Senseonics Holdings, Inc. (SENS) Q2 2019 Earnings Report, Transcript and Summary

Good day and welcome to the Senseonics Second Quarter 2019 Earnings Conference. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I would like to turn the conference over to Philip Taylor. Please go ahead.

Thank you very much, and welcome to the Senseonics second quarter 2019 earnings call. This is Philip 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 list of these factors that could 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 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. Also on this call, we will be discussing our full year 2019 revenue guidance, which was also included in the press release. In light of Regulation FD, we advise you that it is Senseonics' policy not to comment on our financial guidance other than in public communications. Joining me from Senseonics are Tim Goodnow, President and Chief Executive Officer; and Jon Isaacson, Chief Financial Officer. With that, I would like to turn the call over to Tim Goodnow, President and CEO. Tim?

Thank you, Trip and thank you all for joining us. On the call this afternoon, I will provide updates on our productive Q2 and on our progress with commercial, regulatory and product pipeline development initiatives. And Jon will provide details on the second quarter 2019 financials and the outlook for the year. To begin I would like to touch on the financing transactions that we completed just a few weeks ago, which generated roughly 100 million in gross proceeds, meaningfully strengthening our balance sheet. We're focusing on the execution of our commercial launch and pipeline development to drive sustainable sales growth, which we expect when coupled with efficiencies in scale and cost of goods improvements plans, will drive margin expansion and progress on our path towards profitability. We believe we now have the capital structure in place to achieve our strategic and operational initiatives. Now turning to our quarterly performance, as we pre-announced, in the second quarter we generated total revenue of 4.6 million, including 1.1 million of net revenue in the US following the launch of our Bridge program and 3.5 million in revenue outside of the US. We are reiterating our full year expectation for 2019 revenue to be in the range of $25 million to $30 million. We achieved a significant milestone in the quarter with the receipt of the non-adjunctive indication or dosing claim approval from the FDA for our Eversense System. It's an important win for our users, who will now be able to make influent treatment decisions using the data provided by their Eversense System, removing the requirements for the confirmatory fingerstick. This accomplishment is truly substantiation of the strong performance of Eversense and is in line with our mission of helping people with diabetes confidently with their lives with ease. As we have mentioned on prior calls, our top priority at this stage of our commercial launch in the US continues to be on expanding patient access. We are accomplishing this through our Bridge program, and by means of positive coverage decisions for reimbursement from commercial payers. We are pleased with the steady cadence of coverage decisions, which added 10 million covered lives in the second quarter. There are now approximately 76 million people across the United States with insurance coverage for Eversense. We are steadfast in our efforts and are continuing this work to expand patient access across the country. We remain on track to reach our goal of 100 million covered lives by the end of this year. In another milestone toward greater access, we are happy to share that with the dosing claim secured, we have conducted initial formal meetings with CMS regarding coverage. Early discussions have been positive and based on our feedback we are planning on securing Medicare coverage in 2020. Simultaneously, our Bridge program has now been in place for four months. The primary intention of the program is to make the system available to patients and provider who has access to our technology is delayed by insurance coverage. As a reminder, while the program we support patients with their out of pocket costs, while with the help of a partner working through the denial and appeals process with their insurance provider. Based on initial US patient interest and retention rates, we expect this investment to lead to accelerated coverage wins through real world demonstrations of patient demand, physician adoption, and clinical and economic utility. In the second quarter, we made substantial progress implementing and ramping up our Bridge program. With several months now under our belt the program is successfully accelerating prescriptions in terms of sales. We continue to work to improve our ability to implement the program throughout the sales cycle. At the end of the second quarter in the United States, we had 550 healthcare providers who have prescribed Eversense, totaling 4500 prescriptions. We're encouraged to see the attractive sense of reuse rates indicating not only strong satisfaction with the product, but fast file access to our Bridge program or their covering payer. Through the Bridge program, our largest opportunity naturally lies with the largest health insurance providers. Encouragingly, we are gaining traction with the growing installed base of users from these largest payers, even though they hold experimental investigational designations on Eversense currently. This group represents over one third of the current installed base and we believe these users will help payers understand the value of Eversense for people with diabetes. Every denial and appeal conversion and coupled with a positive patient experience takes us one step closer towards turning experimental investigation on coverage positions into positive coverage for Eversense. Additionally, as part of the Eversense Bridge program we implemented our supplemental initiative aimed to appeal denials or non-coverage