Q4 2019 Earnings Call

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Good day and welcome to the sense, you Onyx fourth quarter and full year 2019 earnings Conference call. All participants are in listen only mode should you need assistance. Please signally comfort specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

To ask a question you made press Star then one on your Touchtone phone to withdraw your question. Please press Star then too.

Please note. This event is being recorded I would now like to turn the conference over to Philip Taylor Investor Relations. Please go ahead.

Thank you very much and welcome to the SNC Onyx fourth quarter and full year 2019 earnings call. This is Phil Taylor from they go Martin group before we begin today, let me remind you that the company's remarks include forward looking statements. These statements reflect managements expectations about future events operate.

Adding planned regulatory matters product enhancement 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.

These statements is detailed under risk factors and elsewhere in our annual report on form 10-K for the year ended December 31, 2018, our quarterly report on form 10-Q for the quarter ended September Thirtyth 2019, and other reports filed with the FCC. These documents are available within.

The Investor Relations section of our website at Www Dot sense. The Onyx dotcom, 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 will be discussing our full year 2020 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 essentially onyx policy not to comment on our financial guidance other than in public communications.

On this call will be providing investors with U.S. GAAP net revenues and gross revenue measures to provide meaningful supplemental information regarding our performance and provide better transparency on our impact of reimbursement in the ever since bridge program.

In accordance with U.S. GAAP since the Onyx reports revenue in its financial statements on a net basis, which includes gross to net reductions primarily related to the ever since 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 an isolation or as a substitute for or superior to the financial information prepared and presented in accordance with the U.S. gap and.

And Phoenix non-GAAP measures may be different from non-GAAP measures used by other companies for more information on these non-GAAP financial measures. Please see the reconciliation of these non-GAAP financial measures to their nearest comparable GAAP measures and this afternoons earnings release, which is available on our corporate web site at PSMC Onyx dotcom.

Joining me for instance, the Onyx, our Tim Good now President and Chief Executive Officer, and Nick Tressler, Chief Financial Officer with that I'd like to turn the call over to Tim Good now President and CEO Tim.

Thank you Tripp good afternoon, and thank you all for joining us on the call today I'll provide a recap of our accomplishments in 2019 discuss progress and updates on our commercial and operational initiatives and provide our financial outlook for 2020.

Nick will then provide details on our fourth quarter financial and we'll conclude and open the call for Q1 name.

And our first full year of commercialization in the U.S. in 2019, we made significant progress in delivering our revolutionary technology to people with diabetes, we established capabilities focused on increasing awareness and access and continued to gain incremental reimbursement and established a distribution network through our channel partners.

A couple of key accomplishments include that we've expanded the professional awareness of ever since among endocrinologists through direct outreach engagement and presentations at diabetes medical conferences.

We've also increased consumer awareness through our use of direct to consumer digital marketing campaigns.

We've added a significant number of covered lives with national payer wins, including Aetna, Cigna, and Humana and importantly, established the Medicare coverage category as a medical benefit avoiding the complex and burdensome DMD category.

We implemented a bridge access program to accelerate patient access for those who have not yet received reimbursement for ever sense or those that may have a high out of pocket co insurance.

And we've also launched certified Arison specialist program to train and create a network of health care professionals specialties beyond endocrinology on the insertion procedure further expanding access pathway for patients.

On the clinical and regulatory front, we've achieved the non adjunctive label from the FDA, thereby allowing patients to dose their insulin based off ever since reading and we receive the important MRI indication.

We've also extended the insertion and removal certifications to NPS mpsvs expanding capability within the clinics.

We've had for seminal articles published in peer reviewed journals, highlighting the real world clinical safety and efficacy of ever sense and finally, we've completed enrollment in the promise study for the 180, they sensor and have received authorization from the FDA to extend the trial in a subgroup out to 365 today.

We're extremely proud of these accomplishments throughout 2019 each of these milestones contributed to healthcare professionals and patient adoption, which ultimately drove our full year net revenue of $21.3 million and full year gross revenue of $26.2 million.

Before the U.S. gross to net reduction of approximately $5 million.

Although we don't realize this $5 million the additional net revenue, we certainly do realize that has value and additional installed base additional patient experience and incremental product use demonstrated to the payers.

We are confident that our investments will continue to serve an important building block of success as we grow the business.

In the U.S. market, our patient base in 2019 reached approximately 4000 patients.

Feedback on ever sense is clearly strong from both the patient and the CP communities.

And in clinician awareness is demonstrated by the increased number of prescribers, which is now up to over 1800 and the increased number of hate Cps trained and inserting which is now over 500.

This represents significant penetration within the targeted population of insulin prescribing endocrinologist and treating physicians.

For those prescribers wanting to offer ever since the their per se to their patients, but they're not yet trained on the procedure certified ever since specialist or CES program provide local access to training professionals and other specialties.

