Senseonics Holdings, Inc. (SENS) Q3 2019 Earnings Report, Transcript and Summary

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

Thank you very much and welcome to Senseonics third 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 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 all Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, 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 on a gross and net basis, 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. On this call, we will be providing investors with gross revenue in U.S. gross revenue measures to provide meaningful supplemental information regarding our performance and provide better transparency on the impact of reimbursement in the Eversense Bridge program. In accordance with U.S. GAAP Senseonics reports revenue in its financial statements on a net basis, which includes gross to net reductions, primarily related to the Eversense Bridge program. Gross revenue measures do not reflect the gross to net reductions and accordingly may be considered to be non-GAAP financial measures. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with U.S. GAAP and Senseonics non-GAAP measures may be different from non-GAAP measures used by other companies. For information on these non-GAAP financial measures, please see the reconciliation of these non-GAAP financial measures to their nearest comparable GAAP measures in this afternoon's earnings release, which is available on our corporate website at senseonics.com. 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'll provide updates on our recent commercial and operational accomplishments will spend some time reviewing our strategic direction and John will provide more details on our financial results and outlook. To start out, I'd like to highlight several important recent milestones and achievements. First, on reimbursement, I'm very happy to announce that after ongoing engagements with the center for Medicare and Medicaid services over the past several months, CMS has finalized the payment rates for our CPT codes as part of the calendar year 2020 rulemaking process. It's an exciting step forward for Eversense, as it provides Medicare beneficiaries access to the latest innovation in continuation glucose monitoring. In publishing calendar year 2020 physician fee schedules, CMS elected to set are the new values for the existing Category III code used to report the insertion and removal of long-term, implantable CGM devices. We understand the step was taken proactively to ensure a clear understanding of how this new class of CGM devices will be paid for. Through this step CMS is determined that implantable CGMs are categorized as part of the Part B Medical Service and not processed through the durable medical equipment benefit as with all other CGM's. Importantly, the CPT codes we will include the cost of the Eversense CGM system and HCPs may build Medicaid directly to receive a single payment that wraps the cost of the device with their physician service time needed to insert or remove the Eversense sensor. The alternative durable medical equipment benefit has been a challenge, given the regulations around this channel of sale. We're excited to have the opportunity to not only brining an advanced technology to this 61 million Medicare beneficiaries, but also enable a differentiated contingent approach that we believe will reduce the barrier to access and ease the burden on clinics. And Medicare ruling cast a string of positive recent reimbursement decisions for Eversense in the last eight weeks, including Blue Cross Blue Shield of Massachusetts, Healthcare Services Corporation, Humana and more. All of these take us to well over 150 million covered lives for Eversense and well beyond our goal for the first year. These recent pair wins were supported by the strong clinical outcome data, originating from the real world performance, launching student efficacy analysis and multiyear safety characterization of the Eversense System recently published a three articles in the peer-reviewed Scientific Journal Diabetes Technology & Therapeutics. These publications demonstrates that when patients were placed in Eversense, they achieved a compelling and sustained timing range of 62% to 64% with a where time in the mid-80s percentage, all with a favorable safety profile. This strong real-world data has been seminal in supporting some of our recent payer wins. We made important progress in the clinical front too. We've completed enrollments to the PROMISE 180-Day Sensor Clinical Study on track with our expectations. And finally, we raised over 100 million gross proceeds of new capital in July, strengthening our balance sheet. Now looking back first year on the market in the United States, we have learned a great deal about how our CGM System fits into the benefit of the broader diabetes market. We knew that our paradigm shifting long-term implantable CGM technology will require education and familiarization before achieving widespread expectance in the diabetes treatment echo set [ph] system. Our first year users have demonstrated that Eversense has an important place in this market and an additional -- and initial adoption steadily growing. However, it is at a pace slower than our initial planning as we work to achieve stronger coverage, drive greater product awareness and ensure patients who own Eversense can achieve the insertion when desired. Based on the trajectory to date, we expect to conclude the year with the installed base of approximately 4,000 patients with Eversense. We are pleased to already see strong patient satisfaction in retention rates, driven by the sense of unique features and performance. We are establishing traction in the patients, providers and payers and as of the end of the last quarter we exceeded over 1000 prescribing clinicians for Eversense as well as over 450 trained professionals in selling the product in the United States. And while the recent bullets have covered lives is extremely positive, the initial impact was seen in the form of increased market awareness and adoption as well as influence on other payers is expect to begin to realize the sales impact from these recent wins in 2020, albeit gradually as we continue to expand awareness and excess. I would like to take a moment to discuss what we have learned and talk about the key hurdles driving greater adoption and actions that we are taking in response and how we will continue to build for success. We see these learnings about transformational product valuable for our current efforts and prepare for the planned approval of our 100 needed product in the United States. Typically we now have a fuller understanding of the friction points across patients, payers and providers that are governing adoption. Clearly, the most important factor to drive utilizations continues to center on reimbursement, which means firm coverage in place both for the product and the insertion procedures. The recent wins that we've had with underpayments is very positive for acceptance of a device utilization in claims processing. We have prioritized our efforts to create new different solutions to make easier access for patients. One of these significant solutions that we have discussed is our Bridge program, which has been effective in driving a significant portion of patient pool. To date, approximately 50% of the users have utilized some form of participation in the Bridge program. This facilitates the creation of a growing installed base and is increasing the number of doctors prescribing Eversense, all while raising visibility with insurers. The Bridge Program however does come with a significant cost to our top line and gross margin. In an additional effort to drive penetration we have found that we need to play a greater role ensuring patient can conveniently excess physicians who are performing insertions. Currently there are more prescribers at Eversense than providers that are trained to perform the insertion procedures. As a result of this, we have initiated a program called the Certified Eversense Specialist or CEF network. The program provides support to prescribers who are not yet doing or who may not want to do the insertion procedure. It allows endocrinologists, nurse practitioners or Physician Assistants to