Good day and welcome to the Senseonics Second Quarter 2019 Earnings Conference. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I would like to turn the conference over to Philip Taylor. Please go ahead.

Thank you very much, and welcome to the Senseonics second quarter 2019 earnings call. This is Philip Taylor from the Gilmartin Group. Before we begin today, let me remind you that the company's remarks include forward-looking statements. These statements reflect management's expectations about future events, operating plans, regulatory matters, product enhancements, company performance and other matters and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of these 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 and our other reports filed with the SEC. These documents are available in the Investor Relations section of our website at www.senseonics.com. We undertake no obligation to update publicly or revise these forward-looking statements for any reason except as required by law. Also on this call, we will be discussing our full year 2019 revenue guidance, which was also included in the press release. In light of Regulation FD, we advise you that it is Senseonics' policy not to comment on our financial guidance other than in public communications. Joining me from Senseonics are Tim Goodnow, President and Chief Executive Officer; and Jon Isaacson, Chief Financial Officer. With that, I would like to turn the call over to Tim Goodnow, President and CEO. Tim?

Thank you, Trip and thank you all for joining us. On the call this afternoon, I will provide updates on our productive Q2 and on our progress with commercial, regulatory and product pipeline development initiatives. And Jon will provide details on the second quarter 2019 financials and the outlook for the year. To begin I would like to touch on the financing transactions that we completed just a few weeks ago, which generated roughly 100 million in gross proceeds, meaningfully strengthening our balance sheet. We're focusing on the execution of our commercial launch and pipeline development to drive sustainable sales growth, which we expect when coupled with efficiencies in scale and cost of goods improvements plans, will drive margin expansion and progress on our path towards profitability. We believe we now have the capital structure in place to achieve our strategic and operational initiatives. Now turning to our quarterly performance, as we pre-announced, in the second quarter we generated total revenue of 4.6 million, including 1.1 million of net revenue in the US following the launch of our Bridge program and 3.5 million in revenue outside of the US. We are reiterating our full year expectation for 2019 revenue to be in the range of $25 million to $30 million. We achieved a significant milestone in the quarter with the receipt of the non-adjunctive indication or dosing claim approval from the FDA for our Eversense System. It's an important win for our users, who will now be able to make influent treatment decisions using the data provided by their Eversense System, removing the requirements for the confirmatory fingerstick. This accomplishment is truly substantiation of the strong performance of Eversense and is in line with our mission of helping people with diabetes confidently with their lives with ease. As we have…

Thank you, Tim. For the three months ended June 30, 2019, we generated $4.6 million in revenue compared to 3.6 million in the prior year period. The increase was attributable to incremental sales of the Eversense system in the United States with a small offset for sales in Europe due to contractual timing obligations. To provide increased access to the Eversense CGM System for patients with limited or no insurance coverage during Q1 2019, the company introduced the Bridge patient access program. Payments associated with the program are treated with a gross-to-net reduction to revenue under US GAAP accounting. For the three months ended June 30, 2019, we recognized net revenue of 1.1 million. We expect that on a go-forward basis there will be fluctuations in quarterly Bridge payments that may affect quarterly revenue recognition while still affirming full year 2019 revenue guidance. To reiterate Tim's comments, we are confident that our investment in the Bridge program is helping patients gain access to our product and is demonstrating the utilization of Eversense in the marketplace. We are pleased with the early reception of the product with patients and physicians. Gross margins in Q2 2019 decreased by 4 million year-over-year to 4 million compared to negative 2 million in the prior year period. The decrease was primarily due to obsolescence related to product upgrades, as well as product expiry and warranty expense due to obligations under the Roche distribution agreement. Second quarter 2019 sales and marketing expense increased by 8 million year-over-year to 14.2 million compared to 6.2 in the prior year period. The increase was due primarily to the build out of the sales force and commercialization efforts in the United States. Research and Development expense in Q2 2019 increased by 2.2 million year-over-year to 10.5 million compared to 8.3…

Thanks, Jon. To summarize, we're building a strong foundation to support broad patient access for Eversense and continued pipeline development initiatives, which we believe will culminate in significant growth in patient adoption. With the real world product performance data that we are observing, this is the most important feedback that we can get. Such strong clinical outcomes data demonstrates the true superiority of Eversense in the category and speaks to the potential that we have. We're simultaneously focusing our efforts on driving sustainable top-line growth and building our infrastructure to drive margin improvements and progress towards profitability. We are confident that these efforts in concert with a strengthened capital structure, positions Senseonics for success and the creation of shareholder value. With that this concludes our prepared remarks. Joining us for questions are Mukul Jain, our Chief Operating Officer; Mike Gill, Vice President, General Manager of the US and Mirasol Panlilio, Vice President, General Manager of the Global Commercial Operations. Operator, let's now open up the call for questions.

Thank you. [Operator Instructions] We'll take our first question from Alex Nowak with Craig-Hallum Capital Group. Please go ahead.

Hey, great. Good afternoon, everyone. This is actually Will on for Alex today. Thanks for taking our questions. And just to start street consensus right now is assuming a pretty modest step up in Q3 and then a pretty substantial Q4. Given the conversations number of docs trained to implant, progress of the Bridge program. I know you've got some time here. But how do you feel about hitting that Q4 number?

We feel good. As we've indicated we're confirming the 25 million to 30 million range. At the same time we do anticipate that it is a good step up in Q4, which is primarily driven by contractual obligations that were pre-negotiated with Roche. But as Jon said, just as we had indicated, we expect Q3 to be about 30% of the balance and Q4 to be the remaining 70%.

Got it understood, thanks. And then although that was a really nice win last year, we're still kind of waiting for those big insurance providers to come on board and cover Eversense. Appreciate the comments you laid forth in the prepared remarks. But is there any real cause that you're seeing for the delay? And is there anything necessary to really resolve it at this point?

We continue to work on the program. I think, as we announced that this is a pretty typical process for new technology to go through. We've been pretty consistent in saying that we expect it to take two years, we've targeted 100 million out of 250 in the first year and the balance of 165 in the second year. So we are absolutely right on target. With the projections that we've made, obviously, anything that we could do to accelerate that is certainly for the benefit for people with diabetes that want to use our product. And we're absolutely focused on that. We continue to work with each of the insurance companies who are actively as I described, presenting, summarizing, and getting peer reviewed the reference material that they look to for clinical demonstration. As I mentioned, Fran is publishing here in probably the next month or two, the first US experience, which is pretty important. Right behind that we have a pretty large publication that will be coming on the broad based safety aspects of real world performance which will be very important to the payers as well. And then we've got a paper right behind that which is longitudinal performance of the product from a multi-use long-term repeat insertion. So we're, in an active push right now to build the clinical literature, which is a big part of what all of the insurance companies look at for the performance and new technologies.

Perfect, thank you and now that's all I had. Thanks, guys.

Great, thank you.

We'll take our next question from Rebecca Wang with SVB Leerink. Please go ahead.

Hey, guys, this is Rebecca on for Danielle Antalffy. Congrats on a solid quarter.

Thank you.

Thanks, Rebecca, pleasure hearing from you.

Yeah. I guess I just want to follow up on the full year guidance, you talked about there is seasonality associated with contract you have with Roche OUS. How should we think about the ramp, the second half ramp in the US? And as more payers establish reimbursement policy, how should we think about the Bridge program down the road? Thank you.

Sure. So from our perspective, we feel very good in the balance of the year, anticipating that 30% will come in the third quarter and then 70% will come in the in the fourth quarter. We do recognize that's a pretty significant ramp. There definitely is a component of seasonality to it. But in all honesty, we're more actually gated by contractual obligations that we have with Roche. So we feel pretty good about how the product is doing and the relationship that we have with Roche. So we're still committed to make this happen. From a Bridge perspective, we do feel happy about how it has really stimulated the interest. It has taken the financial disparity between the different CGM technologies off the table. And when that happens, we get some very, very strong acceptance and strong utilization of the product. And I think we now have a pretty good experience base from Aetna patients, which are very prototypical of where we will be when we have full coverage from all the other payers. And we are very excited with the utilization, the reuse rates and the amount of time that they're wearing the product. It's very attractive and we're excited about how this product is going to perform when we get all of the payers on board.

Alright, thank you for the color. And a follow up on utilization, first of all, can you update us on your physician training program? How many physicians have been trained in the US and how do we think about the ramp of utilization once a physician got changed?

So through the second quarter, we have 550 clinicians that are prescribing the product. I think about two thirds of those or maybe about 330 or so are through the training program. So you've got a mix of those that have done multiple insertions and are in the repeat process in their practice and you got others that as you would expect are coming up. So in regards to the growth, remember there's about 2100 total endocrinologists that we're ultimately targeting. The focus in this year is probably more on the top half now. We initially started out with a top 300 or 400 and we've pretty much gone well past that. So we do expect to continue to grow. I'm not sure that you ever truly get all the way through those 2100 just because of their prescribing practices, some are academic. I don't see a lot of patients, but certainly the top of the list we continue to focus on and drive to their education and encouragement to utilize.

Very helpful. Thank you.

We'll take our next question from Jayson Bedford with Raymond James. Please go ahead.

Hi, this is Matt Wizman on for Jason. Thanks for the questions. So my first question is just a bit on the P&L. Can you speak a little bit to the puts and takes an OpEx? Was that kind of in line with your expectations? Is this the kind of R&D we can expect going forward given that it was up from the PROMISE trial? And then on the sales and marketing side, have you guys hired ahead of expectations or kind of where are you as far as your goals on hiring in reps right now? Thanks.

Sure. So this is Jon, good afternoon. On the R&D side, we do expect there to be some step down throughout the remainder of the year, this was a particularly a very high cash usage quarter because of the PROMISE study, because of the full quarter use of the Bridge program, as well as the ramp up and bringing sales folks up to speed. And so those folks take, as we know, several months to be seasoned and so we expect the hiring pace to slow down a bit the PROMISE study and its expenses should begin to slow. Again, I don't want to say that they're going to stop because they're not, but they're going to start to slow down a little bit in comparison. And so we believe that spend and burn will come down throughout the year not stay at these levels.

Now, I'll ask Mike to speak to where we are from a coverage rep hiring position.

Yeah, we're currently at about 50 reps in the field map and we have a compliment of clinicians in the field also and a customer service organization. We are essentially right on plan with where we are expecting to hire at with those reps continuing to ramp up the productivity probably right about now in the mid year.

Okay, great. Are you able to quantify the one timers on the gross on the COGSA this quarter?

It's about $2 million approximately.

Okay. Okay. And then just a higher level question, for the physicians that are prescribing Eversense what factors they're looking at that that help them determine to prescribe Eversense over another patient besides obviously reimbursement? And then is there a certain type of physician you're seeing prescribe Eversense more than others? Are there any notable trends or similarities among the docs who are prescribing it?

Yeah, so the first one on the patients – its Mike, by the way, Mike Gill, what we see is twofold. It's a patient who's on traditional CGM who's probably transcutaneously fatigue, they've been using transcutaneous centers for years and they really want that next step up in CGM capabilities. And they realize they have to take out a center every 10 to 14 days. And those patients are about a third to half of the patients that we see. And then the other big portion is FMBG, so metering strip patients that are actually the larger portion of the patients are choosing us and those patients have been offered CGM in the past and it just didn't meet their needs. And Eversense fits that needs because it's a long-term strategy or long-term solution that allows them flexibility in their lifestyle with not having to insert every 10 to 14 days. And there's featured things that they absolutely love, the on body vibrations and the ability to take it off when they're actually going to, if you're a female to a cocktail party or maybe a sporting event for a male. So those are really important. And we're seeing that also in why people continue on Eversense and the repeat reinsertion is why they don't go back to traditional. Then in terms of the physician the majority – because that's where we focused on as Tim said the 300 to 400 endocrinologists. The majority are endocrinologists and the nurse practitioners and PA because we're indicated for advanced practitioners are prescribing, but we have several – I think of New Jersey, for example, where there's many primary care and internal medicine, physicians that have actually taken up Eversense just simply because there's broad covered for with horizon and we're seeing it getting to that level. But the primary is yes, there's still endocrinologists where we're starting to expand out into internal med and primary care.

Alright, thanks a lot for the color.

[Operator Instructions]

Okay. Well, Keith, we appreciate that and I think there are no more questions. I would like to wish everyone a good day. Good afternoon. Appreciate your interest in Senseonics. We look forward to updating you in future and enjoy the rest of your week.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation.