Welcome to the DexCom First Quarter Earnings Release Conference Call. My name is Christine and I will be your operator for today's conference. [Operator Instructions] I would 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 am 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 our 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 Gen4 Sensor platform. I am very pleased to report that we filed a PMA with the Food and Drug Administration seeking approval of our Gen4 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 Gen4 Sensor is truly remarkable. An overview of our Gen4 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 PM Eastern Standard Time. Additionally we have submitted a Late-Breaking Abstract with the full Gen4 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 Gen4 is over 20% more accurate than the Seven Plus and even more importantly the Gen4 is 25% better in the hypoglycemia range detection than the Seven Plus. Additionally the Gen4 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 Gen4 clinical trial in which we captured approximately 10,000 matched data pairs as compared to only about 2,000 matched pairs…

Thank you, Terry. I will 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 remain between 70% to 75% on the consumable side and 25% to 30% durable products and our ASPs remain 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 remain 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 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…

Thanks, Kevin. As we look to the balance of 2012, we will continue to drive our message supported of course by public 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. It 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 the computer screen. This does not help patients and that’s what we are 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 lack 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, to public and particularly the Food and Drug Administration. And finally, disclose your proposed calibration requirement. If you have to use 4 calibrations a day to achieve a minimal level of acceptable accuracy, be upfront, be honest about it, don’t try and hide it…

[Operator Instructions] The first question comes from Thom Gunderson from Piper Jaffray.

Kevin, could you talk a little bit maybe about what Terry has described in the past, a sticker shock where people are getting their insurance, higher co-pays, higher to deductibles and you seen 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 co-pays above their net and they are lower. With respect to sticker shock and Terry has been on the field more than I have, but I can certainly state my observations, not a whole lot different to where were a year ago. While premiums have gone up, they not gone up significantly over where we have last year, so we were better prepared and knew what we are walking into this year better than we did last. So that’s not as -- that was more of a planned for factor there 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 where patients continue to reorder and things are going well.

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 breakdown the elements rather than give you every single detail. Our product development revenue really consisted of a couple of things. The first one is the amortization of the prepaid development cost that we received from our partners across the board. Edwards, Roche, Animas and Tandem and so there is an element there and then there is the direct billing -- that we relationship that we have with Edwards on the actual cost that we incur. We build on what we have incurred and that goes into that line as well as. 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.

And last question Terry, I didn’t think this was possible, but you sound even more positive on Gen4 than you have in the past. Did that lead you to the interstitial in the hospital decision?

Well, to a certain extent yes. Clearly, we’ve been playing around with this and the factor is it’s actually another generation sensor that we have developed which was a specifically developed for that environment. But when you start looking at the Gen4 improvements and particularly if you look at the durability of it, I mean when we get to day one is always the toughest in that sensor configuration. But even now we’ve done much better, if you look at day 2 through long durability and certainly in a clinical study, we can go beyond the 7 days, its ability to track remarkably in single digit MARD that lets get going on that and this is exquisite enough. And so we nearly then started Gen4 in some environment 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.

The next question comes from Ben Andrew from William Blair.

I wanted to talk a little bit about the split in consumables versus durables; I know 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 in churn rates?

Well, I will go through a couple, I am curious if Steve have anything if I read something out. We placed a lot of kits this quarter; it’s a very good hardware quarter for us; we are very pleased with what we achieved. With respect to sensor reorders, the result again is strong and they’re what we thought it would be, I can’t tell you I can reiterate Thom’s comment from earlier, a lot of patients buying up in December that when we talk to them in February or March, a lot of them say, not ready yet, I’ve got plenty. So we are pleased with the sensor results knowing even that the people stocked up in December. And as we 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 think they might want to restrict that versus obviously take the additional financial hit of not having to co-pay if the patient order on schedule?

It depends on the payer Ben; it depends on the plans, some plans. You can only order X in a given time period, others you stock up. We experienced this in the pump business for a long time before here Terry and I have so it’s plan-to-plan.

Ben, it’s Terry. It’s pretty much 3 month is the maximum that a plan will allow; 2 months is pretty normal, 30 days is the short end of that. So I would say the majority if you’re looking at, the curve; the majority would be in that 2 month type of timeframe that has been on any blog that you read, the utilization and durability of Seven Plus can certainly be extended if a patient so chooses and obviously we prefer that they would use it according to its labeled indication, but we can’t control that at this point of time.

