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Edited Transcript of SENS earnings conference call or presentation 12-Nov-19 9:30pm GMT

Q3 2019 Senseonics Holdings Inc Earnings Call

GERMANTOWN Dec 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Senseonics Holdings Inc earnings conference call or presentation Tuesday, November 12, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jon D. Isaacson

Senseonics Holdings, Inc. - Advisor

* Mirasol G. Panlilio

Senseonics Holdings, Inc. - VP & GM of Global Commercial Operations

* Nick B. Tressler

Senseonics Holdings, Inc. - CFO

* Timothy T. Goodnow

Senseonics Holdings, Inc. - President, CEO & Director

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Conference Call Participants

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* Alexander David Nowak

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Danielle Joy Antalffy

SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst

* Jayson Tyler Bedford

Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst

* Kyle Royal Bauser

Dougherty & Company LLC, Research Division - Senior Research Analyst

* Kyle William Rose

Canaccord Genuity Corp., Research Division - Senior Analyst

* Mathew Justin Blackman

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Philip Taylor

Gilmartin Group LLC - Associate

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Presentation

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Operator [1]

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Good day, and welcome to the Senseonics Third Quarter 2019 Earnings Call. Today's conference is being recorded. (Operator Instructions) I would now like to turn the conference over the Philip Taylor. Please go ahead.

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Philip Taylor, Gilmartin Group LLC - Associate [2]

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Thank you very much, and welcome to Senseonics Third Quarter 2019 Earnings Call. 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 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 all annual report on Form 10-K, our quarterly report on Form 10-Q for the quarter ended September 30, 2019, 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 full year 2019 revenue guidance on a gross and net basis, 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. On this call, we will be providing investors with gross revenue in U.S. gross revenue measures to provide meaningful supplemental information regarding our performance and provide better transparency on the impact of reimbursement in the Eversense Bridge Program.

In accordance with U.S. GAAP, Senseonics reports revenue in its financial statements on a net basis, which includes gross-to-net reductions, primarily related to the Eversense Bridge Program. Gross revenue measures do not reflect the gross-to-net reductions and accordingly, may be considered to be non-GAAP financial measures.

These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for, or superior to the financial information prepared and presented in accordance with U.S. GAAP, since Senseonics non-GAAP measures may be different from non-GAAP measures used by other companies. For 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 Jon Isaacson, Chief Financial Officer.

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

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [3]

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Thank you, Trip, and thank you all for joining us. On the call this afternoon, I'll provide updates on our recent commercial and operational accomplishments, we'll spend some time reviewing our strategic direction and Jon will provide more details on our financial results and outlook.

To start out, I'd like to highlight several important recent milestones and achievements. First, on reimbursement, I'm very happy to announce that after ongoing engagements with the Centers for Medicare & Medicaid Services over the past several months, CMS has finalized the payment rates for our CPT codes as part of the calendar year 2020 rulemaking process. It's an exciting step forward for Eversense as it provides Medicare beneficiaries access to the latest innovation in continuous glucose monitoring.

In publishing the calendar year 2020 Physician Fee Schedule, CMS elected to set RVU values for the existing Category III codes used to report the insertion and removal of long-term implantable CGM devices. We understand this step was taken proactively to ensure a clear understanding of how this new class of CGM devices will be paid for. Through this step, CMS is determined that implantable CGMs are categorized as part of the part B medical service and not processed through the durable medical equipment benefit as with other CGMs. Importantly, the CPT codes will include the cost of the Eversense CGM system and HCPs may bill Medicare directly to receive a single payment that wraps the cost of the device with their physician service time needed to insert or remove the Eversense sensor.

The alternative durable medical equipment benefit has been a challenge, given the regulations around this channel of sale. We're excited to have the opportunity to not only bringing an advanced technology to the 61 million Medicare beneficiaries, but also enable a differentiated payment approach that we believe will reduce the barriers to access, and ease the burden on clinics. The Medicare ruling caps the string of positive recent reimbursement decisions for Eversense in the last 8 weeks, including Blue Cross and Blue Shield of Massachusetts, Healthcare Services Corporation, Humana and more. All of these take us to well over 150 million covered lives for Eversense and well beyond our goal for the first year. These recent payer wins were supported by the strong clinical outcome data originating from the real world performance, longitudinal efficacy analysis and multiyear safety characterization of the Eversense system recently published 3 articles in the peer-reviewed scientific journal Diabetes Technology & Therapeutics.

These publications demonstrate that when patients were placed on Eversense, they achieved a compelling and sustained time in range of 62% to 64% with a wear time in the mid-80s percentage, all with a favorable safety profile. This strong real-world data has been seminal in supporting some of our recent payer wins.

