Tactile Medical's recent earnings calls painted a picture of robust growth and strategic investments. However, a closer examination of their commentary reveals a potential concern: is their entry-level lymphedema pump, Entre Plus, eating into the market share of their flagship advanced system, Flexitouch?

While the company celebrates Entre Plus's "stronger than expected showing" and "impressive adoption," a recurring theme emerges: Entre's growth consistently surpasses Flexitouch's, even as the latter continues to grow. Elaine Birkemeyer, Tactile Medical's CFO, confirmed this trend during both the Q4 2023 and Q1 2024 calls, stating that "Entre growth continues to outpace Flexitouch" and "Entre growth is actually growing faster than our revenue growth," respectively.

This observation raises a crucial question: is Entre Plus capturing market share from Flexitouch? Could Tactile Medical's strategic emphasis on the larger, entry-level segment be cannibalizing its higher-margin advanced system?

Although Tactile Medical doesn't publicly disclose individual sales figures for their systems, we can extract insights from their reported revenue growth figures for lymphedema products, encompassing both Flexitouch and Entre.

In Q4 2023, lymphedema revenue rose by a modest 5.6% year-over-year. This, combined with the company's repeated highlighting of Entre's strong performance, suggests that Flexitouch's growth might have been considerably lower, potentially even stagnant.

This hypothesis gains further support when examining the Q1 2024 figures. Lymphedema revenue expanded by 5.1% year-over-year, again underlining the discrepancy between overall growth and Entre's outperformance. This suggests that Flexitouch's growth in the first quarter was minimal or perhaps even negative.

Lymphedema Product Revenue Growth

The chart below illustrates the year-over-year growth in lymphedema product revenue, hinting at the potential cannibalization effect of Entre Plus on Flexitouch.

If this cannibalization trend is indeed real, it presents both challenges and opportunities for Tactile Medical. While capturing the entry-level segment with Entre Plus allows them to establish patient relationships early in their treatment journey, potentially leading to upgrades to Flexitouch later, Entre Plus's lower price point could strain overall profitability.

The company's planned launch of a next-generation lymphedema therapy platform adds another layer of complexity. Will this new system be positioned as a premium offering above Flexitouch, or will it completely replace Flexitouch, possibly exacerbating the cannibalization effect?

Tactile Medical's strategic focus on technology investments in 2024 might offer some answers. Initiatives like streamlining back-office processes, enhancing prescription workflows, and improving the customer experience aim to boost sales force productivity and reduce operating costs. Success in these areas could help counterbalance potential margin pressure from Entre Plus's growth.

However, the future direction of this cannibalization trend remains a pivotal question for Tactile Medical. Can they effectively manage the delicate balance between securing the entry-level segment with Entre Plus and maximizing the potential of their higher-margin advanced systems? The answer to this question could hold the key to Tactile Medical's long-term growth and profitability.

Adding to the intrigue is the company's recent leadership change. With the retirement of CEO Dan Reuvers at the end of June and the appointment of Sheri Dodd as his successor, the responsibility of navigating this intricate market dynamic and guiding Tactile Medical towards its ambitious goals will ultimately rest on Dodd's shoulders.

"Fun Fact: Tactile Medical's Flexitouch system draws inspiration from technology initially used in spacesuits! The pneumatic compression technology, designed to help astronauts maintain circulation in zero-gravity environments, found a new purpose in improving the lives of lymphedema patients. This innovative spirit continues to drive Tactile Medical today, as they strive to develop new and refined therapies to address the needs of underserved patient populations."