SECURITIES AND EXCHANGE COMMISSION

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of July ~~31, 2015, 80,081,542~~28, 2016, 83,883,617 shares of the Registrant’s common stock were outstanding.

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DexCom, Inc.

Table of Contents



		Page Number
PART I FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, ~~2015~~2016 (unaudited) and December 31, ~~2014~~2015	3
	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, ~~2015~~2016 and ~~2014~~2015	4
	Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, ~~2015~~2016 and ~~2014~~2015	5
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, ~~2015~~2016 and ~~2014~~2015	6
	Notes to Consolidated Financial Statements (unaudited)	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	2728
ITEM 4.	Controls and Procedures	2728
PART II OTHER INFORMATION		2930
ITEM 1.	Legal Proceedings	2930
ITEM 1A.	Risk Factors	2930
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4853
ITEM 3.	Defaults Upon Senior Securities	4853
ITEM 4.	Mine Safety Disclosures	4953
ITEM 5.	Other Information	4953
ITEM 6.	Exhibits	4953
SIGNATURES		5155

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DexCom, Inc.

Consolidated Balance Sheets

(In millions—except par value data)


	June 30, 2015			December 31, 2014			June 30, 2016			December 31, 2015
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	67.7		$	71.8		$	87.5		$	86.1
Short-term marketable securities, available-for-sale	29.8			11.8			28.1			29.1
Accounts receivable, net	45.5			42.4			73.8			74.1
Inventory	22.4			16.0			42.9			35.2
Prepaid and other current assets	5.0			3.9			8.7			6.8
Total current assets	170.4			145.9			241.0			231.3
Restricted cash	0.7			1.0
Property and equipment, net	40.6			31.2			77.0			54.7
Intangible assets, net	2.5			2.7			1.8			2.2
Goodwill	3.7			3.2			11.8			3.7
Other assets	0.5			0.6			1.2			0.1
Total assets	$	218.4		$	184.6		$	332.8		$	292.0
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	24.0		$	20.4		$	49.9		$	38.9
Accrued payroll and related expenses	17.0			17.2			23.3			24.9
Current portion of long-term debt	2.4			2.3			—			2.3
Current portion of deferred revenue	0.8			0.7			0.7			0.8
Total current liabilities	44.2			40.6			73.9			66.9
Other liabilities	2.4			1.5			12.5			3.9
Long-term debt, net of current portion	1.1			2.3
Total liabilities	47.7			44.4			86.4			70.8
Commitments and contingencies (Note 4)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5.0 shares authorized; no shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively	—			—
Common stock, $0.001 par value, 100.0 authorized; 80.3 and 80.0 issued and outstanding, respectively, at June 30, 2015; and 77.6 and 77.3 shares issued and outstanding, respectively, at December 31, 2014	0.1			0.1
Preferred stock, $0.001 par value, 5.0 shares authorized; no shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively							—			—
Common stock, $0.001 par value, 100.0 authorized; 84.1 and 83.8 issued and outstanding, respectively, at June 30, 2016; and 82.0 and 81.7 shares issued and outstanding, respectively, at December 31, 2015							0.1			0.1
Additional paid-in capital	685.3			638.0			841.8			776.8
Accumulated other comprehensive loss	(0.3		)	(0.1		)	(0.7		)	(0.3		)
Accumulated deficit	(514.4		)	(497.8		)	(594.8		)	(555.4		)
Total stockholders’ equity	170.7			140.2			246.4			221.2
Total liabilities and stockholders’ equity	$	218.4		$	184.6		$	332.8		$	292.0

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DexCom, Inc.

Consolidated Statements of Operations

(In millions—except per share data)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014			2016			2015			2016			2015
Product revenue	$	92.9		$	58.2		$	165.7		$	104.9		$	137.3		$	92.9		$	253.5		$	165.7
Development grant and other revenue	0.3			0.6			0.3			1.0			—			0.3			—			0.3
Total revenue	93.2			58.8			166.0			105.9			137.3			93.2			253.5			166.0
Product cost of sales	27.2			18.7			53.5			35.6
Development and other cost of sales	—			0.2			—			0.6
Total cost of sales	27.2			18.9			53.5			36.2
Cost of sales													51.8			27.2			92.9			53.5
Gross profit	66.0			39.9			112.5			69.7			85.5			66.0			160.6			112.5
Operating expenses
Research and development	24.4			14.8			44.2			29.3			36.3			24.4			68.5			44.2
Selling, general and administrative	45.2			30.9			84.6			58.5			69.3			45.2			131.4			84.6
Total operating expenses	69.6			45.7			128.8			87.8			105.6			69.6			199.9			128.8
Operating loss	(3.6		)	(5.8		)	(16.3		)	(18.1		)	(20.1		)	(3.6		)	(39.3		)	(16.3		)
Interest income													0.1			—			0.2			—
Interest expense	(0.1		)	(0.2		)	(0.3		)	(0.4		)	(0.1		)	(0.1		)	(0.2		)	(0.3		)
Loss before income taxes													(20.1		)	(3.7		)	(39.3		)	(16.6		)
Income tax expense													0.1			—			0.1			—
Net loss	$	(3.7	)	$	(6.0	)	$	(16.6	)	$	(18.5	)	$	(20.2	)	$	(3.7	)	$	(39.4	)	$	(16.6	)
Basic net loss per share	$	(0.05	)	$	(0.08	)	$	(0.21	)	$	(0.25	)
Shares used to compute basic net loss per share	79.6			75.0			78.7			74.2
Diluted net loss per share	$	(0.05	)	$	(0.09	)	$	(0.21	)	$	(0.25	)
Shares used to compute diluted net loss per share	79.6			75.3			78.7			74.2
Basic and diluted net loss per share													$	(0.24	)	$	(0.05	)	$	(0.48	)	$	(0.21	)
Shares used to compute basic and diluted net loss per share													83.6			79.6			82.8			78.7

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DexCom, Inc.

Consolidated Statements of Comprehensive Loss

(In millions)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014			2016			2015			2016			2015
Net loss	$	(3.7	)	$	(6.0	)	$	(16.6	)	$	(18.5	)	$	(20.2	)	$	(3.7	)	$	(39.4	)	$	(16.6	)
Unrealized gain (loss) on short-term available-for-sale marketable securities	—			—			—			—			—			—			—			—
Foreign currency translation loss	—			—			(0.2		)	—			(0.4		)	—			(0.4		)	(0.2		)
Comprehensive loss	$	(3.7	)	$	(6.0	)	$	(16.8	)	$	(18.5	)	$	(20.6	)	$	(3.7	)	$	(39.8	)	$	(16.8	)

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DexCom, Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Six Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2016			2015
Operating activities
Net loss	$	(16.6	)	$	(18.5	)	$	(39.4	)	$	(16.6	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization	5.0			3.8			7.3			5.0
Share-based compensation	36.6			21.9			52.7			36.6
Accretion and amortization related to marketable securities, net	0.2			0.1			0.1			0.2
Amortization of debt issuance costs	0.1			0.2			—			0.1
Change in fair value of contingent consideration	—			0.2
Loss on disposal of equipment	0.2			—			—			0.2
Changes in operating assets and liabilities:
Accounts receivable, net	(3.1		)	(2.5		)	0.8			(3.1		)
Inventory	(6.4		)	(2.6		)	(7.2		)	(6.4		)
Prepaid and other assets	(1.0		)	(0.6		)	(2.7		)	(1.0		)
Restricted cash	0.3			—			—			0.3
Accounts payable and accrued liabilities	3.7			4.4			9.3			3.7
Accrued payroll and related expenses	(0.2		)	(2.0		)	(1.7		)	(0.2		)
Deferred revenue	0.1			(0.4		)	(0.2		)	0.1
Deferred rent and other liabilities	0.9			(0.2		)	0.9			0.9
Net cash provided by operating activities	19.8			3.8			19.9			19.8
Investing activities
Purchase of available-for-sale marketable securities	(27.5		)	(6.4		)	(20.9		)	(27.5		)
Proceeds from the maturity of available-for-sale marketable securities	9.2			6.0			21.7			9.2
Purchase of property and equipment	(14.3		)	(7.9		)	(22.0		)	(14.3		)
Acquisitions, net of cash acquired	(0.5		)	—			0.4			(0.5		)
Net cash used in investing activities	(33.1		)	(8.3		)	(20.8		)	(33.1		)
Financing activities
Net proceeds from issuance of common stock	10.4			11.9			4.8			10.4
Repayment of long-term debt	(1.2		)	(1.1		)	(2.3		)	(1.2		)
Net cash provided by financing activities	9.2			10.8			2.5			9.2
Effect of exchange rate changes on cash and cash equivalents							(0.2		)	—
Increase (decrease) in cash and cash equivalents	(4.1		)	6.3			1.4			(4.1		)
Cash and cash equivalents, beginning of period	71.8			43.2			86.1			71.8
Cash and cash equivalents, end of period	$	67.7		$	49.5		$	87.5		$	67.7
Supplemental disclosure of non-cash investing and financing transactions:
Issuance of common stock in connection with acquisition							$	7.2		$	—
Acquisition-related holdback liability							$	1.8		$	—
Assets acquired and financing obligation under build-to-suit leasing arrangement							$	6.0		$	—

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DexCom, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization and Business

DexCom, Inc. is a medical device company focused on the design, development and commercialization of continuous glucose monitoring (“CGM”) systems for ambulatory use by people with diabetes and by healthcare providers ~~in the hospital~~ for the treatment of people with ~~and without~~ diabetes. Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “DexCom” refer to DexCom, Inc. and its subsidiaries.

Basis of Presentation

We have incurred operating losses since our inception and have an accumulated deficit of ~~$514.4~~$594.8 million at June 30, ~~2015~~.2016. As of June 30, ~~2015~~,2016, we had available cash, cash equivalents and marketable securities totaling ~~$97.5~~$115.6 million~~, excluding~~ ~~$0.7 million~~ ~~of restricted cash,~~ and working capital of ~~$126.2 million~~.$167.1 million. Our ability to transition to, and maintain, profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure. If events or circumstances occur such that we do not meet our operating plan as expected, we may be required to reduce planned increases in compensation expenses and other operating expenses needed to support the growth of our business which could have an adverse impact on our ability to achieve our intended business objectives. We believe our working capital resources will be sufficient to fund our operations through at least June 30, ~~2016~~.2017.

We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, ~~(except for the changes in estimates described below),~~ have been included. Operating results for the three and six months ended June 30, ~~2015~~2016 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2015~~.2016. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, ~~2014~~2015 included in the Annual Report on Form 10-K filed by us with the Securities and Exchange Commission on February ~~25, 2015.~~23, 2016.

Principles of Consolidation

The consolidated financial statements include the accounts of DexCom, Inc. and our wholly owned ~~subsidiaries, DexCom AB and SweetSpot Diabetes Care, Inc. (“SweetSpot”).~~subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Segment Reporting

An operating segment is identified as a component of a business that has discrete financial information available, and one for which the chief operating decision maker must decide the level of resource allocation. In addition, the guidance for segment reporting indicates certain quantitative thresholds. ~~The~~None of the operations of ~~SweetSpot,~~ our ~~subsidiary, does not~~subsidiaries meet the definition of an operating segment and are currently not material, but may become material in the future.

We currently consider our operations to be, and manage our business globally within, one reportable segment, which is consistent with how our ~~management~~President and Chief Executive Officer, who is our chief operating decision maker, reviews our business, makes investment and resource allocation decisions and assesses operating performance.

We sell our products through a direct sales force in the United States and portions of Europe, and through distribution arrangements in the United States, Canada, Australia, New Zealand, and in portions of Europe, Asia, Latin America, the Middle East ~~Latin America~~ and Africa. DexCom, Inc. is domiciled in the United States.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates include excess or obsolete inventories, valuation of inventory, warranty accruals, employee bonus, clinical trial expenses, allowance for bad debt, refunds and rebates, including pharmacy rebates and share-based compensation expense.

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Share-Based Compensation

Share-based compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized, for awards that are ultimately expected to vest, primarily on a straight-line basis over the requisite service period of the individual grants, which typically equals the vesting period. ~~Share-based payments that contain performance conditions are recognized when such conditions are probable of being achieved.~~

The fair value of our Restricted Stock Units (“RSUs”) is based on the market price of our common stock on the date of grant. We estimate the fair value of stock options granted and stock purchase rights under our Employee Stock Purchase Plan (“ESPP”) using the Black-Scholes-Merton ("BSM") option-pricing model. Inherent in this model are assumptions related to our expected stock price volatility over the expected term of the awards, risk-free interest rate and any expected dividends. We determine our expected stock price volatility based on our historical stock price volatility over the most recent period equivalent to the expected life of the award. We determine the expected life of an award by considering various relevant factors, including the vesting period and contractual term of the award, our employees’ historical exercise patterns and length of service and employee characteristics. For stock purchase rights under our ESPP, the expected life is equal to the current offering period. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of our employee stock options and stock purchase plan. As we have not paid any cash dividends since our inception and do not anticipate paying dividends in the foreseeable future, we assume a dividend yield of zero.

We are also required to estimate at grant the likelihood that the award will ultimately vest (the “pre-vesting forfeiture rate”), and to revise the estimate, if necessary, in future periods if the actual forfeiture rate differs. We determine the pre-vesting forfeiture rate of an award based on our historical pre-vesting award forfeiture experience, giving consideration to company-specific events impacting historical pre-vesting award forfeiture experience that are unlikely to occur in the future as well as anticipated future events that may impact forfeiture rates. We use our historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

We recorded ~~$20.7~~$27.6 million and ~~$36.6~~$52.7 million in share-based compensation expense during the three and six months ended June 30, ~~2015, respectively,~~2016, compared to ~~$13.2~~$20.7 million and ~~$21.9~~$36.6 million during the three and six months ended June 30, ~~2014~~ ~~respectively.~~2015. At June 30, ~~2015~~,2016, unrecognized estimated compensation costs related to unvested stock options and restricted stock units totaled ~~$177.5~~$202.8 million and is expected to be recognized through ~~2019.~~2020.

Revenue Recognition

We sell our durable systems and disposable units through a direct sales force in the United States and portions of Europe, and through distribution arrangements in the United States, Canada, Australia, New Zealand, and in portions of Europe, Asia, Latin America the Middle East ~~Latin America~~ and Africa. Components are individually priced and can be purchased separately or together. We receive payment directly from customers who use our products, as well as from distributors, organizations and third-party payors. Our durable system includes a reusable transmitter, a receiver, a power cord and a USB cable. Disposable sensors for use with the durable system are sold separately in packages of four. We provide free of charge software and mobile applications for use with our durable systems and disposable sensors. The initial durable system price is generally not dependent upon the purchase of any amount of disposable sensors.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue on product sales is generally recognized upon shipment, which is when title and the risk of loss have been transferred to the customer and there are no other post shipment obligations. With respect to customers who directly pay for products, the products are generally paid for at the time of shipment using a customer’s credit card and do not include customer acceptance provisions. We recognize revenue from contracted insurance payors based on the contracted rate. For non-contracted insurance payors, we obtain prior authorization from the payor and recognize revenue based on the estimated collectible amount and historical experience. We also receive a prescription or statement of medical necessity and, for insurance reimbursement customers, an assignment of benefits prior to shipment.

We provide a “30~~-day~~“30-day money back guarantee” program whereby customers who purchase a durable system and a package of four disposable sensors may return the durable system for any reason within thirty days of purchase and receive a full refund of the purchase price of the durable system. We accrue for estimated returns, refunds and rebates, including pharmacy rebates, by reducing revenues and establishing a liability account at the time of shipment based on historical experience. Returns have historically been immaterial. Allowances for rebates include contracted discounts with commercial payors and are amounts owed after the final dispensing of the product by a distributor or retail pharmacy to a pharmacy benefit plan participant and are based upon contractual agreements with private sector benefit providers. The allowance for rebates is based on contractual discount rates, expected utilization under each contract and our estimate of the amount of inventory in the distribution channel that will become subject to such rebates. Our estimates for expected utilization for rebates are based on historical rebate claims and to a lesser extent third party market research data. Rebates are generally invoiced and paid monthly or quarterly in arrears so that our accrual consists of an estimate of the amount expected to be incurred for the current month's or quarter’s activity, plus an accrual for unpaid rebates from prior periods, and an accrual for inventory in the distribution channel.

We have entered into distribution agreements with Byram Healthcare and its subsidiaries ~~("Byram"~~(“Byram”), RGH Enterprises ~~Inc.~~ (“Edgepark”) and other distributors that allow the distributors to sell our durable systems and disposable units. We have contracts with certain distributors, including and pharmacy wholesalers, who stock our products, and we refer to these distributors as Stocking Distributors, whereby the Stocking Distributors fulfill orders for our product from their inventory. We also have contracts with certain distributors that

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do not stock our products, but rather products are shipped directly to the customer by us on behalf of our distributor, and we refer to these distributors as Drop-Ship Distributors. Revenue is recognized based on contracted prices and invoices are either paid by check following the issuance of a purchase order or letter of credit, or they are paid by wire at the time of placing the order. Terms of distributor orders are generally Freight on Board ~~(“FOB”)~~ shipping point (or Free Carrier ~~(“FCA”)~~ shipping point for international orders). Distributors do not have rights of return per their distribution

agreement outside of our standard warranty. The distributors typically have a limited time frame to notify us of any missing, damaged, defective or non-conforming products. For any such products, we shall either, at our option, replace the portion of defective or non-conforming product at no additional cost to the distributor or cancel the order and refund any portion of the price paid to us at that time for the sale in question.

We have had collaborative license and development arrangements with strategic partners for the development and commercialization of products utilizing our technologies. The terms of these agreements typically include the license of certain intellectual property rights and the provision of multiple deliverables by us (for example, research and development services, product prototypes and products for use in clinical trials) in exchange for consideration to us of some combination of non-refundable license fees, funding of research and development activities, payments based upon achievement of development milestones and royalties in the form of a designated percentage of product sales or profits. With the exception of royalties, these types of consideration are classified as development grant and other revenue in our consolidated statements of operations and are generally recognized over the service period except for substantive milestone payments, which are generally recognized when the milestone is achieved. In determining whether each milestone is substantive, we considered whether the consideration earned by achieving the milestone should (i) be commensurate with either (a) our performance to achieve the milestone or (b) the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone, (ii) relate solely to past performance and (iii) be reasonable relative to all deliverables and payment terms in the arrangement. We recognize royalties in the period in which we obtain the royalty report, which is necessary to determine the amount of royalties we are entitled to receive.

Non-refundable license fees are recognized as revenue when we have a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably assured and we have no further performance obligations under the license agreement. Multiple element arrangements, such as license, development and other multiple element service arrangements are analyzed to determine how the arrangement consideration should be allocated among the separate units of accounting, or whether they must be accounted for as a single unit of accounting.

For transactions containing multiple element arrangements, we consider deliverables as separate units of accounting and recognize deliverables as revenue upon delivery only if (i) the deliverable has standalone value and (ii) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is probable and substantially controlled by us. We allocate consideration to the separate units of accounting using the relative selling price method, in which allocation of consideration is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”), or if VSOE and TPE are not available, management’s best estimate of a standalone selling price for elements.

We use judgment in estimating the value allocable to the deliverables in a transaction based on our estimate of the fair value or relative selling price attributable to the related deliverables and the consideration from such transactions is typically recognized as product revenue or development grant and other revenue. For arrangements that are accounted for as a single unit of accounting, total payments under the arrangement are recognized as revenue on a straight-line basis over the period we expect to complete our performance obligations. We review the estimated period of our performance obligations on a periodic basis and update the recognition period as appropriate. The cumulative amount of revenue earned is limited to the cumulative amount of payments we are entitled to as of the period ending date.

If we cannot reasonably estimate when our performance obligation either ceases or becomes inconsequential, then revenue is deferred until we can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized over the remaining estimated period of performance. Deferred revenue amounts are classified as current liabilities to the extent that revenue is expected to be recognized within one year.

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement.

Warranty Accrual

Estimated warranty costs associated with a product are recorded at the time of shipment. We estimate future warranty costs by analyzing historical warranty experience for the timing and amount of returned product, and these estimates are evaluated on at least a quarterly basis to determine the continued appropriateness of such assumptions.

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Foreign Currency

The financial statements of our ~~non-U.S. subsidiary, whose functional currency is the Swedish Krona,~~foreign subsidiaries are translated into U.S. dollars for financial reporting purposes. Assets and liabilities are translated at period-end exchange rates, and revenue and expense transactions are translated at average exchange rates for the period. ~~Cumulative translation~~Translation related adjustments are recognized as part of comprehensive income and are included in accumulated other comprehensive loss in the consolidated balance sheet. Gains and losses onresulting from certain intercompany transactions as well as transactions with customers and vendors that are denominated in currencies other than the functional currency ~~are~~of each subsidiary give rise to foreign exchange gains or losses reflected in operations. To date the results of operations of ~~this subsidiary~~these subsidiaries and related translation adjustments and foreign exchange gains or losses have not been material in our consolidated results.

Comprehensive Loss

We report all components of comprehensive loss, including net loss, in the consolidated financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net loss and comprehensive loss, including unrealized gains and losses on marketable securities and foreign currency translation adjustments, are reported, net of their related tax effect, to arrive at comprehensive loss.

Inventory

Inventory is valued at the lower of cost or market value on a part-by-part basis that approximates first in, first out. We make adjustments to reduce the cost of inventory to its net realizable value, if required, for estimated excess, obsolete and potential scrapped inventories. Factors influencing these adjustments include inventories on hand and on order compared to estimated future usage and sales for existing and new products, as well as judgments regarding quality control testing data, and assumptions about the likelihood of scrap and obsolescence. Once written down the adjustments are considered permanent and are not reversed until the related inventory is sold or disposed. WeDuring the first quarter of 2015, we recorded charges of approximately $2.0 million in cost of goods sold ~~for the six months ended June 30, 2015~~ related to excess and obsolete inventory due to the approval and launch of our DexCom G4 PLATINUM with Share System. During the second quarter of 2016, we recorded charges of $3.5 million in cost of goods sold related to excess and obsolete receiver inventory primarily related to the customer notification as discussed in the Risk Factor entitled “If we or our suppliers or distributors fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, the products could be subject to restrictions or withdrawal from the market."

Our products require customized products and components that currently are available from a limited number of sources. We purchase certain components and materials from single sources due to quality considerations, costs or constraints resulting from regulatory requirements.

Marketable Securities

We have classified our marketable securities with remaining maturity at purchase of more than three months and remaining maturities of one year or less as short-term available-for-sale marketable securities. Marketable securities with remaining maturities of greater than one year are also classified as short-term available-for-sale marketable securities as such marketable securities represent the investment of cash that is available for current operations. We carry our marketable securities at fair value with unrealized gains and losses, if any, reported as a separate component of stockholders' equity and included in comprehensive loss. Realized gains and losses are calculated using the specific identification method and recorded as interest income. We invest in various types of securities, including debt securities in government-sponsored entities, corporate debt securities, U.S. Treasury securities and commercial paper. We do not generally intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

Fair Value Measurements

The fair value hierarchy described by the authoritative guidance for fair value measurements is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value and include the following:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We carry our marketable securities at fair value. The carrying amounts of financial instruments, such as cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, are carried at cost, which approximate the related fair values due to the short-term maturities of these instruments. For additional detail see Note 6 “Fair Value Measurements.”

