Tandem Diabetes Care Inc (TNDM) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter Tandem Diabetes Care 2016 Earnings Conference Call. (Operator Instructions) As a reminder, today's program may be recorded.

I would now like to introduce your host for today's program, Susan Morrison, Chief Administrative Officer. Please go ahead.

Thanks, Jonathan. Good afternoon, everyone, and thank you for joining Tandem's Third Quarter 2016 Earnings Conference Call.

Today's discussion may include forward-looking statements. These statements reflect management's expectations about future events, product development time lines 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 be materially different from those expressed or implied by any of these forward-looking statements is highlighted in the press release announcing our Q3 earnings, which was issued earlier today under the Risk Factors portion and elsewhere in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and in our 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.

In addition, today's discussion will include references to a number of GAAP and non-GAAP financial measures. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across the reporting period. For additional information about our use of non-GAAP financial measures, please see the information under the heading Use of Non-GAAP Financial Measures in our press release.

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

Thanks, Susan. Hello, everyone, and thank you for joining us on today's call. With me is John Cajigas, our Chief Financial Officer.

In reflecting on the year so far, I'm very proud of all what Tandem has accomplished. For three consecutive years, we have offered the number one rated insulin pump and maintained a number one customer service rating according to the dQ&A, resulting in the tremendous growth of our installed base, which is now more than 46,000 people with diabetes.

At the same time, we've made significant operational progress and meaningful advances in our new product development efforts. We've received regulatory approval for and delivered three new insulin pumps on time, including the launch of our first PMA product last year, and most recently, the launch of our next-generation t:slim X2 pump. During this period, we've also overcome several competitive challenges, but recognize that others still remain, which we are working to counter with our full energy.

You'll also notice that we are now providing both GAAP and non-GAAP financial results. As a reminder, this relates to the Technology Upgrade Program for the t:slim X2 that we announced during the third quarter. This program, in conjunction with the Tandem Device Updater, is a valuable customer benefit and also strategically important for us to be able to offer our customers new product features. However, it introduces significant accounting complexity. Because of this complexity, we're providing non-GAAP information that excludes the impact of the upgrade program since we believe it will be the most useful information for comparison to our historical performance.

John will be spending considerable time on our financial results, so I'm going to focus my comments on the questions we hear most often from investors, namely recent changes in the payer environment, the company's portfolio and competitive launches in our path to profitability.

Starting with the payer environment. UnitedHealthcare's decision to restrict most of their members who are over age 18 from having a choice among insulin pumps went into effect at the start of the third quarter. The headwind we faced from this decision was in line with our expectation as historically the affected portion of United's membership represented about 8% of our shipments. Since our last call, we either met or spoke with the executive contacts at each of our top payers and came away encouraged that they see the importance of offering their members a choice among insulin pumps. It's a situation we will monitor carefully, and we will continue to advocate for people with diabetes to have a choice among insulin pump providers.

The next topic we often receive interest in is Tandem's pipeline, particularly in relation to competitive launches. To that end, in October, we successfully hit another new product time line with the launch of the t:slim X2. The next-generation t:slim X2, indicated for age 6 and older, has replaced our flagship t:slim pump, bringing the same number one rated features with the additional benefit of a two-way Bluetooth radio for communicating with more than one external device at a time. The new radio, along with the recently approved device updater which enables us to roll out remote software updates, makes the t:slim X2 our pump of the future and unlike any other pump in the market.

We believe these innovations have the potential to bring substantial benefits to our customers and bring us a step closer to automated insulin delivery. We believe our customers can see the potential of the t:slim X2 as we experienced dramatic shift in our product sales in the third quarter in favor of t:slim, which had a pre-upgrade path to the X2.

By comparison, the t:slim G4 had previously represented the majority of shipments in any given quarter since launch. We also saw some customers, who are not eligible for our upgrade program, wait for the availability of the t:slim X2. As we discussed during our last call, the first new feature we plan to roll out on the t:slim X2 platform will be the display of Dexcom's G5 CGM data directly on the pump. We are on track to submit a PMA supplement for this feature before the end of the year and are estimating a six-month review process.

