德康醫療 (DXCM) 2013 Q2 法說會逐字稿

Welcome to the DexCom second-quarter 2013 earnings release conference call. My name is Richard, and I will be your operator for today's call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Terry Gregg. Mr. Gregg, you may begin.

Thank you, Richard, and thanks to the audience for joining us today for our second-quarter 2013 investor conference call.

I am going to have Steve Pacelli read our Safe Harbor statement. Steve?

Thanks, Terry.

Some of the statements that we will make in today's call may constitute forward-looking statements. These statements reflect Management's expectations about future events, operating plans and performance, and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under risk factors, and elsewhere in our annual report on form 10-K, or 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.

Additionally, we will discuss certain financial information that has not been prepared in accordance with GAAP with respect to our cash operating loss. This non-GAAP information is provided to enhance your overall understanding of our current financial performance. The presentation of this additional information should not be considered in isolation, or as a substitute for results, or superior to results prepared in accordance with GAAP.

Terry?

Thanks, Steve. Joining me today are Kevin Sayer, our President and Chief Operating Officer; Jess Roper, our Chief Financial Officer; and you just heard from Steve Pacelli, our Executive Vice President of Strategy and Corporate Development.

Before I turn the call over to Kevin for our customary financial review and operations update, I would like to comment briefly on our Q2 performance, and a couple of exciting operating milestones reached during the quarter. Obviously, the commercial introduction of G4 Platinum continues to exceed our expectations. Our pipeline of new patient opportunities remains very robust, and our sensor reorders are stronger than ever. Our financial results speak for themselves. During the second quarter, we achieved record sales, record margins, and our best operating results ever.

From an operations perspective, I am pleased to report that in late July, we filed a PMA supplement with the Food and Drug Administration seeking approval of our DexCom Share system, a remote monitoring system developed to address the unique challenges faced by caregivers in assisting people with Type 1 diabetes. As a reminder, the DexCom Share system is a docking station for the G4 Platinum receiver, which enables wireless transmission of glucose information, such as the patient's trend graph and alert notifications, from the G4 Platinum to designated recipients, allowing the recipient to view the patient's data on their smart phone. We view DexCom Share as the first of many steps in bringing CGM to mobile devices, and couldn't be more excited about this opportunity.

We are also pleased to announce that just last week we were awarded a $4 million grant from the Leona M. and Harry B. Helmsley Charitable Trust to accelerate the development of our Gen 6 sensor technology. A goal of the Helmsley Charitable Trust is to advance the accuracy and reliability of CGM devices, and develop artificial pancreas systems for people with Type 1 diabetes. The funding is milestone based, and is contingent on our meeting specific development milestones over the next several years. The grant has been structured to allow the Trust to recoup and redeploy a portion of any eventual proceeds from the successful commercialization of the Gen 6 sensor.

To that end, we have agreed with the Trust that on successful commercialization of our Gen 6 sensor in the US, we will pay a royalty of up to $2 million per year for four years, or at our option, a one-time payment of $6 million. We are extremely excited to engage in this collaboration, as it provides us with the opportunity to accelerate the development of more accurate, effective sensor technologies to improve the outcomes and quality of life of people with diabetes.

With that, I would like to turn the call over to Kevin for a financial and operational update.

Thanks, Terry.

I will start with the financial update. DexCom generated $35.5 million in product revenue for the second quarter 2013, compared to $21.5 million for the same quarter in 2012 -- a $14 million, or 65% increase. Sequentially, product revenue for Q2 of 2013 increased 28% from the prior quarter. We note that in the second quarter we recognized approximately $1.3 million in higher than expected revenue attributed to royalties from sales of the Animas 5 system in Europe, and revenues related to our first product sales of GlucoClear sensors to Edwards Lifesciences. We do not expect this level of Animas royalty or GlucoClear sensor sales in subsequent 2013 quarters.

Total revenue for the second quarter of 2013 was $35.8 million, compared to $23.4 million during the same quarter in 2012. Our product gross profit totaled $21.8 million, generating a product gross margin of 61% for the second quarter, compared to product gross profit of $10.6 million, and a product gross margin of 49% for the same quarter in the prior year.

