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Operator
And welcome to today's DexCom First Quarter Results Conference Call. Today's call is being recorded. (OPERATOR INSTRUCTIONS) Now I'd like to turn the conference over to Andrew Rasdal, Chief Executive Officer of DexCom. Mr. Rasdal, please go ahead.
Andrew Rasdal - Chief Executive Officer
Great. Well, thanks to everyone for joining us this afternoon for our Q1 update call. As always, I'll turn it over here in just a little bit to Steve Kemper to quickly go through the financials and then come back and provide a more broad over business update. So at this time, I'll turn it over to Steve Kemper, our CFO.
Steve Kemper - Chief Financial Officer
Great. Good afternoon, everyone. We will be making forward-looking statements, so please refer to our 10-Q, our 10-K, and all of our SEC filings for a full discussion of the risk factors.
DexCom today reported a net loss of $10.9 million for the first quarter of 2007, or $0.39 per share, compared to a net loss of $10.9 million, or $0.43 per share for the first quarter of 2006. Sequentially, our loss declined $144,000 from the fourth quarter of 2006.
Today, we reported revenues of just over $1 million for the first quarter of 2007, compared to revenue of $15,000 for the first quarter of 2006 prior to our full launch. Sequentially, we grew revenues 21% with sensor revenues up 15% from the fourth quarter of 2006. We added over 900 new customers during the first quarter after relieving our supply constraints in mid-January. We continue to have good supplies of inventories and have continued to improve our manufacturing operations to allow for more efficient scaling as required. These improvements are just starting to be reflected in our improving gross margin.
Our gross margin loss of $2.1 million for the first quarter of 2007 was down over $0.5 million sequentially from a loss of $2.6 million during the fourth quarter of 2006. Along with the higher revenue, declining fixed overhead spending and better labor utilization helped improve the gross margin sequentially. So we are very pleased to see the fruits of our recent process improvements in manufacturing starting to result in lower costs.
Research and development expense decreased $1.5 million to $4 million for the first quarter of 2007, compared to $5.5 million for the first quarter of 2006. Changes in R&D expense include $773,000 in lower clinical and regulatory costs and $873,000 in lower development expenses, partially offset by higher quality assurance costs. Major elements of the declining research and development costs include $458,000 in lower tooling and fixturing costs, $506,000 in lower clinical trial expenses and $286,000 in lower stock-based comp. The tooling and fixturing costs were relatively high in the 2006 quarter as we were then scaling up for our initial product launch. Those expenses have moderated during the first quarter of '07.
While our clinical costs were lower on a year-to-year basis, we expect these costs to return to previous levels as we move new products and indications through the regulatory cycle.
Selling, general and administrative expense increased $1.5 million to $5.4 million for the first quarter of 2007, compared to $3.8 million for the first quarter of 2006. The increase was primarily due to $2 million in higher sales and marketing costs, partially offset by approximately $0.5 million in lower general and administrative expenses.
Major elements in the increased expense include $1.9 million in higher compensation expense, primarily in sales, and $203,000 in related travel, offset by $545,000 in lower legal expenses and $196,000 in lower recruiting costs. Sequentially, our SG&A was up just $107,000 from the fourth quarter 2006, primarily due to fringe rate expenses that tend to run higher toward the beginning of a calendar year.
Net interest income and expense increased $44,000 to $527,000 for the first quarter of 2007, compared to $483,000 for the first quarter of 2006. Increase was due to $309,000 in higher interest income due to our higher cash and investment balances partially offset by $265,000 in interest expense on our convertible debt offering and our capital equipment bank line.
We ended the quarter with a strong balance sheet. As of March 31, we had $93.2 million in cash and cash equivalents and working capital of just over $89 million. At quarter-end, we had accessed $3.4 million on our bank line to cover capital equipment and leasehold improvement purchases, and we have started repaying that loan on a 30-month amortized basis starting in April.
