Item 1. Business
Item 1. Business
Overview
We are a medical technology company focused on the development and commercialization of a long-term, implantable continuous glucose monitoring, or CGM, system to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy. Our Eversense and Eversense XL CGM systems are designed to continually and accurately measure glucose levels in people with diabetes via an under-the-skin sensor, a removable and rechargeable smart transmitter, and a convenient app for real-time diabetes monitoring and management for a period of up to 90 and 180 days, respectively, as compared to seven to 14 days for non-implantable CGM systems. We believe that Eversense provides a more convenient method of CGM by providing longer duration, superior accuracy, wireless communication, on-body vibratory alerts, gentle-on-the-skin adhesive patch, data sharing capability, and a removable smart transmitter. The original Eversense CGM system received a CE mark in June 2016, which marked the first approval for the product to be sold within the European Economic Area. Subsequently, the extended life Eversense XL CGM system received its CE mark in September 2017 and is currently available in select markets in Europe, the Middle East, and Africa, or EMEA. In June 2018, the U.S. Food and Drug Administration, or FDA, approved the Eversense CGM system and it is currently available throughout the United States. In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system. With this approval and the availability of a new app in December 2019, the Eversense system can now be used as a therapeutic CGM in the United States to replace fingerstick blood glucose measurement to make treatment decisions, including insulin dosing.
Our focus on the development and approval of the extended life Eversense 180-day product for the U.S. market is ongoing. On September 30, 2019, we completed enrollment of the PROMISE trial and had our last patient complete their 180-day visit during the first quarter of 2020. The 181 participants in the trial had the Eversense sensor inserted subcutaneously at eight sites across the United States where the safety and efficacy of the system was evaluated over a 180-day period. In the trial, we observed performance matching that of the current Eversense 90-day product available in the United States, with a mean absolute relative difference, or MARD, of 8.5%-9.6%. This result was achieved with reduced calibration, down to one per day, while also doubling the sensor life to 180 days. Following the results of the PROMISE trial, on September 30, 2020, a Premarket Approval, or PMA, supplement application to extend the wearable life of the Eversense CGM System to 180 days was submitted to the FDA. If approved by the FDA, this new product would approximately double sensor duration of Eversense in the United States, reducing by half the number of insertion and removal procedures required, and would provide more than 12 times longer sensor duration than other CGM systems available in the United States. Following the submission of the PMA, we have received communication from the FDA advising us that the reallocation of agency resources to address Emergency Use Authorization (EUA) applications for products related to the COVID-19 public health emergency is affecting marketing application reviews, including the Eversense 180-day product. Based on a February 19, 2021 communication, we understand that the FDA expects to assign a reviewer, and that our PMA will be placed under review no later than April 15, 2021. Based on the passage of time and this new expectation from the FDA, we are anticipating approval no earlier than the second half of the year and note that the timing to completion and outcome of such a review is uncertain. If we receive a positive decision and product approval, we expect to begin transitioning patients in the United States to the new 180-day Eversense product shortly thereafter. Further reallocation of agency resources, shelter-in-place orders and other impacts from the COVID-19 pandemic are difficult to predict and could alter or delay the timing of response by the FDA regarding our submission .
On February 26, 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor. This sub-set of 30 participants were left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Following information gathered from this sub-set and continued development efforts, and pending developments at the FDA relating to the ongoing COVID-19 pandemic, in the second half of 2021 we plan to seek Investigational Device Exemption, or IDE, from the FDA to explore the 365 day sensor in a clinical trial. If the IDE is approved in a timely manner, we would target to begin enrollment of a clinical trial, which we also intend to include a pediatric population, in the first half of 2022.
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In April 2020, we announced that we received regulatory approval in Europe such that the Eversense XL is no longer contraindicated for MRI, which means the sensor does not need to be removed from under the skin during MRI scanning. We had previously obtained this indication for Eversense in the United States in 2019. This MRI approval is a first for the CGM category as all other sensors are required to be removed during an MRI scan.
During 2020 we initiated a new commercialization strategy and collaboration to bring our product to market. As described in detail below, in August 2020, we entered into a collaboration and commercialization agreement with Ascensia Diabetes Care Holdings AG, or Ascensia, pursuant to which we granted Ascensia the exclusive right to distribute our 90-day Eversense continuous glucose monitoring system and our 180-day Eversense continuous glucose monitoring system worldwide, with certain initial exceptions. While Ascensia is responsible for sales, marketing, market access, patient and provider onboarding and first level customer support, we remain responsible for product development and manufacturing, including regulatory submissions, approvals and registrations and second level customer support.
2020 and Significant Recent Developments
COVID-19
On January 30, 2020, the World Health Organization, or the WHO, announced a global health emergency because of a new strain of coronavirus, or COVID-19, and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. In response to the pandemic, many states and jurisdictions issued stay-at-home orders and other measures aimed at slowing the spread of the coronavirus. The state of Maryland, where we are headquartered, has been affected by COVID-19. The Governor of Maryland issued an order closing all non-essential businesses, which took effect on March 23, 2020. Although the state of Maryland is gradually undergoing a phased reopening plan, substantially all of our workforce is still working from home either all or substantially all of the time. Additionally, because our sensor requires an in-clinic procedure, we saw a reduction in access to clinics and sensor insertions during the initial outbreak.
During the latter half of 2020, several new order requests from our distributors led to adjustments to concession allowances previously provided to some of our customers in the United States to reflect actual product usage. While these trends are promising, insertion volumes are still below pre-COVID-19 levels. Additionally, the COVID-19 pandemic infection rates in the United States are still high, vaccine distribution has only just begun, and it is difficult to predict the longevity and severity COVID-19 will have on our business.
Restructuring and Transition of Commercial Strategy
As a result of the COVID-19 pandemic’s disruption to our operations, suppliers, employees, and the healthcare community in which we sell to and support, and our limited cash resources, we made significant reductions in our cost structure and operations to improve cash flow and generate future expenditure savings to ensure the long-term success of Eversense. Specifically, in the first quarter of 2020, we temporarily suspended commercial sales and marketing of the Eversense CGM System in the United States to new patients to solely focus our resources on supporting existing users, including ensuring broader insurance coverage for Eversense, and the development and regulatory submission of our new 180-day Eversense product in the United States. In connection with these actions, on March 26, 2020, we reduced our workforce by approximately 60%, over half of which were sales personnel.
On August 9, 2020, we entered into a collaboration and commercialization agreement with Ascensia pursuant to which we granted Ascensia the exclusive right to distribute our 90-day Eversense continuous glucose monitoring system and our 180-day Eversense continuous glucose monitoring system worldwide for people with diabetes, with the following initial exceptions: (i) until January 31, 2021, the territory did not include countries covered by our then existing distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH, which are the Europe, Middle East and Asia, excluding Scandinavia and Israel, and 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions; (ii) until September 13, 2021, the territory does not include countries covered by our current distribution agreement with Rubin Medical, which are
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Sweden, Norway and Denmark; and (iii) until May 31, 2022, the territory does not include Israel. Pursuant to the Commercialization Agreement, in the United States, Ascensia began providing sales support for the 90-day Eversense product on October 1, 2020 and the parties have been planning and making arrangements for Ascensia to ramp up sales activities and more fully assume commercial responsibilities in the second quarter of 2021. The Eversense 180-day product is planned to be marketed upon receipt of marketing approval from the FDA. In Germany, Italy and Switzerland, Spain, Poland and the Netherlands, Ascensia assumed commercial responsibilities for Eversense XL beginning on February 1, 2021. For Sweden and Norway, Ascensia will assume commercial responsibilities later this year. Ascensia is entitled to receive a portion of net revenue at specified tiered percentages ranging from the mid-teens to the mid-forty’s based on levels of global net revenues. Ascensia is obligated to achieve specified minimum annual revenue targets and meet specified levels of sales and marketing spend in order to maintain its exclusive distribution rights. Ascensia purchases Eversense and Eversense XL from us at negotiated prices. We remain responsible for product development and manufacturing, including regulatory submissions, approvals and registrations and second level customer support, and Ascensia is responsible for sales, marketing, market access, patient and provider onboarding and first level customer support. We have agreed to establish a joint alliance committee and joint marketing committee, each with equal representation from each party, in order to collaborate.
