德康醫療 (DXCM) 2012 Q1 法說會逐字稿

Welcome to the DexCom first quarter earnings release conference call. My name is Christine, and I will be your operator for today's conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note today's conference is being recorded.

I will now turn the call over to Chief Executive Officer Terry Gregg. You may begin.

Thank you, Christine, and thanks for joining us to our first quarter 2012 investor call. I'm going to ask Steve Pacelli, our Chief Operating Officer, to go through the Safe Harbor statement. Steve?

Sure. 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. Terry?

Thanks, Steve. Joining me today are Kevin Sayer, our President; Steve, our Chief Operating Officer; and Jess Roper, our Chief Financial Officer. Before we review our first quarter 2012 financial results and provide our customary operations update, I wanted to spend a few minutes discussing our Gen 4 sensor platform. I am very pleased to report that we filed a PMA with the Food and Drug Administration seeking approval of our Gen 4 system prior to the end of the first quarter as we previously committed.

While I cannot yet detail the specifics of the pivotal trial as it is customary to allow our investigators to first present such data, I can say that our Gen 4 sensor is truly remarkable. An overview of our Gen 4 data will be presented by our medical director, Dr. David Price, in an oral presentation at the 72nd Scientific Sessions Meeting of the American Diabetes Association on Friday, June 8, at approximately 4.15 p.m. Eastern Standard Time. Additionally, we have submitted a late-breaking abstract with a full Gen 4 data set and expect that to be available in some form at ADA as well.

From a performance perspective, we have developed a sensor that is better in all respects than the SEVEN PLUS which, as you know, is the best performing sensor currently on the market. In particular, in terms of accuracy, the Gen 4 is over 20% more accurate than the SEVEN PLUS, and even more importantly, the Gen 4 is 25% better in the hypoglycemia range detection than the SEVEN PLUS. Additionally, the Gen 4 is extremely stable.

During the clinical trial, we captured an astounding 99% of data points. This is particularly impressive considering the robust nature of the Gen 4 clinical trial in which we captured approximately 10,000 matched data pairs as compared to only about 2,000 matched pairs during our SEVEN PLUS pivotal trial. We attribute this improved performance to our advanced transmitter, which now has a typical transmission range of up to 30 feet, meaning patients do not need to keep the receiver close to them at all times. This is particularly important for the estimated 70% of Type I patients in the US who choose not to wear an insulin pump.

Now that we have fully analyzed the Gen 4 pivotal trial, we've re-evaluated several of our short-term sensor development priorities. For example, we believe the Gen 4 is capable of an extended durability claim, and we will look to conduct a clinical trial to seek such a claim. We also believe that we have the potential of reducing the need for sensor calibration without materially affecting performance, and we are evaluating the clinical and regulatory strategy related thereto.

We note that while we haven't seen all of the data from our primary competitor's next-generation product, we do understand based on published data and from speaking to a number of people in the industry that to achieve a level of accuracy similar to the SEVEN PLUS, their sensor must be calibrated up to four times per day. Ultimately, it is our goal as a continuous glucose sensing company to eliminate altogether the need for patients to take finger sticks, and we believe we are making significant progress towards realizing that goal. We expect to move the Gen 4 sensor into the numerous artificial pancreas studies we are involved in around the globe, and based on its performance, we have made the decision to retain the Gen 4 membrane for our Gen 5 product.

I would now like to turn the call over to Kevin Sayer.

Thank you, Terry. I'll start with the financial update. DexCom generated $18.6 million in product revenue for the first quarter of 2012 compared to $13.1 million for the same quarter in 2011, a $5.5 million or 42% increase. Our split between consumable and durable revenues remained between 70% to 75% on the consumable side and 25% to 30% durable products and our ASPs remained relatively flat.

Our international business was a bright spot in Q1 as our international revenues were approaching 10% of our total product revenue during the quarter. On the distributor front, domestically our revenue split between direct and distributor business, remained consistent with the prior quarter, and as you all know, our international business is all through distributors.

Sequentially, product revenue for Q1 of 2012 decreased 11% from the prior quarter, which is not unexpected as annual insurance deductibles reset and flexible spending accounts are largely unfunded, requiring patients to spend more out-of-pocket dollars to obtain our products. Total revenue for the first quarter of 2012 was $20.1 million compared to $14.2 million during the same quarter in 2011.

Our product gross profits totaled $9 million, generating a gross margin of 49% for Q1 of 2012 compared to product gross profits of $4.8 million and a gross margin of 36% for the same quarter in the prior year. We are particularly pleased with our gross profit improvement over the past year. Noting that in generating $5.5 million of additional revenue year over year, we added $4.2 million of additional gross profit contribution. Sequentially, our gross -- our product gross profit declined $1.2 million on decreased sales of $2.3 million over the prior quarter and our gross margin remained flat versus Q4 of 2011.

Research and development expense totaled $9.7 million for Q1 of 2012 compared to $6.3 million in Q1 of 2011, the increase primarily the result of additional clinical and regulatory expenses related to Gen 4, continued investment in our next generation products, and additional headcount related thereto. Sequentially, R&D expense increased 5%, which was primarily due to higher development, clinical, and regulatory costs relating to Gen 4 and future ambulatory products. For the balance of 2012, we expect our quarterly R&D expenses to remain relatively flat through Q2 and decline slightly over the second half of the year as we look to commence a pediatric trial in the coming months and we shift our development efforts to our Gen 5 communications platform to enable communication with multiple devices, including smartphones and the Roche and Tandem insulin pump products.

Additionally, we will continue to invest in our Gen 5 applicator system, an automated applicator which significantly reduces the number of steps in the sensor insertion process and improves our sensor cost of goods, a return which we believe more than justifies our near-term investment.

Selling, general, administration expense totaled $15.1 million in Q1 of 2012 compared to $10.7 million during the same quarter in 2011. The increase, which included $900,000 in additional share-based compensation, was primarily due to additional sales and marketing expense, particularly a 34% increase in sales and marketing personnel to support revenue growth since the beginning of 2011 and transaction costs related to our SweetSpot acquisition. We note that we do not expect to add any additional sales headcount through the balance of 2012. Sequentially, SG&A expense increased 10% with the increase primarily due to additional sales and marketing expense, transaction costs related to our SweetSpot acquisition, and increased noncash stock compensation expense.

Total additional operating expense in Q1 related to SweetSpot was approximately $400,000. However, as a result of our SweetSpot acquisition, we received a one-time noncash tax benefit of $1.3 million as we were able to utilize some of our deferred tax assets.

