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DexCom (DXCM - Analyst Report), a player in the glucose monitoring market, reported second-quarter 2012 loss per share of 21 cents, higher than the Zacks Consensus Estimate of a loss of 20 cents per share and the year-ago loss of 11 cents a share. Net loss for the quarter jumped 99.4% year over year to $14.7 million (21 cents per share).

Revenues

Sales grew 9.4% year over year to $23.5 million in the first quarter, beating the Zacks Consensus Estimate of $22 million.

Product sales increased 41.8% to $21.5 million while development grant and other revenues were down 69.1% to $1.9 million in the reported quarter.

Margins and Expenses

Gross margin declined to 47.9% in the second quarter from 55.4% a year ago. Cost of sales increased 27.9% year over year to $12.2 million, mostly on account of higher cost of product sales. Operating expenses moved up 34.4% year over year to $25.9 million due to higher R&D spending and selling, general and administrative expenses, which grew 49.6% and 25.7%, respectively, in the reported quarter.

Balance Sheet

DexCom ended the quarter with cash and short-term marketable securities of $105 million, down 41.7% on a year over year basis.

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 an increasingly strict regulatory environment. Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).

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