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

Good morning, everybody, and welcome to the 40th Annual Canaccord Genuity Global Growth Conference. My name is Kyle Rose. I'm one of the medical device analysts here at Canaccord Genuity, and I'm very pleased to be joined by DexCom this morning. Presenting on behalf of DexCom or participating in this fireside chat on behalf of DexCom today is Steve Pacelli, Executive Vice President of Strategy and Corporate Development; as well as Quentin Blackford, the CFO and COO. And we'll also be joined, I think, by a couple of team members for the second half. So we've got a fireside chat here in the first portion followed by a continuation and a bit of a breakout in the second part. So before we begin, I just want to remind everybody to seek out any potential relevant disclosures. Those can be found on either our conference or our firm website. So with that, let's kick it off. There's been a lot going on right now, a lot that I think makes diabetes a really interesting sector. And with DexCom specifically when we think about everything COVID-related, but then also competitive launches and new product cadence for you guys. So I want to start from a high level. And given how 2020 has played out, I think we have to start with COVID.

So maybe help us understand and maybe start and walk us through how COVID impacted your business? And then what steps the organization has taken along the way that kind of lead us through to what we just saw in the Q2 results last month?

Yes, I can kick it off. I think we may have lost Quentin for a minute. But yes, so the unfortunate reality, Kyle, is that COVID has hit people with diabetes disproportionately bad, right? I mean you've seen the data. People with diabetes are susceptible to significantly higher mortality rates than folks -- people with diabetes who end up in the hospital often don't make it out of the hospital. So it's been a really tough go for folks living with diabetes, I think -- not to say that DexCom is taking advantage of it, but we were well positioned pre-COVID to really be able to support and participate, not only to support our patients, but to support the clinician community as well. When you think there was this massive shift to telemedicine, for example, the tools that we already had in place when you think of our Share/Follow system where people can remotely monitor patients, when you think of our CLARITY system, which enables doctors -- and actually as a result of COVID, the FDA actually allowed us to provide the physicians with more real-time data, more in-the-moment data than actually we had previously had approval for. So we were basically positioned, not intentionally, but positioned in a very good place pre-COVID to be able to support the community going into this pandemic. You've seen the numbers from Q2 in the U.S. New patient additions were off the charts again. We're -- doctors are able to see their patients typically remotely. We're able to interact, our field sales force is still able to interact with the doctors, are being very creative whether it's via Zoom like we're on today. We've heard there are traditional telephone calls, FaceTime over their iPhones, et cetera. But they're actually able to get in front of the clinicians. And I think that's been very helpful. We're not out of the woods yet. Certainly, you're seeing the same data that we are on the resurgence and some of the hotspots that are popping up. But I think what we tried to position as we look to guide for the second half of the year is that while things are still -- things have gone quite well during the first half of the year, we're still in a bit of an unknown. We think that new patient additions will be somewhere kind of 75% to 80% of what our original targets were, hence, the guidance that we set forth at the Q2 call. But by and large, I mean, we're -- fortunately, we're out of the woods. For example, you remember, coming out of last year, we were still supply constrained. We remedied our inventory issues. We have more than enough capacity now to meet the demand. So that hasn't been an issue in the first half. I think even through the back half of the year, we're going to be in good shape from an inventory perspective. So we'll see. I mean, I think if patients are able to get back into the clinic more frequently, potentially, there's some upside to the new patient additions in the back half. But we're being a little conservative, and I think that's the best we can do for now.

Yes. That's fair. Let me just ask another question around guidance. I mean, I think about it, you started the year looking at high teens, 20% top line growth. And that was inclusive of $150 million in, I think, pricing headwinds, you updated guidance post Q2, looking for 25% top line growth, maybe a bit more on the pricing side, just given some OUS mix and potential for patient assistance program to come in. But maybe just remind us of the puts and takes in the second half. I mean, you talked about patient additions expectations. But if I remember correctly, I think that's basically the similar type of trough that you expected -- that you saw at the low point of April. So maybe just what does take us to the low end of those patient expectations? And just -- is it just conservatism or just being careful as far as rising case volumes? Just talk me through the puts or takes there.

So it appears we lost Quentin, but we gained Jereme. So I'll introduce you guys to Jereme. Jereme is our Chief Accounting Officer, [indiscernible]. Many of you have met Jereme. I'll let you take this one, Jereme, and then I can jump in.

Yes. So if you think about the back half of the year, Steve hit the point on new patients, 75% to 80%. We talked about pricing being about $150 million on the year. We're still tracking towards that. It was about $70 million for the first few years, so you can kind of imply what that means a year. One of the things we haven't really talked about is the impact of...

Is everybody locked up?

I can hear you, Steve.

