Tandem Diabetes Care, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Tandem's fourth quarter and year-end 2020 earnings call. At this time, all participants are in a 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 1 on your touchtone telephone. Please be advised that today's conference may be recorded. Should you require any further assistance, please press star 0. I would now like to hand the conference over to your host. EVP and Chief Administrative Officer, Susan Morrison. Madam, you may begin.

Thank you. Good afternoon, everyone, and thanks for joining Tandem's fourth quarter and year-end 2020 earnings call. Today's discussion will 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 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 adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA is a key measure used by us to evaluate operating performance, generate operating plans, and make strategic decisions for the allocation of capital. Please refer to our press release issued earlier today for further information. John Sheridan, President and CEO, and Lee Vossler, EVP and Chief Financial Officer, will be participating on today's call. Following our prepared remarks, we'll open up the call for questions. Thanks for limiting yourself to asking one question before getting back into the queue. With that, I'll now turn the call over to John.

Thanks, Susan, and welcome everyone to today's call. Before we jump into our fantastic 2020 results, I'd be remiss not to take time up front to acknowledge the incredible team of employees at Tandem. It's a group with a demonstrated history of pulling together during difficult times, and in the face of 2020's challenges, we persevered and stayed focused on our mission to improve the lives of people living with diabetes. A heartfelt thank you to all our employees for your efforts, passion, and dedication that made the year a success, even under challenging circumstances. Looking back over the past year, we achieved approximately 500 million in sales, surpassed the milestone of having more than 200,000 customers in our worldwide installed base, launched our best-in-class ControlIQ technology, and made meaningful internal product development and operational progress, all under the constraints of the global pandemic. The catalysts that drove our performance in 2020 were largely the same as those that fueled our growth in the past several years, innovative product offerings, scaling international efforts, and increasing number of customers eligible for their four-year warranty renewal, and underlying it all is a large under-penetrated worldwide market. As we look to 2021 and beyond, each of these opportunities remain, which further strengthens our confidence in achieving our near and longer-term goals. We are gaining penetration in individual practices. In fact, our number of prescribers has increased over 80% in the last three years, and their average number of prescriptions is also increasing. It's been an exciting shift over time as we continue to earn the trust and confidence of healthcare providers by demonstrating the clinical benefits and exemplary customer experience we provide with both our insulin therapy management systems and our top-ranked customer services. This feedback was echoed in our own customer surveys in 2020, to which we received more than 100,000 responses. Our TESOL Next2Satisfaction score in the survey exceeded 90%, and we continue to have high net promoter scores. That's more typical of leading consumer brands than MedTech. The support of healthcare providers and the overall positive experience from our customers are key to driving our growth in the U.S. In fact, we continue to see equal growth in the U.S. from people converting from multiple daily injections and from a competitor's pump, each representing about half of our new customers. Awareness of the benefits of Control IQ is also a key driver of our technology adoption. The vast majority of eligible customers have taken advantage of our free Control IQ software update, and the feedback continues to surpass our expectations. The personal testimonials are so powerful that we recently launched a marketing campaign, How Control IQ Changed My Life. Our customers submitted videos explaining their Control IQ experiences in their own words, And to date, these videos have been viewed nearly half a million times on social media. We began the rollout of our Control IQ technology outside the United States in July, and it is now available in more than half the countries we serve. The international customer response we are receiving mirrors the domestic enthusiasm, and we anticipate completing its rollout mid-year. Our Control IQ technology sets a new high bar worldwide for automated insulin delivery technology, as it allows users more time to spend thinking about their lives and less about their diabetes. We are investing in enhancements to our ControlIQ technology to increase the clinical efficacy and to even further improve the customer experience through expanded personalization and ease of use. Last year, we submitted a regulatory filing to the FDA for the first enhancements to ControlIQ to allow for greater personalization in certain rates and ranges and to add an indication for admalance. This continuous improvement strategy, combined with the FDA's Interoperability Initiative and our Tandem Device Updater, allows us to put new features in the hands of users faster than ever before. Ultimately, we are working to provide the diabetes community a fully closed-loop system, and each feature update and enhancement brings us one step closer. Innovation will continue to be an important road driver for us, and it is true to our mission at Tandem as we take a positively different approach to diabetes care. We've catapulted to becoming a leader in diabetes technology in a short period of time and are committed to sustaining