DexCom, Inc.

Q2 2023 Earnings Conference Call

7/27/2023

spk18: The Dexcom second quarter 2023 earnings release conference call. My name is Abby and I will be your operator for today's call. At this time all participants are in a listen only mode and later we will conduct a question and answer session. During the question and answer session if you have a question please press star 1 on your touchtone phone. As a reminder the conference is being recorded and I will now turn the call over to Shawn Christianson Vice President of Finance and Investor Relations. Mr. Christensen, you may begin.
spk10: Thank you, Abby, and welcome to Dexcom's second quarter 2023 earnings call. Our agenda begins with Kevin Sayre, Dexcom's Chairman, President, and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jeremy Sylvain, our Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask analysts to limit themselves to one question so we can provide an opportunity for everyone participating today. Please note that there are also slides available related to our second quarter performance on the Dexcom Investor Relations website on the events and presentations page. With that, let's review our safe harbor statement. Some of the statements we will make in today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward-looking statements included in this presentation are made as of the date hereof, based on information currently available to Dexcom, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward-looking statements. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward-looking statements are detailed in Dexcom's annual report on Form 10-K, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update any such forward-looking statements after the date of this presentation or to conform these forward-looking statements to actual results. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP with respect to our non-GAAP and cash-based results. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our second quarter earnings presentation for reconciliation of these measures to their most directly comparable GAAP financial measure. Now I will turn it over to Kevin.
spk17: Thank you, Sean, and thank you everyone for joining us. Today we reported another great quarter for Dexcom with second quarter organic revenue growth of 26% compared to the second quarter of 2022. Demand for Dexcom CGM continues to grow as access to our products is expanding faster than at any time in our company's history. In the first half of 2023 alone, we broadened our product portfolio strategy, extended our geographic reach, and meaningfully expanded reimbursed coverage for Dexcom CGM. As we sit at the midpoint of this pivotal year for our company, we have a lot to be excited about. In the U.S., our launch of G7 continues to gain momentum. Customers and clinicians alike are sharing consistently great feedback around G7's ease of use, discrete form factor, faster warm-up time, and redesigned software platform. With this product, we've extended our leadership position in accuracy and product performance, while taking a significant step forward in terms of simplicity. It has never been easier to user prescribe a Dexcom CGM, and we are attracting new customers and prescribers to our ecosystem as a result. Similar to last quarter, we have seen a continuation of the trend that the majority of our G7 users have been new to Dexcom. Additionally, there are now 8,000 physicians writing scripts for G7 in the US that were previously not prescribing Dexcom. We designed G7 to hold broad market appeal, and these early prescribing trends are validating those efforts. Behind the scenes, we continue to drive reimbursement for G7. As a reminder, we established Medicare and broad commercial DME coverage during the first quarter while rapidly progressing our commercial pharmacy contracts. We further advanced this process in the second quarter as expected, and we are excited to share that all major PBMs now covered XCOM G7. This occurred much faster than we originally anticipated and brings our total number of G7 covered lives nearly in line with our industry-leading G6 levels. This further strengthens our position as the most covered CGM brand as we prioritize keeping out-of-pocket costs low for our customers. As a reminder, the majority of our customers are paying less than $20 a month out-of-pocket in the pharmacy channel, which is significantly less than our nearest competitor, where the majority of customers are paying greater than $70 per month. We're also seeing G7 play a very important role for us as we move more broadly beyond intensive insulin management. We've taken a big step in that direction this year following the recent CMS decision to significantly expand coverage beyond intensive insulin use. As of mid-April, Medicare coverage officially kicked in for people with type 2 diabetes using basal insulin only, as well as certain non-insulin-using individuals that experience hypoglycemia. This resulted in a true step change in coverage for the industry. As we estimate, these two populations represent around 6 to 7 million people in the U.S., with roughly half being of Medicare age. It has also been encouraging to see commercial payers quickly follow suit. We have already established greater than 60% commercial coverage for the basal population, which we view as a validation of Dexcom's value proposition by payers. We're thrilled to have this level of coverage established this quickly, as it provides us much greater commercial flexibility to promote this opportunity. While still early, the initial response from the clinical community has been very encouraging. Physicians have wasted no time in prescribing Dexcom to their basal patients, as they recognize the clear potential for better outcomes among this population. We have also seen excitement coming directly from members of the basal community who are interested in engaging with their glucose data to make more informed lifestyle decisions. As a result, we have seen a notable uptick in demand in our Medicare business. In fact, Q2 was our highest new patient quarter within the Medicare channel in the history of our company. Considering this was only a partial quarter of expanded coverage, we view this as a very positive sign of things to come. In our international business, our share gains accelerated in the second quarter, as our ongoing access initiatives and product portfolio strategy have helped us reach many more people with diabetes across the globe. We expanded our international