Background
Diabetes is a chronic, life-threatening disease for which there is no known cure. The disease is caused by the body's inability to produce or effectively utilize the hormone insulin, which prevents the body from adequately regulating blood glucose levels. If diabetes is not managed properly, it can lead to serious health conditions and complications, including heart disease, limb amputations, loss of kidney function, blindness, seizures, coma and even death. According to the 2019 International Diabetes Federation, or IDF, Atlas, an estimated 463 million people worldwide had diabetes as of the date of the report. The number of people with diabetes worldwide is estimated to grow to 700 million by 2045, driven primarily by growth in type 2 diabetes and due to various reasons, including changes in dietary trends, an aging population and increased prevalence of the disease in younger people. Diabetes is typically classified into two primary types. Type 1 diabetes is an autoimmune disorder that usually develops during childhood and is characterized by the inability of the body to produce insulin, resulting from destruction of the insulin producing beta cells of the pancreas. Type 2 diabetes is a metabolic disorder that results when the body is unable to produce sufficient amounts of insulin or becomes insulin resistant. People with type 1 diabetes must administer insulin, either by injection or insulin pump, to survive. People with type 2 diabetes may require diet and nutrition management, exercise, oral medications or the administration of insulin to regulate blood glucose levels. In the next few years, we expect the growth in sales of CGM systems to be driven primarily by increased penetration of CGM in the type 1 patient population.
In an attempt to maintain blood glucose levels within the normal range, many people with diabetes seek to actively monitor their blood glucose levels. The traditional self-monitoring of blood glucose, or SMBG, method of glucose monitoring requires lancing the fingertips, commonly referred to as fingersticks, multiple times per day and night to obtain a blood drop to be applied to a test strip inside a blood glucose meter. This method of monitoring glucose levels is inconvenient and can be painful and, because each measurement represents a single blood glucose value at a single point in time, it provides limited information regarding trends in blood glucose levels. In contrast, CGM systems are generally less painful and involve the insertion of sensors into the body to measure glucose levels in the interstitial fluid throughout the day and night, providing real-time data that shows trends in glucose measurements. As a result, CGMs improve glycemic control and quality of life, particularly in patients with type 1 diabetes treated with continuous subcutaneous insulin infusion or multiple daily insulin injection therapy, and support avoidance of hypoglycemia.
Historically, the FDA and other device regulators required that CGMs be labeled and marketed as "adjunctive" to test-strip measurements, with instructions that patients confirm CGM measurements with test-strip measurements using blood obtained from fingersticks prior to self-medicating. However, given the broader clinical indications for the use of CGM systems, including real-time alerts and multi-device integration, the FDA issued the first “non-adjunctive” label in 2016. In June 2019, an updated Eversense CGM system received a non-adjunctive label from the FDA and can now be used as a replacement to fingerstick glucose testing for treatment decisions. This non-adjunctive indication also enabled our pathway to access patients on Medicare.
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In November 2019, the Centers for Medicare and Medicaid Services, or CMS, finalized a national payment rate for Eversense that was recently published in the calendar year 2020 Physician Fee Schedule Final Rule. The Eversense CGM system became the first CGM technology to be reimbursed through the Part B Medical Services benefit for Medicare beneficiaries and expands access to our product. In December 2020, the Centers for Medicare and Medicaid Services, or CMS, released its Calendar Year 2021 Medicare Physician Fee Schedule that establishes global payment for the device cost and procedure fees for healthcare providers across the United States. This includes the establishment of national payment amounts for the three CPT© Category III codes describing the insertion (CPT 0446T), removal (0447T), and removal and insertion (0048T) of an implantable interstitial glucose sensor, which describes our Eversense CGM systems, as a medical benefit, rather than as part of the Durable Medical Equipment channel that includes other CGMs
We are headquartered in Germantown, Maryland. The members of our management team have held senior leadership positions at a number of medical technology and biopharmaceutical companies, including Abbott Diabetes Care, Medtronic and Johnson and Johnson. Members of our team have contributed to the development, regulatory approval and commercialization of several glucose monitoring systems and insulin pumps.
Commercial Strategy
We are in the process of transitioning to selling our product globally through Ascensia from selling directly to our network of distributors and strategic fulfillment partners, who provide the Eversense CGM system to healthcare providers and patients through a prescribed request and invoice insurance payors for reimbursement, as noted above in “2020 and Recent Developments”. Sales of the Eversense CGM system are widely dependent on the ability of patients to obtain coverage and adequate reimbursement from third-party payors or government agencies. Ascensia plans to leverage and target regions where we have coverage decisions for patient device use and provider insertion and removal procedure payment.
In the first quarter of 2020, we temporarily suspended commercial sales and marketing of the Eversense CGM System in the United States to new patients to solely focus our resources on supporting existing users. In connection with these actions, on March 26, 2020, we reduced our direct sales organization that consists of sales representatives, clinical trainers, customer care, and other specialists to educate, train, and support the patient and healthcare provider in their diabetes management with CGM systems.
In the third quarter of 2020, we announced the formation of a strategic partnership with Ascensia, pursuant to which Ascensia became the exclusive worldwide distribution partner for Senseonics CGM systems, including Eversense®, Eversense® XL and future generations products. In the fourth quarter of 2020, Ascensia initiated U.S. marketing and sales activities and full transition of commercial activities is expected in the second quarter of 2021, to include full marketing, market access, sales, healthcare provider training and frontline patient and provider support responsibilities. Ascensia has begun expanding its U.S. commercial organization and expects its initial U.S. staffing to be in place by the second quarter of 2021 in support of Eversense.
Addressing reimbursement and access barriers has been a top priority for us and during 2020 we reached over 200 million covered lives in the U.S. through positive insurance payor coverage decisions. In 2020, we continued the Eversense Bridge Program, a patient access program in the U.S. that provides financial assistance to eligible patients whose insurance coverage either does not yet cover Eversense, or in cases where Eversense is covered but the patient’s co-insurance is limiting their ability to adopt Eversense. Having played an important role in our journey to obtain broader payor policy and long-term patient retention, the Eversense Bridge Program ended on December 31, 2020.We expect Ascensia, in consultation with the company, to initiate a patient assistance program in the market once full commercial responsibility is transitioned in the near future.
In our overseas markets, we had entered into distribution agreements that allow third-party collaborators with direct sales forces and established distribution systems to market and promote Eversense XL primarily in the EMEA. These distribution arrangements are in the process of being replaced by our collaboration with Ascensia. Our exclusive distribution agreement for sales in Scandinavia and our exclusive distribution agreement with Roche Diabetes Care for
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sales in the rest of the EMEA, excluding Israel and Scandinavia, and in 17 additional countries, including Brazil, Russia, India, and China, as well as select markets in the Asia Pacific and Latin American regions expire in 2021, with the Roche agreement having expired January 31, 2021. Upon conclusion of each of these agreements, Ascensia is assuming commercialization activities in select countries where Eversense XL has already launched, beginning February 1, 2021 for Germany, Italy, Switzerland, Spain, Poland, and Netherlands. Roche will continue to support certain transition activities for approximately six months in other markets. The transition of Rubin markets is planned to occur later in 2021.
Our net revenues are derived from sales of the Eversense CGM system which is sold in two separate kits: the disposable Eversense Sensor Pack which includes the sensor, insertion tool, and adhesive patches, and the durable Eversense Smart Transmitter Pack which includes the transmitter and charger.
