Dexcom Shares fell more than 40% on Friday, their biggest drop on record, after the diabetes management company reported disappointing second-quarter revenue and offered weak guidance.
The stock fell $43.85 to close at $64, wiping out more than $17 billion in market capitalization. Before Friday, the biggest drop occurred in September 2017, when shares plunged 33% in one day. Dexcom debuted in 2005.
Dexcom’s revenue rose 15% to $1 billion from $871.3 million a year earlier, according to a statement released late Thursday. Analysts had expected revenue of $1.04 billion, according to LSEG.
The main concern for investors is guidance. For the third quarter, Dexcom expects revenue of $975 million to $1 billion, due to “certain one-off items impacting 2024 seasonality,” the statement said. Dexcom updated its full-year guidance to $4 billion to $4.05 billion, down from $4.20 billion to $4.35 billion it expected last quarter.
Dexcom offers a range of tools such as continuous glucose monitors (CGMs) for patients diagnosed with diabetes. During its earnings call, CEO Kevin Sayer attributed the difficulties to a restructuring of the company’s sales team, fewer new customers than expected and lower revenue per user. Part of the shortfall is due to customers taking advantage of discounts on the new CGM called the G7. Additionally, the company said it is underperforming in the durable medical equipment (DME) business.
“DME distributors remain important partners in our business, and we did not manage those partnerships well this quarter,” Sayer said on the conference call. “We need to refocus on those relationships.”
JP Morgan Analysts downgraded the stock to a “hold” rating from a “buy” on Friday, saying the report marked a “sharp turn in the wrong direction.” Analysts said they still had unanswered questions but were confident the company’s performance was due to internal issues and not market changes like the growing popularity of weight-loss treatments called GLP-1.
During Thursday’s earnings call question-and-answer session, JPMorgan’s Robbie Marcus asked for more details on the substantial guidance cut, saying he was “shocked” by the magnitude of the disruption that could be caused by a change in the sales force structure.
“I feel like there needs to be more going on,” Marcus said, and asked if GLP-1s were having an impact.
Sayer responded that the company was “missing a lot of new patients compared to where we thought we were at this point.” He added that the sales force overhaul, which led to changes in geographic coverage, was more dramatic than expected because physicians now deal with different reps.
In their note, JPMorgan analysts highlighted “the magnitude of the decline” and said the fact that this “appears to be largely self-inflicted is just hard to grasp in its totality.”
As for DME’s challenges, Sayer said the company has lost customers “who have the highest annual revenue.” He added that eligibility for G7 rebates is three times faster than for the previous product, the G6.
Dexcom CFO Jérémie Sylvain said all those variables translate into a $300 million shortfall in the company’s full-year forecast at the high end.
“It’s certainly not something we’re happy about,” Sylvain said. He added that in the interest of “total transparency,” the company needed to provide clarity “on the impact it will have on the rest of the year.”
William Blair analysts called Dexcom’s results “disappointing,” but their long-term view remains unchanged. Dexcom has the ability to expand the market and recoup recent stock losses, they said.
“These short-term dynamics are likely to prove transitory,” they wrote in a note Friday.
Leerink analysts agree, writing in a report released Friday that “the magnitude of the selloff is overblown” and that the issues currently plaguing the company are unlikely to have a material impact on Dexcom’s long-term trajectory.
In March, Dexcom announced its new The Stelo over-the-counter continuous diabetes monitoring (CGM) system has been cleared by the U.S. Food and Drug Administration (FDA). Stelo is intended for patients with type 2 diabetes who do not use insulin. Dexcom announced Thursday that it will officially launch in August.
With Friday’s drop, Dexcom shares are down nearly 50% for the year, while the S&P 500 is up 15%.
WATCH: Dexcom cuts forecast
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