G7 launch in the second quarter into six new markets. G7 is being met with a lot of enthusiasm in our initial launch countries, and we are excited to bring it to additional geographies in the coming months. This will include our launch of G7 into Canada, where we recently received regulatory clearance. We have plenty of inventory on hand to support this broader rollout, particularly with our Malaysia facility now producing commercial product. Another key international lever for us has been our broader rollout of Dexcom 1. Dexcom 1 has proven to accelerate our entrance into new markets. broaden access within existing geographies, and even serve as a catalyst for reimbursement in certain regions. Perhaps most noteworthy this past quarter is that we officially launched XCOM-1 in Argentina, which marks our initial entrance into Latin America. We expect this to only be a starting point for us in that region as we continue to extend our global reach in coming years. Finally, we came away from the American Diabetes Association's 83rd Scientific Sessions as excited as ever about our future. This year's event added to the growing body of evidence demonstrating Dexcom CGM's ability to drive greater health and economic outcomes across the diabetes care continuum. Particularly, we are seeing more data suggesting a clear use beyond the intensive insulin population and even outside of insulin use altogether. For example, our team presented a real-world study of more than 7,000 adults with type 2 diabetes who were not using insulin. After only three months, this cohort saw a 40% increase in time and range and a clinically meaningful improvement in A1C levels. Perhaps just as important was the high level of engagement demonstrated as study participants wore Dexcom CGM more than 80% of the time. This was consistent with what we have seen in other broader Type 2 studies, including the mobile trial where we saw high levels of utilization and a clear desire to continue to wear Dexcom CGM full-time. During ADA weekend, we hosted an investor day where we shared our latest vision around the future of Dexcom. As part of the day, we increased our LRP, provided new detail on the size of our recent access wins, and shared our plan to launch a product specifically for people not on insulin. With this product, we will leverage our G7 hardware but provide a custom software experience tailored to this broader population. We expect to launch early next year with a 15-day wear time and cash pay option. This will simplify access out of the gate for users as we build the case with payers for broader coverage. Importantly, this new product also provides a glimpse into our future where we expect to utilize software to build tailored experiences and serve much larger populations. As we said at Investor Day, we're just getting started. With that, I will turn it over to Jeremy for a review of the second quarter financials.
spk05: Jeremy? Thank you, Kevin. As a reminder, unless otherwise noted, the financial metrics presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as on our IR website. For the second quarter of 2023, we reported worldwide revenue of $871 million, compared to $696 million for the second quarter of 2022, representing growth of 26% on an organic basis. As a reminder, our definition of organic revenue excludes currency in addition to non-CGM revenue acquired in the trailing 12 months. U.S. revenue totaled $617 million for the second quarter, compared to $511 million in the second quarter of 2022, representing growth of 21%. We delivered another record new customer start quarter in Q2, with continued momentum in the U.S. as our G7 launch gained additional traction and the recently finalized CMS coverage provided a new tailwind to our Medicare business. As Kevin mentioned, we continued to progress our commercial pharmacy coverage in G7 for the second quarter, which further reduced our need to utilize the bridge program. The impact from this program was negligible in Q2, and we expect this number to remain small going forward. With broad coverage for G7 now available across all channels, there will be fewer customers that need to leverage this program to access their product. International revenue grew 38%. totaling $255 million in the second quarter. International organic revenue growth was 40% for the second quarter. We have been executing very well in international markets as our ongoing access work and product portfolio strategy continues to broaden our reach. We have seen a robust customer response to this expanded access and have consistently taken share across our footprint in recent quarters. In fact, this marks the ninth straight quarter that we have gained international market share. The UK continues to be a great case study for us. In the past year, we have significantly broadened our reimbursement in that market, seen new clinical recommendations around real-time CGM use, and launched our newest generation product. Following these events, we have experienced an acceleration in this market, and in Q2 we posted one of our highest UK growth rates in recent years. We also recently expanded our connectivity leadership in this market, as Insulate extended their launch of Omnipod 5, which is powered by our G6 system to the United Kingdom. Given our long track record in the pump market with over 1 million patient years of cumulative experience and the forthcoming connectivity with G7, we expect to remain the clear CGM leader for the connected insulin delivery market. Our second quarter gross profit was $553.5 million, or 63.5% of revenue, compared to 64.6% of revenue in the second quarter of 2022. The year-over-year decline in gross margin was expected as we take a temporary step back to scale G7 production. It is worth noting that some of our expected ramp-up costs extended into the third quarter, which increased Q2 gross margin relative to our expectations. It takes some time for our new manufacturing lines to fully scale, but the cost profile of G7 will gradually improve as we increase production volumes. Keep in mind, our Malaysia facility recently initiated commercial production, so you should expect to see a similar dynamic occurring in the near term as we scale those lines. Operating expenses were $395.1 million for Q2 of 2023, compared to $347.6 million in Q2 of 2022. At our recent Investor Day, we highlighted some of our key cost initiatives, which we refer to as Cost to Execute. This represents our ongoing framework of how we think about operational efficiency and how we ultimately