Following the third quarter earnings release, we are
maintaining our long-term 'Neutral' recommendation on
), a provider of continuous glucose monitoring systems, with a
target price of $13.00.
Even though the company's international expansion and pipeline
development remains on track, it remains a loss-making entity
which operates in a highly competitive landscape. DexCom missed
the bottom-line consensus for the fifth consecutive time in the
third quarter of 2012. Its loss per share of 25 cents was higher
than the Zacks Consensus Estimate of a loss of 22 cents per share
as well as the year-ago loss of 20 cents a share.
During the conference call, DexCom issued a ballpark estimate of
$89 million for full year 2012 revenues compared with the current
Zacks Consensus Estimate of $95 million for the 2012 revenues.
The company also asserted that it will continue to develop its
GEN5 system. The joint development of
) next-generation in-hospital glucose monitoring system is almost
complete and the company expects CE Mark approval in Europe
before the end of 2012.
Overseas territories contributed 10% to the company's product
revenues in the most recent quarter. We expect international
revenues to strengthen as DexCom ventures into new territories.
The company recently gained approval in Australia, while it
anticipates approval in Canada and India. DexCom also plans to
gain a foothold in other Asian countries like China and Japan.
The comparison of the exponential rise of diabetes in developing
countries to the fraction of the population using continuous
glucose monitors implies that the market for DexCom's products
remains largely underpenetrated in these geographies.
Last month, the U.S. Food and Drug Administration (FDA) cleared
DexCom's new continuous glucose monitoring system, the DexCom G4
Platinum. The company received the CE Mark for its G4 system in
June 2012 and already markets the product in the European Union
as well as certain Latin American and Asian nations where the CE
Mark is recognized. The commercialization of G4 in the U.S. could
just be the catalyst that the company needs to gain share.
On the flip side, DexCom faces aggressive competition from large
players with deeper pockets. The company competes with Roche
Diabetes Care, a division of
) and LifeScan under
Johnson & Johnson
) for its Seven Plus offering. Additionally,
) have gained FDA approval for continuous glucose monitoring
Moreover, reluctance on the part of physicians and patients to
adopt DexCom's products may make it challenging for the company
to expand share. This is mainly because the company's glucose
monitoring device is more invasive than other self-monitored
glucose testing systems. Additionally, manufacturing constraints
might hamper the supply continuum of the company.
We still believe that DexCom is poised to gain a major share of
the glucose monitoring market, driven by sustained product
development initiatives, collaborations and increased need for
continuous glucose monitoring. The stock carries a short-term
Zacks #3 Rank (Hold).
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