Senseonics Holdings, Inc.
Q4 2020 Earnings Call Transcript

Published: 4 Mar 2021

[Operator:]

Good afternoon. And welcome to the Senseonics Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Lynn Lewis of Investor Relations. Please go ahead.

[Lynn Lewis:]

Thank you very much. And welcome to the Senseonics’ fourth quarter 2020 earnings call. This is Lynn Lewis from The Gilmartin Group. Before we begin today, let me remind you that the company’s remarks include forward-looking statements. These statements reflect management’s expectations about future events, operating plans, regulatory matters, product enhancements, company performance and other matters and speak only as of the date hereof.

[Tim Goodnow:]

Great. Thank you, Lynn, and thank you all for joining us this afternoon. On the call today, I will detail our recent progress in the fourth quarter and how accomplishments over 2020 have positioned Senseonics to derive the value of our Eversense system in the marketplace. In addition, I will highlight our fourth quarter performance, the early commercial collaboration efforts with Ascensia Diabetes Care, including the transition of our European distribution. We will share our outlook for 2021 and discuss developments with our product pipeline. Then Nick will detail the fourth quarter financials before I conclude and open up the call for questions. To start, I’d like to briefly touch on are challenging yet transformational year. First, we undertook a comprehensive strategic evaluation, which led us to an opportunity to engage in a commercial collaboration agreement with Ascensia. Then with a revamped business model, we were able to raise $175 million in net proceeds to materially strengthen the balance sheet. We believe that based on our current projections, expectations and business plans, the existing cash and cash equivalent should be sufficient to fund the business through cash flow breakeven from operations and the commercial launch of the 365 days sensor designed to be calibrated only once per week. We are confident based on our early experience with Ascensia and their shared passion for our technology, and how it impacts the lives of people with diabetes that we have a team and strategy in place to be successful with a current Eversense system in the U.S. and Eversense XL in Europe, as well as our future generation products.

[Nick Tressler:]

Thank you, Tim, and good afternoon, everyone. In the fourth quarter of 2020, total net revenue was $3.9 million, compared to $9 million in the fourth quarter of 2019. U.S. revenue for the fourth quarter was $400,000 and revenue outside the United States was $3.5 million. As we mentioned previously, the OUS revenue represents the last shipments to Roche to service the patient demand through January of 2021 and the expiration of our agreement. Gross profit in Q4 2020 increased by $10.8 million year-over-year to $2.6 million. The positive gross profit was predominantly related to the ability to fill resupply orders with existing written-off inventory as reinsertion rates were above the expectations established at the onset of the COVID-19 pandemic. Fourth quarter 2020 sales and marketing expenses decreased by $8 million year-over-year to $3 million, compared to $11 million in the prior year period. This decrease was primarily due to recent changes in our commercial activities as a result of the strategic collaboration agreement with Ascensia. Research and development expenses in Q4 2020 decreased by $5.1 million year-over-year to $4.7 million, compared to $9.7 million in the prior year period. The decrease was primarily driven by lower PROMISE clinical study cost and personnel-related expenses. General and administrative expense in Q4 2020 was $5.2 million, a decrease of $0.7 million compared to the prior year period, mostly due to personnel costs related to stock-based compensation. Other expenses included increases to losses on the extinguishment and issuance of debt offset by reductions in debt issuance costs and gains in fair value adjustments as compared to the prior year period due to the company’s finances. For the three months ended December 31, 2020, total net loss was $101.6 million or $0.41 per share, compared to $35.6 million or $0.18 per share in the fourth quarter of 2019. Net lost increased by $66 million, due to a $90.6 million increase to other expenses, primarily related to the accounting of the company’s financings, including changes to the embedded derivatives, partially offset by a $24.6 million decrease in loss from operations. Now turning to the balance sheet, as of December 31, 2020, cash, cash equivalents and restricted cash totaled $18.2 million. In January, we closed three financings, raising approximately $175 million in proceeds. As of January 31, 2021, cash, cash equivalents and restricted cash totaled $187.3 million. Based on our current projections, expectations and business plan, we believe that the existing cash and cash equivalents should be sufficient to fund the business through cash flow breakeven from operations. Looking ahead, we expect global net revenues between $12 million and $15 million for 2021. For full year 2021, cash used in operations is projected to be in the range of $60 million to $65 million. With that, I will turn it back to Tim.

