Tandem Diabetes Care Inc (TNDM) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tandem Diabetes Care Q3 2014 earnings call. (Operator Instructions). As a reminder this conference is being recorded. I would like to introduce your host for today's conference, Ms. Susan Morrison. Ma'am, you may begin.

Thanks. Good morning, everyone, and thank you for joining Tandem's third-quarter earnings conference call.

Today's discussion may include forward-looking statements. These statements reflect management's expectations about future events, product development timelines, regulatory review process, and financial performance and operating plans, and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements.

A list of factors that could cause actual results to materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today, and under risk factors portion and elsewhere in our most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and in other SEC filings. We assume no obligation to publicly update any forward-looking statements whether as a result of new information, future events or other factors.

Tandem's President and CEO Kim Blickenstaff be leading today's call, and at this time, I'll turn it over to Kim.

Thanks, Susan, and good morning everyone. Joining me on today's call is John Cajigas, our Chief Financial Officer.

Overall, we continued to demonstrate strong momentum in the third quarter by delivering high sales growth on a year-over-year and sequential basis. Our sales for the quarter reached another all-time high and grew 74% compared to the same period of 2013 and 32% compared to the second quarter of 2014.

Our shipments in the first nine months of this year have already exceeded our total 2013 shipments.

Other highlights have been our increasing use of cash each quarter in 2014 and significant progress in our research and development pipeline. Our total sales for the third quarter grew to $13.5 million compared to $7.8 million for the same period of 2013, which was quite an accomplishment.

In the first quarter, we provided full-year revenue guidance of $48 million to $54 million. This was largely dependent on the timing and rate of rep productivity following our sales and clinical field expansion from 36 to 60 territories. The majority of sales are anticipated to take place in the back half of the year due to the seasonal nature of our business.

The third quarter provided clarity on our trajectory for Q4. And as you saw in today's press release, we have narrowed our guidance range to $48 million to $50 million, and expect our operating margin to be between negative 150% and negative 160%. I think the previously discussed disruption of our salesforce in the first half of the year did impact our sales trajectory in 2014, but we are continuing to see increasing productivity among our field sales and clinical teams.

Our mix of third-party payers also continues to be a key area of focus for our business. We saw improvement in our overall ASP this quarter, even though our sales to distributors increased quarter over quarter from 70% to 76% of sales. The largest contributing factor to this change was an increase in shipments to distributors that recently entered into exclusive distribution arrangements with certain insurance payers.

We did not have a direct billing contract with one of these payers, so this new arrangement as afforded its members easier access to our products as an in-network benefit. As a result, there is a significant increase in our opportunity to service all members of this plan.

While we would have preferred to have shifted business to a direct basis, we believe these distributor arrangements will still provide a significant opportunity in improvement for our overall business. At the same time we are continuing to sign new contracts with payers, and we are in the process of developing initiatives to drive additional business through our existing contracted arrangements.

Turning to research and development, I'm pleased to share that we recently submitted a 510(k) for t:flex, our insulin pump with a larger volume cartridge. The t:flex pump cartridge holds up to 480 units of insulin compared to t:slim's 300 units of insulin. Once commercialized, t:flex will offer the largest insulin reservoir available to the diabetes community and is uniquely positioned to bring same benefits of t:slim to people with greater insulin needs.

As you know, Tandem uses market research foundation for our product development efforts, and approximately 2/3 of the endocrinologists surveyed cited limited volume capacity as the number one barrier to pump adoption for their Type 2 patients who require daily, rapid-acting insulins. We expect the review cycle for t:flex to be approximately 6 months from the submission, and we will be using this time to plan for launch activities that will focus on the 1.2 million people in the United States with Type 2 diabetes who use daily rapid-acting insulin and may be insulin pump candidates.

On our last call, we shared that Tandem has submitted a premarket approval or PMA application to the FDA for the t:slim G4 insulin delivery system, which integrates our t:slim technology with Dexcom's G4 PLATINUM product. I've been extremely pleased with the level of interaction with the FDA since that time, and am confident in our ability to bring this device to market.

That being said, receiving product approval and the associated timing for any product that is under review is at the discretion of the FDA. We continue to estimate 12- to 18-month review cycle for the t:slim G4.

And at this time, I'll turn the call over to John to provide further discussion on our third-quarter results.

Thanks, Kim. Good morning everyone. Today I'll provide key details and color to our financial results. I'll focus primarily on sales, gross margins and cash flows for the quarter, and then I'll discuss our outlook for the remainder of 2014.