Some final thoughts on our product revenues, and our gross profits during Q2. Our split between consumable and durable revenues was again slightly more heavily weighted to durables in Q2, due primarily to existing patients upgraded to the G4 Platinum, with approximately 30% of our product revenue generated by sales of G4 Platinum hardware, and approximately 70% generated by the sales of sensors, primarily G4 Platinum.

ASP for sensors has stayed consistent at approximately $70 per sensor, and the ASP for hardware continued at approximately $800 to $850 per starter kit. Our international business performed very well, remaining consistent in Q2 and continues to represent between 5% and 10% of our total product revenue. Research and development expense totaled $11.1 million for Q2 of 2013, which was up by $1.1 million compared to Q2 of 2012, with the increase due primarily to additional payroll related costs, completion of our work on DexCom Share, and other near-term product launches. Sequentially, R&D expense was up 19%, with the increase related to the same factors. We expect that R&D expense for the full year will be slightly up versus 2012.

Selling and general administrative expense totalled $20.7 million in Q2 of 2013, compared to $15.9 million during the same quarter in 2012. Of the $4.8 million increase, $900,000 is non-cash share-based compensation. The remaining increase was primarily related to expanded headcount in our sales organization and other growth-related expenses.

We will always consider adjusting our spending to take advantage of strategic development opportunities. A couple of examples -- one important opportunity for us is clinical data. It has become obvious to us that we need more clinical data, and we are in the early planning phases for studies that we believe will unequivocally support our position of CGM first, from both the clinical and economic perspective. Another important opportunity is advanced technology development. As Terry mentioned in his introductory remarks, we are very pleased to be working with the Helmsley Charitable Trust to accelerate development on our Gen 6 sensor. With the $4 million Helmsley grant, we will increase our internal spend on the Gen 6 project as well, in order to accelerate commercialization of this transformative technology.

To paraphrase commentary by a member of senior management from another diabetes company during a recent presentation at a conference, the reason DexCom sensors are so good, is that sensors are the only thing they do. We couldn't agree more, and we intend to retain our position as the leader in sensor technology.

Our net loss for the second quarter of 2013 totaled $10.1 million. It included $9 million in non-cash expenses, centered in share-based compensation, depreciation and amortization. Absent these charges, our net loss would have been $1.0 million for Q2 2013. Compare this to a net loss of $7.6 million for Q2 2012. In other words, of the $14 million increase in Q2 sales, year over year $6.5 million, or close to 50%, has dropped through to our cash phase financial results. Our business model continues to mature very nicely. Our loss per share for the quarter was $0.14. With respect to our balance sheet, we ended the second quarter with $4.6 million in cash and marketable securities, an increase of $1.1 million from the end of Q1 2013.

We note that we received $2.3 million in proceeds related to the exercised employee stock options during the quarter, slightly higher than in previous quarters. We also had a very strong quarter in terms of working capital performance. Our DSOs are less than 45 days, and inventory levels are approximately the same as they were at the end of Q2 2012. All this during a period of 65% growth, with no periods of product back order. One last balance sheet note -- last year, we entered into a term loan and revolving line of credit agreement with Silicon Valley Bank. And under terms of the original agreement, we were required to draw the remaining $13 million under the term loan during a three-month window commencing June 1, 2013. Silicon Valley Bank has agreed to move our draw down window to the three-month period commencing January 1, 2014.

The combination of cash available under the term loan, and under our receivables-based line of credit offer the Company approximately $28 million in additional available capital. With approximately $40 million in cash on hand at the end of Q2, our debt availability, and most importantly, our operating performance improvements for the first half of 2013, we remain very comfortable with our commitment not to raise additional equity funds in the near term.

Finally, we will take the opportunity to update our product revenue guidance for 2013, from a range of $120 million to $130 million, to an expected range of $130 million to $140 million. I note that, consistent with our prior practices in issuing product revenue guidance, we will target the midpoint of our range. I also note that historically, sequential product revenue growth from the second to third quarter is much more modest than the sequential growth from the first to the second quarter, rarely exceeding 10%.

