德康醫療 (DXCM) 2010 Q2 法說會逐字稿

Welcome to the DexCom second-quarter earnings call.

My name is Anthony and I will be your operator for today's call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I would now like to turn the call over to Terry Gregg.

Mr.

Gregg, you may begin.

Thank you, Operator, and thank you for joining DexCom today for our second-quarter 2010 earnings call.

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

Steve will start off and give you our 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 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 as filed with the SEC.

We undertake no obligation to update publicly or revise these forward-looking statements for any reason.

Thanks, Terry.

Thanks, Steve.

Now Jess will provide you with a financial review of the quarter.

Then I'm going to move into the commercial overview of the quarter, including clinical and regulatory, partnerships update, a look into the present and future of our technology, my concluding remarks, and then we will provide you with the opportunity to ask us a few questions.

Jess?

Thank you, Terry.

DexCom reported product revenue of approximately $9.0 million for the second quarter of 2010 compared to $4.1 million for the same quarter of 2009, an increase of 120%.

Sequentially, product revenue for Q2 increased by 34% from the prior quarter.

During Q2 we sold over 3,500 systems.

Sequentially, sensor revenues were up 37% from the prior quarter.

Total revenue for the second quarter of 2010 was $11.8 million compared to $6.8 million for the same quarter of 2009, and included $2.7 million in development grant and other revenue from our development and collaboration agreements.

Cost of sales, including both product and nonproduct, totaled $7.3 million for the quarter.

Product cost of sales totaled $6.3 million for Q2 of 2010 compared to $4.6 million for the same quarter in 2009.

Sequentially product cost of sales increased by $1.2 million from Q1 to Q2 of 2010 due to the increased number of units sold during the quarter.

The corresponding improved product gross margin totaling $2.7 million in Q2 compared to $1.6 million in the prior quarter was due mainly to additional product revenue.

Development grant and other costs of sales totaled $0.9 million for the second quarter of 2010 compared to $3.2 million during the same quarter in 2009.

The decline was due to lower expenditures related to the development of our hospital-based system.

Sequentially, development and other cost of sales remained flat quarter to quarter.

Research and development expense increased $2.0 million and totaled $5.4 million for Q2 of 2010 compared to $3.5 million in Q2 of 2009.

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

Sequentially, R&D costs increased by approximately $0.7 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 $10.4 million Q2 of 2010 compared to $9.0 million in Q2 of 2009.

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

Sequentially, SG&A increased $0.6 million over the prior quarter due to additional selling and marketing costs.

Our net loss for the quarter totaled $11.7 million compared to $15.3 million during the same quarter 2009 and included $3.

million (sic - see Press Release) in noncash charges.

The decrease in our net loss was primarily due to additional revenue and a corresponding positive gross margin.

Sequentially, quarter to quarter our net loss decreased by $8.6 million primarily due to lower noncash charges relating to the extinguishment of debt and increased revenue gross margin.

During the second quarter we converted an additional $2 million of our $60 million of convertible debt, and after quarter end we converted another $1 million of debt into common shares and have just $3 million of the original $60 million of convertible debt remaining outstanding as of August 3rd.

The loss per share for the quarter was $0.20 and we ended the quarter with $42 million in cash, restricted cash, and marketable securities.

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

Thanks, Jess.

We were extremely pleased with our performance in the second quarter of 2010 as we delivered yet another quarter of sequential growth.

We again exceeded analyst consensus estimates for product revenue and we achieved a positive product gross margin of 30%.

Highlighting some key metrics from the second quarter, total product revenue grew approximately 34% sequentially from Q1 2010 to Q2 2010 and was up 120% compared to the second quarter of 2009.

We sold over 3,500 starter kits for the SEVEN PLUS in the second quarter, amounting to a 37% increase in start kit sales compared to the first quarter 2010 and up 84% compared to the second quarter of 2009.

And we posted an increase of approximately 37% in sensor revenues quarter to quarter as we continued to see increased stickiness among patients who go on the system and increased sensor utilization among our patients.

We are pleased to report that the demand for our SEVEN PLUS is strong heading into the third quarter and we expect the positive trends in sensor utilization we've seen over the last few months to continue throughout the remainder of the year.

We continue to see progress in our direct-to-patient initiatives, particularly through our online campaigns.

Normally there is a seasonal downturn in internet social media during the summer months.

But we believe the campaigns we initiated in the second quarter have positioned us well for the third quarter.

