Senseonics Holdings, Inc. (SENS) Q2 2020 Earnings Report, Transcript and Summary

Tim Goodnow - President, Chief Executive Officer Nick Tressler - Chief Financial Officer Mukul Jain - Chief Operating Officer Mirasol Panlilio - Vice President, General Manager of Global Commercial Operations Lynn Lewis - Investor Relations, The Gilmartin Group

Good afternoon and welcome to Senseonics Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Lynn Lewis, Investor Relations. Please, go ahead.

Thank you very much and welcome to the Senseonics second quarter 2020 earnings call. This is Lynn Lewis 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 our Annual Report on Form 10-K for the year ended December 31, 2019, our 10-Q for the quarter ended June 30, 2020 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 2020 outlook. In light of the COVID-19 pandemic, 2020 financial guidance was suspended on March 26, 2020. On this call we will be providing investors U.S. GAAP net revenues and 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 more 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 Nick Tressler, Chief Financial Officer. With that, I’d like to turn the call over to Tim Goodnow, President and CEO. Tim.

Thank you, Lynn and thank you all for joining us. Before we begin today, I'd like to offer our thoughts to everyone that has been affected by the wide reaching impacts of this public health crisis, including the economic hardships experienced across our communities. As an organization the health and safety of our employees and their families our top priority. We have taken every precaution to ensure a safe work environment and will continue to be diligent for our efforts to limit infection risks across our community. This afternoon, in addition to our second quarter financial results, we have exciting news to share regarding the future advancement of Senseonics. Our efforts exploring strategic alternatives to increase stakeholder value have culminated in agreements with Ascensia Diabetes Care that were announced earlier today. Together, we have entered into a collaboration and commercialization agreement with Ascensia, concurrent with the financing arrangement with PHC, the parent company of Ascensia, a KKR portfolio company, as well as an additional financing agreement with Masters Special Situations, an affiliates of Masters Capital Management. The focus of our call will be on the details of these agreements and what it means for Senseonics moving forward. We feel this is an ideal result for our shareholders, users, healthcare providers, payers, the company and our partners towards ensuring patient access to the only long term, CGM on the market. The partnership with Ascensia is designed to combine the strength and leverage the complementary competencies of each organization through a highly collaborative relationship. The agreement is structured to align incentives for mutual benefits through penetration of the CGM market with our current and future Eversense products. To start, we think it would be helpful to provide some background on our partner to frame why this is such an exciting opportunity. Ascensia Diabetes Care is a subsidiary of PHC Group, formally known as Panasonic Healthcare Holdings, which is a KKR portfolio company. PHC Group was formed as a spin-out of Panasonic’s Healthcare Assets and a transaction with KKR in 2013 resulting in KKR as the majority owner of PHC group. Since then PHC group is focused on creating a Portfolio of Precision Digital Diagnostic Companies spanning across healthcare. Over the past five years PHC Group has acquired not only a Ascensia Diabetes Care, but also the anatomical pathology business from Thermo Fisher that focuses on precision cancer diagnostics and LSI Medience Corporation, a provider of clinical and non-clinical diagnostic services. Ascensia is a growing global market leader offering premium connected glucose monitoring systems and testing supplies to over 10 million worldwide people with diabetes and over 125 countries. With operations in over 31 countries marketing products across North America the EU, Asia Pacific, Middle East and Latin America. Ascensia has a global growth focus strategy, offering the glucose monitoring devices with the largest market share in Europe. Their contoured BGM can be used along with diabetes apps that allow for greater advancement in diabetes care, with insulin pumps, with CGMs and as a component of closed loop systems. As described, their global focus combined with products that have been designed to lessen the burden of diabetes management for patients worldwide. At Ascensia we of course share a similar philosophy, which will help drive synergies between our organization and create an effective long term partnership. We are excited to be partnering with Ascensia to be bringing Eversense to their expansive base of people actively managing their diabetes. Regarding our financial agreement with PHC and with the additional financing agreement with Masters, I will touch on the financing components at a higher level and let Nick provided additional details later in the call. We have strengthened our balance sheet. First, we have agreed to issue Senior Secured Convertible Notes to PHC in the amount of $35 million with a company option to issue up to $15 million of convertible preferred equity following the receipt of FDA approval for the 180 day Eversense product in the U.S., and upon receipt of any required shareholder approval which might be required by the NYSE American Listing Rules. Now to the second financing agreement. This one is with Masters Special Situations. In this agreement we intend to issue up to $30 million in convertible preferred equity to Masters and affiliates. The funding will take place in up to two closings, with the first closing for an initial 10% of the investment expected to occur on or about August 14, MSS has the option to purchase up to an additional $27 million of convertible preferred equity in a subsequent closing that is expected to occur within the next three months subject to the receipt of stockholder approval. The combined capital of up to $80 million will primarily be used to support manufacturing operations for the ramp-up of the 180 day product in the U.S. if approved and product development of future generation products, as well as to repay the Highbridge first lien term loan balance. Given the decreased organizational requirements resulting from ADC providing several significant commercial functions under the collaboration agreement, we expect our operational expenses will be significantly below historical levels as we described on our last call. We expect that if all the potential capital available under these agreements is accessed, we will significantly extend our cash runway through 2021. Regarding the second component of the agreement, the collaboration and commercialization agreement is intended to be in close commercial partnerships to maximize the value of the Eversense system in the global market. Senseonics will maintain pipeline and product development, regulatory, manufacturing and branding responsibilities, while Ascensia received sales, marketing and distribution rights for current and future products worldwide for approximately five years following the 180 day product availability in the U.S., and in certain circumstances that period may be extended. From an established position in the diabetes management market, Ascensia has been identified with an opportunity and potential for Eversense as a differentiated CGM technology, and is committed through this agreement to partner with us to drive commercial adoption and market penetration. Ascensia will be providing significant commercial investment for Eversense in both U.S. and OUS operations over the agreement horizon. While the economic terms of the agreement will remain undisclosed, incentives are aligned through the revenue sharing structure. Early in the term the waiting will favor Senseonics, while sharing shifts towards Ascensia later in the term. To initiate the partnership, Ascensia will begin conducting pilot sales and marketing activities in the U.S. this quarter, with a significant ramp of those activities expected to begin in Q1, 2021 subject to the 180 product approval. During this period the two companies will work hand-in-hand to share and transfer the Eversense knowledge base to Ascensia's commercial team, providing real world, hands on new patient and provider onboarding experience as we advance the installed base. We have a pipeline of providers who would like to be trained on the product, as well as patients interested in being first time users. These 2020 efforts are expected to prepare the market for the next generation 180 day sensor launch in early 2021 if approved. Once the transition phase is completed, Ascensia will take primary responsibility for sales, marketing and market access, in addition to patient and provider support. Ascensia’s current plans include providing approximately 30 direct sales staff in 2021, ramping to more than 80 by the end of 2023. In true partnership form, we have together identified joint work streams, headed by leaders from each side to ensure a smooth transition. I am pleased to report that the teams have started to meet and their level of engagement has been naturally positive and collaborative. Product and clinical teams have been identified and collaboration structures is being reviewed. Customer support is also being set up and marketing programs are being advanced. Joint governance committees will be established comprised of members of both organizations to create comprehensive commercial infrastructure plans and budgets and drive closed cooperation on this endeavor. Objectives will be set by these groups to determine marketing budgets and revenue goals that both organizations are incentivized to meet. Customer and patient support will be handled collaboratively as well. Ascensia will handle the frontline interactions with users globally. This will consist of product use, performance, ordering, return and warranty enquiries. We will provide the second line of customer technical support. We will handle and be responsible for warranties, regulatory reporting and liaising with our engineering manufacturing teams. Healthcare provider support will be managed by Ascensia following the hands on field training and transition period. We know they share the goal of providing the highest level of quality, clinician training and clinic support because we both understand this creates positive patient outcomes, creating long term partnerships with providers is the goal for both organizations. Today we remain focused on market access in the U.S., where we now have approximately 200 million covered lives, including Medicare, Medicare Advantage and Commercially Insured Patients eligible for reimbursement for Eversense. As in other areas, we will assist Ascensia in a transition of these responsibilities in the coming months, including working together to gain additional reimbursement. Armed with the real world clinical data and the additional value add of Eversense that last up to 180 days, we are confident we will continue our progress in obtaining broad based coverage. Outside the U.S. we will not be renewing our distribution agreements with Roche and Rubin Medical when they expire. Until expiration we expect these agreements will stay in full force and that we and our current partners will work together to effectively serve the needs of patients in those markets. Upon transition, Ascensia will be focused on the markets of Germany, Italy, Switzerland and Sweden, where Eversense is already commercially available. In summary, Ascensia’s responsibilities beginning with a transition period and extending to the launch of the 180 day product in the U.S. include all aspects of commercialization and frontline patient and provider interaction, from downstream marketing to sales detailing, onboarding, patient retention and support. Historically, this has been the largest cost in use of resources for our organization. This change to our cost structure will ultimately be beneficial for our progress towards profitability. From a high level, product and brand development, regulatory approvals and manufacturing are now our core responsibilities. One of the most important parts of this agreement from our perspective is our ability to now focus on product development and the future generations of our game changing CGM Technology. We feel that we can be in better control and drive the value creation process through this division of responsibilities, with a goal of bringing people with diabetes, additional features and extended wear on the backbone of our existing technology. Regarding our operations in the second quarter, revenue was weak, primarily due to the forced halting of the U.S. commercial operations in March after the Solar Capital debt returns and the effects of temporary patient difference resulting from the pandemic. In the quarter we generated total net revenue of $260,000, as distributors reduce existing inventory levels. During March and April, insertions were notably reduced as many clinics in the country were shut down or in restricted access. We did see some positive trends in May and June, but we are still seeing insertion volumes below pre-COVID levels. Given the slowdown in insertion rates, most of our fulfillment partners are still working through their inventories and shipments into the channel are minimal in the quarter. Through all of this however, we are happy to continue to see reinsertion rate in the U.S. of over 85% in patients who are in the third and fourth sensor. These patients have been users since early in our launch and this is a strong testament to the positive patient experience Eversense provides. This underscores our belief that there will continue to be a large opportunity to satisfy the needs of people with diabetes, and that we are pursuing a very committed patient population who are focused on their diabetes management, especially in these current trying times. Similarly with Roche, they did not order product in the quarter, and they served their needs from their existing inventory. They have reported an increase in insertion volumes in June as well compared to earlier in the quarter. Very important for patient access, we continue to see positive progress on the reimbursement front as well. Notably, CMS this past week released its calendar year 2021 Medicare Physician Fee Schedule Proposed Rule. In this they announced policy changes for Medicare payment. This year this included the proposed establishment of National Payment Amount for our three CPT Codes as a Medical Benefit, rather than as part of the more cumbersome durable medical equipment channel that includes the other CGMs. These codes described the insertion, removal and combined removal and insertion of the implanted interstitial glucose sensor. Currently Eversense is contractor priced by the regional max. Through this proposal which is set to be effective January 1, Eversense will now receive a national coverage for the three CPT Codes. This is significant in a highly differentiated opportunity for Eversense. Additionally, we've also had continued progress in the commercial payer space as well, especially with multiple Blue’s plans, most recently including coverage by Highmark, one of the top 10 largest healthcare insurers in the U.S. To place this opportunity in perspective, in 2019 in the U.S. Senseonics grew patients by nearly 4,000 users with an average of only 30% of covered lives for the period. Eversense now has approaching 80% insurance coverage in the U.S., with over 2,000 prescribing clinicians and roughly 550 authorized insertion specialists. Due to our capital constraints associated with the Solar Capital debt, the company has not yet been able to take advantage of this increase in coverage. Given our current position with the signing of the collaboration agreement and financing agreements, we now expect to be in a position to capitalize on the increased coverage and to resume growing our patient base in partnership with Ascensia. Transitioning to our pipeline development initiatives, as we mentioned our top priority is the PMA submission for our 180 day product in the U.S. With the execution of the agreements announced today, our organization is focused on preparing this submission. We are pleased to share that we remain on track to make the submission in coming weeks. Following the PMA supplement submission in the U.S., our priority will be to bring the improved performance to the Eversense XL System in Europe, which we developed for the U.S. version of the product through our notified body in Europe. Additionally, the product development team is shifting their attention to the next generation sensor that we plan would extend the wearable life up to 365 days. We are currently testing configurations, demonstrating one year stability and we are working toward IDE approval from the agency for the 365 day product in the first half of 2021. We would then estimate beginning the trial enrollment in the second half of the year. In addition to extending the wearable life, the product is also targeted to reduce calibration frequency to up to one finger stick per week. This next generation sensor is also anticipated to provide the platform for the Gemini product, which would offer both continues and on demand readings from a swipe command. Finally, we are working on integrating a battery in the Gemini product that would eliminate the need for any on-body transmitter for a fully implanted 365 days sensor. As you can see, we have a pipeline full of revolutionary devices that have the potential to again shift the paradigm in CGM Technology. As projects continue to progress and we have better visibility on timelines for completing milestones, we will provide additional updates. Now with this, I'll turn the call over to Nick for additional details on the financial.

Thank you, Tim, and good afternoon everyone. First off, I would like to provide more color on how the Ascensia agreements change our financial profile moving forward. As we had previously announced, we created – we ceased operations targeting new commercial patients in the U.S., to improve our cost structure and address the reality of the COVID environment. With Ascensia assuming commercial responsibilities and the related expenses, starting in Q4 of 2020 and in 2021 we expect the sales and marketing spend for Senseonics will be significantly reduced on a full year basis when compared to prior historical levels. This accelerates our breakeven point and reduces cash needed to access patients in the U.S. and the EU market place, while allowing the company to focus on our core competencies in R&D, product development, clinical trials and regulatory, along with manufacturing and quality. The initial $35 million funding from Ascensia will be generated by the issuance of Senior Secured Convertible Notes to Ascensia at a 9.5% interest rate decreasing to 8% following the PMA approval of the 180 day product, with a maturity date of October 31, 2024. A portion of the proceeds will be used to repay the Highbridge first lien term loan balance, including the discounted prepayment premium. The remainder will be used to fund continuing operations, including supporting the current Eversense installed base and product development initiatives. Following the PMA approval of a 180 day product and receipt of any required shareholder approval, required by the NYSE American listing notes, we will also be eligible to issue $50 million of convertible preferred equity to Ascensia, which will further strengthen the balance sheet. We further improved our liquidity position with additional financing through the entry of a stock purchase agreement with Masters Special Situations an affiliate of Masters Capital Management to issue up to $30 million in convertible preferred equity. The funding will take place in up to two closings, with the first closing for the initial 10% of the investment expected to occur on or about August 14, 2020. MSS has an option to purchase up to the balance of the convertible preferred equity in a subsequent closings that would be expected to occur within the next three months, subject to the receipt of stockholder approval. Now, to our results for the quarter. In the second quarter of 2020 total net revenue was $261,000 compared to $4.6 million in the second quarter of 2019. U.S. net revenue for the second quarter was $206,000 after accounting for gross to net increases. During the second quarter, insertion rates for existing patients on Eversense were more favorable than we originally anticipated at the start of the outbreak, leading to several new order requests from our distributors and adjustments to concession allowances, reflecting actual product usage that were previously providing Q1 to some of our customers in the United States for Eversense systems that may expire before placement with a patient. In the OUS, net revenue was $55,000. As we mentioned on the Q1 call, we did not expect Roche to make a meaningful order in the second quarter. Gross revenue for the first quarter of 2020 was $165,000, nearly all of which was generated in the U.S. Gross profit in Q2, 2020 increased by $3.4 million year-over-year to negative-$1.1 million. The increase in gross profit was predominantly related to the lower product volume production and shipments. The second quarter 2020 sales and marketing expenses decreased by $11 million year-over-year to $3.1 million compared to $14.2 million in the prior year period. The decrease was primarily due to recent changes in our commercial activities. Research and development expenses in Q2, 2020 decreased by $6.7 million year-over-year to $3.8 million compared to $10.5 million in the prior year period. The decrease was primarily driven by lower promised clinical study costs and personnel related expenses. General and administrative expense in Q2, 2020 was $4.4 million, a decrease of $1 million compared to the prior year period, mostly due to personnel related expenses, patent legal fees and other administrative costs resulting from our change in operational focus and stay-at-home orders during the COVID-19 pandemic. For the three months ended June 30, 2020 total net loss was $7.5 million or $0.03 per share compared to $31.1 million or $0.17 per share in the second quarter of 2019. Now, turning to the balance sheet. As of June 30, 2020 cash, cash equivalents and restricted cash totaled $21.6 million. Subsequent to the quarter, resulting from the Ascensia financing and repayment of the Highbridge loan pro-forma cash, cash equivalents and restricted cash, following the closings of these transactions is estimated to be approximately $42 million, including transaction and advisory fees. To accommodate the return to production and supporting Ascensia with a 90 day restart and preparation for commercial launch of the 180-day product in the U.S., we are slightly revising our monthly operational cash burn guidance to $3.5 million to $4.5 million on an average monthly run rate for the second half of 2020, from the previously announced range of $3 million to $4 million per month. For fiscal year 2021, we expect annualized cash burn to be below $60 million for the year. Tim, I’ll turn it back to you.

Great! Thank you, Nick. To conclude, overall we are extremely excited about the positive outcome of the strategic process and the opportunity ahead for Senseonics and Ascensia. With the announcement of these transactions, we have concluded the strategic review that we had announced in March and we're looking forward to the opportunity to drive shareholder value. We are creating a partnership, the world class organization Ascensia. It was also focused on providing patients with advanced diabetes management technology. Combining the strengths of our organization, this will offers significant value to all shareholders. As well patients, physicians and payers will benefit from the collaboration with increased resources dedicated to driving adoption of the Eversense technology. We are proud to partner with Ascensia who has shown through their actions and equally strong long term commitment to our life changing technology. Again, I would like to say thank you to all of you and importantly to all of our employees who have shown tremendous dedication and drive amid these challenging circumstances, both internally and externally. We look forward to providing you with updates in the future. Joining us for questions are Mukul Jain our Chief Operating Officer and Mirasol Panlilio, Vice President and General Manager of Global Commercial Operations. Operator, lets now open up the call for questions.

[Operator Instructions]. Our first question today, comes from Matthew Blackman with Stifel.

Good afternoon everyone and congratulations; a lot of positive updates today. Maybe Tim if I could start with you, you gave us a little bit of color on Ascensia’s selling footprint. I think you mentioned starting out with 30 reps, ramping to 80 over some period of time. First of all, I assume that’s just a U.S. number. Is there any way to sort of also talk about the selling footprint outside the U.S. and again I know probably a tough questions ask you, but is there any way to sort of think about what Ascensia current BGM user bases is and I've got a couple of follow-ups for Nick. Thanks.

Yeah, thanks Matt; pleasure to speak. Yes, those numbers specifically are dedicated to Eversense sales personnel, sales professionals’ not including sales management or other supportive folks for the U.S. sales efforts. Outside the United States, obviously Ascensia is a very significant organization in glucose monitoring, especially outside the United States. They have a very significant position in the U.S., but even larger outside the United States and as such that's one of the reasons that they're such a great partner for us. We are still in the process of really defining what are the best joint opportunities for two organizations. So I don't have all the details, but we do know that beginning in the first quarter of 2021, the European opportunity will be significant in the initial countries that I mentioned and we fully anticipate working with Ascensia to expand beyond that.

Okay, appreciate that. And then Nick, a couple for you. I know you're not giving guidance and I appreciate that, but is sort of the run rate we are seeing now on revenues in particular, the way we should be thinking about the run rate until, you know sometime in the first half of next year when everything sort of restart again. Just any help as we think about the next couple of quarters as we try to build our models. And then the last questions you Nick. You brought it up, so I'm going to ask. You mentioned accelerating sort of the breakeven threshold. Again, probably not fair to ask at this point, but how should we be thinking about sort of the new profitability framework for Senseonics. Is there a revenue run rate threshold for possibility we should be contemplating. Just any help to, you know I guess in these early days to sort of think about how this might play out over the next several years? And I'll hop back in queue. Thank you.

Yeah, I appreciate those questions Matt. For revenue I’ll start there and say obvious as we mentioned in our opening comments, given COVID, given the uncertainty of the environment here in 2020, we are suspending any revenue guidance for this year. Certainly we provided some color of what we looked to achieve with our partner here for the remainder of the year, our new partner. In your second question on breakeven, again at this time we're not looking to provide any long range guidance of what that would look like, but certainly we're very excited about how from a P&L perspective as Tim mentioned in his comments, that our P&L will be improved with a much lower sales and marketing investment in OpEx moving forward. Tim, any comments to add.

No, I think you covered it. Obviously we are excited, we have given the COVID dynamic and the financial situation of Senseonics with the Solar debt. We are excited that we are able to now begin the process of commercialization again. We do have a number of doctors and patients that have reached out to us, that we have not been able to serve, so we're excited about serving that backlog. We're also very excited about the opportunity to serve the Medicare population. This is especially important, especially in a time of COVID, to be able to have a long term monitor and to be able to do it with, you know now coverage from Medicare for that population is very exciting for. So we're going to look to expanding those conversations and roles with Ascensia and really jumping back in right here in the third quarter and fourth quarter with that Ascensia partnership for U.S. commercialization again.

Thank you. I appreciate it.

Our next question comes from Danielle Antalffy with SVB Leerink.

Hi, good afternoon Tim and Nick and team. Thanks so much for taking the question and many congrats on this deal. It sounds fantastic, so nice work there. I guess Tim just a quick question on Ascensia and sort of how – you know what they'll be able to do differently besides the obvious, which is the footprint and the presence in the physician's offices. I guess I felt like some of the issues were around reimbursement, a lot of utilization of the bridge program, previously. So maybe talk a little bit about what has changed fundamentally other than the breadth of reps in the physician's offices that will now elevate the status of Eversense in the U.S.?

Sure Danielle and thanks. Obviously you hit on a couple of key ones, right. The reimbursement position for Eversense just continues to grow and get better and better. Even the physician fee schedule that was proposed by CMS last week is honestly really a big deal. It's not typically talked about in the CGM space, because the other products frankly are DME’s, right. They are Durable, Medical and they go through a different channel. But the opportunity to have this as a medical benefit, without some of that encumbrance for a large population of patients is very significant and obvious we are going to work hard with Ascensia to really get that implemented as quickly as possible. So that's clearly one of the big changes as you've seen, even though we've had to scale back commercial activities in the last quarter plus the reimbursement activities continue to make progress on the commercial side as well. You know, just a week or so ago we did get notification that additional Blue’s plants, many Blue’s plants will be coming up and going live and Highmark being one of the biggest ones. So it's great to see progress in that space as well. And then in addition, obviously Danielle the biggest change of course is really to be able to use the infrastructure and capability, the buying power, when you talk about marketing programs, Ascensia really has a deep and capable global commercial organization and as we were at being Senseonics on our own, attacking the U.S., obviously you're doing that from a from a much smaller base. Ascensia has over 1,700 employees, right, a broad global position. 10 million patients that they talk to on a daily basis, so that they talk to, not on a daily basis for all 10 million certainly, but a lot of depth of experience. Remember, they are the original BGM folks. So they know it extremely well, they know the space incredibly well and you know they're just going to bring a lot of depth to us in not only commercial operations, their partnerships with distributors, their infrastructure to move product around. We should certainly be able to leverage, we've had conversations with, as well as our U.S. distribution partners that they actually have a much stronger relationship. So there's a whole lot that we can leverage and really instead of bifurcating the global opportunity like we had done in the past, having that under one umbrella with a global partner I think is going to bring a lot of value to us jointly.

Got it. That’s makes a ton of sense. And then Nick, maybe this one for you and I'm sorry if I missed it, but I just want to make sure I understand what this means from a revenue recognition and also mark in perspective for Senseonics. Can you give a little bit more color as we think about our models. Should we be thinking about the same ASP, what’s going to Ascensia and how does that impact margins. Thanks so much.

Sure, yeah happy Danielle. I would describe it that our commercial agreement is that there will be a revenue sharing piece and Ascensia will receive a portion of the net revenue and that's going to be at specified tired percentages and that changes as the revenues grow. So Ascensia’s portion will grow as the revenue grows. And we provide a little bit more additional color in our 8-K in terms of disclosures, but we talk about the specified tired percentages that they are going to range from, for Ascensia approximately the mid-teens to the mid-40s and that's based on levels across the global net revenue. And again, we’ve got some additional disclosures that obviously we provide into our 8-K, but the modeling then will be based on those tiers, which we won't necessarily disclose, but we certainly look forward to providing revenue guidance at the appropriate time based on obviously the collaborative work with our partners. In terms of margins, really the biggest to mention there for margin improvement over 2021 and beyond is the switch from the 90 day product in the U.S. to the 180-day product. We're not prepared to talk about pricing or any of those types of mechanics. But certainly see expansion there, as well as other operational levers to continue to improve those gross margins.

Thank you so much.

You're welcome.

Our next question comes from Alex Nowak with Craig-Hallum Capital Group.

Great! Good afternoon everyone. This is actually [inaudible] on for Alex. Thanks for taking our questions and you know apologies if this was already addressed. We are jumping between a couple calls here, but could you provide us with the general sense of what the ongoing level of operating expenses is with the deal, and whether you have any levers that you can use to slow the burn more? Thanks.

Sure, I'll go ahead and take that. In our prepared remarks where we talked about that for the second half of 2020, we expect the operational cash burn to be in the $3.5 million to $4.5 million on average per month. Obviously that's down significantly from what we were operating in 2019 and in the first quarter of 2020. For 2021, based on current projections we expect the operational cash burn to be below $60 million for the full year of 2021.

Got it. Okay, I appreciate that.

You’re welcome.

And then just second one for me, you know just given the COVID dynamics, do you mind commenting more broadly on what you're seeing out in the field today and do you sense that endocrinologist are less hesitant to do new implants now and that the opportunity is you know continuing to open up in Q3?

Tim, would you like to take that one?

Pardon me ladies and gentlemen, it does look like we might have lost Tim’s like. So if you'll just hang on a moment we'll try to reconnect.

Hey, well its Mirasol Panlilio. Let me take that on, while we try to get Tim back on line. We are seeing the insertion increase particularity in Europe. We certainly saw a dip come March and April timeframe, but in Europe as in the U.S., we’ve steadily seen it really stabilize. So we expect that that will continue, but with COVID and some other countries still experiencing either regional or local level, you know some shut downs, it's a little hard for us to predict, but we've been very pleased how stabilized it has been in the last couple of months, particularly in Europe.

Great! I appreciate all the detail there and congrats on the positive developments.

Sure.

Pardon me everyone. I have Tim to rejoin and we’ll go ahead and take a question from Marie Thibault.

Hi folks, can you hear me?

We can hear you Tim.

Okay, I apologize for that. I don’t know what happened. I got cut out.

Thank you. Yeah I wanted to ask one question here on sort of how we should be thinking very high level about this partnership. I know Ascensia has had partnerships in the past, I believe with a company called POCTech to market a CGM, I believe in parts of Europe and Asia. So I wanted to get kind of a high level idea of the trajectory as you think over the next couple years. Does this partnership kind of put you ahead of where you would have been on your own in 2019 if insurance coverage hadn’t been a bit of a stumbling block. How can we think about this generally? I know you can't give guidance at this point.

Yeah, but it is a good point Marie. We obviously think that this is a great advantage for us with the depth of commercial resources that Ascensia brings to the table for sure. You know especially in the U.S., the largest market, the biggest opportunity. I would – you know in regards to the POCTech product, we certainly are aware of it. It's been a very – you know an open part of our communication. It was a technology that Ascensia does have a partnership with. However, it's in a different place in the market and we do expect it to be certainly geographically differentiated as well. So we don't expect that there will – certainly in the short term horizon, certainly be any overlap and obviously the commercial focus that we referred to is dedicated just to the Eversense products. So as you know, the Eversense is quite a bit further with already having PMA approval in regards to scale-up and regulatory and the like.

Great! Perfect, and then I guess my follow-up would be as we look ahead to the 180 day product, is there anything that needs to be done on the insurance coverage side or is that really just sort of a supplementary update that all the commercial payers would kind of put out once the 180 day is FDA approved? Thank you.

Yeah its certainly something that we talked to the commercial payers about. You know remember one of their big advantages is the expense of insertion and removal is cut in half. So there's certainly a motivation to do that and do recall the history in the space. We have started out with three, then five, then seven and 10, and now 14 days in the transcutaneous sensors. So many of the payers have gotten used to a per day payment scheme. So we haven't received push back as of yet but we do expect it will be approaching them, probably in the fourth quarter of this year and letting them know where we are in the new transition to new products. So there is communication that's required, but we don't see it as being a major issue. Just as you've seen, it really hasn't been a major issue when some of the other products have gone from seven to 10 to 14 days.

Makes a lot of sense. Thank you and congrats!

This concludes our question-and-answer session and I would like to turn the call back over to Tim Goodnow for any closing remarks.

Well great, I want to thank everyone for the opportunity this afternoon to speak. We're very excited about the news and the partnership with Ascensia and we certainly look forward to updating you as it evolves on future quarterly call so. So with that we'll go ahead and conclude and again, thank everyone for their participation today. Thank you.

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