Q1 2020 Senseonics Holdings Inc Earnings Call
Good afternoon, and welcome to the sets see Onyx first quarter 2020 earnings conference call.
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I would now like to turn the conference over to Philip tailored Investor Relations. Please go ahead.
Thank you very much and welcome to the 70 Onyx first quarter 2020 earnings call. This is still a pillar from the Gilmartin group before we begin today, let me remind you that the company's remarks include forward looking statements. These statements reflect management's expectations about future events operating plans regulatory matters product in half.
It's meant.
Company performance and other matters and speak only as of the date you're up. These forward looking statements involve a number of risks and uncertainties. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward looking statement is detailed under risk factors.
Elsewhere in our annual report on form 10-K for the year ended December 31st 2019, our 10-Q for the quarter ended March 31st 2020, and our other reports filed with the FCC.
These documents are available in the Investor Relations section of our website at Www Dot fancy Onyx Dot com, we undertake no obligation to update publicly or revise these forward looking statements for any reason except as required by law also on this call we'll be discussing our 2020 outlook in light of the co bid night.
<unk> endemic 2020 financial guidance was suspended on March 26 2020.
On this call will be providing investors U.S. GAAP net revenue and gross revenue measures to provide meaningful supplemental information regarding our performance and provide better transparency on the impact of reimbursement and the ever since bridge program.
In accordance with U.S. GAAP since he Onyx reports revenue and its financial statements on a net basis, which includes gross to net reduction primarily related to the ever since bridge program.
Gross revenue measures do not reflect the gross to net reductions and accordingly may be considered to be non-GAAP financial measures. These non-GAAP financial measures are not intended to be considered an isolation or as a substitute for or superior to the financial information prepared and presented in accordance with U.S. gap infant.
On a non-GAAP measures may be different from non-GAAP measures used by other companies.
For more information on these non-GAAP financial measures. Please see the reconciliation of these non-GAAP financial measures to their nearest comparable GAAP measures in this afternoons earnings release, which is available on our corporate web site at 70, Onyx Dot com.
Joining me from sense, the Onyx, our Tim Good now President and Chief Executive Officer, and Nick Tressler, Chief Financial Officer with that I'd like to turn the call over to Tim Good now President and CEO Tim.
Thank you trip and thank you all for joining us before starting our review our thoughts are with everyone. That's been affected by covert 19 virus and the resulting economic impact.
We had since the Onyx would like yours for us our deep gratitude to all members of the healthcare system, especially the frontline providers treating the important needs of our users.
We've also been impacted by the pandemic.
As we announced in the last week in March we have responded to the current environment and the Companys financial challenges in several ways, culminating in this decision to explore strategic alternatives to enhance stakeholder value.
As part of the strategic review, we've refocused our operations on core activities to pursue the long term success of our ever since CGM system.
And to help people with diabetes continue to access its benefits.
On today's call I will provide an update on our current corporate priorities and operational focus then provide an overview of our first quarter results and additional business updates.
Nick will provide additional details on our financials the impact of our operational changes and our current balance sheet.
As we've shared in the past two months, we've made significant changes to our organization. We've repositioned the business to move forward in an efficient and effective manner in response to our financial situation.
Following the fourth quarter earnings call him into heightened economics date, and health system Covidien 19 isolation efforts.
Together with the challenges of a covenant in our senior facility.
The company was in a position that required us to terminate our loan and security agreement with solar capital.
We repaid all amounts outstanding and the associated prepayment fees, which totaled 48 and a half million dollars.
At the time, we also announced the board decision to explore strategic alternatives to enhance stakeholder value.
Over the past eight weeks, we've been engaged in that process of exploring a range of strategic alternatives with third parties.
We continue to be in these strategic discussions as this process moves forward.
Mindful of the Securities laws, we cannot say more about the progress at this time and we'll of course update you. When we have more information we can appropriately share.
Importantly in April in support of this strategic process, we entered into a loan and security agreement with Highbridge capital.
Provides for up to $20 million in near term financing.
This funding was important in extending our cash runway and to support our ability to run a full and thoughtful strategic process.
The second component of our strategic review included streamlining the organization to ensure the long term success of ever sense.
