德康醫療 (DXCM) 2010 Q1 法說會逐字稿

Welcome to the DexCom first quarter earnings release call.

My name is John, and I'll be your operator for today's call.

(Operator instructions).

Please note that this conference is being recorded.

I will now turn the call over to Mr.

Terry Gregg.

Mr.

Gregg, you may begin.

Thank you, operator, and thank you joining DexCom today for our first quarter 2010 earnings call.

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

I'm going to ask Steve to speak to our Safe Harbor statement.

Steve?

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 is 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 reason.

Additionally, we will discuss certain financial information that has not been prepared in accordance with GAAP with respect to our convertible debt.

This non-GAAP information is provided to you to enhance your overall understanding of our current financial performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP.

For a reconciliation of our GAAP and non-GAAP financial information, please review the press release we issued today, which is available on our website at www.dexcom.com.

Terry?

Thanks, Steve.

So, we're going to stay with our standard format for the call today.

Jess will start off with a financial review of the quarter.

Then I'm going to follow up with a commercial update, including Q1 review, our pump partnerships, hospital partnership with Edwards, a technology update, and then I'll conclude with some comments followed by a question-and-answer period.

Jess?

Thank you, Terry.

DexCom recorded product revenue of approximately $6.8 million for the first quarter of 2010, compared to $2.7 million for the same quarter in 2009, an increase of over 150%.

Sequentially, product revenue for Q1 increased by 2% from the prior quarter.

During Q1 we sold approximately 2,600 systems.

Sequentially, sensor revenues were up 4% from the prior quarter.

Total revenue for the first quarter of 2010 was $9.5 million, compared to $5.2 million for the same quarter in 2009, and included $2.8 million in development grant and other revenue from our development and collaboration agreements.

Cost of sales, including both product and non-product, totaled $6.1 million for the quarter.

Product cost of sales totaled $5.1 million for Q1 of 2010, compared to $3.5 million for the same quarter in 2009.

Sequentially, product cost of sales declined from $5.5 million in Q4 of 2009 to $5.1 million in Q1 of 2010.

The corresponding improved product gross margin, totaling $1.6 million in Q1 of 2010, compared to $1.15 million sequentially from the prior quarter, was due primarily to additional manufacturing overhead absorption as we increased our inventory during Q1 to accommodate for current and forecasted increases in sales.

Development and other cost of sales totaled $0.9 million for the first quarter of 2010 and remained flat sequentially as compared to the prior quarter.

Research and development expense increased $1.6 million and totaled $4.7 million for Q1 of 2010, compared to $3.2 million in Q1 of 2009.

The increase in R&D costs was attributable to additional efforts with our next generation ambulatory products.

Sequentially, R&D costs increased by approximately $0.6 million from the prior quarter.

As a reminder, R&D costs associated with our development and collaboration agreements with Animas and Edwards are included within development and other cost of sales.

Selling, general, and administrative expense totaled $9.8 million in Q1 of 2010, compared to $7.9 million in Q1 of 2009.

The increase was primarily due to additional selling, customer service and international development costs to support revenue growth.

Sequentially, SG&A increased $0.4 million over the prior quarter.

Net loss for the quarter totaled $20.3 million, compared to $13.1 million during the same quarter in 2009 and included $11.8 million in noncash charges.

The increase in our net loss was primarily attributable to $7.9 million in non-cash charges on the extinguishment of debt upon conversion of our convertible notes.

During the quarter, we converted $54 million of our $60 million of convertible debt into approximately 7.2 million shares of common stock, which, on an annualized basis, will save us approximately $2.6 million in cash and interest payments.

Based on the remaining convertible debt balance of $6 million, we expect to report between $135,000 and $200,000 of noncash interest expense relating to the amortization of the debt discount on a quarterly basis through March of 2012 or until we convert the balance of the remaining notes.

The loss per share for the quarter was $0.40.

