Senseonics Holdings, Inc. (SENS) Earnings Call Transcript & Summary

Good day and welcome to the Senseonics Analyst and Investor Day Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tim Goodnow. Please go ahead.

Thank you. Good afternoon, and welcome to the call. We're using the time today to update you on the Ascensia partnership, where we are, and importantly, where we expect to be. We announced the partnership approximately 1 month ago, and we have been actively working with Ascensia on the integration between the 2 businesses. Before I begin, I'd like to remind you that today's presentation contains forward-looking statements, including statements concerning revenue and other future financial performance metrics. These forward-looking statements are based on a number of assumptions, which we believe are reasonable. However, these statements are subject to risks and uncertainties that could cause actual performance to differ from our current projections. Many of these risks and certainties are outlined in the Risk Factors sections of our SEC filings, and I encourage you to review those disclosures as you consider the contents of today's presentation. Senseonics and Ascensia are aligned on our objective of commercializing Eversense to the maximum level possible and working quickly to grow adoption in the market. This is certainly a global deal, but timing and opportunity confirm our joint focus of moving towards the U.S. market first. The payer landscapes for Eversense is significantly more progressed as we worked hard to reach the 80% coverage level, including the favorable coverage from Medicare. As such, we expect that Ascensia will be able to hit the ground running with their commercial activities with the relaunch of the 90-day product, which will begin in 2 weeks. We, of course, have also been working with the OUS teams at Ascensia who bring impressive depth of knowledge and capability in these markets. Here, we are jointly focused on select markets with the most opportunities and with capable coverage. The senior market is large and supports the geographic-focused strategy. A mix of the diabetes population with favorable reimbursement economics are driving our early attention on specific markets. Once we get strong traction, we can then turn to further geographic expansion. Importantly, we'd like to use the call today to share how we are thinking about the business and to provide some information based on the metrics that we are working towards in the partnership. We will hope this will assist in the understanding of the business and to aid in modeling purposes. As mentioned, these projections are subject to a number of assumptions, and we and Ascensia still have additional work to do to transition the markets in which they are -- will be providing the product. Here today, we would like to share some of the key financial information that we have targeted as the basis of our partnership and are working towards to support our business planning purposes. We anticipate providing more formal guidance when we report our full year 2020 results in early 2021. In addition, as a means to speak to the value of the partnership and how Eversense fits into the family of Ascensia glucose-monitoring products, joining us today is Rob Schumm, President of Ascensia Diabetes Care. Rob and his team will drive the advance and commercialization activities of Eversense through the partnership. Also on the call today, you'll hear from Dr. Fran Kaufman, our Chief Medical Officer, who will review the clinical performance and demonstrated benefit from Eversense, especially in these times of diabetes management during COVID. Additionally, we'll hear from Nick Tressler, our CFO, who will provide additional detail on our revenue, margins and cash flow that we currently project-based on the financial model upon which we and Ascensia have based this partnership. Finally, we'll open it up to questions that you may have on our plans and the partnership. As a reminder, the collaboration is designed to be a minimum of 5-year global commercialization agreement where Ascensia will assume responsibility for sales, marketing, reimbursement, customer support and distribution. Senseonics will maintain manufacturing, development, regulatory approvals and cost of goods improvement programs. We will begin our joint commercialization on October 1. The economic split between the organizations will be tiered with revenue and will change with time as the installed base builds as we have previously outlined. As mentioned, it is still too early for us to provide formal management guidance. We do anticipate providing more definitive direction when we report our full quarter results -- full year results on our fourth quarter call. However, in an effort to aid in modeling, we are describing more information based on our internal model. Built in partnership with Ascensia, this model describes the key financial elements upon which we have embarked this partnership on. These financial projections are based on a number of material assumptions, including the timing of FDA approvals of new products, the rate of customer acquisition, the resulting revenue share percentage under the agreement and among others. The most significant assumptions are detailed in the last slide of the deck that accompanies this presentation. Based on this joint forecasting and taking into account these assumptions, our modeling currently indicates Senseonics' share of the revenue would be in the range of $12 million to $15 million in 2021. 2021 has consideration for it being a partial year of sale as well as uncertainties associated with the launch of a new product. In 2022, the first full year of marketing in the U.S., we modeled revenue in the range of $30 million to $40 million, and we estimate that annual revenue could grow rapidly to approximately $200 million by 2025. Nick will provide more details on the model later in the presentation. As previously described, to drive these commercial efforts, Ascensia will be building a full dedicated customer infrastructure to support this effort. As the manufacturer, Senseonics is responsible for the product cost of the goods in the collaboration, and is compensated by receiving a share of their revenue from the product sales. This means that gross margins will likely be lower over the midterm as compared to other high-growth med tech companies. However, since in the partnership Ascensia will have primary responsibility for sales and marketing and the associated expenses, Senseonics will be able to significantly reduce our expenses. We project that this will allow us to reduce our sales and marketing expenses by approximately $45 million to $50 million per year from a historical perspective. Given this, and if we and Ascensia are successful in meeting these revenue projections, contribution margins could be higher than other growth med tech companies over the midterm without these expenses. As an example, in the scenario in which Senseonics' revenue is $150 million, we project that we could achieve gross margin in the mid-40s, and could be cash flow positive. Reviewing historical data for diabetes med tech companies at $150 million in trailing revenue, their gross margins have been higher, but their breakeven occurred closer to the $200 million form. In our model, we currently project that we could achieve cash flow breakeven at approximately $130 million. The point is here that through this collaboration, we have the opportunity to not only add a powerful global sales and marketing partner, but we believe we can also reduce the capital we need in order to reach cash flow breakeven while improving our cash burn need by nearly $75 million. An inherent advantage of Eversense is that its future generations, the first being the 180-day sensor, then the 365-day sensor, as these are introduced, fewer sensors are needed per patient, and this can provide material improvements in our gross margins. Regarding the 180-day product submission, we are currently in the final steps of the supplement preparation. The final statistical analysis and report generation is very near completion. The submission is on plan and is imminent. We also note that the product upgrade that we have made in chemistry, glucose algorithm and other user improvements translate into an enhanced sensor performance, and we look forward to working with the agency during this review process. This is a great accomplishment to be this far with a 180-day glucose sensor, much longer than any other CGM, and we're excited to see the continued evolution of the Eversense technology. Now I'd like to turn the call over to Rob Schumm, President of Ascensia. Rob?

