The Red Flag Alert Spots an Overlooked Risk

Just because something isn't listed in the 'risk factors' section of a company's regulatory filings doesn't mean it's not a possible 'risk'... Take DexCom (DXCM), for example. It's a wildly successful manufacturer of continuous glucose monitors ("CGMs"), which just happens to be headquartered not far from me here in San Diego. Because of the stock's […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Red Flag Alert Spots an Overlooked Risk By Herb Greenberg --------------------------------------------------------------- [Three Steps You Can Take to Protect Yourself]( Herb exposes the dangerous "money pivot" ahead... along with three essential steps you can take to protect yourself. [Discover details here](... --------------------------------------------------------------- Just because something isn't listed in the 'risk factors' section of a company's regulatory filings doesn't mean it's not a possible 'risk'... Take DexCom (DXCM), for example. It's a wildly successful manufacturer of continuous glucose monitors ("CGMs"), which just happens to be headquartered not far from me here in San Diego. Because of the stock's remarkable rise, DexCom has steamrolled its share of skeptics and short sellers over the years, who felt the company was overstating the potential size of its end market... and understating the potential impact from competition. As it turns out, even with competition – mostly from Abbott Laboratories (ABT) – it has done exceedingly well. The reason is obvious: With a CGM, you don't have to stick yourself in the finger several times a day to test your blood sugar. You wear it for a week or two – just set it and forget it. The bullish angle is that things are just revving up, especially with this year's start of coverage of CGMs by Medicare for type 2 diabetics who need insulin. Type 2 diabetes is the most common and manageable. As DexCom CEO Kevin Sayer said at the company's investor day in June... That expands our addressable market tremendously. It's an enormous market of more than 25 million people, including those who don't yet need insulin, but might benefit from a CGM. The potential can be seen in DexCom's valuation: While well below its bubble peak, at roughly 80 times forward sales the stock still reflects investor enthusiasm about its growth potential. But there's a catch, and it's something that hasn't yet been formally called out by the company as a risk... It very well may be that type 2 diabetics might not need to wear CGMs... certainly not forever like a type 1 diabetics who need to constantly monitor their blood sugar levels. Ditto for type 2 diabetics whose blood sugar levels are always out of whack. The reason for that is the surge in popularity of GLP-1 insulin alternatives, which lower blood sugar to acceptable levels... and seemingly keep them down. You might have heard of them, but mostly because they've become maybe even hotter as weight-loss products. The most popular include Novo Nordisk's (NVO) Ozempic and Eli Lilly's (LLY) Mounjaro. The trouble is, as good as GLP-1s are they might be too good when it comes to CGMs. That's because GLP-1s can wind up moving somebody who has been diagnosed as having type 2 diabetes down to pre-diabetic, where it's debatable whether they need to wear a CGM. DexCom management has said that GLP-1s and CGMs will be complementary, and they very well may be. Then again, that raises another issue... Even if a type 2 diabetic starts off wearing a CGM, they might be able to stop after a short while using the GLP-1. At least that's my interpretation of Sayer's response to a question at an investor conference earlier this year, when he was asked... There are some GLP-1 drugs that are coming out that obviously, have an impact on type 2. Can you maybe just talk about the impact of GLP-1 and maybe just kind of compare and contrast GLP-1 versus sort of the way you are all attacking the type 2 market? As Sayer responded (emphasis added)... I think the GLP-1s are marvelous drugs and the results and things we've heard are great. But it's still helpful for these patients to know where they are and what's going on. Dosing a GLP-1 isn't necessarily easy. Those things can be very difficult for somebody to start up on. So there's certainly use for a DexCom [CGM] in the beginning. But as you see the results of your behavior on a GLP-1 by wearing a sensor, it really reinforces the behavior changes that are made. And one of the other things on those slides, and again, I'll go back to it, the cost of taking care of people is up 27% in two years. He went on to mention how a GLP-1 might "cost a lot more money than being on a CGM," adding (emphasis added)... I don't know how it all plays out. But I know all the tools are useful, and I know we definitely feel a role and a purpose in here, and that's what we intend to do. I never believed the business model for type 2 diabetes would be the same. I've always believed it's – we're going to get reimbursed less over time because we're not controlling a pump. It's not a life-or-death decision. But we are providing you information that's important to your health. --------------------------------------------------------------- Recommended Link: [REVEALED: The most dangerous man in America...]