He's insertions.

These trained in servers are not only familiar with the office based procedures, but they are also very familiar with a billing practices and can build for their professional time under a CPT codes.

We're pleased that this program opens up an additional access task for patients. We currently have approximately 100 twentys CES providers and this population continues to grow.

As we've described before increasing access is naturally one of the key components of our commercialization strategy and we have been successful here by generating additional patient pool as well as adoption through our bridge access program.

This program allows eligible patients to obtain up to two ever since sensors or six months as CGM for only $99 per sensor.

We initiated the program to achieve several key business objectives.

First because we know that many patients who try ever since quickly become passionate advocates we are accelerating the number of patients experienced the benefit and sharing their experiences online.

And expanding patient base also facilitates our second goal of ensuring healthcare professionals. Similarly gain more experience with the clinical benefits for their patients.

Finally, we have shown that the bridge program is instrumental in demonstrating the products demand to payers.

We are confident that the volume of voices and the claim activities were influential in the recent coverage wins, we received by payers such as HCFC.

Amana and Cigna.

In 2019, we provided access for patients, whose insurance did not cover ever sense as they were Eni.

This group represented 45% of our patients.

In addition, another 17% receive some form of partial payment through the program.

Typically supporting patients who had not yet met deductibles.

The utilization of the program by 62% of the patients was primarily responsible for the reduction of the gross revenue of 8.1 million to $3.2 million net revenue for the full year in the United States.

The bridge program has also helped to demonstrate true market demand is increasingly clear that traditional CGM devices are not meeting the needs of all patients.

In addition, during the past year, one third of our patients came from Fingerstick testing.

We're also pleased that while the program provides assistance for two sensors and the majority of patients are continuing with additional sensors after the program and.

Even patients entering the program former payer who does not cover ever since the majority of these patients continue on with additional sensors.

We note that patient satisfaction is high encouraging many patients to move forward after having triad ever cents.

Importantly, noncovered patients are rolled into the appeals arm of the program.

This part of the program serves as the patient advocate initiating appeals and single case negotiations for the individuals.

Here, we have seen success as well.

To date, 54% of the patients that had been fully enrolled into the appeals program have gone through the full appeals process with the remaining patients still in pursuit.

Of those who have completed the appeals process process over 90% have resulted in successful approvals, enabling those patients to receive coverage and continue with ever sense. Despite their payer maintaining a broad based noncoverage policy.

While the patients continue to be on bridge, we are building a strong installed base of patients positioned to convert to full revenue patients as their payers begin covering ever since.

A great example of this would be cigna.

Who made a positive coverage determination this past month.

Because of the program, we have a positive headstart on building the installed base of Cigna patients will now be covered going forward.

Finally, as we mentioned in the last call CMS was 61 million Medicare beneficiaries clarified that benefit category and payment rates for our CPT codes for ever since as part of the calendar year 2020 rulemaking process.

Notably CMS determined that the implantable CGM are now categorized as part B medical service, meaning they will not be processed through the durable medical equipment benefit like of their CGM.

Doctors will be able to build Medicare directly for a single wrapped patient payment that includes both the system and their professional time for the sensor insertion and removal.

With the CMS ruling we petition the seven Medicare administrative contractors or Max to remove our category three codes from the original Noncovered list.

The removal activities in the prioritization process at the Max and we anticipate action in the coming months.

Key to growing our business is growth in the United States and in 2020, we are carrying positive momentum from 2019, which we anticipate will result in an additional over 5000, new patients in the coming year.

Increasing patient awareness led by our growing installed base, a passionate users and a growing group of both prescribing and inserting physicians as well as broader coverage and our mounting evidence of clinical outcomes are all tailwinds created in 2019 that we will leave will be growth drivers going forward.

Yeah.

Given the success of the bridge program and supporting patient adoption in 2019, we have made the decision to continue the investment in 2020.

With approximately nine months of experience, we have seen favorable reimbursement rates and the breaking down of financial barriers, which drives positive patient experience for growing the installed base. At this point, we are projecting an approximately 60% blended utilization for the full year 2020 with gross to net adjustment rates stepping down.

Each quarter as additional payers cover ever since and deductibles or Matt.

Outside the United States, our fourth quarter revenue totaled 8.1 million and it was $18.1 million for the full year.

As you know the vast majority of the US revenue is from our distribution agreement with Roche.

Based on customer feedback, we know that many ever since XL users continue to be satisfied with the product.

And as presented in the real World evidence clinical outcomes, such as timing to range and mean, where time for high end remain high over multiple sensors cycles.

As we reported.

In December we amended the Roche contract to reduce the minimum purchase requirements for 2020 will increasing price.

We agreed to this arrangement to account for roche's higher inventory levels at the warehouse, where they had purchased product based on their contracts will minimum purchase requirements, which exceeded the quantity of product that rose sold to the end user.