see cost as a growth driver for our business. Our second quarter operating expense management was yet another demonstration of our commitment to this program, as we generated over 450 basis points of OpEx leverage. We are very proud of this result as we have continued to support our ongoing investments and our global commercial efforts. We know this will ebb and flow over time based on the needs of the business, but it should serve as a reminder of this organization's ability to scale. Operating income was $158.4 million or 18.2% of revenue in the second quarter of 2023. compared to $101.9 million or 14.6% of revenue in the same quarter of 2022. Adjusted EBITDA was $232.6 million or 26.7% of revenue for the second quarter. compared to $175.5 million, or 25.2% of revenue for the second quarter of 2022. Net income for the second quarter was $139.4 million, or $0.34 per share. We closed the quarter with greater than $3.6 billion of cash and cash equivalents, leaving us in a very strong financial position. This significant step-up relative to our Q1 cash levels primarily reflects the convertible bond offering we completed early in the second quarter. With our 2023 converts coming due later this year, we saw an opportunity to refinance at very compelling terms, which provides us significant financial flexibility. This supports our ongoing capital deployment goals, with a primary focus on extending our organic growth opportunity. As we mentioned, we reached a key milestone during this quarter as our Malaysia facility began producing commercial product. This plant will quickly scale to become our largest operation and help support our long-term cost target of $10 per sensor. Turning to guidance, we are raising our full-year 2022 revenue guidance to a range of $3.50 to $3.55 billion. representing growth of 20% to 22% for the year. Our updated revenue guidance reflects an increase of over $65 million at the midpoint compared to our previous guidance. This reflects our strong start to the year, as well as our expectation to carry this momentum into the second half of 2023. From a margin perspective, we are updating our full year non-GAAP gross margin guidance to 63%, which represents the high end of our previous guidance range. Our operating expense management has also left us well positioned to raise operating and EBITDA margin guidance for the year. We now expect non-GAAP operating margin of approximately 17% and adjusted EBITDA margin of 26.5% for fiscal year 2023. With that, I will pass it back to Kevin. Thanks, Jeremy.
spk17: Our results this quarter read like a highlight reel. Q2 was our highest revenue quarter ever and represented the largest year-over-year dollar growth in our company's history. We again delivered record new customer starts worldwide and gained market share in nearly every major reimbursed geography. Our G7 launch continued to be marked by excellent execution across the board. We have now introduced this product into 13 international markets and quickly built broad reimbursement in the U.S., Through our commercial efforts, we are bringing new physicians into our ecosystem, and our manufacturing initiatives are driving process improvements ahead of expectations. Additionally, our R&D team has already enabled five flawless upgrades to our completely redesigned G7 app. In addition, we are growing in a disciplined and sustainable manner. We have delivered over 450 basis points of operating expense leverage, doubled our earnings per share year over year, and posted one of the largest free cash flow quarters in our company's history. I'm incredibly proud of our team for delivering this level of progress. When you experience results like these, it makes our stated vision much more tangible. We are truly on a mission to help people control their health through continued innovation and execution. With that, I would now like to open the call up for Q&A. We will also have Jake Leach, our Chief Operating Officer, join us for our question and answer session. Sean?
spk10: Thank you, Kevin. As a reminder, we ask our audience to limit themselves to only one question at this time and then re-enter the queue if necessary. Abby, please provide the Q&A instructions.
spk18: Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. If you wish to be removed from the queue, press star 1 a second time. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star 1 on your touchtone phone, and we will pause for just a moment to compile the Q&A roster. And we will take our first question from Robbie Marcus, or I apologize, Danielle Antolfi with UBS. Your line is open.
spk15: Hey, good afternoon. Sorry about that. I didn't realize I was lowering my hand, so apologies for that. But good afternoon, everyone. Thanks so much for taking the question. Guys, you saw a really nice revenue acceleration across the business this quarter. But that OUS number really does stand out. Looks like one of your stronger growth quarters internationally in a while. Can you provide a little bit more color on the sources of that international strength as you think about the key regions that you've entered and extending both the G7 and the DEXCOM-1 launches across these different geographies? Thanks so much.
spk17: You bet, Danielle. This is Kevin. I'll take that. And it was a great international quarter. You know, there are three things that have driven that international business for us, you know the first the plan we we. launched several quarters ago to increase access across the board and make our product more accessible and all these markets and we've seen results of that in all the geographies, you know, particularly in Germany. Second of all, you can't underestimate the effect of G7 and many of these markets we've launched in 13 countries, as I said. in our prepared remarks. G7 is going very well. The third piece is the portfolio strategy where we have Dexcom 1 supporting expansion into geographies where we haven't been before and broadening access into countries where we already exist. Those three strategic efforts have helped us tremendously. I know, Jeremy, if you've got anything you want to add to that.
spk05: No, I think the only thing I'd say is, you know, really across the board, all the major countries we're in where there's reimbursement, we're taking share. And it's a common theme you're really seeing, and our portfolio approach really allows us to do that. So a wonderful quarter, and thank you for the question.
spk18: We will take our next question from Robbie Marcus with JP Morgan. Your line is open.
