德康醫療 (DXCM) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to today's DexCom third quarter results conference call. Today's call is being recorded. (OPERATOR INSTRUCTIONS.)

At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Terry Gregg, President and CEO. Please go ahead, sir.

Thank you, and thank you for joining us this afternoon for the DexCom third quarter call. Before we get into the formal presentation, I would like Steve Pacelli, our Senior Vice President of Corporate Affairs to begin. Steve?

Thanks, Terry. Just a brief Safe Harbor Statement. 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 expressed or implied by any of these forward-looking statements is detailed under risk factors and elsewhere in our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, and our other reports filed with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason.

Terry?

Thanks, Steve. We'll give just kind of a brief rundown on the agenda. We're going to start off with a financial review by Jess Roper, and give you an update on our current situation with regards to the fires that the community has experienced, and then get into the Seven launch and update about the rest of the business, follow-up with a Q&A period.

So on the financial review, Jess Roper, our Interim CFO.

Thank you, Terry. Welcome, everyone.

For the third quarter of 2007 DexCom's revenues grew to $1.2 million, an increase of over 45% from the $841,000 in revenues reported for the third quarter of 2006, and an increase of more than 41% from the $863,000 in revenues reported for the second quarter of 2007.

We added 683 new customers during the third quarter and had approximately 745 customers that upgraded from their STS three-day system to our recently approved second generation Seven System. As you may recall, we announced an upgrade program in late Q2 allowing our STS three-day customers to upgrade to the Seven System. Since the revenues for the quarter were up over 75% compared to the third quarter of 2006 and up over 36% compared to the second quarter of 2007.

Cost of sales decreased to $3.1 million for the third quarter of 2007 compared to $3.4 million for the third quarter of 2006. The decline in cost of sales was primarily related to the decrease in direct product costs and better labor utilization. We continue to realize improvements on our manufacturing capabilities and production yields since our initial launch in 2006.

Research and development expense declined by approximately $1 million to $3.7 million for the third quarter of 2007 compared to $4.6 million for the third quarter of 2006. Changes in R&D expense includes $713,000 in lower development costs and $448,000 lower clinical and regulatory costs that were partially offset by higher quality assurance costs. R&D expense for Q3 of 2007 was down sequentially from Q2 by $357,000 due primarily to lower clinical and regulatory costs.

Our selling, general, and administrative expense decreased by approximately $1.1 million to $5.9 million for the third quarter of 2007 compared to $7.1 million for the same quarter in 2006. The decrease was primarily due to $1.1 million in lower marketing costs, major elements in decreased SG&A expense include $869,000 in lower trade show costs and $434,000 in sales samples, offset by $609,000 in increased personnel related costs. SG&A expense for Q3 of 2007 was up sequentially from Q2 by $474,000 due primarily to additional trade show costs.

Net interest income declined by approximately $700,000 to $119,000 for the third quarter of 2007 compared to $818,000 for the third quarter of 2006. The decrease was due to an $866,000 increase in interest expense primarily related to our $60 million in convertible notes, which was partially offset by higher interest income for the period.

We reported a net loss of $11.4 million or $0.40 per share for the third quarter of 2007, down from $13.4 million or $0.48 per share for the third quarter of 2006. The approximate $2 million in lower reported net loss from the prior year was primarily the result of reduced operating costs and increased revenues, offset by lower net interest income.

We ended the quarter with a strong balance sheet. At September 30th, 2007 we had $74 million in cash and marketable securities and working capital of $71 million. We continue to focus on controlling our expenses and cash usage. Net cash used in operating activities decreased to $7.8 million [to] $26 million for the nine months ending September 30th, 2007, compared to $33.8 million net cash used for the same period in 2006. The decreased use in cash used in operations was primarily due to less cash invested in inventories, less cash used to pay-down payables and accrued liabilities, and in lower net loss compared to the same nine-month period in 2006.

As we've previously reported, in March 2007 we purchased four separate call spread options in conjunction with the issuance of $60 million in convertible senior notes. In September of 2007 and as settlement for the first of our four call spread options we received approximately 154,000 shares of our own stock valued at $1.4 million on the date of settlement. Based on specific cap prices limits the maximum additional value we could receive for the remaining three call spread options through March 2009 is approximately $40 million.

I will now turn it back to our CEO, Terry.

Thanks, Jess.

