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

Hi. Good afternoon, everyone. My name is Margaret Kaczor. I am the research analyst here at William Blair & Company who covers Dexcom. Before we begin, I am required to inform you that I personally own shares of Dexcom. And beyond that, you can obtain a complete list of research disclosures or potential conflicts of interest at williamblair.com. Now as you guys are all familiar based on the past year, given the virtual nature of the conference, we've moved to a fireside chat style discussion. There is a way to submit some questions online. So definitely do so. And I'll, of course, ask them as best as I can. But with that, we're very pleased to have Jereme Sylvain, CFO of Dexcom and Brice Bobzien, VP of Finance here with us today. Jereme and Brice, I hope you guys are doing well, and thanks for joining us.

Absolutely. Thanks for having us today. Looking forward to it.

Thanks, Margaret.

Yes, definitely. Well, maybe last year, let's start out with the COVID topic. We focused so much on COVID. Thankfully, we're moving past the pandemic. But I did want to ask one more question on that. So over the last year, a lot's changed within the health care space due to the pandemic. Is there anything, as you guys look at the diabetes market specifically, that's changed, that's going to be more durable moving forward? And what are those impacts, if any, the CGM adoption or Dexcom's position in the space?

Yes. I think the one thing that is coming out of it, as we get back to normal, we'll find a little bit more about how things revert back to the way it was. But I do think the one thing that is going to be a little more durable going forward is the use of essentially remote monitoring or remote visits essentially using technology more often and then really therapy decisions and then meeting the folks. And so as you think around CGM and how we're positioned in the market going forward, that's essentially what we do. It's obviously the ability to monitor your glucose every 5 minutes, and you're able to share that with your caregivers. And so as we move to this world where telemedicine becomes part of the normal day-to-day, I do think that, that helps and it really fuels the kind of move away from BGM into CGM over the longer term. And we think that all of the ability of our back end to connect with either other apps or other devices or other payers and providers, having that back-end infrastructure, at least specific to CGM, I think is going to be helpful over the long term. I think we're going to learn a lot over the next 6 months or so as the U.S. comes out of a vaccination kind of protocol where majority of folks start to get vaccinated, and we start going back to the world as normal. I think we are going to see where it ultimately lands. But make no mistake, we believe that the introduction of technology into care is here to stay.

So as -- continuing that a little bit, as you're talking to various payers, are you seeing any change in adoption patterns of the payers? Is there same question within the hospitals or within the clinician groups? And maybe just the last one, type 1 versus type 2, are you seeing type 2 to be more accepting, I guess, of CGM and sensor-based technology?

Yes. So I'll start with the last ones, and we'll migrate back to the first. So we are seeing more and more folks being more aware of the technology and adopting it, whether that's COVID related or whether it's educational related or whether it's massive shifts in the population. I think it's a little bit of all of it. What we are finding is as more and more folks as we come out of COVID, the introduction and the advent of this technology and the awareness of what it can do is starting to play out more and more in the type 2 intensive space. I think you're certainly seeing it there. And as you think about then really the hospital and as you think about ways to use it in other different applications, I think you're finding a lot of folks starting to think more about how to introduce it. And it started with the hospital, the emergency use access we had to the hospital, where there are hospitals that continue to use it and continue to purchase CGMs for folks that are in-patients. But I think it started to get folks to rethink about how to introduce it into workflow, what it can be used for other applications over the longer haul. And so I think it's a tailwind for CGM adoption over the long term. In the shorter term, it's a little bit difficult. We still need the appropriate approvals to go into the various other verticals. But I do think what you're seeing is this natural awareness and adoption and understanding of what measuring your glucose can do both in -- both from a hospital stay, from a use of PP&E, from a therapy, but then also for just a health and wellness. As you think about folks managing their disease, you're finding lots more applications of the technology, more really starting out of this COVID remote monitoring world that we're exiting now.

Okay. So I want to get into all of that, especially for me over time getting into type 2 and nonintensely managed patients. But maybe let's stay on the core market a little bit. Type 1, you're getting to a point of penetration where you're looking maybe for some of those later-stage adopters. A, is that true? Do you guys agree? And are the efforts any different versus getting the next 10% versus the last 10%?

