Senseonics Holdings Inc (SENS) 2019 Q1 法說會逐字稿

Good day, and welcome to the Senseonics First Quarter 2019 Earnings Call. Today's conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mr. Trip Taylor. Please go ahead, sir.

Thank you very much, and welcome to the Senseonics First Quarter 2019 Earnings Call. This is Trip 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 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 reasons, except as required by law.

Also on this call, we will be discussing our full year 2019 revenue guidance, which was also included in the press release. In light of Regulation FD, we advise you that it is Senseonics' policy not to comment on our financial guidance other than in public communications.

Joining me from Senseonics' are Tim Goodnow, President and Chief Executive Officer; and Jon Isaacson, Chief Financial Officer.

With that, I would like to turn the call over to Tim Goodnow, President and CEO. Tim?

Thank you, Trip, and thank you all for joining us this afternoon. On the call today I'll provide a brief update on our business, first discussing progress on our initiatives in the U.S., then sharing developments on the regulatory, pipeline and European fronts. Jon will provide details on our financial results and outlook, and then we'll open up the call to questions.

We started the year with a solid first quarter, achieving total revenue of $3.4 million, including U.S. revenue of $800,000 and European revenue of $2.6 million, with revenues for both the U.S. and Europe in line with expectations based on contractual timing obligation with our distribution partners, as well as considerations of our new patient Bridge access program. We continue to expect revenues for 2019 to range between $25 million and $30 million.

The quarter was marked by several accomplishments. Most significantly, we launched our Bridge access program, and we are incredibly excited about the early impact we are seeing in the market. The response from both patients and prescribers is very positive. While the program was only available for 10 days in Q1, we saw a meaningful immediate impact and are gaining momentum carrying into the current quarter.

As you recall, the Bridge program is designed to make Eversense available to those patients and providers whose access to our system is currently delayed by insurance coverage and to simultaneously demonstrate the true patient demand and physician adoption to payers.

I would like to share a few key metrics that demonstrate some of the success we are experiencing during initial rollout of the program. In only a matter of weeks, we have seen increasing activity across multiple fronts, including lead generation, prescriptions, reimbursement and shipments. To put things in perspectives, in comparing the first few weeks of the year before the program launch to the weeks after the program launch, we've seen shipments of Eversense which have nearly tripled per week. We've seen a fivefold increase in the number of patients covered by the 4 largest payers currently holding experimental and investigational designations with Eversense. We've seen that we have essentially doubled the number of prescriptions written each week. And we've seen a 66% increase in the number of healthcare professionals prescribing patients each week and, correspondingly, we've seen more prescriptions written per week per healthcare provider.

These are all very positive indications for the product, and while we recognize that we are in early days of the program it has certainly enabled a significant increase in activity among patients, healthcare providers and payers.

This further demonstrates people wanting to use our technology now that we have an enhanced ability to access it. Importantly, payers respond to member demand, and with more patients on Eversense, we expect to see increased traction towards payer successes.

From a patient interest perspective, we are seeing rising demand, as shown through the doctor recommendation as well as significant increases in website traffic and leads generated. We're encouraged by the increasing number of people choosing Eversense and expect to continue to trend positively as awareness grows from here.

Most encouragingly, we have received over 2,000 prescriptions for Eversense as part of the program. This equates to more than 2,000 patients who have either requested Eversense or have had it prescribed for them as part of their diabetes management program. To that end, our fulfillment partners are currently processing the Bridge program patients to turn as many of these prescriptions into implanted sensors as possible.

At the HCP level, we are seeing physicians, physician assistants and nurse practitioners significantly accelerate prescriptions since we initiated the program. We believe this reflects their increasing confidence in the simplified access program, in combination with a very strong patient interest in the product.

As a point of reference, we now already have well over 400 healthcare providers who have written prescriptions for Eversense. This signifies a considerable increase from the 250 that we announced on just our last call and well ahead of our plan for the year. We have successfully expanded our outbound reach beyond the initial target group of the top 300 insulin-prescribing endocrinologists.

Importantly, CPT payment is consistent and the claims process is straightforward where a coverage policy exists. HCPs are recognizing that as a new paradigm in patient management and have been pleased with the reimbursement they are experiencing for sensor placement.

