% | $
Quotes you view appear here for quick access.

DexCom, Inc. (DXCM) Message Board

  • LookOutBelowww LookOutBelowww Jun 15, 2006 10:36 AM Flag

    Market Evaluation .vs. stock price

    I would like to revisit some previous number crunching I did previously. Everyone else here is all about hype and hoopla but no one has provided a sound evaluation of the worth of this company. If we look at historical price evaluations from within this industry we can see what a buyout from J&J, Abbott, or Medtronic might look like.

    We start our evaluation by assuming an average customer pays about $4,000/year for continuous monitoring throughout an entire year. Even though this product is not reimbursable this is taken into account and we know that SOME diabetics will pay this price to better control their disease.

    To be extremely consrvative, due to lack of reimbursement, lets assume only 1% of the 14.6 million diagnosed diabetics in the US use the Dexcom STS. This gives Dexcom 146,000 customers that pay $4,000 each. Total sales would be around $584 million/year. We know that J&J, Abbott, and Medtronic would be expected to pay about 5X sales, which is about $2.9 billion for such a company. How do we know this? Look at previous acquisitions within this industry. Abbott got Therasense for $1.2 billion, or 5X sales. J&J got Inverness for $1.3 billion, or 6X sales. Medtronic got Minimed for $3.7 billion, or 6x sales. With a pitiful 1% market penetration we see that Dexcom could be bought for about $2.9 billion which is 8X higher than their current market cap of $360 million. This doesn�t even consider the vast prospects of their implantable long term sensor and the Dexcom patent portfolio. This places the stock at about 8X its current value. This wont happen overnight but I am convinced we will see prices well above 60 and current prices will be seen as the buying opportunity of a lifetime.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • people did the same math on glucowatch. CYGN went from $1B market cap to 0.

      NTMD is another example, it had strong buys from many firms. they always have excuses for lower sales: free sampling, insurance coverage, etc. look at the chart of ntmd.

    • This analysis is flawed as continuous monitoring and the value of its every day use vs. sporadic use is yet to be established. The Inverness Medical, Medisense, and Therasense models are not applicable,also, as they represented innovative products within a mature market place with an established reimbursement path. Finally, MiniMed was hardly as profitable a company as any of the above meter/strip companies when acquired by Medtronic. The ongoing support, higher COGs, and reimbursement overhead costs, all will contribute to DXCM not operating on a similar business model as the meter/strip businesses. There is no question also, that DXCMs investment in sales and marketing will suck up precious resources which when acquired will be dispensed with as it directly overlaps with the acquirer's organization if already in the same space. Finally, competition between potential suitors is very likely, and this will inflate the price of the acquistion. So, while I think the analysis presented is flawed, I do think that the outcome will be that this niche player will warrant a price that will be in the $0.7 to $0.9 Billion range (see below). I believe that this may take place when the DXCM has done much of the work for establishing long term clinical value of sporadic continuous monitoring AND it has made an entry into the critical market with a solution for Tight Glycemic Control. When will this be? If Andy Rasdal is not talking about this latter market much, then you can be sure that it will be within 6 months, if IP and accuracy issues are clearly addressed. This is a BIG if, ofcourse. Any suitor will want to have this system be used in the critical care market in addition to the consumer market and will want the drive and motivation of the original team to address these issues prior to Andy's and the team's exit. On this basis, the acquisition price estimate will most likely include an earn out period with milestones. So unlike previous deals, the acquirer will demand the focus and commitment of the team to achieve the full valuation by meeting specific milestones, revenue, scale-up, and clinical acceptance and utility in the consumer and critical care markets.

      Do not expect the same scenario this time around. This is a different market and has different elements are at work.

    • You are using 'FANTASY' revenue for your Dexcom evaluation; this being your fantasy.

      When Abbott bought Therasense, and when J&J bought Inv, and when Medtronic bought Mini - the purchase amount was determined using market cap, not fantasy revenue.

      When each of these buyouts occured, the buying company gave the selling a small premium over their current market cap. Given Dexcom's current market cap at 350 Mil, Dexcom could be bought out at around 400 MIL if Dexcom stockholders are fortunate

      If folks that had to hold frozen stock from the last secondary offering sell off this month, Dexcom's market cap could quickly dwindle down to 250 or 300 mil; meaning Dxcm could easy be bought out at 300 or 350 mil.

      Even as Dxcm's market cap dwindles quickly, noone appears to be buying the company. I wonder how low a price a buying company might wind up getting

      I truly wish the best for shareholders but I don't want them in denial either

    • what about the comparison to the glucphage watch company ?how is this company differnt

    • Bad evaluation.

      First of all - estimating that 1% of diagnosed diabetics will buy this product is like estimating that 1% of all drivers will buy a Hummer

      Because there are vehicles that better meet consumer needs and that are more cost effective, consumers will purchase other products

      Secondly - pending patent infringement lawsuit(s) could make all this calculating a moot point.

    • That was a sensible evaluation, Lookbelow. I also ran some number before, and to summarise: I expect two scenarios: An acquisition right at above the billion dollar mark (if things go well with the dexcom's current product launch) or at 300 MM if the team does not really deliver the sales and marketing punch.

      Critical factors I see:
      1. Patent postion
      2. Accuracy/ product performance

      Commericalizaton success would be gravy, and improve the negotiation postion of the company, but would possibly not impact the value to the acquirer (which seems the dominant option)

      To me this is only going to be used among insulin users (which would be more than a third of the diabetics). This still translates to $2 BN+ in the current market dynamics.

      Based on current probabilities, the company should be worth between 500 and 600 MM- ($21-22) unless there have been developments in the IP and/or product performance area that I have not been privy to.

      I do think this is a good opportunity to buy, if you have a longer term (>6 mo) outlook. In the short term, the stock is going to be volatile as hell. In that case, it is better to look at technicals than at fundamentals. My opinion.

    • I think you should use the type 1 Insulin Dependant population as oppossed to the entire diabetic population. They represents 10 % of the 14.6mm total population. A relavant comparison model would be to look at pump adoption in the late 80's & early 90's when reimbursement was rare. I believe Mimimed captured about 6%-10% of the Type one market in its first 10 years.

    • Cramer pick not long ago at 22?

79.00+0.96(+1.23%)Jun 29 4:00 PMEDT