Tandem Diabetes

Hi All,

Tandem Diabetes (TNDM) has been discussed on the board, but it’s been some time. The company doesn’t fit characteristics of many this board discusses – it makes a physical product, gross margins are in the 50%s, and revenue growth is lower than many discussed here. That said, I still believe it warrants consideration and discussion here given 38% YoY growth (20 vs. 19) and 55% growth in Q4 2020 vs Q4 2019. Given their product/customers, this is not “infinitely scalable”. With scale the revenue growth will slow on a percentage basis. But at this point there is still a long runway - both for Tandem and for other insulin pump manufacturers.

The company designs, develops, and commercializes products for people with insulin-dependent diabetes. The main product is the t:slim x2 insulin delivery system (an insulin pump).

I am a type-1 insulin dependent diabetic and use their insulin pump. It works, it’s easy, and it continues to be a leader in innovation.

I have been using their product (t:slim x2 Tandem pump) three years. I switched from Medtronic for the following reasons.

  • Communicates with Dexcom sensor (the Dexcom product is a Continuous Glucose Monitor “CGM” that allows diabetics to no longer need to stick their finger). The Dexcom product has been and continues to be my Doctor’s recommendation as the best CGM (which thus provides Tandem an advantage over Medtronic as Medtronic develops their own CGM)
  • When enhancements are made they allow you to “update” the pump similarly to an iphone operating system upgrade. So I can know that my pump can continue to improve with technology without having to physically get a new pump (very expensive and only eligible for insurance every four years)
  • The t:slim is user friendly. The first Touch screen. Generally I find it’s a company to aims for products to be user friendly.
  • The combined Dexcom/Tandem “Closed Loop” system has DRAMATICALLY changed my life, as it has many other type one diabetics. And yet we’re still in early innings of broad adoption of pump/CGM therapy.

Market info:

  • Main competitors are Medtronic (the primary legacy pump developer/manufacturer), who is upping their insulin pump & sensor product this year and Insulet (PODD).
    o I continue to believe the Tandem product will be better than Medtronic’s new offering.
    o Insulet’s pump system is different. It is a “pod” and thus doesn’t have a tube. It varies substantially from Tandem and Medtronic’s pumps in that it is disposable (every three days).
    o When you are an insulin dependent diabetic and chose pump therapy the first choice is disposable vs. non-disposable. I won’t bore everyone with the pros and cons.
    ? The main advantage Insulet has vs. Tandem is that the disposable nature of their pump caters more to Type 2 diabetics. At this stage Tandem only has a sliver of users with Type 2.
  • Overall number of people being diagnosed with diabetes is increasing significantly. Further, the number of insulin-dependent diabetics that use pumps is relatively low (the alternative is to give yourself insulin shots daily).
    o I want to say around 30% of diabetics in the US utilize an insulin pump (can’t find stat)
    o Roughly 10% of international diabetics utilize an insulin pump (per Tandem Q4 CC)
  • Each of the top three pump manufacturers are in working toward the development of a “closed-loop” insulin delivery system. This mean the pump communicates to a CGM (that monitors blood sugar regularly) and makes adjustments to insulin delivery based on an algorithm
  • Insulet and Medtronic both have new pumps set to hit the market this year. So I think the stock market is worried about stiffer competition this year for Tandem. However, Tandem has a headstart of 12-24 months in rolling out their closed loop system. Additionally, I would argue there is room for multiple players in this space.
  • That said, from what I can tell, neither competitor’s pump will be superior to Tandem’s (best case for the competition, their pumps will be equal to Tandem, but both are a year or two behind in FDA approval and Tandem has a history of innovation).

Additional notes:

  • 2020 sales up 38% over 2019 despite impact of COVID (most impactful during Q2) – namely new customers are typically recommended by their physician and physician visits were limited last year
  • Q4 2020 sales up 55% vs. Q4 2019 (note there is seasonality here so don’t compare sequential numbers)
  • of pumps shipped in Q4 20 vs. Q4 19 up 67%

  • Annual revenue 2016 $84M; 2017 $107M (28% vs PY); 2018 $183M (71% vs PY); 2019 $362M (97% vs. PY); 2020 $498M (38% vs. PY).
  • 2021 guidance is for 23% growth in revenue
  • 36% of revenue is from monthly supplies associated with using a pump.
  • International market is only 10% penetrated with pump users – approximately 400,000 vs. 4 million insulin dependent diabetics
  • Gross margins for 2020 were at 54%, up slightly from 53% and 50% the two prior years. Long term goal is for 60%.
  • Adjusted EBITDA has shown steady improvement vs. prior year quarters, with the exception of Q2 2020 due to COVID.

What I’m watching:

  • Can Q4 2020 momentum continue?
  • T:sport pump in pipeline and FDA submission projected for Q4 2021. The pump is 1/2 the size of current offering and would continue to be a leading product. Does this timeline change?
  • Are they able to articulate a strategy for tapping into the Type 2 Diabetes market? This would substantially increase TAM.

Thanks all