this position by continuing to bring new products to market and reduce the daily burden of diabetes care for both pump users and healthcare providers. In support of this commitment, we are preparing to launch our app-based mobile bolus feature for the T-Cell Next 2 in the first half of 2021. We're particularly excited to add this to our list of first accomplishments as it will be the first FDA-cleared use of a personal mobile device for the delivery of insulin. We'll be offering this feature on iOS and Android, which is important as the majority of our customers use our app on iOS, and both platforms hold considerable consumer market share. More than 80,000 people have downloaded our current app, and we expect this new feature to drive even greater awareness and adoption. Similar to both Basal IQ and Control IQ, We also plan to offer this highly anticipated feature to our in warranty customers in the United States for no cost. This technology is vital for us to be able to make an immediate difference in improving the lives of our customers. The pump software update with our new mobile bolus feature will be the fifth update that we've offered to our customers since first launching the tandem device updater in 2018. Our software update process is built on the same requirements we have set for all of our products. ease of use, ease of training, and strong security. We set a high bar for each of these, which is why, even five years later, we remain the only insulin pump company to offer this capability anywhere in the world. And this experience is clearly a competitive advantage for Tandem. Customer segmentation is something you hear us talk about often, since there is not a one-size-fits-all solution for people living with diabetes. Varying clinical needs and personal preferences create many segments in diabetes market. And it's a dynamic that drives our longer-term strategy as we work to provide solutions to people throughout the diabetes community. In many ways, Tandem is both a medical device manufacturer and a provider of consumer technology. It's why the support and digital touchpoints that we provide our customers and healthcare providers is as crucial as their experience with our pumps. One of the most valued digital tools that we offer domestically is T-Connect. our web-based data management application. T-Connect improves healthcare provider efficiency by providing streamlined information from our pumps, integrated TGMs, and supported blood glucose meters that can be used for therapy management, particularly now that pump data can be wirelessly uploaded to T-Connect from our mobile app. In addition to T-Connect, our expanding digital health platform now includes our T-Connect web application, our mobile app, the Tandem device updater, and our customer portal. These offerings stood out as a valued resource amongst prescribers in the remote care environment of 2020, which underscored the importance of our internal development initiatives over the past year and in 2021. As we look to the year ahead, we are excited to bring new capabilities to market with our second-generation data management application, Tandem Source. Source features dashboards that are customizable so that a user, caregiver, or healthcare provider can access the data and insights needed to optimize diabetes management via our mobile app or the web. It's also designed for future integration with third-party partners, establishing pathways to unlock new insights that make it easier for users to manage their diabetes. Importantly, we will make TandemSource available as a global offering, giving us an end-to-end solution for the first time in all the markets that we serve. We intend to launch Tandon Source in select countries outside the United States later this year with a domestic launch to follow. Tandon Source is one element of our vision for better insulin therapy management, leveraging next-generation digital assets. With a focus on delivering simplified and personalized experiences to our customers, it is a powerful complement to our algorithmic capabilities on the pump. It's also a precursor to further enhancements to our commerce infrastructure, including our purchasing, onboarding, and support interfaces. Over time, the investments we are making in our digital infrastructure will enable us to further enhance our solutions for users and support outcomes-driven discussions with payers. A positive experience with our ecosystem attracts more people to our products and keeps people motivated to use our pumps. The global nature of our digital strategy is a good reflection of the expanding international focus internally and the growing importance of international markets to our business. Since launching outside the United States just two years ago, we now have approximately 45,000 people using the Tandem Pump in nearly 20 different countries. By comparison, it took us more than four years to reach this level of install base domestically. The rapid growth reflects the quality of our product offerings and the meaningful worldwide opportunity that exists. particularly since pump penetration in the geographies we are in outside the United States is 10 to 20%. In 2021, we plan to continue bringing our T-cell NXT pump to new geographies, and our goal is to be in approximately 25 countries by the year end. This will bring our total addressable Type 1 market outside the United States to approximately 4 million people, of which more than 400,000 use a pump today. We also continue development of our T-Sport insulin delivery system. You may recall that we're designing T-Sport to be fully controlled by a mobile app that's available on both iOS and Android operating systems. Throughout the latter part of 2020, we conducted human factors testing, both live and virtual, as part of our iterative design process after being delayed due to COVID-19. Delayed human factors testing have