Insulet Corp (PODD) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2010 Insulet Corporation Earnings Conference Call. My name is Tamina, and I will be your operator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Brian Roberts, Chief Financial Officer. Please proceed, sir.

Good afternoon, everyone, and thank you for joining us for our first quarter 2010 conference call. I am Brian Roberts, Chief Financial Officer of Insulet. Joining me on the call today is Duane DeSisto, our Chief Executive Officer.

Before we get started, I would like to remind everyone that our discussion today may include forward-looking statements as defined in the securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act, and are making this statement for purposes of complying with those safe harbor provisions.

These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects which are based on the information currently available to us and assumptions we have made. There are risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Information concerning the Company's potential risks and uncertainties is highlighted in the Company's press release issued earlier today, and in the Risk Factors section of the Company's SEC filings, including the Company's Form 10-K of the year ended December 31, 2009.

These risk factors apply to our oral and written comments. We assume no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. I would also like to remind you that the guidance we are offering today represents a point in time estimate of our future performance. You will find a link to the webcast of this call, as well as today's press release at myomnipod.com in the Investor section. And now I will turn the call over to Duane.

Thanks, Brian. First quarter of 2010 was another period of strong execution growth for Insulet. With each passing quarter we see the easy-to-use OmniPod system expanding the market. We believe the unique features such as no tubing, automated cannula insertion, and the discrete, watertight design is driving more and more conventional pumpers and multiple daily injector patients to use OmniPod to help reduce the glycemic variability and better control their diabetes. Our customers consistently tell us the OmniPod is so easy to use that it truly changes their lives for the better.

Knowing that we make a difference every day in the lives of so many people motivates us to achieve new heights in our business, and in the first quarter we did just that. We reported revenue of $20.8 million, a 67% increase over the first quarter 2009. Despite the typical slow start of the year, referrals were up more than 20% in Q1 as compared to the prior year, and the momentum we saw building in March has continued into April and first few days of May. We added a dozen new clinical service managers in the first quarter creating a one-to-one ratio of territory manager to clinical service manager across our sales force.

Impressively, we have been able to fund this investment without an increase in overall operating expenses. As our new CSNs get up to speed, we believe the sales productivity will continue to grow, and this growth will continue throughout 2010.

Our solid revenue growth was supported by the ongoing improvement in our manufacturing capabilities. We mentioned last quarter, we had scheduled a shutdown of our manufacturing facility to allow Flextronics to consolidate their production service into a new state-of-the-art facility in China. The relocation was successfully completed in March, and we are back in full production. Despite the shutdown and resulting decrease in Pods produced in the first quarter, we achieved a significant gross margin milestone for Insulet as we reported 40% gross margin for the first time, a gross profit of $8.4 million. This represents a 320% increase in gross profit in Q1 2009. We remain confident that we are on track to hit our 50% gross margin target by the end of 2010.

As our financial results have progressed, we continue to innovate. Just yesterday Dexcom announced they have filed a PMA supplement with the Food and Drug Administration for a first generation integrated product consisting of our OmniPod system and their continuous glucose monitoring technology, the Seven Plus system. This new product will consolidate the Seven Plus receiver into our PDM, our Personal Diabetes Manager, simplifying the number of devices a patient must carry.

Going forward, a patient who chooses the integrated product will have a PDM which then can be used as their pump controller, CGM receiver, and blood glucose meter. We are excited about the potential of this product and congratulate both teams for all the hard work required to reach the support and product development milestone.

As Dexcom stated in the conference call yesterday, they would typically the PMA supplement process to take approximately 180 days, give or take a few months. However, as they noted, the actual timing of the regulatory process is uncertain.

We also continue to make excellent progress on our next-generation OmniPod. The second generation Pod maintains all of the features of our current OmniPod, but is a third smaller in footprint and it is expected to be a third lower in production costs. We remain on track to file a 510(k) with the FDA in the third quarter of 2010.

Speaking of the FDA, over the past few months, the Agency has increased its focus on the safety of home use medical devices. Recently, they have convened a series of panel meetings on topics such as insulin pumps, blood glucose meters, and later this month, home infusion pumps.