Yes. It's a good question. And where we are now is we think we're right around that 45% adoption is in type 1 space. And as you start to think about who you're going after, there are some -- you are right. We're going after maybe the, call it, the back half of folks that are ultimately going to adopt. And the way we've gone about it is in a couple of different ways. We thought about what were the barriers to adoption, and we're addressing those, whether it's education, a lot of our DTC marketing. While it is targeted at some of the type 2 and type 2 nonintensive population, it is still targeted at the type 1. We talked about expanding our sales force. And a lot of the things we're trying to do there is get appropriate coverage over where those type 1s are met. And while the majority of type 1s do still go through their endocrinologists, there are still quite a decent amount that are being seen by primary care physicians that we really needed to address and get in front of. And then I think there's the whole aversion to technology. And I think as we have aversions to technology over time, we've got to make sure we knock down those barriers. And in doing so, we think having a sampling program ultimately helps us do that as well. We've met quite a few folks, and I certainly have some that my family is close to that were very averse to using technology to manage their diabetes. And once they got on to the technology, it really freed them up and having a sample and having the ability to sample it really allowed them to adopt it, and they are now Dexcom users as a result of it. And so it's going after those populations. It's not necessarily harder. It's just a little bit different in how we ultimately approach them. And so we still believe we'll get there. We still believe we'll get back to that core 80%-plus adoption in the type 1 space. But we do have to have a bit of a tad different method of going after those call points. But it still is a market that we're very keen and very focused on. And quite frankly, there's a lot of room to run.

And so you touched on PCPs a little bit there. Maybe switching a little bit to type 2 intensely managed and even nonintensely managed. A lot of them are seen at PCP level even more so than within the type 1. So as you think about kind of that ROI of investment dollar going into those PCPs, how do you look at it?

Sure. Yes. You hit a very important point is about 50% plus of the intensive insulin therapy folks that are in the United States are seen by their primary care physician, a good chunk of which are the type 2 intensives. And I think that's where we get back to the whole point of making the investment in the sales force, making the investment in DTC and making an investment in samples all this year. And at the beginning of the year, we talked about investing about $100 million or so into that particular group. How we're going to look at the returns on those, Margaret? We just spent a lot of time thinking about what is the cost of every incremental patient? And then what is the lifetime value of that customer? It's your typical LTV-to-CAC conversations that we have internally. And we know that right now, based on the investments we're making, the long-term value of the customer is an incredible ROI. And remember, once you're on this therapy, and you realize the benefits that it ultimately yields, patients and customers are really very sticky over time. Our attrition levels, our utilization levels certainly remain quite well. And as we continue to come out with newer and newer features with and even the existing products, but as we have G7 on the horizon, we expect it to even get better over time. And so when you think about those investments relative to that return, it's an investment we'll continue to make. And I think it's been pretty evident with Q1. It was another record quarter for new patient adds in Q1. And that's why we were just hiring the sales force. The sales force certainly hasn't gotten into place yet. I think the key, Margaret, over time, will be continuing to look at our new patient trends, our unit trends, which is our best indicator of ultimately folks coming on to therapy. We'll be monitoring that very closely as well and just making sure that, that return continues to come back to the shareholders over time. But right now, I can assure you that the return is well in excess of any sort of internal hurdle rates we would ever set.

Okay. And there's a variety of things we could talk about. You brought up CAC. So let's talk maybe a little bit about CAC. How does a next-gen product like a G7 or if you want to talk historically like a G6 change that CAC or those close rates?

Well, I think we're going to find out a little bit more on G7. Certainly, as we get out, what we expect is going to ultimately play out. But I'll start with G6, and then we can maybe kind of give expectations. So G6, it was what we consider as a product that was ready for prime time. No finger sticks. It had all of the things that -- as you think about barriers to adoption, you lower those barriers to adoption and then you had to get out in front of folks. And I think what you've seen with the increase in revenue over the past couple of years, the increase in patient base, the CGM landscape has really done a nice job of supplanting BGM, and we expect it to continue to do so over time. Where do you see G6 as, which was a market improvement over prior generation and existing products in the market, we expect G7 to be another incredible leap forward. And Kevin's talked about it time and time. He wears them, we all wear them. It's better in every way than the G6. You'll see some data coming out tomorrow at ATTD that kind of talks about some of the early feedback. But I think what you would expect is now you're going to have G7 as a better product. And so the better your product is, obviously, the more barriers to adoption that should continue to reduce over time, one of which with the G7 is disposability and form factor. I think what you're going to find is that combination, along with the marketing dollars and the folks that are investing in, continues to keep that customer acquisition costs relatively low, at least relatively low compared to our hurdle rates. We are aware, over time, just like with every sort of marketing approach, you have to monitor it closely because as that cost tends to arise, you need to modulate it accordingly and tweak where you ultimately look for new patients. But I think as you have a product that's out there that's still relatively underpenetrated, that lowers barriers to adoptions yet again, I think we're bullish on what G7 can do and can do around total patient adoption.

