DXCM

DexCom, Inc. (DXCM)

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DexCom, Inc., (DXCM)

Q2 2013 Earnings Call

August 7, 2013 4:30 pm ET

Executives

Terry Gregg - CEO

Steve Pacelli - EVP, Strategy & Corporate Development

Kevin Sayer - President & COO

Jess Roper - CFO

Analysts

Tom Gunderson - Piper Jaffray

Bill Plovanic - Canaccord

Ben Andrew - William Blair

Danielle Antalffy - Leerink Swann

Jason Bedford - Raymond James

Rosemary Liu - Oppenheimer

Anthony Petrone - Jefferies Group

Presentation

Operator

Welcome to the DexCom Second Quarter 2013 Earnings Release Conference Call. My name is Richard and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

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

Terry Gregg

Thank you, Richard and thanks to the audience for joining us today for our second quarter 2013 investor conference call. I'm going to have Steve Pacelli read our Safe Harbor statement. Steve?

Steve Pacelli

Thanks, Terry. Some of the statements that we will make in today's call may constitute forward-looking statements. These statements reflect management's expectations about future events, operating plans, and performance and speak only as of the date hereof.

These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under Risk Factors and elsewhere in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and our other reports as filed with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason.

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

Terry Gregg

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

Before I turn the call over to Kevin for a customary financial review and operations update, I'd like to comment briefly on our Q2 performance, and a couple of exciting, operating milestones reached during the quarter.

Obviously the commercial introduction of G4 Platinum continues to exceed our expectations. Our pipeline of new patient opportunities remains very robust and our sensory orders are stronger than ever.

Our financial results speak for themselves. During the second quarter, we achieved record sales, record margins, and our best operating results ever.

From an operations perspective, I'm pleased to report that in late July, we filed a PMA supplement with the Food and Drug Administration seeking approval of our DexCom Share System, a remote monitoring system developed to address the unique challenges faced by caregivers in assisting people with type I diabetes.

As a reminder, the DexCom Share System is a docking station for the G4 Platinum receiver, which enables wireless transmission of glucose information such as the patient's trend graph and alert notifications from the G4 Platinum to designated recipients, allowing the recipient to view the patient's data on their smartphone. We view DexCom Share as the first of many steps in bringing CGM to mobile devices and couldn't be more excited about this opportunity.

We are also pleased to announce that just last week we were awarded a $4 million grant from The Leona M. and Harry B. Helmsley Charitable Trust to accelerate the development of our Gen6 sensor technology. A goal of the Helmsley Charitable Trust is to advance the accuracy and reliability of CGM devices and develop artificial pancreas systems for people with type I diabetes. The funding is milestone based and is contingent on our meeting specific development milestones over the next several years.

The grant has been structured to allow the trust to recoup and redeploy a portion of any eventual proceeds from the successful commercialization of the Gen6 sensor. To that end, we have agreed with the trust that on successful commercialization of our Gen6 sensor in the U.S., we will pay a royalty of up to $2 million per year for four years or at our option a one-time payment of $6 million. We are extremely excited to engage in this collaboration, as it provides us with the opportunity to accelerate the development of more accurate, effective sensor technologies, to improve the outcomes and quality of life of people with diabetes.

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

Kevin Sayer

Thanks, Terry. I'll start with the financial update. DexCom generated $35.5 million in product revenue for the second quarter of 2013, compared to $21.5 million for the same quarter in 2012, a $14 million or 65% increase. Sequentially, product revenue for Q2 of 2013 increased 28% from the prior quarter.

We know that in the second quarter, we recognized approximately $1.3 million in higher than expected revenue attributed to royalties from sales of Animas 5 system in Europe and revenues related to our first product sales of GlucoClear sensors to Edwards Lifesciences. We do not expect this level of Animas royalty or GlucoClear sensor sales in subsequent 2013 quarters.

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