On March 9 of this year, we completed a $60 million offering of 4.75% convertible senior notes due 2027. After payment of related expenses, including the purchase of a related call option hedge, we received net proceeds of $46.6 million. The call option hedge allows us to potentially reduce the dilution associated with the convertible offering if our stock exceeds $7.80 during the next 24 months. It is structured in four tranches with one tranch expiring in each 6-month interval. In effect, we have purchased capped call options that allow us to receive cash or common shares for any amount that our shares exceed $7.80 up to specified caps that range from $9 for the first tranch to $18.50 for the last tranch. At each of the four expiration dates, we can choose to be paid in net shares, effectively taking those shares out of the public (inaudible). Without the call option hedge, we would be issuing approximately 7.7 million shares to convert the $60 million in debt to equity at $7.80 per share. If the call option hedge achieved its full value, the shares issued in conversion would be reduced to approximately 5 million shares, resulting in an effective conversion price of $11.95. We are optimistic about our prospects going forward and believe that the best way to reduce potential dilution related to our convertible financing was to simultaneously purchase the call option hedge.
We continue to focus on controlling our expenses and cash burn and are very pleased with the progress of that during the first quarter. Our net cash used in operating activities decreased $2.9 million to $8.4 million for the quarter, compared to $11.3 million for the same period in 2006. During the quarter, we also invested $327,000 in manufacturing and computer equipment and facilities to support primarily manufacturing improvements.
As the result of non-cash expenses, including $1.1 million in stock-based comp, $626,000 in depreciation expenses and about $0.5 million in other payroll-related accruals, our operational cash usage of $8.4 million was much less than our reported net loss of $10.9 million.
That's all for my prepared comments, and I'll now turn it back to Andy Rasdal, our CEO.
Andrew Rasdal - Chief Executive Officer
Great. Thanks, Steve.
On the manufacturing and operations front, our efforts to continually improve product quality and supply were very successful in the first quarter. Product complaint rates, especially as they relate to sensor performance, continued their downward trend and are at the lowest since we launched the product approximately a year ago. More importantly, perhaps, qualitative feedback from our field force, from clinicians and patients reinforces that the current product performance is more reliable and consistent. Product supply has been sufficient to support all of our sales and marketing initiatives in the first quarter, and we've not experienced backorder again since we cleared it back in January earlier this year.
Our improvements have resulted in substantially improving manufacturing yields and throughput which Steve Kemper roughly briefly touched upon as well. We now see sensor yields at our most critical testing point in the 90% range, nearly a three-fold improvement since last fall. As a result, we've been able to reduce our labor pool and costs in our operations. We believe that the decreased product variability that has largely driven these yield improvements is also largely responsible for the improvements in sensor performance of the current product in the field today.
But beyond just yield improvements, we've continued to make progress in automating key manufacturing processes to increase throughput, further reduce costs and improve future scalability. We've begun implementing the first of these three process automations which decreases variability, increases our throughput and further decreases direct labor costs in operations, and we continue to methodically invent automation in the other two key processes which further enhance our position. Although of these improvements in the ongoing initiatives are positioning us for significant future scalability to manufacture higher volumes of product as demand may warrant in the future at reduced costs.
On the demand and revenue performance front, as Steve said, we added just over 900 new patients in the first quarter, about 10% above the fourth quarter of '06 and in line with our last expectations. Sensor revenues also grew at about 15%, slightly higher than the rate for new patient addition.
Our primary sales and marketing efforts continue to be aimed primarily at creating successful experiences for health care professionals and patients with our CGM products, especially now that we have adequate supply and more consistent sensor performance. We believe our efforts are resulting in health care professionals more often recommending or writing prescriptions for continuous glucose monitoring and the DexCom STS in particular. And while it's difficult to precisely track down data on how many prescriptions are actually written since they may go directly to the patients and not necessarily directly to DexCom at same time, we do have some data points that show prescriptions have begun to outpace patient purchases, which we find encouraging. And so while we'll continue to focus on driving clinical acceptance and utilization primarily at the health care professional level, we're also increasing our efforts to translate prescriptions more readily into patient purchases as well.
At this time, our rate for actual patient adds continues at about the same rate, and we'd expect that to continue into Q2.
We also have begun providing health care professionals with a new version of our software that allows them to download and analyze the CGM data from their patients. This is our Data Manager 2, so this is a second-generation product for health care professionals. The new version of the software is a response to the numerous requests that especially the key thought leaders have had and allows them to more extensively analyze and interpret patient data to help them guide the most appropriate use of CGM to improve glucose control in their respective patient population. It has significantly more extensive analytical and statistical tools to facilitate that.
