Q1 2020 Earnings Call
Well that's come first quarter 2020 earnings release Conference call. My name is Adrian and I'll be your operator for today's call.
Hi, all participants are in listen only mode later, well conduct a question and answer session.
During the question answer session. If you have a question. Please press Star then one and you touched on phone.
Please note. This conference is being recorded I'm not trying to carve a shot christiansen, Sean you may begin.
Thank you operator, and welcome to Doug's comments first quarter 2020 earnings call. Her journey begins with Kevin Sayer, Dexcoms, Chairman, President and CEO, who will provide a summary of the quarter followed my financial review and outlook frequent Blackford, our COO and CFO and then a strategic update for Steve Pacelli.
Executive Vice President of strategy in corporate development.
Following our prepared remarks, well open the call up for your questions at that time, we ask analysts to limit themselves to one question. So we can provide an opportunity for everyone participating today.
Please note that they're also slides available related to our first quarter performance on the Dexcom Investor Relations website under events and presentations page with that let's review our safe Harbor statement.
The statements we will make in today's call may constitute forward looking statements. These statements reflect management's intentions beliefs and expectations about future events strategies competition products operating plans and performance, including statements with respect to the impacts of the Coca 19, pandemic ondecks calm and the potential timing of updated.
2020 annual guidance.
All forward looking statements included in this presentation are made out of the date hereof based on information currently available to Dr.
The various risks and uncertainties and actual results could differ materially from those anticipated in the forward looking statements.
The factors that could cause actual results could differ materially from those expressed or implied by any of these forward. Looking statements are detailed index comp annual report on form 10-K, and other filings with the Securities Exchange Commission.
Except as required by law, we assume no obligation to update any such forward looking statements. After the data this presentation or to conform. These forward looking statements the actual results.
Additionally, during the call we will discuss certain financial measures that have not been prepared in accordance with guy with respect to our non-GAAP and cash base results unless otherwise noted all references to financial metrics are presented on a non-GAAP basis. The presentation on this additional information should not be considered in isolation or as a substitute for results or.
Superior to results prepared in accordance with GAAP.
Please refer to the tables in our earnings release and the slides accompanying our first quarter earnings presentation for a reconciliation of these measures that are most directly comparable GAAP financial measure now I will turn it over to Kevin.
Thank you Sean and thank you everyone for joining us.
Let me start by expressing my gratitude for the many healthcare workers in the first responders, they're supporting all of US at this time, we certainly standard with you in this effort.
Thoughts are with you and those who have been impacted by Kobin 19.
As a quick summary, the first quarter was another very strong quarter for Dexcom, continuing the growth momentum that we deliver drove much of the past two years.
First quarter revenue rate of $405 million, representing 44% growth over the first quarter of 2019 or greater than $120 million of absolute dollar growth.
This performance was driven by strength in new patient additions in both the U.S. and international businesses, even as we saw some impact and new patient opportunities related to cover 19, beginning in mid March.
We will address first quarter performance in a moment, but first and foremost we wanted to discuss the impact of covered 19 index sounds response.
The past few months abroad, and likely will continue to bring unprecedented challenges to global health and economic systems as a result at the virus.
While this has been an incredibly difficult humanitarian crisis. We have also seen many encouraging examples the collaboration around the world from public and private entities.
We have seen people working to bring care to those who need protect the health of the vulnerable and support the well being of workers and families.
From the outset, we recognize index Tom has an important role to play our customers rely on our CGM technology, just take we manage blood glucose and deliver insulin in many cases. These are people with diabetes, who are relied on dexcom CGM since diagnosis, meaning they havent known a world without the peace of mind, a real time continue.
It was glucose monitoring.
People with diabetes are also at heightened risk for complications with covered 19, highlighting the importance of good glycaemic control during these challenging times.
We set out with three core priorities keep our employees safe continue to serve our patience and work to help our communities.
To meet this challenge and support these core priorities, we set in motion several initiatives. We quickly moved the majority of our global employees to home based work arrangements. This transition enhance the safety of all of our employees, including our teams who remain onsite and benefit from a less dance work environment.
Our IP and emergency response teams have done an excellent job to enable this shift and provide necessary resources for our teams to continue to function effectively and care for our patients.
I can share numerous examples of dexcom teams going above and beyond to ensure that our customers receive product in the support that they need but I'll share one that stands out to me.
In order to ensure that our products for supply in a timely manner. We have members of our ita teams, who are willing to sleep on site to meet the needs of our employees in our patients.
Our history demonstrates our employees care deeply for our patients and we continue to work on new ways to enhance customer support in these unique times.
This concludes our announcement yesterday of a program to provide financial assistance to our existing patients who have lost or may lose access to insurance coverage, whether dexcoms applies as a result of covered 19.
This program, which we plan to launch in the next several weeks will provide up to 290 day supply shipments for only $45 each and provide relief to our patients and was clearly a very challenging time.
As it pertains to our customers both the patient had the clinician we are working on ways to ensure we have the appropriate infrastructure to support their evolving needs.
Our extensive virtual resources for patient and clinician training and customer support are proving to be especially important as a world embraces the increasing use of telemedicine platforms.
As a reminder, more than 70% of our historical new patient additions have self trained using the resources that we provide demonstrating the value of these resources and ease of use of our CGM systems.
Even prior to the global spreading the virus, our procurement and operations teams have worked to access or mitigate any potential risk to the supply chain for existing products.
Because of their effort, we have seen very little disruption with our manufacturing sites as both San Diego amazed to remain fully operational.
Our manufacturing teams have worked seamlessly to make sure that our customers get the CGM systems. They rely on we've implemented additional safety measures to reduce the number of people onsite at any given time.
We have implemented shifts separations and added additional sanitation and safety measures on top of our existing procedures, including thermal scanning.
With the supply chain and manufacturing operations currently in good shape, we continue to being a strong inventory position to meet the current demand for both existing patients a new patients.
We have seen some customer interest in stocking up on the product but of work to keep customer supplied in line with the provisions of their insurance providers. This also applies to our DNA suppliers had wholesalers, we did not see material positive impact from customer stocking on our first quarter sales performance.
We have also look at ways that dexcom good play its part and providing solutions that benefit our communities during the covet outbreak.
When avenues already played out as hospital systems came under increasing pressure and had limited personal protective equipment. We began to feel the number of request for RG six centers.
In the I see you hospital personnel, often need to monitor patients with fingersticks as much as every half hour.
In response to the request we work with the FDA to temporarily allow for the use of GE six in the hospital setting and we quickly set out to supply product key regions battling Nicole the crisis.
Because of our real time connectivity, our CGM systems allow healthcare providers to remotely monitor patients glucose levels in real time, reducing the need for fingersticks.
As a result, there are fewer physical interactions between healthcare providers and patients, which limits viral exposure for hospital staff and preserves personal protective equipment.
We're already seeing promising evidence of these benefits from the initial sides recently the FDA remove the three hour delay requirement for CGM data into our clarity software.
Allowing for faster data integration as we roll this out in the coming weeks, our remote monitoring solutions will be further enhanced.
In both the hospital setting and for Talhout consultations for people with diabetes.
We expect to continue supporting hospitals in areas of the country most impacted by the cobot 19 emergency, although our top priority remains serving our existing patients without interruption.
The drastic but necessary steps to mitigate the spread in the virus has also created some areas of unpredictability for us as we continue and our second quarter the remainder of 2020.
As I briefly noted above we have seen some impact a new patient opportunities.
Since the broader social distancing measures were put in place in mid March.
We are hopeful that this impacts may be mitigated as conditions enhanced our telemedicine capabilities and our team is certainly working hard to ensure a patient access for those in either Dexcom CGM.
Quintin will provide more detail around how we have contemplated this uncertainty relative to our 2020 guidance. Another area of unpredictability right now is around the timing of large clinical trials like we need to run for G. Seven.
We remain confident in our ability to deliver G. Seven but acknowledge that the timing of pivotal trial will be delayed due to the pausing a new trials are most clinical sites.
We currently expect a minimum delay of approximately six months for the pivotal trial.
This is obviously a challenging time across the globe, but I'm very proud of the way the dexcom teams have responded.
Ill now turn the call over to question for review of our financials. Thank you Kevin as a reminder, unless otherwise noted the financial metrics presented today will be discussed on a non-GAAP basis reconciliations to GAAP can be found in today's earnings release as well as on our IR website.
For the first quarter of 2020, we reported worldwide revenue of $405.1 million compared to $280.5 million for the first quarter of 2019, representing growth of 44% on reported basis and 45% on a constant currency basis.
The growth performance reflects the strength of our new patient additions throughout 2019 in the first quarter of 2020, as we continue to see growing awareness of the value of Dexcom CGM for both type one and type two patients.
The U.S. business grew 39% in the first quarter of 2020 over the first quarter of 2019 with strong growth from each channel durable medical equipment pharmacy and Medicare.
Pharmacy continues to be the fastest growing channel for us and realize the strongest sequential uptick in utilization to date as result of the significant excess improvements that our team has driven over the past year.
Our international business also put up a great first quarter growing 63% on a constant currency basis relative to the same quarter in 2019.
The $112.8 million in revenues for our international business represents an increase of more than $25 million from our previous quarterly high watermark strength was across the board, including both direct and distributor markets.
Our first quarter gross profit was $258.7 million or 63.9% of revenue compared to 60.2% in the first quarter of 2019.
The 370 basis point improvement year over year gross margin reflects the focus to work of our teams to take cost out of our product design and manufacturing processes.
As Kevin mentioned, our procurement team has done a great job of keeping our supply chain functioning well with little impact to our ability to produce product as well as our product cost. Thus far we will continue to monitor this closely as a situation evolves globally.
Operating expenses were $215.4 million for Q1, 2000 points compared to $176.4 million. In Q1 2019. This reflects an increase of 22% year over year and a nearly 1000 basis point reduction as a percentage of revenue from the first quarter 2009.
Team.
We continue to prioritize key areas of investment, including our efforts to scale GE six manufacturing progressing toward our goal of doubling capacity again in the first half of this year.
We're also continuing our preparation for the scale up of our do seven manufacturing lines and looking to support our sales growth with increasing direct to consumer advertising as greater clarity evolves from the current global situation.
Our non-GAAP results exclude some incremental costs that we experienced towards the ended the quarter in both cost of goods sold and operating expenses as a result of cobot 19.
As Kevin noted the safety of our employees remains our number one priority.
However, as an essential provider of medical devices. There are certain functions that must be performed on site. Despite shelter in place orders to ensure continuity of supply.
As a result, we're incurring incremental costs to assist our employees and ensure their safety to the greatest extent possible and expect to continue to do so in the near term as we support our people through this crisis.
We expect to continue to incur costs related to our covert 19 response until macro business conditions returned to normal.
Operating income was $43.3 million or 10.7% of revenue in the first quarter of 2020 compared to a loss of $7.6 million or negative 2.7% of revenue in the same quarter of 2019.
This reflects a year over year improvements of nearly 1300 basis points in operating margin for the quarter.
Similarly, adjusted EBITDA margin improved by nearly 1000 basis points to 19.2% of revenue or $77.8 million for the first quarter of 2020 compared to 9.3% of revenue or $26.1 million for the first quarter of 2019 as our operating margin in adjusted EBIT.
The margin performance indicates we are doing a good job managing our expenses in gaining leverage from our strong topline results.
Net income for the first quarter was $41.4 million for 44 cents per share.
Our balance sheet remains very strong with more than $1.5 billion in cash and equivalents at the end of the first quarter, leaving us in a strong net cash position.
The capital structure that we have put in place along with our improved profitability profile that demonstrates the cash earnings potential of this business provides us the flexibility to not only navigate the current environment, but also be opportunistic when needed.
Our convertible notes are not due until 2022 in 2023, respectively, and our convertible and either cash or stock at our discretion.
We have worked hard in our fortunate to be in this position recognizing that there are many companies that are less fortunate and struggling to support their employees.
Therefore, although we are potentially entitled the stimulus funds as a healthcare provider we have chosen not to accept these funds and hope that they can be allocated to other American businesses and employees who are on greater need.
Turning to 2020 guidance given the unpredictable current economic and global health environment, We have chosen to temporarily suspend 2020 guidance until we have greater visibility on the outlook to be clear. This decision does not necessarily imply upside or downside to our prior guidance. Our first quarter performance was above our expectations.
And apart from the uncertainty created by Cobot 19, we would be in a position to raise our guidance today.
Ultimately, we believe the underlying demand for CGM has not changed despite the situation with Kobin 19.
In these early days, we have seen the benefits in the ship to Tele medicine, because dexcoms real time CGM is connected it has become one of the primary methods for physicians to monitor their patients and get newly diagnosed patients up and running.
Further to this as Kevin noted the FDA has recently removed the three hour delay requirement for our clarity system, which will further differentiate dexcom CGM and its remote monitoring capability.
In addition, as noted earlier, we've seen the FDA moved quickly to enable the use of Dexcom CGM and the hospital setting further increasing demand for our product.
On the other hand, as we've seen office business declined to cross sell Taylor, new patient starts could be impacted in Q2 into the back half of the year, depending on how cobot 19 situation plays out.
We will also monitor the macroeconomic environment to gauge employment levels in the ultimate impact of our financial assistance program further while our global supply chain has remained stable. It is less predictable in the current environment in could experience interruption predicting all of these future variables has been difficult and we found a prudent to temporarily suspend our guide.
Runs until visibility improves we will continue to monitor the situation closely and keep you updated as things evolve and we can provide greater clarity with that I will now turn the call over to Steve for a strategic update.
Thanks question, given our strong financial position and the growth opportunity ahead of US we continue to press forward with a strategic initiatives or be outlined at the start of the year.
As the carbon 19 pandemic has pointed out we've looked at how dotcom could play a role and delivering an impactful solution.
Kevin Rd walk you through the incredible work being done in the hospital setting.
Recent data published from a journal of diabetes Science and technology shows the clear need for glucose control and hospital and cements. The reason, we're still committed to assisting in this crisis.
The study found that the cobot 19 mortality rate for people with diabetes or hyperglycemia, even in non diabetics during their stared was more than four times greater than patients without diabetes or hyperglycemia.
Even more alarming for those who have no evidence of diabetes prior to hospitalization redevelop hyperglycemia during this day.
42% diagnostic little.
These are sobering statistics and have served as a constant reminder, to our team as we work around the clock to assist frontline workers as we look forward. Our commercial team has begun leveraging our extensive data platforms, which should prove especially valuable for patients and clinicians in an environment, where telemedicine business are quickly becoming the norm.
As an example, an article published last week and diabetes technology and Therapeutics should great results for two newly diagnosed type one patients one a 20 year old mail and another a 12 month, both female forgive energy specs and treated with telemedicine during the cobot 19 stay at home orders.
During the June six on our software tools clinicians at the Barber Davis Center in Colorado, we're able to significantly improve the glucose levels of these patients in virtual care.
Going back the fundamentals of our business remains sound and there were several encouraging developments during the first quarter.
As our sales growth indicates the momentum behind our new Fingerstick GE six technology continued in the first quarter and as we've said multiple times before we continue to believe that they're significantly more people on intensive insulin therapy, you stand to benefit from a transition to our real time CGM.
At the end of the first quarter, we have now transitioned a majority of our Medicare base over to GSX as the only class to buy CGM on the market and the lowest cost CGM for the Medicare channel, we look forward to bringing GE 60 people, both with type one and intensively managed type two diabetes, who are eligible for Medicare.
We're also pleased that United Healthcare recently began coverage for their intensive insulin tied to patient population.
Combined with Medicare this demonstrates the increasing traction that we are game in the type two intensive market in January we introduced additional data demonstrating the value of Dexcom CGM in the tied to non intensive market.
This includes our direct work with United Healthcare Digital health programs like wildfire on duo and Movado and integrated health system like Intermountain, where a preliminary pilot showed significant savings with the full time use of Dexcom GE six relative to standard of care self monitor blood glucose.
We're excited to be expanding access to dexcom CGM throughout all of these channels and look forward to share additional results as we progress in our two efforts.
The opportunity for growth is also extensive when we look outside the us.
For use of CGM remains far less the matter fingersticks.
In February we obtained regulatory approvals for GSX, and Australia, South Korea, and Japan and are progressing toward extending logistics launch to each of these markets later this year.
In support of our continued growth in particular, the service of our international markets. We recently finalized the decision to develop a third manufacturing site in Malaysia.
This will be another significant investment products calm and demonstrates our belief in the long term opportunity ahead of US we continue to advance the regulatory pathway for use of CGM in pregnancy attending CE Mark for where on the back of the arm and we removed the pregnancy morning for GSX for use in type one tied to and gestational diabetes. Following us approval we launched.
Six in the UK for pregnant women with diabetes and are currently working to broaden the clinical evidence to support the use of Dexcom CGM for the management of gestational diabetes.
Finally, our efforts as a foreigner interoperability.
And our support a patient choice and their method of insulin delivery has us well positioned to benefit from multiple commercial systems over the next couple of years, whether through automated insulin delivery are conducted smartphones as you can see there are many exciting things with the dexcom teams are driving forward, even as we navigate the unprecedented time that we are now experiencing with that.
Now I'll turn it back to Kevin. Thank Steve. This has certainly been in challenging season for all of us.
I know there are many that I have met and people on this call that have been personally impacted by covered 19.
As I mentioned earlier, our thoughts are certainly with you.
I have been grateful to see the unified response of so many companies or towards innovative solutions, including some of the companies that we traditionally compete with.
I'm also proud of the response of the Dexcom team of work Selflessly to bring continuity to our business and assurance to our customer base in a time of heightened anxiety. We're pressing forward in 2020 with resilience in the current environment and continue to hold for the opportunity that lies ahead for Dexcom I'd now like to open the call up for Q any Sean Thank you.
Kevin as a reminder, we ask our audience to limit themselves to only one question at this time and then reenter the queue if necessary operator, please provide the Q and instructions.
Thank you I will now begin the question answer session.
Next question. Please press Star then one and you touched on sound.
If you wish to be reversed in the queue. Please press the pound sign or are they asking.