spk11: Oh, great. Thanks for the question, and congrats on a really nice quarter. Looks like you guys raised guidance for basically two times the size of the beat in the quarter. So I'd love to just hear where the confidence is coming from, how to think about U.S. and OUS growth in third and fourth quarters we progress, and where that upside in guidance is coming from, and any color as it relates to type 2 basal within that guidance range. Thanks a lot.
spk05: Sure, Robbie. Thanks. This is Jeremy. I can take that. You know, you're right. We did raise guidance, and it really comes off of, you know, the strength you're seeing outside the U.S., as well as some of the coverage and access wins we've had in the U.S. Of course, all of it buoyed in the background by the launch of G7, which, as you know, most accurate sensor and one that we're really happy about. If you think about kind of geography-wise, you know, think about it the first half of the year to a little bit reflect the second half of the year. And that's how the split would work, which I think you'll see that. And as you kind of think about what that means, you know, we have a little bit of a bit of a more challenging comp in the U.S. in the back half of the year, at least related to the second quarter. So we've contemplated that. And we've also contemplated, you know, outside the U.S. continuing to do well, but just being mindful of the fact that, you know, growing at a faster clip than we have in recent quarters, but being mindful about growing into markets as we're expanding. If you think about where it's coming from, what the driver is in the U.S. around Basel, certainly some of it is there. While we're not giving a number around Basel, Basel has really now started to, with the coverage we've been able to obtain, it's really starting to fold into the core business. But you can assume Basel is there. And then you may ask the question, well, gee, is there opportunity? Look, we provided the guidance as what is a base case. We've increased our confidence in that base case. I think you can see that. And then, of course, we'll look to outperform as time moves on. Great. Thanks a lot.
spk18: And we will take our next question from Jeff Johnson with Baird. Your line is open.
spk16: Yeah, thank you. Good afternoon, guys. Jeremy, maybe I'll follow up on your U.S. comments there on Basel only. You know, if I look back the last four or five years, you guys typically increase your U.S. revenue sequentially from 1Q to 2Q, maybe $60 to $70 million. I'm sorry, this quarter it was a $90 million increase. sequential improvement so you know any way to say half of that was basal or a third of that was basal uh you know i know it was only a not quite a full quarter contribution but just help us maybe qualitatively how much of that sequential bigger than usual uh improvement uh might have been basal and then just on top of that just in france any movement yet on basal only i know obviously your competitor has gotten that i think you guys were working towards that just any updates on on basal only coverage for you in europe thanks
spk05: Sure, Jeff. You know, I think what I would say is in the US, in the quarter, a relatively nominal contribution from Basel and Q2. While we did have quite a few, quite a robust patient ad quarter, and you know this all too well, with coverage really kicking in in April, starting with the DME channel, it takes you know, three to four weeks to get access to product. And so ultimately the contributions start to build over the course of the year. So yes, there was contribution in the quarter. Yes, it did help. But a lot of it was driven just by taking share in existing markets. And so we're really proud of that. In terms of France, you know, our expectation is we have G7 out in France. We're launching Dexcom 1 in France here in the near future. We expect to have a very robust coverage model. I won't speak specifically there because we are going through that process. but we do expect broad coverage to compete with that of our competitor. And I think what we're proving is in markets where we have coverage, and you've seen it in our international growth over the past nine quarters taking share, we expect to do quite well and take our fair share in that country once we go live.
spk18: Fair enough. Thanks. We will take our next question from Larry Beagleson with Wells Fargo. Your line is open.
spk03: Good afternoon. Thanks for taking the question. I guess, Jeremy, let me ask on the guidance. I mean, it looks like you're guiding to about similar growth in the second half as the first half. You know, one would think, you know, and the comps aren't too different when you look at it, you know, first half versus second half last year. One would think that, you know, you have tailwinds, pricing coming down, you know, the ramp of Basel and G7. Is there anything you're seeing that's concerning or is this conservatism? And just if you could comment on just cadence. You know, should we expect typical seasonality? Thanks for taking the question.
spk05: Yeah, sure, Larry. You know, there's nothing that gives us pause about the back half of the year. I'll start with that. I think if we come into this quarter, record quarter in new patients, we have no lack of confidence in saying that. And so we do expect a good back half of the year. We raised the guidance at the midpoint by, you know, a little over 65 million. So I know you're kind of inferring, you know, at the top end and doing the work there. Look, there's nothing that gets in the way. What we've done is we've de-risked the base case. You see we've done that where now the base case is 20% to 22% growth. A record patient growth quarter in Q2, obviously bullish in the back half of the year, but again, Basel's new, so we're just being prudent in how we go about that and making sure we provide that base case. Of course, if we can do better, we will do so, and we will certainly pass it along to you. In terms of cadence and seasonality, I think our expectation is at least Q3 looks to operate in a similar seasonality as to last year. At least that's how we're looking at it now globally. So think about it that way on a global basis. And I would expect that to play out, really expect that to play out for the balance of the year. Relatively similar seasonality to the past two years. Thank you.
spk18: We will take our next question from Joanne Winch with Citi. Your line is open.