One particular challenge they are facing is in some markets. For example is the provider procedure payment. While there was high payer coverage represents in Germany, and greater than 90% of covered lives. There are no CPT codes like in the United States to allow for billing of the procedure by providers.

Working with Roche to determine additional push and pull through programs to place ever since in the hands of users.

Both Roche and since the Onyx are committed to understanding how to improve access and utilization of our long term technology in Europe.

We do expect this contract amendment will have notable impact in reducing this year's purchase volume from Roche.

Additionally, we are currently in discussions or gross regarding inventory sensor longevity issues and the timing of our their 2020 purchase orders.

There is substantial risk that their first quarter purchases may be deferred to later in the year.

While we believe roche's contracts were obligated to place a minimum order during the first quarter, if they do not our US revenue for Q1 2020 would be de Minimis.

In regard to our overall outlook for the year, which reflects a 33% reduction in gross revenue as a result of the amendment to the Roche contract. We are anticipating gross revenue to be in the range of approximately $25 million to $30 million for the year.

In the us with a GAAP revenue reduction for the bridge expenses, we are forecasting net revenue to be up approximately 100% over year.

In total in the us and up and with the side the United States contribution we expect full year net revenue to be in the range of 15 to 20 million.

Moving on to product development here, our top priority continues to be the promise study, where the 180. They sensor is completing investigation of 181 patients across eight sites.

This is another giant step for our CGM and execution of this trial has been positive to date has expected.

Tracking according to plan, we expect to have the last patient out within the next three weeks and we'll work to prepare submission to the FDA in the month fall.

Therefore, placing potential product approval towards the end of 2020 and in line with previous expectations.

As a reminder, we intend to use a patient data from the first 90 days of the trial and an interim analysis to support a supplement submission for the ice CGM designation for the current 90 day sensor.

We expect to file this later in the second quarter.

In addition, we announced in recent news that we have signed a development agreement with companion medical to integrate ever since real time glucose data with a companion medical in Pan Smart system for insulin delivery.

Although integrating ever since CGM data with insulin pumps is still part of our strategic plans once we receive EISG approval.

The market penetration for infant pans is considerable as well.

More than 65% of the diabetes market still use daily injections to administer their influence.

Partnering with in Penn, we're able to start addressing the larger market with real time, CGM values alongside with their insulin values, thereby allowing for more relevant insulin dosing information will inform improve diabetes management decisions.

We're excited to see another integrated solution for people with diabetes in both novel New technologies.

Finally, as part of our ongoing commitment to increase uptake of our product we are exploring potential collaborative and partnership opportunities to better make ever since available to people with diabetes.

In addition in an effort to accelerate the development of our flash implantable system with no on body transmitter. We are currently engaging with potential partner organizations to discuss the co development eventual co commercialization of this next generation technology.

We are designing this next generation sensor for people that are looking for a continuous sensing capability without having to wear and additional on body component.

Now I'll introduce and turn the call over to Nick Tressler, as we announced on the call last quarter. Nick has been with the company for over a year and was promoted from the head of financial planning and analysis to Chief Financial Officer in November.

His deep financial leadership background from across life science companies of various sizes.

We are happy to have Nick leading the finance organization and he will now provide the details on our recent results Nick.

Thank you Tim and good afternoon, everyone I'm excited about the opportunity to take a larger leadership role with this management team to continue to progress ever since into the marketplace and maximize the value of sense. The optics I look forward to further conversations with more members of the investment community in the near feature now turning to our results.

In the fourth quarter of 2019 total net revenue was nearly 9 million, which includes U.S. that revenue of $800000. After accounting for gross to net reductions primarily related to the ever since bridge program and owe US net revenue of 8.1 million compared to the fourth quarter 2018 total net revenue of seven point.

$2 million.

Fourth quarter 2019, total net revenue grew 25% compared to the prior year period gross revenue for the fourth quarter of 2018 was 10.7 million, including US gross revenue of 2.5 million gross profit in Q4 2018 decreased by 3.3 million year over year.

Q negative 8.2 million compared to negative 4.9 million in the prior year period. The decrease in gross profit was primarily due to increased cost of sales expenses, including charges for obsolete inventory in product enhancements warranties and cost to streamline the sensor supply chain.

Fourth quarter, 2018 sales and marketing expense increased 5.7 million year over year to 11 million compared to 10.3 million in the prior year period. The increase was due primarily to commercialization efforts in the us.

Research and development expense in Q4, 2018 increased by 1.7 million year over year to 9.7 million compared to 8 million in the prior year period to increase was primarily driven by the 180 day promise clinical study.

General and administrative expense in Q4, 2018 was 5.9 million an increase of point 6 million compared to the prior period and includes compensation legal and other expenses supporting operational growth.

