Dexcom’s Hidden Value
“The brilliance isn’t the
technology, but the fact that we can use the technology to help physicians
practice evidence-based medicine,” says Wendy Everett, president of the
nonprofit group New England Healthcare Institute. This quote comes from an
article that appeared in today’s Wall Street Journal entitled “The Picture of
Health- With critical-care specialists in short supply, remote monitoring
offers a high tech solution.” The quote and the article it comes from perfectly
capture why Dexcom (NASDAQ:DXCM) has a very bright future.
Diabetic Investor has long maintained
that the hidden value in Dexcom’s future isn’t integrating their continuous
glucose monitoring system with Animas or Insulet (NASDAQ:PODD) insulin pumps. What
makes Dexcom so valuable is their hospital based system. Edwards LifeSciences
(NYSE:EW) has already recognized this value by partnering with Dexcom to
develop and market this system.
According to the article; “Remote
monitoring is offering a high-tech solution to the vexing problem facing a
growing number of hospitals: how to care for the sickest patients amid a
worsening shortage of intensivists, the critical-care specialists trained in
caring for life-threatening injuries or illnesses. Studies show that mortality
rates are 30% to 40% lower in hospitals where intensivists are providing
round-the-clock care to prevent complications and minimize errors, but only
about a third of patients in the ICU today receive care from an intensivist.
The federal Department of Health and Human Services projects that demand for
intensivists will continue to be greater than available supply in the next
three decades.”
Too much attention has been paid to
whether or not ICU patients in hospitals following the Portland protocol
actually see mortality improvements. Early studies appeared to indicate that
ICU units following this protocol achieved better mortality rates with the
additional benefit of shorter ICU stays. Follow on studies have yielded less
clear benefits. To Diabetic Investor these conflicting study results really don’t
matter all that much as the real benefit of a hospital based CGM system is cost
savings and increased productivity.
As today’s article accurately points
out there is a shortage of ICU personal and remote monitoring helps save lives
as well as lower costs. Remote monitoring, whether it’s done from a nurses
station located in the hospital or at an office building off-site, increases
productivity and lowers overall costs. With more hospitals adopting the
Portland protocol which calls for hourly glucose readings, the only
cost-effective method for obtaining this information is a CGM system and Dexcom
is leading the way.
Diabetic Investor has never believed
that any CGM system could succeed solely targeting patients with diabetes.
Frankly this market segment just isn’t large enough nor is it growing fast
enough to support the existing players in the business, let alone the many
companies seeking to enter this market. If a company is to succeed over the
long term they had to find new applications for their technology; applications
that came with higher reimbursement rates and broad appeal. This exactly what
Dexcom and Edwards has with their hospital based system.
While Dexcom has done a great job in
the diabetes market, they have done an even better job of taking what they have
learned from the diabetes market and applying this experience to develop a
system which has a much more lucrative future. It’s just a matter of time
before someone recognizes this hidden value which will make Dexcom shareholders
very happy.