To preserve value and provide the opportunity for future value creation, we have materially reduced monthly cash burn and focused our resources on steering core objectives, namely first limiting commercialization to existing users.
Second driving long term market access and third preparing for the 180 day since our launch in the U.S.
We have evaluated the cost structure across the entire organization, reducing spending and eliminating a number of positions and expenditures to support these core objectives.
Future investments will be significantly limited and focused on driving these aspects for long term value creation.
These material changes to our operation and cost structure will greatly improve operating cash flow.
Reduce our cash use and considerably extend our runway.
Our first objective remains focused on our users we are actively supporting our existing users and their healthcare providers.
We used to share that patient feedback on their experience with ever since remains strong, especially during these times.
We are working to ensure minimal disruption to patients on ever since and to ensure that they're receiving support they will need to continue on their systems.
In response to the current financial impact we have temporarily suspended commercial activities to acquire new users on in the United States with the current 90 day sensor.
This means marketing campaigns have been cut sales initiatives have been stopped and onboarding new clinics have been halted.
The this decision is to no longer invest in commercial activities to acquire new customers.
Has impacted a majority of the organization, including unfortunately, reducing our field and operational staffing and will greatly reduce our operating expenses.
As with many others, who have experienced recent hardships the covert 19 health crisis has been extremely disruptive to our business.
The implementation of stay at home orders and limiting of office based procedures in person clinic visits have noticeably reduce the number of patients to be inserted by their providers in the recent past.
The closing of clinics and our limited access to those that remained open as well as orders limiting in person visits caused a material dislocation in our markets and was an important consideration of us foregoing marketing to new customers as we work through responding to the financial challenges.
Hi bid March we experienced the full impact of these changes in the market.
Many offices closed and providers pivoted to telehealth visits with patients.
Given the implantable nature of our product needs contingent workflows adopted in response to co bid.
This reduced the number of insertions performed.
The extension to whichever sense was deemed necessary or elective varied across geographies and healthcare providers.
Through this we did experience a reduction of at least 50% in insertion rates across each of our markets during the height of the pandemic.
Very recently, however, we are starting to see a positive change in re insertions again.
We expect to report an update on insertion rates on coming calls.
While the coven response and strategic alternatives process has been the primary focus for the organization important progress with new payers covering everything has been achieved ablate.
We recently received positive coverage decisions from several Bluecross blueshield plans, adding approximately 10 million covered lives.
Plans, including coverage or sense and the associated reimbursement for the healthcare providers time.
He has been added to their coverage policy and these have included.
New cross and Blue Shield of Arizona.
Carefirst Bluecross blueshield.
Independence Blue Cross Amerihealth and Axcelis Bluecross Blueshield in New York.
Another critical components of the reimbursement landscape for ever senses coverage by CMS.
At this point, we have confirmed a coordinated effort across the Medicare administrative contractors or Max to expand access through the development of local coverage determinations for implantable continuous glucose monitoring devices.
Six of the seven Max have now posted their lcds and have scheduled or completed their open meetings for comments.
We are encouraged to see a very consistent coverage policy across all the Max as this will allow for Medicare beneficiaries to have access to ever since with the same criteria has been observed in the dnbi benefit for other CGM.
Beyond the development of coverage policies by the Max It is important to patients have access today.
We have seen formax make ever since immediately available through retirement of the noncoverage policies or has specifically remove the codes used to report the insertion of ever sense from their non coverage policies.
First co service options Novitas solutions, Palmetto, GBA, and CGS administrators led the way and making ever since available to patients through the removal of these CPT codes for their noncovered lists.
We expect the other Max will follow the same process in the very near future.
The Max that have taken a step to remove our codes from the non covered lives can immediately begin processing claims for Medicare beneficiaries and part B physician service as defined in the calendar year 2020, rulemaking for the physician fee schedule.
This is a very positive development for ever since.
Coverage as a part B physician services of great benefit to our patients in healthcare providers as it will not be required to navigate the more complex durable medical equipment supply channel or the pharmacy benefit channel.
We're excited about the actions taken by CMS to formalize coverage of our long term CGM as this will establish clear criteria for HCP is to utilize in determining appropriate candidates for ever since.
