Senseonics Holdings, Inc. (SENS) Earnings Call Transcript & Summary

Greetings. Good morning, everybody. Thanks for joining us. We're very pleased to have with us today the team from Senseonics. We got Tim Goodnow, CEO; Nick Tressler, CFO, Secretary and Treasurer; and Rick Sullivan, VP of Finance. My name is Matt Miksic. I'm medical device analyst here at Credit Suisse. I'm going to turn it over to the team to provide a sort of 10-minute, or 10 or 15, or 5 to 10, or whatever you think is that works in terms of introduction and overview, and then we'll get into some Q&A. So Tim, you want to take it away?

Excellent. Thank you, Matt. Appreciate it. As Matt said, my name is Tim Goodnow. I am the CEO of Senseonics. And as Matt said, I'll just take a couple of minutes to get everybody grounded on Senseonics and our implantable sensor, and then happy to take any questions. So as a reminder, for those that aren't familiar, Senseonics is a medical technology company in the diabetes space. We have the first and only long-term continuous glucose monitoring system. It's an implantable sensor showed in the center of the screen. It's actually quite small. It's about 3 millimeters by 16 or 17 millimeters long. So a little bit thinner than a pill capsule and it's professionally inserted in the back of the arm. And because of the implant nature, it offers a lot of freedom and flexibility to people with diabetes than we've been able to bring in our early commercialization experience. We have focus. Obviously, the technology is very, very important. Accuracy has been really the key driver that's opened up this field of continuous glucose monitoring over the last decade. As you've seen continual generational improvements in the technologies, you've seen greater and greater acceptance because people get to the point where they can actually manage their diabetes and take some of the daily headache and overhead away. The aspect that ours is implantable offers some differentiation and flexibility. One is the transmitter that powers and communicates is completely removable. In fact, we train and encourage people to take that off every day when they shower. It's a very quick recharge of about 10 minutes or less. So while you jump in the shower, you put that in a [indiscernible]. And then it's good to go for about the next 48 hours. And as a result, that gives you an opportunity -- we use a completely different adhesive system, which is much gentler. It's only meant to last for that single day. So you can -- you have a much, much safer compliance and skin response to this easy Band-Aid type as opposed to something that needs to be locked on for a week or 2. And folks have found a lot of positive attributes as that as well. Also the opportunity to have it professionally placed so that folks don't have to be involved with the weekly or biweekly insertion process. A long history of innovation. First commercialized in Europe under -- in partnership with Roche in 2016, extended to the 180-day product. U.S. approval on the first generation in 2018 and we have submitted our 180-day product here in the U.S., and we anticipate approval in the first half of 2021. So generational improvements. We'll talk -- we'll continue to do that in the future towards 365 days. We have announced a partnership with Ascensia Diabetes Care. It's a KKR portfolio company. Ascensia, as some may know, is a strip and meter glucose monitoring company. They're actually one of the founders. The original glucometer is their technology. And they've been around for 80 years with these type of diagnostics technologies. Today, they've got about 10 million people that are on their strip and meter in over 125 different countries, and they do about $1 billion in revenue. They're going to be and they started off to be a great partner for us, where we have partitioned the responsibility in regards to commercialization. A sensi will take the lead. So they will make the calls globally on the prescribers and to the patients, create the demand as well as the commercial distribution, the reimbursement environments and so forth. And Senseonics will retain the regulatory, the product development and the manufacturing responsibility. So that partnership was announced in August. We actually began the first 10 sales reps as of October 1, so a few weeks ago. We're now commercializing in the U.S. and we will transition to a full global Ascensia commercialization on February 1, so just in a couple of months from now. The early commercialization as we said, we started here in the U.S. and we'll focus for the next couple of quarters on their existing staff that will be calling on our highest prescribing accounts. So about the top 250 prescribers that have done most of the insertions have most of the current patients on the product. They have already begun to reach out to and they will return to the commercial activities after we have been doing here with COVID for the last 2 quarters. Next year in 2021, they'll grow from 10 territories to 25. Those will be dedicated sales force for the CGM. And in addition to that, there'll be another 37 support folks, including internal sales and the like, that will manage the ramp-up in commercialization. So a quite large commitment from Ascensia. Over the next few years, they're going to invest about $250 million on the full commercial activity. And they'll be, as we said, starting out with the initial 10 head count, but that will grow to well over 100 or more in the -- over the horizon of the 5-year partnership. From our forecasting model, we see a significant ramp in revenue as we make penetration into the CGM space. What's shown here is over the horizon with the partnership, the revenue, and this is the revenue expectation to Senseonics. So it is a shared revenue. So total product revenue, of course, is beyond this. These are the ranges of revenue anticipated for Senseonics. So we're forecasting to $12 million to $15 million in 2021. And although we're not giving certainly guidance, of course, beyond that, our model expectation is that we will essentially double each compounding year as we grow, growing to nearly $200 million in Senseonics revenue as we make global penetration. Heavy focus, of course, in the U.S., but initially, a large focus in Europe where we have the largest installed base. We do get questions about who likes the product and who uses it. This is a distribution of -- from the first quarter when we had about 4,000 patients that were on the product. As you can see, there's a very, very consistent distribution of users. It's surprisingly consistent across the age groups. But also specifically, when you notice in regards to who are the users, we see that about 2/3 of the patients that choose the product are coming from existing CGM technologies and 1/3 are actually new to CGM. So these are folks that we've been able to convince to come on to CGM because of the attributes. We're seeing about 80% of