德康醫療 (DXCM) 2008 Q1 法說會逐字稿

Good day, and welcome to today's DexCom first quarter year 2008 earnings conference. Today's call is being recorded.

At this time, I'd like to turn the conference over to your host, Terry Gregg, President and CEO.

Please go ahead.

Thank you, operator, and thanks, all of you, for joining us today.

On our side I have Steve Pacelli, who is Senior Vice President Corporate Affairs; Jess Roper, our Chief Financial Officer.

I'd like Steve to start the conference call with the safe-harbor statement.

Thanks, Terry.

Some of the statements that we will make in today's call may constitute forward-looking statements. These statements reflect management's expectations about future events, operating plans, and performance, and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements are detailed under Risk Factors and elsewhere in our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other reports filed with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reasons.

Terry?

Thanks, Steve.

The agenda today, we're going to start off with Jess giving us a financial review. Then we'll move into commercial and reimbursement updates, talk about our partnerships with the insulin-pump entities, give you a head's up and review of what research and development and a regulatory update. We'll finish off with an in-hospital continuous glucose monitoring review, summarize, and then we'll move into Q&A.

So let's start with Jess.

Great. Thank you, Terry.

DexCom reported product revenues of $1.8 million for the first quarter of 2008, compared to $1 million in 2007.

Sequentially product revenue increased over 19% from the fourth quarter of 2007. We sold over 1,207 system starter kits during Q1.

As of March 31, 2008, we have upgraded up over 1,500 first-generation three-day customers to our second-generation Seven product.

Sensor revenues were up over 23% sequentially from Q4 of 2007. A very small portion of our Q1 2008 sensor sales included first-generation three-day sensors.

Total revenue for the first quarter of 2008 was $1.9 million and included a small amount of development grant revenue. As you may recall, we entered into a joint-development agreement with Animas Corporation in January of 2008, whereby Animas would contribute up to $750,000 towards development efforts related to an integrated pump CGM system. Based on terms of the agreement and cash received thus far, we anticipate recognizing development grant revenue and also corresponding development cost of sales throughout the term of the agreement.

Cost of sales for the first quarter of 2008 totaled $3.2 million, compared to $3.1 million for the first quarter in 2007. The increase was primarily due to $130,000 in development cost of sales incurred in Q1 of 2008.

The increase in direct cost of sales relating to additional product sales was offset by lower direct labor costs and increased fixed overhead absorption.

Our gross margin loss for the first quarter of 2008 was $1.4 million, compared to a loss of $2.1 million in 2007.

Research and development expense increased by approximately $800,000 to $4.8 million for the first quarter in '08, compared to $4 million in 2007. Major elements of R&D expense included increased facilities costs, supplies, and share-based compensation.

Selling, general and administrative expense totaled $6.4 million in Q1 of 2008, compared to $5.4 million in 2007. The approximate $1 million increase was primarily due to additional general and administrative costs. Major components of SG&A expense include $640,000 in higher share-based compensation, $252,000 in additional sales commissions.

Net interest expense increased by approximately $850,000 for the first quarter of 2008 to $328,000 compared to net interest income of $527,000 in 2007. The increase in net interest expense was primarily due to additional interest expense relating to the $60 million in convertible senior notes that was outstanding for the entire first quarter of 2008, as compared to being outstanding for less than one month during the same quarter of 2007.

Our net loss increased to $13 million for the first quarter of 2008, compared to $10.9 million in 2007. Of the $2.1 million increase in net loss, there was $1.2 million in additional noncash expense relating primarily to share-based compensation, depreciation and amortization. Additionally, we incurred approximately $850,000 in additional net interest expense during the first quarter of 2008, as compared to the same quarter of 2007.

During the quarter we invested $1.1 million in capital equipment and facilities to support our business. In January of 2008, we amended our equipment line that allows us to borrow an additional $3 million for the purchase of equipment and other related items. As of March 2008, we had fully drawn on our $3 million equipment line.

We ended the quarter with $56 million in cash, marketable securities, and restricted cash, and had working capital of $46 million.

I would like to now turn it back to our CEO and President, Terry Gregg.

Thanks, Jess.

Before we jump into our commercial update, in light of recent news, we thought it would be appropriate to begin today's call with an update on our reimbursement efforts and the continued momentum we see building in both the adoption of coverage policies for CGM by third-party payers and in our willingness to enter into contracts with DexCom to cover our CGM products.

