DexCom, Inc.
(DXCM) reported a net loss of 25 cents per share in the fourth quarter of 2009, a couple cents narrower than the Zacks Consensus Estimate for a net loss of 27 cents and significantly narrower than the year-ago net loss of 49 cents. The significant improvement in financial results was due to higher revenues.

Full year net loss came in at $1.21, well below the year-ago net loss of $2.00. Revenues increased 202% to $29.7 million, with product revenues increasing 122% to $18 million.

The Quarter in Detail

Fourth-quarter revenues came in at $10.5 million, up 157% from the $4.1 million reported in the year-ago period. Total revenues consist of product revenues and development grant revenues. Development grant revenues came in at $3.8 million. This included milestone revenues of $0.9 million earned due to the receipt of a CE mark for DexCom’s gen-1 hospital-based system developed in collaboration with Edwards Lifesciences (EW).

DexCom reported that Edward launched the system, GlucoClear, on a limited market development basis in several markets in the EU. The companies are now working on the development of a second-generation system.

Product revenues increased 169% to $6.6 million during the quarter. On a sequential basis, product revenues increased 43.5%. During the reported quarter, the company sold approximately 2,845 systems, representing a sequential increase of 34%.

Total cost of sales increased 30% to $6.4 million, mainly due to an increase in product cost of sales that was partially offset by a decline in development cost of sales. While product cost of sales increased 54.3% to $5.5 million, development cost of sales declined 34% to $0.9 million. Curtailed development efforts related to DexCom’s hospital-based glucose monitoring system led to the decline.

Total operating expenses increased 13.8% mainly due to an increase in selling, general and administrative expense (SG&A), which was partially offset by a decline in research and development (R&D) expense.

Although R&D expense declined 8.7% from the year-ago period to $4.2 million, spending increased on a sequential basis due to higher clinical trial costs and salaries.

Meanwhile, SG&A expense increased 27.9% to $9.4 million. Higher legal, finance and corporate costs led to the increase in SG&A spending. We expect SG&A expense to increase as the company works on focusing its sales and marketing efforts on diabetes patients.

DexCom exited 2009 with $30 million in cash, marketable securities and restricted cash. However, the company boosted its cash position earlier this year by raising approximately $33.1 million through the sale of 4,025,000 shares of common stock.


While DexCom did not provide specific guidance for 2010, the company said that it expects product revenues to grow at a rate similar to the growth rate recorded in 2009. However, the company expects the first quarter to be flat or up moderately on a sequential basis as this quarter is traditionally a seasonally slow quarter in the durable medical equipment business.

DexCom intends to focus on expanding its direct-to-patient initiatives. The company will also work on the reimbursement front so that continuous glucose monitoring (CGM) devices are covered by more favorable policies.

DexCom is also looking to complete development of its fourth generation short-term sensor and is planning to initiate a pivotal study with this product and submit a pre-market approval (PMA) application with the US Food and Drug Administration (FDA) in the next several months.

Meanwhile, DexCom and development partner, Insulet, should be in a position to apply for PMA of their first-generation integrated insulin pump CGM system in the next couple of months. DexCom also provided an update on its collaboration with Animas Corporation. The companies intend to submit a PMA application for their combined product later this year.

Our Take

We currently have a Neutral recommendation on DexCom. We believe the company is well-positioned to gain a significant share of the glucose monitoring market. In addition to upgrading and enhancing the functions of existing products, DexCom has also been pretty active on the collaboration front through which it is looking to integrate its technology with its partner’s product offerings.

Increased awareness and acceptance of the need for continuous glucose monitoring, more favorable reimbursement coverage, and data supporting blood glucose monitoring should help drive sales for the company’s products. However, we note that competition in the market is fierce with big names like Johnson & Johnson (JNJ), Medtronic (MDT) and Abbott (ABT) accounting for a major part of self-monitored glucose testing systems sales.

“DXCM” Free Stock Analysis: Buy? Sell? Hold?
“EW” Free Stock Analysis: Buy? Sell? Hold?
“ABT” Free Stock Analysis: Buy? Sell? Hold?
“JNJ” Free Stock Analysis: Buy? Sell? Hold?
“MDT” Free Stock Analysis: Buy? Sell? Hold?
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