Dexcom Shares fell more than 40% on Friday, their biggest drop ever, after the diabetes management company reported disappointing third-quarter 2019 earnings. Second quarter And they gave weak guidance.
The company’s shares fell $43.85 to close at $64, wiping out more than $17 billion from its market capitalization. Before Friday, its biggest sell-off was in September 2017, when shares plummeted 33% in a single day. Dexcom first debuted on the stock market in 2005.
Dexcom said late Thursday that its revenue rose 15 percent to $1 billion, from $871.3 million in the same period last year. Analysts had expected revenue of $1.04 billion, LSEG said.
A bigger concern for investors was the forecast: For the third quarter, Dexcom said it expects revenue of $975 million to $1 billion, factoring in “certain unusual items impacting seasonality in 2024.” Dexcom updated its full-year guidance, lowering it to $4 billion to $4.05 billion from its initial forecast of $4.2 billion to $4.35 billion. Last Quarter.
Dexcom offers a suite of tools, including continuous glucose monitors, for people diagnosed with diabetes. CEO Kevin Sayer said on the earnings call that the challenges stemmed from a restructuring of the company’s sales team, fewer new customers than expected and lower revenue per user, some of which was tied to customers taking advantage of discounts on a new CGM called the G7. The company also said performance in its durable medical equipment (DME) channel fell short of expectations.
“DME distributors remain important partners to our business and we were not successful in maintaining these relationships during the quarter,” Thayer said on the conference call. “We need to refocus these relationships.”
J.P. Morgan Analysts on Friday downgraded the company’s shares to “hold” from “equivalent to buy,” saying the report marks a “sharp turn in the wrong direction.” The analysts said that while there are still some unanswered questions, they are confident the company’s performance is due to internal issues and not related to market changes such as the growing popularity of a weight-loss drug called GLP-1.
During a question-and-answer session on the earnings call on Thursday, JPMorgan’s Robbie Marcus expressed “shock” at how much disruption the changes to the sales force’s makeup would cause and asked for more details about the sharp cut in guidance.
“I feel like there must be something more going on,” Marcus said, asking whether GLP-1 was having an effect.
Thayer responded by saying the company is “more short of new patients than we anticipated at this point.” He said the change has been more dramatic than expected because a restructuring of sales forces has altered geographic coverage and doctors are now dealing with different sales reps.
In a note, JPMorgan analysts emphasized the “significant downside risks.” “Most of it appears to be self-inflicted, but it’s hard to grasp the overall picture.”
As for DME’s struggles, Sayer said the company lost its “highest annual revenue customer.” He added that the G7 qualified for rebates three times faster than its predecessor, the G6.
Dexcom Chief Financial Officer Jeremy Sylvain said all of these variables combined could result in the company missing its guidance for this year by as much as $300 million.
“Obviously, we’re not happy about this,” Sylvain said. In the interest of “full transparency,” he said, the company needed to clarify “what the impact will be for the rest of the year.”
Analysts at William Blair & Co. said Dexcom’s results were “disappointing” but that their long-term outlook remains unchanged. They said Dexcom has the ability to grow its market and reverse recent declines in its stock price.
“These near-term trends should be temporary,” they wrote in a Friday note.
Analysts at Leerink agreed, writing in a report on Friday that “the magnitude of the share price decline is excessive” and that the issues currently plaguing the company are unlikely to have a material impact on Dexcom’s long-term trajectory.
In March, Dexcom launched a new An over-the-counter CGM called Stelo has been approved for use by the U.S. Food and Drug Administration. Stelo is designed for people with type 2 diabetes who don’t use insulin, and Dexcom said Thursday it will officially launch it in August.
Friday’s sell-off has caused Dexcom shares to fall almost 50% so far this year, while the S&P 500 has risen 15%.
clock: Dexcom cuts forecast