For the three months ended December 31, 2019, total net loss was 35.6 million or 18 cents per share compared to 7.3 million or four cents per share in the fourth quarter of 2018.

For the full year 2019, net revenue was 21.3 million, which includes US net revenue of 3.2 million after accounting for gross to net reductions primarily related to the ever since bridge program and you asked net revenue of 18.1 million.

Impaired to total net revenue net of 18.9 million for 2018.

Full year 2018 total net revenue grew 13% compared to 2018 gross revenue for 2018 was 26.2 million, including US gross revenue of 8.1 million.

2019, gross profit decreased by 11.3 million year over year to negative 19.4 million decreasing gross profit was primarily due to increased cost of sale expenses, including charges for obsolete inventory and product enhancements warrantees cost to streamline the sensors supply chain and cost for warehousing and logistics.

Sales and marketing expenses for the year ended December 31, 2019 increased 21.8 million year over year to 49.6 million compared to 27.7 million for 2018.

The increase in sales and marketing expenses was primarily related to increases in personnel related costs and activity to support the U.S. commercialization that our sense.

Research and development expenses for the year ended December 31, 2019 increased 6.6 million year over year to 38.4 million compared to $31.9 million for 2018, the increase in research and development expenses was primarily driven by the 180 day promised clinical study costs.

General and administrative expenses for the year ended December 31, 2019 increased 3.4 million year over year to 23.2 million.

Compared to 19.8 million for 2018.

The increase in general and administrative expenses was driven primarily by an increase in personnel related expenses increased legal and audit expenses and other costs associated with supporting a growing operational infrastructure.

Net loss was $115.5 million or 61 cents per share for the year ended December 31, 2018, compared to 94 million or 60 cents per share for 2018.

Net loss per share for 2019 was based on a 188.8 million weighted average shares outstanding compared 257.4 million weighted average shares outstanding for 2018.

From a balance sheet perspective as of December 31, 2018, our cash and cash equivalents were 95.9 million outstanding indebtedness was 144.9 million.

Turning to guidance as Tim provided previously global net revenue for full year 2020 is expected to be in the range of 15 to 20 million.

This includes year over year net revenue growth of approximately 100% into us and revenue decreases of approximately 33% in the U.S. relating primarily to reduction in sales to Roche as a result of the amendment of our distribution contract.

It also includes the impact of gross to net reductions primarily for the bridge patient access program, which is expected to be approximately 60% reduction from gross to net for the full year into us.

In regards to the cost structure, including Opex in Cogs, we estimate our restructuring actions taken in Q4 will reduce expenses in 2020 compared to 2019 by the low to mid $20 million range on the Q3 earnings call. We said, we had cash on hand through 2020.

Based on our updated projections, including the impact of the Roche Amendment, we now project cash on hand to last into Q4 of 2020.

Turning to our existing borrowings as we have previously disclosed under our senior credit agreement with solar capital, we're required to meet a number of covenants, including a trailing six months minimum product revenue covenants.

Although we were in compliance with all covenants as of December 31, 2019.

Based upon our contract expectations for the remainder first quarter of 2020, we expect that we will be in noncompliance with the trailing six month revenue covenant as of the end of March our earnings release, and our annual report on form 10-K to be filed on or before March 16th includes additional details.

I'll now turn the call back over to Tim.

Thank you Nick as we reflect on 2019 encouraged by the progress we've made in several areas to build ever sense and lay the foundation for.

Future growth, particularly in the United States, where we see strong patient loyalty.

Material progress with payers and expanding patient and physician awareness.

At the same time Im mindful of key disappointments this year's European revenue specifically.

We are committed to focusing on improving the situation. We do directly you see the excitement around the product in the United States were in the first full year, we were able to bring the 90 day product to approximately 4000 people.

Unfortunately progress has not been at the same level in Europe.

Gear, we brought the 180 they product to over 7500 patients over the last three years.

To address this we will work on changes needed to be successful outside the United States. While at the same time continuing to drive expansion of ever since in the US we do recognize that the largest opportunity views here in the states and this success is the greatest opportunity to serve patients and build value.

We have made solid progress on the 180, they product nearing completion of the clinical trial. We believe its anticipated introduction will be an important inflection point for our business.

And as noted to accelerate a transmitter lists flash CGM, we will continue to evaluate collaborations and other opportunities to best advanced the company the product and our pipeline for the future.

With that this concludes our prepared remarks, joining us for questions our mobile Jane our Chief operating officer, and Mirasol Pen Leo Vice President and General manager of global commercial operations.

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

We will now begin the question and answer session.

To ask a question you make press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then too.

At this time, we will pause momentarily.

Assemble our roster.

The first question comes from Daniel.

And Tulsi of Us BD. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question can you hear me okay.

Then Danielle how are you.

