Shares of medical device company and diabetes specialist DexCom Inc. (NASDAQ: DXCM) slipped sharply Thursday morning, declining by more than 36% as of 11:50 a.m. EDT. This tumble stemmed from the FDA's approval of Abbott Laboratories' (NYSE: ABT) FreeStyle Libre Flash Glucose Monitoring System, which is the first continuous glucose monitoring device to not require a finger-stick blood sample for calibration. Patients using DexCom's G5 Mobile device, on the other hand, need to perform up to two finger-sticks per day for the purposes of calibration. Abbott's shares were up by more than 4% on the back of this positive regulatory development.
DexCom's stock has skyrocketed in the last few years because of its dominant position in the rapidly growing glucose-monitoring market. In fact, sales of its G5 mobile CGM were forecast to grow by another 25% to 30% this year after the Centers for Medicare and Medicaid Services ruled that the device was indeed " therapeutic ," and could therefore be covered under Medicare Part B. With the entry of Abbott's more user-friendly device, though, DexCom's blistering levels of growth may start to taper off.
Can Abbott's newly approved CGM device truly disrupt the market and steal a significant chunk of the market share away from DexCom? Based on the performance of DexCom's shares Thursday, the overwhelming sentiment among investors appears to be "yes," and I happen to agree with the market's initial assessment.
Unfortunately, DexCom is about a year away from bringing a similar no-calibration (and hence, no finger-stick) device to market, and that lag could spell disaster for the CGM specialist. A first-mover advantage, after all, should translate into a formidable economic moat against follow-on devices -- putting DexCom in a bad position. So while it might be tempting to grab some shares in the wake of this dramatic decline, I'd caution against it for the time being.
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