Dexcom (DXCM) 10-K risk factor changes: FY2019 vs FY2018

[removed: Our] [added: *Our] short and long-term success is subject to numerous risks and uncertainties, many of which involve factors that are difficult to predict or beyond our control.

Refer to our disclaimer regarding forward-looking statements at the beginning of our Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations.][added: Operations.*]

[removed: Risks] [added: | Risks] Related to Our Business [added: and Operations | | | | |]

[removed: We] [added: We] have incurred [added: significant] losses [removed: since inception] [added: in the past] and [removed: anticipate that we will] [added: may] incur [removed: continued] losses in the [removed: future.][added: future.]

We have incurred [added: significant] operating losses in [removed: each year since our inception in May 1999,] [added: the past,] including [removed: an operating] [added: a net] loss of $186.3 million for the twelve months ended December 31, 2018.

As of December 31, [removed: 2018,] [added: 2019,] we had an accumulated deficit of [removed: $798.9] [added: $695.7] million.

We expect our research and development expenses to increase in connection with our clinical trials and other development activities related to our products, including our next-generation sensors, transmitters and [removed: sensor-augmented insulin pumps,] [added: receivers,] as well as other collaborations.

We also expect that our general and administrative expenses will continue to increase [removed: due] [added: due, among other things,] to the additional operational and regulatory burdens applicable to public healthcare and medical device companies.

As a result, it is [removed: likely] [added: possible that] we [removed: will continue to] [added: could] incur operating losses in the future.

These losses, among other things, [removed: have had and will continue to] [added: may] have an adverse effect on our stockholders’ equity.

[removed: If, in the future,] [added: If] we are unable to continue the development of an adequate sales and marketing [removed: organization, or] [added: organization and/or] if our direct sales organization is not successful, we may have difficulty achieving market awareness and selling our [removed: products.][added: products in the future.]

[removed: To achieve commercial success for the G4 PLATINUM, G5 Mobile and G6 systems and any of our future products, we] [added: We] must [removed: either] continue to develop and grow our sales and marketing organization and enter into partnerships or other arrangements to market and sell our products [removed: or] [added: and/or] collaborate with third [removed: parties] [added: parties, including distributors and others,] to market and sell our [added: products to maintain the commercial success of our G4 PLATINUM, G5 Mobile and G6 systems and to achieve commercial success for any of our future] products.

| • | recruit and retain adequate numbers of effective and experienced sales [added: and marketing] personnel; |

| • | effectively train our sales [added: and marketing] personnel in the benefits and risks of our products; |

| • | establish and maintain successful sales, marketing, training and education programs that educate [added: health care professionals, including] endocrinologists, physicians and diabetes [removed: educators] [added: educators,] so they can appropriately inform their patients about our products; |

| • | effectively train our sales [added: and marketing] personnel on the applicable fraud and abuse laws that govern interactions with healthcare practitioners as well as current and prospective patients and maintain active oversight and auditing measures to ensure continued compliance. |

We currently employ [removed: a direct] sales [removed: force to sell] and [removed: market] [added: marketing personnel for the direct sale and marketing of] our products in the United States, Canada and certain countries in Europe.

Our direct sales [removed: force] [added: and marketing team] calls directly on healthcare providers and people with diabetes throughout the applicable country to initiate sales of our products.

Our sales [added: and marketing] organization competes with the experienced, larger and well-funded marketing and sales operations of our competitors.

[removed: We] [added: In some instances, we] have also entered into distribution arrangements to leverage existing distributors [added: (including wholesalers)] already engaged in the [added: distribution of drugs, devices and/or products in the] diabetes marketplace.

Our [removed: United States] [added: U.S.] distribution partnerships [added: include those distributors that] are focused on accessing underrepresented regions and, in some instances, third-party payors that contract exclusively with distributors.

Our European and other international distribution partners [added: include those distributors that] call directly on healthcare providers and patients to market and sell our products in [removed: Australia,] [added: Australia and] New Zealand, and [removed: portions of Europe,] [added: certain countries in Africa,] Asia, [added: Europe,] Latin America, [added: and] the Middle [removed: East and Africa.][added: East.]

[removed: If] [added: If] we are unable to establish [added: and maintain] adequate sales, marketing and distribution capabilities or enter into and maintain arrangements with third parties to sell, market and distribute our products, our business may be [removed: harmed.][added: harmed.]

Our distribution agreements with Byram and [removed: affiliates and] [added: affiliates,] Cardinal Health and affiliates (including Edgepark Medical Supplies), [added: and AmerisourceBergen,] our [removed: two] [added: three] most significant distributors, generated approximately [removed: 12%] [added: 12%, 17%,] and [removed: 15%,] [added: 10%,] respectively, of our total revenue during the twelve months ended December 31, [removed: 2018.][added: 2019.]

[removed: If we are] unable to do so, we may not be able to generate product revenue from our sales efforts in Europe or other countries.

Finally, if we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, [removed: we] [added: our future revenue] may [removed: not] be [removed: able to generate adequate product revenue] [added: reduced] and [added: our business] may [removed: not become profitable.][added: be harmed.]

[removed: Although] [added: Although] many third-party payors have adopted some form of coverage policy on continuous glucose monitoring devices, our products do not [removed: yet] [added: always] have [added: some form of coverage, including] simple broad-based contractual [removed: coverage] [added: coverage,] with [removed: most] third-party payors and we frequently experience administrative challenges in obtaining reimbursement for our customers.

If we are unable to obtain adequately broad reimbursement at acceptable prices for our products or any future products from third-party payors, we will be unable to generate significant [removed: revenue.][added: revenue.]

In March 2017, CMS Medicare Administrative Contractors issued interim instructions for individual claim adjudication providing instructions and billing codes for the reimbursement of individual claims for therapeutic CGM reimbursement that apply to our G6 and G5 Mobile systems, and in May 2017, CMS Medicare Administrative Contractors issued a revision to an existing joint Local Coverage Determination, [removed: or LCD,] which establishes the Medicare conditions of coverage for therapeutic CGM, including G5 Mobile and G6 systems.

Adverse coverage or reimbursement decisions relating to our products by CMS, its Medicare Administrative Contractors, other [removed: state or] [added: state,] federal [added: or international] payors, and/or third-party commercial payors could significantly reduce reimbursement, which could have an impact on the acceptance of, and demand for, our products and the prices that our customers are willing to pay for them.

As of December 31, [removed: 2018,] [added: 2019,] the seven largest private third-party payors, in terms of the number of covered lives, have issued coverage policies for the category of CGM devices.

[added: However,] people with diabetes without insurance that covers our products will have to bear the financial cost of them.

Moreover, it is not uncommon for governmental, including federal and/or state, agencies and their contractors to conduct periodic routine billing and compliance reviews that may entail extensive documentation requests, cooperation with which may require significant time and [removed: resources.][added: resources, and may result in identification of overpayment that may need to be refunded.]

[removed: Accordingly, unless government and other third-party] payors provide adequate coverage and reimbursement for the G4 PLATINUM, G5 Mobile and G6 systems, people without coverage who have diabetes may not use our products.

[removed: Uncollectible] [added: Uncollectible] uninsured and patient due accounts could adversely affect our results of [removed: operations.][added: operations.]

[removed: We] [added: We] may never receive approval, marketing authorization or clearance from the [removed: U.S. FDA and] [added: U.S. FDA and] other governmental agencies to market additional CGM systems, expanded indications for use of current and future generation CGM systems, future software platforms, or any other products under [removed: development.][added: development.]

In March 2018, via the [removed: de novo] [added: *de novo*] process, the FDA classified the G6 and substantially equivalent devices of this generic type (“integrated continuous glucose monitoring systems” or “iCGMs”) into Class II, meaning that going forward products of this generic type may utilize the 510(k) pathway.

Any subsequent modification of our G6 that could significantly affect its safety or effectiveness (for example, a significant change in design or manufacture), or that would constitute a major change in its intended use, will require us to obtain a new 510(k) clearance or could require a new [removed: de novo] [added: *de novo*] submission or a PMA.

If future product candidates are not deemed by the FDA to meet the criteria for submission under the 510(k) pathway, or for down-classification under the [removed: de novo] [added: *de novo*] process or otherwise, we would need to pursue a PMA.

In March 2018, our G6 system received [removed: de novo] [added: *de novo*] classification from the FDA to be a Class II medical device.

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Manufacturing difficulties and/or any disruption at our facilities may adversely affect our manufacturing operations and related product sales, and increase our expenses.

Our products are manufactured at certain facilities, with limited alternate facilities.

If an event occurs at one of our facilities that results in damage to, or closure of, one or more of such facilities, we may be unable to manufacture the relevant products at the previous levels or at all.

Because of the time required to approve and lease a manufacturing facility, an alternate facility and/or a third-party may not be available on a timely basis to replace production capacity in the event manufacturing capacity is lost.

We manufacture the majority of our products and procure important third-party services, such as sterilization services, at numerous facilities worldwide.

We purchase many of the components, materials and services needed to manufacture these products from numerous suppliers in various countries.

We have generally been able to obtain adequate supplies of such materials, components and services.

Although we work with our suppliers to try to ensure continuity of supply while maintaining quality, timeliness and reliability, the supply of these components, materials and services may be interrupted or insufficient.

We also outsource certain services to other parties, including inside sales, certain transaction processing, accounting, information technology, manufacturing, and other areas.

Outsourcing of services to third parties could expose us to suboptimal quality of service delivery or deliverables and potentially result in repercussions such as missed deadlines or other timeliness

issues, erroneous data, supply disruptions, non-compliance (including with applicable legal or regulatory requirements and industry standards) and/or reputational harm, with potential negative effects on our results.

We are subject to cost-containment efforts that could result in reduced product pricing and/or sales of our products and cause a reduction in future revenue.

In the United States and other countries, government and private sector access to health care products continues to be a subject of focus, and efforts to reduce health care costs are being made by third-party payors.

Most of our customers rely on third-party payors, including government programs and private health insurance plans, to cover the cost of our products.

We expect that the continuing cost reduction and containment measures may reduce the cost or utilization of health care products and could lead to patients being unable to obtain approval for coverage or payment from these third-party payors.

We have experienced, and anticipate that we will continue to experience, downward pressure on product pricing.

To the extent these cost containment efforts are not offset by greater patient access to our products, our future revenue may be reduced and our business may be harmed.

If we experience decreasing prices for our products and we are unable to reduce our expenses, including the per unit cost of producing our products, there may be a material adverse effect on our business, results of operations, financial condition and cash flows.

We have experienced, and anticipate that we will continue to experience, decreasing prices for our products due to pricing pressure from managed care organizations and other third-party payors, increased market power of our payors, as the medical device industry consolidates, and increased competition among suppliers, including manufacturing services providers.

If the prices for our products and services decrease and we are unable to reduce our expenses, including the cost of sourcing materials, logistics and the cost to manufacture our products, our business, results of operations, financial condition and cash flows will be adversely affected.

If we do not successfully optimize and operate our distribution channel or we do not effectively expand and update certain aging and/or outdated infrastructure, our operating results and customer experience may be negatively impacted.

If we do not adequately predict market demand or otherwise optimize and operate our distribution channel successfully, it could result in excess or insufficient inventory or fulfillment capacity, increased costs, immediate shortages in product or component supply, or harm our business in other ways.

In addition, if we do not adequately expand and update certain aging and/or outdated infrastructure that help us, among other things, manage our purchasing and inventory, it could negatively impact our operating results and customer experience.

To continue to develop our sales and marketing organization to successfully achieve market awareness and sell our products, we must:

If we are

Accordingly, unless government and other third-party

| • | the introduction and market acceptance of competing products and technologies, which may have a lower cost or price, allow for a convenience improvement and allow for improved accuracy and reliability; |

effective as the G6 system and may change marketing approval, reimbursement or the extent of coverage for these products.

Additionally, some of our competitors are not subject to the Stark Law, since they do not bill Medicare directly for similar CGM systems and products.

As noted above, the Stark Law is a strict liability statute and therefore, in order to ensure continued compliance, we must satisfy highly technical exceptions.

These compliance efforts may limit our ability to engage in marketing practices commonly utilized by our competitors and as a result, our sales volumes may not keep pace.

Conversely, if we do not strictly satisfy all criteria of an applicable Stark Law exception, we run the risk of incurring substantially financial penalties in the form of fines and potential False Claims Act damages as well as potential exclusion from participation in federal healthcare programs.

Quality problems could lead to recalls or safety alerts, reputational harm, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Quality is very important to us and our customers due to the serious and costly consequences of product failure, and our business exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of medical devices.

Product or component failures, manufacturing nonconformances, design defects, off-label use, or inadequate disclosure of product-related risks or product-related information with respect to our products, if they were to occur, could result in an unsafe condition or injury to, or death of, a patient.

These problems could lead to recall of, or issuance of a safety alert relating to, our products, and could result in product liability claims and lawsuits.

If we fail to meet any applicable product quality standards and our products are the subject of recalls or safety alerts, our reputation could be damaged, we could lose customers, our reputation could be harmed and our revenue and results of operations could decline.

To be successful we must:

However,

If we fail to

The ACA included an excise tax on the sale of medical devices equal to 2.3% of the selling price of the device in the U.S. beginning in 2013.

The excise tax is applicable to sales of our professional use devices.

The excise tax was suspended from 2016 through 2020.

As of December 31, 2018, we believe that our current CGM products were exempt from the excise tax, except for our G4 PLATINUM system for professional use, which is subject to the excise tax.

The current tax liability related to our G4 PLATINUM system for professional use is immaterial but may become material in the future.

Notwithstanding our belief, if the IRS were to determine that this tax applies to any of our current or future products, our future operating results could be harmed, which in turn could cause the price of our stock to decline.

In addition, because of the uncertainty surrounding these issues, the impact of this tax has not been reflected in our forward guidance.

If we are forced to reduce our prices because of industry consolidation, or if we lose customers as a result of consolidation, our revenues may decrease and our business, financial condition, results of operations and cash flows may suffer.

| • | privacy; |

In the event that the FDA determines that our

Allegations of violations of the Anti-Kickback Statute may be brought under the federal Civil Monetary Penalty Law, which requires a lower burden of proof than other fraud and abuse laws, including the Anti-Kickback Statute.

In the future, if our products have material defects or errors, this could result in loss or delay of revenues, delayed market acceptance, damaged reputation, diversion of development resources, legal claims, increased insurance costs or increased service and warranty costs, any of which could harm our business.

Such defects or errors could also prompt us to amend certain warning labels or narrow the scope of the use of our products, either of which could hinder our success in the market.

synthesize our polymeric biointerface membranes for our products.

continuous glucose monitoring.

On June 6, 2016, AgaMatrix filed a First Amended Complaint asserting the same three patents.

On February 24, 2017, the Court granted AgaMatrix’s motion to substitute WaveForm Technologies, Inc., or WaveForm, as the new plaintiff following AgaMatrix’s transfer of the three patents to its newly formed entity.

On August 25, 2016, we filed petitions for inter partes review with the Patent Trial and Appeal Board, or PTAB, of the U.S. Patent and Trademark Office seeking a determination that two of the three asserted patents are invalid under U.S. patent law and those petitions were granted on March 6, 2017.

On March 8, 2017, we filed a petition for inter partes review with the PTAB seeking a determination that the third of the three asserted patents is invalid under U.S. patent law.

This petition was granted on September 15, 2017.

We believe the PTAB erred in finding any claims of the first two patents not unpatentable, and appealed the PTAB’s decision to the United States Court of Appeals for the Federal Circuit, or Federal Circuit, on March 30, 2018.

Briefing of the appeal is complete and we are currently awaiting the dates for oral argument from the Court of Appeals.

WaveForm did not appeal this decision.

On January 4, 2019, the parties stipulated to the dismissal of all claims and counterclaims regarding the third asserted patent.

Most activity in the patent infringement lawsuit against us in the District of Oregon was stayed until the PTAB completed the inter partes review proceedings.

That stay was lifted on October 10, 2018.

The remaining claims and counterclaims will continue with an estimated date of trial in February 2020.

It is our position that Waveform’s assertions of infringement have no merit.

judge on February 23, 2018.

On September 14, 2018, AgaMatrix filed two petitions for inter partes review for each of the same two patents we asserted in the District of Delaware and the ITC.

We filed a response to all four petitions on December 17, 2018.

AgaMatrix had requested additional briefing on the matter and the PTAB has authorized both sides to do so.

Briefing was completed in January 2019.

A court could also order us to pay compensatory damages for such infringement, plus prejudgment interest and could, in addition, treble the compensatory damages and award attorney fees.

These damages could be substantial and could harm our reputation, business, financial condition and operating results.

court also could enter orders that temporarily, preliminarily or permanently enjoin us and our customers from making, using, selling or offering to sell one or more of our products, or could enter an order mandating that we undertake certain remedial activities.

Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties.

[removed: This] [added: *This] document, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are not purely historical regarding DexCom’s or its management’s intentions, beliefs, expectations and strategies for the future.

You should read the following discussion and analysis together with “Selected Financial Data” in Part II, Item 6 and our [added: consolidated] financial statements and related notes in Part II, Item 8 of this Annual [removed: Report.][added: Report.*]

[removed: Overview][added: | Overview | | | | |]

We launched our latest generation system, the DexCom [removed: G6®] [added: G6*®*] integrated Continuous Glucose Monitoring System, or G6, in 2018.

We sell our [removed: durable CGM systems] [added: reusable transmitter] and [added: receiver, collectively referred to as “Reusable Hardware” and] disposable sensors through a direct sales force in the United States, Canada and some countries in Europe, and through distribution arrangements in the United States, [removed: Canada, Australia, New Zealand] and [removed: some] [added: certain] countries in [removed: Europe,] [added: Africa,] Asia, [added: Europe,] Latin America, [added: and] the Middle [removed: East] [added: East, as well as Australia, Canada,] and [removed: Africa.][added: New Zealand.]

We also are aggressively exploring how to extend our offerings to other opportunities, including for people with Type 2 diabetes that are non-insulin using, people with pre-diabetes, people who are obese, people [removed: with gestational diabetes,] [added: who are pregnant,] and [added: people with diabetes] in the hospital setting.

[removed: Critical] [added: | Critical] Accounting Policies and [removed: Estimates][added: Estimates | | | | |]

The discussion and analysis of our financial condition and results of operations are based on our [added: consolidated] financial statements, which we have prepared in accordance with U.S. GAAP.

The preparation of these [added: consolidated] financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the [added: consolidated] financial statements as well as the reported revenue and expenses during the reporting periods.

While our significant accounting policies are more fully described in Note 1 to the [added: consolidated] financial statements in Part II, Item 8 of this Annual Report, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.

[removed: Revenue Recognition][added: *Revenue Recognition*]

For more information, see [removed: “Revenue Recognition”] [added: *“Revenue Recognition”*] in Note 1 to the [added: consolidated] financial statements in Part II, Item 8 of this Annual Report.

We generate our revenue from the sale of our [removed: durable CGM systems] [added: Reusable Hardware] and disposable sensors.

We also provide free-of-charge software and mobile applications for use with our [removed: durable systems] [added: Reusable Hardware] and disposable sensors.

Transaction price is typically based on [added: the] contracted rates less [removed: any estimates] [added: an estimate] of claim denials and historical reimbursement [removed: experience,] [added: experience by payor,] which [removed: would] include current and future expectations regarding reimbursement [removed: contracts, guidelines] [added: rates] and payor [removed: mix, and less estimated variable consideration adjustments including rebates.][added: mix.]

[removed: The amount of variable consideration that is included in the transaction price is included in] [added: We recognize] revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

[removed: Our estimates are] [added: We estimate reductions for rebates] based on [added: contractual arrangements, estimates of] products [removed: sold, historical payor mix and, as available,] [added: sold subject to rebate,] known [removed: market] events or trends and channel inventory data.

[removed: For more information, see “Revenue Recognition” in] [added: See] Note [removed: 1] [added: 2] to the [added: consolidated] financial statements in Part II, Item 8 of this Annual [removed: Report.][added: Report for more information about this collaboration agreement.]

[removed: Disaggregation] [added: *Disaggregation] of [removed: Revenue.][added: Revenue.*]

Reconciliations of revenue disaggregated by geographic location and by major sales channel to total revenue are provided in Note 10 to the [added: consolidated] financial statements in Part II, Item 8 of this Annual Report.

[removed: Share-Based Compensation][added: *Share-Based Compensation*]

We [removed: estimate the fair] value [removed: of] time-based [removed: RSUs based on the market price of our common stock on] [added: Restricted Stock Units (“RSUs”) at] the date of grant [removed: (the] [added: using the] intrinsic value [removed: method).][added: method.]