So I'm the only one with you. Jereme's locked out. I'm not sure what he was saying. The impact of something, but I'm not sure where he was headed with that. But yes, look, I mean, the -- obviously, what drives the business, you guys know, it's an annuity business, right? It's new patient additions combined with the installed base. And the installed base is getting quite big. The impact of new patient additions, quite frankly, in any given quarter is not nearly as significant, Kyle, as you know, as it was when we were doing this 5-plus years ago, right? I just saw a note that says, from Ian, "To all panelists, audience can't hear." So, Kyle, you were muted -- you appear to be muted, but I am not.

I've got you, Steve. We're good. We can continue on.

Okay. I just -- Ian, if you could just track it -- you just sent a text that the audience couldn't hear. And Jereme's back on. So Jereme, if you could...

I just got a note that it's working again.

Okay, good. Having some technical difficulties. So Jereme, you were about to say it's the impact of something and then you froze up.

Yes, sorry about that.

You can go ahead, I was just talking about that the [ share ] of business models, the impact of new patients in any given quarter isn't as significant as it once was because we've got such a large installed base. So go ahead and you can talk about the puts and takes on guidance if you want.

Yes. So the prevalence of what we have in there at [Audio Gap] the patient program was driving keep staying on therapy but we [Audio Gap] revenue [Audio Gap] contemplating guidance, we thought about the impact of employment, loss of [Audio Gap]. We thought about [indiscernible] that impact in Q3 and Q4, not necessarily impact [Audio Gap] in both kind of [Audio Gap] beyond taking [Audio Gap] any sort of opening. So those are the kind of puts and takes. Hopefully I gave you some context [Audio Gap].

Okay. I think we got a little bit of what you said there. So I'm going to kick it back to Steve to...

Yes, that's fine. That's fine. He's on, but we can't hear him. I'll just -- I can just go. That's fine.

Yes. I think we've got...

[indiscernible] first conference, Kyle.

We've got that side -- yes, I know exactly. It's not -- I think we understand that part of it. But maybe just before we table COVID into Q2, help me understand just specifically when you think about guidance, what's assumed from a new patients with respect to U.S. versus OUS? Because I know there's been some pricing headwinds there, or at least the headwinds given you don't have the new patients to offset some of the pricing headwinds. So maybe walk me through the pricing expectations as well as new patients specifically for you.

Let's talk -- before we get into pricing, let's just talk Q2 specifically. So as I mentioned, the patient additions in the U.S. were, again, they were quite robust. In Europe, we did see a bit of a drop-off. I think the tools were probably not as readily available, but the way patients see their physicians in Europe is a little bit different. They often go into the hospital setting. So the telemedicine tools that we use in kind of the general clinics, the endocrinology offices in the U.S. maybe weren't as applicable. So we did see a bit of a drop-off sequentially in new patient additions in Europe. But from a pricing perspective, we've talked about the various headwinds that we've seen from a pricing perspective and what we continue to expect. But it's actually played out exactly as we've anticipated in terms of -- we've very methodically marched down our price point where it makes sense. And these are in places where we have reimbursement and we're willing to give on some price for something, whether it's improved access, meaning perhaps the addition of intensive type 2s to a coverage criteria or a coverage universe. Or you talked at length about the shift to the pharmacy from DME to the pharmacy, to the extent a payer is willing to ease the burdens on us, on themselves, quite frankly, and allow us to shift into the pharmacy, we're willing to give there, because from an OpEx perspective that the -- on the operating line, it's much, much more efficient for us to process our patients through the pharmacy from a cost perspective, but it's also significantly easier for the patient. One of the things you'll hear when you hear physicians talk about us versus Abbott, you're never going to hear a physician say that the performance of the Libre is somehow better than even with Libre 2, we don't expect to see that. You're not going to hear them say that the performance is better. What you're going to hear them often say, because Abbott has been very methodical about getting their product in the U.S. through the pharmacy channel, you're going to hear that it's just much easier for the doctor to put their patient on a Libre versus the DexCom. And we're addressing that, and I think we've done a really nice job over the last several quarters shifting our business, our core commercial business, from the DME channel. We still have a core installed base that we'll have to shift over time, but I think we've done a nice job, particularly with new patients pushing our new patients through the pharmacy channel.

That's helpful. So let's maybe talk about the U.S., and I want to talk specifically about the intensive side, the type 1 intensive side first. And maybe we'll frame your 2020 with respect to the guidance you gave back in 2020 -- 2018. So obviously I don't expect you to update guidance here given you have an analyst event in Q4. You're more than welcome to, but I don't expect you to. But back then, you talked about $2 billion to $2.5 billion in revenue in the core markets in type 1 and type 2 intensive. I think at that time, type 1 penetration was probably the mid-30% range, type 2 intensive maybe low mid-single digits.

I think, yes. Less than...

So clearly that -- yes, so clearly that dynamic has changed. I think maybe the type 2 showed more upside over the last 18 months. But maybe help us understand how you view those core markets now? I mean you grew the U.S. 40% in the past 2 years, on track for 25%-plus again this year. And how long can you keep these rates up just in these core markets?