( A powerful man unbeknownst to most Americans is about to change the course of history... It's not Joe Biden, Donald Trump, or any other politician. In fact, this person has never run for or held elected office. Most people wouldn't know him if they bumped into him on the street. But on December 13 at 2 p.m. Eastern time, this man is set to make a statement. A declaration that could send shockwaves through our financial system... and instantly change the trajectory of more than $5 trillion in American money. While most people will be blindsided by this statement... you have a unique opportunity. A chance to prepare for this event...to be on the right side of history...and potentially coming out wealthier than you ever thought possible. [To find out what you need to do to prepare, click here to get the full story](. --------------------------------------------------------------- Here's the thing... When Sayer says that "dosing isn't necessarily easy," he's referring to injections. But oral GLP-1 formulations are starting to hit the market, and CGMs aren't everybody's idea of a good time. As for cost: The cost of GLP-1s is likely to fall over time. And then Sayer couldn't have been any clearer when he said that CGMs for type 2 diabetes are a different business model than the company was built on. That's especially true, it would appear, with the onslaught of GLP-1s. Perhaps most important, he said CGMs are good to use with GLP-1s "in the beginning," not forever. That's significant. What's more, even Sayer concedes that he doesn't know how all of this will shake out. But keep in mind: betting against Sayer has been foolhardy... In the eight years he has been CEO at DexCom, revenues have grown by more than seven-fold. At its peak, the stock was a nearly 10-bagger (with the stock down from the peak, it's currently a "mere" 7-bagger)... That's how quickly the diabetic market has advanced technologically. As a result, DexCom has a strong balance sheet and excellent free cash flow. And while its CGM is considered best in class, it's also a pure play on a single product and a single disease, which itself can be a risk. For that very reason, there has been chatter that DexCom could also be a takeover target... In the [June 20 Empire Financial Daily]( I quoted David Kliff of the Diabetic Investor newsletter as saying he believes DexCom would fit well with tech giant Apple (AAPL)... It fits perfectly into their strategy. There's Apple and Android and Apple could use something like that because it binds people to their platform. And they could charge a small amount of money to do things with the data. That may be a stretch, but it's icing on the upside if some kind of deal with Apple or someone else ever happened. If it doesn't, the risk that GLP-1s could impact CGM sales is real... even if it's not spelled out (yet) by DexCom. Unlike prior Red Flag Alerts, I'm not saying that DexCom is a flat-out "avoid"... but instead, it's a very firm buyer beware. And speaking of GLP-1s... I recommended Novo Nordisk back in September in the inaugural issue of my Empire Real Wealth newsletter – it's up 92% since then – with the thesis largely tied to GLP-1s for their weight-loss potential. For more information on Empire Real Wealth – including how to gain instant access to the entire portfolio – [click here](. Moving on, some quick updates on stocks I've red flagged previously... The most notable: Penumbra (PEN), a medical-devices company with a device that sucks blood clots out of brains. I wrote about it [back in mid-June](... The stock peaked at the end of the month and has since fallen 27%. It seems the company has had some clinical trial delays. Also lower are SunRun (RUN), Topgolf Callaway Brands (MODG), ChargePoint (CHPT), and Hannon Armstrong Sustainable Infrastructure Capital (HASI). Regards, Herb Greenberg August 24, 2023 --------------------------------------------------------------- If someone forwarded you this e-mail and you would like to be added to the Empire Financial Daily e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2023 Empire Financial Research. All rights reserved. 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