Our net loss for the first quarter of 2012 totaled $14.1 million and included $5.7 million in noncash expenses centered primarily in share-based compensation, and the loss per share for the quarter was 21%.

We ended the quarter with $71 million in cash, restricted cash, and marketable securities and had working capital of $77 million. Our cash burn came down for this quarter from Q4 2011 and totaled $11.6 million, which is not a surprise as we spent approximately $2.3 million in capital expenditures to support our clean room build out, production scale up for Gen 4, and continued improvement of our information technology infrastructure. We expect our cash burn to decline going forward, and while we evaluate our balance sheet on an ongoing basis, we continue to believe that we are adequately capitalized to support our business operations.

Finally, we remain committed to our guidance of estimated full-year 2012 product revenue ranging from $85 million to $92 million.

Now I'll provide you an update on our product pipeline. As Terry discussed at the outset of the call, we could not be more pleased with the effort of our R&D, clinical, regulatory, and quality teams to complete the Gen 4 PMA filing during Q1. We are extremely excited about the improved performance attributes of Gen 4 and look forward to sharing the Gen 4 experience with our patients. After all, it is ultimately the patient experience that matters above all else.

From a timing perspective, we remain cautiously optimistic that we will receive approval for Gen 4 before the end of 2012. In fact, we've already had correspondence with the FDA regarding our Gen 4 submission. Normally, we would not expect to hear back from the agency for at least 60 days following a submission, so we were pleasantly surprised to initiate the interactive review process in less than 30 days after filing.

Additionally, the FDA has initiated the process of the BIMO inspection during which the FDA performs standard site inspections of certain of our clinical trial sites as they review our data submission against the source data held by the clinical trial site.

In addition to our PMA filing, we continue to work with our notified body to obtain CE mark approval for the stand-alone Gen 4 system and expect to launch a Gen 4 stand-alone system outside the United States during the summer of 2012.

During the first quarter, we also closed our acquisition of SweetSpot Diabetes Care. As a reminder, SweetSpot is a healthcare-focused information technology company with an advanced platform for uploading and processing data from diabetes devices. We've been working diligently with the SweetSpot team to build out the platform to enable us to move and manage our CGM data in the cloud. We will also add more data management tools specifically designed for the patient and additional reporting capabilities for wireless devices such as an iPad.

SweetSpot is also continuing to pursue its pre-acquisition business strategy marketing its data management service directly to clinics and other customers including leading academic research centers and integrated delivery networks such as the VA medical system.

I'll now provide you with an update on our partnerships. I am pleased to report that the integration efforts with Insulet are proceeding, and although it is premature to estimate when we will be in a position to file a PMA supplement with the FDA relating to an Eros Gen 4 combination product, both companies expect to work diligently to complete development, clinical, and regulatory efforts related to the combined system.

Additionally, in the coming months, we expect to explore co-marketing activities with Insulet with our respective future generation products. Animas continues to commercialize the Vibe system in Europe and is expected to increase the number of available markets over the course of this year. Although we cannot share specific regarding sales of the Vibe, we believe the system is being well-received by patients and physicians and, more importantly, offers patients a superior sensor technology alternative when choosing sensor augmented pump therapy.

With regards to the filing of a PMA supplement for US approval of the Vibe, our timing is largely dependent on the speed with which the FDA processes our Gen 4 filing. As we mentioned above, the FDA appears to be moving at a rapid pace, and if this continues, we want to avoid causing any unnecessary delay or confusion by filing a PMA supplement on top of a pending PMA. We also believe the FDA appreciates the need to have additional integrated pump CGM systems in the marketplace, both for use by patients and as part of the numerous artificial pancreas programs currently in development.

We expect to be in a much better position during our next quarterly call to update the market regarding a specific timeline for Vibe, but rest assured we will file the Vibe as soon as we feel it is most appropriate.

And although somewhat earlier in the development cycle, we continue to see nice progress on both the Roche and Tandem integration products, each of which incorporates our Gen 5 sensor technology.

Finally, I am pleased to report that the work required of DexCom related to the development of our second-generation in-hospital glucose monitoring system conducted in collaboration with Edwards Life Sciences is near complete, and we expect to conclude our portion of the development work during the second half of 2012.

I'm also pleased to report that we've made significant progress towards the development of an interstitial sensor suitable for the hospital and have recently tested this sensor in humans in its intended use environment. Ultimately, we believe that we can produce an interstitial sensor of sufficient accuracy and performance in a simple, convenient, subcutaneous footprint to become the standard of care for continuous glucose monitoring in the hospital outside of critical care. We expect to update the market during future earnings calls regarding development timelines and commercialization plans for this product.

I would now like to turn the call back over to Terry for some concluding remarks.

Thanks, Kevin.

As we look to the balance of 2012, we will continue to drive our message supported, of course, by published clinical outcomes data that all sensors are not created equal. With a substantially larger field presence, we expect our competition will continue to attempt to create confusion in the marketplace with regard to sensor performance. I challenge the industry to be more forthcoming in their analysis of continuous glucose data, present prospective analysis. Let's get away from retrospective analysis that can be manipulated to make sensors appear to be more accurate than they really are. Show us what a patient actually sees, not what can be generated after the fact on a computer screen. This does not help patients, and that's what we're in this industry to strive for, to help patients achieve greater glucose control and to protect them from hypoglycemia. I challenge the industry to stop making nice PowerPoint presentations to try to raise money or to fool analysts regarding their sensor performance.

Be truthful. Present data on how many sensors actually last the entire sensor session during a clinical trial. You have to report this data to the FDA. Why not report it to the public? Present performance across a broad range of glucose levels and particularly in the dangerous hypoglycemia range. The FDA will require at least 10% of your clinical trial data to be below 80 milligrams per deciliter. We know it's tough in that range to produce good data, but you have to be honest to patients, the public, and particularly the Food and Drug Administration.

And finally, disclose your proposed calibration requirements. If you have to use four calibrations a day to achieve a minimal level of acceptable accuracy, be upfront. Be honest about it. Don't try and hide it in your graphs.

Nonetheless, with the best performing commercial sensor in the SEVEN PLUS and a pending FDA PMA on an exquisite Gen 4 sensor, we will stay the course and present performance data that is truthful and accurate, and we will continue to win the hearts, minds, and loyalty of patients and healthcare providers.

