Senseonics Holdings Inc (SENS) 2023 Q4 法說會逐字稿

Good evening, and welcome to the Senseonics's fourth-quarter and full-year 2023 earnings release and conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Trip Taylor from the Gilmartin Group. Please go ahead

Thank you, this is Trip 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, 2023, 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.

Joining me from Senseonics are Tim Goodnow, President and Chief Executive Officer; and Rick Sullivan, Chief Financial Officer.

With that, I'd like to turn the call over to Tim Goodnow, President and CEO. Tim?

Thank you, Trip, and thank you, all, for joining us this afternoon. Today's call will start by providing some highlights of our 2023 performance, followed by an update on Senseonics' strategic initiatives, including ongoing measures to support Ascensia, who is strengthening Eversense's commercial performance. I'll also provide an update on Senseonic's development programs to advance our product pipeline. Then our Chief Financial Officer, Rick Sullivan, will discuss the fourth-quarter financials in detail, and we'll then open up the call for questions.

2023 was a successful year across the business for Senseonics as we made solid progress on each of our strategic growth initiatives. On the clinical and regulatory front, we completed our enhanced clinical trial and subsequent data analysis supporting our imminent submission for the 365-day system and we filed the FDA submission for the iCGM designation.

We expanded market awareness notably with an increase of over 300% in website impressions as a result of ADC's direct-to-consumer advertising campaign. And we expanded access to Eversense for millions of patients by securing coverage from the UnitedHealthcare and Medicare. We also gained expansion through the basal only and hypoglycemic indications across the significant number of commercial payers.

Financially, we achieved our full-year revenue guidance and strengthened our balance sheet by reducing our debt and increasing our liquidity position. We see 2024 as another year of key catalysts as we work towards delivering our plan for development milestones, regulatory approvals, patient expansion, and progress across other strategic growth initiatives.

For 2023, we achieved our revenue guidance as Senseonics generated total revenue of $8 million for the fourth quarter, representing 44% growth compared to the prior year period. And generated total revenue of $22.4 million for the full-year 2023, representing 37% growth compared to the prior year period. In the US, fourth-quarter sales totaled $6.1 million and sales outside the US totaled $1.9 million.

Through our collaboration agreement, Ascensia has a responsibility to drive awareness and access and to increase adoption of Eversense in the market. While both awareness of Eversense and access to the product notably improved in 2023, new patient insertions fell short of Ascensia's and our expectations.

In 2023, the patient base did increase nearly 40% to approximately 4,500, and US users increased more than 50% year over year. However, we believe Eversense holds the potential for greater growth and recognize together with Ascensia the importance of further strengthening the commercial support Eversense receives in order to drive stronger results.

We believe a set of positive dynamics will improve this commercial performance, most importantly, having key payer wins from 2023 in place for the full year, such as UnitedHealthcare, the establishment of a broader and certain network to make access easier, Ascensia's CGM-focused organizational changes and hires, together with a further buildout of their commercial team. Our view that this positions them more strongly to take advantage of the demand and potential for Eversense adoption.

Encouragingly, Eversense user retention remains high. In many of our key geographies, we are seeing patient retention rates in the mid-80% range, and those rates continue to improve with each subsequent sensor insertion. We know the features and benefits of Eversense, the longest lasting CGM available, exceptional accuracy, removable transmitter, and predictive on-body alerts are resonating with patients. Not only is this supported by the patient retention figures, but also by the success of the direct to consumer marketing campaign that was launched in October.

It highlights Eversense's unique benefits. With that campaign, the number of lead increased by three times, which we see as validation of strong interest in the benefits of the product. As we discussed on the last quarterly call, ADC launched this new integrated campaign that included television commercials, expanded social media, and new ad created to build awareness among patients and healthcare professionals.

This was a meaningful investment in direct-to-consumer marketing for Eversense. With the increase in leads, patient enthusiasm was stronger than expected. And we are very pleased to see the patient response to a campaign that better articulate the unique benefits of Eversense.