Using speaker phone you may need to pick up the first question. The numbers once again if your question. Please press Star then one and you touched on sound.
And our first question 'cause it Robbie Marcus with Jpmorgan Your line is helping.
Thanks, and congrats on great quarter, I have a lot of questions I could ask you about the first quarter performance, but unfortunately.
Address the elephant in the room with Covance 19.
You pulled guidance, but you do have a month of performance here. What's happened in April I was wondering if you could just walk us through I don't know fits.
Maintenance, if you want to take it or high split it out but they walk us through how we should think about the expectations for two Q and how to think about the impact.
Scribing in a recovery, how remote tele health can help or hurt.
Prescriptions of new patients and how to think about the impact down the PM now as.
New sales might be disrupted offset by some of the new venues that you've been able to secure here with testing. Thanks.
In a Ravi this is Kevin I'll start if I gave you a whole bunch April color than I'd be given your guidance and Thats. What we just said that we weren't going to do that being said.
We remain very bullish on our business as you can see by the first quarter results and we have learned very much the impact of that connectivity of our device with telemedicine is becoming very very well known by within a physician community. We hosted a web in our last week.
And had 900 participants signup reorganized our people anything.
With that with that was a huge win for us as we talked learn more about that so anything, particularly with our system. Our goes directly to a falling into directly at priority.
Additions couple clarity up wherever they are working that as a big win per patients.
We know that diabetes and I'll talk about this whole more land, but it's not going to go away and these patients to be care for our we think we solve a very serious problem by getting data to patients and their caregivers and a very timely basis. You heard US also talk about getting clarity more towards a real time platform.
That could literally give a patient the opportunity to call their doctor and say hey.
What's going on with me and.
Caregivers art on share follow all the time and more real time Clarities can give that caregiver good answer.
So what we see situation, where you have a very good answer we're bullish on the business going forward.
Thanks, just a little different now.
And if you want to animal models now I think you could you describe a well I think Robbie the the thing is coming out of the quarter or over the course of the first quarter the strength in the the core business the underlying business was incredibly strong.
And I think from our perspective were as bullish as we've ever been on where we're at and this opportunity the runway that exist in front of us and and probably even more so now when you think about the long term just with the hospital opportunity opening up probably sooner than what we anticipated the whole play and Tele health Tele Medicine, we know we have a device that works better there than.
Anything else in the marketplace.
And folks seem to be seem to be understanding that the kevins point. The 900 folks that joined the Webinars. It was webinars specifically.
Directed towards Tele health telemedicine, so theres a real interest out there. So I think long term, we feel incredibly bullish about where we're at an April yes. The new patient starts were down a bit we noted that coming out of.
Q1, we have seen in start to rebound a bit in April I think it continues to build overtime, but we need to see that play out and have some certainty there before we can get back to where we feel comfortable providing guidance. There's just too many too many things that are uncertain at this point in time that we need that greater clarity on but I would just reiterate the underlying strength the fact.
Folks are recognizing the value of this product and what it means in the marketplace.
From a long term perspective, where as bullish as we've ever been.
Your next question comes can Danielle Antalffy.
Your line is open.
Hi, good afternoon, guys. Thanks, so much for taking your question congrats on a really strong quarter and I guess.
And I was wondering if you could talk a little bit about so I. Appreciate the commentary. Thank you on new patient adds in in April and.
That coming down thing at uptick a little bit.
What can you talk a little bit about how add new patient adds patient training things like that could blog posts coal that if we are in a world where tele health is a more prominent part of patient management, specifically for diabetes I would think that that ultimately led favor CGM.
Just curious about how you think that could change your long term expectations around penetration in these markets.
Maybe a little better color protocols, Ed what things might look like based on what you're seeing today. My question. Thanks, So much.
Daniel I think we'll tag team. This one two and I'll start first of all this we talked about in our call 70% of our patients trained themselves with the material that we provide.
And we've also had remote coaching services through Dexcom carrot out these patients as well we've anticipated daylight guests with respect to training for a long long time, which is why we moved away from the model. We previously had to whereby we can make this easier and get patients on the system. So we don't see that changing much at all as far as new patient opportunities and.
Patients coming in whereas in the past many times that was a result of an office visit.
Now.
It's coming in Pos maturity elements in conference when the healthcare provider. They could also be coming in through our direct to consumer marketing our online efforts are.
All the things that we have and then we have to turnaround and figure out a way to get the proper paperwork from healthcare provider, while the other things that Peter a member and quite in his remarks, you talked about how our move to the pharmacies accelerating as we go the pharmacy the paperwork requirements for health care providers come down so.
Typically so again, making a whole process easier and thats been our goal from the beginning to give this process easy enough to whereby.
Looking at the penetration that we thought we can get and I've said for years.
That 80% penetration and intensive insulin users with CGM should be our long term goal in it still is and the easier we make it.
The faster penetration will go and those efforts have not changed and won't change as a result of course as far as post covered world and what I see as demand at I think if anything people are going to be more concerned about controlling your diabetes to make sure they're healthy saw something like this happens again.
That will not become a complicating factor because their diabetes is in control not running rampant. So again, we see this has had an opportunity to.
Almost increase retention and increased usage within our current patient base as much as it is.
To grab new and so.
I don't Wanna sound opportunistic to opportunistic about this but.
We have an answer to a serious problem here and we think people will come to it as Steve Clinton, if you have anything more to add recovered.
Yeah.
Your next question, Jeff Johnson from Baird. Your line is open.
Thank you good afternoon, guys, maybe a little bit over the hospital setting.
Kevin a nice win by getting the CGM 96 into the hospital setting.
Wondering what this means maybe longer term any discussions with the FDA on weather data youre collecting these cobot patients could be used to maybe accelerate a broader approval down the road for hospital yields do you think you'd still have to go through the lengthy pivotals that seemed like it might have pushed hospital approval out two to three years from now a one to two years.
Leading laser away to accelerate that with some of this data.
Yes, I think you'll be collecting here over the next six months with.
With the cold pandemic. Thank you.
