Dexcom On The Move – Is something coming?
Shares of Dexcom (NASDAQ:DXCM) are soaring today up nearly 10% and the rumor mill is in full swing. Since the company’s third quarter earnings announcement back on October 23rd, shares have been a roller coaster ride after hitting an intra-day low of $8.35 back on November 1st; shares are now approaching $12. Many investor believe the company is about to be acquired and for the sake of Dexcom shareholders Diabetic Investor hopes these rumors are true. However, we’re not so sure and remain skeptical.
It’s ironic that on same day shares of Dexcom are soaring that shares of Sontra Medical (NASDAQ: SONT) are down almost 43%. On Monday the company said it did not have the capital to continue operations beyond December 31st and may have to wind down business operations or file for bankruptcy protection if they cannot raise additional capital. Sontra is just one of the many companies trying to develop a minimally invasive glucose monitoring system. Like others here Sontra had hopes that their system would not only measure glucose without fingersticks but also deliver continuous glucose measurements. While it’s possible the company will raise the capital it needs to continue Diabetic Investor believes they will soon join the ever growing list of companies who have tried and failed.
Diabetic Investor does not believe Dexcom will suffer the same fate as Sontra yet we don’t see a buyout in the near future. Johnson and Johnson (NYSE:JNJ) the most frequently mentioned suitor has publicly stated they are developing their own continuous system. Roche can’t seem to make up their mind on CGM. Abbott (NYSE:ABT) is still awaiting approval of the Navigator and Medtronic (NYSE:MDT) already has an approved system. Becton Dickinson (NYSE:BDX) recently announced they were exciting the blood glucose monitoring market, which leaves Bayer (NYSE:BAY) as the only company with experience in glucose monitoring that could acquire Dexcom. It’s also possible that someone outside the diabetes world could come in or that a private equity firm could step in.
If there is one thing Diabetic Investor has observed over the years the fact that the future of the entire CGM market is cloudy won’t stop large companies from making foolish decisions. Even if Dexcom can solve their manufacturing issues and clinical trials underway somehow prove that using a CGM improves patient outcomes, lack of reimbursement remains the key here. The bottom line with CGM, no matter which product it is, without reimbursement this is no more than a niche product. As Diabetic Investor has stated before while Medtronic and Abbott have the resources to wait for reimbursement Dexcom does not. The fact of the matter is reimbursement is at least three years away if it comes at all.
Even with reimbursement Diabetic Investor is not convinced the CGM market is large enough to support all the current and many possible players in the market. The fact of the matter is patients will not use any CGM on a regular basis. This is not to say there is not a market for CGM rather the market is limited.
Recent buyers of Dexcom should give thanks for the rumor mill but shouldn’t overindulge.