From a marketing perspective, we're primarily using this new software to demonstrate the immediate impact continuous glucose monitoring may have with the site's own patients rather than just rely on published data from other sensors, so it's creating first-hand experiences for both patients and physicians which we believe is key to driving the category in wider utilization by professionals with their patients. We also have the patient version of this new software. It's currently under real-time review at the FDA and we would expect an approval decision soon, perhaps yet in the second quarter.
From a reimbursement perspective, we're obviously very pleased at CMS's preliminary decision to create [hixpix] codes for continuous glucose monitoring. We are especially appreciative of the leadership that JDRF has provided to that process. An open hearing on these [hixpix] codes was held by CMS in early May. Dr. Lois Jovanovic, one of the most respected thought leaders in diabetes, presented on our behalf and used the forum primarily to address both private and public payers and, I think, provide very compelling data and arguments demonstrating the important role CGM can play in improving diabetes outcome. And so the forum allowed us to not only reach CMS and the people involved with those decisions but, of course, numerous private payers that attend from an information standpoint at those. Medtronic and Abbott, I think( also presented compelling arguments during the open forum their time as well.
The JDRF-sponsored randomized reimbursement trial is continuing to enroll patients. The design of the trial is obviously very comprehensive and should provide a wide and thorough array of data the payers will find useful for coverage decisions in the future as that data becomes available. Our own outcome study based -- demonstrating statistically significant improvements in A1c levels in 140 patients using the DexCom CGM system has been accepted for peer review publication in the June issue of Diabetes Technology and Therapeutics, which we believe, when combined with our two previous publications demonstrating short-term improvement in glucose control, allows a -- allows us to more aggressively approach payers with compelling clinical and economic set of arguments for short-term and long-term glucose control resulting from continuous glucose monitoring.
We continue to receive unsolicited reports from patients and physicians of favorable coverage decisions, and our own reimbursement organization is currently working to most appropriately build upon these experiences to create wider reimbursement going forward, especially with private payers. We continue to believe that private payers are a very important constituency in diabetes.
On the 7-day approval front, we've continue to engage in active and more productive dialogue with the FDA on our PMA supplement to -- for approval of a 7-day sensor. The FDA sent us a written request for additional clarifications which we were able to provide almost immediately with no additional testing or studies, both in writing and in follow-up conversations with the reviewers. In our recent conversations with the FDA, we've largely been discussing labeling, which we interpret as encouraging progress, and although we can't predict the ultimate decisions or timing for a decision by the FDA, based on our most recent conversations, we believe we're still on track for a decision this quarter.
We continue to have our belief reinforced that the in-hospital application of continuous glucose monitoring is a very important and large opportunity. Our early efforts in this are generating a great deal of interest, both solicited and unsolicited, at DexCom. We have continued to conduct human feasibility trials with our in-hospital system, and like we did with our STS system a couple years ago, are in the process of rapidly iterating and then trialing the system moving forward. I'm very pleased with the speed and the progress of the project, and we're working to rapidly evolve the technology into a commercial product platform. We expect to engage the FDA shortly to clearly determine the most appropriate regulatory pathway for this product approval, and although it's still too early to accurately predict a commercialization timeline, we're working to best define those paths quickly. We continue to believe the progress we've made and the early data we've generated, this is a meaningful opportunity, and we believe that the in-hospital CGM is a product with and outstanding opportunity for a partnership to most effectively address this important business market segment.
So I think, in wrapping up, this sort of marks the first full year of commercialization for us. Our first ever product in the first year of commercializing the STS continuous glucose monitoring system, we've learned a great deal about the challenge and opportunities for the CGM category first-hand by providing commercial product to a wide patient population. We believe as much as ever that continuous glucose monitoring will increasingly play an important role in diabetes management and will be a growing and profitable business in the future. We believe we've emerged as a clinical technology leader in the category and we're determined to ensure that DexCom has the presence and staying power to help drive the development of the CGM market and to meaningfully participate as it evolves. And so we remain committed, as we have discussed before, to our three-pronged strategy. First is a continued developing next-generation products with a performance that appeals to larger segments of target populations, including potential partnerships that provide the integration of diabetes management technologies. Second is to create the data experiences and the evidence for health care professionals to widely accept, adopt and prescribe CGM as a primary means for diabetes management. And third, to drive wider spread reimbursement.
That ends and concludes my prepared remarks. And at this time, we have time to take a couple of calls.
Operator
(OPERATOR INSTRUCTIONS) Our first question will come from Ben Andrew with William Blair.
