Although we don’t often say it things have been going well for Tandem (NASDAQ: TNDM) these days. In Vienna at ATTD they had some amazing data, back at home they raised $60 million and they signed their first international distribution agreement. As Momma Kliff used to say not a bad few days. However even with this good news questions remain the biggest being where they go from here. Or as we keep saying what’s the plan?
Now just in case anyone thinks the data released at ATTD will save the day, think again. Not because the data isn’t amazing, it is. But as we noted in a previous piece they still must get the system approved by the FDA, something that should happen. Then they must get it covered, something that will likely happen only question is how its covered. The bigger question is when all this happens because it certainly isn’t going to happen quickly, and Tandem has more immediate concerns.
At last report the company had about $14 million in available cash, and now has another $60 million from the most recent dilution. While the fourth quarter results haven’t been officially announced the preliminary information looks good but quite frankly the fourth quarter should be good for any diabetes device company. The question is can they or will they adjust their burn rate, so they can survive long enough to see the new system make it to market. Which as we noted in the earlier post is no slam dunk either.
With $83 million in debt and the slow first quarter underway and second quarter coming conserving cash is more critical than ever. While the company has made small steps here much bigger ones are needed. For no other reason is that things never go as planned. Something always goes wrong especially with this new system. Yes, the 670G approval came faster than expected but Medtronic (NYSE: MDT) had boatloads of data and the 670G is a hybrid not fully closed system. We do believe barring any missteps the system will be approved just when is the big question.
Our guess is Tandem is going to hype this data with hype that will make the people at OneDrop blush. They will go around and tell everyone they are financially stable now, this is temporary, and they have the greatest coolest toy coming. Their sales people will start sending out emails urging physicians not to give up on them, to hang in there as better days are ahead. (We’ve seen some of these already.) The diabetes blogging community, i.e the West Coast Mafia, will spread the news as they now see this as a battle between good and evil. Which we find hypocritical since they fawned all over the 670G when it was approved.
Let’s say by some miracle the new system is approved before this year is over, something that could happen, but we doubt will happen. This pushes the system well into 2019 and heaven knows what will be going on then. And should we restate that as whiz bang and way cool as this toy will be there is not one piece of hard data that shows it will be commercially viable let alone commercially successful. But there is no doubt that Tandem is not just betting the ranch on this they are betting the farm the cattle and the land too.
The reality is Tandem needs to win and win now, not tomorrow. The company must find away to position themselves as a clear alternative to Medtronic (NYSE: MDT) and Insulet (NASDAQ: PODD). They must make deeper cost cuts beyond the superficial cost cutting they have already done. They must grade against over-promising as given the nature of how this process works it could well backfire. As Momma Kliff used to say and she has been quoted by many better to be thought a fool then to open your mouth and remove all doubt.
One last thing before we close here as we want to make a few things clear;
1. WE DO NOT WANT TANDEM TO FAIL CONTRARY WHAT MANY SEEM TO BELIEVE. Having seen what Animas patients are going through Tandem failing is the last thing we want.
2. YES, WE BELIEVE CURRENT MANAGEMENT AND THE BOARD OF DIRECTORS HAVE FAILED BUT THAT HAS NOTHING TO DO WITH THE PRODUCT WHICH IS A GOOD ONE.
They failed because they have destroyed shareholder value. They failed because they over promised under delivered and due to their incompetence have had to keep diluting the stock. They have accumulated so much debt and put themselves in such a precarious situation, one in which their creditor could shut them down they endangered the lives of their patients.
It’s disingenuous for their CEO Kim Blickenstaff to say that he’s working for $1 this year. Over the last three years he has earned a whopping $4,242,972 of which $1,718,811 is salary. Over that same three-year time span shares of Tandem have FALLEN, and we would recommend sitting down here 98.25% – let me repeat that shares in Tandem over the last three years have fallen almost 100%.
Now if that does not get the Boards attention, which it hasn’t, what does that say about the board. Do they not have a fiduciary responsibility to their stakeholders? This is like rewarding a football coach with a new contract when after the last three seasons the coach has won just one game.
Listen we have no problem with executives making money, this is still America. We have a HUGE problem when they don’t earn it. We have an even bigger problem when this poor performance is rewarded and that’s exactly what the Tandem Board has done by allowing Kim to keep his job.
Go back and read some of the more recent earnings transcripts, does Kim take any ownership of the issues the company has? Absolutely not. Listening to Kim explain things it’s never his fault. He blames everyone, the evil empire in particular, for the company’s poor performance and financial issues.
Now based on a recent email exchange we have had with Kim he seems to believe that since we do not have an MBA, CFA or CPA next to our name that we are incompetent. To wit we say he’s right we have none of those fancy letters next to our name, but it does not take a fancy degree to look at a stock chart and see a LOSS of almost 100% over the past three years. It does not take a fancy degree to read a prospectus and use a calculator to discover over that same three-year time frame the CEO responsible for that nearly 100% drop in the stock price, not only continues to have a job but has made over $4 million the last three years.
Kim you can blame the messenger all you want but the FACTS speak for themselves. You and by extension the Board have destroyed shareholder value, this is a FACT. You and by extension the Board have put the company at risk and therefore the lives of your patients at risk. We will give you and the Board all the credit for the new data, which we shouldn’t do as your pump is just one piece of the puzzle, but that does not excuse past actions.
This isn’t personal this is about patients and stakeholders. As we say over and over if you want a friend get a dog, otherwise shut up and fix the problem.