Subject to FDA approval, customers who purchased the t:slim X2 prior to the availability of G5 CGM integration will be able to update their software using the device updater to add this feature for no charge. We've also heard increasing interest in our artificial pancreas program. The term artificial pancreas is broad but can be misleading. As in today's implementation, pumps are only automating the delivery of basal insulin, not bolus insulin, which is used primarily to reduce blood sugar levels after a meal. For this reason, we prefer -- refer to this technology as automated insulin delivery.

Automated insulin delivery continues to be our top product development priority, and we are committed to bringing this technology to market. The t:slim X2 pump we are selling today is designed to support our automated insulin delivery algorithms, the first of which is a predictive low glucose suspend algorithm that we are working to gain regulatory approval for and launch by the end of 2017. This is on the heels of the launch of Medtronic's 670G with automated basal insulin delivery, which is anticipated in the spring of 2017.

We believe that a system that automates insulin delivery can only be as good as the data that drives its performance, which, in this case, is the continuous blood glucose sensor. Our PLGS algorithm for the t:slim X2 platform will use information from Dexcom's G5 sensor, which is the most accurate sensor approved by the FDA. We also believe that people should not have to sacrifice the size or modern features, such as an easy-to-use touchscreen and rechargeable battery, to have access to an algorithm. This is why the t:slim X2 is the same size as our flagship t:slim and t:slim G4 pumps.

By way of comparison, Medtronic's 670G is 62% larger than t:slim, and yet the t:slim has a screen size that is more than 40% larger than the 670G and offers the same 300-unit insulin capacity. And finally, we don't believe people with diabetes should have to commit to a pump today and not have access to two new technologies for a four-year period of time. This is why we are the only company to offer our Tandem Device Updater tool that will allow our customers to update their pumps to include new algorithms and technology as they are approved and launched. As many of you are aware, we engage heavily with pump users and health care providers early in our product development process, and our PLGS product is no different.

We conducted market research with current pumpers, people using multiple daily injections and certified diabetes educators to compare our PLGS concept that features Dexcom G5 integration against Medtronic's 670G concept. Users were asked to assume that there was equivalent accuracy between the sensors, even though Dexcom is proven to be superior. The Tandem PLGS product concept was shown to be preferred more highly than Medtronic 670G in each of the groups. The preference for Tandem's offering was primarily attributed to the remote software update ability, ease of use and modern features and form factor.

We successfully completed a feasibility study for our t:slim X2 featuring PLGS in August and are very pleased with the results. The pre-submission meeting for our pivotal study is scheduled with the FDA in early December. Based on the typical process and review timing, we are on track for the study to take place in Q1 2017, and we plan to submit a PMA filing by mid-2017.

As a reminder, we anticipate a six-month review process for our t:slim X2 with PLGS because it will come shortly after an FDA review of the t:slim X2 with Dexcom's G5 integration; the only different feature will be the algorithm. We expect our second-generation automated insulin delivery algorithm will also be based on the t:slim X2 platform and will include the treat-to-range technology that we licensed in the third quarter from TypeZero as well as Dexcom's G6 CGM technology.

In my earlier remarks, I discussed how today's implementation of algorithms adjust basal insulin only. With TypeZero's technology, our product will be differentiated as it will also deliver automated correction boluses, which we believe will bring additional benefit for our customers. As a reminder, the TypeZero technology we licensed brings significant experience to our future products as its precursors have been used in more than 28 clinical studies with more than 475 participants, with the data referenced in a number of journal articles. We anticipate that this agreement will allow us to remain on schedule for a pivotal trial in 2017, followed by a commercial launch in 2018.

Tandem has a strong track record of developing new products and bringing them to market on time. We believe our automated insulin delivery features are no exception, and these are the top priority for the company.

