Memorandum

Senseonics 2Q20 – Financing agreements worth up to $80 million; Ascensia secures exclusive worldwide distribution rights to Eversense; 180-day Eversense submission to FDA in “coming weeks”; in major win, Eversense to be covered as a medical benefit by CMS – August 10, 2020

Executive Highlights

  • Just before this afternoon’s call, Senseonics announced financing agreements worth up to $80 million, including a “strategic collaboration” with Ascensia Diabetes Care. After transaction and advisor fees and repayment of a first lien loan from Highbridge Capital, the financing is expected to net ~$42 million, enough cash runway for the company to get “through 2021.” The agreements bring a much-needed cash infusion for Senseonics, which has been in a difficult financial situation since it was forced into repayment of a loan with Solar Capital in March.

  • In addition to the financing agreements, Senseonics announced a five-year “collaboration and commercialization” agreement with Ascensia Diabetes Care. The terms of the agreement give Ascensia exclusive worldwide distribution rights of Eversense, beginning with the launch of 180-day Eversense in the US and the expiration of existing deals in international markets. Ascensia will begin “pilot” sales and marketing efforts of 90-day Eversense in the US “this quarter,” with full-scale efforts starting in 4Q20 in the US and 1Q20 OUS. The agreement will replace Senseonics’ current distribution agreement with Roche and is set to last five years from the day Eversense XL comes on the US market. Senseonics and Ascensia will split responsibilities, with Ascensia handling the bulk of sales and marketing for Eversense. The two companies will also jointly share in net revenue – we look forward to learning more about how incentives will be aligned. With this announcement, LifeScan is the only major BGM company not to have announced a CGM deal.   

  • Senseonics reported global revenue of $261,000 in 2Q20 declining precipitously (94% YOY) from $4.5 million in 2Q19 and up sixfold sequentially from a very low base of ~$40,000 in 1Q20. US revenue totaled $206,000 representing an 81% YOY decline from $1.1 million in 2Q19. The reduced US revenue in 2Q20 was due in large part to “the forced halting of the US commercial operations in March,” compounded by COVID-19 closing clinics for insertion/removal procedures.

  • Senseonics continues to expand market access, now with “approximately 200 million” covered lives in the US across Medicare, Medicare Advantage, and private insurers. Mr. Goodnow shared that Senseonics is now “approaching 80%” insurance coverage in the US, a massive improvement from the ~30% of covered lives averaged during 2019. Now with financing secured and the promise of a 180-day product coming to the US market next year, Senseonics will be in a much stronger position to capitalize on its payer wins.

  • As expected, Senseonics will be ready to submit its “180-day product” (referred to as Eversense XL) to the FDA in the “coming weeks.” US launch of the product is expected for “early 2021.” In addition to half as many trips to the endo or surgeon to insert or remove devices, the approval is also expected to halve the number of required calibrations from 2 to 1 per day. A 365-day device is now targeted for IDE approval in 1H21 with enrollment commencing in 2H21, including pediatrics. The degree to which that could enable far better economics for payers remains a question, but it certainly is far more positive than the 90-day version, which was itself required so that the company could reach 180-day and then 365-day. As we’ve said, the company has long reminded us of Tandem several years back, which the promise of Basal-IQ and Control-IQ was but a dream – and, then, a dream that came true.

  • One calibration a week! It was terrific to hear Mr. Goodnow and others on the team share more of the company’s vision, emphasizing that the 365-day device will target just one calibration/week. Finally, we heard reference to an implantable flash glucose monitor, referred to as “Gemini,” and Mr. Goodnow even suggested the device might come with a built-in battery, eliminating the need for an on-body transmitter altogether. That would be the ticket!

Senseonics reported 2Q20 financial results this afternoon on a call led by CEO Tim Goodnow and CFO Nick Tressler. See below for our top highlights.

Financial and Business Highlights

1. Up to $80 million in financing agreements with Ascensia and Masters Capital Management to net ~$42 million cash, runway “through 2021”

Just before this afternoon’s call, Senseonics announced financing agreements worth up to $80 million, including a “strategic collaboration” with Ascensia Diabetes Care. After transaction and advisor fees and repayment of a first lien loan from Highbridge Capital, the financing is expected to net ~$42 million, enough cash runway for the company to get “through 2021.”