Now to the business update. As we mentioned during our previous earnings call, during Q1, we filed a PMA supplement with the Food and Drug Administration seeking a pediatric indication for the G4 Platinum. With respect to our US pediatric submission, similar to our previous filings, we continue to have a regular open dialogue with the FDA. At this point, our discussions with the FDA for the pediatric indication center on appropriate labeling of the product specifically for children. By way of background, we performed a clinical study requested by the FDA for the indicated use in patients ranging from 2 to 17 years of age. Due to the wide age range of these patients, the pediatric study was not designed or powered to produce data comparable to our adult G4 Platinum clinical study.

While the FDA has indicated that the study we performed includes enough data for approval, due to labeling nuances, we believe that we will be required to create a separate pediatric product offering with labeling specific to children. We will be prepared to launch this product at the soonest possible date, and remain hopeful that we will receive approval prior to year end. We remain extremely excited about the prospects of a pediatric indication, as it not only significantly expands the number of endocrinologists we can call on in the US, we expect to be able to recommend this product to a wide range of patients, all the way down to two years of age.

We continue to make progress with respect to our reimbursement and distribution model, and have had two significant wins since our last conference call. First, we have been awarded a position on Express Scripts' national preferred prescription drug formulary. DexCom is the only CGM on this formulary. The contract will allow us to offer DexCom CGM as a pharmacy benefit to all ESI plans. Over 40% of prescriptions filled in the United States are processed through Express Scripts, and payors who process through Express Scripts will now have the opportunity to treat DexCom CGM as a pharmacy benefit, enabling them to better track utilization, outcomes, and costs. While we don't expect an immediate impact to our business, over time this relationship has the potential to increase accessibility of CGM to more patients in the diabetes community, and create a much more efficient distribution model for DexCom.

Second, we are pleased to report that Humana, a payor covering approximately 6.7 million lives, has expanded their existing CGM policy to include coverage for all insulin-using Type 2 patients. As we stated many times in our prior calls, over 98% of Type 1 patients with private insurance have access to CGM, with much more limited coverage for Type 2 patients. So we are very pleased to see Humana's leadership in opening up CGM access to such an important patient group.

Turning to our future CGM product offerings, we remain focused on replacing finger sticks as our primary long-term objective. In the near term, to achieve that goal, we will focus on four things -- improved sensor performance, patient convenience, expanded connectivity, and cost improvement. DexCom Share is the first step in what will be a number of iterative steps accumulating in what we call our Gen 5 system. Gen 5 is actually a series of system innovations that will include a new transmitter, new applicator, mobile platform user interface, combined with continued algorithm evolution. We are not currently planning any changes to the sensor and related membranes for Gen 5. We expect this Gen 5 system will be rolled out in several stages over the next two years.

As Terry mentioned in his opening remarks, with the funding from the Helmsley Charitable Trust, we will also accelerate our work on the Gen 6 system. The primary goal of the Gen 6 is to achieve labeling as a replacement for finger sticks, and we will do this primarily to enhance membrane and algorithm development.

Shifting to our integration partnerships, as mentioned during our last conference call, Animas has filed a PMA with the FDA seeking approval of the Animas Vibe system in the US. Animas very recently received written questions from the FDA regarding the Vibe, and the Animas regulatory team is currently in the process of evaluating those questions and formulating a response. We continue to work diligently with Tandem Diabetes Care to incorporate the G4 Platinum into a next-generation version of Tandem's t-slim, and we remain on track to assist Tandem in filing a PMA with the Food and Drug Administration before the end of this year.

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

Thanks, Kevin. While the second quarter was obviously a great quarter for DexCom, we continue to execute on all aspects of our business, and our message of CGM first is resonating well beyond the endocrinology specialists, as we routinely see prescriptions for the G4 Platinum system from primary care physicians. We have been referred to in the past as a one-product company, but you can see from our discussion today, the intel inside philosophy is on the cusp of reaping huge benefits from our own internal programs and products, as well as our partnerships.

I would like to acknowledge the hard work of our DexCom team, who all worked tirelessly to grow this category each and every day, and bring us another step closer to establishing DexCom CGM as the standard of care for all people with diabetes. Our future remains very, very bright.

