DexCom, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with the three months ended March 31, 2011 unless otherwise noted. Dollar figures below are in millions except per-share data. DexCom develops and commercializes continuous glucose monitoring systems, principally its SEVEN PLUS ambulatory product.
Financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $20.1 | $14.2 |
| Product revenue | $18.6 | $13.1 |
| Gross profit | $9.4 | $5.1 |
| Gross margin | 46.7% | 36.1% |
| Operating loss | $(15.4) | $(11.9) |
| Net loss | $(14.1) | $(11.9) |
| Basic and diluted loss per share | $(0.21) | $(0.19) |
| Cash used in operating activities | $(10.2) | $(9.3) |
- Revenue grew about 42%, primarily from higher sales volume of durable systems and disposable sensors. Product gross profit rose to $9.0 million from $4.8 million, aided by higher revenue and manufacturing absorption.
- Operating expenses increased to $24.8 million from $17.0 million. R&D rose to $9.7 million, mainly for next-generation ambulatory products; SG&A rose to $15.1 million, including increased commercialization costs and legal costs related to SweetSpot.
- Net loss increased despite a $1.3 million income tax benefit, recorded after the SweetSpot acquisition allowed release of part of the deferred-tax-asset valuation allowance.
Balance sheet, liquidity and cash flow
- At March 31, 2012, cash and cash equivalents were $5.1 million and short-term marketable securities were $65.1 million, totaling $70.2 million; restricted cash was an additional $1.0 million. Cash plus short-term securities was $81.9 million at December 31, 2011.
- Working capital was $76.7 million. Current assets were $92.8 million and current liabilities were $16.1 million.
- Total liabilities were $18.4 million; the filing reports no interest-bearing debt outstanding at quarter-end. Deferred revenue totaled $2.7 million.
- Investing activities provided $11.6 million, largely reflecting net maturities of marketable securities; capital expenditures were $2.3 million. Financing activities provided $1.1 million, principally from stock issuance.
- Management said available resources were expected to fund operations through at least March 31, 2013. The company had an accumulated deficit of $405.2 million and expected losses to continue.
Material changes, outlook and notable items
- DexCom acquired SweetSpot Diabetes Care on March 6, 2012, adding a diabetes-device data platform. The preliminary purchase price was $6.1 million, comprising $3.9 million in DexCom shares and $2.2 million in contingent consideration; the allocation, including $3.2 million goodwill and $4.6 million of intangible assets, remained subject to adjustment.
- DexCom entered a non-exclusive development and commercialization agreement with Tandem in February 2012. Existing collaborations included Animas, Insulet, Roche and Edwards. No specific revenue or earnings guidance was provided.
- Management expects continued losses as it invests in commercialization, product development, clinical work, manufacturing and infrastructure. It said additional capital may be needed if cash needs exceed forecasts; financing may be unavailable on acceptable terms or dilute shareholders.
- Medicare had not adopted a national coverage decision for CGM devices. Private-payor coverage remained conditional and often required extensive documentation, creating a risk to adoption and sales.
- Abbott patent litigation and related patent-office proceedings remained unresolved. The litigation was stayed pending patent reexaminations; a Federal Circuit oral hearing on two patents was scheduled for June 7, 2012. DexCom had accrued no amounts, and said potential outcomes and fees could not be assessed.
- Other key risks included regulatory approval and clinical-trial delays, manufacturing capacity and quality, reliance on single-source suppliers, product performance and reimbursement. The SEVEN PLUS FCC waiver allowing continued marketing and operation was scheduled to expire in March 2013.
- The filing cited a 2.3% U.S. medical-device excise tax scheduled to begin January 1, 2013; its application to DexCom products was uncertain. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether product-revenue growth and improved gross margin persist as manufacturing scales, while operating expenses continue to rise.
- Cash burn, marketable-security balances and the assumptions supporting management’s stated liquidity runway through March 31, 2013.
- Progress on SweetSpot integration and final purchase accounting, including contingent consideration and acquired intangible-asset values.
- Changes in payor coverage, reimbursement rates and customer access, alongside regulatory progress for next-generation and partner-integrated products.
- Developments in Abbott patent proceedings and the SEVEN PLUS FCC waiver, including any resulting costs, restrictions or required product changes.