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Operator
Good day everyone and welcome to the DexCom conference call. Today's call is being recorded. With us today is President and Chief Executive Officer, Mr. Andrew Rasdal and the Chief Financial Officer, Mr. Steve Kemper. At this time, I would like to turn call over to Mr. Rasdal.
Andrew Rasdal - CEO
Good afternoon, thanks for joining us on our quarterly update call. Briefly I would like to just run through the agenda before I turn it over to Steve Kemper. First we will start out with a financial overview and then we'd like to spend some time giving some color and thoughts about the STS launch to date, cover reimbursement, update some of our political data, talk about status of the R&D pipeline and a brief update on where we stand with litigation, sum up, and then turn over to a few questions afterwards.
So at this time, I will turn it over to Steve Kemper our CFO.
Steve Kemper - CFO
Thanks, Andy, good afternoon everyone. We will be making forward-looking statements about various aspects of the business, so please refer to our 10-Q, our 10-K, S1 and all our SEC filings for a full discussion of our risk factors.
DexCom today reported a net loss of 11.2 million, or $0.41 per share for the second quarter of 2006, compared to a loss of 6.4 million, or $0.29 per share for the second quarter of 2005. For the six-month period ending June 30, we reported a loss of 22.1 million, or $0.84 a share, compared to loss of 12.5 million, or $1.01 per share for the same six months in 2005. We reported revenues of $479,000 for the second quarter of 2006, our first full quarter post launch. There were no revenues in 2005.
Cost of goods sold was 2.1 million for the second quarter and 4.2 million for the six-month period ending June 2005. In prior periods, these manufacturing costs were included in R&D as we were still in the development stage. The cost of goods sold expense for the second quarter was a net amount after a $1.1 million credit related to materials that were expensed in 2005 when we were still in the development stage.
Research and development expense, including stock-based comp, increased $16,000 to $5.4 million for the second quarter of 2006 compared to 5.3 million for the second quarter of 2005. Changes in research and development expenses were related to 0.9 million in increased development expenses and 0.3 million in higher clinical costs, offset by a 1.1 million decrease in manufacturing expenses that are now classified in cost of sales since our launch. Included in the higher R&D expenses were $600,000 in stock-based compensation, 390,000 in increased compensation expenses and 226,000 in greater tooling and fixturing costs, primarily offset by the 1.1 million in lower manufacturing costs that are now up in cost of sales.
Selling, general and administrative expenses, including stock-based comp, increased 3.4 million to 4.9 million for the second quarter of '06 compared to 1.5 million for the second quarter of 2005. The increase was primarily due to 2.1 million in higher sales and marketing costs, including 1.2 million for increased compensation and 442,000 for higher advertising and promotion expenses. Other changes include $800,000 for increased stock-based compensation across SG&A, $389,000 in higher administrative compensation costs and $327,000 in higher legal expenses. For the second quarter in total, we recorded 1.6 million in stock-based compensation costs, an increase of 1.1 million compared to 2005.
Our interest and other income increased 278,000 to 736,000 for the second quarter of 2006 compared to 458,000 for the second quarter of '05. The increase was due to higher cash and securities balances, mostly due to our follow-on public offering that closed in May 2006, along with higher interest rates.
I would like to make a few quick comments on a sequential comparison of our spending between our first and second quarters. Our research and development expenses, and that includes product development as well as our clinical and regulatory groups, declined $133,000 from the first to the second quarter. Our G&A spending was flat, sales and marketing increased a little over $1 million as we had our sales force on board for the entire quarter. So since we're in a scale-up mode and that can tend to be inefficient, we did pretty at controlling our non-sales and related operating expenses and we held a total increase quarter -- sequential quarter 1 to quarter 2 to just $1 million, and that was in our sales and marketing expense.
Research and development expense for the six-month period ending June 2006, including stock-based comp, increased $75,000 to 10.9 million compared to 10.8 million for the same period in 2005. Similar to the quarter, the total level was basically flat. However, to break out the key elements of R&D for you, we saw a $1.9 million increase in development expenses and a $412,000 increase in higher clinical costs, and those were offset by a $2.3 million decrease in manufacturing expenses that are now up in cost of sales post launch.
Changes in the R&D expense detail were driven by 1.5 million in increased compensation expenses, 412,000 in greater stock-based comp expenses and $448,000 in higher facility and equipment expenses. Our selling, general and administrative expense, including stock-based comp, increased 6.6 million to 8.8 million for the six months ended June 30, 2006 compared to 2.2 million for the same period in 2005. The increase there was primarily due to 3.6 million in higher sales and marketing costs, including 1.7 million in increased compensation expense and 0.8 million in higher advertising and promotion expense. Our G&A spending increased 3.0 million compared to the prior period, including 0.6 million in greater compensation costs, 1.1 million in higher legal expenses. Overall in all of SG&A, our stock-based comp increased 1.2 million to 1.5 million for the six-month period. Companywide, we recorded 2.9 million in stock-based comp during our last six months, an increase of 1.9 million compared to 2005.
We ended the quarter with a strong balance sheet, including 72.3 million in cash and securities. We ended the quarter also with $91,000 in accounts receivable. We are now and will be breaking out our accounts receivable on the balance sheet, even though the number is quite small as the majority of our sales cleared in approximately three days from our credit card processors. We invested 2.2 million in equipment and facilities year-to-date primarily to support manufacturing and sales force expansion, including our Internet ordering capability. We offset this with a draw of 1.5 million on our credit facility. As we have mentioned in the past, we prefer to match financing for our assets with their useful life and nature and believe that a very modest level of debt is an appropriate method to finance these hard assets. Year-to-date, we've used approximately 25 million in cash from operating activities and raised about 48 million from the sale of equity securities, so our cash balance has increased over $20 million during the first six months of the year and we are well positioned heading into the second half.