Ben Andrew - Analyst
Hi, Andy. Can you hear me okay?
Andrew Rasdal - Chief Executive Officer
Yes. Hi, Ben.
Ben Andrew - Analyst
Just a couple quick questions. You've had kind of a year of experience here. You came off a backlog in the quarter. How do you -- how did you feel about the patient adds after you were off backlog in the quarter versus earlier in the quarter? Did you see a meaningful change there?
Andrew Rasdal - Chief Executive Officer
Well, I think -- statistically, we were up about 10% or so, but perhaps the most encouraging piece of that there is -- what some data would indicate is an increase in the prescriptions. And so the primary for us there was to regain, rebuild and establish the confidence in both the product and technology with adequate supply and a better-performing product with clinicians, and I think there are some early signs that we're being successful in accomplishing that. And I think patients who are using the products now, both in terms of performance and a year of learning how to best support that and educate and train patients, people overall are happier.
Ben Andrew - Analyst
Okay. And in terms of sales force productivity, has there been any changes to staffing there -- additions, deletions or whatever -- and do you feel like there's an opportunity to make some improvements there by adding staff as you go through the next several quarters?
Andrew Rasdal - Chief Executive Officer
I think, as we've said before, one, we've made no changes to the field force of the organization since our last update. We're still at roughly the same numbers. And I think we don't foresee any need to add additional people in the field at this time. I think it's still about bringing up the productivity and driving the fundamental market development acceptance, and then we'll make a reassessment at that time.
Ben Andrew - Analyst
Sure. The kind of outlook for Q2 is pretty much -- sounds like steady as she goes in terms of patients adds. Is that a function of, you think, reimbursement? Because obviously, it doesn't appear that the backlog is going to meaningfully change the patient adds here as you come off in -- whatever -- mid-January.
Andrew Rasdal - Chief Executive Officer
Yes. Well, I think, as we've said, based on ongoing rates, the rates for new patient adds are about the same. That's the biggest thing which will drive rapid revenue growth going forward. And I think, outside of a significant event occurring, we'd expect that to continue at that pace. And no, I don't think it's just a reimbursement (inaudible) thing. I still think it's three things. I think, one, next-generation products will be attractive to more patients. Two, continued adoption and clinicians figure out how to best apply this and which patient cohorts have the most benefit from it will drive more. And then third, of course, reimbursement -- takes the economic piece out of the equation. But I don't think it's any one of those things. I think market development shows all three of those are important.
Ben Andrew - Analyst
Okay. And last question. On the hospital front, you've suggested that you're working on regulatory process and kind of partnership. When do you think we might expect to see developments from FDA and more from (inaudible) final products from DexCom?
Andrew Rasdal - Chief Executive Officer
Well, I think we're rapidly working through the number of human clinical trials, as I've said, and I think we'll be consistent. What we've done in the past is when we have a meaningful data set that is representative of the product configuration we believe could go through the regulatory path, then either we or our investigators would share the data and the configuration, and I think that really begins then to set the timeline for that. So I think when we have a meaningful data set from a steady state product configuration, that would be time for us to begin to do that.
Ben Andrew - Analyst
Okay. Thanks, Andy.
Operator
Our next question is from Mimi Pham with HSBC.
Mimi Pham - Analyst
Thank you. First, do you think a significant portion of your install base will upgrade the 7-day system once that's available?
Andrew Rasdal - Chief Executive Officer
Well, we don't know, but we would certainly hope so. And we certainly want to take care of our most loyal customers and we'll certainly try to facilitate the best way we can. It is a -- we believe, a clear step forward in product performance and in ease of use and convenience, and so the people who are the heavy users now will be the ones who can clearly benefit the fastest.
Mimi Pham - Analyst
And when you break out the sales, once the 7-day's available, would you be breaking them out as upgrades versus new system sales?
Andrew Rasdal - Chief Executive Officer
I don't know yet.
Mimi Pham - Analyst
And then for the endocrinologists -- what's the feedback on all the data they're getting? Is it really -- it is possible that it's too much data or --
Andrew Rasdal - Chief Executive Officer
You mean in terms of the kind of data that the patients --
Mimi Pham - Analyst
Yes. Yes.