decisions on a patient-by-patient basis. Its objective is twofold; first, to assist the patient and obtaining long-term access to Eversense and second, to bring increased visibility to payers who have yet to cover Eversense. The program began in Q2 and while full appeals processes can take many months, early signs are promising. Through these initial responses we have received our first appeal wins on previously denied patients. We believe these cases-by-case approvals demonstrate that as insurance case managers evaluate individual patient cases, they are able to see how Eversense meets the needs of patients and over time, we expect payers to come to the same conclusions more broadly as well. As I mentioned, it is very early and we only have our first handful of patients who have been to the full appeals program. But the early signs are encouraging. We look forward to reporting on further success in the future. In addition to the Bridge we have made program – we have made progress with the Bridge program and we're also increasing to see the covered lives in the United States. In addition, we are seeking adequate coverage and reimbursement for Eversense under Medicare. Our early patient experience in this population supports our belief that Eversense is truly the best CGM option for Medicare patients. As we have noted, achieving the non-adjunctive label classifies Eversense as a therapeutic CGM and in just 30 days since the non-adjunctive approval, we've had formal meetings with CMS to educate the agency officials on the innovative developments, capabilities and positive patient experience for Medicare patients with their implantable CGM technology. Due to the procedure based aspect of our implantable CGM, we expect that reimbursement for medical services under Part B will offer advantages over the DME benefit path, such as easier access for patients, lower administrative costs and improved reimbursement accuracy and fairness. We anticipate that the process of establishing appropriate reimbursement with CMS will take us into next year. Initial discussions have been positive and we will continue to update you on our progress with this effort. Importantly, to build clinical scientific literature to support reimbursement review by payers and to further demonstrate the clinical value of Eversense, in June at the recent American Diabetes Association Annual Meeting in San Francisco, we showed strong real world performance data of Eversense on the first 205 US commercial patients. Our Chief Medical Officer, Dr. Fran Kaufman, presented highlights from the initial patients that included an impressive 62% time-in-range with only 4% time below range and importantly, an 84% median were time transmitter. Interestingly, one third of these patients were completely new to CGM. We are proud of the results and the true benefits that we have seen with our product which we can bring to patients with diabetes. The performance and value patients are experience with Eversense is best evidenced by product adherence, time-in-range, reuse and patient feedback. Not only has Eversense shown best in class accuracy, but we believe that where time number displays how impressive the adherence is with an implantable sensor. Studies have shown that higher real world product use equates to better time-in-range, reduced time in hypoglycemia and better patient outcomes. And we believe that this data is an important demonstration about Eversense is both valuable for patients and attractive for payers. The emerging real world demonstration shows a strong value of Eversense for people with diabetes and we believe supports our view that Eversense is the most attractive solution in continuous glucose monitoring. We look forward to having the data fully published in the next month or two. Finally, we have launched the new branding elements for Eversense which reflects the differentiation, sleekness and the lifestyle improvement that the system provides for our users. Since the initiation of these efforts, including our new US website and the new digital marketing campaigns through Facebook, Google ads, YouTube and other social channels, traffic and new patient lead generation is risen considerably, with lead volume more than tripling since implementation. Through the increased reach we believe that the response that we're seeing is further validation of the markets interest and recognized value for our long-term CGM. Transitioning to product development, we are focused on increasing the duration of the sensor and further extending its useful life for our users. The 180-day PROMISE clinical trial is well underway and tracking in line with previously communicated projections of enrollment completion in the coming months. We expect the data from the study to support the extension of the US product out to 180 days. Additionally, we plan to use the data collected from the study through 90 days for the regulatory submission to achieve the ICM designation in the first part of next year. We expect a full 180 day set to be completed in early Q2 for analysis and submission to the agency. Turning to Europe where Roche continues to be a productive partner. In this quarter shipments to Europe generated revenue of 3.5 million in line with our expectations. Tailwinds from German and Austrian coverage expansion drove new user increases of 36% and sensor placement growth of 69% both compared to the prior year period. As of the end of the quarter, there were over 900 clinics and over 1108 ACPs trained to insert Eversense. Additionally, as part of the market expansion agreement with Roche, product registration processes are now underway in select markets in Asia Pacific, Latin America and the Middle East. The registration process can take several months to over a year in some markets. While we are currently expecting to initiate launching a few of these markets this year, we expect the majority of the new markets to come on in 2020. Now turn the call over to Jon for details on our financial results.

