DexCom Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2022

There are 8 speakers on the call.

Operator

My name is Michelle, and I will be the operator for today's conference. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, today's conference is being recorded. I would now turn the call over to Mr.

Operator

Kevin Sayer. Sir, you may begin.

Speaker 1

Thank you, operator. We apologize for being a bit late today. We've had some difficulties with our conference call Service provider here, but we're up and running now and we're excited to talk about a good quarter. I'm going to turn it over to Sean. Sean?

Speaker 2

Thank you, and welcome to DexCom's Q1 2022 earnings call. Our agenda begins with Kevin Sayer, DexCom's Chairman, President and CEO, We'll 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 everyone participating today. Please note that there are also slides available related to our Q1 performance on the DexCom Investor Relations website on the Events and Presentations page.

Speaker 2

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 ks, Most recent quarterly report on Form 10 Q and other filings with the Securities and Exchange Commission.

Speaker 2

Except as required by law, we assume no obligation to 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 Our first quarter earnings presentation for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now, I will turn it over to Kevin.

Speaker 1

Thank you, Sean, and thank you everyone for joining us. Today, we reported strong first quarter results With organic revenue growth of 22% over the Q1 of 2021 or 23% on a constant currency basis. Demand for DexCom CGM remains very high globally across all of our customer segments. We've also seen a nice rebound in customer growth throughout the Q1. With new customer starts ramping after the Omicron wave and ultimately meeting our expectations for the quarter.

Speaker 1

As many of you know, we have significantly scaled our business to drive demand and greatly expand the number of people with diabetes that we can serve globally. This scale goes beyond manufacturing capacity, extending to the efficiencies that we can bring as we serve customers and clinicians. Our relentless focus on meeting the needs of our customers continues to be validated in our results. In the Q1, our net promoter scores for G6 remained near record levels with customers also indicating that the strategies and tools that we've implemented Are simplifying their experiences with DexCom. The teams have driven several innovations that may not always draw the attention of our investors, But they are critically important to the experience of our customers.

Speaker 1

For example, our customers rely on DexCom to make dozens of decisions each day and therefore a reliable supply of DexCom CGM is critically important. In the Q1, we established new records for on time shipping for and timing of replacement systems at 99.7% 99.9% respectively. We are especially proud of this result given the challenges of current global supply chain dynamics. Product supply should never be on the minds of our customers And our operations team is making sure that this is the case. These efforts are delivering results in our performance as both retention And utilization levels have steadily improved since the launch of G6, reflecting a competitive strength as we engage with clinicians and payers On the value of our CGM systems, building on this momentum, we are thrilled to now be underway with the initial launch of our G7 CGM system.

Speaker 1

G7 builds upon the best in class G6 experience with a form factor that is 60% smaller With the reduced environmental footprint, a streamlined setup experience, including a 30 minute warm up time and improved app with clarity integrated into the core app and all of this with accuracy that improves upon the reliable performance That is a hallmark of DexCom CGM technology. Following the receipt of CE Mark for G7 in March, We initiated our limited launch of G7 in the U. K. In the subsequent weeks. During this brief window, we are assessing the functionality of the sensor and app In the real world and gathering initial feedback from our users, which has been very positive so far.

Speaker 1

Our plan is to extend the G7 launch A steady cadence of additional international markets over the remainder of 2022 with a growing impact to our overall sensor mix in the second half of the year. In the U. S, our 510 submission for the G7 sensor, receiver and Android and iOS apps remains under review. We are in the traditional back and forth that comes with these processes and we appreciate the FDA's ongoing attention to their view even as they juggle a very busy schedule. In the meantime, the teams are busy preparing for a seamless transition once G7 is available.

Speaker 1

This includes preliminary discussions with payers to drive market access where possible in advance of approval. It includes significant preparations from our operations team to add incremental G7 lines in advance of the launch to support the expected ramp in demand. And it includes ongoing work with our insulin delivery partners to ensure that we are progressing towards the goal of connected pump And insulin pen systems that are integrated with our latest sensor technology. As we progress with the launch of G7, we continue to pursue creative solutions To expand access to our CGM technology and bring the value of real time CGM to people who previously faced limited options for diabetes management. Beyond G7, we recently introduced DexCom 1 in Spain, which is the newest of our direct markets and will launch DexCom 1 in the U.

