Back on June 13, I wrote about DexCom Corp. (NASDAQ: DXCM) as one of the top 25 stocks for the NEXT 25 years. The stock was just under $7 with a market capitalization of $180 million. Today the stock is at $9.61 with a market cap of $280 million. The shares have performed well these past two and half months, but the best is certainly yet to come.
DexCom is targeting the massive diabetic market of five million Americans who suffer from this disease. These patients need to monitor their blood glucose on a daily basis and treat it with injections of insulin.The methodology used by most patients is a painful pin-prick usually on a finger. The problem -- therefore the opportunity for DexCom -- is that the daily readings can be scattered and inconsistent. The readings depend on time of day and recent dietary intake. With DexCom, however, the reading is continuous and fluid during the course of a day, thus allowing the patient to self-administer insulin at the right moments. Plus, with DexCom, there is no painful pin-prick.
The stock has improved by almost 35% in the two and half months as the subject of managing diabetes is getting front and center attention. DexCom will probably be acquired in the next couple of years by a major diabetic player, perhaps Medtronic (NYSE: MDT). The beauty of a Medtronic-DexCom merger would benefit the patient population immensely as Medtronic has superb relationships with both private insurers and Medicare/Medicaid. Currently, DexCom's continuous glucose monitoring equipment is not reimbursable.
Medtronic has developed an insulin pump that can be inserted just below the skin surface. Coupled with DexCom's monitoring system, the total solution could be available to the patients from one source. With Medtronic's massive distribution-sales force, the reimbursement issue would be addressed quite quickly.
I hope DexCom has the opportunity to become a multi-billion company with an even more impressive multi-billion dollar market cap. However, if patient relief and efficacy can be delivered in a better, quicker fashion through an acquisition by a major medical device player like Medtronic, that would be a better outcome. I can find a replacement company to take DexCom's place on the list of 25 stocks for the NEXT 25 years.
Mind you, if Medtronic or another major device company were to acquire DexCom, it would be at a significantly higher price than the current $9.61.
Georges Yared is the CIO of Yared Investment Research and the author of " Baby Boomer Investing...Where do we go from here?"
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Reader Comments (Page 1 of 1)
9-26-2007 @ 10:09PM
elnj said...
Since Medtronic has their own competing glucose monitor (http://www.minimed.com/products/guardian/), with versions that work with their pumps or stand-alone, it doesn't seem like they have much incentive to acquire Dexcom. Maybe another pump maker might consider it, but not Medtronic.
9-27-2007 @ 9:18AM
Bernard Farrell said...
As a Dexcom user, and someone who has already profited from the stock uptick, I'm very positive about this company.
I think we'll see continuous glucose monitoring become the replacement for blood glucose tests as more people realize the benefits and as more papers are published that demonstrate them. Dexcom is also looking to move into the critical care area in hospitals. I think that could save money for insurers, improve patient outcomes, and dramatically increase sales for Dexcom.
I'm committed to them for the long term both as a user and a part owner.
http://bernardfarrell.com/blog/blogger.html