Yes. I mean the beauty is -- and it's funny when we talk to the investment community, you often start to hear people looking out 3 to 5 years wondering if we actually run out of patients, for example. And I kind of chuckle because we're still -- in spite of the remarkable growth that we've shown, even that Abbott has shown, we're still in our infancy in this rollout. The U.S. business I would tell you, probably us together with Abbott, we're still less than -- certainly less than 50% penetrated. I would suggest probably less than 40% penetrated in type 1s. The highlight I would tell you on our Q2 call is that we identified that north of 20% of our base is now type 2. That's predominantly intensive insulin-using type 2 patients. And the reason for that is simple, right? It's reimbursement. So with Medicare coming out of the gate with coverage for not only type 1s but intensive type 2s, and subsequently some major payers, United, Anthem and others are covering. And once a couple of big payers choose to cover intensive type 2s, it's pretty common that within the next, I don't know, call it 12, 18 months, we'll have pretty broad coverage from a commercial perspective for that patient population. So that, at least -- with our numbers, it doubles the addressable market in the U.S. Some others out there have numbers frankly that are even larger from an intensive type 2 perspective. We think with both commercial coverage and particularly with Medicare coverage, if you -- when you think through the type 2 who has progressed to the point where they're taking mealtime insulin, is probably either in the Medicare age or in the Medicare population or probably aging into the Medicare population at some point in the not-too-distant future. So they would have coverage, which is great. I think Europe, the same thing. We saw with Germany when Germany adopted coverage, again adopted coverage for intensive for type 1s and intensive type 2s out of the gate, I think we'll look -- when you think outside of the U.S. when you think of kind of single-payer systems, government-payer systems, they're very motivated to cover not just the type 1s but intensive type 2s because these are the most severely affected patients. And we know that getting these people onto CGM can help -- not only help keep them under control, but help delay the longer-term comorbidities associated with diabetes. And particularly in a single-payer system or when they age into Medicare, the payers kind of stuck with them for the balance of their lives. So if they can put them onto a CGM, get them into control and prevent all the chronic bad things from happening, keep them from having a heart attack earlier than they should, or losing a lower limb or losing their eyesight, kidneys, et cetera, the economics just make all the sense in the world. So to answer your question of what we identified at, more specifically, at the Analyst Day a couple of years ago was, and maybe even conservatively now that I've seen some numbers from others in terms of the addressable market, in our kind of our core markets that we participate today, so in the U.S., Western Europe, Canada, Australia, New Zealand, somewhere -- we estimate somewhere between 7 million to 8 million type 1s and intensive type 2s. So the numbers we set forth at our Analyst Day, and we'll probably look to give you some updates at the end of this year when we do our next Analyst Day, the numbers we threw out were predicated on kind of penetration into that 7 million to 8 million patient population in the core market. So what we were clear to say a couple of years ago is that we don't need to be in China. We don't need to be in India and some of the other emerging -- well, very large markets that we're not going to ignore, that we're very, very excited about. We don't need to be there in the foreseeable future to meet the growth targets that we have internally and that we'll set forth for you guys. We'll update you guys at the end of the year.

Okay. That's helpful. And then just for everybody on the presentation, when Steve just gave the 7 million to 8 million type 1, type 2 intensives, I mean that -- for comparison, I think you said you exited 2019 with 650,000 patients globally? Obviously, you've added a lot more in the first half, but at least exiting last year, that's 10% penetration. So when I think about your core market, particularly type 1, I mean talking maybe 50% penetrated but probably less than that, just kind of combined basis with the competition?

Yes. Yes, it would be less than that in Europe.

Yes. Yes, so just in the U.S., but I mean it's still -- is it realistic to see this get to 80% over the next several years? Because I mean -- it's what's standing in the way. I mean if -- I'm always surprised because if you're a head physician that you could write a script to take 1% of A1c with no adverse side effects, I mean it would be the gold standard tomorrow. But we're still not even 50% penetrated in the U.S. type 1 market. What structural barriers are you guys addressing to bring that down?

Without giving a specific, if it's 3 years or 5 years, I think the day will come particularly -- again it's predicated on reimbursement. It's all about economics. So we know we've seen our growth over the last number of years where we have reimbursement, where reimbursement comes into play. And the patient can have a reasonable out-of-pocket co-pay, that the growth is there. And so there's no reason you couldn't get to 80%. You're never going to get to 100% because you just have people who are noncompliant. But honestly there's no reason that people should be pricking their finger today. There are technologies out there, particularly with G6 that you start the sensor and you wear it for 10 days without ever having to prick your finger. I don't know why you would inflict pain upon yourself 4 or 6 or 8 times a day for spot measurements. It makes no sense. But that's predicated on the fact that the patient has insurance, either is in Medicare or has commercial insurance. And we've done a nice job growing our Medicaid business. It still lags behind our other 2 commercial markets, but we're going to see Medicaid adopting, the various states will continue to grow and adopt the coverage required. And so if patients can afford the out-of-pocket expense, there's absolutely no reason. And I would include the intensive type 2s there, too. I wouldn't just -- when we look at the business now, we don't differentiate between -- we gave you guys a number just to get you guys excited, but we really look at the business as an intensive business. And then the other part of our business is the non-intensive business, so people who aren't taking mealtime insulin. When it comes to -- you're saying, "Could you get to 80%?" There's no reason we shouldn't, again predicated on insurance coverage, that we shouldn't be able to get anybody who's taking mealtime insulin, whether they're a type 1 or a type 2.

