Senseonics Holdings Inc (SENS) 2020 Q4 法說會逐字稿

Good afternoon, and welcome to the Senseonics Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Lynn Lewis of Investor Relations. Please go ahead.

Thank you very much, and welcome to the Senseonics Fourth Quarter 2020 Earnings Call. This is Lynn Lewis 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 enhancement, 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 for the year ended December 31, 2019, our 10-Q for the quarter ended September 30, 2020, and 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] (corrected by company after the call) outlook. In light of the COVID-19 pandemic, 2020 financial guidance was suspended on March 26, 2020.

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?

Great. Thank you, Lynn, and thank you all for joining us this afternoon. On the call today, I'll detail our recent progress in the fourth quarter and how accomplishments over 2020 have positioned Senseonics to drive the value of our Eversense system in the marketplace. In addition, I'll highlight our fourth quarter performance, the early commercial collaboration efforts with Ascensia Diabetes Care, including the transition of our European distribution. We'll share our outlook for 2021 and discuss developments with our product pipeline.

Then Nick will detail the fourth quarter financials before I conclude and open up the call for questions.

To start, I'd like to briefly touch on our challenging yet transformational year. First, we undertook a comprehensive strategic evaluation, which led us to an opportunity to engage in a commercial collaboration agreement with Ascensia. Then with the revamped business model, we were able to raise $175 million in net proceeds to materially strengthen the balance sheet.

We believe that based on our current projections, expectations and business plans, the existing cash and cash equivalents should be sufficient to fund the business through cash flow breakeven from operations and the commercial launch of the 365-day sensor designed to be calibrated only once per week.

We're confident based on our early experience with Ascensia and their shared passion for our technology and how it impacts the lives of people with diabetes that we have a team and strategy in place to be successful with the current Eversense system in the U.S. and Eversense XL in Europe as well as our future generation products.

As you'll recall, Ascensia is a diabetes care company and a global leader in the blood glucose monitoring market, with roughly $1 billion in global annual revenue they offer products in over 125 countries to approximately 10 million people with diabetes.

The Switzerland-based company is owned by PHC Holdings Corporation, a KKR portfolio company. We see them in their complementary market position as a very strong strategic fit for Senseonics, as we seek to expand the sales and adoption of our innovative, continuous glucose monitoring offering.

Throughout our engagement with Ascensia, it's been apparent that between the 2 organizations, our missions and motivations are aligned and their core competencies are complementary. With Senseonics, we're driving development and manufacturing of our product and Ascensia positioned to drive commercialization.

We have executed an agreement that we believe is beneficial for both sides. Ascensia adds our advanced Eversense CGM system to enhance their portfolio, and we leverage their global commercial experience and footprint. We formed a broad partnership, including global commercialization and a financing agreement. Ascensia is now the exclusive worldwide distribution partner for all Senseonics' current and planned diabetes products and will receive a tiered share of the revenues generated over the approximately 5-year agreement.

Ascensia's commitment also included an investment of $35 million in Senseonics, with an additional $15 million available at our option following the FDA approval of the 180-day product. As Ascensia assumes responsibility for managing marketing, sales, distribution, reimbursement and customer service, this agreement has allowed Senseonics to streamline sales and marketing operations and eliminate several functions. The resulting business changes are anticipated to reduce sales and marketing expenses by approximately $45 million annually relative to our 2019 expenses.

This impact is clear in our fourth quarter financial results, and we expect it will have lasting impact going forward. We are now able to dedicate more attention and resources on our core competency; the research, development and manufacturing of innovative and transformational next-generation diabetes products. And in the future, we'll pursue the use of our on-body technology to measure important analytes beyond glucose and outside of diabetes.

In the fourth quarter, Ascensia began initial focused sales efforts with Eversense in the U.S. This was to become familiar with our products and markets as we work together to plan the full commercial transition, which is scheduled to take place in April. We also prepared together for Ascensia to assume the full commercial responsibilities in key markets in Europe on February 1. The early days in the U.S. have been informative and valued, with great collaboration producing learnings from both sides. The early focus was to assess, plan and establish the needed processes and programs intended to stabilize the market for Eversense and were centered only on certain existing large volume prescribers.

At the core of our relationship is the shared belief that Eversense addresses important unmet needs for people with diabetes. Our experience and research strongly suggests that the most important desired improvement for CGM Systems is a longer sensor duration. We are unmatched in this category, offering 90- and 180-day duration sensors while maintaining a high degree of accuracy throughout the long life of the sensor.