~~Table of Contents~~

Property and Equipment

Property and equipment is stated at cost and depreciated over the estimated useful lives of the assets, generally three years for computer equipment, four years for machinery and equipment, and five years for furniture and fixtures, using the straight-line method. Leasehold improvements are stated at cost and amortized over the shorter of the estimated useful lives of the assets or the remaining lease term.

Goodwill and Intangible Assets

Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. The change in the carrying value of goodwill during the three and six months ended June 30, 2015 resulted from an acquisition of a small privately held engineering consulting company with 10 full time employees to complement our research and development activities, which closed in April 2015.

Our identifiable intangible assets are comprised of acquired core technologies, customer relationships, covenants not-to-compete, in-process research and development and trade names. The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives. The change in goodwill for the three and six months ended June 30, 2016 compared to December 31, 2015 was primarily due to the acquisition of Nintamed, our distributor in Germany, Switzerland and Austria, based on our preliminary purchase price allocation. The acquisition is part of our strategy to expand our international operations. In connection with the acquisition, we issued 110,993 shares of our common stock with an aggregate value of $7.2 million as of May 2, 2016 and recorded a $1.8 million holdback liability within “Other Liabilities” in the Consolidated Balance Sheets, which represents a portion of the purchase price withheld and payable in May 2018, in either cash or common stock at our election, to the extent that certain breaches of the representations and warranties have not occurred. We have determined that the acquisition of Nintamed was a non-material business combination.

We test goodwill and intangible assets with indefinite lives for impairment on an annual basis. Also, between annual tests we test for impairment if events and circumstances indicate it is more likely than not that the fair value is less than the carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business and an adverse action or assessment by a regulator.

Recent Accounting Guidance

In May 2014, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued authoritative guidance for Revenue from Contracts with Customers, to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The guidance defines a five step process to achieve this core principle and it is possible when the five step process is applied, more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The updated standard permits the use of either the retrospective or cumulative effect transition method and is effective for us in our first quarter of fiscal 2018. Early adoption is not permitted. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

In July 2015, the FASB issued guidance to change the subsequent measurement of inventory from lower of cost or market to lower of cost and net realizable value. The guidance requires that inventory accounted for under the first-in, first-out (FIFO) or average cost methods be measured at the lower of cost and net realizable value, where net realizable value represents

the estimated selling price of inventory in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for us beginning in the first quarter of fiscal 2018. Early adoption is permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the effect this guidance will have on our consolidated financial statements.

11In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which require a lessee to recognize a lease payment liability and a corresponding right of use asset on their balance sheet for all lease terms longer than 12 months, lessor accounting remains largely unchanged. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2018 and early adoption is permitted. We are currently evaluating the effect this guidance will have on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016-09”), which is intended to simplify several areas of accounting for share-based payment arrangements. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. We are currently evaluating the effect this guidance will have on our consolidated financial statements.

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2. Net Loss Per Common Share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, outstanding options and unvested RSUs settleable in shares of common stock are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

~~The following table sets forth the computation of basic and diluted net loss per share (in millions, except per share data):~~

Three Months Ended
June 30, Six Months Ended
June 30,
2015 2014 2015 2014
Numerator for basic and diluted net loss per share:
Net loss for basic $ (3.7 ) $ (6.0 ) $ (16.6 ) $ (18.5 )
Impact of income related to mark-to-market on contingent consideration obligation settleable in shares
—
(1.0 ) —
—
Net loss for diluted $ (3.7 ) $ (7.0 ) $ (16.6 ) $ (18.5 )

Denominator for basic and diluted net loss per share:
Weighted average common shares outstanding for basic 79.6
75.0
78.7
74.2
Dilutive potential common stock outstanding:
Contingently issuable shares related to contingent consideration obligation settleable in shares —
0.3
—
—
Weighted average common shares outstanding for diluted 79.6
75.3
78.7
74.2
Basic net loss per share $ (0.05 ) $ (0.08 ) $ (0.21 ) $ (0.25 )
Diluted net loss per share $ (0.05 ) $ (0.09 ) $ (0.21 ) $ (0.25 )

Historical outstanding anti-dilutive securities not included in diluted net loss per share attributable to common stockholders calculation (in millions):


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014	2016	2015	2016	2015
Options outstanding to purchase common stock	2.1	4.5	2.1	4.5	1.0	2.1	1.0	2.1
Unvested restricted stock units	4.4	4.6	4.4	4.6	3.9	4.4	3.9	4.4
Total	6.5	9.1	6.5	9.1	4.9	6.5	4.9	6.5

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3. Financial Statement Details (in millions)

Short- Term Marketable Securities, Available-for-Sale

Short-term ~~Marketable~~marketable securities, consisting solely of debt securities, were as follows:


	June 30, 2015								June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
U.S. government agencies	$	22.8	$	—	$	—	$	22.8	$	22.2	$	—	$	—	$	22.2
Corporate debt	4.6		—		—		4.6		2.6		—		—		2.6
Commercial paper	2.4		—		—		2.4		3.3		—		—		3.3
Total	$	29.8	$	—	$	—	$	29.8	$	28.1	$	—	$	—	$	28.1


	December 31, 2014								December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
U.S. government agencies	$	9.1	$	—	$	—	$	9.1	$	22.1	$	—	$	—	$	22.1
Corporate debt	2.3		—		—		2.3		4.9		—		—		4.9
Commercial paper	0.4		—		—		0.4		2.1		—		—		2.1
Total	$	11.8	$	—	$	—	$	11.8	$	29.1	$	—	$	—	$	29.1

As of June 30, 2016, the estimated market value of available-for-sale marketable securities with contractual maturities of up to one year and up to 18 months were $27.0 million and $1.1 million, respectively.

Accounts Payable and Accrued Liabilities

Warranty costs are reflected in the consolidated statements of operations as product cost of sales. A reconciliation of our accrued warranty costs for the three and six months ended June 30, ~~2015~~2016 and ~~2014~~2015 were as follows:



	June 30, 2016		December 31, 2015
Financing lease obligations	$	6.0	$	—
Deferred rent	4.3		3.8
Other	2.2		0.1
Total	$	12.5	$	3.9

4. Commitments and Contingencies

Revolving Credit Agreement

In June 2016, we entered into a $200.0 million revolving credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, NA, as administrative agent, Bank of America, Silicon Valley Bank and Union Bank. In addition to allowing borrowings in US dollars, the Credit Agreement provides a $25.0 million sublimit for borrowings in Canadian Dollars, Euros, British Pounds, Swedish Krona, Japanese Yen and any other currency that is subsequently approved by JPMorgan Chase and each lender. The Credit Agreement also provides a subfacility of up to $10.0 million for letters of credit. The interest rate under the Credit Agreement ranges from 0.75% to 2.75% plus our choice of one of two base rates, LIBOR or a rate based on the publicly announced JPMorgan Chase prime rate, the federal funds rate or the overnight bank funding rate. We will also pay a commitment fee of between 0.25% and 0.45%, payable quarterly in arrears, on the average daily unused amount of the revolving facility based on our leverage ratio. The aggregate debt issuance costs and fees incurred with respect to entering into the Credit Agreement were $0.7 million, which have been capitalized on our Consolidated Balance Sheet within "Other Assets" and will be amortized through the maturity date of June 2021 on a straight line basis. As of June 30, 2016 we had no outstanding borrowings under the Credit Agreement.

In November 2012, we entered into a loan and security agreement (the “Loan Agreement”) that provides for (i) a ~~$15.0~~$15.0 million revolving line of credit and (ii) a total term loan of up to ~~$20.0~~$20.0 million ~~(the "Term Loan"~~ (“the Term Loan”), in both cases, to be used for general corporate purposes. The ~~borrowings under the Loan Agreement are collateralized by a first priority security interest in substantially all of our assets with a negative pledge on our intellectual property.~~

~~The~~ revolving line of credit ~~is an interest-only financing that bears an interest rate equal to the prime rate plus~~ ~~0.5%~~ ~~and requires repayment of principal at the maturity date~~expired as of November ~~2015. Under the revolving line of credit, available funds, which were up to $15.0 million as of~~ ~~June 30,~~ 2015 ~~can be~~ with no amounts drawn ~~at any time, and repaid funds can be redrawn. No amounts have been drawn against the revolving line of credit.~~

~~Per~~or outstanding. In accordance with the Loan Agreement, ~~$7.0~~$7.0 million was advanced under the Term Loan at the funding date in November 2012 and ~~up to~~ ~~$13.0~~the remaining $13.0 million in additional funds ~~was available upon our request until September 30, 2013 (the "Draw Period").~~expired unused. In ~~August 2013,~~June 2016, we paid off the ~~Loan Agreement was amended to change the Draw Period for the additional funds~~remaining principal balance under the Term Loan to January 1, 2014 through March 31, 2014. We did not borrow any additional funds and the Draw Period expired unused. The Term Loan bears a fixed interest rate equal to the three-year treasury rate at the time of advance plus ~~6.94%~~ ~~and requires payment of interest only for the first year and amortized payments of interest and principal thereafter through the maturity date of~~ ~~November 2016~~.

~~The aggregate debt issuance costs and fees incurred with respect to the issuance of the Loan Agreement were~~ ~~$1.1 million~~. These costs have been capitalized as debt issuance costs on our consolidated balance sheet as other assets. Fees related to the revolving line of credit are being amortized through the maturity date of November 2015. Issuance costs and fees related to the term loan are being amortized through the maturity date of November 2016 using the effective interest method. As of ~~June 30, 2015, the remaining unamortized issuance costs and fees totaled~~ ~~$0.1 million. Principal repayment obligations under the Loan Agreement as of~~ ~~June 30, 2015~~ ~~were as follows (in millions):~~

Fiscal Year Ending
Remainder of 2015 $ 1.2
2016 2.3
Total $ 3.5
Loan.

~~In April 2006, we entered into an~~Under the office lease agreement, ~~for facilities located in San Diego, California. In August 2010, we entered into a First Amendment to Office Lease~~as amended (the ~~“First Lease Amendment”~~“Office Lease”), with ~~Kilroy Realty, L.P.~~John Hancock Life Insurance Company (U.S.A.) (the “Landlord”) ~~with respect to facilities~~we lease approximately 219,000 square feet of space in the buildings at 6340 Sequence Drive and 6310 Sequence Drive, each in San Diego, California, and on October 1, 2014, we entered into a Second Amendment to Office Lease (the “Second Lease Amendment”), which added the building at 6290 Sequence Drive in San Diego, California to our lease and extended the lease term related to the buildings at 6340 Sequence Drive, 6310 Sequence Drive and 6290 Sequence ~~Drive, each in San Diego, California.~~

Under the Second Lease Amendment, we will continue to lease approximately 129,000 square feet in the current locations at 6340 Sequence Drive and 6310 Sequence Drive, and leased an additional 45,000 square feet at 6290 Sequence Drive, for a total of approximately 174,000 square feet of space. We also retain the right and obligation to lease an additional 45,000 square feet in the 6290 Sequence Drive location (the “Additional Space”), of which we leased approximately 15,000 square feet on April 1, 2015, and have agreed to lease the remaining 30,000 square feet beginning on October 1, 2015.Drive. The amended lease term extends through March 2022 and we have an option to renew the lease upon the expiration of the initial term for two additional five-year terms by giving notice to the Landlord prior to the end of the initial term of the lease and any extension period, if applicable. Provided we are not in default under the ~~Second~~Office Lease ~~Amendment~~ and the ~~Second~~Office Lease ~~Amendment~~ is still in effect, we generally have the right to terminate the lease starting at the 55^th month of the ~~Second~~Office Lease. In September 2015, we received $1.8 million of tenant improvement allowance associated with the Office Lease, ~~Amendment.~~which was recorded as a deferred rent obligation and will be amortized over the term of the lease and reflected as a reduction to

rent expense. Leasehold improvements associated with the tenant improvement allowance are included in Property and equipment, net in our consolidated balance sheet. On February 1, 2016, we entered into a Sublease (the “Sublease”) with Entropic Communications, LLC with respect to the building at 6350 Sequence Drive in San Diego, California (the “6350 Building”). Under the Sublease, we have leased approximately 132,600 square feet of space in the 6350 Building. The lease term extends through January 2022.

On April 28, 2016, we entered into a certain Industrial Net Lease (the “Mesa Lease”) with PRA/LB, L.L.C. with respect to facilities in the building at 232 South Dobson Road in Mesa, Arizona (the “Mesa Building"). Under the Mesa Lease, we have leased approximately 148,797 square feet of space in the Mesa Building, of which approximately 78,000 square feet was available to us on May 1, 2016 and the remaining portion of the Mesa Building will become available to us on or around January 1, 2018. The term of the Mesa Lease extends through March 2028 with four extension options, each with five-year terms. The lease arrangement involves the construction of our new manufacturing facility where we are involved in the design and construction of the leased space, including non-standard tenant improvements paid for by us. This arrangement is referred to as build-to suit lease and for accounting purposes, we are considered the owner of the construction project during the construction period. As of June 30, 2016, we have capitalized the fair value of the Mesa Building of $6.0 million within “Property and Equipment, net,” and recorded a corresponding financing lease obligation liability of $6.0 million within “Other Liabilities” in the Consolidated Balance Sheet. At the conclusion of the construction period we will evaluate the Mesa Lease to determine whether or not it meets the criteria for “sales-leaseback” treatment.

We have also entered into other operating lease agreements, primarily for office and warehouse space, that expire at various times through September 2023. These facility leases have annual rental increases ranging from approximately 2.5% to 4%. The difference between the straight-line expense over the term of the lease and actual amounts paid are recorded as deferred rent. ~~We have also entered into other operating lease agreements, primarily for office and warehouse space, that expire at various times through September 2017.~~

Rental obligations, excluding real estate taxes, operating costs, and tenant improvement allowances, under all lease agreements as of June 30, ~~2015~~2016 were as follows (in millions):

Total rent expense for the three and six months ended June 30, ~~2015~~2016 was $2.3 million and $4.2 million, compared to $1.4 million and ~~$2.7~~$2.8 million ~~respectively, compared to $0.8 million and $1.5 million, respectively,~~ for the same periods of ~~2014.~~2015.

On March 28, 2016, Agamatrix, Inc. (“Agamatrix”) filed a patent infringement lawsuit against us in the United States District Court for the District of Oregon, asserting that certain of our products infringe certain patents held by Agamatrix. It is our position that Agamatrix’s assertions of infringement have no merit. Neither the outcome of the litigation nor the amount and range of potential fees associated with the litigation can be assessed at this time. As of June 30, 2016, no amounts have been accrued in respect of this litigation.

From time to time, we are subject to various claims and suits arising out of the ordinary course of business, including commercial and employment related matters. In addition, from time to time, we may bring claims or initiate lawsuits against various third parties with respect to matters arising out of the ordinary course of our business, including commercial and employment related matters. We do not expect that the resolution of these matters would, or will, have a material adverse effect or material impact on our consolidated financial position.

Purchase Commitments

We are party to various purchase arrangements related to our manufacturing and development activities including materials used in our CGM systems. As of June 30, ~~2015~~,2016, we had purchase commitments with vendors totaling ~~$30.2~~$55.5 million due within one year. There are no material purchase commitments due beyond one year.

On May 2, 2016, we entered into a Standard Form of Agreement (the “Skanska Contract”) with Skanska USA Building Inc. (the “Contractor”), providing for construction and design services to build out our new manufacturing facility in the Mesa Building. The first phase of construction began in the second quarter of 2016 and is expected to be completed in mid-2017. The total expenditures under the Skanska Contract are currently anticipated to be approximately $30 million.

5. Development and Other Agreements

~~Edwards Lifesciences LLC~~Collaboration with Verily Life Sciences

On ~~November~~August 10, ~~2008,~~2015, we entered into a Collaboration and License Agreement (the “Verily Collaboration Agreement”) with ~~Edwards Lifesciences~~Google Life Sciences LLC, now renamed Verily Life Sciences (“~~Edwards”). The Collaboration Agreement was amended by the parties on May 5, 2009 (as amended, the “Collaboration Agreement”~~Verily”). Pursuant to the ~~Collaboration Agreement, the parties agreed to develop jointly and to market an in-hospital automatic blood glucose monitoring system ("In-Hospital Product"). Under the terms of the~~Verily Collaboration Agreement, we ~~will receive~~and Verily have agreed to jointly develop a ~~royalty~~series of ~~up to 6% of commercial sales of the product.~~next-generation CGM products. The Verily Collaboration Agreement provides ~~Edwards~~us with an exclusive license to use certain ~~of our~~ intellectual property ~~rights used in the In-Hospital Product (“Edwards License”). The Edwards License is limited to the critical care sector~~ of ~~the in-hospital market. Our development obligations under the Collaboration Agreement were completed in the fourth quarter of 2012. Each of the milestones~~Verily related to the development, manufacture and commercialization of the products contemplated under the Verily Collaboration Agreement. The Verily Collaboration Agreement ~~is considered~~provides for the establishment of a joint steering committee, joint development committee and joint commercialization committee to ~~be substantive~~oversee and coordinate the parties’ activities under the collaboration. We and Verily have agreed to make committee decisions by consensus.

The terms of ~~the~~Verily Collaboration Agreement ~~and, at the outset~~required that we pay an upfront fee of ~~the Collaboration Agreement, we were entitled to receive up to $12.0~~$35.0 million in ~~milestones related to regulatory approvals and manufacturing readiness, subject to reductions~~either cash or shares of our common stock at our sole election, with the number of shares calculated based on the ~~timing~~volume weighted average trading price during a period of twenty consecutive trading days ending prior to the date of the ~~receipt~~Verily Collaboration Agreement. In addition, we will pay Verily up to $65.0 million in additional milestones upon achievement of ~~approvals.~~various development and regulatory objectives, which payments may be paid in cash or shares of our common stock at our sole election, calculated based on the volume weighted average trading price during a period of twenty consecutive trading days ending on the trading day prior to the date on which the applicable objective has been achieved.

On August 27, 2015, we filed a Registration Statement on Form S-3 with the SEC and issued 404,591 shares of our common stock to Verily in connection with the $35.0 million upfront payment. We ~~currently do not expect to receive the full amount~~recorded $36.5 million in research and development expense in our consolidated statement of such milestones due to regulatory and joint development delays. We also currently do not expect to receive any royalty payments from the commercial sales of the In-Hospital Product as Edwards has announced that they currently do not intend to commercialize the product. We did not recognize any consideration for milestonesoperations during 2015 related to the issuance of the 404,591 shares of our common stock, based on our stock price of $90.29 per share as of the date of Verily Collaboration Agreement.

In addition, Verily is eligible to receive tiered royalty payments associated with the commercialization of the products contemplated under the Verily Collaboration Agreement, which are subject to regulatory approval. Unless we attain annual product sales subject to the Verily Collaboration Agreement in excess of $750.0 million, there will be no royalty paid by us to Verily. Above this range, and upon marketing approval of the initial product contemplated by the Verily Collaboration Agreement, or upon commercialization of any other DexCom product that incorporates Verily intellectual property, we will pay to Verily a royalty percentage starting in the high single digits and declining to the mid-single digits based on our annual aggregate product sales.

The Verily Collaboration Agreement shall be terminable by either party (a) upon uncured material breach of the Verily Collaboration Agreement by the other party, (b) if the second product contemplated by the Verily Collaboration Agreement has not been submitted to the FDA for approval by a specified date and (c) if the annual net sales for the ~~six months ended June 30, 2015 and 2014.~~products developed with Verily under the Verily Collaboration Agreement are less than a specified aggregate dollar amount. Additionally, we have the right to terminate the Verily Collaboration Agreement upon the expiration of the last to expire patent that covers a product developed under the Verily Collaboration Agreement.

Tandem Diabetes Care, Inc.

On February 1, 2012, we entered into a non-exclusive Development and Commercialization Agreement (the “Tandem Agreement”) with Tandem Diabetes Care, Inc. (“Tandem”) to integrate a future generation of our continuous glucose monitoring technology with Tandem’s t:slim^™ insulin delivery system in the United States. On January 4, 2013, the Tandem Agreement was amended to allow for the integration of our G4 PLATINUM ~~system~~systems with Tandem's t:slim insulin delivery system in the United States.

We received an initial payment of $1.0 million as a result of the execution of the Tandem Agreement, which was fully recognized in development grant and other revenue as of December 31, 2014. We recorded $0.1 million and $0.2 million during the three and six months ended June 30, 2014, respectively, in development grant and other revenue related to this initial consideration received.

Agreement. In July 2014 we received an additional $1.0 million milestone payment related to the regulatory submission by Tandem of their CGM enabled insulin pump.

In September 2015, we received a final $1.0 million milestone payment related to the regulatory approval of Tandem 's CGM enabled insulin pump, which was recognized ~~during 2014~~ in development grant and other ~~revenue.~~

revenue for the twelve months ended December 31, 2015. Under the terms of the Tandem Agreement, we are entitled to receive up to $1.0 million to offset certain development, clinical and regulatory expenses. ~~We are also entitled to receive up to an additional $1.0 million upon the achievement of a milestone related to regulatory approvals as set forth in the Tandem Agreement.~~ Each of the milestones related to the Tandem Agreement is considered to be substantive.

~~The Leona M.~~In September 2015, the Tandem Agreement was amended to eliminate Tandem’s obligation to pay DexCom a royalty of $100 for each Tandem t:slim G4 integrated pump system sold and ~~Harry B Helmsley Charitable Trust~~

~~In July 2013, we were awarded a $4.0 million grant (the "Helmsley Grant") from the Leona M. and Harry B. Helmsley Charitable Trust (the "Helmsley Trust")~~instead to ~~accelerate the~~reallocate $100 for each Tandem t:slim G4 integrated pump system to incremental marketing activities for such pump systems, or marketing activities to support other jointly funded development of the sixth generation of our advanced glucose-sensing technologies (the "Gen 6 Sensor"). The funding is milestone-based and is contingent upon our meeting specific development milestones related to the development of the Gen 6 Sensor over a period of several years. Upon successful commercialization of our Gen 6 Sensor, we are obligated to either (1) make royalty payments based on a percentage of product sales of up to $2.0 million per year for four years, or (2) at our sole election, make a one-time $6.0 million royalty payment. The Helmsley Grant funds will offset research and development expense as incurred and earned. During 2013, $0.5 million of the Helmsley Grant was received and $0.5 million was earned. During 2014, $2.5 million of the Helmsley Grant was received and $2.5 million was earned. During the three months ended June 30, 2015 we did not receive or earn any funds from the Helmsley Trust. During the six months ended June 30, 2015, $1.0 million of the Helmsley Grant was received and $1.0 million was earned. As of June 30, 2015, we have received the full $4.0 million grant funds from the Helmsley Trust.projects.

6. Fair Value Measurements

We base the fair value of our Level 1 financial instruments that are in active markets using quoted market prices for identical instruments.

We obtain the fair value of our Level 2 financial instruments, which are not in active markets, from a primary professional pricing source using quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. Fair value obtained from this professional pricing source can also be based on pricing models whereby all significant observable inputs, including maturity dates, issue dates, settlement date, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers or other market related data, are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset.

