What happened

Shares of DexCom (NASDAQ:DXCM), a medical device company focused on blood glucose sensing, fell as much as 12% in early morning trading on Thursday. Investors are reacting harshly to the news that Abbott Laboratories' (NYSE:ABT) FreeStyle Libre System has gained coverage by Medicare and Medicaid.

So what

Dexcom's stock has been under a lot of selling pressure ever since Abbott won FDA approval for the FreeStyle Libre System in late 2017. The reason is that the Libre system does not need to be calibrated and is significantly cheaper than Dexcom's system. Those benefits have investors fearing that Dexcom's days of hyper growth are over.

Today's news only adds to those fears since DexCom's system was the only continuous glucose monitoring device that had previously secured Medicare coverage.

Given the update, it isn't hard to figure out why shares are nose-diving today.

A man looking at his laptop with his head in his hand.

Image source: Getty Images.

Now what

Does this news mean that DexCom's investors should be running for the hills? I don't think so for a few reasons:

  • Abbott's Libre system requires action on the user's part to get a reading. Dexcom's sensors, on the other hand, communicate directly with a smartphone or Apple watch. This makes the device far more user-friendly. 
  • DexCom only recently gained Medicare coverage, so this hasn't been a driving force behind the company's growth up to this point.  
  • DexCom has several exciting products in development that should enhance its competitive position once launched.
  • DexCom has been successfully competing against the FreeStyle Libre system in Europe for years. 
  • Worldwide usage of continuous glucose monitoring devices, in general, still remains quite low. That provides both companies with plenty of room for expansion.

Overall, today's update certainly isn't good news for DexCom's investors but isn't the end of the world either. Risk-loving investors might want to view today's drop as a chance to get in at a discount.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.