Between our launch of the t:slim X2 pump, new competitive offerings and aggressive sales tactics in the marketplace during the quarter, there's a lot of new information being shared with both health care providers and people with diabetes about their options for therapy management. It's great for people to have choices, but with that comes longer decision-making processes as they take time to evaluate their options. This is a phenomena we've seen historically with other competitive launches as well as our own new product launches, such as with the t:slim G4 last year. As anticipated, our launch of the t:slim X2 was no exception. And in the third quarter, we did see people delay their purchasing decisions in advance of the launch so that they could include this product in their decision-making process.

With the concurrent timing of our own and competitive new products being introduced to the market, it's impossible to quantify how much of the softness we saw in Q3 is due to a delay in decision-making versus a customer choosing an alternative therapy. It also makes the fourth quarter extremely difficult to predict.

As you saw on today's press release, we have lowered our sales guidance, $85 million to $90 million, from $105 million to $110 million, to account for this uncertainty and in light of our Q3 results which did not meet our expectations. Typically, the majority of our fourth quarter sales take place in December, and we do not have visibility into these orders yet as they usually process about 30 days in advance. The softness we saw beginning in the third quarter led us to this decision to lower guidance. This is a dynamic that could last for the next few quarters as people get more information and better evaluate their options. Similar to what we've experienced historically, they may wait for real-life feedback which may not occur until after the spring. But we remain confident that t:slim X2 is a highly competitive offering.

We are always managing our business to a range of scenarios and keep flexible and adaptable so that we can adjust to situations such as these. Our sales are a primary driver of the company's timing to reap profitability and ultimately our additional cash needs. At the end of the quarter, we had more than $70 million in cash and cash available under our debt arrangement with CRG. While this is enough to last at least 12 months, we feel it's important to have more capital for our longer-term needs, even if only for a safety cushion, and we're in the process of evaluating a variety of different options. It's too early to comment further on which path we'll pursue, but it's something we'll keep you posted on as decisions are made.

We believe our recent results reflect short-term challenges but are focused on building our business for success. We have made tremendous progress over the past three years despite facing multiple competitive launches. And now with our family of insulin pumps, the power of our Tandem Device Updater and our robust pipeline, we are well positioned to compete both in the near term and long term.

I'll now turn the call over to John, who will provide further detail on our results for the quarter, our financial guidance and our Technology Upgrade Program.

Thanks, Kim. Good afternoon, everyone. Today, I'll be reviewing our rolling 12 months and Q3 results on both the GAAP and non-GAAP basis and discussing our updated 2016 guidance and our cash flow expectations.

In light of our Technology Upgrade Program impacting our operations and financial results starting in Q3, we believe that looking at our operating results on a non-GAAP basis provides useful information when comparing to our financial results for periods prior to Q3. Our non-GAAP results are adjusted from our GAAP results by excluding the impact of our Technology Upgrade Program. In Q3, these adjustments only include the deferral of pump revenues and cost of sales for shipments to customers eligible for an upgrade. In future periods, we will continue to show adjustments for changes in deferred amounts as well as any incremental upgrade fees earned and product cost incurred to fulfill the upgrade obligation.

A reconciliation of our GAAP results to our non-GAAP results is included in an exhibit to today's press release. For our non-GAAP results, we do not make any attempt to quantify the potential pausing in the purchasing decisions of our pumps by customers as a result of our July announcement of the t:slim X2 Q4 launch and the associated upgrade program.

Overall, we continue to see strong year-over-year growth in pump shipments, and we continue to make manufacturing improvements as we scale in capacity and manage our operating expenses. However, as I discuss our Q3 financial results, our lower volumes of pump shipments during the quarter significantly impacted our overall gross margin, operating margins and cash balances.

Looking at our sales and product shipments. First, I'll discuss our rolling 12-month metrics, which we continue to view as the best indicators of our progress, followed by some particulars for Q3. Our GAAP sales for the rolling 12 months ended September 30 were $84.5 million, an increase of 37% from $61.6 million for the previous 12 months. Sales for the recent rolling 12 months reflect a deferral of $8.4 million associated with the upgrade program.