Distribution Agreement with Roche Diabetes Care
On May 24, 2016, we entered into an exclusive distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH, or collectively, Roche. Pursuant to the agreement, as amended, we granted Roche the exclusive right to market, sell and distribute Eversense in the EMEA, excluding Scandinavia and Israel. In addition, Roche had exclusive distribution rights in 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions.
On December 12, 2019, we amended the distribution agreement to lower minimum volumes for 2020 and increase pricing for the remaining period of the contract.
On November 20, 2020, we amended the distribution agreement and entered into a settlement agreement to facilitate transition to Ascensia as Roche sales concluded on January 31, 2021, including final purchases and transition support activities, and Roche’s obligation to purchase certain quantities of products at certain prices under the distribution agreement have now terminated.
The distribution rights under the agreement expired January 31, 2021, subject to Roche providing certain transition and wind-down services for approximately six months in markets where ADC is not initiating distribution.
Collaboration and Commercialization Agreement with Ascensia Diabetes Care Holdings AG
On August 9, 2020, we entered into a collaboration and commercialization agreement with Ascensia Diabetes Care Holdings AG pursuant to which we have granted Ascensia the exclusive right to distribute the Company’s 90-day Eversense continuous glucose monitoring system and our 180-day Eversense continuous glucose monitoring system worldwide for use in people with diabetes, with the following initial exceptions: until January 31, 2021, the territory did not include countries covered by our then existing distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH, which are the Europe, Middle East and Asia, excluding Scandinavia and Israel, and 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions; (ii) until September 13, 2021, the territory does not include countries covered by our current distribution agreement with Rubin Medical, which are Sweden, Norway and Denmark; and (iii) until May 31, 2022, the territory does not include Israel. Pursuant to the Commercialization Agreement, in the United States, Ascensia began providing sales support for the 90-day Eversense product on October 1, 2020 and the parties have been planning and making arrangements for Ascensia to ramp up sales activities and more fully assume commercial responsibilities in the second quarter of 2021. Ascensia will receive a portion of net revenue at specified tiered percentages ranging from the mid-teens to the mid-forty’s based on levels of global net revenues. Ascensia is obligated to achieve specified minimum annual revenue targets and meet specified levels of sales and marketing spend. Ascensia will purchase Eversense and Eversense XL from us at prices which have been negotiated based on parameters set forth in the commercialization agreement. We are responsible for product development and manufacturing, including regulatory submissions, approvals and registrations and second level customer support, and Ascensia is responsible for sales, marketing, market access, patient and provider onboarding and level one customer support. We have agreed to establish a joint alliance committee and joint marketing committee, each with equal representation from each party, in order to collaborate.
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Clinical Development and Regulatory Pathway
Overview
The Eversense XL CGM system received a CE mark in Europe in September 2017 and is being sold commercially in our overseas markets. Our PRECISE II U.S. pivotal trial was completed during 2016. We received PMA approval from the FDA for the Eversense system in June 2018 for up to 90 days and began selling commercially in the third quarter of 2018.
In September 2019, we announced the enrollment completion for the PROMISE pivotal trial to evaluate the safety and accuracy of Eversense for a period of up to 180 days in the United States. In September 2020, we filed with the FDA a Premarket Approval, or PMA, supplement application to extend the wearable life of the Eversense CGM System to up to 180 days. We are also continuing to conduct a number of post-approval and feasibility studies.
United States Pivotal Trials
PRECISE II Trial
In 2016, we conducted our U.S. 90-day pivotal trial. The trial was a prospective, single-arm, multi-center trial designed to determine the accuracy and safety of the Eversense system. Ninety subjects were enrolled in eight centers across the United States. Eighty-seven of the ninety enrollees completed the 90-day trial.
The clinical trial population consisted of subjects at least 18 years of age who had a clinically confirmed diagnosis of diabetes. Subjects who had a history of severe hypoglycemia, defined as hypoglycemia resulting in loss of consciousness or seizure, or diabetic ketoacidosis, in the six months prior to the trial, were excluded from participation in the clinical trial. Accuracy measurements were taken at 1 day, 30 days, 60 days, and 90 days post-insertion. These sensor measurements were continued through the earlier of the failure of the sensor or 90 days post-insertion.
The purpose of this clinical trial was to evaluate the accuracy of Eversense measurements, measured by the Mean Absolute Relative Difference, or MARD, when compared with bed-side blood glucose measurements obtained using the YSI glucose analyzer over successive periods of 30 days through 90 days, as well as to assess the safety of Eversense. YSI in vitro analyzers are bed-side instruments used in hospitals and clinics to accurately measure blood glucose levels and are commonly used as comparators of glucose monitoring systems in clinical trials. MARD is a statistical calculation that measures the average absolute value of the differences, expressed as a percentage, between glucose measurements taken from interstitial fluid based on our CGM system and blood glucose measurements from YSI. The lower the MARD of a glucose monitoring system, the more accurate the system and, therefore, the more reliable the system's readings.
During the trial, 75 subjects underwent unilateral sensor insertions and 15 subjects underwent bilateral sensor insertions in the clinic and used Eversense’s smart transmitter and mobile app at home for the next 90 days. Subjects were blinded to the real-time glucose readings and trends during home-use and sensor readings were not used to adjust their treatment. Clinic visits were scheduled at approximately 30-day intervals in order to obtain lab reference glucose values for comparison with the sensor values and to evaluate hyperglycemic and hypoglycemic challenges in a controlled setting.
In the trial, we observed a MARD of 8.8% for Eversense across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period. We conducted a second study, the PRECISION study, to collect supplementary data early in sensor life with two additional in-clinic visits in the first 30 days after insertion. Study participants were able to see their real-time glucose readings during this study. The accuracy and safety observed in PRECISE II was confirmed in this study. In addition, the data from PRECISE II study was also analyzed using an updated glucose calculation algorithm which improved the MARD to 8.5%. Based on the data from both of these trials, we submitted a PMA application to the FDA to market Eversense in the United States for 90-day use. On June 21, 2018, we received PMA approval from the FDA for the Eversense system. We are distributing the Eversense system directly in
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the United States through our own direct sales and marketing organization. We have received Category III CPT codes for the insertion and removal of the Eversense sensor.
PROMISE Trial
In December 2018, we began enrollment for the U.S. 180-day pivotal trial. The trial is a prospective, single-arm, multi-center trial designed to evaluate the accuracy and safety of the Eversense system up to 180 days using the methods described above for the 90-day system. Over 180 subjects were enrolled in eight centers across the United States. We completed enrollment in September 2019 and had our last patient complete their 180-day visit during the first quarter of 2020.
The clinical trial population consists of subjects at least 18 years of age who have had a clinically confirmed diagnosis of diabetes for at least one year. Subjects with a history of unexplained severe hypoglycemia, defined as hypoglycemia resulting in loss of consciousness or seizure, or diabetic ketoacidosis, in the six months prior to the trial were excluded from participation in the clinical trial. After screening, sensor(s) were inserted and accuracy measurements were taken at multiple visits during the first 30 days and then every 30 days to 180 days post-insertion or until sensor failure, if earlier than 180 days post-insertion. In the trial, we observed performance matching that of the current Eversense 90-day product available in the United States, with a mean absolute relative difference, or MARD, of 8.5%-9.6%. This result was achieved with reduced calibration, down to one per day, while also doubling the sensor life to 180 days. Following the results of the PROMISE trial, on September 30, a Premarket Approval Application Supplement, or PMA supplement to extend the wearable life of the Eversense CGM System to 180 days was submitted to the FDA. If approved by the FDA, this new product would double sensor duration of Eversense in the United States, reducing by half the number of insertion and removal procedures required, and would provide more than 12 times longer sensor duration than other CGM systems available in the United States.