We were extremely pleased to learn in April that the Anthem WellPoint network of Blue Cross providers has adopted a positive coverage decision regarding CGM. I would like to spend a few minutes discussing what this decision means for CGM as a category and, more specifically, for DexCom.

First, to qualify for coverage, patients must demonstrate medical necessity, which is defined in the Anthem WellPoint policy to include type 1 patients who have recurring episodes of hypoglycemia and who are otherwise unable to achieve glycemic control despite either wearing an insulin pump or taking three or more insulin injections per day and regularly monitoring their glucose levels by taking four or more finger-stick measurements per day. Pregnant women with type 1 diabetes are also covered by this policy.

While limited in scope, we believe this coverage policy is an important first step to achieving broad-base coverage for CGM as a category and parallels the adoption of coverage policies for insulin pumps when they were first reimbursed.

We also caution that it is likely to take time for patients and their physicians to learn about this coverage decision, demonstrate medical necessity, and ultimately receive reimbursement for their CGM products.

Furthermore, as it relates to DexCom, this coverage decision does not mean our products are immediately reimbursed by Anthem WellPoint. We must now work within the Anthem WellPoint network to negotiate contracts to cover our products.

In summary, the Anthem WellPoint decision was adopted and released much earlier than expected, as we had previously guided that we expected to see at least one large national payer adopt a positive coverage decision before the end of 2008. We believe that other large payers will be influenced by the Anthem WellPoint coverage decision and that this decision could accelerate the adoption of similar coverage policies in the next several quarters.

Our mission for the balance of 2008 is to continue to educate the private-payer community on the role of CGM in assisting patients to better manage their glucose excursions and to work to obtain additional coverage decisions for CGM and to enter into contracts with payers to reimburse our products.

We continue to see reimbursement as one of the key challenges to achieving widespread adoption of CGM, and although we are extremely pleased with the fact that a significant national payer such as Anthem WellPoint has taken the lead in adopting a positive coverage decision, we reiterate that it will take time for this and other positive coverage decisions to filter down to patients and physicians and translate into sales, and it will take time for DexCom to secure contracts with these payers as coverage decisions are released.

Highlighting some key performance metrics for the first quarter of 2008, total revenue grew approximately 22% sequentially from Q4 2007 to Q1 2008. We sold over 1,200 starter kits for The Seven in the first quarter, amounting to a 45% increase in starter-kit sales compared to Q4 2007.

In addition, as of the end of Q1 '08, we have successfully upgraded a total over 1,500 of our STS three-day customers to The Seven system. However, we expect upgrades to fall off sharply in Q2, as we look to discontinue production of the STS three-day entirely by the end of this quarter.

Finally, we continue to be encouraged about the long-term viability of the business, as we are pleased to report an increase of over 23% in sensor revenues quarter to quarter.

As we look to the remainder of 2008, we will continue to focus our selling efforts on approximately the largest hundred diabetes centers in the U.S. However, we expect to broaden our reach to include centers which are geographically aligned with payers who have adopted coverage policies for CGM.

At the present time, we continue to believe our sales force is appropriately sized at approximately 45 field-based individuals. However, we may look to expand the size of the sales force based on additional positive momentum on the reimbursement front.

As we previously discussed in January of this year, we announced two separate development agreements -- one with Animas Corporation, a division of J & J, and one with Insulet Corporation -- to develop integrated insulin-pump CGM systems. We have made considerable development progress to date. For example, our project development teams have already produced a working prototype of a sensor-integrated insulin pump, and we have recently demonstrated the user interface, including various menu screens and glucose tracking output, to members of the Food and Drug Administration.

Our continued goal is to complete all development, clinical, and regulatory efforts with at least one partner and be positioned to launch a first product during the summer of 2009, but as you are well aware, the timing of the regulatory process is uncertain. In the interim, we continue to work on an informal basis with each of our insulin-pump partners to promote our respective products within our target markets.

We have long held that continual introduction of next-generation products with improved performance and patient convenience are key to the development and growth of the CGM category. As discussed previously, we completed a pivotal trial in December of '07 for our third-generation ambulatory system. However, we elected to delay filing a PMA supplement, as our analysis determined that our gen-three sensor, as built for the pivotal trial, was more expensive due to increased labor and materials, while offering only incremental performance gains over The Seven.

Continued R&D efforts during Q1 and Q2 this year have resulted in the development of a modified gen-three sensor with improved performance and convenience without added cost. We are on track to complete a small additional clinical trial this quarter, with a PMA supplement filing to follow quickly thereafter.