I'd first like to start off with a brief update on the wildfires, which recently plagued San Diego County. We did not experience any structural damage as a result of the fires. We voluntarily elected to close our operations on Monday and Tuesday of last week to enable our employees to attend to their families and their homes. We resumed operations on a limited basis on Wednesday, and by Thursday we were fully operational again.

We have also confirmed that our key suppliers, located in San Diego, are fully operational. During the crisis we continued to provide uninterrupted technical and customer support for our patients. Although manufacturing was limited for several days we currently have sufficient sensor inventory to meet patient demand, and we do not expect this crisis to result in a backorder situation.

We are extremely pleased with the results of our first full quarter launch of the Seven. We believe the Seven is proving to be a better performing second generation product with noticeable performance benefits and greater ease of use for our patients. After more than a decade of no meaningful improvement in glucose control, using existing technologies, CGM is the first monitoring technology to show such significant gains in glucose control. We believe the Seven is creating the positive experiences for patients and healthcare professionals that we need to build this emerging category. Almost daily I hear reports of patients achieving their best ever glucose control without increasing their exposure to hypoglycemia.

CGM is not just about insulin and insulin dosing. With CGM patients are able to observe in real-time the immediate impact of other activities affecting their glucose control, such as meals, exercise, and stress, and they are able to make appropriate timely behavioral modification. This continues to underscore why there is so much excitement and hope about CGM and why we continue to believe that continuous glucose monitoring will play a significant role in the future of diabetes management.

I'd like to highlight just some key performance metrics for the third quarter. As Jess mentioned, revenue grew 41% sequentially from Q2 to Q3, and adding nearly 700 new customers in the third quarter, we saw a significant increase in the number of new patients added in our key accounts, suggesting that our targeted sales focus is gaining traction within these large diabetes centers. In addition, we successfully upgraded approximately 750 of our existing customers from the STS three-day to the Seven and we expect to continue to upgrade STS three-day customers during Q4. Most encouraging for the long-term viability of the business was a 30%, 36% increase in sensor revenues, quarter to quarter and a 75% increase compared to the third quarter of 2006.

Contrary to rumors, we did not experience an increase in out-of-box sensor failures during Q3. Product performance and quality as measured by complaint rate data continues to be extremely positive and at the same time manufacturing volumes continue to increase. For the balance of 2007 we will continue to focus our selling efforts on the largest diabetes centers in the U.S. Our targeted efforts in these key centers during the third quarter provided us the opportunity tor revisit the benefits of continuous glucose monitoring with patients and healthcare professionals who might have had an unfavorable initial experience with our STS three-day.

Our experience with the launch of the Seven during the third quarter has, in fact, revealed that the performance issues we experienced with the STS three-day may have disappointed patients and prescribers more than we initially believed. We believe that this has had a lingering affect, resulting in slower new patient and accounts conversion as we work to regain patients and physician confidence in the Seven. Nonetheless, we continue to see increasing excitement and clinical interest in the category of continuous glucose monitoring, whether it be at the scientific medical meetings or in daily interactions with physicians, educators, and patients.

CGM was a central focus at the American Diabetes Association Annual Meeting this summer, and was a key topic of discussion at the Diabetes Technology Society Meeting this past weekend. While we believe we've made significant progress raising the awareness of CGM and DexCom among physicians and clinical educators we have a long way to go to achieve the paradigm shift from a single point finger stick to CGM.

With our leadership role in the category we will continue to invest in activities to gain acceptance of CGM as the best standard of care for diabetes management. Looking forward, we will continue to focus on well proven tactics for category growth, including raising the awareness of DexCom among healthcare providers to increase clinical adoption and utilization of continuous glucose monitoring. Over time we must establish CGM as the best standard of care for diabetes management. Second, we must maintain our core focus on technology and product improvement. We've succeeded in bringing the best CGM technology to the market over the past two years, and believe we will continue to be the technology leader. Third, we must continue to push to achieve broad reimbursement for our patients.

Moving to R&D, we believe that the continual introduction of next generation products with improved performance and patient convenience are key to the development and the growth of the CGM category. As we mentioned previously, during the second quarter of 2007 we filed a PMA supplement with the FDA to add additional functionality to the Seven to enable patients to calibrate the system using any brand of blood glucose meter. Although we cannot predict the ultimate decision or timing for a decision by the FDA, it would seem we are on track for a decision by the end of the year. We are currently in the final stages of our pivotal trial for our third generation STS, and we expect to file a PMA supplement with the FDA by the end of the year as we have committed previously.

