Q4 2020 Senseonics Holdings Inc Earnings Call
Good afternoon, and welcome to the <unk> fourth quarter, 2000, and 'twenty earnings Conference call.
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I'd now like to turn the conference over to Lynn Lewis from Investor Relations. Please go ahead.
Thank you very much and welcome to the offense Neonics fourth quarter, 2020 earnings call.
Lynn Lewis from the good Martin.
We begin today, let me remind you that the company's remarks include forward looking statements. These.
These statements reflect management's expectations about future events operating plans regulatory matters product enhancements and company performance and other matters and B.
Only as of the date hereof. These forward looking statements involve a number of risks and uncertainties.
A list of these factors that could cause actual results to be materially different from those expressed or implied by any of these forward looking statements is detailed under risk factors and elsewhere and our annual report and form 10-K for the year ended December 31, 2019, our 10-Q for the quarter ended September 30, 2020 and other reports filed with the SEC.
These documents are available and the Investor Relations section of our website at Www, Cynthia Onyx that 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 will be discussing our 2020 outlook in light of the COVID-19, pandemic 2020 financial guidance was suspended and March 26.
2020, joining me from Cynthia Anixter, Tinder, and our President and Chief Executive Officer, and Nick Tressler, Chief Financial Officer with that I'd like to turn the call over to Tim Goodnow, President and CEO.
Great. Thank you Lynn and thank you all for joining us this afternoon.
On the call today, I will detail, our recent progress and the fourth quarter and how accomplishments over 2020 physicians since neonics to drive the value of our ever since system and the marketplace. In addition, I'll highlight our fourth quarter performance the.
Early commercial collaboration efforts with Cynthia diabetes care, including the transition of our European distribution.
We will share our outlook for 2021 and discuss developments with our product pipeline and then Nick will detail the fourth quarter financials before I conclude and open up the call for questions.
To start I'd like to briefly touch on our challenging yet transformational year.
First we undertook a comprehensive strategic evaluation, which led us to and opportunity to engage and a commercial collaboration agreement with SNCF.
And then with the revamped business model, we were able to raise $175 million and net proceeds to materially strengthen the balance sheet.
We believe that based on our current projections expectations and business plans and the existing cash and cash equivalents should be sufficient to fund the business through cash flow breakeven from operations and the commercial launch of the 365 day sensor designed to be calibrated only once per.
Week.
We're confident based on our early experience with our Cynthia and their shared passion for our technology and how it impacts the lives of people with diabetes and we have a team and strategy in place to be successful with the current ever since system and the U S and ever since X sales in Europe, as well as our future generation products.
And Youll recall, our Cynthia the diabetes care company, and a global leader and the blood glucose monitoring market with.
With roughly $1 billion and global annual revenue.
Offer products and over 125 countries to approximately 10 million people with diabetes to.
The Switzerland based company has owned IP Z Holdings Corporation.
KKR portfolio company.
We see them and they're complementary market position is a very strong strategic fit for sensing and onyx as we seek to expand the sales and adoption of our innovative continuous glucose monitoring offering.
Throughout our engagement with SNCF, it's been apparent that between the two organizations our missions and motivations are aligned and their core competencies are complementary.
With Cynthia Onyx will driving development and manufacturing of our product and SNCF positioned to drive commercialization.
We have executed an agreement that we believe is beneficial for both sides.
Cynthia adds our advanced ever since CGM system to enhance their portfolio and we leveraged their global commercial experience and footprint.
We formed a broad partnership, including global commercialization and a financing agreement.
<unk> is now the exclusive worldwide distributor distribution partner for all Cynthia Onyx current and planned diabetes products and will receive a tiered share of the revenues generated over the approximately five year agreement.
Cynthia its commitment also included an investment of $35 million and Cynthia Onyx with an additional $15 million available at our option. Following the FDA approval of the 100 day to day product.
And that's a since he assumed responsibility for managing marketing sales and distribution reimbursement and customer service. This agreement has allowed <unk> to streamlined sales and marketing operations and eliminate several functions.