On February 26, 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor. This sub-set of 30 participants who all had sensors with the modified chemistry were left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Following information gathered from this sub-set and continued development efforts, and pending developments at the FDA relating to the ongoing the ongoing COVID-19 pandemic, in the second half of 2021 we plan to seek Investigational Device Exemption, or IDE, from the FDA. If the IDE is approved in a timely manner, we would target to begin enrollment of a clinical trial, in which we also intend to include a pediatric population, in the first half of 2022.
In April 2020, we announced that we received regulatory approval in Europe such that the Eversense XL is no longer contraindicated for MRI, which means the sensor does not need to be removed from under the skin during MRI scanning. We had previously obtained this indication for Eversense in the United States in 2019. This MRI approval is a first for the CGM category as all other sensors are required to be removed during an MRI scan.
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Our Technology
Eversense consists of three primary components: a small sensor inserted subcutaneously under the skin by a healthcare provider; an external removable smart transmitter that receives, assesses and relays data from the sensor and provides vibratory alerts; and a mobile app that receives data from the transmitter and provides real-time glucose readings, alerts and other data on the person's mobile device. All of these components work together to provide sensor glucose values, trends and alerts to a user's mobile device within 20 milliseconds. We have designed this reliable, long-term and implantable CGM system to continually and accurately measure a person's glucose levels for up to 180 days. Eversense requires twice daily fingerstick calibrations. In June 2019, we received FDA approval for the non-adjunctive indication for the Eversense system. With this approval, the Eversense system can be used as a therapeutic CGM to replace fingerstick blood glucose measurement for dosing decisions and was launched in December 2019.
We believe our implantable CGM system offers the following advantages to support the management of diabetes:
● Accuracy : Exceptional accuracy particularly in the low glucose range throughout the sensor life.
● Duration : Longest available sensor duration at 90 to 180 days.
● Convenience : Our Eversense CGM system supports the patient’s lifestyle; the smart transmitter is water resistant, rechargeable and can be removed and replaced without disturbing the sensor, strong but gentle-on-skin adhesive patches, wireless communication to patient’s mobile device or Apple Watch ®, including readings every five minutes whether the patient has their mobile device or not, remote monitoring that can be shared with up to five people, including health care providers, and tracking of meals and workouts for further diabetes treatment management.
● Vibe Alerts : Added safety of an on-body vibration alert when low or high glucose threshold is reached, or importantly before low or high threshold is reached, even when the mobile device is not nearby.
● Continuous Support : Patient and healthcare provider hotline support 24/7.
Sensor
The sensor is approved to be inserted under the skin, in the upper arm, and measures the glucose in the interstitial fluid. These glucose levels are then communicated wirelessly to the smart transmitter. We have designed the sensor to last up to 180 days, as compared to other currently available CGM sensors labeled for use for between seven and 14 days.
The sensor consists of an optical system, known as a micro-fluorometer, encased in a rigid, translucent polymer capsule, which is 3.3 mm in diameter and 15 mm in length. The capsule is coated with a glucose-indicating hydrogel that is bound to the surface of the capsule through polymerization. This hydrogel is energized, or excited, by a light-emitting
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diode, or LED, contained in the optical system of the sensor, causing the hydrogel to fluoresce, or glow. Two photodiodes within the optical system of the sensor measure the degree of fluorescence of the hydrogel, which is proportional to the level of glucose present in the interstitial fluid. The sensor then communicates the amount of fluorescence via a near field communication, or NFC, interface to the transmitter. NFC is a high frequency wireless communication technology that enables the exchange of data and energy between devices over a short range. The sensor does not have a power source and remains electrically dormant (powered off) between readings every five minutes, and it is remotely and discretely powered, as needed, by an inductive NFC link between the sensor and the transmitter. On power-up, the LED source is energized for approximately five milliseconds to excite the hydrogel.
Smart Transmitter
The removable smart transmitter is a rechargeable, external device that is worn over the sensor implantation site using a daily adhesive patch. The transmitter supplies wireless power to the sensor through an inductive NFC link, which activates a measurement sequence every five minutes. The transmitter then receives data from the sensor and calculates glucose concentrations and trends. Based on these calculations and on the user's individual settings for glucose levels, the transmitter determines if an alert condition exists, in which case the transmitter communicates the condition to the user through the mobile app and through on-body vibration. The information from the transmitter is also transmitted for display to the user's mobile device via Bluetooth Low-Energy, or BLE. Our transmitter is functional for at least 24 hours following a full charge and can be fully charged in fifteen minutes.
Mobile App
Our mobile app is a software application that runs on both platforms; iOS mobile devices, including iPhones, iPads and Apple Watches, and Android mobile devices. The mobile app receives information from the transmitter via BLE and displays that information discreetly to the user. This user-friendly, intuitive app provides real-time glucose readings, alerts, trends, and graphs. Within the mobile app, users can set alerts based on, among other things, glucose levels. The mobile app also allows for cloud-based storage.
Future Product Development
We intend to continue to expand our line of product offerings to benefit people with diabetes and healthcare providers. We expect these product development initiatives to include system modifications and next generation enhancements that we believe will further increase the convenience and appeal of our products to the diabetes community.
We are focusing our future development efforts on enhancing current product offerings by reducing the twice daily calibrations to once a day calibration, and further progressing to once per week calibration. Our next generation sensor under feasibility testing now is designed to extend the sensor duration even longer at up to 365 days. We expect the next generation sensor to support our goal of extending the market for long-term implantable CGM to include Type 2 patients not on intensive insulin therapy. We are also developing our “Freedom” product variation to allow for a 2-in-1 glucose monitoring system combining the functionality of CGM and Flash Glucose Monitoring, or FGM, in an implantable sensor that may be utilized with a smart transmitter to get continuous glucose readings and alerts, or be utilized through a swipe over the sensor with a smart phone to get on-demand glucose reading without a smart transmitter. We are seeking to ensure that we meet the growing and unique needs of people with diabetes utilizing our core and proprietary sensor technology. The company’s technology also has potential applications measuring analytes other than glucose, such as oxygen, and the company may consider opportunities for the development or out-licensing of such applications.
Sales and Marketing
We are in the early commercialization stages of Eversense and are focused on driving awareness and adoption of our CGM system amongst intensively managed patients and their healthcare providers. Building strong adoption with
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an implantable device requires a strong network of healthcare providers trained on the Eversense sensor placement procedure. In the first few quarters of our commercial launch, our focus was ensuring the Endocrinology providers obtained the necessary training needed to support their diabetes patients. In 2019, we began our second phase of establishing a large network of Eversense proceduralists with the launch of the Certified Eversense Specialist, or CES, network. This group of healthcare providers includes specialists who have strong familiarity with conducting in-office procedures such as dermatologists and plastic surgeons. The CES network offers an alternative for healthcare providers who want to prescribe Eversense for their patients but prefer to refer the procedure to a specialist.
As people with diabetes often consult with their healthcare providers about treatment options, we believe that educating healthcare providers regarding the benefits of Eversense compared to SMBG and other currently available CGM systems is an important step in promoting its use in people with diabetes. Our European experience and our feedback in the United States indicates healthcare providers highly value the accuracy and sensor duration of our CGM system and the majority of physicians surveyed considered the insertion process to be fairly simple or feasible. We intend to continue educating healthcare providers and people with diabetes on the advantages of Eversense compared to SMBG and other currently available CGM systems.
As a result of our strategic partnership, Ascensia will be responsible for sales, marketing, market access, patient and provider onboarding and level one customer support. We have established a joint alliance committee and joint marketing committee, each with equal representation from each party, in order to collaborate.
