Tandem Diabetes Care, Inc. (TNDM) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Third Quarter Tandem Diabetes Care 2016 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s program maybe 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 timelines 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 and 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 comparison to operating results across 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, and we're proud of all that Tandem has accomplished. For three consecutive years we have offered the number 1 rated insulin pump and maintained a number 1 customer service rating according to the dQ&A. resulting in the tremendous growth of our install 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 perceive 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 recognized that others still remain which we are working to counter with our full energy. You'll also notice that we're 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 the investors, namely recent changes in the peer environment, the company's portfolio and competitive launches in our past profitability. Starting with the peer 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 effecting portion of United's membership represented about 8% of our shipments. Since our last call, we either met or spoke with the executive context at each of our top peers 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 timeline with the launch of the t:slim X2. The next generation t:slim X2 indicated for age six and older as we placed our flagship t:slim pump brining the same number 1 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 our 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 a dramatic shift on our product sales in the third quarter in favor of t:slim which have a free 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 from the t:slim X2. As we discussed during our last call, the first new feature, we planned a roll out on the t:slim X2 platform, will be the display of Dexcom 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 your 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't 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 meal. For this reason, we preferred 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 a launch of Medtronic's 670G with automated basal insulin delivery which is anticipated in the spring of 2017. We believe that a system that automate insulin delivery can only be as good as the data that drives the 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 of our flagship t:slim and t:slim G4 pumps. By way of comparison, Medtronic 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 healthcare 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 670G concept. Users were asked to assume that there wasn’t 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 updatability, 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 a pivotal study is scheduled with the FDA in early December. Based on the typical process and review timing, we are on track with the study to take place in Q1 2017 and we plan to submit a PMA filing by mid-2017. As a reminder, we anticipate the 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 customers. As a reminder, the TypeZero technology we licensed bring 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 reference in the number of general 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 our top priority for the company. Between our launch of the t:slim X2 pump, new competitive offerings and aggressive sale tactics in the marketplace during the quarter, there is a lot of new information being shared with both healthcare 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 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 say in Q3 is due to a delay and decision making versus the 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 a 105 to a 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 let 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. 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 situation such as these. Our sales are primary driver to the companies timing to reach profitability and ultimately our additional cash needs. At the end of the quarter, we have more than 70 million in cash and cash available under our debt arranged 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 it's only for a safety cushion and are in the process of evaluating a variety of different options. It's too early to comment further on which path will presume but it's something we'll keep it posted on as decisions are made. We believe our recent results reflect short term challenges that are focused on building our business for success. We have made tremendous progress over the past there 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 expectation. In light of our technology upgrade program impacting our operations and financial results starting in Q3, we believe that looking at our operating results from the non-GAAP basis provides useful information when comparing to our financial results for period 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 includes 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 differed amounts as well as any incremental upgrade fees earned and product cost incurred to facility upgrade obligation. Reconciliation of our GAAP results to our non-=GAAP results is included in our 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. Our 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 improvement as we scale in capacity and manage our operating expenses. However, as I discuss our Q3 financial results, our lower volumes for pump shipments during the quarter significantly impacted our overall gross margins, operating margins and cash balance. Looking at our sales and product shipments, first I'll discuss a rolling 12 month matrix which we continue to do as the best indicators of our progress followed by some particulars for Q3. Our GAAP sales for the rolling 12 months ended September 30th or 84.5 million, an increase of 37% from 61.6 million for the previous 12 