SENS - Senseonics Faces Headwinds In Competitive CGM Market

2023-08-01 15:25:34 ET

Summary

• Senseonics is a medtech firm specializing in long-term, implantable glucose monitoring technology for the diabetes community.
• Recent updates include UnitedHealthcare beginning coverage of Senseonics' Eversense E3 glucose monitor, potentially reaching 300M insured individuals.
• Senseonics has reported growth in revenue and has implemented various growth strategies, but faces competition and profitability challenges in the CGM market.

Introduction

Senseonics ( SENS ) is a medtech firm specializing in long-term, implantable glucose monitoring technology for the global diabetes community. Their breakthrough product, Eversense, includes various continuous glucose monitoring (CGM) systems that accurately measure glucose levels through an under-the-skin sensor, smart transmitter, and app. Since receiving its first CE mark in 2016, Senseonics has commercialized its products in Europe, the Middle East, and the U.S, with extended-life versions approved by the FDA. The company has partnered with Ascensia for worldwide distribution, while continuing its own research, development, and regulatory processes.

Recent updates saw Senseonics' shares jump ~9% as UnitedHealthcare began covering the Eversense E3 glucose monitor from July 2023, potentially reaching 300M insured individuals. However, Jefferies initiated an underperform rating on Senseonics, citing its niche market, mandatory in-office implantation, daily charging, lack of pump integration, and sub 1% market share due to intense competition from established CGMs.

The following article reviews Senseonics' financial performance, market assessment, growth initiatives, and offers a "Sell" investment recommendation.

Financial Performance

In Q1 2023, Senseonics reported total revenue of $4.1 million, a notable increase from the $2.5 million earned in Q1 2022, with both US and international revenues seeing growth. However, gross profit slightly dropped to $0.4 million from $0.5 million, and sales, marketing, and administrative expenses decreased due to reduced personnel and administrative costs. Meanwhile, R&D expenses climbed due to investment in next-generation technologies. Net income was $1.3 million compared to $86.7 million in Q1 2022 due to accounting adjustments. Senseonics maintains its 2023 global net revenue outlook of $20 to $24 million.

Stock Assessment

Per Seeking Alpha data, Senseonics ((SENS)) shows mixed indicators. The company's EPS is projected to see minor fluctuations in the coming years, but sales are predicted to grow significantly, with a rise of over 89% by 2024. Earnings revisions are positive with 100% upward revisions and no downward changes. Valuation metrics show a high price-to-book ratio of 6.62, and high enterprise value to sales ratio at 20.44. Senseonics shows modest YoY revenue growth of 35.57%, but its profitability measures are mixed, with a low gross profit margin of 14.48% but an extraordinarily high ROE of 896.77%. The company's momentum has varied in the past year, experiencing a drop of almost 30%.

The market cap stands at $427.09M, with total debt of $51.8M and a healthy cash & cash equivalents position of $136.6M.

Growth Initiatives

Management has outlined several growth strategies in their recent earnings report. They have increased investment in promoting their Eversense product to U.S. diabetes patients and healthcare providers, primarily using direct-to-consumer marketing and expanding the dedicated U.S. CGM salesforce.

To improve access to Eversense, the company is collaborating with the Nurse Practitioner Group, implementing a consignment program and expanding patient assistance programs. The Nurse Practitioner Group is providing sensor insertion options in approximately 25 cities, which makes insertions more convenient for patients.

The consignment program allows healthcare providers to have the product readily available in their office, ensuring quick and even same-day insertions. Patient assistance programs have also been expanded for all commercially insured patients, allowing users to wear Eversense for a full year without worrying about co-pays or deductibles.

Meanwhile, Ascensia continues to focus on expanding market presence in Europe, addressing challenges such as shifting market dynamics in Germany and securing new tenders in Italy.

In terms of product development, Senseonics is focusing on extending the wear time duration of Eversense to 365 days, with an FDA submission for this product planned for early 2024. It's also progressing with its battery-powered systems, Gemini and Freedom, aiming to offer patients increased flexibility, ease of use and simplicity.

The company is also considering multi-analyte sensing platforms, including continuous ketone monitoring, to offer further support for diabetes patients and prevent further complications from ketoacidosis.

My Analysis & Recommendation

In wrapping up, it's crucial to recognize the unique position Senseonics has positioned itself in within the CGM market. Their implantable, long-term glucose monitoring technology, Eversense, though currently holding a niche appeal, introduces an innovative approach to managing diabetes. However, the market for CGM is highly competitive with well-established players like Dexcom and Abbott Laboratories, which offer more conventional wearable technologies.

As investors, we are looking for the Q2 earnings report on August 10 to provide insight into whether the company’s growth initiatives, such as expanding direct-to-consumer marketing and scaling up the sales force, are translating into significant revenue growth. Furthermore, updates on the status of ongoing R&D projects such as the 365-day Eversense product, Gemini and Freedom systems, and multi-analyte sensing platforms, will be key indicators of the firm's potential for sustained, long-term innovation. The market will also be keen on seeing if the positive impact from UnitedHealthcare's coverage on the Eversense E3 glucose monitor is reflected in the company's Q2 earnings.

However, despite these potential growth signals, the company is yet to turn a significant profit, and its unique product offering requires in-office implantation which might hinder widespread adoption. Further, the daily charging requirement and the lack of pump integration limit its appeal compared to its competitors.

As an investment recommendation, I would lean towards a "Sell" position. Even though Senseonics has shown revenue growth and boasts promising technologies, the firm still operates in a niche market and faces an uphill battle in terms of market share and profitability. Given these concerns and the stiff competition in the CGM space, it may be wise for investors to look for more compelling opportunities elsewhere until more concrete signs of sustained profitability emerge. This decision is subject to change, however, based on how Senseonics navigates its outlined growth strategies and progresses with its next-generation technologies.

Risks to Thesis

When the facts change, I change my mind.

There are certainly risks inherent in my "Sell" recommendation for Senseonics. Firstly, the company's strategic partnership with Ascensia for worldwide distribution could prove more beneficial than currently anticipated, potentially leading to a rapid expansion of their customer base and increased revenues. Should Ascensia effectively leverage its global reach and marketing capabilities to boost Eversense sales, Senseonics’ financial outlook could significantly improve.

Secondly, Senseonics is actively investing in R&D, particularly towards their ambition of extending the Eversense sensor's life to 365 days. If the FDA approves this new device by early 2024 as planned, it could revolutionize the CGM market and provide Senseonics with a unique competitive edge. Such a breakthrough would undoubtedly boost the company's attractiveness to investors and could swiftly turn the investment tide in their favor.

Lastly, the company's efforts to make their products more accessible, such as collaborations with the Nurse Practitioner Group and the implementation of a consignment program, could accelerate product adoption. If these efforts translate into more substantial market penetration than expected, it could serve as a positive catalyst for the company's stock price.

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