DXCM JPM研报
DXCM JPM研报
13 September 2013
Initiation
Overweight
Dexcom
DXCM, DXCM US
Price: $27.51
We are initiating coverage of Dexcom with an Overweight rating and $32 December
2014 price target. Dexcom is the leader in the rapidly growing market for continuous
glucose monitoring serving Type 1 and 2 diabetics. The stock has had a great run this
year, and while a better entry point would be nice, we simply don't see the event that
causes a pullback. We expect 2Q momentum to continue in 3Q13 and beyond.
CGM technology is approaching a tipping point, in our view, with Dexcom best
positioned. CGM has been available to diabetics since 2005, but we are only today
at a point where the technology is ready for prime time. Accuracy for G4 Platinum
is meaningfully better than the competition (primarily MDT), particularly in the
hypoglycemia range, and Dexcom in turn has seen its prescriber base expand
significantly to 6,000 physicians and educators in the last 6+ months, including a
step-up in scripts from the general practitioner as patients are asking for the product.
This is a large, underpenetrated market, with CGM used today by only 7% of
Type 1 diabetics and well under 1% of Type 2s. Our latest physician survey and
recent interviews with key opinion leaders point to continued strong growth for
CGM, with Dexcom the leader. Penetration today is comparable to where insulin
pumps were in 1999, and if we use the insulin pump adoption curve (1999-2005) as
a guide, we arrive at a 2018 market potential of $1.5B. Our current forecasts are
lower, but likely to prove conservative given recent technology leaps and
reimbursement strides for CGM therapy.
Reimbursement has improved significantly over the last several years, both for
Type 1&2. Humana recently updated its CGM coverage to include all insulin-using
Type 2 diabetics, opening a big opportunity for Dexcom. We expect other payers
will follow, representing a population that is ~2.5x the size of Type 1s in the US.
We also see market expansion for Dexcom from a pediatric indication (YE 2013E)
as well as sensor-augmented pump partnerships with Animas and Tandem (2014+).
AC
(1-617) 310-0740
[email protected]
Michael Weinstein
(1-212) 622-6635
[email protected]
Bloomberg JPMA WEINSTEIN <GO>
Christopher Pasquale
(1-212) 622-6590
[email protected]
Ross Comeaux
(1-212) 622-1895
[email protected]
J.P. Morgan Securities LLC
Price Performance
28
24
$ 20
16
12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Abs
YTD
98.6%
1m
0.4%
3m
0.4%
Rel
78.6%
0.9%
-7.4%
12m
100.4
%
76.3%
2012A
2013E
2014E
2015E
(0.21)
(0.21)
(0.25)
(0.12)
(0.79)
-0.81
(0.16)A
(0.14)A
(0.11)
(0.07)
(0.48)
-0.52
(0.10)
(0.10)
(0.03)
0.04
(0.20)
-0.17
0.18
0.14
Company Data
Price ($)
Date Of Price
52-week Range ($)
Market Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End Date
27.51
12 Sep 13
28.48-12.03
2,009.61
Dec
73
32.00
31-Dec-14
Kimberly Gailun
(1-617) 310-0740
[email protected]
Table of Contents
Investment Thesis ....................................................................3
Risks to Rating and Price Target ............................................4
Company Description ..............................................................5
Company Overview ..................................................................6
The Diabetes Epidemic............................................................................................6
Models .....................................................................................29
Kimberly Gailun
(1-617) 310-0740
[email protected]
Dexcom, Inc
(DXCM)
Overweight
Investment Thesis
CGM Adoption Is Approaching a Tipping Point; Dexcom Best Positioned
Continuous glucose monitoring devices have been available to patients since 2005,
but the technology is just now approaching a tipping point for adoption, in our view,
with improved accuracy, comfort, and reimbursement. Dexcom is the technology
leader with the G4 Platinum sensor and is seeing an increase in the depth and breadth
of its prescriber base, with patient referrals now driving prescriptions from the GP (in
addition to endocrinologists). Competition will likely intensify, but we think Dexcom
remains the technology leader and see room for multiple players to succeed in this
market.
Large Underpenetrated Market Opportunity
CGM today is used by ~6-7% of Type 1s in the US and well under 1% of Type 2s.
We forecast CGM moving to 16% of Type 1s by 2018, but note that using the insulin
pump adoption curve as a guide would imply CGM penetration closer to 20% come
2018. Couple this with incremental penetration into the Type 2 market, and we see a
market potential of $1.5B+ in the next 5 years. We think Type 1 CGM adoption
from here can progress more quickly than pumps given: (1) protection against
hypoglycemia; (2) physician feedback suggesting CGM will play a bigger role;
(3) low penetration for non-pumpers (~2%); and (4) the potential for Animas and
Tandem to expand this market with DXCM.
The Market Is Getting Bigger: Reimbursement Opens Doors for Type 2
Humana (6.7M lives) recently updated its CGM coverage policy to include all
insulin-using Type 2 diabetics, a huge step forward for access to CGM therapy in the
US. The line is blurring between Type 1 and Type 2 diabetics, and it is getting easier
for Type 2 patients to use CGM. If Dexcom and other CGM players are successful in
moving the market toward a CGM First model, the size of the Type 2 market (28M
people in the US, 10-15% dosing insulin) creates a multi-billion dollar opportunity
for CGM players. Lastly, CGM usage amongst pediatric patients (20-25% of Type
1s) is low, but a pediatric indication for G4 Platinum with better accuracy in the hypo
range represents a real opportunity.
Kimberly Gailun
(1-617) 310-0740
[email protected]
Kimberly Gailun
(1-617) 310-0740
[email protected]
Company Description
Dexcom is a San Diego-based manufacturer of continuous glucose sensors for Type
1 and Type 2 diabetes patients. The companys primary market today is in personal
use for Type 1 patients, which we estimated is about 7% penetrated by continuous
glucose monitoring (CGM). Having said that, insulin-dependent Type 2 patients are
moving toward more intensive management, particularly as reimbursement and
awareness improves. Dexcom was founded in 1999 and launched its first sensor
product (the STS, first generation) in 2006. Since that time Dexcom has marketed a
series of glucose sensors and today sells its G4 Platinum sensor, which is the most
accurate sensor on the market.
Dexcom shares the personal CGM market primarily with Medtronic's MiniMed
division. The company has developed partnership agreements with Animas (part of
J&J) and Tandem Diabetes (private) to integrate its CGM technology into insulin
pumps, with the Animas product (Vibe) currently approved in Europe. Dexcom also
has a partnership with Edwards Lifesciences in the critical care space. Dexcom is
working through clinical data to spread the message of CGM First, with the idea
that informed insulin delivery is crucial to better management of the disease.
