Item 1. Business
Item 1. Business
References within this Annual Report to “Tandem,” “we,” “our,” “us,” “management,” or the “Company” refer to Tandem Diabetes Care, Inc., together with its wholly-owned subsidiaries in the United States, Canada, the Netherlands, and Switzerland.
Overview
Tandem Diabetes Care, a global insulin delivery and diabetes technology company, manufactures and sells advanced automated insulin delivery systems that reduce the burden of diabetes management, while creating new possibilities for patients, their loved ones, and healthcare providers. Our pump portfolio features the Tandem Mobi system and the t:slim X2 insulin pump, both of which feature Control-IQ advanced hybrid closed-loop technology. We are based in San Diego, California.
We consider our primary addressable market to be people who live with type 1 diabetes. Through our product development efforts, we are seeking to expand our addressable market to include people living with type 2 diabetes who require intensive insulin therapy. Diabetes management can vary greatly from person to person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to address the individual needs of people with insulin-dependent diabetes and their care team flexibility and choice in intelligent insulin delivery systems through an accessible portfolio of market-leading pumps, applications, and insights.
The t:slim X2 Insulin Delivery System has been our flagship technology solution. In February 2024, we expanded our pump portfolio with the U.S. launch of Tandem Mobi. Both pumps feature our Control-IQ advanced hybrid closed loop technology, with an automated insulin delivery (AID) feature designed to help increase a user's time in targeted glycemic range. Our t:slim X2 and Tandem Mobi pumps can be used with a variety of infusion sets to offer patients choice in how and where their pump is worn. In addition, they are software updatable from a personal computer and compatible with our web-based data management application.
In the four-year period ended December 31, 2023, we shipped approximately 450,000 insulin pumps, which is representative of our in-warranty global installed customer base assuming the typical four-year reimbursement cycle. Approximately 310,000 pumps were shipped to customers in the United States and 140,000 were shipped to customers outside the United States.
Diabetes and the Insulin Therapy Management Market
Diabetes is a chronic, life-threatening disease for which there is no known cure. It is typically classified as either /type 1 or type 2:
• Type 1 diabetes is characterized by the body’s nearly complete inability to produce insulin. It is frequently diagnosed as an acute event during childhood or adolescence. Individuals with type 1 diabetes require intensive insulin therapy to survive.
• Type 2 diabetes is characterized by the body’s inability to either properly use insulin or produce enough insulin. It’s a progressive condition, and a person in the advanced stages of living with type 2 diabetes often requires intensive insulin therapy. The Center for Disease Control and Prevention estimates Type 2 accounts for 90-95% of diagnosed diabetes in adults in the United States.
We consider our addressable market to be people diagnosed with diabetes who are living with either type 1 diabetes, or with type 2 diabetes who require intensive insulin therapy. Throughout this Annual Report, we refer to these individuals as people with insulin-dependent diabetes. In the geographies we serve, we estimate about 5 million people live with type 1 diabetes of whom, 1.9 million reside in the United States. We estimate approximately 2 million people in the United States live with type 2 diabetes and require intensive insulin therapy.
Diabetes can be difficult for patients to manage. Unlike most therapies, insulin requirements can vary greatly and can be affected by many factors, such as type or quantity of food eaten, illness, stress and exercise. Preventing and managing fluctuations in blood glucose levels between hypoglycemia, or low blood glucose levels, and hyperglycemia, or high blood glucose levels, is often time consuming and stressful to people with diabetes and their loved ones.
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There are two primary therapies used by people with insulin-dependent diabetes, Multiple Daily Injection (MDI) and insulin pumps. Insulin pumps are intended to more closely resemble the physiologic function of a healthy pancreas and use rapid-acting insulin to fulfill both mealtime (bolus) and background (basal) requirements. Insulin pump systems are most commonly comprised of a programmable, durable device, a single-use cartridge filled with insulin by the user, and a single-use infusion set to administer insulin into the person’s body. This system is typically known as a durable pump and the device itself is expected to last for multiple years. By comparison, there are also disposable pumps which combine the pump mechanism, battery and electronics with the cartridge and infusion set into a body-worn patch. These pumps are entirely disposed of by the user every 3 days.
More than 1.3 million people worldwide are estimated to use an insulin pump to manage their diabetes. We estimate that approximately 800,000 people in the United States use an insulin pump, of whom approximately 90% live with type 1 diabetes. In addition, we estimate that approximately 500,000 people use an insulin pump in approximately 25 countries outside the United States in which our insulin pump is available.
Insulin pump therapy can provide benefit to a person with insulin-dependent diabetes when used independently or in conjunction with continuous glucose monitoring (CGM), which is a technology that provides users with real-time access to their glucose levels as well as trend information. In addition, insulin pumps may feature an AID algorithm that is designed to automatically adjust a person’s insulin delivery based on their CGM trends and other factors to help minimize the frequency and/or duration of hyperglycemic and/or hypoglycemic events. The American Diabetes Association Standards of Care state that diabetes devices should be offered to people with diabetes. It also states that AID systems are preferred over non-automated pumps and MDI, and should be offered for diabetes management to youth and adults with type 1 diabetes.