Any way that you want to think about that relative to a G6? Would you say G7 is kind of a bigger step change? I have to ask.

Yes. I don't blame you. What I'd say is -- what we've said is it's better in every other way and better in every sort of form. So I think what you'll see is pretty soon, it will be out in the market, and we believe that once it's out in the market, I think our customers are going to speak for themselves.

Okay. One of the questions that I got on the line was, can you discuss the time line of G7? I know you gave some indication of that, but any updates there or around U.S. coverage?

Yes. So at least where we sit today on G7, and I'll kind of reiterate a little bit what's on the call is we talked about we're exiting this quarter, completing our U.S. pivotal trial. We had already completed our OUS pivotal trial as we kind of exited last year. In terms of the expectations for launch, the expectation still is to launch G7 in the back half of this year. And we'll have an update as we go through our next earnings cycles, where we are in terms of CE Mark filing as well as updates as to whether the U.S. pivotal has been complete or not. Nothing's changed in our commentary. We still expect to have the U.S. pivotal complete by the end of this quarter, at least having all of the patients enrolled, which then means we're going into data crunching and then submission, et cetera after that. So that's still the update. Very bullish on it. As you can imagine, we obviously have the lines up and running. We're wearing them around the office as we speak. So we're still very excited about it. And hopefully, that gives you some solidifying time lines. And I do encourage you to pay attention to the ATTD results. I think you'll at least get your arms around the realness of the opportunity, the realness of the results, which I think it's tomorrow right around this time.

So let's talk about ATTD. So with G7 and that data set, what are the important numbers that you guys are looking for to either compare yourself for -- to some of the peers or to figure out here is a marked improvement relative to what we thought?

Yes. We'll give some information. I don't want to let the cat out of the bag, if you will, for tomorrow's presentation. I know Jake will be there, and he certainly would like to share it himself. But I think it will be key markers around the sensor quality, the accuracy quality, all the things that I think clinically you measure us up against with the promise, of course, that Dexcom expects to have real-world evidence and real-world performance that matches the clinical data that we ultimately share. So I think you'll see it tomorrow. I won't go too much into detail on it specifically because that is for the presentation. But it's key data that we think is important for folks to understand the progress that we have been making.

Okay. How about on the type 2 side because there is an RCT there as well. And I know you don't really want to comment too much about it, but what are you going to look for? What would you like to see, I guess, coming out of it? It doesn't have to be specific. Obviously, numerical and the rest, that will be in the presentation. But what do you think of that readout?

Yes. So it's an important readout because it goes into a space that typically today is not considered intensive. These are folks that are on basal insulin, not taking mealtime insulin. And so that would essentially double the size of the TAM, if it ever was covered. It's about 4 million people that are based within this point. I think as you look at what this population can do, without getting into the numbers and specifics, those will be released as part of it. But what is important as we go into these markets, and as we think about where there's an unmet need in CGM, as you go up the acuity curve, if you will, or say, down the acuity curve, this is a patient population that has progressed to taking insulin. And at the same time, that's a group that is incredibly high cost for the health care system, especially that once you first start taking insulin, the study showed that costs really skyrocket. If we can demonstrate over time that the utilization of CGM can improve A1cs and time and range for the folks on this type of therapy, that can be an incredible boon to the health care system, the economics in the health care system, but also the quality of life for the individual that's on that therapy and the education that they get through wearing it. So we think it's a good start. Obviously, we think it helps us get our kind of best foot forward, if you will, in the type 2 nonintensive space. And over time, it would be an area that we would look to try to get covered via health care providers. And again, if it is, it's a TAM expander in the U.S., it almost doubles the size of TAM overnight. So it's certainly one that's important to us over the long haul, but it's important to the patients as well. We know that they can get under better control on CGM.