Overall, I'm happy that in the third quarter we've continued to deliver high sales growth and improve our operating margins sequentially throughout 2014.

Turning to sales and product shipments, sales for Q3 grew 74% to $13.5 million from $7.8 million in Q3 of 2013. Year to date, our sales were $31.8 million, an increase of 70% from the same period in 2013.

Pump sales accounted for 86% of our total sales in Q3 compared to 89% in Q3 of 2013; t:slim sales in Q3 grew 68% year-over-year while supplies more than doubled. In Q3, we shipped 2935 pumps. It was our highest shipment quarter since launch and 59% higher a year-over-year basis compared to 1851 pumps in Q3 of 2013.

Highlighting the sales growth progress we've made between this year and last year, t:slim shipments through the first nine months of 2014 were nearly 6900 pumps, which, as Kim mentioned, exceeded our total shipments for all of 2013.

Similar to Q2, we believe the primary drivers of Q3's year-over-year increase was our salesforce expansion during 2013 and early 2014, and the equally important growing recognition of Tandem within the diabetes community. Increasing our sales presence has improved our visibility as a Company, and our ability to differentiate Tandem's products to our target audiences. We are also highly focused on interacting with the diabetes community and continue to be rewarded with compliments and accolades from various individuals and organizations.

For example, DQNA's most recent quarterly report again shows a very high level of satisfaction by our customers and we are quite product that. As of September 30, our cumulative shipments since our t:slim launch in 2012 have grown to more than 14,400 pumps, which we believe is about 3% of the total US insulin pump market.

Looking at our sequential sales performance, our Q3 sales grew 32% and our pump shipments in Q3 grew 31%. The average productivity of our salesforce increased in Q3 and we expect that trend to continue for the remainder of the year.

Moving on to cost of sales and gross margins, our overall gross margin in Q3 was 33% compared to 34% in Q2 and 33% Q3 of 2013. Historically, we've experienced choppiness in our quarterly gross margins, but this quarter's was consistent with Q2. While our Q3 gross margins benefited from increased volumes, it was offset primarily due to increased overhead costs as we expanded our quality organization and warehouse space to address increasing production volumes and prepare the organization to support a PMA product.

So I'm happy to see stability in the gross margins while we continue to scale and make these improvements to our manufacturing operations. Our Q3 gross margin was also impacted by factors pure manufacturing-related items, such as the percentage of sales channel distributors where we generally do not capture the infusion set's revenue stream and positive gross margin. The percentage of sales representing pump supplies, which have lower gross margins on t:slim, the changing mix of third-party payers with varying levels of reimbursement, and finally, after-shipment costs such as warranty and training costs.

To add additional color, typically when we sell pump supplies on a direct basis, our blended gross margins on those supplies is positive. By contrast at our current production volumes, when we sell pump supplies on a distributor basis, we typically lose the infusion set sale and our blended gross margin on these pump supplies is negative.

Even though we've grown considerably over the past year, we are still at a relatively early stage of commercialization. We still continue to anticipate variability in our quarterly gross margins due to the reasons I've just discussed, and as we scale our operations improve our processes, implement automated manufacturing equipment, and anticipate the addition of new products to our manufacturing capabilities.

Looking at the rest of the P&L, our operating loss for Q3 was $19 million compared to $18.3 million for Q2 and $12.1 million for Q3 of 2013. Our operating expenses for Q3 were $23.4 million compared to $21.8 million for Q2 and $14.7 million for Q3 of 2013.

On a sequential basis, our operating expenses increased primarily because of the $1 million milestone payment we made to Dexcom for the filing of our t:slim G4 PMA with the FDA. This was recorded as an R&D expense in Q3. Also there were several large diabetes conferences during the third quarter at which we had a significant presence, in addition to increased employee-related costs such as sales commissions.

The increase on a year-over-year basis was primarily associated with the headcount growth in our commercial organization as we expanded our field territories and customer support, marketing, and clinical infrastructure as well as other areas of the Company to support our overall growth of our business.

Our operating loss included significant levels of noncash stock-based compensation. During Q3, we recorded stock-based compensation of $3.7 million compared to $3.5 million in Q2 and $1 million for Q3 of 2013. Our stock-based compensation for the first nine months of 2014 was $11 million compared to $1.6 million for the same period of 2013.