Keeping in line with generational iterations, we continue to make progress on our fourth-generation product. We expect this design to incorporate an enhanced membrane system for even greater accuracy and be suited for large-volume production.

Additionally, our fifth-generation sensor is currently being tested in animals, and we expect that the technology behind this design will first be introduced in an in-hospital system.

We are pleased to report that, at the request of Food and Drug Administration, we are participating in a program to develop a guidance document on the use of the Internet to allow users of medical devices to upgrade device firmware. We believe we were asked to participate in this program in large part due to our recent receipt of approval by FDA for Internet updating of our Seven system firmware.

Finally, we continue to pursue a CE mark for The Seven. We are working with our notified body to review our quality systems and assist us in obtaining the CE mark. We submitted our technical file in the first quarter of 2008, and we plan to complete our ISO audit during the third quarter of this year. This would enable us to begin conducting clinical trials in Europe before the end of 2008.

We continue to be extremely pleased with the result of our ongoing clinical studies for our in-hospital continuous glucose monitoring system. We were able to demonstrate outstanding prospective accuracy in our porcine models, often achieving 100% of data points, meeting the ISO standard for therapeutic use. We've made significant advances in our membrane technologies that will allow us to block the most common sources of drug-related interference in the critical setting, including acetaminophen. We're on track to complete our development efforts and conduct a pivotal trial before the end of 2008. We believe this would enable us to commercialize our first product in the critical-care setting in the second half of 2009.

We remain committed to commercializing our in-hospital product through an established partner with experience in the critical-care market. We continue to engage in discussions with a number of potential business partners about opportunities to participate in the design, development, and commercialization of our system. We expect that a partner would provide a combination of upfront and milestone payments to support our R&D, clinical, and regulatory efforts for our first-generation stand-alone system, and we would expect to participate with the partner in the commercialization of the system.

Additionally, much like our ambulatory product, we believe that the continual introduction of next-generation products with improved performance and convenience will be key to the development and growth of the in-hospital CGM category, and we expect to work diligently with our partner on the development of a fully integrated system.

Based on the status of the current discussions with potential partners, we expect to complete technical and business due diligence and finalize negotiations with a chosen partner within the next 90 days.

In summary, we continue to believe that CGM will play an important role in diabetes management and will ultimately become the standard of care for glucose monitoring. At the initial meeting of the Diabetes Advocacy Consortium last month, the utilization of CGM was highlighted by several of the presenters as a tool that needs to be used more frequently to better manage the daily glycemic variability of patients afflicted with diabetes.

We will continue to provide leadership to the development of the category, both on the ambulatory side and in the hospital setting, and we remain committed to developing a valuable and sustainable business franchise. We believe DexCom has emerged as a clinical, technology, and market leader in CGM, and we believe our experience of more than two years of commercialization and eight years of development has positioned us as a strong organization with a foundation of institutional knowledge in CGM that new entrants in the category will be required to replicate to compete with us going forward.

Thank you, and now I'll take questions.

Thank you. (OPERATOR INSTRUCTIONS)

And our first question will come from Tom Gunderson with Piper Jaffray.

Hey, guys.

Hey, Tom.

Hi. Let's start where you guys started, on Anthem WellPoint. And, Terry, I fully expect that you take your victory lap and say you got one in before the end of the year, but this one was so early, and you did, I believe, characterize it late last year or early this year as having a number of irons in the fire and you just didn't know which one would click but you thought the probability of getting one. Were you thinking Anthem WellPoint on January 1 of this year was the lead dog, and if not, you care to go double or nothing on getting a second one before the end of the year?

You're tough. First of all, no. If I were to categorize historical perspective on new technology adoption in the diabetes space by the entities that we encounter, I don't think that Anthem would have been the first one. That said, they were certainly in the top group.

No, I don't want to double down. I will take my victory lap at this point.

We do believe, though, Tom, in all sincerity, that this is driving the full course of events at a more rapid pace than we originally envisioned when we last spoke.

Okay. Thanks for that. And then, Abbott -- you have a third player on the market, and you didn't mention anything on competition during the prepared remarks so I'll ask you here.

Have you see any differences in the marketplace dynamic with Abbott, a third player out there, or anything that Medtronic MiniMed is doing that's changing, or are you all working together and separately to increase market size and get better reimbursement?

Well, I think if you -- I referred to the first meeting of the Diabetes Advocacy Consortium in which actually MiniMed was there, Abbott and Beck, LifeScan, Bayer, Rosch, Lilly, Synovia, Ventas, Novo Nordisk -- anybody in the space was there.