And with that, I will turn it over for question and answers.

(Operator Instructions)

Thom Gunderson from Piper Jaffray.

I guess the patients like Gen 4, huh?

Yes.

So what is next, what's next is maybe pediatric, maybe Share, questions on both. On Share, help us handicap what you're looking for from the FDA? I am assuming no claims, that this is just a broadcast of information through another medium, and there isn't really anything there to do except check accuracy of that transfer? Is that close?

Tom, we very deliberately structured the Share product to make sure that the receiver remains the primary medical device, and the phone is a secondary display on the receiver, so that is exactly as you described it. We did submit a rather large filing that shows we did all the validation and verification of the software necessary to make sure that signal gets through, and is pushed through on a timely basis, and warnings are what they claim to be.

The alarms on our Share system, the people you share your signal with can set their own alarms. They don't have to follow the alarms on the receiver. So, we had to show that all of those features work. But, we took this as a very deliberate step, so we could get something that we could approve, a basic infrastructure that we can use in all our future product offerings hereafter.

Okay. On pediatric, I think I get this, but is, in my view a separate product would be a different package, maybe with a picture of a kid on it, and a different insert, but the actual sensor and receiver would be essentially the same? Is that right?

It will certainly be the same hardware. The final product configuration of packaging, and IFU, and all those things is still in the middle of being determined.

Right, but you don't have to have a separate line?

No. No separate manufacturing line at all.

Got it. And then, last question, and that is, I assume you are in Philadelphia, can you tell us any local color as far as AADE and how the educators are looking at the products?

We are in San Diego today. Our Philadelphia team has told us that we, again, received the same response on G4 Platinum as we're receiving from the investors on this call.

Okay, thank you guys.

Bill Plovanic from Canaccord

Congratulations on a phenomenal quarter. Not a lot to ask. I'm just going to try to drill down a little. You mentioned a couple of things, one that your durable consumable mix was 30%/40% with, obviously, the durable, was it at 30% or above 30%?

It is 30% durable, 70% disposables.

Okay. And then do you include that $1.3 million that you picked up from Edwards and international in that number?

It is Edwards and from the royalties, it's in product revenues, but it's not in that 70%/30% mix. That would be a separate calculation.

Okay. And I know I am splitting hairs here, but is there any upgrade revenues in the quarter, anything? I know you've picked some up over the last couple of quarters. I'm curious if that contributed?

We were talking about that before we met. Our upgrade percentage, in the percentage of hardware sales, is probably around one-third or close to that. That number has come down steadily since the fourth quarter of last year. That number of where we are today is really not a whole lot different than what we used to have for Seven Plus. So, business remains pretty consistent as far as new patients versus upgrade. And then also understand, Bill, my data is a bit limited because if somebody bought their first receiver from a distributor, and their second receiver from us, or vice versa, we don't have everything. But, those are approximations as we sit here today.

And given that the total revenues were up, the 65% year over year, can we assume that's what your new patients were up year over year? I mean and that's what I'm trying to get at. Because, I mean, all the forward of the model is built on the new patients, and if your new patients were up 65%, I think that is well past expectations. So, I'm just trying to get a mix between that, and what might have been utilization creeping back up or any of that. And that's really what I'm trying to get at, thanks.

You know what, Bill, I think it is a combination of all of it. Sensor utilization is clearly up. Based on all internal metrics, what we are seeing is patients are buying and using more sensors, both existing patients and new patients, as they sign up. New patient growth is good. But, when you look at the dollar growth in the model, the 70%/30%, those sensor numbers are pretty staggering, even if we added a bunch of new patients. So, it is really a combination of both.

All right, great. Again, congratulations, phenomenal quarter.

Ben Andrew from William Blair

So, I want to talk a little bit about the Express Scripts relationship, Terry, first. Over what timeframe do you think that starts to move the needle in terms of patient access, if it is not a near-term event?