Thank you, Tim. For the three months ended June 30, 2019, we generated $4.6 million in revenue compared to 3.6 million in the prior year period. The increase was attributable to incremental sales of the Eversense system in the United States with a small offset for sales in Europe due to contractual timing obligations. To provide increased access to the Eversense CGM System for patients with limited or no insurance coverage during Q1 2019, the company introduced the Bridge patient access program. Payments associated with the program are treated with a gross-to-net reduction to revenue under US GAAP accounting. For the three months ended June 30, 2019, we recognized net revenue of 1.1 million. We expect that on a go-forward basis there will be fluctuations in quarterly Bridge payments that may affect quarterly revenue recognition while still affirming full year 2019 revenue guidance. To reiterate Tim's comments, we are confident that our investment in the Bridge program is helping patients gain access to our product and is demonstrating the utilization of Eversense in the marketplace. We are pleased with the early reception of the product with patients and physicians. Gross margins in Q2 2019 decreased by 4 million year-over-year to 4 million compared to negative 2 million in the prior year period. The decrease was primarily due to obsolescence related to product upgrades, as well as product expiry and warranty expense due to obligations under the Roche distribution agreement. Second quarter 2019 sales and marketing expense increased by 8 million year-over-year to 14.2 million compared to 6.2 in the prior year period. The increase was due primarily to the build out of the sales force and commercialization efforts in the United States. Research and Development expense in Q2 2019 increased by 2.2 million year-over-year to 10.5 million compared to 8.3 million in the prior year period. The increase was primarily driven by the PROMISE trial. G&A expense in Q2 2019 was 5.4 million and remained flat compared to the prior year period and includes compensation, legal and other expenses supporting operational growth. For the three months ended June 30, 2019, total net loss was 31.1 million or $0.17 per share compared to 32.5 million or $0.23 in the second quarter of 2018. From a balance sheet perspective as of June 30, 2019, our cash and cash equivalents were approximately 65 million. Outstanding indebtedness was 62.7 million. This does not include the approximately $100 million of gross cash proceeds in capital raised last month. Turning to guidance and the points Tim provided previously, broadening patient access is the primary element gating the ramp of Eversense. We have made significant progress in the past many months with coverage and we've been rolling out our patient access Bridge program while we in parallel work with payers. Inclusive of our expectations for the likely impact both in terms of timing and revenue recognition related to the Bridge program, we continue to expect 2019 reported revenues to be in the range of $25 million to $30 million, with US revenues representing 30% of total revenue. We anticipate second half revenue distribution to be 30% in Q3 and 70% in Q4. As Tim mentioned, we completed financing transactions in July, which generated over $100 million of gross proceeds in capital through a combination of a term loan agreement, convertible debt and an equity component. With this raise we meaningfully strengthened our balance sheet. In combination with our expected progress in revenue growth, volume expansion and cost of goods improvement plans coupled with expense discipline, we believe we have the capital structure in place to support our business forecast while providing runway beyond 2020. Given our capital structure and the strength of our debt partner, we believe we are well positioned to fund our long-term operations. We continue to focus on the execution of our commercial launch in the US, as well as pipeline development to accelerate sales. We expect that the sales growth, coupled with efficiencies in scale will drive margin expansion and progress on our path towards profitability. Based on the purchase commitments in our various agreements, and forecasted deliveries, we continue to expect approximately 70% of international sales to occur in the second half of 2019 with 30% of second half OUS revenue occurring Q3 and 70% in Q4. I would now like to turn the call back over to Tim.

Thanks, Jon. To summarize, we're building a strong foundation to support broad patient access for Eversense and continued pipeline development initiatives, which we believe will culminate in significant growth in patient adoption. With the real world product performance data that we are observing, this is the most important feedback that we can get. Such strong clinical outcomes data demonstrates the true superiority of Eversense in the category and speaks to the potential that we have. We're simultaneously focusing our efforts on driving sustainable top-line growth and building our infrastructure to drive margin improvements and progress towards profitability. We are confident that these efforts in concert with a strengthened capital structure, positions Senseonics for success and the creation of shareholder value. With that this concludes our prepared remarks. Joining us for questions are Mukul Jain, our Chief Operating Officer; Mike Gill, Vice President, General Manager of the US and Mirasol Panlilio, Vice President, General Manager of the Global Commercial Operations. Operator, let's now open up the call for questions.

Thank you. [Operator Instructions] We'll take our first question from Alex Nowak with Craig-Hallum Capital Group. Please go ahead.

Hey, great. Good afternoon, everyone. This is actually Will on for Alex today. Thanks for taking our questions. And just to start street consensus right now is assuming a pretty modest step up in Q3 and then a pretty substantial Q4. Given the conversations number of docs trained to implant, progress of the Bridge program. I know you've got some time here. But how do you feel about hitting that Q4 number?

We feel good. As we've indicated we're confirming the 25 million to 30 million range. At the same time we do anticipate that it is a good step up in Q4, which is primarily driven by contractual obligations that were pre-negotiated with Roche. But as Jon said, just as we had indicated, we expect Q3 to be about 30% of the balance and Q4 to be the remaining 70%.

Got it understood, thanks. And then although that was a really nice win last year, we're still kind of waiting for those big insurance providers to come on board and cover Eversense. Appreciate the comments you laid forth in the prepared remarks. But is there any real cause that you're seeing for the delay? And is there anything necessary to really resolve it at this point?

We continue to work on the program. I think, as we announced that this is a pretty typical process for new technology to go through. We've been pretty consistent in saying that we expect it to take two years, we've targeted 100 million out of 250 in the first year and the balance of 165 in the second year. So we are absolutely right on target. With the projections that we've made, obviously, anything that we could do to accelerate that is certainly for the benefit for people with diabetes that want to use our product. And we're absolutely focused on that. We continue to work with each of the insurance companies who are actively as I described, presenting, summarizing, and getting peer reviewed the reference material that they look to for clinical demonstration. As I mentioned, Fran is publishing here in probably the next month or two, the first US experience, which is pretty important. Right behind that we have a pretty large publication that will be coming on the broad based safety aspects of real world performance which will be very important to the payers as well. And then we've got a paper right behind that which is longitudinal performance of the product from a multi-use long-term repeat insertion. So we're, in an active push right now to build the clinical literature, which is a big part of what all of the insurance companies look at for the performance and new technologies.

Perfect, thank you and now that's all I had. Thanks, guys.

Great, thank you.

We'll take our next question from Rebecca Wang with SVB Leerink. Please go ahead.

Hey, guys, this is Rebecca on for Danielle Antalffy. Congrats on a solid quarter.

Thank you.

Thanks, Rebecca, pleasure hearing from you.

Yeah. I guess I just want to follow up on the full year guidance, you talked about there is seasonality associated with contract you have with Roche OUS. How should we think about the ramp, the second half ramp in the US? And as more payers establish reimbursement policy, how should we think about the Bridge program down the road? Thank you.

Sure. So from our perspective, we feel very good in the balance of the year, anticipating that 30% will come in the third quarter and then 70% will come in the in the fourth quarter. We do recognize that's a pretty significant ramp. There definitely is a component of seasonality to it. But in all honesty, we're more actually gated by contractual obligations that we have with Roche. So we feel pretty good about how the product is doing and the relationship that we have with Roche. So we're still committed to make this happen. From a Bridge perspective, we do feel happy about how it has really stimulated the interest. It has taken the financial disparity between the different CGM technologies off the table. And when that happens, we get some very, very strong acceptance and strong utilization of the product. And I think we now have a pretty good experience base from Aetna patients, which are very prototypical of where we will be when we have full coverage from all the other payers. And we are very excited with the utilization, the reuse rates and the amount of time that they're wearing the product. It's very attractive and we're excited about how this product is going to perform when we get all of the payers on board.

Alright, thank you for the color. And a follow up on utilization, first of all, can you update us on your physician training program? How many physicians have been trained in the US and how do we think about the ramp of utilization once a physician got changed?

