Senseonics Holdings, Inc. (SENS) Q3 2016 Earnings Report, Transcript and Summary

Good day and welcome to the Senseonics Holding’s Third Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Don Elsey, the Chief Financial Officer.

…2016 Senseonics earnings call. 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, and company performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or employed by any of these forward-looking statements is detailed under Risk Factors and elsewhere in our Annual Report on Form 10-K and our other reports filed with the SEC. These documents are available in the Investor Relations section of our website at www.senseonics.com. We undertake no obligation to update publicly or revise these forward-looking statements for any reason except as required by law. With that I will now turn the call over to Tim Goodnow. Tim?

Thank you, Don. Good afternoon and thank you for joining us on our quarterly call today. The third quarter was another period of making solid progress on numerous fronts. I'll begin by speaking about our clinical and regulatory activities this quarter. First, as we announced last week, we submitted our PMA application to the FDA for our Eversense Continuous Glucose Monitoring System. I take great pride in the tremendous effort that the entire Senseonics team has put into pulling together what we believe to be a very strong package. This is comprised of substantial information beyond the accuracy and safety data collected during the clinical trial. The submission also includes comprehensive information on all the preclinical testing, design controls, in accordance with the Quality Systems Regulation and manufacturing processes in accordance with current GMPs. We look forward to working with the FDA to gain approval as soon as possible. During approval process, we will also work with the FDA to identify what is required for a dosing claim, given the stellar performance demonstrated by the Eversense system in the PRECISE II clinical trial. You will recall that our U.S. pivotal study demonstrated an MARD of 8.8%, thus becoming the first CGM to show an MARD below 9%. A complete review of the clinical trial results will be presented by our lead investigator, Dr. Mark Christiansen at the Diabetes Technology Society Meeting next week in Bethesda on November 10th. As previously described, we have submitted a CE Mark amendment for labeling of up to 180 days. Additionally, we're also planning on submitting a CE Mark amendment for the next version of our on-body transmitter later this month. We are optimistic that both of these amendments will be approved in the first quarter of 2017. Furthermore, in an extension of our clinical program, we've initiated our first pediatric clinical trial having successfully enrolled and inserted the pediatric participant in our Canadian clinical study site. This study involved participants aged 12 to 18 and will be 180 days in duration and we anticipate that enrollment will continue into early next year. These study participants will have access to the full functionality of the device. This study will provide us clinical data that will be instrumental in defining the U.S. pediatric trial and also a label extension in Europe. We're working towards a strategy that will enable us to get this exciting product to the European pediatric population in the shortest possible time. On the product development front, we're advancing our work on our second-generation sensor. Initial in-vivo data is very encouraging and we're continuing to improve the design elements of the sensor. This sensor will incorporate a completely redundant glucose sensing capability to further improve the accuracy, longevity, and functionality of the sensor. A key design goal for this next-generation system is to eliminate the need for fingerstick calibration. We're very excited about the progress that we are making with this advanced sensor and we anticipate additional clinical testing in the first quarter to help demonstrate its real-world capabilities. On the commercial front, as you know, we launch in Sweden in late June. As summer is a heavy holiday period in Europe, especially in Sweden, July and August was a slow period for new insertions. Now that we're pass that, clinic and patient starts have begun to ramp. Additionally, our partner Rubin Medical has now launched Eversense in Norway just this week. We're pleased to announce that our controlled launch in Germany has also begun. This is with our partner Roche Diabetes Care who has done a great job preparing the launch and has now initiated a number of clinical sites. That makes a total of three markets in Europe and we're positioned add two more markets by the end of the year. We are very pleased with initial response we are receiving positive patient, clinician, and distributor feedback on the product. While we're further along in Sweden than in Germany and Norway, the launch process in all countries is relatively consistent and we are gaining valuable insight working with clinics to better understand and optimize practices around workflow integration, physician insertion training, and patient education. By taking the time to ensure success with our early