A Large-Cap Diabetes Stock That’s Growing Like Mad

It’s been quite entertaining lately to watch some Americans waddle around whinging about how oppressed they are, when it’s apparent that none of them have ever visited an actual dictatorship. In many of the 50 remaining dictatorships on this planet, people often starve, yet in the U.S. there seems to be too much food available. While it may not be the most obese country in the world, America still has some pretty portly people. Just over 36% of Americans are obese. Compare that to China’s obesity rate of 6.2%.

Big isn’t beautiful, big puts a tremendous toll on the healthcare system. In 2017, one in every four healthcare dollars was spent on treating people with diabetes. Recent research suggests that obese people are up to 80 times more likely to develop type 2 diabetes than those with a BMI of less than 22. According to the WHO, the worldwide prevalence of obesity nearly tripled between 1975 and 2016. As the world gets fatter and fatter, some companies are making a killing on treating diseases like diabetes. One of those is a life sciences company called Dexcom (DXCM).

The Rapid Rise of Dexcom

Last April, we published a piece on how An Artificial Pancreas for Diabetics is Almost Here. One of the companies we mentioned in that piece was Dexcom, and since that article their stock price has risen +254%, compared to a Nasdaq return of +30%, giving the company a market cap of $41 billion. That rapid rise in share price can be explained by the absolutely astonishing revenue growth the company has been realizing over the past nine years.

Dexcom’s revenue growth – Credit: Nanalyze

Dexcom is in the business of building and selling Continuous Glucose Monitoring (CGM) devices. Having to monitor glucose levels – also referred to as blood sugar levels – is something that every diabetic would be familiar with. A CGM solution involves placing a sensor on or in a patient’s body that then connects to a transmitter which continuously sends regular intervals of glucose readings to a receiver or compatible smart device via Bluetooth technology.

The Dexcom CGM sensor solution – Credit: Dexcom

The alternative would be for the patient to prick their finger to measure their glucose levels. Finger pricks are inconvenient, painful, difficult to use, and most importantly, they don’t provide sufficient information. Even if you test several times each day, it’s only a single blood glucose value at a single point in time.

Contrast the finger-prick data points to a continuous stream of data points from a CGM sensor and there is no comparison. Studies have shown that people with diabetes who intensively manage their blood glucose levels reduce the risk of complications by 76% for eye disease, 60% for nerve disease, 50% for kidney disease, and 42% for cardiovascular disease. Eventually, everyone will manage their diabetes using a CGM platform.

Competition and Market Share

Nearly 80% of Dexcom’s 2019 revenues ($1.16 billion) came from the United States. The below slide from a Dexcom 2018 Investor Deck implies that Dexcom had 400,000 U.S. patients using their devices at that time.

Credit: Dexcom

If we use revenue growth as a proxy for device growth, we then arrive at 829,440 patients using Dexcom devices today.

We can then look at Dexcom’s latest 10-K to get estimates of the number of people who use insulin to manage their diabetes. In the United States alone, there are an estimated 1.3 million people with Type 1 diabetes who must rely on frequent insulin injections in order to regulate and maintain blood glucose levels. Approximately 6.0 million Type 2 patients must use insulin to manage their diabetes. Let’s call this a total addressable market of 7.3 million patients. This means that Dexcom would have an estimated 11.36% share of the market right now. Still loads of room for growth which is why they’re not the only dog in the race.

The Competition

In the 10-K Dexcom lists out their competitors as follows:

We compete directly with the Diabetes Care division of Abbott Laboratories; Medtronic plc’s Diabetes Group; Roche Diabetes Care, privately-held LifeScan, Inc.; and Ascensia Diabetes Care, each of which manufactures and markets products for the single-point finger stick device market. Collectively, these companies currently account for the majority of the worldwide sales of self-monitored glucose testing systems.

Credit: Dexcom

We need to think beyond CGM and envision a future where all diabetics wear a CGM along with a pump that dispenses insulin – in other words, an artificial pancreas. Dexcom goes on to talk about “agreements with Eli Lilly, Insulet, Novo Nordisk and Tandem Diabetes, to integrate our CGM technology into their insulin delivery systems.” One company they don’t have an agreement with is Medtronic (MDT).

Dexcom vs. Medtronic

Last year we talked about how Medtronic, a $132 billion medical device company, expects the “artificial pancreas” to be a standard of care going forward. Since Medtronic is one of the three healthcare stocks we hold in our 30-stock dividend growth portfolio, we’re interested to understand how they’re being affected by Dexcom. It’s not good.

Medtronic took in $28.9 billion in 2020 revenues of which about 8.3% ($2.4 billion) came from their diabetes division which sells insulin pumps and CGM sensors.

Medtronic’s diabetes medical devices – Credit: Medtronic

Approved in 2018, the MiniMed 670G system seen above is the world’s first hybrid closed loop system to mimic some of the functions of a healthy pancreas, and it’s now being used by over 249,000 patients. Medtronic also offers their own CGM sensor called Guardian, and they’re developing a new one called Zeus (more on that in a bit).

Medtronic’s diabetes revenues in the United States for Fiscal Year 2020 were around $1.2 billion, down 10% from the year prior, with the company attributing this decline to the insulin pump business, competitive pressure, and everyone’s favorite excuse – the WooHoo Flu. While Medtronic’s diabetes revenues from the U.S. are declining, Dexcom’s are up 44% to $1.48 billion which means that Dexcom now generates more diabetes revenues in the United States than Medtronic.

There’s an article on Insulin Nation titled Can Medtronic Retake Automated Pump Market? in which author Sara Seitz, a diabetic herself, talks about how Dexcom’s calibration-free CGM sensor “is more accurate and longer-lasting than Medtronic’s Guardian sensor.” She mentions a competing insulin pump from Tandem (TNDM) which uses the Dexcom CGM stating, “Dexcom’s superior sensor tech is almost worth switching to in and of itself.” She then talks about how Medtronic’s new CGM device to be released next year, Zeus, is expected to be bridge the gap between their current offering and Dexcom’s devices. Medtronic may not be winning the CGM sensor fight but they sure need to win the insulin pump battle.

A MedCity News article last year talks about how both companies acknowledged each other at last year’s J.P. Morgan Healthcare Conference. Dexcom’s executive vice president of strategy and corporate development, Steven Pacelli, quipped “we honestly don’t see much of a standalone Medtronic presence in the CGM market.” Omar Ishrak, Medtronic’s CEO, didn’t dispute this stating “well, they are bigger than us and I’d like to see where we go.” The whole thing makes for a perfect HBS Case Study where all you aspiring MBAs can now tell us what happens next.

As long time shareholders in Medtronic, we’re just glad that diabetes is such a small part of their business in case things go pear-shaped – a good example of how diversification helps you sleep well at night.


The direct medical costs and indirect expenditures attributable to diabetes in the United States were an estimated $327 billion, an inflation-adjusted increase of approximately 26% since 2012. That number represents a great deal of cost savings that can be realized by managing diabetes better using technology. While you may look at Dexcom’s stock performance and think you missed the boat, they still appear to have plenty of growth and opportunity in front of them. Hopefully, Medtronic’s diabetes division can say the same.

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