Now switching gears. I am pleased to report that just today we entered into a memorandum of understanding with Qualcomm Life, the newly-formed healthcare subsidiary within Qualcomm to integrate our sensor technology into their 2net hub product enabling secure wireless transmission of patient data into our SweetSpot cloud. We view this combination as particularly exciting for our pharma business where continuous glucose data is becoming an important endpoint.

Pharma clinical trial managers recognize that A1c is not a great marker for glucose variability, but have been slow to adopt CGM in their trials due to concerns over data management. The Qualcomm 2net hub pairs perfectly with our SweetSpot solution to provide clinical trial managers with secure data transmission and storage without the need for the clinical trial participants to visit the clinic for data download and without the need to plug into a computer. We expect to leverage the knowledge gained here to additional remote monitoring features and functionality with our future product platforms.

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 and our cloud-based data management system, but also with the development of our smart technology. DexCom has established itself as the technology leader in continuous glucose sensing, and we expect to be at the forefront of the convergence of wireless communications and health information with our future generation products.

With that, I will open the call up to Q&A.

Thank you. (Operator Instructions) The first question comes from Tom Gunderson from Piper Jaffray. Please go ahead.

Hi. Good afternoon, everybody. Kevin, could you talk a little bit maybe about what Terry has described in the past as sticker shock where people are getting their insurance, higher copays, higher deductibles, and seeing that in January and kind of reacting emotionally rather than economically? And as part of that, did you see anything different this quarter and did you sense any stocking in Q4 by your customers that might have been worked off in Q1?

Well, the last comment I can answer definitely. Our customers do load up in Q4 because their deductibles and their copays have all been met and they're lower. With respect to sticker shock, and Terry's been out in the field more than I have but I can certainly state my observations, not a whole lot different than where we were a year ago. While premiums have gone up, they have not gone up significantly over what we had last year, so we were better prepared and knew what we were walking into this year better than we did last. So that's not as -- that was more of a planned-for factor than it was last year. It remains an obstacle, but we're also saying that as our system continues to be used, people become more dependent upon it, and so our patients continue to reorder and things are going well.

Got it, thanks. And new product -- or non-product revenue was a little bit higher than I expected. Was there something unexpected in there or could you break that out a little bit?

No, and we talked about this. I can break down the elements rather than give you every single detail. Our product development revenue really consists of a couple things. The first one is the amortization of the prepaid development cost that we receive from our partners across the board, Edwards, Roche --

Yes.

-- Animas.

Tandem.

And Tandem, and so there's an element there. And then there's the direct billing relationship that we have with Edwards on the actual costs that we incur. We bill them what we've incurred and that goes into that line as well. So that's what it consists of, and it's going to be around that same level for a while, and as everything amortizes and as this Edwards project winds down, that number should go down.

Thanks. Last question. Terry, I didn't think this was possible, but you sound even more positive on Gen 4 than you have in the past. Did that lead you to the interstitial in the hospital decision?

Well, to a certain extent, yes. I mean, clearly, we've been playing around with this, and in fact, there is actually another generation sensor that we have developed, which was specifically developed for that environment. But when you start looking at the Gen 4 improvements and particularly if you look at the durability of it, I mean, when we get to -- day one is always the toughest in a sensor configuration, but even that we've done much better. If you look at day two through long durability and certainly in a clinical setting, we can go beyond the seven days, its ability to track remarkably well in single digit MARD said let's get going on that. This is exquisite enough. And so we immediately then started Gen 4 in some environments to test it in -- that robustness requirement -- in a clinical setting. And the results of that were surprisingly positive, and so we've made that decision to retain that membrane as we go into the next generation and also look at that membrane as the key membrane system for the in-hospital sensor.

Got it. Thank you very much.

The next question comes from Ben Andrew from William Blair. Please go ahead.

Good afternoon. Wanted to talk a little bit about the split of consumables versus durables, and, Kevin, you said it stayed about the same at 70 to 75. Can you give us any flavor around that in terms of customers reordering versus new starts or any other detail that helps us think about the trending there and churn rates?

Well, I'll go through a couple. I'll encourage Terry and Steve to add anything if I leave something out. We placed a lot of kits this quarter. It was a very good hardware quarter for us. We're very pleased with what we achieved. With respect to sensor reorders, the result, again, is strong and near what we thought we would be. I can tell you, I can reiterate Tom's comment from earlier, a lot of patients buying enough in December that when we talk to them in February or March, a lot of them say, you know, not ready yet. I got plenty. So, we were pleased with the sensor results knowing even that people had stocked up in December, and as we've started the second quarter, we now see those December patients, a lot of them, getting back on track and ordering more product.

Is there some sort of restriction from the insurance companies of what they can order because you'd think they might want to restrict that versus, obviously, take the additional financial hit of not having the copay if that patient orders on schedule?

It depends on the payor, Ben. It depends on the plan. Some plans you can only order X in any given time period, others you stock up. But we experienced this in the pump business for a long time before here, Terry and I have, so it's plan to plan.

You know, Ben -- this is Terry -- it's pretty much three months is the maximum that a plan will allow. Two months is pretty normal. Thirty days is at the short end of that. So I would say the majority, if you're looking at the curve, the majority would be in that two-month -- at the time frame that's at -- has been on any blog that you read, the utilization and durability of SEVEN PLUS can certainly be extended if a patient so chooses. Obviously, we prefer that they would use it according to its labeled indication, but we can't control that at this point in time.

Okay, and a question for Kevin or Jess. Maybe some comments on gross margin versus where you thought it could come in. Was there anything kind of one-time in the quarter? I know volume was down obviously versus the previous quarter. And are you still thinking -- obviously Gen 4 has some advantages, but how quickly can you achieve those after the launch?

I'll start. Jess, if you have anything to add, go ahead. There were really no one-time hits in Q4 like we had back -- I mean in Q1 like we had last year, for example, when we had the power outage. It was pretty consistent. Our manufacturing volumes are where we want to be. Our yields were actually very strong. Good yields, good performance from the ops people. They're to be commended. So given the -- our COGS are very much volume sensitive and our cost-for-products is very volume sensitive. As volumes go up, we see some improvements.

With respect to the Gen 4, having a positive effect on margins, Ben, it will, but there's going to be a time that it takes to burn it in because for quite a while we're going to be manufacturing more SEVEN PLUS sensors than we will Gen 4. We'll have to burn the line over and make some changes and plan for that. So, going to be a little cloudy. As we emerge from SEVEN PLUS into full on Gen 4 launch, we'll definitely see that improvement.

Okay. And then, Terry, you mentioned the performance characteristics of the new transmitter. You haven't talked about that, I don't think, much before. Is there anything else about that we should be aware of in terms of the performance characteristics or flexibility it gives to a patient beyond just the range and what does that do to your starter kit price or your costs on the front end? Thank you.

Well, it's not going to anything to the starter kit price. We're pretty stable on that and believe that we'll keep it at the same price. I think in the ease of use -- so if you look at it from a practical sense, if your receiver is in one room and you're in another room, you're not going -- because of that range of 30 feet, even going through walls as an example -- if you go line of sight, it's closer to 50 feet of connectivity, so you have that flexibility. And that was pointed out during the data capture. 99% of all the data points in this clinical trial with patients roaming around were still captured by the receiver. So it really increases the flexibility. I mean, I'd even say from a standpoint that if it were on somebody that needed to have their receiver monitored in a different room as an example, certainly, it would be capable of being monitored by a third person or an alternative site.

The next question comes from Bill Plovanic from Canaccord. Please go ahead.

So on the -- just want to get clarity on the Gen 4. So you filed the PMA. Will you have a 100-day meeting or have they accelerated that timeline for you with the 30-day kind of discussion already?

Yes, this is an interactive process, Bill. There's no particular set 100-day meeting. That has been traditionally something that the Agency or companies will ask for in that. I think given the speed of response by the Agency, we're not particularly looking for 100-day meeting per se. We're looking for the feedback. Are there questions that they may have that we need to respond to? The difference what we're seeing now given their -- what I'll call rapid response and collaboration with us is they're doing it through email rather than through that traditional kind of I send you a report and the clock stops and then we restart the clock when you send back your response. I think they're doing everything in their power to get this through their process as quickly as possible. They've seen the data so they know what the output is and the clinical endpoints are, and so now there is the methodology. So I really don't think we're going to see quote-unquote that formal 100-day meeting, but that remains to be seen.

Okay. And then as you look at the sensor augmented pumps and just the time lags on those, I think you were pretty clear that you'll wait until approval of the PMA for the Gen 4 prior to the filing of the PMAS for either Animas or Insulet. Do you think -- one, is that correct? Two, do you think that Insulet could jump ahead of Animas or is it still pretty much Animas has to go, they get six months exclusivity, and I believe that's glo- -- US, and then Insulet goes, or can that change?

Let me kind of give you -- I'll give you the 35,000-foot view and then let Kevin and Steve, because they're the detail guys. Look, I don't want to do anything that would not be in the best interest of a collaboration with the Agency. I consider them our partners right now. They've really reached out and done a remarkable job on our behalf. And we've had a very active engagement with them. We were there last week, face to face. We're there this week, face to face, and they have really been responsive. So, if they kind of give us a nudge and say hey, we're expediting this as fast as we can, you guys do your job, I don't want to confuse the message to them that we're not the best partners that we can be.

So, we'll just hold on when that submission. As Kevin mentioned in his prepared remarks, we'll give you an update next call. We'll have a better understanding of what the agency wants with us. We really, to be honest with you, have not focused on the partnerships, per se, with the Agency. Our focus has been on Gen 4 and subsequently on Gen 5 as we move to these mobile apps and remote monitoring. That's been our focus in the FDA face-to-face meetings. And I'll let the -- Steve and Kevin talk about the details of it.

No, Bill, I'd echo what Terry said and one of the other driving factors in this is, again, as I talked earlier, we're about to start a peds trial. We haven't even discussed with our pump partners do you want to wait till we have peds labeling? Do you want to file before we have peds labeling? What is the best outcome here? So, we kind of need to let things settle down for a while, address more of their questions, have more discussions directly with the Agency, and we'll know where we're going to be certainly on our next earnings call. So, there's not a magic day.

I would -- to your question on the six-month exclusivity period, I mean, is it possible? Yes, but remember the Vibe is commercial in Europe, so the Vibe is effectively a completed product. We've still got a little development work to do with Insulet. So is it possible that they leapfrog? Maybe, but I don't see that as an issue and I think what we'd say is we'll address that when it -- if and when it arises. I think, frankly, it would be a good problem to have if we have two pumps ready to go to the market at the same time. So --

I think the takeaway here, though, is the FDA, it sounds like, is a lot more collaborative than they have been in the past 24 months and the key is let's get Gen 4 through, and then we'll work on the sensor augment pumps or the ped trial or whatever the next step is.

Yes, I want to be sure that we characterize it appropriately. They are collaborative. I wouldn't say since the last 24 months. I would say during the last 24 months just -- I would say in the last period of time throughout it they have said come to us. We have been highly transparent with them working through issues together, so certainly, to give credit to the Agency on their efforts, yes.

Okay, and then just last question, a simple one, any, with Gen 4, possibility for a mandatory shutoff, either by you or the FDA, and then do you think that'll come with the Gen 5? And that's it. Thanks.

Well, that's crystal-balling a little bit. At the present time, we are not aware of any requirement to shut the system down. I think the demarcation of that from an agency perspective is really about patient safety, and so why don't they draw the line? I think if you demonstrate that an extended use by a patient, not by us or recommendation, in fact, does not place the patient in any harm to make a worse decision, then they're less focused on forcing a shutdown. I certainly think Gen 5 potentially, yes. If I were to crystal-ball it, I would say even if we were successful in achieving an extended durability claim which we are very confident we can achieve, then it might be at that point that the Agency makes a decision at -- let's say a ten-day claim as an example that they might want to then shut it down. But that's -- it's premature at this point to really speculate.

Thank you.

The next question comes from Raj Denhoy from Jefferies & Co. Please go ahead.

Great. Thanks so much. This is Amy in for Raj today. Just a little -- just a couple questions around the opportunity to possibly extend the labeling and reduce the calibration cycles. I know there was a study presented to ADA last year that you all had some data showing positive with the original Gen 4 studies, and I think it was for ten-day. Is there a potential that you all could study and look to go beyond that?

Yes, actually, the study that you're referring to, I think, came out of Barbara Davis and it was actually, believe it or not, not on the Gen 4. It was on the SEVEN, no t even the SEVEN PLUS. So that's been obviously a few years ago that Dr. Satish Garg presented.

