Growing pains at Tandem

Growing pains at Tandem

This morning Tandem Diabetes (NASDAQ:TNDM) released third quarter results which failed to meet analysts’ expectations and to add insult to injury the company also lowered  full year revenue guidance. These two negative factors are pushing shares of Tandem lower as the stock is getting hammered.

Frankly Diabetic Investor isn’t shocked or surprised by today’s result s as Tandem is just going through the normal pains of being a growing insulin pump company. Animas, now a unit of Johnson and Johnson (NYSE:JNJ) and Insulet (NASDAQ:PODD) experienced similar issues back when they were new to the market. The biggest difference between Tandem’s growing pains and those experienced by Animas and Tandem is the insulin pump market is much more competitive today. Not only are there more players in this market the reimbursement landscape is dramatically different as well.

While we hate to keep repeating ourselves we must as we’ve been saying this for some time now when it comes to the insulin pump market this market is not large enough nor is it growing fast enough to support all the players in the market and the many who seek to enter the market.

Now with over 14,000 customers Tandem has proven that patients are growing increasingly comfortable with the company. They have proven with their very patient friendly user interface that design does matter. That’s the good news.

Unfortunately as we anticipated the competition, namely market leader Medtronic (NYSE:MDT), is fighting back with a vengeance doing whatever it takes hold onto their installed users. As we have noted in the past the only way any insulin pump company other than Medtronic can grow by any significant amount is based on their ability to take share away from Medtronic. Yes both Tandem and Insulet have shown they can expand the market for pumps, however this market expansion while important takes time and costs money.

As we have noted in the past when it comes to patients new to insulin pump therapy Tandem, Animas and Insulet are winning the battle. However when it comes to taking share away from Medtronic the recent gains in this area are getting harder to come by as Medtronic has finally awakened to the fact that if they didn’t fight back they would be killing the goose that lays the golden eggs. It seems that if nothing else the new management team at Medtronic has made keeping the installed user intake a major priority.

Diabetic Investor anticipates the competitive environment will get even tougher now that JNJ has decided not to sell Animas. Add in the fact that pump newcomer Asante is basically giving away their new snap pump for free and that Roche, yes Roche is still in the pump business, has new pumps coming to market one can understand just how competitive this market has become.  Frankly the market for insulin pumps is really not all that different than the diabetes market as whole. Simply put it’s all-out war for share and when it comes to insulin pumps Medtronic has the biggest guns.

The fact is for any pump company other than Medtronic to succeed over the long term they must transform themselves from the makers of hardware to the provider of patient solutions. We’ve said it before and we’ll say it again all pumps do basically the same thing the same way, yes there are some differences but these differences cannot overcome the huge advantage scale gives to Medtronic. To give Medtronic a serious run for their money someone has to change the paradigm, to provide patients with a better diabetes management system and this doesn’t mean more whiz bang technology.

Anyone who’s been paying attention understands that as we move closer and closer to outcomes based reimbursement, better patient outcomes are where the money is. That physician’s will write prescriptions for and payors will favor systems which deliver better outcomes. That it won’t be about which company has the latest greatest piece of hardware. Should the insulin pump become all about hardware it will fall into the same trap as the smartphone market as there is always someone with a cooler technology.

Tandem has been successful at the first part of the equation, namely building a pump that is more patient friendly and easier to use. However it’s just a matter of time before the competition wises up and follows suit, something Insulet is doing as they announced they were working on a new Bluetooth enabled PDM for the OmniPod. For Tandem, Insulet and any company not named Medtronic they must take the next step and develop tools that will help pump patients use these pieces of hardware more effectively.

With competitive bidding on the horizon and more hardware coming to market the insulin pump market without changes is on that slippery slope towards becoming a commodity market. While Medtronic and JNJ may be able to withstand this transition this change would devastate Tandem, Asante and to certain extent Insulet.

The real question for Tandem is what will they be when they grow up, a maker of hardware or provider of patient solutions?