TNDM: Tandem Diabetes Care Analysis and Research Report

2018-02-10 - by Asif , Contributing Analyst - 539 views

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Tandem Diabetes Care is a medical device company with an innovative approach to the design, development and commercialization of products for people with insulin-dependent diabetes. The company believe that its competitive advantage is rooted in its unique consumer-focused approach and proprietary technology platform. This allows it to deliver innovative hardware and software solutions to meet the various needs and preferences of people with diabetes and their healthcare providers. The company manufacture and sell insulin pump products in the United States that are designed to address large and differentiated segments of the insulin-dependent diabetes market. The company's insulin pump products include:

  • the t:slim X2 Insulin Delivery System, or t:slim X2, its next-generation flagship product that is updatable and designed to display Dexcom G5 continuous glucose monitoring, or CGM, sensor information directly on the pump Home Screen; and
  • the t:flex Insulin Delivery System, or t:flex, for people with greater insulin needs.

Tandem Diabetes Care has shipped more than 60,000 insulin pumps since its initial launch in August 2012, of which nearly 56,000 pumps have been shipped within the four years ended September 30, 2017. For the past three consecutive years, its company has been ranked #1 by insulin pump users in the United States for customer support in an independent survey by dQ&A, a leading diabetes research firm.

Tandem Diabetes Care has successfully launched five insulin pump products, beginning with the commercialization of its first pump, the t:slim Insulin Delivery System, or t:slim, in August 2012. During 2015, the company commenced commercial sales of two additional insulin pumps: t:flex and the t:slim G4 Insulin Delivery System, or t:slim G4, the first continuous glucose monitoring, or CGM, enabled pump with touchscreen simplicity. In October 2016, the company commenced commercial sales of t:slim X2 and discontinued new sales of t:slim. In August 2017, the company commenced commercial sales of t:slim X2 with Dexcom G5 Mobile CGM integration and discontinued new sales of t:slim G4.

The company's insulin pumps are compatible with the Tandem Device Updater, a revolutionary new tool that allows pump users to update their pumps’ software quickly and easily from a personal computer. Remote updatability for insulin pump software is a unique feature not available in competitive pump offerings, meaning the Tandem Device Updater provides its customers access to new and enhanced features faster than the industry has been able to in the past. Its first cleared use by the U.S. Food and Drug Administration, or FDA, was to update t:slim Pumps purchased before April 2015 to the latest software. In August 2017, the company received FDA approval to permit t:slim X2 customers to update their pumps’ software to allow integration with the Dexcom G5 Mobile CGM system. Tandem Diabetes Care is currently offering this update free of charge to its 12,000 customers that purchased a t:slim X2 prior to it receiving FDA approval for G5 integration. As of September 30, 2017, approximately one third of these customers have elected to update their pump. Of the t:slim X2 Pump users who have updated their pump’s software, more than 85% indicated they were satisfied or extremely satisfied with the update process. In the future, the Tandem Device Updater has the potential to enable users to add other new features and functionality to their pumps, such as automated insulin delivery, or AID, algorithms, independent of the typical four-year insurance pump replacement cycle.

In September 2017, the company commenced commercial sales of products using the t:lockTM Connector, or t:lock, which replaces the standard Luer-lok connector that historically joined an infusion set to its cartridge. t:lock incorporates a smaller inner cavity than the Luer-lok connector, which reduces the amount of insulin used in the process and reduces the time required to fill the infusion set tubing.

The company's innovative approach to product design and development is consumer-focused and based on its extensive market research, as the company believe the user is the primary decision maker when purchasing an insulin pump. The company's market research consists of interviews, focus groups and online surveys to understand what people with diabetes, their caregivers and healthcare providers are seeking in order to improve diabetes therapy management. The company also apply the science of human factors to its design and development process, which seeks to optimize its devices, allowing users to successfully operate its devices in their intended environment.

The company developed its products to provide the specific features that people with insulin-dependent diabetes seek in a next-generation insulin pump. The company's proprietary pumping technology allows it to design the slimmest and smallest durable insulin pumps on the market, without sacrificing insulin capacity. The company's insulin pump platform features its patented Micro-Delivery technology, and a miniaturized pumping mechanism that draws insulin from a flexible bag within the pump’s cartridge, rather than relying on a syringe and plunger mechanism. It also features an easy-to-navigate software architecture, a vivid color touchscreen and, with the t:slim X2, it also features an advanced Bluetooth radio capable of communicating with multiple compatible devices, such as a CGM sensor, blood glucose meter or mobile device applications. The company's insulin pump platform has a micro-USB connection that supports a rechargeable battery and software updates through the Tandem Device Updater, as well as uploads to t:connect Diabetes Management Application, or t:connect. t:connect is its custom cloud-based data management application that provides customers and healthcare providers a fast, easy and visual way to display therapy management data from the pump and supported blood glucose meters. In April 2017, the company launched the t:connect® HCP Portal, which is designed to streamline healthcare providers’ use of the original t:connect Application and improve office efficiency.

