DexCom, Inc. (NASDAQ:DXCM) Wells Fargo 2024 Healthcare Conference September 4, 2024 11:00 AM ET
Company Participants
Kevin Sayer – Chairman, President, and CEO
Jereme Sylvain – CFO
Conference Call Participants
Lawrence Biegelsen – Wells Fargo Securities
Lawrence Biegelsen
All right. Welcome back everyone. I’m Larry Biegelsen, the MedTech analyst at Wells Fargo. And it is my pleasure to host this session with the management team from Dexcom. With us, we have Kevin Sayer, the CEO; Jereme Sylvain, the CFO. The format will be a fireside chat. If anybody has a question, they want to ask just raise your hand, we’ll come around with the mic. Kevin and Jereme, thanks so much for being here.
Kevin Sayer
Thanks for having us.
Jereme Sylvain
Thanks for having us.
Question-and-Answer Session
Q – Lawrence Biegelsen
Right. So Kevin, obviously, there has been a lot of volatility over the past month or so, and investors are still wrestling with the issues raised on the Q2 call, which we will dig into in a moment. But first, let us take a step back and look at the big picture. I wanted to start with actually category growth and demand for CGM. By our math, the worldwide CGM market grew about 22% constant currency in the first half. Is the CGM market still a 20% growth market going forward in your view?
Kevin Sayer
Yes. We believe the CGM market still is a very high growth market going forward. If you break it down by segment, even in the US with we believe Type 1 penetration is in the 60% to 65% range, Type 2 intensive insulin users 50% to 55% and basal we’re just getting started approaching that 20% to 25% range. And now we have this entire market of people with Type 2 diabetes, non-intensive, which our Stelo will apply to.
We are of the belief very much that CGM can continue to grow. Again, around the world, as you look at other geographies. Some of them are very penetrated from a type 1 perspective, but not at all penetrated on the type 2 side. So we have opportunistic plans in all these geographies to get more access and more coverage to our products there. So we believe this continues to be a high growth industry, and we have a tremendous opportunity going forward.
Lawrence Biegelsen
All right. And let’s talk about share. So a lot of the issues, Kevin you raised on the Q2 call pertain to competition. What’s your strategy to kind of to catch up to Abbott in the areas you highlighted on the call? And Kevin, what are you personally doing to lead the organization during this time?
Kevin Sayer
Well, personal leadership in the organization and Jereme and the team can attest to that, I’m making everybody gathered at 8:30 every morning, and we are sitting down and making sure we’re executing the way that we need to, if anything, and we’ve said this on the call, this is an execution story on our part, not a story of a market that — in a category that’s slowing down, we think the category is still very robust.
As you look at the issues that we talked about, we’ve talked about a sales force expansion that was disruptive. I’ve been in met with all the salespeople at their meeting and talked with them and got some better color that way.
With respect to our DME distributor relationships. We are scheduling top-to-top meetings throughout the organization, and I’m personally having phone calls with the CEOs of our top distributors as well, and those phone calls will continue on a regular basis to make sure we are doing what we need to in that channel to get back on the solid ground and then eventually get back to the place where we are on equal foot and where we’re supposed to be.
So we’ve certainly turned up the intensity. We’ve learned a lot through this, and we are putting literally the measures in place to get us back to where we need to be. But it is a process, Larry. This is not something we’re going to fix in we belong and fix in two weeks, it can take us a while to get back to where we need to get.
Lawrence Biegelsen
That’s helpful. Well, we are going to definitely dig in on the specific issues. I wanted to just ask one other — just one product related issue. On the 51 gap, I think investors are looking for you to close is a 15-day where for G7. How are you feeling about a 2025 launch? It can you be more precise on first half versus second half?
Kevin Sayer
It won’t be precise, but I will tell you, we feel very confident about a 15-day launch. The Stelo product that we just launched is a 15-day product, and we’ve made simple engineering improvements with Stelo, for example. And in our G7 line, we have a much stronger adhesive than we had at the initial launch of G7. So that’s going to help as far as where with 15 days. We have a submission that’s got to go to the FDA to get that product in position to launch. We have not provided details on that submission. We are very comfortable with the data that we have that will certainly meet iCGM standards and will be the reliable and excellent product experience that we’ve always offered at Dexcom.
