Like everyone else Tandem followed the new pattern when reporting results. They thanked their employees and suppliers, they noted that first quarter results from a pump supply perspective benefited from the crisis as patients stocked up and like everyone, they pulled their full year guidance. Based on their comments they further reinforced what we have been saying since this crisis began, namely as we move forward the second and third quarters will provide a much clearer picture of how this crisis is impacting results.
Rather than analyze first quarter results which were very good lets instead concentrate on what the future might look like.
1. There is no question that the Control IQ is transformative technology. This really isn’t news, but it is powering solid growth for the company and will continue to do so as the crisis abates.
2. Tandem is not just winning when it comes to adding patients new to insulin pump therapy, they are taking share away from market leader Medtronic. Check out these comments from Brian Hansen – Executive Vice President & Chief Commercial Officer
“In the first, quarter we continued to see approximately half of our new customer adopt pump therapy from multiple daily injections and the remainder coming from competitive conversions. The high rate of conversions is notable, as a percentage of former Animas customers has declined, as anticipated from an average of 18% in the first three quarters of last year to less than 5% of new customer shipments this quarter. These trends have also been consistent throughout April, which is interesting, because there is a natural assumption that people using multiple daily injections may be less likely to start pump therapy in this environment.”
This is VERY bad but not unexpected news for Medtronic.
3. Yet on the flip side pay attention to these comments from Leigh Vosseller – Executive Vice President & Chief Financial Officer-
“We have begun to experience and expect to continue to see downward pressure on our sales in the face of this COVID-19 crisis as healthcare providers and patients work through the disruption to their typical interactions and some patients choose to delay their purchasing decisions due to financial uncertainty.”
This is something we expected and something not unique to Tandem as others have noted similar experiences. However it was encouraging that while the company did eliminate full year guidance Leigh was very confident the company will hit their projected revenue of $85 million for the second quarter.
The facts are these;
1. Tandem now has the coolest toy in the toy chest and will have the coolest toy for some time. Given the many issues facing Medtronic it really doesn’t matter when they get their 780G to market. The company is also benefiting from the delay of the Horizon from Insulet. Simply put the Control IQ is quickly becoming the must have toy for insulin pump patients.
2. We hate to be redundant but the second and third quarter results will paint a much better picture of how this crisis is impacting the company. It was very encouraging that the company was confident projecting revenue for the second quarter which to us shows just how transformative the Control IQ is. Still there are just too many variables to consider when looking beyond the second quarter.
3. This cannot be understated when it comes to the insulin pump market Medtronic is no longer king of the castle. They may have for the moment the highest number of installed users but there is no question they are in the midst of a downward spiral. It is not a question if they will see erosion of this installed base but how bad this erosion will be. Perhaps worst of all there is little they can do to stop this downward spiral. Based on everything we know about the 780G it will not match the performance of the Control IQ assuming of course it gets here.
4. That being said the insulin pump market has now become a two-horse race between Tandem and Insulet. They now control where this market goes and how fast it get there. Given the results being seen with the Control IQ, the very favorable reviews from patients and physicians the edge today goes to Tandem. Although we have no hard evidence to back this up, yet, we are hearing reports from the field of patients switching from the OmniPod to the Control IQ. Many of these patients were waiting for the Horizon but now delayed they have decided to jump to the Control IQ.
Now let’s be very clear here as transformative as the Control IQ is the system is far from perfect. Tandem is well aware of this which means the system will only get better moving forward putting even more pressure on Medtronic and Insulet. To us only two things can stop this juggernaut – the crisis or a major management screw up. One is out of everyone’s control as no one really knows how or when this crisis will end.
However the other can be controlled assuming management does not become enamored with themselves and keeps the eye on the prize. Keep in mind that hubris and arrogance is what’s killing Medtronic not technology. As Momma Kliff used to say success is a wonderful thing but sustained success doesn’t happen by accident. It takes hard work and the ability to keep success in perspective not letting it go to one’s head.