Dexcom outperforms growth expectations but proceeds with caution

By Laura Lovett
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Dexcom started out the year strong following the FDA clearance of its integrated continuous glucose monitor the G6. In its Q1 earnings call, the company reported a 30 percent increase in revenue compared to Q1 of 2017, bringing its total revenue to $184 million.

When the FDA gave Dexcom the nod for the G6 it became the first interoperable CGM to get the designation. According to the earnings call, the technology is set for a full launch by June. 

“In the short time since we last spoke with you about the FDA's clearance of our G6 system, the Dexcom team has been sprinting to get this product out the door,” Kevin Ronald Sayers, Dexom CEO, said during the earnings call. “The initial excitement from the field has been phenomenal. First, the elimination of fingersticks while maintaining industry-leading performance has created quite a buzz. In addition, the simplicity of the auto-applicator and an improved on-body form factor have the diabetes community excited to experience this great new technology. Our limited launch has commenced and we remain on track for a full launch ahead of this year's ADA meeting in Orlando in June.”

There still continue to be questions over pricing and contracts for the G6. However, the company did file with CMS for a Medicare contract.

“[W]e’re going to take this opportunity with the new product to try and expand access and get to more patients,” Sayers said. “And to the extent we can make it easier for the payers and easier for us to manage this, we'll certainly entertain interesting pricing models and interesting business models, like we've done in Europe.”

There was also discussion of when we could see the much anticipated Verily Gen2. Dexcom’s partnership with Verily is aiming to produce a tiny dime-sized CGM that requires no calibration and can be marketed to people with both Type 1 and Type 2 diabetes. Right now Sayers said he is sticking with the 2020 launch date, that was previously alluded to in the Q1 earnings call. However, he did note that the process could go faster. 

“We'll stick with our 2020 goal,” Sayers said in the earnings call. “If we find the opportunity to go faster…we absolutely would. ..[W]e'll just play it by ear.”

The profit gross margin, however, decreased this quarter. In the first quarter the company announced that the profit gross was $119 million, generating a gross margin of 64.5 percent. That is down from the first quarter in 2017 where a 66 percent gross margin was reported. 

The leadership team named several reasons for the smaller percentage: excess in obsolete inventory charges related to prior generation receivers while transitioning to touchscreen devices; the shift towards non-US markets and Medicare, where prices are lower; and the geographic revenue mix being weighted towards non-US markets.

While the rate of growth continues to rise, the company appears to be proceeding with caution. During the earnings call an investor from JPMorgan Securities asked why the company is factoring a 15 percent growth for the back half of the year when this quarter saw a 30 percent growth. 

“In the midst of an environment [in which] certainly pricing has come under some pressure, we've navigated that quite effectively,” Blackford answeredl. “And early indications are that we're going to continue to be able to do that effectively, particularly with a product that has a premium feature set with it like G6 does. So we're very bullish, very excited about what we're seeing but at the same time, aren't going to get ahead of ourselves here and introduce any unnecessary risk to the expectations.”

In Q4 2017, Dexcom also outperformed its exceptions in terms of revenue by nearly $20 million. 

Despite the competition in the CGM space as products like Abbott’s FreeStyle Libre come on to the market, Sayers said that Dexcom hasn’t seen patients leave. 

As for now the company is building out its inventory for the launch of the G6 in June. 

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