DexCom (DXCM) Kevin Ronald Sayer on Q4 2015 Results - Earnings Call Transcript

| About: DexCom, Inc. (DXCM)

DexCom, Inc. (NASDAQ:DXCM)

Q4 2015 Earnings Call

February 23, 2016 4:30 pm ET

Executives

Kevin Ronald Sayer - President and Chief Executive Officer

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Analysts

Ben C. Andrew - William Blair & Co. LLC

Michael Weinstein - JPMorgan Securities LLC

Brooks E. West - Piper Jaffray & Co (Broker)

Kyle Rose - Canaccord Genuity, Inc.

Jayson T. Bedford - Raymond James & Associates, Inc.

Danielle J. Antalffy - Leerink Partners LLC

Ryan Blicker - Cowen & Co. LLC

James Francescone - Morgan Stanley & Co. LLC

Anthony Charles Petrone - Jefferies LLC

Erik Ross Shoger - Northcoast Research Partners LLC

Jeff D. Johnson - Robert W. Baird & Co., Inc. (Broker)

Operator

Welcome to the DexCom Fourth Quarter and Full Year 2015 Earnings Release Conference Call. My name is Bianca, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to your host, Mr. Kevin Sayer. Sir, you may begin.

Kevin Ronald Sayer - President and Chief Executive Officer

Thank you very much and welcome to our fourth quarter 2015 and full year 2015 earnings call. We'll start with our Safe Harbor statement from Steve Pacelli. Steve?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Thanks, Kevin.

Some of the statements that we will make in today's call may constitute forward-looking statements. These statements reflect management's expectations about future events, operating plans and performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under Risk Factors and elsewhere in our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, and our other reports filed with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason.

Additionally, we will discuss certain financial information that has not been prepared in accordance with GAAP with respect to our cash-based operating results. This non-GAAP information is provided to enhance your overall understanding of our current financial performance. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to results prepared in accordance with GAAP.

Kevin?

Kevin Ronald Sayer - President and Chief Executive Officer

Thank you, Steve. Joining me today are Jess Roper, our Chief Financial Officer, and Steve Pacelli, our Executive Vice President of Strategy and Corporate Development.

Before I turn the call over to Steve to review our detailed financial results, let me start off with some highlights. At the JPMorgan Healthcare Conference in January, we announced estimated Q4 and full year 2015 revenue of approximately $129 million and $400 million, respectively. We actually ended the quarter at a record $131 million and ended the year at $402 million.

To put this into perspective, our 2015 revenue of $402 million is a ten-fold increase of our full year 2010 product revenue of $40 million. And what we did not disclose at JPMorgan, but I'm pleased to announce today, is that for Q4 2015, we are profitable on a GAAP basis. We also grew our global installed base to an estimated 140,000 patients to 150,000 patients, almost doubling the size of our worldwide patient base during 2015. Needless to say, we're quite pleased with our 2015 performance.

More from me later. I'll now turn the call over to Steve.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Thanks, Kevin.

DexCom reported revenue of $131 million for the fourth quarter of 2015, compared to $84 million for the same quarter in 2014, a $47 million or 55% increase. Sequentially, revenue for Q4 of 2015 increased $26 million, up 24% from the prior quarter. As we guided at JPMorgan, for fiscal 2016, we expect revenue to range from $540 million to $565 million, reflecting growth of approximately 35% to 40% versus 2015.

Also, while we do not provide specific quarterly guidance, I remind investors that the first quarter is traditionally a seasonally slow quarter for our business, as annual insurance deductibles reset and flexible spending accounts are largely unfunded. As we look to close out February, however, I'm pleased to report that our pipeline of new patient opportunities is larger than it has ever been.

I also remind investors that in years past, including 2015, approximately 40% to 45% of our revenue was generated in the first half of the year, and 55% to 60% was generated in the second half, and we do not view 2016 any differently.

Our fourth quarter gross profit totaled just over $91 million, generating a gross margin of 70%, compared to a gross profit of $59 million and a gross margin of 70% for the same quarter in the prior year. We are now at the upper end of our gross margin targets on our existing product platform. We remind investors that our gross margin on hardware could be slightly lower for a period of time due to the introduction of the G5 Mobile transmitter, which has a shorter useful life and a lower ASP, which will impact overall gross margin.

We also note that we recorded a charge in Q4 relating to a potential increase in warranty expense resulting from an important customer notification we have issued related to the speaker component in our hand-held receiver.

Going forward, gross margin will be impacted slightly in 2016 due to costs associated with our manufacturing capacity expansion project. But as we guided at JPMorgan, for full year 2016, we expect gross margin to range from 67% to 70% with Q1 being down, of course, sequentially on lower volumes due to the seasonality.

Some final thoughts on our revenues and our gross profits. Our mix between durable and consumable products remains steady at approximately 30% durable and 70% consumable. Pricing has remained consistent with the ASP for sensors within a range of $70 to $75 per sensor and the ASP for our hardware approximately $800 to $850 per starter kit, with receiver ASPs at approximately $400 to $425, G4 PLATINUM transmitter ASPs approximately $400 to $425, and G5 Mobile transmitter ASP at approximately $400 to $425 for two G5 Mobile transmitters. We continue to expect quarter-to-quarter variability within these ASP ranges stemming from our ever-changing payer mix, including direct DME contracts, third-party DME contracts and pharmacy contracts.

Finally, our international business continued to perform, generating $16 million in revenue during the quarter. Consistent with prior years, due to our U.S. seasonality, our international sales as a percentage of total revenues was slightly lower in Q4, but on an annualized basis, growth in our international business is keeping pace with our domestic business.

Blended ASPs for OUS products are approximately 20% lower than our U.S. business, and we remind investors that sensor utilization OUS is lower, primarily due to the cash-pay nature of the business.

Finally, we note that much of our European business continues to be G4 PLATINUM, as we launched G5 Mobile in only five key geographies during the fourth quarter.

Research and development expense totaled $29 million for Q4 of 2015, compared to $22 million in Q4 of 2014, with the increase due primarily to additional payroll related costs and expenses related to work on our near-term product pipeline, particularly with respect to our next generation insertion system and work on our advanced product pipeline, including expenses associated with our Google Life Sciences, now Verily, partnership.

Selling, general and administrative expense totaled $61 million in Q4 of 2015 compared to $36 million during the same quarter in 2014, with the increase primarily due to year-over-year increases in head count in our sales organization, including both field sales and our internal sales support staff, as well as a ramp in marketing expenses in connection with our DTC awareness campaigns, initial investment in our OUS expansion efforts, and investment in our IT infrastructure.

