Dexcom shares sank more than 40% on Friday, their steepest decline ever, after the diabetes management company reported disappointing revenue for the second quarter and offered weak guidance.
The stock fell $43.85 to close at $64, wiping out more than $17 billion in market cap. Prior to Friday, the biggest drop came in September 2017, when the shares plunged 33% in a day. Dexcom held its stock market debut in 2005.
Dexcom’s revenue increased 15% to $1 billion from $871.3 million a year earlier, according to a release late Thursday. Analysts were expecting revenue of $1.04 billion, according to LSEG.
The bigger concern for investors was the forecast. For the third quarter, Dexcom expects revenue of $975 million to $1 billion to account for “certain unique items impacting 2024 seasonality,” the release said. Dexcom updated its full fiscal-year guidance and now expects revenue of $4 billion to $4.05 billion, down from the $4.20 billion to $4.35 billion it forecast last quarter.
Dexcom offers a suite of tools such as continuous glucose monitors, or CGMs, for patients that have been diagnosed with diabetes. On the earnings call, CEO Kevin Sayer attributed the challenges to a restructuring of the company’s sales team, fewer new customers than expected and lower revenue per user. Some of the shortfall had to do with customers taking advantage of rebates for the new CGM called the G7. Additionally, the company said it underperformed in the durable medical equipment, or DME, channel.
“The DME distributors remain important partners for us in our business, and we have not executed well this quarter against these partnerships,” Sayer said on the call. “We need to refocus on those relationships.”
JPMorgan analysts downgraded the stock Friday from the equivalent of a buy to a hold, and said the report marked a “sharp turn in the wrong direction.” The analysts said they still have some unanswered questions, but are confident that the company’s performance was due to internal issues and not tied to market changes such as the surging popularity of weight loss treatments called GLP-1s.
During the Q&A portion of the earnings call on Thursday, JPMorgan’s Robbie Marcus had asked for more details on the substantial drop in guidance, expressing “shock” at how much disruption could be caused by a change in the structure of the sales force.
“I feel like there has to be more going on,” Marcus said, and asked whether GLP-1s were having an impact.
Sayer responded by saying the company is “short a large number of new patients as to where we thought we would be at this point in time.” He said the sales force reshuffling, which led to changes in geographic coverage, was more dramatic than expected as physicians were now dealing with different reps.
In their note, the JPMorgan analysts highlighted “the magnitude of the downside,” and said the fact that it “appears to mostly be self-inflicted is just hard to grasp in totality.”
With respect to the DME struggles, Sayer said the company lost customers “who have the highest annual revenue per year.” He added that G7 rebate eligibility was three times faster than over the prior product, the G6.
Jereme Sylvain, Dexcom’s finance chief, said all those variables add up to a $300 million shortfall in the company’s guidance for the year at the top end.
“Certainly not something we’re happy about,” Sylvain said. He said that in the interest of “full transparency,” the company needed to provide clarity “about what the impact is for the balance of the year.”
Analysts at William Blair wrote that Dexcom’s results were “disappointing” but their long-term view remains unchanged. Dexcom has the ability to expand the market and to win back recent share losses, they said.
“These near term dynamics should prove transient,” they wrote in a note Friday.
Leerink analysts agreed, writing in a report Friday that the “magnitude of the sell-off is overdone,” and that the issues currently hurting the company are unlikely to have a material effect on Dexcom’s longer-term trajectory.
In March, Dexcom announced its new over-the-counter CGM called Stelo had been cleared for use by the U.S. Food and Drug Administration. Stelo is designed for patients with Type 2 diabetes who do not use insulin. Dexcom said Thursday it will officially launch in August.
With Friday’s sell-off, Dexcom shares are down almost 50% for the year, while the S&P 500 is up 15%.
WATCH: Dexcom cuts forecast