DexCom, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; financial amounts are in millions of U.S. dollars unless noted. Comparisons are with Q1 2012 unless otherwise stated.
Business context
DexCom develops and commercializes continuous glucose monitoring systems for people with diabetes and healthcare providers. Its ambulatory business sells durable receivers and transmitters and recurring disposable sensors. The October 2012 U.S. launch of the G4 PLATINUM system contributed to growth. DexCom also develops in-hospital monitoring products with Edwards and has a diabetes-data software platform through its SweetSpot acquisition.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Total revenue | $29.6 | $20.1 |
| Product revenue | $27.8 | $18.6 |
| Gross profit / gross margin | $16.5 / 55.7% | $9.4 / 46.8% |
| Operating expenses | $27.4 | $24.8 |
| Operating loss | $(10.9) | $(15.4) |
| Net loss / loss per share | $(11.1) / $(0.16) | $(14.1) / $(0.21) |
| Cash used in operating activities | $(4.5) | $(10.2) |
| Cash and cash equivalents, March 31 | $18.9 | $5.1 at March 31, 2012 |
| Cash, equivalents and short-term investments | $45.3 | — |
| Working capital | $55.1 | — |
| Total debt carrying amount | $7.0 | — |
At March 31, 2013, total assets were $98.8, total liabilities $25.2 and stockholders’ equity $73.6. The company had an accumulated deficit of $456.7. Net cash provided by investing activities was $12.6, largely reflecting maturities of marketable securities; financing activities provided $2.7, principally from common-stock issuance.
Material changes and unusual items
- Product revenue rose $9.2, primarily on higher sales volumes of durable systems and sensors, including the G4 PLATINUM launch. SG&A increased $2.7 to support commercialization and revenue growth; R&D was nearly flat at $9.3.
- Gross margin improved year over year. Net loss narrowed, though the prior-year comparison included a $1.3 income tax benefit from a valuation-allowance release; Q1 2013 income tax expense was nominal.
- Roche gave notice in February 2013 that it was terminating its development agreement. DexCom recognized $0.8 of previously received consideration as development revenue in Q1 due to the termination and is not entitled to further payments under that agreement.
- The Edwards collaboration generated no development revenue in Q1 2013; Edwards received CE Mark approval for the second-generation GlucoClear system in January and planned a limited European launch in 2013.
- Cash and short-term investments totaled $45.3, excluding $1.0 of restricted cash. The $15.0 revolving credit line was undrawn. The term loan had $7.0 outstanding; up to a further $13.0 could be requested during June–September 2013, subject to the agreement.
Outlook, risks and contingencies
Management expected continued losses for the foreseeable future while expanding commercialization, manufacturing and R&D. It believed available working capital and projected partnership cash contributions would fund operations through at least March 31, 2014. The filing provides no specific revenue or earnings guidance. Management cautioned that funding needs could exceed forecasts and additional capital might be needed; any equity financing could dilute shareholders.
- Commercial results depend on product acceptance, manufacturing scale and quality, regulatory approvals, and reimbursement. Medicare had not adopted a national coverage decision for CGM devices; private coverage remained conditional and administratively demanding.
- DexCom disclosed single-source supplier and manufacturing-capacity risks, possible product defects and field failures, and dependence on continued G4 adoption. It noted that the products were not labeled as replacements for finger-stick testing.
- A longstanding Abbott patent lawsuit and related patent reexaminations remained unresolved. DexCom stated that the outcome and potential fees could not be assessed and had accrued no amounts as of March 31, 2013.
- Purchase commitments due within one year were $8.9; disclosed lease obligations totaled $9.9. The company reported no off-balance-sheet arrangements.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether G4 PLATINUM sales growth and sensor reorders persist, and how much sales growth converts to cash.
- Manufacturing capacity, product quality and supply availability as demand scales.
- Cash burn versus the stated runway, and conditions for accessing the additional term-loan funds or revolving facility.
- Progress on U.S. pediatric approval and reimbursement coverage, including the status of Medicare coverage.
- Developments in the Abbott patent matters and the financial or operational exposure, which the filing says cannot yet be estimated.
- Impact of Roche’s termination on development revenue and partnership prospects, and progress of the Edwards and Tandem collaborations.