Good afternoon. [Operator Instructions] Mr. Brian Roberts, Chief Financial Officer, you may begin your conference.

Thank you. Good afternoon, everyone. Thank you for joining us for our third quarter 2012 conference call. I’m Brian Roberts, Chief Financial Officer of Insulet. Joining me on the call today is Duane DeSisto, our Chief Executive Officer. Before we get started, I’d like to remind everyone that our discussion today may include forward-looking statements as defined under the securities laws. We intend these forward looking statements to be covered by the Safe Harbor provisions for forward looking statements contained in section 27a of the Securities Act and section 21e of the Securities Exchange Act, and are making the statements for purposes of complying with those Safe Harbor provisions. These forward looking statements reflect our current views about our plans, intentions, expectations, strategies, and prospects, which are based on the information currently available to us, and on assumptions we have made. There are risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Information concerning the company’s potential risks and uncertainties is highlighted in the company’s press release issued earlier today, and in the risk factors section of the company’s SEC filings, including the company’s annual report on form 10-K for the year ended December 31, 2011, and the company’s quarterly reports on form 10-Q. These risk factors apply to our oral and written comments. We assume no obligation to update publicly any forward looking statements whether as a result of new information, future events, or otherwise. I’d also like to remind you that the guidance we are offering today represents a point-in-time estimate of our future performance. You will find a link to the webcast of this call, as well as to today’s press release, at My OmniPod.com in the investor section. And now, I’ll turn the call over to Duane.