Now I will turn it back to Andy Rasdal, our CEO.
Andrew Rasdal - CEO
In reflecting back over this last quarter, we are very pleased with the progress and momentum we've built over the first full quarter of commercialization to begin establishing continuous monitoring as an important category in disease management. I think STS is a meaningful first product in that category and DexCom as a leader.
First, I'm very pleased with the performance of the team at DexCom who have functioned very well under the pressures and challenges of launching a first-generation product into a new category as an early mover. The team has continued to demonstrate their capabilities to respond immediately and effectively to these challenges, and, again, just reinforces the value of having people with relevant experience and a track record of success. I think the progress is impressive, especially considering we launched DexCom's first-ever product in a brand-new category, continuous glucose monitoring, just two business days after receiving a slightly earlier than expected approval from the FDA. Rather than waiting several months after approval to precondition the market and to build a more mature infrastructure, we decided to move rapidly with our launch to optimize our early mover advantage to capture installed base first and to provide for the organizational learning in this new category that we believe ultimately will help us to build a sustainable business franchise in the future.
After the initial few weeks of launch where our field force was somewhat diluted and inundated by responding to patient by patient requests for products, we finished the quarter implementing our intended strategy of focusing on the larger regional diabetes centers. We building the data from the first full quarter of launch demonstrate the momentum, progress and execution of these commercialization strategies. First, we've sold nearly 900 starter kits since launching the product. In particular, we believe the strategy and focusing on the top regional diabetes centers in the second half of the quarter is paying off. Approximately 60% of the starter kit systems we've sold, or over 500 for the quarter, came in the month of June alone. Over 80% of the starter kit sold in June came from the 45 regional diabetes centers we specifically targeted with our field efforts towards the end of the quarter.
The increase and demand in sales rate at the end of June outstripped our manufacturing resources and we finished the quarter back-ordered for sensors. We are currently now off back order completely and we are now building at a rate that is higher than the daily sales demand, which is allowing us to support sales and marketing efforts targeting new patient while also fulfilling ongoing sensor demand. We do believe it's too soon to draw any conclusion about sensor usage or reorder rates, especially given the high concentration of new patients that occurred at the end of the quarter in June.
Overall we are pleased with the performance of the product and believe it to be an important and credible first generation product that is establishing acceptance for the category of continuous monitoring and leadership in that same category for DexCom. The anecdotes from users are passionate and rewarding as we've said before. People are funding the STS valuable in helping them to better manage and understand their diabetes while also making daily life a little easier and a little more predictable. As we previously said, with any first generation product, especially in a new category, there's some minor complaints and suggestions. Increasingly towards the end of the quarter, these are taking the form of suggestions for future product improvements, the most prevalent of which are patient download software, the ability to use any BG meter to calibrate and being waterproof.
These suggestions are also quite often accompanied by praise for DexCom of the performance of the first generation STS Sensor. One of the e-mails I got recently is pretty typical of it and I will read that to quote them.
I've had my DexCom for a month now and it has literally opened up a new world for me. I am a 54-year-old triathlete who runs, bikes and swims with his Dex. Despite the hard use, runs in 100 degree heat, swimming in the ocean, three showers a day, Dex keeps going and keeps me going. Dex has revolutionized my diabetes care. However, I do have one request -- I really need a way to capture my Dex data on my PC.
And of course, we collect these and work to respond to them.
Complaints overall have continued to decrease as a percentage of sales. Despite some persistent rumors that we just want to confirm, we have not initiated any product recalls, nor have we had any complaints of a frequency or nature that would warrant such an action during the quarter or during this initial launch.
In terms of the field team at this point, we have over 25 people in our field base selling organization now, which again, despite some rumors and noise, has grown since we initially launched at the beginning of the quarter. The current field organization is very experienced and accomplished in the diabetes sales. Specifically to diabetes sales, the current team has more than 125 years of cumulative diabetes sales experience. We have some 50 cumulative citations for President's Club performance based upon superior sales performance with our previous employers. We continue to get unsolicited inquiries for our sales positions from very credentialed sales professionals and continue to cultivate those relationships for the future.
Looking forward, we do intend to add approximately 15 more clinical education specialists to our field organization in the third quarter. We've found that our very small group of clinical specialists are very valuable in orchestrating the programs that are creating positive experiences with the STS in our key target accounts and for some of the market development activities we find ourselves responsible for as the first to fully launch in this new category. Additional clinical specialists will also enable our sales representatives to leverage their business efforts over more accounts, so we expect these additions will bring our field-based organization to approximately 40 during Q3.
Since we presented for both the oral and written record, along with Medtronic and JDRF at the April CMS hearing on creating codes for continuous glucose monitoring, interest and support has continued to build. Two letters from Congress, one signed by 68 U.S. Senators and others on by 241 members of the House, were sent to HHS Secretary Levitt drawing attention to recently approved continuous glucose monitoring devices. The letter applauded both the FDA and CMS stating -- we're very pleased that both the FDA and CMS have been open to learning more about these promising new technologies and we look forward to working with you as they advance through the progress.
Our STS study, published in Diabetes Care by [Gart], et al, showing improved glycemic control versus finger sticks was specifically cited as evidence that these new technology may help improve the health outcomes of people with diabetes in those letters. Although there's no guarantee of any favorable decision on HCPCS codes or reimbursement, clearly these letters from Congress represent a unique demonstration of interest and support for this new development, an important development in diabetes.