The resulting business changes are anticipated to reduce sales and marketing expenses by approximately $45 million annually relative to our 2019 and expenses.
This impact is clear and our fourth quarter financial results and we expect it will have lasting impact going forward.
We are now able to dedicate more attention and resources on our core competency and the research development and manufacturing of innovative and transformational and next generation diabetes products and and the future. We will pursue the use of our antibody technology to measure important analytics beyond glucose and outside of day.
Babies.
And the fourth quarter or since it began initial focus sales efforts with ever since and the U S.
This was to become familiar with our products and markets as we work together to play and the full commercial transition, which is scheduled to take place in April.
We also prepared together for Cynthia to assume the full commercial responsibilities and key markets in Europe on February 1st.
And the early days and the U S have been informative and value with.
And with great collaboration producing learnings from both sides and.
The early focus was to assess plan and establish the needed processes and programs intended to stabilize the market for ever since and.
And we're centered only on certain existing large volume prescribers.
At the core of our relationship is a shared belief that ever since addresses important unmet needs for people with diabetes.
Our experience and research strongly suggests that the most important desired improvement for CGM systems.
A longer sensor duration.
We are unmatched in this category offering 90, and 180 day duration sensors, while maintaining a high degree of accuracy throughout the long life of the sensor. Additionally.
Additionally, EVAR centers also the only system that offers on body vibratory alerts and a removable transmitter.
Both of which removed burdens of the other systems and make patients lives easier.
And when patients start using ever sense, whether they are new to CGM are switching from another we have seen and continue to use the product with follow on sensors and a high frequency.
Covid and are limiting commercial operations and the U S presented retention headwinds in 2020, but we believe the impact has been manageable.
And support of our installed base and the fourth quarter, our revenue was $3 $9 million, including $400000 revenue from the U S and $3 5 million of revenue from outside the U S.
And the early days, we've been quite impressed by <unk> ability to incorporate feedback from the field and make adjustments quickly and collaboratively.
And they have identified needs and opportunities they are adjusting their personnel and strategy accordingly.
And wherever scent system is unique and highly differentiated.
We believe that the team that they are developing will do an excellent job and learning about the demands of the ever sent sales process and taking action to assure they have the professionals with a matching skill set to capture the opportunity.
We certainly appreciate the drive for success and share the excitement and commitment they have shown for the product.
Looking just ahead and the U S. S. Cynthia is underway and establishing a sales team targeted to be approximately 25 dedicated sales professionals at the end of the first quarter.
They have been hiring and plan to train these new team members over the next months to be deployed and in the field in April.
We are actively involved and the training and preparation of this group and.
In addition, the field and inside sales support clinical training and marketing access functions are also expanding to another approximately 20 additional commercial support team members.
We agree with the <unk> approach and believe that the build out of this dedicated U S. Commercial infrastructure is crucial for driving ever since adoption.
We are excited to have a currently underway.
We're also pleased to be reconnecting ever since with the healthcare providers that were previously prescribing and inserting the product.
Still we feel raising awareness more broadly across providers and patients is a priority for our product.
Together with ADC, we are creating additional initiatives to address product awareness and most significantly as part of the full commercialization efforts in April by ADC, a direct to consumer advertising.
And campaign will once again commenced for ever since.
This will consist of targeted ads as well as search and social media promotions.
And this picks up off on where we left off at the beginning of last year before we ceased active marketing to new users.
We anticipate the DTC strategy will help grow the ever since brand and the diabetes community.
Given the consumer facing aspects of our medical technology category. This has proven to be successful strategy for others.
We ended <unk> are making significant investment to generate awareness and interest for ever since.
A second ongoing initiative, we remain focused on with <unk> is to drive adoption through patient access support.
To date, we've been pleased with our progress on this front as we have expanded the number of U S covered lives to approximately 200 million patients who can use ever since and receive reimbursement from their insurance plans.
We believe this number represents a critical mass at which providers can generally be confident their patients will be eligible to gain access to the technology.
