haven't seen any pricing impacts from covert as you suggested or and we have dealt carmaker pricing on a particular payer by payer basis, one of our major initiative. So it's difficult to move our managed care business.
Similar to direct model I guess, I would say right relying less on our distributors today, we still have about 30% of our visit that directing our long term goal is to move to 50 50, today's inefficiencies in the operations from certain that shifts.
Great. Thank you and my last question can you just speak a little bit. The addition of the NIM Board members and particular Matala's experience on the pair front, including the PBM.
Is there any update on if there would ever be a possibility of getting control Ikea reclass from DMD to pharmacy overtime.
Well I just want to say that we're really excited to have both cap, Kathy and Pete and join our team.
Peyton has a great deal of experience in reimbursement, it's clearly an area that we're interested in I think we we look to her to provide guidance to the organization.
It comes to just.
In hospital pharmacy, and just home care settings. So we definitely think she's going to do that we're also very fed have Kathy and the team as well cabins got more of a technical background and she's who the working with us.
As we as we pivot as I've said towards this digital health initiatives. We do you want to talk a little bit about the pharmacy sure I'll just start laying out our managed care strategy right now first and foremost as I. Just mentioned is that we want to continue to bolster our relationships with the payers and and get more direct contracts that can get shifted business in that way and then we will continue to evaluate.
On the go forward, what makes sense threats as a business, whether or not pharmacy and makes sense for our product, which is more of a specialty nature and understanding more about some of that potential downsizing in pharmacy and lack of visibility potential price erosion. So those are the factors that we're taking into consideration that today first and foremost, it's really about focusing on building relationships that the payer.
Yes.
Great. Thank you.
Thank you next question comes from Ravi Misra.
Aaron Berg capital markets. Your line is open.
Hey, I appreciate the questions.
Hey, John maybe you could help me think about the renewal cycle looks like there was a little bit more of a stronger step up we would have expected over the last over the last few quarters.
I mean any thoughts on what would what was driving that control accuse if people sitting at home with an expired thinking right now is the time to to turn it in.
Then is that kind of the new so to speak run rate that we should be thinking about in the models going forward.
In summary newest perspective, I think a lot of what we're seeing is just the outcome of the continued investment we're making a natural so we refer to it as our RV and retention initiatives, making sure when the patient first by the time that we don't lose sight of these types within over the course of before year. So when there weren't you guys expire youre familiar with the price.
Second layer with what's coming back they like to the a part of the tandem family as well and so I think what we're seeing it that renewals are starting to reflect that investment that we've been making and plus the opportunities continue to grow so uncontrolled like you certainly help that.
Okay, and then maybe one on the longer term pricing strategy, you've purchased you'd be ministers shomi purchase that's going to be layered into your.
Layered into your product suite at some point should we think about these as of as a means to defend price in the long term or add something that you'll need to.
You'll you'll be able to charge a premium for just curious as your thoughts you know maybe as we head into election thoughts around drug pricing and how that might affect you on the pump site. Thank you very much.
Sure I think that the on a pricing side we have.
We have clearly made.
Control at Q and based what Q for each of the users, but we believe that theres going to be a compelling arguments made to the air organizations to go back and show them the real world data and show them. The benefits that this technology is provided them in terms of cost savings and that makes us puts and strong position to argue.
For additional reimbursement for our algorithms. So that's definitely one thing that we're looking at you know I would say that when it comes to the digital health initiatives I think that initially we're moving into this space.
Not expecting to monetize the effects of.
Of the technology that we bring that these products and services that use data to reduce the burden to two of the health care providers as well as the people using that money, we believe that it'll it'll increase stickiness because people will really want to add the additional data information and the benefits that this technology provides.
So I think it provides us the opportunity to.
Basically I think.
Preventative against.
Price erosion over time, but not necessarily something that's going to create the opportunities to increase price.
Thanks have a good one.
Thank you.
And.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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