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 Gen4 has some advantages, but how quickly can you achieve those after the launch?

I’ll start, Jess if you have anything to add then go ahead. Never -- no really no one time hits in Q4 like we had that I mean in Q1 like we have 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 are to be commended. So given that our COGS are very much volume-sensitive and our cost for product is very sensitive, as volumes go up, we see some improvements. With respect to the Gen4, having the positive effect on margins; then it will, but there is going to a time that it takes to burn it in because for quite a while we are going be manufacturing more Seven Plus sensors than we will Gen4. We will have to burn the line over and make some changes and plan for that. So it’s going to be a little cloudy as we emerge from Seven Plus into full on Gen4 launch, we will definitely see that improvement.

And then, Terry, you mentioned the performance characteristics in your transmitter. You haven’t talked about that I don’t think much before, is anything else about that we should be aware of in terms of the performance characteristics of flexibility that keeps your patient beyond just the range and what does that do to your starter kit price or your cost on the finance?

It's not going to do anything to the starter kit price and we are pretty stable on that and believe that we will 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 are in another room, you are not going because of that range of 30 feet even going through walls as an example. If you go line of site, it's closer to 50 feet of connectivity. So you have that flexibility and that was pointed out during data capture, 99% of all the data points in this clinical trial with patients roaming around were still captured by the receivers, so it really increases the flexibility. I mean I would 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.

So just want to get clarity on the Gen4, so you filed the PMA, will you have a 100 day meeting or if they accelerated that timeline for you at 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 are not particularly looking for 100 day meeting per se. We are looking for the feedback, are there questions that they may have that we need to respond to. The difference what we are seeing now given their what I will call rapid response and collaboration with us is they are doing it through email rather than through that traditional kind of I send you a report and then the clock stops and then we restart the clock when you send back your response. I think they are doing everything in their power to get this through their process as quickly as possible. They have seen the data, so they know what the output is and the clinical endpoints are. So now there is the methodology so I really don't think we are going to see "that formal 100 day meeting" but that remains to be seen.

And then as you look at the sensor augmented pumps and just the timelines on those, I think you were pretty clear that you will wait until approval of the PMA for the Gen4 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 6 months exclusivity and I believe that's US and then Insulet goes or can that change?

Let me kind of give you, I will give you the 35,000 foot view and then let Kevin and Steve because they are 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 have 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 are there this week face to face and they have really been responsive, so if they kind give us a nudge and say 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’d just hold on when that submission. As Kevin mentioned in his prepared remarks we will give you an update next call. We will 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 Gen4 and subsequently on Gen5 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 Steven 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 are about to start a peds trial. We haven’t even discussed with our pump partners, do you want to wait until 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 will know where we are going to be certainly on our next earnings call. So there is not a magic day.

I would to your question on the 6 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 have still got a little development work to do with input. 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 will address that if and when it arises. I think frankly it would be a good problem to have if we have 2 pumps ready to go at the market at the same time.

I think the takeaway here though is that 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 Gen4 through and then we will work on the sensor-augmented pumps or the peds trial would have 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. Then just last question, a simple one, any Gen4 a possibility for a mandatory shut off either by you or the FDA and then do you think that will come with the Gen5?

Well that's crystal balling a little bit and 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 a recommendation, in fact does not place the patient in any harm to make a worse decision. Then they are less focused on forcing a shutdown. I certainly think Gen5 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 attend a claim as an example that they might want to then shut it down. But it's premature at this point to really speculate.

The next question comes from Raj Denhoy from Jefferies & Company.

This is Amy and Paresh [ph] today. Just a couple of questions around the opportunity to possibly extend the labeling and reduce the calibration cycles. I know there was a study presented at ADA last year that you all had some data showing positive, how is it with the original Gen4 studies. And I think it was for 10-day. Is there a potential that you all could study and look to go beyond that?

Actually, the study that you are referring to I think came out of Barbara Davis and it was actually believe it or not, not on the Gen4, it was on the SEVEN, not even the Seven Plus. So that’s been obviously a few years ago as that Dr. Satish Garg presented. And most recently obviously we continue to do a number of studies looking at Gen4 and the beauty of gathering lots of data as 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 build 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 result and robustness to present to the agency to get them comfortable with such a reduced calibration scheme.