The combination of increasing provider adoption, prescriptions written and procedure reimbursement is an indication we are building a strong base in the HCP community and Eversense is becoming an important part of their clinic.

On the payer front, we are happy to announce that we have received coverage and payment for Eversense and for the insertion and removal codes for Blue Cross Blue Shield Federal Employees Insurance Plan. This approval adds an additional 6 million covered lives. With this, we are now able to serve over 66 million covered lives with the Eversense technology and we are well on the way to reach our objective of 100 million covered lives in 2019.

In addition, we are in conversations with multiple payers regarding value-based coverage programs which emphasize our unique value proposition of driving better long-term adherence with Eversense and committing to improved clinical outcomes.

Further, we are pleased with the increasing placements we are seeing within the largest 4 payers, who currently hold E&I designations on Eversense. Users in this group now represent over one-third of our patient base. We are convinced that the product placed with these members will lead to denial overturns and ultimately improve coverage by payers that currently view Eversense as experimental and investigational. As we have stated previously, positive experiences with these patients and payers are vital toward winning coverage decisions, and we believe we are moving in the right direction.

So again, while we realize it's still in the early days of our rollout of the Eversense Bridge program, we are on the right track and are enthusiastic about the impact that we are already seeing. This productivity ramp drives further confidence in our ability to drive widespread access for patients.

We are also continually gaining a better understanding of what it takes for our patients to progress through the funnel from interest to script to sensor insertion. Our program partners, payers and distributors in our network are becoming more familiar with one another, making this conversion process more efficient.

We are successfully expanding awareness and increasing patient demand while at the same time bolstering our efforts with payers to drive additional positive coverage decisions. This increase in patient interest, prescriber support and now further payer movement confirms the value of Eversense in the U.S. market, with access supported by Bridge program.

On the innovation front, product evolution and advancing our technology remains a top priority for us. First on the horizon is the PMA Supplement to expand the label of the 90-day sensor as a nonadjunctive therapy and receive the dosing claim. The review of the agency is in an advanced stage and discussions have been positive. We continue to anticipate approval this summer, with launch following quickly thereafter.

Once we have this claim, we plan to begin meeting with Medicare administrative contractors and other stakeholders to position Eversense as a solution for the Medicare population. We believe that Eversense brings a unique solution to this group of patients with its on-body alert features, real-time glucose data and ease-of-use elements as an implanted sensor. As Eversense will not be a DME product for Medicare, we look forward to describing our CPT procedure-based technology and how to best implement it for Medicare patients.

Importantly, the 180-day sensor clinical trial is progressing according to plan, and the number of enrolled patients is increasing. As we've previously announced, we remain on track to complete enrollment in the third quarter. Again, the study consists of approximately 180 patients at multiple clinics around the country and is designed to provide the data required for a PMA Supplement to support U.S. product extension to 180 days.

We plan to leverage the data collected through 90 days of use from this study for a regulatory submission to achieve iCGM classification for the current 90-day Eversense system in the first half of next year. The 180-day Eversense system with the iCGM classification and calibration reduction is currently expected to be launched later in 2020.

Additionally, we are also happy to announce that we have completed our requirements for the mandated long-term, post-market safety registry study in Europe. The results corroborated those reported in our initial pivotal clinical trial data sets and demonstrated the high safety performance in multi-sensor Eversense use in over 3,000 real-world users.

Through this registry, we observed no product- or procedure-related significant adverse events, and less than 4% of the participants experienced either a device- or procedure-related adverse event of any kind, confirming the safety of the long-term use over multiple sensor insertions. We look forward to previewing this clinical data at ADA and publishing the full results from the post-market surveillance study in the next 3 to 6 months.

On the pump partnership front, next month at ADA Beta Bionics will present the early results from their artificial pancreas feasibility study. In this pilot, the iLet system supplied algorithm control of insulin delivery according to data provided by our sensor for 18 patients. We believe that the top-tier accuracy provided by Eversense will be attractive for artificial pancreas systems, and we look forward to our partner's progress.