Andrew Rasdal - Chief Executive Officer
Actually see? Well, I think, going back five or six years ago, in the continuous field, just like when fingerstick devices replaced urinalysis, the initial response -- the more conservative side -- was this is too much information. The patients won't know what to do with it. And clearly, fingersticks improved the care of diabetes. And I think every publication, we -- and I think Abbott and Medtronic have had -- have showed meaningful improvements in glucose control. As you would expect, the people who manage diabetes are remarkable people, and today they manage with information that is limited and difficult to obtain, and when you give them more better, timely information that's easier to access, they do better. And I think all of our studies indicate that. I would expect that as clinicians find out how to best utilize and create the algorithms and (inaudible) for the best application of CGM, I would expect that would only improve.
Mimi Pham - Analyst
Thanks. And last question. Do you have any color on the patient attrition rate of the total 3,500 or so systems you've sold? What percent are still ordering sensors and using the system?
Andrew Rasdal - Chief Executive Officer
We don't, and I think it's just been in the back half of the first quarter that we really got to sort of a steady state supply and (inaudible) begin to look at those things, and so perhaps as we continue in that mode, we'll be able to provide some of that going forward.
Mimi Pham - Analyst
Okay. Thank you.
Operator
Our next question is from William Plovanic with Canaccord Adams.
William Plovanic - Analyst
Great. Thank you. Good evening. Two things. First of all, just -- we have the ADA coming up. Any papers, posters being presented that we should be aware of and focused on?
Andrew Rasdal - Chief Executive Officer
From our perspective, we'll have two abstracts and one oral presentation, so like we have in the past, largely focused on the 7-day data set. I think probably in June, the more important piece that will be coming out is the fully peer-reviewed data set with 148 patients showing improvements in A1c levels, though.
William Plovanic - Analyst
Okay. And then if I kind of run this through the model, are you still discounting the starter kits or have you pretty much moved off of that and you're pushing closer to a full price on that?
Andrew Rasdal - Chief Executive Officer
We've never commented on anything but ASP's -- but list prices.
William Plovanic - Analyst
Okay. And then if I kind of do the math -- I think Mimi had asked the question, just to kind of jump on that. In terms of usage, how constrained were you for the existing customers that you already had? Like you said, you can't get normal ordering patterns or figure that out, but is there -- was there anything you could discern from the amount of product you had available and the customers you were using? Were they not ordering because there wasn't product available? Were they not ordering because they stopped using the product? Any color would be helpful.
Andrew Rasdal - Chief Executive Officer
Well, unfortunately, the color I can give you probably doesn't help what you're trying to get to, and we would face the same problem. When you're in a backorder situation, especially in a market that's as interconnected as the field of diabetes, patients -- [sure] some get frustrated and maybe don't order. Patients who really want it find that if they place multiple orders and (inaudible) it, then get their allocations faster and more frequently based on that. And so it's really hard to discern anything meaningful until you sort of get to a steady state, and it's both product availability and the consistency of product performance. And I think perhaps going forward, as we get a little more experience, we'll be able to comment on those things in a manner that is responsible.
William Plovanic - Analyst
Okay. Great. Thanks.
Operator
And we'll next go to Brian Wong with First Albany Capital.
Brian Wong - Analyst
Good afternoon. Thanks for taking my call. I was wondering -- you mentioned that you were automating one of three steps in your manufacturing. I was wondering if you could help us out and let us know when you might get the other two steps up and running?
Andrew Rasdal - Chief Executive Officer
We're working methodically through that and we have approvals -- regulatory approvals -- as we've stated previously, to be able to do that, and I think it's making sure that we don't create any quality issues or create any supply issues by being surprised when we put something fully on, so we do it in an integrated style, so I can't provide exact timeframes for that.
Brian Wong - Analyst
Would it be within this quarter or would it be later this year?
Andrew Rasdal - Chief Executive Officer
Yes.
Brian Wong - Analyst
Alright. And then in terms of getting a coverage decision, do you think you'll ask for one anytime soon, or is just more of a let's see where the payers go case by case?
Andrew Rasdal - Chief Executive Officer
Well, I think we're still consistent with the strategy that we've had. We think it's a meaningful step forward to have the preliminary decision to create codes at the national level through CMS, and that I think will continue to build momentum. We're not in any particular hurry to ask for any sort of large national coverage decision, but rather to build upon the data set that's being generated by us and others, and the experiences patients and physicians are having to build slowly through local regional before beginning to put any sort of national coverage decision. And so the rate at which we and others would move forward, that would be partially dependent upon how we have success from the grass-roots up.