Speaker 1

K. Shortly. These represent the 1st dual product markets for DexCom, bringing 2 excellent options for real time CGM to customers and respective health systems of these countries. We expect this dual product strategy to significantly expand The number of people with reimbursed access to our CGM technology, broadening our growth opportunity in these countries as well as additional countries Well, we plan to bring DexCom 1 in the future. And geographic expansion is only one element of the significant growth opportunity ahead for DexCom.

Speaker 1

In the Q1, we were also pleased to receive breakthrough device designation from the FDA for the CGM system that we are working to develop for use solution for glucose management and patient outcomes in the hospital relative to the current standard of care. This recognition is designed to the regulatory pathway as we continue to build evidence for the safety and impact of DexCom CGM in the inpatient setting. As you can see, we have a busy year planned as we navigate some of the most exciting launches in DexCom history and build out the foundation of growth for years to come. The foundation for long term growth emerges from the core values that motivate us and the Noble mission that our employees embrace to drive greater health outcomes throughout the world. Along those lines, we are pleased to publish our 3rd annual sustainability report shortly after the conclusion of the Q1.

Speaker 1

This report demonstrates our commitment to our stakeholders and details some great progress in our reporting efforts, including the publication of our first SASB Index, which is the reporting framework we find to be most preferred among our stakeholders. We also added updates to our efforts to drive access to our CGM technology globally via a comprehensive strategy that involves product differentiation, leveraging scale and demonstrating robust clinical outcomes. And we enhanced our disclosures around the composition of our workforce, employee engagement metrics, and the climate related disclosure. And we are still early in our journey and these updates provide just a glimpse of the many things that make DexCom a company that I am truly proud to lead. With that, I will turn it over to Jeremy for a review of the Q1 financials.

Speaker 1

Jeremy?

Speaker 3

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 Q1 of 2022, we reported worldwide revenue of $629,000,000 compared to $505,000,000 for the Q1 of 2021, representing growth of 25% on a reported basis and 26% on a constant currency basis. Organic revenue, which excludes non CGM revenue related to last year's acquisition of our distributor in Australia and New Zealand was 22% or 23% on a constant currency basis.

Speaker 3

U. S. Revenue totaled $451,000,000 for the Q1 compared to $381,000,000 for the Q1 of 2021, representing growth of 18%. As Kevin mentioned, we saw a nice reacceleration of new customer starts over the course of the quarter, coinciding with improved access Healthcare providers for our sales force as the impact of Omicron waned. Our team continues to do a great job expanding the DexCom prescriber base And making sure that these clinicians are aware of the DexCom story and the benefits of our system, leaving us well positioned to extend new customer growth Both now and well into the future.

Speaker 3

International revenue grew 43%, totaling $178,000,000 for the Q1. Organic revenue growth, which excludes the non CGM revenue related to our distributor acquisition, was 33% for the Q1. These international results include approximately $6,000,000 of unfavorable impact from foreign currency or approximately 4% impact to our international growth result for the quarter. We continue to see very good international momentum as we broaden our commercial footprint. This includes the recently announced expansion of our DexCom 1 rollout that Kevin mentioned as well as additional access wins that have expanded our addressable market beyond the improvement As we mentioned earlier this year, following the successful launch of DexCom 1 late last year, we saw 2 of the 4 We served established reimbursement starting in the Q1.

Speaker 3

We've also secured reimbursement for DexCom 1 in Spain in conjunction with our launch this month and are hopeful to have DexCom 1 added to the U. K. Drug tariff shortly. In Canada, we secured provincial coverage for people with Type 1 diabetes in Ontario. With this addition, DexCom has now established coverage for 7 provinces, representing greater than 93% of the Canadian population.

Speaker 3

Our first quarter gross profit was $398,100,000 or 63.3 percent of revenue compared to 68.1 percent of revenue for the Q1 of 2021. Our first quarter gross margin reflects the traditional step down that we see from our 4th quarter, As we see a greater mix of pharmacy revenue and less contribution from our DME customers with high deductible health plans. We also took a write off of some obsolete G5 inventory The quarter as Australia, previously the largest remaining G5 market in the world, has it added G6 to its CGM subsidy as of March. With this update, we are now able to fully transition the Australian market to G6, something our customers have long awaited. That impact combined with a one time impact related to facility damage impacted our gross margin for the quarter by 100 basis points.

