Dial Up Profits With Wireless Diabetes Test Maker
By
Michael Brush
May
04 2005
When insiders buy during an initial public offering (IPO), it’s often a sign
you should, too. After all, it can mean bankers and management were careful
not to hand out too many options during the IPO process – so insiders have
to go to the open market like you and me to increase exposure to their
company.
Sure, this kind of buying can be a publicity stunt. But not when the numbers
are large enough. I think that’s the case with DexCom (DXCM),
a small company developing more convenient glucose monitoring systems for
victims of diabetes.
On the IPO in mid-April, two directors bought $438,000 worth of stock at
$12, according to Thomson Financial. Since then, the stock has slipped to
$10 – and it might even go lower for reasons we’ll get to in a moment -- so
you can get an even better deal than the insiders.
Wireless blood sugar tests
First, let’s take a closer look at what DexCom does, thanks to Tom Taulli,
an IPO expert who follows new public companies at his web site,
currentofferings.com.
DexCom is developing glucose monitoring systems that use wireless technology
to take continuous, real-time blood sugar level readings from sensors
planted in the body. The company has two versions in the works – one that
monitors for three days and another that can monitor for a year.
This could be good news for the 3.1 million people in the U.S. who suffer
from diabetes. And the potential market for DexCom should grow rapidly – in
part because of the aging of the population. Some medical experts believe
the number of people in the world with diabetes will double in the next
thirty years. The global market for diabetes-testing gear is expected to
increase more than 11% a year to reach $8.9 billion in 2008.
The obstacles
None of this means DexCom is a sure bet, of course, and you don’t have to
rush to buy the stock.
* For one thing, the company is still testing its products. The good news
here is that it might have enough data on its three-day system to support an
early application for approval within a few months. If so, approval -- and
sales -- may come within a year. An application on the second system won’t
come until 2006. This means approval and sales may not arrive for two years.
While this seems like a long time, keep in mind that milestone achievements
along the way can move medical device stocks even before final approval and
sales for products.
* Next, DexCom faces some formidable competition. Both Medtronic (MDT) and
the TheraSense division of Abbott Laboratories (ABT) are in the latter
stages of bringing real-time continuous glucose monitoring systems to
market.
* Finally, a start up DexCom is losing money. But DexCom outsources
manufacturing -- so at least there’s no huge drain on the treasury for
capital spending.
Bottom line: If they ever make it to market, DexCom’s devices should
make life a lot easier for people with diabetes. But DexCom still has a lot
of work to do before it sees substantial sales. This means you have to be a
buyer for the long-term, as with most stock selections based on the insider
signal. You can also be patient and wait for a good price. Just don’t wait
too long – since an application for its first device may get filed within a
few months.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in
any of the companies listed in this column. Mr. Brush is an independent
columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About
Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorIdeas.com
Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article.
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