Welcome to the DexCom First Quarter Year Earnings Release Call. My name is John, and I'll 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'll now turn the conference over to Mr. Terry Gregg. Mr. Gregg, you may begin.

Thank you, operator, and thank you for joining DexCom today for our first quarter 2010 earnings call. Joining me today from DexCom is Steve Pacelli, our Chief Administrative Officer, and Jess Roper, our Chief Financial Officer. I'm going to ask Steve to speak to our Safe Harbor statements. 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 here of. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under risk factors and elsewhere in our annual report on Form 10-K, our quarterly reports on Form 10-Q and our other reports 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 is not been prepared in accordance with GAAP in respect to our convertible debt. This non-GAAP information is provided to you to enhance our overall understanding of our current financial performance. Presentation of this additional information should not be considered isolation or as a substitute or results or superior to results, compared in accordance with GAAP. For reconciliation of our GAAP and non-GAAP financial information, please review the press release we issued today which is available on our website at www.dexcom.com. Terry?

Thanks, Steve. So, I'm going to stay with our standard format for the call today. Jess will start of with our financial review of the quarter, and then I'm going to follow-up with a commercial update including Q1 review our pump partnership, hospital partnership. With Edward, the technology update and then I'll conclude with some comments followed by a question-and-answer period. Jess?

Thank you, Terry. DexCom recorded product revenue of approximately $6.8 million for the first quarter of 2010, compared to $2.7 million for the same quarter in 2009, an increase of over 153%. Sequentially, product revenue for Q1 increased by 2% in the prior quarter. During Q1, we sold approximately 2600 systems, sequentially sensor revenues were up 4% from the prior quarter. Total revenue for the first quarter of 2010 was $9.5 million, compared to $5.2 million for the same quarter in 2009 and included $2.8 million in development grant and other revenue from our development and collaboration agreements. Cost of sales including both product and non product totaled $6.1 million for the quarter. Product cost of sales totaled $5.1 million for Q1 of 2010, compared to $3.5 million for the same quarter in 2009. Sequentially product cost of sales declined from $5.5 million in Q4 of 2009 to $5.1 million in Q1 of 2010. The corresponding improved product gross margin totaling $1.6 million in Q1 of 2010 compared to $1.15 million sequentially from the prior quarter was due primarily to additional manufacturing overhead absorptions as we increased our inventory during Q1 to accommodate for current and forecasted increases in sales. Development and other cost of sales totaled $0.9 million for the first quarter of 2010 and remained flat sequentially as compared to the prior quarter. Research and development expense increased $1.6 million and totaled $4.7 million for Q1 of 2010, compared to $3.2 million in Q1 of 2009l. The increase in R&D costs was attributable to additional efforts with our next generation ambulatory products. Sequentially R&D costs increased by approximately $0.6 million from the prior quarter. As a reminder R&D costs associated with our development and collaboration agreements with Animas and Edwards are included within development and other cost of…

Thanks Jess. The first quarter of 2010 represented yet another quarter of sequential product revenue growth for DexCom. As I mentioned during our Q4 2009 earnings call, the first quarter is traditionally a seasonally slow quarter in the durable medical equipment business, primarily because of annual insurance deductibles reset in the new year, and employer sponsored flexible spending accounts have not yet been adequately funded. I also mentioned that we saw in January in the first part of February a short turn slowdown in patients willingness to completed their starter kit for just as until such time as their deductibles were appropriately reduced. None the less, we finished the quarter strong, achieving total product revenue of approximately $6.8 million shipping approximately 2600 starter kits during Q1, and posting an incremental increase in sensor revenues on a sequential quarterly basis. Looking forward, we are pleased to report that demand for SEVEN PLUS is strong. Our pipeline or a number of CGM referrals we receive continue to expand and we expect the positive trend in pipeline growth we've seen over the last few months to continue throughout the remainder of the year. During Q1, we launched our first direct to patient marketing campaign focused on the MDI patient and early patient response to the initiative is encouraging while throughput in our back office continues to be our primary challenge due to the administrative and documentation burden certain payers have placed on patients, and their positions to demonstrate medical necessity. We believe the reimbursement bottleneck is easing. While challenges remain, we continue to believe that as the insurance companies gain experience in processing CGM claim they will gain a better understanding of what information is appropriate and necessary to make a time line coverage decision. We expect these administrative challenges to resolve themselves…

We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Thom Gunderson from Piper Jaffray. Please go ahead.

