Dexcom launched its next-generation continuous glucose monitor on Monday. But Dexcom stock inched down a fraction.
The company launched its Stelo continuous glucose monitor, or CGM. Stelo was developed to track blood sugar in real time for people with type 2 diabetes who don't require insulin treatment. But it will be available without a prescription, meaning people without diabetes will also be able to use it.
Jake Leach, the company's chief operating officer, called the launch one of the "major milestones" for Dexcom.
"I've been at Dexcom for a very long time, I've been a part of many of our big firsts," he told Investor's Business Daily. "Launching an over-the-counter CGM is going to be one of those major milestones that we all look back and remember as a big turning point in the availability of this technology to help people."
Dexcom Stock Is Under Heavy Pressure
Dexcom stock took a beating on July 26. Shares crashed almost 41% after the company slashed its outlook for the year. The company now expects $4 billion to $4.05 billion in sales, down from its previous guidance for $4.2 billion to $4.35 billion.
The second quarter featured a number of setbacks. Fewer than expected patients started wearing a CGM. Dexcom lost share in the durable medical equipment channel. And pharmacy rebates for the new G7 CGM — tailored for people who use insulin — kicked in faster than expected.
Those issues are expected to persist in the latter half of this year.
But Leach remains upbeat. Stelo is expected to account for 1% of sales this year.
Stelo will play a key role in expanding Dexcom's reach. The body-worn glucose monitor connects to a smartphone app. It alerts users when their glucose is spiking and provides tips on how to lower blood sugar. The app also provides insight into long-term glucose trends.
Leach notes there are 125 million people in the U.S. with prediabetes or type 2 diabetes that don't need insulin treatment.
"For someone who has diabetes or prediabetes, a lot of this is just helping them form habits that reduce their glucose excursions, which was basically impossible to do without visualizing their information," he said.
A Long-Term Growth Driver
Stelo will cost $99 a month for two 15-day sensors. Dexcom will also offer a subscription model that costs $89 monthly for two sensors.
William Blair analyst Margaret Kaczor Andrew says non-insulin users remain the next frontier of growth for Dexcom. She estimates this market is less than 5% penetrated. The next year to year-and-a-half will be key in improving awareness and reimbursement, she said in a recent report.
"As we have written before, this is a market that is over five times the size of the core (intent-to-treat market) and has already seen adoption well in excess of our estimates without dedicated products, targeting marketing or broad coverage," she said.
Andrew kept her outperform rating on Dexcom stock in the wake of the second-quarter report.
"While results this quarter were disappointing and meaningfully impact full-year revenue expectations, we continue to believe that domestic CGM market growth will be in the high-teens through 2027 in a base case, with a bull case in the mid-20% range," she said.
Was The Dexcom Stock Sell-Off Overdone?
Leach, the Dexcom COO, doesn't have diabetes. But he said he wears the company's sensors "all the time."
He acknowledges Dexcom — and fellow CGM maker Abbott Laboratories — have some work to do explaining the benefits of glucose monitors for people who don't have diabetes. Abbott won Food and Drug Administration clearance for its Lingo device in June. The Lingo CGM is geared toward people who don't have diabetes.
"I think there's a lot of awareness that we'll need to bring and the benefits it can provide for people who don't have diabetes," Leach said. "It's definitely impacted my habits and I tend to eat quite a bit healthier with a CGM. It's this funny little accountability thing."
William Blair's Andrew expects Dexcom to achieve its 2024 outlook even without help from the Stelo launch.
Leerink Partners analyst Mike Kratky says the sell-off in July was overdone. But he lowered his price target on Dexcom stock to 90 from 151.
"We think the magnitude of the sell-off is overdone and would be more appropriate for a fundamental sea change for Dexcom rather than an amalgamation of several transient factors that, in our view, are unlikely to have a material impact on the medium- to long-term trajectory of the company's core CGM business," he said in a report.
Kratky still rates Dexcom stock an outperform.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
