Senseonics Holdings, Inc. (SENS) Q3 2021 Earnings Report, Transcript and Summary

Good day, and welcome to the Senseonics Third Quarter 2021 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, today's event is being recorded. I would now like to turn the conference over to Carsten Beckwith with the Gilmartin Group. Please go ahead.

Thank you. This is Carsten Beckwith 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 31st, 2020, our 10-Q for the quarter ended September 30th, 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 2021 outlook. Joining me from Senseonics are Tim Goodnow, President and Chief Executive Officer, and Nick Tressler, Chief Financial Officer. With that, I would like to turn the call over to Tim Goodnow, President and CEO. Tim.

Thank you, Carsten. And thank you all for joining us this afternoon. On the call today, we will provide a brief update on Senseonics regulatory developments, our product pipeline, our commercial activities, and Nick will discuss the third quarter financials in detail. And then I'll conclude and open up the call for Q&A. To begin in the 3nd quarter, Senseonics generated $3.5 million of revenue. This included $0.6 million from the U.S. and $2.9 million from outside the U.S. wherever the larger installed base. Commercially in the U.S., Senseonics has been re-engaging healthcare providers who prescribed an insert ever since to support current patients and to add new users in those clinics. The greatest challenges in this work are driving awareness, converting leads into use and securing HCP comfort with the reimbursement requirements as quickly as we would like. We appreciate signs of interest and anticipation among both HCPs and patients and the potential FDA approval of the 180-day system. We believe that anticipation of this launch along with the impacts of the Delta variant, have also curved the number of new sensors inserted for the 90-day products relative to our expectations for the third quarter. Given these factors, we expect global net revenue to Senseonics for the full-year 2021 to be right in the middle of our previously stated range of $12 to $15 million. We are encouraged to be able to sustain our full-year guidance, and execute 3 anticipating being in the middle of our range, given that our guidance for this year had been established with the expectation of the U.S. 180-day products contributing to 2021 revenue. At this point, we of course, do not expect contribution from the 180-day version this fiscal year. And are happy to maintain the earlier forecasted revenue despite the delayed FDA approval. Our collaboration with SENS here continues to advance and together we have developed and are implementing several promising programs targeted to drive HCP and patient adoption in the U.S. At the highest level, we're focused on first raising awareness of the clinical benefits of the world's only long-term implantable CGM. And second, increasing patient access to the Eversence technology. We are exploring a variety of new programs to reinforce awareness and adaption. There are as you're aware, 2 groups to focus on, ATP's at the professional level and our users at the consumer level. In the U.S. I think this first action on this front was to reengage HCPs that were previously inserting Eversence to introduce themselves and make the market aware that we are again available to support sensor insertions for new patients. The sales professionals at SENS are now acquainted and the gains with the eversence centers to support the needs of their patients and practice. The targeted our reach and work to reengage these practices continues. When the $0.188 or is available at SENS plans to pursue a broader group of endocrinologists that are known CGM prescribers as the top new account targets. To further enhance awareness, particularly among providers, presentations concerning the eversense system expanded this quarter. And I -- each of the leading diabetes clinical meetings In addition, a series of small group lectures with a number of providers has already begun and we are encouraged by their potential to improve awareness. We continue to plan these in 2022. 3 manuscripts have recently been published in peer-reviewed journals that demonstrate the accuracy, real world performance, and clinical benefit of the Eversence CGM system. All adding to the clinical confirmation of the value of a long-term implantable sensor. On the patient awareness side, DTC advertising remains an important piece of our overall commercial strategy. The DTC digital marketing campaign continues to generate impression and awareness within the diabetes community. And this patient recognition is expected to play an important role in driving leads and broader adoption. We are pleased with the number of leads being generated in our social media campaign and with the strong interest that remains for our long-term sensor. While awareness and demand generation are increasing, ensuring patient access to Eversence is equally important. With favorable coverage for over 200 million covered lives in the U.S., Ascensia recognized the need to assist patients who still have high out-of-pocket expense remaining after insurance reimbursement. Unlike the former bridge program, Ascensia patient assistance program provides financial assistance up to $300 per sensor, and it is limited to eligible patients with commercial insurance coverage for the product. This enables us to manage the program costs and assure we are assisting patients who have coverage and the