Jess, you mentioned the better gross margin on essentially just a little better sensor sales and inventories going up. Actually, they went up maybe not much in total dollars, but 50% in the quarter. Is that a comfortable level now, or are you taking maybe a slower quarter to build up so that you are in position for Q2 and Q3, which could accelerate. How should we look at inventory changes as we through the year?

We built up inventories for the quarter because like we said forecast of sales is currently down the road. We were at fairly levels of consumable inventory. We wanted to build that up to a little bit higher level, just anticipation of additional sales. We may build that further, but at this point we are fairly close to our target. Then we will change it, and update it quarter-to-quarter.

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

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

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

Yes. That's correct.

Okay thanks. And then, just a third question. There was some noise around, the FDA is holding meetings on infusion pumps which I don't think was directed substantially at glucose monitor or glucose insulin pumps but still the small print did include them. Do you or Andy or anyone have any views on how the regulatory rules might change for insulin pumps going forward?

We really don't. We've talked obviously to the folks at Animas and the folks at Insulet and their read on the same situation Tom and they in turn have also had some more conversations with their counterparts at Medtronic and Medtronic Roche/Disetronic. And no one really has any opinion at this point. I think it's too early. Their communications are reading the same documentation that we're all reading without any definitive answers coming from the agency at least at this point in time.

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

Wanted to follow-up on a couple of things on the reimbursement side that you mentioned Terry. Maybe Steve can answer this as well but you talked about the environment improving. Can you give us some examples of how that's changing and how you're getting closer to this being more of a turnkey sort of solution?

I'll take that one. What we're seeing without giving any specifics on, there's a jet flying over the building here me. What we're seeing is on more of a regional and local basis that we're seeing payers just starting to ease the restrictions and more particularly the burdens on documentation that they're requiring. They might not require three months of blood glucose logs for example. Maybe a month is sufficient. And so we're starting to see some of those challenges, but really, as I mentioned before, the Blue Cross Blue Shield National Association and their affiliated plans are really still the toughest. They encompass probably $90 million or so of the covered lives in the United States. So there is the 800 pound gorilla and we've got to work with each regional state, regional plan kind of on a one off basis to work to liberalize these things. So it's going to take some time. But we have dedicated resources that we mentioned in our prior call that we had created a position and we've now filled that position. So there is a field based individual with three or four folks working for that person. We're charged specifically with working the payer system to work at the medical directory level to really help educate the plans and help them understand that the documentation that their requesting and requiring is really just not required and it really should be in the purview of the physician writing the script and certifying the letter of medical necessity that the patient should be qualified. I'm going to let Terry jump in and this really is paralleling what you saw.

Yeah, it's just happening a lot faster. I think the driving force is the fact that the JDRF trial as a landmark trial stands on its own, irrefutable in terms of the outcomes of that which even the pump world, we never had the benefit of historically. So I think that's again with a focus and the accumulation of more empirical data demonstrated in the benefits in this arena will continue to move forward. But it's going to ease up and that's why in my prepared comments I had estimated somewhere in the 12 month to 18 month period where we'll all see a change in those requirements. It's a burden on us but we're getting a lot more efficient as to how to handle that without having an increase on the interoffice structure to accommodate that. So again, it's a dual pronged approach. Steve's right in that we're now the dedicated source in the field. But we also from a streamline standpoint in the back office are able to process more with fewer.

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

That's correct.

And what's the process for switching them to fourth gen when the time comes? Is that a kind of a staged opportunity where you wouldn't want to go too far with Gen3 and then quickly switch to Gen4? Is it a change of handheld? What's the logistics if you switch to 4?

Actually Ben, there's a pretty simple path. I cant give you the specifics of the upgrade path because they're still being worked out but I can tell you that Insulet has the capability of just upgrading the firmware within the handhelds that wouldn't require the patient to obtain a new handheld. It would simply be -- you recall we did something similar when we upgraded from the SEVEN to the SEVEN PLUS. We had the patients remotely upgrade their firmware and then they were of course required to purchase a new transmitter which would be the case upgrading to the Gen4.

Okay, so that's the only real switch. And then you talked about the modified transmitter for Animas to launch and filing the PMA supplement later this year. Is that kind of a year end sort of event given some of the delays you've seen Terry or can we look for it before then.