Most recently, obviously, we continue to do a number of studies looking at Gen 4. The beauty of gathering lots of data is you can look at different algorithms and project. We also do these co-studies in which we do reduce the calibration. And, yes, we are very confident at this point that a reduced calibration -- I don't know what the FDA would accept in terms of reduced calibration. Our ultimate goal is no calibration. And I can tell you we've got human data today that suggests that's feasible. Now, that's based on R&D-built sensors and scaling that to several million sensors a year. It's not always linear. So I remain cautiously optimistic, but it's going to take, obviously, the clinical trial and the data results and the robustness to present to the Agency to get them comfortable with such a reduced calibration scheme.

And your question on durability, could we go longer -- it becomes a tradeoff in terms of sensor -- human physiology and sensor performance. Virtually all of our sensors lacked the full seven days. You get to a point at which beyond -- ten days, you get to 14 days. There's a point at which it's somewhat out of our control because the immune system will [wall off] the sensor in more bodies than it will not. So we get to a point where we would have -- we'd want to be careful selling a 14-day product that would only last in X percent of the patients. We need to get to a comfort zone where basically all of the sensors would last to whatever our label indication would be. But, that's kind of how the tradeoff would work there. Could it last longer? Sure, but does it last longer in all patients is really what the question is for us.

Okay. Good.

I just saw a report today where there's a game going on and it lasted 42 days,. Sso, I mean, that's -- it's an unusual --

Wow.

Yes. And, I mean, we were wow, too.

Well, great. Thank you. And then I guess just a question from the manufacturing perspective. So, provide -- say, the Gen 4 gets through the FDA even quicker than we hoped given their open levels of communication, where would you all stand from a manufacturing capacity? Would that be a gating factor to get this out to market or are you guys able to pretty much scale up and be ready to go?

Well, fortunately, we won't be selling a million Gen 4 sensors out the gate. There will be a scale-up effort. We work on it every day, and we have plans to be ready. So, we'll be ready.

Yes, I would add to that. The sensors that were used in the clinical trial were from our manufacturing line. They were not R&D sensors that you put into a clinical trial, which is usually the case. These were just straight off the manufacturing line that we intend to use for commercial product.

Okay, and then one -- just one last one, perhaps on the international market, because that seemed to be quite strong for you all and some competitors noted that, as well, recently. Have you all seen any changes in the reimbursement environment that is now supporting CGM use or has this just been more from being out there and marketing the products?

I think it's more of marketing the products. We were at ATTD earlier this year in Barcelona and I think a dozen different key opinion leaders from countries got up and talked about reimbursement. And in none of those entities was reimbursement a good thing in terms of getting patients. So a lot of it is still -- it's a little bit different. There's some out of pocket, but in many of the countries, the hospital is the distributor of the product so the key physicians reside within the hospital network. They get a budget for diabetes supplies and they allocate a certain number of the supplies to strips, pumps, CGM.

And so we are seeing a greater influence of adoption of CGM and so we're getting some shifting of those dollars away from other diabetes related products into CGM. So, we do see an uptick there. But that said, there's a number of dossiers on the risk benefit looking at economic analyses, all showing positive outcomes that are part of these new dossiers going into the various countries in order to demonstrate to the government officials that control the purse that it is highly beneficial, economically beneficial, to have these patients on CGM because it reduces some of the other costs associated with treating diabetes complications.

Great. Thank you.

The next question comes from Danielle Antalffy from Leerink Swann. Please go ahead.

Hi. Good afternoon, guys. Thanks for taking the question. First, on the impact of higher deductibles in the first quarter, I know last year that bled a little bit into the second quarter. Can you talk about whether you're seeing that again this year or are we seeing a faster recovery, just to give a sense of sort of the cadence of sales throughout the rest of the year?

I think we're still seeing the bleeding of the deductibles into the second quarter. I -- we're better prepared for it. As Kevin mentioned, the increase in the premiums -- far less of an increase in 2012 than we saw in 2011, and in many cases, the increase in premium a single digit. And last year it was much, much higher, well -- in some cases we saw 150% increase, so things have moderated from that standpoint.

Also just think that CGM in and of itself is being greater adopted across a broader spectrum and so it's getting more patients to realize that regardless of the deductible, you're going to spend it one way or the other. If you think about the dynamic of that, if you have, let's say, a $1,500 deductible, you are eventually going to spend the $1,500, whether you spend it on day one or you wait for six months to spend it, but ultimately, you have to spend it. If you have the wherewithal from an out-of-pocket standpoint -- we're seeing more patients willing to spend it upfront to get the benefits of CGM and then as other things -- then the rest of their deductible or the rest of their copay is at that 80-20 or whatever their plan calls for.

Okay. Great. Thanks for that. And not to be ungrateful or look too far ahead from the Gen 4, but just thinking about the Gen 5 and your discussions with FDA, do you guys have any sense yet of what sort of regulatory pathway Gen 5 will have to take, how long it might take to get Gen 5 to market, or can you move pretty quickly once the Gen 4 is approved and launched?

Well, remember that the Gen 5 is a hardware change. We're using the same membrane on the Gen 4. So from a -- if you think about a risk standpoint, obviously, using new materials and that are within the interstitial or the body fluids, is certainly more challenging than the hardware change. I think the biggest challenge of Gen 5 is ensuring that the protocols that are being used in terms of the communication protocols are sufficiently robust that they cannot be interrupted or in any way corrupted.

And we're obviously going through a lot of testing mechanisms and doing this jointly with the FDA. I think FDA wants to learn what's going on because the challenge -- if you think about this from a hardware standpoint and communications going out, the hardware is changing at a rate -- because it's a commercial product -- that it's impossible for medical devices to keep pace. So as an example, there are handsets that we want to deliver technology to and information that are already obsolete because the handset manufacturer is no longer supporting that. FDA realizes this and they're trying to deal with this and figure out a way in which they can keep pace. So all of this is going on real time. I can't predict when the Agency will get comfortable, but as part of this interaction they've certainly reached out to companies to help them along that pathway. And we're, I would say, probably pretty close to the forefront of that with them and trying to discover the solutions to the challenges.

Okay. Great. Thanks so much.

The next question comes from Caroline Corner from MLV. Please go ahead.

Hi, guys. Thanks for all the detail today. So, just -- first of all, in follow-up to that last question then, with regard to the Gen 5 being a hardware change mainly, should we expect that one or are you optimistic at least that that might just be a PMA supplement? And then as we look at Gen 6 and you try to really get away from finger sticks altogether, I'm expecting a new PMA there. Am I thinking about that correctly?