We've made important progress in the clinical front, too. We've completed enrollments to the PROMISE 180-day sensor clinical study on track with our expectations. And finally, we raised over 100 million in gross proceeds of new capital in July, strengthening our balance sheet.

Now looking back, the first year on the market in the United States. We have learned a great deal about how our CGM system fits into the benefit of the broader diabetes market. We knew that our paradigm shifting long-term implantable CGM technology would require education and familiarization before achieving widespread acceptance in the diabetes treatment ecosystem. Our first year users have demonstrated that Eversense has an [important] place in this market and additional -- and initial adoption is steadily growing. However, it is at a pace slower than our initial planning as we work to achieve stronger coverage, drive greater product awareness and ensure patients who want Eversense can achieve the insertion when desired.

Based on the trajectory to date, we expect to conclude the year with an installed base of approximately 4,000 patients with Eversense. We are pleased to already see a strong patient satisfaction and retention rates driven by the sensor's unique features and performance.

We are establishing traction with patients, providers and payers, and as of the end of the last quarter, we exceeded over 1,000 prescribing clinicians for Eversense as well as over 450 trained professionals inserting the product in the United States. And while the recent [bolus] of covered lives is extremely positive, the initial impact that we've seen in the form of increased market awareness and adoption as well as influence on other payers. We can expect to begin to realize the sales impact from these recent wins in 2020. Albeit gradually as we continue to expand awareness and access.

I would like to take a moment to discuss what we have learned, talk about the key hurdles we see to driving greater adoptions and actions that we are taking in response, and how we will continue to build for success. We see these learnings about our transformational product as valuable for our current efforts and to prepare for the planned approval of our 180-day product in the United States. Physically we now have a fuller understanding of the friction points across patients, payers and providers that are governing adoption.

Clearly, the most important factor to drive utilizations continues to center on reimbursement, [which means] firm coverage in place both for the product and the insertion procedures. The recent wins that we've had with bundle payments is very positive for acceptance for the device utilization in claims processing. We have prioritized our efforts to create and implement solutions to make easier access for patients. One of these significant solutions that we have discussed is our Bridge Program, which has been effective in driving a significant portion of patient pool.

To date, approximately 50% of the users have utilized some form of participation in the Bridge Program. This facilitates the creation of a growing installed base and is increasing the number of doctors prescribing Eversense, all while raising visibility with insurers. The Bridge Program, however, does come with a significant cost to our top line and gross margin. In an additional effort to drive penetration, we have found that we need to play a greater role ensuring patient can conveniently access physicians who are performing insertions. Currently, there are more prescribers at Eversense than providers that are trained to perform the insertion procedures. As a result of this, we have initiated a program called the Certified Eversense Specialist or CES network. The program provides support to prescribers who are not yet doing or who may not want to do the insertion procedure. It allows for endocrinologists, nurse practitioners or physician assistants to prescribe Eversense and then refer patients to an [area] specialist for the insertion and removal. These CES providers can bill for their professional time under out CPT codes as standalone or with the bundled payment approach. The CES model has been effective in places like hospital systems where we run into additional requirements for HCPs to place the sensors. The specialists are comprised primarily of dermatologists, plastic or [bariatric] surgeons and primary care physicians. To date, we have approximately 60 certified CES specialists that are doing insertions and removal in partnership with a prescribing primary endocrinologist, and we are qualifying and adding more each week.

We view the CES network as another opportunity to expand access to Eversense while meeting the growing need of patients interested in using the product. As we assess our progress to date and the key initiative to drive performance, we remain mindful of the capital and time required to implement and yield results from these actions. In an effort to reduce our burn and to enable more time for payer wins and for revenue traction, we have proactively taken steps to reduce spending and extend our cash runway.

To that extent, we have executed an expense management plan and a reduction in force across the organization and are reallocating our workforce and project resources towards a more targeted commercial strategy. In our field organization, we have restructured to focus on key geographies where we have established payer coverage and we believe we can more efficiently grow our patient base with deeper penetration into our most active accounts.

We are confident in our commercial team and expect productivity to increase over time as additional insurance companies and full reimbursement for both product and procedure are brought on board.

Now turning to the third quarter results. In order to provide better visibility on the impact of reimbursement and our Bridge Program, we will describe our revenue in 2 categories, gross and net. Gross revenue is what we would have recognized in the U.S. from entirely reimbursed patients without the economic considerations of the Bridge access Program. We believe gross revenue gives us an important indicator to better understand market demand for our product where users are not faced with significant gaps in insurance reimbursement. Because the cost of the program subsidy varies by plan and individual's current deductible and their insurance provider, the net revenue calculation is complex and varies widely from patient to patient and changes throughout the year. Net revenue is the actual recognized revenue in our P&L. In the third quarter, total net revenue was $4.3 million. Of the $4.3 million net revenue, $0.5 million was U.S. and $3.8 million was OUS. Gross revenue was $5.9 million prior to gross-to-net adjustments for the U.S. primarily related to the Eversense Bridge Program.

