FDA Plays

[pcrutch]

It looks like $DXCM is going to be a major competitor to $ECTE, which is extremely bad news for them. $DXCM has revenue, cash, and experience. Seems like people have been pushing $ECTE endlessly, even though $DXCM already has an approved product, INSURANCE reimbursement and growing sales. ECTE has a major uphill battle. OTC manufacturers typically have a very hard time getting reimbursed and establishing a foothold in the market. For the reasons above, I really dont see how $ECTE will be able to compete.

Disclosure: No position.

http://www.dexcom.com/
===================
Andy Obermueller’s Fast Track Millionaire October 1, 2010

DexCom (Nasdaq: DXCM, $13.26)
The $174 Billion Business of Diabetes
Continuous Glucose Monitoring Offers a Leap Forward
for Diabetic Treatment -- and the Prospect of Market Domination for This Leading Device Manufacturer

Note: If you're a Game-Changing Stocks subscriber, you are already familiar with the following topic thanks to my most recent issue. But while I gave an overview of the situation in that letter, I'm providing Fast-Track Millionaire readers with in-depth analysis of my favorite play.

A quarter-century ago, I was diagnosed with Type I diabetes. The medical landscape looked very different then, and the technology was pretty clunky.
Insulin-dependent or "juvenile onset" diabetes -- which is what I have -- is a condition where beta cells in the pancreas no longer produce insulin, a hormone that helps the body absorb sugar. Without insulin, the level of sugar in the bloodstream goes haywire. Over time, high blood sugar and big swings in sugar levels have a number of unpleasant side effects, including heart disease and kidney failure. So the trick is to maintain even blood sugars within the normal range of, say, 60 to 120 milligrams per deciliter. To accomplish that, diabetics -- both Type I insulin-dependent as well as Type II, or adult-onset diabetics -- should test their blood sugar often.

When I was first diagnosed, the "dextrometer" was the incumbent technology. It had to plug into the wall. You took a sample of blood from your fingertip and smeared it on a test strip and waited for a couple of minutes, then used a little squirt bottle to wash the strip, which was then inserted into the meter to be read. The sugar in your blood turned a reagent in the strip a certain color, which the machine could read and tell you what your blood sugar was. It was a messy, inconvenient process. I hated doing blood sugars.

The technology began to advance. The "glucometer" came next, circa 1984. Its big advance was that it was battery operated. I had other meters over the years, some of which I liked better than others, but all with the same flaw. They only gave one reading. They told you what your blood sugar was, sure, but only what it was right then. If you wanted to see the trend, you had to repeat the process over and over, and I can't remember anyone ever suggesting that I do that.
But that's the key.

Spotting trends and learning how the body responds to exercise, meals, orange juice, stress, sex -- whatever -- is key to mastering the disease and avoiding its complications. If a diabetic knew that 30 minutes of walking brought their blood sugar down "X" number of points, then they could use that information to plan their day -- and diet and dosage, which are never far from a diabetic's mind. Getting that information, from some sort of continuous monitoring device, was a dream when I learned I had the disease in the Reagan years.
Today, that technology is within the grasp of every diabetic.
And it's splendidly helpful.

Continuous glucose monitoring helps diabetics get in control. The Diabetes Control and Complications Trial (a landmark study for treating diabetes) showed improving blood sugar management lowers the risk of developing complications by up to -50%. The better one's management of their blood sugar, the better their outcomes. Look, I don't want to be overly dramatic here, but this disease kills you. This technology lowers that risk by half.

But here's the kicker, An article in the Journal of the American Medical Association found that less than half of diabetics meet accepted standards for overall blood sugar control. Want to know one reason? Diabetics under-test their blood sugar. The CDC estimates that 63.4% of all diabetics were monitoring their sugars on a daily basis. That means 36.6% are not. And only a handful of diabetics, relative to the diagnosed population, use a continuous blood sugar monitor, even though study after study shows it improved A1c levels (an important metric for battling diabetes). It also reduced low blood sugar, which happens to diabetics when they have too much insulin in their systems and makes them feel as if they were on a roller coaster going down.