[removed: Fair] [added: *Fair] Value of Financial [removed: Instruments][added: Instruments*]

Level [removed: 1—Unadjusted] [added: 1—Uses unadjusted] quoted prices that are available in active markets for identical assets or liabilities.

Level [removed: 2—Inputs] [added: 2—Uses inputs] other than quoted prices included in Level 1 that are observable, either directly or indirectly, through correlation with market data.

These include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing [added: methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.]

Level [removed: 3—Unobservable] [added: 3—Uses unobservable] inputs that are supported by little or no market activity and that are significant to the determination of fair value.

See Note 1 and Note 3 to the [added: consolidated] financial statements in Part II, Item 8 of this Annual Report for more information about fair value measurements.

[removed: Accounts Receivable] [added: *Accounts Receivable, Net] and Related Valuation [removed: Accounts][added: Accounts*]

[removed: Excess] [added: *Excess] and Obsolete [removed: Inventory][added: Inventory*]

[removed: Income Taxes][added: *Income Taxes*]

Significant [removed: judgement] [added: judgment] is required to evaluate the need for a valuation allowance against deferred tax assets.

As of December 31, [removed: 2018,] [added: 2019,] we have maintained a full valuation allowance on our deferred tax assets since inception based on our historical losses and the uncertainty of generating future taxable income to utilize our loss and credit carryforwards.

Significant judgment is required to evaluate uncertain tax positions and is based upon a number of factors, including changes in facts or circumstances, changes in [added: tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues.]

[removed: Loss Contingencies][added: *Loss Contingencies*]

If the potential loss from a claim or legal proceeding is considered probable and the amount can be reasonably estimated, we record a liability and an expense for the estimated loss and disclose it in our [added: consolidated] financial statements if it is significant.

[removed: Results] [added: | Results] of [removed: Operations][added: Operations | | | | |]

[removed: Financial Overview][added: | Financial Overview | | | | |]

| | [removed: Twelve] [added: Twelve] Months Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | [removed: 2018] [added: 2019] - [removed: 2017] [added: 2018] | | | | | | | [removed: 2017] [added: 2018] - [removed: 2016] [added: 2017] | | | | | |

| [removed: (Dollars in millions)] [added: *(In millions)*] | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: $ Change] [added: $ Change] | | | | [removed: % Change] [added: % Change] | | | [removed: $ Change] [added: $ Change] | | | | [removed: % Change] [added: % Change] | |

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For discussion related to the results of operations and changes in financial condition for fiscal 2018 compared to fiscal 2017 refer to Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2018 Form 10-K, which was filed with the United States Securities and Exchange Commission on February 21, 2019.

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In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates within the revenue recognition process.

The primary judgments include identifying the performance obligations in the contract and determining whether the performance obligations are distinct.

If any of these judgments were to change it could cause a material increase or decrease in the amount of revenue we report in a particular period.

Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals.

We estimate the fair value of performance-based RSUs at the date of grant using the intrinsic value method and the probability that the specified performance criteria will be met.

We update our assessment of the probability that the specified performance criteria will be achieved each quarter and adjust our estimate of the fair value of the performance-based RSUs if necessary.

The Monte Carlo methodology that we use to estimate the fair value of market-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied.

Provided that the requisite service is rendered, the total fair value of the market-based RSUs at the date of grant must be recognized as compensation expense even if the market condition is not achieved.

However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.

If any of the assumptions used change significantly, share-based compensation expense may differ materially from what we have recorded in the current period.

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| Diluted net income (loss) per share | $ | 1.10 | | | $ | (1.44 | ) | | $ | (0.58 | ) | | $ | 2.54 | | | * | | | $ | (0.86 | ) | | * | |

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The 2019 increase in gross profit dollars was primarily driven by increased revenues, partially offset by higher warranty, freight, and excess and obsolete inventory charges compared to 2018.

Our gross martin percentage for the twelve months ended December 31, 2019 was also impacted by investments to scale infrastructure as we drove significant production capacity expansion in 2019.

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* = Not Meaningful

benefits, share-based compensation, and temporary employee expenses.

We continue to believe that focused investments in research and development are critical to our future growth and competitive position in the marketplace, and to the development of new and updated products and services that are central to our core business strategy.

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ASC Topic 606.

We adopted ASC Topic 606 effective January 1, 2018 using the modified retrospective method.

Results for reporting periods after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with legacy accounting guidance under ASC Topic 605.

The discussion which follows describes the judgments and estimates we use in recognizing revenue under ASC Topic 606.

Our adoption of ASC Topic 606 did not have a material impact on the measurement nor on the recognition of revenue from contracts, for which all revenue had

not been recognized as of January 1, 2018.

Therefore, no cumulative adjustment has been made to the opening balance of retained earnings at the beginning of 2018.

Revenue Recognition.

Our durable systems include a reusable transmitter and receiver.

The initial durable system price is generally not dependent upon the subsequent purchase of any amount of disposable sensors.

We estimate reductions to our revenues for rebates paid to payors and healthcare providers in the United States.

Rebates are based on contractual arrangements or statutory requirements, which may vary by product, payor and individual payor plans.

Recognizing revenue requires us to exercise judgment and use estimates that can have a significant impact on the amount and timing of revenue we report.

Shared-based compensation arrangements include time-based and performance/market-based Restricted Stock Units (“RSUs”) and purchases of common stock at a discount under our Employee Stock Purchase Plan, or ESPP.

We estimate the fair value of performance/market-based RSUs using a Monte Carlo simulation model.

We adjust share-based compensation expense quarterly for performance/market-based RSUs based on the expected achievement of the related performance conditions, which requires significant judgment.

We estimate the fair value of ESPP purchase rights using the Black-Scholes option pricing model.

The model requires us to make assumptions that include expected volatility, expected term, dividends, and the risk-free interest rate.

We account for forfeitures as they occur by reversing any share-based compensation expense related to awards that will not vest.

We recorded $101.9 million, $106.2 million and $110.8 million in share-based compensation expense during the twelve months ended December 31, 2018, 2017 and 2016, respectively.

At December 31, 2018, unrecognized estimated compensation costs related to unvested restricted stock units totaled $126.5 million and are expected to be recognized through 2021.

methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.

tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues.

We sell our G4 PLATINUM, G5 Mobile and G6 durable CGM systems and disposable sensors through a direct sales force in the United States, Canada and some countries in Europe, and through distribution arrangements in the United States, Canada, Australia, New Zealand and some countries in Europe, Asia, Latin America, the Middle East and Africa.

A portion of our costs are currently fixed due to our moderate level of production volumes compared to our potential capacity.

The gross profit of $663.9 million or 64% of total revenue for the twelve months ended December 31, 2018 increased $171.8 million compared to $492.1 million or 68% of total revenue for the same period in 2017.

The 2018 increase in gross profit dollars was driven primarily by increased revenue and decreased warranty costs, partially offset by a $7.3 million excess and obsolete inventory charge that was related to the approval and launch of our G6 system and the continuous improvement and innovation of our products, as well as royalty-related cost of sales charges.

2017 Compared to 2016

Total revenue increased $145.2 million or 25% for the twelve months ended December 31, 2017 compared to the twelve months ended December 31, 2016.

The 2017 revenue increase was primarily driven by increased sales volume of our disposable sensors due to the continued growth of our installed base of customers using our durable systems and also by increased sales volume of our durable systems to both new and existing customers.

Revenue attributable to our disposable sensors and durable systems was approximately 70% and 30%, respectively, of total revenue for each of the twelve months ended December 31, 2017 and 2016.

Revenue from products shipped to our distributors for the twelve months ended December 31, 2017 was approximately $538.0 million or 75% of our total revenue compared to $411.8 million or 72% of our total revenue for the same period in 2016.

Cost of sales increased $31.5 million or 16% for the twelve months ended December 31, 2017 compared to the twelve months ended December 31, 2016 primarily due to increased sales volume.

The gross profit of $492.1 million or 68% of total revenue for the twelve months ended December 31, 2017 increased $113.7 million compared to $378.4 million or 66% of total revenue for the same period in 2016.

The increases in gross profit dollars and gross margin percentage were driven primarily by increased revenue and decreased warranty costs.

Warranty costs were lower in 2017 than in 2016 primarily due to the February 2016 customer notification regarding the audible alarms and alerts associated with our receivers, which was classified as a voluntary Class 1 recall by the FDA and was closed by the FDA in August 2017.

| as a % of total revenue | 82 | | % | | 74 | | % | | 77 | | % | | | | | | | | | | | | | | |

clinical trials.

Research and Development Expense.

Collaborative Research and Development Fee.

[removed: Interest] [added: Interest] Rate [removed: Risk][added: Risk]

[removed: Market] [added: Market] Price Sensitive [removed: Instruments][added: Instruments]

See Note 5 to the [added: consolidated] financial statements in Part II, Item 8 of this Annual Report for more information.

[removed: Foreign] [added: Foreign] Currency Exchange [removed: Risk][added: Risk]

We record exchange rate fluctuations resulting from the translation of the short-term intercompany balances between domestic entities and our foreign subsidiaries as foreign currency transaction gains or losses and include them in interest and other income (expense), net in our [added: consolidated] statement of operations.

[removed: We enter into foreign currency forward] contracts for certain intercompany balances in order to partially offset the impact from fluctuation of the foreign currency rates.

As of December 31, [removed: 2018,] [added: 2019,] a notional amount of [removed: $60.0] [added: $8.0] million was outstanding to hedge currency risk relating to certain intercompany balances.

Derivative [removed: instrument] gains [removed: on forward exchange contracts were $0.4 million for the twelve months ended December 31, 2018] and [added: losses] are included in interest and other [removed: income (expense),] [added: income,] net in our [added: consolidated] statement of operations.

[removed: We record] [added: The fair values of these derivatives are based on quoted market prices, which are Level 1 inputs, and the] derivative instruments [added: are recorded] in other current assets or other current liabilities in our balance sheets consistent with the nature of the instrument at period end.

We entered into no foreign currency forward contracts during [removed: 2017 or 2016.][added: the year ended December 31, 2019.]

We occasionally enter into foreign currency forward

The resulting impact from the hedging activity on our consolidated financial statements was not significant for the year ended December 31, 2019.

| | | | | |

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| | | | | |

The fair value of the forward contract exchange derivative instrument liability was $0.2 million as of December 31, 2018.

| | |

| --- | --- |

[removed: Overview][added: | Overview | | | | |]

We launched our latest generation system, the DexCom [removed: G6®] [added: G6*®*] integrated Continuous Glucose Monitoring System, or G6, in 2018.