We validate the quoted market prices provided by our primary pricing service by comparing the fair values of our Level 2 marketable securities portfolio balance provided by our primary pricing service against the fair values of our Level 2 marketable securities portfolio balance provided by our investment managers.

The following table represents our fair value hierarchy for our financial assets (cash equivalents and marketable ~~securities and restricted cash)~~securities) measured at fair value on a recurring basis as of June 30, ~~2015~~2016 (in millions):

Fair Value Measurements Using
Level 1 Level 2 Level 3 Total
Cash equivalents $ —
$ 54.3
$ —
$ 54.3
Marketable securities, available for sale
U.S. government agencies —
9.1
—
9.1
Corporate debt —
2.3
—
2.3
Commercial paper —
0.4
—
0.4
Total marketable securities, available for sale $ —
$ 11.8
$ —
$ 11.8
Restricted cash $ 1.0
$ —
$ —
$ 1.0

~~Our Restricted cash balance as of December 31, 2014, included certificates of deposit.~~



	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
Cash equivalents	$	—	$	32.1	$	—	$	32.1
Marketable securities, available for sale
U.S. government agencies	—		22.1		—		22.1
Corporate debt	—		4.9		—		4.9
Commercial paper	—		2.1		—		2.1
Total marketable securities, available for sale	$	—	$	29.1	$	—	$	29.1

There were no transfers between Level 1 and Level 2 securities during the three and six months ended June 30, ~~2015~~2016 and ~~2014.~~

~~Table~~2015. There were no transfers into or out of ~~Contents~~Level 3 securities during the three and six months ended June 30, 2016 and 2015.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are ~~based upon current expectations.~~not purely historical regarding DexCom's or its management's intentions, beliefs, expectations and strategies for the future. These forward-looking statements fall within the meaning of the federal securities laws that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements ~~involve~~are made as of the date of this report, deal with future events, are subject to various risks and ~~uncertainties. Our~~uncertainties, and actual results ~~and the timing of events~~ could differ materially from those anticipated in ~~our forward-looking statements as a result of many factors, including product performance, a lack of acceptance in the marketplace by physicians~~those forward looking statements. The risks and ~~customers, insufficient customer demand, the inability~~uncertainties that could cause actual results to manufacture products in commercial quantities at an acceptable cost, possible delays in our research and development programs, the inability of customers to receive reimbursements from third-party payors, the impact of competitive products and pricing, our ability to obtain regulatory approvals and introduce new products, other uncertainties related to regulatory processes, our ability to respond to changing laws and regulations affecting our industry and changing enforcement practices related thereto, inadequate financial and other resources, global economic and political conditions, and the other risks set forth belowdiffer materially are more fully described under “Risk Factors” and elsewhere in this ~~report.~~report and in our other reports filed with the SEC. We assume no obligation to update any of the forward-looking statements after the date of this report or to conform these forward-looking statements to actual results.

Overview

We are a medical device company primarily focused on the design, development and commercialization of continuous glucose monitoring (“CGM”) systems for ambulatory use by people with diabetes and ~~for use~~ by healthcare providers for the treatment of people with ~~and without~~ diabetes. Unless the context requires otherwise, the terms ~~"we," "us," "our,"~~“we,” “us,” “our,” the ~~"company,"~~“company,” or ~~"DexCom"~~“DexCom” refer to DexCom, Inc. and its subsidiaries.

Background

From inception to 2006, we devoted substantially all of our resources to start-up activities, raising capital and research and development, including product design, testing, manufacturing and clinical trials. Since 2006, we have devoted considerable resources to the commercialization of our ambulatory continuous glucose monitoring systems, including the ~~SEVEN PLUS~~G4 PLATINUM and ~~G4 PLATINUM,~~G5 Mobile, as well as the continued research and clinical development of our technology platform.

The International Diabetes Federation (“IDF”) estimates that in ~~2014, 387~~2015, 415 million people around the world had diabetes, and the Centers for Disease Control (“CDC”) estimates that in 2012, diabetes affected 29.1 million people in the United States, of which 8.1 million were undiagnosed. IDF estimates that by ~~2035,~~2040, the worldwide incidence of people suffering from diabetes will reach ~~592~~642 million. According to the CDC's National Vital Statistics Reports for 2010, diabetes was the seventh leading cause of death by disease in the United States. According to the Congressional Diabetes Caucus, diabetes is the leading cause of kidney failure, adult-onset blindness, lower-limb amputations, and significant cause of heart disease and stroke, high blood pressure and nerve damage. According to the IDF, there were an estimated ~~4.9~~5 million deaths attributable to diabetes globally in ~~2014.~~2015 between the ages of 20 and 79 years. The American Diabetes Association (“ADA”) Fast Facts, revised in July 2014, states that diabetes is the primary cause of death for more than 69,000 Americans each year, and contributes to the death of more than 234,000 Americans annually. According to an article published in The New England Journal of Medicine in November 2014, excess mortality for people with diabetes ~~younger~~with ages of less than 30 years ~~of age~~ is largely explained by acute complications of diabetes.

According to the CDC 2011 National Diabetes Fact Sheet, in the United States, another individual is diagnosed with diabetes every 17 seconds. As reported by the Congressional Diabetes Caucus website, ~~as of August 6, 2014, each day~~1.9 million people will be diagnosed with diabetes this year, approximately 5,082 people ~~are diagnosed with diabetes, and~~per day. In 2012 alone there were about 1.7 million people 20 years or older ~~were diagnosed in 2012.~~diagnosed. In addition to those newly diagnosed, the Congressional Diabetes Caucus website reports that every 24 hours there are: 238 amputations in people with diabetes, 120 people who enter end-stage kidney disease programs, and 48 people who go blind.

According to the ADA, one in every five healthcare dollars was spent on treating diabetes in 2012, and the direct medical costs and indirect expenditures attributable to diabetes in the United States were an estimated $245 billion, an increase of $71 billion, or approximately 41%, since 2007. Of the $245 billion in overall expenses, the ADA estimated that approximately $176 billion were direct costs associated with diabetes care, chronic complications and excess general medical costs, and $69 billion were indirect medical costs. The ADA also found that average medical expenditures among people with diagnosed diabetes were 2.3 times higher than for people without diabetes in 2012. According to the IDF, expenditures attributable to diabetes were an estimated ~~$612~~$673 to $1,197 billion globally in ~~2014.~~2015. The IDF estimates that expenditures attributable to diabetes will grow to ~~$678~~a range of $802 to $1,452 billion globally by ~~2035.~~2040.

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We believe continuous glucose monitoring has the potential to enable more people with diabetes to achieve and sustain tight glycemic control. The Diabetes Control and Complications Trial ~~(“DCCT”)~~ demonstrated that improving blood glucose control lowers the risk of developing diabetes-related complications by up to 50%. The study also demonstrated that people with Type

1 diabetes achieved sustained benefits with intensive management. 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. According to an article published in The New England Journal of Medicine in November 2014, in two national registries, only 13% to 15% of people with diabetes met treatment guidelines for good glycemic control, and more than 20% had very poor glycemic control. The CDC estimated that as of 2006, 63.4% of all adults with diabetes were monitoring their blood glucose levels on a daily basis, and that 86.7% of insulin-requiring patients with diabetes monitored daily.

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. Results of a Juvenile Diabetes Research Foundation study published in the New England Journal of Medicine in 2008, and the extension phase of the study, published in Diabetes Care in 2009, demonstrated that continuous glucose monitoring improved A1c levels and reduced incidence of hypoglycemia for patients over the age of 25 and for all patients of all ages who utilized continuous glucose monitoring regularly.

Our initial target market in the United States consists of anthe estimated 30% of people with Type 1 diabetes who utilize insulin pump therapy and anthe estimated 50% of people with Type 1 diabetes who utilize multiple daily insulin injections. Our broader target market in the United States consists of our initial target market plus an estimated 20% of people with Type 1 diabetes using conventional insulin therapy and the estimated 27% of people with Type 2 diabetes who require insulin. Although our initial focus was within the United States, we have expanded our operations to include Canada, Australia, New Zealand, and portions of Europe, Asia, Latin America, the Middle East ~~Latin America~~ and Africa.

Products

Ambulatory Product Line: SEVEN^® PLUS, DexCom G4^®, DexCom G4^® PLATINUM, ~~and~~ DexCom Share^TMSystem and DexCom G5^® Mobile

We received approval from the ~~FDA~~Food and Drug Administration (“FDA”) and commercialized our first product in 2006. ~~In 2007, we received approval and began commercializing our second generation system, the DexCom SEVEN.~~ In 2009 we received approval and began commercializing our third generation system, the DexCom SEVEN PLUS. We no longer market or provide support for the DexCom SEVEN ~~or SEVEN~~ PLUS ~~systems.~~system. On June 14, 2012, we received Conformité Européenne Marking (“CE Mark”) approval for our fourth generation continuous glucose monitoring system, the DexCom G4 system, enabling commercialization of the DexCom G4 system in the European Union, Australia, New Zealand and the countries in Asia and Latin America that recognize the CE Mark. ~~The DexCom G4 system was approved for use by adults at home and in healthcare facilities.~~ On October 5, 2012, we received approval from the FDA for the DexCom G4 PLATINUM, which is designed for up to seven days of continuous use by adults with diabetes, and we began commercializing this product in the ~~U.S.~~United States in the fourth quarter of 2012. On February 14, 2013, we received CE Mark approval for a pediatric indication for our DexCom G4 system, enabling us to market and sell this system ~~in the European Union, Australia, New Zealand and the countries in Asia and Latin America that recognize the CE Mark~~ to persons two years old and older who have diabetes (hereinafter referred to as the ~~"Pediatric Indication"~~“Pediatric Indication”), and we initiated a limited commercial launch in the second quarter of 2013. In connection with our receipt of CE Mark approval for the Pediatric Indication, we changed the name of the DexCom G4 system to the DexCom G4 PLATINUM system. On February 3, 2014, we received approval from the FDA for a Pediatric Indication for the DexCom G4 PLATINUM system in the United States. On June 3, 2014, we received approval from the FDA for an expanded indication for the DexCom G4 PLATINUM for professional use. This expanded indication allows healthcare professionals to purchase the DexCom G4 PLATINUM ~~devices~~system for use with multiple patients. Healthcare professionals can use the insights gained from a DexCom 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. On January 23, 2015, we received approval from the FDA for the DexCom G4 PLATINUM with Share, which is designed for up to seven days of continuous use, and we began commercializing this product in the ~~U.S.~~United States in the first quarter of 2015. The DexCom G4 PLATINUM with Share remote monitoring system uses a secure wireless connection between a patient's receiver and an app on the patient's iPhone^®, iPod touch^®, or iPad^® mobile digital device to transmit glucose information to apps on the mobile devices of up to five designated recipients, or ~~"followers,"~~“followers,” who can remotely monitor a patient's glucose information and receive alert notifications anywhere they have an Internet or cellular connection. Unless the context requires otherwise, the term ~~"G4 PLATINUM"~~“G4 PLATINUM” shall refer to the DexCom G4 and DexCom G4 PLATINUM systems (and all associated indications of use for such systems including without limitation, associated DexCom Share System functionalities) that are commercialized by us in and outside of the United States.

As compared to the SEVEN PLUS, the G4 PLATINUM offers:

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an improved sensor wire design that allows more scalable manufacturing,

a smaller, sleeker receiver that is capable of displaying data in color,

a new transmitter design that offers improved communication range with the receiver which allows for improved data capture,

additional user interface and algorithm enhancements that are intended to make the user experience more customizable and to make its glucose monitoring function more accurate especially in the hypoglycemic range,

the ability to market and sell to an expanded customer population due to the approval by the FDA of, and our obtaining a CE Mark for, a Pediatric Indication, and


•	DexCom Shareremote monitoring capabilities.

In February 2015, we filed our submission for FDA approval of the DexCom G5 Mobile Continuous Glucose Monitoring System (the "G5 Mobile"). The G5 Mobile is designed to allow our transmitter to run the algorithm that has historically run on the receiver, and to communicate directly to a patient's iPhone, iPod touch, or iPad mobile digital device to utilize DexCom Share System functionality. The G5 Mobile transmitter will have a labeled useful life of three months.

DexCom SHARE^TM

On October 17, 2014, we received approval from the FDA for the DexCom SHARE remote monitoring system. DexCom SHARE enables users of our G4 PLATINUM System to have their sensor glucose information remotely monitored by their family or friends. To use DexCom SHARE, the G4 PLATINUM user docks their G4 PLATINUM Receiver in the DexCom SHARE Cradle and their sensor glucose information is wirelessly transmitted to, and viewed by, such patient’s friends or family through the DexCom SHARE mobile application. DexCom SHARE provides secondary notifications to individuals designated by a G4 PLATINUM System user and does not replace real time continuous glucose monitoring or standard home blood glucose monitoring.

On January 23, 2015, the FDA approved a version of the G4 PLATINUM Receiver that includes the DexCom Share System. The G4 PLATINUM Receiver with Share remote monitoring system uses a secure wireless connection via Bluetooth Low Energy ~~("BLE")~~ between a patient's receiver and a mobile application on the patient's iPhone, iPod touch, or iPad mobile digital device to transmit glucose information to mobile applications on the mobile devices of up to five designated recipients, or ~~"followers,"~~“followers,” without the need to use the DexCom SHARE Cradle component. The mobile applications that comprise the DexCom Share System were classified by the FDA as Class II, exempt, due to the fact that these mobile applications were secondary displays of the associated G4 PLATINUM Receiver. With the mobile applications classified as Class II, exempt, DexCom must comply with certain general and special controls required by the FDA but does not need prior FDA approval to commercialize changes to the DexCom Share System. We began commercialization of the G4 PLATINUM with Share in the first quarter of 2015 and discontinued the DexCom SHARE Cradle. Effective April 24, 2015, our DexCom Share System also supports the Apple Watch^TM, allowing the Apple Watchto utilize DexCom Share System functionality. Effective June 2, 2015, the mobile application for the Share System followers became available for Android devices.

~~In-Hospital Product Line: GlucoClear~~^®DexCom G5 Mobile

~~To address~~On August 19, 2015, we received approval from the ~~in-hospital critical care patient population, we entered into an exclusive agreement with Edwards in 2008 to develop jointly and market a specific glucose monitoring product platform~~FDA for the ~~in-hospital critical care market. On October 30, 2009,~~DexCom G5 Mobile Continuous Glucose Monitoring System (the “G5 Mobile”). The G5 Mobile is designed to allow our transmitter to run the ~~first generation blood-based in-vivo automated glucose monitoring system, which was branded~~algorithm that has historically operated on the ~~GlucoClear,~~receiver, and to communicate directly to a patient's iPhone, iPod touch, or iPad mobile digital device to utilize DexCom Share System functionality. The G5 Mobile transmitter has a labeled useful life of three months.

We previously received CE Mark approval for, ~~use by healthcare providers~~and in September, 2015, we launched the ~~hospital.~~G5 Mobile in certain countries in Europe. In ~~January 2013, Edwards received~~the countries and regions outside of the United States that recognize the CE Mark, ~~approval~~the G5 Mobile does not require confirmatory finger sticks when making treatment decisions, although a minimum of two finger sticks a day remain necessary for calibration of the G5 Mobile. On July 21, 2016, the Clinical Chemistry and Clinical Toxicology Devices Panel (the "Panel") of the FDA voted to recommend our proposed non-adjunctive indication for the ~~second~~G5 Mobile. This recommendation is non-binding and we remain in discussions with the FDA concerning the formal approval of our PMA for the expanded non-adjunctive indication for the G5 Mobile.

Data from the G5 Mobile can be integrated with DexCom CLARITY^TM, our next generation ~~system. A very limited commercial launch~~cloud-based reporting software, for personalized, easy-to-understand analysis of trends that may improve diabetes management.

Except with respect to the ~~first generation GlucoClear system was initiated~~foregoing, the G5 Mobile is equivalent to the G4 PLATINUM System in Europe in 2009. In 2013, Edwards completed another very limited commercial launch in Europe of the second generation GlucoClear system. In 2014, Edwards announced that it was likely to cease the commercialization of the GlucoClear system.technical and regulatory respects.

SweetSpot

Through our acquisition of SweetSpot in 2012, we have a software platform that enables our customers to aggregate and analyze data from certain diabetes devices and to share it with their healthcare providers. In November 2011, SweetSpot

received 510(k) clearance from the FDA to market to clinics its initial ~~cloud based~~cloud-based data management service, which helps healthcare providers and patients see, understand and use blood glucose meter data to diagnose and manage diabetes. SweetSpot has also developed a data transfer service that is registered with the FDA as a Medical Device Data ~~System~~

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~~(“MDDS”).~~System. This data transfer service allows researchers to control the transfer of data from certain diabetes devices to research tools and databases according to their own research workflows. SweetSpot’s software provides an advanced cloud-based platform for uploading, processing and delivering health data and transforms raw output from certain medical devices into useful information for healthcare providers, individuals and researchers.

Sensor Augmented Insulin Pumps

We are leveraging our technology platform to enhance the capabilities of our current products and to develop additional continuous glucose monitoring products. In 2008 and ~~2012,~~2015, we entered into development agreements with Animas Corporation (“Animas”), a subsidiary of Johnson & Johnson, and in 2012 and 2015 we entered into development agreements with Tandem ~~respectively.~~Diabetes Care, Inc. (“Tandem”). The purpose of each of these development relationships is to integrate our technology into the insulin pump product offerings of the respective partner, enabling the partner's insulin pump to receive glucose readings from our transmitter and display this information on the pump's screen. The Animas insulin pump product augmented with our sensor technology has been branded the Vibe^®, and received CE Mark approval in May 2011, which allows Animas to market the Vibe in the countries that recognize CE Mark approvals. In December 2014, Animas received FDA approval for the VIBE system in the United States and began commercializing this product in ~~the first quarter of~~ 2015. In July 2014, Tandem filed their submission for FDA approval of their CGM-enabled insulin pump in the United States. In September 2015 Tandem announced it had received FDA approval of its t:slim G4™ Insulin Pump, a touch-screen pump that is integrated with our G4 PLATINUM system and is indicated for use by people 12 years of age or older who use insulin. Tandem began commercializing this product in September 2015.

Future Products

We plan to develop future generations of technologies focused on improved performance and convenience and that will enable intelligent insulin administration. Over the longer term, we plan to develop networked platforms with open architecture, connectivity and transmitters capable of communicating with other devices and software systems. Our product development timelines are highly dependent on our ability to achieve clinical endpoints and regulatory and legal requirements, and to overcome technology ~~challenges, and our~~challenges. Our 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 our products, and even if approved, we may not achieve acceptance in the marketplace by physicians and people with diabetes.

On August 10, 2015, we entered into a Collaboration and License Agreement (the “Verily Collaboration Agreement”) with Google Life Sciences LLC, now named Verily Life Sciences (“Verily”). Pursuant to the Verily Collaboration Agreement, we and Verily have agreed to jointly develop a series of next-generation continuous glucose monitoring products. The Verily Collaboration Agreement provides us with an exclusive license to use certain intellectual property of Verily related to the development, manufacture and commercialization of the products contemplated under the Verily Collaboration Agreement. The Verily Collaboration Agreement provides for the establishment of a joint steering committee, joint development committee and joint commercialization committee to oversee and coordinate the parties’ activities under the collaboration. We and Verily have agreed to make committee decisions by consensus.

Commercial Operations

We have built a direct sales organization in the United States, and are building a direct sales force in portions of Europe, to call on endocrinologists, pediatric endocrinologists, physicians, pediatricians and diabetes educators who can educate and influence patient adoption of continuous glucose monitoring. The approval by the FDA of a Pediatric Indication for our G4 PLATINUM system in February 2014 allows our sales organization to call on pediatric endocrinologists and pediatricians who can educate and influence adoption of continuous glucose monitoring by parents who have children aged two years or older with diabetes. We believe that focusing efforts on these participants is important given the instrumental role they each play in the decision-making process for diabetes therapy. To complement our direct sales efforts, we have entered into U.S. and international distribution arrangements that allow distributors to sell our products. We believe our direct, highly specialized and focused sales organization and our domestic and international distribution agreements are sufficient for us to support our sales ~~efforts.~~efforts for at least the next twelve months.

As a medical device company, reimbursement from Medicare and private third-party healthcare payors is an important element of our success. Although the Centers for Medicare and Medicaid (“CMS”) released 2008 Alpha-Numeric Healthcare Common Procedure Coding System (“HCPCS”) codes applicable to each of the three components of our continuous glucose monitoring systems, to date, our approved products are not reimbursed by virtue of a national coverage decision by Medicare. It

is not known when, if ever, Medicare will adopt a national coverage decision with respect to continuous glucose monitoring devices. Until any such coverage decision is adopted by Medicare, reimbursement of our products will generally be limited to those customers covered by third-party payors that have adopted coverage policies for continuous glucose monitoring devices that include our ~~devices.~~products. As of August ~~5, 2015,~~2, 2016, the seven largest private third-party payors, in terms of the number of covered lives, have issued coverage policies for the category of continuous glucose monitoring devices. In addition, we have negotiated contracted rates with all seven of those third-party payors for the purchase of our G4 PLATINUM and G5 Mobile systems by their members. Many of these coverage policies reimburse for our products under durable medical equipment benefits, are restrictive in nature and require the patient to comply with extensive documentation and other requirements to demonstrate medical necessity under the policy. In addition, customers who are insured by payors that do not offer coverage for our devices will have to bear the financial cost of the products. We currently employ in-house reimbursement expertise to assist customers in obtaining reimbursement from private third-party payors. We also maintain a field-based reimbursement team charged with calling on third-party private payors to obtain coverage decisions and contracts. We have had formal meetings and have increased our efforts to create and liberalize coverage policies with third-party payors, including obtaining reimbursement for our products under pharmacy benefits, and expect to continue to do so in fiscal ~~2015.~~2016. However, unless government and other third-party

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payors provide adequate coverage and reimbursement for our products, people with diabetes may not use them on a widespread basis.

We currently manufacture our ~~devices~~products at our headquarters facilities in San Diego, California. AtAs of June 30, ~~2015,~~2016, these facilities had more than ~~14,000~~8,000 square feet of laboratory space and approximately ~~14,000~~18,000 square feet of controlled environment rooms. In July 2012, the FDA completed an inspection of our facilities, and did not identify any observations or require any other types of corrective action. During a routine FDA post-approval facility inspection ending on November 7, 2013, the FDA issued a Form 483 with several observations regarding DexCom Medical Device Reporting (“MDR”) procedures and complaint reportability determinations. DexCom responded to the observations on November 26, 2013. On March 14, 2014, we received the 2014 Warning Letter from the FDA related to administrative deficiencies in filing MDRs. On April 2, 2014, we responded to the 2014 Warning Letter. On April 16, 2015, the FDA initiated an on-site inspection intended to both close out the 2014 Warning Letter and conduct our normal biennial quality system inspection. The FDA completed its inspection with no observations. On May 21, 2015, the FDA issued a letter closing the 2014 Warning Letter. During a routine FDA post-market inspection ending on March 29, 2016, the FDA issued a Form 483 with one observation regarding the DexCom MDR procedure specific to retrospective MDR filing when a change in complaint reportability is made. On April 19, 2016, we responded to this observation.

