Transcript from Insulet investors call.... I bolded the portions I found interesting.
...intro with disclaimer about forward looking statements...then
DUANE DESISTO, CEO, INSULET CORP: Thanks, Ryan. Good afternoon, everyone. Our second-quarter 2012 performance was highlighted by acceleration on our core OmniPod business, which grew by nearly 30% year over year. The investments we made in sales and marketing over the past six months have begun to provide a return more quickly than we originally anticipated. Since January 1, we have added approximately 20 members to our commercial team, including a new inside sales capability, which launched on May 1. These new investments, coupled with the completion of infrastructure integration in the Neighborhood Diabetes acquisition, have resulted in a high-powered commercial team driving increased patient demand.
In the second quarter, referrals swelled by more than 20%, year over year. The highest rate of increase in a quarterly period since 2009. While internally we are all eagerly anticipating the approval of the next-generation OmniPod, our external message about the benefits of the current OmniPod continues to resonate with patients and healthcare professionals, that there is no reason to wait. Patients are starting the therapy on the current OmniPod system and immediately enjoying the features such as no tubing, a discreet water-tight design and automatic cannula insertion. Customers clearly continue to appreciate that the OmniPod system gives them the freedom to do what they want, when they want, without the hassles of conventional style pumping.
With demand accelerating in the OmniPod business, our operations team has kept pace by increasing production volumes, improving quality, and driving cost efficiencies. We manufactured more than 1.4 million OmniPods in the second quarter, a record level of production. This has allowed us to build our inventory levels, which will help facilitate the transition from the current OmniPod production line to the next-generation OmniPod line. Importantly, we have not sacrificed quality, as we have increased production quantity. We are very proud to say that the quality of the OmniPod has never been better.
The number of calls received has dropped for nine consecutive months with an overall decline by nearly 50% since last October. These production and process refinement efforts have also resulted in a financial benefit as the cost per pod that dropped below $14, helping to improve our overall gross margins by approximately 130 basis points. The operation teams also continues to make excellent progress in preparing for the launch of the next-generation OmniPod. Our manufacturing capacity continues to increase with lines one and two, and we have commenced work on our third line. We remain on track to have the capacity to produce between 750,000 and 1 million new pods per month by the end of the year. You'll recall on our last conference call we discussed the supply chain readiness was an area of focus for us. I am pleased to report that while there is some work left to do, we have made significant progress across the entire supplier network to ensure that we are ready to go upon the approval in the next-generation OmniPod.
Let me now update you on the regulatory approval process for the next generation pod. While not yet approved, we have continued to a positive strides with the Food and Drug Administration toward that goal. Over the past couple of months, we have been in regular contact with the agency and noted in June that the remaining list of questions have been winnowed down to approximately five. We responded to those questions 10 days later. A few weeks ago, the agency provided us with two final comments that they believe need to be resolved before the review of our 510 K submission could be successfully completed. One relates to a labeling change and the second concerns some of the human factors data that we have provided with our most recent response.
As part of their comment, the agency requested additional human factor testing to be completed. In particular, the agency noted that there were areas of potential user error in our original human factors testing where the patient incorrectly enter data such as the basal rate, blood glucose value or the setting of the PDM clock. Although these errors were infrequent, the agency requested that we revisit certain aspects of the PDM user interface, our user manual, and our training procedures to identify ways for us to help further reduce the likelihood of these user errors. Our internal team, along with our human factors consultants and the FDA, have since held a series meetings where we identified minor product modifications which should reduce the potential occurrence of these errors. We believe the changes are relatively minimal, such as including confirmation screens for the PDM user interface to allow the user to validate the data they have entered is correct.
We submitted these proposed updates to the product, as well as the protocol for the additional human factor testing to the FDA and are currently awaiting their feedback. We expect to submit an updated response to the FDA approximately four to six weeks from the receipt of their feedback. But we can't convert our patient base to the next-generation product until we receive 510-K clearance from the Food and Drug Administration. We are using this additional time to ensure that every group within the organization is ready for our patient conversion. We are looking at this as an opportunity to further de-risk the transition and ensure a successful launch across our commercial manufacturing and support teams. We remain confident that once approved, we will be able to execute the transition in an expeditious manner.
We also remain confident regardless of the timing of the actual approval that we will be at or near operating cash breakeven by the end of the year. We are committed to making sure that the first impression of new OmniPod are extremely positive. If the feedback from the American Diabetes Association meeting is any indicator, it certainly will be. At the ADA conference in Philadelphia this past June, we unveiled the OmniPod in our booth and through a series of informational events geared toward key opinion leaders. We continue to showcase the next-generation OmniPod this past week at the American Association of Diabetes Educators conference in Indianapolis. The reaction to the size and weight difference, as well as the user interface enhancement geared towards improving the overall customer experience has been excellent. We are confident that the new OmniPod, once approved, coupled with our newly strengthened commercial team, will position us for continued rapid topline growth in 2013 and beyond.
Our international partnerships continue to be a significant contributor to our future growth expectations. Ypsomed continues to add patients and take share of the insulin pump markets across its territory including the Netherlands, Germany, and the UK. Just recently, they launched the OmniPod into the Austrian market and have plans for additional markets to come online in the coming quarters. We have been working closely with Ypsomed on the rollout of the next-generation OmniPod across Europe. With the summer holiday season nearing it's end, we anticipate that they will begin to accelerate the transition to the next-generation OmniPod in the fall, with all patients converted by the end of the year. In Canada, GSK also continues to make good progress driving OmniPod adoption across the country. With the pending approval of the OmniPod, here in the US, we recently filed the next-generation OmniPod for approval with Health Canada and anticipate an approval there sometime in the first half of 2013.
Turning to Neighborhood Diabetes. June marked the one-year anniversary of our acquisition of this business. I'm more convinced than ever that the opportunities that exist for Neighborhood Diabetes high touch service model. The infrastructure has been integrated and as mentioned earlier, we are now experiencing the benefits of a combined team in helping to drive OmniPod growth. Over the past several quarters, I've talked about what differentiates Neighborhood Diabetes as their high touch service model, where we play a key role in training, encouraging and supporting patient therapy adherence. This model has been proven in case studies to reduce the number of hospitalizations for patients serviced by Neighborhood Diabetes versus those who are not.
In a managed care environment that is becoming more and more outcome driven, our message is resonating with payors. They are more willing to work with us as the provider of choice. Several plans have provided us access to their customer lists as the diabetes management preferred supplier. We said strategic account wins are opening new geographies for Neighborhood Diabetes in places such as the southeastern US and in Texas. We are working closely with these payors to obtain customer lists and to start placing calls to those patients offering our services in the coming months. While we are convinced that this strategy of focusing on these managed care relationships positions Neighborhood Diabetes well for higher levels of long-term growth, the latest received in customer lists from these plans did impact second-quarter revenues. We are continuing to work closely with the plans to iron out the executional complexities and expect to see a return to higher levels of growth in Neighborhood Diabetes in the back half of the year.
In addition, the pipeline remained strong with several of the strategic accounts hopefully coming on board in the second half of 2012. While all of us at Insulet are focused on the next-generation OmniPod and a smooth transition upon approval, we are also moving forward with several other initiatives. Last quarter, we announced the signing of a global agreement with LifeScan Inc., a subsidiary of J&J. As part of this agreement, we are integrating LifeScan's One Touch blood glucose monitoring technology into our hand-held personal diabetes manager. The combined launch scan Insulet team has made tremendous progress on this combined device, and we believe that we remain on track to make this product available in the market in 2013.
Recently, we have had several conversations with Dexcom and expect to soon commence the work required to develop an integrated hand-held using their fourth generation sensor and our next-generation OmniPod. In addition, we now expect that this integrated device will leverage our new partnership with LifeScan, as well as integrating the Vario blood glucose meter in the combined device. Although our primary mission is focused on making the lives of people with diabetes easier, we also continue to explore several non-insulin drug delivery opportunities which leverage the OmniPod. Our goal in these types of engagements is to leverage our existing technology with the limited customization for the delivery of this specific drug. To date, we have seen favorable results on these projects. We re hopeful that we will see a couple of these relationships move towards commercial opportunities over the coming quarters. With that, I'll turn the call over to Brian to provide additional details about the second-quarter results and our expectations for the remainder 2012.
BRIAN ROBERTS: Thanks, Duane. Revenue increased by 58%, $51 million in the second quarter compared to $32.2 million in the second quarter of 2011. On an organic basis, excluding the impact of the June 2011 acquisition of Neighborhood Diabetes, the OmniPod business accelerated in the quarter to nearly a 30% year over year rate of growth. We are seeing early returns on our commercial investments as referrals increase by more than 20% year over year. Revenue increased by $38.3 million, or 63%, to $98.8 million in the six months ended June 30, 2012 compared to $60.5 million in the comparable period in 2011. Gross profits for the quarter improved by 54%, $22.3 million compared to gross profit of $14.5 million in the second quarter 2011. Our gross margin was approximately 44% in the second quarter, an increase of about 130 basis points from the first quarter. The improvement is primarily result a result of higher production, favorable pricing of certain components in the supply chain and reduced warranty costs which ultimately drove the cost per pod below $14 for the period.
For the six months ended June 30, 2012, gross profit increased by $14.5 million to $42.6 million. This represents an increase of 52%, as compared to the same period in 2011. Operating expenses for the second quarter were $32.9 million, compared to $29.5 million in the second quarter of '11 and $31.2 million in the first quarter of 2012. The year over year increase is primarily related to the addition of Neighborhood Diabetes. Sequentially, the increase was primarily related to the ongoing processes for the next-generation OmniPod and the additions to our commercial team in the first quarter.
Operating expenses for the third and fourth quarters should return to approximately $31 million to $32 million per quarter as R&D costs normalized to around approximately $5 million per quarter. Year-to-date operating expenses were $64 million in the six months ended June 30, 2012 as compared to $50.3 million for the same period in 2011, with the change primarily due to the acquisition of Neighborhood in June 2011. We reported an operating loss for the second quarter of $10.5 million, compared to an operating loss of $14.9 million for the second quarter of last year. Our second quarter 2012 operating loss includes approximately $6 million of non-cash operating expenses, comprised primarily of depreciation, amortization, and stock-based compensation. Excluding these expenses, our cash operating loss for the quarter was about $4.5 million.
Year-to-date, operating loss was $21.4 million for the six months compared to $22.2 million for the comparable period in 2011. We continue to believe we will be at or near operating cash breakeven by the end of the year. Net interest expense was $3.9 million in the second quarter of 2012 compared to $4.5 million in the second quarter of 2011. The decrease is mainly a result of one-time charges in connection with the refinancing of our convertible debt last June. Of the $3.9 million in interest expense, approximately $2.5 million was non-cash. Year-to-date net interest expense was $7.7 million compared to $7.1 million for the comparable period in 2011.
We reported a net loss for the second quarter of 2012 of $14.5 million, or $0.30 per share compared to a net loss of $19.4 million, or $0.42 per share for the second quarter of last year. As of June 30, 2012, cash and cash equivalents totaled $70 million. As Duane noted, we are in the process of building our inventory levels to facilitate a smooth transition from the current generation to the next-generation OmniPod upon US approval. We continue to believe we have sufficient cash on hand to achieve operating profitability. As of June 30, we had approximately 47.9 million common shares outstanding.
As we look to the second half of 2012 we are optimistic about our growth trajectory, especially on the core OmniPod business. Our referral pipeline has remained strong through July, and we expect that trend to continue. We have also positioned Neighborhood Diabetes for improved long-term growth by refocusing the sales strategy toward managed care accounts. As a result, we have adjusted the top end of full year '12 revenue guidance slightly. We now expect full-year revenue to be in the range of $210 million to $220 million.
The bottom of the revenue range remains unchanged. We expect our full-year operating loss to be in the range of $32 million to $38 million, reflecting our results through the first six months of 2012 and our plans to be at or near operating cash breakeven by year-end. For the second quarter, we expect revenue in the range of $53 million to $57 million. With that, let me turn the call back over to Duane.
DUANE DESISTO: Thanks, Brian.
In summary, the first half of 2012 has been excellent for Insulet, and we believe 2012 continued to be a very strong year in total. We are very encouraged about the acceleration in our sales performance year-to-date. We are optimistic that the momentum from the second quarter will continue through the remainder of the year. We have made substantial progress in manufacturing both the current OmniPod as well as in preparing for the launch of the next-generation OmniPod product. We are certainly eager to receive FDA clearance for the next-generation OmniPod, and when it is received, we are confident that we will be poised for the product launch and conversion of US customer base. And with that, operator, please open up for calls.
Questions and Answers
OPERATOR: (Operator Instructions)
Danielle Antalffy of Leerink Swan.
DANIELLE ANTALFFY , ANALYST, LEERINK SWANN: My first question is on next gen pod approval. Duane and Brian, does this now push -- it sounds like now we are pushing off that sort of -- I don't want to overstate this, but drop dead date to get the patients transitioned by year-end fully. Is that true? Should we expect this now to leak into first quarter of 2013? Can you give us some color on updated timing on that front?
DUANE DESISTO: Sure. It's the obvious question. I think, Danielle, where we are -- and for everybody on the phone, there, to give a little color to it. I think that labeling change is already done, obviously, that wasn't a big deal in the comment that we had. The second thing is human factors. If you go through what we have to do, it's relatively -- our proposal is relatively small. It's about 30 people. It would probably take us a little over a week to do. So, a lot of this, I think from our side we think we can turn it very, very quickly. We feel really good that we have clear understanding what the expectation is from the agency. We just need them to sign off it and they get through that. So, honestly, I am getting out of the prediction business here. I think, is there still a shot? Sure, there's still a shot. But I think from our standpoint, it's pretty straightforward on what we have to do. But, obviously, it's getting very tight.
DANIELLE ANTALFFY : Got it. That makes sense. Thanks so much. And then just thinking about this year's guidance, how much -- is the entire $5 million on the top end of the range, is that entirely due to Neighborhood Diabetes? It looks like OmniPod growth is actually a little bit stronger, at least than we had expected. So, just trying to get a sense of the puts and takes to the guidance. Thanks so much.
BRIAN ROBERTS: Yes, no, Danielle, it's Brian. I think there are a couple of factors that were involved. Primarily, I would say it was Neighborhood and the timing of -- us getting the cross-selling opportunities up and running that we talked about on the last call. We basically got that started earlier in Q2. Keep that going. We think that's going to provide some momentum in the back half of the year, but it will take some time for it to build. As well as the change in the overall strategy to be focusing more on the payors. That's, I think when you take a look at it, the top end of our guidance for Q3 here, $57 million would get to -- would force -- to get the $225 million means we would probably have nearly a $70 million in Q4. And that was probably just a little bit too high. But overall, we feel very, very comfortable with the to $210 million to $220 million range.
The good news, I think, with coming out of this quarter is a couple of things. One, very clearly we saw an acceleration of OmniPod in Q2, and it's clear that people aren't waiting overall. But we still believe some still are, too, right? We were really encouraged and I think excited by the level of referral demand that came in the door in Q2 and seeing investments in the commercial piece start to pay off. We're also very encouraged by the fact that we were able to start to build some gross margins and Q2, both in the back of the improved quality as well as just a lot of work we have been doing around through the supply chain. And what it does is, regardless of the timing of the approval or not, we think we are still well on track to be able to hit our goal here of getting to cash breakeven by the end of the year. So, from that perspective, it certainly takes some of the pressure off of trying to get everybody converted over by the end of the year and making sure that we could or couldn't do it. Lastly, by the fact that we have a little bit of additional time, I wouldn't underestimate the opportunity for us to be able to de-risk this transition. It just gives that much more time for us to make sure everything across the manufacturing, commercial, and operational teams is ready to go.
DANIELLE ANTALFFY : That's great. Thanks so much, guys.
DUANE DESISTO: Thanks.
OPERATOR: Kim Gailun, JPMorgan.
KIM GAILUN, ANALYST, JPMORGAN: First question is a follow-up to Danielle's on the timing here. Just to be clear on it, it sounds like at this point you are looking at about three months to update approval. So, I am thinking mid-to-late November. Is that reasonable? Is that kind of what you are trying to convey?
DUANE DESISTO: Look. I think what I'm trying to convey (laughter), and hopefully this doesn't sound like a copout. I think I know my piece. I think we are a little -- as a Company, I think we are a little disappointed with the additional human factor work that we had to do. I think we felt pretty good about it, but it's pretty clear that these are their final comments. Obviously, they hold the right to do something else, but they made it pretty clear these were kind of the final comments. We feel good that we have a clear understanding from what we think, right now. The plan we submitted, on how quickly we can execute that. We still have to hear back from the agency, we have to execute the plan correctly. People have to pass this, and we have to make sure those changes work and then we have to get it back in. Obviously, it's pushing towards -- into the fourth quarter. I would be guessing if I picked the date anymore because I've been wrong. I will readily admit, we've missed it now two, three quarters in a row. But I just keep telling you, I only control half this equation, we have been pretty good on that half.
KIM GAILUN: Okay. Yes, just in terms of the timing, though, what you are waiting on now is to hear back from FDA on what you have proposed, is that fair?
DUANE DESISTO: That is fair. We submitted -- just to make it clear, we submitted what we believe -- we had a conference call with them, got their understanding of what those questions were. There was a little more than a handful of user interface things that wanted to see us do something with. We have tackled those, whether it be changed to PDM, improve the labeling, change the user manual. We laid out a protocol to verify that these, in fact, work. And we are going to wait till we hear back from the agency to make sure they are comfortable with that and they believe the protocol is the appropriate one, and then we'll execute it. And that execution, from customer to doing it, to writing the report, resubmitting will probably take four to six weeks. All the other time in between is going to be waiting.
KIM GAILUN: Okay. And then a separate question on the referral commentary. So, you indicated that you had a 20% year-over-year increase in referrals and that that was up. That was the best quarter you've seen, I think since '09. How does that 20% compare to what you saw over, say, like the last four quarters on average? And then, does that referral rate currently have a reliable correlation with new patient adds?
BRIAN ROBERTS: Little bit, net patient adds will continue through Q3 by the timing those referrals came in, for example, June, and then those convert roughly a month or so later. Overall, the referral growth rate, it was a significant uptick from what we've seen over the last few quarters, and we have them put a number on it. But like I said, overall, it was pretty encouraging because when we made the investments to the commercial team, we were expecting it would take them, on average, six months or so to become effective. I think what we saw was because these are resources going into existing territories as well as this inside sales capability, the team has done a real nice job of laying out the roles and responsibilities of adding inside sales in. It became effective much, much sooner.
KIM GAILUN: Okay, and so just to push a little bit, are we talking about 20% comparing to, say, 10% to 15% over the last four quarters?
BRIAN ROBERTS: On average, probably even a little bit better than that. Over 20% in Q2.
KIM GAILUN: Okay, thank you. Great, thanks.
OPERATOR: Ben Andrew, William Blair.
BEN ANDREW, ANALYST, WILLIAM BLAIR & COMPANY: Good afternoon, Duane, just want to clarify and make sure it's clear to me. All of the changes in the human factor components are just software, right? There is no hardware change that you are looking at either in the hand-held or certainly not the pod?
DUANE DESISTO: Yes Ben, I think even better than that, I can, with the exception of one screen, all the ones are putting in physically a confirmation screen. You answer it and then you slide the answer in, whatever the particular detail is, and then slide in the screen right behind that that says, Is this what you wanted to do? Yes or no? You are correct. It's either that or it's a user manual change or a labeling change.
BEN ANDREW: Any material cost to do that, at this point? Because obviously, you guys have been preparing for launch and may have --
DUANE DESISTO: No. I can tell you that those changes are done. We are in the process of just validating the software now.
BEN ANDREW: Okay. And then, I know you are probably not going to want to answer this, but I'll try anyways. After you submit, say, four to six weeks from when you hear from them here on this round, did they give you an expectation of being willing to move quickly with that, given the late timing of this last round from them? Or is it kind of starting the 90 day clock and hope for something better?
DUANE DESISTO: Okay, so they committed to nothing. Here's -- if I'm an optimist, the one encouraging point that they made is both us and them have a lot of time and effort into this to get to this point. And it's not a big -- we are not submitting thousands of pages for them to review. It's a relatively small submission. Having said that, they have committed nothing.
BEN ANDREW: Okay, and then one other topic for me. The rollout. As you think about obviously gaining more experience, more manufacturing ramp, support you've submitted at this point, does this delay give you the opportunity to move faster when you do get the approval and launch it? Or do you still go through a very deliberate process that may take three or six months to get you fully rolled out to all of the customers?
DUANE DESISTO: I think the best way for us to roll it out to all the customers is when they placed the reorder. Now, what we do know, there is some pent-up demand for this product. We do know that patients are -- they are trying to gauge whatever they have in their closet, they're trying to gauge the timing of that right to get it all to the finish line at the first time. So, I think there will be an uptick. But from our standpoint, the easiest way to ensure that we reach all the patients is to place your reorder and then you get the new product. That is by far going to be the simplest, easy way to ensure that it's fair and above board with everybody. Like I said, I think a lot of patients, they are pretty smart. They are paying attention to everything that's being said about the new product, and they are kind of trying to time it perfectly so they use up their last pod and can immediately leap into the new one. Ben, I think that's why we were pretty encouraged by this quarter, to see this kind of uptick in demand and people. The message is just resonating with people that look, you might as will get started. The opportunity is good and you get the new product. I think from that side, our commercial and marketing teams are doing a good job pounding that message out there that the best way to get this new product is to get on it now.
BEN ANDREW: And then last question, and I'll take a second last one is the gross margin trajectory. As you roll this out late this year into early next, does this push out the timeframe to get to something like a 60% plus gross margin by maybe a quarter? Or can you still move quickly as you maybe can roll it out faster here? Thanks.
BRIAN ROBERTS: Ben, again, it's obviously a function of exactly when it gets approved and then how quickly we are able to start the rollout process. As Duane noted, a majority of our customers will ultimately reorder over the course of a three-month period. It's still reasonable to assume that that first quarter, upon a launch, will be the time that most folks move, and then the quarter after that is when we see the a majority of the gross margin improvement come through.
BEN ANDREW: Okay. Thank you.
OPERATOR: Thom Gunderson Piper Jaffray.
DAN GAROFALO, ANALYST, PIPER JAFFRAY: It's Dan Garofalo on for Thom. Thanks for taking the questions. Just switching gears a little bit. I was wondering if you could provide some additional color around Ypsomed with how things have progressed with the full quarter shipments and how the initial feedback has been with the next gen product.
DUANE DESISTO: Sure. I think -- look, we won't go into specific numbers of patients because they're a publicly held company also, but the feedback has been excellent. We are very, very encouraged. The size of the product, the ease of use, how much more discreet people feel it is versus current product. It's been very, very put positive, and there's been some constructive feedback. People looking at this thing in terms of some tweaks to maybe the user manual on a couple of these things that we are going do to help them out. But we are very, very encouraged by what we are seeing.
DAN GAROFALO: Great, and so last quarter, I think you commented on the amount of shipments during the quarter. I was just curious if you would be willing to offer that for us this quarter.
BRIAN ROBERTS: No. Sorry. I don't really have an updated number for you.
DAN GAROFALO: Okay.
BRIAN ROBERTS: You caught me in a soft moment last quarter (laughter). It's hard to back up again.
DAN GAROFALO: Okay, just a couple of quick housekeeping items. As far as attrition rates and then the Abbot revenue, would you be willing to provide that for us?
BRIAN ROBERTS: Yes, I think Abbott looks like 1.7 in the quarter, and attrition actually stayed basically flat at right about 9%. Again, I think we probably were 10, 20 basis points favorable from last quarter, but basically no change.
DAN GAROFALO: Thanks again for taking the questions.
OPERATOR: (Operator Instructions)
Ben Haynor, Feltl and Company.
BEN HAYNOR, ANALYST, FELTL AND COMPANY: On gross margin on the OmniPod, the improvement there that you saw, can you give us a sense as how large that might have been, either year-over-year or quarter over quarter?
BRIAN ROBERTS: Yes. Sequentially, we grew the gross margin 130-basis points in total. I will tell you that's pretty much all in the back of the OmniPod. We did a lot of work over the course -- the first half of the year, to really drive through pricing stuff through the supply chain to be able to gain further improvements. As Duane pointed out in his remarks, we have seen nine consecutive months of customer calls coming into our customer support group going down, which means we have been able to lower some warranty expense, as well as been a little bit of an increase in overall production. But basically, 130-point sequential increase, and all really on the back of OmniPod.
BEN HAYNOR: Okay, great. And then one other quick one. How's the FDA progress progressing in China?
DUANE DESISTO: It is rolling slowly forward. I don't know how -- that one I wouldn't even -- if the FDA (inaudible) that one, I would tell you it's going, it's going slowly. Our partners at Ypsomed are helping us. But, it is a -- right out of the box, it's pretty much a two-year process.
BEN HAYNOR: Understood.
DUANE DESISTO: And we are getting there, but it's going slowly.
BEN HAYNOR: That's all I had, thank you very much.
OPERATOR: (Operator Instructions)
Steve Lichtman, Oppenheimer.
STEVE LICHTMAN, ANALYST, OPPENHEIMER & CO.: Just a few thoughts and clarifications. Have you guys been able to start capturing the test strip revenue through Neighborhood that you had talked about being able to drop the test strips in the box? Has that begun?
BRIAN ROBERTS: Yes, we basically started that at the beginning of May, and so we had a minimal amount of in the second quarter as we kind of continue to get our feet wet across plans and get going on it. But we have started and hopefully it will be a little bit of driver for the growth for us in the back half of the year.
STEVE LICHTMAN: Okay, and then in terms of the response time from FDA, obviously past doesn't necessary mean future, but over the last several iterations, the pace between you guys has been quicker. And the average response time seems like it's been between three or four weeks from FDA after your submission. Has that been -- is that a fair characterization?
DUANE DESISTO: That's fair.
STEVE LICHTMAN: Okay., and then just last clarification. Brian, if the OpEx does kick back down $31 million, $32 million in the last couple quarters here, that $32 million to $38 million range, it would seem like you would come in at the low end of the range. Is there anything I'm missing as to why you would come in at the mid-to upper range of that operating loss for the year?
BRIAN ROBERTS: Overall, obviously you always see a little bit of fluctuation across all the numbers, so a little bit of a range is probably appropriate. But again, we are pretty comfortable that we are going to get the right OpEx back into that range and then ultimately get to breakeven. So, I'll let the range fall --
STEVE LICHTMAN: Okay, all right. Fair enough, thanks, guys.
OPERATOR: Robert Goldman, CL King.
ROBERT GOLDMAN, ANALYST, CL KING: Okay, thank you, good afternoon. I wanted to follow-up on the question on international. I do hear that you're not in a position to give the dollar amount of OmniPod sales international. But, could you speak to growth rate? Either there year on year or sequential quarter for international? And then the second piece of the international question, if you wouldn't mind just reminding me -- us, when do you book the sale with international? Is it when you ship it to Ypsomed or when Ypsomed ships it to the customer? And is it rational to assume that Ypsomed is now building inventory?
BRIAN ROBERTS: Hi, Bob, it's Brian. Yes, a couple of things. Again, it's the summer season in Europe, which we all know is a lot of vacation time. As you can imagine, especially like in the UK over this past week, there's not a lot going on over there. So, I think its fair to assume Ypsomed has really not built very much inventory yet on the next generation OmniPod. Overall, sales levels from Q1 to Q2, probably pretty consistent, slight uptick in Q2, but not dramatic. On an overall basis, I would answer your question to say that if you look at what our US business did from year one to year two, back in the day, it effectively tripled. And we assume that the international business will follow that same suit, year one to year two from '11 to 2012. The majority of their markets that Ypsomed has really been driving, they are really now into their second full year with most of them either kicking off at the very end of 2010 or the beginning part of 2011. So, they have all, with the exception of Austria, which obviously just launched the last few of months, they've pretty much anniversaried those, and we'd expect that trend to continue. But overall, they have done a great job. And I think, again, we are expecting the pace of next generation OmniPod rollout in Europe to pick up now. Once we get into September and through the fall, and the goal is to have them all converted over by the end of the year.
ROBERT GOLDMAN: Okay, great. Thank you, Brian.
OPERATOR: There are no further questions.
DUANE DESISTO: Thanks, everyone, for joining us today. The third quarter has already started to be an interesting one for us, and we look forward to updating you in the future. Thank you.
OPERATOR: This concludes today's conference call. You may now disconnect.