We feel that the recognition from these payers who are providing coverage for ever since as strong validation of our technology and our value proposition.
Over the past quarters. We also continued to win incremental positive coverage decisions from providers like emblem health.
Recently, however, since and the insertion procedure were included in the 2021 physician fee schedule for Medicare beneficiaries.
This represents a national payment levels for our patient population, we feel is uniquely suited to benefit from the features of ever since.
In the fourth quarter, we've added initial Medicare patients to our installed base and confirmed the logistics associated with the payment of this medical benefit coverage.
Strategies to service and expand as patient population are being developed by ADC.
And supportive greater access to patients as Cynthia plans to introduce two new programs for their benefit.
The first is a prior authorization support program.
This AIDS patients and petitioning theyre planned to cover ever sense on an individual basis. If it does not have a formal coverage policy in place.
In addition to assisting patients. This also demonstrates demand and utilization of ever since to the Payors. This will be helpful for them as they continue to evaluate the technology.
Along these lines of Cynthia also plans to initiate a patient assistance program for non government insured patients.
Such programs to assist patients with gaining access to a product or common throughout the industry and benefit patients and.
And especially at the beginning of the year when deductibles are high.
For our European distribution efforts, we had our last contracted ship and a product to Roche and the fourth quarter. According to their projected demand through January when our agreement expired.
The top priority for our organization, serving patient needs and we instituted a successful transition plan in Europe, and SNCF to target a seamless transition of their service.
Patients have maintained their access to supplies and reinsertion and through their Hcp's and SMT is working with these groups towards ensuring continued coverage and technical support.
And where it was possible payer contracts and tenders have been transferred as well.
Cynthia launched their sales efforts, and Germany, Italy, Switzerland, Spain, the Netherlands, and Poland on February one.
Despite the resurgence of Covid at the end of 2020, we were able to maintain and notable portion of our installed base.
<unk> on the information that we have to date and we have reviewed with the <unk> regarding projected performance and our markets. We continue to expect 2021 global net revenue <unk> to be in the range of $12 million to $15 million across all markets.
Finally regarding our new product, our clinical and regulatory objectives and.
<unk> ADC assumes responsibility for ever since commercial efforts, we plan to be focused on delivering the product innovation potential promised by our platform.
And we see excitement from the HCP and patient about our continued effort to extend the sensor duration and we expect each approval of an extended product to create greater momentum and increased market penetration.
Starting with the PMA supplement submission for the 180 day sensor and the U S. We.
And we received a late February communication from the FDA with a further update regarding the reallocation of agency resources to address emergency use authorization applications for products related to the COVID-19 public health emergency.
As previously noted this situation has been affecting all marketing application reviews generally including the ever since 180 day product, which has been delayed consistent with what we understand other medical technology companies have reported.
We are now and form that the FDA expects to assign our file to reviewer and place. It under review no later than April 15th.
And once the review process has started we are hoping for a reasonable turnaround.
However in this environment the exact timing is difficult to project.
We generally plan for a six month review period.
Which is consistent with the FDA guidance.
So with the passage of time and this new expectation from the FDA, we are planning on and approval in the third or fourth quarter of this year.
Based on the uncertainty around the review timelines that the FDA, we plan to provide and update on progress and the future.
We do remain confident and our belief that the promise study demonstrates strong performance of ever since justifying label extension for up to 180 days and we look forward to publishing this data at the Ada meeting later this year.
Finally, our next generation sensor underdeveloped is intended to be worn for up to one year.
Again, we are pushing the boundaries of what is considered possible and diabetes technology.
A key business objective for us this year is to complete the IDE submission for this 365 day sensor.
All subject to the availability of the FDA review group.
<unk> approval would provide FDA clearance to initiate our clinical trial with a 365 day sensor to support a future regulatory submission.
We are optimizing the chemistry formulation and sensor architecture for this new generation now and we are working to drive. This program forward. While we are also reducing the calibration and requirement to once per week.