Brian Wong - Analyst
Okay. And I think you've said before that you expected the first decision -- coverage decision -- to come later this year. Are you still agreeing with that statement?
Andrew Rasdal - Chief Executive Officer
Well, I don't know that we stated specifically a timeline for coverage decisions, but I think we have ongoing momentum towards some smaller local and plan-related coverage decisions, and I think probably Medtronic has some of that and more. But I think those will continue to build.
Brian Wong - Analyst
Okay. And last question. There was some news that came out recently that on your IR glucose monitor has been developed. I was wondering if you could maybe comment on that would have an impact on your sales or not, or your strategy going forward?
Andrew Rasdal - Chief Executive Officer
Well, I think there have been a number of IR-type devices as well as other noninvasive means of trying to measure glucose that have been available and talked about well over the last 15 years, and whether we'll see one of those come to fruition -- none ever has. And this is another frequency. There's a number of -- I don't know which one you referenced, but there's a number of (inaudible) in both near and mid-IR that have raised money, are being promoted, and so the challenge they have is that they are nonspecific for glucose, and every glucose monitoring device which has ever been commercially successful has been specific for glucose. And so while I think everybody hopes that noninvasive may make testing easier in the future, the technology -- based upon the history -- the technology challenges are substantial.
Brian Wong - Analyst
Great. Thank you.
Operator
Our next question is from Steve Ogilvie with ThinkEquity.
Steve Ogilvie - Analyst
Hey, guys. Just on the manufacturing, could you maybe comment on -- in terms of time and cost, what it'll take to switch to 7-day?
Andrew Rasdal - Chief Executive Officer
As we've said before, the 7-day will -- the central piece of it -- will essentially use all of our current equipment, processes and personnel, and we believe that most, if not all, of the improvements we made will be directly transferable to the 7-day. And so I think we're in a much better position starting the 7-day over the 3-day. That being said, look, the introduction of any new product is always -- has its sets of challenges, and we can't foresee all of them. But it's been good, hard discipline in reducing process variability that's gotten us where most of that should be transferable to the 7-day.
Steve Ogilvie - Analyst
Okay. And then the other question is, could you maybe comment on the morale of the sales force?
Andrew Rasdal - Chief Executive Officer
I haven't had as much interaction as on the last call, where we'd come out of the national sales meeting and I told -- I think I made the comment that I was overwhelmed with the passion and enthusiasm of the field force at that time, and so I think we have a very, very talented group of professionals who in the most part know that it's difficult to pioneer new markets and categories, but when you do so, it's both personally and professionally rewarding.
Steve Ogilvie - Analyst
Great. Thank you.
Operator
Our next question is from Caroline Corner with Montgomery and Company.
Caroline Corner - Analyst
Hi, guys. Thanks for taking my call. Quick question. When you would plan -- after the 7-day is approved -- when are you going to plan to phase out producing the 3-day? Would that be six months or longer than that?
Andrew Rasdal - Chief Executive Officer
Well, I think, as we have stated before, I think the -- we'll sort of let the customer base and the market tell us to some extent. We'll make sure we take care of people. Our belief is it will be fairly rapid and we won't carry on something that doesn't make economic sense, but at the same time, I think we want to be respectful of our current customer base and do that in an orderly and methodical manner. But my belief is it's enough better of a system that it won't continue on for long.
Caroline Corner - Analyst
And the manufacturing processes you just mentioned -- the 7-day will be all on the current equipment? Can you make them simultaneously to a certain point? The changes in the 7-day, I guess, towards the end of producing the unit? Does that makes sense?
Andrew Rasdal - Chief Executive Officer
Well, we have the capacity to essentially rotate lines over --
Caroline Corner - Analyst
Okay.
Andrew Rasdal - Chief Executive Officer
So as 7-day comes, we'll roll across it and eliminate 3-day lines as the uptake on that warrants it until ultimately the whole thing would be converted over. So it's not -- yes, so I guess it's simultaneously, although it would be on different lines within the manufacturing environment.
Caroline Corner - Analyst
Okay. Alright. Good. And then your comments about prescriptions outpacing patient purchases. So you think that the reason for that right now has been the beginning of the quarter there was a little bit of a backorder, and then you've also addressed not only that, but also consistency of the product performance. So also playing into there is a reluctance because of lack of reimbursement? And also, do you feel like there's anything due to patients maybe not being familiar with the products that would be causing pushback from them converting a prescription into a purchase?
