DexCom (NASDAQ:DXCM) has undergone a major strategic reset after a turbulent 2024, and all eyes are now on its bold shift toward the vastly underpenetrated Type 2 diabetes market. Once firmly rooted in serving the Type 1 diabetes population, the company suffered a severe blow last July when it deprioritized its core market too abruptly, leading to a sharp 41% stock crash in a single day. However, the management team has since course-corrected and committed fully to capturing the more expansive Type 2 opportunity, which represents over 90% of the 38.4 million Americans with diabetes. With new product launches like the Stelo over-the-counter CGM, expanded access through major pharmacy benefit managers (PBMs), and upcoming enhancements like a 15-day CGM sensor, DexCom is positioning itself to rebound from its executional missteps. Yet, while the opportunity is enormous, it is not without risks. Let us dive deeper into this latest strategic pivot and find out if it makes DexCom an attractive bet for the long term.
Expanded Type 2 Access Through PBM Coverage Could Drive Massive Growth
DexCom’s most consequential move in 2025 has been securing reimbursement access for its continuous glucose monitors (CGMs) across all three of the largest U.S. PBMs for patients with Type 2 diabetes, regardless of insulin use. This marks a step change in the market opportunity. Until recently, CGMs were primarily covered for Type 1 patients or those with insulin-dependent Type 2 diabetes. The broader coverage opens the door to nearly 6 million new potential users by the end of the year, a significant portion of the 25 million Americans with Type 2 diabetes not on insulin. DexCom reported a record new patient quarter in Q1 2025, with a noticeable uptick in non-insulin Type 2 starts, confirming early traction. The reimbursement landscape is critical in a cost-sensitive environment, and DexCom’s inclusion across major formularies significantly reduces out-of-pocket costs for patients, improving uptake and retention. In fact, management observed that patients with insurance coverage exhibit higher and more consistent device usage compared to out-of-pocket buyers. This access expansion also fuels physician adoption—primary care providers are now more likely to prescribe DexCom CGMs knowing their patients are covered. On the payer side, economic evidence supporting CGMs in preventing complications and reducing overall healthcare costs is gaining traction, with DexCom planning to strengthen this case via a randomized controlled trial specifically focused on the non-insulin Type 2 population. If results align with past studies in insulin users, DexCom may influence clinical guidelines and further normalize CGM use across the broader Type 2 segment. This access strategy represents a foundational pillar of DexCom’s pivot and could catalyze meaningful long-term growth if the momentum sustains.
Stelo Launch Targets Underserved & Wellness-Conscious Consumers
DexCom’s launch of Stelo, the first over-the-counter CGM designed for consumers without a prescription, is a critical enabler of its Type 2 and prediabetes market ambitions. The device has already seen strong uptake with over 200,000 downloads of its companion app, and DexCom reports that usage is highest among individuals with Type 2 diabetes and prediabetes—precisely the segments where the company is trying to expand its footprint. Stelo offers a non-invasive, data-driven approach for individuals to monitor blood sugar levels without traditional pricks or prescription hurdles, appealing to users managing early-stage metabolic issues or simply seeking better health insights. The device is now available through major e-commerce channels like Amazon, in addition to DexCom’s own website, significantly boosting accessibility and consumer exposure. Importantly, retention among Stelo users has been encouraging, with a substantial number subscribing to recurring shipments and integrating CGM data into their health routines. From a physician engagement standpoint, Stelo also gives healthcare providers flexibility to recommend CGMs to patients regardless of their insurance coverage. Furthermore, DexCom is building software-driven enhancements for Stelo, such as a 180-day data look-back feature and potential integrations with wellness apps like Oura, further broadening its health optimization use cases. As DexCom gathers user data and builds insights into non-traditional CGM demographics, Stelo could act as both a revenue stream and a top-of-funnel driver, converting paying wellness users into covered G7 customers once insurance is obtained. This strategy blurs the lines between medical device and consumer tech—a potentially powerful approach in a growing preventive health economy.
