Good day and welcome to the Senseonics First Quarter 2021 Earnings Release and 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 Philip Taylor, Investor Relations. Please go ahead.

Thank you. This is Philip Taylor from the Gilmartin Group. Before we begin today, let me remind you that the company's remarks include forward-looking statements. These statements reflect management's expectations about future events, operating plans, regulatory matters, product enhancements, company performance and other matters and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of these factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under Risk Factors and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2020 and our 10-Q for the quarter ended March 31, 2021 and 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 2021outlook. 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, Trip, and good afternoon and thank you all for joining us today. On the call, we will discuss the implementation of our commercial collaboration with Ascensia Diabetes Care, our promising upcoming clinical activities as well as pipeline and regulatory updates. Nick will provide detailed first quarter financial results. Before I conclude. And then we'll open up the call for the Q&A. The first quarter of 2021 marks the beginning of Senseonics operating as a strategically realigned business. We're enthusiastic about the opportunity to advance the value of the Eversense system through our commercial collaboration with leading diabetes technology company Ascensia. To remind you, our commercial collaboration established the transfer of marketing, market access, sales, distribution, reimbursement and customer service functions to Ascensia for all of Senseonics products over the next few years. With Ascensia driving commercialization of these products, our focus within Senseonics is now centered solely around the strength of our organization, research, development and manufacturing of our innovative long-term implantable CGM systems and the associated clinical and regulatory activities. We have a strong partner in Ascensia to drive the commercialization of Senseonics' products. This agreement meets the needs of and benefits both organizations. Ascensia now has Eversense in their portfolio, a highly differentiated product participating in one of the fastest growing markets in medical technology and Senseonics is able to have its Eversense globally commercialized with an immediate size and scale of a more mature business and global diabetes leader. The collaboration agreement aligns our incentives providing Ascensia with a tiered share of revenue generated from Eversense sales as we have previously described. In the first quarter of 2021, Senseonics generated revenue of $2.8 million including approximately $310,000 in the US and over $2.5 million in Europe. Ascensia's commercial efforts have been expanding since their initial…

Thank you, Tim. Our Q1 results demonstrate the advantages of our new business model following the strategic transition into our commercial partnership with Ascensia. Our new business model creates a meaningful change to our financial profile by leveraging the partnership with Ascensia to commercialize Eversense in both the US and Europe, enabling significant reductions to our operating expenses and cash burn rate by significantly reducing our sales and marketing expenses. In the first quarter of 2021, total net revenue was $2.8 million compared to $36,000 in the first quarter of 2020. US revenue for the first quarter was $310,000 and revenue outside of the United States was $2.5 million. First quarter revenue in the US was reflective of Ascensia's initial sales support prior to their April 2021 full commercialization. Gross profit in Q1 2021 increased by $20.2 million year-over-year to $526,000. The positive gross margin in the quarter was primarily due to the ability to fill resupply orders with existing written off inventory as existing patient reinsertion rates were above the expectations established in the first quarter of 2020 amid the onset of the COVID-19 pandemic. First quarter 2021 sales and marketing expenses decreased by $9.5 million year-over-year to $1.6 million compared to $11.1 million in the prior year period. The decrease was primarily due to the strategic changes in our market commercialization approach with the Ascensia collaborative partnership. Research and development expenses in Q1 2021 decreased by $2.1 million year-over-year to $5.3 million compared to $7.4 million in the prior year period. The decrease was primarily driven by lower clinical study costs and personnel-related expenses. General and administrative expenses in Q1 2021 were $5 million, a decrease of $716,000 year-over-year compared to $5.7 million in the prior year period mostly due to a decrease in personnel-related costs. For the…

