Short:

Wheres the insulin?

DXCM is hyperglycemic.
Ticker: DXCM
Price Target: $20 Marc T. Grow, CFA
Return: 70% Columbia Business School
DXCM Short- Summary
Investment Thesis: DXCM Summary
Price 5/2/16: $64.38
52 Week Range: $103.29 - $47.92

1 Market UnderesXmaXng CompeXXon Shares Outstanding: 83mm

Market Cap: $5,371mm
Net Cash: $105mm
2 OveresXmaXng Revenue Opportunity
Enterprise Value: $5,266mm
2016 Revenue EsXmate: $464mm

3 Aggressive ValuaXon EV / 2016 Revenue: 11.4x

Short Interest: 3.3%
Cost to Borrow: GC

A"rac&ve 3x Upside / Downside Ra&o 2

 Company & Industry Overview
DXCM is a medical device company that develops and manufactures conXnuous
glucose monitoring (CGM) systems for type 1 diabeXcs
US Diabetes Market Insulin Pump Therapy
PaXents use
monitoring CGM Sensor
devices to Transmi`er
Monitoring measure (DXCM, MDT, ABT)
Devices:
CGMs
glucose levels
Blood Glucose
Monitors
Only
Insulin Delivery: integrated
Pump Therapy device
InjecXons Then use this
informaXon to
(MDT, PODD,
dose insulin
JNJ, TNDM)
Very few type 2 pa&ents monitor glucose levels Insulin Pump &
Sources: Factset, Capital IQ, American Diabetes AssociaXon (ADA) InserXon Set

T1D Represents a Small Percentage and is Limited to Popula&on Growth 3

 Dexcom Today

Market Share Leader

(70% of CGMs)

Technology Advantage
Price/Sales
(Most Accurate CGM)
2016: 11x
Revenue Growth
(5yr Rev CAGR = 53%)
Sources: Factset, Capital IQ, IR PresentaXons

Disclaimer: Past Performance Does Not Guarantee Future Returns 4

 CompeGGon is Coming
Eversense

Lowest Annual Cost Free OpXon: 90

day implantable
Freestyle Libre

Single InserXon Site

KEY CATALYSTS
MiniMed 640g MiniMed 670g

G6 Mobile

Sources: IR PresentaXons, Company Filings

2016 2017 2018
DXCM Will Lose Share Over the Next 12-18 Months 5
 Share Loss Drivers
CGM Market Share Forecast Eroding Market Share
Medtronic
integrated device
Compe&&on Developing single
inserXon site
technology

Abbo` Labs
success in EU with
Freestyle Libre

Senseonics 90 day
implantable device
Applied for CE
Mark

Sources: IR PresentaXons, Company Filings, EsXmates

Expected 2017

But the Market Doesnt Think So 6

 Overstated AdopGon
Enterprise Value Today:
US Type 1 paXents: $5.3b
1,200,000 100% T1 Type 1 AdopXon 100%: $3.9b
Adop&on
X Long-term BULL CASE
Annual CGM Cost:
$3,250 L/T Base Case 50%: $2.0b
X 50% T1
CGM AdopXon Rate: Adop&on
15%
2015 Market Sales 15%: $585m
= Dexcom 2015 Sales: $402m
Total market sales (2015):
$585mm
DXCM 69%
Sources: Investor RelaXons, EsXmates, ADA

Long-term CGM Adop&on is Overdone 7

AdopGon Headwinds
Type 1 Pa&ents x CGM Adop&on = Total Addressable Market ADOPTION
Growth
NOT EVERYONE WANTS TO BE PLUGGED INTO A DEVICE
I decided to quit using my CGM because of the hassle of calibraXng [with nger pricks] and the alarms.
Type 1 pa(ent and former CGM user
Theres a meaningful populaXon of Type 1s who do not want to be plugged into a device.
Nurse Educator

NOT EVERYONE CAN OR WANTS TO PAY FOR IT

Many Type 1s follow consistent regiments that allow them to know their levels with li`le variability,
CGMs can be used every so ooen for calibraXon" Former VP of Insulet