Our Technology: Improving the Lives of People with Insulin-Dependent Diabetes
We develop our insulin pump technology and related product offerings using a consumer-focused approach. We initially rely on the use of behavioral sciences, including extensive research to ascertain what people with insulin-dependent diabetes require and prefer from their diabetes therapy. We then look to modern consumer technology for inspiration and design our hardware and software solutions to try to meet the specific demands of people living with diabetes. This multi-step approach has resulted in products that provide users with the distinct features and functionality they seek and in a manner that makes the features usable and intuitive.
Our insulin pumps are generally considered durable medical equipment and have an expected lifespan of at least four years. In addition to insulin pumps, we sell single-use products that are used together with our pumps and are replaced every few days, including cartridges for storing and delivering insulin, and infusion sets that connect the insulin pump to a user’s body.
We launched our flagship t:slim platform in August 2012, and its next generation, the t:slim X2, in October 2016. In February 2024, we expanded our offerings with the commercial availability of Tandem Mobi in the United States. Both pumps are fully detachable, offer Bluetooth connectivity and can be used as part of an automated insulin delivery system.
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Key Features
Tandem Mobi
t:slim X2
Size
1.5” x 2.0”
2.0” x 3.1”
Control-IQ Technology
X
X
Remote Software Updates
X
X
On-body Wear
X
Smartphone Control
X
Mobile Bolus
Insulin Capacity
200 units
300 units
Integrated Color Touchscreen
X
Pump Button for Bolus Delivery
X
X
Our t:slim X2 and Tandem Mobi pumps feature our Control-IQ advanced hybrid closed loop technology. This AID feature is designed to help increase a user's time in targeted glycemic range (70-180 mg/dL), and is used by the majority of our customers worldwide. Control-IQ was the first AID algorithm cleared by the FDA to deliver automatic correction boluses in addition to adjusting basal insulin to help prevent high and low blood sugar. Control-IQ technology offers optional settings for sleep and exercise activities that adjust the algorithm parameters to better match the different physiological needs during these activities. Results from three independent pivotal studies using Control-IQ technology were published in the New England Journal of Medicine in October 2019, August 2020 and March 2023.
As part of our AID systems, we offer pump integration with multiple CGM sensors, which helps provide customizable solutions for people living with diabetes. The Dexcom G7 sensor is the fourth generation of Dexcom’s CGM that we have integrated with our pump technology since 2015. We began offering our t:slim X2 pump integrated with the Dexcom G7 sensor in the United States in December 2023 and outside the United States in January 2024. In addition, in January 2024 we announced that our t:slim X2 insulin pump with Control-IQ technology is the first AID system to integrate with the Abbott FreeStyle Libre 2 Plus sensor. Our extensive experience in CGM integration, and efforts to continue expanding the available CGM sensors integrated with our pump portfolio, represents our commitment to provide customizable solutions to help reduce burden and create new possibilities for people living with diabetes.
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Tandem Device Updater
This tool allows our pump users to update their pump software quickly and easily from a personal computer. It is PC- and Mac- compatible and designed to work with our pumps in a manner similar to software updates on a smartphone. We have used this technology to offer our in-warranty t:slim X2 customers worldwide software updates at no cost.
Tandem Source
Our web-based data management platform provides users, their caregivers and their healthcare providers with a fast, easy and visual way to display diabetes therapy management data from our pumps, integrated CGMs and supported blood glucose meters. It also provides us with data that we can analyze to reveal patterns, trends, outcomes and associations that can be used to improve our products and in the analysis of clinical outcomes data. Tandem Source is designed to bring together the features of Tandem’s legacy t:connect, t:connect HCP, and t:connect Portal offerings with new comprehensive data reporting in one central, scalable platform. It offers automatic data transfers from pumps using the t:connect mobile app to keep online data current and remove the need for manual pump uploads.
Sugarmate
Sugarmate is a mobile app that is designed to help people visualize diabetes therapy data in innovative ways. It allows users to log glucose data and health and nutrition information, and can provide notifications and alerts to users, their family, and their caregivers.
Our Strategy & Future Technologies
Diabetes management can vary greatly from person-to-person, creating multiple market segments based on clinical needs and personal preferences. Our goal is to address the individual needs of people with insulin-dependent diabetes and their care team flexibility and choice in intelligent insulin delivery systems, through an accessible portfolio of market-leading pumps, applications, and insights.
In support of this strategy, our portfolio of future technologies includes:
t:slim X3
Advancing our flagship t:slim platform, the t:slim X3 is planned to include enhanced technology, such as greater processing power and capacity to support our advanced algorithms, as well as increased battery life and improved durability.
Mobi: Tubeless
This offering is intended to provide an alternative tubeless infusion site option for Tandem Mobi pump users. It will allow a Tandem Mobi pump to be worn completely on the user’s body with no tubing. A goal of this design is to allow people living with diabetes to customize the way they wear their pump with each cartridge change, switching between tubed and tubeless wear configurations, to best suit their personal preferences and lifestyle.
Sigi
The ergonomic, rechargeable Sigi Patch Pump is intended to reduce the burden of managing diabetes through its use of pre-filled insulin cartridges and compatibility with AID technology.