the folks are Type 1 and 20% are Type 2s that are on insulin. So it is a broad-based interest product and we are generating new interest into CGM. Clinical results, as you would imagine with a implantable product are very strong. The median wear time is very high, well over the recommendation of wearing at least 70% of the time because it's implanted. It's very, very easy to use. And as you'll see, we're seeing very attractive, very positive timing range. In fact, the ranges that we've demonstrated in our first 1,000 European patients approach those that can be done with the artificial pancreas devices that are just nearing 70% time in range. And we're able to do that with just the on-body continuous monitor by itself. You will know that the breakdown is, as you'd expect, in age. As patients mature, they get more compliant and their time and range increases. So we see that the Medicare population -- and we do have a fair number of patients that are of that age. And our early U.S. users are almost approaching that magic number of 70% in that total population. So that was a lot of the information in support of clinical data that led CMS to grant us broad-based coverage for the product. We have been successful over the last couple of years, actively working on reimbursement coverage. We have about 80% of the U.S. population is now covered, most recently with the Medicare decisions. We have local coverage decisions today at each one of the MAC, so we cover the entire U.S. And then the Medicare did grant us a national coverage decision on July 1, which goes into effect here January 1, so in just a couple of months. Payment for the product and the procedure is done under a medical benefit. So unlike the other CGMs that are done as durable medical equipment, this is actually done as a medical benefit. So under CPT codes, which is a payment for the -- not only the device, but it's also a payment to the physician or medical professional that's doing the insertions and removal, which of course is completely different. What happens with the DME products where only the product is paid for and the physician does not get remunerated for any of their time with the other technologies. So we are, of course, focused on duration. We have -- as we've said, we've commercialized the 180-day product in Europe and we are moving to commercialize that in Europe -- excuse me, in the U.S. here with the submission that we've made to the agency. But our focus really is on a long-term one-year sensor. And I'll spend a minute talking about what we're doing to get to that direction. So 2021 is commercialization of the 180-day. We have submitted it to the agency and we would anticipate just about at the cusp of Q1 to Q2 is the statutory approval time period. So we're indicating the first half of the year. And it's at that point that we really would start the larger scale commercialization efforts with Ascensia when we launch that product. Behind that, we are actively working right now on our 365-day sensor and I'll show the first clinical results in humans that we've ever shown for our 365-day performance product. We feel pretty excited about it. And then we would anticipate that we would improve the product with the derivative configurations for what we call the Freedom System in 2024. So as a reminder, the current product is a single sensor. It's placed in the back of the arm. Small incision is made under lidocaine. A sensor is delivered and it will stay resident for now up to 180 days, and soon to be 365 days on the next generation product. This is a new architecture. It's actually a double optical system. So there's a full redundancy of a sensing -- of a second sensing technology, which gives us some backup and improvement in the longevity. And we're also designing that because of the increased optical capability to have a completely significantly reduced calibration work stream where we anticipate that we will now calibrate this product. So one finger stick a week for the 365 days. And then in addition to it, to really focus on the Type 2 patients that are not yet on insulin, so predominantly hyperglycemia management, we are focused on a second utilization of their product where it actually would be interrogated with the phone itself using the NFC and you could get a point-in-time reading whenever you wanted to do a swipe interrogation of that sensor. If you did, however, want to continue to have nighttime protection, you, of course, could put the transmitter on and get the overnight alarms and alerts. So really a device that's intended to go beyond the traditional use Type 1 patient and focus more on the much broader base, larger opportunity Type 2 population. These are the first clinical results as I said that we have shown. This is 12-month data we did in the middle of our 180-day pivotal clinical trial. We did seek authorization and we're granted the ability to maintain 40 patients out to 365 days. And what's shown here is the first results from the accuracy from those patients. And as you'll see, we're able to maintain accuracy throughout the full 12-month time period. So you'll see that the MARD relative to the home blood glucose meter. One of the things that we did lose during the COVID testing is instead of coming in for the monthly evaluation against the hospital analyzer, as you're likely aware the clinical trials in the U.S. were shut down for site visits. So we are showing the data relative to the home blood glucose meter. We show good long-term stability in those patients. So we're very excited about that data and look forward to continue to refinement where we anticipate starting our clinical trial -- seeking approval of the clinical trial in the first half of the year and start enrolling patients for the second -- next year of 2021 for the 365-day product. And beyond that is the third derivative. Once we have that long-term chemistry, we are then now currently working with implantable battery technologies from the medical device manufacturers that do the implants for things like cardiac pacemakers. And they are designing a custom battery that's showed as that silver sleeve that's appended to our sensor. So we'll make it a little bit longer. It'll still be implanted in the back of the arm, but that ability will give us the option and opportunity to actually power it without the on-body transmitter. So in this case, you'd have a technology where there would be no on-skin component, just an implanted sensor. It would report out to your phone. You could interrogate it on demand if you wanted to, but you also have that complete freedom and flexibility to have a no on-body component at all for 365 days. So obviously, a lot of excitement, a lot of differentiation, a lot of opportunity for products such as that. So with that, I'll go ahead and Mike have an opportunity to answer any specific questions that you may have, but I appreciate the opportunity to introduce everyone to Senseonics.