Speaker 3

Our teams are doing a good job leveraging our significant volume growth and operational efficiencies to offset the inflationary environment, Allowing us to remain on track our full year margin expectations as we continue to advance our G7 launch. Operating expenses were $347,800,000 Q1 of 2022 compared to $297,500,000 in Q1 of 2021. Despite ongoing investments in our commercial infrastructure, Including the final quarter that includes incremental impact from our U. S. Sales force expansion in 2021, as well as preparation for the G7 launch In pre commercial G7 development costs that remained in our R and D expense, we still saw 1st quarter operating expenses as a percentage of sales decreased by 360 basis points compared to the Q1 of 2021.

Speaker 3

Operating income was $50,300,000 or 8% of revenue in the Q1 of 2022 compared to $46,400,000 or 9.2 percent of revenue in the same quarter of 2021. With the Q1 channel mix dynamic offsetting the operating leverage, we continue to drive across the business. Adjusted EBITDA was $112,400,000 or 17.9 percent of revenue for the Q1 compared to $94,400,000 or 18.7 percent of revenue for the Q1 of 2021. Net income for the Q1 was $32,300,000 or $0.32 per share. We remain in great financial position As we close the Q1 with approximately $2,700,000,000 of cash and cash equivalents, this gives us the flexibility to support our ongoing organic growth investments, including the scale up of our Malaysia manufacturing facility and global commercial infrastructure, while also being opportunistic to look at strategic options that accelerate our long term growth potential through either our Ventures unit or M and A.

Speaker 3

Turning to guidance. We are pleased to be in a to reaffirm our full year 2022 guidance for revenue and margin. This includes total revenue of between 2.8 $2,940,000,000 gross profit margins of approximately 65%, operating margins of approximately 16% And adjusted EBITDA margins of approximately 25%. This guidance continues to factor in our strong customer growth momentum for our CGM platform, Whether that is G6, DexCom 1 or G7 with approximately $15,000,000 to $20,000,000 of incremental currency headwinds versus our previous expectations. We are focused on meeting the complex operating environment and global inflationary pressures head on with our teams committed to driving efficiencies and operating leverage for our With that, I will pass it back to Kevin.

Speaker 1

Thanks, Jeremy. As you can tell, there is no shortage of exciting things underway at DexCom And we look forward to providing updates as they come throughout the course of the year. I would now like to open up the call for Q and A. Sean?

Speaker 2

Thank you, Kevin. As a reminder, we ask our audience to limit themselves to only one question at this time and then reenter the queue if necessary. Operator, please provide the Q and A instructions.

Operator

Thank you, sir. We will now begin the question and answer session. The first question in the queue comes from Jeff Johnson. Your line is open. Please proceed.

Speaker 4

Thank you. Good afternoon, guys. Thanks for taking the call. I tend to focus on your top line. But Jeremy, I think I want to start maybe on a gross margin question if I could.

Speaker 4

With the gross margin down to 4.80 basis points, It looks like B and A was up about $16,000,000 year over year. I'm assuming that was largely driven by the G7 new manufacturing lines, if you could just confirm that. Obviously, you broke out the 100 basis points on the Australia write off and the facility issue. That would still put gross margin down about 100 basis points year over year if I All those factors, is that just some of those channel mix headwinds? Is there any other core pricing issues going on?

Speaker 4

What else is impacting that other 100 basis points seems to be left over in my math? Thanks guys.

Speaker 3

Sure. Yeah. No problem. And I can certainly give you some of the context in terms of that impact. There's a couple of other smaller pieces of gross margin.

Speaker 3

So, we'll first recap. We had about 50 bps associated with the impact we had at our facility and that will be recovered via insurance on the balance of the year. So that's certainly a temporal thing. We certainly talked about the G5 E and O and again that's a temporal thing as well as we have more folks on G6 That certainly will bode well for the balance of the year on margin. The other couple of pieces in there, there were some impacts associated with One time use sensors, these are warranty sensors.

Speaker 3

It's actually a good thing. They expired and they expired because our warranty rates continue to come down. And so for the quarter, certainly, we had to take a charge for those. But for the balance of the year, we expect our warranties to do better. That was about 50 bps as well.