Once we get that FDA approval, then we go into launch mode and that entails contracts and entails for example, with the various PBMs, we’ve got to go recontract because it’s a new SKU number. We’ve got to go run that through the tender process. It takes a while to get the product out into the market. We’re very comfortable we’ll get it approved. And then the rollout and the replacement all of the 10-day centers is going to take a bit the time we’ve got to get the 15-day product integrated with our pump partners as well.
So all these steps are things we’re lining up and working on. But the first step is to get the data filed and to get the product approved. We demonstrated recently with Stelo that we can get a revolutionary file approved very quickly, and we’re confident in the data that we have for G7, 15 days, and it should go very fast, but we’ve got to get it in.
Jereme Sylvain
Yes. And I think us getting out and saying it’s 2025 gives you — takes care of the if conversation. I know it was always a matter of win. I think we are highly confident in saying 2025, I would just say, let us get through the FDA process because obviously that’s something we cannot control. Once we do that, I think we’ll be able to give you some very firm dates. But we are highly confident in the launch in ’25.
Lawrence Biegelsen
It sounds like, Kevin the submission has not happened based on — you talked — the way you just talked about it? Or I guess would you disclose if and when the submission happen?
Kevin Sayer
We typically don’t disclose filings. We like to disclose approvals.
Lawrence Biegelsen
Okay. Okay. So you want — your language today was not — it may or may not have been filed?
Kevin Sayer
We’re not in a position where we can say there is going to be approval imminently. So when we have an approval, we’ll let you all know.
Lawrence Biegelsen
Okay. And one other big picture question before we dive into some other topics. Historically, I think Dexcom’s guided to 15% to 20% annual growth, and you have often exceeded that. I know you pointed people to the low end of the LRP for — which implies about 14% growth next year. Do you still see Dexcom as a high-teens grower long-term? Or has something structurally changed?
Kevin Sayer
You know what Jereme comes with the estimates, I will just give you my perspective. We have some amazing opportunities going forward in this 2025, particularly as we right the ship with the efforts that we have going on now. We have the Stelo product that will be out next year. Certainly, there is more market to go grab and more patients to go serve. So the opportunity is there in the categories there. It is about us executing. Jereme can talk to you about how we got numbers.
Jereme Sylvain
Yes, and obviously, we run through all of the things we saw in the second quarter into where we really were able to reiterate the low end of the guide. We took all those into account. You asked the question at the start, is this still a market that can grow significantly. It still is. And I think we expect to take our fair share in that market. While we’re not committing to 2025 guidance at this point, our expectation is there’s nothing structurally wrong in the business. Ultimately, it is about execution. And when we get through some of the blips we had here in the second quarter, I think we’ll get back to executing.
Lawrence Biegelsen
That’s helpful. Before we dive into the issues that came up on the Q2 call, particularly around DME, I wanted to ask about your reaction to the Abbott, Medtronic deal and the implications for Dexcom because it’s new, I think, since the Q2 call.
Kevin Sayer
That is certainly new since the Q2 call. I think the one thing that it demonstrates is the importance of a good sensor within these automated insulin delivery systems. And Medtronic made a commitment to work with Abbott to add another sensor to their system that buy all external literature is a higher quality sensor than what they’re manufacturing. And it certainly would have some cost advantages. What it means to us, again it validates who we are.
Sensors are very important, and they’re the things that drive these systems. We believe it’s also an opportunity for us to grow closer to our existing partners in the automated insulin delivery space and offer them a better experience that can put us ahead. And so we’ll work with them and we’ll help them, and we’ll see how it goes in the world and in the field.