Extended Wear Infusion Sets
Infusion sets provide additional choice and flexibility to people living with diabetes. Our goals for infusion set innovations focus on solutions that extend wear time and enhance user experience, while reducing occlusions, body burden and waste. In support of this effort, unique extended wear infusion set technology is expected to be part of our future portfolio.
Control-IQ Advancements
We are continuing to drive innovation in our algorithms, emphasizing automation, personalization and simplification to continue to improve therapeutic outcomes and provide a positive patient experience. In 2023, we began a pivotal study to support expanding indications to include people living with type 2 diabetes. In late 2023, our Control-IQ technology was cleared with additional features for people with type 1 diabetes age 2 and older. We are also researching the use of different insulins with our Control-IQ technology.
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Markets and Distribution Methods
Our technology solutions are now available in the following 25 countries:
Australia
Denmark
Israel
Norway
Spain
Bahamas
Finland
Italy
Portugal
Sweden
Belgium
France
Luxembourg
Saudi Arabia
Switzerland
Canada
Germany
Netherlands
Slovakia
United Kingdom
Czech Republic
Ireland
New Zealand
South Africa
United States
In the United States and Canada, we employ direct sales, customer support, and clinical teams. We also partner with independent distributors for order fulfillment. Outside the United States and Canada, we contract with distributors who have substantial responsibility for sales, customer support, clinical efforts and order fulfillment.
Revenue Concentrations and Significant Customers. A small number of independent distributors in the United States and Canada are responsible for order fulfillment. We believe these distributors carry minimal inventory at any given time. Outside the United States and Canada, there may be variability in inventory levels among our distributors, particularly when they first begin product sales or surrounding the launch of new products. For the year ended December 31, 2023, two independent distributors each accounted for more than 10% of our worldwide sales.
Third-Party Reimbursement
In the United States, customer orders are typically fulfilled by billing third-party payors on behalf of our customers, or by using our network of distributors who then bill third-party payors on our customers’ behalf. Typically, customers are eligible for insurance reimbursement for the purchase of a new insulin pump once every four years. However, some plans may be limited to once every five years or have additional restrictions or requirements. Insurance reimbursement processes outside the United States vary by geography.
We are accredited by the Community Health Accreditation Program and are an approved Medicare provider. We enter into contracts with national and regional third-party payors to establish reimbursement for our insulin pump products, single-use insulin cartridges and other related supplies. If we are not contracted with a prospective customer’s third-party payor and in-network status cannot be otherwise obtained, then to the extent possible we use distribution channels so our customers’ orders can be serviced. While we have been working to increase our sales in the United States through our direct third-party payor contracts, the percentage is currently less than half of total sales. A third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future. Outside of the United States and Canada, our distribution partners are responsible for all reimbursement, tender application and fulfillment activities.
Manufacturing and Quality Assurance
Our t:slim X2 pumps, and Tandem Mobi pumps and cartridges, are currently assembled, tested, and packaged at our facilities in San Diego, California. Our t:slim X2 cartridges are manufactured by an experienced third-party contract manufacturer and packaged at our facilities in San Diego.
Outside suppliers are the source for components and some sub-assemblies in the production of our insulin pumps and cartridges. In addition, we purchase all of our currently marketed infusion sets from a third-party supplier, Unomedical A/S, a subsidiary of the ConvaTec Group. Unomedical is responsible for all manufacturing, testing, sterilization and packaging of the infusion sets under our brands. Any sole and single source supplier is managed through our supplier management program that is focused on reducing supply chain risk. Certain of our suppliers are evaluated, approved and monitored periodically by our quality department to ensure conformity with the specifications, policies and procedures applicable to our devices. Members of our quality department also inspect certain of our devices at various steps during the manufacturing cycle to facilitate compliance with our devices’ stringent specifications.
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We purchase our raw materials and select components used in the manufacturing of our products from external suppliers. We purchase some supplies from a single or limited number of sources for reasons of proprietary know-how, quality assurance, cost-effectiveness, or constraints resulting from regulatory requirements. We work closely with our suppliers to help ensure continuity of supply while maintaining high quality and reliability. However, due to required medical device manufacturing qualification requirements, we may not be able to quickly establish additional or replacement sources. In the case of sole sourced parts, we manage risk through holding inventory in-house and at the supplier to ensure continuity of supply and lower risk of disruption. We purchase many of our components and sub-assemblies from manufacturers with whom we are at least dual sourced. We work closely with all suppliers to ensure continuity of supply while maintaining high quality and reliability.
We have received certification from BSI Group, a Notified Body to the International Standards Organization (ISO), of our quality system. A Notified Body is an entity that has been designated and accredited by the national competent authority of an EU Member State in accordance with applicable EU legislation to perform third-party conformity assessment activities including calibration, testing, certification and inspection of a medical device. Certain processes used in the manufacturing and testing of our devices have been verified and validated as required by the FDA and other regulatory bodies. As a medical device manufacturer, our manufacturing facility and the facilities of our sterilization and other critical suppliers are subject to periodic inspection by the FDA, certain corresponding state agencies, and Notified Bodies and foreign regulatory authorities.
Intellectual Property
We have made protection of our intellectual property a strategic priority. We rely on a combination of copyright, patent, trademark, trade secret and other intellectual property laws, non-disclosure agreements and other measures to protect our proprietary rights.