Speaker 3

So some of that's the equation you're looking at. And there was a little bit of an impact of currency as it flows through. There's about 30 basis points or 40 basis points of currency as you push that through. The remainder of that and this will push you above the 65% number is associated with mix and we talked a little bit about it in the prepared remarks. As more and more of the mix in Q1 is tilted towards pharmacy and more folks go through the pharmacy, there's a little bit of pressure as you have less DME In the Q1, we expect that to normalize over the balance of the year and that's historically why you had that step back.

Speaker 3

As more and more goes to In the Q1, you just get a little bit of a dynamic from that point of view from a gross margin perspective. But nothing pricing wise, nothing that would expect us to change the full year. In fact, that's

Operator

Thank you. The next question in queue is from Danielle Antalffy. Your line is open. Please proceed.

Speaker 5

Hey, good afternoon, everyone. Thanks so much And better late than never, right? So just Kevin, I'm curious, we've done a lot of recently on CGM and adoption beyond the Type 1 patient population. And I thought I'd say one of the things that has been very surprising is that there's Bill, even with the endo community, some holdouts on Type 2s and whether the burden of therapy That's the benefit you get from the CGM. And I know this is a high level question, but I guess I'm just curious about what you think The right strategy is to get those people over the hump here.

Speaker 5

You have data. You have coverage for non insulin intensive type 2. So where to from here with these types of folks, which I'm surprised quite frankly exist at all, but they do, I guess?

Speaker 1

Well, we can take the rest of the call time, Danielle, and talk about this, because it's something we talk about a lot. Let's get to the starting point and that's the evidence. The fact is over and over again every single time we use CGM and run a study in this patient group, People have much better outcomes than they had before. Getting the data from CGM absolutely changes people's lives and their view of their health. And they make changes because they have feedback that gives them something exactly as to what they should do.

Speaker 1

We also need to remember that this group of patients is Type 2 patient who is not on insulin. Most of them don't see Endocrinologists are people that are always in the diabetes community. They see their primary care doctor. So we have to come up with a set of tools We'll make it very easy for that physician and for this whole group to engage with CGM. Let's take another look at some of the dynamics going on here.

Speaker 1

CGM over time the cost of CGM has come down, but the cost of these drugs has not come down. Cost of these drugs is very high. What a great way to titrate A new GLP-one and to have somebody with a CGM to say, hey, this is helping you, this is the right dose, this isn't the correct dose. It's going to play a vital role in that space and it's going to be very cost effective solution for patients in that space and it's going to be cost effective For all the payers, we need to continue to push for reimbursement. Things really don't grow until they're covered.

Speaker 1

But we have some very aggressive plans with our plans with our partners and the other programs. We have plans of our own. And quite honestly, the feedback we get from the individuals who do get coverage from this, like I said, It's phenomenal. And none of them write me an e mail or none of them say, I'm doing better because I'm on a new drug. They attribute their improved health The CGM and the information that they have and the changes they've been able to make.

Speaker 1

So we remain bullish on this, but it does take time. I remember the first ride along I ever did When I came here years ago and I asked every doctor I visited, when do you put a patient on CGM? Only after they've been on a pump for a few years, Because they're not serious about diabetes unless they wear a pump. Well, look how that's changed. We can change the other equation too.

Speaker 1

We just need a little more time and a little more evidence.

Speaker 3

Yes. And when we read the study, Danielle, certainly understand the questions you're asking out there. If you were rewinded the results you got from that say 2 or 3 to 4 years ago, It would have been a much different outcome as well. And I think you're just seeing that the recognition of this technology over time moves. But we do have to move people off Of preconceived notions or the questions around the advancement of technology through education and awareness.

Speaker 3

So It's a continued focus there. And again, it all kind of aligns to all the work we did last year around expanding the sales force, direct to consumer advertising, really getting that education and awareness out there. We have to continue to do that and that should help us over time.

Operator

Thank you. And the next

Speaker 6

Maybe if I can ask, in the U. S. Business in 4th quarter, you talked about how you had difficulty accessing Primary Care Channel, 1st quarter growth in the U. S. Came in a little lighter than we would have expected.

Speaker 6

Maybe just talk about trends there and then conversely talk about some of the early responder trends and feedback you're getting on G7 Thanks.