An MCAC, or Medicare Coverage Advisory Committee, meeting will be held on August 31 to evaluate glucose monitoring in general, a small portion of which we would expect to speak about continuous glucose monitoring. We as a company, along with some of our advisors, expect to submit written materials for that meeting and potentially to present on our data. Additionally, we continue to work cooperatively with our advocacy groups, like JDRF, and with other industry partners to make the strongest case possible for establishing HCPCS codes this fall. We do expect a decision on HCPCS codes to come later this fall and to be published at the time.
On the private side, we know that several patients and physicians has submitted individually to their insurance companies for reimbursement. Although we only get anecdotal feedback on these decisions and we don't have a means of fully quantifying all of them, we have had a number of physicians and patients inform us of favorable coverage decisions by their insurance companies, including Blue Shield-Blue Cross, United, Prudential and Aetna, after they had already purchased their initial starter kit system. For now, patients seem to be making the decision to purchase and then seek their own insurance reimbursement later.
We have also had a few instances where patients have reported coverage that had been declined, although we have very few specifics. Although we believe any favorable coverage decision is helpful, we cannot predict private pay coverage in the future at this time, although we know that both patients and physicians continue to petition their insurance companies for coverage at an increasing rate. We are of course preparing the material, the data and the support to have formal meetings with private payors at a high level here over the near future and the coming remainder of the year.
Coming out of ADA, the interest in continuous glucose monitoring was very strong and one of the key topics for a discussion at that annual meeting of the American Diabetes Association. We had new, important data presented for the first time especially related to the performance of our second-generation seven-day STS, including [to our] oral presentations. Our investigators also presented very strong outcomes data, demonstrating improvement in glycemic control for both patients that would be considered well-controlled by their [A1-C1] levels, but also for patients that would have been considered less controlled. And I think that it was provocative and challenged some of the beliefs that continuous monitoring could only be safely and effectively used by highly sophisticated people already in good control, when in fact folks starting with higher [A1-Cs] who [would have] considered out of control had the greatest improvement.
Some of the first-ever data on a replacement use decision-making type studies was also presented by our STS investigators, statistically demonstrating the decision made with STS for superior to those made with fingersticks alone. In the study, only 53% of the decisions made using fingersticks alone were considered appropriate, which quite frankly is not much better than just flipping a coin. 73% of the decisions using the STS alone were considered appropriate, representing a statistically significant difference or improvement.
Further, the cumulative effect of these appropriate decisions improved glycemic control by reducing the time spent high, the time spent low and increasing the time spent in a target region when compared to fingersticks alone, this correlating that better decision-making -- better information correlates to better decision-making, which also correlates to better glycemic control, which is the objective of all of diabetes management, whether it be devices or drugs.
Finally, we had data which presented statistically significant reductions for A1C levels over 90 days for both Type 1 and Type 2 patients when using continuous glucose monitoring, again perhaps challenging some of the beliefs that continuous monitoring would only be relevant for Type 1s. And clearly, this data brings that into question.
From an R&D pipeline standpoint, we continue to believe that the rapid evolution of continuous technology and the introduction of next generation products is key to establishing the category and to building a valuable business franchise as a technology driven market, introduction of new easier to use more robust technology allows us to apply the technology to a broader and deeper segments of the diabetic population. Though I believe our first generation STS is helping to build the continuous category, we still remain focused on and committed to rapidly introducing future generations of products offering meaningful improvements.
We filed the PMA supplement for our seven-day STS during the second quarter as we had previously committed. We believe the seven-day offers improvements beyond just functioning for seven days including improved accuracy and stability over the full seven days as demonstrated by the data published at ADA to further reduction in needle size, a waterproof claim and a next generation microprocessor, algorithms and software user interfaces. Additionally, we have always desired to be neutral on the brand of BG meter used in conjunction with our STS and to eliminate the need for users to carry a cable. We intend to obtain approval for our seven-day STS that would allow any brand of BG meter to be used in conjunction with the STS and to not require any connector cable in order to use that. We also intend for the seven-day STS to be approved with much more robust and sophisticated end of use shut-off within our software-only three-day STS that's currently on the market.
We believe the accuracy and the reliability data which can be referenced by any of the publications presented by our investigators on the seven-day STS over the full seven-days of usage with no decline in performance raises the performance bar for the category and provides further competitive differentiation.
The under-18 population for diabetes is very important to us and we remain committed to supporting the efforts of that population, their parents and JDRF. We are currently conducting feasibility trials to fully characterize the performance and usability of the STS in patients with diabetes under 18 and are enrolling patients into those trials. We have submitted our thoughts on an appropriate pivotal trial design to the FDA for their review and we expect to have a meaningful discussion in the near future on the most appropriate trial design to support pediatric [approval] for the STS. It is still our intention to complete a pivotal trial seeking labeling for patients with diabetes under the age of 18 before the end of the year.
Although we're very pleased with our current labeling, especially when compared to fingersticks, we still intend to seek replacement claim labeling and replacement claim performance. We believe the results presented at ADA on our replacement claim feasibility studies which I cited previously showing superior decision-making are compelling evidence. We still intend to submit an [IDE 4] placement claim labeling to the FDA to obtain explicit agreement on study design measures and thresholds before initiating a pivotal study.
Our professional PC software to allow health-care professionals to download, analyze and print patient from the STS has been available since May and has helped our efforts with the larger regional diabetes centers. We have completed the design of our patient use software so it would allow patients to download their continuous data directly from the meter at home on their PC. The design is based on the professional PC software that we're using and are -- that we've used in our clinical trials and have had experience with over the last couple months with health-care professionals. We will submit for this regulatory approval within the next two weeks. At this time, we don't know the exact regulatory path and timing or how the FDA will want to treat this software. It could be considered a full PMA supplement, taking some six months, or it could be processed more rapidly.