No. Thank you we actually have had discussions with the FDA about about this very subject NSR hope to gather as much data as we can from these patients has there in this hospital with various compounds being injected into the take care of their help to see our sensor performs in this environment our connectivity is.
And.
What we can learn our commitment to the agency as with this.
This opportunity will gather as much data as we can we're going to share what we learn and see if we can impact accelerate that path and get this device approved for use as a glucose monitoring text messaging and a hostile environment.
Rather than than what they're doing with Fingersticks and as we gather data we'll take advantage of this opportunity I think Jeff.
The learnings we've had so far are our astounding to us as where into a different channel with a different physician group with different caregivers, who havent seen CGM before with rules and regulations around hospital IP departments and connecting a phone within their security system. We've had learnings that we would have.
Never anticipated, we will be so much more ready to go to this market. When it's time to commitment we made here from one dollar perspective as large.
We put a lot of time and effort in the hospital team has literally worked.
Round the clock to get this going and so will gather the data.
Well file what we see or at least share what we see an end determine the course of action after that if we see having positive results. It's not unthinkable that they would give us accelerated timeframe or cut back on the work that we have to do our possibly change a label to allow us to get there sooner we're open to all that.
And we will look at every one of those opportunities once we're done but we.
We are really taking this opportunity very seriously.
And our next question comes from Matthew O'brien from Piper Jaffray. Your line is open.
Afternoon. Thanks for taking my questions can we just talk about 7% can I make most people at expected embedded that delay here, but it's a 14 day trial so.
Six month delay I think it a little bit longer than some had expected. So I guess the question would be what would have to happen for it to be pushed out that entire six months or what could happen to wear.
That delay is not not necessarily that long.
I'll start off again, well there guys chime in as not just a fourteenish study if we could run a 14 day steady and put several hundred people on it for 14 days that would be relatively simple activities president of that simplistic theres going to be at least four in clinic days, where blood drawn for too.
Oh hours and we can only handle two to three patients at a time at a clinic per day.
So these stations. These trials are very well orchestrated and scheduled from logistics perspective, we do not know when clinics, who run. These trials again open back up and allow patients and to run these kind of studies, nor do we know when patients are going to run and allow themselves to be subjected to this kind of of study.
So we're putting that time in their knowing there's going to be awhile before things get back to normal and these large clinics M&A large clinics, where we do these studies are uneven letting patients come in the door now let alone patients come in preclinical trials. So we put this timeframe on it how could impact accelerate the can accelerate if we found.
Data on the system that will enable us to.
Statistically reduced the size of the trial, but let US again remind you were not shooting for just anything we're sharing pricey jam standards.
And that is a high bar that is not an arbitrary bar set by the.
FDA Thats a high bar, we've met with GE, six and we executed a perfect study.
To get that Dan we've got to execute perfection again, so we we've given ourselves as timeframe to make sure. All our plans are locked down that we can get the centers opened that can go and do this and will be methodical and thoughtful about it. If there are some way we can accelerate that we would.
We gave you this because we typically.
Our prudent in our guidance and what we speak and what we think and Thats, what we see right now.
That's it.
Your next question comes and Travis Steed Bank of America.
Hi, Congratulations on strong Q1 does want to get a little more color on the impact of the patient support program and also the the mix headwind that I'm, assuming what would happen as patients move from commercial to to Medicaid coverage. So.
Any color there of how how to think about the headwind for those two programs.
Yes, Travis this is Glenn.
I think what you're asking is exactly what we struggle with in terms of defining any certainty around what what it's going to be.
As we continue to see the fallout from an unemployment perspective, you know in the states and even globally.
How that ultimately shows up or translates into our numbers is hard for us to predict you take an existing patient too.
Has been paying you know in line with their their program or their plan they've been on for some period of time and now a sudden they fall into the patient assistance program, you're right. There is going to be a mix impact on the business I think thats part of the challenge with with trying to draw the line on exactly where that's going to be until we have greater color on where those rates unemployment rates.
Ultimately fall out and the impacts ultimately fall out to our patient base, it's hard to predict.
So thats what leads to putting us in a position where we ultimately feel best at this point just to pull guidance.
Again, we couldn't be more bullish around what's going on inside the business, but we know there's going be mix impacts and and ships over the next several months so.
Right now the visibility is limited.
Anthony.
Our next question comes from MACRA Katzer from William Blair. Your line is open.
Hi, Good afternoon, guys just wanted to follow up with some more specific question about the hospital.
When we look at.
Sensors that are going out there can you give us.
As part of information in terms of data sharing agreements that you guys have with hospitals trials.
So what they are you targeting again, what endpoint to hospital and yourself interest to then and our patients contenting team to you or the hospital using data at least on a de identified basis. They can get kind of a larger national registry and.
Yes, I would say murder that 50 or don't read too much and do it at this early stage. This is something that literally the hospital teamwork 24, seven to get product into the hospital to reduce the risks to.
To caregivers right they weren't able to take fingersticks, because I'd have to.
Really the uptick actually change out there pp every time they would they would have to go pick a finger and there were just could do it so.
Right now we're capturing data. This is all about being able to remotely monitor these patients to help the caregivers in the hospital provide better care to the extent, we have data down the road that were obviously retaining.
We will look to see what we do at that but right now we've not made any plans to do anything specifically with the data either either with a hospital Arctic anonymized basis or otherwise we have a couple that are under IR be but it's not a bit amongst some are not most of them are getting this thing up and running take care of people right now.
But that Steve's right, we'll we're continuing to work on that.
Our next question comes from David Lewis from Morgan Stanley Your line is helping.
Good afternoon, just want to come back to the first quarter little bit here, Kevin you touched on this briefly in your preamble, we think about the effective stocking in the effective inpatient use im assuming in patient use was pretty minimal the first quarter, but both these these positive offsets potentially with stocking several million or tens of millions and with the inpatient API.
Unity here recently several million or bigger than that just trying to get subsets of the framework of some of those positive drivers here. Thanks, so much.
Hey, David at Rentech Yep.
With respect to the inpatient that was minimal I mean did move the needle at all on the stocking side Youre talking several millions not tens of millions by any stretch.
At all.
It was on the lower end I think that the point that we were making in our prepared remarks was there are several questions out there around whether or not stocking is driving results in the first quarter and that's the point is there's several distributors.