Now turning to Europe, our operations with our partner, Roche, in Europe are expanding. We achieved first quarter European revenue according to contract at $2.6 million, and Jon will provide more detail on the cadence of European revenues for the remainder of the year.

In the quarter, Roche made significant headway on the patient access front, successfully securing additional payer contracts in large markets. In Germany, Eversense received a positive coverage decision from Techniker the largest payer in the country, representing over 10 million lives. Additionally, in Austria Roche has secured national reimbursement in all counties as of February, ensuring that all Type 1 diabetes patients have access to Eversense.

From a regulatory standpoint, we can also announce the recent receipt of product registration in Israel. To move forward, commercialization will begin in a small controlled launch in one clinic to provide the necessary data to support reimbursement with the largest of the 4 state-mandated [SIK] funds in the country.

Overall, we are pleased with our results and growth in Europe. In Q1, new users increased by 62% compared to the prior year period, with sensor placements increased by 85%. In February, we celebrated our 10,000th sensor insertion. There are now over 700 clinics in Europe with nearly 1,000 physicians authorized to do sensor placements. Provider adoption is encouraging and should continue to increase along with expanded reimbursement. This also gives us confidence in our ability to drive U.S. healthcare professional certification to a very broad base of prescribers over the next 18 to 24 months.

I'll now turn the call over to Jon for details on our financial results.

Thank you, Tim. For the 3 months ended March 31, 2019, we generated $3.4 million in revenue, compared to $2.9 million in the prior year period. The increase was attributable to incremental sales of the Eversense system in the United States, with a small offset for sales in Europe due to contractual timing obligations.

To provide increased access to the Eversense CGM system for patients with limited or no insurance coverage, during Q1 2019 the company introduced the Bridge patient access program. Payments associated with the program are treated with a gross-to-net reduction to revenue under U.S. GAAP accounting. For the 3 months ended March 31, 2019, we recognized net revenue of $816,000 in Q1. We expect that on a go-forward basis there will be fluctuations in quarterly Bridge payments that may affect quarterly revenue recognition, while still affirming full year 2019 revenue guidance.

To reiterate Tim's comments, we are confident that our investment in the Bridge program is helping patients gain access to our product and is building utilization of Eversense in the marketplace. We are pleased with the early reception of the product with the patients and physicians.

Gross margin in Q1 2019 decreased by $2.9 million year-over-year to negative $3.3 million compared to negative $400,000 in the prior year period. The decrease was primarily due to obsolescence related to product upgrades, as well as product expiry due to the Roche distribution agreement.

First quarter 2019 sales and marketing expense increased by $9.4 million year-over-year to $12.8 million compared to $3.4 million in the prior year period. The increase was due primarily to the build-out of the sales force in the U.S.

Research and development expense in Q1 2019 decreased by $1 million year-over-year to $7.1 million, compared to $8.1 million in the prior year period. The decrease was primarily driven by the completion of all activities associated with the U.S. PMA approval for Eversense.

General and administrative expense in Q1 2019 increased by $2.5 million year-over-year to $6.5 million compared to $4 million in the prior year period. The increase was primarily due to an increase in compensation, legal and other expenses supporting operational growth.

For the 3 months ended March 31, 2019, total net loss was $29.4 million, or $0.17 per share compared to $22.3 million or $0.16 per share in the first quarter of 2018.

From a balance sheet perspective, as of March 31, 2019, our cash and cash equivalents were $103.7 million. Outstanding indebtedness was $65.2 million.

Turning to guidance and the points Tim provided previously, broadening patient access is the primary element gating the ramp of Eversense. We have made significant progress in the past many months with coverage, and we are rolling out our patient access Bridge program while we, in parallel, work with payers.

Inclusive of our expectations for the likely impact both in terms of timing and revenue recognition related to the Bridge program, we continue to expect 2019 reported revenues to be in the range of $25 million to $30 million. Based on the purchase commitments in our various agreements and forecasted deliveries, we continue to expect approximately 30% of international sales to be in the first half and 70% to be in the second half of 2019.

With that, I'll now turn the call back to Tim.

Thank you. In summary, just as our partners in Europe are experiencing new user and covered life growth, in the U.S. we are building a foundation to support the same activities. With the recent positive coverage decisions from Blue Cross Blue Shield Federal Employees Plan, we are two-thirds of the way through our covered lives target for the year, in 4 months.

The launch of the Bridge access program is crucial for enabling patients who see the compelling value in our technology to access it, thereby creating additional exposure and the opportunity for positive experiences with payers as we pursue widespread coverage. Not only that, but the rapid acceleration to 2,000 prescriptions and 400 healthcare providers writing scripts gives us confidence we are on the right path, and we are excited to continue building on this momentum.

That said, perhaps the most meaningful experience in the quarter is the feedback we are receiving from physicians and patients on the benefits of Eversense. Patient satisfaction and, most importantly, how information and alerts provided so conveniently by the system over a 90-day period are changing lives. It is our mission to deliver convenient access to this life-changing technology to people with diabetes.

This now concludes our prepared remarks. Also joining us for questions are Mukul Jain, our Chief Operating Officer; Mike Gill, Vice President and General Manager of the United States; and Mirasol Panlilio, Vice President and General Manager for Global Commercial Operations.

Operator, let's now open up the call for questions.

(Operator Instructions) And our first question will come from Rebecca Wang of Leerink.

So just from reimbursement perspective, you have said you're still targeting 100 million covered lives. I'm just wondering, can you give more color on the progress there? Like, what are the discussions you're having with payers? What are some of the feedbacks or pushbacks you normally get?

Sure. Thanks, Rebecca. We feel very good and very confident about our ability to reach our milestone at this point. As we've said, we've got about 66 million covered lives; the largest, of course, is a Top 5 payer, Aetna, with 22 million lives. So we've been able to sign, to come through with payer coverage for an additional 44 million on top of Aetna.

We continue to have focus and work with the larger payers. Obviously, firms like United, Anthem, Cigna are at the top of our priority list, and we continue to work with them and find ways to convince them of the value of the Eversense program and its clinical utility. And I feel really, really good about the progress we're making.

Also we've had some very good and healthy conversations of late in regards to value propositions and the ability that we have with a long-term system like Eversense to really improve health outcomes. The results that we're seeing and will be publishing shortly from the experience in Europe as well as the early experience in the United States continues to confirm the long-term adherence that we're seeing to people that choose to be on an implanted sensor, as well as the glucose control is pretty attractive.

So those are all the elements that we speak to the payers with. There are a number that are underway. And as we said, our plan is to achieve 100 million covered lives by the end of 2019 and then an additional 150 million covered lives in the calendar year 2020.

That's very helpful. And I just want to ask another question, on the logistics side of things. I know this is early in your U.S. launch. Can you give some -- how are you seeing those early adopters, like, fitting the procedure into their practice? And have you seen any difference in the adoption trends here in U.S. versus what have you seen in Europe?

Sure. Thanks, Rebecca. I think you're talking about the prescribers. I'm going to go ahead and let Mike talk about what we're seeing here in the U.S. It is a very active time right now. As you heard, there's a lot of interest coming in. There's a lot of prescribers that want to do just that: prescribe the product. And we're doing a great job at bringing a number of new and current prescribers up to speed.

So Rebecca, to answer your question, specifically, what's happening with their work flow and who's inserting the sensor, it's really a gamut. We have physicians that work for university systems. We have physicians who are in private practice, and within the practice you have multiple physicians that are actually doing the procedure as well as their advanced practitioners, nurse practitioners and PAs.

In fact, what we're seeing is once the practice is trained, the multiple opportunities for the providers to do the insertions and then the removal, we're seeing actually offices have no issue with that work flow or adoption. Some are choosing to do it on demand, if you will, when the patient schedules their visit, and then others say, we'll do it on Thursdays and Fridays or Mondays and Wednesdays when they insert it.

I think as Tim said in his prepared comments, we have over 400 who have been interested and written prescriptions for it. So clearly, there isn't any issue with people saying that we want to do this procedure in our practice by the volumes that we're seeing now of interested practitioners.

And our next question will come from Alex Nowak of Craig-Hallum Capital Group.