On April 23, the FDA provided draft guidance to assist the industry in preparing premarket notification submissions for infusion pumps and to identify device features that manufacturers should address throughout the total product lifecycle. We feel that we have a good understanding of what the Agency will require as part of our 510(k) submission, and we do not expect that any of these recent developments will impact our current timeline. While we cannot predict the outcome or the timing of the decision from the FDA, we are confident that we are taking the necessary steps to streamline the process as much as possible.

Looking ahead to the second quarter, we are thrilled that we have been able to bring the OmniPod system to people with diabetes who live outside the US. Through our exclusive distribution agreement with Ypsomed, we will launch OmniPod in both Germany and the UK in the coming weeks, and in several other markets in the second half of 2010 and the first half of 2011.

We are also actively working on a strategy for distribution of the OmniPod system in Canada. We received Health Canadian approval to distribute the OmniPod system throughout Canada in 2009. We have identified potential distribution partners and are in negotiation on terms of potential distribution arrangements.

As you know, we are also broadening the application for the OmniPod system. I am pleased to report that in March we shipped to our partner Ferring Pharmaceuticals the first nondiabetes OmniPod product. Ferring is using our device for delivery of fertility treatment in certain countries in Europe. While we do not expect it to be material to our revenue in the near term, it is an important proof-of-concept for the OmniPod as a technology platform for other potential medications. We also continue with early stage studies for several other potential applications.

Looking forward, we believe we are well positioned for continued growth. We remain focused on executing our strategy of expansion, increased efficiency and innovation. We are expanding the business to improve productivity growth in the US in the launching of OmniPod in key international markets. We continue to partner with key opinion leaders throughout the world working on the Juvenile Diabetes Research Foundation's artificial pancreas project. The OmniPod system is being utilized for this critical research in nine worldwide JDRS-sponsored research centers.

Additionally, we continue to assist and sponsor clinical research seeking to demonstrate key clinical advantages of the OmniPod system as it compares to alternative therapies. We will also increase the efficiency of our manufacturing capabilities while maintaining control of our operating expenses. The Company continues to be a lead innovator in this segment. We are confident that we will further distance ourselves from the competition in this space with an integrated CGM product and a significantly smaller next-generation Pod.

With that, I will turn the call over to Brian to provide additional details about the first quarter results and our expectations for the remainder of 2010.

Thank you, Duane. First quarter revenue increased by 67% year to $20.8 million as compared to $12.5 million in the first quarter of 2009. As we previously noted and consistent with the prior years, Q1 tends to be our slowest quarter as many of our new patient adds from late last year defer their training until Q1, and do not reorder until the second quarter.

With our recent investment to add clinical service managers to the commercial team, we are confident that the productivity across our sales force will grow throughout the remainder of 2010. Gross profit for the quarter increased by 320% to $8.4 million, or 40% of revenue as compared to a gross profit of $2 million, or 16% of revenue in the first quarter of 2009.

Despite the planned shutdown of our facilities for a period of time during the quarter, we were able to add 400 basis points of gross margin as compared to Q4 2009, and are on track to reach a gross margin of 50% by year-end as we are able to take advantage of volume-driven economies of scale and price discounts.

Operating expenses for the quarter were $19.1 million as compared to $19.5 million in the first quarter of 2009. We are pleased that we have been able to keep operating expenses relatively flat while significantly growing the revenue line. With the launch of certain international markets with Ypsomed this quarter and the ongoing development and regulatory work related to the second-generation Pod, we do expect operating expenses will rise slightly in Q2, but should stay at about $20 million.

We are reporting an operating loss for the first quarter of 2010 of $10.7 million as compared to an operating loss of $17.5 million for the first quarter of 2009. We reported a net loss for the quarter of $13.9 million, or $0.37 per share, as compared to a net loss of $19.6 million, or $0.71 per share for the first quarter of last year.

As of March 31, cash and cash equivalents totaled $118.3 million as compared to $128 million at December 31, 2009. We used $9.2 million in cash from operations in the first quarter, down from $9.9 million in the fourth quarter of 2009.

Finally, turning to guidance, for the full year 2010 we are maintaining our expected revenue range of $90 million to $100 million, and our expected operating loss of $30 million to $40 million. For the second quarter we expect revenues to increase to between $22 million and $23 million.

