Senseonics Holdings Inc (SENS) 2017 Q4 法說會逐字稿

Good afternoon, and welcome to the Senseonics Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Don Elsey, Chief Financial Officer. Please go ahead.

Thank you, and welcome to the Fourth Quarter 2017 Senseonics Earnings Call. Joining me on today's call are Tim Goodnow, President and Chief Executive Officer; and Mike Gill, Vice President and General Manager of the U.S. region.

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, financial guidance 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 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. We've reached several milestones in the past many months and have started 2018 with the momentum of Eversense building in Europe. We have also made meaningful progress toward FDA approval and commercial launch in the U.S. as well as product advancements through continued innovation and technology development. We expect this year to be transformational, setting up a bright future for Senseonics for many years to come.

On the call today, I will provide brief highlights and expectations for the upcoming FDA clinical chemistry and toxicology advisory panel, and then we'll turn the call over to Mike Gill to talk about preparations and commercial readiness for a U.S. launch. We'll then review our European user experience and expansion. Don will provide further detail on our financial and outlook for 2018 as well as our recently strengthened balance sheet.

To begin, we generated revenue of $6.4 million in 2017 in Europe as we executed our controlled launch followed by our steady expansion in 2 additional countries. We scaled throughout the year and achieved revenue of just under $3 million in the fourth quarter. Additionally, we began to roll out the new Eversense XL, our extended-life 180-day sensor, into the U.K. and are now in a position to expand our reach to additional countries.

For 2018, with our current vision of U.S. regulatory approval, we anticipate total revenue in the range of $18 million to $20 million. Don will provide more detail on our expectations in the financial review. In the U.S., on the regulatory front, we are prepared for an advisory panel meeting in approximately 2 weeks. As we announced early in the month, a meeting with the clinical chemistry and toxicology panel has been scheduled for March 29, marking a significant milestone for the company. We're excited for the opportunity to discuss the strong clinical performance of the Eversense system that was part of our PMA submission as well as real-world user experience from Europe. We've been working closely with the FDA during the review, and as we head into the panel, our interactions are collaborative and positive. We have amended our original submission during this process to include the second-generation transmitter and an algorithm improvement that further improves the accuracy of the Eversense system to 8.5% MARD over the 90 days of use.

In addition to the accuracy and safety performance, we anticipate the focus of the panel to be on the elements that differentiate the Eversense system from other CGM systems on the market. We will have an opportunity to showcase the training programs designed to introduce diabetes health care professionals to the in-office sensor insertion and removal procedures. We are confident that the strong patient safety and efficacy data demonstrated in our U.S. pivotal trial, our European post-approval trial as well as our European pivotal trial, which just completed in Europe, will support an engaging and positive panel meeting with the FDA.

As it relates to our expectations for entering the U.S. market, we are advancing commercial readiness activities. We are on track to be operationally ready for a U.S. commercial launch by the middle of the year. As such, incorporated into our 2018 financial guidance is modest but ramping initial contribution from the U.S. in the second half of the year.

I'd now like to turn the call over to Mike Gill, Vice President and General Manager of the U.S. region, to discuss commercial readiness for the U.S. launch.

Thanks, Tim. Our organizational structure, capabilities and ongoing commercial preparation activities are on schedule. As Tim just mentioned, we will be ready to launch in the U.S. market by midyear, and if approved, our goal is to be a major headline at this year's ADA meeting. This would include presentations, exhibits and physician training.

As we look forward to this major milestone, we thought it was important to lay out some of our plans for the Eversense launch. First, our reimbursement team continues to meet with major U.S. payers to examine the evidentiary requirements, payment process and potential coverage position for Eversense post approval.

Feedback continues to validate our initial research that payers are interested in Eversense, particularly as it relates to solving known adherence challenges, which attenuates the clinical effectiveness of CGM. While these discussions continue, we are focused on building a distribution network that will allow for Eversense to be reimbursed as shortly as possible after the approval through multiple channels. We know that payer coverage is a journey and expect to gain vast majority of covered lives over the next couple of years. As it relates to our field commercial organization, we expect to begin selling Eversense in the U.S. market with 20 sales reps initially. These experienced reps will be calling on the top 300 endocrinologists and diabetologists who are prescribing the highest volume of insulin and are advanced technology adopters.