We are excited to provide updates on this important product and the future.
And now for the details on the fourth quarter financials, I will turn the call over to Nick.
Thank you Kim and good afternoon, everyone in the fourth quarter of 2020 total net revenue was $3 9 million compared.
Compared to $9 million and the fourth quarter of 2019.
U S revenue for the fourth quarter was $400000 and revenue outside the United States was $3 $5 million as we mentioned previously the O U S revenue represents the last shipments to Roche to service the patient demand through January of 'twenty, 'twenty, one and the exploration of our agreement.
Gross profit in Q4, 2020 increased by $10 8 million year over year to $2 $6 million. The positive gross profit was predominantly related to the ability to fill resupply orders with existing written off inventory as reinsertion rates were above the.
Mutations and establish at the onset of the COVID-19 pandemic.
Fourth quarter, 2020 sales and marketing expenses decreased by $8 million year over year to $3 million compared to $11 million and the prior year period. This day.
Decrease was primarily due to recent changes and our commercial activities as a result of the strategic collaboration agreement with SNCF.
Research and development expenses in Q4, 2020 decreased by $5 $1 million year over year to $4 7 million compared to $9 $7 million and the prior year period. The decrease was primarily driven by lower promise clinical study costs and personnel related expenses.
General and administrative expense in Q4, 2020 was $5 2 million a.
A decrease of <unk> $7 million compared to the prior year period.
Mostly due to personnel costs related to stock based compensation.
Other expenses included increases to losses on the extinguishment and issuance of debt offset by reductions and debt issuance costs and gains and fair value adjustments as compared to the prior year period due to the company's financings.
For the three months ended December 31, 2020, total net loss was 101 $6 million or <unk> 41 per share compared to $35 $6 million or <unk> 18 per share and the fourth quarter of 2019.
Net loss increased by $66 million, Detroit and $96 million increased two other expenses primarily related to the accounting of the company's financings, including changes to the embedded derivatives, partially offset by a $24 $6 million decrease and loss from.
<unk> and.
Now turning to the balance sheet.
As of December 31, 2020, cash cash equivalents and restricted cash totaled $18 $2 million and.
In January we closed three financings raising approximately $175 million and proceeds.
At January 31, 2021, cash cash equivalents and restricted cash totaled $187 $3 million based on our current projections expectations and business plan, we believe that the existing cash and cash equivalents should be sufficient to fund the business through cash flow.
Breakeven from operations.
Looking ahead, we expect global net revenues between 12 and $15 million for 2021.
For full year 2021 cash used in operations is projected to be in the range of $60 million to $65 million.
With that I will turn it back to Tim.
Thank you Nick.
Early in 2020, we faced challenges that were exacerbated by the pandemic as experienced by many companies.
We have quickly transitioned into a partnership with <unk> that we believe dramatically strengthened our commercial capabilities and allows us to concentrate our focus on continued development of our technology.
The recent capital raises have added $175 million to the balance sheet and should allow us to focus on execution.
We believe that we are now well positioned to address the top unmet need and the large and growing CGM market.
With SNCF there are concrete plans to address awareness.
And access the meaningful ways to drive adoption of ever since.
Their commitment is clear and the investments that they have outlined to ramp up activity will strengthen the commercial opportunity.
As we mentioned with the FDA focused on emergency use authorizations, leading to delayed review of submissions in general.
We have coordinated to focus on reestablishing the 90 day product and the U S. For the next several months with the cadence and resource deployment originally planned for the 180 day product launch.
As we move through 2021, we expect the COVID-19 headwind impact to become a tailwind.
As the pandemic has moderated.
Vaccine penetration becomes more established and office visit frequency normalizes.
And with the build out of a larger sales force inside sales team field support DTC advertising campaign prior authorization and patient assistant programs. We are very pleased to again be positioned to offer the benefits of ever since to more patients.
In the fourth quarter and throughout the start of 2021, we have made substantial progress planning and building commercial capabilities with a sense here.
From our perspective, it is easy to see why they are a leading global diabetes company.
We could not be happier to be working with them and look forward to further success.
Joining us for questions are <unk> Jain, our chief operating officer, and Mirasol, <unk>, Vice President and general manager of global commercial operations.
Operator, let's go ahead and open up the call for questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Yeah.
Okay.
Okay.
And the interest of time, we ask that you. Please limit yourself to one question and one follow up.
And our first question today will come from Matthew Blackman of Stifel. Please go ahead.
Hi, This is Melanie on for Matt. Thanks for taking the question I just wanted to ask about and some of your partnerships with pump manufacturers and where that is and your priorities or what needs to be done. There I know you have and agreement with beta bionics, but are you looking at any of the other pump players for potential net integration and then I.
Had a quick follow up.
Sure the folks and pump insulin are of course very important to us as you noted we do have the partnership with beta bionics and we've done some pretty exciting clinical testing with them and in addition, our next effort to move the program forward really is around the ICM designation, which makes the integration much more facile with.
With the pumping partners. So that's our focus at this point, we have 180 day product and for a review and right behind that we anticipate the ACG and effort. So that's step one and then the partnerships with the pump folks as step right after that.
Okay.
Gotcha. Thanks that makes sense and then quickly and just a bigger picture question. You mentioned this on the call, but we've heard from other sensor companies talk about expanding their platforms to go beyond just glucose and looked at other MLA.
And like you said you mentioned that but is there anything else you can provide there or any color and when we might see something like that thanks.
Sure obviously the opportunities our product is.
And quite frankly, a very miniaturized and very accurate analytical fluorimeter, which means it has the ability to measure a number of different and lights, we have very direct experience with with oxygen and as an example, we've actually sold about $1 billion worth of oxo.
And sensing and our and our history, but we have very much focused on glucose for people with diabetes right now as you know it's.
And five plus billion dollar market today growing at about.
About 35% CAGR.
So what what.
We've coined internally is that we're going to generate our first $1 billion of revenue off from glucose and then we're going to look to expand beyond that but we do have.
A very very broad technology.
And we're pretty excited about the opportunity and the fact that we've shown it before I think really gives us a leg up on and some other technologies that are that have yet to do it.
The next question comes from Daniel and Philosophy of SBC Leerink. Please go ahead.
Hey, good afternoon, everyone. Thanks, so much for taking the question.
And then Nik just a question a little bit on the $12 million to $15 million guidance, obviously, a decent portion of that is predicated on SNCF picking up the ball here in the U S. I guess.
Question I had is what gives you the confidence and.
Where we stand today and how we stand today.
And that guidance like what are you hearing what is it says he is go to market strategy that Dave and.
And they have discussed with you as far as driving adoption or are they going to target higher volume centers do they go to target centers that haven't really adopted CGM and sort of how are they thinking about this and and what drives your confidence and the $12 million to $15 million sure. So the confidence because we have worked very significantly with with the Sn.
And this transition and and frankly goes back to last summer when we began to look at the opportunity with them. So we've together look very deeply and not only what the opportunity is for for CGM certainly the opportunity for our implanted CGM and remember we have quite a history and and our commercial act.
<unk> as well so we know that Theres, a very interested very dedicated installed base out there.
And the opportunity to return and to continue to grow in that space. We have a pretty good feel about just based on the interest that we feel from patients.
Even in our unfortunate downturn during Covid, we were able to retain a significant portion of the people that Ron ever sense, just because they become so dependent on and it's such a differentiated technology and it offers and so much more freedom that debt interest is incredibly large.
And it's very very sticky thankfully so as we've looked at the available opportunity as we've dug into not only the survey work we've done the clinical work that we have direct responsibility work, but we also now have a partnership with a completely new organization to us that it extensively look and this space as well.
So when you combine that research that really is what drives the confidence that we have to be able to deliver these.
The guidance that we've given a 12% to $15 million, we do think that given the installed base and Europe will continue to be larger there for the first couple of years.
We're anticipating still at about two thirds of the revenue because of the installed base is going to come from Europe. This year.
But we do know that the U S is also very encouraging and interesting market and their commitment to add as we said about 45 heads.
As we speak dedicated to sell ever sense is another great opportunity for us to drive to those targets.
That is super helpful. And then just one quick follow up actually you alluded to this and that's the strong reorder rates that you guys saw and.
And Europe, even through Covid, and I guess I I don't know if you can give a little bit more color about exactly what that reorder rate is and is that how we should be thinking about or reinsertion rate. I guess is that how we should be thinking about it going forward is there anything different about the U S launch obviously, it's a 90 day versus 180, but as far.
And as the retention that we should be expecting here. Thanks, so much sure. So Danielle we believe that the experience that we had and a couple of years and the U S and.
More than that obviously in Europe, where we really saw pretty consistent reimbursement rates.
After about the the first sensor people typically reinsert about 75% of the time after the second sensor, it's about 85% and by the time they are on their third sensor day.
<unk> fully chosen to to us ever since long term. So we're seeing reimbursement rates that are that are and the mid nineties.
Now that is and the routine times, we did see some compromise to that during COVID-19, but it is our expectation that as we as we come out of the current COVID-19 environment, and we're planning to be back at those rates.
And the coming year, and 21 and beyond.
Very helpful. Thank you.
Once again, if you would like to ask a question. Please press Star then one.
And the next question will come from Jayson Bedford of Raymond James. Please go ahead.
Okay.
Hi.
It gives me good afternoon, just a couple questions Tim I appreciate the color on the U S International expectation for 'twenty, one and.
Any type of cadence you can give us either first half second half or quarterly cadence I'm just wondering the buildup here to the 12 to 15 for 'twenty one yes.
And we're modeling that we're going to do about 40% and the first half and 60% and the back half. So as you would imagine with the.
And investment.
Ramp will come and as I said, we're still seeing we're still anticipating and majority of folks given the installed base are going to be on the European side by about two thirds one third.
Okay and.
Remind me revenue recognition.
Do you recognize revenue when you sell into a sense, yet or when the customer takes transaction.
That's right given that this is a revenue sharing but we do sell product to them. So we will.
And we will recognize that there is some consideration that we take for the different revenue targets.
So.
And that goes into our calculus as well, but it is recognized now as we sell to globally sell through of Cynthia.
Okay.
And the.
The revenue Rec.
And the fourth quarter to Roche did you recognize any and the first quarter to Roche or was that fulfilled in the fourth quarter. No. We completed the obligation to Roche through January that was actually sold to them and the fourth quarter. Okay. So on a calendar year perspective part of what we needed to consider as well.
Is that Europe, only is 11 months because with SNCF because it was filled january by by Roche.
Okay and.
And you alluded to sorry for taking more than.
Two questions, but you alluded to Medicare traction and the fourth quarter is there any way you can quantify in terms of center patient anything you can give us more in terms of the experience with Medicare and the fourth quarter.
It's still pretty early Jason.
Most of our focus has been and partnership on the on the training with with SNCF. It is a little bit different sale because the.
The clinical practice does actually purchase the product as a as a medical benefit and then gets reimbursed from from Medicare for it. So we work through that we've shown that we have the documentation support it. So now it's a matter of making sure people get comfortable with how to do that ordering and get the reimbursement in place. So it's still quite a small number Jason.
But it is an important part of our future and 'twenty, one and a portion for sure of our U S sales plan.
Alright, okay. Thank you.
This concludes our question and answer session I would like to turn the conference back over to CEO, Tim Goodnow for any <unk>.
Closing remarks.
Well, great I want to.
Thank everybody for their support and their participation today, it's been a challenging yet rewarding year for 2020, and we're very excited for the position we're in and the partnership and the ability to serve people with diabetes and 2021. So thank you for the time today, we look forward to updating you next quarter and good day.
The conference has now concluded. Thank you all for attending today's presentation and you may now disconnect.
Okay.
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