Hey, Tim. Thank you very much. I'm Rob Schumm, and I'd like to take a few minutes to introduce you to Ascensia Diabetes Care. While we are technically a relatively new company, we're actually an established leader in the blood glucose monitoring industry with a heritage of almost 80 years of innovation and commercialization in this industry. Ascensia was established actually in 2016 with the sale of Bayer's Diabetes Care Division to PHC Holdings Corporation. Today, we are backed by several large investors, KKR, Panasonic, Mitsui Corporation and Mitsubishi Chemical Corporation. We are a large player in traditional blood glucose monitoring. And we are, in fact, the third largest globally, and have a global market share of about 18% in this market or did in 2019. Our roots in the industry go way back. We were actually the makers of the very first portable glucose meter and the term glucometer was, in fact, the brand name of one of our original products in this space. We also introduced the very first single strip system with no coding technology, which has become a standard in this industry. Our products are sold in 125 countries around world and are used by approximately 10 million people on a regular basis. Our CONTOUR NEXT test strip is the #1 selling test strip in the world today. We have about 1,700 employees with operations in about 31 countries, and annual sales of about USD 1 billion. About 2/3 of those employees are commercially focused marketing and salespeople. So a lot of feet on the ground to drive our business going forward. It's no secret, certainly, that the traditional blood glucose monitoring market has declined in recent years with the advent of CGM. But we have been able to maintain a fairly stable business by significantly growing our market share in key markets around the world. If you go to the next slide. So why is this partnership important to Ascensia? And how does it tie back to our business goals? Well, first of all, we very much believe in the product. It is a truly innovative solution to blood sugar tracking that comes with distinct benefits and a clearly differentiated positioning. It offers market-leading accuracy, which is very important in this market. And this, too, has been a core strength of our CONTOUR NEXT platform as well. Importantly, and one of the most intriguing things of this product is that patients really love it, and they're even willing to go out of their way to get it, and that's a very encouraging sign. The product has already managed to create enthusiasts in its early stages, which is a great foundation on which to build. And as a result, we see significant potential for Eversense in the CGM market. We're also very excited about the pipeline. The 180-day and the 365-day versions of these products, once they get through regulatory approvals, have the potential to expand the user base while reducing costs. Based on our knowledge of the market, we believe these longer-use sensor options will significantly drive uptake and expand the potential user pool. And also as a leader in the traditional blood glucose monitoring area, one of our top strategic priorities is to enter the CGM market. Not only does it provide a significant growth area with business opportunity for us, it builds on our existing customer relationships, our market knowledge and our core competencies. We see the U.S. and Europe as important growth opportunities for Eversense, and these are places where we have a very strong foundation on which to build. If you go to the next slide. So what do we bring to this partnership? I think there are a few important things, I believe. First of all, it will be a top priority for us. We are a company that is 100% focused on diabetes. It's one of our values. In a world where traditional BGM isn't exactly the news of the day, this brings a lead story for our overall diabetes business. With our investment, we are now part owners in this business and have the financial incentive and the business incentive to make it a success. We are very committed to making a material investment into commercialization and prioritizing the resources that are needed to support CGM. We will initially use existing resources for the restart in the U.S. and then transition -- and we'll also be transitioning our existing distributor relationships in Europe. But starting immediately, we're going to be ramping up that investment, particularly in the U.S., where we will increase our sales footprint nearly threefold in the first year and fivefold over 3 years. We have strong operational and commercial capabilities. Not only do we have a solid understanding of the diabetes technology market, we have the infrastructure and we have the experience in the areas of sales, marketing, commercialization in general. In the European markets, especially the ones that are into our focus, we are #1 in Italy, #1 in Switzerland, #1 in Sweden and #2 in Germany in the BGM market. So we're starting with a foundation of strength. And in the U.S. market, we have particular strength among Type 1 patients. We're actually #1 in the U.S. among Type 1 patients for blood glucose -- standard glucose monitoring, and we have about a 37% share of that due to -- based on the -- based on the dQ&A data as well as a 47% share among pumpers. Additionally, we have strong customer relationships with payers, distributors and health care professionals. So overall, we think we can bring a lot to this partnership, and as a long-established player in the market, we are confident that we can take this compelling product, and we can leverage the solid foundation that we've built in this market over many years. So with that, I'm going to turn the floor over to Fran Kaufman, Chief Medical Officer for Senseonics.