In parallel, we will also be deploying our clinical training team to educate and train providers on the sensor procedures as well as patient on-boarding. Supporting our patients and health care professionals will be the Senseonics customer care organization, who will be available for technical- and procedure-related questions. This go-to-market strategy and plan has been built over the last year by a core leadership team with deep diabetes domain expertise and experience. We assembled this team with 2 goals in mind: one, solve an unmet need that has been brewing in the CGM space for years, that is, adherence; and two, take Eversense from the best-kept secret in diabetes to an everyday meaningful choice in diabetes management. In fact, our confidence has continued to grow as the market insight stream in from U.S. opinion leaders, that the potential for Eversense is even higher than we initially thought or realized.

With that said, we are excited for a pending U.S. commercial launch of Eversense and confident that, pending approval, the strategy and team we are building is well positioned to deliver the first long-term implantable continuous glucose monitoring system to patients here in the U.S.A.

And now I'll hand it back to Tim.

Thanks, Mike. Now I'd like to direct your attention to our current commercial operations in Europe, where, in the fourth quarter, we had a record in quarterly revenue and a significant new product launch with Eversense XL. Progress moving from a controlled launch to a broader launch punctuated dialogue at the recent Advanced Technologies & Treatments for Diabetes, or ATTD conference.

At the meeting, our conversations have evolved meaningfully from introductory educational conversations to more in-depth, product-focused discussions with most people familiar with Eversense and coming to the booth with specific questions and goals for further understanding. This speaks to the level of awareness and recognition we are seeing in the market. It continues to be encouraging and inspirational to hear how meaningful the impact of a real-time, long-term CGM is on patients' daily routines.

As we expand to national launches in our early markets, we are seeing significant increases in installed base and reinsertions as well as trained clinics and health care professionals each quarter. In Q4, we realized a 135% increase in our installed base from the previous quarter. Currently, we have nearly 2,000 unique users on Eversense. Based on our early data from our post-market approval study, sensor reinsertion rates can be characterized as the following. Of those users that have had an opportunity to reinsert a sensor, 77% are reinserting a second sensor. Those transitioning from the second to the third or the third to the fourth, reinsertions are occurring at about a 90% rate. And encouragingly, for those transitioning from fourth to fifth, fifth to sixth and sixth to seventh, we're seeing a 100% reinsertion rate. Although in line with our early expectations, we do believe there are opportunities to further improve this rate as some portion of the first to second sensor users are experiencing reimbursement process issues. We expect this to moderate as reimbursement procedures mature over time.

Certainly, we are very encouraged to see the high level of continued long-term reinsertions for those users that are on their fourth, fifth and sixth term of Eversense sensors. These users are highly satisfied with the now more than 1 year of personal experience on Eversense. In fact, customer satisfaction surveys continue to indicate that our users are highly satisfied with the product. In a recent survey in Italy of 130 people, 93% indicated that they are satisfied or highly satisfied with their Eversense system. Survey data continues to confirm that 9 out of 10 users want to be inserted again, which continues to confirm the attractiveness of the feature set of Eversense.

Product access for our users is a key focus for the organization, and there is clear evidence that access is growing. In Germany, coverage is now up to 60% of covered lives. We've seen an increase in the number of prescriptions written for Eversense, and the attention has been on working through the reimbursement procedures and ensuring payers are able to process the CGM reimbursement for the federal mandate. We are seeing that it can take some months to get through the approval process. Our distributor, Roche, is actively advancing ways in which this time frame can be reduced. All of these efforts are collectively aimed at expanding access to Eversense for patients globally, and the ramp towards achieving this goal is steep.

As we move through 2018, we expect deeper penetration within our existing countries and expansion across multiple regions to be accelerated by the availability of the new 180-day Eversense XL. As planned, we have entered the U.K. as the first market for Eversense XL. In keeping with our strategy with new market entries, we are executing controlled launch to ensure the commercial infrastructure and clinic and patient on-boarding are executing well. Our partner, Roche Diabetes Care U.K., has done an exemplary job of introducing the product by creating awareness among health care professionals and integrating the product in the clinic workflow.

