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

Next presentation this afternoon is from DexCom, a leader in developing and commercializing continuous glucose monitoring systems for people with diabetes and I'm sure in the future beyond diabetes. With us today from DexCom, we're happy to have Vice President of Finance and Investor Relations, Sean Christensen. Sean, I'll turn it over to you if you have any remarks you want to make to start off, but then we can go straight into Q&A.

Yes, I don't have too many remarks other than just happy to be here. Thanks for hosting us, Jeff. And yes, looking forward to the presentation and good to see everyone.

Yes, sure. So thanks for being here. I know it's a busy week for you guys as a company, and I think Board meetings this week. So 2Q was another -- second quarter was another strong quarter of new patient starts for you. It sounds like new starts were kind of right in line with 1Q levels, and we've had a couple of prior quarters, 4Q and 1Q of record new starts. So it seems like the business is on good footing. I mean what are you just seeing from an end market demand perspective for CGM right now?

Yes. I think you stated it well, Jeff. I think what we see is a healthy end market. I think certainly, as we start off the year, you've heard us talk a lot about a focus in 2025 on executing to our plans, and that's what we've done. We are pleased in the second quarter to be able then to be in a position to raise the guidance at that point and certainly feel good about the trajectory and the momentum that we're carrying forward.

Yes. Any distinction you'd make between U.S. and international markets at this point from a demand perspective, pull-through side?

I wouldn't say so from a demand perspective. I think the nuances and what you see between the markets are really more based on coverage and the status. U.S. certainly leading the way. We've talked a lot this year about the emergence of type 2 non-insulin coverage, and you hear us talking very forthrightly about the pathway for coverage there moving forward. International market is very similar in terms of growing awareness, growing adoption and acceptance in the clinical community, a little bit behind the U.S. in terms of the pace of access and the growth, particularly in the type 2 side. And that's a great opportunity for us as we move forward.

Okay. And I think you talked about raising 2025 guidance on the last quarter's call. I think to be fair, that guidance wasn't raised as much as maybe you had beaten by in the couple of quarters in the first half of the year was a bit less than buy side was anticipating. Is that meant to signal any type of market concern for the second half of this year or to your point, just really trying to execute to plan this year given maybe some challenges last year?

Yes, I think that's -- it's a fair question. I think as we've talked about our approach to guidance throughout this year and to your question, Jeff, anchoring it back to last year, dating back to mid-summer last year, we kind of put a stake in the ground and said, we have a pathway forward to kind of the lower end of our LRP at the time of that $4.6 billion in revenue and have been executing to that plan ever since. Keeping that stake in the ground and making sure that we are aligned on our messaging is also why we started this year with a point estimate as our guide. And so that was a little bit different as well. But we wanted to make sure that we are communicating the trajectory of reacceleration of building momentum throughout the business, and that has continued certainly in the first quarter and in the second quarter. And like I said, in the second quarter, then in a position to raise that guidance. So I think from our perspective, not signaling anything by any means, really just looking to see 2025 as a year of execution, continuing that commitment that we've made. And therefore, hopefully, in the second half, if we're able to be in a position to continue to execute against that.

All right. Fair enough. Over the next few months, maybe by the end of this year, we're expecting Abbott to launch its instinct sensor, which would be used with Medtronic 780G system. As we've done back of the envelope math, we could convince ourselves there might be 100,000 U.S. DexCom users who are using kind of an open loop 780G, just not using a CGM to power that, but using your CGM, obviously, for monitoring reasons. Maybe there's even 200,000 DexCom users across the globe who are using a Medtronic pump. Anything we need to think about there as Abbott and Medtronic get closer together on the sensor integration side?

Yes. I would just say that personally speaking, I haven't seen anything that would substantiate numbers quite that large. And speaking anecdotally, I could say I've only really only met one person over the years, utilizing our sensor with that particular competitor's pump. And that person actually converted over to an AID system. So I think the reason why we don't see too many of those left in the field at this point is because most people would have had the opportunity to switch over to a system that is integrated rather than relying on kind of our sensor with a pump that's out of the auto mode. So I think it's not something we are too concerned about. And I think as we look at our AID competitively more broadly, that's an area certainly where we have flourished where we've been a leader in working with a diverse set of pump partners over the years to give a great patient experience. I think at this point, we're at over 2.6 cumulative million years of patient experience on AID systems driven by DexCom sensors. So we have very much a leadership position that is known clinically, that is relied upon by our customers, and those tend to be our highest loyalty customers.

