Dexcom Intel shares plunged more than 40% on Friday, their biggest drop ever, after the diabetes management company reported disappointing second-quarter revenue and gave weak guidance.
The stock fell $43.85 to close at $64, wiping more than $17 billion off its market value. Before Friday, the biggest drop came in September 2017, when shares fell 33% in a single day. Dexcom made its stock market debut in 2005.
Dexcom’s revenue rose 15% to $1 billion from $871.3 million a year earlier, according to a statement late Thursday. Analysts had expected revenue of $1.04 billion, according to LSEG.
The biggest concern for investors was the outlook. In the third quarter, Dexcom expects revenue between $975 million and $1 billion to cover “some unique elements impacting 2024 seasonality,” the statement said. Dexcom updated its full-year guidance and now expects revenue between $4 billion and $4.05 billion, down from the $4.20 billion to $4.35 billion it forecast last quarter.
Dexcom offers a range of devices such as continuous glucose monitors for patients diagnosed with diabetes. On the earnings call, CEO Kevin Sayer attributed the challenges to the company’s restructuring of its sales force, fewer new customers than expected and lower revenue per user. Part of the shortfall was related to customers taking advantage of discounts on a new continuous glucose monitor called the G7. Additionally, the company said it underperformed in the durable medical equipment channel.
“DME distributors remain important partners in our business, and we did not perform well this quarter with respect to those partnerships,” Sayer said on the call. “We need to refocus on those relationships.”
JPMorgan Analysts on Friday downgraded the stock from buy to hold, saying the report signaled a “sharp shift in the wrong direction.” The analysts said they still have some unanswered questions, but they are confident the company’s performance was due to internal issues and not related to market changes such as the growing popularity of weight-loss treatments called GLP-1s.
During the Q&A portion of the earnings call on Thursday, JPMorgan's Robby Marcus asked for more details on the large guidance cut, expressing “shock” at how disruptive a change in sales force structure could be.
“I feel like there has to be more,” Marcus said, asking if GLP-1s had an effect.
Sayer responded by saying the company was “experiencing a significant shortfall in new patients compared to what we expected at this point in time.” He said the sales force reshuffle, which led to changes in geographic coverage, was more dramatic than expected as doctors were now dealing with different representatives.
In their note, JPMorgan analysts highlighted the “magnitude of the downside,” and said the fact that “this downside appears to be largely self-inflicted is difficult to fully comprehend.”
Regarding the struggles facing DME products, Sayer said the company has lost customers who “generate the highest annual revenue.” He added that eligibility for the G7 product rebate was three times faster than its predecessor, the G6.
All of these variables result in a $300 million shortfall in the company's guidance for this year at the high end, said Jeremy Sylvan, Dexcom's chief financial officer.
“This is certainly not something we are happy about,” Sylvain said, adding that in the interest of “full transparency,” the company should provide clarification “on what impact this may have on the rest of the year.”
Analysts at William Blair wrote that Dexcom's results were “disappointing” but their long-term view remains unchanged. They said Dexcom has the potential to expand its market share and recover recent losses in its stock.
“These near-term dynamics are likely to be transient,” they wrote in a note on Friday.
Leerink analysts, in a report released Friday, agreed that the “size of the selloff is overblown” and that the issues currently hurting the company are unlikely to have a material impact on Dexcom’s long-term trajectory.
In March, Dexcom announced that its new non-prescription continuous glucose monitor, Stello, had received FDA approval for use. The Stello is designed for people with type 2 diabetes who do not use insulin. Dexcom announced Thursday that it will officially launch it in August.
With Friday's selloff, Dexcom shares are down nearly 50% for the year, while the S&P 500 is up 15%.
WATCH: Dexcom lowers outlook
