Memorandum

Senseonics 3Q17 – Revenue up 163% sequentially to $2.1M; FDA approval delayed as Ad Comm expected in 1Q18; Eversense in 13 countries; Financing brings cash to ~$53M – November 1, 2017

Executive Highlights

  • Sales of $2.1 million were the company’s highest to date, up 163% sequentially; as a reminder, this is the fourth quarter of reported sales. The growth reflected deeper penetration of the Eversense implantable CGM into existing geographies, especially Germany, Sweden, and Italy. Six additional markets have launched, including South Africa, the first ex-EU country.
  • Guidance was maintained for $6-$7 million in 2017 sales. This is reasonable if Q4 ramps a bit from 3Q17.
  • FDA review continues for Eversense, and management now expects an Advisory Committee in early 1Q18. A controlled launch is planned two months after approval, with a ramp in 2H18. Approval was previously expected in 4Q17, so things seem to be running roughly one quarter behind.
  • Cash/marketable securities are up to ~$53 million after an underwritten public offering brought in $26 million at the end of August.
  • Pediatrics: a 180-day pediatric trial in Canada is nearing completion, and will be submitted in January for publication and presentation at ADA 2018.
  • User base: 25% of Eversense users have never used CGM prior, up slightly from 20% last quarter. (in other words, 75% are users are previous CGM users). Management said that it believes that Eversense is more attractive to FreeStyle Libre users than it previously thought.

Senseonics reported 3Q17 financial results yesterday in a call led by CEO Mr. Tim Goodnow. The big news was an update on the FDA review process, delayed by roughly one quarter, encouraging early revenue growth in Europe, and a large round of financing completed in August. Read on for our top takeaways from the call.

Highlights

1. Revenue Climbs 163% Sequentiallyto $2.1M; $26M Financing Brings Cash/Marketable Securities to $53M

Revenue of $2.1 million grew 163% sequentially from $800,000 in 2Q17 as the implantable Eversense CGM rolls out. This is the third consecutive quarter of sequential growth since revenue was first reported in 4Q16. Management maintained guidance for full-year sales between $6-$7 million, but with “additional confidence,” meaning 4Q is expected to bring in $2.5-$3.5 million in revenue, reflecting additional ~20%-67% sequential growth. Given the transition to full launch in a few countries, entrance into additional countries, and the gradual roll-out of the 180-day XL sensor, we believe this range is reasonable. 

  • Thanks to an underwritten public offering of $26 million at the end of August, Senseonics now has ~$30 million in cash/cash equivalents, plus an additional ~$23 million in marketable securities ($52.7 million total). This represents a big step up from the $34 million in cash at the end of 2Q17. We wonder if Roche participated, as it did for a separate raise back in May.

2. FDA Ad Comm Expected in Early 1Q18; Controlled Launch~2 Months After Approval

Eversense is still under FDA review (over a year now), and projected approval has been pushed back from 4Q17 to “early 2018.” Management now expects an Ad Comm in 1Q18, focused on safety and implantation. Following an anticipated approval, the company anticipates a two-month period before a launch could commence in the US. Canaccord Genuity’s Mr. Kyle Rose asked if US market entry was “more of a 2H18 event? Summer? Around ADA?” Mr. Goodnow responded that he “wouldn’t necessarily strongly argue” with these projections, noting that “we’d like to do it a little earlier than that” and that the US will “clearly” see a second half ramp, beginning with a controlled launch. Management spoke to an ongoing collaborative relationship with FDA, featuring five formal meetings with the very “open” and “approachable group”. Mr. Goodnow believes the Agency will have the final set of information requests to Senseonics by the end of the year, and he expressed confidence that data from the EU and US pivotal trials, as well as the robust postmarket surveillance program in Europe, will ultimately lead to a positive decision from the FDA. Accordingly, the company is moving forward with preparation activities for US launch, including “overwhelmingly positive” meetings with payers, who reportedly recognize the value a long-term sensor can bring in boosting adherence and clinical outcomes.

  • We wonder how US payers will view Eversense – how will they weigh the long-term wear time, implantation, and on-body transmitter relative to what Abbott, Dexcom, and Medtronic are offering? We are delighted to see the number of accurate and differentiated CGMs grow, and we’ll be fascinated to see how the reimbursement landscape evolves. Will CGMs eventually be offered in formulary tiers, similarly to drugs and test strips?
  • Management would love to obtain approval for the 55% thinner transmitter (launched in Europe) and a dosing claim, but doesn’t want to put the primary approval “at material risk.” Senseonics will have to play catch-up quickly on the transmitter front, since the Senseonics gen one transmitter is quite large relative to Abbott’s FreeStyle Libre and Dexcom G5/G6. Mr. Goodnow said that FDA is very open to conversations, and intriguingly, that “the world has changed in terms of dosing claims – we need to spend time and figure out what that means for us.” Of course, he’s referring to the fact that FreeStyle Libre was approved with a dosing claim in September, following Dexcom’s initial victory in December. Eversense has comparable accuracy to those two systems, so it seems possible that FDA would Eversense with a non-adjunctive label. Senseonics confirmed in February that the current submission was only for adjunctive labeling, and a non-adjunctive submission would come soon thereafter, but perhaps a first-round dosing claim is within reach.

