There is a select group of publicly traded companies which are pure plays in diabetes. Three of the most notable are Tandem (NASDAQ: TNDM) and Insulet (NASDAQ: PODD) in the insulin pump market and Dexcom (NASDAQ: DXCM) in CGM. Before we go further yes, it is true that the OmniPod does deliver other drugs but this segment of the business continues to be a work in progress.
Looked at on a year to date basis all three of these companies have done very well;
Insulet is up over 36%
Dexcom over 50%
Tandem over 460%
Just by way of comparison the NASDAQ is up just over 6% for the year, the Dow is negative while the S&P 500 is about even.
It’s understandable then why so many have asked what’s the next move with these pure plays. Do we buy more, sell and take profits, hold on and see what happens next or do we get bold and short? Now here is our disclaimer as these types of decisions are based on a multitude of factors. However, we will try and give our assessment of each company as to what’s the best strategy.
Let’s start with Insulet. While the company has done a nice job, they are currently behind in the race to develop and commercialize a true closed system. As we noted the other day it’s no longer a question of if a closed loop system will become the standard in insulin pumps but when. Also, as we have written there are plenty of whiz bang way cool insulin dosing algorithms and Insulet is partnered with Dexcom on the CGM front. So, it’s just a matter of time before Insulet joins everyone else in the insulin pump arena with a closed loop system.
The biggest question for Insulet isn’t whether it can take share away from market leader Medtronic (NYSE: MDT) rather can the counter the momentum Tandem has at the moment. At the upcoming ADA confab, the company will role out their new DASH system. While the DASH will be a big improvement over the current PDM, will it be enough to counter the new low glucose suspend version of the Tandem t: slim which we suspect will be approved soon.
Still at this point we cannot make a strong argument to buy, sell or short and would recommending holding.
Moving to Dexcom the company once declared dead by analysts after the Libre received FDA approval the story is more complex. In the near term we anticipate that the G6 will generate lots of positive buzz at the ADA. The ball as they say is now in Abbott’s (NYSE: ABT) court who must counter Dexcom’s current momentum.
Dexcom has multiple insulin pump partners and their Google partnership is progressing nicely. We see the hidden gem in the Dexcom portfolio is the work they are doing with Novo Nordisk (NYSE: NVO). As we noted we see a Tyler- our term for a “smart” insulin pen – app – CGM system as the wave of the future when it comes to insulin delivery. And let’s not forget that thanks to their partnership with Google they are also connected with Sanofi (NYSE: SNY) who is also looking to develop a Tyler.
Dexcom thankfully has not hooked their future to just insulin pump patients but any patient who uses insulin. Longer term thanks to the slap it on turn it on disposable sensor they are working on with Google we see a bright future for the company. Therefore, the one thing we wouldn’t do is sell at this point, nor would we short the stock. Buying at these levels seems reasonable for long term investors and is should go without saying that current Dexcom stakeholders should hold on an enjoy the ride.
Let’s get right to the point with Tandem as anyone who bought while the stock was tanking should definitely take some money off the table. As anyone who has played craps knows all good rolls eventually come to end and that ugly 7 will eventually appear. And let’s be honest here the stock has been on an incredible, more like astonishing roll.
To be equally frank we continue to be amazed that shares keep breaking through barriers even though the company really hasn’t done anything yet. Yes, they are now financially secure but when it comes to executing on the playing field we have yet to see anything. True there is potential here but until we see real hard evidence this potential becomes fact it’s difficult to recommend buying shares after such an incredible run.
That being said shorting shares seems like a smart play but there is plenty of risk here as well. The question is where to short as we do believe the company will generate positive buzz at ADA which will likely drive shares higher. Yet every time we believe there will be a pullback or profit taking the shares keep moving higher. However, after the ADA is over we could see an opening for a short with the caveat being investors should not have a long-term perspective, think a quick in and an equally quick out.
The reality is the easy short and long money has been made with Tandem now comes the hard part. Can the company after a series of missteps use their new-found wealth to drive real growth? Or will history repeat itself? And quite frankly we have no idea which way it will go but we suspect we learn soon enough. This company has financially come back from the brink of disaster, they have a story to tell but it’s impossible to ignore the past mistakes that put them on the brink.
Our ultimate view for Tandem is the stock will be a roller coaster ride and for the moment the coaster is moving higher. Just when and how much the coaster will fall is anyone’s guess. About all we can say for certain is that like any good roller coaster ride it will be thrilling or scary depending on which strategy an investor takes.