Our net income for the fourth quarter of 2015 totaled $1.5 million, which included $27 million in non-cash expenses, centered primarily in non-cash share-based compensation expense across all functional areas of our business. Absent these non-cash charges, cash based net income was $29 million for Q4, representing 22% of revenue, a 55% increase over cash based net income in Q4 2014 of $19 million. Earnings per share for the quarter totaled $0.02.

With respect to our balance sheet, we ended the fourth quarter with $115 million in cash and marketable securities.

Before I turn the call over to Kevin, I would like to remind investors of the color around our OpEx spend for 2016 that we provided at JPMorgan. With our anticipated growth rates and robust near-term and long-term product pipeline, we expect a typical year-over-year increase in our normalized cash based operating expenses of approximately 20% to 25%, or approximately $50 million.

In addition, we expect additional cash based expenditures of approximately $40 million in 2016 as we focus on four key incremental strategic initiatives, including our Verily partnership, expanded manufacturing capacity, international expansion, and investment in our advanced data platform.

We also expect our non-cash expenses to increase, particularly our share-based compensation expense. For example, if our stock price is between $60 and $65, our estimated share-based compensation expense would be between $110 million and $115 million for 2016. Nonetheless, we expect a continued increase in cash based net income year-over-year.

With that, I'll turn the call back to Kevin for a business update.

Kevin Ronald Sayer - President and Chief Executive Officer

Thank you, Steve.

We had a very exciting 2015. We introduced the G4 PLATINUM with Share apps to enable CGM display on the Apple Watch. We entered into an extremely exciting collaboration with the Life Sciences team at Verily, and we launched out G5 Mobile CGM System, both in the U.S. and in Europe, all on top of $143 million or 55% year-over-year increase in sales and a $37 million or 103% year-over-year increase in cash based net income.

I'd like to start off with a few words about our G5 commercial launch. Our G5 Mobile System is the first and only CGM system approved by the FDA for both adults and children as young as two years of age that sends glucose data directly to a smartphone, freeing users from the need to carry a separate receiver. Response in the diabetes community for mobile connectivity has been exceptional and our prospective patient pipeline is at all-time high.

Because connectivity is such a major advance, we made the decision to launch this new platform on a worldwide basis unlike prior generations, which were initially launched either in the U.S. or selected European geographies. Not only did we add a record number of new patients in the fourth quarter, but we also fulfilled a significant obligation to patients entitled to a free upgrade to the G5 Mobile platform. The ramp of this launch has been much steeper than any platform change we have attempted and has really stretched our organization.

While moving CGM directly to the phone has been extremely well-accepted, it has added a new level of complexity to our customer support functions. While all DexCom receivers are configured exactly the same way, all mobile phones are not. Our tech support calls have increased in volume and duration and have become much more complex. And as with any product launch, we have quickly identified some changes to enhance the G5 Mobile experience, and we are moving quickly to file and implement these enhancements.

We plan to launch the Android version of the G5 Mobile later this year and note that the Android Follow application is already available. We also plan to submit and possibly launch an enhanced version of our G5 Mobile app to provide for additional features and functionality, such as insulin on board data obtained from our pump partners. Once again, iOS will be first followed by Android.

Our G5 Mobile product in Europe not only introduced connectivity to this market, but the CE Mark G5 Mobile is the first ever continuous glucose monitor that does not require confirmatory finger sticks when making treatment decisions, although a minimum of two finger sticks a day remain necessary for calibration. We continue to believe that CGM will ultimately be the standard of care in diabetes management, and we see a clear path to the day when the only reason to take a finger stick will be to calibrate a sensor or for a safety check to ensure proper sensor performance.

Now I'd like to say a bit about our marketing initiatives in the fourth quarter. We told the investment community during our last earnings call that we would commence our initial direct-to-consumer or DTC campaigns in connection with our G5 Mobile launch. And I'm pleased to report that these programs commenced in Q4.

We delivered over 200 million targeted impressions in Q4, including diabetes print publications, digital ads on social media sites, blogger sites and endemic search sites, targeted-rich media and digital video content ads, in-office advertising to top insulin prescribing endocrinology and primary care offices, newly diagnosed patient information packets, and we participated in a very large number of diabetes events.

Our digital advertising efforts drove 2.5 times the pharma industry average for click-through rates, producing over 475,000 landing page hits in Q4 and led to double the unique visits to our website in 2015 versus 2014. The campaign helped generate our highest month-to-month growth in lead generation, and it has continued into Q1 when we typically see a drop-off in lead generation at the start of the new year. Needless to say, we expect to continue this campaign into 2016.

Now I'll talk a bit about reimbursement. We continue our work to simplify and expand access for our patients, and we still maintain that moving our products to the pharmacy channel is our future. We entered into several key pharmacy contracts in 2015, including United Healthcare and Anthem. In doing so, we learned that entering into a pharmacy contract is just the beginning and not without administrative pitfalls. A couple of examples include inconsistent application of preauthorization policies and failure of specific plans to move reimbursement from DME to pharmacy in a timely manner. As we look at 2016, we expect to increase our efforts to secure additional regional and national payer contracts and move a much more significant piece of our business to the pharmacy.

There has been some noise in the investment community regarding our Medicare plans. I would like to take this opportunity to clarify. We are approaching Medicare from three separate paths: judicial, administrative, and legislative. We have very little control over the judicial path, but more and more patient activists are jumping on the bandwagon, and we understand that they are independently pursuing appeals with many of the administrative law judges declaring the beneficiary should be covered for CGM. Two bills remain in the legislature and may get approved. There are 219 bipartisan cosponsors in the House and Senate. And while moving legislation is not easy, the amount of support and advocacy shown for these bills demonstrates a national desire and helps serve as a catalyst for action.

Finally, the first hurdle on the administrative path is the non-injunctive or dosing claim, which I will discuss momentarily. Discussion with CMS on this front remains active, and we have by no means abandoned the administrative path. I'm also pleased to report at the recent AACE Consensus Conference on CGM this past weekend – that's the American Association of Clinical Endocrinologists – a diverse cross-section of diabetes care thought leaders, including scientific and medical societies, patient advocacy groups, government, insurance and pharmaceutical and medical device manufacturers came together to advocate for expanded use of continuous glucose monitoring in the management of diabetes.

