Diabetes management company Dexcom Inc. trounced Wall Street forecasts for the third quarter of 2019, with the company reporting worldwide sales of $396.3 million, up 49% from $266.7 million in the same period of 2018. Dexcom officials attributed the surge to volume growth plus new patient additions as providers and consumers become more aware of the benefits of real-time continuous glucose monitoring (CGM), where Dexcom's G6 has seen steady demand since launching in June 2018.
William Blair analyst Margaret Kaczor said Dexcom had a "yet another blowout quarter" and pointed to better sensor utilization and lower-than-expected pricing pressures in the durable medical equipment and pharmacy channels, in addition to patient adds.
"With revenue growth coming in 50% faster in the quarter than we expected on exceptional patient demand and no slowdown in sight, the company has the equivalent of a global tiger by the tail, but we think this management team is up to the challenge," she said in a research note. "In our opinion, market conversion is no longer a question of if but how fast, and that is a function of how flawlessly the company can execute against its many critical initiatives: market access, manufacturing, and international."
Jefferies analyst Raj Denhoy was likewise impressed. "The strong revenue growth is coming even as revenue per patient is slipping as the channel mix shifts; Medicare, PBM, and OUS are channels that are driving faster growth but they come at lower-prices."
U.S. sales up 53%
During the quarter, U.S. revenue shot up 53% year over year to $308.8 million, while international sales grew 36% to $87.5 million. Net income totaled $45.8 million on a reported basis and $60.4 million on an adjusted basis, leading Kevin Sayer, executive chairman, CEO and president of Dexcom, to declare the company profitable not just for the third quarter but, for the first time ever, through nine months.
"The explanation for this performance remains relatively simple," he said in an earnings call. "More and more people are becoming aware of the value of Dexcom's real-time CGM. And with G6, we have the right product to meet their needs."
Based on the Q3 results, Dexcom raised its full-year 2019 guidance to $1.43 billion to $1.5 billion, from $.133 billion to $1.4 billion previously.
Among the quarter's achievements were the launch of G6 in Canada and commencement of shipments of the device to Medicare patients. Sayer noted that Dexcom is partnering with Walgreens to ensure that Medicare patients can fill prescriptions for the CGM through any of the retail chain's U.S. stores.
Sayer also highlighted strides with Dexcom's insulin delivery partners, noting the imminent launch of Tandem Diabetes Care Inc.'s advanced therapy hybrid closed loop with Control-IQ system and integration of Insulet Corp.'s Horizon closed-loop pump with Dexcom G6. "The combination of Insulet and Dexcom will provide a unique and compelling user experience and form factor," he said. "Our strategy for the intensive insulin delivery business is playing out according to our plan and, in fact, vastly exceeding our initial expectations."
The third quarter also saw FDA approval of Dexcom's G6 Pro device in early October, which received a streamlined review under the agency's integrated CGM (iCGM) designation. The device is the first disposable professional CGM indicated for either blinded (nondiabetes and prediabetes) or unblinded (diabetes) real-time use.
Gearing up for G7 launch
As Dexcom continues to roll out G6 CGM, it is also preparing for its seventh-generation device, G7, on a limited basis late next year. "We intend to be very thoughtful on the rollout of G7 as we scale the infrastructure necessary to support the anticipated demand for this exciting new platform," said Steven Pacelli, Dexcom's executive vice president of strategy and corporate development.
There were challenges, too, during the third quarter. Dexcom CFO Quentin Blackford said that problems with one of the G6 sensor production lines "left inventory levels tight as we head into the fourth quarter. As a result, the remaining transition from G5 to G6 for certain channels of our business will be slower than originally anticipated." The company now expects full-year gross margin of about 63%, slightly below prior guidance.
Competition is heating up in the diabetes treatment space. In May, former Johnson & Johnson company Lifescan Inc. partnered with Sanvita Medical LLC, a subsidiary of Nova Biomedical Corp., to market a CGM system in North America and certain European countries starting next year. Lifescan will design the systems to integrate with its line of Onetouch Reveal glucose management apps.
Meanwhile, Dexcom rival Abbott Laboratories is awaiting the FDA's nod for its Freestyle Libre 2 CGM to begin launching it in the U.S. While that will improve Abbott's competitive positioning, wrote Cowen analyst Ryan Blicker, It's not expected to dampen Dexcom's outlook as "we expect G6 to be the most accurate/reliable product on the market." Blicker believes Dexcom will exceed 2020 consensus expectations by $100 million, with earnings per share projections also low.
"Competitive and potential long-term pricing headwinds exist," he said. "However, with the best pipeline in the industry, we expect DXCM to remain the clear CGM market leader for the foreseeable future, wherever the market goes."