There are technical challenges to increasing manufacturing capacity, including FDA qualification of new manufacturing facilities, equipment design and automation, material procurement, problems with production yields, and quality control and assurance. We have focused significant effort on continual improvement programs in our manufacturing operations intended to improve quality, yields and throughput. We have made progress in manufacturing to enable us to supply adequate amounts of product to support our commercialization efforts, however we cannot guarantee that supply will not be constrained going forward. Additionally, the production of our continuous glucose monitoring systems must occur in a highly controlled and clean environment to minimize particles and other yield- and quality-limiting contaminants. Developing commercial-scale manufacturing facilities has and will continue to require the investment of substantial additional funds and the hiring and retaining of additional management, quality assurance, quality control and technical personnel who have the necessary manufacturing experience. Manufacturing is subject to numerous risks and uncertainties described in detail in “Risk Factors” below.

We manufacture our G4 PLATINUM and G5 Mobile systems with certain components supplied by outside vendors and ~~with parts manufactured by us~~other components that we manufacture internally. Key components that we manufacture internally include our wire-based sensors for ~~our~~the G4 PLATINUM and G5 Mobile systems. The remaining components and assemblies are purchased from outside vendors. We then assemble, test, package and ship the finished G4 PLATINUM and G5 Mobile systems, which include a reusable transmitter, a receiver, disposable sensors and ~~disposable sensors.~~our mobile applications including functionality related to the DexCom Share System.

Product revenues are generated from the sale of durable continuous glucose monitoring systems (receivers and transmitters) and disposable sensors through a direct sales force in the United States and portions of Europe, as well as through distribution arrangements in the United States, Canada, Australia, New Zealand, and in portions of Europe, Asia, Latin America, the Middle East ~~Latin America~~ and Africa. The sensor is inserted by the user and is intended to be used continuously for up to seven days, after which it may be replaced with a new disposable sensor. Our transmitter ~~and~~is reusable until it reaches the end of its battery life. Our receiver ~~are~~is reusable. As we establish an installed base of customers using our products, we expect to generate an increasing portion of our revenues through recurring sales of our disposable sensors. We recognize product revenue generally upon shipment and our sales terms provide for customer payment at the time of order, payment due within negotiated contractual terms with insurance payors, or with the issuance of a purchase order or letter of credit for certain distributors and institutions.

As of June 30, ~~2015~~2016, we had an accumulated deficit of ~~$514.4 million~~.$594.8 million. We expect our losses to continue as we proceed with our commercialization and research and development activities. We have financed our operations primarily through offerings of equity securities and debt. In November 2012, we entered into our Loan Agreement that ~~provides~~provided for (i) a $15.0

million revolving line of credit and (ii) initially provided a total term loan of up to $20.0 million (the “Term Loan”). ~~Per~~The revolving line of credit expired as of November 2015 with no amounts drawn or outstanding. In accordance with the Loan Agreement, ~~$7.0~~$7.0 million was advanced under the Term Loan at the funding date in November 2012, and ~~up to~~ ~~$13.0~~the remaining $13.0 million in additional funds ~~was initially available upon our request from~~expired unused. In June ~~1, 2013 to September 30, 2013 (the "Draw Period"). In August 2013,~~2016, we paid off the ~~Loan Agreement was amended to change the Draw Period for the additional funds~~remaining principal balance under the Term ~~Loan~~Loan. In June 2016, we entered into a $200.0 million Credit Agreement with JPMorgan Chase Bank, NA, as administrative agent, Bank of America, Silicon Valley Bank and Union Bank. The Credit Agreement provides a subfacility of up to ~~January 1, 2014 through March 31, 2014. We did not borrow any additional funds and the Draw Period expired unused. There is currently $15.0~~$10.0 million ~~available under the Loan Agreement. In July 2013, we were awarded a $4.0 million grant from the Helmsley Trust to accelerate the development~~for letters of ~~our Gen 6 Sensor. As of~~ ~~June 30, 2015, we have received the full $4.0 million grant funds from the Helmsley Trust.~~credit.

Financial Operations

Revenue

We sell our durable systems and disposable units through a direct sales force in the United States and portions of Europe, and through distribution arrangements in the United States, Canada, Australia, New Zealand, and in portions of Europe, Asia, Latin America, the Middle East ~~Latin America~~ and Africa. We have contracts with certain distributors who stock our products, and we refer to these distributors as Stocking Distributors, whereby the distributors fulfill orders for our product from their inventory. We also have contracts with certain distributors that do not stock our products, but rather products are shipped directly to the customer by us on behalf of our distributor, and we refer to these distributors as Drop-Ship Distributors. We expect that revenues we generate from the sales of our products will fluctuate from quarter to quarter. ~~Between 2008 and 2012, we entered into joint development and collaboration agreements~~We typically experience seasonality with ~~Animas and Tandem, as well as other third parties under agreements that have~~

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~~since expired or been terminated, under which we recognized development grant and other revenue received pursuant to each agreement ratably over~~lower sales in the ~~term of the development period. We recognize development milestones associated with each agreement as revenue upon achievement~~first quarter of each ~~milestone if~~year, compared to the ~~milestone is considered substantive.~~previous fourth quarter, related to annual insurance deductible resets and unfunded flexible spending accounts.

Cost of Sales

~~Product cost~~Cost of sales includes direct labor and materials costs related to each product sold or produced, including assembly, test labor and scrap, as well as factory overhead supporting our manufacturing operations. Factory overhead includes facilities, material procurement and control, manufacturing engineering, quality assurance, supervision and management. These costs are primarily salary, fringe benefits, share-based compensation, facility expense, supplies and purchased services. A portion of our costs are currently fixed due to our moderate level of production volumes compared to our potential capacity. All of our manufacturing costs are included in ~~product~~ cost of sales. ~~Development and other cost of sales consists primarily of salaries, fringe benefits, facility expense, and supplies directly attributable to our development or service contracts.~~

Research and Development

Our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology, clinical trials, regulatory expenses, quality assurance programs, materials and products for clinical trials. Research and development expenses are primarily related to employee compensation, including salary, fringe benefits, share-based compensation, and temporary employee expenses. We also incur significant expenses to operate our clinical trials including clinical site reimbursement, clinical trial product and associated travel expenses. Our research and development expenses also include fees for design services, contractors and development materials.

Selling, General and Administrative

Our selling, general and administrative expenses primarily consist of salary, fringe benefits and share-based compensation for our executive, financial, sales, marketing, information technology and administrative functions. Other significant expenses include ~~trade show expenses, sales samples,~~commissions, marketing and advertising, IT software license costs, insurance, professional fees for our outside legal counsel and independent auditors, litigation expenses, patent application expenses and consulting expenses.

Results of Operations

Quarter Ended June 30, ~~2015~~2016 Compared to June 30, ~~2014~~2015

Revenue, Cost of Sales and Gross Profit

Product ~~revenues~~revenue increased ~~$34.7~~$44.4 million to $137.3 million for the three months ended June 30, 2016 compared to $92.9 million for the three months ended June 30, 2015, ~~compared~~primarily due to ~~$58.2~~increased sales volume of our disposable sensors resulting from the continued growth of our installed base of customers using our G4 PLATINUM and G5 Mobile systems and durable systems to both new and existing customers. Revenue attributable to our disposable sensors and durable systems was approximately 70% and 30% of total revenue for the three months ended June 30, 2016, and was approximately 70% and 30% of total revenue for the three months ended June 30, 2015, respectively.

Cost of sales increased $24.6 million to $51.8 million for the three months ended June 30, ~~2014~~2016 compared to $27.2 million for the three months ended June 30, 2015, primarily due to increased sales volume, partially due to increased warranty costs related to receivers, and $3.5 million in receiver related excess and obsolete inventory charges primarily related to the customer notification discussed in the Risk Factor entitled “If we or our suppliers or distributors fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, the products could be subject to restrictions or withdrawal from the market.” Gross profit increased $19.5 million to $85.5 million for the three months ended June 30, 2016 compared to $66.0 million for the same period in 2015, primarily due to increased revenue, partially offset by the product mix of sales of our lower margin G5 transmitters and costs related to the customer notification discussed above.

Revenue from products shipped to our Drop-Ship Distributors’ customers was $8.8 million, or 6%, of our total revenues for the three months ended June 30, 2016 compared to $8.6 million, or 9%, of our total revenues for the three months ended June 30, 2015. Revenue from products shipped to Stocking Distributors was $86.5 million, or 63%, of our total revenues for the three months ended June 30, 2016 compared to $57.7 million, or 62%, of our total revenues for the three months ended June 30, 2015.

The development grant and other revenues of $0.3 million for the three months ended June 30, 2015 was primarily due to services associated with clinical supply and services agreements. We did not incur any development and other cost of sales during the three months ended June 30, 2016 and June 30, 2015.

Research and Development. Research and development expense increased $11.9 million to $36.3 million for the three months ended June 30, 2016 compared to $24.4 million for the three months ended June 30, 2015. Significant elements of the increase in research and development costs for the three months June 30, 2016 compared to the three months ended June 30, 2015 included $4.3 million in additional salaries, bonus and payroll related costs, $2.4 million in additional share-based compensation, $0.9 million in additional supplies, and $0.7 million in additional consulting expenses.

Selling, General and Administrative. Selling, general and administrative expense increased $24.1 million to $69.3 million for the three months ended June 30, 2016 compared to $45.2 million for the three months ended June 30, 2015. The increase was primarily due to higher headcount related selling, marketing and information technology infrastructure costs to support revenue growth and the continued commercialization of our products. Significant elements of the increase in selling, general, and administrative expenses included $6.5 million in additional salaries, bonus, and payroll related costs, $3.3 million in additional share-based compensation costs, $2.5 million of additional consulting fees, $2.2 million in additional marketing costs, $1.0 million of additional software license costs, $0.6 million of additional commissions, and $0.6 million of additional costs to support our international expansion.

Interest Income. Interest income was $0.1 million for the three months ended June 30, 2016 and is related to our marketable securities portfolio.

Interest Expense. Interest expense was $0.1 million for the three months ended June 30, 2016 and $0.1 million for the three months ended June 30, 2015 and is related to our Loan Agreement and Revolving Credit Agreement.

Income Tax Expense. Income tax expense was $0.1 million for the three months ended June 30, 2016, and is primarily related to state minimum taxes and foreign income taxes related to our international subsidiaries.

Six Months Ended June 30, 2016 Compared to June 30, 2015

Revenue, Cost of Sales and Gross Profit

Product revenues increased $87.8 million to $253.5 million for the six months ended June 30, 2016 compared to $165.7 million for the six months ended June 30, 2015 based primarily on increased sales volume of our disposable sensors due to the continued growth of our installed base of customers using our G4 PLATINUM ~~system~~and G5 Mobile systems and 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 ~~product~~ revenue, for each of the ~~three~~six months ended June 30, 2016 and 2015.

Cost of sales increased $39.4 million to $92.9 million for the six months ended June 30, 2016 compared to $53.5 million for the six months ended June 30, 2015, ~~and 2014. There were no sales of the SEVEN PLUS during the three months ended June 30, 2015. Sales of the SEVEN PLUS represented less than 1% of our revenues for the three months ended June 30, 2014.~~

~~Product cost of sales increased $8.5 million to $27.2 million for the three months ended June 30, 2015 compared to $18.7 million for the three months ended June 30, 2014~~ primarily due to increased sales ~~volume.~~volume, partially due to increased warranty costs related to receivers, and $3.5 million in receiver related excess and obsolete inventory charges primarily related to the customer notification as discussed in the Risk Factor entitled “If we or our suppliers or distributors fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, the products could be subject to restrictions or withdrawal from the market." The ~~product~~ gross profit of ~~$65.7~~$160.6 million for the ~~three~~six months ended June 30, ~~2015~~2016 increased ~~$26.2~~$48.1 million compared to ~~$39.5~~$112.5 million for the same period in ~~2014,~~2015, primarily due to increased ~~revenue.~~

~~Revenue from products shipped to our Drop-Ship Distributors’ customers was $8.6 million, or 9%,~~revenue, partially offset by the product mix of sales of our ~~total~~lower margin G5 transmitters and costs related to the customer notification discussed above.

The development grant and other revenues of $0.3 million for the ~~three~~six months ended June 30, 2015 ~~compared~~was primarily due to $7.3 million, or 12%, of our total revenues for the three months ended June 30, 2014. Revenue from products shipped to Stocking Distributors was $56.7 million, or 61%, of our total revenues for the three months ended June 30, 2015 compared to $32.6 million, or 55%, of our total revenues for the three months ended June 30, 2014.

~~Development grant~~services associated with clinical supply and other revenues decreased to $0.3 million for the three months ended June 30, 2015 compared to $0.6 million for the three months ended June 30, 2014. Development and other cost of sales was $0.2 million for the three months ended June 30, 2014.services agreements. We did not incur any development and other cost of sales during the ~~three~~six months ended June 30, 2016 and June 30, 2015.

Revenue from products shipped to our Drop-Ship Distributors’ customers was $18.3 million, or 7%, of our total revenues for the six months ended June 30, 2016 compared to $17.0 million, or 10%, of our total revenues for the six months ended June 30, 2015. ~~The decrease in development grant and other~~Revenue from products shipped to Stocking Distributors was $165.9 million, or 65%, of our total revenues ~~during~~for the ~~three~~six months ended June 30, ~~2015 was primarily due~~2016 compared to $102.9 million, or 62%, of our total revenues for the completion of development activities with Edwards. The decrease in costs associated with development was primarily due to fewer development obligations during the period with respect to our development arrangements.six months ended June 30, 2015.

~~Table of Contents~~

Research and Development. Research and development expense increased ~~$9.6~~$24.3 million to ~~$24.4~~$68.5 million for the ~~three~~six months ended June 30, 2016, compared to $44.2 million for the six months ended June 30, 2015. Significant elements of the increase in research and development costs for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 compared to $14.8 million for the three months ended June 30, 2014. The increase was primarily due to additional headcount and costs to support development of future products. Significant elements of the increase ~~in research and development costs~~ included ~~$3.1~~$8.2 million in additional salaries, bonus and payroll related costs, ~~and $2.7~~$5.5 million in additional share-based compensation, ~~driven by higher grant date fair value of awards as a result of our increasing stock price, partially offset by $1.0~~$2.7 million in ~~lower non-cash charges related to fair value adjustments of the SweetSpot acquisition contingent consideration, which was settled~~additional supplies, and $1.1 million in ~~the fourth quarter of 2014.~~additional consulting expenses.

Selling, General and Administrative. Selling, general and administrative expense increased ~~$14.3~~$46.8 million to ~~$45.2~~$131.4 million for the ~~three~~six months ended June 30, ~~2015~~2016, compared to ~~$30.9~~$84.6 million for the ~~three~~six months ended June 30, ~~2014.~~2015. The increase was primarily due to higher headcount related selling, ~~costs~~marketing and ~~marketing~~information technology infrastructure costs to support revenue growth and the continued commercialization of our products. Significant elements of the increase in selling, general, and administrative expenses included ~~$4.2 million in additional share-based compensation costs driven by higher grant date fair value of awards as a result of our increasing stock price, $4.0~~$12.1 million in additional salaries, bonus, and payroll related costs, ~~$2.2~~$8.3 million in additional share-based compensation costs, $5.1 million in additional marketing costs, $4.0 million of additional consulting fees, $2.0 million of additional commissions, $1.7 million of additional software license costs and ~~$0.8~~$1.3 million inof additional ~~facilities costs.~~costs to support our international expansion.

Interest Income. Interest income was $0.2 million for the six months ended June 30, 2016 and is related to our marketable securities portfolio.

Interest Expense. Interest expense was ~~$0.1 million for the three months ended June 30, 2015 compared to~~ $0.2 ~~million for the three months ended June 30, 2014 and is related to our Loan Agreement.~~

~~Six Months Ended June 30, 2015 Compared to June 30, 2014~~

~~Revenue, Cost of Sales and Gross Profit~~

~~Product revenues increased $60.8 million to $165.7~~ million for the six months ended June 30, ~~2015~~2016 compared to $104.9 million for the six months ended June 30, 2014 based primarily on increased sales volume of our disposable sensors due to the continued growth of our installed base of customers using our G4 PLATINUM system and 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 product revenue, for each of the six months ended June 30, 2015 and 2014. There were no sales of the SEVEN PLUS during the six months ended June 30, 2015. Sales of the SEVEN PLUS represented less than 1% of our revenues for the six months ended June 30, 2014.

Product cost of sales increased $17.9 million to $53.5 million for the six months ended June 30, 2015 compared to $35.6 million for the six months ended June 30, 2014 primarily due to increased sales volume. The product gross profit of $112.2 million for the six months ended June 30, 2015 increased $42.9 million compared to $69.3 million for the same period in 2014, primarily due to increased revenue. In conjunction with the FDA approval and launch of the G4 PLATINUM with Share during the first quarter of 2015, the product gross profit for the six months ended June 30, 2015 included $2.7 million in additional cost of goods sold, primarily related to $2.0 million in excess and obsolete inventory and free product delivered as part of our upgrade program.

Revenue from products shipped to our Drop-Ship Distributors’ customers was $17.0 million, or 10%, of our total revenues for the six months ended June 30, 2015 compared to $13.4 million, or 13%, of our total revenues for the six months ended June 30, 2014. Revenue from products shipped to Stocking Distributors was $101.4 million, or 61%, of our total revenues for the six months ended June 30, 2015 compared to $58.6 million, or 55%, of our total revenues for the six months ended June 30, 2014.

~~Development grant and other revenues decreased $0.7 million~~ to $0.3 million for the six months ended June 30, 2015 ~~compared~~and is related to ~~$1.0~~our Loan Agreement and Revolving Credit Agreement.

Income Tax Expense. Income tax expense was $0.1 million for the six months ended June 30, ~~2014. We did not incur any development~~2016, and ~~other cost of sales during the six months ended June 30, 2015. Development~~is primarily related to state minimum taxes and other cost of sales was $0.6 million during the six months ended June 30, 2014. The decrease in development grant and other revenues during the six months ended June 30, 2015 was primarily due to the completion of development activities with Edwards. The decrease in costs associated with development was primarily due to fewer development obligations during the period with respect to our collaboration and development arrangements.

~~Research and Development.~~ Research and development expense increased $14.9 million to $44.2 million for the six months ended June 30, 2015, compared to $29.3 million for the six months ended June 30, 2014. The increase was primarily due to additional headcount costs to support development of future products. Significant elements of the increase in research and development costs included $6.0 million in additional salaries, bonus and payroll related costs, $5.2 million in additional share-based compensation driven by higher grant date fair value of awards as a result of our increasing stock price, and $1.5 million in additional consulting costs.

~~Table of Contents~~

~~Selling, General and Administrative.~~ Selling, general and administrative expense increased $26.1 million to $84.6 million for the six months ended June 30, 2015, compared to $58.5 million for the six months ended June 30, 2014. The increase was primarily due to higher headcount related selling costs and marketing costs to support revenue growth and the continued commercialization of our products. Significant elements of the increase in selling, general, and administrative expenses included $8.1 million in additional share-based compensation costs driven by higher grant date fair value of awards as a result of our increasing stock price, $7.0 million in additional salaries, bonus, and payroll related costs, $2.9 million in additional marketing costs, and $1.2 million in additional facilities costs.

~~Interest Expense.~~ ~~Interest expense was $0.3 million for the six months ended June 30, 2015 compared to $0.4 million for the six months ended June 30, 2014 and is~~foreign income taxes related to our ~~Loan Agreement.~~international subsidiaries.

Liquidity and Capital Resources

We ~~are in the early commercialization stage and~~ have incurred losses since our inception in May 1999. As of June 30, ~~2015,~~2016, we had an accumulated deficit of ~~$514.4~~$594.8 million and had working capital of ~~$126.2~~$167.1 million. ~~Our cash, cash equivalents and marketable securities totaled $97.5 million, excluding $0.7 million in restricted cash.~~ To date, we have funded our operations primarily through offerings of equity securities and debt, and the sales of our products.

In ~~July 2013,~~June 2016, we were awarded the Helmsley Grant from the Helmsley Trust to accelerate the development of our Gen 6 Sensor. The funding was milestone based and was contingent upon our meeting specific development milestones related to the Gen 6 Sensor overentered into a ~~period of several years. All such milestones have now been met. Upon the successful commercialization of the Gen 6 Sensor, we are obligated to either (1) make royalty payments~~$200.0 million Credit Agreement, including a subfacility of up to ~~$2.0~~$10.0 million ~~per year~~ for ~~four years, or (2) at our sole election, make a one-time $6.0~~letters of credit. The revolving loans under the Credit Agreement will be available for general corporate purposes, including working capital and capital expenditures.

Our cash, cash equivalents and marketable securities totaled $115.6 million ~~royalty payment. As~~as of June 30, ~~2015, we have received~~2016. We generally invest our cash and cash equivalents in investment grade, highly liquid fixed income securities. Our marketable securities portfolio is denominated in U.S. dollars and consists of investment grade, highly liquid securities of various holdings including obligations of U.S. government sponsored enterprises, commercial paper, corporate debt, and money market funds. The change in our cash, cash equivalents and marketable securities during the ~~full $4.0 million of~~six months ended June 30, 2016 was due to the ~~Helmsley Grant funds.~~factors described in the “Cash Flow Summary” below.

Cash Flow Summary

The following table sets forth a summary of our cash flows for the periods indicated (in millions)


(In millions)	Six Months Ended June 30,						Change
										Six Months Ended June 30,						Change
	2015			2014						2016			2015
Net cash provided by operating activities	$	19.8		$	3.8		$	16.0		$	19.9		$	19.8		$	0.1
Net cash used in investing activities	$	(33.1	)	$	(8.3	)	$	(24.8	)	$	(20.8	)	$	(33.1	)	$	12.3
Net cash provided by financing activities	$	9.2		$	10.8		$	(1.6	)	$	2.5		$	9.2		$	(6.7	)

As of June 30, 2016, we had $87.5 million of cash and cash equivalents compared to $86.1 million as of December 31, 2015, an increase of $1.4 million. The cash flows during the six months ended June 30, 2016 were related primarily to the following items:

Net Cash Provided by Operating Activities. The ~~increase~~change in cash provided by operations was primarily due to ~~$15.9~~$22.8 million in higher net loss, offset by an additional $4.9 million cash inflow from changes in operating assets and liabilities and by $18.0 million in higher non-cash charges primarily comprised of share-based ~~compensation, partially offset by an additional $1.8 million cash outflow from changes in operating assets and liabilities.~~compensation. The main drivers in the change in operating assets and liabilities included increases in ~~accounts receivable,~~ inventory, ~~and~~ accounts payable, accrued payroll and ~~accrued~~other liabilities, all as a result of our growth.

Net Cash Used in Investing Activities. The change in cash used in investing activities was primarily due to ~~a $21.1~~$19.1 million net increase in cash ~~used to purchase~~as a result of marketable securities ~~and~~transactions, offset by the use of ~~$14.3~~an additional $7.7 million to purchase equipment to support manufacturing improvements and information technology infrastructure for the six months ended June 30, 2015, compared to $7.9 million to purchase equipment for the six months ended June 30, 2014, partially offset by a $3.2 million increase in proceeds from the maturity of marketable securities.infrastructure.

