DexCom, Inc. (DXCM) reported a loss of 27 cents per share in the first quarter, 3 cents above the Zacks Consensus Estimate of a loss of 24 cents but well below the year-ago loss of 33 cents.
 
Revenues came in at $9.5 million, up 83% from the $5.2 million reported in the year-ago period. Total revenue consists of product revenue and development grant revenue. Development grant revenue came in at $2.8 million.
 
Product revenue increased 153% to $6.8 million for the first quarter of 2010. On a sequential basis, product revenue increased 2%. During the reported quarter, the company sold approximately 2,600 systems.
 
The slight sequential growth in product revenues was expected as the first quarter is traditionally a seasonally slow quarter in the durable medical equipment business.
 
Product cost of sales increased $1.6 million to $5.1 million for the first quarter of 2010 mainly due to increased volume of product sales. Development cost of sales however declined to $0.9 million due to lower costs related to the company’s development and collaboration agreements. Higher product cost of sales pushed total cost of sales increased to $6.1 million.
 
Total operating expenses increased 31.2% with both selling, general and administrative (SG&A) and research and development (R&D) expenses increasing. R&D expense increased 49.4% to $4.7 million due to increased development efforts for DexCom’s ambulatory products. This was partially offset by lower activity under the company’s development and collaboration agreements.
 
Meanwhile, SG&A expense increased 24% to $9.8 million in the first quarter of 2010. Additional customer service, sales and international development costs led to the increase in SG&A spend. We expect SG&A expense to increase as the company works on focusing its sales and marketing efforts on diabetes patients.
 
Pipeline Update
 
The company also provided an update on the status of the products being developed under its collaboration agreements. DexCom said that it is seeking US Food and Drug Administration (FDA) approval for its integration system developed with Insulet Corporation.
 
DexCom’s continuous glucose monitoring technology, Seven Plus, has been combined with Insulet’s wireless, handheld OmniPod System Personal Diabetes Manager (PDM). The PDM with DexCom’s technology will combine the functionality of both systems’ handheld receivers into one single handheld wireless device, eliminating the need for a separate receiver. The product could hit the market later this year/early next year.
 
Additionally, DexCom is looking to seek approval for its product that is being developed with Animas Corporation later this year. This product allows for the integration of DexCom’s continuous glucose monitoring technology into Animas’ insulin pumps.
 
Finally, DexCom and partner Edwards Lifesciences (EW) have completed a pivotal study needed to support the FDA approval of its blood based glucose monitoring system for the critical care environment. The companies are looking to file for approval this summer.
 
DexCom is also pursuing clinical development of a fourth generation short-term sensor, for which the company will seek FDA approval by the end of the second quarter. This product is expected to improve reliability, stability and accuracy over the useful life of the sensor, and will be suited for large scale manufacturing. A fifth generation sensor is also under development.
 
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.
 
Read the full analyst report on “DXCM”
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Read the full analyst report on “ABT”
Read the full analyst report on “EW”
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