And then on your question on durability, could we go longer -- it becomes a trade-off in terms of sensor or human physiology in sensor performance. And firstly all of our sensors last the full 7 days. You get to a point at which beyond 10 days, you get to 14 days so there's a point at which it’s somewhat out of our control, because the immune system will wall off the sensor and in more bodies than it will not. So we get to a point where we would have -- we would want to be carefully selling a 14-day product that's only lasted x% of the patients. We need to get to a comfort zone where basically all of the sensors would last to whatever our labeled indication would be. So that's kind of how the trade-off would work there. But it lasts longer sure, but does it last longer in all patients, is really what the question is for us.

So we saw in our report today where there is gain going on and it lasted 42 days, so I mean that's an unusual, we were “wow” to.

And then I guess a question from the manufacturing perspective, so provide say the Gen4 getting 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 1 million Gen4 sensors out to Gate. There will be a scale up effort, we work on it every day and we have plans to 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.

And then just a last one perhaps on the international markets. As that seems to be quite strong for you all and from competitors that as well recently. Have you all seen any changes in the reimbursement environment that is now supporting CGM use or is this just 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 it doesn’t different keeping in later from countries got up and talked about reimbursement. And 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 are some out of pocket, but in many of the countries the hospital is the distributor of the product, so the key physicians resides within the hospital network. They get a budget for diabetes supplies and they allocate a certain number of the supplies to strip 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 is 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 that reduces some of the other costs associated with treating diabetes complications.

The next question comes from the Danielle Antalffy from Leerink Swann.

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 are seeing that again this year or are we are 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. We are better prepared for it. As Kevin mentioned the increase in the premiums, far less of an increase in 2012 than we saw in 2011, in many cases the increase in premium is single digit and last year it was much, much higher well and in some cases we saw a 150% increase. So things have moderated from that standpoint. Also just think that CGM in and of itself is being greater adopted across a boarder spectrum, and so it’s getting more patients to realize that regardless of the deductible, you are going to spend it one way to other. If you think about the dynamic of that, if you have let’s say $1,500 deductible, you are eventually going to spend the $1,500. Whether you spend it on day one or you wait for 6 months to spend it, but ultimately you have to spend it. If you have the wherewithal, from an out of pocket standpoint, we are seeing more patients willing to spend it upfront to get the benefits of CGM. And then as other things, the rest of their deductible or the rest of their co-pays is at that 18-20 or whatever the plan calls for.

And not to be ungrateful, or look too far ahead from the Gen4, but just thinking about the Gen5 in your discussions with FDA, did you guys have any sense yet of what sort of regulatory pathway Gen5 will have to take? How long it might take to get Gen5 to market or can you move pretty quickly once the Gen4 is approved and launched?

Well, remember that Gen5 is a hardware change using the same membrane on the Gen4. So if you think about a risk standpoint, obviously using new materials and that are within the interstitial or the body fluids, it’s certainly are more challenging than the hardware change. I think the biggest challenge of Gen5 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 are 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 of the challenge; if you think about this from a hardware standpoint and communications going out, the hardware is changing that rig because it’s a commercial product. 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. The FDA realizes this and they are 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 a part of this interaction is certainly reached out to companies that help them along that path way and we are I would say probably pretty close to the forefront of that with them and trying to discover the solutions to the challenges.

Our next question comes from Caroline Corner from MLV.

So just first of all on the follow up to that last question then with regard to the Gen5 being a hardware change mainly? Should we expect that one or are you optimistic at least that, that might be just be a PMA supplement and then as we look at Gen6 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 the submissions, certainly we believe that Gen5 would be a PMA supplement and it is clear to us without any doubt, whatsoever a Gen6 technology because it would include some changes of a significant nature would be a full blown new PMA.

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

And yes and I would say you're right that they launched the program at their national sales meeting in February. I would say we are still on the very early stages of the rollout, so certainly not material to the number for Q1.

And then my last question Terry you have 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.

And do you mean bottom-line profitable there over what you were referring to?

We are talking about cash flow.

Cash flow there, non-GAAP. We are not going to try and make up all the non-cash over there.

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

The next question comes from Steve Lichtman from Oppenheimer & Co.

