DexCom, Inc. (DXCM) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the JPMorgan Healthcare Conference. I'm Robbie Marcus, the med tech analyst. I'm very happy to have DexCom here to kick off the medical device track here at the conference. Proud to introduce Kevin Sayer, President, Chairman and CEO of DexCom.

Thank you very much, Robbie. It's a pleasure to be here today. Actually, I think this is the fifth time I've been here as the CEO of DexCom to make this presentation. I'm pretty excited to start the presentation off the same way I've started the other 5. 2019 was a record year for DexCom. As CGM continues to drive therapy and the momentum grows, our business continues to perform beyond our expectations. Let's talk a bit about the 2019 numbers. Revenue for 2019, for instance, can be approximately $1.47 billion. That's 42% over our 2018 numbers. In the fourth quarter, our estimated revenues were approximately $457 million, which will be up 33% over Q4 of 2018. So a great growth for us. But not only did we grow revenue-wise, DexCom is now beginning to demonstrate operating leverage. As our non-GAAP operating expenses, we're -- well, actually, our revenues grew almost 2x more than non-GAAP operating expenses during the year. But we didn't just focus on revenue growth and profitability, we worked very hard to position ourselves for growth in the future. By the end of 2019, our G6 manufacturing capacity was doubled what it was at the beginning of the year, and we made significant improvements or significant progress on the patient experience front. Our pharmacy covered lives in the U.S. by the end of 2019 was 50% higher than it was at the beginning, and we're also working very hard to make distribution easier for our Medicare patients as we rolled out our Walgreens Medicare initiative in Q4 where our Walgreens patients will be able to go directly to Walgreens and pick up their sensors. And finally, in 2019, our last accomplishment that I'll focus on is we're able to stand up our global business service operation in Manila. We went from 0 employees when we announced this early in the year to about 800 at the end, and this is going to be a tremendous asset for us going forward with respect to leverage and better service for our customers and a great infrastructure. Well, 2019 is over. We don't here -- come here to talk about that. Let's talk about 2020. Our projected revenue range for 2020 is $1.725 billion to $1.775 billion, an average revenue growth range between 17% and 21% for the year. We considered a number of things in developing this guidance. First and foremost, we're going to add a whole bunch of new patients to the model. We're not at all looking to maintain status quo as we increase access and awareness around the world. We'll be able to finish the Medicare rollout of G6 and launch G6 into many international markets where it has not been before. There'll also be some mix shifts that will cause, quite frankly, our average revenue per patient to come down. As more of our revenue goes to international geographies as a percentage of our total growth, and as we send more to the pharmacy channel and more of our patients become Medicare patients, the average revenue per patient is going to come down in 2020. And that's why we've got to add more, but we're up for the task. And finally, we certainly consider competitive factors in developing this guidance. We have several key objectives in 2020. We're going to double G6 capacity again by the end of the year. That's important for us because we've been capacity constrained on G6 for a very long time. We'll finally be able to roll out our aggressive marketing campaigns and get this technology to everybody. It's a big year for G7. We'll finish those final product design tweaks, scale up manufacturing, get clinical trials started and executed for the year-end in anticipation of a late 2020 launch with a full launch in 2021. And we also expect to advance our other markets very rapidly throughout the course of the year as well. This slide never seems to go away. Diabetes is a global crisis. In fact, the only thing that's changed on this slide from last time we presented, and this data is updated every 2 years, is there are now 50 million more people that have diabetes than had it last time, and still 6% of people don't suffer from complications from diabetes. With all the tools, all the drugs, all the technology we have, we're still at 6%. The only way these percentages are going to improve over time is that patients and their physicians have the information necessary to treat diabetes, and that information can only come from CGM. CGM remains at the center of the diabetes management universe as far as we're concerned. On the drug delivery side, advancements in 2019, we have our first connected pen partnership with Companion Medical to launch this year. Tandem enjoy great success with their Basal-IQ system and now launch Control-IQ. We're working very rapidly with Insulet to get the Horizon system out in the market, and we have great anticipation for the use of that product in the market. We think it's going to be a home-run. We just announced a relationship with Lilly, and there are other partners we're working with. We'll be very connected in the drug-delivery space, great progress