As we head into the weekend the Powerball jackpot stands at $306 million and believe it or not at one time you could have bought an insulin pump company with that and still had plenty of money left over. Yep it wasn’t that long ago that our friends in beautiful San Diego Tandem (NASDAQ: TNDM) had a market cap of under $30 million. Throw in the $80 or million of debt the company has and yep for about $150 million you too could have the pleasure of owning an insulin pump company.
Like most bargains this one didn’t last long as Tandem’s market cap is quickly approaching $650 million and you know what that means. Yep some fool will come along and buy the damn company for close to a billion bucks. Yes, this company which at one time could have been bought for what would have been chump change will likely get bought for a hefty multiple.
Funny thing other than now being financially stable Tandem is basically the same company it was when their market cap was around $30 million. The company has the same positives and negatives today as it did when the market cap was $30 million. As we have stated before from a market dynamic perspective nothing has changed for the company.
Think we’re crazy well we have history on our side. Roche spent over a billion bucks to buy Disetronic and then had the FDA slap them with a ban so they couldn’t sell pumps made by the company they just acquired. Abbott (NYSE: ABT) who at one time was in the running to buy MiniMed was all set to buy the Cozmo from Smiths Medical when the company shut down because of how they settled an IP lawsuit with Medtronic (NYSE: MDT).
But our all-time favorite insulin pump acquisition was Johnson and Johnson (NYSE: JNJ) acquiring Animas. This acquisition for over $500 million was announced in December of 2005 BEFORE the company reported fourth quarter and full year results. Results which had they been reported as an independent company would have been disappointing therefore driving shares lower and making an acquisition cheaper. So why didn’t JNJ wait?
Well some would say JNJ could not have possibly known Animas wasn’t doing all that well. But this is where they are wrong as JNJ’s venture fund invested in Animas before the company went public. And let’s be honest while it may have seemed like JNJ threw this thing together they did do some due diligence which discovered things weren’t going so well and without a major capital infusion Animas was in danger of going out of business. JNJ also discovered that Animas wasn’t being run too well and the FDA could slap a ban on the company for not operating properly.
So JNJ overpaid so they wouldn’t suffer the embarrassment of having Animas go under. They overpaid because in our wacky world no one wants to acquire a “small” company as it looks bad. Nope better to spend $500 million or a billion bucks so you look like a big shot. Remember these are BIG companies who want to do BIG things in a BIG way and a billion bucks is way BIG.
Never mind that JNJ didn’t have a clue what to do with Animas once they owned it. Never mind in the 13 years they owned the company that they NEVER made money. Nope let’s spend $500 million to acquire the sucker invest millions more over the years and then be unable to sell the damn thing. If this wasn’t so frickin sad it would be funny. JNJ a Fortune 500 company who is supposed to be smart got NOTHING NADA ZERO ZILCH for Animas.
This is exactly why we think some fool will come along and plunk down a billion or so bucks for Tandem. Yep you just know this is going to happen you can just feel it. As we say with frequency this is why we call it call it the wacky world of diabetes. Have a great weekend everyone.