DexCom Meets, Cuts Losses

DexCom ( DXCM - Analyst Report ) , a prominent player in the glucose monitoring market, reported second-quarter fiscal 2011 loss per share of 11 cents, matching the Zacks Consensus Estimate, but lower than the year-ago loss of 20 cents. Net loss for the quarter trimmed roughly 37% year over year to $7.4 million owing to solid revenue growth.

Revenues

Revenues skyrocketed 82% year over year to $21.4 million, mostly in line with the Zacks Consensus Estimate. Product sales catapulted 68% to $15.2 million while development grant and other revenues more than doubled year over year to $6.2 million.

Margins and Expenses

Gross margin jumped to 55.4% from 38.3% a year ago, boosted by strong revenue growth. Cost of sales leapt 31% year over year to $9.5 million on account of higher cost of product sales. Operating expenses climbed 22% year over year to $19.3 million on account of higher R&D spending and selling, general and administrative expenses, which surged 29% and 18%, respectively, in the quarter.

Balance Sheet

DexCom exited the quarter with cash and short-term marketable securities of $105 million, more than a two-and-half-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 - Analyst Report ) , Medtronic ( MDT - Analyst Report ) and Abbott Labs ( ABT - Analyst Report ) . 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.