Lawrence Biegelsen
All right. So let’s move on to the Q2 update. I wanted to talk more about the DME issues. It is interesting. The sales force issue and the DME issues, it seems like the sales force issue correct me if I’m wrong, was a DME issue in that you didn’t capture as many the higher-revenue DME patients as you expected. And in fact, actually, I think new starts actually grew year-over-year, correct me if I’m wrong, Jereme, in the US in Q2. But my question is, what are you doing exactly to fix the sales force and the DME issues? And how long might that take?
Kevin Sayer
Why don’t I start with the sales force, Jereme, and then I’ll pass to DME’s over to you. We decided back in 2023, we needed a broader sales force for a number of reasons. The first reason is we’ve looked at prescribing patterns and the places where we were not getting any traction are those offices where we had no salespeople, where we weren’t calling on physicians. We’re getting very few prescriptions. We needed to broaden our reach.
On top of that, we knew we had a Stelo product coming, and we knew that would be an opportunity to get in front of more primary care physicians as well. So we laid out the plans for sales expansion. As we laid out those plans and we looked at the opportunity, we decided to take the approach of having a specialized sales force to call on high prescribers who have long been endocrinologists or diabetologists, diabetes clinics and then a primary care sales organization that would really call on more people and have a different sales target.
So we broke the team up, and we did that. We implemented that April 1 at the start of the second quarter. What did we learn? Well, one of the things we caused a bit of confusion across the board because we changed literally territories for everybody. In the past, our expansions where we have, let’s say, eight sales reps around the Boston area, we go to 10, and we just slid ZIP codes up and most people would call them the same people.
In this case, we redivided everything. Our endocrinologists, for example, more than one-third of them had a new sales rep. And those relationships, particularly in high prescribing offices, are incredibly important. On the PCP side, we are calling on offices where we’ve never been. And the reaction if we’ve never been there isn’t the open arms of an endocrinologist who has seen a bunch of Dexcom patients forever. It is somebody who doesn’t know very much about us.
And we didn’t necessarily have the proper tools or positioning with DTC to create that demand before that rep got there. On top of that, as those new reps hit the PCP offices, where they do a lot of Medicare prescribing, which goes through the DME channel and Medicare Advantage, in particular, these new reps did not have relationships with their corresponding DME reps. So they immediately send stuff over to the pharmacy.
And so you saw literally a big reduction in referrals from us to the DME providers in the second quarter that didn’t fit very well and didn’t sit very well with our DME partners. And so that’s kind of how the sales force works. What we’ve done, we’ve retrained the new reps. We’ve talked to them about the importance of channel neutrality. Let us make sure that a patient gets the product. That’s what’s most important and they get it through a channel that’s reasonable for them. And I’ll let Jereme go into our DME efforts. So why don’t you take that one up.
Jereme Sylvain
Sure. Yes. And Larry, your question on new patient starts, yes, they grew year-over-year. Sequentially, it was down from Q1. It wasn’t a record, and that’s some of the disruption we talked about. But year-over-year, the underlying CGM market still remains strong. Kevin alluded to some of the conversations we were having sales rep to sales rep, but also in the same marketing materials as we were pushing folks to Medicare Advantage, which was benign intent. The intent was to add more people to the funnel.
At the end of the day, I think what it did is it — the way it was executed came across as we thought that the DME channel was not an important long-term customer and it is. And so in doing so, we’ve changed a lot of that. We’ve made sure we changed the materials. We’re focused on to Kevin’s comment, the top-to-top meetings to better understand, we understand this is a long term relationship.
And it’s important we both see it as such. And it was never intended not to be. Those are the things that are working there and ultimately worked against us because what you have is if you’re going to start someone on a product and they’re going to switch from your channel to a different channel where you lose that customer. That creates a long-term economic incentive or disincentive in the case of the DME providers.
And so we needed to get through that. We are working through that today as we speak. What it means, though, is that the underlying economics in the channel, as you look at our patient starts year-over-year, our competitor patients, the CGM market as a whole continues to be really, really strong. I think it’s a misstep specifically in that channel that caused some of the impact in Q2 and the change in the year on the guide.