Okay, great. Thanks, so much I'm. Good. Thank you hanging in there hope you guys are appeal and just just a question on that on the U.S. ramp I mean, it feels like from a patient perspective momentum is building, but I guess my question is when do you start getting paid for these patients because.

Thats, where the revenue shortfall seems to be coming at least relative to our model. So just wanted to get a sense. It seems like you're at critical mass from a coverage perspective, when do we get beyond this overhang of the bridge program and you actually start generating meaningful revenue from the patients that you're bringing on board.

Yep.

Good point, Danielle and clearly the gross to net is obviously got the biggest impact on the.

On the true net revenue performance of the business as we said about 45% of the patients in 2019.

That came to the came to the product we're on a full eni. So we supported them with a bridge program.

And in addition, another 17%.

Although they had coverage either had high deductibles or other considerations such that they participated in the bridge program. So two things. We certainly expect as we've had now additional wins and many of them were late in the year like Humana HCFC obviously.

Excuse me.

Thing that did not even come until February of this year that will normalize over the rest of the year, but we also have to understand their quality that here. It is in the first quarter deductibles are reset and there will continue to be utilization. So we do expect that it will transition down this year, but given the patients that we brought in we think it continue.

Used to to make sense to utilize it.

Okay got it that makes sense and then just a question I know that seems like evolving daily for everyone, but.

Teen and what your reflecting in guidance a.

A little bit more specifically you know I know from diabetes patient perspective, you don't have the same hospital procedure volume impact, but if people.

Stop going to the physician's office going for checkup that could slow new patient adds I mean, how do we think about what's reflected in the guidance, you're giving today and I guess risk to that is it situation continues to evolve. Thanks, So much Jeff, Yes, I understand fair comments, Danielle certainly from a supply continuity for perspective, we've we've.

Certainly done the analysis at this point the the majority of the product is actually manufacturer or pre stage manufactured in in England and is transferred here for four very final assembly and sterilization. So we havent seen in any supply continuity concern we do have a.

Couple of months worth of inventory that are in process, which of course is immediately available to us and we were working through.

From a and suicidal impact here in the US obviously, we're watching that very closely as of course, everyone is.

If it gets to the point, where people are not going to go to the doctor or impacts such as that then we'll certainly need to see that developed at this point, we're forecasting the best information, we have but we'll certainly look to to make any updates as that makes sense and as you as you suggest this is really.

A dynamic of the state that we're in really independent of the the individual companies.

Yes. Thank you.

The next question comes from Jason Bedford of Raymond James. Please go ahead.

Hi, good afternoon just.

Two questions for me I guess just.

You may have banking it but how much inventory does does roche have right now.

We don't actually Jason have their their supply inventory, we don't have that close access to it.

We did speak with rose towards the ended the year, where they indicated that their inventory ahead, notably backed up due to what they were able to to move out in the in the third and fourth quarter of last year. So we've made a reduction.

To make sure that we don't continue to build that inventory, especially as the.

The the contract currently only goes for the next 12 months or so 11 months or so.

And we certainly didn't want to leave a bunch of inventory at that point, so I'm, Fortunately I cant directly answer you.

But we do know that they informed us that had gotten high at the in the second half of last year.

Okay.

A couple more.

Number is related questions you mentioned that you brought on 7500.

Patients in Europe on metal 180 day is that we installed base that we should build on going forward and into 2020 here.

You know obviously, it's the installed base that we use but we also do need to understand that there is.

The norm the normal turnover right, we've indicated that it's about 75% on first sensor.

Into the high eighties on second sensor and into the Ninetys in 30 and beyond so that model should work.

Okay, and you mentioned I think over 5000, new patients expected or new users are expected in 2020.

Can we assume that the vast majority of those are in the U.S.

Yes, yes for clarity those are all in the U.S., Jason Okay. I don't have I don't have an ability to give you guidance in Europe, but that's all us patients.

Okay. That's fair and then in terms of the expected timeline on on the partnership opportunity.

Both on.

Would it be just normal distribution on 180 day or the flash product what's the.

What's the timeline investors should expect here.

Unfortunately, Jason Im not able to give you a timeline as you can imagine these business development conversations.

Can certainly take time.

So I'd like to not forecasted at this point as.

As they can go.

Back and forth as you as I'm sure you understand.

Yes, that's fair ill jump back in queue. Thank you.

The next question comes from Matthew Blackman of Stifel. Please go ahead.

Hi, Thanks, and good afternoon everybody.

It doesn't like Rudi's there. So maybe can you can help me with this I guess I'm. Just curious does I think about sort of that the U.S. commercial strategy how is that evolving.

And now that reason that see what what changes.

And what have you task than with what changes.

Perhaps could be in store in the in you asked and I guess visited a follow up is that is.

