德康醫療 (DXCM) 2010 Q4 法說會逐字稿

Please stand by for realtime transcript.Welcome to the DexCom earnings call. My name is Monica 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 answer session. Please note that this conference is being recorded. I would now like to turn the call over to Terry Gregg. You may begin.

Thank you operator and thank you audience for joining us on our fourth quarter conference call. Joining me today for the call, Steve Pacelli, our Chief Operating Officer and Jess Roper, Chief Financial Officer of the Company. Our agenda will include a financial review by Jess, followed by commercial update, looking at our clinical and regulatory update on our Gen4 sensor technology, our insulin pump partnerships, and our Edwards collaboration. Then we will entertain a question-and-answer period following our prepared remarks. First, Mr Pacelli, will you please take care of our Safe Harbor statement?

Sure. Thanks, Terry. Some of the statements that we will make in today's call may constitute forward-looking statements. These statements reflect managements expectations about future events, operating plans and performance and speak only 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 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. Terry?

Thank you. Jess, why don't you get into it and let's talk about the quarter.

Thank you, Terry. DexCom finished the year strong, generating $13.6 million in product revenue for the fourth quarter of 2010, compared to $6.6 million for the same quarter in 2009, an increase of 105%. Sequentially product revenue for Q4 increased 26% from the prior quarter. During Q4, we shipped approximately 4,850 systems, representing a 24% over the prior quarter. Sequentially, sensor revenues were up 27%. Year-over-year, product revenue grew by 123% and totaled $40.2 million for 2010, compared to $18 million in 2009.

Total revenue for the fourth quarter of 2010 was $15.6 million, compared to $11.7 million in Q3 and included $2 million in development, grant, and other revenue from our development and collaboration agreements. Included within the $2 million was $1 million in milestone revenue that we earned following completion of a development milestone and our collaboration with Animas. Our product gross margin totaled $5.9 million, or 44% for Q4, compared to $3.8 million, or 35% sequentially from the prior quarter. We continue to see an improved product margin with the increase in the volume of product sales.

As discussed on our last conference call, we expected to see a small incremental improvement in product margin during Q4 as we increased both hardware inventory levels in anticipation of Flextronics, our contact manufacturer, relocating our product line to China. And also increased sensor inventory levels to account for shut down for internal sensor manufacturing lines for approximately 2 weeks during Q1 of 2011 to perform upgrades and maintenance. And we also expected a slight softening of our margin in Q1 of 2011 as these inventory levels are managed down. The increase in inventory during Q4 had a nominal, favorable impact of approximately 1% on product margins. We still expect a small negative impact to margins in Q1 of 2011 as we curtail inventory levels.

Sequentially research and development expense increased 12% and totaled $6.9 million for Q4, compared to $6.2 million for the quarter -- for the prior quarter 2010. R&D costs increased sequentially as we incurred more consulting expenses and higher salaries relating to increased efforts towards developing our next generation ambulatory products. During 2011 we expect quarterly R&D expense to remain relatively flat compared to our Q4 2010 R&D expense as we move our fourth generation system and partnership products through the regulatory process to commercialization, and we continue to make progress on our fifth generation system.

Sequentially, selling, general and administrative expense fell 4% and totaled $10.0 million in Q4 of 2010, compared to $10.4 million in the prior quarter. The decrease in expenses was primarily due to lower tradeshow and marketing related costs. For full-year 2011, we expect SG&A expense to increase by approximately 20% compared to full-year 2010 as we continue to expand our sales and customer support efforts to support our revenue growth.

Quarter to quarter, our net loss declined 27% and totaled $9.8 million for the fourth quarter 2010, compared to $13.4 million during the third quarter of 2010. Our net loss for Q4 included $3 million in non-cash expenses, centered primarily on share-based compensation. The loss per share for the quarter was $0.16. Our net loss for the full year 2010 was $55 million, or $0.97 per share, and included $22 million in non-cash expenses centered primarily on share-based compensation and debt conversion costs.

