Dear Mr. Ricks
Given the news that Tandem (NASDAQ: TNDM) is once again hitting the capital markets combined with Lilly (NYSE: LLY) getting set to enter the insulin pump market we thought it would be a good idea to give Lilly CEO Dave Ricks a glimpse of the future. See Mr. Ricks seems to believe that his way cool whiz bang cloud enabled toy will do what no other whiz bang way cool toy has done so far, be a commercial success. Mr. Ricks seems to believe that his way cool whiz bang cloud enabled toy will gain share because it’s different than everyone else’s way cool whiz bang cloud enabled toy.
Things such as gaining formulary access, battling Medtronic (NYSE: MDT) or the failure of Animas, Asante and Deltec don’t seem to concern Mr. Ricks. Nor does it seem to concern him much that even if he can build the damn thing he then must sell and support it. Nor does it seem to dawn on him that with Tandem about to implode he could buy his way into the market on the cheap and would not have to start from ground zero. Nope to Mr. Ricks better to develop his own system which will take 18 months to two years to get here, then battle the Empire.
Now it’s quite possible Mr. Ricks isn’t dim and that perhaps he’s just getting some bad advice. So, in effort to educate Mr. Ricks let’s review some recent history in the insulin pump market.
Although Tandem did not indicate how much they intend to raise with their latest offering check this out- the company by our quick math has blown through almost $500 million already – before going public the company raised $88.7 million in venture money, this was followed by not one, not two but six trips to the capital markets (this includes today’s S-1 filing) which have brought in $233.5 million. Add in the $83 million in debt the company has accumulated and that comes to $405.2 million not including what they might get from the latest raise or the possible exercise of warrants.
But why stop their Animas prior to being acquired by Johnson and Johnson (NYSE: JNJ) followed a similar path, as did Deltec which had the Cozmo and let’s not forget Asante either. Yes, the insulin pump landscape is littered with companies who have gone up against Medtronic and lost. Oh, and should we mention that his Indianapolis neighbors Roche spent a billion to buy Disetronic another pump company that is now in the graveyard.
We’re not sure about Mr. Ricks or his team but we see a trend here.
The crazy thing here and believe us that’s saying something given what’s going on in wacky world, Tandem likely won’t have a problem duping investors into buying more shares for a ride on the Titanic. Listen when a company like Intuity, a company which has blown through over $200 million, has nothing to show for it but just raised another $70 million to enter a market which is dying a slow and painful death, a market which is overcrowded with outdated old technology it proves beyond a shadow of a doubt there is no cure for stupid.
Ironically this is another market which JNJ has decided to exit which should say something but doesn’t.
We would say that we are astonished that Lilly a company that has built the most comprehensive portfolio of diabetes drugs would be so foolish, but we aren’t. They have fallen into the same trap that everyone has. Despite all the evidence, the well documented history, the advice they have been given by some very smart people they continue to proceed down this foolish path. It would be poetic if Lilly did take our advice, bought Tandem and then kept the current management team in place.
What was that we said recently that we have seen this movie before only it was in French. Heck if we didn’t know better we’d say that Lilly has begun serving wine in the executive cafeteria.
The reality is the diabetes world is awash in money. Unfortunately, as we are seeing with our cash rich friends in the Valley throwing money at something has nothing to do with that something working. Just like the good people in Indy, the techies in the Valley suffer from a fair amount of ignorance combined with arrogance, not a promising combination but very common in our wacky world.
We would say when will these people learn but the fact is they don’t or put another way they believe they will succeed, that are smarter than everyone else. This is not just arrogant, it’s downright foolish.
Last year we noted how difficult it has become to write our annual April Fool’s post. Given what’s going on this year it’s becoming virtually impossible.
Now there are rational people out there in spite all the evidence to the contrary. However, far too many people in this wacky world have flat out lost it. Rather than perform even the slightest due diligence, to do just a little research they proceed full steam ahead oblivious to the iceberg that’s straight in their path. They foolishly believe that history won’t repeat itself, that this time it will be different. Simply put they believe they can put lipstick on the pig and this pig will fly.