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

All right. Good afternoon, everybody. Thank you for joining us. It's Matt O'Brien from Piper's Medtech team. I'm here with you today. We're really pleased to have, to say the least, the DexCom story here. With us today and the company on with us as well from the company is Jereme Sylvain, EVP and Chief Financial Officer. If you do have questions, we only have about 25 minutes, but if you can enter them at the bottom of the Zoom in the Q&A box or just send me an e-mail at [email protected]. With that preamble out of the way, let's go ahead and get started.

Jereme, again, thanks so much for the time today.

Thanks for having us. And look, we greatly appreciate inviting us here. And look, it's always great to chat with you, Matt. So thanks for having us.

Of course. So let's get started with the topic that everybody really wants to talk about and to hear more about even though the core business is still doing great. But just talk about the impact of Delta, now Omicron, on G7 approval in Europe. Are those big issues that may end up causing the approval in Europe to get pushed?

Yes. It's -- Omicron is an interesting one. Obviously, new information coming out every day. But we're still on track, we believe, with our approvals for G7 in Europe. And so, we continue to go through. We've obviously submitted filing for CE Mark, and we continue, as we mentioned on our last call, to expect an approval in Q4 and a limited launch in Q4. So we don't think necessarily -- we haven't heard anything. We haven't seen anything from the regulatory agencies that would indicate that any COVID concerns, whether it's Delta or Omicron, are getting in the way. The one thing that is interesting about outbreaks of COVID and just the impact is more about how do you get in front of folks upon a commercial launch, right? How do you get in front of primary care physicians or endocrinologists. All the things that you want to do when you have a new product launch. So those are some of the interesting things we're going to have to navigate over the next few quarters, months, who knows, years based on how our reaction to COVID as a community of countries ultimately takes place. But from an approval perspective, everything is on track, really consistent with what we talked about last time we spoke.

Okay. That's great to hear. And Europe is a little bit of a black box for me as far as how the whole process works, and Asia Pac is even worse. But how do they -- how do they operate? Do they have mandates, where they get incentivized to finish approval processes before the end of the year? I know that's the way it is here with the FDA. Is that similar over in Europe?

Not to our experience thus far. So with the new MDR regulations, they went to place and play -- I think it was June of this year. And so, as most folks are now going through what I'd say is the new regulatory pathway for CE Mark in the region, we're all going through it kind of for the first time. And I think what we've found is there's this 3-pronged approach, right? You go through 3 rounds of cycles as you're going through it. And so, there is a time line. And so you're kind of thinking about all there's a time line, when is the stock. The FDA has this 90-day and they're incentivized by year-end. The time line here is this third round, these 3 rounds. And so, we're making great progress as we go through these. That's probably the biggest difference. Now it's new for us, too, right? This is our first run through in an MDR in this new environment. But thus far, we've had incredible dialogue. It's been constructive. We're working great with the partners that are helping us get through it. And so nothing there that's unique. I don't think there's an incentive at the end of the year, but this kind of 3 circular thing that we do ultimately kind of puts a finite time on it. So I hope to give you just some context to it.

Okay. All right. I appreciate that. So it sounds like things are in pretty good shape, they're all things considered, that's good to hear. Let's go back here to the states and talk about the performance that we've seen here. And 2021 has been very strong on the volume side. So talk about where penetrations are -- penetration rates are for type 1 diabetics? And where you expect that to go over the next maybe year or 2?

Sure. Yes. So this year, we talked about coming into the year approaching 45% to 50% number. And as we exit this year, I think we're going to be kind of passing that 50% number as you kind of get the results in from all of the companies and the trajectory over the long haul, we believe, gets to that 80% adoption. Could be higher. As you think about type 1s and the unmet need and what a CGM ultimately provides, it could be higher. But at the end of the day, adherence and things along those lines are all things we have to consider, socioeconomic considerations as well. And so, what we ultimately believe is that 80% hurdle, when that is, that is the big question, right? Is it 2, 3, 4 years. Our goal is obviously to advance CGM awareness and then adoption, especially in the type 1 and beyond. And so, we're looking to do it as soon as possible. But in the next 2, 3, 4 years, should it get to that 80%? We believe so. And so we continue to make those headways. But it's really going to be dependent upon how hard we can push over the next couple of years.

