What happened

After second-quarter sales and earnings outpaced industry watchers' expectations, and newly launched products drove optimistic demand-growth projections, shares in DexCom Inc. (DXCM -1.05%) skyrocketed 51.8% in August, according to S&P Global Market Intelligence.

So what

DexCom is a leading manufacturer of continuous glucose monitors (CGM) that are used by diabetes patients to better monitor, and thus control, their blood sugar levels.

A person in a lab coat writing the word diabetes.


The company, which launched its latest CGM, the G6, late last quarter, delivered a market-moving second-quarter earnings report. Sales came in at $242.5 million, up 42.1% from last year and ahead of analyst projections by $36.8 million. Because of the better-than-hoped revenue, DexCom's non-GAAP quarterly loss was just $0.10 per share, which was $0.08 better than Wall Street was modeling.

The performance caused DexCom's management to increase its full-year sales guidance to "approximately $925 million," up from prior guidance for between $850 million to $860 million. 

Now what

Last year, competitor Medtronic ushered in a new era in blood glucose control when it launched the MiniMed 670G, the world's first artificial pancreas system. Medtronic uses its own CGM in its system, but competing systems incorporate DexCom's CGMs. In June, Tandem Diabetes (TNDM 16.52%) secured FDA approval for a solution that pairs its insulin pump up with the G6. Insulet (PODD -6.56%) and Eli Lilly & Co. (LLY -0.01%) are in late-stage studies of their own systems that rely upon DexCom's CGMs, too.

Automatically monitoring and dosing insulin is a significant advance in diabetes treatment that could drive DexCom's revenue and its earnings considerably higher over the coming years. DexCom's sales could also increase because of next-generation CGMs it's developing in collaboration with Verily, a healthcare company that's backed by Alphabet

Diabetes prevalence is expected to soar in the coming decades, and new products, including CGMs and automated insulin systems, that can help delay progression toward life-threatening conditions, such as heart disease, could play an increasingly important role in treatment. It's possible that DexCom's recent rally may be only the beginning of what is a much larger, multi-decade run higher.