Dexcom Earnings: New Patient Pools and New Applications of Dexcom Technology Offer Bright Future

No-moat Dexcom DXCM delivered a stellar quarter that reflected ongoing strength in its U.S. launch of G7 and displayed discipline on cost containment. At first blush, we expect to moderately raise our fair value estimate based on more optimistic longer-term adoption assumptions supported by the potential of new markets for Dexcom’s continuous glucose monitors. We also plan to give a minor boost to our full-year projections on this recent strength from G7 and strong performance in international markets. However, the effect of this near-term tinkering is likely to be small compared with our longer-term changes since our discounted cash flow model accounts for cash flows across multiple years.

Though the U.S. rollout of G7 had begun in early 2023, third-quarter sales growth of 27% remains strong. We expect this strength could continue well into 2024 because the G7 integration with key insulin pumps from Insulet and Tandem is not yet available. Integration is expected this fall, and by all accounts, this process looks like it is on track to get there. Nonetheless, lack of integration up until now has likely held back a sizable group of patients who already rely on G6 for automated insulin delivery from trading up to the G7. We expect conversion from this group to support G7 growth into 2024.

Additionally, Dexcom is likely to benefit from two other sources of growth: the adoption of Dexcom One in Europe for type 2 patients on intensive insulin, and a new monitor intended for type 2 patients who don’t use insulin yet. The latter is really the biggest fish in diabetes, as there are more than 28 million Americans who fit this profile. This category is about four times the size of Dexcom’s traditional targets— insulin intensive and basal insulin—combined. The company is planning to launch this new non-insulin monitor in mid-2024, and we think it could become a first-line tool to help these patients manage their diabetes along with medication, diet, and exercise.