Okay. And I guess the same question goes for type 2s. Insulin using and a non-insulin using and I'd love to hear a little bit more about how the programs in the non-intensively managed type 2 side of things are progressing. I know Intermountain slowed down a little bit, but I think Level 2 is still going pretty quickly. So you talked about penetration rates of those 2 patient populations. And then, I guess, feeling a little bit better about unlocking the nonintensively managed type 2 group.

Yes. So we'll start with the type 2 intensive, because that's the opportunity we're facing today. And that's passing the 25% mark as it's moving to the 25% to 30% mark. So it's got quite a bit of ways to go, and that's one we still think goes to 80% as well. And now that a majority of -- certainly, Medicare covers it and certainly, a majority now of the commercial payers cover it. The coverage is in place. And so now it's a function of getting out in front of the doctors that serve these patients and ultimately driving awareness. And so that would might take a little bit longer. That all being said, the time line from the first approval of a type 2 reimbursement scheme to win full approval will be certainly quicker than that of the type 1, given the adoption rates over time. It's just a function of going out there and getting in front of those primary care physicians. And so that should happen a little bit longer time horizon than we talked about for type 1s. As you migrate into the type 2 non-intensives, that's where we -- the adoption rate today is sub-2%, sub-5% but it's really sub-2%. It's a relatively small adoption rate. But of course, it's the biggest population. And that's a market where we don't know to what level that market is going to be adopted just given how big it is in all the use cases. But even a 20% adoption would be 6 million people in the United States and even more than that outside the United States. And that will be a huge increase of the total TAM that exists today. In fact, it would essentially double the -- more than double the existing TAM. So there's a big market for this group and one that we think is, on the closer horizon, is that basal using population. These are folks that have risk of going into hypoglycemic events. And so we think these folks ultimately should be on the technology over the long haul. In terms of timing and programs, there's a couple of things. So let's give you a couple of updates. So Level 2 continues to go well. And we know that Level 2 is out there as United Healthcare is out there talking about joining and promoting their products, we certainly know Level 2 is at the forefront of that. All the other kind of programmatic approaches out there, the smaller ones, the Livongos, but even the smaller more health and wellness continue to come up. And one interesting is every pilot we've done with all of these programs have always gone on to Phase II and Phase III. So we continue to see adoption in that category. The speed in which, I think, is the big question, right? Because the reimbursement then ultimately drives really the adoption across the board. And I think what we would start with is I think we're going to be starting looking at a basal adoption. And that's an area, I think we're going to be focusing on. We had a MOBILE study readout that came out at ATTD. It's a randomized control trial around basal utilization of CGM. And the A1c reductions and the amount of time and range increase was significant. In fact, it was similar to the DIAMOND trial that ultimately was the randomized controlled trial that ultimately was the basis for adoption and approval for reimbursement in type 1. And so we are going to be looking at that program first, certainly from a reimbursement perspective, on a more of an insurance payer perspective. And we'll be working with the various folks to do that over the course of 2022 and into 2023. And sooner the better, but it's a little bit hard to time these things. Then on the flip side of the programmatic approach is we continue to look at more and more programs. We continue to look at ways for those programs to adopt. They keep coming up. We keep seeing great results. And every time you see one of these readouts, you continue to see that CGM really makes a difference, both economically but also in health outcomes. The 2 are tied together really forever. But in both ways, quality of life and economics ultimately are improved. So we're very encouraged by it. When we unlock it, how we unlock it, how big it ultimately can be, that's the real questions we're really sorting out, Matt. I think that's the big challenge is where do you go, who pays for it, and how. But nevertheless, we continue to be encouraged around every corner we take.

Okay. Jereme, do you think -- and I want to get your crystal ball out here a little bit, if at all possible. Can we see some insurance coverage for nonintensively managed type 2s in 2022?

