Dexcom falls after Abbott receives Medicare approval for Libre

Shares of Dexcom (DXCM) are sinking after Abbott (ABT) announced that FreeStyle Libre, its new continuous glucose monitoring system, is now available to Medicare patients. ABBOTT ANNOUNCES MEDICARE COVERAGE: This morning, Abbott announced that the FreeStyle Libre System, the company’s rnew continuous glucose monitoring system, is now available to Medicare patients, having met the codes for therapeutic CGM systems used for coverage by the U.S. Centers for Medicare & Medicaid Services. Coverage includes all Medicare patients with diabetes who use insulin and who meet the eligibility criteria. Abbott said that the factory-calibrated FreeStyle Libre system is the only CGM system recognized by Medicare that requires no user calibration whatsoever and also does not require the need for routine fingersticks. BUYING OPPORTUNITY: Following Abbott’s announcement, Piper Jaffray analyst JP McKim said he believes Abbott’s Medicare approval for Libre is “more market-expanding than share-taking” for Dexcom, and maintained an Overweight rating on Dexcom shares, seeing the pullback as a buying opportunity for longer-term investors. The analyst believes the sooner-than-expected Medicare coverage minimizes upside potential for Medicare revenue in 2018, but added that CGM adoption is expected to accelerate and he thinks “the superior product” of Dexcom will win more Medicare patients. NORTHLAND DOWNGRADES: Northland analyst Suraj Kalia downgraded Dexcom to Underperform from Market Perform after Abbott announced Medicare coverage for the Libre FGM. The analyst believes it undercuts Dexcom’s competitive advantages, and contends that there is additional headline risk vis-a-vis Medtronic’s (MDT) Guardian Connect CGM approval in the pipeline. Further, Kalia believes Dexcom’s stock is bound to be under pressure over the next 12-18 months. The analyst added that Dexcom does have the best in class sensor and the company has an “excellent” pipeline but argued that the Libre FGM may be “good enough” for a large chunk of patients, especially as its about one-tenth the cost of Dexcom’s upfront price. OTHER ANALYST COMMENTARY: Cowen analyst Doug Schenkel believes shares of Dexcom are down too much following Abbott’s announcement and that a 10% sellof “appears disproportionate” on a three month timing swing on an expected event. Baird analyst Jeff Johnson said he believes today’s news may not be create as much near-term risk to Dexcom numbers as investors believe. PRICE ACTION: Dexcom dropped 10.8%, or $6.29, to $51.79 at midday.