Good day and welcome to Senseonics Third 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, today’s event is being recorded. I would now like to turn the conference over to Lynn Lewis with Investor Relations. Please, go ahead.

Thank you very much and welcome to the Senseonics third 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 with U.S. GAAP net revenues and gross revenue measures to provide meaningful supplemental information regarding our performance and to 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. On the call today, I will discuss our partnership launch efforts, our third quarter U.S. and European performance and the pipeline and regulatory developments. Nick will then detail the financial results, and then we'll open up the call for questions. In August, we announced a strategic transition of our business by entering into a collaboration with Ascensia Diabetes Care. Ascensia is a global diabetes care company and a leader in the blood glucose monitoring market with nearly $1 million in global revenue. They offer products in over 125 countries to approximately 10 million people with diabetes. The Switzerland-based company is owned by PHC holdings Corporation, a KKR portfolio company. The formation of this partnership affords our organizations the opportunity to build on our core competencies and to provide the Eversense CGM system to more people with diabetes around the world. Built on a foundation of innovation, leading technology, excellence and deep market experience, the global positions, Senseonics and Ascensia for growth and long-term success. At Senseonics, we will continue to focus our resources where they have proved most effective, developing, manufacturing and leveraging industry-changing products to the diabetes market. Ascensia will market, sell, distribute and manage reimbursement and customer service for our products globally. Given this division of responsibilities, we expect the resulting business model to allow Senseonics to reduce sales and marketing expenses by approximately $50 million per year going forward compared to historical levels. A minimum five-year agreement is backed by strong commitments from both sides. Ascensia has committed to invest $50 million in Senseonics. $35 million was invested following the initial agreement, strengthening our balance sheet, an additional $15 million can be invested following FDA approval of the recently submitted 180-day sensor. A tiered split of the…

Thank you, Tim, and good afternoon, everyone. In the third quarter of 2020, total net revenue was $767,000 compared to $4.3 million in the third quarter of 2019. U.S. net revenue for the third quarter was $509,000 and net revenue outside the U.S. was $258,000. As we mentioned previously, we did not expect Roche to make a material order in the third quarter. Gross profit in Q3 2020 increased by $4.2 million year-over-year to $835,000. The increase in gross profit was predominantly related to the ability to fill resupply orders with existing written off inventory as reinsertion rates were above the expectations established at the onset of the pandemic. Third quarter 2020 sales and marketing expenses decreased by $8.3 million year-over-year to $3.2 million compared to $11.6 million in the prior year period. The decrease was primarily due to recent changes in our commercial activities. Research and development expenses in Q3 2020, decreased by $6.5 million year-over-year to $4.6 million, compared to $11.1 million in the prior year period. The decrease was primarily driven by lower PROMISE clinical study costs and personnel-related expenses. General and administrative expense in Q3, 2020 was $5.5 million, an increase of $0.1 million compared to the prior year period, mostly due to personnel costs related to stock-based compensation. Other expenses included increases to losses on the extinguishment and issuance of debt, offset by reductions in debt issuance costs and gains, in fair value adjustments, as compared to the prior year period, due to the company's financings. For the three months ended September 30, 2020, total net loss was $23.4 million or $0.10 per share, compared to $19.5 million or $0.10 per share, in the third quarter of 2019. Net loss increased by $3.9 million, due to a $23.4 million increase to other expenses primarily related…

Thank you, Nick. Before concluding, I'd like to take a step back and describe what we’ve achieved to date in establishing the implantable CGM market. As the first product of its kind, launching the Eversense system in the U.S. required creating new reimbursement channels to provide access for patients and remuneration for endocrinologists to perform the medical procedures. These were not small undertakings, but we've been successful in a relatively short period of time. We have earned positive coverage decisions from a majority of large national and regional health insurance providers. Now over 80% of covered lives, including Medicare patients have access to Eversense. Today, there are over 550 healthcare providers trained to perform sensor insertions and over 2,000 prescribers of Eversense. To leverage this improved reimbursement environment, we undertook a strategic transformation in the third quarter to accelerate growth and the expansion of our platform in the most efficient way by entering into a global commercial distribution agreement with Ascensia Diabetes Care. The resulting collaboration enables our continued focus on innovation, while our partner provides an expanded commercial footprint to drive the adoption of our technology. Together, we will maximize the value of Eversense in the market. Our initial interactions with Ascensia have been highly productive. From this early experience, Ascensia has demonstrated expertise and the deep commitment required for the success over the long term. Our opportunity is only growing through increased patient access, provider adoption and market expansion. We are very confident we have found the right partner to execute the right strategy to grow and take share in the CGM market. Finally, I'd like to say thank you to all of our employees who have shown great resilience and commitment adjusting to the challenging circumstances in the current environment. 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, let's open up the call for questions.

Absolutely. [Operator Instructions] Today's first question comes from Chris Pasquale with Guggenheim. Please go ahead.

Thanks. Tim, a couple of questions here. So, first, just hoping you could go over some of the early learnings from Ascensia's first month as your U.S. distributor. And then just to give us an update on where things stand on the ground from a reimbursement perspective. You've got broad covers now. I'm just curious the experience patients are having, who are coming back and maybe requesting their second or third sensors, is that process going smoothly? How much pushback is there? How easy is it as a patient to maintain therapy, now that you've made some progress on the reimbursement front?

Sure. So on the early launch with the Ascensia, we do feel very good about how it's progressed. There was a significant investment, as you can imagine, in trading, education, technology transfer, if you will, to their commercial organization. I think it's paid off extremely well. There's an excitement in talking with the 10 reps that are in place right now, mostly because they've heard from the biggest prescribers for Eversense, which naturally have a strong interest, and we're just very excited to hear that it's back. And that they're able to fully support it. We've got some docs that are telling us, they've got 10 patients that they'd like to put on Eversense immediately. From a reimbursement perspective, we continue to see success. We really haven't had issues outside of those where we don't have coverage. So in that 20%, it doesn't have coverage yet. We are just kicking off the actions with Medicare. We have done our very first earliest insertions and then the billing for the Medicare under the medical benefit. So we anticipate that, that is running through the process. Medicare typically pays in about 30 days. So we hope to be seeing that here in the next few coming weeks.

Thanks. And then last one for me. Just give us an update, if you could on where things stand on the iCGM front. I know the focus here is on getting the XL approved in the U.S.. But how much work have you been able to do with your pump partners over the last 18 months, paving the way for integration of the sensor or is that still really going to have to start down the road here? Has that been kind of pushed to the back by everything else you guys have been going through? Just want to get a sense of how far out we should expect you guys to be able to participate in the integrated piece of the market? Thanks.

Sure. So the iCGM as we suggests, we really are focused on getting the 180-day product approved first. We don't want to run into any regulatory hiccups. We do know that there have been instances with very significant delays in iCGM. And of course, we don't want to put that in front of the primary 180-day approval. So in regards to integration, as you know, it varies by partner. We've done a significant amount of work and co testing with the folks at Beta Bionic. In fact, we have already done a pretty significant amount of clinical testing over 20 patients have been actively on the combined system, and we have been using Eversense to drive their autonomous insulin infusion. So we're certainly excited about that and the results that we got from it. In regards to some of the other partnerships, it really is about having the iCGM designation first. The integration is pretty straightforward. The communication protocol that we've worked on is easily open and easily accessible. So we expect that, that could go pretty quick.

Thank you. Our next question today comes from Jayson Bedford at Raymond James. Please go ahead.

Good afternoon. I have a few. So I guess just to calibrate folks. You have just over 1,000 users today in the U.S., I think you mentioned that Ascensia is hoping to get 400 to 500 new users on board. I assume that was in reference to the fourth quarter. So exiting the year in and around 1,500 as the installed user base. Is that a fair proxy?

Jason, we're looking to do that 400 to 500 with Ascensia over the next 2 quarters.

Okay.

So I don't think we'll get all of those in here in the next 60 days. But over the next -- our Q4 and Q1 is the joint plan there.

And that was in reference to the U.S. or global?

Yes, that's just in reference to the U.S., correct.

We got -- sorry, go ahead, Tim.

No. I was just going to say, those are the commercial activities that we've already started with them, as you know, we haven't started in Europe yet, but we certainly will on February 1.

Okay. And they have 10 reps today, and that grows to 25 next year. Is that correct?

Correct. And then there's a significant amount of investment. There's another 37 positions that are anticipated, internal sales as an example. So they're closely affiliated and supportive of commercial activities. So it's a big investment.

Okay. And just with respect to the fourth quarter $2.5 million in revenue, is there a way you can kind of give us the expectation for US -- OUS? And I'm a little less interested in that, but I'm curious Roche is still taking product in the fourth quarter, but will not sell products to come post January 31?

That's correct. So we're working with Roche such that they're able to meet all of their needs. They essentially have exhausted all existing inventory, available inventory in the third quarter. They purchase a small amount and then they will purchase the balance of what they need to get through January 31 in the fourth quarter.

Okay. Okay. And then on the 180-day for some reason, I was expecting kind of first quarter and I realize that in the release when you submitted the PMA, it's first half, but just in terms of, again, early, early 2021 versus first half 2021. Any insight you can give us there as to why -- what I would consider a tiny bit of a delay?

I think, Jayson, we're just -- we did send it in. We are anticipating a typical PMA supplement six months review and it went in right at the end of September. So that would be a Q4 and a Q1 approval process. So I don't think we've changed at all. We're just recognizing the reality of a end of Q3 submission.

Okay. And just last one, I guess, maybe for Nick. When do you recognize revenue in the U.S.? Is it sales to Ascensia? Or is it when the product is used?

Yeah, it will be -- we will recognize a transfer price at the sale to Ascensia, then there'll be a true-up process based on the end market sales. Obviously, for Q4, we will still operate under our current agreements with our distributors that will continue as has been in the past.

Okay. Okay. Thank you.

You’re welcome.

And our next question today comes from Danielle Antalffy with SVB Leerink. Please go ahead.

Hey, good afternoon guys. Thanks so much for taking my question. And sorry if I missed this, but just on Q4, the $2.5 million Q4 guide, Tim or Nick, did you guys talk about how much of that is -- is that almost entirely ex U.S.? And I'm just trying to get a sense of what you're expecting from those 10 Ascensia reps in Q4? If you can give any color.

Thanks, Danielle. It's likely – I would estimate that, that will likely distribute based on the population. So we've got 80% of our patients in Europe. We'll probably have 80% of the revenue in this quarter come from Europe.

Okay. Got it. That's helpful. And then, Tim, I was wondering how close are you to – so now you've got 10 reps on the ground. I know it's early Ascensia does. How close are you to the sort of sales message that Ascensia is putting out there? And how – maybe give us some color on what the messaging is? That's the first part of the question. The second part of the question is how to think about new center adds and training as we are sort of still in this COVID environment? Thanks so much.

Sure. So on the latter, and then I'll let Mirasol speak to the messaging. On the latter, we are right now focused on the existing accounts. As you know, we've been somewhat dark with our commercial activities. So we want to make sure that those that are – have the most patients and have the most interest in immediately doing insertions are service first. So we will focus on those clinics. With the Ascensia and then expand beyond that in the coming months and quarters. So Mirasol, if you wouldn't mind speaking to the messaging, we have been very close and worked very tightly with our partners at Ascensia. And Mirasol, I'll let you speak to that.

Yes. Sure. Hi, Danielle, it's – we're still early, certainly in our return to commercial activity. A lot of what the Ascensia team is doing is really reintroducing ourselves to the accounts and answering the questions. That they may have held on for some time because we passed the activities. So a lot of what the team is doing is answering those questions. But at the same time, also providing responses to coverage decisions, a lot on Medicare, so we're clearly providing a lot more focus in terms of who is covered, what the MACs are doing from an LCD standpoint. And so the 10 reps are really focused on ensuring that the accounts of Eversense clinics are aware that we're back up and that patients can get the product not only those who are existing users, but really getting new patients on board. Down the line, we'll create and put together marketing awareness campaign. But for the time being in this early phase, it's really – let's get acquainted with our accounts.

Thank you.

[Operator Instructions] Our next question today comes from Mathew Blackman with Stifel. Please go ahead.

Hi. This is actually Melanie [ph] on for Matthew. I know you touched on this in the prepared remarks, but I'd like to drill down a little further on the training of the sales force and healthcare professionals. So what would you think are some of the key gating factors to your continued reengagement into the market and achieving the goal of adding the 400 to 500 new patients over the next two quarters? And then more generally, could you touch upon how the commercialization strategy may evolve with Ascensia over the next a couple of quarters as well. Is there anything you can point to that's different between your prior strategies, emphasizing or deemphasizing any aspects as you reengage? Thanks.

Thanks, Melanie.

Why don't I take that? Again, focus is on our independent accounts. A lot of this -- can you guys hear me, okay? There was a little...

Yes.

Sounds good.

Okay. So the training that's being provided is really to ensure that the accounts now the patient profile type, for example. Some of the reps are still unable to get to the accounts, for example. So we're using a lot of virtual callings and training with the accounts. And the same goes with patients. We've been able to take full advantage, however, remote training and remote monitoring for -- in that respect with the providers. So I think over time, as more clinics open up and travel restrictions are mitigated. I think the reps we'll be able to actually go in for in-person visits. So we all look forward to that. And over time, I think we're very focused on the current accounts and our reps doing a lot of the heavy lifting. But at some point, also, we're going to initiate those marketing campaigns. To support what the sales team, the field team is doing with digital marketing campaigns and whatnot. But we'll probably hold off on that, probably until early part of next year. Melanie, I hope that answers your question.

Got it. Yeah. Thanks so much.

Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Great. Well, I'd like to thank everybody for their time today. We appreciate everyone's attention, and we look forward to updating you here as the cores progressed. Thank you.

Thank you, sir. This concludes today's conference. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.