clinic partners, these sites go on to become reference clinics for future adopters. We recognize that ensuring the healthcare providers are well prepared to coach their patient is critical before initiating an awareness campaign to the patient population. Today we're in about a dozen clinics. The clinicians have expressed enthusiasm as to how easy Eversense is to insert and patients are happy, commenting on the accuracy of the product and saying they enjoy the freedom for not having to replace it weekly and forget that it is even there. I would say that a majority of our patients have either been on or currently are on CGM or Libre. I would like to walk through a typical clinic and patient startup. First and most importantly, during a controlled launch is creating awareness and adoption among key diabetes clinics, we work with our partners Rubin Medical and Roche Diabetes Care and targeting clinics and providers who see intensively managed patients with diabetes. These are the type of clinics we see patients on pumps, MDIs, and CGM as part of their treatment protocols. Once a clinic is identified, the distributor rep calls on the doctors and nurses and administrators to educate and sell on the features, benefits, and value proposition of Eversense. Depending on the level of awareness and the size of the clinic, this may take two to three visits for the clinic to recommend and prescribe Eversense to a specific patient. This process has helped a clinic better understand the target patient. The distributor rep into the clinic then reviews with the patient the product features and benefits as well as going through CGM use expectations, from there, a dataset for sensor insertion. Today, during this training phase, clinics are typically scheduling insertions for all patients on the same day. Our own Senseonics clinical trainer then provides the necessary sensor insertion training and practice session with a healthcare provider and is present during initial insertion being ready for any questions from the endocrinologist or nurse and to give additional guidance where needed. Once the user is inserted, the patient training on product use, calibration, alarm customization, and other product functionality is completed. The patient will start their calibration and be supported afterwards to ensure things are going well. During this deliberate launch approach, this process may take several weeks. Over time as clinics begin product and workflow experience; they will add patients more quickly and with less involvement. But at this very beginning of commercialization is important that we launch Eversense thoughtfully, so both patient and clinician overall experiences from the product, to the training, to the support and service are positive. Our primary objective is always to optimize the user and prescriber experience. Anecdotally, and as an example of this process, Dr. Dorothy [Indiscernible] in Berlin is spearheading one of our early clinic adoptions. After her initial training where she did two patient insertions and developed a deep comfort with the process and product, she has since done seven more Type I patients in her clinic. So, while the initial investment was four to six weeks, our involvement is diminishing and the patient based on Eversense is increasing. One of the areas of enhancement that we have implemented involved a support of various smartphones in the different countries. For example, some of the popular phones in Sweden are not as popular in Germany. So, our customer service and reps need to adapt so that they can support patients appropriately. This is an example of the importance of a controlled launch that is responsive so we can adjust our training materials to be well-positioned for broader region adoption. In summary, we're extremely pleased with our initial rollout and the interest and experience both clinicians and patients are having with Eversense. We are working with our partner Rubin Medical to expand further into Sweden and Norway and we look forward to broadening our presence in Germany in partnership with Roche. In addition to being the second largest developed market for CGM after the United States, as many of you know, Germany now has the broadest CGM reimbursement coverage in the world. This reimbursement is for systems that provide continuous readings trend and alarms and alerts. With our partner Roche, discussions with the statutory health insurance companies responsible for reimbursement are now underway to ensure appropriate payment for the Eversense System. Roche has been able to leverage its leadership position in Germany to initiate negotiations with 20 primary payers in Germany, representing 90% of the covered lives. We anticipate launching in Italy and the Netherlands before year end and plan to employ the same controlled approach to launching the product in these additional countries. We expect the investments we are making now to establish the best patient and prescriber experience will payoff significantly in the future as we expand commercialization. Now, I'd like to turn the call back over to Don to review our third quarter and year-to-date financials as well as our expectation for the balance of 2016.