Great. Thank you, Nick. Before we conclude, I'd like to announce and extend our gratitude, and thanks to Dr Justin Klein, a longstanding Senseonics' Board member. For over five years, Justin's guidance and leadership has been very valuable across the development, regulatory approval and commercial launches of our Eversense products. Justin transitioned from NEA, the venture capital firm, where he previously participated in the private investments in Senseonics to recently starting his own fund and we are excited for him and this opportunity. With his term coming to an end, Justin will not stand for re-election to the Senseonics Board at this year's Annual Meeting, which will enable him to focus on the next chapter and concentrate on future investments. We wish him the best of luck in his future endeavors and thank him for his continuing support and lasting impact he has made on the business. In the first quarter, we worked hard with our partner Ascensia to transition Eversense and the commercial responsibilities for both Europe and the US. The team at Ascensia has proven that they are committed to driving adoption of Eversense as demonstrated by the best -- investments that they have made in our collaborative endeavor and in building a comprehensive US commercial organization to support the Eversense product. We spent years developing, earning regulatory approval and payer coverage for our revolutionary long term implantable continuous glucose monitoring system. Now Ascensia is positioned to leverage the size and scale of their organization to raise awareness and drive patient adoption of Eversense. We are very confident in our ability to maximize the value of Eversense in the market over the long term. We look forward to providing updates in the future and we thank you for your time. Joining us on the call for questions are Mukul Jain, our Chief Operating Officer and Mirasol Panlilio, Vice President and General Manager of Global Commercial Operation. Operator, let's now open up the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. The first question comes from Chris Pasquale with Guggenheim. Please go ahead.

Thanks. I have a few questions. I wanted to start with the revenue builds. Can you give us an update on what you think your installed base was in the US and international markets as of the end of 1Q? And then as we think about the better than expected international results this quarter, was that driven by Ascensia bringing new patients on or was it a -- was there a catch-up in terms of restocking of distributor inventory or something like that that may have contributed to the results?

Thanks, Chris. In regards to patient account, we've stuck to an annual update. You'll recall, the most recent information we put out was at the end of last year, beginning of this year. There were about 4,000 patients in Europe, they were on the technology and about 1,000 in the US. So I don't have a quarter update for you. We'll go ahead and stick to the annual cadence of putting information out. In regards to the performance in Europe that is in line, generally with our expectation. Do recall that that also includes purchases that Roche made to complete their responsibility for a portion of Q1. They went through the end of January. So really is pretty representative of patient demand. There is not material state stocking that's occurring but it is the servicing of the existing patients that are on the product.

Thanks, Tim. And then, Nick. I was just hoping on gross margin, you can give us a little bit of a better sense of what to expect from here on out, have you now worked your way through the written off inventory and so going forward, should we see something that's a little bit more normalized, and I think back to September, you talked about a negative 30% gross margin for this year. And it seems unlikely. It's going to be that low after the start. So just updated thoughts on what the full year is going to look like. Thanks.

Sure. Yes, happy to take that. So we've worked through the majority of the material that we have written off a year ago. And in terms of gross margin for the year, recall that we still expect back half of the year to be greater. So as we move into Q2 and through the back half. And so we still continue to maintain the range that we provided of negative 25% to negative 35% for the full year.

Was there a follow-up, Mr. Pasquale?

No, that's helpful. Thank you.

Thank you. The next question comes from Mathew Blackman with Stifel. Please go ahead.

Good afternoon, everybody. Thanks for taking my questions. Maybe to start, Tim. Just want to get a better feel for the US relaunch and how it sort of phases over the next several quarters. It sounds like Phase 1 is going after previous high volume Eversense implanters and then moving to just high volume insulin prescribers who may be new to Eversense, so how does that play out over the next few quarters, is 2Q focused on existing accounts and then the second half of the year is when you start going after new accounts. Just any help with the cadence of how the US relaunch will play out. And then I've got a few follow-ups.

Sure, Matt. Directionally, I don't think that that sounds unreasonable. Although the timing is going to be gated by success and of course this is appropriately under Ascensia's timing and direction. But the focus for sure, especially with the new reps and the dynamics of not being able to get to see them for some time, is to get to reestablish the relationships with the existing prescribers and inserter. So that's current -- the areas get comfortable, the territories are comfortable then expansion to the bigger prescribers and opportunities will happen in the future. It's not currently in place, right now. It really is about getting the new rep -- getting established in their territory and working with their prior inserters and prescribers. Recall that it's been just about a year that we took our sales force out of the field. So those docs and those patients have been out without a sales rep for quite some time. So, I do expect it will take us a little while to build that back up again and hence the cadence that we've guided to on the US in the back half of the year versus the first half.

Okay, makes sense. And then, Tim, you mentioned some clinics are now starting to lift restrictions in the US. Just curious, how much of a headwind that still represents today, its access for Ascensia reps or the implant specialists, is that still a big hill to climb, and I just got one more follow-up.

Yes we certainly see it improving. I would say that February was better than January and March was better than February. So certainly believe it's in the right direction. I think as we all tend to feel in the US that we're making good headway with the vaccine penetration, there is always more to do but it does feel like that we're starting to get back to normal. And we would hope that certainly by later in Q2, certainly by Q3 that we'd be in pretty good shape to have in-office visits and trainings and so forth, back on the docket for everyone.

Okay. And then the last one. Appreciate the comments on the PROMISE study. Is there anything we should pay particular attention to -- would be sensitive to when the data comes out anything interesting that you think and have to be too specific, but just curious, if there's any part of data, you think we should pay close attention to. Thanks.

Yes, yes, I think obviously one of the key metrics of course that the agency is going to look at is just how -- how accurate the device is and we've always felt, it's always been a number one focus for us. The Eversense technology is quite frankly very accurate and very competitively positioned against the other devices that are out there. So we feel quite good about that and I think when you get a chance to see the full dataset, you will as well. So obviously, safety is another element and we feel pretty encouraged that we didn't certainly see anything new. We didn't see anything of note or materially more complicated than you would see with the 90-day product. So overall, we feel pretty good about it and look forward to get any published and have people take a look at it.

All right. I appreciate it. Tim, thanks so much.

The next question comes from Danielle Antalffy with SVB Leerink. Please go ahead.

Hey, good afternoon, everyone. Thanks so much for taking the question. Tim, I had a follow-up on the ACO partnership and that sounds really interesting to me. And I'm just curious about how that came about. And does that potentially represent a more meaningful opportunity in an under-appreciated opportunity for Senseonics over time?

Well. Danielle, as you know, we're pretty excited about the opportunity to have in Medicare because of the alignment of the capabilities, the features and benefits of Eversense for that population. So the ACO is a group that -- part of the group that we've reached out to and this particular group was pretty active in getting back to us. In regards to their interest as well. As I said, they've got just over 20 specific metrics that they are definitively specifically measured on. And one of them is their A1c reduction. So it's pretty well known and pretty well documented that when you put people on Eversense then we will reduce their A1cs. And that's the intent to the evaluation that we're going to do with this group. And I do think, we're pretty excited about the opportunity in all of Medicare, the focus that you get in an ACO and the additional attention around the economic return. We're pretty excited about as well.

Yes, that makes lot of sense. Okay. And perhaps you could leverage whatever outcomes you see with this ACO to drive adoption in other or drive a similar partnership in other ACOs is that sort of like the overarching strategy?

Absolutely. And Dr. Fran Kaufman is staying very close to this. She is well familiar with the group. It's a high quality group and she will certainly be partnering with them and we look forward to results and experience publication out of that as well.

Got it. And then just one follow-up. Nick, this is probably for you but just around the readiness for the 180 day from a manufacturing perspective, how quickly can you ramp up if in fact that does prove to be an inflection point which I sort of feel like it could from an adoption perspective. Thanks so much.

Yes, I guess, I'll jump in. Danielle, I would say that obviously, we're doing a lot of planning right now in anticipation for that. We are reading the tea leaves in regards to the timing on it. We've begun the investment, preparatory investment for the process. Building the capacity. So we feel pretty good about the ability to ramp. We have a strong partnership with strong capability where we've invested direct [ph] capital within previously. So, we feel pretty confident that we're going to be, we're going to be able to support the growth and excited about what it's going to grow as well, because it is, it is going to be certainly an improvement in the likability of the product and we know that adoption is going to go up as well.

Thank you.

[Operator Instructions] The next question comes from Jayson Bedford with Raymond James. Please go ahead.

Good afternoon. I hope everyone's doing well. Just on the 180 day. Tim, you talked about timelines. I realize it's difficult, but just in terms of your expectation as to when you'll get approval for the 180 day?

Yes, so as you know, a review such as this is a PMA supplement. It's not a primary review. PMA supplements typically would be a 180-day review. So we don't have a reason to believe that it should vary from that other than the dynamics of COVID and what it might take particular review or review team's time to clear off their desk from some of the prior work they were doing. So that's what we really don't know. And probably why we're trying to be a little bit oblique on the timing I certainly hope that it wouldn't be much, much longer than the traditional review time periods, but I do know as a group that was notably impacted by the diagnostics responsibilities with COVID diagnostics. So our feeling is that it will be in probably that time period.

And just to be clear, the hundred -- the clock started in mid-April.

Correct, correct.

Okay.

And the review, right. Review picked it up

Okay. And just also just for clarity on Ascensia and revenue recognition. I think you mentioned the international revenue pretty much matched underlying demand. Is that correct?

Correct.

And is there going to be a quarter where Ascensia takes a bit of a bolus of inventory?

We're certainly going to be working together to always be driving the inventory up, but we are -- unlike the relationship we have with the prior distributor, where there was a dire -- desire for them to hold a bolus for a long time period that's not the same distribution partnership that we have with Ascensia. So I would not expect that same. I would imagine that we'll continue to do as close to just in time manufacturing as we can support while keeping the channel appropriately filled in all of the market. So.

All right. And then I guess just lastly on the US revenue. I realize things are just starting up again. But is there any way you can breakout, of the US revenue, what came from new users versus those that were getting re-implanted?

In the first quarter, recall that we had pretty limited coverage. So the predominance of that, I don't have the full break out, Jayson. But the predominance of that is existing -- of existing patients, right.

Okay, thank you.

The next question comes from Alex Nowak with Craig-Hallum Capital Group. Please go ahead.

Hey guys, this is Tren McCarthy on for Alex. Just a quick question on Ascensia. With Ascensia selling the product compared to the internal team, are you finding the reception to be different. Do they have certain call points that are helping, and if you could just speak to the initial response you're seeing to the DTC campaign here through the first part of Q2?

It's quite early in Q2 for us to have the feedback on it. The reception we believe is quite positive because recall the predominance of the folks that they're calling on our existing prescribers. So they're certainly encouraged to have us as a partnership back in a more formal commercial relationship with the clinicians because that actually helps them. We now have sales reps that can speak with patients and help them handle issues in transition and so forth that we were not able to fund for the previous year. So I would say, as we expected, it's pretty positive, but we're back in with the most interested users at this point. As we grow, we'll expand beyond that. The early DTC, the impressions that we're getting, I know that Ascensia feels really good about. But we'll continue to work to push those through the funnel and it does take some time with the insurance adjudication it needs to occur and so forth. Go through new start. So that's the active work that's going on today.

Okay, got it. That's helpful and then just one follow-up. Diabetes Care has definitely seen a significant jump in competition as of late. I know -- just what is your game plan to address this and I mean, do you think Eversense sensors have enough to effectively compete with products like Libre 3 and G7 and I guess just, what do you think is key in making for a highly competitive continuous glucose monitor?

Certainly in the CGM space, it is very attractive because the recognition is that essentially if you're on insulin, you should be on a CGM. And I think you're seeing that in the market growth that everyone has experienced. We're very excited about our differentiation. Our key point is of course the duration, right, we are the one group that can go for long time but a very, very long time. So expansion for us, the 180 in the US, bringing that along, bringing it up to where the Europe already is. And as I described, we are actively working on the 365. So we know the excitement level for those longer duration sensors increases significantly with people's desire to go into the office and have the insertion procedure done. So we are very confident that our long-term sensors are going to be highly competitive with the transcutaneous sensors that are getting smaller, transmitters are getting smaller, so on and so forth, but it's still creating a small open wound that you need to keep [indiscernible] the entire life of the sensor and there are issues with adhesives and so forth. So duration is important for us as we talked about. We're going to have a fully implanted system. So no on body transmitter that gets people very, very excited. So we're very confident in our technology platform and what we can do and how we can compete in the future. And what's a very meaningful and pretty exciting market.

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

Great. Well, I would like to thank everybody for their time and participation. As you heard, we're very excited about the opportunities that we have and the emerging work that we're doing with Ascensia both here in the US and in Europe. So we appreciate everyone's time and look forward to future updates in the coming quarters. With that, thank you and good day.

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