Senseonics Holdings, Inc.

Good day, and welcome to the Senseonics third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists 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 your touch-tone phone. And to withdraw from the question queue, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Philip Taylor of Investor Relations. Please go ahead.

Thank you. This is Philip 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 those forward-looking statements is detailed under risk factors and elsewhere in our annual report on Form 10-K for the year ended December 31st, 2021, our 10-Q for the quarter ended September 30th, 2022, and other reports filed with the SEC. These documents are available in the investor relations section of our website at www.sensionix.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 2022 outlook. Joining me from Sensionix are Tim Goodenough, President and Chief Executive Officer, and Rick Sullivan, Chief Financial Officer. With that, I'd like to turn the call over to Tim Goodenough, President and CEO. Tim?

Thank you, Tripp, and thank you all for joining us this afternoon. On the call today, we'll discuss our third quarter performance and continued collaborative efforts to expand patient adoption of Everson, as well as provide progress updates on the advancement of our product pipeline. Then, our new Chief Financial Officer, Rick Sullivan, will discuss the third quarter financials in detail, and we'll open up the call for questions. We're just completing six months from the Eversense E3 launch in the U.S., which means our earliest users are now receiving their second sensor. The feedback we have received from patients and healthcare providers continues to reaffirm our confidence that the differentiated features of our 180-day implantable CGM can positively transform diabetes patients' lives. Together with our global commercial partner, Essentia Diabetes Care, we continue to work to increase product awareness and access to establish a durable foundation for long-term growth. In the third quarter, Synthionics generated total revenue of $4.6 million, representing 31% growth compared to the prior year period. Included in this is $1.9 million of revenue from the U.S. and $2.7 million from outside the U.S. We're pleased with several recent advances in our business, while at the same time we expand the design of our future generation products. Our regulatory, clinical science, and R&D teams have achieved key milestones, including fully enrolling our pivotal trial for our 365-day sensor, filing an IDE for a pediatric indication, and making significant progress with the Gemini program, including our battery-powered sensor. We're happy to share the progress with this effort, which is targeted to be the foundation of both our periodic or flash glucose monitoring system and our full-featured CGM system, which is designed to offer flexibility and simplicity for people with either type 1 or type 2 diabetes. In the U.S., Essentia progresses further into the E3 launch. We have seen strong leads, and together we remain focused on increasing new patient starts and maintaining strong patient retention levels. We established a partnership with the Nurse Practitioner Group to expand patient access to Eversense by providing both in-office and at-home sensor insertions. We have secured additional payer coverage, and our next-generation sensor, Eversense E3, has been successfully launched across all of our markets in Europe. In the U.S., Essentia's dedicated CGM business unit is focused on growing patient adoption of E3 through a mix of DTC marketing and direct sales efforts. ADC is currently focused on 20 geographic territories established based on consideration of insulin utilization, insurance coverage, insertor presence, and qualified leads. They are planning to expand the sales force over the next few months, adding sales professionals and territories to drive more physician interactions and to better reach new and established accounts with current demand. DTC leads continue to be attractive, and ABC is working to convert leads into more insertions. Given the successful transition of patients in the U.S. to the 180-day system in the second quarter, third quarter insertions consist primarily of new patient starts, as existing users now receive their replacement sensors every other quarter. We continue to add a balanced mix of patients new to CGM and patients transitioning from our other systems. We see this as evidence of both our ability to expand the market and our ability to take share in the rapidly growing overall CGM market. Encouragingly, we now see over half of our patients have type 2 diabetes, demonstrating the value of Eversense for both patient populations. Going forward, we expect the patient pool to again represent a blend of reinsertions for existing users and new patients starting on E3. At this stage of distribution, inventory in the channel represents 60 to 90 days of supply as ADC ships product to distributors who then fulfill orders from clinics. We believe the inventory dynamic will more closely correlate with patient starts as volumes grow and the multi-step distributor channel normalizes. Looking more closely at patient demand, we continue to be pleased with the number of leads that are being generated by Essentia's direct-to-consumer digital advertising campaigns. Across social media platforms, ADC is targeting the diabetes community in specific high-potential geographies. Not only do these campaigns increase brand awareness in a cost-effective way, but they are growing the funnel of potential users. In collaboration with ADC, we are taking steps to convert the leads into an increasing number of sensor users. By nature, compared with sales forecast generated opportunities, the DTC leads represent a more diverse group of potential users. We observe that many of these patients manage their diabetes with their primary care physicians. And while these doctors are willing to prescribe ever since, they are generally not yet ever since inserters. Responding to this and to improve patient access to inserters, we are excited to announce our recent collaboration with the Nurse Practitioner Group, a leader in multidisciplinary healthcare provider solutions. The partnership is designed to provide convenient insertion options for patients both in office and at home. Because NPG's nurse practitioner staff is mobile, it will allow them to reach