Senseonics - Q2 2024

Transcript

Operator (participant)

Good day, and welcome to the Senseonics Q2 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then one on a touch-tone phone. To withdraw your question, please press Star, then two. Please note this event is being recorded. I would like now to turn the conference over to Trip Taylor, Investor Relations. Please go ahead.

Trip Taylor (Investor Relations)

Thank you. This is Trip Taylor 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 enhancements, company performance, and other matters, and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of the 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 in our annual report on Form 10-K for the year ended December 31, 2023, and the quarterly report on Form 10-Q for the quarter ended June 30, 2024, and other reports filed with the SEC. These documents are available in the Investor Relations section of our website at www.senseonics.com.

We undertake no obligation to update publicly or revise these forward-looking statements for any reason except as required by law. Joining me from Senseonics are Tim Goodnow, President and Chief Executive Officer, and Rick Sullivan, Chief Financial Officer. With that, I would like to turn the call over to Tim Goodnow, President and CEO. Tim?

Tim Goodnow (President and CEO)

Thank you, Trip, and thank you all for joining us this afternoon. During our call today, we'll begin with a review of our quarterly update, and then we'll turn to a discussion of the recent important developments of our strategic initiatives. Then our Chief Financial Officer, Rick Sullivan, will discuss the Q2 financials in detail, and then we'll open up the call for questions. 2024 is a transformational year for Senseonics, and we are confident there is a significant growth runway ahead of us, which we are focused on to capture. We've advanced each of our major objectives as we work towards driving increased awareness and access to our technology for people with diabetes. Our global commercial partner, Ascensia Diabetes Care, continues to strengthen their capabilities to bring Eversense to more people with diabetes.

We have augmented our long-term CGM with a remote patient monitoring capability to support diabetes population health management initiatives, initially with our collaboration with Mercy, and most recently, we established a Senseonics subsidiary to provide Eversense insertions and trainings to complement the partnership with the Nurse Practitioner Group to further support access for people who want to use Eversense. Underpinning our commercial efforts is the foundational strength of our technology, and we continue to advance our product pipeline to further differentiate our offering from short-term CGMs. Following a successful quarter, we are preparing for our next generation 365-day system launch in anticipation of FDA clearance. We expect this system to again redefine the long-term CGM category by doubling sensor duration and generating important future growth opportunities for the company.

ADC has been driving important commercial initiatives and refocused the organization with a view to supporting the expected approval. With their collaboration, we see a tremendous opportunity in front of us. Diabetes technologies remains one of the largest and fastest-growing markets in medtech, and with the multiple drivers we have in place, we are well positioned. We plan to more than double our patients and our revenue next year and continue to grow from there into the future with further differentiation and innovation. On the financial front, in the Q2, Senseonics generated total revenue of $4.9 million, representing more than 18% growth compared to the prior year period. In the U.S., Q2 sales totaled $3 million, and outside the United States totaled $1.9 million. Ascensia continues to gain traction by increasing awareness and access for Eversense.

We're excited to report that through the first half of 2024, new patient starts have more than doubled compared to the first half of 2023, and the patient base in the U.S. is now larger than that outside the U.S. Further, there have been organizational shifts to help spearhead commercial efforts. Brian Hansen is now leading the CGM business at ADC and has focused the commercial strategy to improve sales execution. Based on Brian's initial assessment, ADC has reevaluated its team and structure to build the foundation for commercial success. ADC has brought in a new head of marketing and a new head of inside sales, and both positions are driving positive influence on patient adoption. ADC is also focused on customer experience, targeting to improve the patient journey so that when it comes time to switch sensors, Eversense is the patient's choice.

A benefit of our business model and technology is the inherent high level of compliance and utilization that result from an implantable form factor and long-term duration. This competitive advantage will be materially extended with a 365-day system. While ADC continues to facilitate new insertions of the 180-day Eversense product today, they are working behind the scenes on the 365-day system launch readiness. We are confident that we will have increased adoption and that ADC will help ensure that we are prepared to capitalize on this exciting new product. Strategically, we understand that it's critical to support providers and patients in every step of the journey, from awareness to insertion, and increasing conversion rates remain a top priority. Ascensia is addressing each step in the sales process to improve patient funnel management.