It also demonstrates that CMS recognizes the need for CGM options for patients with diabetes.
Of an array of needs in a need for individualized care options.
We also believe this foundation of coverage by Medicare will further compel commercial insurers to adopt positive coverage policies for ever since as well.
We look forward to more positive coverage decisions by health insurance companies in the future.
Important for the advancement of our business is the continued evolution of our product pipeline, which is our third core objective for the year.
We're very pleased to announce the completion of the promise trial in the quarter for the 180 sensor.
The team is working diligently on analyzing the data and preparing the package to be submitted to the FDA later this summer.
We expect to submission to include a calibration reduction to once per day. In addition to the extended duration of up to 180 days as well as other improvements.
Our current expectation remains for approval around the new year barring any unforeseen impact due to further covert 19.
We're excited by the potential for our patients in the United States to experienced the life changing benefits that to assess system offers.
As our patients in Europe have enjoyed.
We had previously planned a submission for ice CGM using a 90 day data from the promise study in this second quarter. However, with the change in commercial direction over the past eight weeks, we have decided not to pursue the 90 day CGM product.
So you can expect our next filing to be the planned 180 days submission later this summer.
We do however plan to make a 180 day I CGM submission in the fourth quarter. Following our 180 days supplemental submission.
Following on these three core objectives for the remainder of 2020, while preserving cash and actively exploring strategic alternatives will allow the company to provide the opportunity for value creation now and for the long term.
I'd like to conclude by turning to the impact of co bid on the financial pressures on our distributors in our decision to notably reduced sensor shipments into our us distribution channel in late Q1.
Certainly with the eliminated efforts on establishing new users and only focusing on existing patients.
And with the impact of closed clinics.
We knew future product pull from the distributor shelves would be materially impacted in Q2.
As a result, we reduced shipments in the first quarter and placed $2 million of gross revenue with distributors.
In the quarter adjustments were taken on the revenue, which included bridge payment adjustments as well as considerations to distributors, reflecting the evolving economic uncertainty, including offering extended payment terms.
These actions resulted in net us revenue of $24000 in the quarter.
In addition, and as forecasted on the prior call O US revenue was negligible for the quarter.
As previously mentioned Roche had inventory remaining from the 2019 purchase commitment which was sufficient in this environment to serve the customers during the first quarter.
The European markets, where of course highly impacted by Cove at 19.
It's also significantly limited our European distributors ability to place systems and clinics.
Our data also showed that European sensor insertions bottomed out at approximately 50% of prior levels during the high of crisis.
This disruption will continue to be a factor in our patients and partners reordering patterns.
At this time, we cannot yet fully forecast these impacts on demand in the coming quarters, and we will continue to work with our distributor partners through this situation.
We will communicate updates as soon as we have better clarity on the recovery progression.
With the timing of the reestablishment of the full scale European re assertions and not fully known.
As well as our given us commercial cost reductions we were through guidance in late March and anticipate updating guidance at a future date.
With that I will now turn the call over to Nick for further details on our financial results.
Thank you Tim and good afternoon, everyone in our financial update today, we will provide additional details on how the previously announced changes to the business has impacted our financial statements in accordance with the U.S. GAAP accounting basis.
As disclosed publicly through our 8-K filings on March 20 Threerd.
We announced the repayment of the solar capital debt. Additionally, on March 26, we announced a strategic review in connection with the evaluation of considered alternatives the suspension of commercial activities in the last for the 90 day system for new patients. The current suspension of financial guidance for 2020.
Cost reduction measures and additional impacts from Kobe 19.
Subsequent to the closing of the first quarter of 2020 on March 31st in late April we announced new financing with Highbridge capital.
And the attainment of a loan under the Paycheck protection program.
Our results for the first quarter of 2020 were from these announcements and our assessment of the evolving impact of Coven 19 on our overall financial condition.
Including asset Recoverability liquidity and third party obligations.
In the first quarter of 2020 total net revenue was 36000 compared to 3.4 million in the first quarter of 2019.
