Tandem Diabetes Earnings: Multiple Factors Slowing Down Growth Leads to Lower Outlook

Though no-moat Tandem’s TNDM second-quarter results provided slight sequential improvement, top-line growth remains under pressure from competitive forces as well as patient adoption patterns ahead of new product launches. We’ve moderately lowered our near-term assumptions based on those trends, decreasing our fair value estimate by $2 to $32 per share. Unlike many medical device firms that raised their outlook after this quarter, Tandem abruptly and dramatically lowered the bottom end of its 2023 outlook to $785 million, down from $885 million, causing shares to swoon in after-market trading. We continue to expect Tandem to reach profitability in 2027, but are not yet confident enough in the firm’s ability to carve out competitive advantages that can be maintained over the longer haul.

While it is difficult to isolate the impact of competitive product launches from the tendency for current users to delay purchase until after a new pump has been launched, we suspect the former is more of a factor than management would like to admit. Quarterly pump shipments and revenue fell 8% and 2%, respectively, year over year. Rival Insulet is just reaching the end of its first full year of the Omnipod 5 launch, which had already taken a toll on Tandem’s t:slim X2 pump. However, Medtronic is just about to roll out its next-gen 780g pump, and has been taking preorders since spring. Both competitive pumps offer automated insulin delivery, and the 780g is the only pump that provides up to 12 mealtime correction boluses.

We think current Tandem pump users who are waiting for the release of the new Mobi pump or integration with the latest continuous glucose monitors are more likely a tertiary factor in the slowdown. We should gain more insight into this situation this fall when the flagship t:slim X2 is integrated with Dexcom’s new G7 and Abbott’s Libre 3 CGMs. If revenue growth accelerates into early 2024, then we’d revisit our high-single-digit growth projection for 2024.