We ended the year with $49 million in cash, restricted cash and marketable securities and we have working capital of $51 million. Note that our cash utilization in Q4 2010 was slightly higher than the past several quarters based on our increased inventory builds and certain one-time information technology and facilities costs associated with our new building. We expect our cash utilization to normalize going forward. I would like to now turn it back to our President and CEO, Terry Gregg.

Thanks, Jess. Certainly we are proud to report that we achieved another quarter of sequential growth during the fourth quarter 2010 as we again exceeded analyst consensus estimates for starter kit sales, product revenue and we achieved a positive product gross margin of 44% for the quarter. As we have discussed on numerous occasions, the fourth quarter is typically the strongest of the year for those in the durable medical equipment business as annual deductibles have generally been met, any patients can obtain the product for little or no out-of-pocket expense, and flexible spending account deadlines loom so patients who participate in these employer-sponsored programs must utilize any excess funds they have saved prior to year end.

We attribute our strong performance during the fourth quarter both to typical Q4 seasonality, as well as to our stepped up efforts to increase awareness and demand for our CGM products. Key metrics from the fourth quarter include the following. Total product revenue grew approximately 26% sequentially from Q3 2010 to Q4 2010, and was up 123% compared to the fourth quarter of 2009. We sold approximately 4,850 SEVEN PLUS starter kits in the fourth quarter. Equaling a 24% increase in starter kit sales compared to third quarter 2010, and up 70% compared to the fourth quarter of 2009. And sensor revenues grew 27% on a quarter to quarter basis as we continued to see growing patient adherence to CGM therapy.

Obviously our strong Q4 performance begs the question, what will our growth be in 2011? At the JPMorgan healthcare conference in January, we issued guidance of estimated full-year 2011 product revenue ranging from $67.5 million to $72.5 million and we remain comfortable with that guidance. With that said, I remind investors that the first quarter is traditionally a seasonally slow quarter in the durable medical equipment business as annual insurance deductibles reset. And this year in particular, patients are reporting sharp increases in the deductible amount as employers ask their employees to share the burden of increased health care costs.

At this point, we are tracking towards a relatively flat first-quarter sequentially in terms of product revenue. Like the first quarter 2010, we saw in January and much of February this year, a short-term slowdown in patient's willingness to complete their purchases until such time as their deductibles were appropriately reduced. Fortunately, I do not believe we are lacking in demand as evidenced by our pipeline of new patient referrals as we close out the first quarter.

Looking out to the year ahead, among our highest priorities in 2011 is to continue to improve our patients experience with the DexCom SEVEN PLUS, thereby increasing their reliance on our system as a key component of their overall diabetes management. We dub 2010 the year of the patient and we expect more of the same in 2011 as we look to expand our direct to patient initiative, particularly in the social networking space, to move DexCom ever closer to that critical point where patients are demanding CGM and calling out our products by brand name when they visit their doctor.

Our fourth-quarter performance speaks well of our small but highly effective field sales force, which continues to grow more efficient as we compete effectively with our sales force of much larger entities. In order to expand coverage into areas we have identified as under served markets of opportunity, we have recently completed a modest expansion of our US field sales force. We will also continue to explore one or more partnership arrangements involving the promotion of our standalone CGM systems in order to supplement our direct sales force without significant additional expense. This strategy, coupled with greater awareness of CGM as an important tool, will continue to drive adoption.

Shifting to an update on clinical and regulatory affairs, we are very pleased to report that we have recently received CE Mark approval for our four generation ambulatory sensor. We expect the first commercial launch of this sensor to occur in Europe as part of an integrated system launch with Animas during the first half of 2011, subject to receive a CE Mark approval of the integrated system by Animas.

With respect to our PMA supplement pending before the FDA for Gen4, we have had constructive discussions with the agency over the past couple of months and we believe we understand what the FDA will require of us in conducting an additional clinical trial to support the approval of Gen4. Of particular note, the FDA now deems the manipulation of the clinical trial subjects glucose levels during the trial to be a significant risk, therefore, requiring an approved IDE prior to conducting such a trial. Previously, these actions were deemed non-significant risks by the agency.

