Source: Company website
Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1. -Warren Buffett
In bio-land, there are many potential multi-bagger investments. Now, not all biotech will deliver to you multiple folds gains. Consequently, you'd need to evaluate each company carefully to allocate the proper percentage to your portfolio. A highly speculative bet has extremely high risks that warrant only a tiny portion of your portfolio. Nonetheless, it can give you multiple fold upsides if the investing thesis plays out.
That being said, I'd like to share with you a company dubbed Senseonics (NYSE:SENS). Though being a highly speculative stock, Senseonics is undergoing strong fundamentals improvement that boosts its chances of success. In this research, I'll feature a fundamental analysis of Senseonics and provide you my expectation of this growth equity.
Figure 1: Senseonics chart (Source: StockCharts)
As usual, I'll present a brief corporate overview for new investors. If you're familiar with the firm, I suggest that you skip to the next section. Operating out of Germantown, Maryland, Senseonics is focused on the development and commercialization of long-term, implantable continuous glucose monitoring (i.e., CGM) systems for people afflicted by diabetes.
The company is currently launching the Eversense 180 CGM in both the US and worldwide. This is a first-generation sensor with advanced chemistry as a long-term (180 days) real-time glucose monitoring system. Interestingly, there are more development and advancement in the pipeline as shown below.
Figure 2: Product pipeline (Source: Senseonics)
Before going into the technology and other fundamental developments, you should assess the prevailing industry tailwinds. A company operating under an industry tailwind usually enjoys robust profits. After all, little efforts deliver great results.
As you can see, there is an increasing prevalence of people in America suffering from obesity. With obesity comes diabetes because they are comorbidities, i.e., conditions that tend to occur together. Statistics showed that the global diabetes prevalence rose from 211.2M in 1990 to 476.0M in 2017.
Looking ahead, the trend is likely to continue increasing aggressively. Amid these changes, there is an increasing demand for better diabetes diagnostics, monitoring, and management. As such, you can expect the demand for Senseonics technology to galvanize over time.
Figure 3: Strong industry tailwind (Source: Nature.com)
Shifting gears, let us analyze Senseonics' state-of-the-art Eversense CGM System. There are many advantages of Eversense for being the "first and only." As you can tell, I like companies with differentiating technology and medicines. Being the first and only garnered high grading in my book.
Notably, Eversense is the first and only CGM that lasts for months rather than days. Asides from being the first and only implantable sensor, the transmitter is the first and only removable device. Eversense is also the first and only device with a fresh and gentle-on-skin adhesive patch.
Patients also do not need to insert it themselves. There is also a sensor that has on-body vibe alerts for dangerous glucose levels, i.e., hyper and hypoglycemia. This device is also friendly to use when the patient has to take an MRI. Putting all that together, Eversense is convenient, and it plays a crucial role in diabetes management while improving the quality of life for patients.
Figure 4: Strong industry tailwind (Source: Senseonics)
From the figure below, you can see that Senseonics cleared various regulatory hurdles and milestones. It is interesting to note that sales are still modest at $2.8M for the latest quarter. Of that figure, the U.S. and worldwide sales were $0.31M and $2.53M, respectively. Obviously, most of the sales were in the EU. And amid a favorable industry tailwind and an excellent technology, you have to be wondering why sales have yet to reach at least a couple of hundreds of millions of dollars.
Figure 5: Senseonics milestones (Source: Senseonics)
In my view, there are several crucial factors in play. As you know, the world has been hit by the Coronavirus pandemic since 2020. COVID changed all launch dynamics. For instance, it's extremely difficult for professional sales representatives to set direct meetings with clinicians during these challenging times. As COVID is abating, you can expect the launch progress to be increasing going forward.
Now, I believe that the CGM market is an intensely competitive niche. You have other dominant players like DexCom (DXCM) with their highly entrenched technologies that physicians are already comfortable with prescribing. However, I believe Eversense can ultimately garner more market shares due to its differentiating characteristics (i.e., by having many of the "first and only") and other fundamental developments.
As you know, having a robust launch partner is crucial to commercialization success. As such, I believe the gradual sales ramp-up is previously due to a lack of a dominant sales/marketing partner. It takes tremendous capital and much time to build an organic sales/marketing team. After all, reps need to establish trust and working relationships with physicians to close a sale.
