DexCom Reiterated at Neutral

We reaffirm our Neutral recommendation on DexCom Inc (DXCM), a prominent player in the continuous glucose monitoring market. Second-quarter fiscal 2010 loss per share of 20 cents matched the Zacks Consensus Estimate while revenues soared 75% year-over-year riding on solid product sales.

DexCom is a medical devices company focused on the design, development and commercialization of continuous glucose monitoring systems for ambulatory use by people with diabetes and by healthcare providers for the treatment of diabetic and non-diabetic patients.

We believe DexCom is well positioned to gain a significant share of the glucose monitoring market. The diabetes market is large and growing. An important component of effective diabetes management is frequent monitoring of blood glucose levels. DexCom’s product has a comparative advantage in terms of both patient convenience and quality of data generated vis-à-vis traditional diagnostic tests.

In addition to upgrading and enhancing the functions of existing products, DexCom has also been active on the collaboration front. The company is looking to leverage its technology with its collaborators − Edwards Lifesciences (EW), Animus, and Insulet.

Increased awareness and acceptance of the need for continuous glucose monitoring and more favorable reimbursement coverage should help drive sales for DexCom products. Other potential catalysts include the FDA approval and launch of new products under the company’s collaborative agreements.

However, we note that competition in the glucose monitoring market is intense with big names like Johnson & Johnson (JNJ), Medtronic (MDT) and Abbott Labs (ABT) accounting for a major portion of self-monitored glucose testing systems sales. Moreover, DexCom is still in the early stages of commercialization and it has incurred losses since inception. Our recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).

DEXCOM INC (DXCM): Free Stock Analysis Report

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