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DexCom, Inc. (DXCM - Analyst Report), a player in the glucose monitoring market, reported first quarter 2013 adjusted loss per share of 16 cents, narrower than the Zacks Consensus Estimate of a loss of 17 cents per share.

Revenues

Revenues surged 47% year over year to $29.6 million in the first quarter, beating the Zacks Consensus Estimate of $28 million. Product sales increased about 49% to $27.8 million while development grant and other revenues improved 20% to $1.8 million in the reported quarter.

Margins and Expenses

Gross margin improved to 55.7% in the first quarter from 46.8% a year ago. Operating expenses increased 10.5% year over year to $27.4 million due to higher selling, general and administrative expenses, which grew 17.5% in the reported quarter. The company reduced its operating loss year-over-year.

Balance Sheet

DexCom exited the first quarter with cash and short-term marketable securities of $45.3 million, down 7% on a sequential basis. Long-term debt (net of current portion) amounted to $6.3 million, down 7.4% sequentially.

Our Take

DexCom is well placed in the industry that it serves. Given the burgeoning diabetes population in the U.S., its products present a considerable market opportunity. Increased awareness and acceptance of the need for continuous glucose monitoring and international expansion should help drive sales of DexCom’s products. The company is eyeing prospects in the vast markets of India, China and Japan.

In addition to upgrading and enhancing the functions of existing products, DexCom has also been active on the collaboration front, through which it is looking to leverage its technology with its collaborator’s product offerings. We believe that the company’s move to buy healthcare IT company SweetSpot Diabetes Care, may allow it to compete more effectively through better data management systems.

Despite increasing revenues, DexCom remains a loss making entity and its efforts are made more difficult by a stringent regulatory environment.

The stock currently holds a Zacks Rank #3 (Hold). Abiomed, Inc. (ABMD - Analyst Report), Accuray Incorporated (ARAY - Analyst Report) and Cepheid (CPHD - Analyst Report) each carry a Zacks Rank #2 (Buy) and are expected to do well.

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