months. Sales for the recent rolling 12 months reflect in deferral 8.4 million associated with the upgrade program. Our non-GAAP sales for the rolling 12 months ended September 30th 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 salesforce 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 30th were 18754, 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 in pump shipments, our GAAP sales were 12.3 million compared to 15.7 million in Q3 2015. Our GAAP sales for Q3 reflect a 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 3896 pumps of which 1965 pumps or t:slim 1542 pumps or t:slim G4's and 389 for t:flex's. Pump sales accounted for 56% of our GAAP sales when we're 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 and the purchase of our existing pump products in anticipation of the launch for t:slim X2 implementation of UnitedHealthcare's pump reimbursement decision that went into effect on July 1st. in more competitive environment as a result of launches and regulatory approvals of competitive products and people with diabetes choosing our 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 we'll likely impact us in Q4. Moving on to cost of sales and gross margin. Our GAAP gross margins for the rolling 12 months in the September 30th with 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 30th was 37% compared to 32% for the previous 12 months. Our non-GAAP gross profits during those period increased 73% to 33.9 million and 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 sets shipments increasing a 108% during the rolling 12 months ended September 30th 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 buying's. Our GAAP gross margins in Q3 was -13% compared to 35% in Q3 2015. During Q3, we differed sales of 8.4 million and cost of sales at 1.4 million related to our technology upgrade program for t:slim and t:slim G4 pump shipments. This equates the reduction in our gross profits of 7 million which result in a non-GAAP gross margin of 26%. Approximately five of the nine percentage points decline in our Q3 non-GAAP gross margin related to an excess in obsolescence charge of 1.1 million or 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 a revised expectation for future period in line of the t:slim X2 launch. Additionally we saw a small increase in our non-manufacturing cost as a percentage of sales, which primarily consist of warranty, trade, training and royalty cost. Timely, the reduction in our product mix of non-GAAP sales represented by pumps also contributed to decline in our Q3 non-GAAP gross margins. As our pump had 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 30th was 75.9 million compared to 75.3 million for the previous 12 months. Resulting operating margin was -90% compared to -122% for the previous 12 months. Our non-GAAP operating loss for the rolling 12 months ended September 30th was 69 million compared to 75.3 million for the previous 12 months. Our non-GAAP operating margin was -74% compared to -122% for the previous 12 months. Our rolling 12 month operating losses included non-cash expenses of 11.8 million for stock based compensation in 5.2 million for depreciation and amortization. For the previous rolling 12 months our stock based compensation was 14 million and the 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 revenues and gross profits grew 51% and 73% respectively. Our GAAP operating losses for Q3 was 28.4 million resulting in an operating margin of -231%, our non-GAAP operating loss was 21.5 million resulting in an operating margin of -104%. These measures both compared to our prior year operating margin of -119%. Our operating expenses increased a 11% in Q3 as compared to Q3 2015, included in our Q3 R&D expense was 900,000 associated with both in upfront license payment to TypeZero as well as clinical trial cost associated with our IPO desk products in development. With respect to cash at the end of Q3, our cash and investment balance was approximately 36 million, in addition we start an one time option until the end of this year to access to an efficient 35 million under our debt arrangement with CRG. Our cash and investments decrease sequentially by 20 million in Q3, compared to decrease in 14 million in Q2 and 16 million in Q3, 2015. 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 the t:slim X2 and the building of incremental inventory levels in preparation of our manufacturing operation transition to the new building in 2017. Other significant cash outflows in Q3 included the upfront license payment -- and trade show related cost. 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 at 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 will make analytical relationships between our historical matrix and trends not meaningfully comparable to our GAAP results and trends during the duration of this program. It was difficult to estimate or predict the timing and ease 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 the GAAP and non-GAAP basis an annual financial guidance on the 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 raw products, which exclude 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 an evaluation of pump choices, consideration of newly launched competitive products and the regulatory approval of others. We are updating our non-GAAP operating margin guidance to -83% to -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 waste increase our available cash reserves beyond what's available on our current CRG dealing. 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 operating needs for at least the 12 months. Key factors influencing our operating margin and the cash flow expectations and ultimately our profitability timeline in 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. So, the expansion needs and our ability to gain leverage within our operations. In conclusion, the short term challenges we face do not overshadow our expectations for long terms success. We 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, differentiate 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?