I never say never. It's a potential and we'll certainly be gunning for it. To count on it, though, I think it's something we won't necessarily be planning for, but could that be nice upside? Certainly, it could be. The teams are working today with today with the various payers, whether it's a commercial payer or a government payer and whether that government matter Medicaid, Medicare. So they're working with everybody to try to show them the value of this, especially as we're trying to arrest costs from increasing over time. How quick they move is the big question. And so I can't crystal ball, but I'd never say never. If we get it, it certainly be upside, but a little hard to pin it today.

Okay. Okay. And I know there's been a question that's come through, but I'll get to here in a second. But I just wanted to go back to G7 now, thinking about the U.S. because we're running through the U.S. penetration rates. But how do we think about the pathway for G7 in the states next year? And is ADA a reasonable time frame to think about clearance for that technology?

So the time line is looking like a submission in Q4. I mean, we mentioned on our last call certainly our expectations. And how long it takes to get to the FDA is a big wildcard, but they have the 90-day window. And if you file what you say you're going to file, you get behind it, you generally make it through. And so with ADA being in June of next year being essentially in the first half year, but 6 months into the year, I don't think it's unreasonable to expect that time frame. In fact, we'll certainly be filing in Q4 and looking for what that ultimately trying to shorten the time frame to the best we can. So I don't think it's unreasonable. Not to say that it's got to be that date, but certainly, I don't think it's an unreasonable expectation.

Okay. Got it. Okay. And this is all kind of tying back together because what I'm really trying to figure out from G7 is, is that going to open up the type 2 patient population? Because it is -- I know it's going to be a similar price point to G6. But do you think that, that product can really help to open up the type 2 patient population for you guys as we head into '22 and '23?

It could. And the way I think about populations is there's -- it's really about barriers to entry, right? There's a lot of interest in CGM. You'll see it out there. But whether it comes in the form of access, price, awareness, form factor, ease of use, interaction with the app. With G7, you're going to knock a few of those barriers to entry down, certainly in that case, with the ease of use to form factor in the application, all of which redesigned, easier to interact with. And so those barriers to adoption certainly come down. I think the big question then becomes in that type 2 space, the type 2 non-intensive space is ultimately who pays for it, how, and that becomes to the access and the price question. But I have no doubt that, that form factor becomes the form factor to really drive a lot of those adoptions. And again, it's probably knocking those barriers on G6 helped us do something similar to that in the intensive space. G7 is knocking down some of those barriers. So it's on us to work on some of those others to make sure it's easy for folks in that space to get there because we know the interest is there. All of the market studies say the interest is there. The big question is how do we get in front of more people, how do we get them access to the products.

Okay. Got it. And then what else do you think G7 can do? I know there is a lower cost of manufacturing for that product, which is great. But are there other things competitively where maybe you can get some more Libre users or maybe patient churn comes down because it's smaller, easier to use. Are there anything like that, that we should kind of be thinking about potentially as a benefit that we haven't been so far?

Yes. So I think there's a couple of things. One, clearly, for existing users that will, I think, benefit from the experience, I think it could increase or reduce, I guess, let's say, attrition and increased utilization over the longer haul. It's yet to be seen. We have to go through and make things sure we get members. We add new patients. We're adding new patients who are maybe later adopters than early doctors. And so we have to better understand their usage patterns. But certainly, that form factor, if someone was to say, well, "Gee, this form factor, which one would you rather have when you can stay on this product." G7 is just having incredible feedback from the folks that are using it. I think areas where G7 could be very interesting is -- we haven't talked about Dexcom One yet, but DexCom One is going to be launched in a G6 form factor, but eventually, it's going to migrate to a G7 form factor. And so the interesting thing, as you think about that is that goes into certain markets at a price point that is ultimately comparable to that of Libre. You start to really be in a position where you start to say, well, "Gee, I get all of the benefits of DexCom's accuracy and a form factor that looks like this." There are some interesting opportunities to compete in those markets we're moving into today that we started with in the development and was moving on. So a lot of interesting things we can do with this form factor over the long haul. In the short haul, we certainly believe G6 is a incredible product, but it's that continuation of that form factor and the incredible feedback we're seeing on the sensor performance that I think is really -- the market is really going to respond to, irrespective of the software experience, which we know we're going to modify to really target certain populations.

