June 13, 2006

Costs pose hurdle for diabetes monitoring devices

By Susan Kelly

CHICAGO (Reuters) - Monitoring systems that can help
diabetics better control fluctuations in their blood sugar
levels will take time to catch on because they are expensive
and insurers are not yet providing coverage for the devices,
physicians and analysts said.

Continuous glucose monitors are an important step forward
in diabetes care because they provide more frequent readings on
blood sugar levels than current finger-stick tests, allowing
patients to better manage the condition through diet
adjustments and insulin injections, physicians said.

The systems, however, are expensive, due to the cost of
their disposable wire-like sensors, which are inserted just
under the skin and must be replaced every few days. The sensors
measure glucose levels and transmit the data wirelessly to a
pager-size receiver.

"The issue right now really remains the cost. They have not
been covered by health care insurance," said Dr. Lawrence
Hotes, an endocrinologist and chief medical officer for New
England Sinai Hospital.

Hotes said he has prescribed a continuous glucose monitor
to less than half a dozen patients so far because they are too
costly for most people to afford on their own, with the sensors
costing as much as $50 apiece and needing to be replaced every
three days.

Fears that insurance companies and the federal Medicare
agency will be slow to provide reimbursement for the new
technology weighed on shares of device maker DexCom Inc. on

Its stock fell nearly 17 percent after Cowen & Co. on
Tuesday downgraded its investment rating on DexCom's stock to
"neutral" from "outperform," citing the insurance concerns.

"While we continue to believe reimbursement will be secured
for CGM devices, our checks clearly suggest that broad coverage
will take longer than we had initially anticipated," Cowen
analyst Sara Michelmore said in a report to clients.

Last week, William Blair & Co. analyst Ben Andrew lowered
his sales forecast for the DexCom device, saying market
adoption of the product has been slower than expected.

DexCom, which went public in April 2005, launched the
continuous glucose monitor, its first product, in March.

Medical device industry heavyweight Medtronic Inc. also
manufactures a continuous glucose monitor, and Abbott
Laboratories Inc. is working on one as well. Medtronic shares
rose 7 cents to $50.65 on Tuesday, while Abbott shares fell 27
cents to $42.45.

Spikes and dips in the blood sugar levels of diabetics, if
not carefully managed, may lead to complications that can
include loss of kidney function, sight or limbs.

Doctors said the monitoring systems, on display at a
meeting this week of the American Diabetes Association, alert
diabetics to rapid and potentially dangerous changes in their
blood sugar and can be especially valuable overnight when
patients are asleep and vulnerable to a glucose decline.

"The technology, just to have real-time continuous glucose
monitoring, that is a big thing. We've been waiting for that
for years and years, and now it's here," said Dr. Robert
Gabbay, director of the diabetes program at Pennsylvania State
University College of Medicine.

Beyond the expense of the disposable sensors, the DexCom
monitor costs about $800, while the Medtronic device costs
about $1,000. Medtronic also recently introduced a glucose
monitor combined with an insulin pump that sells for about


DexCom's chief financial officer, Steve Kemper, said it
could be a year before private insurers agree to pay for
continuous glucose monitors, and possibly 18 months to two
years before the U.S. Centers for Medicare and Medicaid
Services agree to reimburse for it.

DexCom supported Medtronic's request for reimbursement from
Medicare at a recent hearing, and members of Congress have sent
letters to the agency in favor of reimbursement, Kemper said.

A Medicare spokesman said the matter is under review.

DexCom stock, which is off more than 40 percent from an
all-time high this April, fell $2.86 to $13.97 on Nasdaq. San
Diego-based DexCom conducted another stock offering in April.

(Additional reporting by Kim Dixon)