You asked that revenue for the first quarter was 24000 after accounting for gross to net reductions reductions consisted of two primary drivers approximately 40% of the reduction was due to the previously described ever since bridge program and 60% was due to onetime considerations.
Two distribution partners for expected inventory depletion slowdown due to both our commercial changes and the Kobe 19 impact.
Because early Q1 shipments were set to distributors in anticipation of normal unrestricted patient access to doctors clinics and in consideration of expected reduce product flow. We've also extended longer payment terms to distributors for this transition.
At this point it is possible that U.S. ever since systems may not be placed with patients or may not be and started prior to expiration in light of this potential we provided certain distributors, one time allowances up to a specified amount of Q1 purchases.
That may expire or are not in sorted by the expiration date.
We have therefore, adjusted us revenue and corresponding accounts receivable for an additional 1.2 million in the quarter for this consideration.
In the U.S. net revenue was $12000 as we mentioned on the yearend call. We did not expect Roche to make a meaningful order in the first quarter.
Gross revenue for the first quarter of 2020 with $2 million nearly all of which was generated in the United States.
Gross profit in Q1, 2020 decreased by $16.3 million year over year to $19.6 million.
The decrease in gross profit was predominantly related to the increase in cost of goods sold as a result of the $15.7 million expensed for impairment charges on inventory and related assets.
This write down included a large portion of finished goods work in progress and component inventory corresponding to the significant changes in our commercial activities and then certainty regarding forecasted demand related potential expert concerns.
We remain committed to the current users of our ever since systems and are doing everything possible to ensure their ability to obtain product through our distribution partners.
First quarter, 2020 sales and marketing expenses decreased by $1.7 million year over year to $11.1 million compared to $12.8 million in the prior year period.
The decrease was primarily due to marketing and consulting expenses offset slightly by severance expenses related to the change in commercial activities and our operational focus.
Research and development expenses in Q1, 2020 increased 5.3 million year over year to 7.4 million compared to 7.1 million in the prior year period. The increase was primarily driven by promise clinical study costs and personnel related expenses.
Offset slightly by a decline in general research and development activities.
General and administrative expenses in Q1 Twentytwenty.
Were $5.7 million, a decrease of point 8 million compared to the prior year period, mostly due to personnel related expenses.
For the three months ended March 30, Onest Twentytwenty total net loss was $42.6 million or 21 cents per share compared to 29.4 million or 17 cents per share in the first quarter of 2018.
Now turning to the balance sheet.
Following the solar loan repayment in the first quarter as of March 30, Onest Twentytwenty cash cash equivalents unrestricted cash totaled $18.8 million.
Subsequent to the quarter, we completed a financing with highbridge and existing holder of our 2025 senior convertible notes, which provided gross proceeds of $15 million and we received funding of almost $5.8 million under the paycheck protection program.
As of April Thirtyth, 2020, cash cash equivalents unrestricted cash totaled $30.1 million.
To summarize in the quarter, we took actions to dramatically change the financial and operational profile of the company, including suspending commercial activities in the U.S., eliminating all non essential spend that is not aligned to our streamlined operational focus.
And limiting future investments to only those initiatives that will support the long term success of ever since.
The result of these comprehensive cost reduction measures, we now expect our monthly cash burn to be reduced significantly.
Our new cost structure in combination with the new financings will extend our cash runway through the strategic alternatives assessment process and beyond.
We expect operational ongoing cash burn excluding any one time production related or debt service costs to be approximately $3 million to $4 million per month for the second half of the year reduced from approximately $10 million a month.
The value that ever since delivers to patients daily as a more convenient and accurate diabetes management technology remains the driving force at PSMC Onyx.
Through this strategic review process. Our efforts are focused on finding the best solution for all stakeholders.
We're hard at work with our partners exploring alternatives to ensure the best possible alternatives to bring ever sense to people with diabetes.
There is no stated timeline for this process and it should not be expedited, we will remain diligent to achieve the optimal outcome for patients and for our stakeholders. We realize the interest in this matter, but please understand that currently we're not any position to provide further comments for updates on the process.
Gary I'll now turn the call over to you for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
The first question is from Chris Pasquale with Guggenheim. Please go ahead.
Thanks.
