德康醫療 (DXCM) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to today's DexCom 4th quarter year 2008 earnings conference call.

Please be aware that today's program is being recorded.

At this time, I would like to turn the conference over to Mr.

Terry Gregg.

Please go ahead sir.

Thank you, operator, and welcome to DexCom's 4th quarter 2008 investor conference call.

Joining me today is Steve Pacelli, our Chief Administrative Officer, and Jess Roper, our Chief Financial Officer.

Steve is going to lead off the call.

Thanks, Terry.

Just the obligatory Safe Harbor Statement.

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 here of.

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 is detailed under risk factors and elsewhere in our annual report on Form 10K, 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 reason.

Terry.

Thanks, Steve.

The outline of today's call is as follows.

We will give you a financial review by Jess and I will speak on operations review of the Company including updates on commercial reimbursement, clinical and regulatory and our partnerships.

I will wrap up with the summary and then we will entertain questions.

Jess.

Thank you, Terry.

DexCom finished the year strong generating product revenues of approximately $2.45 million during the 4th quarter of 2008 compared to $1.5 million for the same quarter in 2007.

Product revenues totaled $8.1 million for the year ended 2008 compared to $4.6 million in 2007.

Sequentially product revenue increased $588,000 from Q3 to Q4 of 2008.

During Q4 we sold approximately 1200 SEVEN System Starter kits compared to 770 in Q3.

From 2007 to 2008 since the revenues were up 105%.

Sequentially since the revenues were up 25% from Q3 to Q4 of 2008.

Total revenue for 2008 was $9.8 million which included $1.7 million in development grant revenue.

As we have discussed previously DexCom entered into three separate development agreements during 2008 which included Insulet Corporation, Animas Corporation, and Edwards Lifesciences.

Animas and Edwards made up front payments towards development dollars of $13.5 million in 2008.

Excluding milestone payments Edwards is scheduled to make additional development payments of approximately $10.5 million through Q2 of 2010 and Animas made a $250,000 payment in Q1 of 2009.

With these up front and development payments we expect to recognize development grant revenue on a straight line basis over the period of the expected performance obligation.

Changes in estimates could impact amounts recognized in future periods.

Based on our current estimates we expect to recognize development grant revenue under these arrangements of $2.8 million per quarter through Q4 of 2010.

This quarterly estimate excludes any milestone based payments that we may also earn.

Cost of sales including product and non-product in 2008 totaled $15.4 million compared to $12.7 million in 2007.

Product cost of sales totaled $13.4 million for the year ended 2008 compared to $12.7 million in 2007.

Our product gross margin loss was $5.3 million in 2008 compared to $8.1 million in 2007.

We have experienced an improvement in our negative margin primarily due to increased sales volumes in 2008.

Development cost of sales totaled $2 million in 2008 compared to none in 2007.

Research and Development expense increased by $3.5 million to $19.6 million in 2008 compared to $16.1 million in 2007.

Changes in R&D expense included $2.1 million in higher development costs, $1.4 million in higher clinical, regulatory, and quality assurance costs.

Major elements of increased R&D costs included $1.2 million increased consulting fees, $1.2 million in facilities costs and $415,000 in supplies.

Selling, general and administrative expense totaled $27.7 million in 2008 compared to $22.4 million in 2007.

The increase was primarily due to higher selling, legal and marketing costs.

Major components have increased SG&A expense included approximately $1.4 million and higher share based compensation, $850,000 increased facilities cost, and $825,000 higher salary cost.

Net interest expense totaled $2.4 million compared to net interest income of approximately $800,000 in 2007.

The increase in net interest expense was primarily due to lower average balances of our cash and marketable securities combined with lower yields earned on those balances.

Our net loss totaled $55 million for the year, included $11.6 million in non-cash expenses centered primarily in share based compensation depreciation in amortization.

We ended the year with $31 million in cash and marketable securities which included approximately $4 million in restricted cash and we had working capital of $17 million.

Cash, marketable securities, and restricted cash increased by about $1.1 million during the quarter and included a $13 million payment from one of our development partners.

Excluding the development payment our cash usage in Q4 was $11.9 million.

