Memorandum

Cellnovo 2Q18 – Sales of €0.4 million up 10% sequentially, just 71 pumps shipped; Gen 2 Cellnovo System with Android drives growth; Flex cartridge manufacturing to allow 12x production – August 3, 2018

Executive Highlights

  • Cellnovo reported €447,000 (~$530,000) in 2Q18 revenue, up 10% sequentially and 56% YOY on an easy comparison to a 10% decline in 2Q17. The recent launch of the Gen 2 Cellnovo System with Android in January was cited as a major contributor to 81% growth seen in 1H18 overall. Only 71 pumps were shipped in Q2, up 20% YOY but declining 15% sequentially.

  • In June, Cellnovo finally completed the transition to large-scale manufacturing of insulin cartridges with Flex, enabling a 12-fold increase in annual cartridge production. A second production line in Romania is slated for completion in 1H19. Will cartridge manufacturing ramp correlate with pump shipment ramp, or will other headwinds, including competition from Insulet and Roche, push back harder? How much unfulfilled demand is out there for Cellnovo right now?

  • There was no update on Cellnovo’s 1Q18 plans to file the Cellnovo System with Android with the FDA in Fall 2018, nor was there mention of Cellnovo’s involvement in three potential AID systems (i.e., TypeZero, Diabeloop, PEPPER).

Cellnovo recently announced 2Q18 financial results via press release, reporting revenue of €447,000 (~$530,000) up 56% YOY on an easy comparison to a 10% decline in 2Q17. This marks three consecutive quarters of YOY growth. Sales also rose 10% sequentially from 1Q18. The press release cited the January launch of the Gen 2 Bluetooth- and Android-enabled pump as the major contributor to 1H18 YOY growth of 81% (1H18 revenue totaled €885,000).

Cellnovo shipped just 71 pumps in 2Q18, up 20% YOY and marking two straight quarters of consecutive YOY increases. Pump shipments declined 15% sequentially, however, from a base of 84 pumps in 1Q18.

In June, Cellnovo finally announced the start of large-scale manufacturing of insulin cartridges with Flex – this has been a long time coming, as the initial hope was to finalize the transition by the end of 2016. Per the press release, Flex manufacturing will enable a 12-fold increase in annual insulin cartridge production. A second production line in Romania is slated for completion in 1H19. Now the big question is how much revenue and shipments will ramp with manufacturing unconstrained – How much demand is out there? What patients will choose Cellnovo over Insulet, Medtronic, Roche, Ypsomed, and soon-to-launch Tandem?

The company ended the quarter with €4.5 million (~$5.4 million) in cash, reflecting a hefty €5.0 million cash burn from 1Q18. That would leave less than one quarter of cash at the Q2 burn rate; however, Cellnovo announced the finalization of a €20 million (~$24 million) financing agreement with Kreos Capital, consisting of a €17 million (~$20 million) loan to be granted in three tranches and a €3 million (~$4 million) convertible bond financing to be issued by Cellnovo in three tranches. A first tranche of €9 million (~$11 million) of the loan and €1 million (~$1 million) of convertible bonds will be issued “in the coming days.” The loan will be used to fund Cellnovo’s capital expenditures, operating expenses, and working capital requirements, as well as to refinance an existing loan between Kreos and Cellnovo.

  • As of 1Q18, Cellnovo pushed back its 510(k) filing with the FDA to Fall 2018 to include the new Cellnovo System with Android – there was no progress report in the release. In this system, the pump communicates via Bluetooth with an Android-operating handset, facilitating improved interoperability with CGM and AID. Given the company’s precarious cash position, FDA delays, and the very recent efforts to scale in Europe, launching in the US seems highly ambitious at this stage. Will Cellnovo look to find a partner?

  • There was no update on the status of Cellnovo’s first in-human, three-day clinical AID trial in collaboration with TypeZero slated to begin in June. Per the press release, the integration phase by TypeZero was completed in 1Q18, but we have yet to learn what CGM is being used in the system (presumably Dexcom). Cellnovo’s pump is involved in two other potential AID systems, Diabeloop and PEPPER. At ADA, we saw 12-week home data from Diabeloop’s WP7 (N=67) randomized crossover trial. As a reminder, Diabeloop expects to launch in late 2018 in France, the Netherlands and Sweden, though the company has not publicly stated whether Cellnovo, Kaleido, or both path pumps would be included in the initial roll out.

Cellnovo Quarterly Sales (3Q15-2Q18)

 

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