As of December 31, 2023, our patent portfolio includes numerous issued patents and pending patent applications in the U.S. and other countries, which in the aggregate, we believe to be important to our business. Patents are generally effective for 20 years from the date the earliest application was filed in the patent family, and in some cases may be extended. Our issued patents as of December 31, 2023 are set to expire over a range of years, from 2024 to 2042, subject to any extensions. We also have various registered U.S. trademarks, registered European Community trademarks, and other trademark registrations and pending trademark applications in other countries and regions of the world. In addition, we have entered into exclusive and non-exclusive licenses in the ordinary course of business relating to a wide array of technologies or other intellectual property rights or assets.
Our patents and patent applications seek to protect aspects of key features of our pumps, cartridges, algorithms and pump systems. We believe that our patent position provides us with sufficient rights to protect our current and proposed commercial products. However, our patent applications may not result in issued patents, and any patents that have been issued or might be issued may not protect our intellectual property rights. Furthermore, we operate in an industry characterized by extensive patent litigation, and our patents may not be upheld if challenged. Any patents issued to us may be challenged by third parties as being invalid or unenforceable, and patent litigation may result in significant damage awards and injunctions that could prevent the manufacture and sale of affected products or result in significant royalty payments to continue selling the products. Third parties may also independently develop similar or competing technology that avoids our patents. The steps we have taken may not prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. We also face risks associated with intellectual property infringement.
We also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information and other intellectual property by generally requiring our employees, consultants, contractors, suppliers, outside scientific collaborators and other advisors to execute non-disclosure and assignment of invention agreements at the start of their employment or engagement. Agreements with our employees also forbid them from bringing the proprietary rights of third parties to us. We also generally require confidentiality or material transfer agreements from third parties that receive our confidential data or materials. We cannot guarantee that employees and third parties will abide by the confidentiality or assignment terms of these agreements. Despite measures taken to protect our intellectual property, unauthorized parties might copy aspects of our products or obtain and use information that we regard as proprietary.
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Competition
The medical device industry is intensely competitive, subject to rapid change and highly sensitive to the introduction of new products, treatment techniques or technologies, or other market activities of industry participants. We compete in markets worldwide with companies that manufacture insulin delivery devices, primarily Insulet, Medtronic and Ypsomed. There are also a number of other companies developing and marketing their own insulin delivery systems and/or related software applications for launch both in the U.S. market and outside the U.S., including insulin pumps and Bluetooth-enabled insulin pens to support MDI therapy. In addition, we face competition from a number of companies, medical researchers and existing pharmaceutical companies that are pursuing new delivery devices, delivery technologies, sensing technologies, procedures, drugs and other therapeutics for the monitoring, treatment and prevention of diabetes.
Government Regulation
Regulation of Medical Devices in the United States
Our products are medical devices subject to extensive regulation by the FDA in the United States, corresponding state regulatory authorities and other regulatory bodies in other countries. Each new or significantly modified medical device we seek to commercially distribute in the United States will require either a pre-market notification under Section 510(k) of the U.S. Federal Food, Drug and Cosmetic Act (FDCA), also referred to as a 510(k) clearance, or approval from the FDA through the premarket approval (PMA) process. We have obtained clearance on multiple devices in both Class II and Class III, including Control IQ, the tslim:X2 and Tandem Mobi.
510(k) Clearance . To obtain 510(k) clearance for any of our potential future devices (or for certain modifications to devices that have previously received 510(k) clearance), we must submit a pre-market notification demonstrating that the proposed device is substantially equivalent to a previously cleared 510(k) device. The FDA’s 510(k) clearance pathway generally takes three to 12 months from the date the application is completed but can take significantly longer. A 510(k) application must be supported by extensive data, including technical information, labeling, human factors data and potentially clinical data to meet any Special Controls. After a medical device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a significant change in its intended use, requires a new 510(k) clearance or, depending on the modification, could require a PMA application. The FDA requires each manufacturer to make this determination initially, but if the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA is obtained and assess significant regulatory fines or penalties for failure to submit the requisite 510(k) or PMA application(s).
There are three Class II categories classified by the FDA for the interoperability of devices as a complete AID system that are intended to help support continued rapid innovation by streamlining the regulatory pathway for integrated products approved by the FDA. In June 2018, our t:slim X2 was the first insulin pump designated by the FDA as compatible with integrated continuous glucose monitoring (iCGM) devices. In February 2019, we received FDA approval of our de novo application to classify the t:slim X2 to a Class II device, under the new insulin pump classification referred to as Alternate Controller Enabled Infusion Pumps (ACE pumps). In December 2019, we received FDA approval of our de novo application to classify our Control-IQ technology as the first automated insulin dosing software in a new interoperable automated glycemic controller (iAGC) category that automatically adjusts insulin delivery to a person with type 1 diabetes age 6 and older by connecting to an ACE pump and iCGM. In November 2023, our Control-IQ technology was cleared with additional features for people with type 1 diabetes age 2 and older. In connection with the de novo applications for both the ACE pump and the iAGC category, the FDA established certain special controls that we will need to continue to satisfy. If we are not able to satisfy those special controls, we would be required to seek approval for those products under the traditional PMA submission application, which must be supported by valid scientific evidence that typically includes extensive technical, pre-clinical, clinical, manufacturing and labeling data to demonstrate to the FDA’s satisfaction the safety and efficacy of the device.
