Over the past five years, diabetes-focused medical device specialist DexCom (DXCM 0.58%) has made meaningful progress on several fronts. The company launched new products in the continuous glucose monitoring (CGM) niche and entered new geographies. Its revenue has generally increased at a good pace on a year-over-year basis.
However, after a recent plunge, DexCom has underperformed the S&P 500 in the past half-decade. Can DexCom turn things around? Let's see how things could evolve for the healthcare company through the next five years.
NASDAQ: DXCM
Key Data Points
The existing CGM market
CGM technology, which allows diabetes patients to track their blood glucose levels efficiently throughout the day, has been linked with better outcomes. As clinical evidence has piled up, third-party payers have been more willing to cover CGM technology. However, the percentage of people using CGM continues to trail the population that is covered, even in the U.S. According to some estimates, about 2.4 million Americans use CGM monitors even though the covered population is about 7 million.
Assuming the CGM population will peak at 70% of the total of patients who currently benefit from coverage, or roughly 4.9 million, we can expect DexCom to make significant headway in the next five years. But that's an incomplete way to tell the story. We should also expect DexCom's addressable market among people who are covered to increase.
There are more than 25 million diabetic people in the U.S. who are at risk of hypoglycemia. While no one wishes for that situation, many will progress, making them eligible for CGM coverage and increasing DexCom's addressable population -- and that's only in the U.S. There's plenty of room to run in many other countries, too.
So, in the next half-decade, more people will likely adopt CGM technology, leading to decent revenue growth for the company, just as in the past five years. And in the meantime, the covered population will grow.
DXCM Revenue (Quarterly) data by YCharts.
Expanding its reach
Since 2019, DexCom has launched new products like the DexCom One and the G7; it's also expanded into new territories, including its grand entrance into Latin America via Argentina in 2023.
More recently, DexCom launched Stelo, an over-the-counter CGM option for type 2 diabetes patients not using insulin, and for people with pre-diabetes. We can expect much more progress of this sort through 2029.
The company will almost certainly enter new countries. The global diabetes market is incredibly vast -- roughly half a billion adults around the world have the disease, but just 1% of them have access to CGM technology. Most people with diabetes live in less-developed countries where DexCom doesn't do business -- yet. It's hard to predict how many countries it will have operations in by 2029, but the number will almost certainly be larger than now.
DexCom should also launch newer products. Stelo was a good start, but its main competitor, Abbott Laboratories, now has two over-the-counter CGM options in the U.S., including one for people who aren't diabetic or pre-diabetic. There's a good chance DexCom will follow the same path and continue its fight for dominance with Abbott in this market.
Why the future is bright
DexCom's recent plunge happened after its second-quarter earnings release, as the company discussed several headwinds, including higher rebate eligibility than it expected. However, its prospects remain strong. The global potential for CGM use is enormous, and the company should make a significant move to deepen its position in this market in the next five years.
Furthermore, DexCom benefits from the network effect, as its technologies are compatible with a number of devices and third-party apps. The more its installed base grows, the more attractive its ecosystem becomes to manufacturers of diabetes-related devices that might want to pair up with CGM makers. This should allow the company to remain a leader in this market for a while.
All these factors could lead to strong returns for DexCom and its shareholders over the next five years and beyond.