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 will do it now and our program with regards to hypoglycemia awareness campaign has been hugely successful and I am, I knew or felt that 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 and my write-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 experienced hypoglycemia and oh, yes, okay. Well, yes, CGM could be effective in that, now they're telling me a year later how it's so important for CGM and that patient population that 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 have seen in the field over the last year is now we get questions about reimbursement for type 2s. Now they're talking about why 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 are not very far along, policies are changing. So we are getting down that path way, but for me the important part is their mindset. Now they are looking at CGM across the diabetes spectrum. They are not isolating it to type I patients. They are not isolating it, only to those patients on pumps. They are looking at it across the spectrum of diabetes as an effective tool and the armamentarium of tools necessary to reduce glycemic variability and in that glycemic variability in and of itself 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. And if you looked at things that were going on this weekend in the national news media about type 2 diabetes and adolescence. The main point was look metformin by itself isn’t working so now you are going to put them on glitazones and that's a little scary for the rest of their life, but it is all about the inability to control glucose levels effectively and I think that they are getting there.

And then just lastly I apologize if I missed it, 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 2 very distinct questions there, probably selling to in about 4 or 5 countries will probably be in upwards of 7 or 8 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.

The next question comes from Ben Haynor from Feltl and Company.

On the Gen4 sensor, does that have better characteristics when it comes to interfering substances such as sudamenafin?

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 are working with the agency to know exactly what that claim is and we will 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 are looking at interferons walking for a far greater range of drugs and than just sudamenafin, but at this point to answer your question yes but we don't know if that's good enough for a claim.

Great and this one might be a little bit more broad, but do you have any metrics to measure kind of a 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% certain that they will still be using it in a year.

No I have only referred to your report that you issued today which seemed to indicate that upon longer use there is greater traction.

I was hoping you guys might have some other numbers that I wasn’t 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.

The next question comes from Jonathan Block from SunTrust.

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 2011?

We said we are approaching 10% and in 1Q11 I would say it is much less than 10%. We are not going to break the percentages out. We don't -- ultimately when we get above 10% for SEC purposes we will have to break it out. We are not above 10% yet and we certainly weren't last year.

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

Okay, and like you said, 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 done and 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 that particular segment. Are you talking about the international segment?

Yes I am talking about the international segment, Terry.

Yes, and because our payment policy is such that they have to pay for product upfront, so they are not going to stock and hold in anticipation of selling. They are on the hook immediately upon order. We don't carry an AR with them.

Not much, and 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 have got my arms around the filings or different filings. It sounds like and I don’t know want to word in your mouth Terry, but it sounds like Gen4 is actually going maybe a little bit better than planned 3 months ago but in terms of the, call it concurrent filings which were the plan maybe 90 days ago, even if you take more of a wait and see and have some interaction with the agency on what may be best in sort of sit tight and wait for the update on the second quarter conference call. Is that 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 2 times and you are hoping to go to one with expanded claims and your belief is that Medtronics next-gen will require 4, is that what we should be looking out to.

All I can tell you is published data and they haven’t called it out particularly in any data that they presented, but if you look at the graph, all of their graphs have indicated that they achieved the level of accuracy with 4 finger sticks per day. They recommend in the European sector for in like 3 to 4 finger sticks per day, but that’s all we can talk about. They have not been very up front 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 the calibration scheme that might work better for our patients. Even one a day maybe some increased calibrations the first couple of 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 have seen the data and been able to analyze it.

Okay. And last one for you guys, I promise. 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 see that appear in the model?

Yes. This is Kevin. I will take that. There is 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 are 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 till we get up to partner launches. So we will see continued leverage on the sales expense side. Literally, we are seeing that now. On the marketing side, we are spending more money. We are investing more on campaigns. The results of those campaigns were spoken of a great length by Terry previously when he just answered the question about what are you seeing in the field. We are seeing those things pay back and on G&A side we are 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 have got 34% more people in our sales organization and marketing organization than we had in the start of 2011. So a lot of that is headcount but that’s going to remain relatively consistent. So that will be leverage. On the R&D front, we’ve got a lot going on and it would be very easy to say, we will 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 Gen4, with Gen5 stacked up to that and another sensor possibly coming. We feel we 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 will see the R&D spend go down over the last 2 quarters. That is our plan as we sit here today and have a pretty good -- I think we will be able to leverage our 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, therefore, pushing back a little bit on the R&D side as we get some of these products out, you will see the leverage as we get around to the last half of this year and certainly in 2013.

The next question comes from Richard Lau from Wedbush Securities.

From a marketing and manufacturing standpoint, how quickly following FDA approval of the Gen4 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 till, maybe, the first quarter of 2013?

