Dexcom Shares fell more than 40% on Friday, their steepest decline, after the diabetes management company reported disappointing revenue for second quarter and offered weak guidance.
The stock fell $43.85 to close at $64, wiping out more than $17 billion in market value. Before Friday, the biggest drop came in September 2017, when shares plunged 33% in one day. Dexcom debuted on the stock market in 2005.
Dexcom’s revenue rose 15% to $1 billion from $871.3 million a year earlier, according to an announcement late Thursday. Analysts had expected revenue of $1.04 billion, according to LSEG.
The biggest concern for investors was the forecast. For the third quarter, Dexcom expects revenue of $975 billion to $1 billion for “certain unique items affecting 2024 seasonality,” the statement said. Dexcom updated its full guidance for the fiscal year and now expects revenue of $4 billion to $4.05 billion, down from the $4.20 billion to $4.35 billion it had forecast last quarter.
Dexcom offers a number of tools, such as continuous glucose monitors, or CGMs, for patients diagnosed with diabetes. On the earnings call, CEO Kevin Sayer attributed the challenges to restructuring the company’s sales force, fewer new customers than expected and lower revenue per user. Some of the shortfall had to do with customers taking advantage of discounts on the new CGM called the G7. Additionally, the company said it underperformed in the durable medical equipment, or DME, channel.
“DME’s distributors remain important partners for us in our business, and we did not do well this quarter against those partnerships,” Sayer said on the call. “We need to refocus on those relationships.”
JPMorgan Analysts downgraded the stock on Friday from the equivalent of a buy to hold and said the report signaled a “sharp turn in the wrong direction.” Analysts said they still had some unanswered questions but were confident the company’s performance was driven by internal issues and not linked to market changes such as the growing popularity of weight-loss treatments called GLP-1.
During the Q&A portion of Thursday’s earnings call, JPMorgan’s Robbie Marcus asked for more details on the significant drop in guidance, expressing “shock” at how much disruption a change in sales force structure could cause.
“I feel like more needs to be done,” Marcus said, asking if GLP-1s had an impact.
Sayer responded by saying the company has “a small number of new patients compared to where we thought we would be right now.” He said the reshaping of the sales force, which led to changes in geographic coverage, was more dramatic than expected, as doctors were now dealing with different agents.
In their note, JPMorgan analysts highlighted “the magnitude of the downside” and said the fact that it “seems to be mostly self-inflicted is just hard to grasp as a whole.”
As for DME’s struggles, Sayer said the company lost customers “who have the highest annual revenue year over year.” He added that G7 rebate eligibility was three times faster than its predecessor, the G6.
Jereme Sylvain, Dexcom’s chief financial officer, said all those variables add up to a $300 million shortfall in the company’s guidance for the year at the top.
“It’s definitely not something we’re happy about,” Sylvain said. He said that for the sake of “full transparency”, the company must provide clarity “about the impact for the balance of the year”.
Analysts at William Blair wrote that Dexcom’s results were “disappointing,” but their long-term view remains unchanged. Dexcom has the potential to expand the market and regain recent share losses, they said.
“This near-term momentum should prove transitory,” they wrote in a note on Friday.
Analysts at Leerink agreed, writing in a report Friday that “the magnitude of the sell-off is overstated” and that the issues currently hurting the company are unlikely to have a significant impact on Dexcom’s long-term trajectory.
In March, Dexcom announced its new The over-the-counter CGM called Stelo had been approved for use by the US Food and Drug Administration. Stelo is designed for patients with type 2 diabetes who do not use insulin. Dexcom said Thursday that it will officially launch in August.
With Friday’s sell-off, Dexcom shares are down nearly 50% for the year, while the S&P 500 is up 15%.
I’M WATCHING: Dexcom lowers forecasts