Despite the significant year-over-year increases in our operating expenses, our growth in revenues, gross profits, and the leveraging of our operating expenses has resulted in sequential improvements in our operating margin. Our operating margin for Q3 was negative 141% compared to negative 179% for Q2 and negative 156% for Q3 of 2013.

With respect to cash and cash flows at September 30, our cash investment balance was approximately $82 million. I'm pleased that we've been able to reduce our cash burn during the last two quarters. The cash burn in Q3 was $14.4 million compared to $16.5 million in Q2 and $14.6 million in Q3 2013.

As mentioned, the Q3 2014 cash burn included the $1 million milestone payment to Dexcom. It also included a final $1 million license fee payment to Smiths for patents acquired and licensed in 2012.

Moving on to guidance, as Kim discussed we currently expect our full-year 2014 sales to be in the range of $48 million to $50 million, which is within the revenue guidance we provided at the beginning of the year. The original sales guidance range contemplated an expected range of impact of key drivers such as the length and depth of disruption associated with the salesforce expansion, the productivity ramp of our reps, progress on the payer contracting front, and new and changing competition.

We've narrowed the range of sales guidance based on our actual experience achieved during the first nine months of the year as well as our expectations for the remainder of 2014. We expect our operating margins for 2014 to be between negative 150% and negative 160%. This includes noncash stock-based compensation expense that we currently estimate could range from $15 million to $16 million.

The adjustment in our operating margin expectations is primarily associated with the gross margins experienced during the first nine months the year and the percentage of sales we expect to channel through distributors for the remainder of the year. During Q4, I expect our operating expenses to increase slightly primarily due to incentive compensation associated with higher anticipated sales volumes. We plan to provide guidance for 2015 on our next earnings call.

With respect to cash, we expect our cash, investments and available debt to be sufficient for our operating needs for at least the next 18 months. Key factors influencing our cash flow expectations and ultimately our Company's profitability timeline and potential capital needs involve sales rep productivity; our ability to secure regulatory approval and successfully commercialize potential new products such as t:slim, G4, and t:flex; and our ability to gain leverage within our operations as sales expand and new products currently in development roll out.

And with that, I'll turn it back over to Kim.

Thanks, John. Cumulatively, more than 14,000 people have chosen t:slim to manage their insulin therapy, and I am very pleased that we have continued to see increased adoption of the t:slim pump. We also continue to see approximately half of our customers report that they converted from multiple daily injections to the t:slim pump, which reinforces our belief that a product that meets the needs of the consumer can drive not only conversion but also expansion of the overall market.

The t:slim pump was designed for the support of the diabetes community to be easy to teach, easy to learn and easy to use. Personally, I'm proud that the feedback we received has remained extremely positive from customers and healthcare providers on both their experience with the t:slim and our Company.

The t:slim touchscreen benefits not only customers' experience with their pump, but is also important for healthcare providers as demonstrated in the Company's publication last month in the Journal of Diabetes, Science and Technology on the usability and training difference between two personal insulin pumps. The data was from a multi-center comparative study, which assess differences in the usability and training times for seven of the most common tasks performed on an insulin pump rate.

On average, the t:slim pump took 27% less time to train than Medtronic's MiniMed Paradigm Revel. And the participants also experienced 65% fewer task failures. An early analysis of the study was presented at the Advanced Technologies and Treatments for Diabetes Conference at the beginning of the year, and we are pleased to now see the results published in a leading diabetes journal.

The growth our Company has experienced with the continued market adoption of t:slim, combined with having to products under review by the FDA, positions Tandem for long-term success supporting the diabetes community with new and innovative products. We believe that these are the types of innovations that will not just attract existing pumpers, but will also encourage the millions of people with Type 1 and Type 2 diabetes currently using multiple daily injections to consider adopting one of our products.

We've made significant progress so far in 2014 and look to continue this momentum in the fourth quarter. With that, I will turn it over to the operator for questions.

(Operator Instructions) Rick Wise, Stifel.

Thinking about your guidance, when you talk about the original guidance and not moving to the lower end of the range, maybe it's a question for John here, and when you think about those variables which I think were sales expansion, disruption, the payer contracts, etc., the competitive dynamics you highlight, which was the most significant that sort of prompted you to move to the lower end of the range? Or were they all equal factors? Or help us think through that a little more, if you would.

Hi, Rick, it's John. It is probably an equal factor among all of those. I think for us, maybe a slight edge would go to the productivity of the reps and what the disruption has done to those folks and the depth of it, primarily how it affected our existing reps that they were on board prior to the expansion.

