DexCom, Inc. (NASDAQ:DXCM) is a medical device company focused on the design, development and commercialization of ongoing-glucose-monitoring systems for use by diabetes patients. Its SEVEN PLUS system is its third generation technology, designed for up to seven days of continuous use. The device consists of three components (a sensor, transmitter, and receiver), and is approximately the size of a U.S. quarter. It transmits an updated glucose reading every 5 minutes to the hand-held receiver, which is approximately the size of a cell phone. Although competitors make something similar to it, nothing competes directly with it.
DexCom Opportunity Overview
It's been estimated that the size of the global market of self-monitoring blood glucose (SMBG) systems is $8.8 billion. While DexCom's SEVEN PLUS technology technically fits into that category, there's a growing sub-category within the SMBG market that DexCom's technology falls into... continuous blood glucose monitoring (CBGM) systems. 
The size of the CBGM segment of the self-monitoring blood glucose market is growing, and sooner or later will 'be' the glucose monitoring market as the continuous-monitoring technology is proven and its price is driven down. For now, although the sales figures are a little tougher to nail down, it makes up about half the total SMBG market. That puts about $4.5 billion worth of sales on the table, primarily spread among only three companies - Abbott, Medtronic, and DexCom.
While the size of the glucose-monitoring market based on historical spending is accurate, it doesn't necessar! ily reco gnize that the total annual spend on such technology could be greater if (1) all or more diabetes patients were convinced of� the importance of testing, which (2) is a function of making the technology more affordable and more convenient.� The entire glucose monitoring market could be worth more than $10 billion per year in an 'ideal' healthcare-delivery scenario.
DexCom Technological Advantage
As was noted, although continuous blood glucose monitoring systems are going to eventually become the norm for the self-monitoring blood glucose market, there are only three players with a technology that positions them to lead that charge. They are DexCom, Abbott, and Medtronic.
- Medtronic's Minimed Paradigm is an interesting horizontal expansion of continuous glucose monitoring, in that can also deliver insulin as needed based on the data provided by the device. The sensor only works for about three days before needing to be replaced, however, and given that the devise need to be recalibrated every few hours - particularly when new ones are applied - it can become a hassle to swap them out this frequently.
- Abbott's 'Freestyle Navigator' is a comparable device, with the sensor/transmitter attaching to the body, and the receiver/monitor being a hand-held device. It works effectively, but the operational lifespan for each application is only five days.
- DexCom SEVEN PLUS, as was already noted, performs almost exactly as the other two major competitors. The cost for the recover is comparable to Abbott's and Medtronic's receiver, and though the price of each sensor is higher, the sensors also last longer before needing replacement.
Even beyond the convenience factor though, diabetes patients have spoken, and they're preference for SEVEN PLUS is growing. Some of the statements made by actual diabetes patients include "I tested both the DEXCOM and Medtronic CGM devices and the DEXCOM was far superior in terms of both comfort and accuracy", and! �� �"Th e Dexcom unit is clearly a far superior product to Medtronic's, and as a user of both, there is simply no comparison between the two with no reason why a user would ever want the Medtronic CGM."
An Evolution in Continuous Blood Glucose Monitoring
The unveiling of the next generation of products is quickly approaching, which could conveniently merge two technologies into - glucose monitoring and insulin dosing - into one.
Medtronic's Minimed Paradigm Revel insulin pump is such a combination. By performing continuous glucose readings, it always knows when and how much to inject. Unfortunately, the insulin injections are only as good as the accuracy of the glucose reading itself, and as was already noted, the Paradigm's readings are questionable (and not just because of frequent calibrations).
Though not approved in the U.S. yet, DexCom has partnered with the insulin pump makers for PODD, Roche, and Johnson & Johnson to build a combined GCM/pump device that automates insulin delivery. Medtronic's version of this combo devioce is called the Paradigm Veo, and it was approved in Europe in 2009, and is expected to be available in the United States sometime this year. DexCom's version - called the Animas Vibe - was approved n Europe last year. Both of these closed loop systems are currently under final review by the FDA, and while the Veo is likely to win approval first for the U.S. market, again, the foundational DexCom technology for the device has already been regarded as superior to the competition.
And perhaps more important, the combination of an accurate device that delivers insulin as needed may well be the game-changer that starts t expand the CGM market beyond the current ceiling of $8.8 billion per year.
DXCM Outlook & ! Analysis
DexCom, Inc. did $69 million in sales for the past twelve months, which is a pittance compared to the market cap of $701 million. However, sales are accelerating tremendously now that the SEVEN PLUS is getting traction. The company expects to report nearly $21 million in revenue for the fourth quarter, leading into a 2012 revenue forest of $97.4 million in sales. That's about a 35% growth rate, and just the beginning now that DXCM has a highly marketable product in hand. The introduction of a GCM/insulin pump device late this year or next year could mean the stock takes on a life of its won, but even in the meantime the strong growth rate overrides the high price/sales ratio.� �
What's apt to prod the stock higher between now and then - aside from proven sales growth - is the fact that analysts are now jumping on the bandwagon. Bean Murray started coverage of DXCM at a buy, as of January 17th. Wunderlich and MLV both posted new 'buy' ratings in December.
The media is falling in love with DexCom, Inc. too, which may be even more influential than strong analyst ratings.�
The clincher for any bullishness, however, lies in the chart itself.
After a decisive pullback in 2011 following 2010's deceive runup, DXCM has just as decisively snapped last year's downtrend. Though up more than 50% from the November low, there's also an enormous amount of room to rally before hitting prior highs around $16.00. This time around though, it's approaching those highs with a revenue-bearing product, and an even hotter product in the hopper.
Wunderlich's target price of $12.00 may be well shy of the actual potential here, considering a mere 5% of the $8.8 billion blood glucose monitoring market is still a $440 million revenue opportunity.
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