Looking ahead, we'd expect the continued use of the Bridge Program will impact our recognized revenue for 2019. Given this, we now expect net revenue to be in the range of $20 million to $22 million with gross revenue to be in the range of $25 million to $27 million. We believe our continued investment in the Bridge Program is appropriate for driving patient access in the U.S. market as we continue to expand reimbursement.

At a high level, even with the recent covered wins, the aforementioned barriers to adoption remain. Encouragingly, while we continue working to drive increased awareness of Eversense and build the patient ramp and obtain more coverage, we continue to receive very encouraging feedback on Eversense as a powerful tool providing lifestyle convenience and enabling improved disease management to those that choose it. The sensor procedures are brief and straightforward, and patients appreciate the discrete vibrating alarm and the freedom to remove the transmitter and replace it with just a fresh adhesive. These positive patient experiences and recently published strong clinical data, combined with our digital marketing campaigns are helping to increase awareness of Eversense in the diabetes community.

Moving on to product development. We have focused our spending while maintaining the key resources in our clinical and R&D groups to strategically align on our most critical business initiatives. Our top priority, the 180-day sensor is an important part of our future. And we're continuing to invest in redefining what long-term duration means in the CGM category. We remain 100% committed to our efforts to advance the 180-day sensor and keep the time lines associated with the important next generation product on track. We were pleased to recently announce the completion of enrollment of the PROMISE 180-day sensor clinical study, 181 patients have been enrolled across 8 sites across the United States. This trial is running for 180 days, meaning the final data should be available for analysis at the end of the first quarter 2020. We plan to prepare a submission to the FDA in the months following.

As a reminder, we intend to use the data from the first 90 days of the trial in an interim analysis to support a supplement submission for the iCGM designation for the current 90-day sensor and the balance of the data later in the year to support our 180-day registration in the U.S. It is our hope to achieve the iCGM designation in the first half of next year and 180-day approval late in the year, both depending on data and regulatory processes.

Transition to Europe, we celebrated 3 years of commercial availability. First, with the original 90-day system, and now, with our current extended life Eversense XL. We now have over 1,000 clinics and nearly 1,500 trained providers in 14 countries through the end of Q3. In the quarter, we generated revenue of $3.8 million from shipments to Europe with a sensor utilization up 67% compared to the prior year. Roche is progressing with efforts to take Eversense into new markets through regulatory approvals and product registrations in select CGM-ready countries in Europe, Asia-Pacific and Latin America. The time lines for end market approvals vary and can be unpredictable, but we expect to launch in the new markets to be later in 2020.

Last month, in partnership with our newest distributor DYN Diagnostics, we initiated a controlled launch of the Eversense XL system in Israel. This marks our first entry into the Middle East. DYN Diagnostics is an established diabetes product distributor and is, in fact, an exclusive distributor of Roche Diabetes products in Israel. Israel has well-established CGM reimbursement with sick fund and we're looking to work with those funds to set reimbursement. The controlled launch was initiated in 4 clinics with successful onboarding of both type 1 and type 2 patients on insulin.

Finally, I would like to update you on some organizational changes. First, I am pleased to announce that Dr. Fran Kaufman, our Chief Medical Officer, has been appointed to also serve on our Board of Directors. He has a long distinguished career as a leading clinician, ADA leader, business executive and humanitarian in the diabetes field. Fran brings a unique and valuable understanding of the needs of our patients and dynamics of our market. We look forward to Fran's continued contributions also as a member of the Board. Secondly, we are pleased to have Rudy Thoms, leading our U.S. sales efforts going forward. Rudy brings with him over 20 years of experience in diabetes sales management, and we are confident in his leadership of this important function. Mike Gill, the former Vice President and General Manager of the U.S. region has left the company to pursue other interests.

Finally, we are pleased to announce that Nick Tressler will become our Chief Financial Officer. Nick, our current Head of Financial Planning and Analysis is an experienced financial leader with deep operational finance skills and a range of experience across companies of varying sizes. Jon Isaacson will transition from the CFO role to pursue other interests and remain with the company through the end of the year to ensure an orderly transition of responsibility.

Please join me in congratulating Fran, Nick and Rudy and thanking Mike and Jon for their service. I'll now turn the call over to Jon for detail on our financial results.