It's exciting to see that these initial commercial users are now entering their fifth month on the product. The first U.K. Eversense XL users were inserted in November and will be scheduling their removal and reinsertions in April. Feedback has been very positive and similar to what we have continually heard. Users appreciate not having to think about the sensor or deal with removing and reinserting a new sensor each week. The overall comfort and wearability of the smart transmitter, which can be removed and replaced at any time, is also often cited by users. We appreciate that our technology may help remove some of the burden of patients' day-to-day diabetes management and allow more opportunity to adhere to their glucose monitoring needs.

We have now also introduced Eversense XL in the Sweden market this month, and plan to launch in other existing countries in subsequent months. Reception is again, positive, and as one Swede wrote, she got "the best gift ever with an Eversense from her doctor." Our plan is to carefully manage the inventory transition of the current Eversense 90-day product to XL. We are working with our distribution partners on a marketing campaign to introduce the product in each region. We expect that the interest in Eversense XL will only grow as we collectively broaden awareness and educational efforts.

The recent approval of a remote monitoring product for both the current Eversense and the new Eversense XL system represents another advancement towards continued usability. Friends and family can now remotely view an Eversense user's data, allowing greater peace of mind for the user and their family. Our new app called Eversense Now is used by friends and family to receive real-time readings and alert anywhere and update them with real-time glucose every 5 minutes.

I'll now turn the call back over to Don to review our fourth quarter financials, and then we look forward to taking your questions.

Thank you, Tim. For the 3 months ended December 31, 2017, we generated $2.9 million in revenue compared to $300,000 in the prior year period. The increase was attributable to the increased sales of the Eversense sensor in Europe. For the 3 months ended December 31, 2017, total net loss was $16.3 million or $0.12 per share, compared to $9.9 million or $0.11 per share in the fourth quarter of 2016. Fourth quarter 2017 net loss per share is based on 136.8 million weighted average shares outstanding compared to 93.4 million weighted average shares outstanding in the fourth quarter of 2016.

For the year ended December 31, 2017, total net loss was $59.1 million or $0.51 per share compared to $43.9 million or $0.49 per share in 2016. Full year 2017 net loss per share is based on 116 million weighted average shares outstanding compared to 89.2 million weighted average shares outstanding in 2016.

The largest driver of the increase in net loss for both the 3-month and full year periods was generally higher operating expenses as we grew the organization to support the broad launch in Europe and to begin to prepare for the U.S. launch.

I'd like to now turn to our balance sheet at quarter-end. At the end of the fourth quarter, our cash, cash equivalents and marketable securities were $36.5 million. This does not include the convertible note offering of $50 million that we completed in January.

Let me now turn toward the guidance for the year. As Tim mentioned, we expect full year revenue in 2018 to be between $18 million and $20 million. As outlined earlier, we will be operationally ready for a U.S. launch by midyear. However, factoring in uncertain timing for FDA approval and commercial availability, our guidance assumes a modest contribution from the U.S. operations in 2018 beginning in the second half of the year.

I will now turn the call back over to Tim.

Thanks. To wrap up, 2017 was marked by many accomplishments, thus positioning Senseonics for a transformational year in 2018. We closed out the year with the Eversense brand available in 14 countries, and we are looking forward to entering the U.S. market later this year.

In a dynamic and ever-changing environment for diabetes management, now more than ever we feel favorably positioned and uniquely differentiated as the only long-term continuous glucose monitoring system. As we have said before, our mission is to deliver transformative glucose monitoring products that enable people with diabetes to confidently live their lives with ease. We are continually advancing our technology road map to realize this vision. 1.5 years ago, we introduced the world's first implantable long-term glucose sensor that lasts for 90 days. Six months after that, we launched a second-generation transmitter that reduced the overall wearable footprint of the original transmitter by half. And now, 6 months later, we are introducing a sensor that doubles the life of our first sensor to 180 days.

In addition to the work we've been doing with the FDA on the PMA approval, we've also worked with the agency on the U.S. clinical study designed for the 180-day product with reduced calibration. We expect to begin enrolling patients this summer for this trial.