Well we're still going through the technical review of that as late as last night with their folks being here. Obviously, if we can pull that in earlier, we will since it is a brand new transmitter versus the existing transmitter with the Gen3 system. Some of those still challenge us. So I would not want to predict other than in the comments that I made by the end of the year.

And then you mentioned the Edwards relationship in terms of having the first gen product. Can you give us some insights into launch plans for that product and then when you'll have the second generation version next year and how that would be different in terms of how you roll that product out?

Well, the first generation product, because it's a first in class device, we had to go through certain clinical attributes for it and that study is it's, the last patient is completed and they're now going through the analysis of the data to submit and although it is commercialized in Europe and they have a limited launch there but their collection a tremendous amount of information. The second generation, which is more ease of use with the device, would be a supplemental submission to the first submission. So I think the expectation is sometime mid to late next year for that full commercialization. But I would defer to [Carl and Solomon] and the folks at Edwards as to what their launch plans are.

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

You mentioned that in kind of late January or early February that patients were waiting for the deductibles to go down. Was there something, a change in reimbursement or something that would have caused that?

No, I think that the first time, now lets go back to January, February of 2009, and the adoption curve was such that, there was a patient population who were not price sensitive. And so they didn't care what the amount was. The wanted the product. And think about iPad. I am sure you are probably one of the first people to have iPad. I know I was because I'm a technology gadget guy. So that's kind of the category. Now as it gets more mature and that adoption gets to a greater percentage, there is price sensitivity in terms of the co pay. So in the case of these patients, they were qualified in terms of their prior authorization from the third party payer that they're subscribing to. But given what their co pay was at that stage in January and February, they wanted to wait. Now they've got other things contributing to meeting that co pay that are in many ways consider them essential at this point. And so as they contribute more to that, then their portion of the co pay as it relates to the acquisition of a starter kit goes down. So once we hit around the second part of February and into March, we saw that begin to diminish and obviously in the March timeframe they came in my terms kind of rolling back into the fold and we certainly have not seen any lessening of that as we move into the second quarter.

Okay. So its far to say that January and February are a little weak and as you came out into March and April its come on very strong is kind of way to think about it.

Yeah, and I had if you remember in my comments kind of at the close of Q4 comments and wrapping up the full year. We expected it. It was not something, we knew it was going to happen at some point as the technology matured and the adoption moved closer to my guess is as a category, probably approaching 5% or 6% penetration in the type one market in the U.S. with CGM but these are things that we're going to expect. We certainly historically and the pump world always saw them and if you look at even at some Q1 quarters for pump companies, they'll actually be less than the Q4 quarter because of these related flexible spending accounts and meeting the deductibles. So we did expect to see a little softening and we did but we've certainly, as we mentioned pipeline is very robust right now.

Okay, and then the PMAS filing for the combo OmniPod device, on the timing of that, was it closer to, was that in the Q1 in the March timeframe or was that a Q2 event?

Well we're not going to give you any more clarity on that because I don't you guys coming today. We've guided that its 180 supplement, give or take a few months and hope to launch. Kind of best case, we'll be launching in the fourth quarter. If it takes a little longer at the agency, it's probably a first quarter launch.

Okay. And then just with the Edwards, your Gen1 is in the market today. Kind of where are you in the progress deferred development at the Gen2 product OUS?

It's not necessarily -- I would look at is a global rather than an OUS launch Gen2. I think the Gen1, the reason it was easier obviously to get into through CMR process into Europe. So, that's why it got lines plus they wanted to really learn a lot about utility within the ICU, and they are certainly gaining that experience in the number of occasions in Europe. The goal for the Gen2 is a global launch both in the U.S. as well as Europe.

Okay, and then in the U.S. I think you had mentioned that you needed a little extra data or certain things because in certain clinical data, do you -- in you discussions with the FDA, do you feel that you've done all the studies and all the testing you need to push it through, I know it's kind of hard to handicap the FDA these days. It's a moving target, but the level of confidence that you're providing them with everything at least to date that they wanted to whether they wanted for this filing?

Yes. To the best of our estimates and the defined hour is Edward's regulatory personnel and our of course are regulatory personnel in discussions with the agency. We believe that this latest clinical trial will meet all of the regulatory requirements that the U.S. FDA is expecting to see from the outcome of this trial. That was a significantly large trial, and again that data has not been analyzed, so even I don't know the outcome of the data at this point, but as soon as it goes in, I'm sure Edwards will share the outcome of that.