Kimberly Gailun
(1-617) 310-0740
[email protected]
Company Overview
Dexcom was founded in 1999 based on the research of two physicians, doctors
Updike and Hicks, who in 1967 published research on implantable glucose sensors
that measure the concentration of glucose in the body. In 2004 the companys first
sensor project (STS) began and in 2005 Dexcom completed its initial public offering,
listed on the NASDAQ as DXCM. Dexcom introduced its first continuous glucose
sensor in 2006, which was a 3-day sensor. In 2007 the company launched its Seven
(7-day) sensor, which was followed in 2009 by the Seven Plus system launch (Gen
3). In late 2012 Dexcom received FDA approval for its current sensor technology,
the best-in-class G4 Platinum. G4 Platinum is a brand new system that includes:
(1) improved accuracy and reliability; (2) smaller size with patient friendly features;
(3) open architecture (facilitating pump partnerships); and (4) advanced membrane
technology with less immune responsiveness.
Dexcom has a best-in-class management team, dating back to the 2007 hire of Terry
Gregg, former president and COO of MiniMed (now part of Medtronic), to the CEO
seat. This was a transformational hire for Dexcom, with Mr. Gregg recognized as one
of the most influential executives in the diabetes community. Mr. Gregg then hired
former MiniMed CFO Kevin Sayer in 2011, who currently serves as Dexcoms
President and Chief Operating Officer.
Kimberly Gailun
(1-617) 310-0740
[email protected]
While our market models project a current market of $350M, moving to nearly
$900M by 2018, we think these estimates are likely to prove conservative. If we
apply the US insulin pump adoption curve to CGM, CGM therapy today is at about
the same penetration level for Type 1 as insulin pumps were in 1999. If we just
assume that CGM follows the same trajectory, Type 1 penetration in 2018 would be
closer to 20% versus the 16% we model. We also note that the Type 2 opportunity is
becoming more real for CGM, which was not the case for pumps in the late
1990s/early 2000s due to both reimbursement and applicability. If we instead assume
CGM at 20% of Type 1s in 2018 (versus our current 16%), as well as a modest step
up in Type 2 usage, we arrive at a 5-year market opportunity of $1.5B+. Dexcom
generates ~$2,400 per patient annually, which we expect to hold on the Type 1 side.
Lower sensor usage is likely for Type 2s, and for this group we use per patient
revenue of $1,500/year.
Kimberly Gailun
(1-617) 310-0740
[email protected]
2013E
7%
8%
1%
2014E
8%
11%
3%
2015E
10%
13%
3%
2016E
12%
16%
4%
2017E
15%
17%
2%
2018E
16%
19%
3%
2019E
17%
22%
5%
2020E
18%
23%
5%
The insulin pump adoption curve suggests current CGM market estimates will
likely prove conservative over the next 5-7 years. As mentioned, CGM adoption in
the US today is about where insulin pumps were in 1999 at ~7%. MiniMed brought
the first insulin pump to market in the 1980s, but the early pumps were inaccurate
and very difficult to use. Insulin pumps became smaller and smarter in the 1990s but
still had accuracy shortcomings which limited adoption. In the late 1990s/early
2000s, insulin pump technology improved meaningfully led by MiniMed, which
was acquired by Medtronic in 2001. It was a combination of technology
improvements, improved reimbursement, clinical data and marketing that took
insulin pump penetration from 7-8% in 1999 to 17% in 2003 and 19% in 2004. If the
US CGM adoption curve were to follow the same trajectory as insulin pump
therapy over the next four years, the market would reach nearly 20%
penetration by 2018, ahead of the 16% we currently model.
Kimberly Gailun
(1-617) 310-0740
[email protected]
strides with G4 Platinum with improved accuracy and reliability, smaller size, and
improved transmitter range.
Endocrine Group recommendations favor CGM
In October 2011, the Endocrine Society updated its recommendations for CGM
(published in the October 2011 issue of the Journal of Clinical Endocrinology and
Metabolism). The society recommendation suggests the use of approved CGM
devices for detection and management of hypoglycemia, even if on an intermittent
basis. It is suggested that: (1) Type 1 patients age 8+ years with A1c <7% should use
CGM to prevent hypo events; and (2) all Type 1 patients with A1c of 7% or more
should use CGM on a near daily basis to maintain target glycemic ranges.
CGM First: Where have you been and where are you going?
Continuous glucose monitoring is important because it shows high and low glucose
levels that might otherwise be missed by intermittent finger stick testing. While the
lowest hanging fruit for CGM in some respects has been insulin pump users (just
under 30% of Type 1 diabetics in the US), we believe the CGM opportunity is
bigger, with all diabetics particularly those taking insulin benefiting from more
informed insulin delivery. Dexcom, with the G4 Platinum, is delivering the message
of CGM First, changing the behavior patterns of physicians who might previously
have naturally migrated to pump therapy first. The company has pointed to good
early success with this campaign based on increasing awareness of the G4 Platinum
sensor performance, and we see further headway with the generation of: (1) clinical
data showing the efficacy of CGM with various insulin infusion regimens (multiple
daily injections, insulin pump); and (2) cost effectiveness data.
Dexcom sensors are a key component of artificial pancreas projects
The Holy Grail in diabetes management remains a closed loop system or artificial
pancreas. This years ADA meeting in June featured a notable increase in early data
on such systems, following FDA's issuance in early 2012 of draft guidance for
artificial pancreas programs. While these types of systems, such as the Bionic
Pancreas project at BU/MGH in Boston, are still in early development stages, we
are seeing proof of concept in humans, which is encouraging. Medtronic hosted inbooth presentations on the Pathway to the Closed Loop, highlighting its
technology offering, and we note that Kelly Close of Close Concerns recently shared
her positive experience as a member of the five-day BU/MGH bionic pancreas trial,
which used two Tandem pumps (one for insulin and one for glucagon) and a Dexcom
G4 sensor. JNJs Animas division also released favorable results from a 20-patient
feasibility study using the companys predictive Hypo-Hyperglycemia Minimizer
(HHM) System.
Professional CGM is being used by many practices as a door-opener for
personal use CGM. Professional use ranges from a few days to a week. Medtronic
has the iPro system for professional use, and Dexcom currently uses its Seven Plus
(G4 Platinum not yet approved for professional use). The Medtronic iPro is a blinded
sensor meaning that patients can not see the sensor readings while wearing it, but the
physician office is able to receive the readings in real time and create a trend graph
for the patient. With the Seven Plus for professional use, the patient is unblinded and
can see glucose readings in real time during the seven-day wear period. Physicians
we have spoken with have indicated that professional use (which is reimbursed) can
Kimberly Gailun
(1-617) 310-0740
[email protected]
be a helpful introduction for patients, giving them a better sense of whether personal
CGM may be right for them. We have also received feedback that because of the
comfort of Dexcom sensors relative to Medtronic sensors, the conversion from
professional to personal CGM use is generally higher for Dexcom.
