Memorandum

Cellnovo stops commercial operations and manufacturing, given financial and distribution cost challenges – April 3, 2019

Focus now on finding strategic partners and investors; will it be acquired? Another business casualty in the competitive insulin pump market…

Cellnovo has announced it is stopping commercial operations and manufacturing, effective immediately. Cellnovo pumps will no longer be made available to new patients, and the commercial team will work to “transition” existing patients and their healthcare teams – i.e., they will need to move to other pumps. Cellnovo had shipped 1,506 pumps between launch in 2014 to end-of-2018, almost the exact number Asante had shipped when it shut down in 2014.

Cellnovo is now putting in place a restructuring plan to focus on “identifying strategic partners and financial investors.” A core group of existing R&D employees will pursue these objectives. Based on the tone of finality in the press release, however, selling the company or its assets seems to be the path ahead:

This is not a decision that was taken lightly but it is the only option that is available to us today. Our biggest priority has always been patients’ well-being and we will continue to do our utmost to support a smooth transition for patients and clinicians. We are grateful to all those who helped us to bring our innovative diabetes management platform to the market, particularly the clinicians and patients who believed in the benefits of this novel system. We are also thankful to our distributors and partners who shared our passion and brought their professionalism to the service of our commercial activities. Unfortunately, we were unable to withstand the pressures of the competitive environment and the challenges of rolling-out a breakthrough system at a sustainable cost. We will now focus our efforts on leveraging the potential of a unique product and the value created over many years by an exceptional team.” – CEO Sophie Baratte

Cellnovo has struggled with scale for years, and appears to have run out of financing sources. From here, will anyone acquire the assets and invest in the patch pump and cellular-connected handheld at scale? Cellnovo’s market cap is currently $3 million, down from $153 million when it went public on the Euronext in 2015. After a lot of perseverance over the past four years, and occasional signs of hope (2018 4Q revenue), Cellnovo ultimately had not demonstrated a path to profitability in a very competitive market.  Given the move to connected pumps with AID and CGM, companies must now become experts in pump hardware, software, automation, smartphones, and interoperability – meaning the upfront and ongoing investment and expertise are far higher than five years ago. We estimated the company had two quarters or less of cash on hand. 

Cellnovo’s user base is nearly 100-fold smaller than J&J Animas when it closed in 2017 (~90,000 users compared to 9,000), and this serves as another reminder of the financially challenging and ultra-competitive insulin pump market – how many pump companies can the market support? We noted many years ago that the market couldn’t support this many players and we are not surprised by the attrition, though there is some irony in that the closed loop is the “killer app” for pumps.  At this point in the pump market’s development, how long will investors give a novel pump company to reach profitability? (Certainly not as long as Insulet has had, and another irony is that Insulet had no revenue five years after its founding,) These questions become especially urgent with patch pumps (or patch-like pumps), which bring their own manufacturing and scale challenges.

  • This news follows a series of setbacks that have rapidly stacked up over the past two weeks. On March 21, Cellnovo reduced full-year revenue guidance, citing distribution service cost issues rolling out its new Gen 3 system (locked down Android phone). The reduced growth expectation impacted Cellnovo’s already-precarious cash position, as well as its ability to meet financing commitments. A few days later, Cellnovo announced that an English court had appointed two representatives to serve as “administrators,” representing the interest of its creditors and partners and aiming to protect the value of the company’s assets. At the time, Cellnovo also requested a conciliation proceeding in France by the President of the Paris Commercial Court to protect the company’s interests, and to provide a legal framework to interact with creditors, partners, and any parties willing to provide financial support.

  • 4Q18 was actually Cellnovo’s most positive quarter in a very long time, reflecting how quickly things can turn when companies are unprofitable and financial goals aren’t met. Cellnovo reported record revenue of €1.1 million (~$1.2 million) in 4Q18, nearly tripling YOY. Full-year 2018 sales totaled €2.6 million (~$3.0 million), more than doubling (+142% YOY) from 2017’s low base. Primary growth drivers included large-scale production of insulin cartridges with Flex (starting last June) and the new Gen 3 system with a locked-down Android handheld (September). Cellnovo also shipped a record 347 pumps in 4Q18, from 58 pumps in 4Q17. This marked two consecutive quarters of sequential gains and four consecutive quarters of YOY growth. Cellnovo shipped 674 pumps in 2018, up 249% YOY. However, on March 21 Cellnovo announced that this momentum would not be sustained in 2019 and that it would fail to meet the financial targets set by its primary lender.

 

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