Zacks_Analysts' Blog : DexCom Misses Completely - Analyst Blog

DexCom (DXCM), a player in the glucose monitoring market, reported third-quarter fiscal 2011 loss per share of 20 cents, exceeding the Zacks Consensus Estimate of a loss of 16 cents, but lower than the year-ago loss of 23 cents. The quantum of net loss for the quarter remained virtually unchanged, over the prior year, at about $13.3 million.

Revenues

Sales increased sharply 56.5% year over year to $18.3 million, below the Zacks Consensus Estimate of $19 million. Product sales climbed 54.6% to $16.7 million while development grant and other revenues were up 80% to $1.6 million.

Margins and Expenses

Gross margin increased to 44.7% from 29.8% a year ago, bolstered by strong revenue growth. Cost of sales moved up 23.2% year over year to $10.1 million on account of higher cost of product sales. Operating expenses increased 29.8% year over year to $21.5 million on account of higher R&D spending and selling, general and administrative expenses, which jumped 33.6% and 27.6%, respectively, in the quarter.

Balance Sheet

At the end of the quarter, DexCom had cash and short-term marketable securities of $17.5 million, more than a three-fold year-over-year increase.

Our Take

We believe DexCom is poised to gain a major share of the glucose monitoring market driven by sustained product development initiatives, collaborations, favorable reimbursement coverage and increased need for continuous glucose monitoring.

However, we note that competition in the glucose monitoring market is intense and DexCom faces stiff challenges from much larger players such as Johnson & Johnson (JNJ), Medtronic (MDT) and Abbott Labs (ABT). Moreover, the company has incurred losses since inception and is exposed to a stricter regulatory environment. We currently have a long-term Neutral recommendation on DexCom.