During the year, we invested $2.5 million in capital equipment and facilities to support our business.

On February 4, 2009 we completed a follow-on public offering selling an aggregate of approximately 16 million shares of our common stock for net proceeds of approximately $45.6 million after deducting underwriting discounts, commissions and estimated offering expenses.

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

Thanks, Jess.

Obviously we were extremely pleased with our performance in the 4th quarter of 2008 and the year especially in terms of total product revenue, new patient ads and sensor sales.

Highlighting some key performance metrics for Q4, '08.

Total product revenue grew approximately 31% sequentially from Q3 to Q4.

As Jess mentioned we sold approximately 1200 starter kits for the SEVEN System in the 4th quarter amounting to about a 55% increase in sales kits compared to Q3.

We were pleased to see an increase of approximately 25% in Sensor revenues quarter to quarter which we believe bodes well for the long term prospects of our business.

As we look to 2009 we continue to see tremendous progress on the reimbursement front.

Both in terms of the adoption of new coverage policies for CGM and the establishment of contracts with payors to cover our products.

In early January, UnitedHealthcare adopted a positive coverage policy for CGM.

As you know, United was the last of the national payors to issue a policy and in doing so, United established the most comprehensive coverage to date.

United policy should make access to CGM available to all of UnitedHealthcare's Type 1 patients with an A1c greater than 7% as well as those patients with an A1c of less than 7% who have experienced hypoglycemic unawareness.

Just last week we entered into a contract with Care Centrex to become a provider of specialty diabetic durable medical equipment.

Care Centrex is a provider of ancillary care benefit management services for major managed care organizations and has a national contract to coordinate the provision of diabetic DME to Cigna Healthcare members.

This means we have the ability to process claims in-house for the nearly 12 million covered lives under the Cigna umbrella of affiliated companies.

We now have contracts with five of the seven largest payors and are working diligently to secure contracts with the remaining national payors as well as smaller regional payors.

And on a weekly basis Blue Cross Blue Shield state and regional plans are adopting coverage for CGM.

We estimate that today in the US there are over 130 million covered lives under CGM policies and expect that number to continue to grow during 2009.

As expected with the increase in number of coverage policies, we continue to witness a shift in our business from a cash pay model to a broad reimbursement model.

In Q4 '08, for example, approximately 70% of our new starter kit sales were through the reimbursement channel and we continue to see a shift from cash pay to reimbursement for our recurring sensor sales.

During the 3rd quarter call we mentioned we were not lacking in patients, but rather we were lacking the ability to process patients effectively.

This was due primarily to the administrative burdens for patients and their physicians to demonstrate medical necessity and ultimately receive reimbursement for CGM products under these newly adopted coverage policies.

During the 4th quarter we brought in a team that has worked for me in my former life as President of MiniMed to revamp our customer service organization.

They have made tremendous changes in terms of how our back office operates.

However, we are still functioning largely on a manual basis in terms of our interaction with the payer system.

We need to move to a more automated system and expect to make progress on that front in the coming quarters.

So where do we stand as we look out to 2009?

We are convinced more than ever that patient demands for CGM is real and is growing.

We were pleased to learn in January, that the American Diabetes Association revised its 2009 clinical practice recommendations upgrading CGM from a potential supplemental tool to a useful tool in adults over 25 years of age.

This is important because these clinical practice recommendations have traditionally carried considerable weight within the medical community.

We believe the reimbursement bottleneck is easing, but there are still challenges as the requirements for documentation still exist at a number of payors.

We continue to believe that as insurance companies gain experience in processing CGM claims they will gain a better understanding of what information is appropriate and necessary to make a coverage decision.

We have seen signs of this as Aetna in November of last year revised its coverage policy on the heels of the JDRF clinical trial data tin include all Type 1's over the age of 25 without the requirement for additional documentation.

Similarly UnitedHealthcare, in January, adopted a comprehensive coverage policy which we believe will enable us to process claims without the need for excessive documentation.

Ultimately, we expect these administrative challenges to resolve themselves at the payer level while at the same time we will continue to improve our back office systems and processing capabilities to meet expected increases in patient demand.

Moving now to clinical and regulatory.