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Jon D. Isaacson, Senseonics Holdings, Inc. - Advisor [4]

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Thank you, Tim. For the 3 months ended September 30, 2019, we generated $4.3 million in global net revenue compared to $5.2 million in the prior year period. The decrease was attributable to timing of sales of the Eversense system in Europe based on the contractual timing of purchases throughout the year. To provide increased access to the Eversense CGM system in the U.S. for patients with limited or no insurance coverage during Q1 of 2019, the company introduced the Eversense Bridge Program. Costs associated with the program are treated with a gross-to-net reductions to revenue under U.S. GAAP accounting.

For the 3 months ended September 30, 2019, we recognized net revenue of approximately $500,000 and gross revenue of $2.1 million. We expect that on a go-forward basis, there will be fluctuations in quarterly Bridge cost that may affect quarterly revenue recognition. 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 demonstrating the utilization of Eversense in the marketplace. We are pleased with the experience of the products with patients and physicians. Gross profit in Q3 2019 decreased by $800,000 year-over-year to negative $3.3 million compared to negative $2.6 million in the prior year period. The decrease in gross profit was primarily due to lower net revenue in our OUS region compared to the same period in the prior year. Third quarter 2019 sales and marketing expense increased by $3.7 million year-over-year to $11.6 million compared to $7.9 million in the prior year period. The increase was due primarily to the buildout of the sales force and commercialization efforts in the U.S.

Research and development expense in Q3 2019 increased by $3.7 million year-over-year to $11.1 million compared to $7.4 million in the prior year period. The increase was primarily driven by the 180-day PROMISE clinical study. General and administrative expense in Q3 2019 was $5.4 million, an increase of $300,000 compared to the prior year period and includes compensation, legal and other expenses supporting operational growth.

For the 3 months ended September 30, 2019, total net loss was $19.5 million or $0.10 per share compared to $31.9 million or $0.18 per share in the third quarter of 2018. From a balance sheet perspective, as of September 30, 2019, our cash and cash equivalents were approximately $131 million, outstanding indebtedness was $144 million. This includes the over $100 million of gross proceeds in new debt and equity capital raised in July.

Turning to guidance and the points Tim provided previously, broadening patient access is a key element to the commercialization of Eversense in the U.S. We have made significant progress in the past months with coverage and we have been utilizing 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 are revising our guidance of global net revenue for full year 2019, which takes into account the effects of the Bridge Program, and now is expected to be in the range of $20 million to $22 million. This compares to the previous expectation of $25 million to $30 million. Gross revenue, which excludes gross-to-net revenue reductions primarily attributable to the Bridge Program is expected to be in the range of $25 million to $27 million.

As I mentioned, we completed financing transactions in July, which generated over $100 million in aggregate new gross proceeds in capital through a combination of a term loan agreement, convertible debt and equity. With this raise, we meaningfully strengthened our balance sheet. Additionally, on November 7, 2019, the company initiated a restructuring plan designed to meet the following objectives: First, we set strategic goals based on learnings from our first year of U.S. commercial launch. Second, enhance the customer experience with the Eversense CGM system, including outcomes, longevity, reliability, access, support and training. Third, focused on executing pathways to successful launch of 180-day products in the U.S. And lastly, and most importantly, reduce cash burn to support these activities, while minimizing near-term dilution and ensuring the best allocation in -- of capital. Restructuring results in the immediate elimination of approximately 30% of current open and planned headcount. With that, I will now turn it back to Tim to take the call back over.

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [5]

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Thank you. So in conclusion, we remain immensely confident in Eversense and our ability to prominently place it in this market over time. Patient awareness of Eversense is growing every day through our commercial activities, including online marketing, our social media presence, and we also note that the social [sentiment] of the uses of Eversense is very strong.

Payers have been receptive of our clinical data and differentiated product and this has supported our recent wins. We are excited to see a win with a large payer like Medicare and look forward to progress with the remaining payers.

While across providers, the willingness to perform the insertion and removal procedures is growing as clarity around procedure payments from the payers is obtained. This, in combination with our CES program will further expand reach. As we expand our install base, we have taken actions to streamline the organization and focus on cash utilization and gross margin. And as covered lives increase, we can thereby reduce our need for Bridge Program. We have taken a series of steps to drive progress in each of these areas with a focus on the product, the organization and our users.

Based on what we have learned in the first year of U.S. commercialization and our ability to adapt to support our paradigm-shifting product, we are as confident as ever that as more patients have access to Eversense, we will be able to bring the benefit of our leading solution to an expanding, satisfied user base. With that, we now conclude our prepared remarks.