[removed: Products][added: Products]

[removed: DexCom G6®][added: *DexCom G6®*]

In March 2018, we obtained marketing authorization from the FDA for the G6 via the [removed: de novo] [added: *de novo*] process.

The G6 is the first type of [removed: continuous glucose monitoring] [added: CGM] system permitted by the FDA to be used as part of an integrated system with other compatible medical devices and electronic interfaces, which may include automated insulin dosing systems, insulin pumps, blood glucose meters or other electronic devices used for diabetes management.

G6 and substantially equivalent devices of this generic type that may later receive marketing authorization are referred to as integrated continuous glucose monitoring [removed: systems] [added: systems,] or iCGMs, and have been classified as Class II [removed: devices.][added: devices by the FDA.]

In June 2018, we received Conformité Européenne Marking, or CE Mark, approval for the G6, which allows us to market the system in the European Union and the countries in Asia and Latin America that recognize the CE Mark, as well as New [removed: Zealand (subject to compliance with certain local administrative requirements)] [added: Zealand,] though certain countries may require [added: compliance with certain local administrative requirements and/or] additional marketing authorizations (for example, the inclusion of medical devices on the Australian Register of Therapeutic Goods in Australia).

[removed: The] [added: For the G6, the] sensor is inserted by the user and is intended to be used continuously for up to [removed: ten] [added: 10] days, after which it may be replaced with a new disposable sensor.

| • | [removed: Continuous] [added: Continuous] glucose [removed: readings.] [added: readings.] Automatically sends glucose readings to a DexCom receiver or compatible mobile device every five minutes. |

| • | [removed: Mobile] [added: Mobile] app and [removed: sharing.] [added: sharing.] Compatibility with mobile device applications allows for sharing glucose information with [removed: up to five] [added: other] people for added [removed: support.] [added: support and care coordination.] |

| • | [removed: Customizable] [added: Customizable] alarms and [removed: alerts.] [added: alerts.] Personalized alert schedule immediately warns the user of pending dangerous high and low blood sugars. |

[removed: | • | Third-party reimbursement.] In the United States, the G6 is covered by [added: Medicare as well as] those commercial insurers that reimburse for the [added: DexCom] G5 [removed: Mobile, as well as Medicare. |][added: Mobile Continuous Glucose Monitoring System, subject to satisfaction of certain eligibility and coverage criteria.]

| • | [removed: Finger] [added: Finger] stick [removed: elimination.] [added: elimination.] No finger sticks are needed for calibration or diabetes treatment decisions, consistent with the instructions for use. |

| • | [removed: Easy] [added: Easy] sensor [removed: application.] [added: application.] Complete redesign of the sensor applicator allows for one-touch, simple [removed: insertion.] [added: self-insertion.] |

| • | [removed: Discreet] [added: Discreet] and low [removed: profile.] [added: profile.] A redesigned transmitter with a 28% lower profile than the previous generation DexCom CGM [added: system] makes the device comfortable and easy to wear under clothing. |

| • | [removed: Medication blocking.] [added: Medication blocking.] New feature allows for more accurate glucose readings without interference from [added: common] medications taken at typical indication doses, such as acetaminophen. |

| • | [removed: Predictive] [added: Predictive] low [removed: alert.] [added: alert.] New alert feature intended to predict hypoglycemia before it hits to help avoid dangerous low blood sugar events. |

| • | [removed: Extended] [added: Extended] 10-day [removed: sensor.] [added: sensor. Up to] 10-day sensor [added: use] allows for 43% longer wear than previous generation DexCom [removed: CGMs.] [added: CGM systems.] |

[removed: Except with respect to the foregoing, the G6 is equivalent to our prior generation CGM systems in its technical capabilities and its indications, except that since] [added: Since] the G6 is classified by the FDA as a Class II device, it is subject to special controls and modifications [removed: of] [added: of,] or revisions [removed: to] [added: to,] the device may be made under the 510(k) process.

[removed: DexCom G5® Mobile][added: *DexCom G5®* *Mobile*]

Approval of the non-adjunctive indication [removed: also] was [added: also] an important and necessary step in enabling people with Medicare to access CGM.

[removed: DexCom G4® PLATINUM][added: *DexCom G4®* *PLATINUM*]

[added: In June 2014, we received approval] from the FDA for an expanded indication for the G4 PLATINUM for professional use, which allows healthcare professionals to purchase the G4 PLATINUM system for use with multiple patients.

[removed: Healthcare professionals can use the insights gained from a G4 PLATINUM professional] session to adjust therapy and to educate and motivate patients to modify their behavior after viewing the effects that specific foods, exercise, stress and medications have on their glucose levels.

In October 2014, we launched our Software 505 algorithm for the G4 PLATINUM, an algorithm which enabled our systems to achieve a single digit [removed: MARD –] [added: MARD,] a measure of the accuracy of continuous glucose monitoring.

[removed: DexCom Share®][added: *DexCom Share*®]

[removed: Data] [added: *Data] and Insulin Delivery [removed: Collaborations][added: Collaborations*]

We have entered into multiple collaboration agreements that leverage our technology platform to integrate our [removed: continuous glucose monitoring] [added: CGM] products with insulin delivery systems.

[removed: Verily Collaboration][added: *Verily Collaboration*]

In consideration of Verily’s performance of its obligations under the joint development plan of the Restated Collaboration Agreement, the licenses granted to us and the amendment of the original agreement, we [added: have] made [removed: an] upfront [removed: payment,] and [added: incentive payments, and] will make potential future milestone [removed: and incentive] payments upon the achievement of certain goals, as follows:

| • | On December 28, 2018, we made an initial payment of [removed: $250] [added: $250.0] million in shares of our common stock, calculated under the Restated Collaboration Agreement to be 1,840,943 shares of our common stock, allocated between Verily and Onduo, LLC, subject to certain transfer restrictions. |

[added: | • | Additional milestone] payments [added: of up to $275.0 million may become due and payable by us upon the achievement of future product regulatory approval and revenue milestones. At our election, we may make these milestone payments] in shares of our common stock, also allocated between Verily and Onduo, LLC, with the number of shares being calculated based on the same share value that was used for purposes of the initial payment, adjusted for stock splits, dividends, and the like, subject to customary closing conditions, including any required antitrust approvals applicable to the issuance of such shares. [added: Alternatively, at our election, we may make any of these milestone payments in cash. Any such cash |]

[removed: Any such cash] payment would be equal to the number of shares that would otherwise be issued for the given milestone payment (calculated as described above) multiplied by the value of our stock on the date the relevant milestone is achieved, adjusted for stock splits, dividends, and the like.

[removed: Future Products][added: *Future Products*]

We [removed: also] are [removed: aggressively] [added: also] exploring how to extend our offerings to other opportunities, including for people with Type 2 diabetes that are non-insulin using, people with pre-diabetes, people who are obese, people [removed: with gestational diabetes] [added: who are pregnant,] and [added: people] in the hospital setting.

[removed: Background][added: Background]

IDF estimates that by 2045, the worldwide incidence of people suffering from diabetes will reach [removed: 629] [added: 700] million.

According to the [removed: CDC‘s] [added: Centers for Disease Control and Prevention’s] National Vital Statistics Reports for [removed: 2015,] [added: 2017,] diabetes was the seventh leading cause of death by disease in the United [removed: States.][added: States, excluding comorbidities associated with the disease.]

According to the Congressional Diabetes Caucus website, diabetes is the leading cause of kidney failure, adult-onset blindness, lower-limb amputations, and [added: a] significant cause of heart [removed: disease and] [added: disease,] stroke, high blood pressure and nerve damage.

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In October 2019, we also received marketing authorization from the FDA for the DexCom G6 Pro, or G6 Pro, which allows healthcare professionals to purchase the G6 for use with their patients.

The G6 Pro has many of same features as the G6 and is intended for healthcare professionals to use with their patients ages two years and up.

The G6 Pro may be used in a blinded or unblinded mode for up to 10 days.

Other than with respect to the foregoing, the G6 is equivalent to our prior generation CGM systems in its technical capabilities and its indications.

Healthcare professionals can use the insights gained from a G4 PLATINUM professional

| • | During 2019, we paid $3.2 million for the completion of certain development obligations before the agreed-upon deadline. |

The International Diabetes Federation, or IDF, estimates that in 2019, 463 million adults (aged 20-79) around the world had diabetes, including 31 million in the United States.

Various clinical studies and real world evidence also demonstrate the benefits of continuous glucose monitoring in the management of Type 1 diabetes and insulin-requiring Type-2 diabetes, when compared to regimens relying on self-monitoring of blood glucose.

Results of several early clinical trials established that CGM usage was associated with improved glycemic outcomes.

Study participants also increased time spent in their target

Real-time alerts and multi-device integration further differentiate CGM-based and self-monitoring of blood glucose, or SMBG, based diabetes regimens.

Alerts triggered by existing or impending abnormal glucose values are associated with less exposure to hypo- and hyperglycemia in large real-world data sets, and multi-device integration allows some CGM systems to communicate with automated insulin delivery systems.

One such automated insulin delivery system that uses the G6 was studied in a large clinical trial that associated its use with numerous quality-of-life and glycemic benefits.

In late 2019, the ADA, in its Standards of Medical Care in Diabetes, recognized CGM as a useful tool in diabetes management, citing level “A” evidence in Type 1 diabetes and level “B” evidence in Type 2 diabetes and pregnancy.

The ADA recommends continued access and use “as close to daily as possible” for maximal benefit.

We believe Dexcom’s CGM technology contributes to better glycemic outcomes and improved quality of life by allowing informed diabetes treatment decisions.

A 2019 white paper from IQVIA also outlines the potential benefit offered by use of CGM systems, suggesting that increasing time-in-range to industry standards for Type 1 and Type 2 insulin-using patients would result in significant cost savings to the economic system and the prevention of major complications.

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

In addition, according to the ADA in 2019, nearly 18,000 youth are newly diagnosed with Type 1 diabetes every year in the United States.

The

In the United Kingdom and Germany, CGMs and most related supplies do not require a prescription to purchase; however, a prescription is required for coverage.

The G4 PLATINUM and G5 Mobile systems prompt the user to replace the sensor no later than the seventh day, and the G6 prompts the user to replace the sensor no later than the tenth day.

using single-point finger stick tests, and may be more costly to use than other glucose measurement devices.