Reimbursement
Coverage in the United States
In the U.S. market, it is essential to obtain third-party payor coverage policies, coding mechanisms, and adequate payment for medical technology to expand market acceptance and adoption. CGM as a class of products has been broadly accepted by commercial third-party payors, such as health insurers and health maintenance organizations, and more recently by Medicare for patients who require the use of insulin to manage their diabetes. We approach the U.S. commercial third-party payor community in efforts to establish coverage for Eversense. To date, approximately 200 million people in the United States may have coverage and access to the Eversense via commercial or government (i.e., Medicare) payors.
Some commercial payors have denied coverage deeming Eversense as an “experimental and investigational” technology electing to wait for further clinical evidence, more safety data, or time in market. We disagree with this position as the CGM class has already proven to improve health outcomes and Eversense is another product that fits into the class. Additionally, in 2019 we published several sets of real-world data, which show Eversense provides the same clinical benefits as other CGM systems and has a favorable safety profile. However, until payment for the Eversense sensor placement becomes consistent, some patients will be required to bear the financial cost for the placement of the sensor by their healthcare provider. As a result, some patients and their healthcare provider may choose not to use Eversense on a widespread basis. Our patient access programs and patient appeals support, including the Eversense Bridge Program, which was discontinued on December 31, 2020, have been key initiatives to expanding payor policy and acceptance through case by case review and eventual denial overturn and we anticipate Ascensia initiating select programs for this purpose. This can be a long process with varying results in each case but is a prudent step to challenge payor positions of non-coverage given the strong evidence that supports CGM and Eversense.
Coverage Outside the United States
In countries outside the United States, coverage for CGM systems is obtained from various sources, including governmental authorities, national healthcare systems, private health insurance plans, and hospital funds. Coverage systems in international markets vary significantly by country and, within some countries, by region. Coverage approvals must be obtained on a country-by-country, region-by-region or, in some instances, a case-by case basis. The responsibility for securing this coverage resides with our third-party distributors in the respective markets.
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Manufacturing and Quality Assurance
We currently outsource the manufacturing of all components of the Eversense system to contract manufacturers across North America and Europe. We plan to continue with an outsourced manufacturing arrangement for the foreseeable future. Our contract manufacturers are all recognized in their field for their competency to manufacture the respective portions of our system and have quality systems established that meet FDA and, to the extent required, international regulatory requirements. We believe the manufacturers we currently utilize have sufficient capacity to meet our requirements. We believe that, as we increase our demand in the future, our per unit costs will decrease materially.
We have received certification from BSI, our Notified Body to the International Standards Organization, or ISO, for our quality system. This ISO 13485:2016 certification includes design control requirements. As a medical device manufacturer, the facilities of our sterilization and other critical suppliers are subject to periodic inspection by the FDA and corresponding state and foreign agencies. We believe that our quality systems and those of our suppliers are robust and achieve high product quality.
Typically, our outside vendors produce the components to our specifications and in many instances to our designs. Our suppliers are audited periodically by our quality department to ensure conformity with the specifications, policies and procedures for our devices. We believe that, if necessary, alternative sources of supply would be available in a relatively short period of time and on commercially reasonable terms. Most of the raw materials we use in our manufacturing operations are available from more than one source. However, we obtain certain raw materials principally from only one source. In the event one of these suppliers was unable to provide the materials or product, we generally seek to maintain sufficient inventory to supply the market until an alternative source of supply can be implemented. However, in the event of an extended failure of a supplier, it is possible that we could experience an interruption in supply until we established new sources or, in some cases, implemented alternative processes.
Competition
The market for CGM systems is developing and competitive, subject to rapid change and significantly affected by new product introductions. We compete with well-capitalized companies, some of which are publicly traded, that manufacture CGM systems including Dexcom, Medtronic and Abbott. Each of these companies has received approval from the FDA to market their respective CGM system. Dexcom’s CGM system was the first CGM system to be approved by the FDA for marketing as a non-adjunctive device, and Abbott’s Freestyle Libre was also approved for non-adjunctive use. Both Dexcom (G6) and Abbott (Freestyle Libre) systems have factory calibration, and do not require user calibration.
Dexcom has also received the first FDA iCGM indication allowing its Dexcom G6 to be interoperable with other diabetes tech devices such as insulin pumps. As the industry evolves, we anticipate encountering increasing competition from companies that integrate CGM with insulin pumps. Abbott also received an iCGM indication for their Freestyle Libre 2 product and we expect all other CGM companies besides Dexcom to pursue an iCGM indication including Medtronic.
In addition to CGM providers, we also compete with providers of SMBG systems. Three companies currently account for a substantial share of the worldwide sales of SMBG systems: Roche Diabetes Care, a division of Roche Diagnostics; Abbott; and Ascensia Diabetes Care Holdings AG.
We may also compete with companies who are developing real-time intermittent sensing devices, low cost transcutaneous CGM systems, fully implantable CGM devices and non-invasive CGM system to measure a user's glucose level. There are also a number of academic and other institutions involved in various phases of our industry's technology development.
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Although we face potential competition from many different sources, we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages. The key competitive factors affecting the success of Eversense are accuracy, duration, convenience, alert functionality, and customer support.
Many of the companies which we compete with have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or earlier stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our development.
Intellectual Property
Protection of our intellectual property is a strategic priority for our business. We rely on a combination of patents, trademarks, copyrights, trade secrets as well as nondisclosure and assignment of invention agreements, material transfer agreements, confidentiality agreements and other measures to protect our intellectual property and other proprietary rights.
Patents
As of December 31, 2020, we held a total of approximately 519 issued patents and pending patent applications that relate to our CGM system. Our intellectual property portfolio includes 90 issued United States patents, 254 patents issued in countries outside the United States and 175 pending patent applications worldwide. Our patents expire between 2021 and 2043, subject to any patent extensions that may be available for such patents. If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from 2021 to 2043.
Our patents and patent applications cover certain aspects of our core sensor technologies and our product concepts for CGM systems. However, our patent applications may not result in issued patents, and any patents that have been issued or may be issued in the future may not protect the commercially important aspects of our technology. Furthermore, the validity and enforceability of our issued patents may be challenged by third parties and our patents could be invalidated or modified by the issuing governmental authority. Third parties may independently develop technology that is not covered by our patents that is similar to or competes with our technology. In addition, our intellectual property may be infringed or misappropriated by third parties, particularly in foreign countries where the laws and governmental authorities may not protect our proprietary rights as effectively as those in the United States.
The medical device industry in general, and the glucose testing sector of this industry in particular, are characterized by the existence of a large number of patents and frequent litigation based on assertions of patent infringement. We are aware of numerous patents issued to third parties that may relate to the technology used in our business, including the design and manufacture of CGM sensors and CGM systems, as well as methods for continuous glucose monitoring. Each of these patents contains multiple claims, any one of which may be independently asserted against us. The owners of these patents may assert that the manufacture, use, sale or offer for sale of our CGM sensors or CGM systems infringes one or more claims of their patents. Furthermore, there may be additional patents issued to third parties of which we are presently unaware that may relate to aspects of our technology that such third parties could assert against us and materially and adversely affect our business. In addition, because patent applications can take many years to issue, there may be patent applications that are currently pending and unknown to us, which may later result in issued patents that third parties could assert against us and materially and adversely affect our business.
Any adverse determination in litigations, post grant trial proceedings, including interference proceedings, at the Patent Office relating to intellectual property to which we are or may become a party could subject us to significant liabilities to third parties or require us to seek licenses from third parties, and result in the cancellation and/or invalidation of our intellectual property. Furthermore, if a court finds that we have willfully infringed a third party's
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intellectual property, we could be required to pay treble damages and/or attorney fees for the prevailing party, in addition to other penalties. Although intellectual property disputes in the medical device area are often settled through licensing or similar arrangements, costs associated with such arrangements can be substantial and often require ongoing royalty payments. We may be unable to obtain necessary licenses on satisfactory terms, if at all. If we do not obtain necessary licenses, we may not be able to redesign our products to avoid infringement; if we are able to redesign our products to avoid infringement, we may not receive FDA approval in a timely manner. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, which could have a significant adverse impact on our business.