On our last call we stated we had begun some of the initial development testing for hospital use continuous glucose center and expected to conduct first human feasibility trials before the end of Q3. We've beat that goal and initiated human feasibility studies in hospital use with our STS sensor in the second quarter. We're also designing a continuous monitor specifically for the intensive and critical care units of the hospital are currently testing this design in animals. We believe the hospital application of continuous glucose monitoring provides very large potentially attractive market opportunity complemented to our current STS and we intend to aggressively pursue the opportunity.
On our long-term program, we now expect to implant more G3 devices in a continued feasibility study outside the U.S. in August. Results from the first implant -- implants in this feasibility study warrant implanting additional G3a but are not conclusive enough for us to offer any specific guidance at the time and when we might submit for regulatory approval. We continue to leverage the technology developed from our long-term program over to developments in our short-term product platform.
On the litigation front, Abbott has amended their complaint filed last August to include three additional patents. They have not cited any specific claims or how we might infringe on those patents. We continue to believe the complaint is without merit and will vigorously contest it. Similar to the four patents originally cited by Abbott which the U.S. Patent Office is now subjected to reexamination for all claims and all four patents, our counsel believes the prosecution history of these patents may also warrant reexamination by the U.S. Patent Office. We have prepared or are preparing reexamination requests for these three patents but have not yet filed them with the PPO.
We've recently renewed our motions to dismiss or alternatively stay the case based largely upon the U.S. Patent Office granting our request for all claims in all four patents originally cited by Abbott and their complaint to be reexamined. The court has not yet ruled on this motion or any of the other motions previously filed.
I guess to sum up before questions, I'm pleased first and foremost with the performance of the team who have continued to respond and demonstrate their capabilities to immediately and effectively respond to the challenges of launching a new product in a new category. We're encouraged by the early performance of our STS and believe it to be an important and credible first generation product for the category. We're pleased with the sales and marketing focus on the top regional diabetes centers towards the end of the quarter and the results from these efforts. We believe we have a very robust and real R&D pipeline with next generation products, along with strong clinical data, to continue driving growth in the category of continuous monitoring to establish DexCom's leadership within the category. We're encouraged by the show of support for reimbursement of continuous glucose monitoring products by Congress and by advocacy groups, as well as the grass roots efforts by patients and physicians are making with private payers.
Finally, overall, we continue to believe our STS product represents an important advance in the management of diabetes. We feel our efforts continuing to build momentum and credibility for the category of continuous glucose monitoring for the STS launch and for DexCom as a company. Well, thanks, we'll turn it over and take a couple of questions.
Operator
(OPERATOR INSTRUCTIONS). Tom Gunderson, Piper Jaffray.
Tom Gunderson - Analyst
There's a couple of ways to look at this from a business model standpoint or a financial model. On the business model for the first quarter out of the box, you clearly beat the so-called whisper number, or number of systems placed by -- quite handily. But from a financial modeling standpoint, I'm wondering if you could give us a little bit more help now that we have one data point so that we can better advise the investors going first quarter. Can we get ASPs for the starter kit or for the disposables as they stand right now?
Andrew Rasdal - CEO
First, just to clarify, the 900 systems were sold, not necessarily placed. Those were the number of units sold for revenue. Second, again, I hate to disappoint, but we're not going to comment on average selling prices or pricing strategies outside of -- at list price at this particular point in time.
Tom Gunderson - Analyst
You mentioned, Andy, a little bit about the seven-day having better shutoff capability. Is the three-day pretty much the way it's going to be until the seven-day comes out, or is there a chance that that could be changed on the fly?
Andrew Rasdal - CEO
Anything we would do would need to be filed with the FDA, and certainly every day we evaluate a number of different options. But I think at this point, the most conservative way to look at it would be, there would be no major change to the product until the seven-day, if it's improved as launched.
Tom Gunderson - Analyst
I'm going to back to your 900 sold (indiscernible) you made from the same place. 900 sold and not necessarily shipped, or more placed than sold? What were you trying to clarify?
Andrew Rasdal - CEO
Just that those were sold. I didn't want to suggest any of those 900 were given away free of charge. They were all sold for revenue.
Tom Gunderson - Analyst
Okay. And the sales force, you commented on those rumors and said that you have increased it to 25. Was there some early instability? Were those rumors true that there might have been some early turnover and you've replaced them? And then secondly, can you give us the split between clinical information managers and the actual sales rep out of that 25?
Andrew Rasdal - CEO
I think it's always difficult and awkward to comment on specific personnel issues, other than to say that we hold very high standards. We expect a very high work rate and production and we haven't and we won't hesitate to encourage, reward that and for folks who can't to help them find them more satisfactory lives on that piece. So that I think commenting beyond that would be a bit difficult on that. In terms of the organization of the field force, I would expect looking forward to the end of the quarter, we would be about one to one with sales reps and clinical education specialists.
Tom Gunderson - Analyst
So that's 20/20? You said you would have 40 at the end?
Andrew Rasdal - CEO
About 40 at the end, so give or take five or 10, right in that range.
Tom Gunderson - Analyst
Okay. Just one more clarification and I will get back in line so some other people can ask questions. You commented that there were anecdotal -- or anecdotes on reimbursement from patients and doctors. Have you gotten -- a patient can get their own reimbursement, but what about broader? Have some of the doctors said that they're now getting it regularly from certain payors, or is it all just one-off?
Andrew Rasdal - CEO
We know that certain physicians are having luck with multiple patient with both the same and different payors. And again, that's anecdotal data, so you know you can't quantify it, but it's not one patient here and one patient there. There seem to be groupings as well.
Tom Gunderson - Analyst
Okay, thanks.
Operator
Bill Plovanic, First Albany Company.