With that, let me turn the call back over to Duane.

Thanks, Brian. We are very pleased with our performance in the first quarter and I would like to wrap up with a reminder of why we are so proud of what we do here at Insulet. I want to share the story of an 11-year-old boy named Christopher, who is an OmniPod customer. Christopher is a first-degree black belt in taekwondo in Michigan. He has been in martial arts since he was four years old. Competing with diabetes is hard enough; competing in kickboxing with a traditional insulin pump is even more challenging.

The tubing on his conventional pump was always in the way during the matches and he just dealt with it as best he could. So, last year Christopher switched to the tubeless OmniPod system, which has given him the freedom to compete without worrying about the pump on his waist.

Since going on OmniPod, Christopher has won nearly all of his matches and is currently in the process of qualifying for the US Karate Team, which will go for the gold this year at World Kickboxing Council World Championships in Portugal this fall.

Christopher's story exemplifies the reason we are in this business and why we work tirelessly each and every day to bring the OmniPod system to people with diabetes. We help people with diabetes to spend less time thinking about their disease but instead allow them to live their lives, and in Chris's case, that means going for the gold.

And with that, Operator, please open up the call for questions.

(Operator Instructions) And our first question comes from the line of Kim [Gayland] with JPMorgan. Please proceed.

Oh, great. Hi, guys. The first question is just on your next generation system and just sort of the state of the FDA today. It sounds like you're on track in terms of your filing for third quarter of this year. Did you change at all over the course of, say, the last six to nine months, the composition of that filing in terms of it's completeness, in terms of where the FDA is headed with the 510(k)?

That's a great question, Kim. So, what we can tell you is we have continued to monitor what the FDA has published. We have talked to them, and so there is no doubt that this submission will be more expansive than any 510(k) submission we have ever done. So, I think we are aware of the requirements needed. It is a more expansive process, but we have plenty of time to incorporate that to stay on our timeline.

Okay, that is super helpful. And the other question I had, I'm sorry if I missed it earlier in the call, but in terms of your sales reps and clinical trainers that you are planning to add, did you talk about numbers there and where we might end the year versus where we are today?

Sure. So, we added a dozen clinical service reps in the quarter. We have at this point 51 territory managers and 48 or 49 clinical service managers. So, basically a one-to-one ratio, 100 people effectively in the field. A little bit more than that including the management. Our expectation for the year is, as we previously discussed, we may add a couple more territories as we progress, but we are strategically looking for the right places to add those territories. No plans at this moment to truly expand the force in some really meaningful way.

Okay, great. Thanks a lot and good quarter.

Our following question comes from the line of Mimi Pham with Soleil Securities. Please proceed.

Hi. Good afternoon. You said the referrals were up 20% over first quarter, but can you give us the growth sequentially?

Mimi, I'm sorry, you cut out. Can you ask the question again?

Okay, I'm sorry. You said that referrals were up 20% over first quarter, but can you give us the growth in either new patient adds or referrals sequentially?

Yes, the referrals, you mean over the fourth quarter of last year? They were pretty flat. Like I said, Q4 to Q1 was pretty much flat, which is pretty consistent with how we have seen this business over the last couple of years.

Yes. You know, consistent with last year, I would say that January was a very slow month and it just seems to be the nature of it. And then we have seen momentum increasing every month since.

In terms of your, I guess, then your guidance for second quarter, does that assume uptick in new patient adds versus first quarter?

Absolutely.

Okay. And then just given your sales force productivity, when you talk about that increasing, do you get a sense that you are taking patients from competitors or is this part of your expanding the market?

Mimi, I still think the statistic, and we haven't updated yet for the first quarter, but I still think the statistic is it's pretty much 70% of the people coming on our product, this is the first pump they have ever had. So, it's up a little bit from the competition, but we are still expanding the market mostly.

And then last question, as your -- can you give us your thoughts on Medingo as part of Roche as a competitor versus standalone?

Look, I think when they will become a competitor when they have a product, and when they do that we'll deal with it. We think we understand the feature set that they have in that product and we are very, very comfortable with our product offering.