spk20: Thank you. Is there a way to quantify the contribution of Dexcom 1 in the quarter outside the United States? I'm trying to get my head around the international growth. How much of that is coming from Dexcom 1? How much from G7, if you can share? And then, you know, maybe some of it is from the opportunity to partner with insulin pumps. Walk me through that, please.
spk17: Thank you. Joanne, this is Kevin. We don't break those numbers out, but our growth comes from all of the above. Certainly, Dexcom's one's been a factor in those countries where we've launched it, but we haven't launched it in all of our international geographies yet. As Jeremy said earlier, we're about to launch in France. We just announced we're kicking off in Latin America here in Q3, and we've launched in a few other geographies. Those geographies, it's doing well. G7 has been a strong contributor, particularly in the UK and Germany where those launches are more mature. And our pump partners, particularly as automated insulin delivery reimbursement has broadened in some of the geographies. That's helped us tremendously. Our direct efforts in Australia where we acquired our distributor, that distributor's performed extremely well and they've taken good share in the Australia and New Zealand markets in addition to that. So, I mean, it's a blend of of all the factors we talked about on the call.
spk05: Yeah. And just to help you with the, just to kind of triangulate some of our prior comments, we talked about a third of our new patients starts coming from Dexcom 1. And that's a building business over the course of the year. So if that's a third of the new starts and it's a building business over the course of the year, Joanne, you can probably then presume where most of the new patients starts come from. They come from the G series. And we don't necessarily distinguish between the two. We obviously know what the numbers are. The point is, is It's a series and a platform. And so a majority of the growth does come from that G-series just based on what we've historically said. And nothing's changed since that.
spk18: Thank you. And we will take our next question from Matt Mixich with Barclays. Your line is open.
spk14: Hey, thanks. Thanks so much for taking the question. So just... One follow-up on OUS growth and just a quick question on, I just happened to see some of your, you know, more of your promotional efforts, sort of the market development and brand awareness and ads that you're putting out in television and elsewhere. I'm just wondering, you know, how you're thinking about the success of those, you know, what the duration of those campaigns run? whether it's U.S. or internationally. And I'll just include the quick follow-up on some of the international growth questions that you're getting to try to parse out. If you could remind us also if there's any stocking of new geographies that happen or as you're really stepping into a new area, is there some element of that that we should also think about that may not repeat next quarter or the quarter after? Thanks. Thanks.
spk05: Hey, thanks, Matt. Thanks for the question. And I'll start with the second one first, and then we can circle back. No significant stocking, anything along those lines. This is really driven by robust patient growth. And so I think it's just taking share, driving access, and ultimately entering into these markets. In terms of your first question around promotional activities, we always look at what works. We use various versions of mixed marketing, mixed sales models to ultimately determine the effectiveness and the return on investment of those, and then how the response curves work. And, you know, Terry and the commercial leadership team, they do a wonderful job assessing that spend, looking at what makes sense, and then pivoting as needed. And so what you can expect to see is there'll always be mixes over time, but they will change. And so we'll have campaigns, they'll change, but they'll change based on what works best, and we'll continue to learn from those. And so I would expect to see continued promotional materials. I'll continue to see demonstrating why we think Dexcom is the right product for folks and making sure that they know that we are the right product for them. And so I think you are seeing good feedback. We are seeing great returns. I mean, at the end of the day, what you see is record new patient quarters, and you see that in our acceleration of growth in the quarter. That's what we'll continue to do. That's what we'll invest. I don't know, Kevin, any other thoughts on promotional materials?
spk17: No, I just think our promotional materials continue to evolve, and you'll see those evolve over the course of the year as we have more to offer, and we direct that message more towards different markets. I think our commercial efforts have been very successful, but in all fairness, we're looking at everything really with a very close eye right now as we plan for next year and the year after that. It's not just a one-quarter shot for us.
spk14: That's great. Thank you so much.
spk18: And we will take our next question from Travis Steed with Bank of America. Your line is open.
spk13: Hey, Jeremy. Thanks for taking the question. I just wanted to clarify on the Basel guidance. Before, it was like 1.5% of total revenue for the year. Is that changing at all or moving? And what's a fair way to think about a full year of Basel? Should we think about that exit rate and multiplying it by fours, just thinking about kind of a full run rate for Basel? Thank you.
spk05: Yeah, so Travis, you know, it's interesting. So we're not going to give a specific number on Basel anymore just because it's now really folded into our business. There was a time when we said, hey, look, we have CMS coverage and we don't expect Medicare Advantage to come that fast, or we think commercial is going to take a little bit longer. And it's happened much, much faster so now it's just really part of our core business to your question, though, is it greater than 1.5% absolutely it's part of the reason we raise the guidance it's part of the performance in the quarter. And so you'd expect it to be higher than that the way I would think about it is is just now about any other patient really population. Where you know you ultimately want to analyze it you'll think about attrition so far we there's been no differences in terms of attrition from. the basal population that started today to our core population. And I think you start to annualize that exit rate. And that's the way I'd apply it and going forward. And then of course, new ads. So I think you're thinking about it the right way, Travis. And then in terms of is it greater than 1.5%? Yes, it is. Thank you.