Speaker 3

Sure. Yes, I'll take the U. S. Question, Ravi, and then Kevin can certainly cover the early feedback on G7. So in the U.

Speaker 3

S. And we talked a little bit about this as we kind of rounded out the year last year. In December certainly in December, we saw the impact of Omicron and that continued pretty heavily into January in terms of getting out there and getting in front of prescribers. And so as you kind In terms of getting out there and getting in front of prescribers. And so as you kind of look through the quarter, the way the quarter worked out was you had a kind of a lower Q a lower January and as the quarter progressed each month got a little bit better as things really opened up.

Speaker 3

And so what we saw was exactly that January was a bit tough. February was better and March was even better than that. And so the momentum continues in the right way. And that's the way I think we think about it. And so it played out a little bit how we expected when we gave guidance a little bit better as we're kind of coming out a little bit about the top end of at least where we thought the quarter was going to run.

Speaker 3

But that momentum you're seeing, I think is pretty common to what we've seen and heard in the market. It's also what we've seen as we've been getting in front of these positions. In terms of the experience in the U. K. On the G7 launch, Kevin?

Speaker 1

Yes. We're early on, Rami, but the feedback has been exactly what we expected. It's been phenomenal. As you start with product features, size is the first thing everybody sees and even the smaller size of the applicator, lesser materials, size on the body, The half hour warm up people love, the app being much different than what we've had before is being very well accepted and very easy to use. Setup is much easier And much more friendly, so far so good with the limited launch.

Speaker 1

Everybody is very happy who's on the product so far. And we continue to gather feedback. And then we'll take the feedback we get and incorporate anything we hear that would be valuable into the full launch when we roll it out Later this

Operator

year. Thank you. The next question in the queue comes from Jayson Bedford. Your line is open.

Speaker 4

Good afternoon and nice job on making this call work. So my question is I don't think I heard that this quarter. So can you maybe, Jeremy, Talk about the interplay between volume growth and revenue growth this quarter both U. S. And international?

Speaker 3

Sure. So I think you saw it play out about the same way you saw it in prior quarters and as we kind of make that migration it's happening. Our unit volume growth was in the low 40s. And so as you kind of draw that correlation to what happened last quarter, it's about a similar correlation, which is about what you would have Right as we're going into this year of the final major migration to the pharmacy as well as annualizing some of the OUS Access wins that we got. In terms of the split U.

Speaker 3

S. OUS, we really don't break it out. However, you generally know that there's There's channel mix and pricing in both of those. And so as you talk about the growth numbers, the unit volume numbers are generally higher than that and it's generally pretty proportionate. That's generally where we sit today.

Speaker 3

And for the balance of the year, clearly, we have not changed on what we expect those headwinds to be. So hope that helps low 40% unit volume growth.

Operator

Thank you. The next

Speaker 4

Just to follow-up a bit more on the U. S. Commentary. I think people are expecting a little bit more in Q1 understanding Omicron was a little bit of a headwind, but you're 65%, 60% penetrated of Type 1s. Consumer confidence is dropping like a rock.

Speaker 4

You're getting into some of the people that have been more hesitant to get on to CGM, so far, so is there a risk that the domestic business Could see a little bit more softness than expected throughout the course of this year or even into next year as those

Speaker 1

Matt, appreciate the question. We do not feel that way at all. With respect to the U. S. Population, again, Jeremy hit unit volume growth.

Speaker 1

Our unit volume growth was outstanding this quarter. And our new patient numbers, once we got past the Omicron wave early in the quarter, our new patient adds were very, very strong and we finished where we planned to finish For the quarter in general, so we did not feel that softness at all. And with respect to confidence, people have never had more confidence in a product than they G6 right now. As I said earlier, our customer satisfaction scores are better than they've ever been. Patients are very satisfied With DexCom, as we look at further penetration in this marketplace, there are some very significant catalysts coming as well on Type 1 side and it will also be more applicable to Type 2 intensive users as well.

Speaker 1

You look at our integrated partners with Tandem and with Omnipod 5 on the horizon and then you look at G7 product for those who aren't on pumps, because we don't be integrated with those pumps immediately out of the gate, but a G7 product For our MDI patients, that is a much, much better experience than what we have now and what we have now is world class. We don't lack For being bullish at all right now here in the U. S. We think we're in a good spot.