Our non-GAAP sales for the rolling 12 months ended September 30 were $92.9 million, an increase of 51% from $61.6 million for the previous 12 months. This growth was mainly driven by the increasing productivity and recent expansion of our sales force as well as the contributions of the t:flex and t:slim G4 pumps that we launched in May and September 2015, respectively.

Pump shipments for the rolling 12 months ended September 30 were 18,754, an increase of 42% from the previous 12 months. As of the end of Q3, our cumulative shipments have grown to more than 46,000 pumps.

Looking at our Q3 sales and pump shipments. Our GAAP sales were $12.3 million compared to $15.7 million in Q3 2015. Our GAAP sales for Q3 reflect the deferral of $8.4 million of t:slim and t:slim G4 pump sales related to our Technology Upgrade Program. Our non-GAAP sales were $20.7 million, an increase of 32% compared to $15.7 million in Q3 2015. During Q3, we shipped a total of 3,896 pumps, of which 1,965 pumps were t:slim, 1,542 pumps were t:slim G4s and 389 were t:flexes.

Pump sales accounted for 56% of our GAAP sales, but were 74% of our total non-GAAP sales compared to 81% in Q3 2015. We believe that several factors impacted the third quarter, including the potential pausing in the purchase of our existing pump products in anticipation of the launch for t:slim X2, the implementation of UnitedHealthcare's pump reimbursement decision that went into effect on July 1, a more competitive environment as a result of launches and regulatory approvals of competitive products and people with diabetes choosing or pausing to consider CGM as their first diabetes management tool. We believe that these factors have contributed to a slowdown in our sales trajectory in Q3 and will likely impact us in Q4.

Moving on to cost of sales and gross margins. Our GAAP gross margins for the rolling 12 months ended September 30 was 32%, the same as it was for the previous 12 months. Our GAAP gross profits during those periods increased to $27 million from $19.7 million. Our non-GAAP gross margins for the rolling 12 months ended September 30 was 37% compared to 32% for the previous 12 months. Our non-GAAP gross profits during those periods increased 73% to $33.9 million from $19.7 million.

Volumes continue to play a significant role in our gross margin progress, with pump shipments increasing 42%, cartridge shipments increasing 62% and infusion set shipments increasing 108% during the rolling 12 months ended September 30 compared to the previous 12 months. Both our GAAP and non-GAAP gross margins benefit from our leveraging of overhead as a result of increased volumes. Our GAAP gross margins in Q3 was negative 13% compared to 35% in Q3 2015.

During Q3, we deferred sales of $8.4 million and cost of sales of $1.4 million related to our Technology Upgrade Program for t:slim and t:slim G4 pump shipments. This equates to a reduction in our gross profit of $7 million, which results in a non-GAAP gross margin of 26%.

Approximately 5 of the 9 percentage points decline in our Q3 non-GAAP gross margin related to an excess and obsolescence charge of $1.1 million were inventory raw materials used exclusively in the production of t:slim G4 pumps. We believe this is appropriate based on the t:slim G4 shipments in Q3 and our revised expectation for future periods in light of the t:slim X2 launch. Additionally, we saw a small increase in our nonmanufacturing cost as a percentage of sales, which primarily consists of warranty, freight, train and royalty costs. Finally, the reduction in our product mix of non-GAAP sales represented by pumps also contributed to the decline in our Q3 non-GAAP gross margin, as our pumps have higher gross margins than our pump supplies.

Looking at the rest of our P&L. Our GAAP operating loss for the rolling 12 months ended September 30 was $75.9 million compared to $75.3 million for the previous 12 months. The resulting operating margin was negative 90% compared to negative 122% for the previous 12 months. Our non-GAAP operating loss for the rolling 12 months ended September 30 was $69 million compared to $75.3 million for the previous 12 months. Our non-GAAP operating margin was negative 74% compared to negative 122% for the previous 12 months.

Our rolling 12-month operating losses included noncash expenses of $11.8 million for stock-based compensation and $5.2 million for depreciation and amortization. For the previous rolling 12 months, our stock-based compensation was $14 million, and our depreciation and amortization was $4.9 million. During the last 12 months, our operating expenses only increased 8% compared to the previous 12 months, while our non-GAAP revenue and gross profit grew 51% and 73%, respectively.