Lawrence Biegelsen
You also talked about losing share in the DME channel. It sounds like there’s — it’s also Abbott winning more share at the physician level with type 2 basal patients who tend to be Medicare. So they’re — and then Abbott show data on this actually at ADA at their analyst meeting that they had like 70% share in that channel in that population. Is that a fair characterization? And how do you fix that?
Kevin Sayer
Well, a lot of these patients do come through that channel. And a lot of these patients come through physicians we never called on, hence the sales expansion so we can have a better presence there. And so we are working on that. We do need to pick up more of these individuals, Larry, and we’ll push harder. I can’t comment to the accuracy of their 30-70 number, but suffice it to say we are behind.
Lawrence Biegelsen
Got it. Anything — and then the other headwind was the channel mix. Three Medicare Advantage plans opened up the pharmacy channel for CGM. The question is — was this something you hadn’t seen before? And why won’t it happen again?
Jereme Sylvain
Yes. So when you think about that, it is really a dual channel was available. So it’s not it’s both. It was always DME and they opened it up to both pharmacy and DME, and that’s okay. Patient preference is a good thing. We support that. In fact, most of our contracts are dual channel. I think where this got a little bit of a stub of the toe moment is about demonstrating neutrality into the channel in which we operate.
We want to be neutral. We want you to go where it makes sense for you to go. That might be the DME in cases, it might be in the pharmacy. As Kevin alluded to it earlier, we pushed leaned into that pharmacy, again benign intent, opening up the funnel. And that, as a result, frustrated some of the adjudication via the DME. It wasn’t the fact that Medicare Advantage opened it up that caused it. It was the fact that we lost share because of the relationship strain we put on it by pushing folks.
Lawrence Biegelsen
Okay. And I’m going to ask the United prior authorization for Medicare Advantage that starts September 1. There is some concern that it will move more patients into the pharmacy from DME. Do you share that concern?
Jereme Sylvain
It shouldn’t. So in theory what Medicare Advantage is — I mean, so what United has said in this Medicare Advantage plan is follow the CMS guidelines and they just put it in their plans, which should have been being done all along. It was just the DME provider had to do it. By putting it formally into the guidelines, essentially it just puts a policy out there that you have to follow, what has always been done. Whether folks have or have not been doing it, I can’t comment on that. Maybe there is a reason in United audits they said that. From our point of view, in the CMS channel, the guidelines are very clear. The fee-for-service guides on Medicare Advantage generally follows the fee-for-service guidelines. And this is just a formal essentially ratification that you and agent specs folks to follow those guidances.
Lawrence Biegelsen
So the prior authorization step being put in place for the DME channel, you don’t see that as a reason doctors or patients may choose to go into the pharmacy.
Kevin Sayer
It was the same thing that they had to do to get access to the product before the DME just had to do it as opposed to UNH. So it shouldn’t. It should be effectively the same thing. Around the fringes, could it create some noise potentially, but we don’t necessarily see it as a big driver one way or the other.
Lawrence Biegelsen
All right. And I guess there is also concerned that maybe Abbott has some pricing advantage or some economic advantage in the DME channel. Is there any merit to that?
Kevin Sayer
When all said and then our pricing and our largest competitors are quite similar to the DME channel, particularly with respect to the DME government, we have a slight premium price there, but it is not a large premium. It is very much reflective of the same pricing ranges we have in the pharmacy channel as well. So that’s not the biggest issue. As I’ve talked to the heads of these companies and Jereme has talked to them as well. They want volume from us. Now look, if you call a distributor and ask them, they are always going to say, give me more price. But what they really want from us is to drive more business their way. And again, to be neutral in the channel, not to be pushing people towards the pharmacy versus the DME channel when they can go there.
Lawrence Biegelsen
Kevin, I heard you comment upfront about this is going to take time to fix something along those lines, not to paraphrase you. Are things moving as you expected when you — on the Q2 call, anything. I mean there is a lot of moving parts here. Are you pleased with the progress so far?