Tim can you say anything about the performance of the 180 days sensor in the end promise in what we might see that good.
I am.
Yes, obviously, we're not going to speak to the data on on this call.
We do we do feel very good about 180 day product in light of the fact that of course, we have pretty significant commercial experience with it in in Europe.
I'll, let Mike will speak to the timing when we we may want to announce some topline results Mocal suddenly hey, Chris. So we do expect to submit good later this summer and at that time, the data would be available. We certainly will like to discuss with the agency as to what it will be doing dumps offsetting that are those that.
That time, it should have been W.
The process at the.
At the FDA, so that would be the time that we'll be looking at shutting that data.
Okay, and then I think previously you had talked about.
Actually getting into the clinic with 360 day sensor in early 2001 has the reorganization.
Thrown that timeline off or was that products already yet.
Good enough shakes that you could you could move forward. Once you had a 180 day on track just an update on that that next generation product would be helpful. Thanks, Yes, we are still targeting Chris to to be in the clinic in in 2021.
With some of the the investment re strategizing that may get pushed out a quarter or so, but we're actively still working on it but we do expect.
Next year in the 21 calendar time period to to be starting a through 65.
Our next question is from Rebecca Wong with SVB Leerink. Please go ahead.
Hi, guys. Thank you good taking the question actually more of the from the lab.
The last question.
It's actually feeling like we do have people booking that anything any day now for a tangible I actually think about why 80 days days there as they have more.
Potential adoption that seem to have our or did I think it will take six at the last year center to age wise I adoption inception.
No we see continued improvement with the with each one of the along nations, obviously you add more.
More independence in the U.S as it gets longer and longer.
As we've seen in Europe. When you go to the 180. They product is greater interest we would anticipate that of course that gets even stronger was a 365.
But we certainly expect the 180 to have some pretty compelling differentiation as well.
Thank you.
The next question is from Matt Blackman with Stifel. Please go ahead.
Good afternoon, everyone. Thanks for taking my questions.
Tim when you spoke about the 180 date product you mentioned other enhancements the on calibration and 180 days is there anything specific worth calling out on those other improvements yes, there's a number of improvements that we've taken feedback from the users, especially in regards to the user interface in the App. So, we'll we'll be bringing those out as well.
Primary changes are of course, the the longevity to count reduction, but there are other.
Important improvements that will come as well.
And then just two quick follow ups.
Are there any updates on the flash sensor partnership discussions it is that a separate pathway from those strategic alternative process, you're running now or are they somehow length and then I'll just throw my follow up.
Anything at EEI are worth calling out this week this weekend and thanks appreciate it sure. We in regards to the whole portfolio development that is that is an active part of the conversations that we're having I won't go further than that but obviously the.
The ability to flash the sensor is a is pretty attractive, especially for expansion into a type one non insulin population.
From the 88, we do we do have a poster on Saturday.
That will be you can see that up on our website when were when we're done.
And we'll be showing some pretty significant clinical data from I think the first 1600 patients.
In the United States that have been on on ever since.
Hi, Thank you so much.
The next question is from Jason Bedford with Raymond James. Please go ahead.
Oh good afternoon.
So I apologize if I missed this but I'm a little unclear on the the commercial efforts are you expecting to implant new patients this year.
Jason We've got we've curtailed the new patients with one exception that we are now we are now piloting and have inserted.
Our first Medicare patients.
So where we have doctors that are currently certified on doing the insertion now that we have Medicare coverage.
There has been a good interest in in some of those folks coming on the product so.
We don't have the.
The sales reps right now to do the detailing or the incremental training of new doctors, but if you're an existing dr.. We are doing some Medicare patients and in fact, that's a that's already occurred.
Okay and is Roche selling the device in Europe to new patients.
Correct, Yes, there's been no change in Europe with the with Roche other than just the cobot impact on there.
There there clinic access with patients and providers.
We are seeing that that rebound as well.
Okay.
And I appreciate the commentary around expanded access, but when you get to the 180 day approval well you have to go through this.
This process again for this device no no Jason much like you saw as the Trans cutaneous CGM is transition from three to five to seven to 10 to 14 days.
What that has created as many of the payers are paying on a on a per day basis.
