EUR 850.00 For Business Accounts Only

Morningstar | Raising Our FVE for Dexcom on More Optimistic Profitability Projections, but Still No Moat

Despite Dexcom’s well-established track record for introducing the most precise sensors for use in its continuous glucose monitors, the firm’s main focus on enhancing accuracy of its CGM performance may not be enough to fend off competition. On the strength of its technology, Dexcom has captured an impressive slice of the CGM market. However, Dexcom contends with several factors that have historically hindered its ability to expand the CGM market, which we view as the bigger opportunity. Moreover, tougher competition from Medtronic and Abbott could hurt Dexcom further.The use of CGMs has largely been centered among Type 1 diabetics, where penetration has been estimated around 20%. This is partly related to the greater need for this patient pool (versus Type 2s) to keep closer tabs on blood glucose readings. Similarly, payers have been reluctant to expand reimbursement beyond the Type 1 population, which has meant Dexcom faces an uphill battle to expand into the Type 2 market.Both Abbott and Medtronic have introduced meaningful innovation in this realm that we think could sway patients away from Dexcom. Abbott’s Freestyle Libre Flash is significantly more user-friendly and is aggressively priced. We expect this product will make substantial inroads with the Type 2 population. Medtronic’s new 670g insulin pump automates much of the insulin delivery and comes with its own integrated CGM. These new competitive features could outweigh the improved accuracy, stick-free feature, and sensor life in Dexcom’s new G6 next-gen product for some patients.But, Dexcom does have a few factors working in its favor. First, the precision of its CGM remains materially better than competitive products. Second, the firm has established Medicare reimbursement for its G6 CGM on the basis of that accuracy. Further, Dexcom's G6 incorporates some of the latest features including factor calibration. Finally, Dexcom’s alliances with Tandem, Insulet, and Verily (Google’s healthcare incubator) provide opportunities for the firm to, potentially, generate some disruptive technology of its own.