We are also pleased to report that just last week we received approval from the Food & Drug Administration to transition our manufacturing operations to our expanded facility near our Corporate Headquarters. We are in the process of completing the build out of that facility and expect to consolidate our operations into that facility during the first quarter 2008. It is important to note that this approval was granted in large part based on our post-approval PMA and QSR audit conducted by the FDA in January 2007, continuing to demonstrate the outstanding relationship we have with the FDA, enabling us to bring forward new products we hope will improve the lives of people with diabetes. Even without significant optimization efforts our current estimates suggest that we should be able to produce approximately 1 million sensors annually in this new facility.

Finally, we continue to pursue a [CEMR] for the Seven, and to that end we are currently working with a notified body in Europe to review our quality of system and to assist us in obtaining a CEMR. We have also identified clinical trial sites in France and the Netherlands and are currently working with several principal investigators to develop an appropriate protocol to begin trials in Europe in '08.

Reimbursement, we continue to receive unsolicited reports from patients and physicians of favorable coverage decisions, and our own reimbursement organization is working to build upon those experiences to create wider reimbursement going forward, especially with private payers. Although anecdotal because the data is solely based on patient reports, we are seeing an increase in the number of patients who are receiving coverage for CGM. We continue to educate the private payer community on the role of CGM in assisting patients to better manage their glucose excursions, both hypoglycemia as well as hyperglycemia.

We expect [HIPICS Codes] covering the three components of our Seven System to be published in the Federal Register any day now, and these Codes would become effective on January 1st, 2008.

The JDRF sponsored randomized reimbursement trial is expected to be fully enrolled by the end of the year, and we continue to participate actively. We continue to see reimbursement as one of the key challenges to achieving widespread adoption of CGM and reiterate that the reimbursement process takes time, patience, and perseverance. We are making progress, but it is still too early to predict when broad coverage will generally be available.

We also continue to make good progress in the development of a system to address glycemic control in the ICU market. As an increased number of hospitals implement tight glycemic control protocols to reduce mortality and morbidity in their post surgical patients we recognize the need to increase our efforts in this key area for continuous glucose monitoring. Although it is still too early to predict a commercialization timeline we are working to define the best development and regulatory path for the product.

We continue to have multiple discussions with potential partners and continue to believe in open architecture, whereby our sensor system is adaptable to multiple insulin delivery models, represents the best interests of patients and DexCom. Aside from insulin delivery we are learning a great deal about the potential for CGM to be used together with other diabetes drugs and devices to improve the convenience and effectiveness of diabetes management. We would expect to more aggressively pursue partnerships that will provide for mutually beneficial integration in the coming quarters.

With that, I'm going to turn it over to Steve Pacelli to update you on the Abbott litigation. Steve?

Thanks, Terry.

You'll recall that back in September of 2006 the Delaware Court granted our motion to stay the original case and disallowed Abbott's attempt to amend the original complaint to add three additional patents. Abbott subsequently filed a separate action on those three patents. On September 30th, 2007 the Court granted our motion to consolidate the cases and stay the entirety of the litigation pending conclusion of the reexamination proceeding with the PTO.

We believe this decision will suspend the litigation activity throughout 2008, however, we will continue to aggressively pursue reexamination of the Abbott patent cited against us. For traditional detail regarding the status of the reexamination proceedings, please take a look at our 10-Q filed today with the SEC.

Terry?

Thanks, Steve.

In conclusion, as we complete the first full quarter launch of the Seven we believe as much as ever that continuous glucose monitoring will play an important role in diabetes management. Our daily experiences continue to reinforce that patients and healthcare professionals who make a commitment to using the product for a period of time, irrespective of first generation performance issues are obtaining their best levels of glucose controls ever. We continue to believe DexCom will be a growing and profitable business for the future.

I'll now take questions.

(OPERATOR INSTRUCTIONS.)

And we'll take our first question from Tom Gunderson with Piper Jaffray.

Hi, good afternoon. Terry, let me see if I've got this right, revenues are up and costs are down?

Yes.

Okay. The -- you -- it was a good summary, and so I just have a couple of follow-ups on some of the comments you made. First off, can you remind me on the ICU project where we are with a -- from a design standpoint? Do you have a proof of principle design, CGM, that works within the hospital noise?

Yes, Tom, that's a great question. We have designed this particular sensor to be an indwelling IV sensor so it's in the blood, and we have completed a number of feasibility trials, now slightly less than 100 patients through the clinic setting, and are continuing to refine that particular product with the hopes of being in a pivotal trial sometime next year.

