Meet Tandem Diabetes Care
Business: Diabetes Care | HQ: San Diego, CA | Market Cap: $2.8 billion | CEO: Kim Blickenstaff | Revenue: $129 million | Net Income: -$73 m
I’m hoping that none of my readers actually have diabetes, but we all have at least heard of the disease. It’s a condition that makes you unable to process glucose in your blood stream, leading to abnormally high sugar levels which causes a host of health problems for the sufferer. A lot of people suffer from diabetes, an estimated 9.6% or 31 million people have it in US alone and the WHO believes almost 450 million have it worldwide. So at this point, safe to say it’s a pretty common illness.
This is where Tandem comes in. Tandem is one of the companies providing different solutions for people suffering from diabetes, particularly in the US although they are slowly expanding abroad. There are many other healthcare companies who have divisions focused on diabetes care among other things, but Tandem is one company that is solely and completely built around diabetes care, and nothing else. In the oil industry, they call companies like that, pure play companies. The upside of this is that the focus often leads to product and customer leadership, efficient growth and more. The downside is that the company rises and falls on whatever the market does, and there is always the threat that a more diversified company will steal market share by competing away the profits, Amazon style. We’ll get to that later.
The company has their headquarters in San Diego, California and this is where they house all their R&D, customer support and manufacturing activities. This is something I also think is very brilliant as it helps them be much more responsive and creative than companies who outsource manufacturing.
Basically, Tandem sells products that help you treat diabetes. Their main product is insulin pumps, which they sell in 3 main versions, the t:slim X2 insulin delivery system which can fit in your pocket, the t:flex which works for patients with larger insulin needs and the t:slim G4 which in addition to being an insulin pump, also works as a continuous monitoring glucometer, that is, it constantly watches the patient’s blood sugar level and turns off insulin delivery when it gets too low, and turns it back on when it gets high. Apparently, it’s a problem for diabetics have, that sometimes their insulin works too well and ends up giving them low blood sugar. With their G4 product, Tandem basically has a machine that regulates blood sugar and delivers insulin only when you need it. Pretty brilliant. The company also has a cloud based app that provides a dashboard to manage all your blood sugar numbers and other care metrics.
The main competitive advantage for the company is product leadership. Traditionally, insulin pumps are bulky, pager looking boxes with tiny screens, bad UI and just generally old and dated looks. Tandem borrowed a leaf from the smartphone and tech industries to design sleek, black shiny slabs, very engaging and intuitive tracking apps, and is even integrating algorithms and artificial intelligence to make sure the products don’t only look better and sleeker, but also work better by smoothening out insulin delivery automatically, to maintain a steady optimal blood sugar level. Most other products have this wild up and down blood sugar rates because the pump has to first detect low sugar level before cutting back insulin. Tandem’s products try to be predictive.
While the company has historically been growing revenue around 25% annually in the past few years (which is decent but by no means earth shaking), the launch of their newest product has seen sales jump almost 60% in the first two quarters of the year, which has really ramped up expectations of sales volume increase. The company is still making losses, and is cashflow negative but the loss has been reducing at a rapid clip while sales has continued to increase, which is a good place for any early stage company to be.
It’s closest competition is Medtronic, especially when it comes to product leadership and quality, but the market is big enough (and growing) that both companies can comfortably increase sales for the foreseeable future.
The company is well positioned to grow it’s footprint and turn cash flow positive, and even profitable in a decent amount of time, especially if sales keep accelerating.
They also recently raised $100m in a secondary offering, which enabled them retire about $82m worth of debt with 11% interest rates. That means their expenses will reduce, and they still have enough cash to keep the company going till they turn cashflow positive.
Overall, it’s a great investment to consider especially at a good entry price. I am not making a recommendation here, and you need to do your own homework and figure out whether or not your risk appetite fits what you want to buy.
This is just something for you to think about and understand as you work on becoming a better investor.
Go forth and win.