Clearly, the discussion by all parties was the utilization of intensive management, but particularly more on the CGM side than on the pump side, about ways in which to drive this awareness to a greater degree and looking at, unfortunately, the rapid rise of diabetes, not only on the type 2 segment, but we're also seeing, unfortunately, a rise in the organic growth of type 1. I think everybody was participating to the good of the category. I didn't see any differentiation from that standpoint.

I think from Abbott joining the -- it can only be good news because it will add more weight to the category and more validation of the category, but we haven't seen -- they haven't been out long enough to see any issues that we've addressed yet.

Okay. And then last question and I'll get back in line.

You were focused in your first six months on the top 50 -- you expanded that to the top 100 centers that you want your field force focusing on. Can you give us a sense, after almost a year with this focus on the top top centers, are there ones out there that are free to go and you've moved on; in other words, they don't get the same sort of intense visits on training and usage that they did in the early days?

That's correct. I mean, when we had to drive the whole concept of utilization of this tool, we were spending more than normal amount of time in any one center. But we -- my goal there, as stated before, was we've got to stay there long enough to drive adoption, not just get the key opinion leader or the chairman of the diabetes group there to be a believer. I think we had -- over the last year or so -- been able to do that effectively. We needed to get down within the organization, both prescribers as well as the diabetes educators, to begin to look at what the utilization -- how are they changing the behavior patterns of the patients utilizing the CGM in order to better manage their diabetes.

I think we've done just truly an outstanding job. We were able to expand beyond where we're at now. I think, in addition -- I mean, I mentioned that in covered areas we would certainly go to those sites that had large populations that were covered by a particular third-party payer. In addition, we are doing joint sales calls now with our pump partners, and in the event that we're -- they happen to be calling on somebody or a center that is outside of our target, we certainly have released our salespeople to be able to go complement the respective pump partner.

Okay. Great. Thank you.

And next we'll hear from Mimi Pham with JMP Securities.

Hi. Good afternoon. On the J & J and OmniPod integration timelines, is there any reason why the timelines would be any different between the two?

Mimi, the main thing would be the -- quite frankly, would just be the amount of effort that would be thrown towards one or the other. I mean, as we've described previously, what we have to do is really create a new circuit board and then populate that circuit board with additional software. And from that, that takes a lot of engineering time in order to do that and still try to remain within the footprint of both the J & J Animas pump, the 2020, as well as the patient programmer from Insulet.

I would just say at this point, obviously, if you look at the size of the organizations, one has more resources that they can allocate to that effort than the others just based on their R&D resources.

Okay. And you mentioned that 1,500 three-day users have upgraded so far. It sounds like you expect that number of upgrades to drop off. Does this mean that the other 2,000 or so people who bought the three-day aren't using the system anymore?

That's a correct assumption.

Okay. And then, last, on WellPoint, when did you actually start that process -- if you can give us more color -- and how involved were you along the way? Did they call you -- were you in contact every few months or --

So, Mimi, I'm not -- this is Steve. I'm not really sure how to answer --

Oh, okay. Did you put in a formal request, I guess, on a certain day or time? I just wanted to get a sense of how long.

No. It isn't that simple. So, as we've spoke to you before, we have a field-base team. There's four individuals who are employed by DexCom who work out in the field and are charged exclusively with calling on the private-payer system, and these folks, obviously -- we have one person who's specifically assigned to Anthem WellPoint as a national payer, but then you keep in mind that Anthem network is broadly stretched across the country into regions. So there are multiple call points within the Anthem network.

So to answer that question, it wasn't like a single meeting that drove this by any means. It's months of effort on our part. Frankly, I have to assume there's efforts on Medtronic part. The Juvenile Diabetes Research Foundation has been outstanding in their support of helping push forward the coverage policy. And on top of that, it's our collective efforts, I think, between DexCom's internal reimbursement efforts to hit the payer system with one-off claims, and I have to believe Medtronic -- we understand that Medtronic is doing the same thing. It raises the level of awareness within the Anthem network to rise up to the level of the national policy decision.

And that's kind of how the decision came about. So we couldn't tell you it was a meeting that led up to it or some single trigger point. Does that make sense?

Yes. It's makes sense. Thank you so much for the clarification.

And next we'll take a question from Ben Andrew with William Blair.

Good afternoon. It's actually Matt in for Ben.

Hey, Matt.

Hey. How you doing?

On the Anthem side of things, when you talk about having this kind of national coverage decision and how going forward a little bit, it sounds like it's going to be on a region-by-region basis of building out those contracts. First of all, is it going to be specific to DexCom, that you have to get a contract for DexCom CGM's, or is it going to be a broad contract?

