Tandem Going Public

Tandem Going Public

Last night Tandem Diabetes took the first step towards becoming a publicly traded company filing an S-1 with the SEC. This move by the company has been widely anticipated and very necessary as the company will need to amass capital if it is to have any chance in the highly competitive insulin pump marketplace. As we already outlined earlier today Medtronic (NYSE:MDT) continues to dominate the market and to date the competition has been unable to come within shouting distance of their huge installed user base.

The real question isn’t whether Tandem’s public offering will be successful, the real question is will their iPhone like pump gain traction in the marketplace. While the folks at Tandem may beg to differ their t:slim pump is not technologically superior to any other conventional wired insulin pump, what the t:slim has going for it is superior design. All anyone has to do is lay the t:slim next to any other pump to see the difference. It would not be overstating to say that the t:slim has the most patient friendly user interface. The question is will a superior design overcome many of the structural challenges of the insulin pump market.

Perhaps the best parallel here is the market for smartphones; a market that at one time was dominated by the way cool iPhone. While iPhones continue to do well they are no longer dominating the market as the Android system is now number one. Not only are consumer increasingly favoring Android systems smartphone manufacturers like Samsung have improved the design of their phones in order to compete more directly with the way cool iPhone.  Simply put the way cool design of the iPhone while at one time innovative is no longer the advantage it once was.

Tandem has issues that are not evident to the untrained eye. Back at the American Association of Diabetes Educators (AADE) conference Diabetic Investor made a point to ask members of this influential group whether they would recommend the Tandem system to their patients. While almost every educator liked the Tandem design and felt the system would do the job, there was a great deal of concern whether the company would still be in business in five years. Keep in mind many of these educators have been around the block and witnessed the demise of the popular Cozmo insulin pump. The last thing these people want is to recommend a system and then see the company that supports it go out of business.

As we noted earlier today Medtronic not only has a huge installed user base but has been around forever. Although educators may not like the design of the Medtronic system they do know that Medtronic will be around to support it. To show how important this perception of longevity is to educators many made a point of noting they are no longer recommending Animas pumps as they fear Johnson and Johnson (NYSE:JNJ) who owns Animas is no longer committed to diabetes and will be exciting the insulin pump market.

The fact is with the exception of the OmniPod from Insulet (NASDAQ:PODD) which is the only tubeless system on the market, when it comes to conventional wired pumps there really isn’t much difference between systems. Or put another way the conventional insulin pump market is heading down the path to becoming a commodity market where price will trump performance; a move that will likely be accelerated when pumps are subjected to competitive bidding early next year.

Now for anyone who believes that someone will come along and buy Tandem think again or perhaps think Insulet. Even with its innovative system, longevity in the market and growing user base Insulet is no closer to being acquired today than when it went public. Deals are no longer being made because a company has a way cool design or fancy PowerPoint presentation, those days are gone.  The fact is no one will buy either Insulet or Tandem unless they see this acquisition paying for itself quickly and helping boost profits for the acquiring company in short order.

To fully understand just how difficult it is to make money in the insulin pump market take a very good look at Animas, a company that has NEVER made a profit for JNJ, NEVER.  Even with the mighty JNJ behind Animas with all its capital and marketing muscle Animas is a distant second to Medtronic. As we noted earlier today Animas has basically thrown in the towel when it comes to the insulin pump market.

Yes Tandem has a way cool design but as we have said time and time again in the diabetes device arena way cool doesn’t equal profitability and that’s all that really matters.  We sure hope were wrong here but experience tells Diabetic Investor that Tandem has a very tough road ahead.