Well, I think it's going to take at least another 18 to 24 months, as other payer systems look at that, and then begin to have opportunities utilize the Express Scripts. Our number one priority from a managed care going forward has been to move at least the disposable component into the pharmacy benefit out of DME. There's a lot of benefit on both sides of the equation, transactional costs, so on and so forth. From a patient standpoint, greater access. I think it just takes time. These organizations tend to be built in silos. And so each one, the DME silo, pharmacy benefits silo, have to be addressed. But, this is the first time that we can begin to move the needle in that. But, it's not going to happen overnight.

Right, right. Okay. And I've got a mishmash of questions. But the Helmsley grant, maybe that's a question maybe more for Jess, but is that really an offset to the expense, which is why it took this on? Other than $4 million is $4 million. But you don't really need the money, per se, unless it helps you offset it on the P&L? Is that fair?

Well, there's a business reason, which Terry can go into, or Kevin, but really, in terms of the accounting for it, it is not a collaboration agreement like at Edwards, where we would record development grant revenue, and then the expense. It would be a net offset to the P&L. So, as we get milestone payments, let's say $1 million, we put that on the balance sheet as a liability, and then we would offset the current period R&D expense just related to the work, as it is outlined in the agreement.

Okay.

For this year we would expect, basically, the P&L would be offset, it would be neutral.

And then Terry, what is the business reason, if you would maybe detail your thoughts on that?

Well, sure. Our goal is to get profitable. And so we have had this Gen 6 technology as part of our long-term expectation in an R&D pipeline. We chatted, obviously, numerous times with the Helmsley Charitable Trust. They have seen what we have been able to do with Gen 4 Platinum in the [AP] programs, which I would tell you, although regulatorily our labeling says that our MARD, mean absolute relative difference is 13.2%, and we are seeing reports of sub-11% MARD with the G4 Platinum today. Obviously, they see that, they are very attuned to that. When we recognized what we can do with the Gen 6, they came to us and asked us what they could do to help us accelerate that in our project schedule. Therein lies the $4 million grant to put a dedicated team focused on accelerating that development of that new sensor technology.

Okay. And then sorry to change gears yet again, but on the ped side, it's a six-month delay in terms of expectations on the approval. If it is really a labeling issue, and packaging, is that really the lead time for you all to prepare the packaging as well as the insert? Or is there something else FDA wants that is dragging this process out?

Well, first of all, it is not a six-month delay. We have always said that it was, at the very least, a 180 day review, which we are still within that timeframe, since we submitted it. So, please characterize it appropriately. Right now, look at the landscape of diabetes. FDA is doing everything in their power to ensure that products produced across the spectrum of diabetes, be they be pumps, everybody has pretty much had a pump recall, be it glucose monitoring, all the meter companies have had some degree of recall. So, you can understand there is a heightened scrutiny from the FDA to ensure, because people are making life decisions based on some of this technology.

I think that whole heightened sense is part of this. We did the pivotal trial in adults, and we were able to have patients come back for an extended period of time on three different days, and we actually decreased their level of glucose by giving them insulin. We can't do that with a two year old. And so, the study really is fundamentally different, and although we would like to have everything match up from two years of age beyond, all the way into adults, we've got to segment these into different buckets.

And I think that is where the discussion comes in. It really gets down, the devil is in the details, obviously, but how you look at alert charts and various things in labeling that are very, very distinct. But both sides are trying to understand and, of course, we look at even site to site differences in the clinical trial. All of that, it just has to be gone through. I think Kevin outlined the critical point that we certainly don't need to do any more clinical trial work. It is now about how we characterize the results, and put it in a proper format for instructions for use as part of the package.

And Ben, just from a historical perspective, we got final approval on the Gen 4 Platinum labeling October 5 of last year, and were shipping October 21. We'll be ready.

Okay. So, I mean so you'd filed the PMA supplement on peds, was it in February, I'm sorry?

We didn't identify the actual month, it was towards the end of the quarter.

Okay. I had it in my head a little bit earlier in Q1. Okay, and then finally, the Edwards and the Animas royalties, can you maybe detail a little bit more what exactly that was coming out of Animas, and why, obviously it won't recur, but maybe just give us a little more flavor on that?