While the increase in lead generation clearly demonstrated and further validated the demand for our implantable CGM, significant influx of leads stressed ADC's inside sales infrastructure and processes limiting their ability to effectively convert the leads. Lead conversion is critical and relies on having the right commercial strategy, resources, and execution. Ascensia's new leadership is currently redesigning and bolstering their direct to consumer and lead convergent approach. And we expect these efforts will enable them to take advantage of their latent demand for Eversense that the new campaign built.

However, given that the increased demand was offset by lower conversion that was not projected when fourth-quarter orders were placed, Ascensia has accumulated inventory that will impact their purchases from us in the first half of 2024. As Ascensia continues to implement several commercial measures to strengthen these functions and enhance the CGM-dedicated commercial infrastructure, we expect to see improved conversions going forward.

To strengthen Eversense growth, PHC has created a dedicated CGM business unit within Ascensia; independent resources directly reporting into PHC leadership, and clearly separated from its blood glucose monitoring business. The leadership of the CGM business unit has now full responsibility for the performance of the CGM business. This is a very important and positive step, one we believe will provide additional focus and acceleration.

To that point, we were thrilled to recently announce that industry veteran, Brian Hansen, will be leading these efforts. He was appointed President of this new CGM business unit, and is a very valuable addition to our collaboration. Brian previously served as Chief Commercial Officer for 10 diabetes care where he helped transform the company into a worldwide leader driving revenue ten-fold in a highly competitive insulin pump market.

He has built a reputation for successfully launching innovative products, driving revenue growth and overcoming commercial challenges within the complex, durable, medical equipment channel. We're excited to be working with him and look forward to his contributions.

With this, commercial leadership transition and updated commercial plan for 2024 is being developed. After the current strategies are reviewed, we look forward to continuing to collaborate with Brian and leveraging his experience to improve the commercial strategy and execution going forward.

Together, our top priority will be to ensure we are prime for the next phase of growth for Eversense as we advance towards the planned revolutionary launch of the 365-day system. We expect to submit to the FDA for review in the coming weeks and continue to plan for approval and launch of this new platform product this year.

Considering Brian's recent appointment, the timing of ADC's fiscal year which begins in April, the current patient base, inventory dynamics, conversion improvement initiatives, and the inherent uncertainty in the timing of the approval and launch of the 365-day product, today we are providing our first half outlook for the year, keeping in mind that essentially a purchases will be lower in the first half than their actual patient sales given the year end conversion shortfalls that they experienced.

New patient starts are growing and Ascensia is on pace to exceed the total number of new patient sales in 2023 within just the first half of 2024, with new patient sales expected to grow over 150% year over year in the first half. As a result, we expect Senseonics' first half of 2024 global net revenue to be approximately $10 million, representing growth of approximately 16% over the first half of 2023. We plan to provide the full-year outlook in the second quarter following a comprehensive analysis of our current commercial initiatives, and a more refined view of a product launch timing and dynamics.

Outside the US, in Q4, we ended the year as expected with sales of $1.9 million. Consistent with prior periods, growth in Italy and other geographies continued. In Germany, it appears that the user base has stabilized and Ascensia can now turn its efforts to growing patient demand. In the future, as ADC further builds out the CGM channel in Europe, we expect them to continue to win new coverage and tenders to support future growth in the region.

Now, I would like to provide updates on our strategic growth initiatives, particularly focus on our efforts to expand patient access and streamline healthcare provider experience.

Our Eversense in certain network is a key component of this strategy designed to provide more convenient sensor-insertion options for patients and a more streamlined workflow for providers. The network, which consists of Eversense-certified providers, is an instrumental in expanding access for our fastest growing segments, type 2 diabetes patients. As the vast majority of type 2 patients are treated outside of endocrinology offices as opposed to type 1 diabetes, it's important that we expand insertion options for the increasing user base. It also allows the Ascensia sales force on educating healthcare providers on the clinical benefits of Eversense without the need for insertion training.

Our strategic partnership with NPG has been a significant driver of the network expansion, with 18% of users receiving their assertions to NPG in the fourth quarter improving the patient experience by a two-pronged strategy that is well underway.

