Oh, good. It's fun. All right. Morning, everybody. Thanks so much for joining us. Matt O'Brien, I cover MedTech here at, at Piper. Tickled, very excited, lucky, fortunate, whatever adjective you want to use, to have Dexcom with us this morning. From the company is Jereme, who's the CFO of the company. Jereme, thanks so much for coming out.
Thanks for having us. Thanks for being tickled.
Yeah. You bet. So maybe I'm gonna get to the Q4 guide in a second, but just on the Q3 performance, that domestic result on a two-year stack was as good as we've seen in a while, and that's, you know, everybody's been focused on domestic, domestic, domestic. Can you just talk a little bit about, you know, maybe just deconstruct where the strength came from on a two-year basis that was a little bit better? It's still been really good.
Yeah.
Just basal, G7, you know, CGM, whatever it may be.
Yeah. I think, you know, a lot of the strength, it is a combination of, you know, the launch of G7. We launched G7, just as a reminder, in early February, and, you know, off of that, came Medicare coverage for basal, in April. So you kind of combine those two, and each of those takes a little bit of time to really trickle through. Combine that with some of the commercial coverage coming in a little bit faster on basal as well. I think what you're seeing is a good contributor is basal. Certainly, it's a big part of it. We're seeing a significant move in scripts over to G7 based on the strength of G7. It's hard to tease out which one's driving it more. We've always been a company that's leaned into reimbursement.
It's been our focus, it's our core strategy. That's played out well and it's playing out well where we think where there's reimbursement, we win, and that's part of the share taking. But also part of the share taking is G7, addresses a lot of form factor, addresses a lot of ease-of-use concerns. And so really, the two play out well, where you have a population, generally that you would say is looking for ease of use. You have a product that's not only easy to use, but also is now reimbursed, where historically it wasn't. And so they may have been forced either to cash pay another product or maybe didn't even go on therapy at all. And so both of those two really have started to play out, and so it gives us, you know, a lot of, obviously, excitement.
There's really no way of figuring out on the basal side if it's coming from Medicare or on the private side?
No, it's coming from a little bit of both. Certainly relative to expectations, the private side has come a little bit quicker. We know exactly where the patients are coming from, and what we would say is, when we started to give guide and thought about the year, we thought it was gonna be predominantly Medicare because the commercial side would take a little bit longer to pull through. The commercial side pulled through quicker. That's contributing to a little bit of the performance as well, is the commercial side pulling through faster, ultimately driving some of that uplift as well.
Okay, makes sense. So, I guess we'll just figure this out. No, we'll go with Q4 real quick.
Sure.
On the guide side, you know, if I look at the same period last year, Q4 last year-
Mm-hmm.
You grew about $45 million sequentially. This year, the Street's only modeling you up about $25 million sequentially. I'm trying to recall what you had said on the earnings call about why things may slip, may be a little bit softer here, but I know you guys are always conservative by nature. How do we kind of-
Sure
... reconcile all these, all these different figures and, and why things would slow down in Q4 when it seems like there's a lot of good momentum?
Yeah. So I'll maybe start with... It's a, it's a bullish question, so I'll start with the top end of our guidance versus the Street. The top end of our guidance assumes about $37 million-$40 million of a sequential increase from Q3 to Q4.
Yeah.
So a little bit in line, maybe a little bit less than last year and really the prior two years. You saw it in 2021 as well. And so, you know, it's what's included in there is two things. One, it's a strong new patient start, but again, we're making sure we're giving a base case on new patients and not necessarily expecting every quarter is always a record when we provide that base case for folks. And then on top of that, the seasonality that we used to see in Q4 is starting to—is continuing to dissipate. So when you looked at Q4 as a percentage of revenue—total yearly revenue, it was in the 30s, it's drifted into 29, now it's drifting to 28.
That's just the mix of our patient base going to the pharmacy channel, where you don't double up in the fourth quarter, whereas you might in the DME channel. So I think it's that continuation of the shift of the business, and so we're making sure we include that in there. If we can come out, perform on patients and, you know, we like to provide a base case, and then our goal is, as a management team, to exceed that. That's certainly something we'll do, but that's the concept and the thought that went into it, is taking into account seasonality and making sure folks can make an investment decision on a base case.