spk18: And we will take our next question from Matt Taylor with Jefferies. Your line is open.
spk08: Hi, thank you for taking the question. I just wanted to ask you one about the competitive environment and basically ask if you're seeing anything change in terms of share or the pricing or anything else notable there that we should be aware of.
spk17: We've been pretty clear about our share position. If we haven't been, let me reiterate it again. In major geographies that are reimbursed, we've been gaining share and we gained share across most all of them this quarter. So we're doing very well. has been accepted the way we wanted it to. The majority of our G7 users are new users to Dexcom. We've seen greater increased awareness in the physician community now that they have this product with its simplicity combined with it being the best performing product on the market. So we're very clear there. Our pricing trends, you know, you can see our margins have remained strong and our pricing is where we want it to be across channels. We've been pretty clear on all those things, and there's really no other changes to report.
spk09: Great. Thank you, Kevin.
spk18: And we will take our next question from Margaret Cazor with William Blair. Your line is open.
spk19: Hey, good afternoon, everyone. Thanks for taking the questions. I wanted to maybe focus a little bit longer term and, you know, talk about basal adoption trends. You know, historically, I think even you're kind of Math suggests the same. As coverage has expanded for intensive insulin users, we've seen like this thousand base points plus of kind of incremental market adoption, at least by our math. I know it's early at this point, so you guys are being a little bit hesitant to get ahead of yourselves, but how do you compare, I guess, the early weeks or months in basal right now versus what you saw when commercial coverage had opened up for intensive insulin users? And then longer term, why shouldn't we see that same level or pace of acceleration in basal I know a different market, but especially as commercial coverage has maybe come on faster than it did in those markets at that time. Thanks.
spk17: You know, Margaret, this is Kevin. I'll take it to start. And if the other guys have more to add, they can. I think as I've traveled about and spoken with physicians and stuff, we've learned a lot about basal just launching, just the journey of a basal patient. You know, they've been on other meds for quite some time. And that step to go on insulin is a big step. And it's a step that they've, in many cases, been afraid of for a long time. So providing this group with information necessary to truly manage their condition and to see that they're getting the right dose, to see what behaviors they need to use to try not advance their type 2 diabetes as fast. We think there is a tremendous market here. And I think the reception, in all fairness, has probably been even warmer than I thought it was going to be, just as I've gone and spoken with people. we're also at a different point in time as far as cgm adoption and cgm awareness in general as cgm is much more accepted than it was when we launched in other markets even from a distribution perspective when we got medicare approval the first time i don't want to take you all back but a medicare patient couldn't use the phone app when we got medicare approval back in 2017 if they did we had to give all the money back to cms we couldn't even get distributors to take our business So that environment is all much, much more positive than it's been before. The flip side of this is it's new. There are a lot of them, and there's still education to do. And quite candidly, we're with a different physician group because these people are usually primary care. While we've done everything we can or we think we've done a good job expanding to get into that market, we know there's more work to do there as well. So we're cautiously optimistic. We've seen great results so far. We've heard great things from the patients who use it. but it's just going to have to build over time. We considered all these things as we've looked at that market.
spk18: We'll take our next question from Matthew O'Brien with Piper Sandler. Your line is open.
spk07: Good afternoon. Thanks for taking my question. We'd just love to hear a little bit more about G7 specifically, you know, those 8,000 new prescribing clinicians here in the state. Can you talk about the composition of those between PCPs and then existing endos that are higher volume folks. And then internationally, I know, Jeremy, you said historically that G7 is a product where you're actually getting patients away from your competitor. Is the trajectory changing as far as that dynamic as far as getting patients away from your competitor? Just looking at that international number in the quarter. Thank you.
spk05: Yeah, and thank you for the question. In terms of those 8,000 prescribing physicians, those are really predominantly primary care physicians, and many of them were already writing CGM in the past. And so you can probably surmise that change is obviously what we think is taking share, and that's quite frankly what we're seeing. And so those are folks that are seeing G7. They're seeing the ease of use. They're seeing the expanded coverage that we've worked on for years and years and years, and that really we've led. And so that's really driven a lot of that change. Outside the U.S., and Jake alluded to it, or Kevin alluded to it, and Jake tracks this all the time, over half of new patients still remain new to CGM, and a good chunk of those are switchers. They're not new to CGM. And I say new to Dexcom, not necessarily new to CGM. And so as you see that and you see a good chunk of folks saying, well, wow, this is the product we've been waiting for, we do believe we're doing incredibly well in those international markets, both in patients that are new to CGM in all candor, but also those that have decided to make the switch. And so we're really excited about the growth. I mean, I think you can see we've been really excited about G7 for years. And I think the market feedback is following that same excitement.
spk18: And we will take our next question from Matthew Blackman with Stiefel. Your line is open.
spk01: Good afternoon, everybody. Thanks for taking my question. I wanted to ask on the PCP channel, are you encountering any friction points in those offices above and beyond what you may have expected with Bazel? And I guess conversely, is there anything you anticipated would be challenging that may be playing out less challenging? And also, I'm curious, is your PCP Salesforce finding a meaningful number of type ones in that channel? Thanks.