We focus on delivering this important information to participants to drive adoption of our G4 PLATINUM, G5 Mobile and G6 systems.

by CMS, by local Medicare Administrative Contractors or on a patient claim by claim basis.

For additional information, see Risk Factors *Managed care trends and consolidation in the health care industry could have an adverse effect on our revenues and results of operations*.

and *Health care policy changes, including U.S. health care reform legislation, may have a material adverse effect on our business*.

and pending trademark applications around other parts of the world.

Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a false claim action, even before the validity of the claim is established and even if the government decides not to intervene in the lawsuit.

Healthcare companies may decide to agree to large settlements with the government and/or whistleblowers to avoid the cost and negative publicity associated with litigation.

Federal enforcement agencies also have showed increased interest in

Violations of the Stark Law must be reported and returned to Medicare in order to avoid potential liability under the federal False Claims Act for avoiding a known obligation to return identified overpayments.

Violations of the Stark Law, the Anti-Kickback Statute, the Civil Monetary Penalties Law and/or the federal False Claims Act can also form the basis for exclusion from participation in federal and state healthcare programs.

*Civil Monetary Penalties Law*.

The Civil Monetary Penalties Law, or CMPL, authorizes the imposition of substantial civil money penalties against an entity that engages in certain prohibited activities including but not limited to violations of the Stark Law or Anti-Kickback Statute, knowing submission of a false or fraudulent claim, employment of an excluded individual, and the provision or offer of anything of value to a Medicare or Medicaid beneficiary that the transferring party knows or should know is likely to influence beneficiary selection of a particular provider for which payment may be made in whole or part by a federal health care program,commonly known as the Beneficiary Inducement CMP.

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| --- | --- |

In June 2014, we received approval

| • | Additional milestone payments of up to $275 million may become due and payable by us upon the achievement of future product regulatory approval and revenue milestones. At our election, we may make these milestone |

Alternatively, at our election, we may make any of these milestone payments in cash.

| • | An additional payment of up to $5 million will become due and payable by us as an incentive payment if Verily completes its development obligations at least thirty days before an agreed-upon deadline. |

Our product development timelines depend on our ability to achieve clinical endpoints, regulatory and legal requirements and to overcome technology challenges.

Product development timelines may be delayed due to extended regulatory approval timelines, scheduling issues with patients and investigators, requests from institutional review boards, sensor performance and manufacturing supply constraints, among other factors.

In addition, support of these clinical trials requires significant resources from employees involved in the production of our products, including research and development, manufacturing, quality assurance, and clinical and regulatory personnel.

Even if our development and clinical trial efforts are successful, the FDA may not approve, clear or otherwise authorize our products, and even if authorized, we may not achieve acceptance in the marketplace by physicians and people with diabetes.

The International Diabetes Federation, or IDF, estimates that in 2017, 425 million people around the world had diabetes, and the Centers for Disease Control, or CDC, estimates that in 2017, diabetes affected 30.3 million people in the United States, of which 7.2 million were undiagnosed.

According to an article published in The New England Journal of Medicine in November 2014, excess mortality for people with diabetes with ages of less than 30 years is largely explained by acute complications of diabetes.

Yet, according to an article published in the Journal of the American Medical Association in 2004, less than 50% of diabetes patients were meeting ADA standards for glucose control (A1c), and only 37% of people with diabetes were achieving their glycemic targets.

The CDC estimated that as of 2010, 63.6% of all adults with diabetes were monitoring their blood glucose levels on a daily basis, with a substantially higher percentage for insulin-requiring patients.

Various clinical studies also demonstrate the benefits of continuous glucose monitoring and that continuous glucose monitoring is equally effective in patients who administer insulin through multiple daily injections or through use of continuous subcutaneous insulin infusion pumps.

chronic long-term complications such as heart disease, limb amputations, loss of kidney function and blindness.

In addition, according to the National Diabetes Statistics Report in 2009, there were an estimated 18,436 people younger than the age of 20 years old were diagnosed with Type 1 diabetes in the United States.

People with diabetes are often unaware that their glucose levels are either too high or too low, and their inability to completely control blood glucose levels and the associated serious complications can be frustrating and, at times, overwhelming.

with glucose levels in the target range, thereby reducing time spent in both hyperglycemic and hypoglycemic ranges.

Finally, peer reviewed data published from the DIaMonD study demonstrated that DexCom CGM System users on MDI (multiple daily injections) achieved a one percent average reduction in hemoglobin A1c levels, a measure of the average amount of glucose in the blood over the prior three months, after 24 weeks of regular use, compared to their baseline.

Study participants also increased time spent in their target A1c range and spent less time in hypoglycemia and hyperglycemia when they used a DexCom CGM system compared to those who used only a standard blood glucose meter to monitor their glucose.

In the United Kingdom, CGMs and most related supplies are issued pursuant to a prescription; however, prescriptions are free for residents of England, Scotland, Wales and Northern Ireland under the National Health System.

People with diabetes could find this process to be uncomfortable or inconvenient, and may be unwilling to insert a disposable sensor in their body, especially if their current diabetes management involves no more than two finger sticks per day.

We plan to develop

We are aware of reports from the field, however, that customers have been able to use the G6 and the G5 Mobile and G4 PLATINUM sensors for periods longer than ten or seven days, respectively.

We believe that referrals by endocrinologists, physicians and diabetes educators, together with self-referrals by customers, have driven and will continue to drive adoption of our G4 PLATINUM, G5 Mobile and G6 systems.

We have relatively limited experience developing and managing a direct sales organization and we may be unsuccessful in our attempt to manage and expand the sales force.

user’s glucose levels are low and to automate basal or bolus insulin dosing.

Many of our competitors are either publicly traded or are divisions of publicly traded companies, and they enjoy several competitive advantages over us.

As a result, we may be unable to compete effectively against these companies or their products.

In some cases, agreements with these and other suppliers can be terminated by either party upon short notice.

We may not be able to quickly establish additional or replacement suppliers for our single-source components, especially after our products are commercialized, in part because of the FDA review process and because of the custom nature of the parts we designed.

Any supply interruption from our vendors or failure to obtain alternate vendors for any of the components would limit our ability to manufacture our systems, and could have a material adverse effect on our business.

the FDA initiates such reclassification (issuance of a proposed reclassification order; optional panel consultation; and final reclassification order published in the Federal Register).

Anti-kickback Laws.

Federal False Claims Act.

Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a false claim action, pay fines or be excluded from Medicare, Medicaid or other federal or state healthcare programs as a result of an investigation arising out of such action.

Federal Physician Self-Referral Law (Stark Law).

On March 28, 2016, AgaMatrix, Inc., or AgaMatrix, filed a patent infringement lawsuit against us in the [removed: United States] [added: U.S.] District Court for the District of Oregon, asserting that certain of our products infringe [removed: certain] [added: three] patents held by AgaMatrix.

[removed: The PTAB issued a Final Written Decision for the third patent on] [added: On] September 12, 2018, [removed: where] the PTAB found all [removed: claims] of the [removed: third patent] asserted [removed: against us] [added: claims] in the [removed: District of Oregon litigation] [added: third patent] unpatentable.

We filed a patent infringement lawsuit against AgaMatrix in the United States District Court for the Central District of California, or C.D. Cal., [added: in] which [removed: is currently on appeal to the Federal Circuit based on] a Final Judgment of non-infringement [added: was] entered by the C.D. [removed: Cal.][added: Cal judge on February 23, 2018 and affirmed on appeal by the Federal Circuit on March 7, 2019.]

[removed: AgaMatrix sought attorneys’ fees for this lawsuit and as] [added: As] of December 31, [removed: 2018] [added: 2019,] we have accrued an immaterial amount for those fees.

Other than the attorneys’ fees described above, as of December 31, [removed: 2018] [added: 2019] we have accrued no amounts for contingent losses associated with these suits.

(After filing suit, AgaMatrix reorganized its business and the Court granted AgaMatrix’s motion to substitute the newly created entity WaveForm Technologies, Inc., as the plaintiff following AgaMatrix’s transfer of the three asserted patents to WaveForm.) DexCom filed petitions for *inter partes* review with the Patent Trial and Appeal Board, or PTAB, of the U.S. Patent and Trademark Office, challenging each of the three asserted patents as being unpatentable in view of prior art.

In October 2018, we filed in the District Court a motion for summary judgment that all remaining asserted claims are invalid.

The District Court granted that motion and, on August 23, 2019, entered judgment in our favor.

On September 6, 2019, WaveForm appealed the judgment.

The appeal is pending and no hearing date has been set.

AgaMatrix was awarded attorneys’ fees for this lawsuit.

The fee decision is currently on appeal to the Federal Circuit.

The investigation was terminated by the ITC on April 4, 2019 with a finding of non-infringement.

The decision is currently on appeal.

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On June 6, 2016, AgaMatrix filed a First Amended Complaint asserting the same three patents.

On February 24, 2017, the Court granted AgaMatrix’s motion to substitute WaveForm Technologies, Inc., or WaveForm, as the new plaintiff following AgaMatrix’s transfer of the three patents to its newly formed entity.

On August 25, 2016, we filed petitions for inter partes review with the Patent Trial and Appeal Board, or PTAB, of the U.S. Patent and Trademark Office seeking a determination that two of the three asserted patents are invalid under U.S. patent law and those petitions were granted on March 6, 2017.

On March 8, 2017, we filed a petition for inter partes review with the PTAB seeking a determination that the third of the three asserted patents is invalid under U.S. patent law.

This petition was granted on September 15, 2017.

We believe the PTAB erred in finding any claims of the first two patents not unpatentable, and appealed the PTAB’s decision to the United States Court of Appeals for the Federal Circuit, or Federal Circuit, on March 30, 2018.

Briefing of the appeal is complete and we are currently awaiting the dates for oral argument from the Court of Appeals.

WaveForm did not appeal this decision.

On January 4, 2019, the parties stipulated to the dismissal of all claims and counterclaims regarding the third asserted patent.

Most activity in the patent infringement lawsuit against us in the District of Oregon was stayed until the PTAB completed the inter partes review proceedings.

That stay was lifted on October 10, 2018.

The remaining claims and counterclaims will continue with an estimated date of trial in February 2020.

It is our position that Waveform’s assertions of infringement have no merit.

judge on February 23, 2018.

On September 14, 2018, AgaMatrix filed two petitions for inter partes review for each of the same two patents we asserted in the District of Delaware and the ITC.

We filed a response to all four petitions on December

17, 2018.