3. Eversense in 12 EU Countries + South Africa; Broad Rollout of Eversense XL (180-Day) in 1Q18

Eversense is now in 13 countries total, with the additions of Switzerland, Denmark, Finland, Spain, Poland, and (the first non-European country) South Africa – all of which have commenced pilot launches. Meanwhile, driven by Germany, Sweden, Italy, and one other unnamed country in “full launch mode,” Senseonics added more customers to its installed base in 3Q17 than in all other quarters combined. Management didn’t share exactly how many users there are total now, but we’d guess between 500-1,000 – there were “over 340” in September.

  • At this point, ~75% of the Eversense user base had previous CGM experience, and 25% were CGM-naïve – a slight shift from the 80/20 split reported last quarter (2Q17). This could be quarter-to-quarter fluctuation, so we’ll have to wait and see how the split changes in subsequent calls. For sustainability, it’s very important that Eversense build the CGM category, rather than stealing share (something management expects).
  • Mr. Goodnow noted a “readiness in [Abbott Freestyle] Libre-heavy markets” to move to the 90-day, alarm-equipped Eversense CGM. For those who have used the sensor, there has been high overall satisfaction, with the top important factors being prospective alerts, long sensor life, and readings on the phone (in that order). The company is also transitioning to consumer-targeted marketing, and Mr. Goodnow pointed out that patients are coming to clinic with knowledge of Eversense and asking for it by name.
  • Management confirmed that clinic onboarding for the recently-CE-marked 180-day Eversense XL system will occur this month in the UK (pre-launch activities complete), followed by a broader roll-out in Europe in 1Q18.  Mr. Goodnow emphasized the longevity advantage: “While the duration of some sensors is being counted in days, ours is being counted in months.” He expects XL to “contribute meaningfully” to penetration in Europe. We believe 180-day life vs. 90-day life is a very meaningful addition that could push some on-the-fence patients over the edge – a six-month implant is a far more compelling value proposition, given the need to get the implant in-clinic. Will demand really accelerate with the additional 90 days? How will this change Senseonics’ revenue and margins?

4. 180-Day Pediatric Canadian Trial to Complete in Matter of Days; Submit For Publication & Presentation at ADA 2018

The 180-day trial (n=30 pediatrics; 6 adults) will complete in the next few days and be submitted for publication in early January for presentation at ADA 2018. Management noted very positive feedback, as patients commented on the device’s simplicity and seamless integration into their lives. We’re not sure where the Health Canada regulatory submission process stands, nor whether Senseonics plans to leap-frog the 90-day indication and go straight for 180 days in this and other geographies.

5. CEO Mr. Goodnow Says CGM Standard of Care; Transition from Libre to Eversense “More Attractive than We Initially Thought”

Mr. Goodnow asserted that CGM has become the standard of care for people managing diabetes with insulin, and that new generation CGMs (including flash glucose monitoring) will “expand utilization, expand the market, and help improve diabetes management for more people.” We couldn’t have put it better ourselves! In Q&A, he reiterated that the US market entrance of FreeStyle Libre (4Q17) will be positive for people with diabetes, especially those previously on fingersticks, and he implied that it will be positive for Senseonics as well: “We’re seeing a lot of folks that are actually quite interested in making that transition, once they’re used to wearing a sensor, up to a continuous sensor, it’s been more attractive than we initially thought it would be. So, we’re pretty excited about that part of it.” In last quarter’s update, he noted that 50% of Eversense users came from Libre. When asked about pricing, he said that the company anticipates a continued differential – we’re not sure how much Senseonics is charging for Eversense overseas (we’d love to know – the long-term implant presumably lends itself to an alternate pricing strategy), but Libre is expected to be ~$120/month in the US cash-pay. Abbott has not commented on the reimbursed price of Libre, though if it’s similar to a pharmacy copay, it could make Libre just ~$30-$50 per month for those with coverage – tough competition.

6. AID System with TypeZero & Roche “in Full Development”

The long-term automated insulin delivery system with TypeZero and Roche is “in full development.” The TypeZero inControl algorithm will be integrated with the Eversense app and Roche pump. (We assume the algorithm will be built into the pump, but a phone-focused approach would be doable with these Bluetooth-enabled systems.) There were no updates on this project – last quarter, management forecasted that the CE mark-supporting pivotal trial (an arm of the NIH-funded iDCL) will wrap up “later in 2018.” There were similarly no updates on a decision support system with TypeZero. In August, management said that a pivotal trial was to be announced soon.

7. Roche Prioritizing Eversense Over Own CGM – Is An Acquisition in the Cards?

Senseonics was featured heavily in Roche’s EASD corporate symposium and exhibit hall. In September, we were told that Roche had deprioritized its own Accu-Chek Insight CGM in favor of Eversense, which it believes brings something novel to the CGM market. As a reminder, Roche currently distributes Eversense widely and invested ~$30 million in the company in May. We still wonder if Senseonics is a Roche acquisition target – it has shown a willingness to integrate external components (in acquiring mySugr for ~$75-$100 million). Senseonics current market cap is ~$393 million, which would make it quite a pricey buy for Roche, especially at this stage of the company’s revenue.

8. No Update on Second-Gen, No-Calibration Sensor

We haven’t heard about the second-gen, no-calibration Eversense sensor in a couple of quarters. We wonder how this project is progressing, though presumably it has been deprioritized while focus shifts to commercialization OUS and obtaining FDA approval. Last we heard in May, this sensor was in human feasibility trials. The sensor is expected to use redundant glucose-sensing capabilities, facilitating improved accuracy, longevity, and functionality. These trials are designed to define the glucose sensing algorithm for the parallel sensing elements. This will be key for maintaining competitiveness with FreeStyle Libre and where Dexcom is moving with G6.

 

-- by Brian Levine, Adam Brown, and Kelly Close