NOT EVERYONE IS CANDIDATE FOR CGM & PUMP THERAPY

These devices require acXve management and signicant training, not everyone is an ideal candidate
Diabetes America Execu(ve

CGM isnt for Everyone 8

 Falling Annual RPU Sensor UGlizaGon
Annual Revenue Per User
Primary Research
Actual life > FDA
recommended life
1. Users wear sensors un&l
they fall o
2. Sensors get more
accurate with Xme (no
incen&ve to change)
Should also expect pricing
Arrives pressure per sensor from
2017
payers
Sources: IR PresentaXons, Company Filings

Next Gen Sensors Last Longer, Driving Down Annual RPU 9

 Insiders Are Cashing OUT

Insider Ac&vity
Insider Ac&vity:
Since 2013: 5.6mm+ shares/awards
sold
(~4% of diluted CSO) for $305mm

10 year cumulaXve net loss $465mm

Insiders currently own 1.9% CSO

Source: Capital IQ

Consistent Insider Selling 10

 ValuaGon
2016 Summary DXCM Share Price & Valua&on
US Type 1 PopulaXon 1.2mm
AdopXon 18%
Type 1 CGM users 216k
DXCM Market Share 65%
DXCM Users 140k
Annual Revenue Per User $3,300
Total Revenue $464mm
Sales Mul&ple 4x
Value $1.8b
Value Per Share $20.00 Long-term Assump&ons Bull Case Bear Case
AdopXon 65% 50%
Near-term protability & cash ow
DXCM Market Share 70% 30%
mulXples are not meaningful Pricing AppreciaXon 3% Flat
Sources: IR PresentaXons, Company Filings, ADA, Capital IQ, Factset

A"rac&ve Risk / Reward 11

 Revenue Bridge
Primary
Primary RResearch
esearch:
DXCM benets from increased
adopXon but theres a ceiling
1. CGM adopXon isnt likely to
exceed that of pumps (35%)
2. Further adopXon would have
to come with meaningful
price concessions

Variant View:
Sensor Street MTG

Pricing

U&liza&on
Source: Company Filings

Market Share, Pricing, and U&liza&on Represent Revenue Headwinds 12

Primary Research
>15 type 1 diabeXcs who own CGM systems
Type 1 PaXents 2 type 1 diabeXcs without CGM systems
A`ended JDRF TypeOneNaXon Summit on 11/7/2015

Nurse Educator with type 1

Medical
ExecuXve of Diabetes America
Professionals
Elementary School Nurse with type 1

Former employee of Dexcom & Medtronic

Sr. VP at Blue Cross
Industry Experts
Academic Researcher
Former VP of Insulet
VC investor of Dexcom
Investors
Former Director of Dexcom
13
Key Risks
Risk Mi&ga&on
More likely that pricing per sensor
Realized price increases
1 over Xme would stay at and avg. sensor life
extends further driving down RPU

Next gen MDT device with a single

Faster adopXon of CGM
2 technology inserXon site & ABTs US release
will take share of CGM growth

Historical mulXples materially lower

3 Buyout risk than today and new technologies
threaten standard of monitoring

14
 Summary MulGple Ways to Win
Drivers Outlook NTM EV/
Sales
Type 1 PaXents Limited to populaXon growth 1.2mm 11x
x x x
AdopXon Lower than expected 18%
x x x
Market Share New compeXXon 65%
x x x
UXlizaXon Longer lasXng sensors 10 Day Avg.
x x x
Pricing Pressure from payers $70
= = =
Revenue

MISS

$464mm

4x
Sources: IR PresentaXons, Company Filings, ADA

Priced for Perfec&on, DXCM Presents Mul&ple Ways to WIN 15

 Appendix
 Salesforce Disadvantage
Es&mated Salesforce Representa&ves
Primary Research
MDT reps are already on-site and can provide a suite of
diabeXc therapy products
Success is closely Xed to the coverage and eciency of
compeXng sales forces MDT 4.4x
Advantage

