Senseonics Holdings, Inc. (SENS) Q2 2021 Earnings Report, Transcript and Summary

Good day and welcome to the Senseonics Second Quarter 2021 Earnings Release and 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 Philip Taylor, Investor Relations. Please go ahead.

Thank you. 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 the 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 for the year ended December 31, 2020, our 10-Q for the quarter ended June 30, 2021 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 2021outlook. Joining me from Senseonics are Tim Goodnow, President and Chief Executive Officer; and Nick Tressler, Chief Financial Officer. With that, I’d like to turn the call over to Tim Goodnow, President and CEO, Tim?

Thank you. Hello and thanks everyone for joining us today. We’ll be discussing our Q2 commercial initiatives led by our global partner Ascensia Diabetes Care and provide progress updates on our clinical, product pipeline and regulatory activities. Nick will address the second quarter financials in detail. And then, I’ll conclude and open up the call for Q&A. In the second quarter, Senseonics achieved revenue of $3.3 million, which included $1 million of revenue from the U.S. and $2.3 million of revenue from outside the U.S. Through the first half of the year, the global commercial partnership integration has progress to Ascensia taking full commercial operations, and we have collaboratively continued our efforts to minimize the patient base attrition, maintaining Eversense users. Based off the current plan, we continue to expect the global net revenue to Senseonics for the full year 2021 will be in the range of $12 million to $15 million. As we operate today under the terms of our commercial collaboration agreement, Ascensia has assumed responsibility for marketing, market access, sales, distribution, reimbursement, and customer service in the U.S., Germany, Italy, Spain, the Netherlands, Poland, and now Sweden and Norway, the last two existing markets, which were transitioned ahead of plan in Q2. We at Senseonics remain focused on product development, including clinical trials and regulatory activities, along with manufacturing our systems. In the U.S., this is the first quarter for most members of Ascensia’s U.S. sales team. And we’re pleased with the steps that they have taken to establish this market coverage. To support this, they identified the skill sets that are required for sales professionals to be successful introducing our transformative CGM technology. 25 new sales professionals experienced in diabetes or medical technology have now been fully on-boarded and are calling on existing accounts. This team has been trained in the reimbursement landscape and how to introduce the product and procedures to clinicians. Sales professionals are supported by a team of inside sales, clinical trainers, distribution channel, market access, and customer care professionals. This comprehensive commercial infrastructure currently enables the targeting of existing providers and their intensively managed patients, as well as the payers and the trade channels. These resources invested by us Ascensia represent their strong commitment to Eversense and are supportive of the full commercial activities. Coming out of the height of the pandemic and our very limited commercialization in 2020 to both patients and providers, the Ascensia sales force is actively reintroducing the product to both clinicians and patients who are impacted by these disruptions with initial focus on reestablishing and maintaining relationships. Their first action is calling on the existing Eversense prescribers to introduce themselves, make them aware of the transition and our reentry into the market in pursuit of servicing existing patients and new patients. This stabilization effort is targeted at rebuilding the foundation for future growth. In the second half of the year, they plan to expand their reach to training and onboarding additional prescriber practices. We know there is real work to be done to regain market traction, and we’re pleased that it’s now underway. To support driving growth in the installed base, continuing user retention, ensuring greater access to Eversense. Ascensia has launched a patient assistance program. This program is designed to accommodate those whose health plans have high deductibles, coinsurance or co-pay costs, and to support their out-of-pocket costs with -- while using Eversense. Specifically, U.S. Eversense users can access the program, which covers up to $300 per sensor after the patient pays for the first $100 out-of-pocket. For those who qualify for the full $300 reimbursement per sensor, Eversense would generally have a lower total annual cost than other CGMs on the market. Ascensia estimates that over half of the people using mealtime insulin in the U.S. could be eligible for the patient assistance program. While the economics are different from our previous Bridge Program, the patient assistance program shares a similar commitment intended to help a broader group with access to Eversense. Ascensia is prioritizing raising awareness of the Eversense system within the diabetes community to drive demand with the patient Assistance Program and the established U.S. commercial infrastructure. There are two main initiatives aimed at increasing awareness, a direct-to-consumer or DTC digital marketing campaign and clinical education through HCPs. The DTC campaign targets social media audiences primarily aimed at intensively managed patients seeking information about diabetes technology. The initial DTC campaign has resulted in nearly 15 million impressions, or ad search to date through Facebook and Google. The campaign targets raising awareness and can be an effective sales tools for generating inbound leads. There is a strong consumer aspect to CGM that patients have the ability to ask their healthcare providers to prescribe Eversense. We anticipate that generating patient poll from DTC advertising will play an important role in driving overall adoption over time. From the healthcare provider side, we remain actively engaged in scientific and industry meetings, where we