December 8 will conclude the quiet period on underwriter research following Tandem Diabetes Care (NASDAQ:TNDM)'s successful November 13 IPO. The conclusion of the quiet period will allow the many IPO underwriters to release positive detailed investment reports into the market to their many clients about Tandem, which is the maker of a next-generation insulin pump. These long positive reports will likely lead to at least a temporary increase in the price of TNDM shares.
TNDM debuted at the upper end of its expected price range at $15 per share, and, after a first day return of 28.4%, has since fluctuated between $18.61 and $24.00 per share; the stock closed at $22.46 on December 3rd.
We believe that the highly regarded underwriters, including the Bank Of America's Merrill Lynch, Piper Jaffray & Co, Deutsche Bank Securities, and Stifel Nicolaus & Company, will attempt to capitalize on the stock's strong early performance with a series of positive research reports at the expiration of the quiet period.
Both the results of the past two years of our research and the results of recent academic studies have provided empirical evidence of a correlation between the quantity and quality of IPO underwriters and the rise in price of stock at the conclusion of the quiet period.
The increase in price generally begins to take effect several days before the actual quiet period expiration, as experienced investors will attempt to take advantage of the impending price bump by buying up shares in advance-these investors understand that the underwriters will provide exclusively positive information about the firm that they have recently underwritten. These early buys increase perceived demand and may drive the price upwards.
TNDM is the medical device firm behind the t:slim Insulin Delivery System, a next-generation device for those suffering insulin-dependent diabetes. The t:slim device is the result of an effort to design a more consumer-friendly insulin deliverer, both by replacing the archaic syringe mechanism with a micropump and by updating the looks and technology of the device, which has a color touch screen, a simple user interface, and a micro-USB connection.
The device resembles a smart phone in size and aesthetic, and can carry a cartridge containing 300 insulin units. As of September 30, TNDM has sold over 5000 t:slims.
TNDM has seen rapidly increasing sales since introducing its device to the market in Q3 2012; sales for calendar 2012 totaled $2.5 million, while the first nine months of 2013 saw sales of $18.8 million. Net losses increased from $33 million to $39.5 million over the same periods as well, however.
TNDM's device faces severe competition from traditional pumps, as many patients and physicians may be hesitant to switch devices. Many of these pumps are manufactured by well-known firms with superior resources in terms of both production and marketing, and some include elements that t:slim does not yet have available. Among these competitors are Insulet Corporation (NASDAQ:PODD), Johnson & Johnson (NYSE:JNJ), and Medtronic (NYSE:MDT).
Kim Blickenstaff has served as President and CEO of TNDM since 2007, after a previous stint as Chairman and CEO of Biostite Incorporated. He also serves as Chairman for Medivation Corp. He has a degree in Political Science and an MBA, both from the prestigious Jesuit college of Loyola University.
We believe that TNDM remains a risky medium term buy, given the amounts of money that it is losing and the heavy-hitting competitors that it faces-competition that is likely to increase in coming years as a result of federal government efforts to incentivize new insulin delivery technologies. The fact that the company has continued to lose increasing amounts of money despite surging sales is concerning.
That said, the firm's successful IPO may have given it the capital it needs to take its marketing to the next level and generate much wider recognition of the t:slim device, and TNDM shares have certainly performed well on the market thus far.
If TNDM piques your interest, the quiet period expiration presents a great opportunity for aggressive oriented investors to buy into the firm to take advantage of the extensive positive oriented research reports about to come out from the very highly paid IPO underwriters of TNDM.
Disclosure: I am long TNDM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.