Joining us for questions are Mukul Jain, our Chief Operating Officer; Mirasol Panlilio, Vice President and General Manager Global Commercial Operations; Nick Tressler; and Chip Moebus, our senior Director of Reimbursement and Market Access. Operator, let's open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll go first with Jayson Bedford with Raymond James.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [2]

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Congrats on Medicare. So a few questions. I guess just on the gross-to-net reductions, remind me were there any adjustments in the first quarter?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [3]

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Yes. There have been adjustments and relatively modest in the first quarter as we didn't implement the gross-to-net until March, it was 22% Nick?

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Nick B. Tressler, Senseonics Holdings, Inc. - CFO [4]

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Correct.

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [5]

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And then in the second quarter...

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Nick B. Tressler, Senseonics Holdings, Inc. - CFO [6]

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In the second quarter it was 54.8%. In the first quarter, 22.9% reduction.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [7]

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It's a reduction in what, sorry?

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Nick B. Tressler, Senseonics Holdings, Inc. - CFO [8]

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It's a reduction in gross revenue to get to net revenue, which is GAAP reported revenue.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [9]

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Okay. So I guess, I haven't done that math, but did U.S. gross revenue -- can you just compare U.S. gross revenue in 3Q versus 2Q? Did it decline quarter-over-quarter?

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Nick B. Tressler, Senseonics Holdings, Inc. - CFO [10]

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Yes, it did. It went from $2.4 million in Q2 for U.S. gross to $2.1 million in Q3.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [11]

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Okay. Okay. And I guess previously, you had talked about the U.S. business -- or sorry the U.S. business generating roughly 30% of total revenue for the year. What's the updated expectation for the U.S. contribution based on that $20 million to $22 million in guide?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [12]

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I think based on where we see it now, Jayson, it's about 20%.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [13]

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Okay. Perfect. And then I don't know if you have the data there, but what's the national value of the CPT code in which physicians will be paid under Medicare? Approximately.

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [14]

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The RVUs vary by the procedure. I don't have the dollar values, Jayson, but it's -- the RVU values are a little bit over $50 for an insertion -- in an insertion, and removal, somewhat less for a removal.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [15]

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Okay. And then finally, just -- I think I heard you, Tim, the expectation for 180-day, that's still approval obviously pending the FDA at the end of 2020, is that correct?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [16]

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Correct. Correct. No change at all for that time line.

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Operator [17]

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We go next to Danielle Antalffy with SVB Leerink.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [18]

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A lot of transitioning, so congrats to everyone that is moving onwards and upwards. Tim, I was hoping you could elaborate a little bit more on what drove the sequential decline in U.S. gross revenue, first of all. And the second of all, I appreciate that you're not in a position to give 2020 guidance yet, but it feels like the momentum is building, you feel like you're at or approaching critical mass from a reimbursement coverage perspective. So help us sort of balance that with what you're seeing out there in the marketplace today and the different friction points you guys talked about to sort of help level set us as we look towards 2020.

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [19]

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Sure. So from a revenue perspective, remember our revenue, the way that it works for us in the United States is we have regional or area or contracted distributors that partner actually with the different payers. So our shipment to them can be somewhat variable as they build and hold different levels of inventory, and we did have some shipments that were very early in Q4 that potentially could have been back in Q3.

So it has to do with a dynamic of filling that channel with the distributor. You're right, it's a little bit too early for us to get into 2020, we'll give you an update certainly on the next call. But as we've made pretty significant changes in the covered lives, obviously that's in the right direction, and will certainly help us with the growth and the access. So we as well feel very good, obviously, about those improvements and what that can bring us for the future.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [20]

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And if I could follow up on that. I mean one of the questions I often get is do you need the 180-day sensor to really drive the inflection in the U.S., and I'd be curious as to how you'd answer that. I mean you're obviously progressing well towards that, but I mean may be based on your experience in Europe, do think that's the real point of inflection here is getting that 180-day sensor? Or do you think you can get there with a 90-day?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [21]

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Yes. We've certainly -- we feel very confident and very good about what we're doing with the 90-day product. The people that are accepting it are those folks that are most interested in that long-term duration.

Remember their frame of reference today is typically 10 or 14 days. So to go from 90 or up to 180, both are pretty significant change. That said, we do recognize that the 180 day has different economics on both ends and we also recognize that for the greatest penetration, it makes sense for us to continue to move to Gen2, and we continue, ultimately, to be focused to our 365 in the future. So we do see it as an improvement from an inflection point. Certainly, we feel very good. We have 1,000 physicians right now in the U.S. that are prescribing Eversense, right? There are about 2,100 endocrinologists in the U.S. that are practicing and we expect that we're going to continue to make good progress. We've essentially doubled in the last quarter from about 500 to 1,000 prescribers. We'll continue to push that with the 90-day product. All of this reimbursement work that we've done is with the 90-day product, so that continues to be very favorable for us and the right level of investment for us to make. When 180 comes, we'll continue to leverage that. We do expect it will drive more penetration, but I don't think that it necessarily by itself is going to be a key point of inflection. I think it'll be part of a continued of growth that you'll see in the 90-day product and even further growth with the 180. Hope that helps.

