Tandem Diabetes Care Inc. shares plummeted more than 20% after the company reported earnings Wednesday, continuing a decline that has already cost the company two-thirds of its market value this year and has been partially blamed on the inability of many Americans to afford the potentially life-saving technology.
Tandem TNDM, -8.32% shares have dropped exactly 15% after each of its past two quarterly earnings reports, part of a 66% decline this year that has taken the company from a market cap approaching $100 billion to a valuation of less than $35 billion. One of the core reasons cited by executives is that U.S. diabetics have run into trouble paying for the expensive devices amid runaway inflation; many other countries with universal healthcare will subsidize the technology, but the U.S. healthcare system does not always offer the same.
Insulin costs in the U.S. have reportedly tripled in the past decade, with costs worsening as the COVID-19 pandemic led to supply-chain issues. Patients hoping to obtain an insulin pump or similar device — which allow for constant monitoring of insulin levels and immediate delivery of the medicine — could also be on the hook for costs related to the device.
In an August conference call as shares fell, Tandem Chief Executive John Sheridan cited “the evolving economic environment, including inflation and the threat of recession.”
“Our data suggests that this dynamic began impacting new customers’ decision to purchase the pump beginning in the second quarter. This is primarily a factor in the U.S., as outside the United States, it’s mitigated by the predominance of government healthcare plans,” he said at the time.
In a conference call Wednesday after yet another disappointing earnings report, Sheridan reiterated that “the impact of the economic environment on our customer purchasing behavior is primarily a U.S. phenomenon.”
“This pressure is something that we saw build quickly at the end of Q2,” he said. “It has remained steady.”
The problems have landed on Tandem’s revenue growth rates and forecasts. In Wednesday’s third-quarter results, Tandem reported that sales grew to $205.1 million from $179.6 million, missing analysts’ average estimate of $207.6 million, according to FactSet. Analysts had already shed about $10 million from that estimate after disappointing results last quarter.
Executives also reduced their annual guidance for a second consecutive quarter. They now see annual sales of $800 million to $805 million on an adjusted basis, after stating $835 million to $845 million three months ago and $850 million to $865 million six months ago. Neither of the earlier forecasts were based on adjusted revenue, a practice that the Securities and Exchange Commission frowns upon.
Tandem executives attributed their new adjusted-revenue focus Wednesday to their approach to solve affordability problems in the U.S. market. They are offering to sell customers insulin pumps with fewer up-front charges and paying the price over time; that allows customers to obtain the technology, but Tandem isn’t allowed to recognize the revenue immediately, instead being forced to recognize it over time as the customer pays. In the adjusted-revenue forecast provided by executives, the revenue is recognized in the quarter the deal is signed.
Tandem’s forecast suggests that executives expect the U.S. to account for nearly 75% of its sales this year. Executives hope to find more business outside the U.S. as well, launching the business in Israel and Portugal in the third quarter, which Sheridan said brings the number of countries in which Tandem sells its t:slim X2 device to 25.
“We’ll continue to look at new opportunities to bring our technology to people living in smaller markets outside the United States while executing on our primary international strategy of driving greater adoption in the underpenetrated areas we serve today,” Sheridan said.
Besides U.S. affordability issues, executives also cited continuing issues related to the COVID-19 pandemic, such as staffing shortages in endocrinology offices, as well as competitive pressures. Tandem competes with Insulet Corp. PODD, -1.64%, which provides a tubeless version of an insulin pump, and Dexcom Inc. DXCM, -2.60% ; those companies’ stocks have not suffered the same fate this year as Tandem, with Insulet shares down just 1.6% and Dexcom stock falling 13.6%. The S&P 500 index SPX, -2.50% is down 21.1% this year in comparison.
Tandem reported a third-quarter loss of $49 million, or 76 cents a share, down from earnings of 9 cents a share a year ago and widely missing analysts’ average estimate for a loss of 5 cents a share, according to FactSet.