Tim, it's been a year since, about a year since the FDA approval. I'd just be curious to hear your overall thoughts on how you felt the launch went in Year 1. What worked out for the team? What would you like to improve on for Year 2? Based on your prepared remarks, I believe you would have wished to have the Bridge program out there on Day 1. But just your overall thoughts there, first.

Sure. Thanks, Alex. We've been very excited. The company obviously has grown a lot in that time period. We've continued to put a lot of infrastructure in place to support the commercial organization, not only the feet on the street but also those that need to provide the product.

Approval came just about a year ago, as you said, actually in second half of June. And I feel really good about the way that we actually got that into patients by the end of July. So just about 4, 5 weeks.

Obviously, the Aetna win very early on was a great win for us, and that was done because of a lot of hard work, preparatory work that had been done ahead of time by the commercial team to get them on board and get them actually excited about being one of the early first movers.

I've been real happy and excited with the continued innovation. We are seeing significant dividends come from the flexibility now to have nurse practitioners and physician assistants do the insertion. It's a group that very much loves to do a procedure like this and has been very, very accepting of it. So that's been a great addition.

Obviously, now being the only CGM that's MRI-compatible has helped a lot. So great work by our engineering teams to get that included and out.

So you're absolutely right. The Bridge program has been important to create that access. As I said, it does give us patients that are on the product, which is very important. If you're looking at some of the blog space, which is pretty active in diabetes, as many know, you're starting to see more and more and more prevalence of Eversense being out there, which is important.

But we still have the biggest part in front of us, which is the continued growth and expansion of the payers. That, as Mike said, is what is absolutely gating the business, and we need to get that knocked down. I'm very confident that we'll get there. And anything that we can do that quicker is to our best advantage.

Okay. Understood. And Jon, obviously the guidance here is assuming a very big ramp in the second half of the year. Now I understand forecasting a newish medical device launch is difficult, but what in the market or what particular metrics out there are giving you the confidence in hitting those revenue targets in the second half of the year?

And just to clarify, is the $25 million to $30 million in annual guidance net of any contrarevenue items from the Bridge program? Or how it that Bridge program being handled with the accounting?

Sure. I'll take the second question first. And yes, the $25 million to $30 million includes net revenue, so that it's actual cash available to service our expenses, et cetera. So there's no change there. Part one.

And then part two is I think we feel quite good on a couple of different fronts. Number one, Europe and our Roche contract is essentially contracted. So we feel like there's tremendous visibility to that portion of the revenues. And what we see in terms of extrapolating the last several weeks and now into the months of trends and as we look at Q1, we feel like, and we've always said that this was a second half of 2019 story. Mike had to hire his sales force. Mike had to get healthcare providers trained on this. And this is, the metrics that we're seeing are tracking against our internal plans.

So we feel good and comfortable still that we'll be within those ranges based on those inputs.

Okay. That's helpful. And then just last question from me. Tim, just wanted to follow up on the potential for an iCGM status here with the 90-day sensor. Now I know it's a couple of years out, but your device is the only implantable CGM. So I would be somewhat surprised if FDA would declassify an implantable device to a Class II medical device. But just your thoughts there on how you actually kind of obtain the iCGM status.

Sure. I'm going to let Mukul take that. Mukul, amongst other things, runs our regulatory efforts, and I would say he's, honestly, speaking to a review group at least once a week, maybe sometimes more. So we've had a lot of conversations on many fronts, including iCGM.

Alex, you're right about the complexity of the plan table and then downgrading it to a 510(k). But we have had that discussion with the agency and they have looked at iCGM from the perspective of being a device that can be interchanged with the pump. And they are looking at just the meeting. They have special controls as the criteria that they look for iCGM. So from that perspective, they are very comfortable looking at the implantable and giving it an iCGM as soon as we give them the data that meets the special controls.

And I think the other thing to recognize, so the special controls really gives them comfort that there is a tight band of high-quality analyticals; so accurate glucose readings. The other thing that we're actively involved is the post-approval study for the product, where they're looking at extended experience on multi-insertion sensors longitudinally, which we will be enrolling over the next couple of years. And then of course when we get our approval for the dosing claim there will be additional safety data that will be generated.

So safety and efficacy they're going to have a lot of experience with. And yes, it's an implantable, but they'll have it pretty well defined with that experience.

And our next question will come from Jayson Bedford of Raymond James.

This is Matt Wizman on for Jayson Bedford. So I have a couple of questions on the Bridge program. First, with the program a little bit more time under your belt with it, what are you seeing as far as the success rate goes in the appeals process? If you have a percentage there that you could maybe give. And then on the second part, is the mix of users you're seeing coming through the Bridge program different than the mix that was coming in before? Or is it similar?

Thanks, Matt. We're not ready at this point with literally just a few weeks to talk about the success yet of the overturns for the E&I designation. But we are very confident and we do have a partner organization that is directly focused on that. I'll let Mike speak to that in a second.

But first, I'm going to ask Jon to give some details on the Bridge program, as it will be a pretty material part of our U.S. efforts here for the coming quarters and we want to make sure that there's good understanding about what we're doing with it.

Thanks, Tim. I hope by giving a little bit of color here that I'll be answering the question you have in general and happy to dig in some detail either separately or on this call. But I think it's helpful for us to walk through the patient obligations that we are bridging, the deductibles and copays.

So our Bridge program helps to offset the patient's out-of-pocket costs associated with the Eversense sensor and transmitter; and so if an eligible patient has an out-of-pocket cost higher than $99, whether that is due to deductible, copay, coinsurance or noncoverage. But the Bridge program does not offset the cost of the procedure, as that is between the physician and the patient.

So patients are very pleased with the program and are willing to appeal to their insurance companies strongly for their third sensor. And we'd ask you to keep in mind that the appeals can be initiated and denials successfully overturned even with an E&I coverage policy. So these are single-case negotiations.

And then, Matt, I'll just talk a little bit about our partners. They essentially form, they represent as a delegate for the patient. So they're communicating to the payers. They're actually representing, if you will, on a patient's behalf. And with that, you certainly have a perking up of the review case manager and sometimes the medical director because they are the patient that pays the premiums.

And again I want to reinforce that this is not new to healthcare medical devices. Copay programs have been around for many years, and the appeals process and delegate process has been around for many years. And we've been actively working these for a few weeks now. And as Tim said, we're not ready to give out percentages in terms of the overturning of the appeals, but we're actively working those.

If I can say one more thing about the terms of the percentage, we have seen, obviously, as Tim said in his prepared comments, the 4 big payers that have E&I we've seen a high percentage of our now pipeline being shipped through those payers just simply because we're offering the Bridge program and, additionally, because physicians were not willing to write a prescription for someone who they knew would get denied. So there was a rate-limiting factor there, that they didn't actually want to write that prescription and put it into our portal.

Now that there's access for those patients, those 4 payers in terms of the prescriptions have gone up because they know that now those patients that they're writing prescriptions for have access. And that's been the mix that we've seen a pretty big increase over the last several weeks.

Okay. And then you mentioned you were discussing value-based programs with some of the payers. Could you give any details on what that would look like? And do you have any value-based programs that are active right now with other payers?

I won't comment on the last question in terms of that negotiation or those that are active. I can tell you that, in many ways, value-based programs are becoming a standard discussion. And then how you implement that, in many ways, the easier you can implement it and track it, the better the outcome, both for the payer and obviously the medical device company, et cetera.

We feel like we have a pretty strong position statement there, where if the sensor utilization or wear time is not to the expected we will work with that plan in order to figure out what is the right payment terms based on that percentage.

And then the second thing, as Tim talked about, is the glucometrics around the outcome of that patient also would be negotiated through that. And that glucometrics we feel very confident because of what we've seen in Europe in terms of whether it's the HbA1c time and range, wear time of the sensor. We feel pretty good and positive that if we were going to a value-based program with any payer they would not only be pleased with the outcome, the clinical outcome, but certainly the economic value that we're providing.

Our next question will come from Kyle Rose of Canaccord Genuity.

