A Tiger like moment
This morning before the Tandem Investor Day began the company announced they were raising sales guidance from $140 to $148 million to $150 to $158 million. Naturally shares, which were already up almost 2000% over the past year, powered ahead.
Before we get into the gist of what happened at the investor event it’s appropriate to take a moment and look at how far Tandem has come. Keep in mind this is a company that was on the brink of bankruptcy, had a market cap below $30 million and seemed headed for the insulin pump graveyard.
But let’s not stop there, just when it seemed that things couldn’t get any worse JNJ decides to shut down Animas working out an agreement with Medtronic, the insulin pump market leader no less, to take over the Animas patient base. This followed UnitedHealthCare’s decision to offer an exclusive deal with Medtronic. All of this while Medtronic was launching the 670G.
Desperate for more capital and no buyers interested the company embarks on a series of financial maneuvers and is able to raise the capital they desperately need to remain viable. Shares which were approaching $2 all of sudden take off and for a moment passed the $50 level. At the time that light at the end of the tunnel which many feared was a freight train turned out to be sunshine. Sales stared to improve and next thing you know Tandem is the hottest thing going. (Insert your own hot reference as frankly we’ve run out of them.)
Now before we give Tandem the credit they do deserve they also got some help from an unexpected source, Medtronic. Although the company has the inside track for Animas patients, this conversion process isn’t going all that well. Yes, Medtronic will get the lions share of Animas patients but Tandem is getting a greater share than anyone anticipated. As we keep mentioning there are two reasons for this – the 670G while a good system isn’t wowing Animas patients, the Tandem pump works with the Dexcom CGM and there is a real hatred of Medtronic – ok that’s the three reasons.
Turning attention to today’s event a few quick thoughts;
1. While it would be nice if pump usage expanded in the Type 1 population from 30% to 50% as the company stated we don’t see this happening anytime soon. For Tandem to keep growing it must do what on one else has done before, take share away from Medtronic. Something that could be happening as we speak. It’s still early but the dominos seem to be lining up.
2. The last domino to fall will be the most difficult, getting on level footing with Medtronic when it comes to reimbursement and formulary position. This is not a small hurdle this is a HUGE hurdle but if overcome would forever alert the dynamic.
3. The folks at CellNovo should pay attention as Tandem’s new pump the t:sport is a virtual carbon copy. Expected to be launched in the second half of 2020, it’s a nice new toy but that’s about it.
4. The real driver other than a level payor environment will be their relationship with Dexcom and TypeZero – Dexcom has the best CGM on the planet and now owns the best insulin dosing algorithm on the planet too, once Tandem launches their hybrid closed loop system it should leapfrog the 670G.
There is early evidence of this with the new BasalIQ system with low glucose suspend which does not use the TypeZero algorithm, but does work with the Dexcom CGM. While Medtronic will never publicly admit it their CGM which works with the 670G is impacting sales in a negative way. BasalIQ may not be a closed loop system but it’s one slick device and bodes well for Tandem’s future.
5. Don’t underestimate some additional factors in particular that in the future Tandem can upgraded their system via the cloud, future enhancements will NOT require a hardware change. This is a HUGE and a major problem facing Medtronic who must change the hardware for the 670G.
6. With the many positives we se here our gray hairs tell us Medtronic will not just sit around and let Tandem run wild. They will fight back and fight back hard. As we say often we have seen the empire wounded before only to come back stronger.
7. Now we would recommend sitting down for this one – Tandem has reached the point where yes a buyout is possible. Something that could only happen in our wacky world – a company that at one point could have been bought for less than $100 million will likely be bought for a few billion.
The reality here is that now on solid financial footing Tandem is beginning to show signs of growth. They have a robust pipeline, a solid relationship with Dexcom and by default TypeZero and are benefiting from the mistakes made by Medtronic. Going forward we believe Medtronic will do what they always do and correct their mistakes and fight back hard. However, should Tandem find a way to level the payor landscape the game will change dramatically.
Listen we know everyone loves all the toys in the toy chest. And yes we are thrilled with the advancements we are seeing in insulin delivery. But the real story here is what it always is this is all about money. Can that final domino fall, can Tandem find a way to make it fair fight with Medtronic? The stars are all aligned, the Death Star is vulnerable but has yet to be destroyed and the Empire will make the necessary repairs so the question is will the rebels regroup and find the force?
Finally it should not be understated what Tandem has done. Their turnaround is nothing short of dramatic much like what we witnessed when Tiger Woods won on Sunday. Keep in mind that at one point there was very real doubt if Tiger would ever play again let alone play at such a high level. Yet once again Tiger is roaring and now is expected to win. The same can be said for Serena Williams another great comeback story.
So kudos to Tandem for making it this far, now let’s see if they can take it the rest of the way. This is getting very interesting and thankfully patients are the primary beneficiaries here.