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Why Tandem Diabetes Care Is Rallying by 11.3% Today

Todd Campbell, The Motley Fool

What happened

After reporting second-quarter financial results and updating its full-year sales forecast, Tandem Diabetes Care (NASDAQ: TNDM) saw its shares soar 11.3% by 3 p.m. EDT.

So what

Tandem Diabetes' second-quarter financial results show that it's continuing to make progress toward profitability. The company reported that a 59% year-over-year increase in insulin pump shipments propelled sales 60% higher to $34.1 million, and that its operating margin improved from -89% in Q2 2017 to -41% in Q2 2018. 

A man standing with $1 bills falling down around him.

Image source: Getty Images.

It's important to note that the company says that it continues to generate about half its sales from patients who are new to insulin pumps and that it's chipping away at the lead held by competitors, including Medtronic (NYSE: MDT). On Tandem's quarterly conference call, management pegged its market share at about 12%.

The company also updated its outlook for the rest of the year. Historically, sales pick up into the end of the year as people reach their out-of-pocket maximum levels for their insurance plan. This year isn't expected to be any different. Management's forecasting that revenue will be between $140 million to $148 million this year, up 30% to 38% from 2017. 

Now what

Tandem Diabetes recently won a Food and Drug Administration OK to begin marketing a closed-loop insulin system that combines its T:slim X2 pump and its Basal-IQ algorithm with Dexcom's (NASDAQ: DXCM) new G6 continuous glucose monitor (CGM). The Basal-IQ algorithm can predict blood sugar levels 30 minutes in advance and shut off insulin if a patient is at risk of hypoglycemia (blood glucose levels that are too low). In trials, Basal-IQ reduced the amount of time patients spend with dangerously low blood glucose readings by 31%, compared to the use of an insulin pump and CGM alone. 

The Basal-IQ feature, which is expected to be available in August, will make Tandem Diabetes only the second diabetes company to offer such an automated insulin solution. Previously, the market was owned by Medtronic's MiniMed 670G, a system that launched early in 2017. The MiniMed 670G has been a success, with the number of people using it climbing to 70,000 at the end of March, from 20,000 at the end of 2017. However, Tandem Diabetes' solution might be a better than Medtronic's, because it virtually eliminates the need for finger sticks to check blood sugar for calibration, and its blood glucose sensors can be worn for 10 days rather than seven. 

It remains to be seen if Tandem Diabetes' system can elbow away market share from the MiniMed 670G, but management appears confident. It expects to reach cash flow breakeven next year, and that could mean that profitability is around the corner.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool owns shares of Medtronic. The Motley Fool has a disclosure policy.