ability to stand Eversence a long-term. Ascensia is also continuing efforts to expand the number of HCPs trained to insert Eversence sensors. To accelerate the healthcare provider certification process for limited time, eligible HCPs will be provided training sensors at no charge. This program is targeted at increasing the number of inserters and make it more convenient for patients to get our long-term sensor. In addition, we are also in the final stages of planning and seeking to implement additional pilot programs to support expanded access to Eversence. As an example, we are working to establish a pilot program with a mobile healthcare provider, which would provide an in-home insertion option for Eversence users. We hope to pilot this innovative approach to sensor delivery in a limited region within the coming weeks, with the goals of expanding it to additional markets next year. We continue to look at these and other ways to support access as well as patient and clinician ease with the procedure and its workflow processes. Finally, as Eversence requires insertion by a healthcare professional, it offers a reimbursement pathway unique within the CGM market. Payers such as Cigna and Medicare reimburse Eversence through our established CPT codes enabling the billing of both the product and the procedure in one claim. This can greatly reduce the burden and time it takes for patient to obtain CGM versus the traditional processes of durable medical equipment. In this case, the healthcare professionals purchases Eversence upfront rather than the patient having to go through a distributor first. Once the procedure is complete, the healthcare professional bills in a single claim. While the process is not uncommon across other specialties, it is not highly practice for endocrinology specialists. And we have observed some delays as clinicians offices work to establish the new product acquisition processes that are required. To facilitate adoption and ensure healthcare professional always have product in their offices to accommodate new and recurring patients. We're developing a consignment program that allows clinicians to stock ever sense in their offices, having product on the shelf in the HCP office at all times can enable fast even same-day insertions without having to manage the inventory are carrying costs. We plan to pilot this approach before the end of the year, and we are optimistic about its ability to help healthcare professionals provide patients with easy access to Eversence. In Europe, Ascensia's sales professionals across our markets have worked to continue ramping with Eversence and start to build out on the smooth transitions of contracts, and tenders from our prior partner, and the team's knowledge of the diabetes market. We are encouraged that in Italy, there were certain regions where it has strong tenders, which are creating meaningful market penetration and overall patient share in those regions is currently already above 5%, which we believe speaks to the potential of Eversence. The Ascensia team continues to work to support tenders in a number of European markets. We were pleased to recently win a tender in the Skane region in Sweden, which we believe will continue to support positive performance in that market. On the innovation front, we are excited to be approaching our major release of our next-generation product in the U.S. with the FDA clearance of our 180 day sensor, which we believe remains on track to occur later this quarter. In the third quarter, we have been actively engaging with and responding to requests for clarifying Information from the agency. We are pleased to be nearing the completion of the interactive review process and are excited about the potential and bringing this transformative product to people with diabetes. The FDA has been a great partner in these difficult times and they are highly engaged and focused on completing this review in its final stages, if there are no other unexpected additional impacts as a result of COVID delays or any other factor at the agency, we continue to expect approval by the end of this year. Certainly, one of the benefits of the SENS' collaboration is enabling our focus on important development programs. We continue to advance our future-generation Eversence system. The development of the 365-day sensor, there will require only one calibration per week, continues to be the goal of our efforts. These efforts are acutely focused on the technical optimization of the device, and once completed, we intend to submit the product to the FDA for an IDE approval to begin pivotal clinical trials. In addition, last month, we initiated a pilot trial here in the United States, where we're evaluating chemistry configuration and sensor architectures that are designed to be used in our 365-day product. We are excited to have this early clinical look at the system performance of the year long configuration of the product. We do continue to expect the formal pivotal trial will be initiated in the first half of next year and would form the basis of the clinical data that we would submit to the agency for commercialization approval in the future. Products like the Plan 365-day Eversence system is something that our patients in the diabetes market is extremely excited about because of the transformation that it would represent in managing the burden of diabetes and providing ultimate freedom to our users. I'll now turn the call over to Nick to go over the details of our third quarter financial results.