And then can you just kind of talk about the process of going through and convincing the specific regions? I mean, how much convincing do you think is going to need to occur before you start getting these regional contracts in place?

Sure, Matt. This is Steve. So it's actually unique. In the Blue Cross network, it's actually really interesting the way they process claims. They way they process claims, since we sit as DexCom as a provider in the state of California, we're actually required to process our claims through Blue Cross of California, which is a member of the WellPoint network.

So we're still looking into whether we would need to contract on an individual basis with each of the WellPoint entities, but in short order, it's most important for us to contract in California to be able to process claims through the California Blue Cross affiliate, which would enable us then to process claims basically across the country throughout their network.

Okay. And then on the question as far as specific to DexCom, or is it going to be more broad just CGM category in general?

The coverage policy is broad with respect to CGM. The next step is for DexCom to secure a contract that -- it's a contract that dictates the terms under which we do business with Anthem, and it would have a pricing schedule attached and so on and so forth.

Sure. Any shot at the number of lives that that national decision would cover?

Well, we've done the research on it, and I would say it appears that it is not just Anthem but the entire WellPoint network, which could be as many as approximately 34 million covered lives is what they state publicly as their number of covered lives. But we don't have confirmation on that. We know it's certainly the Anthem -- the group of Anthem payers that are listed on the coverage policy itself, but we have our researchers been able to cover the similar policy decision on a number of the other Anthem -- or, should I say, WellPoint entities that are not listed specifically under the Anthem label.

Okay. And then on the medical-necessity side, you guys are getting reimbursement on a one-off prior to this decision. How does this decision compare on a medical-necessity basis to the patients that were already getting reimbursed?

Well, in many cases it's very consistent. If you really look at a patient with diabetes, and regardless if they're on multiple daily injections or pump therapy, a fair number of patients would qualify under this medical necessity because, in spite of best efforts -- and heretofore we've always used A1c as a criteria to demonstrate acceptable glucose control. We know that A1c is highly variable because of the average nature of it.

I would say that, although in a category -- anything to do with hypoglycemia gets faster reimbursement than some other category. But I think everybody has hypoglycemia daily. When we begin to look at all of the chartings on the clinical trials that we conduct and everything that is published by either Medtronic or Abbott, you see most of the patients in those well-controlled clinical trials having some degree of repetitive hypoglycemia on a daily basis. The goal is to try to stay between the lines the best -- especially on patients who are intensively managed, as you bring the bar down, unfortunately, the bottom of that bar typically will range into the hypoglycemic arena.

So I think there are -- again, it depends on how the physicians characterize it in their particular practice, how the documentation is completed in order to justify the reimbursement.

Okay. And then on the hospital product, last quarter you gave us some data from the first animal testing, and it's rather astounding, actually, with the number of data points hitting the region A of the [carc] air grid. Do you have any updates, I mean, from where you were at last quarter to this quarter? It sounded like most of the data points are still in region A from the latest testing that you've done.

That's correct. We've done an additional porcine model -- and in fact one is going on today -- and to that we -- a number of our visitors who are not DexCom employees want to see that. So from that standpoint, obviously, in these discussions that I've outlined, they believe that's a degree of proof of concept. So we continue to do that. We continue to impress them and ourselves.

Okay. And then one quick last one. With Abbott on the market now, any update on the litigation side? I mean, we haven't talked much about that at all in recent quarters. With them out there now -- and that had been one of the gating factors to them suing you guys. Have you seen any more increase in activity in terms of what the lawyers are up to?

Not on the litigation side, Matt. As you know, the case is stayed in Delaware, and the judge has made it fairly clear that he's going to keep the case stayed until all seven patents that are subject in the litigation come out of the reexamination proceeding. I would say those seven patents are in various stages of reexamination at this point.

I couldn't give you any guidance on the timing there. It's fully within the control of the PTO. It could be months, it could be a year or years. I really have -- we just don't know. We have some visibility, but these proceedings are all done an ex parte basis, which means we basically file some documents, and then they turn around and file some documents. And so there's not an interaction, per se, before the PTO. It's really -- in that respect, it's largely out of our control.

Okay. Great. Thank you very much.

And next question will come from Ben Andrew's location.

Hi. Can you guys here me?

Yes.

Hi. Matt jumped on as me, I guess, and I was listening as well.

You sound different, Matt.

Well, we're confusing each other at this point.

He actually got my questions. There's only a couple of things I wanted to follow up on.