more patients who want Eversense but do not have an inserter nearby. We expect NPG to be remunerated from the payers by utilizing the existing CPT codes established from Plannable GM. The program has been launched in South Florida and Baltimore DC areas, and we have already begun training NPG's team of designated nurse practitioners to perform the insertion procedure. We plan to expand the program to 12 additional geographies by the end of the year and into further locations throughout 2023. We see this strategic initiative as having the potential to broaden access for patients who do not yet have a convenient location for sensor insertion. With NPG's national scale, experienced team, and flexibility to insertions in office or at home, as well as the mobility to reach patients, we're excited about the opportunity and look forward to sharing more updates on the program in the future. On the reimbursement and payer front, Payers are continuing to recognize the value of implantable CGM. We are pleased with the rate of transition to six-month coverage for E3 and continue to anticipate the changeover to be complete by the new year. On the Medicare front, as we published last week by CMS in the Physician Fee Schedule, our CPT codes have been updated to reflect the cost for the six-month Eversense sensor. And as a result, the temporary G-code CMS created for the technology will be deleted effective January 1, 2023. This national fee schedule update provides uninterrupted access for six-month and plannable CGM for Medicare beneficiaries and reflects the unique benefits of this technology. Commercial coverage for Eversense is also expanding. As a reminder, in August, one of the country's largest health insurance providers, Elevance Health, formerly Anthem, issued a positive coverage decision for EC3 that is now operational. Forty-five million members from this health insurance portfolio now have access to Eversense. Recently, Blue Cross Blue Shield of Florida and other regional payers have also issued a positive coverage decision. In addition to the continued expansion of coverage, ADC's patient assistance program provides an opportunity for patient and commercial insurance to start on EverSense for as little as $99. We believe this patient assistance program provides an attractive pricing model in CGM for those patients with coverage. This program is intended to increase patient adoption, and we anticipate it will have further impact when insurance deductibles reset at the beginning of next year. We worked hard with our partner to ensure that as many people with diabetes as possible have access to Eversense, and it is good to see the current number of covered lives. With two quarters into the U.S. E3 launch, we are encouraged by the progress to enhance access and payer wins. We look forward to the planned increase in sales professionals from Essentia to expand their market footprint. We are executing to reduce barriers to adoption, such as the collaboration with the nurse practitioner group, the patient assistance program, and payer initiatives. As we continue to launch, we plan to further use market feedback to focus our efforts to build brand awareness and convert leads into insertions, enabling more patients to experience and benefit the value of long-term CGM. Now turning to our partners' efforts in Europe. E3 achieved CE mark approval in June, and the commercial launch of Europe is underway. ADC is now offering E3 across all of their markets as originally planned. The phased launch approach began rolling out in August and is now complete. Globally, we are now shipping E3 sensors only, offering the same generation product worldwide. This increases our efficiency and supports greater leverage from the supply chain and manufacturing perspective. In Italy, Essentia continues to expand access to Eversense by working to win regional tenders. In Germany, ADC has recently hired a head of CGM. They're expecting their dedicated focus and new leadership will help improve commercial results and offset the slower-than-expected transition from the prior mail-order distribution model to a more direct distribution approach required in the CGM market. Visibility and awareness of the Eversense continues to increase in Germany through ambassador programs, advisory boards, and webinars. In the area of product development, we are very excited to report on the progress that we've made on the Eversense 365-day program. Earlier this year, we saw encouraging results in the feasibility study for our leading configuration for the one-year sensor, and based on that, requested the FDA to allow us to extend our ongoing pivotal clinical study to 365 days. That approval has been granted, and we are now fully enrolled in the study as of this past September. Additionally, we have now submitted a supplement to include a pediatric cohort to this ongoing clinical study. We look forward to working with the agency during the review process. We continue to make further progress on the technology front as well, specifically on incorporating a battery into the sensor. Our plan is to enable the sensor to take autonomous measurements and store long-term data, even when the patient is not wearing a transmitter. That data will then be retrieved simply from the sensor with a smartphone swipe from the phone over the inserted device. We're excited to be in the development of the long-sought-after CGM product without any on-skin components. Finally, on our last call, we announced enhancements on the digital connectivity capabilities for patients to share and combine their ever-since CGM data with other third-party apps through Apple Health. We are pleased with the feedback from patients and providers who are taking advantage of this new capability, helping patients and their identify correlations and gain greater insight into managing their diabetes further enhances the clinical value of Eversense. Continuing to advance our digital interconnectivity with additional partners remains a key priority for us. I'll now turn the call over to our new CFO, Rick Sullivan, to go over the details of the third quarter financials. Most investors have already had the chance to meet Rick as he's a longstanding member of our finance team. Rick has taken on roles of increasing responsibility over his nine years with Senseonics, improving the leadership skills and strategic vision that will be valuable throughout the next chapter of growth.