Thank you, Tim. For the three months ended September 30, 2016, total net loss was $10.9 million or $0.12 per share compared to $8.6 million or $4.39 per share in the third quarter of 2015. Third quarter 2016 net loss per share is based on $93.4 million weighted average shares outstanding compared to $1.9 million weighted average shares outstanding in the third quarter of 2015. We expect our shares outstanding to remain relatively stable for the balance of 2016. For the nine months ended September 30, 2016, total net loss was $34 million or $0.39 per share compared to $21.5 million or $11.07 per share in the nine months of 2015. The nine-month 2016 net loss per share is based on $87.8 million weighted average shares outstanding compared to $1.9 million weighted average shares outstanding in the nine months of 2015. The largest driver of the increase in net loss was higher operating expenses compared to last year. Specifically, our total operating expenses for the nine months increased $12.3 million to $33 million, driven primarily by a $7.3 million increase in R&D spending and a $3.9 million increase in G&A spending. When compared on a sequential quarterly basis, total operating expenses actually decreased by $1 million or 9%. Decrease is primarily in clinical trial expenses and other R&D expenses of $0.6 million and a decrease of $0.5 million in G&A accounted for the majority of the reduction. I'd like to now turn to our balance sheet at quarter end. At the end of the third quarter, our cash, cash equivalents and marketable securities were $25.6 million. We anticipate that we will draw our next tranche of $5 million from our Oxford STB line in November taking our total outstanding debt to $20 million. Let me turn to guidance for year end and for our cash runway. As we have gained greater clarity into our controlled launch in Sweden and Germany, we project that our 2016 revenues will be approximately $250,000 to $300,000. With respect to spending for this year, we estimate total OpEx for 2016 to be between $42 million and $44 million of which $3 million to $5 million will be non-cash items. This is somewhat higher than our previous projection and is driven primarily by the initiation of the pediatric clinical trial in Canada and acceleration of manufacturing scale-up activities to prepare for U.S. launch in the second half of 2017 following a favorable PMA review. Lastly, we project our current cash plus our debt facility will be sufficient for operating needs to the end of Q3 2017. We are currently working on a potential equity arrangement which would provide additional runway to the end of 2017, which should take us past PMA approval. I will now turn the call back over to Tim.

Thank you. As we approach the end of the year, there are a number of key areas that we are focused on. First, working with the FDA to ensure the approval of our PMA submission in the shortest possible time. Additionally, publishing the PRECISE II clinical trial data, starting with the study presentation at the Diabetes Technology Society Meeting on November 11th. Furthermore, we will continue the expansion of our European controlled launches increasing a number of clinicians, patient as well as countries. And finally, preparing for our U.S. launch and the required scale-up efforts with our manufacturing partners. As we've said repeatedly, our mission is to deliver transformative glucose monitoring products that enable people with diabetes to confidently live their lives with ease. And all of our energies are devoted to accomplishing this mission. We continue to be very excited about the progress we're making with Eversense and we are happy to now be bringing it to people with diabetes. This is clearly a time of great advances for people with diabetes. The market continues to grow and the evidence of patient searching for and accepting new technologies is clearly evident. We're excited to be part of this change. This concludes our prepared remarks. Joining us for questions are Mukul Jain, our Head of Operations, including Regulatory Sciences; and Mirasol Panlilio, our Global Head of Commercial Activities. Operator, let's open up the call for questions.

Good afternoon and thanks for all the detail there guys. Tim, maybe if you could help us understand better understand the target user hear. I know you mentioned that many are either CGM or Libra users are there any common characteristics among these users are they younger, older maybe a little bit of color there.

Why don’t I ask Mirasol to jump in and take that up. He have been actively involved with the distributors.

It’s a mix bag. They run the gambit [ph] of young and old. They only think that they have in common is they Type 1 but we do have as Tim said majority on CGM or on Libra. They’re definitely patients who the clinics carefully waiting. I think we have both naïve users who have been very pleased with the performance of the product as well as those who are familiar with TJM, so really a mix.

Okay. And maybe Marisol, just in terms of the physicians, is there been any kind of common source of push back among those in planners?

Good question. The key learning’s from the clinic startups that we’ve had is more probably on the device side on the mobile device. If you look at how many devices so we started with in the very beginning we’ve added a number of devices given the experience that we had in Sweden. So we’ve added so many more just because our assumptions at which devices were popular when you actually go out in real world. It’s very different. So I would say more on the device compatibility.

And maybe just kind of continue on the commercialization. You mentioned Italy and Netherlands by year-end, is that Rubin arose [ph] distributing or is it someone else?

It's shared between the two. Rubin has the responsibility for …

Scandinavia.

Scandinavian countries and Roche had Italy at this point.

And Netherlands.