Assuming no conversion of debt during Q1 of 2010, the non-GAAP loss per share would have been $0.27 per share based on adjustments to debt extinguishment charges, interest expense and the number of weighted shares outstanding.

We ended the quarter with $52 million in cash, restricted cash and marketable securities, and we had working capital of $43 million.

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

Thanks, Jess.

The first quarter of 2010 represented yet another quarter of sequential product revenue growth for DexCom.

As I mentioned during our Q4 2009 earnings call, the first quarter is traditionally a seasonally slow quarter in the durable medical equipment business, primarily because of annual insurance deductibles reset in the new year and employer-sponsored flexible spending accounts have not yet been adequately funded.

I also mentioned that we saw in January and the first part of February a short-term slowdown in patients' willingness to complete their starter kit purchases until such time as their deductibles were appropriately reduced.

Nonetheless, we finished the quarter strong, achieving total product revenue of approximately $6.8 million, shipping approximately 2,600 starter kits during Q1 and posting an incremental increase in sensor revenues on a sequential quarterly basis.

Looking forward, we are pleased to report that demand for SEVEN PLUS is strong.

Our pipeline or number of CGM referrals we receive continues to expand, and we expect the positive trend in pipeline growth we've seen over the last few months to continue throughout the remainder of the year.

During Q1 we launched our first direct-to-patient marketing campaign, focused on the MDI patient, and early patient response to the initiative is encouraging.

While throughput in our back office continues to be our primary challenge due to the administrative and documentation burdens certain payers have placed on patients and their physicians to demonstrate medical necessity, we believe the reimbursement bottleneck is easing.

While challenges remain, we continue to believe that as the insurance companies gain experience in processing CGM claims, they will gain a better understanding of what information is appropriate and necessary to make a timely coverage decision.

We expect these administrative challenges to resolve themselves at the payer level over the next 12 to 18 months, while at the same time we will continue to refine our back office systems and processing capabilities to meet expected increases in patient demand.

Shifting to our insulin pump partnerships, we are pleased to report that we have filed a PMA supplement with the Food and Drug Administration for our first generated integrated system with Insulet Corporation.

We are extremely excited about the combination of our SEVEN PLUS system with the OmniPod insulin management system, which will marry Insulet's unique tubeless insulin delivery device with our best-in-class CGM technology.

Although we cannot predict the ultimate decision or timing for a decision by the FDA, we typically expect a PMA supplement to be subject to a 180-day review cycle, give or take a few months.

We hope to be positioned to launch a first product with Insulet late this year or early next.

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

With respect to Animas, we continue to push forward on the development of a modified transmitter capable of supporting a unified global launch by Animas.

And, while the development cycle has taken slightly longer than expected, we remain committed to filing a PMA supplement for the combined DexCom/Animas system later this year, as well.

A quick update on our collaboration with Edwards Lifesciences, we are continuing both development and clinical regulatory work related to our blood-based glucose monitoring system for the critical care environment.

Together with Edwards we have completed the trial required to support a submission with the Food and Drug Administration for our first generation system, and, pending final analysis of the data, we expect to file with the agency this summer.

At the same time, we continue to work diligently towards the development of our second generation system, which we believe will be a system more suitable for a robust commercial launch sometime next year.

Next, let me talk about product innovation.

As a leader in continuous glucose monitoring technology, innovation is at the heart of our organization.

We have long stated that the continual introduction of next generation products with improved performance and patient convenience are not only the key to development and growth of the CGM category but are critical for us to maintain our technology advantage over our competition.

I am pleased to report that we have successfully completed a pivotal trial for our fourth generation short-term sensor, and we expect to file a PMA supplement with the FDA before the end of the quarter.

In addition to improved manufacturability and reduced cost, our goal with Gen 4 is to bring to market a next generation sensor which will offer an unmatched level of performance and ease of use for our patients.

I expect to give additional color on the key attributes of Gen 4 during our next earnings call, post-PMA submission.