Okay. Thanks. And then the other is on manufacturing, what -- what's the plan on the switchover? Do you build-up inventory ahead of time, do you run parallel for awhile, how do you actually make the switch?

Yes, and typically in these types of situations we will run parallel and bring one line up at a time over at the new facility while we continue to run our existing line here at the Overland address, and then once we've qualified it up, sequenced the new facility, then we'll bring the line back over. But it will be sequentially.

Okay. Thanks. And then, last quick question, how is the CFO search going?

Well, right now, we -- we're pretty happy with the situation that we've got and, you know, I've got a lot of recommendations but I'm particularly focused right now on growing sales.

Got it. Thank you.

And our next question comes from Ben Andrew with William Blair.

Good afternoon, Terry. Can you hear me?

Yes, Ben, I can hear you.

Okay. Just a couple things. Can you talk about reorder rates for the new patients on the Seven, as well as if you've seen any patterns for reorder rates on patients that switched from the Three to the Seven in the last few months?

You know, I -- we'll probably -- we'll be able to comment on that after the next quarter. The problem right now is we're trying to get our arms around that. As you well know, we don't have a hard shut-off on the sensor, so -- and if you believe the blogs patients are using them right now somewhere between on average seven to ten days, but that is a metric that I expect to be able to disclose on a continuing basis, but it's just too early. We just now finished one quarter, so we don't have good optics.

Okay. Any anecdotal comments there in terms of generally positive reorder rates versus what maybe we've seen historically?

Yes. I'm very happy from what we're seeing, and we just want to be sure that we validate what we're seeing with hard data rather than some of the subjective observations that we're looking at now.

Sure. Okay. And then switching over to the European opportunity, do you have a timeframe in mind for [CE Mark], and how would you roll it out? I assume with distributors? And then how do you quantify that as a market opportunity for DexCom?

The CE Mark, you know, generally once you go through the ISO certification, which we expect to receive sometime in the early part of '08, then you file for CE Mark, and that generally takes around 90 days but, that said, that just allows you to introduce the product into the sector, it does not necessarily generate any revenue for you. You have to go back in and seek reimbursement from each country. That's why we have targeted both the Netherlands and France, with some of my old friends there that are the luminaries in the field, and both of those countries have good reimbursement in diabetes technology. So we would look to initialize the relationship with them, complete the clinical trials, apply for reimbursement, and then in the meantime concurrently begin looking at a distribution partner in that sector.

OK. Great. Thank you, Terry.

You bet.

We'll move next to William Plovanic with Canaccord Adams.

Great. Thank you. Can you hear me?

Bill, we can hear you great.

Fantastic! Just a couple of questions here. In terms of the upgrades, we have 750, that's the cumulative number thus far; correct?

No, that was the number in the quarter.

So roughly what's the cumulative on the upgrade?

We started the upgrade program in late Q2, and we did not deliver any units as of that time. We did upgrade customers during Q3, so that 700 and roughly 50, you can use as the cumulative to date upgrade number.

Okay. Great. And then what's, you know, what's your average cost that you're getting on these upgrades? I mean your average ASP on the upgrades?

We've disclosed it before, and that's $150 per upgrade.

Okay. And then, sorry, I'm just trying to run through some of the numbers here. I mean by my estimates you did about $700,000 in sensor revenue in the quarter; is that about right?

We have not announced before or disclosed our sensor revenues.

Okay. And then in terms of U.S. distribution any -- any changes in the overall makeup of that channel at this point in terms of you had about 25 direct and about 20 clinical diabetes educators? Any changes or are you just sticking with what you have for the near term?

Yes, I'm very comfortable with the size of that sales force right now and the combination between clinical education specialists and the traditional sales force. I think through the remainder of '07, as we mentioned, we're going to stick to the plan. It's working well.

Uh-huh.

We're seeing a greater uptake in each of the locations that we're spending more time with, and so we're very happy with the process. We'll look at next year and the potential for expansion but right now I'm, at this point and for the remainder of '07 we're sized appropriately.

But there hasn't been in those absolute numbers, there hasn't been a lot of changes either; correct?

No, we've seen, actually other than when I first arrived here, a few months ago, we had some involuntary resignation. We replaced those people with some more senior people, but we've been stable. And then looking at where we're at now and their numbers I'm quite pleased with their performance.

Okay. And then, lastly, you talked about a next generation product in the third gen. I mean as you move forward in generations can we look for, you know, a closer average deviation from your comparable group? Is that kind of the goal on the next generation, or is it more user friendliness? I just wonder if you could give us some color on that?