In response, we have filed our clinical protocol with the FDA in a pre-ID submission and expect to file a formal IDE and reach agreement with the FDA on study design to enable us to commence the required trial within approximately 90 days. We believe this timing will keep us on track to complete the trial and file an amendment to our fourth-generation PMA supplement late Summer. Although we cannot predict the ultimate decision or timing for a decision by the FDA, we believe this amended fourth-generation submission will be incorporated into the current 180 day review cycle, give or take a few months. Accordingly, we continue to believe we will be in a position to launch yet another best in class CGM system late this year, or beginning of next year in the United States.

Shifting to our combination products, the regulatory environment facing the insulin pump market remains uncertain. As we discussed during our last earnings call, this changing landscape has negatively impacted approval timelines in the US for our CGM enabled insulin pump systems with Animas and Insulet.

With respect to our integrated system with Animas Corporation, which has now been branded the [BYB], we have had productive discussions with the FDA concerning the nature of a human factor study and associated technical information required by the FDA to support approval of the system. On a positive note, our application for CE Mark approval of the integrated system remains under review by the Animas notified body and we continue to expect that Animas will launch the combination product in Europe during the first half of this year.

Concerning the integrated system with Insulet, we have collectively decided with Insulet to withdraw our pending PMA submission seeking approval for a system that combines our SEVEN PLUS with Insulet's current commercial OmniPod system in favor of developing an integrated system that combines our fourth-generation system with Insulet's next-generation, smaller OmniPod system. While the teams have not yet established a detailed project plan for this next generation product, we roughly anticipate that an FDA submission could occur sometime in the first half of 2012.

We also mentioned during our last earnings call that we had received requests from the FDA for additional clinical data in connection with our 510 K submission for GlucoClear, our first generation IV-based, continuous glucose monitoring system developed in collaboration with Edwards Lifesciences. This first-generation system received CE Mark approval in 2009 and Edwards commercialized GlucoClear on a limited market development basis, and a few markets in the EU during 2010. At this point, the path to regulatory approval of our 510 K submission for the first-generation GlucoClear system remains unclear. We expect to focus our development efforts going forward on the second-generation GlucoClear system with the intention of filing for CE Mark approval and supporting Edwards and launching that product in Europe early next year.

Additionally, we expect to work with the agency to better understand clinical protocols, systems testing and the like to meet the FDA's evolving requirements for glucose sensing in the hospital sector here in the United States. This regulatory environment is difficult and I remain extremely proud of our regulatory team and their continued ability to foster a cooperative relationship with the agency, even in this era of enhanced scrutiny and evolving regulation.

Although we are highly focused on moving the fourth-generation system and our partnership products through the regulatory process to commercialization, we continue to make progress on our fifth-generation sensor system as we believe it may serve as a platform for both an advanced ambulatory sensor, as well as a subcutaneous sensor for use in the hospital outside of critical care. We continue to conduct human feasibility trials on the Gen5 system, particularly in the step down environments and remain very enthusiastic by the accuracy of this technology and this challenging environment. As a Company, we cannot lose sight of the value of innovation to the development and growth of the CGM category, and as critical for us to maintain our technology advantage over our competition.

We believe by focusing on the core business strategy outlined above, we will continue to drive CGM closer to becoming the standard of care in diabetes management. In November, we completed a follow on public offering of our common stock raising net proceeds of approximately $33 million. We believe we have appropriately addressed any remaining balance sheet concerns and together with our cash on hand at year end and the additional proceeds we expect to receive from Edwards and Animas over the course of this year and next, we believe we have sufficient resources to take us to profitability.

We continue to see the role of CGM expanding as an integral tool in the armamentarium of tools to help patients with diabetes achieve better control of their glucose levels. At the recent ATTD conference last month, the major symposium focused on CGM and its benefit in improving outcome. More than 1,400 healthcare professionals from 77 countries in attendance at ATTD attests to the desire to acquire greater knowledge of this key technology. We have made great progress in simplifying the educational and training requirements for our technology, clearly demystifying some earlier beliefs about CGM. Our core message of convenience, performance and simplicity continues to resonate extremely well with patients and healthcare providers.

Our net promoters score, a customer loyalty metric obtained by asking a simple question, how likely is it that you would recommend our Company to a friend or colleague is the highest in the industry. And independent survey data reveals that DexCom patients wear our sensors longer and more frequently than our competition, thus gaining the true benefit of CGM as demonstrated in multiple, randomized clinical trials.

