How this will play out

How this will play out

As we head into earnings season again one report we’ll be watching closely will be from our friends at Tandem (NASDAQ: TNDM). It’s no secret that Tandem is bleeding cash and desperately needs one of two things, a buyer or cash. Frankly we are not optimistic that either will happen which basically means it’s not a question of if but when the end comes. Secondarily when the end does come how it will happen.

Thankfully we may learn from history as Tandem isn’t the first, nor is it likely to be the last insulin pump company to take on Medtronic (NYSE:MDT) and lose. Back in the day Deltec, a unit of Smiths Medical, had to pull their Cozmo pump from the market after settling an IP lawsuit with Medtronic. Back then Deltec gave patients ample warning and made arrangements so that patients would not be harmed. The question is will Tandem follow this path or will they take drastic measures to stay in the game?

We certainly hope they follow the former and not the later. For should they take drastic measures this will only delay the inevitable and ultimately harm patients. Without a buyer or more cash the only way the company can stay in the game is to drastically cut costs which basically means reducing head count and this helps no one, especially patients.

By our back of the napkin math the company needs at minimum $150 million to stay in the game and even then, there is no guarantee they will make it. Let’s be real here Medtronic is on a roll and while they may not have the best systems on the market every physician and CDE knows that they will be here 5 years from today. The same cannot be said for Animas, a unit of Johnson and Johnson (NYSE: JNJ), or even Insulet (NASDAQ: PODD). No, we don’t see Animas or Insulet in any danger right this very moment however neither has a very bright future either.

JNJ has basically decided to do nothing when it comes to diabetes devices while Insulet won’t have anything new for at least two years. Should Tandem implode as we expect we estimate that Medtronic will pick up 80% of the Tandem patient base.

What’s amazing here is when it comes to insulin pumps no one and we mean no one has been able to take on Medtronic and win. First it was Disetronic, next came Deltec and Animas, then came Insulet and finally Tandem. Yet despite this people still want to be in the insulin pump market Bigfoot being the most recent example. As much as we like what Bigfoot is working on their path to success will only be made more difficult the bigger Medtronic gets.

In the past, we always said Medtronic biggest enemy was themselves, that the only way they would lose is if they screwed up and there was a time when it looked like they were doing just that. This is not the story today under new leadership the company is determined not to kill the goose that lays the golden eggs. Even without the 670G and all its free positive publicity the company has something no one else has, stability. Something that should not be underestimated.

Think about this just for moment just in case anyone believes someone will come along and buy Tandem. As we have written before JNJ and Medtronic could easily afford to do so but JNJ isn’t interested and Medtronic doesn’t need too. We suppose Roche could as well but again why would they, it’s not like they have an impressive track record in the market, unless one considers completely screwing up the Disetronic acquisition as impressive. The same might be said about Abbott (NYSE: ABT) another company with a less than stellular track record in the pump market.

Without a buyer, the only other option is extortion financing, another unlikely scenario. Seriously who would give Tandem money without extorting some very onerous terms.

As Momma Kliff used to say; “Sometimes you have to acknowledge the obvious and throw in the towel.”