We are pleased to announce that we recently received approval from the Food and Drug Administration to begin commercially marketing our third generation Continuous Glucose Monitoring System which we are branding the SEVEN Plus.

So what's new about the SEVEN Plus?

Well first, more on-time performance an updated algorithm delivers more robust data with fewer data gaps and improved sensor performance.

Improved overall accuracy.

Our clinical study data shows an increase in overall accuracy as defined by median mean absolute relative difference.

We have added event markers which let patients note specific activities or events, such as exercise, food intake, sick days, insulin dosing, to help make better diabetes related decisions.

Glucose change arrows.

These simple icons instantly tell the patient direction and rate of glucose change to help pre-empt a high or low event.

A more discreet transmitter, now in a lighter color to help blend into the sensor to make it almost invisible under clothing for maximum discretion.

More customization.

The SEVEN Plus allows the patient to customize alert and turn features on and off to make for a more personal experience with the system.

And finally, 12 and 24 hour trend screens are added to the library of 1, 3, and 6 hour trend screens.

So what stayed the same?

Well, certainly we continue to be the market leading performance and accuracy in the hypoglycemic zone.

We believe this is a critical area where patients require the greatest sensor accuracy.

The only fixed hypo safety alarm.

Open choice calibration, patients can continue to calibrate the system using any FDA cleared blood glucose meter and a tiny, flexible, most body friendly sensor.

Unlike other sensors who use rigid rectangular sensors, the DexCom flexible round bendable platinum wire is designed to be comfortable and it is still the only sensor approved to be worn for up to seven days.

With the SEVEN Plus, we continue to provide leadership to the continuous glucose monitoring category by bringing a third generation product in just the third year following our first product introduction and we believe the SEVEN Plus is the only CGM system that meets the key criteria demanded by physicians, educators and patients.

Convenience, performance and simplicity.

We announced in November, that we entered into a definitive collaboration agreement with Edwards Lifesciences relating to the development and commercialization of a hospital based continuous glucose monitoring system.

As we have discussed on previous calls, there is a growing clinical evidence that closely monitoring glucose levels in critically ill patients can positively impact patient care and outcomes.

In addition, as of October 1st, 2008, Medicare will no longer reimburse hospitals for the cost of treating what the agency considers to be preventable in-patient complications unless those conditions are also secondary diagnosis upon admission.

CMS specifically identified blood glucose control complications including DKA, Hyper and Hypoglycemia and coma as examples of preventable complications.

Just last week at an international diabetes meeting in Europe, Dr.

Jeffrey Joseph reported on a study of 1,826 consecutive ICU patients, noting that the rate of mortality dramatically increased as the glucose levels increased.

As an example, in patients with an average glucose range of just 160 to 179 milligrams per deciliter during their ICU stay, the rate of mortality was approximately 18% higher than patients with a normal glucose range.

And in that same patient population, as patients averaged glucose greater than 300 milligrams per dl, the rate of mortality was 40% greater than patients with a normal average glucose range.

Also reported was a study concluding that all in-hospital mortality in patients with hyperglycemia, in this study defined as average glucose levels greater than 150 milligrams per deciliter was more than 8 times higher than patients with normal average glucose levels.

Hyperglycemia results in increased length of stay, increased admission to the ICU and increased discharge to rehabilitation facilities, not their home, all contributing to increased costs associated with lack of adequate glycemic control.

Unfortunately today there is no methodology other than utilizing traditional bedside finger stick measurements for monitoring glucose levels and controlling hyperglycemia in the hospital.

As we approach the end of the 1st quarter of 2009, we couldn't be more pleased with the development progress we have made to bring our continuous glucose sensing technology to the critical care setting.

Our joint technical teams are operating extremely well together and we believe we are still on track to launch a first generation product in the second half of this year.

A quick update on our insulin pump partnerships with Animas and Insulet.

In January of this year we announced an expansion of our Animas relationship to an exclusive agreement to develop and market integrated insulin pump CGM systems in markets outside the US.

In return, Animas will pay us $5 million upon receipt of a CE Mark for the first OUS commercial product that is expected either later this year and early 2010.