  • The parent company of Ascensia, PHC Holdings (formerly Panasonic Healthcare Holdings), will provide up to $50 million to Senseonics. The first transaction, in which PHC will purchase $35 million in senior convertible notes due in 2024, is expected to close around August 14, 2020. These senior notes have an annual interest rate of 9.5%, which will be reduced up 8% once Senseonics gets approval for the 180-day Eversense in the US. PHC is also committing to purchase up to $15 million of convertible preferred stock at Senseonics’ option and contingent upon approval for the 180-day Eversense. Proceeds from this financing will be used to pre-pay Senseonics’ first lien loan from Highbridge Capital for $17.6 million.

  • Investment management firm Masters Capital Management has also agreed to purchase up to $30 million in convertible preferred equity in Senseonics. The first transaction, expected to close around August 14, 2020, will be worth $3 million, with Senseonics shares priced at $0.476 per share (Senseonics closed this afternoon at $0.51/share). Masters has the right to purchase up to $27 million more shares at the same price at a subsequent closing sometime in the next three months.

2. Five-year agreement with Ascensia: Ascensia to take on sales and marketing responsibilities; “pilot” sales and marketing efforts to resume “this quarter” with full-scale efforts in 4Q20 in US and in 1Q20 OUS

In addition to the financing agreements, Senseonics announced a five-year “collaboration and commercialization” agreement with Ascensia Diabetes Care. The terms of the agreement give Ascensia exclusive worldwide distribution rights of Eversense, beginning with the launch of 180-day Eversense in the US and the expiration of existing deals in international markets. Ascensia will begin “pilot” sales and marketing efforts of 90-day Eversense in the US “this quarter,” with full-scale efforts starting in 4Q20 in the US and 1Q20 OUS. As a reminder, Senseonics suspended new sales of Eversense in the US in March following the termination of a loan agreement that left the company in a very difficult cash position.

  • Today’s announcement confirms that Senseonics and Roche will allow their distribution agreement to expire on January 31, 2021. Per today’s 8-K filing, Ascensia will take over the exclusive distribution rights for both 90- and 180-day Eversense worldwide whenever the agreement with Roche expires; the Roche agreement covers effectively all markets in Europe, the Middle East, and Africa – excluding Scandinavia and Israel – as well as several countries in Asia Pacific and Latin America, including Brazil, Russia, India, and China. Upon the transition in February, Ascensia will focus on the Germany, Italy, Switzerland, and Sweden markets. Following FDA approval of Eversense XL, Ascensia will also take over sales and marketing efforts in the US. If Ascensia does not meet agreed-upon “minimum annual revenue targets” and “specified levels of sales and marketing spend,” then Senseonics has the right to convert Ascensia’s exclusive distribution agreement into a non-exclusive agreement.

  • The new agreement is set to last five years from the day that Eversense XL becomes available on the US market. The 8-K filing offers a caveat in the agreement’s lifetime: if at the end of those five years, Ascensia has not had two years to sell a 365-day version of Eversense, then the partnership will extend up to 3.5 additional years, so that Ascensia can sell the 365-day Eversense CGM for at least two years. Finally, the agreement can be terminated by Ascensia is Senseonics has not secured FDA approval for 180-day Eversense by August 31, 2021.

  • Senseonics and Ascensia will split responsibilities, but will work together closely as Ascensia increasingly takes over the sales and marketing of Eversense products. Senseonics will focus on product development and manufacturing, as well as regulatory submissions, approvals, and registrations. To help Senseonics drive commercial adoption and market penetration, Ascensia will “assume sales, marketing, market access, patient and provider onboarding, and [most of] customer support” after the coming “period” in which the two companies will work “hand in hand.” Ascensia will also provide direct sales staff, starting with 30 direct sales staff in 2021 and ramping up to over 80 “by the end of 2023.” Customer support will continue to be a dual responsibility. Ascensia will manage the “frontline interactions” with users, including product use, performance, ordering, return, and warranty inquiries, as well as healthcare provider support. Senseonics will handle “the second line of customer technical support.” Finally, a joint marketing commission will be made up of equal representation from both companies and joint governance committees will have members from both companies.