Okay. Thank you very much.

Our following question comes from the line of Steven Lichtman with JMP Securities. Please proceed, sir.

Thank you. Hi, guys. Just a couple of questions. First, on attrition rates, I'm not sure if you will provide it quantitatively, but qualitatively are you seeing any decrease in the attrition rates as the economy stabilizes in the US?

Yes, we did see a little bit of a decrease in the first quarter. We were about 9.5%, 9.6% in Q4. In Q1 we were annualizing out to 9% even. So, we saw about 0.5% increase. I am pretty happy with that number given the fact, if you think about the economy, we have seen patients here in Q1 dealing with things with their plans, such as higher deductibles and just changes in their overall medical levels of reimbursement. So, I think seeing a decrease in the attrition rate given that fact is really strong for us.

Okay, thanks, Brian. And then in terms of Europe, is the reimbursement in place now in UK and Germany? I just wanted to be clear on that. It sounds like it has gone pretty smoothly, and what are sort of the next countries we should be looking for in the second half, then?

I think where we are is, I think there are five -- and don't hold me to the exact number -- but I believe there are five [DMARCs] in Germany. I think we already have approval, or Ypsomed already has approval in a couple of those. So, I think we are in pretty good shape to get there, and I think we have approval -- I believe we either have approval or we are awaiting imminent approval in the UK.

Okay. And then just lastly as you think about Canada would the structure of the deal be similar to what we are seeing with Ypsomed in Europe? Is that sort of what you guys are targeting?

That is kind of how we are looking at it at the moment.

All right, great. Okay, thanks guys.

And our following question comes from the line of Rick Wise with Leerink Swann. Please proceed.

Hi, good afternoon, guys, this is Danielle in for Rick. How are you?

Hi, Danielle. How's it going?

Pretty good, thanks. Just want to touch on gross margins a little bit longer term. Is 60% plus gross margins realistic by the end of 2011? And if so, what is going to drive it there? And then as a second part to that question, what do you think peak gross margins are for this business and how quickly can you get there?

So, I think kind of the way we are looking at it, and Brian can chime in here, but I think the next generation product is -- I think we have been pretty clear, the current product gets us into the high fifties and next generation product is the one that brings us into the sixties and hopefully and even above that type range. The transition and all that, the approval of the next generation product is going to be what -- 2011 is going to be a transition period, so I think you can start thinking the kind of numbers you are throwing out there is more like 2012.

Okay, great, thanks. And then sales force productivity, I know last quarter I think you said it was up about 50%. Are you still seeing that now? Is it better, worse? Can you talk about that a little bit? Thanks.

So, 50% was basically a year-over-year number for 2009 compared to 2008. As Duane noted in his remarks, we saw our 20% uptick in referrals year-over-year in Q1. Q1 versus Q4 tends to be kind of flattish just given the seasonal impacts of the business, and we certainly think we are going to continue to see productivity grow throughout the remainder of the year.

Okay, great. Thanks so much.

And our following question comes from the line of Matthew O'Brien with William Blair. Please proceed.

Good afternoon. Thanks for taking my question. I just wanted a couple of quick housekeeping items. Added revenue or deferred revenue in the quarter, can you provide that?

Added revenue was $1.1 million in the quarter, and deferred revenue off the balance sheet was -- we're sitting with $4.5 million deferred as of March 31.

Okay. And then next question on the SG&A side. I know that you guys had talked a bit about going after the kind of traditional pumpers that were already out there and some programs aimed at that. But given the sequential decline in SG&A spending this quarter, are we not -- have you not started those programs you would expect in Q2, along with the additional clinical service reps your SG&A costs go materially higher from Q1, or how should we think about that in the coming quarter?

Yes. No, I think as we look at it overall, some of the marketing spend, timing, a lot of it -- a little bit is around the timing of hires of this dozen people that we brought on into the field organization in Q1. I think we are doing a pretty good job of just being able to kind of control overall spend and just being able to target the dollars to the things that are really driving return on investment. I think about the second quarter, I noted a little bit in the remarks that we are launching Ypsomed this quarter, so we are going through translation, we are going through the marketing material that they require, which is driving up OpEx a little bit. And we are also spending time here in the second quarter in costs on regulatory process and other things to be able to get the second generation Pod to the FDA, hopefully that 510(k) submission in the third quarter.