And in addition Animas will pay DexCom a royalty of $200 per CGM enabled pump sold in any OUS market.

As parts of this agreement, Animas will also serve as a nonexclusive distributor of transmitters and sensors to purchasers of the Animas CGM enabled pumps outside the US.

This exclusive arrangement has an initial term of three years.

We continue our development work on the integrated insulin pumps CGM systems with our pump partners.

Our continued goal is to complete all development, clinical and regulatory efforts on these joint development projects and be positioned to launch a first product with Animas during 2009 and with Insulet sometime the following year.

But as you are well aware the timing of of the regulatory process is uncertain.

In summary, for the past 15 years, I have strongly believed the role of CGM in treating diabetes to be one of the most significant advances in technology since the discovery of insulin.

We now know that A1c is a less-than-optimal surrogate marker for glucose control but remains a standard.

There is a rapidly growing body of evidence that glycemic variability is more important than A1c in determining clinical outcomes for patients.

Researchers are reporting on the role of excessive glycemic variability in pro inflammatory processes, such as oxidated stress resulting in cell and vascular damage.

Multiple clinical studies have demonstrated the reduction of glycemic variability with the utilization of continuous glucose monitoring.

Just last week, Dr.

Lori Laffel of the Joslin Diabetes Center presented data from the JDRF CGM prospective randomized clinical trial on a group of 129 patients who entered the study with an A1c less than 7%.

The CGM treated group spent an average of 37 fewer minutes per day in the hypoglycemic range, therefore an increase in target range, over the 26 week study period.

In addition, their A1c remains stable while the SMBG group experienced a rise in A1c over that same period.

As we look to 2009 and beyond we are extremely excited about our prospects, both in the ambulatory and the in-hospital setting.

As you are aware in late January we completed a follow-on public offering of our common stock raising gross proceeds of $48 million.

Prior to the financing, we were often told by investors and analysts that one of their primary concerns regarding the Company was a concern over our balance sheet and our need to raise capital in what has become the worse economic downturn since the great depression.

Thankfully, with the support of many of our long term stockholders together with a group of new stockholders we were able to raise the needed capital and we now believe we have appropriately addressed the balance sheet concern.

Together with our cash on hand at year end and the additional proceeds we expect to receive from Edwards and Animas, we believe the proceeds from this financing will be sufficient to take us to profitability.

That said, we will continue to spend wisely and we will remain laser focused on our mission critical priorities, namely continued commercialization of our ambulatory continuous glucose monitoring systems.

Continued development of our in-hospital platform together with Edwards Lifesciences and continued development of our integrated insulin pump (inaudible) systems with our pump partners.

DexCom is uniquely focused on sensor technology.

It is in our DNA.

Our origin was based on a fully implanted subcutaneous sensor which we have dubbed our sleeping beauty who may awaken at some point in the future.

We've leveraged our implantable technology into the 3-day sensor, two generations of our 7-day sensor, and an intravenous glucose sensor for the ICU.

We believe we will see the day that insulin dosing decisions will be made on the basis of interstitial fluid glucose readings.

Key opinion leaders are talking about it from the podium today and we feel extremely well positioned to lead the way.

Thank you.

We will entertain questions.

Thank you.

(Operator Instructions).

We will go first to Matthew O'Brien with William Blair.

Good afternoon.

Few questions for you on the contracts you have been signing.

How often do those come up for review?

Some are annual.

Some are biannual.

Some have a three year term.

They are kind of across the board.

You are talking about the insurance contracts?

And as far as the profitability goes it is improving obviously on the gross margin side on the product specific.

And any sense for when we get crossed through to gross margin profit on the product side?

Is it Q4 2009 or will it be full quarter of Q4, 2009.

Can't give you specific guidance.

We are not giving guidance at this point.

But what we have said publicly in the past, and I think we are still comfortable with that , on a product revenue quarter of $5 million you would see us be at the gross margin

Okay.

Then, I know you are not providing guidance again.

But the number of patient ads, was it better than expected.

Should we expect a flat kind of patient ads in Q1 or a little bit higher and trending a bit higher each quarter.

Is there any seasonality involved?

