Get Ready For The Fallout

Get Ready For The Fallout

Well it’s been a few weeks since the annual wacky dance and for Tandem (NASDAQ: TNDM) no news is not good news. During the wacky dance, several investors sniffed around Tandem and didn’t like the stench. A major issue as we have noted in the past is that even at its discounted valuation buying the company is just the beginning of the cash drain. Put in the simplest terms possible Tandem does not need a little money, they need lots of money and even with this money their long-term viability is in question.

Back during the wacky dance, we noted that based on their current cash position combined with their loan covenants the company would run out of available cash around late September, early October. Barring an unforeseen development, we see no reason to change this assessment.

This is not good news for anyone in the insulin pump market and here’s why.

As everyone knows Johnson and Johnson (NYSE: JNJ) is trying to unload their insulin pump franchise, Animas. Yes, Animas has several strategic advantages over Tandem but why would anyone buy Animas when they could buy Tandem for next to nothing. Tandem’s demise only hurts the valuation of Animas, a valuation which is already over inflated by JNJ and is a major factor as to why the franchise hasn’t been sold yet.

Dexcom (NASDAQ: DXCM) is another company that cannot be thrilled with Tandem’s impending demise as they will lose a hefty number of patients. The majority of whom who will likely end up at Medtronic (NYSE: MDT). Who will likely put these patients on the 670G which means no more Dexcom sensors.

Speaking of Medtronic, they aren’t thrilled either even though they will benefit more than any other company. The fact is as big as they are they just can’t handle the extra patient load now. Right now, the company has their hands full with the 670G rollout. Think of the strain the company would be under when some 40,000+ patients suddenly fall into their lap.
Insulet (NASDAQ: PODD) will get a minor bump but not a major one. There are several reasons for this but the biggest being Tandem patients are used to being wired and while tubeless is attractive most will want to stick with what they are already used to.

Roche, yes Roche still has a pump, is unlikely to see much in the way of converts for no other reason than most patients aren’t even aware the company has a pump.

We also see Tandem’s demise hurting newcomer Bigfoot as it will make raising money more difficult. Even though Bigfoot is not just a pump company they are viewed that way and it never helps when an existing pump company craps out.

The biggest losers here are of course insulin pump patients. Listen Medtronic, even before Tandem began their death march, had a virtual monopoly in the insulin pump market. A monopoly that will only get bigger. Diabetic Investor cannot think of any company in this wacky world of ours that even comes close to the unique position Medtronic commands. For all practical purposes, they own the insulin pump market and their ownership position is about to get even bigger.

While this is good news for the company we don’t see this as good news for insulin pump patients. Not because there is anything wrong with the systems Medtronic produces, their systems are just fine. But when it comes to insulin pumps patients are better served when they have more than two options. And right now, that’s where we are headed. Heck even Medtronic is better served when they multiple credible competitors. Nothing like healthy competition to keep the market leader on their toes.

Although the situation isn’t exactly analogous Medtronic is akin to a drug company which has no competition. This unique position allows them to raise prices without fear of retribution, something we have seen in the drug market. Now before everyone paints Medtronic as the evil empire it is not their fault that Tandem management ran the company into the ground. Nor is it their fault that JNJ did the same thing. The fact is Medtronic bought an outstanding franchise when they acquired MiniMed and now is reaping the benefits of the mistakes made by others.

Again, and we know people hate to hear this but Medtronic being a publicly held company is responsible to their stakeholders. Stakeholders who expect the company to maximize shareholder value.

The fact is the fallout from Tandem’s ineptitude will be felt throughout this wacky world of ours and that’s just sad.