So just 2 questions for me. The first one, you talked about the 400 prescribers. And I wanted to kind of talk about specifically how that group of prescribers has been impacted by the Bridge program. And you touched on it a little bit when you talked about the fact that these prescribers are willing to prescribe more now that they know that the Bridge program is in place. So maybe kind of help me just kind of talk about those dynamics.

And then secondarily, can you just talk about the pricing and reimbursement dynamics you've seen from a market standpoint? There's a lot of commentary about some increasing competition coming from Abbott, with Libre 2.0 potentially getting iCGM and driving some more price competition. What are you seeing in your conversation with payers? Does that change your outlook at all?

Kyle, it's Mike. First of all, I'll expand on what I was talking to Alex about in terms of that 400 docs or healthcare providers that have written prescriptions. If you think about it, before, they would see a patient with any of the big 4 insurance companies that Tim mentioned earlier, UnitedHealthcare, Cigna, Anthem, and they would just say, hey, I'm not going to enter that into the Eversense ordering system because I know you're going to be denied.

Now because of the Bridge program they will enter that into our portal system. Then we work with the distributor in order to work through what is the eligibility and benefit and also, as Jon mentioned, the copay and the deductible. We work through that with our partner for the Bridge program, and then they're shipped through the fulfillment agent.

So because of that streamlined process and they know that they will have access, the patient will have access, those physicians that were kind of waiting on the sidelines, maybe in areas that had a prevalence of UnitedHealthcare or Cigna, were deciding not to prescribe. Now we're opening access and they're prescribing more.

In terms of the pricing, we just haven't seen too much conversation on that at that foundational level with payers. I think they understand what the per-day rate is, and we're fitting well into that. And in fact, we're fitting well into that even with the procedure code. So all conversations have been very positive. I think they understand the value proposition.

When we do talk to them, we're new, nascent product in the market. They have to work it through their coverage policy assessments, and we know that. We respect that. And we're working with them. And now with Fran Kaufman on board, we're certainly having deeper conversations in terms of the clinical output of our product, and we hope that over time we'll be able to get to a full coverage policy like other CGMs.

But to answer your specific question on the pricing, we haven't seen too much difference than other CGMs in the market.

Kyle, as I would say, and we've talked about this before, strategically we do recognize this is health care. Pricing does ultimately only go in one direction. And we fully expected that would be the case in CGM, as well, as you get greater and greater and greater penetration. In fact, it's our objective to, honestly, go into -- certainly anyone that's with Type 2 diabetes on insulin is a candidate and should be on a continuous glucose monitoring system. And that does need to be done at the best economics that we can afford as a society.

So we have absolutely been focused. Although we are early in our tenure, the entire reason that we are focused on taking a 90-day product to 180 days and then 180 days to 365 is because we do recognize that we have a very unique cost position so that we can support the dynamics and potentially lead the dynamics in cost reductions in the future as we go into that much broader population.

Okay. Great. And then just one on the P&L, and I apologize if I missed it in the prepared remarks. But operating expense came in a bit higher than what we were thinking about. Was there anything onetime in nature in the Q1 that we should be thinking about as we move through the year? I know you've talked about the cadence of revenues through the year, but just some color with respect to operating spend this year would be helpful for modeling.

Sure. The cost of goods was certainly impacted on several fronts we believe. And so of course that impacts the revenue reduction. In terms of COGS, as we mentioned, and we do believe that it, I want to be very careful with my words here, it's onetime in nature in that there was a product upgrade. Sure, there may be product upgrades again. So I don't want to say that will never happen again; that would be an unfair characterization.

But in terms of [the whiff] of the small LED products and their upgrades, that's what caused the obsolescence of that upgrade. It caused COGS to go up this time. And again, we don't anticipate that to be at those levels, going forward. But we do believe given that we're a nascent medical device company that things like this will happen as we're doing product improvement from time to time. And there also was product expiration based on the timing of the Roche contract.

So those were the major factors. Again, we don't believe those are recurring at these levels. They will be lumpy and unpredictable and will occur from time to time. But we, while I can't call them onetime in nature, we don't believe they're going to occur at these levels.