Figure 6: Launch snapshot (Source: Senseonics)
The good news for shareholders and patients is that Senseonics recently partnered up with Ascensia. In this partnership, Ascensia has already taken over launch in the USA back in April. Moreover, Ascensia started to manage commercialization in certain European markets back in February.
To boost sales, Ascensia hired 25 dedicated professionals in the U.S. to add to the other 250 reps. And, the company has already begun direct-to-consumer campaigns in early Q2.
Figure 7: Ascensia partnership (Source: Senseonics)
Despite its strengths, Ascensia is not one of the big pharmaceutical companies focusing on diabetes like Eli Lilly (LLY), Sanofi (SNY), or Novo Nordisk (NVO). Nonetheless, the addition of 275 total reps worldwide would boost up sales significantly in the coming quarters. In my view, it's far better for Senseonics (a company without launch experience) to try going at it alone. Due to the aforesaid dynamics, Senseonics estimated the Fiscal 2021 sales to be in the range of $12.0M to $15.0M. Commenting on recent developments, the President and CEO (Dr. Tim Goodnow) enthused:
We are very pleased with our start to 2021 including the transfer of worldwide Eversense commercial activity to Ascensia. In the U.S., there are now 25 sales representatives trained and actively calling on existing Eversense accounts and targeting top insulin prescribers to further drive adoption of our CGM system. As part of their U.S. commercial efforts, Ascensia has launched a direct-to-consumer ad campaign aimed at raising awareness of the differentiating capabilities and benefits of Eversense that in most cases is offered at a comparable annual co-pay to patients' other choices. We are excited that this collaboration enables further patient access to the only long-term implantable CGM solution with a sensor that lasts for months not days.
Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll assess the 1Q'2021 earnings report for the period that ended on March 31.
As follows, Senseonics procured $2.8M compared to $36K for the same period a year prior. The higher revenue is related to the increasing sales outside of the USA. However, this figure is still quite small. As such, let us check other more meaningful metrics.
That being said, the research and development (R&D) for the respective periods registered at $5.2M and $7.3M respectively. I generally like to see an increasing R&D because the money invested today can turn into billions of dollars in revenues in the future. After all, you have to plant a tree to enjoy its fruits.
Additionally, there were $249.5M ($0.68 per share) net loss compared to $42.5M ($0.21 per share) decline for the same comparison. On a per-share basis, the bottom line depreciated by 223.8%. This makes sense because the company is putting more money into ramping up commercialization.
Figure 8: Key financial metrics (Source: Senseonics)
About the balance sheet, there were $178.6M in cash and equivalents. Against the $238.1M quarterly OpEx, it's likely that the company will raise equity soon. Simply put, there is a good amount of cash yet the burn rate is too high.
While on the balance sheet, you should check to see if Senseonics is a "serial diluter." After all, a company that is serially diluted will render your investment essentially worthless. Given that the shares outstanding increased from 203.7M to 364.2M, my math reveals a 78.7% annual dilution. Of note, this is not a hard and fast rule. For Senseonics to ramp up commercialization, it made sense for the company to spend more money, thus relying heavily on dilution.
Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the main concern for Senseonics is whether the company can continue to boost Eversense sales. There is a significant risk that, despite the Ascensia partnership, sales would increase gradually. Competition in this niche is also cutthroat which deters newcomers.
That aside, there is the concern that Senseonics won't be able to garner approval for the later generation devices. As a young grower, Senseonics might grow too aggressively and thereby runs into cash flow constraints. As such, the company might have to do excessive offerings which dilute your stock value.
In all, I recommend Senseonics, a highly speculative buy with the 4.4 out of five stars rating. Senseonics is a company that is delivering stellar CGM technology for countless patients afflicted by diabetes. With diabetes on the rise, you can expect an increasing demand for CGM technology. As such, Senseonics is operating under the industry tailwind that favors significant growth. Nonetheless, there is powerful and intense competition in this niche which requires a larger and robust sales/marketing partner to garner launch success. If Senseonics is going at it alone in commercialization like it used to, I highly doubt that sales will ever reach $100M annual. As you know, the recent partnership with Ascensia for global launch is a strategic move. Though it's unlikely to generate blockbuster results, you can anticipate a much stronger sales ramp-up in the coming quarters.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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