10
Kimberly Gailun
(1-617) 310-0740
[email protected]
share losses in the pump market, diversifying the pump user base and giving the
company an entre on the CGM side with better technology. Enlite is smaller and
more accurate than Sof-Sensor (with Revel or Guardian), with better adhesives and
an improved insertion process. Enlite is also indicated for six-day use versus three
days.
Feedback on Enlite in Europe has been generally favorable. Patient advocate
Kelly Close included a test drive of the sensor in 2001 in her diaTribe publication
which summarized the following advantages of Enlite versus MultiLink/Sof-Sensor:
Better stability on the body due to better adhesives; easy, painless insertion; higher
signal production and better resolution; more accurate on screen results; better results
at low and high glucose levels using the Veo algorithm. The disadvantages according
to the diaTribe test drive were: (1) about 10% more expensive than prior generation,
(2) not accurate on the first day, needs to be restarted on the second day and needs
two hours to start producing on-screen results. The user also found it was still better
to calibrate with finger stick when glucose levels were flat (i.e. not rising or falling).
Abbott
Abbotts Freestyle Navigator CGM system was FDA-approved in 2008 but was
never fully commercialized in the US. The Navigator was a good performance
sensor, as illustrated by early comparative studies with MARD scores in the lowdouble-digit range and continuous glucose error-grid scores in the upper-90% range
for zones A+B but not very user-friendly. Abbott has communicated that it is
working on a next generation sensing product as a follow-on to Navigator, which the
company expects to be approved in Europe in the second half of 2014. The company
showed early data from its Navigator II project at the ATTD meeting in late February
with a 33% smaller transmitter and good accuracy. We expect an update on Abbotts
CGM program at the EASD meeting in Barcelona in late September, where ABT will
host a symposium.
Becton Dickinson
Becton Dickinson is another company that is involved in the broader diabetes
marketplace and is looking to bring a continuous glucose sensor to market over the
next several years. The company is using microneedle optical sensing technology,
feasibility data from which looks encouraging. Management has talked about the
accuracy and minimal warm-up time of its sensor as a potential differentiator, and the
company continues to work to make the system smaller.
Others
There are a handful of other public and private companies working on continuous
glucose sensing technology, including Roche, Bayer, and Echo Therapeutics,
amongst others, none of which are out of the prototype phase. We could hear
another update on Roches program, which has turned in very good prototype
data (MARD 8.6%), at the EASD meeting in late September but are not
expecting new data on top of what we saw at ATTD in late February.
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Kimberly Gailun
(1-617) 310-0740
[email protected]
12
Kimberly Gailun
(1-617) 310-0740
[email protected]
we move out toward the seventh day of wear. Dexcom is also developing a new
version of G4 tailored to artificial pancreas programs with updated algorithms, where
early experiences have shown an MARD of 12%, also improving with dwelling time.
Dexcom has solid data in the pediatric age range (2-17), which it recently
submitted as part of its FDA request for a label expansion to include younger
patients. The study, which was presented at this year's ADA meeting in Chicago
(Laffel et al), included 176 pediatric patients from six US centers and was the largest
pediatric CGM study to date. The group turned in a G4 Platinum MARD of 15% in
aggregate, 14% on the abdomen and 16% on the buttocks. We note that in
comparative studies where G4 Platinum has been used in pediatrics, accuracy has
been even better for Dexcoms new sensor (including the Russell MGH comparison,
which was half children)
The CGM study that is getting
the most attention comes from
Dr. Steven Russell et al at Mass
General Hospital in Boston,
showing superior accuracy for
the G4 Platinum sensor.
The CGM study that is getting the most attention comes from Dr. Steven
Russell at Mass General Hospital in Boston. Russell and team conducted a
comparison of the Abbott Freestyle Navigator (not for sale in the US), Dexcoms G4
Platinum, and Medtronics Enlite with Veo algorithm (not for sale in the US) on 24
patients (12 adults, 12 children), with results presented at the American Diabetes
Association scientific sessions in June. In this study the patients wore all three
sensors as part of 48-hour closed loop experiments. The results were very compelling
for G4 Platinum, with a MARD of 10.8% and 85% of readings falling in Zone A of
the Clarke Error Grid. Navigator followed with a 12.3% MARD (84% of readings
Zone A) and then Enlite with a 17.9% MARD and 68% of readings in Zone A.
Table 2: Comparative CGM Analysis, MGH 2013
Sensor
G4 Platinum
Navigator
Enlite
Company
Dexcom
Abbott
Medtronic
MARD
10.8%
12.3%
17.9%
Clarke A+B
99.7%
99.7%
97.1%
Source: ADA 2013, Steven Russell et all, Massachusetts General Hospital; CloseConcerns.com.
Comparative Analysis: The Lag Effect. There are several older comparative
analysis papers and studies available looking at metrics across different sensors;
however, with the pace of innovation having picked up, the endocrinology
community has pointed to a lag effect for many of these studies, as they do not
include the most up to date technology. For example, doctors Russell and Damiano
in Boston published their review of three competitive sensors in Diabetes Care
(December 2012), comparing Abbotts Navigator (not available for sale in the US),
Dexcoms older generation Seven Plus and Medtronics Guardian (with Sof-Sensor).
The MARD scores for the three sensors were 12%, 17% and 20%, respectively, but
the study did not include Dexcoms G4 sensor.
Medtonic is awaiting FDA approval for its new Enlite glucose sensor, with the
current Sof-Sensor turning in MARD levels in the 20% range (2009 Revel pump
with Sof-Sensor; 2012 Damiano/Russell study). The Enlite study was a multi-center,
randomized, prospective study designed to evaluate the performance of the Enlite
Sensor over the course of six days. The primary study endpoint was sensor accuracy
using minimum calibration requirements (every 12 hours after the second
calibration). When reported as labeled on a prospective basis (with calibration
2x/day) the current generation Enlite sensor turned in an MARD of approximately
13
Kimberly Gailun
(1-617) 310-0740
[email protected]
17.2% (ATTD, 2013), which compares with the 13.6% presented at ADA in 2012
using a different data analysis method. The prospective data was similar to the Enlite
MARD reported earlier this year by Russell et al (17.9%), which was presented at
ADA 2103.
