Trying to build out a new med-tech product category is a time-consuming and costly endeavor. Senseonics Holdings Inc. has long pursued the vision of extended-use, implantable continuous glucose monitoring (CGM). Since it was founded in 1996, the Germantown, Md.-based company has already spent roughly half a billion dollars to get there.
But now its lender, Solar Capital Ltd., declined to renegotiate as a potential default loomed. Senseonics agreed to terminate the loan, thereby triggering a full repayment with fees of $48.5 million. For investors around the globe, given the rapidly unfolding coronavirus pandemic alongside the economic and market chaos it is prompting, cash has become a top priority.
That means most companies – and, in particular, higher-risk, unprofitable med techs and biotechs, like Senseonics – will find it very difficult to renegotiate or attract financing in the current environment. Senseonics said it is seeking strategic alternatives, including a potential sale. At about $110 million, its valuation (NYSE:SENS) remains only a fraction of the capital invested.
“The company is considering all strategic alternatives at this stage, including the sale of the company. We want to continue to provide an attractive and effective solution for users in their day-to-day diabetes management while providing shareholder value,” Senseonics President and CEO Tim Goodnow told BioWorld. “We are talking with various companies now – med-tech, financial institutions, life sciences, etc. through a financial adviser. The intention is to provide sufficient funding stability and flexibility to Senseonics in the near term, in light of the ongoing market dislocation caused by the COVID-19 pandemic.”
Senseonics terminated its loan and security agreement with Solar Capital on March 22. After the repayment, it has no outstanding secured debt. In its search for strategic alternatives, the company has engaged Moelis & Company LLC as financial adviser and Cooley LLP as legal adviser.
The company had an accumulated deficit since its inception of $473.3 million at the end of 2019. Wall Street expects that in the first quarter the company likely lost another roughly $25 million, although it is currently working to streamline activities to conserve cash. It ended 2019 with about $96 million in cash, prior to both the repayment and first quarter expenses.
“Following this loan payoff, we forecast Senseonics may need cash as soon as the late second quarter to continue operations, though management believes its narrowed focus on core operations during the strategic review should result in reduced spend,” summed up BTIG analyst Marie Thibault in a March 23 note. “We continue to believe Senseonics is an attractive M&A target since its key product is FDA approved, is covered by CMS, and serves a large patient population.”
CGM competitors Dexcom Inc. and Abbott Laboratories have both flourished with their shorter-term wearable products that last up to a couple of weeks. They could be acquirers for the Senseonics technology as an additional modality with its up to 90-day use period.
Or perhaps it could be paired with an insulin pump player for use as part of an artificial pancreas system. Senseonics has participated in various artificial pancreas development efforts over the last few years with partners including Typezero Technologies Inc. and Beta Bionics Inc. It also partnered earlier this year with smart insulin pen startup Companion Medical Inc.
“Because of the long-term, implantable sensor and the fact that it’s highly accurate, we believe it would be a perfect pairing for an artificial pancreas system,” said Goodnow.
Senseonics has been working systematically to advance its Eversense CGM with regulators and payers. It has just been available in the U.S. for a little over a year. Since then, the company has been working to amass payer coverage. It also gained a non-adjunctive indication in June 2019 from FDA, which enables it to replace fingersticks for dosing decisions. It still requires twice-daily calibration with fingersticks, however.
The Eversense system includes a tiny sensor, 3.3 mm in diameter and 15 mm in length, that is implanted subcutaneously in the upper arm, as well as an external, worn smart transmitter and a mobile app that receives glucose readings in real-time and analyzes them. The company is conducting the PROMISE study for a 180-day version of the sensor, which greatly boosted its R&D expenses last year. Senseonics had a net loss of $115.5 million in 2019.
Last year, Senseonics had only $21.3 million in revenues, of which only $3.2 million came from the U.S. with the bulk deriving from the European market through its distribution partner Roche AG. That was an improvement of only 13% over 2018 revenues.
COVID-19 deters procedures
Still, by year-end Senseonics had secured U.S. reimbursement for more than 100 million covered lives, in addition to establishing medical benefit coverage through Medicare.
“It’s very encouraging and satisfying to see the payer coverage wins, most recently with Cigna and including the Medicare Part B Medical benefit granted to us by CMS,” said Goodnow. “These will go a long way in giving people access to the Eversense CGM system. It takes some time to operationalize the reimbursement and claims processing but it’s getting there.”
He continued, “We have been growing at a steady pace, but now with limited access to health care provider offices for insertions of our implantable CGM sensor since the onset of the COVID-19, we expect new patient volumes will slow during this pandemic.”
The onset of the novel coronavirus not only hurt the stock market – and subsequently Senseonics' ability to access capital – it also has the potential to slow patient access since the system requires insertion by a clinician.
With the pandemic, routine access to medical care is expected to remain curtailed for some time. Patients in the U.S. with chronic diseases such as diabetes are becoming ever-more vigilant in avoiding infection, the foremost and ubiquitous strategy for that is sequestering themselves at home with the absolute minimum amount of external contact. That makes any optional procedures in the clinic a very low priority, with many already being cancelled. COVID-19, therefore, could prove difficult for Senseonics to weather due to both the financial and market implications of the pandemic.