And, of course, we will not stop with Gen 4, and we were -- and we are equally excited about the progress we've made on the development of a fifth generation sensor, which we have mentioned may have application not only as a future ambulatory sensor but also as a subcutaneous sensor for use in the hospital outside of critical care.

We are also actively engaged in work on our smart technology, with a goal of enabling sensor transmission to a variety of different receiving devices, including insulin pumps, smartphones and the like, which is consistent with our strategic focus on convenience, performance and simplicity for our patients.

In conclusion, we continue to see increasing excitement and interest in the category of CGM, whether it be at last month's meeting of the American Association of Clinical Endocrinologists in Boston or in our daily interactions with physicians, educators and patients.

I believe we are in a unique position in the healthcare arena as the storm of diabetes is in full range around us.

For example, there is active lobbying in Congress to identify diabetes on death certificates as a co-mortality to more accurately account for the true consequences of the disease.

Although a patient may be listed as dying from cardiovascular disease, as an example, a significant number of these patients have a co-mortality of diabetes which has long gone unrecorded.

Why is this important?

Well, better awareness of the magnitude of complications associated with diabetes will lead to more research funding from both governmental and private sources, which in turn will lead to better understanding of diabetes, better diagnostics, better treatments, and a greater emphasis on prevention.

DexCom is uniquely positioned to participate across this spectrum, from participation in advanced research and development projects to improved patient care.

When the CEO of Medtronic publicly states that Medtronic Diabetes will be better known in the future as a glucose sensor company than an insulin pump company and their annual revenue from insulin pumps and related disposables is greater than $1 billion, I'm thrilled.

We have a very full product pipeline, from a first-in-class combination with insulin, currently under FDA review, to a fourth generation ambulatory system on the verge of FDA submission to a fifth generation product already in human trials to a blood-based technology platform for application in the critical care environment.

Our SEVEN PLUS system outperforms the Medtronic CGM system on multiple fronts, and we believe that with the introduction of our Gen 4 sensor system our technology advantage will only grow.

At the same time, the role of wireless communication of health information to improve the outcomes of patients is exploding.

For chronic diseases like diabetes, patient empowerment is now being proposed as part of the effort to provide more comprehensive care without a tremendous increase in cost.

We have an opportunity to be at the center of these efforts with the development of our smart technology and alternative display tools.

In fact, two of our board members are intimately involved in this arena in their daily affairs.

Nick Augustinos heads the Global Healthcare Solutions Group at Cisco Systems, and Dr.

Eric Topol is a cofounder of the West Wireless Health Institute, which, by the way, recently appointed Don Casey, the former worldwide chairman of Johnson & Johnson Comprehensive Care Group, to serve as its CEO.

We believe DexCom is perfectly positioned to take advantage of these opportunities as these forces all converge.

Thank you.

Operator, we'll now entertain questions.

Thank you.

(Operator instructions).

Our first question comes from Tom Gunderson, from Piper Jaffray.

Please go ahead.

Hi.

Good afternoon.

Jess, you mentioned the better gross margin on essentially just a little bit better sensor sales and inventories going up.

Actually, they went up maybe not much in total dollars but 50% in the quarter.

Is that a comfortable level now, or are you taking maybe a slower quarter to build up so that you're in position for Q2 and Q3, which could accelerate?

How should we look at inventory changes as we go through a year?

So, we built up inventories for the quarter because, like we said, both forecasted sales currently and down the road.

We were at fairly low levels of our consumable inventory and we wanted to build that up to a little bit higher level just in anticipation of additional sales.

We may build that further, but at this point we're fairly close to our target, and we'll change it and update it quarter to quarter.

Okay, good.

Thanks.

And, Terry, were there any changes to the sales force size during the quarter?

Yes, we added four new territories, so, along with four new territorial sales managers we also added four clinical education specialists and we created a fourth region, so we now have four regional sales directors.

And those positions are all filled and we should look at that as sales and marketing costs going forward in Q2?

Yes, that's correct.

Okay, thanks.