Approval
Oct-12
YE 2013E
Early 2014E
2013-2015E
Early 2014E
late 2014E
2015E
2016+
Details
Improved accuracy and reliability, smaller, better transmitter, open architecture
Expands the call base to pediatric Endos; Peds are 20-25% of T1 diabetics
Remote monitoring system for caregivers
Mobile phone interface, new applicator, new transmitter, algorithm evolution
Sensor augmented pump using G4 Platinum; currently available in Europe
Sensor augmented pump using G4 Platinum
In-dwelling sensor collaboration with Edwards; available in Europe
Target label as replacement for finger stick testing
In the near term, the company is seeking approval for a label expansion to
include pediatrics, for patients as young as two years old. Dexcom filed for the
pediatric indication in March 2013 and in August indicated it is in labeling
discussions with the FDA. We view the pediatric label as an important next leg of
growth for Dexcom, meaningfully expanding the company's call base. We estimate
there are about 800-1,000 pediatric endocrinologists in the US and about 20-25% of
Type 1 diabetics are 2-18 years of age. The pediatric community provides an
extremely attractive patient base for the company's CGM First strategy, including:
(1) many newly diagnosed patients; and (2) a patient/parent group seeking tighter
disease management. Pediatrics have historically had lower compliance and, as such,
less effective outcomes with CGM, due to inaccuracy, discomfort, and/or the
adolescent patient's desire to be more discreet. We think G4 Platinum is a big
improvement on accuracy and comfort, which could meaningfully expand CGM
usage in this important category, particularly given accuracy in the hypoglycemia
range.
Dexcom has also filed for approval of its Dexcom Share system, which is a
remote monitoring system for caregivers and loved ones, including a docking station
for wireless transmission from the G4 Platinum sensor to a smart phone. The
caregiver can receive trend graphs and most importantly alert notifications if a
patient is going low in the middle of the night. Dexcom filed for this system in late
July 2013, and Share will be the first step in the companys move toward bringing
CGM technology to mobile phones.
The company will roll out its Gen 5 system in a series of updates over the next
two years. Gen 5 will not be a single platform update like Gen 4, but will include a
14
Kimberly Gailun
(1-617) 310-0740
[email protected]
variety of upgrades the first of which is the Dexcom Share system. Gen 5 will be an
open architecture system with an improved applicator and mobile phone interface.
There will be a new transmitter and algorithm evolution, but no change to the sensor
itself or related membranes.
The Gen 6 system, which is
likely a 2016+ event, is targeting
a labeling expansion to replace
finger stick testing. Success
here would be a big stride for
continuous sensing technology,
likely to meaningfully expand
CGM penetration for both Type 1
and 2 diabetics.
Dexcom has two partnerships in place with JNJs Animas and privately held
Tandem Diabetes for development of a sensor augmented pump using the
companys G4 Platinum sensor. The Animas Vibe is currently available in select
markets in Europe and has been filed for FDA approval (filed 2Q13), which we
expect by early 2014. Dexcom indicated in August that Animas recently received a
round of questions on its PMA for the Vibe, which, given the pace of FDA (as well
as Animas), will likely push a US Vibe approval to 1H14. We see the Vibe approval
as another growth driver for Dexcom. Currently about 60% of Dexcom patients are
also on a pump, with about 1/3 of the pumpers on Animas. We estimate Animas has
an installed base of about 90K pumpers in the US. The company will look to switch
its pumper base over to Vibe over the next several years, allowing it to compete more
effectively against Medtronic's sensor-augmented pump offering, which in turn
should benefit Dexcom in the form of a recurring revenue stream. Dexcom is also
developing a sensor augmented pump with privately held Tandem Diabetes, which
has had good early success with the launch of its t:slim pump. The t:slim, which was
launched in the US in 2H12, is a durable pump that offers a sleek design, large
insulin reservoir and attractive touch screen user interface. We received positive
feedback on t:slim at the ADA meeting in June, and Dexcom expects the company to
file for a sensor-augmented pump with G4 prior to year end.
Reimbursement
Patient Reimbursement/Coverage
Reimbursement strides have been meaningful over the last several years for Type 1
diabetics, particularly for private pay, which accounts for the majority of the Type 1
population. Today, most private plans routinely cover CGM for Type 1 patients,
which is a big improvement over the last five years. Having said that, the level of
coverage still varies, with patient copays ranging from 0% to 50%, according to our
discussions, which, while better than no coverage, can be a challenge for many
patients who are also paying for their test strips and possibly pump supplies. In our
US Endo survey (n=27, details below), 59% of physicians indicated that even with
reimbursement, out-of-pocket costs for CGM are still too much for many patients.
We see the reimbursement landscape continuing to improve, with Dexcom
announcing in August that Express Scripts added Dexcom CGM to its National
15
Kimberly Gailun
(1-617) 310-0740
[email protected]
16
Kimberly Gailun
(1-617) 310-0740
[email protected]
Survey Details
Question 1: For what percentage of your Type 1 diabetics are you recommending:
(1) Professional CGM; and (2) Personal CGM?
Response: The Endocrinologists in our survey indicated that they recommend
professional CGM for 33% of their Type 1 patients and personal use CGM for 47%
of their patients.
Question 2: What percentage of your patient base are active CGM users amongst
both your Type 1 and Type 2 populations?
Response: The doctors in our survey indicated that 24% of their Type 1 patients are
active CGM users while 7% of their Type 2 patients use CGM. These are
encouraging numbers, in our view, and higher than the market as a whole, where we
estimate that only about 7% of Type 1 diabetics in the US use personal continuous
17
Kimberly Gailun
(1-617) 310-0740
[email protected]
glucose monitoring on a regular basis. On the Type 2 side, we believe that well under
1% of patients are active CGM users in the United States.
Question 3: Over the last 12 months, has the number of patients on CGM at your
practice increased, decreased, or stayed the same?
Response: Of the 27 endocrinologists in our survey, 22 or 81% indicated that the
number of patients on CGM has increased by an average of 27%. None of the doctors
said their CGM patients had decreased, and five said the number of patients had
stayed the same, for a weighted average increase of 22% over the last 12 months.
Question 4: Over the next 12 months, how will the number of patients using
personal CGM devices change at your practice?
The physicians in our survey are
projecting a weighted average
increase in patients on CGM of
23% over the next 12 months.
Response: Looking out 12 months, 23 of 27 Endos (85%) said they expect the
number of patients using CGM at their practice to increase, by an average of 27%.
None of the doctors are projecting a decrease, and four said the number would stay
the same, for a weighted average projected increase of 23%.
Question 5: What percent of your personal CGM patients are also on an insulin
pump?