Again lastly, is there a venue at which will be able to see that data this sometime this year?

It's really up to Edwards as to how much they are willing to release the information I know that A, they had one of their protocol B investigators speaking to certain aspects of this experience of that IDC, but I don't have time table or schedule one they expect to release clinical data at major meeting.

(Operator Instructions). Our next question comes from Bud Leedom from Global Hunter Securities.

Thanks for taking my questions. First of Jess, did you have a stock-based comp figure in the quarter?

We did. It was $2.3 million.

$ 2.3 million, okay and then Terry I was wondering if you might just dig in a little bit more and be direct to MDI patient in terms of some of the strategies that are ongoing at this point?

Well, as well call on entrepreneurology, it's very apparent to us that many of these practices still believe that CGM is closely associated with pump therapy. We really needed to debunk that myth and so from that standpoint we have acquired certain mailing list of patients with diabetes that we know are multiple daily injection not pump patients. So, we've targeted them. We've also -- we know what our ratio right now our installed based still runs around 60%, pumpers, 40% MDI and so we target those patients as well in terms of reinforcement and to some of the entrepreneurology-based practices and to the health education, ADA practices that the target is to identify patients who maybe appropriate for CGM and are not aware that the outcomes associated with CGM and MDI are equal to the outcomes associated with pump and CGM. So, it's the traditional type of media, their some front media that's involved. There's electronic media that's involved in terms of that target audience.

And then just finally sort of longer range. Looking at Europe and given the large pan penetration which maybe somewhat challenging for Anima's to convert initially. Are there any other plans you might discuss regarding CGM penetration as the market, it should be fairly unconstrained for CGM?

Well, we believe it is unconstrained. I think the challenge in Europe is the lack of reimbursement. So, it's still going to be a slow growth market regardless of how the insulin is delivered, but clearly of the largest proportion of patients on insulin therapy there utilize either disposable or durable pans and that's an active market for us. We don't want to get ahead of ourselves from the distribution standpoint, but we certainly engage in discussions with multiple global players both from the device and pharma side as to what they are thinking in terms of that global reach to a much greater degree than DexCom could forseeably reach with even the kind of infrastructure that we have in place now, and that's mainly using local distributors in each country and as they are away for in a global capacity. We're engaged in those discussions, but early in the discussions is to how to reach that audience.

Our final question comes from Shawn Fitz from Stephens Incorporated.

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

Yes. Right now, our last survey Jon indicated that we were about 60% pumpers and 40% MDI patient. And that's actually that held steady for approximately the last 18 month.

And we expect that number obviously when we launch with Insulet and ultimately with Anamis, that ratio is certainly going to go which initially will go in favor of the pumper. Shawn, right you are going to add several hundred additional feed on the street as describing the benefits of CGM. We're really doing better with Medtronic for their pump patient. So I'd expect that number to shift by this year early next year, but that will really free us out to focus -- really focus our efforts on the untouched MDI market.

Right, and so Terry and Steve when we think about the typical MDI patient that is using CGM, are these folks that have one time in their life have been pumpers and maybe have used and integrate solutions, and kind of evolve to CGM only patient. I'm just trying to kind of understand the progression of those patients how they get the CGM with MDI?

I would think there is couple different ways to look at these. There is a body of patient who don't want to be tethered for any reason whatsoever. And now you've got a series of durable pans, you've got disposable pans with mixed insulin that they can pretty much get whatever they need in terms of the insulin that they want fairly efficiently and moving to pump therapy as a lifestyle decision, and I think that's probably the biggest group that we are addressing at this point, and it may in face be part of the pathway for a lifestyle decision that once they go along with assuming they are on pans and they are using CGM, they get more comfortable with technology from that standpoint, and then make a decision to move from there to pump and CGM, but I would say that the number of patients that are abandoning pump therapy to go to just CGM and injection therapy, isn't a large number, isn't a large portion of that 40% of our MDI patients.

Okay then and this maybe something that it is impossible to kind of speak up to qualitatitevely as well, but when you look at your mix of pumpers that are currently in your patient population. Is it your sense that says for example, Medtronic pumpers that you have its customers sorted out at Medtronic CGM customers and transition to your customer base or are they new to CGM as well?