Bill Plovanic - Analyst
You gave us several upgrades in regards to the seven-day that was filed, that PMA that was filed in the second quarter. Could you go over those again? And I don't know if I -- I don't think you mentioned the software downloadability for the patients in that upgrade on the seven-day, and are you able to roll that into the PMA filing that you've already made?
Andrew Rasdal - CEO
Let me speak to the software piece for patients. We will file that. The design is complete and the testing is just being documented and we would expect to file that within the next two weeks, and we will file that independent. So if that's treated as a full PMA supplement, it could potentially lag the seven-day. If it's treated as something other than a full PMA supplement, then it could be approved before the seven-day and be utilized with the current three-bay sensor.
Bill Plovanic - Analyst
Okay. And then the -- what were all the -- I think it was needle size, waterproofing, NEBG meter, no cable, and then just a more robust shutoff. Are those basically the features?
Andrew Rasdal - CEO
I think those are the major features. From a design standpoint, it does have a next generation microprocessor which allows us to process the signal in a more sophisticated manner, as well as a number of the minor irritants or suggestions for user interface at the receiver level about how we display data and how we give patients different pieces of feedback relative to the performance of the system. We have learned a lot through our clinical trials and even more so now that we're launching and we've tried to answer those requests with this product as well.
Bill Plovanic - Analyst
Okay. And then just in terms of the competition, at this point it's a two-horse race and it's more expansion of the market. But can you give us an idea of what you've seen kind of strategy Medtronic take and just kind of what the word from Abbott is that you're hearing these days?
Andrew Rasdal - CEO
I think -- I cannot comment specifically on anything with Abbott, because to our knowledge, they're not approved. Or if they are, they have not announced it or launched it relative to market with Medtronic. We see them starting to move forward and certainly talk a lot about continuous glucose monitoring and big, strong advocates for the category. Other than that, I cannot comment specifically on their strategies in the marketplace.
Bill Plovanic - Analyst
Okay. And then you talked about the hospital product and mentioned that a feasibility study is ongoing. Was that in animal or human testing?
Andrew Rasdal - CEO
We have a product that leverages our STS which is currently in human feasibility trials, and then an ICU/CCU-specific product which does utilize a slightly different design as in animal trials.
Bill Plovanic - Analyst
Okay. And can you remind us in terms of the patent review on the Abbott patents, when we should expect something [out of that]?
Andrew Rasdal - CEO
Well I don't know when we specifically can expect, but on average they take about two years to work through the process before the patent office makes any decisions or comments relative to the reexamination of any claims within the patents or the patents overall.
Bill Plovanic - Analyst
And are there any dates that we should be aware of in the next six months or so in regards to the suit that they have against you, or if this all going to be on hold until the patents are reviewed?
Andrew Rasdal - CEO
Well, there aren't any dates that we're aware of at this time that are material over the next six months related to anything specific. And I don't know -- we certainly have moved for dismissal and stay, and the stay based upon reexamination. But that motion has not yet been ruled on.
Bill Plovanic - Analyst
Do you know when that will be -- could potentially be ruled on?
Andrew Rasdal - CEO
We don't.
Bill Plovanic - Analyst
Okay.
Andrew Rasdal - CEO
The court doesn't seem to be in a big hurry to rule on any of the motions that were filed, even last September. There has been no rulings on anything.
Bill Plovanic - Analyst
And the existing sales force, would you say obviously it's more quota-carrying reps than it was with the clinical specialists and kind of the next group that's added is more clinical specialists or more support people type people? Is that fair to assume?
Andrew Rasdal - CEO
Well I think, yes, because the clinical education specialists for sure are the crux and focus of hiring and recruitment right now. As we get unsolicited interest from very seasoned professionals sales reps, we may not hesitate to add very senior people as one-offs here and there. Good people always important. But the big bolus initially here in the next few weeks would be expected to be the clinical education specialists.
Bill Plovanic - Analyst
Great, thank you very much.
Operator
Ben Andrew, William Blair.
Ben Andrew - Analyst
Good afternoon, just a couple of quick questions. Can you talk about rep productivity? If I do the math on some of the numbers you gave us, Andy, I think you talked about 500 patients in June, 80% of those coming from the top 40 centers. So quickly, that gives me 16 patients per month per rep. Is that sort of a rate that you're pleased with?
Andrew Rasdal - CEO
I am pleased that things were up in June and that the things that we specifically target and intend to happen, happened and resulted in a little bit more momentum going forward. I think that, my hopes would be that we would continue to increase the rep productivity, and I think we did. I think over the quarter, we started the first part with literally patient by patient, which can be a bit difficult on a daily basis, as opposed to, you know, centers where we can leverage a center into more patients on a daily, hourly basis. And of course, that's the objective.
Ben Andrew - Analyst
Right. So as you look into the back half of the year, should we assume that's kind of a baseline based upon 30 or 40 reps. Well I guess I'm just talking total field organization, not sales reps when I use the 25 denominator there. But is that the kind of productivity minimum that we should be thinking about, or do you see that doubling, tripling even in the absence of reimbursement?
Andrew Rasdal - CEO
I think our goal is as we did throughout the quarter as evidence there is to continue to grow things both overall in patients and in systems sold in sensors and in productivity, not only for the reps, but the whole organization. So I think our results over the next quarter will ultimately answer if it's a baseline and how high a baseline it represents. But clearly, that is our intention and our desire.
Ben Andrew - Analyst
Okay. So from a strategic standpoint in Q3, is this really going to be a repeat of June -- stay focused on the top 40 centers -- or will you allow or direct the group to look more broadly than that?
