No cure for…..
Before we get into our commentary let’s get the numbers out of the way as Tandem (NASDAQ: TNDM) released their amended S-1 which contained the following information. The company hopes to raise $46 million by issuing and we would recommend sitting down before you continue reading almost 13.5 million shares. Which lead the company to state “Investors purchasing in this offering will incur immediate and substantial dilution” which is the most truthful sentence in the S-1.
Now it does no use to state that anyone who invests in Tandem at this point either enjoys losing money, is looking for a tax loss or loves to bet on long-shots. The reality is people will likely ignore the facts and throw money into this sinking ship. They will figure that this $46 million will keep the company alive for another year and in that year, someone will come along and buy the company. Never mind that everyone has come in already and said no thank you.
Just as a reminder Lilly (NYSE: LLY) has decided to start from ground zero rather than buy Tandem and that Johnson and Johnson (NYSE: JNJ) decided to shut down Animas rather than sell it. Frankly the happiest people today are in Northridge as Medtronic (NYSE: MDT) already has their hands full and quite frankly could not handle the influx of Tandem patients if the company did go under.
See the plan here is a simple one find investors who are dumb enough to buy shares, somehow get the share price above $3.50 so the outstanding warrants become exercisable which will generate more capital and then… well that’s where the story kind of falls apart. See the company still loses money on every system they sell, they have a problem that can be fixed but will take two years to fix and their main competitor is getting bigger and more competition is on the way.
Now if the company stated that they had a real plan and we’re not talking a new way cool whiz bang technology, no a real plan to transform Tandem into a commercially viable insulin pump company perhaps we would feel differently. Maybe if they said we’re going to dump the management team that got us into this mess we would listen. Maybe if the Board of Directors had not allowed this management team to over stay their welcome we would feel differently. Maybe if they weren’t spending money like drunken sailors on shore leave we’d feel differently.
The fact is even if the management team is replaced and the problems with the t: slim are fixed this is one tough market which is only getting tougher. Let’s not forget that Insulet (NASDAQ: PODD) has become a serious player and has just sent their new way cool Dash to the FDA for approval. Medtronic is getting bigger and has a stranglehold on formulary position. Lilly, Bigfoot, CellNovo and Beta Bionics are just some of the companies that want to enter the insulin pump market.
Now if Tandem said they had a plan to compete, something that made financial sense we would listen. But they don’t have a clue, not management, not their board of directors nor anyone who is stupid enough to buy shares. These guys are very good at raising money but when it comes to running a commercially viable insulin pump company they are incompetent.
But the diabetes world is awash in money so what the hell. Yep when a company like Intuity can raise more money and millions are being thrown at products which look great on paper but will never work who cares if Tandem is losing money some other idiot will come along and buy them, so everything will be ok. As much as we would like to argue against this thought proves history proves there are lots of idiots who think they can succeed where everyone else has failed. The insulin pump landscape is littered with companies that have gone up against Medtronic and failed. But that doesn’t seem to matter to investors as they keep throwing money into this market.
The only good news here is Tandem patients won’t get screwed. They won’t be forced into changing their system or into the hands of the evil empire as Animas patients are. As Momma Kliff used to say; “Even when something looks like a disaster there is some good that comes from it.”
But at the end of the day this small piece of good news does not make up for something else Mom said all the time; there is no cure for stupid.