Thank you, Tim, and good afternoon, everyone. I'm excited to be here with you today in the new roles we further our mission to transform lives in the global diabetes community with our innovative sensor technologies. In the third quarter of 2022, net revenue was $4.6 million compared to $3.5 million in the prior year period. U.S. revenue for the third quarter was $1.9 million, and revenue outside the U.S. was $2.7 million. As a reminder, Sensionics recognizes revenue based on our revenue share. When shipments are delivered to Essentia, initiating the multi-step distribution to patients via ADC and their distributors. Gross profit in Q3 2022 was $0.8 million, an increase of $2 million from a gross loss of $1.2 million in the prior year period. The increase in gross profit was driven by the transition from the ever since 90-day product to ever since six-month product and manufacturing efficiencies. Research and development expenses in Q3 2022 were $11 million. an increase of 3.8 million compared to 7.2 million in the prior year period. The increase was primarily due to investments in our product development and clinical trials for next generation technologies. Third quarter 2022 selling general and administrative expenses were 7.3 million, a decrease of 0.3 million compared to 7.6 million in the prior year period. The decrease was the result of reduced advertising costs, partially offset by increases in personnel costs and professional fees. For the three months ended September 30, 2022, operating loss was $17.6 million compared to $16 million in the third quarter of 2021. The increase in the company share price at the end of the third quarter as compared to the company share price at the end of the second quarter of 2022 led to significant non-cash losses in Q3. As a result, total other income or loss decreased by $101.8 million compared to the prior year period, primarily related to non-cash charges resulting from the accounting for embedded derivatives and fair value adjustments related to the company's previous financings. As required by U.S. generally accepted accounting principles, We mark the value of these instruments to market for each reporting period, and the changes in these values are recorded as non-cash charges to the income statement. Each quarter, the value of these non-cash gains or losses will vary based on the volatility in the company's share price. So, generally, as the share price increases, we incur a non-cash loss, and as the share price decreases, we recognize a non-cash gain. For the three months ended September 30, 2022, total net loss was $60.4 million, or a $0.13 loss per share, compared to net income of $42.9 million, or a $0.10 gain per share in the third quarter of 2021. Net loss decreased by $103.3 million due to the accounting for embedded derivatives and fair value adjustments previously mentioned. As of September 30, 2022, Cash, cash equivalents, and short and long-term investments totaled $163 million. Turning to our outlook for 2022, we're now narrowing our full-year 2022 global net revenue to be in the range of $15 to $17 million from our previous estimate of $14 to $18 million. We're pleased to be providing this updated guidance in light of the macroeconomic environment and the FX headwinds currently impacting our European revenues. For gross margins, we continue to expect full year gross margins to be positive for fiscal year 2022, which demonstrates an important progression of our business. For full year 2022, we are improving projected expectations of net cash used in operations to be at the lower end of the range of approximately 65 million based on improved gross margins and continued operating efficiencies. We expect most of the expenses in 2022 to continue to be for investment in research and development, ongoing feasibility, and pivotal clinical trials for additional products in our product pipeline. With that, I'll turn it back to Tim.