And then I'll finish, just a third question, there was some noise around -- well, not noise, the FDA's holding meetings on infusion pumps, which I don't think was directed substantially at glucose insulin pumps, but still the small print did include them there.

Do you or Andy or anyone have any views on how the regulatory rules might change for insulin pumps going forward?

We really don't.

We've talked, obviously, to the folks at Animas and the folks at Insulet, and their read on the same situation, Tom, and they in turn have also had similar conversations with their counterparts at Medtronic and Roche/Disetronic, and no one really has any opinion at this point.

I think it's too early.

Their communication, they're reading the same documentation that we're all reading without any definitive answers coming from the agency, at least at this point in time.

Thanks.

That's it for me.

Our next question comes from Ben Andrew, from William Blair.

Please go ahead.

Hi.

Good afternoon, guys.

Hi, Ben.

Wanted to follow up on a couple of things on the reimbursement side that you mentioned, Terry.

I mean, what is the -- maybe Steve can answer this, as well, but you talked about the environment improving.

Can you give us some examples of how that's changing and how you're getting closer to this being more of a turnkey sort of solution?

Yes, Ben, I'll take that one.

What we're seeing, we're not giving any specifics on -- I'll give you the example would be -- I'm sorry, there's a jet flying over the building.

It may be hard to hear me.

What we're seeing is on a more of a regional and local basis that we're seeing payers just starting to ease the restrictions, and more particularly the burdens on documentation that they're requiring.

They might not require three months of blood glucose logs, for example.

Maybe a month is sufficient.

So we're starting to see that -- just some of those challenges ease.

But really, as I mentioned before, the Blue Cross Blue Shield national association and their affiliated plans are really still the toughest, and they encompass probably 90 million or so of the covered lives in the United States.

So they're still the 800-pound gorilla.

And we've got to work with each regional -- state, regional plan kind of on a one-off basis to work to liberalize these things.

So it's going to take some time.

But we have dedicated resources.

We mentioned in our prior call that we had created a position and now we've now filled that position, so there is an individual, a field-based individual with I think three or four folks working for that person who are charged specifically with working the payer system to work at the medical director level to really help educate the plans and help them understand that the documentation that they're requesting and requiring is really -- it's not required, and it really should be in the purview of the physician writing the script and certifying the letter of medical necessity that the patient should be qualified.

[Then I'll say -- I'll] let Terry jump in, and this really is paralleling what you saw at MiniMed.

Yes, it's just happening a lot faster.

I think the other driving force in this is the fact that the JDRF trial as a landmark trial stands on its own, irrefutable in terms of the outcomes of that, which even in the pump world we never had the benefit of historically.

So I think that's, again, with a focus and the accumulation of more empirical data demonstrating the benefits in this arena we'll continue to move forward.

But it's going to ease up.

And that's why in my comments, prepared comments, I had estimated somewhere in the 12- to 18-month period where we'll see a change in those requirements.

It's a burden on us, but we're getting a lot more efficient as to how to handle that without having an increase on the intraoffice structure to accommodate that.

So we -- again, it's a dual-prong approach.

Steve's right in that we now have a dedicated source on -- in the field, but we also, from a streamline standpoint, in the back office are able to process more with fewer.

Okay, good.

And changing gears a little bit, on the Insulet combined product, I assume that's the third generation sensor that you're filing there?

That's correct.

And what's the process for switching them to fourth gen when the time comes?

I mean, is that a kind of a staged opportunity where you wouldn't to go too far with Gen 3 and then quickly switch to Gen 4, or is it a change of handheld?

Kind of what's the logistics if you switch to 4?

Yes, actually, Ben, there's a pretty simple path.

I can't give you the specifics of the upgrade path because they're still being worked out.

But I can tell you that Insulet has the capability of just upgrading the firmware within the handheld.

So it wouldn't require the patient to obtain a new handheld.

It would simply be -- you'll recall when we -- we did something similar when we upgraded from the SEVEN to the SEVEN PLUS, we had the patients upgrade, remotely upgrade their firmware.

