Dive Brief:

• Continuous glucose monitoring company Dexcom projected doubling its revenue within five years, growing from approximately $1.9 billion in 2020 to between $4 billion and $4.5 billion by 2025. The company estimates it will have about $1.3 billion in cash flow in five years.
• Executives at an investor day Wednesday laid out a growth strategy including increased product offerings in pharmacies, expanding to new patient populations and international markets, and the launch of the G7 CGM system in 2021.
• Multiple Wall Street analysts called the five-year guidance prudent and predict the company to surpass the range, citing an under-tapped market and opportunities with new patient bases. Investors were not so sure, sending shares down 4% on Wednesday, potentially on pricing and competitive concerns.

Dive Insight:

Dexcom's projection to double revenue by 2025 comes after it beat its previous five-year guidance with about three years to spare. In 2018, the company projected it would reach $2 billion to $2.5 billion in revenue by 2023, a target that will be hit this year.

The $4 billion to $4.5 billion guidance range for 2025 reflects roughly a 15% to 20% CAGR.

William Blair analysts wrote that the long-term guidance was fairly conservative and "2021 has the potential to be one of Dexcom's most meaningful offensive years ever."

"While these revised financial metrics represent significant increases from our prior analysts day, by no means are they stretch goals," Quentin Blackford, Dexcom CFO and COO, said during the event. "They are measures that we feel highly confident in being able to deliver, particularly when you come back to the market opportunities."

Still, investors may have focused on pricing pressure and competition from primary rival Abbott Laboratories.

Abbott's FreeStyle Libre CGM systems saw 36% percent year-over-year growth in the last two quarters, and Abbott has continually touted the fact that it is a cheaper option for patients.

Dexcom presented data showing that its G6 CGM product had a $180 lower out-of-pocket cost for commercially insured patients compared to the FreeStyle Libre 2, and about one-third of all G6 patients had no co-pay.

But Dexcom will face pricing pressure in the coming years, projecting a 2% to 3% annual price reduction. This revenue loss can be made up by distributing products through pharmacies rather than relying on Durable Medical Equipment channels, according to Dexcom. The pharmacy not only lowers costs, patients typically receive their CGM system in one to two days compared to as much as four weeks when using a DME channel.

Shifting to pharmacy, which lowers the price point for products, has been a headwind for the company, J.P. Morgan analysts wrote. But this challenge is nearly over as about 50% of a possibly 75% of U.S. commercial volumes already take place through pharmacies.

J.P. Morgan analysts said that "we fully expect Dexcom to exceed its guidance as it has in years past," writing that the most important point for investors is "the substantially low underlying market penetration."

For example, while Dexcom outlined a strategy to reach new markets and patient populations, the company's core business, made up of patients with Type 1 diabetes and Type 2 patients that are insulin-dependent, is still just 25% penetrated.

Additional markets the company plans to target like non-intensive Type 2 patients and intensive patients outside of the U.S. are under 2% and about 10% penetrated, respectively, according to Dexcom. Furthermore, executives said Dexcom will target opportunities markets like pregnant women and hospital settings, both of which the company has not officially entered.

CGM use in hospitals came about during the coronavirus pandemic to limit contact with patients and save personal protective equipment, at risk of shortages throughout the year. Dexcom devices are not cleared or approved for inpatient settings, but FDA allowed use for the duration of the public health emergency.

Steve Pacelli, executive vice president of strategy and corporate development for Dexcom, said that while the company will need to work hard to prove the value of using CGMs, hospitals are a "huge upside opportunity" and Dexcom's "next big thing."

Expanding beyond the U.S. is another key area of growth. Currently, Dexcom's business is split by about 80% in the U.S. and 20% internationally. The company projects that this makeup will shift to 58% in the U.S., 28% outside of the U.S. and 15% new markets by 2025.

Dramatically increasing inventory is another focus, and one that the company hopes to help offset pricing declines as well. Blackford said significant investments will be made over the years to increase scale from tens-of-millions of units to hundreds-of-millions of units. Further embracing automated manufacturing lines will also help Dexcom cut costs, the CFO said.

Jefferies analysts wrote that increasing production scale while lowering costs is of "paramount importance because whether as a direct result of competition or adoption into more cost-conscious markets — CGM prices will continue to trend downward."

After delaying the release of its G7 CGM system due to the coronavirus pandemic, Dexcom plans to launch the product in the U.S. in 2021 but did not give a specific date.