Net Cash Provided by Financing Activities. The decrease in cash provided by financing activities was due to ~~$1.5~~$5.6 million decrease in proceeds from the issuance of common stock pursuant to the exercise of then-outstanding stock options for the six months ended June 30, ~~2015~~2016 compared to the six months ended June 30, ~~2014.~~2015, and $1.1 million increase in loan payments as a result of the payoff of the remaining principal balance under the Term Loan.

Operating Capital and Capital Expenditure Requirements

We anticipate that we will continue to incur net losses as we incur expenses and expand the commercialization of our approved products domestically and internationally, develop additional continuous glucose monitoring products, and expand our marketing, manufacturing and corporate infrastructure.

We believe that our cash, cash equivalents, marketable securities balances, ~~and~~ projected cash contributions from our commercial operations and ~~existing partnership arrangements~~$200.0 million available under our Credit Agreement will be sufficient to meet our anticipated cash requirements with respect to the continued scale-up of our commercialization activities, research and development activities, including clinical trials, the expansion of our marketing, manufacturing and corporate infrastructure, and to meet our other anticipated cash needs

through at least June 30, ~~2016.~~2017. If our available cash, cash equivalents and marketable securities are insufficient to satisfy our liquidity requirements, or if we develop additional products or new markets for our existing products, we may seek to sell additional equity or debt securities or obtain an additional credit facility. The sale of additional equity and debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms, if at all. Additionally, we cannot guarantee that we will be successful in obtaining additional cash contributions from future partnership arrangements. Our ability to transition to, and maintain profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure. If events or circumstances occur such that we do not meet our operating plan as expected, or if we are unable to obtain additional financing, we may be required to reduce planned increases in compensation related expenses or other operating expenses related to research, development, and commercialization activities, which could have an adverse impact on our ability to achieve our intended business objectives.

Because of the numerous risks and uncertainties associated with the development of continuous glucose monitoring technologies, we are unable to estimate the exact amounts of capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, including, but not limited to:

Contractual Obligations

We are party to various purchase arrangements related to components used in manufacturing and research and development activities. As of June 30, ~~2015,~~2016, we had firm purchase commitments with certain vendors totaling approximately ~~$30.2~~$55.5 million due within one year. There are no material purchase commitments due beyond one year.

We are party to various leasing arrangements as described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. We have entered into the following new leasing arrangements during the six months ended June 30, 2016:

Mesa Lease, we have leased approximately 148,797 square feet of space in the Mesa Building, of which approximately 78,000 square feet was available to us on May 1, 2016 and the remaining portion of the Mesa Building will become available to us on or around January 1, 2018. The term of the Mesa Lease extends through March 2028 with four extension options, each with five year terms. The total obligation for rent under the lease term ending March 2028 is approximately $15.3 million, excluding real estate taxes and operating costs.

The following table summarizes our outstanding contractual obligations as of June 30, 2016 and the effect those obligations are expected to have on our liquidity and cash flows in future periods (in millions):

On May 2, 2016, we entered into that certain Standard Form of Agreement (the “Skanska Contract”) with Skanska USA Building Inc. (the “Contractor”) , providing for construction and design services to build out our new manufacturing facility in the Mesa Building. The first phase of construction began in the second quarter of 2016 and is expected to be completed in mid-2017. The total expenditures under the Skanska Contract are currently anticipated to be approximately $30 million.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet activities.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with U.S. GAAP. The preparation of these 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 consolidated financial statements as well as the reported revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014.~~2015. Our accounting policies and estimates which are most critical to a full understanding and evaluation of our reported financial results are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the

fiscal year ended December 31, ~~2014.~~2015. There were no material changes to our critical accounting policies during the six months ended June 30, ~~2015.~~2016.

Recent Accounting Guidance

In May 2014, the FASB issued authoritative guidance for Revenue from Contracts with Customers, to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The guidance defines a five step process to achieve this core principle and it is possible when the five step process is applied, more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The updated standard permits the use of either the retrospective or cumulative effect transition method and is effective for us in our first quarter of fiscal 2018. Early adoption is not permitted. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

or average cost methods be measured at the lower of cost and net realizable value, where net realizable value represents the estimated selling price of inventory in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for us beginning in the first quarter of fiscal 2018. Earlier application is permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the effect this guidance will have on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which require a lessee to recognize a lease payment liability and a corresponding right of use asset on their balance sheet for all lease terms longer than 12 months, lessor accounting remains largely unchanged. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2018 and early adoption is permitted. We are currently evaluating the effect this guidance will have on our consolidated financial statements.

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and short-term investments in a variety of securities, including money market funds, U.S. Treasury debt and corporate debt securities. Due to the short-term nature of our investments, we believe that we have no material exposure to interest rate risk.

Foreign Currency Risk

We have only limited business transactions in foreign currencies. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks. We believe we have no material exposure to risk from changes in foreign currency exchange rates at this time. We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

Evaluation of Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934 require public companies to maintain “disclosure controls and procedures,” which are defined to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and timely communicated to management, including our Chief Executive Officer and Chief Financial Officer, recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report of the effectiveness of our disclosure controls and procedures. Based on their evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective for this purpose.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

Limitation on Effectiveness of Controls

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

PART II OTHER INFORMATION

We are subject to ~~additional~~ various claims, complaints and legal actions that arise from time to time in the normal course of business. In addition, from time to time, we may bring claims or initiate lawsuits against various third parties with respect to matters arising out of the ordinary course of our business, including commercial and employment related matters. ~~Other than as described above, we~~We do not believe we are party to any currently pending legal proceedings, the outcome of which could have a material adverse effect on our operations or financial position. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.

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. Before making a decision to invest in, hold or sell our common stock, stockholders and potential stockholders should carefully consider the risks and uncertainties described below, in addition to the other information contained in or incorporated by reference into this Quarterly Report on Form 10-Q, as well as the other information we file with the Securities and Exchange Commission. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that case, the value of our common stock could decline and stockholders may lose all or part of their investment. Furthermore, additional risks and uncertainties of which we are currently unaware, or which we currently consider to be immaterial, could have a material adverse effect on our business. Refer to our disclaimer regarding forward-looking statements at the beginning of our Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Risks Related to Our Business

We have ~~a limited operating history and our products may never achieve market acceptance.~~

We expect that sales of our G4 PLATINUM system, which consists of a handheld receiver, reusable transmitter and disposable sensor, will account for substantially all of our product revenue for the foreseeable future. If and when we receive FDA approval for and begin commercialization of our next generation continuous glucose monitoring systems and sensors, we expect most patients will migrate onto those systems. We have relatively limited experience in selling our products and we might be unable to successfully expand the commercialization of our products on a wide scale for a number of reasons, including:

Our G4 PLATINUM system is more invasive than current self-monitored glucose testing systems, including single-point finger stick devices, and people with diabetes may be unwilling to insert a sensor in their body, especially if their current diabetes management involves no more than two finger sticks per day. Moreover, people with diabetes may not perceive the benefits of continuous glucose monitoring and may be unwilling to change their current treatment regimens. In addition, physicians tend to be slow to change their medical treatment practices because of perceived liability risks arising from the use of new products. Physicians may not recommend or prescribe our products until (i) there is more long-term clinical evidence to convince them to alter their existing treatment methods, (ii) there are additional recommendations from prominent physicians that our products are effective in monitoring glucose levels and (iii) reimbursement or insurance coverage is more widely available. We cannot predict when, if ever, physicians and people with diabetes may adopt more widespread use of continuous glucose monitoring systems, including the G4 PLATINUM system. If the G4 PLATINUM system does not achieve an adequate level of acceptance by people with diabetes, physicians and healthcare payors, we may not generate significant product revenue and we may not become profitable.

~~We have~~ incurred losses since inception and anticipate that we will incur continued losses in the future.

We have incurred net losses in each year since our inception in May 1999, including a net loss of ~~$16.6~~$39.4 million for the six months ended June 30, ~~2015~~.2016. As of June 30, ~~2015~~,2016, we had an accumulated deficit of ~~$514.4 million~~.$594.8 million. We have financed our operations primarily through private and public offerings of equity securities and debt, and the sales of our ~~products, and~~products. We have devoted a substantial ~~portion of our~~ resources to to:

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 ~~sensor,~~sensors, transmitters and sensor augmented insulin pump and other collaborations. We also expect that our general and administrative expenses will continue to increase due to the additional operational and regulatory burdens applicable to public healthcare and medical device companies. As a result, we expect we may continue to incur operating losses in the future. These losses, among other things, have had and will continue to have an adverse effect on our stockholders' equity.

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

To achieve commercial success for the G4 PLATINUM ~~system~~and G5 Mobile systems and our future products, we must continue to develop and grow our sales and marketing organization and enter into partnerships or other arrangements to market

and sell our products. Developing and managing a direct sales organization is a difficult, expensive and time consuming process. To be successful we must:

We currently employ a ~~small~~ direct sales force to market our products in the United ~~States. In the United~~ States ~~our~~and are building a direct sales force in certain countries in Europe. Our direct sales force calls directly on healthcare providers and people with diabetes throughout the applicable country to initiate sales of our products. Our sales organization competes with the experienced, larger and well-funded marketing and sales operations of our competitors. We may not be able to successfully manage our dispersed sales force, or increase our product sales ~~in the new territories.~~ at acceptable rates.

We have also entered into distribution arrangements to leverage existing distributors already engaged in the diabetes marketplace. Our ~~U.S.~~United States distribution partnerships 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 call directly on healthcare providers and patients to market and sell our products in Canada, Europe, Australia, New Zealand, Asia, Latin America, the Middle East ~~Latin America~~ and Africa. Because of the competition for their services, we may be unable to partner with or retain additional qualified distributors. Further, we may not be able to enter into agreements with distributors on commercially reasonable terms, if at all.

~~Additionally,~~ Our distributors might not have the resources to ~~aid our efforts to obtain timely and comprehensive reimbursement of our products for our customers, we must~~ continue to ~~improve~~support our ~~customer service processes and scale our information technology systems.~~

Current uncertainty in global economic and political conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that our actual results could differ materially from expectations.

Our operations and performance depend on worldwide economic and political conditions, which have been adversely impacted by continued global economic uncertainty, political instability and military hostilities in multiple geographies, concerns over the downgrade of U.S. sovereign debt and continued sovereign debt, monetary and financial uncertainties in Europe and other foreign countries. These conditions have and may continue to make it difficult for our customers and potential customers to afford our products, and could cause our customers to stop using our products or to use them less frequently. If that were to occur, we may experience a decrease in revenue and our performance may be negatively impacted. In addition, the

pressure on consumers to absorb more of their own health care costs has resulted in some cases in higher deductibles and limits on durable medical equipment, which may cause seasonality in purchasing patterns. Furthermore, during economic uncertainty, our customers have experienced job losses and may continue to experience issues gaining timely access to sufficient health insurance or credit, which could result in their unwillingness to purchase products or an impairment of their ability to make timely payments to us. We cannot predict the reoccurrence of any economic slowdown or the strength or sustainability of the economic recovery, worldwide, in the United States, or in our industry. These and other economic factors could have a material adverse effect on our financial condition and operating results.recent rapid growth.

We may require additional funding to continue the commercialization of our G4 PLATINUM and G5 Mobile systems, or the development and commercialization of our future generation and other continuous glucose monitoring systems, including our sensor augmented insulin pump systems developed in collaboration with Animas and ~~Tandem.~~Tandem and our collaboration with Verily (formerly Google Life Sciences).

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts on commercializing our products, including growth of our manufacturing capacity, and on research and development, including conducting clinical trials for our next generation ambulatory continuous glucose monitoring sensors and systems. For the six months ended June 30, ~~2015~~,2016, we generated ~~$19.8~~$19.9 million in net cash from operating activities, compared to ~~$3.8~~$19.8 million generated for the same period in ~~2014~~,2015, and as of June 30, ~~2015~~,2016, we had working capital of ~~$126.2~~$167.1 million which included ~~$97.5~~$115.6 million in cash, cash equivalents and short-term marketable ~~securities, and excluded~~ ~~$0.7 million~~ ~~in restricted cash. We~~securities. Although we expect that our cash generated by operations will increase in each of the next several years, ~~and, although we have the ability to borrow up to an additional $15.0 million pursuant to the Loan Agreement we entered into with Silicon Valley Bank and Oxford Finance in November 2012,~~ we may need additional funds to continue the commercialization of our current products and ~~for the development~~to develop and ~~commercialization of~~commercialize our next generation sensors and systems. Additional financing may not be available on a timely basis on terms acceptable to us, or at all. Any additional financing may be dilutive to stockholders or may require us to grant a lender a security interest in our assets. The amount of funding we may need will depend on many factors, including:

If adequate funds are not available, we may not be able to commercialize our products at the rate we desire and we may have to delay development or commercialization of our other products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce sales, marketing, customer support or other resources devoted to our products. Any of these factors could harm our financial condition.

~~We may face risks associated with acquisitions of companies, products and technologies and our business could be harmed if we are unable to address these risks.~~

If we are presented with appropriate opportunities, we intend to acquire or make other investments in complementary companies, products or technologies. In March 2012, we acquired SweetSpot. We may not realize the anticipated benefit of the acquisition of SweetSpot or any future acquisition, or the realization of the anticipated benefits may require greater expenditures than anticipated by us. We will likely face risks, uncertainties and disruptions associated with the integration process, including difficulties in the integration of the operations and services of any acquired company, integration of acquired technology with our products, diversion of our management's attention from other business concerns, the potential loss of key employees or customers of the acquired businesses and impairment charges if future acquisitions are not as successful as we originally anticipate. If we fail to successfully integrate other companies, products or technologies that we acquire, our business could be harmed. Furthermore, we may have to incur debt or issue equity securities to pay for any additional future acquisitions or investments, the issuance of which could be dilutive to our existing shareholders. In addition, our operating results may suffer because of acquisition-related costs or amortization expenses or charges relating to acquired intangible assets.

~~Developing and managing a direct sales organization is a difficult, expensive and time consuming process. To be successful we must:~~

If we are unable to establish 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 harmed.

We have entered into distribution arrangements to leverage established distributors already engaged in the diabetes marketplace. We have entered into distribution agreements with Byram and Edgepark, pursuant to which we generated approximately ~~19%~~17% and ~~10%,~~11% respectively, of our total revenue during the six months ended June 30, ~~2015~~.2016. We cannot guarantee that these relationships will continue or that we will be able to maintain this volume of sales from these relationships in the future. A substantial decrease or loss of these sales could have a material adverse effect on our operating performance. Additionally, to the extent that we enter into additional arrangements with third parties to perform sales, marketing, distribution and billing services in the United States, Europe or other countries, our product margins could be lower than if we directly marketed and sold our products. Furthermore, to the extent that we enter into co-promotion or other marketing and sales arrangements with other companies, any revenue received will depend on the skills and efforts of others, and we cannot predict whether these efforts will be successful. In addition, market acceptance of our products by physicians and people with diabetes in Europe or other countries will largely depend on our ability to demonstrate their relative safety, efficacy, reliability, cost-effectiveness and ease of use. 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, we may not be able to generate adequate product revenue and may not become profitable.

Although many third-party payors have adopted some form of coverage policy on continuous glucose monitoring devices, our products do not yet have simple broad-based contractual coverage with 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 revenue.

As a medical device company, reimbursement from Medicare and private third-party healthcare payors is an important element of our success. Although CMS in 2008 released HCPCS codes applicable to each of the three components of our continuous glucose monitoring systems to date, our approved products are not reimbursed by virtue of a national coverage decision by Medicare. It is not known when, if ever, Medicare will adopt a national coverage decision with respect to continuous glucose monitoring devices. Until any such coverage decision is adopted by Medicare, reimbursement of our products will generally be limited to those people with diabetes covered by third-party payors that have adopted policies for continuous glucose monitoring devices allowing for coverage of these devices if certain conditions are met. As of August ~~5, 2015,~~2, 2016, the seven largest private third-party payors, in terms of the number of covered lives, have issued coverage policies for the category of continuous glucose monitoring devices. In addition, we have negotiated contracted rates with all seven of those third-party payors for the purchase of our products by their members. However, people with diabetes without insurance that covers our products will have to bear the financial cost of them. In the United States, people with diabetes using existing single-point finger stick devices are generally reimbursed all or part of the product cost by Medicare or other third-party payors. The commercial success of our products in both domestic and international markets will substantially depend on whether timely and comprehensive third-party reimbursement is widely available for individuals that use them. While many third-party payors have adopted some form of coverage policy on continuous glucose monitoring devices, typically, though not exclusively, under durable medical equipment benefits, those coverage policies frequently require significant medical documentation in order for policy holders to obtain reimbursement, and as a result, we have difficulty improving the efficiency of our customer service group. In addition, Medicare, Medicaid, health maintenance organizations and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new medical devices, and, as a result, they may not cover or provide adequate payment for our products. In order to obtain additional reimbursement arrangements, including under pharmacy benefits, we may have to agree to a net sales price lower than the net sales price we might charge in other sales channels. Our revenue may be limited by the continuing efforts of government and third-party payors to contain or reduce the costs of healthcare through various increasingly sophisticated means, such as requiring prospective reimbursement and second opinions, purchasing in groups, or redesigning benefits. ~~Furthermore, we~~We are unable to predict what effect the current or any future healthcare reform will have on our business, or the effect these matters will have on our customers. Our ~~initial~~ dependence on the commercial

success of the G4 PLATINUM ~~system~~and G5 Mobile systems makes us particularly susceptible to any cost containment or reduction efforts. Accordingly, unless government and other third-party payors provide adequate coverage and reimbursement for the G4 PLATINUM ~~system,~~and G5 Mobile systems, people without coverage who have diabetes may not use our products. Furthermore, payors are increasingly basing reimbursement rates on factors such as the efficacy of the product, and clinical outcomes associated with the product, and any factors that negatively impact the efficacy or

clinical outcomes (or cause a perception of any such negative impact), such as the results of a clinical trial, a product defect, or a product recall, could negatively impact the reimbursement rate,

In some foreign markets, pricing and profitability of medical devices are subject to government control. In the United States, we expect that there will continue to be federal and state proposals for similar controls. Also, the trends toward managed healthcare in the United States and proposed legislation intended to reduce the cost of government insurance programs could significantly influence the purchase of healthcare services and products and may result in lower prices for our products or the exclusion of our products from reimbursement programs.

We may never receive approval or clearance from the FDA and other governmental agencies to market our next generation ambulatory system, expanded indications for use of current and future generation ambulatory systems, ~~and SweetSpot~~future software platforms, ~~for or the GlucoClear system, our blood-based in-vivo automated glucose monitoring system,~~ or any other continuous glucose monitoring system or related component under development.

Our ~~G4 PLATINUM~~continuous glucose monitoring systems are classified by the FDA as premarket approval, or PMA, medical devices. The PMA process requires us to prove the safety and efficacy of our ambulatory system to the FDA's satisfaction. This process can be expensive, prolonged and uncertain, requires detailed and comprehensive scientific and human clinical data, and may never result in the FDA granting a PMA. Any future general ambulatory system or expanded indications for use of current and future generation ambulatory systems will require approval of the applicable regulatory authorities.

~~Tandem has submitted its PMA seeking approval for Tandem's sensor augmented insulin delivery system. We cannot predict when, if ever, those products will be approved in the United States. We~~ In addition, we intend to seek either 510(k) clearances or PMA approvals for certain changes and modifications to ~~SweetSpot's~~our existing software platform, but cannot predict when, if ever, those changes and modifications will be approved.

In addition, we have completed the development of the second generation GlucoClear product with Edwards. There are no current commercial activities led by Edwards to continue the commercialization of the GlucoClear system, however, Edwards may continue to develop regulatory pathways for the system. The 510(k) process would require us to establish (including through pre-clinical testing, bench testing, and/or potentially clinical data) that the GlucoClear system is substantially equivalent in terms of indication, technological characteristics, and performance to one or more legally marketed devices eligible to be cited as predicates in the 510(k) process. We cannot predict whether the FDA will classify the GlucoClear as a 510(k) product, nor can we predict when, if ever, the GlucoClear system will obtain FDA clearance or approval.

The FDA can refuse to grant ~~the GlucoClear system~~a 510(k) clearance or delay, limit or deny approval of a PMA application or supplement for many reasons, including:

Even if approved or cleared by the FDA or foreign regulatory agencies, future generations of our ambulatory system, expanded indications for use of current and future generation ambulatory systems, ~~SweetSpot, the GlucoClear system,~~our software platform or any other continuous glucose monitoring system under development, may not be approved or cleared for the indications that are necessary or desirable for successful commercialization. We may not obtain the necessary regulatory approvals or clearances to market these continuous glucose monitoring systems in the United States or outside of the United States. Any delay in, or failure to receive or maintain, approval or clearance for ~~the next generation of~~ our ~~ambulatory system or the GlucoClear system,~~products could prevent us from generating revenue from these products or achieving profitability. The uncertain timing of regulatory approvals for future generations of our ~~ambulatory~~ products could subject our current inventory to excess or obsolescence charges, which could have an adverse effect on our operating results.

If we are unable to successfully complete the pre-clinical studies or clinical trials necessary to support additional PMA or 510(k) applications or supplements, we may be unable to commercialize our continuous glucose monitoring systems under development, ~~including future generations of our ambulatory system, ambulatory systems with expanded indications for use, the GlucoClear system or our system developed in collaboration with Tandem,~~ which could impair our financial position.

To support these and any future additional PMA or 510(k) applications or supplements, we together with our partners, must successfully complete pre-clinical studies, bench-testing, and clinical trials that will demonstrate that the product is safe and effective. Product development, including pre-clinical studies and clinical trials, is a long, expensive and uncertain process and is subject to delays and failure at any stage. Furthermore, the data obtained from the studies and trials may be inadequate to support approval of a PMA or 510(k) application and the FDA may request additional clinical data in support of those applications, which may result in significant additional clinical expenses and may delay product approvals. While we have in the past obtained, and may in the future obtain, an investigational device exemption (“IDE”) prior to commencing clinical trials for our ~~continuous glucose monitoring systems,~~products, FDA approval of an IDE application permitting us to conduct testing does not mean that the FDA will consider the data gathered in the trial to be sufficient to support approval of a PMA or 510(k) application or supplement, even if the trial's intended safety and efficacy endpoints are achieved. Additionally, since 2009, the FDA has significantly increased the scrutiny applied to its oversight of companies subject to its regulations, including 510(k) and PMA submissions, by hiring new investigators and increasing the frequency and scope of its inspections of manufacturing facilities. The FDA's Center for Devices and Radiological Health is contemplating significant changes to the 510(k) process, which could complicate the product approval process for certain of our and our partner’s products, although we cannot predict the effect of such procedural changes and cannot ascertain if such changes will have a substantive impact on the approval of our products or our partners’

products. If we fail to adequately respond to any changes to the 510(k) submission process and associated matters, our business may be adversely impacted.

Unexpected changes to the FDA or foreign regulatory approval processes could also delay or prevent the approval of our products submitted for review. The data contained in our submission, including data drawn from our clinical trials, may not be sufficient to support approval of our products or additional or expanded indications. Medical device company stock prices have declined significantly in certain circumstances where companies have failed to meet expectations in regards to the timing of regulatory approval. If the FDA's response causes product approval delays, or is not favorable for any of our products, our stock price could decline substantially.

The commencement or completion of any of our clinical trials may be delayed or halted, or be inadequate to support approval of a PMA or 510(k) application or supplement, for numerous reasons, including, but not limited to, the following:

The results of pre-clinical studies do not necessarily predict future clinical trial results, and prior clinical trial results might not be repeated in subsequent clinical trials. Additionally, the FDA may disagree with our interpretation of the data from our pre-clinical studies and clinical trials, or may find the clinical trial design, conduct or results inadequate to prove safety or efficacy, and may require us to pursue additional pre-clinical studies or clinical trials, which could further delay the approval of our products. If we are unable to demonstrate the safety and efficacy of our products in our clinical trials to the FDA's satisfaction, we will be unable to obtain regulatory approval to market our products in the United States. In addition, the data we collect from our current clinical trials, our pre-clinical studies and other clinical trials may not be sufficient to support FDA approval, even if our endpoints are met.

We may also conduct clinical studies to demonstrate the relative or comparative effectiveness of continuous glucose monitoring devices for the treatment of diabetes. These types of studies, which often require substantial investment and effort, may not show adequate, or any, clinical benefit for the use of continuous glucose monitoring devices.

We depend on clinical investigators and clinical sites to enroll patients in our clinical trials and other third parties to manage the trials and to perform related data collection and analysis, and, as a result, we may face costs and delays that are outside of our control.

We rely on clinical investigators and clinical sites to enroll patients in our clinical trials and other third parties to manage the trial and to perform related data collection and analysis. However, we may not be able to control the amount and timing of resources that clinical sites may devote to our clinical trials. If these clinical investigators and clinical sites fail to enroll a sufficient number of patients in our clinical trials or fail to ensure compliance by patients with clinical protocols or fail to comply with regulatory requirements, we will be unable to complete these trials, which could prevent us from obtaining regulatory approvals for our products. Our agreements with clinical investigators and clinical sites for clinical testing place substantial responsibilities on these parties and, if these parties fail to perform as expected, our trials could be delayed or terminated. If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, or the clinical data may be rejected by the FDA, and we may be unable to obtain regulatory approval for, or successfully commercialize, our products.

~~Healthcare reforms, changes in healthcare policies and changes to third-party reimbursements for our products may affect demand for our products.~~

Comprehensive healthcare legislation, signed into law in March 2010, imposes stringent compliance, recordkeeping, and reporting requirements on companies in various sectors of the life sciences industry, with which we may need to comply, and enhanced penalties for non-compliance with the new healthcare regulations. The impact of this legislation remains unclear, and costs of compliance with this legislation, or any future amendments thereto, could result in certain risks and expenses that we may have to assume.

Other political and regulatory influences are also subjecting our industry to significant changes, and we cannot predict whether new regulations will emerge at the federal or state level, or abroad. The U.S. government may in the future consider healthcare policies and proposals intended to curb rising healthcare costs, including those that could significantly affect reimbursement for healthcare products such as the G4 PLATINUM system. These policies have included, and may in the future include: basing reimbursement policies and rates on clinical outcomes, the comparative effectiveness and costs of different treatment technologies and modalities; imposing price controls and taxes on medical device providers; and other measures. Future significant changes in the healthcare systems in the United States or elsewhere could also have a negative impact on the demand for our current and future products. These include changes that may reduce reimbursement rates for our products and changes that may be proposed or implemented by the current or future U.S. Presidential administration or Congress.

In addition, the comprehensive healthcare reform legislation included an annual excise tax on the sale of medical devices equal to 2.3% of the price of the device starting on January 1, 2013, which does not include, under Internal Revenue Service (“IRS”) guidance, our existing G4 PLATINUM systems as they are medical devices deemed to be generally purchased by the general public at retail under such legislation. As a result, as of June 30, 2015, we believed that our current ambulatory 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.

We conduct business in a heavily regulated industry and if we fail to comply with ~~these~~applicable laws and government regulations, we could become subject to penalties or be required to make significant changes to our operations.

The healthcare industry generally, and our business specifically, is subject to extensive foreign, federal, state and local laws and regulations, including those relating to:

These laws and regulations are extremely complex and, in some cases, still evolving. If our operations are found to violate any of the foreign, federal, state or local laws and regulations which govern our activities, we may be subject to litigation, government enforcement actions, the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines or curtailment of our operations. The risk of being found in violation of these laws and regulations is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's time and attention from the operation of our business.

The FDA, the Office of Inspector General for the Department of Health and Human Services, the Department of Justice, states' attorneys general and other governmental authorities actively enforce the laws and regulations discussed above. In the United States, medical device manufacturers have been the target of numerous government prosecutions and investigations alleging violations of law, including claims asserting impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of federal or state healthcare business, and submission of false claims for government reimbursement. As part of our compliance program, we have reviewed our sales contracts and marketing materials and practices to reduce the risk of non-compliance with these federal and state laws, and inform employees and marketing representatives of the Anti-Kickback Statute and their obligations thereunder. However, we cannot rule out the possibility that the government or other third parties could interpret these laws differently and challenge our practices under one or more of these laws.

In addition, the laws and regulations impacting or affecting our business may change significantly in the future. Any new laws or regulations may adversely affect our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely affect our operations. Also, the regulatory environment applicable to our business may change in a way that restricts or adversely impacts our operations.

We are not aware of any governmental investigations involving our executives or us. However, any future investigations of our executives, our managers or us could result in significant liabilities or penalties to us, as well as adverse publicity.

~~Table~~Laws and regulations governing the export of ~~Contents~~our products could adversely impact our business.

The U.S. Department of the Treasury’s Office of Foreign Assets Control, and the Bureau of Industry and Security at the U.S. Department of Commerce, administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, and transacting business with or making investments in certain countries, governments, entities and individuals subject to U.S. economic sanctions. Due to our international operations, we are subject to such laws and regulations, which are complex, restrict our business dealings with certain countries and individuals, and are constantly changing. Further restrictions may be enacted, amended, enforced or interpreted in a manner that materially impacts our operations.

Violations of these regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have established procedures designed to assist with our compliance with such laws and regulations. However, we have only limited ~~manufacturing capabilities~~experience dealing with these laws and ~~manufacturing personnel,~~regulations and ifwe cannot guaranty that our procedures will effectively prevent us from violating these regulations in every transaction in which we may engage. Any such violation could adversely affect our reputation, business, financial condition and results of operations.

If our manufacturing capabilities are insufficient to produce an adequate supply of product at appropriate quality levels, our growth could be limited and our business could be harmed.

We currently have limited resources, facilities and experience in commercially manufacturing sufficient quantities of product to meet expected demand. In the past, we have had difficulty scaling our manufacturing operations to provide a sufficient supply of product to support our commercialization efforts. From time to time, we have also experienced brief periods of backorder and, at times, have had to limit the efforts of our sales force to introduce our products to new customers. We have focused significant effort on continual improvement programs in our manufacturing operations intended to improve quality, yields and throughput. We have made progress in manufacturing to enable us to supply adequate amounts of product to support our commercialization efforts; however, we cannot guaranty that supply will not be constrained in the future. In order to produce our products in the quantities we anticipate will be necessary to meet market demand, we will need to increase our manufacturing capacity by a significant factor over the current level. In addition, we will have to modify our manufacturing design, reliability and process if and when our next generation sensor technologies are approved and commercialized. There are technical challenges to increasing manufacturing capacity, including equipment design and automation, materials procurement, manufacturing site expansion, problems with production yields and quality control and assurance. Developing commercial-scale manufacturing facilities will require the investment of substantial additional funds and the hiring and retention of additional management, quality assurance, quality control and technical personnel who have the necessary manufacturing experience. Also, the scaling of manufacturing capacity is subject to numerous risks and uncertainties, and may lead to variability in product quality or reliability, increased construction timelines, as well as resources required to design, install and maintain manufacturing equipment, among others, all of which can lead to unexpected delays in manufacturing output. In addition, any changes to our manufacturing processes may require FDA submission and approval and our facilities may have to undergo additional inspections by the FDA and corresponding state agencies. We may be unable to adequately maintain, develop and expand our manufacturing process and operations or obtain FDA and state agency approval of our facilities in a timely manner or at all. If we are unable to manufacture a sufficient supply of our current products or any future products for which we may receive approval, maintain control over expenses or otherwise adapt to anticipated growth, or if we underestimate growth, we may not have the capability to satisfy market demand and our business will suffer.

Additionally, the production of our products must occur in a highly controlled and clean environment to minimize particles and other yield- and quality-limiting contaminants. Weaknesses in process control or minute impurities in materials may cause a substantial percentage of defective products. If we are not able to maintain stringent quality controls, or if contamination problems arise, our clinical development and commercialization efforts could be delayed, which would harm our business and our results of operations.

We also require the suppliers and business partners of components or services for our products to comply with law and certain of our policies regarding sourcing practices, but we do not control them or their practices. If any supplier or business partner violates laws or implements unethical practices, there could be disruptions to our supply chain, cancellation of our orders, terminations of the relationship with the partner or damage to our reputation.

In the future, if our products ~~experience a~~have material ~~defect~~defects or ~~error,~~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.

Since our commercial launch in 2006, we have ~~experienced~~had periodic field failures related to our products, including reports of sensor errors, sensor failures, broken sensors, receiver malfunctions and transmitter failures. ~~We do not believe these failures necessitated device explant, other procedures, or non-standard clinical treatment or intervention.~~ To comply with the FDA's medical device reporting requirements, we have filed reports of all such broken or lodged sensors. Although we believe we have taken and are taking appropriate actions aimed at reducing or eliminating field failures, we cannot guaranty that we will not ~~experience~~have additional failures going forward.

Our manufacturing operations depend upon third-party suppliers, making us vulnerable to supply problems and price fluctuations, which could harm our business.

We rely on OnCore Manufacturing Services to manufacture and supply circuit boards for our receiver and transmitter; we rely on ON Semiconductor Corp. to manufacture and supply the application specific integrated circuit that is incorporated into the transmitter; we rely on DSM PTG, Inc. to manufacture certain polymers used to synthesize our polymeric biointerface membranes for our products; and we rely on The Tech Group to supply our injection molded components. Each of these suppliers is a single-source supplier. In some cases, our agreements with these and our other suppliers can be terminated by either party upon short notice. Our contract manufacturers also rely on single-source suppliers to manufacture some of the components used in our products. Our manufacturers and suppliers may encounter problems during manufacturing for a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, failed FDA audit or inspection, equipment malfunction and environmental factors, any of which could delay or impede their ability to meet our demand. If our single-source suppliers shift their manufacturing and assembly sites to other locations, these new sites may require additional FDA approval and inspection. Should any such FDA approval be delayed, or such inspection requires

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corrective action, our supply of critical components may be constrained or unavailable. Our reliance on these outside manufacturers and suppliers also subjects us to other risks that could harm our business, including:

we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;

our products are technologically complex and it is difficult to develop alternative supply sources;

we are not a major customer of many of our suppliers, and these suppliers may therefore give other customers' needs higher priority than ours;

our suppliers may make errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products;

we may have difficulty locating and qualifying alternative suppliers for our single-source supplies;

switching components may require product redesign and submission to the FDA of a PMA supplement or possibly a separate PMA, either of which could significantly delay production;

our suppliers manufacture products for a range of customers, and fluctuations in demand for the products these suppliers manufacture for others may affect their ability to deliver components to us in a timely manner;

our suppliers may make obsolete components that are critical to our products; and

our suppliers may encounter financial hardships unrelated to our demand for components, including those related to changes in global economic conditions, which could inhibit their ability to fulfill our orders and meet our requirements.

We may not be able to quickly establish additional or replacement suppliers, particularly for our single-source components, in part because of the FDA inspection and approval process and because of the custom nature of various parts we design. Any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products.

Potential long-term complications from our current or future products or other continuous glucose monitoring systems under development may not be revealed by our clinical experience to date.

Based on our experience, complications from use of our products may include sensor errors, sensor failures, broken sensors, lodged sensors or skin irritation under the adhesive dressing of the sensor. Inflammation or redness, swelling, minor infection, and minor bleeding at the sensor insertion site are also possible risks with an individual's use of ~~the device.~~our products. However, if unanticipated long-term side-effects result from the use of our products or other glucose monitoring systems under development, we could be subject to liability and the adoption of our systems ~~would not be widely adopted.~~may become more limited. With respect to our G4 PLATINUM and G5 Mobile systems, our clinical trials have been limited to seven days of continuous use. ~~Additionally, we have limited clinical experience with repeated use of our products in~~It is possible that the ~~same patient. We cannot assure you that long-term use would not result in unanticipated complications. Furthermore, the interim~~ results from our ~~current pre-clinical~~clinical studies and ~~clinical~~ trials may not be indicative of the clinical results obtained when we examine the patients at later dates. ~~It is possible~~We cannot assure you that repeated, long-term use ~~of our products may~~would not result in unanticipated adverse effects, potentially even after the ~~device~~sensor is removed.

If we or our suppliers or distributors fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, ~~these~~the products could be subject to restrictions or withdrawal from the market.

Any product for which we obtain marketing approval will be subject to continual review and periodic inspections by the FDA and other regulatory bodies, which may include inspection of our manufacturing processes, post-approval clinical data and promotional activities for such product. The FDA's MDR regulations require that we report to the FDA any incident in which our product may have caused or contributed to a death or serious injury, or in which our product malfunctioned and, if the malfunction were to recur, it would likely cause or contribute to a death or serious injury. An example of the difficulty of complying with the regulatory requirements associated with the manufacture of our products, on February 23, 2016, we issued a customer notification via the DexCom website and certified mail regarding the audible alarms and alerts associated with our receivers (Dexcom G4 PLATINUM and Dexcom G5 Mobile) and was classified as a voluntary Class 1 recall by the FDA. The issue with the audible alarms and alerts was identified as a result of our continuous review of complaints received from our customers. A failure of the audible alarms and alerts may cause our customers to not detect a severe hypoglycemic (low glucose) or hyperglycemic (high glucose) event. We are working to implement a solution for the audible alarms and alerts issue identified in the customer notification. The FDA is aware of this notification and a copy of this notification is available on our website at http://www.dexcom.com/notification. In the customer notification we have recommended that customers test the alarms and alerts on their receiver(s) every few days to make sure that the alarms and alerts are functioning properly. On April 11, 2016, we issued a press release supplementing our previous customer notification and reminding patients to periodically test the audible alarms and alerts on their receiver.

We and our suppliers are also required to comply with the FDA's Quality System Regulation (“QSR”) and other regulations, which cover the methods and documentation of the design, testing, production, control, selection and oversight of suppliers or contractors, quality assurance, labeling, packaging, storage, complaint handling, shipping and servicing of our products. The FDA enforces the QSR through unannounced inspections. We currently manufacture our ~~devices~~products at our headquarters facilities in San Diego, California. In these facilities we have more than ~~14,000~~8,000 square feet of laboratory space and approximately ~~14,000~~18,000 square feet of controlled environment rooms. During a routine FDA post-approval facility inspection ending on November 7, 2013, the FDA issued a Form 483 with several observations regarding DexCom MDR procedures and complaint reportability determinations. DexCom responded to the observations on November 26, 2013. On March 14, 2014, we received the 2014 Warning Letter from the FDA related to administrative deficiencies in filing MDRs. On April 2, 2014, we responded to the 2014 Warning Letter. On April 16, 2015, the FDA initiated an on-site inspection intended to both close out the 2014 Warning Letter and conduct our normal biennial quality system inspection. The FDA completed its inspection with no observations. On May 21, 2015, the FDA issued a letter closing the 2014 Warning Letter. During a routine FDA post-market inspection ending on March 29, 2016, the FDA issued a Form 483 with one observation regarding the DexCom MDR procedure specific to retrospective MDR filing when a change in complaint reportability is made. On April 19, 2016 DexCom responded to this observation.

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Compliance with ongoing regulatory requirements can be complex, expensive and time-consuming. Failure by us or one of our suppliers or distributors to comply with statutes and regulations administered by the FDA, competent authorities and other regulatory bodies, or failure to take adequate response to any observations, could result in, among other things, any of the following actions:

warning letters or untitled letters that require corrective action;

delays in approving or refusal to approve our continuous glucose monitoring systems;

fines and civil penalties;

unanticipated expenditures;

FDA refusal to issue certificates to foreign governments needed to export our products for sale in other countries;

suspension or withdrawal of approval by the FDA or other regulatory bodies;

product recall or seizure;

interruption of production;


~~��~~	~~interruption of the supply of components from our key component suppliers;~~

interruption of the supply of components from our key component suppliers;

operating restrictions;

injunctions; and

criminal prosecution.

The effect of these events can be difficult to quantify. If any of these actions were to occur, it would harm our reputation and cause our product sales and profitability to suffer. In addition, we believe events that could be classified as reportable events pursuant to MDR regulations are generally underreported by physicians and users, and any underlying problems could

be of a larger magnitude than suggested by the number or types of MDRs filed by us. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements.

Even if regulatory approval or clearance of a product is granted, the approval or clearance may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for costly post-marketing testing or surveillance to monitor the safety or efficacy of the product. Later discovery of previously unknown problems with our products, including software bugs, unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as the QSR, MDR reporting, or other post-market requirements may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties. In addition, our distributors have rights to create marketing materials for their sales of our products, and may not adhere to contractual, legal or regulatory limitations that are imposed on their marketing efforts.

We are subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from shipping affected products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief. We may also be subject to other claims or suits.

WeThird parties have ~~previously been subject to litigation from third parties alleging patent infringement. Other parties could, in the future,~~asserted, and may assert infringement or misappropriation claims against us with respect to our current or future products. We are aware of numerous patents issued to third parties that may relate to aspects of our business, including the design and manufacture of continuous glucose monitoring sensors and membranes, as well as methods for continuous glucose monitoring. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Therefore, we cannot be certain that we have not infringed the intellectual property rights of such third parties or others. Our competitors may assert that our continuous glucose monitoring systems or the methods we employ in the use of our systems are covered by U.S. or foreign patents held by them. This risk is exacerbated by the fact that there are numerous issued patents and pending patent applications relating to self-monitored glucose testing systems in the medical technology field. Because patent applications may take years to issue, there may be applications now pending of which we are unaware that may later result in issued patents that our products infringe. There could also be existing patents of which we are unaware that one or more components of our system may inadvertently infringe. As the number of competitors in the market for continuous glucose monitoring systems grows, the possibility of inadvertent patent infringement by us or a patent infringement claim against us increases.

On March 28, 2016, Agamatrix, Inc. filed a patent infringement lawsuit against us in the United States District Court for the District of Oregon, asserting that certain of our products infringe certain patents held by Agamatrix. It is our position that Agamatrix’s assertions of infringement have no merit. Neither the outcome of the litigation nor the amount and range of potential fees associated with the litigation can be assessed at this time. As of June 30, 2016, no amounts have been accrued in respect of this litigation.

Any infringement or misappropriation claim could cause us to incur significant costs, place significant strain on our financial resources, divert management's attention from our business and harm our reputation. If the relevant patents were upheld as valid and enforceable and we were found to infringe, we could be prohibited from selling our product that is found to infringe unless we could obtain licenses to use the technology covered by the patent or are able to design around the patent. We

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may be unable to obtain a license on terms acceptable to us, if at all, and we may not be able to redesign our products to avoid infringement. Even if we are able to redesign our products to avoid an infringement claim, we may not receive FDA approval for such changes in a timely manner or at all. 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. A 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.

Any adverse determination in litigation or interference proceedings to which we are or may become a party relating to patents could subject us to significant liabilities to third parties or require us to seek licenses from other third parties. Furthermore, if we are found to willfully infringe third-party patents, we could, in addition to other penalties, be required to pay treble damages and/or attorneys' fees for the prevailing party. Although patent and intellectual property disputes in the medical device area have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and would likely include ongoing royalties. We may be unable to obtain necessary licenses on satisfactory terms. If we do not obtain necessary licenses, we may not be able to redesign our products to avoid infringement and any redesign may not receive FDA approval in a timely manner if at all. Adverse determinations in a judicial or administrative proceeding or

failure to obtain necessary licenses could prevent us from manufacturing and selling our products, which would have a significant adverse impact on our business.

In addition, from time to time, we are subject to various claims and suits arising out of the ordinary course of business, including commercial or employment related matters. Although individually we do not expect these claims or suits to have a material adverse effect on DexCom, in the aggregate they may divert significant time and resources from our staff.

Our inability to adequately protect our intellectual property could allow our competitors and others to produce products based on our technology, which could substantially impair our ability to compete.

Our success and our ability to compete depend, in part, upon our ability to maintain the proprietary nature of our technologies. We rely on a combination of patent, copyright and trademark law, and trade secrets and nondisclosure agreements to protect our intellectual property. However, such methods may not be adequate to protect us or permit us to gain or maintain a competitive advantage. Our patent applications may not issue as patents in a form that will be advantageous to us, or at all. Our issued patents, and those that may issue in the future, may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products. In addition, there are numerous recent changes to the patent laws and proposed changes to the rules of the U.S. Patent and Trademark Office, which may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, in September 2011, the ~~U.S.~~United States enacted sweeping changes to the ~~U.S.~~United States patent system under the Leahy-Smith America Invents Act, including changes that would transition the ~~U.S.~~United States from a “first-to-invent” system to a “first-to-file” system and alter the processes for challenging issued patents. These changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

To protect our proprietary rights, we may in the future need to assert claims of infringement against third parties. The outcome of litigation to enforce our intellectual property rights in patents, copyrights, trade secrets or trademarks is highly unpredictable, could result in substantial costs and diversion of resources, and could have a material adverse effect on our financial condition and results of operations regardless of the final outcome of such litigation. In the event of an adverse judgment, a court could hold that some or all of our asserted intellectual property rights are not infringed, invalid or unenforceable, and could award attorney fees.

Despite our efforts to safeguard our unpatented and unregistered intellectual property rights, we may not succeed in doing so or the steps taken by us in this regard may not be adequate to detect or deter misappropriation of our technology or to prevent an unauthorized third party from copying or otherwise obtaining and using our products, technology or other information that we regard as proprietary. In addition, third parties may be able to design around our patents. Furthermore, the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of the United States.

We operate in a highly competitive market and face competition from large, well-established medical device manufacturers with significant resources, and, as a result, we may not be able to compete effectively.

The market for glucose monitoring devices is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. In selling the G4 PLATINUM ~~system,~~and G5 Mobile systems, we compete directly with Roche Diabetes Care, a division of Roche ~~Diagnostics,~~Diagnostics; LifeScan, Inc., a division of Johnson & ~~Johnson,~~Johnson; the ~~MediSense and TheraSense divisions~~Diabetes Care division of Abbott Laboratories, and Panasonic Healthcare Holdings’ Ascensia Diabetes Care (formerly Bayer ~~Corporation,~~Diabetes Care), each of which manufactures and

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markets products for the single-point finger stick device market. Collectively, these companies currently account for substantially all of the worldwide sales of self-monitored glucose testing systems. Several companies are developing or marketing short-term continuous glucose monitoring products that will compete directly with our products. To date, in addition to us, two other companies, Medtronic, Inc. ~~("Medtronic"~~(“Medtronic”) and Abbott Diabetes Care, Inc. ~~("Abbott"~~(“Abbott”), have received approval from the FDA to market, and actively market, continuous glucose monitors. Abbott has discontinued selling its Freestyle Navigator glucose monitoring system in the United States; however, Abbott filed a clinical study for home use of the Navigator II system in the United States and in October 2012 Abbott initiated a limited launch of the Navigator II system in Europe. We believe that Abbott is also conducting clinical studies on a new glucose monitoring platform and has ~~conducted a limited commercial launch of~~commercialized this new system in Europe. We also believe Abbott has submitted a professional use version of this new system to the FDA for review. In addition, we believe that Roche and others, are developing invasive and non-invasive continuous glucose monitoring systems. Also, Medtronic, and other third parties, have developed, or are developing, insulin pumps augmented with continuous glucose monitoring systems that provide, among other things, the ability to suspend insulin administration while the user's glucose levels are low. Most of the companies developing or marketing competing devices are publicly traded or divisions of publicly traded companies, and these companies possess several competitive advantages, including:

significantly greater name recognition;

established relations with healthcare professionals, customers and third-party payors;

established distribution networks;

additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage;

greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory approval for products and marketing approved products;

the ability to integrate multiple products to provide additional features beyond continuous glucose monitoring; and

greater financial and human resources for product development, sales and marketing, and patent litigation.

As a result, we may not be able to compete effectively against these companies or their products, which may adversely impact our business.

We have entered into a Collaboration Agreement with Edwards to develop jointly an in-hospital critical care automated blood glucose monitoring device, branded as the GlucoClear system, which may not result in a commercially viable product in the United States or generate any future revenues.

On November 10, 2008, we entered into a Collaboration Agreement with Edwards pursuant to which we agreed to develop jointly and to market the GlucoClear system, a blood-based in-vivo automated glucose monitoring system for use by healthcare providers in the hospital critical care sector. Under the Collaboration Agreement, we may receive payments for various milestones related to regulatory approvals and commercial readiness of the product. In addition, we also expect to receive a royalty of 6% of commercial sales of the product if such sales occur. The Collaboration Agreement provides Edwards with an exclusive license to our intellectual property that relates to blood-based glucose sensors in the critical care sector of the hospital market. However, this collaboration may not result in the development of products that achieve regulatory approval in the United States or commercial success, which would result in various penalties to us under the Collaboration Agreement, up to and including delay or loss of some or all of our milestone payments and rights to any royalties. In October 2009, we received CE Mark approval for the first generation of the GlucoClear system that we developed in collaboration with Edwards. Although Edwards commenced market evaluations during 2009, this product has never generated significant revenue and we do not expect this product to generate significant revenue for the foreseeable future. In January 2013, Edwards received CE Mark approval for the second generation system. A very limited commercial launch of the first generation GlucoClear system was initiated in Europe in 2009. In 2013, Edwards completed another very limited commercial launch in Europe of the second generation GlucoClear system. There are no current commercial activities led by Edwards to continue the commercialization of the GlucoClear system.

We enter into collaborations with third parties that may not result in the development of commercially viable products or the generation of significant future revenues.

In the ordinary course of our business, we enter into collaborative arrangements to develop new products and to pursue new markets, such as our agreements with Animas and Tandem, to integrate our continuous glucose monitoring technology into their respective insulin delivery ~~systems.~~systems, and our agreement with Verily to develop a series of next-generation continuous glucose monitoring products. We also have ~~also~~ entered into an OUS Commercialization Agreement ~~as amended,~~ with Animas pursuant to which Animas retains the right to develop and market outside the United States an ambulatory insulin pump that is combined with our continuous glucose monitoring technology which has been branded the Vibe. In May 2011, we,

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together with Animas, received CE Mark certification for the Vibe, allowing it to be marketed in the countries that recognize CE Mark approval. Animas received FDA approval for the Vibe system in December 2014. On September 9, 2015 Tandem ~~has also submitted its PMA seeking~~received FDA approval for ~~Tandem's~~its sensor augmented insulin delivery ~~system.~~

system, the t:slim G4™ Insulin Pump. We also previously entered into collaborative agreements with Insulet and Roche neither of which resulted in the successful development of a commercially viable product nor is anticipated to result in significant additional ~~future revenues.~~revenues for the foreseeable future.

As a result of these development relationships, our operating results depend, to some extent, on the ability of our development partners to successfully commercialize their insulin delivery systems. Any factors that may limit our partners’ ability to achieve widespread adoption of their systems, including competitive pressures, technological breakthroughs for the treatment or prevention of diabetes, adverse regulatory or legal actions relating to insulin pump products, or changes in reimbursement rates or policies of third-party payors relating to insulin pumps or similar products, could have an adverse impact on our operating results. For example, UnitedHealthcare announced, effective July 1, 2016, that UnitedHealthcare Community Plan and Commercial members will no longer have an in-network choice among providers of insulin pumps, and designated Medtronic as its preferred, in-network provider. We do not have a development relationship with Medtronic, which

has developed an insulin pump augmented with its proprietary continuous glucose monitoring system. The decision by UnitedHealthcare to establish Medtronic as its preferred provider of insulin pumps could result in a material reduction in the number of insulin pumps sold by other insulin pump manufacturers, including Animas and Tandem. In addition, it is possible that other large third-party payors will establish preferred providers of insulin pumps, which may or may not include the pumps produced by our development partners.

Many of the companies that we collaborate with are also competitors or potential competitors who may decide to terminate our collaborative arrangement. In the event of such a termination, we may be required to devote additional resources to product development and commercialization, we may need to cancel some development programs and we may face increased competition. Additionally, similar to the agreements with Roche, collaborations may not result in the development of products that achieve commercial success and could be terminated prior to developing any products. Former collaborators may use the experience and insights they develop in the course of their collaborations with us to initiate or accelerate their development of products that compete with our products, which may create competitive disadvantages for us. Accordingly, we cannot assure you that any of our collaborations will result in the successful development of a commercially viable product or result in significant additional future revenues.

In addition, our development timelines are highly dependent on our ability to achieve clinical endpoints and regulatory requirements and to overcome technology challenges, and may be delayed due to scheduling issues with patients and investigators, requests from institutional review boards, product 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,~~succeed, the FDA may not approve the combined products or may require additional product testing and clinical trials before approving the combined products, which would result in product launch delays and additional expense. If approved by the FDA, the combined products may not achieve acceptance in the marketplace by physicians and people with diabetes.

To date, no continuous glucose monitoring system ~~including our G4 PLATINUM system,~~ has received FDA clearance as a replacement for single-point finger stick devices, and our ~~G4 PLATINUM~~current and future generation products may never be approved for that indication.

~~The G4 PLATINUM system does~~Our products do not eliminate the need for single-point finger stick devices and our future products may not be approved for that indication. NoNotwithstanding the favorable ruling made at the FDA’s Clinical Chemistry and Clinical Toxicology Devices Panel of the Medical Devices Advisory Committee on July 21, 2016, as of the date of filing of this quarterly report, no precedent for FDA approval of continuous glucose monitoring systems as a replacement for single-point finger stick devices has been established. Accordingly, there is no established study design or agreement regarding performance requirements or measurements in clinical trials for continuous glucose monitoring systems. ~~We have not yet filed for FDA approval for therapeutic or replacement claim labeling and we may experience delays if we do file.~~ If any of our competitors were to obtain replacement claim labeling for a continuous glucose monitoring system, our products may fail to compete effectively against that system and our business would suffer.

Technological breakthroughs by us or our competitors could materially impact sales of current or future generations of our products.

The glucose monitoring market is subject to rapid technological change and product innovation. Our products are based on our proprietary technology, but a number of companies and medical researchers are pursuing new technologies for the monitoring of glucose levels. FDA approval of a commercially viable continuous glucose monitor or sensor produced by one of our competitors could significantly reduce market acceptance of our systems. Several of our competitors are in various stages of developing continuous glucose monitors or sensors, including non-invasive and invasive devices, and the FDA has approved several of these competing products. In addition, the National Institutes of Health and other supporters of diabetes research are continually seeking ways to prevent, cure or improve treatment of diabetes. Therefore, our products may be rendered obsolete by technological breakthroughs in diabetes monitoring, treatment, prevention or cure.

In addition, in the periods leading up to the launch of new or upgraded versions of our continuous glucose monitoring products, our customers’ anticipation of the release of those products may cause them to cancel, change or delay current period purchases of our current products, which could have a material adverse effect on our business operations, financial condition and results of operations in current periods.

We face the risk of product liability claims and may not be able to maintain or obtain insurance.

Our business exposes us to the risk of product liability claims that is inherent in the testing, manufacturing and marketing of medical devices, including those which may arise from the misuse (including system hacking or other unauthorized access by third parties to our systems) or malfunction of, or design flaws in, our products. We may be subject to product liability claims if our products cause, or merely appear to have caused, an injury. Claims may be made by customers, healthcare providers or others selling our products. The risk of product liability claims may increase if our products obtain approved

labeling in the United States that allows for our patients to make diabetes treatment decisions. The risk of claims may also increase if our products are subject to a product recall or seizure. An example of the difficulty of complying with the regulatory requirements associated with the manufacture of our products we issued notifications to our customers regarding the audible alarms and alerts associated with our receivers, as discussed earlier in the risk factor entitled “If we or our suppliers or distributors fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, the products could be subject to restrictions or withdrawal from the market.”

Although we have product liability and clinical trial liability insurance that we believe is appropriate, this insurance is subject to deductibles and coverage limitations. Our current product liability insurance may not continue to be available to us

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on acceptable terms, if at all, and, if available, the coverage may not be adequate to protect us against any future product liability claims. Further, if additional products are approved for marketing, we may seek additional insurance coverage. If we are unable to obtain insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may harm our business. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could result in significant costs and significant harm to our business.

We may be subject to claims against us even if the apparent injury is due to the actions of others or misuse of the device. Our customers, either on their own or following the advice of their physicians, may use our products in a manner not described in the products' labeling and that differs from the manner in which it was used in clinical studies and approved by the FDA. For example, our ~~G4 PLATINUM~~current systems are designed to be used by an individual continuously for up to seven days, but the individual might be able to circumvent the safeguards designed into the ~~G4 PLATINUM~~ systems and use the products for longer than seven days. Off-label use of products by customers is common, and any such off-label use of our products could subject us to additional liability. ~~If the FDA or other regulatory agency or notified body approves~~The CE Mark for our G5 Mobile system includes an indication ~~for our CGM systems~~ that allows patients to make ~~therapeutic~~diabetes treatment decisions based on the information generated by such systems, wealthough it still requires finger stick calibrations twice per day. In addition, the FDA or other regulatory agencies may in the future approve similar diabetes treatment indications. We expect that such ~~indication~~diabetes treatment indications could expose us to additional liability. These liabilities could prevent or interfere with our product commercialization efforts. Defending a suit, regardless of merit, could be costly, could divert management attention and might result in adverse publicity, which could result in the withdrawal of, or inability to recruit, clinical trial volunteers or result in reduced acceptance of our products in the market.

We may be subject to fines, penalties and injunctions if we are determined to be promoting the use of our products for unapproved off-label uses.

Although we believe our promotional materials and training methods are conducted in compliance with FDA and other regulations, if the FDA determines that our promotional materials or training constitutes promotion of an unapproved use, the FDA could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

If we are found to have violated laws protecting the use and confidentiality of patient health or other personal information, we could be subject to civil or criminal penalties, which could increase our liabilities and harm our reputation or our business.

There are a number of foreign, federal and state laws and regulations protecting the use and confidentiality of certain patient health and personal information, including patient records, and restricting the use and disclosure of that protected information. These laws include foreign, federal and state medical privacy laws, breach notification laws and foreign, federal and state consumer protection laws. The Department of Health and Human Services has promulgated regulations implementing the privacy and electronic security requirements set forth in the Administrative Simplification provisions of ~~the Health Insurance Portability and Accountability Act of 1996, as amended by the American Recovery and Reinvestment Act of 2009, or~~ HIPAA. These privacy rules protect medical records and other personal health information by limiting their use and disclosure, giving individuals the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. We are also subject to laws and regulations in foreign countries covering data privacy and other protection of health and employee information that may be more onerous than corresponding U.S. laws, including in particular the laws of Europe. If we are found to be in violation of the privacy rules under HIPAA or other laws, we could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

We are subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other

matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including laws and regulations relating to privacy and data protection, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, personal information, electronic contracts and other communications, competition, protection of minors, consumer protection, telecommunications, product liability, taxation, economic or other trade prohibitions or sanctions, corrupt practices, fraud waste and abuse restrictions, and securities law compliance. The introduction of new products or expansion of our activities in certain jurisdictions may subject us to additional laws and regulations. For example, data protection laws passed by the federal government, many states and foreign countries require notification to users when there is a security breach for personal data.

In addition, foreign data protection, privacy, and other laws and regulations can be more restrictive than those in the United States. For example, data localization laws in some countries generally mandate that certain types of data collected in a particular country be stored and/or processed within that country. We could be subject to audits in Europe and around the world, particularly in the areas of consumer and data protection, as we continue to grow and expand our operations. Legislators and regulators may make legal and regulatory changes, or interpret and apply existing laws, in ways that make our products less useful to our customers, require us to incur substantial costs, expose us to unanticipated civil or criminal liability, or cause us to change our business practices. These changes or increased costs could negatively impact our business and results of operations in material ways.

The failure to comply with U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws in non-U.S. jurisdictions could materially adversely affect our business and result in civil and/or criminal sanctions.

The U.S. Foreign Corrupt Practices Act, or FCPA, and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. government officials for the purpose of obtaining or retaining business. Because of the predominance of government-sponsored healthcare systems around the world, most of our customer relationships outside of the United States are with governmental entities and are therefore potentially subject to such anti-bribery laws. Global enforcement of anti-corruption laws has increased substantially in recent years, with more frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by U.S. and foreign governmental agencies, and assessment of significant fines and penalties against companies and individuals. Our international operations create the risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents, or distributors, because these parties are not always subject to our control. It is our policy to implement safeguards to educate our employees and agents on these legal requirements and discourage improper practices. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents, or distributors may engage in conduct for which we might be held responsible. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by any companies in which we invest or that we acquire. Any alleged or actual violations of these regulations may subject us to government scrutiny, severe criminal or civil sanctions and other liabilities, including exclusion from government contracting, and could disrupt our business, and result in a material adverse effect on our reputation, results of operations, financial condition, and cash flows.

The majority of our operations are conducted at ~~four~~five facilities in San Diego, California. Any disruption at these facilities could increase our expenses.

We take precautions to safeguard our facilities, which include manufacturing protocols, insurance, health and safety protocols, and off-site storage of computer data. However, a natural disaster, such as a fire, flood, earthquake, an act of terrorism, cyber attack or other disruptive event could cause substantial delays in our operations, damage or destroy our manufacturing equipment, inventory, or records and cause us to incur additional expenses. Earthquakes are of particular significance since our primary manufacturing facilities in California are located in an earthquake-prone area. In the event our existing manufacturing facilities or equipment are affected by man-made or natural disasters, we may be unable to manufacture products for sale or meet customer demands or sales projections. If our manufacturing operations were curtailed or ceased, it would seriously harm our business. The insurance we maintain against fires, floods, earthquakes and other natural disasters and similar events may not be adequate to cover our losses in any particular case.

~~Table~~ We are currently pursuing plans to establish a second facility outside of ~~Contents~~California to mitigate these risks.

Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions, or data corruption could significantly disrupt our operations and adversely affect our business and operating results.

We rely on information technology and telephone networks and systems, including the Internet, to process and transmit sensitive electronic information and to manage or support a variety of business processes and activities, including sales, billing, customer service, procurement and supply chain, manufacturing, and distribution. We use enterprise information technology systems to record, process, and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information technology systems, some of which are managed by third-parties, may be susceptible to damage, disruptions or shutdowns due to computer viruses, ransomware or other malware, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors or catastrophic events. Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third party vendor, such measures cannot provide absolute security. If our systems are breached or suffer severe damage, disruption or shutdown and we are unable to effectively resolve the issues in a timely manner, our business and operating results may significantly suffer and we may be subject to litigation, government enforcement actions ~~or potential liability. Security breaches~~and other actions for which we could ~~also cause us to incur significant~~face financial liability and other adverse consequences which may include:

loss of existing customers;

difficulty in attracting new customers;

problems in determining product cost estimates and establishing appropriate pricing;

difficulty in preventing, detecting, and controlling fraud;

disputes with customers, physicians, and other health care professionals;

increases in operating expenses, incurrence of expenses, including remediation ~~costs, result in~~ costs;

loss of revenues;

product development ~~delays, disrupt~~delays;

disruption of key business ~~operations~~operations; and ~~divert~~

diversion of attention of management and key information technology resources.

If our efforts to protect the security of information about our patients are unsuccessful, we could become subject to costly government enforcement actions and private litigation and our sales and reputation could suffer.

The nature of our business involves the receipt and storage of information about our patients. We have implemented programs to detect and alert us to data security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. We believe that companies have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access. These threats can come from a variety of sources, ranging in sophistication from an individual hacker to malfeasance by employees, consultants or other service providers to state-sponsored attacks. Cyber threats may be generic, or they may be custom-crafted against our information systems. Over the past year, cyber-attacks have become more prevalent and much harder to detect and defend against. Our network and storage applications may be vulnerable to cyber-attack, malicious intrusion, malfeasance, loss of data privacy or other significant disruption and may be subject to unauthorized access by hackers, employees, consultants or other service providers. In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our employees, contractors and temporary staff. If ~~we experience~~there are significant breaches of our data security ~~breaches~~ or we fail to detect and appropriately respond to significant data security breaches, we could be exposed to government enforcement actions and private litigation. In addition, our patients could further lose confidence in our ability to protect their information, which could cause them to discontinue using our products or purchasing from us altogether.

Our products may not continue to achieve market acceptance.

We expect that sales of our G4 PLATINUM system, which consists of a handheld receiver, reusable transmitter and disposable sensor, and our G5 Mobile system which consists of a handheld receiver, reusable transmitter, disposable sensors and a smartphone application that securely identifies, receives, deciphers and displays information transmitted by the transmitter, will account for substantially all of our product revenue for the foreseeable future. If and when we receive FDA approval for and begin commercialization of our next generation continuous glucose monitoring systems and sensors, we expect most patients will migrate onto those systems. Notwithstanding our prior experience in selling our products, we might be unable to successfully expand the commercialization of our products on a wide scale for a number of reasons, including:

the FDA approval of our G5 Mobile system in the United States in August 2015 and the approval to sell our G5 Mobile system in the countries that recognize our CE Mark means that we have relatively limited experience selling our G5 Mobile system;

the approval for a Pediatric Indication of our G5 Mobile system in the United States and the countries that recognize our CE Mark means that we have limited experience selling and marketing the G5 Mobile system to persons aged two to 17 years or their legal guardians;

widespread market acceptance of our products by physicians and people with diabetes will largely depend on our ability to demonstrate their relative safety, efficacy, reliability, cost-effectiveness and ease of use;

the limited size of our sales force;

we may not have sufficient financial or other resources to adequately expand the commercialization efforts for our products;

our FDA and other regulatory submissions may be delayed, or approved with limited product labeling;

we may not be able to manufacture our products in commercial quantities or at an acceptable cost;

people with diabetes do not generally receive broad reimbursement from third-party payors for their purchase of our products since many payors require that a policy holder meet specific medical criteria to qualify for reimbursement, which may reduce widespread use of our products;

the uncertainties associated with establishing and qualifying new manufacturing facilities;

except for the G5 Mobile under the CE Mark, our systems are not labeled as a replacement for the information that is obtained from single-point finger stick devices;

people with diabetes will need to incur the costs of our systems in addition to single-point finger stick devices;

the relative immaturity of the continuous glucose monitoring market internationally, and the general absence of international reimbursement of continuous glucose monitoring devices by third-party payors and government healthcare providers outside the United States;

the introduction and market acceptance of competing products and technologies;

our inability to obtain sufficient quantities of supplies at appropriate quality levels from our single-source and other key suppliers;

our inability to manufacture products that perform in accordance with expectations of consumers; and

rapid technological change may make our technology and our products obsolete.

Our G4 PLATINUM and G5 Mobile systems are more invasive than current self-monitored glucose testing systems, including single-point finger stick devices, and people with diabetes may be unwilling to insert a sensor in their body, especially if their current diabetes management involves no more than two finger sticks per day. Moreover, people with diabetes may not perceive the benefits of continuous glucose monitoring and may be unwilling to change their current treatment regimens. In addition, physicians tend to be slow to change their medical treatment practices because of perceived liability risks arising from the use of new products. Physicians may not recommend or prescribe our products until (i) there is more long-term clinical evidence to convince them to alter their existing treatment methods, (ii) there are additional recommendations from prominent physicians that our products are effective in monitoring glucose levels and (iii) reimbursement or insurance coverage is more widely available. We cannot predict when, if ever, physicians and people with diabetes may adopt more widespread use of continuous glucose monitoring systems, including our systems. If our systems do not achieve an adequate level of acceptance by people with diabetes, physicians and healthcare payors, we may not generate significant product revenue and we may not become profitable.

Our operations and performance depend on worldwide economic and political conditions. These conditions have been adversely impacted by continued global economic uncertainty, political instability and military hostilities in multiple geographies, concerns over the downgrade of U.S. sovereign debt and continued sovereign debt, monetary and financial uncertainties in Europe and other foreign countries. These include potential reductions in the overall stability and suitability of the Euro as a single currency, given the economic and political challenges facing individual Eurozone countries. These conditions have made and may continue to make it difficult for our customers and potential customers to afford our products, and could cause our customers to stop using our products or to use them less frequently. If that were to occur, our revenue may decrease and our performance may be negatively impacted. In addition, the pressure on consumers to absorb more of their own health care costs has resulted in some cases in higher deductibles and limits on durable medical equipment, which may cause seasonality in purchasing patterns. Furthermore, during economic uncertainty, our customers have had job losses and may continue to have issues gaining timely access to sufficient health insurance or credit, which could result in their unwillingness to purchase products or impair their ability to make timely payments to us. We cannot predict the reoccurrence of any economic slowdown or the strength or sustainability of the economic recovery, worldwide, in the United States, or in our industry. These and other economic factors could have a material adverse effect on our financial condition and operating results.

Healthcare reforms, changes in healthcare policies and changes to third-party reimbursements for our products may affect demand for our products.

Comprehensive healthcare legislation, signed into law in the United States in March 2010, imposes stringent compliance, recordkeeping, and reporting requirements on companies in various sectors of the life sciences industry, with which we may need to comply, and enhanced penalties for non-compliance with the new healthcare regulations. The impact of this legislation remains unclear, and costs of compliance with this legislation, or any future amendments thereto, could result in certain risks and expenses that we may have to assume.

Other legal, regulatory and commercial policy influences are subjecting our industry to significant changes, and we cannot predict whether new regulations or policies will emerge from U.S. federal or state governments, foreign governments, or third party payors. Government and payors may in the future consider healthcare policies and proposals intended to curb rising healthcare costs, including those that could significantly affect reimbursement for healthcare products such as our systems. These policies have included, and may in the future include: basing reimbursement policies and rates on clinical outcomes, the comparative effectiveness and costs of different treatment technologies and modalities; imposing price controls and taxes on medical device providers; and other measures. Future significant changes in the healthcare systems in the United States or elsewhere could also have a negative impact on the demand for our current and future products. These include changes that may reduce reimbursement rates for our products and changes that may be proposed or implemented by the current or future laws or regulations.