spk17: Yeah, this is Kevin. The challenges we're encountering are challenges we anticipated. The biggest challenge always is, particularly in the Medicare environment, is getting the documents and getting to the proper distribution channel to serve these patients, because those who are not in Medicare Advantage all go through the DME channel. And so document gathering, particularly in a PCP office where they don't see all people with diabetes all the time, And our use of these documents is the biggest challenge, but we anticipated that. And we've worked very closely with our distributors to streamline that process as best we can. They've done a very good job helping us get our product out and helping us continue to grow. As we talked earlier, our biggest Medicare new patient ad quarter ever, those folks all went through distributors. So that's a good metric for us and shows that they're doing very well. I think it's been pretty much as planned, and we don't have a specific PCP sales force. Our reps have geographic territories, and they call on both specialty diabetes clinics and primary care physicians. So they truly have a business to run in their individual territories, and certainly we know who they call on and where they spend the majority of their time, but it's their job to drive that business and bring those offices along. They do a really good job of that.
spk05: I think there was one you asked the question on type 1. Do we find them in the PCP offices? And the answer is yes, we do. We do, and we find them as we go deeper and deeper into the primary care offices. We do find type 1s, some of whom are not on CGM or in PCP offices where maybe CGM is a little bit less prescribed. And so there are opportunities there in those spaces to continue to drive awareness beyond, of course, the typical endocrinologist space.
spk01: Thank you.
spk18: And we will pick our next question from Marie Tipple with BTIG.
spk12: Your line is open. Hi, thanks for taking the questions and congrats on a great quarter. Wanted to ask my question here. We learned recently about a competitor's DTC launch, I think in the UK, of a wearable, you know, to monitor glucose for people without diabetes, more of a lifestyle sort of tool. With Dexcom's device for non-insulin users coming next year, Any early thoughts on how your device will be differentiated, whether that's features, pricing, how you're targeting that market?
spk21: Yeah, this is Jake. I'll take that one. Yeah, we're really excited about this new product that we're going to introduce specifically for non-insulin users. And what I'd say about it is it's specifically designed for the needs of someone who isn't on insulin but is trying to manage their glucose and trying to improve their health condition. And so The feature set is very unique to the needs of those users. It's not, you know, you're not managing insulin. You're not trying to avoid hypoglycemia. It's all about connecting the dots between, you know, diet, exercise, and how those things impact glucose. You know, CGM is the only tool that can provide you that real-time feedback. And so we're really excited about how it's going to play into that space and You know, over time, we likely will expand the patient segment for that product, but we are initially focused on the type 2 insulin, non-insulin users.
spk05: And price-wise in those things, you know, there's a time and place. We'll ultimately talk about that. You know, today, probably not the best time. Obviously, it's information we want to keep a little bit close to our vest until it gets a little closer to launch date. But when I say we're very excited about it, it is an incredibly exciting time around here at Dexcom.
spk12: All right.
spk18: Well understood. Thank you. We will take our next question from Jason Bedford with Raymond James. Your line is open.
spk09: Hi. Good afternoon. Maybe just to follow up on the last line of questioning, I think you mentioned that you're going to launch the non-insulin device early next year, which I think is kind of newish, at least on timing, in 24. Have you run a trial for the device? And I assume you'll file late this year, or have you filed?
spk21: Yeah, thanks for the question. Yes, so it's important to note, right, that product is a 15-day product, our non-insulin product. And we have completed a clinical study on the G7 platform. showing survivability out to 15 days with great performance. We met the ICGM criteria in that study, and so that study is going to be used for the submission of that product. So that's why we're confident in our ability to say we're going to launch that product next year.
spk02: Okay, thank you.
spk18: And we will take our next question from Steve Lichtman with Oppenheimer. Your line is open.
spk04: Thank you. Hi, everyone. I wanted to ask about basal and broader type 2 opportunity outside of the U.S., particularly in the EU, certainly another big opportunity. Are the new pieces that you were putting in place with G7 and Dexcom 1 enough to really go after penetration of that patient population, or are there additional reimbursement efforts needed there as well?
spk17: You know, the access strategy is an ever-evolving one, and that's why we have our product portfolio, you know, our portfolio approach that we've adopted. There are some geographies where Dexcom 1 will absolutely be the product we go after that basal population with. There are other geographies where, quite candidly, if they're reimbursed adequately, we can use the G-series. And we break it down market by market. In some countries, it's literally state by state and region by region. where we select the right product within our portfolio to offer and gain the access and coverage that we need. We believe we have the products that we need to go do that. We've talked a bit about this, but the Dexcom One platform is soon going to be on the G7 platform next year, and when that happens, that is going to be just another step forward for us. And as we look to the future, as we extend life of our sensors and things like that, as we talked about, In our investor days, we'll just have more and more opportunities internationally. So we have the portfolio to go attack those things. We still have to go through the process of filling out paperwork, making bids, meeting with the proper people, and building that access team out over time. And that's infrastructure we've built from the ground up and we've been building over the past several years.