in 2019. On the drug side, we continue to learn that CGM is absolutely the best way to measure the effectiveness of compounds in diabetes. With rapid-acting insulins -- more rapid-acting insulins just around the corner, new combination therapies, CGM is going to be absolutely critical in determining how these therapies work. Working on the analytics side, you'll hear more about that later. But CGM is definitely on the verge of becoming the major analytic in diabetes. Let's talk about our core opportunity for a minute because one of the questions we often get is, are you out of patients? Type 1 penetration in the U.S. is still 35% to 40%. And while it's commonly perceived by people who listen to us at investor conferences that it's the standard of care, you'd be shocked at the people we run into who have no idea that CGM exists. We have a lot of work to do here still. On the Type 2 intensive side, again, 15% penetrated, a lot of room to grow in the core business. In the OUS front, we have 2 real key objectives to improve access and availability in the markets where we already exist and get better reimbursement and to launch this into some new markets. We filed G6 in Japan. We're hoping to get that product approved as a professional device to replace G4 Pro there. Yes, we still have G4 in some places and in consumer product there, and then we'll run into other geographies. One of our best G6 launches in 2019 was in Canada, where we rolled out the G6 platform late in the year, and within 3 months, our new patient opportunities have more than doubled. And we ran that whole platform out on an e-commerce platform to whereby all our business there, where 70% of it is now coming through an e-commerce platform, much easier than the paperwork we've been processing in the past. Diabetes management remains a challenge. When patient's glucose values are too high for an extended period of time, you see these high glucose -- these complications, and they're everywhere. We all know somebody who's experienced them. Most of our patients are definitely afraid of hypoglycemia or low glucose values because that can -- basically, can cause death and lack of consciousness. We've long known that fingersticks are not enough. A diligent patient who sticks their finger 4 times a day for a year gets less than 1,500 data points, probably all taken at about the same time each and every day. With 1 CGM session for 10 days, a patient has more than 2,800 data points. And you can see trends all throughout the day and the night that they would never see through fingersticks. This patient is not untypical from our DexCom patients today even with continuous glucose monitoring. While they're very -- there's a little bit of low in there, we know that we reduce hypoglycemia, but oftentimes, our patients are willing to run higher than they should to avoid those dangerous lows. As we look at product offerings over the next several years with decision support, enhanced algorithms in the automated insulin delivery systems, just some simple help connected devices, we believe we can bring those high values down across-the-board. Another reason intermittent monitoring is not enough are the alerts and alarms and the real-time nature of our system. I was recently in New York with several of our patients when we rang the NASDAQ bell. And at dinner, I asked the question, tell me what alerts and alarms mean to you? Tearful stories around the table, but the one I liked the best was a young woman from Australia, who works in the States and then travels extensively. She told us about when she was in New Orleans, she got a low glucose alert. She woke up, she looked at it. She said, yes, I'll wake up in a few minutes, I'll be fine, hit the button went back to sleep. About half hour later, paramedics broke into her room because her mother in Australia had received the same alerts and alarms. You can't do this any other way. You have to have real-time alerts and alarms to take actions. It all starts with DexCom CGM. G6 has been a tremendous platform for us. Over the past 2 years, we've pretty much doubled from about $750 million in revenue to close to $1.5 billion. That's a lot different than when I was here before, and we went from $50 million to $100 million. G6 is a platform that drives growth. It provides outcomes with lower A1cs, reduced time in range, and it does it for all patients across-the-board, regardless of the manner with which they deliver their insulin. We have always stood on our accuracy platform. Our product and our thesis begins with CGM performance. There are many people who claim that you don't need a CGM this good, particularly for other medical conditions. We don't believe that's the case. If you're dealing with a patient in the hospital, for example, you can't have it be less accurate. And even a type 2 patient or a pregnancy patient who may be using it as a diagnostic or an intermittent wear, if you are going to make recommendations that caused this person to change their therapeutic regime and their routine, this needs to be accurate data, and so accuracy never goes away. We talk a lot about the age of interoperable diabetes devices and that is here in many respects. You will see DexCom communicate with a number of different platforms over the next several