DexCom: Multiple Catalyst In FY 2023

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Description

Overall, I expect beardown maturation successful nan CGM marketplace owed to nan rising prevalence of glucosuria and nan rising uptake of CGM exertion among some insulin intensive type 1 (T1) patients and, increasingly, nan IIT2 and NIT T2 groups. The preamble of innovative products for illustration nan next-generation G7 sensor should thief DexCom (NASDAQ:DXCM) support its ascendant marketplace stock and position. DXCM has invested successful expanding its standard pinch nan purpose of cutting costs and improving its expertise to cater to patients worldwide. I judge this move will besides alteration nan institution to research caller opportunities, specified arsenic collaborating pinch pharmacies. In my opinion, this will further grow readiness complete time, possibly allowing for caller types of security to screen services for illustration basal T2 successful nan years pursuing Medicare's description successful FY23.

4Q22 Review

During 4Q22, DXCM's income totaled $815 million, which was higher than statement estimates astatine nan clip of nan preliminary announcement. This fig represents a y/y summation of 20% and an summation of 6% from nan erstwhile quarter. Revenues successful nan US accrued by 17% y/y to $606 million, while revenues from world markets grew by 27% y/y to $209 cardinal connected an integrated basis. Positive measurement maturation has been observed crossed nan board, pinch income extracurricular nan US outpacing those within.

The gross separator for nan 4th was 66.7%, which was stronger than nan statement estimate of 64.2%. However, it was 100bps little than successful nan 4th fourth of 2021, pinch overseas speech rates having an 80bps effect during nan quarter. The operating separator for nan 4th was 21.1%, which exceeded nan statement estimate of 19.1%. I judge this is suggestive of DXCM's ongoing efforts to negociate costs effectively.

CMS Basal coverage

According to management, nan sum by nan Centers for Medicare and Medicaid Services [CMS] for basal insulin infusion sets will use astir 3 cardinal group successful nan US. This represents a important description of nan addressable marketplace for reimbursed products, almost doubling its size. Although guidance expects nan CMS reimbursement to beryllium finalized successful mid-2023, I judge they whitethorn beryllium underestimating nan imaginable effect of this development. If reimbursement were finalized earlier, it could person a greater effect connected DXCM's income successful fiscal twelvemonth 2023.

In position of publication to full sales, Basal is projected to dress up astir 1% successful FY23, akin to nan expected publication from IIT2. This caller CMS sum whitethorn besides pave nan measurement for commercialized reimbursement successful nan future. With this development, I deliberation DXCM is successful a favorable position to seizure a important information of nan market.

Bridge program

DXCM has implemented a span programme for early adopters and is making dependable advancement toward its extremity of G7 coverage. On nan call, it was discussed that nan extremity of G7 sum could beryllium met successful 90 days, and that DXCM is up of schedule successful nan pharmacy. Importantly, nan resulting headwind of $15 cardinal is importantly little than nan $30 cardinal that was anticipated. It's besides absorbing to statement that astir G7 users are conscionable getting started pinch DXCM.

Furthermore, DXCM was capable to execute its multi-year extremity of having astir 75% of commercialized scripts spell done nan pharmacy, marking a beardown extremity to nan year. Given this beardown momentum, I judge that this number could perchance summation to astir 80% successful nan future.

Upcoming catalysts

I judge that location is imaginable for DXCM's gross to transcend nan top-line maturation expectations for fiscal twelvemonth 2023. This could beryllium owed to respective factors, including nan motorboat of G7 successful nan US, nan imaginable description of Medicare sum for basal products, and nan description of entree to markets extracurricular nan US. Management has expressed a beardown liking successful catering to nan basal population, and they expect that this conception will lend astir 1% of nan company's full gross successful 2023.

I deliberation that DXCM's attraction connected nan basal organization will lead to greater marketplace penetration, driven by nan company's demonstrated objective efficacy. Consequently, I expect gross contributions to summation much importantly successful fiscal twelvemonth 2024.

Guidance

During nan convention call, DXCM's guidance restated its gross guidance for 2023, which is expected to beryllium betwixt $3.35 to $3.49 billion. This would consequence successful a year-over-year maturation complaint of astir 17.5% astatine nan midpoint. The gross guidance besides includes a projected deed of $15 cardinal to nan first 4th of 2023 owed to nan implementation of nan bridging program. The programme was designed to make early entree to G7 much affordable for patients while DXCM continues to activity connected expanding coverage. As noted earlier, nan $15 cardinal estimate is little than nan antecedently anticipated scope of $20 to $30 cardinal for nan first quarter. This is owed to nan advancement made successful contracting, which is presently up of schedule. I expect that nan bridging programme will proceed to person an effect successful nan 2nd quarter, and DXCM has projected that location will beryllium wide commercialized drugstore reimbursement by mid-2023.

DXCM has provided its separator outlook for FY23, which includes a gross separator of 62% to 63%, an operating separator of 16.5%, and an adjusted EBITDA separator of 26%. The gross separator is expected to statement chiefly owed to nan G7 launch. However, it is projected to grow sequentially successful nan 2nd half of nan twelvemonth arsenic accumulation volumes increase, while nan bridging programme is expected to negatively effect margins successful nan first half. DXCM expects nan merchandise costs of G7 to beryllium little than G6 costs erstwhile nan merchandise is scaled. Looking further ahead, DXCM retains visibility into a gross separator of 65%. For FY23, nan institution is expected to execute an further 150-250bps of operating leverage.

Summary

In conclusion, nan CGM marketplace is group to acquisition beardown growth, driven by nan expanding prevalence of glucosuria and nan uptake of CGM exertion among insulin intensive type 1 and type 2 patients. I judge DXCM is well-positioned to return advantage of this growth, having introduced innovative products for illustration nan G7 sensor and expanded its standard to cater to patients worldwide. The CMS screen of basal insulin infusion is besides expected to importantly grow nan addressable marketplace for reimbursed products, pinch nan imaginable to summation DXCM's gross publication successful nan coming years. Overall, pinch upcoming catalysts for illustration nan G7 motorboat and description of Medicare coverage, I expect bully gross maturation for FY23 and beyond.

I see an finance perfect if it performs its halfway business successful a assemblage projected to acquisition structural (organic) maturation successful excess of GDP maturation complete nan adjacent 5-10 years; profits from sustainable competitory advantages that construe into charismatic portion economics; In nan hands of competent, ethical, and semipermanent thinkers; pinch a adjacent valuation