I'm very proud of the hard work the team has put in delivering our promise to the diabetes community, and we believe we're just getting started. As previously announced, we are working on an integrated automated insulin delivery system combining Eversense with the TypeZero artificial pancreas algorithm and the Roche Accu-Chek Insight pump. The NIH-funded study to test this integrated system is expected to start in the second half of the year. And we are actively seeking opportunities to advance our dense data capability by partnering with digital and health companies.

Finally, we are very excited to have now seen the early data on our Gen2 sensor that is aimed at longer duration and optimal performance and usability. Specifically, we look forward to the not-too-distant future, where we expect to be the first company to offer a sensor that lasts for a full year of continuous sensing. We believe that Senseonics is poised to truly improve diabetes management care for millions of patients worldwide over the next several years.

We greatly appreciate the hard work of our employees that are helping to drive these efforts forward and for the continued interest and support of our investors.

This concludes our prepared remarks. Joining us for questions are Mukul Jain, our Chief Operating Officer; Mirasol Panlilio, our Vice President and General Manager of Global Commercial Operations; and Mike Gill, our Vice President and General Manager of the U.S. region.

Operator, let's open up the call for questions.

(Operator Instructions) Our first question comes from Danielle Antalffy with Leerink Partners.

First question. Don, I guess this question is probably for you, and it's on guidance. I mean, they come a little bit below where consensus was. And I appreciate the conservatism around the U.S. But I was just wondering if you could give a little bit more color on what's factored in there as it relates to Europe versus U.S. I mean, when you say minimal -- when you say it's just a small contribution, I mean, are we talking about like less than $1 million? Is there any color you can give on how that breaks out between U.S. and ex-U. S.?

Yes. Really, at this time, Danielle, we're reluctant to break that out in detail. As you know, we've got the panel date, and then it is totally up to the FDA and their processes as to when approval comes. So the sooner that we get U.S. approval, the more revenue one can anticipate, of course. But at this point in time, it's minimal, but we don't really want to put a dollar figure on that at this point.

Yes, understood. Is it fair to think that -- well, so just a follow-up on that. As far as -- once you do secure U.S. approval, then you have to go and get on payer plans. Is that correct? So even U.S. approval doesn't necessarily equate to an immediate launch. Is that the right way to think about this? And then maybe you could put the U.S. launch in context, the ramp we saw in Europe and if there's any -- if that could serve as a proxy at all here.

Mike, would you mind jumping in and provide a little bit since you're living this every day now, talk a little bit about the work that you guys are doing at payer readiness and our opportunity to revenue ramp as a result?

Yes, thanks for the question, Danielle. As you know, working with payers is a journey and nothing is 100%. As I mentioned in my prepared remarks, the conversations have been fairly robust and, as I mentioned, fairly good. In terms of coverage policies, I think you're aware that coverage policy dates come up for decision in a certain period of time throughout the year. And depending on when we get approval, the coverage policy updates, if their time is right with the approval, we may see something come shortly after that. Or we may have to wait until the next update unless they want to decide outside the scope of when they make their updates. So it really is interdependent on the payers. But like I mentioned in my prepared remarks, through conversations with the payers, they've been very interested and intrigued and motivated to see Eversense into their provider-ship.

The next question comes from Jayson Bedford with Raymond James.

Just on that last comment, Mike. I'm a little less familiar with the timing of coverage policy updates. Do the payers all go at the same time? Are there specific dates here? Meaning, let's say you've got approval on June 1, when is the next update?

Yes. So if you had a June 1, I don't know every single policy update. Across the top 5, they traditionally come in the middle of the year or at the end of the year, and that would be Aetna, Cigna, United, et cetera. And like I mentioned, Jayson, they can come out of their timing based on the utilization and also based on the demand in the market. And then, of course, you have over 200 other [Blues], regional plans and otherwise, that could put them in their policies as soon as we get, potentially, approval.

Okay. And Mike, you made a comment earlier that struck me. You mentioned that the potential for technology is higher than you initially realized. What have you seen? Just put some context around that. What have you seen that gives you that increased confidence?

