Welcome to the second quarter earnings release call. My name is Monica, and I will be operator for today’s call. [Operator Instructions] Please note that this conference is being recorded. I would now turn the call over to Terry Gregg. Mr. Gregg, you may begin.

Thank you, operator, and thanks for all of you joining us on the call today. As is our usual and customary process, I’m going to ask Steve Pacelli to read our Safe Harbor statement.

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 the section of Risk Factors and elsewhere in our Annual Repost 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 revive these forward-looking statements for any reason. Terry?

Thank you, Steve. Joining me today are Kevin Sayer, our President; Jess Roper, our Chief Financial Officer; and Steven, his new role as our Executive Vice President of Strategy and Corporate Development. As our company grows our needs naturally will evolve. And as we expand our footprint globally, Steve will be responsible for the business development and strategy that are required to commercialize our platform internationally. His new title reflects that focus. Additionally, as you all know we used partnerships to expand the awareness and benefits of CGM as a critical tool in the management of diabetes and glycemic variability. Today we have 4 insulin pump partnerships in various stages of development and a critical care program with Edward’s life sciences. Managing these relationships is a very demanding and ever. I have also asked Steve to focus his efforts in this area by leading our participation on the steering committees that govern these partnerships. Steve will continue to lead our Investor Relations, as well as our Legal and Intellectual Property Groups. Before we review our second quarter 2012 financial results and provide our customary operation update. I would like to spend a few minutes updating investors on the status of our Gen4 submission. As we disclosed during our Q1 earnings conference call in May, we filed a PMA with the Food and Drug Administration at the end of the first quarter, seeking approval of our Gen4 system. Within a matter of days, FDA launched an interactive review of our submission, which has continued for the past several months. Additionally in mid-July, FDA visited our manufacturing facility to conduct the Gen4 PMA audit in addition to our bi-annual quality system inspection technique review. And I’m pleased to report that we concluded the audit with no findings or formal observations. We believe we remain on track for an approval of Gen4 before the year end and of course I’m hopeful we will obtain approval sooner. I would now like to turn the call over Kevin Sayer.

Thank you, Terry. I’ll start with the financial update. DexCom generated $21.5 million in product revenue for the second quarter of 2012, compared to $15.2 million for the same quarter in 2011, a $6.3 million or 42% increase. Our split between consumable and durable revenues was between 70% to 75% consumable and between 25% to 30% on the durable side. ASPs for sensors remain consistent and ASPs for our hardware remains consistent. On a gross basis, however, over the first half of the year, we offered a $200 rebate to all of our customers purchasing new hardware. The effect of this rebate based upon actual redemption activity was an offset of approximately $200,000 to sales for Q2. Our international business continue to perform well in Q2 and we’re pleased to report that we initiated the first of the limited phase of our Gen4 launch in Europe and we will continue to introduce Gen4 and other European countries over the coming months. On the domestic distributor front our split between direct and distributor business remains consistent with the prior quarter. And as a reminder all of our international business is through third-party distribution. Let me remind you once again only 2 domestic distributors stock our starter kits and all others participate in our drop ship program. With respect to sensors, the distributors carry less than 1 month’s inventory, more like 2 to 3 weeks. On the international side, our distributor credit terms are very tight and often require significant upfront payments for product. Given those terms, the international distribution channel inventory levels are also very low. Sequentially, product revenue for Q2 of 2012 increased 16% from the prior quarter. Total revenue for the second quarter of 2012 was $23.5 million, compared to $21.4 million during the same quarter in 2011. I…

Thanks, Kevin. You know the second quarter is always an exciting time for Dexcom. For in June of each year, we had to the annual scientific sessions meeting of the American Diabetes Association. This year’s meeting in Philadelphia was no exception. We kicked off the meeting on Friday evening with an overview of our Gen4 pivotal trial data, presented by our Medical Director, Dr. David Price, as part of an oral presentation on factors to be considered when evaluating a study reporting CGM data. Dr. Price educated the audience on how to care about CGM data by outlining key questions to be asked of investigators, including C-calibration. What was the frequency of calibration, was it prospective or retrospective, was it performed by trial subjects or by clinical staff, and what was the reference used? Blood glucose meters, laboratory instrument? A for analytical techniques, was the sample size adequate to draw conclusions, was the data presented as mean relative difference, mean absolute relative difference or median absolute relative difference. And was Clark air grid A zone distinguished from Clark air grid AMB zones. R for range, was the range of glucose values appropriate, and was the rate of change of glucose values reflected. And finally E, for excluded data, or outlier values, outlier sensors or other data excluded. Check and ask yourself why is Dr Price’s message so important? Well, imagine the GPS system in your car, or even your speedometer showing you your position or speed 15 to 25 minutes ago. What value is that to you? You need current information in order to take action and CGM systems must display critical, accurate and real-time information to the patient or in the case of hospital-based products to the healthcare professional to be an effective tool. Surely after Dr. Price’s presentation,…

[Operator Instructions] The first question comes from Ben Andrew of William Blair.