partner with key opinion leaders who experience the positive clinical impacts and patient testimonials Eversense can have in managing patients diabetes, and who can share those experience with their peers. Two of the most important and well-attended meetings were held in the second quarter, the ADA and the ATTD meeting, both scientific conferences. And our presence at these meetings featured lead investigator, Dr. Satish Garg’s presentation of the clinical data from the PROMISE study. The presentation highlighted the safety and accuracy profile of the Eversense 180-day sensor. Accuracy of the system with one calibration per day during the trial as measured by MARD was an industry-leading 8.5% to 9.1%. We are very proud of these results, which were well received by the broader diabetes community. And we look forward to seeing these results peer review published in the very near future. Together with the Ascensia sales force, we are also actively and directly reaching out to local and national KOLs via a one-on-one meetups or small group discussions in person or televisits were required. We will remain engaged with the diabetes community, not only to communicate the positive clinical impact Eversense can have on diabetes, but also to learn and gather insights to fuel commercial, clinical and product development activities. In addition, our initial involvement with the Accountable Care Organization or ACO is now in motion as well, with product on site and ready to be inserted in the coming days at the University Hospital ACO in Cleveland, Ohio. They are the first accountable care organization to adopt Eversense into their practice. This initial program will include 20 Medicare diabetes patients on insulin regimens using the Eversense system for at least a year. The program will assess clinical outcomes such as HbA1c reduction, and patient reported outcomes such as satisfaction levels during their use. We hope to learn and share valuable clinical information from the use of our long-term implantable CGM, with this important managed care population. Moving to progress outside the U.S., Ascensia sales professionals in the European countries have added Eversense to their sales portfolios and started marketing the system in February. This team’s quickly learned the sales model for implantable CGMs as they all have extensive diabetes knowledge and familiarity with the market and its offerings. Across European markets, we executed smooth transitions from our prior distributor. Germany and Italy continue to represent two of our largest patient bases. In Germany, most payers cover Eversense, and new contracts have been established with Ascensia. In Italy, where we were able to transfer a majority of the previous contracts including tenders. As different regions have experienced different impacts and regulations associated with COVID, we can complicate efforts to reach and train doctors with a new product. Ascensia is focused on servicing existing patients as restrictions allow. We’re working closely to optimize sales channels to appropriate levels to support and align with patient demand. And they are off to a solid start outside the United States, and we are excited to now be marketing in Scandinavia as well. With Ascensia assuming full commercial responsibilities, we have been able to focus and allocate our resources towards developing new products, strengthening our clinical profile and advancing our regulatory activities as we intended when we entered into this agreement. Market research at existing CGM products show that the two most sought after features in the CGM system are sensor accuracy and extended sensor lifetimes. Studies have repeatedly shown that our sensor remains highly accurate throughout the full 180-day duration of the sensor life. Our growth strategy consists of offering patients improved benefits with each iteration of longer lasting, less intrusive Eversense sensors, which we believe will enable us to gain share and help expand the market for CGM. As evidenced through the reinsertion rates, our patient base is shown to be loyal, which we believe highlights the distinct desired function and lifestyle benefits offered by Eversense. On the U.S. regulatory side, the data generated from the soon to be published PROMISE study is being used to support our 180-day product PMA supplement application, which we previously announced was filed last fall. Following the Emergency Use Authorization delays, the submission was assigned to a lead reviewer by the FDA on April 15th. And we also reiterated the previous extended review timelines based on publicly made comments by the agency officials. At this time and based on the confidence in the strength and quality of our submission, and in discussion with the lead reviewer, we continue to expect the approval of the product by the end of 2021. Though the constantly evolving situation with the pandemic and its impact on FDA workload, make it hard to precisely estimate regulatory timelines. Looking forward, we continue to make progress on our next generation technology platform. We are designing the system to have a lifespan of one year and require only one calibration per week, and we are actively working on its development. The attractiveness of this product to patients would represent another stepwise function that would address the needs of additional patients. And we believe again revolutionize the CGM industry. The goal of bringing such a product to market represents our solution to the ultimate goal of lessening the burden of diabetes management, and to offer people even more freedom. Our research and development activities are currently focused on working to realize this goal, whether efforts centered around the technical and chemical configuration of the sensor. Once the technical optimization is completed, we intend to submit the product to the FDA for an IDE, as previously discussed, and to begin clinical testing. The development of product has been steadily advancing, and we currently expect to start the pivotal trial in the first half of next year. I’ll now turn the call over to Nick, who will go over the details of our second quarter financial results.