Okay. Interesting. I want to get to DexCom [indiscernible] here in a second. I've gotten 3 of the exact same questions. So I just want to get to this now before I forget. This one is a multipart question. I'll ask the first 2 pieces of it, and then I'll hit the next 2, but please explain the reason for the mixed shelf securities offering? And when do you expect to have this? What effect do you expect to have this on current stock holdings?

Yes. So we issued a shelf filing exactly 3 years before the date we refiled it. So it was really an extension of the one that was already on the shelf. And it was all tied to Verily milestone shares that we opened a registered associated with that. I mean if you somehow recall we had a certain amount of shares that were set aside associated with that milestone. That shelf expired after 3 years of being on the shelf. And so it was simply -- I think expired on 11/21, we reacted on. So I don't think that there's anything new here that it was just really kind of exciting. So hopefully, that clarifies it. It wasn't intended to be a new issuance or something that was new to the organization.

We expect more stock to come up. I don't know -- I can't remember when the Verily milestones were expected to be paid, but do you see more stock to come out as a result of this?

It's the exact same amount of shares. So it's always been the exact same amount. So nothing from that perspective. And there's an opportunity to pay via shares or cash. And so, we obviously left it out there to make sure that we preserve that option and then we'll ultimately make the appropriate call based on the factors of the market at that time.

Okay. Got it. Makes sense. So let's talk about DexCom One. That program is obviously quite interesting in our opinion. And I know you're starting it in 4 geographies right now and I think they're smaller. But how big of an opportunity are just those 4 geographies? And then what are the thoughts as far as expanding beyond those 4. And I'm assuming it's not going to be next year, maybe I'm wrong, but how do we think about that technology and then when you're going to expand beyond those 4?

Sure. So those 4 countries, the Bell countries, is about combined or about 130 the size [indiscernible]. So not a huge mover in the grand scheme of things. But the one data point I thought that was really interesting, in the first 30 days, 1% of the type 1 population already purchased the product for use, whether it was for 1 month or already on subscription. And so there's built-up demand in a lot of these countries for our product, for real-time CGM, that I think we're out there trying to address. So very encouraging and very excited about it. So those Bell countries in and of themselves are not necessarily an incredibly large impact. But over -- but it's a precursor to interest over the long haul. We really feel like there's a really, really good opportunity here. To your question on, well, where are we going to go beyond in 2022? Make no mistake, we will go to more countries in 2022 with that product. The whole intent was to build an e-commerce platform that allowed us to aggressively target countries where we could ultimately sell the product and do so without having to form all of the infrastructure that's needed to do so. And so that's one of the ways we try to be creative about expanding into countries instead of having to go, move in, set up shop, hire folks. How can we do that through either partners or e-commerce to make sure we can meet these unmet needs in these countries. So this is just a tip of the spear. We're going to learn a lot from this one. And what we learned from this one will certainly apply to the next one. But that e-commerce platform that we're ultimately building is intended to scale across more countries starting in 2022.

Okay. So Jereme, I mean, that's really interesting. You've got the 1 platform. You've got -- it's going to migrate into G7 eventually. You've got -- I can't remember the number of Libre users. Would they switch off of Libre to you guys? I mean, do you think that's a real opportunity? Or hey, we're doing pretty well at Libre, we're going to stay on it. Are you trying to get the incremental patient that's maybe not on CGM at this point? Or do you think there's a real opportunity to potentially target Libre customers around the world with that program, maybe with G6 or even with G7.

Yes. So I think it's a little bit of both. Obviously, the market is so big right now, and it's so underpenetrated. The focus, first and foremost, is on the user that's new to CGM. And those are the easiest ones to all when you have a market that's underpenetrated as it is, certainly, there's the opportunity there. That all being said, there's no reason why we wouldn't target competitive switches there's -- that's something that certainly our sales team is looking at. And what we've historically found when we look at the data of where folks come from, we do see a lot of folks that do switch from Libre to our product, once they trial a Libre and a trial of DexCom, ultimately the interest of companies moving over to a DexCom product. The biggest history -- the biggest historical impediment has been, again, access, price and those are all things we're trying to combat with DexCom One to give everybody access at a price point that's comparable. So do we think it's an opportunity? Yes. The first focus, of course, is call it CGM naive, but then certainly after that, we have no problem going after competitive switches. And our teams are trained on. And so they will be looking at it and it will be part of what they're focused on.