Got it. Okay. So flipping back to basal a little bit, I think you said about 100 basis points, 23 back to the top line. Talked a little bit about the impact for next year.
Yeah.
200-300 basis points around the right number for next year, even at the higher end of that, that range I just gave you?
Yes, I'll do the math and then, because we haven't guided to 2024 yet, but I can do the math and we can get a run rate, and then I think everybody can kind of back into it. We had said it was 100 basis points, you're right. We upped it to 150 basis points over the course of the year. And then we said, You know what? Because reimbursement is commensurate with the rest of our business, it's probably a little bit more than that. But 150 basis points, if you have 8 months of a period, 4 months is the average, that works out to about $50 million this year. That run rate works out to about $150 million. And you factor in a little, you know, retention, in that number.
That's the number at a floor, and we said we've been exceeding that number. So, you know, just doing the math there, that's about $150 million, depending on where you have next year, you can start to imply some pretty significant-
Okay. Do you think basal will be the primary driver or overall? I don't know how proportionate it's gonna be versus just traditional Type 1-
...You know, it's over the next, say, 5-ish years, you know, as you get out there into those out years, I think it's going to start to be a primary. Right now, no, it's still gonna be your intensive insulin-using population. That population continues to run well. Reimbursement there is getting close to 100%. All the Medicaid locations have started to come along as well, and so that population still will run. Basal will contribute. Over time, I think basal will start to catch up, but in the first years, it's going to be more still in intensive insulin. Of course, our goal is to try to make basal be the number one contributor. That would obviously be nice for the business, but our expectations are intensive in near future, eventually should.
Got it. Okay, understood. And what about longer term? I think you said... Well, actually, back up a little bit. On the international side-
Mm-hmm.
Are there certain countries on the basal side of things we should really be monitoring that should come online in 20...?
Yeah, you know, we don't necessarily have, these are the countries that are on the verge of it. Japan and France have approved it. Japan's approved it for everybody. France will approve it for everybody as well that meets the tender criteria, so we'll be there. The countries you would expect are generally the countries that have been on more on the forefront of adoption, so it's the Nordics, Germany, and the UK. They tend to be along with France in the European region. Those are the ones I'd keep an eye on. I don't have which one will be there. In each of those countries, there are certainly advocates for moving it to basal.
There's still a lot of countries, however, intensive insulin isn't fully covered, and so we have a lot of opportunity outside the U.S., moving for coverage in T1 in some of the emerging markets, to intensive in some of the markets that just covered T1, and that actually represents a majority of the population. So I think there's a lot of room in the lesser-covered countries just to hit our core markets, and then it's the ones that are more on the forefront of reimbursement I would expect to see as the ones that would lead the charge on.
Okay, and India and China are huge patient populations, so they don't necessarily pay real well. Is that, are those geographies that could come online?
They are absolutely areas we continue to look at. You know, each of them have their challenges. I'll give you a simple challenge in China. We are a Google Cloud-based organization, so we use GCP. Not allowed in China. So ultimately, you have to build an infrastructure that works to meet that market need. So we've been looking at ways to do that. India is a different concern. It's how do you go to market with various locations within the country requiring different reimbursements and distribution schemes? Make no mistake, though, it's an area we've spent a lot of time looking at. In addition to all the other larger populations, we know what the world looks like in 20 years from now, and we're making sure we're preparing the right products for each of those over time.
So those are areas we're absolutely looking at.
I appreciate that. You know, and just to stick on basal a little bit, sorry about this, but I think longer term, you said, you know, 45% penetration in Type 2s right now.
Mm-hmm.
Actually, right now, you said 40%-45% Type 2 penetration. That's about 650,000 patients. And then Kevin said that basal is gonna come faster, which you did in terms of getting to that 45%. Kind of alluded to it earlier, but is that like a 2027 event, where we're gonna start to see that level of, of, you know, CGM on the basal side? Obviously, they're not all going to be Dexcom.
Yeah.
Hopefully, they are, but,
Yeah.
Is that what we should think about?
Yeah. So you know, how we're thinking about the basal market, you know, our long-range guide to 2025 was about 25% adoption base. So that implies about a 6-7% adoption rate from the day of coverage each year until you get to a 25% adoption, with basal eventually going to 60%. So you can even see post-2025, there's a large opportunity there. Also happens to be the largest population, and so coverage plus the largest population is really helpful there. So 60% penetration. Where we came out of Q3, when looking at trends, we actually saw basal start to look like Type 2 intensive, and that's the 40%-45% at the start of the year. That market generally is growing at about 10% per year adoption.
You know, from our perspective, that's a good sign. It's a great starting point to say, basal, look, not only is it going, it's actually going at a rate that leaves us very bullish for the future. Early days, right? This is the first full quarter of reimbursement, so we don't wanna make, you know, we don't like to make assumptions without complete data. But it's a good indication that basal could even accelerate faster than our long-range plan. So it's a really exciting opportunity. We haven't gone out to 2027 yet, but you can obviously see there's some potential opportunities here through 2025.
Got it. What about on the utilization side? This isn't as thick a patient population as intensively managed.
Yeah.
But the thing that's always struck me that I've heard in the channel is that once people start getting this information, getting it, are you still seeing that? I know it's still early with basal, but are you still seeing that type of utilization?
Yeah, so we have a couple of data points. In our population we have today, so this is across Type 1, Type 2, intensive, basal, you know, even cash pay, non-insulin users. What you find is actually the utilization and retention rates are very similar. The only population that's really different is the connected pump population, which have a higher utilization retention rate. But across that group, and there's a lot of folks in there, you're seeing a very consistent rate. A couple of studies we've done, you know, MOBILE is a good example, the one that ultimately drove basal reimbursement. The utilization and retention throughout was incredibly high. I think we had something like 90%, which is really, really high for both retention and utilization. We stopped it.
What we saw was all of these folks wanted to continue. So it gave us a lot of confidence in the basal population. It's playing out in the Type 2 population; we've done a study as well, it's about 7,500 patients. And what we found is the retention in that study was actually very similar to the basal and intensive population. So back to your point, you know, once folks get used to having the data at their fingertips, there is a desire to use it. So we expect it to be, once you're on it, to use it pretty consistently. That all being said, in all of our models, we make some—you know, we obviously are prudent about our assumptions.
Just to say, you know, if you don't, if you're not using insulin with meals, you know, you might take a weekend off. You've kind of got your daily shot down. Maybe you understand, you know, you understand enough where you might take a weekend. You know, we can see some of that potentially happening. Haven't seen it yet in the data, but it's always something we're mindful of when we provide these, these assumptions around guidance.
Got it. Okay, so it's already in there.
Yeah.
Are you seeing attrition come down because of G7 versus ...? Yeah, I know it's early.
Yeah, we haven't seen much of a change in attrition, although it's too early, because you generally look in a one-year kind of retrospect, and we've really only got 6-8 months under our belt of real data, and really more like 4-5 with a significant population. The feedback has been great, and so we've gotten wonderful feedback around the utilization. Any concerns that have come out of some of the feedback on G7 were things we were already working on upon launch, and I think we've mentioned that there's been 8 software launches over the course of this year. Just, I mean, the speed and pace in which we're making improvements really points to us leaning more towards a consumerism lens.
But no, I think the retention, utilization, attrition has been right about the same. Although our goal, of course, is to continue to take our industry leading and make it even better.
Understood. What about share taking? I know it's been something that you guys have been doing for a while now, but has G7 accelerated that at all? And again, I know it's super early. Are you seeing any signs of that?
Yes. So G7, we've really been able to... It's been a combination of two things. One, in the U.S. specifically, G7 has been incredibly helpful. When you go into the primary care office, and that's been the area where we've been kind of under indexed relative to where the opportunity is. Simplicity, ease of use, these are very, very key things. And having a reusable transmitter, and I'm wearing a G6 and a G7, and I'm telling you, now that I'm used to G7, snapping out the G6 and putting in the next one, you know, it's a small thing.
Yeah.
But eliminating that, for somebody that's a little bit novice to the technology, is incredibly helpful. And so what you found is primary care physicians have been very receptive to the ease of use. They've been very receptive to a sample being really easy to put on. The warm-up period being so quick, if you can put it on somebody and you can leave the office and they're already in glucose signals, really, really important. And so that ease of use has really caused some of that. The other part, though, is the economics associated with it. We've gone down, again, the reimbursement route. And when you go down the reimbursement route and you price accordingly, it plays out that way. And so naturally, we try to get folks on reimbursement.