Thank you very much, and thank you for the opportunity to share some new data on Eversense with you and to just be part of this event today. So if I could have my first slide. So this first slide shows the importance of really managing glucose in people with diabetes, of course, for all the immediate and long-term risk issues, but also now, particularly in the time of COVID, where we've learned that people with diabetes are at much greater risk from serious disease. So this data is from a large number of U.S. hospitals collected in March to April in over 1,000 patients, 451 of whom had diabetes. And in the bar graphs, I think you can appreciate that those with diabetes compared to those without had a significant increase in mortality from 28.8% to 6.2%. But now if you go back to the box, what was perhaps even more important was those with diabetes who had uncontrolled glucose, very high glucose levels, had a 42% mortality while those with control of the glucose values had a 15% mortality. So what does this actually mean for someone like me, a health care provider and all of my colleagues? It's really incumbent upon us to manage patients with diabetes for all the obvious reasons, their long-term health, their short term risk, but now because of the risk of COVID infection, actually as well as other infections in addition. So how do we do that? If I can have the next slide? There's a lot of things we can do, but telehealth and using CGM can make a big difference. So in the past 3 decades, we've really used the A1c as the indicator of diabetes management and the thing we looked at to determine diabetes risk in the future. But now we're able to use CGM, glucometrics really has become a game changer, and there's a very large movement among health care providers, associations and actually people with diabetes to look at these glucometrics in addition to A1c. And particularly now in the time of virtual health care visits, where people are truly afraid to go into a laboratory or into a hospital or office setting for their fear of risk of being exposed to the COVID virus. So we're doing a lot of virtual care, and CGM really enables that to happen by looking at these variety of glucometrics that can be obtained, the time in range, the time above range, the time below range. And in particular, something called the GMI, or the Glucose Management Indicator, which is an estimation of the A1c. And on the chart on the right-hand side, I think you can see that there is actually a linear relationship between time in range and A1c. So I happen to do a telehealth visit with 1 of my patients who was fearful to go and get an actual A1c. I can look at some of these glucometrics, determine this GMI and then actually relate it to an A1c and be able to give them what they need. Do I need to change therapy? Do I need to do some more counseling around behavior change? And what are the risks in the future. So if I can have the next slide? So let me get a little bit more specific now about Eversense, and particularly in the Medicare population. So Eversense has a number of unique features compared to other available CGMs and one of them is that it's fully implantable. Obviously, the key 1 is that it's fully implantable. And what this enable somebody, particularly in the Medicare population, able to do is they don't have to worry about the weekly or every 10 or 14 days self-insertion and self-removal. It's in there for 90 days, and they don't have to do anything more. No ordering and no piercing something through their skin or removing it. In addition, it obviously is the longest, lasting sensor there is in the U.S., 90 days; outside the U.S., 180 days. With regard to the transmitter, which is really the brains of the system, it's placed on top of the sensor to power the sensor to obtain the glucose values, to calculate the glucose values and transmit them to the mobile phone, and it's held on with a very mild silicone-based adhesive, which is particularly important in people in the Medicare age range who have a change in skin sensitivity. It can be removed so that they can shower or bathe completely without anything on their skin. And most importantly, it has an on-body vibratory feature that enables somebody who's not holding their smartphone all the time to be alerted if there is a hypo, or an impending hypoglycemic event, and the same with hyperglycemia and a number of other issues. Then we can get to the mobile app and see that we can share -- somebody in the Medicare age range or anybody using the device can share it with up to 5 care partners. Some of these in the Medicare age range may be a true care deliverer. It may be a friend or it may be even actually somebody's children who by watching the CGM data can help keep that person more safe. And then of course, the data automatically uploads into the DMS system. And it can be pulled down by the health care provider whenever necessary as well as the patients themselves to get a full analysis of their glucose metrics. So if I can have the next slide? So I want to show you some real-world data. And this is actually an extension from the paper that we published in Diabetes Technology & Therapeutics in 2019 looking at the first 205 patients who had completed a 90-day sensor wear. And now we've extended that population, and we presented this data at ADA this summer