Zacks_Analysts' Blog : DexCom Remains Neutral - Analyst Blog

We reiterate our Neutral recommendation on DexCom (DXCM), a prominent player in the continuous glucose monitoring market. Second-quarter fiscal 2011 loss per share of 11 cents matched the Zacks Consensus Estimate. Net loss for the quarter narrowed roughly 37% year over year to $7.4 million owing to solid revenue growth.

Revenues skyrocketed 82% year over year to $21.4 million, mostly in line with the Zacks Consensus Estimate. Product sales catapulted 68% to $15.2 million.

DexCom is focused on the development and commercialization of continuous glucose monitoring systems for ambulatory use by people with diabetes and by healthcare providers for the treatment of diabetic and non-diabetic patients.

The diabetes market is large and growing. An important component of effective diabetes management is frequent monitoring of blood glucose levels. DexCom’s product has a comparative advantage in terms of both patient convenience and quality of data generated vis-à-vis traditional diagnostic tests.

In addition to upgrading and enhancing the functions of existing products, DexCom has also been active on the collaboration front, through which it is looking to leverage its technology with its collaborator’s product offerings.

Increased awareness and acceptance of the need for continuous glucose monitoring and more favorable reimbursement coverage should help drive sales for DexCom’s products. Other potential catalysts include the FDA approval and launch of new products under the company’s collaborative agreements.

We believe DexCom is poised to gain a major share of the glucose monitoring market driven by sustained product development initiatives, collaborations, favorable reimbursement and increased need for continuous glucose monitoring.

However, we note that competition in the glucose monitoring market is intense and DexCom faces stiff challenges from much larger players such as Johnson & Johnson (JNJ), Medtronic (MDT) and Abbott Labs (ABT). Moreover, the company has incurred losses since inception and is exposed to a strict regulatory environment. Our recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).