No. of Recommendations: 3
Hey everyone,

Just got done listening to the dexcom conference call. They had a really good quarter, beating the street on revenues.

The big news is that they acquired a diabetes data management company called “sweet spot”. It’s a new, FDA approved cloud based company that aggregates all current BG data (a lot like numedics).

The deal cost them $4.5 MM now, and another $4 MM in milestone payments (called “earn outs”). Not too shabby, but small in the overall sceme of things (Dexcom is currently valued at $755 MM).

There was no news on the partnership update with us, and they can’t submit with Animas until 100 days after their Gen 4 sensor submission (late Q2/early Q3). So that puts any Animas submission (not approval) in late Q3/early Q4. Still will be ahead of us, but not around the corner.

They’ve got their hands all over the place, as they now have partnerships with Animas, Insulet, Roche, Edward life science, and Tandem.

They’ve got plenty of cash (83MM), no debt, and expect to be cash flow breakeven in Q4 this year.

Lots to like here. At ~$11/share, they might be worth a nibble.

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DEXCOM - DXCM
Q4 2011

Full year REV - $76.3 MM +57% (75.33 Est. - BEAT)

Full year EPS -0.68 (-0.67 Est. - MISS)

Q4 REV - $22.4 MM +43% (21.63 Est. - BEAT)

Q4 EPS - -0.18 (-0.17 Est. - MISS)
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NEWS:

Dexcom acquire sweet spot diabetes care inc, $4.5 MM, earn outs of $4MM

Uploading/processing diabetes data into usable data

510k cleared data management service

All stored in the cloud

Vendor neutral

BG meters now, next is sensors, then pumps

Clinic based/web based

Includes Ipad usage

Universal data management + pump partner are missing pieces

All separate facilities, HQ stays in Portland, OR

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67.506 MM shares out standing, up 11% yoy (YUCK!)

$83MM in cash, working capital of $90MM

$3.5MM in capex to expand clean room

$7.3MM cash loss in q4 2011

Gen 4 file completed in Q1

Q2 Q3 - Aiming for Pediatric trials to get approval

Smartphone app being developed

Tandem product development will being in Q2

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Q2012 guidance

Rev 85-92MM full year

No quarterly guidance moving forward

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Gen4 - trails have been completed, doing data analysis

File PMA end of this quarter, b

Summer 2012 CE approval

New agreement with Tandem Diabets care, tandem pays Dexcom $3MM just like roche

Tandem pays Dexcom $100 for every pump sold

Choose any pump

Animas continues to push Vibe in Europe

Filing with FDA 100 days after Gen 4 submission

Edwards life sciences moving forward, submission before year end

12.3% difference in accurarcy versus a lab, very, very accurate

5% difference with edwards lifescience ambulatory product (clinically accurate)

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1) Sweet spot, financial impact? Any impact on OpEx? We don't expect material revenue in 2012, nor OpEx line. Add a few bodies over course of year, nothing material. Business model is building out 510k cleared product, can aggregate meter data down to clinic. Great for analyzing data in plain english. Step 2 is to incorporate dexcom data, then pump data. revenue generating is very unknown. Selling data services is an interesting business down the road.

2) R&D, incorporating clinical trial data into this system? yes, very much so.

3) Look at other business, and why buy vs. build? We did the DD, and these guys were most advanced, and had relationships with. One criticizm of Dexcom is that our software is not web-based. Much greater than we can get for buying it out right.

4) true platform outside of diabetes? yes, it is. We hope to incorporate other sensor data (such as blood pressure) into this system.

5) patient adds? trends on retention & utilization? Not disclosing kit sales. Kit sales get confusing due to partnership. 30% hardware, 70% sensor. Patients wearing product for a long time. Love it to be shorter.

6) ASP? Attrition rate? Never disclosed attrition. Pricing is set. Not much movement.

7) Total patient volume? Penetration of type 1's is 6%. Dexcom is 54% share.

8) Profitability? Last part of 2012. Full in 2013.

9) Sweet spot direct to patients? Patients can access data through clinic. In future will be available to patients.

10) International? Traveling a lot there, lots of oppurtunity. Small percentage of revenue in near term, big oppurtunity

11) Roche marketing? Not kicking off till this month.

12) Gen 4 trial, venue to see data? gearing towards ADA

13) Gen 5 route? Active discussion, no answers yet.

14) Smarphone? Largest concern is accuracy and making our data primary, security.

15) Gen 4 cost? Big margins gains. 70+% maring on sensors. Blended in short term, but good improvements over time

16) Margin improvement through 2012? It should, depends on timing and growth. Some short term items in switching

17) Insulet? Not much going on. They are focused on Aeros. Standing by ready to go forward with Gen 4 when they are ready.

18) Former abbott patients, sales effort going well to them? When abbott exitied, less that 300 patients, we did not go after them specifically. Abbott send patients to us versus medtronic. No records of conversion.

19) Grant revenue recurring? Up front payment ammortized, milestone payments immediate, partnership agreement reimbursement is billed in a quarterly

20) Coverage policy review? Reimbursement gets better every day, documents requirements is going down, 95% of patients recieving reimbursement, medicare still requires a trail. Ped's is more important than medicare in short term.

21) Sweet spot increase sensor usage? yes, but small part of strategy

22) Type 2 population ready for CGM? Clearly ready, some payers yes, small overall and 1 off's. Oppurtunity is huge and worldwide. 2013 or later.

23) Tandem timing? Nothing specific.

24) Gen 4 color? Approval up in the air, but launch is this year unless we get pushed to far.

25) Trials for international reimbursement? Small trials for reimbursement, benefits vs. econmic outlay is being reviewed. happening 2012

26) Edwards milestone payments, 12MM remaining? Active discussions, nothing definitive.

27) Milestone for PMA with animas? 5MM payment on CE approval, no payment for US approval.

28) Not a lot of 1 timers, but lots of ammortization? Yes.

29) Relationship with FDA? Best in last few years, they are listening. Forcing us to produce better product, we are happy with FDA.

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CGM will be standard of care in glucose monitoring, not today, but coming.

CGM is a behavoir modification tool.

We will be doing results in pre-diabetes, very excited for 2012.

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As I mentioned above, a lot going on here.

I don't own any, and looking back I should have bought some around $7/share. At $11 they are still a good candidate for a small starter position to follow along.

Hit me with questions.

Brian
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