Thank you, Tim, and good afternoon, everyone. Our Q2 results reflect the full transition of commercial activities in the U.S. and EU to our partner Ascensia. In the second quarter of 2021, total net revenue was $3.3 million, compared to $261,000 in the second quarter of 2020. U.S. revenue for the second quarter was $1 million and revenue outside the U.S. was $2.3 million. Gross profit in Q2 2021 increased by $1.5 million year-over-year to $392,000. The positive gross margin in the quarter was primarily due to the fulfillment of orders, utilizing existing written off inventory at the onset of the COVID-19 pandemic. Second quarter 2021 sales and marketing expenses decreased by $1.5 million year-over-year to $1.6 million compared to $3.1 million in the prior year period. The decrease was primarily due to the strategic changes in our market commercialization approach through the Ascensia collaborative partnership. Research and development expenses in Q2 2021 increased by $3.3 million year-over-year to $7.1 million, compared to $3.8 million in the prior year period. The increase was primarily driven by clinical study costs and personnel related expenses. General and administrative expenses in Q2 2021 were $7.5 million, an increase of $3.1 million year-over-year, compared to $4.4 million in the prior year period, mostly due to an increase in personnel-related costs. For the three months ended June 30, 2021, operating loss was $15.9 million, compared to a loss of $12.5 million in the second quarter of 2020. This represents a $3.4 million increase in operating loss from one year ago. The increase in the Company’s share price at the end of the second quarter, as compared to the Company’s share price at the end of the first quarter of 2021 led to a significant noncash charge in Q2. As a result, other expenses increased by $169.4 million compared to the prior year period, primarily related to noncash charges resulting from the accounting for embedded derivatives and fair value adjustments related to the Company’s financings, including the 2023 and 2025 notes, along with the PHC 2024 notes and energy capital equity line of credit. As required by U.S. Generally Accepted Accounting Principles for GAAP, we mark the value of these interest instruments to market for each reporting period, and the change in these values are recorded as noncash charges to the income statement. Each quarter the value of these noncash gains or losses will vary, based on the volatility and the Company’s share price. So generally, as share price increases, we incur a noncash loss, and if share price decreases, we recognize a noncash gain. For the second quarter the cash portion of the other expenses was $4 million of interest expenses out of the total $164.4 million. For the three months ended June 30, 2021, total net loss was $180.3 million, or $0.42 per share, compared to $7.5 million or $0.03 per share in the second quarter of 2020. Net loss increased by $172.8 million, due to a $169.4 million increase to other expenses primarily related to the noncash accounting charges from the accounting of the company financings previously mentioned as well as a $3.4 million increase in loss from operations. In the first half of 2021, our net cash use in operating activities was approximately $30.4 million. As of June 30, 2021, cash, cash equivalents short and long-term investments totaled $215 million. This includes approximately $50 million in gross proceeds, raised through our at-the-market or ATM equity offering program in Q2. The use of proceeds will be primarily for debt service. Specifically, we will repay our PPP loan and have elected to pay the interest on the PHC notes in cash, instead of the payment in kind or PIK option. Paying the interest in cash raised from the use of the ATM results in significantly reduced shareholder dilution due to the lower share conversion price associated with the terms of the payment in kind agreement. Looking at the remainder of the year, we are reiterating our 2021 guidance. We continue to expect global revenues to Senseonics of between $12 million and $15 million for 2021 with $6.1 million of revenue achieved in the first half. For full year 2021, net cash used in operations remains projected to be in the range of $60 million to $65 million. With that, I’ll turn the call back to Tim.

Thank you, Nick. To wrap up, there were headwinds in the first half of the year as we worked with Ascensia to initiate their commercial activities. We reintroduced Eversense to the market with a new commercial partner amid the pandemic, which impacted both, in-person actions to drive awareness and created delays in the review of our highly anticipated new product. These factors have gated us from achieving rapid patient adoption to-date, but we believe we are better positioned to gain traction in the market with the right team and the right strategy to capitalize on a potential of Eversense. We are pleased to be working collaborating with our partner on initiatives to drive growth, including increased patient and clinician marketing, and launching the patient access program. We are confident in our product and its value proposition to users. Eversense users are continually commenting how our system reduces the burden of managing their diabetes. And we have been pleased with the many loyal users who have already had the awareness of Eversense. We see this as a confirmation of our belief that our value proposition will resonate with a broader patient population. And we’re excited and motivated to offer more patients the same benefits. As we look forward to future generations of our technology, we are absolutely confident that we can offer existing and new patient populations additional benefits, and build lasting patient and provider loyalty. And this will contribute to our sustained growth and success as a business. I’d like to thank you for your time today. And joining us for questions are Mukul Jain, our Chief Operating Officer, and Mirasol Panlilio, Vice President and General Manager of our Global Commercial Operations. Operator, let’s now open up the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mathew Blackman with Stifel. Please go ahead.

Good afternoon, everybody. Thanks for taking my questions. I have three. Maybe just to start, Tim, I appreciate it. It’s tricky commenting on an active FDA review. But, we’ve been hearing from some of your peers the last couple of weeks about further delays with some of their filings. So, any more color you can provide on where your confidence is coming from in that later 2021 approval would be would be helpful. And I have a couple of follow-ups. Thanks.

Yes. Obviously, through the process you do have the opportunity to speak with the agency. They -- not only do they have a significant amount of work to do, there has been some reprioritization of the COVID activities that has impacted them. And there’s also been some personnel changes as well, where they have lone people out. There are seeing some of that return. And in our recent conversations with the lead reviewer, we just feel that based on where we are, although it’s certainly slower than we’ve experienced in the past, that we do see the path to getting this completed here, over the next couple of quarters.

I appreciate that. Thanks, Tim. And then, as we sort of think about the relaunch in the U.S., just curious -- and I appreciate it’s only been a few months here. But, has Ascensia been able to engage the majority of the existing U.S. patient and clinician customer base? The sort of the first part of that question. And then, it’s unfortunate, I need to ask this again, but are the reps able to access clinics now pretty freely? Just asking because of some of the resurgence in some different regions in the U.S. And then, I’ll just throw the last question out there right now. And maybe it’s for Nick. Just curious about how impactful you think the patient assistance program might be in terms of your mix in any given quarter. I heard Tim mention maybe up to 50% of patients taking mealtime insulin may qualify. But maybe the more important question is, is that patient assistance programs have now baked into the guidance? I suspect that that may have weighed on the guidance a little bit. So, maybe a little bit help understanding of the moving parts in the guidance. Thanks.

Sure, Matt. I’ll pick up the access. The new sales reps have been able to do the initial conversations. I won’t say that they’ve all been able to be in person because of some of the regional restrictions. And as you’re aware, those have picked up again in the U.S. They have been less forgiving, if you will, in Europe over time. So, we do understand that a lot of this will continue to change. But in general, we’ve been able to reach out to most of the existing prescribers that currently have patients on the product. Some of those that moved on during the time that we stopped commercializing, we have yet to get back to and that’s a lot of the work that Ascensia is going to be focused on moving forward. But, certainly, we do continue to see some impacts through the COVID. And we’re just going to have to continue to work through it and use the televisit capability while we’re in some of this resurgence. Nick, I’ll let you speak to the patient assistance program.

Sure, yes. Thank you, Matt, for the question. In terms of the patient assistance program, as we take a look at our revenue forecasting for the year, there’s a number of factors. Certainly, that is additional economics that is taken from the partnership. But there’s also other factors that we looked at including payer mix and mix overall of the product across the regions. So, our guidance at this stage is really driven by two factors. Again, you mentioned one in terms of the timing of the 180-day approval in the U.S., and then any new impacts potentially from the virus strains that are currently circulating the globe.

Your next question comes from Chris Pasquale with Guggenheim. Please go ahead.

Thanks. Nick, just to follow up on that last point. Does the guidance assume that you actually get any benefit this year from the 180-day sensor?

It does include a small amount of pickup from the 180 in the U.S., in Q4.

Okay. And then, just a couple of questions from a financial side of things. So, do you have any written off inventory left that could still flow through and hold down COGS during the back half of the year, or has now been taken care of?

Yes. We project that in Q3, we will have fully extinguished that written off material and see more normalized margins for the back half of the year.

Okay. And then, why did G&A expense tick up so much sequentially? And you guys had been running in kind of a 4.5 to 5.5 range for the year and a half now, and then it all of a sudden shot up here, and sort of undid some of the benefit from having lower sales and marketing.

Sure. Yes, the main driver there is stock compensation expense, there’s both cash and noncash component. That is the biggest driver that we’re seeing.

Our next question comes from Danielle Antalffy with SVB Leerink. Please go ahead.

Congrats on a really strong quarter. I was wondering if you could give a little bit more color on some metrics over in Europe, since the Ascensia’s had the product there a little bit longer, you’re a bit more established in Europe. So, I’m thinking things reinsertion rates, for example, with 180-day, the XL over in Europe, and then also things like getting sort of, I don’t know if this is the right way to think about it, but like same-store sales, existing physician user growth versus new physicians, things like that?

