Look, there are a lot of issues about this stock that I can't address from a business standpoint. But I am a 35 year Type 1 diabetic who has used a Dexcom for three weeks, and I can tell you what I see.
This is a life changing product. Five years from now, we'll look back and be appalled that we ever tried to treat a Type 1 diabetic without this. My average BS values have gone from about 180 (not good, but about average for a Type 1) to 127 (almost a non-diabetic range). I have more energy than I've had in twenty years. I have learned more about my diabetes by being able to actually see results than I have learned in the last thirty years, and I'm one of those guys who reads everything he can about diabetes.
I think the cost is greatly exageratted. I paid $500 for mine, and I'll pay $2000 or so for a year's worth of sensors (I use a 3 day sensor for 7 days with no problem. It actually gets more accurate with time.) Before Dex, I tested my BS 6-10 times a day (most Type 1's do about 4). Now I test 2-3 times a day to keep the Dex within calibration. Strips cost about a buck apiece. Of course, strips are covered by insurance, and Dex is not.
This is clearly a first generation machine, and the next machines (from Dex or others) are bound to be better. But the STS - right now, today - is a fantastic improvement in my life.
Hey, I test my blood sugars at least 5 times per day and I simply think that this product will have limited use. For clarification, I am a Type 2 diabetic, who uncharacteristicly tests frequently.
Now you want to know about people who need to poke themselves. First, let's get some terminology correct: people taking a liquid form of insulin use needles to administer their insulin, while people who monitor their blood sugars use lancets.
Thus, typically Type 1 individuals will take 3-4 injections of insulin per day to keep their diabetes under control. Now before taking their insulin, these people should test their blood sugars which corresponds to another 3-4 lances per day (pump users should test even more frequently).
So that makes 6-8 times these individuals should poke themselves. Hmmm, the average HbA1c is still in the 9% range when it should be in the 6-7% range. I wonder why that is? Maybe Roche, the market leader has a clue:
As it relates to people with Type 2 diabetes, forget about it. You can barely get them to test once a week.
Now as for Dexcom, I never said they didn't have a good product. I have only been pointing out the limited market (people who have hypoglycemia unawareness) for the device based on the labeling (adjunctive: don't adjust insulin without a traditional measurement) and the fact that immediate reimbursement is unlikely ($4-5 per year).
You do know that the Medtronic Guardian RT is reimbursed by 2 insurance companies? However, that reimbursement is for converting people onto the insulin pump. It use to take 2-3 months to figure the proper dosing with traditional meters. With the continuous monitor, that time has been reduced to a couple of weeks. Thus the reason why Medtronic paid $3B for MiniMed's pump business.
My only agenda is to keep people informed. I have never owned this stock; however, if it reaches the $8-10 range, I may consider buying some only because it would make an attractive takeover target. However, there is really only two possible suitors, Bayer and JNJ, as Abbott and Roche have their own products.
First, it will take at least $10-15M to get full-scale production up and running. If you think that it is any less, you are foolishly kidding yourself.
Second, for long-term stability of the sensor, 2-4 traditional measurements are recommended. In fact, Dexcom says that when you measure your blood sugar with the traditional meter to adjust your insulin levels, you should use that point as a calibration point. So, when they saying only 1 traditional measurement per day, that was the MINIMUM!
Learn about the product and how it works before you invest.
>>This is important because the amount of money is insufficient to... move into full-scale production.<<
Simply not true.
>>The fact that the device requires 2-4 traditional measurements/day...<<
Also, not true.
You talk nice but some of your facts are in error.
Reimbursement is going to take years, and the per-patient economics are not going to be as attractive as had been hyped because people are going to use infrequently once the novelty wears off. For example, according to Diabetic Investor:
Diabetic Investor has been following CGM technology as we believe it can be
a useful tool, especially for insulin using patients. As such, we have kept
in close contact with several of the early adoptors of CGM technology. At
first, these early adopters were like kids on Christmas morning, anxious to
play with their new toys. Many of the users reported having an almost
religious experience with their CGM. For the first time in their lives, they
had the ability to see how different food groups or activities affected
their glucose levels. Many reported that they had made changes to their
insulin regimen based on this data and as a result were achieving the best
control of their diabetes ever.
At the time, when asked how often they planned on using their CGM, almost
100% of those interviewed couldn�t imagine not using their CGM. (Note that
all of the patients interviewed were insulin pump patients.)
Diabetic Investor followed up with these patients just before, and at, the
ADA. When asked if they were still using their CGM regularly, the majority
said no. Asked why there was such a dramatic shift in usage, the most common
explanation was the patient had enough data. In essence, the patient had
built a database of information which combined with other factors such as
food intake and activity levels provided them with a comfort level so that
they had made the necessary adjustments to their therapy regimen.
Asked how often they planned on using their CGM in the future, the most
common response was occasionally. Pressing further to find out just what
occasionally meant in terms of how many sensors per month, the answers
generally fell into the 2 to 4 range. It should be noted that the cost of
the sensors and the fact that users had to bear the entire cost was a
contributing, but not the main, factor for the decrease in sensor usage. It
should also be noted that the majority of CGM users rated their overall
experience on the product as positive.
Based on these interviews, Diabetic Investor believes that a new CGM user
will wear the device daily for 30 to 45 days. Once a database of information
has been built, we anticipate patients using the device once a week. Based
on the current price of $35 per sensor, annual sensor revenue per patient
would be $1,680. Like the insulin pump market, new patients will generate
additional revenue as they have to pay the upfront cost of the transmitter
Stock will be at $5 very soon.
I think your analysis is spot on.... the company that comes out with a lower cost, accurate device that requires fewer calibrations will win the market. However, that's going to take a few more product itterations to achieve. I think the real challenge for Dexcom will be how to finance next generation device development to keep up with what is comming down the road in a few years when there are no profits or corporate partner...
There are several reasons why the stock is down 50%.
1) The revenues are going to take longer to generate than initially anticipated
2) There was an expectation that once Dexcom got approval and acquisition would be imminent.
3a) The secondary offering consisted mostly of preferred stockholders selling (of the ~$100M, Dexcom saw only about $30M). This is important because the amount of money is insufficient to market the device and move into full-scale production, in the short-term.
3b) The makeup of the secondary offering suggests that the preferred stockholders did not believe the stock had legs to hold up at $25.
4) The market for this device is limited, relative to the overall size of the market. This product is ideal for active insulin-using individuals. Unfortunately, that is only about 5% of the Type 1 population. That is why, even after 12 years on the market, there are only about 300,000 insulin pump wearers, worldwide.
5) People have realized that reimbursement will be an issue. Currently, most insurance companies are willing to pay for up to 10 strips/day. The two continuous meters will cost ~$4-5K/year. Then you need to add on the cost of 2-4 test strips/day to keep these systems calibrated. It is not very attractive, financially, to the insurance companies to reimburse.
6) The fact that the device requires 2-4 traditional measurements/day eliminates the 75% of the market that don't test as frequently because of pain, blood, etc.
7) Dexcom is competing with Medtronic and soon Abbott. It will be difficult to compete with that marketing muscle.
Long-term, Dexcom will do fine. In fact, if it reaches the $10 mark, it is likely an attractive takeover target.