been one of the unfortunate consequences of COVID. as recruiting has slowed and face-to-face testing is impacted as we prioritize the safety of our employees and study participants. Our T-SPORT human factors testing results were mostly positive, with a few opportunities for improvement identified during each of the various rounds of testing that were primarily related to making the user interface more intuitive and efficient. In late December, we completed a collective analysis of these studies. And it was our opinion that some of the opportunities identified during the testing did not meet the high user experience standards that we've committed to providing the diabetes community and have built our reputation on. Internally, one of our core values is no shortcuts. And this is a fitting opportunity to live by those standards and refine the design until it's right to ensure it's safe and intuitive to use. None of the changes we plan to make are particularly challenging. It will just take extra time to update and test the software and confirm our new designs through additional human factors testing. As a result, our filing goal has shifted from the third quarter to the fourth quarter and will provide further updates as we have more clarity on the timeline. We remain excited for the opportunity T-SPORT presents as our research shows that its form factor and the discretion afforded by mobile control appeal to a broader segment of the insulin-using diabetes population who otherwise would not consider pump therapy. Just as importantly, we remain confident that T-SPORT, like the original T-SWIM, will set a new standard for innovation and ease of use for our industry. In addition to T-SPORT being a 2022 growth catalyst, We also anticipate that next year we'll benefit from new sensor offerings by both our CGM partners, Dexcom and Abbott. We have a long successful history of partnering with Dexcom and look forward to the benefits that their G7 sensor will bring to people living with diabetes. The G7 will be the fourth generation of Dexcom sensors that we integrate with our technology. Based on the FDA's interoperability initiative and the timing of Dexcom's clearance, Our goal is to commercially launch our control IQ technology with the G7 sensor within one quarter following their receipt of FDA clearance. Our development efforts with Abbott Libre technology are also off to a strong start. It's been a collaborative effort, and we share a common goal to bring the integrated product with Abbott Libre's technology to the IBD's community as soon as possible in 2022. We intend to begin our commercial efforts with a U.S. launch and which library technology we initially launch with will ultimately depend on the timing of Abbott's FDA clearance supporting AID use. A CGM can be a driver of pump therapy adoption and is fundamental to the broader adoption of automated insulin delivery. We are excited for these new CGMs to come to market and look forward to collaborating to bring the benefits of our insulin therapy management platform to even more people living with diabetes. Beyond 2022, in addition to continuing to expand our hardware platform offerings and automated insulin delivery and connected health initiatives, we're also beginning to spend more time on opportunities to improve and enhance other components of the insulin therapy management systems, including additional infusion set technologies and the use of alternative insulins. While these efforts and the longer-term goals that we have set for ourselves are largely based on helping people with type 1 diabetes, We are also beginning to expand our internal efforts on helping people with type 2 diabetes. People with type 2 diabetes represent less than 10% of our total domestic customers, yet the worldwide prevalence of people with type 2 diabetes using intensive insulin therapy is similar to people with type 1. The proper reimbursement challenges with private payers in the U.S. that once existed for people with type 2 has been reduced, as historical test requirements are increasingly recognized as antiquated. Further, we continue to support advocacy partners to affect CMS policy change that will increase ease of access. With the breakdown of this barrier, we are focusing our research on the clinical needs, behaviors, and preferences that segment the Type II market to better understand why pumped option is only about 7% domestically and even less outside the United States. At the highest level, our research has highlighted the importance of discretion, simplicity of therapy management, and the need for demonstrated clinical outcomes and support when a person with Type 2 is considering an insulin pump. We are using these requirements to guide our multi-part strategy for accelerating pump adoption in the Type 2 community. We'll provide more color on our specific initiatives in the upcoming months, but are planning to kick off our efforts to pursue an expanded labeling indication for our control IQ technology to include people with Type 2. In the longer term, we are working to provide the Type 2 community with a dedicated solution that uses a discrete form factor and features our latest automated insulin delivery technology. We're also exploring the role of simplified functionality and a modified user interface in addition to concentrated insulin and tailored support solutions. As you can see, our drive to improve the lives of people living with diabetes is stronger than ever. In addition, our scalability initiatives are progressing well to support our continued growth, and we are focused on execution. We remain dedicated to our mission and are confident in our ability to achieve our near and longer-term goals. I look forward to sharing our progress and achievements in the year ahead as we work to become the worldwide leader in insulin therapy management. And with that, I'll now turn the call over to Lee.