Our GAAP operating losses for Q3 was $28.4 million, resulting in an operating margin of negative 231%. Our non-GAAP operating loss was $21.5 million, resulting in an operating margin of negative 104%. These measures both compared to our prior year operating margin of negative 119%.

Our operating expenses increased 11% in Q3 as compared to Q3 2015. Included in our Q3 R&D expense was $900,000 associated with both an up-front license payment to TypeZero as well as clinical trial costs associated with our PLGS products in development.

With respect to cash, at the end of Q3, our cash and investment balance was approximately $36 million. In addition, we saw the one-time option until the end of this year to access to an additional $35 million under our debt arrangement with CRG. Our cash and investments decreased sequentially by $20 million in Q3 compared to a decrease of $14 million in Q2 and $16 million at Q3 2015.

The sequential increase in cash burn in Q3 was primarily attributed to lower sales and gross profits generated during the quarter. Also during Q3, cash was utilized to increase our inventory levels associated with the anticipated launch for the t:slim X2 and the building of incremental inventory levels in preparation of our manufacturing operations transition to the new building in 2017. Other significant cash outflows in Q3 included the up-front license payment to TypeZero and trade show-related costs.

Moving on to guidance. In follow up to Kim's remarks, we are updating our annual 2016 non-GAAP sales and operating margin guidance. First, I need to highlight that the guidance we are providing today excludes any estimate of the cost and accounting of our Technology Upgrade Program. As previously mentioned, the upgrade program creates a number of accounting complexities that make analytical relationships between our historical metrics and trends not meaningfully comparable to our GAAP results and trends during the duration of this program. It is difficult to estimate or predict the timing and utilization of the upgrade program by our customers. As a result, it's not possible for us to provide GAAP guidance on sales and operating margin for 2016 or to provide a reconciliation of GAAP guidance to non-GAAP guidance with any degree of certainty.

In the future, we will continue to provide operating results on both a GAAP and non-GAAP basis and annual financial guidance on a non-GAAP basis. We now expect our full year 2016 non-GAAP sales guidance to be in the range of $85 million to $90 million for all products, which excludes the financial and accounting impact of the upgrade program. We have experienced a significant reduction in our sales and sales pipeline thus far in Q4. We do believe there is some pausing in the customer pump evaluation process as people were waiting for the t:slim X2 to begin shipping as well as including in their evaluation of pump choices the consideration of newly launched competitive products and the regulatory approval of others.

We are updating our non-GAAP operating margin guidance to negative 83% to negative 93% for the full year 2016. The guidance includes noncash operating expenses of approximately $11 million to $12 million of stock-based compensation and approximately $5 million to $6 million in depreciation and amortization.

With respect to our cash, we will be looking for potential ways to increase our available cash reserves beyond what's available under our current CRG arrangement. In any case, we believe our current cash, investments, cash available under our current debt arrangement with CRG and proceeds from our employee stock plans and the exercise of warrants will be sufficient for our operating needs for at least the next 12 months.

Key factors influencing our operating margin and cash flow expectations and ultimately, our profitability time line of potential capital needs include the rate of commercial acceptance of our products; our ability to develop, submit and successfully secure regulatory approval and commercialize new products and product features on a timely basis; facility expansion needs and our ability to gain leverage within our operations.

And in conclusion, the short-term challenges we face do not overshadow our expectations for long-term success. We've made tremendous progress to date and believe our number one rated customer service, along with our current and future technology, especially in combination with the power of our device updater, differentiates Tandem and will allow us to continue to successfully address the needs of people with diabetes.

And with that, I'll turn it over to the operator for questions.

(Operator Instructions) Our first question comes from the line of Kristen Stewart from Deutsche Bank. Your question, please.