I think it goes without saying the US regulatory environment is evolving and is certainly challenging. We continue to work cooperatively and aggressively with the agency in an effort to move our technology to commercialization in a timely manner. Every day we improve the lives of people with diabetes. We present incidences of hypo and hyperglycemia. We save lives and we empower patients to have greater control of their glucose levels which translates into better outcomes. It is extremely rewarding to receive e-mails and letters from patients and their loved ones thanking DexCom for giving them back their lives and allowing them a world of near normalcy.

In the ICU in the European sector, we have witnessed an improvement in patients outcomes from moving patients out of the ICU more quickly to identifying sepsis at an earlier stage so that appropriate treatment can be initiated. This is groundbreaking technology that we believe will improve outcomes and decrease costs in both non-diabetic and diabetic patients. We remain extremely committed to advancing our technology and expanding its use around the world so that the pain and suffering of diabetes can be lessened. I remind our staff daily, this is a marathon, not a sprint. We must stay the course. Thank you. I will entertain questions now.

Thank you. We will now begin the question and answer session. (Operator Instructions)Our first question comes from Thom Gunderson.

Hi, Terry, Steve, Jess. I guess my first question would be, on the guidance for 2011 on the product revenue, Terry, do you need to add any more sales people? Does that require signing a deal with a marketing partner? And is it dependent on Animas sales in Europe in the second half?

No, if you look at it, that 67 to 72 number, Thom, was based on what we consider to be our base business and that is assuming no additional levers of the unknowns, particularly signing an additional distribution agreement or with the approval through the CE process to have Animas pumps in the EU market later this year. No, that was just our base core business. What we feel we can achieve with what we've got on hand today.

Okay, thanks. And then you have been selling SEVEN PLUS for a while, it's starting to go, is there any change in the adoption patterns? Any change in the types of patients that you see coming in? Are we beyond early adopters? What are your thoughts on that?

It is always hard to tell. We don't really survey the customers and ask them where they are at on the adoption curve. I would say, certainly just by virtue of where the patients are coming from, in addition to the traditional people that we call on as I've mentioned in the third quarter earnings call, we are continuing to see patients come from outside our range of call points. We are seeing patients come from non-endocrinology sources as well which gives you an indication that the adoption is moving broader than what you would consider to be in the traditional sense. Our survey patients continues to represent about 60% of them are on pumps, 40% on and MDI and that has remained consistent over the past, around 18 months. So, we are addressing both of those insulin using markets.

Okay. Last question about tipping point and market penetration. Do you still believe the tipping point being in this 7% to 8% range and do you think that we get there in 2011?

I certainly think it is in that range, looking at do we achieve that this year, it is always hard, my crystal ball is not that clear at this point, but certainly I think we are moving closer to that and we will be there closer to the end of the year. I think one of the challenges in that is DexCom has been the leader of talking about CGM and pushing that ball down the field. We have often commented that sure would have been nice to have help from the competition to spend more efforts to build in the product category. That didn't happen. So, we are really shouldering the burden of that effort. Hopefully there'll be others that will help us drive that and that is really what it has got to take as a category to get more commercial muscle moving towards that end. I do see signs of that by the competition and I am certainly glad to see those efforts.

Thanks, guys. That is it for me.

Our next question comes from Bill Plovanic.

Great. Thank you. Good evening guys.

Hi, Bill.

I'm going to ask a couple of detailed questions so I can get to the broader picture was.On pricing for starter kits and for disposables, where were you in the quarter?

We are still maintaining that $750 to $800 range for the kits. I think in this quarter in particular, we were a little bit on the high side of that range and then sensors, again just slightly above $60 on average.

Okay. The reason I ask that, it looks like utilization continues to pick up very nicely. Any thoughts on that? By our math, we are burning about a little over two sensors a month at this point.

I think that is fair, I think we have seen a nice trend as we have talked about, post 2009 quite frankly from the time period where we entered the reimbursed era. Continue to see sensors used by patients -- patients go on the system, continue to use sensors. Again, your math suggests that patients are probably using sensors longer than the labeled indication of seven days and I think we find that to be true. We don't have a way to track that, but I think anecdotally you are right, I think we are seeing an increase in stickiness and sensor utilization across our patient base.

