FDA Approval Of Control-IQ+ Will Expand Market Reach In Type 2 Diabetes

Key Takeaways

• Operational improvements and new tech launches are expected to boost customer adoption and revenue, with increased market presence and margin expansion initiatives in Europe.
  
• FDA approval expands Tandem's addressable market for type 2 diabetes, while pharmacy channel access and product integration aim to drive sales growth.
  
• Transition challenges in Europe, U.S. sales force disruption, and competitive pressures may impede short-term revenue growth and market penetration.

Catalysts

Designs, develops, and commercializes technology solutions for people living with diabetes in the United States and internationally.

• Tandem Diabetes Care is planning operational efficiencies and improvements, such as launching new technologies like Tandem Mobi and Control-IQ+, which are expected to increase customer adoption and drive revenue growth.
  
• The recent FDA approval for the Control-IQ+ for type 2 diabetes significantly expands Tandem's addressable market, potentially boosting long-term revenue by accessing a larger population.
  
• The expansion into the Pharmacy channel is intended to improve product accessibility and affordability, which may lead to increased sales volume and enhanced revenue growth.
  
• Tandem's strategic sales force realignment and international expansion plans, particularly in Europe, aim to strengthen their market presence and create opportunities for revenue and margin expansion.
  
• The integration with FreeStyle Libre 3 and Android app development for Mobi is anticipated to enhance their product ecosystem, potentially driving higher product adoption and revenue increases.

Tandem Diabetes Care Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tandem Diabetes Care's revenue will grow by 8.6% annually over the next 3 years.
• Analysts are not forecasting that Tandem Diabetes Care will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Tandem Diabetes Care's profit margin will increase from -10.2% to the average US Medical Equipment industry of 12.9% in 3 years.
• If Tandem Diabetes Care's profit margin were to converge on the industry average, you could expect earnings to reach $155.5 million (and earnings per share of $2.16) by about May 2028, up from $-96.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.2x on those 2028 earnings, up from -11.6x today. This future PE is lower than the current PE for the US Medical Equipment industry at 31.6x.
• Analysts expect the number of shares outstanding to grow by 2.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.78%, as per the Simply Wall St company report.

Tandem Diabetes Care Future Earnings Per Share Growth

Risks

• The guidance for pharmacy channel growth is modest due to its early-stage implementation, potentially delaying any significant impact on revenue and margin improvement this year.
  
• The transition to direct sales in select European countries may lead to disruptions with distributors, potentially affecting international sales growth and margins as the company navigates these changes.
  
• The expansion and realignment of the U.S. sales force could result in temporary disruption as new territories are established, potentially impacting short-term sales growth and efficiencies.
  
• The type 2 diabetes market remains underdeveloped and could take time for the company to establish meaningful penetration, potentially delaying revenue contributions despite the expanded market opportunity.
  
• Competitive pressures and macroeconomic factors, such as cost sensitivity among patients, may hinder new pump adoption and retention rates, potentially impacting overall revenue growth.

Valuation

• The analysts have a consensus price target of $38.238 for Tandem Diabetes Care based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $75.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $155.5 million, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 7.8%.
• Given the current share price of $16.77, the analyst price target of $38.24 is 56.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.