Well I am going to talk about the commercial side of it and I will let Kevin talk about the manufacturing side. I want to launch the product. So 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 and -- the patience experience will be exquisite. I want to get this in to the hands of the artificial pancreas projects. We’re involved in about 20 of them now. We’ve got some data because we are able to get it into the European artificial pancreas projects and we literally have patients, small number, but walking around outside on their own with a closed loop system, high equipment intensive but it is 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 are doing everything we can to be ready for an approval and so the directives that Terry has passed down to me, you heard what he said when we launch it, I want it out, are clearly passed down to the other people that we work with and so we meet regularly. We are developing a commercial bill 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 are going to use for production. So it’s not like we will be starting from scratch. So we are -- you look at the CapEx and other things we are spending. We are getting ready.

The next question comes from Anand Vankawala from Avondale Partners.

Just 2 quick follow-ups. I guess just on the international, I am 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 still just a fraction?

There is 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 and 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 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 and the European sector. That's their comments coming back to us.

And then I guess just on the Gen4 sensor, given that you are 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 are 2 kinds of opportunities here, right? We could effectively keep the price for a month supply of sensor the same. So in the eyes of the patient we are not actually raising our prices but we could, for example, again we haven’t given specifics on the durability but if we were to achieve a 10-day claim, we could send 3 sensors instead of 4 sensors. So really by reducing our cost by removing a sensor, the contribution becomes much greater for a month’s supply with sensors. Effectively, we would be charging the way the Hixpix codes were set up when we were working on those way back when they’re established to allow us to price on per day basis, so effectively we priced our sensors on a per day basis. You recall Medtronic has a 3-day sensor; Abbott has a 5-day. We today have a 7-day. So we are able -- however we choose to price that 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 response to a question on the Type 2, you say that, that you are seeing policies towards Type 2 reimbursement changing. Can you give a little bit of detail on what you are seeing in the environment?

Well, certainly we are seeing more of the -- and it’s a small number of the larger payers, begin to include verbiage within their coverage decisions to include Type 2. It is still a steep requirement in terms of the labs that need to be established and things like, well they need to be on insulin or with 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 in our Type 1 have some form of reimbursement. It is slow. It is not anywhere near what I would like to see it but it is continuing to grow and you saw late last year, Dr. Greg Gorski’s [ph] paper on Type 2 patients and those were not on even prandial insulin. So they were on long acting insulin or no insulin at all, showing good results. That’s all getting pushed to the payer network and they are beginning to connect the dots to say, hey look, we’ve got an epidemic in front of us. So we are paying for 6 drugs for these Type 2 patients and they are 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 in the payer world is sensitized to what we are going to do, what are the tools that are available – we’re a tool, were one of many, but I think they are beginning to recognize the…

Your final question comes from Derek Winters from Wunderlich.

I wanted to ask a little more about kind of a competitive question. Echo Therapeutics just came out with a study saying that they had a very successful trial with 15 patients. My question basically is what’s the true cost on the ramp for them to go to a pivotal trial and are they really on the horizon in your guys’ minds?

Wow, where do I begin? Okay, 15 patients, 500 matched pair points, we’ve just got done telling you we done 10,000 matched pair points. The cost is 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 that was prospective, retrospective that gets to my, “Come on guys! Everybody, stop fooling with the numbers.” They are what they are. Eventually you have to report them to the FDA. 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 competitor, so they recorded somewhere just shy of 13% and the data that Edwards has presented from the GlucoClear product is around 5% or 6% which is at therapeutic levels, in terms of dosing, so I think 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 510(k). So as I’ve said before, and I don't mean to be trite with it, but they got to move from their knickers into big boy pants at some point.

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

Thank you. Well, I would just like to say we are very proud of what we've accomplished and it’s a tough economic market. We are growing the business in a step-wise fashion; 42% of 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 2net Hub and all of the things that we look and try to be health futurist as to where medicine is going. We do have the benefit of having a premier health futurist on our board, and Eric Topol is booked, creative destruction of medicine becomes our -- we’ll call it our operating bible, but we certainly spend a lot of time watching it. And so I just -- we will hit on all the cylinders. A tough regulatory environment in which we are doing as well as any company and I apply the agency and that their willingness to be collaborative with companies that are willing to collaborate with them. So every time you pick up a newspaper article or a journal there is 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 are doing the job the best way that they can and we are in lockstep 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.