Yes, I'd say we underestimated, Rick, the disruption of the current incumbents that we had and what those territory splits might do to their productivity. So we probably had them a bit on the high side in our forecast. So I think that's probably one of the biggest single effects we've had here on lowering that guidance.

I don't think we've changed what our expectations of what their ultimate productivity is. I think it's just they're moving slowly upward. And I think there in the third quarter we actually did see the progress take place. It was just a matter of watching it carry out.

So I'm hearing you say that things are trending in a positive direction or more as expected now?

Correct.

That's correct.

Yes, turning to the new distributors, I just want to make sure I'm understanding your thinking here. Your language I think suggests you're a bit less optimistic, at least in the near term, on a better mix. So, given the trends over the last few quarters, is, whatever, 76% right way to think about it for the next few quarters? Do you feel differently about your thoughts expressed in the past about a 70/30 direct distributor mix or that flipping? Where are we now in thinking about all that?

So this arrangement took place in the third quarter, so it's in the early stages. And I think it is creating a lot of access for us on an in-network benefit which helps the patient get to the pump a little quicker. So I think that may sort of move that percentage, keep it there or maybe slightly higher in the near term.

Our goal is still to move it towards as much business as direct as possible. I think that is something that we'll move to as we move along. But I think for the near-term, these two plans will create sort of a steady state of where we are today.

Just last one for me, if I could; Kim, on the last quarter you said on the managed care front you are in the middle of negotiation with several payers out there, including a couple of large ones. Just maybe update us on your thinking there and where are you now? It sounded like you'd hoped to conclude some more before the end of this calendar year. Thanks, very much.

Yes, we continue to make progress on signing payers. On the United Healthcare front, we do have a contract now through a distributor with them. So we do have access to that major piece. We had announced Kaiser previously but we continue to make progress with payers.

And we have a group in the field that is working on getting those contracts. We would like to have direct contracts as much as possible because, obviously, the pricing is usually more favorable than when a distributor is in the mix.

Kristen Stewart, Deutsche Bank.

I was wondering if you could just maybe comment on is the competitive landscape out there, what you're seeing during the quarter, whether it be from Medtronic with their 530G or some of the newer entries like Asante. Anything changing there that you could point out to us?

No, there really hasn't been any change. I think Asante's regional efforts have been effective in certain states. They have a free try it and buy it program that they are offering. That often catches people's eyes that you can try this thing out for nothing, and where everybody else you basically have to go through the process of getting payment and all that's upfront.

So that program has had effect in some limited areas. They are not national, so it's not a national impact. But I'd say on the Medtronic front, the 530G certainly did give them something to talk about. And as you know, early on it was aggressively marketed as the artificial pancreas.

But I think that has sort of rapidly changed into more of an economic buydown program. They do trade-ins on pumps. So they'll give you an allowance that will impact your co-pay that often can be a pretty weighty deciding factor when you get to the end of the line on making a decision about a pump.

So those are the two major competitive sort of headwinds and really that hasn't changed quarter to quarter.

Okay, thanks. And then just on the submission for the t:slim G4. Could you maybe just comment, I guess, on any substantive conversations with the FDA, any unusual questions that you are getting back? It sounds like you're still pretty confident in this 12- to 18-month review cycle timeline.

Right, I can't really get into the details. But I'd say the speed at which they are responding to us and sort of the depth of the questions indicate that we are in pretty good shape in terms of we're not plowing new ground. The Dexcom PMA was a fresh one and our 510(k) for the pump has been refreshed. So I think these conversations are going, from our standpoint, as well as we could expect them to go. But we still can't change our timeline. Based upon what we know today, we still have too much to do.

Okay, perfect. Thanks very much.

Ben Andrew, William Blair.

So, a couple questions; as you think about -- I think, Kim, you said the percentage of patients coming from MDI is still over 50%. Is that true for the quarter as well as cumulative?

It is.

Okay, thank you. And then John, maybe talk about the gross margin as you see it between distributors and direct. Is that holding steady with where it has been, or is it shifting? Is there some price dynamics that you all have used in the quarter?

The gross margin between two sort of areas are probably fairly consistent. It's just the mix of what's happening between the two.

Okay, so there weren't any new promotions or other things like that that you guys used during the quarter?

No.

Okay, and do distributors typically carry meaningful inventory as they are kind of anticipating new patient flows, and were there any kind of shifts there in the quarter for you guys?