Thank you, Rick. As we move forward to close 2022, we reflect on the substantial progress Senseonics has made this year and look forward to continuing that momentum into 2023. The transition to our next generation six-month E3 system has occurred globally with our partner, Essentia. We've taken several steps to improve patients' access to our product from the payer, provider, and patient's perspective. We are pleased with the ongoing expansions in Covered Lives. We are confident the partnership with the Nurse Practitioners Group can provide an attractive additional insertion option supporting patient access. Looking forward, we're very excited about the progress with our pipeline and potential impact iCGM, a one-year sensor, and our flash Gemini technology can have for people with diabetes, all while we continuously work to improve our manufacturing scale and margins. We remain focused on executing our plans and working with our partner to increase patient adoption and to continue to advance the longest-duration CGM for more and more patients. We believe we are well positioned to expand our business and look forward to updating you on our progress in the future. Thank you for your time today. Also joining us for questions is Mukul Jain, our Chief Operating Officer. Operator, let's now open up the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're 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'll pause momentarily to assemble our roster. Our first question comes from Matthew Blackman from Stifel. Please go ahead.

Matthew Blackman Good afternoon. This is Colin on for Matt. Just a couple quick ones from me. I wanted to start out with 2023, how comfortable you are with consensus. And in light of the recent Basel proposal from CMS, I was wondering how you guys expect that to impact your business, especially since you've passed this milestone of over half your patients being in the Type 2 arena. Any color there would be really helpful. Thanks. Sure.

So at this point, Colin, we're not speaking to 2023. We'll certainly do that on our next call as we report the Q4 results. But in regards to the Type 2, obviously we're real proud of the way that the product is performing in the people with Type 2 diabetes. Obviously, the expansion to more folks, in this case, basal insulin, are great candidates for the Eversense product, and we look forward to providing them the long-term implantable as well.

And just to follow up on that, I had a quick question with regard to the nurse practitioners. How do you expect that to help kind of address these patients getting prescribed, these basal patients? Given the fact that some of the PCPs are not actually inserting, do you expect that to be a major driver in 2023 or even into 2024 in helping address that population?

Yeah, we're excited about the partnership, as you've heard. It's a great opportunity to work with a great group with a long history of serving healthcare. It is, as I said, nurse practitioners, and we are labeled for them to do the insertions and removals. In the case as you described, someone that's with a primary care that's not yet doing insertions, it's a great referral out to them. And the nurse practitioner group, of course, is remunerated by the CBT codes that exist for the patients, especially with Medicare, to do the insertions and removals.

I appreciate the call. Thanks.

The next question comes from Marie. Tybo from BTIG. Please go ahead.

Hey, good afternoon, everyone. This is Sam Ibron from Marie. Congrats on the nice quarter here, and thanks for taking the questions. Maybe I can start on Gemini. It certainly sounds like a little bit more color on this quarter's call, so maybe any color you could provide on the latest updates there in terms of product development.

Sure. So we've been actively working with those that have experience in product in implantable batteries for medical devices. As you can imagine, things like pacemakers and so forth, there's a long history of developing that technology. So we are working with them for a custom battery that will power the Eversense sensor. Once it receives its power from the inside as opposed to currently from the outside from the transmitter, we will have the opportunity to generate a glucose and store that value on the sensor, which could then be retrieved at any point by a smartphone using the NFC technology that's in your phone. In addition to that, that same sensor can be used for people that want to use the transmitter full-time for overnight protection and so forth. And we've heard a lot, obviously, from our type 2 patients that they're really looking forward to a product where there is no on-body transmitter. So that capability is available in Gemini. And then, as we said, the other half is for even more flexibility for people with type 1 diabetes that may not want to have all of that full-time alarm. So many of our folks are interested in wearing perhaps the transmitter just at night, and they can interrogate the current glucose level and trend information and history with a wand of the phone.