So, those will uptick overall OpEx a little bit in Q2 to probably $20 million, give or take. But I think both of those things, then, kind of subside back down as we get into the back half of the year. So, we are still very much targeting this idea of $19 million to $20 million of OpEx per quarter and don't really see a reason to have to move from that.

Okay, but organically, stripping out kind of what you are doing internationally and some other activities, it sounds like the productivity per rep is really starting to accelerate without the additional spend that you need to really drive that on the top line. Is that accurate?

Yes, absolutely. That is accurate.

Just one more quick one, then. On the reimbursement processing side of things, I mean, where are you at in that function of your business? Are you at the point now where you don't see a whole heck of a lot more performance ability to drive increased processing? And then where is your backlog at in terms of the number or referrals that you have kind of in your backlog at this point?

From a managed care contract perspective, I mean, there are always more contracts to get, so it's a never-ending process there. But certainly from all the big plans that we have talked about in the past, we feel good about, either that we have a direct contract in place or we have a distributor that will help us be able to fulfill that order for a patient. So, I think we are doing a pretty good job there. I don't feel constrained at all from a backlog perspective. I mean, we certainly have a backlog of referrals just as the pipeline continues to grow, but from a processing paperwork perspective or so, I'll knock on wood as I say it, but I feel like those issues for us are in the rearview mirror and we are driving forward.

Okay. As the referrals increase by 20%, the backlog doesn't increase by 25%, essentially?

Yes. No, I mean, that is certainly not the plan, right? I want to bring -- if the referrals increase by 20%, I want to bring the backlog down. I want to continue to convert them faster and faster so that is absolutely full. And there are always things we can be doing around systems. As we find plans, learn more about us and how to work, how both sides work better with each other, it gets easier. So, compared to a year ago, you know, some plans that were probably trickier for us to deal with, they are smooth now. And then the new ones come on and we kind of have to work out the process. But I think the team has got a good process in place on how to do that and how to kind of move these things along in a timely manner.

Okay. And I'm sorry, one more. I lied. Have you historically provided any sense for investors in terms of what kind of revenue level you need to get at to turn positive either on an EBITDA or operating margin side?

Well, a lot of it depends on, frankly, the gross margin, as you well know, and a key piece of that for us is just how quickly the transition happens with the second generation Pod as we move our way through 2011. So, that key piece of it, I would frame it as we are continuing to target kind of the middle part of next year as the point where we think we can get to an operating kind of cash break even.

Okay, great. Thank you.

People will have to (inaudible) numbers a little bit on the revenue there, but roughly that is where it is.

Our following question comes from the line of Bill Plovanic with Canaccord. Please proceed.

Great. Thank you. Good evening. I just want to start off on the gross margin. (Inaudible) is very impressive, congratulations. You had that big bump-up. As we look at Q2, is this going to be one of those situations where Q2 is kind of flattish and then we start the improvement as we hit Q3, Q4?

We are not guiding kind of quarter-by-quarter, but I absolutely believe we are going to increase gross margins in Q2. So, I think we have done a good job with this plant shutdown and being able to kind of manage our way through inventory levels, to be able to continue to grow our gross margin. So, I absolutely expect an uptick next quarter as well.

Excellent. And then just ASPs, you know, if we look at the starter kits and the disposable directionally, each of those separately, can you help us out?

Yes, effectively, everything is basically flat, so no real changes from where we have been. The starting kits tend to be around $600 and the Pod still continues to be right around $28. Some of it, depending on the level of distributors in the quarter may influence that number up or down slightly, but $28 is a real good number to use.

Okay. And then on the Abbott royalty in the quarter, can you help us out with that, or do we have to wait for the Q?

$1.1 million of Abbott revenue in the quarter.

Okay. Wow, that is pretty low. And then last is just a little tougher question. If you look at your endocrinologist utilization breakdown, what is the average number of patients at the top 10% of your base, and is that going -- you know, what kind of growth rates are we seeing in that year-over-year and quarter-on-quarter? And how many docs have you added, like how many docs are utilizing the product?