All right. Fair enough. I think most of your new start growth in the U.S. this year has come from the non-insulin type 2 side. Obviously, that's a growing part of the market. What's happening with the type 1 and intensive type 2? Obviously, basal still a big growth. But are you bringing in, do you think, fewer new type 1 patients this year than last year and fewer new type 1s last year than the year prior? Are we in that point where the type 1 and maybe even the intensive type 2, mainly from a U.S. perspective, but probably in some of your developed markets as well. Is that a fair way to set up our models and think about backfilling with other indications?

So I wouldn't go quite that far to say that the type 2 non-insulin would represent a majority by any means at this point. What we see on the intensive insulin side actually this year relative to last year and years prior, actually pretty consistent growth. So on an absolute basis, you're talking relatively consistent across the type 1 and type 2 intensive groupings. Obviously, then as we've expanded access so much on the type 2 non-insulin side and the basal side in recent years, you're talking about larger patient pools to go after. And so those are certainly growing contributors to the business. But I don't think you want to necessarily write off the intensive side yet as a growth contributor even as the contribution on the nonintensive side of things continues to ramp for us.

And when you say similar to last year, is that in an absolute number of new patients coming in? Absolute.

Absolute number. So obviously, we're talking higher levels of total new patient adds for our communications, and that's because of the growth in access in the basal and the type 2 non-insulin side.

And you would still peg type 1 penetration in the U.S., 60%, 65%?

Yes, I think that's what we're seeing.

Okay. It seems a little lower than I get to, but that's fine. On basal-only, so you've kind of been -- and we've tried to track this through script trends. It's hard to do, obviously. We don't see indications necessarily there. But 30% to 35% win rate, is that about where you've been trending? Any change in that win rate versus your biggest competitor yet?

Yes. I would actually tie this one back to what we've experienced last year as we broadened our sales force. You've heard us communicate, particularly as we got toward the end of the third quarter last year into the fourth quarter, really our sales force hitting their stride, continue to ramp in productivity, then that aligning to some of our record new patient disclosures. I would say aligned to that time line, we saw a nice uptick on the basal side, too. And so our new patient capture rate would be higher than those levels, I think certainly above the 40% level, tying back to that point. And I would say by no means do we view that as a ceiling on what we can do in that category, too. I think as we look forward, continue to broaden our presence in the primary care settings that are more aligned to the basal population. There's things we can do within the product itself to personalize the experience for our customers there. I think we feel very confident about the opportunity ahead to really capitalize on that growth market for us.

Okay. And that north of 40% number, was I wrong in my baseline on the 30%, 35%? Or is that what it was about this time last year, and now it's improved north of 40%?

Yes. I wouldn't say it's an area we've typically talked too much about. I think some of those could be from some of our competitor comments or things of that nature. We break this down pretty significantly within all channels, especially having the granularity on the pharmacy side, and that's a -- we've seen nice uptick there.

So you feel like your share win rate on new patients in basal has increased in the U.S. over the last few quarters?

Correct.

Yes. Okay. All right. Outside the U.S., I mean, you brought it up. I think it's a fair comment that international markets tend to be behind the U.S. on CGM adoption. Obviously, in some parts of Europe, as I mentioned, I think type 1 penetration is almost as high, if not as high as it is in the U.S. But on the type 2 side, we're starting to see some early moves towards basal-only coverage, Japan, Germany, a couple of others. We've seen some new studies out just in the last month or two in Italy and Spain. Now those tend to be studies run by your competitor, but it's just like they used to benefit when you would get studies out there and get coverage, you could benefit from the same. How should we think about basal-only coverage developing in Europe, maybe in 2026, 2027? Are there some bigger new markets that could come on board?