We think it's a better way for someone to stay on the product longer term, and so we fight through that. Obviously, then some of the basal coverage has really changed the mind of primary care physicians. Not only can their patients afford it economically, it's also a very easy-to-use, best product on the market. You put those two together, it's a, it's a wonderful combination.
Okay. Okay, fantastic to hear. Kevin said on the Q3 call that you expect to get coverage for non-intensively managed Type 2s in the next 2-3 years. Population that we've all been excited about-
Yeah.
- but, you know, is that going to start with Medicare first and then filter down to the privates? How do we think about that?
Yeah, this one, I think it's going to be a little more, because of the size of the population, the various use cases within, I think it's going to be a little more nuanced. So we will work with Medicare. Medicare goes clinical, then economic, right? They first start everything on clinical, whereas commercial payers can do whatever they want, right? They can go economic, then clinical. And what you're finding is as you go to payers, who are working with self-insured employers such as, you know, ourselves and others, you know, if you can demonstrate economically that you can pull costs out of the system, there's a big interest there in covering it. Especially if you can do it in the same year you introduce it, which we've been able to demonstrate time and time again.
And so I don't know which is going to come first. Do you go with the clinical evidence, and we have mounting clinical evidence to go to a Medicare or any government payer? Do you go with economic evidence, which we have plenty of that mounting? And then how do you ultimately do it? Do you do it in conjunction with other therapies, right? Where you know, GLP-1 seems to be a very common. Can you pair these two together for better outcomes? We've proven we can do that. Do you take on risk? That's the other thing. So I think we're going to get pockets. What's very interesting is there are already pockets out there of people paying for this-
Yeah
... for all Type 2 patients, and those are employers. It's not a large portion, but those are employers that continue to see the benefit of it. I think we've got to continue to pound the table for that.
Okay. I mean, monster patient population there. So, these 18,000 clinicians that you've added, since G7, how impactful have they been?
Excuse me. It becomes really impactful over time. So if you think about clinicians, we've looked at this over years. What's the average amount of prescriptions by prescriber? And when you have a rapidly expanding prescriber base, the expectation is the amount per prescriber goes down, and then eventually it comes up. We've added prescribers at a very rapid pace, but the average has stayed the same, which is an indication of existing prescribers continue to go up as new ones come in. And so as you have these 18,000 folks, many of which were writing a significant amount of scripts, but perhaps not for our product, economic, coverage, et cetera. That's a real opportunity to go deeper into that market. That's 18,000 new folks, in addition to the tens of thousands that are already writing on it.
So from our perspective, it provides an incredible runway into not only the Type 2 insulin-using intensive insulin, the Type 2 basal population, but as we think about our non-insulin product coming out next year, that seeds the ground for that product as well. And so it's a really, that's why it's so darn important, and that's why the call points, we're really excited about it.
Okay. So I'm going to go a little off script here, and hopefully, Matt and Sean don't kill me for this. But just, I'm sitting here listening to all these different areas that you guys have to go after over the next several years. Dexcom's always been conservative with guidance, to your benefit. Is there any reason why you would change that you're bullish, but just say, "Look, we're even a little bit more bullish than we have been historically, and maybe a little bit more bullish in our guidance field?
You know, I think the thought process, at least we go through here is we put ourselves in the shoes of investors, and we say, what is the base case out there for you to make a decision? And if there's certainty in it, we will include it. If there's not certainty in it, we'll talk about what our assumptions are, and then we'll be incentivized. You know, I always do what you say you're going to do, and I think that's really important for us. And so that's the concept of how we think about it, is we need to make sure we give everybody a base case, and then we'll look to overperform.
I completely understand your point is we provide guidance, and we've done a really nice job of exceeding that. What I think is really important, and if I'm sitting in an investor's shoes, is, well, tell me what you're providing in there. Let me make the decision. Give me a base case on what you're sure of, and then let us make the calls on what we want to do. So that's how we think about it, and we'll continue to think about it that way. Whether it changes, I think it'll be just based on confidence and then also just time. We're getting a little more basal experience, get the experience under our belt.
