OVERVIEW
Dexcom reported a blow out 3Q19 revenue number. Our claims data regression had forecast revenue of $295M for 2Q19 compared to the reported $266A, or ~30M lower. For 3Q19, the trend was reversed with the company reporting significant upside versus our estimate. The estimate for 4Q19 won't be available until there is more data available beyond what we have through October .
SHORT THESIS
- CGM will remain restricted to type 1 and insulin intensive type 2 diabetics.
- Penetration in Type 2 insulin intensives will trail type 1.
- Abbott Freestyle Libre will be the share leader in type 2 insulin intensives.
- Abbott Freestyle Libre 2.0 will launch in the US posing a price and competitive challenge.
- The trend toward pricing parity further reduces the US TAM, estimate trends stall driving stock lower.
CLAIMS DATA - MORE DETAIL
Our analysis of the claims data for continuous glucose monitoring data interpretation, or CPT code 95251, runs counter to management commentary. Both year over year and sequential change are decelerating in our data which represents commercially insured patients and a small percentage of Medicare Advantage patients. Through October 2019, our team has identified 570,859 data entries dating back to 1/1/2015.
"Our big driver this quarter was the U.S. commercial business. Our U.S. commercial business, not Medicare, but our U.S. commercial patients and our U.S. commercial revenues grew at a rate faster than any quarter we've ever seen."
For both management and our claims data to be correct, DXCM would need to be taking share from Abbott. Alternatively, the claims data could be garbage and the physicians we've spoken to about peak penetration all quacks.
Since we are not prepared to walk away from our work, we instead added additional detail to our claims data in order to take a deeper and more detailed look at the underlying trend. Beyond service date, CPT code, and claim ID, we added fields for rendering physician NPI, patient ID (coded and anonymous), and billing entity NPI. With the additional data we map out new physicians, new patients, same physician patient growth, repeat patient trends, and practice level and geography level detail as well. We also plan to use the data to target physicians for phone interviews regarding their CGM use.
The chart deck linked below contain most of the underlying work we've done on the patient population and adoption trend data such as app downloads and claims. In the coming days we will add additional detail from the expanded fields. Additionally, we have recently conducted a series of studies searching for fundamental algorithms we believe account for a large percentage of a given stock performance and allows us to blend the Hedgeye Macro outlook with stock selection. While we don't plan to cover our short position here, we do plan on highlighting the algorithm-based signal going forward which may be of use to our clients, some of which is detailed in the slide deck as well.
Click here for --> CHART DECK
Please call or email either the sales team or health care team directly with any questions pertaining to this work.
Thomas Tobin
Managing Director
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Emily Evans
Managing Director – Health Policy
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