Part one was to extend the longevity of the sensor, thereby reducing the number of insertions required per year. When we move from the 90-day sensor to 180 days, we cut the number of insertions per year in half. We plan to do that again this year, with a 365 censor.

In parallel, we are continuing to build the inserter network to make it easier than ever for patients to get Eversense. As the two arms converge, we are confident that patients will readily accept one local, 10-minute office professional insertion procedure in lieu of having to manually self remove and reinsert sensors over 30 times per year. Every day, we continue to make strong progress towards that end.

Moving on to the access front. We are encouraged by the recognition from both commercial and government payers of the value that CGM brings to the broader range of patients than just those on multiple daily injections. We recently announced expanded Medicare coverage by three Medicare administrative contractors: Noridian, Palmetto, and NGS. These MACs have published final local coverage determinations that extend Medicare coverage for plannable CGMs by removing an MDI restriction and including all individuals with diabetes who use insulin, as well as non-insulin taking patients at risk of hypoglycemia.

As is typically the case, we are also seeing commercial payers follow suit with CMS' expanded coverage policy. We estimate that these two new indications, basal insulin use and hypoglycemic risk, effectively double the total addressable market for Eversense.

Given our product's unique advantages for the Medicare populations, such as professional sensor placement which eliminates the need for self insertion, long sensor life, and on-body vibration alerts that serve as a secondary safety mechanism for patients, we anticipate strong adoption within this expanded Medicare population.

Moreover, Eversense offers additional advantages for type 2 patients and typically prioritize simplicity not having to replace sensors every 10 to 14 days, not having to worry about sensors frequently falling off, and the flexibility and convenience of being able to remove the transmitter as needed.

Our key factors contributing to type 2 is now being our fastest growing segment, representing over 60% of our new patient growth. These recent policy decisions further validate the need for an implantable CGM. Throughout 2024, we anticipate the remaining MACs and commercial payers will adopt similar policies, which we see further fueling awareness and penetration of Eversense.

Looking ahead, we are actively engaging in discussions with large health systems and accountable care organizations. These organizations assuming the risk of managing patient populations, recognize CGM as an effective means to improve patient outcomes, while simultaneously reducing healthcare costs. There is a substantial opportunity for these health systems to leverage their influence over care pathways and directly integrate Eversense into their provider offices.

Given the inherent long-term adherence that comes with an implanted product compared to the high turnover of a weekly or biweekly transcutaneous sensors, health systems are beginning to recognize the potential for us to help their patients achieve improved outcomes, while simultaneously providing the system with the important diabetes quality measures required by their value-based agreements and supporting a positive ROI from the reduced overall cost of care.

Beyond Ascensia's ground-level commercial efforts, Senseonics is working to prove out a scalable diabetes population health management model in 2024. This is being designed to showcase a comprehensive solution combining product, data intelligence, and services with the goal of offering a compelling value proposition in health systems in the ACOs going forward.

To close out the commercial discussions, Ascensia has been making the moves and investments to support growth, as is evidenced by the announcement of Brian Hansen joining the team, and their commitment to extending the payment assistance and simple savings program to unlimited systems.

As the market opportunity continues to expand, effectively doubling with the expanded indications, we are aggressively working to address the challenges that come with being a market disruptor. All will lay the groundwork for growth in exciting new areas such as health systems. Together with Ascensia, we still have a lot of commercial work to do but we are energized by signals from patients, providers, payers, and health systems that long-term implantable CGM has an essential role to play in improving diabetes care.

Furthermore, as you are aware, Senseonics' responsibilities in our collaboration with ADC are focused on the remaining business elements of research, development, and manufacture of the Eversense product. Advancing our pipeline through innovation and new products of course remains at the forefront of our strategy. And we continue to make important strides on our side of the partnership as we achieve more innovation milestones, starting with our iCGM designation for Eversense.

The submission is an active review with the agency. And we believe that we have provided all the information necessary for them to make a decision. Integration with other diabetes technologies is essential and the next steps for Senseonics' iCGM strategy are important for the company. We look forward to providing more updates here this year, and more importantly, providing additional benefits to the approximately 1 million patients who are currently using automated insulin delivery devices.