[Tim Goodnow:]

Thank you, Nick. Early in 2020 we faced challenges that were exacerbated by the pandemic as experienced by many companies. We have quickly transitioned into a partnership with Ascensia that we believe dramatically strengthens our commercial capabilities and allows us to concentrate our focus on continued development of our technology. The recent capital raises have added $175 million to the balance sheet and should allow us to focus on execution. We believe that we are now well-positioned to address the top unmet need in the large and growing CGM market. With Ascensia, there are concrete plans to address awareness and access the meaningful ways to drive adoption of Eversense. Their commitment is clear and the investments that they have outlined to ramp up activity will strengthen the commercial opportunity. As we mentioned, with the FDA focus on emergency use authorizations leading to delayed review of submissions in general, we have coordinated to focus on reestablishing the 90-day product in the U.S. for the next several months, with a cadence of resource deployment originally planned for the 180-day product launch. As we move through 2021, we expect to COVID headwind impact to become a tailwind as the pandemic is moderated, vaccine penetration becomes more established and office visit frequency normalizes. With the build-out of a larger sales force, inside sales team, field support, DTC, advertising campaign, prior authorization and Patient Assistance Program, we are very pleased to again be positioned to offer the benefits of Eversense to more patients. In the fourth quarter and throughout the start of 2021, we have made substantial progress planning and building commercial capabilities with Ascensia. From our perspective, it is easy to see why they are leading global diabetes company. We could not be happier to be working with them and look forward to further success. Joining us for questions are Mukul Jain, our Chief Operating Officer; and Mirasol Panlilio, Vice President and General Manager of Global Commercial Operations. Operator, let’s go ahead and open up the call for questions.

[Operator:]

And our first question today will come from Mathew Blackman of Stifel. Please go ahead.

[Melanie Nuñez:]

Hi. This is Melanie on for Matt. Thanks for taking the questions. I just wanted to ask about on some of your partnerships with pump manufacturers and where that is in your priorities or what needs to be done there. I know you have an agreement with Beta Bionics, but looking at any of the other pump players for potential integration and then I have a quick follow up?

[Tim Goodnow:]

Sure. The folks at pump insulin are, of course, very important to us. As you noted, we do have a partnership with Beta Bionics and we have done some pretty exciting clinical testing with them. In addition, our next effort to move the program forward really is around the ICGM designation, which makes the integration much more facile with the pumping partners. So, that’s our focus. At this point, we have the 180-day product in for review and right behind that, we anticipate the ICG effort. So that’s step one and then the partnerships with the pump folks is a step right after that.

[Melanie Nuñez:]

Got you. Thanks. That makes sense. And then quickly just a bigger picture question. You mentioned this on the call, but we have heard some other sensor companies talk about expanding their platforms to go beyond just glucose and look at other analyte. And like you said, you mentioned that, but is there anything else you can provide there, any color and when we might see something like that? Thanks.

[Tim Goodnow:]

Sure. Obviously, the opportunities -- our product is quite frankly a very miniaturize and very accurate analytical parameter, which means it has the ability to measure a number of different analyte. We have very direct experience with oxygen and as an example, we have actually sold about a million dollars worth of oxygen sensing in our history. But we have very much focused on glucose for people with diabetes right now. As you know, it’s a $5-plus billion market today growing at about a 35% CAGR. So, what we have coined internally is that we are going to generate our first $1 billion of revenue off from glucose and that we are going to look to expand beyond that. But we do have the very, very broad technology. We are pretty excited about the opportunity. The fact that we have shown it before, I think, really gives us a leg up on some other technologies that have yet to do it.

[Operator:]

The next question comes from Danielle Antalffy of SVB Leerink. Please go ahead.

[Danielle Antalffy:]

Hey. Good afternoon, everyone. Thanks so much for taking the question. Tim and Nick, just a question a little bit on the $12 million to $15 million guidance, obviously a decent portion of that is predicated on Ascensia picking up the ball here in the U.S. I guess the question I had is, what gives you the confidence as where we stand today or as how we stand today in that guidance, like what are you hearing? What is Ascensia’s go-to-market strategy that they have discussed with you as far as driving adoption? Are they going to target higher volume centers? Are they going to target centers that haven’t really adopted CGM sort of how are they thinking about this and what drives your confidence in the $12 million to $15 million?

[Tim Goodnow:]

Sure. So the confidence because we have worked very significantly with the Ascensia in this transition and there frankly goes back to last summer when we began to look at the opportunity with them. So we together look very deeply at not only what the opportunity is for CGM, certainly the opportunity for our implanted CGM. And remember, we have quite a history in our commercial activity as well. So we know that there’s a very interested and very dedicated installed base out there, and the opportunity to return and to continue to grow in that space. We have a pretty good feel about just based on the interest that we feel from patients. Even in our unfortunate downturn during COVID, we were able to retain a significant portion of the people that were on Eversense just because they become so dependent on it. It’s such a differentiated technology. It offers them so much more freedom that that interest is incredibly large and is very, very sticky, thankfully. So as we have looked at the available opportunity as we have dug into not only the survey work we have done, the clinical work that we have direct responsibility work, but we also now have a partnership with a completely new organization to us that it extensively looked in the space as well. So when you combine that research, that really is what drives the confidence that we have to be able to deliver these -- the guidance that we have given out of $12 million to $15 million. We do think that given the installed base in Europe, we will continue to be larger there for the first couple of years. We are anticipating still at about two thirds of the revenue, because the installed base is going to come from Europe this year. But we do know that the U.S. is also very encouraging and interesting market and their commitment to add as you said about 45 heads as we speak dedicated to sell Eversense is another great opportunity for us to drive to those targets.

[Danielle Antalffy:]

That is super helpful. And then just one quick follow-up, actually you alluded to this and that’s the strong reorder rate that you guys saw in Europe even through COVID. And I guess I don’t know if you can give a little bit more color about exactly what that reorder rate is and if that’s how we should be thinking about -- a reinsertion rate, I guess, is that how we should be thinking about it going forward or is there anything different about the U.S. launch, obviously, as a 90-day versus 180, but as far as the retention that we should be expecting here? Thank you so much.

[Tim Goodnow:]

Sure. So, Danielle, we believe that the experience that we had in a couple of years in the U.S. and more than that obviously in Europe, where we really saw pretty consistent reimbursement rates. After about the first sensor people typically reinsert about 75% of the time, after the second sensor it’s about 85%, and by the time they are on the third sensor, they have fully chosen to use Eversense long-term. So we are seeing reimbursement rates that are in the mid-90s. Now, that is in the routine times. We did see some compromise to that during COVID. But it is our expectation that as we come out of the current COVID environment we are planning to be back at those rates in the coming year and ‘21 and beyond.

[Danielle Antalffy:]

Very helpful. Thank you.

[Operator:]

And the next question will come from Jayson Bedford of Raymond James. Please go ahead.

[Jayson Bedford:]

Hi. Excuse me. Good afternoon. Just a couple questions, Tim, I appreciate the color on the U.S. international expectation for ‘21. Any type of cadence you can give us either first half, second half or quarterly cadence. I am just wondering the build up here to the $12 million to $15 million for ‘21?

[Tim Goodnow:]

Yeah. So we are modeling that we are going to do about 40% in the first half and 60% in the back half. So as you would imagine with the investment, the ramp will come. And as I said we are still seeing -- we are still anticipating the majority of folks given the installed base are going to be on the European side by about two-thirds and one-third.

[Jayson Bedford:]

Okay. And remind me revenue recognition, do you recognize revenue when you sell into Ascensia or when the end customer takes those?

[Tim Goodnow:]

Yeah. That’s right. Given the -- this is a revenue sharing, but we do sell product to them. So we will recognize it. There is some consideration that we take for the different revenue targets. So that goes into our calculus as well. But it is recognized now as we sell to -- globally sell to Ascensia.

[Jayson Bedford:]

Okay. And the revenue you recognized in the fourth quarter to Roche, do you recognize any in the first quarter to Roche or is that fulfilled in the fourth quarter?

[Tim Goodnow:]

No. We completed the obligation to Roche through January. That was actually sold to them in the fourth quarter.

[Jayson Bedford:]

Okay.

[Tim Goodnow:]

So on a calendar year perspective, part of what we needed to consider as well is that Europe only has 11 months, because -- with Ascensia because it was filled January by Roche.

[Jayson Bedford:]

Okay. And you alluded to, sorry for taking more than two questions, but you alluded to Medicare traction in the fourth quarter. Is there any way you can quantify in terms of percent of patient? Anything you can give us more in terms of the expansion of Medicare in the fourth quarter? Thanks.

[Tim Goodnow:]

It’s still pretty early, Jayson. Most of our focus has been in partnership on the training with Ascensia. It is a little bit different sale, because the clinical practice does actually purchase the product as a medical benefit and then gets reimbursed from Medicare for it. So, we work through that. We have shown that we have the documentation support it. So now it’s a matter of making sure people are comfortable with how to do that ordering and get the reimbursement in place. So it’s still quite a small number, Jayson. But it is an important part of our future in 2021 and a portion for sure of our U.S. sales plan.

[Jayson Bedford:]

All right. Okay. Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Tim Goodnow for any closing remarks.

[Tim Goodnow:]

Well, great. I want to thank everybody for their support and their participation today. It’s been a challenging yet rewarding year for 2020 and we are very excited for the position we are in and the partnership and the ability to serve people with diabetes in 2021. So thank you for the time today. We look forward to updating you next quarter. Good day.

[Operator:]

The conference is now concluded. Thank you all for attending today’s presentation and you may now disconnect.