What happened

After a report was released by short-sellers last month highlighting threats facing the company, shares in DexCom (DXCM -0.51%) stumbled 14.5% in March, according to S&P Global Market Intelligence.

So what

DexCom's continuous glucose monitors (CGMs) help diabetics track their blood glucose levels better, reducing dangerous blood sugar highs and lows and potentially slowing disease progression.

A man stares at a chalkboard covered by drawings of money bags and question marks.


In 2018, DexCom sales soared 44% year over year to $1.032 billion following the launch of its latest system, the G6. In 2019, sales could be harder to come by, though, according to short-seller Spruce Point Capital Management. In a report released last month, Spruce Point said the launch of Abbott Labs' (ABT -0.84%) next-generation Freestyle Libre CGM and a maturing market among type 1 patients could cause DexCom to lose significant value.

Currently, DexCom competes against Medtronic's Guardian brand of CGMs and the first-generation Freestyle Libre, a CGM that, unlike DexCom's G6, still requires patients to prick their fingers during the first 11 hours of wear to confirm readings -- and doesn't include blood glucose high and low alarms.

Abbott's already next-generation finger-stick-less Freestyle Libre has launched overseas, and while there's no timeline for a potential launch in the U.S., an eventual release could challenge DexCom because G6 sensors are approved for only 10 days of wear, while Freestyle Libre's sensors can be worn for 14 days. The longer wear can reduce patient's costs, making it attractive to patients with limited insurance coverage for the G6.

Now what

In 2019, DexCom doesn't expect to deliver growth similar to 2018, but it's still targeting revenue to increase by 15% to 20% to $1.175 billion- $1.225 billion. DexCom's also said its plan is to grow sales at a compounded annual rate of 15% through 2023. 

Although more type 1 diabetics are using CGMs than ever before, the opportunity to penetrate the market for type 2 patients and others in need of monitoring, such as patients with gestational diabetes, is significant. Only 12.5% of the roughly 200 million people with diabetes worldwide achieve their desired blood glucose target.

The G6 is the only CGM to have secured an FDA approval for interoperability, so it stands to benefit from next-generation blood glucose control systems, including automated insulin devices from Tandem Diabetes and Insulet, and smart pen solutions at Eli Lilly and Novo Nordisk, the two largest manufacturers of insulin products. Tandem launched its first automated system last year; Insulet's system is expected next year; and Eli Lilly and Novo Nordisk's solutions are on deck.

Furthermore, DexCom could benefit from the anticipated launch of its G7 in 2020. Developed with help from Verily, a healthcare technology company spun off from Alphabet, the G7 is expected include a low-cost, disposable sensor that may allow DexCom to penetrate the type 2 market more effectively. 

The threat posed by Abbott Labs shouldn't be ignored, but the size of this market and the potential advances in the next 12 to 24 months could make buying shares on this sell-off wise.