Cellnovo 1Q16 – Sales of €435,209 increase five-fold; Second-gen handset EU rollout, 2Q16 FDA submission; 2017 type 2 pump? – May 5, 2016

Cellnovo reported 1Q16 results last week, the company’s third update following a successful IPO last July on the Euronext stock exchange (raising €32 million). Below, we bring you the top five highlights from the update.

Top Five Highlights

1. Sales of Cellnovo’s patch pump system in current EU markets (Italy, UK, France, Netherlands) totaled €435,209 (~$480,000) in 1Q16, up five-fold year-over-year (YOY) and up 26% sequentially from 4Q15. It’s good to see a positive trajectory, although it’s a low level – we know the competition must be very keen with Medtronic’s MiniMed 640G and Insulet’s OmniPod growing in Europe. Cellnovo had €26.1 million in cash as of January 20 and did not provide an updated figure in the 1Q16 press release. We assume the company has roughly five quarters of cash remaining.

2. Cellnovo’s second-gen patch pump handset received a CE Mark in March and has officially begun rolling out in Italy, the UK, France, and the Netherlands. The launch is on right on par with 3Q15 guidance (“early 2016”). This integrates Roche Accu-Chek strips, a glass touchscreen, and adds Bluetooth connectivity on top of built-in cellular. Android software has not been included in the new handset, though the slide deck says it could come in 2016.

3. Management confirmed that it expects an FDA submission of its second-gen handset in 2Q16, putting it on track to hit the guidance for a 2017 US launch. The company also expects launches in Germany, Austria, Switzerland, Belgium, and Scandinavia (2016), in Canada (2017), and in China, India, and Japan (2018; regulatory filing this year). Achieving all these geographies would be a major milestone, particularly without another fundraise.

4. Cellnovo also laid out an ambitious slew of R&D milestones, including the 2017 launch of a type 2 insulin delivery device (new to us), the creation of an app that displays Cellnovo’s pump data alongside CGM data (we assume Dexcom, but it’s not named), and partnerships with two new automated insulin delivery projects (closed-loop partners unknown).

5. Cellnovo experienced two significant leadership changes in 1Q16, naming CEO Ms. Sophie Baratte as Interim Chair of the Board and Mr. Thierry Moulin as CFO.

Top Five Highlights

1. Sales of Cellnovo’s patch pump system in current EU markets (Italy, UK, France, Netherlands) totaled €435,209 (~$480,000) in 1Q16, up five-fold year-over-year (YOY) and up 26% sequentially from 4Q15. We put more stock in actual sales vs. the growth given the low base in these early days of commercialization, though the positive trajectory is definitely promising. The company shipped 145 new pump systems in 1Q16, which grew 20% from 4Q15 and brought its cumulative shipments to 369 since launch in 2014. In this market, the big question is competition and market growth – the pump market is not growing that quickly (~1% in 2015, see our 4Q15 and 2015 roundup), and there are plenty of other current products vying for EU patients’ attention (Insulet OmniPod, Medtronic MiniMed 640G, Animas Vibe, Roche Accu-Chek Insight).

• Cellnovo had €26.1 million in cash as of January 20, and did not provide an updated figure in the 1Q16 press release. We assume the company has roughly five quarters of cash remaining, though likely fewer if additional EU launches take place in the coming months, as expected (see below). Cellnovo investor confidence has not increased in recent months – the company’s market cap is currently at ~€67 million vs. ~€83 million in 3Q15 and ~€139 million shortly following the IPO.
• Cellnovo successfully transferred a portion of its manufacturing process to Flex (Flextronics) in 1Q16, expanding the company’s overall production capacity roughly seven-fold: from an in-house capacity of 50,000 insulin cartridges in 2015 to 350,000 with Flex in 2016. (These levels are not nearly needed with the small patient base at this stage, though it’s good to see the company is prepared.) The 1Q16 press release did not allude to “demand outstripping supply” – which has been characteristic of recent Cellnovo updates (3Q15; 4Q15) – hinting that capacity constraints may have been addressed. Cellnovo has estimated that transferring additional manufacturing to Flex’s automated system will enable the company to grow its insulin cartridge production capacity a striking 20-fold by 2020: 7,000,000 cartridges (see slide 15).

2. Cellnovo’s second-gen patch pump handset received a CE Mark in March and has officially begun rolling out in Italy, the UK, France, and the Netherlands. The launch is on right on par with 3Q15 guidance (“early 2016”). The new handset comes with a number of new features, including the integration of Roche Accu-Chek Aviva or Performa BGM strips in place of LifeScan Vita strips that are being discontinued – see our full coverage of this announcement. The second-gen device also features a glass touchscreen for more responsiveness (similar to a smartphone), faster navigation, improved brightness, and Bluetooth connectivity on top of the built-in cellular. The March slide deck forecasts “Android software” will come sometime in 2016 (see slide 18) – we’re not sure if this means Android software on the handset itself, or the ability for the handset to talk to an Android smartphone app via Bluetooth. In the past, management has suggested the former.

3. Looking to the future, Cellnovo confirmed that it expects an FDA submission of its second-gen handset in 2Q16, putting it on track to hit the guidance for a 2017 US launch. We’re glad to see the company moving ahead in the US though the pump market is only getting more competitive – can Cellnovo differentiate itself from Medtronic’s MiniMed 670G hybrid closed loop (FDA submission before the end of June), Insulet’s next-gen PDM with Dexcom G5 app integration (FDA submission later this year), potentially Tandem’s predictive low glucose suspend device (pivotal trial this year), and others?

• The March 2016 corporate slide deck mentioned a handful of additional nations where Cellnovo is planning launches this year: Germany, Austria, Switzerland, Belgium, and Scandinavia. The slide deck also mentions commercialization plans in Canada (2017) and in China, India, and Japan (2018; regulatory filing this year). Cellnovo’s ambitious goal is to reach 45,000 patients by 2020 – possible but it definitely needs more cash in the bank and much more revenue growth to get anywhere close. For context, Insulet’s EU base is currently ~25,000 patients on sales of ~$15 million per quarter.

4. Cellnovo’s March 2016 corporate slide deck also laid out an ambitious slew of R&D milestones, including the 2017 launch of a type 2 insulin delivery device. Other highlights include the creation of an app that displays Cellnovo’s pump data alongside CGM data and partnerships with two additional automated insulin delivery projects. Here’s what we know:

• Type 2 insulin delivery: We cannot recall Cellnovo previously mentioning concrete plans to design a product for type 2 patients, though this is a natural expansion of its patch pump model. According to its corporate slide deck, a type 2 product is slated for launch in 2017 (slide 18). The market for type 2 insulin delivery devices is severely underpenetrated, though launching a full-featured pump for type 2s in the European reimbursement environment seems very tough. Cellnovo also has some obvious patch delivery device competitors to contend with, though these will be in the US near-term with the possible exception of J&J: Valeritas (available in the US; raised $24 million this week), J&J (Calibra Finesse reportedly launching in 2016, per its last update in 2Q15), CeQur (PAQ FDA filing in 1Q16, launch expected in 2017, per ATTD 2016), and potentially BD, Medtronic, Unilife, and probably others.
• Integration with CGM: Cellnovo intends to create in 2016 an application that displays CGM data alongside company’s pump data – we assume this would be a mobile app that shows Dexcom G5 data and leverages the new handset’s Bluetooth connectivity. This is the first we have heard of these plans, though the vision makes sense to stay competitive with CGM-integrated pump offerings from Animas and Medtronic in Europe. Though it was not mentioned, we assume Dexcom will be the partner of choice (slide 18 shows a generic picture of the Dexcom sensor, but without any logo). An agreement with Roche also seems possible, considering the new Cellnovo handset BGM partnership and Roche’s plans to launch a CGM in the EU this year (see its 4Q15 call).
• AID Partnerships: At ATTD, Cellnovo announced a partnership with TypeZero to use its patch pump system in the upcoming NIH-funded International Diabetes Closed Loop Trial (n=240), starting in 2H16. Based on the slide deck, Cellnovo intends to team up with two additional closed-loop groups in 2016. For AID groups, Cellnovo’s handset (now Bluetooth AND cellular enabled) is an advantage on the remote monitoring, data collection, and user interface fronts. We wonder if they will integrate another academic algorithm, such as Cambridge or Padova. The path to market is not easy for a small company like Cellnovo, particularly with all the other milestones and the cash on hand.

5. Cellnovo experienced two significant leadership changes in 1Q16, naming CEO Ms. Sophie Baratte as Interim Chair of the Board and Mr. Thierry Moulin as CFO. Ms. Baratte took over for previous Chairman Mr. Eric Beard, who stepped down for personal reasons in early April; the search for his successor has begun. Meanwhile, Mr. Moulin joins Cellnovo from the biopharmaceutical company Cellectis, where he served as CFO for roughly two years and oversaw a $228 million fundraise via a public listing on the NASDAQ in March 2015. He has an impressive background in administrative and financial management though not significant diabetes experience that we have identified.

Pipeline Summary

-- by Varun Iyengar, Adam Brown, and Kelly Close