Good day, and welcome to the Senseonics First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I'd now like to turn the conference over to Malcolm Macleod, Investor Relations. Please go ahead.

Thank you. This is Malcolm Macleod 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, 2021, our 10-Q for the quarter ended March 31, 2022, 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 2022 outlook. Joining me from Senseonics are Tim Goodnow, President and Chief Executive Officer; and Nick Tressler, Chief Financial Officer. With that, I would like to turn the call over to Tim Goodnow, President and CEO. Tim?

Thank you, Malcolm, and thank you all for joining us this afternoon. On the call today, we'll focus on the first quarter performance, the initiatives designed to increase the Eversense user base as well as support the E3 launch and to provide updates on the progress for our product pipeline. Nick will then discuss the first quarter financials, and we'll open up the call for questions. In February, we achieved FDA approval for the Eversense E3 continuous glucose monitoring system. With this important step, we have now extended the duration of the longest lasting CGM system to 6 months of wear in the U.S. Not only is this the longest lasting CGM by over twelvefold, but it also offers patients top-tier glucose measurement performance with a high degree of accuracy, MARD of 8.5%. I would like to thank our team, the PROMISE study participants and investigators and the professionals at the FDA managing through the demands of the pandemic, whom were all instrumental in us achieving this milestone. I've spent time in the field recently to engage with HCPs and patients as part of the E3 launch. In the first week of April at the insertion of our first 6-month commercial patient in the U.S., which was performed at the impressive East Alabama Endocrinology practice, it was clear how the E3 system represents a major advancement for people with diabetes. Patients both new to CGM and those experienced with CGM continue to seek alternatives to the limited choices of short-term transcutaneous sensors that exist in the market today. 6 months of wear, which means just 2 insertion procedures per year, makes E3 even simpler, more convenient and less expensive for patients. Interest in our long-term CGM is high, and we are excited about the opportunity to help this large and…

Thank you, Tim. Good afternoon, everyone. In the first quarter of 2022, total net revenue was $2.5 million compared to $2.8 million in the prior year period. U.S. revenue for the first quarter was $0.8 million and revenue outside the U.S. was $1.7 million. Gross profit in Q1 2022 was $0.5 million, in line with gross profit of $0.5 million in the prior year period. First quarter 2022 selling, general and administrative expenses were $7.9 million, an increase of $1.3 million compared to $6.6 million in the prior year period. The increase was primarily the result of increased professional fees and payroll and related expenses. Research and development expenses in Q1 2022 were $7.8 million, an increase of $2.5 million compared to $5.3 million in the prior year period. The increase was primarily due to the expansion of our R&D head count and increasing clinical studies, lab supplies and an increase in outside expenses to further advance our product pipeline. For the 3 months ended March 31, 2022, operating loss was $15.2 million compared to $11.3 million loss in the first quarter of 2022 -- of '21, excuse me. The decline in the company's share price at the end of the first quarter as compared to the company's share price at the end of the fourth quarter of 2021 led to significant noncash gains in Q1. As a result, total other income increased by $340.1 million compared to the prior year period, primarily related to noncash charges resulting from the accounting for embedded derivatives and fair value adjustments related to the company's financings, including the 2023 and 2025 notes, along with the PHC 2024 notes and Energy Capital equity line of credit. As required by U.S. generally accepted accounting principles or GAAP, we mark the value of these instruments to…

Thank you, Nick. As we transition into providing our E3 product to people with diabetes, we are excited to continue the commercial rollout of our 6-month product in the U.S. through the second quarter and the expected launch across Europe in the coming quarters. This next generation of product is an exciting advancement in diabetes management. We believe our patients and providers have been waiting for such a product, and we are eager to now bring them the benefit of an improved version of the world's longest lasting CGM system. We are pleased to see Ascensia's commitment to CGM and the Eversense product as they invest to drive awareness and access for the product this year, along with launching a newly dedicated CGM commercial organization and building a dedicated sales force in the U.S. This investment is ramping and demonstrates their support for our partnership and product. Together, our collaboration has the potential to make a positive meaningful impact for people with diabetes by bringing them our unique compelling solution. Thank you for your time today. With that, concluding our prepared remarks, we'll turn the call to Q&A. Also joining us for questions is Mukul Jain, our Chief Operating Officer. Operator, let's open up the call for questions.

[Operator Instructions] Today's first question comes from Mathew Blackman with Stifel.

This is Colin on for Matt. I wanted to start with the first 6 weeks of E3 commercial launch. Obviously, it's early days, but beyond new patient adds, what the leading indicators or metrics are you tracking, whether it's website traffic, physician interest? Is there anything you can share that gives you confidence in the 2022 commercial outlook?

Yes. Colin, it's really driven by the patient and physician interest, as we noted. DTC has ramped meaningfully by Ascensia, and the leads that they generate based on the request for information is very meaningful. Frankly, it's higher than we had anticipated, which is, of course, very encouraging news. Additionally, through the professional channel, that being the doctors that treat the patients, we do see a notable rise in that interest as well as many doctors were certainly waiting for the 180-day launch. So their interest is important and positive for us as well.

Great. And you've talked about each duration advancement being a stepwise in market penetration and market expansion, those opportunities. Is there any way you could frame the size of the E3 opportunity maybe relative to the market you addressed with a 90-day product?

Well, we certainly anticipate it being significant growth. It is a big market, as you are certainly aware. There are still a number of people that are not on CGM that can benefit from it. We see about 1/3 of the people that have interest in Eversense are folks that haven't participated in CGM before even though they need to. So we expect that there will be both a share transition from the existing players, which you know is about a global $7 billion market, as well as the growth of people that aren't on it yet. So we look at it to be notable.

[Operator Instructions] Today's next question comes from Marie Thibault with BTIG.

This is Sam Eiber on for Marie. Maybe we can start here on some of the conversations with both commercial and Medicare. It sounds like some early wins here. I was just wondering maybe if you could provide any additional color on maybe expected timing or pace of additional payer transitions to E3?

Sure. We look at it as a continuum. You did see that we had some very early wins immediately. We saw folks like Aetna and Humana went right over to the 180-day product. There are others that are in the process as well. We've had active conversations with Medicare, and we do anticipate that they'll be putting some plans in place that will allow us very quickly in the next couple of months to transition to the 180-day product for the Medicare patients. So we do expect it to happen fairly quickly in the next quarter or 2. But we do fully recognize that there are some payers that do annual updates, and it may be as late as fourth quarter or so. But we do expect it to get the transition done, the majority of it, in the next couple of quarters.

Great. That's great to hear. And maybe I could ask one more here on the patient assistance program. Is there a threshold there or maybe a time where you'll have a certain amount of coverage where maybe those programs will start to roll off? Or is that still to be worked out?

We do anticipate using it for the first patients that are trying the sensor at this point. So you do need to have some form of commercial coverage. So if you have absolutely no coverage, you're not a candidate for this patient assistance program. But we do expect that to go on through the rest of this year. Obviously, 6 months from now and the second sensor comes in. They'll transition to the other, where we do anticipate that there'll be a monthly cap for the product. So expect it to happen in -- here in Q2 and Q3 and potentially start to roll reinserted patients to the second half of the program in the fourth quarter, all while continuing to put new patients on throughout the remainder of the year.

And our next question today comes from Alex Nowak with Craig-Hallum.

Just what was the latest number of HCPs implanting the 90-day sensor here in the U.S.? And just for the 180-day, I know we're only 6 weeks into the launch, is that coming out to be about 5%, 10% have ultimately converted over? And I guess just how much training in addition needs to be done to convert those physicians over?

So Alex, there's about -- currently about 550 medical professionals that are trained to do the insertion. There is no difference and there's no additional training that's required to go from 180 to the -- excuse me, from the 90 to 180. It's really the exact same process, sensor dimensions and tools that are required. So it's an automatic transition from one to the other.

Got it. And then maybe give us an update on the inventory situation at your partner. Just curious how many sensors are ultimately sitting at Ascensia. And then how does that -- the 90-day inventory in the U.S. and then also the older European inventory for the 180 days, once we get E3 approved there, how is that ultimately being factored into the sales step up into Q2, Q3, Q4?

Yes. So that's part of the guidance we've given. We've been very active with the transition. The 90-day is fully transitioned, as I noted. That really occurred in Q1. Which -- where there was some softness in Q1 was the fact that we were running down the 90, and we didn't put new product into the market until the very beginning of Q2. Similarly, in Europe, we do know that the E3 product is coming. And as I said, we anticipate it will be starting here in early Q3. So we are actively taking the inventory level down -- for the current 180-day XL product in Europe down so that we can begin that transition here in not too many weeks to E3.

Okay. Helpful. And then on the 365-day sensor, are you still planning on the IDE submission here in Q2? It did sound like you might be doing some human bio testing, so maybe that's not necessarily needed. And then also, when are you planning to launch the pivotal? Is that still second half, about there?

Yes. So the date still remains, IDE filing, as you noted, and we do anticipate likely in the fourth quarter inserting the first patients. So those are...

Okay. And just -- perfect. And then just lastly on the cash burn. How to think about -- with Q1 being kind of the low watermark and E3 ramping up here Q2, Q3, just how to think about cash burn over the course of the year?

Well, as Nick said, I think we're anticipating about $60 million to $70 million of OpEx. So it's just about -- just a little bit over $5 million per month.

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

Great. Well, I want to thank everyone for their time again today. We're very excited here to have the new E3 product and are encouraged by the initial results. We continue to have a focus here in Q2 in ramping both in Europe and the transition here from the 90-day to 180 in the U.S. So appreciate everybody's support and look forward to updating you next quarter. Have a good day. Thank you.

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