And Netherlands. Right.

Okay. And maybe if you could comment on the level of reimbursement in Germany sounds like you guys are well on your way but I'm guessing it's a level that you're pleased with?

Yeah, I don't think at this point we can really comment it on the reimbursement I do know that Roche is very actively working on it as you said they had been to the majority of the six month as well as a number of the private pay. I don't think they've seen anything at this point it makes them concerned that there would be typical level of reimbursement relative to the markets that are over there but we are little bit of the hand length distance from the actual pricing discussions with them.

Okay. Last one for me I guess, just Tim on the pediatric trial in Canada. Does that used the definite transmitter in that trial?

At this point we are still using the current generation transmitter. We would love as soon as we finish the final verification and validation testing to go ahead and start using that and we’re right on the cusp of it but today on the patients that are enrolling are using the first generation.

Okay. Thanks a lot.

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

Hey, good afternoon, guys. Thanks so much for taking the question. Guys, I was wondering if you could talk about how you’ve been able to if it all leverage the U.S. precise to data and driving European sales and I appreciate that as you get experience, you’re lowering guidance, but I’m wondering if that’s more of a timing -- I'm guessing you don’t feel differentially about their trajectory and following up on that prior to the long question, but how do you think adoption could change with 180 day. I guess what I’m asking is how much of it has to do with just normal blocking [indiscernible] versus you have a 90 day product [indiscernible] people will be waiting for 180 day.

Thanks Danielle. We actually don’t think there's any impact to the 90 versus 180 at this point. The excitement is exactly very high. I will say that the rollout the controlled raw launch is absolutely the right way to do it. I will tell you if I was stepping back to where I was in late June knowing what we observed in Sweden when we launched. We probably wouldn't have done it in June because it was it was very quiet in July and August so I think the reality is we just pushed out about a about a quarter from what we thought we would be and that's probably the biggest driver but we don't see any indication that there is any hesitation on the excitement is honestly very high with a 90 day product remember there those that are using it if there on note there on a six or seven day sensor that the perspective. If they’re on Libre it’s a 14 days perspective so it’s still significantly longer than there experience based.

Okay. That’s helpful. And next question has to do with what you’re seeing in the real world so far. I know the numbers are very small to-date but just wondering from MARD perspective are you getting any feedback, how it's coming out real world use. And that’s it from me. Thanks so much.

Great, Daniel. Thanks. We don’t have a mechanism to characterize of course MARD in the real world that’s an in clinic characterization but the feedback they were getting from the patient and the clinicians is one of very high satisfaction level relative to accuracy. 8.8% we fully anticipate is consistent and being held out in the in the real world and as I said that the two key points that we do get feedback on how to be very Frank is a recognition that they really didn't appreciate before regards to this weekly change out of the sensor right just being able to forget about that for three months is been a big aha any the other feedback around the getting is this is very accurate and very comfortable the results I’m getting, so were pretty excited on both those fronts.

That’s very helpful. Thanks so much.

The next question comes from Kyle Rose of Canaccord. Please go ahead.

Great. Thank you very much for taking the questions. Can you hear me alright?

We can Kyle. How are you?

I’m doing well. A couple of quick questions just wanted to see, first, obviously the number of patients is limited but just talk about potential re-implantation, have patients gone back and then anything with respect to your patient utilization I know that was a big point of the of the day that we saw it was 23 and half hours of utilization daily. Are we seeing that the real world? And then I’ll hop back again for one more.

Great. I don’t think we have been able to characterize the utilization yet, but there is a great question with regards to hours per day. There are a portion of folks that are sharing their data help with the cloud. We of course can't see any individual data we would only be able to look at it an aggregate so that something will follow-up on. In regards to the re-insertion we only have the patients that were reinserted from the late June time period. And the majority of those did reinsert we have the dealers will be coming up after the September insertion cycle if you will.

Okay. Great. And then you obviously you had to commercialize in Europe so as of the Libre is already there but when you think about in the Libre potentially coming to the US market and then you at Medtronic launching with their 670G and eventually and the Guardian connect. I know this product has been out there, but with recent approvals and changes in the U.S. just wanted to see if you could update as per your thoughts on the competitive landscape. What you think the market will look like when you launch?

