Is it over?

Funny thing when a stock comes under a short attack it’s next to impossible to determine when the attack is over. As we reported Dexcom has come under attack, got hit pretty hard but has rallied recently. So the question becomes is the attack over or is this just a lull before the next salvo. Honestly, we have no idea but here is what we do know-

1. Our long-term outlook for Dexcom has not changed we continue to see a very bright future for the company.

2. As so often happens short attacks result in collateral damage and this time it’s no different as Tandem and Insulet also fell with Dexcom. They have since recovered and like Dexcom we have no reason to believe their future is any less bright.

3. A key date comes tomorrow when Abbott report results which if history repeats itself, and it usually does, Abbott will report solid results for Libre, Dexcom shares will fall and bounce back after they report in early May.

4. Our opinion of Medtronic’s strategy in the stand alone CGM market has not changed and we could care less how much money they throw at it. Their product is inferior and the all the money in the world won’t change that. They will attempt to make noise but it’s just a lot of hot air.

5. While everyone continues to focus on new patient adds we have begun transitioning our analysis of the CGM market from growth to reoccurring revenue.

It’s this last point that’s worth examining more closely. Those of us who remember the early days of the insulin pump market see several similarities between that market and today’s CGM market. Way back then it was all about new patient adds, getting as many patients on a pump as possible. As the market matured it became about client retention and reoccurring revenue.

The stand alone CGM market does remain a growth story i.e. new patient adds but already we are seeing signs that not all patient adds are equal. Put in simple terms it’s better to have 1000 patients who use the product continually then 2000 that use it occasionally or after trying the product stop using it.

Again going back to the pump market for a moment one reason Medtronic does so well is they aren’t reliant on new patient adds for success, these patients are just gravy on top of that goose that lays all those profitable eggs, their huge but dwindling installed patient base.

Here we see Dexcom having the stronger installed base over Abbott. This is important for several reasons not the least of which being it costs less to keep a patient than to add a new one. Way, way back in the hey day for BGM cost of acquisition (COA) was a key metric. This is the reason BGM companies wanted insulin using patients as given their usage they could quickly recover the COA and starting making a profit. Well it’s no different with CGM, there may be more non-insulin using patients, but simple math tells us insulin using patients are much more profitable.

Another area we have begun focusing on is what we will for now call ancillary revenue opportunities, revenue not from the sale of systems but generated from data and/or outcomes. A good parallel here would be Insulet. While the OmniPod is directed at patients with diabetes there are other uses for the product. Just as new patient adds are gravy for Medtronic so too is alternate uses for the OmniPod. This area will never generate as much revenue as diabetes but any revenue it does generate helps Insulet.

Both Dexcom and Abbott are accumulating a treasure trove of data. Data that is very valuable and will soon be monetized. They are also learning a great deal about patient behavior and habits also extremely valuable and also soon to be monetized. The best comparison here is easy think Facebook and Google who monetize the huge amounts of data they accumulate.

For the moment this market will remain a growth story this will get the most attention. However we are not just looking at today but tomorrow and beyond. As Momma Kliff used to say while it’s important to see what’s in front of you today remember it will soon be behind you and if you’re not prepared for the future, you’ll miss opportunities.