Very good. Thanks for the added color there. Maybe I can ask my follow-up here to Rick and congrats on the new role here. I guess any change in terms of how we should think about the investment profile in terms of OpEx certainly sounds like a lot of, you know, continued R&D initiatives. So any change in the, you know, that invest for growth strategy as we move into next year here?

Yeah, no, Sam, thanks for the accolades. No, I think when we think about our operating expenses, you know, we had the primary expense being those clinical trial costs, and so we had them in this year, and we'll continue to have it next year with the 365 trial well underway. Great. Thanks for taking questions.

Again, if you have a question, please press star, then 1. Our next question comes from Alex Novak from Craig Howland Capital Group. Please go ahead.

Hey, guys. This is Chase. I'm for Alex. Congrats on the quarter and the ramp here. So I guess just starting out from us, I know it's very early, but any color you've drawn from renewals thus far on the 180-day product? And, you know, with the patient assistance program, does it seem to be driving adoption for, you know, both new patient starts and transfer patients? I guess just kind of Talk through the dynamics there and what you're hearing from customers.

Yes, certainly in regards to the patient assistance program, it clearly does work. It helps reduce the burden in the case where there are folks that have a high deductible or other costs. We are restricting it to the only folks that do have insurance coverage, but we are seeing good acceptance and attractive utilization of the program. of the patient assistance. We do anticipate, as is typical in the space, that we'll get more utilization in Q1 as deductible requirements are reset, but we're encouraged with the utilization. In regards to reuse, we do continue to see 80% or higher retention in regards to folks that are on sensor one to sensor two. That continues to appear to hold for us. And then as people get long-term on the sensor, you know, 3, 4, 5, 5th or beyond sensors, the retention, of course, becomes even much, much higher, well into the 90% range and beyond as people just routinely use it. I think, you know, I think we have users around the globe that may be on near their 20th sensor at this point, so.

No, that's helpful color and certainly it bodes well. So the company has previously had partnership with a pump maker developing EverSense for their pump. Have you had any additional conversations now with the 180-day product out with any pump manufacturers about integration? Any color there would be helpful again.

We do frequently have conversations with pump manufacturers. It wouldn't really be appropriate to To disclose the details of those conversations other than to say, obviously, the integration with a fully implanted system, especially a future concept without anything on body, is highly attractive. So we're actively working, as you heard, on the clinical trial for the ICGM designation, which is an important milestone for us regulatorily-wise. for integration here in the U.S., but outside the U.S., we continue to have conversations as well.

Is there any increased excitement from the pump manufacturers now that you have the 180-day product ramping and the 365-day product on the horizon? Any kind of uptake and interest, I guess?

There certainly has been uptake. We're seeing good, strong likability, and you know, leads that are coming into the, to the DTC as well as, uh, physician leads that are coming in from the offices. So certainly there's an improvement in likability from 90 to 180. And I expect even, uh, you know, even more in the future as we continue to expand the features as well as the duration of future generation products.

And then, yeah, that thanks. And that's helpful. And just last from us, um, you'd made that comment about, you know, 60 to 90 days of inventory now out there in the channel. Does that include, obviously, with Essentia, and is that kind of the ballpark range where you expect it to stay as you ramp in sales here?

It is, Rick. Do you want to go through that? There are a couple of steps in the distribution channel.

Yeah, sure. I mean, 60 to 90 days is consistently what we've forecasted and what we expect. Remember, we recognize revenue, and we ship the product to Essentia and Essentia then sells those products to the distributors and the various sales channels. And then from there, it would go to the doctor's offices in the U.S. and then hospitals in Europe. So there's a couple of different steps in that process before it gets to a patient. So 60 to 90 days is probably appropriate.

Okay. Yep. Thanks. That's all we had. I'll hop back in queue.

Again, if you have a question, please press star, then 1. There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Tim Goodnow for any closing remarks.

Well, great. Thank you. I'd like to thank everybody for their time today and the opportunity to update the status on where we are with Everson's in the business. And we look forward to speaking with you again in the next quarterly call when we report on the fourth quarter and the full year 2022. So with that, I wish you a good evening and thanks again.

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