Highlights from Q2 include an online pilot program with dLife, an outbound email campaign targeting the MDI patient, and a campaign targeting Abbott Navigator patients who were unable to obtain supplies during Abbott's recent supply challenges.

The reimbursement bottleneck continues to ease and, while not disclosing specifics, we are aware of a number of insurance plans who have, or are in the process of, revising their reimbursement practices to reduce the number of documents we are required to submit on behalf of the patient in order to justify medical necessity for CGM.

This is always an exciting time of year for DexCom, as the annual Scientific Session meeting of the American Diabetes Association is typically held in June.

As usual, there were numerous presentations and posters demonstrating the importance of CGM, not only in the ambulatory market, but in the hospital sector as well.

In particular, we were extremely excited by the results of Medtronic's STAR 3 trial, which were presented in an oral presentation by Dr.

Richard Bergenstal.

The primary endpoint in the study was change in A1c from base line at one year.

And overall, patients who used continuous glucose sensors greater than 80% of the time achieved a remarkable 1.2% reduction in A1c.

We believe the results of this trial will greatly benefit our pump partners Animas and Insulet as they look to commercialize sensor-augmented pumps with our best-in-class sensor technology.

While we have certainly not reached critical mass yet among patients and healthcare providers, we believe CGM as a category is on the cusp of a major transition and will play an increasingly critical role in diabetes management in the coming quarters.

Turning to our clinical and regulatory arenas, the first half of 2010 has been a very busy time for our clinical and regulatory affairs departments.

In addition to our Insulet filing, as I mentioned during our last earning call, we successfully completed a pivotal trial for our fourth generation sensor earlier this year.

And I am pleased to report that we have filed a PMA supplement for Gen 4 with the Food and Drug Administration.

In addition to improved manufacturability and reduced costs, 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.

Our Gen 4 sensor is more accurate than any of our previous sensor systems, particularly in the hypoglycemia range.

Gen 4 will also have a one-hour warm-up time.

And, of course, Gen 4 is suited for large volume production, which we believe will continue to improve our gross margins as we scale our business.

We believe that performance of Gen 4 may, in the future, allow us to submit to the FDA for an expansion of our labeled indications for use.

For example, the Gen 4 sensor may permit a reduction in required calibration points during a sensor session.

It may also enable us to obtain an indicated sensor life of longer than seven days.

We expect to explore the requirements for obtaining these expanded indications with FDA and conduct clinical trial work later this year.

Additionally, we are in the final stages of development of a new receiver form factor and a new transmitter, and we expect to file with the FDA later this year to incorporate those components into the Gen 4 system.

We are also pleased to report that we have submitted a 510k application for GlucoClear, our first-generation automatic glucose monitoring system developed in collaboration with Edwards [Lifesciences] to target the critical care market.

Switching now to a brief update on the warning letter we received from the Agency in May.

As you'll recall, we received a warning letter from the Los Angeles District Office of the Food and Drug Administration.

The letter states that we filed to file MDR reports for complaints involving sensor wire fractures.

And the letter also included certain recommendations regarding the labeling of the SEVEN and SEVEN PLUS systems.

We believe we have worked cooperatively with FDA in response to the warning letter.

As you know, we agreed to file MDRs on broken sensors prior to the closeout of the site inspection, and we will continue to file them in a timely manner.

We have subsequently obtained the necessary approval for, and have implemented, the Agency's requested labeling changes.

In addition, we have conducted an extensive review of our sales and marketing practices to insure we comply with applicable rules and regulations and do not market our products off label.

And we have also conducted additional sales force training regarding the appropriate promotion of our devices.

While we still maintain it is within the discretion of the doctor to prescribe our products to patients if the physician believes the patient will benefit from the therapy, we have elected to be extremely conservative in our approach.

We also note that less than 15% of our installed base today is comprised of pediatric patients.

And on a positive note, we're pleased to report that we have initiated pediatric clinical trials with our Gen 4 sensor, which, if successful, will enable us to file a PMA supplement to seek a pediatric indication for the product.

Shifting to our insulin pump partnerships, as we mentioned on our last earning call, we have filed a PMA supplement with the Food and Drug Administration for our first-generation integrated system with Insulet Corporation and we are currently awaiting feedback from the Agency.

Additionally, we have completed development and are in final testing with respect to a modified transmitter for use in our integrated system with Animas.

And we remain committed to filing a PMA supplement for the combined DexCom-Animas system before the end of the year.

Finally, with respect to our collaboration with Edwards Lifesciences, 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.

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

We are extremely excited about the progress we've made on the development of a fifth-generation system which, as we have mentioned, may have application not only as a future ambulatory sensor, but also as a subcutaneous sensor for use in the hospital area outside of critical care.

We have recently concluded in-clinic feasibility trials in humans and we are very pleased with the results.

Although Gen 5 remains subject to the uncertainties of ongoing research and development, our goals are lofty as we hope to dramatically improve accuracy, greatly reduce or eliminate the need for patients to calibrate the system, provide enhanced patient convenience with a new simple applicator system and enable transmission to a variety of different receiving devices, including insulin pumps, smartphones, and the like, all within the confines of a maturing regulatory environment for CGM.

In conclusion, DexCom is at the forefront of a changing healthcare landscape.

We recently participated in a two-day joint meeting between the FCC and the Food and Drug Administration on the convergence of wireless communication and medical technologies.

To kick off the meeting, FDA and FCC signed a memorandum of understanding aimed at improving information exchange between the two agencies and streamlining collaboration.

FDA Commissioner Dr.

Margaret Hamburg cited in her public comments that the benefits wireless technologies can provide to healthcare are clear.

But she cautioned that to harness the full power of those benefits we must navigate a delicate balance between innovation and safety and effectiveness.

We believe the Agency appreciates the impact that new and better CGM devices would have on diabetes management, including in support of the FDA's artificial pancreas initiative.

Ultimately we believe the joint work of FDA and FCC will promote investment and innovation in health technologies, help realize potential cost savings, and deliver real health benefits to patients.

As the role of wireless communication of health information to improve patient outcomes matures, we have an opportunity to be a key participant, not only with our existing technologies, but also with the development of our "smart" technology as part of Gen 5.

As you can see, DexCom has established itself as a technology leader in diabetes healthcare, working to solidify the role of better glycemic control in both the ambulatory and hospital settings.

And we will be at the forefront of the convergence of wireless communications and health information with our future generation products.

Thank you.

And we will now entertain questions.

(Operator instructions.) Tom with Piper Jaffray.

Terry, I guess I just have one broad question.

And that would be your comment, in the prepared remarks, of being on the cusp of something big.

The CGM train has left the station; it's gaining speed.

You mentioned STAR 3 and then its subsequent publication in -- or coincident publication in New England Journal of Medicine.

The JDRF study, again, NEJM.

Reimbursement is easing.

It's the year of the patient.

When you go to the meetings it seems more doctors and more field personnel educators get it on the CGM side.

And yet it's still lightly penetrated.

And if we're on the cusp, do you see from sort of the overall view of diabetes or maybe your history with MiniMed -- is there something else that we need to add to this?

Or is it just time and effort that make this go through?

Tom, that's a great question.

And I think it's just time and effort.

I don't think there's necessarily a particular add that will drive the adoption quicker.

I think for the first time -- if we look at the category's penetration in the Type 1 market, our guess is somewhere north of 3% and less than 5%, as a category.

If you look at historical penetrations of novel technologies, once they get to around 7%, 8%, they begin to have an acceleration phase, because you change the channel distribution dynamics.

Right now we're still, in many ways, pushing the channel with calling on physicians, educators -- those individuals recommending it to their patients.

We're beginning to see the first trickle, I would say, of patients demanding the products so we begin to get in scripts from physicians that we don't actually call on.

They may be coming from our partners, either Insulet or Animas.

They may be coming entirely separately.

We do see that some of these scripts are not from endocrinologists and some are actually from family practice or general practitioners.

So we see that movement and I think you'll continue to see that increase in adoption as time goes on.

We really still need to drive it down into the broader base of the healthcare professionals who treat the disease that are not necessarily endocrinologists.

Thanks for that.

Ben; William Blair.

Great.

It's good we're all on first-name terms here today.

It's enjoyable.

Terry, just wanted to follow up on the MDI push and some of the programs that you've put in place over the last several quarters it sounds like, and maybe talk about the dLife program, what sort of impact that's having.

And are you seeing a change in the mix of new patients that you're adding?

Hey, Ben, this is Steve.

I'll respond on -- I'm actually a little bit closer to the details that Claudia's working on on the marketing side.

So on the dLife part, I mean, we really just ran a kind of a pilot program.

But as you know, dLife is one of the larger organizations, really internet-focused.

They actually do have a small television program as well, but primarily internet-focused.

They have probably north of 500,000, maybe north of 600,000 active subscribers and primarily focused on the Type 1 patients.

So really limited in kind of the efforts that we've put forth thus far, just sort of piloting, starting with some banner advertising and then expanding that out to some reach to their folks.