Switching gears, you talked about some milestones from Edwards and Animas coming through to help increase the cash for you guys. Two things, one, did you have to change or was there a change in the Edwards contract at all considering that you're going to push towards the Gen2 focused in the US and bypass the Gen1? And then if you could just help us out with any timing we could expect on those. I think if I recollect, there is a milestone payment on CE Mark approval from Animas and then some Edwards timelines, but just any help with that timing would be great.

Let me just clarify and start with Animas and spare you some of the details.We bifurcated. We initially had a $5 million payment on receipt of CE Mark. We actually bifurcated that when we went down the revised transmitter path that you guys will recall. So, $1 million of that came in on completion of the transmitter, that came in in the fourth quarter, so that was the $1 million Jess referred to.

We are due another $4 million that Terry mentioned on receipt of CE Mark for the total of five from Animas. And then on the Edwards side, we have got about $12 million of outstanding milestone payments. We have not today revised that contract, but I will tell you, we are working aggressively with Edwards to figure out the appropriate path forward with Gen2 which will include, at some point, a revision to the way we have structured the milestone payments. That will be forthcoming, I would say probably before the end of the first half of this year.

Should we expect the Edwards milestones will probably be 2012 type of event given where you are with the product?

I would say by and large, yes, there could be some small portion that we receive in 2011 depending on how we restructure the deal and how we are compensated for our deliverables and that is some of the discussion we have going on with Edwards now. But I would assume that the bulk of those milestones would be in 2012.

I'm going to ask one more question and then I'll jump back into queue. I was wondering if you could just give us a feel for the total number of customers that are active at the end of 2010 and then maybe an update on attrition rates?

We have never previously given that information. You can go quarter by quarter and kind of sum up the total for whatever attrition rate you would like to do on your own, Bill, and I think that's the numberBut nice try.

Thank you.

Our next question comes from Mimi Pham.

Good afternoon. In terms of the integrated J&J timeline in the US, did you actually mention a time frame for updates you mentioned? I think the last time you gave a goal was mid-2011.

I would only say from that standpoint, as we have indicated previously, we want to have the Gen4 on file with the agency and then the Animas file would be post that filing of the Gen4 since it is an integrated system and it is predicated on the Gen4 being the sensor. So, it happened sometime after the Gen4 was filed. I think at this point it would be speculative on our part to try to pin that down anymore than that. From a standpoint that now that we have moved into this grayer area with regards to now having this Gen4 considered a significant risk device and having to go through a pre-IDE and IDE, the whole time sequence is not nearly as concise as it was in the first three generations of sensors that we put on the market.

In terms of the integrated product in Europe, when you say you are going to launch in first half 2011, does that mean the reimbursement is in place for the combined pump CGM product in your target international markets?

No, I think that is on a country by country basis and I don't have the specifics of which countries cover the sensor integrated product. I know that we met with our counterparts in London last month at the ATTD meeting and they have full scale launch plans in place. They were meeting with all of their distributors while we were in Europe last month, so they're committing a lot of their resources to that launch.

Do they sell, J&J, do they sell the standalone Gen4 then which just got CE Mark or they only sell the integrated Gen4?

They will only sell the combined system, the integrated or at the present time, we sell the SEVEN PLUS in Europe through a series of independent distributors.

So, for now, will remain -- the Gen4 standalone with remain through your independent distributors?

Again, right now, we are only selling the SEVEN PLUS, so as we move to the Gen4, J&J will have a non-exclusive distribution agreement in place so that they can sell sensors to their constituents who buy the integrated product. Our standalone system will continue to go through independent distributors.

Then the last question regarding the ICU product, can you give us your take on the updated American College of Physicians recent guidelines on tight glycemic control and does that change your view of the market or change anything out there in terms of what the hospitals, which hospitals?