Thank you, John, and good afternoon, everyone. Once again, the entire organization executed remarkably well with Control IQ continuing to drive strong demand and outstanding sales results. We were able to accomplish this despite entering the fourth quarter with a heightened concern regarding COVID-19 and its potential impact on the markets in which we operate, particularly those geographies outside the U.S. We closed 2020 achieving record worldwide sales of approximately 500 million. This 38% year-over-year sales growth, both domestically and internationally, was particularly impressive as 2019 largely benefited from the worldwide animus opportunity in addition to having no pandemic-related headwinds. We shipped more than 90,000 pumps worldwide for the full year of 2020, of which more than a third were shipped in the fourth quarter. Fourth quarter sales were 168 million, a growth rate of 55%. This momentum gives us high confidence as we enter the new year. To add some additional color on our domestic business, 2020 sales were $416 million, and we now have more than 170,000 domestic customers in our installed base. We shipped 25,000 pumps domestically in the fourth quarter, resulting in sales of $139 million, or 42% growth over 2019. As John mentioned, we continue to be successful across multiple growth drivers, including our own renewal, where we saw an increase in the fourth quarter. Our internal data shows that we are renewing customers at a higher rate and are shortening our average time to renewal. As a result, we have increased our cumulative renewal rate to 55%. We give up five percentage points from the end of 2019, reinforcing the ability to reach our longer-term goal of a 70% renewal rate. In 2021, our cumulative renewal opportunities will scale from 50,000 to more than 65,000, where we expect to see continued positive trends. particularly now that we have access to all UnitedHealthcare subscribers. Even more exciting is looking ahead to 2022 and beyond, where the number of opportunities scales dramatically, in line with our 2018 to 2020 growth trend, during which period we demonstrated a pump shipment tagger of greater than 60%. Outside the U.S., our full-year sales grew to $83 million, of which $29 million were in the fourth quarter alone. Awareness of our technology and demand are building outside the U.S., even amidst the challenges of COVID-19. This was reflected in greater than anticipated pump shipments late in the fourth quarter to fulfill the buildup of demand and right size inventory levels, particularly in Germany, which represented approximately half of our 8,000 international pump shipments. We are proud of our international progress and that nearly 45,000 people with diabetes outside the United States are using Tandem's insulin therapy management technology. Globally, we estimate that our in-quarantine cell space has grown to more than 215,000 people, driving a 61% increase in supply sales for the full year of 2020. Of total worldwide sales, pumps represented 63%, followed by antigen sets at 26% and cartridges at 11%. For all of these reasons, our enthusiasm for 2021 is high as we continue to build on the same drivers that make recent years so successful. We expect our 2021 worldwide sales to be in the range of $600 million to $615 million, a growth rate of 20% to 23%. We continue to build our recurring stream of supply sales from our large installed base and pump-renewable sales. In combination, we expect these to contribute nearly half of our 2021 sales. As a reminder, Q1 is typically the smallest sales quarter of the year due to seasonality. For example, in 2020, it represented approximately 20% of our worldwide sales. Our sales guidance includes a range of $495 million to $505 million in the U.S. Similar to our historic seasonal trends, prop shipments are expected to scale increasingly across the year based on the timing of insurance deductible recess and the resulting impact on customer ordering patterns. Our international sales are expected to be in the range of $105 million to $110 million, growing 26% to 32% as we continue to penetrate our existing markets drive further awareness in those countries where COVID-19 impacted our 2020 commercial launches, and enter new markets. We anticipate continued variability in the quarterly ordering patterns of our distributors in the near term, where the level of COVID restrictions continues to fluctuate, and as we continue to gain familiarity with the ordering dynamics in the individual markets. For example, the fourth quarter of 2020 benefited from outsized demand in Germany, which is not anticipated to recur at those levels in the near term. By the middle of 2021, we anticipate that Control IQ will be available in all of the countries in which we operate today and will begin to drive increased momentum, similar to what we have experienced in the U.S. Overall, this outlook remains in line with our historical guidance philosophy. We base our projections on the factors where we have a better line of sight or control and apply caution for unknowns, such as the impact of COVID-19 and new product launches, whether our own or those of our competitors. Turning to margins, we improved sequentially to 54% in the fourth quarter and ended the full year with a gross margin of 52%. There have been a number of factors that contributed to slide pressure in 2020 compared to 2019. The most notable is a royalty obligation associated with our Control IQ technology at just over 1% of sales this year, for which there was no comparable expense in 2019. Excluding the cost of the royalty, both our pump and supplies gross margins improved versus 2019. We also made investments in 2020 to double our cartridge manufacturing capacity and incorporate an experienced third-party manufacturer into our process, both of which are necessary steps to support our growing install base and to reach our 2024 gross margin goal in excess of 60%. Other factors that have and will continue to influence our gross margin results include average selling prices and changes in both geographical and product mix. In 2021, with an increase in volumes, anticipated reduction in pressure from COVID, and continued cost improvements from lean initiatives, we expect to achieve annual gross margins of approximately 55%. For the third year in a row, we achieved a positive operating margin in the fourth quarter and recognized an operating margin loss of only 2% of sales for all of 2020. We also sustained our trend of reporting positive adjusted EBITDA margins for the ninth quarter in a row, reaching 21% of fourth quarter sales and 12% on a four-year basis. As anticipated, our adjusted EBITDA was relatively flat to 2019 based on planned investments in manufacturing, R&D, and simply organizational scale, setting the foundation for achievement of our long-term operating margin goal of 25% or better. In 2021, we expect to pass the break-even point for operating margin on a four-year basis and achieve an adjusted EBITDA margin in the ranges 14% to 15% through gross margin improvement and continued execution on our operating initiative, while we continue to make prudent investments to meet our long-term objectives. Our total cash and investments were $485 million at the end of 2020. We generated $25 million in cash from operations this year and $314 million from financing activities, including our convertible debt transaction in May. We also reinvested $32 million in the business through capital purchases for manufacturing and general facilities expansion, as well as executed against our mobile strategy through the SugarMate acquisition. Our balance sheet is strong and continues to provide us security and flexibility in pursuit of our strategic plan. To summarize our 2021 outlook, worldwide sales are estimated to be in the range of $600 million to $615 million, including international sales of $105 million to $110 million. We estimate gross margin for the year to average 55% and adjusted EBITDA to be in the range of 14% to 15% of sales. Our non-cash charges for stock compensation, depreciation, and amortization are expected to be approximately $80 million, included as both components of cost of sales and operating expense. 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 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steven Lichtman of Oppenheimer. Your question, please.