Yes. I think you should view as a great opportunity for us. I would even tie it not just to the Europe markets or Japan that you mentioned, Jeff, but we talked on our second quarter call about getting access to the Ontario drug benefit in Canada. So the largest province in Canada covering DexCom CGM now down through basal insulin. I think that's a huge win for us and a nice indicator of the direction that we're seeing. To your point in terms of kind of running the studies and who benefits whom, I think for us, we have a market access team that operates globally and is assessing the most likely places for coverage to unlock. And I think for us, it's a matter of having an access and advocacy pathway to ensure that we are there and then having the right product once that access emerges to be able to take advantage of it. And I think as we look certainly to some of the Western markets you mentioned, Germany is at certain pockets of coverage right now on the private payer side. I think there's other places that will continue to emerge on the basal side, and we'll be there to participate in the growth of that category right from the start. And even basal, there's places to take advantage of from a market access standpoint, the type 2 intensive side as well, where there's real opportunity there.

Yes. Are those mostly in Eastern European? And what other markets on the intense type 2 where we've had maybe less coverage recently?

I think there's certainly on -- as you mentioned, the Eastern European side, even in Western Europe, Australia, certain tender opportunities emerging in the Middle East. I think those are all places that will be sources of growth for us.

Would most of those be D ONE+ markets or any of them G Series markets?

It's a little bit of both. It depends on the nuances of how they choose to split the market and whether they're kind of nuancing between different types of acuity. We've seen markets like Japan and Germany historically served kind of by the G Series entirely. Canada is like that as well at this point. And then you have markets that kind of nuance the coverage. So the key for us is having the portfolio that allows us to take advantage of the access however they choose to open that up.

All right. All right. A couple of other questions here. On the non-insulin type 2, you've had 6 million to 7 million lives under coverage since the start of this year. How has your win rate been going there? I think legacy-wise, because Abbott has always had the co-pay buydowns and the patient assistance programs on that non-insulin type 2 market, docs have just gotten accustomed to if that's the patient in my chair, that's why I write the script for an Abbott product. So it's been kind of inherently necessary for your sales reps to go out and really kind of change that thought process from docs. So what have you been seeing in the first 8 or 9 months of this year in win rate in that -- those covered lives of non-insulin? And is there opportunity to take that win rate higher as you kind of go in and reeducate those docs?

Yes, I'll start with your latter question and say that, yes, definitely an opportunity there and one that we look forward to executing against. I think the way you frame the question is right as well. There's been a historical experience where doctors have typically leaned toward our competitor in certain scenarios there for the type 2 non-insulin side. The question you have to ask is why. And as you mentioned, sometimes related to access and co-pay buydowns. And so our team is doing a great job of making sure that doctors are aware of the emerging coverage that has come and coverage that we have a leading position in with the lowest out-of-pocket cost for the customer. You tie into that, if you take our sales reps, they're able to get -- present not only the new coverage, but Stelo in conjunction with the coverage. And so for a doctor whose desires to have all people with diabetes on the device, the sales reps able to go in and present the new coverage opportunities, but also have an OTC device that is accessible on a cash pay basis for that doctor to have the full range of diabetes covered. And so Stelo has also been a really nice opportunity for us to get our foot in the door and to present really a broad-based opportunity for CGM use in the type 2 non-insulin setting.

All right. And on that basal market and even the non-insulin market, you've put, I think, since the start of this year, some compliance rates out in various slide decks. And I think it was just at the start of this year, you started quantifying those, right?

Correct.

Frankly, we're higher than we thought, which was a good thing. But I think we've all been assuming that as you move into broader parts of the population and not just the early adopters, the early adopters are going to be more compliant than the mass adopters. Have we started to see those compliance rates shift? Or is that still, as you look at your data, kind of where we can build our compliance rates at least for the short term?

Yes. I would say those rates are holding firm very nicely. And I think part of that is when we gave those, we understood the question would emerge. We wanted to provide a reassurance on really the quality from a lifetime value perspective of those customers and really just what we're seeing in the real world in terms of the benefits and desire to wear the product that we were seeing. The baseline for when we gave that data, even in the type 2 non-insulin space at the start of the year was built off a really strong base. It wasn't, call it, 10s or 20s, but you're talking several hundred thousand or a couple of hundred thousand at that point. So a good baseline, and we have seen that continue. And I think as we look at the feature set of how you personalize the experience for people with type 2 non-insulin or people with basal insulin use only, I think there's opportunities even to drive that higher over time with a better product experience.