Who would have liked to have had the opportunity to stock up ahead of some of the uncertainty that they saw but frankly, we weren't in a position or we weren't enabling that to take place. We monitor this very closely we have provisions in our agreements with those distributors now limit the amount of days of inventory on hand that they can carry and so we monitor that and so while there was an expressed interest.
The stock to a greater degree we did not enable that and therefore it was not a driver of the results and that was the point, we're trying to get across.
And our next question constant Joanne Lynch from Citibank.
Good evening our afternoon, thanks for taking the question.
I'm curious what you have seen either in the month of April or in previous recession, when it comes to attrition.
And do patients start going back to traditional thank our SEC.
And anything you could say because many of US on this call did not cover the stock back in late on nine or I want to.
Would be helpful. If it's relevant thank you.
The viewers.
What I think what I would what I would say no I mean, we've obviously had a very strong quarter driven by existing patient base in the patients back if you remember back in.
Nine timeframe, we were still on the seven in the seven plus which those technologies just werent really ready for primetime really Wasnt. If you remember it wasnt until we launch that John for platinum.
And I think as Q4 2012 that you really copy inflection in this business, we really move to us.
A relevant.
Versus a nice to have in terms of our technology. So.
I don't know did you could possibly mega comparison to back that I mean back in those days at risk Terry and I, just trying to raise money every opportunity we could to keep the lifetime.
It's just a different it's not even a comparable business at this point about the only thing I could could add to that as we've done everything we can to make it easier for our patients and yet CGM even during these tough times and eight or nine we had zero Medicaid coverage, we had no Medicare coverage, we had no pharmacy benefit where the copays typically significantly lower.
That is CDMI and pricing has been somewhat lower so I think we've done everything we can to position our business to be more successful during a time like this and to help our patients continue on a therapy, but.
Again, now you have what maybe recession tied to a healthcare.
Event, we may see exactly the opposite the patient absolutely have to have this too.
Turning healthier believe that they do again part of the unknowns that we're trying to work through and trying to manage.
Your next question comes from Colorado Canaccord. Your line is open.
Great. Thank you very much for taking the question. So I appreciate the additional commentary with respect to the G. Seven clinical trial, but maybe help us understand what you can do over the course of the next six months from a manufacturing perspective to help accelerate maybe to launch timing because if I remember correctly.
We're going to get approval before year end, but the loss wasn't really good take place until you had capacity and that was a 2021 event can you help us understand what have behind the scenes, while the trial might not be going and how that might help.
Thanks will commercial pace when it does look.
Let's be clear, we never said, we'd have approval by year end. We said, we expect into 2021 launch with a limited launch by the end of 2020 was our goal without meaningful financial impact in 2020.
We had a limited launch there are things we can do.
To accelerate those studies, possibly.
On the manufacturing side, we have similar.
Circumstances to what Quinn described earlier about the car business, we have suppliers that we're not in control of who are rapidly putting equipment, Heather and building things for US we have orders for this equipment Oliver oral waiting for to come in to get those lines up and running we will remain committed to the fact, we will not do a full scale. After this product until around.
Ready to go completely.
And on top of that while we wait and sometimes we forget.
We have a fantastic product, how we havent GSX and so we will continue to refine and make that better on o'quinn. If you have any other things we do on manufacturing no I think the teams are doing a great job of pushing forward as well as we can as fast as we can on on G. Seven and just the automation capability from a production perspective clearly.
Having folks out of the office create some challenging disruptions in the pace at which you move but I think overall, we're navigating a quite well at the same time our supply chain is is one where its global in nature, we rely on folks from all over the world to help us produce our product and we've done a great job of of managing GE six today.
Date G seven.
We've managed through it as well, but there have been situations, where you have a temporary impact here or there and you got to quickly navigate through it to make sure everything stays on track and on time and and to date, we've done that well, but that some of the uncertainty that starts to get introduced in the environment that we find ourselves navigating through so to date, we're handling it well, but theres a lot.
Got a lot of balls in the air and we're doing the best that we possibly can.
We can pull forward to kevins point, we certainly will look at those sorts of things.
And our next question comes from Matthew Black then from Stifel. Your line is open.
Hi, good afternoon, everyone. Thanks for taking the question at you did mention accelerating pharmacy channel next I'm curious if you had any feedback from payers.
Particularly about holdout parent that may now be more willing to to accommodate pharmacy access for dexcom and similarly, there been any impact in the last six weeks or so.
On the insurance verification processes that moving along we'll be at that so much of the pace gives you see in the past faster or slower any help there would be appreciated. Thanks.
When you might go ahead, yes, so I think from a pharmacy perspective, the comments that we made were clear that we've seen.
The uptick in that pharmacy channel progress at a very rapid pace and it's one channel that we always the up just has tremendous potential for us.
And if we prove that out over the course of the first quarter as matter of fact, we talk about new patients being a driver of growth.
For the first time, we saw record new patients in the first quarter.
Despite the fact that we saw a slowdown in the very back ended the quarter, So and I attribute a good part of that to the pharmacy channel.
We havent seen payers or at least I couldn't speak to any particular payers here in the last several weeks, who have opened up more incremental pharmacy access.
But we have seen payers, who are willing to think differently around the requirements that they might have on patients ordering product such as.
Clinical site visits are coming in to see the clinician.
There are allowing that through tele health now Tele medicine, we see more and more payers, who are moving that direction. Each and every week. So we are seeing a changing dynamic from a payer perspective havent seen is so much in terms of opening incremental pharmacy access in the last several weeks, but there is an appetite for change here.
And the next question comes in Rash 10 high from Jefferies. Your line is helping.
Hi, good afternoon.
One if I could it maybe ask about international little bit. So the 41 million increased to 60 plus percent was was.
Notably strong it's I'm curious if there was particular markets in which you saw that growth and as a related question. You know as we think about Germany. The UK being some of the more impacted markets. We co. Good what your thoughts around how those will trend over the next several quarters.
Yes rods, great question International was clearly a bright spot in the quarter and really it was across the entire international region, whether it was Europe Asia.
