Dexcom Comes Under Greater Competitive Pressure From Abbott, but There’s Room for Both To Grow

Despite rival Abbott’s recent U.S. regulatory approval for integration of its Libre 2 and Libre 3 continuous glucose monitors, or CGM, with insulin pumps, we don’t anticipate changing our fair value estimate on Dexcom DXCM as our initial near-term adjustments weren’t enough to materially shift our valuation. On the whole, we think there is so much potential for the wider adoption of integrated pump and CGM technology that the expanding market will make it possible for both Dexcom and Abbott to see robust growth as category penetration increases among Type 1 and Type 2 diabetes patients.

Nonetheless, this latest competitive development underscores the negative moat trend we’ve had on Dexcom, which reflects how both Abbott and Medtronic have raised the competitive heat in the CGM market where Dexcom used to dominate. Abbott’s regulatory approval has just ratcheted up the competitive pressure on Dexcom.

In the past, Dexcom’s greater accuracy has been a long-standing point of compelling differentiation versus other CGMs. Indeed, earlier generations of the Libre sensors were significantly less accurate than Dexcom’s, and this was reflected in how Type 1 diabetes patients gravitated toward Dexcom because accuracy (or lack of it) can hold serious health consequences. In contrast, Libre’s strong adoption was originally driven by Type 2 patients, whose need for accuracy is less weighty. Our concern was that competitive sensors would eventually close the gap on accuracy, and that day has come with Libre 3, which offers MARD (mean absolute relative difference, the standard measure of accuracy) of 7.9%. Not only is this a marked improvement over Libre 2′s 9.3% MARD, it’s even superior to Dexcom’s next-generation G7 MARD of 8.2%. Abbott’s improvements mean the two firms will be competing even more directly for Type 1 patients.