As a result, progress has been made over the past quarters in how ADC manages inbound leads, patient education, and the overall execution of insertions. The commercial and operational improvements are critical to setting the stage for success with the demand increase we will see upon the launch of the 365-day product. To that end, on the inserter front, in the Q2, we established a subsidiary we call Eon Care Services, a wholly owned unit within Senseonics, to support patient access to convenient insertion services for Eversense. The strategic decision to bring the service in-house stems from our successful experience with the NPG partnership. NPG continues to do a meaningful percentage of the insertions each quarter, and we see bringing these operations in-house as an opportunity to expand the success of that program.

We anticipate that even further influence over the insertion process will drive efficiencies, increase insertion throughput, and ensure continued focus for an excellent patient experience. We believe the opportunity of the CPT code payments associated with the insertions enables a self-sustaining economic model for this initiative. This strategic move was assumed in our operating expenses for the year, and startup costs are reasonable with an attractive return on investment. We see Eon Care as further supporting ADC's efforts to grow and use the Eversense system, and we look forward to sharing more in the upcoming periods. In addition to the work ADC is doing on the commercial front, Senseonics has been actively pursuing additional growth avenues for Eversense to further expand our reach.

We believe that our product is uniquely positioned to make a difference for patients with diabetes, and, as described, are implementing a population health management solution that leverages the unique features and capabilities of Eversense. Health systems are under pressure to improve patient outcomes and drive down costs. Strong clinical and health economic benefits have been demonstrated by people using CGM, and we understand that Eversense can help systems further achieve these benefits. A critical piece of the value Eversense can bring to health systems is in our remote patient monitoring program, which provides cloud-based and EMR-integrated data analysis for patients, providers, and the healthcare system. This program offers patients more ongoing support than providing a CGM device alone, as it leverages personalized data to inform diabetes counselors who can proactively help patients improve their diabetes management.

The diabetes counselors are intended to provide coaching and insight into things impacting patients' glucose levels, such as medications, foods, and exercise, that will allow the patients to make better informed decisions. The program is designed to reach patients with coaching in between physician visits, where we can provide higher and more frequent touch. Our goal is for the Eversense CGM plus RPM offering to help health systems improve diabetes management and reduce the cost of care. Still today, most of the patients with diabetes who are eligible to be on a CGM are not on one, and this portion is even greater in the Medicare population. With the many moving pieces of the system, it can be challenging to get the patient to come in one at a time and ask for a CGM.

Eversense can help directly drive change here, and we can collaborate with the health systems towards seamless integration into the system workflow to support adoption and compliance. In our first implementation last quarter, we announced our collaboration with Mercy Health System, a top 20 healthcare system and accountable care organization based in St. Louis, Missouri. Mercy has invested in innovation and believes that Eversense can drive quality improvements, clinical outcomes, and a cost reduction for the system. They are excited about Eversense because of the value of our technology can bring to the diabetes population, and we're excited about this initiative's potential to increase access and adoption, driving growth. We see this partnership having a significant potential to increase the Eversense user base, as Mercy estimates roughly 30,000 patients across their system could benefit from CGM.

In collaboration with Mercy, we view this as a long-term scalable strategy, which, when demonstrated to be successful, will be rolled out across multiple systems. With an estimated 1,300 healthcare systems in the U.S. alone, we look forward to working with Mercy to demonstrate the clinical and economic impact that our combined CGM-RPM solution can bring, setting the stage for expanding Eversense impact to other health systems throughout the U.S. In this recent quarter, we made significant progress on advancing the Mercy initiative. Since our last update, we have been successfully preparing the organization's providers and collaborating closely with Mercy's operational and IT teams to establish a systemic workflow designed to efficiently scale patient integration. As planned, the first insertions are scheduled to be in the Q3, marking a significant milestone in our partnership.

With the first half of the year behind us, and with the progress to date on the important opportunities expected to continue in the second half of the year, we are reiterating the full year financial outlook, which we announced in June at the ADA. As for the full year of 2024, we continue to expect global net revenue for Senseonics to be in the range of $22 million-$24 million. The full year outlook assumes more than doubling the U.S. new patient starts, and increasing the global installed base by approximately 50% in 2024 compared to 2023. Now I'd like to speak to our pipeline. We are constantly driving our advanced CGM technology to bring more compelling offerings to patients and providers, and our portfolio currently sits in a very exciting position. Let's begin with our 365-day product and the expected FDA clearance.