Operator

Thank you, sir. The next question comes from Joanne Wuensch. Your line is open. Please proceed.

Speaker 5

Good evening and thank you for pulling this off. Can I ask you what's included in your guidance? You've got DexCom 1 going out the door in different regions. You've got G7 outside the United States and in the United States in the back How do you think about putting all those factors into your guidance?

Speaker 3

Sure. So we've got a little bit of all. So what we do generally in our guidance We look at multiple different scenarios and so we have DexCom 1 in various country launches timed at different times that helps us Align where that guidance should ultimately sit. We also have a G7 launch outside the U. S.

Speaker 3

As well as in the U. S. At various times throughout the course of the year that helps us understand the impact. And we run various scenarios, to make sure that under all of these scenarios, Whether it's G7 or G6 or DexCom 1 that we make sure that we're putting out reasonable guidance around what we can achieve and again we'll always try to outperform it. So the way to think about it is, is there's various different scenarios.

Speaker 3

All of them ultimately play in to kind of coming up with a guidance number we feel comfortable coming out with. And let me give you an example about that. If G7 comes out great, it can be an extra catalyst, but you still have to remember G6 is an incredible product And when you win tenders that can ultimately drive it knowing when exactly you'll win those tenders. Sometimes it's hard to peg. So we have various different scenarios that play in.

Speaker 3

So A little bit of all of it is the way to think about it and we expect to be able to hit guidance irrespective of the timing of a lot of these launches. To the extent the launches fall the right way, we certainly hope to outperform.

Operator

Thank you. The next question comes from Matthew Blackman. Sir, you may proceed.

Speaker 4

Good afternoon, everyone. Thanks for taking my question. You mentioned the growing of that base today versus prior to the sales force expansion? Just anything to help us frame the progress of that newer call point? Thanks.

Speaker 3

Sure. Yes. So I'd say, while we haven't necessarily sized it and I don't think we're ready to size it exactly today, It has grown dramatically. Like I think we've said, it's doubled over the past call it 18 months and it continues to grow faster. In fact, we expect it to grow another sizable portion this year as our folks call on more.

Speaker 3

In terms of the mix, it is predominantly primary care physicians at this When you think about the endocrinologists across the United States, there's about 6,600 endocrinologists across the United States and we call on tens of thousands of And so you can probably get a feel for how many we're calling on. The larger prescribers still sit in the endocrinologist community, so that still is where we spend a good chunk of our time. But at this point, due to the expansion of the sales force, we are calling on more primary care physicians than we are an endocrinologist.

Operator

Thank you. The next question comes from Larry Biegelsen. Your line is open sir.

Speaker 7

Good Good afternoon.

Speaker 4

Thanks for taking the question. Just wanted to focus on G7. So Kevin, I know you can't predict the FDA, but How are you feeling about having approval of G7 in the U. S. By ADA?

Speaker 4

Is it still plausible? And with the G6 launch, We saw a pretty big inflection when you launched that in the U. S. Do you think we could see something similar with G7? Thanks for taking the question.

Speaker 1

Larry, thanks for asking. Let's go back a little bit on G7. Remember, this is a global launch for us, not just the U. S. One.

Speaker 1

Our limited launch Right now in the U. K. Is going on. We have CE Mark there. U.

Speaker 1

K. Will be our first launch as we roll out internationally and then we roll out to other Countries after that as we go through all the local approval and filing process. So we're on track with our international plans. One of the things we've learned over the years is we really don't give dates as far as when we think things are going to be approved. And we are in our back and forth time With the FDA, we applaud them for spending as much time as they have and effort during a busy time with us in getting this done.

Speaker 1

And we're confident we'll have a meaningful U. S. Launch of G7 this year. Approval more than likely will come after ADA, knowing what we know and what we see today. And we're comfortable with that.

Speaker 1

We are also comfortable that there are no showstoppers in the things we're discussing with them. We are having a very good dialogue and Look forward to that launch. As far as a bolus with G7, you're absolutely right. We do believe this is going to be a great product launch for us And will lead to more people using CGM. I think it's important that everybody remember we're in a different time now with respect to reimbursement, Particularly with the time it will take to get this into the pharmacy channel.