Response: The Endos indicated that 79% of their CGM users are also on an insulin
pump. This is an interesting statistic, in our view, and consistent with Dexcoms
estimation that about 60% of its sensor users are also on a pump (about half on
Medtronic MiniMed, 30% on Animas). The implication here is that CGM penetration
remains very low (about 2% by our estimates) amongst Type 1 diabetics who are not
today on an insulin pump, giving ample room for CGM manufacturers with those
patients currently on multiple daily injections alone (about 70% of Type 1 diabetics).
Having said that, the non-pump users will also require more work in the form of
education and likely DTC advertising, because this group is likely to be less eager to
adopt new technology.
Question 6: Please indicate which CGM products you currently recommend for your
patients (check all that apply):
Response: Forty-one percent of the doctors indicated they currently prescribe G4
Platinum, while the remainder indicated they prescribe Medtronic sensors. While we
dont have great market data on the number of docs prescribing MDT versus
Dexcom, Dexcom has pointed to a broad prescriber base of approximately 6,000 in
1H13, double that of 2012.
Question 7: What are the most important factors driving your sensor
recommendation for CGM?
Response: The single most important factor cited was sensor accuracy and
reliability, with 74% of physicians citing this as a most important metric. Accuracy
was followed by comfort (67%), ease of use (63%), duration of the sensor (59%),
and profile of the sensor (41%). Other responses included good service from the
company and the ability to easily download data.
18
Kimberly Gailun
(1-617) 310-0740
[email protected]
74%
67%
63%
59%
41%
Accuracy/Reliability
Comfort
Duration of Sensor
Profile of sensor
Ease of Use
Question 8: What are the biggest challenges to putting a new patient on CGM
therapy?
Response: The biggest challenges cited to putting patients on CGM therapy were:
(1) reimbursement (both for Type 1 and Type 2) and (2) out-of-pocket costs for the
patient. Seventy-four percent of Endos said reimbursement for Type 2 patients is a
challenge, which comes as no surprise given that we are still in the early days of
Type 2 coverage, even for insulin-using diabetics. This was followed by 59% of the
docs saying that out-of-pocket costs were too much for many patients, and 52%
saying Type 1 reimbursement can still be a challenge. Depending on the plan, the
patient may be responsible for anywhere between 0% and 50% of the costs of CGM
therapy. Some physicians (37%) also indicated that patient compliance is an issue,
while 26% said their practice has inadequate staffing/resources to support CGM
programs. Finally, 11% indicated that CGM is not profitable for their practice, while
another 11% cited complicated technology as a barrier to adoption.
19
Kimberly Gailun
(1-617) 310-0740
[email protected]
Earlier technologies did not work, creating market fatigue. From the
physicians perspective, many have had a bad first experience with earlier
generation technology (Dexcoms STS, the GlucoWatch) and/or the current SofSensor from Medtronic, leaving providers somewhat weary of personal CGM
technology for their patients. In addition, many Endocrinology practices in the US
are still not there in terms of best practices and may not have adequate staffing to
transition their patient base to more CGM usage. The good news is that perception
is improving with technology. Endos we have spoken with who have used and
prescribed G4 Platinum are very enthusiastic about the technology, and we are
hearing some anecdotal feedback around the uptake of Dexcoms CGM First
approach, particularly leading with Professional CGM to get a patient started.
Reimbursement is still a challenge for Type 1 patients, according to our survey
work, though this has improved meaningfully. Most of the physicians and nurses
we spoke with indicated that with the exception of Medicare, Type 1 is relatively
routinely reimbursed. Type 2 patients are by no means routine but are getting better
and better coverage, particularly those who are dosing insulin at mealtimes (recall as
well that Humana recently updated its CGM coverage policy to include insulin using
T2 patients). Even after reimbursement, the incremental cost of CGM therapy can be
a hurdle for many patients. Coverage plans vary widely, reimbursing anywhere from
50-100% of the costs per our feedback. Dexcoms starter kit costs about $850, with
sensor ASPs of about $65-70. If we assume the average patient uses about 25 sensors
per year, and that the average copay is 20%, the annual out-of-pocket cost is just over
$500, which is a hurdle for many patients.
Financial Outlook
Revenue
We forecast 2013 sales of $143.5M (+44% YOY), including product revenue of
$140M (+51% YOY) which is $2M ahead of Street consensus and compares with the
companys $130-140M guidance range. Over the next several years, we forecast a
revenue CAGR for Dexcom of 34%, reaching $428M in sales in 2017E. We see solid
top-line growth as sustainable as the company: (1) expands its call point to pediatrics
(20-25% of Type 1 diabetics, YE13), including the Dexcom Share system;
(2) leverages its sensor augmented pump partnerships with Animas and Tandem
(2014+); (3) builds out its clinical data package, including cost effectiveness support
(2014+); and (4) further penetrates the Type 2 population.
20
Kimberly Gailun
(1-617) 310-0740
[email protected]
$427.7
$331.3
$254.0
$190.5
$48.6
2010
$76.3
2011
$99.9
2012
$143.5
2013E
2014E
2015E
2016E
2017E
Dexcom is coming off of a very solid 2Q result. Our sales outlook is $4M ahead of
Street consensus estimate for 2013 and $6M ahead for 2014. Our 2015 forecast is
$17M above the Street at $254M.
Operating Margins
In 2013, we forecast an operating loss for Dexcom of $34.2M. On a cash basis
(excluding D&A and share based compensation), the net operating loss is projected
to be $2.2 million. We expect the company to generate operating income in 2014 of
$24.9M on a cash basis, with a loss of $15M on a GAAP basis. On a GAAP basis,
we forecast operating profitability in 2015, with margins of 7% growing to 24% by
2017E. Margin expansion is driven by a combination of gross margin expansion and
leverage of operating expenses including both SG&A and R&D. On the gross margin
front, Dexcom is targeting sensor margins of 70-75% on its sensors and just under
50% on hardware. This highlights what we view as one of Dexcoms key competitive
advantages manufacturing efficiencies and know-how. We expect the company to
look to decrease sensor cost further in future generation models, particularly as the
company thinks about broader penetration in the Type 2 community. Our aggregate
gross margin forecast goes from 60% for 2013E to 70% in 2017E, as sensor margins
improve and sensors become a bigger piece of the overall business mix.
We forecast SG&A leveraging from 56% of sales in 2013E to 36% of sales in 2017E.
Dexcom went from 48 reps in mid-2012 to 68 reps today, and should be able to
leverage this new base going forward. We expect the company to continue to add
reps as it grows the business, but not likely at the same rate we've seen over the past
year or so. Recall that Dexcom should also benefit from sensor sales through its
sensor-augmented pump partnerships with Animas and Tandem as we move through
2014 and beyond.