prescribe Eversense and then refer patients to various specialists for the insertion and removal. The CEF providers can build for their professional timer under out CPT codes standalone or the bundled payment approach. The CEF model has been effective in places like hospital systems where we run into additional requirements for SDPs to place the sensors. The specialists are comprised primarily of dermatologists, classic or bariatric surgeons and primary care physicians. To date, we have approximately 60 certified CEF specialists that are doing insertions and removals in partnership with prescribing primary endocrinologist and we are qualifying and adding more each week. We view the CEF network as another opportunity to expand access to Eversense and meeting with growing need of patients interested in using the product. As we have accessed our progress to date and the key initiative to drive performance, we remain mindful of the capital and time required to implement in yield results from these actions. In effort to reduce our burn and to enable more time for payor wins and for revenue traction we have proactively taken steps to reduce spending and extend our cash runway. To that extent, we have executed expense management plan and a reduction in force across the organization and are reallocating our workforce and project resources towards a more targeted commercial strategy. In our field organization, we have restructured to focus on key geographies where we have established payor coverage and we believe we can more efficiently grow our patient base with deeper penetration into our most active accounts. We are confident in our commercial team and expect productivity to increase over time as additional insurance company and full reimbursement for both product and procedure are brought on board. Now turning to the third quarter results, in order to provide better visibility on the impact of reimbursement and our Bridge program we will describe our revenue in two categories gross and net. Gross revenue is what we would have recognized in U.S. from entirely reimbursed stations without the economic considerations of the Bridge active program. We believe gross revenue gives us an important indicator to better understand market demand for a product where users are not faced with significant gaps in insurance reimbursement. Because the cost of program subsidy varies by plan and individuals current deductible and insurance provider, the net revenue calculation is complex and varies widely from patient to patient and changes throughout the year. Net revenue is an actual recognized revenue in our P&L. In the third quarter total net revenue was $4.3 million, of the $4.3 million net revenue $1.5 million was U.S. and $3.8 million other was OUS. Gross revenue was $5.9 million prior to gross to net adjustments for the U.S., primarily related to the Eversense Bridge program. Looking ahead, we expect the continued use of the Bridge program will impact our recognized revenue for 2019. Given this, we now expect net revenue to be in the range of $20 million to $22 million with gross revenue to be in the range of $25 million to $27 million. We believe our continued investment in the Bridge program is appropriate for driving patient access in the U.S. market as we continue to expand reimbursement. At a high level, even it was a recent covered win the aforementioned barriers to adoption remains, encouragingly while we continue working to drive increased awareness of Eversense, and build the patient ramp, and obtain more coverage, we continue to receive very encouraging feedback on Eversense as a powerful tool providing lifestyle, convenience and enabling improved disease management to those that choose it. The centre procedures are brief and straightforward and patients appreciate to discrete vibrating alarm and the freedom to remove the transmitter and replace it with [indiscernible]. These positive patient experiences and recently published strong clinical data combined with our digital marketing campaigns are helping to increase awareness of Eversense in the diabetes community. Moving on to product development, we have focused our spending while maintaining the key resources in our clinical and R&D groups to strategically align our most critical business initiatives. Our top priority, the 180-day sensor is an important part of for future and we're continuing to invest in redefining what long-term duration means in this CGM category. We remain 100% committed to our efforts to advance the 180-day sensor and keep the timelines associated with the important next generation products on-track. We were pleased to recently announce the completion of enrolment of PROMISE 180-day sensor clinical study, 181 patients has been enrolled across eight sites across the United States. This trial is running for a 180-day, meaning the final data should be available for analysis at the end of the first quarter 2020. We plan to prepare a submission to the FDA in the months following. As a reminder, we intend to use the data from the first 90 days of the trial in an interim analysis to support a supplement submission to its iCGM designation for the current 90-day sensor and the balance of the data later in the year to support our 180-day registration in the U.S.. It is our hope to achieve the iCGM designation in the first half of next year and 180-day approval late in the year both depending on data and regulatory processes. Transit coming to Europe where we celebrated 3 years of commercial availability; First, with the original 90-day system and now with our current extended life Eversense XL. We may now have over 1,000 clinics and nearly 1,500 training providers in 14 countries through the end of Q3. In the quarter we generated revenue of $3.8 million from shipments to Europe as the sensor utilization of 67% compared to the prior year. Roche is progressing with efforts to take Eversense into new markets through regulatory approvals and product registrations in select CGM ready countries in Europe, Asia-Pacific and Latin America. The timelines of end market approval vary and can be unpredictable, but we expect to launch in the new markets to be later in 2020. Last month in partnership with our newest distributor; DYN Diagnostics, we initiated a controlled launch of the Eversense XL system in Israel. This marks our first entry into the Middle East. DYN Diagnostics is an established diabetes product distributor and is in fact an exclusive distributor; monitoring [ph] diabetes product's in Israel. Israel has well-established CGM reimbursement with sick funds and we're looking to work with those funds to set reimbursement. The controlled launch was initiated in four clinics with successful on-boarding of both type 1 and type 2 patients on insulin. Finally, I would like to update you on some organizational changes. First, I am pleased to announce that Dr. Fran Kaufman, our Chief Medical Officer has been appointed to also serve on our Board of Directors. He has long distinguished career as a leading clinician, ADA leader, business executive and humanitarian in the diabetes field. Fran brings a unique and valuable understanding of the needs of our patient and dynamics of our market. We look forward to Fran's continued contribution also as a member of the Board. Secondly, we are pleased to have Rudy Thoms, leading our U.S. sales efforts going forward. Rudy brings with him over 20 years of experience in diabetes field management and we are confident in his leadership of this important function. Mike Gill, the former Vice President and General Manager of the U.S. region has left the company to pursue other interests. Finally, we are pleased to announce that Nick Tressler will become a Chief Financial Officer. Nick, our current Head of Financial Planning and Analysis is an experienced financial leader with deep operational finance skills in a range of experience across companies of varying sizes. Jon Isaacson will transition from the CFO roles to pursue other interests and will remain with the company through the end of the year to ensure an orderly transition of responsibility. Please join me in congratulating Fran, Nick, and Rudy and thanking Mike and John for their service. I'll now turn the call over to Jon for detail on our financial results.