Bill, I would have to get back to you on the number of docs and that type of thing. I will tell you that one of the things that we are working on diligently is understanding region frequency throughout the sales force. And what we can see is the number of guys that are providing a significant amount of business to us is continuing to grow, which is driving this growth obviously. While we think the opportunity in front of us is still significant, I mean, we really think it is significant, and we think there are a lot more docs that have given us a couple of orders, and then they are seeing how we behave and how we produce there. And one of the reasons we are hiring these CSs is it really helps back up the sales guys, sales guys become the hunters, and these guys continue to develop the practice for us. So, we see some real significant opportunities there. In terms of the number of docs and stuff, I just don't -- I would be making it up if I gave you a number, so I don't have it.

And, Bill, just a reminder on the Abbott revenue. When you are comparing Q4 of '09 to Q1 of 2010, keep in mind that in Q4 of '09 there was $1.2 million, maybe $1.3 million of Abbott revenue, Abbott upgrade revenue that was in the Q4 number that doesn't repeat into Q1.

Right. And then last question I have and then I'll jump back into queue is, as we look at the Ferring revenue that you pulled in, I mean, is this like $100,000, $200,000, or is this $500,000? And then is there a different profitability level associated with those units in terms of a gross margin standpoint?

No, I mean, I think profile-wise, it is probably -- gross margin will be a little bit better for us, but, again, in terms of magnitude, in the Q1 revenue number we are talking less than $100,000. So, it is a small amount here. They kind of kick off this process. That is why we have been pretty consistent throughout that this is a lot more of a proof-of-concept, and see how well they launch and you learn from this as it starts to commercialize, as compared to being a true big revenue driver for the business in the near term defined in the next couple of years.

Great. Great job on the quarter, guys. Thanks.

Thanks, Bill.

Our following question comes from the line of Greg Chodaczek with Boenning & Scattergood. Please proceed.

Duane, I hate to say this, but all my questions have been answered and I'll bother you another time.

It is always nice to hear from you, though.

And at least the Red Sox are playing better than the Dodgers. We'll talk to you guys later.

Couldn't get much worse.

Our following question comes from the line of Derek Leckow with Barrington Research. Please proceed.

Thank you. Good evening.

Hi, Derek.

Hi. Just wonder if you could elaborate a little bit more on the strategy to add the clinical service reps, and just kind of wondering how you are measuring their performance, or how you are going to be measuring their performance kind of internally as we look ahead?

I think the overall strategy, quite frankly hat we've done is we have monitored this over the last few months, and what we have really seen is the productivity on average in territories that have one-to-one relationship with a sales rep and CS, is significantly higher than where a couple of sales reps had a share of CS. So, what we are doing is we are monitoring the overall productivity of these territories and obviously as it becomes closer to a one-to-one, it becomes pretty easy to do. We are seeing the uptick.

But what we had done is we had taken some territories, we went to a one-to-one relationship, others where they shared a CS. We monitored that for a period of time, kind of tested it out, and the ones that had the one-to-one relationship there was significantly higher productivity.

And if you think about it, the important thing is as easy as our product is to use, it is pretty innovative, and so when people first put people on this product, the physician's office, they want to make sure they're doing it right, and the real trick is who is there to backstop them? I mean, we have a great customer service organization, but having someone on the ground that can go in and help backstop them we found is really, really important in this process. And to take sales time away to backstop that is more kind of maintaining that as opposed to looking for the new thing. So, we think it is the right combination. We think we have the facts to prove it, and that has really been the key driver behind it.

So, the dozen that you're training and kind of getting in place now. I mean, are you going to wait and see how they perform before you decide to add more or is that -- just kind of wondering how we are going to see this progress?

I think what's going to happen is we are pretty much at a one-to-one relationship, so we are going to continue to watch that. The other things that we are kind of experimenting with, because we don't want to spend the money and just kind of throw it at foolishly, we got by with a couple of territories and we are going to watch how they perform. So, the next step, the next logical step, assuming it works as we're hoping, would be we maybe divide a couple of territories, and in those territories we typically would hire a new sales rep as well as a CS at the same time.