  • Senseonics and Ascensia will also jointly share in net revenue “as consideration for each party’s contributions to the success and growth of Eversense.” Senseonics’ 8-K filing specifies that Ascensia will receive a portion of net revenue “at specified tiered percentages ranging from the mid-teens to the mid-fortys based on levels of global net revenues.” During Q&A, Mr. Tressler explained a bit more, noting that Ascensia’s share of revenue would increase as revenue expanded, giving the company additional incentive to sell and market Eversense at scale.

  • Overall, this division of responsibilities will allow Senseonics to lower spending and to leverage Ascensia’s expertise and already-in-place global sales and marketing force, all of which allows Senseonics to focus on building and improving their product. As CEO Goodnow noted, “historically [sales, marketing, and customer service] has been the largest cost and use of resources for our organization. This change to cost structure will ultimately be beneficial for our progress toward profitability.” For 2021, CFO Nick Tressler estimated an annual cash burn rate of “below $60 million,” which would be at least a 50% improvement from 2018 – while it’s early to say whether the company can reach this ambitious goal, the new partnership with Ascensia gives us much hope toward this end. In Q&A, management provided further details on the advantages of the deal for Senseonics. In particular, Ascensia can provide sales reps in physician’s offices – a huge opportunity for Senseonics – and access to Ascensia’s 1,700 employees and huge BGM user base (“10 million patients”). Ascensia also have strong relationships with distributors, a depth of experience in the diabetes technology market, and the infrastructure “to move products around.”

3. Global revenue of $261,000 declining 84% YOY; US sales of $206,000; international sales of $55,000

Senseonics reported global revenue of $261,000 in 2Q20 declining 94% YOY from $4.5 million in 2Q19. Revenue of $261,000 represents a massive sequential improvement from 1Q20, Senseonics’ second-worst quarter on record, when revenue totaled $36,000. US revenue totaled $206,000 representing an 81% YOY decline from $1.1 million in 2Q19. The reduced US revenue in 2Q20 was due in large part to “the forced halting of the US commercial operations in March,” compounded by COVID-19 closing clinics for insertion/removal procedures. International revenue totaled just $55,000 representing a 98% YOY decline, but significantly improved from only $12,000 in 1Q20. Continued low international sales through 2Q20 are in-line with expectations from 1Q20 when Senseonics reported international distributer Roche was continuing to work through inventory. During prepared remarks, Mr. Tressler reiterated “we did not expect Roche to make a meaningful order in the second quarter.”

  • COVID-19 continues to have a significant impact on sales, especially in the US. Insertions of Eversense were significantly reduced in March and April due to the closure of many clinics. Insertions began to increase again in May and June, but according to Mr. Goodnow insertion volumes are “still below pre-COVID levels.” During Q&A, Vice President and General Manager of Global Commercial Operations, the highly regarded Ms. Mirasol Panlilio (who with Mr. Goodnow helped commercialize FreeStyle Libre’s predecessor at Abbott Diabetes Care) commented that though insertion rates dipped early in the second quarter, Roche has been “very pleased with how stabilized it has been in the last couple of months particularly in Europe.” We are curious, of course, how Roche is responding to the latest set of decisions at Senseonics.

  • Gross profit improved to “negative $1.1 million” from negative $4.5 million in 2Q19. Of course, the gross profit change was entirely driven by the massive YOY reduction in shipments, not any meaningful margin accretive drivers. Overall, net loss was reported at $7.5 million, an improvement from $31 million in 2Q19. This was driven a 78% YOY reduction in sales and marketing expenses – as a reminder, Senseonics cut its workforce by 60% in 1Q20

  • At the end of 2Q20, cash and cash equivalents totaled ~$22 million. Of course, this does not include the financing agreements announced today (see highlight 1 above). Due to the commercial partnership with Ascensia, Senseonics will invest slightly more in its sales efforts and revised its cash burn guidance of $3-$4 million per month from 1Q20 to $3.5-$4.5 million for the rest of 2020. However, Mr. Tressler emphasized his forecast that the company still expects to have operational cash burn below $60 million for 2021.

4. “Approximately 200 million” covered lives in US, “approaching 80%”; Big win in 2021 CMS Proposed Fee Schedule that proposes nationwide coverage for Eversense as medical benefit

Senseonics continues to expand market access, now with “approximately 200 million” covered lives in the US across Medicare, Medicare Advantage, and private insurers. Of note, Mr. Goodnow highlighted a coverage win with Highmark, one of the top ten largest insurers in the US, in the quarter. Mr. Goodnow shared that Senseonics is now “approaching 80%” insurance coverage in the US, a massive improvement from the ~30% of covered lives averaged during 2019. With continued payer wins, Senseonics is well on its way to achieve its >250 million covered lives by the end of 2020 goal. Additionally, Senseonics now has “over 2,000 prescribing clinicians and roughly 550 authorized insertion specialists.”