Trademarks
We have no pending U.S. trademark applications and 20 pending foreign trademark applications, as well as 14 U.S. trademark registrations and 116 foreign trademark registrations.
Trade Secrets
We also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect such intellectual property and proprietary information by generally requiring our employees, consultants, contractors, scientific collaborators and other advisors to execute non-disclosure and assignment of invention agreements upon the commencement of their employment or engagement as the case may be. Our agreements with our employees prohibit them from providing us with any intellectual property or proprietary information of third parties. We also generally require confidentiality agreements or material transfer agreements with third parties that receive or have access to our confidential information, data or other materials. Notwithstanding the foregoing, there can be no assurance that our employees and third parties that have access to our confidential proprietary information will abide by the terms of their agreements. Despite the measures that we take to protect our intellectual property and confidential information, unauthorized third parties may copy aspects of our products or obtain and use our proprietary information.
Government Regulation
The Eversense system is a medical device subject to extensive and ongoing regulation by the FDA, CMS, the European Commission, and regulatory bodies in other countries. Regulations cover virtually every critical aspect of a medical device company's business operation, including research activities, product development, contracting, reimbursement, medical communications, and sales and marketing. In the United States, the Federal Food, Drug and Cosmetic Act, or FDCA, and the implementing regulations of the FDA govern product design and development, preclinical and clinical testing, premarket clearance or approval, product manufacturing, import and export, product labeling, product storage, recalls and field safety corrective actions, advertising and promotion, product sales and distribution, and post-market clinical surveillance. Our business is subject to federal, state, local, and foreign regulations, such as ISO 13485, ISO 14971, FDA's Quality System Regulation, or QSR, contained in 21 CFR Part 820, and Directive 90/385/EEC concerning active implantable medical devices, as amended.
Regulation by the FDA
The FDA classifies medical devices into one of three classes according to the degree of risk the FDA determines to be associated with a device and the level of regulatory control deemed necessary to ensure the device’s safety and effectiveness. The Eversense System is a Class III device and subject to pre-market approval application under section 515 of the FDCA in order to obtain a marketing approval. A PMA application must be supported by valid scientific evidence that typically includes extensive technical, preclinical, clinical, manufacturing and labeling data, to demonstrate to the FDA's satisfaction the safety and efficacy of the device. A PMA application also must include a complete description of the device and its components, a detailed description of the methods, facilities and controls used to manufacture the device, and proposed labeling. After a PMA application is submitted and found to be sufficiently complete, the FDA begins an in-depth review of the submitted information.
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New PMA applications or PMA supplements may be required for modifications to the manufacturing process, labeling, device specifications, materials or design of a device that has been approved through the PMA process. PMA supplements often require submission of the same type of information as an initial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA application and may or may not require as extensive technical or clinical data or the convening of an advisory panel.
Any devices we manufacture and distribute pursuant to clearance or approval by the FDA are subject to pervasive and continuing regulation by the FDA and certain state agencies. These include product listing and establishment registration requirements, which help facilitate FDA inspections and other regulatory actions. As a medical device manufacturer, all of our manufacturing facilities are subject to inspection on a routine basis by the FDA. We are required to adhere to applicable regulations setting forth detailed cGMP requirements, as set forth in the QSR, which require, manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all phases of the design and manufacturing process. Noncompliance with these standards can result in, among other things, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, refusal of the government to grant 510(k) clearance or PMA approval of devices, withdrawal of marketing approvals and criminal prosecutions. We believe that our design, manufacturing and quality control procedures are in compliance with the FDA’s regulatory requirements.
We must also comply with post-market surveillance regulations, including medical device reporting, or MDR, requirements which require that we review and report to the FDA any incident in which our products may have caused or contributed to a death or serious injury. We must also report any incident in which our product has malfunctioned if that malfunction would likely cause or contribute to a death or serious injury if it were to recur.
Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Medical devices approved or cleared by the FDA may not be promoted for unapproved or uncleared uses, otherwise known as “off-label” promotion. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution.
International Regulation
International sales of medical devices are subject to local government regulations, which may vary substantially from country to country. The time required to obtain approval in another country may be longer or shorter than that required for FDA approval, and the requirements may differ. There is a trend towards harmonization of quality system standards among the European Union, United States, Canada and various other industrialized countries.
The European Union, or EU, has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Other countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the EU with respect to medical devices. Devices that comply with the requirements of a relevant directive will be entitled to bear the CE conformity marking, indicating that the device conforms to the essential requirements of the applicable directives, or Essential Requirements, and, accordingly, can be commercially distributed throughout the EU. To assist manufacturers in satisfying the Essential Requirements, the European standards organizations have prepared European standards applicable to medical devices. These include harmonized international quality standards aimed at ensuring that medical devices are correctly designed and manufactured. The method of assessing conformity varies depending on the class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a "Notified Body." Notified Bodies are entities licensed (‘notified’) by the individual European member states to provide independent certification of certain classes of medical device. They apply for and are designated to carry out this function by the relevant national competent authorities, which carry out periodic assessment audits to determine whether the Notified Bodies continue to satisfy the necessary requirements. A conformity assessment conducted by a Notified Body may consist of an audit of the medical device manufacturer's quality system and specific testing of the manufacturer's product to ensure that the medical device complies with the Essential Requirements. Once the appropriate conformity assessment procedure has been completed, the manufacturer must draw up a written declaration of conformity and affix the CE mark to the device. The device can then be marketed throughout the European Economic Area (being the EU, Norway, Iceland
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and Liechtenstein) or EEA. Notified Bodies perform surveillance and unannounced audits at the manufacturer and critical suppliers with respect to the devices covered by the certificates issued by them. If non-conformities raised during the audits are not timely remedied by the manufacturer, the Notified Body may (partially or wholly) suspend or withdraw the certificate concerned. Additional local requirements may apply on a country-by-country basis. Outside of the European Union, regulatory approval would need to be sought on a country-by-country basis in order for us to market our products.
All manufacturers placing medical devices into the market in the EEA must comply with the EU Medical Device Vigilance System. Under this system, incidents must be reported to the relevant authorities of the Member States of the EEA, and manufacturers are required to take Field Safety Corrective Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or to the end users of the device through Field Safety Notices.
In May 2017, the European Commission finalized and adopted the text of the Medical Device Regulation (EU) 2017/745, or the EU Medical Device Regulation, which will repeal and replace both Directive 93/42/EEC concerning medical devices and Directive 90/385/EEC concerning active implantable medical devices. The majority of the provisions in the EU Medical Device Regulation were to apply from Spring 2020, however, the enforcement has been postponed by a year due to the COVID-19 pandemic. The current CE certificate will continue to be in effect, while the Company works to ensure compliance with the EU Medical Device Regulation and transitions the CE certificate from current 90/385/EEC Directive to MDR.
Other Regulatory Requirements
Even after a device receives clearance or approval and is placed in commercial distribution, numerous regulatory requirements apply. These include:
● establishment registration and device listing;
● QSR, which requires manufacturers, including third party manufacturers, to follow stringent design, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during all aspects of the manufacturing process;
● MDR regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;
● voluntary and mandatory device recalls addressing problems when a device is defective and could be a risk to health; and
● corrections and removals reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health.
Also, the FDA requires us to conduct Post Approval Studies (post-market surveillance studies) and establish and maintain a system for tracking our products through the chain of distribution to the patient level. The FDA and applicable regulatory agencies enforce regulatory requirements by conducting periodic, unannounced inspections and market surveillance. Inspections may include the manufacturing facilities of our subcontractors.