So through the second quarter, we have 550 clinicians that are prescribing the product. I think about two thirds of those or maybe about 330 or so are through the training program. So you've got a mix of those that have done multiple insertions and are in the repeat process in their practice and you got others that as you would expect are coming up. So in regards to the growth, remember there's about 2100 total endocrinologists that we're ultimately targeting. The focus in this year is probably more on the top half now. We initially started out with a top 300 or 400 and we've pretty much gone well past that. So we do expect to continue to grow. I'm not sure that you ever truly get all the way through those 2100 just because of their prescribing practices, some are academic. I don't see a lot of patients, but certainly the top of the list we continue to focus on and drive to their education and encouragement to utilize.

Very helpful. Thank you.

We'll take our next question from Jayson Bedford with Raymond James. Please go ahead.

Hi, this is Matt Wizman on for Jason. Thanks for the questions. So my first question is just a bit on the P&L. Can you speak a little bit to the puts and takes an OpEx? Was that kind of in line with your expectations? Is this the kind of R&D we can expect going forward given that it was up from the PROMISE trial? And then on the sales and marketing side, have you guys hired ahead of expectations or kind of where are you as far as your goals on hiring in reps right now? Thanks.

Sure. So this is Jon, good afternoon. On the R&D side, we do expect there to be some step down throughout the remainder of the year, this was a particularly a very high cash usage quarter because of the PROMISE study, because of the full quarter use of the Bridge program, as well as the ramp up and bringing sales folks up to speed. And so those folks take, as we know, several months to be seasoned and so we expect the hiring pace to slow down a bit the PROMISE study and its expenses should begin to slow. Again, I don't want to say that they're going to stop because they're not, but they're going to start to slow down a little bit in comparison. And so we believe that spend and burn will come down throughout the year not stay at these levels.

Now, I'll ask Mike to speak to where we are from a coverage rep hiring position.

Yeah, we're currently at about 50 reps in the field map and we have a compliment of clinicians in the field also and a customer service organization. We are essentially right on plan with where we are expecting to hire at with those reps continuing to ramp up the productivity probably right about now in the mid year.

Okay, great. Are you able to quantify the one timers on the gross on the COGSA this quarter?

It's about $2 million approximately.

Okay. Okay. And then just a higher level question, for the physicians that are prescribing Eversense what factors they're looking at that that help them determine to prescribe Eversense over another patient besides obviously reimbursement? And then is there a certain type of physician you're seeing prescribe Eversense more than others? Are there any notable trends or similarities among the docs who are prescribing it?

Yeah, so the first one on the patients – its Mike, by the way, Mike Gill, what we see is twofold. It's a patient who's on traditional CGM who's probably transcutaneously fatigue, they've been using transcutaneous centers for years and they really want that next step up in CGM capabilities. And they realize they have to take out a center every 10 to 14 days. And those patients are about a third to half of the patients that we see. And then the other big portion is FMBG, so metering strip patients that are actually the larger portion of the patients are choosing us and those patients have been offered CGM in the past and it just didn't meet their needs. And Eversense fits that needs because it's a long-term strategy or long-term solution that allows them flexibility in their lifestyle with not having to insert every 10 to 14 days. And there's featured things that they absolutely love, the on body vibrations and the ability to take it off when they're actually going to, if you're a female to a cocktail party or maybe a sporting event for a male. So those are really important. And we're seeing that also in why people continue on Eversense and the repeat reinsertion is why they don't go back to traditional. Then in terms of the physician the majority – because that's where we focused on as Tim said the 300 to 400 endocrinologists. The majority are endocrinologists and the nurse practitioners and PA because we're indicated for advanced practitioners are prescribing, but we have several – I think of New Jersey, for example, where there's many primary care and internal medicine, physicians that have actually taken up Eversense just simply because there's broad covered for with horizon and we're seeing it getting to that level. But the primary is yes, there's still endocrinologists where we're starting to expand out into internal med and primary care.

Alright, thanks a lot for the color.

[Operator Instructions]

Okay. Well, Keith, we appreciate that and I think there are no more questions. I would like to wish everyone a good day. Good afternoon. Appreciate your interest in Senseonics. We look forward to updating you in future and enjoy the rest of your week.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation.