DexCom Retained at Neutral - Analyst Blog

By Zacks | June 11, 2012 AAA

We remain Neutral on DexCom (DXCM). Its first-quarter 2012 loss per share of 21 cents exceeded the Zacks Consensus Estimate. Losses widened year over year despite solid double-digit revenue growth. Sales increased sharply 41.8% year over year to $20.1 million in the first quarter, narrowly beating the Zacks Consensus Estimate. Product sales jumped 42% to $18.6 million while development grant and other revenues were up 42.7% to $1.5 million in the reported quarter.

The diabetes market is large and growing. An important component of effective diabetes management is frequent monitoring of blood glucose levels. DexCom's product has a comparative advantage in terms of both patient convenience and quality of data generated vis-à-vis traditional diagnostic tests.

We believe DexCom is poised to gain a share of the glucose monitoring market driven by sustained product development initiatives, collaborations, favorable reimbursement and increased need for continuous glucose monitoring. Increased awareness and acceptance of the need for continuous glucose monitoring and more favorable reimbursement coverage should help drive sales for DexCom's products.

Other potential catalysts include the FDA approval and launch of new products under the company's collaborative agreements with several companies including Insulet Corporation. The company revealed that it filed for a pre-market approval (PMA) for its Gen4 sensor in the first quarter of 2012.

In addition to upgrading and enhancing the functions of existing products, DexCom has also been active on the collaboration front, through which it is looking to leverage its technology with its collaborator's product offerings.

We also feel that the company's move to buy healthcare IT company SweetSpot Diabetes may allow it to compete more effectively with Medtronic (MDT) through better data management systems. 

However, competition in the glucose monitoring market is fierce. Moreover, DexCom has incurred losses since inception and its efforts are made more difficult by a stringent regulatory environment. We are currently Neutral on the stock, supported by a short-term Zacks #3 Rank (Hold).

 
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