Thanks, Brian. Good afternoon, everyone, and thank you for joining us today. Our core OmniPod business continued to perform exceptionally well in the third quarter as revenues grew by about 30% year over year for a second consecutive period. Referrals and initial shipments achieved new records in the third quarter as investments made earlier this year continued to prove their value. One of those key commercial investments was the creation in May of an inside sales team focused on helping us drive direct to consumer leads more efficiently through our sales process. The return on this initiative is clear. In just the first 5 months of inside sales, we have seen a 35% increase in shipments from leads generated by our direct-to-consumer marketing programs. The efficiency of our external field team has also improve as a result of our added inside sales capability as territory managers are able to focus more of their time on visiting key healthcare professionals, our greatest driver of new shipments. More exciting is that we’ve been able to grow the core OmniPod business even while some customers are delaying the decision to start therapy until the next generation OmniPod is available. While our message to start the OmniPod therapy now rather than wait has resonated with most patients and healthcare professionals, we see anecdotal evidence every day, both on blogs and comments from doctors, that support a percentage of potential new customers delaying their decision. Given the growth in the business over the last several quarters, we are hopeful that we will see a further acceleration on our revenues once the next-generation OmniPod is launched. That acceleration is now commencing in Europe through our partner, Ypsomed. In a press release last week, Ypsomed, in discussing the first half of 2012 results, noted that the My OmniPod platform fueled much of their growth with a sales increase of over 75% in the period. We are optimistic that this growth rate will continue to increase with the launch of the next-generation OmniPod. In early October, Ypsomed formally launched a new OmniPod at the European Association for the Study of Diabetes conference held in Berlin. The product was extremely well-received and generated a tremendous amount of interest from healthcare professionals across the continent. Fresh from a series of successful presentations at the conference, Ypsomed is now selling and actively transitioning the existing customer base in the Netherlands and the U.K. Initial customer feedback has been extremely positive as customers love the smaller size and lighter feel of the product while enjoying all the same benefits of the original OmniPod. Starting in Q4, we have moved all international production to the next-generation OmniPod platform and share the goal with Ypsomed to have all European markets fully transitioned over the next couple of months. With the launch of the next-generation OmniPod underway in Europe, we eagerly anticipate the launch of the new OmniPod here in the United States. You will recall that when we last spoke we were in the process of completing some additional human factors testing as requested by the Food and Drug Administration. That work was completed and was submitted to the agency in late September. We have not received any additional feedback to this point from the FDA to this latest submission, but we’re optimistic that we will hear soon and that 510(k) clearance is close. Upon receiving 510(k) clearance, we will begin readying the marketplace for a commercial launch, including the training of healthcare professionals on the new product and commence this transition of our manufacturing supply chain. Ensuring the appropriate supply of components from both the current and next-generation OmniPod has been one of our primary areas of focus over the last several quarters. Many of our vendors will be moving their production capacity from one pod to the next. To facilitate the transition, we continued to build current OmniPod inventory, setting a new manufacturing record in the third quarter with approximately 1.5 million OmniPods produced. This level of production has added benefits as our efforts continue to improve gross margins on the current OmniPod. In the quarter, we improved gross margins by approximately a full percentage point after achieving a similar level of improvement in the second quarter. In addition, our manufacturing capabilities for the next-generation OmniPod continue to improve each day, with several hundred thousand new OmniPods produced. We are confident in our ability to produce the new OmniPod in quantities sufficient to launch in all markets. With an expectation in the coming months for 3 completed manufacturing lines, we should have capacity to produce upwards of one million OmniPods per month, providing ample room for growth. Turning to Neighborhood Diabetes, Neighborhood returned to growth in the quarter, with an overall year over year increase of about 7%. While not the level of growth we ultimately expect from the business, we do continue to see benefits of the acquisition overall. For example, our reimbursement, billing, and distribution teams have become a more efficient operational unit driving an improved level of service to our customers. This has resulted in improvements in key metrics such as patient conversions, days to collection, and cost per shipment as we streamline processes and leverage our scale. It has also provided us a level of redundancy that came into focus just last week with the damage caused in the New York area by Hurricane Sandy. While our New York facility was not physically damaged, we did have to deal with a loss of power and phone capabilities, along with an employee base unable to easily commute to the office. As part of our integration efforts, we were able to improve our disaster recovery planning, which allowed us to transfer many of the New York capabilities to our Massachusetts locations, helping our customers to receive continuity of their diabetes supplies during a time of great need. Neighborhood also returned to growth as sales lead generation programs with certain managed care partners started to gain traction. Just last month, for example, we received the names of more than 11,000 diabetes customers from a new Eastern-based plan, providing us an opportunity to drive new customer acquisition in Q4. We’re also now seeing the benefits of our cross-selling initiatives. It has taken longer than we expected to set up contracts and create the necessary support infrastructure, but now many OmniPod customers are enjoying the simplicity of receiving just 1 box containing not only their OmniPods, but various supplies, such as test strips. Overall, we can see the benefits of the Neighborhood acquisition taking shape. The high-touch service model, where we play a key role in training, encouraging, and supporting patient therapy adherence is enhancing the Neighborhood Diabetes business. We continue to increase in importance to the doctor, the managed care plan, and most importantly the patient. With this push toward a more outcome driven managed care environment, we are thrilled by the addition of Dr. John A. Fallon to our board of directors. Dr. Fallon’s 25 years of experience in health management, including his role as the chief physician executive, and senior vice president of Blue Cross Blue Shield of Massachusetts, will provide us with expertise and industry knowledge to keep us at the forefront of changes in the reimbursement landscape. Finally, I want to acknowledge another important milestone. For the first time in our history, for the month of September, we were able to achieve operating cash profitability. We have long believed that we would be able to build a business that, once at scale, would not only provide a world-class product to the marketplace but also be able to provide a return back to you, our shareholders. We knew it could be done, and we have now prove it’s achievable. We are at an important point in the history of the company, with the opportunity to continue to accelerate growth, take market share, and launch a new OmniPod in the marketplace. We believe the new OmniPod will set the bar extremely high for anyone considering entry into the patch pump space, leaving us for several years to come as the dominant player in this segment of the industry. We are also cognizant of several new areas of continued expansion for Insulet. For example, within the Type II diabetes and other drug delivery opportunities, where we are uniquely positioned to capitalize. And with that, I will turn the call over to Brian to provide additional details about the third quarter results.

