Senseonics Holdings, Inc. (AMEX:SENS) Q3 2023 Earnings Call Transcript

Senseonics Holdings, Inc. (AMEX:SENS) Q3 2023 Earnings Call Transcript November 9, 2023

Senseonics Holdings, Inc. reports earnings inline with expectations. Reported EPS is $-0.04 EPS, expectations were $-0.04.

Operator: Good day and welcome to the Senseonics Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to your host today, Trip Taylor, with Investor Relations. Please go ahead.

Trip Taylor: Thank you. This is Trip Taylor from the Gilmartin Group. Before we begin today, let me remind you that the company’s remarks include forward-looking statements. These statements reflect management’s expectations about future events, operating plans, regulatory matters, product enhancements, company performance, and other matters, and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A risk — a list of the factors that can cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under risk factors and elsewhere in our annual report on Form 10-K for the year ended December 31, 2022, our 10-Q for the quarter ended September 30, 2023, and other reports filed with the SEC.

These documents are available in the Investor Relations section of our website at www.senseonics.com. We undertake no obligation to update publicly, or revise these forward-looking statements for any reason except as required by law. Joining me from Senseonics are Tim Goodnow, President and Chief Executive Officer, and Rick Sullivan, Chief Financial Officer. With that, I would like to turn the call over to Tim Goodnow, President and CEO. Tim?

Tim Goodnow: Great, thank you, Trip, and thank you all for joining us today. Today’s call will start with an overview of our quarterly performance and an update on Senseonics’ continued execution of strategic initiatives, including support of our commercial partner. Then our Chief Financial Officer, Rick Sullivan will discuss the third quarter financials in detail, and we’ll open up the call for questions. During the third quarter, Senseonics generated total revenue of $6.1 million, representing 33% growth compared to the prior year period, including $4 million of revenue in the US and $2.1 million from outside the United States. Expanding Eversense patient adoption and advancing our technology pipeline remain the top priorities for our business.

Our commercial partner, Ascensia Diabetes Care, continues to work to drive greater market access and recognition for Eversense. They are implementing a commercial strategy that includes downstream marketing activities that build awareness with both healthcare professionals and patients and are taking steps to ensure that all constituents have a positive experience with Eversense. This includes continuing to expand their dedicated commercial organization in the US towards this goal. During the third quarter, ADC expanded their commercial investment by partnering to develop a fresh new integrated marketing campaign with space150, an innovative digital agency with proven experience in driving demand of disruptive medical device technology. For background, CGM brands today broadly sell themselves as a panacea that makes managing diabetes easy and effortless.

However, this is not the case. Certainly for millions of people living with diabetes around the world, CGM has become an indispensable tool in managing the condition. Yet, many users spend too much time managing the shortcomings of their technology. It’s estimated that half of the people currently using CGM brands are not fully satisfied and experience common frustrations with their devices. Issues such as sensors falling off, skin irritations, excessive over-taping, accuracy issues, and short sensor life. As a result, many patients take breaks from their CGMs, reducing the clinical and safety benefits that technology provides. We designed Eversense to specifically address the issues intrinsic to traditional short-term transcutaneous CGMs, and the new direct-to-consumer campaign aims to inform patients on the benefits of Eversense and why it’s the CGM for real life.

The campaign represents the most significant investment in direct-to-consumer marketing for Eversense and includes extensive reach across digital and social media as well as new TV ads on digital television platforms such as YouTube, Hulu, HBO, and Disney. They are also testing the new TV ads on traditional broadcast television in five metropolitan markets, including spots during NFL games and the recent World Series. As ADC monitors the results of the campaign, the plan is to broaden them in 2024. While only a few weeks into the campaign, the early results are certainly encouraging. The campaign’s theme, The CGM for Real Life, resonates with patients who want to benefit off CGM without the traditional drawbacks. Feedback from the provider community has been positive as well, and we expect it will increase awareness and support within the clinician practices.

In the third quarter, several initiatives that strengthen access for Eversense were advanced by ADC, including gaining traction on the Prescriber First strategy. We have expanded the inserter network through both organic inserter development as well as our partnership with the Nurse Practitioner Group. Through this partnership, we promote Eversense to prescribers not trained to do insertion, such as family practitioners and internal medicine, so they can simply prescribe the system and their patients can be matched with convenient insertion options. As a quick update on the Nurse Practitioner Group partnership, we have already exceeded our original target for the number of NPG locations in 2023 and are proceeding with expansion plans for the remainder of this year and throughout 2024.

The program has been very well received by both patients and prescribers, as indicated by the growing number of users receiving their insertions through NPG, from 12% in Q2 to now 18% of all insertions in Q3. We’re also encouraged by the expanded opportunity with basal-only coverage across commercial payers that apply to Eversense. The majority of our patients are Type 2, and we expect this to increase with the basal-only coverage. On that front, we’re working to harmonize the Medicare coverage for basal-only to include implantable CGMs through Medicare and the Medicare administrative contractors. In fact, most of the MACs have published updated LCDs that include basal-only coverage from plantable CGM for public comment, and we anticipate the remaining ones to follow soon.

