DexCom DXCM is facing regulatory scrutiny following a warning letter recently posted by the FDA. This could affect the approval of the company’s upcoming 15-day G7 continuous glucose monitor (CGM). The letter cited multiple violations, including the failure to submit a premarket notification before making significant modifications to its sensors. Specifically, the FDA noted that changes to the sensor coating posed an increased risk to users who rely on Dexcom’s devices for insulin dosing and diabetes management decisions.

Additionally, the FDA raised concerns regarding Dexcom’s testing procedures for monitoring glucose and acetaminophen concentrations in both the G6 and G7 CGMs. The agency also flagged issues related to how the company addressed a deficiency in G6 sensors, which are linked to dissolved oxygen content values — an essential factor in accurate blood glucose measurement. The warning letter followed an inspection of Dexcom’s facilities in San Diego and Mesa, AZ, conducted last year.

Likely Trend of DXCM Stock Following the News

Shares of DXCM lost 1.9% yesterday following the posting of the warning letter on March 25. The company’s shares have lost 7.2% so far this year compared with the industry’s decline of 2%. The S&P 500 Index has decreased 2.1% in the same period.

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A potential delay in obtaining clearance for the latest G7 sensor will likely lead to a loss of market share amid rising competition from Abbott’s Libre. The G7 sensor is currently approved with a 10-day wearable life, less than 15 days for Libre. The latest G7 sensor will help DXCM level the playing field.

The Impact

While the warning letter does not immediately mandate a recall, it may cause delays in regulatory approvals. However, the company has ceased commercial distribution of G7 with faulty sensors. This may lead to a loss in sales during the first quarter.

Dexcom has submitted its 15-day G7 CGM for FDA review and is still within the 90-day window for 510(k) clearance. Industry experts suggest that although the letter might contribute to minor delays, it is unlikely to cause significant setbacks in product approval. However, any extended delay in addressing the FDA’s concerns could raise risks for future product launches.

DXCM’s Response

In response to the FDA’s concerns, Dexcom has reaffirmed its commitment to meeting regulatory standards and ensuring the safety of its CGM users. The company is actively working with the FDA to resolve outstanding issues and has taken steps to strengthen its compliance processes. Additionally, Dexcom has assured stakeholders that it does not expect the warning letter to significantly affect its broader pipeline of CGM products or long-term growth strategy. However, the FDA has termed the company’s response as inadequate.

Despite these regulatory hurdles, Dexcom remains confident that the warning letter will not materially impact the approval or launch of the 15-day G7 CGM, expected in the second half of the year. However, given the heightened scrutiny, investors and healthcare providers will closely monitor how Dexcom resolves these regulatory concerns to maintain trust in its CGM technology.

DexCom, Inc. Price

DexCom, Inc. price | DexCom, Inc. Quote

DXCM’s Zacks Rank & Key Picks

Currently, DXCM carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Cardinal Health, Inc. CAH, Cencora, Inc. COR and Boston Scientific Corporation BSX.

Cardinal Health, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 9.5%. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 9.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cardinal Health’s shares have gained 12.2% compared with the industry’s 1.7% growth so far this year.

Cencora, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 12.1%. COR’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 4.9%.

Cencora’s shares have gained 19.5% compared to the industry’s 6% decline year to date.

Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.3%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.3%.

Boston Scientific’s shares have rallied 15.4% compared with the industry’s 7.2% growth so far this year.

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This article originally published on Zacks Investment Research (zacks.com).

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