Additionally, Eversense is also the only system that offers on-body vibratory alerts and a removable transmitter, both of which remove burdens of the other systems and make patients' lives easier. When patients start using Eversense, whether they are new to CGM or switching from another, we have seen them continue to use the product with follow-on sensors at a high frequency. COVID and our limiting commercial operations in the U.S. presented retention headwinds in 2020, but we believe the impact has been manageable. In support of our installed base, in the fourth quarter, our revenue was $3.9 million, including $400,000 revenue from the U.S. and $3.5 million of revenue from outside the U.S.

In the early days, we've been quite impressed by Ascensia's ability to incorporate feedback from the field and make adjustments quickly and collaboratively. As they have identified needs and opportunities, they are adjusting their personnel and strategy accordingly. Our Eversense system is unique and highly differentiated.

We believe that the team that they are developing will do an excellent job of learning about the demands of the Eversense sales process and taking action to assure they have the professionals with a matching skill set to capture the opportunity.

We certainly appreciate the drive for success and share the excitement and commitment they have shown for the product. Looking just ahead in the U.S., Ascensia is underway in establishing a sales team targeted to be approximately 25 dedicated sales professionals at the end of the first quarter. They have been hiring and plan to train these new team members over the next month to be deployed in the field in April.

We are actively involved in the training and preparation of this group. In addition, the field and inside sales support, clinical training and marketing access functions are also expanding to another approximately 20 additional commercial support team members.

We agree with Ascensia's approach and believe that the build-out of this dedicated U.S. commercial infrastructure is crucial for driving Eversense adoption. We are excited to have it currently underway.

We're also pleased to be reconnecting Eversense with the health care providers that were previously prescribing and inserting the product. Still, we feel raising awareness more broadly across providers and patients is a priority for our product.

Together with ADC, we are creating additional initiatives to address product awareness. Most significantly as part of the full commercialization efforts in April by ADC, a direct-to-consumer advertising campaign will once again commence for Eversense. This will consist of targeted ads as well as search and social media promotions. This picks up off on where we left off at the beginning of last year before we ceased active marketing to new users.

We anticipate the DTC strategy will help grow the Eversense brand in the diabetes community. Given the consumer-facing aspects of our medical technology category, this has proven to be a successful strategy for others. We and Ascensia are making significant investment to generate awareness and interest for Eversense.

A second ongoing initiative we remain focused on with Ascensia is to drive adoption through patient access support. To date, we've been pleased with our progress on this front. As we have expanded the number of U.S. covered lives to approximately 200 million patients who can use Eversense and receive reimbursement from their insurance plans.

We believe this number represents a critical mass at which providers can generally be confident their patients will be eligible to gain access to the technology. We feel that the recognition from these payers who are providing coverage for Eversense is a strong validation of our technology and our value proposition.

Over the past quarters, we also continued to win incremental positive coverage decisions from providers like EmblemHealth. Recently, Eversense and the insertion procedure were included in the 2021 physician fee schedule for Medicare beneficiaries. This represents national payment levels for a patient population we feel is uniquely suited to benefit from the features of Eversense.

In the fourth quarter, we've added initial Medicare patients to our installed base and confirmed the logistics associated with the payment of this medical benefit coverage.

Strategies to service and expand this patient population are being developed by ADC. In support of greater access to patients, Ascensia plans to introduce 2 new programs for their benefit. The first is a prior authorization support program. This aids patients in petitioning their plan to cover Eversense on an individual basis if it does not have a formal coverage policy in place.

In addition to assisting patients, this also demonstrates demand and utilization of Eversense to the payers. This will be helpful for them as they continue to evaluate the technology. Along these lines, Ascensia also plans to initiate a patient assistance program for nongovernment insured patients. Such programs to assist patients with gaining access to a product are common throughout the industry and benefit patients, especially at the beginning of the year when deductibles are high.

For our European distribution efforts, we had our last contracted shipment of product to Roche in the fourth quarter according to their projected demand through January when our agreement expired. The top priority for our organization is serving patient needs, and we instituted a successful transition plan in Europe with Ascensia to target a seamless transition of their service. Patients have maintained their access to supplies and reinsertions through their HCPs, and Ascensia is working with these groups towards ensuring continued coverage and technical support.