Nope. Well basically, Ben, what we said is we had about $1.3 million more than we expect to recur in future periods. So, as you look at the total product revenue for the quarter, and as you guys try and model going forward, there are some recurring revenues that we don't expect to come back. There is a base level of Animas royalty revenues that we receive, a number we can't disclose due to our relationship with Animas, and our number was far beyond the base. And you combine that with the sensors that we sold to Edwards, and those are numbers we wouldn't want you guys to build into your models going forward. That is why we gave you that number.

Yes, just let me give a little bit of color on the Edwards. As Mike has said from the Edwards side, they initiated this early market introduction of the GlucoClear product, so they needed product in order to do that, but as part of a clinical experience as they introduce this in limited fashion in Europe. And they will continue to enroll these patients through the end of this year, and then look for a more formal launch in 2014. So, that's not going to be a repetitive type of build and use for the remainder of the next two quarters.

Okay, thank you.

(Operator Instructions)

Danielle Antalffy from Leerink Swann

Congrats on the really awesome quarter, well done. I just wanted to talk about what changed this quarter versus last, where you had strong growth last quarter, but the growth this quarter was phenomenal. And just wondering if you could give some color on where the growth is coming from? Are you getting into new -- are new endos prescribing? The device? Is it just existing patients wearing more sensors per month? Can you give a little bit of a breakdown on where the growth acceleration is coming from?

Well, Danielle, let's start with the physicians. It is a combination of everything. We monitor our high prescribing physicians on a regular basis. And what we would consider a high prescriber this year we will have more than twofold this year than we had last year. There are physicians who have really adopted Gen 4, and our CGM first philosophy, with their patients. So, we got more high prescribers. But, that isn't where it stopped. There are many thousand of physicians and healthcare professionals who prescribed the G4 Platinum system. So we are seeing broader usage as well in the physician community, which means where you've got somebody who is prescribing the G4 Platinum for the first time; chances are some patients heard through word-of-mouth that, gee, I ought to have this, and they go and ask for it, and they get it.

With respect to patient numbers, every piece of it is growing. We're getting, while the percentage of upgrade versus new patients is a little higher, but not tremendously higher than it has been in the past, we are getting hardware revenue from both segments, new patients and patients who upgrade. And we're getting more sensor utilization from everybody. Our internal statistics would show that we have a much greater pace of patients who are wearing these things 24/7 and not taking them off. And that is where we have always wanted the model to go. So, accuracy matters, and people trust this product, and they use it to manage their lives. So, the growth is occurring in every single piece of the business. I didn't say it on the call, internationally, while still 5% to 10% of our revenue, our international business doubled this quarter.

Okay, great, so it is really, very broad-based.

It's very broad-based.

Okay, great. And then I was hoping, just directionally, you could help us with 2014 a little bit. Tougher comps, obviously, year over year. But hopefully have pediatric and the Animas Vibe. How do we think about 2014 growth? And that is it for me, thanks so much.

We have been pretty consistent, and I'm seeing Steve and Terry smile at me, we've been pretty consistent over time saying it is our goal to grow this business 40% a year. And if we grow 40% a year, we double every two years, and there is a certain amount of growth the businesses can handle in a very efficient manner. We expect to stick with our plans, and it can comp out at 40% annual growth with Animas and peds. Next year, possibly a Tandem approval, with the Tandem filing late this year. With a Share approval next year. We see many opportunities to achieve that growth in 2014, and keep going, and go on from there. And so, 40% is our target internal number, and we are going to stick to that.

Jayson Bedford from Raymond James

Good afternoon, and thanks for taking the questions, just a few here. In terms of the new reps added or converted earlier this year, where are they in terms of productivity, meaning are they 60%, 70% of the more tenured rep. And when will they be at parity?

Well, some of them are actually in our top 10 reps. So, they are all throughout the board. I think if you look at our rep rankings, you wouldn't be able to just pick out the new ones in any of the quartiles, they are spread all the way throughout. A lot of them had incredible success. We hired some very, very good people. And we believe they are all getting up to speed, and growing their businesses very well. But there are certain territories where our new reps are just blowing it out. And some of those are our internal people who we converted from our educational specialist to be sales reps. They have done a phenomenal job, so they are all doing very well.

