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DexCom, Inc. (DXCM)
Q4 2008 Earnings Call Transcript
March 5, 2009 4:30 pm ET
Terry Gregg – President and CEO
Steve Pacelli – Chief Administrative Officer
Jess Roper – VP and CFO
Matthew O'Brien [ph] – William Blair
Thom Gunderson – Piper Jaffray
Bill Plovanic – Canaccord Adams
Raj Kalia [ph] – Sanders Morris and Harris
Shawn Fitz – Stephens Incorporated
Previous Statements by DXCM
» DexCom Inc. Q3 2008 Earnings Call Transcript
» DexCom Inc. Q2 2008 Earnings Call Transcript
» DexCom Incorporated Q4 2007 Earnings Call Transcript
Thank you, operator, and welcome to DexCom's fourth quarter 2008 investor conference call. Joining me today is Steve Pacelli, our Chief Administrative Officer, and Jess Roper, our Chief Financial Officer. Steve is going to lead off the call.
Just the obligatory Safe Harbor Statement. Some of the statements that we will make in today's call may constitute forward-looking statements. These statements reflect management's expectations about future events, operating plans, and performance and speak only as of the date here of. These forward-looking statements involve a number of risks and uncertainties.
A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under risk factors and elsewhere in our annual report on Form 10-K, our quarterly reports on Form 10-Q and our other reports filed with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason. Terry?
The outline of today's call is as follows. We’ll bring you a financial review by Jess and then I am going to speak on operations review of the company including updates on commercial reimbursement, clinical and regulatory and our partnerships. I will wrap up with the summary and then we will entertain questions. Jess?
Thank you, Terry.
DexCom finished the year strong generating product revenues of approximately $2.45 million during the fourth quarter of 2008 compared to $1.5 million for the same quarter in 2007. Product revenues totaled $8.1 million for the year ended 2008 compared to $4.6 million in 2007. Sequentially product revenue increased $588,000 from Q3 to Q4 of 2008. During Q4, we sold approximately 1,200 SEVEN System Starter kits compared to 770 in Q3. From 2007 to 2008 Sensor revenues were up 105%. Sequentially Sensor revenues were up 25% from Q3 to Q4 of 2008. Total revenue for 2008 was $9.8 million, which included $1.7 million in development grant revenue.
As we have discussed previously, DexCom entered into three separate development agreements during 2008, which included Insulet Corporation, Animas Corporation, and Edwards Lifesciences. Animas and Edwards made upfront payments towards development dollars of $13.5 million in 2008. Excluding milestone payments, Edwards is scheduled to make additional development payments of approximately $10.5 million through Q2 of 2010 and Animas made a $250,000 payment in Q1 of 2009.
With these up front and development payments we expect to recognize development grant revenue on a straight-line basis over the period of the expected performance obligation. Changes in estimates could impact amounts recognized in future periods. Based on our current estimates, we expect to recognize development grant revenue under these arrangements of $2.8 million per quarter through Q4 of 2010. This quarterly estimate excludes any milestone-based payments that we may also earn.
Cost of sales including product and non-product in 2008 totaled $15.4 million compared to $12.7 million in 2007. Product cost of sales totaled $13.4 million for the year ended 2008 compared to $12.7 million in 2007. Our product gross margin loss was $5.3 million in 2008 compared to $8.1 million in 2007. We have experienced an improvement in our negative margin primarily due to increased sales volumes in 2008.
Development cost of sales totaled $2 million in 2008 compared to none in 2007. Research and development expense increased by $3.5 million to $19.6 million in 2008 compared to $16.1 million in 2007. Changes in R&D expense included $2.1 million in higher development costs, $1.4 million in higher clinical, regulatory, and quality assurance costs. Major elements of increased R&D costs included $1.2 million increased consulting fees, $1.2 million in facilities costs and $415,000 in supplies.
Selling, general and administrative expense totaled $27.7 million in 2008 compared to $22.4 million in 2007. The increase was primarily due to higher selling, legal and marketing costs. Major components of increased SG&A expense included approximately $1.4 million in higher share based compensation, $850,000 increased facilities cost, and $825,000 higher salary cost.
Net interest expense totaled $2.4 million compared to net interest income of approximately $800,000 in 2007. The increase in net interest expense was primarily due to lower average balances of our cash and marketable securities combined with lower yields earned on those balances. Our net loss totaled $55 million for the year, included $11.6 million in non-cash expenses centered primarily in share based compensation, depreciation and amortization.
We ended the year with $31 million in cash and marketable securities, which included approximately $4 million in restricted cash, and we had working capital of $17 million. Cash, marketable securities, and restricted cash increased by about $1.1 million during the quarter and included a $13 million payment from one of our development partners. Excluding the development payment our cash usage in Q4 was $11.9 million.
During the year, we invested $2.5 million in capital equipment and facilities to support our business. On February 4, 2009 we completed a follow-on public offering selling an aggregate of approximately 16 million shares of our common stock for net proceeds of approximately $45.6 million after deducting underwriting discounts, commissions and estimated offering expenses.