Thank you Tim, and good afternoon everyone. The Q3 results reflect the full transition of commercial activities in the U.S. and to you, to our partner of Ascensia. In the third quarter of 2021, total net revenue was $3.5 million compared to $0.8 million in the third quarter of 2020. U.S. revenue for the third quarter was $0.6 million and revenue outside the U.S. was $2.9 million. Gross loss in Q3 2021 was $1.2 million, a decrease of $2 million from gross profit of $0.8 million in the prior year period. The decrease in gross profit was predominantly related to the increase in cost of goods sold due to impairment charges and write-offs on inventory and related assets of current generation products with potential expert concerns. Third quarter 2021 sales and marketing expenses were $2.5 million. A decrease of $0.7 million compared to $3.2 million in the prior-year period. The decrease was primarily the result of a decline in salary and personnel costs from the reduction in sales support, due to the transition to Ascensia for the commercialization of Eversense, offset by an increase in general advertising related to the shared support of the commercialization of the 90-day product in the U.S. Research and development expenses in Q3, 2021, were $7.2 million, an increase of $2.6 million compared to $4.6 million in the prior-year period. The increase was primarily due to the expansion of our R&D headcount, an increase in clinical studies and lab supplies, and an increase in contractor expenses. General and administrative expenses in Q3 2021 were $5.1 million, a decrease of $0.4 million compared to $5.5 million in the prior year period, primarily due to lower professional fees. For the 3 months ended September 30, 2021, operating loss was $16 million, compared to $12.5 million, a loss in the third quarter of 2020. The decline in the Company's share price at the end of the 3nd quarter as compared to the Company's share price at the end of the 2nd quarter of 2021 lead to significant non-cash gains in Q3. As a result, total other income increased by $69.9 million compared to the prior-year period primarily related to non-cash charges resulting from the accounting for embedded derivatives and fair value adjustments related to the Company's financing's, including the 2023 and 2025 notes, along with the PHC 2024 notes and energy capital equity line of credits. As required by U.S. Generally Accepted Accounting Principles or GAAP, we marked the value of these instruments to market for each reporting period and the change in these values are recorded as non-cash charges to the income statement. Each quarter, the value of these non-cash gains or losses will vary based on the volatility in the Company's share price. So generally, as share price increases, we incurred a non-cash loss and a share price decreases, we recognized a non-cash gain. For the 3 months ended September 30, 2021, total net income was $42.9 million or $0.10 per share. Compared to a net loss of $23.4 million or $0.10 per share in the third quarter of 2020. Net income increased by $66.3 million due to the accounting for embedded derivatives and fair value adjustment previously mentioned. Year-to-date, our net cash used in operating activities was approximately $44.3 million. As of September 30, 2021, cash equivalents, short and long-term investments totaled $201.1 million. In the third quarter, we began to make equal monthly payments of principal and interest on our PBP loan without penalty. We continue to pay the interest on the PHC notes in cash instead of using the payment kind or pick option. Paying the interest in cash continues to reduce shareholder dilution due to the lower share conversion price associated with the terms of the payment in kind agreement. Lastly, looking at the remainder of the year, we currently expect global net revenue to Senseonics for the full-year 2021 to be right in the middle of the previously stated revenue guidance range of 12 to $15 million. We also continue to expect full-year 2021 net cash used in operations to be in the range of $60 to $65 million. With that, I will turn the call back over to Tim.

Thank you Nick. In conclusion, we expect Ascensia to continue to take steps to grow the Eversense patient base and optimize conversions of interest to our implanted technology. Continually improving healthcare professional and patient awareness with targeted professional engagement in DTC advertising along with initiatives to drive patient access, are all making meaningful impacts. With the Ascensia commercial infrastructure in place to support a productive 180 day Eversence product launch. We believe that the foundation created by our new commercial partnership and the longest lasting CGM in the market positions us to well, to capture meaningful market share. We appreciate the faith that our customers have placed in us and demonstrate the value of Eversence and are excited to be able to deliver an even greater value in the future with our continued innovations. Thank you for your time today, joining us for questions are Mukul Jain, our Chief Operating Officer, and Marisol Panlilio, Vice President and General Manager of the global commercial operations. Operator, let's open up the call for questions.

Thank you. [ Operator Instructions ] Today's first question comes from Mathew Blackman and Stifel.Please go ahead.

Hey,calling on for Matt, just a couple from me. On the 180-day launch, how long do you anticipate the turnaround from approval to the actual launch? How long do you anticipate that to take and given the current environment, what are your expectations for the speed flash scale of the launch, maybe in relation to Eversence and will materially affect first half revenues next year. Thanks.