Terry, should we assume that that 1,500 conversion number represents the bulk of the patients that were left on the STS-3, and how many were converted previous (inaudible)?

It's cumulative so that would be the bulk of what was left on the STS-3.

Okay. So would you suggest we sort of take the 1,500 plus the 1,207 plus the last couple quarters and come up with an install base, or is that not a good --

Would I suggest that? That would be tough for me to suggest that. I can't -- but, I mean, I think we have been straightforward in preparing you to do that analysis.

Okay. That's fair. What are you seeing right now in terms of the usage of The Seven? Is it still north of seven days and maybe something around ten days for the average patient as you get a little bit larger population that's preordering?

Yes, we do tend to see that. In fact, I mentioned in my earlier comments, we've most recently been at -- with the Food and Drug Administration we found out that a number of those individuals are wearing our Seven product, and as a result of that, they communicated to us that they're wearing it for seven to ten, beyond days. We're continuing to see that.

Obviously, at the ADA you'll see a paper of a clinical trail sponsored by an investigator comparing The Seven at four, seven, and ten days, and showing no deterioration of accuracy over that ten-day period.

Okay. It's interesting the FDA staff (inaudible) be wearing to promote The Seven, but I guess that's --

It's the best product on the market so I guess they migrated to that.

Okay. I'll jump out. Thank you very much.

And next we'll hear from Bill Plovanic with Canaccord Adams.

Great. Thank you. Can you hear me?

Yes, Bill.

Fantastic. Sorry -- I'm in an airport.

Two questions. First, again, point of clarification. So you have about 2,000 patients that have not upgraded to the STS, or you have about 500 or so? What -- I didn't --

Bill, we haven't given any guidance on that. I will tell you, we'll just stick to the over 1,500 have upgraded from the STS-3 to The Seven System and leave it at that.

Cumulatively, that's what you're saying?

Cumulatively, correct.

Okay. Great. That's clarification.

And then number two, in terms of the porcine studies, how many incremental kind of drugs or fluids have been tested on those animals, because it's my understanding, when you get into the hospital market especially, there's a lot of confounding factors that can impact the readings that you're getting?

We're going through that series of various drugs now. We've put together a list of about somewhere between a dozen and dozen and a half. Obviously, the one that we were most concerned with was acetaminophen. That's the most prevalent use of any particular drug in that setting, and we have demonstrated a complete resistance to any interference with that. And there are others, but that was the one that we were most concerned about.

I mean, is there any one drug that has a propensity to actually negatively impact readings, because, as you said, acetaminophen is most used, but it might not be the one that's most likely to impact --

No. Acetaminophen is the one -- the reason we focused. Not only is it the most used, it's the one that causes the greatest degree of sensor inaccuracy.

Okay. Great. That's all I have. Thanks a lot. I'll see you at my conference in a month.

You got it.

(OPERATOR INSTRUCTIONS)

And we'll hear from Stephan Ogilvie with Thinkpanmure.

Hi. This is [Diego Huerta] filling for Stephan.

I just have one question. With the hospital base product and the collaborative project, is there a way to monetize these activities before commercial launch?

Thank you.

Yes, absolutely. The way in which any partnership would be structured, there will be upfront payments in order to engage in a relationship subsequent to that, and outlined will be a series of milestone payments that cover our R&D costs, as well as our regulatory costs as it relates to conducting clinical trials. And then as part of that structure, there will also be some type of royalty stream, to speak of, or profit sharing on a commercializable basis.

Thank you. That's all.

(OPERATOR INSTRUCTIONS)

And there appear to be no further questions at this time.

Gentlemen, I'll turn the conference back to you for any additional or closing remarks.

Thank you. Again, appreciate you taking the time this afternoon to listen to our first quarter 2008 conference call. Obviously, we've made tremendous progress from the last time we spoke. We've really got the engine in high gear doing a lot of interesting things in a lot of different spaces all related to improvement of glycemic variability, which we believe is one of the single most difficult things to achieve and actually has the best payoff for patients in the ambulatory world suffering with diabetes and in the surgical ICU and areas outside. We are not restricted to only patients with diabetes because hyperglycemia as a result of stress is also hugely impactful in terms of morbidity, mortality, time spent in the hospital, and particularly in a DRG-based environment in the hospital getting them out of the hospital a day earlier is obviously beneficial to the payer system.

So I will conclude, and, again, thanks, and look forward to the next quarter call.

And, again, that does conclude today's conference call. Thank you for your participation. Have a wonderful day.