And the incentive or the focus for these reps, is it getting more endos on board here, and just going wider or is it more deeper into existing accounts?

Our reps, today, are compensated on the kits they place with patients, and they are incented on hitting quotas of kits they place, and it is up to them to develop their territory in the way to place the most possible kits. And what we have seen from the reps is largely what I described earlier. We've seen many of them dig deeper into some very good practices. We have also seen a broad smattering of more prescriptions, as well, by people who have not prescribed earlier. So, they are incented to place kits, and they manage their territories, and we track them very closely.

I think a key metric is if we look at what we call champions, and these are prescribing physicians who hit a certain threshold. We won't tell you what the threshold is, but it is significant. If we look at the number this year in contrast, and this is just through the first six months of the year, in contrast to all of last year, the number of champions already reaching the goal is probably three or four times greater this year than last year. So, they are obviously going deeper within the accounts that they currently call on. I think the other interesting statistic, and Kevin mentioned it in terms of going outside of endocrinology,

I would tell you that the total number of prescribers in the first six months are -- there is about 3,000 active clinical endocrinologists that actually see patients on a daily or weekly basis in the United States. The number of physicians that actually prescribed product of CGM DexCom G4 in the first half of this year was closer to 6,000 total prescribers. Now, some of those are nurse practitioners or physicians assistants that have the right and the license to prescribe, but obviously more than a handful are also either internal medicine, primary care, general type physicians. So, we are seeing that expansion. Now, obviously, they are not at the champion level, or anywhere close, but they are being introduced to the product, which we believe is they are being introduced by patients, certainly not by our sales force.

That is helpful. Terry, you mentioned that 6,000 number. Do you have any idea of what that number was last year?

I would say that number was probably not even close to half of that.

Okay, very helpful. In terms of the new algorithm, what is the timing on filing the supplement for that?

We are working on that as we speak. Our primary goal with the FDA is to get our peds labeling straightened out, and get that product out as soon as possible. Pediatric indication for the new algorithm weighs directly into any clinical study we have to do for it. So, we're going to sequentially take these steps to execute our plan in the most efficient order possible. So, we are waiting on that for right now.

Okay. Just last one for me, and then I will let someone else have a shot. You mentioned doing more studies earlier in the call, what do you have in the works? Are these more comparative versus other products out there? Are these economic studies? What do you think you need to produce here to keep this growth up?

Sure. I think the most compelling study that we have before us, outside of those that are required for regulatory submissions, but one in particular, we have been very, very successful with CGM first, changing the behavior patterns of physicians, who would naturally migrate to some other technology first. But, based on that, what we really want to do is a combination of both the role of CGM, and an economic component to it, then using CGM first. And be it with injection therapy, which still represents about 70% of the population in the US that receive insulin do so through injections versus pump. We think that CGM first with injections can be a very effective tool, both from a clinical outcome standpoint, obviously, there's never been any study to demonstrate that it is not as effective as pump and CGM. So, that is number one, demonstrate for once and for all, that that exists.

And then secondly, it's from an economic benefit to the payer system, CGM first will cost that system a lot less. And as we look at going forward, and the healthcare economic challenges, we believe that is going to have a play in all of this, as payers look to utilize the most effective tools, and those that are cost-effective as well.

That is helpful, thank you.

Steven Lichtman from Oppenheimer

Hi guys, this is Rosemary in for Steve. Just a quick question on the FDA update with Vibe. Based on these most recent questions, and then speaking with Animas, do you guys still think Vibe is still on track for approval around year-end timeframe?

We had initially said year end would be best case, or first part of next year. Again, these questions just came in from the FDA, and we are collectively still in the process of reviewing them. So, depending on how quickly we can we turn the responses, it's really in Animas' court to turn the responses. Most of the questions, as we have seen, really relate to the pumping side of the system, not the CGM aspects of the system.

So, it's somewhat incumbent upon Animas to respond. I mean, you need to also keep in mind that the diabetes franchises, if you will, of J&J, Roche, and the finger-stick guys, they are all reeling right now. I mean we are seeing reports of headcount reductions across Roche, across J&J, et cetera. And these guys, they are all really struggling internally. So, Animas, as a separate company, is really remaining focused on this. But I can tell you all their businesses are struggling right now.