As far as I can tell at this point, that's our belief system. But I reserve -- obviously to -- FDA gets to make that ultimate decision as to what the categorization of a submission. Certainly, we believe that Gen 5 would be a PMA supplement. And it is clear to us, without any doubt whatsoever, a Gen 6 technology, because it would include some changes of a significant nature, would be a full-blown new PMA.

Okay. Thanks. That's helpful. And then my other question, Roche started selling in February of this year. Do you have anything you can add incrementally about Roche's efforts so far? I know it's pretty early on, but do you have anything anecdotal there?

Yes. No, I would say you're right that they launched the program at their national sales meeting in February. I'd say we're still on the very early stages of the rollout, so certainly not material to the number for Q1.

Okay, very good. And then my last question, Terry, you've said before that you expect to be profitable at least on a quarterly basis in 2013. Is that still your thought now?

Absolutely, and our board would certainly like us to be profitable earlier than 2013 and have incentivized the management team appropriately to attempt to reach that goal.

Okay, and do you mean bottom-line profitable there? Is that what you were referring to?

I was talking about cash. Cash flow -- (multiple speakers) non-GAAP.

Okay.

Yes, we're not going to try and make up all the noncash (inaudible).

Look, Kevin went through the noncash expense and it is significant for this company, so we view our world in a cash flow basis.

Okay. Thank you. That's helpful, and congratulations on the quarter.

Thank you.

Thank you.

Your next question comes from Steve Lichtman from Oppenheimer & Co. Please go ahead.

Thanks. Hi, guys. You talked about the increased SG&A investment in the quarter. I know, Terry, this has been a focus for you. Can you talk a little bit about some of the outreach efforts over the last several months, some of the marketing efforts to increase awareness that maybe is embedded in some of that investment?

Yes, I mean, I will tell you -- I was going to include some of these comments in my final comments, but I'll do it now. Our program with regards to hypoglycemia awareness campaign has been hugely successful. I knew or felt it would be successful; I didn't think it would be as successful as it is. And how I measure that is obviously the number of hits, the number of placements of materials that we have been able to get through the media, various forms, both radio, TV, print materials, the number of hits on websites and that is millions.

And I would say most telling for me in my ride-alongs is that if you would contrast a year ago when I would go in and talk to a physician about hypoglycemia, they didn't even know what percentage of their patients actually experience hypoglycemia. And oh, yes, okay, well, you know, yes, CGM could be effective in that. Now they're telling me a year later how it's so important for CGM in that patient population, that it is absolutely necessary. So, that's driving their thought process. And that was always the challenge here is to make CGM a frontline thought rather than a back-end thought.

And I would add to that, the other dramatic change I've seen in the field over last year, is now we get questions about reimbursement for Type 2s. Now they're talking about well, I have Type 2 patients that could also benefit from CGM. Where are you at as an industry with Type 2 reimbursement? Unfortunately, we have to say well, we're not very far along. Policies are changing, so we're getting down that pathway. But for me, the important part is their mindset. Now they're looking at CGM across the diabetes spectrum. They're not isolating it to Type 1 patients. They're not isolating it only to those patients on pumps. They're looking at it across the spectrum of diabetes as an effective tool in the armamentarium of tools necessary to reduce glycemic variability.

And in that, glycemic variability in and of itself it is becoming much more important as a key tool. We talked about it in the pharma business that we have been growing nicely, but we also look at it from physician population, healthcare professionals are now realizing that mal glycemia, or the lack of ability to have good glycemic control, is huge. I mean, if you looked at things that were going on this week in the national news media about Type 2 diabetes in adolescents, the main point was, look, metformin by itself isn't working, so now you're going to put them on glitazones and that's a little scary for the rest of their life. But it's all about the inability to control glucose levels effectively. And I think that -- they're getting there.

Great. Thanks for those comments. And then just lastly, I apologize if I missed this. You talked about Animas ramping into new countries throughout the year. Just to get a sense of scaling, how many countries are they sort of fully selling in now with reimbursement?

That's two very distinct questions. They're probably selling today in about four or five countries. They'll probably be in upwards of seven or eight by the end of this year. Again, reimbursement from a sensor perspective -- you have to distinguish reimbursement from the Vibe pump, the durable pump, versus the sensors. Again, very, very early stages, very little reimbursement for the sensors themselves at this point in time.

Okay. Great. Thanks, Steve. Thank you.

The next question comes from Ben Haynor from Feltl and Company. Please go ahead.

Good afternoon, guys. Thanks for taking my questions. On the Gen 4 sensor, does that have better characteristics when it comes to interfering substances such as acetaminophen?

Yes. I mean, right now it's got about an 8x improvement over the SEVEN PLUS in terms of resistance. The challenge today is that there is no known standard by which you must meet in order to achieve that claim. Others have basically been grandfathered. We're working with the agency to know exactly what that claim is and we'll address that threshold. But at this point in time, I would say, yes, there is an improvement. As we look at next generation, obviously we're looking at interference blocking for a far greater range of drugs than just acetaminophen. But at this point, to answer your question, yes, but we don't know if that's good enough for a claim.

Okay, great. And then this one might be a little bit more broad, but do you have any metrics to measure kind of the stickiness of CGM as the patient continues to use it? For instance, after a patient has been using CGM for X number of months you can be Y percent certain that they'll still be using it in a year?

No, I would only refer to your report that you issued today that seemed to indicate that upon longer use there is greater traction.

Well, I was hoping you guys might have some better numbers than I was able to uncover. And then one quick last one. Pricing in kits and sensors is still the same as the recent past?

Yes, it is. Prices are relatively flat.

Okay. Great. Thank you very much, guys.

The next question comes from Jonathan Block from SunTrust. Please go ahead.

Thanks, guys, and good afternoon. Just the first question on international. Can you give us what international was as a percent of product revenue roughly a year ago? I think you said 10% this quarter. What was that roughly in 1Q '11?

We said we're approaching 10% and in 1Q '11 I would say it is much less than 10%. We're not going to break the percentages out. We don't -- ultimately, when we get above 10% for SEC purposes, we'll have to break it out. We're not above 10% yet, and we certainly weren't last year.

Yes, I think I -- if you went back and looked at transcripts, my comments were less than 5%.

Yes.

Okay, and like you said, I'm sorry, you were approaching 10%, just to be clear, in the current quarter?

Approaching, yes.

Okay. And how do you feel in terms of like you stated that's primarily all done through distributors -- do you think that's reflective of end user or do you feel like there was some stocking going on with the distributors initially in the March quarter?