Andrew Rasdal - CEO
I would expect that as we get comfortable that the larger, say the top 50 centers, are comfortable sustaining themselves relative to continuous glucose monitoring and evidence a continuing flow of new patients into the channel that physicians think are appropriate that we begin to move the focus over to additional accounts. Clearly, we would expect that a rep can handle more than two to three accounts and believe that they will in the future.
Ben Andrew - Analyst
Okay. And again, this is probably a tough question, but you said you had some anecdotal thoughts. Do you have a sense of what percentage of patients might be getting reimbursement?
Andrew Rasdal - CEO
We don't, it's just completely anecdotal. Any estimates I make now would not be based on anything that I could back up then. Sorry.
Ben Andrew - Analyst
Two last questions. One, you talked about 900 sold. Do you have a sense you can share with us about how many systems may have been placed for free?
Andrew Rasdal - CEO
I don't. I can't say that there were zero, but we didn't intend to place any for free.
Ben Andrew - Analyst
It's probably smaller than a breadbox in that case.
Andrew Rasdal - CEO
Yes. Again, the idea is not to give the stuff away for free, and certainly the future of the business is going to grow on sensor sales. So it's strategically, we're not going to build a business by what we get off the durables, but it's rather repeated sensor use over time.
Ben Andrew - Analyst
I guess I lied, two last questions. One is, when you make a sale, do you ever at this point sell to a clinic who takes the product into inventory, or are these all going directly to patients?
Andrew Rasdal - CEO
We are, to our knowledge, not selling to somebody who puts into inventory for anything like resell. We do have a number of physician practices now who are beginning to buy the products for their own practice to use in the management of physicians -- or the management of patients as they come in for a variety of different purposes, almost some of the retrospective prospective analysis. So in addition to patients buying, which has been the vast, vast majority of what we've seen over the first part of launch, we're now seeing physician practices purchase these for use beyond just patient-by-patient things as well.
Ben Andrew - Analyst
Much like the original Guardian kind of patient physician directed therapy or just?
Andrew Rasdal - CEO
Probably, yes, more like CGMS or CGMS Gold.
Ben Andrew - Analyst
And then last question -- do you have a sense that you can share with us to what extent you are seeing patients using the sensors over three days? Because you can see that from your disposable flows. And what -- I'm getting at two question. One is, how often are patients using the sensor? Is it truly all the time or 50% of the time? And B, are they using them three, four, seven days a pop when they are using them?
Andrew Rasdal - CEO
Just don't have enough data, especially if some of the new patients coming back back-end loaded off the end of the quarter to try and make any meaningful quantitative estimates of that at this point. Perhaps as we build more experience over the next couple of quarters, I think we may feel more comfortable with that data. But at this time, we just don't.
Operator
Wade King, Montgomery & Company.
Wade King - Analyst
A number of my questions have been answered. So I will go back to I think Tom's original question, and that related to some plan about the seven-day STS to have some automatic shut-off or built-in chip capability or whatever to prevent a patient from using it beyond the approval claim. And you have to some degree an issue here or maybe an issue that reflects a high-quality standard in terms of your manufacturing the capability of the current device on the market. And we've heard along with others anecdotal commentary about patients using the device well beyond three days, more than twice that in some individual cases to some degree, an issue you may not have expected, but it reflects on high-quality. If this does prove to be an ongoing fact in the marketplace, even though you will continue to advise patients to use it consistent with the claims the FDA allows, do have any idea on what kind of strategy you would take to deal with that issue?
Andrew Rasdal - CEO
I guess first on the 3-day, it's hard to comment on how or why patients may be utilizing things off-label. Clearly it's not our direction or support. And so anecdotally I cannot really comment on that piece. I do think the sensor is very robust. It's a good product, we've said. It's a very strong technology platform. The three-day currently does have a shut-off, it's a software shut-off. In patients were to find a way to defeat it, they would have to inconvenience themselves to do so. It's not like it just keeps working for three days. It does give them and alert, it gives them a countdown and then it shuts off at the end of 72 hours. And if they're going to defeat it, they have to inconvenience themselves to do that. I guess the hope is that the seven-day, which we would expect to always have more robust shutoffs because the seven-day is something that we want patients to use in a manner in which it's labeled and feel some responsibility to make that even more robust will find the inconvenience of trying to use something off-label no longer worthwhile.
Wade King - Analyst
And could I ask you just to clarify -- is this shutoff (indiscernible) to the three or seven-day -- is that actually built into the disposable, or is that a software-based built into the durable?
Andrew Rasdal - CEO
I probably don't want to comment about exactly how we're doing it for the obvious reasons, as you would expect. But it will be much more robust on the seven-day. And, again, as the data supports that was published at ADA and as some of the features and benefits we talked about, the seven-day isn't simply just the three day going a longer period of time, it is what we believe a significantly improved, a more reliable, more robust and much easier and comfortable product than the three-day. So it's not simply an extension of time, it is truly a next-generation technology in this product category, and we think that clearly will be attractive to the vast, vast majority of patients.
Wade King - Analyst
Could you tell us, has the number of sensors included in your starter kit changed at all? And how many is that currently?
Andrew Rasdal - CEO
We currently include two sensors in our starter kits.
Wade King - Analyst
Has that been consistent all along?
Andrew Rasdal - CEO
Yes.
Wade King - Analyst
And last question if I may, just following up on a (indiscernible) question earlier. Now that the second generation Medtronic device is on the market, they've indicated they're going to pursue a widescale launch, I realize you're not going to make many comments at this juncture since they have just gotten this device approved and you're not going to comment for them. But could you give us an idea of how you will be advising your sales organization to differentiate the two products on a feature basis, on a capability basis? And also, given their first generation device is clearly premium priced on a price basis, can you give us an idea of how your organization will be detailing the competitive landscape going forward?