Clinical trials are typically required to support a PMA application and are sometimes required for a 510(k) clearance. We anticipate that most of our future AID offerings will require supporting clinical data, either from clinical trials or potentially from evidence that we are able to collect through real-world use of our products. These trials generally require submission of an application for an Investigational Device Exemption (IDE), to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards at the clinical trial sites. The FDA’s approval of an IDE allows clinical testing to go forward, but it does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and efficacy, even if the trial meets its intended success criteria.
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We are currently sponsoring or supporting several clinical trials that are intended to support future enhancements to our AID products.
Other Regulatory Requirements. Even after a device receives clearance or approval and is placed in commercial distribution, numerous regulatory requirements apply. These include:
• establishment registration and device listing;
• QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during all aspects of the manufacturing process;
• labeling regulations that prohibit the promotion of products for uncleared, unapproved or “off-label” uses, and impose other restrictions on labeling, advertising and promotion;
• the FDA’s Medical Device Reporting (MDR) regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;
• voluntary and mandatory device recalls to address problems when a device is defective and could be a risk to health; and
• corrections and removals reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health.
Also, the FDA may require us to conduct post-market surveillance studies or establish and maintain a system for tracking our products through the chain of distribution to the patient level. We are currently conducting a post-market surveillance study for our t:slim X2 with Control-IQ technology for users with type 1 diabetes age six and above. We may elect to pursue additional post-market surveillance studies in the future.
The FDA and the Food and Drug Branch of the California Department of Health Services enforce regulatory requirements by conducting periodic, unannounced inspections and market surveillance. Inspections may include the manufacturing facilities of our subcontractors.
Licensure. In the United States, several states require that durable medical equipment (DME) providers be licensed to sell products to patients in that state. Some of these states require that DME providers maintain an in-state location or retain a licensed pharmacist, and in those states, we sell our products through a third-party distributor. Although we believe we are in material compliance with applicable state regulations regarding licensure requirements, if we were found to be noncompliant, we could be subject to fines and penalties or lose our licensure in that state, which could prohibit us from selling our current or future products to patients in that state. In addition, we are subject to certain state laws regarding professional licensure. We believe that our certified diabetes educators are in material compliance with such state laws. However, if our educators or we were to be found non-compliant in a given state, we may need to modify our approach to providing education, clinical support and customer service.
Fraud and Abuse Laws. There are numerous U.S. federal and state laws pertaining to healthcare fraud and abuse, including the federal Anti-Kickback Statute and the Physician Self-Referral Law (the Stark Law), the federal civil False Claims Act, the federal criminal Health Care Fraud Statute, as well as various state laws regulating healthcare. Our relationships with healthcare providers and other third parties are subject to scrutiny under these laws. Violations of these laws are punishable by criminal and civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state healthcare programs, including the Medicare, Medicaid and Veterans Health Administration programs.
Federal Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual, or the furnishing, recommending, or arranging of a good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid.
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We provide the initial training to customers necessary for appropriate use of our products either through our own diabetes educators or by contracting with outside diabetes educators who have completed a Tandem pump-training course. Outside diabetes educators are reimbursed for their services at fair market value. Although we believe that these arrangements do not violate the Anti-Kickback Statute, regulatory authorities may determine otherwise, especially as enforcement of this law historically has been a high priority for the federal government. Noncompliance with the federal Anti-Kickback Statute could result in our exclusion from Medicare, Medicaid or other governmental programs (which could adversely affect our revenues to a material extent), restrictions on our ability to operate in certain jurisdictions, and civil and criminal penalties.
Physician Self-Referral Law . The Stark Law prohibits a physician from referring Medicare or Medicaid patients to an entity providing “designated health services,” including a company that furnishes durable medical equipment, if the physician or their immediate family member has a financial relationship with the company. In addition to statutory exceptions, the Centers for Medicare and Medicaid Services (CMS), has issued numerous regulatory exceptions to the Stark Law. Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement, civil penalties, and exclusion from Medicare, Medicaid or other governmental programs. Although we believe that we have structured our provider arrangements to comply with current Stark Law requirements, these arrangements may not expressly meet the requirements for applicable exception from the law.
Federal False Claims Act. The federal False Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. In addition, amendments in 1986 to the False Claims Act have made it easier for private parties to bring “qui tam” whistleblower lawsuits under the act. Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a false claim action, pay fines and/or be excluded from Medicare, Medicaid or other federal or state healthcare programs as a result of an investigation arising out of such action.
We submit reimbursement claims to federal healthcare programs, and we also may provide some coding and billing information to purchasers of our devices. These activities, if inappropriate, could result in liability under the False Claims Act. Further, claims arising from relationships which violate the Anti-Kickback Statute are considered to be false claims under the False Claims Act. Liability under the False Claims Act may also attach to claims arising from financial relationships which violate the Stark Law. We believe that we currently are in material compliance with the federal government’s laws and regulations concerning the submission of claims and the provision of coding and billing information. However, because we cannot guarantee that the government or qui tam relators will regard any billing errors that may be made as inadvertent, or our provider relationships as compliant, we may have exposure under the False Claims Act.
