The CGM space may be hotter than Georgia asphalt but this heat wave can lead to dehydration. One company that’s certainly feeling the heat is Senseonics who yesterday announced they were going back to the capital markets to raise more money. Now we won’t discuss the merits of this fancy financing what we will do is outline the problems facing the company and how their very survival could be at stake.
Let’s make something very clear from the outset there is nothing wrong with their product, which in fact works quite well. Nor is their management team incapable, quite the contrary the company has a strong team. The problem in a nutshell is the sandbox the play in.
As we reported this morning CGM is not a land of seven kingdoms just two; Abbott and Dexcom. These two are as we noted this morning are gobbling up patients at an incredible clip making it difficult if not impossible for any other player to gain significant share. Abbott and Dexcom are literally sucking the air out of the CGM room.
This is just the tip of the iceberg for Senseonics who unlike Abbott and Dexcom has an implantable sensor which in essence is the problem. Now as we have said before there is a niche market for this type of sensor as we see it used with closed loop insulin delivery systems, however unlike the Libre and G6 the product does not have mass appeal.
Senseonics is caught in that unpleasant territory where they cannot achieve the scale necessary to lower COGS so they can be price competitive with Libre or the G6. To achieve this scale they must dramatically lower costs but can’t do that as they don’t have the financial resources. Payers could care less about performance and quite frankly don’t need to as the Libre and G6 perform quite well, payers care about … wait for it … money.
The reality here is the company has one way out and one way only, find someone willing to buy the company and that’s going to be problematic. Given how things are developing in the insulin pump space we don’t see any of the major companies making the investment as they have no need. Tandem and Insulet are already working with Dexcom while Medtronic continues to fumble about with their crappy sensor. Now if Senseonics was on death’s doorstep maybe but even then, this seems an unlikely scenario.
We also don’t see much of a place in playing with Tyler as we see Tyler working with both Dexcom and Libre so we can scratch that off the list too.
Now this may seem like an unpleasant situation and it is but believe it or not it will get much worse. CGM pricing is NOT headed upward it’s going the opposite direction. Abbott is committed to value pricing and Dexcom will get there with the G7. See unlike Abbott and Dexcom Senseonics cannot expand beyond intensively managed insulin using patients. Senseonics can only play in the corner of the sandbox and the corner is decreasing in size.
Not like they need more problems but Senseonics is at greater risk from all the CGM wannabes than Abbott or Dexcom as these players will drive costs even lower as this is there only hope at getting any share.
While they won’t admit this publicly, we’re pretty sure the smart people at Senseonics know all this and are desperately looking for a buyer. Now could Roche, already a partner, make the leap? Given their panache for doing something completely stupid in diabetes it’s possible but only if the price is right. With a market cap of just under $215 million the company is affordable but like CGM prices will only get cheaper the longer a possible buyer waits.
Over the past 12 months shares in the company have fallen almost 70% and no we do not see a Tandem like turnaround no matter how much fancy financing the company does. Unlike Tandem the Senseonics pipeline will not save the day. Nor is there much of a chance Dexcom or Abbott will experience a Medtronic type meltdown.
One more thing which should be obvious, but bears mention as nearly every other implantable sensor company has fallen by the way side. Senseonics may have the best damn buggy whip the only problem is no wants buggy whips anymore.