Earnings
We forecast cash profitability for Dexcom in 2014 and GAAP earnings in 2015. For
2013, we project a loss per share of $0.48 on a GAAP basis and $0.03 on a cash
basis. Moving to 2014, we forecast a GAAP loss per share of $0.20 with cash
earnings of $0.32/share. Our GAAP EPS projections for 2015-2017E are $0.18,
$0.52, and $1.00, respectively.
21
Kimberly Gailun
(1-617) 310-0740
[email protected]
Cash Flow
Dexcom is cash flow positive today, and we forecast healthy cash flows through
2017E. The company has raised equity four times since its April 2005 IPO, with the
most recent round in May 2011. Based on meaningfully improved cash flow, we do
not expect the company to come back to the equity markets going forward. On a free
cash flow basis, we forecast a loss in 2013 of $17M, turning positive in 2014
($2.7M) and ramping to $92M come 2017E.
Figure 3: Dexcom Free Cash Flow Projections ($ in Millions)
$92.0
$100.0
$80.0
$56.1
$60.0
$40.0
$29.3
$20.0
$2.7
$0.0
($20.0)
($16.5)
($40.0)
2013E
2014E
2015E
2016E
2017E
Valuation
We value Dexcom primarily on an EV/Sales basis, supported by DCF analysis. We
use a representative sample of other small cap MedTech companies as the relevant
comp group. We are introducing a December 2014 price target of $32 for
Dexcom, which is based on 7.8x our 2016 sales estimate, discounted back over
one period at 11%, implying 16% upside potential from current levels. Our
target multiple represents a premium to the companys peer group, but is closer to in
line when adjusted for the companys top line growth rate at 30%+. Based on JPM
and Bloomberg estimates, the peer group currently trades at 5.4x 2014 sales
estimates and 4.5x 2015E. Dexcom today is at a clear premium to the group, trading
at 10.4x 2014E sales and 7.8x 2015E sales. Having said that, Dexcom is the only
company we are aware of in the space with a 30%+ revenue CAGR expected over
the next five years with a huge market opportunity and a clear path to profitability,
all of which we think warrant a premium multiple.
22
Kimberly Gailun
(1-617) 310-0740
[email protected]
$331
7.8x
$2,582
1.0
11%
$2,326
$47
$7
$2,365
73.8
$32.00
16%
23
Kimberly Gailun
(1-617) 310-0740
[email protected]
Discount Rate
10.0%
10.5%
11.0%
11.5%
12.0%
-
Discount Rate
10.0%
10.5%
11.0%
11.5%
12.0%
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Dec-23
Dec-24
$142
$189
(35)
-24.4%
(35)
$9
(16)
-24.4%
(35)
$9
-77%
$252
32.8%
16
-8.3%
(16)
$2
NM
$328
33.4%
50
6.4%
10
$27
87%
$424
30.5%
99
15.3%
33
$50
70%
$543
29.1%
132
23.4%
64
$85
26%
$690
28.1%
173
24.4%
87
$107
30%
$871
27.1%
224
25.1%
116
$139
29%
$1,080
26.1%
286
25.8%
152
$179
28%
$1,319
24.1%
359
26.5%
196
$228
25%
$1,584
22.1%
439
27.2%
248
$286
23%
$1,871
20.1%
523
27.7%
307
$350
20%
A
+
Discounted
Cash
Flows
(2013-2024)
714
691
669
648
627
D
Net
Debt
(39)
(39)
(39)
(39)
(39)
B
=
PV of Terminal Value at a
Perpetual Growth Rate of
3.0%
4.0%
5.0%
3.0%
Firm
Value
4.0%
1,952
1,740
1,558
1,400
1,264
2,300
2,027
1,797
1,602
1,435
2,786
2,418
2,117
1,867
1,656
2,666
2,431
2,226
2,048
1,891
3,014
2,718
2,466
2,250
2,063
E
Total Equity Value
3.0%
4.0%
5.0%
3,500
3,109
2,786
2,514
2,283
11.6x
10.8x
10.2x
9.6x
9.1x
13.5x
12.5x
11.6x
10.9x
10.2x
16.2x
14.8x
13.6x
12.5x
11.7x
PV of Terminal Value as a
Percentage of Firm Value
3.0%
4.0%
5.0%
3.0%
4.0%
5.0%
3.0%
4.0%
5.0%
2,705
2,470
2,266
2,087
1,930
3,053
2,757
2,506
2,289
2,102
3,539
3,149
2,825
2,554
2,323
$38.16
$34.84
$31.96
$29.44
$27.22
$43.06
$38.89
$35.34
$32.29
$29.65
$49.92
$44.41
$39.85
$36.02
$32.76
73.2%
71.6%
70.0%
68.4%
66.8%
76.3%
74.6%
72.9%
71.2%
69.6%
79.6%
77.8%
76.0%
74.2%
72.5%
24
Kimberly Gailun
(1-617) 310-0740
[email protected]
Diabetes 101
A Debilitating, Deadly Disease
Diabetes is a widespread disease, marked by abnormally high blood sugar
levels. The statistical prevalence of the disease is staggering. The International
Diabetes Federation estimates there are 371 million people with diabetes worldwide.
In the United States alone, approximately 29 million people have diabetes. An
estimated 20 million people have been diagnosed according to the ADA, leaving
about 30% yet to be diagnosed. The annual economic cost of the disease is huge,
totaling approximately $245 billion in the US in 2012, according to ADA. These
costs included roughly $176 billion annually in direct medical costs and $69 billion
annually related to disability and mortality.
Diabetes is characterized by the inability to manufacture, or effectively utilize,
the hormone insulin. This hormone, produced in the beta cells of the pancreas,
enables the body's cells to take in glucose (sugar) from the bloodstream, providing
the cells with energy. In diabetes, glucose accumulates in the blood, and cells are
deprived of energy acutely. Untreated diabetes can produce symptoms such as weight
loss, frequent urination, increased hunger and thirst, tiredness, vision disturbances
and in severe cases, coma. Diabetics can also develop long-term chronic
complications, such as diseases of the eyes (retinopathy), kidneys (nephropathy),
nerves (neuropathy), and the heart.
There are two basic forms of diabetes: Type 1 and Type 2. Type 1 diabetics are
unable to produce insulin and they must receive daily insulin therapy to survive. In
this form of the disease, the pancreatic beta cells are destroyed by immune reactions
and the pancreas cannot produce insulin. Type 1 diabetes usually manifests itself in
childhood or adolescence and was previously known as juvenile diabetes, but adults
can also develop this variation of the disease. Type 1 diabetics represent 5-10% of all
patients with the disease. According to our estimates, there are approximately 1.6
million Type 1 diabetics in the United States, and the incidence of the disease
appears to be increasing worldwide.