I guess I'll start with, I guess, some of the comments you've made about the general environment on aggressive market practices. I think you've said on pricing. Correct me if I'm wrong with that. Just maybe if you can further expand on that and just anything that you guys can do to maybe help people, I guess, speed up their decision-making process or get better visibility on the fourth quarter. Or I guess, looking out into 2017, I guess, will you have a better level of, I guess, guidance stability when we get to January? Because it kind of seems like you're suggesting that this difficulty to predict period could even flow into the first half of next year. I know that's a lot there, but --

Yes, I get it. Just sort of to lay the groundwork, the 630G from Medtronic was launched first, got a first approval in the marketplace. So it became the platform to then go to the 670G, which got approved in September. So one had a -- the first one had a predictive low glucose suspend, and the 670G is more of a treat-to-target type product.

Right.

And so they have been talking or marketing an upgrade program by the 630G immediately, and you can get that 670G once available. And it's being said that it's going to be available out in the spring of next year. So it provides them a bridge to start basically selling the 670G now, in essence, and that makes it very competitive for us because they do have the ability to -- and market the 670G data because that product is approved. So they can be very specific about the promise of what the system will do. But between now and the time it's approved in the spring, the reality of how the system works is not going to be available to the customers. And you got to remember it's a system. There's an algorithm in it. There is a sensor that is driving that, the automated insulin delivery.

And the data, what patients are looking for is a reduction of hypoglycemia at night. Obviously, they're using insulin to drive their blood sugar down. The major side effect is it gets too low and you have horrible complications, especially when it happens at night. So the promise is that it's going to reduce that risk, but the reality of it is we don't know how successful it's going to be. So that's why we're giving the guidance that there isn't a lot of clarity until that product is available in the market. And if you remember, the 530G had a low threshold suspend, and it did not do well in the market because it didn't work. So that's sort of the time line on why there is going to be that uncertainty until the product is really available next year.

Does that give you an answer, though?

Yes, yes. And your low glucose suspend feature won't be available until late 2017, is that what you had mentioned to the updater?

Yes. So as we share with some of this market research, the updatability of the software during that four-year warranty cycle is a big advantage and much preferred by customers. But we won't have that first algorithm until later in the year. But we will have the G5, as I mentioned, which is the superior -- yes, G5, which has superior sensor over the G4. And we're hopeful that, that will be competitive during the hiatus between now and the time we have our algorithm. So that is obviously the benefit that we're selling.

Our next question comes from the line of Tao Levy from Wedbush. Your question, please.

I just want to talk a little bit about the guidance, the $20 million sort of reduction. You're off $3 million from my number this quarter. So the delta in the guidance, do you think -- is it demand that could be just delayed? Or are these patients who might be purchasing competing devices?

This is John. As Kim mentioned sort of in his prepared comments, I think really what we're facing today is the uncertainty of where we are with a combination of factors, including the 670 launch as well as are people really waiting for t:slim X2 to be launched before gauging or submitting any interest in our product. And we only started shipping that product about a week ago and have seen a little bit of an increase in the interest level, but it's still too early to decide. I think some of the overall reduction in the revenue guidance is a shortfall to our expectation of Q3, even despite what we would have expected to be some pausing in the market and some competitive noise with 630 being in the market.

But 670 coming into the market in the height of selling season of Q4 and having that product not being launched so we can't actually sell against the actual product's performance but only what it promises is a difficult task for us at this point. And I think to your question and to maybe Kristen's question, it may take us a quarter or so to see what we're actually dealing with and how folks are evaluating the product. And are they coming back to realizing that the algorithms that Medtronic is offering is just one component of what the characteristics of why they're buying a pump. And that we'll be focusing on what the form factor and ease-of-use is in our story as well as our customers' support in what we believe is the right path to the future, which is the updater capability that we now have approval for.

So that's where we think we're going to go. I think the conservatism on our part is to reduce the guidance for the remainder of the year, knowing that we're going to be dealing with this for at least a quarter without any sort of information on the reality of that product.