Understood. Okay. All right, so I've been trying, and we're less than 5 minutes, so I've been trying not to go here with the... But let's talk about the SELECT data. The drug did a good job of getting patients off of insulin-
Mm-hmm.
and also keeping prediabetics from turning into Type 2s. Why wouldn't that be an impact to the basal?
You know, the way we thought, we think about it is, you know, what happened in that study? Think about it. 30% of folks that are obese eventually migrate to diabetes, and 30% of people that migrate to diabetes migrate to insulin. And so there's pretty significant moves there. If you think about the SELECT data, at least the most recent readout, what you saw was 13% of people migrate from, in the placebo population, from obesity to diabetes. And then 13%-4% on the next, which means the drug contributed to a 9% change, 13 to 4. But lifestyle change contributed from the 30%- 13%.
Right.
Ultimately, CGM is the ultimate tool for lifestyle change. It's why you see a CGM combined with a GLP-1, delivering better A1C reductions, better outcomes over time. And so the way we think about that data is great, this therapy is needed. Our, the diabetes population in the U.S. has swelled from 10 million in 2000 to 30 million in 2020. We need to prevent that. And so I think there's tools like GLP-1, and quite frankly, CGM, that can help prevent that progression. The one thing that... I think the thing, the main takeaway from the SELECT trial is lifestyle change is an essential element as part of this. In the real world, CGM can be that lifestyle change. I think they work best together, and clinicians are seeing prescribing trends follow that.
But do you see patients, and sorry for all these early questions, do they cycle off of CGM, though, after they figure out how to titrate the drug, or no?
The basal population, no. We haven't seen that yet at all. In the non-insulin-using population, we've seen people actually titrate off of GLP-1s and stay on CGM. We've seen folks come off both therapies. You see a little bit of everything because it is such a large population. I think what you're going to find over time is they're going to work really well in conjunction. Our expectation, we have a physician we work with. His best outcomes, I cycle people on, and I cycle them off of GLP-1s using a CGM to maintain.
So we're going to see over time, but I think our expectation is, we continue to see these as complementary and the lifestyle change, the kind of the longer term is having that line of sight into what's happening in your body in real time. I think that's going to really.
Good. Okay. Pump side of things. You said earlier that the utilization of CGM is significant when you're using a pump.
Mm-hmm.
You're going to have some competition next. You've also got Medtronic now-
Mm-hmm.
trying to do their thing internationally and hopefully in the States for those guys. How big of a headwind could that be to your growth algorithm in?
Yeah, you know, I think we'll get into 2024 guidance at that time. I'll talk in generalities right now. You know, the existing part, we don't see people shifting, switching. Once they're comfortable with the product, and as long as we continue to lead in accuracy and leading connectivity, we don't see anything changing from that point of view. So then the question is more preference in the short to, in the medium to longer term of a new patient coming on. And I think what's really important is we continue to get in front. This is more of a making sure folks understand. We've got 1 million years of connectivity, and Abbott has almost none, and Medtronic's got a little bit more. And all of the algorithms used to get these things approved were on our sensor.
If you think about it, remember, every algorithm for CGM is different. So the algorithm on a competitor product is different than ours. And so how are you going to prove it's working effective? Well, the product was designed, wrapped around our CGM, our algorithm. So I think it'll just be really important for us to get out and make sure that that is known. We think it could be a bit of a challenge, but we don't expect any sort of longer-term change as being the absolute market leader in AID. That's where we've kind of been first, we'll continue to be first, and we continue to iterate there.
Yep.
We'll have a lot more to say about that when other products come out, because there are a lot of differences in our sensor and our platform that others don't have.
Just a few seconds left. Operating margin performance this year has been phenomenal. Congrats. Not going to get 230 basis points again next year? Can we get 100? Can we get 50? How do we think about leverage there?
You know, there's no reason we can't get to world-class margins over time, and we have ongoing work taking place in the organization to continue to contribute to that. Won't give necessarily a number, but I, I don't see us stopping anytime soon.
Got it. All right. Well, it looks like we're out of time, so I'll have to wrap up there. Jereme, thanks so much for all the feedback.
Thanks. Thanks, everyone. Appreciate it.