How would you have us best measure your progress in the U.S., obviously things get a little bit noisy with the gross to net.

It should we just be looking at gross revenue growth.

Patient adds what are you using to track your progress in the U.S., particularly here in 2020, and and then I have one follow up.

Sure well I do I do try to focus I personally do look at the the gross revenue, although it doesnt truly meet the accounting GAAP standards, because the nature of it but gross revenue is representative of the amount of product that we are sending to patients.

Unfortunately, we do have to net the deduction, because we are subsidizing it instead of the insurance company.

But we do feel as good strong patient demand there and as we knock off these payers. We are see that we're able to convert them too to revenue generating now from a commercialization as you know as you may recall, our focus in the first year really was on the physician demand physician education and training it's.

Especially with the high prescribers.

I think we're very successful there.

And most of the folks that are very high prescribers of insulin or CGM are well aware of ever sense.

And using it.

What we've done more recently and Rudy has done a very good job with is now after that first years time period is creating the the patient pull forward as well so.

The marketing team has done a very nice job with direct to consumer advertising.

To the point now we're about half of our sensors are generated from the direct to consumer activities and the other half is jure.

Generated from the.

Sales reps, calling on the on the physicians as as they traditionally had done so we've done a nice job of reaching that balance.

As you know in the in the last call. We did announce some restructuring of the sales force.

For cost management, but have been able to keep the.

The sensor sales growth at the trajectory that we do have based on these.

These DTC activities. So we feel very good as as we continue to make those those transitions and frankly, the receptiveness of the of the physicians as well as the online patients.

I am very very much appreciate that and maybe just quickly on Europe, we obviously called out.

Headwinds.

I know you mentioned for the lack of CPT codes is as why that is there anything else that you need to sort of worked through.

In terms of barriers to adoption and it does it sounds like this will will take some time and in particular getting CPT code if thats it.

A real reimbursement hurdles just help us understand how how youre thinking through Europe sort of over the next several years as opposed to just thinking about 2020.

Yes, so it really does depend on the particular particular market as you can imagine Germany, we specifically spoke too because it is the second largest market obviously for these diabetes technologies.

And the procedure coast.

Codes are there procedure remuneration is one where we have had to deal with some of the issues in in partnership with with Roche.

Different markets have different considerations, if it's more socialized than they are really know is no impact to the procedure because it's all included or if it's a tender base hospital system. It may be included in those services. So so frankly, there is a is a fair amount of difference depending on the market another dynamic thats very important.

As well as frankly has to do the pricing in different markets of course have different pricing and I think one of the things that has hampered roche's ability to do some of the expansions that they expected to do has to do with the frankly, the financial dynamics that exists with a distributed products.

Correct.

Into a market, where where the payments may not be as as healthy so.

In a place like.

Austria.

Or Australia.

They can be good CGM markets, but it's pretty difficult for two players to be highly successful in in lower priced markets like that so I think that financial consideration is certainly been part of the.

Of the calculus as well.

Alright. Thank you so much appreciate it.

The next question comes from Murray Thibeault, a B T. G. Please go ahead.

Hi, Thanks for taking my question like wanted to dig in a little bit on some of the recent coverage when you've had some of the ensures the big National insurance were still waiting to hear from so essentially could you run me through kind of on when you that wins like back in 2018, how long it took for some of that.

Uninhibited coverage to come on line just when we can kind of sketch out what these late 2019 when might be on a timeline basis, and then anything you're hearing from some of those insurers where you don't yet have coverage.

Sure. So timeline that is a good question, it's not a swip a excuse me a switch that has flipped overnight I would say that it wouldn't be crazy to assume that it could take us three months to work through the entire process. Once we have a.

We have a decision from a payer to go ahead and get listed in their internal.

Internal documentation internal approvals as well as to work at all the way through the payer systems.

So as an example.

Humana or HCFC that came into November time period, we're probably just coming up to speed now with their ability to to provide the coverage. So.

We do notice that it takes a little bit of time, and we probably still have another month or two in front of us for Cigna. Another one is very important that we talked about has the dynamic of the the local Max. So there are seven administrative contractors as seven essentially seven insurance companies for the medical.

Benefits that the cover the United States and although we have the approval from the Medicare to go ahead with the procedure, we can't yet build through four it yet as they are currently holding us to the original category three CPT code designation that was actually granted price.

Prior to the FDA approval.

So theyre headed through a process a converting that.

That will likely take even longer than than three months to get implemented we hope to get those knocked off this this year.

The next two big remaining.

Payers are of course number one number two United was a little bit over 40 million covered lives and anthem with a little bit over 30 million covered lives. So those are the largest ones.

We continue to make every effort to work in and negotiate with those payers. We currently have about 800 patients that are with United and anthem that we've provided under the bridge program and we are working as many of those through the bridge process as well.

