Company Background
Senseonics Holdings (NYSE:SENS) is a medical technology company that currently finds itself in a very favorable position. The company has recently received an FD approval that now allows it to market and sell its new medical technology for diabetes patients in the U.S., the largest market in the world for the product.
The company’s main focus is on the design, development and commercialization of glucose monitoring systems for diabetics. Its flagship product, the Eversense CGM system provides continuous glucose monitoring for diabetes patients. It’s the first long-term continuous glucose monitoring (CGM) system that has a sensor that is implanted under the skin that has been approved by the FDA for sale in the US. A tiny sensor device the size of a small pill is implanted underneath the skin in the upper arm. The implant is good for up to 90-days, as opposed to the 10-day required sensor replacement for similar outside-the-skin-products that are provided by competitors. The Eversense System utilizes an external removable smart transmitter that receives, assesses and relays the data from the implanted sensor to a mobile device application (i.e. smartphone or tablet) that receives the data from and provides real-time glucose readings, alerts, and other data to the user. The smart transmitter also provides vibratory alerts.
Eversense CGM System
On June 21, the FDA approved the Eversense CGM for sale in U.S. Markets. Although Senseonicss has been selling the product in more than a dozen countries in Europe since 2016, it took over 2 years to overcome the necessary regulatory hurdles to get FDA approval to market the product in the United States. Senseonics is now preparing for a full-fledged launch of the Eversense CGM System in the U.S. Immediately following the FDA Approval on June 25, 2018, Senseonics announced a public offering of common stock from which the company plans to acquire $149.5 million in total net proceeds. Senseonics announced the closing of the registered underwritten public offering three days later on June 28th. According to Tim Goodnow, President and CEO of Senseonics. "The funds provided from this offering meaningfully strengthen our balance sheet and will be instrumental in supporting a broad launch of Eversense in the United States.” Senseonics expects to be in full-launch mode in the U.S. by late July 2018. At present, promoting the product and training medical professionals to administer it to patients is the main objective of the company.
Senseonics’ Future Outlook
Presently, Senseonics’ Eversense CGM system sets itself apart from its competitors with its first long-term implant that last up to 90-days. According to Healthline.com, the company already has a 180-day model that is being marketed overseas. Senseonics expects to submit the longer-wear model, called the Eversense XL, for FDA approval soon. Also, Senseonics is seeking to eventually do away with the need for fingerstick calibrations that are currently required by all continuous glucose monitor products on the market. Senseonics has also partnered with Beta Bionics in an effort to develop future "artificial pancreas" systems using its CGM technology.
The healthcare sector, of which Senseonics is a part of, has been trading sideways for most of 2018. Over the long-term, it does maintain steady growth. The weekly chart below displays the S&P Health Sector going back to 2009.
Current and future population dynamics in the U.S. are also favorable to Senseonics. The U.S. is in the midst of the baby-boomer generation population “bulge” dominating the age group from 54 to 72. Unfortunately, this age group encompasses people 65 and over, the age range for the highest risk of developing type 2 diabetes. As the “boomer-bulge” makes its way through the population distribution, the demand for diabetes related medical equipment and supplies will continue to grow and remain inelastic. Adults ages 40 to 59 comprise the world’s age group with the highest diabetes rates, and is expected to shift to adults ages 60 to 79 by 2030. The two charts below display the outlook for diabetes cases and related expenditures.
Technical Analysis
Senseonics has recently made a new all-time high of $5.29 on June 22, 2018 from which the stock has since then retraced to approximately 50 percent on the Fibonacci retracement scale with diminishing volume. From a technical analysis prospective, SENS is displaying a classic long-entry setup referred to as “buying the dip.” For investors looking for an entry point on a long-term investment, current market conditions are favorable. The daily chart of SENS below shows the trade setup.
Another fact that makes this trade setup even more compelling is the fact that the market for SENS July2018 and Aug2018 call options have also seen a sharp spike. This trade setup may also be a favorable entry point for a long-term investment strategy in SENS. For the long-term investor however, there’s much more analysis to be done.
Fundamental Analysis
The influx of cash that Senseonics will realize as a result of the pending public offering will definitely serve to bolster its balance sheet and provide the cashflow necessary to effectively penetrate the U.S. market. Senseonics’ financials are characteristic of a relatively new company seeking to establish itself with a novel technology and gain as much market share before its competitors are able to provide a suitable and similar alternative. Senseonics has shown steady quarter-to-quarter increases in revenue. However, net profit and earnings per share remain in the red. Research and development expenses have heavily burdened the company. The company does have some debt, but not an overwhelming amount. As of June 28, 2018, Market Capitalization stands at $578,508,423, with 137,412,927 shares outstanding.
Downside Risk
Although Senseonics does present an appealing investment opportunity, it is not completely free of risk. The launch into the U.S. market must be aggressive, swift, and efficient. Competitors with similar or better technology will not be far behind. If sales and revenue expectations from penetration into the U.S. market are nor met, Senseonics’ balance sheet is not deep enough to endure a prolong launch/marketing campaign that does not result in profits. It must capture sufficient market share with its new technology while it’s still new to make the business in the U.S. sustainable. If Senseonics fails to capitalize on this window of opportunity, it will give investors a great deal of pause.
The Bottom Line
After carefully assessing all the current information on Senseonics, it seems that there are more reasons to initiate an investment than not. First, Senseonics’ novel technology is legitimate, and the Eversense CGM System is fully developed and has already been successfully tested in the European markets. Second, receiving FDA approval means that Senseonics will now have free reign to expand into the U.S., the world’s largest market for its product. Furthermore, the demand for its products will continue to have steady unwavering growth well into the future. Also, the strategic plans that the company is implementing will ensure it maintains a competitive edge for the foreseeable future.
Although Senseonics’ fundamentals are less than those to be desired, and the pending public offering will result in some degree of dilution to outstanding shares, a few strong quarters of sales can quickly change the financials in a very positive way. The combination of having a novel product, and an approval to enter the world’s largest market for which there is high demand for said product, makes the possibility of a few strong quarters very likely, and then some. After taking everything into account, the prevailing price dip for Senseonics is very buyable.