Andrew Rasdal - Chief Executive Officer
Well, I think we see the increased -- or the data points that we have -- this increased rate of prescription as a positive and feedback that our efforts to spend time, to train, to educate and to help health care professionals, the [CD's] and the physicians involved in the care of people with diabetes to understand and most appropriately prescribe and then see the real benefits that provides patients that they can touch on on a fairly short-term basis. And so I think it's positive. I think there's the obvious reasons as to why patients may get a prescription and choose not to fulfill it immediately, but I think we're working methodically through to make sure that we don't make assumptions and we understand exactly what that is and what's required then to be sure that patients do convert those into purchases and utilization of something we believe can help them tremendously in controlling their glucose.
Caroline Corner - Analyst
Okay. Great. And then last question. I've seen that in the pump arena, there've been a few kind of recent entrants and more competitive now, like NMS pumps and the OmniPod, the (inaudible) Medtronics pumps out there. Has your sales force seen any evidence of -- with -- if a patient is no longer using a Medtronic pump or is trying something else, is that an easier call for them when they're trying to sell a CGMS system to that patient?
Andrew Rasdal - Chief Executive Officer
Not that I'm aware of.
Caroline Corner - Analyst
Okay. Great. Thanks very much.
Operator
Our next question is from Sara Michelmore with Cowen and Company.
Sara Michelmore - Analyst
Hi. Good evening. I guess, Andy, I'm a little confused in terms of -- it may just be my misunderstanding, but in terms of the outlook here for new patient starts, are you expecting things to kind of remain at the same pace until you get the 7-day, and should we consider that 7-day as a true trigger in terms of maybe accelerating some of the replacement rates here, or is it going to be a little bit more general than that and just sort of a organic type of growth?
Andrew Rasdal - Chief Executive Officer
Well, the only thing I feel comfortable guiding on is the current environment in steady state based upon the rates, and I think we believe that the 7-day approval, if and when it comes, is an important milestone in changing that environment, and it may accelerate those rates, as could product approvals or new product introductions from either of the other companies involved in CGM as well. And so I think remain hopeful and enthusiastic about what the 7-day is. Remain hopeful, enthusiastic that the increase in sort of rates of prescription and some growth with the current product is encouraging, but I think we have to wait and see the data before we can really tell you what the impact of that will be.
Sara Michelmore - Analyst
Okay. And I know, other than the sensor just being 7 days, you guys have incorporated a decent amount of technology improvements into this product as well. What are the key features that you think make this a better product than what you have on the market currently?
Andrew Rasdal - Chief Executive Officer
Well, I think the most important one that people will always continue on is more reliable performance over a longer period of time, and clearly the data set that's been published by investigators and now peer reviewed shows strong accuracy -- much-improved accuracy -- especially relative to [YSI] reference for this data set -- and clearly, no decline based upon those measures later, after day 3. And so I think people have a longer period of time of uninterrupted use of more reliable sensor performance. And then I think there's ease of use and convenience that will improve it. For instance, we take the needle size down a full other gauge, which, although in and of itself, wouldn't be a stand-alone product, it still makes it more comfortable and less invasive and easier to insert. We would expect that the shower cover requirement would go away so that people can bathe and shower and do the things they need to do with that, and we've modified, based upon early feedback, some of the software interface screens on the receiver that provide more usability for patients, and so it's -- and it also incorporates a second-generation [ASIC] or microprocessor and transmitter that we also think takes better sensor performance and then does a better job of translating the signal to useable information to the patient.
Sara Michelmore - Analyst
Okay. That's very helpful. And where are you guys in terms of pursuing a true pediatric label? I know the bar in terms of what the FDA would like for a pediatric product's gone up. What's your latest thoughts there and do you think you actually need to spend the time to do a separate pediatric product?
Andrew Rasdal - Chief Executive Officer
Well, I think it's -- Medtronic's recent labeling approval's actually very encouraging because the bar looks like it's a bit more reasonable, at least a bit more defined. Sometimes it's nice to have someone go before you and define the path. And so I think now that that's more clearly understood, we continue to move forward. Our desire is not just to take an adult sensor and have pediatric labeling, because our studies have shown that there are differences in the pediatric population. As we've said before, we would expect to introduce a sensor which addresses those differences and is specific for the pediatric. We're currently in a set of feasibility trials, participating also in the JDRF initiative, in their trial. And I would expect that as we see that data and gain that experience, then we'll firm up our plans to actually then seek approval based upon studies for that indication.