Okay. That makes sense. And then there's just -- we've got 5 more minutes here in the first half. So I want to quickly touch -- I'm going to spend the last 5 minutes in here talking about the international business. And then in the second portion, we'll talk about the type 2 intensive and non-intensive and a few other growth initiatives. But specifically when I think about OUS, and it's been a major driver of growth the last 3 or 4 years. You've built out the OUS headquarters, seen material improvements in reimbursement, particularly in Japan. And that's really led to broad adoption. But maybe bring us up to speed as far as where things stand from a market perspective internationally. Because when I think about OUS, I really only think about Germany, maybe some Northern European countries in the -- Sweden and the Nordics. And then to a much lesser extent, Canada and the U.K., but it feels like that's more pockets of growth there. So maybe help me understand where the business stands and where we can really think about some growth on a go-forward basis.

Sure. Sure. So Germany has obviously been a highlight, with the acquisition a couple of years back of our German distributor and, right, kind of simultaneous adoption of broad reimbursement. That's been a highlight for us and a highlight of growth in Europe. The Nordics, we've had reimbursement for quite some time. The challenge we have in some of the Nordic countries, I think in Sweden, I heard that together with Abbott, we're something like 80-plus percent penetrated. So we have actually almost -- there's just not that many people, we've -- and the government's been great about taking care of their people. So we are running out of patients up in that geography. The U.K., we still don't have formal reimbursement. I think we're anticipating it. I don't want to give you a specific time frame, but we've had great discussions. But patients today can get reimbursed in the U.K. It just -- it requires them to jump through some hoops to petition for reimbursement. And they are getting it paid for. You know, the Canada is -- the challenge is trying to generalize the OUS markets because there's no one size fits all. Canada some of our success there has actually been driven by more of a cash-pay business with our e-commerce platform. And we do have some reimbursement in Canada, but we launched, that's probably been a year or so now and over because there's no prescription required in Canada, an e-commerce platform where patients are able to simply go online, purchase product with a credit card and have it shipped to them. That's been a really successful program, so much so that we'll look to actually expand that program into other geographies, particularly where there's not reimbursement today where we can -- we're already in a cash-pay environment. It makes perfect sense to make it as easy as possible for the patient. You mentioned Japan. I would tell you, Japan doesn't have robust reimbursement yet. We do have reimbursement for the professional use product. We're still working on both the launch of G6, which we expect probably before the end of this year, but it won't be into a robust reimbursed environment. We're still working on a reimbursement code. So we're taking a little bit different approach. Our advisers have told us what Abbott has done has gone into Japan with basically adopting reimbursement at the pricing levels of fingersticks, which is actually better than fingerstick pricing in the U.S., but it's not what we think we warrant for the premium feature set that we have for our G6. So we're going to do it the right way, and we're going to work with the key opinion leaders and work with the government to establish really a new code for true CGM for something that's different than Flash monitoring, different than fingersticks. So that's not going to happen this year. That's probably a next year highlight. So Japan probably won't be a huge contributor for us this year. And then you look to the couple of other markets that we have some pretty good growth would be Australia and New Zealand have been good markets for us over the past couple of years.

So then just final question in this segment is -- I mean is it fair to say that, adopt, when we think about the near-term OUS, and by near term, I mean in the next 6 months, the end of '20 and then 2021, it's more about the continued execution and growth in the markets where you have business and reimbursement, rather than seeing some of these new countries come online?

I would tell you, it's both. But again, don't expect explosive growth unless you get reimbursement, right? Germany has been the case in point there. We -- Europe was kind of we had a really kind of a shotgun approach in the old days, right, where we were just going far and wide. And we were in a bunch of countries that probably didn't make a whole lot of sense. It probably cost us more to process the regulatory filings than we were generating in revenue, because there were cash pay businesses and our products were expensive. As we look to bring pricing down where it makes sense and we see reimbursement coming online, I think you could see some other countries be contributors, maybe not in the back half of this year. It feels like we're almost done with this year as quickly as it's going these days. So -- but yes, going into next year, I think you will see us continue to work to expand one of our -- and one of our key corporate initiatives is to continue to expand globally where it makes sense. And so I think you will see some continued growth. But again, you're going to see growth really predicated on reimbursement coming online.

Okay. That's great. And I think that's a good place to stop the first portion here, and we will see everybody in about 5 minutes for the Zoom breakout.