Then they were, of course, required to purchase a new transmitter, which would be the case upgrading to the Gen 4.

Okay.

Okay.

So that's the only real switch.

All right.

And then you talked about the modified transmitter for Animas to launch in filing the PMA supplement later this year.

I mean, is that kind of a year-end sort of event, given some of the delays you've seen, Terry, or can we look for it before then?

Well, no, I -- it's -- we're still going through the technical review of that as late as last night with their folks being here.

Obviously if we can pull that in earlier we will.

There are -- this is -- since it is a brand-new transmitter versus the existing transmitter with the Gen 3 system, we have some of those, still, challenges.

So I would not want to predict other than the comments that I made by the end of the year.

Okay.

Great.

And then you mentioned the Edwards relationship in terms of having the first gen product.

What are -- can you kind of give us some insights into launch plans for that product, and then when you'll have the second generation version next year and what -- how that would be different in terms of how you'd roll that product out?

Well, the first generation product, because it's a first-in-class device, we had to go through certain clinical attributes for it, and that study has -- is in its -- the last patient is completed and they're now going through the analysis of the data to submit.

And, although it is commercialized in Europe, and they have a limited launch there, but they're collecting a tremendous amount of information.

The second generation, which is more ease of use with the device, is -- would be a supplemental submission to the first submission.

So I think the expectation is sometime mid to late next year for that full commercialization.

But I would defer to Carlyn Solomon and the folks at Edwards as to what their launch plans are.

Okay.

Thank you.

Our next question comes from Bill Plovanic, from Canaccord.

Please go ahead.

Great.

Thank you.

Good evening.

Hi, Bill.

Hi, Bill.

Just a question on -- you mentioned that in kind of late January, early February that patients were waiting for their deductibles to go down.

Was there something, a change in reimbursement or something, that would have caused that?

No, I think for the first time, now let's go back to January, February of 2009, and the adoption curve was such that that was a patient population that they did not -- they were not price sensitive.

And so they didn't care what the amount was.

They wanted the product.

And think about iPad.

I'm sure you were probably one of the first people to have iPad.

I know I was, because I'm a technology gadget guy.

So that's kind of the category.

Now, as it gets more mature and that adoption gets to a greater percentage, there is a price sensitivity in terms of the copay.

So in the case of these patients, they were qualified in terms of their prior authorization from the third-party payer that they're subscribing to, but given what their copay was at that stage in January and February, they wanted to wait.

Now, they've got other things contributing to meeting that copay that are -- in many ways consider them essential at this point.

And so as they contribute more to that, then their portion of the copay as it relates to the acquisition of a starter kit goes down.

So once we hit around the second part of February and into March, we saw that begin to diminish, and obviously in the March time frame, they came, in my terms, kind of roaring back into the fold.

And we certainly have not seen any lessening of that as we move into the second quarter.

Okay.

So fair to say that January, February a little weak, and as you came out into March and April it's come on very strong is kind of the way to think about it.

Yes, I mean, and I have said, if you remember my comments kind of at the close of Q4 comments and wrapping up the full year, we expected it.

It was not something -- we knew it was going to happen at some point as the technology matured and the adoption moved closer to -- my guess is we're, as a category, probably approaching 5% or 6% penetration in the type 1 market in the US with CGM, that these are the things that we're going to expect.

We certainly historically in the pump world always saw, and if you look at even at some Q1 quarters for pump companies, they'll actually be less than the Q4 quarter because of these related flexible spending accounts and meeting the deductibles.

So we did expect to see a little softening, and we did.

And then, but we've certainly, as we mentioned, pipeline is very robust right now.

Okay.

And then the PMAS filing for the combo OmniPod device, on the timing of that, was that closer to, was that into Q1 in the March time frame or was that a Q2 event?

We're not going to give you any more clarity on that, folks.

I don't want you guys counting the days is the problem.

