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Tandem Diabetes (TNDM) Faces Expense Woes, Macro Issues

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Tandem Diabetes' (TNDM - Free Report) business is being hurt by heavy dependence on the sales of insulin pumps and escalating operating expenses. The stock currently carries a Zacks Rank #4 (Sell).

Tandem Diabetes has been underperforming the industry for the past year. The stock has lost 52.9% compared with the industry’s 29.8% fall.

Tandem Diabetes second-quarter top-and-bottom-line figures were lower than expected. The U.S. and outside-U.S. pump shipments in the quarter faced difficult year-over-year comparisons. Further, the company faces pandemic staffing challenges and global inflationary pressure in the form of ordering and supply-chain headwinds.

Tandem Diabetes has been taking a careful approach toward the potential impact of COVID on its business in 2022. Despite witnessing robust demand in international markets, the company expects the COVID impact on distributor order timing to continue to produce a significant degree of variability in sales outside the United States.

The rise in costs and expenses put pressure on margins. Gross profit in the second quarter grew 10.3% year over year. However, the gross margin of 50.9% indicated a contraction of 280 basis points (bps). Selling, general and administrative expenses rose 21.2% in the quarter under review. Research and development expenses increased 63.8%.

The company registered an operating loss of $12.2 million in the second quarter, a huge deterioration from the year-ago operating profit of $5.4 million.

Factoring in the pandemic and competitive pressure as well as the evolving economic environment, including inflation and the threat of recession, the company slashed its full-year guidance.

On a positive note, Tandem Diabetes exited the second quarter with year-over-year sales growth. In the United States and Canada, the company’s sales and clinical field teams have been flexible in successfully adjusting to the pandemic's complexity. Outside the United States, the company’s distribution partners, despite experiencing COVID-related headwinds, continued to execute very well. Control-IQ was available in all the countries where the company serves and met with high levels of customer enthusiasm.

Tandem Diabetes currently expects to see growth across all countries. There has been a  meaningful increase in year-over-year pump placements. To address the ongoing lumpiness of the sales patterns due to ordering and supply chain timing disruption, the company laid the commercial and operational groundwork as well as the IT infrastructure. The company began working with a third-party logistics provider in the Netherlands in the first half of this year. Tandem Diabetes expects to scale the utilization of these third-party provider services in the upcoming quarters in support of the company’s growing international distribution network.

The company also witnessed strong customer retention in the United States in the reported quarter, driven by the  positive response from the Control-IQ technology. Supply sales grew 35% year over year, remaining consistent with the company’s expectations and reflecting high customer retention of  more than 265,000 people in its U.S. installed base.

Key Picks

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , ShockWave Medical, Inc. (SWAV - Free Report) and McKesson Corporation (MCK - Free Report) .

AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.7%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has lost 8.4% against the industry’s 35.5% fall.

ShockWave Medical, sporting a Zacks Rank #1 at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.

ShockWave Medical has outperformed its industry in the past year. SWAV has gained 36.6% against the industry’s 29.8% fall over the past year.

McKesson has an estimated long-term growth rate of 9.9%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2 (Buy).

McKesson has outperformed its industry in the past year. MCK has gained 66.4% against the industry’s 15.1% fall.

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