Okay. And then as we layer on the next generation Pod here, just kind of wondering, too, about your ability to produce these and how quickly you can ramp up the production of the next generation? You know, what's involved in that and how long will that take upon getting the approval?

I think the interesting -- that's a great question and that's the one we are paying very close attention to. Kind of give you an update. Our design has been finalized, we are cutting tools. Hopefully here in the not too distant future we will be building out a line and doing that, and I think at that point in time we'll have a much better idea. There is no doubt in our mind that we are looking at a very, very quick ramp-up in this product. We think we have a lot of experience. We have the same manufacturing partner. I have all the same manufacturing engineers in my building, so we think we can do it very, very quickly. Having said that, we are probably still a little too far away before we can really kind gauge how quickly that is.

Okay, thanks a lot. Good luck.

Thanks.

Our following question comes from the line of Vivian Wohl with Federated Kaufman Fund. Please proceed.

Hi, guys. You are rounding now in revenue to $80 million. That's a nice number. I was wondering if you could give us any more color on where the new (inaudible) --

Vivian, I'm sorry, we can't hear you.

All right. Sorry.

Much better, thanks.

Are the new pump wearers MDIs or are they coming from other pumps?

It's about a 70% MDI, because it's their first pump. So, we continue to make improvements in that area, but you think back, it's still pretty much this is first time pump users.

Do you think that changes when you come out with the next generation product?

You know what's interesting, Vivian, we spent a lot of time trying to understand the whole marketing of this, and we are in the process, we've done a lot of focus groups with existing pump users, to try and figure out what resonates with them. And we think, you know, in the back half of this year we are going to roll out a marketing plan hopefully geared directly towards those people. And I think obviously having an integrated sensor and some of these other features is going to be a big, big benefit to it.

I think the reason we haven't converted more of these patients is the competition knows who they are, they know exactly who they are, they get to them long before the contract ever comes due. And I think, quite honestly, I think our message that -- we kind of put out a broad-based message about the whole concept and no tubing, and some of the other stuff, really didn't resonate. What we found in our marketing studies, the no tubing didn't resonate with these people because they were so ingrained with cutting holes in their pockets and running this other stuff, that the whole idea of cut the cord quite didn't resonate with them. But when you start gearing it towards actual changes in their lifestyle, it's kind of interesting.

So, we spent some real time trying to understand how to approach that group, so I think part of that is (a) our messaging, and (b) I mean, the competition knows where they all are; we have to find them. So, we are going to pilot some stuff here in the back half that we are kind of excited about.

Okay, well, great. Thanks very much.

Thank you.

Our following question comes from the line of Kurt Kruger with G2 Trading. Please proceed.

Hi. Just a question about speaking of competition that Vivian asked. Can you give us any more color on when you think Medtronic is likely to, well, file their product and receive approval for their product, their similar pod-type product?

You know, Kurt, look, I think we have operated from day one assuming they are going to be here and we are keeping our head down and working hard on our stuff. Just don't know. You know, chime in when they have their call. Chime in to see if they'll give you --

Yes, okay. It just seems like it's been delayed, if anything. It may not even be this -- they may not even file this year.

Don't know. Like I said, don't know. We assume eventually they are going to be here and eventually we are going to compete with them, and to be honest with you, a lot of people think that's going to be a big negative. That would be a clear admission this is the right product for diabetes patients in our mind, and we think it will help and then it will be on features as opposed to all the other stuff we compete with them on now.

Right. Great. And then with a good quarter under your belt now, can you give us any more visibility as to where the sales might come in this year? You've given a range, pretty broad range, $90 million to $100 million. Can you tilt that upper end of that range, bottom end of that range? Do you care to give us any more color on that?

I think the most appropriate thing for us to do right now is stick with the guidance range, $90 million to $100 million. We are certainly comfortable with the range to be able to come out with it today, and we will continue to update it as we move forward here throughout the year.

Okay, great. Thanks a lot, guys.

Thanks, Kurt.

Okay, we have no further questions at this time. I would like to turn it over to Mr. DeSisto.

Thanks again, everyone, for joining us today, and we look forward to updating you on our progress. Have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a wonderful rest of your day.