We've guided that it's a 180-day supplement give or take a few months and hope to launch, kind of best case we'll be launching in the fourth quarter.

If it takes a little longer at the agency it's probably a first quarter launch.

Okay.

And then, just with Edwards, you're in Gen 1.

It's in the market today.

Kind of where are you in the progress for development of the Gen 2 product OUS?

Well, it's not necessarily a -- I would look at it as a global rather than an OUS launch Gen 2.

I think the Gen 1, the reason it was easier obviously to get into a CE Mark process into Europe, so that's why it got launched, plus they wanted to really learn a lot about the utility of it in the ICU, and they're certainly gaining that experience in a number of locations in Europe.

The goal for the Gen 2 is a global launch, both in the US as well as Europe.

Okay.

And then in the US, I think you had mentioned that you needed a little extra data or certain things because -- you needed certain clinical data.

Do you -- in your discussions with the FDA do you feel that you've done all the studies and all the testing you need to push it through?

I mean, I know it's kind of hard to handicap the FDA these days.

It's a moving target.

But, I mean, your level of confidence that you're providing them with everything at least to date that they wanted to, or that they wanted for this filing?

To the best of our estimates, and the defined "our" is Edwards regulatory personnel and our regulatory personnel in discussions with the agency, we believe that this latest clinical trial will meet all of the regulatory requirements that the US FDA is expecting to see from the outcome of this trial.

It was a significantly large trial, and, again, the data has not been analyzed, so even I don't know the outcome of the data at this point.

But as soon as it goes in I'm sure Edwards will share the outcome of that.

And, lastly, is there a venue at which we'll be able to see that data sometime this year?

Well, it's really up to Edwards as to how much they're willing to release the information.

I know that at AACE they had one of their protocol B investigators speaking to certain aspects of his experience up at IDC, but I -- Bill, I don't have a timetable or a schedule when they expect to release clinical data at major meetings.

Great.

Thank you.

(Operator instructions).

Our next question comes from Bud Leedom, from Global Hunter Securities.

Please go ahead.

Hi.

Thanks for taking my questions.

First off, gents, did you have a stock-based comp figure in the quarter?

We do.

It was about $2.3 million.

$2.3 million, okay.

And then, Terry, I was wondering if you might just dig in a little bit more into the direct-to-MVI patient in terms of some of the strategies that are ongoing at this point.

Well, it's -- as we call on endocrinology, it's very apparent to us that many of these practices still believe that CGM is closely associated with pump therapy.

And we really needed to debunk that myth.

And so from that standpoint we have acquired certain mailing lists of patients with diabetes that we know are multiple daily injection, not pump patients.

And so we've targeted them.

We've also -- we know what our ratio right now.

Our installed base still runs around 60% pumpers, 40% MDI.

And so we target those patients, as well, in terms of reinforcement into some of the endocrinology-based practices, into the health education, AADE practices.

The target is to identify patients who may be appropriate for CGM and are not aware that the outcomes associated with CGM and MDI are equal to the outcomes associated with pump and CGM.

So it's the traditional type of media.

There's some print media that's involved.

There's electronic media that's involved in terms of that target audience.

Okay, great.

And then, just finally, sort of longer range, I mean, looking at Europe and given the large pen penetration, which may be somewhat challenging for Animas to convert initially, are there any other plans you might discuss regarding CGM penetration?

Has the market -- it should be fairly unconstrained for CGM.

Well, we believe it is unconstrained.

I think the challenge in Europe is the lack of reimbursement.

So it's still going to be a slow-growth market regardless of how the insulin is delivered, but clearly the largest proportion of patients on insulin therapy there utilize either disposal or durable pens, and that's an active market for us.

We don't want to get ahead of ourselves from a distribution standpoint, but we certainly engage in discussions with multiple global players, both from the device and pharma side, as to what they're thinking in terms of that global reach, to a much greater degree than DexCom could foreseeably reach with even the kind of infrastructure that we have in place now, and that's mainly using local distributors in each country as a way for a more global capacity.