  • During prepared remarks, Mr. Goodnow Senseonics has not been able to capitalize on its reimbursement wins due to the company’s financial position, but as the partnership with Ascensia comes to fruition, Mr. Goodnow said the company expects “to be in a position to capitalize on the increased coverage and to resume growing our patient base in partnership with Ascensia.”

  • Finally, both Senseonics’ press announcement and Mr. Goodnow’s remarks focused in on CMS’ 2021 Proposed Physician Fee Schedule. The proposed fee schedule, which would take effect at the start of 2021, establishes nationwide payment amounts for three CPT codes covering Eversense insertion, removal, and insertion/ removal combined. Notably, this makes Eversense the first and only CGM covered as a medical benefit by CMS, rather than durable medical equipment. This is a simplicity win for patients and providers by reducing a great deal of paperwork and hassle. Though Medicare insertions for Eversense had already begun in 1Q20, Eversense reimbursement is currently governed by regional Medical Administrative Contractors, most of which currently pay for Eversense as DME.

Pipeline Highlights

1. 180-day Eversense (“Eversense XL”) to be submitted to FDA in “coming weeks”; approval expected in “early 2021”

As expected, Senseonics will be ready to submit its “180-day product” (referred to as Eversense XL) to the FDA in the “coming weeks.” US launch of the product is expected for “early 2021.” As we learned today on the call, much of the deal with Ascensia is contingent upon FDA approval for 180-day Eversense. As a reminder, the pivotal PROMISE study for Eversense XL completed in 1Q20.

  • In both the call and today’s press announcement, we noticed few references to “Eversense XL,” instead favoring the term “180-day Eversense.” It’s unclear whether this was purposeful and suggesting a slight change in branding for Eversense.

  • Though not mentioned today, in addition to doubling the wear period, Senseonics plans to reduce the number of required calibrations from 2 per day to 1 per day. This would be a massive ease-of-use win for Eversense patients and could help drive faster adoption.

  • During Q&A, Mr. Tressler highlighted the margin benefit for 180-day Eversense: “In terms of margins, really the biggest dimension there for margin improvement over 2021 and beyond is the switch from the 90-day product in the US to the 180-day product.” Mr. Goodnow also commented reimbursement for the 180-day vs. 90-day product noting that over the past few years, CGMs have gone from 3-day wear to 14-day wear, so payers “have gotten used to a per day payment scheme.”

2. “365-day product” targeted for IDE approval in “the first half of 2021”; implantable flash glucose monitor seemingly confirmed under project name “Gemini”

A 365-day Eversense CGM continues to advance in Senseonics’ pipeline. Today’s update targets IDE approval for “the first half of 2021,” including pediatrics, with enrollment commencing in “H2 2021.” The 365-day sensor will not only double wear-time from Eversense XL, but also “reduce calibration frequency to up to one fingerstick per week.” And, the idea for patients that they would have to do one visit only per year will no doubt be met with much positivity. With newly secured funding in place and the ability for Senseonics to focus mostly on product development, we’re hopeful that the 365-day implantable sensor will eventually make it to market – depending on demand, volume, and scale, this could truly, of course, also provide significantly lower-cost CGM and could enable far more people to take on CGM.

  • During prepared remarks, Mr. Goodnow appeared to confirm that Senseonics also plans to develop an implantable flash glucose monitor. The project, which he referred to as “Gemini,” will “offer both continuous and on-demand readings from a swipe command” (a la FreeStyle Libre). Additionally, Mr. Goodnow expressed that Senseonics is working to integrate a battery into the Gemini product to “eliminate the need for any on-body transmitter,” which would make the system fully implanted. Senseonics has alluded to a potential implantable flash glucose monitor for over a year (see our interview with Drs. Tim Goodnow and Fran Kaufman in March, 2019), but the first time we heard the project name “Gemini.” There were no timelines shared for the project.

--by Katie Mahoney, Hanna Gutow, Albert Cai, and Kelly Close