DexCom, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual filing, not a standalone Q4 report; quarterly figures are included below. DexCom develops and sells continuous glucose monitoring systems, with most product revenue from its SEVEN PLUS system.
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Total revenue | $76.3 million | $48.6 million |
| Product revenue | $65.9 million | $40.2 million |
| Gross profit | $35.8 million; 47.0% margin | $18.4 million; 37.9% margin |
| Operating expenses | $80.7 million | $63.7 million |
| Operating loss | $44.8 million | $45.3 million |
| Net loss | $44.7 million; $0.68 per share | $55.2 million; $0.97 per share |
| Cash used in operating activities | $30.1 million | $42.7 million |
| Cash, cash equivalents and short-term securities | $81.9 million | $47.1 million |
| Working capital | $89.7 million | $50.2 million |
| Long-term obligations | $1.2 million | $1.0 million |
Product gross margin improved to approximately 44.4% from 35.1%, attributed principally to higher sales and improved manufacturing absorption. The company had an accumulated deficit of $391.1 million at year-end. It raised approximately $71.2 million net from a May 2011 stock offering; the convertible notes had been converted in 2010, and the equipment loan was fully repaid in 2011.
Q4 2011: Revenue was $22.4 million, gross profit $10.7 million, operating costs $23.0 million, net loss $12.3 million, and loss per share $0.18. Q4 2010 revenue was $15.6 million and net loss was $9.8 million.
Changes, outlook and commentary
- Total revenue rose 56.8% year over year, driven by higher SEVEN PLUS system and sensor sales and higher average selling prices. Product revenue increased 64.1%.
- Research and development expense rose to $30.7 million from $23.2 million, primarily reflecting work on next-generation ambulatory products. Selling, general and administrative expense increased to $49.9 million from $40.5 million as the company supported commercialization and revenue growth.
- Management expected continued losses and said available working capital, cash and securities, and projected partnership contributions should fund anticipated needs through at least December 31, 2012. It warned that additional capital might be required; no specific revenue or earnings guidance was provided.
- Development priorities included the next-generation ambulatory system, insulin-pump integrations with Animas, Insulet, Roche and Tandem, and a second-generation GlucoClear hospital system with Edwards. The first-generation GlucoClear had not generated significant revenue, and management did not expect significant revenue from it in 2012.
- After year-end, DexCom signed a Tandem development agreement and agreed to acquire SweetSpot for up to $7.0 million in stock consideration, plus $1.5 million in stock payments to SweetSpot noteholders, subject to closing conditions.
Principal risks and contingencies
- DexCom remained loss-making and dependent on continued commercialization, financing, and sufficient cash generation. Management’s liquidity outlook is not a guarantee; operating cash use was $30.1 million in 2011.
- Medicare did not cover continuous glucose monitoring devices under a national coverage decision. Private-payer policies existed but could be restrictive, limiting adoption and reimbursement.
- Manufacturing scale, product quality, and reliance on single-source suppliers could constrain supply. Edgepark accounted for 20% of FY 2011 revenue.
- Abbott patent litigation and related patent-office proceedings remained unresolved. The litigation was stayed pending reexaminations; no amounts were accrued because outcomes and potential costs could not be assessed clearly.
- The SEVEN PLUS required periodic finger-stick calibration and was not approved to replace standard blood glucose meters. A prior FDA warning letter concerned reporting sensor-wire fractures and product labeling; DexCom reported corrective action and FDA notification in 2010 that the cited issues had been adequately addressed.
- The FCC waiver permitting SEVEN PLUS operation under existing wireless requirements ran through March 2013. The company also cited regulatory approval, clinical-trial, reimbursement, competition and product-liability risks.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2011.
Investor verification checklist
- Confirm whether revenue growth and gross-margin improvement continued, and whether sensor sales and manufacturing yields supported it.
- Track operating cash use against the stated liquidity horizon and assess any subsequent financing or dilution.
- Check payer coverage expansion, reimbursement terms, and Medicare coverage developments.
- Review progress and regulatory status for the next-generation system, pump integrations, GlucoClear and the SweetSpot acquisition.
- Monitor Abbott litigation and patent proceedings, supplier concentration, product-field reports, and the FCC waiver deadline.