Alright Alright, No offence to the board regulars, but this talk is getting a little too "trader" for me and not enough details. Here we are a week after FDA approval and we haven't had any talk about the realisticness of a product.
In the past I have already tanked two investment accounts by getting excited about the hype. Since then I have learned that this is not for me. I buy something I think will double in the next year or two and move on after that. I lost on great stocks because I tried to play them for the daily profit.
At this point of time Dexcom is an industry leader, not because they are good at what they do, but because they are the only one that does what they do. Call your local doctor and see how he feels about the technology. I have.
First let��s talk about the marketability. By the time one of the 13 Million+ Diabetics in the US alone buys a year��s supply of blood sugar test strips and a decent monitor, the price of the STS is equivalent. The only problem is that, to my knowledge, no insurance company has picked up the STS in it's coverage, but give it another month. The idea of trending blows doctor's minds; especially the automatic alert function. This is the only product that does this. Think of it as a check engine light on a car. You can do it the old way (prick your finger) and pull over your model A ford and physically take the temperature under the hood with a thermometer every 3 hours, or you can do it the new way (STS) and be cruising around town with the radio on and instantaneously give you the temperature at any instant throughout the course of the day from the driver seat or a audible alarm and warning light turns on when the temp crosses a predetermined threshold. The difference is night and day. Drive to work tomorrow without looking at your speedometer and tell me how fast you think an insurance company would pay to add one to your car.
Now let��s look at profitability. There are 13 million diabetics in the United States alone. Neglecting possible profits on the meter itself, it is easily plausible for Dexcom to sell peripherals such as a replacement sensor or ��waterproof shower film�� for 1$ profit a month. Next say that only 1/3 of all diabetics use the industry leader in monitoring. That leaves 4.33 million devices profiting 12 dollars a year�K. Or a projected 52 million in profit yearly on peripherals alone. This is ironically 1/10th of today��s closing market cap. In today��s market a P/E rating of 10 is standard and earnings (the E in P/E) is income, not profit. Remember, the idea of stocks are that they pay dividends based on profit, maybe future or current�K you can tell yourself that stocks go up because an analysts thinks it should, but he makes his decision based on future profitability of holding the stock based on a required return from dividends or other economic advantages of owning the stock.
Now let��s looks at research. Being the fact that continuous monitoring is an entity all in its own, things that before were pipe dreams are now possible. Imagine the developments in insulin that can occur over the next year. With a continuous monitor we can learn the effectiveness curves of different insulins over different lengths of time. Kind of like how some headache medicines work fast or last longer, it will now be easier to take these recordings. Let��s also talk about automatic pancreas. In my example before with a speedometer (instantaneous results) the automatic pancreas would be cruise control. Almost all of the required parts have been made. Between the insulin pump (letting off the gas) and the STS (the speedometer) all that we need is an acceleration pedal (sugar intake, could be as easy as a buzzer to tell patient when to eat, or could be a condensed serum applied intravenously by this device. The control software (brains of the cruise control) has already been defined by insulin pump manufacturers, or it could be preloaded with generics based on weight, gender, and height and learn based on reactions of the individual. It is taking instantaneous readings�K. I bet more than 1/3 of all diabetics would let someone profit more than 10$s a month if they weren��t technically a diabetic anymore. None of this could be done without the continuous monitor. (that is where you buyout advocates should be standing up clapping)
What about the other things?
Size of the STS is big, but Mores law = 60% smaller every year. This is just first generation�K how small will we get?
How well will an initial sales force of 20 do? Salesmen aren��t selling to individuals, they are selling to Drs.
What about glucose monitoring in sports training? Hell, we have all seen the Gatorade commercial where the guy falls down from dehydration�K imagine an optimal blood sugar level defined by a personal trainer for peak training
Does anyone here know anyone that has an STS today? Or have one themselves? I can only imagine that some have shipped already.
What is fundamentally wrong with this stock? (a response to this requires more than 4 letter words)
What else is going good for this stock? (a response to this requires the refrain from �� or <3)
That should get some comments flowing. I��ll be back.
You make some great points and some not so true points... but I generally like your message. The fact is that the day trading this thing is flat out silly. Maybe trade around your position, but these guys should get bought and don't get too cute and let some chart get you out the night that JNJ buys these guys for $30. DXCM cannot leverage their technology to the extent a JNJ, Roche, ABT even could, and the sale will take place. It's about the price.
MDT has a similar product that's available in select cities called the Guardian RT. So there is a competitor in MDT. Insurance you say will happen in a month - it will be around a year best case... it's a long arduous process, and to me that's the biggest overhang on the stock.
These guys don't make money on shower guards, they make money on the sensors. The sensors are $35 each and need to be replaced every 3 days. That's $350/month or >$4000/year per user. The device costs $800. It's expensive. I'm not even going to think of modeling down to earnings as you do but suffice it to say your #s and 10x multiple are absurd.
I think this is the biggest thing to hit Diabetes treatment in years. Do not underestimate the revenue power of this product or how important it is to the big hitters in med devices (as we know, blood glucose testing is a $6bn market/year!). But be realistic, valuation is decently rich - it's going to be a difficult ramp up for a small salesforce with no insurance coverage and a tough competitor in MDT.
I know that there were alot of flaws in my valuation, but I got someone talking more than just 4 letter words about the stock.
Something to keep in the back of your mind though, McDonald's main product is real estate, not hamburgers. In 1998 they owned more land than the catholic church on an international level. I don't know what the statistics for today are.
There is alot of money in peripherals just as the main source of income for traditional glucose readers is the test strips not the initial sale of the meter.
Simple math will tell you that at $4,000/year, every 1,000 individuals leads to $4M in revenues. There are approximately 200,000 pump users in the United States. Additionally, there are approximately 4M intensively managed individuals. It will all come down to reliability of this device. One of the failures of the Cygnus Glucowatch was its adjunctive or 'complimentary' nature.
The next two quarters tell everything for this initial product.