Given that this product can be worn for a full year, the Eversense 365-day system will represent a groundbreaking development for patients with diabetes, and marks a breakthrough milestone for CGMs. Diabetes management looks different for each patient, and we have continued to evolve our technology to ease the burden to patients and simplify solution options. With Eversense 365, we will double the current long-lasting CGM life to become the world's first one-year CGM system. In addition, we have significantly reduced the requirements for patient management, with calibration now only required once per week, all while maintaining extremely high levels of accuracy required for the iCGM designation. We see these differentiators as highly compelling, and pending approval, we expect Eversense 365 to have a positive impact for diabetes patients in the U.S. and fuel important growth in Eversense adoption.

We are executing on this transition with a planned launch in the Q4, and we have positioned the business to capitalize on the growth we anticipate ahead of us. In addition, we continue to progress other areas of our pipeline with the goal of making the longest lasting CGM even more convenient and more compelling to patients. We're excited to announce that we've recently initiated the first in-human clinical testing for our Gemini system. Gemini is the first of the next two generation products that utilize a fully implantable, self-powering system. In-human testing is a critical step on the path to regulatory approval and commercialization, and during this time, we'll be finalizing the product attributes. Importantly, we are utilizing the 365-day sensor, and the clinical regulatory work will be focused on demonstrating the battery integration and functionality rather than sensor life, which we will have already established.

Given the unique benefits and differentiation of our technology, and of the regulatory foundation we have established with our submissions, we're excited to see the positive results as we move forward through an overall less burdensome approval process. With this exciting news, I'll now turn the call over to Rick for a review of our financials.

Rick Sullivan (CFO)

Thank you, Tim, and good afternoon, everyone. We appreciate the opportunity today to update you on our business. In the Q2 of 2024, net revenue was $4.9 million, compared to $4.1 million in the prior year period. U.S. revenue for the Q2 was $3 million, and revenue outside the U.S. was $1.9 million. As a reminder, our collaboration agreement with Ascensia is for revenue sharing, with the percentage of revenue to Ascensia increasing based on duration of the contract and annual revenue levels. We recognize our portion of revenue when shipments are delivered to Ascensia, and they take title and ownership of the inventory. This begins the multi-step distribution to patients via Ascensia and their distributors. We manage our manufacturing based on patient demand generated from commercial activities, targeting 60-90 days of inventory across the various channels.

Therefore, our shipments to Ascensia during the quarter are largely intended to support future demand of Eversense. Q2 shipments are intended to support Q3 demand for 180-day systems and take into consideration the planned transition to the 365-day product when launched in the Q4. Gross profit in Q2 2024 was $0.3 million, a decrease of $0.1 million from a gross profit of $0.4 million in the prior year period. The decrease in gross margin was primarily driven by higher fixed manufacturing costs. Research and development expenses in Q2 2024 were $10.8 million, a decrease of $2 million compared to $12.8 million in the prior year period. The decrease was primarily due to reductions in clinical trial expenses, mainly associated with the completion of the 365-day sensor pivotal trial.

These decreases were slightly offset by planned continued investments in our product pipeline for development of next generation technologies. Q2 2024, selling, general and administrative expenses were $9 million, an increase of $1.5 million compared to $7.5 million in the prior year period, primarily driven by increases of personnel costs and legal and other administrative expenses to expand commercial initiatives such as Eon Care Services and the Mercy collaboration. Q2 2024, selling, general and administrative expenses were $9 million, an increase of $1.5 million compared to $7.5 million in the prior year period, primarily driven by increases of personnel costs and legal and other administrative expenses to expand commercial initiatives such as Eon Care Services and the Mercy collaboration.

For the three months ended June 2024, operating loss was $19.5 million, compared to $19.9 million in the Q2 of 2023, due to decreases in R&D expenses. For the three months ended June 2024, total net loss was $20.3 million, or a $0.03 loss per share, compared to a net loss of $20.4 million or a $0.04 loss per share in the Q2 of 2023. Net income increased by $0.1 million due to the reduction in R&D expenses. As of June 30, 2024, cash, cash equivalents, restricted cash and short-term investments totaled $84.9 million, and debt and accrued interest was $56.2 million. Turning to our outlook for 2024, Senseonics continues to expect full year 2024 global net revenue to be in the range of $22 million to 24 million.