Great. Thanks, Kyle. [Break]

I'm the medical technology analyst here at Canaccord. And for those of you just joining us, this is part 2 of our discussion with DexCom, one of the leaders in the continuous glucose monitoring market. So we were joined this morning by Steve Pacelli, Executive Vice President of Strategy and Corporate Development; as well as Quentin Blackford, CFO and COO. We're also excited to have Jereme Sylvain, Senior Vice President of Finance and the Chief Accounting Officer, joining us here in the second half. So before we dive back in, I want just want to remind everybody of the relevant disclosures that can be found in our conference and firm website. So gentlemen, thank you for joining us. I think we spent the first part of the conversation this morning discussing the type 1 market and the international side as well. I want to talk about the type 2 market, particularly the type 2 intensive, and then transition to the non-intensive business. So you've seen rapid growth in the type 2 intensive side. I think on the Q4 call, you talked about type 2 being 10% to 15% of the overall installed base. And just a couple of weeks ago on the Q2 call, you talked about it being closer to 20%. Maybe just help us understand how the type 2 opportunity really manifested itself in the market and drove adoption. And then really how, if at all, these patients are different than your historical core type 1 market, and how that helps you prepare for the future growth.

Steve, this is Quentin. Can you guys hear me?

Yes, we can.

We can.

Well, let me try to take it and give you a break for a second. I think Kyle, from a type 2 perspective, I think we've been pretty upfront about the fact that we started to work with the payers to really open up this opportunity probably 18 to 24 months ago as part of our strategic pathway forward as we were sitting down and discussing with payers and negotiating the price points and where we were willing to go over time for incremental access. And as a result of that, we did see the type 2 begin to open up to a greater extent. So we've known that coverage was increasing at the payer level. And I think you couple that together with the awareness that continues to build in this segment, and that's what's fueling the growth overall in the type 2 population for us. Now I think we look at it, we're still very early in the overall opportunity, maybe 10% to 15%, as you mentioned, utilizing the technology, but you go back to some of the comments in the first half, there's no reason, over time, you shouldn't see that approach 70% to 80%. And I think a lot of that is going to come down to continued increase in reimbursement at the payer level with what you've seen with United, Aetna. I think having those 2 jump on to it in a big way certainly will have others paying attention to it. I think those are 2 payers that typically understand their populations to a greater degree in terms of cost and benefit associated with the different technologies. But I think other payers will pay attention to that, and I think ultimately we'll see the vast majority of payers come around to coverage for the type 2 patient population. But certainly it's lagged where type 1 has been, so I think you're going to see it get there. I think at the end of the day, the patients, I don't think there's a lot of difference in what the patients realize in terms of the value of the technology. They might treat their disease differently. Maybe they're using a pen or MDI versus a pump or medications, whatever it might be. But at the end of the day, being able to better understand their glucose levels, where they're trending to and manage that more effectively, which comes through the CGM device, I think they're all starting to realize that. So I think it's a combination of both reimbursement continuing to expand, which is clearly something we're trying to drive as well as our competition, but then just general awareness in the space overall.

And then I think now is a good time to probably just talk about the pharmacy channel and how important that has been specifically towards lowering the barrier to patient adoption. But then also specifically driving down costs, how important has that been from a patient perspective with the pharmacy channel?

Yes, that's a critical one. I mean if you were to get out into the field and you sit down and you talk with the physicians, you sit down and talk with patients, access or ease of use to get it under the product is absolutely critical, which is what the pharmacy ultimately enables. And it's been another big push of ourselves as well as our competition. We know that's where they're pushing their product through as well. And so I think the pharmacy will continue to open up. We're making tremendous progress within DexCom in terms of the patient flow moving from DME towards pharmacy. I think several years out, pharmacy will be the primary channel that the product ends up flowing through, which is very attractive to us, to be quite honest. We've always contemplated the move towards pharmacy at a reduced price point in our long-term pricing strategy. So when you hear us talking about these pricing headwinds of $100 million to $150 million per year, that is ultimately to help us walk to an end point that has the majority of the product flowing through the pharmacy at a price point that's very comparable to the competition and navigating through those headwinds with incremental volume growth that we think both the pharmacy and a lower price point ultimately opens up. So I think the pharmacy is critical to the success, both of DexCom, but just the overall saturation technology in the market. And for us, while the revenue per patient might come down, the profit dollars per patient will actually go up. We think about all the back-office administrative costs that we incur today to take care of a DME sort of patient, a lot of that starts to disappear, so the profit dollars are more favorable in a pharmacy model, even at a lower price point. And then I think if you think about it just from the perspective of the patient, and we talked about this a little bit on our call, Q2 call, Kevin made the point, nearly 70% of our patients are able to access our product at a price point for them or a cost point for them of less than $60 a month. Nearly 30% are coming on to the DexCom product with 0 out-of-pocket costs on a monthly basis. And a lot of that is enabled through that pharmacy channel as well. And the way we've constructed with our payers still open up that opportunity. So I think pharmacy will be absolutely critical to where we go in the future. And when you think about the overall number of patients that you have to be able to administer just in terms of the flow, the pharmacy model has to be the model ultimately to go to just to enable the flow of that much traffic or patient transactions over time. So I think it will be absolutely critical to the success of the entire marketplace, to be honest with you.

