Tandem Faces Disruption in Distribution, Lowers 2023 Guidance

Investors reacted harshly to news that Tandem Diabetes is experiencing some capacity constraints and disruptions to sales outside the United States. The company's stock fell nearly 20% to $14.27 a share in after-hours trading Wednesday.

CEO John Sheridan said the company's distribution partner in one of the largest European countries experienced capacity constraints and disruptions to its sales activities because their focus was on rolling out a t:slim software update to their installed base. He explained that software updatability is still a relatively new offering outside the United States, especially at such a large scale and individual healthcare systems sometimes have different requirements for who does the update as well as where and how they occur.

"Our commercial team has been very responsive in helping this distribution partner identify opportunities for process efficiency and to minimize constraints based on best practices from the U.S. and other geographies," Sheridan said during Tandem's third-quarter earnings call Wednesday after the market closed. "We're also working through the timing of [Dexcom] G7 integration availability in our key European markets. Much like the U.S., enthusiasm is high for this new offering and our preparations for launch are actively underway."

CFO Leigh Vosseller said the company's 2023 forecast had not included the t:slim G7 integration in a meaningful way, but it also did not account for a meaningful disruption to orders in Europe in advance of the upcoming release of t:slim G7, which is anticipated just after the first of the year. The company reaffirmed its U.S. sales baseline of $575 million for 2023 but updated its baseline expectation outside the United States to $190 million for the year. The updated guidance assumes no meaningful new orders are placed by Tandem's distributors outside the United States for the rest of the year, Vosseller said. It also factors in a potential financial impact up to $10 million related to a reimbursement change in France for Tandem's Control-IQ technology.

"In the back half of this year, we are working through some disruptions in Europe," Vosseller said. "For example, we were recently notified that one of our largest distributors materially reduced pump orders for the fourth quarter when planning for the upcoming release of t:slim G7 just after the first of the year."

The company's automated insulin delivery system is the first in the world to use Dexcom's G7 continuous glucose monitoring sensor data. The integrated product is expected to be fully available across the U.S. market by the end of the year. The company is also preparing to launch a t:slim integration with Abbott's FreeStyle Libre 2 sensor. Tandem plans to initiate the U.S. launch of t:slim with FreeStyle Libre 2 in the fourth quarter with broad availability early in the new year.

"It is rare and exciting to have an opportunity to like this one in front of us, with so many new product launches in flight worldwide, each of which individually has the opportunity to change the trajectory of our business going forward," Sheridan said.