Sara Michelmore - Analyst
Okay. And then in terms of the hospital product, just for my own edification, if you can talk about what are the different product features or key differences in that product that you guys have to address? I know that there's some different needs in that setting. If you can just kind of compare and contrast what appropriate products in the hospital setting would look like compared to what you've done on the consumer side. Thanks.
Andrew Rasdal - Chief Executive Officer
Yes, sure. I think the -- we clearly have been working actively in clinical studies for a period of time now with a variety of hospital configurations, and you're exactly right, the challenges -- the technology challenges -- are different than the ambulatory population, largely because of the environment and the differences in those patient populations. The product perform we're developing is aimed specifically at the critical care arenas of the hospitals, specifically the postsurgical ICU where there's such compelling data from [Vandenburg] and [Fernarri] and others about both the improvements in mortality and morbidity, as well as economic benefit, and so we've said previously, the product is an IV-based product which is consistent with the practice -- applied consistently with the practice today in the ICU, and then would continuously sense glucose and then report it in very much the same manner with continuous data, single point values, continuous trends. But as we've learned in the critical care environment, very much providing a set of alarms and parameters so that the nursing stations can respond appropriately.
Operator
Sara, did you have a follow-up?
Sara Michelmore - Analyst
No. I'm all set. Thank you.
Operator
Our next question is from Alex Arrow with Lazard Capital Markets.
Alex Arrow - Analyst
Thanks. Hi. Andy, could you address the expectation for the dollar amount of the reimbursement that you're looking to get once the amount is finalized by CMS (inaudible)?
Andrew Rasdal - Chief Executive Officer
Well, they don't -- at this time, I don't think we have any comment on what it is. We have said generically that we think continuous brings great value based upon the data sets us and others provide, but we haven't begun to negotiate a price or make any comment on that relative to either private or public payers.
Alex Arrow - Analyst
Okay. Without naming the specific number, can you say whether you would expect that it would fully cover the cost of patients using the device or whether they would have to pay some out of pocket even after getting reimbursed?
Andrew Rasdal - Chief Executive Officer
Yes. I would certainly -- I think you'd get the same answer from all three of the companies in it. There's certainly -- it's really patients who benefit from reimbursement. This is important technology, and we certainly are working hard to be sure that patients don't have to make a decision as to whether they adopt or not based solely on economics and our desire would be to get as much of the reimbursed as close to 100% as possible, but I think other diabetes products certainly indicate that patients will welcome any help at all, and that begins to create the opportunity for deeper and broader adoption as well.
Alex Arrow - Analyst
Okay. Thanks. Could you then also -- as my follow-up question -- comment a bit on the competitive environment? Number one, the Guardian RT now has supposedly better features than just the Guardian -- or the Real Time versus just the older version of the RT. And also, the second part of that question is what you've been hearing about the timing of the Navigators since we haven't heard much from Abbott.
Andrew Rasdal - Chief Executive Officer
I can comment, I think, specifically to Medtronic, especially with the introduction of their approval and the introduction of the Minilink, which I think is a much-improved product, more useable certainly from a continuous glucose monitoring, and as expected, they continue to use CGM as a way to, I think, very successfully drive their pump franchise. And again, as you might expect, we see them as a very responsible and appropriate competitor in helping to build the marketplace appropriately for CGM as a tool going forward. Relative to Abbott, I think you probably have the same access to the public information. We don't have any more or less than that, and so I'd have to refer you back to them for anything real specific about the timing.
Alex Arrow - Analyst
Okay. So Medtronic is better, but is it -- have you lost any accounts to them as a result of their new device? Can you say?
Andrew Rasdal - Chief Executive Officer
No. I think in the insulin-requiring population of close to 5 million patients, there's plenty of room for all of us.
Alex Arrow - Analyst
Alright. Thanks, Andy.
Operator
There are no further questions in the queue. I'd like to turn the call to Andrew Rasdal for additional or closing remarks.
Andrew Rasdal - Chief Executive Officer
Great. And we'll just close up by thanking everybody for their time, and we look forward to speaking with you at the next quarterly call.