AgaMatrix had requested additional briefing on the matter and the PTAB has authorized both sides to do so.

Briefing was completed in January 2019.

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[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] DC [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

| [removed: ý] [added: ☒] | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

For the fiscal year ended [removed: December] [added: December] 31, [removed: 2018][added: 2019]

| [removed: ¨] [added: ☐] | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the transition period from [removed: to][added: to]

[removed: Commission] [added: Commission] file [removed: number 000-51222][added: number 000-51222]

[removed: DEXCOM, INC.][added: DEXCOM, INC.]

| [removed: Delaware] [added: Delaware] | | [removed: 33-0857544] [added: 33-0857544] |

[removed: | 6340] [added: 6340] Sequence [removed: Drive San Diego, California | | 92121 |][added: Drive, San Diego, CA 92121]

[removed: |] (Address of Principal Executive [removed: Offices) | | (Zip Code) |][added: Offices, including area code)]

[removed: Registrant’s] [added: (Registrant’s] Telephone Number, including area [removed: code: (858) 200-0200][added: code)]

| [removed: Title] [added: Title] of Each [removed: Class] [added: Class] | [added: Trading Symbol(s)] | [removed: Name] [added: Name] of Each Exchange on Which [removed: Registered] [added: Registered] |

| Common Stock, $0.001 Par Value Per Share | [added: DXCM] | The Nasdaq Stock Market LLC [removed: (Nasdaq Global Select Market)] |

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the Exchange Act: [removed: None][added: None]

Yes [removed: ý] [added: ☒] No [removed: ¨][added: ☐]

Yes [removed: ¨] [added: ☐] No [removed: ý][added: ☒]

Yes [removed: ý] [added: ☒] No [removed: ¨][added: ☐]

Yes [removed: ý] [added: ☒] No [removed: ¨][added: ☐]

Large accelerated filer [removed: ý] [added: ☒] Accelerated filer [removed: ¨] [added: ☐] Non-accelerated filer [removed: ¨] [added: ☐] Smaller reporting company [removed: ¨] [added: ☐] Emerging growth company [removed: ¨][added: ☐]

Yes [removed: ¨] [added: ☐] No [removed: ý][added: ☒]

As of June [removed: 29, 2018,] [added: 28, 2019,] the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately [removed: $8.276 billion] [added: $13,556.6 million] based on the closing sales price of [removed: $94.98] [added: $149.84] per share as reported on the Nasdaq Global Select Market.

| [removed: Class] [added: Class] | | [removed: Outstanding] [added: Outstanding] at February [removed: 15, 2019] [added: 7, 2020] |

| Common stock, $0.001 par value per share | | [removed: 90,001,767] [added: 91,594,142] |

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of the Registrant’s definitive proxy statement relating to its [removed: 2019] [added: 2020] Annual Meeting of Stockholders (the Proxy Statement) are incorporated by reference in Part III, Items 10 through 14 of this Annual Report on Form 10-K, as specified in the responses to those item numbers.

[removed: DexCom, Inc.][added: | DexCom, Inc. |]

[removed: Table] [added: | Table] of [removed: Contents][added: Contents |]

| | | Page [removed: Number] |

| [removed: PART I] [added: PART I] | | |

| ITEM 1. | Business | [removed: [3](#s4263618F1D9450BFBA10775FCDE2C0CB)] [added: [3](#s394B35A74DC95653AEE4F947B4A475EB)] |

| ITEM 1A. | Risk Factors | [removed: [26](#sB757F6EDECC25A85952B6D25892B2FC9)] [added: [24](#sB2B2A2FFB5AD59048087F45FF7556428)] |

| ITEM 1B. | Unresolved Staff Comments | [removed: [57](#s28A84145A31A5AE08FC55CE1498163D9)] [added: [57](#s5148CF436CD954FEA9B04D4D60A8B424)] |

| ITEM 2. | Properties | [removed: [58](#sABCDA64F162D59FD8BAFC1801C7E9AE7)] [added: [58](#s903B427E80075861AE918E170E37E4AF)] |

| ITEM 3. | Legal Proceedings | [removed: [58](#sC13371465F6257FB97BA87E16AA9D44F)] [added: [58](#sD537126CD9165A08A9C65F5A611C206F)] |

| ITEM 4. | Mine Safety Disclosures | [removed: [59](#s2760B976E9225D41B8D41993C72772D5)] [added: [59](#sC64C48DCFD5D50B28B960A1753D33379)] |

| [removed: PART II] [added: PART II] | | |

| ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | [removed: [60](#sE3A04D842737591591E6AE77BA34E5AF)] [added: [60](#sA8EC57ACEC355957A9CA1FE862822632)] |


(858) 200-0200

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10-K 1 dxcm-12312018x10k.htm 10-K

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Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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| [removed: Location |] [added: Location] | [removed: Approximate Square Feet] | [added: Approximate Square Feet] | | [removed: Purpose] [added: Purpose] | | [removed: Lease] [added: Lease] Expiration [removed: Dates] [added: Dates] |

| San Diego, CA | | [removed: 470,900 |] [added: 503,400] | | Laboratory, Manufacturing, Research and Development, Warehouse, General and Administrative, Sales and Marketing | | [removed: 2022] [added: 2026] (1) |

| Mesa, AZ | | 148,800 | | [removed: |] General and Administrative, Laboratory, Manufacturing, Warehouse | | 2028 (2) |

(1) Excludes renewals that would be at our option to extend the term of [removed: leases] [added: a lease] for approximately [removed: 219,000] [added: 351,400] square feet of space [added: expiring in 2023] for two additional [added: three to] five-year terms.

We lease real property to to support our business, including manufacturing, research and development, sales, marketing and administration.

The following lists those properties that we believe are material to our business.

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We also lease various administrative and customer support real properties throughout the world including the U.S., Canada, Germany, the Philippines, Switzerland and the United Kingdom.

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Our principal locations, their sizes and purposes, and the expiration dates for the leases on the facilities at those locations as of December 31, 2018 are shown in the table below.

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| All international locations (3) | | 122,800 | | | EMEA Headquarters, Clinical, Regulatory, Marketing, General and Administrative | | 2026 |

(3) International locations include Canada, the United Kingdom, Germany, Switzerland and the Philippines.

We also lease facilities in a number of smaller domestic locations.

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[removed: PART II][added: PART II]

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[removed: Market] [added: *Market] Information for Common [removed: Stock][added: Stock*]

DexCom’s common stock is traded on the Nasdaq Global Select Market under the symbol “DXCM.” [removed: The following table sets forth the high and low intraday per share sales prices reported on Nasdaq for DexCom’s common stock for the periods indicated.]

[removed: Stockholders][added: *Stockholders*]

We had approximately 30 stockholders of record as of February [removed: 19, 2019.][added: 7, 2020.]

[removed: Dividend Policy][added: *Dividend Policy*]

[removed: Recent] [added: *Recent] Sales of Unregistered [removed: Securities][added: Securities*]

There were no unregistered sales of equity securities which have not been previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K during the year ended December 31, [removed: 2018.][added: 2019.]

[removed: Purchases] [added: *Purchases] of Equity Securities by the Issuer and Affiliated [removed: Purchasers][added: Purchasers*]

[removed: Company] [added: *Company] Stock Price [removed: Performance][added: Performance*]

The graph below compares the cumulative total stockholder return on our common stock with the cumulative total returns on the Nasdaq Composite Index and the Nasdaq Medical Equipment Index over the five-year period ending December 31, [removed: 2018.][added: 2019.]

The graph assumes that $100 was invested in DexCom common stock and in each of the other indices on December 31, [removed: 2013] [added: 2014] and that all dividends were reinvested.

[removed: ][added: ]

* $100 invested on December 31, [removed: 2013] [added: 2014] in stock or index, including reinvestment of any dividends.

| | [removed: December] [added: | December] 31, [removed: 2013] [added: 2014] | | | | [removed: December] [added: December] 31, [removed: 2014] [added: 2015] | | | | [removed: December] [added: December] 31, [removed: 2015] [added: 2016] | | | | [removed: December] [added: December] 31, [removed: 2016] [added: 2017] | | | | [removed: December] [added: December] 31, [removed: 2017] [added: 2018] | | | | [removed: December] [added: December] 31, [removed: 2018] [added: 2019] | | |

Neither we nor any affiliated purchaser repurchased any of our equity securities in fiscal year 2019.

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| DexCom, Inc. | | $ | 100.00 | | | $ | 148.77 | | | $ | 108.45 | | | $ | 104.25 | | | $ | 217.62 | | | $ | 397.35 | |

| Nasdaq Composite | | $ | 100.00 | | | $ | 106.96 | | | $ | 116.45 | | | $ | 150.96 | | | $ | 146.67 | | | $ | 200.49 | |

| Nasdaq Medical Equipment | | $ | 100.00 | | | $ | 111.06 | | | $ | 116.87 | | | $ | 166.41 | | | $ | 187.88 | | | $ | 227.84 | |

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| | | High | | | | Low | | |

| Year Ended December 31, 2018 | | | | | | | | |

| First Quarter | | $ | 75.30 | | | $ | 51.04 | |

| Second Quarter | | $ | 102.10 | | | $ | 69.51 | |

| Third Quarter | | $ | 148.56 | | | $ | 92.33 | |

| Fourth Quarter | | $ | 152.14 | | | $ | 105.05 | |

| | | High | | | | Low | | |

| Year Ended December 31, 2017 | | | | | | | | |

| First Quarter | | $ | 88.80 | | | $ | 57.68 | |

| Second Quarter | | $ | 85.32 | | | $ | 66.16 | |

| Third Quarter | | $ | 78.92 | | | $ | 42.62 | |

| Fourth Quarter | | $ | 62.35 | | | $ | 43.74 | |

In November 2018 we repurchased 0.8 million shares of our common stock for $100.0 million, or an average per share price of $123.99.

None of these shares were repurchased as part of a publicly announced share repurchase plan.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*

AMONG DEXCOM, INC.

THE NASDAQ COMPOSITE INDEX

AND THE NASDAQ MEDICAL EQUIPMENT INDEX

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| DexCom, Inc. | $ | 100.00 | | | $ | 155.46 | | | $ | 231.29 | | | $ | 168.60 | | | $ | 162.07 | | | $ | 338.32 | |

| Nasdaq Composite | $ | 100.00 | | | $ | 114.62 | | | $ | 122.81 | | | $ | 133.19 | | | $ | 172.11 | | | $ | 165.84 | |

| Nasdaq Medical Equipment | $ | 100.00 | | | $ | 117.22 | | | $ | 131.48 | | | $ | 138.45 | | | $ | 195.37 | | | $ | 221.45 | |

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[removed: The] [added: *The] consolidated statements of operations data for the years [removed: ended December 31, 2018, 2017, and 2016 and] [added: ended* *December 31,* *2019,* *2018, and* *2017* *and] the consolidated balance sheet data as [removed: of December 31, 2018 and 2017 have] [added: of* *December 31,* *2019* *and* *2018* *have] been derived from our audited consolidated financial statements included elsewhere in this Annual Report.

The statements of operations data for the years [removed: ended December 31, 2015 and 2014 and] [added: ended* *December 31,* *2016* *and* *2015* *and] the consolidated balance sheet data as [removed: of December 31, 2016, 2015 and 2014 have] [added: of* *December 31,* *2017,* *2016* *and* *2015* *have] been derived from our audited [added: consolidated] financial statements not included in this Annual Report.

The following selected financial data should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and our [added: consolidated] financial statements and related notes in Part II, Item 8 of this Annual [removed: Report.][added: Report.*]

| | | [removed: Years] [added: Twelve Months] Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | | | | | |

| [removed: (In] [added: *(In] millions, except per share [removed: data)] [added: data)*] | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| [removed: Consolidated] [added: Consolidated] Statements of Operations [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | | |

| Product revenue | | $ | [removed: 1,031.6] [added: 1,476.0] | | | $ | [removed: 718.5] [added: 1,031.6] | | | $ | [removed: 573.3] [added: 718.5] | | | $ | [removed: 400.7] [added: 573.3] | | | $ | [removed: 257.1] [added: 400.7] | |

| Development grant and other revenue | | — | | | | — | | | | — | | | | [removed: 1.3] [added: —] | | | | [removed: 2.1] [added: 1.3] | | |

| Total revenue | | [removed: 1,031.6] [added: 1,476.0] | | | | [removed: 718.5] [added: 1,031.6] | | | | [removed: 573.3] [added: 718.5] | | | | [removed: 402.0] [added: 573.3] | | | | [removed: 259.2] [added: 402.0] | | |

| [removed: Product cost] [added: Cost] of sales | | [removed: 367.7] [added: 544.5] | | | | [removed: 226.4] [added: 367.7] | | | | [removed: 194.9] [added: 226.4] | | | | [removed: 123.6] [added: 194.9] | | | | [removed: 82.3] [added: 123.6] | | |

| Gross profit | | [removed: 663.9] [added: 931.5] | | | | [removed: 492.1] [added: 663.9] | | | | [removed: 378.4] [added: 492.1] | | | | [removed: 278.4] [added: 378.4] | | | | [removed: 176.3] [added: 278.4] | | |

| Research and development | | [removed: 199.7] [added: 273.5] | | | | [removed: 185.4] [added: 199.7] | | | | [removed: 156.1] [added: 185.4] | | | | [removed: 101.0] [added: 156.1] | | | | [removed: 69.4] [added: 101.0] | | |

| Collaborative research and development fees(1) | | [removed: 217.7] [added: —] | | | | [removed: —] [added: 217.7] | | | | — | | | | [removed: 36.5] [added: —] | | | | [removed: —] [added: 36.5] | | |

| Selling, general and administrative | | [removed: 432.8] [added: 515.7] | | | | [removed: 349.2] [added: 432.8] | | | | [removed: 286.2] [added: 349.2] | | | | [removed: 198.0] [added: 286.2] | | | | [removed: 128.4] [added: 198.0] | | |

| Total operating expenses | | [removed: 850.2] [added: 789.2] | | | | [removed: 534.6] [added: 850.2] | | | | [removed: 442.3] [added: 534.6] | | | | [removed: 335.5] [added: 442.3] | | | | [removed: 197.8] [added: 335.5] | | |

| Operating [removed: loss] [added: income (loss)] | | [removed: (186.3] [added: 142.3] | | [removed: )] | | [removed: (42.5] [added: (186.3] | | ) | | [removed: (63.9] [added: (42.5] | | ) | | [removed: (57.1] [added: (63.9] | | ) | | [removed: (21.5] [added: (57.1] | | ) |

| Interest expense | | [removed: (22.7] [added: (60.3] | | ) | | [removed: (12.8] [added: (22.7] | | ) | | [removed: (0.7] [added: (12.8] | | ) | | [removed: (0.4] [added: (0.7] | | ) | | [removed: (0.8] [added: (0.4] | | ) |

| Income [added: (loss)] from equity investments | | [removed: 80.1] [added: (4.2] | | [added: )] | | [removed: —] [added: 80.1] | | | | — | | | | — | | | | — | | |

| Interest and other income (expense), net | | [removed: 2.4] [added: 26.4] | | | | [removed: 6.7] [added: 2.4] | | | | [removed: (0.3] [added: 6.7] | | [removed: )] | | [removed: —] [added: (0.3] | | [added: )] | | — | | |

| [removed: Loss] [added: Income (loss)] before income taxes | | [removed: (126.5] [added: 104.2] | | [removed: )] | | [removed: (48.6] [added: (126.5] | | ) | | [removed: (64.9] [added: (48.6] | | ) | | [removed: (57.5] [added: (64.9] | | ) | | [removed: (22.3] [added: (57.5] | | ) |

| Income tax expense | | [removed: 0.6] [added: 3.1] | | | | [removed: 1.6] [added: 0.6] | | | | [removed: 0.7] [added: 1.6] | | | | [removed: 0.1] [added: 0.7] | | | | 0.1 | | |

| Net [removed: loss] [added: income (loss)] | | $ | [removed: (127.1] [added: 101.1] | [removed: )] | | $ | [removed: (50.2] [added: (127.1] | ) | | $ | [removed: (65.6] [added: (50.2] | ) | | $ | [removed: (57.6] [added: (65.6] | ) | | $ | [removed: (22.4] [added: (57.6] | ) |

| Basic [removed: and diluted] net [removed: loss] [added: income (loss)] per [removed: share attributable to common stockholders(2)] [added: share(2)] | | $ | [removed: (1.44] [added: 1.11] | [removed: )] | | $ | [removed: (0.58] [added: (1.44] | ) | | $ | [removed: (0.78] [added: (0.58] | ) | | $ | [removed: (0.72] [added: (0.78] | ) | | $ | [removed: (0.30] [added: (0.72] | ) |

| Shares used to compute basic [removed: and diluted] net [removed: loss] [added: income (loss)] per [removed: share attributable to common stockholders(2)] [added: share(2)] | | [removed: 88.2] [added: 91.1] | | | | [removed: 86.3] [added: 88.2] | | | | [removed: 83.6] [added: 86.3] | | | | [removed: 79.8] [added: 83.6] | | | | [removed: 75.2] [added: 79.8] | | |

| | | [removed: As] [added: As] of December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | | | | | |

| [removed: (In millions)] [added: *(In millions)*] | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| [removed: Consolidated] [added: Consolidated] Balance Sheet [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | | |

| Cash, cash equivalents, and short-term marketable securities | | $ | [removed: 1,385.6] [added: 1,533.3] | | | $ | [removed: 548.6] [added: 1,385.6] | | | $ | [removed: 123.7] [added: 548.6] | | | $ | [removed: 115.2] [added: 123.7] | | | $ | [removed: 83.6] [added: 115.2] | |

| Working capital | | [removed: 1,477.1] [added: 1,609.2] | | | | [removed: 605.8] [added: 1,477.1] | | | | [removed: 177.6] [added: 605.8] | | | | [removed: 164.4] [added: 177.6] | | | | [removed: 105.3] [added: 164.4] | | |

| Total assets | | [removed: 1,916.0] [added: 2,395.0] | | | | [removed: 904.1] [added: 1,916.0] | | | | [removed: 402.8] [added: 904.1] | | | | [removed: 292.0] [added: 402.8] | | | | [removed: 184.6] [added: 292.0] | | |

| Long-term [removed: obligations] [added: liabilities] | | [removed: 1,030.3] [added: 1,152.2] | | | | [removed: 345.8] [added: 1,030.3] | | | | [removed: 16.6] [added: 345.8] | | | | [removed: 3.9] [added: 16.6] | | | | [removed: 3.8] [added: 3.9] | | |

| Total stockholders’ equity | | $ | [removed: 663.3] [added: 882.6] | | | $ | [removed: 419.4] [added: 663.3] | | | $ | [removed: 283.8] [added: 419.4] | | | $ | [removed: 221.2] [added: 283.8] | | | $ | [removed: 140.2] [added: 221.2] | |

| (1) | See Note 2 to the [added: consolidated] financial statements in Part II, Item 8 of this Annual Report for a description of our Restated Collaboration Agreement with Verily Life Sciences LLC and Verily Ireland Limited. |

| (2) | See Note 1 to the [added: consolidated] financial statements in Part II, Item 8 of this Annual Report for a description of the method used to compute basic and diluted net loss per share attributable to common stockholders. |

| Diluted net income (loss) per share(2) | | $ | 1.10 | | | $ | (1.44 | ) | | $ | (0.58 | ) | | $ | (0.78 | ) | | $ | (0.72 | ) |

| Shares used to compute diluted net income (loss) per share(2) | | 92.3 | | | | 88.2 | | | | 86.3 | | | | 83.6 | | | | 79.8 | | |

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| Development and other cost of sales | | — | | | | — | | | | — | | | | — | | | | 0.6 | | |

| Total cost of sales | | 367.7 | | | | 226.4 | | | | 194.9 | | | | 123.6 | | | | 82.9 | | |

The information required is set forth under “Report of Independent Registered Public Accounting Firm,” “Consolidated Balance Sheets,” “Consolidated Statements of Operations,” [removed: “Consolidated] [added: “ Consolidated] Statements of Comprehensive [removed: Loss,”] [added: Income (Loss),”] “Consolidated Statements of Stockholders’ Equity,” “Consolidated Statements of Cash Flows” and “Notes to Consolidated Financial Statements” on pages F-2 to [removed: F-37] [added: F-39] of this Annual Report.

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[removed: Evaluation] [added: Evaluation] of Disclosure Controls and [removed: Procedures][added: Procedures]

Based on their evaluation as of December 31, [removed: 2018,] [added: 2019,] our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date for this purpose.

[removed: Changes] [added: Changes] in Internal Control over Financial [removed: Reporting][added: Reporting]

[removed: Management’s] [added: Management’s] Report on Internal Control over Financial [removed: Reporting][added: Reporting]

Our management, with the participation of the Chief Executive and Chief Financial Officers, assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2018.][added: 2019.]

Based on this assessment, our management, with the participation of the Chief Executive and Chief Financial Officers, believes that, as of December 31, [removed: 2018,] [added: 2019,] our internal control over financial reporting is effective based on those criteria.

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2018] [added: 2019] has been audited by Ernst & Young LLP an Independent [removed: Public] Registered [added: Public] Accounting Firm, as stated in their report which is included herein.

[removed: Limitation] [added: Limitation] on Effectiveness of [removed: Controls][added: Controls]

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited DexCom, Inc.’s internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria).

In our opinion, DexCom, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of DexCom, Inc. as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of operations, comprehensive [removed: loss,] [added: income (loss),] stockholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February [removed: 21, 2019] [added: 13, 2020] expressed an unqualified opinion thereon.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Definition] [added: Definition] and Limitations of Internal Control Over Financial [removed: Reporting][added: Reporting]

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the [added: consolidated] financial statements.

February 13, 2020

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February 21, 2019

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[removed: PART III][added: PART III]

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[removed: PART IV][added: PART IV]

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The [added: consolidated] financial statements listed in Part II, Item 8 of this Annual Report.

For the three fiscal years ended December 31, [removed: 2018,] [added: 2019,] Schedule II – Valuation and Qualifying Accounts.

Financial statement schedules not listed above have been omitted because information required to be set forth therein is not applicable, not required, or the information required by such schedules is shown in the [added: consolidated] financial statements or the notes thereto.

| [removed: Exhibit Number] [added: Exhibit Number] | | | [removed: Exhibit Description] [added: Exhibit Description] | | [removed: Incorporated] [added: Incorporated] by [removed: Reference |] [added: Reference] | | | | | | | | [removed: Provided Herewith] [added: Provided Herewith] | |

| [removed: Form |] [added: Form] | [removed: File No.] | [added: File No.] | [removed: Date of First Filing] | [added: Date of First Filing] | [removed: Exhibit Number] | [added: Exhibit Number] | | | | | | | | |

| [3.01](http://www.sec.gov/Archives/edgar/data/1093557/000104746905007840/a2154589zex-5_01.htm) | | | [Registrant’s Restated Certificate of Incorporation.](http://www.sec.gov/Archives/edgar/data/1093557/000104746905007840/a2154589zex-5_01.htm) | | S-1/A | | 333-122454 | | March 3, 2005 | | 3.03 | | | | [removed: |]

| [removed: [3.02](http://www.sec.gov/Archives/edgar/data/1093557/000119312514425218/d827921dex31.htm)] [added: [3.03](http://www.sec.gov/Archives/edgar/data/1093557/000119312514425218/d827921dex31.htm)] | | | [Registrant’s Amended and Restated Bylaws.](http://www.sec.gov/Archives/edgar/data/1093557/000119312514425218/d827921dex31.htm) | | 8-K | | 000-51222 | | November 25, 2014 | | 3.01 | | | | [removed: |]

| [4.01](http://www.sec.gov/Archives/edgar/data/1093557/000104746905007514/a2153933zex-4_01.htm) | | | [Form of Specimen Certificate for Registrant’s common stock.](http://www.sec.gov/Archives/edgar/data/1093557/000104746905007514/a2153933zex-4_01.htm) | | S-1/A | | 333-122454 | | March 24, 2005 | | 4.01 | | | | [removed: |]

| [4.02](http://www.sec.gov/Archives/edgar/data/1093557/000119312517168613/d397803dex41.htm) | | | [Indenture, dated as of May 12, 2017, between DexCom, Inc. and U.S. Bank National Association (including the form of 0.75% Convertible Senior Notes due 2022)](http://www.sec.gov/Archives/edgar/data/1093557/000119312517168613/d397803dex41.htm) | | 8-K | | 000-51222 | | May 12, 2017 | | 4.1 | | | | [removed: |]

| [4.03](http://www.sec.gov/Archives/edgar/data/1093557/000119312518340482/d667223dex41.htm) | | | [Indenture, dated as of November 30, 2019, between DexCom, Inc. and U.S. Bank National Association (including the form of 0.75% Convertible Senior Notes due 2023)](http://www.sec.gov/Archives/edgar/data/1093557/000119312518340482/d667223dex41.htm) | | 8-K | | 000-51222 | | December 3, 2018 | | 4.1 | | | | [removed: |]

| [10.01](http://www.sec.gov/Archives/edgar/data/1093557/000104746905002052/a2150265zex-10_01.htm) | | | [Form of Indemnity Agreement between Registrant and each of its directors and executive officers.](http://www.sec.gov/Archives/edgar/data/1093557/000104746905002052/a2150265zex-10_01.htm) | | S-1 | | 333-122454 | | February 1, 2005 | | 10.01 | | | | [removed: |]

| [removed: [10.04](http://www.sec.gov/Archives/edgar/data/1093557/000104746905007514/a2153933zex-10_04.htm)] [added: [10.17](http://www.sec.gov/Archives/edgar/data/1093557/000109355715000171/exhibit102.htm)] | | | [removed: [2005] [added: [Form of Subscription Agreement under 2015] Employee Stock Purchase [removed: Plan and form of subscription agreement.*](http://www.sec.gov/Archives/edgar/data/1093557/000104746905007514/a2153933zex-10_04.htm)] [added: Plan](http://www.sec.gov/Archives/edgar/data/1093557/000109355715000171/exhibit102.htm)] | | [removed: S-1/A] [added: 8-K] | | 000-51222 | | [removed: March 24, 2005 |] [added: June 2, 2015] | [removed: 10.04] | [added: 10.2] | | | |

| [removed: [10.05](http://www.sec.gov/Archives/edgar/data/1093557/000110465906012220/a06-5268_2ex10d14.htm)] [added: [10.03](http://www.sec.gov/Archives/edgar/data/1093557/000110465906025014/a06-8874_1ex99d01.htm)] | | | [Offer letter between DexCom, Inc. and [removed: Jorge Valdes] [added: Steven R. Pacelli] dated [removed: October 16, 2005.*](http://www.sec.gov/Archives/edgar/data/1093557/000110465906012220/a06-5268_2ex10d14.htm)] [added: April 10, 2006.*](http://www.sec.gov/Archives/edgar/data/1093557/000110465906025014/a06-8874_1ex99d01.htm)] | | [removed: 10-K] [added: 8-K] | | 000-51222 | | [removed: February 27,] [added: April 13,] 2006 | | [removed: 10.14 |] [added: 99.01] | | | |

| [removed: [10.06](http://www.sec.gov/Archives/edgar/data/1093557/000110465906023702/a06-8554_1ex99d01.htm)] [added: [10.02](http://www.sec.gov/Archives/edgar/data/1093557/000110465906023702/a06-8554_1ex99d01.htm)] | | | [Office Lease Agreement, dated March 31, 2006, between DexCom, Inc. and Kilroy Realty, L.P.](http://www.sec.gov/Archives/edgar/data/1093557/000110465906023702/a06-8554_1ex99d01.htm) | | 8-K | | 000-51222 | | April 7, 2006 | | 99.01 | | | | [removed: |]

| [removed: Exhibit Number] [added: Exhibit Number] | | | [removed: Exhibit Description] [added: Exhibit Description] | | [removed: Incorporated] [added: Incorporated] by [removed: Reference |] [added: Reference] | | | | | | | | [removed: Provided Herewith] [added: Provided Herewith] | |

| [removed: Form |] [added: Form] | [removed: File No.] | [added: File No.] | [removed: Date of First Filing] | [added: Date of First Filing] | [removed: Exhibit Number] | [added: Exhibit Number] | | | | | | | | |

| [removed: [10.07](http://www.sec.gov/Archives/edgar/data/1093557/000110465906025014/a06-8874_1ex99d01.htm)] [added: [10.09](http://www.sec.gov/Archives/edgar/data/1093557/000119312511208448/dex1028.htm)] | | | [Offer letter between DexCom, Inc. and [removed: Steven R. Pacelli] [added: Kevin Sayer] dated [removed: April 10, 2006.*](http://www.sec.gov/Archives/edgar/data/1093557/000110465906025014/a06-8874_1ex99d01.htm)] [added: May 3, 2011.*](http://www.sec.gov/Archives/edgar/data/1093557/000119312511208448/dex1028.htm)] | | [removed: 8-K] [added: 10-Q] | | 000-51222 | | [removed: April 13, 2006 |] [added: August 3, 2011] | [removed: 99.01] | [added: 10.28] | | | |

| [removed: [10.09](http://www.sec.gov/Archives/edgar/data/1093557/000119312509012580/dex101.htm)] [added: [10.06](http://www.sec.gov/Archives/edgar/data/1093557/000119312510051468/dex1025.htm)] | | | [Amended and Restated [removed: Joint Development] [added: Development, Manufacturing, Licensing and Supply] Agreement, [removed: dated January 12, 2009,] between [removed: DexCom,] [added: DSM PTG,] Inc. and [removed: Animas Corporation.](http://www.sec.gov/Archives/edgar/data/1093557/000119312509012580/dex101.htm)] [added: DexCom, Inc., dated February 19, 2010.](http://www.sec.gov/Archives/edgar/data/1093557/000119312510051468/dex1025.htm)] | | [removed: 8-K/A] [added: 10-K] | | 000-51222 | | [removed: January 28, 2009 |] [added: March 9, 2010] | [removed: 10.1] | [added: 10.25] | | | |

| [removed: [10.10](http://www.sec.gov/Archives/edgar/data/1093557/000119312509012580/dex102.htm)] [added: [10.05](http://www.sec.gov/Archives/edgar/data/1093557/000119312509162218/dex1023.htm)] | | | [removed: [OUS Commercialization] [added: [Non-Exclusive Distribution] Agreement, [removed: dated January 12, 2009,] between [removed: DexCom,] [added: RGH Enterprises,] Inc. and [removed: Animas Corporation.](http://www.sec.gov/Archives/edgar/data/1093557/000119312509012580/dex102.htm)] [added: DexCom, Inc., dated April 30, 2008.](http://www.sec.gov/Archives/edgar/data/1093557/000119312509162218/dex1023.htm)] | | [removed: 8-K/A] [added: 10-Q] | | 000-51222 | | [removed: January 28,] [added: August 3,] 2009 | | [removed: 10.2 |] [added: 10.23] | | | |