Boringly Consistent

It’s ironic on the day that Dexcom reports second quarter results word comes that yet another Dexcom wannabe secured more financing. Will this Belgian wannabe end up coming to market or will it more likely become just another waffle is anyone’s guess. It really doesn’t matter as when it comes to the CGM market it’s owned by two companies and two companies alone, Abbott and Dexcom.

Let’s get the numbers out of the way first,

Revenue grew 34% versus the same quarter of the prior year to $451.8 million

U.S. revenue growth of 38% and international revenue growth of 21%

Additionally the company is reinstating guidance;

Revenue of approximately $1.850 billion (25% growth)

Non-GAAP Gross profit margin to meet or exceed 65%

Non-GAAP Operating margin to meet or exceed 14%

Adjusted EBITDA margin to meet or exceed 24%

If that’s enough good news let’s share some highlights from the call;

1. Type 2 patients now account for 20% of the Dexcom patient base. This is significant on several levels as it shows the G6 is holding its own against Libre. It also shows that CGM as we have been saying is NOT just for Type 1 patients or those practicing intensive insulin management. Finally it demonstrates something else that we have been saying as CGM is quickly becoming the standard for glucose measurement and the usage we see today is just what’s seen over the water line. Simply put there is plenty of room for growth just within the diabetes community.

2. The company noted that the G6 is priced on par or below the Libre. This is also significant as Abbott has made it very clear they intend to pursue a value strategy with Libre and Libre2. Take price away as a factor most experts would agree Dexcom is the superior system.

3. Not surprisingly the company has doubled manufacturing capacity for the G6 which is another indication demand is accelerating. It further indicates that Dexcom will not surrender to Abbott in any area. These two players can peacefully coexist but that does not mean each doesn’t want to beat the crap out of the other. As Momma Kliff used to say if you want a friend get a dog, but when it comes to business the goal is to win.

4. G7 may be slightly delayed due to COVID but this delay could become a blessing in disguise as the company is already ramping production for clinicals and when ready will rollout G7 fully NO LIMITED LAUNCH as normally the case with new product launches. This puts even more pressure on Abbott to fix the AID issue with Libre2 as given Dexcom’s history G7 will be approved as a REAL iCGM that can be used in ANY situation no matter what their therapy regimen or which toys they play with.

This battle for CGM supremacy between Abbott and Dexcom is beginning to remind us of the battle between Lilly and Novo Nordisk in the insulin and GLP-1 markets. The battle isn’t just similar because both companies can peacefully coexist, or that each wants to beat the other but also because both are making it next to impossible for any competition to gain any significant share.

There is no question there will eventually be a third perhaps fourth player in the CGM market. However any competitor will be fighting for scraps and no matter how cheap they say they can sell their system for they won’t be taking any serious share from either Abbott or Dexcom. This of course assumes the competition can get their toy through the FDA, then into the hands of patients and most importantly have the talent to run a commercially viable CGM company.

With all the COVID craziness it’s refreshing that today’s results and call were boringly consistent for Dexcom.