This is Todd in for Ben today. My first question is on the international side. Could you guys give some color on like how much European operations are contributing to the business right now? And where you see that going like in the next year or so?

This is Kevin. Right now, we said it’s approaching 10% in our comments and so it’s getting up to that level. We see it continuing to grow. But again it still remained a fraction of what we’re doing as a total basis right now. We see it picking up steam over time.

Then maybe some comments on how the like reimbursement environment is going over in Europe? Do you see any changes to that within the past year or 6 months?

It’s still pretty tough. There’s not a lot of approval for standalone CGM. What is happened over there and Terry has spent a lot more time with these international doctors than I have. The product is working so well that it’s gaining acceptance and physicians are buying and using it. Do you want to add to that?

Yes, I think for the first time we’re beginning to see a more U.S type of payment out of pocket by individuals. And the way, in which the product gets distributed from our distributor generally to a clinic, it goes within the clinic budget and physicians then prescribe it to the patients. But we’re beginning to see the first signs again the traction particularly Gen4 as technology adoption patients are now willing to pay out of pocket. And there are a number of programs where there is some limited reimbursement and certainly, we’ve got dossiers on files as we go through that iterative process with those different funds.

Just one last question. Could you guys comment on any trends that you saw as far as the attrition rates and utilization rates in the first half of the year?

Yes, it’s our standard practice not to comment on attrition rates and we continue to subscribe to that. It is difficult for us to actually nail that down as we’ve said on multiple calls only from a standpoint that off-label use does occur and it is hard for us to narrow down exactly how long a patient is using the product. We rate the blogs like everybody else and we see it anywhere from its reported 7 days, which we refer for all the way to 30 days. So it's very difficult.

Our next question comes from Tom Gunderson of Piper Jaffray.

Maybe the same question asked in a different way, but maybe you can give a little bit more color, Terry, on consumer behavior. You and your team are talking to your customers a lot. The back office people are talking to them. Have you noticed anything either since Q1 or maybe even in 2012 that shows any change one way or the other on behavior on CGM holidays or re-order rates or anything in that category?

No, Tom. We really haven't. I mean it has been status quo. We are dialing down into a customer relations effort to gain more information, and again it becomes very difficult to narrow that down in terms of the "reorder patterns" and it depends on the payor for that particular patient, if they are willing to allow a patient to order 1 box or 2 boxes or 3 boxes. Each additional box gets tougher for us to try to analyze how soon patients would use the product or in fact, as you described, if they’re taking a holiday, we see certainly -- and it gets -- as we look at the kind of external analysis that are available to us. And again, we have to always be mindful that these responders are typical, the most aggressive in the way in which they treat their diabetes. We see no pattern change in them. In one session, however long that may be and they immediately start another session and many of them will comment that I can live without my pump, I can’t live without my sensor. So from that standpoint no, we haven’t seen any real change.

And then, is there -- last time we talked, I think you thought you were going to pay the medical device tax. Now you’re not. Is there anything that changed other than a draft IRS document and an accountant that wrote his name on it?

Yes, this is Steve. No. I actually -- I don’t think we were specific that we were going to have to pay for... I think our comments were very reserved previously because we were waiting for our outside advisors to get the report done. So I don’t think it is a chance. I think obviously it’s a pleasant outcome for us, but I don’t think it’s a change in position.

And then, last question also international, but Terry you’ve been travelling outside of Europe. Is there any advances that we should start to be paying attention to in the BRIC countries?

Well, certainly, unfortunately diabetes is a global epidemic and its fastest rate growth is outside U.S., outside Europe and certainly looking at the BRIC countries. We are, I would classify, deep in discussions with a number of distributors. Everything we do outside the U.S. will be through a distributor network as to what is our best solution, who has the biggest footprint in the space and also the regulatory acumen to get us through the various regulatory agencies that we’re going through. I would say the first on our list and the closest we are to launch would be India sometime yet this year. Then you look at China and Japan, would be 2013 from that standpoint. And there are obviously some countries in South America that look like they have enough economic where with all to begin that process as well.

We have Bill Plovanic of Canaccord on line.

So just any commentary on the Roche SEVEN PLUS how they’re doing with that?

You know what Bill, we started up in the first quarter and the programs going it has not had a material impact to our revenues yet. Relationships are starting to be made and in the field with our reps and the Roche reps too early to tell or make a call on the program.

And is there any commentary or color you could give, I mean in terms of the sequential cadence of the patients over the past few quarters?

Sequential cadence, you mean patient growth?

Yes.

No, where we kind of dialed down on disclosures, as far as numbers between kits and hardware and stuff. So no, a bit surprising to say where we’re comfortable of where we are.

And then any update on the Gen4 manufacturing? Just where are you? How many lines? How much can you make? How is that coming along?

You know what Bill, we started off the year, we were going to start with 1 manufacturing line and go that way and we made the decision and in the first quarter we needed to build another one. And part of the CapEx that you see is the equipment related to another Gen4 manufacturing line, 1 is up, the other one is near completion of being up and we’re fine tuning some of those processes. So we’ll have the volumes that we need to launch this thing in a very big way. And so we’re quite well. We can certainly support what we’re selling in Europe and what we need with our clinical studies. We’ve not turned on the switch to produce thousands of sensors today yet and nor going to be prudent to do so, until we see approvals right around the corner.

And do you still feel comfortable with the gross margins getting into the 70%, 75% as we get your full manufacturing going?

Absolutely. And that’s going to be a function of volumes as well, but we think the cost profile of the Gen4 sensor will be much better in SEVEN PLUS over time.

Our next question comes from Chris Cooley of Stephens.

Could you may be just explain or give us some update on the pediatric trial both in terms of its, the indications? And how you’re managing that process of still waiting for the Gen4 approval? I mean, obviously when that trial wraps, I am just kind of curious how you’re managing those processes dually? And then I have a quick follow up.

Yes, well we had been encouraged by the Food and Drug Administration to initiate the clinical trials and pediatrics as soon as possible. Following our submission, we did, it was as Kevin mentioned in his comments getting down to the degree of specificity that the agency wanted to see in a protocol. There is a lot of back and forth particularly as we go down in age group to very young patients. There is sensitivity obviously from the investigators as to what they're willing to do. We need samples, but certainly can't be looking at venous samples as an example out of a very young population, of course agency asked us to look at that younger population knowing that quite frankly, which we had advised them that the product has been used in literally month old patients off-label, but again that’s the discretion of the attending physician how he or she chooses to use a product for the benefit of their patients. So it was an iterative process and now once we got the protocol signed off on by the agency, we already had several pediatric sites that we had chosen, went to the IRB process with them and as Kevin again mentioned, we have started enrolling patients in the first of those clinical trial sites.

And I apologize if I missed this in the prepared remarks. But Kevin, I think when you walked through the development partnership agreement you touched on Animas, Roche, Tandem and Edwards I missed Insulet if there was in there, could you give us an update on that?

We don’t have any development work going on with Insulet right now. We know they are very focused on their next-generation product and I think when they work that out I think we will resume discussions. So that’s where that is.

Our next question comes from Danielle Antalffy of Leerink Swann.

Just focusing on gross margins again and the impact of the transition to Gen4. You had some impact internationally, a pretty meaningful impact on the gross margin front. So I just wanted to get a sense of, could you remind us how long you expect the transition to take once you do get approval and what we should sort of expect on the gross margin side in the first few quarters post launch?

Well, there is a lot of transitioning going on as we launch because we’ll still be manufacturing SEVEN PLUS sensors for at least a 12-month period to support the patients who have hardware within warranty. Production of the SEVEN PLUS Sensors will go down over that period of time. Nevertheless, we’ll have to support 2 manufacturing lines. On top of that we’ll be transitioning to the Gen4 hardware platform, and so we’ll have that start-up earning as well. So I think you’ve got a few quarters of margins that will go up as our volumes go up and as we get more efficient with Gen4 manufacturing offset by cost related to the transition in having to run 2 lines. We’re running 2 lines today. We are running a very limited scale line on Gen4, because we are manufacturing product clinical studies for Europe right now, while the remainder of manufacturing is on SEVEN PLUS. The impact in this quarter related primarily to the hardware. We cannot sell under the EU guidelines, the old SEVEN PLUS hardware anymore. The communication protocol was no longer valid. So we had some left and we worked it down to a relatively small number. Given the size of our company, we wrote that off and took that charge. And so, we’ll see how it goes over the next year. A lot of it depends on timing, Danielle. How much of the SEVEN PLUS we work down and how quickly we launch Gen4.