Well, first off, in the years that I spent in diabetes, I certainly have a lot of people in the industry that I've consulted with and talked to. And through those conversations, initially, when I was even interested in joining the team here and then where it's advanced to would certainly the possibility of the PMA approval and the panel to today, where we have that deeper discussions with some of the key opinion leaders, stakeholders, advocacy groups. And all along the way, they've said that this is a meaningful difference in diabetes treatment and CGM, particularly, and that there will be an opportunity for this to be another choice to their patients who choose CGM.

Okay. On the 180-day product, just in terms of pricing, I realize that it's only launched in the U.K. and, I guess, Sweden now. But are you capturing more value? Meaning, are you getting more for the 180-day sensor from an ASP perspective?

Remember, Jason, the dynamic which will be different than we are in the United States is pricing is actually set by the distributor. So in the case of the U.K., it obviously is Roche, so they'll determine end market pricing. And just like you would imagine, there are completely different regions with different pricing schemes. We tend and Roche will tend to follow the more aggressive pricing. But we've seen that their pricing is pretty competitive with the market, and that runs that consistent about EUR 10 a day approximately pricing in Europe.

Okay. But Tim, you sell to Roche at the same price, meaning whether it's a 90-day or a 180-day sensor?

We haven't disclosed that relation, Jayson, as you can imagine. But you would anticipate that there would certainly be some economy of scale value, but we certainly wouldn't sell it at the same price for twice the duration.

All right. Okay, okay. That's what I was getting at. And just in terms of the rollout, do you expect by year-end, most people will be receiving the 180-day product?

Mirasol, would you mind just kind of giving a recap of our plans to roll that out here?

No -- yes, absolutely. We do expect, Jayson, that, really, when you look at our installed base, that by the Q3 time frame, we should be in the 6 months sensor by then. I think the goal, and everyone's very excited about introducing the 6 months sensor, is by the end of June, with our distributors, to make this product available throughout Europe. So we expect that by Q3, our installed base should have moved to the XL sensor.

The next question comes from Kyle Rose with Canaccord Genuity.

This is actually Brandon on for Kyle. First question, just internationally. Can you guys just run through maybe where you're expecting pockets of growth OUS? And are you kind of looking at expansion into new territories contributing more to the growth there or maybe just penetration into current accounts?

Brandon, I do think it's going to be a combination of the 2. Recall that the largest market in the -- outside the United States is Germany, with generally very favorable reimbursement for CGM in that market. It is still relatively new and a few growing pains that we've heard, too, but we expect there to be meaningful continued penetration there. But there is further expansion as well. We have just initially launched in U.K., probably the third largest market opportunity for us, which we expect some growth out of. But Italy is another very attractive market as is Sweden. So there are certainly pockets of it, and it tends to follow the national or system-level reimbursement.

Okay. And turning back over to the U.S., you have -- you had guided to approximately 20 reps that you'll have by midyear hired here. Can you just elaborate on -- if those reps are already hired, when they might be coming on, when can we expect kind of the spend for those guys? And just U.S. pricing, when the product is launched, I guess, in comparison to what you're getting in international markets.

So from the operational additions, that's an active area for Mike's team right now. Our expectation, as we said, is to fully be operationally ready by midyear. And if we're able to secure the FDA approval, we would immediately hit the ground running with that team and the clinical team that Mike referred to in place with -- in parallel. Pricing, as you know, the dynamics around pricing for the full featured CGMs are still at about this $10 a day for the sensor. And we anticipate that we are going to be market-responsive with the pricing and continue to bring value for people with diabetes. So I'd expect us to be very close to where the market is.

Okay. And if I could sneak one last one in. A few quarters ago, you guys had mentioned that about 20 of your -- 20% of your patients were new users to CGM. Do you have an update on that figure? Is that still trending the same? Or has that meaningfully changed?

I don't have an update on the call today. It's been a little while since we did that survey. We actually spent some more time looking at the reinsertion rates. So I don't have anything new for you today. But my expectation is it's fairly consistent with what we've seen in the recent past.

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

I would like to thank everyone for their time today and continued support as we indicated 2018 as a very, very important year for Senseonics. We're excited about the opportunity to speak with the agency at what we hope to be approaching the final stages of the U.S. market approval. And we want to, again, continue to thank those that are working very hard in Europe to bring the product to now more and more people with diabetes there.

So this will conclude the call for today. I want to thank everyone, and have a very nice evening. Thank you.

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