Any time you get into a meta-analysis, and this was yet another meta-analysis, it is always hard. They are taking different studies and trying to make something of them. There was a response that was subsequent to that, that was in conjunction with ADA, ACE, and AED all came in and weighed in and said absolutely that the use of controlling glucose levels in the hospital is extremely important.

So, we get into this he said, she said scenario as to what is best and I think the problem with having academics do meta-analysis that don't actually treat patients, it is a problem. They can sit in the ivory tower and yet you have the practicing clinicians who actually treat patients say quite the contrary, that the control of glucose levels in terms of reduction of morbidity and mortality is extremely important. So, I think that debate will continue to rage on.

That is helpful, thank you so much.

Our next question comes from [John Putnam].

Thanks very much. Terry, I'm a little confused on the IDE process or what the FDA is really trying to achieve here. Can you clarify that for us?

Sure. Historically, when we ran these trials, they were considered and deemed non-significant risk by the Food and Drug Administration, therefore we did not have to submit an IDE and receive approval. Upon approval of the protocols by the Institutional Review Boards, which have jurisdiction on the significant risk nature of the device and the trial, we could move forward. Now the FDA has taken a turn and says, no, if you are moving glucose up and down, we now consider this a significant risk to these patients and therefore, we want you to submit a formal IDE for our approval before you start the trial. So, that has been quite a change in that term and we are now engaged in that.

So, rather than throw in, obviously we have had a series of discussions with the agency over the last few months trying to determine what it is they are actually looking for in terms of a clinical trial. We believe we have a good idea, but rather than run the risk of formally submitting something in an IDE and then by statutory law, they have to respond within 30 days. It is better for us to file it as a pre-IDE, gain their comments from the standpoint, and then file the IDE.

On the other hand, there is more regulatory certainty in an IDE that at the end of the protocol, assuming that you have met your primary endpoint, that there is less vagueness associated with the outcome analysis that once you have a more formal IDE in place. If we go back to the Gen4 pivotal trial, that was PMA supplemental trial that was really a manufacturing improvement from Gen3 to Gen4. We filed that as a PMA supplement. We conducted a pivotal trial that was identical to the pivotal trial that we had conducted for the SEVEN PLUS system, but because we didn't have to file an IDE, we didn't think there was any vagueness to that, particularly since it was just a manufacturing change and deemed by the FDA PMA supplement.

So, as they have constricted some of their requirements, we are now caught in this, so I think there is a much greater degree of specificity from the agency. We just want to make sure we understand exactly what it is. I think, yes, it is time-consuming and it does extend the potential commercialization here in the United States, but at the same time, I think you get to a level of rigor that both the agency and the Company have a better understanding of the potential outcome and the pathway going forward.

Okay. Relative to your comments last quarter, it sounds like things are still very difficult with the agency. Is that a fair statement?

I think if you open up the newspaper and look at what anybody says, not necessarily DexCom, I would say that this is an evolving regulatory agency. Dr. Hamburg certainly believes that more regulatory science is necessary because of technology in general, both in the pharmaceutical, biopharmaceutical and device world has changed so dramatically. We are trying to understand what their requirements are so that we can be better prepared to deal with those.

But outside of that, I would say that our relationship with the agency, particularly at the reviewer level, is about as good as it is going to get and I think we are blessed with the fact that our reviewers are very interactive with us. We have got the same reviewers we have had dating all the way back to 2005. They are very helpful in trying to assist us. They are marching to a new set of instructions as well and trying to help us migrate through this new maze that we find ourselves in.

Thanks very much for your comments.

Our next question comes from [Jonathan Locke].

Thanks and good afternoon. Terry, maybe the first one for you, you talked about an increase in SG&A of about 20% I believe in 2011. You mentioned some patient awareness initiatives. Can you maybe just talk to how you're going to allocate that spend, in other words, what is being devoted to awareness, social mean versus an increase of feet on the street if you would?

I would say that the 20% is all revenue driven, that's feet on the street. There may be a few individuals in the back office to support the new feet on the street, but the increase in the marketing, which would then encompass any of the direct to patient activities is flat. So, that increase of 20% is strictly related to revenue growth.

Got it.I believe last call you mentioned that Flex should be inspected by the FDA once you guys moved out over to China some time in the first quarter of 2011. So, has that taken place?

