The NEXT company in my on-going series of the top 25 stocks for the NEXT 25 years is DexCom, Inc (NASDAQ: DXCM). This San Diego, California-based company has the opportunity to address the millions of people that suffer from diabetes. DexCom manufactures a continuous glucose monitoring system, which is extremely user-friendly and helps improve the diabetics' quality of life.
DexCom's business model is the classic razor-razor blade. DexCom sells a wireless glucose monitoring device, for about $800 per unit. Because of the wireless component, the monitor is completely mobile with the patient and can even be hooked to a belt like a cell phone. The company also sells the "implantable" disposable sensors that the patients slip-in just under the skin. Each sensor is good for up to 72 hours. The sensors come in a five-pack and sell for about $175 a pack.
Patients no longer have to endure the painful finger prick to draw a minor amount of blood to detect their glucose level. Also, with the monitor and sensors, the readings are far more accurate and continuous so the patient can administer the necessary insulin at the precise time versus a bit of a guessing game.
The company has a market capitalization of $185 million and is not yet profitable. I expect sales to reach about $9-10 million this calendar year and a loss of about $1.30 per share. For calendar 2008 I estimate DexCom's revenues to reach $27 million and a shrinking loss per share of $0.80. The biggest issue facing DexCom is insurance reimbursement. Medicare, Medicaid and private insurers do not yet reimburse patients for the expenses incurred.
The company is lobbying the medical insurance systems for reimbursement. The Juvenile Diabetes Association has endorsed DexCom's products wholeheartedly and will lend its influence with the various federal jurisdictions.
As with most new medical device companies, the mega expense is the sales and marketing costs. The market needs to be seeded and the best way to accomplish this is with "feet on the street." The earnings leverage will come with revenue growth driving down the sales and marketing expenses as a percentage of sales. The second driver to accelerated earnings and revenue growth will come when reimbursement is no longer an issue.
DexCom is servicing a multi-billion dollar market, worldwide in scope with the most advanced product available. The razor-razor blade model will generate huge future operating margin. The best part of the DexCom story is the enhanced quality of life for the diabetic patient.
DexCom could be a top 25 stock for the NEXT 25 years with its leading medical technology.
Georges Yared is the CIO of Yared Investment Research.
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Reader Comments (Page 1 of 1)
6-13-2007 @ 1:20PM
Dexcom User said...
Hi Georges,
I'm with you on Dexcom, except you're a bit behind the times with their product offerings. Their new CGMS is called "SEVEN" and is a 7 day sensor that costs $60 each. It's hitting the market in a few weeks. Dexcom will retire the old 3 day sensors over the course of less than a year (according to their webcast conference call from Monday).
8-05-2007 @ 12:25AM
Ravee said...
Georges - Do you have any comments about the patent litigation between Dexcom and Abbott labs?