So we have a little bit different perspective on the on the space right as one of the folks that is interested in driving change and bring new products to the market we are actually very supportive of continued investment continued patient aware meant growth in the diabetes technology space. It has been experience over and over again if you help people manage their diabetes they will reward you with your purchase if you build a high quality product. So large companies like Abbott and Medtronic investing in the space making folks aware of the value of continuous monitoring is absolutely believed to the value people with diabetes and will be to our value as well. So, yes, there will be competition. There will always be competition, but this is growing to be a huge market. And we expect to be able to serve a material portion of that huge market.

Great. Thank you very much for the color and I appreciate it.

[Operator Instructions] The next question comes from Greg Chodaczek of B. Riley. Please go ahead.

Thanks. Tim, most of my questions have been asked. Just one quick -- I mean couple, but what's reimbursement like in Sweden right now?

Reimbursement -- this is Mirasol, so let me take that. the reimbursement in Sweden is very good, but it’s a mix of both national reimbursement as well as hospital tenders. And so the clinics that we're at, it's mostly hospital tenders just because we're very new. But it’s a great market for CGM and I think with a product like Eversense, I think we'll do great from moving it from hospital tenders to reimbursement.

Thanks. And you talked about the experience of endocrinologists in Sweden, what is their experience with insertion you mention a doctor did a few of them, wasn’t an issue, so is that what you're seeing across the Board? A couple of these and also on the very comfortable with the process.

Yes, you know what that story is played out for us a number of times and I recognize and I appreciate the questions that we get on insertion because of the newness of it. But the story has been very, very similar for us throughout the last few years frankly. Previously, it was bringing up clinicians to do our clinical studies in Europe, then it was our U.S. trial bringing up the clinicians there and now the commercial aspects back in Europe. And the process and quite frankly, the accepting is pretty similar, right. There is some questions about the procedure initially. Typically, they don't do a lot of procedures and this is new to them, but they do go through a couple of stages that Mirasol describes in regards to acceptance and comfort in the process. And we've seen exactly the same thing in the commercial rollout. I don't know Mirasol if you want to add some more color to that or not?

The only additional thing is that the doctors are so comfortable with it, that they would allow the mid-levels, the nurses under their supervision to do the insertion as well after nurses are trained. So, I think that just adds to evidence in terms of how well that they have accepted the insertion procedure to allow others to perform the procedure. So, we've had nothing but very positive feedback from the clinician.

And that's what I was assuming; I just wanted to hear from you again just -- for those doubters out there. And in terms of PRECISE II data, what are we going to see next week? I mean can you talk about whole [ph] dataset?

So, yes, we have -- we have worked with the clinicians, it's actually his presentation, but of course, we've been able to provide some of the aggregate summary data for him. We are going to support him and go through as quickly as we can, because he does have a 10-minute presentation to get through all of the key elements. So, in regards -- certainly in regards to sensor longevity, accuracy, distribution, the safety profile, and the like have been some of the key questions that I've been asked. So, we've certainly encouraged him to be presenting that as well.

And I know the numbers in Europe aren’t -- probably aren’t large enough, but are you seeing similar numbers in Europe in terms of accuracy longevity compared to PRECISE II study? Or when is too early for that?

It is early. Remember that the -- perspective of accuracy the person sees in a home environment is relevant to the fingerstick meter, right. So, it's not the same 8.8%, right typically, and this is a little bit more of an academic from the literature. There's about a 2% difference between an MARD that you'd see on the reference analyzer, in the hospital lab versus a home blood glucose meter. And the results that we're seeing are very, very much in that range as well.

Excellent. Thanks Tim.

Okay.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Tim Goodnow, Chief Executive Officer for any closing remarks.

Great. Well, thank you. And I want to thank everybody for their time and questions today. I know these are very, very busy times and I know in many cases you have competing calls to be on and I appreciate you being able to balance all that and share with it. This is going to conclude our comments for today. I would like to say that we will be a Canaccord Conference here in a couple of weeks on November 17th and we hope that we can see some of you there at that. Thanks again, and we look forward to updating you in the future.

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