Where it was possible, payer contracts and tenders have been transferred as well. Ascensia launched their sales efforts in Germany, Italy, Switzerland, Spain, the Netherlands and Poland on February 1. Despite the resurgence of COVID, at the end of 2020, we were able to maintain a notable portion of our installed base. Based on the information that we have to date, and we have reviewed with Ascensia regarding projected performance in our markets, we continue to expect 2021 global net revenue to Senseonics to be in the range of $12 million to $15 million across all markets.

Finally, regarding our new product, our clinical and regulatory objectives. As ADC assumes responsibility for Eversense commercial efforts, we plan to be focused on delivering the product innovation potential promised by our platform. We see excitement from the HCPs and patients about our continued effort to extend the sensor duration. And we expect each approval of an extended product to create greater momentum and increased market penetration.

Starting with the PMA supplement submission for the 180-day sensor in the U.S., we received a late February communication from the FDA with a further update regarding the reallocation of agency resources to address emergency use authorization applications for products related to the COVID-19 public health emergency.

As previously noted, this situation has been affecting all marketing application reviews generally, including the Eversense 180-day product which has been delayed consistent with what we understand other medical technology companies have reported.

We are now informed that the FDA expects to assign our file to a reviewer and place it under review no later than April 15. And once the review process has started, we are hoping for a reasonable turnaround. However, in this environment, the exact timing is difficult to project. We generally plan for a 6-month review period, which is consistent with the FDA guidance.

So with the passage of time and this new expectation from the FDA, we are planning on an approval in the third or fourth quarter of this year. Based on the uncertainty around the review time lines at the FDA, we plan to provide an update on progress in the future. We do remain confident in our belief that the PROMISE study demonstrates strong performance of Eversense, justifying label extension for up to 180 days, and we look forward to publishing this data at the ADA meeting later this year.

Finally, our next-generation sensor underdeveloped is intended to be worn for up to 1 year. Again, we are pushing the boundaries of what is considered possible in diabetes technology. A key business objective for us this year is to complete the IDE submission for this 365-day sensor, all subject to the availability of the FDA review group. IDE approval would provide FDA clearance to initiate our clinical trial with a 365-day sensor to support a future regulatory submission.

We are optimizing the chemistry formulation and sensor architecture for this new generation now, and we are working to drive this program forward while we are also reducing the calibration requirement to once per week. We are excited to provide updates on this important product in the future.

And now for the details on the fourth quarter financials, I'll turn the call over to Nick.

Thank you, Tim, and good afternoon, everyone. In the fourth quarter of 2020, total net revenue was $3.9 million compared to $9 million in the fourth quarter of 2019. U.S. revenue for the fourth quarter was $400,000, and revenue outside the United States was $3.5 million. As we mentioned previously, the OUS revenue represents the last shipments to Roche to service the patient demand through January of 2021 and the expiration of our agreement.

Gross profit in Q4 2020 increased by $10.8 million year-over-year to $2.6 million. The positive gross profit was predominantly related to the ability to fill resupply orders with existing written-off inventory as reinsertion rates were above the expectations established at the onset of the COVID-19 pandemic.

Fourth quarter 2020 sales and marketing expenses decreased by $8 million year-over-year to $3 million compared to $11 million in the prior year period. This decrease was primarily due to recent changes in our commercial activities as a result of the strategic collaboration agreement with Ascensia. Research and development expenses in Q4 2020 decreased by $5.1 million year-over-year to $4.7 million compared to $9.7 million in the prior year period. The decrease was primarily driven by lower PROMISE clinical study costs and personnel-related expenses.

General and administrative expense in Q4 2020 was $5.2 million, a decrease of $0.7 million compared to the prior year period, mostly due to personnel costs related to stock-based compensation. Other expenses included increases to losses on the extinguishment and issuance of debt, offset by reductions in debt issuance costs and gains in fair value adjustments as compared to the prior year period due to the company's financings.

For the 3 months ended December 31, 2020, total net loss was $101.6 million or $0.41 per share compared to $35.6 million or $0.18 per share in the fourth quarter of 2019. Net loss increased by $66 million due to a $90.6 million increase to other expenses, primarily related to the accounting of the company's financings, including changes to the embedded derivatives partially offset by a $24.6 million decrease in loss from operations.

Now turning to the balance sheet. As of December 31, 2020, cash, cash equivalents and restricted cash totaled $18.2 million. In January, we closed 3 financings, raising approximately $175 million in proceeds. As of January 31, 2021, cash, cash equivalents and restricted cash totaled $187.3 million. Based on our current projections, expectations and business plan, we believe that the existing cash and cash equivalents should be sufficient to fund the business through cash flow breakeven from operations. Looking ahead, we expect global net revenues between $12 million and $15 million for 2021. For full year 2021, cash used in operations is projected to be in the range of $60 million to $65 million.