But we may look to expand that.

Again, the outbound email program campaign targeting the MDI patients.

Lists are available; we were able to purchase information to enable us to really directly target the insulin-using, typically insulin-using Type 1 patient.

And then the Abbott campaign pretty much speaks for itself.

As you know, Abbott announced several months ago that they were having challenges with respect to being able to supply both hardware and sensors to their patients.

And we obviously kicked into gear very quickly a campaign to help those Navigator patients who were interested in switching and continuing on CGM to switch over to DexCom.

Again, from an SG&A perspective, these are not expensive programs by any means.

These are largely internet-focused and don't expect -- from a sales and marketing perspective, don't expect the marketing dollars to increase dramatically with this direct-to-patient campaign that we're -- these multiple campaigns that we're running.

Can you address the MDI mix?

Is that moving at all yet?

Honestly haven't surveyed the patients recently.

The latest data that we have is still kind of that 60/40 split between pumpers and MDI patients.

Okay.

And then, maybe a question on the bottlenecks, if any, in the business at this point.

Is it patient flows, training, physician awareness --and what you can do to kind of keep moving the different balls up the court?

Well, I think it's just geographical representation.

We added four new territories this year, a new district.

And so I think that's -- we're expanding more into areas that were underserved.

The bottleneck on the back office is certainly easing.

And we mentioned we look at some of the plans that are either in process of amending their policies to require fewer documents.

And I think again you're -- what you need, as I mentioned to Tom Gunderson today in this call, was you're going to get this adoption.

It's not a matter of if it's going to happen.

It's just a matter of when.

And we're beginning to see that groundswell where patients are more familiar with it, more physicians are familiar with it.

But that takes time to resonate with those various populations.

We've pounded at this since 2006 at the endocrinologist level, really to the two years that we were talking about that.

Then we moved to the healthcare provider in terms of the diabetes educator.

We did a great job there.

And now this year is, again, expanding back out to the patients and some of those campaigns that Steve was talking about.

I think once we -- the other factor to it, so we've got a PMA pending with the Food and Drug Administration with Insulet.

That's another 100 or so bodies on the street.

You've got Animas adds that opportunity with another 200-plus bodies on the street.

So I think those things will drive just the general awareness of it beyond the endocrinology base that we are now calling on.

Great.

Thanks.

Bill; Canaccord.

Just a couple of clarification points.

You mentioned just moving the ball forward with the payors.

And I'm curious, as the documentation becomes more streamlined, have you seen any opening up of the opportunity from Type 1 to Type 2 patients yet?

Or is that something that is probably kind of a little farther down the line?

No, I think that's definitely further down the line.

The opening up that we have seen really has to do with a reduction in the requirements for some of those policies that are in place today for the Type 1 patient.

I still think what we need to see in order to gain any reasonable reimbursement for the Type 2 is just some meaningful clinical outcomes data and there just isn't any today.

We're aware -- we've talked publicly about a study that's currently being conducted out of Walter Reed.

The latest I've heard is that study will be concluded later this year in the fall.

And we can only hope that it will be positive and then peer-review published at some time shortly thereafter.

And I think until we have some meaningful outcomes data in that patient population I wouldn't expect to see much reimbursement there, Bill.

Okay, great.

And then, just another point of clarification.

Talked about seasonality and kind of Q3 it sounds like the momentum you have you feel is kind of rolling through the summer and should continue through the back half of the year.

Is that -- am I reading that correctly?

You're definitely reading it correctly.

As I indicated in the prepared remarks, we're certainly -- we're one month into the third quarter and we do not provide guidance, but it just, as I've said historically, (technical difficulty) expectation and certainly we believe that (technical difficulty) that supercede the seasonality that sometimes the ME products experience, particularly in the summer months.

Okay, fantastic.

And then, another comment you made was relative to, I believe, kind of reorder rates and attrition rates.

And you haven't commented specifically in the past, but would you say you're into a single-digit attrition rate at this point with the new generation?

Yes, we're not going to comment on that, Bill.

I almost hesitated when we went back and forth on the prepared remarks.

Just trying to give the market a sense of what we're seeing, which is certainly reductions in our historical attrition.

And what we've said before is that we're living kind of -- looking at our business from kind of early '09 forward when we really started to see some meaningful reimbursement.

And patients who are coming onto the system today are typically coming on with some form of reimbursement.

We've certainly seen attrition improve dramatically and we've also seen stickiness in term -- or, I'm sorry -- numbers of sensors that we believe patients are using.