Got you. And sort of maybe in the patients -- or the pumps that you sold in the third quarter, maybe the preorder that you've gotten for the fourth quarter, do you know where that business is coming from? Are these sort of more MDI patients? Because my view of the 670G and 630G is that it doesn't seem to be a new pumper's first choice. I mean, it's a lot more complicated than definitely probably for the more experienced pumper CGM user. So I'm surprised that it might be having as much impact sort of on new patients than what I would have assumed.

Yes, our business still continues to be about 50-50 between MDIs and converters. So that dynamic hasn't changed. I think it's just -- it could potentially be not necessarily just the 670. It could have been also our upgrade program, waiting for that. People are looking at CGM as an alternative as well. And there are other solutions besides Dexcom out there now with the Abbott Libre. So people are maybe just pausing to digest all the new information that's sort of coming their way as far as potential products that are coming into the market.

Yes. And Tao, we've done market research that definitely says that when people come up off of warranty, again that's not the MDI section, but these are people that are on a pump, they pause to see what new technologies are out there in the marketplace. So we know they do that, and we believe that's happening, probably caused by Medtronic, probably caused by us. So we know those are definite -- definitely have an impact on what's going on.

Got you. And just sort of lastly, you got the pediatric label earlier in the summer time. Does that play a role at all? I mean, obviously, not enough to make up the shortfall, but just wanting to better understand the dynamics of some of the pediatric penetration.

Yes, I don't think it's had any pickup for us. I don't think it's been really a tailwind at all. It will be an advantage when we get to G5 CGM and our PLGS. What's the indication on Medtronic? Is it --

I believe that's 16 and above.

Yes. So Medtronic has got 16 and above, and we've got that lower indication. So I think that will be an advantage.

Our next question comes from the line of Ben Andrew from William Blair. Your question, please.

Maybe talk a little bit about what you're hearing in terms of patient feedback as they evaluate the new devices specifically. You've given us the kind of the list of things that may have led at the delays. But do you see a substantial chunk of patients going on CGM only, and therefore, just really aren't candidates as they evaluate your pump and then you see a final decision?

Well, I think on the MDI segment of the market, I think Dexcom is promoting the concept that CGM should be your first step, not a pump, to bring your A1c down if you're not in control. And so CGM, obviously, is less complex to use. You simply insert it, and you watch the screen and you see where you are on a continuous basis, especially at night; whereas a pump has basal, bolus settings and you've got a bolus after every meal, so it's the harder step. But I believe they're additive in terms of getting better control, so I think they go together very nicely as a pair. And one adds to the others, and you get greater total control by using two of them.

So that's been probably somewhat of a headwind in the MDI part of the market, but probably not so much over in the warranty renewal side of it where we're seeing that people pause. They have to evaluate what's new in the marketplace because they're making a change that's going to last for four years, and they've had four years to wait for developments, so they're definitely going to go out shopping for what's available. There just happens to be a lot of change in the marketplace.

Is there anything that you're doing differently with your messaging since you've seen this trend and/or the approval of the 670G that can even partially mitigate it?

Yes. I think one of the secrets here is that the 670G and 630G depend upon a new interface. It's a totally different device. It got bigger. The screen relative to ours is a lot smaller. And the user interface is just frankly different than the old pumps that people will be renewing off of. So everybody, in their own customer base, is going to have to relearn how to use their new software suite that has different hard buttons in it on how to use it. And we, frankly, have heard that it is failing in terms of customer satisfaction on that parameter alone. And there was reports that in the study that they did to get approval, there was a lot of handholding and extra training of the health care professionals in order to get them proficient to be able to do the training. So that's the one way we can detail back and get people to buy into our product and the upgradability that's going to be coming down the line. So that's how we try to counter it now.

Okay. And John, you've obviously got the balance of the credit line out there that I think you were able to take before year-end. And you mentioned looking at plans for additional fundraising. Maybe talk through the options or different things we may see there in the next 6, 12 months.