With that, I will turn it back to Tim.

Thank you, Nick. Early in 2020, we faced challenges that were exacerbated by the pandemic as experienced by many companies. We have quickly transitioned into a partnership with Ascensia that we believe dramatically strengthens our commercial capabilities and allows us to concentrate our focus on continued development of our technology. The recent capital raises have added $175 million to the balance sheet and should allow us to focus on execution.

We believe that we are now well positioned to address the top unmet need in the large and growing CGM market. With Ascensia, there are concrete plans to address awareness and access the meaningful ways to drive adoption of Eversense. Their commitment is clear and the investments that they have outlined to ramp up activity will strengthen the commercial opportunity. As we mentioned, with the FDA focus on emergency use authorizations leading to delayed review of submissions in general, we have coordinated to focus on reestablishing the 90-day product in the U.S. for the next several months with the cadence of resource deployment originally planned for the 180-day product launch.

As we move through 2021, we expect the COVID headwind impact to become a tailwind as the pandemic is moderated, vaccine penetration becomes more established and office visit frequency normalizes. With the build-out of a larger sales force, inside sales team, field support, DTC advertising campaign, prior authorization and patient assistant programs, we are very pleased to again be positioned to offer the benefits of Eversense to more patients.

In the fourth quarter and throughout the start of 2021, we have made substantial progress planning and building commercial capabilities with Ascensia. From our perspective, it is easy to see why they are a leading global diabetes company. We could not be happier to be working with them and look forward to further success.

Joining us for questions are Mukul Jain, our Chief Operating Officer; and Mirasol Panlilio, Vice President and General Manager of Global Commercial Operations. Operator, let's go ahead and open up the call for questions.

(Operator Instructions) And our first question today will come from Matthew Blackman of Stifel.

This is Melanie on for Matt. I just wanted to ask about some of your partnerships with pump manufacturers and where that is in your priorities or what needs to be done there? I know you have an agreement with Beta Bionics, but are you looking at any of the other pump players for potential integration? Then I have a quick follow-up.

Sure. The folks of pump insulin are, of course, very important to us. As you noted, we do have the partnership with Beta Bionics, and we've done some pretty exciting clinical testing with them.

In addition, our next effort to move the program forward really is around the iCGM designation, which makes the integration much more facile with the pumping partners. So that's our focus. At this point, we have the 180-day product in for review. And right behind that, we anticipate the iCGM effort. So that's step 1. And then the partnerships with the pump folks is the step right after that.

Got you. That makes sense. And then quickly, just a bigger picture question. You mentioned this on the call, but we've heard some other sensor companies talk about expanding their platforms to go beyond glucose and look at other analytes. And like you said, you mentioned that, but is there anything else you can provide there, any color on when we might see something like that?

Sure. Obviously, the opportunity -- our product is, quite frankly, a very miniaturized and very accurate analytical fluorimeter which means it has the ability to measure a number of different analytes. We have very direct experience with oxygen, as an example. We've actually sold about $1 million worth of oxygen sensing in our history, but we have very much focused on glucose for people with diabetes right now. As you know, it's a $5-plus billion market today, growing at about -- about a 35% CAGR.

So what we've coined internally is that we're going to generate our first $1 billion of revenue off from glucose, and then we're going to look to expand beyond that. But we do have a very, very broad technology. We're pretty excited about the opportunity. The fact that we've shown it before, I think, really gives us a leg up on some other technologies that have yet to do it.

The next question comes from Danielle Antalffy of SVB Leerink.

Tim and Nick, just to push a little bit on the $12 million to $15 million guidance. Obviously, a decent portion of that is predicated on Ascensia, picking up the ball here in the U.S. I guess the question I had is what gives you the confidence as where we stand today, as how we stand today. In that guidance, like what are you hearing? What is Ascensia's go-to-market strategy that they've discussed with you as far as driving adoption? Are they going to target higher volume centers? Are they going to target centers that haven't really adopted CGM? Sort of how are they thinking about this? And what drives your confidence in the $12 million to $15 million?

Sure. So the confidence comes because we have worked very significantly with Ascensia in this transition, and it frankly goes back to last summer, when we began to look at the opportunity with them. So we together look very deeply at not only what the opportunity is for CGM. Certainly, the opportunity for our implanted CGM. And remember, we have quite a history in our commercial activity as well. So we know that there's a very interested, very dedicated installed base out there and the opportunity to return and to continue to grow in that space, we have a pretty good feel about just based on the interest that we feel from patients.

Even in our unfortunate downturn during COVID, we were able to retain a significant portion of the people that were on Eversense just because they become so dependent on it. It's such a differentiated technology. It offers them so much more freedom that, that interest is incredibly large and is very, very sticky, thankfully.

So as we've looked at the available opportunity, as we've dug into not only the survey work we've done, the clinical work that we have direct responsibility work, but we also now have a partnership with a completely new organization to us that had extensively looked in the space as well.

So when you combine that research, that really is what drives the confidence that we have to be able to deliver these -- the guidance that we've given of $12 million to $15 million. We do think that given the installed base in Europe, we'll continue to be larger there for the first couple of years. We're anticipating still at about 2/3 of the revenue because the installed base is going to come from Europe this year. But we do know that the U.S. is also a very encouraging and interesting market and their commitment to add, as we said, about 45 heads, as we speak, dedicated to sell Eversense is another great opportunity for us to drive to those targets.

That is super helpful. And then just 1 quick follow-up. Actually, you alluded to this, and that's the strong reorder rate that you guys saw in Europe even through COVID. And I guess, I don't know if you can give a little bit more color about exactly what that reorder rate is. And is that how we should be thinking about a reinsertion rate, I guess? Is that how we should be thinking about it going forward? Is there anything different about the U.S. launch? Obviously, it's a 90-day versus 180. But as far as the retention that we should be expecting here?

Sure. So Danielle, we believe that the experience that we had in a couple of years in the U.S. and more than that, obviously, in Europe, where we really saw pretty consistent reimbursement rates. After about the first sensor, people typically reinsert about 75% of the time, after the second sensor, it's about 85%. By the time they're on the third sensor, they've fully chosen to use Eversense long term. So we're seeing reimbursement rates that are in the mid-90s. Now that is in the routine times. We did see some compromise to that during COVID, but it is our expectation that as we come out of the current COVID environment we're in, we're planning to be back at those rates in the coming year in '21 and beyond.

(Operator Instructions) And the next question will come from Jayson Bedford of Raymond James.

Just a couple of questions. Tim, I appreciate the color on the U.S. international expectation for '21. Any type of cadence you can give us either first half, second half or quarterly cadence? I'm just wondering the buildup here to the $12 million to $15 million for '21?

Yes. So we're modeling that we're going to do about 40% in the first half and 60% in the back half. So as you'd imagine, with the investment, the ramp will come, and as I said, we're still seeing -- we're still anticipating majority of folks given the installed base are going to be on the European side by about 2/3, 1/3.

Okay. And remind me, revenue recognition, do you recognize revenue when you sell into Ascensia or when the end customer takes possession?

No, that's right. Given that this is a revenue sharing, but we do sell product to them. So we will recognize it. There is some consideration that we take for the different revenue targets. So that goes into our calculus as well. But it is recognized now as we sell to -- globally sell to Ascensia.

Okay. And the revenue you recognized in the fourth quarter to Roche, do you recognize any in the first quarter to Roche? Or was that fulfilled in the fourth quarter?

No. We completed the obligation to Roche through January. That was actually sold to them in the fourth quarter. So on a calendar year perspective, part of what we needed to consider as well is that Europe only has 11 months because with Ascensia because it was filled January by Roche.

Okay. And you alluded to -- sorry, for taking more than 2 questions. But you alluded to Medicare traction in the fourth quarter. Is there any way you can quantify in terms of percent of patients? Anything you can give us more in terms of the experience with Medicare in the fourth quarter?

It's still pretty early, Jayson. Most of our focus has been in partnership on the training with Ascensia. It is a little bit different sale because the clinical practice does actually purchase the product as a medical benefit and then gets reimbursed from Medicare for it. So we've worked through that. We've shown that. We have the documentation support it. So now it's a matter of making sure people get comfortable with how to do that ordering and get the reimbursement in place. So it's still quite a small number, Jayson, but it is an important part of our future in '21. And a portion for sure of our U.S. sales plan.

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

Well, great. I want to thank everybody for their support and their participation today. It's been a challenging yet rewarding year for 2020, and we're very excited for the position we're in and the partnership and the ability to serve people with diabetes in 2021. So thank you for the time today. We look forward to updating you next quarter. Good day.

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