in 2020, now to over 1,600 patients. So they all are encompassing all age groups. And I think you can see now we can show the glucometrics, the median wear time, the mean sensor glucose, measures of glycemic variability, this GMI or estimation of the A1c, the time in range, the times below and the time above. And we can see that actually for the entire cohort it mirrored what we saw with the first 205 participants. And now we see the same with a much larger cohort. But when we look at those in the Medicare age range and the number is about 90, a significant number of patients, we see that they actually do better than the entire cohort. They wear their transmitter much more. Their mean glucose value is lower. And particularly, their GMI now is close to the target for the A1c of less than 7, it's 6.97. And their time in range, 70 milligrams to 180 milligrams per deciliter, approaches the target of 70 and at 69. And this is all done with no increase in hypoglycemia. Something extremely important for people in this age range who for a long duration of diabetes, maybe they've developed autonomic neuropathy are particularly susceptible to severe hypoglycemia, which actually can be a mortality event for them. So what does this data-enabled us? It's enabled us to now be covered by the payers for approximately 200 million Americans, including those in the Medicare and Medicare Advantage group. And we've already seen that 3 Medicare MACs have already published their LCDs, and we're sure the others will follow soon as well. So can I have the next slide? I do want to show you some recent data from an independent study done in multiple clinics in Italy looking at 100 patients now with 180-day system to show that when you do a prospective study, and again, this was multicenter and independent of anything with Senseonics itself. You can get the pre and the follow-up A1c values, something we cannot get from our data management system data analysis. So for all the patients, you can see in that column the starting A1c was 7.4%. It was reduced to 6.9%, a significant drop in A1c and go a little bit lower and you can see along with an increase in time in range. And now if you look at the next 2 columns, these are patients naive to CGM prior to entering this study, whether they used MDI, multiple daily injections, or CSII insulin pump therapy. Now we see a tremendous drop in A1c just with the tool of a CGM and also an increase in time in range. And then the last 2 columns are patients who are coming from another CGM device, whether MDI or CSII, and now we still see a bit of a drop in A1c and excellent time in range, showing that if one were to come from another CGM or just comparing it to any other CGM, that the Eversense actually is an excellent tool to continue to manage diabetes. So the next slide, I do want to show you that in the time of COVID, we have been able to do virtual training of health care providers. So in these 2 frames, you can see the swap picture of our onboarder for health care providers teaching them virtually to do a successful sensor removal. You can say they both have a graft sensor in their clamps. So we're able to virtually train. We've now trained 400-or-so health care providers, and we're continuing to train those and in the process of really scaling up. And of course, we have a lot of assets available to the patient themselves in training on how to use our Eversense CGM with patient videos and a number of other online assets. So if I can have the next slide? This slide actually pulls together pretty much everything I've already said. It's the beginning of somebody wearing a CGM, our Eversense CGM, and then at the end of the CGM wear. This happens to be a person who's 71 years of age with long-standing diabetes. And I think you can see that when we first put the CGM on her, she actually can look at by time frame the overall glycemic buckets that her values are in and at midnight, she had quite a bit of hypoglycemia then, you can see all that yellow in the mid part of that panel. And that's because she's got hyperglycemia around her meals. And then as time goes on, we eradicate the nocturnal hypoglycemia that could be very dangerous for her and improve on the amount of hyperglycemia from her meals as well. So she has excellent wear time, and we see her time in range go from 72% to 84%. So the last slide, just in conclusion, the COVID-19 pandemic has really shown us the problem -- promise of using telemedicine and the value of CGM, that CGM data is sufficient for us to use in virtual visits, change treatment, address patient behaviors and understand patient long-term outcomes. And I can tell you those virtual visits are here to stay once this pandemic hopefully is resolved. The Eversense CGM has a number of unique features, which particularly resonate in the Medicare population. And the real-world and prospective data that has been done shows really improved glucometrics for patients using Eversense. And our virtual training is here to stay, and we'll be able to now, I think, continue to onboard patients in doctors' offices, train doctors on how to do this as well as the other providers who are allowed to do these procedures and continue to expand our ability to get Eversense out to patients who will benefit from CGM. So I thank you very much, and I'll now turn it over to Nick.