And then, lastly, just on the competitive front, we saw a very small data set from a competitor. This was of course an in-hospital product, but the accuracy looked pretty good. So I just wanted to get your guy’s perspective on the competitive front going forward.

Yes, this is Terry. We look at the competitive front really from the products offered by Medtronic and their [indiscernible] sensor we did head-to-head by Dr. Russell and Dr. Damiano out of Mass General and we were obviously pleased at ADA with the outcome of that showing us to be far superior. I think you’re referring to the in-hospital. They presented at ADA and I think it gave us a glimpse into how really truly early stage they are. They finally came forward with acknowledging that on that particular presentation and technology, they had to do confirmatory calibrations every 4 hours and that they were also suffering from an extensive time lag, with 15 to 25 minutes of time lag, which meant they had to go back retrospectively do some shifting from a standpoint of, it was not really what we would consider to be real-time analysis. So it’s retrospective. So again until they can move that forward to a level that makes sense and patients and healthcare professionals will see real-time. I really wouldn’t put them in that kind of competitive landscape with others that have [indiscernible] like Medtronic.

[Operator Instructions] Our next question comes from Raj Denhoy of Jefferies.

This is Amy in for Raj today. Just wanted to talk a little bit about R&D. I believe you all indicated that there could be a bit of -- to expect a step down in the second half of the year. And I’m wondering with pediatric trials being a little bit larger and longer than you all anticipated and you all have a lot going on. Will we still see a little bit of a step down or should we think about this quarter’s run rate moving forward?

Certainly that would be the upper end of moving forward this quarter. We’d like to manage it down a bit, but you are right that each trial is going to cost more and take more time than we thought. We also acquired a company in the first quarter that adds to R&D line particularly with your non-cash expenses. So we’ll see how we earn it in 3 months.

And then just 1 other question regarding the Type 2 space and I know the reimbursement there is still in the very early stages. But what did you all see in a way of demand view? Are you all seeing anymore increase or a shift in that Type 2 patient population ofdemanding CGM?

Yes we really have. It’s been interesting in that the demand has come from the professional group in terms of healthcare professionals where the demand originally in the Type 1 group was really from the patient level and we pushed that through to the professional and here we are being very successful in the Type 1 market. The Type 2, when the healthcare professionals that treat Type 2 diabetes recognize the benefit, they’re re really the ones that are pushing it. So we’ve got the one we consider to be it’s kind of the landmark study that Dr. Bednarski conducted. We are supporting another trial of that nature that was a single-center trial, although independent, randomized, prospective, you still need multi centers in order to gain traction with the payor community and so we’ve elected to go out and basically repeat that study at a different site. So we do see an increase in desire in pushing for those patients. With that said, I would agree with you that the reimbursement landscape is still challenging for those patients.

Our next question comes from John Putnam of Capstone Investments.

Very nice quarter, gentlemen. My question was about competition and I think you’ve covered it.

Our next question comes from Ben Haynor of Feltl and Company.

On the mindset of, I can live without my pump and but not without my CGM that we’ve seen. Are you seeing an increased awareness from doctors or may be even payors that are saying that CGM might be a better first step in the pump when it comes to managing diabetes?

Certainly from the physician population, not yet from the payor population.

And then on the rebates, what kind of redemption rate did you see there and do you expect some coming through this quarter as well as [indiscernible] that program continue?

The program is not in effect right now and we’re not going to disclose our redemption rate.

The next question comes from Greg Simpson of Wunderlich Securities.

Congratulations guys on a very strong quarter and Steven congratulations on the new job and I’m sure the big race that went along with it. Terry, first of all a question for you about critical care, it seems like you guys are extremely well positioned over the next few years maybe as well positioned as anyone. You have talked about the interstitial product a little bit on the last call, could you maybe elaborate either on that product or maybe just the overall strategy going forward?