Kevin Sayer
What we are doing is what we said we were going to do. We’ve heightened the visibility of our DME relationships. I’m having, as I said earlier phone calls with the leaders of the higher ups of these organizations. Our commercial leadership team is having face-to-face meetings, head-to-head meetings locally in all of them at their headquarters, hearing their concerns.
As I said, we’ve retrained our people at our mid-year sales meeting to send a product and how to use that channel effectively. We’ve also, again encouraged our reps go get those relationships that you need with the local DME rep in your physician’s office. So we are doing the steps that we planned on. There is always a lag to DME data versus the pharmacy data. You’re very well aware of how we can get the data from scripts [indiscernible] whatever source quite quickly. DME data is much tougher. It takes longer, we can only get our data from our suppliers.
They’re not going to give us other companies that aren’t going to give ours to other companies either. So we’ll need to see the data. We know the reorders, but we don’t see the new patient data for a while. We’ll start seeing that. But remember, we announced this at our earnings call in late July, started talking about it. We really started putting action plans together over the last 5 weeks. So we’re hopeful that these things work. But as I said earlier, it is going to take us some time. And we need to show a commitment to these guys that we are committed to helping them.
Lawrence Biegelsen
That’s helpful. The other headwind that you talked about was international, 10% organic growth in Q2 is actually a really tough comp. So it wasn’t quite what it appeared from a nominal growth rate. But — and you also had a good chunk of the 70,000 patients shortfall was OUS. How are you thinking about international growth going forward?
Jereme Sylvain
Yes. So that market, at least we saw the overall market growing in kind of the mid-to-upper teens as a total on the total market. And we think that, that’s a pretty steady state for it. And then as essentially categories of reimbursement open up, there can be spurts where it can grow a little bit quicker.
When you look at our performance on the quarter, tough comp, you are right. Also, I think Japan, and we talked a little bit about this, going direct in Japan. It was a tough kind of get out of the gates for us there. Mostly related to distributor transition challenges, and they didn’t set us up to 16. We’re feeling much better about Japan right now. When you exclude that, you start to get a little bit more normalized. I think this is a market that can continue to grow.
Certainly, we see the market continuing to grow in the mid-to-upper teens in the established market, and that’s prior to all the basal coverage and incremental coverage that we expect to open up in the coming months and years. So it’s a good market, good opportunity, a lot of reimbursement coming on tap. I think what you see in reflective in the quarter is, again tough comps and certainly Japan. And then we did see some timing of tenders that we did expect to take place in the quarter that didn’t take place the time-line we expected that we do expect those to come over the coming months and quarters.
Lawrence Biegelsen
Jereme, you guided specifically, I think to 1% to 3% for Q3. I’m going to assume that was pretty de-risked, but the guidance implies Q4 growth of 5% to 10%. Please correct me if I’m wrong, what’s giving you the confidence that you’re going to accelerate from Q3 to Q4?
Jereme Sylvain
Yes. So there is a couple of things as you kind of walk through that guidance. First off, we assume in Q3, we lose share — a little bit of share in the DME channel before it stabilizes into Q4. So clearly, that plays through in the third quarter and obviously, the stabilization in the fourth quarter is helpful. As you look at then the pharmacy channel and the new reps, we do expect reps to get more productive. We didn’t add all these reps to our sales force in the second quarter with the intent that we are not going to be setting records in new patients.
Obviously, second quarter, a negative surprise to us. But as those folks go through the training, Kevin alluded to the midyear sales meeting as we educate them on, I’ll say, fishing in the entire pond versus just 60% of the pond and not partnering with the DME partners, I think that will help the effectiveness. And we are already seeing that happen. We talked about on the call in June, we started to see more and more effectiveness coming out of that sales force.
So we do expect them to be more effective as we move into the fourth quarter. And then clearly, we have a full quarter of Stelo into the fourth quarter. So that’s also something you consider as well in that guidance. I think Kevin’s alluding to, I don’t know that we are going to be completely out of it and taking share back by the fourth quarter, certainly in the DME channel. But we laid out the kind of components and how we thought about it. And then, of course, if we can out-execute excellent. We’ll certainly pass that along to investors.