So we're not going to speak to revenue for next year as of yet. We'll come to that the next time we speak. But in regards to the transition, obviously it's a high motivation for us. Their view has taken us some time to get through it. The way that the process works is one of the final things that you'll agree on with the with the agency as the final configuration, the final labeling, and any other considerations that they want to include. So we will certainly go into the manufacturing, assembly and distribution support for that as quickly as we can. We did it in about 30 to 45 days. Last time that we will launch the 90-day product, I would anticipate with a partner in some of the hand-offs there might be a little bit dual time, but not significantly greater.

And if I could just once follow-up. You expect to be in the middle of the $12 million to $15 million guidance range for the year, can you remind us, is a 180 days still included in that number? What else is baked in? I'm Just trying to get some color for 4Q. Thank you.

At this point even if we got approval right away, given the transition that needs to occur as we just talked about, it's not likely that we would be able to commercialize product within this year. So there is no 180-day products in the U.S. that's anticipated in that middle of the range for -- of 12 to 15, so we would anticipate in the U.S. continuing to sell the 90-day product to that time point.

Okay. Thank you. Our next question today from Jayson Bedford at Raymond James. Please go ahead.

Hi, good afternoon. Maybe a few questions from me. Tim, you talked a little bit around kind of kick starting the awareness program or SENS is -- any way you can give us a sense of where you are in the U.S. in terms of number of users from a physician standpoint.

We were going to stick to the annual patient count. As you recall, we were just about 1,000 patients, a little bit more than a year ago. We have seen some reduction from that, but we are working to, of course, will that back. So we'll update that on the next call. And do recall that we've got quite a bit of larger installed base in Europe as well.

What about Tim though from a injector of standpoint, from a physician standpoint, is there any way you can kind of give us an idea of how many folks are implanting device today?

So there is about -- I believe the numbers are a little bit over 400 folks that are actively and -- are trained and actively invest detecting inserting. Don't know if all of those are actually is [Indiscernible] Jason. As you heard from this step, there is a very encouraging interest in the 180 day products, and we have had some feedback that were on the way to get started back up again when that's available.

Okay. And when will you file for the IC GM label?

We're going to get to that as soon as we get to this review. Recall that is a 510(k), which has some advantages, but I'm through there is a little bit of complexity with that transition. We have talked to the agency about it. As our device is a combination device, there is a little bit of work that they need to do. So I do expect that we'll continue to take some time. But at this point, we're all focused on the primary 180-day product.

Okay. And maybe just for Nick. A little bump in receivables, quarter-on-quarter. What's the ideal level either from a DSO, percent of sales standpoint? I'm just wondering, how should we look at the right level of receivables?

Sure. Yeah. I'd expect that 30 to 45 day range from a receivables standpoint.

It will come down from current levels, I believe. That's the expectations?

That's the expectation.

Okay. Alright. Thank you.

[Operator Instructions]. Our next question comes from Alex [Indiscernible] with Craig-Hallum, please go ahead.

Hey everyone. This is Connex Stephenson on for Alex. Thanks for taking the questions. So I don't want to pound this too hard. It sounds like you're pretty confident about the 180-day approval happening by the end of the year, but given what's happening in the market with FDA clocks thrown out the window with other diabetes products. Do you see any risk of the approval slipping into 2022?

I'd certainly would never say that there is no risk, we are in active review at this point, certainly earlier in the year, having their resources to be able to get back to the diabetes technology was the issue for all of us. I won't say that they are back 5 days a week, but they are back the majority. So certainly we'd never say there's no risk, but it's our expectation based on the cadence of the interaction and the inner review that we've been through, that we are encouraged and very much fuel and believe that we're headed in that direction.

Okay. Sounds good. And then just a follow-up to that. Are there any like, contract covenants with Ascensia if the 180 day approval isn't reached by a certain point?

There is some consideration, but it is quite a bit of waste out from where we are today. If we were to just ultimately never receive it.

Sure. Okay. And then looking through like the FDA database, what is the current premature failure rate Ascensia currently in? And is that expected to improve with a 180 day?

That's an area we continue to focus on. The premature failure rate is about 3% or 4% in the U.S., and those are sensors that will go early based on the body's oxidative response. But obviously the design of the 180 is to certainly significantly moderate that.

Okay. Great. Thank you.

Gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Great. Thank you. We very much appreciate everyone's time and we look forward to updating you at the -- on the full-year performance at the next quarterly call. So with that good day,

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may disconnect your lines and have a wonderful day.