Andrew Rasdal - CEO
I think that the -- well I guess first and foremost, we are most interested in I think what accrues most value is the rapid growth of the category, the transfer from single point over into continuous because there's a limited number of us that can play and the entry barriers are very high. These are PMA devices, meaning it may take $60 to $80 million and two to three years to develop and get through the cycle. And so I think the real sustainable value comes from driving more people into a continuous category. And so we see efforts by Medtronics and Abbott to launch good viable products and to growth continuous as overall beneficial to both category and thus increasing the value for DexCom.
Relative to the Medtronic second generation product or whatever they just got approved, we are not real clear on exactly what configuration if I recall correctly that was approved, but that their press release indicated that they expected to launch more towards year-end.
Wade King - Analyst
I believe that comment was they expected to have a broadscale launch by year-end, that is correct. All right gentlemen, congratulations on the progress, thank you.
Operator
Alex Arrow, Lazard Capital Markets.
Alex Arrow - Analyst
Thank you. Andy, you referred to the complaints declining as a percentage of sales. Can you tell us what were the main complaints that you had been receiving as they were declining?
Andrew Rasdal - CEO
Probably the biggest ones are kind of the same as the request that we indicated -- waterproofness, the downloadable software and the things that we specified. And then there are numerous other ones related to just getting started on any new product and any new technology of how (indiscernible) the software, how do you turn it on, where does the battery go, how do you plus the battery charger in. The vast majority of those I think we've done a better job of proactively making sure we hit those things both in the training and the materials we provide to the patient.
Alex Arrow - Analyst
Stuff like waterproofing and downloadable software sound like enhancements in future versions, but I got the impression from your comments and I thought that there were some issues with functioning of this device according to its capabilities with the current device and that those were going down as a percentage over time. But are you willing to identify what any of those were that -- anything that had to be replaced, for example, for a patient?
Andrew Rasdal - CEO
I don't think relative to any of the minor issuing complaints that we've logged [that] I say are decreasing we'd be in a position to share at that point. If for another reason I think we'll let the other folks who may want to enter into the market go do their own learning on some of those things.
Alex Arrow - Analyst
Okay, that's fair. The web site ordering, we had gotten the impression that there was -- patients demand order sensors over the web site was greater than the amount that you were offering over the web site either because the demand was so robust for sensors or -- can you tell us is there no longer a web site ordering limitation? Can people get as many sensors as they want by themselves?
Steve Kemper - CFO
Alex, we never had a web site versus other limitations. As Andy mentioned, we were in backorder for a few weeks because of a surgeon demand and were able to ramp-up our manufacturing, and now there's no longer an issue there.
Alex Arrow - Analyst
If there never had been any backorder issue, can you say how much higher your revenue for this quarter might have been if you had been able fulfill every order you had gotten?
Steve Kemper - CFO
No.
Alex Arrow - Analyst
Okay. The nearly 900 starter kits, when Steve mentioned it, he said nearly 900 and Andy said 900. Just because we're very hungry for data at this point, it would be helpful to clarify it. Is it nearly 900 or exactly?
Andrew Rasdal - CEO
Nearly 900. If I didn't say, it was what's written in front of me, but nearly 900.
Alex Arrow - Analyst
Like more than 850?
Andrew Rasdal - CEO
I wouldn't say nearly 900 if it was 850.
Alex Arrow - Analyst
Okay. And then.
Andrew Rasdal - CEO
It was a few off 900 -- I would say nearly 900.
Alex Arrow - Analyst
The $0.70, I know you're filing it this quarter. Have you said any expectation for when it would launch, or is it just the filing date is the milestone that we're waiting for?
Andrew Rasdal - CEO
We filed in this quarter. After that, it's largely up to the FDA. In general, PMA supplements take about 180 days or six months. It's not unusual for them to move around a couple of months on either side, although I would never set an expectation for an early than six-month approval.
Alex Arrow - Analyst
Okay, a field question on the Guardian RT. Are they staying within the seven states or the seven cities that their limited launch is, and are you hearing back from your sales team that it's much more competitive in those seven states? Or, are they going wider than the seven states, or does it matter?
Andrew Rasdal - CEO
I can comment -- I mean, I don't know what Medtronic or how many exact cities they may be launching into. We certainly haven't seen Medtronic as an obstacle or creating any sort of competitive dynamics that could be negative in the marketplace Again, I think we certainly see Medtronic with a little bit of experience we have as a very cooperative relationship in trying to do what's in the best interest of patients. Perhaps they are most interested in the pump side of that today, and we are most interested in monitoring in and of itself. But again, I think that Medtronic and Abbott (indiscernible) all very good companies with a strong interest and performing in a responsible way to grow the category and to demonstrate to clinicians and patients the benefits of continuous monitoring.
Alex Arrow - Analyst
Is it as surprising to you as it was to us, or to me at least, that they were going to wait until the end of the year to launch the second generation, even though they just got the approval? Why would they need to wait so long?
Andrew Rasdal - CEO
Again, you'd have to ask them, but I think DexCom again as I stated in the opening, it's very, very unusual I think if you look around at other companies or my history with other companies to literally launch a PMA type product immediately after receiving approval. The standard norm is to because the timing around those approvals can be a bit uncertain to spend a little bit more time if you're not in a big hurry to go forward. And, clearly, they aren't in as big a hurry to go forward as we are. We felt it's a big advantage when we went public over a year ago. We expected to be third to market. We're probably second approved but first to really nationally launch, and we see that as quite an advantage, to number one, go out and pioneer the market, to capture the installed base and to do something which I don't think is giving us value, and that is to learn what is really required in terms of product performance, what's really required in terms of training and supporting the product and how to effectively sell it and [marketing]. And then I think we showed we could do that in the first quarter, obtaining that learning quickly, and then being able to improve products as we did and file a PMA supplements within three of four months of your first generation product is a good thing in growing a category.
