Continued Fallout

This morning as anticipated Senseonics effectively ceased operations. Per an 8-K filed today;

“As part of the previously announced strategic review that Senseonics Holdings, Inc. (the “Company”) is conducting in connection with its evaluation of strategic alternatives, and considering the impact of the COVID-19 global pandemic on access to physician offices and medical facilities, the Company is, effective immediately, suspending commercial sales in the United States of its 90-day Eversense continuous glucose monitoring (“CGM”) system to new patients and physician practices. The Company intends to continue distributing the 90-day Eversense system to patients who are currently using the product for the foreseeable future. The Company also intends to continue supporting existing patients and their physicians. The Company is evaluating its Eversense Bridge program and may revise, suspend or cancel this program in its entirety. The Company plans to continue its development and regulatory submission efforts for its Eversense XL CGM system for use for up to 180 days in the United States as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Company expects that cash used in operating activities for the quarter ending March 31, 2020 will be consistent with average quarterly operating cash outflows during 2019. However, the Company expects that the cost reduction measures previously announced, including the suspension of commercial sales of the 90-day Eversense system, will significantly reduce the cash used in operations in future quarters.”

We’re sorry to see this happen but as we have been stating for some time now it wasn’t a question of if the company would be forced to shut down but when it would happen. Additionally it must be noted that while COVID-19 pushed the company over the edge it is not the main reason the company failed. The reality here is that Senseonics made a good product which had limited demand, bottom line there just want enough interest in an implantable sensor.

We also believe that COVID-19 could accelerate additional strategic options including the possible sale of the Medtronic diabetes franchise. Already beset by a host of problems Medtronic could well decide that at long last it’s time to get something before it turns into nothing. Even with its many problems the franchise has value and in the right hands could yield solid profits. Medtronic has toyed with this possibility before and has the blessing of their investment bankers to attempt such a deal.

As always it comes down to finding a buyer who is willing to meet what we believe will be a hefty price. Even with the Control IQ doing very well and the OmniPod gaining Medtronic remains the undisputed leader in insulin pumps when it comes to installed users. Although there is no way of knowing this, we suspect given these uncertain times and patients inability to see their physician sales of all insulin pumps will stagnate in the near term. This provides Medtronic with a window of time to make this deal happen.

Should the company wait until things get back to normal, or whatever our new normal will be, the Control IQ and OmniPod will continue to eat away at their installed base. A base which had been slowly eroding over the years. Keep in mind that the continued revenue stream from supply sales isn’t the only reason this base is valuable. The base also produces substantial revenue from upgrades and patients replacing out of warranty systems with new systems. Add in the sales of sensors and the value only increases.

That being said some might reason there is no reason to monetize this asset, that an easier option would be to continue along the present path. We can understand this thought process until one looks at the future. Even if the company can enhance their existing systems under development and fix the many issues with their sensor there is little guarantee these new systems will yield different outcomes. Medtronic’s dilemma is vast improvements must be made just to get their systems on par with the Control IQ and the coming Horizon from Insulet.

There is no question in our mind that the fallout from the coronavirus will continue well beyond its present impact. First quarter results will provide the first glimpse with the second and likely third quarter reflecting a more accurate gauge. Sadly Senseonics will not be the only causality. It goes without saying that our lives will be forever changed by the coronavirus and this includes what happens in the wacky world of diabetes.