SENS - Senseonics: Needs To Start Executing Better

2023-05-16 18:49:10 ET

Summary

• Plenty of initiatives are afoot in Senseonics to grow the business and open up access to Eversense in a significant way.
• The market though remains unconvinced. Better sales growth is needed to really move the needle here.
• The company is still not generating any positive cash flow. Therefore forward-looking valuations based on sales need to be watched closely in case dilution meaningfully continues.

Intro

We wrote about Senseonics Holdings, Inc. ( SENS ) in December of 2021 just before the company gained approval for its 180 -day sensor. We stated at the time that we believed the pending approval coupled with the potency of the Ascensia partnership (where more capital has since been invested through parent-company PHC Holdings) would drive Senseonics shares forward. Ascensia at the time was already making inroads in Europe with their sales efforts and given the strong fundamentals that the glucose monitoring market continues to avail of, we believed shares at the time ($2.87 per share) looked rather cheap when sizing up Senseonics as a whole.

Fast forward roughly 17 months later however and shares find themselves trading at approximately $0.74 a share which is a 74% collapse over this time frame compared to just a mere 12% decline in the S&P500 (major opportunity cost). Things were actually looking bright of late in Senseonics (as shares had begun to rally aggressively) in the recent run-up to the company's Q1 earnings announcement (9th of May last) but the company's reported sales and earnings beats were not enough to keep the momentum going.

In fact, from an investor's standpoint, the overriding theme of Senseonic's first-quarter earnings call was the sustained 'effort' and various initiatives which continue to be carried out so the company can essentially be driven forward. Given as mentioned, the 'potential' that Senseonics' Eversense system has in the diabetes space and how superior it is when compared to other much shorter glucose monitoring systems, long-term Senseonics investors would have never thought that shares are now trading well under $1 a share in May'2023.

Better Execution Needed

When it comes down to it, Senseonics is not selling enough of its wares, period and this is why shares are trading where they are. Despite growing revenues and how Senseonic's revenue-share percentage changes depending on the partner's sales numbers, the market still remains unconvinced which is a worrying sign.

For example, on the recent Q1 earnings call, Senseonic's CEO went through a raft of marketing initiatives that partner Ascensia runs that are designed to get Eversense in front of more interested prospects. Whether these initiatives be web-based (through increased website traffic) or labor based (through increasing sales personnel), Ascensia expects its investments to eventually bear fruit. Sales executives will be incentivized (through equity awards) so it will be interesting to see if the market decides to price shares higher on any sign of improving fundamentals here. Essentially, by spending money now, Ascensia is looking to sign up customers for life. However, growing markets always bring strong competition, so the market will need to see the fruit of these endeavors in upcoming quarters.

Access Opening Up & Innovation Continuing

To close the loop on the marketing side, plenty of commercial programs are now in place to facilitate the prospects who come through the online or direct sales channel. Through the recent partnership with the Nurse Practitioner Group, the Consignment program, and the new-look broader patient assistance program, the objective is to break down the barriers with respect to Eversense access. Time will tell whether these planted seeds can result in Eversense really gaining traction in these channels.

Then on the innovation side, the upgrade to the Eversense 365-day system remains on the cards for an FDA submission next year and improvements continue to be seen in-house regarding the company's Gemini and Freedom battery systems. These endeavors are well and good, but long-term investors have not seen any share-price gains from the company's innovation to date.

Negative Cash Flow

In fact, with operating cash flow coming in at a negative ($66 million), over the past four quarters, the market still cannot see a B-line to sustained profitability (which it needs to see in order to move the share price in earnest). The fact of the matter is, if a company cannot generate its own cash, funding initiatives need to continue to take place in order to balance books. Dilution though has a cost that is evidently seen by PHC Holdings' current position in the company. Although PHC invested another tranche of capital recently into Senseonics, their stake in SENS is well down compared to 2020. This is what dilution does to investments which is why long-term positions hold risk here in a negative cash-flow environment.

Conclusion

To sum up, although plenty of sales growth may be on the cards for Senseonics, we still do not see signs of positive free cash flow which is what the market needs to see. Senseonics potential now must begin to be realized. The company and its partners need to start executing better. We look forward to continued coverage.

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