Looking slightly further out in the coming quarters, we continue to plan for approval for our next generation 365-day system in the fourth quarter. With the completion of the enhanced pivotal clinical study and the data review, we are in the final stages of preparing an FDA submission and plan to submit upon approval of the Eversense CGM system.

We anticipate the 365-day system will offer several differentiated benefits of an implantable CGM, with a full year of protection from a single sensor and a significant reduction in calibration frequency. These differentiators are the basis for our belief that our 365-day system will represent a major advancement in diabetes management technology, an inflection point for Eversense in the US market. As we work with the FDA with the goal of securing approval for the planned one-year Eversense system approximately six months after the submission, we continue to target a launch in the fourth quarter of 2024.

In addition, the 365-day system platform is also the basis for the development of the subsequent generation Gemini and Freedom self-powered products, with the ultimate goal of removing the need for any on-body transmitter. We are excited for the first in-human testing of Gemini in the second half of 2024. This vision for Gemini represents another massive step forward in CGM technology.

With that, I'll now turn the call over to Rick for a review of our financials.

Thank you, Tim, and good afternoon, everyone. We appreciate the opportunity today to update you on our business. In the fourth quarter of 2023, net revenue was $8 million compared to $5.6 million in the prior year period. US revenue for the fourth quarter was $6.1 million and revenue outside the US was $1.9 million.

Our shipments to ADC in the fourth quarter are intended to support future demand for Eversense. As a reminder, Senseonics recognizes our portion of revenue when shipments are delivered to Ascensia and they take title and ownership of the inventory. This begins the multistep distribution to patients to the Ascensia and their distributors. We manage our manufacturing based on patient demand generated from commercial activities, targeting 60 to 90 days of inventory across the various channels.

Currently, inventory levels are greater than our target and we're working closely with Ascensia to return to target levels. We are also monitoring inventory levels with consideration of the plan for the transition to the 365-day product later this year.

Our share of revenue for 2023 represents approximately 75% of the expected Eversense revenue generated in the global markets. The revenue share percentage for Ascensia increases according to our collaboration agreement based on duration of the contract and annual revenue levels.

Gross profit in Q4 2023 was $1.1 million, an increase of $0.5 million from a gross profit of $0.6 million in the prior year period. The increase in gross margin was primarily driven by an increase in revenue as our volumes increased, which covered a greater portion of our fixed manufacturing costs.

Research and development expenses in Q4 2023 were $10.7 million a decrease of $0.9 million compared to $11.6 million in the prior year period. The decrease was primarily due to decreases in clinical trial expenses associated with the ENHANCE pivotal trial as patients completed the trial. These decreases were slightly offset by planned continued investments in our product pipeline for development of next-generation technologies.

Fourth-quarter 2023 selling, general, and administrative expenses were $7.3 million, a decrease of $0.5 million compared to $7.8 million in the prior year period.

For the three months ended December 2023 operating loss was $17 million compared to $18.9 million in the fourth quarter of 2022 due to a larger gross profit contribution and decreases in R&D and SG&A expenses.

For the three months ended December 2023, total net loss was $17.2 million for a $0.03 loss per share, compared to a net income of $11.6 million or $0.02 gain per share in the fourth quarter of 2022. Net income decreased by $28.8 million due to the accounting for embedded derivatives, fair value adjustments, and the exchange of a portion of the 2025 notes.

As of December 31, 2023, cash, cash equivalents, and short- and long-term investments totaled $109.4 million, and debt and accrued interest was $46.1 million. In continued efforts to strengthen our balance sheet in early 2024, we drew an additional $10 million on the loan facility with Hercules Capital, further enhancing our liquidity position.

Turning to our outlook for 2024. We expect first half 2024 global net revenue to be nearly $10 million. Our guidance reflects time for new leadership to formulate a full-year plan, expected inventory dynamics from a new product launch cycle and our current patient base.

In Q2, we'll provide second half and full-year revenue guidance, along with expectations for 2024 revenue share percentages taking into consideration this work, greater visibility on the 365-day submission progress, and the result of commercial initiatives.

For the full-year 2024, operating expenses are expected to be similar to 2023 at approximately $80 million.

