01—Abstract
Summary
Summary of the 10-K filed February 20, 2014. Cited figures are marked; the original filing is the authoritative source.
DexCom's 2013 10-K shows a company in early commercialization that is narrowing its losses while growing revenue quickly.
Total revenue rose 60% to $160.0 milliona in 2013 from $99.9 million in 2012, driven mainly by product revenue of $157.1 million (up from $93.0 million) after the October 2012 launch of the G4 PLATINUM system. Gross profit more than doubled to $100.1 million, and the net loss narrowed to $29.8 million from $54.5 million, or $(0.42) per share. Operating cash flow turned positive at $2.4 million, compared with a $33.1 million outflow in 2012, though the company still carries an accumulated deficit of $475.4 million and had working capital of $61.0 million and cash plus short-term securities of $54.6 million.
The main investor debates are regulatory and reimbursement progress and litigation risk. In February 2014 the FDA approved a pediatric indication for the G4 PLATINUM, which widens the addressable population to children aged two and older. Reimbursement remains a constraint: Medicare has no national coverage decision, and coverage from the seven largest private payors is often restrictive, although six of them have negotiated contracted rates.
Concentration is also notable, since two distributors, Byram and Edgepark, generated about 15%b and 14% of 2013 revenue. The primary overhang is Abbott's ongoing patent litigation. Abbott has filed a new infringement complaint covering the SEVEN PLUS and G4 PLATINUM, and the case could lead to an injunction if the stay is lifted.
No amounts have been accrued. Management believes current resources are sufficient through at least December 31, 2014, but the filing notes that additional financing may be needed to fund commercialization and next-generation development.
02—Key points
Key Highlights
- Total revenue grew 60% to $160.0M in 2013 (from $99.9M), with product revenue up 69% to $157.1M, driven by the G4 PLATINUM launch.
- Gross profit rose to $100.1M from $46.6M, a gross margin of roughly 63% versus 47% in 2012, reflecting higher-margin G4 PLATINUM mix and scale.
- Net loss narrowed to $29.8M ($0.42 per share) from $54.5M in 2012, while operating expenses grew 26% to $129.0M, mainly in SG&A.
- Operating cash flow turned positive at $2.4M, compared with a $33.1M outflow in 2012, though the company still has a $475.4M accumulated deficit.
- FDA approved a pediatric indication for the G4 PLATINUM on February 3, 2014, allowing sales outreach to pediatric endocrinologists for children aged two and older.
- Abbott patent litigation remains a material risk: a new complaint covers the SEVEN PLUS and G4 PLATINUM, and a motion to lift the stay is pending, with no amounts accrued.
- Customer concentration is significant: distributors Byram (15%) and Edgepark (14%) accounted for about 29% of 2013 revenue. Medicare has no national coverage decision for CGM.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2013, Dexcom Inc lost $0.19.
- Revenue$160.0M100.0%
- Cost of revenue−$59.9M37.4%
- Gross profit$100.1M62.6%
- Operating costs−$129.0M80.6%
- Operating income−$28.9M18.1%
- Interest, other & tax−$900,0000.6%
- Net income−$29.8M18.6%
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 20, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $160.00M$99.90M | +60.2% |
| Cost of Revenue | $59.90M$53.30M | +12.4% |
| Gross Profit | $100.10M$46.60M | +114.8% |
| R&D Expenses | $44.80M$38.30M | +17.0% |
| SG&A Expenses | $84.20M$64.00M | +31.6% |
| Operating Expenses | $129.00M$102.30M | +26.1% |
| Operating Income | -$28.90M-$55.70M | +48.1% |
| Interest Expense | $900K$200K | +350.0% |
| Net Income | -$29.80M-$54.50M | +45.3% |
| EPS (Basic) | $-0.10$-0.20 | +46.8% |
| Shares Outstanding (Basic) | 284.40M274.80M | +3.5% |
05—Questions
Frequently Asked Questions
Is DexCom approaching profitability, and how much runway does it have?
The company is closer but not profitable. The 2013 net loss narrowed to $29.8M from $54.5M, and operating cash flow was slightly positive at $2.4M. Management says cash, equivalents, and short-term securities of $54.6M, plus up to $28.0M of available borrowing under the Silicon Valley Bank/Oxford facility, are sufficient through at least December 31, 2014. Beyond that, the filing says additional financing may be needed, which could be dilutive.
What is the main litigation risk?
Abbott Diabetes Care's patent litigation covers seven patents, with reexaminations in progress at the USPTO. Abbott has asked the court to lift the stay and has filed a new complaint covering the SEVEN PLUS and G4 PLATINUM systems. If Abbott obtained an injunction, DexCom could be forced to stop selling its current products. The company believes the claims lack merit, and no loss has been accrued.
What does the pediatric approval mean for growth?
The FDA's February 3, 2014 approval lets DexCom market the G4 PLATINUM to people aged two and older with diabetes, and lets its direct sales force call on pediatric endocrinologists and pediatricians. The company frames this as expanding the addressable patient base, though the filing does not quantify the impact on revenue.
How dependent is revenue on reimbursement and distributors?
Highly dependent. Medicare has not issued a national coverage decision, so reimbursement depends on private payors, and many of the coverage policies are restrictive. Six of the seven largest private payors have contracted rates. Two distributors, Byram and Edgepark, accounted for about 29% of 2013 revenue, and losing either would materially affect results.
06—Continue