Senseonics Holdings, Inc. quarterly report, Q2 FY2022

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Senseonics Holdings, Inc. — Q2 2022 Form 10-Q

Reporting period: Three and six months ended June 30, 2022. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless otherwise noted.

Business context and reporting period

Senseonics develops and commercializes implantable continuous glucose monitoring (CGM) systems, including Eversense. Ascensia is its primary commercialization partner and distributor. The FDA approved the 180-day Eversense E3 in February 2022; Ascensia began U.S. commercialization in Q2. Senseonics received the CE mark for Eversense E3 in June, with commercialization in select European markets expected to begin in Q3 2022.

Financial performance and position

  • Q2 revenue: $3.7 million, up from $3.3 million in Q2 2021. Six-month revenue was $6.2 million, approximately flat versus $6.1 million.
  • Revenue concentration: Ascensia accounted for 96% of Q2 revenue and 93% of first-half revenue, compared with 87% and 85% in the respective 2021 periods.
  • Gross profit and margin: Q2 gross profit was $0.8 million and gross margin 22.2%, versus $0.4 million and 11.9% a year earlier. First-half gross profit was $1.4 million and margin 21.8%, versus $0.9 million and 15.0%. Management cited sales mix and fulfillment using previously written-off inventory; first-half cost of sales also benefited from lower warranty expense.
  • Operating expenses and loss: Q2 R&D was $9.3 million, up $2.2 million, while SG&A was $8.6 million, down $0.6 million. Operating loss widened to $17.0 million from $15.9 million. For the first half, R&D rose to $17.1 million and SG&A to $16.4 million; operating loss widened to $32.2 million from $27.2 million.
  • Reported net result: Q2 net income was $104.2 million, versus a $180.3 million net loss in Q2 2021; first-half net income was $190.9 million, versus a $429.8 million net loss. These results were driven primarily by noncash gains from changes in fair values of derivatives and options—not operating profitability. First-half net gains included $181.1 million from derivative fair-value changes and $49.9 million from an option fair-value adjustment. The company continued to report operating losses.
  • Cash flow: First-half operating cash use was $34.3 million, compared with $30.4 million in 2021. Investing activities provided $42.1 million, primarily from sales and maturities of marketable securities; financing provided $4.2 million, including $8.0 million net ATM equity proceeds and repayment of the PPP loan. Cash and cash equivalents increased by $12.0 million to $45.4 million.
  • Liquidity and debt: Cash, cash equivalents and marketable securities totaled $150.5 million at June 30. Current assets were $158.3 million and current liabilities $31.5 million. Notes payable had $101.9 million aggregate principal outstanding, with a $65.5 million net carrying amount; $15.7 million principal matures in February 2023, $35.0 million in 2024 and $51.2 million in 2025. Management stated existing resources and expected operating cash flows should support current plans through 2023.
  • Equity: Stockholders’ equity was $15.9 million, compared with a deficit of $185.5 million at year-end 2021, reflecting the reported noncash gains and other changes. Accumulated deficit remained $760.0 million. Shares outstanding were 465.3 million at June 30 and 465.4 million as of August 5, 2022.

Material changes versus prior comparable periods

  • Revenue increased modestly in Q2, primarily reflecting the Eversense E3 U.S. launch, while first-half revenue remained nearly unchanged. The U.S. share of first-half revenue increased to 31.9% from 21.1%.
  • Gross margin improved in both the quarter and first half. R&D spending increased substantially as the company invested in clinical studies, personnel and next-generation technology; operating losses consequently widened.
  • The swing from large net losses in 2021 to net income in 2022 principally reflects reversals in fair-value movements on derivative liabilities and options. These are noncash accounting items and should not be read as a comparable improvement in core operating results.
  • First-half operating cash use increased by $3.9 million. The company received $8.0 million net from its ATM offering, repaid the $2.9 million PPP balance, and fully exercised the Energy Capital warrant in February 2022.

Outlook, risks and unusual items

  • Management said current resources and expected future operating cash flows should fund current operating plans through 2023. Commercial success depends on patient and provider adoption, reimbursement coverage, continued product development, regulatory approvals and post-approval requirements. The company may seek additional capital; further equity financing could dilute shareholders.
  • The company has not generated significant product revenue or achieved operating profitability and has incurred substantial losses and negative operating cash flows since inception. Revenue dependence on Ascensia is a material concentration risk.
  • PHC’s $35.0 million senior secured convertible notes bear 8.0% interest following FDA approval of Eversense E3 and mature in October 2024. The notes carry covenants, including minimum revenue and liquidity targets, and customary events of default. The other notes mature in 2023 and 2025.
  • Inventory obsolescence charges of $0.6 million were recorded in the first half. The company also extended its headquarters lease by five years in June 2022.
  • A relator’s False Claims Act and Texas Medicaid complaint was amended after an earlier dismissal without prejudice; Senseonics filed another motion to dismiss in July 2022. The filing does not quantify potential exposure.
  • On July 29, 2022, after quarter-end, Italy’s data protection authority found GDPR violations, imposed a EUR 45,000 fine and required privacy-notice changes. Senseonics stated its intention to resolve the matter for EUR 22,500 by paying within 30 days, making the changes and not appealing.
  • The filing identifies potential effects from COVID-19, inflation, higher interest rates, economic and capital-market volatility, and the Russia-Ukraine conflict. The company reported no significant conflict-related raw-material supply impact to date, but continues to monitor and assess alternatives.

Key facts for investors to verify

  • Whether Eversense E3 commercialization and reimbursement transitions translate into sustained revenue growth and broader adoption.
  • How the company manages its high customer concentration and dependence on Ascensia.
  • Operating cash burn, available liquidity and whether the stated runway through 2023 remains achievable.
  • Debt maturity and covenant risks, particularly the February 2023 notes and PHC note requirements.
  • The size and persistence of noncash fair-value gains or losses, and operating performance apart from those accounting movements.
  • Developments in the False Claims Act litigation and completion of the Italian privacy-notice requirements and fine settlement.