With that, I will turn it back to Tim.

Thanks, Rick. 2023 was a successful year across the business for Senseonics. Our accomplishments in the year included the completion of our ENHANCE clinical trial and subsequent data analysis supporting our imminent plan submission for the 365-day system, submission of our iCGM designation, increasing awareness of Eversense through ADC's direct-to-consumer advertising campaign, and increased access with expanded coverage with UnitedHealthcare and Medicare, all while strengthening our balance sheet.

While we face challenges, as noted earlier, with commercial execution in the fourth quarter, we are excited about the positive changes implemented including conversion initiatives, and importantly, the new leadership and the new structure within PHC.

In parallel, Senseonics is also working to create and evaluate additional options to accelerate sensor placements and drive revenue. As all of these initiatives progress and we develop a refined view of 365-day product approval and launch, we look forward to updating you on our progress and expected impact on further revenue and new patient growth for this year.

Finally, Senseonics remains laser focused on continuing to advance our strong product pipeline to drive increased Eversense adoption in the future. We believe we are well positioned to grow our franchise to create shareholder value. Product innovation continues to revolutionize the management of diabetes, and Senseonics is committed to continuing to be a leader in this space.

Thank you for your time today. Also, joining us for questions is Mukul Jain, our Chief Operating Officer. Operator, let's open up the call for questions.

(Operator Instructions) Mathew Blackman, Stifel.

Hi, guys. This is Colin on for Matt. I wanted to start with a bit of a level-setting question and ask, how much did the increased Ascensia inventory levels contribute to the fourth-quarter revenues? And how should we expect those inventory levels to be worked down during 2024?

Is this a similar two-quarter timeframe as we saw with the 2023 destocking dynamic? And how much of a revenue headwind should we expect it to be during the first half?

Well, thanks, Colin. As we said, we do expect to have the inventory -- the build-up of inventory from Q4 worked through in the first half of this year. So over the next, frankly, four months, and Ascensia is building those plans over the first two to work through it. The total quantification, we don't have yet based on the volume of the ramp, but we feel pretty confident with the plans that are in place that we will have a work after in the next four months.

And I was encouraged to hear the 300% increase in the lead generation from the recent campaign. Could you provide any color on how Ascensia plans to drive those conversions higher? And any metrics you could provide on the conversion in the pipeline? And how you expect that to progress going forward, given the importance of this campaign? That would be really helpful. Thank you.

Sure. Most of the input comes in through the web. And what Ascensia is doing is building out the capability, the tools, the training, and the personnel within their inside sales organization to handle those conversions. Much of that improvement is being worked on right now and really has been since they recognize that the conversion rates were not where they had planned in the fourth quarter. So we're excited about those that we do fully anticipate have seen and we do fully anticipate continued improvements.

In that conversion, that will always continue to be a focus and a goal for us. We're always looking to improve that lead generation conversion, but we are very excited. There's a lot of interest in a long-term implantable sensor, and especially in these type 2 patients that are on basal insulin. So we're excited about the opportunity.

As we've said, we expanded the market by over 3 million new potential patients going on Eversense. So we're obviously excited about that as well, and looking forward to Ascensia to work through all of those internal systems to be much, much more effective.

Thank you.

Marie Thibault, BTIG.

Hi, Tim, Rick, Mukul, thanks for taking the question. I wanted to ask a question here on guidance, and specifically with the Medicare basal and hypo-risk expansion, certainly, we saw with other CGMs that that led to an acceleration adoption. What are you expecting or what have you assumed in your guidance as you think about that when I know the first LCD just went into effect a couple of days ago here?

Yeah, you're correct. And many of the others we anticipate will be up and running here over the coming weeks, certainly by the June time period. So it is a portion, Marie, of the plan and part of this burn-off of the inventory that we spoke of here in the first two quarters.

We're still working with the new Ascensia team, if you will, to lay out what that looks like for the full year, but we know that it's a very meaningful opportunity for us. And we're certainly looking forward to being able to announce that in the second quarter. We also have some very exciting work with potential ACO partners that we are looking at, and there are a couple that we're talking to that are really interested in managing their type 2 patients.