This represents 67.5% to 72.5% of gross Eversense revenue after accounting for the revenue share with Ascensia. The full year 2024 financial outlook assumes more than doubling the US new patient starts and increasing the global installed base by approximately 50% in 2024 compared to 2023. Inventory dynamics as a result of the transition from the 180-day product to the 365-day product, are expected to impact Q3 product sales. Revenue in the Q3 is expected to decrease, followed by an increase in acceleration in the Q4, based on sales from the 365-day product and the Mercy collaboration. We expect revenue generated in the second half of 2024 to be split approximately one third in the Q3 and two thirds in the Q4.

We also continue to expect full year gross margins to range from 10%-15%, excluding anticipated one-time charges associated with the transition to the 365-day product. Our operating expenses are expected to range from $77.5 million-$82.5 million. With that, I'll turn it back to Tim.

Tim Goodnow (President and CEO)

Thanks, Rick. As I mentioned at the start of the call, we feel we are well positioned as we head into the second half of the year with a solid foundation and enabling further advancements the progress of our strategic initiatives. We believe we are set to deliver higher growth and greater shareholder value. As we look at the near-term horizon, the expected clearance and launch of our 365-day product represents one of the most significant catalysts in the company's history. We are executing our development and operational initiatives while Ascensia continues to enhance its commercial capabilities. Further, we are supported by our differentiated technology and a pipeline that has continuously advanced next generation products.

There is a large opportunity in front of us as we make inroads with new patients and continue to advance our core products, and we are excited to continue to simplify the lives of more people with diabetes and build on our momentum. Thank you for your time today. Also joining us for questions is Mukul Jain, our Chief Operating Officer. Operator, let's open up the call for questions.

Operator (participant)

We will now begin the question-and-answer session. [Operator's Instructions]. Our first question comes from Marie Thibault, from BTIG. Please go ahead.

Sam Eiber (VP of Equity Research)

Hi, good afternoon, Tim, Rick, Mukul, this is Sam from Marie. Thanks for taking the questions. Maybe I can start here on the any more details you have on the dialogue you're having with the FDA and, you know, what's giving you that, that confidence in, in launching the 365-day sensor in Q4?

Tim Goodnow (President and CEO)

Sam, thanks for the question. We won't go into the gory details of the conversations. We are actively in the middle of it, but I'll let Mukul update where we are.

Mukul Jain (COO)

Hey, Sam. Yeah, so it's, as we have clearly stated, 510(k), so there is a certain timeline that FDA moves with, and our confidence comes from our past, interactions and the relationship we have with the agency and the data, the quality of the data that we have submitted. So everything put together, we pretty much see where the trajectory is, and that's what's giving us the confidence.

Sam Eiber (VP of Equity Research)

Okay, good to hear. And then maybe I can use my follow-up here, on some of the comments you made about, Ascensia working but behind the scenes on, on the 365-day readiness. I, I would just love to know any more details on, on what exactly that means. Is it more feet on the street? And, and then on your end, how you're thinking about the investments needed to support that launch, whether it's marketing initiatives, more direct-to-consumer, type of campaigns, just general thoughts on, on, getting ready for the launch. Thanks for taking the questions.

Mukul Jain (COO)

Sure, Sam, and as you surmised, obviously launching a new product, it's an exciting time for us. It is a big step forward from 6 months to 1 year. So yes, there'll be a new marketing campaign that Ascensia is driving. You know, we've had an opportunity to see some of the preliminary work. We're quite excited about it. So a lot of consumer marketing, a lot of professional marketing as well. We also have efforts and focus in the St. Louis area with our new Mercy partnership. So there's quite a bit going on as we launch this new generation product. And you know, Ascensia is doing a great job of getting us prepped for that and getting ready to go here in October.

Operator (participant)

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tim Goodnow for any closing remarks.

Tim Goodnow (President and CEO)

Well, great. Thank you. I appreciate everybody's opportunity to spend time with us in the afternoon, and we look forward to updating you on the next quarter call. Good day.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.