I wouldn't say stocking in particular, in that particular segment. Are you talking about the international segment?

Yes, the international --

Yes, I'm sorry, in the international segment, Terry.

No, because we -- our payment policy is such that they have to pay for product upfront, so they're not going to stock and hold in anticipation of selling. They're on the hook immediately upon order. We don't carry an AR with them.

Not much of one. We're pretty -- Jess and his team have really managed that very tightly, so our credit risk internationally is not large at all.

Okay, great. And then I just want to make sure I've got my arms around the filings or different filings. It sounds like, and I don't want to put words in your mouth, Terry, but it sounds like Gen 4 is actually going maybe a little bit better than planned three months ago. But in terms of the call it concurrent filings, which were the plan maybe 90 days ago, you're going to take more of a wait and see and have some interaction with the agency on what may be best and sort of sit tight and wait for the update on the second quarter conference call. Is that fair?

That's fair.

That's very fair, Jonathan.

Okay, and then just lastly, on the calibration, can you guys remind me where you are today? So you've got -- currently, it's two times and you're hoping to go to one with expanded claims and your belief is that Medtronic's next gen will require four. Is that what we should be looking at, too?

All I can tell you is published data and they haven't culled it out particularly in any data that they've presented, but if you look at the graphs, all of their graphs have indicated that they achieved a level of accuracy with four finger sticks per day. They recommend in the European sector (inaudible) like three to four finger sticks per day. But that's all we can talk about. They have not been very upfront with their calibration scheme at this point.

And then Jonathan, if I could add to that, with respect to our reduced calibration schemes going forward, one a day is nice and it sounds very consistent. With 10,000 matched pairs and points, we can run various calibration schemes against all this data that we already have and come up with a calibration scheme that might work better for our patients, even one a day. Maybe some increased calibrations the first couple days and then maybe very intermittent calibration days after that. We have not made a decision. We're just starting down that process now that we've seen the data and been able to analyze it.

Okay, and last one for you guys, I promise. Just in this quarter, OpEx was ahead of our estimates. I know you called out 400,000 related to the SweetSpot acquisition, but I actually think OpEx grew faster than product revenues. So can you just speak to when we should see sort of the OpEx leverage hitting an inflection point, when we'd see that appear in the model? Thanks, guys.

Yes, this is Kevin. I'll take that. There's a couple of factors that have to occur for us to leverage OpEx. Obviously, our sales volumes have to grow. As we stated earlier, we're not going to increase our field presence nor our in-house sales presence. We believe that team is big enough to support the growth that we need to take care of as we get through and until we get up to partner launches. So, we'll see continued leverage on the sales expense side. Literally, we're seeing that now.

On the marketing side, we're spending more money and we're investing more on campaigns. The results of those campaigns were spoken of at great length by Terry previously when he just answered his -- the question about what are you seeing in the field. We're seeing those things pay back and on the G&A side we're relatively flat. A lot of the increase -- and the increase sequentially quarter to quarter is only about 5%. The increase over last year is very large. We've got 34% more people in our sales organization, our marketing organization, than we had at the start of 2011. So a lot of that is headcount. But that's going to remain relatively consistent, so that'll be leveraged.

On the R&D front, we've got a lot going on, and it would be very easy to say we'll stop it right here, but we feel a sense of urgency as we go through these transitions. And remember, we haven't had a new product for a while. So we've got Gen 4 with Gen 5 stacked up to that, with another sensor possibly coming. We feel the need to get through these efforts to get these partnership products out and to get this all done before we put the brakes on the R&D spend. We'll see the R&D spend go down over the last two quarters. That is our plan as we sit here today. And have a pretty good -- and I think we'll be able to leverage that R&D a lot more in 2013.

Hence, we talk about heading to profitability, so if we're not adding a bunch of sales people, if we're pushing back a little bit on the R&D side as we get some of these products out, you'll see the leverage as we get around to the last half of this year and certainly in 2013.

Thanks. Very helpful, Kevin. Appreciate it.

The next question comes from Richard Lau from Wedbush Securities. Please go ahead.

Thanks. Hi, guys. From a marketing and manufacturing standpoint, how quickly following FDA approval of the Gen 4 would you guys be in a position to launch it? And assuming -- say you guys get approval at the beginning of the fourth quarter, would you want to launch in the fourth quarter or wait until maybe the first quarter of 2013? Thanks.

Well, I'm going to talk about the commercial side of it, and I'll let Kevin talk about the manufacturing side. I want to launch the product. I want to get this product in the hands of patients who will recognize the benefit of it in a number of different ways, accuracy, certainly durability. The patient experience will be exquisite. I want to get this into the hands of the artificial pancreas projects. We're involved in about 20 of them now. And we've got some data because we are able to get it into the European artificial pancreas projects. And we've got -- we literally have patients, a small number, but walking around outside on their own with a closed-loop system, high equipment intensive. But it's pretty exciting to me over 18 years chasing some of these dreams to see this getting closer. So I want to launch this product as soon as possible.

Operationally, we're doing everything we can to be ready for an approval. And so the directives that Terry's passed down to me -- you heard what he said. When will you launch it? I want it out -- are clearly passed down to the other people that we work with. And so we meet regularly. We're developing a commercial build plan. We will launch this product in Europe here in the summer, so we will have experience with manufacturing. And as Terry said earlier, we manufactured the clinical trial sensors on the line we're going to use for production, so it's not like we'll be starting from scratch. So, we are -- you look at the CapEx and the other things we're spending. We're getting ready.

Okay. Great. Thanks, guys.

Your next question comes from Anand Vankawala from Avondale Partners. Please go ahead.

Hi. Thanks for taking my questions, guys. Just two quick follow-ups. I guess just on the international, I'm not asking for specific numbers, but would it be fair to characterize the growth in Animas as a meaningful contributor towards reaching near 10% contribution internationally or is it just still just a fraction?

They're still just a fraction. I mean, everything is cumulative and helps out in that whole process, but they were not the reason for the growth. We had some of the countries particularly just pop up in great demand. All of them grew, but a couple countries grew faster than the rest, and these, luckily, were countries that had more patients that had the ability to either pay out of pocket or the systems were through the clinic system that got more product on patients. But certainly -- and I don't want to minimize the Animas effort. I think they are -- when you look at their experience without having all of their number improvements, but with that system in place, they have become very competitive in that pump space in the European sector. That's their comments coming back to us.

