DexCom (DXCM) is a medical device company, which is involved in the development and commercialization of continuous glucose monitoring (CGM) systems for outpatient use by diabetics. The company received FDA approval for its first CGM product in 2006. This was followed by approval and commercialization of its second generation system, the SEVEN in 2007. DexCom has expanded upon the SEVEN platform, with the SEVEN PLUS, which incorporates additional user interface and algorithm features. It is currently working on a fourth generation CGM system, while collaborating on hybrid CGM/Insulin pump systems, and developing a CGM product platform for use in the hospital setting.
The global diabetic population has increased substantially in recent years, and incidence rates appear to have accelerated. The International Diabetes Federation (IDF) estimates that worldwide incidence of diabetes (in adults between the ages of 20-79) has reached 285 million, including nearly 27 million cases in the North America. Furthermore, it projects that the total population will expand to 438 million by 2030, a pace of about seven million new cases per year. The increased prevalence reflects a combination of an aging population/greater life expectancy, unhealthy diets, and increasingly sedentary lifestyles. Blood glucose levels can be affected by numerous factors, and maintaining glucose levels within a normal range is challenging. Diabetic patients manage their glucose levels by administering insulin or by consuming carbohydrates throughout the day. However, patients have limited information with the typical, single-point finger stick monitoring devices since each measurement represents only a single blood glucose value at a specific point in time. Considering the multiple factors that affect a patient’s glucose level, and the tendency for it to shift above or below normal range, the ability to effectively manage and maintain normal levels is very limited. Moreover, the single-point finger stick devices are very inconvenient, can be painful, and are somewhat difficult to use. CGM systems address these issues by providing continuous glucose information, including trend details, while offering substantial upgrades in regards to convenience and ease of use.
DexCom’s core SEVEN CGM systems, which are approved for ambulatory use, include a disposable sensor, a transmitter, and a small handheld receiver. The sensor is inserted by the patient, and is intended to be used continuously for up to seven days, after which it is removed and can be replaced by a new sensor. As with many medical devices, the SEVEN systems disposable sensors create a razor/razor blade business model, which provides a recurring revenue stream from the disposables. Recent CGM system demand has been strong, with DXCM selling 3,900 starter kits in the third quarter of 2010. This represented an 11% sequential-period increase, and over 80% growth from the previous year.
The company is involved in numerous product development collaborations. It currently has agreements with Animas, a subsidiary of Johnson & Johnson (JNJ - Free Johnson & Johnson Stock Report), and Insulet (PODD) to develop products that integrate its CGM technology with their respective insulin pump systems. In addition, it has an exclusive agreement with Edwards Lifesciences (EW) to jointly develop a product platform for the hospital-based glucose monitoring market. However, recent tightening of FDA approval standards has provided some setbacks for these product collaborations. Indeed, the FDA has requested significantly more data on these new CGM pipeline products, and the delays have also extended to DXCM’s own fourth-generation system. In addition to the pipeline delays, reimbursement issues remain an obstacle. Currently, approved CGM systems are not reimbursed by Medicare and patients must rely on third-party payers to provide coverage. Obviously, a lack of government coverage and reimbursement would significantly reduce the potential for commercial success. And the recent increased focus and efforts to control healthcare costs makes Medicare reimbursement less likely.
Although DexCom is still in the early stages of its product development, and faces some challenges, it appears to be well positioned in an attractive market. The potential for product line expansion, entrance into new markets, and overall increased CGM system penetration are promising. However, investors should still take into consideration the developmental and regulatory uncertainties when making an investment decision.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.