Thank you, Fran, and good afternoon, everyone. We appreciate you joining us on the call today and look forward to providing some of the key financial targets that underpin our recently announced Ascensia partnership and funding from PHC and Masters. As we look at the key financial target slide, I want to remind everyone of our disclosure regarding forward-looking statements and that these projections are based on a number of key assumptions, the most significant of which are detailed in Appendix A. The key financial targets for 5 years are shown as ranges and are based on the financial model developed by Senseonics and Ascensia and that was reviewed and approved by the Senseonics Board of Directors. So in terms of the key financial targets, we start with the global net revenue to be recognized by Senseonics, again, based on the model as co-developed with Ascensia and providing ranges for each year. I did want to make 1 correction that for 2021, we did tighten our range to what Tim announced of $12 million to $15 million. The other ranges, as you can see in this slide, provide the revenue ranges for each subsequent year. In 2024, we have a range that starts at above $100 million and in 2025, a range from $150 million to $200 million of global net revenue for the year. The next key financial metric is the gross margin percentage. And we see improvement over time based on volume and based on improvements to the product, going from negative gross margins in 2021 and to potentially break even gross margin in 2022 and then positive gross margins throughout the remaining 3 years of the projection period, up to the 40% to 50% range in 2025. Finally, provide ranges for OpEx. So these are operating expenses for R&D, research and development, sales and marketing and general and administrative costs. This excludes any cost of goods sold, or COGS, and you can see the ranges provided there. That includes both internal and external costs for the projects related and functional expenses for the business. Finally, I'll move to cash projections. As mentioned on our Q2 call, for the remainder of 2020, cash used in operations is projected to average $3.5 million to $4.5 million per month for the remainder of the year. For 2021, cash use is projected to be less than $60 million for the year. Third, as we close on the sale of all 42 million of the additional preferred stock to PHC and Masters, as previously publicly described, we project our available financial resources would fund operations through 2021. And finally, we project that an additional $150 million of capital is needed to reach cash flow breakeven in 2025, of which $42 million of that is potentially available from PHC and Masters, as we previously disclosed. With that then I won't go through our Appendix A, but again, our key assumptions for the financial targets are listed there. I'll now turn the call back over to Tim. Tim?