Thank you. Hi, guys. I guess just for my one question, John, you mentioned You guys have submitted for, I believe you mentioned submitting for an algorithm enhancement. Is this the one you've been targeting for 2021 overall? When should we expect to see that? And can you talk a little bit more about what it's going to do for customers? Thanks.

Sure. Yeah, thanks for the question, Larry. I would say that this enhancement to the the algorithm really is about improving access to the technology. We're expanding body weight and correction factors just to enable a broader range of the pediatric population to use the system, and also people that have larger insulin needs. There's some mobile bolus, or excuse me, there's some bolusing experience improvements, and I mentioned Admiralog. You know, I think that this is, these are changes that we don't believe require clinical studies And as I said, we submitted them this past year. So, you know, we're waiting for the FDA right now to get onto this and to begin to actually look at the review process. There's a little bit of uncertainty as to when we expect to see this happening. I would say that we have a lot more meaningful improvements planned that do require clinical studies, and we'll be conducting those this year.

Thanks, John.

Yep. Thank you. Our next question comes from the line of Larry Judison of Wells Fargo. Your line is open.

Good afternoon. Thanks for taking the question, and congratulations on a nice quarter. John, maybe a little bit more color on what led to the delay in T-Sport, what still needs to be done, and your confidence you can address this with just a one-quarter delay, if I heard correctly, pushing out from third quarter to fourth quarter filing. Thanks for taking the question.

Yeah, sure. Well, I think that, you know, we did experience the delays due to COVID when COVID first hit. We probably lost an entire quarter. And I would say that it was just difficult to actually do the human factors testing. when the market did open back up. We had virtual human factors and we had face-to-face, but we had a hard time getting the correct number of patients in various groups to do the appropriate types of testing. But as I said, what happened is that we began to look at the data early in the December timeframe. And as we did, we just saw issues that we weren't satisfied with. And I think the most important takeaway here is that we want to get this product right, and we're willing to sacrifice a few months to do that. because we understand the long-term benefits of this technology, and we know it's going to drive demand from the MDI segment. So we think that we have a reputation that's built upon ease of use, intuitive and simple to use devices, and we've got to continue to do that. I would say that none of the changes that we're making are significant. It just requires us to go back and correct the issues, test them again, and then just move forward. So as we mentioned, we're going to be doing this now. Our submission is planned for the fourth quarter. there's still some uncertainty because we are entering into additional human factors testing now, and it's still the COVID environment. And as I mentioned, the FDA, they're pretty backed up right now, and it's uncertain as to when they're going to get back to their normal cadence of review. But, you know, this is still our number one priority as an organization. We have a lot of confidence in the device and how it's going to impact the market. And so, you know, we're moving forward aggressively to get it to market. Thanks, John.

thank you our next question comes from alex nowak of craig holland capital your line is open hey good afternoon everyone this is trent mccarthy on for alex um one question for you can you speak to the competitive environment and how that will morph over 2021 medtronic is being more vocal with their pump this year there are new patch pumps coming as well as some new players So how do you expect growth to modulate this year and next with competition and what actions are you taking to defend that?

Well, I guess I'll start off by saying that we have a great deal of confidence in Control-IQ, even without T-Sport in the market this year. I think that, you know, we've demonstrated a history of innovation and we intend to continue to keep that trend. When you look at competition, I think it's really important. There's a couple factors I think that are important that impact adoption. First, it's basically do you achieve the therapeutic outcomes that you said you would? And then have you improved the patient experience? And if we look at it in that light, if you look back on the competitors that are coming to market this year, they have data from their clinical studies that I would say, you know, it's measured in the hundreds of patients. By contrast, we have real-world data today on 100,000 patients. And I think that Control IQ, it's been on the market for a full year. We actually got, we updated people in the marketplace. In about four or five months, we had about 50,000 people using our system in the marketplace. So healthcare providers got to see an immediate bump and had immediate experience in interacting with Control IQ. And the outcomes have been tremendous. I mean, people have actually experienced great results. And the healthcare providers have a great deal of confidence now and trust in the system. It's really important to understand that a tremendous number of health care providers have confidence in the system, and it's in many, many people's hands. More and more people are prescribing our pump, and of the people who are prescribing it, they're prescribing more and more systems. So I think that, you know, when it comes to the clinical efficacy, we clearly demonstrated that, and we demonstrated it in a big way in a very short period of time. So when you consider the patient's experience, I think it's important to point out that the patient experience is not all about the algorithm. As far as I'm concerned today, the algorithm is table stakes. The patient experience is really about the interaction with the entire system, the entire product, and for that matter, the entire company. And so I think when you look at Control IQ, the system absolutely provides a very positive experience today. People can basically, people who are using Control IQ think more about their lives than their diabetes. You know, it works in the background. People trust it. They can sleep. There's no finger sticks. There's no need to carry a second device to manage your diabetes. I think the mobile boss feature is going to be a tipping point. It's going to increase the demand for the system by providing additional discretion, and it's going to improve the convenience. We have world-class... customer service that goes on in the background. And we also have this digital ecosystem that we're going to wrap around all of these products that provide support, simplicity, and efficiency for our patients and our healthcare providers. So I think with the competition coming up, I think Tandem is in a very strong position both clinically and reducing the burden. And so as I said, I feel very confident that we're going to continue to do extremely well this year with Control IQ. And we'll have Key Sport in the market in 2022. And I think that will also continue to drive demand for our products.

Got it. Thanks.

Thank you. Our next question comes from Chris Pasquale of Guggenheim Partners. Your question, please.

Thanks, and congrats on a great quarter, guys. Curious, do you have an estimate for the percentage of U.S. new patient starts that came from United this quarter?

Yes. So the way United settled in for us getting full access again starting July 1st, it ended up being about 10% of our domestic shipments. And as we look forward into 2021, that's a good baseline for a starting point. In the longer term, we anticipate that that will grow to be closer to their overall market share, which is estimated at about 15%. But that will take time as we continue to gain access to people who are coming up for their warranty renewals.

That's helpful. Thanks. And then, John, I thought the comments around type 2 and the opportunity there was very interesting. When you think about a dedicated platform for those patients and what they really need, do you see T-SPORT as fulfilling those needs and really checking all those boxes, or do you think that down the road you're going to need a distinct platform from the two that you're already going to have in your portfolio to really address that population? Sure.

Yeah, I mean, I think our intent really is to start a T-SPORT and to explore how that interacts with, you know, how the type 2 diabetes community interacts with it. And at the same time, continue to collect information from focus groups and things like that as to, you know, what people, what their preferences are. We definitely see a sort of simplification in the user interface. And we also believe that there's a way to improve access through tailored support solutions. You know, we think that there's no reason why we can't create customer access points that replicate the experience that people have through the pharmacy channel using our digital assets. So there's a lot of opportunity here, but I would say that T-SPORT's clearly where we're going to start. As we mentioned, you know, the first thing we're going to do is get the indication for control IQ, and then we're going to, you know, just jump right into this with our multi-point strategy.

Thanks. Okay. Thank you. Our next question comes from Brooks O'Neill of Lake Street Capital. Please go ahead.

Yeah, good afternoon. I'm hoping you could just characterize kind of what you're seeing in general from the FDA in terms of responsiveness and just want to be sure that the T Sport delay and changes you're planning to make are coming from your own initiatives as opposed to getting some direction from the FDA.

Hi Brooks. Yeah, I mean, right now we're talking to the FDA, you know, frequently, and I think that there's definitely been a significant reduction of their resources that they've been reassigned to other COVID-related tasks. So the predictability, I think, right now is a bit uncertain. You know, a few months ago, they indicated that they thought it would be about nine months before the sort of road jam, the roadblock would break. And, you know, it's been about that amount of time right now. So I think that, you know, as you know, we're still in the midst of this pandemic, and I'm not exactly sure when the resources are going to come back. But we do have confidence that we're going to have approval for our mobile goals feature in the first half. And I think that as we move to the latter half of 2021, we're hoping that things free up so that there really is no impact on T-SPORT. But I would say that all of the decisions that have to do with T-SPORT had nothing to do with the FDA at this point in time. Great. Thank you very much.

Thank you. Thank you. Our next question comes from Chris Lynn of Cohen. Your question, please.

Hi. Thanks for taking my question. I just want to follow up on a previous question here. Could you update us on pump share gains trends exiting 2020? And as it relates to 2021, what do you have factored into guidance? And I guess, do you put in a bit more conservatism just relative to the past with the pending launch of 780G? Thank you.

Sure. So as we exited 2020, the source of our new pumps came really consistent with what we've seen in our history, which was about half from the MDI population and about half from competitor conversions. So as we move forward into 2021, I guess what I should point out is that MDI's population continues to become further penetrated in the pump space. And years ago, you would see only about 25,000 to 30,000 new pumpers come to market each year. What we've been experiencing in the last two years is an acceleration. In our best estimate, it was somewhere close to 60,000 people who purchased a pump in the market. this year for the first time. So when we think about 2021, we're anticipating that that will continue to grow. But at the same time, just consistent with our conservative guidance philosophy, we're anticipating right now will be at least as good as what we saw in 2020. And we'll continue to take a very large share of that.

Thank you. Our next question comes from Matthew O'Brien of Piper Sandler. Your line is open.

Thanks for taking the question. I guess, Lee, just on the renewal side, I wasn't quite following the commentary as far as what you're seeing on the renewal side, what you're seeing in terms of an acceleration there and what we should be expecting. To me, it sounds like things are starting to get much better on the renewal side, and that could be a meaningful tailwind for the company over the next several years. Is that what you were trying to say? And then, John, just a kind of finish off a finer point that you were making earlier on the, you know, Type 2 side, on the discrete side. Is there going to be a renewal component or not a renewal, excuse me, an annuity component with the technologies that you're thinking about there? Thank you.

Thank you for the question. Starting with renewals, so just to frame up where things are looking today, is up through the end of December, we have had about 50,000 people in total whose warranties have expired. And of that, we have renewed about 55% of them. And when you compare that to where we were a year ago at the end of 2019, we had renewed about 50% of all of the opportunities that were available. So that 50% to 55% demonstrates really great progress on the renewals front. And I agree with you. Renewals are becoming such an important part of our business as we look forward because if you think about the acceleration we've had in the business the last three years, all of those folks will start coming to the table as well. And so it's been a lot of investment in that stream, and it's also just building out the better patient experience, which we think is what's driving this improvement in the renewal cumulative rate.

I would just say that relative to the annuity aspect, I mean, we're continuing to invest in our pump technology, and we believe that miniaturization is really the direction to go. So as I mentioned, we're looking at concentrated insulins as well. But we really haven't spoken about whether or not the next form factor is going to be disposable or not.

Okay, thank you. Yep. Thank you. Our next question comes from Matthew Blackman of Staple. Your line is open.

Good afternoon, everyone. Thanks for taking the question. And I've got a few international questions that I'll just sort of throw out there in one fell swoop. And maybe the first couple for Lee, you called out some Germany stocking. Is there any way you could quantify that for us? And then, Lee, for you as well, Can you just give us a sense of what the mix of patients are that you're onboarding that are coming from existing pumpers versus MDI in some of these European countries? And then a couple for John, sort of same line of questioning. You sort of alluded to it in your commentary about international, but any efforts to expand the number of MDI patients in some of these regions outside the U.S., whether it's you or or your partners, and it doesn't look like or sound like it, but any changes in the competitive backdrop in Europe with some of these recent launches? Thanks.

Thanks, Matt, for the questions. I'll start with Germany. What really is happening with Germany is it's not exactly as we had anticipated when we came into the year. We were planning the commercial launch for the third quarter, but with COVID and everything going on in the world, that was somewhat muted. I would say the reception to launch itself. But we still plowed forward, and what happened was in Q4, everything started coming to fruition, and so there was a large uptake in demand, which they needed to fulfill, plus at the same time they needed to put inventory back on their shelf so they could move forward. So what we saw in the fourth quarter really was about half of our international shipments came from Germany, and we were thrilled to have that come very late in the year like that because it says a lot about where things are headed in the international market. We haven't, from a global perspective yet, given the same metrics that we have in the U.S. in terms of the mix of the source of new pumpers, so whether or not it's MDI or competitor conversions. Obviously, we started with mostly competitor conversions because of that animus opportunity. But what I'll say about the international market is it's far less penetrated than we see even in the U.S. So with only 10% to 20% of people using pumps today, that is our most significant opportunity there.

Yeah, I would just underscore the fact that we said we have approximately 4 million people with type 1 and 400,000 are using a pump. And so I think that the MDI population is ripe to be looked at. And I think that when you look at our success here, half of our sales are coming from MDI in the United States. And we're really, I mean, when you look at T-SPORT and the improvements we're making to the technology, it's really to drive MDI adoption by reducing the barriers that they see as reasons not to use the technology. So, you know, it's really a main focus for us here in the States as well as OUS.

Thank you. As a reminder, please limit yourself to one question. Our next question comes from the line of Matt Taylor of UBS. Your question, please.

Hi, thanks for taking the question. So I wanted to ask you about your comments on phone bullets. You know, it seems a little different on this call. You seem very excited about it in terms of it being, you know, calling it a tipping point or the kind of awareness generator that you saw with Bazel and Control IQ. Those are high bars. So maybe talk about why you think that. Have you done additional market testing or are you getting feedback that really shows that that could be a catalyst?

Yeah, I think that mobile bolus is going to be very important, but I wouldn't put it in the same category as Control IQ or BazelQ. I would say that we believe that T-Sport will have that same sort of effect. But, you know, I think when you talk to people right now that are using the system, with Control IQ, they really have no reason to take it out of their pockets or wherever they have it during the day while they're outside of their home unless they have the bolus for a meal. And so there's a great deal of excitement. The number one requested feature really for us today is to be able to pull us from the phone. And so we're trying to make this, you know, it's going to be a very easy to use and it's going to be accessible to our entire patient population over a short period of time. And so I think it's going to be a meaningful driver, and I think that it's really going to go right after, as we were just talking about, the MBI group, because I think this provides discretion that they currently don't have, and we're always trying to reduce these barriers that the MBI people perceive as objections for using pump technology. So we're excited about it, and I think it's going to be important, and like I said, we're trying to roll this thing out in the first half of the year. Super. Thanks, John. Yeah, take care, Matt.

Thank you. Our next question comes from Jason Bedford of Raymond James. Please go ahead.

Good afternoon. So just I guess one for me. All three of the domestic pump manufacturers reported much better fourth quarter or December quarter results here. Of course, you guys grew the strongest, so I'll give you credit there. But I'm just wondering, Do you think this is a function of COVID-related pent-up demand or is it something else, either from an awareness or an access standpoint? I just love your thoughts there on just kind of general market acceleration.

We're seeing some sort of relief, I think, in the COVID environment, but it's a bit spotty. It's geography by geography. It seems like, you know, the South seems to have opened up and office visits are common there, but there are other locations where it's still pretty tight. So I think it's difficult for us to put our finger on COVID and sort of freeing up of COVID as the reason that's driving it. I think that we just believe it's a continued interest in the technology. And I said that we're building momentum with these healthcare providers So many of them now are so familiar with the results. They see them. They've got many, many patients on the system. They just have great confidence with it. And at least from our point of view, we think that's what's driving it. It's the healthcare provider's trust and confidence, and it's also the people using the system. They talk about it. It's available on social media. You know, we have marketing programs that are just using people's own words to describe their experiences with Control IQ. And I think all of that really I think is just making awareness better. So I think it's probably more of an awareness situation than it is COVID. Okay, thank you. Yep.

Thank you. Our next question comes from Joanne Wunsch of Citibank. Your question, please.

Oh, thank you very much, and good evening. I'm curious about your comments of getting into the type 2 diabetes patients. And it sounds like the mobile bolus app might be moving it in that direction, but I wanted to make sure that that's the right read. And then I'm curious what else you might need or want to have to penetrate it. And going along with that, do you have plans to launch a patch pump?

All right. Well, let me just start with the mobile bolus. The mobile bolus feature is going to be made available to our entire U.S. patient population here, as I said, hopefully in the first half. And, you know, that's something that's going to drive discretion, which we know is important to the Type 2 community. We probably believe that the T-SPORT device, however, with its size, combined with the mobile app, really has more discretion associated with it. And we think that's going to be more appealing to the Type 2 community. We are, as I said, we are focused on a multi-point plan. We are looking at using the technology we have today and exploring how it resonates with the Type 2 community as well as looking at opportunities to add features and capability to the products so that they appeal more. I think simplicity is a big one. I think that having the most advanced algorithm is important, and size and discretion are hugely important. So those are things that we're focused on. We're also focused on access. We need to understand how to penetrate this market from an access point of view, and it's something that we think is very important. And regarding, you know, patch bumps, we haven't said anything about patch bumps other than to say that we are constantly looking at advancing the technology that we have, and we do believe that sort of reduction in size and miniaturization of the system is important.