years and see our data displayed in a number of software platforms as well. Concurrent with the launch of G6, the FDA established a new category of product, called iCGM. And that's where DexCom G6 fell. Right now, we're the only product in that classification. I can tell you those standards are absolutely rigorous and they're very difficult. But if a product can meet these standards, it's very reasonable to assume that the data from that product can be relied upon in an interoperable environment and approvals will become more quick and technology will get to the market faster. But there's one thing I want to caution you all on. Just because you have an accurate sensor, this iCGM doesn't mean it's interoperable. Interoperability is a function of a number of things with respect to electronics, communication, Bluetooth. These devices don't connect like your earbuds. It takes a lot of work, and we've been at this a long time. We definitely know how it works. DexCom CGM is a platform technology. I've talked a lot about our core business. We have efforts going on in pregnancy. Right now, we're looking at numerous studies and trying to expand our labeling, both in Europe and the United States for this indication. On the hospital or health care facility front, there's a lot of work to be done. Physicians and hospitals all over the world want this device to improve workflows, improve outcomes while patients are in the hospital, but also send it home with them to avoid readmissions. We've learned in our work that there's a little heavier lift at the FDA with respect to the hospital. So we've got some work to do there. We'll continue to run studies, improve the thesis. But our biggest opportunity in the near term is management of type 2 diabetes in the non-intensive world where patients are taking insulin and in prediabetes. The size of this market is large. In the United States, there are approximately 27 million diagnosed with type 2 diabetes and a much larger number with prediabetes are headed down that path. In fact, if I can ask by show of hands, probably easier to find out who does not have prediabetes than who does here. In 2019, there is an international consensus, outlining the fact that time in range needs to become the most important metric in measuring the effectiveness of diabetes care. There is no way to measure time in range without a CGM. If we could sell one to each of these 27 million, we're going to need a couple of more factories. This is a very big opportunity for us. Let me show you why, and let me show you why A1c is not adequate. And this data was extremely compelling and really kind of hit us on the head as we saw it in real-time. DexCom launched a pilot with about a 200-patient type 2 population to see how these patients would respond to CGM. On the chart, on the -- on my right, your left here, those are the A1c values of all the patients that were entered into the study. The 2 patients circled, each have an A1c of 7.1. Now take a look, on the other side, what happened when we put CGM on these patients. On the first one, 87% of the time that patient lived his life above 170, or her life. And the average glucose for that patient is 224 mg per deciliter. The patient below, 87% of the time is within range, very -- 13% time spent high and very little time spent low. If each of these patients goes to their physician for treatment with a 7.1 A1c, they're both going to get the same thing. It's not right. We need more information. As many of you know, we've had a long-standing relationship with UnitedHealth Group in type 2 diabetes. We provide them with CGM technology and data, and in turn, they're developing new therapy paths for type 2 diabetes. There's a recent diabetes metric that's come out, ambulatory glucose profile, which has been widely accepted. What UHG has done with the data that's been provided is to develop a new type of ambulatory glucose profile that is designed especially for patients with type 2 diabetes. A depiction of a patient and their work is up here on the slide. While this patient has a relatively stable A1c, and one would be -- would think this patient is doing very well, the fact is, you can see by the slide, this patient is not, with a very, very large spike in the morning and larger spikes throughout the course of the day. Upon receiving or reviewing this initial data, the UHG type 2 therapy program will then make an individual treatment program for this patient and offer some very simple suggestions and recommendations. Look at the results on a sensor wear later. The morning spike has pretty much gone. The other spikes are lower. Time in range is obviously significantly increased. Average glucose value is increased, everything across-the-board is better. CGM is absolutely the best tool imaginable to give a type 2 diabetes patient actionable, effective and simple recommendations to better their care. No single drug has ever achieved therapies like this in type 2 diabetes ever. We think there's a tremendous opportunity here. One of the other things we've had to learn with type 2 diabetes this year as we've launched programs around the country and worked is will these patients wear it. I've been talking about CGM for a long time. And one of the things we had to do to get the type 1 market as big as it is, is drive patient acceptance and make it easier for patients to use. As -- again, as you can see in our pilot study, 93% of participants said it was easy to wear. Our NPS score was 100 with respect to satisfaction. 