Both regions performed incredibly well, Canada was a driver of the overall growth with the ecommerce platform. We put in place there we couldn't be more happy with the results that we see I think one of the interesting data points coming out of the quarter.
While Germany, the large market for US continues to have great success. The UK also growing quite aggressively very significantly outpaced most other major markets, which was nice to see so a lot of runway continues to exist and all of these markets, but really strength across the board even through Asia.
In Australia, so theres not one country to really pull out and attribute all the success to it was.
It was performance across the entire slate that led to the overall outcome that we that we communicated.
Our next question comes and Jason Bedford from Raymond James.
Hi, good afternoon, I hope everyone's a healthy.
To blow my one question on a yes or no question, but Quint Inc.
I just heard to say that generated record new patients in one Q is that correct.
Yes.
So meaning you generated more new patients in one Q2 thousand seven new in any other quarter.
Yes, the credit first quarter 2020 was a record number of new patients to the company versus any other quarter in history Thats right.
In the next question comes to Ryan Meliker Cowen Your line is helping.
Thanks for taking my questions.
To reimburse one so subsequent to year NH coverage is there any quantification you can provide on aware commercial payer coverage for intensively managed type two patients in the USA today and then.
Can you also give us an update on the reimbursement environment in Japan, and South Korea do you plan to launch later this year. Thank you.
The reimbursement with intensive type twos, obviously most of their Medicare patients and we have that covered.
After that it has really been payer by payer we announced.
The United Healthcare type two coverage today, we also have had another large payer expand their tied to intense abuse.
Policy.
Just hit US today that will be and other win for US I think a lot of.
The payers as we go to the pharmacy of actually included type twos as we've gone there as well, but it's a gradual thing.
Hi, going to happen overnight, we keep having wins in our payer team.
As doing a job staying on top of that and we're kind of getting a message out that anton users and insulin user and they'll need.
Access to this so our type two intensive.
Use patient base as growing significantly and becoming a much larger part of our business.
I don't have done a great uptick for you on new update for you and your eye on Korea, but with respect to Japan in or we did get get RG six approval, so thats an approval for consumers.
Clearag professional use clinician product, we don't currently have reimbursement so when we launch that product in the consumer channel before the end of this year it'll be a cash pay product what weve elected not to do is follow our competitor and accept really.
Our reimbursement based on kind of Fingerstick level pricing, we're just not going to go there with that we're going to do do our work.
Provide the Japanese government with the appropriate data outcomes data and establish real reimbursement for real time, CGM. So that won't be this year, but we'll give you an update when we have mark.
Your next question comes in Chris Squali Guggenheim Your line is open.
Thanks at key quantify at all the impact on new patient starts in April discover a rough sense for how significant the disruptions been and equipment just wanted to make shortage right that youre already seeing those numbers begin to rebound that seems a little fast wondering whether you have any sense for why that is our physicians getting better telemedicine because it seems.
Like most areas are still pretty locked down thanks.
Yes, we're not going to comment specifically on where it's at I think theres been a lotta research lot of.
Surveys that have been done that we've seen that would indicate new patient starts might be 40 or 50% of of what they previously were we haven't seen it to that extent, but.
But they certainly have been impacted and to the point I made earlier, we have seen and start to come back a bit.
I think folks are just getting comfortable understanding that there is other means of being able to interact with their position learn about the product and and ultimately get the product onto them and thats. The Tele health Tele medicine capability that continues to develop I'll point you back to the Webinars that we had just two weeks ago over 900 physicians dialed into that.
Webinars to learn of of the value in ways to introduce CGM through Tele health I think that speaks to the interest level. That's out there. So I think it will continue to build over time how quickly. It goes it's it's hard to say and that's part of why the uncertainty exist and gives us pause on on the guidance that.
Out there and leaving it there but.
Overall, I think down the road Tele health Tele medicine is going to play a much bigger part than what we've seen historically.
And your next question comes to seed investment Oppenheimer and company. Your line is open.
Thank you Hi, guys you talked about the strong cash position year in which is particularly important during this time I also mentioned being opportunistic with the cash. It can you provide any color on where that cash can be put to use for growth initiatives beyond the manufacturing expansion any other broader thoughts on that.
Dental use of cash that you can provide thanks.
Hi.
When you take her stab and oral Kallikrein tend to go ahead, well I think certainly the new market opportunities that we've been after for a while now with Dolan and team leading that effort. We've been very clear around hospital is there way to accelerate that they're certainly seems to be an interest level beyond hours now sitting on the other side, but theres the hospital or the FDA.
Hey, we want to make sure we're opportunistic and think about that in a way that can accelerate it I think that there's potentially in that space, even more than just the device itself, but how do you to improve efficiency in the hospital setting so even from an I.T. capability perspective thinking about those sorts of things.
You think about gestational diabetes pregnancy, the whole type two non intensive space I think that that market remains significant and I think we're seeing each and everyday that there's a validated opportunity in that space and we want to go fast. So we're keeping our eyes open out there in those in those spaces or.
These that exist and if there's opportunities to kind of really put the put on foot on the gas pedal, we're going to look at those sorts of things. So that's what we mean by being opportunistic yes, I'd just add one more thing as far as cash because I'm. The one driving quit and his team on this we talk about.
Doubling manufacturing capacity before the first half the irrs over we're pushing of that but thats a lot of capital equipment.
As we go to a lot of GE six automated lines again, those up and running and get more lines up in our contract manufacturers. We then have a significant capital investment in the G. Seven equipment that will be coming and we talked about investing in a third manufacturing site in Malaysia, So theres going to be a lot of capital equipment that we purchased the other place that we will definitely be using cash.
As we invest in our business is just on our infrastructure and our systems.
We we will.
If we have learned anything through this we need to make some our investments on that side to our team has been.
Antacid quit the tools they had we need given some more tools. So we have a lot of capital use for that money for for organic growth as well.
And next question Cussing, Ravi Mehrotra Santander capital your line is helping.
Hi, Good evening, I hope everyone over there and their families are okay.
Just a question about the.
Annual assistance program, you're providing about six months worth of supply to patient you just help us understand kind of it would that be something that would be SREC shipped out immediately if someone signs up and and also how do we think about it if if the economy continues to show these unemployment numbers how.
