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DexCom shares soar after diabetes product gets Medicare approval

Dexcom G5 Mobile Receiver
Source: Dexcom
Dexcom G5 Mobile Receiver

Shares of DexCom skyrocketed as much as 31 percent after its G5 Mobile CGM system received a favorable ruling from the Centers for Medicare and Medicaid Services on Friday.

The stock later pared its gains, but still ended the day nearly 26 percent higher.

CMS ruled that DexCom's product — which allows for people with diabetes to continuously monitor their glucose levels — qualifies as therapeutic. This new classification means the device is eligible for Medicaid and Medicare coverage.

Piper Jaffray said in a note that this announcement came "over a year earlier than both management's and the Street's expectations and we believe it surprised the company."

After the announcement, Wedbush estimated that "an additional 1.3 million Medicare-aged Type 1 and insulin-taking Type 2 diabetics will now have access" to DexCom's product. The firm said this is a "significant expansion of the applicable patient pool."

DexCom one-year performance

With Friday's gains, shares of DexCom have gained 19 percent over the past year.

Disclosures: Piper Jaffray was making a market in the securities of DexCom at the time this research report was published. The firm will buy and sell DexCom securities on a principal basis.

Wedbush makes a market in the securities of Dexcom.