San Diego’s Dexcom will pay $250 million in stock to Verily — a subsidiary of Google parent company Alphabet — as part of an amended deal. One analyst called the revision a financial and strategic win for Dexcom.
The companies partnered on developing next-generation glucose monitoring technology due out in roughly two years.
Dexcom’s G6 smartphone-linked monitoring system primarily serves Type 1 diabetes patients. The deal accelerates the company’s move into Type 2 diabetes, the companies said.
Under the agreement, Dexcom is the preferred continuous glucose device supplier for Verily’s Onduo Type 2 diabetes management program.
“Our collaboration remains on track to deliver our next generation CGM platform by the end of 2020,” Dexcom CEO Kevin Sayer said in a statement. “This updated agreement aligns Dexcom’s and Verily’s mutual interests in bringing Dexcom CGM technology to a broader diabetes population.”
The $250 million in stock is an upfront payment, with an additional $280 million possible, dependent on product launch and revenue milestones. Dexcom may make up to $275 million of these milestone payments in shares of its common stock.
“The milestones now are not tied to overall Dexcom revenues but only Verily-oriented products, which align both companies’ goals to drive adoption within the Type 2 population,” Margaret Kaczor, an equity research analyst with William Blair, said in a research note.
In exchange for these payments, the updated agreement nixed a provision in the original 2015 deal in which Dexcom would have paid royalties.
Kaczor said despite near-term stock dilution, the revised partnership would “meaningfully improve” Dexcom’s future profitability.
Other benefits in Kazcor’s view: added flexibility in Type 2 commercial strategies, as well as greater control over Dexcom’s next product launch.
“We believe the announcement is a positive, both financially and strategically, as it essentially gives DexCom complete control over the product line for relatively minimal near-term dilution,” Kaczor said.
Verily CEO Andrew Conrad said as evidenced by the company’s new equity position in Dexcom, “We continue to believe CGM (continuous glucose monitoring) will have a significant impact on management of Type 2 diabetes and Dexcom is poised to lead the way.”