In addition, 2010's comprehensive U.S. healthcare reform legislation included an annual excise tax on the sale of medical devices equal to 2.3% of the price of the device starting on January 1, 2013, which does not include, under Internal Revenue Service (“IRS”) guidance, our existing systems as they are medical devices deemed to be generally purchased by the general public at retail under such legislation. The Protecting Americans from Tax Hikes Act of 2015 was enacted on December 18, 2015, which provides a two-year moratorium on the medical device excise tax.

As a result, as of June 30, 2016, we believed that our current ambulatory 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.

We may be liable for contamination or other harm caused by materials that we handle, and changes in environmental regulations could cause us to incur additional expense.

Our research and development and clinical processes involve the handling of potentially harmful biological materials as well as hazardous materials. We are subject to federal, state and local laws and regulations governing the use, handling, storage and disposal of hazardous and biological materials and we incur expenses relating to compliance with these laws and regulations. If violations of environmental, health and safety laws occur, we could be held liable for damages, penalties and costs of remedial actions. These expenses or this liability could have a significant negative impact on our financial condition. We may violate environmental, health and safety laws in the future as a result of human error, equipment failure or other causes. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. We are subject to potentially conflicting and changing regulatory agendas of political, business and environmental groups. Changes to or restrictions on permitting requirements or processes, hazardous or biological material storage or handling might require an unplanned capital investment or relocation. Failure to comply with new or existing laws or regulations could harm our business, financial condition and results of operations.

We are subject to a variety of market and financial risks due to our international operations that could adversely affect those operations or our profitability and operating results.

Our operations in countries outside the United States, which accounted for 13% of our revenues for the quarter ended June 30, 2016, are accompanied by certain financial and other risks. In addition to opening offices in the United Kingdom and Germany this year, in connection with distributor acquisitions and otherwise, we intend to continue to pursue growth opportunities in sales outside the United States, especially in Europe, which could expose us to greater risks associated with international sales and operations. Our profitability and international operations are, and will continue to be, subject to a number of risks and potential costs, including:

local product preferences and product requirements;

longer-term receivables than are typical in the United States;

fluctuations in foreign currency exchange rates;

less intellectual property protection in some countries outside the United States than exists in the United States;

trade protection measures and import and export licensing requirements;

workforce instability;

political and economic instability; and

the potential payment of U.S. income taxes on certain earnings of our subsidiaries outside the United States upon repatriation.

For example, the Obama Administration has announced potential legislative proposals to tax profits of U.S. companies earned abroad. While it is impossible for us to predict whether these and other proposals will be implemented, or how they will ultimately impact us, they may materially impact our results of operations if, for example, our profits earned abroad are subject to U.S. income tax, or we are otherwise disallowed deductions as a result of these profits.

As another example, changes in foreign currency exchange rates may reduce the reported value of our foreign currency revenues, net of expenses, and cash flows. We cannot predict changes in currency exchange rates, the impact of exchange rate changes, nor the degree to which we will be able to manage the impact of currency exchange rate changes.

As a final example, on June 23, 2016, the United Kingdom, or U.K., held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit”. As a result of the referendum, it is expected that the U.K. government will begin negotiating the terms of the U.K.’s future relationship with the European Union. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports and on the movement of people between the U.K. and European Union countries, and increased regulatory complexities.

Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.

We conduct limited commercial and marketing efforts in Canada, Europe, Australia, New Zealand, Asia, Latin America, the Middle East ~~Latin America, Asia~~ and Africa with respect to our ~~G4 PLATINUM system~~continuous glucose monitoring systems and may seek to market our products in other regions in the future. Outside the United States, we can market a product only if we receive a marketing authorization and, in some cases,

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pricing approval, from the appropriate regulatory authorities. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval in addition to other risks. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. In addition, in order to obtain the approval of our products in certain foreign jurisdictions, we may need to obtain a Certificate to Foreign Government from the FDA. The FDA may refuse to issue a Certificate to Foreign Government in certain instances, including without limitation, during the pendency of any outstanding warning letter. As a result, we may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market outside the United States on a timely basis, or at all.

Our success will depend on our ability to attract and retain our ~~personnel and our ability to successfully transition from Mr. Gregg to Mr. Sayer as our Chief Executive Officer.~~personnel.

We are highly dependent on our senior management, especially Terry Gregg, our Executive Chairman, Kevin Sayer, our President and Chief Executive Officer, Steven R. Pacelli, our Executive Vice President of Strategy and Corporate Development, Jorge Valdes, our Executive Vice President and Chief Technical Officer, Andrew K. Balo, our Executive Vice President of Clinical, Regulatory, and ~~Quality,~~Global Access, and Richard Doubleday, our Executive Vice President and Chief Commercial Officer. Our success will depend on our ability to retain our current management and to attract and retain qualified personnel in the future, including sales persons, scientists, clinicians, engineers and other highly skilled personnel. Competition for senior management personnel, as well as sales persons, scientists, clinicians and engineers, is intense and we may not be able to retain our personnel. The loss of the services of members of our senior management, scientists, clinicians or engineers could prevent the implementation and completion of our objectives, including the commercialization of our current products and the development and introduction of additional products. The loss of a member of our senior management or our professional staff would require the remaining executive officers to divert immediate and substantial attention to seeking a replacement. Each of our officers may terminate their employment at any time without notice and without cause or good reason. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees.

Effective January 1, 2015, Mr. Gregg assumed his new role as our Executive Chairman. In this role, Mr. Gregg remains an employee and continues to lead our external efforts. Mr. Gregg also chairs our Board of Directors as of January 1, 2015. Mr. Sayer assumed the role of Chief Executive Officer effective on January 1, 2015. If we are unable to successfully transition the role of Chief Executive Officer from Mr. Gregg to Mr. Sayer, it could have an adverse impact on our financial condition and operating results.

We expect to continue to expand our operations and grow our research and development, manufacturing, sales and marketing, product development and administrative operations. We expect this expansion to place a significant strain on our management and it will require hiring a significant number of qualified personnel. Accordingly, recruiting and retaining such personnel will be critical to our success. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. If we fail to identify, attract, retain and motivate these skilled personnel, we may be unable to continue our development and commercialization activities.

~~The SEC ”conflict minerals” rule has caused us~~We may face risks associated with acquisitions of companies, products and technologies and our business could be harmed if we are unable to ~~incur additional expenses,~~address these risks.

If we are presented with appropriate opportunities, we could ~~limit~~acquire or make other investments in complementary companies, products or technologies. In May 2016, we acquired Nintamed, our distributor in Germany, Switzerland and Austria. We may not realize the ~~supply~~anticipated benefit of our acquisitions, or the realization of the anticipated benefits may require greater expenditures than anticipated by us. We will likely face risks, uncertainties and ~~increase~~disruptions associated with the ~~cost~~integration process, including difficulties in the integration of ~~certain metals used in manufacturing~~the operations and services of any acquired company, integration of acquired technology with our products, ~~and could make us less competitive in our target markets.~~

We are required to disclose the origin, source and chain of custody of specified minerals, known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. The requirement mandates companies to obtain sourcing data from suppliers, engage in supply chain due diligence, and file annually with the SEC a specialized disclosure report on Form SD covering the prior calendar year. The rule could limit our ability to source at competitive prices and to secure sufficient quantities of certain minerals used in the manufacturediversion of our ~~products, specifically tantalum, tin, gold and tungsten, as~~management's attention from other business concerns, the ~~number~~potential loss of suppliers that provide conflict-free minerals may be limited. In addition, we have incurred, and may continue to incur, material costs associated with complying with the rule, such as costs related to the determinationkey employees or customers of the ~~origin, source~~acquired businesses and ~~chain of custody of the minerals used in our products, the adoption of conflict minerals-related governance policies, processes and controls, and possible changes~~impairment charges if future acquisitions are not as successful as we originally anticipate. If we fail to successfully integrate other companies, products or sources of supply as a result of such activities. Within our supply chain, we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the data collection and due diligence procedurestechnologies that we ~~implement, which may harm~~acquire, our ~~reputation.~~business could be harmed. Furthermore, we may ~~encounter challenges in satisfying those customers that require that all~~have to incur debt or issue equity securities to pay for any additional future acquisitions or investments, the issuance of ~~the components~~which could be dilutive to our existing shareholders. In addition, our operating results may suffer because of ~~our products be certified as conflict free, and if we cannot satisfy these customers, they may choose a competitor’s products. We continue~~acquisition-related costs or amortization expenses or charges relating to ~~investigate the presence of conflict materials within our supply chain.~~acquired intangible assets.

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Compliance with regulations relating to public company corporate governance matters and reporting is time consuming and expensive.

Many laws and regulations, notably those adopted in connection with the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, new SEC regulations and The NASDAQ Stock Market listing rules, impose obligations on public companies, such as ours, which have increased the scope, complexity and cost of corporate governance,

reporting and disclosure practices. Compliance with these laws and regulations, including enhanced new disclosures, has required and will continue to require substantial management time and oversight and the incurrence of significant accounting and legal costs. The effects of new laws and regulations remain unclear and will likely require substantial management time and oversight and require us to incur significant additional accounting and legal costs. Additionally, changes to existing accounting rules or standards, such as the potential requirement that U.S. registrants prepare financial statements in accordance with International Financial Reporting Standards, may adversely impact our reported financial results and business, and may require us to incur greater accounting fees.

If we are unable to successfully maintain effective internal control over financial reporting, investors may lose confidence in our reported financial information and our stock price and our business may be adversely impacted.

As a public company, we are required to maintain internal control over financial reporting and our management is required to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year. If we are not successful in maintaining effective internal control over financial reporting, there could be inaccuracies or omissions in the consolidated financial information we are required to file with the SEC. Additionally, even if there are no inaccuracies or omissions, we will be required to publicly disclose the conclusion of our management that our internal control over financial reporting or disclosure controls and procedures are not effective. These events could cause investors to lose confidence in our reported financial information, adversely impact our stock price, result in increased costs to remediate any deficiencies, attract regulatory scrutiny or lawsuits that could be costly to resolve and distract management’s attention, limit our ability to access the capital markets or cause our stock to be delisted from The NASDAQ Global Select Market or any other securities exchange on which it is then listed.

Valuation of share-based payments, which we are required to perform for purposes of recording compensation expense under authoritative guidance for share-based payment, involves assumptions that are subject to change and difficult to predict.

We record compensation expense in the consolidated statement of operations for share-based payments, such as employee stock options, restricted stock units and employee stock purchase plan shares, using the fair value method. The requirements of the authoritative guidance for share-based payment have and will continue to have a material effect on our future financial results reported under U.S. GAAP and make it difficult for us to accurately predict the impact on our future financial results.

For instance, estimating the fair value of share-based payments is highly dependent on assumptions regarding the future exercise behavior of our employees and changes in our stock price. The actual values realized upon the exercise, expiration, early termination or forfeiture of share-based payments might be significantly different than our estimates of the fair values of those awards as determined at the date of grant. If there are errors in our input assumptions for our valuations models, we may inaccurately calculate actual or estimated compensation expense for share-based payments.

The authoritative guidance for share-based payment could also adversely impact our ability to provide accurate guidance on our future financial results as assumptions that are used to estimate the fair value of share-based payments are based on estimates and judgments that may differ from period to period. We may also be unable to accurately predict the amount and timing of the recognition of tax benefits associated with share-based payments as they are highly dependent on the exercise behavior of our employees and the price of our stock relative to the exercise price of each outstanding stock option.

For those reasons, among others, the authoritative guidance for share-based payment may create variability and uncertainty in the share-based compensation expense we will record in future periods, which could adversely impact our stock price and increase our expected stock price volatility as compared to prior periods.

Changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse unexpected revenue and/or expense fluctuations and affect our reported results of operations.

A change in accounting standards or practices or a change in existing taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and taxation rules and varying interpretations of accounting pronouncements and taxation practice have occurred and may occur in the future. The method in which we market and sell our products may have an impact on the manner in which we recognize revenue. In addition, changes to existing rules or the questioning of current practices may

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adversely affect our reported financial results or the way we conduct our business. Additionally, changes to existing accounting rules or standards, such as the potential requirement that U.S. registrants prepare financial statements in accordance with International Financial Reporting Standards, may adversely impact our reported financial results and business, and may further require us to incur greater accounting fees.

The SEC ”conflict minerals” rule has caused us to incur additional expenses, could limit the supply and increase the cost of certain metals used in manufacturing our products, and could make us less competitive in our target markets.

We are required to disclose the origin, source and chain of custody of specified minerals, known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. The requirement mandates companies to obtain sourcing data from suppliers, engage in supply chain due diligence, and file annually with the SEC a specialized disclosure report on Form SD covering the prior calendar year. The rule could limit our ability to source at competitive prices and to secure sufficient quantities of certain minerals used in the manufacture of our products, specifically tantalum, tin, gold and tungsten, as the number of suppliers that provide conflict-free minerals may be limited. In addition, we have incurred, and may continue to incur, material costs associated with complying with the rule, such as costs related to the determination of the origin, source and chain of custody of the minerals used in our products, the adoption of conflict minerals-related governance policies, processes and controls, and possible changes to products or sources of supply as a result of such activities. Within our supply chain, we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the data collection and due diligence procedures that we implement, which may harm our reputation. Furthermore, we may encounter challenges in satisfying those customers that require that all of the components of our products be certified as conflict free, and if we cannot satisfy these customers, they may choose a competitor’s products. We continue to investigate the presence of conflict materials within our supply chain.

Risks Related to Our Common Stock

Our stock price is highly volatile and investing in our stock involves a high degree of risk, which could result in substantial losses for investors.

Historically, the market price of our common stock, like the securities of many other medical products companies, fluctuates and could continue to be volatile in the future. From January 1, ~~2015~~2016 through ~~July 31, 2015,~~August 2, 2016, the closing price of our common stock on the NASDAQ Global Select Market was as high as ~~$85.41~~$92.78 per share and as low as ~~$54.21~~$53.38 per share.

The market price of our common stock is influenced by many factors that are beyond our control, including the following:

securities analyst coverage or lack of coverage of our common stock or changes in their estimates of our financial performance;

variations in quarterly operating results;

future sales of our common stock by our stockholders;

investor perception of us and our industry;

announcements by us or our competitors of significant agreements, acquisitions or capital commitments;

changes in market valuation or earnings of our competitors;

general economic conditions;

regulatory actions;

legislation and political conditions; and

terrorist acts.

Please also refer to the factors described above in this “Risk Factors” section. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated and disproportionate to the operating performance of companies in our industry. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.

Further, securities class action litigation has often been brought against public companies that experience periods of volatility in the market prices of their securities. Securities class action litigation could result in substantial costs and a diversion of our management's attention and resources.

If our financial performance fails to meet the expectations of investors and public market analysts, the market price of our common stock could decline.

Our revenues and operating results may fluctuate significantly from quarter to quarter. We believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied on as an indication of our future performance. If quarterly revenues or operating results fall below the expectations of investors or public market analysts, the trading price of our common stock could decline substantially. Factors that might cause quarterly fluctuations in our operating results include:

our inability to manufacture an adequate supply of product at appropriate quality levels and acceptable costs;

possible delays in our research and development programs or in the completion of any clinical trials;

a lack of acceptance of our products in the marketplace by physicians and people with diabetes;

the inability of customers to receive reimbursements from third-party payors;

failures to comply with regulatory requirements, which could lead to withdrawal of products from the market;

our failure to continue the commercialization of any of our continuous glucose monitoring systems;

competition;

inadequate financial and other resources; and

global and political economic conditions, political instability and military hostilities.

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Failure to comply with covenants in our ~~loan~~revolving credit agreement with ~~Silicon Valley~~JPMorgan Chase Bank and ~~Oxford Finance LLC~~other syndicate lenders could result in our inability to borrow additional funds and adversely impact our business.

We have entered into a ~~loan~~revolving credit agreement, a pledge and security agreement with ~~the Silicon Valley~~JPMorgan Chase Bank and ~~Oxford Finance LLC~~four other lenders to fund our business operations. ~~This loan and security agreement~~These agreements imposes numerous financial and other restrictive covenants on our operations, including covenants relating to our general profitability and our liquidity. As of June 30, ~~2015~~,2016, we were in compliance with the covenants imposed by the loan and security agreement. If we violate these or any other covenants, any outstanding amounts under these agreements could become due and payable prior to their stated maturity dates, each lender could proceed against any collateral in our operating accounts and our ability to borrow funds in the future may be restricted or eliminated. These restrictions may also limit our ability to borrow additional funds and pursue other business opportunities or strategies that we would otherwise consider to be in our best interests.

Increasing our financial leverage could affect our operations and profitability.

The current maximum available credit under our multi-currency revolving credit facility is $200 million. Our leverage ratio may affect the availability to us of additional capital resources as well as our operations in several ways, including:

the terms on which credit may be available to us could be less attractive, both in the economic terms of the credit and the legal covenants;

the possible lack of availability of additional credit;

the potential for higher levels of interest expense to service or maintain our outstanding debt;

the possibility of additional borrowings in the future to repay our indebtedness when it comes due; and

the possible diversion of capital resources from other uses.

While we believe we will have the ability to service our debt and obtain additional resources in the future if and when needed, that will depend upon our results of operations and financial position at the time, the then-current state of the credit and financial markets, and other factors that may be beyond our control. Therefore, we cannot give assurances that sufficient credit will be available on terms that we consider attractive, or at all, if and when necessary or beneficial to us.

The issuance of shares by us in the future or sales of shares by our stockholders may cause the market price of our common stock to drop significantly, even if our business is performing well.

This issuance of shares by us in the future or sales of shares by our stockholders may cause the market price of our common stock to decline, perhaps significantly, even if our business is performing well. The market price of our common stock could also decline if there is a perception that sales of our shares are likely to occur in the future. This might also make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Also, we may issue securities in connection with future financings and acquisitions, and those shares could dilute the holdings of other stockholders. On November 3, 2014, we entered into a settlement agreement with former shareholders of SweetSpot pursuant to which we issued 89,300 shares of our common stock to the former security holders of SweetSpot related to the achievement of certain performance milestones.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future and the terms of our ~~loan and security~~credit agreement restrict our ability to declare or pay any dividends. As a result, stockholders may only receive a return on their investment in our common stock if the market price of our common stock increases.

Anti-takeover effects of our ~~rights agreement,~~ charter documents and Delaware law could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

We have a stockholder rights agreement in place, under which our stockholders have special rights, in the form of additional voting and beneficial ownership, in the event that a person or group not approved by our Board of Directors were to acquire, or to announce the intention to acquire 15% or more of our outstanding shares. This plan is designed to have the effect of discouraging, delaying or rendering more difficult an acquisition of us that has not been approved by our Board of Directors.

In addition, there are provisions in our certificate of incorporation and bylaws, as well as provisions in the Delaware General Corporation Law, that may discourage, delay or prevent a change of control that might otherwise be beneficial to stockholders. For example:

our Board of Directors may, without stockholder approval, issue shares of preferred stock with special voting or economic rights;

our stockholders do not have cumulative voting rights and, therefore, each of our directors can only be elected by holders of a majority of our outstanding common stock;

a special meeting of stockholders may only be called by a majority of our Board of Directors, the Chairman of our Board of Directors, or our Chief Executive Officer;

our stockholders may not take action by written consent;

our Board of Directors is divided into three classes, only one of which is elected each year; and

we require advance notice for nominations for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

~~Table of Contents~~

Not applicable.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

The following exhibits are filed as a part of this report.

   Incorporated by Reference
Exhibit
Number
   Exhibit Description Form
File
No.

Date of
First
Filing

Exhibit
Number

Provided
Herewith

10.1
   2015 Equity Incentive Plan DEF 14A
000-51222


4/13/2015


Appendix A



10.2
   Form of Restricted Stock Unit Award Agreement
8-K


000-51222


6/2/2015

   10.2

10.3
   2015 Employee Stock Purchase Plan DEF 14A
000-51222


4/13/2015


Appendix B



10.4
   Form of Subscription Agreement under 2015 Employee Stock Purchase Plan 8-K
000-51222


6/2/2015

   10.4

31.01
   Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a). —         —      —      —      X

31.02
   Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a). —         —      —      —      X

32.01
   Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* —         —      —      —      X

32.02
   Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* —         —      —      —      X

101.INS
   XBRL Instance Document    X

101.SCH
   XBRL Taxonomy Extension Schema Document    X

101.CAL
   XBRL Taxonomy Extension Calculation Linkbase Document    X

101.DEF
   XBRL Taxonomy Extension Definition Linkbase Document    X

101.LAB
   XBRL Taxonomy Extension Label Linkbase Document    X

101.PRE
   XBRL Taxonomy Extension Presentation Linkbase Document    X

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

File

No.

Date of

First

Filing

Exhibit

Number

Provided

Herewith

10.38

Credit Agreement dated June 17, 2016 by and among DexCom, Inc., the Lenders, and JPMorgan Chase Bank, as Administrative Agent.**

10.39

Industrial Net Lease, Broadway dated April 28, 2016, by and between PRA/LB, L.L.C. and DexCom, Inc.

10.40

Standard Form of Agreement dated May 2, 2016, by and between DexCom, Inc. and Skanska USA Building Inc.

10.41

Amendment to Non-Exclusive Distribution Agreement dated April 30, 2016 by and between RGH Enterprises, Inc. d/b/a Cardinal Health at Home and DexCom, Inc. **

31.01

Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).

—

31.02

Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).

—

32.01

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*

—

32.02

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*

—

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

~~Table of Contents~~




*	This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that DexCom specifically incorporates it by reference.

**	Confidential treatment has been requested for certain portions of this document pursuant to an application for confidential treatment sent to the Securities and Exchange Commission. Such portions are omitted from this filing and were filed separately with the Securities and Exchange Commission.

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	DEXCOM, INC. (Registrant)

Dated: August ~~5, 2015~~2, 2016	By:	/s/ ~~Kevin~~KEVIN R. ~~Sayer~~SAYER
		Kevin R. Sayer, President & Chief Executive Officer (Principal Executive Officer)

Dated: August ~~5, 2015~~2, 2016	By:	/s/ JESS ROPER
		Jess Roper, Senior Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)

5155




Delaware		33-0857544
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

6340 Sequence Drive San Diego, California		92121
(Address of Principal Executive Offices)		(Zip Code)



Large Accelerated Filer	ý		Accelerated Filer	o

Non-Accelerated Filer	o	(Do not check if a smaller reporting company)	Smaller Reporting Company	o



Contractual Obligations:	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating leases	$	78.6	$	3.2	$	16.6	$	21.3	$	37.5
Purchase commitments	55.5		55.5		—		—		—
Total	$	134.1	$	58.7	$	16.6	$	21.3	$	37.5



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Fiscal Year Ending
Remainder of 2015	$	1.9
2016	4.5
Remainder of 2016			$	3.2
2017	4.1		7.2
2018	5.0		9.4
2019	5.2		10.5
2020			10.8
Thereafter	11.8		37.5
Total	$	32.5	$	78.6


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


ITEM 4.	CONTROLS AND PROCEDURES


ITEM 1.	LEGAL PROCEEDINGS


ITEM 1A.	RISK FACTORS