Senseonics Holdings (NYSEAMERICAN:SENS) has been on a hot streak the past month. After going sideways for three months, SENS stock took off at the beginning of June. As I write this, it’s up more than 72% over the past 30 days.
If it keeps up this pace, it could be out of penny-stock status in no time.
In my last article about the maker of glucose-monitoring products at the end of April, I honed in on the company’s accumulated deficit as a red flag for risk-averse investors. However, given the usefulness of its Eversense CGM systems — CGM stands for Continuous Glucose Monitor — I suggested that as long as you could cope with ongoing quarterly losses, a fun-money bet wasn’t the worst idea in the world.
Called upon to discuss SENS once more, today, I will focus on the company’s relationship with PHC Holdings, its largest shareholder.
Is PHC’s involvement a reason to buy SENS stock? Here’s my answer.
Senseonics Has a Good Partner
Page 19 of the company’s latest proxy statement states that PHC Holdings owned 68.3 million shares of SENS stock as of March 31, good for 13.8% of the company. The next two largest shareholders had stakes of 6.8% and 6.3%, respectively.
Timothy Goodnow and the rest of the insiders own 5.6% of Senseonics’ stock. That’s a reasonable position indicating they’ve got real skin in the game. It’s nice to see.
So, who is PHC?
PHC is a manufacturer of healthcare devices in several fields, including diabetes management.
It is a Japanese-based company that was incorporated as Panasonic Healthcare Holdings Co. Ltd. in March 2014. KKR & Co. (NYSE:KKR) paid $1.67 billion for 80% of the company, with Panasonic Corporation (OTCMKTS:PCRFY) retaining 20%.
In November 2016, Mitsui & Co. (OTCMKTS:MITSY), a Japanese conglomerate, acquired 22% of PHC for $510 million. As a result, KKR now owns 58% of PHC, Mitsui owns 22%, and Panasonic 20%.
It wouldn’t surprise me if it went public at some point, being private equity-controlled and all.
The company’s website states that it had 2019 sales of 272.6 billion Yen ($2.44 billion). Its self-monitoring blood glucose systems, through its Ascensia Diabetes Care Holdings subsidiary, controls 20% of the global market share. PHC acquired Ascensia in 2016. It’s the former diabetes care division of Bayer (OTCMKTS:BAYRY).
Ascensia markets the CONTOUR line of blood glucose monitoring systems. But, more importantly, it has granted Ascensia the global rights to distribute Eversense. The agreement includes the clause that states Ascensia can terminate the agreement if Eversense’s 180-day product (Eversense XL) is not approved for use in the U.S. by Aug. 31, 2021.
On June 3, Senseonics reported good news about its PROMISE Study, demonstrating that the 180-day CGM sensor was very accurate.
“As we await hearing from the US and European regulatory agencies concerning our pre-market submissions of data from both the primary and the SBA sensors, we are pleased to continue to offer the Eversense CGM systems in both the US and Europe with our commercialization partner, Ascensia Diabetes Care,” CEO Tim Goodnow stated in its press release.
That should lay the groundwork for the approval of the 180-day product, but the clock is ticking.
SENS Stock Must Show More
InvestorPlace’s Louis Navellier recently stated that the size of the market — the global diabetes treatment market is estimated to be $42 billion by 2027 — makes SENS stock an excellent long-term bet.
I’m not nearly as confident. That’s not to say I think it’s a dud because I don’t. But, it wouldn’t have PHC along for the ride if it was.
However, if I were given $10,000 to bet on SENS, I would bet $2,500 now and wait for the Food and Drug Administration’s approval of the 80-day product.
Why do I say that? Because in this instance, it’s critical to PHC’s ongoing assistance.
As I said earlier, PHC can withdraw from its agreement as of Aug. 31. Furthermore, if you look at the collaboration and commercialization agreement Senseonics signed on Aug. 9, 2020, PHC didn’t give up a whole lot.
As part of the agreement, Ascensia lent Senseonics $35 million in Senior Secured Convertible Notes at 9.5% annually. However, should Senseonics get approval for Eversense XL in the U.S., the rate drops 150 basis points to 8.0%. The notes mature on Oct. 31, 2024.
They’re exercisable into 65.36 million shares, an exercise price of 54 cents. PHC also got 2.94 million shares as a financing fee. So that’s how we get to the 13.8% ownership stake.
Needless to say, at its current share price, it’s sitting on an unrealized gain of $205 million. For that to stick, it has to hope that Senseonics gets approval for Eversense XL.
But, even in the worst-case scenario — Senseonics doesn’t get approval and won’t for some time — $35 million is not a lot of money for a company with $2.44 billion in revenue and big backers like KKR, Mitsui, and Panasonic.
It’s a drop in the bucket.
The Bottom Line
As I said in the last section, I believe the smart bet is to put 25% of your intended position into SENS now and commit the remainder when Senseonics gets approval.
The fact that PHC is collaborating with the company is a solid reason to consider SENS stock. But you ought to consider that when it announced the collaboration in 2020, it was talking about an FDA approval in Q1 2021.
Well, Q2 2021 has come and gone. So unless those who work at the FDA are freaks of nature and don’t enjoy the summer, my guess is the Aug. 31 date will come and go without approval.
Once that happens, PHC could cut and run from its collaboration and commercialization agreement. Were that to come to pass, you could expect a sub-$1 stock price within days or even hours.
I doubt it will.
However, there are real risks and rewards to this stock. I wouldn’t bet on it if you’re the type who watches his stock portfolio every day. That’s the recipe for a heart attack or stroke.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.