How willing as the company to kind of extend these.
These programs for beyond that six month period is there anything that would be getting used to that thank you.
Well, we'll start with our six month period.
As we got to that conclusion, as we model that out we're certainly comfortable with that.
We're very comfortable with with again, helping our patient base out. These are the people have built our company made it what it is.
And as I said in my prepared remarks, the more I traveled before this this pandemic the more I learned.
There are a lot of people who have no idea how to manage their diabetes with that as CGM. So we will continue to try and get product to patients will evaluate the economic consequences of what we do as we roll this out over time.
Three years ago, if we had to do this who would have been even much more difficult because we had very little Medicaid.
And we Didnt have Medicare up and running now with Medicare approval and Medicaid there are some states where these patients that are employed can go to Medicaid programs, but it's very inconsistent and sporadic even though we have.
I want to say, 60% of Medicaid programs cover us some only covers for kids and some make it very difficult. So we will continue to push for more Medicaid coverage. During this time to try and Medicaid that.
And we'll see how it goes and we'll keep track, but I know it's important that we make sure. These people can stay on the system and we think Mrs are really get opportunity.
For us so we will continue to do that.
And your last question constant Chris clearly from Stephens. Your line is open.
Thank you ritualistic.
Congrats on a record new patient starts just at this point from my perspective, maybe Clinton could you help us out a little bit was as we look at the operating expenses trending forward you alluded to better managing the supply chain, we'll just keep higher levels of safety stock have higher costs.
In the shorter run them appropriately so the labor side.
Just maybe it was help us when we look at the first quarter was that rule selected.
In the one key results are just to new will you can maybe help us better understand how we should think about maybe the margin structure as we start to go through the year ex the capacity build out and maybe similarly.
From the DTC efforts, what you're looking for there to kick that off just from.
Change in the cobot.
19 situation. Thanks, so much.
Yes, I think you'd be go back to the guidance that we set coming into the year, we spoke about some of the different.
Levers that we're in there.
Certainly some of the things that were going away on the organization being specific to G. Seven trials development of the automation lines ramping GE six as quickly as we can and doubling it and DTC being a significant investment I think you note, while we've walked away from guidance on the full year those sorts of.
Drivers are still going to be in the spend profile.
And they're going to be more heavily weighted in the back half of the year, So why you're seeing.
1300 basis points improvement in operating margin in Q1.
It's not likely that you're going to see that same sort of improvement in the back half of the year, because there's going to be all these incremental investments that we know that we need to make and that will set the company up for growth far into the future and we're going to commit ourselves to invest in those ways. So.
I think you're going to continue to see some good leverage in the first half of the year I think in the back half of the year, you're going to see the the PML start to look a little bit differently as we make some of these key investments into what I think all of us understand to be critical growth drivers of the future. So.
I'll leave it at that the piano profile will shift a little bit, but overall, we still remain committed to the longer term goals that we put out there at analyst day just.
A year and a half ago or so.
And just a question answer session I'll turn the call back over to the speakers for final remarks.
Hi, This is Kevin I'll finish up today, we want to thank all of you for participating on our call.
Surely under circumstances far different from might you envision during our 2019 Q4 and yearend call last February.
Watched Tonight, the news night in and out I've seen the toll that this virus has taken on communities all over the world and recognize that when this pandemic ends our world human interaction and the administration of healthcare will be forever changed.
The next comments very fortunate to being a strong position during this pandemic and I personally feel sense of obligation to operate from that strength to serve the needs of others. In this time of findings I'd.
Well stay at home orders in school closures, we realize our employees day to day lives have been upended, causing significant stress.
We've attempted to reduce that stressed by offering increased pay two essential onsite workers.
And promoting increased safety measures to best protect all Dexcom employees.
We recognize the diabetes doesn't take a break even for Pandemics economic slowdowns or high unemployment.
Now more than ever we have responsibility to patients that have supported dexcom over the years emission of the company that we are today.
Where they're far working quickly on the rollout of our patient assistance program to provide access to Dexcom CGM for the many individuals who have lost their jobs as a result of covered 19.
In addition, we realize having a patient staying can call control their blood glucose also asus family members and clinicians providing muted relief to our healthcare system.
Our core belief remains unchanged, if we do our best to take care of our patients the business the business will always move into right direction.
Every intensive insulin using patients have access to real time, CGM will retire tirelessly to make that happen.
Covered 19 has had a disproportionate impact on the diabetes community.
This awful viruses also attacking the pancreas of people without diabetes.
As a result, brave frontline responders or having to repeatedly Ghana and pulp DNA to administer fingersticks.
To test patients blood glucose levels.
We've worked hard with the FDA to provide these heroes of the better tools to treat patients and reduce healthcare workers overall risk of infection.
Our employees have rallied to this causes have been nothing short of amazing.
In short order, we have created new training materials stood up a specialized technical support group.
Procure to configured thousands of cellphones for use in this environment at a cost in excess of of million dollars.
And developed a separate commercial structure to last Usix in this market.
Significantly reduced prices, we are making a significant investment here.
Our commitment to connectivity enablement and multiple platforms to consume our data and cloud based tools for health care providers has become even more important than we envision when we blazes trail many many years ago.
As the work from the team and the Barber datacenter in Colorado indicates the unique features of our CGM connect and connected software solutions.
Our playing an important role in driving care for newly diagnosed people with diabetes during this crisis.
We are hopeful.
That the expanded use of telemedicine during the crisis can out ultimately provide avenues for greater access to healthcare over the long term a dexcom CGM, providing an essential tool in the process.
In addition, our efforts to assist hospitals worldwide is a big investment as I said earlier, we intend to take all of the data that we can gather generated during this time.
To accelerate the development and launch of a hospital basis and the better meets the needs of health care providers and our current ambulatory product.
It's often during difficult times of the two character in individual or company has revealed.
Our hope is RFS. During this time will provide compared to the many stakeholders that we serve and our character of Dexcom.
We'll send our brightly on behalf our of our employees I.
Im proud to lead these efforts.
Thanks, Good bye.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating can you may now disconnect.
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