Senseonics Holdings, Inc. — Q1 2021 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Senseonics develops and commercializes implantable continuous glucose monitoring systems, including Eversense. Unless noted, financial figures below are in millions of dollars.
Financial results and liquidity
- Revenue: $2.846, compared with $0.036 in Q1 2020. Ascensia accounted for 81% of Q1 revenue; 89% was delivered outside the United States.
- Gross profit: $0.526, versus a gross loss of $19.634. Cost of sales fell to $2.320 from $19.670.
- Operating loss: $11.316, compared with $43.831. Sales and marketing expense declined to $1.613 from $11.145; research and development was $5.255 and general and administrative expense was $4.974.
- Net loss: $249.514, or $0.68 per share, versus $42.593, or $0.21 per share. The Q1 2021 loss included $180.899 of losses from derivative fair-value changes and a $52.675 loss on the Energy Capital option fair-value adjustment; these were primarily non-cash items.
- Cash flow: Operating cash use was $16.258, down from $29.048. Investing cash use was $0.011. Financing provided $176.674, and cash, cash equivalents and restricted cash ended the quarter at $178.610.
- Balance sheet: Cash and cash equivalents were $178.610, versus $18.005 at December 31, 2020. Current assets were $191.331 and current liabilities $15.688. Accumulated deficit was $898.025; stockholders’ deficit was $185.899.
- Debt and other liabilities: Notes payable had $107.662 of stated principal, with approximately $58.1 of carrying value on the balance sheet. Derivative liabilities were $243.018. The PHC Notes carry 9.5% interest and mature in 2024; the 2023 and 2025 convertible notes also remain outstanding.
Material changes versus Q1 2020
- Revenue rose by $2.810, chiefly from Ascensia’s Eversense orders as commercial distribution responsibilities transitioned. The comparison period had minimal revenue.
- Gross profit improved by $20.160. Management attributed much of the change to the absence of the prior-year $15.0 inventory obsolescence/net realizable value charge and $1.2 of scrap expense, as well as sales of previously impaired inventory and Ascensia sales.
- Operating loss narrowed by $32.515, primarily reflecting lower sales and marketing expense after the 2020 workforce reduction and transfer of commercial responsibilities to Ascensia, as well as lower R&D and G&A costs.
- Net loss worsened by $206.921, despite the lower operating loss, mainly because of fair-value losses on embedded note derivatives and the Energy Capital option.
- January equity financings brought in approximately $106.1 net from an underwritten offering and $46.1 net from a registered direct offering; Masters also invested $22.8 gross in preferred stock. Common shares issued and outstanding increased to 427.9 million from 265.6 million at year-end, including conversions of preferred stock and notes.
Outlook, management commentary and risks
- Management stated that existing cash, cash equivalents and expected operating cash flows were sufficient for current published operating plans through 2022. The company nevertheless expects significant working-capital needs through 2021 and beyond and may seek additional capital.
- Ascensia was expected to ramp up and more fully assume U.S. commercial responsibilities in Q2 2021. The 180-day Eversense product remained subject to FDA marketing approval; management also described plans to seek an investigational device exemption for a 365-day sensor trial in the second half of 2021.
- Commercial success depends on adoption, insurance coverage and reimbursement, regulatory approvals, and execution by distribution partners. Revenue concentration in Ascensia is a material customer risk.
- The PHC Notes include financial and other covenants, including minimum revenue and liquidity targets, and are secured by substantially all company and subsidiary assets. A potential $15.0 PHC preferred-stock investment is contingent on U.S. approval of the 180-day product by the specified deadline.
- COVID-19 disruption and uncertainty could affect operations, healthcare access, suppliers, commercial activity and estimates. The company reported no material change to the risk factors in its latest 10-K.
- A relator is pursuing a False Claims Act and Texas Medicaid Fraud Prevention Law complaint alleging marketing-practice violations. The government declined to intervene; Senseonics said it is reviewing the claim and believes it has meritorious defenses.
- The PPP loan balance was $5.763. Forgiveness was not established in the filing, and management noted that workforce reductions could reduce the amount eligible for forgiveness.
Important facts for investors to verify
- Whether the 180-day Eversense product receives FDA approval and the timing and costs of any launch.
- Ascensia’s sales ramp, minimum revenue obligations, reimbursement progress and the resulting customer concentration.
- Actual operating cash burn and whether the stated runway through 2022 remains supported by subsequent results and financing needs.
- The potential dilution and accounting volatility associated with convertible debt, options, warrants and further equity financing.
- Compliance with PHC debt covenants, the status of PPP forgiveness, and the outcome or developments in the False Claims Act litigation.