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Operator [22]

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(Operator Instructions) We'll go next to Alex Nowak with Craig-Hallum Capital Group.

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Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [23]

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I just want to touch on the restructuring here with the sales force and Mike Gill leaving. What sort of impact are you assuming here to U.S. sales and physician insertions in the near term, specifically, Q4 or first half of 2020? What is the annual OpEx reduction as part of the restructuring?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [24]

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So from a strategic implementation -- Alex thanks for the question. We do want to make sure that we have the right level of investment for the opportunity. So it's a fine line we walk between the payer coverage that we have and the regional coverages that are in place. We have a strong commercial team. Mike certainly contributed to the organization, but the team that is in place right now is very strong and capable as well. So there certainly will be some transition in Q4 and can have a slight effect, but we don't anticipate that it will be a long term or permanent effect on the efficacy of the sales force. We will ramp up investment as we grow in covered lives as we bring some of the bigger payers online. Just for clarity, the remaining commercial -- largest commercial payers that we don't yet have are United, Anthem and Cigna and we continue to work on all of those. As those covered lives come on, I would anticipate that we would add further incremental resources and do more broad-based coverage.

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Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [25]

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Okay. And just the dollar amount for the annual reduction to OpEx?

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Nick B. Tressler, Senseonics Holdings, Inc. - CFO [26]

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Yes, sure. So this is Nick. I think obviously, we're not commenting yet as we think through what our 2020 finalization looks like. Clearly, we'll see savings in 3 areas, specifically, headcount, obviously, approximately 30% of both open or current and then planned physicians as well as reductions in external [expenses] for OpEx as well as improvements in our cost of goods sold (inaudible). But at this stage, we'll finalize our 2020 numbers and look to have further conversations with our next update.

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Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [27]

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Okay. Understood. And then Jon, could you just walk me through the accounting real quick on the net U.S. revenue from the Bridge Program? I know there's been obviously some discussion here in the Q&A. But net revenue this quarter was 25% of the gross. Since the 50% of patients who got Eversense used the Bridge Program. So just trying to understand the delta between these 2 numbers.

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Jon D. Isaacson, Senseonics Holdings, Inc. - Advisor [28]

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Sure. Yes. So the gross revenue, the reductions, there's 3 components, the major piece being the Bridge access program.

There is also then program discounts as well as [prop] pay. The difference then is the utilization of patients, which is approximately 50%, 54% for the quarter, and then the payments, which include not only the sensors, but also then additional costs for procedure. So the dollars that are greater than the actual percentage of patient usage.

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [29]

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And again, depending on the patient, whether they have a co-pay that's assisted or whether they have a [full in] E&I and need the full assistance, they pay $99 as a minimum and then with the E&I coverage, the Bridge Program would support the balance. If it's to support a deductible, it would be a partial payment.

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Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [30]

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Okay. Got it. Just last question, real quick. I think we all know you had the contractual obligation out there with Roche in Q4 to have them comeback and buy a bulk order of products for 2020. As you're during the forecasting for 2020, are you seeing that Roche is actually using all of their inventory that they have on hand and thus needs to come back to the market or come back to you guys to buy some versus having to be contractually obligated to buy some in Q4?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [31]

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The contracts were set up with the anticipation of their need, but also, as I've suggested before, they do buy in bulk quantity, so that they are sure they have a continuity to supply, and they also planned for different market utilization. So their planning is purposeful by the contract to build some inventory, and then they bleed it off throughout the year.

For our manufacturing capability, we don't let them purchase everything in 1 quarter which they'd like, but they do build inventory specifically by design as to what they're looking to do in the fourth quarter.

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Operator [32]

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Next we'll go, next to Mathew Blackman with Stifel.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [33]

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Tim, you mentioned things moving slower than you planned in year 1 and I think we have a feel for where the headwinds are, but do you think from the things you've outlined like the recent reimbursement wins, the procedure list initiative, the more targeted commercial strategy. Did these address the biggest headwinds that you see out there or are there still larger items to tackle?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [34]

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Yes. When you take a look at what the top 3 issues are, obviously, reimbursement is at the top of the list. We've made good progress on that. You may recall that we are targeted to do 100 million of essentially 250 million in the first year. And we been able to move beyond that. So we're excited by the results that we've been able to get there.