I would say that a larger portion of the Medtronic pumpers on DexCom CGM were initially on Medtronic CGM and that product failed to meet their expectations. So their physicians or educators have recommended DexCom to replace the Medtronic portion of the CGM and that's part of it and in some cases, many prescribers of Medtronic pumps actually only prescribe DexCom CGM with Medtronic pumps and the only time we would ever technically lose that battle so to speak is when the patient doesn't want to carry the extra receiver.

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

I don't really know about ADA. We've looked at what is being presented and I don't think there is any landmark. There will be some additional analysis that go on with the JDRF trial from a CGM standpoint that our STAR III trial is reportedly going to be presented, which is in more favor of [Thomson CGM] although that trial unfortunately only compared to MDI, and that's NBG did not compare to MDI and CGM versus verbs pump and CGM. So it's a very flawed trial from that standpoint. You just have to be careful about reading the outcomes of that and understanding it. But outside of that, I'm not aware. There will probably be some additional data on type two patients in CGM. I don't know what doctor Dr. [Gregorski] is going to present. He is the one that had a presentation or poster session of 100 patient's type II insulin using CGM and SMBG. That was in November and I'm not sure if that study is going to be presented at ADA, if it's done enough or completed enough. But there may be some update on that analyst day. But that's about to extend what we're aware of.

Okay and then one thing just popped in my head here to try to understand. You've guys have addressed kind of seasonality as it relates to starts. Its safe to assume as well that that seasonality impacts your utilization numbers and would it be reasonable to think that maybe its even a little more pronounced as possibly people stock up as they exit the year or realize they've got money in their flexible spending accounts and so we should see a similar effect in the utilization, I guess is what I'm asking?

Well they're limited regardless of what they have in their flexible spending account. Right now the overwhelming majority of patients plus 90% are covered by a third party payer system. So less than 10% are actually cash paying patients. So in that scenario, regardless of what they had left in their flexible spending account, if the payer limits them to three months of sensors, that won't change seasonality wise. I don't see that. What we are seeing, an increasing trend is more frequent utilization, less going off the sensors for any period of time. So we're getting more, I guess we would classify it as uptick in utilization or on time use of sensors on a forward looking basis.

We have one more question from Bill Plovanic from Canaccord. Please go ahead.

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

57 million. And then you'll want to add in about 9 million with options. [Multiple Speakers]:

If there is outstanding, it is 57 million

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

That's correct.

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

I would say slightly up on the starter kit. So yes, we were trending 700 to 750. I would put now in the 750 or a little north of 750 for the starter kit. Since those are holding pretty steady, maybe slightly north of $60 on average per sensor.

And then attrition rates historically, I think we were assuming about 15%. Have you seen difference with that you get a little more sticky these days?

I'm not going to comment on your 15% number Bill but I will tell you that anecdotally we're seeing much greater stickiness. I would say we've seen a trend in better stickiness kind of post SEVEN PLUS launch which if you remember the convergence was we launched the SEVEN PLUS into a time where we finally had ubiquitous insurance coverage. So I can't tell you exactly where its product performance from the SEVEN PLUS. I think it's a combination of factors and product performance from the SEVEN PLUS the fact that patients aren't having to come out of pocket for it. As Terry mentioned, over 90% of our patients now are receiving some form of reimbursement for the products. So that has certainly helped.

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

We're not going to comment on that. You can all imagine.

We have no further questions at this time.

I would like to conclude with a couple of comments. Again thanking everyone for joining us today. Operationally we're really hitting on all cylinders as we move into the second quarter. The role and benefits of CGM in the ambulatory and hospital settings continue to grow and DexCom is leading the technology curve in both of these categories. Our fourth generation sensor system is the next step in terms of accuracy, patient convenience and ease of use and as I mentioned, the PMA submission will occur this quarter. Our partnerships are progressing with us having filed the PMA supplement for the DexCom Insulin Combination System and Animas to follow later this year. Edwards and DexCom are targeting mid summer for the submission to FDA of the GlucoCare clear product and Edwards is receiving rave reviews on the product in the Europe sector albeit a small limited market introduction. Our Gen5 sensor technology along with our SMART technology platform continues to make excellent progress. I think I will close with just simply, we're really good at what we do and I couldn't be happier with where we're at in this space. Thank you.

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