There is always seasonality involved.

As you look at Q4 historically in this business.

As patients get thru their flexible spending accounts, they have met their co-payments and their deductibles.

They tend to have more free cash flow from that standpoint and so we would always expect Q4 to be an up tick.

And again not providing guidance, obviously we believe that the continued adoption of CGM will grow sequentially quarter to quarter.

There may be some fluctuations through that, but you should see the sequential growth over the year.

Finally, when you do sign a contract like the one with Cigna.

Can you tell us a little bit about the process of alerting all those patients.

Where does it originate?

Is it from you guys, is it from the endocrinologist, is it from the employer, how does that come down

It is a multifaceted approach.

Obviously new patients entering the system.

And we have a process that our field based sales organization would collect insurance on all patients and we've done this even prior to and as we have established these insurance contracts.

But new patients today coming into the system.

If they are on Cigna insurance we would certainly process them on an in-house basis through our Cigna contract.

We have another program ongoing in-house as part of the revamping we have done of our customer service organization to actually reach out to our existing and convert our existing cash pay patients who are qualified to maybe, for example, qualified on Cigna, to convert those patients over to a reimbursed scenario going forward.

Educationally our sales force is certainly made aware every time a new coverage policy is adopted.

Every time a contract specific to DexCom is entered into.

And the sales force and the education specialist out in the field are primarily responsible for educating the physicians about these policies.

Okay great, thank you.

Well move next to Thom Gunderson with Piper Jaffray.

Good afternoon.

I am moving and I'm afraid I will get into a bad cell.

So let me just ask two quick questions and I'll listen as long as I can.

Terry, can you give us a little bit more on the SEVEN Plus.

Is that going to be a separate product?

Do you phase that in?

Do you do a complete switchover?

Is there a price premium on that?

And the second question, I apologize if you have already said this I will check the transcript.

And Europe, you have got CE Mark, I know it is early.

Can you give us more color on how you see Europe and the rest of international as we go forward in 2009?

Thanks.

The first question was with regard to the SEVEN Plus, Tom, we will introduce that shortly in terms of everything that's being shipped out of here from this point forward is a SEVEN Plus system.

There is an upgrade program that will allow, at least from a sophomore standpoint, in terms of the attributes of it, a backward compatible download.

We are FDA approved for a web enabled download system so patients will be able to utilize that.

There will be a requirement for a new transmitter.

This transmitter has some new attributes to it that will allow it to expand its communication to a wide variety products beyond what it does today to our receiver such as other pumps, as an example.

But that program will be spelled out shortly as to the upgrade.

It is premium priced over the existing SEVEN system, although not dramatically so.

But those prices are being put into place now.

As far as Europe, we did ship a small amount of product into Sweden and Finland.

And we are continuing - we just got back from a European meeting last week and met with a number of distributors.

We are beginning to sign those contracts and yes we are CE Marked for the SEVEN system and we will begin to expand that out as we roll out the rest of the year.

We are going about it in a very diligent way it is not going to be a very large effort this year as we begin to structure things appropriately.

A pediatric endocrinologist in Hanover has just completed a trial in which he showed some of his results at a symposium in Athens.

And very significant findings, these patients actually entered the study under six.

So 5-8, 5-5 and showed yet an increase in time spent in target zone.

No increase in hypoglycemia.

So we were quite pleased with that - system was quite easy to use.

We are encouraged to expand the introduction of that in to you in a timely fashion and a very structured fashion.

Got it, thank you.

(Operator Instructions) We will go on to Bill Plovanic with Canaccord Adams.

Great thank you.

Just with the macroeconomic environment, what it is, can you give us color on what you are seeing from attrition rate standpoint.

Well, we have never publicly disclosed and still, Bill, trying to get our arms around it specifically as to the metrics.

One of the challenges it is a multi dimensional.

So let me give you the broad brush.

And as we increase in the number of contracts that we have secured, we also and typically, and depending on the third party payor, they will allow us to ship two months or three months worth of product.

If it is a cash pay patient they will typically will buy one month of product.

So you have two different dynamics.

We haven't seen much pressure from an economic standpoint on the reimbursed side of it.