I chose Medtronic for CGM because they were the only one
with a presence in my endocrines oce Type 1 pa(ent
Everyone I know is using Medtronic, I think they are the only
company with sales reps in this area Type 1 pa(ent

Sources: IR PresentaXons, Company Filings

Medtronic Has A Substan&al Salesforce Advantage 17

 Historical Price & ValuaGon
DXCM 5yr Chart & P/Sales Mul&ples

Peer Group Mul&ple: 4x

Sources: IR PresentaXons, EsXmates, Capital IQ, Factset

Signicant Risk of De-Ra&ng 18

 CompeGGon
Medtronic Senseonics Abbo" Labs Dexcom
Current Model: MiniMed 530G Applied for CE Mark In EU only G5 Mobile

Next Gen: MiniMed 640G Eversense Freesyle Libre G6

Expected Release: Mid 2016 2017 Mid 2016 2017

Annual Cost: $3,000 ? $1,800 $3,500

Sensor Life: 7 days 90 days 14 days 7 days

Pump Market Share: (60% -70%) - In EU only CGM only

Sources: IR PresentaXons, Company Filings

19
 UGlizaGon CalculaGon
Sensor Economics
7 Day Sensor 10 Day Sensor - $70 10 Day Sensor - $60 Calcula&on
Revenue Based on FDA sensor life
Sensors Per Year 52 37 37 A
Sensor Price $70 $70 $60 B
Expected Annual Sensor RPU $3,650 $2,555 $2,190 C = A*B

Revenue Based on Actual Sensor life

EsXmate of Actual Sensors Used/Year 34 D
UXlizaXon 152% 152% 152% E = A/D

Sensors Used Per Year 34 24 24 F = A/E

Sensor Price $70 $70 $60 B
Annual Sensor Revenue $2,380 $1,680 $1,440 G = F*B
Per User Decline (29%) (39%)
Sources: IR PresentaXons, Company Filings, EsXmates

20
 Comparables Table
Market Enterprise SALES EBITDA
Company Price Capitalization Value 2015 2016 2017 2015 2016 2017
Medtronic Plc $79.15 $110,892 $131,115 $20,261 $28,723 $29,612 $6,034 $9,719 $10,224
Insulet Corporation $33.30 $1,902 $1,966 $324 $344 $405 ($36) ($7) $5
Tandem Diabetes Care, Inc. $11.13 $338 $311 $73 $111 $150 ($64) ($55) ($40)
Abbott Laboratories $38.90 $57,309 $60,719 $20,405 $20,903 $22,264 $4,355 $5,214 $5,614

DexCom, Inc. $64.38 $5,371 $5,025 $402 $464 $531 ($46) ($2) $92

PRICE / SALES EV / EBITDA Gross SALES

Company Price 2015 2016 2017 2015 2016 2017 Margin CAGR
Medtronic Plc $79.15 6.5x 4.6x 4.4x 21.7x 13.5x 12.8x 65.6% 20.9%
Insulet Corporation $33.30 6.1x 5.7x 4.9x nmf nmf nmf 45.7% 11.7%
Tandem Diabetes Care, Inc. $11.13 4.3x 2.8x 2.1x nmf nmf nmf 36.5% 43.4%
Abbott Laboratories $38.90 3.0x 2.9x 2.7x 13.9x 11.6x 10.8x 53.7% 4.5%

Mean 4.9x 4.0x 3.5x 17.8x 12.6x 11.8x 50.4% 20.1%

Median 5.2x 3.7x 3.6x 17.8x 12.6x 11.8x 49.7% 16.3%

DexCom, Inc. $64.38 12.5x 10.8x 9.5x nmf nmf nmf 71.5% 14.9%

Difference (Mean) 7.6x 6.8x 5.9x nmf nmf nmf

Sources: Factset, EsXmates

21
 Short:
Wheres the insulin?
DXCM is hyperglycemic.
Ticker: DXCM
Price Target: $20 Marc T. Grow CFA
Return: 70% Columbia Business School