87% of them changed food choices, and 90% of them said it contributed to a healthier lifestyle. So type 2 patients wearing this and finding a way to use it is not going to be a huge hurdle. The big question then comes down to what's the benefit at the end -- aside from the patient, what is the benefit to the organization paying the bills? And you look at the cost of diabetes care over the past 10 years, the average cost per patient per year of near $17,000 a year has gone up over 50% over 2007 -- from 2007 to 2017. And that's with better drugs, better tools, better doctors, better everything. Intermountain Healthcare, an entity up in Salt Lake City, ran a study with DexCom CGM in 99 of their type 2 non-intensive, non-insulin-taking patients. 49 of them were put on SMBG. The other 50 were placed on DexCom CGM for 6 months. At the end of 6 months, because Intermountain Healthcare controls, basically, they're the insurance company, the physicians, the clinic, they have all the information, they determined that the annualized cost savings per patient in this group is $5,000 a year. How do you get to $5,000? Decrease doctor visits, decrease drug costs, decrease lab tests, decrease hospitalizations, everything all the way down the board. That $5,000 does not include the cost that will be incurred for CGM, but that's a big number. And we have studies going around the country to develop a better database to replicate the result that was achieved here. As we go to the type 2 market, we're not going to attack this on one front. We're going to attack this on numerous fronts. You saw the data that we presented for UnitedHealth Group. We know that payers will be interested in this data and will develop programs of their own to better manage type 2 diabetes. With respect to clinics and integrated health care networks, you saw the Intermountain Healthcare data, there will be groups in that population or that customer group willing to use it as well. The third place we'll go is with data partners or these type 2 diabetes programs that are popping up in the market. This morning, for example, we announced we're going to be a data partner with Livongo. We're very confident and very hopeful that the Livongo coaching platform powered by CGM data will lead to outstanding results. We've also done a lot of work with Onduo, with WellDoc and several others. It's important to note that with our real-time platform, with our interface directly to the phone, with our ability to send data to where these partners want it, that we can very easily integrate with these entities who are managing type 2 diabetes. And finally, we're not just going to depend upon these entities for our type 2 presence. We're ultimately going to go with a commercial product. And we'll have commercial product offerings in the type 2 population. The beauty of the iCGM designation that I've talked about earlier is with iCGM, we can iterate and change software quite easily because the data standards have been established for the performance of our product. So what you'll see over the next several years from DexCom, as we launch new hardware platforms, is a variety of software offerings to meet patients where they want to be met and to provide software to patients and platforms and these entities here that will enable better care. As I said earlier, DexCom G7 has a big year in 2020. We've got a lot of work to do. It's going to be a real-time CGM. It will obviously be factory calibrated as our G6 product has been. There is no going backwards. We're working very hard for extended wear on this sensor, certainly at least a 2-week life, but that will be very dependent upon the accuracy of the sensor over the period of time and the iCGM standards that we have to fit into, and we will monitor that closely and work with that on our clinical study. The product will be fully disposable. The profile of the product is somewhere the size between a $0.05 and $0.25. It's a much more shallow depth than the G6 has been in the past. It's a very simple insertion device. Literally, there is very few steps in the insertion process other than taking the insertion device out of the package, putting it on your body and hitting a button. One of the things we're very excited about with this product is reduced manufacturing costs related to it. This product was designed for manufacturability from the outset, everything about it, fewer pieces in the insertion device, lower cost on the electronics, lower cost on putting everything together. Everything has been designed for lower cost on this product. DexCom remains at the front of diabetes therapy. For many years, we've grown this intensive market. Again, 42% growth in a year where we started the year at $1 billion is unheard of. Adoption continues to grow on in intensive world. We continue to integrate with other devices. But as I've outlined today, we have tremendous opportunity across-the-board, in type 2 diabetes in particular, in pregnancy, in the hospital. You'll hear a lot from us on that front over the course of next year. Thank you very much.