Lawrence Biegelsen
All right. Well, 12.5 minutes left will transition to Stelo. Kevin, I wish we had 35 minutes to talk about Stelo.
Kevin Sayer
No — what, I wish, I wish I had a booth outside for you guys to go to. We were concerned when we came here that after we’ve had a few meetings that every Stelo we’ve sold has been sold to people in this room, but you’re not our only customer. So I can assure you, I’ve got a heat map. I’m my computer that shows they’ve gone everywhere all over the United States.
Lawrence Biegelsen
So Kevin, I know it’s early days, but maybe can you speak to what you are seeing qualitatively any on demand. We’ve been publishing on the app downloads, which looked pretty strong. What are you seeing?
Kevin Sayer
App downloads are strong. Demand has been very good. We are getting incredibly good feedback on this product so far. The first thing that really delighted us in particular was how delighted our customers were. We went live on Amazon at 11:00 p.m. on Sunday night, and one of our people ordered at 11:02 and she had it at 7:00 o’clock the next morning, which if you bought medical devices or a product like that — that kind of turnaround has not been typical.
So our customers have been delighted in the robustness of our distribution channel and what we built. The website appears to be working well, there’s been a glitch or two, but nothing insurmountable. The feedback we’re getting from users. And it’s been — for me, it’s been users across the board. So I met for example, with our type 2 ambassadors the week before launch, and got their feedback on what they learned just about simple meals.
And again, these are people with type 2 diabetes for years. One is about my age, he’s approaching 65. And he said, I had no idea what was going on with my body in the morning. I was eating oat meal every day and my sugar just goes off the chart. So I went to Stelo because that’s supposed to be better. Wasn’t? So we’re not eating oat meal for breakfast anymore. I’ve talked to people who’ve talked about learning to stage foods after they’ve seen a spike if they eat something before they eat the other stuff. But really good feedback so far.
I’ve talked to another person who said, I’ve done this for a week, I’ve lost 2 pounds. And all I’m doing is trying to stay in between these lines. So the feedback has been very good. So far, the experience has been seamless. We’re asking in the app when you sign up, do you have type 2 diabetes? Are you prediabetic? Are you just doing this for help?
So we’ll have a good indication, and we will give some color on that on our earnings call as to who’s buying that. Obviously, it is going to be early when we get to the September earnings call to say how many people who subscribed have purchased again because we are only one month into launch, but we’re very anxious to see how that goes. I’ve had conversations with people about the fitness side. If somebody said they’ve been to their trainer, their trainers making everybody in his gym put on Stelo. He said, I learned more from my fellow about my nutrition and what’s going on in my body than anything I’ve ever done. So it has been a great experience so far.
Lawrence Biegelsen
Okay. You talked about some glitches or a couple of glitches, anything noteworthy?
Kevin Sayer
No. I think we have a Stelo bot – the Jereme’s team, Jereme’s IT team has been putting together that’s going to learn about questions and how to answer them through AI. We’ve got — it’s got to learn. So right now, the experience has been a little difficult for some folks. But by and large, it’s been great. No showstoppers at all.
Lawrence Biegelsen
Kevin, I mean, the other big question people are asking about. I mean you price it at $89 to $99 a month subscription versus 1 time the – deliver a cash-pay price is approximately $80 a month. We don’t know what — as far as I know, we don’t know LINCO’s price. I assume it’s approximately that $80. So you’re at a premium. Why do you think you can charge a premium?
Kevin Sayer
We spent a lot of time researching pricing for this product and discretionary pricing and what we could price this at and get user group. The prices that we landed on the $89 with the subscription in $99, if you did the one-time purchase is based on a whole bunch of market research. As time goes on, particularly now that we have 2 sensors with Stelo instead of 3 and the 15-day were. We can have some price flexibility if we need to. We’re very comfortable with where we started, and we’ll see how that evolves over time. Larry, I want to — we want to give this on as many people as we can.
