- Dexcom's beat-and-raise third-quarter results appeared not good enough for investors Tuesday, who sent shares down 9% following a revenue pre-announcement and news of a C-suite retirement. Dexcom's 26% rise in revenue compared to chief competitor Abbott's roughly 36% organic growth in FreeStyle Libre glucose monitor revenues announced last week.
- In detailing the quarter during a call with investors Tuesday afternoon, Dexcom execs noted pricing pressure as a higher proportion of its diabetes device sales happened via pharmacies. Lower selling prices hid that the volume of units sold grew nearly 40%, according to comments from management, who also touted the company's best quarter for gross margin at 68% of revenue since it launched the G6 continuous glucose monitor in 2018.
- CEO Kevin Sayer also disclosed it will initially launch its next CGM, called G7, as a 10-day-wear device — in line with its existing G6 offering. That's because a 15-day-wear version did not meet the company's durability targets in studies, Sayer said, but the company aims to extend the wear duration sometime following rollout. Abbott's FDA-approved FreeStyle Libre 2 system has 14-day wear, as does its CE-marked Libre 3 device.
Industry observers accustomed to dramatic year-over-year sales increases from Dexcom may have noticed a less enthusiastic reception to this week's earnings report. For context, SVB Leerink analyst Danielle Antalffy outlined in a note following Monday's revenue announcement that the approximately 4% top-line beat versus analysts' consensus represented the smallest such margin since the fourth quarter of 2017.
And indeed, on Tuesday afternoon's call, Dexcom faced more questions about potentially shrinking differences between its own CGM offerings and Abbott's. Still, most analysts remain bullish despite some unfavorable near-term comparisons. Jefferies analysts noted the fact that Dexcom's volume of sales outpacing its revenue growth shows that Abbott's Libre device is "not meaningfully impacting" Dexcom's growth.
Dexcom management described the impact from COVID-19 as less significant than expected. The company launched a patient assistance program during the quarter for those who may have lost health coverage during the pandemic. Uptake of that program was minimal, Sayer reported, and did not have a material impact on Dexcom's finances.
The more significant force during the quarter came from Dexcom's ongoing shift to selling through pharmacies. Management put a number to that pricing pressure; the company now expects a $175 million negative impact this year as it transitions away from the majority of its patients obtaining supplies through a durable medical equipment benefit. That's up from the $150 million Dexcom pegged last quarter.
CFO Quentin Blackford reiterated to investors that "over time" prioritizing selling through the arguably more accessible pharmacy channel "will be a much more profitable business model."
As for G7's progress to market, Sayer said the company in mid-October began trials to support regulatory approvals, and expects to launch the device in "several key markets" in the second half of 2021. "The expansion of G7 into all of our core markets will likely extend into 2022 as we continue to scale manufacturing," Sayer said.
Sayer's update on the length of wear for G7 "may disappoint investors, but we don’t think it impacts G7 adoption trajectory or competitive positioning," Stifel analyst Mathew Blackman wrote in a note following the call. Dexcom's 15-day sensor survivorship was approximately 70%, "which the company did not feel was in the best interests of patients — our understanding is that Libre's 14-day sensor survivorship...is roughly 70%," Blackman noted.
In the fourth quarter, Dexcom is estimating a 10% hit to the number of new patients starting its therapy in light of COVID-19 restrictions. Dexcom now expects revenue to reach $1.9 billion, or 29% year-over-year growth. Blackford noted that's up $50 million from the company's most recent guidance and $150 million above the midpoint of guidance given at the outset of the year, prior to COVID-19 worries.
Dexcom also announced it will host an investor day Dec. 9 to further detail its long-term outlook.