Well, the -- are you talking about accuracy?

Yes.

Yes, I mean the goal, obviously, is to reduce the amount of deviation as we compare to finger stick measurements. And, obviously, we, you know, ultimately in order to get replacement claim we have to achieve that, so that's always the goal. That's the gold standard that we move to. But, obviously, you have to keep making technology, improve it, not only from the sensor standpoint, membrane technology, there's a lot of different issues that surround that particular issue. But, that said, also on the software side we'll continue to make improvements in the software and download capabilities of the information.

I guess, and what my question is everybody is kind of looking for that magic, okay, you're close enough, you're good enough, and that'll drive tremendous adoption. Is that a gen three product, is that a gen four, what is that in your opinion just kind of looking at all your changes in the technology come together?

Well, we're certainly, as I mentioned, we're almost through the pivotal trial on the gen three. We have not looked at that data to determine what [MARD] is yet. I would be able to give you more information after we've had a chance to look at that data, what we think is the -- well, we're certainly closer than the Seven but I don't know if we're there yet, and I won't be able to know that until after we look at that data.

And when will we see that data?

Well, we will file it with the agency by the end of the year, but you would see it sometime in the '08 timeframe.

Great. Thanks a lot, Terry.

You bet.

We'll move now to Mimi Pham of HSBC.

Hi, good afternoon. Terry, I know you don't give guidance, but based on what you're seeing so far in the Seven demand do you expect new patient adds in the fourth quarter to be stronger than what we've seen for this quarter?

Well, that's always the goal. I mean that's why we look at the sales force. With that said, I will remind everyone that my goal for the organization through the end of '07 is stay the course at the largest centers. We're seeing better up take at those centers, which means we're changing the prescribing habit of the key thought leaders there, as well as some of the other endocrinologists and healthcare educators that are at those locations. So I think from that standpoint we'll look to '08 as more of a patient add number.

Right now, what we have to do is to continue to stay with these sites so that they utilize the technology in an ever increasing area. And they really become the spokespersons for the category as they go out and communicate to others treating the disease, and that's the mentality that has to go on and continue.

Okay. Thank you. And then how big is your internal coverage support group, and is that something you plan to build out as you add more patients, or as you plan to add more patients?

Yes, we don't disclose -- and I assume you're talking about our customer service, technical services group?

That one, too, and then just also the group that helps patients, new patients get reimbursed and are trying to get reimbursement?

They're in -- internally the back office support encompasses all of those areas, and we haven't disclosed those numbers. I'm always careful about that because, remember, I -- I've done this before, and that number got very large at another company, and I have to be careful that this model isn't the same model, but we'll continue to support them. And we also have an external group that calls on the payer system that is also assisting in a different way, but to drive coverage decisions at that which will then make it easier for patients to receive reimbursement.

Okay. I didn't realize you had an external group also helping with coverage. And then, last, for -- you talked about multiple partner discussions, are any of these potential partners, will they distribute the Seven or is this more integrating their product, the product features?

Right now, I mean I don't want to go to the details of the discussions other than to say our -- and our standard public statement has been that we will integrate. Obviously, as you think about that integration into a combination product, it would obviously involve some degree of distribution on the part of the partners.

Okay. Thank you very much.

Uh-huh.

And we'll take our next question from Steve Ogilvie with ThinkEquity.

Hi. Just wanted to ask what impact there will be on the cost of goods when you move into the new facility?

Well, obviously, we've got a greater cost, so from that standpoint, well, you know, that'll be applied on a per unit basis, but that's, you know, obviously, we believe still run rates are going to dictate getting to the gross margins that we've stated from a standpoint of this is a product, a sensor product is a product that should have gross margin north of 75%, so we're still negative margins for awhile until we can get our run rates appropriate.

Okay. And then on reimbursement, so say finish and rolling by the end of this year, really the primary implant is a six-month follow-up, sometime midway through next year we'll have some data. Is this Company going to take any sort of active role in pursuing reimbursement and, if not, could you maybe walk us through what JDRF will do to get reimbursement?

Sure. And let me first state, we have a field force of several individuals, headed up by an individual that ran reimbursement for me at my former company, so he's been down this pathway from going from zero reimbursement to today pumps out north of 95% reimbursement, so he knows the drill. He heads up a team that calls on the third-party payer system, as we speak, and they're making tremendous inroads into -- in getting that coverage decision. So that -- that's one aspect of it.