We're engaged in those discussions, but early in the discussions as how to reach that audience.

Great.

Thanks very much.

Our final question comes from Shawn Fitz, from Stephens Inc.

Please go ahead.

Hey, thanks.

Good afternoon, Terry.

Hi, Shawn.

Terry, just as a follow-up on the MDI, could you just update us on in a broad sense what your mix of patients looks like in terms of pumpers and multiple daily injectors?

Yes.

Right now our last survey, Shawn, indicated that we're about 60% pumpers and 40% MDI patients.

And that's -- actually that's held steady for approximately the last 18 months.

You know, we expect that number, obviously, when we launch with Insulet and ultimately with Animus, that ratio is certainly going to go -- at least initially will go in favor of the pumper, Shawn.

Right.

You're going to add several hundred additional feet on the street espousing the benefits of CGM, really doing battle with Medtronic for their pump patients.

So I'd expect that number to shift late this year, early next year.

But that'll really free us up to focus -- really focus our efforts on the untouched MDI market.

Right.

And so, Terry and Steve, when we think about the typical MDI patient that is using CGM, are these folks that at one time in their life have been pumpers and maybe have used an integrated solution and kind of evolved to a CGM-only patient?

I'm just trying to kind of understand the progression of those patients and how they get to CGM with MDI.

Yes, I would think there's a couple of different ways to look at this.

There is a body of patients who don't want to be tethered for any reason whatsoever.

And now you've got a series of durable pens, you've got disposable pens with mixed insulins that they can pretty much get whatever they need in terms of the insulin that they want fairly efficiently.

And moving to pump therapy is a lifestyle decision, and I think that's probably the biggest group that we're addressing at this point.

And it may in fact be part of the pathway for a lifestyle decision that once they go on -- assuming they're on pens and they're using CGM, they get more comfortable with technology from that standpoint and then make a decision to move from there to pump and CGM.

But I would say that the number of patients that are abandoning pump therapy to go to just CGM and injection therapy isn't a large number, isn't a large portion of that 40% of our MDI patients.

Okay, Terry.

And this may be something that is impossible to kind of speak to qualitatively, as well, but when you look at your mix of pumpers that are currently in your patient population, is it your sense that, say, for example, the Medtronic pumpers that you have as customers started out as Medtronic CGM customers and transitioned to your customer base, or are they new to CGM, as well?

No, I would say that a larger portion of the Medtronic pumpers on DexCom's CGM were initially on Medtronic's CGM, and that product failed to meet their expectations, so their physicians or educators have recommended DexCom to replace the Medtronic portion of the CGM.

That's part of it.

And in some cases many prescribers of Medtronic pumps actually only prescribe DexCom CGM with Medtronic pumps.

And the only time we would ever technically lose that battle, so to speak, is when the patient doesn't want to carry the extra receiver.

Okay.

Okay, great, Terry.

And then last question, just as we think about some clinical events or milestones or publications that may continue to provide kind of a body of evidence specifically that CGM is kind of the enabling piece of the equation here, not basically how the insulin is brought onboard, is there anything that's in the works or any kind of timing you could point us to?

And then maybe speak to what we should expect at ADA, as well.

Yes, I don't really know about ADA.

We've looked at what is being presented, and I don't think there's any landmark.

There'll be some additional analyses that go on with the JDRF trial from a CGM standpoint.

Their STAR 3 trial is reportedly going to be presented, which is more in favor of pumps and CGM, although that trial, unfortunately, only compared to MDI, and SMBG did not compare to MDI and CGM versus pump and CGM, so it's a very flawed trial from that standpoint.

You just have to be careful about reading the outcomes of that and understanding it.

But outside of that I'm not aware.

There'll probably be some additional data on type 2 patients and CGM.

I don't know what Dr.

[Vergerski] is going to present.

He's the one that had a presentation or a poster session of 100 patients, type 2 insulin using, on CGM and SMBG.

That was in November.

And I'm not sure if that study is going to be presented at ADA, if it's done enough or completed enough.

But there may be some update on that analyses.

But that's about the extent of what we're aware of.

Okay.

Great.

And then one thing that just popped in my head here to try to understand, you guys have addressed kind of the seasonality as it relates to starts.

It's safe to assume, as well, that that seasonality impacts your utilization numbers, and would it be reasonable to think that maybe it's even a little more pronounced as possibly people stock up as they exit the year or realize they've got money in their flexible spending accounts?

And so we should see a similar effect in the utilization I guess is what I'm asking.

Well, they're limited, regardless of what they have in their flexible spending account.

Right now the overwhelming majority of patients, plus 90%, are covered by a third-party payer system, so less than 10% are actually cash-paying patients.

So in that scenario, regardless of what they had left in their flexible spending account, if the payer limits them to three months of sensors, that won't have -- that won't change seasonality-wise.

Okay.

I don't see that.

What we are seeing an increasing trend is more frequent utilization, so less going off the sensors for any period of time.

So we're getting more -- I guess we would classify it as uptick in utilization or on-time use of sensors on a forward-looking basis.

Okay.

Okay, Terry.

Thanks.

Thanks, guys.

We have one more question from Bill Plovanic from Canaccord.

Please go ahead.

Great.

Thanks for taking my follow-up.

Just housekeeping, fully diluted share count post-conversion of everything that's converted thus far?

About 57 million.

And then you'll want to add in about 9 million with options.

Yes, on a fully diluted basis.

But there's outstanding, there's 57 million.

So if I'm doing my calculations, 57 million for Q2 going forward from there.

Yes.

That's correct.

Okay.

And then just any commentary on ASPs for both starter kits and disposables?

I would say slightly up on the starter kit, so, yes, somewhere -- we were trending kind of $700 or $750.

I would put it now in the $750 or a little north of $750 for the starter kit.

Sensors are holding pretty steady, maybe a slight -- slightly north of $60 on average per sensor.

Excellent.

And then just, attrition rates historically, I think we were assuming about 15%.

Have you seen any difference with that?

Are you getting a little more sticky these days?

What I'll tell you, I'm not going to comment on your 15% number, Bill, but I will tell you that anecdotally we're seeing much greater stickiness.

I would say we've seen a trend in better stickiness kind of post the SEVEN PLUS launch, which, if you remember, the conversions with kind of -- we launched the SEVEN PLUS into a time where we finally had kind of ubiquitous insurance coverage.

So I can't tell you exactly where if it's product performance from the SEVEN PLUS.

I think it's a combination of factors, and product performance from the SEVEN PLUS, the fact that patients aren't having to come out of pocket for it.

As Terry mentioned, over 90% of our patients now are receiving some form of reimbursement for the product, so that has certainly helped.

And just directionally is my 15% too high or too low?

Again, I -- we're not going to comment on that, as you can well imagine.

I can try.

Thanks, guys.

I appreciate it.

Thanks.

We have no further questions at this time.

Good.

I would like to conclude with a couple of comments, again, thanking everyone for joining us today.

Operationally we're really hitting on all cylinders as we move into the second quarter.

The role and benefits of CGM in the ambulatory and hospital settings continue to grow, and DexCom is leading the technology curve in both of these categories.

Our fourth generation sensor system is the next step in terms of accuracy, patient convenience and ease of use, and, as I mentioned, the PMA submission will occur this quarter.

Our partnerships are progressing, with us having filed the PMA supplement for the DexCom Insulet combination system and Animas to follow later this year.

Edwards and DexCom are targeting midsummer for the submission to FDA of the GlucoClear product, and Edwards is receiving rave reviews on the product in the Europe sector, albeit a small, limited market introduction.

Our Gen 5 sensor technology, along with our smart technology platform, continues to make excellent progress.

I think I will close with just simply we're really good at what we do, and I couldn't be happier with where we're at in this space.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.