As you know, those are at risk. And anything that they can do that to keep them out of the hospital and keep them in better care is really valuable for those organizations. So there's also a big opportunity in that type 2 space as well.

Okay. That's helpful. And then it's exciting to think about the 365-day approval and launch later this year. I do want to understand though, when we're seeing new products come to market, sometimes we've had a little bit of lag on reimbursement or maybe working through some inventory or a little bit of pausing as people wait for a new product.

I know it's early days, but do you have any thoughts on how that exciting new launch could be impacting sales and inventory here towards the end of the year or even mid year?

It's not unreasonable to anticipate that coming with a new product. There were people who will say, well, just let me wait for that one. So obviously, that's the planning that we're going through right now.

If people do come into the 180-day product and 365 comes out, then when they stay in cycle and they come in for their replacement, they'll continue to stand the device, but just the new one they'll get is 365. So all of that planning is going on right now.

What we do also know is that the 365 is just another huge quantum step forward, in just that simplicity and the ability to manage your life without thinking so much about your diabetes. So we also know that it's going to be much, much more attractive to people as well. And we're excited to be on the cost of doing that submission and an approval later this year.

Sure, okay. And one just quick follow up. If I could get the exact number of patients at the end of 2023? There's 4,500 worldwide and more than 50% growth in the year. Any chance you can give us the US or US breakout?

Rick, do we have the breakout on that? I'm not sure we have that.

Yeah. I think we're keeping with the 4,500 global patients for now.

Okay. All right. Thank you.

Vernon Bernardino, H.C. Wainwright.

Hi. Thanks for taking the question, and congrats on the impressive growth. Just wanted to follow up on the inventory question. But before that, I couldn't readily find the numbers right away, but could you remind us what the sales were for US and ex-US were in third quarter?

And along those lines then, with the inventory buildup, does Ascensia separate as far as inventory -- accounting, for example, ex-US and US or is it all one accounting? Just trying to figure out, let's say, day sales and all that change in rates?

Sure. Rick, do you want to take that?

Sure. Yeah, Vernon. So the first part of your question, I think, was the breakdown of US and OUS, maybe it was for fourth quarter, and so $8 million was the total. It was about $6 million in the US, and $2 million OUS for the quarter. And Ascensia does break out their inventory between the two geographies.

Okay. Do you anticipate -- you said the inventory will be wound down in the next four months, which I guess, the rest of first half. Do you anticipate any further build-up before, let's say, the launch of 365?

I think we expect that by the end of the second quarter that Ascensia will get back to -- which our target of 60 to 90 days throughout the entire channel. And then after that, we'll provide guidance in the second quarter with how we think that transition from the six-month to 365-day product will go.

Great. Thanks for taking my question and my follow-up.

Sure.

Jayson Bedford, Raymond James.

Hey. This is Glenn on for Jason. And to start off, I just wanted to ask if you think the iCGM designation impacts commercial adoption or is it more of a vehicle to integrate the pumps?

Well, it certainly is a vehicle to integrate with pumps. Obviously, especially in the type 1 space, there are clinicians that see the iCGM as a validation of the system as a whole. So there can be MDI patients that the docs would like to put on the pump in the future. So iCGM is certainly influenced there. But it's also, of course, an avenue to get into the a million or so patients that currently are linked together in doing the --that's automatic pumping.

Okay, thank you. And just to be clear, the Q2 revenue for just -- for example, 2Q to Senseonics translate to implants in 3Q? If I'm understanding that correctly?

Approximately, yes. We would see target of 60 to 90 days from when we recognize revenue for it to go through with the channel.

Okay. So how much of the $22 million in '23 came from new patient sales -- how much of that is in a patient now?

We're not providing that level of detail since we recognize our revenue in advance of the insertion into the patient. And so there's the time dynamic, and then there's also the inventory dynamic, which we spoke to being a little bit ahead of our target inventory levels.

Okay, that was all. Thank you.

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

Great. Well, thank you all for joining us. Once again, we appreciate it, and we look forward to further updates here in a couple of months with our Q1 quarter call. Thank you. Have a good day.

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