We have seen some push back on the cash pay portion in terms of the reorder.

Now what they do is, because not FDA approved nor do we recommend it, but we know that our sensor will last beyond seven days and I think patients are trying to stretch that now even beyond 14 days so it is hard to pinpoint what the attrition rate is at this point.

Then I think you mentioned 70% of your patients are now cash pay.

No, 70% of the new starter kits in Q4 were reimbursement.

And continuing to move in that direction.

We are getting in more of the, even on the reorder, it is a bit heavier as a percentage of cash pay on the sensors that are reordered.

But that is moving also to more of a reimbursement model and certainly we give the patients an opportunity if they are cash paid to move and they happen to have now under a contract that we have signed or coverage decision.

We will submit their insurance carrier within a new assignment of benefit and try to run them through insurance for their benefit.

And just, anecdotally with the patient, I think what you are saying to me now and I want to double-check is for the patients that do have insurance and anecdotally it seems like you are getting a much better stick rate and as all the payors - as you continue to sign up payors and get the last of them on board, you will get a feel for where the attrition rate is overall.

That is a fair statement.

Okay.

Just from an expense standpoint.

There were a couple of phrases you used in there but it sounds like spend wisely and laser focus on your plan here.

And you know, from just an outlook, should we expect that your operating expenses would stay at existing levels or are you going to be beefing up your distribution channel now that the payor makes his improved?

No, we are not beefing up the distribution model.

What we really expect to do quite frankly is as we leverage our relationship with our pump partners at that distribution will be able to, at least from a field standpoint, in terms of contact with customers we that we currently don't call on, we will be able to leverage our partner relationships from that standpoint.

But we are, from a back office ability to process, we need to get more efficient.

I think one of my comments - we brought this team in mid-november - they have done great things.

We are looking at software programs today, we're Oracle based as an ERP system.

We actually have some things that we never turned on.

We have got some consultants in and I think we will continue to match our growth with streamlining our operations but without added head count.

Okay, that's all I had, thanks.

Moving on to Shiraz Kalia [ph] of Sanders, Morris and Harris.

Gentlemen, congrats for the quarter.

Thanks.

Terry, when you say the SEVEN Plus sensor improves overall accuracy over the SEVEN sensor, can you help me on this one?

What specific aspects of accuracy are you talking about that were improved on and what bogey are you using to now say that the SEVEN Plus is optimal.

I don't think I said the SEVEN Plus is optimal.

I will take this portion and then get back to the first part.

I think my comment had to do with the key metrics that are demanded by physicians and patients, in that, there is a factor to the product that simplistic the performance and convenience of utilization of it make it optimal or what I would consider maybe another better statement, is best in category, from that standpoint, meeting all the attributes that are demanded by the constituents.

With regards to accuracy, there is more data capture.

There is less lost data so from a new algorithm development in all of these CGM categories you will lose data at times, it's basically once you turn a signal on or a transmitter on, it is constantly transmitting data.

If for some reason the data is noisy, for biological reasons, then there will be data lost in terms of the capture.

This algorithm captures more of the data because it can understand the noise level, and filter that noise in a more effective way so more data capture actually translates into an improved MARD when compared to a YSI.

And therefore, if you compare the SEVEN and the SEVEN Plus under the same testing criteria our MARD on the SEVEN Plus was slightly better than MARD on the SEVEN.

Okay and in terms of are we at a position where, Terry, where we have some sort of an idea in terms of patient retention?

If I can define it as patients who have been on the SEVEN, for let's say a year, and again it is an arbitrary time horizon.

But let's assume patients have been on the sensor for a year.

Do you guys have any idea of how many patients are there and what is the normalized retention rate?

We really don't.

At this point we are still trying to get the systems in place to measure this.

But one of the confounding portions of this, as an example, during that same time frame.

A patient may enter into the system as a cash patient.

So, we will go back a year.

A year ago.

There were no, at this time, there were no coverage decisions by any national payors.

So if they entered into the system under a cash pay, they would typically be buying one box.

Now, in that next period of time, four months, six months, eight months they move from cash pay to a reimbursement.

They now may receive up to three boxes of sensors.