Great. Thank you, Nick, and thank you, others. We appreciate the opportunity to speak with our investors and analysts. At this time, operator, now we'd like to open up the call for any questions. We'd be happy to respond.

[Operator Instructions] Our first question comes from Mathew Blackman with Stifel.

A few questions for Rob and a few for Nick. And maybe to start Rob, I'm just curious, what do you think have been and will continue to be sort of the biggest hurdles for Eversense adoption? And beyond throwing more money at it, what resources and core competencies can you bring to bear in order to overcome them?

Sure. So one of the things that's really encouraging -- what was very encouraging to us when we reviewed the opportunity was just how much progress that Senseonics had made in terms of cracking the code of getting not just the reimbursement coverage, but also getting that patient uptake. And so I think that we have -- I think that there's already a lot of really good work to build upon there. And in fact, we just -- we were seeing a really nice uptick of acceptance by patients just when whole COVID-19 crisis happened and things became more difficult for Senseonics at that time. So right now, I think that there's a lot of promise there. I think making sure that awareness is going to be really key, getting the awareness really out there. Once you've got -- what we've seen is that there is -- the product can capture the imagination and I think once you can get that and get patients engaged, there's a huge opportunity. Certainly, managing the process and the procedure, I think, is important. I think, again, Senseonics has done a great job up to this point of figuring out how to navigate on that. So we've got a lot to build on.

Okay. And then a couple more for you. Beyond revenue, how would you, Rob, measure success in year 1? What are the key metrics you want to track? And how would you want them to progress and track? And what are -- and you sort of touched on this a little bit in the prior answer, but what are your year 1 priorities? What are the blocking and tackling aspects of getting this off the ground? Reimbursement is fairly well set? Is it really mostly awareness, education and sort of facilitating implant and explants? Any thoughts there?

Sure. So obviously, in the very near term, our key metrics around training and making sure that we've got our sales force very quickly up to speed, and that is already happening. In fact, we've got people as we speak being very deeply trained in this so that they can understand the entire process and be able to bring this effectively to health care professionals. In terms of metrics, I'd say, certainly -- certainly the sales. But more importantly, the way you're going to get there is by how successful we are in getting patient adoption and how many users can you actually get on this product and then following the repeat rate. So bottom line is, I think what's really also exciting about this product is that the people who have tried it and used it really like it and stick with it. So I think the repeat rate will come. So it's that initial penetration that we're going to be tracking very early in the process. I'm not sure if I answered the remaining questions there.

No -- yes. No, you got it. I threw a lot at you. So I appreciate that. And then 1 last 1 for you and then I'll sneak 1 in for Nick. Just curious, you mentioned the 10 million patient, I believe, was a global installed BGM base. Is that a priority or an opportunity for potential conversion? Or should we think about you guys targeting new to Ascensia patients? And then, again, 1 follow-up for Nick.

