More problems for Abbott, Score One for Dexcom

More problems for Abbott, Score One for Dexcom

This morning Dexcom (NASDAQ:DXCM) said a Delaware court has granted a stay in the patent infringement case filed against it by Abbott (NYSE:ABT). The court also dismissed a claim filed by Abbott seeking to add three additional patents to the lawsuit.

Undeterred Abbott has filed a separate action in the same court alleging infringement of three patents mentioned in the amendment.

Abbott is still waiting for the Food and Drug Administration (FDA) to approve their continuous glucose monitor, the Navigator. While the company still expects the FDA to approve the Navigator they will not comment on just when this might occur. One has to wonder just what is going on at the FDA. Based on the data from clinical trials the Navigator appears to be a fine device. Now that Abbott has dropped the replacement indication claim for the Navigator, FDA approval should have been a mere formality.

Currently Dexcom and Medtronic (NYSE:MDT) have the only FDA approved continuous glucose monitoring systems. Medtronic also has FDA approval for the Paradigm 722 insulin delivery system, which combines their CGM and insulin pump.

Although not currently aligned with a pump company Dexcom will soon be submitting their 7 day sensor to the FDA for approval. Diabetic Investor sees Dexcom as having a major advantage over Abbott as they are gaining valuable insight from their current customer base. Should the 7 day sensor gain approval, a likely outcome, this would be another advantage over the Navigator.

Even with these developments Diabetic Investor sees Dexcom shares in the high risk category. This is not so much a knock on Dexcom rather an assessment of the CGM market in general. After much hoopla when these systems were first approved reality is beginning to set in. Just as the BGM market is all about strip sales, the CGM market is all about sensor usage. Based on our interviews with current CGM users after an initial period of wearing the sensor daily, usage falls to one sensor per week. There’s also the continuing issue of reimbursement, something we do not see coming anytime in the near future.

Finally there is the issue over just who will use the product. Insulin pump patients are an obvious choice as are patients on multiple daily injection therapy, approximately 1.5 million patients. Initially DI believed there would be a 30% adoption rate without reimbursement. Based on interviews with CGM users, physicians and diabetes educators we are revising our estimate downward to a 20% adoption rate. This puts the total market potential at slightly above $500 million. Although $500 million is a nice size market no one is quite sure how long it will take to hit that number.

Looking towards the future we still see a takeover as the most likely scenario for Dexcom and Johnson and Johnson (NYSE:JNJ) as the most likely suitor. That is, of course, if the rumors of JNJ buying Medtronic turn out to be false. Should these rumors be true, JNJ would have no reason to buy Dexcom as they would then also own MiniMed. Interesting times indeed.

David Kliff
Diabetic Investor
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224-715-3761 mobile