Thank you, Tim. For the three months ended September 30, 2019, we generated $4.3 million of global net revenue compared to $5.2 million in the prior year period. The decrease was attributable to timing of sales at the Eversense system in Europe based on the contractual timing of purchases throughout the year. To provide increased access to the Eversense CGM system in the U.S. for patients with limited or no insurance coverage during Q1 2019, the company introduced the Eversense Bridge program. Cost associated with the program are treated with a gross-to-net reductions to revenue under U.S. GAAP accounting. For the three months ended September 30, 2019, we recognized net revenue of approximately $500,000 and gross revenue of $2.1 million. We expect that on a go-forward basis there will be fluctuations and quarterly bridge cost that may affect quarterly revenue recognition. To reiterate Tim's comments, we are confident that our investment in the Bridge program is helping patients gain access to our product and demonstrating the utilization of Eversense in the marketplace. We are pleased with the experience of the products with patients and physicians. Gross profit in Q3 2019, decreased by $800,000 year-over-year to negative $3.3 million, compared to negative $2.6 million in the prior year period. The decrease in gross profit was primarily due to lower net revenue in our OUS region, compared to the same period in the prior year. Third quarter 2019 sales and marketing expense, increased by $3.7 million year-over-year to $11.6 million, compared to $7.9 million in the prior year period. The increase was due primarily to the build-out of the sales force and commercialization efforts in the U.S. Research and development expense in Q3 2019, increased by $3.7 million year-over-year to $11.1 million, compared to $7.4 million in the prior year period. The increase was primarily driven by the 180-day PROMISE clinical study. General administrative expense in Q3 2019 was $5.4 million, an increase of $300,000 compared to the prior year period and includes compensation, legal and other expenses supporting operational growth. For the three months ended September 30, 2019 total net loss was $19.5 million or $0.10 per share compared to $31.9 million or $0.18 per share in the third quarter of 2018. From a balance sheet perspective as of September 30, 2019, our cash and cash equivalents were approximately $131 million, outstanding indebtedness was $144 million. This includes the over $100 million of gross proceeds and new debt and equity capital raise in July. Turning to guidance and the points Tim provided previously regarding patient access is a key element to the commercialization of Eversense in the U.S. We have made significant progress in the past months with coverage and we have been utilizing our patient access Bridge program while we in parallel work with payers. Inclusive of our expectations for the likely impact both in terms of timing of revenue recognition related to the Bridge program, we are revising our guidance of global net revenue for full year 2019, which takes into account the effects of the Bridge program and now is expected to be in the range of $20 million to $22 million. This compares to the previous expectation of $25 million to $30 million. Gross revenue, which includes gross-to-net revenue reductions primarily attributable to the Bridge program is expected to be in the range of $25 million to $27 million. As I mentioned we completed financing transactions in July which generated over $100 million in aggregate new gross proceeds and capital through a combination of a term loan agreement, convertible debt, and equity. With this raise, we meaningfully strengthened our balance sheet. Additionally, on November 7th, 2019, the company initiated a restructuring plan designed to meet the following objectives. First, we set strategic goals based on learnings from our first year of U.S. commercial launch. Second, enhance the customer experience with our Eversense CGM system including outcomes, longevity, reliability, access, support, and training. Third, focus on executing pathways to successful launch of 188 products in the U.S. And lastly and most importantly, reduce cash for to support these activities while minimizing near-term solution and ensuring the best allocation in the capital. Restructuring results in the immediate elimination of approximately 30% of current open and planned headcount. With that, I will now turn it back to Tim to take the call back over.

Thank you. So, in conclusion we remain immensely confident in Eversense and our ability to prominently place it in this market over time. Patient awareness of Eversense is growing every day through our commercial activities including online marketing, our social media presence, and we also note that the social segment of the uses of Eversense is very strong. Payers have been receptive of our clinical data and differentiated product and this has supported our recent wins. We are excited to see a win with a large payer like Medicare and look forward to progress with the remaining payers. The cross providers, the willingness to perform the insertion, and removal procedure is growing as clarity around procedure payments from the payers is obtained. This, in combination with our CES program, will further expand reach. As we expand our installed base, we have taken actions to streamline organization and focus on cash utilization and gross margin. And as covered lives increase, we can thereby reduce our need for Bridge program. We have taken a series of steps to drive progress in each of these areas with a focus on the product, the organization, and our users. Based on what we have learned in the first year of U.S. commercialization and our ability to adapt, to support our paradigm shift in product, we are as confident as ever that as more patients have access to Eversense, we will be able to bring the benefit of our leading solution to an expanding and satisfied user base. With that, we now conclude our prepared remarks. Joining us for questions are Mukul Jain, Chief Operating Officer; Mirasol Panlilio, Vice President and General Manager of Global Commercial Operations; Nick Tressler and Chip Moebus, our Senior Director of Reimbursement and Market Access. Operator, let's open up the call for questions.

Thank you. [Operator Instructions] And we'll go first with Jayson Bedford with Raymond James.

Hi, good afternoon and thanks for taking the question and congrats on Medicare. So, few questions. I guess just from gross to net reductions, remind me were there any adjustments in the first quarter?

Yes, there have been adjustments in relatively modest in the first quarter as we didn't implement the gross to net until March; it was 22% net and then the second quarter--

In the second quarter, it was 54.8%. In the first quarter, 22.9% reduction.

The reduction in what, sorry?

It's a reduction in gross revenue to get to net revenue which is GAAP reported revenue.

Okay. So, I guess I haven't done that math, but did U.S. gross revenue -- can you just compared U.S. gross revenue in 3Q versus 2Q? Did it a decline quarter-over-quarter?

Yes, it did. It went from $2.4 million in Q2 for U.S. gross to $2.1 million in Q3.

Okay. Okay. Thanks. And I guess previously you've talked about the U.S. business -- or sorry the U.S. business generating roughly 30% of total revenue for the year. What's the updated expectation for the U.S. contribution based on that $20 million to $22 million in guide?

I think based on where you actually see now Jayson it's about 20%.

Okay, perfect. And then I don't know if you have the data there, but what's the national value of the CPT code in which physicians will be paid under Medicare absolutely?

The RVUs vary by the procedure. I don't have the dollar values Jayson, but it's -- the RV values that are little bit over 50 for an insertion and an insertion and removal, somewhat less for a removal.

Okay. And then finally just I think I heard you Tim, the expectation for 180-day that's still approval obviously pending the FDA at the end of 2020, is that correct?

Correct, correct. No change at all for that timeline.

Okay. Perfect. So I'll drop. Thank you.

Thank you.

We'll go next to Danielle Antalffy with SVB Leerink.

Hey, good afternoon and thanks so much for taking the question. And a lot of transitioning, so congrats to everyone that is moving onwards and upwards. Tim, I was hoping you could elaborate a bit more on what drove the sequential decline in U.S. gross revenue, first of all. And the second of all, I appreciate that you're not a position to give 2020 guidance yet, but it feels like the momentum is building, you feel like you're at or approaching critical mass from reimbursement coverage perspective. So help us sort of balance that with what you're seeing out there in the marketplace today and the different friction points you guys talked about to sort of help level set us as we look towards 2020.

Sure. So from a revenue perspective, remember our revenue, the way it works for us in the United States is we have regional or area or contracted distributors that partner actually with the different payers. So our shipment to them can be somewhat variable as they build and hold different levels of inventory and we did have some shipments that were very early in Q4 that potentially could have been back in Q3. So it had to do with the dynamic of filling that channel with the distributor. You're right, it's a little bit too early for us to get into 2020. We'll give an update certainly on the next call. But as we've made pretty significant changes in the covered lives, obviously, that's in the right direction and will certainly help us with the growth and the access. So, we as well, feel very good, obviously, about those improvements and what that can bring us for the future.

And if I could follow up on that. I mean, one of the questions I often get is, do you need 180-day sensor to really drive the inflection in the U.S. and I'd be curious as to how you'd answer that. I mean, you're obviously progressing, well, towards that, but, I mean, may be based on your experience in Europe, do you think that's the real point of inflection here, is getting that 180-day sensor? Or do you think you can get there with a 90 day? Thanks so much.

Yes. We've certainly -- we feel very confident and very good about what we're doing with a 90-day product. The people that are accepting it are those folks that are most interested in that long-term duration. Remember, their frame of reference today is typically 10 or 14 days. So to go from 90 days or up to 180, both are pretty significant change. That said, we do recognize that the 180-day has different economics on both ends and we also recognize that for the greatest penetration it makes sense for us to continue to move to Gen2 and we continue ultimately to be focus to move to our 365 in the future. So we do see it as an improvement. From an inflection point, certainly we feel very good, we have 1,000 physicians right now in the U.S. that are prescribing Eversense. Right? There are about 2,100 endocrinologist in the U.S. that are practicing and we expect they were going to continue to make good progress. We've essentially doubled in the last quarter from about 500 to 1,000 prescribers. We'll continue to push that with a 90-day product. All of this reimbursement work that we've done is with the 90-day product, so that continues to be very favorable for us and the right level of investment for us to make. When 180 comes, we'll continue to leverage that. We do expect it will drive more penetration, but I don't think that it necessarily by itself is going to be a key point of inflection. I think it will be part of continual of growth that you'll see in the 90-day product and even further growth with 180. Hope that helps.

Thank you. Yes. That’s very helpful. Thanks so much.

[Operator Instructions] We'll go next to Alex Nowak with Craig-Hallum Capital Group.

Great. Good afternoon, everyone. I just want to touch on the restructuring here with the sales force and Mike Gill leaving. What sort of impact are you assuming here to U.S. sales and physician insertions in the near terms, specifically Q4 first half of 2020? And what is the annual OpEx reduction as part of the restructuring?

So from a strategic implementation, I'll answer the question. We do want to make sure that we have the right level of investment for the opportunity. So it's a fine line we walk between the payor coverage that we have and the regional coverages that are in place. We have a strong commercial team. Mike certainly contributed to the organization, but the team that is in place right now is very, very strong and capable as well. So there certainly will some transition in Q4 and can have a slight effect, but we don't anticipate that it will be a long term or permanent impact on the efficacy of the sales force. We will ramp up investment as we grow in covered lives, as we bring some of the bigger payers online. Just for clarity, the remaining commercial -- largest commercial peers that we don't yet have are United, Anthem and Cigna and we continue to work on all of those. As those covered lives come on, I would anticipate that we would have further incremental resources and do more broad-based coverage.

Okay. And just the dollar amount for the annual reduction to OpEx?

Yeah. Sure, so this is Nick. I think, obviously, we’re now commenting as we think through what are 2020 finalization looks like. Clearly we’ll see savings in three areas, specifically headcounts, obviously, approximately 30% of both open or current and then planned physicians, as well as reductions in external expenses for OpEx, as well as improvements in our cost of goods sold. But at this stage we'll finalize our 2020 numbers and look to have further conversations with our next update.

Okay, Understood. And then Jon, could you just walk me through the accounting real quick on the net U.S. revenue from the Bridge program. I know there has some been, obviously, some discussion here in the Q&A. But net revenue this quarter was 25% of the gross. Since the 50% of patients who got Eversense to the Bridge program, so just trying to understand the delta between these two numbers.

Sure. Yeah. So the gross revenue, the reduction there is three components, the major piece being the Bridge access program. There is also than program discounts as well as co-pay [ph]. The difference then is the utilization of patients, which is approximately 50%, 54% for the quarter and then the payments, which include not only the sensors but also then additional cost for procedure. So, the dollars that are greater than the actual percentage of patient usage.

Hi, again. Depending on the patient together, they have a co-pay that's assisted or whether they have a full -- need the full assistance, they pay $99 as a minimum and then with the E&I coverage, the Bridge program would support the balance. If it's to support a deductable, it would be a partial payment.

Okay, got it. Last question real quick. As we all know you had the contractual obligation out there with Roche in Q4 to have a comeback and buy a bulk order across for 2020. As you're doing the forecasting for 2020, are you seeing that Roche is actually using all of their inventory that they have on hand and thus needs to come back to the market, or come back to you guys to buy some versus having to the contractually obligating to buy something in Q4?

The contract we set up was the anticipation of their need, but also as I've suggested before, they do buy in bulk quality. So that they are -- sure they have continuity to supply and they also plan for different market utilization. So their planning is purposeful by the contract to built some inventory and then they lead it off throughout the year. For our manufacturing capability, we don't let them purchase everything in one quarter, which they like but they do build inventories specifically by design as to what they're looking to do in the fourth quarter.

Okay, understood. Got it. Thanks.

We'll go next to Mathew Blackman with Stifel.

Good afternoon and thanks for taking the question. Tim, you mentioned things moving slower than you planned in year one, and I think we have a feel for where the headwinds are, but I think from the things you've outlined like the recent reimbursement wins, the procedure initiative, and with targeted commercial strategy, do these address the biggest headwinds that you see out there? Or are there still larger items to tackle?

Yeah. When you take a look at what the top three issues are, obviously, reimbursement is at the top of the list. We've made good progress on that. You may recall that we are targeted to do 100 million out of essentially 250 million in the first year, and we've been able to move beyond that. So we're excited by the results that we've been able to get there. Secondarily, of course, with any natural release of a new technology, obviously, awareness is another area that we focus on and our efforts are parallel, a lot of this is done for the more active users as web-based through our digital marketing campaigns, but also you do need to reach out to the prescribers and educators as well and that we do through the sales force. So that's a continued growth area for us. We continue to make investments in that area. And then the third area is just getting many of the folks available to do the insertions and procedures as we can for patients. Right now, we have more patients than prescribers that are doing the procedure. Some of that is due to the fact that they're going through the training program. It is a requirement that before you can get certified, you need to do three insertions and three removals, and we have a team's working on that with the new prescriber and bringing them up to speed. In other cases when you have a multi professional clinic, you may have only one that’s doing insertions and you've got two or three or more that are doing scripts. In cases like hospital systems, we have run into some issues with hospital systems, because the complexity of getting a new procedure introduced that has taken us some time. So the CEF network has worked extremely well in those cases in the internal, while the hospital system is coming up to speed, we can do insertions perhaps in dermatology or surgery and build to our existing core. So all of that has worked as part of the growth I think in differentiation that we do need to work through as an implantable product, but we feel pretty good about it. I would say, it's certainly number one reimbursement we are beginning to get some good traction there and then number two is the use of new technology variants.

I appreciate that. Thank you. And then just shifting to the more targeted commercial strategy, could you give us some idea of the number of reasons or number of physicians that you're now going to focus on. And I guess really what I'm getting at is there, any way to sort of think about how much more productive some of these more targeted accounts might be then sort of broader to office physicians you are trying to service up until now?

Yes. I wouldn't say that, we’re not going to abandon any particular physician that may be doing the insertion today. I think what we will focus on is to make sure that we get more efficiency out of those particular offices, so it may be that instead of seeing a record leap they may see a record leap every other week if they are not any region with large, large coverage. So we won't be walking away from many, but we will be more focused in two areas. First, as we said deeper penetration into those that are prescribing today where we have coverage. The other area that’s frankly has been pretty attractive for us is in area of digital marketing. We are seeing and encouraging increase in the level of leads that are coming out of those campaigns. The most active users tend to be very, very efficient, very influenced by digital and social input. So we've got a pretty good investment that's going on in that space that's frankly independent of sales team on the streets. So those two efforts is how we intend to tackle it. As we get more coverage and bring some of the bigger wins in and then we'll reserve the right to come back and add to them through that as it makes sense.

All right. Really appreciate. Thanks so much.

We go next to Kyle Bauser with Dougherty & Company.

Hi, thank you for taking the questions and probably updates today. So Tim, regarding the Bridge program so we’re clearly seeing some nice adoption of Eversense and generated some nice prescription numbers and as you talked about the key feature of this has been being able to build up a track record of insurance manipulator and the strength in there argument for positive coverage begins and there well has to be a goal of 109 million covered lives by year-end. Can you just kind of talk about any anecdotes or situations where the increased utilization generated from this Bridge program has helped you in your discussions with the payers?

Yes. We certainly know that that's adjacent to couple. One is Humana, right? We had a pretty active effort to fund Humana patients to the Bridge program. We supported that with our single case negotiations. So as patients come in, we would work for them through their E&I journey and ultimately, we feel pretty good that we got to the point with Humana where they recognize that they were denying more claims than they should be and frankly reverse the decision. I would say another is HCSC which is another big focus for us, right? They are top 10 provider; Texas, Illinois and couple other large -- it's a Blue conglomerate. We have a lot of utilization out the Texas and a lot of that -- again the same single case negotiation that we think really won the day with them returning what was and the E&I designation on by of October 15, I think to fully support it. So add investment but it certainly has already paid off and we expect that to continue to be the case.

Okay. And the effective program, the Bridge programs in particular, typically have some good traction Q1 since adoptable was reset, do you anticipate keeping the Bridge program through Q1? Any kind of update as to how long you think this will be kept on?

Good question. But Kyle, with this one, we are going to get back to you with specifics on 2020, on the next call. But I do recognize and you're absolutely right this is a pretty typical program that's used in the pan healthcare space whether it be medical devices or pharmaceuticals as you correctly state, deductibles are reset on January 1, hence a bigger push by all in Q4 and you see a pretty notable drop off in Q1 which I'm sure we will experience as well and companies will try to moderate that with programs such as this. So we are not ready to comment on it, but your premise is absolutely right and one that we will certainly will be thinking about as we going to implementation. But we also need do to manage the reality that we have these new wins. Medicare is a very big deal with a big opportunity. This different payment methodology we don't want to underestimate. It significantly simpler to get a CGM as a medical service than it is through durable medical equipment. And you need to fully understand that as we build our plans for 2020.

Understood. Thanks. And just lastly on the clinical trial, can you remind me what the status is of the IDCL Trial? Thank you.

The IDCL Trial is right now on hold due to discussions with Roche and access to their control algorithm. So I don't have an update. The product is ready to be tested but I do think their business discussions that are going on with Roche.

Okay. Thank you. I’ll jump back in queue.

[Operator Instructions] We will go next to Kyle Rose with Canaccord.

Great. Thank you for taking the question. Just I haven't asked but I want to follow-up on can you talk about the 30% reduction in either existing or planned headcount. Can you just may be fragment that a bit for us and how much of that is customer facing on the commercial perspective and how much of that is on the back end of the support of the organization?

I would say it's about half maybe 40% but it was across the entire organization. But we did do some modifications in the sales organization as well. It's a very, very specific on, focus on obviously, the coverage areas. We didn't do anything that we did in fact areas where we do have good strong coverage today.

Okay. Great. And next…

And to serve those doctors -- sorry Kyle. We'll continue to serve those doctors but we'll just -- we've got little bit bigger territories than we previously had.

Okay. That's helpful. And then you also talked about OUS and Roche thinking about entering some additional concretes in 2020 maybe just give us an understanding of how big of an opportunity some of those may present?

Hi, Kyle it's Mirasol. I'll give you certainly an update beyond what Tim has already included in the script. We've been working with the Roche commercial team to really set the foundation for next year. And the markets that we're looking at are really the CGM-friendly markets in Asia Pac, in Latin America. And so we are just prioritizing those markets. Some are fairly large but the product registration and the end market regulatory approval is probably what's holding us up. I can tell you that there shows a lot of excitement in those markets with the product like Eversense into the fold. So we'll continue working with Roche and their local markets our next meeting with them is going to be February, so we'll just keep that in the books in terms of additional markets probably more in the second half of 2020 rather than on the first half.

Okay. That's very helpful. And then just last question for me. It is just -- have a PPD code that goes live in January. At that point, can you bill for all of Medicare? Or do you have to engage the max on a max by max basis to get individual contract? I'm just trying to understand if it were in Jan 1 impact or if it's something that we should see a cadence over the course of 2020?

Yes. It's very interesting Kyle, the CMS Group, specifically the medical services group was very, very supportive and very, very interested. So, by then setting the national RV you values they are actually instructing the regional max to user as a national decision. And they did that to try to facilitate the use of the product. We feel it's very appropriate for their population and they are very interested in expanding the implantable sensors. So, we will not have to negotiate with the max. We will -- they will be using the RVUs as directed from the Baltimore Group. And although we aren't completely ready the CMS was so interested that frankly they retroactively dated it to last Friday. So, officially it's available today. We're not ready to SKUs yet, it will take us a couple of weeks to send those out. But they were very aggressive in bringing this new technology out and we very much appreciate their support.

Okay. Thank you.

And this concludes a question-and-answer session. I would now turn the conference back over to Mr. Tim Goodnow for any closing remarks.

Thank you. I do appreciate everyone's time. Also recognized there are a number of questions on gross to net. We have been using gross to rent ever since we introduced the Bridge program. The gross revenue suggest just that the indicated revenue it would correspond to the total amount of product whether it is paid for by the insurance company or is subsidized by us. But through accounting practices, since we can't recognize any revenue that we support through the gross to net, that result in a revenue reduction our net revenues. So, we've reported in the past the net revenue which is deduction of everything we've supported through the Bridge. What we're sharing today for clarity is both the net and the gross. So, the difference between the two is the contributions essentially that we've been making in bringing this product out. I hope that helps, it's a pretty straightforward. But again GAAP does not allow us to recognize revenue if we financially support it which is why we need this program. So, I hope that clears up happy to chat live there anymore further questions on that. But I appreciate everyone's time and interest and look forward to communications. Take care.

The conference is now concluded. Thank you for attending today's presentation.