Secondarily, as of course with any natural release of a new technology, obviously awareness is another area that we focus on, and our efforts are parallel. A lot of this is done for the more active users as web-based through our digital marketing campaigns, but also you do need to reach out to the prescribers, nurse educators as well and that we do through the sales force. So that's a continued growth area for us. We continue to make investments in that area. And then the third area is just getting as many of the folks available to do the insertions and procedures as we can for patients.

Right now, we have more patients than prescribers that are doing the procedure. Some of that is due to the fact that they're going through the training program, it is a requirement that before you can get certified, you need to do 3 insertions and 3 removals. And we have a team that's working on that with a new prescriber and bringing them up to speed. In other cases, when you have a multi-professional clinic, you may have only 1 that's doing insertions and you've got 2 or 3 or more that are doing scripts. In cases like hospital systems, and we've run into some issues with hospital systems because of the complexity of getting a new procedure introduced, that has taken us some time. So the CES network has worked extremely well in those cases in the interim while that hospital system is coming up to speed. We can do insertions, perhaps in dermatology or surgery and billed to our existing code.

So all of that has worked as part of the growth, I think a differentiation that we do need to work through as an implantable product, but we feel pretty good about it. I would say it's certainly number one reimbursement, we're beginning to get some good traction there, and then number 2 is the usual, new technology awareness.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [35]

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I appreciate that. And then just shifting to the more targeted commercial strategy, could you give us some idea of the number of regions or number of physicians that you're now going to focus on? And I guess really what I'm getting at, is there any way to think about how much more productive some of these more targeted accounts might be than the sort of broader swath of physicians you were trying to service up until now?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [36]

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Yes. I wouldn't say that -- we're not going to abandon any particular physician that may be doing the insertion today. I think what we will focus on is to make sure that we get more efficiency out of those particular offices. So it may be that instead of seeing a rep every week, they may see a rep every other week if they're not in a region with large, large coverage. So we won't be walking away from any, but we will be more focused in 2 areas. First, as we said, deeper penetration into those that are prescribing today where we have coverage. The other area, frankly, has been pretty attractive for us is in the area of digital marketing. We're seeing an encouraging increase in the level of leads that are coming out of those campaigns. The most active users tend to be very, very efficient, very influenced by digital and social input. So we've got a pretty good investment that's going on in that space that's frankly independent of sales feet on the street. So those 2 efforts is how we intend to tackle it. As we get more coverage and bring some of the bigger wins in, then we'll reserve the right to come back and add feet on the street as it makes sense.

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Operator [37]

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We'll go next to Kyle Bauser with Dougherty & Company.

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Kyle Royal Bauser, Dougherty & Company LLC, Research Division - Senior Research Analyst [38]

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So Tim, regarding the Bridge Program, so we've clearly seen some nice adoption of Eversense and generated some nice prescription numbers, and as you talked about the key feature of this has been being able to build up a track record of insurance to [model] to layer kind of strengthen your argument for positive coverage decision and you're well ahead of your goal of 100 million covered lives by year-end. But can you talk about any anecdotes or situations where the increased utilization generated from this Bridge Program has helped you in your discussions with the payers?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [39]

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Yes. We certainly know that, that's the case in a couple. One is Humana, right? We had a pretty active effort to fund Humana patients through the Bridge Program. We supported that with our single case negotiations. So as the patients came in, we would work for them through their E&I journey, and ultimately, we feel pretty good that we got to the point with Humana where they recognized that they were denying more claims than they should be and frankly, reversed the decision. I would say another is HCSC, which is another big focus for us, right? They're a top 10 provider, Texas, Illinois and couple of other large, it's a Blue's conglomerate. We had a lot of utilization out of Texas and a lot of that, again, that same single case negotiation that we think really won the day with them turning what was an E&I designation on about October 15, I think, to fully supported. So [it adds an] investment, but it certainly has already paid off and we expect that to continue to be the case.

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Kyle Royal Bauser, Dougherty & Company LLC, Research Division - Senior Research Analyst [40]

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Okay. And these types of programs, the Bridge Program in particular, typically you have some good traction Q1 since deductibles reset, do you anticipate keeping the Bridge Program through Q1? Any kind of update as to how long you think this will be kept on?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [41]

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Yes. And good question. But Kyle, with this one we're going to get back to you with specifics on 2020 on the next call. But I do recognize, and you're absolutely right, this is a pretty typical program that's used in the Pan healthcare space whether it be medical devices or pharmaceuticals. As you correctly state, deductibles are reset on January 1, hence a bigger push by all in Q4 and you see a pretty notable drop off in Q1, which I'm sure we will experience as well and companies will try to moderate that with programs such as this. So we're not ready to comment on it, but your premise is absolutely right and one that we certainly will be think about as we going into implementation.