Sure. I think -- well, first of all, yes, that's kind of an estimated user base. It's very difficult in this market to know precisely how many users they are out there, but that's about right. And I think -- well, yes, I think that some of those users, right? It's not -- you're not talking about a vast majority of them. Some of those users are going to be ready for CGM and ready for this one. So I think there's definitely an opportunity to be able to tap into that user base. But even more importantly, the customer base is the same. Not the users per se, but the health care professionals that we call on. And often the leads that we get are very, very similar. So tapping into that taps in quite nicely to the way that we go-to-market right now, which is one of the reasons that we think we can do a lot to this. It's -- we basically have the ability to -- we've been doing this already, and this fits in nicely with our selling and promotion process.

Okay. And then, Nick, I appreciate we're going to get more granularity in the coming months. But as we think about the revenue split to start, would it be unreasonable? Or would it be reasonable for us to peg at it? I think you said in the past that at the beginning, it would skew more towards Senseonics. But I mean would 60% sort of 60-40 split at the outset be a reasonable place to sort of start things off and then walk it down. Obviously, it's helpful for modeling, but it's also helpful, as you know, to sort of gut check these initial Senseonics revenue run rates and sort of juxtapose those with what that would mean for implied sort of market share and market penetration adoption. Any help you can give us there?

Sure. Yes, Matt. Yes. What we had talked about in our 8-K was that the split ranges for Ascensia starting in the mid-teens to the mid-40s. Obviously, those are various tiers at different revenue levels within each year. I think what you've mentioned for the start is a little bit skewed to the Ascensia side. It's probably more on the Senseonics side as we start out in the early stages. So again, those tiers, there's a number of tiers within each year. And starting in the mid-teens, again, there's going to be a blended average on a per-year basis. And given what we're showing here in terms of a range for 2021, would certainly be more on the Senseonics side as a percentage of the total revenues.

Okay. So that 60 I quoted would be more reasonable for the Senseonics portion of the revenue split, just to confirm?

Correct. Or higher than that, correct.

Okay. Okay. I got that. Tim, did I cut you off, I'm sorry.

No, Matt, I just wanted to confirm again, the numbers that we gave to try to give some good visibility is those are Senseonics revenue. Obviously, the folks at Ascensia will be selling more than that, and we're working together to make that more as big as we can. But the numbers that we gave out are post that sharing.

Yes. Understood. I got that. I appreciate the clarification.

Our next question comes from Danielle Antalffy with SVB Leerink.

And Rob, I guess my first question is for you is probably isn't going to be a fair question so just tell me if so. But I guess, trying to gauge the commitment of Ascensia behind the product and CGM as an opportunity as a whole, why is this structure of a deal the right move for Ascensia versus an outright acquisition or somehow trying to acquire a CGM technology to own wholesale?

Sure. That's not entirely an unfair question. The -- so first of all, I think we acknowledge -- what we want is something that's going to be really compelling and successful in the long term, and we certainly see the value of this technology to get there. We also acknowledge, though, that -- the needs of Senseonics at this stage in the game. And that's why what you just heard, the reason that we feel that we need to put more upfront so that we can let Senseonics be successful in the near-term as we scale and then that we would be able to, together, grow and be successful beyond that. So the partnership there is very important, and that's why it's important that we have an investment stake in the company as well. So I think we are very -- I think this is a good structure for the deal because it aligns us very effectively, and it will help us to collaborate the way that's going to be necessary for us to do so for the success of this deal. So the main reason is because of the long-term value and potential of this. We think it's a great technology with a lot of future, and then the deal structure to help the short and long-term success of both companies.

Totally fair. And then my next question, I guess, sorry, Rob, probably for you, maybe also, Tim, you can chime in a little bit because this is a question you've answered in the past. But there are CGM as a market has been growing very significantly. You are competing against 2 pretty strong sort of legacy brands, I guess, well, specifically Dexcom, but then also more recently Abbott. So just curious, Rob, as you think about the go-to-market strategy, when you get this in the hands of the Ascensia folks, sort of how you most effectively compete? Where do you think -- do you think it's about the implantability? Like, what do you think are the key selling points for Senseonics if a patient is sort of trying to decide between the 3 big stand-alone sensor companies?