Sure, Danielle, and thanks for the time as well. In Europe, you’re right, they’ve had it for a couple of months longer than in the U.S. But still, they’re pretty actually coming up the learning curve. I would say that Europe is still much more largely impacted by COVID in the second quarter than certainly the U.S. was. So, some of those dynamics needs to be considered as well. Specifically on assertion rates, we haven’t seen a notable change. As you recall, we’ve typically seen about 70% on the first insertion, 85 on second, and 90 or higher on third and beyond, as people really get locked into the product, and they’ll continue to work really hard to stay on the product. So, we haven’t seen that change, but new patient starts, especially at new clinics, in the time of COVID has been has been challenging for us.

Okay. That’s a fair point. I guess, just a follow-up on the reinsertion rates. Now, with the XL, if you get longer wear time, do you expect those reinsertion rates to stay at that 70 and then 85, and then over 90, or do you think that there’s a chance that those reinsertion rates actually move higher with longer wear? Thanks so much.

Yes. Well, certainly just the math of the longer wear helps, because there’s two times a year for that change to occur. So, that does have a material impact. I would say, the biggest improvement that we continue to make for retention, especially for that first sensor still is around the economic. About half of those 30% that do come off, are coming off because of economics. So, as we get more and more coverage around the globe, that’ll be the biggest opportunity for us to see improvement there.

Our next question comes from Jayson Bedford with Raymond James. Please go ahead.

Hi. Good afternoon. Just a few questions for me. Tim, in your opening remarks, you mentioned minimizing patient base attrition. Have you succeeded, meaning did the patient base grow quarter-on-quarter in 2Q?

Patient base attrition really was heaviest for us in 2020, Jayson, when we really stopped the commercial activities. So, that’s what the initial efforts for Ascensia has been in U.S. to really bring that back. So, that was really my primary reference. They are calling on existing accounts. And of course, we’d always like to see more patient growth than you’d have. That’s really obviously the name of the game. But, I feel that we are making good progress, but the focus initially is really on stabilizing the market that had been through a pretty dramatic time with both our stopping of commercial activities and the COVID dynamics.

Okay. On the 180-day, is the expectation that you get approved for both the primary and the SBA sensors?

We’re still working on it, Jayson. As you saw from our technical publications, we do have an approved formulation, and that we are working with the agency for those in review. In regards to what actually gets approved, we’ll stay tuned. But, we’re continuing to work with the agency.

Okay. And then, maybe for Nick, just for clarity. Does the new patient assistance program by Ascensia impact your revenue generation or does Ascensia absorb most of the economics there?

Yes. So, the patient assistance program is a gross net deduction taken at the partner level and is taking previous split between us and Ascensia.

Our next question comes from Alex Nowak with Craig-Hallum Capital. Please go ahead.

Hey, guys. This is Trent McCarthy on for Alex. A couple of questions for me. Can you maybe speak to the clinician reception on Eversense specifically through the Ascensia sales force, relative to when the Company launched the product originally in 2019?

Well certainly, the biggest change since we launched in 2019 really has been the payer coverage. And that is a significant consideration for a prescriber. So, the fact that we’re in much, much better shape and exact reception than much better, but do recall, as I said, most of our focus in the early couple of quarters here with Ascensia has been on our existing prescribers. So, they have a good utilization of Eversense and are, of course, by that fact, just predisposed to have a positive reception of it.

And maybe just a quick follow-up to that. How many clinicians are trained to perform the insertion and how many clinicians are actively prescribing the device? And I guess, how has this changed, since Ascensia started selling in April?

I don’t have the exact numbers for you. But, we did see in 2020, a reduction in the number of folks that were doing the insertion, much of that driven by COVID, also notable amount by our lack of an active sales force. So, we continue to focus on bringing that back. It’s the existing clinicians that are currently doing it and really a focus on the top 300 that Ascensia is working on right now.

Our next question comes from Marie Thibault with BTIG.

Hi. Good afternoon. This is Sam Eiber [ph] on from Marie. Thanks for taking the question. Just one from me on the DTC marketing efforts there. I appreciate the commentary on the 15 million impressions during the quarter. Any color on how that’s maybe impacting your patient starts and growth, I guess, over the quarter? Thanks.

Sure. Maybe what I’ll do is speak to our history, as this is just up anew. But, we did see a pretty significant amount, prior to the COVID activities that we anticipate getting back to. About 50% of the patient starts previously had come from our DTC efforts. So, I would anticipate that we’d be able to reach that level in the future as we move forward.

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

Great. And I’d like to again thank everyone for their time and the opportunity to speak with you this afternoon. We look forward to giving you an update at our next quarterly call in about the November time period. With that, have a good day. Thank you.

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