Executive Summary / Key Takeaways

• Tandem Diabetes Care is executing a strategic pivot from a single-product focus to a multi-platform, multi-channel portfolio approach, leveraging its core automated insulin delivery (AID) technology to address a broader diabetes market.
• The successful launch and scaling of the Tandem Mobi pump, alongside the flagship t:slim X2, is driving year-over-year growth in new pump starts, particularly attracting individuals converting from multiple daily injections (MDI) and disposable patch pumps.
• Recent FDA clearance of the Control-IQ+ algorithm for adults with type 2 diabetes significantly expands Tandem's addressable market in the U.S., presenting a substantial long-term growth opportunity, though initial contribution in 2025 is expected to be modest.
• Progress in establishing a multi-channel managed care strategy, including securing pharmacy benefit coverage for approximately 30% of U.S. lives, aims to improve patient access and affordability, potentially driving future volume and profitability.
• While investments in sales force expansion, OUS direct operations preparation, and pipeline development are impacting near-term profitability, management projects a return to positive free cash flow in the second half of 2025 and a pathway to 60%+ gross margins as early as 2026, contingent on successful execution and scaling.

Setting the Scene: A Strategic Evolution in Diabetes Management

Tandem Diabetes Care operates within the dynamic and intensely competitive medical device industry, specifically focusing on insulin delivery and diabetes technology. Since its inception, the company has aimed to reduce the burden of diabetes management through innovative technology. Its journey began primarily in the U.S. market, centered around the t:slim X2 insulin pump. A significant step in its evolution was the expansion into international markets starting in 2018, which now encompasses 25 countries.

At the heart of Tandem's offering is its proprietary automated insulin delivery (AID) technology, most notably the Control-IQ algorithm. This advanced hybrid closed-loop system is designed to predict, calculate, and adjust insulin doses, including automated correction boluses. The clinical benefits of Control-IQ are well-documented, with multiple studies, including four publications in the prestigious New England Journal of Medicine, demonstrating improved time in range and A1c across various patient demographics. This robust clinical validation provides a significant competitive moat, offering tangible, quantifiable outcomes that differentiate Tandem's technology.

Tandem's strategic response to the evolving market and intensifying competition has been to build a comprehensive technology ecosystem. This includes not only its pump hardware but also complementary digital health solutions like the Tandem Device Updater, which enables remote software updates, and the Tandem Source data management platform, providing valuable therapy insights for both patients and healthcare providers. This ecosystem approach aims to enhance the user experience and provide tools that support better diabetes management outcomes.

The competitive landscape is populated by major medical device companies such as Insulet (PODD) (with its Omnipod patch pump), Medtronic (MDT) (MiniMed systems), and Abbott Laboratories (ABT) (FreeStyle Libre CGM), as well as other players like Ypsomed and Beta Bionics. These competitors often possess greater financial resources, established relationships, and broader distribution networks. Tandem differentiates itself through its focus on user-friendly design, the clinical performance of Control-IQ, and the flexibility offered by its expanding portfolio. While competition is fierce, particularly with new product introductions and aggressive pricing strategies, Tandem believes its product leadership and customer care solutions position it for continued growth in the large and underpenetrated global insulin-dependent diabetes market.

Portfolio Expansion and Market Penetration

Tandem's strategic pivot is most evident in the expansion of its pump portfolio beyond the flagship t:slim X2. The introduction of the Tandem Mobi pump, the world's smallest durable AID system, marks a significant step in addressing differentiated patient needs. Approximately half the size of the X2, Mobi is designed for greater discretion and flexibility, featuring mobile app control and versatile wearability options. Early market feedback indicates high satisfaction with Mobi, particularly among younger demographics and individuals seeking enhanced discretion.

The Mobi launch is proving to be a catalyst for market expansion. In the first quarter of 2025, Tandem saw year-over-year growth in new pump starts in the U.S., with approximately two-thirds of new customers converting from multiple daily injections (MDI). This indicates that Tandem's technology is attracting individuals who were previously managing their diabetes with injections, thereby expanding the overall AID market. Furthermore, the company has observed a notable increase in conversions from disposable patch pumps to Mobi, suggesting that Mobi's combination of small form factor and Control-IQ technology is appealing to users of competing systems.

Beyond hardware, Tandem is actively integrating its pumps with leading continuous glucose monitoring (CGM) sensors to offer patients choice and enhance the AID experience. The company has integrated with Dexcom (DXCM) G6 and G7 sensors and is progressing towards integration with Abbott's FreeStyle Libre 3 sensor on both t:slim and Mobi platforms, with a scaled launch planned for 2025. These integrations are crucial as the vast majority of Tandem's customers use their pumps with CGM, leveraging the sensor data for the Control-IQ algorithm. Expanding CGM compatibility broadens Tandem's potential customer base by allowing users of different sensor brands to access its AID technology.

Financial Performance Reflecting Transition and Investment

Tandem's recent financial performance provides insight into the early impacts of its strategic initiatives and ongoing investments. In the first quarter of 2025, the company reported total sales of $234.4 million, a 22% increase compared to $191.7 million in the first quarter of 2024. This growth was driven by strong performance in both the United States and international markets. U.S. sales reached $150.6 million, up 15% year-over-year, fueled by increased pump shipments (over 17,000 in Q1 2025 vs. 15,000 in Q1 2024) and higher supply sales resulting from volume growth and improved average selling prices (ASPs). Sales outside the United States demonstrated even stronger growth, reaching $83.8 million, a 35% increase year-over-year, with pump shipments growing to over 11,000 in Q1 2025 compared to 10,000 in Q1 2024.

Gross profit for the first quarter of 2025 was $118.4 million, resulting in a gross margin of 51%. This represents an improvement from the 49% gross margin in the same period of 2024, primarily driven by a reduction in the per-unit cost of pumps due to manufacturing and non-manufacturing efficiencies. This margin improvement is a key focus for the company, with the scaling of Mobi volumes expected to contribute positively to gross margin in 2025 and beyond.

Despite top-line growth and gross margin improvement, Tandem reported a significant operating loss of $120.9 million in Q1 2025, compared to a loss of $41.7 million in Q1 2024. This was largely due to a substantial $75.2 million charge for acquired in-process research and development (IPR&D) related to a revised agreement for AMF Medical (developer of the Sigi patch pump). Additionally, operating expenses included approximately $9.8 million in impairment and restructuring charges related to facility relocations and sales force adjustments. Selling, general, and administrative (SGA) expenses also increased to $113.9 million from $90.1 million, driven by higher employee-related costs from increased headcount and sales force expansion. Research and development (R&D) expenses rose to $50.2 million from $46.2 million, also impacted by restructuring costs.

The net loss for Q1 2025 was $130.6 million, or $1.97 per share, compared to a net loss of $42.7 million, or $0.65 per share, in Q1 2024. The loss from equity method investments ($3.5 million) also contributed to the wider net loss. As of March 31, 2025, Tandem held $368.6 million in cash and investments. Net cash used in operating activities was $18.3 million in Q1 2025. The company anticipates returning to positive free cash flow in the second half of 2025 and for the full year, supported by expected improvements in operating results and working capital management.

Strategic Initiatives and Future Outlook

Tandem's strategic roadmap is focused on leveraging its core technology and expanding its market reach through several key initiatives. A major opportunity lies in the type 2 diabetes market. Following FDA clearance of the Control-IQ+ algorithm for adults with type 2 diabetes in early 2025, Tandem's addressable market in the U.S. has more than doubled. While over 30,000 individuals with type 2 diabetes already use Tandem pumps off-label, the formal indication allows for dedicated commercial efforts. The company is initiating pilot launch activities to gather data on training, reimbursement, and channel access to inform a broader rollout. Market research suggests increasing interest in AID technology among the insulin-intensive type 2 population, with potential penetration rates in the U.S. reaching over 25% in the coming years.

Another critical strategic initiative is the development of a multi-channel managed care strategy, particularly focusing on the pharmacy channel. Traditionally, durable medical equipment (DME) like insulin pumps is reimbursed through medical benefits. By securing pharmacy benefit coverage, Tandem aims to lower patient out-of-pocket costs, addressing a significant barrier to adoption, especially for individuals converting from MDI. The company has made substantial progress, securing pharmacy coverage for approximately 30% of U.S. lives. While the initial volume and pricing benefits from this channel are expected to be modest in 2025, it represents a crucial long-term pathway for growth and improved profitability.

The company is also investing in its commercial infrastructure. A strategic expansion and realignment of the U.S. sales force took effect at the beginning of 2025, designed to enhance efficiency and increase market presence in high-priority accounts. While this transition may cause some near-term disruption, it is intended to drive productivity gains, particularly in the latter half of the year. Internationally, Tandem is preparing for a multi-year transition to direct sales in select European countries starting in 2026. This move is expected to strengthen Tandem's financial position by accelerating sales growth and driving margin expansion, although it may create potential headwinds of $15 million to $20 million in OUS sales in the second half of 2025 as distributor relationships evolve.

Looking ahead, Tandem's pipeline remains robust, featuring enhancements to existing platforms and development of new technologies. Planned launches in 2025 include integration with Abbott's FreeStyle Libre 3 sensor on both t:slim and Mobi, support for the 15-day Dexcom G7 sensor, and an Android application for Mobi control. Development efforts are also underway for a tubeless infusion site option for Mobi, the ergonomic and rechargeable Sigi patch pump (development moved to San Diego), and advancements towards a fully closed-loop algorithm, supported by a collaboration with the University of Virginia's Center for Diabetes Technology. An FDA submission for a three-day indication for the SteadySet extended wear infusion set technology has been made, with a seven-day submission planned subsequently.

For the full year 2025, Tandem is guiding for worldwide sales in the range of $997 million to $1 billion, representing 10% to 11% growth year-over-year. This includes U.S. sales of $725 million to $730 million (13-14% growth) and OUS sales of $272 million to $277 million (2-4% growth). The guidance reflects assumptions around U.S. seasonality, scaling sales force productivity, new growth opportunities weighted towards the second half, and the OUS direct transition headwinds. The company expects gross margin to improve to approximately 54% for the full year and adjusted EBITDA to be approximately 3% of sales, demonstrating leverage gained through efficiency initiatives offsetting growth investments. Management sees a pathway to achieving a 60% gross margin as early as 2026, driven by the scaling of Mobi, increasing pharmacy channel access, and the transition to OUS direct sales.

Risks and Challenges

Despite the positive momentum and strategic opportunities, Tandem faces several significant risks. The medical device market is intensely competitive, with rivals constantly innovating and employing aggressive commercial strategies. Tandem must successfully execute its multi-platform and multi-channel strategy to maintain or gain market share against larger, more established competitors and disruptive new entrants.

Reimbursement and market access remain critical. While progress has been made in the pharmacy channel and with the Type 2 indication, securing and maintaining adequate coverage and favorable reimbursement rates from third-party payors, particularly Medicare for the Type 2 population, is essential for commercial success. Potential changes in reimbursement structures, such as the proposed CMS competitive bidding process for CGMs and insulin pumps, could introduce pricing pressures.

Operational execution is key, especially with the U.S. sales force realignment and the complex transition to direct sales in Europe. These initiatives carry inherent risks of disruption that could impact sales performance. Dependence on a limited number of third-party suppliers for components and products also poses risks to manufacturing capacity and costs.

Macroeconomic factors, including inflation, interest rates, and potential changes in trade policies (like tariffs), could impact costs, consumer spending, and international operations. Regulatory hurdles, including obtaining and maintaining clearances and certifications for new products and updates (like the Android app for Mobi or the Sigi patch pump), and managing potential recalls or safety issues, are ongoing challenges. Patent litigation is common in the industry and could result in substantial costs or restrictions on product sales. Finally, the company's ability to achieve its profitability targets depends on successfully scaling manufacturing, gaining efficiencies, and managing operating expenses while investing for growth.

Conclusion

Tandem Diabetes Care is undergoing a significant transformation, strategically expanding its product portfolio, market reach, and commercial capabilities to capitalize on the large and growing insulin-dependent diabetes market. The early success of the Tandem Mobi launch and the recent FDA clearance for the Type 2 indication for Control-IQ+ underscore the potential of this strategy to drive future growth. Investments in the pharmacy channel, sales force expansion, and pipeline development are critical steps towards unlocking these opportunities and achieving the company's long-term ambitions for sustained double-digit sales growth and improved profitability.

While the path forward involves navigating intense competition, reimbursement complexities, and operational execution risks, Tandem's differentiated technology, expanding portfolio, and focus on addressing unmet patient needs position it to capture a larger share of the market. The projected return to positive free cash flow in the latter half of 2025 and the visible pathway to higher gross margins signal improving financial health. For investors, the story centers on Tandem's ability to successfully execute this multi-faceted growth strategy, leveraging its technological leadership to convert market opportunities into sustainable financial performance in the years ahead.