Okay, got it, thanks that's helpful. Also, I noticed your sensor ASP is a little bit stronger this quarter at around $70 versus, I think you guys said $65 to $70 last quarter. Is this a good price to assume going forward? And is there further upside from here?

$70 is an approximation. These contracts we have with payers on our sensors are set for quite some period of time. So $70 is a good number to model. We don't see it going up significantly in the near term, though.

Okay. And finally for me, can you just quickly provide an update on where you are in China? And that's it, thanks guys.

Yes, I mean we are still evaluating the path of entering both China and Japan. Quite frankly, it is really turning, in both countries, for different reasons on the appropriate regulatory pathway. In China in particular, one of the key challenges is you need to have an FDA approval before you file a particular product in China. And then once you file, that triggers somewhere between a 2 to 2.5 year regulatory review cycle. So, you have seen, over the past several years, how quickly it even, as we mentioned some of the product iterations on this call, how quickly we iterate product. The key question for us internally is at what point do we put pencils down and file the appropriate approved product in the US. So, we are still evaluating that. Still something that is very important on the radar over the next several years, but I wouldn't characterize it as a near-term source of new revenue for us.

(Operator Instructions)

Anthony Petrone from the Jefferies Group

Thanks, gentlemen, Anthony in for Raj. Just a couple of questions, one on Animas and Tandem. As those products are rolled out, eventually as we look into 2014, 2015, just wondering how that plays out in the model? Is it that you are selling inventory to those companies and they are manufacturing the integrated product and then handling all marketing? Just want to get how those relationships will play out over time?

I would tell you, it is a work in progress. We don't currently have the commercial framework put in place with Tandem. We do have a commercial framework put in place with Animas, but as we have said on a couple of prior calls, we're looking to potentially modify that. The current structure with Animas would have Animas manufacturing and selling the Vibe system, and handing the patient off to us to process and supply transmitter and sensors to the patient. We are looking at modifying that to make it more seamless to the patient. Don't really want to comment further, until we get something put in writing with Animas. But, assuming we are successful putting that framework in place with Animas, my guess is Tandem would fall in line into the same sort of business model.

And marketing?

The marketing for the system will be done primarily by the pump partner. Our sales force will not be carrying the pump. Again, we have multiple partners, we have to remain somewhat neutral in terms of recommending one pump versus another pump. Our mission is to be, as Terry mentioned in his concluding remarks, the Intel inside. So we are going to provide pump partners with best in class CGM technology to enable them, frankly, to complete more effectively with Medtronic. But, our sales force will have, to the extent Animas or Tandem provide us with marketing literature, for example, that we could hand off to the endocrinologist, we would be, certainly, happy to help on that front. But, you won't see the DexCom sales force carrying an insulin pump in the bag.

Great, great. And then a couple of follow-ups. It doesn't seem, certainly, your business is not directly impacted by this, but any high level comments on the new CMS rates for home diabetic supplies? How that plays out?

It really doesn't impact us. Number one, we are a class III medical device, so we are not subject to competitive bidding. We have no actual technology assessment by CMS, so we are not covered by CMS. As Kevin said, more than 98% of our patients have some form of insurance coverage, that 1.5% or 2% that don't tend to be those patients, unfortunately, that are Medicare, so they have to pay out-of-pocket. So, I don't see that as being impactful, other than downstream when we will replace finger sticks entirely, is what our stated goal has been as a company. But, outside of that, I don't see anything.

All right, great, thanks.

And at this time, I see we have no further questions. Please continue with any final remarks.

Sure. Diabetes is, unfortunately, growing at unprecedented rates both in the type 1 and type 2 population. And although billions are being spent trying to correct that, trying to cure it, trying to do all these things, it is an insurmountable task at this point. Obviously, the G4 Platinum system is extremely effective, and I would just close this with you, the audience, you know somebody in your family, your sphere of influence that has diabetes. And you owe it to them to introduce them to CGM and introduce them to the DexCom G4. You will certainly improve the quality of their life, and you may, in fact, save it. And I will close with that.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating, you may how disconnect.