And we believe the percentage of patients who are using the system on a more full-time basis has improved.

Couple of reasons -- we're not going to disclose the specifics but the primary reason is it's hard to pin down in terms of -- particularly in terms of sensor utilization, how many sensors a patient utilizes.

We can certainly track reorder patterns.

But as you know, we're labeled for seven days, but patients are able to use the system for longer than seven days.

And so we have to make estimates in terms of how long we believe a patient might be using a single sensor.

And so it's still a little bit of some guesswork on our part to determine how many sensors a patient is using on a monthly basis.

But on a more broad scale, just looking at the installed base, I'm looking at reorder patterns.

We're definitely seeing increased utilization across the entire base.

Yes, I mean, if I look at the numbers it kinds of leads us to believe that utilization improved some double digits sequentially.

Again, not going to comment on the specifics.

Okay.

And then, just when you look at the kind of developmental revenues, if you could just help us out a little on the modeling on quarterly.

How should we think of -- is it $2.75 million a quarter going through the balance of this year?

And what is it in 2011 [interims] and then are there any major milestones that pop in in any of the quarters that we should think about?

I'm sorry.

What was your --

[Developmental revenue per quarter.] It's $900,000.

Development of revenues, kind of quarterly flow and then any milestones that pop in.

Well, it's developmental revenue through the end of 2010 is a straight-line model.

It's roughly $2.6 million a quarter and we have some nonproduct revenues in there as well, some services revenue.

It's -- and that goes through 2010.

And then that would end.

But we also have some milestone dollars totaling about $17 million that we're eligible to receive between Animas and Edwards.

And that could be received in 2010 or beyond.

And those would be recognized on a one-time basis as received.

Right.

Okay.

That's all I had.

Thanks a lot and congratulations on a great quarter.

Mimi; Soleil Securities.

Can you clarify, just do you believe the strong sequential growth in your new-patient adds this quarter was driven more by deeper penetration at your sort of current customer CGM prescribers?

Or was it driven more by new scripts or references, referrals, from doctors?

It's a combination of both.

I think if you go back to earlier comments about MDI campaigns, one of the things that we've done with the existing prescriber base is to initiate a desire on these direct-to-patient initiatives on MDI particular, so that we are focusing on it from a two-prong attack.

One, going into the account and asking for the MDI business specifically.

And secondly, then to encourage patients on MDI to ask their physicians for CGM.

And I think that's that part of it.

Obviously, as I mentioned, we're beginning to get scripts in from outside of our current call patterns, indicating either one of two things.

And we haven't dialed it down as to are those referrals coming from our partners or are they coming patients who have simply walked into a office and said, "I want a DexCom SEVEN PLUS." But I think it's both of those factors are contributing to the increase sequentially.

And then in terms of the second-quarter new patient adds, did that include any significant amount of folks on the Navigator switching?

Don't know specifically, Mimi.

The challenge we've had even in running this Navigator campaign is that it's tough to know who the Navigator patients are out there.

Because they all -- Abbott never had a direct sales force, so even Abbott would probably have a tough time -- other than perhaps than perhaps a regulatory organization -- would have a tough time telling you who their patients are.

They're all through larger DME suppliers.

They're all through distribution.

The patients aren't necessarily required to tell us.

So we can track those that we can track but then there are others that I'm sure have come in that have become frustrated or otherwise with Navigator.

But, Mimi, looking at the total number in the quarter of 3,500 starter kits, Navigator would contribute very little to that.

And then, in terms of -- did you break out the international contribution to that 3,500?

We haven't, but I will tell you it's still very, very small.

So when does that -- when does reimbursement sort of not become an issue similar to the US situation for the international side?

Do you --

We're at least a year to two years away from that becoming -- we've got dossiers before committees today in multiple countries.

But this is, as I've said in previous quarters, this is a seeding effort on our part with our distributors.

And it's going to take awhile, particularly given the economic situation in Europe before we see broad based reimbursement.

Okay.

Thank you very much.

John; CapStone Investments.

I was just wondering, have you seen any pushback here due to the economy here in the United States?

You know, John, we saw a little bit in the first quarter when we zeroed out the various accounts, Flexible Spending Accounts, and that.

And as I indicated, we had a soft January, a bit of soft February in the first part and then we came kind of roaring back second half of February and March.

And the second quarter then has been a pleasant surprise for all of us.

So we're not seeing that now.

As those deductibles are getting met, we don't see that same kind of resistance that we saw in the first quarter.

Okay.

And unemployment and loss of benefits you don't think has been an issue in the second quarter either?

