A Lifeline for Tandem
As it stands Dexcom (NASDAQ: DXCM) is facing a series of issues. They are watching their insulin pump partners disappear one by one. They are also watching their stock go down every time someone mentions the Libre. Could this scenario force the company to do something they really don’t want to do but may have to do or risk see even further erosions in sensor sales.
Could the company extend Tandem (NASDAQ: TNDM) a lifeline?
Tandem is not yet officially gone it just looks that way. Facing increasing pressure from their creditors the company is in desperate need of capital. The situation is so bad the company cannot even afford to take advantage of Animas being shut down. Unlike Insulet (NASDAQ: PODD) who is allowing Animas patients to convert to the OmniPod for FREE, Tandem is charging patients almost $1,000 to switch. Which is sad when you consider that most patients would prefer the Tandem system over the OmniPod yet many may be forced to Medtronic (NYSE: MDT) as depending on where the pump is in its warranty cycle could get a 630 for FREE.
A few quick but very important points;
1. While there is nothing wrong with the OmniPod it does have two strikes against it-
a. It’s wireless and Animas patients are used to being wired
b. The OmniPod does not yet work with the Dexcom sensor
2. There is a fair amount of hate, yes hate for Medtronic and the last thing many Animas patients want to do is be forced into the hands of the evil empire. However, given the choice of FREE or $1,000 they may have little choice.
3. Dexcom has the resources which should they decide to help Tandem in the short term it buys them some time while they develop a longer-term strategy.
We cannot overstate the collateral damage inflicted by Johnson and Johnson (NYSE: JNJ) decision to shut down Animas and effectually give Medtronic the keys to the kingdom. Listen we get why they did what they did but still the impact cannot be overstated.
Now it’s possible that Dexcom would have entered the insulin pump market anyway but time was on their side. They knew the longer they waited the cheaper Tandem would become, they just assumed like everyone else Animas would be sold first. That they would retain the patients who use the Animas Vibe which works with their sensor, that these patients would not go to Medtronic. Well time is no longer on their side for if they don’t act and act soon Tandem’s 55,000+ patients will also be up for grabs.
The way this could work is that Dexcom could extend Tandem a loan who in turn would use that money to excuse the expression sweeten the deal allowing Animas patients to convert to a Tandem system for FREE. Given that Animas patients seem to prefer Tandem over OmniPod and Medtronic this would also create a future revenue stream thus making Tandem a more attractive investment option. Tandem with such an offer could double their installed user base almost overnight.
Let’s be clear here this should it happen would just be a short-term fix for Tandem as the company still has plenty of other issues which need attention.
The reality is the insulin pump market without something done and done in a hurry will become a two-horse race. And let’s be honest with Medtronic owning the market Insulet may survive but that’s it, they have zero chance of even getting close to the lead horse. Ironically what Insulet needs to compete is a tethered pump which works with a Dexcom sensor, or just what Tandem has. If that were to happen Insulet could accomplish to important objectives;
1. Make a nice chunk of change from pump supply sales and
2. Increase the installed base of OmniPod patients
This leads to the intriguing possibility of Insulet and Dexcom teaming up to help Tandem, a three-way combined effort to at minimum prevents Medtronic from ruling the insulin pump world. We have long maintained that the only way anyone could take Medtronic head on was to do a roll up of Animas, Tandem and Insulet. Convert the patients on the tethered systems to one platform, more than likely Tandem’s with some modifications and offer payors standardized pricing on both the tethered and wireless platforms.
This combination could eliminate duplicate back office and sales functions giving them chance to compete.
The big issue here is time which is not a renewable resource. The clock is ticking and unless something is done and done like yesterday Animas patients will be forced to choose Medtronic. These patients may not like Medtronic but FREE is better than $1,000 for a company that could well be gone by the end of the year.