Thank you, Duane. Revenue increased overall by 23% to $54.8 million in the third quarter of 2012, compared to $44.6 million in the third quarter of 2011. Our core OmniPod business continued to grow at an impressive rate, with a year over year improvement of about 30%. Neighborhood returned a growth in the quarter as well, with a year over year increase of approximately 7%. Sequentially, revenue increased by about 7% from the second quarter. Year to date, revenue has increased by $48.5 million to $153.5 million in the 9 months ended September 30, 2012, compared to $105.1 million in the comparable period last year. Gross profit for the quarter improved by over 30% to $24.4 million, compared to a gross profit of $18.6 million in the third quarter of last year. Our gross margin continued to expand in the quarter to approximately 45%, a full percentage point improvement from Q2. This is largely due to our efforts to continue to drive cost reductions in the supply chain as volumes increase. Additionally, we’ve seen continued advancements in our overall quality, driving down warranty costs and increasing customer satisfaction. Year to date gross profit has increased by 44% to $67 million, as compared to the prior year. Operating expenses for the third quarter were $32.9 million, compared to $28.3 million in the third quarter of 2011. The year over year increase is primarily a result of additional R&D costs related to the development and approval of the next-generation OmniPod system, as well as commercial team expansion in preparation for the launch of the next-generation product. Operating expenses remain flat, as compared to the second quarter, as we continue to gain leverage in the business. Year to date, operating expenses were $96.9 million in the 9 months, as compared to $78.6 million for the same period last year. The change is primarily due to the acquisition of Neighborhood Diabetes in June of 2011. We reported an operating loss for the third quarter of 2012 of $8.5 million, compared to an operating loss of $9.8 million for the third quarter of 2011 and $10.5 million for the second quarter of 2012. Our third quarter operating loss includes approximately $6 million of noncash operating expenses, comprised (sic) [composed] primarily of depreciation, amortization, and stock based compensation. Excluding these expenses, our cash operating loss for the quarter was about $2.5 million. As Duane mentioned, we achieved operating cash profitability for the month of September. We continue to expect that we will remain at or near operating cash breakeven in the fourth quarter. Year to date, operating loss was $29.9 million for the 9 months compared to $32 million for the comparable period in 2011. Net interest expense was $3.9 million in the third quarter of 2012, compared to $3.8 million in the third quarter of 2011. Approximately $2.6 million of this quarter’s interest expense was noncash. Year to date, net interest expense was $11.6 million for the 9 months ended September 30, compared to $10.9 million for the comparable period in 2011. We reported a net loss for the third quarter of 2012 of $12.4 million, or $0.26 per share, compared to a net loss of $13.6 million, or $0.29 per share, for the third quarter of last year. As of September 30, 2012, cash and cash equivalents totaled $63.4 million. At the end of September we had approximately 48.1 million common shares outstanding. As we look to the remaining quarter of 2012, we are optimistic that we will finish the year strong. We continue to expect OmniPod growth to be at or near the levels we’ve seen over the last 6 months, as we’ve seen continued growth in our referral pipeline. We are cognizant, however, that some customers, both new and existing, may defer purchases to the next-generation OmniPod and that rate may increase, assuming 510(k) clearance is received in the near future. Taking this into account, we expect revenue for the full year 2012 to finish in the range of $210 million to $215 million, implying $56.5 million to $61.5 million in revenue for the fourth quarter, or approximately 8% sequential growth at the midpoint of the range. We expect our operating loss to finish in the range of $35 million to $38 million. And with that, let me turn the call back over to Duane.

Thanks, Brian. In summary, we’re at an exciting time for Insulet. We continue to experience strong growth in our OmniPod business here in the U.S., our next-generation OmniPod has launched in Europe to great early returns, and we await FDA clearance hopefully in the near term. Our manufacturing capabilities continue to strengthen, with record levels of OmniPods of both generations now being produced at high levels of quality. We’ve made significant financial progress, highlighted by excellent revenue growth, expanded gross margins, and our first month of operating cash profitability. And with that, operator, please open the call for questions.

[Operator Instructions] Your first question comes from the line of Danielle Antalffy, Leerink Swann.

Could I start with Q4 guidance? You give kind of a wide range. Just curious, what are the puts and takes that get you to the higher end of that range versus the lower end of the range? Is it all about approval timing? Or what’s sort of driving that wide of a range?

It’s really just a function of how quickly Ypsomed is able to move all of their European markets. Do they all get done by the end of 2012? Do a couple of them spill into January? That’s a piece of it. Second, Neighborhood has some good areas of growth here in Q4, as Duane mentioned. They won a relatively large managed care plan of about 11,000 names. How many of those names can quickly convert in the quarter will be a piece of it as well. Really, no impact expected either way around the next-generation product.

And then just curious, you’re at record levels for manufacturing for the current gen pod. What’s the risk that you guys will have to take a charge and write down inventory depending upon approval timing of next gen? Can you frame that for us at all?

I think it’s extremely low, the level of risk. I wouldn’t say it’s 0, but I’d say extremely low. There are markets, for example, like Canada that will be further delayed upon the timing of the approval here in the U.S. Canada will come post that. We really control the timing of exactly when all of those pods are put into the marketplace. And we’re comfortable with the level of inventory that we’ve been building. Really we’ll just facilitate the transition from one to the next. So we feel very confident about that.

Your next question comes from the line of Kimberly Gailun, JP Morgan.

First question is just on the OmniPod results in the quarter. Can you give us any detail on the U.S. versus O.U.S. split?

Again, similar to what Ypsomed had put out, they grew at a rate of about 75% of the first 6 months. That rate accelerated a little bit in the third quarter. Overall, as we’ve talked about beforehand, with that business, probably from last year to this year, tripling or so in size is still where we’re expecting it to finish up for the full year and some of that came through in the third quarter.