Sure. Well, I think, obviously, there's a place for all different kinds of CGM solutions. Actually, there continues to be a real place for traditional BGM in the diabetes space. But one of the things that makes this very attractive is it has a unique selling proposition and a unique benefit set that is very important when you're going to compete in the market. It doesn't mean you got to be competing head-to-head in all segments, but it means do you have a user base for which this set of benefits is going to be important. And as we understand this market, clearly, there's a value to the benefits and features that this product brings. And that is -- and we believe that to be more than just a niche, but one that is very much in line with the psychology of having diabetes and the behavior that we're familiar with among people who have diabetes. So I think there's a lot of opportunity here. And I think part of the value is the very unique selling proposition.

Can I sneak in one more question? Sorry, Rob, I'm really making you work for your money here. I'm sorry about that. But just given the fact that you guys -- Ascensia is a big BGM player, you are seeing share gains moving over to CGM. What do you think ultimate penetration of CGM can be over the next 5-plus years in insulin-using patients, Type 1 and Type 2? And then I'm done, I promise.

Okay. I don't think I can do a number here as to what that is. But I think what we will see is considerable penetration, certainly among insulin-using patients and among the broader base as well. Over time, I think that the -- there's still -- as we forecast the market, there's still a lot of BGM usage and will continue to be among various user groups. But we will -- it will certainly be fairly significant over the next 5 to 8 years in the insulin space. Sorry, I can't be more specific than that.

Our next question comes from Chris Pasquale with Guggenheim.

Nick, a few for you on the model here. So how much of the margin ramp is really contingent on the business transitioning to the 365-day sensor? In other words, without that sensor, would gross margin top out at more like that 5% to 15% level versus 40% to 50%?

Sure. Yes. So as we included in Appendix A, I refer you there, that we've assumed FDA approval of the 365-day product in the U.S. in Q1 of 2024, with a launch of Q2 of 2024. So obviously, you can see where those gross margins are impacted. It's certainly the things that we mentioned in terms of volume, operational excellence through the technical changes to the product, we see those obviously in the near and midterm.

Okay. So maybe said another way, if the 365-day sensor is delayed or it doesn't work out for any reason, do you still see a pathway to profitability for the company, given the cost structure?

Yes. So we haven't modeled that, but certainly given volume increases, I think it's really going to be dependent on volume and patient uptake across the business. So I'll ask Tim or Rob to comment further on that? It's really volume dependent in that scenario.

Yes. I think at that point, if you go and look at the installed base that we have, absolutely there is the likelihood that we will be profitable. As I noted in our modeling, it's frankly only $130 million is the breakpoint for us to break even, profitability above that. The 365 is very important, as Rob said, the desire and need for people with diabetes is frankly to forget about the management of the disease, make it as invisible as possible. And as you know, our point of differentiation is really around the duration. So as we go from 90 to 180, 180 to 365, we recognize that we just get more and more likable. And you'll get more and more penetration. I think the numbers that we've given you in 2025 is something like a 2% or 3% market share. I honestly feel, as many of you heard me speak before, I think there's upside even to this in just how significantly people have given us feedback on the 90 going to 180 and the 180 going to 365. So the bad news about diabetes is it's huge. The good news from a business perspective is there's a lot of opportunity. And it -- CGM is just really exploding.

And Tim, could you just remind us where you are with the 365 in terms of chemistry, in terms of product design? Do you have a what you think is a finished product there at this point?

We're testing in humans right now. We have hundreds of patients that have been through the ethics-approved clinical testing. Unfortunately, as a 1-year test, it does take us some time. So we're anticipating at this point that in the second and third quarter of next year, we'll actually be starting the trial for the 365-day product. So we're well into the research, but I wouldn't yet claim that were finalized with our configuration yet. But we're going to take another 2 to 4 quarters to do that.

Okay. And then last one from me. Nick, I was just curious what assumptions are embedded in the OpEx forecast. You got it relatively flat for the first 3 years, and it steps up pretty noticeably in the last 2 years. Is there some specific spending that's being reflected there, a particular project? Just help us with that.

Yes. It's really driven by R&D investments, some of which is identified, some of which is, at this stage, as you think 4 to 5 years out, what that could look like. So it's -- the bulk of that growth in those out-years is in the R&D line?