Alex Arrow - Analyst
That's fast. My last question if I could, now that you have the extra 90 days worth of experience versus where your last quarter and you have these sales and it is such a breakthrough product, what is the number one factor that has limited sales that they couldn't have been higher than they were? Is it just the rate at which you could hire sales people, is it some of the confusion around the ADA, is it some of the competitive maybe misinformation? If there is one thing that you can point to that would help us know, what is the number one challenge to grow sales faster? Can you give us anything on that?
Andrew Rasdal - CEO
I don't think there is any one single magic bullet that says that things will go faster. Our intent after the first several weeks of kind of going patient by patient because of the emotionality of those requests and I think an ethical responsibility to not turn patients away who have been waiting and this type of thing was to go back and gain the focus in those larger centers and try and leverage more, accessing more patients from a central point or less effort. I think that once we got there, I think there is a number of things. Clearly, this is a new category and previous people have come forward in the area of diabetes and in glucose monitoring and made promises that have not been fulfilled. And I think we wanted to move appropriately to build strong, credible performance stories and experiences so that there was stickiness with any large regional diabetes center to prescribe for future patients and for patients who get the device to be able to use it appropriately such that they want to use sensors on an ongoing basis for a long period of time. And so I think some of that was making sure that we moved methodically and not too fast on a patient by patient or center by center thing. And so I think a lot of it comes to establishing the credibility of [continuous], the clinicians and physicians find it, that this STS is a credible first generation product and that DexCom is a company that can and will stand behind and support its product. And that takes some time to create that critical mass. We are the first to really pioneer this market, and that is the good news and also the surprise.
Alex Arrow - Analyst
Okay, thank you.
Andrew Rasdal - CEO
I think we'll do one more question here.
Operator
[Doug Shenkel], Cowen & Company.
Doug Shenkel - Analyst
I guess the first question, and I just have a couple, at the time of the Q1 call, you mentioned that there was a bit of a learning curve to your manufacturing efforts. Could you just detail some of the improvements that you made in Q2 and provide some color on where you are relative to -- I guess where you want to be in terms of efficiency and I guess how comfortable you feel relative to potential future backlog challenges?
Andrew Rasdal - CEO
I think -- I'm not sure exactly the question without specifics. I mean in general, with any new scaling and launch, there's tremendous process improvement that comes, there's great operator learning at each of the different manufacturing stages that hopefully increases yields and throughputs. I think that, from my perspective, the backorder that occurred at the end of the quarter was largely due to a bit of unexpected surge in demand and us wanting to make sure as we move to meet that, that we did so in a manner which continued us not having to initiate recalls or deal with major quality issues in the field and look very quickly after it. As we said, we're building in excess of the sales rate coming out at the end of the quarter, so I'm comfortable. It's just, you don't ever, especially as you're trying to build credibility for the category, for the product and for the company, just push on the gas pedal and not look where you're going and find out you ran into something. So I think we approach that surge in demand at the end in a very methodical way, and now we're building above that rate.
Doug Shenkel - Analyst
Okay, so that is great and it sounds like you feel comfortable that if there is -- if the surge in the demand that you saw at the end of the quarter becomes more sustainable, that you will be in a position to meet that demand.
Andrew Rasdal - CEO
It depends upon what the demand is. I guess my immediate answer is, gosh, I hope not. I hope the demand is so far, and it's given that we've increased manufacturing and have the ability to increase it further, that we continue to be surprised. But no, I think that we're building at a rate which is not prohibiting us from implementing strategy that we intended to do.
Doug Shenkel - Analyst
I guess that would be a good problem to have. One last question. I know you've taken a few questions on extended off-label use beyond three days. Could you just confirm that there have not been any complications at least that you're aware of related to that extended use?
Andrew Rasdal - CEO
We've had no formal reports, first of all, with any extended use coming in and no complaints, complications or issues related that have been directly communicated to the Company.
Doug Shenkel - Analyst
Okay. Thank you.
Operator
Stephan Ogilvie, ThinkEquity.
Stephan Ogilvie - Analyst
Thanks, guys, just two quick things. Can you just repeat what you said in your formal statement about the dynamic within the quarter? And then maybe just help us understand why more people (indiscernible) June if it was an ASP thing, if it was a matter of the sales force coming up to speed -- just what the dynamic were that drove that late adoption? Thanks.
Andrew Rasdal - CEO
Let me reply to the second part first. I hope and I guess we believe that it was the focus in the second half of the quarter or even June where we could move past sort of supplying the patient by patient requests and that the original strategy of focusing on the higher volume, larger regional diabetes centers resulted -- was paying off. And clearly, I think the data says that if 60% of the total launch sales came in the month of June and 80% of those came from the 45 centers we targeted, I think that's at least data in our mind that supports that that is what was occurring. It was the direct efforts and the access to those places. I'm not sure I understood the first half of your question, Steve.
Stephan Ogilvie - Analyst
Those are the two data points you gave in your written comment about the dynamic within the quarter -- I just wanted to make sure I got them right -- (MULTIPLE SPEAKERS) in June and 45% out of the large center?
Andrew Rasdal - CEO
It's -- 60% came in June and 80% came out of the 45 centers.
Stephan Ogilvie - Analyst
Great, thank you.
Andrew Rasdal - CEO
Great. Thanks everyone for spending the afternoon with us.
Operator
Thank you. Ladies and gentlemen, that concludes today's teleconference. We thank you again for your participation and at this time you may disconnect.