That's helpful. And then on FDA, it sounds like you are just in waiting mode. You got your human factor data back in at the end of September, and so the clock has been ticking. There have been no questions whatsoever. Do you feel like you’re at a point where the next thing you may hear is approval?

Given my track record to date, no matter what I say you ought to discount, probably, 100%. But we feel good about what we submitted. I would tell you we spent a lot of time up front. I think we said on the last call, we reviewed the protocol. We got them to sign off on the protocol, and I think the agency felt comfortable with what we planned on doing. We felt good about the results, but ultimately we are just sitting here waiting to hear. So like I said, from my track record on predicting when and where, it’s been perfect. I’m 0 for everything. Like I said, I think from our standpoint we spent a lot of time up front truly trying to understand every single aspect of this, and we feel good about what we submitted.

That was going to be my follow up question. So you’re feeling good about the data that you submitted? Nothing kind of cropped up that you think FDA would want follow up on, I guess?

No, but that and $3 will get you, in my opinion, a cup of coffee at Starbucks. So that’s all I can tell you.

Your next question comes from the line of Raj Denhoy, Jefferies.

I’m not sure you’ve given us a lot of detail in terms of what that most recent human factors study looked like, or what the FDA truly wanted, and what you gave them. Is there anything you can offer in terms of what specifically they’re looking at now?

Sure. I think it was pretty straightforward. We went through the first time and we submitted a bunch of data, and one of the issues with the FDA - and I’ll use this as one example - we had a patient that misset the clock. He did p.m. instead of a.m. or a.m. instead of p.m. And what they want to understand is, was there a way that we could incorporate something into this device that would catch those types of errors. And like I said, I think if you looked at it, it was probably about 4 or 5 screens in total in which they had questions. What we did is we went in and we modified the software to put basically confirmatory screens on some of these things. And then we went back through and we had - don’t hold me to the exact number, but this is close - it was either 30 or 35 patients, all the various age groups, that we had to run these changes through. And we had to submit that result. And that’s what we did. So there was nothing inherent in what they asked for that changed the fundamental system. I think at first you go through it, we clearly understood where they were coming from. I think the end result is that I think we have a better product, but we went through that process. And like I said, it didn’t change the system. It was really more from a how do you put in confirmatory screens or how do you make someone click twice before they move? And if you look at our original product, on all the important things, where you’re setting your basal bolus, you know, you have to go through that step anyhow. But these are some of the other ones that, you know, them explaining to us what they were looking for. We were ready to fix it, and we turned it around pretty quickly. And like I said, I think it was somewhere between 30 and 35 patients through the various age categories, from kind of the children all the way up to older adults.

That's very helpful. I know it’s been gated by the approval of the next-generation pod, but what are the plans at this point for the Dexcom integration? How soon post-approval will you start working on that? When do you envision getting that approved?

From our standpoint right now everything’s been an internal focus. From our previous experience working with the guys at Dexcom and integrating the hand held, the actual part of that, the engineering part of that, was about 6 months. We have a pretty good view of that. But I would tell you that the whole company is really at the moment focused internally, getting this through, getting manufacturing right, and working on the transition. So as soon as we get the approval, then we’re going to have to take a real hard look at that timeline there.

Next year we’re going to see several new products on the market, potentially Dexcom integrating with another pump. The Tandem pump is coming to market. Maybe Medtronic has a new pump on the market. Can you maybe just offer some thoughts around where you think you’re going to be comparatively next year? Obviously the pod is a different animal entirely, but the market could get a little bit more interesting next year.

I think from our standpoint, we do not believe that we are competing with the end user, the customer, with Medtronic or Animas. We’re not competing with that, those patients. We’re competing for mindshare in the doctor’s office. I think while continuous sensing is in its infancy, and it’s going to be an important part of what goes forward in the long term, we feel very, very good about the profile of our current product and we are very excited, based on the early returns, about how many people are attracted to this next-generation product based on the size. So we feel very comfortable, with or without continuous sensing. We’re going to continue to pound away. And like I said, we’re not competing. We compete for mindshare in the doctor’s office with the other 2 companies that are out there. We don’t compete with the customer. It’s pretty obvious. You look at the fastest growing segment of our population, under 18 years old. The customer base continues to grow rapidly. And that allows kids to be kids. And that tethering to a traditional pump is a huge drawback. And it’s the reason, after 25 years, the market was only penetrated 25%. So I’m not worried about it. We take them seriously, and we’ll see how everything’s positioned, but the fight is for mindshare, it’s not for the end user.

Your next question comes from the line of William Plovanic, Canaccord.

I think this year’s been a bit of a surprise for most of us, at least myself. You’ve continued to see an acceleration in your new patients when you do the math. The NDI has underperformed, but your core business continues to outperform. Relative to your internal plans, has that performance been a function of international, which I think the sound of it, through the first 3 quarters, is at plan or a little below plan. Or is it U.S.? I’m just trying to gain a little granularity in what’s really driving things here.

Clearly the lion’s share of our core OmniPod business is all driven by the U.S. And so the U.S. effectively is driving the bus, and the U.S. has, using your words, outperformed a little bit over the course of the last 6 months especially, than we probably anticipated. Part of that was the investments that we made in the beginning part of the year have truly paid off. Again, inside sales. This was the first full quarter that we had inside sales and the results that we’re seeing from it are really encouraging. And I think as we look into our 2013 planning process, our commercial team right now is taking a hard look at that and figuring out how can we take the learnings on the investments we made this year and be able to make it even better for next year. Certainly international is a big growth engine for us going forward. I think we all would have liked to have been a quarter or 2 sooner maybe with the next-generation pod. But again, we wanted to make sure that we got it right, and that we were going to be able to do it in a way that once people were transitioned they’d never have to transition back. And we’re seeing that momentum already in just the short period of time that they’re really pushing it hard now over in Europe. So we’re pretty excited about that going forward. As Duane mentioned, the feedback’s really good. But certainly, when you think about our revenues for 2012, the U.S. has exceeded expectations a little bit. As you said, Neighborhood has probably been a little bit under. And overall, international is probably right on plan and catching up.

How much was Abbott? Or royalties in the quarter? And then lastly, for Duane, if you go through this transition, obviously FDA approval is one of the things that concerns you. But let’s assume you have FDA approval. What’s the next biggest concern that you have?

I’ll let Brian answer after me on the Abbott question. Here’s the process, and I think anytime you transition new product into a market, there’s a million ways to trip up. But it’s pretty simple. The first step here obviously is FDA approval. And it’s not like 15 years ago, where you could start talking to people about it. We can’t even go out and start training the physicians and the educators, and if you start thinking about the number of places we have to go. So we’re going to have a period of time in which we have to go out and start training all these people, because the last thing in the world you want to be doing is shipping a product to someone and they walk into a doctor’s office and the doctor goes, “what is this?” So that’s kind of big step number 2 after FDA approval. I think on the manufacturing side, I worry about that 24 hours a day, 7 days a week, because we’re doing something no one else has ever done. But we feel pretty good that we’re in pretty good position there. So I think from our standpoint, it’s pretty sequential. You get FDA approval, we’ve got to train the marketplace on what the changes are in the product. Obviously the size in the handheld. But there’s a couple of other changes in this. We have to get the market trained up. We have to train our sales force. And then I’ve got to get all of them out and trained. And then you’ve got to launch it. And we’ve got to transition this. And if you think about it, you just think logistically about that. There’s a subsection of our sales force that really is through distributors. We have to get those guys all trained up on what’s going on. So I think that period, pick it from 90 to 180 days, when you’re walking through this, it’s a giant minefield, and if you don’t handle things right - and I’m sure there’s going to be bumps and bruises along the way here. But we feel pretty good that we have a good plan. Now, in the heat of battle you’ve got to be able to change, but right now we feel pretty good we have a good plan. But that transition period and how we handle that, and if you have 2 kids that are in the same classroom and one has a new product and the other one has the old product, how do you respond to that when the mother calls up yelling at you? So I think that’s really the next big step. We’re watching and we're working with the guys in Europe. So we’re watching how they’re going through it too, and so we’re getting a little early read on kind of what some of the potholes may be. Brian?

The Abbott revenue for the quarter was about $1.7 million. And basically that holds with what we’ve been saying, that once we get clearance, it would take us a couple of months’ worth of time to get the marketplace educated and ready to go, and then we’d really transition with a goal of having everybody transitioned over within a one to 2 reorder period. A majority, hopefully, in that first reorder period post the second, hopefully catching the rest of the stragglers or so through it.

Your next question comes from the line of John Putnam, Capstone Investments.

Can you give us a little color about bringing up the 3 manufacturing lines and if you’ve run into any quirky problems that you hadn’t expected?

We’ve run into a million quirky problems that I think we haven’t expected. I’ll give you just one little example. What we have in this new automated line is we have this vision system, and what the vision system is able to do is look at all these components. And to the extent you make a small tweak to the component, the vision system rejects everything. And then when you make that tweak to the vision system, you’ve got to requalify it. So I would tell you that’s been a little bit more arduous than we originally anticipated. But I think the single biggest thing that we continue -- if there’s one thing that keeps you awake at night, it’s just the supply chain. And I would tell you, I think we’re down to one component. If Charlie were here and you asked him, there’s one component that we are extremely focused on. We’re highly confident that we know what we’re doing and we’re highly confident that we’ll be okay, but it is the supply chain. I would tell you I think we feel pretty good about Flex. Even the vision system thing I gave you. But, you know, those things pop up, and you don’t wave a magic wand and fix it overnight. But fortunately we’re in a position now that we’re bringing up the lines ahead of meeting them. And therefore we begin to work out those kinks. I think from the beginning we told you - and if Charlie were here he’d tell you - you worry about the supply chain, the supply chain, the supply chain. We’re down to kind of one component. It’s not even an expensive one. But it’s a little tricky. We’re bringing up a second supplier of that. So that one we’re on. But we feel good. We really feel good about what we have, and where we’re going with it. And I think with Flex, we feel good about them. As long as we have the components the way we want them, I think we’re going to be in really good shape.

So all 3 lines are up and running now?

Not all 3. We basically have 2. And we’re not running them all full throttle, because right now everybody’s focused on making the current product - keep in mind, and I think Brian explained this one other time, it’s not like we’ve hired a whole separate workforce to start working on the next line. We transition people from the current product to the new product and back and forth. Because you can’t have these guys all sitting there when the old line goes down. We have all that learning, all that training, and those people we want them running the new line. So what we’ve done is we’ve brought the lines up. We’ve produced what we wanted, then we bring them back down. So we’re in pretty good shape from that standpoint. But we, right now, are focused on just building up enough of the inventory of the old product to make sure we can transition. So when we shut it down, we shut it down and don’t have to reopen it up again. So I think that really is going to happen here in the fourth quarter, and then we are going to go full speed ahead in the fourth quarter with 2 of the lines, and then the third line coming on in the first quarter.

Your next question comes from the line of Ben Andrew with William Blair.

You’ve had a lot more time to gain experience with the next-generation pod in Europe. Are you seeing anything there in the performance characteristics as you ramp the number of patients that gives you pause?

So far I think the response to it has gone really well. And I’ll give you a good example. One of the things that we’ve spent a lot of time and effort on in moving from the first gen to the second was around people kind of going [ph] out of box failures. Or when you fill the pod, if the communication doesn’t happen well between the pod and the handheld, the pod effectively kind of “fails”, we replace them, all that good stuff. But it’s one of those things that’s been this customer annoyance that’s been out there for years with us. In Europe - and again, it’s still a small overall sample, but the rate of those has been next to none. And that’s something very encouraging for us, because with the change in antenna frequency, with the change in the chip that we made, that was one of the big things that we were trying to tackle and make sure we could get out of the product. So we’re very, very hopeful about that. Again, so far, not huge sample sizes yet, but the feedback has been very, very positive.

And as you think about the fact that you’ve had more time to ramp up the additional lines and get experience with the product, gain confidence in the consistency of production, does that allow you to move even faster now when you do eventually launch gen 2 and make that conversion quicker so we can get that gross margin moving and offer the better product to patients, to the point where you could see some upward momentum to estimates?

Yes, from our side, certainly the time it takes to train the commercial marketplace, as Duane outlined, and effectively to convert that supply chain, will really take 60 days plus or minus that we’ve talked about for quarters now. I think it’s hard to change that piece of the timeline, but certainly having the multiple lines, being able to run more efficiently, faster, having the confidence behind them, would give us more confidence to be able to convert a larger amount of the reorders in a faster way. So instead of maybe spreading them more out over a 6-month period, we should be able to convert the majority of them in that first reorder period.

And the key in this whole transition are the reorder periods. If you think about it, we talk to our customers typically once a quarter. And if on January 1, that’s when their reorder comes up, and they reorder, you’re not going to see them again until April 1. So that’s a real trick for us, is just that timing. And I would tell you, like I said, getting out in the field, getting all the support structure. I mean, you start doing the math and I think there’s over 4,000 endocrinologists in the United States. We’ve got 100-plus people out there that have to all be trained up. And then you take the endocrinologists. They have nurse educators, and part-time trainers. And you’ve got to get them all up to speed. And we have a pretty good plan, we’re pretty excited about it, but you still have to get everybody through that process.

With the human factors testing, it sounds like you made some changes to the function of the handheld and obviously some software changes. Was there anything in there that was material enough to kind of really get the FDA’s attention about the functioning of the product, or otherwise requiring some additional work beyond what you’ve already done? I know you don’t really know the answer yet. You’re kind of waiting on it at the agency.

Every single change was basically inserting a screen behind a screen. So it really was more of a confirmatory screen. And it’s a balancing act. If you think about it, the balancing act for us, when we originally put the product together, is you want people to be able to use it. You want people not to be frustrated with using it. You don’t want to have to type your name in 2 times to confirm that you spelled your name right. So that was a balancing act. The FDA pointed out, based on a first set of human factors, that we had a category that they deemed to be near misses. And they want to know what we could do to improve it. So a couple of things were kind of changed in the user manual. A couple of things were labeled. And there really was no change to any of the functionality. It really was, literally, putting in a confirmatory screen. And I think in one case we went from a soft key to a hard key that you had to push. But there was no change in the functionality. None of the feedback that we’ve received from the agency really had to do anything with that. It was just how can we help our customer help themselves.

And again, just to reiterate one thing that Duane said, which I think is an important point, we submitted the protocol to the agency of what we were going to change, and what we were going to test. And effectively before running that test, they gave us their approval on it. So I think that’s an important point to keep in mind, that before running this we had some affirmation from the agency that we were on the right path.

Your next question comes from the line of Thomas Gunderson, Piper Jaffray.

I appreciate the detail on the color that you’re giving us on the prelaunch and launch, when that happens. I have to believe that with the time that you’ve had to prepare for this that you have a pretty tight schedule and a pretty good idea of the media and the people, etc., that are going to do the training. Just so we have a sense of when to start doing that, what kind of time period is that?

From within a week or 2 of getting approval, we will be out and about. We have a couple of training modules. We have internet-based training. And then we have the people who are going to put feet on the ground to do it. So within a week or 2 of getting that approval, just to schedule everybody out, that’s all it will take. But we are sitting here anxiously awaiting that opportunity.

And will you ship as areas get trained? Or does everybody get trained, and then you ship?

What we're looking at doing, and once again, this is really going to be determined where this all falls in the quarter, that you get all this. But what we may end up doing is going to some of the larger centers, because we know we can start converting the most people. So we may train those guys first, and then start trying to get some of the shipments out. But I think for just big picture blocking and tackling, it’s going to take us about 60 days to get it trained. And while we may have dribs and drabs start going out sooner than that, it really is kind of a big block that we’re going to be doing the training. The other piece I have is the whole sales force we have to bring in and get them up and going on a regional basis. So that first couple of weeks will be getting our guys all prepped and ready to go. They have a general idea, but we haven’t gone through it in detail with them, because we want them to retain it. And not knowing when the endpoint is here, you don’t want to do it and then have to do it a second or third time. So like I said, we’re sitting here ready to go. So we’ll see.

And then on Neighborhood, I appreciate that the blend of gross margin continues to go up, even sequentially, but we’re getting inputs from around the country that pricing on test strips is under a lot of pressure. Are you seeing that? And is that a drag on margins that you’re making up in other parts of the business?

There is no question there’s pricing on test strips. I think from our standpoint we haven’t seen that in any meaningful way. I think everybody is sitting here and looking at this competitive bidding. And then when that comes down, then I think you will see the real impact for that. So obviously there are no margins going up on test strips. But I think from our standpoint it’s been about the same. I think the competitive bidding decision and where that all settles out is going to be the real thing that’s going to really impact all the major strip companies. Look, we’re aware of it. They’re all talking to us. Most of the big companies didn’t participate in the competitive bidding. So there’s a lot of discussion going on here in the background. We’ll see out it turns out. It may even turn out to be an interesting opportunity for us as opposed to a negative. So I’ve got my fingers crossed. But we’ll see.

Nice success on the inside sales and the DTC. And you talked a little bit about resources for 2013. And I know you’ve got a lot on your plate getting out gen 2, but can you give us a little sense -- can you increase those numbers? Are you at maximum productivity capacity now and have to add people? And could you add more into your DTC programs?

Great question. We’re in the middle of our 2013 planning, so we haven’t settled on anything yet. But we are taking these initial results. I think with the next-generation product coming, I think we want to accelerate all of this. I think we could use a few more feet on the street. I think this program we’re pretty excited about. We haven’t capped out on any of this yet. So how are we going to divide that up I think we’ll determine here over the next few weeks. But just to kind of recap for everybody, we have about 100 people roughly knocking on doors and being nurse educators out in the field. I think the J&J company there has a couple hundred, and I think the guys in Minneapolis have over 400. And we continue to grow. So we like the mix we have. We think we’ll probably put resources in all of those. Right now I’m just not prepared to tell you where we’re going to push the most. But we’ve been pretty excited by what this has all meant for us. And then you take that new footprint and new product, we think there’s going to be real room to grow here.

It goes to show with the investments that we’ve made, that the idea of continuing to improve our reach and frequency is real. And that by continuing to do that and effectively helping our territory managers gain focus, the inside sales teams, taking effectively some of that work off their plate of the one-offs and having that group shepherd people through the process in a more efficient way, all of that has shown its results. And again, over the last 6 months, where there is this kind of new product looming on the horizon, which certainly every one of us can go out and look and you’ll find the blog entries, the people that are saying they're waiting for whatever their reason may be. We’re still accelerating the growth, and I think overall we’re really excited about that.

Your next question comes from the line of Mimi Pham, ABR Healthco.

Can you clarify or comment on your record level new initial shipments? Did you surpass the 4,000?

We’re not going to speak on the actual numbers, but it was a record number, both on referrals and new ships for us.

And did you break out the gross margins for OmniPod standalone?

Our U.S. margin? It’s pretty consistent with what we’ve talked about in the past on the mix. Our U.S. margin continues to be north of 50. Our international margin kind of low 20. And Neighborhood, probably right around 30, maybe slightly above.

So Duane, just to rephrase your comments about integration with CGM, this is still a priority for you? It’s just it’s going to be a priority after you get Eros approved and out the door?

I think from our standpoint, long term, we want to play in that market. There is no question whatsoever. Right now, my issue is everything’s focused internally. We are focused on us. I think if you talk to the guys at Dexcom, they’ll tell you we’re focused on us. That’s kind of how we’re looking at it. But as soon as we get a little experience under our belt with the current product, then obviously we have a couple of ideas that we want to continue to push forward with. So I think it’s part of the future. There’s no question whatsoever. Like I said, we are focused. We have a complete internal focus to get this piece right.

Can you just clarify what you’re doing in particular to sell OmniPod to the targeted Neighborhood Diabetes patients on MDI and pumps? Is it just mailing them stuff? Calling them? Anything in particular? Any programs?

There’s a lot of different forms of the cross-sell effort. I’ll actually highlight 2 of them for you. One of the ones we’ve talked about the most is current OmniPod customers, where appropriate, which is really defined as can we match their economic copay and keep the patient whole. We’re certainly looking to be able to drive test strips to them because there’s a real good economy of scale there for us. The second area, which is an interesting one, is as we gain OmniPod referrals, we’d love to be able to sell every one of them an OmniPod pump, obviously, but there are times, for example, if we get a referral, and that’s a Medicare referral, we can’t. But what Neighborhood’s been working hard on is as those patients come in, they have other diabetic supply needs that we may be able to meet. So we’ve seen a nice uptick in their business of patients that initially had some interest in whatever way of OmniPod. We couldn’t fulfill that need, but they became a customer of Neighborhood in another fashion, which is great. Now we know where they are. We build a relationship with them, and hopefully over time we’re able to provide them the OmniPod. The last one, the one you specifically mentioned, we haven’t done a lot yet within the Neighborhood customer base of driving their insulin dependent patients, their MDI patients, towards the OmniPod, and a lot of that’s been focused on a conscious decision that we had made a little bit ago to really wait and kind of time some of those efforts around the next-generation product. And so given that we’ve just been a little bit delayed there, we’ve kind of back-burnered that one just a little bit so that we can go to those customers with an exciting message of this brand new product.

When you do that part, is it your DTC sales people calling on them directly, or you’re just going to bombard them with extra mailings?

Bombard probably wouldn’t be the word I’d use. But I do think we’d say that we would leverage various forms of media. So potentially between the mail, email, and well-placed phone calls, I think all of those would be different ways that we would try to get to those patients in a direct-to-consumer basis.

Your final question comes from the line of Ben Haynor, Feltl & Company.

Tom and Mimi stole a lot of my thunder, there. Is there any update on how the noninsulin drug delivery potential partnerships might be progressing?

I can give you a little bit of generalities. This will sound like my FDA discussion here, but we’re getting pretty close with a couple of them, and the hope is in the not too distant future we have a commercial agreement. They are in trial. We have a couple of them now that are in trials. So if the trials go well, then I think the next step obviously is to start talking about a commercial agreement. But there are trials now being conducted around the country with a couple of different versions of the current product that we have.

And then I think last quarter you said you had about a 20% growth in referrals. Was that a similar rate this quarter?

Yes, actually I think we were probably slightly higher than where we were Q2 over Q2. So we have seen some acceleration in that number as well.

There are no further questions at this time.

Thank you everyone for joining us, and we look forward to updating you on our year end results. Take care.