And I think it's important to recognize Roche is obviously a very important partner for us. But the way that their distribution model works and the fact that we provide a year's dating on our product is it actually works best for them if they purchase a majority of their need for the coming year in the fourth quarter of the prior year. So we continue to anticipate that that will be the largest quarter in our ongoing partnership with Roche. As they purchase, they move it to their distribution in the first quarter and then out to their other countries around the world beyond that. So that's what works best for them, and of course we build to that schedule to support their efforts. But that does mean that we have a generally pretty large fourth quarter in our rollout.

And our next question will come from Kyle Bauser of Dougherty & Company.

I apologize ahead of time here if my questions were already answered, but just a couple of quick ones. How many clinicians are trained on Eversense in Europe? How many are trained in the U.S.? And once a center is trained, can that practice train in a new clinician that comes on board?

Sure. So I'm going to let Mirasol speak to Europe, and then Mike will come in and talk about the U.S. But we're real excited about the progress that we've made in Europe because we do believe that it emulates what we're going to be able to do in the United States.

I'll tag team with Mike here. In Europe, we've been available since very late in 2016, and of course we're in 15 countries now. So we have I believe just about 1,000 clinics, and we have authorized just over 700 providers through the first 2.5 years in Europe.

Works very similarly, I would say, with the U.S., that some of the things that we've learned in Europe we've passed on to Mike's team and the U.S. market to ensure that we continue to be able to ensure that our providers who is doing the procedure are confident and comfortable with doing the procedure, as well as all the learnings on the clinic work flow.

So that's the number that we have in Europe. And so I'll pass it on to Mike.

Kyle, in the U.S., as Tim mentioned, we have over 400 physicians have written prescriptions. We have over 100 that are trained and where, obviously, you're fully trained or certified once you've done removal. So we're working on the other 100 that now have to do removals in order to be certified.

In terms of your question about can inside the practice you create, like, a master trainer who can actually train, once they've been authorized through the labeling then an authorized trainer can do the training for others. Most of the time we do have a clinician on our end who works for Senseonics there to support. But there's nothing that is stated that a practice couldn't have a master trainer who trains the rest of the healthcare providers in that practice.

Got it. That's really helpful. And then my follow-up is, to the extent you can share, what updates or readouts or presentations can we expect at ADA next month for Eversense?

We do have a nice product here. Fran Kaufman, our CMO, is going to be leading that effort. And we've certainly got the safety data which is very comprehensive, very real-world, well over 3,000 patients now that we have a multiyear, multi-sensor experience on. And we'll be sharing some of the very earliest of U.S. data and experience with the product, specifically. So we're excited to do that. We're also excited for the Beta Bionics readout, as this is our first demonstrated clinical results of Eversense driving an artificial pancreas system.

And our next question will come from Matthew Taylor of UBS.

This is [Ei] on for Matt. I have a question on your patient mix. Can you talk about how many patients in the U.S. are new to CGM and how many are from competitive CGM?

At last check we were seeing about 25% that were brand new to CGM. Obviously, the predominance, these are all on insulin, the vast predominance are Type 1. So they've all known they should be on CGM, but for one reason or another they didn't opt to make the move until the long-term implantable was a reality of a solution for them.

The remaining 75% is coming currently from existing CGM users, and we're seeing a conversion distribution that pretty much represents the market share in the U.S.

It's a very similar dynamic. Early on in Europe we saw most early adopters coming from folks that were experienced with CGM. But I think the most recent data that we got from Germany, our largest market, said that today they had progressed to about 50% of their users were actually new to CGM and the other 50% were coming from the existing CGM and flash product over there.

Okay. That's great. And then just one clarifying question on payer coverage. So you talk about the 100 million by year-end '19 and 250 million by year-end '20. Does that assume coverage win with Medicare?

Our plans for Medicare have always been in the 2020 time period. Once we have the dosing claim we'll actually begin those conversations. And obviously we'd do everything we can to move it to earlier in 2020. But it does start with the dosing claim. So we'll begin those conversations later this summer, right after the approval comes in.

And this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Goodnow for any closing remarks.

Well great. Thank you. I do want to thank everyone for joining us this afternoon and for your continued interest in Senseonics. Please have an enjoyable weekend. Good day.

That does conclude today's teleconference. Thank you all for your participation.