And you touched on it a few minutes ago, but just the importance of broader reimbursement in the type 2 intensive side. I mean, obviously, you've had material growth just in CMS over the course of the last 2 years, and year-to-date, with United coming on and then Aetna, we've seen 2 big private payers come on. So I guess part -- how much can that really accelerate growth, in type 2 at least, over the course of the near term? And then maybe just help us understand why we haven't seen more payers also come on here. Are they looking for more data? Is it lower pricing? I mean, what are we trying to understand?

Yes. It's a great question. I think, obviously, having those 2 payers with just the amount of covered lives that each of them bring, it's only a tailwind to our success. To quantify it, we're not going to get out in front and try to quantify it just yet, but to know that United and Aetna understand and realize the value of CGM in this patient population, I think it only will further accelerate the movement of CGM into that type 2 space. I think what's interesting about those 2 payers is they tend to be 2 payers who understand the cost dynamics of their patient populations relatively well, and I think what you're seeing just validated by their decision to open up reimbursement for this population is in fact that CGM can reduce the overall cost of care for this patient population. We all know, we've talked openly about this. We've been working with United for a period of time in this population to demonstrate the value that can be brought by utilizing CGM and just better managing the disease for these patients. And through all that work, you see them open up this type 2 intensive coverage decision. So I don't believe all payers probably understand their patient population the way some of these more sophisticated payers do. And I think you will see others pay attention to these decisions and follow suit into the future. So you look at type 1s, nearly 100% of type 1s have access to reimbursement today. I think over time, and I can't give you the time frame, but I think type 2s will start to approach that same sort of dynamic. I don't know that it ever gets to that 100%. But at 80%, 90% of type 2s having access to reimbursement through their payer for type 2s, I think that's realistic to think that that's where it goes. Price is certainly a part of that consideration, but we've been open. We've been very deliberate when we sit down with these payers for price concessions. We want them to entertain opening up the type 2 space, and we've seen a lot of success with that. And that's part of what drives some of the momentum that you see in our numbers towards that type 2 intensive. So I think that will continue to be important. I think the more real-world data we get out there just around the value of CGM in this patient population is going to help move the needle as well. So I think information has to continue to come together. Data has got to continue to come together. And getting a couple of these big payers to recognize it and validate it with their decisions, I think these are the big initial steps that have to take place for the broader marketplace to ultimately move in this direction.

And then hand in hand with your -- with the improving reimbursement, and particularly in the first half of this year you've also talked about direct-to-consumer marketing being a big area of investment. I mean it certainly has for your competition, but I know that you're continuing to move forward there as well. Maybe just help us understand maybe what some of the DTC advertising looked like historically, and frame expectations for what it should look like moving forward?

Yes.

Yes. Jereme, you can take that, if you want.

Yes, sure. So DTC historically, if you think about the medium, and I'll start with the medium and then we can really focus on the financials. The medium was the combination of a bunch of different things, but it was primarily targeted web focus and other sort of community focus. And I think what you're finding now via DTC is we found it's one of the best investments we can make. And the return onto opportunities that patients come into the funnel that you can correlate to where you're spending those DTC dollars has really driven, is one of those areas that we will be making that investment. So we are significantly increasing the ramp in those investments. You can see in our guidance for the back half of the year, our profitability remains relatively consistent due to some pushouts of OpEx. One of those is DTC that we had to slow down in Q2 due to COVID. Where we're looking, and I think if you flip on the TV, you'll see it. There's targeted TV ads, there's targeted media ads. We're still focusing on web opportunities and other areas that, through our market research, we found folks are ultimately searching for. I won't get into too much of what the specifics are for competitive reasons. But you'll see now more and more often, you'll probably see [indiscernible] in the U.K. We just started running ads in the U.K. and Germany on the television. And so you're starting to see us use more broad forms of media to get in front of this as part of really where this targeted DTC focus is. Financially, we talked a little bit about it increasing in the back half of the year. Certainly, we believe until we see the returns start to diminish, and we don't see that at all, in fact, the returns are multiples of what the investment is in terms of lifetime value of customer, we're going to keep making those investments. And now that we have the inventory, Quentin and the team have done a wonderful job of building up our capabilities, doubling inventory over the past call it 6 months, we have the inventory to go after that. Historically, we've had a little bit of a challenge. We were hand to mouth with the launch of G6. Now that we've got inventory, we're in a great inventory position. Turning it on is the time, and we'll continue to do that.

Okay. That's very helpful. And then I guess with the increased DTC, are you seeing any changes in your channel mix, and specifically around like referring physicians? Because I think on the call, I think Kevin noted in the Q&A section, you're seeing increasing number of patients coming from maybe outside the traditional endo referral pathway. I assume that's more type 2 related and just patients going in to see the general practitioners. But is that something you're starting to see resonate in that?

I think what we've seen with DTC, kind of broadly speaking, is exactly that where in the old days, it was very much a pull where the salesperson together with the endo and maybe the nurse educator really had to pull patients into the system. That's completely flipped on its head with us. And frankly with some of the work Abbott's done on the DTC side, what you're seeing is patients being much more proactive going in to their physician asking for CGM, now often asking for DexCom by name because they've seen either a print ad or a targeted Internet ad or even a TV spot. And so yes, that dynamic has definitely shifted well. Our sales force really doesn't interact as much with patients as they once did. It's really the sales force is there to support the clinic, support the endocrinologist, much less involved in the direct interaction, training and supporting the patient.

Yes. I think the other part you see it is a lot of the direct hits to our website, which ultimately then we refer off to folks, what you're finding is through DTC, you find more inbound hits directly to DexCom where folks have asked, "Where can I get this?" And obviously we have a way to route folks back into the network to make sure that they're able to get access to DexCom.

So I've got 10 minutes left, and I've got a lot more questions than I have time. So I want to focus the last 10 minutes on 2 sections. One, non-intensive because that's a lot of focus there, and then specifically around the product pipeline with G7. So first on the non-intensive side, I mean obviously huge market opportunity when you think about just the amount of patients in the non-intensive side. But you've also shown some really compelling data, both at the beginning of the year and then again at ADA. And I think I really want to highlight on the Intermountain Health folks first. Because when I look at Intermountain, I kind of view it in a similar frame as to the Diamond trial where obviously very different patients, obviously different design, but basically the trial is let's give patients the technology and let's kind of step back and let's see what the technology does without a lot of handholding. And you saw some really compelling results. I think it was $5,000 of savings. Maybe is that a fair way to think about that data? And I guess how does that really compare with your expectations for how we should view the value of the non -- of the CGM in the non-intensive population?

Yes. So let's start with Intermountain, and then we'll kind of broaden that out to discuss some of the work that we've done and continue to do with United and others. So yes, the Intermountain data was phenomenal, but it was a small n, right? It was 100 patients, so 50 on CGM, 50 on traditional fingersticks. But it was -- the beauty of it was exactly as you described. 50 people on CGM for a 6-month time frame with 0 additional intervention. So there wasn't any proactive outreach from the nursing staff, for example, or the physician, no automated, no coaching of any way shape or form. So these people saw incredible, incredible outcomes in terms of reduced lab expenses, reduced hospitalizations, reduced medical -- medicine costs and otherwise. And so we know there's obviously, and Intermountain believes there's something there, we're actually -- we've greatly expanded the work we're doing with Intermountain to an n of something north of 1,000 patients. I think it's closer to 1,500 patients. What we're going to do now is really try to figure out what -- which kind of patient profile benefits from CGM and for what extent of time? And is there maybe some need for some coaching or otherwise? As I said, the initial 100 patients, the 50 patients were CGM continuously for 6 months. I think we're seeing some other data frankly out of some others that we're working with, Onduo and others, that suggests that certain patients are going to benefit, certain patients who may come into a program like this in much worse shape. So if A1c is north of 8%, for example, the benefits of CGM and a continued wear of CGM are much greater than, for example, someone who comes into a program with an A1c under 7%. They're already in pretty good control. There's probably some insights we can glean from putting that patient on a CGM session for a period of time, whether that's a couple of weeks every quarter, a couple -- maybe a couple of weeks 2 or 3 times a year. We're still trying to understand that, as are the payers, as are folks like Onduo and Livongo and others in terms of how long do people need to wear the CGM and how much interaction do they need. So those folks who come in with an A1c north of 8% for example, probably would benefit for some greater interaction not just with the CGM, probably having some outside help helping them really dial in. And it's a combination of things. It's not just the CGM. It's trying to optimize their medications, trying to make some modifications to diet and exercise. It's really looking at a holistic approach for these patients. So that's the same kind of thing. You saw UnitedHealthcare announce their level 2 program. I would look at that as really just an extension. We talked a couple of years ago about really doing some pilot work with United. We've mentioned around 10,000 patients at the time. You should think of level 2 as really just a large expansion of that into a couple of hundred thousand patients, but the same notion, right, where they're making CGM available together with United has coaching on staff. They're really trying to have a holistic approach to diabetes management and a diabetes management program. The goal here would be again to show economic outcomes, above all else for the payer. We show economic outcomes and then we anticipate expanding that program with United, expanding it with others. And much like we talked a few minutes ago about type 2 intensive coverage expanding commercially as you see thought leaders like United adopt coverage early on, you see that the broader markets tend to adopt coverage and follow suit. The same thing will likely happen then in the type 2 non-intensive world, where United is obviously much more sophisticated in terms of their ability to analyze their data. They have the claims data, they have the significant amount of data that they don't often share with us, that they can generate the economic outcomes, right? And then as United rolls out and continues to expand these programs, you're likely to see others follow suit, whether it's other payers, or as you see the growth in companies like -- in health -- some of these digital health management companies like Livongo and WellDoc, Onduo, and there's a handful of them out there.

And I think the thing that's always hardest for us to get our hands around as investors and analysts is just the modeling and how to think about this, you're translating from a commercial perspective. So I guess help us think about -- does it shift towards population-level health, which is a shift towards risk sharing, bundled payments? Or is it really around per patient per sensor type of pricing agreement going forward?

Still very much evolving, I would tell you. We would be open to a risk-sharing model. We've explored some risk-sharing models. Today, most of our programs are still kind of fee-for-service, where they're just buying sensors from us and putting them into their programs. But certainly over time, if we can demonstrate like the cost savings you saw with Intermountain, right? If we're going to save the system $5,000 a year, there might be opportunity for DexCom to share in that and go a little bit at risk with respect to the sensor component in the program in exchange for some upside on the cost savings over the period of -- a 12-month period or something like that. So I'd say that's still very much evolving. These programs are in their infancy. What I think -- I'm a little bit hesitant. I've talked to a number of our investors about this. I'm hesitant to suggest that you're going to see broad-based kind of fee-for-service coverage outside of some controlled parameters for the type 2 intensive space in the near term. Meaning I don't think you're going to see United just open up coverage for all type 2s who want to wear sensors, and on any given day to have people wearing sensors 24/7/365 of all type 2s. I just don't think there's -- there's not a ton of economics in the system right now to support that. And frankly I don't think we've demonstrated -- no one's demonstrated the economic benefit across that entire patient population. Certainly as I mentioned, the patients that are more out of control, anybody with an A1c over 8%, we know has tremendous benefit using CGM. And those people will get access. I think the way you'll see it evolve is that there will be subsets of patients that get greater access in a much more near-term time frame than kind of that broad space. But over time, there's no reason that we can't make significant headway into a much broader segment of type 2s. The question just revolves around what does the business model look like vis-à-vis the payer or others? And then what's the kind of the time in which the patient -- a particular patient wears the sensor over the course of a given year?

And then I think -- I can't believe we've gone almost an hour and I haven't asked about G7 yet. So let's close with G7 and manufacturing. So I mean G7, really the foundation of the future here. I know, Quentin, you've been incredibly busy as far as operationally expanding manufacturing. So maybe help me understand where are we with the trial and the time lines for G7? And then structurally from a manufacturing standpoint, how some of those investments over the course of the last 18 months really set the company up to launch the product globally?

Right. Well, I think we couldn't be more excited about G7. And I think when you put that into a bit of perspective, it means you're going to launch this product in a very different way than what you are with G6, just in terms of the overall volume that you have to have the capability of producing out of the gate because we believe it's going to be a transformational product in this space. So you go back to G6. We launched that with the capability being in the single millions of units. You're talking about G7 in the multiple tens of millions of units in terms of a capability right out of the gate that you have to be able to produce. So just in terms of that sheer scale of what you're trying to stand up, it's multiples larger. And we've been very clear. We don't want to go through the same experience that we had with G6 in G7, which is we launched the product and you have patients who can't get on to the technology as quickly as they want because we can't build the capability or build the product like we want to. So we're significantly down the pathway of building out that capacity. We've got our first line up already in producing units within our four walls that will support the trials that are getting going. So we're very confident in our ability to produce this in an automated manner. Now it's about setting up incremental lines as we go from here into the future that gives us those tens of millions of units of capability to support the launch when we go. So I think we've learned a lot with G6. And I think we've understood what we have to do in terms of building out that capability to ensure a smooth launch. So I feel good about it. We've never been in a better position with respect to inventory than we are today with G6. We -- you go back 6 months ago, we were kind of hand to mouth. We've gotten ahead of it. I think we'll take those learnings and that will be attributed to G7 and put us in a position that we could launch very successfully when we're ready to do it. In terms of time lines, what we've talked about is early in the year, we saw things slide relatively along the 6-month time frame with COVID and just some of the impacts that it had both from a trial site and supply base, we feel comfortable with that. That's where we're at. We're still driving to those same things, so no changes from that perspective.

Okay. And then I'm going to try to squeeze one more in before Zoom shuts me down here. So I think on the call, Kevin said this -- the hardware's locked, the algorithm work's complete, but you're kind of using this extra time to maybe add some enhancements. Any chance you want to let us know what those enhancements to the G7 are?

No. There's not much of a chance.

All right, gentlemen. I had to ask. But thank you very much for taking the time today. I really appreciate the conversation.

Thanks for having us, Kyle.

Thanks, Kyle.

Right. Have a great day, everybody.

Take care.