Sure. Yes. So I don't know about introduce everyone. I mean, I think you've been -- as we talked about before, we jumped on a sort of a differentiated and sort of an important force in the market in terms of innovation. Obviously, with a different set of challenges than a company that's trying to roll out an adhesive sensor versus an implanted sensor. But maybe just to clarify the last couple of things you said. I think the market for CGM, investors focused on CGM are -- think about things like factory calibration and how often things you calibrated and whether something is a swipe or a real time. And just to be clear, I guess, at what stage is -- and in what way is sort of real-time communication available obviously for things like alarms, as you mentioned? If we're on the transmitter, you have lifetime protection. And then what -- that obviously opens up integration opportunities with closed-loop systems like Bionics and then what is that next? Like we get the idea of swiping your phone sort of picking up a reading, but what does that next-generation provide that the current generation does in terms of data coming off the sensor and opportunity for integration?

Yes. So if you just look at the true continuous configuration, so that's 24/7. As you said, really focused on the Type 1 users, whether they'd be on injection or on a pump for their artificial pancreas. The product that we've submitted to the agency is 180 days. So you'll have twice a year for that with the full-time continuous data stream after a phone or as you mentioned, out to an insulin pump as well. The 365 that we look to do the clinical trial next year takes that exact same configuration and moves it to a one-year. Right. So that's product A, if you will, from 365. We do also recognize for the Type 2s that don't need that continuous. So they would not be on artificial pancreas. This is more of the traditional early-onset Type 2 when you're typically on diet and exercise and then oral agents. We truly don't need the nighttime protection for hypoglycemia. It's more about hyperglycemia management and the swipe monitoring is the best application for that. If you were to evolve onto MDI, insulin or pumping insulin as at Type 2, you then would be able to take the same implanted sensor and then just put the transmitter back on. So you'd go right to where you are with continuous and you could upgrade very quickly. And then the third product that I talked about is getting away from the total on-body at all, so still continuous, still 24/7, the night time protection. But in that case, you'd have an implanted battery to do the powering and communication of the sensor. And that would go on for a full year as well. So when we talk about 365, there's really 3 products that are in there, 3 generations. But the middle one is really intended to go beyond the intensively-managed insulin patients as well.

Got it. Not to get too far to the weeds on the Gemini because it's sort of far out there, but that's a rechargeable battery or that's a one-year battery?

It's a 1-year battery. Of course, recharging it would be a little problematic because you're still going to strap something to the arm, you'd like to avoid that. So it's designed to be a one-year replaceable. As you know, the cardiac pacemaker batteries go about 10 years. So that technology is there. For us, of course, it has to be custom, and we're working with the usual suspects to do that right now that have a lot of experience in implantable, high-quality batteries.

Great. So a couple of things that you mentioned. I mean there's a lot of catalysts it seems coming up in the next several months. Maybe if you could talk about the Ascensia investment in sales and field force and where that's going? And maybe put that in context with what you were at or what you would have felt that you needed or to sort of drive the business as an independent field force? Or when are they at par and when are they now growing past where you would have been or could have been if we were talking to a year or 2 ago about your plans?

Sure. Sure. So at this point today, as we said, they're starting out. As we speak, there's literally 10 sales that are up there. They're taking that to 25. And then there'll be another 37. And I don't want to minimize those. Our experience has been when we commercialize the product fully on our own, about 50% of our leads were coming from the typical physician recommendation and push, if you will. Another 50% were coming from direct-to-consumer marketing. So a lot of social media marketing and the like. So that's the patient going in and specifically asking for ever since. So that additional 37 is really intended to focus on that. So a big inside sales team to be able to take those calls and manage those leads. So by the end of next year, they'll be at the point that we were at at the beginning of this year before the COVID impact and the changes we made. And then as I showed, their plan is to continue to grow that as the installed base goes up and as the volume and need is created higher and higher.

Okay. And then another sort of catalyst coming up that you mentioned is the NCD. And maybe help us understand the incremental, what does that take you or what does that do to the sort of trajectory of the business, sort of the takeaway in terms of friction versus the local determinations that have been out there?