(Bloomberg) -- Dexcom Inc. plunged as much as 40% after the maker of blood sugar monitoring devices for diabetics unexpectedly slashed its 2024 sales guidance, catching Wall Street by surprise.
The stock decline is the largest on record for the stock and has erased more than $17 billion of market capitalization.
The San Diego-based medical device manufacturer cited a drop in new customers, lower revenue per patient and higher-than-expected rebates for its decision to cut as much as $350 million from its revenue forecast. The move more than reversed its raise from three months earlier, putting guidance below where it started the year.
The cut also didn’t take into account a tsunami that industry watchers are anticipating: decreased demand as weight-loss medicines reduce the need for the company’s devices. While Dexcom makes glucose monitors that are essential for type 1 diabetics, they’re also expected to gain traction among people with the more common type 2 diabetes that’s driven by weight.
“It is strange that the wheels came off this bus so abruptly,” said Jared Holz, an analyst at Mizuho Securities, in a note to clients. “The speed at which the business appears to have deteriorated is borderline stunning.”
The company now expects revenue of $4 billion to $4.05 billion for 2024, it said in a statement, down from an estimate of $4.2 billion to $4.35 billion it issued in April. That remains below the $4.15 billion low end of the range where it started the year.
The stock was downgraded to neutral from overweight at JPMorgan, with the analyst citing “severe and sudden near-term challenges,” while others cut their estimates.
“There’s no getting away from the fact that this Thursday’s update was a sharp turn in the wrong direction for Dexcom,” JPMorgan’s Robbie Marcus wrote in a note to investors. “Investor faith in management has been severely shaken, especially following reiterated guidance at a June competitor conference before a bullish ADA,” he said, citing the American Diabetes Association meeting.
The issue appears specific to Dexcom, as rival Insulet Corp. today announced its second quarter results earlier than expected, posting sales of $488 million that beat analyst estimates. Last week, Abbott Laboratories, another competitor, raised its full-year profit guidance citing in part strong glucose monitor sales.
On a call with analysts, executives said a revamp of its salesforce disrupted its efforts to get new customers, while existing users generated lower revenue than anticipated. Chief Executive Officer Kevin Sayer didn’t directly address a question about whether the impact of the popular new weight-loss drugs could be eroding sales.
The company believes its long-term target for 2025 is still valid, with revenue coming in closer to the low end of the range, Sayer said.
Revenue was also impacted by higher rebates, as some large health plans administering government programs shifted how they reimbursed for Dexcom’s products, executives said. Dexcom’s meters are increasingly being covered through pharmacy benefits, rather than more profitable channels that distribute durable medical equipment.
At the same time, an expanded salesforce got off to a slower start than anticipated.
“We sent a whole bunch of new reps into offices we’ve never called on before,” Sayer said. “And there’s a get to know you period that we probably didn’t estimate being long enough.”
--With assistance from Bre Bradham and Angel Adegbesan.
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