But we also do need to manage the reality that we have had these new wins. Medicare is a very big deal with a big opportunity. This different payment methodology we don't want to underestimate. It is significantly simpler to get a CGM as a medical service than it is through durable medical equipment. And we need to fully understand that as we build out our plans for 2020.

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Kyle Royal Bauser, Dougherty & Company LLC, Research Division - Senior Research Analyst [42]

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Understood. And just lastly, on the clinical front. Can you remind me what the status is of the IDCL Trial?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [43]

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The IDCL Trial is right now on hold due to discussions with Roche and access to their control algorithm. So I don't have an update. The product is ready to be tested, but I do think there are [business] discussions that are going on with Roche.

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Operator [44]

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(Operator Instructions) We'll go next to Kyle Rose with Canaccord.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [45]

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Just -- A lot has already been asked but the one thing I just want to follow-up on was, you talked about the -- you have 30% reduction in either existing or planned headcount. Can you just may be fragment that a bit for us? How much of that is customer-facing from a commercial perspective? And how much of that is on the back end or the support side of the organization?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [46]

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I would say it's about half, maybe 40%, but it was across the entire organization. But we did do some modifications in the sales organization as well, with a very, very specific focus on obviously the coverage areas. We didn't do anything that would impact areas where we do have good, strong coverage today. And as I said, we'll continue to serve those doctors -- sorry, Kyle. We will continue to serve those doctors, but we'll just -- we've got a little bit bigger territories than we previously had.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [47]

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Okay. That's helpful. And then you also talked about OUS and Roche thinking about entering some additional countries in 2020. Maybe just give us an understanding of how big of an opportunity some of those may present?

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Mirasol G. Panlilio, Senseonics Holdings, Inc. - VP & GM of Global Commercial Operations [48]

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Kyle, it's Mirasol. I can give you certainly an update beyond what Tim has already included in the [script.] We've been working with the Roche commercial team to really set the foundation for next year. And the markets that we're looking at are really the CGM-friendly markets in Asia-Pac, in Latin America. And so we're just prioritizing those markets. Some are fairly large, but the product registration and the end market regulatory approval is probably what's holding us up. I can tell you that there is just a lot of excitement in those markets to bring a product like Eversense into the fold. So we'll continue working with Roche and their local markets. Our next meeting with them is going to be February. So we'll just keep that in books in terms of additional markets, probably more in the second half of 2020 rather than on the first half.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [49]

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Okay. That's very helpful. And then just last question for me is just, you have the CPT code, that goes live in January. At that point, can you bill for all of Medicare? Or do you have to engage the MACs on a MAC by MAC basis to get individual contract? I'm just trying to understand if it's a Jan 1 impact or if it's something that we should see a cadence over the course of 2020?

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [50]

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Yes. It's very interesting, Kyle, the CMS group, specifically the medical services group was very, very supportive and very, very interested. So by them setting the national RVU values, they are actually instructing the regional MAC to use those as a national decision. And they did that to try to facilitate the use of the product. They feel it's very appropriate for their population and they are very interested in expanding implantable sensors. So we will not have to negotiate with the MACs. We will -- they will be using the RVUs as directed from the Baltimore group. And although we aren't completely ready, the CMS was so interested that frankly they retroactively dated it to last Friday. So officially, it's available today. We're not ready to ship the SKUs yet. It'll take us a couple of weeks to send those out. But they were very aggressive in bringing this new technology out, and we very much appreciate their support of that.

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Operator [51]

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

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Timothy T. Goodnow, Senseonics Holdings, Inc. - President, CEO & Director [52]

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Well, thank you. I do appreciate everyone's time. I also recognize there are a number of questions on gross to net. We have been using gross to net ever since we introduced the Bridge Program. The gross revenue is just that the indicated revenue, that would correspond to the total amount of product whether it is paid for by the insurance company or is subsidized by us. But through accounting practices, since we can't recognize any revenue that we support through the gross to net, that results in a revenue reduction or net revenue. So we've reported in the past the net revenue, which is a deduction of everything we've supported through the Bridge. What we're sharing today for clarity is both the net and the gross. So the difference between the two is the contributions essentially that we've been making to bring this product out. I hope that helps, it's a pretty straightforward. But again, GAAP does not allow us to recognize revenue if we financially supported it, which is what (inaudible) Bridge Program. So I hope that clears up. Happy to chat later if there's any more further questions on that. But I appreciate everyone's time and interest and look forward to

(technical difficulty)

communications. Take care.

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Operator [53]

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