State Fraud and Abuse Provisions. Many states have also adopted some form of anti-kickback and anti-referral laws and false claims acts. We believe that we are in material conformance to such laws. Nevertheless, a determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Data Privacy and Information Security Laws and Regulations. Our use of t:connect and Tandem Source data is subject to internal policies and procedures that are designed to comply with the federal U.S. Health Insurance Portability and Accountability Act of 1996 (HIPAA), as well as applicable U.S. state privacy laws HIPAA, as amended by Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), imposes certain requirements on covered entities, which include certain healthcare providers, health plans and healthcare clearinghouses, and their business associates and covered subcontractors that receive or obtain protected health information in connection with providing a service on behalf of a covered entity relating to the privacy, security and transmission of individually identifiable health information. Although t:connect, t:connect HCP and Tandem Source are not currently generally available to users or healthcare providers outside the United States, we are also mindful of requirements under Canada’s Personal Information Protection and Electronic Documents Act, referred to as PIPEDA, and similar provincial laws, and the E.U. and United Kingdom (U.K.) General Data Protection Regulation, collectively known as GDPR, and similar E.U. member state laws. Collectively, these laws and regulations set standards that may be applicable to us regarding safeguarding the privacy and security of the personal information we collect and use from customers, healthcare providers and other individuals. These laws also require, among other things, publication of privacy notices detailing certain data collection and sharing practices and extension of certain rights to individuals, such as the right to know what data is collected about them, to obtain a copy of that data, to correct or amend that data, and to request restricted use of that data.
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Healthcare Fraud . In addition to information security and data privacy obligations, HIPAA also created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment. We believe we are in substantial compliance with these provisions of HIPAA.
Physician Payments Sunshine Act . The Physician Payments Sunshine Act requires certain manufacturers, including medical device manufacturers, to submit annual data to CMS pertaining to payments or other transfers of value to covered recipients, including physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other health care professionals (such as physicians assistants and nurse practitioners), and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family members. Manufacturers may be subject to audit for their compliance with this law. Failure to submit the required data in an accurate and timely manner may result in the imposition of civil monetary penalties. We believe we are in substantial compliance with the Physician Payments Sunshine Act to date.
Anti-Bribery and Anti-Corruption Laws. The U.S. Foreign Corrupt Practices Act (FCPA), and similar laws in foreign jurisdictions generally prohibit U.S. corporations and their representatives from offering, promising, authorizing or making improper payments, gifts or transfers to any foreign government official to obtain or retain business. The scope of the FCPA would include interactions with certain healthcare professionals and hospital administrators in many countries. We believe we are in substantial compliance with the FCPA and similar foreign regulations.
International Regulation
International sales of medical devices are subject to local government regulations, which vary substantially from country to country. The time required to obtain approval in another country may be longer or shorter than that required for FDA approval, and the requirements may differ. There is a trend towards harmonization of quality system standards among the European Union, United States, Canada and various other industrialized countries.
Regulation of Medical Devices in the European Economic Area
On 26 May 2021, Regulation (EU) 2017/745 on Medical Devices, or the Medical Device Regulation, entered into application, repealing and replacing both Directive 93/42/EEC concerning medical devices, or MDD, and Directive 90/385/EEC concerning active implantable medical devices, or AIMD. The Medical Device Regulation and its associated guidance documents and harmonized standards govern, among other things, device design and development, preclinical and clinical or performance testing, premarket conformity assessment, registration and listing, manufacturing, labeling, storage, claims, sales and distribution, export and import and post-market surveillance, vigilance, and market surveillance. Medical devices must comply with the General Safety and Performance Requirements, or GSPRs, set out in Annex I of the Medical Device Regulation. Compliance with these requirements is a prerequisite to be able to affix the CE mark to devices, without which they cannot be marketed or sold in the European Economic Area (comprised of the 27 EU Member States, Iceland, Liechtenstein and Norway). To demonstrate compliance with the GSPRs provided in the Medical Device Regulation and obtain the right to affix the CE mark, medical devices manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Apart from low risk medical devices (Class I with no measuring function and which are not sterile), in relation to which the manufacturer may issue an EU Declaration of Conformity based on a self-assessment of the conformity of its products with the GSPRs, a conformity assessment procedure requires the intervention of a Notified Body, which is an organization designated by a Competent Authority of an EEA country to conduct conformity assessments. Depending on the relevant conformity assessment procedure, the Notified Body audits and examines the technical documentation and the quality system for the manufacture, design and final inspection of the medical devices. The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the GSPRs. This Certificate and the related conformity assessment process entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EU Declaration of Conformity.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the GSPRs must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use and that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and
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safety of the device (e.g., product labeling and instructions for use) are supported by suitable evidence. This assessment must be based on clinical data, which can be obtained from (1) clinical studies conducted on the devices being assessed, (2) scientific literature from similar devices whose equivalence with the assessed device can be demonstrated or (3) both clinical studies and scientific literature. The conduct of clinical studies in the EEA is governed by detailed regulatory obligations. These may include the requirement of prior authorization by the Competent Authorities of the country in which the study takes place and the requirement to obtain a positive opinion from a competent Ethics Committee. This process can be expensive and time-consuming. After a device is placed on the market, it remains subject to significant regulatory requirements.
The Medical Device Regulation provides transitional provisions, amended by Regulation (EU) 2023/603. Accordingly, CE Certificates of Conformity issued by Notified Bodies in accordance with the MDD or the AIMD from 25 May 2017, and which remained valid on 26 May 2021 and have not since been withdrawn will, with certain exceptions, remain valid until 31 December 2027 for Class III and Class IIb implantable medical devices and until 31 December 2028 for other Class IIb, Class IIa and Class I devices with a measuring function or which are sterile. Class I medical devices, for which the conformity assessment procedure in accordance with the MDD or the AIMD did not require the involvement of a Notified Body but will require the involvement of a Notified Body in accordance with the Medical Device Regulation and for which an EU Declaration of Conformity was issued in accordance with the MDD or the AIMD before 26 May 2021, can continue to be placed on the EEA market until 31 December 2028. Manufacturers of medical devices may only benefit from the above extended transitional provisions deadlines if the following conditions are fulfilled: (i) the devices continue to comply with the requirements of the MDD or AIMD, (ii) there are no significant changes in the design and intended purpose, (iii) the devices do not present an unacceptable risk to the health or safety of patients, users or other persons, or to other aspects of the protection of public health, (iv) the manufacturer implements a quality management system by 26 May 2024 which complies with the requirements of the Medical Devices Regulation, (v) by 26 May 2024 an application is lodged with a Notified Body for conduct of the conformity assessment of the devices covered by the CE Certificate of Conformity, or the devices intended to substitute for such devices, in accordance with the Medical Device Regulation and a related written agreement is signed with the Notified Body by 26 September 2024, and (vi) from 26 May 2021, compliance with the Medical Device Regulation relating to post-market surveillance, market surveillance, vigilance, registration of economic operators and of devices is ensured in place of the corresponding requirements in the MDD or AIMD.
In addition, CE Certificates of Conformity issued by Notified Bodies in accordance with the MDD or the AIMD from 25 May 2017, which were valid on 26 May 2021 and have not been withdraw since but which expired before 20 March 2023, will only continue to be valid in accordance with the extended transitional deadlines above if either (i) the manufacturer signed a written agreement with a Notified Body for the conformity assessment of the device covered by the expired CE Certificate of Conformity, or the device intended to substitute that device, in accordance with the Medical Device Regulation before the date of expiry of the CE Certificate of Conformity, or (ii) a competent authority of an EEA country has granted a derogation from the application conformity assessment procedure in accordance with Article 59(1) or Article 97(1) of the Medical Device Regulation.
Class III custom-made implantable medical devices may be placed on the market until 26 May 2026 without a CE Certificate of Conformity issued by Notified Body, provided that (i) by 26 May 2024, an application is lodged with a Notified Body for the conformity assessment of the devices, in accordance with the Medical Device Regulation and a related written agreement is signed with the Notified Body by 26 September 2024.
The advertising and promotion of medical devices in the EU is subject to the national laws of the individual EEA country that implemented the MDD, the AIMD and that apply the Medical Device Regulation, Directive 2006/114/EC concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national legislation of individual EEA countries governing the advertising and promotion of medical devices EEA countries’ national legislation may also restrict or impose limitations on our ability to advertise our products directly to the general public. In addition, voluntary EU and national industry Codes of Conduct provide guidelines on the advertising and promotion of our products to the general public and may impose limitations on our promotional activities with healthcare professionals.
Outside of the European Union, regulatory approval would need to be sought on a country-by-country basis for us to market our products. We have obtained the right to affix the CE Mark to the t:slim X2 Insulin Delivery System, which allows us to distribute this product throughout the European Union. We may also leverage the CE Mark in certain other countries to fulfill the national applicable regulatory requirements for placing our product on national markets. In addition, we have Health Canada approval to sell the t:slim X2 in Canada.
Outside the United States, interactions between medical device companies, government officials and health care professionals are also governed by strict laws, such as national anti-bribery laws of European countries, national sunshine rules, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct. These laws include the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions in which we operate. Such laws generally prohibit U.S.-
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based companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business to foreign officials, or in the case of the U.K. Bribery Act, to any person.
Environment, Social and Governance
Our Board of Directors and management team believe that environmental stewardship, social responsibility, and solid corporate governance are important to our business strategy and long-term value creation for our shareholders, employees, customers, and communities. The Nominating and Corporate Governance Committee of our Board oversees ESG matters across our business operations in accordance with its charter. Our management team is responsible for developing and driving strategic ESG initiatives and programs across our business and providing regular updates on progress to the Nominating and Corporate Governance Committee.
Additional information about our Environmental, Social and Governance practices can be found on our website within the “Investor Center” section. The information contained on or accessed through our website does not constitute part of this Annual Report, and references to our website address in this Annual Report are inactive textual references only.