We’ve had successful meetings during several of the MAC’s comments periods, and we expect that they will begin publishing the updated policies in early 2024. With the expansions of basal-only indication across commercial and Medicare plans, we anticipate continued penetration across the Type 2 market going forward. In Europe, ADC has seen mixed results and is focused on driving performance across its markets. Italy has seen notable growth, increasing users by over 20% during the year. It is now our largest European market based on active users. Italy continues having success executing in areas where there is positive tender coverage for Eversense and is seeking to expand that coverage when those opportunities become available. ADC is also making progress in some other European markets.

Based on positive tender performance in Spain, active users during the year are up over 40%. And in Poland, following new reimbursement coverage, users are approximately doubled. ADC continues to transition the sales channel in Germany amid market dynamics. A new German CGM business leader has started and the transition of territories was completed during the third quarter. We are also pleased to have recently received a German medical aid code for Eversense. This includes Eversense in the national catalog of reimbursable medical devices, demonstrating to providers that Eversense is no longer reimbursed only on an exception basis by insurers. We believe this should result in a simpler and faster reimbursement in the German market. ADC has seen indications of stabilization of the German business.

And given the size of this market, it’s an important endeavor for the ADC team in Europe. Transitioning now to our clinical and product pipeline. We are continually — continuously advancing our new product initiatives targeted over the next quarters and years where we expect to leverage these new products to drive increased adoption. The next few years represent an exciting opportunity for Senseonics as they have a strong product pipeline that we’re confident offers important growth opportunities. Leading the way in terms of our next generation product is our 365-day system. We recently announced the completion of the ENHANCE pivotal clinical study adult cohort, as it is now in the data collection and analysis phase following completion of the 365-day visit for the final study participant.

This represents a significant milestone for Senseonics as it worked towards offering the differentiated benefits of implantable CGM for one full year with just a single sensor. We appreciate the efforts of the participating investigators and patients and look forward to analyzing the data, preparing a submission, and working with the FDA with the goal of securing approval for the planned one-year Eversense system in the coming quarters. As previously discussed, our CGM designation for Eversense has been submitted and is under review with the FDA. We anticipate feedback in Q1 and look forward to the potential this designation would offer. Over the past few quarters, we have discussed the importance of integration with other diabetes technologies and recognize the opportunity to provide additional benefit to people with diabetes.

Specifically, integration with various insulin delivery devices is a priority for Senseonics. Finally, we continue to advance both our Gemini and Freedom systems. Our nearest-term focus is working to incorporate self-powering for the sensor with the implantable battery and we are on track for human feasibility studies in early ‘24. We’re excited that this next step is right around the corner and we’ll provide more information as the program progresses. With this, I’ll now turn the call over to Rick for a review of our financials.

Rick Sullivan: Thank you, Tim, and good afternoon, everyone. We appreciate the opportunity today to update you on our business. In the third quarter of 2023, net revenue was $6.1 million compared to $4.6 million in the prior year period. US revenue for the third quarter was $3.9 million and revenue outside the US was $2.2 million. Shipment volumes in the third quarter are intended to support demand generation from the new advertising campaign. As a reminder, net revenue to Senseonics in 2023 will represent approximately 70% to 75% of the total Eversense revenue generated in the global markets as the revenue share for our partner increases according to our collaboration agreement with Ascensia. Senseonics recognizes revenue based on our revenue share when shipments are delivered to Ascensia, initiating the multi-step distribution to patients via Ascensia and their distributors.

We will continue to monitor inventory levels closely to optimize the supply chain as we better understand patient demand generated from commercial activity and the eventual transition to the next generation product. Gross profit in Q3 2023 was $1.2 million, an increase of $0.4 million from a gross profit of $0.8 million in the prior year period. The increase in gross margin was primarily driven by an increase to revenue as our volumes increased, which covered a greater portion of our fixed manufacturing costs. Research and development expenses in Q3 2023 were $12.8 million, an increase of $1.8 million compared to $11 million in the prior year period. The increase was primarily due to investments in our product pipeline for development and clinical trials of next-generation technologies.

Third quarter 2023 selling, general, and administrative expenses were $7.4 million, an increase of $0.1 million compared to $7.3 million in the prior year period. For the three months ended September 2023, operating loss was $19 million compared to $17.6 million in the third quarter of 2022 due to increased investment in research and development. For the three months ended September 2023, total net loss was $24.1 million, or a $0.04 loss per share, compared to a net loss of $60.4 million, or a $0.13 loss per share in the third quarter of 2022. Net income increased by $36.3 million due to the accounting for embedded derivatives, fair value adjustments, and the exchange of a portion of the 2025 notes. As of September 30, 2023, cash, cash equivalents, and short and long-term investments totaled $125.4 million, and debt and accrued interest was $45.8 million.

In continued efforts to strengthen our balance sheet, in September, we entered into a $50 million loan facility with Hercules Capital and drew down $25 million upon the transaction closing. The Hercules loan facility strengthens our balance sheet on a non-dilutive basis. And based on our existing business plans, assumptions, and estimates, is currently expected to provide the capital required to fund our current operating plans to cash flow positivity. Turning to our outlook for 2023, we expect full year 2023 global net revenue to be at the midpoint of the previously provided $20 million to $24 million range. Our guidance reflects increased expected patient growth, which is expected to continue to accelerate through the end of the year and a decrease in Senseonics share of Eversense revenue under the collaboration agreement in 2023 compared to 2022 based on both sales growth and being further along in the partnership.

For gross margins, we continue to expect full year gross margins to be between 7.5% and 12.5%. The year-over-year decrease in our gross profit margins are the result of the decrease in our share of Eversense revenue offset by cost improvements gained with increased volumes. For the full year 2023, operating expenses are expected to increase compared to 2022, based on investments in R&D to complete the adult 365-day trial, the early stages of the pediatric trial, and investments in our future products, Gemini and Freedom. With that, I’ll turn it back to Tim.

Tim Goodnow: Thanks, Rick. The third quarter marked strong performance for Senseonics, and we’re excited about the growth, our results, and our position for the future. We continue leveraging our commercial partnership to drive increased Eversense adoption and advancing our strong product pipeline to drive further product differentiation and market demand with Eversense. We believe we are well positioned to grow our franchise to create shareholder value and look forward to updating you on our progress in the future. Thanks all for your time today. Joining us for questions is Mukul Jain, our Chief Operating Officer, and Dr. Fran Kaufman, our Chief Medical Officer. Operator, let’s open up the call for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Today’s first question comes from Marie Thibault with BTIG. Please go ahead.

Marie Thibault: Hi, thanks for taking the questions this evening and congrats on a good quarter. Wanted to start here and try to understand what drove some of the strength, particularly in the US. Curious if that was because NPG is tracking ahead of plan. It sounds like you’re starting to see some really good feedback also from DTC, but that’s more of a 4Q dynamic. So curious also to hear sort of your level of confidence and moving to the midpoint of the guide, certainly pointing to a very nice end to the year. So two-parter there, US strength, what drove it this quarter, and then what’s driving the confidence next quarter?

Tim Goodnow: It really is driven simply by the new patient additions coming in the US, right? As the investment pays off with Ascensia, we continue to continue to grow patients. Certainly, the NPG is playing a nice part of that. It does relieve some friction, especially as we move outside of the primary diabetology, endocrinology offices. So we’re certainly excited about that, and as you heard, we’re going to expand that partnership. So we do feel good. Midpoint of the range is where we anticipate to be and we have things going certainly in the right direction. The campaign, as we talked about, we’re pretty excited about it. Hopefully, everybody’s had a chance to see the see the commercials. They’re not full national broadcast television yet but we are testing those in a few select markets and quite a bit on digital television.

Marie Thibault: Yeah, thank you for that, Tim. And I guess I’ll have my follow-up then on The CGM for Real Life campaign. What should we know about your user base and what you’re seeing kind of in the recent new patient ads? I’m most curious about sort of the historic proportion of patients you’ve had coming from fingersticks versus those coming from competitive CGMs and if this DTC is already starting to shift that toward the competitive share wins. Thank you.

Tim Goodnow: I think we are going to see it, as you’ve probably heard, we have traditionally seen about two-thirds coming from competitive products and one-third that are new to CGM. I would anticipate we’ll continue to see more of that as we do this more broad-based advertising. Many of the leads and probably the biggest growth area that we’re seeing are actually from the basal indication folks, those that are taking one, maybe two shots a day. And as we’ve had progress with commercial reimbursement, and then we talked about, we expect within the next quarter to have the Medicare reimbursement in place, that’ll be a good portion for growth force in the future as well.

Marie Thibault: Yeah, that’s very helpful. One last quick one if I can sneak in. Good momentum so far. What do you think about what a one-year sensor could be doing to new patient starts? Something we’ve looked to for a while, and I’m curious to hear your latest take on it.

Tim Goodnow: Yeah, well, we’re certainly excited about it. A lot of the feedback, of course, on the patients that are currently on twice a year, obviously going to once a year is another level of reduction, and new patients coming to it as well. So we’re very excited about it. It is the platform. Now that we feel good, that we have the survivability, that we’ll be building the future generations on. So not only is it the basis for the one-year CGM, but it also is the one-year flash type product that’s behind it. And then, freedom with absolutely nothing on the body we know is a home run product. So each one of those is successively more attractive. And we’re just excited to be working on that and can’t wait to bring those out.

Marie Thibault: All right, very good. Thanks for taking the questions.