The JDRF trial is a trial which is designed by investigators and JDRF specifically looking at reduction in [HBA1C] over a year period, s well as increasing time spent and target zone, decreasing time spent in hypoglycemia and hyperglycemia. The interim analysis at six months is something that JDRF will do, and I really have to refer you to [Eric Kowalski] at JDRF for any specificity with regards to the trial. We're contributing product as is the -- our competitors but we don't control the analysis or any of the publications associated with the information.

Great. Thank you.

And our last question comes from Alex Arrow of Lazard Capital Marketing.

Thanks. Can you assume that the three-day sensor is going to be entirely retired as you roll out the Seven?

Well, we're in the process, globally encouraging patients to move up to the Seven. The goal is ultimately to retire the Three. I can't tell you when that's going to happen other than we'll continue to support it until we can switch patients over, but we're right now in the process of encouraging them to switch over.

Are you able or willing to tell us roughly what portion of sensors this revenue were Seven?

We haven't disclosed that yet, Alex.

Okay. How about the -- I think I heard you say seven to ten days was what you were hearing back as generally how long patients are using the Seven System; is that correct? Because I remember the Three was used longer than the three, the Seven, are you hearing than it's being used longer than the seven?

Yes, we're -- and we monitor the blogs, and I can tell you that on average we're seeing routine use north of seven days and somewhere between seven and ten days.

Okay. And then, finally, if I could just ask about your latest thinking on non-Medicare third-party reimbursers, is there anything you can tell us about the major insurers that might be either a movement in the direction of reimbursement, you know, in advance of any JDRF data?

Yes, I mean we're continuing to go up the hierarchy within the reimbursement group on the private payer basis. I would expect that, hopefully, even yet this year we will have at least a contract relationship with a major payer. That's not a coverage decision, it's just a contract agreement with them, which is the predecessor to a coverage decision. And that's the normal, typical way in which these products get adopted and reimbursed.

A contract relationship is not a promise to pay, it's just an application to -- on a case-by-case basis?

Well, it still goes case-by-case. It's not a coverage decision but it is an agreement that they recognize that a number of their covered lives who qualify, depending upon what the criteria is, and that's going to be, depending upon the payer that they will agree to cover that without having to go through a prior approval or having to go through the -- a denial and appeal process, and those are the early steps of adoption that new technology generally follows. And then at some subsequent period there will be a coverage decision that may be restrictive in terms of the criteria for acceptance but it is a broader based coverage decision.

Okay. So but before December 31st you're saying you'll announce somebody with a contract relationship?

No, I can't tell you that we will. I -- my comment was I am hopeful. Obviously, with our field team negotiating and with a number of large payers at the present time we feel that there may be an opportunity before the end of the year to have a contract in place.

Okay. Thank you.

Uh-huh.

And we'll take a follow-up from William Plovanic with Canaccord Adams.

Great. Thanks. My two questions are this. So you've had about roughly 750 upgrades out of about 4,300 in the -- out in the market on the three-day. You know, how many of those 4,300 were active, so how many do you think cumulatively you'll end up upgrading to the seven-day? That's my first question.

And the second question is in terms of the disposables you're getting a mix going in the quarter, kind of what was your ASP on the disposables? You know, are you sticking to and getting this, you know, $60 per sensor for the Seven?

The first question with regards to the three-day, I'm -- we haven't discussed that, so it's -- but I'd prefer not to address that. I can tell you on the ASP that we're getting, sticking to the $60 and we've seen no variation from that at this point. And I'm actually looking over at Jess just to verify, but we haven't had any -- we're not in a discount mode, we're selling them at full price.

Okay. And it looks like you're giving your base kits, you're getting a higher ASP for them, as well? Is that a fair statement?

That's a fair statement.

Okay. Great. Thanks a lot.

And that concludes the Q&A session today. At this time, Mr. Gregg, I'd like to turn the conference back over to you for any additional or closing remarks.

Well, I just would like to thank everybody for the opportunity to review the quarter. Obviously, we're extremely pleased with the quarter performance. I've been onboard now 120 days, and I'm quite pleased to see the Company going in the direction that they are. I've been out in the field routinely, meeting with key luminaries that certainly I've had relationships with, and some of them are actually our best customers, as they also suffer from diabetes and have recognized the true benefit of better control. The future is very bright, and I look forward to chatting with you again to give you an update on the fourth quarter. Thank you.

And, ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.