As we noted were very successful.

With over 90% getting ultimately approved through that process, but it is a prior authorization then followed by three appeals.

And I can honestly take us six months to get somebody through that entire process, but knock on wood has been very successful when we do it. So we think that we'll continue to put pressure on them. We've seen we published a lot of publication so that people understand the clinical benefit thats one of their questions long term safety all of that as part of what we present to the.

The medical policy groups to to get approval so.

It's not a typical that the largest take the most time and the most work.

But we continue to stay on it and we'll confident that we'll get there.

And it's really really to be out in front of us in the meantime will continue to support them with bridge and show them strong utilization and strong acceptance of the product in their population.

Okay. Thank you for that detailed update I have a follow up probably some Nick on balance sheet. You mentioned that you had cash on hand to get through the end of year form 2020.

Can you tell us a little bit more about what you're doing on the cost savings Brad and then when we might give an update on the potential for a waiver listen to their capital.

Sure.

So as we mentioned this the restructuring that we undertook in Q4 will result in savings of between 20, and 25 million year over year from 2020 to 2019, and that's across the Opex as well as cost of it's sold.

We will continue to monitor obviously, where the businesses and what we need to do from a from a cash preservation standpoint and so.

So we'll continue to analyze and evaluate that we certainly take our liquidity position, obviously, it's front and center in terms of our our focus with regards to solar we have started those conversations.

Once you would expect to have with when there is a potential issue with a covenant we would characterize those conversations as constructive.

We certainly look forward to updating everyone, but at this time I wouldn't put a timeline on that those can take some time going through the investment committee as was through legal review so again at this stage.

Done those conversations and they've been quite constructive.

In addition, I think given the.

Given the current virus there is some impact with folks ability to.

Congregate and get through the issues so.

More to come.

Okay understood. Thank you.

Yes. The next question comes from Alex Nowak of Craig Hallum Capital Group. Please go ahead.

Hi, Greg Good afternoon, everyone on the deal U.S. guidance assume that Roche doesn't order here in Q1, and I know, we only have come more weeks left shouldn't we already know if they're going to come in in order in this quarter or not.

Yes, our guidance does anticipate that they will not it is still possible Alex that they they could order, where we're in pretty constant communication with them.

But.

It's our expectation at this point that that will be deferred to later in the year.

Okay, guys, you still and you still believe it's going to come in later there got it.

Based on all the commentary here, then with Roche them stockpile the ever sense sensors.

It doesnt seem like really either of you want to keep the contract going much longer before the.

By the end of this year. So what are you doing to reach out to other companies here in just so we don't have to worry about the international business potentially dropping to zero on January one 2021.

Yes, Alex I wouldn't say that at all I think this is still an important product for four Roche.

I think it has been more complex I think there are a lot of.

You know dynamics and that organization they continue to be very strong in.

In Germany, but.

The strip and media market is pretty difficult in there and they're pump market as you know they pulled out of the U.S. So.

Heavy investments is not something that.

Roche's able to do right now, but this is an important product for them they've made a commitment to patients we made a commitment to patients. So.

We'll continue to do what's best for the organization, but I would not like to leave this call with the assumption that this is a dead deal at all I think their expectations. When they first signed the agreement now multiple years ago.

Was that they were going to be in a different place and we're going to be able to drive this much harder I think the reality of pricing.

The LIBOR rate pricing in some markets and some of the there are other dynamics have.

Have impacted that as well.

And we need to continue to partner with them and produce the best product that we can to make it as competitive over there as well so.

I wouldn't I would very much not suggest that we.

They were announcing at all that we are they are casting the the relationship aside.

No I understood just real quick one more quick question.

Johnson and Johnson bought some shares in their innovation fund last year I think a few people saw that.

You mentioned on the call here today that you would like to partner the flash.

Sensor that under development with third party that could be a pretty good product competitor versus the Libra.

Can you give us some more details on just who this partner could be when would you announce something here and then just the current development timelines for the plant for the flash product and just remind us.

How long did the flash sensor last under the skin.

Okay.

So couple of questions there Alex.

From a partnership perspective, I would I.

I would suggest that the the usual folks.

That are interested in diabetes or frankly associated disease are the types of folks that would have interest in.

Long term product like that we have certainly heard as people evaluate and implantable sensor.

The longevity is what certainly matters and of course, that's why it's key for us to go to 180 days.

And I'm sure you saw our announcement that with some of the modifications we've been able to make to the system.

We are now actively testing our 365 days sensors so.

We certainly agree with you that it could be.

Very very compelling product, especially people with type two diabetes.

And the flexibility that we see in the system as we have patients today.

It actually where the transmitter at night.

And then don't were during the daytime so that would be a great combination right a continuous CGM and then something that they could flash during the day if they wanted a spot checking so our goal continues to be the 365 days sensor.

