10-QPeriod: Q3 FY2006

DEXCOM INC Quarterly Report for Q3 Ended Sep 30, 2006

Filed October 23, 2006For Securities:DXCM

Summary

DexCom, Inc. (DXCM) reported its financial results for the quarterly period ended September 30, 2006. This period marks a significant transition for the company as it has exited its development stage and commenced commercial shipments of its Short-Term Continuous Glucose Monitoring System (STS®) following FDA approval in March 2006. The company generated its first revenues during this quarter, amounting to $841,000, but also incurred a substantial gross margin loss of approximately $2.5 million due to the commencement of Cost of Sales, which includes manufacturing and overhead costs previously expensed under Research and Development. Financially, DexCom continues to operate at a net loss, with a reported net loss of $13.4 million for the third quarter of 2006 and a cumulative net loss of $119.3 million as of September 30, 2006. This is driven by significant investments in research and development ($4.6 million) and a substantial increase in Selling, General, and Administrative expenses ($7.1 million), largely attributed to sales and marketing efforts for the STS launch. The company ended the quarter with approximately $23.2 million in cash and cash equivalents, supported by a recent follow-on offering in May 2006 which raised $47.0 million in net proceeds. Despite the ongoing losses, the company believes its current cash and marketable securities are sufficient to meet its needs for at least the next twelve months.

Key Highlights

  • 1DexCom has officially launched its Short-Term Continuous Glucose Monitoring System (STS®) after receiving FDA approval in March 2006, marking its exit from the development stage and the commencement of revenue generation.
  • 2The company reported its first revenues, totaling $841,000 for the third quarter of 2006, a significant milestone as it transitions to a commercial-stage entity.
  • 3Significant investments are being made in Sales, General, and Administrative expenses, which increased to $7.1 million in Q3 2006 from $1.8 million in Q3 2005, primarily to support the commercial launch and build a direct sales organization.
  • 4Cost of Sales became a material factor in Q3 2006, totaling $3.4 million, leading to a negative gross margin of approximately $2.5 million. These costs now include manufacturing and overhead expenses previously capitalized in R&D.
  • 5The company continues to incur substantial net losses, with a Q3 2006 net loss of $13.4 million and an accumulated deficit of $119.3 million as of September 30, 2006.
  • 6DexCom raised approximately $47.0 million in net proceeds from a follow-on stock offering in May 2006, bolstering its cash position to $23.2 million as of September 30, 2006.
  • 7A significant legal proceeding remains ongoing with Abbott Diabetes Care, Inc. regarding patent infringement, which could materially impact the company regardless of the outcome.

Frequently Asked Questions

DexCom's primary product is the Short-Term Continuous Glucose Monitoring System (STS®). The company received FDA approval for this system in March 2006 and commenced commercial shipments shortly thereafter, marking its transition from a development-stage company to a commercial-stage entity.

For the three months ended September 30, 2006, DexCom reported its first revenues of $841,000. However, the company is not yet profitable, incurring a net loss of $13.4 million for the quarter and an accumulated deficit of $119.3 million as of that date. Significant investments in R&D and sales/marketing are contributing to these losses.

As of September 30, 2006, DexCom had approximately $23.2 million in cash and cash equivalents and $41.5 million in short-term marketable securities. The company raised significant capital through a follow-on offering in May 2006 ($47.0 million net proceeds) and an initial public offering in April 2005 ($50.5 million net proceeds). Management believes these resources are sufficient to fund operations for at least the next twelve months.

DexCom is facing a significant patent infringement lawsuit filed by Abbott Diabetes Care, Inc. The outcome of this litigation is uncertain and could have a material adverse effect on the company's financial condition and results of operations. Additionally, the company faces substantial risks related to market acceptance of its new product, competition, manufacturing capabilities, and the ongoing need for significant capital investment.