Type 2 diabetics are not entirely insulin deficient. This form of the disease is
caused by the insufficient production of insulin by pancreatic beta cells.
Alternatively, the pancreas may produce normal amounts of insulin, but the body's
cells may be resistant to the effects of the hormone. Both scenarios result in reduced
uptake of glucose by cells and increased levels of glucose in the blood
(hyperglycemia). Obesity increases insulin resistance, and obese patients are
therefore predisposed to diabetes. Since Type 2 patients are not entirely insulin
deficient, some patients can be treated with oral medications to lower blood sugar
levels. More severe cases require insulin therapy as a supplement to, or instead of,
oral drug therapy. Type 2 diabetes is the most common form of the disease,
accounting for 90-95% of cases. This form of the disease usually manifests itself in
adulthood, but is on the rise among children and adolescents. The prevalence of Type
2 diabetes is on the rise in the United States owing to an aging population, increased
levels of obesity, and more sedentary lifestyles.
Other forms of diabetes include gestational diabetes and pre-diabetes. Pregnant
women who have never had diabetes before but have high blood glucose levels
25
Kimberly Gailun
(1-617) 310-0740
[email protected]
during pregnancy are said to have gestational diabetes. Seen in roughly 4% of all
pregnant women, there are about 135,000 cases of gestational diabetes in the United
States each year. When you have gestational diabetes, your pancreas works overtime
to produce insulin, but still fails to lower blood glucose levels, leading to
macrosomia or an overweight baby. Babies with excess insulin become children
who are at increased risk for obesity and adults who are at risk for Type 2 diabetes.
Also, there is a 2 in 3 chance that once a woman has had gestational diabetes, it will
return in future pregnancies. Furthermore, women with gestational diabetes usually
go on to develop Type 2 diabetes, albeit years later.
26
Kimberly Gailun
(1-617) 310-0740
[email protected]
episodes. Hypoglycemic patients can develop symptoms ranging from tiredness and
nervousness to disorientation. Tightly controlled patients must be cognizant of these
symptoms and they must be prepared to treat themselves. Second, intensively
managed patients appear to gain more weight compared with patients on standard
therapy. Finally, tight control costs more than less rigid, standard therapy. The
increased costs are due to more expensive supplies or more frequent use of supplies,
and increased visits to health care practitioners. Despite the challenges associated
with tight control, the positives of this type of treatment (increased well being,
decreased long-term complications, and greater lifestyle flexibility) generally
outweigh the negatives. As such, an increasing number of Type 1 diabetics are
resorting to intensive management. Furthermore, guidelines from the American
Diabetes Association suggest more aggressive treatment for Type 2 patients as
well, even as a first line therapy for some.
Intensive management requires frequent blood glucose measurements. The
traditional method of checking blood sugar levels requires the patient to prick their
finger with a needle in order to obtain a drop of blood. The drop of blood is applied
to a special test strip and a glucose meter measures the amount of glucose on the
strip. This procedure must be performed several times per day, depending on the
volatility of a patient's blood glucose. Finger stick measurements can be painful and
inconvenient, thereby reducing patient compliance.
27
Kimberly Gailun
(1-617) 310-0740
[email protected]
hemoglobin (HbA1c) blood tests reflect the level of hyperglycemia during the past
six to twelve weeks, and these measurements serve as a rough estimate of the
patients ability to control blood glucose levels during this time period. Normal
HbA1c levels for non-diabetic patients are usually between 4-6%. Diabetic patients
usually aim for a level below 8%.
Insulin Pumps
Insulin pumps are an increasingly popular method of insulin delivery, today being
used by nearly 30% of US Type 1 diabetics. Traditional insulin pumps consist of a
small, battery-operated, computer-controlled motor attached to a reservoir/cartridge.
The reservoir is similar to a syringe, but slightly larger, and the entire pump is
enclosed in a plastic case about the size of a pager. An insulin pump mimics the
human pancreas by automatically releasing small amounts of rapid-acting insulin
every few minutes. This basal rate of insulin can be adjusted to keep the blood sugar
levels steady between meals and during sleep. At meal times, the patient sets the
pump to deliver a bolus rate, which depends on the carbohydrate content of the meal.
This is accomplished by just a few button presses. A pump is connected to the patient
via an infusion set, which consists of a thin plastic tube, and a needle or soft cannula.
The needle or cannula is inserted under the skin, usually in the abdomen, and needs
to be changed every two to three days. The pump itself is worn outside the body, in a
pocket, a pouch, or on a belt holder. Insulet Corp (PODD) offers a disposable
alternative to traditional insulin pumps with its OmniPod wearable patch pump. With
OmniPod, the infusion set, tubing, cannula, insulin cartridge and batteries are all selfcontained in the disposable pod for a more discreet and easier to use solution.
