Q3 Trends: Dexcom reported another quarter of double-digit revenue growth, driven by new customers using its continuous glucose monitors (CGMs). The San Diego-based firm’s revenue increased 17% in the U.S., while international revenue rose 22%.
The company recently launched its newest device, the G7 CGM, in Europe, as it awaits approval from the Food and Drug Administration in the U.S. It’s also preparing for an expansion of eligible patients, as the Centers for Medicare and Medicaid Services has proposed new guidelines that could result in the devices being covered for more patients with Type 1 and Type 2 diabetes.
“We have learned in our U.S. markets, getting access and getting reimbursement through these government agencies is absolutely critical and key to driving growth,” CEO Kevin Sayer said in a earnings call on Thursday. “We're getting access to more people who can use our technology and use our better product. For right now, we haven't seen any macro trends that would make us feel that this isn't going to continue. As we get more access, we will continue to grow and do well.”
Dexcom has ample cash, some of which it is investing in a new manufacturing plant in Malaysia, which will provide “the necessary scale and manufacturing efficiency to support our long term cost targets,” CFO Jeremy Sylvain said in an investor call. The company closed the quarter with $2.4 billion in cash and equivalents and more than $180 million in free cash flow, a “high watermark” for the company, according to the CFO.
“We believe that the company has a compelling series of catalysts over the next 6-12 months that can accelerate growth sooner than expected beginning in the second half of this year and into 2023,” William Blair Analyst Margaret Kaczor wrote in a research note on Friday.
G7 timing: Dexcom said in the last quarter that FDA approval of its G7 CGM would be delayed until late 2022 as the company needed to update the device’s software after questions arose during the agency’s review.
In Thursday’s call, the CEO reaffirmed that timing, saying Dexcom is “feeling really good about this being the end of the review period” and planning a full launch of the product for the first quarter of 2023.
“We're very confident in that Q4 approval timing and a Q1 U.S. launch,” Sayer said.
Earlier this year, rival Abbott Laboratories launched its Freestyle Libre 3 CGM after getting clearance from the FDA.
Broader CGM coverage: Dexcom executives said that they expect government coverage decisions to drive growth. For example, the U.K.’s National Health Service in August moved to include the Dexcom One, a simplified version of its CGM, for all patients with Type 1 diabetes and patients with intensively managed Type 2 diabetes.
“This announcement meaningfully expanded access to Dexcom within these markets, as our previous reimbursement was generally limited to a smaller population of higher risk individuals,” Sayer said.
Similarly, with the recent announcement by the CMS, Dexcom is expecting an expansion in the number of patients that will be eligible for coverage of the device. Once finalized, it would expand Medicare coverage to include patients with Type 2 diabetes that only use basal insulin, which Sayer estimates encompasses about 3 million people, as well as patients who don’t use insulin but have experienced hypoglycemia.
The CEO said the proposal was in direct response to outcomes demonstrated in Dexcom’s MOBILE trial, where it demonstrated CGMs improved time-in-range for adults with Type 2 diabetes who only used basal insulin.
“Historically, CMS has often led commercial payers and coverage decisions, and we anticipate the same dynamic to occur here,” he said. “However, we're not stopping there. We will continue to advocate for the millions of additional individuals that could benefit from access to real time CGM.”
The company expects to see a contribution from the coverage decision in 2023, although how much is yet to be determined, CFO Sylvain said.
Forecast: Dexcom increased its revenue forecast and now expects $2.88 billion to $2.91 billion for 2022. However, the company trimmed its expectations for non-GAAP profit margins from 65% to 64%.
Shares of Dexcom rose 11% to $112.50 in morning trading in the Nasdaq Stock Market.