Tandem Diabetes Care has rapidly increased sales since its commercial launch by expanding its sales, clinical and marketing infrastructure, by developing, commercializing and marketing multiple differentiated products that utilize its technology platform and consumer-focused approach, and by providing strong customer support. In its research, approximately 86% of healthcare providers surveyed believe that providing great customer support is the most important company attribute. The company believe that by demonstrating its product benefits and the shortcomings of existing insulin therapies, more people will choose its insulin pumps for their therapy needs, allowing it to further penetrate and expand the market. The company also believe Tandem Diabetes Care is well positioned to address consumers’ needs and preferences with its current products and products under development and by offering customers a pathway to its future innovations through the Tandem Device Updater as they are approved by the FDA.

In July 2017, the company announced plans to begin commercialization of t:slim X2 outside the United States in select geographies during 2018. Unlike its approach domestically, the company currently plan to partner with distributors who will carry out the selling efforts, as well as the service and support of customers in geographies outside the United States.

Products under Development

The company's products under development support its strategy of focusing on both consumer and clinical needs. The company intend to leverage its consumer-focused approach and proprietary technology platform to continue to develop products that have the features and functionality that will allow it to target people in different segments of the insulin-dependent diabetes market. The company's current pump products under development include:

  • t:slim X2 with PLGS – The company's first generation AID system is expected to include a predictive low glucose suspend, or PLGS, algorithm that utilizes Dexcom G5 sensor values. During 2016, the company completed a feasibility study of its PLGS algorithm. The data from this feasibility study was used in an IDE submission for a pivotal study, which was approved by the FDA in May 2017. The company commenced a pivotal study for its t:slim X2 with PLGS in the third quarter of 2017 and anticipate that it will conclude by the end of 2017. Once reports from the clinical trial sites are finalized, the company intend to use the results in a PMA submission with the FDA. Based on this timing, and subject to future FDA approval, its goal is to launch the product in the summer of 2018.
  • t:slim X2 with TypeZero – The company's second generation AID system is expected to integrate the t:slim X2 pump with the treat-to-range technology that the company licensed from TypeZero Technologies LLC, as well as Dexcom’s G6 sensor. With TypeZero’s technology, its product is intended to both increase and decrease basal insulin based on a person’s predicted blood glucose levels, as well as deliver automated correction boluses. In November 2016, the company announced that Tandem Diabetes Care is working with Dexcom and TypeZero on the integration of its technologies into the National Institute of Health funded International Diabetes Closed Loop Trial, or IDCL Trial. The company anticipate that a portion of the trial will utilize a t:slim X2 integrated with TypeZero’s inControl AID algorithms that is designed to automatically adjust a person’s insulin based on information from a Dexcom G6 sensor. The company intend to use the results from this portion of the trial in a PMA submission with the FDA. Subject to both the timely completion of a successful IDCL Trial and future FDA approval, its goal is to launch this product in the first half of 2019.
  • t:sport Insulin Delivery System – This product is expected to be half the size of t:slim and is being designed for people who seek even greater discretion and flexibility with the use of their insulin pump. The timing of the commercialization of this product will be based on its prioritization of resources and ongoing dialogue with the FDA.
  • Mobile application - Tandem Diabetes Care is currently developing a mobile application that is being designed to utilize the capability of the Bluetooth radio to wirelessly upload pump data to t:connect, receive notification of pump alerts and alarms, integrate other health-related information from third party sources, and support future pump-control capabilities for its products under development. The company intend to launch the first generation of its mobile application in 2018, with a subset of these features.

Technology Upgrade Program

In the third quarter of 2016, the company launched a Technology Upgrade Program that provided eligible t:slim and t:slim G4 customers a path towards ownership of t:slim X2 or, as of August 2017, t:slim X2 with G5, by offering customers the right to exchange their t:slim or t:slim G4 for t:slim X2 or t:slim X2 with G5, under a variable pricing structure. The Program expired on September 30, 2017.

Due to the high degree of accounting complexity, the Technology Upgrade Program created unpredictable financial results under United States generally accepted accounting principles, or GAAP, for the duration of the Program. The accounting treatment for the Program required the deferral of up to 100% of sales and cost of sales for shipments of eligible pumps beginning in the third quarter of 2016. The amount of sales and cost of sales deferred varied based on a number of factors, including the model of pump involved and the timing of the initial sales relative to the availability of certain future products. In general, the deferrals required by the Program had the effect of initially decreasing its GAAP sales, primarily in 2016, even when the number of its pump shipments increased.