All right. All right. And if we stick on the non-insulin side, so you've got the 6 million to 7 million lives under coverage right now. There's probably, what, 25 million, 26 million of those patients in the U.S. in total. A big chunk of those, is it 50% or so probably are in the Medicare/Medicaid population. I found it interesting. So Jake is going to move from the Chief Operating Officer role to CEO early next year. He was at a conference last week. He made a comment that the RCT data, which I want to come back to, but your randomized controlled trial that you're running on non-insulin type 2 CGM use right now, should read out by later this year. We should start to see those results either later this year or early next year. But he made a comment at a conference last week that he is -- historically, you have seen some Medicare coverage even before RCT big pivotal trial data rolls out. It just struck me as a -- for an incoming CEO, why get investors over their skis unless he really thinks we might get a positive CMS decision sooner than even seeing that RCT data.

Yes. Yes. I think what you're hearing reflected in the commentary last week is a lot of optimism and frankly, momentum that we're seeing in type 2 non-insulin. I think you have to break it down into several areas in which we see that momentum playing out. First of all, relative to kind of the prior expansions of coverage for -- with CMS in CGM, we have -- we start from a baseline of significantly more real-world evidence at this point and study evidence on type 2 non-insulin. Obviously, we have the RCT that we are running that will read out, and we talked about that being early next year. There have been RCTs already. There was one ADA run with DexCom CGM this year that had pretty strong outcomes on top of the decision from ADA last year to already classify real-time CGM as B-level evidence at the time for type 2 non-insulin use. So I think when we look in aggregate at the positioning of the advocacy organizations of the scientific evidence that has already been presented and you look at the clinical momentum, and then you have this commercial piece that has unlocked this year where now you have people already adopting CGM who will start to age into Medicare coverage and potentially run into a coverage gap. You combine those things with an overall perspective from CMS and the administration that seems favorable toward wearables, and I think we just see growing confidence there as to that expansion.

All right. Fair enough. And then your win rate in non-insulin type 2, I might have already asked that question. But just generally speaking, and forget about your win rate even, I guess, let me -- if Medicare coverage comes along and we enter 2026 with 12 million more lives under coverage, what does that do to your growth rate? I mean it just seems like it could be a sizable catalyst. Or would it be slower than that?

No. Look, it's a great catalyst for the company. I think, again, without commenting on specific timing or the immediate kind of quantification of what that growth looks like. I think what we have to say is do we have the pieces in place to capitalize on that expansion of coverage if it comes and when it comes. And I think that's one of the things we feel confident that we do. I think we feel like we have a great product in place that continues to get better, and we feel like we're giving a customer experience for the type 2 non-insulin side, particularly as we expand to a 15-day product, particularly as we continue to build on the software profile and some of the personalization features that are unique to that patient population. I just think we feel very good about our ability to capitalize on that growth. when it comes after CMS makes the determination. So again, not necessarily a comment on the exact timing or the direct quantification of the growth, but I think we feel great about our positioning once it comes.

All right. Fair enough. And then the other stub of that we haven't talked about really is the other 6 million to 7 million that would be on maybe some of the employer-sponsored side of the commercial plans that aren't yet covered. So you've got 6 million to 7 million that are covered in commercial, 6 million to 7 million in commercial, not covered and then another 12 million or so Medicare, Medicaid. That 6 million to 7 million, what has to happen, I guess, to move from some of these health care plans on the pharmacy side covering in some plans in the national plans, but not necessarily in some of the specialty plans?