We can't tell, but it certainly does not seem to be that way.

Haven't heard anything from our -- hasn't been a complaint raised from our sales organization.

And the field force would be the first people you'd expect to hear that from.

You know, when we look at our pipeline in terms of opportunities, it right now is just as full as we've ever seen it.

And so it's a matter of us processing all of those opportunities.

But we've not seen any bit of softness from that standpoint.

And can you comment on pricing?

Is it stable here?

Yes.

Actually our ASPs have held steady, if not improved just slightly.

So we're still somewhere I'd estimate just north of $750 for a starter kit and just north of $60 bucks for a sensor, for a seven-day sensor.

Held very steady.

Great.

Thanks very much.

Bud; Global Hunter Securities.

Just a couple of questions here, one on the slight uptick in the SG&A.

Were there any new sales adds to that figure?

Yes.

We added -- as I mentioned, we added four new territories, which total -- as you look at a territory it comprises a territory sales manager and a clinical education specialist.

And with the expansion we added a regional sales director.

We also created a move in that for a new strategic affairs director who calls on third-party payor systems, which was actually one of our existing regional sales directors.

So we now have four regions, approximately 60 people in the field.

So there was an uptick in expense on that.

Okay.

And then just kind of a longer-range question, and coincident with your initiation of a pediatric CGM clinical trial, are you seeing any using and payor posture towards preexisting conditions in Type 1 as a result of Obama-care?

Or is it still maybe a little early to look at data?

Just kind of wondering what your expectations were and maybe what you're hearing anecdotally?

Yes.

Zero.

I think it's very early to see the impact, what that's going to mean for easing of restrictions of preexisting conditions.

We've never really seen an issue there, so adding to that base of some 30-million-plus covered lives, we'll have to see.

That's going to take time to kind of get installed.

Okay.

And then just quickly, Jeff, did you have an exact stock-based comp figure?

I know you listed some of the charges and said that was the majority of it.

But I was just wondering if you had an exact figure there?

I believe it was $2.7 million for the quarter.

Great.

Thanks very much.

(Operator instructions.) Richard; Wedbush Securities.

Just one quick question from me.

Could you maybe go into a little bit more detail about your agreement with Insulet, just kind of in terms of marketing strategy and how reimbursement works there, maybe who's responsible for what on each of those?

Sure.

So you'll remember we have two insulin pump partnerships, one with Animas, one with Insulet.

For a period of three years from the commercial launch, Animas has an exclusive outside of the US.

So the Insulet relationship for at least the first three years of commercialization will only encompass the US.

And in the US it's actually split right down the middle.

There's no revenue share or any product sharing.

Insulet will be responsible for selling their system, which will include the handheld controller and disposable OmniPods.

We will be responsible for selling directly to the patient the transmitter component and then supplying the patients with durable -- or disposable sensors.

And there's no revenue so they retain all the revenue from their disposables business and we retain all the revenue from our disposables business.

From a reimbursement perspective, we're responsible for billing the patient's insurance company directly for the CGM component.

Okay.

Thank you.

We have John on the line with a follow-up, from CapStone Investments.

I just wondered if you'd seen any change in Abbott, any update there, if and when you think they might come back into the market?

John, this is Terry.

No, I have not seen any change there from the standpoint of when they will be back in the market.

So we're watching it as closely as everyone else to see what their decision-making is on that.

Has anyone figured out what the problem really was?

I -- no.

No.

As I've said publicly, I think their sensor technology is a good sensor technology and very accurate.

So I'm hopeful philosophically that they come back in the market.

Obviously, having three competitors in the market from a category awareness is better than two.

And let the companies compete for the patient.

Let the patient choose the best product that meets their needs.

Thanks very much.

At this time I show no further questions.

Okay.

I'd like to kind of wrap it up.

And as I have expressed on several quarters, we are meeting and exceeding expectations, both financially and product technology introductions.

The market is rewarding us with a significant degree of confidence and we treat that confidence with great respect.

We have a very interesting scenario unfolding before us.

The market acceptance of CGM as a category in diabetes is growing and should reach double-digit penetration in the US Type 1 population in the next couple of years.

DexCom is at the forefront of technology with Gen 4, Gen 5 integration with pumps, integration with consumer-oriented wireless devices and integration in the hospital sector.

At the same time, the regulatory environment is getting more challenging.

And that translates into a greater distance between DexCom and competitors, current and future.

It is certainly a good place for DexCom to be.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's teleconference.

Thank you for participating.

You may all disconnect.