Sure. With respect to the CRG, it's likely that we will draw all or part of the money. But it is part of sort of the overall strategy we're looking at now, so I haven't made any final decisions on that. And as Kim mentioned, we are managing through a range of scenarios. So really right now, I don't feel an urgency to raise cash immediately. I think we are looking at potentially the cash historically with an unlikely scenario or one of the more less likely scenarios. But with all that's gone on with the competitive environment change, it's now something that's more likely and that likelihood has increased. So it's come to the point where we are going to be looking at other alternatives. But at this point, it's just too early to decide and talk about that publicly. As we start to slip by that, we'll probably talk about that probably on the next conference call.

Okay. And then might we see anything next week at the Diabetes Technology Society meeting in Bethesda from you guys?

Not that I know of, no.

Our next question comes from the line of Jeff Johnson from Robert Baird. Your question, please.

So really just one question, Kim, and it's similar to a question I asked last quarter but I'm going to ask it again, and that is, as you go to the treat-to-range program, what I'm hearing tonight now is that you might have a bolus option in addition to a micro basal option. And so just trying to figure out there, how big -- have you talked to the FDA at this point? If that's going to be one of the first studies out there really looking at an automatic bolus option, how big might that trial have to be? How costly might it be? I'm assuming there'd be a sizable post-approval study that might be required. So just anything you can give us on details there because I was a little surprised to hear on that auto bolus side tonight.

Yes. I think probably the best thing that points you to our publications that have been based upon this algorithm, certainly not with our platform, but I believe we have the Dexcom CGM and have the algorithm we'll be using and used somebody else's pump, but that's the least important part of the whole system. It's really the algorithm. And those publications are out there. If you go back to our press release when we announced the TypeZero deal back in July, July 21, there's a list of articles you could take a look there. And certainly, those were done with FDA granting approval to go ahead on those studies. And that will be good data that will be supporting what we're trying to do in our own clinical study. So that had more data points on what we're doing.

Any idea with your pump, the size of the study or anything like that you could talk about?

Yes, we haven't talked about that yet. But it can be recruited -- completed in the time frames that we've given you.

Our next question comes from the line of Doug Schenkel from Cowen and Company. Your question, please.

This is Ryan Blicker in for Doug. I know you don't want to give guidance currently, but can you give us an early indication for how you're thinking about 2017 revenue growth? Assuming the pump market continues to grow in the mid- to high single-digits, can Tandem continue to gain meaningful share next year in the face of competitive launches as it done -- as it has done in years past? Or should we expect growth to move you to closer to the growth you're expected to generate in 2016?

Well, I think it's too early for us to give guidance on 2017. I think we'll see how the fourth quarter goes. I think the common theme in our conversations today is that we do believe this is a short-term dynamic, and we have dealt with this in the past with the 530G launch as well as the Animas Vibe launching early in 2015. So those were headwinds that took about a quarter or two to sort of move past, but you can see what we accomplished in those periods where we were growing 45-plus percent growth; obviously on a smaller base, but still very good growth considering what we were facing at those times.

So I think at this point, we'd like to see how the fourth quarter sort of plays out with the uncertainty that we have put out there and the guidance we've put out there to address that uncertainty. And then we will look at sort of where we are at when we talk about our earnings in late January or early February. Or is it late February?

February.

Late February, sorry.

Okay, that's helpful. And then maybe this will also wait until the February call. But any update as to how you're thinking about the sales force currently and maybe any minor expansion as we head into next year? Thank you.

No, I think the sales force is at the right size at this point in time. We don't have any immediate plans to increase or change the size of the sales force. It's something we'll continue to evaluate. I think longer term, we see it increasing as our sales grow. And if the sales force needs that capacity, we'll add it. But I think for now, we're quite comfortable with the sales force sizing we have.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Kim Blickenstaff for any further remarks.

Yes, I just want to say that we're going to be at a number of health care conferences right here in the next two months. I don't have a schedule yet to give you. But we'll be making press releases on time, dates and the names of the conferences that we're going to be presenting in. So we'll be able to take, obviously, one-on-one meetings during those conferences we attend.

So with that, I'd just like to thank you for being on the call today, and I'll close the call out right now by saying thanks. Bye-bye.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.