Yes. And maybe I'll just give a background for the audience in case we're not in the weeds of the details here. So we've announced this year the largest 3 PBMs have expanded coverage in the pharmacy for all people with diabetes. So as of July, we had the third PBM go live. Those are on their national formularies, and that's representing the 6 million to 7 million lives that Jeff referenced. So there are another, call it, double that of commercial lives out there. Some of those are just on smaller plans, so different companies. Those are ones that we'll continue to advocate for and having the momentum and having the 3 largest covering it does provide some advantages to continue to push that momentum. But a good portion of that, to Jeff's point, are these specialty plans or regional plans. And I think some of that, the biggest factor is simply going to be time. They'll have time to opt in and start to kind of build momentum off of the national formularies. So in terms of what needs to be done, we do have a market access team that is very focused on kind of all those nuances, but I do think some of that is just a rolling time dynamic here that we'll continue to build off of.

All right. Fair enough. A couple of questions maybe on 2026. I know you haven't guided yet. You're not going to guide here, obviously. Jake did discuss last week, though, that he foresees strong double-digit growth, and I think he even said that's not teetering on 8% or 9%. He qualified it more strong double digits. How do you quantify strong double digits?

Per his words, not teetering on 9% or 10%.

Teeter on 12% or 13%?

Great question. I want to decouple a little bit the angle of the question and because 2026 and what we were talking about specifically that comment are a little bit different. I think what we've said very consistently with regard to our 2026 numbers and that performance is that as we talk about a year of execution here in 2025, the single best thing we can do to ensure and maximize our 2026 growth is to execute a great 2025. That is the reality of the business that we serve is that we need to continue to grow our new patients. These are recurring patients for us and build that momentum that way. And then lay the foundation through access expansions and commercial execution so that we are positioned for next year. So that has been consistent commentary for us. Relative to Jake's strong double-digit comment, I think when we look at the market opportunity and you see a long-term vision of the number of people with diabetes, the number of people who have yet to adopt CGM in the categories that are already covered and then the growing confidence in the potential expansion of coverage into the type 2 non-insulin space. I think what you heard was a lot of excitement and confidence, not only in a market that has the potential to grow for a long duration, but the ability of this company to participate in that growth. And so that was really the nuance of Jake's answer at that point. It was in the context of a broader question around even kind of 5- to 10-year visions for the company. And I think you heard incoming CEO who's very excited and very confident in that pathway.

All right. Fair enough. There has been some chatter over the last few weeks around G7 quality, reliability issues, things like that. Anything you want to address on that? I mean, we try to watch the chat boards pretty closely. I would -- well, I don't even want to bias you, but I would argue that, yes, when G7 first came out, we saw a lot of chatter back and forth about reliability and maybe losing signal, things like that. It feels like anecdotally less to me over the last couple of months. But just what do you see? I'm sure you can track it a lot more strictly than we can just through chat boards.

Yes. Let me answer this question in two ways, and I think they're equally important. We are constantly monitoring the performance of our sensor platforms in the field. With G7, we launched a great product that we feel is certainly best-in-class. And then we have teams that right after launch, they work and are constantly working to improve the experience for our customers, address issues. So even with G7 in the spirit of continuous improvement, post launch, we have strengthened the adhesive. We've broadened the Bluetooth range by more than 50%. We've enhanced connectivity. We've updated the app and added features throughout this experience. And so I think we feel good about the overall improvements to the platform that continue to be made on behalf of our users. We do see overall system complaint rates flat to down certainly since launch. So you see those improvements playing out. And there's every once in a while, you have pockets of issues that emerge and you have to work through those. The other perspective I would say, Jeff, I was at my daughter's birthday party for my 6 years old friend this past weekend, and there was a young boy there, type 1 diabetes and a mom there with type 1 diabetes. So in a small group, we had 2 people, and I was just listening to their lives and you get a sense for just how complex it is to manage diabetes, the amount of decisions that they are balancing and how reliant they are on their CGM. They're both DexCom users. We're incredibly happy. But just listening to their experience of the amount of decisions being made, you get that perspective and you realize that when there is an issue in the rare circumstances with a sensor, it's why we invest so much in our customer experience. It's why you hear us innovating even there with things like our nationwide pharmacy replacement rollout recently. These are things because we want to make sure that the customers are cared for and taken care of appropriately. So I think it's both of those things, the spirit of continuous improvement, making a best-in-class experience even better and taking care of our customers well.