Upcoming 15-Day Sensor Could Improve Margins & Competitive Position
The forthcoming launch of DexCom’s 15-day G7 sensor represents both a technological and economic upgrade for the company. Approved by the FDA in early 2025, this longer-lasting sensor will allow DexCom to replace three 10-day sensors with two 15-day ones, immediately reducing manufacturing, logistics, and distribution costs. Jefferies estimates this could slash cost-of-goods-sold per patient by a third while maintaining revenue due to higher per-unit pricing, with gross margins expected to improve gradually as adoption ramps. While Abbott currently holds an edge with its 15-day Libre device, DexCom’s G7 is expected to match that duration and offer superior accuracy, with a reported MARD (mean absolute relative difference) of 8.0%. Integration with insulin pumps and automated delivery systems is already underway, and DexCom is proactively working with payers to ensure smooth reimbursement transitions. Analysts expect a 68% gross margin by the end of the decade, up from 62% currently, largely on the back of this product transition. However, management has cautioned that this ramp will be gradual—new prescriptions are needed, and many users are still on G6 or earlier devices. Nonetheless, the 15-day G7 adds a powerful tool to DexCom’s arsenal in defending market share, especially as competition from Abbott and Medtronic intensifies. The sensor also fits well with the increasing value expectations from payers, who are likely to favor devices that balance cost efficiency and performance. In a maturing CGM market, product longevity and economic value are emerging as key differentiators, and the G7 upgrade positions DexCom to meet those expectations head-on.
Execution Risks & Operational Headwinds Remain A Concern
While DexCom’s strategic reset shows promise, the company remains exposed to several execution-related risks that could undermine its progress. The most pressing issue in recent quarters has been supply chain volatility, which prompted expedited freight shipments, including the chartering of dedicated flights, to restock depleted inventory. This drove unexpected cost inflation and led the company to lower its gross margin guidance for the year to 62%, citing freight surcharges, tariff pressures, and FX-related manufacturing cost fluctuations. In parallel, a warning letter from the FDA related to inspections at its San Diego and Mesa facilities during 2024 cast a shadow over DexCom’s operational controls, even though the company has since received approval for its 15-day sensor. The letter does not halt ongoing sales or new product launches, but it raises regulatory scrutiny and necessitates resource reallocation to resolve compliance issues. Furthermore, although the shift to Type 2 expands total addressable market, it requires a different go-to-market strategy. Unlike Type 1 patients—who typically see endocrinologists and rely on CGMs as a critical management tool—Type 2 non-insulin patients are often managed by primary care providers who may be less familiar with CGM usage or its reimbursement dynamics. While DexCom’s sales force has expanded, the company must now execute educational campaigns targeting both clinicians and patients while maintaining high retention and reorder rates in a more cost-sensitive, diverse population. On the international front, revenue fell slightly short of expectations due to coverage delays and market timing mismatches, reminding investors that global scaling efforts can be uneven. These headwinds, though not insurmountable, highlight the importance of execution consistency in a phase of aggressive strategic repositioning.
Final Thoughts
Source: Yahoo Finance
We can see the sharp fall of more than 40% in DexCom’s stock price last year when it announced its decision to deprioritize its core market. However, a lot has happened in the past year. The company’s renewed focus on the Type 2 diabetes market, combined with broader insurance coverage, the launch of its Stelo OTC device, and the impending rollout of its 15-day CGM, marks a pivotal transformation in its growth trajectory. These strategic moves expand its addressable market, improve margins over time, and position the company to compete more effectively in a dynamic landscape. Moreover, its valuation is also attractive as its current LTM EV/ Revenue multiple of 7.85x is significantly below the 11.78x highs it touched in June 2024. We believe that DexCom has a good chance of winning back investor trust and reaccelerating its top-line growth and the coming quarters will serve as a litmus test for whether this strategic doubling down was visionary or premature.