Okay. That's great to hear. So I appreciate that. And I guess last thing on Europe. We -- you guys just did the pricing cuts in Europe. It's still pretty early. Just would be curious about any data points you can share as far as the success of those cuts in areas outside of where DexCom One is available.

Sure. Yes. So an existing G-Series markets really is what we're referencing. And look, the best way to point to it is in the numbers, right? We had a good OUS performance in Q3, and we took on pricing headwind, but the volumes made it up. And I think that's what we would expect to see with this incremental access in a lot of these markets in which there's a lot of folks looking for the technology, looking for real-time CGM, but maybe we didn't have the coverage that allowed them to access it. It became a default, you go maybe to a different product. But now that we're on the same footing in many of these markets, you're not having -- you're actually truly getting somebody making a choice between the 2 products, especially when they're educated on the 2, and we're finding a lot more folks gravitating towards our product. As a good example, our unit growth rate outside the U.S. was faster [indiscernible]. And I think that's certainly a data point that's worth noting. And that's really driven by some of these assets. And so we expect that to continue to play out. It just puts us in a really good position. Right now, we've got the position of going after markets within the existing markets. We couldn't go after a subset of those populations that we now have access to. But we also have this other product that's out there called DexCom One, where we can go after markets we historically wouldn't be able to serve. So really set us up for the future, right? We're looking forward to 2022 and what that can bring in really the long-term.

Okay. And then on the pricing side, the impacts of that cut and then going through the pharmacy here in the States. Is the majority of that going to be done next year? Is it going to be the first half of next year? Or should we still expect it to kind of lead into '23 a little bit?

It's going to be a materially done -- majority done by the end of 2022. I think that's the expectation. We -- it really depends on things like how many -- what ultimately is the resting spot of the split between pharmacy and DME, right? And does it go to 75-25 or does it land at 80-20 or 70-30. I think those are the things that -- our crystal ball is 75-25, and our trajectory now that should predominantly start to sunset at the end of 2022. It more ultimately goes to the pharmacy up less, it could be earlier or later. But our crystal ball really has the same at the end of 2022, where in 2023 and beyond, you start to see a little bit less of a year-over-year price. And really, it's a function of where you go in volume and what price should go. But it becomes less about that year-over-year price for those price where unit economics should start to look a lot closer to the revenue.

Okay. Okay. Appreciate that. We are just about out of time. There's a question that just came across. So questions on G7. What -- you've got best-in-class technology, how do you evolve the technology from here? What's left to iterate that would be valued by both patients and caregivers?

Yes. It's funny. While we believe we've had best-in-class technology for some time, we constantly are looking at what folks might need, right? We have focus groups and what are those areas? And the one thing that I think we keep hearing is around the software and the user interface and how I ultimately can interact with my DexCom in a way that ultimately helps me address. So let me give you a good example. We've talked about things like tech support and having to call in. But in a world where you could simply replace a sensor because we can sense when it didn't work and just ship it to your house. So by the time you get home, the shipment is already on the way. Now those are the kind of things you're thinking about from a customer experience perspective that software unlocks. And so we keep looking at those things where we can use the software to really differentiate the experience. We're going to continue to work on those types of things that I think will be incredible for a patient experience, but things that are near and dear to every day, every day use and the people that are on our product. So we'll keep looking at those types of things. I think software will still work on the hardware. We'll still work on adhesion and making sure that things last the full time and people have connectivity issues that are -- we address those. But for the most part, those things are pretty well. It's really how do we enhance that software experience.

Okay. And I know we got another question here, but it looks like we're all out of time. So I'm going to go ahead and wrap up there. Jereme, thanks again so much for the time this afternoon. We really do appreciate it.

Appreciate it. Thanks, Matt. Take care, and thanks, everybody, for your interest and your time. Have a wonderful day.

Great. Thanks, everyone.