Moreover, the FDA strictly regulates marketing, labeling, advertising and promotion of medical products. Medical products may be promoted only for the approved indications and in accordance with the provisions of the approved label, although physicians, in the practice of medicine, may prescribe approved medical products for unapproved indications. Companies may also share truthful and not misleading information that is otherwise consistent with the labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of
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off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
In the United States, failure to comply with applicable regulatory requirements can result in enforcement actions by the FDA and other regulatory agencies. These may include any of the following sanctions or consequences:
● warning letters or untitled letters that require corrective action;
● fines and civil penalties;
● unanticipated expenditures;
● delays in approving or refusal to approve future products;
● FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries;
● suspension or withdrawal of FDA clearance or approval;
● product recall or seizure;
● interruption of production;
● operating restrictions;
● injunctions; and
● criminal prosecution.
In the European Union, member states are responsible for enforcing the EU’s medical device rules and for ensuring that only compliant medical devices are placed on the market or put into service in their jurisdictions. They have powers to suspend the marketing and use, or demand the recall, of unsafe or non-compliant devices. They also have the power to bring enforcement action against companies or individuals for breaches of the device rules. Non-compliance may also result in Notified Bodies revoking any certificate of conformity that they have issued for a device or the manufacturer’s quality system.
Our contract manufacturers, specification developers and some suppliers of components or device accessories, also are required to manufacture our products in compliance with current good manufacturing practice requirements set forth in the QSR. The QSR requires a quality system for the design, manufacture, packaging, labeling, storage, installation and servicing of marketed devices, and it includes extensive requirements with respect to quality management and organization, device design, buildings, equipment, purchase and handling of components or services, production and process controls, packaging and labeling controls, device evaluation, distribution, installation, complaint handling, servicing, and record keeping. The FDA evaluates compliance with the QSR through periodic unannounced inspections that may include the manufacturing facilities of our subcontractors. If the FDA believes that any of our contract manufacturers or regulated suppliers are not in compliance with these requirements, it can shut down such manufacturing operations, require recall of our products, refuse to approve new marketing applications, institute legal proceedings to detain or seize products, enjoin future violations or assess civil and criminal penalties against us or our officers or other employees.
Health Insurance Portability and Accountability Act of 1996 and Similar Foreign and State Laws and Regulations Affecting the Transmission, Security and Privacy of Health Information
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA's security standards directly applicable to business associates, defined as service providers of covered entities, which include certain healthcare providers, health plans and healthcare clearinghouses, that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity, and their covered subcontractors. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys' fees and costs associated with pursuing federal civil actions. Accordingly, state attorneys general (along with private plaintiffs) have brought civil actions seeking injunctions and damages resulting from alleged violations of HIPAA’s privacy and
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security rules. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from HIPAA and each other in significant ways and may not have the same effect.
On April 5, 2017, the European Parliament passed the Medical Devices Regulation, which repeals and replaces the EU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member States, the regulations would be directly applicable (i.e., without the need for adoption of EEA member State laws implementing them) in all EEA member States and are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and in vitro diagnostic devices and ensure a high level of safety and health while supporting innovation.
The Medical Devices Regulation will however only become applicable three years after publication in May 2020. Once applicable, the new regulations will among other things:
● strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
● establish explicit provisions on manufacturers' responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;
● improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
● set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and
● strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.
These modifications may have an impact on the way we design and manufacture products and the way we conduct our business in the EEA.
In the European Union (and, specifically the European Economic Area) (EU/EEA), the General Data Protection Regulation (2016/679), or GDPR, went into effect on May 25, 2018 and replaced Directive 95/46/EC (the EU Privacy Directive). The GDPR applies to personal data about identified or identifiable data subjects processed by automated means and data contained in, or intended to be part of, non-automated filing systems (traditional paper files) as well as transfer of such data to a country outside of the EU/EEA. Under the GDPR, fines of up to €20.0 million or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed for certain categories of infractions that constitute significant non-compliance. The GDPR includes more stringent operational requirements for data processors and data controllers and creates additional rights for data subjects. Additionally, in January 2020, the United Kingdom withdrew from the European Union, commonly referred to as “Brexit”. The implications of Brexit and the future trading relationship between the United Kingdom and the EU are still uncertain and could lead to further legislative and regulatory changes. In March 2017, the United Kingdom began the process to leave the EU by April 2019. While the Data Protection Act of 2018, that “implements” and complements the GDPR has achieved Royal Assent on May 23, 2018 is now effective in the United Kingdom, it is still unclear whether transfer of data from the EEA to the United Kingdom will remain lawful under GDPR. We may incur liabilities, expenses, costs, and other operational losses under GDPR and applicable EU Member States and the United Kingdom privacy laws in connection with any measures we take to comply with them.
Additionally, California recently enacted legislation, effective January 1, 2020, that has been dubbed the first “GDPR-like” law in the United States. Known as the California Consumer Privacy Act, or CCPA, it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA requires covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of personal information, and allows for new causes of action for data breaches. As currently written, the CCPA could impact our business activities and is an example of the type of activity in an evolving regulatory environment related to personal data and protected health information that could continue to affect our operations.
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Fraud and Abuse Laws
In addition to FDA restrictions, there are numerous U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws. Our relationships with healthcare providers and other third parties are subject to scrutiny under these laws. Violations of these laws are punishable by significant criminal, civil, and administrative sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state healthcare programs, including the Medicare, Medicaid and Veterans Administration health programs.
Federal Anti-Kickback and Self-Referral Laws
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce either the referral of an individual, or the furnishing, recommending, or arranging of a good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid or other federal healthcare programs. The term "remuneration" has been broadly interpreted to include anything of value, including such items as gifts, discounts, the furnishing of supplies or equipment, credit arrangements, waiver of payments and providing anything at less than its fair market value. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly and require strict compliance to provide protection. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a review of all its relevant facts and circumstances. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of (or purchases, or recommendations related to) federal healthcare covered business, the federal Anti-Kickback Statute has been implicated and potentially violated.
The penalties for violating the federal Anti-Kickback Statute include imprisonment for up to ten years, criminal fines of up to $100,000 per violation, possible exclusion from federal healthcare programs such as Medicare and Medicaid and other penalties, including significant civil monetary penalties and integrity oversight and reporting obligations to resolve allegations of non-compliance. Many states have adopted prohibitions similar to the federal Anti-Kickback Statute, some of which do not have the same exceptions or safe harbors and apply to the referral of patients for healthcare services reimbursed by any source, not only by the Medicare and Medicaid programs. Further, the federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or, collectively, PPACA. Specifically, as noted above, under the federal Anti-Kickback Statute, the government must prove the defendant acted "knowingly" to prove a violation occurred. The PPACA added a provision to clarify that with respect to violations of the federal Anti-Kickback Statute, "a person need not have actual knowledge" of the statute or specific intent to commit a violation of the statute. This change effectively overturns case law interpretations that set a higher standard under which prosecutors had to prove the specific intent to violate the law. In addition, the PPACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
Federal law also includes a provision commonly known as the "Stark Law," which prohibits a physician from referring Medicare or Medicaid patients to an entity providing "designated health services," including a company that furnishes durable medical equipment, in which the physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement. Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement, civil penalties, and exclusion from Medicare, Medicaid or other governmental programs. We believe that we have structured our provider arrangements to comply with current fraud and abuse law requirements.
Nevertheless, a determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
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Additionally, as some of these laws are still evolving, we lack definitive guidance as to the application of certain key aspects of these laws as they relate to our arrangements with providers with respect to patient training. As a result, our provider and training arrangements may ultimately be found to be not in compliance with applicable federal law.