Lawrence Biegelsen
And the subscription versus 1 time, I know it’s super early. You talked about type 2, pre-diabetes, et cetera. Any initial color on subscription versus 1 time?
Kevin Sayer
I’m pretty sure most people have signed up for the subscription. Haven’t they, Jereme?
Jereme Sylvain
Yes. A lot of people signed up for subscription. The question, Larry, is do they follow up. I need to get back to you in 30 days on that because most folks obviously sign up to save but we’ll have color on that. And the good news is we’ll have color by cohort. So we’ll know whether it is type 2 pre-diabetes. So give us 30 days, so we can see that for a subscription period lapse. But early on, a lot of people opted for subscription.
Kevin Sayer
A couple of other learnings, if I can just interject a bit. A lot of the feedback we are getting is I like this so much I want more. We’ve invested very heavily in the software group over the past several years. We have a series of launches and features, including some initial AI work and some other things that will roll into this over the next 12 months, literally creating new experiences maybe not monthly, but certainly every two months, the Stelo app is going to get more robust and address more factors.
So that is – we are really looking forward to that. The second is the partnership opportunity. A lot of people want access to Stelo data, particularly now that a patient or a user can buy this over the counter and buy it online. This opens the door for a lot more access, so people don’t have to get a prescription. And we’ll also open the door for us as far as interfaces with direct to software connections, maybe rather than API running our app and running their app in the background.
So we think we can enjoy a good expansion on the partnership front with Stelo as well.
Lawrence Biegelsen
What type of partnerships?
Kevin Sayer
For example, if you are seeing data for one app for Health & Nutrition on your phone, let’s put the Stelo data in there and let them compute what’s going to happen with your glucose values based on what you eat and stuff. Those types of companies, activity monitoring, sleep, you pick it. We think that Gluco signal can be valuable across the board when it comes to out.
Lawrence Biegelsen
Kevin, there’s — you probably know some skepticism about the $40 million, the 1% contribution to growth. What’s giving you the confidence that in that $40 million and maybe what were some of the underlying assumptions.
Kevin Sayer
Well, demand has been strong so far, but we’re about 8, 9 days into this. Look we modeled this out, number of users we had to have, the number of users we had to add, how many leads we had to get, what we do. We model that in our traditional models. The most important thing in the next 4 months is for us to learn. We learn the most if we can get up to $40 million in revenue because we’ll have enough users that we’ll be able to make the changes that will continue to drive demand.
So while we’re confident and hopeful in the $40 million, the most important thing is to learn, and that is the primary goal of this launch. And we get to $40 million, that will be great. What we’re going to give color as to how we do. We are not going to hide it. And we through a $40 million number out there, we have to say how we achieve against it. So we will, and we’ll give color on the user base and subscriptions and all those things going forward because this is new for us. This is a brand-new business, and we’re very excited.
Jereme Sylvain
Yes. And Larry, just to give you — you asked the question had you calculate it. One of the things we did have as a result of getting that Stelo website up there was quite a bit of inbound interest in e-mails that came in, hey, tell us more where are we going. So we already had a head start in terms of a customer base. We also — as a result of years and years of being in the industry and the G Series, there is been a lot of folks that have interest in our non-insulin users that have had interest in G7.
Obviously, our cash paid price at that time wasn’t as competitive. But those names we’ve kept on file over the years. So not only we’ve always known that there was interest in Stelo, we had interested folks in a product of some sort at some time that would match it. We used all of that along with some of the inputs that come up with which gave us some confidence in it. Again, you’ll hear a little bit more on our Q3 call on where we are headed, and we won’t hide it. We’ll tell us this.
Lawrence Biegelsen
Jereme, you talked about — are you built in the second half ’24 guidance. You have this kind of 14% number out there for ’25, right, at the low end of the LRP, big step-up, right, from 1% to 3% growth in Q3. What are some of the puts and takes next year? What gave you the confidence to say we can hit the low end of that LRP and you kept the margins by the way?
