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Juvenile Market Opens For DexCom Device

Regulators have deemed DexCom Inc’s newest blood sugar monitor safe and accurate for children, opening an underserved — and lucrative — juvenile diabetes market for a company whose stock and revenue have already been ablaze this year.

Shares for DexCom (Nasdaq: DXCM) were trading around $14 a year ago; they’ve since tripled, with a recent high peaking above $42. Revenue swelled 69 percent to $157 million in 2013, and DexCom’s market cap has grown to $2.9 billion — making it one of San Diego’s most highly valued medical device makers.

The company builds continuous glucose monitors, or CGMs, that are primarily meant for those with Type 1 diabetes, formerly known as juvenile diabetes — a severe form of the disease that requires around-the-clock vigilance to manage blood sugar and medication levels. The company’s G4 Platinum monitor, on the market since late 2012, offers that by providing a steady stream of information through the course of the day that can alert patients if their blood sugar is too high or too low.

Until recently, these devices have only been approved by the Food and Drug Administration for adult use, so for several years DexCom has missed an important slice of the market — children. About 15 percent — or 450,000 people — of the 3 million Americans with Type 1 diabetes are under 18, according to the Juvenile Diabetes Research Foundation.

“They’re a huge population to address,” DexCom CEO Terry Gregg said. “But until now, we’ve had no real way to reach this particular generation of patients.”

Pricey Device Is Selling

The dearth of young customers doesn’t appear to have hurt the company’s growth, however.

DexCom was founded in 1999 and joined the Nasdaq in 2005 following a $56.4 million initial public offering. Its first continuous glucose monitor hit the market in 2006, bringing in $3.2 million in its first year of sales and $5.5 million in its second.

By 2013, DexCom posted $157 million in product revenue, which was up from $93 million in 2012. With the addition of the juvenile diabetes market in 2014, DexCom projects it will generate at least $205 million to $225 million, a 30 percent year-over-year increase. The company employs about 700 people now.

Such growth stems not only from the large volume of devices sold, but also their steep price. DexCom’s current generation of CGMs have two components: a digital receiver the size of a deck of cards and a glucose sensor inserted just under the skin. In 2013, DexCom sold 60,000 G4 Platinum receivers, which cost $599 apiece, according to a regulatory filing. It also sold 1.5 million G4 Platinum sensors, which cost $349 for a month’s supply.

Looking to Stick It to Competition

Hot sales trajectory aside, CGMs are a relatively new technology and have only recently gained wider acceptance among physicians and patients. The prevailing standard for glucose monitoring involves patients taking “finger-stick” blood tests at routine intervals throughout the day — an uncomfortable process that provides an incomplete picture of a patient’s health.

At present, however, even the new-fangled G4 Platinum monitor must be calibrated regularly against these finger-stick blood tests, so they continue to dominate the $10 billion global glucose monitoring market. The CGM market, by contrast, was worth about $195 million in 2012 and is expected to grow to $569 million by 2020, according to a recent report from Allied Market Research.

“We’re not there yet, but our ultimate goal is to completely replace finger-sticks and expand into that $10 billion market,” Gregg said.

CGMs are growing in popularity, but they remain expensive and out-of-reach for many patients. A growing number of insurers are providing coverage for CGMs, but it’s still a work in progress, Gregg said.

“One of the best things about this FDA approval is that it’ll help with insurance reimbursement, particularly for kids,” he said.

Focused on Continuous Monitoring

The only other player with FDA-approved wares in the U.S. continuous glucose monitoring market is Minneapolis-based Medtronic Inc. The company, a highly diversified medical device maker with a market value of $56.4 billion, has a large diabetes segment that develops insulin pumps, CGMs and therapy management systems.

While Medtronic (NYSE: MDT) doesn’t disclose sales figures for its CGM division, the U.S. performance of its diabetes segment declined 2 percent for the six months ended Oct. 25, 2013, bringing in revenue of $762 million, according to the company’s most recent regulatory filing. It said, however, that it expects increased sales in that division as it begins commercializing new CGMs and insulin pumps this year.

Despite Medtronic’s large size and global reach, Gregg said DexCom is ahead of the competition because its laser focus on the CGM market works to his company’s advantage.

“We’re not looking to diversify or pursue acquisitions. Our growth pathway is pretty spectacular as is,” Gregg said. “We need to stay focused. We still have a huge runway in front of us. And the phrase ‘replace finger-sticks’ is the mindset of every employee every day.”

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