Dexcom Reports

Dexcom Reports

Dexcom (NASDAQ:DXCM) continues to deliver solid results as the company pushes forward upgrading their system and integrating their system with Animas and Insulet (NASDAQ:PODD) insulin pumps. It should come as no surprise that the business model for Dexcom is changing somewhat to a reimbursement rather than cash paying model. Nor should it surprise anyone that the difficult economic environment has not impacted Dexcom’s sales.

The real story here is actually simpler than most realize. First, Diabetic Investor sees Dexcom picking up sales as patients move off the Navigator and onto the Dexcom Seven. As Diabetic Investor has reported previously there have been a host of problems with Navigator and it wouldn’t surprise Diabetic Investor at all if Abbott (NYSE:ABT) just pulled the plug on Navigator. The company has already decimated the Navigator sales team shifting their focus to preventing further share erosion in the blood glucose monitoring unit.

Second, the company must deal with the realities of the hospital market as researchers and academics debate the benefits of the Portland Protocol. Based on a series of recent studies some have called into question the benefits of tight glycemic control, particularly in the ICU unit. What’s missing from this entire debate is the productivity benefits of using a continuous glucose monitoring system in a hospital. Diabetic Investor believes that as this issue is studied further an agreement will be reached as to where tight glycemic control fits in. No matter what protocol is adopted the fact remains hospital need a cost effective method for measuring glucose and CGM fits the bill quite nicely.

Third, even with reimbursement CGM will never reach non-insulin using patients and will have a difficult time reaching patients outside the multiple daily injection and insulin pump world. Further evidence of this came today when the company indicated in future generations of the system they may build in an automatic shut off feature so that patients cannot extend the life of their sensors as they are doing today. In only what can be characterized as a colossal blunder none of the current CGM systems on the market have this feature thus allowing the patient to extend the life if their sensors, which in turn decreases re-order rates. Diabetic Investor isn’t optimistic that any of the CGM companies could push this auto shutoff feature through as patients have learned they can easily extend sensor life without sacrificing accuracy. Needless to say this would be a very tough sell and not well received in the CGM community.

Finally, the end game here really hasn’t changed all that much as Dexcom will surely be acquired in the not so distant future. Given the dynamics in the insulin pump market it makes perfect sense that Johnson and Johnson (NYSE:JNJ) who also owns Animas could come in and buy Dexcom for a rounding error. They see their major competitor in insulin pumps Medtronic (NYSE:MDT) aggressively pursuing a closed system and frankly need their own system if they are to be successful in their quest to narrow the market share gap between Medtronic and Animas.

Much will happen before this event occurs however Dexcom’s future is predetermined.