We're stepping into the 180, obviously to get the experience to get the feedback, but then we will jump to the up to 365 day and the clinical testing is the is the first step in that direction.

Okay understood. Thank you.

Again, if you have a question. Please press Star then one on a touchtone phone.

Next question comes from Kyle Rose of Canaccord. Please go ahead.

Great. So just two questions for me one is just the can you just walk through the big picture as far as you know how patient Onboarding works into specifically the typical timeline are seen as far as a patient walking into the Doctor's office request med device versus the time, where it actually gets.

Implanted.

Sure Kyle there's there's a couple avenues that we fall as they said if the patient comes into.

With their interest so they will have found it online through our DC DTC activities.

If their doctor is a prescribers, who will actually go pretty quick you'll get the script, we'll do a quick assessment as to whether there is coverage for it or not.

If there is coverage of course as soon as the Doctor is ready to do implanting. It can go they just they typically unless they're one of the very large clinics. They are not keeping a material inventory, but it can certainly be shipped to them overnight certainly in time to schedule and insertion.

If it is.

One of the said one of those that goes to the bridge program, we actually do that process. We begin the application to their insurance company for their approval knowing that we're not going to get it on the on the first one and that's why it's covered on the bridge, but we do actively work to have it covered by the the second sensor and certainly certain.

The third now in the case when the patient actually finds that and they're not covered by one of the one of the major endocrinology clinics that we've been actually be calling on and we are we are at 500 of those now you'll do notice that there was a been a pretty significant increase in the number of prescribing <unk>.

And so we're up to 1800 now many of those are the result of a patient that goes to their doctor request the product and then he or she will do a script for.

Even though they may not be an active prescriber, let's say this is an internal medicine person or.

Or GP.

And then they will be reference to a CES, which is the network of providers that we are that we're working with to do the insertion that unfortunately can take a little bit more time, depending on where they are we have about 120, and obviously, we're working to meet that number a lot a lot bigger, but once that mature we expected to go further but if.

They come into that mechanism it can take a little bit more time to get the insertions done.

Great and then.

Just you talked about I think I've got the numbers right, but you talked about 70% of patients who had some sort of insurance coverage that relate to the bridge program, but you guys bought down the copays.

Can you.

Talk to us about how you view that number specifically in 2020 relative to the bridge program. The reason I ask assume a bigger picture perspective, we've seen leibrand dexcom made great strides into the pharmacy channel, which is a much lower cost of upfront costs for patients I guess I'm just trying to understand when you think about the bridge program.

As the two segments, it's the not cover Eni and then it's the helping with the co pay assistance do you view that co pay assistance aspect in the bridge program continuing in pulp acuity in order to be competitive in the CGM market.

No. We don't we do anticipate that it's best to invest today and in all said and done it was about $4.5 million that we invested in 2019.

As you noted 45% were full Eni and another 17% were of this.

Magnitude of assistant we have anticipated than it is pretty typical in this market that you will see.

Assistance early in the year and we are seeing as others are some pretty significant increases in the.

In the co pay amount so.

It's likely that as most do that there is some anticipated co pay for everybody going forward early in the year, but it's not an if not an ongoing thing that we anticipate that we would need to be full time, we are at we arent costs parity.

We do see a relatively minor portion maybe 15% or so that go through today as a pharmacy benefit.

But Rick but remember the.

The primary focus for us and we've made good action on this is actually a medical benefit for many folks and those actually have lower deductibles in many cases than than durable medical equipment does so there are puts and takes in both directions, but I would anticipate some low level of it like everybody uses but not a.

The.

Relative for.

For for price parity.

And then okay. That's very helpful. Thank you and then what just one last question for me as it sounds like we should be modeling for no reorders from Roche in the queue in the Q1. So no revenues in the Q1 does your guidance assume that they're going to order in the Q2. It sounds like they were starting to build up inventory Q3, Q4 Q4 is obviously a big number just.

I understand should should we be really back end weighted in the majority of that all U.S. number to the Q3 Q4 20 or should we expect to see some level of revenues into Q2.

Yeah, we've we've always back ended it with them in the way that they order, it's always been a big Q4 order and I think we've we've certainly seen that again.

We have taken the overall down and.

We do anticipate that they will order some but we still are estimating that.

The majority of it will come in and the fourth quarter.

Okay. Thank you.

This concludes our question and answer session I would like to turn the conference back over to Tim Good no CEO for any closing remarks.

Great. Thank you very much where we appreciate everybodys time. This this afternoon, especially in new the is complicated times that were currently living.

Hi.

I would like to two again appreciate everybody's hard work and attention here, we know that this has been.

Trying times with the with the virus out there and it's also been very.

Very active for us. So appreciate staying here late on the evening and good luck, we look forward to speaking with everybody at the next quarter. Thank you.

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

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