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Tandem (TNDM) Grows on Abbott, Dexcom Pacts Amid COVID-19 Woes

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On Mar 11, 2021, we issued an updated research report on Tandem Diabetes Care, Inc. (TNDM - Free Report) . The company's expansion initiatives in the global markets are a major positive. However, its heavy dependence on the sales of insulin pumps and recurring operating losses raise concerns. Tandem Diabetes currently carries a Zacks Rank #3 (Hold).

Tandem Diabetes has been outperforming the industry for the past year. The stock has risen 48.7% compared with the sector’s 40.8% increase. Tandem Diabetes delivered better-than-expected results for the fourth quarter of 2020. Strong domestic and international pump sales along with robust domestic and international pump shipments buoy optimism. Continued strength in demand for t:slim X2 insulin pump across the globe, and rising customer adoption of the company’s Control-IQ technology, look encouraging. A robust product pipeline is also impressive. Expansion of operating margin bodes well for the stock.

According to Tandem Diabetes, it achieved approximately $500 million in sales in 2020, surpassing the milestone of having more than 200,000 customers in worldwide installed base. It also launched best-in-class Control-IQ technology and made meaningful internal product development and operational progress despite the pandemic. The company’s full-year 2021 sales forecast with 20-23% expected growth over 2020 is encouraging.

In terms of pipeline, the company intends to launch Tandem Source in select countries outside the United States later in 2021 with a domestic launch to follow. The company’s digital strategy is progressing well. Since its launch outside the United States in 2019, now more than 45,000 people use the Tandem pump in nearly 20 different countries.

Tandem Diabetes is also hopeful about t:sport to be a major growth catalyst for 2022. Further, it anticipates that 2022 will see new sensor offerings from both CGM partners, DexCom and Abbott. It is particularly hopeful about DexCom’s G4, the fourth generation sensor. Based on the FDA's interoperability initiative and the timing of DexCom's clearance, Tandem plans for commercial launch of its Control-IQ technology with the G7 sensor within one quarter following its receipt of FDA clearance.

The company also plans to collaboratively bring the integrated product with Abbott Libre's technology to diabetes community in 2022. It intends to begin the U.S. commercial launch, which depends on the timing of Abbott's FDA clearance.

However, the coronavirus pandemic is wreaking havoc on the economy. The company, whose international shipments declined by 10% in the last-reported quarter, expects to continue to witness a greater proportional impact on its international markets due to increased variability caused by the pandemic. The reason behind this is the resurgence of the infection in some areas along with stringent precautionary measures in others.

Further, the difference in the diabetes care model outside the United States is also leading to a variability in shipments as patients are more often attended through the hospital systems and the use of telehealth is not as widely adopted.

Rising operating expenses, heavy dependence on insulin pumps and stiff competition are other concerns.

Key Picks

A few better-ranked socks from the broader medical space are Acorda Therapeutics, Inc. (ACOR - Free Report) , Atea Pharmaceuticals, Inc. (AVIR - Free Report) and Avid Bioservices, Inc. (CDMO - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Acorda Therapeutics has a projected long-term earnings growth rate of 15%.

Atea Pharmaceuticals has a projected long-term earnings growth rate of 164%.

Avid Bioservices has an estimated long-term earnings growth rate of 160%.

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