And so they just they just consider that in the in the length of the sensors. So we wouldn't anticipate that we would have to go through this.
Approval process with a with a new elongated sensor.
Okay.
And then maybe last one for Nick what is the current monthly burn.
So we haven't provided guidance there in the first quarter on an operational basis. It was 10 million a month.
As we mentioned on the call. We do expect in the second half to be in that three to 4 million range with those exceptions as noted I'm clearly theres a bit of a transition going from where we were in Q1, two where we expect to be in the second half of the year.
Okay. Thank you you're welcome.
Again, if you have a question. Please press Star then one.
The next question is from Alex Nowak with Craig Hallum Capital. Please go ahead.
Great Good afternoon, everyone.
Tim how do you plan to conduct the 180 day launch differently than the 90 day, what went wrong with 90, what what went right.
What do you plan to do differently here for 180 day.
Yeah well.
Certainly the 100 needed a product as we noted we think is.
Got it continued to have a lot of interest as well.
There's a couple of key elements will certainly be much further along.
In regards to the to the payer reimbursement.
We should be when we get the final three Max we should be close to 200 million covered lives I think.
The official caregiving today is right about 170 million.
So obviously that will be much much further along.
As well as the the training and the certification of the of the docs to do the insertion people insertion of people recall that we've got.
Approximately.
500 folks that are doing insertions, now and about something like 1600 that whether that we're doing the.
The prescriptions. So we'll continue to work on the.
The network of additional in servers that are not endocrinology folks we found that to be very successful and we will we'll continue to.
Support the patient with the with the longer product.
And once the hundred 18 is approved how long you are going to take to go out there Rehires sales force get them trained up then would you expect to do something along the lines of the 90 day, where you hit the ground running with 30 or so reps or is this going to be a little bit more of a us lower go approach.
Yes, I'd say Alex at this point, it's probably best that's all part of the strategic conversations depending on the the direction that we had.
We would change the implementation of the of the commercial plan. So I'd like to defer that let US go through the strategic process and then we'll be able to really described.
We are partner organizations strategic partners would approach that.
Okay got it and I just wanted to touch on the cash for an again at the low end there at the end of this year works out to basically 36 million per year.
Obviously, there is in the U.S. salesforce and a lot of these initiatives having to halt. So I guess my question isn't that burns still pretty high on <unk>.
On a per year basis, and what are the options there for a more lean organization going into the other day.
Nick Nick you want to take that sure yeah. So right now based on the strategic or the initiatives that Tim outlined.
We have we made reductions of approximately 60% of the employment base.
So certainly with the initiatives that we have being a public company. We continue to maintain staff of approximately 80 ft ease and so certainly a as Tim mentioned, we'll continue to.
Good through our strategic process and we look forward to updating you all when we can.
Okay got it thanks welcome.
Your next question is from Kyle Rose with Canaccord. Please go ahead.
Great. Thanks for taking the questions. So a lot been asked but I just wanted to circle back I think you talked about some attrition rate numbers.
I guess the height of the of the pandemic at some those restrictions I just wanted to see one could could you provide those again.
And then also the trends you're seeing as far as we answer re insertion rate and then just how we should think about I guess the size of the installed base now in on a go forward basis, maybe what happens to those patients who who didnt have the chance to get Reinserting over the course of big over the last yes ages 12 weeks, Yeah. I think two I think just start with the end there.
Our Kyle I wouldn't suggest that we've indicated a in attrition rate what we've seen is that insertions were down.
Two about half so 50% of what they were prior to going into the co it impact.
So there certainly were some patients that were not able to get sensors on there.
On their 90 day exploration.
But we are see them starting to come back.
So that is that is why were hesitant at this point, we frankly, just really a few weeks of three as corner here too.
To see that.
That response happening at this point, but I don't expect it to say that this is a 50% attrition I.
I think I think we're going to see it's less than that but we'll we'll know and a little bit more time.
Okay. Thank you I appreciate the additional color there I must have missed or the comments. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Tim Good no for any closing remarks.
Well. Thank you we appreciate Everybodys time and interest and we look forward to updating you here as we move through the second quarter and through the strategic process.
With that good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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