That's a submission to the agency. Because it is a relatively small change, it does not require, to my knowledge, any FDA inspection in order to have the approval. We have basically taken the Milpitas facility and replicated it in China, so all of the equipment is a site location change, not a full-blown PMA submission.

The FDA actually -- the Flextronics facility in China is actually an FDA manufacturing facility, so it has already undergone inspection. It is not to say the FDA could not come in and inspect with respect to our move, but I don't expect that they will.

That is not a requirement for us to put those products online.

Understood. Maybe just one or two more, quickly. The FDA, like you said, scrutiny is increasing across the board, has that cramped any of your competitors?I don't know what Medtronics exact plans were for their six day, but there has been chatter for some time in fiscal year '12, so have you heard anything that may be holding up their next product on the sensor side?

It's a level playing field when it comes to the agency certainly and based on comments that they made last month in London, as well as earlier in the 2010 in November at the Bethesda JDRF meeting and diabetes technology, they are under the same type of scrutiny requirements that we are. I think one of their senior speakers talked about their next generation sensor, obviously launching in EU well before the United States for the same reasons that we will launch product in EU before the United States. So, I think we are all going through this exacting relationship with the agency and gaining a greater understanding to the same degree.

Great. And last one and I'll just follow up with you off-line. I know I'm not going to get attrition levels out of you guys, but could you talk directionally how that is going? Are you having success driving down attrition levels?

I think when Bill mentioned earlier talking about more sensor utilization and Steve responded about stickiness, that stickiness is, I think part and parcel to not only are they wearing it longer, they are wearing it more frequently. If you look at number of patients that go off our technology, it is actually decreasing nicely. Compared to other technologies that still more than 50% of their patients, according to them, according to our competitors, this is not a statement I am making, it is a statement I am parroting from one of their public statements that have gone off their product.

Understood. Thanks guys.

Our next question comes from [Richard Lowe].

Thanks for taking my question. One quick one. Is there any update on the pediatrics trial with Gen4 with a new more rigorous FDA, do you know if you are going to have to go back and redo that now?

We will go back and redo that. I think the requirement remains the same with regards to completing an adult trial and then follow it up with a pediatric trial. I don't know if the requirements, Richard, will be to the same degree as the adult trial. It's hard at this point. There is a requirement under FDA statutes for least burdensome. So, under clinical trial requirements, the things that we know we have to do for the adult trial, I don't think would meet that criteria of least burdensome in a pediatric population, but that is still to be negotiated with the agency.

Thank you.

Our next question comes from Bill Plovanic.

Thanks. Two quick follow-ups. One, you talked about expanding the distribution channel, roughly how many sales reps do you have now?

In the field we've got about 70 bodies in the field that are made up of sales reps. They are also made up of clinical education specialists, we've got managed care people in the field. As well as four regional sales directors, a director of managed care, and of course our VP of Sales.

Okay. That is helpful. And then just last question, any data that we should look forward to over the next 12 months that you think might be enlightening or helpful?

Yes, the real thing that we are looking for and we don't know where it is going to be published or when it is going to be presented is [Dr. Debergsky's] type two study in over 100 patients that were involved in it. Half of them on SMBG and half of them on CGM. As I have mentioned, we have seen a poster of data at six months which indicated 1.4% reduction in A1c, or the CGM group significant reduction in blood pressure and weight. If that is sustainable through the full year trial, this is a randomized prospective trial, I think that would be highly receptive. And when we go back out and talk to the payer system about the benefit of CGM in that population.

Great. Thanks, that's all I had.

We have no further questions at this time. I would now like to turn the call over back to the speakers for closing remarks.

Well, thank you and thanks for joining us today. Obviously, 2010 was a fantastic year for DexCom. We are now -- it's in our history and we are now cleanly and clearly focused on 2011. Regardless of the environment that we operate in, we are growing the business dramatically. We are helping patients each and every day. Our goal is to expand the use of CGM on a global basis and utilize whatever distribution modalities that are available to us to achieve that goal. We are having fun and I think when you see the benefit to patients on a daily basis, that renews our faith and what we are here to do and we will continue to do that. So, thank you.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.