Speaker 1

So as you start lining things up, once you have approval, you file with CMS reimbursement that takes some time. The pharmacy contracts take some time. So we will launch the product and absolutely seek to get Reimbursement and approval every place we can as quick as we can and even some pre launch where we can do that. We have those efforts going on as well. So this will roll out as quickly as we can do it.

Speaker 1

We're optimistic we'll get it approved, but more than likely after ADA.

Operator

Thank you. And the next question comes from Marie Thibault. Your line is open, ma'am.

Speaker 5

Hi, good afternoon. Thanks for taking the questions. I want to ask here on Dexcom 1 as you expand that launch. I'm curious who it's Appealing to how these early users are hearing about it? And who's telling them about how it's being positioned versus the G Series?

Speaker 5

Thanks so much.

Speaker 1

Yes. This is Kevin. I'll take that. Our first users in the Bell countries, this is all an e commerce effort. This has been an e commerce platform with some ad advertising from us, but by and large our e commerce platform has reached these people.

Speaker 1

That's how they've heard about it and have paid cash For this product on their own. As far as positioning right now, DexCom 1 is positioned for insulin users, but it's not Position for those who are going to integrate with another device or even share data with others. It's a simplified version of our product for that type of use. In the other countries that we rolled out, as Jeremy said earlier, we're involved in the tender process in Spain and we have For the reimbursement for DexCom 1 in Spain. In many of the European markets, there is a positioning of what you would call high risk pool And then another pool of insulin using patients.

Speaker 1

We have always played very well in a high risk pool with these patients Because of our connectivity, our accuracy and our performance and that is a higher price point within those geographies as well. With DexCom 1, we now have access to the other Patients and again the qualification of those patients varies tender to tender and country to country, But it gives us a much larger playing field for our playing fields can be expanded anywhere between 80% 90% And some of these countries where we launched DexCom 1 is a dual product. So that is that's why we're doing it and that's what we believe. So expanding into new geographies with the product, With the e commerce platform, but also expanding our reach and making CTM available to more people.

Operator

Thank you. The next question comes from Travis Steed. Your line is open. Please proceed.

Speaker 4

Hi. Thanks for taking the question. Just wanted a little bit more color on the basal only population in the conversations that you guys are having with payers. I'm hearing more and more patients in that Getting insurance coverage. So just kind of curious is that what you're seeing on your end as well and conversations with Medicare moving along?

Speaker 3

Yes. So I'll start thanks for the question and welcome back. I'll start with the CMS conversation. So certainly we have the That's a process that takes a little bit of more time. But it is something that's where the significance of the basal population resides.

Speaker 3

And we are working with CMS to look at what that opportunity looks like. And so we'll be making progress there over the course of the year. And as we have more information, we'll certainly Sharath, in terms of the insurance coverage in the population on the commercial side, there are some insurance carriers that do cover it. It's a little sparse in between. There are some that folks kind of get access to it through either some edits or forms around those lines around insulin use And so there are folks that are getting access to it.

Speaker 3

However, it is very, very light penetration at this point in that space. And so but those conversations are going. We are having the similar conversations that we talked about having with CMS. We are having those with commercial payers. And we'll continue to have those over time because we have shown and certainly with our mobile study was an obvious Game changer that people on a CGM do better.

Speaker 3

And I think that the insurance companies as well as CMS are starting to see it. So More updates to come over time as we get those coverages and we'll share those certainly those that are significant in the future.

Operator

Thank you. And the next question comes from Steven Lichtman. Your line is open.

Speaker 4

Thank you. Hi, guys. I wanted to ask on the intensive Type 2 patient population in the U. S. Where penetration still meaningfully trails Type 1.

Speaker 4

With the coverage efforts you've made over the Past few years, are you seeing momentum pick up in this group? And what's your outlook for where penetration can go over time?

Speaker 1

Yeah. This is Kevin. I'll take that. Obviously, we are getting very good coverage in that segment. That population again Medicare covers that and that is really our fastest growing patient segment right now.

Speaker 1

We're doing very well in these Type 2 patients, hence the reason for expansion of the sales force And calling on more primary care physicians. As far as penetration in that population, their needs for CGM data Are equal to those in our Type 1 population and we believe not only is CGM going to be successful there, but we'll be successful there with our pump partners as well through our integrated systems. So, many years ago, I said 80% penetration per CGM in the Type 1 world and even people from our own company I don't see that as being a problem over time. If you're going to be intensely using insulin, There is no reason to not treat yourself with CGM. It is just a much better tool.