Thank you.

Thank you.

Thank you. Our next question comes from Jeff Johnson of Baird. Your question, please.

Thank you. Good afternoon. So hopefully this doesn't count as my question, but, Lee, I'm not sure if I caught the renewal number in the quarter, if you could just repeat that for me. But for my question, John, I was thinking on – you made some comments on Freestyle Libre, and you made a comment in passing about, you know, you're not sure which sensor you might go with with them. Is there an opportunity on Libre 2 to work that into a control IQ? My understanding was maybe the battery – or some other limitations there wouldn't allow for full kind of continuous streaming to a pump to control it. So I just want to understand if Libre 3 is delayed for any reason or if it doesn't meet your timeline requirements. Were you saying you could go back to Libre 2, or is there something else in that comment? Thanks.

I'm going to let Lee go first, and I'll answer your question after that, Jeff.

Thanks, Jeff. I'll just start by saying the way I framed up renewals is more about trying to tie it to something you can measure or compare against our long-term goal of achieving a 70% renewal rate. So the way I framed it up is that we have now improved to about 55% of all opportunities, which were roughly 50,000 at the end of the year. I didn't give a specific number this quarter, but it's fair to assume that it was up again compared to last year and even the third quarter in line with seasonal trends. So still moving in a really great direction.

And, Jeff, I would just say that we haven't been specific about which technology we intend to incorporate into the relationship with Abbott, the CGM integration. But I do know that the Libre 2 is capable of operating in an AID system. But first, you know, Abbott obviously has to address the vitamin C issue, which I know that they're working on.

Understood. Thank you.

Yep.

Thank you. Our next question comes from Ravi Misra of Barenbury Capital Management. Your line is open.

Hi. Thanks for taking the question. I hope everyone's doing okay. So I wanted to probe a little bit more on the Type 2 access commentary that you talked about earlier, John. You know, one of your peers yesterday on their call basically said that they feel that having pharma access is something that kind of sets them up really nicely into Type 2. Maybe if you could comment on that and, you know, your kind of potential ability to get there these days. I know that's been something you've been trying for a while. Or is there another kind of channel or venue that we should be thinking of that, you know, we're not, that would kind of engender that?

Yeah, I mean, I'll tell you what I'll do. I'll start off, and I'm going to let Lee kind of wrap up as well, because she has thoughts on the pharmacy channel. I would say that, you know, when we interact with physicians today, they do not make decisions on whether or not, you know, the system's going into a pharmacy channel or whether it's going into the DME. So I think that that's, you know, we believe that, you know, that we can make the system and the interaction with our products just as, you know, as accessible and easy as the pharmacy channel using some of our digital health initiatives. I think the reason, you know, when you look at some of our competitors, the reason that it's important, we sell a pump once a year. And so when you consider the touch points that we've got, you know, excuse me, once every four years, the touch points, it's very, it's reduced. And I think that if we can even improve that, when you, you know, I think that you go a long way to improving access. There's no way we can't, there's no reason we can't automate the supply sales. We can automate that. We can make that happen automatically. And I think that's something that simplifies that part of the process. But I think when you look at the, you know, when you look at the competitive patch pumps, I mean, they're selling pumps. They're using it every three days. They're probably buying it monthly or quarterly. So, you know, there's a lot more interaction. I think that, you know, that access and frequency of interaction make the pharmacy channel important for them. You want to think that way?

I would say, you know, John did it very well. I think first and foremost it's about having the right product because that's what physicians will recommend. And if the channel simplifies things, we'll continue to look for ways to optimize or create efficiencies within our own channel. And really what it comes down to for us is we are focused on getting stronger relationships with the payers through more direct contracts. And in those conversations, then, we can have a deeper discussion about what's the right channel, what makes sense for us with the type of product that we have, with it being much more specialized than a disposable type product.

Great, thanks. And if I could just ask one more, is there an FX component to the OUS revenue? Thanks.

It's very immaterial.

Thank you. Our next question comes from Danielle of SVB . Your line is open.

Hey, good afternoon, guys. Thanks so much for taking the question. Just wanted to ask one question on replacements. Given the competitive environment, historically 50% of your replacements, I'm sorry, of your new patients have come from replacements. How sustainable do you think that is given the fact that the primary driver of those replacements, of the replacement group is Medtronic and they are launching the 780G, which might be more competitive? Okay.

Daniel, I think we feel very confident in our competitive positioning next year, and we would anticipate that we would continue to see, you know, a strong component of our total sales coming from competitive conversions.

All right. That's it for me.

Thanks. Daniel, you've got a ringing going on in the background.

There you go. Thank you.

Apologies. Thank you, ladies and gentlemen. That does conclude the Q&A portion of our call today and our call. Thank you so much for participating. You may now disconnect. Have a great day.