The key conclusions concerning CGM use in diabetes include the following: robust data support for the benefits of CGM in many people with diabetes, particularly those with Type 1 diabetes. Technological advances have improved reliability and accuracy of CGM, as is very evident with our systems. Use of CGM has reduced hypoglycemia while improving control of blood glucose, ensuring patients' safety. Data also suggests that CGM provides benefit in patients with Type 2 diabetes on intensive insulin therapy. Studies are needed to demonstrate the value of CGM technology in other patient populations. And finally, access should be expanded to all patient populations with proven benefits. What a great outcome for the diabetes community.

Turning to our product pipeline, we continue to make progress on our advanced sensor technologies. We plan to launch both a new receiver and a new insertion system for G5 Mobile in the U.S. before year-end. Clinical trials for the new insertion system are underway and are more rigorous than we had originally anticipated. With respect to Gen 6, after a series of pre-submission meetings with the FDA, we will submit our IDE the next two weeks, and plan to commence a pivotal study in the second quarter. We will provide you with a more detailed timeline in our next call after the IDE is approved.

We're also working closely with our artificial pancreas partners to incorporate Gen 6 into their research and clinical studies as soon as possible, providing us with a very robust data set on the performance of this product. Once again, for those of you not familiar with this technology, the G6 sensor will have a reduced calibration scheme, one per day after startup, driven with a completely new advanced algorithm platform, and a labeled indication of up to 10 days of sensor life.

Overall performance should be better than G5 Mobile, even with a reduced calibration scheme and an extended wear. The Gen 6 product will also leverage the new applicator and receiver technologies that we expect to complete this year.

Activities related to an FDA-approved insulin dosing claim continue, and we remain confident that we can obtain a dosing claim during the second half of this year. In fact, much activity is expected during the next several weeks, and we will provide you with much more clarity on our next earnings call. We continue to study sensors with no calibration requirements. The G6 platform, with its new sensor chemistry and new algorithm, is our first step in this area. The innovation we have seen with our advanced sensor technologies give us tremendous confidence that calibrations can be completely eliminated in the future, certainly for those patients not practicing intensive insulin therapy. Much of the uncertainty here relates to the regulatory pathway and labeling for these products that have no calibrations.

With respect to our pump partners, J&J and Tandem continue to report positive results from their integrated pump offerings with G4 PLATINUM, and we believe all of our pump partners are making excellent progress on the development of more advanced integrated systems.

Finally, on the product pipeline front, our partnership with Verily is going extremely well. Verily has completed the first generation transmitter and is beginning to test its performance with both G5 and G6 sensors. Initial results have been very promising. And launch of our first combined product appears very, very much on schedule.

On the international front, as Steve stated earlier, we are accelerating our investment in the international markets this year. Subject to negotiation and some final details, we will establish a European headquarters in Scotland, and we'll begin to expand the European team on all fronts. We believe that reimbursement could come in some of the larger countries in Europe this year, and we need to be ready to capitalize on this opportunity.

We've also added a very senior executive to focus on international expansion in Canada, Central and South America and Asia. We will begin to build this team up as well.

Before I open the call up to questions, I'd like to spend a few minutes on competition. Let's start with Abbott and the Libre. First, the Libre is not a CGM. We have long said that one of the key benefits we provide to our patients is best-in-class accuracy combined with proactive alerts and alarms, particularly at night.

We also now provide the ability to share data with caregivers to add an extra layer of patient safety. Some would have you believe that patients suffer from alarm fatigue and would prefer to go without alarms. That is certainly not the case with our system, but might be the case with other less accurate sensor systems where false alerts can occur up to 50% of the time.

Regardless, our system is customizable. Patients can choose to silence their high and low alarms to their liking, except for the critical fix low glucose alarm our system provides when the patient crosses a dangerously low threshold of 55 milligrams per deciliter.

And with respect to alerts, alarms in the future, we intend to provide patients with even greater flexibility and better performance to get more out of their CGM systems. The Libre simply can't compete when it comes to system performance, especially as it relates to hypoglycemia detection. At the ATD conference a few weeks back, a clinician summed up the value of Libre. He said, "Libre provides patients with a nice path to the product they really need, CGM."

Shifting to Medtronic. Medtronic recently announced they would forego the launch of the 640G in the U.S. in favor of the 670G with a new sensor. Since we haven't seen any meaningful performance data on the 670G and their new sensor, I reserve comment on this future system. I will only remind investors that when Medtronic launched the 530G back in the fall of 2013, its published accuracy data was similar to that of our G4 PLATINUM system. The actual field performance has not been close to that of G4 PLATINUM, even before our Software 505 algorithm update.

Since the launch of 530G, according to dQ&A, an independent source, our CGM market share has gone from the mid to upper 60% range to approximately 76% at the end of 2015. The patient community has spoken: accurate, reliable, connected CGM is the most important product offering in diabetes treatment today.

I'll now open the call up for Q&A.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. And from William Blair, we have Ben Andrew. Please go ahead, sir.

Ben C. Andrew - William Blair & Co. LLC

Hi. Good afternoon, Kevin. Thanks for taking the questions.

Kevin Ronald Sayer - President and Chief Executive Officer

You bet.

Ben C. Andrew - William Blair & Co. LLC

Yeah. The first question for me is, talk about what all you can do with G5 Mobile, the application. You talked about adding insulin on board as a feature, but can you add algorithms and start to do some predictive things with this version? Are we looking further out before you start to incorporate more sophisticated things between simple kind of data presentation?

Kevin Ronald Sayer - President and Chief Executive Officer

We can do a lot of those things, Ben. The question is, what do we do timing-wise versus the G6, which we are going to, as I said earlier, submit the IDE on. We can move technologies into that or put them in the other product, and we evaluate that as we go. So for today we're planning on keeping the G5 Mobile app similar to what it is and adding a few features to enhance it without adding a bunch of advanced algorithm and prediction. Most of that is scheduled for G6 at this point in time.

Ben C. Andrew - William Blair & Co. LLC

And those would be PMA supplements, is that right?

Kevin Ronald Sayer - President and Chief Executive Officer

It will all be included in the original G6 filing. The G6 is a full PMA because it's a new sensor.

Ben C. Andrew - William Blair & Co. LLC

Okay.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah. I would just add, some of that algorithm development is not exactly linked to a sensor. We've talked in the past about not tying ourselves down to G5, G6, G7 iteration; some of the algorithm work that's going on is kind of independent of the specific sensor platform, so.

Kevin Ronald Sayer - President and Chief Executive Officer

Yeah.

Ben C. Andrew - William Blair & Co. LLC

Got it. And then, Kevin, you alluded to the fact there's a lot going to happen in the next few weeks. Is that conducting clinical trials, kind of moving things forward in terms of having gotten some clarity on the dosing claim requirements with the agency? And then a related question; is there some fundamental reason that the FDA wouldn't approve kind of a near-term product or anybody's product without a calibration stick? I mean, how high is that kind of hurdle for them?

Kevin Ronald Sayer - President and Chief Executive Officer

I don't have an answer to that last question, Ben. We're studying that rigorously as we prepare our future product offerings, particularly our Google product offerings we tend to launch here at a couple of years.

With respect to the dosing claim, we've had activity going on for a long time and that activity is heating up, and we are going to get some clarity on things over the next few weeks. I'm not going to go into the detail as what those are, but by the time we get to the next call, we should have a very clear path on the non-injunctive claim to present to you guys.

Ben C. Andrew - William Blair & Co. LLC

Okay. And then last question for me: do you expect – and one of the features on G6 is the 10-day timeframe. Would that have a shut-off feature at this point? Is that kind of the thresholds, Kevin? Thank you.

Kevin Ronald Sayer - President and Chief Executive Officer

You know what, I'm not going to answer that. We've considered shut-off features all the way back to SEVEN PLUS, so we'll take that into consideration and give more color on Gen 6 as it gets closer to market.

Ben C. Andrew - William Blair & Co. LLC

Thank you.

Operator

From JPMorgan, we have Mike Weinstein. Please go ahead, sir. Mike, your phone might be muted.

Michael Weinstein - JPMorgan Securities LLC

Can you hear me okay?

Kevin Ronald Sayer - President and Chief Executive Officer

We can now.

Michael Weinstein - JPMorgan Securities LLC

Okay. Perfect.

Kevin Ronald Sayer - President and Chief Executive Officer

Yes.

Michael Weinstein - JPMorgan Securities LLC

Good afternoon. So let me follow up the commentary you made about the first quarter, seeing less seasonality potentially this quarter than you have in prior years. Can you give us a little bit more than that?

Kevin Ronald Sayer - President and Chief Executive Officer

I think what Steve said is our new patient pipeline is more robust than it's ever been. With respect to seasonality and patient reorders, Mike, it's very much the same as it's always been and will be sequentially down, as we said at the conference in early January. I believe we used the number 15%. It's approximately down about 15% from what it's been and that's very consistent with what it's been in other years.

So while we have more patients in the pipeline, that growth is necessary to have the quarter that we expect to have.

Michael Weinstein - JPMorgan Securities LLC

Right. And the part that feels like it's a bit different is the new patient flow? Is that what you're saying?

Kevin Ronald Sayer - President and Chief Executive Officer

We're saying that that's where our big increase is coming in the first quarter, up to this point in time, yeah.

Michael Weinstein - JPMorgan Securities LLC

Okay. And in a...

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

And remember, 70% of our business is consumables, and those were largely reorder patients, so those patients who stocked up in Q4 typically aren't reordering yet.

Michael Weinstein - JPMorgan Securities LLC

Exactly. Right. So I know there's a timing to when they reload if you put it (28:12) on their CGMs.

Kevin Ronald Sayer - President and Chief Executive Officer

Yeah.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Exactly.

Michael Weinstein - JPMorgan Securities LLC

And then G6, the IDE study, obviously, you have to have some more conversations there with the FDA, but typically, what does – historically, what do those look like? And what's the follow-up period on them?

Kevin Ronald Sayer - President and Chief Executive Officer

Our IDE submissions typically get approved very quickly, Mike, because we've had a number of discussions with the agency before we submit them. So they're seeing something that they're expecting. I can tell you, as the IDE stands now and that we'll give more explicit detail on the next call, this will be the most rigorous study we've ever attempted by a long ways.

And so while the FDA is very cooperative as far as getting things through and helping us, they're not making it easier to get CGMs approved. So this will be a very rigorous study once we get it out there and get going. But it'll be filed very soon and we hope to start in the second quarter.

Michael Weinstein - JPMorgan Securities LLC

Okay. And then there was, obviously, some discussion this quarter about the pathway to CMS reimbursement. Do you just want to comment on that, Kevin, while you have you?

Kevin Ronald Sayer - President and Chief Executive Officer

I think we've said all we've got. We need this non-injunctive claim to get to CMS. That's really our first step on the administrative side. And the FDA's been very helpful. It's been a very interactive discussion. And as I said on Ben's question as well, we'll have a lot of color on that next quarter because a lot of things are coming to ahead of the year for our agency discussions.

Michael Weinstein - JPMorgan Securities LLC

Understood. Okay. I'll let some others jump in. Thanks, guys.

Operator

From Piper Jaffray, we have Brooks West. Please go ahead.

Brooks E. West - Piper Jaffray & Co (Broker)

Hi. Thanks for taking the questions. Kevin or Steve, I wanted to follow up on your competitive comments and explore a little bit on where your new patients are coming from, and a couple of questions, I guess. What is the mix you're seeing from existing or people who have some familiarity with managing their diabetes? And I'm curious, a mix between pumpers and manual dose patients, what's your new patient mix?

And then I think there's a perception out there that you've been stealing patients from Medtronic for some time and maybe they're able to get a better product out, that might slow you down. I wonder if you would comment on that dynamic as well?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Sure. Let's talk about the mix first, and then I'll comment on the Medtronic comment.

So our mix has historically run somewhere in the neighborhood of 60% to 65% pumpers, and the balance, MDI patients. I would say we've started to see a slight shift in favor of MDI patients. And I would also tell you that if you asked the same question in a couple years from now, the hope and the plan is that that balance would shift, that you'd probably see something more like 60% MDI patients and 40% pumpers, frankly, more reflective of what the – this is in the U.S. in particular – more reflective of what the U.S. base would look like.

As for stealing Medtronic patients, I'd say the – couldn't be further from the truth. Our patients are generally – the vast majority are new to CGM therapy. We do have some handful of patients who choose to wear a Medtronic pump, but who also wear a DexCom sensor. But I would say, in our portion – that 60% to 65% of our base who are also insulin pumpers, the vast majority of those are wearing an Animas, an Insulet, or a Tandem pump, not a Medtronic pump. And the short answer is no. We're not in any way stealing patients from Medtronic as a big growth driver for the company.

Kevin Ronald Sayer - President and Chief Executive Officer

We get a few.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah.

Brooks E. West - Piper Jaffray & Co (Broker)

Okay. That's helpful. And then, I wonder – as you guys have spent more time with the Google team, or the Verily team, if you could share, not so much product details, but learnings on the type of device that might be appropriate for the Type 2 or broader market? And I wonder if your perception of that market opportunity has evolved since you started that collaboration? Thanks.

Kevin Ronald Sayer - President and Chief Executive Officer

Brooks, our perception continues to evolve, and we're doing a lot of market research. The one thing that we've learned about this market is it's not going to do us any good just to display a number and say, here you go; that we're going to have to really give patients the ability to learn from the system that we provide and provide interactive suggestions like, okay, you exercised today. Look, how much better you did. And that's the type of system interface that we're going to develop to address that market, again, which is different than what we have now. Just flashing a number on a screen isn't going to be enough, particularly for those that aren't using insulin. I would maintain that intensive insulin-using Type 2 patients can have the exact same experience as our Type 1 patients have today. So it's been a very interactive process.

I would tell you, with the Google guys, in particular, or Verily, as they're called now, their fresh approach to things, coming from a non-medical device industry, has been refreshing for us and caused us to think very differently. Conversely, there's some things about medical devices that we've taught them, particularly with respect to PMA filings, that they weren't aware of either. It's really been a wonderful partnership, and we think it's going to produce amazing results over time.

Brooks E. West - Piper Jaffray & Co (Broker)

Great. Thanks, guys.

Operator

From Canaccord, we have Kyle Rose. Please go ahead.

Kyle Rose - Canaccord Genuity, Inc.

Great. Thank you very much, and congrats on a great quarter. Just wanted to see – it sounds like the early stages of the Google Verily partnership are going well. Want to see if you could just remind us what specific milestones are expected there. I think two years to three years for the first product. And then also, is it still fair to expect that we won't see any impact or any contributions from that partnership on the current pipeline, the G6 or the receiver?

Kevin Ronald Sayer - President and Chief Executive Officer

This is Kevin. I think the first pass product won't really affect the G6 sensor because it's going to start the trials, like I said, in the second quarter. Over time, Google electronics could very much be incorporated into a future transmitter offering if that improves technological performance and reduces costs, so we could conceivably use their electronics in some future configuration of G6 in addition to these specific Google products. As far as contributing to our earnings or our sales, certainly nothing in 2016, and more than likely nothing in 2017. I think that really starts off in 2018 when we launch our first product.

And the milestones are really two big ones. There's our first generation product, which we're working on, but our second generation product – which we're also working on with Verily, and the second generation product we've shown pictures of; that's turning the CGM transmitter literally into a Band-Aid-sized electronics configuration that a patient can peel off and throw away, that'd be very cost effective and that's the end game here. That's what we're shooting for every day because we know that's what patients want.

Kyle Rose - Canaccord Genuity, Inc.

Great. And then can you just remind us on what the – the launch of a new receiver this year, can you just remind on what the changes are with the new generation? And then it also sounds like the timeline for the insertion product may be a little later than expected. Is that fair to think of as a back half of the year event there, or just how that impacts anything? And then that's it. Thank you.

Kevin Ronald Sayer - President and Chief Executive Officer

The insertion system will definitely be a back of the year event, and it's important that we explain a little bit. When we switch to the new insertion system, we're changing everything we do. We've used the current insertion system since we started way back when. That's been our insertion system since our first product was launched. So when we changed to the new insertion system, we don't take this lightly. We're going to swap out every mold. We're going to have to change our manufacturing assembly processes and everything. This is the biggest change operation we've ever undertaken. So it will be a back half of the year event, the insertion system, and more than likely it will be a phased launch as we do that. But our feedback has been remarkable on the system because it's basically peel the tape, put it on your skin, push a button, and you're done. Patients really, really love that.

With respect to the new receiver, it will be a touchscreen device that is still a DexCom configured receiver, and it will have a patient interface much more similar to the G5 Mobile app. And so it's designed to have a better patient experience and interface. It's also designed to be more durable, and to be very durable with respect to patient wear and dropping receivers and stuff like that. So we're looking forward to getting that product out there. Patients will very much like it.

Kyle Rose - Canaccord Genuity, Inc.

Great. Thank you very much.

Operator

From Raymond James, we have Jayson Bedford. Please go ahead.

Jayson T. Bedford - Raymond James & Associates, Inc.

Good afternoon. Can you hear me okay?

Kevin Ronald Sayer - President and Chief Executive Officer

Yeah.

Jayson T. Bedford - Raymond James & Associates, Inc.

Perfect. So, wondering if you could talk a bit more about what you're seeing in terms of the G5 launch? We're four months to five months into it here. I'm curious if you're seeing more interest from Type 2s, are you seeing more compliant utilization, seeing a lower attrition rate? Just anything would be helpful.

Kevin Ronald Sayer - President and Chief Executive Officer

Steve, do you want to take a crack, and then I...

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah, I mean, I would tell you that obviously the biggest benefit is certainly connectivity directly to a phone. The patients love not having to carry a separate receiver and have the convenience of having it on their phone. That together with the Share platform, which, as you know, we launched with the G4 PLATINUM System by continuing to have that ability to share data with caregivers.

I would say, we continue to see and just looking at some of the initial data on our direct-to-consumer campaigns, we're certainly seeing success in driving awareness at the patient level, more so than at the clinician level. So we're really – we're continuing to see – we've said in prior quarters that the biggest driver for our growth has been patients referring to other patients, patients – parents of patients and caregiver or loved ones. We're continuing to see that, and I think our DTC campaigns are really adding to that push.

But I think the launch has gone great. As Kevin mentioned in the prepared remarks, we've learned a lot about going directly to a consumer device like a mobile phone. And there are some challenges there, and we've got some things that we're going to work on over the next several quarters, but by and large, the reception has been remarkable.

Kevin Ronald Sayer - President and Chief Executive Officer

Yeah. I'd just add, Jayson, with respect to Type 2 patients that's as much a function of reimbursement coming in as it is going to the phone.

But as far as appealing to patients, I would tell you we are appealing to a broader base of patients by going to a phone. Not just those necessarily, as Steve said, that physicians would recommend and push them there, but it would also appeal to those when they hear about it and see things in our DTC campaigns going, hey, if this goes to my phone, I might be interested in this. So I think we're appealing to a broader base of patients.

Jayson T. Bedford - Raymond James & Associates, Inc.

Okay. I realize you're not going to quantify it, but are you seeing a lower attrition rate with this device?

Kevin Ronald Sayer - President and Chief Executive Officer

It's too early. It's absolutely too early. And we do have our jet zooming over us as it does in every earnings call, so I'll let the jet go by. It's too early to tell. The product hasn't been out that long, and as we do in every fourth quarter, shift so much the last month of that quarter. We'll certainly have the tools to give a better indication of utilization and patient retention as all this data is coming to our servers. And we are starting to build the analytics platforms to really go after and analyze this and the build the business cases to understand our business much, much better with all the data coming to the servers. I think we'll provide more clarity in the future. Don't have a lot yet.

Jayson T. Bedford - Raymond James & Associates, Inc.

Okay. And then just maybe to follow up on the pharmacy, do you think this avenue has stimulated more demand for the device, or is the real benefit still largely a convenience factor for those existing users?

Kevin Ronald Sayer - President and Chief Executive Officer

I don't think we have broad enough coverage to stimulate a bunch of benefit in a pharmacy channel. And I think in most cases what happens is we'll approach healthcare professionals and say, we have great coverage under these plans or there's pharmacy benefit. Do you have a lot of patients who have pharmacy benefit who could use this? And we'll get few patients who do it. But by and large, again, a lot of our demand is coming directly from patients. They see an ad, they're not saying you can get it at your pharmacy; they're seeing what this system does for you and your life, and how it enables you to better manage your diabetes.

Jayson T. Bedford - Raymond James & Associates, Inc.

All right. Thanks. I'll jump back in queue.

Operator

From Leerink Partners, we have Danielle Antalffy. Please go ahead.

Danielle J. Antalffy - Leerink Partners LLC

Hey. Good afternoon, guys. Thanks so much for taking the question, and congrats again on an awesome year. I was wondering, I wanted to ask you guys about CMS and how to think about the size of that patient population that could open up if you do get coverage there.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah. So we don't have great data, but the estimates that we've seen range from, kind of on the low end, like 15% of the Type 1s in the U.S., and I've seen as high as 25%. So there's certainly – no matter how you slice it, if you think there's 1.3 million to 1.5 million Type 1s, you're looking at hundreds of thousands of Type 1 patients who are in the Medicare-age population.

And then the other – we have, I think, the other big opportunity with Medicare over time is the intensively managed Type 2s, because as Type 2s progress in their disease state, they move from starting out trying to manage with diet and exercise may be at a younger age, but by the time they reach the Medicare age population, many of them have progressed to the point where they're taking not only a long-acting insulin, but they are taking mealtime insulin injections as well. At that point in time, they become perfect candidates for CGM.

The other fact that we know that over time people who have had Type 1 diabetes for a long number of years develop a condition called hypoglycemia unawareness. They actually lose the ability to detect an oncoming hypoglycemic episode.

So again, this happens in folks over a long period of time, and so you start to think about people who have lived with Type 1 and are now entering the Medicare age, these are the same folks that may be having that issue with hypoglycemia unawareness. We think there's a great opportunity for those patients as well. So it is an exciting potential catalyst for us.

Danielle J. Antalffy - Leerink Partners LLC

Absolutely. That's great. Thanks for the color. And I was wondering if you guys could give any color how to think about the cadence of potential products coming out of the Verily collaboration with Google? And sort of what...

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah. So...

Danielle J. Antalffy - Leerink Partners LLC

...first go at a product might look like? And what you ultimately hope to get to?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah. So we've always said that we've agreed to do a minimum of two products with Google. We've always said that the first product is really a – it's going to leverage, frankly, much of the technology that we already have today, some of the Gen 6 sensor technology, some of the more advanced algorithms that we have, some of the initial prototype miniaturized electronics and batteries and things that Google kind of brought to the table when we first started talking about working together. It's really that second generation product that we've shown in some of the slide presentations that begin to look more like a tiny bandage on the skin. Certainly, we'll continue to pierce the skin, but looking at really taking costs out of the system, making it truly minimally – so minimally invasive for patients that there be, really, we've eliminated all the objections to wearing it. That doesn't come until the second product, which is probably four years or five years away.

Danielle J. Antalffy - Leerink Partners LLC

Okay. Great. Thank you.

Operator

From Cowen & Company, we have Doug Schenkel. Please go ahead.

Ryan Blicker - Cowen & Co. LLC

Hi. This is Ryan Blicker on for Doug. Thanks for taking my questions.

So I wanted to follow up on the awareness point you guys talked about earlier. Historically, you've cited patient and provider awareness of CGM as one of the biggest hurdles to broader adoption. Can you give us an update on where that stands today relative to maybe 12 months ago? And how should we think about the recent AACE guidelines, you mentioned your DTC campaigns and other initiatives, how will that impact 2016?

Kevin Ronald Sayer - President and Chief Executive Officer

This is Kevin. Obviously, we'll certainly use the recent AACE guidelines in our campaigns. Nothing could be more compelling than saying the physician group who takes care of you recommends that most of you should use CGM. So we will absolutely use them, and we're thrilled with those guidelines.

With respect to patient awareness, I think it's increased dramatically. Just look at the new patient ads we had this year. As we said in our prepared remarks, we pretty much doubled the side of our patient base in 2015. It took us from 2005 to 2014 to get to one point, and we doubled them in a year, or at least came pretty close to doubling it in 12 months. So obviously, awareness is rising rapidly in the patient community and the physician community, because you can't bring the patients in without healthcare provider support.

So I think our efforts to increase awareness have worked very well across the board and the reason those increasing – that increasing awareness has worked is because the product does. It really delivers what we promised with respect to accuracy and performance, and it changes and saves lives. So you have a case where a product has met expectations and people are willing to sign up for another experience.

Ryan Blicker - Cowen & Co. LLC

Okay. That's helpful. And you talked the reimbursement landscape for intensively managed Type 2s in the U.S., can you give us any update or color on what progress has been made there over the past year, acknowledging it still does remain pretty limited. Any color would be helpful.

Kevin Ronald Sayer - President and Chief Executive Officer

It's still pretty limited. We have some plans who have agreed to cover the Type 2 intensively managed patients. We need more data.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah. I think that would...

Kevin Ronald Sayer - President and Chief Executive Officer

When all is said and done, we need data.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

That is what came out of the AACE Consensus that we definitely see benefit there, but we need more data.

Kevin Ronald Sayer - President and Chief Executive Officer

We've got to have more data. So we'll plan some studies in that population.

Ryan Blicker - Cowen & Co. LLC

Okay. Thank you.

Operator

From Morgan Stanley, we have James Francescone. Please go ahead.

James Francescone - Morgan Stanley & Co. LLC

Hey. Thanks for taking the question. I was wondering if you could give us a little bit more detail on Europe and the reimbursement, development of reimbursement there. In particular, are there two or three countries that you'd highlight that are closest to gaining reimbursement? And in those countries, what's the process or timing for getting reimbursement or what are the milestones that we should be looking for?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah, that's a great question. So, I'll tell you. We have reimbursement today in Sweden. We have Switzerland and the Netherlands. And honestly, Sweden is one of our largest countries which is probably shouldn't be considering the number of people. There's only 6 million or 8 million people in the country.

What we're seeing evolve is we're seeing some positive signs in Germany. So we're hoping that the three key ones for this year to look for would be Germany, the UK, and France. Whether we get all three is still an unknown, but I would expect to see at least one, if not potentially a couple of them.

And so those are pretty sizeable markets. And then Germany and the UK, in particular, are the largest markets for – would be the largest markets for us in Europe. So that's what's driving this need to make some addition investment. Really, we've said it before, we feel pretty stupid if we got reimbursement in Germany, France and the UK and didn't have the resources to be able to support new patient additions over there, so, we're taking a look at beefing up some – opening the headquarters, as Kevin mentioned and then beefing up some additional DexCom resources in Europe.

James Francescone - Morgan Stanley & Co. LLC

Okay. So, so you'd be disappointed then if in at least one of those three countries CGM was not paid for by the end of the year?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah. That's fair.

Kevin Ronald Sayer - President and Chief Executive Officer

That's fair. That's fair.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

I'd think we'd like to see at least one of the three. Yeah.

James Francescone - Morgan Stanley & Co. LLC

Okay, okay. And then we've talked a little bit on the call today about insulin-dependent Type 2s. Is there anything that you're doing today from a clinical trial perspective or technology perspective to develop the data to support use in that population?

Kevin Ronald Sayer - President and Chief Executive Officer

This is Kevin. It's going to take a clinical study, and a large clinical study more than anything else. We have some studies that are being run where there are some Type 2 patients, parental and dependent. And there are subsets of populations in many of our studies. We're going to have run some bigger ones to develop a better data set, and show the payers.

Another thing that we've proposed and we'll pursue with our reimbursement team, we'll go to payers directly and maybe offer to do some things in their population, to show the cost effectiveness in this. But those programs really haven't been developed. A lot of them are in the idea stage, and we'll crystallize those. We'd be a little more aggressive throughout the year.

James Francescone - Morgan Stanley & Co. LLC

Okay. That's helpful. And then just one more, on DTC, and then I'll get back in queue. Is there some way to think about how much you've invested in DTC to date, and how you view the returns on that investment, and whether you're going to be kind of scaling it up, or waiting and seeing?

Kevin Ronald Sayer - President and Chief Executive Officer

We're certainly going to run it through the first two quarters of this year. And then we will go back and analyze the returns on that. We obviously know how much we've spent. We also know how much we've increased the leads that we've generated through our digital media, and the increase has been absolutely wonderful. We're very pleased with that.

So at the end of probably about a nine-month period, we'll step back and analyze and decide where we go from here. But so far, the results have been great.

James Francescone - Morgan Stanley & Co. LLC

Okay, great. Thanks for taking the questions, guys.

Operator

From Jefferies, we have Anthony Petrone. Please go ahead.

Anthony Charles Petrone - Jefferies LLC

Thanks. Maybe just a quick follow-up on the OUS reimbursement; would you expect stocking orders ahead in anticipation, say, of reimbursement approval in Germany, UK, France? And then a couple of follow-ups.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

No. We don't intend to do that.

Anthony Charles Petrone - Jefferies LLC

Great. And then, just looking ahead to Android, maybe walk us through sort of timing on that. I think it's a 2016 event, and considering that there are multiple Android manufacturers, I mean, how significant is a G5 Android launch, when you consider that it opens additional channels, and iPhone?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah, I mean, Android is certainly an important – I mean, I'm an Android user myself. Android is certainly important to us. The question is really one of, once we file, how long does the FDA take to review it? We think even with our anticipated filing timeline, that it's certainly plausible that it will be a 2016 launch.

In terms of numbers of patients, it's actually interesting. We know today – frankly, we've talked long and hard about the price of CGM and where we think pricing needs to go over the long haul. We find that the vast majority of our users today and the vast majority of hits we get on our website and otherwise, are from iOS users. So while we know Android is important, we know that iOS is and will remain to be much more important in terms of a platform. It's also a much more stable platform. It's a much more locked-down platform. So it's certainly easier for us to deal with that platform out of the gate before we go to Android.

Kevin Ronald Sayer - President and Chief Executive Officer

Yeah. All that being said, we will have to pick some phones to talk to. We cannot possibly talk to all of them. And I think when we offer the Android platform, I think it will be a tremendous benefit to our patients, because I have gotten a few not so happy letters from patients saying, I would love to use your system, but I'm not ever going to do it until you get me an Android phone. So I think it will be a great benefit and another – when you grow at the rates we grow at, every positive event is just a catalyst that helps you to continue to perform, and I think this will fall right into that bucket.

Anthony Charles Petrone - Jefferies LLC

Maybe just a quick one there would be, I mean, I would assume maybe Samsung would be the direction, and are you sort of working with manufacturers at this point? Or is that just something that you will decide later on down the road?

Kevin Ronald Sayer - President and Chief Executive Officer

We've certainly worked and talked with several Android manufacturers to learn the intricate parts of those phones. I can tell you they're all not the same, even though they all run the Android operating system. We've learned that their interaction with the Bluetooth LE (53:45) interface may differ a bit from phone to phone. And that's one of the reasons we've taken so long to get this app filed. We want to make sure it works consistently across the board over those platforms which we choose to support.

Anthony Charles Petrone - Jefferies LLC

Great. Thanks.

Operator

Your next question comes from Erik Shoger from Northcoast Research.

Erik Ross Shoger - Northcoast Research Partners LLC

Hi, guys. I just wanted to ask a question about the – piggyback on some of the OUS questions. I guess, you said there won't be any real stocking orders that you'll see. But what sort of ramp would you expect once you do get approval in a country like Germany or France or the UK? I mean, seemingly there's a lot of pent-up demand there, how would you expect that to progress?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah. We're not going to speculate on that at this time. It still remains to be seen, how broad is the reimbursement, when we get the language, what's the pricing look like? There's a whole bunch of factors that we're still not fully aware of. So we're not going to speculate at this point.

Kevin Ronald Sayer - President and Chief Executive Officer

You know, Erik, and I'll go back to what we said back in the Pediatric days. Everybody said, what kind of boost are we going to see from Pediatrics? So, obviously, we've gotten a boost because we've been growing above our projected rates of 35% to 40%. But in all reality, you've got to get things like this to continue to grow a business the way that we are. So it just kind of falls into line, and we expect it, we plan for it, and we'll deal with it.

Erik Ross Shoger - Northcoast Research Partners LLC

Okay. I guess, kind of linked to my other question is, as it relates to the guidance, I mean, obviously, like you've said, you need things like this to continue to grow at the rate you have. Does your current guidance as it stands now – must not assume much changes internationally...

Kevin Ronald Sayer - President and Chief Executive Officer

We're not going to comment on our guidance. Our guidance is $540 million to $565 million.

Erik Ross Shoger - Northcoast Research Partners LLC

Okay.

Kevin Ronald Sayer - President and Chief Executive Officer

And we'll stick with that.

Erik Ross Shoger - Northcoast Research Partners LLC

Maybe one last one, as it relates to the AACE Consensus statements, I think a big part of their requests from the industry was better data on economic benefits of CGM. And I think – correct me if I'm wrong – the DIaMonD study that you're working on will have – provide some nice data there. Is there anything else that you're working on that might address those data requests?

Kevin Ronald Sayer - President and Chief Executive Officer

The DIaMonD study is our biggest data request that we have coming up. We should have data from that study available in the second half of 2016 to help drive this message. And that'll be good for us.

There's also a very large study in Sweden going on using CGM, and we should have very good data on those patients as well. So we'll have some CGM cost data out with those two studies. I think all medical devices are going to have to fall into this category more than we have in the past to justify our existence. And the beauty of ours is we know that we win. We absolutely know that you're going to save money if you use CGM. Just avoiding one hypoglycemic event where you're hospitalized saved the system $15,000 to $20,000, and for a number of our patients those events happen frequently. And then obviously, the A1C reduction and reduction of complications, which is tougher to measure, because it takes a longer period of time. But all those things happen. So we're very confident we can build a very good cost-effective case with CGM.

Erik Ross Shoger - Northcoast Research Partners LLC

Okay. I'll agree with you there. Thanks, guys.

Operator

From Robert W. Baird, we have Jeff Johnson. Please go ahead.

Jeff D. Johnson - Robert W. Baird & Co., Inc. (Broker)

Thank you. Good afternoon, guys. So, Kevin, maybe I could follow up on that DIaMonD comment you just made there. Any evolution in the way you're thinking about kind of CGM first? It seems like some of that cost data is even suggesting CGM cost savings bigger, even when it's paired with just MDI over pumping. So just any updated thoughts there?

Kevin Ronald Sayer - President and Chief Executive Officer

Well, both CGM and insulin pumps add cost to the system. Anything you add for treatment adds costs. What we believe we can show, in the DIaMonD study, is those patients who have multiple daily injections can achieve very good results with their multiple daily injections and using the CGM.

Then we go to the additional benefit and the additional cost savings if we add new insulin-delivering methodology to the system. And, look, we're all going to be fighting for dollars over time in reimbursement. We want to be the first choice. We want to position CGM to be the first thing the physicians pick and the payers pick to intensively manage people who are using intensive insulin therapy. Because we believe it's the most important that they know their glucose values. And then whatever they choose to do after that certainly will be a function of payers, clinicians and everybody else. But it's our job to position CGM first, and we believe it is the most important tool.

Jeff D. Johnson - Robert W. Baird & Co., Inc. (Broker)

Yeah, understood. That's helpful. And then, Steve, maybe a question for you or for Jeff just on the gross margin guidance for 2016, any kind of gating comments you can make? I know, obviously, the revenue lower in the first half versus the second half will influence that a little bit. You're talking about some higher tech support and that. Should we think about gross margins ramping throughout the year? Is that the best way to set up our models here as we go forward?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah, that's fair. I mean Q1 is just going to be sequentially down because of lower revenues, right, that's the biggest gating factor in Q1. And then, again, as we ramp Gen 5 over the year, you're going to see a little bit of pressure on the overall gross margin because the gross margin on the G5, we're shipping two transmitters, but effectively for the price of one versus G4. So you'll see a little pressure there. And then there'll be some costs that roll into COGS with respect to the new expanded manufacturing facility that could have a little bit of an impact. But by and large, we're not talking, I mean, we've guided 67% to 70%, we're not going to see – there's not a meaningful impact.

Jeff D. Johnson - Robert W. Baird & Co., Inc. (Broker)

Yeah. Not meaningful variation throughout the year, you think quarter-by-quarter we should be kind of plus or minus?

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Yeah. With the caveat that Q1 will be a little down.

Jeff D. Johnson - Robert W. Baird & Co., Inc. (Broker)

Yeah, exactly. All right, thanks, guys.

Steven Robert Pacelli - Executive VP-Strategy & Corporate Development

Sure.

Kevin Ronald Sayer - President and Chief Executive Officer

Thank you, Jeff.

Operator

We have no further questions at this time. I'd like to turn the call over back to Mr. Kevin Sayer for closing remarks.

Kevin Ronald Sayer - President and Chief Executive Officer

Thank you very much and we appreciate everybody's participation today.

Reflecting back, 2015 was really an amazing year for this company. The things that we've done, the advances we've made in technology, in connectivity, in reimbursement in moving to the pharmacy and our partnership with Verily are going to shape the future of the diabetes industry for a very, very long time, and our future could not be brighter.

I got a recent note from a patient and he wrote and he said that, first of all, he said I can't imagine as a parent how any child could be managed without this system. And he said you have turned the treatment of my son's diabetes from my worst nightmare to simply an annoying headache.

Now, while we're happy that we could move him out of the nightmare category, annoying headache just isn't good enough. We're going to get rid of the headache, too, and we're going to make people's lives better and continue to grow the business.

Thanks, everybody, and have a great week.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!