Federal False Claims Act & HIPAA
The federal False Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. In addition, amendments in 1986 to the federal False Claims Act have made it easier for private parties to bring "qui tam" whistleblower lawsuits against companies under the federal False Claims Act. Penalties include significant civil monetary penalties for each false claim, plus three times the amount of damages that the federal government sustained because of the act of that person. Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a false claim action, pay fines, be excluded from Medicare, Medicaid or other federal or state healthcare programs, or be subject to integrity oversight and reporting obligations to resolve allegations of non-compliance, as a result of an investigation arising out of such action.
There are other federal anti-fraud laws that that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
Additionally, HIPAA established two federal crimes for healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of either of these statutes is a felony and may result in fines, imprisonment, exclusion from Medicare, Medicaid or other federal or state healthcare programs, or integrity oversight and reporting obligations to resolve allegations of non-compliance.
Civil Monetary Penalties Law
In addition to the federal Anti-Kickback Statute and the civil and criminal false claims laws, including the federal False Claims Act, the federal government has the authority to seek civil monetary penalties, or CMPs, assessments, and exclusion against an individual or entity based on a wide variety of prohibited conduct. For example, the Civil Monetary Penalties Law authorizes the imposition of substantial CMPs against an entity that engages in activities including, but not limited to: (1) knowingly presenting or causing to be presented, a claim for services not provided as claimed or which is otherwise false or fraudulent in any way; (2) knowingly giving or causing to be given false or misleading information reasonably expected to influence the decision to discharge a patient; (3) offering or giving remuneration to any beneficiary of a federal health care program likely to influence the receipt of reimbursable items or services; (4) arranging for reimbursable services with an entity which is excluded from participation from a federal health care program; (5) knowingly or willfully soliciting or receiving remuneration for a referral of a federal health care program beneficiary; or (6) using a payment intended for a federal health care program beneficiary for another use. Noncompliance can result in significant civil money penalties for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the federal healthcare programs.
State Fraud and Abuse Provisions
Many states have also adopted some form of anti-kickback and anti-referral laws and a false claims act, some of which apply regardless of source of payment and do not have the same exceptions as the federal laws. We believe that
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we are in conformance to such laws. Nevertheless, a determination of liability under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Physician Payments Sunshine Act
Transparency laws regarding payments or other items of value provided to healthcare providers and teaching hospitals may also impact our business practices. The federal Physician Payment Sunshine Act requires most medical device manufacturers to report annually to CMS financial arrangements, payments, or other transfers of value made by that entity to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals. Beginning in 2022, applicable manufacturers also will be required to report information regarding payments and other transfers of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants and certified nurse midwives during the previous year. The payment information is made publicly available in a searchable format on a CMS website. Over the next several years, we will need to dedicate significant resources to establish and maintain systems and processes in order to comply with these regulations. Failure to comply with the reporting requirements can result in significant civil monetary penalties. Similar laws have been enacted or are under consideration in many states and foreign jurisdictions.
Healthcare Reform
Federal and state governments continue to propose and pass new legislation and regulations designed to contain or reduce the cost of healthcare. Such new laws may result in decreased reimbursement for medical devices, which may further exacerbate industry-wide pressure to reduce the prices charged for medical devices. For example. in March 2010, the PPACA, was enacted, which substantially changes the way healthcare is financed by both governmental and private insurers, encourages improvements in the quality of healthcare items and services and significantly impacts the medical device industry. In the years since its enactment, there have been significant developments in, and continued legislative activity around, attempts to repeal or repeal and replace the PPACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the PPACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or Tax Act, included a provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the PPACA-mandated medical device tax and the “Cadillac” tax on high-cost employer-sponsored health coverage and, effective January 1, 2021, also eliminated the health insurer tax. On December 14, 2018, a Texas U.S. District Court Judge ruled that the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the PPACA are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is unknown when a decision will be made. Further, it is unclear how the Supreme Court ruling, other such litigation, and the healthcare reform measures of the Biden administration will impact the PPACA.
Brexit and the Regulatory Framework in the United Kingdom
On January 31, 2020, the United Kingdom, or UK, formally withdrew from the EU, commonly referred to as “Brexit”. The United Kingdom and the EU are currently in a transition period during which the United Kingdom and the EU are negotiating additional arrangements, including their future trading arrangement. In December 2020, the U.K. and E.U. agreed on a trade and cooperation agreement that will apply provisionally after the end of the transition period until it is ratified by the parties to the agreement. On December 31, 2020, the U.K. passed legislation giving effect to the trade and cooperation agreement, with the E.U. expected to formally adopt the agreement in early 2021. The agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction. Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the UK determines which EU laws to replace or replicate and may create logistical complications with respect to the movement and delivery of our products, which undergo certain manufacturing steps in the United Kingdom. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the withdrawal of the UK from the EU would have and how such withdrawal would affect us. Several of our contract manufacturers are located in the UK. Any of these effects of Brexit,
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among others, could adversely affect our business, financial condition and operating results. In the longer term, Brexit could materially impact the future regulatory regime which applies to medical devices and their approval in the UK.
U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and their representatives from offering, promising, authorizing or making corrupt payments, gifts or transfers to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts.
UK Bribery Act and other anti-corruption laws
The UK Bribery Act 2010 and other applicable ant-corruption laws that apply in countries where we do business, generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. Under the UK’s Bribery Act, we may also be liable for failing to prevent a person associated with us from committing a bribery offense.
We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the UK and authorities in the EU, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as trade control laws. Failure to comply with the UK’s Bribery Act, and other anti-corruption laws and trade control laws could subject us to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses.
Employees and Human Capital Resources
As of December 31, 2020, we had 82 employees, of whom over half hold Ph.D., M.D., master’s degree or other post-graduate degree, and all of whom are located in the United States. The majority of employees are in operations and research and development positions aligned with our corporate focus. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
We compete in the highly competitive medical technology industry. We believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees, as well as highly qualified management and technical personnel. Employee engagement is important to us and we focus on continuously enhancing our corporate culture and individual development programs. We have surveyed our employees around culture, engagement, work environment, communication and other topics and work to incorporate and respond to their feedback. We expect to conduct similar survey and response efforts in the future. We conduct frequent company calls in an effort to update all employees on what is happening in various departments to ensure our employees understand our strategic vision as well as our day-to-day objectives. We provide our employees with market competitive pay and bonuses, opportunities for equity ownership, professional development and training programs that enable continued learning and growth and a robust employment package that seek to promote well-being across all aspects of our employees’ lives, including health care, retirement planning and paid time off. Our equity plans include an employee stock purchase plan and restricted stock units granted under our broad-based stock incentive programs.
Through our history of technological innovation, we appreciate the importance of retention, growth and development of our employees. We continue to be committed to an inclusive culture which values diversity, equality, opportunity, and respect.
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Corporate Information
We were originally incorporated as ASN Technologies, Inc. in Nevada on June 26, 2014. On December 7, 2015, pursuant to the Merger Agreement and the transactions contemplated thereby, or the Acquisition, we acquired Senseonics, Incorporated, a medical technology company focused on the design, development and commercialization of glucose monitoring systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy. From its inception in 1996 until 2010, Senseonics, Incorporated devoted substantially all of its resources to researching various sensor technologies and platforms. Beginning in 2010, the company narrowed its focus to designing, developing and refining a commercially viable glucose monitoring system.
In connection with the Acquisition, we reincorporated in Delaware and changed our name to Senseonics Holdings, Inc. Upon the closing of the Acquisition, Senseonics, Incorporated merged with a wholly owned subsidiary of ours formed solely for that purpose and became our wholly owned subsidiary.
Our principal executive offices are located at 20451 Seneca Meadows Parkway, Germantown, Maryland 20876-7005 and our telephone number is (301) 515-7260. Our common stock is listed on the NYSE American under the symbol “SENS.”
Available Information
Our website address is www.senseonics.com. In addition to the information contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission, or SEC. Additionally the SEC maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov.