Senseonics Holdings, Inc.

Good day and welcome to the Senseonics third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. 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 Gamartin 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 September 30, 2020, and other reports filed with the SEC. These documents are available in the investor relations section of our website at www.sensionics.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 revenue 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, Senseonic supports 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 Essentia Diabetes Care. Essentia 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 Sensionics and Essentia for growth and long-term success. At Sensionics, we will continue to focus our resources where they have proved most effective, developing, manufacturing, and leveraging industry-changing products to the diabetes market. Essentia 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 Sensionics to reduce sales and marketing expenses by approximately 50%. $50 million per year going forward compared to historical levels. The minimum five-year agreement is backed by strong commitments from both sides. Ascensia has committed to invest $50 million in Ascensionics. $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 generated revenue will benefit both companies. Essentia has already begun and has initiated commercial activities with Eversense. This commenced in the U.S. on October 1st, which I will detail shortly. Leading up to this initiation of the collaboration, we serviced our installed base of patients in the U.S. throughout the third quarter. We observed continued sensor reinsertions in many patients as clinics became more comfortable with COVID management protocols. Patient retention actions led to U.S. revenues of $500,000, which was beyond the depletion of inventory held at our distributors. Likewise, OUS revenue was $250,000, which was also beyond the inventory held by Roche. Combined the total third quarter revenue was approximately $750,000. This is all in support of the current installed base of Eversense users that is over 5,000 patients comprised of approximately 80% European patients. This is following the impact of COVID and the previously paused commercialization activities in the U.S. during the last two quarters. At the beginning of October, we reinitiated commercial activities targeting new patients in the U.S. with a team of 10 Essentia sales professionals. Through this, we were offered a great start transferring knowledge and experience in commercializing Eversense to our partner. Essentia has organized their teams to address our most active accounts. An intensive training program completed in September oriented sales reps and sales support with our technology, product, the insertion procedures, billing, and reimbursement, and the distribution processes as it pertains to selling Eversense. This team has significant experience in selling some of the most accurate glucose monitoring devices in the channel and has the tools and skills necessary to be successful with Eversense. We are very pleased with the level of engagement from the Essentia team. They are excited to be in the field with Eversense, a new product for a more complete glucose monitoring portfolio. The reps are currently organized by geography and are covering the existing key Eversense accounts. Ascensia's commitment to our collaboration was highlighted by their decision to add a rep in Texas where we have a high concentration of accounts and by adding a former Senseonics employee for this position. The entire team is now actively calling on accounts and in the first month has already connected with the majority of high-volume Eversense accounts. In addition to making introductions, they have begun working with clinics towards starting new patients on Eversense, and also on reiterating the major updates on payer coverage, including following up on previous leads for Medicare patients that are now covered by LCDs. For people on Medicare, all of the MACs have now published favorable local coverage determinations for implantable CGM. In addition, The National Physician Fee Schedule to be implemented on January 1st, as published, fully supports coverage for Eversense and includes payments for the sensor insertion and removal expenses to the clinicians. Medicare will cover Eversense as a medical benefit, which provides a more streamlined process for patients and providers. We believe that Eversense is a great fit for the Medicare population and that Ascensia will create efforts to raise awareness in this population and drive future growth. In the coming quarters, Ascensia reps are focused to target new accounts and gain experience onboarding new practices. Both organizations agree that providing the highest level of service to clinician training and practice support is crucial for optimizing patient experience. The shared value is key to creating long-term partnerships with providers and patients. During the startup phase of the 90-day product, Essentia has set the goal of adding 400 to 500 new Eversense patients in the U.S. We are, of course, excited to be back on the market delivering Eversense to new patients in the U.S. after being paused for the last two quarters. The Essentia commercialization plan includes growing from the current 10 territories to 25, supported by an additional 37 field staff in 2021. Approval of the 180-day product will further accelerate the ramp-up of sales, marketing, reimbursement, distribution, and customer support activities by Essentia. Continuously improving the effectiveness of the collaboration is a shared top priority, and maintaining an open strategic dialogue will help ensure we maximize the value of Eversense in the market. Outside the U.S., Asensio will be taking the same commercial role following the expiration of our agreements with Roche and Rubin Medical. These current partners continue to serve our patient base in Europe today and are expected to continue through the termination of their agreements. As both distributors have been working through existing inventory during the COVID impact, they did not order at historical levels in the third quarter. We have had constructive discussions with Roche, which we expect to finalize very shortly to outline a detailed and orderly transition process for the Eversense users and the prescribers in Europe. Both organizations are committed to prioritizing patient needs and ensuring that a high level of service is provided throughout the handoff. We are designing this transition process to be as effortless as possible for patients and ACPs. We are planning on upcoming joint communication to HCBs, patients, and payers to detail the distributorship transfer. Patients will maintain access through their HCPs for reinsertions and supplies, while Essentia's team will work with practices and patients with a goal of providing uninterrupted insurance coverage and technical support. We are working to transfer the payer contracts and tenders where possible. Through the distribution agreement, termination on January 31st, Roche is expected to continue to fill patient requests and has placed orders for additional product to serve this demand to the end of January. Roche is not expected to purchase or sell any further product after their contract termination at the end of January. To support all global demand, we expect to recognize total revenue at approximately $2.5 million in the fourth quarter. Furthermore, with the current installed patient base and with the anticipated growth in Europe and in the U.S. with the launch of the 180-day product, we continue to expect global net revenue to Essentionics to be in the range of $12 to $15 million in 2021. In addition, I would also like to highlight that we just announced a private financing with current large shareholder energy capital for up to an additional $12 million. In combination with the previous announced financing with PHC, the Essentia parent company, and Masters Capital, the total amount of funding expected to be raised through the approval of the 180 product is $54 million. These capital sources, if accessed, are expected to provide ample capital to fund the ramp up of manufacturing for the 180 product to support further development of our next generation sensor and to fully cover expected liquidity requirements through 2021. Now, in reference to our product development and clinical pipeline efforts, as you are aware, we have submitted our PMA supplement for the 180-day product in the U.S., and we are now focused on preparing a similar regulatory submission for the same 180-day product to our notified body in Europe for CE markings. If approved, this would bring the newest generation of the product with reduced calibration to both the US and European markets. Simultaneously, development efforts are centered around optimizing configurations for the next generation sensor with a wearable life of up to 365 days with just one calibration per week. Our development focuses is to seek and to secure IDE approval for the sensor late in the first half of 2021 toward the goal of enrolling a pivotal trial in the second half of 2021. Importantly, with this next-generation sensor, it is designed to provide both continuous and on-demand glucose readings from a swipe command. We believe that this will provide even more convenience and flexibility to Eversense users who have the option to use the system as a real-time continuous glucose monitor with a transmitter and as a point-in-time reading without a transmitter, all with the same sensor technology. As you've heard, we plan to continue to push the boundaries of what is possible in continuous glucose monitoring. Our current business focus places an even greater emphasis on product development and innovation, and we look forward to providing up on these projects. For details on the third quarter financials, I'll now turn the call over to Nick.