All right. Thanks for that. And then I guess just on the Gen 4 sensor, given that you're looking to file for extended durability claims, pricing wise, is that going to be relatively the same as the SEVEN PLUS or is that -- are you planning to increment the price there?

Yes, I mean, it's still something to consider. There's two kind of opportunities here, right? We could effectively keep the price for a month's supply of sensors the same so in the eyes of the patient we're not actually raising our prices. But we could, for example, and again we haven't given specifics on the durability, but if we were to achieve a ten-day claim, we could send three sensors instead of four sensors, so really we're -- by reducing our cost by removing a sensor, the contribution becomes much greater for a month's supply worth of sensors. Effectively, we would be charging -- the way the Hicks-Picks codes are -- were set up when we were working on those way back when, they're established to allow us to price on a per day basis. So effectively, we price our sensors on a per day basis. You recall Medtronic has a three-day sensor. Abbott has a five-day. We today have a seven-day, so we are able -- however we choose to price it, we will certainly capture additional economics on an extended durability claim.

Perfect. And then, Terry, just to follow up on something you said earlier in a response to a question on the Type 2, you stated that you're seeing policies towards Type 2 reimbursement changing. Can you give a little bit of detail on what you're seeing in the environment?

Well, certainly we're seeing more of the -- and it's a small number of the larger pairs -- begin to include verbiage within their coverage decisions to include Type 2s. It's still a steep requirement in terms of the labs that need to be established and things like will they need to be on insulin or the criteria for that is certainly not easy to achieve. But it is, if you look at the spectrum and the chronology of how this will work, it's moving in the right direction. And if I go back to when I came on board as CEO, the reimbursement for CGM in Type 1 patients was zero and now we've over 95%, 97% of our patients that have CGM and are Type 1have some form of reimbursement. It is slow. It's not anywhere near what I would like to see it, but it is continuing to grow.

You saw late last year Dr. Bugarski's paper on Type 2 patients and those were not on even prandial insulin. So they were on a long-acting insulin or no insulin at all, showing good results. That's all getting pushed to the payor network and they're beginning to connect the dots to say hey, look, we've got an epidemic in front of us. So we're paying for six drugs for these Type 2 patients and they're still having the complications associated with diabetes. The longer they have these problems, the higher the rate of complications. Therefore, the payment increases. I think everybody -- everybody in the payor world is sensitized to -- what are we going to do? What are the tools that are available? We're a tool. We're one of many, but I think they're beginning to recognize the value that if, in fact, a study like Bugarski or even in Type 1s if we can reduce the glycemic variability and, in the case of Type 2s particularly, if we can reduce excessive constant glucose and hyperglycemia, we can move the needle to the left in terms of what the payment profile is going to look like next year, five years from now.

And I think everybody in that industry is trying to figure out (inaudible) look, in the next 18 years there's going to be over -- on a global basis somewhere between 550 million and 600 million people in the world. And we're going in the United States alone from 28 million to probably somewhere close to 30 million, 32 million that are going to be afflicted with diabetes. That's a third of our population. So, it is a huge economic burden. I just heard something the other day -- we've been using $170 billion costs in 2007 that were spent on diabetes and the related cost. Today on a newscast, I don't have the source document, they said over $300 billion was being spent in the United States on diabetes and its related costs. We're a tool, and I think we're an effective tool. And certainly Dr. Bugarski showed it. We've seen it in other areas of opportunities. And so you're going to see more peer reviewed publications coming out with regards to the impact of CGM on the Type 2 population, both insulin, noninsulin using, and I think that is over the armamentarium of materials that is necessary to change coverage policies.

Perfect. Thank you for the in-depth response. I appreciate it.

This final question comes from Derek Winters from Wunderlich. Please go ahead.

Hey, guys. Thanks for taking my question, and congrats on the PMA. Wanted to ask a little more about -- kind of a competitive question. Echo Therapeutics just kind of came out with a study saying that they had a very successful trial on 15 patients. My question, basically, is what's the true cost on a ramp for them to go to a pivotal trial and are they really on the horizon in your guys' minds? Thanks.

Wow. Where do I begin? Okay, 15 patients, 500 match pair points. We just got done telling you we did 10,000 match pair points. You know, the cost, tens of millions of dollars even to get to a pivotal trial stage. We don't know what the range was of that particular trial. I just read it this morning, as well. It's certainly -- I can't tell by the trial design or analysis if it was prospective, retrospective. It gets to my come on, guys, stop fooling with the numbers. They are what they are. You eventually have to report them to the FDA. And we actually get credit from the FDA because they tell us we are one of the few, if not the only company, that actually consistently presents prospective data and that's what the patients see.

So, I don't know. It's interesting to watch. We'll see. If you look at accuracy as an example, just as a comparator, so they recorded somewhere just shy of 13% and the data that we've -- Edwards has presented from the GlucoClear product is around 5%, 5% or 6%, which is at therapeutic levels in terms of dosing. So, I don't know, they've got a long haul. And I try to caution everybody. We spend $10 million to $15 million a year in quality control procedures as a PMA company, and this will be a PMA product. It's not going to be a 5K to 10K. So as I've said before, and I don't mean to be trite with it, but they've got to move from their knickers into big boy pants at some point.

Okay. Thanks.

That concludes today's question and answer session. Please go ahead with any final comments.

Thank you. What I'd just like to say -- we're very proud of what we've accomplished. It's a tough economic market. We growing the business in a step-like fashion, 42% growth over Q1 of 2011. I couldn't be prouder with what we've accomplished from the field, the marketing. If you look at R&D, I mean, the technology is exquisite. The expansion of our capability within the wireless world has been dramatic with the acquisition of SweetSpot, now collaborating with Qualcomm and the 2net hub and all of the things that we look at and try to be health futurist is where medicine is going. We do have the benefit of having the premier health futurist on our board in Eric Topol. His book, Creative Destruction of Medicine, becomes our -- won't call it our operating bible, but we certainly spend a lot of time watching it.

And so I -- we're hitting on all the cylinders. A tough regulatory environment in which we are doing as well as any company. And I applaud the Agency in that -- their willingness to be collaborative with companies that are willing to collaborate with them. So a lot of -- every time you pick up a newspaper article or a journal, there's some company that's bemoaning the fact that Agency is tough on them. Agency has a job to do. That's to protect the citizens of the United States, and they're doing the job the best way that they can, and we're in lock step with them. So, with that, I'll conclude the call.

This concludes the DexCom first quarter earnings release conference call. Thank you for your participation. You may all disconnect at this time.