Dive Brief:

• Dexcom doubled capacity during the first half of the year for its flagship G6 continuous glucose monitoring system, the company said in reporting a 35% rise in second quarter revenues, supported by a wave of new patients despite the pandemic disrupting doctor office visits.

• The G6 device will remain the diabetes tech company's pre-eminent product for slightly longer than planned. After disclosing last quarter that coronavirus-driven delays of at least six months will affect pivotal studies of its G7 device, CEO Kevin Sayer told investors Tuesday it will forgo an end of 2020 soft launch and wait to roll it out until the company has the capacity to fully transition G6 users to the new technology. “Rushing to accommodate such a launch would ultimately delay our long-term plans,” Sayer said on a call.

• The company cited COVID-19's uncertainties in opting to rescind yearly financial predictions last quarter, but Tuesday reinstated 2020 guidance, expecting 25% revenue growth compared to 2019 for roughly $1.85 billion on the year — a $75 million increase over the top end outlook given in January. Management said those targets take into account that original expectations for new patient additions could be depressed by as much as 25% in the second half of the year.

Dive Insight:

Second quarter sales approached $452 million, or around $35 million ahead of analyst expectations. Despite worries the pandemic may continue to depress doctor office visits, limiting the pipeline of new patient starts, management said the roughly 25% hit to new business it saw at the end of March and into April rebounded by the end of June. However, management noted slight weakness again this month amid worsening regional outbreaks.

Sayer attributed the $115 million increase in revenue over the same quarter last year to new patient additions over the past year, a figure Dexcom does not disclose. The company revealed that Type 2 users now make up more than 20% of its overall base, pointing to growing coverage, including from UnitedHealth and Aetna, as big catalysts for growth.

That Type 2 penetration is still low compared to Dexcom's primary CGM rival Abbott, where Type 2 users account for about half of all business, as cited in a note from analysts at Stifel late Tuesday. 

Abbott received FDA clearance last month for its FreeStyle Libre 2 device as an iCGM, FDA's designation meant for CGMs interoperable with other medical devices used to help manage diabetes that previously put Dexcom's G6 in a category of its own. Still, FDA noted in the Libre 2 clearance that the device is not currently allowed for use with automated insulin delivery systems, such as Tandem's Control-IQ system that Dexcom believes is only further driving demand for its own product.

Although Dexcom reined in some of its direct-to-consumer advertising in the particularly uncertain early days of COVID-19, management emphasized it intends to ramp it up going forward. CFO Quentin Blackford described near-term plans on that front as “turning on the DTC spigot for the first time in a significant way.

“One of the things that maybe is not as appreciated by folks is that historically, we've always been constrained from an inventory position,” Blackford said. “We exited Q2 in the strongest inventory position that we've been in with respect to G6 in our company's history. That allows us to start to open up opportunities like DTC."

Blackford told analysts spending will rise significantly in the second half of the year, about $100 million more, not just from advertising costs but from resources toward G7 studies, for which the company is currently finalizing locations and timing both in the U.S. and internationally. Dexcom reportedly stood up its first automated manufacturing line for G7 in San Diego, which will be producing the devices for trialing.

Sayer said design of G7 is complete and access to clinics has reopened, but was tightlipped on other fronts. “I am not going to provide you a specific clinical trial, filing and launch dates today,” Sayer told analysts, adding, “we have no interest in sharing our playbook with the entire industry.”

Dexcom offered additional color on one of its clear COVID-19 benefits: accelerated entry into hospitals. CGMs have not previously been cleared for use on hospital patients, but with FDA releasing temporary policies aimed at promoting technologies that allow for remote patient monitoring and the reduced potential of COVID-19 transmission between providers and patients, CGMs currently have the green light in the hospital setting.

At the start of the pandemic, Dexcom had to get used to hospitals' different IT systems and CGM use protocols, so the company is “really now just starting to gather data," Sayer said.

As for making CGMs in hospitals a permanent fixture even if COVID-19 dies down, Dexcom has not yet had any additional discussions with the FDA, but plans to.

"With COVID not going away, I think we’ll be able to gather more data. And now that we’ve been through this initial wave of learning, we'll probably get better data and more data and know what we're looking for going forward," Sayer said. Ultimately, "we’ll present that to the FDA, and at the same time, we'll present them what the plan as to what we think we need to do next. That’s going to be a while," he added.

The costs of the effort to roll out G6 devices to hospitals this year will outweigh any revenues, "but the data that we are generating is invaluable as we assess the regulatory pathway forward for this important market," Sayer said.