Dexcom Reports

Dexcom Reports

Listening to the Dexcom (NASDAQ: DXCM) earnings call this afternoon we began to feel like a fan of the Chicago Cubs. After several tough years the Cubs made it all the way to the National League Championship Series one step away from playing in the World Series. Over the off season the Cubs made several notable moves and are currently the odds on favorite not just to make it to the World Series but actually win the World Series. As it stands today on paper the Cubs look like the team to beat and their biggest problem isn’t the talent they have rather managing expectations.

This is exactly the problem facing Dexcom as the company continues to execute well, nearly doubling their patient base in 2015. The company is now profitable on a GAAP basis and their pipeline looks very promising. Like the Cubs they have assembled some excellent talent and their biggest obstacle is managing expectations. Also like the Cubs on paper Dexcom is the team to beat.

Another similarity between Dexcom and the Cubs is being the team to beat both have a huge target painted squarely on their back. Or put another way their competition won’t capitulate and will fight vigorously for the championship. The fact is the CGM market continues to expand and while this market is currently the domain of Dexcom and Medtronic (NYSE: MDT) everyone wants to piece of the expanding CGM pie.

As we noted the other day while the Dexcom system continues to be favored by both patients and physicians, Medtronic is closing the performance gap. Medtronic also has a distinct advantage given their dominance in the insulin pump market. As Dexcom noted today 65% of their installed user base are insulin pump patients. And while it’s true that Dexcom is partnered with Animas, a unit of Johnson and Johnson (NYSE: JNJ), Tandem (NASDAQ: TNDM) and Insulet (NASDAQ: PODD), the fact is the combined market share of these three insulin pump companies pales in comparison to Medtronic’s huge market share.

Where Dexcom has a notable and distinct advantage is their share of the patients who follow multiple daily injection therapy (MDI) and their partnership with Google Life Sciences, or whatever they are calling themselves these days. The simple fact is Medtronic, for the moment, does not live in the MDI world and is just beginning to take the Type 2 market seriously. Dexcom and Google understand that if CGM usage is to truly expand and continue to grow they must penetrate the Type 2 market and not just insulin using Type 2’s.

As we noted the other day and as Dexcom referenced during today’s call the American Association of Clinical Endocrinologists (AACE) recent consensus statement on glucose monitoring noted the importance of CGM. The fact is the diabetes community, thanks to CGM, is beginning to understand the importance of not just point to point glucose measurements but the role glycemic variability plays. The fact is, again as we have noted previously, while A1C may be the gold standard, it does not tell the entire story.

This is where the partnership with Google will truly pay off. Dexcom correctly understands that having an accurate, patient friendly, cost effective CGM is only one side of the story. Being the well-run company that they are they also understand that none of that matters unless all this data is relevant to the patient. That this data must be transformed into patient relevant, actionable information that ultimately leads to better outcomes. Given their expertise in data analytics Google is the perfect partner.

The only concern we have is why Google, who on every level seems to be very intelligent, partnered with our wine drinking friends in France. As well as Dexcom gets it and is extraordinarily well managed, Sanofi (NYSE: SNY) is clueless and is majorly mismanaged. But let’s not digress as even a company as well run as Google is entitled to make one or two mistakes along the way.

The simple fact is the CGM market is not unlike the battle going on between Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) in the diabetes drug market. A battle which we have described as a fight between two experienced heavyweights. The same can said about the battle going on between Dexcom and Medtronic, also two heavyweights. Yes, Abbott (NYSE: ABT) has the Libre and yes, Roche is about to enter this market as is others. Yet when compared to Dexcom and Medtronic these so-called competitors aren’t in the same league. The harsh reality is Dexcom and Medtronic are playing in the majors while everyone else is in the minors and quite frankly like the vast majority of minor league ball players they are unlikely ever to make it to the big leagues.

The lone question is can Dexcom continue to meet the exceedingly high expectations placed upon them. Can they, like the Cubs, take what looks great on paper and win it all. Being a life long resident of Chicago all we can say is that unlike the Cubs, who have broken the hearts of Cubs fans across the globe for last 100 plus years, Dexcom has broken no one’s heart.  This company clearly gets it, has the right management team in place and understands that the patient above all else comes first. Yes, they have a fight on their hands but it’s a fight they are very likely to win.

And one last thought as we don’t want to leave anyone with the impression that we are not rooting for the Cubs, we are. See we are White Sox fans, a team that has actually won a World Series in this century, 2005 to be exact. So it would be nice for the millions, perhaps billions of Cubs fans who have waited to party as we did back in 2005, that they get to celebrate this year. Let’s go Cubbies!!!!