spk05: And one other thing I'd say to that is, remember, outside the U.S., a lot of the products are available online. You don't really necessarily need to go get a script. Now, you might go to a pharmacy to pick it up. The script is required for reimbursement. And so as you think about some of these products that are coming out that are really targeted at that, you can already use them. And so there are ways we can work around that with the right form factor, with the right product. And as Kevin has alluded to, we think we've got the portfolio, the products, the software, the ways to iterate on that to be very effective in those markets.
spk08: Great.
spk05: Thanks.
spk18: And we will take our next question from Josh Jennings with TD Cowan. Your line is open.
spk02: Hi, good afternoon. I was hoping to just better understand how you've had success kind of driving the average out-of-pocket cost for patients prescribed with G6 or G7 down to $20. And is that something that you can market or have been marketing to patients or physicians? And has that been a driver of share gains in the U.S.? Thanks for taking the question.
spk17: It certainly has been a driver of shared gains in the U.S. because we're, again, our focus is on that customer. And as we go for the lowest cost per customer, that's what we do. We do everything we can to keep that copay down. In some cases, you know, it depends on the payer, the insurance company, what the arrangement is. But we also are able to maintain a premium price due to the strength of our product and due to the fact that it provides such great outcomes and such good retention. You know, our retention rates are better than they've ever been as far as people staying on our product and using it. And we know when people stay on the product, they are healthier. There's clinical data coming over the next several months from studies that's going to show that, that extended use of CGM over time leads to just much better extended health. So you combine all those factors, the fact that patients stay on our product, the fact that it produces great outcomes, the fact that those outcomes are documented, we can go and command a lower copay. And we can go really position ourselves to do well. Now, because of that, you have to go through, again, the access games or the access infrastructure that various payers play. One of our key initiatives right now is working on preauthorizations. And if we have to keep those to make sure those are electronic, to take that burden off the heads of the physician's offices who prescribe our product, that's probably our biggest hurdle as far as ease of reimbursement right now. But we're working to do that. as well. And we have very aggressive goals on that front over the next year. But the product and reputation and outcomes of Dexcom are what enable us to do that.
spk05: You know, one of the things we've talked about over the years is our strategy was to look at ways to get covered products, make the easier burden longer term. I mean, think about people impacted by diabetes. There's already a significant burden on those individuals. And now you add in a large copay. That's a challenging thing. So we've really worked on coverage. It's something we've known is out there, and it's something we've worked on. And you're seeing it play through, where us working very hard on coverage relative to that of perhaps our competitor has really driven us to be in a position where we can help patients better longer term, because this is a long-term challenge. We want to be there throughout that.
spk00: Thank you.
spk18: And we will take our next question from Michael Polar with Wolf Research. Your line is open.
spk06: Hey, good afternoon. Thank you for taking the question. My question is on the product for type 2s not on insulin that's going to launch next year, the 15-day sensor. In 2024, is this largely, you know, is the base case expectation that this is a cash pay model in 24 and then over a multi-year period there might be some uptake into traditional insurance channels? Or would you expect that next year you will have kind of early at-risk insurance coverage for this concept?
spk21: Yeah, sure. I'll take that one. So, yeah, primarily, you know, an initial launch, it's going to be cash pay. We do feel, though, You know, we're targeting this segment of customers. There's 25 million people in the U.S. who fit into this category with type 2 diabetes that aren't on insulin. So we should feel a real opportunity to provide them with better outcomes. And we do feel that this product that's specifically designed for this group can produce an outcome that a payer will pay for over time. But we've got to generate that evidence in that population. We're starting to see evidence of CGM in that population and the benefits it can provide. We feel like this custom-tailored product is going to do a great job at delivering the outcomes that we're going to need. So it's going to take a little time, but we do feel that this is a place that ultimately will be reimbursed.
spk18: And this concludes our question and answer session for today. I will now turn the call over to Mr. Kevin Sayre for closing remarks.
spk17: Again, thanks everybody for participating on our call today. You know, just in wrapping up, I want to acknowledge all the great efforts here at our company. Our commercial team around the world has had an incredibly successful G7 launch, not only in getting product out the door, but driving access, make it available. Everything that we've asked them to do, we've done faster than we planned, and we're just Very appreciative that our operations team is not Mr beat from supply chain and microchips and G six manufacturing addition to G seven along the way our engineering team. This products perform the way we wanted it to it's done very, very well they continue to. Work on making it better talked earlier about our APP performance software is not just an add on it is difficult and then those five upgrades of the APP in this quarter. seamless and delivering people better features every time. You can go through the entire organization, even the bond offering this quarter. Kudos to that team. It is a great time to be here, and as I said earlier in my prepared remarks, we're just getting started, and that's how we feel about things. So thanks, everybody, for participating on our call today, and we look forward to talking to you again soon.
spk18: Thank you, ladies and gentlemen. This concludes today's conference, and you may now disconnect.
spk17: Talking to you again soon.
Disclaimer

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