Okay. And when you talk about those pockets of issues can come up at times, I mean, anything that would be big enough to rise to the level of something we need to worry about from the next couple of quarters?

No, no, by no means. I think you heard one reflected upon Jake last week. Earlier in the year, you had kind of a deployment dynamic related to one element of the supply chain. Team did a good job isolating it, recognizing it and putting in place mitigations toward that. So minor dynamics like that.

Okay. And then just on the -- moving to G7 15-day, just remind us the time line there and how you expect that to phase in. You're in the DexCom Warriors rollout right now, but just how do we think about the phase-in of the 15-day?

Yes. So we are starting that imminently with this DexCom Warriors launch, so kind of a limited basis there and then extending it more broadly into the DME and pharmacy channels here as we work into the end of the year. I think as we move forward then, relative to kind of the prior conversions of our base, we just went G6 to G7. Here with the 10-day to 15-day platform, there's good elements such as the pump integrations. I think because it's a very similar hardware profile to the 10-day platform, we expect those to move relatively quickly. We'll expect, obviously, to put many of our new users directly on the 15-day platform. Then it's really just about the pace of conversion and the gating factor there becomes the script necessity. So you can think of it on kind of a rolling cadence from there and something that certainly will build momentum over the course of 2026. But probably the best base case scenario would be to look at kind of the pace of conversion from G6 to G7. And then obviously, anything we can do to move that quickly, we will.

Okay. And would it be crazy to think of the majority of U.S. G7 users on 15-day by the end of 2026?

I don't know if -- we'll have to look at that, especially. I don't know if we're in a point ready to call out that exact pace yet, but I think it's going to be dependent on ultimately how quickly we can get those scripts moving forward and the overall interest there relative to the new patient demand. It's kind of a growing element through your new patients versus that base cutover. On the U.S. side, I think the accessibility will be there. International is a little bit more of a gating factor dependent on tender timing and things like that.

Yes. There's been some discussion, I'd say, between investors on -- or amongst investors on how much of that move from 10-day to 15-day G7 you guys will capture financially versus do some of the DME partners keep a bigger chunk, not DME partners, more of the payers keep a bigger chunk of that. I mean how much of that flows through to you when you go to 2 sensors a month versus 3 sensors a month right now?

Yes. I would say, obviously, you guys have probably heard us talking about longer duration sensor wear. That vision started before I was at DexCom in 2018. So this is not new. This is something certainly that's been prefaced with the payers. The contracts that we have are largely structured on a per member per month, per member per year as the starting point of those discussions. And so that has positioned us well to make sure that as we innovate and as we bring forth to market a product that we think is even better, we're not being inhibited ourselves on the economics of that. So again, I think we're certainly bringing that to the payers in what we feel is a compelling manner of saying, here's an innovative product. We're just looking for the same payment. And that's, I think, something that we expect.

So just to be direct on that, on your PMPM contract or your per member per month contracts, if you're being paid $10 a month per patient and you're currently supplying them 2 -- 3 sensors a month, you go to 2, you would still expect to get that $10 a month for the 2 sensors instead of the 3.

That's correct.

Yes. Okay. All right. Fair enough. Well, we're 10 seconds. I don't think there's necessarily a competitive bidding question you can answer in 10 seconds. Major risk, minor risk, 2027, 2028, how do you think about it?

Yes. I think it's -- you're right on timing, 2027, 2028. I think as we look at it, you're looking at, obviously, a lot to work out. The proposal itself would -- is looking at a category that right now has more than 2,000 distributors and recommended going down to 9. So we submitted our comments. We're primarily focused around ensuring that there's little customer disruption because that is a pretty significant possibility in that scenario, and so our recommendation was to delay that process. I think as we think about our positioning, I think we feel very good about the value and the price we bring in that channel. And I think, obviously, if there is vendor consolidation on the supplier side, certainly, there's benefits that they would have from a growth perspective and volume perspective. So I think overall, we feel good about our positioning and the opportunity to grow there.

All right. Fair enough. I think we're going to have to wrap it there. And so please join me in thanking Sean for a great overview here of DexCom.