Hi, thanks for taking me for questions. Can you guys hear me okay?

Yes.

Hi, Kristen.

Loud and clear.

Hi, perfect. I guess I'll start with I guess some of the comments you made about the general environment on aggressive market practices. I think you had said on pricing, correct me if I'm wrong with that. If maybe you can further expand on that and just anything that you guys can do to maybe help people thus speed up their decision making process or I guess better visibility on the fourth quarter or I guess looking a half out into 2017. I guess, will you have better level of, I guess, guidance stability when we get to January because it kind of seems like you're suggesting at this difficult feature product 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 delay the ground work, the 630G from Medtronic was launched first, got a first approval in the marketplace. So, we became the platform to then go to the 670G which got approved in September. So, one had a, first one had a predictable low group versus spend and the 670G is more of a treat-to-target type product.

Right.

And so, they have been talking to marketing a 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 on spring in next year. So, 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 end market the 670G data because that product is approved. So, they can be very specific about the promise of all 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 the system, now there's an algorithm in it, there is a sensor that is driving that the automated insulin delivering. 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, a major side effects is to get too low when 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've given the guidance that there isn’t a lot of clarity until that product is available in the market. And it commences with 530G at a low pressural suspend in a it did not do well in the market because it didn’t work. So, that sort of the timeline on why there is going to be that uncertainty until the product is presumably available next year. Did that indeed answer that?

Okay. Yes. And your low group suspend feature won't be available until late 2017, as our review had mentioned to the updater?

Yes.

Okay.

Yes. Think so we don’t as we share were some of this market research be 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 this superior, yes G5 with superior sensor over the G4 and we're hopeful that that will be competitive of our drainy hiatus between now and the time we have our algorithm. So, that is obviously the benefit that we're selling.

Okay. All right, I'll let some other jump in with questions. I'll stick to that one long one. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Tao Levy from Wedbush. Your question please?

Great, thanks. Can you hear me okay?

Yes.

We do.

Yes, perfect. Will you tell me, I just want to talk a little bit about the guidance, $20 million sort of reduction, you're off 3 million from my number this quarter? So, the doubt in the guidance, you think is it where you a demand that could be just delayed or these patients 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 the combination of facts was including the 670 launch is low as our 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 the 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 the shortfall to our expectation in Q3 in despite what we would have expected to be some pausing in the market and some competitive noise with 630 being 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 products performance but only what it promises is a difficult task at this point. And I think to your question and to maybe Christmas question, it may take as 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 algorithm that Medtronic is offering is just one component of what the characteristics of why they're buying a pump. And that will be focusing on what the form factor an ease of use is in our store as well as our customer support and 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 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.

Yes, John. In sort of maybe the patients or the pump that you sold in the third quarter maybe the preorder that you gotten for the fourth quarter. Where that business is coming from, these are sort of more MDI patients, you might be of the 670G and 630G is that. That doesn't seem to be a new pumpers first choice, it means a lot more complicated and than definitely probably for the more experienced pumpers CGM user? Though be I'm surprised that might be having as much impact sort of on new patients in the eyes than that I would have assumed?

Yes. Our business still continues to be about 50/50 between MDI and converters. So, that dynamic hasn’t changed. I think it's just they could potentially be not necessarily just a 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 to fax text come up here now the Avid Libre. So, people are maybe just pausing to digest all the new information that’s sort of coming the way as far as potential products that are coming into the market.

And so, we've done market research that definitely says that when people come up off the warranty, again that's not the MDI selection but these are our people that are on a pump, they bought see what new technologies are out in the marketplace. So, we know they do that and we believe that's happening. Part of the cost by Medtronic, part of the cost by us. So, we know those are definitely have an impact on what's going on.

Got it. And still lastly, you get the pediatric label earlier in the summertime, has that played a role and then obviously you're not enough to make up this shortfall but just wanting to better understand the dynamics of the pediatric penetration?

Yes. I don’t think it's had any pickup for its [indiscernible] been earlier, the tailwind at all. It will be an advantage when we get to G5 CGM and PLGS. What's the implication on Medtronic with that?

I think it's at 16.

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

Okay. Great, thanks.

Thank you. Our next question comes from the line of Ben Andrew from William Blair. Your question please?

All right, good afternoon. Thanks for taking the questions. Maybe talk a little bit about what you're hearing in terms of patient feedback as they evaluate and advice specifically. You've given this kind of the list of things that may have led to the delays. But do you see a substantial target patients going on CGM only and therefore just really on Canada that's just as they evaluate your pump and then you see a final decision?

Well, I think on the MDI segment on the market, I think Dexcom is promoting the concept that CGM should be at first step not a pump to bring your A1c down a period, you're not in control. And so, CGM obviously is lot of complex to use, you simply insert it and you watch a screen and you see so you are on a continuous basis especially at night. Whereas a pump has basal bolus settings and you got a bolus after every meal, so it's the hardest step. But I believe their attitude of in terms of giving better controls, so I think they go together very nicely as a pair and one adds to the others and you get greater 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 somewhat over on the warranty renewal side of it where we're seeing that people pause to have evaluate what's new in the marketplace because they're making a change that's going to last four years. And they've had four years to wait for development. So, they're definitely going to go up shop and forth available. Now, 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 handover 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 that'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 would be renewing off of. So, everybody in their own customer base is going to have to re-haul -- re-learn how to use their new software suite that has different hard buttons on it on how to use it. And we frankly have heard that it is it's failing in terms of customer satisfaction on that parameter alone. And there was reports that in the study that the did to get approval. There was a lot of hand holding in extra tech training of the healthcare 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 end our product and the upgradeability that's going to be kind of 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 you are able to take before your end. And you mentioned looking at plans for additional fund raising, maybe talk through the options or different things we may see there in the next six 12 months. Thank you.

Sure. With respect to the CRG, it's likely that we will draw all the 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 has mentioned, we're 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 within unlikely scenario or one of the more less likely scenarios. But with all that's gone on with the competitive environment changes, now something that's more likely and that likely 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 will 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.

Okay. Thank you, guys.

Sure.

Thank you. Our next question comes from the line of Jeff Johnson from Robert Baird. Ask your question please.

Hi, thanks. Good afternoon, guys. 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 and automatic bolus option. How big might that trial have to be, how costly might it be, I'm assuming that it'd be a sizeable 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 site tonight.

Yes. I think the best thing it points to our publications that have done based on this algorithm. Certainly not with our platform but I believe if we have the Dexcom CGM and how the algorithm will be using and use somebody else's pump but that's a least important part of the whole system as for the algorithm. And those publications are out there, if we get back to our press release when we announced the TypeZero deal back in July 21. There is a list of articles if 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 have more data points in what we're doing.

Any idea with your pump the size of the study and you don’t add in or anything like that you could talk about?

Yes. We haven’t talked about that yet. But it can be recruited and completed in the timeframes that we've given you.

Yes. Understood, all right. Thank you, guys.

Okay.

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

Hi, this is Ryan Blicker in for Doug. Thanks for taking my questions. I know you don’t want to give guidance currently. 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, an 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 closer to the growth you are 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 common theme in our conversation today is that we do believe this is a short term dynamic and we have to tell with this in the past with the 530D launches while as the and the survive launching early in 2015. So, those were headwinds that took about a quarter or two to just sort of move past but you can see what we accomplish in those period where we are going 45+% growth obviously on the smaller base but still very good growth considering what we were facing at those time. 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 put out there to address that uncertainty.

Okay.

And then we will look at sort of where we are at when we talk about earnings in the place January, early February. Or is it late February.

Okay. Yes, at the when?

Late February, sorry.

Okay. That's helpful. And then maybe let's while as so wait until the till the February call. But any update as to how you're thinking about the salesforce currently and maybe any minor expansion as we get into next year? Thank you.

No. I think the salesforce is at the right side. At this point in time we don’t have any immediate plans to increase or change the size of salesforce. It's something we'll continue to evaluate I think longer term we can see an increasing as our sales grow and if the salesforce needs that capacity, we'll add it. But I think for now we're quite comfortable with the salesforce 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 healthcare conferences 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 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 at today's conference, this does conclude the program. You may now disconnect. Good day.