Jereme Sylvain
Yes. So I think there is a couple of things. One, I think let’s start with the top line. One, we’ve expanded the sales force, and we talked a little bit about it earlier and getting comfortable longer term, the expectation is productivity starts to ramp over the course year into the back half of this year and into the following year. We always talk about this new patients aren’t what drives the quarter, but it does drive the rest of the year. You saw in Q2, there was a miss on new patients, and then you see the impact on the rest of the year. And that’s obviously reflected in guidance wasn’t as much of an impact on the second quarter.
As we’ve seen those patients coming in, in the third quarter and the fourth quarter and that productivity as it ramps into next year, as well as some assumptions around stability in that DME market, you can very quickly see why it gets back to those figures. You combine that again with Stelo and some of the assumptions around Stelo, I think that gets you enough comfort around where we are going. And we wanted to make sure that we ran through all the assumptions, everything that took place.
Over the course of the second quarter, we really wanted to make sure we incorporated that in giving that reiteration, if you will, at the low end of the LRP. So those are some of the reasons. Obviously, we are going to lap — we’re going to lap kind of what I would say is an easier comp next year based on where we are projecting this year, which are also helpful. Not a reason to be happy about our growth rate, but nevertheless, a reason. So when you do the math on all that, I think you’ll find a pretty relatively modest pathway to get there. But we’ll give you more color on it as we give a guide for 2025.
Lawrence Biegelsen
Stelo, I mean, if you hit the $40 million, we talked about this a number of times. It’s almost like a $200 million run rate, $150 million.
Jereme Sylvain
There is going to be more attrition utilization trialing in that group. But you are right. If you hit $40 million in a short period that means there’s a lot of interest in the product. And then we’ll have to get back to you on the subscription versus onetime buys and give you trends over time. But you’re right, there’s a lot of interest in this product. There’s already hundreds of thousands of people wearing, they are non-insulin users wearing sensors full time today. And they have to go through all the challenge of going through a pharmacy, going through a script, getting a physician to write it, then of course, going and getting — this is easy, ordered online, et cetera house in a day or two.
So we know there’s demand out there. And obviously, as we report on it over the coming couple of quarters and giving you some guidance for next year, we give some color, but it is a very interesting product and a massive unmet need in our society.
Lawrence Biegelsen
Kevin, we’re almost out of time. Feel free to go over. I’m going to give you the last word. What you can say anything you want, what did we cover? What do you want to leave investors with? Obviously, Dexcom is going through a challenging time, more challenging than we’ve seen probably — it’s not — in a long time, if not ever. And I just want to wrap it in here. We’ve seen a lot of companies announce ASRs. I don’t think we’ve seen that from Dexcom. So give you the last word here, Kevin, thanks for being here.
Kevin Sayer
Thank you for having me. Look, we have a robust market. And in all of our discussions, for example, with our DME distributors where these relations have been difficult, all of them start with, well, you guys do have the best product. And we have built a company on the best product and we built a company based on our relationship with our end users. It’s very important as we go forward that we think more broadly, and we think more broadly about who our customers are and that we meet the needs of all of those people and all those constituents. This is an execution hiccup. This is not a reflection of our product pipeline. It’s not a reflection of the quality of our product. It’s not like we’ve had to recall or anything.
This is a reflection of a hiccup and some execution that could have been done better. We’ll do that better, we’ll fix it. And over time, this business will continue to grow. And as one investor asked me on — we took a lot of late-night calls after that earnings call, somebody asked us about 10:00 well, do you still see this being a $6 billion or $8 billion company in x-number of years? And I said, “well, yes, he goes then, don’t worry, go fix it. And I think that’s how we feel about this business. It is a tremendous opportunity. Our product pipeline, Larry is going to be fabulous as you see it coming out over the next couple of years.
So look, we are very optimistic and bullish about the future. Little tired of going through the present now, but we’ll get through it. And suffice it to say, if you wonder if I’m grinding the people hard I am, trust me. We’ll get there.
Lawrence Biegelsen
All right. Perfect. Thanks for being here.
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