28
Kimberly Gailun
(1-617) 310-0740
[email protected]
Models
Table 6: Dexcom Annual Income Statement, 2012-2017E
Product Revenue
Development & Other
Total Revenue
2012
92.9
7.0
99.9
2013E
140.0
3.5
143.5
2014E
188.7
1.8
190.5
2015E
254.0
0.0
254.0
2016E
331.3
0.0
331.3
2017E
427.7
0.0
427.7
2013E
51%
2014E
35%
2015E
35%
2016E
30%
2017E
29%
44%
33%
33%
30%
29%
48.4
5.0
53.4
46.5
56.1
1.2
57.3
86.2
67.1
0.5
67.6
122.9
80.6
80.6
173.4
101.9
101.9
229.5
126.2
126.2
301.5
16%
20%
20%
26%
24%
7%
85%
18%
43%
19%
41%
26%
32%
24%
31%
62.8
39.5
(55.8)
78.5
41.1
(33.4)
94.0
42.8
(14.0)
111.0
43.5
18.9
131.5
44.2
53.8
152.7
44.8
104.0
25%
4%
20%
4%
18%
1%
19%
2%
16%
2%
18.4
6.6
25.4
6.6
32.5
7.1
38.4
7.5
44.5
7.8
50.7
8.2
38%
28%
18%
16%
14%
Interest Income
Interest Expense
Pretax Income
0.1
(0.0)
(55.7)
0.0
(0.8)
(34.2)
0.0
(0.8)
(14.8)
0.0
(0.8)
18.1
0.0
(0.8)
53.0
0.0
(0.8)
103.2
Tax Expense
Net Income (Reported)
(1.3)
(54.4)
(34.2)
(0.0)
(14.7)
4.9
13.2
14.3
38.7
27.9
75.4
Reported EPS
Cash EPS
($0.79)
($0.45)
($0.48)
($0.03)
($0.20)
$0.32
$0.18
$0.56
$0.52
$0.92
$1.00
$1.40
Diluted Shares
68.7
70.9
73.2
74.0
74.7
75.5
2012
53.4%
46.6%
67.6%
39.5%
NM
NM
NM
NM
2013E
39.9%
60.1%
56.1%
28.6%
NM
NM
NM
NM
2014E
35.5%
64.5%
51.1%
25.6%
NM
NM
NM
NM
2015E
31.8%
68.3%
43.7%
22.6%
7.4%
7.1%
35.0%
5.2%
2016E
30.8%
69.3%
39.7%
19.6%
16.2%
16.0%
35.0%
11.7%
2017E
29.5%
70.5%
35.7%
16.6%
24.3%
24.1%
35.0%
17.6%
SG&A
R&D
Operating Income
Stock based compensation
Depreciation & Amortization
MARGIN ANALYSIS
COGS/Sales
Gross Margin
Sales and marketing
R&D
Operating Margin
Pretax Margin
Tax Rate
Net Margin
29
Kimberly Gailun
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2013E
2014E
2015E
2016E
2017E
26.6
49.3
78.6
134.7
226.6
8.1
40.6
19.5
7.4
2.0
77.6
22.4
5.8
3.0
57.7
30.2
5.6
3.0
88.0
40.6
6.7
3.0
128.9
53.0
8.5
3.0
199.1
68.4
10.5
3.0
308.5
18.9
1.0
8.5
106.0
20.5
1.0
8.5
87.7
22.6
1.0
8.5
120.2
25.4
1.0
8.5
163.7
28.7
1.0
8.5
237.3
32.8
1.0
8.5
350.8
Current Liabilites
Accounts Payable and Accrued Liabilities
Accrued Payroll and Related Expenses
Current portion of long term debt
Current portion of deferred revenue
Total Current Liabilities
8.7
9.2
0.2
1.4
19.5
8.4
9.0
0.2
1.4
19.0
10.1
10.7
0.2
1.4
22.4
12.1
12.9
0.2
1.4
26.6
15.3
16.3
0.2
1.4
33.2
18.9
20.2
0.2
1.4
40.7
Other Liabilites
Long-Term Debt
Total Liabilites
2.1
7.4
29.0
2.1
7.4
28.5
2.1
7.4
31.9
2.1
7.4
36.1
2.1
7.4
42.7
2.1
7.4
50.2
Stockholders' Equity
Common Stock
Additional Paid-In Capital
Accumulated Other comprehensive loss
Accumulated Deficit
Total Stockholders' Equity
0.1
522.6
(0.1)
(445.6)
77.0
0.1
601.0
(34.3)
(507.5)
59.3
0.1
691.1
(49.0)
(554.0)
88.3
0.1
794.8
(35.8)
(631.5)
127.6
0.1
914.0
2.9
(722.4)
194.6
0.1
1,051.1
78.3
(830.0)
300.6
106.0
87.7
120.2
163.7
237.3
350.8
Assets
Current Assets:
Cash and Cash Equivalents
30
Kimberly Gailun
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[email protected]
2013E
2014E
2015E
2016E
2017E
(34.2)
6.9
21.7
0.6
0.1
(14.7)
7.3
24.3
0.6
0.1
13.2
7.6
26.7
0.6
0.1
38.7
8.0
28.9
0.6
0.1
75.4
8.4
31.2
0.6
0.1
(2.9)
1.6
(1.0)
(0.3)
(0.2)
(1.3)
(7.9)
(7.8)
0.2
1.7
1.8
(1.3)
12.1
(10.4)
(1.1)
2.0
2.2
(1.3)
39.7
(12.4)
(1.8)
3.2
3.4
(1.3)
67.5
(15.4)
(2.0)
3.6
3.9
(1.3)
104.5
(42.6)
(16.5)
2.7
29.3
56.1
92.0
(66.4)
(15.0)
104.3
40.0
20.0
(9.5)
28.4
(8.6)
16.5
(9.4)
10.6
(10.3)
(10.3)
(11.4)
(11.4)
(12.5)
(12.5)
3.6
6.6
10.2
10.0
10.0
5.5
18.5
22.7
29.3
56.1
92.0
2.5
8.0
8.0
26.6
26.6
49.3
49.3
78.6
78.6
134.7
134.7
226.6
1.0
31
Kimberly Gailun
(1-617) 310-0740
[email protected]
8
28
59
8
32
88
(55)
7
(4)
19
(33)
(34)
7
(4)
23
(8)
(15)
7
(5)
25
12
Capex
(10)
(9)
Free cash flow
(43)
(16)
Cash flow from investing activities
28
16
Cash flow from financing activities
10
10
Dividends
Dividend yield
Source: Company reports and J.P. Morgan estimates.
Note: $ in millions (except per-share data).Fiscal year ends Dec
(9)
4
11
0
-
32
Gross margin
EBIT margin
EBITDA margin
Tax rate
8 Net margin
36
128 Debt / EBITDA
Debt / Capital (book)
13
8 Return on assets (ROA)
(9) Return on equity (ROE)
27
40 Enterprise value / sales
Enterprise value / EBITDA
(10) Free cash flow yield
30
(10)
0
-
4Q13E
41
(16)
(21)
(9)
(5)
(5)
(0)
0
(5)
(5)
72
(0.07)
(0.07)
FY15E
33.3%
(235.5%)
(189.2%)
64.5%
(7.3%)
(7.3%)
(0.3%)
(7.7%)
68.3%
7.4%
7.4%
27.0%
5.2%
NM
100.0%
NM
100.0%
0.4
100.0%
(48.1%) (35.3%)
(60.0%) (50.2%)
(14.1%)
(19.9%)
9.3%
12.3%
10.3
NM
0.2%
7.6
102.2
1.5%
NM
100.0%
20.0
NM
(2.3%)
13.8
NM
(0.8%)
Kimberly Gailun
(1-617) 310-0740
[email protected]
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
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Dexcom (DXCM, DXCM US) Price Chart
50
40
30
Price($)
20
10
0
Feb
12
May
12
Sep
12
Dec
12
Apr
13
Aug
13
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
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applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
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Coverage Universe: Gailun, Kimberly: Insulet Corp (PODD), Mako Surgical (MAKO), NxStage Medical, Inc. (NXTM), The Cooper
Companies, Inc. (COO), Wright Medical Group (WMGI)
33
Kimberly Gailun
(1-617) 310-0740
[email protected]
Overweight
(buy)
44%
56%
42%
76%
Neutral
(hold)
44%
50%
50%
66%
Underweight
(sell)
12%
40%
8%
55%
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34
Kimberly Gailun
(1-617) 310-0740
[email protected]
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35