Speaker 1

So I believe that penetration get every bit as high

Operator

Thank you. And then last question in the queue comes from Margaret Keiser, your line is open, ma'am.

Speaker 7

Hi, everyone. Thanks for taking the question. I just wanted to focus on a completely Different opportunity that we haven't talked too much about, but you guys mentioned on the prepared remarks. You have a lot of data that you've gathered in the hospital for inpatient use of CGM During COVID, you have breakthrough status. So could you just talk to us about what's the next steps in that market?

Speaker 7

Clearly, a meaningful So what are you guys focused on this year? And what should we look out for progress

Speaker 1

Thank you for the question. This is definitely a passion of mine going way back to my early days in diabetes therapy back in the 90s. One of the things we've done this year, we've hired a General Manager for our hospital business, a very experienced executive who spent a lot of time here and we're Starting to build a full team around him and that organization. We are running clinical studies right now To show how the product performs in the hospital environment and we've had numerous discussions with the FDA. I think for us the key here Just to get the sensing technology and the performance of the sensor validated and verified that it will be approved and useful in that environment and the feedback we've gotten certainly during The pandemic has been very, very positive for those facilities that did use CGM.

Speaker 1

Once we do that and validate The product performance just from a technical perspective then it becomes a question of what does that product look like? What does it connect to? And what does the distribution channel and business model look like? And that's why we haven't experienced GM and the team built out here. We know how much better things work in a hospital if you have continuous data.

Speaker 1

I've had several experiences where people have told me about having their fingers stuck Every 30 minutes without diabetes in a post surgical order in an ICU and it drives them crazy when they know they could be on a CGM. As you look at the number of hospitalizations and the number of people hospitalized with diabetes and cardiovascular wards in particular, The CGM opportunity here is vast. The questions we need to answer business model, product configuration, ease of use, Outcomes all those things and we have a great team that can put that day together for us. So we're very optimistic and bullish about it over time. I do appreciate the question though.

Speaker 1

Hopefully, we'll have you some more information over the course of the year.

Operator

Thank you. We have one question in the queue from Frank Pennell. Your line is open sir.

Speaker 4

Hi, guys. Thank you for taking the question. Just one on FX really quickly. I see a few companies at this point Raise their forward FX headwind expectations for the next 2 to 3 quarters. And I'm wondering to what degree is that Are you baking in FX?

Speaker 4

What's in there now? Could we see that challenge to the lower end of the guide? Thank you.

Speaker 3

Yes. Thanks for the question, Frank. And I think you'll see it in our prepared remarks. We do expect $15,000,000 to $20,000,000 of FX headwinds, but we kept our guide the same. And so the way to think about it is we think we can grow through that in the current period.

Speaker 3

And As you do the math for the full year, if you include the impact the incremental impacts of headwind versus a 15% to 20% guide, it's a 16% to 21 So that should give you some comfort that yes, there are headwinds associated with currency. Yes, we do believe we can grow through it. And so a non currency adjusted growth rate certainly would reflect that. So call it $15,000,000 to $20,000,000 on the year, but it doesn't change our full year guide.

Operator

And sir, we have no further questions in the queue. Do you have any closing remarks?

Speaker 1

Yes. This is Kevin. I absolutely do. We appreciate all of you for hanging with us today. Obviously, to say things have been a little hectic Here would be an understatement, but as always we get through it.

Speaker 1

I just if you look at this quarter again $110,000,000 in organic growth, Volume increases in the low 40 percent. Great new patient numbers post the Omicron scare. Dexcom 1 launches a launch in Spain, a launch announced in the U. K. CE Mark for G7, limited launch for G7 in the U.

Speaker 1

K, Continued G7 progress in the U. S, continued scale in our business, positive momentum on the operating leverage side. There's not a whole lot more we could do. Times cannot be better and more hectic than they are at DexCom right now. We appreciate everybody's support And all the fine people who make this possible.

Speaker 1

Thanks everybody and have a great day.

Operator

Thank you, ladies and gentlemen. This concludes today's teleconference. Thank you for participating. You may now

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Earnings Conference Call
DexCom Q1 2022
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