Human Capital
We are committed to creating and maintaining a safe, diverse, and inclusive community for all employees while we serve our customers and fulfill our mission to improve the lives of people with diabetes. As of December 31, 2023, we had approximately 2,400 regular full-time employees, who primarily work in the United States, Canada, or Europe. The term “employees” in this Annual Report means our regular full-time employees. Our headquarters are in San Diego, California, where our primary research and development and administrative headquarters are located, and where we also operate a manufacturing facility and a warehousing facility. None of our employees are represented by a collective bargaining agreement, and we have never experienced any work stoppage. We believe we have good relations with our employees.
Culture
Fostering and maintaining a strong, healthy culture is a key strategic focus. Our core values statement was created by our employees in a bottom-up, cross-functional process that we revisit and refresh on a periodic basis. Our Words We Live By describe our core values and reflect who we are and the way our employees interact with one another, our customers, partners and stockholders.
In 2021, we began conducting employee engagement surveys through Gallup, a leading global consulting firm on employee engagement. More than 90% of our employees have participated each year, and the results demonstrated that our overall engagement levels exceed Gallup’s averages worldwide and in the United States. In addition, we exceeded overall engagement in the professional, scientific and technical sector, as well as the life sciences sector. The results also reflected that we are a mission-driven company with employees’ response on our strength of purpose far exceeding Gallup’s measurement for world class.
Diversity, Equity and Inclusion
Our diversity, equity and inclusion (DE&I) efforts focus on cultivating and encouraging an inclusive and equitable culture where diversity of thought is represented and can thrive throughout our organization. More than half of our employees are female, includin g 30% of o ur employees at the Vice President level or higher, and approximately half of our employees are from an underrepresented ethnic community. We believe that bringing together different perspectives and experiences is fundamental to innovation and continuing to raise the bar in the field of diabetes technology.
2021 was our first full year of having a DE&I Council, which we have continued to expand since that time. This Council is sponsored by executive management and we provide regular updates to our Board of Directors on its initiatives and progress. It is staffed by employees with diverse backgrounds, experiences or characteristics who share a common interest in professional development, improving corporate culture and delivering sustained business results. In 2023, our first employee resource groups were formed and focus on supporting populations within Tandem including women and gender minorities, LGBTQIA+, Pacific Islander or Asians, parents and caregivers, and in enhancing Tandem’s sustainability efforts. Our DE&I efforts are focused on diabetes representation and access, representation in leadership, representation in technology roles and pro-inclusion. In addition, we are focused on cultivating and supporting our internal culture through diversity of thought, support and advocacy within the diabetes community and continuing to build and maintain a diverse and inclusive workforce.
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Organizational Development
Attracting, developing and retaining employees is critical to our longer-term success. We have established a comprehensive training program to develop employees throughout the organization. Emerging Leaders and Leading in Tandem are examples of internal programs intended for high performing individual contributors, and newly hired and promoted supervisors and managers, respectively. More than 95% of employees participating in these programs remain employed at Tandem and approximately one-third have been promoted or have had a significant change in scope of responsibility. In 2023, approximately 400 employees participated in our leadership development programs.
Competitive Total Rewards
Our compensation program is designed to align employee compensation with our performance and to provide the proper incentives to attract, retain, and motivate employees to achieve superior results. The structure of our compensation program balances incentive earnings for both short-term and long-term performance.
• We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge, and geographic location.
• We engage internationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive compensation and benefit programs and to provide benchmarking.
• We align our executives’ long-term equity compensation with our stockholders’ interests.
• Annual increases and incentive compensation are based on our performance as well as each individual’s contribution to the results achieved and are documented through our talent management process as part of our annual review process.
To foster a stronger sense of ownership and align the interests of partners with stockholders, stock options and/or restricted stock units are provided to a substantial proportion of our employees under our broad-based stock incentive programs. Also, our employees are able to participate in our employee stock purchase program. Furthermore, we offer comprehensive, locally relevant and innovative benefits to all eligible employees, including health insurance, paid time off, paid and unpaid leaves, a retirement plan, health savings accounts, flexible spending accounts, life and disability coverage, voluntary accident, critical illness, legal and identity theft coverage, employee discount program, and an employee loaner pump program.
Employee Health and Safety
The health and safety of our employees is our highest priority, and this is consistent with our operating philosophy. We have integrated our employee health and safety efforts with our human resources functions to create a corporate culture with a shared commitment to the well-being of our professionals. Our employee assistance and wellness programs offer a range of benefits and services. For example, as a benefit to our employees and their eligible dependents, we provide access to personal and job-related counseling and assistance resources for addressing concerns such as emotional well-being, family and relationships, legal and financial matters, healthy lifestyles, mental health, substance abuse, and work and life transitions.
We have comprehensive safety training programs that teach our employees how to do their jobs safely and in compliance with laws and regulations. We operate in modern, efficient, and safe facilities, and have had minimal accident and injury rates company wide. Despite this success, however, our goal remains the same: zero accidents.
Additional Information
Our website address is www.tandemdiabetes.com . Copies of our filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge on our website within the “Investor Center” section as soon as reasonably practicable after having been electronically filed with or furnished to the SEC. The information contained on or accessed through our website does not constitute part of this Annual Report, and references to our website address in this Annual Report are inactive textual references only.
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