No, I don't think -- for the most part most of distributors run fairly lean operations. So most of them are ordering real-time.

Okay, and then as you think about things that you guys can control, aside from direct rep productivity, have you looked at kind of the medical education, speakers bureau behaviors and kind of investments to try to stimulate interest both in your all product as well as kind of market conversion?

I would say all those tactics are being looked at. Probably our biggest headwind is that we just haven't had much awareness because we had such a small field salesforce. So when you start thinking about cracking some of these accounts, you'll have accounts that have never prescribed a Tandem pump. So, getting them up over the hurdle of taking on a newcomer requires all those kind of tactics that you just mentioned. So we're really beefing up in those areas; you know, the plan of action really to begin to drive accounts penetration going forward here.

Okay, there's another question -- I think that (multiple speakers)

Ben, we'll have to ask you to jump back in the queue here. You can put one more in, but then we'll have to ask you to jump back in.

That's okay, thank you very much, Susan.

Thanks.

Thom Gunderson, Piper Jaffray.

Just a quick clarification; I thought you said in the script, Kim, that ASPs were up despite the increase in percentage to distributors. Did I hear that right?

This is John, Thom, good morning. Our overall ASP is up, and that's primarily due to the revenue recognition associated with non-contracted payers, which is on a cash basis. So that sort of drives the numerator of the ASP calculation.

Okay, and in your answers to Rick, I'm hearing that basically the change in guidance is maybe a postponement by one quarter of productivity getting back to normal, whatever normal is. Is that a fair summary of how you see it now?

A fair summary; I don't want to comment it's exactly one quarter or not, but it is something that we do believe the folks will get back on track and they are moving up that direction now.

So 89 or 90 days, right?

(laughter) there you go.

And then on payers, my last question, Susan in case you're getting nervous (laughter) -- on payers, Kaiser I think you said last quarter had been approved, but you weren't going to really get going until fourth quarter. We're five weeks into the quarter. Can you comment on that? And then if there any delay on United or is that a -- up and running?

Kaiser is up and running. I really don't want to comment on its impact to the Q4 results so far. United is now being accessed through a distributor.

Great, that's it for me. Thanks.

Tao Levy, Wedbush Securities.

Maybe you have already talked about the incumbent reps and their surprising loss of productivity. As Q3 unfolded, or as you have seen maybe in Q4 their progress, as their overall revenue declined, do they get made whole so that they are still incentivized to drive the business during this interim disruption period?

Yes, we do provide incentive programs, but we don't get into the details of that.

But there's -- okay, I just wanted to make sure that that wasn't a reason why we may not see the productivity get back to a level that we might've seen last year for example.

Absolutely, we do consider that sort of driving behavior in the right direction.

Have you guys ever provided sort of sense of attrition rate that you might be seeing in the business so far, in terms of pump (multiple speakers)

In the past, we've talked about it being low single digits and that's what we continue to see.

Do you mean attrition in reps or attrition in business?

Yes, sorry, attrition in pumps -- Tandem pumpers have been sort of different modality. And that's in that single-digit?

Low single-digit.

Low single-digit -- and then just lastly, and maybe it's just a clarification. You mentioned that the gross margin that you get from sales to distributors on the disposables is negative. Is that on the cartridge side and is there any way to make that not negative? I don't know.

My comment is that when we service a patient, a customer through a distributor channel, we typically lose the infusion set revenue which provides positive gross margins and at a higher price point than the cartridge. And so, what's left there is the cartridge. And at this point, with the current production volumes we are producing at, it is a negative margin. And to move it to a positive margin, it's a volume story basically.

Okay great. Thank you.

Bob Hopkins, Bank of America.

So first question, John, just on your comments about capital needs and being in good shape for the next 18 months, I'm just wondering does that suggest that there's the potential for a capital raise sometime towards the end of 2015? Is that the right way to think about it? I know at the time of the IPO, obviously, you said that you'd need to raise capital again. I'm just trying to set expectations on timing for when you might need to raise equity again.

There's a lot of factors we need to look at. Primarily it's just where the direction of the business is moving as far as its cash burn. We are moving down in cash burn. We sequentially moved it down. I continue to expect that that will continue to move down as sales ramps up.

We are looking at where we want to be, where we want to look at sort of access to capital, whether it's equity capital or debt capital. And we do have $30 million available to us today through capital royalty that we may intend to utilize or adjust that agreement.