Diabetes is a $174 Billion 'Epidemic'
How big a problem is diabetes? Well, The New York Times uses the word "epidemic." And I think that's pretty accurate. The International Diabetes Federation expects the worldwide incidence of diabetes in adults to reach 284.6 million people in 2010, including 26.8 million in the United States. In 20 years, that number will reach 438 million. You can thank cheap food, easy work, and a sedentary lifestyle.
The effects are devastating. The Centers for Disease Control and Prevention says diabetes was the seventh-leading cause of death in 2007, in addition to complications related to the disease. One in every three children born in the United States in 2001 was expected to become diabetic in their lifetimes. Every day, 4,100 people are diagnosed with diabetes, 230 people undergo amputations as a result of diabetes, 120 people enter end-stage kidney disease programs and 55 people lose their vision.

In addition to the incalculable human cost of those conditions, there is, of course, the actual cost. The American Diabetes Association says one in every 10 health care dollars is spent on treating diabetes. The direct medical costs and indirect expenditures attributable to diabetes just in the United States were $174 billion. Studies show average medical expenditures among people with diagnosed diabetes are 2.3 times higher than for people without diabetes.

Bottom line, the epidemic of diabetes is getting worse and better monitoring is key to living well with the awful disease. The silver lining is that one company stands poised to profit...

The Leader in Continuous Blood Sugar Monitoring: DexCom
DexCom (Nasdaq: DXCM, $13.26) is a medical device company that makes and sells continuous blood sugar monitoring systems. Its first system was approved by the FDA in 2006. In 2007, it got the OK for a second-generation system called Seven, and on February 13, 2009, DexCom received FDA approval for its third-generation system, the Seven Plus. The system gives blood sugar readings for seven straight days. It is also approved for use in Europe and in Asian and Latin American countries that recognize the Conformite Europeene seal of approval (that's what the iconic "CE" symbol you see on many products stands for).
The system has to be prescribed by a doctor. It has a disposable sensor that goes under the skin, a transmitter and a handheld receiver about the size of a cell phone. The target market is 30% of Type I diabetics who use an insulin pump and 50% of Type I diabetics who take insulin shots. Additionally, the company will also target the 27% of Type II diabetics who require insulin. DexCom is primarily focusing on the U.S. market, though it its approvals allow it to commercialize the product worldwide. DexCom's Seven Plus system has a major share of the market and competes with other products from other manufacturers, though no other product is approved for seven days of use.

Does Medicare Pay for It?
I do a lot of medical research, and that's always a critical question to ask, as the Medicare program pays for more than $500 billion of the care delivered in the United States. But here, it is a moot point. DexCom's target market is not made up of Medicare beneficiaries -- the diabetes sufferers that the company looks to treat are younger. The more appropriate question is whether private insurance pays for the Seven Plus, and the answer is yes. As of March 2010 -- date of the company's most recent annual SEC filing -- the seven largest private insurance companies accepted and paid claims for continuous monitoring systems.

Bottom line: DexCom has cleared the three main hurdles. It has FDA approval, it has a proven technology that improves outcomes and thus has the support of insurers, and it has a leading position in a growing market.

In the past four years, DexCom has seen its revenue rise from $2.2 million to $29.7 million in 2009. In the two quarters reported so far in 2010, the company -- which has a strong and stable cash position and very little debt -- has already posted $21.4 million in revenue, which puts it in good stead to top last year's revenue by a large margin. Although the company is working on additional innovations, its major focus is on commercializing the Seven Plus, so its research and development costs should fall as its revenues continue to rise. It is my opinion that shares of DexCom, which are up more than +60% so far this year, will continue to gain as the company increases its sales and shifts to profitability.

Blood sugar testing is a huge business, and this product, over time, is a game-changer. I can't think of a diabetic who wouldn't want or benefit from the critical medical information this device provides.

Action to Take --> I'm adding shares of DexCom to the Fast-Track Millionaire Portfolio at the close of trading October 5, assigning a "Four" rating and a price target of $50. Its best suited for long-term holders.

P.S. -- To show you the degree to which I believe in this product, I will be talking to my doctor about getting a Seven Plus unit. I've tried to manage my diabetes for 25 years without this medical intelligence, and I'm not going to fail to seize a chance to improve my control. I'll let you know how it goes.