And so there is no baseline by which to measure because that baseline keeps shifting on us as the contracts get into place.

So that's why I'm saying the metric - quite frankly, we are not spending a huge amount of time and drill down and track that directly.

We certainly know if a patient hasn't ordered in some period of time, then we will reach out to them.

And I would say in that category, the overwhelming reason the patient would not continue on the sensor has to do, their cash pay and it is an economic burden in these economic times to them.

But I don't have a full matrix for each of the patients that we have added to that to give you the absolute number with any confidence.

Okay.

Fair enough.

And Jess, maybe I missed it just from a housekeeping perspective.

The development grant revenue, how should we look upon it, and I know you aren't providing guidance, but just from a housekeeping perspective.

On a quarterly basis how should we look at that?

What I mentioned before was that we expect, based on our current assumptions, to recognize $2.8 million in development grant revenue on a quarterly basis through Q4 of 2010.

Okay.

Gentlemen, thank you very very much.

We will move next to Shawn Fitz with Stephens Incorporated.

Thanks for taking questions.

Just a quick housekeeping item, Terry.

I think in the past you talked about a mix between your pumpers and MDI customers of about 60/40.

Has that evolved at all as you guys have gotten to the end of this year?

I don't think so.

I think that makes us still about the same in that, I think I disclosed previously, we were at 23% of our patient population were on metronic pumps and about close to that same number on Animas pumps and then Omni Pod and Smiths, that's the desetronic [ph] pump, so that makes up that 60%

Okay great.

And then, Terry just as we think about all your effort on integration with the Animas pump.

Is there any kind of visibility or can you provide any kind of bookends in terms of potential timing on that integration?

No, just other than what we have disclosed in this call.

We are working diligently going through the time line that is required under FDA, this a PMA product so there are certain bench top testing, human use trials that have to be done.

All of that, you go through the traditional verification and validation process and then submit it to the agency.

In EU, it is a bit different because we are currently CE Marked - there currently CE Marked so the regulations to get to a CE Mark on a combined product , quite frankly, are less onerous than a PMA product here in the states.

But that is in their mind set, that's a launch next year in the EU which we are comfortable with and running hard right now trying to get all the documentation done here in the

So, we think just about the timing and the effort there, there's no reason we shouldn't think that once the appropriate regulatory approvals are received, that this isn't something that your partners come out of the gate on pretty strong.

Is that the way to think of the effort here?

I can't speak for them.

Obviously we would encourage them along that pathway and I think they are so likely motivated.

But, Shawn, it is a partnership so we have to be careful what we say and regarding what their strategy is as well.

I will just leave it at that.

That's fair enough.

I guess the bottom line, Terry, is that whenever that integration and effort takes place, that what ever trend line you are on, from a revenue standpoint, this is clearly going to be additive to the trend line?

Yes, I think let's look at the market dynamics and certainly, again, I will refer to the J and J, CEO and his prepared comments earlier this year, that Animas is growing at a very brisk pace and they expect to continue to grow at that pace or at somewhere in that range.

They are highly motivated in order to not only grow their business from a new-to-pump therapy but also as patients come up for upgrade with other pump systems certainly having a best in class pump that Animas has and a best in class sensor that we have would make a compelling story to physicians and patients to migrate to that combined system.

So, we think that it is very positive impact.

Right.

Thank you for your time and congratulations to a strong finish to the year.

Thank you.

At this point, there appears to be no further questions.

Mr.

Gregg I will turn the conference back to you for closing remarks.

Thank you.

And thank you, all, for joining us today.

I also want to take a moment just to thank our board of directors for having the wisdom to convince me to come out of retirement to lead this Company as we move this transformational disruptive technology to its rightful place as a standard of care in treating diabetes, all diabetes, and the potential to expand beyond diabetes as we currently are doing in the hospital sector.

Despite the economy, diabetes does not take a holiday.

There is no cure and it will be years, if ever, for Bio Farma to address this area.

The billions of dollars spent in that effort continues to focus on minimizing glycemic variability, something DexCom does each and every day.

These are truly remarkable times for our Company.

Thank you.

That concludes today's conference.

Have a pleasant day.