Recent Developments

Commercial Launch of t:slim X2 with G5 Integration

In late August 2017, the FDA approved, and the company commercially launched its t:slim X2 Insulin Pump with Dexcom G5 Mobile CGM integration. The t:slim X2 with G5 is its first sensor-augmented insulin pump approved to allow users to make treatment decisions without pricking their finger. The pump conveniently displays a user’s insulin delivery activity and Dexcom G5 Mobile CGM data together on one single device. The t:slim X2 with G5 has been approved for users ages six and older.

Commercial Launch of t:lock Connector

In September 2017, the company commenced commercial sales of its insulin pump cartridges and infusion sets with its t:lock Connector. t:lock was designed to look and feel like the previous Luer-lok connector. However, t:lock incorporates a smaller inner cavity, which reduces the amount of insulin used in the process and reduces the time required to fill the infusion set tubing, improving efficiency and customer experience.

Animas Will Discontinue the Manufacture and Sale of Insulin Pumps

On October 5, 2017, Johnson & Johnson announced that it intends to discontinue the operations of Animas Corporation and to exit the insulin pump business entirely, and that, in connection with these activities, it designated Medtronic as a preferred partner to facilitate the transition of Animas insulin pump customers. As part of this transition, Medtronic is offering a portion of Animas customers the option of acquiring a prior-generation Medtronic insulin pump at no charge. The company now offer the only alternative durable insulin pump to Medtronic in the United States. While this announcement represents a significant change within its industry, and Tandem Diabetes Care has experienced a recent increase in inquiries from current Animas customers following the announcement, it is too early to know how it will ultimately influence its business or the competitive landscape in which the company operate, although the company expect the impact may be dependent on one or more of the following factors:

  • The offer to Animas customers for a free Medtronic pump is currently limited to customers with a warranty expiration date later than September 30, 2019, and the offer is not available until May 2018. It remains uncertain how many Animas customers will avail themselves of this offer.
  • While Medtronic will have direct access to all Animas customers during the transition period, as those customers' pumps come up for renewal and they make new pump purchasing decisions, they may consider alternative pump options. According to recent surveys from dQ&A, when making renewal decisions, Animas customers have historically chosen their pump or a Tandem pump rather than a Medtronic offering. Recent surveys from dQ&A have also shown that only 5% of patients acquiring a Medtronic pump during the past six quarters were previous Animas customers, and 80% of new purchasers of Medtronic pumps were customers who upgraded from a current Medtronic pump rather than switching from an alternative brand. For these reasons, and based on its own customer data that shows a high number of customers switching to its products from an Animas pump, the company believe its pumps are an attractive alternative to both Animas and Medtronic pumps.
  • The company believe one of the product features that have made Animas pumps attractive to their customers is the integration of the Animas Vibe with Dexcom’s CGM technology. The company now provide the only commercially available pump that is integrated with Dexcom’s technology.

On February 9, 2018 Tandem Diabetes Care®, Inc. , a medical device company and manufacturer of the only touchscreen insulin pumps available in the United States, today announced the pricing of an underwritten public offering of 30 million shares of its common stock at a price to the public of $2.00 per share. The gross proceeds to Tandem from this offering are expected to be $60 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by Tandem. In addition, Tandem has granted the underwriters a 30-day option to purchase up to 4.5 million additional shares of common stock. All of the shares of common stock to be sold in the offering are being offered by Tandem. The offering is expected to close on or about February 13, 2018, subject to the satisfaction of customary closing conditions.

Oppenheimer & Co. Inc. is acting as the sole book‐running manager for the offering. National Securities Corporation, a wholly owned subsidiary of National Holdings Corporation (NasdaqCM: NHLD), is acting as a co-manager in connection with the offering.

The offering is being made by Tandem pursuant to a registration statement on Form S-1 originally filed with the Securities and Exchange Commission (the "SEC") on January 16, 2018 and declared effective by the SEC on February 8, 2018. The offering is being made only by means of a prospectus that forms a part of the registration statement. When available, copies of the final prospectus relating to the securities being offered may be obtained from: Oppenheimer & Co. Inc. Attention: Syndicate Prospectus

Guidance

As of December 31, 2017, the Company had approximately $24.2 million in cash, cash equivalents, short-term investments and restricted cash.

2018 Preliminary Guidance

For the year ending December 31, 2018, GAAP sales are estimated to be in the range of $132 million to $140 million, an estimated year-over-year increase of approximately 23 percent to 32 percent to its preliminary 2017 GAAP sales. When comparing to its preliminary 2017 sales on a non-GAAP basis, the estimated year-over-year increase is approximately 29 percent to 39 percent.

"With its robust product pipeline and increasing number of customer renewal opportunities, growth remains a top focus, but equally so is closely managing its expenses as the company leverage its existing infrastructure in 2018," said Leigh Vosseller, Senior Vice President and Chief Financial Officer. "The company believe its early investments have well-positioned the Company to achieve and support the scale necessary to reach its profitability goals, and the company expect to make meaningful progress in reducing its cash use in 2018."


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