So it's something that we just need to see how things play out over the next few quarters to see where we might need to make that decision. I think we do have enough runway to allow us to go couple quarters to see what that does to our cash needs long-term.

Okay. And then just a follow-up on a previous question when you were talking about attrition rates, and I think there was comments on attrition rates in terms of Tandem pump users that have moved on to other pumps or other, modalities, -- modalities. But then also this question around attrition in the sales organization. So is the answer to those two different questions the same, that turnover and attrition is for -- on both fronts is kind of in the low single-digit range? I just wasn't clear whether you were answering one question or the other.

My answer was to the sales installed base. But from the sales reps question we do have some attrition level, but very low.

Okay. And then just generally, from a big picture perspective, I know what you guys talked about in terms of the sales force issues. But just when you look at Medtronic specifically as a competitor, is it a fair to say that they've been a little bit of a tougher competitor than you thought in terms of turning Medtronic pumpers on to new technologies like yours? Is that a fair statement you think at this point?

I'd say that the aggressive use of the upgrade program is probably turns the decision from product features to price, and that can be a tougher decision point than just features alone. But we did expect that they would be pulling out every kind of trick and stop that they have in their book.

They obviously have huge coverage. They live in accounts and we don't. And so they have the ability to do a lot of different things that really limit our access or hinder accounts taking a risk on taking on a newcomer like Tandem. I think that has a lot to do with the lack of the bodies that we had out in the field. So I think with a smaller field sales force, they are probably a bit more effective than we thought they would be.

Okay and then John, just lastly, the difference in pricing on accessories for a direct contract versus distributor, I know you talked about the pump a little bit. But can you just remind us on -- if you are using a bit more on the distributor side, how does that affect pricing on accessories?

On a direct basis, a customer generally utilizes about $1300 or $1500 worth of supplies in a year on a direct basis. And on a distributor basis, we lose the infusion set revenue, which is a big portion of that. Infusion sets are generally priced right around $9.00 and cartridges right around $3.00. So you can look at the relative distribution of that revenue.

Okay, so that's something we'll consider as we take your comments into perspective. So great, that's it for me. Thanks very much.

Ben Haynor, Feltl & Company.

I just have a couple of kind of big picture ones and then one housekeeping one. In our surveys, it seems that some of the longtime pump users have an aversion to switching over to pumps that haven't really had a long track record on the market. Recently, we've kind of picked up on some of these people seeming to come around to the t:slim now that it's been out there for a while now. Does that kind of mirror what you're seeing in the field? Or is it kind of another way that you characterize it?

Yes, I would agree with that assessment. When you're making a four-year decision and you are looking at a relative newcomer versus somebody that's been widely prescribed at an account, you have the dynamic of a healthcare provider that's got a take on the learning of a new device. And there is questions about whether the company's customer service is adequate. What's the reliability of the device and what's the overall experience on the basis of patients? And so, the incumbent does have an incumbent's advantage and that mirrors what we have seen out in the marketplace as well.

Okay that's helpful. And then on some of these Type 2 products, the patch pens if you will, we are also picking up that they might ultimately become gateway pumps to more sophisticated pumps like the t:flex, once it comes out. Is that kind of how you think about the opportunity there or is it well beyond that?

Well, I think that you, you're right. That can be a gateway, because generally what you find is that people using pens -- I don't see the exact stat that I've seen, but something like 50% to 70% of all people that are using pens and needles don't use them when outside the home. So, wearing a patch and using insulin outside the home is a gateway to going onto a pump, because you are going to get more continuous insulin infusion therapy.

So I do sort of view it as a gateway product. I don't know what kind of inroads those patch pumps have made. You probably have more direct market research than we do. But I don't think they have made a large impact today, but I do think that directionally you are right about what they could be.

Okay, thanks for that. And then lastly, just the housekeeping question. What was depreciation and amortization during the quarter?

About $1 million.

Okay, thank you very much, guys.

At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Blickenstaff for any closing remarks.

Okay, well, thank everybody for joining us this morning for a little bit on the early side for the conference call. For those on the East Coast, it wasn't too early.

But we have two upcoming investor conferences in New York that we are going to be attending. One will be the Stifel Healthcare Conference and we are presenting on November 18, and then at the Piper Jaffray Healthcare Conference and that will be on December 2. So that is sort of our conference schedule for the balance of the year.

So thanks again everybody for joining us today and all the good questions that came at the end of the presentation. And we look forward to keeping you updated as the Company continues to progress during the year. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.