We view that market opportunity as one that is very robust. We know that even the SEVEN PLUS Technology is being used and I will call it not quite the critical care, although certainly physicians will use it in the ICU as part of an investigation, not anything we’re sponsoring, but we do see reports of it. I think as you move downstream in the hospital sector into the step downward, progressive telemetry whatever you want to call it and then to the general ward, a robust interstitial sensor would be extremely attractive and that information comes to us, really from the hospital sector as they look at things, they are being challenged in terms of cost of care. And so they also have a challenge with regards to recidivism. As you well know that any CMS patient that gets readmitted anytime in the first 30 days for a lack of adequate treatment and anything that that relates to why they were there the first time, the hospitals on the hook for the treatment of that patient. And so I think all of the hospital sectors are beginning to take a much closer look at the economics of ensuring that patients released are in good health and certainly we know that there are several million patients with diabetes that gets admitted every year, and this would not necessarily only be restricted to those patients with diabetes but anybody, again having type of glycemic or mild glycemia from that standpoint. So we are and as you all know we’re designated a Gen6 technology that we have human feasibility data, small numbers, but it is built as a very robust, very highly single digit MARD accuracy and drug interference blocking and we’re continuing to work on that project.

And then just a question or maybe you can engage in a little commentary on the FDA inspection. I view that as obviously a very big deal and obviously there is 2 ways that can happen. One, it either happens early in the process, then you seems to answer questions endlessly or it seems to be kind of the last step in the process. Given how quickly this process has been going on, it would appear that maybe the FDA is kind of viewing that as 1 of the last steps. Is that fair or can you maybe discuss the flow back and forth between the FDA, and then follow-up questions, things like that?

Yes, I would say that’s a fair assessment. Obviously we’re biased in wanting to believe that that’s what the FDA is thinking. We can’t speak for the FDA. I would say that in several decades of experience this is the fastest review that either our senior regulatory person who’s been in the business about the same time I have, now going on over 40 years, we both agree that this whole developmental review has been the most interactive that either 1 of us has experienced. I do believe that the FDA is, given their resources, are doing everything possible to expedite the review and hopefully in the not too distant future then, approval. They’ve seen the data. And I would say in 1 of their comments to us at ADA when you had all of these investigators come rushing that wanted to replace either Seven PLUS or even alternative sensors in their AP programs, FDA commented we are very comfortable with the Gen4 clinical data. Remember this review is not just the clinical data. That was also a manufacturing change as part of this. So it is 17,000 pages of review that they have to go through. But I do think that given the comments by the auditor, when she came in and when she left, where we were favorably disposed that this was towards the end of the cycle, as part of the review. I think given the gauge of interaction even today from a standpoint of discussions with agency post that audit. Again it’s encouraging, there is nothing that seems to be -- but they’re delaying and in anyway whatsoever in fact by the contrary.

[Operator Instructions] The next question comes from Steven Lichtman of Oppenheimer & Co.

Just a couple of questions. First on the sales force, I think last call you said that it’s likely to stay steady here through the remainder of 2012, just want to see if there is any change in those plans? And then just secondly, on the manufacturing line comment, just wanted to make sure, can you begin a U.S. launch in earnest with just one line-up or do you need that second line-up?

This is Kevin. The second line will be up very soon. So we’ll begin our launch with both of them, but fortunately we don’t have to shift the entire patient base over day 1, but we will be ready to support our launch upon approval. Second piece with respect to the sales force, our sales force has remained at same size, as it was last quarter. There has been no additional headcount added. There has been maybe some shifting from 1 position to another, but no additional bodies. They’ve achieved this growth with the same size group that they have at last quarter or at the end of the last year. We don’t anticipate making it any bigger as we said here today.

We have no further questions in queue. I will now turn the conference call over to Terry Gregg, for any closing remarks.

Well, thank you. And I continue to be extremely impressed by our performance. And you should as well. The advances we are making in the technology of continuous glucose sensing are truly extraordinary. In our long-term vision of replacing fingerstick measurements gets closer every day. In the meantime, we are executing on our business plan of growing the business and achieving profitability in a timely fashion. We have several tailwinds pushing us forward and I’m thrilled to be part of a company that is transforming the way diabetes is being treated. No one disputes that CGM should be the standard of care, and we are on the cusp of seeing that vision realized. Thank you.

Thank you for participating in the second quarter earnings release conference call. This concludes today's conference. You may now disconnect.